Companies operating in the Chinese market welcome the provisions that clarify the Antimonopoly Law. On 3 August 2008, the State Council published the Rules on the Notification Thresholds for the Concentration of Business Operators (“Threshold Rule”), which became effective on the same date. Even though these thresholds are an improvement to the Antimonopoly Law, it is disappointing that the long-awaited Threshold Rule only contains 5 articles, which only focuses on the jurisdictional thresholds. Other important issues addressed in the earlier draft, such as the definition of “control” and “decisive influence”, confidentiality and expedited preliminary review, were removed from the Threshold Rule.
Jurisdictional Thresholds
This means that concentrations must now be notified prior to implementation where in the last fiscal year
- the turnover in China of each of at least 2 parties to the concentration exceeded RMB 400 million;
and either
- the total worldwide turnover of all parties to the concentration exceeded RMB 10 billion; or
- the total turnover in China of all parties to the concentration exceeded RMB 2 billion.
The Chinese authority, in line with international practice, chooses the turnover thresholds applicable to all sectors. Not only the worldwide turnover but also the China-wide turnover of the parties is taken into consideration. Turnover is an important factor to objectively reflect a business operator's market power and is easier and more definite for business operators to obtain and analyse.
The new turnover thresholds require that the China-wide turnover of at least two parties to a concentration should exceed RMB 400 million each (Threshold 1). Therefore, a transaction between two companies, one with large presence in China but the other with a small scale business in China, which probably raises less competition concerns, may not be subject to notification. This is commented as an improvement to the previous jurisdictional thresholds under foreign merger and acquisition rules, which only referred to one party’s business in China.
A third threshold of market share in the earlier draft rule, was also been removed from the final Threshold Rule. The authority received massive complaints about this threshold as it would cause legal uncertainty. It is impractical for a business operator to measure their market share correctly because it triggers another difficult issue, being the precise methods of defining a relevant market, which has not yet been clarified in law.
Calculation of Turnover
To make the turnover thresholds more practical for business operators to follow, further guidelines on the method of calculating turnover are still expected to be issued. Although this issue has not yet been clarified by law, the turnover of the whole corporate group of a transaction party is calculated according to the existing practice of the competent merger control authority, i.e. the Ministry of Commerce (MOFCOM).
In principle, the jurisdictional thresholds apply to all business sectors. Due to the special characteristics of financial industries, such as banking, insurance, securities and futures, the calculation of turnover for these industries will follow further implementing rules to be issued by MOFCOM.
MOFCOM’s Discretion Power
It should be noted that even a concentration which does not meet the jurisdictional thresholds may still be subject to review by MOFCOM if it finds that the concentration has or is possible to have the effect of eliminating or restricting competition on the basis of duly obtained evidence.
It is criticised that such discretion power of MOFCOM will cause uncertainty of law. The Threshold Rule does not make clear to what extent the evidence is sufficient to prove that a concentration below the thresholds has or is possible to have the effect of eliminating or restricting competition. The procedures, methods and time limit of collecting evidence by MOFCOM are not addressed. Such uncertainties could therefore make business operators act overly cautious.
Conclusion
The Threshold Rule is the first supportive rule issued for the implementation of the AML. Although it still leaves important issues open, it makes a progress in the whole legislation process. Further relevant guidelines or rules are expected to be formulated and promulgated to give a clearer picture for business operators to follow.
The above article reflects the competition law legal framework as of 20 August 2008.
