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China – MOFCOM To Name And Shame Merger Control Rule-Breakers.

1 May, 2014



China’s Ministry of Commerce (“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. While MOFCOM’s formal powers to sanction infringements will not change, 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.


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. With the administrative burden of filing reduced in appropriate cases, and the consequences of not doing so becoming more severe, taking a risk on not filing in China is becoming an increasingly unattractive proposition.




Under the merger control provisions of China’s Anti-Monopoly Law (“AML“), concentrations of undertakings must be notified to MOFCOM if either:


  • the aggregate global turnover of all undertakings participating in the concentration exceeded RMB10 billion during the previous financial year, with at least two undertakings each having a turnover of RMB400 million or more within China during the previous financial year; or
  • the aggregate turnover within China of all undertakings participating in the concentration exceeded RMB2 billion during the previous financial year, with at least two undertakings each having a turnover of RMB400 million or more within China during the previous financial year.


Where the filing thresholds are met, the concentration must be notified to MOFCOM prior to completion, which must be suspended until clearance is obtained from MOFCOM.
MOFCOM has announced that, in future, it will publicise decisions to issue administrative penalties imposed for failure to notify concentrations when required under the AML and for completion of such transactions prior to MOFCOM giving clearance (so-called “gun jumping”). The new provisions take effect from 1 May 2014.The decision to publicise administrative penalties will not change the nature or extent of the enforcement measures available to MOFCOM: merging parties will continue to be liable for a maximum fine of RMB 500,000 and, more importantly, MOFCOM’s strongest measure remains its power to unwind unlawfully completed transactions. The changes will, however, mean that companies cannot prevent the fact of being penalised and, by implication, the fact of having infringed the AML, from becoming public knowledge.




Though arguably no more than a procedural change, this change of approach will likely increase the incentive for companies to consider whether their transactions will trigger merger control requirements, and continues the trend in China towards closing down gaps in the merger control regime which has, for example, seen members of the State Council advocating measures to bring variable interest entities (VIEs) within the scope of the AML. As well as penalties themselves, companies will now have to regard damage to their reputations as a real risk of failing to file, including in relation to their standing with China’s other State authorities. This will be particularly important to companies which regularly do business in China, given the range of authorisations which can be required in order to operate or invest in China.


Seen alongside the new “Simple Merger Standard” regime introduced by MOFCOM earlier this year; MOFCOM has now also published tentative guidelines on the practical steps needed to benefit from the Simple Merger procedure), these changes may also be seen as a signal of MOFCOM’s intent with respect to future concentrations, as well as making use of MOFCOM’s growing experience with merger control cases to bring Chinese merger control more closely into line with other, well-established, regimes which already adopt a similar approach.


On the one hand, the introduction of a simplified procedure will be welcomed by businesses concerned by the cost and potential for substantial delays when filing in China. By explicitly recognising that some concentrations that trigger the notification thresholds may nonetheless not warrant a full-scale investigation, MOFCOM is indicating a willingness to take a pragmatic approach to such cases. This will be especially welcome to parties involved in off-shore joint ventures, for whom filing in China (along with other regimes with similar extra-territorial reach, most notably the EU) can often be seen as an unwarranted and counter-intuitive impediment to doing business.


The trade-off for this is likely to be a tightening of enforcement against parties which choose to try to circumvent the AML regime. Shang Ming, the Director General of MOFCOM’s Anti-Monopoly Bureau Merger Control Division, has stated publicly that it is a top priority and there will be no excuses for failure to file where the thresholds are met. At the same time as announcing the publication of penalties, MOFCOM has openly invited potential whistle-blowers to come forward to report breaches of the AML through a dedicated hotline. This is likely to encourage not only competitors but also individuals within organisations to come forward and report failures to file, thereby increasing the risk of being caught and rendering attempts to stay “under the radar” much more risky.


Just as the introduction of a simplified procedure will have reduced parties’ concerns over filing, MOFCOM’s announcement puts fresh emphasis on the need to file, even if parties think their deal “does not affect” China.


herbert smith Freehills


For further information, please contact:


Mark Jephcott, Partner, Herbert Smith Freehills

[email protected]


Karen Ip, Partner, Herbert Smith Freehills

[email protected]


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