During the drafting of the Chinese Anti-monopoly Law (AML), the level at which the threshold of concentration notification was to be set, aroused fierce debate. In the end however, AML did not specifically stipulate the notification criteria in detail.Article 21 of AML states:
Business operators shall declare in advance the concentration reaching the threshold of declaration prescribed by the State Council to the Anti-monopoly Law Enforcement Agency, otherwise, they shall not implement the concentration.
Such a vaguely worded clause has caused confusion within the legal profession. It certainly begs the question: Why did AML not explicitly stipulate the threshold of notification? Examining both the lawmaking process prior to the creation of AML as well as the drafting of AML itself may prove to be helpful.
Lawmaking Before AML:
Provisions on Acquisition of Domestic Enterprises by Foreign Investors is regarded as the first Chinese regulation that addressed anti-monopoly issues.Article 51 of Provisions states:
When a foreign investor’s acquisition of a domestic enterprise involves any of the following circumstances, the investors shall report the same information to Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (SAIC):
1. during the current fiscal year any of the parties involved in the acquisition has a turnover in the Chinese market exceeding RMB1.5 billion (US$218.3 million);
2. the foreign investor acquires more than ten enterprises in related industries in China in one year;
3. any of the parties involved in the acquisition already controls not less than 20 per cent of the Chinese market; or
4. the acquisition will cause the Chinese market share of any of the parties involved to reach 25 per cent.
At the request of a competing domestic enterprise or the relevant functional authority or trade association, or if MOFCOM or the SAIC is of the opinion that the acquisition by the foreign investor would materially affect market competition, authorities may nevertheless require the foreign investor to file a report, even though the criteria laid out in the preceding paragraph have not been met. The aforementioned “any of the parties to the acquisition” includes affiliates of the foreign investor.
Article 52 states that if the proposed M&A falls under any of the above criteria, a hearing will be held to approve or disapprove of the transaction. It can be concluded from the above-stated regulation that the criteria of notification includes turnover amount, the number of enterprises involved in the takeover, market share of those enterprises, and value of assets involved.
Drafting of the AML
In the early drafts of the AML, the language used regulated the standard of notification, particularly the criteria of declaration regarding turnover in a single fiscal year. The Office of Legislative Affairs stated that the draft took into consideration the economic situation, market competition, and, in particular, the difference between various sectors.
The draft also regulated the criteria of declaration regarding the following three aspects:
- First, it made clear the declaration criteria for the ordinary sector: global turnover of the previous fiscal year for all business operators involved exceeds RMB12billion; domestic turnover of the previous fiscal year for one operator involved exceeds RMB800 million. (Section 1, Article 17).
- Second, it affirmed that the State Council is authorized to stipulate the declaration criteria for the banking sector, insurance sector and any other sector in order to insure that any policy designed towards a specific industry and/or area could be implemented accordingly (Section 3, Article 17).
- Third, the adjustment mechanism of the declaration criteria was designed for easier reporting to the State Council for approval and implementation. However, the specific regulations regarding a declaration of concentration were taken out in the final edition of the AML.
In March of 2008 the State Council issued the Provisions of the State Council on the Declaration of Concentration of Business Operators (Exposure Draft) in order to collect comments from the legal community. It states the following concerning when a concentration must be declared.Article 3:
1. the worldwide business volume of all operators involved in the concentration exceeds RMB9billion in the last accounting year, and the business volume in China of at least two operators exceeds RMB300 million in the last accounting year;
2. business volume in China of all operators involved in the concentration exceeds RMB1.7 billion in the last accounting year, and the business volume in China of at least two operators exceeds RMB300 million in the last accounting year; or
3. the concentration would cause the market share of all operators involved in the concentration to reach 25 per cent or more in the relevant market within the territory of China.
If left undeclared, the concentration is not allowed. The Exposure Draft has not been ratified by the State Council. It appears that the specific regulations on the declaration of concentration of business operators will instead be determined by the enforcement regulation of the AML.