Constraints on convergence in Chinese antitrust.
On August 1, 2008, the new Antimonopoly Law of the People's Republic of China (AML) took effect. (1) Although many other transition and developing economies preceded China in adopting comprehensive competition statutes, the magnitude, dynamism, and political significance of the Chinese economy (and an epic thirteen-year drafting process) distinguish the AML. Its enactment underscored the central government's commitment to implement antitrust rules which are, at minimum, analogous to those of advanced industrialized economies.
The extent to which Chinese competition policy will actually converge with the principles and practices of foreign jurisdictions, however, remains uncertain. Divergent views of the proper goals of the AML persist throughout the Chinese establishment, with no consensus in sight. Although the AML plainly incorporates foreign antitrust doctrines, the text leaves ample room for Chinese antitrust to promote consumer welfare, innovation, and efficiency through the competitive process, to gravitate towards populism, protectionism, or industrial policy, or to oscillate between goals as political circumstances demand. Even if the enforcement authorities seek to advance "default" antitrust rules consistent with prevailing international practices, competing policies and political interests may often override them. Given the dynamics and opacity of Chinese policymaking, administrative decisions, and judicial rulings, it may be difficult to distinguish the progressive development of China's "default" antitrust rules from episodes of politicized decisionmaking.
China's emerging antitrust regime was further obscured by the onset of the worldwide financial crisis in late 2008, which quickly overshadowed the launch of the AML. The flow of international mergers and acquisitions subsided, and the Chinese government-like other governments--shifted its focus to economic stimulus and stabilization efforts. Nevertheless, hints at the future course of Chinese antitrust may be found in recent rulemakings and in decisions to clear conditionally the acquisition of Anheuser-Busch Companies Inc. by InBev NV/SA and to block the acquisition of the Huiyuan Fruit Juice Company Ltd. by the Coca-Cola Company. (2)
II. CHINA'S EVOLVING COMPETITION POLICY
A. A brief summary of a lengthy legislative effort
The AML reflects almost two decades of intermittent drafting and debate intertwined with China's broader economic reforms. (3) Pervasive central planning largely obviated antitrust rules throughout much of the history of the People's Republic of China (PRC). The gradual reintroduction of market competition in the 1980s prodded proposals in 1988 for new measures addressing both competition policy and unfair trade practices, but they were rebuffed as premature. (4) When the Anti-Unfair Competition Law was eventually enacted in 1993, it focused on trademark and trade dress protection, deceptive trade practices, trade libel, commercial bribery, and bid-rigging. (5) Although it also contained rudimentary rules against predatory pricing and tying, administrative penalties for these offenses were conspicuously omitted. (6)
The AML's drafting officially commenced in 1994 with the formation of a working group drawn chiefly from the now-defunct State Economic & Trade Commission (SETC) and the State Administration for Industry and Commerce (SAIC), the body responsible for enforcing the Anti-Unfair Competition Law. (7) Scholars and officials from other ministries and the Legislative Affairs Committee of the National People's Congress (NPC) also participated. (8) The working group made sporadic progress, studying foreign competition regimes and periodically circulating new drafts. Bureaucratic infighting, distraction with more pressing goals (e.g., securing entry to the World Trade Organization (WTO)), and clashing views on substantive issues stalled the drafting efforts.
Meanwhile, a thicket of new laws, regulations, and other measures touching on core competition issues emerged. (9) The antitrust-related provisions of these rules, however, were generally overshadowed by other objectives, and they were enforced (or left unenforced) by different governmental bodies apart from any coherent competition policy.
China's accession to the WTO in 2001 reinvigorated the drafting process. Chinese policymakers were grappling with China's commitments to dismantle barriers to foreign products, open new sectors to foreign service providers and investors, and reform administrative practices. To some, the antitrust rules of industrialized nations seemed to offer valid tools not only for regulating markets, but also for checking foreign influence. The newly formed Ministry of Commerce (MOFCOM) assumed the SETC's role in drafting the AML in 2003 and delivered a discussion draft to the State Council, China's cabinet, in 2004. The Legislative Affairs Office of the State Council (SCLAO) then became more directly involved in canvassing government, industry, and academia for input.
Significantly, the Chinese government also solicited input from foreign competition authorities, antitrust scholars, and private practitioners. (10) Although the drafting process was by no means perfectly transparent, it proved far less opaque than most Chinese legislative initiatives. A combination of formal comments from bar associations and industry groups, academic seminars and exchanges, and government to government meetings allowed the drafters to probe the areas of consensus and disagreement among foreign antitrust experts and to gauge the extent of convergence and divergence between foreign jurisdictions. (11) Due in part to this dialog, successive drafts drew closer to prevailing international practices while shedding unsound provisions. (12) Nevertheless, several vestigial or disfavored practices from foreign jurisdictions were also imported. (13)
The legislative endgame began when the State Council submitted the AML to the Standing Committee of the NPC, China's legislature, for consideration during its June 2006 session. (14) Chinese legislative practice requires the AML to be "read" by the NPC (or its Standing Committee) at least three times before adoption. (15) Further revisions (including several last minute amendments made by the NPC itself on sensitive issues) accompanied the second and third readings during the June 2007 and August 2007 sessions of the Standing Committee. (16) The AML was adopted on August 30, 2007.
B. A versatile statute
The final text of the AML blends common Chinese legislative practices with distinctly foreign doctrines. The sequence of chapters follows the general framework of many Chinese laws. Chapter I, General Provisions, recites legislative intent, outlines the basic administrative enforcement structure, and defines key terms. The next three chapters set forth the rules against anticompetitive conduct by private firms, collectively termed "monopolistic conduct." Chapter II, Monopolistic Agreements, addresses restrictive practices by multiple firms. Chapter III, Abuse of Dominant Market Positions, addresses unilateral conduct. Chapter IV, Concentrations of Undertakings, establishes mechanisms for advance notification and review of certain transactions on competition grounds. Chapter V, Abuse of Administrative Authority to Eliminate or Restrict Competition, addresses administrative monopoly, a Chinese term for the misuse of official power by state actors to promote or protect favored firms. Chapter VI, Investigation of Suspected Monopolistic Conduct describes administrative enforcement procedures. Chapter VII, Legal Liabilities, describes administrative penalties and authorizes private actions for damages. Chapter VIII, Supplemental Provisions, includes important provisos on intellectual property (IP), certain agricultural organizations, and the effective date.
Most substantive provisions are clearly based on foreign practice. The primary models appear to be articles 81 and 82 of the E.C. Treaty, (17) Germany's Act against Restraints of Competition (ARC), (18) Japan's Antimonopoly and Maintenance of Fair Trade Act (AMFTA), (19) Taiwan's Fair Trade Act (TFTA), (20) and Korea's Monopoly Regulation and Fair Trade Act (MRFTA). (21) These statutes are generally more compatible with China's civil-law system than the judge-driven U.S. approach, but U.S. regulatory practices may still influence the implementation process.
Unsurprisingly, the AML leaves many issues unresolved. Aside from sketching the contours of a European-style competition law scheme, the AML is silent on the minutiae of many substantive doctrines and the mechanics of implementation. Ripping the index from any hefty competition law treatise provides a good start for listing the unanswered questions. Some ambiguity is expected, if not unavoidable, in any general competition statute. Much of the AML's ambiguity, however, stems not from abstract economic terminology but from the NPC's avoidance of contentious issues. Tough choices were left to the State Council, and compromises glossed over other controversies. Other issues were deferred to future regulations, policy guidelines, case by case enforcement, and interagency debates.
C. Indeterminate goals
Competition policy straddles many of the tensions facing Chinese policymakers today: between old habits of central planning and greater faith in market forces; between safeguarding the central role of state-ownership and further loosening the restraints on private enterprise; between promoting world-class "national champions" in key sectors and shielding smaller firms from larger, often more efficient competitors; between the commercial interests of state-owned enterprises and the demands of China's increasingly vocal consumers; between harnessing the gains from foreign investment and foreign trade and insulating sensitive sectors from foreign influence; and between the de jure primacy of the central government and the de facto independence of many local authorities. (22) Conflicting views of the AMUs role in resolving these tensions prevail in different comers of the Chinese government and academia. These differences reflect genuine philosophical disagreements as well as commercial and political interests. (23) The financial crisis exacerbates these tensions. Plunging exports and rising unemployment fuel protectionism, worldwide stimulus packages seemingly validate industrial policy and intervention, while the perceive failure of Western financial regulation may be read to discredit faith in market forces.
There is a nucleus of antitrust-savvy officials and scholars who view competition policy as a means of promoting consumer welfare and economic efficiency through competitive markets. (24) This group is tiny, numbering several dozen at most, but extraordinarily important to the future of Chinese competition policy. They have been concentrated in MOFCOM and Chinese universities and research institutions, with several posted to the SAIC and the SCLAO. Their studies and official duties offered meaningful opportunities to evaluate foreign competition policy, whether through exchange with foreign experts, study abroad, or secondment to foreign authorities. Their views on specific issues vary, with overseas training and research experiences often shaping attitudes towards alternate foreign models. (Indeed, the AML's German flavor may be largely attributable to several German-educated scholars.) It is probably premature to begin labeling most of these individuals as "Europhile" or "Americanized," or as adherents to the Harvard, Chicago, or post-Chicago schools. (25) But compared with others in the Chinese government, these individuals are far more likely to approach competition policy matters with the same questions and motivations as antitrust authorities elsewhere.
Some within this group, admittedly, are solicitous of the protection of small and medium enterprises as a freestanding policy goal. Advocates of this approach find precedent in past U.S. antitrust policy and current practice elsewhere. In the NPC Standing Committee's final discussion of the AML, NPC Deputy Wu Zixiang announced that the AML would "play a major role in protecting and supporting the development of small and medium sized enterprises." (26) Similar sentiments led in 2006 to new measures prohibiting retail chains with annual turnover exceeding RMB10 million (USD 1.46 million), (27) including foreign giants like Wal-Mart and Carrefour as well as some domestic chains, from exploiting their "advantageous positions'--a term distinct from "dominance'--through a variety of promotional, advertising, and sourcing practices. (28)
Officials more removed from the drafting efforts, however, seem inclined to view competition policy as a complement or instrument of industrial policy. The central government's agenda now includes fostering the growth of "national champions" and Chinese brands capable of succeeding on worldwide markets, incubating "independent" innovation, shoring up key state-owned enterprises (SOE's), and insulating backbone industries from foreign competition or control. (29)
Much of the rhetoric surrounding the AML is overtly protectionist. While the law itself does not discriminate between foreign and domestic entities, protectionism remains strong. In March 2004, the SAIC released a controversial report alleging that many leading multinationals "exploit financial and technological advantages to dominate markets, suppress competition, and injure competitors and consumers" (30) in China. Several of the purportedly "anticompetitive" practices, however, would not necessarily run afoul of U.S. or E.C. competition rules. (31) During the final reading of the AML three years later, NPC Standing Committee member Tsang Hin-chi warned that "as China carries out in-depth opening-up, a slew of foreign enterprises and commodities will access the Chinese market, competing with the domestic enterprises intensely. A number of high tech, well capitalized foreign companies have achieved market dominance in China by mergers and acquisitions." (32) MOFCOM has sought to reassure foreign companies that the law will be enforced even-handedly. (33) Nevertheless, many multinationals fear discriminatory or disproportionate enforcement against foreign firms.
Article 1 of the AML memorializes the law's disparate goals, from promoting "efficiency" and "consumer interests" to advancing "fair market competition," "the public interest," and "the healthy development of the socialist market economy." Article 4 further calls for the government to "formulate and implement competition rules suitable for the socialist market economy, to improve control of the macroeconomy, and to strengthen a unified, open, competitive, and orderly market system."
Government officials have publicly stressed the selective adaptation of prevailing international practices to suit China's unique needs and circumstances. (34) Such statements may be sound in the sense that foreign practices must be "recontextualized" to account for unique institutions and histories. (35) Such statements may also be prudent, reassuring international audiences of the Chinese government's willingness to learn from the successes and mistakes of foreign jurisdictions while reassuring domestic audiences that the Chinese government's broader agenda will not be eclipsed. Selective adaptation may, however, also invite ad hoc rationales for politicized decisionmaking.
The problem remains that the hierarchy of goals for the AML and their place in the Chinese government's broader policy agenda remain indeterminate. The central government now has a versatile and potentially potent competition law, but it has yet to articulate a coherent competition policy. The abstractions and loopholes in the final text leave tremendous leeway to construe the law to serve any of these priorities. This is not unique to the AML; most Chinese laws are loosely drafted, conferring inordinate discretion on the implementing authorities. (36) This brings to the foreground the questions of who gets to exercise this discretion and subject to what formal and informal restraints?
III. ENFORCEMENT STRUCTURE
A. Administrative enforcement structure
The most pressing issue to be resolved in implementing the AML was also among the most contentious in the drafting process: allocating power to enforce the new law. The AML prescribes a two-tiered enforcement structure. A new interagency Antimonopoly Commission (AMC) was created to play a policymaking and coordination role, while frontline enforcement responsibilities fall to one or more Antimonopoly Enforcement Authorities (AMEA). (37) The State Council designates the enforcement authorities and determines the size and composition of the AMC. (38) At least initially, the Chinese government has settled on an expedient division of enforcement responsibility among MOFCOM, the SAIC, and the National Development and Reform Commission (NDRC), overseen by an AMC including most central government bodies with a hand in economic policy and commercial regulation.
1. ENFORCEMENT AUTHORITIES: TRYING A TRIUMVIRATE The three chief candidates to enforce the AML were MOFCOM, the SAIC, and the NDRC. MOFCOM and the SAIC have long vied with one another to serve as the primary antitrust enforcement agency, while the NDRC has sought to preserve its authority over certain pricing practices. Each played different roles in enforcing China's previous competition-related laws, and each have distinct assets, constituencies, and agendas. Chinese academics, officials, and even the media generally acknowledge that consolidating enforcement authority under one roof would promote efficiency and reduce risks of inconsistent policies, but none of the contenders was willing to concede leadership to the others. (39) Consequently, the State Council parceled out power to enforce the AML along lines roughly tracking the existing roles of MOFCOM, the SAIC, and the NDRC. (40)
a. MOFCOM MOFCOM's chief responsibility under the new AML enforcement scheme is merger review. MOFCOM was created in 2003 through the consolidation of the SETC and the Ministry of Foreign Trade and Economic Cooperation (MOFTEC). MOFCOM's portfolio includes broad authority over international trade and investment issues and over many domestic commercial matters. MOFCOM administers China's trade remedy laws, coordinates handling of WTO disputes, and has jurisdiction over policies targeting monopolies and regional protectionism. (41) MOFCOM operates at the provincial and local levels through Commerce Commissions (COFCOMs).
MOFCOM was instrumental in drafting the AML, and it has been the primary interlocutor in government-to-government exchanges on competition policy. MOFCOM's chief claim to antitrust enforcement, however, rests on its experience reviewing transactions on "antimonopoly" grounds pursuant to the Regulations on the Mergers & Acquisitions of Domestic Enterprises by Foreign Investors (the M&A Rules). (42) These measures, first released in 2003 and overhauled in 2006, focus chiefly on regulating the creation of foreign-invested enterprises (FIEs)--not antitrust. But in an apparent bid for antitrust leadership, MOFTEC tacked on four cryptic articles sketching out a pilot merger review scheme for certain "mergers/acquisitions of domestic enterprises by foreign investors" and for undefined "offshore mergers and acquisitions." (43) Despite widespread confusion as to the requirements (and skepticism as to their relevance), MOFCOM gradually ramped up its merger review efforts. By the end of July 2008, MOFCOM had reviewed over 600 notified transactions. (44) In 2004, MOFCOM organized a new Antimonopoly Office to review mergers and coordinate MOFCOM's involvement in the drafting of the AML. (45)
MOFCOM formed a new Antimonopoly Bureau just before the AML took effect, essentially elevating the stature of the former Antimonopoly Office within the ministry. (46) The new bureau is responsible for reviewing mergers under the AML, building on its experience reviewing mergers involving foreign parties reported under the M&A Rules. The bureau is divided into six divisions: two separate investigation divisions for reviewing "onshore" transactions and "offshore" transactions; a Competition Policy Division responsible for rulemaking; an Economic Analysis Division focused on assessing the economic effects of transactions; a Supervision and Law Enforcement Division responsible for addressing concerns about unreported transactions; and a General Affairs Division which will also serve as the secretariat to the AMC. (47) The MOFCOM Antimonopoly Bureau reportedly includes around thirty personnel, and it is developing internal investigation manuals (reminiscent of the establishment of the trade remedy offices years earlier).
The MOFCOM Antimonopoly Bureau is charged with coordinating bilateral and multilateral cooperation on competition policy issues. Following the transition from the legislative process to the implementation process, MOFCOM remains engaged in technical assistance programs and policy dialogs with counterparts in the United States, Europe, Japan, and elsewhere. China has yet to join the International Competition Network, however, apparently due at least in part to foreign policy concerns stemming from the active membership of the Taiwan Fair Trade Commission.
Somewhat paradoxically, MOFCOM is also responsible for guiding Chinese parties participating in antitrust proceedings overseas. While support for exporters ensnared in foreign antidumping proceedings might make sense, support for firms facing price-fixing charges may compromise MOFCOM's ability to cooperate with its foreign peers in cartel investigations.
b. SAIC The SAIC is now responsible for enforcing the rules against monopoly agreements and abuse of dominance--except for price-related behaviors. The SAIC is a ministry-level organization charged with administering various commercial regulations. For example, the SAIC issues business licenses and conducts annual inspections of commercial enterprises. The SAIC operates through provincial and local Industry and Commerce Administrations (AICs).
Although the SAIC also received merger notifications pursuant to the M&A Rules, it assumed a passive "archival" role. The SAIC's credentials as an antitrust enforcement agency rest more on its experience enforcing the Anti-Unfair Competition Law. Most of this enforcement activity involves rules against commercial bribery and deceptive trade practices; the "antitrust" provisions are largely toothless. In campaigning for antitrust enforcement power, the SAIC emphasized its record of enforcing the Anti-Unfair Competition Law's rules against state-sanctioned monopolies and government agencies compelling consumers to trade with designated firms and against government entities excluding products from other regions. (48) In a December 13, 2007, speech, SAIC Vice-Minister Zhong Youping trumpeted the SAIC's investigation of 6479 compulsory trading cases involving the power, mail, telecommunications, insurance, banking, gas, tobacco, and salt industries and of 490 cases involving local protectionism. (49) Despite this experience as an investigative and enforcement agency, the SAIC's traditional roles do not encompass significant economic analysis or economic policymaking.
The SAIC's new Antimonopoly and Anti-Unfair Competition Enforcement Bureau is expected to expand the SAIC's current program for enforcing the Anti-Unfair Competition Law to include AML enforcement. (50) As of April 2009, however, the SAIC appears to have fewer than ten personnel at the central level assigned to full-time antitrust work.
c. NDRC The NDRC, a powerful macroeconomic planning body with broad authority over nationwide industrial policy and economic policy, is now responsible for addressing price-related violations of the AML rules against monopoly agreements and abuse of dominance. (51) This role essentially extends the NDRC's existing authority to regulate pricing pursuant to the Price Law. (52) The Price Law codifies the nationwide system whereby prices for certain commodities are set by the NDRC while prices for other products are left to the market. The Price Law also prohibits certain "abnormal pricing behaviors," including price-fixing, predatory pricing, and price discrimination. (53) In 2003, the NDRC issued the Interim Price Monopoly Rules, which read like a rough draft of the AML provisions on monopolistic agreements and abuse of dominance. (54) These measures were largely unenforced. However, as the Chinese government became increasingly concerned with inflation in mid-2007, the NDRC responded vigorously to allegations of collusion in regional food markets. In January 2008, the State Council actually increased the penalties for collusion to fix or increase prices. (55) At times, the NDRC has brandished the Price Law more as a weapon against inflation than an instrument of antitrust. Indeed, the NDRC may be more concerned with ensuring that AML enforcement does not interfere with its broader industrial policy agenda. Although the NDRC stepped up its engagement with foreign competition authorities in 2008, the dialog between the international antitrust community and the NDRC has been limited.
2. COORDINATION RISKS This division of authority heightens concerns about inconsistent enforcement and policy coordination. Distinguishing "price-related" violations and "nonprice" violations may prove unworkable. Where a single course of anticompetitive conduct combines pricing practices with other nonprice measures, it is unclear whether and how the SAIC and NDRC will coordinate their investigations. Conceptually, it may often be difficult to distinguish explicit "price-related" violations and "nonprice" violations with equivalent economic effects.
More importantly, MOFCOM, the SAIC, and the NDRC may embrace divergent views of the proper goals of antitrust and its role in the Chinese government's overall agenda. Some dissonance is perhaps inevitable in any scheme involving multiple enforcement agencies, as illustrated by recent differences between the U.S. Federal Trade Commission and the Department of Justice Antitrust Division concerning unilateral conduct. (56) The Chinese enforcement authorities, however, may clash on even more fundamental goals and tools of antitrust. Different approaches to defining markets, gauging market power, and weighing the interests of consumers and competitors when applying the many "public interest" exceptions of the AML may lead to inconsistent, if not contradictory results. MOFCOM might block a merger of competing domestic manufacturers where the NDRC might otherwise bless substantial commercial coordination between them on public policy grounds, or the NDRC and SAIC may reach divergent views on market definition or the possession of dominance when investigating alleged price and nonprice abuses by a single firm.
Overlaps between the AML, the Anti-Unfair Competition Law, the Price Law, and other measures exacerbate these risks, since rival agencies might seek to regulate the same conduct under different laws. For example, predatory pricing might be addressed through article 17 of the AML, article 11 of the Anti-Unfair Competition Law, and article 14 of the Price Law. Further confusion may arise from discrepancies between the AML and other laws. For example, the AML addresses price discrimination as an abuse of dominance, while article 14 of the Price Law prohibits price discrimination by nondominant firms as well. Moreover, MOFCOM retains authority under the Foreign Trade Law to confront efforts to monopolize international trade; the interplay between this authority and the extraterritorial application of the conduct rules by the SAIC and the NDRC remains unclear. (57)
3. ROLE OF THE ANTIMONOPOLY COMMISSION The AMC might provide a viable forum for resolving policy differences and turf disputes. China has over a dozen such "advisory and coordinating bodies" to handle issues cutting across ministries. The drafters apparently acknowledged the longstanding turf war over competition policy and anticipated future friction. Article 9 of the AML calls for the AMC "to research and formulate competition policies; to organize investigations, assess the overall market competition conditions, and publish the assessment reports; to formulate and promulgate antimonopoly guidelines; to coordinate the antimonopoly administrative enforcement work; and to undertake other duties as designated by the State Council." (58) The AMC's working rules suggest that the AMC may function through commission-wide meetings, directors' meetings, and project-specific meetings, and that the AMC "should not replace the lawful work of its members and relevant departments." (59)
The State Council formally announced the AMC's formation on August 1, 2008. (60) On July 28, 2008, the State Council issued the Notice on the Main Functions and Composition of Antimonopoly Commission under the State Council. (61) This notice confirmed the appointment as Chairman of Vice Premier Wang Qishan, whose portfolio also includes trade and financial policy, to head the commission. The AMC Vice-Chairs represent the three lead enforcement agencies and the legislative role of the State Council; they include Zhang Ping (Chairman, NDRC), Chen Deming (Minister of Commerce), Zhou Bohua (Director of the State Administration for Industry and Commerce), and Bi Jingquan (Deputy Secretary-General of the State Council). The roster of commissioners includes most central government bodies with a stake in regulating commerce, including the NDRC, the Ministry of Industry and Information Technology, the Ministry of Supervision, the Ministry of Finance, the Ministry of Transport, the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration for Industry and Commerce, the State Intellectual Property Office, the Legislative Affairs Office of the State Council, the China Banking Regulatory Commission, the China Securities Regulatory Commission, the China Insurance Regulatory Commission, and the State Electricity Regulatory Commission.
The Antimonopoly Commission might mitigate the risks of inconsistent enforcement by the three primary enforcement agencies and resolve clashes with other ministries' own priorities. The "big tent" membership of the AMC, however, suggests that it might simply relegate interagency tussles from the State Council to a smaller venue, leaving serious policy disputes and enforcement judgments to escalate beyond the AMC to the State Council.
In addition to serving as a commissioner, MOFCOM Vice Minister Ma Xiuhong also serves concurrently as Secretary-General of the AMC. As previously noted, the general office of the MOFCOM Antimonopoly Bureau is to serve as the AMC secretariat. Assigning MOFCOM personnel to act as the AMC staff may enable MOFCOM to influence the interpretation and application of the rules against monopoly agreements and abuse of dominance by the SAIC and NDRC. (62) The AMC secretariat may become a conduit for disseminating whatever lessons MOFCOM drew from past engagement with foreign antitrust authorities and experts.
4. RESOURCE CONSTRAINTS & DELEGATION The central government enforcement authorities may also delegate enforcement responsibilities "to the corresponding agencies of the People's Governments at the levels of province, autonomous region and municipality directly under the central government." (63) Thus, duties of the central-level SAIC and NDRC may be discharged by the provincial AI's and Price Bureaus. The text of the AML appears to foreclose enforcement by local authorities below the provincial level, but some role for local officials seems inevitable. (64) This raises concerns about Beijing's ability to ensure consistent policy, either through prospective guidelines or through direct engagement in case by case decisions, and about the provincial authorities' vulnerability to capture by regional political and commercial interests.
Although substantive merger review analysis will likely remain at the central MOFCOM level, provincial and local commerce bureaus will play a role in investigating cases involving failure to report transactions or otherwise unreportable transactions that nevertheless adversely impact competition. The SAIC and the NDRC are reportedly contemplating a two-track system that centralizes enforcement of the dominance rules at the national level while provincial and local authorities police "monopoly agreements."
B. Judicial enforcement structure
Although the AML focuses on administrative enforcement, article 50 authorizes judicial enforcement through private actions for damages. It reads: "undertakings that cause loss to others as a result of their Monopolistic Conduct shall be liable for civil liabilities in accordance with the laws." The scope of article 50 claims will likely be determined by the Supreme Judicial People's Court (SPC) through quasi-legislative judicial interpretations.
As a first step, the SPC issued a circular on July 31, 2008, exhorting People's Courts at all levels to study the new AML and stressing the complicated blend of legal and economic issues in competition cases. (65) That circular assigned cases involving claims under the AML to the intellectual property courts. On balance, this is good news. China's intellectual property judges are widely regarded as more sophisticated and capable than many peers in other trial courts, and they may approach IP-related antitrust issues with sensitivity to the unique features of IP rights. (66)
The SPC has not yet issued further judicial interpretations of the AML, but judicial leaders have publicly acknowledged open questions requiring "further study," such as the necessity of coordinating parallel litigation and administrative investigations or staying litigation until the administrative process runs its course. (67) Future measures from the SPC may impose limitations on standing and prescribe methods for calculating damages.
An additional wrinkle may arise from the "catch-all" provisions for "other abuses" and "other monopoly agreements" as defined by the enforcement authorities; (68) it is unclear whether this phrasing limits the courts' discretion to recognize novel theories of liability neither specified in the AML nor recognized by the SAIC or the NDRC.
More importantly, the SPC might eventually confine article 50 actions for damages to cases where the AMEA has already found a violation of the AML. Such a move would not be unprecedented; the SPC similarly conditioned private actions for damages in securities fraud cases on prior determinations of misconduct by the China Securities Regulatory Commission (CSRC) or on prior criminal convictions. (69) Indeed, earlier drafts of the AML tethered claims for damages to prior administrative rulings. Allowing the administrative enforcement authorities to serve as gatekeepers for private damages actions would, at minimum, mitigate the risks of inconsistent enforcement.
For the moment, however, the courthouse doors remain open. The deputy chief of the Intellectual Property Rights Tribunal of China's Supreme Court disclosed on March 10, 2009, that courts in Beijing and Chongqing had already accepted numerous antitrust suits since the Antimonopoly Law, but no litigation had yet been concluded. (70)
C. Appellate structure
Article 53 provides two channels for aggrieved parties to challenge most administrative enforcement decisions. First, they may sue the authority in a Chinese court pursuant to the Administrative Litigation Law. (71) Second, they may seek administrative reconsideration pursuant to the Administrative Review Law. (72) Administrative reconsideration essentially allows a de novo review of an administrative action, often by another department within the same agency (such as the Bureau of Treaty of Law within MOFCOM or the Reconsideration Response Office within the SAIC). Reconsideration rulings may then be challenged through administrative litigation or through direct final appeal to the State Council. Administrative reconsideration has enabled government agencies to correct erroneous rulings and, in at least one instance, has averted a WTO challenge to a dubious antidumping ruling.
However, Article 53 requires any challenge to a MOFCOM decision blocking or imposing conditions on a concentration to be first brought through administrative reconsideration. Only after a higher administrative organ completes the administrative reconsideration may the aggrieved party resort to the courts through administrative litigation challenging a reconsideration ruling (and, indirectly, the underlying agency decision). (73) For example, parties to a blocked transaction might first have to seek administrative reconsideration from the MOFCOM Bureau of Treaty and Law before going to court. The drafters apparently considered merger review to be such a complex, data-intensive exercise that administrative authorities may be better equipped to review administrative decisions than the Chinese courts. This may be true, but it begs the question of why Chinese courts are any better suited to review other antitrust rulings.
IV. POLICY CONSTRAINTS
Assuming, hypothetically, that MOFCOM, the SAIC, and the NDRC each resolved to construe the AML solely to promote consumer welfare, efficiency, and innovation through the competitive process, then China's "default" competition rules might well converge with European or U.S. practice. Even so, these default policies would almost inevitably clash with the priorities (and constituencies) of powerful elements within the Chinese regime.
The AML neither dictates the hierarchy of government objectives nor prescribes mechanisms for resolving such clashes. Articles I and 4 of the AML arm advocates of industrial policy with textual grounds for second-guessing any enforcement actions that subordinate industrial policy to competition policy. (74) Where the "default" policies run afoul of interests elsewhere in the Chinese government, the dispute will spill into the general policymaking process. On paper, China's government is a pyramid cleanly peaking at the NPC; in reality, policymaking often involves an opaque tangle of formal supervision and informal relationships. (75) The influence exerted by competing policies and political interests on specific enforcement decisions will vary depending on the affected sectors and regions, the players, and the nature of the policies at stake. For example, MOFCOM's readiness to clear a procompetitive acquisition of an upstart manufacturer by a downstream foreign customer might garner support from the target's regional government and wrath from the Ministry of Industry and Information Technology and the governments of provinces where the target's state-owned competitors are based.
Infusing the uncertainties of the Chinese political process into case by case antitrust enforcement compromises the predictability and transparency of the entire system. The special provisions concerning the state-owned economy, national security, and administrative monopoly highlight these political constraints on Chinese antitrust.
A. The state-owned economy
The AMUs applicability to prominent SOEs is of tremendous concern to diverse stakeholders. Reformers involved in the AML's drafting generally recognized the potential harms of anticompetitive conduct by SOEs. Indeed, frustration with the pricing and service of many state-owned monopolists is high among Chinese consumers. (76) Firms aspiring to compete with these incumbents likewise support the AML's applicability to SOEs. Others in the central government proved more sympathetic to the interests of SOEs. (77) China's Constitution enshrines the "state-owned economy" as the "leading force in the national economy," and many senior Party and government officials have close ties to the leading SOEs or to sector regulators. (78)
The last draft submitted by the State Council to the NPC provided no special treatment for SOEs. The NPC, however, inserted article 7, which carves out those industries that are "controlled by the state-owned economy and that are critical to the wellbeing of the national economy and national security" and sectors involving state-sanctioned exclusive monopolies. The relevant sectors are not identified; the Chinese government may never publish a formal list. It is generally read to cover strict state monopolies such as salt and tobacco and heavily regulated sectors dominated by SOEs such as aviation, telecommunications, petroleum, rail transport, and energy. (79) Curiously, draft measures leaked from the NDRC in mid-2008 declared that the NDRC would implement "government-guided prices or government-set prices and carry out regulating and control according to the Price Law" for sectors covered by article 7, arguably limiting article 7 to the few remaining sectors now subject to government price regulation.
Article 7 appears to be a two-edged sword--and a dull one, at that. Cutting in favor of the SOEs, article 7 declares that "the State shall protect the lawful business activities of the undertakings in such industries." Cutting in favor of Chinese consumers, article 7 admonishes such SOEs to "conduct their business in accordance with the law," to "be honest and reputable in their business dealings," to "maintain strict self-discipline," to "accept public supervision," and to abstain from "harming the interests of consumers by utilizing their controlling positions or their status as the exclusive provider of certain services or products." Article 7 further declares that the government shall regulate such sectors "so as to protect the interests of the consumers and to promote technological progress." Indeed, one MOFCOM official has suggested that article 7 "reflects the worldwide trend to reduce the scope of antitrust exemptions" in "industries that were traditionally viewed as natural monopolies." (80) Accordingly, Chinese officials and scholars insist that article 7 is not an exemption. (81) What is it, then? In showdowns between proconsumer enforcement of the AML and the commercial interests of incumbent SOEs (e.g., a finding of abuse of dominance or the clearance of a concentration strengthening private competitors), however, Article 7 provides no meaningful guidance.
Article 7 may provide a textual basis for deviating from default antitrust rules when key SOEs are involved. SOEs might plead article 7 when seeking a "public interest" exemption for a monopoly agreement under article 15 or for an otherwise anticompetitive concentration under article 28. (82) Because the parameters of article 7 remain unfixed, SOEs with dominant positions in any relevant market may seek to invoke special treatment under article 7.
Crisp distinctions between "regulated" and "unregulated" industries are difficult to draw in China. The prevalence of state ownership and extent of governmental interference in commercial activities (both formal and informal) vary dramatically between regions and sectors. At one end of the spectrum lie many high-tech and consumer sectors with scant state intervention. At the other end of the spectrum lie sectors where state-owned companies compete with other state-owned companies and vie with state-owned upstream suppliers under the active guidance of the sectoral regulators and the State-owned Assets Supervision and Administration Commission. The implications of the AML for state-owned companies--and the private enterprises that compete or do business with them--will likewise vary. Conspiring with state-owned competitors to fix prices might have very different repercussions in different industries.
The NPC Standing Committee's insertion of article 7 may simply acknowledge that these fights will have to be fought at a later date. The official Xinhua news agency published results of a poll in which 62% of respondents believed it would be difficult to enforce the AML with respect to SOEs. (83)
B. National security
National security concerns may also affect AML enforcement. National security has long figured in the Chinese government's review of foreign investments, but growing apprehension about foreign influence in sensitive sectors and indignation at the failure of China National Offshore Oil Corporation's abortive 2005 bid for UNOCAL have brought the issue to the foreground. (84) The 2006 revisions to the M&A Rules introduced separate requirements for foreign acquisitions of Chinese firms that "result in actual control by the foreign investor" and "involve key industries, have factors imposing or possibly imposing material impact on the economic security of the State, or would result in transfer of actual control in a domestic enterprise which owns any well-known trademarks or Chinese historical brands."' (85) MOFCOM, "together with other relevant departments," may act to block, modify or unwind unreported transactions with actual or potential "material impact" on the "economic security of the State." (86)
Similarly, the AML severs antitrust review from national security review. Article 31 provides that where a foreign investor merges with or acquires an enterprise within China or where any other form of concentration "concerns national security," the transaction will be subject to separate review on national security grounds "in accordance with relevant regulations of the State." This bifurcation was consciously modeled on the U.S. practice of separating antitrust review from the separate national security review by the Committee on Foreign Investment in the United States (CFIUS). (87)
In August 2008, the NDRC and MOFCOM released measures suggesting that they would join other "relevant departments" to establish a "Joint Ministerial-Level Meeting for the Security Review of Merger & Acquisitions of Domestic Enterprises by Foreign Investors." This interagency body will review foreign acquisitions or mergers with domestic enterprises having national security implications under the M&A Rules, as well as reviewing new foreign direct investment projects with national security dimensions. The precise mechanics of this new interagency clearance process remain murky.
Broad interpretations of "national security" might encompass industrial policy interests with scant relevance to military or security policy. In such cases, contests between "competition policy" and "industrial policy" would be cloaked in the rhetoric of national security. The comments of NPC Vice Chairman Xu Jialu illustrate this slippage. "State security includes national defense security, information security, environmental security, and economic security. Western multinationals have now reached out to seize China's leading manufacturing enterprises.... These large state-owned enterprises have much proprietary intellectual property and represent China's leading-edge manufacturing technology. Control by foreign countries will pose a big obstacle to our future innovation." (88)
The Carlyle Group's proposed investment in Xuzhou Construction Machinery, China's largest construction equipment manufacturer and an SOE, appears to have foundered on national security and industrial policy concerns. After Carlyle agreed in 2005 to pay RMB 3 billion for an 85% stake, resistance from the NDRC led Carlyle to reduce its proposed stake to 45% in March 2007. (89) In July 2008, Xugong publicly confirmed the deal's death. (90) Although MOFCOM had reportedly requested "antitrust" filings early in the process, the roadblock was the NDRC's unwillingness to approve a substantial foreign stake in a state-controlled strategic firm. (91)
A greater risk, however, would be for national security concerns to seep into the ostensibly separate merger review process. Pressures on MOFCOM to consider national security may be greatest where an offshore transaction falls outside the technical scope of national security review.
C. Administrative monopoly
Whereas the interplay between competition policy and industrial policy involves trade-offs between clashing goals of the central government, "administrative monopoly" pits the central political authorities against wayward regional governments and headstrong sectoral regulators. Administrative monopoly encompasses both "local protectionism" (difang baohu) by local and provincial authorities aimed at preventing providers of goods and services from other areas from entering local markets and acts of "sector monopoly" (hangye longduan) by government regulators to promote or support specific operators within those industries. Many commercial activities in China require discretionary approvals from numerous regulators, and Chinese bureaucrats may wield their discretion in favor of client companies to the detriment of consumers. (92)
Although the United States and E.U. have likewise developed rules addressing anticompetitive policymaking by local authorities, these doctrines boil down to limitations on the exercise of sovereignty imposed by a federal Constitution (in the United States) or an international convention (in Europe). Administrative monopoly has nothing to do with sovereignty. In theory, China is a non-federal, unitary state. In reality, as Donald Clarke has observed, China's legal system is "polycentric." (93) Different geographic regions, sectors, and policymaking spheres involve distinct constellations of Party, government, and commercial entities. Rather than view China as a single legal system, China may be best viewed as "many Chinese legal systems, each with its own jurisdiction, hierarchy of authority, and way of operating" absent any "single source of ultimate authority in the system.'" (94) The administrative monopoly provisions of the AML reflect the central leadership's ambition to reassert itself as the ultimate authority despite the devolution of substantial real power to regional authorities and the symbiosis between regulators and favored firms.
Whether even to address "administrative monopoly" through the AML was among the most controversial issues in the drafting process. The debate focused not on the gravity of the problem, but on the viability of combating it through competition law. (95) Proponents of tackling administrative monopoly questioned the credibility of any purportedly comprehensive competition law for China that ignored the most pervasive threat to competitive markets, stressing the public's growing impatience with administrative abuses. (96) Opponents argued that combating administrative monopoly is less a question of regulating competition than of restoring central government authority and that previous measures to rein in administrative monopoly had proven ineffective precisely because of a lack of political will. They feared that vain efforts to discipline the bureaucracy might undermine the AMUs primary goals of regulating private conduct. The administrative monopoly provisions swelled, shrank, vanished, and reappeared in successive drafts.
At first blush, the proponents of tough administrative monopoly rules seem to have won; chapter V sets forth detailed rules against anticompetitive misconduct by "administrative agencies and organizations empowered by laws or regulations with responsibility for the administration of public affairs." (97) Closer examination, however, suggests that chapter V does more to denounce administrative monopoly than to equip antitrust authorities with any new tools to combat it. Articles 33-35 prohibit several common tactics of local protectionism. Article 33 bars discriminatory taxes, fees, charges, licensing and inspection requirements, local content requirements, checkpoints, and all "other actions which impede the free flow of products among different regions." Similarly, Articles 34 and 35 prohibit discrimination against parties from other regions in the public tendering processes and in the approval of new branches or investments. Such tactics are already prohibited by the Regulations Regarding the Prohibition of Regional Blockade in Market Economic Activities. (98) The only provisions addressed to "industry monopoly" rather than local protectionism are articles 32, 36, and 37. Article 32 prohibits compelling the consumption of goods and services from designated providers. Articles 6 and 7 of the Anti-Unfair Competition Law already prohibit such conduct by governmental entities, public utilities, and state-sanctioned monopolies. Article 36 simply prohibits government actors from compelling companies to engage in monopolistic conduct otherwise prohibited by the AML. Article 37 prohibits "abuse of administrative power" by issuing regulations that "eliminate or restrict competition." Since all commercial regulations "restrict competition" to some extent, article 37 turns on whether specific measures are deemed abusive. The AML provides no guidance on distinguishing abuse from legitimate regulation; that judgment will not rest with the enforcement authorities or AMC. Instead, the regional governments and sectoral regulators themselves are responsible for policing their own subordinate departments. (99) NPC Standing Committee member Lin Qiang did not conceal his skepticism:
Due to many reasons, sometimes it is very difficult for a supervising agency to break various administrative monopolies. For example, first, behind any administrative monopoly lies some protection of local enterprises or economic motives, which makes it difficult for the supervising agency to remain impartial in disputes between its subordinates and other local enterprises. That is to say that the local protectionism or the protection of some departments might be prevalent within the supervising agency. Therefore, it is hard to curb administrative monopoly. Second, the supervising agency is not specified and, in practice, the personnel of the supervising agency are not necessarily strongly aware of antimonopoly and lack the ability to address and rectify such competition cases. When we sought comments, some respondents pointed out that there are provisions against administrative monopoly in the Anti-Unfair Competition Law implemented in 1993. However, the phenomenon of administrative monopoly has not been fully checked yet. Why? Because there are no ,severe legal liabilities provided in compliance with that law and legal liability is very important for the implementation of law. (100)
Because the enforcement authorities lack power to compel compliance by other government agencies, their role in combating administrative monopoly is confined to advocacy through the AMC or the general policy process.
The opening salvo in AML enforcement, however, raised the provocative possibility of direct lawsuits by consumers against governmental entities engaged in anticompetitive practices. On August 1, 2008, four private technology companies filed suit in the Beijing First Intermediate People's Court against the General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China (AQSIQ), a governmental body. (101) The plaintiffs alleged that AQSIQ abused its administrative power in violation of article 8 and chapter V of the AML by requiring companies to pay annual fees to register for an online quality monitoring network administered by a commercial company in which the AQSIQ holds a 30% ownership stake. The court ultimately declined to accept the case on statute of limitations grounds, reasoning that the challenged conduct had commenced several years before the lawsuit (even though the suit was filed on the same date that the AML took effect). The mandatory registration program was, however, discontinued. (102)
In a recent interview, one Supreme People's Court official acknowledged that the scope of judicial review under the AML merited further study, but suggested that the judiciary would likely abstain from making "in-depth decisions on general administrative examination and approvals" or "cases involving the discretion of administrative licensing, quantitative restrictions, significant policy orientation, national interests, or public interests and so on" but would address such matters as "administrative examination and approval that can be decided on the spot" and "circumstances where the administrative authority has no room for discretion, no quantitative restrictions, and no impact on public interests and other persons' interests." (103) Nevertheless, if the Chinese judiciary now recognizes a freestanding cause of action against governmental bodies for breaching the administrative monopoly rules, an avalanche of new claims may follow.
V. IMPLEMENTATION: RULEMAKING VS. ENFORCEMENT
On November 24, 2007, Cheng Siwei, Vice Chairman of the Standing Committee of the NPC, announced that over twenty subsidiary regulations would be forthcoming. (104) Many aspects of the AML do need clarification. Recent regulations and draft measures have plugged many procedural holes, but gaps remain. More importantly, no implementing measures clarifying the enforcement authorities' approach to substantive issues have yet been released.
Expediting the rulemaking process is not without risk. On the one hand, published guidelines might reduce uncertainty, enabling companies to determine more efficiently how to comply with the law and manage risks. Moreover, if real decisionmaking in enforcement actions is heavily decentralized, detailed substantive regulations may be vital to restrain provincial authorities. Similarly, if private claimants can bypass the administrative process through private lawsuits, detailed implementing measures may guide courts away from unsound rulings. On the other hand, rushing to issue substantive guidelines might prove counterproductive--particularly when the new enforcement bodies remain most vulnerable to capture by other political interests within the government. Premature regulations may prove unduly rigid or deviate from international best practices. Now that the enforcement structure is in place, MOFCOM, the NDRC, and the SAIC are already benefitting from sustained policy dialogs and technical assistance programs with foreign governments and multilateral institutions. Prompt action may be warranted to clarify procedural issues and remedy serious weaknesses in the AML (e.g., by cabining the open-ended exemptions for monopoly agreements or mitigating the mandatory minimum penalties). On other substantive issues, however, the Chinese government may be well-advised to move deliberately and cautiously. Deferring hard choices on substantive policies for future enforcement may allow the enforcement authorities time to formulate better policies and develop the institutional muscle to advance them.
Faith in the accretion of clearer antitrust rules through case by case decisionmaking may, however, be unwarranted. First, the enforcement authorities are not required to publish all decisions. Article 30 directs the enforcement authorities to "publicize in a timely manner" decisions to prohibit or conditionally approve concentrations, thus producing a public record of blocked deals. In other matters, however, article 44 simply states that the enforcement authorities may publish decisions in other matters. This tracks the current practice of many agencies (including the SAIC), which have the discretion to clarify enforcement practices by selectively publishing actual enforcement decisions or responses by national-level authorities to queries from local offices. Many judicial opinions are likewise unavailable to the public. (105)
Second, those decisions which are published may not fully or accurately articulate the underlying reasoning. Chinese administrative agencies are rarely required to articulate the rationale for specific administrative decisions in detail; if decisions are challenged through administrative litigation or administrative reconsideration, the original decisionmaker has an opportunity to defend the decision in an essentially de novo review. (106) Thanks to WTO disciplines for trade remedy proceedings, antidumping investigations are among the few administrative proceedings requiring Chinese authorities to issue detailed written rulings based on a public administrative record. Nevertheless, most decisions issued by MOFCOM's Bureau of Fair Trade (BOFT) and Bureau of Industry Injury Investigation (BIII) have been formulaic and conclusory, with little critical evaluation of conflicting evidence and analysis.(107) Many judicial decisions are likewise "short, formalistic, and often without detailed legal reasoning." (108) Without access to the underlying record, outside observers are unable to test the connection between the published findings and the underlying evidence. (109)
Consequently, case by case decisions will not necessarily yield a clear body of antitrust law. The enforcement authorities might be motivated to publish decisions both as guidance and as evidence of its power and competence. Even so, the enforcement authorities might still obscure its most difficult judgments either by publishing a rote ruling or by publishing no decision whatsoever. Even if the enforcement authorities confront a broad range of doctrinal issues, it will not necessarily generate a public record of its judgments. Experience under the existing patchwork of antitrust rules demonstrates that rumors and press accounts are a poor substitute for clear administrative decisions.
VI. MERGER REVIEW
For many multinational corporations (and increasing numbers of Chinese companies), merger control presents the most immediate and substantial compliance risk. Merger review is mandatory; article 21 of the AML requires the advance reporting of all concentrations that satisfy the applicable notification thresholds and expressly prohibits the consummation of unreported concentrations.
In the first seven months after the AML took effect, the implementation of the merger control regime outpaced the development of the "behavior rules" against monopoly agreements and abuse of dominance. This is unsurprising. Because the behavior rules impose negative obligations to abstain from anticompetitive conduct, the SAIC and NDRC retained the initiative to choose the timing, scale, and priorities of their enforcement programs. The merger review rules, in contrast, obligated parties to begin notifying transactions as of August 1, 2008--and compelled MOFCOM to begin reviewing them. The global financial crisis spared MOFCOM an onslaught of new filings. (110) MOFCOM officials accepted barely forty notifications between August 1, 2008 and March 1, 2009. (111) Nevertheless, pressure to address questions raised by live notifications has propelled MOFCOM ahead of the SAIC and the NDRC in the implementation process.
A. Implementing measures
The first implementing measures for merger review debuted on March 27, 2008, when the Legislative Affairs Office of the State Council released draft Rules of the State Council on Notifications of Concentrations of Undertakings (Draft Notification Rules) for public comment. (112) While the Draft Notification Rules tackled many procedural issues left open by the AML, commentators readily pointed out areas where the Draft Notification Rules deviated from prevailing international practices or left crucial questions unanswered. (113) The State Council whittled the nineteen articles of the Draft Notification Rules down to five brief articles in the Rules of the State Council on Notification Thresholds for Concentrations of Undertakings (Notification Threshold Rules) adopted on August 1, 2008. (114) Aside from setting the basic notification thresholds (without which the merger control scheme simply could not operate), the Notification Threshold Rules deferred most issues to subsequent measures.
After six months of administering the AML merger rules, MOFCOM released a flurry of new measures in late January and early February 2009. The Guiding Opinions on the Notification of Concentrations of Business Operators (115) and the Guiding Opinions on Notification Materials of Concentrations of Business Operators (116) largely codified MOFCOM practices developed during the first months of merger review under the AML. MOFCOM also invited public comment on Guidelines for Definition of the Relevant Market, (117) which set forth principles for market definition in merger cases.
In addition to these guidelines, MOFCOM also released drafts of several formal implementing regulations for public comment. The Interim Measures on the Notification of Business Operators' Concentration (118) clarify key concepts in identifying reportable transactions and flesh out the filing requirements. The Interim Measures on the Review of Concentrations of Business Operators (119) describe the procedures for conducting merger review. The Interim Measures for Investigating and Disposing the Suspected Concentration of Business Operators Failed to File a Notification according to Law (120) outline procedures for investigating and addressing circumstances where parties fail to report transactions that trigger the applicable notification thresholds. The procedures set forth in the Interim Measures on Collecting Evidences regarding Suspected Monopolistic Concentrations between Business Operators Not Reaching the Notification Thresholds (121) and the Interim Measures on Investigations and Handling of Suspected Monopolistic Concentrations between Business Operators Not Reaching the Notification Thresholds (122) in contrast, address circumstances where MOFCOM determines that an otherwise unreportable transaction nevertheless threatens to restrict or eliminate competition. These draft measures elicited extensive comments from law firms, bar associations, and private companies. On March 13, 2009, the Legislative Affairs Office of State Council released revised drafts of these measures for further public comment. (123) As of April 15, 2009, these measures have not yet been finalized.
The willingness of the SCLAO and MOFCOM to solicit and consider public comment is noteworthy. The lack of centralized mechanisms for publishing draft laws and regulations and soliciting public commentary has remained a significant complaint of the United States and other trading partners. The SCLAO and MOFCOM, however, actively invited input from domestic and foreign stakeholders alike. Although unofficial draft measures have frequently been leaked to select parties for preliminary review, the official drafts were eventually released for broader public comment. Moreover, public comments appear to have made a meaningful difference. On many technical and procedural aspects of merger review, successive measures have moved closer to prevailing international practices in response to foreign comment.
NOTIFICATION THRESHOLDS & EXEMPTIONS The formulation of notification thresholds was among the most controversial technical issues in the drafting of the AML, with successive drafts featuring alternate thresholds. Many proposals were criticized for deviating from the recommended practices of the ICN by failing to require that at least two parties to the concentration have significant local nexus with China, by failing to focus on the assets or business actually being acquired rather than the selling entity as a whole, and by relying on subjective "market share" tests rather than objective measures such as assets and sales. (124) The final text of the AML does not specify the notification thresholds. Instead, article 21 delegates the formulation of thresholds to the State Council.
An unofficial discussion draft circulated in early 2008 deviated substantially from ICN recommendations in omitting a requirement that at least two parties have a substantial nexus with China. It required notification of concentrations whenever (1) the combined worldwide turnover of all parties in the preceding financial year exceeded 12 billion RMB and (2) the sales turnover from China of at least one party to the concentration exceeded an unspecified threshold. (Article 17 of the June 2006 draft submitted by the State Council to the NPC had set the China sales turnover threshold at RMB 800 million.) Whereas this proposal appeared to follow article 35(1) of the German ARC, it omitted the accompanying de minimis and small market exemptions of article 35 (2) of the ARC. The Draft Notification Rules, in contrast, shifted towards the European focus on global and local revenues. Article 3 of the Draft Notification Rules would have required notification of concentrations where:
* the combined global sales turnover of all parties exceeded RMB 9 billion (approximately US$1.32 billion) and the turnover from within China of at least two parties each exceeded RMB 300 million (approximately US$43.9 million) during the previous year;
* the combined sales turnover from within China of all parties exceeded RMB 1.7 billion (approximately US$249 million) and the turnover from within China of at least two parties each exceeded RMB 300 million (approximately US$43.9 million) during the previous year; or
* the concentration would "result in one undertaking having a market share of 25%, or more within China."
Requiring a "two-party" nexus in the revenue-based tests represented a substantial improvement over previous drafts. Nevertheless, the quantitative thresholds in the Draft Notification Rules were relatively low. The third test, requiring notification of concentrations that would lead to one undertaking having a market share exceeding 25%, clashed with ICN recommendations.
The final Notification Threshold Rules brought Chinese merger review substantially closer to the international mainstream. First, the problematic market share thresholds were deleted, leaving only two alternate revenue-based thresholds. Echoing ICN recommendations, an explanatory "Q&A" sheet released by the SCLAO explained that notification thresholds should be "objective, clear and easily judged and understood by business operators and authorities" and that revenue-based criteria are "objective and clear." (125) In relying solely on revenue thresholds, the SCLAO explained, the Notification Threshold Rules adopted the "common international practice." (126)
Second, the State Council ratcheted up the revenue thresholds. Article 3 of the final Notification Threshold Rules requires notification if:
* the combined global sales turnover of all parties exceeded RMB 10 billion (approximately US$1.46 billion) and the turnover from within China of at least two parties each exceeded RMB 400 million (approximately US$59 million) during the previous year; or
* the combined sales turnover from within China of all parties exceeded RMB 2 billion (approximately US$293 million) and the turnover from within China of at least two parties each exceeded RMB 400 million (approximately US$59 million) during the previous year.
The State Council apparently reached these revenue thresholds by considering a comparative survey of the notification criteria and economic indicators of other jurisdictions conducted by the Quantitative and Technical Economics Institute of the Chinese Academy of Social Sciences and 2006 data on the revenues of domestic enterprises as reported by the National Bureau of Statistics. (127) In light of this benchmarking exercise, the SCLAO explained that the final thresholds are commensurate with the scale of China's economy and "industrial policies aimed at encouraging enterprises to be stronger and bigger." (128) The revised quantitative thresholds bring China within the lower range of quantitative thresholds employed by well-established merger review regimes. (129) Indeed, the SCLAO pointed to Germany, France, and Japan as countries with lower thresholds (130)
1. DISTINGUISHING SELLER AND TARGET REVENUES IN ACQUISITIONS The Notification Threshold Rules left unanswered many pivotal questions about how to actually apply the revenue thresholds. First and foremost, the Notification Threshold Rules did not squarely define the relevant "parties to the concentration" for purposes of determining whether notification thresholds are satisfied for different types of transactions. (131) MOFCOM had generally accepted the notion of aggregating the turnover of all affiliates subject to common control of a single ultimate parent entity in the merger context, a practice later codified in draft implementing rules. (132) However, neither MOFCOM nor the State Council had formally clarified whether China will follow prevailing international practices with respect to acquisitions by focusing on the revenues of the "target" (i.e., the business being sold) rather than "selling entity" as a whole. Since considering the revenues of the selling entity rather than the target would bring many foreign deals with no meaningful impact on China within the AML's ambit, this uncertainty troubled many investors. The American Chamber of Commerce highlighted this issue in a December 2008 letter to MOFCOM. (133) The January 2009 draft rules, in turn, specifically provide that "when a concentration includes acquisition of parts of one or more business operators" then "for the seller, only the revenue relevant to the concentration" should be considered. (134)To avoid circumvention by disaggregating a sale, all transactions between the same buyer and seller over the preceding one-year period must be aggregated when applying this threshold (135)
2. DEFINITION OF CONTROL The AML follows European practice in defining reportable transactions as "concentrations." Article 20 defines concentrations to include mergers of undertakings or acquisitions by one undertaking of control over another undertaking's "equity or assets" or of "control or capability to exercise decisive influence on other undertakings through contract or other means." (136) Article 2 of the Notification Threshold Rules repeats the AML's definition of "concentration." Problematically, these provisions treat "capability to exercise decisive influence" as a distinct concept rather than, as under European practice, a clarification of the concept of "control." (137)
In MOFCOM's initial draft regulations, acquisitions of control were broadly defined to include acquiring the capability "to make decisions regarding such important management and operational issues of other business operators as the appointment of one or more board members or key management personnel, financial budgets, operation and sales, pricing, material investments, etc." (138) Foreign commentators emphasized the risk that many customary protections for minority shareholders might be deemed to confer such capability, thereby transforming many minority investments into reportable concentrations.' (139) In response, the revised draft added a carve-out for minority investors. "An acquisition of control shall be determined comprehensively based on the above mentioned factors, but granting middle-small shareholders veto rights over such matters as the amendment of the articles of incorporation, increase of the capital, and liquidation for the purpose of protecting the middle and small shareholders' rights shall not be deemed as acquisition of control." (140) Although this language may still be interpreted expansively, the revision provides a textual basis for removing many minority investments from the sweep of Chinese merger review.
3. TREATMENT OF JOINT VENTURES The AML does not specifically address the circumstances in which joint ventures should be analyzed as concentrations rather than potential monopoly agreements, but previous MOFCOM measures had suggested that joint ventures were subject to merger review. MOFCOM's original draft measures stipulated that "the establishment of a new continuously and independently operating enterprise by two or more business operators (hereinafter parent companies) falls into the scope of concentrations of business operators as provided in Article 20 of the Anti-monopoly Law." (141) Foreign commentators responded by emphasizing the distinction between "full-function" joint ventures or more limited collaborations. (142) In response, the next draft reflected key elements of full functionality by specifying that such ventures must be "new continuously and independently operating enterprises" and by expressly excluding "special purpose companies which only undertake such specific functions of their parent companies as research and development and sale or production of certain products." (143)
4. RESERVE POWER TO INVESTIGATE TRANSACTIONS "BELOW THE THRESHOLDS" In an apparent adaptation of U.S. practice, article 4 of the Notification Threshold Rules empowers the enforcement authorities to investigate concentrations which do not otherwise trigger notification if "facts and evidence" indicate that the transaction may eliminate or restrict competition. The text implies that such concentrations would then be subject to the suspensive waiting periods pending the investigation. In explaining this provision, the SCLAO pointed to scenarios in which undertakings with low revenues nevertheless enjoy high market shares.'" This concern is legitimate. Given the geographic fragmentation of the domestic markets for many products and services and the stratification of many product areas to reflect the vast disparities in income among consumers, properly defined markets on many sectors may often prove surprisingly small.
Compared to the added compliance burdens of applying the subjective market-share thresholds and notifying transactions based on market-shares alone, the risks of investigation of nonreportable transactions is probably the lesser evil. Tellingly, the SCLAO stressed that such investigations would have to be based on "facts and evidence collected according to prescribed procedures" in order to "prevent the authorities' discretion from being too great." (145) The draft implementing rules fleshed out the procedures for investigating otherwise unreportable transactions." (146) As a practical matter, MOFCOM may be unable to divert substantial resources to the investigation of otherwise unreportable transactions for the foreseeable future. Nevertheless, MOFCOM's amenability to holding up otherwise unreportable deals on the strength of competitor complaints remains to be seen.
Despite this receptiveness to prevailing international practice on technical questions regarding the breadth of reporting obligations, MOFCOM is poised to plot its own course on a number of procedural issues.
First, concerns remain that MOFCOM's initial filing requirements may disproportionately burden parties. MOFCOM filings require much of the same information as a long-form European Form CO, but deviate from European practice by requiring the same (often substantial) data for all relevant markets regardless of the levels of concentration or changes in market structure (in European Commission parlance, without distinguishing affected markets from other relevant markets). Translation, notarization, and authentication requirements may compound these burdens. Moreover, the draft measures require parties to submit internal documents constituting "all kinds of reports supporting the concentration" including "due diligence reports, research reports, and reports on the concentration plan." (147) Whereas section 4(c) of the American Hart-Scott-Rodino form, for example, focuses on internal documents prepared for or by senior officers and decisionmakers that directly address competition issues, the Chinese draft measures trawl for a broad range of sensitive materials that are likely irrelevant to the competitive effects. The breadth of this requirement fuels fears that materials submitted to the MOFCOM Antimonopoly Bureau might find their way through sector regulators into the hands of state-owned competitors.
Concerns also persist regarding the rigor of MOFCOM's procedural safeguards. Although the draft measures confirm the notifying parties' right to "make statements and bring a defense," they provide scant detail on the scope and means of exercising this right. (148) Foreign commentators proposed detailed rules for clarifying and reinforcing the right of defense, from the presentation of expert testimony to the refutation of nonconfidential information supplied by third parties. (149) The revised drafts, however, did not elaborate on the right of defense--other than to stipulate that parties could submit their views in "a written statement." (150)
In a similar vein, the draft implementing measures are largely silent on substantive issues. Under the AML, concentrations that may "exclude or restrict competition" are to be blocked or approved subject to restrictive conditions, unless the parties to the transaction "can prove that the positive effects of such concentration on competition obviously outweigh the negative effects" or that "the concentration is in the public interest." (151) Likely competitive effects should be evaluated based on: the parties' market shares, the concentration of the relevant market, the effects on "market access and technological progress," the effects on consumers and other relevant enterprises, the "development of the national economy," and "other factors that may affect the market competition" (152) as the enforcement authorities may deem necessary. These provisions confer tremendous discretion on the enforcement authorities. The balancing test focusing on the adverse and positive effects on competition arguably comports with the U.S. "substantial lessening of competition" and European "significant impediment to effective competition" standards. (153) On the other hand, the escape hatch for clearing patently anticompetitive concentrations which fail the balancing test in the name of unspecified "public interests" could eviscerate the rule. (154) Although the proposed guidelines on market definition do reflect several well-established principles of market definition, none of the draft implementing measures released to date restrain MOFCOM's discretion on substantive issues. It falls to the enforcement process to articulate (or dissemble) China's substantive policy on merger control.
B. Merger control enforcement
The public record of MOFCOM's merger review work to date remains sparse. As previously noted, decisions to block or impose conditions on concentrations are the only administrative rulings that must be published pursuant to the AML. (155) Although MOFCOM has reviewed forty transactions under the AML, Coca-Cola/Huiyuan and InBev/Anheuser-Busch remain the only published decisions. Moreover, both published decisions are brief and conclusory, with little explanation of the specific factual findings, economic analysis, and legal interpretations supporting the ultimate conclusions. Nevertheless, these rulings do provide insight into MOFCOM's approach.
1. INBEV/ANHEUSER-BUSCH In InBev/Anheuser-Busch, MOFCOM demonstrated its willingness to impose prophylactic remedies to prevent future harm to competition. It is possible that the U.S. Department of Justice's announcement on November 14, 2008, of its decision to require divestiture of InBev's Labatt USA subsidiary emboldened MOFCOM to select InBev/Anheuser-Busch as its first case. In its November 18, 2008, notice, MOFCOM found that the "size of the acquisition is enormous, the market share of the combined new enterprise is very big, and the competitiveness of the combined new company will be increased significantly." MOFCOM did not find that the transaction itself would harm competition. Nevertheless, MOFCOM imposed conditions to "reduce possible adverse effects on future competition in the Chinese beer market."
Specifically, MOFCOM directed InBev to obtain approval from MOFCOM before (1) increasing Anheuser-Busch's existing 27% stake in Tsingtao Brewery, Co., Ltd.; (2) increasing InBev's existing 28.56% stake in the Pearl River Brewery Co., Ltd.; or (3) seeking to acquire stakes in China Resources Snow Brewery (China) Co., Ltd. or Beijing Yanjing Brewery Co., Ltd. Under normal circumstances, such investments would not be subject to supervision by the MOFCOM Antimonopoly Bureau unless they qualified as reportable concentrations involving a change in control. This begs the question of whether further investments not leading to control over the Chinese breweries could meaningfully affect competition in Chinese beer markets. Nevertheless, Shang Ming has explained that the "the aim of the attached conditions was to reduce the negative impact on future competition in the Chinese beer market that the merged entity could bring about." (156) InBev was further directed to "inform MOFCOM in a timely manner regarding the change of InBev's controlling shareholders or the shareholders of InBev's controlling shareholders." (157) Although MOFCOM reserved considerable discretion to monitor and restrict InBev's future investments in the beer market, these conditions did not disturb the current deal.
2. COKE/HUIYUAN If InBev was the first to hear Chinese antitrust bark, Coke was the first to feel its bite. On September 3, 2008, Coca-Cola publicly announced plans to acquire Huiyuan through a wholly-owned subsidiary for HK$17.9 billion. (158) Huiyuan, China's largest fruit juice maker, was established as private company in 1992 and subsequently listed in Hong Kong through a Cayman Islands listing vehicle in 2007. (159) The proposal provoked tremendous public outcry in China, but the objections dwelt more on the foreign control over one of China's premier domestic consumer brands than on potential anticompetitive effects. (160) The parties' public statements chronicling the hurdles to triggering the initial review period and MOFCOM's decision to conduct further review were closely monitored by the Chinese and international media. As the scheduled deadline for the decision approached, there were signs that MOFCOM might conditionally clear this transaction (as it had with InBev).
On March 18, 2009, MOFCOM released a brief notice blocking the acquisition. (161) The notice itself provides only limited grounds for evaluating MOFCOM's substantive antitrust analysis. It contains just 1481 Chinese characters, most of which summarize the procedural history of the review. One week later, MOFCOM released an official "Q&A" clarifying MOFCOM's approach to the case. (162)
The official notice identifies six factors considered by MOFCOM in its analysis. (163) Five focus on competitive effects: the parties' "market shares in the relevant market and their market power;" "the degree of market concentration in the relevant market;" impacts on "market access and technological advancements;" impacts on "consumers and other business operators;" and impacts on "competition in the fruit juice beverage market." (164) The sixth factor, the impact on "national economic development," signals MOFCOM's readiness to consider industrial policy in merger review. (165)
The official notice advanced a theory of competitive harm arising from the "leveraging" of Coca-Cola's dominance in the carbonated beverage market into the fruit juice market. First, MOFCOM found that the acquisition would enable Coca-Cola "to carry over its dominance over the carbonated soft drink market to the fruit juice beverage market, triggering the effect of eliminating or restricting competition over the existing fruit juice beverage enterprises and, in turn, compromising the legitimate interest of consumers." (166) Second, MOFCOM emphasized that brand recognition is "a key factor affecting the effective competition in the beverage market.' (167) After the transaction, Coca-Cola would have "considerably stronger market power in the fruit juice beverage market by controlling two well-known fruit juice brands," specifically Huiyuan and Coca-Cola's existing "meizhiyuan" brand. (168) MOFCOM found that "given its current dominance over the carbonated beverage market and the carryover effect, the concentration will considerably raise the barriers for potential competitors to enter the fruit juice beverage market." (169) Third, MOFCOM concluded that the acquisition would squeeze out small and medium-sized domestic fruit juice enterprises and "curtail the ability of domestic enterprises to compete and independently innovate in the fruit juice beverage market." (170) This, in turn, would negatively affect "the pattern of effective competition in the Chinese fruit juice beverage market" and impede "the sustained and sound development of the Chinese fruit juice industry." (171)
The subsequent Q&A articulated MOFCOM's concerns more clearly:
Although the substitutability between carbonated soft drinks and fruit juice beverages is not high, they both belong to non-alcoholic beverages and are in two closely neighboring markets. Already having existing dominance in the carbonated soft drink market, Coca-Cola would further strengthen its competitive advantages and influence in the fruit juice beverage market and produce an additive effect from the strong alliance once the acquisition is completed. For the purpose of its profit-maximization, after completion of the acquisition, Coca-Cola is capable of transferring its dominance in the carbonated soft drink market to the fruit juice beverage market by capitalizing on its dominance in the carbonated soft drink market and conducting tied or bundled sales of fruit juice beverages and carbonated soft drinks or imposing exclusive trading conditions. This will severely weaken or eliminate the ability of other fruit juice beverage makers to compete with it and thus harm the competition in the fruit juice beverage market, ultimately forcing consumers to accept higher prices and less choice. (172)
MOFCOM avoided explicitly condemning the transaction on grounds of "economic nationalism." Apart from "pure" antitrust concerns, the proposed acquisition also provoked public opposition to the acquisition of control over a famous homegrown brand by a foreign conglomerate. (173) The M&A Rules actually include special procedures for approving onshore acquisitions by foreign investors of control over "domestic enterprises which own any well-known trademarks or Chinese historical brands." (174) It was unclear, however, whether this rule technically applied to an offshore stock deal. Although the public furor focused on this issue, MOFCOM framed the value of the Huiyuan brand in terms of its competitive effects rather than in terms of economic nationalism. (175)
The notice explains that MOFCOM requested that Coca-Cola propose remedial conditions, and Coca-Cola responded with an initial proposal followed by a second proposal. (176) Nevertheless, MOFCOM concluded that these proposals "still fail to effectively reduce the negative impact caused by the concentration." (177) The notice does not describe these remedial conditions, explain whether MOFCOM proposed alternate restrictive conditions, or state whether such alternatives were rejected by the parties.
The final decision to prohibit the transaction follows the decisionmaking structure outlined in the AML. Initially, MOFCOM determined that the concentration would have the effect of "eliminating or restricting competition." (178) MOFCOM specifically found that the transaction would adversely impact "effective competition in the Chinese fruit juice beverage market." (179) In the same sentence, however, MOFCOM also emphasized the transaction's adverse impact on "the sound development of the fruit juice industry." MOFCOM concluded that the parties had "failed to provide sufficient evidence" to prove either "that the positive impact of the concentration over the competition considerably outweighs its negative impact" or "that the concentration serves the public interest of society." (180) MOFCOM then reiterated that Coca-Cola had "failed to propose, within the prescribed time limit, a feasible solution to reduce the negative impact." (181) Accordingly, MOFCOM prohibited the concentration.
Suspicions that economic nationalism or protectionism drove the decision abound. (182) Indeed, the Antimonopoly Bureau may have prepared a menu of alternative rulings to more senior decisionmakers or may have reverse engineered an antitrust analysis to fit a desired outcome.
It would be a mistake, however, to dismiss MOFCOM's reasoning as wholly divorced from international practice. Although reliance on theories of "leveraging" or "portfolio effects" to block conglomerate mergers meet skepticism in the United States and Europe, (183) MOFCOM can point to U.S. and E.U. precedents. Indeed, in 2003, the Australian Competition and Consumer Commission blocked Coca-Cola's acquisition of Australian juice-maker Berri Limited on a "leveraging" theory. (184) Regardless of the actual motivations behind the decision, MOFCOM's stated grounds for blocking the transaction fall near--though not necessarily beyond--the outer boundaries of international antitrust practice.
It would likewise be a mistake to accept the mere existence of foreign precedent for considering portfolio effects in conglomerate mergers as refuting charges that MOFCOM tailored its analysis to reach a politically determined result. Instead, the convenient availability of the Berri decision involving the same acquirer and a target in the same industry barely six years before may have tipped the result towards an outcome more palatable to the Chinese public by offering a veneer of consistency with prevailing international practice.
Problematically, the notice itself provides insufficient detail to condemn or exonerate MOFCOM. MOFCOM has insisted that its analysis was not distorted by "factors irrelevant to competition law, nor affected by what some foreign media called the nationalistic mood." Setting aside the overarching debate as to whether blocking a conglomerate merger on portfolio effects grounds is ever sound competition policy, the MOFCOM notice does not clearly demonstrate that the theory was appropriately applied in these circumstances. The ACCC devoted five pages of its Berri assessment to a detailed "competition analysis" considering the distinctive distribution channels for carbonated soft drinks and fruit beverages, the dynamics and structure of Australian market, and the growth of Coke's Fruitopia fruit beverage brand. (185) The MOFCOM notice, in contrast, offers barely five sentences of analysis. (186) More detailed explanations of MOFCOM's underlying factual findings, economic analysis, and legal conclusions might have provided better grounds for evaluating MOFCOM's decision. The subsequent clarifications through the official Q&A are constructive, but insufficient. Publishing brief and conclusory official notices increases MOFCOM's vulnerability to accusations of politicized or unprincipled decisionmaking.
VII. CONDUCT RULES
Implementation of the conduct rules against "monopoly agreements" and "abuse of dominance" has lagged behind the merger control rules. The SAIC and the NDRC have both ramped up their engagement with foreign counterparts and begun exploring mechanisms for coordinating investigation of cases combining price and nonprice conduct. The SAIC is expected to release draft rules for public comment in April 2009, and unofficial draft measures attributed to both agencies have surfaced. The extent to which the SAIC and the NDRC embrace prevailing international practice on substantive issues with respect to the conduct rules remains to be seen.
A. Monopoly agreements
The AML rules on concerted conduct couple broad prohibitions with sweeping exemptions. Although most of these provisions are directly traceable to foreign laws, this particular blend of foreign statutes may have the unintended consequence of blessing gravely anticompetitive conduct.
"Monopoly agreements" are defined to include "agreements, decisions, or other concerted actions that eliminate or restrict competition." (187) Article 13 prohibits horizontal agreements "among competing undertakings," specifically including agreements to fix or change prices; limit production or sales volume; divide markets; conduct joint boycotts; or Limit the purchase of "new technology or new equipment" or the "development of new technology or products." Article 14 expressly prohibits two modes of resale price maintenance (RPM): specifying resale prices and setting minimum resale prices. One MOFCOM official has described RPM as prohibited per se. (188) Both articles also include "catch-alls" encompassing "any other monopoly agreements as determined by [the AMEA]." (189)
Article 15 then exempts agreements entered for the purposes of "improving technology, research, and developing new products"; "improving product quality, reducing costs, enhancing efficiency, unifying product specifications and standards, or implementing specialized division of labor"; "improving operational efficiency and enhancing competitiveness of small and medium-sized undertakings"; "realizing public interests, including, but not limited to, energy conservation, environmental protection, and disaster relief"; "alleviating serious decreases in sales volume or distinct production surpluses due to economic depression"; "ensuring legitimate interests in foreign trade and foreign economic cooperation"; and "other circumstances provided for by laws and the State Council."
Aside from the general public interest and "catch-all" exemption, each of these broad-brush exemptions finds analogues in article 14 of Taiwan's TFTA. (190) The TFTA moderates their breadth by requiring clearance by the Taiwan Fair Trade Commission (TFTC) and by limiting exemptions to a maximum three-year initial term followed by a maximum three-year extension. (191) The AML's drafters, however, deleted individual clearance procedures from earlier drafts. Instead, article 15 of the AML points toward current European practice: parties will bear the burden of demonstrating that a challenged monopoly agreement qualifies for exemption. Article 15 follows article 81(3) of the E.C. Treaty in limiting these exemptions to restraints that are intended for the achievement of the exempt objectives, "enable consumers to share fairly" in the benefits of the agreement, and do not "materially restrict competition in the relevant market." However, article 15 omits the further requirement tinder E.C. practice that the restraints imposed be "indispensable" to attaining exempt objectives. (192) Moreover, there is no "blacklist" disqualifying hard-core restraints from exemption. The fact that the enforcement authorities have discretion to identify new types of monopoly agreements while the State Council holds the power to establish new exemptions may also present difficulties. (193)
The methodology for applying these exemptions remains unclear. Two MOFCOM officials have suggested that the analysis will entail a balancing test, perhaps reminiscent of the U.S. rule of reason or European practice while considering a broader range of public policy concerns. According to Zhengguo Wu, "when the advantages are greater than the disadvantages, a monopoly agreement can be exempted from the application of the AML." (194) Shang Ming has suggested that exemptions may apply to "[c]ertain agreements that display benefits for the economic development and public interest without significantly impairing competition'--implicitly acknowledging public interest concerns beyond pure considerations of economic efficiency. (195) (The views of these MOFCOM officials may not, however, necessarily reflect the views of the SAIC and NDRC personnel actually responsible for applying the exemptions.)
While this avoids a bureaucratic logjam, the scope of the prohibitions and the exemptions remain dangerously unclear. Conversely, the ambiguity of the prohibition and the exemptions may deter some parties from procompetitive conduct. The State Council might resurrect the proposal for individual clearance procedures. (196) Such procedures might take the form of mandatory approval (which may delay or deter procompetitive agreements), mandatory notification (raising risks that anticompetitive agreements may sail by an understaffed enforcement authority without objection), or optional notification and clearance (potentially limiting the caseload to cautious parties and novel cases). A mixture of safe harbors and individual clearance procedures may also be employed. In the end, refining the exemptions through thoughtful implementing guidelines may be a better use of scarce enforcement resources.
Article 46 lays the foundation for a leniency program. Participants in monopoly agreements (not limited to horizontal agreements) that report their misconduct "on their own initiative" and "provide important evidence" to the enforcement authorities may receive reduced penalties or be spared punishment. Mercy remains at the authorities' discretion. Implementing measures may be needed to provide more concrete incentives for parties to step forward early and disincentives for waiting at the back of the line.
B. Abuse of dominance
The rules against abuse of dominance present perhaps the greatest risk of politicized enforcement, since many likely targets are either multinationals (raising risks that protectionism or industrial policy might distort enforcement) or prominent SOEs (whose political allies might derail enforcement). (197) Moreover, Chinese authorities can find precedent for a diverse range of policy judgments in other jurisdictions.
Article 17 expressly prohibits "undertakings with dominant market positions" from "abusing their dominant market positions." Dominant market positions are defined as "market positions held by undertakings which are able to control the price, quantity, or other transaction conditions of products in the relevant market or to prevent or affect other undertakings' entry into the relevant market." (198) Dominance may be established through a multifactor analysis of the market shares of the dominant firm and its competitors; the dominant firm's "ability to control" the market; the dominant firm's financial and technological conditions; barriers to entry; the extent of dependence on the dominant firm by other companies; and "other factors affecting market competition." (199)
Dominance may also be presumed based on the market shares of alleged dominant firms. (200) Any firm with a market share exceeding fifty percent is presumed dominant. Collective dominance is presumed when two undertakings have a combined market share exceeding two-thirds or three undertakings have a combined market share exceeding three-fourths. These thresholds track article 5-1 of Taiwan's TFTA. A firm with a market share of ten percent or less will not be deemed dominant, even if the market shares of its largest competitors otherwise trigger presumptions of collective dominance. The ten percent exemption appears to derive from article 4 of South Korea's MRFTA, which establishes a presumption of dominance where "the total market share of not less than three enterprises is 75/100 or more, provided that those whose market share is less than 10/100 shall be excluded." (201) However, given the percentages set for the presumptions of collective dominance, the ten percent exemption matters only where the top two firms' combined market share falls in the narrow 1.6% range between 65% (where the addition of a third firm with a market share of 10% would otherwise trigger a presumption of dominance for the two leading firms by raising the three-firm market share to 75%) and 66.6% (where the presumption of dominance by the two leading firms applies anyway).
Earlier drafts implied that these presumptions were irrefutable, drawing substantial fire from foreign commentators. Fortunately, the final text allows parties to refute presumptions of dominance by presenting evidence that they do not possess dominant market positions, presumably using the factors outlined in article 18. (202)
Article 17 lists illustrative abuses of dominance. Most stem directly from foreign doctrines, but key nuances and limiting principles are missing. Predatory pricing is prohibited as "selling commodities at prices below cost without any justification." Refusal to deal is prohibited as "refusing to transact with counter-parties with respect to a transaction without any justification." Exclusive dealing is prohibited as "restricting, without any justification, their counter-parties to transact with such undertakings exclusively or to transact with other parties designated by such undertakings exclusively." Tying is prohibited as "engaging in tie-in sales of commodities or imposing other unreasonable conditions with respect to transactions without any justification." Discrimination is prohibited as "applying differential treatment to counter-parties to transactions who have the same qualifications with respect to transaction price and other transaction terms, without any justification." And in a nod to article 82 (a) of the E.C. Treaty, dominant firms are prohibited from "selling commodities at unfair high prices or buying commodities at unfair low prices." Yet another catchall prohibits "other abuses" as defined by the enforcement authorities. Some Chinese officials have suggested that the enforcement authorities will adopt a "rule of reason" assessment of both the procompetitive and anticompetitive effects of challenged conduct on a case by case basis. (203) References to conduct "without justification" and the "fairness" of pricing provides a textual hook for this approach.
Interpretive guidelines might be constructive to the extent that they memorialize this policy, articulate the enforcement authorities' understanding of the rule of reason, and restore omitted principles of foreign rules against the abuses listed in article 17. On balance, however, abuse of dominance is one policy area where the SAIC and NDRC should move with caution.
Indeed, the NDRC has reportedly drafted implementing measures for price-related violations, which notably include the rule against dominant firms charging "unfairly high" prices. Although article 82(a) of the E.C. Treaty likewise prohibits "directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions," in practice the European Commission does not actively pursue "high pricing" as an abuse of dominance absent any exclusionary or predatory conduct. Nevertheless, the draft NDRC implementing measures reportedly translate the prohibition on unfair pricing into rules barring dominant firms from charging prices twenty percent higher than competitors' prices or realizing profits over twenty percent on sales. The feasibility of these measures is doubtful. How should monopolists identify relevant competing products? And monitor competitors' pricing on a rolling basis? Without sliding into collusion? How should costs, expenses, and revenues be allocated to determine the profits on individual sales? Even if these provisions are ultimately not enacted, their mere proposal demonstrates the gap in perspectives between the NDRC and prevailing international practices.
Despite the ambiguity of the conduct rules, the potential liability for infringement is onerous. Penalties for entering monopoly agreements and abuses of dominance include confiscation of illegal gains, fines of one percent to ten percent of the offenders' total turnover from the preceding year, and orders to cease the offending conduct. Whereas the maximum fines comport with Europe's maximum fines of ten percent of turnover, the mandatory minimum fines may lead to grossly disproportionate penalties for minor (or novel) infractions. (204) It is unclear whether the State Council and enforcement authorities will act--either formally or informally--to avoid excessive minimum penalties (and overdeterrence). The power of the SAIC and the NDRC to accept remedial undertakings may avoid disproportionate penalties in early cases, but the possibility remains that the first victims of AML enforcement--potentially under novel theories--may face steep penalties. (205)
C. Intellectual property
Navigating through the intersection of antitrust and intellectual property (IP) may prove hazardous for the enforcement authorities. Scenarios where "default" antitrust rules collide with government policies aimed at boosting national champions and indigenous innovation are probable, if not inevitable. (206) To trading partners and multi nationals already frustrated with lax IP enforcement in China and alarmed by growing economic nationalism, the handling of IP issues may become a litmus test for detecting industrial policy contaminants in antitrust rules.
The complexity and diversity of IP/antitrust rules overseas compounds the problem. Disagreements on cutting-edge issues between foreign jurisdictions (and even within the same jurisdiction) muddy the waters. The enforcement authorities might inadvertently stray into seemingly protectionist decisions through good-faith misapplication of foreign practices. Unsurprisingly, foreign commentators have urged caution in applying the AML to intellectual property. (207)
The text itself provides little guidance. Article 55 simply provides that AML shall not apply to the "exercise of intellectual property rights pursuant to the stipulations in laws and administrative regulations relating to intellectual property" but "shall apply to actions taken ... to eliminate or restrict competition by abusing intellectual property rights." This syntax, apparently borrowed from Japan, deviates from the U.S. approach of "applying" general antitrust principles while taking into account the unique features of IP rights. (208)
Chinese scholars have suggested that the issuance of guidelines analogous to those of the United States, Europe, and Japan is likely. Such an endeavor may attract interest from stakeholders beyond the enforcement authorities and AMC, such as the State Intellectual Property Office (SIPO). The menu of IP-antitrust issues is familiar:
* With respect to licensing, it is unclear whether new IP guidelines would bring China closer to U.S. practice. Article 329 of the Contract Law already prohibits "illegally monopolizing technology and impairing technological progress." (209) The SPC has interpreted article 329 to prohibit outright several licensing practices, many of which are subject to rule of reason analysis in the United States. (210) Indeed, article 329 provided the basis for a recently settled case pitting a Chinese technology company against Intel for "illegal monopolization of technology" through software licensing practices. (211)
* If the enforcement authorities fall into the trap of presuming that patents confer market power, they may readily treat an IP holder's unconditional, unilateral refusal to license as an abusive "refusal to deal" or treat an IP holder's charging of royalty payments which the market could otherwise bear as abusive "unfairly high pricing." Payment of "unreasonable" royalties by Chinese manufacturers to foreign patent holders has been a perennial gripe of many industry and government leaders. (212) Fear of enforcement actions might induce IP holders to license their IP on otherwise unacceptable terms.
* Technology firms remain acutely concerned that national standard-setting initiatives might mandate the licensing of IP rights absent any deceptive or other anticompetitive misconduct by the IP owner. (213)
* Recent revisions to the Patent Law authorize SIPO to issue compulsory licenses as a remedy for monopolistic conduct. (214) The enforcement authorities' role in determining the propriety of such remedies remains to be seen, as does their readiness to condition merger clearance on IP licensing (particularly licenses to numerous competitors). Liberal licensing remedies could dramatically affect many multinationals' China strategies.
VIII. MILESTONES AND OTHER ROCKS AHEAD
Even if the enforcement authorities and AMC seek to embrace prevailing international practices, they face a rocky road ahead. China's entrepreneurs, SOE executives, and morn-and-pop shopkeepers are not accustomed to complying with modern competition rules, much as local bureaucrats and trade associations are not sensitized to the limits on their own conduct. Where the enforcement authorities manage to summon economic expertise, obtaining reliable data will be challenging. Official statistics are notoriously inaccurate. Commercial entities often maintain separate (read fraudulent) financial records for inspection by the authorities, and government departments likewise maintain separate records for disclosure to superiors. Residual mistrust of government investigators may lead consumers and suppliers to tell investigators what they think they want to hear; this may undermine efforts to corroborate complaints by competitors. Moreover, the legacy of Maoist emphasis on regional self-sufficiency (translating into overcapacity) coupled with regional protectionism has splintered many industries into local markets (even if the same sectors function on regional or national scales in other jurisdictions). These challenges are by no means unique to China, but they assume gargantuan proportions in China's vast market.
Selectively reading the proverbial tea leaves offers extreme visions of the Chinese antitrust authorities' future: paladins slashing away at the bureaucracy and the SOEs in the name of China's consumers; ignored apostles of competition left preaching in the wilderness; or willing accomplices in the furtherance of industrial policy. In reality, they may be all three. Indeed, dividing authority between MOFCOM, the SAIC, and the NDRC raises risks of divergent enforcement agendas within the AML enforcement structure itself. Given the opacity and complexity of China's economy and its policymaking process, the substance of antitrust with Chinese characteristics is likely to vary depending on the region, the industry, and the political clout of the parties involved. The challenge for foreign companies will be deciphering the political map to determine where they fall and what enforcement they should anticipate.
(1) See Fanlongduan Fa [Antimonopoly Law] (promulgated by the Standing Comm. Nat'l People's Cong., Aug. 30, 2007, effective on Aug. 1, 2008), available at http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id=371229& pdmc=ll006. An unofficial English translation is available as an appendix to Nathan Bush, The PRC Antimonopoly Law: Unanswered Questions and Challenges Ahead, ANTITRUST SOURCE, Oct. 2007, http://www.abanet.org/antitrust/at-source /07/10/Oct07-Bush10-18f.pdf. References and quotations herein are based on this English translation.
(2) See Shangwubu Gonggao [Notice  No. 95 of the Ministry of Commerce] (issued by Ministry of Commerce, Nov. 18, 2008, effective the same day), available at http://fldj.mofcom.gov.cn/column/print.shtml?/ztxx /200811/20081105899216 [hereinafter InBev/AB Notice]; Shangwubu Gonggao [Notice  No. 22 of the Ministry of Commerce] (issued by Ministry of Commerce, Mar. 18, 2009, effective the same day), available at http://fldj.mofcom .gov.cn/aarticle/ztxx/200903/20090306108494.html?3695772507=1142016402 [hereinafter Coke/Huiyuan Notice].
(3) See Shang Ming, Antitrust in China--A Constantly Evolving Subject, COMPETITION LAW INT'L., Feb. 2009, at 4.
(4) See Youngjin Jung & Qian Hao, The New Economic Constitution in China: A Third Way for Competition Regime?, 24 Nw. J. INT'L L. &: Bus. 107, 112 (2003).
(5) See Fanbuzhengdang Jingzheng Fa [Anti-Unfair Competition Law] (promulgated by the Standing Comm. Nat'l People's Cong., Sept. 2, 1993, effective Dec. 1, 1993), arts. 5, 8, 9-10, 13-15, available at http://tfs.mofcom.gov.cn /aarticle/date/i/s/200503/20050300027909.html. (Translation available by subscription at http://www.chinalawinfo.com.) See also Shang Ming, supra note 3, at 5.
(6) See Anti-Unfair Competition Law, arts. 11-12.
(7) Wang Xiaoye, Issues Surrounding the Drafting of China's Anti-Monopoly Law, 3 WASH. U. GLOBAL STUD. L. REV. 285, 285 (2004).
(8) See MARK WILLIAMS, COMPETITION POLICY AND LAW IN CHINA, HONG KONG, AND TAIWAN 172--73 (2005).
(9) See Zhengguo Wu, Perspectives on the Chinese Antimonopoly Law, 75 ANTITRUST L.J. 73, 74-75 (2008) (listing laws, regulations, and other measures touching on core antitrust issues).
(10) See id. at 78.
(11) See Wang Xiaoye, supra note 7, at 285; H. Stephen Harris, The Making of an Antitrust Law: The Pending Antimonopoly Law of the People's Republic of China, 7. CHI. J. INT'L L. 169, 205 (2006). Comments submitted by foreign bar associations to the Chinese government sought to articulate foreign concerns with successive drafts diplomatically. See, e.g., AMERICAN BAR ASSOCIATION, JOINT SUBMISSION OF THE AMERICAN BAR ASSOCIATION'S SECTIONS OF ANTITRUST LAW AND INTERNATIONAL LAW AND PRACTICE ON THE PROPOSED ANTI-MONOPOLY LAW OF THE PEOPLE'S REPUBLIC OF CHINA (2003) [hereinafter ABA 2003 Comments]; AMERICAN BAR ASSOCIATION, JOINT SUBMISSION OF THE AMERICAN BAR ASSOCIATION'S SECTIONS OF ANTITRUST LAW, INTELLECTUAL PROPERTY LAW AND INTERNATIONAL LAW ON THE PROPOSED ANTI-MONOPOLY LAW OF THE PEOPLE'S REPUBLIC OF CHINA (2005) [hereinafter ABA 2005 Comments]; INTERNATIONAL BAR ASSOCIATION, COMMENTS ON THE DRAFT ANTI-MONOPOLY LAW OF THE PEOPLE'S REPUBLIC OF CHINA (PRC) (DRAFT OF 27 JULY 2005) (Aug. 23, 2005). Speeches by U.S. government officials strike similar notes. Commentaries by academics and practitioners in tertiary sources tend to be more pointed.
(12) For example, a strong "essential facilities doctrine" provision was deleted. See Harris, supra note 11, at 205. See also Zhengguo Wu, supra note 9, at 83-84 (acknowledging distinction between dominant status and abuse thereof).
(13) See, e.g., AML, art. 19 (allowing presumptions of collective dominance) and art. 17.1 (prohibiting dominant firms from sales at unfairly high prices). See also Harris, supra note 11, at 198-99 (discussing inclusion of disfavored concept of collective dominance); Michael Jacobs, The Chinese Antimonopoly Law and the Private Sector: An American Perspective 4 (presented at the Third Annual Asia Competition Forum, Dec. 11, 2007) (on file with the author) (decrying article 17.1 as the "one provision for which no justification is permitted").
(14) See Mark Williams, Wal-Mart in China: Will the Regulatory System Ensnare the American Leviathan?, 39 CONN. L. REV. 1361, 1378 n.75 (2007).
(15) See China.org., Legislation of the NPC and its Standing Committee, http://www.china.prg.cn/english/kuaixun/76337.htm.
(16) See e.g., AML, arts. 4-7, 31. See also Zhengguo Wu, supra note 9, at 84, 97-98, 101 (explaining revisions by NPC).
(17) See Treaty Establishing the European Community, Feb. 7, 1992, O.J. (C 224) 1 (1992), 1 C.M.L.R. 573 (1992), art. 81.
(18) See Gesetz gegen Wettbewerbsbeshranktulgen [Law Against Restraints of Competition], BGB1. I at 1081 (1957, as amended) (BRD).
(19) See Shiteki Dokusen no Kinshi Oyobi Kosei Torihiki no Kakuho ni Kansuru Houritsu [Antimonopoly and Maintenance of Fair Trade Act], Law No. 54 of 1947 (ROK).
(20) See Fagui Huibian [Fair Trade Act of 1992], (amended 2002) (ROC).
(21) See Dokjummit Gongjung Gurae Gwanhan Popryul [Monopoly Regulation and Fair Trade Act], Law No. 6043, Dec. 28, 1999, art. 4. English translation available at http://unpanl.un.org/intradoc/groups/public/documents /APCITY/UNPAN011494.pdf.
(22) See Nathan Bush & Zhaofeng Zhou, Chinese Antitrust--Act II, Scene 1, ANTITRUST SOURCE, Oct. 2008, http://www.abanet.org/antitrust/at-source /08/10/Oct08-Bush10-24f.pdf.
(23) See Wang Xiaoye, supra note 7, at 295 (attributing opposition to the AML, in part, to alignment with entrenched political interests).
(24) See e.g., Wang Xiaoye, Challenges in Enforcing Chinese Antimonopoly Law--The Conflicting Goals of the Law 2 (presented at the Third Annual Asia Competition Forum, Dec. 11, 2007) (on file with author).
(25) See Joshua D. Wright, The Roberts Court and the Chicago School of Antitrust: The 2006 Term and Beyond, COMPETITION POL'Y INT'L, Autumn 2007, at 25, 29-39 (distinguishing Chicago and post-Chicago schools).
(26) The NPC published select excerpts of the August 24, 2007, discussion on its official website in Chinese. See Fanlongduan Fa Caoan Jiben Chengshu Jianyi Biaojue Tongguo [Antimonopoly Law Draft Basically Mature, Proposed to be Put to a Vote], http://www.npc.gov.cn/zgrdw/common/zw.jsp?label =WXZLK&id=371689&pdmc=110106. Unofficial translations available from the author.
(27) All currency conversions are based on August 17, 2008, rates of 1 USD = 6.83 RMB as published at http://www.x-rates.com/d/CNY/USD /graph120.html and 1 Euro = 8.92 RMB as published at http://www.x-rates .com/d/CNY/EUR/graphl20.html.
(28) See Lingshoushang Gongyingshang Gongping Jiaoyi Guanli Banfa [Measures for Administration of Fair Trading for Retailers and Suppliers] (Order of Ministry of Commerce, National Development and Reform Commission, Ministry of Public Security, State Administration of Taxation and State Administration for Industry and Commerce, effective Nov. 15, 2006)  No. 17. Similar measures were enacted in April 2008. See Chengshi Shangye Wangdian Tiaoli (Zhengqiu Yijian Gao) [Draft Rules on Urban Commercial Networks] (released by the State Council on April 2, 2008), available at http://www.gov.cn/gzdt/2008-04/02/content_935148.htm.
(29) Hu Jintao's Report to the 17th Chinese Communist Party National Congress on October 15, 2007, touched on each of these themes. See Full Text tf Report Delivered by Hu Jintao at 17th Party Congress on 15 Oct. 07, WORLD NEWS CONNECTION (Newswire), Oct. 25, 2007. See also Antimonopoly Law Draft Basically Mature, supra note 26 (comments of NPC Committee Member Li Lianning calling for AML to promote leading companies to "grow big and strong").
(30) See Antimonopoly Law to Benefit All, CHINA DAILY; (June 2, 2004), available at http:/www1.china.org.cn/English/government/97133.htm. The report, entitled Competition-Restricting Behavior of Multinational Companies in China and Possible Countermeasures, was issued by the Antimonopoly Division of the Fair Trade Bureau of the SAIC in the SAIC's official publication, Industry and Commerce Administration, on March 1, 2004.
(31) See Organisation for Economic Co-operation & Development, Competition Law and Policy as Tools for China to Prevent Anticompetitive Conduct and to Ensure that Government Policies Realise their Objectives as Efficiently as Possible, at [paragraph] 40 and n.11, CCNM/CHINA(2004)12 (Dec. 23, 2004) (noting that the report's allegations against specific firms were "undocumented" and "unconfirmed," that much of the report's analysis was "unclear or questionable," and that the report deviated from "mainstream competition analysis"). The SAIC report may have been more a political gambit for policy leadership than true advocacy of protectionist enforcement. One scholar affiliated with the project subsequently characterized the report as intended to mobilize support for competition policy within the government and endorsed non-discriminatory enforcement. See Jiemin Sheng, How does the Chinese Government Regulate Foreign Investors' M&A of Domestic Enterprises 5 (presentation at ABA Annual Meeting, Aug. 6, 2005) (on file with author). See also Harris, supra note 11, at 53.
(32) See Antimonopoly Law Draft Basically Mature, supra note 26.
(33) See China Still Seeking More Foreign Investment--MOFCOM, CHINA Bus. NEWSWIRE (Sept. 26, 2007); Monopolies Pose Threats, CHINADAILY.COM.CN, BUS. DAILY UPDATE (Sept. 12, 2007); H. Stephen Harris, Jr., & Keith D. Shugarman, Interview with Shang Ming, Director General of the Anti-Monopoly Bureau under the Ministry of Commerce of the People's Republic of China, ANTITRUST SOURCE, Feb. 2009, at 3-4, http://www.abanet.org/antitrust/at-source/09/02/Feb09ShangIntrvw2-26f.pdf [hereinafer Shang Ming Interview].
(34) See PRC Commerce Ministry Official on Commerce Legislation, WORLD NEWS CONNECTION (Newswire), Oct. 8, 2007; Zhenggou Wu, supra note 9, at 77; Shang Ming, supra note 3, at 5.
(35) David J. Gerber, Constructing Competition Law in China: The Potential Value of European and U.S. Experience, 3 WASH. U. GLOBAL STUD. L. REV. 315, 316 (2004).
(36) See Stanley Lubman, Looking for Law in China, 20 COLUM. J. ASIAN L. 1, 33-39 (2006).
(37) See AML, arts. 9-10. The Chinese language does not clearly distinguish plural from singular nouns.
(38) See id..
(39) See Calls for a Single Anti-Monopoly Agency, CHINADAILY.COM.CN, BUS. DAILY UPDATE, Dec. 14. 2007 (original Chinese article available at http://www .chinadaily.com.cn/bizchina/2007-12/14/content_6321654.htm).
(40) Ironically, the May 2002 draft of the AML anticipated this eventual compromise; it assigned merger review and administrative monopoly issues to MOFCOM's predecessor, MOFTEC, assigned the rules against "price agreements" and collusion to the State Planning and Development Commission (now the NDRC), and assigned the remaining rules against monopoly agreements and abuse of dominance to the SAIC.
(41) See Susan Munro & Sherry Yan, Recent Government Reorganization in China, O'Melveny & Myers China Law & Policy Series (July 30, 2003).
(42) See Guanyu Waiguo Touzizhe Binggou Jingnei Qiye de Guiding [Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors] (promulgated by Ministry of Commerce, State Owned Asset Supervision and Admin Comm'n, State Admin. of Taxation, State Admin. of Indus. & Commerce, China Securities Reg. Comm'n and State Admin. of Foreign Exchange, Aug. 8, 2006, effective Sept. 8, 2006), available at http://www.legaldaily .com.cn/misc/2006-08/29/content_397421.htm. (Translation available by subscription at http://www.chinalawinfo.com.)
(43) See Waiguo Touzizhe Binggou Jingnei Qiye Zanxing Guiding [Provisional Regulations Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors] (promulgated by Ministry of Foreign Trade and Econ. Cooperation, State Admin. of Taxation, State Admin. of Indus. & Commerce, and State Admin. of Foreign Exchange, Mar. 13, 2003, effective Apr. 12, 2003), available at http://tfs.mofcom.gov.cn/aarticle/date/i/s/200509 /20050900366385.html. (Translation available by subscription at http://www.chinalawinfo.com.)
(44) See Shang Ming Interview, supra note 33, at 3.
(45) Harris, supra note 11, at n.55.
(46) See Shangwubu Zhuyao Zhizhe Neishe Jigou he Renyuan Bianzhi Guiding [Regulation on Major Duties of the Internal Structure and Staffing Requirements of Ministry of Commerce] (promulgated Aug. 23, 2008), art. 3(11), available at http://www.china.com.cn/policy/zhuanti/xbwzj/2008-08 /24/content_16316678.htm.
(47) See Shang Ming Interview, supra note 33, at 2.
(48) See Anti-Unfair Competition Law, art. 6-7.
(49) See Zhong Youping Zai Fanlongduan Zhifa Guoji Yantaohui Shang Zhichu Gongshang Bumen Yifa Kaizhan Jingzheng Zhifa Qude Jiji Chengxiao [Statement by Zhong Youping at the International Symposium on Antitrust Law Enforcement that AICs' Enforcement of Competition Rules Has Achieved Positive Results] (Dec. 15, 2007), http://www.saic.gov.cn/zwxxq /zwdt/gsyw/zjyw/t20071218_28643.htm.
(50) See Guowuyuan Bangongting Guanyu Yinfa Cuojia Gongshang Xingzheng Guanli Zhongju Zhuzhao Zhizhe Neishe Jigou he Renyuan Bianzhi Guiding de Tongzhi [Office of the State Council Issued the Notice on the Major Duties of the Internal Structure and Staffing Requirements of State Administration for Industry and Commerce] (promulgated July 11, 2008), available at h tp://www.saic.gov.cn/zwxxq/zwdt/zyfb/t20080725_43236.htm.
(51) See Guojia Fazhan he Gaige Weiyuanhui Zhuyao Zhizhe Neishe Jigou he Renyuan Bianzhi Guiding [Regulation on Major Duties of the Internal Structure and Staffing Requirements of National Development and Reform Commission] (promulgated Aug. 22, 2008), art. 3 (23), available at http://www.ndrc.gov.cn/gzdt/t20080821_231802.htm.
(52) See Jiage Fa [Price Law], (promulgated by the Standing Comm. of the Nat'l People's Cong., Dec. 29, 1997, effective May 1, 1998), available at http://www.gov.cn/ziliao/flfg/2005-09/12/content_31188.htm. (Translation available by subscription at http://www.chinalawinfo.com.)
(53) See id., art. 14.
(54) See Zhizhi Jiage Longduan Xingwei Zanxing Guiding [Interim Provisions on Preventing Acts of Price Monopoly], Order  No. 3 (adopted by the State Planning and Dev. Comm'n June 18, 2003, effective Nov. 1, 2003), available at http://www.sdpc.gov.cn/zcfb/zcfbl/zcfb12003/t20050613_6683 .htm. (Translation available by subscription at http://www.chinalawinfo .com.) The State Planning and Development Commission was restructured and renamed the NDRC during the same 2003 government reorganization that created MOFCOM.
(55) See Guowuyuan Guanyu Xiugai Jiage Weifa Xingwei Xingzheng Chufa Guiding De Jueding [Decision of the State Council on Revision of Provisions on Administrative Punishment of Price-Related Violations] (Jan. 13, 2008).
(56) See Press Release, U.S. Federal Trade Comm'n, FTC Commissioners React to Department of Justice Report, Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act (Sept. 8, 2008), available at http://www.ftc.gov/opa/2008/09/section2.shtm.
(57) See Duiwaimaoyi Fa [Foreign Trade Law] (promulgated by the Standing Comm. Nat'l People's Cong. May 12, 1994, amended by the Standing Comm. Nat'l People's Cong. Apr. 6, 2004, effective July 1, 2004), available at http://finance.sina.com.cn/g/20040407/0812706454.shtml. Article 32 prohibits "acts of monopolization" in the conduct of foreign trade in violation of "relevant anti-monopolization laws or administrative regulations." While such misconduct should generally be addressed under the "relevant antimonopolization laws and administrative regulations," the foreign trade authority of the State Council (currently MOFCOM) may separately take "necessary measures to eliminate the harm" if such conduct "endangers the foreign trade order." Id.
(58) See AML, art. 9.
(59) See Shang Ming, supra note 3, at 10.
(60) See Guowuyuan Riqian Chengli Fanlongduan Weiyuanhui Juyou Sixiang Zhuyao Zhize [State Council Established Antimonopoly Commission Having Four Main Duties] (Aug. 1, 2008), available at http://www.gov.cn /jrzg/2008-08/01/content_1062161.htm. Recent media reports suggest that the chairmanship of the AMC might fall to Vice Premier Wang Qishan, whose portfolio includes trade and finance matters. See Wang Qishan Huo Ren Fanlongduan Weiyuanhui Zhuren [Wang Qishan Might be the Director of Antimonopoly Law Commission] (Aug. 1, 2008), available at http://finance.ifeng .com/news/hgjj/200808/0801_2201_688008.shtml.
(61) See Guowuyuan bangongting guanyu guowuyuan fanlongduan weiyuanhui zhuyao zhizhe he zhucheng renyuan de tongzhi [Notice of the General Office of the State Council on the Main Functions and Members of the Anti-monopoly Commission of the State Council] (promulgated by the General Office of the State Council, July 28, 2008, effective the same day), CHINALAWINFO, available at http://www.lawinfochina.com/law/display.asp?db =1&id=7190&keyword=ju1y%2028,%202008.
(62) Fanlongduan Weiyuanhui Huzhi Yuchu Zhifa Tizhi Cheng Jiaodian [Antimonopoly Law Commission Is Going to Be Established, Enforcement Structure Becomes the Focus] (July 23, 2008), http://www.cei.gov.cn/loadpage .aspx?Page=ShowDoc&CategoryAlias=zonghe/ggmflm_zh&ProductAlias=z onghyb&BlockAlias=YBQH1/&filename=/doc/YBQH1//200807230014.xml.
(63) See AML, art. 10.
(64) See id. "Municipalities under the central government" refers to Beijing, Shanghai, Tianjin, and Chongqing, which are not part of any province. See also Zhengguo Wu, supra note 9, at 104-105.
(65) See Zuigao Renmin Fayuan Tongzhi Yaoqiu Qieshi Yifa Shenlihao Gelei Fanlongduan Anjian [Circular of Supreme People's Court on Hearing Antimonopoly Cases According to Law] (promulgated and effective July 31, 2008), available at http://www.chinacourt.org/html/article/200807/31 /314776.shtml. See also China View, Chinese courts urged to study new, "complicated" antimonopoly law, XINHUA (July 30, 2008), available at http://news.xinhuanet.com/english/2008- 07/30/content_8866111.htm. Previous measures classified antimonopoly claims with intellectual property disputes. See Zuigao Renmin Fayuan Minshi Anjian Anyou Guiding [Supreme People's Court Regulations on the Cause of Civil Action] (promulgated and effective Mar. 3, 2008), available at http://www.2008red.com / member_pic_538/files /xnhbs/html/article_723_1.shtml.
(66) Fanlongduan Minshi Guanshi Mianlin Zhongduo "Shuobuqing" Falujie Renshi Fenfen Xianche Po "Miwu" [Anti-monopoly Civil Lawsuits Face Many "Unclear" Questions Legal Experts Provide Solutions] (Oct. 28, 2008), available at http://news.sohu.com/20081028/n260280285.shtml.
(67) See Liu Lan, Jai Qiang Fanjongduan Sifa Shencha Yifa Baohu Gongping Jingzheng [Strengthening Judicial Review of Antimonopoly and Protecting Fair Competition according to Law], CHINACOURT.ORG (Nov. 3, 2008), available at http://www.chinacourt.org/html/article/200811/03/328394.shtml.
(68) See AML, art. 13(6), 17(7).
(69) See Zuigao Renmin Fayuan Guanyu Shenli Zhengquan Shichang Yin Xujia Chenshu Yinfa De Minshi Peichang Anjian De Ruogan Guiding [Some Provisions of the Supreme People's Court on Trying Cases of Civil Compensation Arising from False Statement in Securities Market], Interpretation  No. 2 (promulgated by the Supreme People's Court Jan. 9, 2003, effective Feb. 1, 2003), art. 5, available at http://www.court.gov.cn/lawdata /explain/civilcation/200303200005.htm. (Translation available by subscription at http://www.chinalawinfo.com.)
(70) Kong Xiangjun: Fanlongduan An Shangwu Yi An Shenjie [Kong Xiangjun: No Anti-monopoly Case Has Been Concluded] (Mar. 9, 2009), available at http://ip.people.com.cn/GB/136672/136677/8932162.html.
(71) See Xingzheng Susong Fa [Administrative Litigation Law] (promulgated by the Nat'l People's Cong. Apr. 4, 1989, effective Oct. 1, 1990), available at http://www.ccgp.gov.cn/xgfg/xingzhengsusong.htm. (Translation available by subscription at http://www.chinalawinfo.com.)
(72) See Xingzheng Fuyi Fa [Administrative Review Law] (promulgated by the Nat'l People's Cong. Apr. 29, 1999, effective Oct. 1, 1999), available at http://www.ccgp.gov.cn/xgfg/xingzhengfuyi.htm. (Translation available by subscription at http://www.chinalawin fo.com.)
(73) See AML, art. 53.
(74) While the AMC might provide a forum for settling disputes among its member agencies, questions "settled" within the AMC might nevertheless escalate to the State Council.
(75) See Lubman, supra note 36, at 33-38.
(76) See Facilitate and Regulate Competition and Supervision of State-Owned Monopoly Industries, WORLD NEWS CONNECTION (Newswire) (Dec. 5, 2007) (original Xinhua News Agency article published Nov. 26, 2007, available at http://news.xinhuanet.com/newscenter/2007-11/26/content_7150326 .htm.); China View, Chinese People Question Effectiveness of Anti-Monopoly Law on SOEs, XINHUA, Sept. 13, 2007, http://news.xinhuanet.com/english/200709 /13/content_6718853.htm.
(77) See Vice Premier Calls for Bigger Role of Central SOE's in Economy, Bus. DAILY UPDATE (Sept. 12, 2007).
(78) See Xianfa [Constitution (2004)] (promulgated by the Nat'l People's Cong. 1982, amended Mar. 14, 2004,), available at http://news.xinhuanet.com /newscenter/2004-03/15/content_1367387.htm. (Translation available by subscription at http://law.chinalawinfo.com/.) Article 7 provides: "[T]he state-owned economy, namely, the socialist economy under ownership by the whole people, is the leading force in the national economy. The state ensures the consolidation and growth of the state-owned economy." See also The Rise of the "Red Capitalists," INT'L HERALD TRIBUNE, Oct. 27, 2007, at 4.
(79) See Minggao Shen, CITIGROUP, THE ANTITRUST LAW? FOR WHOSE COST AND BENEFIT?, (Sept. 6, 2007) (on file with author).
(80) See Shang Ming, supra note 3, at 6.
(81) See Zhengguo Wu, supra note 9, at 99. See also Fang Xiaomin, State-Owned Economy in Chinese Antimonopoly Law 7-9 (presented at the Third Annual Asia Competition Forum, Dec. 11, 2007) (on file with author).
(82) See Wang Xiaoye, supra note 24, at 3.
(83) Chinese People Question Effectiveness of Anti-Monopoly Law on SOEs, XINHUA, Sept. 13, 2007, available at http://news.xinhuanet.com/english/200709 /13/content_6718853.htm.
(84) See Harry L. Clark & Lisa W. Wang, Foreign Investment and National Security, CHINA BUS. REV. 52 (Jan.-Feb. 2008). See also Foreign M&A's in China Take a TricKy Turn, CHINA KNOWLEDGE PRESS, Nov. 13, 2007, 2007 WLNR 22379812.
(85) See M&A Rules, art. 12.
(87) See Zhengguo Wu, supra note 9, at 101. See generally, 50 App. U.S.C.A. 2170 (2007).
(88) See Jiaqiang Qiye Binggou De Jiandu Fangzhi Lanyong Xingzheng Quanli Paichu Xianzhi Jingzheng [Enhancing Supervision of Mergers and Acquisitions, Preventing Abuse of Administrative Power to Exclude and Restrict Competition], available at http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id=371691&pdmc=110106. Unofficial translations available from the author. See also PRC Analysts Comment on Antimonopoly Law, WORLD NEWS CONNECTION (Newswire), Sept. 4, 2007 (translating Xinhua article describing concern about "malicious" foreign investment jeopardizing national security), available at http://news.xinhuanet .com/newscenter/2007-08/30/content_B635146.htm.
(89) See Xizhu Zhang & Vanessa Yanhua Zhang, The Antimonopoly Law in China: Where Do We Stand?, COMPETITION POL'Y INT'L, Autumn 2007, at 185, 193.
(90) See Carlyle Fails to Secure Stake in China Firm, ASIA WALL ST. J., Jul. 23, 2008.
(91) See Clark & Wang, supra note 84, at 53.
(92) See Bruce Owen, Su Sun, and Wentong Zheng, Antitrust in China: The Problem of Incentive Compatibility, 1 J. COMPETITION L. & ECON. 123, 130-131 (2005).
(93) See Donald C. Clarke, How Do We Know When an Enterprise Exists?: Unanswerable Questions and Legal Polycentricity in China, 19 COLUM. J. ASIAN L. 50, 64 (2005).
(95) See Wang Xiaoye, supra note 7, at 293-94.
(96) See Zhengguo Wu, supra note 9, at 93-94.
(97) AML, arts. 32-37.
(98) See Guowuyuang Guanyu Jinzhi zai Shichang Jingji Huodong zhong Shixhig Diqu Fengsuo de Guiding [Regulations Regarding the Prohibition of Regional Blockade in Market Economic Activities] (promulgated by the State Council, Apr. 29, 2001, effective Apr. 29, 2001), available at http://www.people.com.cn/GB/shizheng/20010429/456075.html.
(99) See AML, art. 51.
(100) The NPC published select excerpts of the Aug. 24, 2007, discussion on its official website in Chinese. Relevant excerpts (and their corresponding URLs) include: Antimonopoly Law Draft Basically Mature, Proposed to be Put to a Vote, available at http://www.npc.gov.cn/zgrdw/common/zw.jsp?label =WXZLK&id=371689&pdmc=l10106; Identification of Abuse of Dominant Market Position, available at http://www.npc.gov.cn/zgrdw/common/zw .jsp?label=WXZLK&id=371690&pdmc=110106; and Enhancing Supervision of Mergers and Acquisitions, Preventing Abuse of Administrative Power to Exclude and Restrict Competition, available at http://www.npc.gov.cn/zgrdw/common/zw.jsp?label=WXZLK&id=371691&pdmc=110106. Unofficial translations available from the author.
(101) See Sijia Fangwei Qiye Xiang Guojia Zhijian Zongju Tiqi Fanlongduan Susong [Four Anti-Fake Enterprises Brought an Antimonopoly Suit against AQSIQ] (Aug. 3, 2008), available at http://www.competitionlaw.cn/show.aspx?id=3961 &cid=42.
(102) See Guojia Zhijian Zongju Chexiao Dianzi Jianguan Tuijin Jigou [AQSIQ repealed the Electronic Monitoring Promotion Institutions] (Oct 24, 2008), available at http://www.caijing.com.cn/2008-10-24/110022863.html.
(103) See Liu Lan, Jia Qiang Faniongduan Sifa Shencha Yifa Baohu Gongping Jingzheng [Strengthening Judicial Review of Antimonopoly and Protecting Fair Competition according to Law], CHENACOURT.ORG, Nov. 3, 2008, available at http://www.chinacourt.org/html/article/200811/03/328394.shtml.
(104) See Beijing Drawing Lip New Rules on Foreign Buyouts, S. CHINA MORNING POST, Nov. 27, 2007.
(105) See Lubman, supra note 36, at 30.
(106) See Administrative Review Law, arts. 23-28.
(107) See U.S. TRADE REPRESENTATIVE, 2007 REPORT TO CONGRESS ON CHINA'S WTO COMPLIANCE 33 (2007) (noting procedural shortcomings and lack of transparency in Chinese antidumping proceedings).
(108) See Lubman, supra note 36, at 30.
(109) The prevalence of ex parte communications further blurs the record in administrative and judicial decisions.
(110) MOFCOM should take no comfort in the fact that MOFCOM and the SAIC received barely 600 notifications from 2003 to 2008. Many transactions technically covered by the rules likely went unreported. Many parties may have been unaware of their filing requirements. Moreover, the M&A Rules provided no direct penalties for failure to notify a transaction or for consummating a prohibited transaction. Although MOFCOM's antimonopoly office could cause local commerce departments to withhold approval of unreported on-shore deals, it had no means of blocking or imposing conditions on offshore deals. The AML's clear penalties for failure to notify reportable transactions and for consummating prohibited deals create new incentives for compliance. And whereas the M&A Rules applied only to acquisitions by "foreign investors," the AML sweeps in the growing number of domestic deals between Chinese parties.
(111) See Shangwubu: Kekoukele Shougou Huiyuan Wei Tongguo Fanlongduan Shencha ]Ministry of Commerce: Coca Cola's Proposed Acquisition of Huiyuan Did Not Pass the Antimonopoly Review] (Mar 18, 2008), available at http://news.xinhuanet.com/politics/2009-03/18/content_11031478.htm.
(112) See Guowuyuan Guanyu Jingyingzhe Jizhong Shenbao De Guiding (Zhengqiu Yijian Gao) [Draft Rules on Notification of Concentrations of Undertakings Issued by the State Council] (released by the Legislative Affairs Office of the State Council, Mar. 27, 2008), available at http://www.china.com.cn/finance/txt/ 20084)3/28/content_13777686_2.htm.
(113) See, e.g., AMERICAN BAR ASSOCIATION, JOINT COMMENTS OF THE AMERICAN BAR ASSOCIATION SECTIONS OF ANTITRUST LAW AND INTERNATIONAL LAW AND PRACTICE ON DRAFT FOR COMMENTS OF THE STATE COUNCIL REGULATIONS ON NOTIFICATION OF CONCENTRATIONS OF UNDERTAKINGS (2008).
(114) See Guowuyuan Guanyu Jingyingzhe Jizhong Shenbao Biaozhun de Guiding [Rules of the State Council on Notification Thresholds for Concentrations of Undertakings[ (promulgated and effective Aug. 1, 2008), available at http://www.gov.cn/zwgk/2008-08/04/content_1063769.htm.
(115) Guanyu Dui Jingyingzhe Jizhong Shenbao De Zhidao Yijian [Guiding Opinions on the Notification of Concentrations of Business Operators (Draft)] (released by MOFCOM, Jan. 7, 2009), available at http://fldj.mofcom.gov.cn/aarticle/xgxz/200901/ 20090105993824.html?1282482011=1142016402 (translation on file with author).
(116) Guanyu Dui Jingyingzhe Jizhong Shenbao Wenjianziliao De Zhidao Yijian [Guiding Opinions on the Notification Materials of Concentrations of Business Operators (Draft)] (released by MOFCOM, Jan. 7, 2009), available at http://fldj.mofcom.gov.cn/aarticle/xgxz/200901/20090105993841.html ?2708545371=1142016402 (translation on file with author).
(117) Guanyu Xiangguanshichang Jieding De Zhinan [Guidelines for Definition of the Relevant Market (Draft)] (released by MOFCOM, Jan. 7, 2009), available at http://fldj.mofcom.gov.cn/aarticle/zcfb/200901/ 20090105993492.html?3866173275=1142016402 (translation on file with author).
(118) Jingyingzhe Jizhong Shenbao Zanxing Banfa (Zhengqiu Yijian Gao) [Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments)l (released by MOFCOM, Jan. 20, 2009), available at http://fldj.mofcom.gov.cn/aarticle/zcfb/200901/20090106011461.html? 3048406107=1142016402 (translation on file with author).
(119) Jingyingzhe Jizhong Shencha Zanxing Banfa (Zhengqiu Yijian Gao) [Interim Measures on the Review of Concentrations of Business Operators (Draft for Comments)] (released by MOFCOM, Jan. 20, 2009), available at http://fldj.mofcom.gov.cn/aarticle/zcfb/200901/20090106011511.html? 1354103899=1142016402 (translation on file with author).
(120) Guanyu Dui Weiyifa Shenbao De Jingyingzhe Jizhong Diaocha Chuli De Zanxing Banfa (Caoan) [Interim Measures for Investigating and Disposing the Suspected Concentration of Business Operators Failed to File a Notification according to Law (Draft)[ (released by MOFCOM, Jan. 19, 2009), available at http://fldj.mofcom.gov.cn/aarticle/zcfb/200901/20090106010073.html ?3165912155=1142016402 (translation on file with author).
(121) Guanyu Dui Weida Shenbao Biaozhun Shexian Longduan De Jingyingzhe Jizhong Zhengju Shouji De Zanxing Banfa (Caoan) [Interim Measures on Collecting Evidences regarding Suspected Monopolistic Concentrations between Business Operators Not Reaching the Notification Thresholds (Draft)] (released by MOFCOM, Jan. 19, 2009), available at http://fldj.mofcom.gov.cn /aarticle/zcfb/200901/20090106010097.html?3602185307=1142016402 (translation on file with author).
(122) Guanyu Weida Shenbao Biaozhun Shexian Longduan De Jingyingzhe Jizhong Diaocha Chuli De Zanxing Banfa (Caoan) [Interim Measures on Investigations and Handling of Suspected Monopolistic Concentrations between Business Operators Not Reaching the Notification Thresholds (Draft)] (released by MOFCOM, Feb. 6, 2009), available at http://fldj.mofcom .gov.cn/aarticle/zcfb/200902/20090206031314.html?4122344539=1142016402 (translation on file with author).
(123) See Jingyingzhe Jizhong Shenbao Zanxing Banfa (Zhengqiu Yijian Gao) [Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments)[ (released by SCLAO, Mar. 13, 2009), available at http://bmyj.chinalaw.gov.cn/lismsPro/law_download/fulltext/1236930767681.doc (translation on file with author); Jingyingzhe Jizhong Shencha Zanxing Banfa (Zhengqiu Yijian Gao) [Interim Measures on the Review of the Concentration of Business Operators (Draft for Comments)] (released by SCLAO, Mar. 13, 2009), available at http://bmyj.chinalaw.gov.cn/lismsPro/law_download/ fulltext/1236930796575.doc (translation on file with author); Guanyu Dui Weiyifa Shenbao De Jingyingzhe Jjizhong Diaocha Chuli De Zanxing Banfa (Caoan) [interim Measures for Investigating and Disposing the Suspected Concentration of Business Operators Failed to File a Notification according to Law (Draft)] (released by SCLAO, Mar. 13, 2009), available at http://bmyj.chinalaw.gov.cn/lismsPro/law_download/ fulltext/1236930319604.doc (translation on file with author); Guanyu Dui Weida Shenbao Biaozhun Shexian Longduan De Jingyingzhe Jizhong Zhengju Shouji De Zanxing Banfa (Caoan) [Interim Measures on Collecting Evidences regarding Suspected Monopolistic Concentrations between Business Operators Not Reaching the Notification Thresholds (Draft)] (released by SCLAO, Mar. 13, 2009), available at http://bmyj.chinalaw.gov.cn/lismsPro/law_download/fulltext/1236930501132.doc (translation on file with author); Guanyu Weida Shenbao Biaozhun Shexian Longduan De Jingyingzhe Jizhong Diaocha Chuli De Zanxing Banh (Caoan) [interim Measures on Investigations and Handling of Suspected Monopolistic Concentrations between Business Operators Not Reaching the Notification Thresholds (Draft)] (released by SCLAO, Mar. 13, 2009), available at http://bmyl.chinalaw.gov.cn/lismsPro/law_download/ fulltext/1236930170064.doc (translation on file with author).
(124) INTERNATIONAL COMPETITION NETWORK, IMPLEMENTATION HANDBOOK: EXAMPLES OF LEGISLATIVE TEXT, RULES, AND PRACTICES THAT CONFORM TO SELECTED ICN GUIDING PRINCIPLES AND RECOMMENDED PRACTICES FOR MERGER NOTIFICATION AND REVIEW PROCEDURES 2 (April 2006), http://www.internationalcompetitionnetwork.org/media/library/conference_5th_ capetown_2006/ImplementationHandbookApril2006.pdf.
(125) Guowuyuan Fazhiban Fuzeren Jiu "Guowuyuan Guanyu Jingyingzhe Jizhong Shenbao Biaozhun de Guiding" Da Jizhe Wen [The Officials of the Legislation Office of State Council Answering Reporters' Questions Regarding Rules of State Council on Notification Thresholds.tier Concentrations of Operators] (August 4, 2008), available at http://www.gov.cn/zwhd/2008-08/04/ content_1063736.htm ("SCLAO Q&A").
(127) See SCLAO Q&A, supra note 125.
(129) For example, the RMB 400 million local nexus requirement approaches the United States' screen of transactions involving foreign parties with less than US$63.1 million (RMB 431 million) in annual U.S. revenues or U.S. assets, and it is actually higher than the 25 million [euro] (RMB 223 million) single party local nexus threshold applied in Germany.
(130) See SCLAO Q&A, supra note 125.
(131) Article 12 of the AML defines "undertakings" (also translated as "business operators") to include "natural persons, legal persons, and other organizations that are engaged in manufacturing or otherwise dealing with commodities, or providing services."
(132) See Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments) (MOFCOM Draft), supra note 118, art. 5.
(133) See AMERICAN CHAMBER OF COMMERCE IN THE PRC, COMMENTS OF THE AMERICAN CHAMBER OF COMMERCE IN CHINA CONCERNING THE NOTIFICATION OF CONCENTRATIONS PURSUANT TO THE ANTIMONOPOLY LAW OF THE PRC (DECEMBER, 2008)
(134) See Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments) (MOFCOM Draft), supra note 118, art. 7.
(136) This definition appears to derive from article 37 of the German ARC.
(137) By expressly defining reportable "concentrations" in terms of a "change of control," the AML already cures a significant defect in the M&A Rules. The definition of reportable "mergers/acquisitions of domestic enterprises by foreign investors," encompassed the conversion of domestic enterprises into FIEs (companies foreign ownership exceeding 25%) and the acquisition of domestic enterprises' assets to form new FIEs. Crossing the 25% foreign ownership threshold has significant implications under Chinese corporate law (e.g., distinct tax and regulatory treatment), but its relevance to market structures and competitive effects is less clear. Moreover, the scope of reportable "overseas mergers/acquisitions" was wholly undefined. Consequently, the M&A Rules captured many acquisitions of minority interests without extraordinary control rights. In some instances, foreign companies were advised to report offshore minority investments involving no appreciable change in control.
(138) See Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments) (MOFCOM Draft), supra note 118, art. 3.
(139) See AMERICAN CHAMBER OF COMMERCE IN THE PRC, COMMENTS OF THE AMERICAN CHAMBER OF COMMERCE IN CHINA ON PROVISIONAL MEASURES FOR THE REVIEW OF CONCENTRATIONS (2009) [hereinafter AMCHAM 2009 COMMENTS].
(140) See Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments) (SCLAO Draft), supra note 123, art. 3.
(141) See Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments) (MOFCOM Draft), supra note 118, art. 3.
(142) See AMCHAM 2009 COMMENTS, supra note 139.
(143) See Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments) (SCLAO Draft), supra note 123, art. 3.
(144) See SCLAO Q&A, supra note 125.
(145) See id.
(146) See Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments) (MOFCOM Draft), supra note 118; Interim Measures on the Review of Concentrations of Business Operators (Draft for Comments) (MOFCOM Draft), supra note 119.
(147) See Interim Measures on the Notification of Business Operators' Concentration (Draft for Comments) (MOFCOM Draft), supra note 118, art. 11.
(148) See Interim Measures on the Review of Concentrations of Business Operators (Draft for Comments) (MOFCOM Draft), supra note 119, art. 5.
(149) See AMCHAM 2009 COMMENTS, supra note 139.
(150) See Interim Measures on the Review of Concentrations of Business Operators (Draft for Comments) (SCLAO Draft), supra note 123, art. 5.
(151) AML, art. 28-29.
(152) AML, art. 27.
(153) See, e.g., Clayton Act [section] 7, 15 U.S.C.A. [section] 18 (2000) (authorizing review of mergers to determine whether they may substantially lessen competition); Council Reg. 139/2004 of 20 Jan. 2004 on the Control of Concentrations Between Undertakings, 2004 O.J. (L 24) (authorizing review of mergers to determine whether they would significantly impede effective competition).
(154) In theory, proponents of an anticompetitive concentration could formally press their claims for a public interest exemption through the AMEA review process, through administrative reconsideration, and on to the courts, not to mention resorting to informal political channels all along the way.
(155) See AML, art. 30.
(156) See Shang Ming, supra note 3, at 11.
(157) See InBev/AB Notice, supra note 2.
(158) See Huiyuan chujia kele de gantan yu sikao [Thoughts about the Acquisition of Huiyuan by Coca Cola] (Sep. 10, 2008), available at http://news.brandcn.com/pinpaipinglun/200809/152406.html.
(159) See Huiyuan Group, http://www.huiyuan.com.cn/.
(160) See, e.g., Coca-Cola's Huiyuan offer sparks concern, CHINADAILY.COM.CN, BUS. DAILY UPDATE (Sep. 4. 2008), available at http://www.chinadaily.com.cn/bizchina/ 2008-09/04/content_6999688.htm)
(161) See Coke/Huiyuan Notice, supra note 2.
(162) See Shangwubu Xinwen Fayanren Yaojian Jiu Kekoukele Gongsi Shougou Huiyuan Gongsi Fanlongduan Shencha Jueding Da Jizhe Wen [MOFCOM Spokesman Yao Jian Answering Reporters' Questions Regarding Anti-Monopoly Review Decision for Coca Cola's Acquisition of Huiyuanl Mar. 24, 2009), available at http://www.gov.cn/gzdt/2009-03/24/ content_1267595.htm [hereinafter MOFCOM Coke/Huiyuan Q&A].
(163) See Coke/Huiyuan Notice, supra note 2.
(172) See MOFCOM Coke/Huiyuan Q&A, supra note 162.
(173) See Coca-Cola's Huiyuan offer sparks concern, supra note 160.
(174)See M&A Rules, art. 12.
(175) See Coke/Huiyuan Notice, supra note 2.
(182) See, e.g., David Barboza, China Blocks Coke Bid for Juice Maker, N.Y. TIMES, Mar 19. 2009, at B10.
(183) The theories of "leveraging" or "portfolio effects" remain controversial in the United States and Europe. See, e.g., ORGANISATION FOR ECONOMIC COOPERATION & DEVELOPMENT, OECD ROUNDTABLES ON PORTFOLIO EFFECTS IN CONGLOMERATE MERGERS (2001), available at http://www.oecd.org/dataoecd /39/3/1818237.pdf. See also Thibaud Verge, Portfolio Effects and Entry Deterrence (Jan. 2007), available at http://184.108.40.206/ckfinder/userfiles/files /pageperso/tverge/PortfolioCRESSE.pdf; J. Thomas Rosch, Concurring Statement of J.Thomas Rosch, Federal Trade Commission v. Ovation Pharmaceuticals (Dec. 16, 2008) (on file with the author); William J. Kolasky, Conglomerate Mergers and Range Effects: It's a Long Way From Chicago to Brussels (George Mason University Symposium, Nov. 9, 2001) (on file with author).
(184) See Australian Competition and Consumer Commission, ACCC assessment of Coca-Cola Amatil Limited's proposed acquisition of Berri Limited (Nov. 25, 2003), available at http://www.accc.gov.au/content/item.phtml ?itemId=503214&nodeld=933cf0f7f72fclbbe102c39b6243b815&fn=Coca- Cola%20Amatil%20Ltd's%20proposed%20acquisition%20of%20Berri%20Ltd %20-%208%20October%202003%20-%20re%20carbonated%20soft%20drink %20and%20fruit%20juice.pdf.
(186) See Coke/Huiyuan Notice, supra note 2.
(187) See AML, art. 13.
(188) See Zhengguo Wu, supra note 9, at 81.
(189) See AML, arts. 13, 14.
(190) See TFTA, art. 14.
(192) This additional requirement did appear in earlier drafts. See Harris, supra note 11, at 100.
(193) See AML, arts. 13-15.
(194) See Zhengguo Wu, supra note 9, at 81.
(195) See Shang Ming, supra note 3, at 7.
(196) See Graeme Johnston, Anticompetitive Agreements under the New Chinese Antimonopoly Law at n.22 (presented at the Third Annual Asia Competition Forum, Dec. 11, 2007) (on file with author).
(197) See, e.g., Zhengguo Wu, supra note 9, at 84 (highlighting role of government in creating dominant firms in China).
(198) AML, art. 17.
(199) AML, art. 18. This rubric echoes article 19(2) of the German ARC.
(200) See AML, art. 19.
(201) See Zhengguo Wu, supra note 9, at 86-87. See also Shang Ming, supra note 3, at 7 (emphasizing that presumptions of dominance based on market shares are consistent with the practices of "civil law systems such as Germany and Korea").
(202) See Zhengguo Wu, supra note 9, at 86. Earlier drafts followed article 19(3) of the German ARC in allowing parties to refute a presumption of collective dominance by demonstrating substantial competition amongt them, but this provision was omitted from the final text.
(203) Id. at 85.
(204) See AML, art. 46.
(205) See id. art. 45.
(206) See ORGANISATION FOR ECONOMIC CO-OPERATION & DEVELOPMENT, OECD REVIEWS OF INNOVATION POLICY, CHINA SYNTHESIS REPORT 17 (2007) ("Product market competition is an important stimulus for innovation. In China, various market imperfections still distort competition: administrative interventions interfere with the normal functioning of markets, and improper or even illegal conduct as well as some degree of local protectionism hamper or distort competition. Market institutions aim remain underdeveloped and inadequate. As a consequence innovative activity may not be adequately rewarded. The transition to more innovation-driven growth based on stronger intellectual property rights also requires a modern, properly enforced anti-trust law.").
(207) See BUSINESS & INDUSTRY ADVISORY COMMITTEE TO THE OECD, ADDITIONAL SPECIFIC COMMENTS ON CHINA'S ANTIMONOPOLY LAW 3-4 (Nov. 14, 2007) (on file with author).
(208) See AMFTA, [section] 23. See also Zhengguo Wu, supra note 9, at 96.
(209) See Hetong Fa [Contract Law] (promulgated by the Nat'l People's Cong., Mar. 15, 1999, effective Oct. 1, 1999), available at http://www.chinacourt.org/flwk/show.php?file_id=32430.
(210) See Zuigao Renmin Fayuan Guanyu Shenli Jishu Hetong Jiufen Anjian Shiyong Falv Ruogan Wenti De Jieshi [Interpretation of the Supreme People's Court on Some Issues Concerning the Application of Law in the Trial of Cases of Disputes over Technology Contracts] (promulgated Dec. 16, 2004, effective Jan. 1, 2005), art. 10. (Translation available by subscription at http://www.chinalawinfo.com.) Cf. U.S. DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ANTITRUST GUIDELINES FOR THE LICENSING OF INTELLECTUAL PROPERTY [section][section] 5.3, 5.4, 5.6 (1995) (applying rule of reason analysis to practices such as tying, exclusive dealing, and grantbacks, which are prohibited by article 329 of the Contract Law).
(211) Wang Xianlin, Antimonopoly Law and Abuse of Intellectual Property Rights in China (presented at the Third Annual Asia Competition Forum, Dec. 11, 2007) (on file with author).
(212) See A Review of Economics: Development Calls for Competition, PEOPLE'S DAILY ONLINE, Sept. 1, 2007, http://english.people.com.cn/90001/90780 /91344/6257689.html ("China's strong-looking DVD sector has its 'backbone' taken out by foreign-funded companies who monopolize standards and technologies; and therefore take patent [royalties].").
(213) See, e.g., AMERICAN CHAMBER OF COMMERCE IN THE PRC & AMERICAN CHAMBER OF COMMERCE IN SHANGHAI, 2007 WHITE PAPER: AMERICAN BUSINESS IN CHINA 44 (2007); U.S. TRADE REPRESENTATIVE, 2007 REPORT TO CONGRESS ON CHINA'S WTO COMPLIANCE 51-52 (2007); U.S. Commerce Secretary Fears China May be Stepping Away from Openness, AFX UK Focus (Oct. 23, 2007) (U.S. government concern about standards mandated by Chinese government).
(214) See Zhuanli Fa [Patent Law] (adopted by the Standing Comm. Nat'l People's Cong., Mar. 12, 1984, amended by the Standing Comm. Nat'l People's Cong., Sept. 4, 1992, amended by the Standing Comm. Nat'l People's Cong., Aug. 25, 2000, amended by the Standing Comm. Nat'l People's Cong., Dec. 27, 2008), art. 48, available at http://news.xinhuanet.com/ newscenter/2008-12/27/content_10568803.htm. See also U.S. CHAMBER OF COMMERCE, AMERICAN CHAMBER OF COMMERCE-CHINA AND AMERICAN CHAMBER OF COMMERCE--SHANGHAI, JOINT SUBMISSION OF COMMENTS ON THE REVISED DRAFT (THIRD) AMENDMENT TO THE PATENT LAW OF THE PRC 29 (Mar. 12, 2007).
BY NATHAN BUSH, Partner, O'Melveny & Myers LLP, Beijing, PRC.
AUTHOR'S NOTE: I gratefully acknowledge the comments and assistance of Ning Qiao, Kathy Yang, Yue Bo, Fay Zhou, and Zhaofeng Zhou. The views expressed herein are solely mine and should not be attributed to my firm or any of its clients.
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|Title Annotation:||Symposium Part 1: Asian Competition Laws|
|Date:||Mar 22, 2009|
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