I. BACKGROUND

On April 3, 2013, the Ministry of Commerce (the “MOFCOM”) published a draft Interim Regulations on Applicable Standards for Simple Cases regarding Concentrations of Business Operators (the “Draft Simple Case Standards”).

In 2012, MOFCOM proposed to streamline anti-monopoly pre-merger reviews by classifying concentration transactions on the basis of market share. It was indicated in certain articles by anti-monopoly experts that MOFCOM’s first draft of the “Fast-Track” pre-merger rules (“Draft Fast-Track Rules”) would create three separate categories of transactions with different timelines for review based on whether the transaction qualifies as a simple, normal, or important case. It is likely that the Draft Simple Case Standards published by MOFCOM on April 3, 2013 aim to facilitate MOFCOM’s drafting and promulgation of the proposed Draft Fast-Track Rules. However, unlike the first Draft Fast-Track Rules, the Draft Simple Case Standards do not address the standards for normal and important cases but only focus on the standards for simple concentration cases.

II. SUMMARY OF THE DRAFT SIMPLE CASE STANDARDS

Under the Draft Simple Case Standards, a concentration transaction that meets the following conditions will be classified as a simple concentration case:

  1. Within the same relevant market, combined market share of the business operators who are participating in the transaction is less than 15%;
  2. If there are upstream or downstream relationships among the business operators participating in the concentration transaction, but the cumulative market share of all such business operators in either the upstream or the downstream market is less than 25%;
  3. If there are no upstream or downstream relationships among the business operators participating in the concentration transaction, but the cumulative market share of all business operators in each of the markets is less than 25%;
  4. If the business operators participating in the concentration are establishing a joint venture in a territory outside the PRC, but such joint venture will not engage in any business activities in the PRC;
  5. If the business operators participating in the concentration are to acquire the equity interest or assets of an offshore target company, but such offshore target company does not and will not engage in any business activities in the PRC; or
  6. A joint venture currently under joint-control of more than two business operators will be controlled by one or more business operators after the concentration transaction.

The Draft Simple Case Standards explicitly exclude the following transactions from the simple concentration cases:

  1. A joint venture currently under joint-control of more than two business operators will be controlled by one single business operator through the concentration transaction and such single business operator is a competitor of the joint venture in the same relevant market;
  2. It is difficult to define the relevant market pertaining to the proposed concentration of the business operators;
  3. The proposed concentration will have an adverse impact on access to the market or technology improvement;
  4. The proposed concentration will have an adverse impact on the interests of consumers and other relevant business operators;
  5. The proposed concentration will have an adverse impact on the national economic development; or
  6. Other circumstances that MOFCOM determines might have an adverse impact on market competition.

According to the Draft Simple Case Standards, if (i) certain reporting applicants conceal important conditions or provide false materials or misleading information, (ii) a third party claims and provides relevant evidence that the concentration classified as a simple case has or will have the effect to eliminate or restrict competition, or (iii) MOFCOM finds significant changes in the reported concentration transaction or the relevant market, MOFCOM has the right to repeal a transaction that has been classified as a simple case.

III. OUR COMMENT

The Draft Simple Case Standards do not address the review procedure and timeline regarding a simple case, nor do the Draft Simple Case Standards address the procedures and timeline regarding MOFCOM’s review of other (non-simple) cases. Furthermore, certain provisions regarding the market share standards described above may need further clarification by MOFCOM. Nevertheless, MOFCOM is seeking public comments on these Draft Simple Case Standards and it reflects MOFCOM’s commitment and effort to develop a more effective and transparent pre-merger review process. In response to the continuing concern over delays in obtaining pre-merger clearance from MOFCOM, new legislation is being prepared by MOFCOM to simplify and make the entire process faster. A “Fast Track” procedure following the finalization of these Draft Simple Case Standards is likely to be introduced soon. Once such “Fast Track” procedures and the simple case standards are officially implemented, it is expected to simplify the review process of straightforward cases that are unlikely to have any competition concerns, which will be welcomed by the business world.