Recently, the State Administration for Market Regulation ("SAMR") issued four long-awaited supporting regulations to the PRC Anti-monopoly Law ("AML 2022") on merger control review, prohibition of monopoly agreements, prohibition of abuse of dominant position, and abuse of administrative power to exclude and restrict competition, almost nine months after their drafts were released for public comment in June 2022.
Please find below an overview on the Provisions on the Review of Concentration of Undertakings (the “Provisions”), one of these four regulations, and what key changes the Provisions have brought to China's merger control regime.
1. Adjusting the factors for assessing "control"
The Provisions remove the composition and voting mechanism of the Supervisory Board as one of the factors for the assessment of "control" which is included in the previous Interim Provisions on the Review of Concentration of Undertakings. At the same time, the Provisions add the factor of historical records of attendance and voting of the Board of Directors and other decision-making or management bodies. This means that the SAMR may place more emphasis on the acquisition of de facto control.
On the other hand, the Provisions bring certain level of ambiguity. In its draft, the decisive influence on operational decisions and management such as financial budgets and business plans was explicitly mentioned as a key factor in the assessment of "control". However, the relevant clause does not appear in the Provisions. It remains to be seen how the SAMR will interpret the acquisition of control in the future.
2. Clarifying the definition of "implementation of concentration"
A concentration shall not be implemented before having obtained clearance. As regards "implementation", the Provisions specify that the factors to be taken into account in the assessment are not only the completion of the registration of the formation or changes in the commercial register, but also the appointment of senior management, actual participation in business decisions and management, exchange of sensitive information with other undertakings and substantial business integration. The undertakings concerned now have clearer guidance on whether or not their pre-clearance activities could be considered gun-jumping.
3. Providing the details of filings of concentrations that do not meet the thresholds
The AML 2022 gives the SAMR the power to review below-the-threshold concentrations where there is evidence that they may eliminate or restrict competition, such as so called "killer acquisitions" that have already attracted antitrust scrutiny in other jurisdictions. Under the Provisions, where the SAMR requires the undertakings concerned in these concentrations to make the notifications, they must do so within 120 days if already implemented and take the necessary measures to reduce adverse effects on competition. Article 43 also allows any third party to report, with evidence, to the SAMR any anticompetitive concentrations that do not meet the thresholds.
4. Refining the implementation rules of "stop the clock" system
The AML 2022 introduces the "stop the clock" mechanism to merger control review, allowing the SAMR to suspend the review period under certain circumstances. The Provisions include more details of this mechanism.
- If a notifying party fails to provide the required documents and information during the review process, the SAMR will notify it in writing to make corrections within a specified time period. If such notifying party fails to make the corrections within specified period, the review period may be suspended by the SAMR. The review period will resume after the notifying patty has submitted the required documents and information.
- If new material circumstances or facts arise during the review process that would affect the review and the review cannot proceed without verification, the SAMR may suspend the calculation of the review period. The review period will resume when the verification shows that the review can be resumed.
- If, during the evaluation phase of the restrictive conditions submitted by a notifying party, such notifying party requests that the calculation of the review period be suspended, the SAMR may decide to suspend the calculation if it deems it necessary. The review period will resume upon completion of the assessment of the restrictive conditions.
5. Enhanced protection of personal information and personal privacy
Given the growing awareness of protecting personal data, the Provisions also address this issue. In addition to the trade secrets, undisclosed information or confidential business information mentioned in the previous Interim Provisions on the Review of Concentration of Undertakings (2020), the Provisions require the notifying parties to identify the personal privacy and personal information in the notification documents. The SAMR shall be under an obligation of confidentiality with respect to personal privacy and personal information of which they are aware, except where disclosure is required in accordance with laws and regulations or where the prior consent of the right holder has been obtained.
The Provisions replace the previous Interim Provisions on the Review of Concentration of Undertakings (2020) and provide more details on merger control review after the promulgation of the AML 2022. The Provisions also empower the SAMR to formulate specific rules for the review of concentrations in important sectors related to national livelihood. These sectors are likely to include, among others, automotive, pharmaceuticals and public utilities, etc. Meanwhile, China is considering some further legislative changes in merger control regime, such as revising the turnover thresholds for notification which are proposed in the draft Provisions on the Thresholds for the Notification of Concentration of Undertakings (2022). It is expected that further regulations will be published in the near future.