China: New Rules Proposed For Chinese Merger Control

Important changes are expected in the operation of the Chinese merger control regime. The Standing Committee of the National People's Congress in the People's Republic of China ("PRC") adopted its first comprehensive antitrust law, the Anti-Monopoly Law ("AML"), in August of 2007, including an antitrust review regime for mergers and acquisitions. The AML will become effective on August 1, 2008, and will bring about wide-ranging changes. This client alert serves as a short overview only of just one aspect of the changes, namely, the proposed merger control rules and merger review process. Existing merger control rules, which have been applicable only to foreign companies and have had no formal enforcement mechanism, will be replaced. To this end, the Legislative Affairs Office of the State Council of the PRC recently issued a Draft Regulation on Notification of Concentration of Undertakings (the "Draft Regulation") that provides critical guidance on some issues upon which the AML is notably silent (i.e., filing thresholds and what types of transactions may trigger filing obligations). Below we discuss the rules that have been clarified by the Draft Regulation, as well as some of the ambiguities that remain about their practical operation.


Mergers and acquisitions caught by the AML are referred to as "concentrations of undertakings," mirroring the vocabulary of EU merger regulation. The Draft Regulation indicates two key steps in determining whether a transaction is reportable and clearance by the Chinese authorities is required. The first inquiry is whether the transaction qualifies as a "concentration of undertakings" as set forth by the AML. The second inquiry is whether the transaction exceeds certain quantitative thresholds as proposed in the Draft Regulation.

Does the Transaction Qualify as a Concentration of Undertakings?

The AML sets forth three types of transactions that qualify as a concentration of undertakings:

  1. A consolidation of undertakings (i.e., merger);

  2. The acquisition of control through the acquisition of equity or assets of the target; or

  3. The acquisition of control through contracts or other means, or by possessing an ability to decisively influence the target.

Defining the scope of "control" and "decisive influence" either through precedent or published guidelines will be critical for the certain operation of PRC merger review. The Draft Regulation does provide some new clarification to the critical terms "control" and "decisive influence," although not comprehensive definitions.

According to the Draft Regulation, "control" is acquired by:

  • Acquiring 50 percent or more of the voting shares or assets of the target;

  • Having the ability to effectively control the majority voting rights of the target;

  • Being able to decide the appointment of at least half of the target's board of directors;

  • Becoming the largest holder of the voting shares or assets of the target; or

  • Any other circumstances where the anti-monopoly enforcement agency of the State Council ("AMEA") determines "control" to have been acquired.

The first three indicia of control are akin to the approach to concentrations by EU merger authorities. The "largest shareholder" criterion, however, is novel and suggests a very broad scope as well as difficulties of application. Without further clarification or guidance it is unclear how this test would operate. For example, an investment vehicle such as a mutual fund that has a relatively small share (e.g., 5 percent) of a large company's overall float may be the company's largest shareholder. Is it envisaged by the Draft Regulation that any acquisition of additional stock by this passive investor could potentially trigger a filing? It is also noteworthy that the Draft Regulation gives the AMEA the latitude to define further circumstances under which control may be acquired.

Similarly, the exact scope of "decisive influence" remains undetermined for the time being. The Draft Regulation refers to "decisive influence" as the ability to decisively influence the production and/or operation decisions of another undertaking. However, to what type of decisions this ability must relate is a key question. In EU jurisprudence, for instance, "decisive influence" refers to the effective exercise of rights of management or assets of another undertaking and must be of sufficiently long duration that a change in the structure of the market would take place. It is hoped that prior to implementation of the new rules, further guidance on this definition by the enforcement agency can be provided.

Does the Transaction Meet Quantitative Filing Thresholds?

If the transaction qualifies as a concentration of undertakings, the second inquiry is whether the transaction meets certain threshold requirements. The Draft Regulation provides the following three thresholds under which notification is required:

  1. During the previous fiscal year, (i) total global revenues of all businesses participating in the concentration exceeded RMB 9 billion (approx. $1.28 billion) and (ii) at least two of the businesses participating in the concentration had revenue of more than RMB 300 million (approx. $42.74 million) within China;

  2. During the previous fiscal year, (i) total revenue within China of all of the businesses participating in the concentration exceeded RMB 1.7 billion (approx. $242.2 million) and (ii) at least two of the businesses participating in the concentration had revenue of more than RMB 300 million (approx. $42.74 million) within China; or

  3. The concentration will cause the businesses participating in the concentration to possess more than 25 percent of an industry's market share in China.

The first two draft thresholds require that more than one party has a presence in China, which differs from the existing rules where, under certain circumstances, one party alone could trigger a filing obligation. This is a noteworthy development as it ensures that a transaction has an appropriate nexus to China before a filing is required. Nevertheless, there remains some ambiguity with regard to the first two thresholds as the method for calculating revenue is still to be stipulated.

Additionally, it is important to note that there is a provision for the AMEA, in the absence of any of the thresholds being triggered, to require parties to a concentration to submit a notification if the concentration would eliminate or restrict competition. While a number of merger authorities around the world retain this type of discretion, the real question is how broadly the AMEA may exercise its discretion. We understand that an internal draft of the Draft Regulation specifically enabled the reviewing authority to compel a filing upon the request of competitors or other interested parties. That language has been removed, however, the broad language of the Draft Regulation may suggest that the enforcement agency will be able to require a filing based on information received from competitors. In comparison, the US antitrust authorities can certainly investigate a non-reportable deal, but they cannot compel a filing and thus condition closing of the transaction on receipt of regulatory approval. Guidance will be very important on how frequently the competent authority intends to use this provision in practice.

Further guidance on the application of the 25 percent market share test will also be eagerly sought. The Draft Regulation appears to require that a transaction would only be reportable if the combined share of the parties exceeds 25 percent as a result of the transaction. Nonetheless, application of market share thresholds by the enforcement agency will be difficult for businesses to predict, especially given that there is very little precedent in China for defining markets.


AMEA has been designated as the new enforcement agency to be established by the State Council, but its composition, structure, and extent of its authority are as yet undefined. It is likely that some of the staff of AMEA may come from the Anti-Monopoly Investigation Office of the Ministry of Commerce ("AMIO"). Currently, AMIO is primarily responsible for conducting merger review under the existing regime. AMIO published a guideline in March 2007, offering some clarity to the merger review process, some of which are codified in the Draft Regulation.

A comparison of the procedural guidelines under the new and existing regimes are set out below:


AMIO's Guideline

The Draft Regulation


Timing of submitting concentration notification

Before the relevant transaction is made public, or, at the same time the relevant party is making a concentration notification in its home jurisdiction.

Not stipulated


Pre-submission consultation




Review period

The review period is 30 business days. The relevant transaction may close if the review period expires without any further action from AMIO.

The review period will be 30 days (rather than 30 business days, reducing the period by up to 2 weeks). The relevant transaction may close if the review period expires without any further action from AMEA.


Early termination

Not provided in the guidelines, and rarely given.

AMEA may grant early termination of the review period but under what circumstances has not been specified.


Extended review

Up to 90 business days.

Up to 90 days, and may be extended to a further 60 days under limited circumstances.

Finally, it should be noted that in addition to the factors traditionally considered by most merger review authorities, the AML specifically permits the Chinese regulators to examine "the effect of the proposed concentration on the development of the national economy." This is a unique feature to the Chinese merger review regime. From a substantive standpoint, this factor potentially introduces non-competition related issues and, therefore, additional uncertainty to the Chinese merger review process.


The comment period on the proposed draft expired on April 12, 2008. The Legislative Affairs Office has not yet indicated if revisions can be expected. Until the new thresholds are confirmed the existing rules remain in place. Given the undeniable global importance of the Chinese market, businesses will desire certainty as to the substantive and procedural standards of China's merger review regime. The additional clarity that the Draft Regulation brings to the AML is likely just the first step in providing the necessary guidance on the questions that remain.

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

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

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”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.