On May 4, 2016, the Anti-Monopoly Bureau of the Ministry of Commerce (MOFCOM) of the People’s Republic of China (PRC) published three cases in which administrative penalties were imposed on three foreign companies and two Chinese companies for violations of the PRC Anti-Monopoly Law (AML) and the relevant regulations. These companies failed to file prior notification with MOFCOM for clearance before closing their transactions. The penalties levied ranged from RMB150,000 (approx. US$23,000) to RMB400,000 (approx. US$62,000) in these cases.

The Rules

Under the AML, mergers, acquisitions, and other transactions that qualify as “concentrations” are subject to prior merger notification with MOFCOM before closing if the following turnover thresholds are met:

  1. The combined global turnover in the previous financial year of all undertakings participating in the transaction exceeds RMB10 billion (approx. US$1.5 billion) and two of the undertakings’ individual turnovers in the PRC exceed RMB400 million (approx. US$62 million); or
  2. The combined PRC turnover in the preceding financial year of all undertakings participating in the transaction exceeds RMB 2 billion (approx. US$307 million) and two of the undertakings’ individual revenue in the PRC exceed RMB400 million (approx. US$62 million).

MOFCOM’s clearance is mandatory regardless of whether the transaction causes or is likely to cause anti-competitive effects in the market. Under the AML, the current maximum penalty for failing to file is RMB 500,000 (approx. US$77,000) and MOFCOM may, in addition to the penalty levied, order the relevant undertakings to cease business activities and/or unwind the pre-transaction state.

The Facts

The fact patterns of the three cases were essentially similar and can be summarized as follows.

  • In the first case, Dade Holdings Company Limited, a BVI company specializing in the manufacture and sale of cardiovascular, obstetrics, and malignant disease medicines, was fined RMB 150,000 (approx. US$23,000) for failing to notify MOFCOM of the acquisition of a 50% shareholding of a PRC company in a similar business, with each company having a China turnover exceeding RMB 400 million (approx. US$62 million) and the combined turnover exceeding RMB 2 billion (approx. US$307 million), triggering the thresholds for notifying MOFCOM.
  • The second case involved the establishment of a joint venture in the PRC between a Swedish train and transportation material manufacturer, Bombardier Transportation Group Sweden Company Limited, and a PRC train and transportation technology research company, Xinyu Group Company Limited. In this case, the foreign and PRC companies were fined RMB400,000 (approx. US$62,000) and RMB300,000 (approx. US$46,000), respectively, for the same reason as in the first case. It should be noted that this was the second time in less than a year that Bombardier was fined by MOFCOM for similar infractions, with the most recent reported occasion in September 2015 (when Bombardier was fined RMB 150,000 (approx. US$23,000)). Therefore, MOFCOM more than doubled the amount of the previous penalty.
  • The third case involved the establishment of a joint venture in the PRC by Hitachi, a Japanese electronics and home appliances manufacturer, and Beijing CNR Investment Company Limited, a subsidiary of a large-scale Chinese train and high-speed rail equipment manufacturer. In this case, Hitachi and Beijing CNR each were fined RMB150,000 (approx. US$23,000) for essentially the same reason as in the previous cases.

Notable Points

This is already the second round of enforcement actions on fail-to-file cases published by MOFCOM in less than a year (the previous round of enforcement actions took place in September 2015). It shows that MOFCOM has been stepping up its efforts to enforce fail-to-file rules and increasing the amount of fines levied, particularly for repeat offenders. It is therefore important for companies to ensure that they consult their antitrust lawyers when planning merger and acquisition transactions or joint ventures with sizeable turnovers. Where an antitrust clearance from MOFCOM is required, it is important that such clearance be obtained before the relevant deal is closed.