China has become an important jurisdiction in the global antirust arena. With private antitrust litigation still developing, fines issued by the antitrust agencies are the main deterrence to non-merger anticompetitive conduct. Since 2013, China’s antitrust agencies have published a large number of non-merger antitrust investigation decisions, and these decisions indicate that China’s antitrust agencies have fined hundreds of companies, both domestic and foreign. Although general principles regarding confiscation of illegal gains and antitrust fines are provided in China’s Antimonopoly Law, the enforcement agencies have been drafting Antitrust Fining Guidelines (“AFG”) to institutionalize the perceived best practice and to provide more detailed guidance to market participants. Applying the proposed formulas in the draft AFG to historical cases investigated by China’s antitrust agencies and comparing the predicted fines to actual fines imposed by the agencies in those cases offers insights into the direction of China’s antitrust enforcement using fines.
According to the current draft AFG, the Chinese antitrust enforcement agency will consider the nature and duration of the illegal conduct in determining fines. The draft AFG provide formulas for determining fines for horizontal and vertical agreements and for abuse of dominance cases. The draft AFG set different base fines that depend on the nature of the illegal conduct and also consider aggravating or mitigating factors to adjust these base fines. The base fine is defined as a percentage of the offender’s relevant revenue in the previous year. The draft AFG also stipulate that the base fine is increased by one percentage point for each additional year of the duration of the antitrust offense.
For horizontal agreements, the draft AFG stipulate that companies engaging in horizontal agreements on pricing, production, capacity, and market division receive the highest base fine of three percent, while companies engaging in other horizontal agreements such as restraints on technology development receive a base fine of two percent. Companies engaging in vertical agreements receive a base fine of one percent. These different base fines reflect the recognition that cartels tend to harm competition with little or no offsetting consumer benefits, while vertical agreements may have some efficiency reasons.
When defining base fines for abuse of dominance cases, the draft AFG make a distinction based on the source of market dominance. The base fine is set at three percent if the dominance was obtained as a result of laws and administrative regulations, while it is set at two percent if the dominance was obtained through market competition. The likely rationale for this distinction is that dominance established through laws and regulations may be indicative of higher barriers to entry and more stringent restrictions on competition, and thus larger anticompetitive effects.
After the base fine is determined, the AFG stipulate that the Chinese antitrust agency will consider aggravating factors and mitigating factors. Aggravating factors include whether an offender played a leadership role in a conspiracy, was involved in multiple offenses, and/or pushed for the administrative agencies and organizations to exclude competition. Each aggravating factor increases the base fine by one percentage point. For example, an offender that participated in both price fixing and a division of customers may be assessed with two aggravating factors, and the base fine increased by two percentage points. Additionally, a company that continues to engage in the anticompetitive conduct despite an order to stop faces a half percentage point increase of the base fine. Mitigating factors include when an antitrust offender was coerced by others, was forced by an administrative body, cooperated with the enforcement agency, and/or voluntarily took actions to eliminate harm. Each mitigating factor reduces the base fine by one percentage point. Additionally, voluntarily taking actions to reduce harm, providing evidence to another investigation, and other mitigating factors, would lead to a half percentage point reduction of the base fine for each of these factors. Although the confiscation of illegal gains from an antitrust offense has no upper limit, total antitrust fines are capped at ten percent.
Most of the decisions published by China’s antitrust agencies provide sufficient details to project the level of fines companies would have received based on the above formulas provided in the draft AFG. Data from 202 fine recipients in 46 antitrust investigations that occurred between 2013 (when the agencies started publishing such decisions) and September 2019 were analyzed. These data include 20 abuse of dominance investigations, 19 horizontal agreement investigations, and 7 vertical agreement investigations. These data show that the average actual fine percentage is three percent, while the average projected fine percentage is almost six percent. This suggests that, overall, the fines would have been significantly higher on average if the draft AFG had been in place throughout this time period and strictly followed. However, the difference between the projected fines and actual fines decreased over time. For example, the average actual fine was one percent in 2013, but the average projected fine is approximately six percent. In contrast, the average actual fine was five percent in 2019, which is slightly higher than the average projected fine of 4.2 percent. One exception is in 2018, when three former antitrust agencies were combined into one single enforcement agency under the newly created State Administration for Market Regulation. These findings suggest that enforcement decisions concerning fines were increasingly aligned with the drafted AFG, even though these guidelines are not finalized and official.
Deterrence of anticompetitive conduct is a major goal of antitrust enforcement, and punishment such as fines is an important mechanism for Chinese antitrust enforcers to achieve the desired deterrence. Properly formulated and implemented fining guidelines should help improve the predictability and transparency in China’s future antitrust enforcement fines.