Guideline to ensure fair competition

China has ramped up efforts to develop a review mechanism that will ensure local governments promote fair competition, a move experts said will level the playing field for businesses of various types of ownership and spur domestic and foreign investment.

An official guideline published on May 12 said the central government will, in the next three years, establish a review mechanism that will enable comprehensive, forceful oversight, detail clear-cut responsibilities and contain a complete set of rules to effectively stamp out anti-competitive practices.

The guideline, issued by the State Administration for Market Regulation, the country's antitrust regulator, and three other departments, stipulates that all government documents, regulations, and policies in areas such as market access, industry development, and government procurement must be subject to fair competition reviews.

The review mechanism will help break administrative monopolies, establish a unified, open and orderly competitive market system and develop a business environment that is in line with market principles, the rule of law and international standards, it added.

The State Council first introduced a review mechanism for fair competition in a guideline issued in 2016. But it has faced problems such as incomplete rules and a lack of constraints within the system, with some local authorities and departments failing to recognize its significance, the latest guideline said.

Wang Junlin, a partner at Yingke Law Firm who specializes in anti-monopoly law, said the move by the central government is aimed at tackling regional protectionism, administrative monopolies, and the preselection of winners during bidding for projects.

"Only by creating an environment that enables fair competition can we ensure market prosperity," he said. "Otherwise, the growth of the economy will be impeded."

The review mechanism will pave the way for more private businesses to enter sectors dominated by State-owned enterprises, Wang said.

China's private investment was down 13.3 percent year-on-year in the first four months of this year due to the impact of the novel coronavirus outbreak. Foreign direct investment was down 6.1 percent year-on-year.

Zhang Qinyu, head of the Institute of Economic Laws at China University of Political Science and Law, said a fair competition review mechanism is the pillar for the development of the private sector.

"The mechanism will help private businesses overcome the various hurdles in market access and business operations and offer them a strong pillar for their prosperity," he said.

Zhang said it was important for the authorities to troubleshoot policies that hindered fair competition for the private sector and step up the review of future policies. Confidence was a key factor for the growth of the private sector, he said, and it was damaged by differentiated policies.

The introduction of the mechanism would impose limits on the behavior of local authorities and spur them to abandon protectionist policies, Zhang added.

"We can look forward to the enforcement of more stringent reviews of future policies so that the playing field between the public and private sectors can be leveled," he said.

To enable more effective enforcement, the guideline called for the application of more detailed review standards to target malpractices such as hindering equal and easy market exits, the offering of subsidies to certain businesses, and carrying out biased oversight.

The government will refine review methods and encourage market regulators to enforce the review mechanism together with policymaking departments before new policy measures are rolled out by local governments, the guideline said.

Higher-education institutions, research institutions, and professional consultancies will be encouraged to take part in the review process, with the government to promote third-party evaluation to fully assess the impact of policies on market competition, it added.

The State Administration for Market Regulation will conduct a random inspection of policies and measures each year to see if review procedures have been followed, with sectors and regions with many administrative monopolies set to be key targets.

The government will also encourage whistle-blowing on policies and measures suspected of violating fair competition review standards, it added.