China's cartel law to fine foreign offenders

Foreign companies accused of operating cartels in China could be fined at least 1 per cent of global turnover under new competition laws to be introduced there this week.

The fines could be as much as 10 per cent, but it is the mimimum penalty that has drawn attention because in other markets there is no presumption of an automatic fine if a breach is found. The fines, to come into effect on Friday, form part of China's first comprehensive competition law regime, raising the prospect of the dawn raids, profit confiscations and fines that are a feature of European and American systems.

China's 1 per cent minimum sets it apart from Europe, where penalty guidelines for the same abuses start at zero per cent of turnover and fines often stay near zero for minor infringements. Martyn Huckerby, a competition expert with Clifford Chance, the law firm, said that he expected Chinese competition regulators to enforce market rules vigorously and he gave warning that foreign businesses making even relatively minor breaches faced a real prospect of large penalties.

China has previously had only a smattering of basic and rarely enforced competition laws. Peter Wang, of Jones Day, the law firm, said that this meant that businesses already operating in China would probably be in the same position as new entrants in terms of experience in compliance. “Foreign businesses in China have never had to take competition law especially seriously and so this overhaul is causing them a lot of concern,” Mr Wang said.

The Chinese law includes provision for anyone harmed by competition abuses, such as customers or rival companies, to sue for compensation. So-called private enforcement has been slow to take off in Europe, but Mr Wang said that he would be “shocked if an enterprising Chinese company didn't launch a lawsuit against a foreign competitor in the next year”.

The new law may aid foreign businesses wishing to enter China. The law revamps merger control, which stops companies becoming dominant by buying rivals, and this now applies to Chinese, as well as foreign, players. So, if Chinese and foreign businesses are vying to buy a Chinese asset, both will have to tell the Government about their existing market share, previously a requirement only for foreign bidders.

(Times Online)