Introduction

The "Zhejiang Province Fair Competition Review Measures" (hereinafter referred to as the "Measures") represent the nation's first government regulation in the field of fair competition review and came into effect on 1 April 2024. Comprising six chapters and twenty-nine articles, the Measures primarily delineate the scope, content, and procedures for fair competition reviews, thereby strengthening the rigidity of the system. Additionally, the "Fair Competition Review Rules in the Bidding and Tendering Sector" (hereinafter referred to as the "Review Rules"), jointly issued by eight departments including the National Development and Reform Commission, will officially commence on 1 May 2024. As the inaugural departmental regulation specific to fair competition reviews within particular sectors and industries, the Review Rules elaborate on the review standards, mechanisms, and supervisory management pertinent to fair competition in the bidding and tendering domain.

The implementation of both the Measures and the Review Rules underscores a resolute commitment to eliminating local protectionism and monopolistic practices, while upholding the spirit of fair competition. This ensures a level playing field for the development of the private economy and imposes higher compliance standards on state-owned enterprises (SOEs) to fairly participate in market competition.

I. Comprehensive Interpretation of the Measures

The Measures ensure fair competition by enhancing the review mechanism, refining review content, improving review procedures, strengthening inter-departmental coordination, and reinforcing safeguard measures, thereby empowering the construction of a favourable business environment.

A. General Scope of Review

The review scope for policy measures is categorised into general and key review areas, with a particular focus on the bidding and tendering sector. The general review content is divided into the following four categories:

1. Restrictions on Market Entry or Exit

The Measures stipulate that policy-making authorities must examine whether policy measures contain any restrictions on market entry or exit, including:

o Prohibiting entry, restricting market entity qualifications, limiting shareholding ratios, or constraining business scopes and models for industries, sectors, or businesses not listed on the negative market entry list.

o Establishing or indirectly establishing barriers to market exit, such as for company dissolution, bankruptcy, transfer listing, or relocation.

o Implementing unreasonable differential treatment for operators of different ownership, organisational forms, or regions.

o Illegally establishing franchise rights or granting franchise rights without fair competition.

o Limiting or indirectly limiting the operation, purchase, or use of goods and services provided by specific operators.

o Imposing other unreasonable or discriminatory entry or exit conditions or barriers.

2. Restrictions on the Free Flow of Goods, Services, and Factors

Policy-making authorities must review whether policy measures restrict the free flow of goods, services, and factors, including:

o Limiting the entry of foreign and imported goods, services, or factors into the local market or hindering the export of local goods, services, or factors.

o Excluding, restricting, or mandating foreign operators to invest locally or establish branches.

o Excluding or restricting foreign operators from participating in local government procurement, bidding, and other business activities.

o Implementing discriminatory pricing, charges, or subsidies on foreign and imported goods, services, or factors.

o Applying discriminatory treatment to foreign operators' investment and business activities in areas such as standards and regulation.

o Other provisions that restrict the free flow of goods, services, and factors.

3. Content Affecting Production and Operating Costs

Policy measures must be scrutinised to ensure they do not impact production and operating costs without legal, administrative, or State Council authorization, including:

o Granting tax incentives to specific operators.

o Providing selective or differentiated financial rewards or subsidies to specific operators.

o Offering preferential policies in areas such as factor acquisition, qualification standards, environmental standards, pollution discharge rights, administrative fees, government funds, and social insurance contributions to specific operators.

o Linking fiscal expenditures to operators' tax payments or non-tax revenues.

o Requiring operators to provide guarantees or retain operators' deposits.

o Other provisions that affect production and operating costs and exclude or restrict competition.

4. Content Affecting Production and Operating Behaviour

Policy measures must be reviewed for any content that affects production and operating behaviour, including:

o Forcing or indirectly forcing operators to engage in monopolistic activities.

o Illegally disclosing or requiring operators to disclose sensitive production and operating information, thereby facilitating monopolistic behaviour.

o Exceeding pricing authority by setting government-guided prices or government-set prices.

o Illegally intervening in the pricing levels of goods, services, and factors subject to market regulation.

o Other provisions that affect production and operating behaviour and exclude or restrict competition.

5. Exceptions to Review Content

The Measures provide that policy measures which may exclude or restrict competition through fair competition review can be implemented if they fall under one of the following exceptions:

o National security maintenance.

o Promotion of national scientific and technological advancement or enhancement of national independent innovation capacity.

o Achievement of social public interests such as energy conservation, environmental protection, disaster relief, and assistance.

o Other circumstances as prescribed by laws, administrative regulations, and State Council provisions.

For measures meeting these criteria, policy-making authorities must state in the review conclusion that the measures are necessary to achieve the stated objectives, that no less restrictive alternatives are available, and specify the implementation duration or termination conditions. Measures must be promptly discontinued once the implementation period expires or termination conditions are met.

B. Key Review Areas

In alignment with issues identified during State Council inspections and research, the Measures establish specific provisions to focus on typical violations in bidding, tendering, and government procurement, based on the four major categories and twenty-three prohibitive standards stipulated by the state. The following six scenarios are expressly prohibited:

1. Imposing Regional Market Entry Conditions in Bidding and Procurement

Restricting participation in bidding and procurement activities by limiting tenderers based on location, ownership form, organisational structure, or other unreasonable conditions.

2. Setting Discriminatory Qualification Requirements or Evaluation Criteria for Foreign Operators

Imposing discriminatory qualification standards or evaluation criteria on foreign operators in bidding and procurement, or using local performance and awards as conditions, scoring factors, winning conditions, or for assessing corporate credit ratings.

3. Mandating Local Registration or Establishment for Operators

Requiring operators to register locally, establish branches, maintain specific office space, or pay local taxes and social insurance in bidding and procurement activities, contrary to regulations.

4. Setting Unreasonable Qualification, Technical, and Commercial Conditions

Imposing qualification, technical, and commercial conditions that do not align with the specific characteristics and actual needs of the bidding and procurement projects or are irrelevant to contract performance.

5. Restricting Use of Specific Goods and Services through Administrative Procedures

Limiting or indirectly limiting the operation, purchase, or use of specific operators' goods and services by explicitly or implicitly requiring, refusing, or delaying administrative approvals, conducting repeated checks, denying platform or network access, or unlawfully providing rewards or subsidies.

6. Excluding Potential Operators through Unreasonable Lists or Databases

Excluding or restricting potential operators from providing goods and services by setting unreasonable conditions in project lists, directories, candidate pools, qualification databases, etc., without legal, administrative, or State Council authority.

C. Policy Review Procedures

According to the Measures, fair competition reviews are generally conducted in writing. For complex cases, on-site investigations, symposiums, expert deliberations, or third-party evaluations may be utilised. Substituting the fair competition review with countersigning, soliciting opinions, or requiring participation in meetings is prohibited. Proposed policy measures that are collectively identified as potentially violating fair competition provisions or subject to exception clauses must undergo third-party evaluation. To address overlaps and jurisdictional conflicts between fair competition reviews and administrative legality reviews, the Measures mandate that policy measures must not proceed to administrative legality reviews without passing fair competition reviews. Administrative legality reviews serve as a safety net for fair competition reviews, and when necessary, the two can be conducted in tandem to enhance review efficiency. Except where confidentiality is legally required, fair competition reviews should consider opinions from relevant operators, industry associations, chambers of commerce, consumers, and other stakeholders regarding the policy measures.

Furthermore, building on initial pilot phases, the Measures allow the respective government level to designate appropriate departments to conduct concentrated reviews of locally issued policy measures, or allow market regulatory departments to organise joint reviews, thereby establishing a multi-tiered review system of "self-review + concentrated review + joint review."

II. Compliance Risk Warnings for SOEs in the Bidding and Tendering Sector

During the bidding and tendering process (especially as tenderers), SOEs should adhere to the requirements of fair competition reviews to avoid excluding or restricting competition. The potential risk behaviours of SOEs that may limit or exclude fair competition in the bidding and tendering sector are primarily highlighted in the following six aspects:

1. Imposing Regional Market Entry Conditions

Requiring operators to establish legal entities or branches locally, maintain specific office spaces, pay taxes and social insurance, form joint ventures with local enterprises, or achieve local performance or awards as unreasonable conditions to restrict participation in bidding and tendering activities.

2. Restricting Operators' Autonomy

Limiting or indirectly limiting the operation, purchase, or use of specific operators' goods and services by explicitly or implicitly requiring, refusing, or delaying administrative approvals (or other approvals), conducting repeated checks, denying platform or network access, or unlawfully providing rewards or subsidies.

3. Setting Unreasonable Qualification Conditions and Evaluation Criteria in Tender Documents

Including the following as bidding qualifications in standard tender documents or prequalification documents:

o Certificates or qualifications that have been officially revoked.

o Training or on-the-job certificates issued by local authorities or industry associations.

o Inclusion in specific preselection pools, project lists, qualification databases, or supplier directories without a reasonable selection process.

o Achieving or exceeding specific standards in integrity (credit) evaluations or ratings.

Including the following in evaluation criteria clauses of standard tender documents or prequalification documents:

o Assigning different scores to local and non-local performance, using local performance and awards as bidding conditions, scoring factors, winning conditions, or for evaluating corporate credit ratings.

o Assigning different scores based on the ownership form of the operators.

o Assigning different scores based on the scale, registered capital, market share, debt ratio, or net asset size of the operators.

4. Engaging in Exclusionary Discriminatory Evaluation

o Applying different evaluation standards for operators from different regions or with different ownership forms in terms of qualifications, performance, etc.

o Imposing differentiated requirements on the submission, uploading, and auditing processes for registration of operators from different regions or with different ownership forms.

o Restricting participation in bidding and tendering activities by limiting tenderers based on location, ownership form, organisational structure, or other unreasonable conditions.

5. Imposing Improper Restrictions in the Bidding and Tendering Process

o Requiring tenderers to provide original documents for matters that could be verified through declarations and post-verification during the bidding phase.

o Illegally demanding the presence of the tenderer's legal representative, technical manager, or other specific personnel during the acquisition of tender documents or bid opening.

o Setting qualification, technical, and commercial conditions that do not align with the specific characteristics and actual needs of the bidding and procurement projects or are irrelevant to contract performance.

o Other improper restrictions on operators' participation in the bidding and tendering process.

6. Illegally Collecting Deposits in Violation of Regulations

o Requiring operators to pay deposits beyond bidding guarantees, performance bonds, engineering quality bonds, or migrant worker wage bonds.

o Mandating that operators use cash, bank guarantees, insurance, or other specific forms to pay deposits.

o Requiring operators to obtain guarantees (insurance) from specific financial institutions.

o Setting preconditions for the return of deposits outside of the tender documents.

o Other unreasonable restrictive measures.

Conclusion

In summary, to ensure legality and compliance throughout the bidding and tendering process, uphold the principles of openness, fairness, impartiality, and good faith, SOEs should reference and apply the aforementioned requirements, conduct self-inspections, and enhance their internal bidding and tendering management regulations. Engaging in exclusionary or restrictive competitive behaviours during the bidding process may violate laws and regulations such as the "Anti-Monopoly Law," the "Bidding Law," and the "Implementation Regulations of the Bidding Law," potentially resulting in invalidation of winning bids and the need for re-tendering. Additionally, tenderers may face administrative penalties, and directly responsible supervisory personnel and other accountable individuals may receive warnings, demerits, or dismissal. In severe cases involving corruption, bribery, or other criminal activities, individuals may be subject to criminal prosecution.