China’s Fair Competition Review

China’s Fair Competition Review

Yihao (Henry) Li
August 10, 2021

Thoughts on China’s Fair Competition Review System

On June 29, to help support China’s anti-trust regulation, the State Administration for Market Regulation (SAMR) published a regulation document, the Detailed Rules for the Implementation of the Fair Competition Review System, or the Detailed Rules for short. It mandates that policymakers should conduct a fair competition review on a policy about to come into effect. The Detailed Rules includes the structure of a fair competition review system and supplementary provisions about conducting a fair competition review upon a policy.

 

The fair competition review is a before-implementation mechanism that evaluates a policy’s future impact on market competition. A policy will be put into effect only if it passes through the fair competition review.

 

What does the fair competition review system entail?

 

The fair competition review examines a policy’s impact through four dimensions:

1. Market access and exit. A policy or regulation should not

2. Flow of factors and goods. The Detailed Rules prohibits a policy or regulation from

 

3. Production and operating costs. A policy or regulation is not allowed to

4. Production and management behaviors. The Detailed Rules prevents a policy or regulation from

 

Why is the fair competition review important?

 

The establishment of the fair competition review does not come out of the blue. It derives from a document in 2016, Opinions of the State Council on Establishing a Fair Competition Examination System in the Building of the Market System.The interim version of fair competition review systems was published in 2017. Now, after five years, the final version is here. 

 

The Detailed Rules requires a wide range of governmental agencies to adopt fair competition reviews upon their policies, from the State Council, the highest-level executive branch of the Chinese government, to local county governments. Such comprehensiveness is rare.

 

Foreign Companies and the Detailed Rules

 

Foreign investors and their investments are treated equally with Chinese firms. Thus, like Chinese companies, a non-negative-list foreign company also can compete fairly in theChinese market, and it should get its voice heard when seeing breaches of the fair competition rules.

 

The Detailed Rules requires that the document reporting the result of a policy’s fair competition review must include a section recounting public opinions, so companies, local and foreign, can submit their suggestions about a policy’s impact on fair competition. Also, the Detailed Rules allows policymakers to accept comments from scholars, law advisors, and professional organizations, so companies can convey their comments through these three channels as well.

 

The potential problem when policymakers follows the Detailed Rules

 

Avoiding the abuse of exceptions of conducting a fair competition review on a policy is a problem in the future. A chapter, called the Exception Provisions, in the Detailed Rule lists conditions in which conducting the fair competition review on a policy is not a must even though the policy will restrict fair market competition. For example, if a policy is relevant to economic security, cultural security, technology security, national defense, poverty reduction, energy resource, ecosystem protection, or public health, policymakers do not have to practice the fair competition review on the policy. Since the Exception Provisions chapter includes numerous sectors, we cannot rule out a possibility that policymakers use a listed exceptional condition as an excuse to skip reviewing a policy, which indeed needs to be reviewed.

 

The inappropriate use of the Exception Provisions chapter can hinder fair market competition. Local governments could use the exceptional conditions to publish policies that limit foreign firms’ business activities and their products’ sales in areas controlled by the local authorities. Local governments could introduce preferential policies for large enterprises by taking advantage of the Exception Provisions chapter, which in turn places local SMBs in an unfair position. Therefore, firms are encouraged to deliver their opinions regarding the authorities exploiting the Exception Provisions chapter improperly.