McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai. This China Law Alert was authored by MWE China Law Offices lawyers Jared Nelson and Sean Pan.
Several major actions taken against price-fixing cartels by China’s enforcement authorities in the last year have sent a clear message that this is not a temporary campaign. It is a new reality.
Major new enforcement action in the People’s Republic of China shows both the continuing crackdown on price-fixing cartels and an increased level of awareness about the prohibitions. Members of a cartel based in Guangdong, a coastal province near Hong Kong and Macao, have been fined more than RMB 750 thousand (USD 120 thousand) in the latest action by the National Development and Reform Commission (NDRC).
The cartel was found to have engaged in price-fixing activities that caused the price of sea sand, a valuable mineral used primarily in construction and for land reclamation, to nearly triple overnight. Starting in November 2010, members of the sea sand cartel organized four secret meetings, during which they planned a gradual increase in price from RMB 5 per cubic meter to RMB 15 per cubic meter.
Prices had been fairly steady over the years until 2011, when they jumped dramatically, affecting the price of concrete and the overall cost of several massive building projects underway in the area. One such project is the much heralded Hong Kong-Zhuhai-Macao bridge, a gigantic structure that will connect the three major cities of Guangdong in the Pearl River Delta. The sudden upward readjustment in building costs for the bridge caught the attention of several local officials, who immediately demanded an investigation, which resulted in action against the cartel. The investigation revealed the cartel’s members were fully aware they were breaking the law prohibiting price fixing and other monopolistic behaviour.
The secretive nature of the cartel may indicate a heightened awareness of China’s Anti-Monopoly Law, brought about after several recent and widely publicized enforcement actions. In the past, companies have been caught off-guard because they were not aware of the laws that prohibited price fixing. By contrast, the more than 30 companies investigated in the sea sand cartel clearly took measures to meet in secret and cover up their actions.
The cartel was discovered because of a participant “whistleblower” company, Guangdong Baohai Sand and Stone Ltd (Baohai), one of the ringleaders of the cartel. In one of the first publicly reported acceptances of a leniency application, NDRC’s Price Supervision and Anti-Monopoly Bureau (through its local authority in Guangdong) reduced Baodai’s fine by 50 per cent because it voluntarily reported the cartel. Two other cartel participants that were found to have benefited the most from the cartel were given the maximum possible fine, equal to 10 per cent of their preceding year’s revenues. Other cartel members were given warnings.
The high profile enforcement action is one of several large actions by China’s enforcement authorities against price-fixing cartels in the last year. These include action against concrete producers in Jiangsu and Liaoning, rice flour manufacturers in Guangxi, pork sellers in Chongqing, used car dealers in Henan and pharmaceutical distributors in Shandong. All have faced enforcement action from the administrative bodies in charge of compliance with the PRC’s patchwork of laws that prohibit price fixing and other horizontal monopolies.
The message from the newest enforcement action is clear. The recent series of investigations and sanctions against price-fixing cartels is not a brief or temporary campaign. It is a new and permanent reality.