Antitrust authorities wake from slumber

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Anti-Monopoly Law

After a quiet autumn, two of the authorities charged with administering China’s anti-monopoly laws have sprung into action.

On 9 November the National Development and Reform Commission (NDRC), the authority which deals with price-related monopoly issues under the PRC Anti-Monopoly Law (AML), announced that it was investigating China’s two main telecommunications service providers, China Telecom and China Unicom. The NDRC alleges that the two companies together occupy a dominant position in certain segments of the broadband telecommunications market. It also considers that the two companies may have engaged in unlawful price discrimination against broadband suppliers that lease access to their broadband networks and resell it to consumers, thus competing with China Telecom and China Unicom in the downstream market.

This is the first time action has been taken under the AML against state-owned enterprises. If found guilty, both parties could face fines of between 1% and 10% of their revenue in the past year – which for China Telecom alone could amount to a fine of RMB3 billion (US$470 million).

The day after the NDRC announced it was investigating the telecoms duo, the Ministry of Commerce (MOFCOM) – the body that deals with merger control under the AML – issued its ninth conditional clearance decision. The decision concerned a planned coal gasification joint venture (JV) between GE and Shenhua.

GE proposed to transfer coal gasification technology to the JV. It was proposed that the JV would then license that technology, together with associated engineering and support services, to third parties. MOFCOM judged that GE was one of only three major competitors able to license similar technology, while Shenhua controlled a significant proportion of the coal suitable for gasification. MOFCOM concluded that the JV would therefore be in a position to restrict competition in its proposed market. In issuing its conditional clearance, MOFCOM accepted conditions proposed by the parties that they would not limit or impose conditions on the supply of feed coal in order (i) to force customers to use the JV’s technology or (ii) cause any increase in the cost of using rival technologies.

Sino-foreign joint ventures are not explicitly mentioned in the AML. This is the first conditional clearance MOFCOM has issued to a foreign party, and establishes beyond doubt that Sino-foreign JVs are subject to the AML and associated regulations.

Finally, on 14 November, the NDRC announced it was imposing fines on two pharmaceutical companies, Shandong Weifang Shuntong Medicine and Shandong Weifang Huaxin Medicine Trading. While details are still emerging, the fines appear to be related to exclusive supply arrangements. The two are understood to have been fined almost RMB6.9 million and RMB153,000, respectively, which would represent the largest fine to date under the AML.