10 December 2009
This is the second of two Client Alerts relating to China's Anti-Monopoly Law (AML) merger control regime, focusing on two new guidance measures published by the Anti-Monopoly Bureau of China’s Ministry of Commerce (MOFCOM) on 27 November 2009.
In our Client Alert Part I, we highlighted key elements of the Measures on the Notification of Concentration of Undertakings, which provide welcome guidance for business operators engaged in transactions in respect of which it is necessary to assess whether the AML merger control regime applies.
In this Client Alert Part II, we review key elements of the Measures on the Review of Concentration of Undertakings (Review Measures), which have been modified in part since a draft version was published for consultation purposes in January 2009. The Review Measures are scheduled to come into force on 1 January 2010.
Highlights of the Review Measures
The Review Measures set out key aspects of the process that MOFCOM will follow when it reviews notified transactions, including information relating to the timeframe for its review.
Relevant Articles in the Review Measures (when read in conjunction with other existing MOFCOM guidance documents) provide that the timetable for MOFCOM's review of notified transactions will be as follows:
- Once MOFCOM accepts that the notification documents in relation to a relevant transaction are complete, a preliminary review period of 30 calendar days commences (Preliminary Review). It should be noted, however, that in practice MOFCOM can often take several weeks to review submitted notification documents and provide comments, and may make several rounds of supplemental information requests until it is satisfied that the notification is complete. This can considerably lengthen the total time of MOFCOM's review.
- The notified transaction will be deemed as cleared at the end of the 30 calendar day preliminary review period unless, before this time, MOFCOM has advised the relevant business operators participating in the transaction that it is initiating a further period of review (Further Review).
- Where a Further Review is initiated, this can run for up to 90 days (or 150 days, in special circumstances such as where the information submitted in a notification needs further verification), and at the end of this Further Review the transaction will be deemed as cleared unless MOFCOM has issued a decision to prohibit it or impose restrictive conditions.
Additionally, key Articles in the Review Measures provide that business operators participating in a transaction reviewed by MOFCOM are entitled to have their views on its competition-effects heard by MOFCOM, and outline the process that will be followed when MOFCOM seeks input from third parties relating to a concentration under review or considers the imposition of restrictive conditions on a deal. These Articles are summarised below.
Right of defence
According to Article 5 of the Review Measures, MOFCOM is required to take into account any written statements or arguments submitted by business operators involved in a notified transaction.
Additionally, under Article 10 of the Review Measures, MOFCOM is required to notify the business operators involved in the notified transaction if, during Further Review, it deems that the notified transaction has or may have the effect of eliminating or restricting competition. In such cases, MOFCOM is also required to allow a reasonable period of time for those business operators to submit written defences in response to MOFCOM's concerns. If no such defence is received by the relevant deadline, the business operators will be deemed as not objecting to MOFCOM's concerns.
Involvement of interested parties
Under Article 7 of the Review Measures, MOFCOM may, where necessary, solicit opinions from entities or individuals regarding a notified transaction, such as other government departments, industry associations, business operators and consumers.
MOFCOM may also hold hearings during the review process to collect opinions and relevant evidence from interested parties. When holding such a hearing, MOFCOM may invite a range of interested parties to participate such as:
- The business operators participating in the transaction
- Competitor representatives
- Entities in upstream or downstream markets
- Other participants in the relevant industry sector
- Experts in relevant areas
- Representatives of industry associations
- Representatives of related functional departments
During the review process, both the business operators participating in a notified transaction and MOFCOM itself may propose that certain conditions be applied to the transaction (or the operations of the business operators participating in it) in order to remove or alleviate any possible associated anti-competitive effects.
Such conditions may be:
- structural - such as divestitures of assets or businesses of the participating business operators; or
- behavioural - such as establishing the infrastructure of online networks and platforms, licensing key technologies (including patents, know-how or other intellectual property), and termination of exclusive agreements by the business operators participating in the transaction, or a combination of both forms of restrictive conditions.
Under Article 15 of the Review Measures, MOFCOM will supervise the relevant business operators' adherence to any restrictive conditions imposed on a notified transaction, in order to confirm their fulfillment. Additionally, the business operators participating in the transaction are required to periodically report to MOFCOM on the status of such fulfillment.
Implications of the Review Measures
There are no particular surprises in the Review Measures, which for the most part simply reflect established practice under China's AML merger review regime and do no substantially deviate from an earlier consultation draft that has been guiding parties on MOFCOM's review process until now.
However, by publishing the finalised Review Measures MOFCOM has taken a further step towards completing the formal documentary framework of the AML merger review regime. Once the remainder of that framework is in place (which is expected to be in early 2010), it is likely that several aspects of the regime that have thus far remained dormant will come into play. This includes MOFCOM's right to impose financial penalties (up to RMB 500,000) on business operators who fail to notify transactions in accordance with the AML mandatory notification regime, or who implement notified transactions before a MOFCOM clearance decision has been issued (or deemed through expiry of the relevant review period). To date, it is understood that MOFCOM has not exercised these rights - notwithstanding that existing examples of relevant breaches of the regime requirements can be easily identified.
Accordingly, it is imperative that all business operators looking to conduct M&A deals in the near future or beyond adhere to the AML merger control regime, and factor in the regime's mandatory notification and MOFCOM pre-approval requirements to deal timetables and strategy discussions.
For inquiries related to this Client Alert, please contact:
Hannah Ha (
John Hickin (
Gerry O'Brien (
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