China establishes a fair competition review system

On 1 June 2016, the State Council published its Opinions on Establishing a Fair Competition Review System in the Development of the Market Regime, demonstrating that China has formally established a fair competition review system. The opinions, promoting reforms from the top level, is a key step in establishing a fundamental position on competition policy, and also the major initiatives to implement reforms of the State Council to streamline administration and delegate more power to lower-level government. The opinions have a profound influence on the supervision and regulation of government behaviour, as well as a positive effect on the promotion of market-oriented development and the maintenance of fair competition.

Q: What is the fair competition review system? A: This refers to government authorities fully considering the impact of policies and measures that they formulate on market competition. The review system aims to regulate the behaviour of government, preventing the introduction of policies or measures that eliminate or restrain market competition, ensuring a decisive role of the market in resource allocation, and making sure the government carries out its administration function according to the law.

Q: Which targets are subject to review under the fair competition review system? A: The following items are subject to the review: all administrative regulations and rules; normative documents; local regulations; other policies and measures concerning the economic activities of market players that are formulated and issued by administrative authorities at various levels (including the State Council) and organizations that have the functions of public affairs administration (policy-making authorities). The review must be conducted by policy-making authorities during the process of formulating or drafting policies and measures involving the economic activities of market players (including market access, industry development, investment solicitation, tendering and bidding, government procurement, business codes of conduct, qualification criterion, etc.).

Q: What are the review methods of fair competition review? A: In order to ensure the effectiveness and feasibility of the review at the present stage in China, the opinions clearly state that policy-making authorities must conduct self-review. The opinions ensure the fairness and objectivity of self-review by three measures. First, a negative list must be developed. Second, supervision, including social supervision and law enforcement supervision, must be strengthened. Social supervision requires that policy-making authorities solicit public comment when reviewing relevant measures, and relevant policies after issuance must be publicly available. Law enforcement supervision requires strengthening the supervision and punishment of behaviour that abuses administrative power to eliminate or restrain competition, and timely disclosure of the status of these cases. Third, the pursuit of accountability must be reinforced. Relevant personnel who enact policy measures without review, or violate review standards, must be held accountable.

Q: What standard shall policy-making authorities follow when conducting self-review? A: The opinions list 18 “don’ts” on its negative list for policy-making authorities. The 18 “don’ts” include relevant standards of market entry and exit under which policy-making authorities are prohibited from imposing discriminatory market entry conditions, establishing prior approval procedures without legal basis, and obliging undertakings to purchase and use the goods or services provided by designated business operators, etc. They also include standards regarding the restriction of free movements of goods under which policy-making authorities are prohibited from enacting discriminatory policies on pricing for non-local goods, excluding non-local business operators from participating in local tendering and bidding, and restricting non-local business operators from investing in the local market.

The opinions also clearly specify standards affecting manufacturing and operating costs and activities. Authorities are prohibited from offering preferential policies to certain undertakings, withholding the deposits of enterprises, and determining government prices beyond the legally prescribed scope of authority. The opinions stipulate two miscellaneous provisions, i.e. authorities are prohibited from formulating policies and measures that prejudice the legitimate rights and interests of market players or increase their obligations, and violating anti-monopoly law to formulate policies and measures that eliminate or restrain competition.

Q: The Anti-Monopoly Law (AML) also prohibits abuse of administrative power. What’s the relationship between the AML and the fair competition review system? A: First, the review system and the AML are parallel and have the same objectives to safeguard fair competition and improve operational efficiency in the market. Second, the fair competition review system is the supplement and refinement of the abuse of administrative power chapter under the AML. The opinions stipulate a negative list of 18 items and its coverage is wider than the AML. Finally, the AML and the review system complement each other to regulate the misconduct of government. The review system emphasizes that policy-making authorities must conduct self-review during the process of planning and drafting policies and measures in accordance with standards and correct behaviour that conform with the opinions. The AML focuses on supervision afterwards, i.e. anti-monopoly law enforcement authorities inspecting and punishing illegal acts of abuse of administrative power, and preventing improper intervention on fair competition in the market.

Q: What is the impact of the fair competition review system on enterprises? A: The review system mainly constrains the behaviour of government. Enterprises are able to protect their rights and interests in accordance with the fair competition review system when they face unfair policy treatment in market competition.

Before the adoption of the review system, enterprises were helpless when facing improper intervention in the market by government. The system offers relevant relief methods to enterprises, which are entitled to supervise policies and measures under development by government authorities in accordance with relevant provisions of the opinions and the AML. In terms of policies and measures that are without fair competition review, or that violate the review system, enterprises may file an administrative lawsuit or report to AML enforcement authorities when necessary in accordance with the opinions and the AML.

Michael Gu is a partner and Sun Sihui is an associate at AnJie Law Firm