Fewer mergers in China will require regulatory notification and clearance, after the government significantly increased turnover thresholds – including by doubling the figure for China earnings. This does not always mean less scrutiny: the regulator remains strict on ‘killer acquisitions’, and mergers that may restrict or exclude competition might still need notification – even if they don’t meet thresholds.
In this insight, we share highlights from the new notification standards.
The State Council published the new standards on 26 January 2024; officially titled the Provisions of the State Council on the Standard for Notification of Concentration of Business Operators (2024 Amendment) (New Thresholds for Notification). This was passed by the State Council on 29 December 2023, to take effect on 26 January 2024.
Turnover thresholds are significantly increased
The New Thresholds for Notification have significantly increased the turnover thresholds for merger filings. Specifically, any concentration that meets the following thresholds must be notified to and cleared by the State Administration for Market Regulation (SAMR) prior to closing[1]:
Article 3, New Thresholds for Notification.
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Original Standard
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New Standard
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Example
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The worldwide total turnover of all concentrating parties exceeds RMB10 billion in the preceding fiscal year, and at least two concentrating parties in China each has a turnover of more than RMB400 million, or The China-wide total turnover of all concentrating parties exceeds RMB2 billion in China in the preceding fiscal year, and at least two concentrating parties in China each has a turnover of more than RMB400 million |
The worldwide total turnover of all concentrating parties exceeds RMB12 billion (approx. USD1.70 billion/ EUR1.57 billion) in the preceding fiscal year, and at least two concentrating parties in China each has a turnover of more than RMB800 million (approx. USD113.53 million / EUR104.68 million), or The China-wide total turnover of all concentrating parties exceeds RMB4 billion (approx. USD567.76 million / EUR523.39 million) in the preceding fiscal year, and at least two concentrating parties in China each has a turnover of more than RMB800 million (approx. USD113.53 million / EUR104.68 million) |
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It is worth noting that the draft for public consultation of the New Thresholds for Notification introduced a set of notification standards that targeted killer acquisitions. Specifically, the draft required notifying to SAMR any transaction that satisfies the following conditions:
- The Chinese turnover of one of the concentrating parties exceeds RMB100 billion (approx. USD14.19 billion / EUR13.08 billion) in the preceding fiscal year, and
- The market capitalization (or valuation) of the merging party or the target company is not less than RMB800 million (approx. USD113.53 million / EUR104.68 million), and its turnover in China in the preceding fiscal year accounted for more than one-third of its global turnover.
The published version of the New Thresholds for Notification has not adopted the above thresholds, which might be because there are controversies over how to determine the market capitalization or valuation of an enterprise. Therefore whether a concentration has met filing thresholds would be uncertain. Nevertheless, the above thresholds reflect SAMR’s strict scrutiny over “killer acquisitions” in China, which are also consistent with the global trend.
Transactions that do not meet filing thresholds but may exclude or restrict market competition may also be subject to merger filings
The New Thresholds for Notification emphasizes that if there is evidence to prove that a concentration of undertakings has or may have the effect of excluding or restricting competition, the antitrust enforcement administration could require notification even if it has not met the filing thresholds as promulgated by the State Council.[2]
In determining which circumstances could be deemed as having the effect of excluding or restricting competition, the Antimonopoly Guidelines in the Field of Platform Economy (Guidelines for Platform Economy) and the Antimonopoly Guidelines in the Field of Active Pharmaceutical Ingredients (Guidelines for API) published and implemented in 2021 provide the following guidance:
Article 4, New Thresholds for Notification.
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Relevant Guidelines
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Specific Circumstances in which a concentration of undertakings has not met the turnover thresholds but may exclude or restrict competition
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Example
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Guidelines for Platform Economy[3] Article 19(3), Guidelines for Platform Economy. |
Article 19(3), Guidelines for Platform Economy. |
Article 19(3), Guidelines for Platform Economy. |
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Guidelines for APl Article 19(3), Guidelines for Platform Economy. |
Article 19(3), Guidelines for Platform Economy. |
Article 19(3), Guidelines for Platform Economy. |
Application time
The New Thresholds for Notification will apply to transactions for which the agreements are signed after January 26, 2024. For transactions signed before January 26, 2024, but not yet implemented, there has not been formal guidance on the applicability of the new standard. We would suggest a case-by-case assessment and a pre-filing consultation with SAMR if necessary.
