In line with its recent reformation of its internal organizations, the State Council unveiled a set of provisions on the major responsibilities, internal organizations, and personnel of the National Development and Reform Commission (the NDRC) on August 21, 2008. The provisions adjust the NDRC’s responsibilities. In general, the NDRC will focus more on guiding the macro-economy, ease itself out of micromanaging certain matters, and delegating more authority to lower-level governments or government departments to oversee specific industries. Notably, the provisions specify the NDRC’s role with regard to the Anti-Monopoly Law (the AML) and the national security review mechanism, and outline the responsibilities of the newly established National Energy Commission under the NDRC.
The provisions are entitled Provisions on the Main Responsibilities, Internal Organizations and Personnel of the National Development and Reform Commission, NDRC the Provisions). The Chinese cabinet issued the Provisions in accordance with both the Plan on the Organizational Reform of the State Council approved by the National People’s Congress in March 2008 and the Circular on the Establishment of the State Council’s Internal Organizations issued in the same month.
Adjustments to the NDRC’s Responsibilities
The Provisions call upon the NDRC to reduce its micromanagement of, and involvement in, approving specific matters. The NDRC must revise the Catalogue of Government Approval of Investment Projects (the Catalogue) in a timely fashion to raise the threshold for certain investments to trigger national review, and to narrow the scope of the examination of investment projects. The State Council issued the current Catalogue in 2004 as an appendix to its Decisions on Reforming the Investment System, and the Provisions state that, in principle, the NDRC will amend the Catalogue every two years. The Catalogue covers non-government investments on fixed assets that are significant or restricted by the government, and specifies what level of government has the authority to approve such investments.
The Provisions affirm that only a small percent of fixed asset investments within the national investment plan require the approval of the State Council or the NDRC. The rest merely require the approval of local governments or government departments overseeing specific industries, or the self-discretion of the enterprises.
The NDRC will delegate its responsibilities relating to the administration of the energy industry to the National Energy Commission (the NEC). Specifically, NEC makes strategies, plans, and policies regarding energy development, oversees the development of the petroleum, natural gas, coal mining, and electrical power industries, sets forth policies and measures on the development of new energy and energy conservation, and promotes international cooperation in the energy industry. The NEC was formed in March 2008 as a sub-ministerial regulatory body under the NDRC to oversee the development of China’s energy sector, consolidating energy-related responsibilities previously dispersed among several ministerial and sub-ministerial bodies.
The NDRC will transfer its responsibilities pertaining to industry administration and information technology to the Ministry of Industry and Information Technology (the MII), a new ministry established in March 2008. Among other things, the MII will be responsible for approving certain fixed asset investment projects in industries, communications, and information technology. It will determine policies and standards on biological medicine, and promote energy conservation and the comprehensive use of energy in industries and communications.
In addition, the NDRC will further reduce or delegate the pricing rights of the central government. It will also eliminate those matters that the State Council has removed from the list of matters awaiting administrative examination and approval.
The NDRC’s Functions under the Anti-Monopoly Law
On anti-monopoly matters, the Provisions state that the NDRC will handle investigations on pricingrelated agreements or abuses. It is worth noting, however, that it may be difficult to distinguish between “pricing-related” and “non-pricing-related” forms of anti-competitive activities and avoid overlapping or conflicting regulations from authorities, namely the NDRC and the State Administration of Industry and Commerce (SAIC).
The AML establishes that the Anti-Monopoly Commission under the State Council and the antimonopoly enforcement authorities designated by the State Council (the AMEA) will govern monopolistic conduct. The Anti-Monopoly Commission will be in charge of general policies, and organizational, regulatory and coordination tasks, while the AMEA deals with day-to-day enforcement concerning anti-monopoly activities. The AML does not designate specific government authorities to serve as the AMEA; however, China’s State Council has finally formed a threepronged structure for the AMEA involving the Ministry of Commerce (MOFCOM), the NDRC, and the SAIC. MOFCOM is solely in charge of pre-merger reviews. The SAIC has the authority to investigate anti-monopoly agreements, abuses of market dominance by persons or enterprises, and abuses of administrative power that restrict or eliminate competition (excluding pricing-related agreements or abuses).
The National Security Review Mechanism
In recent years, the Chinese government has become more aware of the importance of national security reviews in mergers and acquisition cases involving foreign investors. The AML spells out that a national security review is separate from an anti-monopoly review.
The Provisions stipulate that MOFCOM, the NDRC, and other relevant government authorities will establish a joint conference system for national security reviews. MOFCOM will be responsible for receiving and responding to applications from foreign investors for mergers or acquisitions involving both foreign and domestic enterprises. If an M&A transaction falls within the scope of a national security review, it will be brought before the joint conference. Whether a specific transaction should be submitted for a national security review will be subject to MOFCOM’s discretion, while the joint conference will determine whether the specific transaction will survive the national security review.
As the Provisions only lay out the general responsibilities of the government authorities involved in national security reviews, many aspects of this mechanism remain unclear. Detailed rules on how to implement the mechanism are expected to follow the Provisions and address questions like what triggers a review, and what are the procedure and timeline of a review. Another uncertainty is the composition of the joint conference. The Provisions leave open what government authorities other than MOFCOM and the NDRC may be included in the joint conference. Government authorities such as the MII, the Ministry of Science and Technology, and even the Ministry of Culture are among those that are reasonably expected to be designated as members of the joint conference. Such uncertainties will continue to increase foreign investors’ frustrations.