China’s New Rule on Competition Review: Impact on Investment Go back »
2024-09-02 | All chapters
In the context of the evolving global economic landscape, to further optimize the business environment and build an open, fair, and transparent market system, the Chinese government officially implemented the Fair Competition Review Regulation (hereinafter referred to as the “Regulation”) on August 1, 2024.
The formulation of the Regulation stems from the continuous pursuit and improvement of a market environment that is conducive to fair competition. Since the State Council issued the Opinions on Establishing a Fair Competition Review System in the Market System Construction in 2016, the fair competition review system has gradually become an important mechanism for regulating government behavior and preventing the abuse of administrative power. The implementation of the Regulation aims to standardize government-related actions from the source, prevent the formation of market barriers through policy formulation, and ensure that all market entities can compete fairly on an equal footing.
Main Content and Impact of the Regulation
The Regulation stipulates that policy measures involving the economic activities of operators should be reviewed for fair competition in accordance with the provisions of the Regulation. The specific content of the Regulation is as follows:
- Scope of Application: The fair competition review applies to all policy measures involving the economic activities of operators, including regulations, rules, normative documents, etc.
- Review Requirements: Policy measures shall not restrict market access and exit, the free flow of goods and factors, or affect the cost and behavior of production and operation unless specific conditions are met. Article 10 of the Regulations clearly stipulates the content that policy measures must not include, such as providing tax preferences to specific operators, providing selective or differentiated financial rewards or subsidies, etc.;
- Exceptional Provisions: Exceptions are allowed in cases of safeguarding national security, promoting scientific and technological progress, protecting the environment, and other public interests of society;
- Review Procedures: Drafting units should conduct a fair competition review during the drafting stage, and the market supervision and management department is responsible for guidance and supervision;
- Supervision Mechanism: Establish mechanisms for spot checks, reports, and inspections to ensure that policy measures comply with the requirements of the Regulations.
Advice to Enterprises
The introduction of the Regulation is a major adjustment to the current financial and tax incentives and investment promotion policies. Several places in China have called off previous subsidies and cleaned up tax incentives and financial incentives. The impact of the Regulation on enterprises is multifaceted. We advise enterprises to be prepared from the following perspectives:
- Closely Monitor Policy Dynamics: Enterprises should continue to pay attention to the latest developments in the fair competition review system and understand the local specific requirements and impacts of policies;
- Strengthen Compliance Review: Before signing investment agreements with local governments, enterprises should strengthen compliance review of the financial and tax incentives provided by the government, actively coordinate with local governments to ensure compliance with laws and regulations;
- Assess Risks and Adjust Strategies: For preferential policies already enjoyed, enterprises should assess the potential risks of adjustment and develop corresponding response strategies. At the same time, the company shall strengthen communication with local government for a reasonable transition period or compensation measures.
Source: Eastant Communication & Events