Hong Kong competition law enforcement update: Key developments and business takeaways (2024 – Q1 2025) – Part 2

Part 2: Key developments in competition enforcement

1. Alert in public tendering: risk of co-occurrence of corruption and cartels

Case overview: joint operation by the Commission and ICAC

In 2024, the Hong Kong Competition Commission (the “Commission”) and Independent Commission Against Corruption (ICAC) conducted two joint operations targeting a syndicate suspected of corruption and bid-rigging in public tenders.¹1 They revealed misconduct involving multiple properties across Hong Kong Island, Kowloon and the New Territories.

The initial operation in April uncovered a syndicate engaged in manipulating tenders, artificially inflating contract values, and securing renovation projects through systematic bribery.

Building on this, an operation in August exposed an even more extensive network of misconduct, revealing coordinated pricing strategies, organised bid-rigging schemes, and systematic bribery targeting members of Incorporated Owners.

In the public tendering process, bribery and bid-rigging can operate in tandem, particularly for lucrative, high-value projects. The two joint operations revealed this pattern, involving individual contracts totaling around HK$440 million (c. US$33.37 million), bribe payments reaching HK$1 million (c. US$128,000) in the first action, and renovation projects totaling nearly HK$1 billion (c. US$128m) in the second action. In these scenarios, bribes facilitated the bid-rigging schemes and also made the illegal cartels more difficult to detect.

A global concern

The Hong Kong investigations represent a local manifestation of a worldwide issue: public procurement systems are vulnerable to the twin threats of corruption and collusive practices.

Table 1: Highlights from Global Institutions

Recent international cases

A 2023 case from California illustrates this risk clearly. A former contract manager at the California Department of Transportation (Caltrans) was implicated in a four-year conspiracy to manipulate the competitive bidding process. The scheme ensured that companies controlled by the manager’s co-conspirators submitted winning bids and secured lucrative contracts. The manager pleaded guilty to accepting nearly US$1 million in bribes while working for Caltrans. Both the manager and his co-conspirators were convicted for violation of both the Sherman Act (US antitrust law) and the Foreign Corrupt Practices Act.⁴4

Figure 1: Brief Illustration of the Caltrans Case

Notably, the intersection of bribery and bid-rigging often involves multinational companies vying for government or state-owned enterprise contracts. These companies may collude with local bidding agents to rig bids to secure contracts.⁵5

In Malaysia, media reports alleged that a group of international pharmaceutical companies colluded with local tendering agents controlling the national medicine supply system.⁶6 They allegedly took turns securing contracts through bid-rigging schemes, disguising bribes as commission payments. These funds reportedly flowed through the agents to politicians or former government leaders linked to the agents. The total value of the tenders was around US$827 million, with the top three tendering agents receiving about US$626 million (75.69% of the total awards).

Red flags and recommendations

Projects affected by collusion and corruption exhibit certain warning signs, inter alia:

• Winning bid prices significantly higher than cost estimates, industry averages or comparative bidders;
• Unexplained bid withdrawals or companies intentionally submitting non-competitive bids;
• Pattern of bidders taking turns winning contracts;
• Unusual similarities between competing bids;
• Unexplained or undisclosed payments to officials or agents.

These illegal practices occur more frequently in tendering projects involving high-value contracts and where there are only a few bidders. Given the high risk, it is recommended that companies remain vigilant when participating in public tendering. To mitigate these risks, the following measures are recommended:

• Implement robust compliance systems that address both competition and anti-corruption requirements
• Train staff to recognise the severity of violation and signs of bid-rigging and corruption
• Maintain detailed procurement records to facilitate detection
• Conduct regular reviews of tendering practices and bidding patterns
• Create secure channels for reporting suspected misconduct

2. Car aftersales market under the Commission’s spotlight

Commission’s enforcement actions intensify

Recent action regarding BYD

On 3 October 2024, the Commission announced that EV motor vehicle manufacturer BYD had amended its warranty policy to address potential anti-competitive issues.⁷7

BYD’s old warranty terms can be interpreted as mandating car owners to use only BYD-authorised repairs and maintenance (“R&M”) services. This restriction can risk violating the First Conduct Rule (“FCR”) of the Competition Ordinance (“Ordinance”), or potentially the Second Conduct Rule if BYD was deemed to have substantial market power.

BYD’s amendment clarifies that car owners can use non-authorised service providers, including for traction battery services, without voiding their warranty. The Commission deemed this change sufficient to address the competitive concerns.

2022 enforcement in the car aftersales market

This is not the Commission’s first intervention in the car aftersales market.

In October 2022, following an investigation launched in March of that year, seven car distributors made commitments to remove similar warranty restrictions affecting 17 major car brands. The Commission had determined these practices could harm competition by:

• Deterring car owners from using independent service providers
• Reducing competition in the aftersales market
• Limiting consumer choice
• Driving up prices for R&M services

In that case, the Commission formally accepted commitments from these distributors under Section 60 of the Ordinance.⁸8

Potential trend toward flexible enforcement

Compared to the 2022 formal commitments process, the 2024 BYD case demonstrates a more flexible enforcement approach, which likely enhances regulatory efficiency while still effectively deterring anti-competitive conduct.

This approach parallels the “Three Letters and One Notice” system of the China State Administration for Market Regulation (SAMR) introduced in December 2023.⁹9 This system provides a graduated enforcement framework with four components:

• Reminder and urging letter
• Letter of notification of interview
• Notice of case initiation
• Administrative penalty letter or recommendation letter

In 2024, the Administration for Market Regulation at all levels in Mainland China issued 2,615 such documents, with 91.2% being reminder and interview notification letters. These primarily targeted monopolistic practices, abuse of administrative power, and inadequate implementation of fair competition systems.¹⁰10

This suggests a trend where competition authorities may increasingly use soft enforcement by initially warning companies to address potential issues before escalation to formal investigations.

Competition crosshairs: regulatory risks in aftersales market

Restrictions in aftersales terms have long attracted antitrust scrutiny globally since they are a way to tie market power in the primary market to after-sales services in the secondary market. Such practices may constitute illegal vertical restraint or abuse of market power, limiting market competition and infringing antitrust rules.

• Mainland China: The 2020 Antitrust Guidelines for the Automotive Sector addressed these concerns, with SAMR highlighting that requiring car owners to use only authorised R&M providers and original parts for ALL R&M services could constitute unreasonable vertical restraint in car aftersales services.¹¹11
• EU: The Motor Vehicle Block Exemption (“MVBE”) provides specific guidance on monitoring vertical restrictions in the automotive sector.¹²12 While warranty restrictions limiting access to independent R&M providers are not directly listed as a “hardcore” violation, they could still be deemed anti-competitive if they directly undermine independent service providers’ ability to access customers.
• US: Recent antitrust policing over restrictions to aftersales market extends beyond the automotive sector. A notable case is the on-going Deere litigation, where farmers have brought a class action to challenge tractor producer Deere & Co’s restrictions on seeking independent repair for tractors.¹³13

The case centres on Deere’s practices that limit farmers’ access to its diagnostic and calibration tool (Service ADVISOR), which functions fully only for Deere’s authorised dealers and repair facilities. This prevents farmers and independent repair shops from performing “restricted” repairs that require access to underlying software and coding, resulting in forcing farmers to depend on Deere’s authorised network for repairs.

These practices are alleged to limit competition from independent repair providers, reduce consumer choice, drive up service costs and maintain Deere’s monopoly over the primary large tractor and combine market as well as the secondary repair market, potentially violating Section 2 of the Sherman Act and other competition rules.

The aftersales market often receives less attention from the companies than the primary market, but restrictions which limit competition or reduce consumer choice in such secondary markets could attract antitrust enforcement and lead to significant consequences.

Businesses – especially those producing complex and durable equipment¹⁴14, even without substantial market power in the primary market¹⁵15 – should carefully review their aftersales terms or policies.

In Part 3, we will explore key updates on adjudicated cases in Hong Kong from 2024 to Q1 2025. We’ll review these cases and highlight valuable lessons, for example, how companies can strategically benefit from the Commission’s cooperation policies.

Before diving into Part 3, let’s consider these important questions:

What are the potential benefits of cooperating with the Commission in its action? How to leverage timing to cooperate and settle with the Commission? How can companies seek greater penalty reductions? Does a contravention of competition rules always lead to criminal conviction?