China: Merger Control In The PRC

China Insight - Issue 19

The coming into effect of the Antimonopoly Law (the AML) on 01 August 2008 saw China introducing a comprehensive merger control regime modelled upon the EC Merger Regulation. The new regime became operative upon the adoption of the State Council's Regulation on Notification Thresholds for Concentrations of Undertakings (the Notification Regulation) on 3 August 2008.

In the past two years, the Antimonopoly Bureau of the Ministry of Commerce (MOFCOM) has reviewed more than 120 merger transactions, about 95 per cent of which were approved unconditionally1. MOFCOM has in six transactions2 imposed conditions to remedy competition issues before giving parties clearance to proceed. And one transaction, the proposed acquisition of Huiyuan by Coca-Cola, was prohibited.

MOFCOM has been keen to promote legal certainty by adopting a series of measures and guidelines dealing with procedural and substantive issues. Ten such measures and guidelines have been progressively put forward in 2009 and 2010.3

China's merger control regime has now become a major regime that parties to international transactions cannot ignore.

Key elements of the regime

When parties to an M&A transaction meet specific turnover thresholds they must notify MOFCOM of the proposed transaction and cannot complete it without MOFCOM's approval. Violation of this suspension obligation may lead to the imposition of fines and a reversal of the transaction.

Which transactions must be notified?

A transaction is subject to the mandatory notification requirement if two conditions are met. First, the transaction must constitute a "concentration" as defined in Article 20 of the AML. Second, the parties to the transaction must meet the turnover thresholds set forth in the Notification Regulation.

A concentration...

The following transactions constitute a "concentration" under Article 20 of the AML:

  • Mergers;
  • Acquisitions of control by means of equity or asset purchase;
  • Acquisitions of control or decisive influence by means of contract or any other means.

While "mergers" are relatively straightforward to identify, there is no clear definition of the notion of "control" in the AML or its implementing regulations and measures. This leads to the following uncertainties:

  • Do acquisitions of joint control constitute a concentration? Article 20 of the AML does not address this issue. However, MOFCOM's Measures concerning the Notification of Concentration of Undertakings of 21 November 2009 (the Notification Measures) refer to the notion of joint control when discussing turnover calculation rules. This suggests that situations of joint control may also qualify as "concentrations" under the AML.
  • Do certain minority acquisitions constitute a concentration? Again, no formal guidance is provided to clarify when a minority shareholding will be deemed to confer a "decisive influence". An early draft of the Notification Measures4 mentioned that decisive influence could be achieved through control rights over important decisions, even absent 50 per cent of the voting rights. Without speculating on why such language was not retained in the final version of the Notification Measures, this may indicate that MOFCOM is not averse to finding the existence of control even where a shareholder has no absolute majority of the voting rights.
  • Do all joint ventures constitute a concentration? In certain jurisdictions like the EU, only full-function joint ventures - i.e. those performing on a lasting basis all the functions of an autonomous entity - are subject to merger control requirements. However, the Chinese legislation has so far not expressly recognized the distinction between full-function and non-full-function joint ventures. Indeed, the draft Notification Measures unequivocally stated the establishment of any joint venture was to be considered a concentration under the AML. Despite the deletion of this statement in the final Notification Measures, it would seem that the merger control requirements apply to all joint ventures, as is the case in Korea, Taiwan or Germany.

Pursuant to Article 22 of the AML, merger control does not apply where one party to the concentration holds at least 50 per cent of the voting shares or assets of all other parties, or, where 50 per cent or more of the voting shares or assets of all parties involved in the concentration are held by a same third-party undertaking. The provision is presumably intended to carve out intra-group transactions. However, the scope of this carve-out may lead to a different notion of what constitutes "intra-group" transactions than would be the case under regulations (such as the EC Merger Regulation) that are relying exclusively on the concept of control to determine the existence of different economic units.

...meeting the notification thresholds

A concentration must be notified where:

  • In the last financial year: (i) the combined total worldwide turnover of all parties participating in the concentration exceeded RMB 10 billion; and (ii) at least two of these undertakings each had a turnover of more than RMB 400 million within China5 ; or
  • In the last financial year: (i) the combined total turnover within China of all the undertakings participating in the concentration exceeded RMB 2 billion; and (ii) at least two of these undertakings each had a turnover of more than RMB 400 million within China6.

The Notification Measures provide guidance on the relevant turnover figures in this regard:

  • The relevant turnover is the total consolidated group turnover of each undertaking involved in the concentration. This includes all sales proceeds in the preceding financial year after deduction of all taxes and surcharges.
  • In case of a partial acquisition, only the turnover of the buyer and the turnover allocated to assets being acquired are relevant.

MOFCOM retains the discretion to require notification of any transaction which it considers may have the effect of excluding or limiting competition, even if none of the above thresholds are met. In practice this discretion has not been exercised to date.

Who must notify and what is the review timetable?

In case of a merger, the notification duty rests upon all the merging parties. For other types of concentrations, notification must be made by the undertaking acquiring control or decisive influence. However, if the party acquiring control fails to notify, the other parties may notify the transaction.

MOFCOM has 30 days to conduct a preliminary examination of the concentration and to decide whether to proceed to an in-depth review of the proposed transaction. The in-depth review should normally conclude within 90 days, but in limited circumstances it may be extended to 150 days. If MOFCOM fails to make a decision before the expiry of either review period, the transaction is deemed cleared and the parties may implement their transaction.

In practice, MOFCOM's review process tends to be slower than in most other jurisdictions. This is in part due to the fact that the 30 day period only starts running when MOFCOM is satisfied that it has received all the relevant information to review a transaction. Parties would usually submit a draft of their notification, and it may take several weeks before MOFCOM confirms that the notification is satisfactory for acceptance.

What is the substantive review test?

The substantive test for compatibility is whether the proposed concentration has, or could have, the effect of eliminating or restricting competition. Where such restrictive effects exist, if the parties can demonstrate either that the proposed transaction has redeeming benefits that significantly outweigh its restrictive effects or that it is in the public interest, MOFCOM may nevertheless approve the transaction.

MOFCOM will, amongst other considerations, take into account the following factors in its review of the transaction:

  • the relevant market(s) affected by the transaction;
  • the market share of the parties and the degree of market concentration;
  • the impact of the concentration on market access and technological advancement;
  • the impact of the concentration on consumers and other relevant undertakings;
  • the impact of the concentration on national economic development;
  • any other factors that may affect competition in the relevant market(s).

Whenever a concentration raises competition issues, either the parties or MOFCOM may propose remedies to reduce its harmful effects. Those remedies may be structural (e.g. the divesture of assets or businesses) and/or behavioural (e.g. a commitment not to vary an existing mode of supply or outsourcing, or a commitment to terminate exclusive distribution agreements).

According to Article 31 of the AML, where a foreign investor participates in a concentration involving a domestic undertaking, an additional state security review may be conducted. Implementing regulations to formally establishing this national security review process are currently being prepared by MOFCOM, the National Development and Reform Commission and the State Council's Legislative Affairs Office.

What are the sanctions?

Failure to notify a concentration or implementation of a notified concentration prior to clearance may lead the reversal of the transaction, disposal of shares or assets or any other measures necessary to restore the status quo prior to the concentration as well as the imposition of fines up to RMB 500,000.


1. According to figures released at the MOFCOM press conference of 12 August 2010 reviewing its two-year enforcement of the AML, a script of which is available at

2. Inbev/Anheuser-Busch (MOFCOM Announcement No.95 of 2008), Mitsubishi Rayon/Lucite (MOFCOM Announcement No.28 of 2009), GE/Delphi (MOFCOM Announcement No.76 of 2009), Pfizer/Wyeth (MOFCOM Announcement No.77 of 2009), Panasonic/Sanyo (MOFCOM Announcement No.82 of 2009), Novartis/Alcon (MOFCOM Announcement No.53 of 2010)

3. They are (1) Measures concerning the Calculation of Turnover of Undertakings in the Financial Industry for Concentration Notifications; (2) Measures concerning the Notification of Concentration of Undertakings; (3) Measures concerning the Review of Concentration of Undertakings; (4) Interim Measures concerning the Divestiture of Assets or Businesses when Implementing Concentrations of Undertakings; (5) Guidelines concerning the Working Process of Anti-Monopoly Review of Concentration of Undertakings; (6) Guiding Opinions concerning the Notification of Concentration of Undertakings; (7) Guiding Opinions concerning the Submission Materials for the Notification of Concentration of Undertakings; (8) Interim Measures concerning the Investigation and Disposal of Concentration of Undertakings not Duly Notified (Draft); (9) Interim Measures concerning the Collection of Evidence relating to Concentration of Undertakings not Reaching the Notification Thresholds but Suspected of Anticompetitive Effects (Draft); (10) Interim Measures concerning the Investigation and Disposal of Concentration of Undertakings not Reaching the Notification Thresholds but Suspected of Anticompetitive Effects (Draft)

4. As published on 20 January 2009 for public consultation

5. Meaning Mainland China and excluding Hong Kong, Macau and Taiwan

6. A specific calculation methodology is set out for the financial sector under the Measures concerning the Calculation of Turnover of Undertakings in the Financial Industry for Concentration Notifications, which effectively raises the thresholds tenfold for financial institutions such as banks and insurance companies

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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