China to Adopt a Simplified Merger Review Process

April 26, 2013 Posted by China Briefing Reading Time: 4 minutes

Apr. 26 – Over the last few years, delays and uncertainties have arisen in many merger control cases in China mainly due to the lack of a simplified merger review process. Therefore, it has become urgent and necessary for China to adopt a simplified procedure to review its merger cases. In the first quarter of 2013, China’s Ministry of Commerce (MOC) cleared 45 mergers unconditionally, a 24 percent decline compared with the mergers cleared in the last quarter of 2012.

In response, the MOC released the “Interim Regulations on Standards for Simple Cases (Draft for Comments) (hereinafter referred to as ‘Regulations’)” on April 3, which sets out standards for simple merger cases that can be subject to a fast-track clearance process. Detailed information can be found below.

What is a simple case?

According to the Regulation, a merger will be regarded as a simple case and subject to a fast-track clearance procedure under any of the following circumstances:

For a horizontal merger (mergers between companies in the same market and at the same stage in the production cycle): the aggregate market share of all business operators involved in the concentration in the same relevant markets is less than 15 percent.
For a vertical merger (mergers between companies in the same market but at different stages of the production cycle): the market share of each of the business operators involved in the concentration in each of the upstream and downstream markets is less than 25 percent.
For a merger that is neither horizontal nor vertical: the market share of each of the business operators involved in the concentration in each market is less than 25 percent.
For an off-shore joint venture established by business operators involved in the concentration: the concerned enterprise does not engage in any business operation in China.
For acquisition of stakes or assets of an overseas enterprise: the concerned overseas enterprise does not engage in any business operation in China.
For changing of controlling shareholders: the joint venture originally controlled by more than two business operators comes under the control of one or more business operators after the concentration.

Exceptions

The Regulations provides that mergers under the following circumstances will not be treated as simple cases and therefore cannot be subject to the fast-track review:

Concentrations which entail a reduction in the number of controlling shareholders and the controlling business operator after the concentration is competing with the joint venture in the same relevant market
Concentrations where it is difficult to define the relevant market
Concentrations which may cause adverse impacts on market entry or technology development
Concentrations which may have adverse impact on consumers or other relevant business operators
Concentrations which may have adverse impact on the development of the China’s national economy
Other circumstances which MOC believes may have adverse impacts on market competition

Revocation

MOC may revoke the decision to treat a merger as a simple case under the following circumstances:

Where the applicant conceals important facts, or provides false material or misleading information
Where a third party, who can provide relevant evidence, claims the merger may eliminate or restrict competition
Where MOC discovers material changes in the transaction or the competition status in the relevant market

Legal liabilities

Individuals who conceal important facts or provide false or misleading information during the application process may face a fine of up to RMB100,000. For entities, such fines may reach RMB1 million. Moreover, criminal liability will be investigated when a crime has been constituted.

The Regulation, however, does not address any procedural issues regarding the simplified review, such as the application documents and review time frame.

The Regulations are currently seeking public opinions and comments. Such feedback can be submitted via the methods below through to May 2, 2013.

Website: Log on to http://www.mofcom.gov.cn, and submit comments through the “Opinion Collection” button.
E-mail: wanglinshan@mofcom.gov.cn
Address: Antitrust Division, Ministry of Commerce, No.2, East Changan Rd, Beijing, 100713.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

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