Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

The Chinese Antimonopoly Law (AML) (which entered into force on 1 August 2008) contains a chapter entitled ‘Concentration of undertakings’. This chapter deals with the merger control regime in China. The AML is supplemented by implementing regulations, including the Rules on Notification Thresholds for Concentrations of Undertakings published by the State Council (the Notification Thresholds Rules) in August 2008.

In March 2018, as part of wider institutional reform in China, the Antimonopoly Bureau of the Ministry of Commerce (MOFCOM), which was formerly responsible for the enforcement of the merger control rules under the AML, and the two other competition authorities in China, the Price Supervision and Antimonopoly Bureau of the National Development and Reform Commission (NDRC) and the Antimonopoly and Anti-unfair Competition Bureau of the State Administration for Industry and Commerce (SAIC) were merged into one new super authority called the State Administration for Market Regulation (SAMR). Following the merger, SAMR is now responsible for the enforcement of merger control in China.

In addition to the AML itself, MOFCOM published a range of secondary legislation, some of which has been slightly amended by SAMR to reflect the institutional change. The legislation includes, among others, implementation rules, interim rules and guidance notices that complement the AML and the Notification Thresholds Rules and address procedural and substantive issues as well as information requirements related to the merger control procedure in China.

In 2009, MOFCOM published several implementing measures (such as the 2009 Notification Measures and 2009 Review Measures) covering a range of issues such as the information the notifying party is required to include in merger filings submitted to MOFCOM, a number of key substantive and procedural issues regarding merger control reviews, rules on the calculation of turnover for financial institutions and voluntary filing of non-reportable mergers. In addition to the implementing rules published by MOFCOM, the Antimonopoly Commission of the State Council (which is the authority under the AML that is generally responsible for coordinating and guiding antitrust policy within China) published guidelines on the definition of the relevant market in 2009.

In 2011, MOFCOM published implementation rules for national security review of mergers and acquisitions of domestic enterprises by foreign investors. In the same year, it published interim provisions to assess the effects of concentrations on competition (the 2011 Interim Provisions for the Assessment of the Effect of a Concentration of Undertakings on Competition).

In 2012, MOFCOM published interim rules to empower it to investigate concentrations that meet the jurisdictional thresholds but where the relevant party or parties have failed to notify. Also in 2012, MOFCOM published a new notification form (the Notification Form), which contains more burdensome information and document requirements.

In February 2014, MOFCOM published interim provisions on standards for simple cases (the Interim Provisions on Standards for Simple Cases). These provisions provide criteria for defining ‘simple cases’, namely transactions that do not give rise to significant competition concerns and therefore merit streamlined review by the authority. In April 2014, MOFCOM published the Tentative Guidelines on the Notification of Simple Cases. These guidelines provide procedural guidance on the notification of simple cases, but do not set any deadlines for the authority to complete its review in these cases. That said, in practice, the authority seeks to complete its review of ‘simple’ cases in Phase I. MOFCOM also adopted a new notification form for notifying simple cases as well as a public notice form for notifying transactions under the simple case procedure.

In June 2014, MOFCOM published Guidance for Notification of Concentrations of Undertakings (the Notification Guidance). The Notification Guidance specifies the factors to consider when determining whether there is an acquisition of control and provides procedures for pre-notification consultation meetings with the authority.

In December 2014, MOFCOM adopted the Interim Provisions on the Imposition of Restrictive Conditions on Concentrations of Undertakings (the 2014 Interim Remedy Provisions), which provide guidance in relation to the types of remedies that can be imposed, the conduct of remedy negotiations, the implementation and monitoring of remedies, the varying and lifting of remedies, and the legal liabilities to which undertakings and trustees are subject. They took effect from 5 January 2015.

In February 2015, MOFCOM published the Guidance on the Notification Name of Concentrations of Undertakings (the Naming Guidance), amended in February 2017, which provides rules on how to name a transaction for notification purposes.

In September 2018, the State Council and SAMR amended parts of the regulations and measures set out above to reflect the change from MOFCOM to SAMR. The substantive rules remain unchanged for now. The amended regulations and measures include the Notification Thresholds Rules, the Notification Guidance, the Notification Form, the Naming Guidance and the Tentative Guidelines on the Notification of Simple Cases (the name of the latter was amended and is now known as the Guidelines on the Notification of Simple Cases). References to these regulations and measures in this document refer to the newly amended secondary legislation.

Scope of legislation

What kinds of mergers are caught?

Mergers and acquisitions that are characterised as a ‘concentration of undertakings’ are caught by the AML and require notification to SAMR if they meet the relevant turnover thresholds.

A concentration of undertakings is defined in the AML as:

  • a merger of undertakings;
  • an undertaking acquiring control over one or more undertakings by acquiring equity interests or assets; or
  • an undertaking acquiring control or being able to exercise decisive influence over one or more undertakings by contract or any other means.

What types of joint ventures are caught?

The AML is silent on whether joint ventures are subject to notification. However, this issue was clarified in the Notification Guidance. This provides that a newly established joint venture constitutes a concentration of undertakings if at least two undertakings jointly control the joint venture. If, however, only one undertaking solely controls a joint venture and other shareholders have no control, then such a joint venture does not constitute a concentration of undertakings. The Notification Form also provides that both greenfield joint ventures and joint ventures formed by way of acquisition or change of control are reportable transactions and that the ‘undertakings concerned’ in joint venture transactions will vary depending on the nature and type of the transaction structure. MOFCOM imposed remedies in several cases involving the establishment of a joint venture, such as in Corun/Toyota China/PEVE, Sinogy/Toyota Tsusho in July 2014. Several companies have also since been fined for failure to file reportable joint ventures.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

The AML does not provide a definition of ‘control’.

However, the Notification Guidance explains that control in the context of China merger control includes both sole control and joint control and that control or decisive influence is determined by reference to legal and factual circumstances. Factors that are taken into consideration include the corporate governance procedures of the undertakings concerned as reflected in transaction documents and articles of association (eg, the voting mechanism at the general meeting of shareholders, board of directors or other supervisory board, the appointment and removal of senior management), the objective and the future plan of the transaction, the shareholding structure of the undertakings concerned before and after the transaction (eg, if an acquisition of control cannot be determined on the basis of concentration agreements and articles of association, but factors such as the shareholding being dispersed give an undertaking de facto control, such a transaction also constitutes an acquisition of control), the relationship between the shareholders and directors of other undertakings; whether there exist significant commercial relationships, cooperation agreements, etc, between the undertakings concerned. Accordingly, the issue of whether a transaction leads to an acquisition of control or decisive influence must be determined on a case-by-case basis.

Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

For any merger or acquisition of control that is considered a ‘concentration of undertakings’, a pre-merger notification must be filed with SAMR if the relevant parties’ turnover exceeds any of the following thresholds, as set out in the Notification Thresholds Rules and the Notification Guidance:

  • the total worldwide turnover of all parties to the transaction in the previous financial year exceeded 10 billion yuan and the PRC turnover of each of at least two parties to the transaction in the previous financial year exceeded 400 million yuan; or
  • the combined PRC turnover of all parties to the transaction in the previous financial year exceeded 2 billion yuan and the PRC turnover of each of at least two of the parties to the transaction in the previous financial year exceeded 400 million yuan.

The Notification Guidance and the 2009 Notification Measures also provide that, in cases where a concentration does not meet the notification thresholds, the undertakings participating in the concentration may nevertheless notify the transaction voluntarily to SAMR. Parties may choose to file on a voluntary basis in circumstances where the transaction may give rise to competition concerns.

Further, SAMR has the discretion under the Notification Thresholds Rules to review non-reportable transactions that are not voluntarily notified by the parties, if SAMR considers that the transaction is likely to result in the ‘elimination or restriction of competition’. Such a discretionary review may, for example, be initiated in the event of complaints from third parties including customers, suppliers or competitors.

See question 8 for details of the national security review regime that took effect in March 2011. This may apply to transactions that do not trigger a merger control filing requirement, or those transactions that do trigger such a requirement, but involve the acquisition of control of a PRC domestic enterprise in certain specified sensitive sectors.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

Filing is mandatory for any ‘concentration of undertakings’ that meets any of the notification triggers specified in the Notification Thresholds Rules.

The AML provides for an exemption from pre-merger filing for intragroup transactions in specific circumstances, namely where:

  • among all undertakings involved in the concentration, one undertaking possesses 50 per cent or more of the voting shares or assets of every other undertaking; or
  • one undertaking not involved in the concentration possesses 50 per cent or more of the voting shares or assets of every undertaking involved in the concentration.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

Yes. Foreign-to-foreign mergers must be notified if the turnover thresholds are met. The Notification Thresholds Rules require two parties to generate turnover in China (albeit low amounts - see question 5). Otherwise, there is no additional ‘effects test’. However, under the Interim Provisions on Standards for Simple Cases, certain foreign-to-foreign transactions may qualify as ‘simple cases’ on the basis that the transaction does not give rise to significant competition concerns. Transactions that qualify for simple treatment are subject to less burdensome information requirements under the Guidelines on the Notification of Simple Cases and a streamlined review process.

Are there also rules on foreign investment, special sectors or other relevant approvals?

Yes. All foreign investment in China must be filed with or approved by MOFCOM or one of its local branches. Foreign investment is regulated under the Foreign Investment Law (passed on 15 March 2019 and which will come into effect on 1 January 2020) and Foreign Investment Catalogue (2017) including the Negative List (amended in 2018). Certain sectors are closed to foreign investment or subject to foreign ownership restrictions, while foreign investment is encouraged in other sectors through preferential policies. Foreign investment falls under four categories in China: encouraged, permitted, restricted and prohibited. The last two categories are prescribed in the Negative List. The 2018 Negative List has reduced the number of restricted and prohibited sectors from 63 to 48, including for sectors such as financial services, transportation, energy, agriculture and infrastructure. This highlights an increasing trend towards fewer restrictions for inbound investment. Foreign investment in restricted sectors must be approved by MOFCOM or its local branches, while only a filing is required for foreign investment in sectors outside the Negative List.

Another relevant approval that needs to be considered is the national security review regime, which applies to an acquisition of Chinese domestic businesses by foreign investors if (i) the transaction involves the military sector (including enterprises located near key and sensitive military facilities and other enterprises active in connection with national defence); or (ii) it involves key agricultural products, as well as sectors involving key energy infrastructure, transport, technology and equipment manufacturing, and the transaction will result in the acquisition of ‘actual control’ by the foreign investor over the Chinese domestic business. If a transaction needs to be reviewed on national security grounds, it will be conducted by an inter-Ministerial Committee, led by NDRC as well as MOFCOM (the Committee).

MOFCOM has a key role in the national security review regime, as it is responsible for determining whether a transaction falls within the regime. However, according to an announcement published on NDRC’s website on 30 April 2019, resulting from a re-assignment of responsibilities among government ministries, NDRC will be responsible for receiving national security review filings going forward. While no further details are currently available on the precise scope of NDRC’s responsibilities, the announcement suggests that NDRC will play a more important role under the national security review regime.

In August 2011, MOFCOM published a set of implementing rules, which include an ‘anti-circumvention’ clause, prohibiting foreign investors from circumventing national security review by relying on mechanisms such as trusts, multi-level reinvestments, leasing and loan arrangements, contractual control structures or offshore transactions. This makes clear that national security review is concerned with the substance and actual effect of a transaction rather than its form.

National security review is conducted in two phases: a ‘general review’ (Phase I), which lasts up to 30 working days, and a ‘special review’ (Phase II), which lasts up to 60 working days. Where the Committee cannot reach consensus, the transaction may be referred to the State Council for final determination, for which there is no time limit for a decision. According to the Foreign Investment Law (2019), the national security review decision is the final decision once made. This means it is non-appealable.

Where the Committee determines that a transaction gives rise to national security concerns, parties may be required to abandon or (in cases where completion has already occurred) unwind the transaction, or to put in place remedial measures to address the concern.

Notification and clearance timetable

Filing formalities

What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

The AML does not provide any deadlines for filing, but provides that notifiable transactions cannot be closed without being notified to and cleared by the authority.

Undertakings that fail to notify a qualifying transaction to SAMR may be subject to various penalties. SAMR has the power to order the undertakings to cease the implementation of the concentration, dispose of shares or assets, or transfer businesses within a given time limit and adopt other necessary measures to restore the pre-merger market situation. SAMR may also impose a fine of a maximum of 500,000 yuan. The more serious implication for most businesses is the adverse impact on relations with SAMR, potentially on a long-term basis.

Both MOFCOM and SAMR’s published decisions for failure to file to date involve not only domestic transactions and Sino-foreign transactions, but also foreign-to-foreign transactions.

In 2014, MOFCOM adopted its first public failure to notify decision. It imposed a fine of 300,000 yuan on Tsinghua Unigroup for failure to notify its acquisition of RDA Microelectronics (both are Chinese companies). Fines were imposed notwithstanding the fact that MOFCOM found that the transaction had no adverse impact on competition in China, making it clear that ‘lack of impact’ on competition is not a basis for not filing in China if the transaction constitutes a concentration of undertakings and the turnover thresholds are met. Since then, MOFCOM and SAMR have to date published 36 decisions for failure to notify. The maximum fine of 500,000 yuan has not been imposed so far. In practice, fines have generally ranged from 150,000 yuan to 400,000 yuan.

In January 2017, MOFCOM adopted its first penalty decision involving a foreign-to-foreign transaction for failure to notify. Canon was fined 300,000 yuan for failure to file its acquisition of Toshiba Medical. The case involved a multi-step transaction. There have been two further cases involving foreign-to-foreign transactions: on 3 May 2017, MOFCOM announced that it had imposed a fine of 150,000 yuan on OCI Corporation for failure to file its acquisition of Tokuyama Malaysia; and on 10 August 2018, SAMR fined Paper Excellence BV, a company registered in the Netherlands, for failure to file its acquisition of Eldorado Brasil Celulose SA, a Brazilian company, prior to closing.

In 2018, MOFCOM/SAMR imposed penalties in 15 cases for failure to notify, a record number in a year since the AML entered into force in 2008. It highlights the authority’s strict stance on failure to notify reportable transactions.

In some cases, the merging parties voluntarily submitted a notification after completing their underlying transactions, and actively cooperated during the investigation with MOFCOM or SAMR, as the case may be. However, the merging parties were still fined despite these mitigating factors.

Which parties are responsible for filing and are filing fees required?

According to the 2009 Notification Measures, the Notification Form and the Notification Guidance, the notification of a concentration effected by way of merger is made by all undertakings involved in the merger. For a concentration effected by other means, the notification is made by the undertaking that will acquire control or will exercise decisive influence, with the assistance of other undertakings to the concentration. Undertakings involved in the concentration that serve merely as an acquisition or investment vehicle are not considered as an appropriate notifying party. The Notification Guidance further provides that if two or more of the undertakings have the obligation to notify, the undertakings may jointly notify or appoint one of the undertakings to make the notification. It should be noted that where parties agree that one of them should notify the transaction on behalf of all of them, the others are not exempt from their obligation to notify. Other undertakings participating in the transaction may submit a notification where the parties obliged to file the notification fail to do so.

It is not unusual in practice for the target to be involved as a joint filing party. At present, there are no filing fees.

What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

SAMR has a statutory review period of 180 calendar days.

The initial review period is 30 days (Phase I), commencing from acceptance of the filing as complete. In practice, the period between notification and acceptance of the case is unpredictable. The pre-acceptance period normally takes up to six to eight weeks or longer depending on, among other things, the complexity of the transaction, the completeness of the notification, supplemental questions raised during the market inquiry and the merging parties’ response to those questions. The pre-acceptance period can be shorter (approximately up to four weeks) if the transaction is a simple case. The authority has intensified its pre-acceptance review for data completeness in recent years, which may potentially impact the duration of the pre-acceptance period for both normal and simple cases.

At the end of the initial Phase I review period, SAMR must either issue a written decision to clear the transaction or issue a written notice of ‘further review’. If the notifying party does not receive any written notice of further review at the end of the review period, the transaction is deemed to have been cleared and the parties are free to implement the concentration. If the notifying party receives such a notice, which, unlike in the European Union for example, does not necessarily indicate that SAMR has concerns about the concentration, the review period can be extended for another 90 days (Phase II), commencing from the date of the decision for ‘further review’ of the transaction. In certain circumstances, the 90-day Phase II review period may be extended by another 60 days.

However, some conditional clearance decisions show that in practice the total review period can take a longer time than the maximum statutory review period of 180 days. This is the case, for example, where the authority is running out of the time to complete its review owing to complex remedy negotiations. In such a case, the notifying party may need to agree to withdraw and refile the notification, which restarts a further 180-day review period. Recent examples of cases where the parties have withdrawn their notification and re-filed include KLA-Tencor/Orbotech (2019), UTC/Rockwell Collins (2018), Linde/Praxair (2018) and Essilor/Luxottica (2018).

There is no provision under the AML or its implementing rules for expedited review. However, transactions that qualify as simple cases under the Guidelines on the Notification of Simple Cases benefit from quicker review. The simple case procedure is proving effective so far in shortening the review period. In 2018, simple cases accounted for approximately 80 per cent of the authority’s case load, and more than 98 per cent of them were cleared within Phase I.

Pre-clearance closing

What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?

The completion of a concentration, subject to a notification duty, prior to clearance can lead to the sanctions described in question 9.

MOFCOM, and SAMR, have imposed fines for closing before clearance. In the context of transactions involving failure to notify before closing, the published penalty decisions to date involve domestic transactions, Sino-foreign transactions and foreign-to-foreign transactions.

Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?

Yes. The sanctions described in question 9 also apply to foreign-to-foreign mergers. In January 2017, MOFCOM published the first penalty decision involving a foreign-to-foreign transaction for failure to notify prior to clearance (ie, Canon’s acquisition of Toshiba Medical).

What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

There is little track record to date on this question and there is no formal ‘hold-separate’ arrangement that might be acceptable to remedy local issues in a foreign-to-foreign merger.

Public takeovers

Are there any special merger control rules applicable to public takeover bids?

No. Although there is no official position on this, in practice, the review process can be expedited when a transaction is subject to public takeover bid rules.


What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?

Under the AML, the 2009 Notification Measures and the Notification Guidance, the notification and documents to be submitted include the following:

  • a notification form, containing the names of the parties, registered business addresses, scope of business, the identity certificates or registration certificates of the notifying parties, as well as the date on which the concentration will take place - in the case of offshore notifying parties, certificates notarised and authenticated by the relevant local authorities must be submitted;
  • explanation of the transaction’s impact on competition in the relevant market;
  • the transaction agreement and other relevant documents;
  • the financial and accounting reports for the previous accounting year of the participating undertakings, audited by public accountants; and
  • other documents and materials as may be required by the authority.

The Notification Form requires a significant amount of information and documents to be provided such as details of the parties’ Chinese activities and foreign entities active in the relevant sectors, details of the joint venture (if applicable), general information on other undertakings involved in the transaction (eg, the seller), internal documents and materials prepared by third parties in relation to the transaction, and detailed information about customers and suppliers. This may result in more time and resources being required to prepare a filing. While some of the information required is optional, SAMR may ask for explanations if the optional information is not provided.

As mentioned above, ‘simple cases’ are subject to less burdensome information requirements. According to the Guidelines on Notification of Simple Cases, SAMR will not review a notification as a simple case on its own initiative. Notifying parties that would like their transaction to be treated as a simple case must submit an application to SAMR using a ‘simple case notification form’. Some of the information and documents required to be submitted in the normal notification form are not required in the simple case notification form. This, to some extent, eases the administrative burden for notifying parties. Information and documents that do not need to be provided in a simple case notification form include:

  • information on the parties’ affiliates if not active in the business relevant to the notified transaction;
  • the business licences and certificates of approval of the parties’ affiliates within China;
  • the demand and supply structure of the relevant market and information on the parties’ major suppliers and customers;
  • information on market entry;
  • information on horizontal or vertical cooperation agreements; and
  • potential efficiencies of the transaction.

However, a simple case notification still requires substantial corporate and competition-related information; in particular, market definition analyses and a full set of data including total market sizes and the market shares of the parties and their major competitors. In addition, a ‘public notice form’ must be submitted alongside the simple case notification form. The notice identifies the notifying parties and includes a summary of their activities, the transaction and the reasons for notifying the transaction as a simple case (with reference to one or more of the criteria for qualifying as a simple case). After the transaction is accepted by SAMR as a simple case, SAMR will publish the public notice form on its website for a period of 10 days for public comments. See also question 30.

Investigation phases and timetable

What are the typical steps and different phases of the investigation?

See question 11. The AML contemplates a two-phase review process. The 2009 Review Measures provide guidance on the procedures to follow when the authority conducts its review. They also recognise a notifying party’s right to be heard and to make known its views on concerns raised by the authority.

Prior to a formal notification of a concentration, a notifying party may consult SAMR on matters related to the notification. The application for pre-notification consultation is made in writing. This is not a mandatory procedure. In complex cases, for example, where the notifying parties are uncertain as to whether a transaction is reportable, or the precise scope of the relevant markets involved are difficult to delineate, it may be helpful to consult SAMR prior to filing. This may facilitate preparation of the filing and streamline the review process. The decision to consult SAMR is made on a case-by-case basis.

What is the statutory timetable for clearance? Can it be speeded up?

See question 11 for the review periods.

In practice, a large majority of reviews (including ‘no-issue’ cases) extend well beyond the initial 30-day Phase I review period - unless the transaction is a simple case. For a case without significant competition concerns and that does not qualify for simple treatment, the usual time taken from notification to clearance is approximately four to six months depending on the facts of the case. It is commonly understood that the delay is largely caused by a combination of factors such as capacity constraints at SAMR, the complexity of the cases and the broad scope of involvement of other government agencies and third parties that the authority consults during its review process.

Although the Guidelines on Notification of Simple Cases do not provide any formal guidance regarding the timetable for review of simple cases, this is proving effective in shortening the review period. The usual time taken from notification to clearance is approximately two to three months and the vast majority of simple cases are cleared within Phase I. Some cases are cleared shortly after the start of Phase II if SAMR is unable to complete its review within Phase I. SAMR does not usually conduct extensive consultation with stakeholders such as other government agencies for simple cases as it does for normal cases. This is one of the key factors that facilitates the shortened review.

Administrative time limits have been set for case teams to request information and for notifying parties to respond to information requests. This serves to streamline and speed up the review process.

Substantive assessment

Substantive test

What is the substantive test for clearance?

Under the AML, a concentration must be prohibited if it has or is likely to have ‘the effect of eliminating or restricting competition’, unless the parties can show that the concentration may generate efficiencies and that its positive effects on competition significantly outweigh its negative effects on competition, or that the concentration is in the public interest.

The AML provides that the following factors shall be taken into consideration in reviewing a concentration:

  • the market shares of the participating undertakings in the relevant market and their ability to control the market;
  • the degree of concentration in the relevant market;
  • the effect of the proposed concentration on market access and technological development;
  • the effect of the proposed concentration on consumers and other relevant undertakings;
  • the effect of the proposed concentration on the development of the national economy; and
  • other factors that affect market competition that are considered relevant by the authority.

Industrial policy and other non-competition factors also play a prominent role, and can often cause delays in the review process. See question 22.

Is there a special substantive test for joint ventures?

Joint ventures are not subject to any special standard of review distinct from other types of transactions. However, unlike in the European Union, both full-function and non-full function joint ventures require notification.

Theories of harm

What are the ‘theories of harm’ that the authorities will investigate?

Under the AML, a concentration may be challenged on the ground that it has or is likely to have ‘the effect of eliminating or restricting competition’. SAMR is familiar with concepts such as unilateral and coordinated effects, with MOFCOM having published draft guidelines on them in June 2011 and its conditional clearance decision in Uralkali/Silvinit (2011) showing the application of these concepts in practice. The conditional clearance decisions in Baxter/Gambro (2013), Thermo Fischer/Life Technologies (2014), NXP Semiconductors/Freescale (2015), ABI/SABMiller (2016), Abbott/St Jude Medical (2016), Agrium/Potash Corporation (2017) and Linde/Praxair (2018) similarly show a willingness to apply these concepts. In Henkel/Tiande (2012), Corun/Toyota China/PEVE/Sinogy/Toyota Tsusho (2014) and KLA Tencor/Orbotech (2019), MOFCOM and SAMR respectively analysed foreclosure effects resulting from vertical integration. There is renewed interest in leveraging and tying/bundling effects, as evidenced by the conditional clearance decisions in Merck/AZ (2014) and, more recently, Brocade/Broadcom (2017), HP/Samsung (2017), Essilor/Luxottica (2018), UTC/Rockwell Collins (2018) and KLA Tencor/Orbotech (2019). In Brocade/Broadcom, MOFCOM also raised concerns over the potential misuse of third-party competitors’ confidential information and the risk of undermining interoperability of complementary products in the relevant markets.

In Google/Motorola Mobility (2012), Microsoft/Nokia (2014) and Nokia/Alcatel Lucent (2015), MOFCOM dealt with the complex question of the licensing of standard essential patents in the IT sector.

In June 2014, MOFCOM published a decision to block the proposed Maersk/MSC/CMA CGM P3 Network shipping alliance (the P3 Prohibition). This was the second prohibition decision in the history of merger review in China and the first time MOFCOM prohibited a global foreign-to-foreign transaction. The decision analyses the alliance as an integration of the three major container liner shipping companies’ businesses (as opposed to a typical loose alliance in the shipping industry). MOFCOM analysed the horizontal overlaps between the parties on particular trades and relied on the resulting post-transaction high market shares and market concentration levels as primary grounds to oppose the transaction. In Maersk Line/Hamburg Süd, MOFCOM considered the potential anticompetitive effects of vessel sharing agreements to which the merging parties are members.

In Dow Chemical/DuPont (2017), Becton Dickinson/CR Bard (2017), Bayer/Monsanto (2018) and UTC/Rockwell Collins (2018), MOFCOM and SAMR, as the case may be, each examined the transaction’s potential adverse impact on innovation.

In addition, the authority will investigate factors that may affect the development of the national economy, as well as the public interest (see also question 22).

Non-competition issues

To what extent are non-competition issues relevant in the review process?

Non-competition issues are relevant to both domestic consolidation, where industrial policy factors may be supportive, and to inbound investment, where industrial policy factors may create additional challenges in securing merger clearance.

The AML provides that ‘undertakings may implement a concentration through fair competition and voluntary coalition in accordance with law to expand their business scale and increase their market competitiveness’. Such a provision is understood to reflect the state’s policy of encouraging consolidation and concentrations between Chinese domestic companies and supporting successful domestic companies to compete with foreign multinational companies. In addition, SAMR may decide not to prohibit a concentration that creates serious competition issues where there is proof that the concentration is in the public interest. The AML also provides that the state must protect the legitimate operation of industries that are vital to the national economy and national security where mainly state-owned enterprises are active. Relevant guidance also provides that specific explanations should be given in the notification if the concentration is related to national security, industrial policy, state-owned assets, etc. National security review is also potentially applicable under the national security review regime - see question 8.

Investments by foreign companies in China and foreign-to-foreign transactions may also be reviewed in light of industrial policy considerations where it is considered that broader interests in China may be adversely affected by the concentration. Examples might include the acquisition of well-known Chinese brands or R&D facilities located in China. This can create delays in the process and, at worst, can derail the transaction.

As evidenced by two notable conditional clearances (Glencore/Xstrata and Marubeni/Gavilon) in 2013, global transactions involving commodities that are strategically important to China will be subject to close scrutiny during the transaction’s review. In both cases, although the parties did not enjoy a significant combined market share, each transaction was subject to a long review process and remedies. This is possibly owing to sensitivity regarding transactions involving strategically important industrial and agricultural raw materials, the import of which China relies on heavily. In both decisions, MOFCOM referred to China’s dependence on the import of the relevant products. Although MOFCOM did not explicitly present China’s reliance on imports as a concern, its decisions are nonetheless indicative that transactions involving supply of strategically important products may be subject to stricter scrutiny.

In addition, non-competition issues can become a complicating factor in high-profile, transformational deals in sensitive or strategic sectors deemed important to China’s economy. In July 2018, Qualcomm aborted its US$44 billion acquisition of NXP Semiconductors after failing to secure Chinese merger control approval before the long stop date. There has been widespread speculation that the Qualcomm/NXP deal was impacted by the Sino-US trade dispute. During the Sino-US trade dispute in 2018 and 2019, some other high-profile US deals experienced delays in obtaining merger control approval in China.

Economic efficiencies

To what extent does the authority take into account economic efficiencies in the review process?

The AML allows SAMR to clear a concentration that gives rise to competition concerns if there is proof that the concentration may generate efficiencies and that its positive effects on competition significantly outweigh its negative effects on competition. In practice, notifying parties must provide relevant information and evidence on the possible efficiencies that may arise from the concentration, including how the efficiencies are to be achieved, the time required, quantification, the level of the resulting benefit to consumers and whether such efficiencies can be achieved without the concentration. The 2011 Interim Provisions for the Assessment of the Effect of a Concentration of Undertakings on Competition also make reference to the possibility of transactions giving rise to economic efficiency through economies of scale, economies of scope and reduced production costs, without specifying to what degree such considerations are relevant in assessing transactions. Economic efficiencies have not been discussed in any detail in remedy decisions to date.

Remedies and ancillary restraints

Regulatory powers

What powers do the authorities have to prohibit or otherwise interfere with a transaction?

Under the AML, a concentration cannot be implemented until clearance has been obtained from SAMR. SAMR can block a concentration or impose remedies as a condition to clearing the concentration. To date, two transactions have been prohibited and remedies have been imposed in 40 cases.

Remedies and conditions

Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?

Yes. SAMR may clear a concentration subject to remedies. According to the 2014 Interim Remedy Provisions, the authority may impose divestiture remedies, behavioural remedies (eg, security of supply-type remedies, access to essential facilities such as networks or platforms, licensing key technologies and terminating exclusive agreements) or a combination of both. There are many examples of both types of remedies in China’s decisional practice.

MOFCOM and SAMR have imposed a range of behavioural remedies including security of supply remedies, remedies preventing bundling/tying or imposing unreasonable transaction conditions, remedies that impose restrictions on future acquisitions, access remedies and remedies that seek to address unique or sector-specific concerns. In Uralkali/Silvinit (2011), for example, MOFCOM imposed behavioural remedies that aimed to maintain the status quo for the sale of the parties’ products in China, including requirements as to volume, quality, product type and contract negotiation practices. In Agrium/Potash Corporation (2017) and HP/Samsung (2017), MOFCOM similarly imposed remedies related to the terms and conditions of supply of certain overlap products and in addition required the merging parties to commit not to acquire a competing business for a prescribed number of years. Another notable case is Google/Motorola Mobility (2012). MOFCOM imposed behavioural remedies to ensure, in particular, that Google would continue to offer its ‘Android’ platform on a free and open-source basis, and that it would continue to comply with the fair, reasonable and non-discriminatory licensing terms in connection with Motorola Mobility’s significant portfolio of standard essential patents in the telecommunications sector. In Microsoft/Nokia (2014) and Nokia/Alcatel Lucent (2015), MOFCOM also imposed behavioural remedies to address the licensing of standard essential patents. In Maersk Line/Hamburg Süd (2017), MOFCOM imposed a set of behavioural remedies requiring the merging parties to withdraw from two vessel sharing agreements on trades between the Far East and South America and not to enter into any vessel sharing agreement with major competitors on these trades for five years, and ordered Maersk Line to reduce and maintain its reefer capacity shares below a certain level for three years post-closing. In Brocade/Broadcom (2017), Essilor/Luxottica (2018) and KLA Tencor/Orbotech (2019), behavioural remedies were imposed including requiring the merging parties not to engage in bundling/tying nor impose unreasonable terms. In Brocade/Broadcom (2017), the merging parties also committed to erect firewalls to protect confidential information of third parties and to maintain the interoperability level of relevant products.

In terms of divestment remedies, SAMR may require merging parties to commit to divest a business, assets or minority interests within a specified time frame post-closing. In recent cases, buyer upfront divestiture remedies have been imposed (eg, NXP/Freescale (2015)) as well as ‘fix-it-first’ divestiture remedies (eg, ABI/SABMiller (2016) in the brewery sector, the first such case, Abbott/St Jude Medical (2016) in the medical devices sector and Dow Chemical/DuPont (2017) in the agrichemical sector).

Often a combination of behavioural and divestment remedies are imposed. In Glencore/Xstrata (2013), for example, MOFCOM imposed both divestiture remedies and behavioural remedies (ie, commitment to supply the Chinese market). This approach has been adopted in a number of recent remedy cases (eg, Dow Chemical/DuPont (2017), UTC/Rockwell Collins (2018), Linde/Praxair (2018) and Bayer/Monsanto (2018)).

MOFCOM has also imposed ‘hold-separate’ remedies in the past, although there is no mention of hold-separate remedies in the 2014 Interim Remedy Provisions among the examples of the types of remedies that can be imposed. Hold-separate remedies are potentially far-reaching in that they oblige merging parties to operate separately and independently after closing (eg, with respect to management, sales, products and R&D) and prevent full integration until and unless the remedy is lifted. Hold-separate remedies can remain in force for a relatively long period of time. For example, in Seagate/Samsung (2011), which concerned the global hard disk drive (HDD) market, MOFCOM required complex hold-separate remedies, which essentially required Seagate to hold the Samsung HDD business separate from its own HDD business for a period of at least a year from the decision. The hold-separate remedies were lifted in 2015, approximately four years after they were imposed.

Shortly after the Seagate/Samsung decision, MOFCOM imposed extensive hold-separate remedies in Western Digital Corporation/HGST (2012), which prohibited Western Digital Corporation from combining its operations with HGST’s HDD business for a period of at least two years from the decision. The hold-separate remedies were eventually partially lifted in 2015; the remaining elements of the hold-separate remedies expired in 2017.

Similarly, in Marubeni/Gavilon (2013), MediaTek/MStar (2013) and Advanced Semiconductor Engineering/Siliconware Precision Industries (2017), MOFCOM imposed hold-separate remedies.

What are the basic conditions and timing issues applicable to a divestment or other remedy?

According to the 2009 Review Measures, remedies proposed by undertakings should be able to remove or reduce the negative effects that the concentration has or may have on competition and must be capable of being implemented. Written versions of the remedies should be clear and precise to allow their effectiveness and practicability to be properly evaluated.

The 2014 Interim Remedy Provisions set out the procedure to be followed to implement remedies including the conduct of remedy negotiations, the implementation and monitoring of remedies, the varying and lifting of remedies, and the legal liabilities to which the undertakings and trustees are subject. For example, the notifying parties must provide a final remedy proposal 20 days before the end of the ‘further review’, which assumes that the authority has made known its concerns. It is unclear whether, from the authority’s perspective, this further review period includes the additional 60 days, which can be added to the Phase II 90-days review period. The 2014 Interim Remedy Provisions also enable the notifying parties to submit remedies proposals before competition concerns are raised about the transaction. Notifying parties can be required to offer ‘crown jewel’ remedies. SAMR may solicit opinions on the remedy proposal from a broad spectrum of stakeholders, including government agencies or departments, industry associations, competitors, suppliers and customers. Specifically with respect to structural remedies, the 2014 Interim Remedy Provisions require companies to find a buyer for the divested business within the time frame specified in the conditional clearance decision or, where no time frame is specified, within six months of conditional clearance (SAMR has the discretion to extend this period by a further three months). If the merging parties are unable to find a buyer in time, SAMR can appoint a divestiture trustee to do so. The divestment must be implemented within three months after the sales agreement is executed. SAMR can also require the parties to complete a divestment prior to implementation of the main transaction.

The 2014 Interim Remedy Provisions also provide detailed guidance on the selection of supervisory trustees and trustees’ obligations.

Undertakings may apply to vary or lift remedies when there are material changes to the parties, the transaction, or market conditions. In January 2015, MOFCOM announced that it had agreed to lift one of the remedies imposed in Google/Motorola Mobility in 2012 following Google’s sale of its shares in Motorola Mobility to Lenovo on the grounds that Google was no longer active in the smartphone business to which the remedy applied. In October 2015, considering the changes in the competitive dynamics of the relevant markets, MOFCOM agreed to partially lift the hold-separate remedies in relation to Western Digital’s acquisition of Hitachi’s HDD business in 2012. It set a two-year period for the remaining elements of the hold-separate remedies to expire. In the same month, MOFCOM agreed to lift entirely the hold-separate conditions imposed on Seagate in relation to its acquisition of Samsung’s HDD business in 2011. In June 2016, MOFCOM announced that it had agreed to lift all remedies imposed on Walmart following Walmart’s acquisition of a 33.6 per cent stake in NewHeight in 2012. In February 2018, MOFCOM lifted the respective remedies imposed in Henkel/Tiande Chemical, following Tiande’s acquisition of sole control over the joint venture, and MediaTek/Mstar, owing to changes in the market.

Finally, the provisions also set out the legal liabilities for undertakings that do not comply with the remedies imposed, which include a fine of no more than 500,000 yuan, in addition to an order to correct the non-compliance. In December 2014, MOFCOM adopted two decisions against Western Digital Corporation for two separate instances of non-compliance with the hold-separate remedies imposed by MOFCOM in 2012 in Western Digital Corporation/HGST. In February 2018, MOFCOM fined Thermo Fisher Scientific 150,000 yuan for its failure to comply with one of the conditions imposed for its acquisition of Life Technologies.

What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?

To date, the vast majority of concentrations cleared subject to remedies involve foreign-to-foreign mergers. Since the AML entered into force in 2008, 40 transactions have been cleared conditionally, of which 38 were foreign-to-foreign transactions.

Recent examples include Dow Chemical/DuPont (2017), Brocade/Broadcom (2017), HP/Samsung (2017), Agrium/Potash Corporation (2017), Maersk Line/Hamburg Süd (2017), Advanced Semiconductor Engineering/Siliconware Precision Industries (2017), Becton Dickinson/CR Bard (2017), Bayer/Monsanto (2018), Essilor/Luxottica (2018), UTC/Rockwell Collins (2018), Linde/Praxair (2018) and KLA Tencor/Orbotech (2019). In 2017, the highest number of remedies in any given year were imposed.

Ancillary restrictions

In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?

There is no track record to date on this question. Neither the AML nor the regulations or guidelines address ancillary restrictions.

Involvement of other parties or authorities

Third-party involvement and rights

Are customers and competitors involved in the review process and what rights do complainants have?

Customers and competitors are routinely contacted for their views during the merger review process and are often invited to attend meetings with the authority.

As noted in question 5, SAMR has the authority to review a concentration that does not meet the relevant notification thresholds. Such discretionary review may be initiated in the event of complaints from customers or competitors. Further, implementing regulations are expected to clarify third parties’ rights to make representations, access documents or to be heard.

The Microsoft/Nokia decision in 2014 was the first time that MOFCOM seemingly highlighted specific concerns raised by third parties in its decision. In this case, several leading Chinese technology companies reportedly submitted opinions and complaints to MOFCOM flagging concerns over the potential impact of the transaction on patent licensing. Similarly, in the P3 Prohibition case in 2014, MOFCOM reportedly asked Chinese trade associations, shippers and container liner shipping companies to comment on the proposed P3 Network shipping alliance during its review, and two of China’s largest container liner shipping companies and the China Shippers Association reportedly opposed the deal. In more recent remedy decisions, the authority explicitly notes that it consulted with relevant government departments or authorities, industry associations, and relevant enterprises regarding the definition of the relevant markets, market participants, market structure, and characteristics and future development of the relevant market.

These decisions illustrate the importance of third-party opinions in China’s merger review process. The decisions are also a reminder of the importance of taking into account the potential reaction of different stakeholders and preparing, in advance, a strategy to deal with potential complaints from customers, suppliers or competitors.

Publicity and confidentiality

What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?

The AML does not require SAMR to make public pre-merger notifications received, nor does it require it to publish unconditional clearance decisions. Only prohibition decisions and conditional clearance decisions are required to be published. In 2012, MOFCOM started to publish a list of unconditionally cleared concentrations on a quarterly basis, although the information it discloses is fairly limited (mainly relating to the undertakings’ names and nature of the transaction). SAMR continued the same practice until April 2019, when SAMR started to publish a list of unconditionally cleared cases on a monthly basis.

Further to the Guidelines on Notification of Simple Cases, SAMR will publish a notice of simple cases on its website for public comments for a period of 10 days. This is intended to enable third parties to challenge the simple treatment determination and raise any potential competition concerns about the contemplated transaction. The notice identifies the parties and includes a summary of their activities, the transaction and the basis on which the notifying parties sought simple treatment.

Notifying parties are required to mark content in their notification or in annexes to the notification as confidential if they do not wish the information provided to be published or disclosed to a third party. A non-confidential version of the notification and annexes must be provided at the same time. Guidance published by MOFCOM indicates, for example, ranges to use when redacting market shares in the non-confidential version of the notification and annexes.

The AML provides that the competition authority and its staff shall keep confidential commercial secrets obtained during an investigation. The 2009 Review Measures and Notification Guidance also impose confidentiality obligations on other organisations and individuals if they become aware of business secrets and other confidential information during the review process.

Cross-border regulatory cooperation

Do the authorities cooperate with antitrust authorities in other jurisdictions?

While China is currently not a member of the International Competition Network, it has regular bilateral or multilateral meetings with other competition authorities, covering both general issues and also, on occasion, specific cases. MOFCOM entered into a memorandum of understanding (MOU) with the US Department of Justice and Federal Trade Commission in 2011 to enhance bilateral cooperation between China and the United States in the merger area. MOFCOM entered into similar arrangements in 2012 with the UK Office of Fair Trading (now the Competition and Markets Authority) and with the South Korean Federal Trade Commission. In May 2014, MOFCOM and the Australian Competition and Consumer Commission signed an MOU, which allows for information sharing between the two authorities, subject to confidentiality restrictions. MOFCOM and the Competition Authority of Kenya entered into an MOU in June 2014. In May 2015, MOFCOM and Canada’s Competition Bureau entered into an MOU on antitrust cooperation. In April 2016, MOFCOM and the Japan Fair Trade Commission entered into an MOU. In May 2016, MOFCOM and the antitrust authorities of Russia, Brazil, India and South Africa entered into an MOU. In a recent press release, SAMR noted that China has to date entered into 14 bilateral MOUs with other jurisdictions in relation to merger control. SAMR has indicated that it will continue to strengthen international cooperation with other jurisdictions.

In specific cases, SAMR may ask the notifying parties to grant a waiver so that it can discuss non-confidential aspects of a transaction with other competition authorities. In 2017, MOFCOM noted that it had cooperated with other competition authorities in more than 20 matters including Dow Chemical/DuPont.

Judicial review

Available avenues

What are the opportunities for appeal or judicial review?

Under the AML, a notifying party who wishes to contest the authority’s decision must appeal to SAMR for ‘administrative reconsideration’ in the first instance. If the notifying party is still not satisfied after this, it can then bring an administrative action to challenge SAMR’s decision before a People’s Court.

Time frame

What is the usual time frame for appeal or judicial review?

A notifying party may appeal to SAMR for ‘administrative reconsideration’ within 60 days of becoming aware of the decision. The time frame for administrative reconsideration is 60 days.

If a notifying party is not satisfied after this, it may bring an administrative action within 15 days of receipt of SAMR’s ‘administrative reconsideration’ decision. The time frame for the administrative action is three months.

Enforcement practice and future developments

Enforcement record

What is the recent enforcement record and what are the current enforcement concerns of the authorities?

As noted above, the single most important development is the merger of the Antimonopoly Bureau at MOFCOM and the two other competition authorities in China, the Price Supervision and Antimonopoly Bureau of NDRC and the Antimonopoly and Anti-unfair Competition Bureau of SAIC into SAMR. The former Director General of the Antimonopoly Bureau at MOFCOM, Mr Zhenguo Wu, was appointed Director General of the Antimonopoly Bureau at SAMR. Given that the three former merger divisions within the Antimonopoly Bureau at MOFCOM have been kept and many of the officials involved in mergers have remained in office including the former leadership of the Antimonopoly Bureau at MOFCOM, the changes that will be brought to China’s merger control enforcement policy, if any, are expected to be gradual and incremental.

Since the entry into force of the AML in 2008, the number of notifications reviewed by MOFCOM and now SAMR annually has increased. By the end of April 2019, MOFCOM and SAMR had between them concluded more than 2,500 cases, among which 40 cases were approved subject to remedies (38 of them concerned foreign-to-foreign transactions) and two were prohibited.

According to a press release by Director General Zhenguo Wu, in 2018, MOFCOM and SAMR combined received 513 notifications (28 per cent higher than 2017), concluded 468 of them and approved four cases subject to remedies. In 2018, MOFCOM and SAMR combined imposed penalties in 15 cases for failure to notify, hitting a record high since the AML entered into force in 2008 (see also question 9 and 12).

In December 2014, MOFCOM published its decision to fine Western Digital Corporation for two instances of non-compliance with the hold-separate remedies imposed in connection with its acquisition of Hitachi’s HDD business. In February 2018, MOFCOM fined Thermo Fisher Scientific 150,000 yuan for its failure to comply with one of the conditions imposed for its acquisition of Life Technologies (see question 26). These cases highlight the authority’s willingness to impose fines to ensure compliance with remedies imposed, particularly in the case of hold-separate commitments.

The simple case procedure represents a significant improvement in the time taken to review transactions, given that previously the vast majority of such transactions resulted in clearance in Phase II. Recent experience shows that for ‘simple cases’, it may take SAMR approximately four weeks to declare the notification complete. Declaration of completeness and case acceptance starts the 10-calendar-day public consultation period during which any third party may challenge the transaction’s status as a ‘simple case’ and raise objections about the transaction. The transaction is cleared currently within about two to three weeks of the expiry of the 10-day public consultation period. This has enabled most simple cases to be cleared within Phase I. From the adoption of the simple case review procedure in April 2014 to the end of 2018, nearly 1,200 simple cases have been concluded.

MOFCOM and now SAMR has vigorously enforced the merger control law. 2017 saw the largest number of remedies imposed in a given year. Following the Glencore/Xstrata and Marubeni/Gavilon decisions, it is expected that global transactions involving commodities that are strategically important to China are likely to be subject to close scrutiny. The Google/Motorola, Microsoft/Nokia and Nokia/Alcatel Lucent transactions also suggest that the authority will pay close attention to transactions in the IT sector, particularly where standard essential patents (SEPs) (and in some cases non-SEPs) are in issue. In addition, the authority continues to pay close attention to leveraging and tying/bundling effects theories of harm in conglomerate mergers, such as Essilor/Luxottica (2018), UTC/Rockwell Collins (2018) and KLA-Tencor/Orbotech (2018), as well as a transaction’s potential adverse impact on innovation; for example, in Dow Chemical/DuPont (2017), Becton Dickinson/CR Bard (2017) and Bayer/Monsanto (2018).

Reform proposals

Are there current proposals to change the legislation?

In April 2017, the NDRC organised a seminar to discuss possible amendments to the AML. Experts from the State Council’s Antimonopoly Commission (the ultimate authority responsible for competition law enforcement in China) attended the seminar and participated in the discussions. Details of the timing of the eventual publication of proposed amendments to the AML have yet to be made public.

In July 2018, SAMR publicised a draft of the revised Notification Measures of Concentration of Undertakings for comments. Details of the timing of adopting the revised Notification Measures is not known.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?

On 13 March 2018, MOFCOM conditionally cleared the Bayer/Monsanto deal after over one year in review. MOFCOM assessed the parties’ market power, competition dynamics, entry barriers and Bayer’s ability and incentive to foreclose competitors post-transaction. MOFCOM was concerned that the transaction would have anticompetitive effects in several relevant markets. As in Dow Chemical/DuPont, MOFCOM raised innovation theory concerns. It found that the parties’ combined R&D capabilities would act as an entry barrier in several markets and the parties’ incentives to innovate would be reduced. As a result, MOFCOM required Bayer to divest certain business units, and to commit to grant access to its digital agricultural platform to Chinese developers on fair, reasonable and non-discriminatory terms. The decision highlights an interest in innovation theories of harm. It will be important to assess whether there is any scope for such theory in future deals.

On 25 July 2018, SAMR conditionally approved the merger between lens producer Essilor and eyewear producer Luxottica. This decision concerned a transaction that was largely conglomerate in nature. SAMR found, despite the limited horizontal overlap, the transaction would eliminate potential horizontal competition as both parties had made significant R&D investments in each other’s markets. In addition, SAMR was concerned that the parties might be incentivised to engage in tying and bundling practices, and that the transaction might harm Chinese retailers by placing them at a competitive disadvantage. As a result, SAMR cleared the transaction subject to a set of behavioural remedies including prohibiting the merging entities from engaging in tying and bundling practices, restricting their customers from supplying their competitors’ products, refusing to supply or supplying at below-costs prices without justification, as well as commitments to ensure their transaction counterparties are treated fairly.

On 30 September 2018, SAMR conditionally cleared the Linde/Praxair merger involving the industrial gas sector. SAMR was concerned mainly by the high concentration level of the relevant markets post-transaction, and imposed remedies including divestiture and behavioural remedies to ensure stable supply to Chinese customers under reasonable terms and conditions. The approach to geographic market definition is of interest. In relation to certain types of gases, SAMR defined geographic markets based on a cluster of overlapping circles centered on the parties’ respective relevant production facilities given identified limitations as regards transportation.

On 23 November 2018, SAMR conditionally cleared UTC’s acquisition of Rockwell Collins in the aviation components sector. In addition to identifying horizontal overlaps, SAMR also raised concerns about the conglomerate effects of the transaction. In particular, SAMR was concerned that, post-transaction, UTC would have the most comprehensive product range in the industry (comprising avionics equipment, engine nacelles, auxiliary flight control actuators, ice detection systems, power generation systems and fire prevention systems). Given the parties’ significant combined market share, UTC would have the ability and the incentive to engage in tying and bundling practices and thereby marginalise competitors. In addition, SAMR was also concerned by the loss of potential competition in relation to oxygen systems. SAMR found that in a particular market where Rockwell Collins held a dominant position, UTC was developing a competing product, which would challenge Rockwell Collin’s dominant position. SAMR was concerned that the transaction would eliminate such potential competition. To address the identified concerns, in addition to certain divestment remedies, SAMR also required UTC to, among others, commit not to engage in tying and bundling practices or lower the interoperability and compatibility of certain of its products with third party products, and divest its R&D programme related to oxygen systems.

Each of these transactions was similarly approved with remedies in some other jurisdictions including the US and the EU, except in Essilor/Luxottica where China was the only jurisdiction that imposed remedies. In Bayer/Monsanto, Linde/Praxair and UTC/Rockwell Collins, in addition to structural remedies, MOFCOM and SAMR, as the case may be, also imposed behavioural remedies. In comparison with other jurisdictions, behavioural remedies are more commonly seen in China.

As noted above, in July 2018, Qualcomm aborted its US$44 billion acquisition of NXP Semiconductors after failing to secure Chinese merger control approval before the long stop date. There has been widespread speculation that the Qualcomm/NXP deal was impacted by the Sino-US trade dispute. Non-competition issues can become a complicating factor in high-profile, transformational deals in sensitive or strategic sectors deemed important to China’s economy. This is because SAMR is required by the AML to consider a transaction’s impact on national economic development. During the Sino-US trade dispute in 2018 and 2019, other certain high-profile US deals experienced delays in obtaining merger control approval in China. Notwithstanding the trade tensions, most US-related deals continue to be cleared, particularly transactions that are not high-profile, transformational or do not relate to sensitive or strategic sectors.