Safer to Promote? China's New Anti-Unfair Competition Law

The new PRC Anti-Unfair Competition Law ("2018 AUCL") became effective this year and is the first significantly revised version to the original piece of legislation (hereby referred to as “1993 AUCL”).

Below we have outlined the changes most relevant to companies operating in China in particular those from an anti-corruption compliance perspective.

Fewer types of "unfair competition activities"

There used to be eleven types of unfair competition activities prohibited under the 1993 AUCL. The 2018 AUCL now has abolished five types – these activities have been regulated separately and are covered by IP, anti-trust, advertisement and bidding related laws.

The 2018 AUCL has prohibited a new type of unfair competition activity: “using internet to undermine fair competition”, such as hi-jacking internet traffic and malicious activity incompatible with other legitimate services/products etc. This is to respond to the rapid development of remarkable volume of e-commerce activities in China.

For details, please refer to the comparison table below.

Commercial bribery

Safer to promote now?

The 2018 AUCL appears to be limiting the scope of commercial bribery by specifying the recipients of commercial bribery to be those with loyalty obligations (e.g. staff and/or agent of the transaction counterparty; or any individual/entity who can influence the transaction by making use of their influence or position). Treatment offered to counterparties in transactions is not expressly mentioned as commercial bribery anymore, which means that promotional activity such as offering in-kind discounts, offering incentives to distributors etc., are no longer regarded as bribes. In the past, promotional activity (excluding those offered to end consumers) was heavily penalized even when well-documented in contracts and accounts. Further legislation is expected in 2018 which will clarify the position on commercial bribery. Until then commercial organizations may choose to continue to design promotional activity as though 1993 AUCL continues to apply until further clarification, bearing in mind that the enforcement agencies remain committed to prosecuting bribery offences.

Best efforts may finally count

The 2018 AUCL further indicates that when penalizing commercial bribery activities, authorities may take into consideration whether the company has an effective compliance management system in place. This could mean that for the first time in China, the authorities may recognize the best efforts of employers if there is "convincing" evidence, although the standard of “convincing” evidence may be very high in practice.

Higher penalties and broader investigation methods

Under the 2018 AUCL, penalties have been substantially increased: fines are now capped at CNY 3 million where previously they were at CNY 200K, business licenses can be revoked, properties can be sealed and inquiries can be made into bank accounts.

Summary

In summary, the 2018 AUCL reflects the efforts of the PR China legislator to update a law which is over 20 years old, and bring it in line with other pieces of legislation.

Annex:

Table: Unfair Competition Activities Provided under Laws