China’s market regulator, the State Administration for Market Regulation (SAMR), is now soliciting public comments on the draft revision of the country’s Anti-Unfair Competition Law. This is the latest amendment to the law — the last two were in 2017 and 2019 — since it was enacted in 1993. The proposed rules for banning exclusive dealing and big-data-enabled price discrimination against existing customers became a hot topic of debate immediately after the draft was released. Regulating unfair competition in the digital economy is a rather pressing issue, but unfair competitive practices remain widespread. There is also persistent weakness in law enforcement and its supervision. It is not wise to interpret the law restrictively. Revisions to this law should target more lofty goals.
The draft legislation has improved rules for the digital economy. Article 4 stipulates that China should improve rules guarding against unfair competition in the digital economy. Businesses are prohibited from engaging in unfair competition by exploiting their advantages in data, algorithms, technology, capital and platform rules. The second chapter — Acts of Unfair Competition — makes a detailed list of prohibited acts. With the Internet Special Article, or Article 12, added in the 2017 revision and the country’s ongoing crackdown on internet companies, it is easy to see that internet-related provisions have gotten a lot of attention.
However, the greater purpose of this amendment is to meet the market’s need for fair competition. The Anti-Unfair Competition Law is a basic law regulating the order of the market. Together with the Anti-Monopoly Law, they form the top-level laws governing antitrust and competition matters. Fair competition, the protection of property rights and sanctity of contracts are the cornerstones of a market economy. The greatest significance of a basic law is that it can downplay the political aspects, break down barriers between government departments caused by differing interests, and create fair market conditions to the greatest extent possible.
The Anti-Unfair Competition Law aims to establish fundamental rules for ensuring competition in the market. Article 1 of the draft summarizes the overall purpose of this law as “preventing acts of unfair competition, encouraging and protecting fair competition, safeguarding the lawful rights and interests of businesses and consumers, protecting the public interest and promoting the healthy development of the socialist market economy.” By putting equal emphasis on business operators, consumers and the public interest, it makes the importance of the three clear to all.
Three revisions in five years show that China’s society has changed rapidly. It is also a reminder to lawmakers that legal stability is crucial to upholding the authority of the law, especially for a basic law regulating competition. Thus, we must set lofty goals when amending the law.
How? The report to the 20th National Congress of the Communist Party of China proposes building “a high standard socialist market economy.” Measures include improving institutional foundations such as fair competition laws, creating a better business environment, strengthening anti-monopoly and anti-unfair competition enforcement, and prohibiting activities that induce local government protectionism and lead to administrative monopolies. Thus, any revision to the Anti-Unfair Competition Law should be consistent with the goals of building a high-standard socialist market economy. It must not be interpreted as a tool to fix problems in one industry. With such a narrow interpretation in mind, resources will never be allocated efficiently, interfering with fair market competition.
Hence, it is essential to gain a broader perspective on the current state of market competition. While it is impossible to ignore the chaos that occurred during the rapid growth of the new economy, long-existing problems should not be taken lightly. Commercial bribery, false advertising and trade infringement continue to occur, and many illegal acts go without punishment. Take commercial bribery. China launched a special campaign against commercial bribery around 2006, covering almost all sectors and producing positive results. However, it failed to establish a standing mechanism for preventing corruption. As a result, “kickbacks” are still widely used as an easy way to gain competitive advantages. Corruption and bribery can be most frequently found in areas like engineering and construction, pharmaceutical sales, finance, and government procurement. Behind the chaos often lies the unlevel playing field for business. Bribery often happens in large corporations as they enjoy the benefit of having economies of scale. It is also rampant in state-owned enterprises and administrative institutions because some of them are large and may even have a virtual monopoly on the power to allocate resources. This latest revision to the law should be able to address these problems.
Amending the law is only the beginning. Whether the law gets enforced will depend on the support it receives, as well as whether the groundwork has been properly laid. These realities constrain the effective implementation of the law. At the end of 2020, a team of inspectors from the Standing Committee of the National People’s Congress released a report on the enforcement of the Anti-Unfair Competition Law. It pointed out that lack of supporting policies has hurt the law’s implementation and effectiveness. In addition, the report also mentioned a phenomenon where government departments deliberately choose whom they are regulating. This happens because the enforcement powers are divided between several government departments. As a result, they tend to pick — or even fight for — the easy targets while passing the buck to their peers, who end up having to deal with the difficult cases. Regrettably, such misconduct continues to this day, uncorrected by the law.
Lawmaking is a process that requires a consensus among people from all parts of society through continuous debate and discussion — not by prevailing over dissenting opinions or forcing others to accept one’s own view. The draft revision adds a new article (Article 13) concerning market dominance. It states that business operators with a relatively dominant market position shall not, without justification, engage in several different acts, including forcing their trade partners to sign exclusive agreements. In fact, this is not the first time this article has been proposed. It had been in 2017 Deliberation Draft; however, it was not adopted by the legislature due to great controversy. Now, as it has reappeared in this draft revision, a more detailed and thorough explanation should have been provided. How does it relate to the article about the abusing a dominant market position in the Anti-Monopoly Law? Will this article be misused? Whether this article makes it into the law, the concerns raised in the past are still worth exploring today.
An ideal law against unfair competition should not only regulate the actions of businesses, but it should also be capable of confining power to an institutional cage. While the law is necessary, it must have boundaries. Nor can it be used as a tool for government departments to compete with each other or to grab political power. We expect that, after this revision, the Anti-Unfair Competition Law will meet the needs of the times. This will not only consolidate the institutional foundation of a high standard socialist market economy, but also help China develop a rule-based governance structure and modernize the government.
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