CHINA Chinese merger control Title Title Title Title Title Author Author Peter J Wang Firm Firm Firm Firm Jones Day China’s fmedgling merger control regime has become increasingly domestic market, impede or disturb rightful competition, and harm important to multinational companies investing in China. In the domestic consumers’ benefjts”. Article 3 also generally requires that three years since limited antitrust merger review provisions were foreign investors “must not cause excessive competition or exclude introduced in March 2003, as part of the Provisional Regula- or restrict competition”. tions on Foreign Investors Merging with or Acquiring Domestic Neither the regulations nor other Chinese laws provide addi- Enterprises (the Foreign M&A Regulations), China has become tional insight into how the responsible government ministries an important part of global competition clearance for cross-bor- conduct their competition analysis. It has become routine for com- der transactions. The promulgation of China’s fjrst comprehen- panies to submit merger fjlings under the regulations for pre-merger sive competition law, the pending Anti-Monopoly Law (AML), is approval. Although the details and dispositions of these matters are eagerly awaited; and the search for clues as to how the AML will not publicly available, it is reasonable to assume that the Chinese operate is under way. regulators’ analysis will remain less practised and technical than that The Chinese merger control procedures remain relatively unde- employed in more mature competition jurisdictions, at least over the veloped. They occupy a handful of articles in the Foreign M&A Reg- near term. Indeed, anecdotal evidence suggests that most merger ulations, which are labelled ‘provisional’ and are widely expected to fjlings and reviews under the Foreign M&A Regulations have con- be superseded by the AML by late 2006. As with many Chinese laws sidered only basic structural competitive issues and undertaken no and regulations, the merger control articles contain a purposeful detailed economic analysis. Nevertheless, parties may attempt to lack of clarity, with most key terms undefjned in the regulations or raise whatever competitive arguments and market information they in Chinese law. There are no implementing regulations, or publicly have, and can expect to encounter individual regulators with sub- available or legally binding decisions. As a result, while regulators stantial experience and training in international competition regimes have become increasingly sophisticated, the process leaves plenty and analysis. of room for administrative discretion in both interpretation and enforcement, and parties must often rely on informal administra- Scope of regulatory coverage tive guidance. The Foreign M&A Regulations cover only transactions involving Nevertheless, Chinese lawmakers and regulators regularly affjrm foreign parties. There are separate reporting thresholds for onshore their intention to upgrade the Chinese legal system to international and offshore transactions. standards and further support China’s increasingly market-based economy. Passage of a modern antitrust law such as the AML is Onshore transactions a top priority for China in that process. The AML will introduce Article 2 states that the regulations cover mergers and acquisitions a somewhat different merger control process and is substantially between foreign investors and domestic Chinese enterprises (ie informed by international practice, while retaining uniquely Chinese ‘onshore transactions’) of two types: perspectives on certain competition issues. • equity transactions, meaning: There are occasional indications that antitrust policy and • a foreign investor’s acquisition of equity interest in a purely enforcement in China may face increasing pressure to target for- domestic enterprise and the subsequent conversion of that eign multinationals in order to protect and benefjt domestic Chinese domestic enterprise into a foreign-invested enterprise (FIE), industry. This pressure is exemplifjed by an SAIC report in 2004 or detailing perceived anti-competitive practices by multinationals and • a foreign investor’s subscription to the increased capital of recommending greater regulation of such behaviour, as well as by a a purely domestic enterprise and subsequent conversion of Ministry of Technology report in 2005 cataloguing alleged misuses that domestic enterprise into an FIE; or of intellectual property rights by multinationals. The Foreign M&A • asset transactions, meaning: Regulations themselves provide a small indication of the seemingly • a foreign investor’s establishment of an FIE to acquire and protectionist sentiments that still exist in Chinese law: they apply use the assets of a domestic enterprise (including those of an only to transactions involving foreign parties, while also reaching FIE), or purely offshore transactions if the parties or their affjliates have cer- • a foreign investor’s direct acquisition of the assets of a tain qualifjed assets or business in China. Despite these indications domestic enterprise (including those of an FIE) and contri- and widespread concern in the Western business press, however, it bution of those assets to establish and operate an FIE. is unlikely that the Chinese government will permit existing or new competition laws to interfere in a systematic or substantial way with The regulations as written do not appear to cover onshore transac- foreign investment in China. tions undertaken by pre-existing FIEs, although such transactions may be covered by other foreign investment-related regulations Substantive standard without competition review mechanisms. Nor do the regulations The principal substantive issue in antitrust review of a transaction appear to cover acquisitions by domestic Chinese companies, even under the Foreign M&A Regulations is framed by articles 20 and of foreign companies or FIEs. 21: whether a transaction will cause “excessive concentration in the www .G lobal C ompetition R eview . Com 29
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