A quick guide to the Hong Kong Competition Ordinance

The doom mongers haven’t long left. Hong Kong has but a few short months left of the free, anything-goes world, that has for decades led businesses to think of Hong Kong as the ‘big market, small government’ state.

Sometime between June and December of this year, the long awaited Competition Ordinance will be enacted and with it will be dragged kicking and screaming, onto (arguably) a more level playing field, pretty much anyone or any company that is engaged in economic activity in Hong Kong.

So what is all the fuss about? Well two things really, the First Conduct Rule and, the appropriately named Second Conduct Rule. Thankfully for most SMEs in Hong Kong, it is only the First that is likely to be of immediate impact.

The First Conduct Rule, in essence brings Hong Kong in line with most of the rest of the developed world by outlawing, all agreements (informal or otherwise) and groups that attempt to prevent, restrict or distort competition in Hong Kong. The most heinous offences to be outlawed will include price fixing, allocation of sales or territories, limiting the supply of goods or services, and bid rigging.

Naturally most of these practices take place outside of Hong Kong, but taking a leaf out of the US and EU legislative handbooks, the Competition Ordinance awards itself an extra-territorial effect. Any arrangement, wherever it takes place, that ultimately and negatively affects the Hong Kong market, is an offence under the Ordinance.

The Second Conduct Rule, we mention more in passing, than for any particular concern for small business (with a turnover of less than HK$40m). Its aim is to protect markets from the big boys, stopping undertakings with large market share or a high degree of power from engaging in activity which prevents competitiveness. Needless to say that in a market such as Hong Kong, there are certain corners that are particularly interested in this pillar of the legislation.

Don’t worry too much just yet though, if you and your friends have a plan to corner the broad bean market in Sham Shui Po. The Competition Commission is unlikely to be interested if you (and anyone else in your group) together has a worldwide turnover not exceeding HK$200m. This exclusion will not however apply to the most serious offences of price fixing, bid rigging, market allocation and output control, which are theoretically investigable on any scale.

If the Commission does decide to shine its spotlight on a business’ activities, it has, courtesy of the Ordinance, some fairly far-reaching investigative powers, including requiring a company to produce documents, or appear before the Commission, as well as the more draconian power to enter and search premises and seize anything reasonably believed to be evidence of contravention of a competition rule.

There are still a few months left and time for local companies to familiarise themselves with the provisions of the Competition Ordinance. A prudent board will seek to identify potential areas of risk, in particular relating to agreements and practices that may breach the Ordinance with a view to devising and implementing internal policies and procedures to ensure compliance.

As the party ends for Hong Kong, the less prudent may find themselves in contravention and facing a penalty of up to 10% of their Hong Kong turnover which should give a helping hand to the competition.