Since the outbreak of COVID-19, we have seen the Chinese antitrust authority, the State Administration for Market Regulation ("SAMR"), taken vigorous actions in response to the epidemic. On one hand, SAMR has shown that it will not hesitate to take actions on companies taking advantage of the crisis to conduct monopolistic practices. On the other hand, a flexible application of antitrust rules is adopted, including opens a "green channel" for mergers and grants exemptions to cooperation of companies, in sectors closely related to the prevention and control of COVID-19 and the resumption of work and industrial production. In addition, SAMR has also strengthened the policy support for the Fair Competition Review System.
I. Vigorous enforcement on sectors key to the COVID-19 crisis
With the coronavirus dramatically shifted the demand curve of epidemic-prevention supplies, it provides the "convenience" for some companies to create cartels or abuse their dominant position. Stringent enforcement is needed more than ever to curb the illegal actions.
As early as 25 January 2020, at the early stage of the epidemic, SAMR issued an announcement launching a strict nationwide enforcement targeting against price-related illegal activities, such as price fixing and unfairly high price, concerning epidemic-prevention products. A following enforcement guidance was issued on 1 February. Recently on 4 April, SAMR issued another announcement to increase the surveillance of antitrust compliance by companies active in sectors key to the epidemic prevention and work assumption. Such sectors includes medical equipment, sanitizing products, medicines etc. as well as public utilities and other areas vital to people's everyday lives and welfare.
On 14 February, SAMR released a decision to fine three Calcium gluconate API dealers ￥325.5m ($46.13m) for abusing their market dominance by charging unfairly-high prices and attaching unreasonable trading condition. The fine represents the illegal gains of the dealers and respectively 10%/9%/7% of the dealers' turnover in 2018. This is the first case ever that Chinese antitrust authority imposed the 10% turnover (the top limit) fine on an undertaking.
Though the case investigation started before the COVID-19 outbreak, it clearly sends out a message that violators of antitrust law will face tougher enforcement and hefty fine during the period of the pandemic.
II. A flexible application of antitrust rules to facilitate epidemic prevention and business recovery
Such flexibility is reflected in the merger control regime and in the exemptions granted to certain cooperation of companies.
i. Expedited review process in merger control
In early February, SAMR adopted electronic merger filing instead of delivering hard copy submission. Since then, we have seen a more swift review process in merger control. Now SAMR is taking an even faster review mode for mergers in certain economic sectors. As stated in the announcement on 4 April, an expedited review process will be applied to those industries closely related to the epidemic prevention and people's daily lives, such as manufacture of medical equipment, food production, transportation etc., as well as those greatly affectedly by the pandemic, such as catering, accommodation, tourism etc., and also be applied to those mergers that are for resumption of work.
ii. Exemption on cooperation of companies
SAMR announced that it will grant exemptions to certain cooperation for the purpose of epidemic prevention and work assumption. Such cooperation include (1) new products development in the fields of drugs and vaccines, (2) product specifications and standards unification that increase product quality, (3) disaster mitigation cooperation that enhances public welfare, (4) cooperation that increases the efficiency and competitiveness of small and medium-sized companies etc.
Although Article 15 of the Anti-monopoly law of China stipulates that agreements satisfying certain conditions, such as for innovation of technology or promoting public interests, will be exempted, this clause has never been applied in any public case. It is for the first time that SAMR specifies the specific situations of the exemptions. With the more lenient approach in action, it provides to companies guidance on cooperation in times of COVID-19.
III. Policy support for the Fair Competition Review System
Beside the above enforcement, SAMR will also strengthen the policy support for the Fair Competition Review System ("FCRS"), which requires each government body to conduct a self-review when formulating new business-related rules or policies to avoid incurring anti-competitive effect.
During the times of the coronavirus, it is expected that large numbers of policies will be issued by different levels of government, which highlights the need of FCRS. As reported, the Beijing Municipal Financial Bureau so far has issued more than 20 policies related to epidemic prevention and business recovery, and though the mechanism of diligent review by different parties, including different authorities and scholars, the bureau has eliminated the clauses that potentially may raise competitive concern.
One matter of FCRS that worth attention is about the prepaid vouchers issued by local governments. As a way to boost consumption, the local governments of more than 50 cities so far have distributed to citizens prepaid vouchers. Sometimes the vouchers were handed out through one single electronic platform, i.e. a payment APP, and people need to use the platform to get the vouchers. It therefore leads to the question of whether this constitute administrative monopoly. Currently the general understanding is that the policy to issue vouchers also fall under FCRS and diligent review should be made.
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