Answer ... Concentrations between undertakings that trigger the merger filing thresholds are subject to the merger control regime. Under Article 20 of the Anti-monopoly Law, the following types of transactions constitute concentrations between undertakings:
- mergers of undertakings;
- the acquisition of control over other undertakings through a share or asset transfer; and
- the acquisition of control over other undertakings, or the ability to exert a decisive influence on other undertakings, through contracts or the like.
Answer ... Article 20 of the Anti-monopoly Law provides that a concentration involves one business operator obtaining control or otherwise being able to exercise a decisive influence on another business operator. Article 3 of the Guiding Opinions on Notification of Concentrations between Undertakings (the Guiding Opinions) (2018 Revision) further clarifies that ‘control’ refers to sole control and joint control.
Article 3 of the Guiding Opinions provides as follows:
Whether the business operators, by means of transactions, have acquired control over other business operators or are capable of exerting a decisive influence on other business operators (“control” and “a decisive influence” are collectively referred as “control” hereinafter) should be determined on the basis of plenty of legal and factual elements. The agreement of concentration and the bylaws of other business operators are important but are not the only sources of reference. The control over other business operators may not be confirmed from the agreement of concentration or the bylaws; however, provided that the business operator is in de facto control of other business operators because of fragmented ownership or other reasons, it will still be considered as having acquired control power in the concentration. The following factors shall be taken into consideration when deciding whether the business operators have the controlling power over other business operators by transactions, including but are not limited to:
- the purpose of the transactions and future plans
- the equity structures and post-transaction equity changes
- the items to vote and the voting mechanism of shareholders’ meetings, the business operators’ attendance rate and resolutions in the past
- the structure and the voting mechanism of the board of directors and the board of super-visors
- the appointment and dismissal of senior executives
- the relationship between shareholders and directors of the acquired business operator, and whether there are votes by proxy or persons acting in concert, and
- whether there is a significant commercial relationship or a cooperation agreement among the controlling business operators and other business operators.
Some factors stipulated in Article 3 above (eg, (a), (f) and (g)) are less clear, which gives the Anti-monopoly Bureau of the State Administration for Market Regulation (SAMR) a high level of discretion to determine the issue of control on a case-by-case basis.
Answer ... Generally, minority shareholdings are unlikely to be deemed as a controlling stake. However, this issue has not been clarified under the current Chinese merger control regime and in some cases the SAMR has reached the opposite conclusion.
For example, as the SAMR has published, in Mitsubishi’s proposed acquisition of a stake in Toyo Tire & Rubber (2018), the equity transferred represented 16.95% of the target. In GE Capital’s proposed equity transfer to IBK Securities (2016), the equity transferred represented 20% of Hyundai Capital. In the acquisition of stakes in Chongqing Department Store by Wu Mart and Better Life Commercial Chain Share (2016), the equity transferred to the buyers represented 21.32% and 10.91% respectively.
Additionally, in 2015 Fujian Electronics was fined RMB 150,0000 for failure to notify its acquisition of a 35% stake in CHINO-E. This again indicates that the transfer of a minority shareholding might be considered to confer joint control and therefore trigger a SAMR filing obligation.
Answer ... Yes, joint ventures are caught by the Chinese merger control regime if the turnover thresholds are triggered.
Article 4 of the Guiding Opinions provides that newly established joint ventures constitute a concentration of undertakings if at least two undertakings jointly control the joint venture. By contrast, a newly established joint venture is not considered a concentration of undertakings if only one undertaking controls the joint venture.
Answer ... Yes, foreign-to-foreign transactions are covered by the Chinese merger control regime if the turnover thresholds are triggered.
However, a simplified review procedure may apply to certain foreign-to foreign transactions under Article 2 (4)(5) of the Interim Provisions on Standards Applicable to Simple Cases of Concentrations between Undertakings, as follows:
- The undertakings involved in the concentration establish joint ventures outside China and the joint ventures do not engage in business activities in China; or
- The undertakings involved in the concentration acquire shares or assets of overseas companies that do not engage in business activities in China.
Under the simplified procedure, the SAMR generally grants clearance within the 30-day preliminary review period.
Answer ... The Provisions of the State Council on the Notification Thresholds for Concentrations between Undertakings (the Provisions) set out turnover thresholds to determine whether a transaction triggers the merger filing requirement. The turnover thresholds are met where both the combined and individual turnover thresholds set out below are met in respect of a concentration:
The combined turnover threshold is met where all business operators participating in the concentration have either:
- a combined worldwide turnover of more than RMB 10 billion; or
- a combined turnover in China of more than RMB 2 billion.
- The individual turnover threshold is met where at least two business operators each have a turnover in China of more than RMB 400 million.
The entire group turnover (excluding the turnover from transactions between members of the group) is counted in determining whether pre-merger notification is compulsory. In particular, the turnover of a party involved in the transaction (‘relevant party’) includes the turnover of the following undertakings:
- the relevant party itself;
- undertakings that are controlled (directly or indirectly) by the relevant party;
- undertakings that control (directly or indirectly) the relevant party;
- undertakings that are controlled (directly or indirectly) by undertakings that control the relevant party; and
- undertakings that are jointly controlled by two or more parties as specified above.
Answer ... According to Article 22 of the Anti-monopoly Law, where a concentration between undertakings takes place under any of the following circumstances, it need not be notified to the SAMR:
- One of the undertakings participating in the concentration owns 50% or more of the voting shares or assets of each of the other undertakings; or
- One undertaking, which is not participating in the concentration, owns 50% or more of the voting shares or assets of each of the undertakings participating in the concentration.