A brief analysis of price compliance

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Li Disen
AllBright Law Offices, Shanghai
lidisen@allbrightlaw.com

Ding Hua
AllBright Law Offices, Shanghai
dinghua@allbrightlaw.com

Since the beginning of the Covid-19 pandemic, markets have seen the panic buying of anti-epidemic products such as masks, disinfectants, disinfecting wipes and medical alcohol. The behaviour of merchants, marking up prices to make huge profits, has aroused wide concern from all walks of life. On 7 February 2020, the State Administration for Market Regulation issued the first batch of the typical cases of price violation, being investigated by market regulators at all levels, during the epidemic prevention and control period. A number of violations, including price gouging, price fraud and selling without clearly marked prices, will face administrative penalties. To avoid legal risks, business operators should pay attention to the compliance of pricing behaviour during the Covid-19 pandemic.

Price compliance under normal circumstances (non-pandemic period)

Article 3 of the Pricing Law (released on 29 December 1997 and effective from 1 May 1998) stipulates:

‘The State will implement and gradually perfect a primarily market-formulated price structure which is under macro-economic adjustment and control. Price setting must comply with the law of value, with most commodity prices and service charges being subject to market readjusted prices and only a small number of commodity prices and service charges being subject to government guided prices or government set prices.’

Accordingly, under a market-oriented economy, price is mainly formed and regulated by the market itself, with the government providing necessary guidance in rare cases. Therefore, price is normally regulated by market competition laws and regulations, such as the Law Against Unfair Competition, the Pricing Law, the Bidding Law and the Anti-Monopoly Law.

According to the relevant laws and regulations, price compliance risks in the market environment during the non-epidemic period are mainly reflected in the following aspects:

Compliance risks of price dumping

The Anti-Unfair Competition Law, released in 1993, once stipulated that ‘Business operators shall not sell commodities at prices below cost with the intention of defeating competitors’. When the Anti-Unfair Competition Law was amended in 2017, this provision was removed and relocated to the Pricing Law. The Pricing Law (released in 1997 and effective from 1998) explicitly prohibits the dumping at below-cost of commodities other than fresh, seasonal or overstocked commodities.

The Bidding Law, released on 17 December 2017 and effective from 28 December 2017, further clarifies, in relation to bidding, that ‘no bidder may bid at a price lower than the cost.’

Compliance risk of selling commodities at unfairly high prices

Article 17 of the Anti-Monopoly Law stipulates that it is prohibited for business operators with a dominant market position to sell commodities at unfairly high prices.

Compliance risks of price collusion and manipulation

The Pricing Law stipulates that business operators shall not ‘collude with others to manipulate market prices, thereby infringing the lawful rights and interests of other business operators or consumers.’ The Anti-Monopoly Law stipulates that it prohibits competitive business operators from entering into monopoly agreements to fix or change commodity prices. A similar provision in the Bidding Law states that ‘Bidders shall not collude in relation to the quoted price, and shall not force out other bidders from fair competition, or infringe the lawful rights and interests of the tenderer or other bidders.’

Price compliance during the outbreak of Covid-19

Besides the normal price compliance issues mentioned above, during the Covid-19 pandemic, a special period, according to the Law on Response to Emergencies; Temporary Measures for Price Intervention and Emergencies in Special Period; and other relevant laws and regulations, the Government of the People's Republic of China shall have the power to severely punish acts that disturb market order (such as hoarding, driving up prices, manufacturing and selling counterfeit goods, etc) so as to stabilise market prices and maintain market order. The relevant departments may put forward suggestions for implementing price intervention measures and emergency price measures, which include limiting the rate of difference or profit margin, setting price limits and implementing a system of reporting price increases and filing price adjustments.

In conclusion, with regards to price compliance during the outbreak of Covid-19, market entities should not only abide by the provisions of the Pricing Law and the Anti-Monopoly Law, but also the price measures formulated by the relevant departments according to the Law on Response to Emergencies and the Temporary Measures for Price Intervention and Emergencies in Special Period, to prevent price compliance risks during this special period.