First Publicly Released Sanction For Gun-jumping Under China's Amended Anti-monopoly Law: Fines Of RMB 1.5 Million Imposed On Each Of The Undertakings

AnJie Broad Law Firm


AnJie Law Firm is a full-service law firm providing commercial legal services on an international basis. Our highly experienced lawyers have substantive skills and serve a broad base of practice areas including insurance & reinsurance, intellectual property, antitrust & competition, private equity, dispute resolution, mergers & acquisitions, capital markets, banking & finance, energy and natural resources and real estate.
Shanghai Highly is a company principally engaged in the manufacture, research and development of household appliances, core components for new energy automobiles and related cooling and heating appliances.
China Corporate/Commercial Law
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On 7 June 2024, the State Administration for Market Regulation ("SAMR") released its decision against Shanghai Highly (Group) Co. Ltd. ("Shanghai Highly") and Qingdao Haier Air Conditioning Co. Ltd. ("Qingdao Haier") for their failure to obtain the SAMR's prior approval before setting up a joint venture that was caught by China's merger control regime (the "Decision"). The SAMR found that the concentration at issue would not have the effect of restricting or excluding competition and, as a result, fined each of the undertakings RMB 1.5 million (roughly USD 206,733) pursuant to the increased penalty cap under Article 58 of the Amended Anti-Monopoly Law ("AML").

It is worth noting that this is the first publicly available enforcement case against gun-jumping after the increased penalty cap came into effect in August 2022, nearly two years ago. This case therefore may help companies to some extent understand how the SAMR gauges the fine in the individual case pursuant to the new law.


Shanghai Highly is a company principally engaged in the manufacture, research and development of household appliances, core components for new energy automobiles and related cooling and heating appliances. Qingdao Haier mainly specializes in the production and sale of air-conditioners, household appliances, cooling equipment as well as the development and promotion of air-conditioning technology.

On 19 January 2023, the parties entered into a joint venture agreement for the purpose of setting up Zhengzhou Highly Electric Appliances Co. Ltd. ("Zhengzhou Highly"), a joint venture that would engage in the production and sale of rotor compressors of air-conditioners. According to the parties' arrangement, Shanghai Highly would hold 51% of the equity interest in Zhengzhou Highly whereas Qingdao Haier would hold the rest. On 13 March 2023, Zhengzhou Highly obtained the business license without obtaining prior approval from the SAMR.

The SAMR's Findings

As Shanghai Highly and Qingdao Haier obtained joint control over the newly established joint venture, SAMR found it falling into the scope of concentration under the AML. SAMR further examined the parties' global and domestic turnovers (sum not disclosed in the Decision) and found that the arrangement at issue was notifiable and must be declared to the SAMR for approval before being implemented. Consequently, SAMR found that the joint venture registered on 13 March 2023 violated Article 26 of the AML as the parties (i.e. Shanghai Highly and Qingdao Haier) had not obtained the prior approval from the SAMR.

That said, the SAMR then found that the concentration at issue would not restrict or eliminate competition by effect, taking into account the non-exclusive factors listed in Article 33 of AML, which include: –

  • the market share of concentration undertakings and their control over the market;
  • the degree of concentration;
  • the impact of the concentration on market access and technological advancement;
  • the impact of the concentration on consumers and other relevant undertakings; and
  • the impact of the concentration on the development of national economy; etc.

Factors considered by the SAMR to determine the amount of fines

Under Article 58 of AML, sanctions for gun-jumping can vary depending on the effect of the concentration on competition. Where no anticompetitive effects are found, the SAMR will impose a fine capped at RMB 5 million (roughly USD 689,110) at its discretion. However, if the opposite is found, the cap of fines will rise to 10% of the turnover in the preceding year and the undertakings involved will also face non-pecuniary sanctions such as the order to cease concentration, transfer or dispose of the shares or assets and restore the pre-concentration status. Moreover, all administrative penalties will be recorded in the National Enterprise Credit Information Publicity System – a publicly accessible credit database – in accordance with Article 69 of the Provisions on the Review of Concentrations of Undertakings (the "Provisions").

In determining the specific amount of fines, the SAMR must take into account "such factors as the nature, degree and duration of the illegal acts and the elimination of consequences of the illegal acts" as prescribed in Article 59 of AML.

In the current scenario, as no anti-competitive effects were found, the SAMR imposed 30% of RMB 5 million cap on each of the concentrated entity, taking into account: –

  • that the case did not involve any aggravated factors;
  • that it was the first time that the parties jumped the gun;
  • that the parties cooperated with SAMR's investigation and provided the evidence materials in a proactive manner; and
  • that the parties actively rectified the conduct by effectively establishing and implementing an anti-monopoly system in concentration, etc.


China has long been at the forefront of sanctioning gun-jumping. Besides the RMB 1.5 million fines imposed on both parties, the Decision has some other implications that may help companies better navigate the compliance landscape of merger control.

First, gun-jumping may unnecessarily stagnate the transactions. From the particulars posted on Shanghai Administrative for Market Regulation's website dated 17 March 2024, we understand that the concentration in question probably was eligible for a simplified review, which in practice would normally take no more than two months, often a shorter time. However, in the current case, the gun-jumping investigation took approximately eight months (i.e. from 25 September 2023 to 28 May 2024), quadrupling the time needed for a simplified review. Although the current case is not representative of all circumstances as the length of investigations and merger reviews may vary from case to case, it can provide companies with a helpful reminder that gun-jumping may put companies in a uncertain situation for a long time, and might even lead to an increased risk of stagnation of transactions if the regulator calls stop of the concentration, besides the intensified pecuniary sanctions. Therefore, it is advisable for companies to attach more attention on the pre-closing merger filing analysis and filing requirement pursuant to the AML.

Secondly, companies are encouraged to develop an effective anti-monopoly compliance system. In the current case, the SAMR specified its considerations in determining the amount of fines, where it regarded the effective adoption of an anti-monopoly system as an important mitigating factor. That approach aligns with Article 36 of the newly promulgated Anti-monopoly Compliance Guide for Undertakings which empowers the anti-monopoly enforcement authority to "lighten or mitigate the administrative penalties at its discretion as appropriate" if the company "actively establishes or improves its anti-monopoly compliance management systems and effectively implements the same" before the issuance of the penalty decision. Moreover, the SAMR's approach in the current case is consistent with the regulatory trend to encourage proactive compliance with the anti-monopoly regime. Therefore, we would strongly recommend companies to establish and implement an effective anti-monopoly compliance system proactively.

Thirdly, in the current case, only the undertakings directly engaged in gun-jumping were penalized. Though it remains not completely clear from the written rules and precedents if and in which scenario the liabilities may be extended to parent companies, in the current case, the SAMR imposed fines on the direct perpetrators only. Therefore, it at least can be observed that SAMR is cautious to extend the liability to the parent entities of the companies directly signing the concentration agreements. That said, continuous observation on SAMR's attitude toward this issue is recommended.

Finally, gun-jumping may negatively affect an undertaking's credit. In the current case and pursuant to Article 69 of the Provisions, the administrative penalties incurred from the said gun-jumping were kept in the parties' credit record accessible to the public. This would inevitably cause reputational damage to the company to some extent, which may add extra costs and difficulties in client maintenance, business operation, bidding, commercial procurement, etc. Therefore, we would advise that companies also beware of the reputational risks triggered by gun-jumping.

To summarize, as the current case suggests, trying to deviate from the merger control regime of China can trigger unnecessary costs and risks. Hence, it is advisable for companies to plan the timing of integration carefully and develop anti-monopoly compliance systems proactively.

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.

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