Over the past month, a series of new developments have emerged in China's antitrust regulatory enforcement. On May 15, the State Administration for Market Regulation (SAMR) published the "Antitrust Guidelines for Industry Associations (Draft for Comments)"; on June 2, SAMR released typical cases of the 2023 special antitrust enforcement action in the livelihood sector (first batch); on June 9, SAMR published the "Annual Report on China's Antitrust Enforcement (2022)"... What relevance do these developments have to the building materials industry? What are the key points worth noting? How should relevant industry associations and enterprises respond?

Why Industry Associations Attract Antitrust Enforcement Attention

Industry associations are typically composed mainly of competing enterprises and individuals in the same industry. In practice, due to a lack of clear understanding of antitrust laws and regulations, industry associations have become organizers or leaders in numerous monopoly cases where enterprises reach monopoly agreements such as fixing prices, dividing markets, and restricting production and sales. In some cases, relevant industry associations even forced unwilling enterprises to implement monopolistic behavior by formulating punitive measures. In other cases, industry associations and some unregistered "self-discipline groups" and other organizations have become tools for relevant enterprises to reach and implement monopoly agreements.

Article 14 of Chapter 1 "General Provisions" of China's Anti-Monopoly Law emphasizes that "industry associations shall strengthen industry self-discipline, guide operators in the industry to compete according to law, operate in compliance, and maintain market competition order." Article 21 explicitly requires that industry associations shall not organize operators in the industry to engage in monopolistic behavior prohibited by Chapter 2 "Monopoly Agreements" of the Anti-Monopoly Law. In addition, since the first amendment to the Anti-Monopoly Law took effect on August 1, 2022, the fine for industry associations organizing monopoly agreements has been increased from "up to 500,000 yuan" to "up to 3 million yuan." In serious cases, relevant industry associations may still be "deregistered."

China's antitrust enforcement agencies have long attached importance to antitrust supervision and enforcement against industry associations. The industry associations and unregistered industry organizations investigated and penalized involve many fields such as building materials, insurance, chemicals, education and training, testing, motor vehicles, tourism, energy, and fire protection, covering national, regional, provincial, municipal, and county levels. The publication of the "Antitrust Guidelines for Industry Associations (Draft for Comments)" further reflects the enforcement agencies' emphasis on antitrust work concerning industry associations.

First Batch of Typical Cases Does Not Involve Building Materials Enterprises, But Vigilance Still Required

In February this year, SAMR organized a national market regulation system antitrust work conference and deployment meeting for the special antitrust enforcement action in the livelihood sector. Subsequently, market regulation departments across the country issued documents to deploy special actions or introduce relevant situations. Among them, the building materials industry, for the first time on a large scale, became the top focus area for monopoly agreements by local antitrust enforcement agencies. This indicates that the "priority" of the building materials industry, which has long been a key area of attention for antitrust enforcement agencies, has been further elevated.

However, a closer look at the first batch of 13 typical cases of the 2023 special antitrust enforcement action in the livelihood sector reveals that, whether in terms of the number of cases or the amount of penalties, the pharmaceutical industry (5 cases, with fines and confiscations of about 550 million yuan) is undoubtedly the most noteworthy, while the building materials industry is not involved. Does this mean that practitioners in the building materials industry can rest easy?

The answer is no. On the one hand, the conclusion of an antitrust penalty case usually requires multiple stages, including obtaining and verifying case clues, filing, on-site investigation and inquiry, extraction, verification and analysis of evidence materials, research and demonstration, hearing the parties' opinions, serving the administrative penalty notice, making and serving the administrative penalty decision, etc., often taking years. On the other hand, multiple sub-sectors of the building materials industry are characterized by overcapacity, intense competition, relatively limited sales radius, and high market transparency, which are prone to monopolistic behavior. This industry "fundamental" has not changed. The results of cases investigated under this year's special action are expected to be announced mainly next year and beyond. Building materials enterprises should not let their guard down.

Raise Risk Prevention Awareness; Do Not Touch the Antitrust "High-Voltage Line"

Since 2020, SAMR has released annual antitrust enforcement reports for four consecutive years, showcasing from multiple perspectives the work carried out and achievements made by China's antitrust enforcement agencies in the previous year. It is worth noting that the three previously published annual reports all highlighted antitrust enforcement in the building materials industry, and the recently released 2022 annual report does the same.

In the 2022 annual report, the first major typical case mentioned in the preface is the Shaanxi cement monopoly case. This case was the one with the highest penalty amount investigated by China's antitrust enforcement agencies last year and also set a new record for antitrust penalties in the building materials industry. Together with another concrete industry monopoly case, the penalty amounts for the two building materials industry cases (about 467 million yuan) accounted for more than 80% of the total fines and confiscations (about 569 million yuan) of the 16 monopoly agreement cases concluded in 2022.

Enterprises that reach and implement monopoly agreements may face confiscation of illegal gains and fines of 1% to 10% of the previous year's sales revenue, and building materials enterprises are often large in scale. Combined, the fine amounts cannot be underestimated. In addition, possible confiscation of illegal gains and penalties against responsible individuals introduced in last year's legal amendment mean that the consequences of touching the antitrust "high-voltage line" are likely to be very serious. This should be taken seriously at the levels of enterprises, executives, and ordinary employees.

In August this year, China's Anti-Monopoly Law will mark the 15th anniversary of its implementation and the first anniversary of the new law. Against the backdrop of building a unified national market that is efficient, standardized, fair, and fully open, and normalizing antitrust supervision with enforcement focused on the livelihood sector, it is recommended that relevant associations and enterprises in the building materials industry strengthen their study of antitrust laws and regulations, attach importance to antitrust compliance construction, and improve their awareness and ability to prevent the risk of monopolistic violations. Operate in compliance, move steadily and far, and build a lasting foundation!