Many commentators have been quick to point out those technical changes when it comes to the 2022 Amendment, while the first important change made by the 2022 Amendment is actually the confirmation of a unified enforcement by one government agency (See Articles 13 and 4).

The AMA used to be enforced by several government agencies, including: the State Administration for Industry and Commerce (“SAIC”): SAIC was the primary enforcement agency for the AMA, responsible for investigating and penalizing anti-monopoly violations in the market; the State Intellectual Property Office (“SIPO”): SIPO was responsible for investigating and penalizing anti-monopoly violations in the field of intellectual property, such as the abuse of patent monopolies and the imposition of unreasonable licensing terms; the National Development and Reform Commission (“NDRC”): NDRC was responsible for investigating and penalizing anti-monopoly violations in the field of pricing, such as price-fixing and resale price maintenance; and the Ministry of Commerce (“MOFCOM”): MOFCOM was responsible for merger reviews.

In 2018, by a government agency reshuffling plan, the State Administration for Market Regulation (“SAMR”) was set up to replace the SAIC and to perform more functions in “market regulation”. After this reform, SAMR has become the primary anti-monopoly enforcement agency in China, responsible for merger reviews and investigating and penalizing anti-monopoly violations in all areas, including market competition, intellectual property, and pricing. By November 2021, a reorganized State Anti-Monopoly Bureau (formerly part of MOFCOM) was formally announced under the leadership of SAMR. Nevertheless, it is only until this 2022 Amendment, that Article 10 of the old AMA was revised to confirm SAMR’s (and its future successor’s) role in unifying the enforcement of the AMA.

The unification of anti-monopoly enforcement in China is considered helpful in improving the consistency and coherence of anti-monopoly enforcement and increasing the deterrent effect of the AMA. It is also considered to make it easier for businesses to understand and comply with the AMA, as there is now a single agency responsible for enforcing the law. Although, it is arguable that SAMR, remaining as the company registration house, may not be the proper agency to enforce the competition law.

Before the 2022 Amendment, the AMA followed international practice and allowed the enforcement authorities to impose civil penalties at any amount from 1% to 10% of the turnover (globally) of the non-complying company for serious violations in cases involving monopoly agreements or abuse of dominant market positions. It did not impose a similar civil penalty for failure to comply with merger review. It did not impose criminal penalties for any violation.

The AMA, as amended now, has enabled the enforcement authorities to impose civil penalties at any amount up to 10% of the (global) turnover of the non-complying company for failure to comply with merger review. Even failure to report a merger that actually does not produce excluding or restraining impacts on competition could incur a fine up to RMB 5 Million. In very serious cases, the above said maximum fines may be multiplied by 2 to 5. The amended AMA further imposes various fines on various violations, even if it is merely a procedural failure, and in some cases, fines on individuals responsible for the violations as well. Most importantly, the amended AMA has now introduced criminal penalties for any violation that may constitute a crime, without specifics (Article 67).

With such increase on costs for non-compliance, businesses operating in or relating to China have to think not just twice, but many times before they go into a conscious violation. The importance of such new penalty clauses could never be overstated.

However, such clauses, especially the 2 to 5 multiplying clause, when combined with the 10% global turnover clause, may be criticized for being too draconian. For their deadly consequences (e.g., a fine up to 50% of the global turnover of a company), such draconian clauses could beget unintended effects such as abuse of power and corruption. To prevent such unintended effects, very detailed follow-up regulations and stringent due process would need to be established immediately.   

Based on international practice, China’s own experience in enforcing the AMA since 2008, and some existing Chinese regulations and guidelines, the amended AMA has now formally introduced a few critical competition law concepts. Among them are “Hub and Spoke Cartel” and “Safe Harbor”.

A Hub and Spoke Cartel is a complex structure of cartel (“monopoly agreements” in the AMA) which could involve both horizontal and vertical agreements. Typically, it involves indirect exchange of information between two or more competing business operators for supply or sale (the “spokes”), through one business operating at a different level of the production or distribution chain (the “hub”). In such a structure, the hub facilitates or coordinates the anti-competitive activities between the spokes, typically without any direct exchange of information between the spokes. The agreements reached or practices concerted in such way are no less harmful than any horizontal or vertical agreements. In practice, Chinese trade or industrial associations and large upstream business operators may play the hub for such Hub and Spoke Cartels.

Hub and Spoke Cartels are now expressly prohibited by the AMA. Prior to the 2022 Amendment, trade or industrial associations had been prohibited from organizing their members for anti-competitive conducts. The amended AMA, while maintaining this prohibition, further prohibits any business operator from organizing other business operators to reach monopoly agreements or provide material support to other business operators in reaching monopoly agreements (Article 19).

As the costs for non-compliance with the AMA increase substantially for businesses, compliance with the AMA has increasingly become a substantial burden for businesses. As such, clear guidelines for compliance and further, “Safe Harbors” have been in demand. The AMA now has responded to this demand.

A "Safe Harbor" provision exempts certain types of conduct from being examined for potential anti-monopoly violations. These provisions are designed to balance the goal of promoting competition with the need to allow for reasonable and pro-competitive business practices.

Article 18 of the amended AMA now provides a “Safe Harbor” for business operators in terms of vertical agreements, if they can demonstrate that they do not meet the prescribed market share threshold and do meet other prescribed conditions. However, no “Safe Harbors” have been provided to horizontal agreements in the AMA.     

Notwithstanding the foregoing, under the AMA, the following types of conduct are generally considered to be exempt from the prohibition against anti-monopoly practices: certain vertical agreements between a manufacturer and a distributor, such as exclusive distribution agreements; exercises of intellectual property rights, such as patents, trademarks, and copyrights; joint ventures between companies for the purpose of research and development, production, or distribution of goods and services; technology licensing agreements between companies, provided that the licensing terms are reasonable and do not restrict competition.

It is important to note that the safe harbor provisions under the AMA are subject to certain limitations and restrictions, and that businesses must comply with the provisions of the AMA in order to take advantage of the safe harbors. Businesses should also be aware that the safe harbor provisions may be subject to change over time, and that the enforcement authorities may interpret the provisions differently in different cases.

As discussed above, following the adoption of the 2022 Amendment to the AMA, SAMR released six draft regulations for public comments. By a news release on SAMR’s official website on September 27, 2022, for a specified period of one month for public comments, SAMR received 299 comments on the revised Regulations on the Prohibition of Monopoly Agreements, the revised Regulations on the Prohibition of Abuse of Dominant Market Positions, and the revised Regulations on Prohibition of Abuse of Intellectual Property for Excluding or Restraining Competition. It is believed that SAMR will soon have all such revised regulations issued or adopted by the State Council, with or without changes.

The changes proposed by such revised regulations are quite extensive and intended to clarify many provisions of the AMA. The below is only a summary of some of the proposed changes.

The current threshold for mandatory merger reviews has proved to be too low. By the current State Council Provisions on the Criteria for Filing of Merger Review, if, for the last financial year, at least two of the merger participants each have a turnover exceeding RMB 400 Million in China, and the total of the global turnovers of all merger participants exceeds RMB 10 Billion or the total of the Chinese turnovers of all merger participants exceeds RMB 2 Billion, filing for merger review shall be mandatory. It is reported that MOFCOM and SAMR received a total of 4,165 filings for merger review from August 1, 2008 to December 31, 2021, with 3 mergers disallowed and 52 mergers approved with conditions. An important point to note here is that, by some reporting, the filings for merger reviews are hiking in recent years, with 824 filings in 2021.

As such, the threshold has been proposed to raise as follows: Filing for merger review shall be mandatory if, for the last financial year, at least two of the merger participants each have a turnover exceeding RMB 800 Million in China, and the total of the global turnovers of all merger participants exceeds RMB 12 Billion or the total of the Chinese turnovers of all merger participants exceeds RMB 4 Billion.

Of course, this does not mean that there will be no other cases where filing for merger review is mandatory. In fact, by the amended AMA, SAMR even has the authority to initiate investigation against any merger that is suspected of excluding or restraining competition.

As discussed earlier, the amended AMA uses the concept of “market share” in specifying a safe harbor for vertical agreements. The revised Regulations on the Prohibition of Monopoly Agreements therefore attempts to define such market share and therefore define the Safe Harbor.

By this published draft, if a business operator proves that the business operator has, (and when combined with the counterparty(ies) to the agreement at issue still has), a market share of less than 15% in the relevant market, the agreement will not be considered a monopoly agreement and will not be prohibited. Of course, the business operator still has to satisfy that there is no contrary evidence to prove exclusion or restraining of competition by such agreement.

The aforesaid draft on monopoly agreements also introduces the concept of “potential competitor” into the Chinese competition law, for the purpose of identifying horizontal agreements.

A potential competitor is not a current competitor in the market for the product or service, but is a business operator which “has a plan and the feasibility to enter the relevant market within a period of time”.

The introduction of this concept from international practice could produce a significant impact on identification of horizontal agreements, and will expand the scope of the Chinese competition law.

In the revised draft Regulations on Prohibition of Abuse of Intellectual Property for Excluding or Restraining Competition, “relevant market” is considered to include “relevant technology market”, which is further considered to include “relevant innovation market”.

“Innovation market” refers to the research and development market. This is a clear recognition that competition not only exists in product sales, but also in product research and development.

This is also a clear expansion of the application of the competition law. The guidelines for IP-related anti-monopoly enforcement is expected to be updated accordingly and include further details on how to enforce the anti-monopoly law in the “innovation market”.

The aforesaid draft Regulations on Prohibition of Abuse of Intellectual Property for Excluding or Restraining Competition also contain provisions on multiple IP-related competition law issues, such as licensing clauses, essential patents and essential facilities. It is especially worth to note its provisions on the license-back clause.

A license-back clause is very typical in IP license agreement, which requires the licensee to license back to the licensor improvements to the intellectual property and/or other rights generated from practicing the licensed intellectual property.

A license-back clause, if on a non-exclusive basis, may be okay under the Chinese competition law. If a license-back clause is made on the exclusive or sole basis, however, it would be treated as unreasonable conditions attached to licensing and considered anti-competitive under this draft Regulation.

Although the AMA was initially adopted in 2007, it is wrong to say that the Chinese competition law was dated back only to 2007. In fact, the Counter Unfair Competition Act (“CUCA”), adopted in 1993, already contained several competition law provisions. It not only prohibited price-fixing, tying sales and certain other anti-competitive practices, it also prohibited abuse of something like dominant market position.

With the AMA adopted in 2007, conflicts between the enforcement of the AMA and the enforcement of the CUCA arose. Fortunately, the enforcement authority for both laws is SAMR (with SAIC as its predecessor) in terms of investigating and punishing anti-competitive acts. Nonetheless, in recent years, SAMR has taken steps to clarify the relationship between the AMA and the CUCA and to ensure that they are enforced consistently and in a complementary manner. For example, SAMR has issued guidelines and interpretations to provide guidance on how to apply the AMA and the CUCA in specific situations.

The most recent efforts for the Chinese legislature to clarify the relationship between the AMA and the CUCA are the proposed amendments to the CUCA following the revisions to the AMA. Although both the AMA and the CUCA serve similar goals in promoting fair competition and protecting the interests of consumers, the AMA is now positioned as the primary competition law in China and the CUCL is expected to address only specific types of conduct that are not covered by the AMA. It appears that the two laws would not overlap, but a new provision in the CUCA is worth special attention for corporate compliance.

Article 13 of the CUCA, as proposed, prohibits business operators having “comparative advantageous positions” from imposing unreasonable restrictions or attaching unreasonable conditions, such as exclusive dealing, restriction on transaction parties or transaction terms, tying sales, unreasonably restricting sales price, purchasing party, sales territory, sales time or promotional activity, and non-equal treatment to users on digital platforms. "Comparative advantageous position" is defined as including the relative advantage that a business operator has over its competitors in terms of technology, capital, number of users, industrial influence, reliance by other business operators, or other factors.

The difference between the comparative advantageous position and the dominant market position appears to lie in the degree of the advantage that the business operator has over its competitors. For example, a company that has a lower cost structure than its competitors may use this comparative advantageous position to engage in anti-competitive practices, such as price-fixing, in order to maintain or increase its market share and profits. On the other hand, a company that holds a dominant position in the market and uses its market power to engage in anti-competitive practices, such as excessive pricing or discriminatory practices, would be considered as having engaged in abuse of dominant market position.

As such, a company that is not a party to any monopolistic agreement or is short of holding a “dominant market position” under the AMA may still be investigated for anti-competitive practices. The company may be caught by the CUCA for having a comparative advantageous position.

Therefore, companies operating in or relating to China should be aware of the provisions of both the AMA and the CUCA, and should take steps to ensure that their conduct complies with both laws.

On June 14, 2016, the State Council issued an Opinion on Establishing a Fair Competition Review Mechanism in the Construction of the Market System, and started to require that all administrative authorities and organizations delegated with public functions go through a Fair Competition Review process before they adopt regulations, orders or other provisions involving the “economic activities of market operators”. This Opinion actually lists a series of questions for the proposing authorities to check before their proposed regulations, orders, etc. may be formally issued. The AMA, as amended, has now required such fair competition review (Article 5).

The purpose of the review is to identify any provisions in the proposed regulations, orders, etc. that may create barriers to entry, restrict competition, or harm the interests of consumers. The review may involve assessing the potential impact of the proposed regulations, orders, etc. on market competition, analyzing relevant market data, and soliciting feedback from stakeholders, such as business operators and consumer groups. If the review identifies any provisions that may harm competition, the administrative authority may make changes to the proposed regulations, orders, etc. or provide conditions to mitigate the potential negative impact on competition.

As such, companies operating in or relating to China should pay close attention to any new regulation, order, or the like (“abstract administrative act” in Chinese administrative law) that is being proposed by any local or central administrative authority or public function entity, and take advantage of the Fair Competition Review mechanism. Participation in this process may be conducive to preventing over regulation that could produce an unfair impact on market competition. Also, as noted below, the Chinese courts lack authority to strike down “abstract administrative acts” that are inconsistent with the PRC Constitution or the laws. It is important to participate in the fair competition review process before an “abstract administrative act” is made, since it might be the best chance for companies to seek solutions to a problematic “abstract administrative act”.

By the amended AMA (Article 60) and the Administrative Proceeding Act (which is actually a legislated judicial review act), both private enforcement and judicial review are available. Judicial review allows private parties to sue the regulatory authorities for overturning of their competition law decisions and seek damages. Private enforcement allows private parties harmed by monopolistic practices to seek remedies through the courts. Private enforcement of the AMA typically involves individuals or companies bringing lawsuits against other companies or administrative authorities (if involved in “administrative monopoly”) for violations of the AMA or its regulations.

There have been a number of notable private enforcement cases in recent years that have attracted public attention and had a significant impact on the development of competition law in China. For example, in 2009, a private lawsuit was filed against China Mobile, one of China's largest telecom operators, for abusing its dominant market position. This case is considered the first private enforcement case with a mediated result for damages since the adoption of the AMA. In practice, it is now not rare for consumers or competitors to sue companies that are alleged with anti-competitive practices.

In addition to private enforcement cases, there have also been a growing number of judicial review cases relating to the AMA and its regulations in recent years. These cases typically involve companies challenging administrative decisions made by SAMR or other government agencies, such as fines or penalties for violations of the AMA. The increase in judicial review cases reflects the growing importance of competition law in China and the need for companies to protect their interests through the legal system.

An additional note to the above is that, the AMA now allows the public prosecutors to intervene in the enforcement of competition law. The public prosecutors can bring cases against any violators of the AMA whose anti-competitive practices harm public interest. As many anti-competitive practices could impact on a relevant market or an industrial sector, with consumers’ interests often at stake, the public prosecutors, if pursuing activism, could play a very important role in competition law enforcement in the near future. They could also lend important supports for individuals or companies who seek private enforcement.

Attorney-client privilege is a legal concept that protects communications between lawyers and their clients from disclosure to third parties, including government authorities. It is a privilege that may be claimed by an individual or company that is being investigated by the enforcement authority for violation of the competition law, for the purpose of avoiding production of confidential documents or information that may be required. It is often claimed in antitrust or competition law investigations in the US, the EU and many other countries.

Companies operating in or relating to the Chinese market, however, needs to note that the Chinese law does not really recognize a concept of attorney-client privilege, at least not in the same way as it is recognized in common law countries. Under the Chinese law, lawyers are required to keep confidential any information obtained from clients in the course of their legal work, except in certain specified circumstances. However, this duty of confidentiality is not absolute, and there are situations in which lawyers may be required or authorized to disclose information to third parties, including government authorities.

In the context of competition law investigations, it is possible for Chinese investigating authorities to seek information from lawyers and law firms. Lawyers and law firms in China, of course, will not necessarily comply with such requests, unless maybe the investigation concerns a crime. On the other hand, it is also doubtful that foreign companies can successfully claim privilege and avoid production based on attorney-client privilege that is recognized in the home jurisdiction of their headquarters.

Privilege has therefore become an issue that remains unsolved in cross-border competition investigations involving China. It remains to be seen whether China will follow international practice and recognize the attorney-client privilege in competition law investigations.

One thing is for sure. Companies cannot rely on their in-house counsel for protection of sensitive discussions, whether the companies are located within or outside China. As far as competition law is concerned, it is always advisable to use external counsel. External counsel may have better expertise and may be better equipped to navigate the complexities of Chinese law and better positioned to protect their clients' interests. More importantly, external counsel may bring sensitive discussions under the attorney-client privilege and better protect sensitive information from disclosure to competition investigators. Even without a recognition of the attorney-client privilege, in China, experienced external counsel are also a better choice for protection of sensitive discussions.