Key Points:

  • MOFCOM has promulgated new rules providing detailed guidance on its procedure for assessing anti-trust reports
  • The adopted version of MOFCOM’s rules on the application and reporting of concentration of operators fails to include detailed explanations that were in the draft circulated for public comments

On November 27, 2009 China’s Ministry of Commerce (MOFCOM) promulgated the Concentration of Operators Assessment Rules (Assessment Rules) and the Concentration of Operator Application/Reporting Rules (Reporting Rules). Both the Assessment Rules and Reporting Rules will take effect on January 1, 2010.

The Assessment Rules focus on the review process after the application for anti-trust review is filed with and accepted by the MOFCOM. These rules provide detail on the withdrawal of the application, the right of the involved parties to present their statements and arguments to the MOFCOM, and the procedures of the hearing, as well as how the preliminary decision, the decision for further investigation and the decision for imposing conditions to the transaction should be reached. One notable change in the Assessment Rules from the draft published in March 2009 is they no longer require that the hearing be held confidentially.

The Reporting Rules were promulgated in accordance with the Anti-Monopoly Law as well as the State Council’s Rules on the Application/Reporting Criteria adopted in August 2008. Among other things, the rules provide explanations on how turnover should be calculated.

The Anti-Monopoly Law lists three circumstances that fall within the definition of “concentration of business operators”: (i) merger, (ii) a business operator obtaining control of other business operators through the acquisition of their equity or assets, or (iii) a business operator obtaining control of or being able to exercise a decisive influence on other business operators through contractual or other means. There were a lot of questions with respect to what will be considered “obtaining control of other business operators” when the Anti-Monopoly Law was issued. In the draft of the Reporting Rules circulated in March 2009, the MOFCOM provided detailed explanations of “obtaining control of other business operators,” which included obtaining 50 percent voting rights, or obtaining less than 50 percent voting rights but gaining the power to appoint/remove a director or direct on important issues such as budgets or sale price investment. The March draft also exempted the veto right granted to protect minority shareholders from the definition of “obtaining the control of other business.” People were expecting such details to be clarified in the official version, but it fails to do so. The absence of such explanations in the Reporting Rules leaves a lot of uncertainty for business entities and more discretion for the MOFCOM.

Another important change is the March draft specified that establishing a new joint venture is a “concentration of operators,” so an anti-trust report must be filed if the thresholds are met. The final version deleted such wording.