Competition & Antitrust 2
Q1: Recently, the gold price experienced a huge decrease after ten- year “bull market”, which has made a great adverse impact on the gold industry. The price decrease forced the gold retailers to make efforts to cut losses. But the measures taken by Shanghai gold association and gold retailers have caused the investigation of National Development and Reform Committee (“NDRC”). What’s the brief introduction of Shanghai Gold & Jewelry Association (“SGJTA”)?
A1: SGJTA was established in December 1996 and currently has 226 members with an industry coverage of 85%. It occupies a market share of 90% and its members include Shanghai Lao Feng Xiang and Yuyuan Tourist Mart Company, among others.
Q2: What’s the investigation involved?
A2: The investigation centers on the Stipulation of Self-Regulatory Pricing of Gold and Platinum Jewelry in Shanghai adopted by SGJTA. According to Article 5, 7 and 8 of the Stipulation, the price of gold and platinum jewelry sold by the member companies shall be within the 2% to 3% range of the middle price set by the association.
The investigation also showed that unlike other regions in the country, the retail price of the gold retailers in Shanghai remained consistent with each other. The “Today’s Gold Rate” in different stores was shown to follow the abovementioned middle price set by the SGJTA.
Q3: What’s the result of the investigation?
A3: The investigation and evidence collection appears to have come to an end. A number of the investigated gold retailers turned in reports of confession, admitting they “colluded in manipulating price at the expense of consumers’ interest”, and are amending their business practices. Up until now, neither the NDRC or the Shanghai Municipal Development and Reform Commission has released the findings of their investigations.
Q4: How to form the gold price in China?
A4: Since the People’s Bank of China (“PBOC”) abolished its unified purchase and distribution of gold in April 2001, the PBOC launched the weekly quote on gold rate, adjusting the domestic gold rate on the basis of international gold rate fluctuations.
Currently, two exchanges in China are authorized by the State Council to engage in trade of gold products. One is the Shanghai Futures Exchange of Precious Metals and the other is the Shanghai Gold Exchange offering T+D deferred settlement service (T+D is a form of deferred settlement service which is based on the spot trade). The wholesale gold prices of the two exchanges align with those quoted in the international market. The “Today’s Gold Rate” seen in the Chinese gold retailers is the retail price adjusted on the basis of wholesale gold price.
Q5: Whether the Stipulation is monopoly agreement? Why? And if so, what penalty do the gold retailers might get?
A5: According to Article 13 and 16 of China’s Antimonopoly Law, competing business operators are prohibited from reaching any monopoly agreements with each other fixing the price of commodities; no trade association may organize the business operators in its own industry to implement price-fixing agreements. Therefore, the Stipulation may be found by the NDRC as monopoly agreements fixing the price of jewelry.
The Stipulation is a form of horizontal monopolistic agreements fixing the retail price of gold entered between the gold retailers under the sponsorship of SGJTA. If the said stipulation is found illegal by the NDRC on the basis of Article 46 of Anti-Monopoly Law, the companies under investigation could be confiscated the illegal gains and be penalized in the amount of 1 to 10 percent of the sales in the previous year.
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