By Susan Ning, Huang Jing and Hazel Yin
On April 3, 2013, the Ministry of Commerce (MOFCOM) published the draft Interim Rules regarding the Standards of Simple Cases of Concentrations of Operators (Draft Standards), to solicit comments from the public. The Draft Standards set out the factors that MOFCOM would consider when identifying if a concentration of operators would be categorized as a simple case.
The Draft Standards include the following major provisions:
According to Article 2 of the Draft Standards, MOFCOM will treat the following concentrations as simple cases:
for horizontal mergers: the collective market share of all operators to the concentration in each of the relevant markets is less than 15%.
for vertical mergers: the market share of each of the operators to the concentration in each of the relevant upstream and downstream markets is less than 25%.
for mergers that are neither horizontal nor vertical: the market share of each of the operators to the concentration in each of the markets is less than 25%.
for off-shore joint ventures: the off-shore joint venture does not engage in business operations in China.
for acquisitions of off-shore target: the off-shore target does not engage in business operations in China.
for reduction of the number of controlling shareholders: the joint venture jointly controlled by two or more operators is controlled by one or more operators through the concentration.
In any of the following circumstances, a case originally falling under Article 2 will not be treated as a simple merger:
in case of a change from joint to sole control, there is horizontal overlap between the previously jointly controlled entity and the operator to acquire sole control over the entity;
the relevant market is difficult to define;
the concentration may cause adverse impact on market entry or technology development;
the concentration may cause adverse impact on consumers or other relevant operators;
the concentration may cause adverse impact on national economy;
other circumstances where MOFCOM determines that competition may be adversely affected.
In any of the following circumstances, MOFCOM can revoke the decision to treat a concentration as a simple case:
the notifying party hides important information, or provides false or misleading materials;
a third party claims that the concentration has or may have the effect of eliminating or restricting competition, and can provide relevant evidence;
MOFCOM discovers material changes of the transaction or the competition status in the relevant market.
Many expect that by publishing the standards for simple cases, MOFCOM will be officially introducing a fast track review regime. In practice, it appears that MOFCOM already has an informal fast track mechanism in place. In some of our cases that clearly have no competition concerns, we have witnessed MOFCOM accelerating the review process and issuing the clearance by end of Phase 1 or within the first two weeks of Phase 2.
On the other hand, one major unanswered question about the Draft Standards is: how will MOFCOM deal with these simple cases? Does it mean that a safe harbor is created and that MOFCOM will not have competition concerns to simple cases? Or will MOFCOM apply a simplified procedure to simple cases, and set a shorter review period? The absence of a procedural mechanism in the current draft demonstrates that MOFCOM is still very cautious and will implement the fast track mechanism one step at a time.
Another interesting “side” observation is MOFCOM’s position towards a concentration involving the reduction of the number of jointly controlling shareholders. As mentioned above, the Draft Standards regard such a concentration as a type of simple case whereas such a concentration normally may not even be reportable in EU, as long as it does not lead to a change from joint to sole control.
We will keep a close eye on the progress of the Draft Standards.