When a merger, acquisition or joint venture is connected to the Chinese market and is treated as a concentration under China’s Anti-monopoly Law, a company’s first question to its lawyer is likely to be whether the transaction must be filed with the Ministry of Commerce.

The reason for the problem is clear. The law and relevant regulations state that a concentration which meets the filing threshold must be filed. However, the low threshold for filing a concentration in China means that the understaffed ministry has a large number of filings to review. As a result, filing is a time-consuming process. Chinese competition lawyers will also be aware that there are no specific provisions of law that penalise failure to file. Some undertakings weigh the risk of being caught against the potential time saving and choose to not to file, instead discreetly proceeding with the transaction. This practice has become an open secret in China.

On June 13 2011 the ministry published the Provisional Rules on the Investigation of Concentrations of Business Operators without Legal Filing (Draft Rules). A brief consultation period closed on June 23 2011. The publication of this set of rules closely follows the release of the Provisional Rules on the Assessment of Effects of Concentrations on Competition (Draft Rules). Both regulations represent further progress in the enforcement of China’s anti-monopoly legislation.

The Provisional Rules on the Investigation of Concentrations of Business Operators without Legal Filing (Draft Rules) elaborate on the procedure for investigating violations of the law, including the assessment of liability and penalties for violations. They state that in addition to the ministry’s right to investigate an unfiled concentration on its own initiative, any institution or person can report to the ministry to initiate an investigation. Articles 6 to 8 state that investigated operators must submit relevant evidence regarding the concentration, which the ministry will start to review within 60 days.

The draft rules provide that if operators are found to be participating in an illegal concentration, the ministry may:

  • block the concentration;

  • require the operators to dispose of the shares or assets involved in the concentration;

  • transfer the business within a prescribed period;

  • take steps to require the operators to restore their operations to the situation that existed before the concentration; and

  • fine an undertaking up to Rmb500,000.

Although the maximum fine is insignificant compared to the value of many concentrations, the potential damage to a company’s reputation and its relationship with the regulatory authorities is likely to be a greater deterrent. This draft regulation should provide the definitive answer to the question of whether to comply with a filing obligation.