How Hong Kong's Competition Law Affects Small Businesses

Hong Kong's Competition Ordinance (Cap. 619) has been in full force since 18 December 2015, and it applies to every business operating in Hong Kong — regardless of size. If you are a small business owner who believes competition law is only a concern for multinational corporations, the Companies Registry and the Competition Commission would disagree: the Ordinance contains no exemption for small or medium-sized enterprises (SMEs), and the penalties can reach up to 10% of Hong Kong turnover for each year of infringement, capped at three years.

The Competition Commission's enforcement priorities explicitly include conduct that harms small businesses, particularly where larger firms use their market power to exclude smaller rivals. This article explains the three conduct rules, identifies the real-world scenarios where SMEs most commonly fall foul of the law, and sets out a practical compliance framework that requires minimal time but provides meaningful protection.

The Three Conduct Rules: What the Ordinance Actually Prohibits

The Competition Ordinance (Cap. 619) establishes three separate conduct rules that apply to all businesses in Hong Kong, and understanding each one is the first step toward compliance.

The First Conduct Rule prohibits anti-competitive agreements, decisions, and concerted practices that have the object or effect of preventing, restricting, or distorting competition in Hong Kong. This covers both formal contracts and informal "gentlemen's agreements" — even a casual conversation with a competitor about pricing can constitute a concerted practice. The Second Conduct Rule prohibits abuse of substantial market power, which applies only to firms that hold a dominant position in a relevant market. The Third Conduct Rule applies exclusively to telecommunications and broadcasting licensees and is unlikely to affect most SMEs.

For small businesses, the First Conduct Rule is the most relevant, and it is also the most dangerous because it catches conduct that many business owners do not recognise as unlawful. The Competition Commission's "Guidelines on the First Conduct Rule" (June 2015) identify price-fixing, market-sharing, bid-rigging, and output restrictions as "hardcore" restrictions that are presumed to harm competition. These are treated so seriously that the Commission does not need to prove an actual anti-competitive effect — the mere object of restricting competition is sufficient.

The Competition Commission's Guidelines on the First Conduct Rule state: "The Commission considers that the following types of agreements are, in general, the most serious types of anti-competitive agreements and are likely to be treated as infringing the First Conduct Rule: price fixing, bid rigging, market sharing and output restrictions."

Why SMEs Are Not Exempt — and Why Size Does Not Matter

The Competition Ordinance contains no turnover threshold, no employee count exemption, and no "small business" carve-out. Every business, from a single-shop retailer to a listed conglomerate, is subject to the same conduct rules.

This is a deliberate policy choice. The Competition Commission's enforcement guidelines explain that anti-competitive conduct by small businesses can still cause significant consumer harm, particularly in localised markets where SMEs collectively hold substantial share. For example, a group of small restaurants in a single district that agree to fix delivery charges would still breach the First Conduct Rule, even though each restaurant individually has minimal market power.

The absence of an exemption means that SMEs face the same legal exposure as larger firms, but with fewer resources to defend themselves. The Competition Tribunal can impose financial penalties of up to 10% of Hong Kong turnover for each year of infringement (capped at three years), and directors can be disqualified for up to five years. For a small business, even a modest penalty can be existential.

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The Real-World Risk Scenarios for Small Businesses

The most common competition law breaches by SMEs arise not from deliberate cartel behaviour but from everyday business practices that inadvertently cross the line.

Trade association activities are a frequent source of inadvertent breaches. When business owners join industry associations, they attend meetings where competitors discuss market conditions, pricing pressures, and supply costs. The Competition Commission's "Guidelines on the First Conduct Rule" explicitly warn that trade association meetings can facilitate anti-competitive conduct, even when no formal agreement is reached. A discussion about "standardising" prices or "agreeing on a fair margin" can constitute a concerted practice.

Vertical agreements — arrangements between businesses at different levels of the supply chain — also carry risk. While most vertical agreements are assessed under a more lenient framework, resale price maintenance (where a supplier dictates the minimum price a retailer must charge) is treated as a hardcore restriction. A small distributor that instructs its retailers on minimum pricing breaches the First Conduct Rule, regardless of the commercial justification.

Bid-rigging is another high-risk area. In Hong Kong, the Competition Commission has prioritised enforcement against bid-rigging in public procurement, and SMEs that submit collusive tenders — even informally — face serious consequences. The Commission's "Guidelines on the First Conduct Rule" note that bid-rigging includes cover pricing (submitting a deliberately high bid to allow a competitor to win), bid suppression, and bid rotation.

The Compliance Framework: What Small Businesses Should Actually Do

Compliance with the Competition Ordinance does not require a legal department or a substantial budget. A proportionate framework based on the Competition Commission's own guidance is sufficient for most SMEs.

First, adopt a written competition compliance policy. The Commission's "Guidelines on Compliances" (June 2015) recommend that businesses of all sizes implement a compliance programme proportionate to their risk profile. For an SME, this means a one-page policy document that: (a) prohibits discussions with competitors about pricing, costs, customers, or market allocation; (b) requires prior legal review before joining any trade association activity where such topics might arise; and (c) establishes a clear escalation path for competition law concerns.

Second, train your staff. The Commission's guidelines emphasise that compliance is most effective when employees understand the rules. A 30-minute training session covering the three conduct rules, the consequences of breach, and practical scenarios (such as what to do if a competitor raises pricing at a trade meeting) is proportionate for most SMEs. The training should be documented and refreshed annually.

Third, implement meeting protocols. The Commission's guidelines recommend that trade association meetings follow a formal agenda, that minutes be taken, and that participants leave if discussions turn to competitively sensitive topics. For SMEs, a simple protocol — "if pricing or market strategy comes up, we leave and note our departure in the minutes" — provides substantial protection.

Fourth, know your market position. The Second Conduct Rule (abuse of substantial market power) applies only to firms with substantial market power, which the Commission defines in its "Guidelines on the Second Conduct Rule" (June 2015) as the ability to behave to an appreciable extent independently of competitors, customers, and suppliers. Most SMEs will not hold substantial market power, but a business that dominates a niche market — for example, the only supplier of a specialised component in Hong Kong — should seek legal advice on its obligations under the Second Conduct Rule.

The Leniency Programme and What It Means for SMEs

Hong Kong operates a leniency programme that allows businesses to report their own involvement in cartel conduct in exchange for immunity or reduced penalties.

Under the Competition Commission's "Leniency Policy for Undertakings" (revised 2023), the first business to come forward with information about a cartel that it participated in may receive full immunity from financial penalties, provided it cooperates fully with the Commission's investigation. Subsequent applicants may receive reductions of up to 50% of the penalty that would otherwise be imposed.

For SMEs, the leniency programme is particularly important because it creates a strategic decision point. If a small business discovers that it has inadvertently participated in cartel conduct — for example, through a trade association discussion that crossed the line — the leniency programme offers a path to reduce or eliminate exposure. However, the programme is time-sensitive: only the first applicant for a given cartel receives full immunity, and the Commission's "Leniency Policy" notes that it will not grant immunity to the "ringleader" of a cartel.

The practical takeaway is that SMEs should not delay if they suspect they have been involved in anti-competitive conduct. The earlier a business approaches the Commission, the better its position under the leniency programme.

Practical Steps: A Checklist for Small Business Owners

The Competition Commission's own guidance provides a clear framework for SMEs, and the following checklist translates that guidance into actionable steps.

Review your existing agreements. Examine your supply contracts, distribution agreements, and any arrangements with competitors. If any agreement contains provisions about pricing, market allocation, or customer sharing, seek legal advice immediately. The Commission's "Guidelines on the First Conduct Rule" note that even informal arrangements can breach the Ordinance.

Audit your trade association involvement. If you belong to any industry association, review the meeting minutes from the past year. If pricing, margins, or market strategy were discussed, document your position and consider whether the discussion crossed the line into a concerted practice.

Establish a compliance policy. Adopt a written policy that prohibits competitor contact on competitively sensitive topics. The Commission's "Guidelines on Compliances" recommend that policies be proportionate to the business's size and risk profile — a one-page document is appropriate for most SMEs.

Train your staff. Conduct a brief training session covering the three conduct rules and practical scenarios. Document the training and repeat it annually.

Know when to seek advice. If you are uncertain whether a particular arrangement breaches the Ordinance, the Competition Commission's "Guidelines on Compliances" recommend seeking legal advice. For SMEs, the cost of a single consultation is substantially lower than the cost of defending a Competition Tribunal action.

The Bottom Line for Small Businesses

Hong Kong's Competition Ordinance applies to every business in the territory, and the Competition Commission has demonstrated its willingness to pursue enforcement against SMEs as well as large corporations. The Commission's enforcement record since 2015 includes cases against small businesses in sectors ranging from construction to information technology, and the penalties have been substantial relative to the size of the businesses involved.

Compliance, however, is achievable with proportionate effort. A written policy, staff training, meeting protocols, and a clear understanding of the three conduct rules will protect most SMEs from inadvertent breaches. The Competition Commission's own guidance materials — available free of charge on its website — provide a practical framework that any business can follow.

The key takeaway is this: competition law compliance is not a corporate luxury; it is a basic cost of doing business in Hong Kong. The time invested in understanding the three conduct rules and implementing a simple compliance framework is modest, but the protection it provides is substantial.

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