The Anti Monopoly Law of the People's Republic of China, enacted a year ago, came into force on 1 August 2008.

As usual with Chinese statutes, it is drafted in very general terms, with the details being left to be resolved by implementing regulations, judicial interpretations and informal practice.

Implementation of this particular Law has been complicated further by debates within the Chinese Government as to who should have power to enforce it. This update summarises the current status. Further updates will follow as matters develop.

Regulatory structure

The Law provides for a two-tier structure: a Commission with overall policy-setting and supervisory authority, and a front-line Enforcement Authority to be "designated." The word "designated" left open whether a new authority would be established or whether an existing authority (or authorities) would be given the relevant responsibilities. It has long been rumoured that the latter was more likely, and so it has proved:

  • The Commission will have representatives from different parts of the government, in particular MOFCOM (Ministry of Commerce), SAIC (State Administration of Industry and Commerce) and NDRC (National Development and Reform Commission). 
  • Enforcement responsibility will be divided between these three existing departments as follows:
    • MOFCOM will continue to take the lead on merger control, though its remit will now extend to purely domestic mergers in addition to (as pre-August 2008) foreign acquisitions.
    • NDRC will only have jurisdiction over price-fixing cases.
    • SAIC will have jurisdiction over anti-competitive agreements and abuse of dominance, except in so far as within NDRC jurisdiction.

Whilst these basic arrangements now seem to be settled, the details are not at all clear. For example:

  • Whilst the intention appears to be that the NDRC will, in effect, be confined within the jurisdiction which it has already exercised for years under previous legislation, namely the Price Law, the precise boundaries between its jurisdiction and that of SAIC are not clear: the Law does not define price-fixing as a distinct legal category (it is simply an example of conduct which breaches the provision of the Anti Monopoly Law which is equivalent to article 81 of the EC Treaty.)
  • Another area of potential confusion is that MOFCOM speakers have indicated informally that they regard their jurisdiction as extending to joint venture (JV) agreements but there is no clarity yet as to what the dividing line will be between JVs which amount to "concentrations" and those which do not.

The new merger regulation

On Sunday, 3 August 2008, a regulation was at last promulgated in relation to merger control. Click here for an English translation.

Readers may recall that a much longer consultation draft was published in March 2008, but it appears from the very short final version that many details could not be agreed, so the final version contains only the basic minimum.

The new regulation has five short articles, but the only new substantive provisions are §§3 and 4:

"§ 3 If a concentration of undertakings falls into any of the following categories, then the undertakings in question may not implement it without first notifying the relevant department of the State Council in charge of commerce:

(1) the turnover globally of all undertakings involved in the concentration was in excess of RMB 10 billion in the previous financial year, and the turnover of each of at least two of them in China was in excess of RMB 400 million in such year; [or]

(2) the turnover in China of all undertakings involved in the concentration was in excess of RMB 2 billion in the previous financial year, and the turnover of each of at least two of them in China was in excess of RMB 400 million in such year.

The particular circumstances of special sectors, such as banking, insurance, securities and futures, shall be taken into account when calculating the turnover of the undertakings in these sectors. Detailed provisions for this will be drawn up by the relevant department of the State Council in charge of commerce, in consultation with other relevant authorities and departments under the State Council.

§ 4 The relevant department of the State Council in charge of commerce shall conduct an investigation in accordance with law if the facts and evidence collected under the applicable procedures demonstrate that a concentration of undertakings has or may have the effect of eliminating or restricting competition even though it does not meet the conditions for notification specified in §3 above."

It will be noted that the filing thresholds in §3 are purely monetary: the market share threshold proposed in March 2008 has been taken out, though §4 leaves it open to the authority to commence an investigation of its own motion even where the thresholds are not surpassed. The state media has on 6 August 2008 quoted an official as indicating that §4 permits investigation if market share is "large enough to restrict competition".

Also of interest is that the final thresholds are slightly different from those indicated by the Legislative Affairs Office as recently as 31 July 2008.

It will also be noted that we can apparently expect separate rules to apply in (at least) the banking, securities and insurance sectors. It seems that these will be drafted in conjunction with the sector-specific regulators (CBRC, CSRC and CIRC). §§1 and 5 are non-substantive, whereas §2 simply repeats word-for-word §20 of the Anti Monopoly Law without clarification (compare the March 2008 draft which attempted to clarify the rather vague concepts of "concentration" and "control" laid down in §20).

The phrase "the relevant department of the State Council in charge of commerce" is ambiguous but it appears that MOFCOM will continue to take the lead but with SAIC still having a background role (i.e. as at present). It remains to be seen whether SAIC's role will expand in practice. The meaning of the "applicable procedures" in §4 is also ambiguous: no new procedures have yet been published.

The existing merger filing provisions applicable to foreign investors do not appear to have been formally repealed yet but the Legislative Affairs Office has indicated that they will be revised to be consistent with the new merger regulation. Parties engaged in M&A activity in China should bear in mind that the new merger filing regime is, unlike the old one, backed by express penalties for non-compliance, and extensive powers to unwind transactions.

Other implementing provisions Despite unofficial assurances over the last year that numerous detailed implementing regulations would be issued before 1 August 2008, none in fact came out before that date, and only the merger regulation referred to above has (so far) come out afterwards. Others are rumoured to be under preparation, but the timing is unclear. As a result, very basic matters remain obscure, such as the status of previous Laws and regulations which conflict with the Anti Monopoly Law, or how the exemption process will work, let alone more sophisticated matters. More news will follow periodically when the situation becomes clearer. One useful source for readers interested in following official pronouncements in the meantime is available here.

Meanwhile, in Hong Kong...

The public consultation period for the proposed general competition law drew to a close on 5 August 2008.

Initiated in May 2008, this was the second public consultation undertaken by the Government on changes to Hong Kong's competition policy and contained a detailed proposal as to structure of the new competition law. The Government has said that it intends to introduce a Competition Bill into the Legislative Council in the 2008/2009 session. If the Government follows the proposal in the last consultation paper, the Bill is likely to contain general prohibitions against agreements and other concerted practices or abuse of “substantial” market power that have the purpose or effect of significantly lessening competition. It is still not clear whether the Government will include a merger control regime in the Bill.