The paper was awarded the “First Prize for Outstanding Paper” at the 2024 Liaoning, Jilin, Heilongjiang, and Inner Mongolia Lawyers Association Exchange Conference.

The Value Dimension and Rule Application of the Exception System for Fair Competition Review

—Also on Strategies for Balancing and Coordinating Regional Local Policy Objectives with Market Competition

Ma Yunhe Sui Yang

The exception system for fair competition review serves a dual function: balancing national interests, public interests, and the maintenance of a healthy competitive market order. In the context of regional integration and coordinated development, striking an appropriate balance among market competition order, national interests, public interests, and regional development goals poses a significant challenge in the formulation of regional local policies. As a “regulator” that coordinates and balances diverse interests—including government policy objectives, competition order, and protection of business operators’ interests—the exception system for fair competition review possesses unique institutional value and functions. It leaves room for exemptions for policy measures that, while potentially hindering fair market competition, are implemented on the basis of national security, development and innovation, and social public interests. Against the backdrop of promoting coordinated economic development among the three northeastern provinces and one region, leveraging their respective comparative advantages, avoiding homogeneous competition, and fostering a synergistic force for revitalization that better serves and integrates into the country’s new development paradigm, it is crucial to thoughtfully address how to harmonize the relationship between regional interests and unified market development, as well as between regional development and the maintenance of a competitive market order. To this end, the formulation of local policies must adhere to the rule of law while fully harnessing the regulatory role of the exception system for fair competition review. By creating a high-quality business environment in the three northeastern provinces and one region, we can consolidate regional competitive advantages and, at the same time, narrow the gap with more developed regions.

1. Functional Positioning of the Exception System for Fair Competition Review—Harmonizing and Balancing Diverse Objectives

1.1 Definition of the Connotation and Institutional Characteristics of the Exception System for Fair Competition Review

The Party Central Committee and the State Council attach great importance to fostering a market environment characterized by fair competition. They adhere to a problem-oriented approach and the principle of the rule of law, using competition policy as the foundation for coordinating other policy objectives. In June 2024, the State Council reviewed and adopted the "Regulations on Fair Competition Review" (which came into effect on August 1, 2024), clearly stipulating that government departments, when drafting normative documents and specific policy measures (hereinafter collectively referred to as “policy measures”), must conduct a fair competition review. The exception system for fair competition review is a sub-system of the fair competition review. Article 12 of the "Regulations on Fair Competition Review" provides that if a policy measure has or may have the effect of excluding or restricting competition, but falls within any of the following circumstances—namely, safeguarding national security and development interests, promoting scientific and technological progress and enhancing the nation’s independent innovation capacity, or achieving social public interests such as energy conservation, environmental protection, disaster relief, and humanitarian assistance—and there is no alternative solution that would have a lesser impact on fair competition, and if a reasonable implementation period or termination conditions can be specified, such a policy measure may be issued.

With the introduction of the Regulations, the fundamental essence and institutional function of the fair competition review exception system have also become clearer. The so-called fair competition review exception essentially aims, while safeguarding the market competition mechanism, to maximize social welfare by harmonizing the relationship between government policy objectives and market competition. The key characteristics of the exception system are mainly reflected in the following aspects:

First, coordination is one of its salient features. This system aims to strike a balance between government policy objectives and market competition, emphasizing both the need to uphold fairness in market competition and allowing the government, under certain circumstances, to take appropriate intervention measures. This coordinated approach ensures that while safeguarding market competition, the system can also fully take into account the specific characteristics of particular economic sectors as well as the needs of the broader public interest.

Second, flexibility is also an important feature of the fair competition review exemption system. This system allows for exceptions to the fair competition review under specific circumstances, enabling it to better adapt to the development needs of different economic sectors or regions and ensuring that policy measures are targeted and effective.

Moreover, clarity is also a salient feature of the exception system for fair competition review. This system clearly defines the scope and conditions for applying exceptional circumstances, ensuring that policy measures have clear grounds and standards when invoking these exceptions. As a result, the risk of abuse, uncertainty, and disputes surrounding policy measures is reduced. In other words, the exception system for fair competition review—by explicitly setting forth the fundamental constraints on exceptional circumstances—guarantees that the government can carry out lawful, rational, and standardized interventions in the market only when absolutely necessary, thereby preventing “failures of state intervention.”

1.2 Value Dimensions of the Exception System for Fair Competition Review

1.2.1 Balancing Government Intervention and Market Autonomy

While maintaining fair competition, reasonable and appropriate government intervention is necessary under certain specific circumstances. Ideally, we should achieve an organic integration of efficient markets and a proactive government. Therefore, the value orientation of the exception system lies in striking a balance between government intervention and market self-regulation—ensuring that government interventions, while safeguarding the public interest, do not unduly disrupt market competition. Essentially, a market economy is one in which resource allocation is determined by the market itself, and fair competition serves as a crucial foundation for the market’s decisive role. An effective market mechanism implies reducing the government’s direct allocation of production factors. However, historical practice has repeatedly demonstrated that market mechanisms have inherent shortcomings: market failures are a real and persistent phenomenon, forming the very basis for the exception system in fair competition review. Fair competition review is an important institutional design aimed at maintaining order in market competition and fostering a level playing field. The exception system for fair competition review thus provides a regulatory pathway for government intervention while also defining clear boundaries for “proactive government” action. Its primary function is to pre-emptively screen out policy measures issued by the government that exclude or restrict competition in violation of the law, thereby curbing excessive government interference in the market. In doing so, it helps ensure the decisive role of efficient markets, guarantees equal and orderly fair competition among all market participants, and promotes high-quality economic development. In short, the value orientation and functional positioning of the exception system lie precisely in achieving an optimal balance between government intervention and free competition—ensuring that “the market plays a decisive role in resource allocation,” while also enabling the government to act proactively within the framework of the rule of law.

1.2.2 Promoting Social Justice and Harmony

By allowing for the implementation of exception reviews under specific circumstances, this system aims to ensure that vulnerable groups and special interests in society receive appropriate protection and care. As previously discussed, the allocation of resources requires both the fundamental role of the market’s “invisible hand” and the effective intervention of the government’s “visible hand.” Therefore, market mechanisms should foster an “efficient market,” while government intervention should embody a “proactive government.” As a review procedure conducted prior to the introduction of policy measures, fair competition review not only upholds the value goal of fostering fair competition in the market but also takes into account other important value objectives. Whether fair competition review can be effectively implemented and achieve its original institutional design intent hinges on striking a balance among diverse values and interests. When the goal of market competition conflicts with other public-interest objectives, solutions must be considered within the institutional framework of fair competition review. The exemption system applicable to fair competition review is precisely grounded in such value objectives and functional positioning. At this stage, China’s exemption system for fair competition review embodies at least three inherent missions and value orientations: building an efficient market, constructing a proactive government, and safeguarding the public interest.

1.2.3 Promote and balance the coordination between competition policy and other public policies.

To implement the fair competition review system, we must on the one hand harness the positive role of fair competition review in preventing and curbing administrative monopolies; on the other hand, we must remain vigilant against the risk that indiscriminate application of the fair competition review could undermine the realization of other values and objectives embedded in policy measures. The intended value orientation and functional positioning of the fair competition review’s exception mechanism are aimed at fostering the healthy development of the market economy, safeguarding the fundamental interests of the nation, balancing diverse social objectives, ensuring the clarity and certainty of laws, adapting to economic and social changes, and maintaining policy transparency and accountability. The design of this system is intended to provide a rational, effective, and flexible legal tool for national governance, enabling it to meet the complex and ever-changing challenges of reality.

2. Practical Dilemmas and Problem Review of the Exception System for Fair Competition Review

The exception system for fair competition review consists of two components: substantive requirements and procedural requirements. This institutional design aims to ensure that, in substance, policy measures applying exceptional provisions must have a legitimate purpose, and through procedural rules, it guarantees the participation and expression of stakeholders affected by these policy measures, thereby using procedural justice to uphold substantive justice. However, in practice, this institutional design still faces implementation challenges.

2.1 The flexible construction of substantive rules leads to the risk of alienated application.

2.1.1 Entity standards are abstract, vague, and uncertain.

Article 12 of the “Regulations on Fair Competition Review” sets forth the substantive rules governing the exception system. A review of the legislative text pertaining to this system reveals that the legislation adopts a three-tiered, progressively applied standard—“legitimate purpose + necessity of means + appropriateness of degree”—as the substantive criterion for determining whether an exception applies. The criterion of legitimate purpose requires government agencies, when formulating policy measures that have (or may have) the potential to impede market competition, to ensure that the objectives pursued by such measures are limited exclusively to safeguarding and aligning with national security interests, interests in development and innovation, public social interests, and special provisions stipulated by law. The criterion of necessity of means requires that the policy measure be indispensable to achieving its intended purpose—that is, there must be no alternative available that would have a lesser impact on fair competition. In other words, within the range of available alternatives, it is necessary to analyze and assess whether the chosen means employed by the policy measure causes the least possible harm to market competition. As for the criterion of appropriateness of degree, this standard involves weighing the values of multiple objectives: striking a proper balance between achieving the policy’s intended purpose and minimizing harm to competition, so as not to impose severe restrictions on market competition or to set an excessively long implementation period.

By examining the textual provisions of the exception system for fair competition review, we can easily see that the substantive criteria for such exceptions are relatively abstract, vague, and principled, leading to uncertainty or institutional flexibility in identifying exceptional circumstances and restrictive conditions. As a result, practice is prone to risks of misinterpretation of the text and distortion in implementation.

2.1.2 Lack of analytical methods for assessing necessity and appropriateness.

Article 12 of the newly issued “Regulations on Fair Competition Review,” when analyzed from the perspective of legislative intent, seeks to narrow the scope of application of the exception system by focusing on three aspects: purpose, degree, and duration, with the aim of minimizing harm to market competition. However, in practice, assessing the impact of policy measures on competition from the perspectives of both necessity and appropriateness is highly complex and requires specialized expertise. Such assessments often involve a multitude of intricate factors, including the definition of the relevant market, the extent of market competition, and the degree to which the exception provisions reduce competition. Yet, questions such as how exactly to define “indispensable,” how to accurately determine whether a measure “will not severely restrict market competition,” and what constitutes a “reasonable implementation period” currently lack clear and specific methods for judgment and analysis.

2.2 The loosely defined procedural rules make the substantive conclusions easily open to challenge.

Entity standards rely on procedural rules for implementation. Although the newly issued “Regulations on Fair Competition Review” stipulate that, in cases applying exceptions, the review conclusions must provide detailed explanations, the review procedures remain relatively lax and still require further refinement. Such procedural laxity could cast doubt on the legitimacy of fair competition review activities.

2.2.1 A model primarily based on self-censorship leads to a lack of oversight and checks on “explanations.”

Currently, China’s fair competition review is primarily conducted under a framework dominated by a “self-review model.” With regard to the implementation procedures for the exception system, although the Regulations require policy-making authorities to specify in their written review conclusions whether policy measures qualify for exception provisions, and if they do, to provide “detailed explanations” of both the “circumstances” and “conditions” under which such exceptions apply, the standards for what constitutes “detailed explanation” remain undefined in the regulations themselves. Moreover, there is no explicit requirement to submit supporting documentation or evidence. Although the Regulations do stipulate procedures for public participation, in practice, these remain lacking in terms of detailed and actionable guidelines.

2.2.2 The constraint and incentive mechanisms are incomplete.

When exceptional circumstances apply, the self-review conducted by the policymaking authority—a practice that simultaneously involves acting as both a party and a judge, as both an athlete and a referee—makes it difficult to ensure the objectivity and fairness of the review outcome. Such self-reviews tend to remain superficial and merely formalistic, thereby raising doubts about the fairness of the substantive results reached. For another example, the absence in procedural rules of mechanisms such as thorough investigation and analytical deliberation procedures, as well as hearing procedures, leaves the substantive conclusions drawn from these rules—such as the assertions that certain rules are “indispensable” or “will not severely restrict market competition”—lacking procedural safeguards for their fairness.

3. The Application of the Principle of Proportionality and the Theory of Administrative Self-Restriction—A Theoretical Response Based on Implementation Dilemmas

3.1 The principle of proportionality is consistent with the operational mechanism of the exception system for fair competition review.

As an important legal principle originating in the field of German public law, the principle of proportionality is often referred to as the "crown principle." According to the "four-tier theory" of the principle of proportionality, its content encompasses four sub-principles that are sequentially related: "legitimacy of purpose—appropriateness of degree—necessity of means—balance of interests." Among these, the principle of legitimacy of purpose requires that, before examining whether an administrative measure is appropriate for achieving an administrative goal in accordance with the principle of proportionality, one must first determine whether the administrative goal itself is legitimate and treat this determination as a separate review step. The principle of appropriateness represents the requirement imposed on public authority from the perspective of guiding administrative goals—that is, the exercise of public authority should contribute effectively to the realization of those goals. The principle of necessity, also known as the "principle of least harm" or the "principle of non-substitutability," stipulates that, in pursuing the achievement of a goal, public authority should choose the means that cause the least possible infringement upon private rights. The principle of balance, also called the "principle of adequacy," holds that, while the means adopted to achieve a relevant goal are indeed necessary under the principles of appropriateness and necessity, they must not impose an excessive burden on private rights, thereby harming other legally protected interests that also deserve protection. In terms of the relationship between purpose and means, this principle essentially demands that the public interest generated by the use of public authority's means be proportionate to the harm caused thereby.

The operational logic of the “four-tier theory” of the principle of proportionality lies in using a balancing-of-interests approach to identify the most reasonable means of achieving a given objective. Its greatest strength is that it concretizes abstract implementation standards into four progressively advancing levels, thereby enabling a comprehensive assessment of whether the objectives and means of policy measures meet the requirements of the principle. This allows for rational control and effective constraints over the operation of the exemption system applicable to fair competition reviews. Consequently, the four-tier theory of the principle of proportionality can effectively fulfill the coordination function of the exemption system in fair competition reviews.

3.2 The theory of administrative self-restraint aligns with the self-regulatory model of fair competition.

Professor Cui Zhuolan, a distinguished scholar of administrative law in China, is a leading figure in the theory of administrative self-regulation. Professor Cui Zhuolan argues that administrative self-regulation refers to the administrative body’s own self-control—comprising a series of excellent mechanisms that originate from within the body itself, including self-correction, self-discovery, and self-restraint. The theory of administrative self-regulation emphasizes the self-control role of the government and administrative agencies in fostering harmonious relations between the government and citizens.

The fair competition review system itself is a self-restraint mechanism for government agencies. First, the theory of administrative self-regulation holds that administrative agencies, when exercising their powers, should consciously limit their own actions and avoid excessive interference in the market. Second, emphasizing preventive regulation, the theory of administrative self-regulation stresses that reducing improper market intervention can be achieved through preventive oversight. Third, enhancing policy transparency: The theory of administrative self-regulation views increasing policy transparency as an essential means of ensuring the rationality of administrative actions. Fourth, strengthening public participation: The theory of administrative self-regulation underscores the supervisory and restraining role of public participation in administrative actions. The fair competition self-review model encourages public involvement in the policymaking process, allowing the public to offer opinions and suggestions, which helps ensure the fairness and effectiveness of policies. Finally, promoting positive interaction between administrative agencies and the market: The theory of administrative self-regulation advocates for a mutually beneficial interaction between administrative agencies and the market, aiming at achieving co-governance. Through communication and cooperation between the government and market entities, the fair competition self-review model jointly safeguards market order and fosters a fair competitive environment.

4. Pathways for Applying Exception Systems to Regional Policy Measures and Strategies for Balancing and Coordinating Them

Based on the value orientation and functional positioning of the system, while maintaining its flexibility and coordination, the author introduces the “four-tier theory” of the principle of proportionality and the theory of administrative self-restraint. From both substantive and procedural perspectives, the author puts forward suggestions for improvement and development, aiming to achieve the goal of “strong rule of law and weak administration” in the operation of the system.

4.1 Respect for the discretionary power of public authorities regarding exceptions in substantive rules

The discretionary power of public authorities is based on the legal authorization that grants administrative agencies a certain degree of autonomy, enabling them to achieve substantive justice and value balance in state governance within the boundaries set by legal rules and principles. The assessment of exceptions to fair competition reviews is, at its core, a value judgment or a prioritization of values. However, regardless of the specific type of judgment or prioritization involved, any policy measures falling under an exception must first demonstrate positive value implications—that is, such government policies must be justified, reasonable, and lawful in terms of their value objectives. The design of the exception system aims to provide state governance with a legal tool that is both rational, effective, and flexible. Respecting the discretionary power of public authorities in applying these exceptions essentially means recognizing and affirming that government intervention has a legitimate basis: namely, that controlling and eliminating the negative externalities arising from “market failures” necessitates “government intervention.” The rational exercise of administrative discretion is precisely one key manifestation of moderate intervention. Respecting the administrative discretion vested in the policymaking authorities and ensuring that policies are formulated through reasonable interpretations tailored to actual circumstances and consistent with the legislative text are integral components of the principle of appropriateness.

4.2 The Modesty of the Exceptional System and the Discretionary Power of Public Authorities

The principle of restraint in the system of exceptions to fair competition review, combined with the discretionary power of public authorities, is crucial for ensuring the rationality and effectiveness of legal implementation. The principle of restraint in the system of exceptions to fair competition review refers to the government’s cautious and conservative approach when conducting fair competition reviews in certain specific situations or sectors—avoiding excessive intervention and instead granting greater freedom and space to the market. This restraint reflects respect for the autonomy of market participants and aligns with the fundamental principles of a market economy. Public authority discretion, on the other hand, refers to the government’s power to independently decide whether and how to take action based on specific circumstances and the needs of the public interest. Discretionary power is an essential component of governmental authority, enabling governments to respond flexibly to various complex issues according to actual conditions. The principle of restraint in the system of exceptions to fair competition review and the discretionary power of public authorities are interrelated. While the principle of restraint requires the government to exercise fair competition reviews with a degree of self-restraint and caution, discretionary power provides the government with a certain degree of autonomy in decision-making. In practical terms, governments must strike a balance between these two aspects: respecting the autonomy and innovative spirit of the market on the one hand, while preventing market failures and unfair practices on the other. In their daily work, government agencies need to flexibly apply both the principle of restraint in the system of exceptions to fair competition review and the principle of discretionary power, tailored to specific circumstances. This demands that government agencies possess high levels of professional competence and practical experience, enabling them to accurately determine when to intervene in the market and when to exercise restraint, thereby achieving policy objectives and promoting healthy economic development.

4.3 A Scientific Analytical Approach for Developing Applicable Exclusion Rules Based on Regional Characteristics and Development Needs

Due to the uneven development among the provinces and cities in Northeast China’s three provinces and one region, there are significant differences across regions in terms of production levels, market maturity, and per capita living standards. To promote coordinated and integrated regional development, drive the transformation and upgrading of enterprises in relatively less developed areas, and achieve long-term regional growth, the application of public-interest-based exceptions should be grounded in regional characteristics and aimed at addressing issues such as imbalances in resource distribution among regions—factors influenced by economic conditions, human resources, science and technology, history, and geography. Specifically, the criteria for determining when to apply these exceptions, along with a scientific analytical approach based on the principles of “legitimate purpose—proportionality—necessity of means—balance of interests,” must be clearly articulated. In particular, consideration can be given from the following aspects:

— Problem and Goal Setting. First, clearly identify the specific problem that the policy or measure aims to address, including its root causes, current status, and potential consequences. Second, determine whether the goals of the policy or measure are clear, specific, and quantifiable. The goals should align with the problem definition to ensure that the policy or measure is highly targeted.

— Phased Implementation: Divide policy measures into distinct phases, setting specific goals and tasks for each phase. This approach facilitates the gradual advancement of policies and ensures that the objectives of each phase are effectively achieved.

—The relationship between means and objectives. That is, analyzing whether the means employed by a policy or measure are directly related to the established objectives—that is, whether the means can effectively address the issue and achieve the goals.

— Comparison of alternative options, i.e., considering whether other alternatives that place fewer restrictions on competition or are more effective exist to achieve the same goal.

—Cost-benefit analysis, which involves conducting a cost-benefit assessment to evaluate the relationship between the economic and social costs of a policy or measure and its anticipated effects, thereby ensuring that the implementation of the policy is economically justified.

— Risk assessment refers to identifying the risks that policies or measures may entail, including potential negative impacts on market competition, industry development, and consumer rights.

— Short-term, Mid-term, and Long-term Goals: Based on the nature and objectives of the policy, set implementation timelines for the short term, mid-term, and long term. Short-term goals typically focus on the rapid implementation and immediate effectiveness of the policy; mid-term goals focus on the stable operation and consolidation of the policy’s effects; and long-term goals focus on the policy’s sustainable development and long-term impact.

—Regular Evaluation and Adjustment: During the implementation of policies, regularly assess and evaluate the effectiveness of policy measures, and adjust the policies accordingly based on the evaluation results. This helps identify problems in a timely manner, optimize policy measures, and enhance policy effectiveness.

— Clearly define the termination conditions for policies: When formulating policies, it is essential to specify the conditions under which a policy will no longer be implemented—that is, under what circumstances the policy will cease to be in effect. This helps prevent excessive market intervention by the policy and ensures that the policy is phased out at the appropriate time.

—Responding flexibly to uncertainty: During the implementation of policies, certain uncertainties may arise, such as changes in economic conditions or shifts in market demand. Therefore, policy formulation should allow for a degree of flexibility to enable adjustments based on actual circumstances.

Conclusion

The exception system for fair competition review can help coordinate the relationship between government and the market. While upholding the fundamental role of competition policy, it enables the government to better play its regulatory role in areas where market failures occur. Only by establishing comprehensive substantive and procedural rules for applicable exceptions can we fully harness its positive institutional effects in promoting regional development and, while ensuring that the market continues to play the decisive role in resource allocation, further enhance the government’s role.