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What is the Competition Ordinance?

The full title of the Competition Ordinance as included under Chapter 619, is:

“An Ordinance to prohibit conduct that prevents, restricts or distorts competition in Hong Kong; to prohibit mergers that substantially lessen competition in Hong Kong; to establish a Competition Commission and a Competition Tribunal; and to provide for incidental and connected matters.”

The Competition Ordinance was passed by the Legislative Council in June 2012 and came into full operation on 14 December 2015.

There are a number of subsidiary regulations in respect of statutory bodies, exempted persons and the calculation of turnover, which are briefly addressed in this review.

Requirement for a Competition Ordinance

The Competition Ordinance claims that by prohibiting anti-competitive behaviour it creates a level playing field for businesses. Accordingly, the Competition Commission issued a press release in which it stated that it is:

“ready to be an effective enforcer of the competition law which will support Hong Kong’s open economy by ensuring fair and free markets for all”

The Competition Ordinance was passed by the Legislative Council in June 2012 and came into full operation on 14 December 2015.

There are a number of subsidiary regulations in respect of statutory bodies, exempted persons and the calculation of turnover, which are briefly addressed in this review.

Competition and Conduct Rules

The Ordinance is effectively split into three ‘competition rules’:

  • The First Conduct Rule prohibits anti-competitive agreements;
  • The Second Conduct Rule prohibits abuse of market power;
  • The Merger Rule prohibits anti-competitive mergers and acquisitions.

Exempted Statutory Bodies

With the exception of six identified statutory bodies (Ocean Park Corporation; Matilda and War Memorial Hospital; Kadoorie Farm and Botanic Garden Corporation; The Helena May; Federation of Hong Kong Industries and The General Committee of the Federation of Hong Kong Industries), all other statutory bodies are exempt from the Competition Rules as set out in the Ordinance.

SME Exclusion

In the case of the First Conduct Rule, SMEs with a combined turnover that does not exceed HK$200 million in the preceding year are exempt. For cases concerning the Second Conduct Rule, SMEs with a combined turnover of HK$40 million will be exempt.

Anti-Competitive Behaviour

Some of the areas that the Competition Ordinance will focus on are:

  • Price Fixing by agreeing between competitors to fix, maintain, increase or otherwise control prices;
  • Limited Output resulting in a scarcity in supply therefore driving up prices;
  • Market Sharing to allow competitors to allocate a portion of the market to each other, therefore maintaining profitability and market share;
  • Bid Rigging often takes the form of agreements being made between competitors to allow a designated winner to be awarded a project or contract;
  • Information Exchange between businesses and competitors that could prove damaging or harmful to competition;
  • Collective Boycotting by identifying other players in a market and imposing or targeting a disadvantage towards them;
  • Exclusive Arrangements by imposing restrictive measures on a party by restricting with whom, how, what and where it deals;
  • Selective Distribution by a supplier restricting the distribution and sale of goods or services to a limited number of distributors, therefore allowing it to control and monitor the market.
  • Franchise Agreements by potentially fixing resale values, and imposing anti-competition agreements on franchisees;
  • Joint Ventures upon the formation of a JV, the JV and its respective parent companies will be subjected to the conduct rules;
  • Abuse of Substantive Market Power by abusing a position to restrict the market and the other competition in the market;
  • Predatory Pricing by some businesses being able operate at below cost price in order to affect the existing competitors in, and attempting to enter in to a market;
  • Tying and Bundling where a business with a significant market share in one industry leverages this control to related market where it does not have such an existence by forcing a customer to purchase a related product or service as a precursor to receiving the benefit of the initial purchase;
  • Exclusive Dealing by establishing a direct contractual arrangement resulting in a party having to deal exclusively with a supplier or provider to the exclusion of any competition;
  • Refusal to Deal if a party maintains control of an essential distribution channel or component required for a market to operate, it may be obliged not to refuse to operate said channel or component if it will be to the detriment of the market conditions;
  • Margin Squeeze by abusing the position held by a vertically integrated business with a control on a key input to an upstream market by in inflating prices to downstream competitors who rely on that input.

Conclusion

It remains to be seen what impact the Competition Ordinance will have on the Hong Kong construction industry.

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