China has a very different approach to price gouging restrictions than the state level system in place in the United States. As the Chinese market is of particular importance to our readers and their businesses, operators may benefit from unpacking the anti-price gouging rules contained in national laws and the reinforcing measures against price gouging adopted by Chinese regulators since the outbreak of the COVID-19.

PRC Price Law

In China, the state regulates price gouging centrally through the PRC Price Law, which was originally promulgated on December 29, 1997. In addition to the Price Law, certain price gouging practices may also raise anti-monopoly, unfair competition or consumer protection concerns under the PRC Anti-Monopoly Law, the PRC Anti-Unfair Competition Law, or the PRC Consumer Rights and Interests Protection Law.

Under the Price Law, with some exceptions, business operators in China are required to set prices for their goods and services based on the costs of manufacturing, operation and market supply and demand, and as such reasonable price increases due to rising costs or changes in market supply or demand are allowed. (This does not account for the limited number of goods and services that are subject to government-set prices or government-guidance prices.)

Certain types of “unfair price behaviors” are also explicitly prohibited, including:

  • fabricating and/or disseminating price increase information to drive up prices;
  • hoarding commodities with tight supply or abnormal price fluctuations;
  • using other price gouging practices to push up commodity prices excessively;
  • using misleading or false pricing practices;
  • covertly manipulating prices by raising or reducing grade levels of goods or services; and
  • illegally seeking exorbitant profits (even absent any market power).

SAMR Guidance

In response to the COVID-19 pandemic, and to deter hoarding and price gouging of daily necessities and epidemic prevention products, Chinese regulators took additional steps to enhance the implementation of the Price Law and other relevant laws and regulations. On February 1, 2020, the China State Administration for Market Regulation (“SAMR”, the agency that enforces the Price Law) issued the Guidance on Investigation and Handling of Illegal Acts of Price Gouging During the Novel Coronavirus Pneumonia Epidemic Prevention and Control Period (the “SAMR Guidance”). The SAMR Guidance sets out detailed guidance on the application of the Price Law and determination of illegal price gouging for daily necessities and products related to epidemic prevention.

Specifically, the SAMR Guidance categorizes the following practices of excessive pricing as illegal price gouging:

  • selling the same product in such a manner that results in the margin between the seller’s cost and the selling price being significantly higher than that of the last actual transaction on or before January 19, 2020 (being the day immediately prior to the Chinese government’s official declaration of the Novel Coronavirus as a Class B level communicable disease); or
  • otherwise selling products at a margin above levels determined as acceptable by the local counterparts of SAMR. Although SAMR has not issued national guidance on acceptable margins, local governments have set thresholds ranging between 15% and 35%.

Penalties

Violation of the price gouging laws may result in administrative penalties, including: (i) restitution, (ii) confiscation of any illegal gains and a fine up to 5 times of the illegal gains (capped at RMB3 million, or approximately $450,000 USD, if there is no illegal gain), (iii) halting business operation pending rectification, and/or (iv) revocation of business licenses.

For more significant violations (e.g., those involving a large amount of illegal gains, or causing significant market disruption), the individuals directly responsible for the violations may incur criminal liability, which may include imprisonment for up to 5 years (or longer for “extremely serious” violations).

In addition to administrative and criminal penalties, affected consumers may also launch civil lawsuits against violators to recover losses caused by the violation.

Follow this space

This international spotlight series will unpack country-specific laws that may be of particular interest. Watch for additional overviews of price gouging restrictions applied in markets that are important to our readers.

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Visit Proskauer on Price Gouging for antitrust insights on COVID-19.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

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Photo of Kelly Landers Hawthorne Kelly Landers Hawthorne

Kelly Landers Hawthorne is an associate in the Litigation Department and a member of the Antitrust and Product Liability groups. She represents clients in litigations and due diligence across a range of industries, including consumer products, life sciences, healthcare, education, hospitality, sports and…

Kelly Landers Hawthorne is an associate in the Litigation Department and a member of the Antitrust and Product Liability groups. She represents clients in litigations and due diligence across a range of industries, including consumer products, life sciences, healthcare, education, hospitality, sports and entertainment.

Kelly also maintains a diverse pro bono practice. She received Proskauer’s Golden Gavel Award for excellence in pro bono work in 2019.

She is a frequent contributor to Proskauer’s Minding Your Business blog, where she authors articles related to price gouging issues.

Kelly is also a member of the Proskauer Women’s Alliance Steering Committee, where she serves on subcommittees focused on highlighting and providing professional development opportunities for women at the firm.

Prior to her legal career, Kelly was a Teach For America corps member and taught middle school in Washington, DC.

While at Columbia Law School, Kelly served as an articles editor of the Columbia Journal of Law & the Arts and interned for the Honorable Sandra Townes of the U.S. District Court for the Eastern District of New York.

Photo of John R. Ingrassia John R. Ingrassia

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating…

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating to competition and antitrust, CFIUS or foreign investment issues.

For more than 25 years, John has counselled businesses facing the most challenging antitrust issues and helped them stay out of the crosshairs — whether its distribution, pricing, channel management, mergers, acquisitions, joint ventures, or price gouging compliance.

John’s practice focuses on the analysis and resolution of CFIUS and antitrust issues related to mergers, acquisitions, and joint ventures, and the analysis and assessment of pre-merger CFIUS and HSR notification requirements. He advises clients on issues related to CFIUS national security reviews, and on CFIUS submissions when non-U.S. buyers seek to acquire U.S. businesses that have national security sensitivities.  He also regularly advises clients on international antitrust issues arising in proposed acquisitions and joint ventures, including reportability under the EC Merger Regulation and numerous other foreign merger control regimes.

His knowledge, reputation and extensive experience with the legal, practical, and technical requirements of merger clearance make him a recognized authority on Hart-Scott-Rodino antitrust merger review. John is regularly invited to participate in Federal Trade Commission and bar association meetings and takes on the issues of the day.

Photo of Christopher E. Ondeck Christopher E. Ondeck

Chris Ondeck is co-chair of the Firm’s Antitrust Group and co-head of the Washington DC office. He represents clients in complex antitrust and consumer protection litigation, defends mergers and acquisitions before the U.S. antitrust agencies, represents companies involved in government investigations, and counsels…

Chris Ondeck is co-chair of the Firm’s Antitrust Group and co-head of the Washington DC office. He represents clients in complex antitrust and consumer protection litigation, defends mergers and acquisitions before the U.S. antitrust agencies, represents companies involved in government investigations, and counsels on antitrust compliance. Chris is also the founder and leader of the firm’s Price Gouging Practice, and is one of the key thought leaders in this space.

Chris handles antitrust matters for clients in a number of industries, including food and agriculture, financial services, media, telecom, technology, e-commerce, consumer products, natural resources, oil and gas, chemicals, and pharmaceuticals.  He also serves as outside counsel to a large number of industry groups, including trade associations and cooperatives.

Chris has been recognized as a leading antitrust practitioner by Chambers, noting that clients describe him as “our primary thought partner – he’s very good at explaining the complex issues and making them easy to understand” and praising “his strong advocacy skills”; by The National Law Review as a “Go To Thought Leader 2020”; by Acritas as a “Star” in multiple years; by Benchmark Litigation as a National Litigation Star 2021; and by The Legal 500 United States for Antitrust: Civil Litigation/Class Actions.