ANTITRUST POLICY IN CHINA’S PUBLIC PROCUREMENT

Abstract

This paper aims to explore antitrust policy in China’s public procurement. By analyzing relevant laws and regulations and combining actual cases, it elaborates on the significance and implementation principles of antitrust policy in public procurement. The paper also puts forward corresponding suggestions and outlooks in hopes of contributing to the improvement of antitrust policies in public procurement.

Full Text

Government procurement is a key component of national economic governance, crucial for allocating public resources and ensuring fair market competition. In 2022, China’s procurement scale exceeded 3.5 trillion RMB (3.1% of GDP), growing at 8% annually (Ministry of Finance, 2023). However, issues like abuse of administrative power and corporate collusion have distorted competition, reducing fiscal efficiency and public trust [2].

For instance, the 2018 Shenzhen drug procurement reform, using a single agency, raised costs by 20%. Similarly, a 2024 cartel in Anhui’s traffic signal market inflated prices by 30%, exposing antitrust enforcement gaps.

While China has laws like the Anti-Monopoly Law and Government Procurement Law, problems persist, including legal fragmentation and uneven penalties for corporate vs. administrative violations. 

Internationally, tools like dynamic bidding and independent oversight boost transparency (OECD, 2023), but domestic adoption remains limited.

This paper analyzes China’s antitrust policy in procurement, combining legal review, case studies, and global comparisons to address: 

- Legal system fragmentation 

- Balancing administrative and corporate governance 

- Localizing international best practices 

By examining cases like Shenzhen and Anhui, it proposes reforms for a more competitive, transparent procurement system. The following sections cover legal frameworks, enforcement, case analysis, and policy recommendations to enhance antitrust mechanisms and economic development.

Case Analysis

1. Case One: Abuse of Administrative Power by the Shenzhen Health Commission to Eliminate and Restrict Competition (2018)

1.1. Background and Violations

In 2018, during the public hospital drug group procurement reform in Shenzhen, the Shenzhen Health Commission (SHC) designated “QYW Pharmaceutical” as the sole authorized drug procurement platform. All public hospitals, drug manufacturers, and distributors were required to transact exclusively through QYW. This practice directly violated Article 36 of the Anti-Monopoly Law, which prohibits abuse of administrative power to eliminate or restrict competition.

1.2. Key Investigation Findings

- Market cost surge: During QYW’s monopoly period (2016-2018), Shenzhen’s drug procurement costs increased from 806 million RMB to 974 million RMB – a growth of 20.8% (see Table 1).

- Effective rectification: After introducing competitive bidding mechanisms in 2018, procurement costs fell to 824 million RMB by 2022, a 15.4% reduction compared to the monopoly period.

- Horizontal comparison: During the same period, Guangzhou, which used traditional bidding mechanisms, experienced only a modest cost increase (from 776 million RMB in 2016 to 786 million RMB in 2022, a mere 1.3% increase), highlighting the severe fiscal waste caused by monopoly practices.

Table 1. Comparison of Drug Procurement Costs in Shenzhen and Guangzhou (Unit: 100 million RMB)

Year	Shenzhen (QYW Monopoly)	Shenzhen (Post-Rectification)	Guangzhou (Traditional Bidding)
2016	8.06	-	7.76
2018	9.74 (+20.8%)	-	8.02 (+3.3%)
2022	-	8.24 (-15.4%)	7.86 -1.7%)

1.3 Theoretical Insights and Policy Reflections

- Regulatory capture effect: The SHC’s alliance with QYW led to policy bias favoring a single enterprise, corroborating Tirole’s (2014) regulatory capture theory. This calls for the establishment of independent oversight mechanisms to break interest chains [9].

- Directions for enforcement improvement: It is recommended that economic penalties ranging from 1% to 5% of the annual budget be imposed for administrative monopoly behaviors. Furthermore, rectification outcomes should be incorporated into local government performance evaluation systems.

2. Case Two: Horizontal Monopoly Agreement in the Traffic Signal Equipment Market in Bozhou, Anhui Province (2024)

2.1 Background and Violations
In 2024, Anhui Komou Information Technology Co. and Anhui Zhongmou Technology Co. signed a “Cooperation Agreement,” in which they agreed to divide the Bozhou traffic signal controller market. Komou would assist Zhongmou in passing product testing, while Zhongmou committed to withdrawing from local sales. This conduct constituted a horizontal monopoly agreement prohibited under Article 13 of the Anti-Monopoly Law.

2.2 Key Findings

- Price manipulation and market foreclosure: During the period of the agreement (2023 to Q1 2024), the average unit price of equipment surged from 12,000 RMB to 15,600 RMB (+30%), with the two firms monopolizing 100% of the market.

- Enforcement outcomes and market recovery: After the State Administration for Market Regulation (SAMR) imposed fines equivalent to 8% of annual sales on the involved companies, the average unit price dropped to 12,792 RMB in Q3 2024 (–18%). The number of bidding firms increased from 2 to 11, and market concentration fell to 45% (see Table 2) [3].

Table 2. Dynamics of the Anhui Traffic Signal Equipment Market (Unit: RMB)]

Indicator	During Collusion (2023–Q1 2024)	After Penalty (Q3 2024)
Average Unit Price	15,600	12,792
Number of Bidders	2	11
Market Concentration	100%	45%

2.3 Theoretical Insights and Policy Reflections

- Externalized costs of violations: The short-term profits from collusion far exceeded the 8% fine, indicating a need to raise the penalty to 15%–30% of sales and implement “progressive penalties.”

3 Gaps in technical regulation: The collusion was carried out through private agreements, making it difficult to trace using traditional enforcement tools. It is recommended to establish AI-powered bidding anomaly detection systems to identify price coordination and market segmentation in real-time.

3. Cross-Case Comparison and Comprehensive Analysis

Table 3. Comparison of Policy Responses – Administrative Monopoly vs. Corporate Collusion

Dimension	Shenzhen (Administrative Monopoly)	Anhui (Corporate Collusion)
Type of Violation	Abuse of administrative power to exclude competition	Horizontal agreement to divide the market
Cost Impact	+20.8% → –15.4% (post-rectification)	+30% → –18% (post-penalty)
Enforcement Measures	Rectification order, no financial penalties	8% of sales fined, bidding disqualification
Deterrent Effect	Low (dependent on local initiative)	Moderate (partial price rollback, low cost of violation)
Institutional Reforms	Introduce economic penalties, strengthen auditing	Increase fine rates, adopt tech-enabled monitoring

Summary

- Enforcement imbalance and cost differences: Administrative monopolies lack financial penalties, making rectification dependent on local initiative. Corporate collusion, while fined, still yields profits that far exceed the penalty-calling for stronger deterrents such as combined financial sanctions and market exclusion.

- Technology-enabled regulation: Digital tools (e.g., dynamic bidding platforms and AI monitoring) can accurately identify monopolistic behavior and fill enforcement blind spots.

- Need for legal coordination: Harmonizing the Anti-Monopoly Law and the Government Procurement Law is essential to clarify administrative power boundaries and quantify corporate penalties, thereby avoiding fragmented enforcement.

Conclusion

Analysis of the Shenzhen (administrative monopoly) and Anhui (corporate collusion) cases reveals key issues in China's antitrust policy for public procurement:

1) Weak Enforcement Undermines Deterrence

- Shenzhen's administrative monopoly only prompted rectification orders without fines, relying on local compliance for a 15.4% cost reduction-potentially unsustainable.

- Anhui's collusion yielded 30% excess profits despite an 8% sales fine. Penalties should increase to 15-30% with bid disqualification.

2) Тech-Enabled Regulation Needed

- Traditional methods miss covert collusion (e.g., Anhui's market segmentation). Shenzhen's 15.4% cost drop post-reform shows dynamic auctions work. AI monitoring and multi-round reverse auctions are advised.

3) Legal and Institutional Reforms Critical

- The Anti-Monopoly Law and Government Procurement Law lack synergy. Revisions must clarify administrative limits (e.g., banning single-platform mandates) and tie penalties to societal harm.

- Shenzhen exposed regulatory capture. An EU-style cross-departmental Procurement Competition Commission should audit large projects (>500M RMB).

4) Localizing Global Practices

- Adopt South Korea’s KONEPS model (18% cost savings). Shenzhen’s pilot saved 150M RMB; expand to Yangtze Delta/Greater Bay Area and update procurement laws [7].

- Mirror the U.S. False Claims Act: reward whistleblowers 15-30% of recovered funds to expose collusion [10].

Policy Recommendations

1. Legislative Improvements & Penalty Quantification

- Amend Anti-Monopoly Law to impose 1-5% annual budget fines for administrative monopolies + individual accountability.

- Increase corporate collusion fines to 15-30% of social loss (double for repeat offenders).

- Remove antitrust "exception clauses" in sectoral regulations.

2. Tech-Driven Supervision

- Deploy AI platforms to detect bid anomalies (price spikes, supplier withdrawals).

- Require dynamic bidding (e.g., reverse auctions) for high-value projects.

- Implement blockchain for tamper-proof procurement records.

3. Independent Oversight & Whistleblower Protections.

- Create State Council-linked Procurement Competition Commission for major project audits + public reports.

- Offer whistleblowers 15-30% of recovered funds + anonymity guarantees.

4. Pilot Reforms & Global Integration

- Test dynamic bidding/AI tools in Yangtze Delta/Greater Bay Area.

- Align with South Korea’s KONEPS and EU’s "competitive neutrality" against local protectionism.

5. Performance Metrics & Transparency

- Evaluate officials on "cost savings" and "violation recurrence" rates.

- Publish annual antitrust enforcement reports + mandate corporate compliance training.