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22 March 2012
The National Development and Reform Commission recently issued the biggest fine - Rmb10.2 million - since the implementation of the Anti-monopoly Law in 2008. The decision makes a significant statement about China's economic priorities and the importance of reform within its monopolised industries.
The details of the decision remain unclear. The Hubei Price Bureau has so far failed to issue a confirmation and the director of the company in question, Hubei Yihua Chemical Industry, has reportedly denied all claims in relation to the incident. The Shenzhen Stock Exchange, on which Yihua is listed, has issued no official publications from the company on the subject. According to the original sources of the leak, the price monopoly in question relates to Yihua's production, manufacturing and sales of sodium hydrosulphite. The company, which is based in Yichang in Hubei province, specialises in the production of chemical fertilisers and chemical engineering products; it is a key enterprise in terms of support for Hubei's agricultural sector. Its official website announced sales profit for 2010 of Rmb41 billion and the company is listed in the A-shares market of the Shenzhen Stock Exchange.
The Three Gorges Newspaper has reported Yihua as being the world's largest manufacturer of sodium hydrosulphite, based on an analysis of its investments and earnings. Another publication described its sodium hydrosulphite production as a "high profit" business, with the average price of a ton of sodium hydrosulphite reaching Rmb7,783 by the third quarter of 2011. A steep increase in demand has been matched by price - this third-quarter figure represents an increase of Rmb570 on the previous quarter and Rmb1,780 on the third quarter of 2010.
Due to the dangers inherent in the manufacturing process, only seven companies are licensed to produce sodium hydrosulphite. It has been argued that this has led to a lack in flexibility and diversity within the industry.
The fine, which is the highest issued by the commission in an anti-monopoly case, exceeds the penalty imposed on two pharmaceutical companies based in Shandong in November 2011.
A price monopoly is created when a company or business uses its monopoly on a market or within an industry to its advantage, enabling it to engineer high profits. Its measure of control allows it to set higher product prices than would be possible in a competitive market, thereby maximising its profits.
According to Article 23 of the Anti-price Monopoly Regulation, issued on February 1 2011, fines for such conduct can be issued on the basis of the Anti-monopoly Law, which stipulates a penalty of between 1% and 10% of the company's turnover for the previous year.
For further information on this topic please contact Zhan Hao or Zheng Xilin at Grandall Law Firm by telephone (+86 10 65 890 699), fax (+86 10 6517 6800) or email (firstname.lastname@example.org or email@example.com.).
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