Authors: Wan Jia, Liu Sichen

I. The Background Information of the Raised Question

The rapid spread of the COVID-19 pandemic has left a huge impact on business operations worldwide. For many companies, a business interruption (“BI”) that could result from this impact is a hazard which features among their greatest operational risks this year.

Although many companies are insured against BI, their coverage under their insurance policies may not extend as far as they believe. In legal practice, the question of whether BI caused by the infectious diseases is covered by a BI insurance policy provided has given rise to great controversy.

The mainstream view holds that BI insurance is generally an additional insurance to “all risk” or other types of property insurance, therefore only those losses consequent on property damage are covered by BI. However, if there are BI extension clauses such as the infectious disease clause expanding the scope of the covered losses, the BI losses caused by the infectious disease can be compensated based on the relevant applicable extension clause, even if the insured has not suffered from property damage.

Why is compensation under a BI policy be on the condition that “damage to property” has occurred? There are a number of historical and contextual factors behind this rule, and this article sheds some light on them.

II. The reason why the insurer’s BI loss must result directly from “damage to property”

BI in China is considered to be a foreign transplanted product. Most of the mainstream insurance companies in China adopt the terms similar to those in the insurance markets of the UK or the USA.

Taking the BI clause of a large property insurance company in China on record with China Banking Insurance Regulatory Commission for example, article 3 of the clause states that,

“[D]uring the insurance period, where the insured suffered losses on the property used for its business operations due to the risks covered by the main property loss insurance clause (hereinafter referred to as the “property insurance loss”), resulting in the interference or interruption of the insured’s business operations, the loss of gross profit thereof occurring during such indemnity period shall be compensated by the insurer in accordance with this insurance policy. The indemnity period mentioned in this insurance contract refers to the period from the date of the occurrence of the insured property loss, to the insured’s business continuously affected by the insured property loss, but the maximum period shall not exceed the maximum indemnity period agreed in this insurance contract [emphasis added].”

For its part, the London Business Interruption Association (“LBIA”) issued a BI guide which indicates that BI insurance compensates for the indirect losses resulting from direct property damage. In summarizing business interruption insurance liability practice in the UK, the LBIA guide provides that, “the insurer will pay the amount of the Consequential Loss resulting from interruption of or interference with the Business carried on by the insured at the Premises consequence upon DAMAGE to Property used by the Insured at the Premises in accordance with the undernoted definition.”  [1]

  1. BI is Established to Cover the Indirect Losses Caused by the Property Losses Which Would Not Be Covered by the Traditional Property Insurance

Traditional property insurance only compensates for the direct property losses of the insured subject matter against the risks within the scope of insurance liability, and the insurer is not responsible for indirect property losses of the insured arising from suspension of production, reduction of production, or business interruption, etc.

At the end of the 18th century and the beginning of the 19th century, after experiencing a significant increase in productivity owing to the Industrial Revolution, business risks increased. Traditional property insurance like all risks insurance, could not cover the indirect losses of profits due to the accidents. The time had come for a compensation policy based on recovery of daily losses. This became the prototype for modern BI insurance.[2]

Another earlier name for BI, Use and Occupancy Insurance, can better reflect its direct relationship with property losses. [3] Under this type of policy, the insurance company shall pay, according to the calculation method agreed in the insurance clauses, for the losses resulted from interruption of the insured’s normal use and occupancy of the insured property because of the insured property risk. Different disputes might arise in different cases because of the specific wording of the insurance clauses, but the general principle is that BI covers losses consequent upon damage to the insured property.

  1. The Losses Covered by BI Need to Be Calculated Based on the State of the Insured’s Damaged Property

As discussed, the idea behind BI insurance is to cover the indirect profit losses that result when an insured peril arises. The period of business interruption is the period required to repair or replace the damaged property, namely from the time when the insured must interrupt their business due to the occurrence of the insured accident to the time when the insured resumes business. BI will thereby ensure that the insured can still operate with the same business revenue it would have generated had the accident not occurred. That is, however, the limit of what BI insures: not a penny less, not a penny more. Therefore, the insurable interest of BI is the business profits brought by the insured property.

The above mentioned LBIA BI Guide summarizes the two mainstream calculation standards for UK BI losses as Gross Profit Basis (“GPB”) and Gross Revenue Basis (“GRB”). GBP calculates the losses by including the reduction of turnover and the increase in maintenance costs, and the latter, GRB, calculates the losses by referring to the amount which shall fall short of the Standard Gross Revenue. [4]

In China, the domestic underwriters will generally calculate the insured business interruption losses by referring to the losses during the indemnity period in terms of gross profit. The calculation involves three aspects: the loss of gross profit due to a decrease in operating income, the loss of gross profit due to an increase in operating expenses, and the saved costs because of the insured accident. The sum of the first two minus the amount from the third equals, generally, the gross profit losses that need to be indemnified.

  1. Even If there are BI Extension Clauses, the Establishment of Insurance Liability is Still Premised on the Incurred Risk of Losses of Damage to Property

The above calculation of BI losses is based on the premise that the insured property suffered from damage, and that damage led to BI losses. Based on different needs of the insureds from different industries, BI policies often have their respective BI extension clauses to extend the concepts such as the Insureds, Business types, Business Premise, etc., thus covering some circumstances intended to cover by the parties.

Common extensions of BI include Communicable or Infectious Diseases, Denial of Access, and Civil Authority Orders, among others. However, even if the extension clauses are applied to expand the scope of insurable losses, the premise for the establishment of BI liability of the insurer is still that it incurred insured risk of damage to the insured property.

It needs to be added that, in China, most BI insurance clauses provided by domestic insurance companies are as additional insurance  thus making the limit of the indemnity foreseeable. However, BI does not by itself need to be a form of additional insurance by considering its original purpose. If the underwriting risk and the scope of property can be clearly defined in the BI policy, there is no major threshold for the insured to apply for a separate and independent BI policy.

In practice, disputes arising out of BI will also concern the subsequent identification of insured risks, whether BI extension clauses including infectious diseases clause have been triggered, whether the claimed losses are caused by the damage to property, and the specific losses calculation method, etc. However, the premise that needs to be clarified is that BI does not cover all losses due to business interruption, but those losses caused by business interruption due to the losses arising out of the damage to insured property. Otherwise, all unforeseen circumstances that may affect the business of the company will be the cause of possible claims, deviating from the spirit of BI and its coverage of insurance liability.


[1]See Guide to business interruption insurance and claims, p5,Insured%20DAMAGE%207%20Indemnity%20period%207%20Turnover%208

[2] Tao Cunwen, Geng Yuting, “Overseas Business Interruption Insurance System and Its Enlightenment”, published in Insurance Research, No. 4 of 2008.

[3]Pamela Levin & Thomas H. Nienow, Business Interruption Coverage – Demystifying the Causation Analysis, 24 Brief 30 (1994).

[4]See supra 1, page 13, “Standard Gross RevenueThe Gross Revenue during that period in the twelve months immediately before the date of the occurrence of the incident which corresponds with the Maximum Indemnity Period”

China issues draft Data Security Law to solicit public opinions


Recently, the National People’s Congress released the Data Security Law of the People’s Republic of China (Draft) for public opinions (“Draft”).

Highlights of the draft include:

In order to establish data security system, the State implements:

  • data classification and grading protection system:The Draft provides that data should be protected by different levels and categories based the importance of data in economic and social development, and the degree of damage to national security, public interest, or the legitimate rights and interests of citizens and organizations once it has been tampered with, destroyed, leaked, or illegally acquired or illegally used. Relevant departments should formulate catalogues of important data to protect the data.
  • export control of data:The State exercises export control over data pertaining to controlled items related to fulfilling international obligations and maintaining national security.
  • retaliatory restriction:Where any country or region takes discriminatory prohibitions, restrictions or other similar measures against China in terms of investment and trade related to data and technologies related to data development and utilization, etc., China may take corresponding measures against the country or region according to the actual situation.

In carrying out data related activities, relevant entities should perform the following obligations to protect data security:

  • Establish and improve data protection systems:Data activities should be carried out in accordance with the provisions of laws, administrative regulations and mandatory requirements of national standards, to establish and complete data security management systems in all stages, organize data security education and training, and take corresponding technical measures and other necessary measures to ensure data security.
  • Carry out security assessments of important data:Processors of important data should conduct regular risk assessments of their data activities in accordance with regulations and submit risk assessment reports to the relevant competent authorities.
  • Implement restrictions on cross-border judicial assistance:If overseas law enforcement agencies require access to data stored in China, relevant organizations and individuals shall report to the relevant competent authority and provide it only after obtaining approval.

The Draft also exerts extraterritorial effect on the data processing activities. According to the Draft, organizations and individuals outside China who carry out data activities that damage the national security, public interests or the legitimate rights and interests of citizens and organizations of China shall be investigated for legal responsibility according to law.

For more information, please refer to


MIIT urges tighter management over call centers

The Ministry of Industry and Information Technology (“MIIT“) has recently distributed the Circular on Tightening Call Center Business Management (“Circular“) on June 8, 2020.

The Circular touches upon six aspects, namely stepping up entry management, tightening management of codes and numbers, ramping up access management, beefing up management of business behaviors, miscellaneous, and work requirements.

The Circular calls on enterprises running call centers to improve their own internal management and control mechanism and use technical means to strictly control outbound calls, prohibits them from making or facilitating crank calls, requires them to safekeep at least 30 days phone call records and other information, bans them from leasing out or reselling, without approval, voice trunk lines and other telecommunications resources and from illegally altering or concealing the telecommunications access numbers, and urges them to ensure safety of clients’ personal information.

The Circular clarifies that those who only provide call center systems and seat rental services also belong to operating call center business, and requires relevant operators to verify the legitimacy of user voice trunk and numbers and prevent harassment of calls. The Circular also clarifies that the types of self-use, manpower outsourcing, and technical services do not belong to the business of operating call centers.

After the issuance of the Circular, the enterprise shall carry out a self-examination. Relevant departments will also carry out inspections on operations of the call center business.

For more information, please refer to


MIIT to carry out the 2020 Network and Data Security Management in Telecommunications and Internet Industry


Recently, the Ministry of Industry and Information Technology (“MIIT”) issued the Notice on Doing a Good Job of Network Data Security Management in the Telecommunications and Internet Industry in 2020 (“Notice”). The Main content of the Notice includes:

  • Deepening special governance of network and data security in the industry;
  • conducting in-depth evaluation of network and data security compliance;
  • Speeding up the construction of network and data security system standards; and
  • Improving technology guarantee capabilities of network and data security.

For more information, please refer to


Guidelines on Financial Data Security Classification to be released


It was reported that the China Financial Standardization Technical Committee recently issued a notice that the Financial Data Security – Guidelines on Financial Data Security Classification (“Guidelines”) have been submitted for formal approval.

According to the draft version of the Guidelines, the influence (such as the possible damage, loss and potential risk) caused by the damages on the data’s security (i.e. confidentiality, integrity and availability) is a critical criterion to determine the security level of the data. The main factors to be considered are:

  • Object that may be influenced, including national security, public rights and interests, personal privacy and enterprise’s legitimate rights and interests; and
  • Possible degree of influence, including very serious, serious, medium and light.

Taking into the two factors above above, the Guidelines classify the security level of financial data from the highest level, level 5, to the lowest level, level 1. The level 4 data corresponds to the C3 information of personal financial information; the level 3 data to C2 information and level 2 data to C1 information.

In February 2020, the People’s Bank of China released the Personal Financial Information Protection Technical Specification, which classifies the personal financial information into C3, C2 and C1 based on the sensitivity of the data.

For more information, please refer to


MOT: Transport-related scientific data should be shared with the society conditionally

Recently, the Ministry of Transportation (“MOT”) released the Measures for the Management of Transport-Related Scientific Data (Draft for Comment) (“Draft Measures”) for public consultation.

The Draft Measures provide that the transport-related scientific data (“Scientific Data”) should be open to the society and relevant departments on the principle of opening as the norm and not being the exception. The relevant departments will formulate an open catalog of the Scientific Data, to classify Scientific Data into three categories, i.e. unconditional sharing, conditional sharing and not sharing, and to clarify the confidentiality level and confidentiality period, open conditions, open objects and audit procedures, etc. of Scientific Data.

The Draft Measures further clarify the attribution of intellectual property rights of Scientific Data. The Measures stipulate that users of Scientific Data should abide by the relevant provisions on intellectual property rights, and indicate the Scientific Data used and referenced in the publication of papers, patent applications, and monograph publications. Providers of Scientific Data have the right to preferential use of data. If others apply for the use of data, the scientific data center in the industry may provide it to the applicant subject to the written consent of the Scientific Data provider.

The Measures also stipulate the principle of paying for using Scientific Data. For the use of Scientific Data for business activities, the parties should sign a paid service contract, clarifying the rights and obligations between them.

For more information, please refer to


Zhejiang Province: Public data should be shared with the society conditionally. 


Zhejiang provincial government released the Interim Measures of Zhejiang Province for Public Data Opening and Security Management (“Measures”) on June 4, 2020.

The Measures define the “public data” as various types of data resources obtained by administrative agencies at all levels and public institutions with public management and service functions (hereinafter collectively referred to as “public management and service agencies”) in the course of performing their duties according to law. Relevant departments in Zhejiang province will compile open catalog and supplementary catalog for public data in the province. According to the degree of risk of data opening, public data is divided into three categories: unconditional opening, restricted opening, and prohibited opening.

For restricted opening public data, the open subject shall not set discriminatory conditions and shall disclose to the society a list of the restricted public data that has been obtained. Citizens, legal persons and other organizations may propose to the open subject the service requirements for access to restricted open data.

Citizens, legal persons and other organizations may also raise the demand for data open services outside the open catalogue of the public data. Public management and service agencies should conduct assessments and reviews in accordance with the provisions of these Measures and inform the demanders of the relevant processing results.

For more information, please refer to


Shanghai Communications Administration to carry out the 2020 Shanghai Network Security Inspection in Telecommunications and Internet Industry

On June 22, 2020, Shanghai Communications Administration released the Notice on Carrying out the Network Security Inspection of the Telecommunications and Internet Industry in 2020 (“Notice”). according to the Notice, key entities to be inspected are basic telecommunications companies, value-added telecommunications companies, industrial Internet platform companies, operators of critical information infrastructure, operators of mobile Internet App, Shanghai. The inspection will focus on:


  • implementation of the grading and recording, compliance evaluation and security risk assessment by communication network entities;
  • check and identification of critical information infrastructure in the industry;
  • security protection of industrial Internet platforms and network connected industrial control equipment;
  • data security and personal information protection. Emphasis will be put on the inspection of unlawful collection and use of personal information by Apps;
  • network security management and technical protection; and
  • increased awareness of network security among industry practitioners.

The Notice requires enterprises should complete the self-inspection before July 31, 2020 and Shanghai Communications Administration will conduct random inspection before August 31, 2020.

For more information, please refer to


If you would like to receive our legal update via email, please contact

For more information, please contact:

Samuel Yang | Partner

AnJie Law Firm

P: +86 10 8567 2968
M: +86 1391 0677 369

Authors: Song Ying,  Yang Yuhui, Hannibal El-Mohtar

(Attribution: George Becker)

Antitrust law is growing in importance in China. Penalties from Chinese antitrust cases continue to grow, and Chinese regulators are known for taking swift action against conduct they believe is anticompetitive. In February 2015, Qualcomm paid almost $1 billion US to end an investigation by Chinese antitrust authorities, and this spring Chinese authorities imposed maximum fines  (10% of a firm’s annual turnover) against three suppliers of pharmaceutical ingredients for unfair pricing (Shandong Kanghui Medicine, Weifang Puyunhui Pharmaceutical, and Weifang Taiyangshen Pharmaceutical).

Alongside increasing administrative action, Chinese firms increasingly bring private antitrust actions against rival companies, particularly in the technology sphere. Often, these suits will be accompanied by an administrative complaint that could lead to an investigation and sanctions. In order to better understand the antitrust risks facing foreign enterprises in China, this legal brief clarifies China’s hybrid antitrust system.

In China, Plaintiffs can enforce the Anti-Monopoly Law themselves through private antitrust actions

China’s anti-monopoly and antitrust regime is a hybrid system that includes public enforcement alongside private rights of action. Public enforcement refers to the administrative anti-monopoly investigation and law enforcement activities carried out by authorized enforcement agencies. Private rights of action mean rights held by private entities or natural persons impacted by anti-competitive conduct to enforce the Anti-Monopoly Law (the “AML”) through a civil court proceeding.

The basis of civil anti-monopoly litigation in China is Article 50 of the AML. This provision stipulates, “[t]he business operators that carry out the monopolistic conducts and cause damages to others shall bear the civil liability according to the law.” For its part, the basis for antitrust investigation is Article 38 of the AML. This provision stipulates, “[t]he Anti-monopoly Law Enforcement Agency shall investigate any suspicious monopolistic conducts according to law. Any entities or individuals may tip off any suspicious monopolistic conduct to the Anti-monopoly Law Enforcement Agency. The Antimonopoly Law Enforcement Agency shall keep the informer confidential.”

To file a civil lawsuit against an undertaking which engages in monopolistic behavior in accordance with Article 50 of China’s AML, an individual or a company must first prove that they meet the necessary requirements under Article 119 of the Civil Procedure Law (CPL). These requirements are as follows:

  • The plaintiff is a citizen, legal person or other organization that has a direct interest in the case,
  • There is a definite defendant,
  • There are concrete claims and factual reasons, and
  • Claim(s) within the accepted scope of civil actions by the people’s court and within the jurisdiction of the people’s court.

However, in China the plaintiff need not always suffer a direct loss. Although in practice that is most often the case, according to Article 1 of Provisions of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct, any natural person, legal person or other entity can have standing to bring an antitrust claim as long as it suffers losses. Specifically, they may bring such a claim based on disputes over contractual terms, articles of association, and terms of other agreements which might fall afoul of the AML.

An increasingly common source of claims flowing from direct losses are consumer complaints. While the AML mainly aims at safeguarding consumers’ interests, protecting fair market competition and public interests, in practice, it was uncommon in the past for consumers to bring an antitrust lawsuit. Reasons may have included the high cost of litigation, imbalanced positions in legal proceedings, low rewards, and that there are no “class actions” in China like there are in the US and other jurisdictions. Accordingly, the plaintiff is often a competitor or a firm that is upstream or downstream relative to the defendant. However, consumer antitrust actions are increasingly common in China, and may continue to rise in importance relative to commercial antitrust suits.

Of note, the AML may have extraterritorial application. There is reason to believe that private actions can be brought against firms for their conduct outside China, as long as this conduct has anti-competitive effects within China’s market. In Hytera v. Motorola System, Hytera filed a lawsuit against Motorola Systems in the Shenzhen Intermediate People’s Court on March 25, 2019, for abusing its dominant market position with respect to one of its Standard Essential Patents (“SEP”).  It sought a court order against the defendant to immediately stop abusing its dominant market position and filed a claim for damages totaling 70 million yuan.  Even though the anticompetitive conduct happened outside China, the case was accepted after the plaintiff showed prima facie evidence proving anti-competitive influence in China’s market. This suggests that the AML has extraterritorial application.

Plaintiffs Often Strategically Launch Parallel Administrative and Private Actions in China

(Attribution: Syed Hasan)

In China, administrative enforcement by an antitrust enforcement agency is not a precondition for initiating a private anti-monopoly claim. Article 2 of the Provisions of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Civil Dispute Cases Arising from Monopolistic Conduct provides that, “[n]o matter whether the plaintiff brings a civil suit directly to the court, or brings a civil suit to the court after the anti-monopoly law enforcement agency’s effective decision that the action constitutes a monopoly act, if other requisite requirements for acceptance stipulated by law have been fulfilled, the court shall accept the case.”

At this juncture, it is noteworthy to highlight a distinction between private and public actions in China. With regard to civil litigation, according to the Civil Procedure Law and other relevant laws of China, as long as the plaintiff meets the conditions for initiating a claim, the court is required to file a case. However, the State Administration for Market Regulation (“SAMR”) is not obliged to start an investigation after receiving tip-off materials from a natural person or private entity and retains full discretion on whether or not to initiate an action.

However, in practice complaining to the antitrust authority and lodging a civil antitrust claim in parallel has become a “strategy” that plaintiffs increasingly use in China. The plaintiff may bring a civil action before a court and also report the suspected antitrust violation to SAMR. This can lead to multiple, simultaneous proceedings involving the same or related facts. In the case of Huawei v. InterDigital Technology Corporation (“IDC”), Huawei sued IDC for abusing its dominant position in March 2013 before the Intermediate People’s Court of Shenzhen and obtained a favourable judgment. IDC appealed. The judgement from the High People’s Court of Guangdong was entered in October 2013. Meanwhile, in June 2013, the National Development and Reform Commission (“NDRC”, which prior to SAMR’s formation in 2018 had antitrust authority) launched an antitrust investigation against IDC. This case was suspended and ultimately terminated after IDC made commitments that NDRC accepted.

At law, courts do have discretion to stay a private antitrust claim pending resolution of an administrative action, but in practice it is rare. Based on our experience with parallel private antitrust suits and administrative antitrust investigations, courts do not avail themselves of this discretion to stay the hearing.

In considering such parallel antitrust proceedings, it is also unclear whether China’s civil law judges approach evidence collection differently than common law judges. As regards the evidence, parties to the action are entitled to apply to the court to collect relevant evidence from the parallel administrative investigation. Chinese courts do have discretion to use their inquisitorial powers (China’s civil law judges have greater fact-finding powers than common law judges) to request such evidence from antitrust authorities of their own initiative. However, whether and to what extent they elect to use this discretion in practice is still unclear.

(Attribution: Sk)


This year marks the 12th year of the implementation of the AML, and the newly drafted AML (Draft for public comment) was published in January 2020. In both public enforcement and private actions since the AML’s passing, caselaw has developed considerably, alongside greater institutional experience. However, there are still some issues, in particular coordination between administrative and judicial proceedings, which need to be solved through legislation or judicial practice. Especially considering the unavailability of class actions in China, it is hoped that coordination and unity between administrative law enforcement and civil judicial practice can help both play a greater guiding role in the antitrust compliance of operators and the protection of market competition.

Have questions about complying with China’s antitrust laws? AnJie is a leading Chambers ranked firm with a leading PRC Antitrust practice. AnJie’s practice features one of the largest and most experienced antitrust teams in mainland China.

Feel free to send consultation requests to An Na ( or An Chencheng (

Authors : Wan Jia, Hannibal El-Mohtar

I. Is China’s insurance market worth investing in?

It is no secret that China’s insurance industry presents good upside growth opportunities. According to the 2018 Report on Global Insurance and Market Research released by Allianz Group, “Nearly 80% of the total 60 Billion Euros increase in global premiums came from China, and China witnessed a continuously strong growth momentum in life insurance, replacing Japan and becoming the biggest life insurance market in Asia.”

That many foreign insurers are bullish on China is also nothing new. Last month, the CFO of Manulife Financial Corp said the company would be “very happy” to increase its 51% stake in the Manulife-Sinochem Life Insurance Company Ltd., their joint venture with Sinochem Finance Co. Ltd. As far back as 2018, Sun Life Chief Executive Dean Connor expressed openness to increasing their 25% stake in their Sunlife Everbright Life Insurance joint venture to 51%.

II. What are the new rules on foreign investment for insurance companies in China?

What has attracted the growing interest of foreign insurers are the regulatory changes permitting greater market access for foreign investors.

As of January 1, 2020, foreign investors are allowed full ownership of Chinese life insurance companies. Additionally, in the China-US Phase One Trade Deal (the “P1 Deal”), China also agreed to remove the foreign equity caps for pension health insurance. China also committed to remove all discriminatory regulatory requirements and processes, and expeditiously review and approve license applications from foreign investor.

That’s not to say there’s no uncertainty. In the first four months of 2018, premium income at China’s Life Insurers tumbled by 13.6 per cent year on year for the first four months of 2018, after the industry regulator (China Banking and Insurance Regulatory Commission, “CBIRC”) cracked down on issuing short-term policies it blamed for causing financial instability.

III. What are the growth prospects for Insurtech in China?

“Insurtech” refers to technology used to disrupt or innovate within the insurance sector. One prominent form of Insurtech is Usage Based Insurance (UBI), which relies on algorithms to analyze the insured’s data, together with external information, to generate a bespoke risk score. One UBI example, known as “pay-as-you-drive” insurance, collects mileage information through telematics (including the car’s “black box”) and relays the insured’s driving behaviour to the insurer in real-time.

China is one of the fastest growing Insurtech leaders in the world. Thanks to heavy investment from Alibaba, Tencent, and Baidu, the sector now features an e-commerce ecosystem that is 50 times larger than that of the United States. For those who can capitalize on the growth of the Chinese insurance market, the potential for returns are vast.

This is particularly so for insurers who can move into the e-insurance space. Chinese consumers are leapfrogging traditional written insurance policies and going straight to digital policies, many of them hyper-targeted micro-policies supported by big data gathered from e-commerce giants like Tmall.

For instance, one company, ZhongAn launched four years ago as the first China online-only insurer. It provides a micro-premium model through Wechat, a Chinese social messaging platform similar to Facebook Messenger. It has since sold 6 billion policies to nearly 500 million people, and in Q1 of this year it reported net profits of CNY327m ($46m) for the first three months of this year, outperforming the insurance industry at an increase of 15.6% over the corresponding period last year. Yet, it still only has 1 percent of the market. ZhongAn recently launched a joint venture in Hong Kong and received its online insurance license in May.

Combining the huge consumer base with the heavy investment in e-commence sector, there is imaginable space for Insurtech in China’s future.
IV. Do I need an ICP license to gain access China’s Insurtech market?

A commercial Internet content Provider license (an “ICP”) allows a company to sell to Chinese consumers through a web domain and house the server within China. It is issued by the Chinese Ministry of Industry and Information Technology (the “MIIT”). An ICP a) ensures compliance with Chinese laws internet laws (i.e., gives the investor peace of mind that the site won’t be blocked) and b) allows for faster online service for visitors. Another ICP variant, the Bei’an (filing), also allows foreigners to create a Chinese website, but the Bei’an website may only be used for promotional purposes and does not support online transactions.

As of 2015, foreigners are legally allowed to apply for and hold ICPs through Wholly Foreign Owned Enterprises (WFOEs). See Notice of the Ministry of Industry and Information Technology on Removing the Restrictions on Foreign Equity Ratios in Online Data Processing and Transaction Processing Business (Operating E-commerce) [2015], This means that the Variable Interest Entity (VIE), an oft-used but more complex investment for the Chinese tech industry, is not necessary to obtain an ICP and enter the Chinese Insurtech market.

However, is an ICP truly necessary? Defying the internet laws in China can result in your website being blocked, permanently, among other serious risks to be avoided.

That said, an ICP isn’t strictly necessary to sell insurance products in China. If a foreign insurer wishes to sell insurance products through an existing ecosystem like Wechat, as ZhongAn does, then they may be able to rely on Wechat’s ICP. To do so, they would need to first obtain a WFOE, obtain an insurance permit from CBIRC, and then obtain approval to sell online insurance products from the Insurance Association of China (the “IAC”). Once this permitting process is complete, the foreign insurer can use a commercial Wechat account (“Gongzhonghao” 公众号), or another ecosystem with an ICP, as a platform to legitimately sell localized insurance products.

However, if a foreign insurer wishes to rely on their own platform, then an ICP will be necessary. Selling insurance policies through a mobile application, or processing transactions locally through a website, will both require an ICP.

V. What other key considerations are there for participating in China’s Insurtech market?

Big data is essential to any insurer’s Insurtech strategy, and in the China market that means collecting and storing personal information about Chinese citizens. This engages a bevy of compliance obligations for foreign and domestic insurers alike.

China’s data privacy laws initially followed the US’ more lax approach to privacy protection, but more recently have changed to more closely mirror Europe’s more stringent GDPR rules, and now include strict provisions on privacy, security, and data localization. Under Article 37 of China’s Cybersecurity Law (2017, the “CSL”, English text), Chinese citizens’ personal data, together with critical business data collected during operations in China, must be stored within mainland China, and companies must undergo a security assessment before exporting such data across the border. Also since 2017, rules for the protection of personal data, and responsibility for data protection, are now included within the Chinese Civil Code (Article 111).

There are severe penalties for failure to comply with the CSL. Public security organizations ( police) may levy fines of up to RMB1,000,000 Yuan when service providers infringe on users’ personal data in violation of CSL Articles 22 (malware and remedial measures), or 41–43 (data consent, notice on use and purpose of collection, mandatory breach notifications, and the user’s right to delete or amend personal data on request). Violating CSL Article 27 by “engaging in activities harming cybersecurity” or aiding and abetting the commission thereof results in an equally serious fine. For comparison, the GDPR imposes fines as high as 4 percent of a company’s turnover from the previous year. Personal data privacy and security are increasingly prominent features of digital data compliance regulations around the world, and as we can see, China is no exception.

Recently, additional rules were introduced under the CSL. As of June 1, new rules came into effect (in accordance with the CSL together with the PRC’s National Security Law) in the form of the 2020 Measures on Cybersecurity Review (the “Measures”). Under the Measures, companies buying networking products and services that could affect national security, Critical Information Infrastructure (“CII”) operators, must undergo cybersecurity evaluations for vulnerabilities.

It is unclear which kinds of companies will be designated as CII operators, but companies in the financial and insurance sectors will in all likelihood be affected (and may have their procurements monitored directly by the People’s Bank of China). This is because according to Article 20 of the Measures, products and services that can be reviewed include a wide range of equipment and programs that are essential to providing Insurtech services :
• core network equipment (核心网络设备),
• high-performance computers and servers (高性能计算机和服务器),
• mass storage equipment (大容量存储设备),
• large scale databases and applications (大型数据库和应用软件),
• network security equipment (网络安全设备),
• cloud computing services (云计算服务), and
• other network products that may have an impact on CII (以及其他对关键信息基础设施安全有重要影响的网络产品和服务).

The Cyber Security Office, located within the National Internet Information Office, is to review cybersecurity filings and may review and set other standards and regulations in accordance with the law. Of concern to foreign Insurtech investors, one factor it is allowed to consider in reviewing filings is the “risk of supply disruption due to political, diplomatic, and trade factors” (the Measures, para 9(3)).

Moreover, additional rules are already scheduled for implementation. On October 1, 2020, the Information Security Technology – Personal Information Security Specification (GB/T 35273-2020) (the “PI Specification”) comes into effect and replaces the November 2017 version (GB/T 35273-2017). Under the PI Specification, the definition of “Personal Sensitive Information (“PSI”) is expanded to include information created by the Personal Information Controller (“PI Controller” which is the organization that decides the purpose and ways to process Personal Information, “PI”) which, if leaked or mismanaged, may harm the security, personal reputation, or health of the PI subject (3.2). The definition of “Consent” is narrowed to require clear authorization expressed through an affirmative act, unless implied consent is given (3.6). Importantly for Insurtech investors, User Profiling (“UP”) may not result in discrimination based on ethnicity, race, religion, disability, or disease. PI Controllers also must ensure that their UP does not endanger “national security, honor or interests, incite subversion of state power, instigate secessionist activities, or disseminate terrorism, radicalism, ethnic hatred, violence or obscenity” (7.4). When providing their business functions, PI Controllers must also give users the ability to control the degree and extent of “Personalized Display”: the display of information and search results for products or services based on the individual’s PI, such as their internet browsing history (3.16). PI Controllers with more than 200 employees or the PI of more than 1 million individuals must nominate PI Protection Personnel (PPP) and establish a PI Protection Department (11.1). These rules are not exhaustive, and there are other regulations on PI processing, collecting and storing personal biometric information, third-party connection management, and bundled consent for multiple business functions.


China’s Insurtech market continues to grow at breakneck speed. Foreign insurers are currently underrepresented in this market, even as former market barriers to entry continue to fall. This market presents great potential for foreign insurers, and Western insurers in particular have centuries of experience to share with their Chinese counterparts.
While investing in China is never simple for foreign companies, in light of the 2020 foreign investment reforms it is now without a doubt more practical than ever. A WFOE, the requisite insurance permits, and a Gongzhonghao are now enough for a foreign insurer to get started in China’s Insurtech market. No ICP is necessary; neither is a complex VIE investment vehicle headquartered in the Cayman Islands.

However, in leveraging big data to support their Insurtech operations, foreign investors must take great care to adhere to China’s CSL. Data localization, security review requirements, and increased protections for Chinese citizens’ personal and data privacy together present compliance challenges more commonly seen in Europe with the GDPR. These rules, especially the new rules coming into force on October 1, 2020, may disproportionately affect Insurtech and other investors that rely the most on big data.

Still, sustainable growth, social benefits, and increased competitiveness lie ahead for those willing to seize the opportunities presented by China’s Insurtech market. Organizations that are slow to embrace these new opportunities may later find it harder to enter the Chinese market due to increased competition. As home grown Chinese Insurtech companies expand abroad, established insurers who overlook the Chinese market may also find it harder to compete and retain their existing prominence in the global market.

China’s Luckin Coffee (Luckin), seen as Starbucks’ main contender in the country, has seemingly run short on luck.

On May 12, the coffee chain fired its chief executive Jenny Zhiya Qian and chief operating officer Jian Liu. And on May 19, New York’s Nasdaq requested the company to delist from the exchange.

These are only the latest events in the company’s massive accounting scandal. The saga began in April, when it became known that Luckin fabricated US$310 million in its 2019 sales. Its stock subsequently plummeted by around 80%.

D&O has been lukewarm in the Chinese market since its first appearance around two decades ago.” Hao Zhan, Anjie Law Firm

In May 2019, Luckin Coffee completed its Nasdaq IPO. But before its listing, the company purchased a US$25 million directors’ and officers’ liability insurance (D&O) underwritten by several insurers – including majors Ping An, China Pacific Insurance Company (CPIC), Allianz and Zurich.

As of May, it is understood that Ping An has already received and is processing a D&O claim from Luckin. The Shenzhen-based insurer has not yet responded to a request for comment.

Corporate governance in China has undergone greater regulatory scrutiny in the last decade. Alongside regulatory developments, this latest episode involving coffee and falsified books, means that D&O insurance may stand to make gains in-country.

Limited uptake
D&O cover protects a company’s senior leadership and any potential legal claims against them, however, D&O has had a poor uptake in China.

Hao Zhan, managing partner at Beijing-headquartered Anjie Law Firm, told InsuranceAsia News (IAN): “D&O has been lukewarm in the Chinese market since its first appearance around two decades ago.”

Zhan added that interest has been limited to Chinese companies listed in overseas securities markets, or financial institutions under strict scrutiny from the Chinese regulator.

The D&O purchase rate among listed companies in China has been around 2% since 2002. In the US, the uptake is around 90%, and around 80% in the EU, Canada and even Singapore.

There has been low traction for this type of coverage as a result of PRC legislation loopholes regarding corporate directors’ and officers’ liability, notes Zhan. General provisions exist in PRC Company Law to address D&O liability he says, but the lack of concrete guidelines and detailed penalties mean that in reality, claims have rarely been filed.

Zhan added: “The power of the majority shareholder to manipulate a company’s governance structure also hinders [parties] from claiming damages.”

Global markets are pinning their hopes that China’s financial institutions are maturing and corporate governance evolving.

AIG pronounced in 2017: “D&O is still in its relative infancy throughout Asia, but this is likely to change — especially in China. Risks and liabilities that didn’t exist in past years loom large for growing Chinese businesses… that require complex corporate governance standards.”

Regulatory developments
Many attribute the focus on corporate governance to the new securities law that Beijing passed in March.

“[It] punishes companies’ securities violations by including provisions that put in greater investigation efforts for fraudulent offering, information disclosure which violates the provisions, failure by intermediaries to carry out due diligence, as well as market manipulation, insider trading, making use of unpublished information to carry out securities trading, and other acts which seriously disrupt market order,” noted Zhan.

The state’s public records show that 23 companies in 2019 purchased D&O. In 2020, 72 companies in Shanghai and Shenzhen alone have announced plans to buy D&O coverage.

Inquiries and purchases have been on the rise — as more questions are being asked about relevant D&O litigation due to the pandemic outbreak.

Looking at April, right after the Luckin scandal broke and the new regulations were passed, there were 30 listed companies who issued D&O plans — more than twice the amount than in the previous quarter.

And prior to 2020, the state was already paying greater attention to corporate governance. 2018 saw the PRC Company Law revised in corporate governance-related issues — such as the effectiveness of corporate resolutions, the shareholders’ representative litigation, remedy measures of minority shareholders and more, says Zhan.

That year, the China Securities Regulatory Commission also issued guidelines on governance of listed companies, moving to market-oriented and law-based reform.

Rule changes in Hong Kong have previously seen an uptake in policy purchases.

A case study, AIG saw a 47% increase from 2012 to 2016 — in the latter year, the firm paid out US$13.6 million in claims from its Asia Pacific D&O policies. The leap in uptake came after the Hong Kong Stock Exchange revised its rules to a “comply and explain regime . . . compelling virtually all publicly-listed companies to take up a D&O policy,” according to Jason Kelly, AIG’s head of international financial lines.

Regulatory enforcement action was the main driver of growth — with the insurer estimating regulatory investigations accounting for up to 90% of claims cost in Hong Kong.

More change ahead
Companies who purchase D&O can allow for their execs  to make decisions without the threat of personal liability and thus inspire creative company decisions – something that will be beneficial to a weaker economy.

Zhan explains: “D&O… complies with the trend of protecting the rights and interests of investors. Although there exists the [notion] that D&O insurance [may] encourage bad behaviour – with the developing pace of the securities and insurance markets, D&O can give great imagination to Chinese underwriters.”

And just like most things in recent months, D&O has also been impacted by Covid-19. Inquiries and purchases have been on the rise — as more questions are being asked about relevant D&O litigation due to the pandemic outbreak.

As China’s regulations and enforcement become more geared towards similar goals, the development of D&O is one to watch closely.

Authors: Zhan Hao、Wan Jia


In the beginning of 2020, Luckin Coffee event brought the attention from the insurance, legal and security industries to the directors and officers liability insurance policy (“D&O”) in China. In this event, Luckin Coffee, which is listed in the US and called Chinese Starbucks, found trapped in the security fraud scandal, and some class actions have been filed in the US against Luckin Coffee and its officers.

When Chinese society found D&O insurance coverage behind those American litigations, Luckin Coffee event inspired curiosity towards to D&O insurance, and insurance sector quickly remembers this transplanted product.


The uneven road for D&O insurance in China

During the previous years, D&O insurance actually has been lukewarm in China market after its first appearance around two decades ago, and the patronage to this transplanted insurance product has been limited to Chinese companies listed in the overseas security market or some financial institutions under the stringent scrutiny from China regulator.

The reason for such embarrassing performance is obvious, which is relevant to the loophole in PRC legislature about the liability of corporate directors and officers.

First, even though some simple and general provisions exist in PRC Company Law to address the loyalty and diligence responsibility for directors and officers, but the lack of the concrete guidelines and detailed penalty usually results in the fact that rare claims have been filed towards directors or officers in reality. The derivative action has been injected into the docket of Chinese tribunal for quite some years, but the practicality of action is so premature that potential plaintiffs are hesitant to file a real action against those directors and officers.

Second, the governance structure of some companies is abused by the majority shareholder or actual controller, who would ignore the interest of minority shareholders or beneficiaries, and let alone the creditor’s right. When the majority shareholder or actual controller pull strings behind corporate mask, directors or officers are manipulated, and this multifaceted tragedy stop victims from claiming damages for directors or officers.

Third and last, the precondition for the security fraud litigation, which requests the regulatory penalty be imposed to swindler before the civil actions, has hider Chinese security investors from filing litigation during the past years.

To perfect the directors and officers liability, improve the corporate governance structure and address the protection towards investors, the hail for claim to directors and officers is loud, but the business volume for D&O underwriter has been miserable.

Coincidentally, in 2020 China D&O insurance market comes across two events, the revision of Chinese Security Law and Luckin Coffee event, which are beneficial for the take-off of D&O insurance.

The newly revised Chinese Security Law strengthens the liability for directors and officers, and this revision possibly leads to the increase of claims under D&O insurance, or at least in theory.

Luckin Coffee event dominated the headline of Chinese media for almost two weeks after it announced that its COO committed fraud, and the news ranges from the fraudulent details, China security authority denouncement and D&O insurance coverage. Even under the background of corona viruse, Luckin Coffee stimulates the fierce discussion among the insurance, legal and security circles in China.

Factually, D&O insurance goes to the spotlight this time, but there are not many people know that D&O coverage has been litigated quite some times in Chinese courts, while most of litigations did not go into public due to settlement. The disputed issues about those D&O insurance cases are comprehensive and of interest worth being noted.


The scope of insureds

One of the disputed points is about the scope of the insureds. In some countries outside China, there are three D&O models, called side A, side B and side C.

Side-A provides coverage to individual directors and officers when their losses are not indemnified by the company as a result of law prohibition or financial incapability of the company. However, exclusions may apply if a company simply refuses to pay the legal costs of a director or officer. Side-B provides coverage for the company (organizations) when it indemnifies the directors and officers (corporate reimbursement). Side-C provides coverage to the company (organizations) itself for security-related claims brought against it.

In China market, all those three coverages could be found. With respect to Side-B policy, the insureds are the companies rather than individuals. The occurrences regarding D&O often are about the scandals of China-domiciled corporations, which have been listed in American stock market, but were involved in security fraud, and aroused class actions in the US. For most cases, the final controller for such listed corporations are Chinese citizens or residents, but some CEO, CFO and COO are not Chinese citizens or residents. Thus when facing investigation or class action, the final controller sometimes chose to ignore the claims or investigations simply since the controller has no intention to sustain the corporation, but those directors and officers could not afford such ignorance. After paying for legal costs in the action against directors or officers on their own, directors or officers could not find or force corporation to reimburse themselves. When they approach Chinese insurers for insurance compensation, it is not a surprise to expect the refusal because those individuals are not insureds under Side-B policy.


The disclosure duty of applicant

In accordance to Article 16 of PRC Insurance Law, the insurance applicant shall fully disclose the risks relevant to the contemplated policy. Different from the other jurisdictions, PRC law only requests applicant to answer the specific inquiries from insurer. Without inquiry, even if applicant might know the potential exposure to risk, it is not obligatory for applicant to disclose such information. With respect to the D&O insurance sold in China market, the majority of applicants bought policy through brokers, and actually brokers handled the inquiry procedure and collected the disclosed information. Since China law does not allow the general inquiry from insurer, how to construct the valid and specific inquiries would be challenging to insurers and its agents.

The rhetoric issue always trigger dispute about the contents of disclosure, and it finally touches the utmost good faith doctrine in PRC Insurance Law. Among the often-asked questions by insurers, how to interpret the previous circumstances before the policy inception, how to define the information known or should have been known by applicants, and how to verdict the violation of Sarbanes-Oxley Act are focuses for the confrontation between insured and insurer. Since those D&O insurance policies are governed by PRC law, but their wording is full of jargons extracted from American law in the meantime, naturally the interpretation of policy also becomes hot debate in court trial.

For the information already known or should have been known by insurer, applicant is not obligatory to disclose such information to insurer. Some interesting episodes were about US investigation, which was denied to be known by applicant during the process of insurance application, but in fact the investigation information had been public in the website of SEC or other sources before policy inception. Should those imputed information be deemed as being known by insurer already, or would tribunal could impose a duty of due care to Chinese insurers to scrutinize the foreign authority websites in English?


The conflict and connection for the different layers coverag

In China market, some D&O policies are in the form of excess insurance, in which the primary insurer is first responsible for defending and indemnifying the insured in the event of a covered or potentially covered occurrence or claim. An excess policy provides specific coverage above an underlying limit of primary insurance. The dilemma for such multiple layers insurance is the primary insurer is foreign one, but the second or above insurers are Chinese ones. The second or above layers insurers shall follow the indemnification decision from the underlying layer insurer, or they could make decision at their own discretion?

Things would be more complicated if the different layers policies use laws from different jurisdictions as governing laws.

During the previous cases, tribunal preferred to take approach in which upheld the different layer insurers to have independent decisions to handle the claim unless otherwise stipulated in the policy.


The separation of liabilities

If one specific officer fails in his/her disclosure obligation or triggers the exclusion clause such as intentional act, could it excuse insurer from liability to other insureds? In most D&O policies, there are clauses to separate the insurance liability among the insured directors or officers, but those standard clauses encounter lots of challenges in trail. It is hard to believe that a CEO’s fraudulent behavior could be segregated from other subordinate officers, or a CFO could make fraudulent financial statements without approval or knowledge from the directors or CEO.

In those scenarios, how to allocate the burden of proof between insured and insurer would be of essence for trial result. It is obviously unfair to impose a higher standard of burden of proof to insurer, who is an outsider to a corporation. In the meantime, the absence of discovery procedure in China litigation disables insurer with practical means to discern the real picture of fraud, to clearly figure out the collusion of directors and officers.

Some desperate insurers want to depend on the police to dig out the fraud details, but Chinese police seldom investigates the suspected crime because the suspected crime happens outside of China, and victims usually are not Chinese citizens.

Today, accompanied by the security law amendments and some fraud occurrences, D&O insurance stumbles to spotlight again after a long period of silence in China. With the developing pace of security market and insurance market, the refreshed D&O insurance gives imagination to Chinese underwriters.

Authors: Michael Gu / Sihui Sun / Grace Wu [1]



The year 2019 marked the 11th anniversary of the implementation of the Anti-monopoly Law and was also the first full calendar year since the State Administration for Market Regulation (SAMR) took over the role as China’s single centralised antitrust enforcement agency.

The SAMR maintained a consistently rigorous and prudent attitude towards merger control review in 2019. The overall case handling efficiency has been improved in view of the fact that the total number of cases concluded increased while the average time for case reviews was reduced. The SAMR concluded 465 cases in 2019. Among them, the SAMR unconditionally approved 460 cases and conditionally approved five cases. As to the cases that were conditionally approved, the SAMR imposed various tailored conditions. There was no prohibited merger case in 2019. In addition, the SAMR investigated more non-filing cases and imposed more penalties on non-filers compared with 2018. In particular, a total of 16 penalty decisions against non-filers of merger cases were published throughout 2019, which was the highest annual figure over the past decade.



On 7 January 2020 the SAMR released a draft of the Interim Provisions for Merger Control Review (the Interim Provisions) for public comment[2]. The Interim Provisions incorporate all major regulations for merger control review into one consistent and easy-to-follow comprehensive regulation, although no substantial new changes have been proposed thereunder. The final version of the Interim Provisions is expected to be adopted in mid-2020.

On 2 January 2020 the SAMR released a revised draft of the Anti-monopoly Law for public comment (the Revised Draft)[3]. Although the Revised Draft follows the current Anti-monopoly Law’s basic framework, it significantly enhances the legal liability of Anti-monopoly Law violators. For example, in accordance with Article 55 of the Revised Draft, the proposed penalty will be up to 10% of the non-filer’s annual sales in previous year instead of the maximum amount of fine Rmb500,000 under the current Anti-monopoly Law, which is clearly insufficient for deterring non-filers. It also clarifies practical issues such as ‘controlling rights’ for merger filing purposes. At present, there is no clear timetable for the finalisation of the Revised Draft or the promulgation of the new Anti-monopoly Law.


Unconditionally cleared cases

The SAMR unconditionally approved 460 cases in 2019 – slightly higher than the previous year (444 cases). As regards simple cases, 341 were concluded in 2019 (73.3% of all cases). The proportion of simple cases decreased compared with 2018 (81.53% of all cases). On average, simple cases took 15 days to be concluded, which was a slight reduction from the 16-day conclusion rate in 2018. Almost all simple cases were cleared within 30 days of formal acceptance by the SAMR. This demonstrates that simple case procedure plays an active role in enhancing the efficiency of concentration filing, particularly in the sense of reducing reviewing time.

However, in practice, strict rules concerning the material and data required by the SAMR still apply. In particular, during the pre-review stage (ie, before official case acceptance), notified parties must often submit detailed materials. Therefore, this requirement may also extend the wait time before case filing.

The Revised Draft introduces a ‘stop-clock’ clause that specifies the following conditions to discontinue the timelines for merger review:

  • on application or consent by the notifying parties;
  • supplementary submissions of documents and materials at the request of the authority; or
  • remedy discussions with the authority.

This proposed ‘stop-clock’ clause would tackle the problem that in its absence, the notifying parties can only withdraw and refile the case when the statutory review period is running out.


Conditionally cleared cases

In 2019 the SAMR conditionally approved five cases, a relatively stable number compared with 2018 (four cases). Figure 1 (below) illustrates the number of cases conditionally cleared between 2009 and 2019.

Figure 1

In 2019 four conditionally cleared cases were approved with behavioural conditions and the remaining one was approved with both structural and behavioural conditions. All of the five conditionally approved cases in 2019 were withdrawn and resubmitted before the expiry of the first statutory merger review period (ie, 180 days). This shows that the SAMR is becoming more prudent in reviewing mega mergers which may raise competition concerns. Withdrawal of the filing also provides notifying parties with certain flexibility and more time to communicate with the SAMR. From the first submission of filing materials to a case being conditionally concluded, the review process for the above five cases lasted a minimum of 263 days[4] and a maximum of 562 days[5]. 


Novelis’ acquisition of Aleris

On 12 December 2019 the SAMR conditionally approved Novelis’s acquisition of Aleris[6]. Novelis is a leading producer of aluminium rolled products and the world’s largest recycler of aluminium. Aleris is a global leader in manufacturing and sales of aluminium rolled products.

In this case, the parties overlapped in two markets – namely, the interior aluminium autobody sheets market and the exterior aluminium autobody sheets market. Since the relevant product markets’ competition structure in China was different from that in other jurisdictions, and the main foreign-invested operators all have local production in China, the relevant geographic market was defined as China.

Novelis was the largest player in the abovementioned markets and Aleris ranked third in both markets. After transaction, the market share of Novelis and Aleris would reach 70% to 75% in the interior aluminium autobody sheets market and 75% to 80% in the exterior aluminium autobody sheets market. Further, the level of market concentration would be highly increased. After transaction, there would be only four main competitors in the interior aluminium autobody sheets market and two main competitors remaining in the exterior aluminium autobody sheets market. Apart from that, the SAMR also assessed factors such as:

  • the elimination of Aleris’s competition restraints on Novelis;
  • the incentive of the merged entity to eliminate or restrict competition after the transaction;
  • the entry barriers to the relevant markets; and
  • the recognition of downstream customers.

The SAMR approved the proposed concentration with both structural and behavioural conditions. Given that the relevant products that Aleris sold in China were mainly exported from Europe, Aleris was required to divest its entire business relating to interior and exterior aluminium autobody sheets in the European Economic Area. Further, the merged entity was prohibited from supplying cold-rolled sheet to its business partners in order to maintain market competition.

In addition, the proposed acquisition was initially filed for a review under the simplified procedure, and the SAMR accepted the case on 30 September 2018. Due to an objection raised by a third party during the public consultation period, the SAMR found that the proposed acquisition did not meet the standards for the simplified procedure and thus revoked the acceptance of the case and asked the notifying party to re-file it under the regular procedure. The notifying party resubmitted the case under regular procedure on 1 November 2018 and it was formally accepted on 13 December 2018. This back and forth shows that the notifying party should choose the most appropriate procedure to file in order to avoid waste of time. The merger control review could be delayed for months if the SAMR revokes the case acceptance when the notified concentration does not meet the standards for the simplified procedure.


Cargotec’s acquisition of TTS Group

On 5 July 2019 the SAMR conditionally approved Cargotec’s acquisition of TTS Group[7]. The acquirer of the transaction was MacGregor Group, a subsidiary of Cargotec. The MacGregor Group is principally engaged in the sale and service of products in the marine transportation cargo handling sector. The TTS Group is mainly engaged in the sale and service of hatch covers, ro-ro equipment for commercial vessels, ship cranes and winches. The transaction was filed on 15 June 2018, following which the parties were required to provide supplemental material. The SAMR formally accepted the case on 26 July 2018 and decided to conduct further review on 22 August 2018. Before the expiry of the review period, the parties withdrew the filing on 11 January 2019. The SAMR accepted the refiling on 14 January 2019 and the review process was prolonged until 9 July 2019.

In this case, the parties had overlaps in several markets, including hatch covers, ro-ro equipment for commercial vessels, ship cranes, winches and related after-sale services. The SAMR conditionally approved the proposed acquisition with behavioural remedies, including:

  • ensuring the independence of relevant businesses;
  • maintaining respective competition;
  • not raising the prices of related products in the Chinese market; and
  • not refusing or restricting supplies of the products to Chinese customers.

In addition, the SAMR adopted the ‘firewall guidance handbook and training’ remedy proposed by the filing parties. The parties committed to create an internal firewall between their respective employees, separate their competition-sensitive information and workplaces, issue a detailed firewall guidance handbook and conduct training. Setting up an internal firewall and the application of related remedies will improve the efficiency and feasibility of the implementation as well as the supervision of the behavioural remedies. Although these types of measure have been adopted in previous behavioural remedy cases, the Cargotec case provides guidance on the practical aspects of implementing them.

The above mentioned measures on the firewall management were proposed again in a subsequent case in 2019 – namely, II-VI’s acquisition of Finisar[8]. In this case, the SAMR imposed the behaviour conditions on the parties of setting up a firewall and supplying the product in accordance with fair, reasonable and non-discriminatory (FRAND) principles. Particularly, the SAMR put forward the requirement of ‘firewall guidance handbook and training’ on the implementation of behavioural remedies.

In the five cases that were conditionally approved in 2019, most of the conditions attached were only behavioural remedies. In contrast to structural remedies, behavioural remedies have a high degree of flexibility, which can avoid excessive intervention of the antitrust agencies in concentration. However, it also requires more regulatory supervision post merger. Compared with EU and US antitrust enforcement agencies’ preference for structural remedies, the Chinese antitrust enforcement agency seems more comfortable imposing behavioural conditions to address competition concerns.


Penalties on non-filers

In recent years, the antitrust authorities have never relaxed their supervision of non-filing cases. By the end of 2019, the SAMR had released 46 non-filing cases and imposed total fines of Rmb16.1 million on 68 undertakings. In 2019, the SAMR significantly strengthened its supervision of and penalties on non-filing parties. Sixteen cases were published and 21 undertakings were punished with a total fine of Rmb6.25 million. The largest fine issued was Rmb400,000, while the smallest was Rmb200,000. The SAMR initiates investigations on non-filing cases by means of self-observation, third-party reporting and voluntary reporting by notifiable parties.

Notably, the SAMR has been going after non-filers even where their failure of notification occurred many years ago. Each of Pierburg and Xingfu Motorcycle was fined Rmb350,000 for their failure to notify a proposed joint venture before its establishment[9], while the joint venture was established in 2013. This case shows that the SAMR shows no mercy for non-filers that failed to fulfil their notification obligations a long time ago.

The SAMR also investigated several non-filing cases involving minority equity investments in 2019. For instance, MBK Partners, LP (MBK) was fined Rmb350,000 for its failure to notify its acquisition of a 23.53% stake in Shanghai Siyanli Industrial Co Ltd. Further, Dejin Enterprise was fined Rmb300,000 for its failure to notify its acquisition of a 29.99% stake in Huitong Energy. Whether an acquisition of relatively small equity (eg, less than 30% equity) constitutes a change of control must be determined on a case-by-case basis. According to Article 23 of the Revised Draft, ‘control’ refers to an undertaking’s rights or actual status to, directly or indirectly, individually or jointly, exert or potentially exert a decisive influence on another undertaking’s production and operation activities or other major decisions. Given the remarkable increase of non-filing fines and the robust enforcement towards non-filings in recent years, undertakings should consider whether there is a change of control in each transaction.

At present, the maximum amount of fines imposed on non-filers is Rmb500,000, which is clearly insufficient to deter non-filers. In accordance with Article 55 of the Revised Draft[10], the proposed penalty will be up to 10% of the non-filer’s annual sales in previous year. This adjustment will greatly increase the deterrence of illegal acts in relation to the violation of merger filing regulations if the proposed change is adopted in future.



The SAMR has become more stringent and detail oriented with respect to its analysis of relevant markets and the competition impact of mergers. It is expected that the SAMR’s merger control enforcement will maintain its professionalism and stability in 2020.

Further, the large number of non-filing cases and the increased fines indicate that the SAMR is gradually strengthening its enforcement crackdown on non-filers. Moreover, the proposed revision of the Anti-monopoly Law is expected to increase the size of penalties for non-filers. Enterprises should acknowledge the thresholds and criteria of merger filing in order to fulfil their obligations to avoid penalties and any adverse consequences of closing a transaction.


[1]Michael Gu is a founding partner of AnJie Law Firm based in Beijing. Michael specializes in competition law and M&A. Michael can be reached by email:, or telephone at (86 10) 8567 5959. Sihui Sun and Grace Wu are associates of AnJie Law Firm.

[2]The original Chinese version is available at the SAMR’s website: t20200107_310322.html.

[3]The original Chinese version is available at the SAMR’s website: t20200102_310120.html.

[4] II-VI’s acquisition of Finisar case, the announcement is available at the SAMR’s website: fldj/tzgg/ftjpz/201909/t20190920_306948.html.

[5] JV between DSM and Zhejiang Garden Biochemical case, the announcement is available at the SAMR’s website:

[6] The announcement is available at the SAMR’s website:

[7]The announcement is available at the SAMR’s website:

[8]The announcement is available at the SAMR’s website: t20190920_306948.html.

[9] The original Chinese penalty decision is available at the SAMR’s website: xzcf/201911/t20191114_308483.html.

[10]The original Chinese version is available at the SAMR’s website: t20200102_310120.html.

Although at the backdrop of Covid-19 outbreak, China’s merger review practice has not been negatively affected. Currently, the average review time is 8 days shorter than that in last year. According to public statistics, the first quarter of 2020 witnessed completed review of 111 filings by China’s antitrust authority, the State Administration for Market Regulation (“SAMR”), with a slight year-on-year growth of 0.9%.

With the period of economic downturn, people may have the question or anticipation: May SAMR relax its scrutiny standard to encourage M&A activities? The recent merger review practice in China answered it at least does not apply to the semiconductor sector.

On the 8th and 16th of 2020 April, SAMR respectively released the first and second case it imposed remedies in this year. Both of them are related to semiconductor sector, and they are Infineon/Cypress deal and the Nvidia/Mellanox deal. Although it may be a coincidence, it at least suggests two things: First, the mergers and acquisitions in semiconductor areas are still active in spite of the influence of worldwide Covide-19 pandemic. Second, China keeps the vigilant and stringent  antitrust scrutiny on global semiconductor mergers.

  1. Introduction of The Infineon/Cypress Deal

The Infineon/Cypress deal was notified with SAMR on August 8, 2019 and approved with remedies on April 8, 2020. SAMR identified horizontal overlaps in four relevant markets, which are automotive microcontrollers (MCUs), industrial MCUs, consumer MCUs and power management chips. The neighboring relationship in five pairs of relevant markets are also identified and they are automotive MCUs/automotive IGBT, automotive MCUs/automotive NOR flesh memory, automotive MCUs/automotive wireless connection chip, automotive MCUs/automotive gate driver, consumer wireless connection chip/security chip respectively.

The relevant geographic market is defined as worldwide, in line with most of semiconductor precedents. Through the comprehensive competitive analysis, SAMR concluded that this deal may lead to effects of eliminating or restricting competition in the automotive MCUs worldwide market, because of the neighboring relationship between Cypress automotive MCUs and Infineon automotive IGBT, and between Infineon automotive MCUs and Cypress automotive NOR flesh memory.

Specifically, for the automotive IGBT, Infineon’s market share is 35-40% worldwide and 55-60% in China. For automotive NOR flesh memory, Cypress has a market share of 65-70% worldwide and 30-35% in China, ranking on No. 1. Under such market competition landscape, SAMR elaborated its competition concerns from three perspectives.

First, SAMR believed that the filing parties may conduct tying practice because of the above neighboring relationship. When downstream customers refuse to accept the tying, the entity ex post the merger (the “party”) is capable of forcing them to accept the tying through refusal to deal. Second, SAMR concerned that the party can develop the all-in-one product and creasing to sell automotive IGBT, automotive NOR flesh memory and automotive MCU separately. Third, it is suspected that the party can also decrease the interoperability between its NOR flash memory products and third-party MCU products.

In the end, SAMR accepted four behavioral remedies proposed by the filing parties and approved this deal. The final remedies as follows will be automatically expired in five years.

First, the party are prohibited from tying sales of automotive IGBT and automotive MCU or sales of automotive NOR flesh memory and automotive MCU in China, without justifiable reasons. Other unreasonable conditions must not be imposed on those sales, and refusal to sell those products separately are prohibited to Chinese customers either. Second, if the all-in-one product or solution is feasible from technological perspective, the party should undertake to continue to offer Chinese customers a choice of purchasing automotive IGBT, NOR flesh memory and MCU separately. Third, the party should undertake to ensure the automotive NOR flesh memory sold to Chinese customers are in compliance with the interface standard commonly accepted by industry, and to ensure the standard compliant automotive MCUs sold by third parties interoperable with the party’s automotive NOR flesh memory. Fourth, the party should supply those products to Chinese customers on fair, reasonable and non-discriminatory (“FRAND”) principle.

  1. Introduction of The Nvidia/ Mellanox Deal

The Nvidia/Mellanox deal was notified with SAMR on April 24, 2019. The withdraw and refile was applied in February of 2020, and SAMR ultimately approved this deal with remedies on April 16, 2020. In this case, SAMR identified vertical relationship between data center server and general ethernet adapter. The neighboring relationship in two pairs of relevant markets are additionally identified and they are GPU accelerator/private network interconnection equipment and GPU accelerator/high speed ethernet adaptor respectively.

The relevant geographic market is defined as worldwide, in line with most of semiconductor precedents handled by SAMR and MOFCOM. Through competitive analysis, SAMR identified competition concerns in the above-mentioned neighboring markets, including GPU accelerator, private network interconnection equipment and high speed ethernet adaptor both in China and worldwide.

Specifically, for GPU accelerator market, Nvidia’s market share is 90-95% worldwide and 95-100% in China. As to private network interconnection equipment, Mellanox’s worldwide and China market share are 55-60% and 80-85%. For high speed ethernet adaptor, Mellanox’s market share is 60-65% worldwide and 65-70% in China, ranking on No. 1 and being much more than other market players. Under such market structure, SAMR illustrated its competition concerns from four angles.

First, similar to the Infineon/Cypress case, SAMR believed that the entity after the deal (the “party”) can conduct tying because of the above neighboring relationship and the significant market power in each market. When downstream customers refuse to accept the tying, the party is capable of forcing them to accept the tying through refusal to deal. Second, SAMR concerned the party can decrease the interoperability between its GPU accelerator and third-party network interconnection equipment or between its network interconnection equipment and third-party GPU accelerator. Third, it is found that the party can access to competitive sensitive information from other GPU accelerator and network interconnection equipment manufacturers and thus possibly gain unfair competitive advantages.

In the end, SAMR accepted seven behavioral remedies proposed by the filing parties and approved this deal. Two remedies were made confidential in the released announcement and the other five are set out as follows. Those remedies can be applied for removal after six years.

First, it is prohibited from tying or imposing unreasonable conditions on sales of Nvidia GPU accelerator and Mellanox network interconnection equipment in China. It is prohibited from hindering or restricting customers to separately purchase the above products or discriminating those customers on service quality, price, soft function and etc. Second, the party should supply those products and related software and accessories to China on FRAND terms. Third, the party should warrant continuous interoperability between GPU accelerator and third-party network interconnection equipment, and between Mellanox high speed network interconnection equipment and third-party GPU accelerator. Fourth, the party should continue its open source commitment for the point-to-point communication software and collective communication software for Mellanox high-speed network interconnection equipment. Fifth, the party should adopt protective measures on information accessed from other accelerator and network interchange equipment manufacturers.

  • Commentary

By looking at these two recent decisions on semiconductor, in combination with review of those PRC precedents, the following key observation or commentary could be shared.

First, semiconductor mergers usually go through a relatively long period with pull-and-refile being the frequent phenomenon.

For instance, the Nvidia/Mellanox lasted around one year with withdraw-and-refile being applied once. For the Infineon/Cypress deal, the total review period is 8 months, which is already relatively desirable, compared to most of other remedy cases in semiconductor sector. Specifically, the merger review procedure costed around 13 months in MediaTek/MStar deal, about 15 months in ASE/Silicon Precision deal, around 9.5 months in KLA-Tencor/Orbotech deal, about 7.5 months in NXP/Freescale deal, and about 7 months in Broadcom/Brocade deal. Among them, except for the Broadcom/Brocade and Infineon/Cypress, all of other cases involved the withdraw-and-refile procedure.

Second, neighboring relationships between the filing parties in semiconductor mergers have attracted increasing attention and competition concerns from SAMR.

Notably, in both Infineon/Cypress and Nvidia/Mellanox, SAMR had competition concerns on markets with neighboring relationship, rather than on the horizontal overlaps or vertical relationship markets. Whether or not the party ex post the transaction may conduct trying, refusal to deal or may decrease interoperability between products is the focus of SAMR antitrust scrutiny. In addition, as in Broadcom/Brocade and Nvidia/Mellanox, the possibility of accessing competitor’s sensitive information becomes a concern as well.

Third, the remedy type imposed mainly depends on where the competition concerns come from.

The current enforcement in China suggests, where competition concerns come from horizontal overlaps between the filing parties, structural remedy or quasi-structural remedy such as hold-separate is frequently adopted. When competition concerns come from vertical or neighboring relationship, SAMR mostly only imposes behavioral remedies. Furthermore, when concerns come from the complementary synergy caused by the neighboring relationship, the remedial measure very often involves prohibition of trying the products with neighboring relationships.

For instance, the remedies in MediaTek/MStar and ASE/Silicon Precision are hold-separate, and NXP/Freescale involved structural divestiture, because competition concerns in those three cases all come from horizontal overlaps. While the Broadcom/Brocade, KLA-Tencor/Orbotech, Infineon/Cypress and Nvidia/Mellanox deal involved only behavioral remedies, because competition concerns arises from vertical or neighboring markets.

Fourth, relevant stakeholders are solicited for opinions in various ways.

China’s antitrust authority usually solicits opinions from competent  industry authority, industry associations, key competitors and downstream customers. In all of those semiconductor mergers including the above Infineon/Cypress and Nvidia/Mallenox, the above-mentioned four types of stakeholders were solicited for comments. In NXP/Freescale, industry experts were solicited for opinions additionally.

In the process of soliciting opinions, opinions of competent  authority and trade associations are more important. For the semiconductor industry, there are mainly two competent  authorities. One is the Electronic Information Department of the Ministry of Industry and Information Technology (MIIT), with the Integrated Circuit division being the competent division. The other is the High-tech Industry Department of the National Development and Reform Commission (NDRC). One of the major industry associations is China Semiconductor Industry Association.

In summary, from the past and most recent China’s merger review practice on the semiconductor sector, the antitrust scrutiny is continuously rigorous and cautious. In the preparation of merger filing in China, companies in this industry need to take it seriously and carefully. It is suggested that antitrust lawyers to be involved in the early stage of transaction negotiation, so that favorable transaction terms may be included by assessing the antitrust risks comprehensively and measure to shorten the review period could be planned in advance.

Authors: Michael Gu / Charles Xiang[1]



On 2 January 2020 the State Administration for Market Regulation (SAMR) released a revised draft of the Anti-monopoly Law of the People’s Republic of China (AML) for public comment. The proposed reform of the AML was listed on the formal legislative agenda in 2018 and the revised draft is the SAMR’s key step to amending the law. Although the finalisation of the revised draft will be subject to several rounds of discussion by various government agencies and must be approved by the National People’s Congress, it signals the SAMR’s enforcement priorities and indicates the legislative trends that could have a profound impact on China’s antitrust enforcement landscape.

In general, the revised draft follows the current AML’s basic framework; however, it significantly enhances the legal liability of AML violators. It also clarifies practical issues such as ‘controlling rights’, improves merger control review procedures and introduces a new type of monopoly behaviour and methodology for identifying dominance in the internet sector.

This article highlights key changes proposed by the revised draft and discusses why these changes matter for business entities from a practical point of view.


Promoting innovation as an underlying goal of AML

The revised draft states that, apart from safeguarding fair competition, the AML also aims at promoting innovation (Article 1). It is widely recognised that the primary purpose of antitrust law is to protect competition; however, there is doubt about the relationship between competition and innovation, as some argue that monopoly is the driving force behind innovation. It is worth clarifying that the goal of antitrust is to recognise the importance of promoting innovation as well as safeguarding fair competition.

In recent years, innovation has been an increasingly important competition concern in antitrust enforcement. For example, in some merger cases (eg, Dow/DuPont[2]), the antitrust authority considered the innovation factor as an important element in deciding whether the proposed transaction would have a negative impact on competition. Further, in some abuse of standard essential patent (SEP) cases (eg, FTC v Qualcomm[3]), the SEP holders tend to use their innovative contributions as justification for the alleged anti-competitive behaviour. It is expected that the factor which is stifling or fostering innovation will be of greater importance in evaluating competitive effects.


Unified definition of monopoly agreements and influence on vertical agreements

Article 14 of the revised draft states that monopoly agreements are defined as agreements, decisions and other concerted practices that eliminate or restrict competition. This definition applies to both horizontal and vertical monopoly agreements, since the definition has been moved from Article 13 of the current AML – which covers only horizontal monopoly agreements – and placed before the prohibition on horizontal monopoly agreements (Article 15) and vertical monopoly agreements (Article 16).

Under the current AML, it is unclear whether the antitrust authority must demonstrate that a vertical agreement can “eliminate or restrict competition” to identify vertical monopoly infringement. In practice, the antitrust authority usually adopts a ‘per se illegal’ or so-called ‘principally prohibition plus exemption’ approach in determining vertical monopoly agreements (in particular, resale price maintenance cases). The separately placed provision of the definition of the monopoly agreement might prompt the antitrust authority to change its practice in future.

However, the Supreme Court’s decision in Yutai v Hainan Provincial Price Bureau[4] indicates that in administrative litigation cases, the antitrust authority may not be required to prove the actual anti-competitive effects in vertical monopoly cases. In contrast, in private litigations, the court tends to use the ‘rule of reason’ approach in deciding vertical monopoly cases. Plaintiffs are often required to show the alleged vertical monopoly agreement has the effect of eliminating or restricting competition.

Further guidance must be provided under the revised draft in order to end the divergence between the enforcement authority and the court with regard to the identification of vertical monopoly agreements.


Prohibition on organising or facilitating to conclude monopoly agreements

The revised draft proposes a new provision (Article 17) that expressly prohibits any undertakings from organising or facilitating other undertakings to conclude monopoly agreements. Further, Article 53 of the revised draft provides that the organisers or facilitators of monopoly agreements will be held equally liable as the participants in monopoly agreements.

While the term ‘facilitation’ is unclear under the revised draft, it seems that the ‘hub-and-spoke’ conspiracy and similar kinds of anti-competitive behaviour would be regulated by this proposed new article. A hub undertaking, which is not a horizontal competitor to other spoke undertakings, can be held liable for organising or facilitating horizontal monopoly agreements. For example, in US v Apple[5], the US Court of Appeals held that through the proposed most-favoured-nation arrangements, Apple (despite the fact that it is not a competitor of book publishers) facilitated those major book publishers by giving them incentives to raise e-book prices, and the court recognised Apple as a genuine participant in the alleged horizontal monopoly agreement.

Further, the scope of Article 17 of the revised draft may not necessarily be limited to organising or facilitating horizontal monopoly agreements, so organisers or facilitators of vertical restraints could also be caught by Article 17. For example, if two distributors jointly entrust a retailer to adopt the same resale price, only those two distributors would be punished for fixing resale prices according to the current AML. However, under the revised draft, the retailer could be identified as the facilitator of a monopoly agreement and thus be penalised by the antitrust authority as well.


Dominance in internet sector

Due to widespread concern about competition status in the internet era, the internet sector has attracted great attention from the antitrust authority. Article 21 of the revised draft specifically states that, in determining internet companies’ dominant position, factors including the network effect, economies of scale, lock-in effect and abilities to possess and process relevant data must be considered.

Although this does not imply that internet companies (especially so-called ‘internet giants’) can be easily caught by the AML in future, it does reflect the antitrust authority’s growing concern about the competition status of internet industries and its focus on internet giants’ potentially exclusionary behaviour. For instance, the SAMR has launched an investigation of Tencent Music Entertainment Group for alleged abusive licensing practices. Further, some big e-commerce platforms have been accused of forcing merchants to deal exclusively with them, rather than with competing online platforms. Given the record fines imposed on several internet giants by the European Commission and the United States’ follow-up antitrust intervention in the internet sector, it is no surprise that Chinese regulators might also adopt tougher measures to crack down on online anti-competitive behaviour in future.

Nevertheless, the Chinese courts seem to insist on their prudent approach for identifying internet companies’ dominant position and abusive activities. In Qihoo v Tencent[6], the Supreme Court explicitly stated that the market shares of online markets might be a misleading factor to properly assess market power, and that dynamic competition and innovation allow consumers to easily switch to other competitors’ products or services. It will be interesting to see whether the courts may change their views on exclusionary practices in the online markets in future.


Significant increase of fines for antitrust law violations

To enhance the deterrent effect of the AML, the revised draft significantly increases penalties (in particular, the maximum fines) that can be imposed on AML violators. The proposed harsher penalties are summarised below.

Among these amendments, it is particularly notable that a breach of the merger filing obligation may incur a more severe penalty under the revised draft compared with the current AML, as the maximum fine would be increased to 10% of the filing party’s previous year’s sales. This would incentivise filing obligators to notify their transactions in order to avoid a huge fine.

Further, although the fines for monopolistic behaviour under the current AML remain unchanged, it is still controversial as to which basis (ie, the revenue for the relevant market products or the revenue for all products) should be used by the antitrust authority to calculate specific fines for individual cases. In practice, the enforcement authority has adopted different methods in different cases. For example, in some cases the authority calculates revenue on the basis of relevant products in the relevant geographic market (eg, the particular provincial market), while in other cases they may calculate the overall revenue of the alleged undertaking in China, or even worldwide. Such inconsistency due to lack of guidance must be clarified by the final revised draft.


Definition of ‘controlling rights’ clarified

The revised draft elaborates the definition of ‘controlling rights’ for notifiable cases. According to Article 23 of the revised draft, the term ‘controlling rights’ refers to an undertaking’s rights or actual status to, directly or indirectly, individually or jointly, exert or potentially exert a decisive influence on another undertaking’s production and operation activities or other major decisions.

The legislative intent of Article 23 is to further standardise and guide the concentration of undertakings, especially for cases where an undertaking’s acquiring of minority shareholding might constitute acquiring control. In practice, there have been many cases in which the notifying obligation has been triggered on the acquisition of minority shares, but many companies (especially some equity investment funds) have been punished for failure to notify their transactions due to a possible misunderstanding of controlling rights (among other reasons). Given the tougher penalty and the authority’s robust enforcement towards non-filings in recent years, undertakings should deliberately consider whether there is a change of control in each merger case. The elaboration of controlling rights under the revised draft is in line with recent enforcement practice, by which the antitrust authority tends to interpret controlling rights broadly.


Improvements for merger review procedures

The revised draft proposes a number of provisions to improve the merger review process.

First, the revised draft introduces the so-called ‘stop-clock’ clause that specifies three conditions to discontinue the timelines for merger review:

  • on application or consent by the notifying parties;
  • supplementary submissions of documents and materials at the request of the antitrust authority; or
  • remedy discussions with the antitrust authority.

This would tackle the problem that in the absence of the stop-clock clause, the notifying parties can only withdraw and refile the case when the statutory review period is running out. However, the stop-clock clause might also increase the uncertainty of the review process if detailed guidelines are lacking.

Second, the revised draft stipulates that the antitrust authority may formulate and revise the filing thresholds based on factors including the level of economic development and the scale of the industry.

Further, for those transactions that do not meet the filing thresholds but may eliminate or restrict competition, the antitrust authority will initiate investigations according to Articles 24 and 34 of the revised draft. Although this provision is not new given that it is already included in a State Council level regulation, the incorporation of this provision into the AML implies the antitrust authority’s determination to intensify the investigation on such types of transaction in future. Therefore, transaction parties are advised to carefully assess the potential competition impact of their transaction even if the thresholds have not been triggered. Particularly, transactions in the new economy sector (eg, Didi/Uber) would be under tougher scrutiny for the potential competition harm even though the parties’ revenues are well below the filing thresholds.


Potential criminal liability for monopolistic behavior

While the current AML stipulates that obstructing investigations could constitute a criminal offence, there is no provision indicating any criminalisation of anti-competitive behaviour in the Chinese legal system, except that bid-rigging could be criminally penalised in accordance with the Tendering and Bidding Law. The revised draft seems to introduce more criminal liability for monopolistic behaviour. Despite the fact that the specific criminal charges of monopolistic behaviour must be stipulated by the Criminal Law, it does reflect the antitrust authority’s call for more deterrent effects under the AML, and therefore the relevant stakeholders (eg, the senior management of business entities) must pay close attention to this proposed amendment.


No suspension of investigations of hardcore cartel cases

Although the current AML allows investigated parties to apply for suspension of investigations in all types of monopoly case, the revised draft narrows the applicable scope and specifies that the anitrust authority cannot suspend investigations against anti-competitive horizontal agreements that involves price fixing, sales or output restrictions or market allocation. Therefore, infringers of resale price maintenance and abuse of dominant position will be entitled to apply for the suspension of investigations if they can provide sufficient remedy to address competition concern and meet other criteria.



Through the active law enforcement over the past decade, the AML has contributed significantly towards safeguarding fair competition and boosting continuous innovation. Though there are still some unaddressed issues (eg, non-pricing vertical restraints and safe harbour rules for monopoly agreements), the revised draft indicates the start of an encouraging revision and it paves the way of further improvements in terms of both law making and enforcement. It is expected that the AML will play an increasingly vital role in economic development going forward and business entities are advised to be well prepared for more stringent antitrust compliance challenges in future.


[1]Michael Gu is a founding partner of AnJie Law Firm based in Beijing. Michael specializes in competition law and M&A. Michael can be reached by email:, or telephone at (86 10) 8567 5959. Charles Xiang is an associate of AnJie Law Firm.

[2]The full decision is available in Chinese at:

[3]The District Court decision is available at:

[4]See (2018) Supreme Court’s Judgement (Xing Shen) No.4675

[5]The Second Circuit Court decision is available at:

[6]The full decision is available in Chinese at:

Authors: Zhan Hao, Song Ying, Yang Zhan

On January 2, 2020, the State Administration for Market Regulation (“SAMR”) officially published the Draft Amendment to the Anti-Monopoly Law (“Draft Amendment”) in order to solicit public opinions, showing the authority’s sharp claws toward monopoly behaviors. This significant development is based on a 12-year-long experience of antitrust enforcement ever since the Anti-Monopoly Law (“AML”) has been enacted in 2008. The Draft Amendment conveys the signal to the public that the Chinese authority will increasingly strengthen enforcement on monopoly conducts. This article provides a summary of main changes in the Draft Amendment together with some comments, as well some practical implications thereof.


I. Monopoly agreement

Article 17 prohibits undertakings from organizing or assisting other undertakings to conclude monopoly agreements.

Article 53 provides that undertakings which (i) have no turnover in the preceding year or (ii) conclude but not implement monopoly agreement can be imposed fines at no more than RMB 50 million. For undertakings which implement monopoly agreements, the authority shall order to cease monopoly conducts, confiscate illegal gains and impose fines at 1%-10% turnover in the preceding year. The foregoing provisions are also applicable to those organizing or assisting other undertakings to conclude monopoly agreements.


First, hub-and-spoke conspiracy has been only implied in the scope of monopoly agreement in the current AML , but now the Draft Amendment provides an explicit legal basis of the “hub”part. It is expected that further provisions on hub-and-spoke conspiracy will be provided in lower-level legislation, such as regulations by SAMR, if this provision is included in the final Amendment.

Second, the Draft Amendment increases hundredfold top fines from RMB 500 thousand yuan up to RMB 50 million yuan for punishing those undertaking that concluded but not implements yet the monopoly agreements.

Third, according to the Draft Amendment, undertakings with no turnover will also receive the fine. The current AML has no specific wording addressing such scenario. In practice, in some cases in 2019 (e.g. penalties on horizontal monopoly agreements among 3 vehicle safety technology testing companies in Xianning, Hubei Province, and horizontal monopoly agreements among 8 concrete companies in Hengzhou, Zhejiang Province), SAMR confiscated illegal gains and ordered to cease monopoly conducts, but did not impose fines against undertakings which have no turnover in the preceding year. However, the Draft Amendment will retake the exemption of fines from those undertakings with no sales.

Fourth, undertakings assisting the conclusion of monopoly agreement are also explicitly prohibited under the Draft Amendment.


II. Abuse of market dominance

Article 21 of the Draft Amendment provides that network effects, economies of scale, lock-in effects, ability of controlling and processing relevant data and other factors should also be considered in determining market dominance of internet undertakings.


In recent years, competition issues in internet sector have attracted much attention from the antitrust authority. Published on July 1, 2019 and effective on September 1, 2019, the Interim Provisions for Prohibiting Abuse of Market Dominance (the “Interim Provisions”) has embodied a provision specific on internet sector. Specifically, it provides that network effects, economies of scale, lock-in effects, ability of controlling and processing relevant data and other factors should be taken into consideration when determining the market dominance in internet sector, which is consistent with the Draft Amendment.


  • Merger control review

Article 23 defines “control” as the right or actual status of a business operator that has or may have a decisive influence, directly or indirectly, individually or jointly, on the production and operation activities or other major decisions of other business operators.

Article 24 provides that the authority can formulates and updates filing thresholds according to economic development, scale of the industry and other factors and shall make it public in a timely manner.

Article 30 provides that the time required under the following circumstances shall not be included in the time limit for the merger review procedures:

  • suspension period of merger review procedures upon application or consent of the filing parties;
  • period of submitting supplementary documents and materials by undertakings as required by the authority;
  • period of negotiating restrictive conditions between the authority and the filing parties

The specific provisions on stopping the clock of merger review shall be separately formulated by the anti-monopoly authority under the state council.

Article 55 Under any of the following circumstances, the anti-monopoly law enforcement agency shall impose a fine of not more than 10% of business operators’ turnover in previous year: (i) implementing a concentration with failure to file, (ii) implementing a concentration after filing but not receiving clearance, (iii) violation of additional restrictive conditions; (iv) implementing a concentration in violation of blocking decision.


First, the Draft Amendment emphasizes that when defining ‘control’, the key point is to assess whether there are controlling/veto rights over the business operations of the target.

Second, SAMR might be authorized to update filing thresholds since they have been established in 2008. With no further detailed provisions, some expect that the SAMR might annually adjust the filing thresholds, which would be similar to antitrust authorities in other main jurisdictions.

Third, “stop the clock” rule might be introduced in Chinese antitrust legislations for the first time. SAMR would have greater discretion to extend the review period for non-simplified or conditionally-cleared cases. The authority may have less needs to request filing parties to withdraw in order to gain more time to deal with complex and high-profiled cases.

Last, for gun-jumping cases, the current AML provides the legal liability could be a fine capped with RMB 500,000 on the party which is obliged to pre-file to SAMR. In the Draft Amendment, SAMR can impose no more than 10% of the sales turnover in the preceding year, which is similar to that for monopoly agreements and abuses of dominance. For those large-scale companies with fully-integrated production lines, the cost of closing without approval from the authority would be extremely high.


III.Implications of the Draft Amendment

Although the Draft Amendment has not been effective so far, the implications conveyed by the authority is still very impressive. Market players active in China should pay more attention to the development of China anti-monopoly laws, especially given the potential significant changes and lifted liability. The regulation boundaries of anti-monopoly behaviors are increasingly refined. Cooperation with the authority’s investigation will be expected and required more as a legal baseline rather than a simple attitude. Furthermore, the introduction by Draft Amendment of new types of monopoly conduct, such as hub-and-spoke, will urge the market players and their outside and in-house legal counsel to borrow more experience form international precedents like in the EU and U.S. Obviously, the China antitrust legislation and enforcement is expected to be further enhanced in future.