Resale Price Maintenance in Contract Drafting in China

Last year, in 2013, the National Development and Reform Commission of the People’s Republic of China (NDRC) and the local pricing authorities of the affected provinces of Sichuan and Guizhou imposed unusually high fines, within a very short period of time, on two of the best-known state-owned enterprises, the spirits producers Maotai and Wuliangye, amounting to approximately EUR 54 million in total. According to the authorities’ findings, both companies set minimum resale prices and penalised dealers who failed to comply with those minimum prices, thereby engaging in vertical price fixing vis-à-vis resellers, commonly referred to as resale price maintenance. The authorities based their action on the finding that the agreements between the two companies and their resellers constituted an infringement of Article 14(1) of the Chinese Anti-Monopoly Law.

This strict action against two of the best-known state-owned enterprises underscores the gradual development taking place in Chinese competition law. Although intervention on the basis of complaints by other market participants had previously been rare, the authorities’ present response nevertheless indicates that China is moving towards stronger protection of competition.

It remains to be hoped that, in the future, the Chinese economic administration will indeed place greater emphasis on market fairness, and that the intervention described above was not merely the result of local party-political disputes.
In any event, companies should take into account the emerging change in direction of the Chinese economic administration in this area when drafting contracts with local resellers.