Special Regulations of China to Curb Price Fluctuations

Regulations drafted by the National Development and Regulatory Commission provide guidelines on penalties for unlawful behavior committed during times of abnormal market price fluctuation.

On 13 July 2010, the National Development and Regulatory Commission issued draft Special Regulations on Penalties for Unlawful Practices Committed during the Periods of Abnormal Fluctuation of Market Price to seek comments.  The deadline to submit comments is 13 August 2010.

The draft regulations were issued, as most believe, to control the vehement price fluctuations that recently took place in respect of some agricultural products such as garlic and mung bean.  It remains to be seen whether or not the they will be applicable to irregular pricing on real estate properties.  Following are a few of the draft regulations’ many features.

1. Increasing punishments on pricing irregularities

Article 3 of the draft regulations states, “if a business operator fabricates and disseminates information of pricing increases, disturbing the order of market prices, such business operator will be ordered to make a rectification, face confiscation of illegal gains, and be subject to a fine of less than five times the illegal gains; the business operator who obtains no illegal gains will be subject to a fine between RMB 200,000 and RMB 2 million; in a serious case, the business operator will be ordered to cease its business operation or face a suspension of its business license by the administrative authority of industry and commerce according to law.” Comparatively, the Regulations on Administration Punishment Regarding Illegitimate Pricing Actions of 2008 just provided for a fine of RMB 50,000 to 500,000 for the fabrication and disseminating of the information on pricing increases.

Punishment for other irregularities also increased:

  • “When a commodity is in short supply and has an abnormal price fluctuation, if a business operator speculates in such commodity by: purchasing more and selling less; purchasing only and not selling it; or hoarding such commodity and refusing to sell, such business operator will be ordered to make a rectification, face confiscation of illegal gains and be subject to a fine of less than five times the illegal gains; the business operator who obtains no illegal gains will be subject to a fine between RMB 200,000 and RMB 2 million; in a serious case, the business operator will be ordered to cease its business operation or face suspension of its business license by the administrative authority of industry and commerce according to law.”
  • “If the difference between the production cost and selling price or the difference between purchasing price and selling price is twice as much as in a normal period, such business operator will be ordered to make a rectification, face confiscation of illegal gains and be subject to a fine of less than five times the illegal gains; the business operator who obtains no illegal gains will be subject to a fine between RMB 200,000 and RMB 2 million; in a serious case, the business operator will be ordered to cease its business operation or face suspension of its business license by the administrative authority of industry and commerce according to law.”
  • “If two or more business operators collude by such means as an agreement, resolution or collaboration in manipulating the market price, thus harming the legitimate rights and interests of other business operators or consumers, such business operators will be ordered to make a rectification, face confiscation of illegal gains and be subject to a fine of less than five times the illegal gains; the business operator who obtains no illegal gains will be subject to a fine between RMB 200,000 and RMB 2 million; in a serious case, the business operator will be ordered to cease its business operation or face suspension of its business license by the administrative authority of industry and commerce according to law.”
  • “If an industrial association or another unit organizes business operators to collude in manipulating the market price, such industrial association or other unit may face a fine of less than RMB 500,000; in a serious case, they will face suspension of their permits and business license or cancellation of registration by the competent authority according to law.” 

2. Procedures to deal with urgent situations

If there is an urgent situation demanding for the immediate take down, investigation and punishment of unlawful price practices, the following measures may be taken:

  • Establish the case immediately to order the suspension of the relevant business operation and attach or seize relevant property
  • Go through the procedure of prior notification of administrative penalty and the procedure of a notification of hearing
  • Confiscate the illegal gains in advance and handle such illegal gains according to relevant regulations

3. Application of the anti-monopoly law

The draft regulations provide that if the relevant behaviors constitute monopolistic behaviors, penalties shall be imposed pursuant to the anti-monopoly law (AML) (Article 6 of the draft regulations).  Because the AML imposes different punishments for some monopolistic actions than those provided in the draft regulations, it could be difficult to decide which legal authority to apply to punish the same monopolistic action.  For example, Article 6 of the draft regulations punishes “collusion by such means as an agreement, resolution or collaboration in manipulating the market price ”, which apparently is what is prohibited by the AML (Article 13.1).

4. Criminal liability

The draft regulations provide that if the unlawful price practices set forth herein have severely disturbed the market order, thus constituting a crime, criminal liabilities shall be pursued [according to criminal law].  Because the criminal law does not directly provide for criminal punishment for monopolistic actions, some provisions that are not related with the AML could be borrowed to punish the monopolistic actions.  (See the MWE China Law Offices newsletter on this issue, “Price Manipulation in China May Trigger Criminal Liability .”)

Click here to view a translated version of the Special Regulations on Penalties for Unlawful Practices Committed during the Periods of Abnormal Fluctuation of Market Price.