Just after the Chinese New Year, according to relevant source, the National Development and Reform Commission (‘NDRC’), one of the three main China’s anti-monopoly enforcement authorities may impose a new high penalty amount to CNY 449 million ( equal to 71.47 million USD) against two Chinese high-end liquor companies soon, 247 million for Kweichow Moutai and 202 million for Wuliangye respectively.
This action of NDRC actually is only around one and a half month following the LCD case’s 353 million-penalty in January, which can’t be denied that NDRC is becoming more and more aggressive regarding its steps of China’s antitrust enforcement.
As a matter of fact, Kweichow Moutai has issued a statement on its website as early as 15 January 2013 that it will cancel the marketing policies which may violate the Anti-Monopoly Law of China (AML) and conduct a complete rectification due to the investigation by the NDRC and the Price Bureau of Guizhou Province. On 18th of the same month, another top liquor company Wuliangye also published the announcement expressing its cooperation attitude to make rectification in compliance with the AML. Some people forecasted at that time that NDRC may suspend the case partly due to the Stated-owned Enterprise (ome ’) identity of the two and another ground may rest on that vertical agreements at the present time was not the priority of NDRC’s enforcement yet. Only one month later, however, people are surprised that a new record fine may be imposed on these two SOEs soon.
According to the relevant source, the two liquor companies conducted the “resale price maintenance (‘RPM’) behavior” by making constrains on the price of their distributors and imposed harsh punishments on those who did not observe, which violates article 14 of the AML regarding vertical agreement.
Observations and Comments:
1. As disclosed by relevant source, the amount of penalty equals with one percent (1%) of two companies’ sales amount in 2012. In this regard, it is observed that the NDRC’s calculation of penalty is based on the amount of sales achieved in the previous year, therefore it probably applied the AML rather than the Price Law in the said antitrust investigation. But for the following-up investigation case regarding LCD, NDRC took advantage of the Price Law, not AML, to punish the actually monopoly behavior.
2. From the past observation and experience, the NDRC and SAIC’s enforcement priority has been focused on punishing horizontal agreements and seldom paid much attention on the vertical behavior. It should be recognized that this decision would be of significant importance to the progressiveness of NDRC’s antitrust enforcement and have a major impact on the distribution activities in China. Nevertheless, one concern is that there is no specific regulation or guidelines but only general provisions in AML regarding vertical agreement existed in the current stage within China’s antitrust legal framework, which may give rise to the uncertainty of law enforcement. Just after the press release of this case, some relevant markets are stirred due to the potential regulation over vertical behavior, especially for car market, which is the hot debate topic for AML experts.
3. Furthermore, it has shown that NDRC is careful in applying the settlement/suspension in antitrust investigations now. Unlike in the precedents, although two liquor companies have committed to stop the violating behaviors and make rectification to the NDRC, they still may face being imposed on penalty rather than a suspension decision. Taking their SOE identification into account, such fine is so unusual.
4. What worth noting is that the penalty on these two top liquor companies also echoes the political advocacy by the new central leadership in PRC, that is, to combat corruption and build a clean government. In the past years, the high- end liquors have been used as the ingredients of corruption to some extent, and are treated as emblem of the extravagant lifestyle.