China Antitrust - New Thresholds for Notification of Concentrations of Undertakings
Published 8 March 2024
Sarah Xuan
On 26 January 2024, the State Council issued Decree No. 773, promulgating the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings (the “New Thresholds for Notification”), which came into effect on the same day.
Previously, the legal basis for determining whether an operator’s concentration needed to be notified was mainly the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings (2018 Revision) (the “2018 Thresholds for Notification”). Accompanying the revision and implementation of the Antimonopoly Law in 2022, the State Administration for Market Regulation (the “SAMR”) published the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings (the “Draft Revision for Solicitation of Opinions”) on 27 June 2022 (“Solicitation of Opinions”). The New Thresholds for Notification are the first revision after nearly six years of implementation of the 2018 Thresholds for Notification, and significant adjustments have been made in specific notification standards, regulatory mechanisms, and so on. This article explains the relevant revisions.
The full text of the New Notification Standard Provisions consists of seven articles. In line to further relax the market access threshold, promote investment and mergers and acquisitions, reducing transaction costs, and enhancing the effectiveness of antimonopoly supervision and enforcement, the modifications to the existing notification standard for operators’ concentration mainly include the following:
1. It increased turnover criteria for operator concentration notifications
With the expansion of China’s economic aggregate and market scale, the growing scale of enterprises and the number of cases of operator concentration gradually increase, the lower threshold of notification increases the transaction cost and intensifies the transaction risk overall, and the notification standard originating from 2008 no longer matches the status quo. Compared with the provisions of the 2018 Thresholds for Notification, the Thresholds for Notification have increased the turnover standard for operator concentration and raised the threshold for operator concentration filing:1) The criterion of global combined turnover of all operators participating in the concentration for the previous fiscal year has been raised from “more than RMB 10 billion” to “more than RMB 12 billion”;2) The criterion for the aggregate turnover in China of all operators participating in the concentration for the previous fiscal year has been raised from “more than RMB 2 billion” to “more than RMB 4 billion”;3) The standard for the turnover in China of at least two of the operators participating in the concentration for the previous fiscal year has been raised from “both exceeding RMB 400 million” to “both exceeding RMB 800 million”.
2. It removed the proposed filing standards for “killer acquisitions” from the Draft Revision for Solicitation of Opinions
The “killer acquisitions” generally refer to the acquisition of start-ups by large enterprises with a dominant market position in the global internet, technology, and other industries to eliminate potential competition and maintain the existing market advantage of the acquiring party. This type of M&A behavior stifles technological innovation, harms market competition, and has been taken seriously by regulators in the commercial markets.
Article 4 of the Draft Revision for Solicitation of Opinions contains a particular notification criterion: in the previous fiscal year, the turnover in China of one of the operators involved in the concentration exceeded RMB 100 billion, while the market capitalization (or valuation) of the other operators was not less than RMB 800 million (and the proportion of turnover in China exceeded one-third of the global turnover). The content of this provision is a restrictive regulation against “killer acquisitions”, to protect the market’s health.
The proposed filing standards for “killer acquisitions” have not retained this provision. However, deleting the notification standard does not mean the Chinese legislation has abandoned the “killer acquisitions” regulation. According to Article 4 of the New Notification Standard Provisions, the antimonopoly bureau can still require operators to make a prior notification under this provision in cases that qualify as “killer acquisitions.”
3. It emphasized the extraordinary investigation power of the SAMR concerning concentrations of operators that do not meet the notification criteria but may have the effect of excluding or restricting competition.
The revised Antimonopoly Law, which came into effect on 1 August 2022, has stipulated that “if the notification standard prescribed by the State Council for notification has not been met, but there is evidence proving that the concentration of operators has or is likely to have the effect of excluding or restricting competition,” the General Administration of Municipal Supervision has the right to require operators to make a notification. If the operator fails to notify, the SAMR has the right to investigate, and the New Thresholds for Notification re-emphasize this right for law enforcement agencies.
Summary
The New Thresholds for Notification have raised the threshold for notification of concentration of operators. Based on this, many operators who meet the old standards but not the new ones will not be required to make operator concentration notifications in subsequent investment and M&A transactions, and the time cost and compliance cost for enterprises to conduct investment and M&A transactions will be further reduced. However, for investment M&A transactions that still fall within the scope of notification after entering into force the New Thresholds for Notification, operators should fulfill their notification obligations more strictly to avoid the strict penalty liability under the new Antimonopoly Law.
Previously, the legal basis for determining whether an operator’s concentration needed to be notified was mainly the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings (2018 Revision) (the “2018 Thresholds for Notification”). Accompanying the revision and implementation of the Antimonopoly Law in 2022, the State Administration for Market Regulation (the “SAMR”) published the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings (the “Draft Revision for Solicitation of Opinions”) on 27 June 2022 (“Solicitation of Opinions”). The New Thresholds for Notification are the first revision after nearly six years of implementation of the 2018 Thresholds for Notification, and significant adjustments have been made in specific notification standards, regulatory mechanisms, and so on. This article explains the relevant revisions.
The full text of the New Notification Standard Provisions consists of seven articles. In line to further relax the market access threshold, promote investment and mergers and acquisitions, reducing transaction costs, and enhancing the effectiveness of antimonopoly supervision and enforcement, the modifications to the existing notification standard for operators’ concentration mainly include the following:
1. It increased turnover criteria for operator concentration notifications
With the expansion of China’s economic aggregate and market scale, the growing scale of enterprises and the number of cases of operator concentration gradually increase, the lower threshold of notification increases the transaction cost and intensifies the transaction risk overall, and the notification standard originating from 2008 no longer matches the status quo. Compared with the provisions of the 2018 Thresholds for Notification, the Thresholds for Notification have increased the turnover standard for operator concentration and raised the threshold for operator concentration filing:1) The criterion of global combined turnover of all operators participating in the concentration for the previous fiscal year has been raised from “more than RMB 10 billion” to “more than RMB 12 billion”;2) The criterion for the aggregate turnover in China of all operators participating in the concentration for the previous fiscal year has been raised from “more than RMB 2 billion” to “more than RMB 4 billion”;3) The standard for the turnover in China of at least two of the operators participating in the concentration for the previous fiscal year has been raised from “both exceeding RMB 400 million” to “both exceeding RMB 800 million”.
2. It removed the proposed filing standards for “killer acquisitions” from the Draft Revision for Solicitation of Opinions
The “killer acquisitions” generally refer to the acquisition of start-ups by large enterprises with a dominant market position in the global internet, technology, and other industries to eliminate potential competition and maintain the existing market advantage of the acquiring party. This type of M&A behavior stifles technological innovation, harms market competition, and has been taken seriously by regulators in the commercial markets.
Article 4 of the Draft Revision for Solicitation of Opinions contains a particular notification criterion: in the previous fiscal year, the turnover in China of one of the operators involved in the concentration exceeded RMB 100 billion, while the market capitalization (or valuation) of the other operators was not less than RMB 800 million (and the proportion of turnover in China exceeded one-third of the global turnover). The content of this provision is a restrictive regulation against “killer acquisitions”, to protect the market’s health.
The proposed filing standards for “killer acquisitions” have not retained this provision. However, deleting the notification standard does not mean the Chinese legislation has abandoned the “killer acquisitions” regulation. According to Article 4 of the New Notification Standard Provisions, the antimonopoly bureau can still require operators to make a prior notification under this provision in cases that qualify as “killer acquisitions.”
3. It emphasized the extraordinary investigation power of the SAMR concerning concentrations of operators that do not meet the notification criteria but may have the effect of excluding or restricting competition.
The revised Antimonopoly Law, which came into effect on 1 August 2022, has stipulated that “if the notification standard prescribed by the State Council for notification has not been met, but there is evidence proving that the concentration of operators has or is likely to have the effect of excluding or restricting competition,” the General Administration of Municipal Supervision has the right to require operators to make a notification. If the operator fails to notify, the SAMR has the right to investigate, and the New Thresholds for Notification re-emphasize this right for law enforcement agencies.
Summary
The New Thresholds for Notification have raised the threshold for notification of concentration of operators. Based on this, many operators who meet the old standards but not the new ones will not be required to make operator concentration notifications in subsequent investment and M&A transactions, and the time cost and compliance cost for enterprises to conduct investment and M&A transactions will be further reduced. However, for investment M&A transactions that still fall within the scope of notification after entering into force the New Thresholds for Notification, operators should fulfill their notification obligations more strictly to avoid the strict penalty liability under the new Antimonopoly Law.