Use the Lexology Navigator tool to compare the answers in the article with those from 20+ other jurisdictions.

Trends and climate

Trends
How would you describe the current merger control climate, including any trends in particular industry sectors?

The Ministry of Commerce is responsible for merger reviews. It is open to input from other jurisdictions as well as foreign economists, and applies many of the same tests and analysis to assess a transaction’s potential impact on competition in the relevant market. In the first six years of the Anti-monopoly Law 2008, 97.4% of mergers were unconditionally approved, two were rejected and 24 were conditionally approved – a total of 902 mergers were filed between August 2008 and September 2014. The completed reviews of acquisitions in the first half of 2013 found that:

  • 18% of parties were domestic-domestic;
  • 62% were foreign-domestic; and
  • 55% were foreign-foreign.

The completed reviews of non-acquisitions (mostly joint ventures) found that:

  • 10% were domestic-domestic;
  • 50% were foreign-domestic; and
  • 40% were foreign-foreign.

The Ministry of Commerce does not only target foreign companies. In 2014 Unigroup, a state-owned entity that manufactured integrated circuits, was fined for failing to report a merger that should have gone through the pre-merger review process. Nonetheless, suspicions still abound that on occasion Chinese firms have evaded antitrust review for their mergers. However, mergers involving foreign parties have been the only ones denied or conditionally approved. This could be in part because foreign companies tend to be involved in mergers in highly concentrated industries.  

Reform
Are there are any proposals to reform or amend the existing merger control regime?

There is no official proposal at this time.

Legislation, triggers and thresholds

Legislation and authority
What legislation applies to the control of mergers?

China has a preliminarily comprehensive legal framework to regulate the control of mergers. There are important rules spread across several laws and regulations that should be considered when doing business in China. The Anti-monopoly Law 2008 is the primary law governing merger control. Article 28 of that law prohibits merger transactions that are potentially anti-competitive (ie, that may eliminate or restrict competition in the relevant market). The following regulations also apply when government authorities are dealing with merger control:

  • Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators – issued on and effective from August 3 2008;
  • Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on the Declaration of the Concentration of Business Operators – issued on and effective from January 5 2009 and revised on June 6 2014;
  • Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on the Declaration Documents and Materials of the Concentration of Business Operators – issued on and effective from January 5 2009;
  • Guideline of the Anti-monopoly Committee of the State Council for the Definition of the Relevant Market – issued on and effective from May 24 2009;
  • Measures for Undertaking Concentration Notification – issued on November 21 2009 and effective from January 1 2010;
  • Measures for Undertaking Concentration Review – issued on November 24 2009 and effective from January 1 2010;
  • Interim Provisions Regarding the Assessment of the Effects of Mergers – issued on August 29 2011 and effective from September 5 2011;
  • Interim Measures for Investigating and Handling Failure to Legally Declare the Concentration of Business Operators – issued on December 30 2011 and effective from February 1 2012;
  • Interim Provisions on Standards Applicable to Simple Cases of the Concentration of Undertakings – issued on February 11 2014 and effective from February 12 2014;
  • Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on Streamlined Declaration of Market Concentration Cases (for Trial Implementation) – issued on April 18 2014 and effective from April 18 2014; and
  • Provisions on Imposing Additional Restrictive Conditions on the Concentration of Business Operators (for Trial Implementation) – issued on December 4 2014 and effective from January 5 2015. 

What is the relevant authority?

The Ministry of Commerce is responsible for merger reviews.

Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?

Thresholds
Under Article 3 of the Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators 2008, if a transaction meets the following turnover thresholds then the parties to the transaction must seek clearance from the Ministry of Commerce:

  • In the last financial year the aggregate global turnover (which includes turnover in mainland China) of all parties to the transaction exceeds Rmb10 billion and at least two of the parties to the transaction have a Chinese turnover of at least Rmb400 million – turnover in mainland China includes products or services (including exports from foreign countries into mainland China) that are sold to buyers located in mainland China. It excludes products or services exported from mainland China to foreign countries or regions.
  • In the last financial year the aggregate Chinese turnover of all parties to the transaction exceeds Rmb2 billion and at least two of the parties to the transaction have a Chinese turnover of at least Rmb400 million.

Transactions identified as suitable for notification 
The above thresholds are applicable to the following types of transaction that are identified in the Anti-monopoly Law 2008 as suitable for notification and thus must be cleared by the Ministry of Commerce before they can be consummated:

  • mergers between companies;
  • the acquisition of another company’s shares or assets that results in gaining control over that company; and
  • contracts or other means that result in gaining control over another company or that enable one company to exert decisive influence over the other company

Because the Anti-monopoly Law 2008 did not define ‘control’, there was much ambiguity regarding the term. The June 2014 Revised Merger Notification Guidelines define control in a way that reflects how the Ministry of Commerce dealt with control issues in its merger reviews in the past. Gaining control or having the power to exert decisive influence are collectively referred to as ‘control’, which includes both sole and joint control. The June 2014 Revised Merger Notification Guidelines list factors to consider when one firm might gain control or decisive influence. Gaining control can be both direct and indirect. Factors include:

  • the purpose of the transaction;
  • change of the shareholder structure before and after the transaction;
  • issues related to voting;
  • the appointment and dismissal of senior management officers;
  • the relationship between shareholders and directors; and
  • whether there is a material commercial relationship and cooperative agreement between the companies – the term ‘material commercial relationship’ is not defined.

Although the law and subsequent guidelines do not specifically mention cases with only minority shares, the tools are implicit in the June 2014 Revised Merger Notification Guidelines. The impact or strength of minority shares can be analysed, focusing on the extent to which the shares exert decisive influence over another company. Minority shares can be an issue because they can alter the relationship between the parties depending on the power that can be exercised through the minority shares. For example, a company can have active shares that influence decision making and passive shares, which are purely financial interests without any influence over decision making. Thus, a minority interest could allow for control over the entity that is being acquired or the ability to exercise decisive influence over that entity, in which case the transaction must be filed for approval.

Inter-company transactions
Inter-company transactions (eg, transactions between affiliates) do not have to be reported. The following types of structure are exempt:

  • where one of the parties to the transaction holds 50% or more of the voting shares or assets of every other party to the transaction; or
  • a company that is not one of the parties to the transaction holds 50% or more of the voting shares or assets of every other party to the transaction.

Under Article 4 of the Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators 2008 and Article 29 of the June 2014 Revised Merger Notification Guidelines, the Ministry of Commerce has discretional authority to investigate transactions that are below the threshold requirements, but that in its opinion already restrict or eliminate competition or have the potential to restrict or eliminate competition. There are no implementation regulations in this context, except for draft interim measures circulated in 2009. There have been no instances of this type of investigation, at least none that have been made public.

Do thresholds apply to determine when a transaction is caught by the legislation?

Yes. However, the transaction must also be suitable for notification.

Informed guidance
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?

Yes. Under Articles 9 and 11 of the June 2014 Revised Merger Notification Guidelines, parties to a transaction can seek informal guidance from the Ministry of Commerce in the form of consultation before it decides to open a file on the transaction and initiate the review process. Consultation is not mandatory. It is up to the parties to the transaction to decide whether to request a consultation meeting with ministry.

The following issues can be raised during the consultation:

  • whether an application needs to be submitted for the transaction – including whether the transaction is suitable for notification – and whether the transaction has reached the application thresholds;
  • the application documents and materials required to be submitted, including the type of information, forms, contents and level of detail required;
  • specific legal and factual issues, including how to define the relevant product market and the relevant geographical market and whether the Interim Provisions on the Standards Applicable to Simple Cases of Concentration of Business Operators 2014 are applicable;
  • requesting guidance on the application and review procedures, including:
    • the time of application;
    • which parties are obliged to file the application;
    • the deadlines for application and review;
    • application procedures for simple cases;
    • application procedures for non-simple cases;
    • review procedures; and
  • other relevant issues, such as whether the transaction has been reported pursuant to the law.

Foreign-to-foreign
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?

In addition to applying to activities that take place within the territorial limits of China (ie, mainland China, but excluding Macau, Hong Kong and Taiwan), the Anti-monopoly Law 2008 also applies extraterritorially to anti-competitive activities which take place outside China, but which have the effect of eliminating or restricting competition in the Chinese domestic market.

Joint ventures
What types of joint venture are caught by the legislation?

Joint ventures must be cleared. Although the Anti-monopoly Law 2008 does not specifically mention joint ventures, the Ministry of Commerce’s conditional approvals of several joint ventures and Article 4 of the June 2014 Revised Merger Notification Guidelines confirm that certain joint ventures qualify for pre-merger notification and require the ministry’s approval:

“A newly established joint venture will constitute a ‘concentration between companies’ (meaning it is reportable) where more than two companies exist that jointly control the joint venture. It will not constitute a “concentration between companies” (i.e. not be reportable) where only one company solely controls the joint venture (the other companies in the joint venture do not gain control).”

Notification

Process and timing
Is the notification process voluntary or mandatory?

Under Article 21 of the Anti-monopoly Law 2008, notification is mandatory if the transaction has met the pre-merger notification thresholds.

What timing requirements apply when filing a notification?

There are two filing procedures in China, a simplified procedure and a normal procedure.

Simplified pre-filing procedure
An applicant should notify the Ministry of Commerce of the proposed transaction after the conclusion of the transaction agreements, but prior to the implementation of the transaction. If the transaction involves a public takeover offer, the written report about the acquisition by takeover offer is considered to be a transaction agreement (Article 14 of the June 2014 Revised Merger Notification Guidelines).

Until February 2014, there was only one review process and the review time varied from 41 to 416 days. With the simplified merger review process, which is theoretically more efficient, transactions that are evidently innocuous will be cleared quickly and with less paperwork. As a result, additional ministry resources should be available to focus on merger reviews that appear to be problematic. Although there is no time frame in the guidelines, officials have stated publically that they aim to clear transactions within 30 days.

Under Article 2 of the Interim Provisions on Standards Applicable to Simple Cases of the Concentration of Undertakings 2014, simplified merger review deals must meet one of the following criteria:

  • for horizontal transactions the aggregate market share of all parties to the transaction must be less than 15%;
  • for vertical transactions the market share of each of the parties in each of the relevant vertical markets must be less than 25%;
  • for horizontal or vertical transactions the market share of each of the parties in each of the markets must not be less than 25%;
  • offshore joint ventures must not do business in China;
  • for equity or assets acquisitions of offshore enterprises, the offshore enterprise must not do business in China; and
  • a decrease in the number of controlling shareholders in a joint venture.

However, even if a transaction meets one of these criteria, the Ministry of Commerce can still reject a simplified merger review of the transaction and require that the parties apply for a normal procedure review under the following circumstances:

  • if a joint venture that was originally controlled by more than two parties ends up being controlled by one party as a result of the transaction, and this controlling party also competes with the joint venture in the same relevant market;
  • it is difficult to define the transaction’s relevant market;
  • the transaction is likely to cause adverse consequences for market entry and technological advances;
  • the transaction is likely to cause adverse consequences for consumers and other enterprises;
  • the transaction is likely to cause adverse consequences for national economic development; and
  • other circumstances that the ministry considers to have potentially adverse consequences for market competition.

Normal pre-filing procedure
An applicant will notify the Ministry of Commerce of the proposed transaction after the conclusion of transaction agreements, but before the implementation of the transaction. If the transaction involves a public takeover offer, the written report about the acquisition by takeover offer is considered to be a transaction agreement (Article 14 of the June 2014 Revised Merger Notification Guidelines).

When the Ministry of Commerce declares that the notification is complete, this triggers the formal review process of 30 calendar days starting the day after the notification is declared complete, commonly referred to as the Phase I period (Article 25 of the Anti-monopoly Law 2008). If the Ministry of Commerce needs to conduct a more in-depth investigation, it has an additional 90 days, commonly referred to as the Phase II period. This can be extended a further 60 days – extended Phase II (Article 26 of the Anti-monopoly Law 2008).

What form should the notification take? What content is required?

The notification form is available on the Ministry of Commerce website. Parties must submit hard copies in Chinese as well as electronic copies with the same content on a compact disc. Foreign language originals must be translated into Chinese. When the foreign language originals are long, Chinese summaries can be submitted along with the originals (Article 12 of Measures for Undertaking Concentration Notification 2009 and Articles 22 and 23 of the June 2014 Revised Merger Notification Guidelines). Further, the application form should be submitted online through a user-end application software called Application Form for Anti-monopoly Review of Concentration of Business Operators (Article 17 of the June 2014 Revised Merger Notification Guidelines).

As shown in the table below, there is less material to file in the simplified review process, but parties still need to submit comprehensive information related to market definition, including market shares of the parties and competitors.

Type of information Simplified Normal
Detailed information about all affiliates No Yes
Detailed information about affiliates involved in the transaction only Yes N/A
Detailed information on the structure of supply and demand No Yes
– including information on suppliers and customers No Yes
– including information on market entrants No Yes
Cooperative agreements between notifying parties No Yes
Information on efficiencies generated by the merger No Yes
Failing entity analysis No Yes
Opinions of government authorities, customers, competitors, suppliers and customers No Yes

The following documents are required for notification under Article 10 of the Measures for Undertaking Concentration Notification 2009 and Article 20 of the June 2014 Revised Merger Notification Guidelines:

  • an application letter stating the parties to the transaction, the respective domicile and scope of business, including turnover;
  • the power of attorney if the notifying party is represented by legal counsel;
  • the notifying party’s certificate of incorporation or identification certificate – foreign parties to the transaction must submit a copy of a notarised and legalised certificate of incorporation;
  • certificates of approval and business licences for relevant companies, representative offices and other registered entities in China established by the parties to the transaction;
  • descriptions of the impact of the transaction on the conditions of market competition, which shall include specifically:
    • an overview of the transaction;
    • a definition of the relevant markets;
    • the market shares of the parties involved in the transaction in the relevant markets and their control of those markets;
    • details of key competitors and their market shares;
    • details of market concentration;
    • details of market access;
    • details of current industry development;
    • details of the transaction’s impact on the structure of market competition;
    • details of industry development;
    • details of technological progress;
    • national economic development;
    • details of consumers and other companies; and
    • details of the assessment and basis of the transaction’s impact on relevant market competition;
  • a copy of the transaction agreement. All documents and material must be in Chinese. Foreign language originals must be translated into Chinese or, when the documents are long, summaries in Chinese can be submitted along with the originals;
  • audited financial and accounting reports of each of the parties for the preceding financial year. All documents and material must be in Chinese. Foreign language originals must be translated into Chinese or, when the documents are long, summaries in Chinese can be submitted along with the originals; and
  • other documents and information to be submitted as required by the Ministry of Commerce. 

Is there a pre-notification process before formal notification, and if so, what does this involve?

There is no pre-notification process. However, parties can meet with the Ministry of Commerce for consultation if they wish to do so, but it is not mandatory.

Pre-clearance implimentation
Can a merger be implemented before clearance is obtained?

A transaction which requires Ministry of Commerce clearance cannot be implemented before such clearance is obtained (Article 21 of the Anti-monopoly Law 2008).

Guidance from authorities
What guidance is available from the authorities?

Before the Ministry of Commerce decides to review a transaction, the parties concerned may apply for consultation regarding a transaction that has been reported or will be reported, in which case the ministry provides guidance on the issues of concern to the applicants based on the information that was provided. Consultation is not a required step in the notification process. It is up to the parties to the transaction whether to request a consultation meeting with the ministry (Article 9 of the June 2014 Revised Merger Notification Guidelines).

According to Article 11 of the June 2014 Revised Merger Notification Guidelines, the following issues can be raised during consultation:

  • whether an application needs to be submitted for the transaction, including whether the transaction is suitable for notification as defined in the Anti-monopoly Law 2008;
  • whether the transaction has reached the application thresholds;
  • the application documents and materials required to be submitted, including:
    • the type of information;
    • forms;
    • contents; and
    • the level of detail of application documents and materials;
  • specific legal and factual issues, including:
    • how to define the relevant product and geographical market; and
    • whether the Interim Provisions on the Standards Applicable to Simple Cases of Concentration of Business Operators 2014 are applicable;
  • requesting guidance on the application and review procedures, including:
    • the time of application;
    • which parties are obliged to file the application;
    • deadlines for application and review;
    • application procedures for simple cases;
    • application procedures for non-simple case review procedures; and
  • other relevant issues, such as whether the transaction has been reported pursuant to the law.

Fees
What fees are payable to the authority for filing a notification?

No fees are payable for filing a notification.

Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?

The notifying party can redact confidential information and documents that it does not wish to have published or disclosed by the Ministry of Commerce. A non-confidential version of the filing documents should be submitted with the request to keep specific information confidential (Article 6 of the Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on Streamlined Declaration of Market Concentration Cases (for Trial Implementation) 2014 and Article 24 of the June 2014 Revised Merger Notification Guidelines). The Ministry of Commerce has the last word as to whether such information can be regarded as confidential. The ministry may send the non-confidential version to third parties (eg, governmental agencies, trade associations, competitors of the parties to the transaction, suppliers or customers) to ask for their comments. The Anti-monopoly Law 2008 prohibits ministry staff from disclosing the business secrets of the parties and their affiliates (Article 17 of the Measures for Undertaking Concentration Notification 2009 and Article 30 of the June 2014 Revised Merger Notification Guidelines).

Penalties
Are there any penalties for failing to notify a merger?

If mergers are implemented in violation of the Anti-monopoly Law 2008, the enforcement agency can order the companies:

  • not to proceed with the merger;
  • to dispose of shares or assets;
  • to transfer the business; or
  • to adopt other necessary measures to restore the market situation to what it was prior to the merger within a prescribed time period.

The enforcement agency may also impose a fine of up to Rmb500,000 (Article 13 of the Interim Measures for Investigating and Handling Failure to Legally Declare the Concentration of Business Operators 2012).

Procedure and test

Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?

There are different procedures for the simplified filing process and the normal filing process.

Simplified pre-filing procedure
Steps in the simplified pre-merger filing process include the following:

  • Self-assessment – if the transaction qualifies for the simplified process based on self-assessment, the notification form must be filled out and documents gathered.
  • Non-mandatory pre-filing consultation – consultation takes place before the formal submission of the notification form and supporting documents. The parties to the transaction can meet with Ministry of Commerce officials to discuss whether the transaction meets any of the criteria for the simplified procedure.
  • Filing and acceptance by the ministry as a simplified case – after the notification form is filed the ministry can request more documents or clarifications while it reviews the submission. The regulations do not specify how much time the ministry can spend to review and determine whether the submission meets the criteria. Once the ministry decides that the transaction meets the criteria it will open a file. The ministry’s acceptance triggers the waiting period before the deal can be completed, but the regulations do not specify the length of the waiting period. The ministry has publically stated that it aims for a waiting period of 30 days. If the ministry thinks the transaction does not meet the criteria for the simplified review process, then the parties must refile under the normal procedure.
  • Public comment period – after the ministry accepts the transaction as a simple case, there is a 10-day period in which a public announcement of the transaction is posted on the ministry website. During this period, any third party can oppose the categorisation of the transaction as a simplified case. The opposing third party must submit evidence as well as the source of their information on which they base their opposition so that the ministry can verify the authenticity of the challenge as well as the supporting evidence. The regulations do not specify that the ministry must immediately post the announcement on the website once it accepts the transaction as a simplified case.
  • The Ministry of Commerce can approve or withdraw its acknowledgement of the transaction as a simplified case. The regulations do not specify how much time the ministry can take to review the challenges to the transaction qualifying as a simplified case. If the ministry withdraws its acknowledgement, then the notifying party must refile under the normal procedure. During this time the notifying party has an opportunity to express its views. If the ministry approves the transaction as a simplified case, then the transaction is further reviewed for final clearance.

If the notifying party submits false statements, misleading information or conceals material information, the ministry may revoke the classification of the transaction as a simplified case. It has the option to fine the notifying party up to Rmb100,000 in the case of individuals and up to Rmb1 million in the case of an enterprise (Article 11 of the Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on Streamlined Declaration of Market Concentration Cases (for Trial Implementation) 2014 and Article 52 of the Anti-monopoly Law 2008). 

There are timing issues related to the simplified procedure. Deadlines are not included in the ministry’s provisions or guidelines. There is no timeframe for the ministry to decide whether the notification meets the criteria for simple procedure after it accepts the filing as a simplified case and there is no specific time period within which the ministry would review and clear the transaction. Further, there is no deadline for the ministry to post details of the merger on their website for public comment after it accepts the transaction as a single transaction.

While the ministry irons out the procedure, it is best to save the simple procedure for transactions:

  • that are uncontroversial;
  • meet the criteria for simple transactions; and
  • are not likely to fall prey to any of the criteria for rejecting or withdrawing simple case status.

Normal pre-filing procedure

Steps in the normal pre-merger filing process include the following:

  • Pre-filing consultation – parties to the transaction will meet with the ministry to discuss major issues, such as whether filing is necessary, definition of the relevant market, potential impact on competition and required data. This is the time to get a sense of the ministry’s concerns.
  • Submit notification form – the ministry reviews the notification form to see if it is sufficient. It may ask for additional material to complete it and may ask further questions. The notifying party can redact confidential information and documents that it does not want the ministry to publish or disclose. A non-confidential version of the filing documents should be submitted with the request to keep specific information confidential. The ministry has the last word as to whether such information can be regarded as confidential and may send the non-confidential version to third parties (eg, governmental agencies, trade associations, competitors of the parties to the transaction and suppliers or customers) to ask for their comments. The Anti-monopoly Law 2008 prohibits ministry staff from disclosing the business secrets of the parties and their affiliates.
  • Acceptance by the ministry/Phase I review – when the ministry declares that notification is complete this triggers the formal review process of 30 calendar days, starting from the day after the day on which the ministry declares that the notification is complete, commonly referred to as the Phase I period. During Phase I, the parties and the ministry negotiate remedies if necessary. If the Phase I period expires and the parties have not been notified or requested to provide more information, the transaction is deemed to be approved and can be consummated. 
  • Phase II and extended Phase II reviews – if the ministry needs to conduct a more in-depth investigation it has an additional 90 days, commonly referred to as the Phase II period. This can be extended a further 60 days (ie, extended Phase II). Throughout the review process, the ministry looks at both competitive and industrial policy issues related to the relevant market. During this time the ministry consults other agencies, third parties, such as industrial associations, competitors and economists. The ministry will raise its concerns and the parties to the transaction can negotiate remedies.
  • The ministry makes its decision – the ministry has three options:
    • clear the deal;
    • clear the deal with conditions; or
    • block the deal; 

If the ministry clears the transaction it is not obliged to publish its decision. The transaction will eventually appear on the quarterly list of approved transactions. If the ministry clears the transaction with conditions or blocks the transaction, its decision will be published on its website. During the review process if the ministry thinks that there is a national security issue, it will require the filings to be reviewed by a separate interagency committee. This can delay the review process. The 30-day period will be suspended during the national security review.    

What obligations are imposed on the parties during the process?

During the simplified pre-merger procedure, if the notifying party submits false statements, misleading information or conceals material information, the Ministry of Commerce may revoke the classification of the transaction as a simplified case (Article 11 of the Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on Streamlined Declaration of Market Concentration Cases (for Trial Implementation) 2014). During the normal pre-merger procedure, if the notifying party refuses to provide relevant information, submits false statements and information or conceals material information, the ministry may refuse to file the transaction or may revoke its decision to file the transaction (Article 27 of the June 2014 Revised Merger Notification Guidelines). In either procedure the ministry has the option to fine the notifying party up to Rmb100,000 in the case of individuals and up to Rmb1 million in the case of an enterprise (Article 52 of the Anti-monopoly Law 2008). 

What role can third parties play in the process?

After the Ministry of Commerce accepts the transaction as a simple case during the simplified review process there will be a 10-day period when a public announcement of the transaction is posted on the ministry’s website. During this time any third party can oppose the categorisation of the transaction as a simplified case. The opposing third party must submit evidence as well as the source of the information on which they have based their opposition, so that the ministry can verify the authenticity of the challenge as well as the supporting evidence (Article 9 of the Guiding Opinions of the Anti-monopoly Bureau of the Ministry of Commerce on Streamlined Declaration of Market Concentration Cases (for Trial Implementation) 2014).

In general, throughout the simplified and normal review process, the ministry looks at competitive and industrial policy issues related to the relevant market. During this time the ministry consults other agencies, third parties, such as industrial associations, and competitors and economists (Article 6 of Measures for Undertaking Concentration Review 2009). The ministry will raise its concerns and the parties to the transaction can negotiate remedies.

Substantive test
What is the substantive test applied by the authority?

The Ministry of Commerce follows the underlying concept for assessing a merger or acquisition and assesses the potential functional impact that the merger and acquisition would have on competition within the context of the relevant market structure.

Article 12 of the Anti-monopoly Law 2008 defines ‘relevant market’ as the “product scope or geographical scope within which the enterprises compete against each other during a certain period of time for specific products”. More detailed information of how to determine the relevant market is found in Articles 4 to 6 of the Guideline of the Anti-monopoly Committee of the State Council for the Definition of the Relevant Market 2009, which adopts concepts and methods used by other antitrust regimes (eg, the premise that a company will face the strongest competition from products that are close substitutes for its own products).

Similar to other jurisdictions, the ministry recognises various types of potential harm to competition depending on the structure of the merger (Article 4 of the Interim Provisions Regarding the Assessment of the Effects of Mergers 2011). Mergers between competitors can result in a situation where it is easier for the merged entity to dominate the market on its own (eg, by raising prices, offering fewer choices and reducing the quality of products). Further, mergers between competitors can create a situation in which, because there are less competitors, the remaining firms would be able to more easily coordinate their prices, output, capacity or other business activities and thus have less competition. Mergers involving firms that are in a buyer-seller relationship (eg, a manufacturer merges with the supplier of a raw material or a manufacturer merges with a distributor) are often referred to as ‘vertical mergers’. Vertical mergers can make it difficult for other firms to enter the market by limiting access to the supplier’s market in a manufacturer/supplier merger or to the distributor’s outlets in a manufacturer/distributor merger.

The Anti-monopoly Law 2008 and the Interim Provisions Regarding the Assessment of the Effects of Mergers 2011 indicate what will be considered when assessing a merger’s potential impact on the relevant market, focusing on the merging parties’ market share. The ministry will consider factors such as:

  • the degree of concentration in the relevant market;
  • the substitutability of the products;
  • the production capabilities of other companies;
  • how much control the parties will have over the sales market or the procurement market for raw material;
  • the financial strength and technical capabilities of the parties to the transaction;
  • the merger’s impact on:
    • entry into the relevant market and technological progress;
    • consumers (eg, can the merging parties’ customers switch to suppliers that are not the merging parties? What is the purchasing power of downstream customers?); and
    • national economic development.

Although the Anti-monopoly Law 2008 makes no presumption that certain levels of market share will mean that the merger will be blocked, the ministry has emphasised market shares and market concentration levels as primary grounds for finding potential antitrust issues.

The Interim Provisions Regarding the Assessment of the Effects of Mergers 2011 also mention the following benefits of mergers: 

  • the integration of resources and research and development and their positive impact on technological progress;
  • increasing economic efficiency;
  • achieving economies of scale and scope;
  • reducing the costs of the product and enhancing product diversification;
  • increasing competition in the relevant market;
  • improving the quality of the product and reducing prices; and
  • promoting the development of the national economy. 

Carve-outs
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?

There is no specific legislation that allows carve-out agreements to avoid delaying the global closing. The Ministry of Commerce imposes conditions in its final decision regarding whether to clear a transaction that forces the parties to continue the pre-merger competitive status quo. These remedies are called hold-separate conditions. The ministry imposed hold-separate conditions in four transactions:

  • Seagate/Samsung – November 2011;
  • Western Digital/Hitachi – March 2012;
  • Marubeni/Gavilon – April 2013; and
  • MediaTek/MStar – August 2013.

Test for joint ventures
Is a special substantive test applied for joint ventures?

There are no express laws and regulations in China which require a special substantive test for joint ventures.        

Remedies

Potential outcomes
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.

In mergers involving raw materials such as potash, copper concentrates and soy beans, the Ministry of Commerce required:

  • Russian potash producers to continue to sell to Chinese customers – Uralkali/Silvinit merger;
  • the merged entity to supply copper concentrate to Chinese customers and regulated the sales terms of zinc and lead concentrate – Glencore/Xstrata merger; and
  • the merging parties to operate independently, such that prices remained competitive for Chinese customers – Marubeni/Gavilon merger.

In mergers involving gasification technology, hard drives, standard essential patents, patent licensing services and LCD TV chips and mobile phone chips, the ministry imposed the following conditions: 

  • the joint venture must not use the supply of raw coal for gasification technology as a means of forcing licensees to use the joint venture’s technology – GE/Shenhua merger;
  • in a merger in which the purchaser and the target were producers of hard drives, the purchaser was prohibited from exercising control over the target for a period of time – Seagate/Samsung and Western Digital/Hitachi mergers;
  • standard-essential patent holders must agree to the licensing terms that the patent holders have already voluntarily agreed to within the standard-setting organisations – Google/Motorola and Microsoft/Nokia mergers;
  • standard-essential patent holders must agree not to sue patent infringers, even though this was already voluntarily agreed to – Microsoft/Nokia;
  • a patent holder must license its patents based on non-exclusive and non-sub-licensing terms and comply with reasonable and non-discriminatory principles – Merck/AZ Electronic Materials merger;
  • a supplier of patent licensing services must continue to release information on a non-discriminatory basis for eight years. If the competitive situation changes during this time the entity can request reconsideration – ARM/Giesecke/Devrient merger; and
  • in a merger in which the purchaser and the target produced LCD TV control chips, the purchaser was prohibited from exercising control over the target for three years. After the three-year period the entity may ask for reconsideration. The ministry also required that the prices for customers in China should not be higher than the prices of similar products that the purchaser and target sold outside China – MediaTek/MStar merger.

In mergers with assets outside China that could potentially be of interest to the ministry, it ordered the following extraterritorial divestitures and asserted its extraterritorial authority by including a provision that it would review and authorise such extraterritorial divestitures:

  • a business in Japan – Panasonic/Sanyo;
  • a mine in Peru – Glencore/Xstrata; and
  • parts of a business in the United Kingdom and the United States – United Technologies/Goodrich.

The Microsoft/Nokia merger excluded Nokia’s reserves of standard essential patents related to telecoms and smartphones. However, the ministry included these assets in the review and imposed conditions on Nokia with regard to how it could use these patents in the future.

Appeals

Right of appeal
Is there a right of appeal?

If a company disagrees with the Ministry of Commerce’s decisions, it has the right to appeal. The company must first apply for administrative reconsideration and if it is still not in agreement with the decision, then it may file an administrative suit (Article 53 of the Anti-monopoly Law 2008).

Do third parties have a right of appeal?

There are no express laws or regulations in China which prohibit or restrict a third party’s right to appeal a decision. As a general rule, under both the Administration Reconsideration Law of the People’s Republic of China and the Administrative Procedure Law of the People’s Republic of China, any citizens, legal persons or other organisations are entitled to request administrative reconsideration or file a suit if administrative decisions or certain specific administrative acts infringe upon their lawful rights or interests.

Time limit
What is the time limit for any appeal?

The administrative reconsideration shall be submitted within 60 days after the issuance of the Ministry of Commerce’s decision or any other time limit specified in the ministry’s decision. If a company is not in agreement with the decision of the administrative reconsideration, it can file an administrative suit within 15 days after the receipt of the reconsideration decision or any other time limit specified in the reconsideration decision.  

Law stated date

Correct as of
Please state the date as of which the law stated here is accurate.

The provided information is accurate as of May 29 2015.