China's Antimonopoly Law (AML) took effect in August 2008 and is loosely based on the competition regimes in place in the EU and the US. In addition to prohibiting certain types of agreements and anticompetitive conduct, the AML establishes a process for reviewing mergers and other transactions that may substantially affect competition in China. Since enacting the AML, China has quickly joined the EU and US as one of a trio of merger control approvals that are often key to global deals – reflecting the importance of China and the Chinese economy in international business. The Ministry of Commerce's (Mofcom) Anti-Monopoly Bureau has reviewed nearly 800 transactions under the AML and imposed remedies in 22 of them since 2008.

But repeat experience of Chinese clearance being the last impediment to closing, even in cases raising no issues, has generated some criticism. In response, the Anti-Monopoly Bureau has implemented a number of reforms over the past year aimed at streamlining the review process and reducing wait times, at least for transactions that are unlikely to cause competition concerns. The latest and most far-reaching of these reforms is the new fast-track programme that the Anti-Monopoly Bureau hopes will clear 60% of notified transactions within 30 days. While the proof of the pudding will be in the eating, it is in principle a welcome development.

Mofcom's new simplified merger review

The merger review process under the AML comprises up to three phases. The three phases can take up to 30, 90 and 60 days respectively, but the total regulatory timeline can be even longer. As in Europe, there is a fair amount of back and forth between the parties and Mofcom prefiling, as Mofcom comments on drafts of the planned notifications, and officials indicate whether the filing will be regarded as complete. For complicated transactions or for transactions that involve numerous markets, these prefiling discussions can stretch over several months. For example, though perhaps a high-water mark, Panasonic/Sanyo's prefiling discussions took nearly four months.

Once formally notified, while it is possible for a transaction to obtain approval in Phase I, in practice many cases presenting few competitive concerns go to Phase II, and even sometimes Phase III. Mofcom cites resource constraints and the need to consult with other industry-specific trade associations and government agencies as explanations for the delays.

In order to ameliorate wait times and streamline the regulatory review process, Mofcom announced the implementation of its Interim Provisions for Standards of Simple Cases Related to Concentration of Undertakings on 13 February 2014. Comparable to the EU's Short Form CO, the new rules would make certain transactions eligible for a fast track. Under the fast-track programme, the following transactions, deemed unlikely to raise competitive concerns, could qualify for simplified review: (1) horizontal transactions with a combined market share of less than 15%; (2) vertical transactions with individual market shares of less than 25%; (3) non-horizontal transactions with no upstream-downstream effects with individual market shares of less than 25%; (4) foreign joint ventures operating outside China; and (5) acquisitions of foreign assets or securities of companies operating outside China.

The new rules do not outline the fast-track programme's procedural details, but reports indicate that for simple cases, notifying parties will not be required to submit nearly as much information as in the past. As of yet, there is no clear timetable for how long it will take for "simple cases" to obtain approval, but the Anti-Monopoly Bureau has been implementing new simple-case classification rules on an internal basis since 2012. Based on those internal trials, the director-general at the Anti-Monopoly Bureau predicted in September 2013 that the simplified merger review procedures could lead to 60% of notified transactions being cleared within 30 days of the agency beginning its review. If Mofcom is able to reach this mark, it will be a welcome change for practitioners and companies seeking merger approval in China.

While the fast-track programme sets thresholds for simplified review, it carves out a notable exception that excludes transactions having "a potential adverse impact on consumers and other related business operators, or to national economic development and market competition". Under the new rules, such transactions "will not be identified as simple cases". This allowance for "national economic development and market competition" is consistent with other provisions and Chinese antitrust law, but it remains unique to China among antitrust enforcers. Critics point to the uncertainty of how Mofcom will implement this vague provision, and worries remain about the programme's transparency and predictability. Mofcom will thus have leeway to remove transactions from the fasttrack programme – in the same way, it should be said, that the European Commission is able to shift from the short-form to the full CO process.

Other steps to reduce wait times under the AML

In addition to adopting the fast-track simplified review programme, Mofcom has taken a number of other steps over the past year to decrease review times. One of the primary obstacles to more timely review is the lack of manpower and resources at Mofcom to deal with the growing workload. The Anti-Monopoly Bureau at Mofcom employs only about 20 case handlers who review more than 200 transactions a year. In contrast, in the US the antitrust division of the Department of Justice and the Federal Trade Commission employ over 350 and 550 attorneys respectively, in addition to a similar number of economists and support staff. The European Commission's Directorate-General for Competition, for its part, has a total staff of approximately 900. Mofcom's meagre staffing appears to contribute both to delays at the prefiling stage, and to the large percentage of notified transactions that go into Phase II review.

To address staffing issues, Mofcom underwent an organisational reshuffling in September 2013 that involved replacing the heads of four out of the seven divisions within the Anti-Monopoly Bureau. The Premerger Notification Division was one of the divisions affected by the reorganisation, and practitioners have reported that the staff changes have already had a positive impact on review times.

Another reason that often holds up Mofcom's merger review process is the need to consult with other government ministries and trade associations during the review. Indeed, consultation with trade associations in particular adds significant complexity to the analysis. The new fast-track rules do not specify how the simplified review process will apply to communications with other agencies, but Mofcom has taken some steps that may partially remedy the problem. In November 2013, Mofcom announced a project to construct a new database to collate data for the pharmaceutical, shipping, and electronic-information sectors. The database is intended, in part, to facilitate the agency's merger review capabilities, and it may reduce the delays caused by the Anti- Monopoly Bureau's need to consult other industry-specific agencies before clearing deals.

International trend toward faster review

By reforming its merger review process, Mofcom joins the trend among international antitrust enforcers towards expediting merger review clearances. For example, the Anti-Monopoly Bureau has stated that it based its new simplified-review process, in part, on the practice of the European Commission. But in that regard the goalposts have moved, as the European Commission recently expanded the scope of its simplified review.

Since 1 January 2014, the European Commission has increased the market-share thresholds below which transactions qualify for simplified review using the Short Form CO. Under the simplified procedures, the Commission endeavours to adopt a decision as soon as possible after 15 working days. The Commission's raised thresholds extend simplified review to transactions involving horizontal overlaps where the parties control a combined 20% (up from 15%) market share and vertical relationships involving 30% (up from 25%) combined market share. Joint ventures with de minimis activities in Europe, and horizontal mergers yielding minor increases in market concentration (individual market shares below 50% and an HHI increase below 150 points), also qualify for simplified review. With these new thresholds, the European Commission's simplified merger review programme remains wider than Mofcom's fast-track programme. The Commission predicts that, under the new thresholds, approximately 60% to 70% of notified mergers will qualify for simplified review, roughly 10% more than under the prior system.

There is no comparable short form in the United States, as the differences in the regulatory process are significant. A premerger filing in the United States is a relatively pro forma document, which requests general information about the parties and the transaction. There are limited document requests, including for documents that analyse the transaction with respect to competition. The collection and review of these documents is often the determining factor in the time it takes to prepare a filing. Moreover, parties need not consult with the DoJ or FTC prior to filing; they may file when ready if they have included all of the requested information. Significant substantive exchanges between the parties and regulators often do not begin until the transaction moves into the second phase (ie the parties receive the "second request").

International co-operation

At the same that China is refining its merger review regime internally, it is also extending ties with overseas competition agencies. In July 2011, the US antitrust agencies signed a memorandum of understanding (MOU) with their counterparts in China to increase co-operation and co-ordination on antitrust matters between the two countries. The US agencies supplemented the earlier MOU in November 2011 with specific guidance for co-operation in merger cases. The US MOU provides a framework for a continued joint dialogue among the nations' antitrust agencies and, most importantly, contemplates co-operation between agencies on specific investigations, including at the staff level. The European Commission followed suit in September 2012, signing its own MOU with two Chinese enforcement agencies, the National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC). Although Mofcom was not a signatory to the European MOU, Mofcom has been engaged in a dialogue with the European Commission on matters relating to mergers and other concentrations since 2004.

The MOUs and dialogue between the US, the EU and China have, in principle, the potential to increase regulatory efficiency and align international antitrust enforcement. At least in constructing the AML regime, China proved its interest in gaining from the experience of longer established jurisdictions. Incidents of cooperation on actual cases have been more difficult to come by, due in part to longer administrative processes in China, but also with a critical focus attaching to the substantive treatment by the Chinese agencies of foreign cases. Indeed it is understood that foreign agencies are dissatisfied with the level of dialogue presently established, and/or the outcomes witnessed.

No national system of merger control of course is exempt from international scrutiny as to whether industrial policy may motivate competition decisions, and the simplified merger review rules are unlikely to assuage such concerns. Mofcom retains the power to remove the "simple case" designation from transactions having potential adverse effects on "national economic development", and concerns remain as to whether Mofcom will subordinate the interests of competition to other considerations, a charge that has been levelled against certain Mofcom decisions in the past. That, however, is a topic for another article.

Originally published in Competition Law Insight.

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