China Issues New Fair Competition Review Rules to Improve Business Environment

On 6 June 2024, the State Council of the People's Republic of China ("PRC") promulgated the Fair Competition Review Rules (公平竞争审查条例, "Rules"), which will come into effect on 1 August 2024. The Rules require that administrative authorities and organisations authorised by laws with the function of managing public affairs (collectively, "Drafting Authorities") shall conduct fair competition reviews when drafting laws, administrative regulations, local regulations, rules, normative documents, and specific policies and measures (collectively, "Policies and Measures") to ensure fair competition among market entities. The key highlights are summarised below.

1. Prohibited Content in Policies and Measures

The Policies and Measures drafted or to be drafted by the Drafting Authorities are prohibited from including content which may:

• directly or indirectly restrict market access and exit, which includes:
• illegally setting approval procedures for industries, fields, and businesses outside the negative list for market access;
• setting or granting concessions in violation of the law;
• restricting operations, purchases, or the use of goods or services provided by specific operators; or
• setting unreasonable or discriminatory conditions for market entry and exit.

• restrict the free flow of goods and materials, which includes:
• restricting non-local or imported goods and materials from entering into the local market, or obstructing local operators from moving out or goods and materials being exported;
• excluding, restricting, forcing or indirectly forcing non-local operators to invest and operate locally or establish local branches;
• excluding, restricting or indirectly restricting non-local operators from participating in local governments' procurement and bidding;
• setting discriminatory charges, standards, prices or subsidies for non-local or imported goods and materials; or
• setting discriminatory requirements for non-local operators to invest and operate locally in terms of qualification standards, regulatory enforcement, etc.

• affect costs of production and operation (except for those with regulatory basis or approval from the State Council), which includes:
• granting tax preferences to specific operators;
• granting selective, differentiated financial rewards or subsidies to specific operators; or
• granting preferences to specific operators in terms of acquisition of materials, administrative fees, government funds, social insurance fees, etc.

• affect activities of production and operation, which includes:
• forcing or indirectly forcing operators to engage in monopolistic behaviour, or providing favourable conditions for operators to engage in monopolistic behaviour;
• setting government-guided prices and government pricing beyond their authority, thereby providing preferential prices for specific operators; or
• illegally intervening in the price level of goods and materials which implement market-regulated prices.

  b.  Exemptions

The Rules provide exemptions under which the Drafting Authorities are permitted to include content that could be deemed as restricting competition in their Policies and Measures, provided:

• there is no alternative plan that has a less negative impact on fair competition;
• a reasonable implementation period or termination conditions have been determined; and
• at least one of the following conditions is satisfied:
• the inclusion of content is to safeguard national security and development interests;
• the inclusion of content is to promote scientific and technological progress and enhancing national innovation capabilities;
• the inclusion of content is to achieve social public interests such as energy conservation, environmental protection, and disaster relief; or
• other circumstances as stipulated by laws and regulations.

Private companies, especially foreign-invested companies, have concerns over equal access to government bidding projects and market access to certain industries. The issuance of the Rules form part of the central government's efforts to establish a "national unified market", for the purpose of improving the business environment and breaking down local protectionism across different provinces.