What Types of Agreements Qualify as Horizontal Monopoly Agreements?

Horizontal monopoly agreements are among the most serious violations of competition law worldwide, and China’s Anti-Monopoly Law (AML) treats them accordingly. Unlike vertical agreements (between firms at different levels of the supply chain), horizontal agreements involve competitors operating at the same level of production or distribution. Collusion among rivals is widely recognized as having a particularly pernicious effect on competition because it directly replaces the competitive process with coordinated conduct, leading to higher prices, reduced output, lower quality, and diminished innovation. This FAQ provides a comprehensive overview of what types of agreements qualify as horizontal monopoly agreements under China’s AML, the enforcement framework, exemptions available, and practical compliance guidance for foreign companies.

Article 17 of the AML: The Core Prohibition

Article 17 of China’s AML is the primary provision governing horizontal monopoly agreements. It prohibits “monopoly agreements between competing undertakings” and enumerates six specific categories of prohibited conduct. The term “competing undertakings” refers to firms that operate at the same level of a relevant market and are actual or potential competitors. The six categories are:

1. Fixing or changing prices of commodities — This includes any agreement between competitors to set prices, price ranges, discounts, markups, or pricing formulas. It covers both direct price fixing and indirect coordination such as agreeing on minimum prices, target prices, or price increase timing.
2. Limiting the production or sales volume of commodities — Competitors agree to restrict output, production capacity, sales quotas, or inventory levels. This type of agreement artificially reduces supply, driving up prices.
3. Dividing sales markets or raw material procurement markets — Competitors allocate geographic territories, customer groups, product categories, or suppliers among themselves. Market allocation eliminates competition within each allocated segment.
4. Limiting the purchase of new technology or new equipment, or the development of new technology or new products — Agreements that restrict innovation, such as agreeing not to develop competing products, not to adopt new production technologies, or not to purchase equipment that would enhance competitive capacity.
5. Jointly boycotting transactions — Competitors agree to refuse to deal with a particular supplier, customer, or competitor. Collective boycotts can foreclose market access and harm non-participating firms.
6. Other monopoly agreements as determined by the Anti-Monopoly Enforcement Authority (SAMR) — This catch-all provision allows SAMR to identify and prohibit additional horizontal agreements that have the effect of restricting competition, even if they do not fit neatly into the five enumerated categories.

Per Se Illegality: The Standard for Hardcore Horizontal Restraints

Horizontal monopoly agreements under Article 17 are treated as per se illegal in Chinese enforcement practice. Unlike vertical agreements (which may benefit from a rule-of-reason analysis or safe harbor), hardcore horizontal cartel conduct does not require proof of anti-competitive effects. The mere existence of an agreement falling within one of the six categories is sufficient to establish a violation. This approach is consistent with international best practices — the OECD and the International Competition Network (ICN) uniformly recommend per se treatment of hardcore cartels such as price fixing, output restrictions, market allocation, and bid rigging.

However, the AML does provide for exemption under limited circumstances. Article 20 of the AML lists specific situations in which horizontal agreements may be exempted, provided that the agreement does not severely restrict competition in the relevant market and enables consumers to share in the resulting benefits. These exemptions include:

• Agreements aimed at improving technology or research and development of new products;
• Agreements aimed at improving product quality, reducing costs, or enhancing efficiency through specialization;
• Agreements aimed at enhancing the competitiveness of small and medium-sized enterprises;
• Agreements aimed at achieving public interest goals such as energy conservation, environmental protection, or disaster relief;
• Agreements aimed at mitigating a severe downturn in economic activity during a recession;
• Agreements aimed at protecting the legitimate interests of foreign trade or foreign economic cooperation.

Critically, the burden of proving eligibility for exemption rests entirely on the undertakings claiming the exemption. In practice, very few horizontal agreements have been exempted under Article 20, and SAMR scrutinizes exemption claims rigorously.

Special Categories of Horizontal Agreements

Hub-and-Spoke Arrangements

Following the 2022 AML amendments, China’s enforcement framework now more clearly addresses hub-and-spoke arrangements. These involve a vertical relationship (e.g., a manufacturer and its distributors) that facilitates horizontal coordination among the distributors. While the vertical agreements themselves are not horizontal, the exchange of competitively sensitive information through the common upstream supplier can constitute a horizontal monopoly agreement among the downstream distributors. SAMR has indicated that it will examine the totality of communications and conduct in hub-and-spoke cases, focusing on whether the upstream supplier acted as a conduit for horizontal coordination.

Information Exchange Among Competitors

Exchanging competitively sensitive information among competitors can, in certain circumstances, constitute a horizontal monopoly agreement even in the absence of an explicit agreement on prices or output. Information exchange that reduces strategic uncertainty or facilitates coordinated conduct is particularly concerning. SAMR’s 2023 Guidelines on the Identification of Monopoly Agreements address information exchange as a form of facilitating practice, noting that the exchange of current or future pricing data, customer-specific transaction data, or detailed production plans among competitors may violate Article 17. The guidelines distinguish between genuinely pro-competitive information exchanges (e.g., industry benchmarking studies with anonymized, aggregated historical data) and anti-competitive exchanges (disaggregated, current/future, company-specific data).

Trade Associations as Vehicles for Horizontal Coordination

Chinese competition enforcement has paid particular attention to the role of trade associations in facilitating horizontal monopoly agreements. Under Article 16 of the AML, trade associations are prohibited from organizing competing members to enter into monopoly agreements. SAMR has investigated and penalized numerous trade associations for facilitating price fixing, market allocation, and output restriction among their members. A notable case involved a Chinese trade association in the concrete industry that organized its members to collectively raise prices and restrict output following natural disasters that had disrupted supply. SAMR fined both the trade association and its member companies. Foreign companies participating in Chinese trade associations must exercise particular caution to ensure that association meetings, surveys, and communications do not become forums for competitive coordination.

Horizontal Monopoly Agreements vs. Concentrative Joint Ventures

An important distinction exists between a horizontal monopoly agreement (prohibited under Article 17) and a concentrative joint venture that may be subject to merger control under the AML. When two or more competitors establish a joint venture that involves the coordination of their competitive behavior in a market separate from the joint venture’s activities, the arrangement may be assessed as a horizontal monopoly agreement. However, if the joint venture results in a lasting change of control and has a concentration effect, it may fall under the merger control provisions of the AML (Articles 25-27), which require notification to SAMR if the parties’ turnover thresholds are met. The classification depends on the nature and scope of the cooperation, the governance structure of the joint venture, and whether the parents continue to operate independently in the same market. Companies should seek legal advice to determine which regime applies to their specific arrangement.

Bid Rigging as a Form of Horizontal Agreement

Bid rigging is a specific form of horizontal monopoly agreement that has been the subject of increasing enforcement attention in China. It typically takes one of several forms: (a) competitors agree on who will submit the winning bid and at what price, with other participants submitting cover bids (complementary bidding); (b) competitors agree to rotate winning bids among themselves (bid rotation); (c) competitors agree not to bid against each other (bid suppression); or (d) a competitor subcontracts part of the contract to a losing bidder as compensation (subcontracting arrangements). Bid rigging in public procurement is also a criminal offense under Chinese law and can result in both AML penalties and criminal prosecution. SAMR has coordinated with the Ministry of Finance and the National Public Resources Trading Platform to share data and identify bid-rigging patterns in public procurement.

Penalties and Enforcement Trends

Horizontal monopoly agreements carry the most severe penalties under the AML. Under Article 56 (as amended in 2022):

• Undertakings participating in horizontal monopoly agreements may be fined 1 to 10 percent of their turnover in the previous financial year.
• If the agreement has not been implemented, a fine of up to RMB 5 million may be imposed.
• Ringleaders of monopoly agreements face enhanced penalties.
• Trade associations facilitating horizontal agreements may be fined up to RMB 5 million, and their responsible personnel may face personal liability.
• Directors, supervisors, and senior managers who bear personal responsibility for the violation may be subject to personal fines.

Additionally, the 2022 amendments introduced a leniency program (whistleblower immunity) under Article 56. The first undertaking to voluntarily report a horizontal monopoly agreement and provide material evidence may receive immunity from penalties. Subsequent applicants may receive reductions of 50 percent or more for the second applicant, and 20 to 50 percent for the third. The leniency program has become an important enforcement tool, encouraging cartel participants to self-report and providing SAMR with inside access to cartel operations.

Enforcement Trends: Recent Cases and Priorities

In recent years, SAMR has pursued horizontal monopoly agreements across a broad range of sectors. Notable enforcement actions include:

• Cement and concrete industry (2023-2024): Multiple regional enforcement actions against cement and concrete producers for price fixing, output restriction, and market allocation. These cases were driven by the industry’s concentrated structure and the ease of monitoring and enforcing coordination.
• Pharmaceutical and medical device sectors (2022-2025): Several horizontal agreements involving generic drug manufacturers coordinating pricing and market allocation to maintain artificially high drug prices, particularly in procurement processes.
• Insurance and financial services (2022-2024): Enforcement actions against insurance companies for agreeing on premium rates and terms for specific insurance products, and against banks for coordinating interest rates or fee structures.
• Logistics and transportation (2023): Investigations into freight forwarders coordinating pricing for international shipping routes.
• Digital platform economy: While most platform economy enforcement has focused on abuse of dominance (Article 22) and vertical restraints, SAMR has also investigated horizontal coordination among platform operators, including price algorithms and data-sharing arrangements that facilitate tacit collusion.

Practical Compliance Strategies for Foreign Companies

Foreign companies operating in China should implement robust compliance programs to mitigate the risk of horizontal monopoly agreement violations:

1. Implement a competition law compliance policy. The policy should clearly prohibit all forms of horizontal price fixing, output restriction, market allocation, and bid rigging, and should apply equally to Chinese subsidiaries and joint ventures.
2. Provide regular training. All employees involved in sales, procurement, and competitor interactions should receive annual training on identifying and avoiding horizontal monopoly agreement risks, with particular emphasis on trade association participation and competitor communications.
3. Control trade association participation. Before attending trade association meetings, employees should receive the agenda in advance, be instructed to leave if competitively sensitive topics arise, and submit meeting reports to legal counsel.
4. Establish a clear protocol for competitor contact. All communications with competitors should be channeled through designated personnel, documented, and reviewed by legal counsel. Benchmarking studies should use third-party aggregators with anonymized, historical data.
5. Implement a leniency program response plan. If the company discovers potential involvement in a horizontal monopoly agreement, it should be prepared to assess leniency application options quickly, as only the first applicant receives immunity.
6. Conduct periodic compliance audits. Internal or external audits should review pricing practices, competitor communications, trade association participation, and any joint activities with competitors, with corrective action taken as needed.

Conclusion

Horizontal monopoly agreements represent the gravest category of antitrust violation under China’s AML. The law prohibits six specific types of conduct between competitors, and enforcement practice treats these as per se illegal. While limited exemptions exist, they are narrowly construed and rarely granted in practice. Foreign companies must exercise extreme vigilance to ensure that their China operations do not inadvertently engage in conduct that could be characterized as a horizontal monopoly agreement. Given the severe penalties, the expanding enforcement landscape, and the increasing sophistication of SAMR’s detection tools, a proactive and comprehensive compliance program is essential for any company competing in the Chinese market.