Belt and Road and merger control reviews

By John Ren Yong, T&D Associates

With the advance of the Belt and Road initiative, more and more Chinese enterprises are “going out” and cross-border merger and acquisition (M&A), by taking this opportunity, has been enlarging its market size in China. The ever increase in the large-sized M&A transactions has, on the one hand, promoted the economic exchange among the countries along the Belt and Road and, on the other hand, increased the market concentration and posed potential threats to the order of competition in relevant markets. When bringing in foreign investment or making investment abroad through M&A or establishing joint ventures, Chinese enterprises need to pay special attention to the relevant provisions on the anti-monopoly review of concentration of undertakings.

任勇 JOHN REN YONG 天地和律师事务所主任律师 Managing Partner T&D Associates
Managing Partner
T&D Associates

The PRC Anti-Monopoly Law took effect on 1 August 2008, which started the anti-monopoly review of concentration of undertakings in China. According to the law, a concentration of undertakings that reaches the notification threshold should be filed by the concerned undertakings with the Ministry of Commerce (MOFCOM) in advance and such concentration cannot be implemented without MOFCOM’s approval. Subsequently, MOFCOM promulgated a series of supporting rules and normative documents and introduced in 2014 the simplified procedure, which has greatly improved MOFCOM’s work efficiency and, also, provided enterprises with the guidelines and operating specifications for notification of concentration. As a result, more and more enterprises began to attach importance to notification of concentration in China. As of 30 September 2017, MOFCOM has concluded more than 2,000 cases involving the notification of concentration, including more than 1,880 cases where the concentration is approved unconditionally, 30 cases where the concentration is approved with conditions attached, and two cases where the concentration is prohibited.

To adapt to the new normal of economy and provide further normalized and systemized legal guarantee for the implementation of the Belt and Road initiative, MOFCOM has been working on the amendments to relevant regulations and rules regarding concentration of undertakings in an active manner. The Measures for Reviewing Concentration of Undertakings (Draft for Comments), promulgated on 8 September 2017, has recently become the topic of most concern in the field of notification of concentration, and the focuses of attention are mainly on the interpretation of right of control and the calculation of turnover.

The “right of control” is an important standard for judging where a transaction constitutes “concentration of undertakings” and none of the current laws and regulations (including the draft for comments) has provided a definite and clear interpretation as to what is right of control or how to determine the right of control. “Turnover” is the basis for judging whether or not a concentration meets the notification threshold. The draft makes supplementary provisions on the methods for calculating turnover under some circumstances, but it fails to give guidelines for certain circumstances (such as the issue of “double counting of the turnover of the concerned undertaking participating in concentration when joint control is converted into single control”).

What are enterprises supposed to pay attention to in dealing with the matters related to the anti-monopoly notification of concentration of undertakings in China under the above background? T&D Associates, based on our experiences in successfully handling more than 300 cases, remind enterprises of the following matters for attention.

Notify the concentration of undertakings that meets the threshold before implementation. If the concerned undertaking fails to notify in accordance with the law a concentration that meets the notification threshold, MOFCOM will, under the Anti-Monopoly Law, have the right to punish the concerned undertaking that fails to make the notification in accordance with the law. MOFCOM has been applying a severe approach to the cases where notifications fail to be made while it is required, and openly showed its attitude to intensify investigation and punishment in recent years. Up to 30 September 2017, MOFCOM has imposed punishment in 17 cases involving concentrations without notification, including six cases in 2017.

Therefore, when conducting mergers and acquisitions or establishing joint ventures, enterprises must conduct, before the implementation of the transaction, the evaluation seriously as to whether the transaction constitutes a concentration of undertakings that meets the notification threshold. If the threshold is met, the concerned undertaking should notify it to MOFCOM immediately to avoid punishment.

Do not implement the concentration after notification but before obtaining MOFCOM’s approval. Even if a concentration has been notified to MOFCOM, the concerned undertakings are not allowed to implement the transaction before obtaining the approval from MOFCOM. For example, a joint venture newly established is not allowed to commence any production or business activities before obtaining MOFCOM’s approval. In case of violating such provisions, MOFCOM will conduct an investigation of the concentration implemented without approval, and impose punishment on the undertaking concerned.

Engage professional lawyers with extensive experience to assist in notification. The anti-monopoly review of concentration of undertakings falls within a legal field that is rather professional and specialized. In addition to the anti-monopoly law, it involves the professional knowledge of intellectual property, economics and other aspects. Moreover, the legislation on the review of concentration of undertakings has been developing continually and it is very difficult to grasp the latest practices and dynamics in law enforcement if enterprises or the lawyers engaged thereby have no sufficient practical experiences.

In fact, cases have existed where MOFCOM revoked the notifications of concentration and required the enterprises to re-notify due to the poor quality of the notification documents or the erroneous application of procedures (i.e., applying the simplified procedure while the normal procedure should be applied) – these resulted from the lack of experience of the enterprises and lawyers. This not only delayed the completion of transactions but also caused adverse influences and losses for the enterprises. Such risks may be reduced or avoided if the enterprises engage professional lawyers with extensive experience specializing in anti-monopoly practices.

The Belt and Road initiative provides enterprises in China with new opportunities in international cooperation and poses new challenges at the same time. Chinese enterprises should have a comprehensive understanding of the rules and regulations for the anti-monopoly review of concentration of undertakings in China and make them facilitate rather than block their “going out” efforts.

John Ren Yong is the managing partner of T&D Associates in Beijing. He can be contacted on +86 10 5867 8228 or by email at