China’s new safe harbor rules for vertical dealing, including practices like resale price maintenance hitherto presumed generally anticompetitive, are less accommodating than they may seem, writes Yin Hu.
China’s competition authority, the State Administration for Market Regulation (SAMR), recently issued new safe harbor rules for vertical restraints between firms dealing with one another from different steps of a production chain. In a move that surprised many observers, the rules extend safe harbor protection—exemption from antitrust liability—to resale price maintenance (RPM), wherein suppliers oblige retailers to sell their products at or above a minimum price. RPM can stifle competition among retailers and raise consumer prices. Among vertical restraints, including exclusive dealing or tying sales to multiple products and services, it is considered one of the likeliest to produce anticompetitive consequences. Countries like the European Union, Japan, and Australia ban RPM, and it has historically been treated as quasi per se illegal in China. Allegedly, the safe harbor rules aim to provide small and medium-sized enterprises with greater flexibility to arrange cost-cutting deals, reduce compliance costs, and boost market confidence.
At first glance, this shift suggests China is significantly softening its approach to vertical restraints, potentially bringing it closer to a competition framework more concerned about outcomes than per se rules postulating fundamentally illegal activity.
However, a closer examination of the new rules tells a more cautious story. Despite their broad scope, the safe harbor rules may offer only limited practical protection for businesses. Instead of providing clear guidance and legal certainty, the framework risks leaving firms uncertain about how to structure their distribution practices and whether they can rely on the promised “safety.”
The new safe harbor rules
The new framework sets different thresholds for RPM and other vertical restraints. For RPM, firms must satisfy a dual requirement: both the supplier and the distributor must hold a share of less than 5% of their relevant markets, and the annual turnover of the products covered by the agreement must not exceed 100 million yuan (approximately $14 million). For non-RPM vertical restraints, the threshold is higher and based solely on market share: each party must have less than 15% market share, with no turnover requirement. Where multiple counterparties are involved, their market shares and relevant turnover are aggregated.
In principle, falling below these thresholds creates a presumption that the agreement is lawful, and enforcement agencies are expected to refrain from pursuing such cases. But this protection is not absolute. The presumption can be rebutted if regulators can prove that the agreement produces anticompetitive effects, leaving room for continued regulatory intervention even within the “safe harbor.”
From a comparative perspective, China’s approach departs in two important ways from established models, such as the EU’s Vertical Block Exemption Regulation. First, the Chinese rules extend safe harbor protection to practices—most notably RPM and certain territorial restraints—that are typically treated as “hardcore” restrictions and excluded from safe harbors in the EU. This suggests a greater willingness, at least in principle, to recognize the potential efficiencies of vertical restraints, such as preventing free-riding, encouraging retailer investment, and facilitating the entry of new products. Second, the thresholds themselves, as discussed next, are unusually restrictive. In particular, the addition of a turnover cap for RPM further narrows the scope of the safe harbor. This design reflects a cautious regulatory stance aimed at limiting the risk that safe harbors might shield harmful conduct, but it also significantly constrains their practical relevance.
Why the safe harbor may not provide much safety
Safe harbor rules are intended to provide legal certainty to firms so that they may structure their business practices without fear of antitrust liability while enabling enforcement agencies to focus on higher-risk conduct. Measured against these objectives, the new rules raise several concerns.
First, the safe harbor is exceptionally narrow. For RPM, the combined requirement of a 5% market share cap and a 100 million yuan turnover threshold significantly limits its practical applicability. For non-RPM vertical restraints, the threshold is also markedly lower than in other jurisdictions, such as the EU’s 30% threshold for vertical agreements or Japan’s 20% benchmark. In practice, it is difficult to identify many commercially meaningful distribution arrangements that would satisfy these conditions. As a result, the safe harbor is unlikely to cover a substantial portion of real-world vertical practices, limiting its ability to reduce liability risk or compliance costs.
Second, the framework creates what is effectively a “cliff effect” in legal treatment. RPM agreements that fall within the safe harbor are presumptively lawful, while those outside it are presumptively illegal, unless firms can demonstrate the absence of anticompetitive effects. This structure leaves little transitory space between legality and illegality. As a result, firms with market shares only slightly above the threshold may be treated very differently from those just below it, raising concerns about consistency in enforcement.
Third, multiple and overlapping routes to legality may increase, rather than reduce, uncertainty. In addition to the safe harbor, firms have two other ways to avoid RPM liability. The first, as noted above, is to rebut the presumption that agreements between parties with market shares and turnover outside the safe harbor thresholds are anticompetitive by presenting evidence that the agreement does not produce anticompetitive effects. Firms may also seek an individual exemption under Article 20 of the Anti-Monopoly Law, which functions similarly to Article 101(3) TFEU in the EU. To qualify for such an exemption, firms must demonstrate that the agreement generates efficiencies, does not substantially lessen competition, and allows consumers to share in the resulting benefits.
Thus, there are three possible routes to avoid RPM liability: (1) falling within the safe harbor; (2) rebutting the presumption; and (3) obtaining an individual exemption under Article 20. The relationship between these different pathways remains unclear, leaving firms uncertain about how they interact in practice and how enforcement authorities will apply them.
Finally, the introduction of safe harbor rules may have unintended effects on non-RPM vertical restraints. Historically, enforcement of vertical dealing between firms in China has focused almost exclusively on RPM, while other vertical restraints were rarely pursued. Non-RPM vertical practices were typically assessed under a rule-of-reason framework, which required the authority to demonstrate market power and anticompetitive effects. The new safe harbor thresholds may implicitly redefine what counts as “low risk.” Practitioners worry that those agreements falling outside the 15% market share threshold could attract greater scrutiny, even where firms lack significant market power. In this sense, the safe harbor may narrow, rather than expand, the practical space for certain vertical arrangements.
Taken together, these features suggest that the new rules may do less to provide clear guidance and legal certainty than their name implies. Instead of clearly identifying low-risk conduct, the safe harbor framework leaves key questions unresolved and preserves considerable enforcement discretion.
A Political Economy Explanation
How can we explain a safe harbor framework that appears to limit enforcement in theory but offers only limited protection in practice? One way to understand this design is through a political economy lens.
A long tradition in political economy—often associated with scholars such as George Stigler and Sam Peltzman—emphasizes that regulators do not operate as pure welfare maximizers, but respond to institutional incentives and constraints. Enforcement agencies must balance competing objectives, including conserving resources, responding to external criticism, and preserving discretion over future cases.
Seen in this light, SAMR’s approach reflects a compromise. On the one hand, introducing safe harbor rules helps address mounting practical and institutional pressures. Prior to their adoption, SAMR already exercised broad enforcement power over RPM and other vertical restraints. In this sense, safe harbor rules formally operate as a constraint on that power. The willingness to introduce such constraints can be explained by mounting practical pressures. As regulators conveyed to me in personal conversation, a large number of RPM cases have accumulated, partly because dealers could report suppliers’ conduct to enforcement authorities whenever disputes arose, or even use such complaints as a pretext to justify contractual breaches. At the same time, SAMR’s quasi-per se illegal approach to RPM attracted increasing criticism for being overly formalistic. In some cases, the firms involved appeared to lack significant market power and faced strong interbrand competition, raising concerns that strict enforcement might chill efficient distribution arrangements. The safe harbor can thus be understood as a mechanism to screen out at least a subset of low-risk cases and to signal a more flexible stance.
On the other hand, the design of the thresholds suggests a reluctance to substantially narrow enforcement authority. By setting relatively low market share caps and adding a turnover requirement for RPM, the rules ensure that most commercially significant arrangements remain outside the safe harbor. This preserves SAMR’s ability to intervene in a wide range of cases. A narrow safe harbor could also avoid conflicts with its past enforcement practice, as few prior cases would have qualified for exemption under the new thresholds.
From this perspective, the apparent tension in the rules is less paradoxical than it first appears. The safe harbor framework allows SAMR to respond to criticism and manage its caseload, while retaining broad discretion over vertical restraints. Whether this balance will improve legal certainty for businesses remains uncertain, but it suggests that the evolution of China’s approach to vertical restraints will continue to be shaped as much by institutional considerations as by economic theory.
Author’s Disclosure: The author reports no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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