China’s SAMR Consolidates Merger Control Guidance In New Interim Rules.

On 27 October 2020, China’s State Administration for Market Regulation (SAMR) issued the Interim Provisions on Undertaking Concentration Examination (Provisions), which will come into force on 1 December 2020. As well as consolidating previous guidance published by its predecessor, the Ministry of Commerce (MOFCOM), the Provisions further clarify many aspects of the merger control regime under the Anti-Monopoly Law (AML).
 

In this e-bulletin, we will walk though some of the key aspects of the Provisions, focusing on changes introduced by the Provisions. We will also highlight differences from the earlier draft of the Provisions published for consultation on 7 January 2020.

Background

1. Calculating turnover
 

The key take-away in relation to calculating turnover is that the Provisions clarify that the turnover of divested business units no longer needs to be taken into account.
 

The previous MOFCOM guidelines stated that the turnover of any divested business should be excluded for the financial year following the divestment. It was therefore ambiguous as to whether the turnover of a divested business should still be included when calculating an undertaking’s turnover during the same financial year of such divestment. In particular, this gave rise to difficulties in applying the principles to complex transactions where different parts of a business would be carved out and sold to different buyers.
 

In clarifying the potential confusions, the Provisions specifically state that the relevant turnover to be considered is the turnover of the relevant party and the businesses within its control at the time of the notification.

2. Eligibility for simplified procedure
 

The Provisions restate the scenarios in which a transaction may be eligible for notification under the simplified procedure, and the list of conditions in which an otherwise qualifying transaction will not be permitted to notify under the simplified procedure.
 

Whilst most of these scenarios and conditions are restated without amendment, the Provisions add a welcome qualification in relation to joint ventures. Specifically, for transactions that involve a joint venture moving from joint to sole control, and where the sole controller is active on the same market as the joint venture, the Provisions specify that transaction may still be filed under simplified procedure as long as the combined market share is below 15%. This is a significant change: under the previous guidance, a transaction involving a move from joint to sole control did not qualify for the simplified procedure where the sole controller operated on the same market as the joint venture (regardless of its market share).

 
3. Greater clarity on investigations
 

The Provisions include a standalone chapter on violations of the merger control regime, signalling SAMR’s intention to continue its active enforcement in this area. In particular, the Provisions detail the relevant conduct that may be in violation of the merger control regime, including failure to file, implementation prior to clearance, and contravention of a merger control decision. This clarifies the wording of the previous MOFCOM rules and cements the legal basis for investigating an illegal concentration.
 

Notably, the Provisions restate and clarify the investigation process, dividing this into two phases and providing a clear timeline for such investigations: SAMR will have 30 days to conduct an initial phase investigation into potential violations of the merger control regime, and another 120 days for a further investigation phase. The total of 150 days for the whole process is substantially shorter than the investigation period under the previous rules, which often stretched to over a year in duration. This change will therefore increase the efficiency of SAMR’s enforcement activity and provide additional certainty for parties involved in a violation.

Remarks