On March 20, 2023, State Administration for Market Regulation (SAMR) promulgated the final text of four implementing regulations for the Anti-Monopoly Law which was amended in 2022 (2022 AML), including the Regulation on Merger Control Review (Merger Control Regulation), the Regulation for Prohibiting Monopoly Agreements (Monopoly Agreement Regulation), the Regulation for Prohibiting Abuse of Market Dominance (Abuse of Dominance Regulation), and the Regulation on Prohibiting Elimination and Restriction of Competition by Abuse of Administrative Power (focus on administrative authorities rather than companies), all of which have become effective on April 15, 2023. Key changes in these regulations that are important for companies doing business in or with China include:
Merger Control Regulation
- Factors to consider when establishing control. The Merger Control Regulation delineates the factors to consider when establishing control, which include: (1) direct or indirect ownership of voting rights or similar interests; (2) influence on the appointment and removal of senior management; (3) influence on financial budgets; (4) influence on business plans and other operation and management decisions.
- Clarification of turnover calculation. The Merger Control Regulation explains that the concept of “previous year” for the calculation of turnover refers to the fiscal year preceding the year when the transaction document is signed. It also clarifies that the turnover of a joint venture should be evenly allocated among the companies participating in concentration with joint control.
- Clarification of the “stop-the-clock” mechanism. The 2022 AML introduces a “stop-the-clock” mechanism that allows SAMR to suspend a merger review under certain conditions. On this basis, the Merger Control Regulation provides a detailed guidance to the “stop-the-clock” mechanism on when the clock can be stopped and resumed.
- Killer acquisition falls within the scope of AML enforcement. SAMR has the authority to require a filing for those transactions below filing thresholds but possibly having the effect of eliminating or limiting competition, and the Merger Control Regulation clarifies that:
- if such transaction has not been completed, it should not be completed before obtaining clearance from SAMR; and
- if such transaction concerned has been completed, the company concerned should make a filing within 120 days of receiving written notice from SAMR, and cease the implementation of the transaction or take other necessary measures to mitigate the adverse impact on competition.
- Clarification of “implementing a concentration”. The Merger Control Regulation clarifies for the first time that “implementing a concentration” by companies refers to “acquiring control over or being able to exercise decisive influence on other company” and further enumerates occasions which will be deemed as implementing a concentration, including: (1) completion of the registration for change of shareholder or other rights; (2) appointment of senior management; (3) participation in business decision and management; (4) exchange of competitively sensitive information; (5) substantive integration of business.
Monopoly Agreement Regulation
- Clarification of the concept of “companies with competitive relationship”. The Monopoly Agreement Regulation introduces the concept of potential competitors, clarifying that “companies with competitive relationship” include actual competitors that are already in the same relevant market, as well as potential competitors who are capable of entering the said market within a certain period of time.
- Introduction of the safe harbour rule. The 2022 AML introduces for the first time the long-awaited safe harbour rules for monopoly agreement, which allow such agreements if the total market share of the parties is lower than the thresholds set by SAMR. However, the Monopoly Agreement Regulation merely re-iterates such safe harbour rules without providing more detailed guidance on, for example, the market share threshold or whether the safe harbour rule is applicable to resale price maintenance (RPM).
We do notice that the draft of the Monopoly Agreement Regulation proposed to set the market share threshold at 15%, but such provision was removed in the final text of the regulation. Therefore, how the safe harbour rules will be applied is still pending further clarifications.
- Further guidance on organizing and substantially facilitating monopoly agreement. The Monopoly Agreement Regulation provides guidance on the practice of organizing and substantially facilitating monopoly agreement, i.e. the hub-and-spoke agreement. Specifically, “substantially facilitating” refers to the practice of providing necessary support, creating critical conveniences, or other important support. The Monopoly Agreement Regulation also removes the intent requirement for the company organizing the monopoly agreement. Therefore, whether the organizer deliberately organizes or facilitates the communication/exchange of sensitive information of competitors is no longer relevant when assessing a hub-and-spoke agreement.
- Introduction of soft measures. A “scheduled talk” measure is newly introduced by the Monopoly Agreement Regulation. Through the scheduled talk measure, the enforcement authority can directly reach out to the legal representative or person in charge of the company to an alleged monopoly agreement, give warnings and request rectification.
Abuse of Dominance Regulation
- Clarification of the assessment of collective dominance. The Abuse of Dominance Regulation clarifies that whether the companies act in a uniformed way is the primary factor to be considered when assessing the collective dominance.
- More detailed guidance on the assessment of specific abuse of dominance practices. The Abuse of Dominance Regulation further provides guidance on framework for analysing certain abuse of dominance practices including excessive/predatory pricing, refusal to deal and exclusive dealing.
- Refining the provisions on platform economy. Consistent with SAMR’s law enforcement experiences, the Abuse of Dominance Regulation refines the rules on the platform economy sector, notably,
- with respect to the determination of market dominance, the Abuse of Dominance Regulation includes additional factors when assessing dominant position, namely the value and volume of the online transactions concluded and the ability to control the traffic volume;
- with respect to specific abuse of dominance practices, the Abuse of Dominance Regulation further refines the factors to consider when assessing the practice such as excessive/predatory pricing, refusal to deal and exclusive dealing, as well as the applicable justifications for the aforementioned practices in the context of platform economy.
- Refining the investigation procedure. The Abuse of Dominance Regulation also introduces the “scheduled talk” measures to the investigation into abuse of dominance. Other notable changes include outlining the criteria for case establishment, emphasizing on the company’s right of information.
The implementing regulations provide detailed guidance to companies on how the 2022 AML will be applied. At the same time, there are still certain key issues that need to be further clarified in SAMR’s future enforcement practices. In this regards, we recommend that companies carefully assess its competition-related risks during their daily business activities and keep following up the development of relevant legislation and law enforcement.
