China: Making Life Simpler - China’s Anti-Monopoly Bureau Has Reformed The Merger Review Regime

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.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions