China’s Fair Competition Law: A Double-Edged Sword for Businesses

In an effort to maintain market order and curb unfair competition, China’s authorities have stepped up their efforts to crack down on companies that engage in illegal activities. The country’s Fair Competition Law has become a powerful tool in the hands of regulatory bodies, enabling them to impose severe penalties on violators.

Companies Face Criminal Liability for Compliance Failures

According to recent developments, companies found guilty of non-compliance with laws and regulations can face criminal punishment, including fines several times larger than the original amount involved. This is in addition to administrative penalties, confiscation of illegal gains, and even revocation of business licenses.

Senior Management Not Immune to Liability

Not only do companies face liability, but senior management and governing bodies are also held accountable for compliance failures. Those found responsible can be restricted from leaving the country, staying in hotels, taking flights, or opening bank accounts. In extreme cases, they may even face criminal charges and imprisonment.

Corporate Compliance Defence Limited

While there is no generalised compliance defence under China’s laws, there are some limited exceptions where companies can avoid liability. For instance, if a company has a clear policy prohibiting illegal activities and the non-compliance activity was carried out by an individual employee without the knowledge of senior management, the company may not be held liable.

Recent Cases Illustrate Compliance Risks

A recent case involving Squibb, a pharmaceutical company, highlights the risks associated with non-compliance. The company sponsored business class tickets for flights to a medical conference, which was deemed a violation of China’s Pharmaceutical Administration Law. As a result, Squibb faced administrative penalties, including confiscation of illegal gains and fines.

Government Obligations and Digital Transformation

The Chinese government has also acknowledged the importance of risk and compliance management, issuing guidelines on promoting fair competition and maintaining market order. In addition, the country’s digital transformation has raised new challenges for companies operating in the public sector, where compliance obligations are greater than those in the private sector.

Update and Trends

Despite initial expectations that the new government would reduce its emphasis on anti-corruption efforts, it has instead shown a commitment to strengthening its fight against corruption. The establishment of the Supervisory Committee and the promulgation of the Supervision Law have marked significant steps forward in this regard.

As Chinese companies expand their businesses globally, they will need to navigate complex compliance risks and regulatory requirements. Against the backdrop of economic globalisation, it is essential for companies to ensure that they are fully compliant with laws and regulations to avoid commercial losses and reputational damage.

Conclusion

In conclusion, China’s Fair Competition Law has become a powerful tool in maintaining market order and curbing unfair competition. While companies face significant risks and penalties for non-compliance, senior management and governing bodies must also take responsibility for ensuring compliance. As the country continues to evolve and globalise, it is crucial that businesses adapt to changing regulatory requirements and maintain a culture of compliance.