On April 24, 2009, the Ministry of Commerce (MOFCOM) of the PRC publicly announced that it conditionally approved the acquisition of Lucite International Group Limited (Lucite) by Mitsubishi Rayon Co., Ltd. (Mitsubishi) (the Announcement). This marks the third pre-concentration review decision that MOFCOM has published since the implementation of China’s Anti-Monopoly Law (AML), and the second transaction that it has approved with restrictive conditions. The Lucite decision came on the heels of MOFCOM’s March 18 ruling that derailed Coca Cola Company’s US$2.5 billion bid for China Huiyuan Juice Group, a prominent juice maker in China. While the Coca Cola-Huiyuan case has led some to fear that foreign investors will have to contend with protectionism and popular sentiment when their proposed acquisitions concern popular Chinese brands, the Mitsubishi-Lucite ruling demonstrates the government’s willingness to reach compromises with foreign companies in order to clear the regulatory hurdles to transaction completion. In this edition of the China Antitrust Update, we will brief you on the highlights of the Announcement and the developments in China’s concentration control regime since the Coca Cola-Huiyuan case. An English translation of the Announcement is attached to this article as Appendix I.  

Publication Requirement for MOFCOM’s Decision  

Under the AML, MOFCOM is only required to publicly announce its decisions if it blocks or attaches restrictive conditions to a transaction. Aside from the Mitsubishi-Lucite transaction, MOFCOM has publicly announced two other pre-concentration review decisions, the first related to the InBev-AB transaction, which was approved with conditions, and the second regarding the Coca Cola-Huiyuan transaction, which was blocked.  

Since the AML came into effect in August 2008, MOFCOM reviewed 25 of the 40 preconcentration notifications that have been filed, approving 24 and blocking one. Four additional notifications are still under review. However, as the AML does not require MOFCOM to publicly announce its decisions to unconditionally approve transactions, the three publicly announced transactions offer limited guidance for market players on how MOFCOM will deal with proposed transactions, and how MOFCOM will apply the AML and current implementation rules.

Highlights of MOFCOM’s Lucite Ruling  

The Announcement outlines the notification and review process of the case. According to the Announcement, Mitsubishi filed a notification with MOFCOM on December 22, 2008 and submitted supplementary materials upon MOFCOM’s request. On January 20, 2009 MOFCOM officially started the first-phase review of the proposed transaction. On February 20, 2009 MOFCOM decided to further extend its review because the proposed transaction involved complex competition issues, and it finished the review on April 24, 2009 almost three weeks ahead of the May 20, 2009 deadline.  

According to the Announcement, during the first and second review phases, MOFCOM verified the notification materials and analyzed a myriad of factors as specified in Article 27 of the AML, including:  

The business operators’ share in and control over the relevant market of the parties;  

The degree of market concentration in the relevant market;  

The concentration’s impact on market access, technological advancement, consumers and other relevant parties, and national economic development; and  

Any other factors MOFCOM considered important or impactful with respect to market competition.  

Additionally, MOFCOM solicited opinions from relevant industry associations, methylmethacrylate (MMA) producers, polymethylmethacrylate (PMMA) pellet producers, PMMA sheet producers, and both parties to the acquisition by requesting written opinions, holding expert panels, organizing discussions, and consulting with interested parties.  

According to the Announcement, the relevant product market of this transaction covers MMA, specialty methacrylates (SpMAs), PMMA pellets and PMMA sheets, and the proposed concentration has minimal impact on all relevant markets except the MMA market. In addition, MOFCOM defined the relevant geographic market of this transaction as the Chinese market.  

The Announcement states that MOFCOM concluded that this transaction is very likely to have an adverse effect on efficient competition in the Chinese MMA market, and that Mitsubishi’s market power resulting from the acquisition will have a vertical foreclosure effect. Accordingly, MOFCOM considered imposing restrictive conditions on the transaction and required both parties to the acquisition to provide remedial plans to mitigate the potential adverse competitive effects of the proposed transaction.  

To allay MOFCOM’s concerns, Mitsubishi proposed that Lucite sell, at cost, half of its Chinese subsidiary’s MMA production capacity to a third party or third parties for five years. MOFCOM accepted this proposal on the belief that this remedy will effectively reduce the transaction’s potential negative impact on competition, and MOFCOM has given the parties six months to find buyers to purchase the capacity. If the parties fail to find a buyer in time, MOFCOM will appoint a trustee to sell Lucite’s entire stake in its Chinese subsidiary. In addition, the parties must remain physically separate while they search for a buyer, although they may proceed to consummate the transaction. MOFCOM also prohibits the parties from purchasing or building any new manufacturing facilities in China for five years without MOFCOM’s consent.

Developments Reflected in the Lucite Ruling  

Basis of Pre-Concentration Review Timeline is Further Clarified  

Under the AML, MOFCOM’s pre-concentration review consists of a 30-day first-phase review plus a 90-day second-phase review, with the possibility of a 60-day extended review under extreme circumstances. However, the AML ambiguously refers to “days” without stating whether they are calendar days or work days. The Coca Cola-Huiyuan case for the first time suggested that “days” refer to calendar days. The timeline outlined in the Announcement confirms this view.  

By specifying the timelines for these two high-profile cases, MOFCOM has established a solid precedent for calendar-day based deadlines in future pre-concentration reviews. Calendar-day based deadlines, which mean more expedient reviews than work-day based deadlines, may benefit participating businesses.  

MOFCOM has Sought Interested Parties’ Opinions During Review  

Under the AML, MOFCOM is required to look at certain issues to assess how the transaction under review would impact competition in the relevant market. However, the AML does not specify the means by which MOFCOM may conduct the assessment. In the Announcement, in addition to verifying materials and analyzing issues, MOFCOM also solicited opinions from various stakeholders, including relevant industry associations and interested producers. This is similar to MOFCOM’s approach in the Coca Cola-Huiyuan and InBev-AB cases. Additionally, MOFCOM has sought opinions by means of soliciting written requests and holding forums, hearings, on-site investigations and discussions with interested parties.  

Parties to the Transaction May Have Input in MOFCOM’s Decision  

While it is internationally accepted to approve a transaction with certain conditions, and the AML authorizes MOFCOM to do so, it is not clear what factors MOFCOM will consider when imposing such conditions. The InBev-AB ruling, for example, merely states the conditions attached to the InBev/AB transaction without explaining MOFCOM’s underlying reasoning. In the Coca Cola-Huiyuan case, MOFCOM required Coca Cola to propose conditions that would eliminate the proposed transaction’s potential adverse competitive effects, but did not find any of the proposed solutions satisfactory. In its public announcement regarding that transaction, MOFCOM’s spokesperson cited the AML’s confidentiality provisions to justify its decision to not to fully disclose the details of the transaction. The factors debated in the negotiations between MOFCOM and Coca Cola, therefore, remain unknown to the public.  

The business community has expressed concerns regarding potential overreaching by Chinese anti-monopoly authorities in imposing remedies, specifically that anti-monopoly requirements may be used as a justification to restructure an industry to disadvantage foreign businesses. In the Mitsubishi-Lucite case, the parties proposed, and after negotiations MOFCOM accepted, remedial plans to reduce the possible adverse effects of the transaction. In its willingness to negotiate, MOFCOM showed a welcome flexibility, which suggests that parties to a transaction may have options with respect to how they achieve clearance for their transaction. This signifies that that, even in cases that raise complex competition issues, business operators may still be able to obtain approval from MOFCOM, though possibly with restrictive conditions, by proactively and constructively communicating with MOFCOM.

Uncertainties Surrounding the Lucite Ruling  

Delayed Initiation of Review Seems Customary  

According to the AML, the timeline of a pre-concentration review begins on the date that all notification materials are properly submitted to the reviewing authority. In practice, MOFCOM has sole discretion in determining what constitutes proper submission, and may make multiple requests for additional materials after a notifying party has made it initial submission. Therefore, MOFCOM’s refusal to accept a notification can considerably prolong the review period.  

According to the Announcement, Mitsubishi made its initial submission to MOFCOM on December 22, 2008 and MOFCOM accepted the notification on January 20, 2009 after having requested that Mitsubishi submit supplementary materials. However, the Announcement sheds little light on the specific information requirements, since MOFCOM did not explain what additional information it requested and why. Additionally, since a proposed transaction may involve many different parties and industries, and MOFCOM may demand “any other documents and information” it deems appropriate, MOFCOM will take into account the characteristics of the proposed transaction and require special notification materials on a case-by-case basis. Given the diversity of proposed transactions, it is understandable that MOFCOM has not standardized the requirements for notification materials; however, this may prolong the notification submission and acceptance process, and therefore increase the amount of the time before MOFCOM starts the clock.  

Reasons for Initiating Second-Phase Review Remain Unclear  

To date, the scope of MOFCOM’s second-phase review remains unclear. The Announcement merely states that the Mitsubishi-Lucite case required a second-phase review because the transaction involves complex competition issues. Specifically, both Mitsubishi and Lucite have relatively large market shares in the MMA market, and their concentration will significantly alter the concentration level in the market, and Mitsubishi’s market power resulting from the acquisition will have a vertical foreclosure effect.  

However, this statement fails to illustrate the differences between the two phases. It seems that MOFCOM addressed the same issues in the second-phase review as it did in the first. Observers may assume that, in a second-phase review, MOFCOM will remain focused on the transaction and industry at issue, and not probe into other Chinese operations held by the parties, but unless the government reveals more information, this will remain an assumption.  

Definition of Relevant Market Remains Absent  

The Announcement states that the relevant product market of the Mitsubishi-Lucite transaction covers MMA, SpMAs, PMMA pellets and PMMA sheets, mainly because the businesses of Mitsubishi and Lucite overlap in the production and sale of these products. The Announcement, however, does not describe how MOFCOM reached this conclusion.  

The Announcement’s definition of a relevant product market deviates from the rules laid out in MOFCOM’s draft Guidelines on the Definition of Relevant Markets (the Guidelines), pending official release on public comments. In the Guidelines, which we touched on in our January 8, 2009 China Antitrust Update, MOFCOM recognizes two methods that are commonly adopted in defining a relevant market – demand substitution analysis and supply substitution analysis. Also, during a question and answer session on March 25, 2009, MOFCOM’s spokesperson implicitly referred to the Guidelines when explaining the definition of a relevant product market in the Coca Cola-Huiyuan transaction. Once officially enacted, the Guidelines may steer MOFCOM in defining relevant markets in its pre-concentration reviews. However, the approach taken by MOFCOM in the Mitsubishi-Lucite case leads one to wonder whether MOFCOM will adopt an alternative method in defining relevant product markets. In addition, the Announcement does not explain why the relevant geographic market of the Mitsubishi-Lucite transaction is defined as the Chinese market.  

Will High Market Share Necessarily Be Deemed Anti-Competitive?  

In the Announcement, MOFCOM states that, from a horizontal perspective, the transaction under review is very likely to adversely affect the efficient competition of the Chinese MMA market. Specifically, the market share of the two companies upon acquisition will reach 64 percent, overwhelming the second- and third-ranking companies. MOFCOM states that with its dominant position in the MMA market, the post-concentration Mitsubishi would be able to eliminate or restrict its competitors in the Chinese MMA market.  

As revealed in the Announcement, MOFCOM seems to believe that a high market share alone constitutes a dominant market position, and such dominance may eliminate or suppress competition. However, in determining whether a business operator holds a dominant market position, it is generally accepted internationally that market share is only one of a number of factors that must be considered. In Europe and the United States, the factors for establishing dominance include market share, barriers to expansion, barriers to entry, buyer power, product homogeneity, price transparency and direct evidence of dominance. Although a company with more than a 50 percent market share may be presumed to hold a dominant market position, this company may still submit evidence to prove that there is effective competition in the relevant market or there are no substantial entry or expansion barriers for other competitors. The lack of detailed analysis and reasoning in the published Mitsubishi-Lucite ruling may cause concern over the relationship between market share and dominant position among market players. It remains to be seen whether MOFCOM will adopt a more comprehensive approach in future cases.  

The Foreclosure Effect  

In the Announcement, MOFCOM deduced that vertically, since Mitsubishi operates in both MMA and its downstream markets, the post-concentration Mitsubishi would be capable of leveraging its dominant position in the upstream MMA market to exert foreclosure pressure on its downstream competitors.  

Though the Announcement marks the introduction of the foreclosure effect (a type of anticompetitive effect) in a MOFCOM pre-concentration ruling, it does not provide a definition, which may lead to new uncertainties. As commonly used in the European Union, the foreclosure effect is a typical effect of a non-horizontal (vertical or conglomerate) concentration. Specifically, a vertical concentration is said to result in foreclosure where actual or potential rivals’ access to supplies or markets is hindered or eliminated as a result of the concentration, which thereby reduces their ability and/or incentive to compete. In the conglomerate context, the combination of products in related markets may confer on the merged entity the ability and incentive to leverage a strong market position in one market to another by means of tying or bundling products, or by other exclusionary practices.  

Given that the foreclosure effect is an important adverse effect of a concentration, MOFCOM should clarify its meaning and explain how it will occur in the relevant market if the proposed transaction is approved.  

Both Pro-Competitive and Anti-Competitive Effects Should be Addressed  

A well-rounded pre-concentration review should cover both the pro-competitive and anticompetitive effects of a proposed transaction, because the government should base its final ruling on the balancing of these factors. However, the Announcement only deals with the potential anti-competitive effects of the transaction, and fails to analyze whether there is any pro-competitive side to the transaction. In order to reach fair, comprehensive conclusions, MOFCOM should weigh both factors in its future pre-concentration reviews.  

Government Should Focus Competitive Effect Assessment on Competition, not Competitors  

In assessing the competitive effect of Mitsubishi’s proposed bid for Lucite both horizontally and vertically, MOFCOM seems preoccupied with the possibility that the transaction will harm horizontal or downstream competitors’ ability to compete in the relevant market. However, this preoccupation is a departure from the goal of pre-concentration anti-monopoly reviews, which should ultimately focus on the transaction’s potential impact on competition in the relevant market, rather than its impact on competitors.  

It is widely accepted in other jurisdictions that just because a concentration affects certain competitors on the supply chain does not mean that it is problematic or anti-competitive. In particular, the fact that rivals may be harmed because a concentration creates efficiencies should not in itself give rise to competition concerns. In assessing competitive effects, the regulators should look at the whole competitive situation, not just certain competitors.  


In comparison to the InBev-AB and Coca Cola-Huiyuan cases, the Announcement demonstrates several positive changes in the Chinese government’s pre-concentration reviews. In particular, the Announcement reflects MOFCOM’s openness and flexibility in finding suitable remedies for potential anti-competitive problems while accommodating the business goals of the transacting parties. This may help ease the business community’s anxiety, which peaked after the Coca Cola-Huiyuan case, that MOFCOM may put hurdles in the way of concentration transactions involving foreign companies. The Mitsubishi-Lucite case sends a comforting signal to market players interested in carrying out concentration transactions in China, that their efforts to communicate with MOFCOM may eventually pay off.  

At the same time, however, the Announcement provides neither in-depth analysis of the transaction, nor details of the reasoning behind the decision. Given the lack of analytical standards, and the fact that many rules are still in draft form, business operators still face significant practical difficulties in dealing with notification issues. While the Chinese authorities are moving forward to establish better rules on concentration notification and review, market players need to monitor these developments closely. If the government yields to public calls for more information regarding its review of the proposed transactions, market players may obtain greater insight into the government’s concentration control practice.

Unofficial Translation by Hogan & Hartson, LLP APPENDIX I