On 1 Dec. 2020, the Interim Provisions on the Review of the Concentrations of Business Operators (the Provisions, 经营者集中审查暂行规定) entered into force, which fleshes out China's anti-monopoly legal framework.
The Provisions is formulated by China’s State Administration for Market Regulation (SAMR), and mainly focuses on the issues about how to apply to the SAMR for approval if the concentration of business operators (the “CBO”) reaches the declaration threshold.
The CBO refers to the merger of several business operators or the acquisition of control over other business operators by a business operator.
SAMR, China’s anti-monopoly law enforcement agency, considers the Provisions to be one of the most important parts of China’s anti-monopoly legal framework. To raise public awareness, SAMR published an article on its website to interpret the Provisions.
According to the article, SAMR highlights the following 10 aspects noteworthy in the Provisions:
I. Equal treatment of all business operators
With the strengthening of China’s anti-monopoly law enforcement, some foreign enterprises have been more frequently subject to anti-monopoly investigation and punishment. Therefore, international media has also begun to argue that foreign enterprises are unfairly targeted in China’s anti-monopoly law enforcement. Therefore, the Provisions clearly stipulates that SAMR shall treat all business operators equally. (See Article 5)
II. Delegation of reviewing the CBO
Pursuant to the Anti-monopoly Law, the review of the CBO is within the authority of China’s central government, which means that it is the SAMR that shall be responsible for the law enforcement. However, in recent years, the number of cases concerning the CBO declaration has increased year by year. For example, there were 465 cases concluded in 2019, an increase of 40% compared to 2015. Yet in practice, the SAMR lacks sufficient resources to handle these cases. Therefore, the Provisions specifies that the SAMR can delegate the review to its provincial counterparts. (See Article 2)
III. Clarify the criteria of substantive review
Since the Anti-monopoly Law came into effect in 2008, law enforcement agencies have concluded more than 3,000 cases relating to the CBO. Among them, there are two cases where the CBO is prohibited and 48 cases where the CBO is approved with additional restrictive conditions.
In the process, law enforcement agencies have accumulated experience in making substantive judgments on a number of matters. The SAMR drew on such experience in formulating the Provisions, thus clarifying the following three issues:
(1) How to determine the control; (See Article 4)
(2) How to assess the impact of the CBO on competition; (See paragraph 2 of Article 12)
(3) How to calculate the turnover. (See Articles 7, 8, and 9)
IV. Optimize the review procedures
The improvements include as follows:
(1) clarifying who is obliged to make a declaration to the law enforcement agency; (See Article 11)
(2) clarifying which cases are simplified cases and subject to summary judgment; (See Articles 17 and 18)
(3) for cases where CBO is approved with additional restrictive conditions, clarifying how to supervise business operators’ satisfaction of such conditions;
(4) clarifying how the purchaser may divest its business. (See Articles 37-45)
V. Optimize the procedures for changing or canceling restrictive conditions
Under the Provisions, law enforcement agencies must specify the term of the additional restrictive conditions in their conditional approvals, and also stipulate the four circumstances under which the restrictive conditions may be canceled. (See Articles 46 and 47)
VI. Optimize the fiduciary mechanism
For cases where CBO is approved with additional restrictive conditions, in order to better supervise the satisfaction of such conditions by business operators, the law enforcement agencies may entrust the third-party with professional expertise as the “eyes and ears” of them.
By Aug. 2020, among 48 cases where CBO was approved with restrictive conditions, there were 40 cases where law enforcement agencies had appointed trustees.
The Provisions optimizes the fiduciary mechanism, thus making it more operational. (See Articles 36 and 37)
VII. Clarify the major circumstances of illegal CBO
If the CBO has reached the declaration threshold, but has been implemented without declaration to the SAMR, the business operator shall be punished in accordance with the Anti-Monopoly Law. The Provisions specifies the major circumstances of illegal CBO, thus unifying the law enforcement standards. (See Article 48)
VIII. Significantly compress the investigation time of illegal CBO
The SAMR has improved its efficiency in face of an increasing caseload since last year.
In 2019, the courts imposed punishment on 23 enterprises for 18 cases relating to illegal CBO, an increase of 20% year-on-year, and accounting for 35% of the total cases subject to punishment of illegal CBO since the implementation of the Anti-monopoly Law. The total amount of fines imposed was CNY 7.25 million, an increase of 24% year-on-year, and the average investigation time of the cases is shortened by 8% year-on-year.
Under the Provisions, the time for the preliminary investigation of illegal CBO cases will be shortened from 60 days to 30 days, and that for further investigation will be shortened from 180 days to 120 days. (See Article 53)
The Provisions greatly shortens the investigation time, and will promote the investigation efficiency of the law enforcement agencies and transactions’ predictability by the business operator.
IX. Clarify the liabilities for law violation
Firstly, it clarifies the legal liabilities of the notifying party concealing facts or providing false materials (See Article 58);
Secondly, it increases the legal liabilities of the trustee (See Article 59);
Thirdly, it increases the legal liabilities of the buyers of the divested business (See Article 60).
X. Clarify the investigation procedures for the CBO not reaching the declaration thresholds
Pursuant to Article 4 of the Provisions on the Declaration Threshold for the Concentration of Business Operators (关于经营者集中申报标准的规定) issued by the State Council, where a CBO does not reach the declaration threshold, but the facts and evidence collected pursuant to the prescribed procedures demonstrate that the CBO has or may have the effect of excluding or restricting competition, the law enforcement agency shall conduct an investigation into it.
On the basis of the aforementioned standards, the Provisions clarifies how the law enforcement agency should conduct the investigation. (See Article 62)
Contributors: CJO Staff Contributors Team
