On 29th November 2011, an official meeting was held between Chinese delegations led by MOFCOM’s vice minister Gao Hucheng and delegations of US antitrust agencies, Federal Trade Commission (FTC) and Department of Justice (DOJ). It is the first official high-level talk between public enforcement agencies of China and US, since DOJ and FTC signed an antitrust memorandum of understanding (MOU) with China’s three antimonopoly agencies in July 2011, therefore, afforded with profound significance in terms of enhancing bilateral communication and cooperation among them.

By taking this opportunity, both sides reaffirmed and emphasized the cooperation concurred in the MOU this July, including significant issues of cooperation on investigations of two sides, confidentiality obligations, exchange of information and so on.

Consensus was reached between both sides that this meeting was of help to deepen the mutual understanding of antitrust agencies of two countries, with respect to competition policies and antitrust enforcement, to share experience and promote a further-step cooperation between the two biggest economic territories.

On October 31 2011 the Ministry of Commerce posted Notice 73 in its website, announcing the clearance of a proposed concentration between Penelope Co Ltd and Savio Macchine Tessili SpA on certain conditions. The ministry’s reasoning and analysis shed light on its approach to the review of concentrations on anti-monopoly grounds.

The notice states that the would-be acquirer, Penelope, was incorporated specifically as a tool for the transaction. Alpha Private Equity Fund V is Penelope’s wholly-owned controlling shareholder – it invests in non-ferrous metal recycling and the production and sale of textile and home textile machinery. Alpha V is the largest shareholder in Uster technologies Co Ltd, holding 27.9% of the equity shares.

Savio, the proposed target, is a manufacturer of textile machinery. It produces electronic yarn clearers for winders, twisters and rotor-spinning frames. Phenanthrene Brothers Co Ltd is a wholly owned subsidiary of Savio.

Continue Reading Conditional Clearance Offers Further Insight on Concentrations

On October 10 2011 one of China’s largest retail websites, Taobao Mall – known as Tmall – announced a new set of rules, which included the imposition of a high annual technical service fee and an increased security deposit for its vendors. Tmall stated that the new rules were intended to ensure the provision of high-quality goods and services and to discourage counterfeiting and price wars.

The previous minimum annual fees of Rmb6,000 were raised to between Rmb30,000 and Rmb60,000, while the security deposit was raised from Rmb10,000 to Rmb50,000, Rmb100,000 or Rmb150,000, depending on the size of the business-to-consumer vendor. Smaller vendors protested by disrupting the online platform, using communication tools such as YY Voice to attack companies with a larger presence on Tmall. The incident sent ripples through the worlds of business, academia and politics, with many critics arguing that the price-rise policy may constitute an abuse of dominant position under the Anti-Monopoly Law.

Determining dominant position in a given market is problematic; in most cases, it requires comprehensive market research and subtle, detailed analysis. The answer may be the length of an academic paper and may take weeks to compile and express clearly. If it is assumed that Tmall holds a dominant position, there remains the question of whether its behaviour can be deemed an abuse under the law.

Article 17(1) states that an abuse consists in imposing unfairly high sale prices or unfairly low purchase prices. On the sale side, "excessive" prices may be unfair. Excessive pricing is the most obvious way in which a monopolist can exploit its position to the detriment of consumers in the short term. However, it is often argued that a free market economy needs the lure of monopoly pricing. On this analysis, the opportunity to charge monopoly prices – at least for a short period – is what attracts business acumen in the first place, encouraging the risk taking that produces innovation and economic growth.

Furthermore, excessive prices may be pro-competitive, as high prices and profits may act as a signal to attract new competitors to the market. Therefore, high prices – within reasonable limits – should not automatically be deemed excessive or unfair.

It is unquestionably difficult to decide what constitutes an excessive or unfair price. Given that it is rarely possible to ascertain what the price might have been in a more competitive market, what other yardstick can be used? How should competition policies be balanced against state policies in other sectors, given China’s macroeconomic background? Should such a policy protect small and medium-sized businesses or encourage emerging business? All of these questions should be considered when deciding whether Tmall’s price-rise policy should be classified as abusive.

A spokeswoman from the Ministry of Commerce publicly declared in the recent, that the Ministry has officially accepted the notification on Nestlé’s acquisition of Hsu Fu Chi. If the Ministry turns on the green light for this filing it could be one of the biggest foreign takeovers of a Chinese undertaking historically.

Founded in 1866 by Henri Nestlé in Vevey, Switzerland, Nestlé is the world’s leading Nutrition, Health and Wellness company. Nestlé’s product lineup covers from baby food, bottled water, cereals, chocolate & confectionery, coffee, culinary, chilled & frozen food, dairy, drinks to food service, healthcare nutrition, ice cream, petcare, sport nutrition, and further to weight management.

Hsu Fu Chi is China’s largest listed confectionery company, with more than 16,000 sales outlets and 100 sales affiliates. In connection to its revenue, the first quarter of 2011 alone was Rmb1.51bn ($234m). Hsu Fu Chi focuses itself on chocolates, pastries and other sweets markets, and particularly is famous for a breakfast bar called Sachima. It should be recognized that Hsu Fu Chi already developed into a national brand within two decades. Voices from different communities, hence, expressed their worry that this event may ignite nationalist outcries just as it did with Coca-Cola’s negotiations with Huiyuan.

Continue Reading Nestlé’s Filing of Acquiring China’ Largest Listed Confectionery Company is Accepted

On September 7th, 2011, an antitrust litigation against Taiyuan Railway Bureau was brought to Taiyuan Xinghualing Court on the ground that Taiyuan Railway Bureau violated Anti-monopoly Law and Unfair Competition Law of PRC by its administrative omission.

The trigger for this lawsuit lands on the claim that Taiyuan Railway Bureau (“A” hereinafter) has not responded to the application from Shanxi transport Group Co., Ltd, (“B” hereinafter) of additional tickets outlet, in spite that B has been applying for the authorization since 2007.

According to the case description presented by B in the Indictment, the key points decisive to the case analysis are summarized as follow by sequence number:

Continue Reading Taiyuan Railway Bureau is Sued by Private Enterprises Alleged Monopoly

With already more than 3 years of practice experience concerning antitrust review to concentrations, the Ministry of Commerce of the People’s Republic of China in recent publicly announced its first set of guideline thereof on August 29, 2011, namely, “Provisional Regulation on the Assessment on the Competitive Effects of Concentration of Undertakings ( it would be abbreviated as “the Regulation” hereinafter)

It should be recognized that the Regulation reflects great significance in many facets without doubt. For one thing, the substantive process of reviewing and assessing concentrations by the Ministry of Commerce is tranparentized in a large degree. As a result, relevant competitors, consumers and other stakeholders of interest could obtain much more convenience for the purpose of supervising antitrust enforcement.

In the second place, the Ministry took this opportunity to standardize in the Regulation, which factors that they will take the most account into in principle, which interests they will consider principally when balancing the pro-competitive and anti-competitive effects of concentration concerned. In this connection, the Regulation would possess the function of conducting, standardizing as well as facilitating the work of antitrust control to concentrations of the Ministry.

Continue Reading The First Guideline For Reviewing Concentrations in China Was Freshly Baked

On July 27 2011 China’s three anti-monopoly agencies – the Ministry of Commerce, the National Development and Reform Commission and the State Administration for Industry and Commerce – signed an antitrust and anti-monopoly memorandum of understanding with the US Federal Trade Commission and the US Department of Justice in Beijing, with the aim of promoting international communication and cooperation between the agencies.

Federal Trade Commission Chairman Jon Leibowitz stated:

"From the first suggestion to this final signed [memorandum of understanding], both countries has been preparing for two years. During the preparation period, we have established a mutual and steady trust relationship, and made the encouraging goal on market competition."

Continue Reading China and US Move Closer on Antitrust Collaboration

Nestlé has announced that it plans to commit around $1.7 billion to the acquisition of a 60% share in confectionery manufacturer Hsu Fu Chi. The turnovers of the undertakings involved in the transaction are above the threshold for concentration filing and the deal is subject to anti-monopoly review.

Nestlé plans to purchase a 43.5% stake in Hsu Fu Chi from the two shareholders that are not part of the Hsu family. If these shareholders agree with the stock purchase plan, Nestlé will buy a further 16.5% share from the 56.5% share held by the Hsu family. In 2010, Nestlé’s sales in China rose by 15% – the most rapid rate of growth of all of its sales regions. However, the company still lags far behind rivals such as Kraft General Foods and Unilever. For Nestlé, purchasing a famous quality brand is the best way to catch up.

Pursuant to the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings, the undertakings concerned must file a prior notification with the relevant commerce department of the State Council if:

"the combined worldwide turnover of all undertakings concerned in the preceding financial year was more than Rmb10 billion, and the nationwide turnover within China of each of at least two of the undertakings in the preceding financial year was more than Rmb400 million."

A spokesperson for the Ministry of Commerce announced at a press conference that on the basis of the information held by the ministry, the turnover figures of both parties reach the relevant thresholds.

The acquisition could significantly change the composition of the Chinese confectionery market. Nestlé is the fifth biggest manufacturer in China’s domestic confectionery market(See 21st Century Business Herald); Hsu Fu Chi, with a market share of more than 7%, is in second place. If its plan succeeds, Nestlé will become the market leader. The potential impact of the deal makes it sensitive. It is too early to predict whether the ministry will approve the acquisition, with or without conditions.

Documents and materials have been submitted to the ministry and will be officially filed once the ministry is satisfied with the sufficiency of the documents and materials.

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

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

Continue Reading Can Companies Avoid Filing Concentrations?

Since the Anti-monopoly Law was passed, around 50 private anti-monopoly litigations have been brought and the courts’ jurisdiction over such cases has become a key issue.

Under the internal organisation of the Supreme Court, No 3 Civil Division is in charge of hearing anti-monopoly cases and directing anti-monopoly litigations at local level. This responsibility is no surprise. Previously, No 3 Civil Division focused on IP cases. Ostensibly, competition issues have an indispensable connection with IP rights; thus, on promulgation of the Anti-unfair Competition Law, No 3 Civil Division became responsible for anti-unfair competition cases. No 3 Civil Division has now become the full-time anti-monopoly court within the Supreme Court.

Continue Reading Jurisdiction for private anti-monopoly litigation