China Adopts Antitrust Enforcement Policy to Fight COVID-19 and Spur Economic Recovery
April 8, 2020
As COVID-19 cases decline in China, the Chinese government has taken various measures to revive its economy while continuing to fight the pandemic. On April 4, 2020, China’s antitrust authority—the State Administration for Market Regulation (SAMR)—announced new measures to fight the epidemic and spur economic recovery.1 SAMR is the latest regulator to announce COVID-19 related measures (see our prior alerts regarding actions taken by the European Commission, US antitrust authorities, and the Hong Kong Competition Commission).
Key takeaways from SAMR’s announcement include:
- A pledge to expedite merger reviews for transactions in sectors closely related to the control of the pandemic, transactions touching on everyday necessities, and for sectors severely impacted by the pandemic;
- A promise to grant exemptions to competitor collaboration agreements if they are related to the control of the pandemic or promote the competitiveness of small and mid-size businesses; and
- A threat to impose “heavier penalties” on monopolistic conduct that impedes the fight against the pandemic and China’s economic recovery.
Expedited Merger Reviews
SAMR announced the launch of a “green” or fast track channel to expedite merger reviews of the following transactions:
- transactions in sectors closely related to the control of the pandemic, such as the manufacture of pharmaceuticals and medical devices;
- transactions in sectors closely related to daily necessities, such as food and transportation;
- transactions in sectors severely impacted by the pandemic, such as restaurants, catering services, hotels, hospitality, retail, and tourism; and
- transactions meant to accelerate the resumption of work and production.
SAMR indicated that it will proactively stay in close contact with the parties to any qualifying transactions, providing guidance on document preparation and initiating formal reviews once the “basic documents and materials” are submitted, although the announcement does explain what these “basic documents and materials” entail. SAMR has also not published any new procedures so it would seem that the new mechanism is intended to work more as a matter of case prioritization within the Anti-Monopoly Bureau.
The announcement also reiterated that parties must make merger filings by email or post. As reported in our prior alert, SAMR first adopted this off-site work mechanism on February 6 in response to the COVID-19 outbreak. Since then, SAMR has continued to review and approve simple merger filings without a noticeable impact on timing. For standard cases in which competition concerns may exist, SAMR may need additional time as it navigates the practical difficulties of seeking input from market stakeholders.
SAMR announced that it will exempt competitor collaborations from antitrust scrutiny if the agreements help combat the pandemic and get the country get back to work. Among the qualifying agreements are:
- collaborations to improve existing technology, or to research and develop new products, related to pharmaceuticals, vaccines, test technology, medical devices or personal protective equipment;
- collaborations to improve the quality, reduce the costs, unify the specifications and standards, or promote the specialization of personal protective products and equipment;
- collaborations related to disaster relief; and
- collaborations that promote the efficiency and competitiveness of small and mid-size businesses.
Article 15 of the Anti-Monopoly Law (AML), China’s antitrust statute, provides the general framework for exempting monopoly agreements. To qualify for exemption under Article 15, the restrictive agreement must improve product quality, reduce costs, or increase operational efficiency. The agreement must also enable consumers to share the benefits and must not materially restrict competition. There is no legal requirement under the AML to seek prior approval by SAMR of a proposed collaboration. Businesses mainly rely on self-assessment under the framework of Article 15.
To provide legal certainty and guidance in the specific context of the COVID-19 pandemic, businesses may—but are not required to—submit exemption applications to SAMR.2 SAMR has promised to contact the applicants within two working days after receiving an application, but it is unclear how long SAMR will take to make a final decision on an application. Generally, and particularly in the absence of any published framework for notifications, it seems probable that undertakings will continue to prefer to self-assess collaborations together with their private competition counsel taking into consideration SAMR’s apparent willingness to take a positive view of collaborations aimed at addressing issues arising out of the COVID-19 pandemic.
“Heavier Penalties” For Monopolistic Conduct
SAMR’s announcement also urged its provincial branches to crack down on monopolistic conduct that impedes China’s efforts to control the pandemic and get back to work. Offending conduct—including cartels, resale price maintenance, or abuses of dominance—will be subject to “heavier penalties” if it occurs in sectors closely related to the control of the pandemic (such as the supply and manufacture of masks, pharmaceuticals, medical devices, or disinfectant) or in sectors closely related to basic necessities (such as utilities), among others.
Under the AML, a firm engaging in monopolistic conduct or an abuse of dominance is subject to a fine of up to 10 percent of its annual turnover. While not specified, “heavier penalties” could presumably mean penalties at the upper end of the range. In the face of these increased sanctions, SAMR called on its provincial branches to provide proactive antitrust compliance guidance to businesses and trade associations, and encouraged the public to report monopolistic conduct. SAMR promised to reply to any complaints within two working days.
Finally, SAMR promised to strengthen support for and expedite guidance to other government agencies through its fair competition review mechanism, the aim of which is to avoid government policies and regulations that restrict competition. Policies subject to SAMR’s review include those meant to ensure the supply of anti-pandemic products, the recovery of production, consumption growth, and employment stability.3
1 The SAMR announcement is available in Chinese here.
3 China’s fair competition review system requires government agencies at all levels to conduct a fair-competition review during the formulation of policies and regulations to ensure they do not restrict or exclude competition.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Ben Bradshaw, an O'Melveny partner licensed to practice law in California and the District of Columbia, Riccardo Celli, an O'Melveny partner licensed to practice law in the Capital Region of Brussels, the Law Society England & Wales, and Roma, Courtney Dyer, an O'Melveny partner licensed to practice law in the District of Columbia and New York, Andrew Frackman, an O'Melveny partner licensed to practice law in New Jersey and New York, Philip Monaghan, an O'Melveny partner licensed to practice law in the Capital Region of Brussels, Hong Kong, the Law Society England & Wales, and the Law Society Ireland, Bo Pearl, an O'Melveny partner licensed to practice law in California, Anna Pletcher, an O'Melveny partner licensed to practice law in California, Katrina Robson, an O'Melveny partner licensed to practice law in California and the District of Columbia, Youngwook Shin, an O'Melveny partner licensed to practice law in California, the Republic of Korea, and New York, Ian Simmons, an O'Melveny partner licensed to practice law in the District of Columbia and Pennsylvania, Michael Tubach, an O'Melveny partner licensed to practice law in California and the District of Columbia, Christian Peeters, an O'Melveny of counsel licensed to practice law in the Capital Region of Brussels and Germany, Rechtsanwalt, Courtney C. Byrd, an O'Melveny counsel licensed to practice law in the District of Columbia and Maryland, Stephen McIntyre, an O'Melveny counsel licensed to practice law in California, Philippe Nogues, an O'Melveny counsel licensed to practice law in the Capital Region of Brussels and Paris, Charles Paillard, an O'Melveny counsel licensed to practice law in France and Hong Kong, Scott Schaeffer, an O'Melveny counsel licensed to practice law in California and the District of Columbia, Lining Shan, an O'Melveny counsel, and Sergei Zaslavsky, an O'Melveny counsel licensed to practice law in the District of Columbia and Maryland, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
© 2020 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.