Judgment Abstract on NDRC’s Administrative Anti-Monopoly Decision of PICC Zhejiang Branch’s Impunity in China

NDRC(By You Yunting) By reports, recently, National Development and Reform Commission (the “NDRC”) investigated the industry group the Zhejiang Insurance Association and its membership insurers, originated from that the Zhejiang Insurance Association in violation of the Anti-Monopoly Law organized its 23 membership insurers to agree on unified commissions from auto insurance premiums through meetings. The NDRC fined 22 of the insurers a total of RMB 110 million, with PICC Property and Casualty Company Limited Zhejiang Branch, an insurer, escaping punishment because of informing the authorities and providing key evidence. In today’s post, we will introduce the decision on PICC Property and Casualty Company Limited Zhejiang Branch escaping punishment and make comments.

Introduction to the Case:

Party: PICC Property and Casualty Company Limited Zhejiang Branch (the “PICC Zhejiang Branch”)


Since 2009, under the organization of the Zhejiang Insurance Association, PICC Zhejiang Branch and others local insurers negotiated and agreed on the unified commissions from the Zhejiang Province Motor Vehicle Insurance Discipline and its implementing rules through meetings and revisions in reaching a monopoly agreement on a fixed or changed in commodity prices and agency commission, which engaged in horizontal monopolistic practices strictly prohibited by the Anti-Monopoly Law.

The NDRC held, through the analysis on the above illegal acts, that PICC Zhejiang Branch shall be in violation of the provisions in the Anti-Monopoly Law for the following reasons:

1. PICC Zhejiang Branch is lawfully established and validly existing company which has its organizational structure and independent property, which are capable of independently expressing itself outside and assuming civil liability, subject to the “Operators” as regulated in Paragraph 1 Article 12 of the Anti-Monopoly Law;

2. PICC Zhejiang Branch which provides motor vehicle Insurance in the same area has a direct competitive relationship with the other insurers in Zhejiang Provinces.

3. PICC Zhejiang Branch is independent from the others insurers, and their expressions and agreements are a type of business decision of different economic organizations, no association relationship between them;

4.  Premium rates for commercial motor vehicle insurance is a price of insurance service, but the commodity as regulated in the Anti-Monopoly Law is collectively referred to goods and services, so that the above illegal acts of PICC Zhejiang Branch is subject to “fixing or changing the prices of a commodity”;

5. PICC Zhejiang Branch engaged in the horizontal monopolistic agreement through negotiating and agreeing on the Zhejiang Province Motor Vehicle Insurance Discipline, its implementing rules and supplementary agreements, and carried out the unified commissions from auto insurance premiums in its daily operation;

6. PICC Zhejiang Branch manually has the effect of eliminating or restricting competition through a horizontal monopolistic agreement, thus harming consumers’ interests.

Therefore, PICC Zhejiang Branch violated the Item 1, Paragraph 1, Article 13 of the Anti-Monopoly Law, regulating that those monopoly agreements on fixing or changing the prices of a commodity are prohibited from being made between operators which are in competition, and Article 7 of the Provisions on Anti-price Monopoly, stipulating that the following price monopoly agreements are prohibited from being made between competing operators: (i) those on fixing or changing the price of commodities and services; (ii) those on fixing or changing the range of price changes; (iii) those on fixing or changing the transaction fees, discounts or other fees which will affect prices”.

However, PICC Zhejiang Branch was the first operator voluntarily admitting their mistakes and initially provided key evidences for the NDRC at the time when the NDRC began the formal anti-monopoly investigation. Thus, pursuant to the Paragraph 2, Article 46 of the Anti-Monopoly Law, stipulating that “where an operator reports, on its own initiative, a monopoly agreement entered into by said Operator to the anti-monopoly law enforcement authorities as well as providing key evidence, the anti-monopoly law enforcement authorities may consider a lighter fine, or forgo a fine altogether”, and Article 14 of the Regulations on Procedures for Administrative Enforcement of Anti-Price Monopoly, stipulating that “the first operator who reports on its own initiative a monopoly agreements and provides key evidence may be exempted from punishment”, the NDRC decided to forgo PICC Zhejiang Branch a fine.

Lawyer’s Comments:

At present, the NDRC takes the policy of “leniency for those who confess and severity for those who resist” in their anti-monopoly investigation. For an operator who is cooperating with NDRC’s investigation, the NDRC may consider a lighter fine, and even may forgo a fine altogether. Our introductory case is an example for escaping a fine. As for those who refuse to cooperate with NDRC’s investigation, the NDRC will take full advantage of its investigative power to do investigation against them as well as their cooperative partners. For example, during the SAIC’s investigation against Microsoft, the State Administration for Industry and Commerce (the “SAIC”) also investigated its consulting firm who was doing outsourced financial-services work. In some other investigation cases, such approach would also play important roles in the differentiation of respondents.

We have always been ambivalent about the current situation. On one hand, to attract foreign investment, Chinese governments are widely adopting super-national treatment for foreign-funded enterprises in China, so that foreign-funded enterprises in China received more preferential policies than Chinese local enterprises. Therefore, foreign-funded enterprises engaged operation with some pretty strong growth against Chinese local partners and consumers, and lots of their conducts indeed are suspected of unfair competition and abusing their dominant position, thus achieving extra profits in China. For example, during my recent visit to Thailand, I found that Levi’s jeans were priced at about half of that in China, which is unfair for Chinese consumers. In most industries, such discriminatory pricing is serious enough. Recently, Chinese governments’ anti-monopoly investigation appears to help Chinese local enterprises and consumers purchase their commodities and services with much fair prices.

On the other hand, the recent anti-monopoly investigations are suspected of selective enforcement. The most serious monopoly is in the land supply of real estate industry, oil, tobacco, water supply, electricity, gas and those which were administrative monopolized with openness and directness by state-owned enterprises in accordance with laws and policies. However, foreign-funded enterprises were in the industries of full competition with hidden monopoly. Seen from the monopoly in this case, the NDRC preferred to investigate foreign-funded enterprises other than Chinese local state-owned enterprises which has more severe administrative monopolies, thus easily impressing us with selective enforcement.

At last, in the current published anti-monopoly punishment, the NDRC has already taken related evidence on price monopoly against the respondents. However, the aggressive governmental investigation cannot satisfy the theory of modern law-ruling. In the short term, it may destroy the investment environment. Worsen, in the long term, it may cause adverse effects on the development of modern law-ruling.

Lawyer Contacts

You Yunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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