At the end of last year, China’s Ministry of Commerce Anti-monopoly Bureau’s Director General declared that enforcement of sanctions against transactions that failed to notify MOFCOM would be a priority in 2012. MOFCOM’s Interim Measures on Investigation and Handling of Concentrations of Business Operators That Have Not Been Notified in Accordance with Laws (“Interim Measures”) may apply to transactions even if the companies are registered outside of the PRC.
By David Cheng, Frankie Qin, and Zi Wei Wong
The People’s Republic of China (“PRC”) adopted its Anti-Monopoly Law (“AML”) in August 2007. (The law became effective in August 2008.) The regime requires that the Ministry of Commerce (“MOFCOM”) be informed of mergers and acquisitions of companies with global and national turnover beyond a stipulated threshold. On 30 Dec 2011, the MOFCOM issued the Interim Measures on Investigation and Handling of Concentrations of Business Operators that Have not Been Notified In Accordance with Laws (“Interim Measures”). The accompanying press release contained the MOFCOM Anti-Monopoly Bureau’s director general statement that enforcement of sanctions against transactions that failed to notify MOFCOM will be a priority in 2012. 
This article first sets out how the Interim Measures broaden MOFCOM’s anti-monopoly powers, then outlines the type of transactions affected by these measures.
Overview of the Interim Measures
These Interim Measures expand MOFCOM anti-monopoly regulators’ powers in several ways. The following are noteworthy:
- Whistleblowers. Article 3 of the Interim Measures states that “any entity or individual” has the right to report businesses that are suspected of failing to notify MOFCOM in accordance with the anti-trust regime. MOFCOM may also take its own initiative to investigate mergers or acquisitions.
- Discovery. Under Article 8, businesses under investigation have 30 days, upon receipt of notice, to submit documents and material requested by MOFCOM.
- Sanctions. Under the Interim Measures, MOFCOM may:
- Impose fines of up to RMB 500,000;
- Stop the transaction;
- Require disposition of the relevant shares or assets within a stipulated time;
- Require the transfer of the business operations;
- Adopt other measures as necessary.
Transactions affected by Interim Measures
The Interim Measures assist in enforcing the PRC anti-trust regime. The AML applies to “concentrations of undertaking” (“Concentrations”). Provisions of the State Council on Thresholds of Prior Notification of Concentrations of Undertakings (“Decree No. 529”) defines these concentrations and sets out turnover thresholds beyond which MOFCOM must be notified of the formation of these concentrations.
Article 2 of Decree No. 529 defines concentrations of undertakings widely. It covers merger of undertakings, acquisition of control over undertakings (whether by assets or equity), acquisition of control or decisive influence over other undertakings, contractual undertakings, or undertakings by other means.
The Interim Measures may apply to transactions even if the companies are registered outside of the PRC. As long as the turnover thresholds are met, MOFCOM has to be notified of the transaction.
The turnover thresholds beyond which a notification must be filed are as follows:
- The companies’ combined worldwide turnover is above RMB 10bn, and the turnover within China of at least two of the undertakings in the preceding financial year is more than RMB 400m; or
- The combined nationwide turnover within China of all the undertakings is more than RMB 2bn, and the turnover of at least two of the undertakings in the preceding financial year is more than RMB 400m.
MOFCOM retains residual discretion to investigate companies which are suspected of restricting competition even if the companies’ turnovers are within the above thresholds.
These thresholds were clarified in the Measures of Prior Notification of Concentrations of Undertakings:
- Group turnover. The turnover of an individual undertaking includes the turnover generated by the other members of the corporate group, rather than just the undertaking itself. Turnover from internal transactions of the corporate group are excluded.
- Tax deductions. In determining if the thresholds are met, all applicable tax and related fees are to be deducted from the turnover.
- Creeping acquisitions. A series of transactions between the same undertakings within a two-year period will be deemed as a single transaction even if each of these transactions, individually, falls below the stipulated thresholds.
Anti-competition law is becoming increasingly relevant as companies’ China operations have fast become a major part of their international commercial strategy. Consequently, significant thought must be placed on Chinese anti-competition law during cross-border acquisitions.
- http://www.mofcom.gov.cn/article/ae/slfw/201112/20111207901483.html [Back to reference]