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China fines agricultural companies for agreeing to raise the price of their products

  • China
  • Competition, EU and Trade - Competition e-briefings

16-07-2010

China's National Development and Reform Commission ("NDRC") has taken further action against companies involved in anti-competitive behaviour by fining several agricultural companies for conspiring to raise the price of green mung beans. The NDRC has also reinforced its intention to put a stop to cartel activities by announcing that it will establish two offices dedicated to preventing anti-competitive behaviour in Chinese markets.

Background

On 1 July 2010, China's NDRC, the body responsible for all price-related antitrust actions under the Anti Monopoly Law ("AML"), announced that it, acting with assistance from the Ministry of Commerce ("MOC") and the State Administration of Industry and Commerce ("SAIC"), had fined a number of agricultural companies for conspiring to raise the price of green mung beans across 16 provinces, regions and municipalities in China.

The Green Mung Bean Cartel is the second cartel case to have been brought by the NDRC in recent months (please see our previous briefing on the Guangxi Rice Noodle Cartel) and reaffirms its intention to clamp down on anti-competitive behaviour.

The Green Mung Bean Cartel

The Green Mung Bean Cartel was alleged to have been formed on 17 October 2009 following a meeting between over 100 distributors of green mung beans at the Jingta Hotel, in the city of Taonan, Jilin Province. The organisers of the meeting, Jilin Corn Centre Exchange ("JCCE"), summoned 109 distributors from 16 provinces, regions and municipalities across China for a so-called "conference" on the price and production of green mung beans.

In order to make companies think that green mung beans were in high demand, JCCE is reported to have fabricated a report called "Research Report on Green Mung Bean Plantation 2009", claiming that "output in major mung bean production regions had fallen by 64.05 per cent in 2009". This was in contrast to the official Chinese government figure, recorded in the China Agricultural Yearbook, that showed an actual decrease of 14.9 per cent.

JCCE, together with other surrounding provinces and other agricultural companies, is alleged to have fabricated and spread false information of the reduced supply and reached a consensus on a price increase for green mung beans. The consensus reportedly resulted in the price of green mung beans increasing from 9 Yuan per kilogram in October 2009 to 20 Yuan by May 2010 across the whole of China, representing an increase of around 220 per cent.

These actions were found by NDRC to be in violation of regulations under the "Price Law" and the "Provisions on Administrative Penalty against Unlawful Price-Related Practices".

Penalties imposed

As alleged chief co-ordinator of the cartel, JCCE received a fine of RMB1million (£100,000) for its part in organising the "conference" and producing and circulating the fraudulent information. This is the highest fine under the current regulations and the largest fine that the NDRC has awarded for anti-competitive activities since the AML came into force.

Three other enterprises providing the main cooperation in the alleged cartel were subject to fines ranging from RMB300,000 (£30,000) to RMB500,000 (£50,000).

It is not certain whether the NDRC applied its leniency provisions on this occasion; however, over 100 other distributors escaped with only warnings in relation to their attendance at the meetings and alleged participation in the cartel. Also, in contrast to the Guangxi Rice Noodle Cartel case, the NDRC does not appear to have imposed any criminal penalties on this occasion.

Separate from the NDRC investigation itself, the Guangdong Provincial Price Bureau fined another distributor RMB20,000 (£2,000) for conspiring to increase the price of green mung beans.

Further crackdown on hoarding of goods

In addition to the Green Mung Bean Cartel, other regional price bureaus have fined distributors for hoarding garlic in a bid to push prices up. Shangdong Provincial Price Bureau imposed a fine of RMB 100,000 (the highest fine available to them) on one distributor and, in Henan Province, the NDRC of Zhongmou County punished members of the local cold food storage association with a penalty of RMB 80,000.

NDRC to establish new anti-monopoly offices

The NDRC has announced that it will establish two offices dedicated to preventing anti-competitive behaviour in Chinese markets. The two offices, to be called the "Anti-Monopoly Office" and the "Market Price Supervision Office", will have individual offices in each province of China and will aim to control anti-competitive behaviour and stop companies manipulating the markets in which they operate.

Xu Kunlin, chief of the NDRC's Price Supervision and Inspection Department, has stated that these two departments will further improve the price supervising system and will help to ensure that China has in place better contingency plans to deal with unusual price fluctuations.

The NDRC is also currently considering some new legislation, the "Special Regulations on Illegal Behaviour Causing Unusual Market Price Fluctuation". This legislation will address how illegal behaviour can have an impact on pricing, how to define such behaviour and how best to punish and prevent this behaviour.

Comment

We previously criticised the NDRC for its lack of activity since the inception of the AML, as it appeared to be lagging behind SAIC and the MOC in beginning to fulfil its enforcement duties. However, the Green Mung Bean Cartel Case, its second cartel investigation in three months, shows that the NDRC is really starting to step up its anti-monopoly enforcement activities under the AML.

As the AML does not require the NDRC to publicise details of enforcement action taken, the lack of details and background information available regarding the case mean there are still plenty of questions left to be answered by the NDRC. Once again, this action appears to have been taken by the NDRC with support from other enforcement agencies and the NDRC again seems to be mixing its powers under the AML, the Price Law and other Chinese legislation. We expect that the NDRC will produce procedural rules dealing with these issues in the near future.

What is clear is, that by imposing its largest ever fine for cartel activity and with the creation of its two new offices, the NDRC is becoming more focused on cartel activities involving price and we can expect to see more enforcement actions in the near future. Companies that are part of a cartel or monopoly agreement should be concerned about the NDRC exercising its power more widely and should be aware of the possibility of on-site investigations, dawn raids and substantial fines.

For further information or advice, please contact Charlie Markillie.

Charlie Markillie
Solicitor, Leeds

Tel: +44 113 200 4037
charliemarkillie@eversheds.com

 

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