The Chinese Ministry of Commerce (MOFCOM), the authority responsible for merger control review under the Anti-Monopoly Law (the AML), recently issued guidance notes and other documents providing further detail on the merger control procedure to be followed under the AML. These are: (i) the Guidance for Notification of Concentrations of Undertakings (the Procedural Guidance); (ii) the Guidance for Notification Documents and Materials for Concentrations of Undertakings (the Information Requirement Guidance), with a sample notification form; (iii) a flowchart outlining MOFCOM’s merger control review process; and (iv) the Working Guidance for Notification Review, which mostly restates the relevant provisions of the AML (the Working Guidance).  

In practice, MOFCOM case officers are likely to require notifying parties in China to comply with both the procedural and information requirements in this new guidance (ie by taking a ‘checklist approach’) unless a specific waiver is granted. This briefing highlights some of the new guidance’s significant provisions (including departures from previous practices and procedures), discusses their implications and provides recommendations for companies seeking to comply with the new merger control regime in China. In parallel, MOFCOM is undertaking public consultation on draft Guidelines on Definition of the Relevant Market (draft market definition guidelines) for use in AML analysis. Further implementing rules on various aspects of merger control review under the AML are also expected to be published in the near future.

Significant changes and major implications

By comparison with the guidance that existed under China’s pre-AML merger control regime, the new guidance has made some significant changes by, among other things, formalising certain notification procedures, increasing information requirements and signalling that certain non-competition factors may as a matter of course be considered as part of MOFCOM’s review. Some of the implications arising from these changes are: (i) the potential lengthening of the overall review timeline as a result of the more formalised notification submission and review process requirements as well as the more extensive information requirements in the notification itself and (ii) an increased layer of complexity for certain sensitive transactions, because non-competition-related factors are explicitly added to the MOFCOM review process.  

More formalised notification procedures may further lengthen the notification submission and review process  

The AML provides for a 30-day phase I review period followed by a 90-day phase II review period (if deemed necessary by the authority), which may be extended for another 60 days in certain circumstances. However, in practice, because MOFCOM controls when the phase I review period begins, the review period can be extended significantly by MOFCOM’s refusal to accept a notification as complete and thereby to refuse to start the clock until supplementary materials are submitted to their satisfaction. The more formalised notification procedures set out in the new guidance (as detailed below) may cause further delays in the notification submission and acceptance process and thus increase the time before MOFCOM will start the clock.  

Formalisation of the pre-notification discussion process  

Previously, pre-notification discussions were carried out on an informal basis, usually on the basis of a short briefing paper. The new Procedural Guidance formalises the pre-notification discussion process by requiring the parties to submit a detailed written application (with documents and materials relating to the transaction) before the pre-notification discussion. Because of the extensive additional information requirements for the notification itself (as further discussed below), it is likely that many notifying parties may find it necessary to use the pre-notification discussion process to try to obtain waivers for certain information requirements. To the extent that the pre-notification discussion process must be used, the formalisation of the process may require more preparation time; it remains to be seen whether MOFCOM will insist on significant amounts of information at this stage of the process.  

Establishment of a registration centre for filings  

According to the Working Guidance, a registration centre for the submission of notifications has been created as an additional interface between the parties and the MOFCOM case handlers. Under the procedure of the pre-AML merger control regime, representatives of the notifying parties could directly submit the notification to the MOFCOM reviewers and could, at least in theory, receive a notification submission receipt evidencing the completeness of the notification, thereby starting the review clock; they could also obtain instant feedback from the case handler.  

Now, the completeness of the notification and the start of the review period – or the need for further information – will not be confirmed until the case team has reviewed the filing, some time after submission to the registration centre. There is no timetable prescribed for this initial review by the case team.

In creating a central registry to accept filings, the new system aligns MOFCOM with international practice and should resolve practical issues such as the inability to filings due to the absence of MOFCOM officials at meetings. The interrelationship between pre-notification discussions and this post-submission ‘completeness review’ will need to be considered in each case, to arrive at the best way of dealing with information requirements as efficiently as possible.  

The extensive additional information requirements in the notification itself may lengthen the notification preparation process  

The new Information Requirement Guidance introduces significant additional information burdens that are likely to increase the time and effort required to prepare a notification.  

For example, one provision refers to a requirement for information about the scale and competitive capabilities of the parties in ‘other markets outside the relevant markets’. It is unclear whether MOFCOM intends to assess any neighbouring market effects or portfolio effects based on the information provided here.  

Furthermore, the parties are asked to provide reports and analyses (either compiled by the parties to the transaction or by others) that may help evaluate the transaction – including feasibility studies, due diligence reports, industry development reports, strategy reports for the transaction and post-transaction forecast reports. While filings in the EU and US also contain requirements to disclose internal documents, MOFCOM’s guidance does not contain any of the filters for disclosure usually contained in such requests – for example, that the documents must have been prepared for or by a board member. Given the large amount of internal documentation often generated in the preparation of transactions, it will likely prove necessary to agree a sensible disclosure list with MOFCOM on a case-by-case basis. In any event, this requirement highlights the need to observe a high level of care in the preparation of internal documents, as in other parts of the world.  

It does not appear from a reading of the guidance that a ‘short-form’ notification approach is envisaged. Therefore, notifying parties will need to use the prenotification discussion process described above as an opportunity to try to persuade MOFCOM reviewers to grant specific waivers on certain information requirements that are not possible or practicable to fulfil, particularly for transactions that obviously do not raise any material competition concerns.  

Parties are also asked to indicate how they are likely to be affected if the transaction is prohibited.  

Non-competition-related factors in the MOFCOM review process may add an increased layer of uncertainty to the review process for some transactions  

The Information Requirement Guidance has now made clear that non-competition-related factors must also be discussed in merger filings (perhaps in keeping with the general principle stated in the AML, which sets ‘public interest’ and ‘the healthy development of the socialist market economy’ as important objectives, along with ‘maintaining fair competition in the market’). The notification form includes a section for giving explanations of the opinions of ‘relevant parties’ such as local governments, industry authorities and the general public and for predictions of the concentration’s social effect.  

The guidance also requires information to be provided if bankruptcy issues, national security issues, industry policies, state-owned assets, famous brands or issues that concern the jurisdiction of other authorities are relevant to the transaction.  

Draft market definition guidelines  

The draft market definition guidelines take a similar approach to market definition guidelines adopted in the EU, albeit in less detail. Key aspects of the guidance are an explanation of the relevance of market definition in competition analysis, a list of factors relevant to definition of product and geographic markets and an explanation of the basic economic framework, including use of the hypothetical monopolist test for arriving at a view of the market. Comments are requested from the public by 31 January 2008.