Disclaimer: Reproduced with permission from the Legal Industry Review. The article was first published in The Legal Industry Review – China & Hong Kong chapter February 2024. Click here for the full article.
On 11 September 2023, the State Administration for Market Regulation of China (SAMR) issued the Antimonopoly Compliance Guidelines for Concentrations of Undertakings (the Guidelines). While the guidelines are non-binding and do not impose regulatory obligations or penalties for non-compliance, they offer valuable guidance and constitute a comprehensive reference material for businesses dealing with merger control clearance requirements under China's Antimonopoly Law.
This briefing highlights a few key considerations in complying with the Antimonopoly Law merger control regime, in light of the useful guidance the Guidelines introduce through practical examples.
Consistent with many other antitrust and competition law merger control regimes across the world, the Antimonopoly Law requires parties to obtain prior clearance for transactions involving the acquisition of "control" over another party. While the statutory wording includes a high-level definition of this key notion, the Guidelines usefully provide additional guidance. The Guidelines first reiterate the definition of control under the Antimonopoly Law, which includes the right to control other parties or exert a decisive influence over them through mergers, acquisitions, contracts, or other means. The Guidelines usefully add that the factors to be considered for the purpose of the control analysis include the transaction's purpose, shareholding structure, decision-making processes, appointment and removal of senior management, relationships among shareholders and directors, existing commercial relationships, and other relevant factors.
The Guidelines also shed some light on the SAMR's approach to assessing whether control can be acquired through minority equity stakes. For example, veto rights over the appointment and removal of senior management, financial budgets, and annual business plans are considered key factors conferring control. Even though such veto rights alone are not decisive indicators, they strongly suggest control. This clarification aligns the Chinese merger regime with international practice and provides increased legal certainty and convergence in international transactions.
The Guidelines also address the timing of merger control filings in complex transactions. Parties involved in international transactions often need to coordinate filings across multiple jurisdictions. It is important to consider when to seek clearance and what actions are allowed pending clearance. The Guidelines provide an overview of relevant factors to determine whether a transaction has been implemented in breach of the parties' obligation to obtain clearance prior to closing, including completing business registration, appointing senior management, participating in decision-making, exchanging sensitive information, and integrating businesses. The Guidelines emphasize that completing business registration for a joint venture before obtaining clearance may violate merger control obligations.
The Guidelines also clarify that in transactions involving multiple phases, interconnected and dependent steps can be considered a single operation. In such cases, clearance should be obtained from the SAMR before the implementation of the initial step, rather than at a stage where control is subsequently acquired. This differs slightly from foreign merger regimes, so parties involved in international transactions should carefully consider clearance timing across jurisdictions.
Overall, the Guidelines provide valuable insights and practical advice for businesses operating in China. They aim to enhance compliance awareness and facilitate the establishment of Antimonopoly Law compliance mechanisms. While the guidelines are non-binding, they serve as important reference material for companies navigating merger control-related risks and obligations.
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.
