China's Ministry of Commerce ("MOFCOM") has just published new rules that could pave the way for an expedited merger review procedure for transactions that do not raise competition law issues. Unfortunately, these rules do not reduce the amount of information to be provided for transactions qualifying as "simple cases." Nor does MOFCOM commit to approve these transactions within a shorter timeframe.
Practitioners frequently complain about the lengthy merger review procedure in China. Since China's Anti-Monopoly Law ("AML") came into effect in 2008, MOFCOM has received more than 700 merger filings, and the number has been growing every year. The formal merger review procedure may take up to 6 months – 30 days for Phase 1, plus 90 days for Phase 2, which is extendable for another 60 days and sometimes referred to as Phase 3, in addition to a pre-filing period that can last between 1 and 2 months. Due to a lack of resources and the frequent need to consult other government agencies and stakeholders, MOFCOM's approval process is relatively long. MOFCOM's statistics show that in the first 10 months of 2013, only 13% of the cases were cleared in Phase 1. The vast majority of cases, around 80%, were cleared in Phase 2. It is quite common for concentrations with no competition concerns to undergo a review process of more than 3 months. In complicated cases involving remedies, it is not unusual for the parties to be asked to "withdraw and re-file" to give the government additional time.
The new rules
MOFCOM published its Interim Rules Regarding the Criteria for Simple Cases of Concentrations of Undertakings (the "Rules"). These Rules define which concentrations will be treated as "simple" cases:
- Horizontal mergers where the combined share of all parties is less than 15% in each relevant market.
- Vertical mergers where the parties' market shares do not exceed 25% in either the upstream or downstream market.
- Conglomerate mergers where the market share of each party in each market involved does not exceed 25%.
- Joint ventures established outside of China that have no activities in China.
- Acquisition of a foreign company that has no activities in China.
The Rules provide that a case will not be treated as simple if the relevant markets are difficult to define, or if MOFCOM believes that the concentration may result in adverse effects to market entry, technology development, consumers, other undertakings or the national economy.
MOFCOM also reserves the right to no longer consider a transaction as a "simple" case if the notifying party conceals material information or provides false or misleading information, where third parties provide evidence showing the existence of competitive concerns, or where significant changes have happened to the concentrations or in the relevant markets.
No details on the treatment of simple cases. The rules provide no indication on how MOFCOM will review "simple" cases or within what timeframe. Anecdotal evidence suggests that the review process has been sped up recently and that "simple" cases might not need to go through the consultation process with other governmental agencies. Experience will show in the next few months whether the review period for "simple" cases will be significantly shortened compared to "normal" cases.
Missing from the Rules is an indication of what information must be provided by parties notifying "simple" cases. The information that must be provided with a standard notification is quite extensive. For example, a company filing a standard notification must provide its business licenses and approval certificates of all its Chinese subsidiaries, whether or not those subsidiaries are involved in the transaction, which can be particularly burdensome for large companies with significant operations in China. There is no indication in the Rules that the amount of information to be provided for "simple" cases will be any less than for normal cases.
Clarifications on reporting obligations for offshore joint ventures. The thresholds for merger review are relatively low in China. Joint ventures between large multinational companies with sales in China in excess of RMB 400 million (USD 67 million) must be notified to MOFCOM, even if the joint venture in question has no activities in China and does not intend to carry out activities in China. In practice, some large companies have in the past chosen not to notify these transactions to MOFCOM, apparently based on an argument that the AML should apply only if a merger has effects in China (thus excluding offshore joint ventures that are not intended to be active in China) as well as the relatively low level of enforcement against improper non-filing. The Rules' explicit reference to offshore joint ventures with no activities in China confirms MOFCOM's longstanding position that such offshore joint ventures must be notified to MOFCOM if the parties and/or joint venture otherwise meet the applicable Chinese reporting thresholds, while indicating that (as in other jurisdictions) they will be treated as simple cases when they are unlikely to have effects on the China market. Paradoxically, increased compliance with the reporting requirements for offshore joint ventures may result in even higher caseloads for MOFCOM.
The Rules are a first step towards the adoption of a simplified procedure for transactions that should not raise competition law concerns. However, the Rules may not result in a significantly lesser burden on companies and quicker clearances. MOFCOM must provide additional details on the likely timeframe for reviewing "simple" cases and the information that must be provided for this truly to be a simplified procedure.