Jurisdiction - China
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China – Anti-Monoplogy Law Sixth Anniversary: Antitrust Enforcement Continues To Gain Prominence While Merger Legislation Dominates MOFCOM’s Programme.

9 August, 2014


China’s Anti-Monopoly Law (“AML”) celebrated its sixth anniversary on 1 August 2014, and whilst the last year has not produced the explosion in antitrust enforcement which greeted the fifth anniversary, enforcement of all aspects of the AML has continued to grow in importance, with China’s anti-trust authorities issuing a number of major decisions and guidelines. At the same time, a relatively busy legislative programme in the first half of 2014 has seen a number of significant publications in relation to merger control. In particular, it appears that China’s Ministry of Commerce (“MOFCOM”) is working to update its processes and guidance to reflect its increased experience.


1. New Simplified Merger Standard


In February, MOFCOM published its “Interim Rules Regarding the Applicable Standards of Simple Merger Review Cases” (the “Simple Merger Standard”). The Simple Merger Standard came into force on 12 February 2014, and was followed in April with the publication of “Tentative Guidelines on Concentration Notification of Simple Cases” (the “Simple Merger Guidelines”).


The Simple Merger Standard applies to specified categories of concentration which MOFCOM has identified as being unlikely to harm competition. These include transactions in which the parties will hold lower market shares, changes from joint to sole control and, perhaps most importantly from an international commercial perspective, acquisitions of offshore targets and the establishment of offshore joint ventures. The inclusion of the latter will be particularly welcome for multi-national entities for whom filing in China (along with other regimes with similar extra-territorial reach, such as the EU) can often be seen as an unwarranted and counter-intuitive impediment to doing business.


Under the existing Merger Standard, all transactions meeting the jurisdictional thresholds of the AML were subject to the same notification requirements and the same potentially costly and time-consuming review process. While some transactions are cleared within the initial 30-day waiting period, in practice it can take several months to obtain clearance. In contrast, although the precise procedural advantages for concentrations falling within the scope of the Simplified Merger Standard are not yet fully known, notifications will be subject to reduced information requirements, and it is anticipated that review timetables will be significantly expedited. In the first decision under the regime, the acquisition by Rolls-Royce Holdings in its acquisition of Daimler’s 50% interest in Rolls-Royce Power Systems, clearance was obtained in just 19 days after formal acceptance of the filing – it remains to be seen whether this will become the norm.


2. MOFCOM Plans To Name And Shame Rule-Breakers


MOFCOM has announced that, as of 1 May 2014, companies which breach merger control filing requirements will be openly publicised, along with details of the penalties imposed on the parties involved. MOFCOM has not indicated any exceptions to this approach, which would therefore apply to any failure to notify, including those which have no substantive connection with China. At the same time, MOFCOM issued an invitation to whistleblowers to inform it of concentrations which may wrongly have failed to be notified, providing details of its new hotline for this purpose. Shang Ming, Director General of MOFCOM’s Anti-monopoly Board, has stated that enforcement of the filing requirements will be a top priority, and a newly-tightened regime for punishing delinquency appears to be one manifestation of this.


The decision does not change MOFCOM’s powers to sanction parties for breach of their filing obligations under the AML: the maximum financial penalty remains limited to RMB 500k. Nonetheless, the ability to inflict reputational damage while advertising the financial consequences of non-compliance is likely to strengthen the incentive on companies to ensure that they comply with China’s merger control laws, both from a public relations perspective and from that of companies’ relationships with other regulators in China (whose approval may often be required for investment and business operations within the jurisdiction).


Coupled with MOFCOM’s decision to adopt streamlined procedures for straightforward merger cases, the change will be important not only for transactions with a direct impact in China but also international transactions and in particular in relation to offshore joint ventures. Whereas MOFCOM has indicated its willingness to take a pragmatic approach to concentrations which raise little likelihood of competition concerns, it is increasingly clear that MOFCOM will take a more robust approach to dealing with companies which fail to comply with their obligations under the AML, meaning that taking a risk on not filing in China is becoming an increasingly unattractive proposition.


3. Revised Guidelines On Merger Notification


On 6 June 2014, MOFCOM issued revised Guidance on the Notification of Concentrations, setting out additional information for merger parties on the principles that MOFCOM will apply in carrying out its merger control functions.


All guidance on MOFCOM’s approach to merger review is to be welcomed. Although it contains relatively little by way of “new” substantive material, the revised Guidance represents a significant expansion on the previous version, covering (i) the determination of “control”, (ii) calculation of revenues, (iii) pre-notification consultations, and (iv) the notification process. Despite this enhancement, however, the Guidance remains comparatively concise relative to that of other major competition authorities, such as the EU Commission.


4. Merger Control Highlights


Prohibition Of The P3 Network Shipping Alliance


One of the most significant merger control decisions in the last year has been MOFCOM’s prohibition of the P3 Network Shipping Alliance. Only the second outright prohibition (after Coca-Cola/Huiyuan) issued by MOFCOM since the AML came into effect, the decision highlights MOFCOM’s willingness to conduct its own reviews independently from the line taken by authorities in other major jurisdictions (in this case the European Commission and the US Federal Maritime Commission, both of which cleared the transaction subject to monitoring requirements).


This case also highlights the continuing procedural difficulties which can be faced by parties filing in China, as MOFCOM availed itself of the maximum 180 days to reach its decision, in addition to several months of pre-notification discussions. This bucks the general trend of decreasing review periods, and is in clear contrast with the less than three weeks required to obtain clearance in Rolls-Royce Holdings/Rolls-Royce Power Systems.




Merger review under the AML has hitherto gained a reputation as involving one of the slower review processes. Recent experience suggests, however, that the review process is becoming quicker. It is to be hoped that the introduction of the simple merger standard will contribute to further development in this area, not only for cases within its scope but also by reducing the overall administrative burden on MOFCOM.


As well as issuing only its second ever prohibition decision, MOFCOM has adopted several decisions in which it has imposed conditions where its counterparts in other jurisdictions refrained from doing so. In doing so, MOFCOM has demonstrated a willingness to take decisions which run counter to the views of other major regulators, and is arguably emphasising the importance of China-specific factors in its consideration of merger transactions. Given the context of these cases – most of which involved high-tech, economically important sectors – it is possible that MOFCOM might also be giving effect to the industrial policy considerations set out in the AML.


5. Antitrust Developments And Enforcement Trends


In contrast with merger control, there were no significant new rules from either SAIC or the NDRC in relation to antitrust enforcement (although SAIC is consulting on new regulations – see below). Enforcement trends seen in 2013, in particular in respect of pricing arrangements and increasing enforcement at provincial level, have continued through the first half of 2014.


Monopolistic Agreements


Enforcement in respect of monopolistic agreements has continued to focus on price-related offences, in particular RPM, with both national and provincial authorities having been active. For instance, following its investigation of RPM arrangements between spectacle makers and their distributors, the NDRC fined six parties a combined total of over RMB19 million. While not on the same scale as last year’s record-high Maotai/Wuliangye and Baby Formula fines, the fines imposed are reported to have represented up to 2 per cent of the parties’ turnover, demonstrating the NDRC’s continued focus on clamping down on anti-competitive pricing arrangements.


Abuse Of Market Dominance


The NDRC’s investigation into alleged discriminatory licensing and excessive pricing by InterDigital, Inc has been suspended following acceptance of commitments. Looking forward, it is understood that the NDRC’s investigation into alleged abuse of market dominance by Qualcomm may be reaching its final stages, with discussions on potential penalties and remedies expected to take place in the coming months. Furthermore, the SAIC only last week raided the offices of Microsoft in China – reportedly investigating alleged attempts to hinder interoperability with its operating systems. Together with MOFCOM’s approach to merger control in high-tech industries, these cases may suggest that the authorities are attaching more significance to high-tech industries and IP rights, and in this context it is worth noting that the SAIC has recently published its draft regulation on the application of the AML to the abuse of IP rights for consultation. Among other provisions, the draft regulation provides for rebuttable safe harbours based on the proportion of the market affected and the availability of alternative technologies, as well as providing guidance on the type of conduct which SAIC regards as likely to be abusive and the factors it may take in analysing individual cases.


Enforcement Trends


The emergence of regional agencies as an increasingly significant forum for antitrust enforcement has been in evidence this year, for example in the imposition of fines by Guangdong Provincial Price Bureau, in respect of price fixing by driving school associations, by the Industry and Commerce Bureau of Quanzhou Municipality in respect of product bundling by the Fujian Broadcast & TV Network Group, and by the Guangdong Provincial Administration for Industry & Commerce in respect of abuse of dominance by Yiyuan Water.


At the same time, the expansion by the NDRC of its workforce points to last year’s increase in enforcement being only the start of things to come. This trend may also account for the recent practice by MOFCOM of engaging external economics consultants, as in its review of the acquisition by Thermo Fisher of Life Technologies, and of Merck’s acquisition of AZ Electronics


herbert smith Freehills


For further information, please contact:


Mark Jephcott, Partner, Herbert Smith Freehills

[email protected]


Karen Ip, Partner, Herbert Smith Freehills

[email protected]


Tom Kemp, Herbert Smith Freehills

[email protected]


Homegrown Competition & Antitrust Law Firms in China 


International Competition & Antitrust Law Firms in China

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