Introduction to Chinas Merger Control System

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Introduction to Chinas Merger Control System
Department Of Treaty Law Anti-monopoly Office
Ministry of Commerce
Dec. 2006
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Catalogues

• Merger control is one of the most important
  pillars of Anti-monopoly Law.
  
• Current merger control system and practice in
  China
  
• Introduction to the merger control system in
  Chinas draft of Anti-monopoly Law (AML)
  

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Merger control is one of the three pillars of AML

• MA has been increasingly used as a vehicle for
  the optimization of industrial structure and
  enterprise organizing structure as well as an
  effective means for enterprises to expand its
  scale and increase international competitiveness

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Improper merger will harm competition

• Merger will increase the barrier of access to the
  markets.
  
• Practices and experience from other countries
  notification system regulation on merger
  
• China is taking merger control as an important
  measure to protect competition
  

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Merger Control in Anti-Monopoly Law

• Concept of Merger, and Chinas draft of AML adopt
  the concept of Concentration.
  
• Types of concentration combination or
  acquisition of property, combination of
  operation, combination of personnel
  
• --MA
• --Takeover
• --Joint venture
• --Other forms of control

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Establishment of Notification System of Merger
Control

• Pre-merger Notification, eg U.S.A, Germany, EU
• Post-merger Notification, eg Argentina, Spain
• Voluntary Notification, eg France, New Zealand,
  Norway

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Comments on the Notification Systems

• Post-merger Notification
• It is more difficult for anti-monopoly agency to
  prohibit an accomplished merger than to prevent a
  would-be one.
  
• MA may work as a remedy to rescue the
  enterprises from bankruptcy, Its good for the
  enterprises to grasp the opportunity to implement
  the merger instead of waiting for the approval
  beforehand.

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Thresholds of Notification

• Assets, turnover and market share
• Comments on the different thresholds above

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Legislation and Practice in China

• Company Law, Art.183
• Securities law,Chap.4
• Rules on MA of domestic enterprises by foreign
  investors (issued in 2003 and revised in 2006)
  

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Pre-merger notification in China

• Notification must be submitted to Ministry of
  Commerce if any of the following thresholds are
  met (Art. 51)
  
• The business turnover of a party to the merger or
  acquisition in the China market in the current
  year exceeds RMB 1.5 billion (about 182
  million)
• The foreign investors have merged with or
  acquired more than 10 domestic enterprises in
  aggregate in the relevant industry in China
  within one year
• The market share of a party to the merger or
  acquisition in the domestic market has reached 20
  per cent or
  
• The market share of a party to the merger or
  acquisition in the domestic market will reach 25
  percent as a result of the transaction.

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Continued

• For offshore transactions, if the following
  thresholds are met, notification must be
  submitted to the Ministry of Commerce(Art.53)
  
• ---The assets of a party to the merger or
  acquisition in the China exceeds RMB 3 billion
  (about 380 million)
  
• ---The business turnover of a party to the
  merger or acquisition in the China market in the
  current year exceeds RMB 1.5 billion (about 190
  million)
• --- The market share of a party to the merger
  or acquisition in the domestic market will reach
  25 per cent as the result of the transaction or
  
• ---The foreign investors will acquire directly
  or indirectly more than 15 domestic enterprisess
  share in aggregate in the relevant industry in
  China as the result of the transaction.

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Continued

• Conditions for exemption from merger
  control(Art.54)
  

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Merger control practice of MOFCOM

• MOFCOM has reviewed over 200 cases in accordance
  with the Rules on MA
  
• Brief introduction

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Notification Threshold for Concentration in
Chinas AML Draft

• Taking into consideration the status quo of
  Chinas economic development and market
  competition, in particular the significant
  sectoral difference, the draft set the following
  threshold of notification for MA
• A general threshold for all sectors except
  provided otherwise.
  
• Empower the State Council to set specific
  thresholds for concentration in some special
  industries, such as bank and insurance, and
  
• Entrusted the anti-monopoly agency to adjust the
  threshold according to the development of economy
  after getting the approval of the State Council.
  
• Who shall notify?

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Time limit for Merger Review

• To keep in line with international practices, the
  draft took the two-phase approach
  
• Phase I to decide whether to take further
  measures or not. Undertakings could not commit
  concentration before the decision was made.(30
  days)
• Phase II to decide whether or not to prohibit
  the concentration.(90 days)
  

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Continued

• In the following occasions, the time limit may be
  extended
  
• With consent of the parties involved in the
  concentration
  
• Inaccuracy of the documents provided by the
  parties, which need to be further confirmed.
  
• Significant changes after the notification.
• Factors taken into account in merger review

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Substantial Criteria for Blocking a
Concentration

• U.S
• EU
• Chinas Draft
• Anti-monopoly agency shall publicize its decision

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Exemptions for concentration

• General exemption is the public policy or
  interests
  
• If the benefits resulting from the merger, such
  as improving the competition conditions, outweigh
  the disadvantages, it is possible for
  anti-monopoly agency to approve.
• The anti-monopoly agency may approve a
  transaction on certain conditions.
  
• Specific regulations and guidelines will be
  issued after the adoption of AML
  

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• QA

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• Thank You!