Ding Liang, a counsel to King & Wood’s International Trade Group in Beijing
A non-compete clause prohibits one party from competing in the same type of business as the other party for a specified period. The non-compete clause is usually termed "covenant not to compete", "restrictive covenant", or "non-compete clause" and are treated with suspicion by the Anti-Monopoly Enforcement Agency.
As China is a fairly young competition regime, there are few competition precedent cases regarding the validity of non-compete clauses. Further, we note that there are no guidelines or regulations accompanying the Anti-Monopoly Law (the "AML"). However, an agreement containing a non-compete clause would fall within the scope of a monopoly agreement and so would be subject to the AML.
According to Article 13 of the AML, monopoly agreements are agreements, decisions or some concert of action that eliminates or restricts competition. If an agreement reached between two or more operators containing a non-compete clause has the object or effect of eliminating or restricting competition, then it will be considered a monopoly agreement under the AML.
It is apparent that non-compete clauses protect the interests of parties in different types of agreement. Since these clauses involve the balancing of interests between promoting competition and protecting the interests of suppliers, retailers and investors, their interpretation and application can be quite complex. It will be interesting to see how the interplay between non-compete clauses and the AML unfolds.