China consults on amending six antitrust guidelines, suggesting additional amendments
The State Administration for Market Regulation, or SAMR, China’s competition regulator, has begun a public consultation over changes to six substantive laws as soon as the country’s Anti-Monopoly Law (Amended AML) amendments were approved last Friday (24 June 2022). Wide-ranging proposed amendments include adding a safe harbor for specific vertical agreements and changing the notification thresholds under the merger control system.
The proposed regulations, which are available for comment, include:
- Provisions of the State Council on Thresholds for Prior Notification of Concentration of Undertakings (Consultation Draft);
- Provisions on the Examination of Concentration of Undertakings (Consultation Draft);
- Provisions on Prohibiting Monopolistic Agreements (Consultation Draft);
- Provisions on Prohibiting Abuse of Dominant Market Positions (Consultation Draft);
- Provisions on Prohibiting Abuse of Intellectual Property Rights to Eliminate or Restrict Competition (Consultation Draft); and
- Provisions on Prohibiting Abuse of Administrative Power to Eliminate or Restrict Competition (Consultation Draft).
In this article, we look at some of the most significant changes to China’s competition law system that are suggested by the Draft Regulations.
Important amendments to the merger control regime
The jurisdictional thresholds that apply to merger control notifications have been significantly raised by the Draft Regulations. In particular, the requirement for Chinese domestic turnover will double from RMB400 million to RMB800 million. Many businesses will be relieved to learn that fewer transactions will now necessitate reporting requirements in China if these amendments are approved.
The Draft Regulations do, however, add a new circumstance where filing will be necessary: I one party’s revenue in China exceeds RMB100bn; and (ii) another relevant party’s market value exceeds RMB800m and it generated more than one-third (1/3) of its global turnover in China.
This new threshold serves the dual objectives of capturing acquisitions made by a purchaser with significant market influence in China (achieving the Amended AML’s stated goal of preventing abusive behavior through the “exploitation of capital advantages”) and acquisitions of target companies with significant market influence by businesses based outside of China.
This needs to be taken into consideration along with Article 26 of the Amended AML, which states that parties may still be required to declare a concentration even if the notification criteria are not exceeded by the AML enforcement body (i.e. SAMR). Additionally, the power to compel notification of a concentration that has already been completed within 180 days of SAMR’s notice is clarified in the Draft Regulations.
Instructions for “implementing” a concentration
The Draft Regulations specifically discuss what SAMR may consider to be the “implementation” of a concentration in violation of the notification (or suspension) requirements for the first time. The act of taking command of or having a deciding impact on other business operators is referred to in the Draft Regulations as “implementation,” and examples include but are not limited to:
- Completing the registration of changes in shareholders or rights;
- Appointing senior management;
- Actual participation in the making of business decisions or management;
- Exchanging sensitive information with other business operators; and
- Substantially integrating the business.
This guidance gives parties more clarity when deciding on their transaction structures and potential pre-filing measures (or receiving clearance on any filings made).
Explanation of the term “potential competitors”
Although SAMR has thought about “potential competitors” and made oblique allusions to them in the context of enforcement decisions and other publications, the idea has not yet been expressly introduced into the law or regulations.
The Draft Regulations now specifically mention “potential competitors” in relation to horizontal anti-competitive agreements for the first time. This addition clarifies how the laws governing anti-competitive agreements should be applied and connects the Chinese regime with other nations’ norms in this area, like the EU’s.
All vertical agreements are given a “safe harbor”
A safe harbor has now been implemented with regard to vertical agreements involving parties with a combined market share of less than 15% in any relevant market, similar to other regimes (such as the EU and Singapore).
It is anticipated that this safe harbor will give parties more security and confidence when managing their vertical connections, such as distribution networks.
However, it should be noted that this safe harbor threshold is considerably lower than the 30% market share threshold that was previously used in relation to some vertical non-price restraints under the guidelines for conduct related to intellectual property and the antitrust guidelines for the auto industry.
Establishment of “R&D markets” as a means of addressing innovation-related abuses
In order to clarify what a “relevant market” is, the idea of “R&D markets” has been presented. As a result, it may be necessary to take into account other aspects, such as innovation and newly developed products, while determining relevant markets.
The adoption of the Amended AML represents a significant turning point in China’s antitrust development, and it is obvious that the legislative efforts were well thought out by the quick publishing of the Draft Guidelines following the passing of the Amended AML. Despite the fact that the present round of discussions won’t end until July 27th, 2022, we anticipate that the Draft Guidelines will be finished fairly soon after.
The Draft Guidelines and the Amended AML both point to a sharper focus on competition law and policy in China, and we anticipate that enforcement action will stay strong for the rest of the year.
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