Inner Mongolia AIC Fines Fireworks Wholesalers for Market Division Under China’s Anti-Monopoly Law

China’s State Administration on Industry and Commerce (SAIC) recently published Inner Mongolia AIC’s May 2014 decision imposing fines totaling 583,700 RMB (U.S.$94,800) on six fireworks wholesale companies in Chifeng, Inner Mongolia, for unlawful market division under the Anti-Monopoly Law.

In 2006, the local work safety department in one of the two districts of the central area of Chifeng divided the distribution areas for each of the fireworks wholesale companies within the jurisdiction, with the claimed intentions of preventing safety accidents arising from lowered product quality that could be caused by aggressive competition and guiding the companies to actively participate in market management. A similar arrangement was adopted by the other district of the central area in 2009. Under these arrangements, each designated sub-area was supplied by one wholesaler, and retailers in a sub-area were forced to purchase products only from the designated wholesaler. Although there was no agreement in writing, all the wholesalers acted in concert by following the administrative restrictions. Through coordination with local public and work security departments, each year the wholesalers were able to examine retailers’ goods and confiscate goods not purchased from the designated wholesaler in each sub-area. This conduct lasted until the Inner Mongolia AIC’s investigation started in January 2014.

In addition, four of the six companies were authorized by local work safety departments to hold safety training for retailers and to apply for fireworks retail licenses on behalf of retailers. With such authorization, the four companies asked the retailers applying for the licenses to make down payments for orders. Retailers that did not make the down payments could run out of stock during peak seasons, and they were not allowed to replenish their inventories from any other wholesale supplier.

Inner Mongolia AIC found that the agreements to divide markets violated the Anti-Monopoly Law. The four wholesalers imposing unreasonable trade conditions on retailers were fined 8 percent of their annual revenues for 2013, and the other two were fined 7 percent.

The Inner Mongolia AIC’s decision is available here.