Hong Kong: Overview

Overview

More than two years have passed since the Competition Ordinance (CO) – the first economy-wide competition law in Hong Kong – came into force on 14 December 2015. Building on a solid first year, the Hong Kong Competition Commission (the Commission) made further progress in its second year by launching a small number of ‘firsts’, such as taking the first two cases to the Competition Tribunal (the Tribunal) – the specialist court established by the CO – and issuing the first block exemption order (for the liner shipping industry). However, overall output remained modest due to the relative nascency of the regime and potentially also due to an overhaul of the Commission’s senior leadership team during the year.

This chapter sets out:

• an overview of Hong Kong’s competition law;
• the Commission’s enforcement priorities, sectoral focus and cases;
• the Commission’s other work and that of the Communications Authority (CA); and
• the outlook for 2018.

Overview of Hong Kong’s competition regime

Substantive framework

The CO adopts a ‘three pillar’ approach and establishes:

• a general prohibition on anticompetitive agreements between undertakings (the First Conduct Rule or FCR);
• a general prohibition on the abuse of a substantial degree of market power (SCR); and
• a merger control regime which, for the time being, is limited to mergers involving telecommunications carrier licensees (the Merger Rule and together with the FCR and the SCR, the Competition Rules).

Enforcement model

The CO is policed and enforced by a two-phase enforcement model.

• Investigation phase: the Commission is tasked with investigating conduct that may contravene the Competition Rules. It may enforce these rules through investigations, settlements and ultimately, by initiating proceedings at the Tribunal.
• Prosecution phase: the Tribunal, among other things, hears cases brought before it by the Commission. The Tribunal determines whether there has been a breach of the CO and can impose sanctions including fines and director disqualification orders. The Tribunal also hears private ‘follow-on’ actions from persons that claim to have suffered a loss as a result of conduct that has been determined to constitute an infringement of the Competition Rules.

The Commission’s investigatory powers

The CO empowers the Commission to initiate and conduct investigations of its own accord and it has a broad range of powers to do so, including the powers to:

• require an undertaking to provide any documents or information and to conduct interviews;
• require any person to answer questions on any matters that the Commission believes to be relevant to the investigation; and
• conduct inspections of premises and confiscate documents with a warrant issued by the Court of First Instance (CFI).

The Commission’s enforcement priorities

According to its enforcement policy published in November 2015 (Enforcement Policy), the Commission will prioritise enforcement against conduct that is clearly harmful to consumers. In relation to the FCR, this includes cartel conduct and other agreements causing significant harm to competition, such as resale price maintenance. In relation to the SCR, this covers exclusionary conduct by companies with SDMP.

In relation to cartel conduct, the Commission is prioritising bid-rigging and market sharing. Following a similar ‘Fighting Bid-rigging Cartels’ campaign launched in 2016, the Commission initiated the ‘Combat Market Sharing Cartels’ campaign in November 2017. Using a range of advocacy and educational initiatives (including a brochure explaining what the conduct entails and how to detect it, TV and radio advertisements, roving exhibitions and seminars), the Commission has sought to raise public awareness of the conduct and its harmful nature as well as to strengthen detection of such conduct.

The Commission’s statistics on types of conduct and sectors giving rise to issues

The Commission received a significant number of complaints/inquiries in 2017. As of the end of October 2017, the Commission had received approximately 2,500 complaints and enquiries. Approximately 60 per cent of the complaints related to the FCR, approximately 20 per cent to the SCR, another 20 per cent to the general state of competition, and a very small number to the Merger Rule. Out of these complaints/enquiries, the Commission escalated around 160 for further assessment; and over 10 per cent of the cases under initial assessment have proceeded to formal, in-depth investigations.

In terms of sectoral focus, according to the Commission’s 2016–2017 Annual Report (published in September 2017), ‘real estate and property management’ accounted for most cases undergoing initial assessment by the Commission between 1 April 2016 and 31 March 2017 (17 cases), followed by the ‘food and groceries’ (six cases) and the ‘information technology’ sector (six cases). Other sectors included ‘beauty and personal care products and services’, ‘construction and infrastructure’, ‘household goods and electrical appliances’, as well as ‘banking, financial and insurance products and services’. This list is quite different from that published by the Commission in 2016, which indicated that the top sectors in 2015–2016 were ‘professional and technical services’ (17 cases), ‘transport, logistics and storage’ (10 cases) and the ‘food and groceries’ sector (10 cases).

The Commission’s enforcement action

The Commission brought two cases to the Tribunal on 23 March and 14 August 2017 respectively. The first case concerns alleged bid-rigging in relation to a tender for the supply and installation of an IT server system; and the second case concerns alleged market sharing and price fixing in the provision of renovation services at a public housing estate – this latter investigation took place following the Commission’s publication of a market study in the building renovation and maintenance sector in 2016. Further details of these cases are discussed in the ‘Hong Kong: Cartels’ chapter.

While noting that the Commission was quick in bringing its first two cases to the Tribunal, the Commission’s senior management has said that it would be cautious about setting specific enforcement quotas (ie, X cases to the Tribunal per year), which may cause the Commission to focus on ‘quick win’ cases and that instead it should be focusing on cases that are most relevant to consumers and which help develop jurisprudence, and not be shy to select cases that are more complex and time-consuming.

In support of the Commission’s enforcement work, the Hong Kong government announced in October 2017 that it would set aside an additional standalone funding of HK$200 million, as well as a plan to increase the Commission’s annual grant. This development has allayed previous concerns that the Commission’s enforcement activity would be limited by insufficient litigation funding.

Exemptions

A range of exemptions and exclusions is available under the CO. On 8 July 2017, the Commission issued its first block exemption order concerning so-called vessel sharing agreements in the shipping liner sector. On 11 December 2017, the Commission received an application from 14 international and local banks for a decision to exclude/exempt the Code of Banking Practice from the application of the FCR on the grounds of ‘compliance with legal requirements’. Further details are discussed in the ‘Hong Kong: Cartels’ chapter.

Market study into the auto-fuel sector

The CO stipulates that the Commission may conduct market studies into matters that affect competition in Hong Kong. The Commission has published a market study into the auto-fuel market in 2017, its second study under the CO.

Amid public outcry over Hong Kong’s high petrol prices, the Commission undertook a market study to analyse competition concerns, particularly the consistency of retail pump prices across retailers. In its May 2017 report, the Commission stated that it had found no evidence of anticompetitive conduct among market players and concluded that petrol price consistency was due to ‘parallel pricing’, which it confirmed does not infringe the CO. However, the Commission did identify some circumstances that could hinder competition and contribute to high prices, such as the availability of effectively only one single petrol product and the low visibility of pump prices. To address these issues, the Commission made a series of recommendations that at the time of writing are still being considered by the government:

• the reintroduction of a second petrol type (95 RON petrol);
• an increase in the number of petrol filling station (PFS) sites;
• reviewing the tendering system for PFS sites;
• requiring more prominent displays of pump prices and walk-in discounts; and
• exploring potential structural reform options.

The Commission’s change in senior management in 2017

The Commission underwent an overhaul of its senior management in 2017. This new leadership team combines impressive local and overseas experience in both antitrust and general law enforcement.

The main changes in senior management were as follows.

• Brent Snyder became the chief executive officer, replacing Rose Webb, on 4 September 2017 for a term of three years. Snyder was formerly a deputy assistant attorney general of the Department of Justice (DOJ) in the US, where he held the criminal cartel investigations and prosecution portfolio within the Department’s Antitrust Division, and later acting assistant attorney general responsible for overall competition law enforcement at the DOJ.
• Lilla Csorgo, former chief economist of New Zealand’s Commerce Commission, joined the Commission as its head of economics and policy in May 2017.
• Steven Parker, chief litigation counsel with the Hong Kong Monetary Authority (HKMA), joined the Commission in July 2017 as executive director (legal services).
• Jindrich Kloub, cartels official with the European Commission, joined the Commission in October 2017 as executive director (operations).

The Communications Authority

Under the CO, the CA shares concurrent jurisdiction with the Commission in enforcing the CO in the telecommunications and broadcasting sectors. According to the Memorandum of Understanding between the Commission and the CA (signed on 14 December 2015), the CA will ordinarily take the role of the lead authority on competition matters in these sectors. Importantly, only the telecommunications sector is currently subject to merger control in Hong Kong.

Mr Albert Wong Kwai-huen, a former commissioner of the Commission, was appointed as the chairperson of the CA for a term of two years from 1 April 2017. Mr Wong has stated that there are many areas where the CA can work with the Commission, and further noted that while telecommunications mergers are not exceptionally active in Hong Kong, such mergers are highly likely to trigger competition concerns.

Since the introduction of the CO, the CA has received a number of complaints and inquiries but to date there is no information in the public domain about any specific investigations under the FCR or SCR. In relation to the Merger Rule, the CA decided in October 2017 not to commence an investigation concerning the acquisition of Hutchison Global Communications Investment Holding Limited by I Squared Capital. This is the third case the CA has reviewed since the CO’s entry into force. In all three cases, the CA decided not to commence a formal investigation.

Outlook for Hong Kong’s competition regime in 2018

Looking ahead, a number of key developments in Hong Kong’s competition regime are expected in 2018:

• continued uptick in enforcement, including potentially first enforcement actions against individuals;
• the launch of at least one market study;
• revisions to the Commission’s leniency policy;
• trial of the two cases before the Tribunal; and
• potential reform of the CO.

While the Commission made steady progress in 2017, it is expected that there will be an uptick in enforcement activities in 2018. Buoyed by a new leadership team and its extra litigation funding, the Commission is expected to enforce the CO more vigorously, with ‘activities affecting consumer-facing markets’ remaining the main focus.

In addition, the Commission’s senior management appears keen to enforce the CO against individuals and it has been reported that Commission members are likely to consider individual penalty guidelines in 2018. While prosecution against individuals is consistent with practice in other jurisdictions such as the United States, this is likely to be an area of contention due to concerns that the Hong Kong competition regime is not adequately set up to hold individuals liable (for example, in terms of rights of defence and due process for individuals).

The Commission will also likely publish at least one market study in 2018. While it is hard to predict which sector the Commission will target, it is likely to be consumer-facing – in line with the authority’s enforcement focus. As was the case for the building renovation and maintenance market study published in 2016, the market study may be used as a precursor to investigations into any anticompetitive conduct uncovered during the market study.

The Commission is also expected to revise its leniency policy in 2018. Substantive trials of the two cases in the Tribunal will also take place in 2018. Further details are covered in the ‘Hong Kong: Cartels’ chapter.

Finally, the senior management of the Commission has stated its intention to form a view in 2018 on whether certain aspects of the CO need to be revised. Changes that have been debated in the past and will likely be up for review again include introducing an economy-wide merger control regime, widening the Commission’s information-gathering powers for market studies, removing the exemption for statutory bodies and introducing the right to bring stand-alone litigation under the CO. While substantive changes to the CO will not take place in 2018, the Commission’s view will likely inform future legislative amendments.