On 30 August 2007, the Chinese legislature passed the country's first complete competition law (the Anti- Monopoly Law). The legislation comes into force on 1 August 2008 and, in line with existing antitrust regimes, contains provisions on three areas:

  • anti-competitive agreements;
  • abuse of market dominance; and
  • merger control.

The legislation applies to any anti-competitive practices occurring in China or having an effect on competition in the domestic Chinese market (excluding Macau, Hong Kong and Taiwan).

The merger regime in China has been brought in line with EC practice by using change in control as the measure by which concentrations are assessed. There are three scenarios to which the act applies: the merging of two entities, the acquisition of control by one entity over another and control acquired thanks to one or more entities having decisive influence over an entity's business decisions. The trigger thresholds are yet to be set but, as in the EC, levels of control will have to be assessed on the basis of the parties' constitutional documents.

As the industry is dominated by joint ventures, from vehicle manufacture in China to research and development, the new merger regime will heavily affect future Chinese transactions. Uncertainty surrounds greenfield JVs, which were previously exempt from specific merger control, because it is unclear whether these will now be subject to assessment under the new merger regime.

As in the EC, the provisions on anti-competitive agreements and dominance will need to be taken into account by the industry as a whole, in particular in the distribution channel, for example in franchising. The Chinese legislation is rather spartan at present and we will have to await the implementing regulation and examine it in detail.

The equivalent of article 81 of the EC Treaty also contains an exemption similar to that in article 81(3), on the basis that the agreements serve technological progress for, among others, new product development, though it is not clear if exemptions are self-assessed or to be decided by the competition authorities. Pricing is the focus of the Chinese equivalent of article 82 of the EC Treaty and sales below cost price are caught irrespective of any intent to squeeze out competition (as is required in the EC). Refusals to serve without objective justification are also outlawed, as is tying. These two should be borne in mind and treated as if you were in the EC, because these are standards the industry has fallen foul of in the past. As with EC competition law, the Chinese government has the intention of using this legislation as a tool to shape market integration across China but, as in the EC, for mergers, it has the potential to become an important consideration when global transactions are being considered (one has only to think of the likes of GE/Honeywell, for example), though it is too early to tell how the authorities will implement the legislation.

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