China's 2007 Anti-Monopoly Law: Competition and the Chinese Petroleum Industry

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Synopsis: The National People's Congress of the People's Republic of China passed the Anti-Monopoly Law (AML) in 2007. The law, which formally took effect in August 2008, provides a holistic framework for the regulation of competition. Its purpose is to prevent and restrain monopolistic conduct, protect fair competition in the market, enhance economic efficiency, safeguard the interests of consumers and the public interest, and promote the healthy development of China's socialist market economy.1 The AML applies to anticompetitive economic conduct within the territory of the People's Republic of China. It also applies outside of China, where such conduct serves to eliminate or restrict competition within China's domestic market.2

Because China has restructured aspects of its regulatory regime pursuant to government regulatory reform initiatives, the AML is now applicable in areas formerly governed exclusively by China's regulatory agencies. Many of these areas were previously considered outside of the competition sphere. The finance and telecom sectors, for example, have come under the AML's purview, and calls for similar reform in China's energy sector are gaining momentum. This is particularly true in the oil industry, where non-public enterprises are eager to see the AML enforced in order to facilitate the breaking up of oil monopolies.

The AML prohibits monopolistic agreements and abuses of dominant market positions. It also establishes a scheme for reviewing mergers and acquisitions that applies to all enterprises permitted entry into an industry. In the petroleum industry, this includes the national oil companies, as well as domestic and foreign-funded, non-public enterprises. The AML does not apply to the monopoly status of established incumbents in the industry, but it may apply to incumbents that affirmatively act to maintain monopoly status or exercise market power to eliminate or restrict competition.

This article is a joint effort of U.S. and Chinese legal and economic scholars, including a member of the AML Drafting Group, to examine the likely effects of the AML on the Chinese energy sector in general, and the petroleum industry in particular. We also examine the significance of the AML in the future crafting of coherent and compatible energy and competition policy, a process which is underway, and already having an impact on China's overall policy system. We analyze the AML in conjunction with legislative intent, mindful of the complex institutional arrangements in China that are sure to shape the law's overall impact. In the course of our analysis, we examine a key piece of future legislation, the Energy Law, which is currently undergoing a similarly lengthy drafting process.

Specifically, we pose the controversial and still-unanswered question of whether the AML plays a meaningful role in China's regulated industries where, as in the petroleum industry, state-sponsored monopolies dominate the competitive landscape. We answer that it can and should. However, the AML must be properly read to apply to the fullest extent possible, much as U.S. antitrust law has been read to apply absent a "clear repugnancy" to government regulation.3 Responsible Chinese authorities must also strike the correct balance in identifying areas where competition laws have room to function in China's regulated industries. Finally, certain accommodations will have to be made in future drafts of the Energy Law.

China has been moving from a command-and-control economy to a market-based system. This shift will only increase the importance of balancing competition policy and energy policy to prioritize increased industrial efficiency, but with the precondition that energy security and consumer benefits are achieved. The AML can be useful in moving China further in this direction. In the petroleum industry, going forward requires competition to be nurtured where domestic and foreign-funded non-public enterprises are permitted to operate. …