Mergers & Acquisitions Alert  attorney in shanghai china
China Anti-Monopoly Filing Requirements

For Global M&A Participants:
Turnover Thresholds Announced

China's pre-M&A filing requirements are triggered by high China turnover of any two transaction participants, and higher combined turnover of all participants, even when the acquired, merged or controlled business has no China turnover.  Certain large company transactions involving small target businesses and small counterparties no longer require a China filing, as China's filing triggers converge somewhat with those of other major jurisdictions. Remaining to be detailed by later government announcements are questions such as:

Which transaction participant(s) will be responsible to make the required filing?
How will turnover be calculated, including the nature of special arrangements that are likely for "special industries and sectors such as banking, insurance, securities andfutures [trading]"?
How will the authorities define "control" and "influence" over a business operator?
Will Chinese translation be required of the entirety of concentration agreements, or only of relevant or substantive portions?
What are the detailed procedural requirements for the filing and review process other than the skeleton provisions in the Anti-monopoly Law?
Even after the expected issuance of announcements on the above questions, quite some time is likely to be needed for a visible track record to emerge on the types of transactions and market conditions that are regarded as threatening to eliminate or restrict competition.
The difficulty of balancing issuesraised by multiple government departments, and by other interested groups including foreign lawyers and chambers of commerce, has been highlighted by delays in announcing important details, as follows: 

On August 1, 2008, China's Anti-Monopoly Law (the "Law") became effective, thereby superseding 1prior regulations on M&A filings.
On August 3, 2008(Sunday), China's State Council Business Operator Concentration Filing Provisions (the "Provisions") were promulgated, with effect on the same day (leaving, in theory, a gap between August 1st and 3rd when nofiling thresholds were effective).
In the future, more-detailed measures on turnover calculation.and presumably on other remaining questions, will be issued by various government departments.
China's Ministry of Commerce ("MOFCOM")is responsible for reviewing M&A filings.  The Lawand the Provisions follow the recent convention of delegating this authority not to a named department, but rather to the "State Council department responsible for commerce". MOFCOM is also responsible, "with other State
Council departments", forissuingdetailed measures on turnover calculation. This wording in the Provisions may reflect the need to consult with China's regulators responsible for securities, banking, insurance, etc., but also may suggest continued uncertainty about the precise demarcationof authority between MOFCOM and other
government departments that are responsible for implementing other aspects of the Law, but the general outlines of that demarcation have been made clear by previous government announcements, as follows: 
Monopolistic pricing is subject to interpretation, investigation and enforcement by a department of the National Development and Reform Commission, while “monopoly agreements, abuse of market dominance, and abuse of administrative power to exclude and restrict competition (other than monopolistic pricing)" are subject to interpretation, investigation and enforcement by a department of the State Administration of Industry & Commerce.  These departments, and the MOFCOM anti-monopoly division, will each constitute part of China's
recently legislated Anti-Monopoly Enforcement Authority, which is supervised by its also recently legislated Anti-Monopoly Commission. These departments and entities are still at various stages of being set up.

Turnover thresholds more but not completely China-focused

The requirement to file will normally arise only for a transaction meeting a new two-part test that is relatively predictable, and is focused on large business operators that have substantial sales in China.  Each of the following thresholds must be met. Turnover by each ofat least two participating business operators, within China, must exceed RMB 400
million.
Aggregate turnover of all the participating business operators must exceed either RMB 2 billion within China or RMB 10 billion worldwide.
The Provisions provide for later issuance of detailed measures on turnover calculation, after "consideration of the actual situation of special industries and sectors such as banking, insurance, securities and futures [trading]".   Affiliates' turnover is expected to remain within the above calculation, in practice, although express references to affiliates have not been included in final legislation. A transaction in which no direct participants have turnover in China could be covered by this new test, e.g., if a buyer's affiliates and a seller's affiliates each have high
turnover in China. 

Continued discretion

Other transactions "shall be investigated", despite not meeting any of the above thresholds, if "facts and vidence gathered in accordance with prescribed procedures"indicate that they may eliminate or restrict ompetition. This is consistent with the Chinese government approach of retaining discretionary decision making authority.

Approval criteria

he Provisions have not expanded upon the Law's criteria to determine whether a transaction will eliminate or estrict competition, whichare as follows: 

Market shares and market control ability of the participating business operators 
 Degree of existing market concentration 
 Effects on market access and technological progress 
Effects on consumers, and on other business operators’ development 
Effects on development of the Chinese national economy 
"Other relevant factors" determined by MOFCOM.
Late changes

The final issued Provisions are much shorter than the last publicly circulated draft.  Many of the omitted contents of the Provisions are substantially covered by the Law.  Of the remainder, some will re-emerge and others will be permanentlyabandoned or modified.  Almost certainly abandoned for the foreseeable future are the lower turnover thresholds in the prior draft, and the separate filing trigger for any transaction that would result in China market share over 25 percent, aggregate, of all the business operators participating in the
transaction.

Prior draft proposals that seem likely to be adopted by future detailed measures or practice include the following:

Chinese translations of the entirety of concentration agreements.
Merger filing responsibility borne by both parties (filingjointly), with acquisition filing responsibility borne by the acquirer.
Far-reaching definitions and examples of "control"and "decisive influence"over another business operator, including contractual or other arrangements.
More-detailed confidentiality obligations of government departments and officials.
A mechanism for quick preliminary examination of transactions that obviously will not eliminate or restrict competition.
Trends and challenges

Convergence with other major jurisdictions is likely to be greater in China's approach to concentration transactions than in certain other aspects of its Anti-Monopoly Law, but important differences are unlikely to disappear soon.  This will make it particularly important for large companies in global industries toconsider
China's M&A filing requirements at an early stage of every major transaction. attorney in shanghai china