China's fair-competition review to include scrutiny of market exit, government funding standards

Chinese local authorities will have to scrutinize standards that they have imposed on businesses such as those relating to market exit and government funding, as part of a nationwide campaign to ensure that government policies align with fair-competition principles.

Market players have expressed strong opinions against situations where local policies impede a fair and easy exit from the market; designate trading counterparts and protect local players under the guise of funding rewards and subsidies; affect the fair use of production factors; and implement discriminatory supervision, the State Administration for Market Regulation, or SAMR, said in a statement issued late yesterday.

Production factors refer to inputs used for the supply of goods and services such as land, labor and capital.

Those situations will be specifically monitored under the so-called fair-competition review system, which requires all authorities to conduct self-checks of their own policies and to remove provisions that impede a uniform and fair market.

The criteria revealed by SAMR — along with the National Development and Reform Commission, the Ministry of Finance and the Ministry of Commerce — form part of their broader plan to develop the system into one with comprehensive coverage and complete rules in about three years.

In yesterday's statement, the state-level ministries also said they strictly prohibited the abuse by local governments of exceptional regulations in favor of specific market players. They called for the design of industry-level fair-competition review rules in order to address sector-specific issues.

Local authorities will have to review their policies rolled out after Jan. 1, 2020 regularly — or every three years — and undertake necessary action if they are found to be anticompetitive. They are encouraged to entrust academic institutions, research institutions and consultancy agencies to conduct third-party evaluation for more thorough assessments.

SAMR will also establish a mechanism for spot checks on local-government policies. The antitrust regulator plans to organize spot checks once a year to ensure the policies have fulfilled the required review procedure, and that the review conclusions are accurate.

The National Development and Reform Commission, which was formerly an antitrust regulator, first launched the preliminary version of the fair-competition review system in 2017. The mechanism aims to crack down on administrative monopolies, which are said to be more harmful to competition than anticompetitive behavior from businesses.