Authored by Dr. Zhan Hao ( and Dr. Annie Xue at AnJie Law Firm

China’s National Development and Reform Commission (NDRC) handed down antitrust penalties totaling 1.24 billion yuan on 12 Japanese companies in the past August, including eight auto parts makers and four bearing manufacturers. This action came after a series of global crackdown on auto parts price cartels taking place in the U.S., the EU, Japan and Singapore, while reinforcing the trend of the Chinese antitrust authorities following their counterparts in other major antitrust regimes, especially the U.S. and the EU.

China as a Follower

From February 2010, the EU, the U.S., Japan and Singapore launched their years-long antitrust probes into auto parts makers’ global price cartels.

The Department of Justice of the U.S. (DOJ) has issued pecuniary penalties on companies and individuals, a couple of companies and their executives have plead guilty for their roles in the antitrust violations, and some executives have agreed to serve jail time in the U.S. Up till now, the investigations are still ongoing.

On the other side of the Atlantic, the European Commission (Commission) fined four wire harness suppliers a total of € 141 million for fixing prices in July, 2013, and subsequently slapped another € 953 million fine on producers of car and truck bearings in March, 2014.

In Asia, Singapore’s anti-trust watchdog the Competition Commission of Singapore (CCS) fined three Japanese manufacturers S$9.3 million in May, 2014, for taking part in a ball bearing pricing cartel.

It is in the wake of the foregoing investigations and punishments that the NDRC initiated its efforts on smashing the car components price cartels which have contributed to the cost inflation of cars and after-market services.

As a matter of fact, this is not the first time that the Chinese regulators ride the wave of global campaign against monopolistic wrongs.

In the 2013 LCD panel case, the NDRC fined six LCD panel manufacturers 144 million yuan for conspiring to fix the prices, despite that the legal basis of the punishment was the Price Law of China rather than the Anti-monopoly Law (AML), given the fact that the anti-competitive behaviors took place before the coming into effect of the AML. This enforcement action came after the Commission fined the same six LCD panel producers €648 million for price fixing in December 2010, and the DOJ handed out around $890 million in fines in 2011 following guilty pleas by several companies, and $500m following litigation with AUO that concluded in 2012.

The present investigation by the NDRC on Qualcomm, and that by the State Administration of Industry and Commerce (SAIC) on Microsoft, also echo the series of antitrust scrutiny on the two IT behemoths by other major antitrust regimes across the Atlantic in the years past. And people may find some cues of the SAIC’s recent challenge of the liquid and semi-liquid packaging machinery and carton giant Tetra Pak, in the Commission’s decision to fine this company for abusing its dominant position in 1991.

The Causes and the Implications

The follower’s role of the Chinese antitrust watchdogs is shaped under the following circumstances:

1.  Shortage of manpower. There are currently only 20 or so full time staffs in the Bureau of Price Supervision and Anti-Monopoly of the NDRC, and about 10 staffs in the Antimonopoly and Anti-unfair Competition Enforcement Bureau of the SAIC, although the human resources of local branches can, to some degree, close the gap. These numbers are much smaller than that of the counterparts in South Korea and Japan, not to mention the U.S. and the EU, which all feature high-caliber lawyers and economists. Follow-on investigations can allow less investment in revealing and investigating an antitrust breach with the scarcity of human capital.

2.  Initial phase of enforcement. The enforcement history of the AML is merely six years by 2014, which cannot be expected to bring the implementing agencies ample experience and adequate sophistication. Relying on other antitrust regimes’ well established enforcement and time-tested wisdom, the Chinese agencies may start actions even in their initial phase of development.

3.  Relatively smooth communication with the counterparts of other antitrust regimes. The NDRC, the SAIC, and the Ministry of Commerce of China have individually or collectively come into MOUs with the enforcement agencies in the U.S., the EU, the UK, South Korea, Russia, Australia, Brazil, and so on, and thereby establish the institutional framework for international cooperation and coordination. Additionally, unofficial staff-to-staff communications are happening in a more frequent manner. The smooth information exchange has enabled China to embrace the evidence, the thinking, and the methodology of the experienced counterparts, and identify the enforcement targets with more confidence.

4.  Better cooperation from the investigated firms. The companies who have already received penalties usually behave more humble and more cooperative, when undergoing investigations. This will definitely make the life of the infant Chinese regulators easier.

5.  Actions following enforcement in other jurisdictions. In the P.R.C., some competitors, trading partners, and so-called public-interest lawyers act as watchdogs for the antitrust violations taking place in jurisdictions other than China. When the investigated or fined anti-competitive conducts that may also fall foul of the AML come under their radar, the lawyers oftentimes proactively approach the potential victims domiciled in China and encourage them to institute a lawsuit with the Chinese courts or file a complaint to the Chinese authorities; and the competitors and trading partners may directly go to the courts or the agencies.

The emerging role of the antitrust authorities of China as a follower in global campaigns against anti-competitive behaviors may present the following implications for Chinese and multinational companies:

1.  Benchmarking the highest standards across the major jurisdictions, if not all. The past years have seen the creak down on the same anti-competitive conducts of the same companies by multiple jurisdictions. This trend could be anticipated to further materialize when globalization intensifies. Companies conducting purchase and sales all over the world may encounter antitrust risks in every major jurisdiction. In this sense, benchmarking the highest standards across jurisdictions, rather than racing to the bottom, may substantially reduce the risk exposure.  

2.  Undertaking immediate and thorough compliance review in others after receiving antitrust investigation in one jurisdiction. It has to be recognized that the information exchange and investigation collaboration between different countries’ antitrust authorities are getting more frequent and efficient. And it is not rare to hear the regretful words that had the firm gotten to know the teeth of the AML, it would have launched immediate actions to assess and mitigate the risks in China upon receiving fines in the U.S. or EU. Therefore, it is wise for a company to conduct immediate and thorough compliance review in other jurisdictions, after it encounters antitrust investigation in one.

3.  Establishing precautionary measures in major jurisdictions. Although benchmarking the most rigorous standards is a good starting point, it is far from isolating the companies from all antitrust risks. Because on the one hand, it may not be feasible to apply the highest standard in every jurisdiction given the accompanying cost; on the other hand, antitrust issues oftentimes are entangled with industrial policies, international trade policies, and political issues, not to mention its own complex nature. It is sensible, therefore, to retain law firms who possess both antitrust and local knowledge to help establish precautionary measures in the form of, say, compliance manual, risk assessment, training programs for executives, etc.

Concluding Remarks

The past years’ efforts reflect China’s growing presence in international antitrust enforcement. This result not only comes from the proactive enforcement of China’s regulators, but is also inspired by the preceding actions by other enforcement authorities. China’s commitment to international cooperation will further improve the follow-on enforcement. In this context, it is advisable to establish precautionary measures in China, and conduct immediate antitrust review after receiving probes in other jurisdictions. This advice is of particular importance to the firms operating in the high-risk sectors, such as automobile, car components, food, construction materials, pharmaceutical, distribution channels, and the like.

A side note is that the phenomenon of follow-on enforcement is not unique to the late comer of the antitrust arena such as China. Thanks to the cost-efficient nature of follow-on enforcement at the stage of revealing the antirust wrongs and the subsequent investigations, the more experienced regulators may follow China as well, as demonstrated in the reported investigation by the Commission following China’s antitrust scrutiny on Qualcomm. This means that companies operating in multiple antitrust regimes had better take prompt and appropriate measures, whenever China rings the alarm of antitrust enforcement.