On 25 May 2010, the State Administration for Industry and Commerce (SAIC) published a draft version of the Regulations for Prohibiting Abuses of Administrative Power to Eliminate or Restrict Competition to solicit opinions from the public. The draft regulations are intended to supplement Chapter 5 of the Chinese Anti-Monopoly Law (AML), which took effect on 1 August 2008. The deadline for submission of comments on the draft regulations is 7 June 2010.
Abuse of Administrative Power by Administrative Organisations
The draft regulations provide that any “administrative organ or organization empowered by a law or administrative regulation to administer public affairs” (administrative organisations) shall not be allowed to abuse its administrative power in order to eliminate or restrict competition. In these regulations, commodities include services as well as goods. The regulations include a detailed description of prohibitions on administrative organisations, highlighted below:
- To directly or by implication request entities or individuals to operate, purchase or use the commodities designated by that administrative organisation
- To cause any delay, refusal in issuing the administrative license or repetition in inspection that leads to restriction of normal business activities
- To adopt different conditions, procedures or time limits in the application for administrative licenses if the licenses are related to non-local commodities
- To set barriers at roads, stations, harbors, aviation ports or any administrative boundaries to obstruct non-local commodities’ entry into the local market
- To provide discriminatory requirements or qualification standards, or to not disclose legal information to non-local business operators upon tendering or bidding activities
- To implement unequal treatment to non-local business operators in terms of market access, taxation or credit management in the application of local investment or branch establishment
- To use administrative power to force business operators to eliminate or restrict competition, or to abuse their dominant market position
These prohibitions originated from Chapter 5 of the AML, which focuses on the abuse of administrative power by empowered authorities or organisations to eliminate or restrict competition. This chapter is intended to bar restrictions of any sort to inter-regional trade by such administrative organisations.
By virtue of this draft, some practices of such administrative organisations in dealing with permissions or licensing are listed to be forbidden by the AML. This provides a clear guideline for both administrative organisations, which are empowered by the central Government, and business operators to abide by when applying for licenses, which in turn increases the transparency of the administrative organisations in the eyes of the public.
Abuse of Administrative Power by Business Operators
In addition to new regulations governing the actions or work of administrative organisations, the latter part of the draft regulations set out prohibited acts by business operators. Business operators shall not be allowed to manipulate implementations by any administrative organisations so as to eliminate or restrict competition, or to engage in any monopoly agreement. The acts prohibited are described follows:
- To exploit the administrative controls by any administrative organisations
- To exploit the administrative authority by any administrative organisations
- To use any conditions or regulations issued by administrative organisations to engage in monopoly agreements or abuse a dominant market position
This regulation is newly presented and cannot be found in any subsidiary or regulations related to the AML. In addition to regulating administrative organisations, the new rule seeks to widen its prohibitive measures to business operators at large. This acts as a deterrent for any businesses manipulating or unfairly exploiting other competitors in relation to their fair market rights in the name of administrative organisations. Business operators with the ability to manipulate administrative control or authority are service providers of water, electricity, gas, etc.
China’s Anti-Unfair-Competition Law also sets out to prevent business operators from infringing the lawful rights and interests of other business operators and disturbing the economic and social order. In 2003, Jiangsu Provincial Administration of Industry and Commerce, with the help of the Jiangsu Consumers Association, punished the Nanjing Coal Gas Corporation for its act of unfair competition. The corporation had, by taking advantage of its monopoly position, forced consumers to purchase designated cooking utensils. Similarly, this article of the draft regulations will work in parallel with the Anti-Unfair-Competition Law and prevent business operators vested with administrative powers, such as public utilities, from engaging in monopoly agreements or abusing their dominant market positions.
Operators of public utilities include postal service, telecommunications and transportation providers, as well as suppliers of water, electricity, heat, gas, etc.)
Violation and Enforcement of the Draft Regulations
The draft regulations provide that any violation by administrative organisations would merit punishment and correction under Article 51 of the Anti-Monopoly Law. In contrast, business operators engaging in monopoly agreements shall be restrained by the SAIC or its subordinated regional authorities.
Lastly, the draft regulations state that SAIC Anti-Monopoly Law functionaries shall enforce in accordance with the Provisions on the Procedure for the Industrial and Commercial Administrations to Stop Acts of Abusing Administrative Power for Excluding or Limiting Competition. For more information, see MWE China Law Offices’ article “Chinese Government Issues Procedural Regulations to Curb Abuse of Administrative Powers”.