In August 2013, China’s top economic planner, the National Development and Reform Commission (“NDRC”), fined five domestic jewelers and a trade association after finding that they had fixed prices for their gold and platinum products.
According to the NDRC, the Shanghai Gold and Jewelry Trade Association (“the Trade Association”) and some of its main members had manipulated retail prices through the creation of a pricing guideline requiring, among other things, that the members keep their prices within 3% (either above or below) of a price stipulated by the association. This allowed for limited price fluctuations, leading to prices stablizing at a level above the international price.
The imposition of fines on companies and the Trade Association
The Trade Association was fined approximately US$ 81,600 (500,000 yuan) for supporting the price-fixing practices. This is the highest fine imposed to date under China’s Anti-Monopoly Law for this type of offense committed by an industry association. According to the NDRC, the maximum penalty was applied because the Trade Association was the “ringleader in the price-fixing conspiracy, having issued the pricing guidelines”. In contrast, the five companies involved were (collectively) fined US$ 1.7 million (10.59 million yuan). This represented approximately 1% of the companies’ sales in 2012, much less than the maximum permitted fine of 10% (of each company’s turnover).
The low level of the fine reportedly results from the jewellery companies admitting their participation in the cartel, ending the illegal practices and cooperating fully during the investigation. This is consistent with the NRDC’s prior policy of reducing sanctions on companies that cooperate with government investigations (e.g., the LCD Case).
China’s activism in relation to both horizontal and vertical price fixing
In addition to the Jewellery and the LCD cases – involving horizontal price fixing – Chinese authorities have recently fined many companies involved in vertical price maintenance. These investigations concern various sectors of the economy. For instance, in February, the NDRC imposed the highest fine to date for an antitrust infringement on state-owned distillers (the Moutai and Wuliangye Case), and fined producers of baby milk powder in August. Beyond the enforcement actions of the Chinese authorities, a former distributor of Johnson & Johnson was successful in the first antitrust private action in China relating to vertical agreements – Johnson & Johnson was ordered by the court to compensate its former distributor (the Johnson & Johnson v. Rainbow case).
China’s increased activity in penalizing anti-competitive behavior in its domestic market appears to reflect greater regulatory confidence by government agencies in enforcing the Anti-Monopoly Law. Given this, companies active in – or seeking to enter – China should bear in mind:
- Cooperation with the authorities is likely to lead to a significant reduction in any penalty imposed for infringement of the Chinese Anti-Monopoly Law.
- The Chinese government is ramping up its investigations into trade associations. Brand owners should be cautious in joining trade associations and carefully monitor their activities.
- Investigations can move at an extraordinary pace – in the jewelry cartel case the decision was released only two weeks after the investigation was opened.