China Blocks Below-Threshold Pharma Deal: A Landmark in Antitrust Enforcement
On 22 July 2025, China’s State Administration for Market Regulation (SAMR) issued a decision prohibiting Wuhan Yongtong Pharmaceutical Co., Ltd. from acquiring the equity of Shandong Beida Hi-Tech Huatai Pharmaceutical Co., Ltd. even though the transaction failed to reach notification thresholds under the Chinese Anti-monopoly Law (AML). This decision is a landmark in China's 17-year antitrust enforcement history since it is the first time a below notification threshold merger filing was blocked, which could signal China’s new determination to scrutinise monopolies in the pharmaceutical industry.
First prohibition of below-threshold transaction
This case is the fourth prohibited transaction since the implementation of the AML in 2008. The amendments to the AML in 2022 introduced a pivotal provision for the first time at the statutory level: where an undertaking’s concentration that falls below notification thresholds is supported by evidence of eliminating or restricting competition, the enforcement agency can require the involved undertakings to file a declaration.
Subsequently, the 2023 revised Provisions on the Review of Concentrations of Undertakings set out more detailed procedural requirements based on the AML. If a concentration falls below the notification thresholds and there is evidence indicating that it has or may have the effect of eliminating or restricting competition, the SAMR can require the undertakings to file a notification and will issue a written notice to them. If the concentration has not yet been implemented, the undertakings must not implement the concentration before they have submitted the notification and obtained clearance. If the concentration has already been implemented, the undertakings must, within 120 days from the date of receiving the written notice, submit the notification and take necessary measures, such as suspending the implementation of the concentration, to mitigate its adverse impact on competition.
Against this legislative backdrop, this case assumes heightened significance as the first instance where a notified concentration, despite not meeting the mandatory filing thresholds, has been prohibited since the 2022 amendments took effect.
According to SAMR's published prohibition decision, Wuhan Yongtong, as the purchaser, signed the acquisition agreement to acquire 50% shares in Shandong Huatai and completed the equity change registration in March 2019, effectively consummating the deal years before finally submitting their notification for merger control filing on 18 February 2025, a belated compliance measure taken in response to SAMR's express directive issued the preceding January.
This timeline establishes a clear case of gun-jumping, where the parties failed to suspend implementation pending regulatory clearance as required under China's merger control regime. The decision further reveals that during SAMR's review process prior to the final prohibition ruling, the parties proposed remedial solutions including divesting their acquired equity in Shandong Huatai. SAMR accordingly determined that the parties had demonstrated willingness to take restorative measures and ultimately prohibited the transaction ordering that Wuhan Yongtong transfer its already-acquired equity in Shandong Huatai to an independent third party and completely refrain from any involvement in Shandong Huatai's operations or management prior to full completion of the divestiture. This prohibition further enhances the case’s landmark status as it also represents the first scenario where the relevant parties have been ordered to take remedial measures to restore the pre-concentration state for a transaction that had already been implemented.
The decision emphasises that the enforcement authority has the power to rectify anti-competitive behaviour even if the concentration has already been completed, sending a clear signal that post-implementation anti-competitive concentrations will not be tolerated.
Strengthened anti-trust scrutiny in highly regulated industries
The pharmaceutical industry, especially the active pharmaceutical ingredients (APIs), is highly regulated due to its direct impact on public health and hence is more strictly scrutinised. In this case, the acquisition involved the market for papaverine hydrochloride injection, a product related to a medical treatment. Wuhan Yongtong engages in the sales of papaverine hydrochloride, while Shandong Huatai produces and supplies papaverine hydrochloride injections. Given that papaverine hydrochloride APIs serve as upstream raw materials for papaverine hydrochloride injections, the two companies maintain a vertical relationship within the supply chain.
In 2023, there was another case involving a merger review application where the transaction did not meet the notification thresholds. What set this case apart was that the parties voluntarily filed a declaration with the enforcement agency prior to implementing the concentration (unlike the earlier case, where the filing was mandated by SAMR) and they ultimately received conditional approval. With the possibility of anti-competitive effects on the domestic market for batroxobin injection, Simcere Pharmaceutical proactively proposed a commitment plan with restrictive conditions that included terminating exclusive supply agreements, divesting its batroxetin injection business, implementing price controls, and accepting monitoring with penalties for non-compliance, which ultimately led to the transaction receiving conditional approval from the regulatory authorities.
In recent years, antitrust regulators in China have significantly strengthened enforcement in the pharmaceutical sector, especially in the API segment. Guidelines of the Anti-monopoly Commission of the State Council on Anti-monopoly in the field of Active Pharmaceutical Ingredients were issued in 2021, followed by Anti-monopoly Guide for the Pharmaceutical Fieldon on 24 January 2025, covering chemical medicines, traditional Chinese medicines, and biopharmaceuticals, and addressing cartel agreements, abuse of dominant position, and merger control across the entire supply chain. Enforcement outcomes underscore this tougher stance. In a major case in June 2025, a cartel involving four firms coordinated to raise dexamethasone sodium phosphate API prices, which resulted in combined fines and confiscation totalling RMB 362 million, with personal liability imposed on the organiser. Also in March 2025, manipulation of the pricing of neostigmine methyl sulfate injections led to penalties amounting to RMB 223 million, and for the first time enforcement extended to individuals involved in the cartel agreement. These enforcement actions reinforce how oversight now goes far beyond merger clearance, encompassing ongoing compliance scrutiny to prevent vertical abuse, price fixing, supply restrictions, unfair pricing, refusal to deal, and other anticompetitive behaviours throughout the pharmaceutical value chain.
EU competition law comparisons
In the EU, the Commission issued the Communication on the application of the referral mechanism under Article 22 of the Merger Regulation (2021/C 113/01), which clarifies that this mechanism applies to all concentrations, not only those meeting the jurisdictional thresholds of the referring EU member states. This guidance enables EU member states to refer cross-border transactions to the European Commission where the transactions have not reached the "community dimension" notification thresholds but may have anti-competitive effects, especially in the digital and pharmaceutical sectors where hidden risks exist. The EU Court of Justice, however, expressed differing judicial views on whether this guidance grants the European Commission the power to unilaterally review transactions below the notification threshold on its own initiative.
Even if this regulation is not applicable, the European Court of Justice held that National Competition Authorities may review and prohibit transactions that do not require notification under Article 102 of the Treaty on the Functioning of the European Union (TFEU) if the transactions harm competition. Neverthless, in a ruling dated 16 March 2023, the EU Court of Justice confirmed that for transactions below the notification threshold, the national enforcement authorities or courts may still review the transactions under Article 102 TFEU for abuse of dominance even if such transactions do not meet merger-control thresholds.
This framework reflects a shared global regulatory trend where competition authorities, whether in the EU or China, increasingly move beyond strict mechanical threshold-based screening to focus on the substantive effects of transactions on market structure and competitive dynamics, thus ensuring that anti-competitive conduct occurring outside established "bright lines" rules can still be effectively addressed. This shift represents the move from formalistic to substantive review in competition enforcement.
Compliance recommendations
In light of the increasingly proactive and effect-based enforcement trends in both Chinese and international antitrust regimes, particularly in regulated sectors such as pharmaceuticals, undertakings must reassess their compliance strategies even for transactions falling below traditional notification thresholds. With regulators focusing on substantive harm rather than formal thresholds, competition risk management must now be integrated throughout the entire transaction lifecycle. The following recommendations outline key areas of focus:
Pre-transaction antitrust due diligence
Undertakings should consider conducting thorough pre-transaction antitrust assessments, especially in below-threshold deals that may raise competitive concerns. Engaging an antitrust counsel to evaluate the potential impact on market structure, competitive dynamics, and consumer welfare is critical. Assessments should include analyses of market share shifts, entry barriers, foreclosure risks, and coordinated behaviour potential to identify and proactively mitigate antitrust exposures.
Proactive engagement with antitrust authorities
Maintaining open and transparent communication with regulators is imperative. For below-threshold transactions with potential competitive concerns, informal consultations with SAMR can clarify regulatory expectations. During formal reviews, timely submission of accurate data and responsive engagement with inquiries will streamline processes and enhance prospects for favourable outcomes.
Structuring transaction documents with antitrust safeguards
Transaction documents for below-threshold deals should be reviewed carefully in light of heightened scrutiny. While such transactions may not trigger mandatory notification, they may still face enforcement risks, particularly in sensitive sectors like pharmaceuticals, particularly APIs. Parties are advised to revisit traditional approaches for closing conditions, and assess whether additional contractual safeguards are warranted, even when no filing is initially required. Clear internal assessments and forward-looking drafting may help mitigate uncertainty and regulatory exposure. For example, provisions may be included to exempt the buyer from paying "break-up fees" if the transaction is blocked due to antitrust concerns.
For more information on these regulations and how it could affect your China-based business, contact your CMS client partner or these CMS experts:
