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Legal Update

New Guidance on the Application of China's Merger Control Regime to the Financial Industry

24 July 2009
Mayer Brown JSM Legal Update

On 15 July 2009 a number of regulatory bodies in Mainland China jointly published new measures explaining how a key aspect of the Anti-Monopoly Law ("AML") merger control regime applies to entities in the financial industry (including banks, securities companies and insurance companies).

The Measures for Calculating the Turnover in Respect of Concentration Notification of Undertakings in the Financial Industry ("Financial Industry Measures") are a joint order of China's Ministry of Commerce ("MOFCOM"), the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission. The Measures will become effective in mid-August 2009.

The role of the Financial Industry Measures

Under Chapter IV of the AML, certain transactions that qualify as 'concentrations' under the law must be reported to MOFCOM for pre-approval - if relevant parties involved in the concentration meet turnover thresholds specified by China's State Council ("Turnover Thresholds"). Currently, the Turnover Thresholds are achieved if, by reference to the prior financial year, at least two parties to the concentration each had turnover in Mainland China of RMB 400 million or more (US$58.6 million) and the turnover of all parties combined was a minimum of either RMB 10 billion (US$1.46 billion) globally, or RMB 2 billion (US$293 million) in Mainland China.

Although the AML merger control regime commenced on 1 August 2008, MOFCOM and other regulatory bodies are still in the process of releasing guidance regarding the scope of transactions that qualify as a 'concentration', and how the turnover of a business should be calculated for the purpose of applying the Turnover Thresholds. The Financial Industry Measures represent the latest guidance on this latter issue.

To which entities do the Financial Industry Measures apply?

The Financial Industry Measures only apply to the calculation of turnover for entities in the financial industry, including (but not limited to):

  • banking financial institutions (e.g. any financial institutions absorbing public savings, such as a commercial bank, urban credit cooperation and rural credit cooperation, as well as financial asset management companies, trust companies, finance companies, financial lease companies, automobile finance companies, money brokerage companies and other financial institutions established under the approval of the banking regulatory authorities);
  • securities companies;
  • futures companies;
  • fund management companies; and
  • insurance companies.

What are the special turnover calculation rules for businesses in the financial industry?

According to previous draft guidance issued by MOFCOM, the turnover of a business is normally required to be calculated by reference to the revenue it generates through the sale of products or the provision of services (but deducting most taxes and surcharges).

However, in line with mandatory notification regimes in several other jurisdictions, China has devised the Financial Industry Measures to ensure that the turnover calculation process for financial sector entities distinguishes between revenue generated through fees, commissions and interest, etc (which is taken into account), and other sums of money that may be received and managed by such entities (which are excluded).

The calculated turnover is also multiplied by 10 percent after the deduction of business taxes and other charges which, by reducing turnover to a tenth, effectively 'raises the bar' for mandatory notification of transactions conducted by financial sector entities, many of whom may otherwise persistently achieve the Turnover Thresholds by virtue of the significant income streams maintained by participants in the financial sector.

A summary of the special calculation rules applicable to key financial industry participants is provided in the tables below

Business operator Rule regarding which income elements to include in turnover calculation Further calculation requirement
Banking financial institutions Include:
(1) net interest income
(2) handling fee and net commission income
(3) investment income
(4) income from changes in fair value
(5) exchange gains
(6) other business income
Turnover = (aggregated sum of the turnover elements - business taxes and surcharges) x 10%
Securities companies Include:
(1) handling fee and net commission income (including brokerage, asset management, underwriting and sponsoring, financial advising and other business)
(2) net interest income
(3) investment income
(4) exchange gains
(5) other business income
Futures companies Include:
(1) handling fee and net commission income
(2) net bank deposit interest income
Fund management companies Include:
(1) management fee income;
(2) handling fee income
Insurance companies Insurance company Include only premium income (equalling premium income of the original insurance contract plus reinsurance premium minus ceded-out premium) Turnover = (premium income - sales business taxes and surcharges) x 10%

Although several elements of the special calculation rules bear some resemblance to rules developed in jurisdictions such as the European Union, financial industry participants should be aware that China's Financial Industry Measures do diverge from many otherwise analogous foreign standards (particularly in relation to the 'further calculation requirement' set out in the above table). Accordingly, multinationals with experience of foreign merger control regimes will need to ensure they carefully apply China's rules when determining whether the AML merger control regime applies to their transactions.

What should businesses in the financial industry do in response to the release of these measures?

Businesses in the financial industry are advised to conduct a preliminary analysis to determine how the Financial Industry Measures may impact their future transactions.

In particular, it would be prudent for all such businesses to apply the special calculation rules in the Financial Industry Measures to their prior financial year revenue, to determine whether it is likely that they will achieve any of the Turnover Threshold limbs.

For example, the Turnover Thresholds will only be achieved if (amongst other things) two parties to a concentration achieved RMB 400 million turnover in Mainland China in the prior financial year. Accordingly, if a financial industry business finds that it has achieved this level of turnover in China by reference to the special calculation rules, then the prospects of mandatory notification being required under the AML in relation to its future M&A transactions will be heightened.

More generally, financial industry businesses should ensure they remain up to date with all aspects of the AML mandatory notification regime, including what type of transactions may qualify as 'concentrations' under the AML. A number of uncertainties relevant to the financial industry persist on this issue, including whether temporary acquisitions of shares by banks and financial institutions with the aim of re-selling the acquired shareholding (which form of transaction is commonly excluded from mandatory notification requirements in other jurisdictions) will be deemed as 'concentrations' that may need to be notified to MOFCOM under the AML.

Finally, it is noted that publication of the Financial Industry Measures is likely to signal the commencement of greater scrutiny of M&A transactions in the financial industry by MOFCOM (in conjunction with other sectoral regulators). Where previously MOFCOM may have tolerated avoidance of merger notification obligations under the AML by businesses in the industry due to the uncertainties surrounding application of the Turnover Thresholds to those businesses, the regulator is now more likely to use its powers to impose penalties (or even block or unwind transactions) where it detects that avoidance has occurred.

For inquiries related to this Client Alert, please contact:

Hannah Ha ( )

John Hickin ( )

Gerry O'Brien ( )

Learn more about our Hong Kong office, Antitrust & Competition, Banking & Finance and Insurance & Reinsurance practices.


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

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