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Legal Update

China's Ministry of Commerce Releases Scaled-back Guidance on Its Merger Control Regime

9 December 2009
Mayer Brown Legal Update

On 27 November 2009, the Anti-Monopoly Bureau of China’s Ministry of Commerce (MOFCOM) published two new guidance measures concerning the notification and review of mergers under the Anti-Monopoly Law (AML). They are:

  • Measures on the Notification of Concentration of Undertakings (Notification Measures), and
  • Measures on the Review of Concentration of Undertakings (Review Measures).

In this Client Alert, we highlight key elements of the Notification Measures, which provide clarity on several issues previously plagued by uncertainty due to the ambiguous and unsettled nature of a draft version of the measures published in January 2009 - but also omit a crucial definition that leaves the mandatory notification status of many transactions up in the air.

A further Client Alert will be issued shortly, containing information on key aspects of the Review Measures (which primarily set out the process MOFCOM will follow when reviewing notified transactions).

Highlights of the finalised Notification Measures

The finalised Notification Measures are scheduled to come into effect on 1 January 2010, and 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.

That regime requires that transactions which qualify as a "concentration" (a concept discussed further below) be notified to MOFCOM for review and prior-approval if the business operators participating in the concentration transaction meet certain worldwide and/or China-specific turnover thresholds1 (Mandatory Notification Turnover Thresholds). In this context, the finalised Notification Measures:

  • Identify which business operator(s) are required to submit the relevant notification in applicable cases
  • Explain how a business operator's turnover should be calculated when the Mandatory Notification Turnover Thresholds are applied
  • Specify the information that needs to be submitted to MOFCOM in a notification document as part of the review process

A summary of the guidance provided on these matters is set out below.

  • Identifying the relevant notifying party - The Notification Measures confirm that the business operator(s) obliged to submit a notification to MOFCOM in relation to a concentration transaction that meets the Mandatory Notification Turnover Thresholds is:
    1. in the case of a merger, all business operators who are merging; and
    2. in the case of other transactions, the relevant business operator who is acquiring control or a decisive influence over a separate business operator.

The Notification Measures also state that if a party obliged to submit a notification fails to do so, the other business operators participating in the relevant concentration transaction may do so instead.

  • Calculation of turnover - The Notification Measures introduce detailed rules for calculating the turnover of business operators involved in a concentration transaction, including the following rules:
    1. Identifying turnover "within China" : The Notification Measures provide that China turnover refers to turnover derived from buyers, located within the territory of China, of products and services provided by the business operators participating in the concentration transaction. Notably, wording that had appeared in an analogous provision of the draft Notification Measures expressly excluding Taiwan and the Special Administrative Regions of Hong Kong and Macau from such territory for the purposes of the relevant calculation has been removed from the finalised document.
    2. Including entire 'group' turnover in calculations : The Notification Measures stipulate that the turnover of a business operator directly involved in a concentration transaction includes turnover generated by other members of the business operator's corporate group, and other affiliates of that group, where those entities satisfy criteria referenced in the Notification Measures (which criteria primarily concern whether the entities may be under the direct or indirect "control" of the ultimate parent entity within the group). However, turnover generated from internal transactions among the business operators within the group can be excluded.
    3. Deduction of taxes : The Notification Measures state that all kinds of taxes and associated charges should be deducted from turnover for the purposes of applying the Mandatory Notification Turnover Thresholds.
    4. Adjustment of turnover calculations where part or parts of a business are acquired : According to the Notification Measures, when a business operator is acquiring only 'part' of a business (which is understood to mean one or more distinct business areas or divisions within a larger organisation, or one or more entities within a corporate group - although this is not stated with complete clarity) then only the portion of turnover relating to the parts actually acquired need to be considered on the seller/target side in the context of the Mandatory Notification Turnover Thresholds.
    5. Aggregation of turnover for "creeping acquisitions" : The Notification Measures provide that multiple transactions that are conducted among the same group of business operators over a two-year period may be considered in aggregate in assessing whether the merger notification thresholds have been met (in cases where none of the separate individual transactions qualify as a concentration transaction that achieves the Mandatory Notification Turnover Thresholds).
  • Notification contents - The Notification Measures also provide detailed explanation of the information required to be included in a notification to MOFCOM, although this mostly repeats guidance previously issued by MOFCOM in other documents.

Problems with the finalised Notification Measures

Under Article 20 of the AML, a concentration is defined as including, inter alia:

  • the acquisition of control over another business operator via the purchase of shares or assets; and
  • the acquisition of control, or the ability to exercise determinative effects, over a business operator by contract or other means.

The draft version of the Notification Measures that was published by MOFCOM for consultation purposes in January 2009 explained how the phrase "acquisition of control" should be interpreted in this context. Specifically, it provided that an acquisition of control will occur where a business operator acquires more than 50% of the voting shares or assets of another business operator, or where two business operators establish a new joint venture enterprise. Additionally, the draft provided that an acquisition of control will occur in other circumstances (such as where less than 50% of the voting shares or assets are obtained) where an undertaking gains the ability to, inter alia:

  • decide the nomination of one or more directors or other core members of another undertaking;
  • decide another undertaking's financial budget, operation and sales, product pricing or significant investment; or
  • make other significant decisions on significant management and operational matters, for another undertaking.

Although there were several ambiguous and uncertain aspects of these draft measures, they did provide a useful level of guidance regarding the types of transactions that MOFCOM considered would be likely to warrant notification and review under the AML. In many cases, businesses engaging in transactions that clearly fell outside the criteria for "acquisition of control" described in the draft, could be sufficiently satisfied that their deal was not required to be submitted to MOFCOM and that no consultation with the regulator was necessary on this issue.

Unfortunately, the finalised Notification Measures omit any definition or explanation of the phrase "acquisition of control". There is now no official guidance from the Chinese authorities on this point, and the high level of uncertainty that existed immediately after the commencement the AML in August 2008 (and before publication of the draft Notification Measures in January 2009) regarding which non-merger M&A transactions qualify as concentrations under the AML has now returned.

It is likely that MOFCOM will revisit this issue in later guidelines or measures, and that the relevant provisions that appeared in the draft Notification Measures were removed from the finalised version due to continuing debate within MOFCOM and associated agencies about the scope of deals that should properly fall for review under the AML's merger control regime.

Implications of the finalised Notification Measures

The finalised Notification Measures will be welcomed by the business sector, as they provide a level of clarity on several matters (particularly relating to the turnover calculation process under the Mandatory Notification Turnover Thresholds) that are fundamental to an application of the AML merger control regime to business transactions.

However, there will also be concern and frustration over MOFCOM's failure to include in the finalised document a clear definition of the crucial concept "acquisition of control".

In practical terms, the main implication for the business sector from this omission is that many acquisitions of shares or assets (including relevant new joint ventures) between business operators that meet the Mandatory Notification Turnover Thresholds may now have to be the subject of formal or informal consultation with MOFCOM - in order for parties to obtain clear guidance on whether MOFCOM believes it should be the subject of a notification.

To avoid risk, it will not be sufficient to assume that transactions which do not qualify as a 'concentration' under competition regimes with broadly analogous mandatory notification criteria (such as the European Union) will also be considered by MOFCOM to fall outside the scope of its merger review powers.


1. The relevant turnover threshold provisions specify that notification will be mandatory if both of the following two limbs are met, by reference to the last financial year: Limb 1: At least 2 business operators involved in the concentration each have turnover in China of RMB 400m (US$58.6m) or more; and Limb 2: The global turnover of all business operators involved in the concentration combined is RMB 10b (US$293m) or more OR the China turnover of all business operators involved in the concentration combined is RMB 2b (US$1.46b) or more.

For inquiries related to this Client Alert, please contact:

Hannah Ha ( )

John Hickin ( )

Gerry O'Brien ( )

Learn more about our PRC offices and Antitrust & Competition practice.


  • Hannah C. L. Ha
    T +852 2843 4378
  • John M. Hickin
    T +852 2843 2576
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