Merger control in China: overview
A Q&A guide to merger control in China.
The Q&A gives a high level overview of merger control, regulatory framework and regulatory authorities, relevant triggering events and thresholds in China. It also covers notification requirements, procedures and timetables, publicity and confidentiality, third party rights, substantive test, remedies, penalties, appeals, joint ventures and proposals for reform.
For information on restraints of trade, monopolies and abuses of market power in China, visit Restraints of trade and dominance in China: overview.
This Q&A is part of the global guide to competition and cartel leniency. For a full list of jurisdictional Merger Control Q&As visit www.practicallaw.com/mergercontrol-guide. For a full list of jurisdictional Restraints of Trade and Dominance Q&As visit www.practicallaw.com/restraintsoftrade-guide.
For a full list of jurisdictional Cartel Leniency Q&As, which provide a succinct overview of leniency and immunity, the applicable procedure and the regulatory authorities in multiple jurisdictions, visit www.practicallaw.com/leniency-guide.
China's merger control regime is regulated under Chapter 4 of the Anti-Monopoly Law.
The Anti-Monopoly Bureau of the Ministry of Commerce is responsible for regulating and enforcing merger control.
See box, The regulatory authority.
Transactions that meet the following two criteria must be notified and cleared by Ministry of Commerce (MOFCOM) before they can be completed. The transaction is deemed a concentration and the parties to a transaction meet specified turnover thresholds (see below, Thresholds).
A concentration is defined as (Chapter 4, Anti-Monopoly Law ):
A merger of operators.
An acquisition of control of other operators through acquisition of equity or assets.
An acquisition of control of other operators or the capability to exercise decisive influence on other operators by way of contracts or other means.
The Guidance on the Notification of Concentration of Business Operators (Guidance), which was issued on 5 January 2009 by the MOFCOM and revised on 6 June 2014, prescribes the detailed factors that need to be considered when determining whether one business operator will acquire control over another business operator or be able to exert decisive influence over another business operator through a transaction (power of control).
Under Article 3 of the Guidance, these factors include numerous legal and factual factors. Concentration agreements and the articles of association of the target are important bases for assessing power of control, but will not be considered as the only basis. In fact, for some cases, while we cannot conclude whether or not the power of control will be acquired from the agreements and articles of association, the business operator will still be deemed as having acquired the power of control as long as it obtained de facto control, due to, for example, the fragmented ownership of other shareholders.
Generally, the following factors, among others, will be taken into consideration in determining whether one business operator acquires the power of control over the other business operator through a transaction:
The purpose of the transaction and future plans.
The equity structure of the other business operator both before and after the transaction and the changes to it.
The voting matters and voting mechanisms of the shareholders' meeting of the other business operator, and the past attendance and voting records of the shareholders' meeting.
The composition and voting mechanisms of the board of directors or the board of supervisors of the other business operator.
The appointment and removal of senior executives of the other business operator.
The shareholder-director relationship of the other business operator and whether there are voting rights by proxy or if there are any persons acting in concert.
Whether there is a significant business relationship, or whether there are any cooperation agreements and so on between the business operator and the other business operators.
The Chinese merger control regime adopts an ex ante anti-trust review regarding the concentration of business operators that a transaction involving concentration of business operators is not allowed to implement without obtaining the MOFCOM's anti-trust approval. Moreover, if the concentration is not notified to the MOFCOM before its implementation, the MOFCOM has the right to investigate and review the concentration, subject to the general two-year limitation period (see Question 11).
The relevant turnover thresholds are either:
During the previous fiscal year, the total global turnover of all operators participating in the concentration exceeds CNY10 billion and at least two of these operators each had a turnover of more than CNY400 million within China.
During the previous fiscal year, the total turnover within China of all the operators participating in the concentration exceeded CNY2 billion, and at least two of these operators each had a turnover of more than CNY400 million within China.
Mandatory or voluntary
The anti-trust notification must be made before the merger is completed. The Anti-Monopoly Law (AML) provides that where the concentration of business operators has met the thresholds, an operator must notify Ministry of Commerce (MOFCOM) in advance. Where the notification has not been made, the concentration cannot be implemented. Article 14 of the Guidance further clarifies that a notifying party must notify the MOFCOM of a transaction involving a concentration of business operators after the conclusion of the concentration agreements but before closing (or implementing) the concentration. Therefore, considering the reviewing time of the MOFCOM officials, it is recommended that a notification is made shortly after signing the share or asset purchase agreement.
Pre-notification formal/informal guidance
There is a pre-notification consultation procedure under the China merger review regime, which means a business operator can make a pre-notification consultation with the MOFCOM to seek informal guidance relating to both procedural and substantive issues (such as whether the transaction is notifiable), how to define the relevant market and topics in relation to filing materials, filing procedure, review procedure and so on). The pre-notification consultation must be made before the Anti-Monopoly Bureau (AMB) decides to officially accept to review the transaction. However, the opinion given by the MOFCOM during the pre-notification consultation procedure is informal and non-binding. It is not possible to obtain formal binding guidance before notification.
Responsibility for notification
Notifications must be filed by all business operators involved in the merger. For all the other types of concentrations, notifications must be filed by the operator acquiring control of, or being able to exercise decisive influence, on other operators and other operators should co-operate with this operator (in respect of the filing).
Where there are two or more business operators with obligations to notify the MOFCOM, either of them on agreement or all of them jointly may be responsible for the anti-trust notification. Where business operators agree to appoint one of them to take the responsibility for the anti-trust notification and if the agreed business operator does not make the notification, the other business operator(s) with obligation(s) to notify will not be relieved from the legal liabilities for failure to make notification in accordance with the law. Where the obligor does not notify the MOFCOM of the concentration, other business operators participating in the concentration can make the notification.
The notification must be submitted to the AMB of the MOFCOM through the Administrative Management Service Centre of the MOFCOM, which is a window for AMB to receive and send out documents.
Form of notification
Applicants intending to seek anti-trust clearance concerning their transactions must prepare a filing form based on the Anti-trust Notification Form template issued by the MOFCOM. The MOFCOM updated the template on 6 June 2012, which came into effect on 7 July 2012. The new form includes 19 sections, for example:
Name of the transaction.
Nature of the transaction.
Cause of notification.
Business operators involved in the concentration.
Overview of the transaction.
The notifying party must prepare and submit both confidential and non-confidential versions of the notification documents to the MOFCOM. The MOFCOM will use the non-confidential version to seek opinions of other government agencies or stakeholders in the market (see Question 6, Representations).
After almost one year of preparation, the MOFCOM introduced its fast-track mechanism (simplified procedure) in February 2014. On 11 February 2014, the MOFCOM published the Interim Rules regarding the Standards for Simple Cases of Concentrations of Operators (Simple Cases Standards). Based on the Simple Cases Standards, the MOFCOM treats the following transactions as "simple cases", which can be reviewed under a simplified procedure:
Horizontal mergers where the collective market share of all operators is below 15%.
Vertical mergers where the market share of each operator is below 25%.
Non-horizontal and non-vertical mergers where the market share of each operator in each market that is relevant to the transaction is below 25%.
Offshore joint ventures or acquisition transactions where the joint venture or the target does not engage in business within the territory of China.
Reduction of the number of controlling parties.
In addition, the simplified procedure will not apply in the following circumstances (Simple Cases Standards):
A change of control from joint to sole control where the remaining controlling parties and the joint venture are competitors in the same relevant market.
The relevant market is difficult to define.
The transaction may cause any adverse impact on market entry, technology development, consumers, other relevant operators or national economy.
Other circumstances where the MOFCOM determines that competition may be adversely affected.
On 18 April 2014, the MOFCOM issued Guidance on the Notification of Simple Cases of Concentration of Business Operators (For Trial Implementation) (Guidance on Simple Cases) in which the Publicity Form of Simple Cases for Antitrust Review is attached.
The template for simple cases removes sections relating to supply and demand structure in the relevant market, market entry, information on horizontal or vertical agreements of co-operation, possible efficiency generated by the concentration, failing firm defence and other parties' opinions and so on. The workload for preparing notification of a simple case is, therefore, to some extent, is not as much as before. Similar to the normal procedure, the notifying party under the simplified procedure must prepare and submit both confidential and non-confidential versions of the notification documents to the MOFCOM. In addition, notifying parties must also complete a Publicity Form for AMB to publish on its official website during the publicity period (see Question 4, MOFCOM's review period).
In October 2013, the MOFCOM launched an e-filing system. All notifying parties that file after 28 October 2013 must submit the filing forms and supporting documents using the e-filing system. The MOFCOM's e-filing system automatically produces filing packages after the notifying parties who input filing information and documents into it. After the filing packages have been generated, the notifying parties must save the filing packages on to a CD and submit the CD to the MOFCOM. The MOFCOM also require notifying parties to update the information in the e-filing system every time they supplement further information to the MOFCOM after the first submission.
There are no filing fees.
Obligation to suspend
Notifiable transactions must not be implemented or closed before obtaining anti-trust clearance from the MOFCOM. However, under the following circumstances, the concentration is not required to notify in either of the following circumstances (Article 22, AML):
Where one of the parties to a concentration holds assets or shares that grant at least 50% voting rights in each of the other operators.
Where the assets or shares that grant 50% voting rights in each of the parties to the concentration are held by the same operator that is not party to the concentration.
Procedure and timetable
The anti-monopoly notification process can be divided into the following three major periods.
The preparation of the notification materials normally takes around one to three months, depending on the co-operation of the parties, the complexity of the case, and the translation amount, among other things. During this period, the parties can apply for pre-notification consultation (see Question 3, Formal/informal guidance).
During the pre-acceptance period, Ministry of Commerce (MOFCOM) officials review the anti-trust filing materials to see whether the materials submitted are complete and compliant with the MOFCOM's requirements. For simple cases, the MOFCOM officials will, in addition to the above, review whether a simplified procedure is applicable to the case. The MOFCOM has sole discretion to determine whether the notification documents are complete and compliant with the MOFCOM's requirements or not. The MOFCOM can require the notifying parties to provide rounds of supplementary information and documents. When the MOFCOM considers that the notification documents are complete, it informs the notifying parties of the official start of the review period by issuing Notice of Official Acceptance (see below, MOFCOM's review period). The pre-acceptance period usually takes five to eight weeks. Occasionally, it can take two to three months. For example, in the Coca-Cola/Huiyuan case, the Inbev/AB case, and the Mitsubishi Rayon/Lucite case, the notifying parties were repeatedly required to submit supplementary information during the pre-acceptance period.
The MOFCOM's review period
According to the Anti-Monopoly Law (AML), there are two phases for the MOFCOM's anti-trust review:
Phase 1. The MOFCOM must conduct a preliminary review and make a decision on whether to initiate a further review within 30 days from the date of receipt of the complete filing documents. They must inform the applicant of the decision in writing. By the end of the 30-day period, there may be three scenarios:
the MOFCOM makes a clearance decision without conditions;
the MOFCOM makes a decision to initiate a further review, that is, entering Phase 2; or
the MOFCOM makes a clearance decision with conditions, which is very rare. So far, there is only one conditional case (GM/Delphi) that has been cleared at the end of Phase 1.
If the MOFCOM takes no decision at all at the expiry of the 30-day period, the parties can execute the transaction.
Phase 2. If the MOFCOM makes a decision to further review the filing, it will complete the review within 90 days from the date of issuing the decision and it must notify the parties involved in writing.
The MOFCOM may extend the 90-day time limit for Phase 2 by written notice, provided that the extension does not exceed 60 days and under any of the following circumstances:
the applicant agrees to extend the time limit for the review;
the documents submitted by the applicant are inaccurate and therefore need further verification; or
the relevant status has been significantly changed after the notification made by the applicant.
At the end of the Phase 2 review, the MOFCOM will make a decision either to approve the transaction, to approve it subject to restrictive conditions or to prohibit the transaction. Under the AML, if the MOFCOM fails to make a decision at the expiry of the relevant time periods in Phase 2, the transaction is presumed to be cleared and the parties can execute the transaction.
For simple cases, the Guidance does not stipulate specific time limit regarding the MOFCOM's review; however, the review period for simple cases is generally less than that for normal cases. The above two phases of review procedure also apply to simple cases. From the authors' experience, the MOFCOM is aiming to clear a simple case within Phase 1. Most simple cases filed were cleared within Phase 1 ever since the establishment of the simplified procedure with a limited amount of cases entering into Phase 2. In 2015, according to the public available information, the MOFCOM cleared 223 simple cases within Phase I, with 23 simple cases entered into Phase II review and three into extended Phase II review. Different from normal cases, once a simple case is officially accepted by the Anti-Monopoly Bureau (AMB), the bureau will post the case's publicity form on the MOFCOM's website for a ten day period for public review. If any third party believes that the case is not qualified as a simple case, that party can raise objections in that regard and submit relevant evidence. If AMB discovers that the proposed transaction is not qualified as a simple case under Article 2 of the Simple Case Standards, the agency must revoke the case from the simplified procedure and require the notifying parties to re-notify under normal procedure.
For an overview of the notification process, see flowchart, China: merger notifications.
Publicity and confidentiality
For cases under the normal procedure, Ministry of Commerce (MOFCOM) does not make any immediate public announcements about initiation or completion during its review of a concentration. Traditionally, the MOFCOM only made public announcements under the following two circumstances:
Where it has prohibited a concentration.
Where it has imposed conditions on a concentration.
In both cases, the MOFCOM made the announcements right after the decisions were made. These public announcements are available on the MOFCOM's website (http://english.mofcom.gov.cn). A public announcement generally outlines the timetable of the MOFCOM's review process, basic information of the transaction and the parties, definition of the relevant market, the MOFCOM's competitive analysis and its final decision. Relatively speaking, MOFCOM's public announcements contain less information and analysis compared to those made by the more sophisticated foreign authorities such as the European Commission. The MOFCOM made public the remedy solution submitted by the notifying parties and recognised by the MOFCOM along with its conditional approval decisions. In total, the MOFCOM has published the detailed remedy solutions in five cases, namely, Glencore/Xstrata (2013), Baxter/Gambro (2013), MediaTeck/Mstar (2013), ThermoFisher/Life Technologies (2014) and NXP/Freescale (2015).
As of 2012, the MOFCOM began to make quarterly releases of the unconditionally approved cases on its website. In November 2012, the MOFCOM published 458 notifications it had reviewed and cleared from the implementation of the Anti-Monopoly Law (AML) on 1 August 2008 to 30 September 2012. Since then, the quarterly publication of cases list has become a regular practice of the MOFCOM. According to the MOFCOM's publication, up to the end of 2015, the MOFCOM cleared, in total, about 1300 merger notifications. The published information includes the names of the transactions, the business operators concerned and the decision dates (the decision dates of some early cases are not published).
For simple cases, unlike the normal procedure, the MOFCOM publishes the publicity form of the simple case for public review during the first ten days after the official acceptance.
Article 41 of the AML generally stipulates that anti-monopoly law enforcement authorities and their personnel must maintain the confidentiality of business secrets that they learn during their investigations. As such, the business secrets that become known to the MOFCOM during the review must also automatically be kept confidential.
Confidentiality on request
The notifying party can request certain information to be kept confidential and is not shared with any third parties other than the MOFCOM. The MOFCOM typically asks the notifying party to prepare a non-confidential version of the notification materials to be used to solicit opinions from other government agencies or other stakeholders in the market (see Question 6, Representations).
Rights of third parties
During the review process, the Ministry of Commerce (MOFCOM) can seek opinions from stakeholders including the relevant governmental departments, industrial associations, downstream and upstream companies, competitors and consumers. In addition, for simple cases, the MOFCOM will publish the Publicity Notice on its website for public review and comment in a period of ten calendar days.
When seeking opinions, the MOFCOM can release the non-confidential version of the filing documents prepared by the notifying party to the stakeholders who are consulted by the MOFCOM.
During the review process, the MOFCOM can hold hearings on its own initiative or as a response to the request of the relevant parties to hear various relevant parties' opinions.
When holding a hearing, the MOFCOM can notify the following parties to attend the hearing:
The business operators participating in the concentration.
The operators' competitors and enterprises in the upstream and downstream industries.
Representatives from other relevant enterprises.
The MOFCOM can invite, as appropriate, relevant experts and representatives of industrial associations and relevant governmental departments, as well as consumers.
If a hearing participant intends to make a separate statement for the purpose of keeping confidential business secrets, a separate hearing can be arranged.
When evaluating a concentration, the Ministry of Commerce (MOFCOM) must take the following factors into consideration, according to the specific characteristics of individual cases (Article 3, Interim Provisions on Assessment of Competitive Effects of Concentration of Business Operators (Interim Assessment Provisions)):
The market share of business operators who participate in the concentration in the relevant market and their control over the market.
The degree of market concentration of the relevant market.
The impact of the concentration on the market entry and technology development.
The impact of the concentration on consumers and other relevant business operators.
The impact of the concentration on the national economic development.
Other factors having an impact on the market competition, which must be taken into consideration.
After the evaluation, if concentrations have or may have the effect of eliminating or restricting competition, the MOFCOM must prohibit the concentration. However, if the business operators are able to prove that the positive impact of the concentration on competition obviously outweighs its adverse impact or accords with the public interest, the MOFCOM may decide not to ban the concentration. In addition, for the concentration that is not banned, the MOFCOM may decide to impose restrictive conditions while approving the transaction, in order to reduce the adverse impact of the concentration on competition.
The notifying parties can submit efficiency argument in the filing form. According to the Interim Assessment Provisions, a concentration may benefit competition in the following ways, for example:
Better integrate R&D resources to benefit the technology development, which eventually enhances customers' interest.
Increase economic efficiency, achieve the effect of scale economy and scope economy, save cost and increase product diversification.
Create effective constraint to competitors, which can urge the competitors to improve quality and reduce price.
Facilitate business extension, increase the competitiveness, increase efficiency of the economy and benefit national economy.
Although the failing firm defence does not appear in the Ministry of Commerce's (MOFCOM) guidelines, it is still practical to raise this defence. When evaluating the concentration of business operators, the MOFCOM will also need to take into consideration whether the parties to the concentration are an enterprise on the verge of bankruptcy (Article 12, Interim Assessment Provisions). In any event, the filing parties can submit what adverse effect they are expected to suffer if the concentrations fail. The MOFCOM will take it into consideration as a relevant factor during its review.
Remedies, penalties and appeal
On 4 December 2014, the Ministry of Commerce (MOFCOM) released the Provisions of the Ministry of Commerce on Imposing Restrictive Conditions on Concentration of Business Operators (for Trial Implementation) (Provisions on Restrictive Conditions), which came into effect on 5 January 2015. The Interim Regulations on Implementing the Divestiture of Assets or Businesses in Concentration of Business Operators, which was issued on 5 July 2010, was simultaneously repealed.
The MOFCOM can impose restrictive conditions including the following types (Provisions on Restrictive Conditions):
Structural conditions including divestiture of tangible assets, intangible assets such as IP, or other relevant rights and interests and so on.
Behavioural conditions including granting access to infrastructures such as network or platform, licensing key technologies (patents, know-how or other intellectual property rights) and terminating exclusive agreements and so on.
Hybrid conditions that combine structural conditions and behavioural conditions.
The notifying party can propose remedies to the MOFCOM during the period of anti-trust filing review. The notifying parties can propose remedies within a specified period after the MOFCOM raises a competition concern or, in some circumstances, before any competition concern may be raised by the MOFCOM (for example, where the notifying party has already submitted proposal for remedy to regulators in other jurisdictions, the notifying party may proactively propose a remedy to the MOFCOM before the MOFCOM raising any concern) (Provisions on Restrictive Conditions).
The Provisions on Restrictive Conditions also provide that the notifying party must submit a final proposal 20 days before the deadline of the further review period (that is, Phase 2) (see Question 4, MOFCOM's review period).
In practice, the notifying party usually offers remedies to address competition concern raised by the MOFCOM. Both the MOFCOM and the notifying parties can offer suggestions to amend the proposed restrictive conditions. When the MOFCOM deems the remedies effective and feasible to reduce the anti-competitive effect of the concentration, it will make the decision of clearance with restrictive conditions. In practice, the parties can offer remedies at either Phase 1 or Phase 2. However, to date only one case (GM/Delphi) was conditionally approved during Phase 1.
The divestiture obligor must appoint supervising trustees to supervise the relevant divesture behaviour and make reports to the MOFCOM as requested (Provisions on Restrictive Conditions). In addition, the divestiture obligor must provide timely and periodical reports to the MOFCOM on the implementation of the remedies. The interval between reports changes on a case-by-case basis. For example, in the MOFCOM's decision on the Google/Motorola case, Google must report to the MOFCOM every six months and in the MOFCOM's decision on the Glencore/Xstrata case in April 2013, Glencore was requested to report to the MOFCOM annually. As for the other types of restrictive conditions, the MOFCOM may require the notifying parties to appoint trustees to supervise the implementation of the restrictive conditions. The duties and obligations of the obligor of restrictive conditions of other kinds, as well as the selection and duties of trustees, can be referred to the relevant ones in case of divesture.
The Anti-Monopoly Law (AML) provides no criminal penalties, but only administrative penalties, for failing to comply with the merger control rules.
The PRC Administrative Penalty Law provides that no administrative punishment will be imposed for illegal behaviours that are not discovered within two years of its commission, unless otherwise prescribed by law. As there is no special provision in the AML with regard to the time limit for imposing administrative punishment, the two-year statute of limitations applies. Under Chinese law, the two-year limitation period starts running either from:
The date the illegal act is committed.
The date the illegal act ends, if it is of a continual or continuous nature.
Currently, there is no guidance on whether the implementation of a concentration that is notifiable to the Ministry of Commerce (MOFCOM) but, nevertheless, fails to notify is a continuous or continual act. If it is deemed to be continuous or continual, the MOFCOM can take action as long as the violation is discovered within two years of when the violation ends.
Failure to notify correctly
When the parties to a concentration fail to notify the transaction to the MOFCOM, they will be ordered to halt the concentration, dispose shares or assets, transfer business and take other necessary measures within a limited time to restore the situation to pre-concentration. In addition, a fine of up to CNY500,000 may be imposed.
When a notification is filed incorrectly, the MOFCOM may ask the notifying parties to make clarifications and submit supplementary information. However, in severe circumstances, the MOFCOM may, in practice, ask the notifying parties to revoke the notification.
If a notifying party is found concealing substantive information or providing false information, the MOFCOM will not accept the notification or will cancel the notification if it has been accepted. In cases where a notifying party is found concealing substantive information or providing false information to take advantage of the fast-track mechanism (simplified procedure), the MOFCOM will also stop applying the simplified procedure to the notification.
Those who refuse to provide relevant materials or information, or provide false materials to the MOFCOM, must rectify the violation and pay a fine not exceeding CNY20,000 for individuals or a fine not exceeding CNY200,000 for companies. In more serious cases, a fine ranging from CNY20,000 to CNY100,000 may be imposed on individuals and a fine ranging from CNY200,000 to CNY1 million may be imposed on companies. Where the case constitutes a criminal offence, criminal liability will be pursued under the criminal law.
Implementation before approval or after prohibition
If a business operator has implemented the concentration in violation of the provisions of the AML (including implementing the transaction without due notification or before approval or after prohibition of the concentration), the MOFCOM will order the operators to stop the implementation and to reinstate the pre-concentration status by:
Disposing of shares or assets.
Transferring the business within a required period.
Adopting other necessary measures.
In addition, a fine not exceeding CNY500,000 may be imposed on the operators.
The MOFCOM published its first administrative penalty decision regarding business operators' failure to notify the MOFCOM of the concentration on 2 December 2014. In that case, the MOFCOM imposed a fine of CNY300,000 on Unigroup for its failure to notify its acquisition of RDA Microelectronics in accordance with the AML. The MOFCOM found Unigroup entered into an acquisition agreement with RDA on 11 November 2013 to acquire all of the RDA's shares. The transaction was completed on 18 July 2014. After the MOFCOM's evaluation of the transaction, the MOFCOM believed that the transaction would not have the effect of eliminating or restricting competition on the relevant market and therefore did not order Unigroup to stop the implementation or reinstate the pre-concentration status.
Failure to observe
Any failure to observe a decision of the regulator is a violation of the AML. Where a business operator fails to perform its obligations in accordance with the imposed restrictive conditions, the MOFCOM will order it to rectify the relevant conduct within a specified period. If the circumstance is serious, the MOFCOM will order the operators to stop the concentration, dispose of the shares or the assets within the specified period, transfer business within the specified period and take any other necessary measures to return to the status that existed before the concentration, and may impose a fine of no more than CNY500,000 (Article 29, Provisions on Restrictive Conditions). For a transaction that is banned by the MOFCOM, if the business operator continues to implement the transaction, which is against the MOFCOM's decision, the MOFCOM will order the operators to stop the implementation and to reinstate the pre-concentration status. In addition, the MOFCOM may impose a fine of no more than CNY500,000 (Article 48, AML). On 2 December 2014, the MOFCOM issued two penalty decisions against Western Digital for its failure to comply with the remedy attached to the 2012 conditional clearance by:
Transferring HGST, one of the subsidiaries of Viviti Technologies, to become its wholly-owned subsidiary.
Removing the development division of Viviti/HGST and transferring relevant employees to Western Digital without the MOFCOM's permission.
The fine was CNY300,000 for each of the above. As of 4 March 2015, the MOFCOM have only published the above two penalty decisions against the company for not fully observe with merger control decisions.
Rights of appeal
Relevant parties who disagree with a decision to prohibit, clear or clear with conditions a concentration have the right of appeal. However, they must first apply for an administrative review before complaining to the court. To appeal other decisions of the Ministry of Commerce (MOFCOM), such as penalty decisions, the relevant parties can either apply for administrative review or file a complaint to the court directly.
The review authority is the MOFCOM and an application for administrative review must be submitted within 60 days after the decision is known by the applicant.
To appeal against the decision of the administrative review, the appellant can choose to file an application for a final review with the State Council or to initiate an administrative lawsuit before a competent people's court within 15 days of receiving the administrative review decision.
Third party rights of appeal
A third party can apply for an administrative review under the Administrative Review Law of China if it considers that its rights and interests are affected by the decision of an anti-trust enforcement agency.
Automatic clearance of restrictive provisions
Regulation of specific industries
Currently, no industry is specifically regulated except for the financial services and agriculture industry.
Financial services industry
The Rules on Turnover Calculation for Notification of Concentration between Business Operators in Financial Industry issued by the MOFCOM and other relevant authorities provide a special turnover calculation method for business operators involved in financial services.
The collaboration arrangements between the co-operative or collaborative acts between agricultural producers and rural economic organisations are not subject to the regulation of the Anti-Monopoly Law.
The Anti-Monopoly Law (AML) and the relevant regulations have not specifically discussed joint ventures under the merger review rules in detail. There is no legal definition of a joint venture in the AML. However, under Article 4 of the Guidance on the Documentation of the Notification of Concentration of Business Operators, the establishment of joint ventures is listed as being a type of transaction that could be notifiable under the merger control rules. Regarding the case of a newly-established joint venture, according to Article 4 of revised Guidance on the Notification of Concentration of Business Operators, a concentration of business operators will be deemed as being constituted if the joint venture is jointly controlled by at least two business operators.
The concentration of business operators is not constituted if there is only one single business operator who individually controls the joint venture, with the other business operators having no controlling power. Changes of control in relation to already existing joint ventures are also considered notifiable transactions if the threshold requirements are met.
The Ministry of Commerce (MOFCOM) has signed memoranda of understandings (MoUs) with their counterparts in various foreign jurisdictions. For example, in July 2011, the MOFCOM, together with the National Development and Reform Commission and the State Administration for Industry and Commerce, signed MoUs with the US Federal Trade Commission and Department of Justice (DoJ), laying out the framework for long-term co-operation between the anti-trust agencies on both sides to co-ordinate in anti-trust investigations through information exchange, training programmes and workshops, according to the Memorandum.
On 29 May 2012 the MOFCOM signed a MoU on Anti-trust Co-operation with the Korean Fair Trade Commission. The Memorandum allows anti-trust authorities in both countries to co-ordinate in related enforcement activities. In the meantime, both parties agree that they are obliged to contact each other at appropriate times to provide consultation and assistance to the enterprise involving anti-trust matters within the counterpart jurisdiction.
In addition, the MOFCOM signed analogous MoUs on anti-trust co-operation with the Australia Competition and Consumer Commission and Kenya on 20 May 2014 and 16 June 2014 respectively.
On 11 April 2016, the Japanese Fair Trade Commission announced that it concluded a memorandum on co-operation with the MOFCOM, in an aim to boost its co-operation on competition policy and high-level co-ordination in merger investigations.
On 17 June 2014, the Ministry of Commerce (MOFCOM) prohibited the proposed establishment of a Network Centre between Denmark's AP Møller-Maersk A/S, Switzerland-based MSC Mediterranean Shipping Company SA and France's CMA CGM SA. After review, the MOFCOM deemed that the transaction would:
Form a compact association different from the loose traditional shipping alliances in nature.
Significantly enhance the market control power of the parties.
Significantly increase the concentration of the relevant market.
Further increase the entry barriers for the relevant market.
Further strengthen the parties' market power, which may squeeze the development space for other competitors and may make them fall into a more disadvantageous situation in future competition.
The MOFCOM pointed out to the parties that the concentration may have effects of excluding or restricting competition. The MOFCOM had conducted many rounds of discussions with the parties on how to solve the issues concerning competition. The parties submitted several rounds of remedy proposals and a final proposal on 9 June 2014. However, after assessment, the MOFCOM considered that the proposal lacked appropriate legal basis and the support of convincing evidence, and may not properly solve the MOFCOM's concerns on competition. Therefore, the MOFCOM concluded that such a Network Centre would lead to a compact association among the parties and may have the effect of eliminating or restricting competition in the market of Asia-Europe routes container liner shipping services, and therefore decided to prohibit the concentration. This is the second case in which the MOFCOM prohibited a concentration between business operators. The first one was the concentration between Coca-Cola and Huiyuan in 2009.
The MOFCOM also unveiled two conditional decisions from March 2015 to May 2016, which are:
NXP's proposed acquisition of Freescale. The two companies were ranked number one and number two in the world as manufacturers of radio frequency power transistors, with NXP's market share at 20.8% and Freescale’s market share at 30.3%. The MOFCOM was concerned that the acquisition would strengthen NXP's market power (51.1% post-transaction), eliminate the competition between the most leading competitors in the relevant market, reduce the customer's choice and therefore increase purchase risk, affect the technology development and innovation and increase the market entry. Therefore, the MOFCOM decided to approve the transaction with conditions on NXP to divest its radio frequency power transistor business to Jiangguang Asset Management.
Nokia's proposed acquisition of Alcatel Lucent. The two companies have horizontal overlaps on three markets (radio access network, core network systems and network infrastructure services). After evaluation, the MOFCOM concluded that the proposed acquisition would not restrict and eliminate competition in these markets. However, the MOFCOM also analysed the potential impact of the proposed transaction on the licensing market of the telecommunication technology standard essential patents (SEPs), where both companies were members of several international standard setting organisations and held many SEPs of 2G, 3G and 4G standards. The MOFCOM was concerned that the concentration would increase the concentration degree in the market of telecommunication technology SEPs, whereby the gaps between Nokia (ranked number one) and Qualcomm (ranked number two) would be increased in the 2G and 3G market and Nokia would rank number one in the 4G market. In consideration of the fact that the SEPs are the major barriers for the downstream market entry, licensees are highly dependent on SEP licensing and lack effective counterbalance power, and that Nokia's potential unreasonable alteration to its patent licensing strategy may affect Chinese markets of mobile terminal devices and wireless telecommunication network equipment, the MOFCOM decided to approve the transaction, with the following conditions:
subject to reciprocity, injunctions relating to SEPs must not be enforced to prevent the implementation of a standard encumbered with FRAND commitment, unless a patent holder has made a FRAND licence available and the prospective licensee has been unwilling to enter into the FRAND licence or to comply with its terms;
whenever Nokia transfers SEPs to a third party in the future, it must promptly after such assignment inform its existing Chinese licensees and any Chinese company who is in the process of actively negotiating a licence with Nokia about such assignment, and detail in particular the name and address of the assignee, the effective date of the assignment, and specifics regarding the rights that were assigned;
whenever Nokia transfers SEPs to a new owner in the future, Nokia will pass on the FRAND undertakings with respect to the SEPs of the new owner, by only assigning the SEPs subject to the existing FRAND undertakings given by Nokia to the Standard Setting Organizations; and
the MOFCOM has the right to monitor Nokia's compliance with the above commitments.
Proposals for reform
The Ministry of Commerce (MOFCOM) is preparing to amend the Measures on the Notification of Concentration of Business Operators (Measures on Notification). The Measures on Notification have been implemented for more than six years, since 1 January 2010. The current general provision lacks details of notification for various kinds of concentrations. The MOFCOM intends to summarise its reviewing experience as well as external opinions on merger control into the upcoming revised provisions, which will bring more transparencies and certainties to the merger control procedure. A specific timetable of this revision has not been clarified to date.
Central People's Government of the PRC
Description. This is the official website of the Central People's Government of the PRC, where the official Chinese version of applicable legislation can be found (for example, the Anti-Monopoly Law and the PRC Administrative Penalty Law).
Anti-Monopoly Bureau of the Ministry of Commerce (MOFCOM)
Description. This is the official website of the MOFCOM. It contains the relevant rules in relation to merger control, information about cases handled by the MOFCOM (including the prohibited concentrations, concentrations approved with conditions and unconditionally cleared concentrations) and other information concerning the MOFCOM's enforcement activities.
The regulatory authority
Anti-Monopoly Bureau of the Ministry of Commerce (MOFCOM)
Head. Shang Ming
Contact details. No. 2 Dong Changan Street
T +86 10 8509 3146
F +86 10 8509 3144
Outline structure. It comprises the following seven divisions:
- General affairs.
- Competition policy.
- Supervision and law enforcement.
- Legal analysis.
- Economic analysis.
- Commission co-ordination.
Among these, the Legal Analysis Division and Economic Analysis Division are the two major divisions handling the notification of concentrations.
Responsibilities. The Anti-Monopoly Bureau is responsible for merger control under China's Anti-Monopoly Law.
Procedure for obtaining documents. The notification form is available on the website of the Anti-Monopoly Bureau.
Susan Ning, Senior Partner
King & Wood Mallesons
Professional qualifications. China, 1988
Areas of practice. Anti-trust and competition; international trade.
- Advised on anti-trust and competition law issues under the Anti-Monopoly Law (AML) and Anti-Unfair Competition Law and various competition provisions spread over several pieces of legislation.
- Assisted various clients with anti-trust investigations launched by the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC). Assisted clients to apply for leniency treatment before the AML enforcement authorities.
- Advised on merger clearance before the Ministry of Commerce (MOFCOM) and advising on AML compliance issues.
- Represented clients in litigation under the AML.
- Undertaken more than 200 anti-trust merger control filings on behalf of various clients, comprising mostly multi-national companies.
- Established the Anti-trust and Competition Group at King & Wood Mallesons.
Languages. Mandarin, English
Professional associations/memberships. Currently chairs the Antitrust Committee of the Inter-Pacific Bar Association and is an active participant of the American Bar Association's anti-trust forum.
Publications Has published a number of textbooks and articles including the following:
China Anti-Monopoly Law Guide, CCH Hong Kong Limited, 2010 (textbook).
China's Anti-Monopoly Law: Retrospect and Prospect on the Fourth Anniversary, Asian Legal Business, August issue, 2012 (article).
Judicial interpretation of the Supreme Court is having a significant impact on Chinese Anti-Monopoly cases, IFLR, online, 2012 (article).
Kate Peng, Partner
King & Wood Mallesons
Professional qualifications. China, 2004; New York, US, 2012
Areas of practice. Anti-trust and competition; intellectual property.
- Represented domestic and multi-national companies in competition investigations before the NDRC and SAIC.
- Advised clients on reviewable practice under the AML, particularly on their practice in the IP field.
- Represented clients in anti-trust litigations.
- Handled numerous merger control filings before the MOFCOM.
Languages. Mandarin, Cantonese, English
Sibo Gao, Associate
King & Wood Mallesons
Professional qualifications. China, 2014
Areas of practice. Anti-trust and competition.
- Advised domestic and multinational companies in competition investigations and leniency applications before the NDRC and SAIC.
- Advised clients on merger clearance.
Languages. Mandarin, English