CN06 - Cartel conduct - SAMR fines cement industry
03 October 2022
On 9 July 2022, China's State Administration for Market Regulation ("SAMR") issued fines totalling RMB 451.1 million (c. USD 65.8 million) to 13 cement companies for price fixing and a further fine of RMB 500,000 (c. USD 105,489) to the Shaanxi Cement Association for its role in coordinating the price fixing cartel.
Key takeaways
- Article 13 of China's Anti-Monopoly Law ("AML") prohibits monopolistic agreements, including those that fix or change the price of products or allocate markets amongst competitors, or otherwise eliminate or restrict competition.
- A violation of Article 13 (in circumstances where the monopoly agreement has been fulfilled) can attract penalties of up to 10% of the company's turnover from the previous year. These penalties may be reduced at the SAMR's discretion if parties actively cooperate with the SAMR's investigation.
- Industry associations that are involved in organising cartels may also be liable up to a maximum fine of RMB 3 million (c. USD 448,000).
On 9 July 2022, SAMR issued fines totalling RMB 451.1 (c. USD 65.8 million) against 13 cement companies for price fixing conduct engaged in between July 2017 and March 2019. The penalties, which comprised between 2% and 3% of the parties' 2018 turnover, were well below the maximum possible amount of 10% of turnover as prescribed by the AML. According to the decision, the penalties were reduced as a result of the parties' cooperation with the SAMR's investigation, including voluntarily handing over evidence and making "truthful representations". The SAMR also fined the Shaanxi Cement Association (the relevant industry association) RMB 500,000 (c. USD 105,489) for its role in coordinating the cartel conduct.
The 13 cement companies (the subject of the SAMR's decision) manufacture and sell cement in the Guanzhong region of Shaanxi Province. The SAMR found that the parties coordinated the price fixing arrangement whilst attending industry conferences, gatherings and other activities organised by the Shaanxi Cement Association. Evidence (which included inquiry transcripts, WeChat records, meeting minutes and work reports) revealed that the parties concurrently issued a price increase notice to downstream cement customers orally or in writing at least four times, and also began to implement similar price increases at the same time.
The cement companies argued that:
The SAMR rejected these explanations, and found:
Maximum penalties for cartel conduct were recently increased under the amended AML (which came into effect on 1 August 2022). These are:
In relation to monopoly agreements which have been concluded
In relation to monopoly agreements which have not been concluded
Organisers and facilitators of monopoly agreements
As outlined above, the cement companies sought to rely on the explanation that "market conditions" caused the price increases. However, this was not sufficient to negate the SAMR's finding that coordination between the competitors had occurred.
This case serves as a strong reminder to businesses of the importance of establishing comprehensive antitrust compliance programmes, particularly with respect to engagements with competitors and in the context of industry association memberships. Otherwise, businesses (and trade associations) risk significant financial penalties and damage to reputation.
With thanks to Veronica Murdoch, Associate and Yiyun Feng, Graduate for their contribution.
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