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Hangzhou Administration for Industry and Commerce fines 42 companies 860,000 RMB for collusion in a tendering process for demolition services

    • Competition, EU and Trade - Competition e-briefings

    23-07-2013

    According to a report by the Hangzhou local media, the Hangzhou City Xiaoshan District Administration for Industry and Commerce (“AIC”) has fined 42 entities RMB 20,000- 40,000 (£2,200 - £4,400) each for collusion in a tendering process for property demolition services. This was the first investigation into bid-rigging undertaken by the AIC in the field of demolition.

    In August 2012, the Xiaoshan auto repair company opened up a property demolition project to public tender. Following the announcement, a total of 44 bidders from the urban counties of Hangzhou (and from places further afield such as Sichuan and Chongqing) registered to take part in the tender.

    In order to secure the contract for his own demolition company, one of the bidders, Mr Qian, sought to engage another bidder, Mr Pan, as an intermediary to arrange a meeting with all of the tender participants.  At that meeting, it was decided that Mr Qian’s company would win the tender.

    Mr Qian agreed to pay RMB 430,000 to Mr Pan, who would then pass on RMB 10,000 on to each participating bidder provided that the agreed outcome was successfully implemented.  

    On opening day, only 21 of the 44 registered bidders actually participated in the tender, with one company being disqualified for failing to meet the requisite criteria, another unwilling to collude and so withdrawing from the process voluntarily, and the remaining 21 companies not participating for various reasons. Mr Qian bid in accordance with the approved negotiations and eventually won the bid.

    Following the AIC’s investigation, Qian and his fellow 41 conspirators were fined a total of CNY 860,000 in administrative penalties.

    Comment

    Bid-rigging is one of the four anti-competitive practices prohibited by the PRC’s Anti-Monopoly Law (“AML”), which is enforced by the State Administration for Industry and Commerce (“SAIC”) and local AICs.  There have been suggestions that, despite the recent increase in registered offences under the AML, the current penalties are insufficient to deter bid-rigging given China’s economic development and more should be done to ensure enforcement of these provisions.

    Under the AML, SAIC and local AICs are able to punish parties found guilty of anti-competitive conduct with fines of up to 10% of their sales revenue in the previous year.  Although the total fine in this case is considerable, due to the number of companies involved, the individual fines imposed on the conspirators fall at the lower end of the penalty scale.  This could suggest that the local AICs are taking too lenient an approach towards offenders.

    However, the level of fines imposed individually might also reflect the fact that this was a localised agreement only relating to one particular tender - rather than being a widespread agreement across many cities or many different tenders.  It would be interesting to see what fines would be imposed by SAIC or a local AIC if either were to uncover a more widespread example of bid-rigging – such as that seen in the construction industry in England. 

    Despite the fact that, individually, the fines were quite small, the decision is still significant as it shows that local AICs are monitoring compliance with the AML and are willing take action to enforce the provisions of the AML themselves, without turning to SAIC for assistance. 

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