China’s National People’s Congress on June 23 passed a revised version of the Anti-Monopoly Law (AML), which will take effect on August 1. The revised AML finalized important changes that target the digital economy and closed several loopholes found in the original AML, which took effect in 2008. This revision to the AML comes as part of a wave of Chinese policymaking that reflects a dual determination to prevent market abuses and rein in powerful platforms in the digital economy while still, at least rhetorically, cheering on innovation.
The revised AML prohibits the abuse of market dominance using data and algorithms, technologies, capital advantages, and platform rules (new Art. 9). In the past two years, China has embarked on a broad campaign to rein in anti-competitive conduct in the tech sector. Under existing rules, authorities fined major tech companies for failing to file government review of mergers, and Alibaba and Meituan faced massive fines for requiring merchants to sell exclusively on their platforms as a condition of using them, a tactic known as "choosing one from two."
The new provision against abuse of market dominance using data and algorithms, technologies, capital advantages, and platform rules will empower the State Administration of Market and Regulation (SAMR) to investigate and issue administrative penalties on anti-competitive conduct that is prohibited by antitrust guidelines on the internet platform economy, which the State Council’s Anti-Monopoly Committee released in 2021. After the revised AML takes effect, tech platforms will likely face further investigations beyond the “choosing one from two” forced exclusivity practice.
The new AML also gives SAMR the authority to review acquisitions of nascent competitors, where incumbent firms buy out emerging companies to nip competitive threats in the bud (new Art. 26). In these cases, because the small rival may not have yet reached scale or pursued monetization, nascent acquisitions could fall under the threshold that triggers a requirement to notify regulators. Moving forward, these transactions could be subject to investigation if evidence points to potential harm to competition.
All of the above-mentioned changes echo the addition of “encouraging innovation” as a motivation for the law. The new goal not only aligns with China’s grand strategy towards high-quality growth and indigenous innovation, but also impacts the design and enforcement of antitrust guidelines at the working level. Regulators may give more weight to anti-competitive effects in the long term than to short-term benefits to consumers. This could put restraints on certain growth strategies prevalent in China’s tech scene, one of which is to drive out competitors through a price war before hiking prices later.
An effective anti-monopoly regime requires efficient planning of resources. Since China expanded the reach of anti-monopoly policies and tightened enforcement, regulators have seen an uptick in workload. For example, SAMR received 824 merger review filings in 2021, an increase of more than 50% over the previous year. The revised AML sets up a categorized and graded case review mechanism to help determine work priority (new Art. 37). SAMR will likely simplify the review process for lower-priority cases and direct its resources toward high-stakes cases in key sectors, including semiconductors and advanced manufacturing equipment.
Other changes in the law include substantial increases in fine amounts, a stop-the-clock mechanism for merger review, and prohibition on facilitating cartels. Overall, the new AML marks a milestone in the modernization of China’s competition policy to address the digital economy. While an earlier absence of regulation left the door open to the unmitigated pursuit of "bigness" in tech fields, the new paradigm appears designed to foster greater competition and a broader base of innovation.
