Distributor Compliance Management Under the New Anti-Monopoly Rules

To maintain unified product market positioning and stable sales channels, many manufacturers adopt control measures in distributor management, such as setting minimum retail prices and imposing penalties for parallel gray-market shipments. However, such practices carry significant risks of being deemed vertical monopolistic conduct. Since China’s first administrative penalty case involving vertical monopoly agreements in 2013 — in which the National Development and Reform Commission imposed fines of over RMB 200 million each on Moutai and Wuliangye for mandating minimum resale prices on distributors — administrative and civil litigation cases concerning vertical monopolistic conduct have remained frequent.

The Anti-Monopoly Law, revised in 2022, introduced a safe harbor regime. The Provisions on Prohibiting Monopoly Agreements (revised in 2025), which took effect on February 1, 2026, further clarified quantitative thresholds for determining eligibility for the “safe harbor”.

Article 17 of the revised 2025 Provisions on Prohibiting Monopoly Agreements stipulates that two typical categories of vertical monopolistic conduct are presumed to have no anti-competitive or competition-restricting effects and thus shall not be prohibited, provided specific criteria are satisfied throughout the term of the relevant agreement:

1. Vertical price-restricting agreements (e.g., fixing retail prices). The quantitative safe harbor thresholds require that the market share of both the undertaking and its counterparty shall be below 5%, and the annual turnover of the covered goods shall not exceed RMB 100 million.
2. Vertical non-price-restricting agreements (e.g., restricting resale counterparties). The quantitative safe harbor thresholds require that the market share of both the undertaking and its counterparty shall be below 15%.

The release of these quantitative safe harbor thresholds has drawn clear legal red lines. It partially alleviates enterprises’ dilemma of needing to regulate distributors while hesitating to impose explicit controls due to ambiguous assessment standards, representing a moderate relaxation of oversight over vertical monopoly agreements. Meanwhile, it guides enterprises to administer vertical distribution agreements in a more objective, appropriate manner and avoid inadvertent violations.

What practical steps should be taken by enterprises? In short, enterprises could conduct an immediate self-assessment to verify whether business falls within the “safe harbor” scope.

Three core elements must be reviewed during self-assessment.

1. Define the “relevant market” in accordance with the Guidelines of the State Council Anti-Monopoly Commission on the Definition of Relevant Markets.
2. Determine the denominator used to calculate market share. This calculation is highly complex. In administrative enforcement and judicial practice, the denominator is normally derived from data published by national statistical authorities, industry associations and independent research institutions. In addition, enterprises could also engage industry and economic experts to provide market research reports and economic analysis opinions. For instance, Article 11 of the Judicial Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Monopoly Disputes permits parties to apply to courts for industry and economic experts to testify on specialized technical matters. For internal compliance self-assessment, enterprises may first reference data from the National Bureau of Statistics, reputable industry associations and professional research firms. Besides the most prevalent metrics of sales volume and turnover, denominators may also be defined based on unit sales, output, production capacity, active users of internet platforms and other indicators. It is critical to note that market denominator data may fluctuate, so enterprises are advised to establish a dynamic market data monitoring system.
3. Determine the numerator for market share calculation, which shall align with the selected denominator metric. One unresolved legal ambiguity persists when calculating distributors’ market share, whether the calculation shall only include sales of the manufacturer’s own products. For example, if Company A manufactures toothpaste under Brand A, and its distributor sells toothpaste of both Brand A and Brand B, should the distributor’s market share be calculated solely based on Brand A’s sales revenue, or aggregate sales revenue of both brands? The Provisions on Prohibiting Monopoly Agreements does not contain any explicit provision on this point. Our prevailing interpretation is that total sales revenue of all products shall be included, as enforcers generally do not define the relevant market as a single-brand market when calculating distributors’ market shares.

If the self-assessment confirms the enterprise fails to meet the quantitative safe harbor thresholds, the enterprise must promptly implement corrective measures and revise clauses in distribution agreements and internal distributor management policies.

A final critical reminder is that the quantitative safe harbor thresholds laid out in the Provisions on Prohibiting Monopoly Agreements apply to most industries. Special sectors including intellectual property and the automotive industry are governed by separate rules. For example, the Guidelines on Anti-Monopoly Enforcement in the Field of Intellectual Property Rights and the Guidelines on Anti-Monopoly Enforcement in the Automobile Industry set a 30% market share threshold, rather than the standard 5% cap.