China antitrust: Beijing’s new rule book raises the bar for what counts as monopoly

Iris Deng and Coco Feng, South China Morning Post

Posted at Feb 10 2021 07:52 PM

The final version of China’s antitrust guidelines includes small, but potentially significant, changes from the previous draft that could make it complicated for Beijing to single out monopolies, according to legal experts.

They said those revisions in the guidelines, which came into effect on Sunday, are rich in implications for how antitrust investigations and disputes in China will move forward.

This new rule book for regulators comes at a time when some of the country’s largest and most influential technology companies – including Alibaba Group Holding and Tencent Holdings – are embroiled in various anti-monopoly issues. Alibaba is the parent company of the South China Morning Post.

The newly established guidelines stipulate that the regulator must define “a relevant market”, or the area where a monopoly exists, in an antitrust investigation.

That is key to proving in an antitrust investigation or lawsuit that an internet platform has built up a dominant market position and misused this position. An internet platform will only be subject to regulatory or legal punishment if such a situation exists.

In the previous draft released in November, the State Administration for Market Regulation (SAMR) did not have to define a relevant market to call a monopoly in “special cases”. It provided regulators unrestrained power to label any company a monopoly.

The change closes a loophole that would have given the agency too much discretion on regulatory scrutiny of the internet sector, according to You Yunting, a senior partner at Shanghai DeBund Law Offices.
“If the relevant market cannot be defined in a case, then anti-monopoly laws can’t be applied,” You said. “It’s the obligation for law enforcement agencies to define a relevant market in a monopoly investigation.”

Defining a relevant market in an antitrust investigation or lawsuit could be a daunting task for regulators in China – home to the world’s largest internet population, biggest e-commerce market and most number of smartphone users – where boundaries are not fixed and development of innovative products and services are encouraged. The country’s technology industry is a field that China sees as critical to drive for modernisation and self-reliance over the next decade and a half.

An example of how difficult it can be to prove a monopoly exists can be gleaned from a landmark case between antivirus software developer Qihoo 360 Technology and Tencent.

Qihoo sued Shenzhen-based Tencent in 2012 for abusing its dominant market position in instant messaging, which forced internet users not to adopt its security software. In March 2013, the Guangdong People’s High Court ruled in favour of Tencent. That led Qihoo to take its case to the People’s Supreme Court. In a 75,000-character decision, the court also ruled in favour of Tencent because its dominant market position was not proven.

The requirement to define relevant market in the guidelines “adds more clarity and flexibility” in China’s antitrust operations, while helping “alleviate investor concerns”, according to HSBC analyst Binnie Wong in a report published on Tuesday.

Another change in the final version stipulates that an internet platform’s independent decision to match or follow prices of other players will not be considered as an antitrust issue.

The guidelines also allow operators to sell goods on internet platforms at prices below cost “for a reasonable period” as long as the sales are specifically used to attract new clients or as a promotional campaign. This would seem to be the go-ahead for internet platforms to implement subsidised pricing schemes to grab market share.

More importantly, the new antitrust guidelines’ mission statement indicates that it would ensure “the orderly, innovative and healthy development” of the country’s internet sector. As such, antitrust efforts aim to “support innovative development of internet platforms and enhance their international competitiveness”.

That has raised questions on how Beijing will be able to crack down on Big Tech’s monopolistic practices using the new guidelines. It is an undertaking that falls squarely on SAMR, the country’s top market regulator.

“The previous consultation paper stirred up debates among the public and scholars”, said You of Shanghai DeBund Law Offices. “The [new] rules aim to protect free competition, but if the anti-monopoly laws are not applied properly, it could eventually harm the economy and consumer rights.”

The guidelines, however, could serve as a valuable reference in legal disputes between Big Tech companies.

The lawsuit by TikTok parent ByteDance against Tencent over alleged monopolistic practices was accepted by a court in Beijing this week, a move that experts said could become a “landmark” case as authorities ramp up antitrust efforts.

In other segments of the internet sector, another Chinese government agency has stepped in. The People’s Bank of China published a new draft regulation last month that included definitions of monopoly in the nonbank payments market.

“When the internet industry just started, it was hard to define the relevant market, as there were some new concepts like the attention business or free online services,” said Yuan Jia, an associate professor at Sichuan University Law School. “But as the industry grows, more and more experts argue that the definition isn’t a problem.”

“For companies that run platforms, the latest guidelines gives them better knowledge about the boundaries of their commercial behaviour,” Yuan said.

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