The Anti-Monopoly Bureau (AMB) of the Ministry of Commerce of China (MOFCOM) has recently  published the following provisions and guidelines relating to the review procedure for merger clearance  with AMB (AMB Clearance):

  1. “Tentative Provisions on Standards for Simple Cases of Concentration of Undertakings (关于经营者集 中简易案件适用标准的暂时规定)” (Standards), published on 11 February 2014;
  2. “Trial Guidelines on Notification of Simple Cases of Concentration of Undertakings (关于经营者集中 简易案件申报的指导意见(试行))” (Trial Guidelines) , published on 18 April 2014; and
  3. revised “Guidelines on Notification of Concentration of Undertakings (关于经营者集中申报的指导 意见)” (Revised Guidelines), published on 6 June 2014.

Simple case notification

The Standards spell out 6 circumstances in which a transaction can be considered a “simple case” which  is basically a notifiable transaction unlikely to create competition issues in China.  The Trial Guidelines  provide guidance on the notification procedure for a “simple case”.  The Standards and Trial Guidelines  are well-intended to help expedite the review of “simple cases”, to enable applicants to obtain the AMB  Clearance more quickly.

AMB will not initiate a “simple case” review, and will undertake such “simple case” review only upon  application by the notifying parties using the simple case notification form (经营者集中简易案件反垄 断审查申报表). This simple case notification form, compared to the usual or standard notification form  (经营者集中反垄断审查申报表), requires less information and materials to be provided.

Note that if AMB considers the case to be involving a transaction that does not qualify as a “simple  case”, it will reject the application, and the notifying parties will have to re-do the notification as for a  normal/standard case. It is thus advisable to have a pre-notification consultation with AMB (an optional  step in the procedure) to get a sense of whether the subject transaction qualifies as a “simple case”.

The Trial Guidelines do not promise a shorter review time for a “simple case”, and actually provide  opportunities for third parties to challenge the case.  A longer review time and process could indeed  arise if third parties decide to raise questions on the transaction. Thus, it remains to be seen how  helpful the Standards and Trial Guidelines are in expediting AMB Clearance for a “simple case”.  

Revised Guidelines

The Revised Guidelines are applicable to a normal/standard  notifiable transaction (i.e. one that does not qualify as a  “simple case”). Compared to the predecessor guidelines  issued in 2009, the Revised Guidelines are a lot more  comprehensive with a number of articles added to provide  clearer and more practicable guidance to practitioners  assisting with the AMB Clearance. The added articles seek  to clarify questions often raised by the notifying parties  and practitioners involved in the process, relating largely to  the (a) definition of control; (b) calculation of turnover; (c)  concentration in a newly established joint venture; and (d) pre-notification consultation/meeting with AMB.

  1. Definition of control

Under the Anti-Monopoly Law(AML), concentration of undertakings refers to:

  1. merger of undertakings;
  2. acquiring control of other undertakings through acquisition of shares or assets; and
  3. acquiring control of other undertakings by contract or  otherwise, or acquiring the ability to exercise decisive  influence over the other undertakings.

The AML does not, however, clarify or define “control”  referred to in the above transactions. The Revised  Guidelines provide detailed guidance as to when an  undertaking is deemed to acquire control over or  the ability to exert a decisive influence on the other  undertakings via a transaction, and suggested that  reference be made to the transaction/concentration  document, the target’s articles of association and other  relevant factors. Such relevant factors include:

  1. purpose of the transaction and future business plan;
  2. shareholding structures of other undertakings before  and after the transaction, and the changes;
  3. matters subject to shareholders’ voting rights and  the voting mechanism, as well as past records on  attendance and voting outcome;
  4. board composition or supervisory committee  composition of other undertakings, and their decision  making mechanism;
  5. appointment and dismissal of senior management  personnel of other undertakings;
  6. relationship among shareholders and directors,  and whether there exists any proxy arrangement or  persons acting in concert; and
  7. whether there exists between the undertakings  any major business relationship or cooperation  agreements, etc.
  1. Calculation of business turnover

​​​Determining the business turnover can be confusing,  as it can be a very technical matter and tends to vary  with the accounting method adopted by the companies  concerned. The Amended Guidelines explain the basis of  calculation and provide clarifications, largely as outlined  below:

  • allocation of turnover between countries to follow  the region/country where the buyers of the products/ services are based;
  • business turnover within the “territory of China” to  include the operator’s exports to China, and exclude  exports out of China;
  • business turnover of a single business operator not to  include turnover of business that has been sold or not  controlled by the operator in the preceding financial  year;
  • business turnover of all the controlling parties to an  undertaking to be counted if the undertaking is under  the joint control of those controlling parties; and
  • if the transaction involves acquisition of part of  seller’s assets or equity interests (target) and seller  will no longer have control over the target after the  transaction, then to include only turnover of the  target (rather than seller’s entire turnover)
  1. Concentration in a newly established joint venture

The AML is unclear as regards the notifiability of a  joint venture to be newly established. The Amended  Guidelines clarify that a joint venture which meets the  filing threshold and will be jointly controlled by two or  more operators will be deemed a concentration; but if  only one operator will control the joint venture to the  exclusion of control by the other operators, the joint  venture will not be treated as a concentration.

  1. Pre-notification consultation/meeting with AMB

The Amended Guidelines provide further practical  guidance relating to the conduct of pre-notification  consultation/meeting with AMB. Such pre-notification  consultation/meeting with AMB is not mandatory in the  AMB Clearance process, and is for the notifying parties  to decide whether or not to apply for such a session with  AMB. A party intending to apply for such a meeting  with AMB will need to submit an application to AMB  in writing, and AMB will only agree to holding such  a meeting with the applicant based on a genuine and  definite transaction.

The Amended Guidelines indicate questions that could  be discussed at a pre-notification consultation with  AMB. These include questions on the notifiability of the  transaction concerned, the documents and information  required to be provided, questions and issues relating to  market definition, whether the transaction qualifies as a  “simple case”, submission and review procedure, timing  of notification, etc.

Apart from the above, the Amended Guidelines also provide  clarifications and guidance with regard to various other  aspects in the AMB Clearance process, such as in relation to  the notification timeline, filing of a notification, withdrawal  of a notification, etc.

The above goes towards demonstrating MOFCOM’s  unceasing efforts to simplify and expedite the AMB  Clearance process.  Although some areas of uncertainty  inevitably remain, it is generally accepted that the regulatory  changes as noted above would help towards increasing the  transparency and efficiency of the review process, as well as  the predictability of outcome