China: China’s competition regulators launch new year reforms: Part 1 - Pricing - 7 January 2011

Last Updated: 12 January 2011
Article by Martyn Huckerby

China's competition law regulators have published much anticipated implementation rules under China's Anti-Monopoly Law (AML), announced a new price fixing decision, and sent a warning to firms in China that they should expect further investigations in 2011 and should take immediate steps to review their pricing policies.


On 4 and 7 January 2011, the National Development and Reform Commission (NDRC) and the State Administration of Industry and Commerce (SAIC) respectively published their long awaited substantive rules, which provided much needed assistance in the interpretation of the broad framework prescribed under the AML. The issuance of the new regulations is timely given the government's intention to ensure price stability by putting in place measures to help safeguard pricing practices in China, particularly among dominant market players.

The NDRC and SAIC are two of the key competition regulators with responsibility for enforcing the AML, along with the Anti-Monopoly Bureau of the Ministry of Commerce (which is responsible for merger control). The NDRC shares its responsibility for investigating monopoly agreements and abuses of market dominance with the SAIC but has exclusive responsibility for cases that involve monopolistic pricing practices.

The NDRC promulgated Regulations on Anti-Price Monopoly (NDRC Price Regulations) and Procedural Regulations on Administrative Enforcement of Anti-Price Monopoly (NDRC Procedural Price Regulations). Whereas the SAIC promulgated three pieces of legislation: Regulations on Prohibiting Monopoly Agreements (SAIC Monopoly Agreement Regulations), Regulations on Prohibiting an Abuse of a Dominant Market Position (SAIC Dominance Regulations) and Regulations on Prohibiting an Abuse of Administrative Power (SAIC Administrative Abuse Regulations).

The new NDRC and SAIC regulations were developed from earlier consultation drafts respectively published in August 2009 and May 2010 and will all take effect on 1 February 2011.

We will discuss the new legislative developments by the NDRC in this Part 1 article and address those relating to the SAIC in a subsequent review (Part 2) in the coming days.

1. NDRC Price Regulations

Once in effect, the NDRC Price Regulations will supersede the 2003 Provisional Regulations on Prohibiting Price Monopoly (which were formulated under the Price Law) and will cover three main types of monopolistic pricing activities:

  • Price monopoly agreements;
  • Dominant undertakings excluding or restricting competition through price-related means; and
  • Administrative organisations and agencies engaging in discriminatory pricing or other conduct to exclude or restrict competition.

The NDRC Price Regulations confirms our view that the AML, including its abuse of dominance provisions, will be fully applicable to large State-owned enterprises (SOE). However, it is unclear how and to what extent these provisions will be enforced against SOEs given that the NDRC Price Regulations seemingly exempt sectors that are considered a "national economic lifeline" or involve "state security". It is clear that the new rules do not apply to agricultural producers and rural economic organisations in respect of their business operations.

In respect of the exercise of intellectual property rights, it is generally not governed by the NDRC Price Regulations or the AML unless an abuse of intellectual property rights would have the effect of excluding or restricting competition. It is expected that further specific implementing regulations clarifying what would constitute an abuse of intellectual property rights will be issued in the future.

Price monopoly agreements

Prohibited price monopoly agreements include both 'horizontal' agreements with competitors and 'vertical' agreements with counterparties. Generally, prohibited horizontal agreements are those with competitors that fix or change price or a range of prices, which would essentially have the effect of collectively predetermining the price of a product. Prohibited vertical agreements are those with counterparties that fix a resale price or determine a minimum resale price.

Monopoly agreements extend to "concerted acts" and can be either made orally or in writing. The NDRC Price Regulations assist in formally clarifying factors that would be used to determine what constitutes "concerted conduct". While they remain broad and subject to further interpretation, factors include considering whether there has been conformity in pricing and communication among undertakings and a review of the relevant market's structure and dynamics. The definition of "conformity" provided in an earlier draft has been excluded from the final regulation, leaving greater discretion to the authorities to interpret the same.

Recognising that industry associations play an important role in assisting the development of competitive markets, they are specifically prohibited from organising undertakings to engage in the above mentioned monopoly agreements.

Dominant undertakings excluding or restricting competition by price-related means

The NDRC Price Regulations provide long-awaited clarity in relation to what conduct constitutes an abuse of dominance.

Under the NDRC Price Regulations, market dominance is determined by presumptions based on market share and indicative factors, which mirror the provisions of the AML. Provisions explaining each indicative factor in further detail in previous drafts (i.e. ability to control purchase and sales in a market, financial and technological attributes, and factors affecting entry into the market) have since been removed. However, recent cases provide guidance to firms in this area; please refer to our previous alerts for further details.

A list of prohibited activities by dominant undertakings under the AML is referenced below together with corresponding guidance provided under the NDRC Price Regulations:

AML Prohibited Activity

Clarification under the
NDRC Price Regulations


Article 17(1): Selling or purchasing at an unfairly high or low price

Factors to determine "unfairly high/low price" include:

  • price as compared to that of undertakings;
  • normal magnitude of price increase/decrease when cost unchanged;
  • the extent of increase in sale price as compared to the extent of cost increase; and
  • the extent of decrease in purchase price as compared to the extent of cost decrease of the counterparty.

An earlier reference that benchmarked the cost of a product has been removed.

Implication: This assists firms who do not price their products solely based on cost (e.g. patented products).

Article 17(2): Selling below cost without justification

Justifications include:

  • disposing fresh, live or seasonal products, or overstocked products;
  • price reductions due to cessation of business; and
  • new product promotion.

As compared with earlier drafts, fewer justifications have been included. Proposed justifications such as responding to others' below-cost strategies or benefits from economies of scale have been excluded.

Further, the definition of "selling below cost", where an undertaking continuously sells products at a loss for anti-competitive purposes has also been excluded from the current version.

Implication: While the provisions are not as favourable as previous drafts, the remaining justifications are sufficiently broad to enable dominant firms to have flexibility in their pricing behaviour.

Article 17(3): Refusal to deal by setting excessively high/low prices without justification

Justifications include:

  • to manage risk borne from counterparty's poor credit record; and
  • the counterparty having other options for similar or substitutable products at a reasonable price.

The definition of "excessively high/low price", which referenced profit in earlier drafts has not been not adopted in the current version.

Implication: The stated justifications should leave dominant firms with commercial freedom to choose their trading partners, but will require a carefully developed and implemented strategy to ensure they do not infringe the AML.

Article 17(4): Exclusive dealing by price-related means without justification

Justifications include:

  • to ensure the quality and safety of products;
  • to maintain brand image or improve service quality; and
  • to distinctly decrease cost or improve efficiency, which benefits customers.

A newly introduced provision which now directly corresponds and reflects provisions under the AML.

Implication: Firms should carefully review their pricing policies based on these amended provisions.

Article 17(5): Tying unreasonable fees in addition to charging sale price

No justifications available.

A newly introduced provision which now corresponds and reflects provisions under the AML.

Implication: Firms should carefully set prices and avoid incurring additional fees that may be considered illegal.

Article 17(6): Applying discriminatory price terms without justification

No justifications are provided and no clarification on how to determine if counterparties are in the same/similar condition to determine if discriminatory treatment exists.

Provision in earlier drafts which deemed discriminatory treatment to exist when counterparties are in different conditions has been excluded.

Implication: Dominant firms should have an objective policy in place to assist them to defend any claim that they have been abusing their dominant position.

Administrative organisations and agencies engaging in discriminatory pricing or other conduct to exclude or restrict competition

Administrative organisations and agencies are prohibited from imposing discriminatory charges, standards and prices on non-local goods and services or otherwise impeding the free flow of goods and services by setting prices or charges. These provisions on prohibiting abuses of administrative power that exclude or restrict competition basically echo Chapter 5 of the AML.

Administrative organisations and agencies are also prohibited from enforcing undertakings to engage in monopolistic pricing activities or setting rules that would exclude or restrict price competition. As such, firms should take the opportunity to review whether they are affected by any administrative measures that may restrict or eliminate competition and consider requesting the NDRC to review any such measures.

2. NDRC Procedural Regulations

The NDRC Procedural Regulations are generally consistent with those promulgated by the SAIC (see our earlier alert) and cover process relating to whistle-blowers, investigation of alleged price monopoly activities, circumstances where an investigation would be suspended, leniency regime and decision-making.

In respect of the leniency regime, the NDRC Procedural Regulations provide more detailed guidance as to the applicable level of fine reduction if an undertaking (informant) were to actively report a monopoly agreement and provide significant evidence. Fine reductions will depend on an informant's timing relative to that of other informants. These are set out in the table below:

If an informant is the:

Possible fine reduction

First to report

100 per cent

Second to report

≥ 50 per cent


≤ 50 per cent

Although it is not expressly noted in the current rules, the regulatory authority is unlikely to grant relief to informants who acted as ringleaders of a monopoly agreement (including relevant industry associations).

Additionally, compared with the SAIC procedural rules, the NDRC Procedural Regulations impose less onerous documentary requirements on informants. Some information required under the SAIC procedural rules (e.g. whether an informant has reported the same suspected fact to any other authorities or filed with the court) is not required in an informant's application, presumably because it would fall upon the NDRC to investigate and verify the same.

The differences between the leniency regime put in place by the SAIC and that now adopted by the NDRC highlights the potential uncertainty for firms arising from the overlapping jurisdiction of both regulators. Firms wishing to rely on the leniency regime may wish to agree on the specific conditions and seek a guarantee of immunity in advance prior to disclosing information to the regulators.

3. Other recent developments in relation to NDRC enforcement

Revised penalty rules under the Price Law

On 4 December 2010, the State Council of China published revisions to the Provisions on Administrative Penalties on Price Violations, which is currently the key basis for determining penalties imposed on monopolistic pricing activities. The maximum administrative fine for a violation under the Price Law, including collusive price increases and violations against government price controls, has been raised to RMB 5 million from RMB 1  million. The revised penalty rules do however clarify that serious price violations that disturb market order may attract criminal liability.

By comparison, the AML prescribes fines ranging from 1% to 10% on the offending party's worldwide sales turnover for the preceding year. The liability for anti-competitive conduct by an industry association is capped at RMB 500,000.

While local regulators have continued to favour the imposition of penalties under the Price Law, it remains to be seen whether the authorities will make use of the potentially broader range of fines available under the AML as a result of the new NDRC regulations.

Price cartel investigation

While the NDRC has only just published its substantive and procedural rules pursuant to the AML, it has nevertheless been active in conducting investigations under the Price Law, under which it has exclusive jurisdiction (see our August 2010 review). Adding to the list of investigations is the 4 January 2010 announced case of Zhejiang Fuyang Paper Association. A fine of RMB 500,000 has been imposed on this association for organising its members to collectively charge or fix the price of paper packaging between March and September 2010. The NDRC has indicated that it will continuously publish typical price violation cases with a view to strengthening enforcement under the AML. Firms operating in China should therefore expect further enforcement action in 2011.

International cooperation

The NDRC has also been actively pursuing opportunities to exchange knowledge internationally. In early December 2010, the Price Supervision and Investigation Department of the NDRC, which is responsible for implementing price-related laws and regulations (including the AML), held a joint workshop with the Competition Department of the OECD in Beijing. The workshop focused on exchanging legislative and enforcement experience with the OECD member states regarding price cartel enforcement and combating bid rigging.


The new NDRC regulations are a further significant step towards completing the regulatory structure required for effective enforcement of the AML and provides the government additional means to help fight inflation, which is a sensitive issue in the PRC at present. The NDRC played an important role in examining monopolistic pricing practices in 2010 and it is expected that it will take an even more vigorous enforcement role given the promulgation of new regulations. It is also possible that the NDRC will join other regional regulators in commencing action against global cartel conduct (for example against firms in the transportation and travel sectors).

As such, firms operating in China who have till now delayed taking steps to comply with the AML, should take immediate action to address any potential compliance issues. This would include reviewing existing pricing strategies, updating the firm's compliance policy, and providing compliance training for any staff involved in dealings with competitors (for example, through industry associations).

Firms that may also be in a dominant position in a market in China must be extra vigilant given the additional obligations they face under the AML. Such firms should ensure that their promotional claims do not detract from a position they may wish to take in the future.

2011 looks set to become the year that China's competition regulators commence rigorous enforcement of the AML. Anyone working in China should be mindful that serious cases of anti-competitive conduct (for example hard-core cartel conduct, such as price fixing), may attract criminal liability (and the potential for imprisonment).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions