Authored by Michael Gu(, Moon Wang (


Following a sweep on baby formula manufacturers and the packaging giant (i.e. Tetra Pak), the young but powerful Chinese antitrust watchdogs have probed gold jewelers in Shanghai and the Shanghai Gold & Jewelry Industry Association (the “Industry Association”). The National Development and Reform Commission (“NDRC”) and the Shanghai Development and Reform Commission (“SDRC”) allege that the Industry Association and its major members have been manipulating the retail prices of gold jewelry in the Shanghai area. It is reported that 13 major members of the Industry Association, including Shanghai-based gold companies Lao Feng Xiang, Lao Miao Jewelry, Shanghai Yuyuan, world’s biggest jewelry retailer-Hong Kong’s Chow Tai Fook, and Chow Sang Sang, were among those probed. It’s said several jewelers have submitted reports to the antitrust agency admitting their wrongdoings. In contrast, Chow Tai Fook has officially denied their involvement in the alleged manipulation of gold retail prices in Shanghai, claiming that they have their own gold pricing mechanism. They further explained that their mechanism determines the gold price in accordance with international bullion price and the prices of their gold products are uniform across China with no regional differences.

It is notable that the Industry Association and its member jewelers fixed prices of gold and platinum products through the implementation of association rules, i.e. the Implementing Rules of the Shanghai Gold and Jewelry Industry for Gold and Platinum Jewelry Price Discipline (the “Price Discipline Rules”). The Price Discipline Rules aimed at regulating the pricing activities among the members of the Industry Association by setting out an “intermediate price” around which there was a +/- 3% range that members were required to sell in. The Price Discipline Rules also stipulated the range for price changes and the standard formulas for calculating prices. According to the initial findings of NDRC and SDRC,  the market prices of gold and platinum products in Shanghai remained at a level higher than the international bullion price resulting from the implementation of the Price Discipline Rules. This might substantially restrict and eliminate the competition in the jewelry market and is a violation of China’s Anti-Monopoly Law (the “AML”).

Suspected Breach of the AML

A price-fixing agreement, and in particular, an agreement arranged by an industry association, is strictly prohibited by the AML. The recent announcement regarding the antitrust enforcement decisions made by the State Administration for Industry and Commerce (“SAIC”) indicate that 9 out of 12 total concluded antitrust investigations on monopoly agreement involved associations in various industries, and the consequences of such monopoly agreements substantially affected the market competition.

Previous probes, such as the Concrete Case and White Paperboard Case, can best demonstrate this point. In the Concrete Case, the Jiangsu Administration for Industry and Commerce probed price collusion initiated by a local Construction Materials and Machinery Industry Association. Its 16 members collectively entered into an agreement under which each member is only permitted to sell in a designated geographic area with certain market share allocated by the association. A punitive fine of RMB 0.2 million was imposed on the commission and a total fine of RMB 530,723.19 and the confiscation of illegal gains of RMB 136,481.21 were imposed on the involved undertakings. In the White Paperboard Case, the local paper association was found to have organized more than 20 undertakings in the paper manufacturing industry to enter into a price-fixing monopoly agreement. Subsequently, a fine of RMB 0.5 million was imposed on the association. 

According to Article 7 of NDRC’s Provisions on Anti-Price Monopoly (the “NDRC Provisions”), price-fixing includes various direct or indirect ways   intending to eliminate or impede price competition, e.g. fixing or changing the range of price changes, fixing or changing the discount rate or surcharges, and adopting standard formulas in calculating prices. The relevant articles of the Price Discipline Rules may directly violate the NDRC Provisions. The Price Discipline Rules raised concerns from the antitrust regulator, and subsequently triggered the antitrust probe.  

Given the results from previous probes such as the Moutai and Wuliangye Case as well as the LCD Case where the companies who cooperated with the NDRC were granted reduced sanctions, it is not surprising to see reports confessing wrongdoing have been submitted to the agency by some investigated companies. While "a fine of 1%-10% of the violator’s annual turnover plus confiscation of all illegal gains," shall be imposed on companies engaging in a price-fixing monopoly, Article 49 of AML provides that the nature, extent, and duration of the violations shall be considered when determining the amount of the penalty. Article 46 of AML further adds that where an industry association violates the provisions to reach a monopoly agreement, the agency may impose a fine of not more than RMB 500,000 on the industry association. However, if the circumstances are serious, the administrative department for the registration of public organizations may cancel the industry association’s registration entirely.  

It’s also notable that Chow Tai Fook argues that their own pricing mechanism was not subject to the Price Discipline Rules and neither did they participate in making the price-fixing policies. However, the monopoly agreement mentioned in the AML refers not only to the agreement itself but also to concerted conduct by two or more undertakings that restricts and eliminates competition. Under the NDRC Provisions, a concerted practice may be established if (1) there is uniformity in the pricing behaviors of the undertakings; and (2) there has been any communication of ideas among undertakings. NDRC shall also consider the market structure and market change when determining a concerted conduct. Companies who attempt to justify their practice need to establish an unparalleled record of pricing practice with the enforcement agency, which as to demonstrate a practice distinct from that of the price-fixing companies. In this case, Chow Tai Fook, as a member of the Industry Association, would need to prove that it actually priced its gold products in accordance with the market changes rather than the Price Discipline Rules however their official announcement may not be sufficient in this regard. NDRC may still assess the company’s business practice, such as whether the company increases their gold prices in conjunction or shortly after the member of association does so or whether the company has participated in meetings related to the pricing policy, in order to determine the legitimacy of the company’s pricing activity. It remains to be seen whether Chow Tai Fook can successfully defend itself. Nevertheless, companies doing business in China must exercise prudence when making decisions on joining any industry association and participating in policy-making regarding prices or other sensitive issues.