The Ministry of Commerce of the People’s Republic of China ("MOFCOM") has published its Interim Rules on the Assessment of the Effects of Concentrations of Undertakings on Competition ("Rules"), effective September 5, 2011.  The Rules explain how MOFCOM will assess mergers or other "concentrations" under the PRC Anti-Monopoly Law ("AML"). Although the Rules incorporate some concepts and elements from the horizontal and non-horizontal merger guidelines issued in other jurisdictions, such as the US and Europe, they also reflect the AML’s unique Chinese characteristics.

These Rules do not provide guidance at the same level of detail as equivalent guidelines in other jurisdictions.  This is in part explained by the fact that merger review under the AML still is in its early stages.  Indeed, as of the summer of 2011, MOFCOM had only reviewed around 240 concentrations in the three years the law has been in force.  By way of comparison, the European Commission issued its guidelines on the assessment of horizontal mergers almost 15 years after the entry into force of the EU Merger Regulation, drawing on experience from almost 2,000 cases as well as case law from the Court of Justice.  Thus, these Rules must be seen as just one more step in the evolution of China’s competition law.

The Rules essentially elaborate on the factors listed in the AML for the assessment of the impact of mergers on competition, namely market shares, market concentration, impact on market entry and technology, impact on consumers and other operators, impact on national economic development, and other factors affecting market competition.

Some of the Rules’ key features are further outlined below.

Substantive test for assessment of concentrations

Under Article 28 of the AML, "where a concentration of undertakings results in or may result in the effect of eliminating or restricting market competition, [MOFCOM] shall make a decision to prohibit the concentration."  However, if the merging parties can demonstrate that the positive effects of the concentration outweigh the negative effects, or if the merger is in the public interest, MOFCOM may approve such concentration.

The Rules elaborate a little on this substantive test, stating that, when assessing the negative impact on competition, the initial factor to be considered is whether the concentration would generate or reinforce the "ability, motive or possibility" of a single undertaking or, in the case of a concentrated market, of several undertakings "to eliminate or restrict competition."  In vertical mergers, the test will be whether the concentration will have or is likely to have the effect of eliminating or restricting competition in the upstream or downstream markets or associated markets.

It is unclear to what extent these tests differ from those applicable in other jurisdictions, for example the requirement under the EU Merger Regulation that a concentration "significantly impedes effective competition" or that it may "substantially lessen competition" as in the United States.  The case law published so far does not shed any light in this respect.

Market shares and concentration levels

Not surprisingly, the Rules state that market shares will be a "major" factor in the assessment of a merger under the AML.  However, the Rules do not provide guidance on the level of market shares that MOFCOM will consider as indicating a likelihood that a merger has anticompetitive effects .  Most of MOFCOM’s eight published decisions have involved horizontal transactions with significant (over 40%) combined market shares. In practice, MOFCOM appears to look closely at proposed transactions once combined market shares exceed 10%, even if the overlap and thus incremental increase in market concentration is minor.  This usually poses difficulties for the parties since they have to provide extensive information in their notification or in the course of MOFCOM’s review even if their market shares are low.  There indeed is no simplified procedure for merger review in China.

Similarly, the Rules indicate that MOFCOM will look at market concentration indices such as the HHI as relevant indications of the level of concentration. (The HHI or Herfindahl-Hirschman Index is a commonly used measure of market concentration.) However, it appears that at this stage MOFCOM is not yet comfortable with prescribing ranges of concentration levels to distinguish those transactions unlikely to cause competition concerns from those warranting further analysis.

Effects on technology

The Rules recognize that a merger or other concentration can have a positive effect on technological development, but the Rules also provide that a concentration may have a negative impact on technological progress by lowering the merging parties’ incentive to innovate or hindering investment, research and development, and utilization of the relevant technology. The Rules also require MOFCOM analyze whether technology advantages and essential facilities controlled by the merging party will make entry more difficult after the concentration.

In practice, MOFCOM generally is interested in the effect of a merger on technology and in particular the ability of domestic companies to access technology.  MOFCOM sometimes requires the merging parties to provide a list of their patents, which can be very difficult for companies holding a large patent portfolio. Merging parties should therefore be ready to provide an explanation of the importance of IP rights on competition in their industry.

Effect on other competitors

The Rules explicitly provide that the effect of a concentration on other competitors should be assessed.  On the one hand, the Rules recognize that a transaction may increase the competitive pressure by competitors in the relevant market, force competitors to improve product quality, reduce product prices, and enhance consumer benefit.  On the other hand, according to the Rules, the combined entity may exercise "certain business strategies or measures" to restrict the ability of competitors to expand their scale of operations or to weaken their competiveness, thereby reducing competition in the relevant market or having the effect of eliminating or restricting competition on upstream and downstream markets or neighboring markets.

In practice, MOFCOM is particularly interested in the effect of a concentration on the ability of domestic companies to remain competitive.

Effect on national economic development

The Rules also provide that MOFCOM shall consider the impact of a concentration on the "sound development of the relevant industry" and the national economy.  In practice, MOFCOM frequently focuses on the impact of a proposed merger on the Chinese market, paying particular attention when the relevant products are viewed as important to the development of the Chinese economy. For example, in a recent merger between two Russian potash (fertilizer) producers, MOFCOM imposed a remedy aiming at securing the availability of supply to Chinese customers, rather than focusing on whether the global potash market would remain sufficiently competitive.  (See our June 2011 Alert, "China Approves Merger between Russian Potash Producers but Requires They Continue to Supply the Chinese Market.") MOFCOM also routinely requests comments from other ministries, such as the National Development and Reform Commission and the Ministry of Information Industry.  These comments appear to focus on issues that in other jurisdictions may be considered as outside the scope of merger review such as industrial policy.

Non-horizontal effects

The Rules provide no further details on how non-horizontal effects will be analyzed. Since there are no starting thresholds (such as market share below 30% or HHI greater than 2000 in the EU) for vertical effects analysis, the exercise can be sweeping and time consuming.  MOFCOM appears to closely examine any actual or potential vertical relationships, no matter how small the current dealings between the parties. Detailed information about the products involved, the value of any vertical transactions, and the market shares of the parties in the upstream and downstream markets must be provided to MOFCOM during the filing process. In the GM/Delphi decision in 2009, MOFCOM asserted that GM had a leading market position (without disclosing specific market shares) and imposed obligations, including to maintain a stable supply of parts to competing automobile manufacturers, to continue purchasing from competing parts suppliers, and for non-discrimination and other conditions to preclude foreclosure of customers or trading parties.

Burden of proof

Neither the AML nor the Rules provide any details on the burdens of proof applicable in a merger review.  MOFCOM does not appear to be required to prove the existence of any anticompetitive effects before requiring merging parties to provide evidence of procompetitive benefits or to rebut the anticompetitive effects alleged by MOFCOM.  Higher market shares or possession of a leading position frequently are presumed to have anti-competitive effects, with parties required to provide evidence to disprove such a presumption rather than vice versa.


A valuable but limited guidance, the new Rules provide some details on the factors listed in the AML to evaluate the effects of a merger or other concentration on competition.  However, their level of detail is limited, in part due to the small number of cases with which MOFCOM has experience.  It can be expected that MOFCOM will issue new guidelines in the future to reflect its increased experience with merger review.

For the original text in Chinese, please visit the MOFCOM web site.  An English translation is attached here.