Merger Control 2023 Comparisons

The Anti-Monopoly Law of the People’s Republic of China (AML), effective as of 1 August 2008, as amended on 1 August 2022 (“AML Amendments”), is the primary legislation in China governing the merger control regime. Chapter 4 of the AML provides for the “Concentration of Undertakings”.

Along with AML, a number of implementing regulations and guidelines in relation to merger control have been issued and amended, including:

• Provisions of the State Council on Thresholds for Notification of Concentration of Undertakings (“Provisions on Notification Thresholds”), promulgated by the State Council, amended and effective as of 18 September 2018;
• Guidelines on the Definition of Relevant Market by Anti-Monopoly Commission of the State Council (“Guidelines on Market Definition”), promulgated by the State Council and effective as of 24 May 2009;
• Provisions on the Review of Concentrations of Undertakings (“Provisions on Concentration Review”), issued by the State Administration for Market Regulation (SAMR) on 10 March 2023 and effective as of 15 April 2023;
• Guidance on the Declaration of Simple Cases of Concentrations of Undertakings (“Guidance on Simple-Case Concentration”), issued and amended by SAMR and effective as of 29 September 2018;
• Guidance on Notification Name of Concentrations of Undertakings (“Guidance on Notification Name”), issued and amended by SAMR and effective as of 29 September 2018; and
• Guiding Opinions on Declaration Documents for Concentrations of Undertakings (“Guiding Opinions on Declaration Documents”), issued and amended by SAMR and effective as of 29 September 2018.

The AML (and its accompanying regulations) is the only legislation on merger control for foreign transactions. China also has various laws to regulate the foreign investment; ie, the foreign direct investment (FDI) regime and national security review (NSR) when foreign investments are involved. 

FDI Regime

The primary law governing foreign investment in China is the Foreign Investment Law (FIL), which was promulgated on 15 March 2019 and came into effect on 1 January 2020. Based on the FIL, China has adopted a “negative list” mechanism, setting out the industry sectors in which foreign investment is prohibited or restricted. Foreign investors cannot invest in any field prohibited by the negative list for foreign investment, and must meet certain investment conditions (eg, shareholding limits or senior management requirements) stipulated under the negative list to invest in the fields where foreign investments are restricted. For industries not on the negative list, foreign investors shall be treated on a par with their domestic counterparts.

The negative list will be released and updated yearly by or upon approval by the State Council. The current Negative List (2022 edition) is available here. 

NSR Regime

Measures for the Security Review of Foreign Investments (“NSR Measures”) issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce on 19 December 2020 and effective as of 18 January 2021 set out the foreign investments that fall within the scope of NSR review.  Briefly, foreign investments involving a specific business sector cannot close the deal until NSR approval is granted.

For a detailed introduction of the NSR regime, see 9.1 Foreign Direct Investment/Subsidies Review. 

Concurrently, SAMR is responsible for the overall enforcement of AML in China. SAMR consists of three divisions:

• Division I: whose major duty is enforcement against monopolistic conducts, including monopoly agreements and abuse of dominance;
• Division II: whose major duties are merger control review and investigations into instances of failure-to-notify before closing (“failure-to-notify”); and
• Division for Co-ordination of Competition Policy: whose major duties are drafting competition policies and implementing fair competition review.

Division II of SAMR is responsible for the merger control review.

In addition, the State Anti-monopoly Administration was inaugurated on 18 November 2021, which is designed to strengthen anti-monopoly regulation in the country.

In July 2022, SAMR announced a three-year pilot programme to take place from 1 August 2022 to 31 July 2025, during which SAMR will delegate the initial review of certain simplified procedure merger filings to five provincial Administrations for Market Regulation (“Provincial AMRs”) in Beijing, Shanghai, Chongqing, Shaanxi and Guangdong. Parties to transactions that require merger clearance will continue to submit filings to SAMR, but SAMR may delegate cases to the Provincial AMRs at its discretion and inform the filing parties of the delegation. While the provincial AMRs will review cases assigned to them, SAMR remains the final decision maker on all merger filings.

During the review process, SAMR and the Provincial AMRs may also consult other industry regulators regarding their opinions on transactions from regulatory or industry policy perspectives. 

Notification in China is compulsory as long as the notification triggers the jurisdictional thresholds.

However, the undertakings could be exempted from notification under the following circumstances:

• one of the undertakings involved in the concentration holds at least 50% of the voting shares or assets of each of the other undertakings; and
• at least 50% of the voting shares or assets of each undertaking involved in the concentration are held by one undertaking not involved in the concentration.

Pursuant to Article 58 of the AML, if undertakings fail to seek clearance in relation to a notifiable concentration and thus may have the effect of excluding or limiting competition, SAMR may at its discretion impose the following sanctions on the undertakings:

• an order to cease implementing the concentration;
• an order to dispose of the shares or assets within a specified period of time, transfer business within a specified period of time and take other necessary measures to return to the status quo ante; or
• a fine of up to ten percent of the previous year’s sales revenue.

There is a fine of up to CNY5,000,000 if the concentration of undertakings does not have the effect of excluding or limiting competition.

The revised penalty standards (ie, a fine of up to ten percent of the previous year’s sales revenue of the undertaking concerned or a fine up to CNY5,000,000) have not been applied since the AML Amendments became effective. From 2021 to 2022, SAMR published hundreds of administrative decisions on failure-to-notify cases, with most of the undertakings concerned fined CNY50,000, which is the maximum penalty under the AML.

In July 2021, SAMR published its penalty decision on a failure-to-notify case regarding the acquisition of CMC by Tencent Music, which is the only case where SAMR imposed remedies for failure-to-notify cases, and Tecent was fined CNY50,000, which is the maximum penalty under the AML.

In China, certain types of transactions which constitute a “concentration of undertakings” are caught if they meet the jurisdictional thresholds. A concentration of undertakings is defined as:

• a merger of undertakings;
• acquiring control over one or more undertakings through acquisition of equity or assets; and
• acquiring control or the ability to exercise a decisive influence over one or more undertakings under a contract or any other means.

Internal restructuring or reorganisations are generally not caught if they fall under the exceptions outlined in 2.1 Notification.

Based on the definition of “concentration”, transactions not involving the transfer of shares or assets but still concerning the acquisition of control (eg, change of articles of association in relation to the appointment of directors and its voting mechanism) could potentially be caught.

Pursuant to the Provisions on Concentration Review, the concept of “control” in a concentration includes both “sole control” and “joint control”.

SAMR will take into the following factors when determining whether a undertaking acquires control over another undertaking:

• transaction purpose and future plans;
• change of shareholding structure;
• matters put to vote, voting mechanism, and historical attendance rates and the votes in the shareholders’ meetings or any other authority;
• composition, voting mechanism, historical attendance rates and the votes of the board and other decision-making or management bodies;
• the appointment and dismissal of other senior management,
• relationship among the shareholders and board directors; and
• the existence of major business relationships and co-operation agreements.

The acquisition of minor interests less than control can still be caught based on the acquiring party’s right to appoint directors or senior management, the veto rights against major business decisions, or the control over key resources.

The current jurisdiction thresholds of merger control in China are only based on turnover as follows:

• the combined worldwide turnover of all the undertakings concerned in the preceding financial year is more than CNY10 billion (approximately USD1.49 billion – the exchange rate is the average central parity of exchange rates released by China Foreign Exchange Trade System in 2022 and the exchange rate between USD and CNY is 1:6.7261), and the nationwide turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than CNY400 million (approximately USD59.47 million); or

• the combined nationwide turnover within China of all the undertakings concerned in the preceding financial year is more than CNY2 billion (approximately USD297.35 million), and the nationwide turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than CNY400 million (approximately USD59.47 million).

At present, there are no special jurisdictional thresholds applicable to particular sectors.

The jurisdictional thresholds are calculated based on turnover. The turnover includes the income that the relevant undertaking has earned from the sale of products and the provision of services in its preceding financial year, less the relevant taxes and the related fiscal contributions.

If the sales or assets are booked in a foreign currency, the average central parity of exchange rates released by the China Foreign Exchange Trade System in the corresponding financial or calendar year is usually adopted.

The thresholds are not asset-based.

The turnover of a single undertaking that has participated in a concentration transaction shall be the sum of turnovers of the following undertakings: (i) the above-mentioned single undertaking; (ii) other undertakings that the single undertaking controls, directly or indirectly; (iii) other undertakings that directly or indirectly control the undertaking mentioned in (i); (iv) other undertakings controlled, directly or indirectly, by the undertaking mentioned in (iii); and (v) other undertakings jointly controlled by two or more undertakings indicated in (i) to (iv). The turnover of a single undertaking that has participated in a concentration transaction shall not include the turnover generated among undertakings indicated in (i) to (v).

The seller shall only include the portion of the turnover that relates to the target. In case of asset acquisition, if the seller no longer has controlling power over the asset sold, only the turnover generated by such asset shall be calculated; and in case of equity acquisition, if the seller no longer has controlling power over the target company after the transaction, only the turnover of the target company shall be calculated.

The group-wide turnover shall be the sum of the turnovers of the undertakings indicated in (i) to (v) above.

If the undertakings have acquired any business during the reference period, the turnover of the newly acquired business shall be calculated. If the undertakings have disposed of any business during such period, the turnover of the disposed of business shall be excluded.

Foreign-to-foreign transactions are subject to merger control provided the jurisdictional thresholds are met. 

There is no other local effect test except for the jurisdictional thresholds.

A local presence is not required. 

When a target has no sales and/or assets in China, a filing is not required unless there are multiple buyers who are acquiring joint control of the target, and the buyers have reached the jurisdictional thresholds.

There is currently no market share jurisdictional threshold.

The establishment of a joint venture is subject to merger control review if more than two undertakings are determined as having control over the joint venture and the notification thresholds are met.

There are not known to be any special rules for determining whether joint ventures meet the jurisdictional thresholds.

Where a transaction does not meet the jurisdictional thresholds, but facts and evidence collected in accordance with the prescribed procedures establish that such concentration has or may have the effect of eliminating or restricting competition, SAMR can initiate an investigation in accordance with the law.

There is no statute of limitations on their ability to investigate a transaction.

A transaction cannot be closed until clearance.

Pursuant to Article 58 of the AML, if undertakings implement the transaction before clearance and thereby have the effect of eliminating or restricting competition, SAMR may at its discretion impose the following sanctions on the undertakings:

• an order to cease implementing the concentration;
• an order to dispose of the shares or assets within a specified period of time, transfer business within a specified period of time and take other necessary measures to return to the status quo ante; or
• a fine of up to ten percent of the previous year’s sales revenue.

There is a fine of up to CNY5,000,000 if the concentration of undertakings does not have the effect of excluding or limiting competition.

The revised maximum penalty (ie, a fine of up to ten percent of the previous year’s sales revenue or a fine of up to CNY 5,000,000) has not been applied since the AML Amendments became effective. From 2021 to 2022, SAMR publicised hundreds of penalty cases, with most of the undertakings concerned fined CNY50,000, which is the maximum penalty under the AML.

Penalties have been imposed on foreign-to-foreign transactions in recent years.       

There are no express provisions within the AML providing for general exceptions to the suspensive effects.  In practice, undertakings may inform SAMR of special circumstances, such as public bids, so as to accelerate the review process.

There are no express provisions within the AML providing for seeking a waiver or a derogation from suspensive effect. 

Pursuant to Article 26 of the AML, the parties shall not close the transaction before clearance. We are not aware of any circumstances where SAMR permits closing before clearance. 

It may be possible to carve out relevant businesses or assets in China and proceed with the global closing, but the transaction must be carefully structured and evaluated to evade potential violations of the AML.

There is no specific notification deadline. However, the parties must not close the proposed transaction before obtaining antitrust clearance in China; otherwise, the parties involved in the proposed transaction are subject to failure-to-notify penalties under the AML. In practice, the notification is submitted soon after signing the transaction documents.

Failure-to-notify penalties are made public. However, since the AML Amendments became effective in August 2022, no failure-to-notify penalties have yet been issued.

A binding agreement is normally required for notification.

No filing fees are required for notification.

As for merger transactions, all undertakings involved in the merger shall be obligated to submit a notification. For other transactions, the undertaking that has acquired the control or ability to exercise decisive influence shall be obligated to submit a notification, and the other undertakings shall co-operate. If the undertaking that is obligated to submit a notification fails to do so, other participating undertakings may submit a notification.

The information required for a filing mainly includes the basic information of the parties (eg, name, address, business scope, turnover of the preceding year and shareholding structure), description of the transaction, market definition, competition analysis, market share data of the parties and major competitors, etc.

The documents required for a filing mainly include the notification form (which contains the above-required information), transaction documents, business licenses of the parties and relevant affiliates, audited financial statements, annual report, power of attorney (if any), supporting documents for the market share and competition analysis, the truthfulness and accuracy statement and other documents that may be required by SAMR.

The parties must submit their notification documents and materials in Chinese. If the original documents are written in a foreign language, a Chinese translation (or at least a Chinese summary) must be submitted with the original foreign language version attached.

If the parties are foreign undertakings, they must submit their certificate of incorporation, notarised by the local notary authority and authenticated by the China Embassy.

The AML Amendments introduced a “stop-the-clock” mechanism while the Provisions on Concentration Review further provided guidance on this mechanism. As provided by Article 32 of the AML and Article 24 of the Provisions on Concentration Review, If the notification is deemed incomplete, SAMR may require the parties to submit additional documents and materials within a specified time period. If the parties fail to do so, SAMR is entitled to suspend the review period.

These measures are applied in practice.

If the parties intentionally submit inaccurate or misleading information, SAMR may not accept the filing application or revoke the acceptance decision for an already filed case, and may launch an investigation on relevant undertakings or individuals. 

The relevant undertakings may face a fine of up to 1% of the preceding year’s sales revenues; or a fine of up to CNY5million in case there is no sales generated in the preceding year. Relevant individuals may face a fine of up to CNY500,000 respectively or even criminal liabilities.

In cases of severe violations, the penalties could escalate, ranging from two to five times the aforementioned amounts. These penalties would be recorded in the businesses’ credit records, making the information available to the public.

As of the effective date of the AML Amendments, these measures have not been implemented in practice.

There are two stages that a merger filing will go through with SAMR: a pre-acceptance phase and a formal review phase:

• Pre-acceptance phase; ie, from the initial filing until SAMR considers that the filing documents are complete and accepts the filing and starts the formal review. There is no definite period for the pre-acceptance phase under the law. In practice, it normally takes one-two months.
• Formal review process, which includes:
1. Phase I review (“Phase I”), which spans a maximum of 30 calendar days from the date on which SAMR informs the notifying party in writing that the filing is formally accepted;
2. Phase II review (“Phase II”), which spans a maximum of 90 calendar days from the date on which SAMR informs in writing of the extension.
• Phase III review (“Phase III”), which is extended for another 60 calendar days under certain circumstances.

Based on past experience, if a transaction does not raise competition issues, for merger filing filed under normal procedure, it normally takes about three-six months from the initial filing to get clearance; for merger filing filed under the simplified procedure, it normally takes about one and a half-two months from the initial filing.

The parties may apply to SAMR for pre-notification discussion and this is typically encouraged, even if it is not a mandatory process.

The parties may prepare the specific issues for discussion and apply for the discussion in writing. The process is treated confidentially.

For those notifications with fewer competition concerns, SAMR normally asks one-three rounds of questions during the review process. For notifications with more competition concerns, SAMR may ask more questions. However, such request will not suspend the review process.

However, subject to the stop-the-clock mechanism provided by the AML, if the parties fail to submit documents or information as requested, and as a result the review cannot be carried out, SAMR is entitled to suspend the review period.

The notification form for the simplified procedure is shorter than the normal one and requires less information. The simplified procedure is applicable under the following circumstances:

• where all of the undertakings involved in the transaction have a collective market share of less than 15% in the same relevant market;
• where the undertakings involved in the transaction have a vertical relationship and each of them or collectively has market share of less than 25% in the vertical market;
• where the undertakings involved in the transaction do not have a vertical relationship, and each of them has less than 25% in all related markets;
• where the undertaking involved in the transaction establishes a joint venture outside of China, and the joint venture does not engage in economic activity in China;
• where the undertaking involved in the transaction acquires the equity or assets of a foreign enterprise, and the foreign enterprise does not engage in economic activity in China; or
• where a joint venture that is jointly controlled by two or more undertakings becomes controlled by one or more of them through the transaction.

As provided by Article 34 of the AML, SAMR shall prohibit a concentration of undertakings if such concentration has or may have the effect of eliminating or restricting competition, unless the undertakings involved in the concentration are able to prove that the positive impact of the said concentration on competition significantly outweighs the adverse effect thereof, or such concentration is in the public interest.

Article 33 of the AML set out the factors to be considered by SAMR in assessing the competitive effects of a merger:

• market shares and market control power of the merging parties in the relevant market;
• concentration levels of the relevant market;
• impact of the concentration on market entry and technological development;
• impact of the concentration on consumers and other relevant undertakings;
• impact of the concentration on national economic development; and
• other factors that should be considered.

The Provisions on Concentration Review promulgated by SAMR on 20 March 2023 provide further guidance on the factors set out by the AML in assessing the competitive effects of a merger, as outlined below.

Market Control Power

When assessing the market control power of the merging parties, the following factors shall be taken into account:

• merging parties’ market share in the relevant market;
• the substitutability of products or services;
• the capability, financial and technical conditions to control the sales or raw material procurement market;
• the capability to control and process data;
• market structure of the relevant market;
• production capability of other undertakings;
• purchase capability of downstream customers and the capability to switch suppliers; and
• market entry of potential competitors.

Concentration Level of Relevant Market

When assessing the concentration levels of the relevant market, the number of undertakings in the relevant market and their market share shall be taken into account.

Market Entry

When assessing the impact on market entry, the following factors shall be taken into account:

• merging parties’ influence on market entry through input, sales and procurement channels, key technologies, key facilities, data, etc; and
• the possibility, timeliness and adequacy of market entry.

Technological Development

When assessing the impact on technological development, factors such as the impact on the incentive and capacity for technological innovation, investment in and utilisation of R&D, and integration of technological resources shall be taken into account.

Impact on Consumers

When assessing the impact on consumers, factors such as the impact on quantity, price, quality, diversification, etc, of relevant products or services shall be taken into account.

Impact on Other Undertakings

When assessing the impact on other undertakings, factors such as the impact on market entry, and transaction opportunities of undertakings in the same relevant market, shall be taken into account.

Impact on National Economic Development

When assessing the impact on national economic development, factors such as impact on the economic efficiency, economic scale, and the development of relevant industries shall be taken into account.

As provided by Article 15 of the AML, “relevant market” refers to the commodity coverage and territorial scope in which undertakings compete in respect of a specific commodity or service during a given period of time. Generally, “relevant market” includes both relevant product market and relevant geographic market.

The Guidelines on Market Definition further provide that “demand substitution analysis” and “supply substitution analysis” shall be carried out when deciding how the relevant markets should be defined. In addition, the definition of a relevant market shall mainly be based on the demand substitution analysis while supply substitution shall also be taken into consideration if the competition constraint arising from the supply substitution on undertakings concerned is similar to that arising from the demand-side substitution.

Relevant Product Market

For the relevant product market definition, demand substitution analysis should consider factors such as:

• evidence indicating that consumers are shifting or intend to shift to purchasing other commodities due to changes in price or other competing factors;
• overall characteristics and purposes of the commodity;
• price difference among commodities; and
• sales channels of the commodity.

Supply substitution analysis should consider factors such as:

• evidence indicating the response of other undertakings in respect of the changes of competing factors such as price;
• other undertakings’ production process and technology;
• difficulties in switching to other products;
• time required for switching production;
• any extra expenses and risks incurred by such product switch;
• market competitiveness of the products manufactured after the shift; and
• marketing channels.

Relevant Geographic Market

For the relevant geographic market definition, demand substitution analysis should consider factors such as:

• evidence indicating that consumers are shifting or intend to shift to purchasing other commodities due to changes in price or other competing factors;
• the transport costs and features of transport;
• actual regions of most customers’ choice of goods;
• the restriction set out by the relevant laws and regulations;
• other factors such as language preferences and consumption habits of users.

Supply substitution analysis should consider factors such as:

• evidence indicating the response of other undertakings in other territories in respect of the changes of competing factors such as price; and

• the timeliness and feasibility of the supply/sales of the relevant product by other undertakings in other territories.

There is no de minimis clause based on the parties’ total sales or market size in China.  However, if a transaction is eligible for a simplified filing procedure, it generally means that the transaction is not likely to cause significant competition concern. With respect to the circumstances where the simplified filing procedure will be eligible, please refer to 3.8 Review Process.

Whist relevant precedent/case law is not binding, in practice, SAMR may refer to its previous decisions (including the precedent of its predecessor, MOFCOM) to consider how the relevant markets should be defined.

Occasionally, SAMR may refer to case law from other jurisdictions, particularly if a transaction relates to markets that SAMR has not previously examined in detail. The decisions of the European Commission are the most important in this respect. But such decisions in other jurisdictions are for reference only and SAMR carried out its own assessment.

As provided above, under the AML, a concentration may be challenged on the grounds that it has or is likely to have the effect of eliminating or restricting competition. In practice, during the merger control review, SAMR may investigate the following competition concerns, including:

Horizontal Concerns

For concentrations between undertakings active in the same markets, SAMR typically will consider the following competition concerns:

• unilateral effects – ie, whether the concentration would generate or reinforce a single undertaking’s capability, incentive and possibility to eliminate or restrict competition; and

• co-ordinated effects – ie, if the relevant market is characterised as oligopolistic (there are only limited competitors in the relevant markets), SAMR may focus on whether the concentration would generate or reinforce more than one undertakings’ capability, incentive and possibility to eliminate or restrict competition in a collective way.

Vertical Concerns

For concentration between undertakings active at different levels of the supply chain, SAMR will typically consider the following competition concerns:

• foreclosure effects – ie, whether the undertakings to the concentration would have the incentive and ability through the concentration to foreclose competitors’ access to inputs or customers;
• SAMR may also consider whether a vertical integration will give rise to the risk of co-ordinated effects in the relevant markets.

Conglomerate Concerns

If there are neither horizontal nor vertical mergers, SAMR will apply the conglomerate theories of harm. To address the conglomerate effect, SAMR will typically consider the following competition concerns:

• unilateral effects – ie, whether the concentration would give rise to limiting or foreclosing competition through tying or bundling strategies; and
• co-ordinated effects – ie, whether the concentration could facilitate collusive outcomes by reducing the number of effective competitors.

Economic efficiency is one of the factors that SAMR takes into consideration when assessing the impact of the concentration. Article 34 of the AML provides that SAMR can approve a concentration of undertakings with anti-competitive effects if the notifying parties are able to prove that the concentration may generate pro-competitive efficiencies that significantly outweigh its negative effects on competition.

In general, economic efficiencies must (i) benefit consumers; (ii) be merger-specific and (iii) be verifiable. The notifying parties must provide relevant information and evidence on the possible efficiencies that can be achieved, the time required, quantification, the level of the resulting benefit to consumers and whether such efficiencies can be achieved without the concentration.

However, as of now, there are no precedents on how SAMR assesses or gives weight to economic efficiencies.

During the merger review, SAMR will mainly consider if the transaction would have substantial competition concerns. Nevertheless, merger control reviews can also extend to non-competition factors, national security, industrial policy, etc. 

As provided by Article 8 of the AML, the State must protect the legitimate operation of undertakings engaged in the industries that are vital to the national economy and national security where mainly state-owned enterprises are active. In addition, as provided by Article 37 of the Provisions on Concentration Review, factors such as public interest and whether the merging parties are failing companies shall also be taken into account when assessing the impact of a concentration on the competition.

For example, in practice, for transactions that involve products on which the Chinese market and customers are relatively dependent, especially where input foreclosure is likely to occur, or where the concentration may enhance the ability and incentive of competitors in the relevant markets to co-ordinate on price, SAMR may impose the remedy of continuing to supply relevant products to the Chinese market on FRAND conditions. This is evidenced in the various cases granted conditional clearance by SAMR. For example, in the SK Hynix/Intel case, SAMR required the merged entity to continue to supply all products to the Chinese market in accordance with the FRAND principle as it considered that the transaction would enhance the market concentration of the SATA enterprise-class SSDs market and the PCIe enterprise-class SSDs market while enhancing the market power of the merged entity, and adversely affecting the supply to the Chinese market. 

In addition, when it comes to complex transactions involving strategically important and sensitive sectors, SAMR is inclined to take a more interventionist approach. For example, in the Qualcomm/NXP case, although factors such as the lengthy reviewing time overlapped with the China-US trade war and the transaction-specific concerns about impacts on the semiconductor industry may have added some complications to this case review, we also saw that Chinese stakeholders consistently complained that the transaction would expand Qualcomm’s patent licensing business into mobile payment and autonomous driving areas, and accordingly, the remedies the parties offered to the European Commission would not be sufficient to address competition concerns in China. The Qualcomm/NXP case may be indicative of the broader policy considerations of SAMR in China to ensure that domestic companies have access to intellectual property rights or other inputs on reasonable terms.

Per Article 37 of the AML, concentration of undertakings in sectors that significantly impact the national economy and people’s livelihood will be under more rigorous scrutiny. In general, the internet, finance, technology and media are also considered key industry sectors. In practice, transactions within these key sectors are likely to undergo more rigorous and meticulous review processes by SAMR.

There are no express provisions under the AML providing for any special considerations to joint ventures, but SAMR may particularly focus on whether there is potential co-ordination between the joint venture parents and whether there are non-competition arrangements between joint venture parents and between the parents and the joint venture. For example, in the conditionally approved case of the establishment of a joint venture (JV) between Zhejiang Garden Biochemical High-Tech (ZGBH) and Royal DSM (DSM), SAMR paid special attention to the potential co-ordination between the joint venture parents from the exchange of competitively sensitive information through the JV. ZGBH and DSM are the top two competitors for animal use of Vitamin D3 both globally and in China, with a combined market share of more than 50%. Through the transaction, ZGBH and DSM proposed to establish the JV to produce DHC (the core material for making vitamin D3 for animal and human use) while ZGBH and DSM will purchase DHC from the JV for the production of Vitamin D3 for animal and human use. The behavioural commitment accepted by SAMR in this case included: (i) holding separate the parties’ business activities except for DHC, thereby ensuring continued competition in the Vitamin D3 markets; (ii) establishing fire walls concerning the operational activities of the JV, which would prevent ZGBH and DSM from exchanging competitively sensitive information via the JV; (iii) limiting the JV’s activities strictly to the production of DHC; and (iv) prohibiting ZGBH, Royal DSM, and the JV from disclosing the prices of cholesterol and Vitamin D3 to third parties unless mandated by a client, governmental authorities, or applicable law.

Under the current provisions of the AML, a concentration cannot be implemented until clearance has been granted by SAMR. If SAMR concludes that the concentration of undertakings has or may have the effect of eliminating or restricting competition, SAMR may render a decision prohibiting the concentration or imposing restrictive conditions. 

Decisions not to approve or to conditionally approve are published on SAMR’s official website.

When SAMR has competition concerns about a transaction, it will inform the parties of its concerns and require them to provide remedy proposals within a specified timeframe. The parties may then propose the structural or behavioural remedies to SAMR.

According to Article 39 of the Provisions on Concentration Review, SAMR will evaluate the effectiveness, feasibility and timeliness of the remedies. If the remedies are able to effectively reduce the adverse effect of the concentration on competition, SAMR may make a decision to approve the concentration with restrictive conditions. Otherwise, the remedies will be deemed unacceptable and SAMR can decide to prohibit the concentration.

Remedies that are typically used in practice include the following restrictive conditions:

• structural conditions such as divestiture of tangible assets, intangible assets including intellectual property rights, data or relevant rights and interests;
• behavioural conditions such as opening infrastructure including networks or platforms, licensing key technologies (including patents, know-how or other intellectual property rights), terminating exclusive agreements, modifying platform rules or algorithms, offering compatibility or not reducing the interoperability level;

• a rather unique approach employed by SAMR in some cases is a “hold separate” condition, where the acquired business is required to remain independent for a certain length of time after the merger; while the “hold separate” condition may be categorised as behavioural, SAMR has publicly expressed that this condition was intended to achieve similar effects as structural conditions; and
• comprehensive conditions, combining both structural conditions and behavioural conditions.

There are no express provisions within the AML or its accompanying regulations providing for whether remedies are required to address non-competition issues.  However, in the Korean Air/Asiana Airlines case, SAMR imposed a restrictive condition that the parties must take reasonable and necessary data protection measures and establish a data protection system when the acquired entity withdraws from and changes the relevant airline alliance, reflecting the authority’s concerns about data.  Therefore, we understand that SAMR may require the parties to solve non-competition issues prior to clearance.

Parties may propose remedies either before or after SAMR informs the parties that the concentration has or may have the effect of eliminating or restricting competition.

SAMR may propose remedies to the parties, but it cannot force them to accept them. SAMR will evaluate the remedies proposed by the parties and inform them of the result.  Only when the parties and SAMR agree on the proposed remedies can such remedies be imposed on the transaction’s approval.

Parties can voluntarily propose remedies to and negotiate with SAMR at any stage of the review process, including Phase I, Phase II and Phase III. Parties can also propose remedies if SAMR raises competition concerns in Phase II. In practice, the negotiation of the proposed remedies between SAMR and the parties usually occurs in Phase III.

According to Article 38 of the Provisions on Concentration Review, during the review process, SAMR may inform the parties of the competition concerns and ask the parties to submit a written remedy proposal within a specified timeframe. SAMR may solicit public opinions on the remedy proposal from government authorities, industry associations and consumers before SAMR publicly announces the decision. SAMR may require the parties to entrust a trustee to supervise the implementation of the remedies.

With respect to the timing for divestitures, the parties are required to complete the divestiture within the timeframe specified by SAMR, or where no specific timeframe has been specified, within six months from the date on which the decision is made. In case of a behavioural remedy, the parties are normally required to comply with the remedies for five-ten years.

Normally, parties can complete the transaction before remedies are complied with.  However, before the completion of the divestiture, the parties are subject to the following obligations to ensure the continuity, competitiveness and marketability of the divested business:

• keeping the divested business independent of the reserved business and managing in the best interest of the divested business;
• not committing any act that may have an adverse impact on the divested business, including employing key staff of the divested business, or obtaining the trade secrets or other confidential information of the divested business;
• designating a special manager to be in charge of managing the divested business;
• ensuring potential buyers have access to sufficient information about the divested business in a fair and reasonable manner so as to evaluate the value and commercial potential of the divested business;
• providing necessary support as requested by the buyer to ensure the smooth takeover and stable operation of the divested business; and
• handing over the divested business to the buyer and performing relevant legal procedures.

If the parties fail to perform their obligations under the remedy, SAMR may ask them to make corrections within a specified timeframe. In serious cases, SAMR may impose the following sanctions on the parties:

• an order to cease implementing the concentration;
• an order to dispose of the shares or assets within a specified period of time, to transfer the business within a specified period of time and take other necessary measures to return to the status quo ante; and
• a fine of up to 10% of the party’s turnover in the last financial year.

A formal decision permitting or prohibiting the transaction will be issued to the undertakings to the concentration by SAMR.

The decision will be published to a certain degree. For cases granted clearance (both simple and normal cases), SAMR will publish a list of cases granted clearance on a weekly basis including the name of the transaction, the parties to the concentration and the date of approval. For prohibited cases or cases granted conditional clearance, SAMR will publish a detailed decision including the review timetable, the competition analysis employed by SAMR and the remedies imposed, and confidential information will be redacted.

For strictly foreign-to-foreign transactions with no impact on the Chinese market, it is less likely that SAMR would impose a prohibition or remedies. However, for global deals involving foreign parties, if such a transaction would have the impact of restricting or eliminating competition in China, SAMR would impose a prohibition/remedies just as with a domestic transaction. For instance, in 2022, SAMR imposed remedies on four foreign-to-foreign transactions, namely in the cases of Globalwafers/Siltronics, AMD/Xilinx, II-VI/Coherent and Korean Air/Asiana Airlines.

Neither the AML nor its accompanying regulations make express provisions for ancillary restraints. In practice, for ancillary restraints, it is not required to submit a separate filing. However, the parties would need to disclose a co-operation agreement and another ancillary business arrangement between them in the filing form.   

Pursuant to the Provisions on Concentration Review, third parties may be involved in the review process to voice their opinions in the following ways:

• SAMR may solicit opinions from the relevant government authorities, industry associations, business operators, consumers, experts, scholars and other entities or individuals by means of written solicitations, symposiums, demonstration meetings, questionnaires, consultations, on-site surveys, etc; or
• SAMR may, on its own initiative or in response to a request from relevant parties, decide to convene hearings; participants in these hearings may include business operators to the concentration, competitors, representatives of upstream and downstream enterprises, experts, representatives of industry associations, representatives of government authorities and consumers.

For simple cases during the public notice period, third parties may submit written opinions to SAMR as to whether the case in question shall apply the simplified procedure, and provide relevant evidence and contact information.

SAMR may, as it deems fit, solicit opinions from third parties. This is more common when cases are filed under the normal procedure. This may take the form of written solicitations, symposiums, demonstration meetings, questionnaires, consultations, on-site surveys, etc.  SAMR will evaluate the effectiveness, feasibility and timeliness of the remedies offered by the parties, and where SAMR deems that the remedies offered are not sufficient to reduce the adverse effect of the concentration on competition, it may negotiate with the parties in respect of the remedies and request them to submit other remedy proposals.

When the parties make the filing, the filing will not be disclosed to the public. For a case reviewed under the simplified procedure, once it is formally accepted, there will be a ten-day public notice period, during which SAMR will release a public notice form on its official website. The public announcement includes the name of the transaction, parties to the concentration, a basic description of the transaction, the main business and ultimate controller(s) of the parties, the reasons for applying simplified procedures, market definition and the range of market shares. 

For cases granted clearance (both simple and normal cases), SAMR will publish a list of cases granted clearance in the next quarter including the name of the transaction, the parties to the concentration and the date of approval. 

For prohibited or conditionally approved cases, SAMR will publish a detailed decision including the review timetable, the competition analysis employed by SAMR and the supplementary conditions, and the confidential information will be redacted.

The notifying parties shall submit a public version and a confidential version of the notification documents and materials and can request that trade secrets or other commercial information be kept confidential.

SAMR may co-operate with its counterparts in other jurisdictions. Since the establishment of SAMR, SAMR has entered into Memorandums of Understanding (MOUs) or co-operative agreements with various jurisdictions including the European Union, the Philippines, Belarus, Serbia, Russia, Japan, Korea, and the Republic of Seychelles. For example, in December 2022 and March 2023, the Competition Policy and Co-ordination Division of SAMR and the European Commission Directorate-General for Competition co-organised the 24th and 25th China-EU Competition Week. The Competition Week focused on topics such as the internal review mechanism of anti-monopoly cases between China and Europe, the latest developments in legislation and enforcement of the digital economy, economic analysis methods, etc.

SAMR can share information with the competition authorities in other jurisdictions. Note that, in practice, SAMR will monitor the progress of the merger control review with other jurisdictions very closely in the context of multi-jurisdictional filings. 

In specific cases, SAMR may ask the notifying parties to grant a waiver so that it can discuss the non-confidential aspects of a transaction with other competition authorities.

According to Article 65 of the AML, where the parties are dissatisfied with a decision (in respect of concentrations) made by SAMR, they may appeal to SAMR for an administrative reconsideration. Where the parties are still not satisfied with the administrative reconsideration, they may bring an administrative action before the intermediate court at the location of SAMR.

To appeal the decision, the parties need to apply for an administrative review with SAMR within 60 days from the date when they receive the official decision issued by SAMR. If the parties are not satisfied with the result of the administrative review, they may file for administrative litigation within 15 days after receipt of the result of the administrative review.

We are not aware of any successful appeals in practice.

Interested parties to the decisions have the right to bring an administrative action to challenge SAMR’s decisions before the competent court. 

We are not aware of any successful actions in practice.

In addition to the merger control regime, foreign investments into certain business sectors would be subject to NSR.

Foreign Subsidy

In China, we do not have a separate filing procedure to review foreign subsidies for foreign investments before the implementation of the transaction. However, Anti-subsidy Regulations amended on 31 March 2004 and effective as of 1 June 2004 (“Anti-subsidy Regulations”) provide guidance on relevant issues. As provided by the Anti-subsidy Regulations, the Trade Remedy Investigation Bureau under MOFCOM has the jurisdiction to investigate relevant conduct if relevant subsidies granted by foreign governmental authorities have resulted in substantial harm or threat to domestic industries.

NSR Regime

According to FIL and the NSR Measures, foreign investments falling into the following categories shall be subject to an NSR review:

• investments in military industry, fields supporting the military industry and other fields relating to the security of national defence, and investments in areas surrounding military facilities and military industry facilities; or
• a foreign investor acquiring control over important agricultural products, important energy and resources, important equipment manufacturing, important infrastructure, important transport services, important cultural products and services, important information technology and internet products and services, important financial services, key technologies and other important fields relating to national security.

For the above investments, foreign investors shall submit the NSR filing to the NSR working mechanism office established by the State Council (“NSR Office”) prior to implementation of the transaction. 

For the purpose of NSR, the term “foreign investment” refers to the investment activities carried out by foreign investors directly or indirectly within China, including the following circumstances:

• where foreign investors invest, solely or jointly with other investors, in new projects or in establishing enterprises in China;
• where foreign investors acquire equity or assets of domestic enterprises by way of merger and acquisition; or
• where foreign investors make investments in China in any other form.

For these foreign investments, foreign investors must submit the NSR filing to the NSR Office prior to the implementation of the transaction.

The recent changes or proposals to the legislation or implementing regulations mainly include:

• On 24 June 2022, the Standing Committee of the National People’s Congress promulgated the AML Amendments which came into effect on 1 August 2022. Major changes related to merger control filing under the AML Amendments include:
1. Significantly increasing the penalties for Failure-to-notify:
1. where an undertaking implements a concentration in violation of the AML, SAMR may impose a fine of less than 10% of the undertaking’s sales from the preceding year; where such concentration does not have the effect of eliminating or restricting competition, the fine will be less than CNY5 million (approximately USD727,000);
2. where the violation of the AML is “extremely severe,” with an “extremely adverse” impact and “especially serious” consequences, SAMR can increase the fine amount by two to five times.
2. “Killer acquisitions”: if a concentration of undertakings does not reach the threshold of declaration prescribed by the State Council, but there is evidence that such concentration has or may have the effect of eliminating or restricting competition, the antitrust authorities can require the undertakings to submit a filing.
• On 15 July 2022, SAMR issued an announcement to authorise five provincial market supervision and administration departments, namely the market supervision and administration departments in Beijing, Shanghai, Guangdong, Chongqing and Shaanxi, to review simple merger filing cases on a pilot basis.
• On 10 March 2023, SAMR issued the Provisions on Concentration Review, which came into effect on 15 April 2023. The Provisions on Concentration Review has made some updates to keep consistent with AML Amendments regarding merger filing reviews and provide more detailed guidance on these changes.

Additionally, the Provisions on Concentration Review include some changes and improvements based on the practical experiences of merger filing reviews, including the main changes outlined below.

• Clarification is provided on the factors determining whether a concentration has been implemented. These factors include: (i) completing registration for change of shareholder or other rights; (ii) appointing senior management; (iii) participating in business decisions and management; (iv) exchanging competitively sensitive information; and (v) substantially integrating the business.
• Clarification is provided that the term “previous fiscal year” mentioned in notification thresholds refers to the fiscal year preceding the year when the transaction document was signed, and perfecting the calculation methods of turnover among the concentrating parties.
• Clarification is provided on the responsibilities and requirements of the declaration agents, who, in practice, are predominantly antitrust lawyers. For example, it requires the declaration agents to act in good faith and assist the declarant in examining the authenticity, accuracy and completeness of the declaration documents and materials. It also specifies that where a declaration agent intentionally conceals the relevant information, provides false materials or otherwise obstructs the examination or investigation of a case involving a concentration of undertakings, SAMR shall investigate and handle the case and make it public pursuant to the law, and may propose handing suggestions to the relevant authorities.
• Additionally, on 27 June 2022, SAMR issued the Provisions on the Threshold for Notification of Concentration of Undertakings (Draft for Public Comments) (“Draft Provisions on Notification Thresholds”) to raise the notification thresholds.  According to these provisions, if approved, a merger control filing would be triggered in China if the following thresholds were met:
1. the total global turnover of all concentrating parties in the previous fiscal year exceeds CNY12 billion (approximately USD1.71 billion), and the turnover in China of at least two parties in the previous fiscal year each exceeds CNY800 million (approximately USD114.30 million); or
2. the total turnover in China of all concentrating parties in the previous fiscal year exceeds CNY4 billion, and the turnover in China of at least two parties in the previous fiscal year exceeds CNY800 million each.

If the above thresholds are not met, undertakings are still required to obtain SAMR’s merger clearance if:

• one undertaking’s Chinese turnover is more than CNY100 billion (approximately USD14.8 billion); and
• the other undertaking has a market value (or valuation) of CNY800 million (approximately USD114.3 million) or more and it generated more than one-third of its worldwide turnover from China.

The recent enforcement records are summarised below:

Failure-to-Notify Cases

In 2022, there were 32 failure-to-notify cases, a decrease from the previous year. Most of these cases, around 59.4%, involved acquiring equity interests of 30% or less in target companies, with the lowest recorded equity ratio being 7.32%. It is clear that minority shareholding acquisitions are not exempt from merger filing review. Additionally, there are 27 internet-related cases, accounting for 84.4% of relevant cases, indicating the continued regulatory scrutiny on this sector. Cases also spanned industries like real estate, finance, power, and metal products. Only three cases involved foreign-to-foreign transactions, suggesting that enforcement authorities are not specifically targeting these.

Significant Increase in Penalties for Failure-to-Notify

The AML Amendments significantly increase administrative penalties for failure-to-notify cases. Furthermore, these new penalty provisions introduced by the AML Amendments such as “fines of no less than two times but no more than five times of the fine prescribed for extremely serious infringement or those that cause particularly adverse influence or extremely serious consequences” or “the credit record penalty” may also apply to failure-to-notify cases. However, specific application rules and scenarios are still to be clarified by future enforcement.

Remedy cases

In 2022, five cases were granted conditional clearance by SAMR, including the Shanghai Airport/China Eastern Air Logistics case, which was the first conditional case without the involvement of foreign investors. In this case, both concentrating parties were state-owned enterprises (SOEs), indicating that the antitrust risks associated with commercial arrangements between SOEs should be properly assessed. In addition, SAMR is still keeping a close eye on transactions in the semiconductor industry, as three of the five conditional cases in 2022 were related to this industry. SAMR’s enforcement trends on conditional cases have been summarised below.

Propensity to further segment the relevant market

For example, in the Globalwafers/Siltronic case, while the German Federal Cartel Office defined the relevant product market as the wafer market without further segmentation, SAMR considered the wafers’ size and manufacturing process more closely, and indicated that the relevant product market should be further segmented as the 8-inch zone-melt wafer market. Given that the concentrating parties had high market power in this segmented market domestically and globally, and that such market power would be further enhanced post-transaction, SAMR imposed restrictive conditions, including the divestment of one party’s zone-melt wafer business. In multi-jurisdictional filings, the parties need to fully consider SAMR’s tendency to further market definition, and carefully assess any specific competition concern that may arise in mainland China.

Focus on the state of competition in mainland China

As usual, conditional cases in 2022 reflect Chinese antitrust authorities’ focus on the state of competition in mainland China. SAMR will still make independent judgments based on the actual circumstances within mainland China, even if the transaction does not raise competition concerns in other jurisdictions. For example, in the AMD/ Xilinx case, while other jurisdictions unconditionally cleared the transaction, SAMR identified that the transaction may cause leverage foreclosure effects on the mainland China market.

Focus on compatibility and openness issues in high-tech areas

In high-tech sectors such as semiconductors, issues such as technology tying, reduction of interoperability and refusal of supply may arise if there are neighbouring markets between the concentration parties, and one of the parties has strong market power. SAMR tends to dig deep into the compatibility issue, as well as the parties’ motivation and ability to conduct tie-in sales. SAMR will also require the parties not to tie relevant products and to maintain the interoperability and compatibility of relevant products when identifying competition concerns. This approach has been adopted in recent cases such as the AMD/Xilinx case.

In addition, in the Shanghai Airport/China Eastern Air Logistics case, SAMR imposed a restrictive condition that the parties shall take reasonable and necessary data protection measures and establish a data protection system when the acquired entity withdraws from and changes the relevant airline alliance, reflecting the authority’s concerns about data.

Prohibited Cases

The latest prohibited case is the DouYu/HUYA case announced by SAMR on 10 July 2021. The two companies concerned are the top two competitors in the relevant market and are controlled by the same internet gaming company with significant market power. In its decision, SAMR stated that the transaction concerned would strengthen the dominant position of their controller in the gaming streaming market. As a result, the internet gaming company would obtain the ability and incentives to foreclose in both the upstream online game operation services market and the downstream game streaming market.

In addition, the antitrust authorities’ revisions regarding the filing thresholds and ex officio investigation jurisdiction in the AML Amendments and Draft Provisions on Notification Thresholds reflect their concerns about “killer acquisitions”. The Opinion on the Establishment of a Large Unified Domestic Market also proposes to strengthen the merger control review concerning the areas of finance, media, science and technology, people’s livelihood, as well as start-up enterprises, new business forms and labour-intensive industries. We believe that transactions, including ultra-arge enterprises acquiring small and medium-sized enterprises, in these key industries may become the focus of the antitrust authorities’ attention in the next period.

In recent years, SAMR has maintained its active scrutiny of transactions that may have adverse effects on market competition. 

Notably, since 2010, SAMR’s review of concentration involving platform undertakings reflects a trend of increasing strictness and prudence. On the one hand, SAMR’s review shows that its assessment of the impact on competition will be conducted in a more comprehensive manner. On the other hand, longer review periods for transactions involving platform undertakings compared with other common cases also reflected the prudent stance of SAMR. In some of the cases involving the internet sector, the review period has reached 50 days or even longer while the average review period for cases related to other common industries is only around 17 days. 

In addition, SAMR has also stepped up its enforcement in failure-to-notify cases involving the internet sector. In 2022, 84.4% of the failure-to-notify cases were internet-related, and the only prohibited domestic case (the DouYu/HUYA case) was also internet-related.

Additionally, according to the AML Amendments and its accompanying regulations, we understand that SAMR is going to strengthen regulation of sectors involving people’s livelihood, as well as sectors involving finance, media, science and technology.

SAMR has traditionally imposed behavioural remedies in a high proportion of cases in order to address competition concerns. For example, in 2021, SAMR imposed behavioural remedies in three of the four cases granted conditional clearance. To address market concentration concerns, SAMR  imposes structural remedies (ie, divestiture) or behavioural remedies such as hold-separate requirements. For example, in the Danfoss/Eaton and SK Hynix/Intel cases, to address such horizontal competition concerns, instead of following its usual practices, SAMR imposed behavioural remedies such as continuing supplies, ensuring that the price does not exceed the average under equivalent conditions before the transaction, FRAND commitments, no tying/bundling or imposition of unreasonable conditions, and no compulsory exclusive purchase.

As usual, SAMR conducted independent assessments regarding the impact of concentrations on the Chinese market. For example, the Cisco/Acacia Communications and SK Hynix/Intel cases were granted unconditional clearance in other jurisdictions, while the Danfoss/Eaton case had not been filed in other jurisdictions. However, SAMR considered that the above transactions may have the effect of restricting or eliminating competition in the relevant Chinese market and thus imposed restrictive conditions including continuing supplies, no tying/bundling and FRAND commitments.