On 27 November 2009, the Chinese Ministry of Commerce (“MOFCOM”) issued two implementing regulations, the Regulation on the Notification of Concentrations of Undertakings (“Regulation on Notification”) and the Regulation on the Review of Concentrations of Undertakings (“Regulation on Review”). The drafts of these two regulations, together with three other regulations, were published by MOFCOM earlier this year for public consultation.
Regulation on Notification
In comparison with the previous consultation draft of the Regulation on Notification, the final version contains three main changes that should be highlighted.
Firstly, Article 3 of the previous draft, which provided a definition of control that is similar to Article 3.2 of the EC Merger Regulation, has been removed from the final text. The previous Article 3 also provided that the creation of a joint venture is to be regarded as a concentration of undertakings as referred to in Article 20 of the Anti-monopoly Law (AML). With the removal of Article 3, arguably MOFCOM has to strictly follow the wording of the AML and consider all transactions that reach the turnover thresholds and cannot be exempted by Article 22 of the AML as reportable.
Secondly, Articles 10 and 11 of the final text clarify which information is mandatory in the notifications and which information can be voluntarily submitted by the notifying parties. In the previous consultation draft, supporting documents, such as a feasibility report on the transaction, due diligence reports and reports on the post-merger forecast, were listed as mandatory documents. In the final version, those documents, along with opinions of local governments and relevant regulatory bodies, are explicitly deemed voluntary.
Thirdly, Article 14 of the final text requires MOFCOM to inform notifying parties in writing when it considers the notification to be complete. This starts the clock running for MOFCOM’s review. In practice, in recent cases MOFCOM has tended to shorten the period between the date of the initial submission and the date that the clock starts ticking.
Regulation on Review
The final version of the Regulation on Review continues to refine the procedural rules on hearings, Phase II investigations, and remedy proposals. It has removed the provision that hearing sessions are not open to the public. It also clarifies that in Phase II, an Opinion of Objection (the equivalent of the EC’s Statement of Objections) will be sent to the notifying parties and the parties can respond to it. Finally, Article 11 provides that the notifying parties should take the initiative to submit remedy proposals for MOFCOM’s consideration.
Other potential implementing regulations and/or guidelines
Due to controversy over the other draft implementing regulations on transactions not notified (“gun-jumping”) and transactions below the thresholds but potentially raising competition concerns, MOFCOM did not release them this time. It is possible that MOFCOM will substantially revise these three draft regulations and release them at a later stage.
In the past month, MOFCOM has also invited leading academics and practitioners to attend workshops in Beijing on the remedy package and horizontal mergers. It has not been ruled out that MOFCOM will issue guidelines on remedies and horizontal mergers at a later stage to provide more insights on how MOFCOM evaluates these questions.