China: China Summarises 2011 AML Enforcement, Promises Action On Failures To Notify A Concentration In 2012

McDermott Will & Emery has a strategic alliance with MWE China Law Offices, a separate law firm based in Shanghai.  This  China Law Alert was authored by MWE China Law Offices lawyers Henry (Litong) Chen, Frank Schoneveld and Brian Fu. 

On 27 December 2011, in its annual end-of-year press conference, the Anti-Monopoly Bureau of China's Ministry of Commerce gave an overview of the country's Anti-Monopoly Law enforcement efforts in 2011, as well as stated its clear intention to investigate and sanction parties who fail to submit proper notification of a concentration and have it cleared by the Ministry.

In its now annual end-of-year press conference on 27 December 2011, the Anti-Monopoly Bureau (AMB) of China's Ministry of Commerce (MOFCOM) summarised its enforcement of the Anti-Monopoly Law (AML) during 2011.  At the same time, MOFCOM took the opportunity to warn companies that a priority action item for 2012 will be to investigate and sanction parties to mergers, acquisitions and joint ventures who do not notify the transaction for clearance by MOFCOM.  The director of the AMB, Shang Ming, also answered questions posed by journalists.  Major points raised included the following.

1. Priority action on failure to submit concentrations to MOFCOM for clearance

Companies should take particular note of MOFCOM's clear statement that in 2012 one of its priorities will be to investigate and sanction parties who, contrary to the AML, fail to submit notification of a concentration and have it cleared by MOFCOM.  As part of this priority action, MOFCOM introduced in January 2012 new Preliminary Regulations on Investigation and Treatment of Failure to Notify Business Operator Concentration (see China's MOFCOM Now Fully Armed to Prosecute Companies Failing to Notify a Concentration for more information).

Later in 2012, MOFCOM will also introduce Preliminary Regulations on Investigation and Treatment of Suspicious Business Operator Concentration under Notification Standard.  

In response to a question about how MOFCOM would deal with concentrating parties who fail to file notification of a concentration, Shang emphasised that notification is compulsory if the thresholds are reached, and if notification is not made, the AML is violated.  Shang added that MOFCOM will continue to communicate with its counterparts in the United States and European Union on how to resolve the issues in a "scientific" and effective way.

2. Speeding up the notification process

Shang was asked why it takes such a long time for MOFCOM to make a decision once a case is formally accepted.  In particular, he was asked: Because enterprises usually have a tight timeline to close their deals, how will MOFCOM take action to improve its efficiency?  Would MOFCOM consider applying a simplified procedure for some simple cases?

Shang mentioned that MOFCOM has room for improvement to speed up its review and examination process for some simple cases, the reviews of which are usually completed in Phase I in some non-Chinese jurisdictions.  He indicated that MOFCOM is strengthening its communications with its counterparts in the United States and EU so that simple cases can be quickly singled out for a "fast track" review. 

In this regard, it should be noted that in September 2011 MOFCOM had a series of roundtables in China with the US Department of Justice (DOJ) and Federal Trade Commission (FTC), and the EU Commission on "Short Form" merger notifications.  Shang later noted that in 2012 MOFCOM will streamline and improve its methods of case review/examination to increase examination efficiency and shorten the examination time period.  This will be done so that MOFCOM can concentrate on examining cases that might eliminate or restrict competition.

3. Whether MOFCOM favours Chinese domestic enterprises

Although MOFCOM has enacted a number of regulations to enforce the AML, in the press conference Shang emphasised one regulation MOFCOM issued in August 2011, the Interim Provisions on Assessing the Impact of Business Operator Concentration on Competition (see China Implements New Evaluating Competitive Influence Rules for more information), which, according to Shang, were enacted to implement the AML's requirements on the assessment of the impact of a concentration on competition.  In emphasising these Interim Provisions, Shang was suggesting that when MOFCOM assesses a concentration, it does not discriminate between concentrations that involve foreign enterprises and those that involve only domestic enterprises—MOFCOM only takes into account the impact of the concentration on competition.

Questions regarding whether or not MOFCOM applies different review and examination standards to different types of enterprises, such as private enterprises, state-owned enterprises and foreign-invested enterprises, were also raised. It was noted by at least one journalist that some non-Chinese media reported that MOFCOM was leveraging the AML to impose restrictive conditions on non-Chinese concentrating parties in order to protect Chinese domestic industries.

Shang responded that non-Chinese enterprises made up a significant percentage of the received antitrust notifications, without specifying the percentage compared to concentrations in which Chinese enterprises are involved.  He also denied the accusation that MOFCOM uses the AML to restrict foreign investment.  According to Shang, MOFCOM does not treat enterprises differently based on the nature of the ownership of the parties involved in the concentration.  In other words, all concentrating parties are treated equally in terms of notification threshold, notification procedures and examination criteria.

Shang gave an example to underscore that MOFCOM does not favour Chinese state-owned enterprises over non-Chinese companies by referring to GE, which has filed a number of notifications with MOFCOM, including its joint venture with Shenhua, a large Chinese state-owned enterprise active in the coal mining industry.  He noted that although Shenhua is a state-owned enterprise and was involved in the concentration, MOFCOM nonetheless imposed conditions on the concentration.

4. Statistics on MOFCOM's examination and clearance of notifications

4.1 Statistics for 2011, before mid-December

According to Shang, from January to mid-December 2011, MOFCOM received 194 notifications, an increase of 43 per cent compared with the volume of notifications in 2010. Among the 194 notifications, MOFCOM established 179 cases for investigation and concluded the investigation of 160 cases, respectively representing a 52 per cent and 40 per cent increase over the previous year. Of the 160 cases that MOFCOM finished investigating, 151 were cleared without any conditions attached (amounting to 94 per cent), four were cleared with conditions attached (amounting to 3 per cent) and 5 were voluntarily withdrawn (3 per cent). The following table illustrates the industries concerned in the 160 cases where the investigation was finalised:

Compared with 2010, the proportion of cases in the industries of manufacturing, transportation, warehousing and postal services increased, whilst the proportion of cases in the sectors of mining, wholesale and retail decreased.

In 2011 MOFCOM approved four cases with restrictive conditions attached, among them: Uralkali's acquisition of Silvinit, Penelope's acquisition of Savio and GE's joint venture with Shenhua. 

In response to questions on why there were more antitrust notifications in 2011 compared to 2010, Shang said that, first, M&A is an effective way to increase the competitiveness of the concerned concentrated parties.  Second, due to MOFCOM's efforts to educate market players about the AML, more enterprises are aware of the law and the importance of filing an antitrust notification.  Third, because enterprises are growing, the thresholds set for antitrust notification are becoming easier to reach.

4.2 MOFCOM's statistics for 2011 and the statistics from 1 August 2008

On 12 January 2012, MOFCOM held its country-wide AML working conference in Beijing, where the Deputy Director-General of MOFCOM, Gao Hucheng, announced the statistics of MOFCOM regarding antitrust notifications for the whole of 2011, as well as the statistics from 1 August 2008, when the AML came into effect.  

In 2011 MOFCOM received 203 antitrust notifications, representing an increase of 49 per cent compared with 2010.  Of the 203 cases, MOFCOM established 185 cases to review, an increase of 57 per cent compared with 2010.  MOFCOM completed its review and made decisions on 168 of the 185 cases established—an increase of 53 per cent compared with 2010.  In 2011, four cases were approved with conditions and no case was blocked.

From 1 August 2008, to the end of 2011, MOFCOM completed its review of and made decisions on 382 cases, among which 371 were approved unconditionally (97 per cent).  Only one case was blocked and 10 cases were approved with conditions attached.

5. International cooperation

MOFCOM started the China-EU Competition Policy Dialogue in 2004 and it continues today: In July 2011 the seventh Policy Dialogue was successfully held. Also in July 2011, three AML enforcement agencies (the State Administration for Industry and Commerce, the National Development & Reform Committee and MOFCOM) signed in Beijing the Memorandum of Understanding on Anti-monopoly and Anti-trust Cooperation with the US DOJ and FTC. This memo provides a mechanism for systematic cooperation between China and the United States. Finally, in November 2011, MOFCOM and the US DOJ and FTC entered into the Cooperation Guidelines on Cases of Business Operator Concentration.

6. MOFCOM's prospectus for 2012

In 2012 MOFCOM will introduce new regulations:

• Regulation on Imposing Restrictive Conditions on Business Operator Concentration
• Preliminary Regulations on Investigation and Treatment of Failure to Notify Business Operator Concentration (already promulgated)
• Preliminary Regulations on Investigation and Treatment of Suspicious Business Operator Concentration under Notification Standards

In addition, MOFCOM will:

• Revise the business operator's concentration application form (the form used when making a formal notification of a concentration to MOFCOM)
• Streamline and improve the methods of case review/examination to increase examination efficiency and shorten the examination period so that MOFCOM can concentrate on examining cases that might eliminate or restrict competition 
• Investigate and punish cases in which a business operator, contrary to the AML, fails to submit a notification to MOFCOM according to the Preliminary Regulations on Investigation and Treatment of Failure to Notify Business Operator Concentration (see 1 above)

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.