CHINA Law and Practice Contributed by: James Hu, Yingjie Kang, Huihui Li, Sherry Xu, Bivio Yu and Lisa Zhao, Fangda Partners
6. Antitrust/Competition 6.1 Applicable Regulator and Process Overview China has a “pre-notification” merger control regime. Under the PRC Anti-Monopoly Law (AML), a “concen - tration of undertakings” that meets certain turnover thresholds must be notified to the State Administra - tion for Market Regulation (SAMR) for merger con - trol clearance and may not be implemented without SAMR’s approval. On 1 August 2022, the amendments to the AML came into effect (the “Revised AML”) fol - lowing almost two years of public consultation. The Revised AML provides several key changes to the merger control regime in China, including: • strengthening control of “killer acquisitions” and reiterating the power to review below-threshold transactions; • introducing a “stop-the-clock” mechanism to the review timeframe and increasing the penalties for failures to notify; and • power to delegate the review of simple case filings to local authorities. Following the amendment of the AML, SAMR pub - lished the Regulation of Review of Concentration of Business Operators (the “Merger Review Regulation”), updating the former Interim Regulation of Review of Concentration of Business Operators (published in 2020). The Merger Review Regulation came into effect on 15 April 2023. Concentration of Undertakings The following types of FDI transactions may constitute a concentration of undertakings for the purpose of merger control notification: • merger; • acquiring control over another undertaking by vir - tue of acquiring its equity or assets; • formation of a joint venture (JV) where at least two parties can exercise control over the JV; and • acquisition of control over another undertaking or the ability to exercise decisive influence over the other undertaking by virtue of a contract or any other means (such as a VIE structure).
Definition of “Control” There is no explicit definition of “control” under the Revised AML. SAMR has broad discretion in deter - mining control by considering a wide range of factors. The Guidelines for the Anti-Monopoly Compliance of Concentrations of Undertakings set out examples of governance rights that would confer control over another business (Strategic Rights), including: • right to appoint or remove senior management personnel; • right to approve the financial budget; and • right to approve the business plan. The relevant factors in evaluating “control” include the purpose of the transaction, the target’s sharehold - ing structure, shareholders’ reserved matters, board composition and the voting mechanism at board and shareholders’ meetings. In practice, “control” could refer to: • holding 50% or more shares or voting rights; or • having approval or veto power over the target’s material business and management matters, such as the Listed Strategic Rights. As there is no de minimis shareholding for the defini - tion of control, the ability to veto any of the Listed Strategic Rights will likely be sufficient to confer con - trol even with a minority shareholding. Turnover Thresholds Where an FDI transaction constitutes a “concentra - tion of undertakings”, the transaction is notifiable if the undertakings to the concentration also meet the turnover thresholds. On 26 January 2024, the Provisions of the State Coun - cil on Thresholds for Prior Notification of Concentra - tion of Undertakings (“Amended Thresholds”) came into effect. The Amended Thresholds represent a significant increase in these thresholds, particularly in China turnover.
134 CHAMBERS.COM
Powered by FlippingBook