The China’s Anti-monopoly law (hereinafter indicated as AML), was adopted less than five years ago. AML went into effect at the beginning of August 2008.
The declared purposes for the AML include protecting the public interest and promoting the socialist market economy. Protecting market competition and the legitimate interests of consumers are also listed as legislative purposes in Article 1 of the AML.
The AML applies to both foreign and domestic parties. The new AML has introduced the concept of
concentration
to describe transactions which may be subject to
merger control
. “Concentration”
is defined in the AML as: (i) a merger between business operators; (ii) acquisition of control over other business operator by way of equity or asset acquisition; (iii) acquisition of control over other business operator or of the ability to wield a decisive influence over other business operator by way of contract or other means.
The AML can be seen as the ‘constitution for the market economy’ because of its importance in promoting an environment of fair competition. It is regarded by investors and legal experts as a landmark law in China’s transition to market economy and further opening up. Foreign investors should take it as a positive sign for their future investment in China.
The AML aims to protect fair competition and it targets three types of “monopolistic conduct”:
(i)
Anti-competitive “monopoly agreements,”
(ii)
Abuses of dominant market position, and
(iii) Concentration that are “likely to eliminate or restrict competition”.
Today we are examining more in details the “abuse of dominant market position” in a view to introduce a significant case between two Chinese company in the next entry, before to continue our analysis of the instrument at the disposal of the foreign investor to enter the Chinese market.
According to the AML, abuse of a
dominant market position,
(as defined in arts. 17 to 19 of the AML) is prohibited.
“Dominant market position” refers to a market position held by a business operator having the capacity to control the price, quantity or other trading conditions of commodities in relevant market, or to hinder or affect any other business operator to enter the relevant market. According to Art. 17 of the AML, a business operator with a dominant market position shall not abuse its dominant market position to conduct following acts: (1) selling commodities at unfairly high prices or buying commodities at unfairly low prices; (2) selling products at prices below cost without any justifiable cause; (3) refusing to trade with a trading party without any justifiable cause; (4) requiring a trading party to trade exclusively with itself or trade exclusively with a designated business operator(s) without any justifiable cause; (5) tying products or imposing unreasonable trading conditions at the time of trading without any justifiable cause; (6) applying dissimilar prices or other transaction terms to counterparties with equal standing; (7) other conducts determined as abuse of a dominant position by the Anti-monopoly Authority under the State Council
The dominant market status shall be determined according to the following factors: (1) the market share of a business operator in relevant market, and the competition situation of the relevant market; (2) the capacity of a business operator to control the sales markets or the raw material procurement market; (3) the financial and technical conditions of the business operator; (4) the degree of dependence of other business operators upon of the business operator in transactions; (5) the degree of difficulty for other business operators to enter the relevant market; and (6) other factors related to determine a dominant market position of the said business operator.
Where a business operator is under any of the following circumstances, it may be assumed to be have a dominant market position: (1) the relevant market share of a business operator accounts for1/2 or above in the relevant market; (2) the joint relevant market share of two business operators accounts for 2/3 or above; or (3) the joint relevant market share of three business operators accounts for 3/4 or above.
Substantially these circumstances delineate the situations in which a company is believed to retain a dominant position and if the company is impeding or restricting competition with its behavior this can be challenged before a Chinese Court.
Where a business operator who has been presumed to have a dominant market position can otherwise prove that they do not have a dominant market, it shall not be determined as having a dominant market position.
The concepts explained above have been used by Chinese courts to determine the cases submitted to their attention. In the next entry it will be examined a case involving two Chinese companies. What was exposed today should serve as a basis to understand the situation reported to the Court.
Cristiano Rizzi.