On 24 March 2023, China’s State Administration for Market Regulation (SAMR) issued updated versions of four competition law related guidelines, replacing the interim provisions previously in force. These new guidelines have come into effect on 15 April 2023 and include:
- Provisions on the Examination of Concentration of Undertakings (Merger Review Provisions);
- Provisions on Prohibiting Monopolistic Agreements (Monopoly Agreements Provisions);
- Provisions on Prohibiting Abuse of Dominant Market Positions (Abuse of Dominance Provisions); and
- Provisions on Prohibiting Abuse of Administrative Power to Eliminate or Restrict Competition (Abuse of Administrative Power Provisions).
This bulletin identifies some of the key changes introduced by the new provisions, and compares the amendments with the provisions that were previously in force. Please note that translations are provided for reference only.
A. Key changes to the merger control regime
1. Clarification of the concepts of "control" and "implementation"
The concept of "joint control" is explicitly referred to in the guidelines for merger control regime in China for the first time. Article 5 of the Merger Review Provisions stipulates that where two or more business operators have control over other business operators or are able to exert decisive influence over other business operators, it constitutes joint control. In the context of public companies, the new wording states that historical attendance rates and voting patterns will be relevant factors when assessing control or decisive influence.
The revised guidelines also provide greater detail on what constitutes "implementation" of a concentration without notifying or waiting for receipt of clearance (often referred to as "gun jumping"). Similar to other established jurisdictions such as the EU, relevant factors include (but are not limited to) regulatory registration of share transfer, the appointment of senior management, actual participation in decisions and management in day-to-day operation, exchange of sensitive information with other undertakings, and substantial business integration.
2. Clarification of calculating turnover
The new guidelines clarify two important issues regarding the calculation and allocation of turnover for the purposes of applying the turnover thresholds: (1) the turnover to be used for the assessment of the turnover thresholds shall be the turnover of the last financial year preceding the signing date of the transaction document; and (2) when accounting for turnover generated by a jointly controlled undertaking, the turnover should be divided equally between the undertakings who have joint control and double counting should be avoided.
3. Consequential updates to align with the Anti-Monopoly Law amendments
Some consequential amendments have been included in order to reflect the changes brought about by the amendments to the Anti-monopoly Law introduced in June 2022 (Amended AML). These include implementation details of the newly-introduced "stop-the-clock" mechanism during the review period of merger filings, and the increased penalties for infringement.
| Previous Interim Provisions on the Examination of Concentration of Undertakings | Amended Provisions on the Examination of Concentration of Undertakings |
|---|---|
Article 4To determine whether an undertaking has acquired control or the possibility of exercising decisive influence over any other undertaking through transactions, consideration shall be given to the following factors:
|
Article 5To determine whether an undertaking has acquired control or the possibility of exercising decisive influence over any other undertaking through transactions, consideration shall be given to the following factors:
Where two or more operators have control or are able to exert decisive influence over other operators, it constitutes joint control over other business operators. |
Article 6Where a concentration of undertakings reaches the reporting thresholds prescribed by the State Council (hereinafter referred to as “reporting thresholds”), relevant undertakings shall report to the State Administration for Market Regulation (SAMR) in advance, and no concentration may be implemented without reporting. Where a concentration of undertakings fails to reach the reporting thresholds, but the facts and evidence collected in line with prescribed procedures indicate that the concentration of undertakings has or may have the effect of eliminating or restricting competition, the SAMR shall conduct an investigation in accordance with the law. |
Article 8Where a concentration of undertakings reaches the reporting thresholds prescribed by the State Council (hereinafter referred to as “reporting thresholds”), relevant undertakings shall report to the State Administration for Market Regulation (SAMR) in advance, and no concentration may be implemented without reporting. Where a concentration of undertakings fails to reach the reporting thresholds, but the facts and evidence collected in line with prescribed procedures indicate that the concentration of undertakings has or may have the effect of eliminating or restricting competition, the SAMR may require the business operators to report and notify the business operators in writing. If the concentration has not yet been implemented, the business operator shall not implement the concentration without reporting or obtaining clearance; if the concentration has already been implemented, the business operator shall report to the SAMR within 120 days upon receipt of the written notice and take necessary measures such as suspending the implementation of the concentration to reduce the adverse effects of concentration on competition. Factors for determining whether to implement a concentration include but are not limited to whether the registration of market entities or changes in rights is completed, the appointment of senior management, actual participation in business decision-making and management, exchange of sensitive information with other business operators, and substantive integration of businesses, etc. |
Article 7Turnover shall include the incomes derived from the sale of products and the provision of services by relevant undertaking(s) in the previous fiscal year, with relevant taxes and surcharges deducted. |
Article 9Turnover shall include the incomes derived from the sale of products and the provision of services by relevant undertaking(s) in the previous fiscal year, with relevant taxes and surcharges deducted. The previous fiscal year mentioned in the preceding paragraph refers to the previous fiscal year on the signing date of the transaction document. |
Article 8The turnover of an undertaking involved in a concentration shall be the sum of the turnovers of such undertaking and all other undertakings directly or indirectly controlling or controlled by such undertaking at the time of reporting, excluding the turnover between the above-mentioned undertakings. Where an undertaking acquires a part of any other undertaking, and the transferor no longer has the control over or possibility to exercise decisive influence over such part, the turnover of the target undertaking shall include only the turnover of such part. Where there is any other undertaking under joint control of undertakings involved in a concentration or of an undertaking involved in the concentration and an undertaking not involved therein, the turnover of undertakings involved in the concentration shall include the turnover between such undertaking under joint control and any third-party undertaking subject to a one-off calculation. The calculation of turnover of an undertaking in the financial sector shall be subject to relevant provisions on calculation of turnover for reporting on concentrations of undertakings in the financial sector. |
Article 10The turnover of an undertaking involved in a concentration shall be the sum of the turnovers of such undertaking and all other undertakings directly or indirectly controlling or controlled by such undertaking at the time of reporting, excluding the turnover between the above-mentioned undertakings. Where an undertaking acquires a part of any other undertaking, and the transferor no longer has the control over or possibility to exercise decisive influence over such part, the turnover of the target undertaking shall include only the turnover of such part. Where there is any other undertaking under joint control of undertakings involved in a concentration or of an undertaking involved in the concentration and an undertaking not involved therein, the turnover of undertakings involved in the concentration shall include the turnover between such undertaking under joint control and any third-party undertaking subject to a one-off calculation and is equally distributed among the undertakings with joint control. The calculation of turnover of an undertaking in the financial sector shall be subject to relevant provisions on calculation of turnover for reporting on concentrations of undertakings in the financial sector. |
B. Upcoming new safe harbour exemption for anti-competitive (or "monopoly") agreements
The new Monopoly Agreements Provisions introduce a new framework for the application of a safe harbour, but at this stage the specific criteria for applying the exemption remains yet to be determined. There is no timeline on when further details will be released.
Aside from the introduction of a safe harbour, the Monopoly Agreements Provisions introduce a concept that is similar to the "ring leader" and "facilitator" concepts seen in other jurisdictions (such as the EU). In particular, the provisions elaborate on parties who are liable for playing the role of "organising" or providing "substantial assistance" in the context of cartels, such as in hub-and-spoke agreements.
| Previous Interim Provisions on Prohibiting Monopolistic Agreements | Amended Provisions on Prohibiting Monopolistic Agreements |
|---|---|
| No corresponding provisions |
Article 17An agreement entered into by a business operator with a transaction counterparty is not prohibited if the business operators can prove that the market share of any party to the agreement in the relevant market falls below the threshold prescribed by the SAMR. |
| No corresponding provisions |
Article 18The conduct of organising business operators to enter into a monopoly agreement described in Article 19 of the Anti-Monopoly Law shall cover the following circumstances:
The substantive assistance provided for another business operator to enter into a monopoly agreement described in Article 19 of the Anti-Monopoly Law shall include any essential support provided, key facilitating condition created, or other important assistance. |
C. Reiterating the enforcement focus of the SAMR on the digital sector
Reflecting the position taken by the SAMR in the Amended AML, the Abuse of Dominance Provisions shows a continued focus on the digital sector.
The Abuse of Dominance Provisions set out several updates related to the platform economy, for example, when defining relevant markets, the provisions state that this can be defined in a number of ways: on the basis of one side of the platform, on the basis of the multilateral goods involved in the platform as a whole, or on the basis of multiple relevant markets separately.
When considering market dominance of digital platforms, the Abuse of Dominance Provisions also includes additional factors for consideration, including "transaction amount", "number of transactions" andthe "ability to control traffic".
| Previous Interim Provisions on Prohibiting Abuse of Dominant Market Positions | Amended Provisions on Prohibiting Abuse of Dominant Market Positions |
|---|---|
| No corresponding provision |
Article 5Relevant markets refer to scope in which operators compete for specific goods or services (hereinafter collectively referred to as goods) from a product and geographical perspective within a given timeframe, including relevant product markets and relevant geographic markets. To define the relevant market, demand side substitutability analysis from the buyer's perspective should be conducted. Supply side substitutability should also be considered when the competitive constraints on operators' behaviour caused by supply side substitutability are similar to demand substitution. To define the relevant product market, from the perspective of demand side substitutability, factors such as the buyers' response to changes in prices of goods, characteristics and uses of goods, and sales channels can be considered. From the perspective of supply side substitutability, factors such as the difficulty for other operators to change production and the market competitiveness of the goods provided after the change of production can be considered. To define the relevant product market in the context of digital platform economy, the relevant product market can be defined according to the goods offered on the platform, or according to the multilateral products on the platform, or be defined as several relevant product markets. Consideration should be given to interrelationships and influences between the various relevant product markets. To define the relevant geographic market, from the perspective of demand side substitutability, factors such as the transportation and cost of goods, the actual region where most buyers select goods, and trade barriers between regions can be considered. From the perspective of supply side substitutability, factors such as the timeliness and feasibility of supplying goods by other regional operators can be considered. |
Article 11Pursuant to Article 18 of the AML and Articles 6 to 10 of these Provisions, in determining whether an operator operating within new economic models (such as Internet-related businesses) holds a dominant market position, the following factors may be taken into account: the characteristics of competition, business model, number of users, network effects, lock-in effects, technical characteristics, market innovation, the ability to master and process relevant data and the market power of the business operator in related markets. |
Article 12Pursuant to Article 23 of the Amended AML and Articles 7 to 11 of these Provisions, in determining whether an operator in the platform economy holds a dominant market position, the following factors may be taken into account: the characteristics of competition, business model, amount of transaction, quantity of transaction, number of users, network effects, lock-in effects, technical characteristics, market innovation, the ability to control traffic, the ability to master and process relevant data and the market power of the business operator in related markets. |
| No corresponding provisions |
Article 21An operator with a dominant market position shall not use data and algorithms, technology, and platform rules to engage in the act of abuse of market dominance specified in Articles 14 to 20 of these Provisions. |
| Previous Interim Provisions on Prohibiting Monopolistic Agreements | Amended Provisions on Prohibiting Monopolistic Agreements |
|---|---|
Article 7Business operators in competition with each other are prohibited from entering into the following monopoly agreements to fix or alter the price of a product:
|
Article 8Business operators in competition with each other are prohibited from entering into the following monopoly agreements to fix or alter the price of a product:
The term “business operators in competition with each other” include actual business operators who compete in the same relevant market, as well as potential business operators who may enter that relevant market to compete. |
Article 10Business operators in competition with each other are prohibited from entering into the following monopoly agreements to divide a sales market or a procurement market for a raw material:
The preceding paragraph on the division of a sales market or a procurement market for a raw material also applies to the technology and services necessary for the production and operation of business operators. |
Article 10Business operators in competition with each other are prohibited from entering into the following monopoly agreements to divide a sales market or a procurement market for a raw material:
The preceding paragraph on the division of a sales market or a procurement market for a raw material also applies to the sales and procurement of data, technology, and services. |
| No corresponding provisions |
Article 13Business operators in competition with each other must not exploit any data, algorithms, technologies, platform rules, etc., to enter into a monopoly agreement specified in Articles 8 through 12 of these Provisions by means such as any communication of intent, exchange of sensitive information, or concerted action. |
| No corresponding provisions |
Article 15A business operator must not enter into a monopoly agreement specified in Article 14 of these Provisions by exploiting any data, algorithms, technologies, platform rules, etc., to unify, limit, or automatically set the resale price of a product. |
D. Greater transparency over investigations into public bodies
The Abuse of Administrative Power Provisions provide greater transparency over the possibility of anti-monopoly law enforcement agencies investigating an administrative body or a public body suspected of violating the provisions of the AML and abusing their administrative power in order to exclude or restrict competition.
| Old Provisions on Prohibiting Abuse of Administrative Power to Eliminate or Restrict Competition | Amended Provisions on Prohibiting Abuse of Administrative Power to Eliminate or Restrict Competition |
|---|---|
| No corresponding provisions |
Article 24Where an administrative body or an organization authorized by laws and regulations to manage public affairs is suspected of violating the provisions of the anti-monopoly law and abusing administrative power to exclude or restrict competition, the anti-monopoly law enforcement agency may summon its legal representative or person-in-charge for talks. During the talks, the agency may discuss the alleged abuse of administrative power to exclude or restrict competition, get the general information, and request the summoned person to propose improvement measures aiming at eliminating relevant competition restrictions. After the talks, the anti-monopoly law enforcement agency may notify the competent superior authority of the entity being summoned of the information about talks. A provincial market regulatory authority shall file the information about talks with the SAMR within seven working days. |
Article 25The talks shall be approved by the chief officer of the anti-monopoly law enforcement agency. When necessary, the anti-monopoly law enforcement agency may invite the competent superior authority of the entity being summoned to jointly participate in the talks. The anti-monopoly law enforcement agency may disclose the information related to the talks, or invite the media, industry associations, experts and scholars, relevant business operators, and representatives of the public to attend. |
Conclusion
The revisions of the above Provisions (following the publication of the interim provisions in 2022) signal a continued effort by SAMR to improve its practices and the rules around competition enforcement in China.
SAMR has maintained its enforcement efforts in the past 12 months, and we expect this to remain high in the foreseeable future. Therefore, companies should ensure that their compliance programs and policies are up to date, and sufficiently practical and tailored in order to keep up with the latest developments in China.
Please speak to your usual HSF contacts if you have any questions or would like to discuss in more detail about how these changes could impact your business.
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Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.