China’s Anti-Monopoly Law (AML) does not provide for criminal liability for practices in violation of the AML. It is generally understood that an anti-competitive activity in violation of the AML may not trigger criminal liability (however, Article 52 of the AML provides for criminal liability for certain serious instances of obstruction of justice in the process of a governmental investigation, such as refusing to provide related materials and information; providing fraudulent materials or information; concealing, destroying or removing evidence; and refusing or obstructing investigation in other ways). This assumption, however, is an incorrect understanding, as demonstrated by a recent case in Liuzhou City, Guangxi Autonomous Region.
Background
There are 16 rice powder factories in Liuzhou City. In January 2010, 15 of the 16 Liuzhou factories colluded with Nanning Xian Yi Ge Food Factory (南宁鲜一阁食品厂) (Xian Yi Ge) to raise the price of rice powder, and an agreement was thus entered into. Xian Yi Ge is a company of Nanning City, the capital city of Guangxi. According to the press release, Xian Yi Ge adopted carrot and stick measures to make sure the agreement would be executed. As a result of the agreement, the colluding rice powder factories issued a price-raising notice to downstream business operators on 18 January 2010. The downstream business operators include rice powder wholesalers, retailers, rice powder food peddlers and stores. According to the notice, the out-of-factory price for rice powder would be raised on 21 January 2010.
On 21 January 2010, the colluding factories simultaneously raised the price of rice powder to RMB 0.95/500g (US$0.14/500g) from the original average price of RMB 0.75/500g (approximately US$0.11/500g). In response to the price raise, rice powder peddlers and stores raised the price of rice powder food. For example, the price of a bowl of rice powder breakfast increased by RMB 0.50 (approximately US$0.07).
Rice powder is the staple food of Guangxi residents. Liuzhou City’s daily consumption of rice powder is about 150,000kg. Therefore, the price increase caused a significant outcry in Liuzhou.
The Liuzhou government attached much importance to the incident and acted very quickly. A joint investigation squad was formed by public security, commerce, quality supervising, health, food, and industry and commerce agency officials to investigate the incident. On 24 January 2010, the Liuzhou City government ordered all of the colluding rice powder factories to unconditionally reinstate the price at the level prior to 21 January. On 27 and 28 January, 12 people were arrested, including Xian Yi Ge’s legal representative. A company’s legal representative is usually the chairman of the board of directors or the managing director of a company without a board of directors. It is not clear whether or not the 12 arrested persons include the staff of the 15 colluding rice powder factories. By 12 February 2010, five individuals were criminally detained on the suspicion of committing the crime of forcing other person(s) to transact with their companies. Simultaneously, the Pricing Bureau of Liuzhou City issued the first round of administrative punishment decisions, by which two Liuzhou rice powder factories were fined RMB 300,000 (US$44,118) each.
The Criminal Law
The news press does not cite law regarding the five individuals who were criminally detained on the suspicion of committing the crime of forcing other person(s) to transact with their companies. The applicable law should be Article 226 of the Criminal Law (1997), which prohibits anyone from forcing other people to buy or sell goods, or forcing other people to provide or buy services. If the circumstance is serious, a sentence of three years of imprisonment or detention shall be imposed. A fine may be imposed singly or jointly.
Apparently this provision was not prescribed to implement the AML because the provision was promulgated in 1997 as part of the Criminal Law (1997), while the AML was promulgated on 30 August 2007 and took effect on 1 August 2008. However, as the case study indicates, this provision could be nonetheless cited in practice to curb anti-competitive monopoly practices. It remains to be seen the extent to which the provision of Article 226 will be applicable to accommodate the enforcement of the AML—for example, whether or not Article 226 will be applicable to some practices in respect of abuse of dominant market position.
The Price Law
As mentioned previously, the Liuzhou Pricing Bureau penalized two rice powder factories by imposing a fine on each. Although the news press did not mention by which law the Pricing Bureau issued the penalizing decisions, the applicable law should be China’s Price Law.
Article 14 of the Price Law prohibits a business operator from doing the following:
- Colluding with another party to manipulate market prices and damage the legitimate interests and rights of other business operators or consumers
- Dumping its goods, except for fresh goods, seasonable goods and old stock, at a price lower than the costs of the goods in order to affect normal manufacturing and business order
- Manipulating and dispensing price-raising information to boost prices
- Adopting a discriminatory price to a business operator with the same transaction conditions
- Increasing or decreasing the price of goods indirectly by increasing or decreasing the supply levels of the goods
- Reaping staggering profits in violation of laws
- Engaging in other unlawful pricing activities
Article 14.1 of the Price Law is similar to Article 13.1 of the AML. Article 13.1 of the AML prohibits competing business operators from reaching a monopoly agreement to fix or change the price of the goods. As a matter of practice, Chinese governmental authorities kept regulating the price-fixing activities in accordance with the Price Law. For example, the National Development and Reform Commission (NDRC) investigated the price-fixing activities of some instant noodle manufacturers via a noodle trade association in 2007. The government of Lanzhou City, Gansu Province, investigated the price-fixing activities of noodle peddlers and stores in 2007. It is foreseeable that both the Price Law and the AML will be equally applicable to business operators for a long time. Therefore, companies’ compliance officers should carefully monitor compliance with the Price Law, especially regarding a company’s manufacturing and sale of basic and essential goods (e.g., food and pharmaceuticals).
The AML
It seems likely that the Liuzhou government did not apply the AML to the rice powder case because the press release did not mention the AML at all. In addition, the NDRC is still formulating the AML implementation rules in respect of price-monopoly activities. On 12 August 2009, China’s NDRC published a draft version of the Regulations on Anti-Price-Monopoly to solicit opinions from the public. For more information, click here. The draft regulations are intended to implement the Chinese Anti-Monopoly Law. The finalized implementation rules have not been published yet.
Even if the implementation rules are finalized and issued, the rules may not be fully implemented for a very long time because the AML is still in its infancy stage. Compared with the AML, the Price Law was promulgated on 29 December 1997 and took effective on 1 May 1998.
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