China’s Anti-Monopoly Law 2.0: expect uptick in enforcement and higher fines

China’s National People’s Congress (the country's legislature) recently published a second round of amendments to the country’s Anti-Monopoly Law (‘AML’). The latest proposals follow a public consultation, which began in 2020, and a wave of investigations culminating in steep fines in some cases. Highlights include harsher penalties for infringing the law; a focus on tech, media, the Internet economy and killer acquisitions; modernising merger review procedures to address timing of reviews; and expanding forms of conduct covered by the law. Our client briefing on the first set of proposals can be found here. This blogpost takes a look at the recent proposals.

1. Harsher penalties for infringements of the law

The latest amendments seek to bolster the deterrent effect of the law by increasing the penalties for breaches including:

• Increasing fine maximums for various infringements (the full details are set out in our client briefing here). Most striking includes increasing the fine for failure to notify a reportable transaction to RMB5m (approx. US$783,000) if the transaction has no impact on competition and up to 10% of a company’s (potentially global) turnover if it does. The proposals also entrust SAMR and its local branches with power to multiply fines by up to 50% of a company’s (potentially global) turnover in case of egregious AML breaches.
• The proposals provide for individual liability for legal representatives, managers or other senior employees if they play a key role in infringement. Individuals could be fined up to RMB 1m (approx. US$157,000).
• The proposals introduce fines for organising or providing substantial assistance to others who infringe the law. Fines for ‘accessories’ would be the same as for the principal infringer(s) of the law.
• Finally, in a sign that AML infringements are regarded as serious, the proposals add that anticompetitive conduct amounting to a crime should be handled under criminal law. This suggests that the government is contemplating introducing criminal sanctions for antitrust violations.

2. Reforms to the merger control regime

• The proposals introduce a 'stop-the-clock' mechanism, when: (i) SAMR awaits a response to an information request; (ii) SAMR and notifying parties engage in remedy negotiations; or (iii) a notifying party so requests. This could make the handling of complex cases more efficient and avoid notifications being withdrawn/refiled several times (eg in cases where remedy negotiations cannot be settled within the statutory deadline). However, there is a risk of undermining the benefits of the mechanism if, for example, multiple information requests are issued simply to secure extra time to complete a merger review.
• Another proposal codifies SAMR’s ability to scrutinise transactions that do not meet the filing thresholds if the transaction raises competition issues. This is in line with antitrust authorities in other jurisdictions that are seeking to address so-called ’killer’ acquisitions involving a target with significant market potential that generates no or insufficient turnover to trip applicable filing thresholds.
• The proposals identify industries relating to people’s wellbeing, finance, technology and media as priority sectors for merger review. This heightened regulatory scrutiny seems to target mainly large domestic companies, but could conceivably impact foreign companies in the future.

3. Further guidance on anticompetitive conduct

• The proposals enable SAMR to establish ‘safe harbour’ rules to exempt certain restrictive agreements between companies with low market share. The proposals do not provide market share thresholds or specific exemptions. However, other guidance from SAMR suggests that the exemptions are unlikely to cover hardcore infringements (such as cartels and resale price maintenance (‘RPM’)).
• The proposals seek to settle the debate on whether RPM should be subject to effects-based analysis and who should bear the burden of proof. The proposals clarify that SAMR may presume anticompetitive effects (consistent with its current practice) and companies engaging in RPM should bear the burden of rebutting that presumption.
• The proposals highlight the role of data and platforms in line with the increased regulatory scrutiny of internet companies generally. Expect this sector to remain an enforcement priority in the near term.
• The proposals introduce a mechanism for the People’s Procuratorates to bring public interest-based litigation – a move we expect may spur the growth of antitrust litigation in China.

The public consultation on the proposals runs until 21 November 2021. There is no concrete timetable for the adoption of the new law, but we anticipate that this is likely to happen soon. For companies doing business in China, continued compliance with the AML will assume even greater importance, as the proposed amendments raise the stakes and come against a backdrop of increased enforcement.