Even though the National Development and Reform Commission (NDRC)’s investigation into milk powder producers has not yet concluded, it has been recently reported that a number of gold shops in Shanghai including Lao Fengxiang and Shanghai Yuyuan are also undergoing close inspection by the NDRC. Various sources have confirmed that this investigation relates to the practice of manipulating the retail price of gold through the Shanghai Gold Jewelry Industry Association. People who follow China’s growing antitrust enforcement are increasingly impressed with the NDRC’s accelerated pace of investigation in spite of its limited personnel resources.
Activities under the Roof of Industry Associations
In the short history of China’s antitrust enforcement, industry associations have long been implicated in antitrust violations. In 2011, the paper industry association of Fuyang in Zhejiang province was fined by the NDRC because it organized paper manufacturers to fix prices in violation of the Price Law of P.R.C.. Furthermore, a series of investigations conducted by the State Administration of Industry and Commerce (SAIC) in various regions of mainland China in 2012 focused on market partitioning agreements between insurance companies, which were organized by the insurance industry associations in the various regions. In this case, the insurance industry associations were fined for violating the Anti-Monopoly Law of P.R.C (AML).
Why monopolistic agreements organized by industry associations repeatedly occurred? Admittedly, companies feel more comfortable concluding monopolistic agreements with their competitors or trade partners within industry associations, primarily because most of industry associations in China had the government background for a time and some of them even had regulatory functions on relevant industries.
However, monopolistic agreements organized by industry associations are not exempted from punishment under the AML. It is clear that industry associations are prohibited from encouraging competitors within a given industry to conduct monopolistic practices; China’s antitrust watchdogs do not treat the monopolistic agreements orchestrated by industry associations any less strictly. Therefore, it is highly suggested that companies be vigilant on their activities under the framework of industry associations to keep the antitrust compliance risk in China as low as possible.
Fixing Price Ranges
It is reported that NDRC’s investigation into Shanghai gold shops has focused on the Implementing Rules for Price Discipline of the Shanghai Gold Jewelry Industry (the Rules), which was developed by the lead and organization of Shanghai Gold Jewelry Industry Association. According to the rules, many gold shops in Shanghai are not allowed to exceed the range of ± 2% or ± 3% of the agreed “middle price” when they are pricing gold or platinum products.
Many companies think that the AML only prohibits the practice of fixing prices or minimum prices while not challenging the practice of fixing the price range of goods; therefore, they frequently adopt the latter practice in an attempt to circumvent AML scrutiny. However, Article 7 of the Rules for Anti-Price-Monopoly interprets the definition of monopolistic agreements in a more extensive way.
According to the Rules, in addition to fixing or changing the price of commodities and services, fixing or changing the range of prices, fixing or changing processing fees, discounts or other fees which affect the prices, adopting agreed prices as the basis for transactions with a third party, agreeing to adopt standard formulas in calculating prices, entering into agreements that prohibit companies from effecting price changes without prior consent of other signatory operators and fixing or changing prices in other disguised forms will all be identified as a monopolistic agreement. Hence, companies should be very careful in reaching any price-related agreements with competitors.
It is reported that currently the phase of inspection and evidence collection in the gold shop investigation is already nearing its end. In the next stage, the NDRC will determine, based upon the results of the inspection, possible antitrust violations and applicable punishments. This swift process is emblematic of NDRC’s recent trend towards providing teeth to enforcement.