Chinese cement cartel fined $67 mln for concerted price hikes

China’s Shaanxi Administration for Market Regulation on July 9 issued six administrative orders imposing a total penalty of 451 million yuan ($67 million) on the Shaanxi Cement Association and its 13 local member cement manufacturers for an alleged conspiracy to synchronizedly inflate cement prices between July 2017 and March 2019.


The 13 penalized players in the cement industry included Yaobo Special Cement Co., Ltd. (尧柏特种水泥集团有限公司), Shaanxi BBMG Jidong Cement Trading Co., Ltd. (陕西金隅冀东水泥经贸有限公司), Jidong Heidelberg (Jingyang) Cement Co., Ltd. (冀东海德堡(泾阳)水泥有限公司), Jidong Heidelberg (Fufeng) Cement Co., Ltd. (冀东海德堡(扶风)水泥有限公司), Shaanxi Shengwei Building Materials Group Co., Ltd. (陕西声威建材集团有限公司), Tongchuan Shengwei Building Materials Group Co., Ltd. (铜川声威建材有限责任公司), Shaanxi Eco-Cement Co., Ltd. (陕西生态水泥股份有限公司), Liquan Conch Cement Co., Ltd. (礼泉海螺水泥有限责任公司), Qian County Conch Cement Co., Ltd. (乾县海螺水泥有限责任公司), Shaanxi Tongchuan Phoenix Building Materials Co., Ltd. (陕西铜川凤凰建材有限公司), Baoji Zhongxi Jinlinghe Cement Co., Ltd. (宝鸡市众喜金陵河水泥有限公司), Baoji Zhongxi Phoenix Cement Co., Ltd. (宝鸡众喜凤凰山水泥有限公司), and Qianyang Conch Cement Co., Ltd. (千阳海螺水泥有限责任公司).


Yaobo Special Cement is a subsidiary of Hong Kong Stock Exchange (HKSE)-listed West China Cement Ltd. (中国西部水泥有限公司), making and selling cement under the Yaobo (in Chinese: 尧柏) brand. Shaanxi BBMG Jidong, Jidong Heidelberg (Jingyang), and Jidong Heidelberg (Fufeng) are subsidiaries of Shenzhen Stock Exchange-listed Tangshan Jidong Cement Co., Ltd. (唐山冀东水泥股份有限公司), making and selling cement under the Dunshi (in Chinese: 盾石) brand. Shaanxi Shengwei and Tongchuan Shengwei are subsidiaries of Zhejiang Shengwei Cement Group Co., Ltd. (浙江声威集团有限公司), making and selling cement under the Shengwei (in Chinese: 声威) brand. Shaanxi Eco-Cement makes and sells cement under the Huashan (in Chinese: 华山) brand. The remaining six companies are all subsidiaries of HKSE-listed Anhui Conch Cement Co., Ltd. (安徽海螺水泥股份有限公司), China’s largest cement maker, making and selling cement under the Conch (in Chinese: 海螺) brand.


The local antitrust agency opened investigations in May 2019 to establish the existence of a cartel consisting of the 13 privately held companies led by the Shaanxi Cement Association, an industry trade group. From July 2017 to March 2019, the five parent companies of the 13 cartel participants were found to enter into at least four agreements, orally and textually, on the times and margins of price increases at trade conventions and social activities, some of which were initiated by the association. As per the agreements, the 13 companies increased the prices of the five branded cement products per ton by 20% to 30% simultaneously twice on October 30, 2018 and March 23, 2019 respectively.


In the event of a suspected infringement of competition rules, the first element to be considered is the relevant market. Defining the relevant market means determining the scope of the competition rules in respect of restrictive practices and abuses of a dominant position. The relevant market has two components: the product market and the geographic market. When it comes to the product market, cement is a fundamental building material, which determines a low likely extent of demand-side substitution and a low level of substitution.


Shipping patterns are often a primary factor in determining the scope of a geographic market for intermediate or finished goods. In the cement industry, transportation costs are high compared with the value of the product so that markets are more localized. The antitrust agency found that the cost of transporting cement limited manufacturers to the scope of distribution within 150 kilometers of the 13 companies’ manufacturing facilities. Xi’an, Baoji, Xianyang, Tongchuan, and Weinan, part of the Guanzhong Basin, were identified as the relevant market.


Based on the assessments and analyses, the antitrust agency determines that these horizontal competitors possess monopoly power in the well-defined relevant market and their collusive and artificial price hikes are anti-competitive under Article 13 of the Anti-Monopoly Law (AML) of the People’s Republic of China. The agency imposes fines of between 2% and 3% of the 13 cartel participants’ sales in 2018 on them, corresponding to between 10 million yuan ($1.5 million) and 40 million yuan ($6 million). The biggest fine of 172 million yuan ($26 million) is imposed on Yaobo Special Cement alone. The Shaanxi Cement Association is fined 500,000 yuan ($74,000).


The cement industry has been identified as a sector where regulatory tools are extensively employed other than the camp of Big Tech companies in China. In January 2021, eight Zibo city, Shandong province-based cement makers were fined 228 million yuan ($34 million) for monopolistic practices. In early January 2021, six Sichuan province-based cement makers were fined 59.31 million yuan ($8.8 million) and the Sichuan Cement Association 500,000 yuan ($74,000) for monopolistic practices.

The full text of the administrative orders is here.