The AML of China

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(No Transcript)
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The Development of Anti-monopoly Law in China
Susan Ning June 15, 2009
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Issues to be Discussed
How MOFCOM Works
A review of the recent decisions of MOFCOM
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Issues to be Discussed
How MOFCOM Works
A review of the recent decisions of MOFCOM
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How MOFCOM Works
Authorized by MOFCOM, Anti-monopoly Bureau of
MOFCOM undertakes the specific law enforcement
works of accepting and reviewing the notification
of concentration of operators.
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How MOFCOM Works
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How MOFCOM Works
Procedure Issues
Flow Chart for MOFCOMs Anti-Monopoly Review on
Concentration of Operators
Supplement documents and materials
Submit the filing report
The Notifying Party
Ministry Level
Deliver
Anti-Monopoly Bureau
Administrative Service Center
Public Announcement on determination of
prohibiting concentration or attaching
restrictive conditions
Issue of written notification on determination of
review
Supervisory Department
General Public
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How MOFCOM Works
Procedure Issues
Pre-notification consultation
Article 9 of Interim Rules for the Notification
of Concentration of Operators (Draft for Comments)

• Before the formal notification, the operator to
  concentration may apply to MOFCOM for the
  consultation regarding relevant issues of the
  notification of concentration.

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How MOFCOM Works Procedure Issues
Review Period
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How MOFCOM Works Procedure Issues
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How MOFCOM Works Procedure Issues

• MOFCOM shall, in the review process, give the
  Notifying Party the opportunity to make
  statements and provide arguments.
• MOFCOM can, in the review process, seek opinions
  from entities or individuals, such as other
  government authorities, industry associations,
  operators, consumers, when necessary.

Interim Rules on Review of Concentration of
Operators (Draft for Comments)
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How MOFCOM Works --Hearing
Process

• MOFCOM can organize hearings to investigate and
  collect evidences, and seek opinions from
  relevant parties. If the participant of the
  hearing wants to make a separate statement due to
  confidentiality, such as the commercial secret,
  separate hearing can be arranged.
• When organizing the hearing, MOFCOM can notify
  the representatives of operators to
  concentration, their competitors, the upstream
  and downstream enterprises, and other relevant
  enterprises to participate, and may invite
  relevant experts, representatives of the industry
  associations, representatives of the relevant
  government authorities, and representatives of
  consumers to participate in the hearing.

Interim Rules on Review of Concentration of
Operators (Draft for Comments)
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How MOFCOM Works Procedure Issues

• Objections
• In the stage of further review, if MOFCOM
  believes that concentration of operators has or
  may have the effect of eliminating or restricting
  competition, it shall notify the operators to
  concentration of the objection in writing, and
  shall specify a reasonable period for operators
  to concentration to submit written defense.
• The written defense submitted by operators to
  concentration shall include relevant facts and
  reasons, and corresponding evidences. If after
  the expiration of the specified period, operators
  to concentration have not submitted written
  defense, they shall be deemed as having no
  disagreement with the objection.

Interim Rules on Review of Concentration of
Operators (Draft for Comments)
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How MOFCOM Works
Material Issues
A merger
Acquiring control of other operators by an
acquisition of equities or assets
Concentration Of Operators
Acquiring control of other operators or the
capability of imposing determinative influence
on other operators by contract or other methods
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How MOFCOM Works
Material Issues

• Acquiring control of other operators includes
• Acquiring more than 50 shares or assets with
  voting right of other operators or
• By acquiring shares or assets and by contracts
  or other means, obtaining the power to
  determine
• the appointment of one or more of the directors
  or core management personnel,
• the financial budget,
• the operation and sales,
• the pricing,
• the essential investment or other important
  management decisions.
• Interim Measures on the Notification of the
  Concentration of Operators (Draft for Comment
  Collection)

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How MOFCOM Works
Material Issues
Establishing new joint venture is also
controllable?
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The Interim Measures on the Notification of the
Concentration of Operators have given an
affirmative answer to this question. But it is
very controversial until the Measures are
officially enacted.
B

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How MOFCOM Works
Material Issues
In the practice of legislation and law
enforcement, it is debatable that whether the
establishment of Sino-foreign joint venture or
Sino-foreign Corporation enterprise by foreign
investors (namely green field investment) shall
be notifiable under the AML. According to the
current law enforcement practice of MOFCOM, green
field investment may also be subjected to the
notification.
green field investment
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How MOFCOM Works
Material Issues
The application of notification thresholds
When calculating the turnover, characteristics
of special industries and business areas such as
banking, insurance, securities and futures shall
be taken into consideration. Specific methods
will be enacted by the competent commerce
authority under the State Council, in conjunction
with relevant departments of the State Council.
The current notification thresholds adopts the
turnover as sole criterion to determine whether
an transaction is notifiable in China. The
current adopted notification thresholds shall be
applied to the operator within various kinds of
industries and fields.
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How MOFCOM Works
Material Issues

• Factors need to be considered
• Market shares
• The degree of market concentration
• Market entry
• Impact on consumers and competitors
• Impact on the development of national economy
• Article 27 of the AML

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How MOFCOM Works
Material Issues
Proposing Restrictive Conditions
Structural conditions, such as peel off part of
the assets or business of the operator to
concentration
To eliminate the actual or potential effect of
eliminating or restricting competition, both
operators and MOFCOM can, in the review process,
propose restrictive conditions to adjust the
proposal of concentration transaction.
Behavioral conditions, such as opening the
networks or platform or other essential
facilities of the operator to concentration,
licensing of essential technologies, etc.
Integrated conditions which are the combination
of structural conditions and behavioral
conditions.
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Issues to be Discussed
How MOFCOM Works
A review of the recent decisions of MOFCOM
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Overview of Case Acceptance History, Current
Situations and Prospect

• From August 1 2008, the date of the enforcement
  of the PRC Anti-Monopoly Law (hereinafter AML),
  to April 15 2009, MOFCOM has received 51
  concentration filings. MOFCOM accepted and
  reviewed 40 cases the decisions of 32 cases had
  been made and 30 cases are approved without
  conditions.
• The number of MOFCOMs decisions to prohibit or
  to supplement restrictive conditions to the
  concentration only account for 9 among all the
  decisions that have been made other 90 of the
  reviewed concentrations are all approved without
  conditions.

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Decisions to be Discussed
The Proposed Acquisition of Huiyuan
Company by Coca-Cola Company
The Acquisition of Lucite Company by Mitsubishi
Rayon Company
The Acquisition of AB Company by Inbev
Company
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The Proposed Acquisition of Huiyuan Company by
Coca-Cola Company
Notification September 18, 2008,
Coca-Cola submitted the notification materials to
MOFCOM. According to MOFCOMs requests,
Coca-Cola submitted the supplementary materials
on September 25, October 9, October 16, and
November 19.
Review On November 20, MOFCOM
registered the case and started the review of
such notification.
Further Review MOFCOM decided to
conduct further review after the preliminary
review works finished on December 20, 2008.
Decision MOFCOM prohibits the
concentration of operators by the Coca-Cola and
Huiyuan Company.
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The Proposed Acquisition of Huiyuan Company by
Coca-Cola Company
Factors to be Concerned
Leverage Effect MOFCOM
point out that the Coca-Cola Company will have
the ability to transmit its dominance position in
the soda soft beverage market into the juice
beverage market .
High Level of Discretion MOFCOM
have high level of discretion when determining
the existence of or the possibility of causing
the influence of eliminating or restricting
competition.
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The Proposed Acquisition of Huiyuan Company by
Coca-Cola Company
Well-known Trademark
Experience of Other Jurisdiction
Opinions of Other Related Parties
Before raising restrictive conditions,
MOFCOM usually seek the opinions from relevant
operators, competitors, upstream and downstream
enterprises, industry association, relevant
government department, experts and consumers in
advance.

• MOFCOM may consider the practice and
  experience of other jurisdiction as an important
  reference (such as the application of leverage
  effect in the case ).

MOFOM tends to pay much more attention
to the concentration involving the issues of
well-known trademark and famous brand.
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The Acquisition of AB Company by InBev Company
In November 18, 2008, MOFCOM issued the MOFCOM
Public Announcement of the Anti-monopoly Review
Decision Regarding the Proposed Acquisition of
ANHEUSER-BUSCH COMPANIES INC. by INBEV N.A.
/S.A.2008 No.95, which is considered to be the
first case of approval with conditions under
the AML.
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The Acquisition of AB Company by InBev Company
Structural Remedy
Categories of Restrictive Conditions
Behavioral Remedy
The combination of structural
conditions and behavioral conditions
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The Acquisition of AB Company by InBev Company
Request operators to the concentration
not to increase shareholdings in third party
Behavioral Remedy
Request operators to the concentration
to notify any change in shareholdings timely
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The Acquisition of Lucite Company by Mitsubishi
Rayon Company
MOFCOM decides this acquisition has the
effect of eliminating and restricting
competitions, and will cause disadvantageous
effects to the effective competition in the China
MMA market and its downstream markets MOFCOM
decides to approve this concentration of
operators with supplementary restrictive
conditions.
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The Acquisition of Lucite Company by Mitsubishi
Rayon Company

• Structural Remedy
• Peeling off assets with time limit
• Crown jewel provisions

The combination of structural
conditions and behavioral conditions

• Behavioral Remedy
• Request operators to concentration not to
  initiate new acquisition
• Request operators to concentration to commit to
  provide products or services
• Request operators to concentration not to
  establish new undertaking

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The Acquisition of Lucite Company by Mitsubishi
Rayon Company
Factors to be Concerned
Vertical Effect When make
the competition assessment, MOFCOM will not only
make the analysis from the horizontal
perspective but also the vertical perspective.
The Legal Consequences of Violation of
Restrictive Conditions If the parties
to the concentration seriously violate their
warranties, they shall pay the penalty of
sepecific amount decided by MOFCOM.
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Inspirations from the Recent Major Cases
Antimonopoly notification should be one
important factor to be considered in MA
transactions
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Avoid unnecessary notification
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Drafting of the notification report
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The importance of public relationship
and lobbying work
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Prepare substitute plans
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Thank You !
EmailSusan.Ning_at_kingandwood.com