Today it is necessary to be a little more specific about the concept of concentration and the procedures to decides if to grant or not the “
nulla osta
” for the concentration.
Therefore this entry today is dedicated to these particular aspect of the new Chinese merger control regime.
Before to start my description of the procedures it is necessary to stress that abuse of a
dominant market position,
as defined in arts. 17 to 19 of the AML is prohibited. Following European practice, the AML prescribes a two-step inquiry:
i) Is the firm dominant? If so,
ii) Has it “abused” its dominance through certain exclusionary or predatory conduct?
These two questions are at the centre of the discussion. Dominance is essentially defined in terms of market power – is it to say the ability to control prices, quantities, and other transactions terms, or affect or prevent market entry in a relevant market. An allegedly dominant firm’s market power may be gauged through analysis of the market structure, barriers of entry, extent of dependence of customers, and other relevant factors. The AML also provides presumptions of dominance by any single firm with a market share that exceeds 50 per-cent, by any two firms with a combined market share that exceeds 66 per-cent, or by any three firms with a combined market share that exceeds 75 per-cent (excluding any firms with market shares under 10 per-cent, in this sense see Art. 19 of the AML available at:
http://www.china.org.cn/government/laws/2009-02/10/content_17254169.htm
). These presumptions may, however, be rebutted with evidence that demonstrates the lack of market power. Listed abuses reflect foreign rules against predatory pricing, refusals to deal, exclusive dealing, tying, and discrimination. Significantly, the AML only prohibits such practices when they are made “without justification,” perhaps signaling the intent to weigh the pro-competitive and anti-competitive effects of these practices on a case-by-case basis. Dominant firms are also barred from “selling products at unfairly high prices or buying products at unfairly low prices.”
Now that we have exposed the concept of dominant market position, it is the turn of the Level of approval: in fact, generally, the acquisition of any interest in a Chinese company by a foreign investor requires the government’s approval and one critical issue is the approval level that is required. An approval from a local or provincial office of MofCOM is typically sufficient for most transactions. However, certain types of acquisitions, such as those described below and those that involve a purchase price that exceeds a certain thresholds, require central government approval:
- Ø Investment in a company that holds a famous trademark or trade name;
- Ø Investment in a critical industry or an important industry that potentially affects China’s economic security;
- Ø Restructure of a Chinese company to a jurisdiction outside of China; and
- Ø Cross-border equity swap or share exchange.
In regards to transaction notification, there are a couple of questions most investors are interested in. So let us take a look at a few:
a)
What are the procedural time limits?
Under the Anti-monopoly Law, within 30 days of the receipt of all documents necessary for a merger notification, the Anti-Monopoly Bureau should review the merger notification and issue a decision on whether to conduct an in-depth investigation (see Art. 25 of the AML). However, it does not mean that the 30-day period starts since then. It is very likely that the MofCOM would find that the submitted documents are not detailed enough and thus would ask for more supplementary documents. In this case, the 30-day period will start again once the required documents are submitted. Such rounds of supplementary document submission could occur many times in the process of anti-trust filing.
If according to the decision of the Anti-Monopoly Bureau no in-depth investigation is necessary or if the Anti-Monopoly Bureau fails to make a decision within the above time limit, then clearance for the concentration shall be deemed to be given. If the Anti-Monopoly Bureau initiates an in-depth investigation, it will have an additional 90 days for the in-depth investigation. Under the following circumstances, the Anti-Monopoly Bureau may extend such period for another 60 days (reference must be made to art. 26 of the AML):
- Ø the parties to the transaction consent to the extension of the time limit;
- Ø the documents and/or materials submitted by the parties to the transaction are inaccurate and, as a result, a further clarification is necessary;
- Ø important changes occur after the merger notification is filed.
If the Anti-Monopoly Bureau fails to complete their review and to issue their decision within the above time limits, the parties to the transaction may implement the concentration.
However, any concentration that satisfies thresholds determined by the State Council must be reported for antitrust review and may not be consummated until the review process is complete.
b)
When do you report a concentration for review?
According to the
Regulations on the thresholds for reporting concentration
(
http://www.gov.cn/zwgk/2008-08/04/content_1063769.htm
) all combinations must apply to Authorities in charge of anti-monopoly review if:
- Ø (i) the turnover in the aggregate achieved by all parties to the M&A transaction exceeds 10 billion RMB world-wide or 2 billion RMB within Mainland China;
And/or
- Ø (ii) the turnover achieved by at least two of them respectively exceed 400 million RMB within Mainland China.
Merger notification to the Anti-Monopoly Bureau is mandatory if the transaction meets any of the notification thresholds (Art. 21, AML). The transaction may not be consummated until the review is complete, and no transaction may be implemented before clearance. According to the Anti-monopoly Law, if any party to the concentration violates the Anti-monopoly Law to implement the concentration the MofCOM may order that implementation is ceased, order a disposal of the shares or assets within a designated time limit, order an assignment of the business within a designated time limit or order any other measures to recover the status prior to the concentration. Furthermore, a fine of up to 500,000 RMB (approximately 54,000 Euro) may be imposed (Art. 46, AML).
Just to conclude this entry it is worth to remember that the MofCOM‘s Anti-Monopoly Bureau has issued a series of guidelines i.
Opinion on Guidance of Merger Review (“Guidelines for Merger Review”)
1 January 2009; ii.
Opinion on Guidance of Notification of Concentration of Business Operators,
dated 5 January 2009; and iii.
Opinion on Guidance of Notification Documents of Concentration of Business Operators,
dated 7 January 2009, which are aimed at clarify the notification for concentration. The new guidelines give detailed technical requirements for merger filings, and also list the information that must be submitted, but they do not clearly specify a filing deadline and some concepts remain unclear (e.g. geographic market).
The guidelines issued by the Anti-Monopoly Bureau contributed a lot in clarify what information that parties must give when notifying the Anti-Monopoly Bureau of a specific transaction: that information includes: (i) information about the parties to the transaction, including business licenses, approval certificates, and registration documents which must be notarized in the case of foreign enterprises; (ii) details of the transaction and a copy of relevant agreements; (iii) analysis of the effect of the transaction on competition in relevant markets, including details of market participants and their market share, turnover information, marketing strategies, and details of customers and suppliers; (iv) the effect of the transaction on market structure, competitors, other operators, consumers, technology development, economic development and public interest; (v) details of relevant industry association, and (vi) other information that must be disclosed to the appropriate authorities where the parties are going into bankruptcy or where the transaction involves national security, industry policy, state-owned assets, or famous trademark. In particular the Anti-Monopoly Bureau may now require the filing parties to provide the Bureau the opinion of local government, feedback from the public, and information regarding the possible social effect of the transaction.
The improvements in the new guidelines are evident, but this does not mean they put the Chinese merger control regime in line with the international practice. Introduction of the pre-negotiation meeting and requirements on the detailed filing documents are familiar to an European competition lawyer, because they are similar to the EU Form parties have to fill when notifying the transaction to the European Commission. Noteworthy the New Guidelines introduce a pre-notification meeting to the merger control regime in China. According to the New Guidelines, the Anti-monopoly Bureau encourages the notifying party to contact the Anti-monopoly Bureau on an informal basis in advance and consult on such major matters as whether a notification should be made and how the relevant markets should be defined. Further, the notifying party may ask to obtain waivers from the Anti-monopoly Bureau in respect of certain information required by the new Guidelines.
However, China’s merger control regime needs to be closely monitored by the local legislator and authorities to adjust it and eliminate the anomalies still present.
Cristiano Rizzi