Guidelines on Anti-monopoly Filings for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors

(Issued by the Office of Anti-monopoly Investigations, Department of Treaty and Law, Ministry of Commerce on March 8 2007.)

Pursuant to the Provisions for the Acquisition of Domestic Enterprises by Foreign Investors (Order No.10 of the Ministry of Commerce) promulgated by the Ministry of Commerce, State-owned Assets Supervision and Administration Commission of the State Council, State Administration of Taxation, State Administration for Industry and Commerce, China Securities Regulatory Commission and State Administration of Foreign Exchange on August 8 2006, anti-monopoly filings for enterprise mergers and acquisitions need to be made in advance for enterprise mergers and acquisitions that meet the specified criteria. To facilitate such filings by concerned parties, we hereby issue the following guidelines:

1. Reporting Party

In principle, the acquirer is the reporting party; however, depending on the specific circumstances of a case, the reporting party may be the target enterprise. If more than one party satisfies the criteria to act as the reporting party, they may make a joint filing, or they may each make separate filings. A reporting party may make a filing in its own name or it may appoint a Chinese law firm and have a China qualified lawyer to make the filing on its behalf.

2. Filing Deadline

An anti-monopoly filing for an enterprise merger or acquisition shall be made before the merger or acquisition plan is made public. An anti-monopoly filing for an enterprise merger or acquisition shall be made before the merger or acquisition plan for an offshore merger and acquisition filing is made public, or at the same time such filing is made with the competent authority of the host country.

3. Filing Materials

The reporting party should submit the written filing materials in duplicate and one complete set of the written filing materials in electronic format (the use of optical media is recommended). The filing materials should be in the Chinese language. If the original of a document is in a foreign language, it should be accompanied by a Chinese translation thereof. The filing materials include the following:

(1) Application. The application should be concise, one to two sheets of A4 size paper is recommended. The application should be signed by the reporting party or its appointed agent.

(2) Proof of identity or proof of registration of the reporting party. Where a foreign investor is to acquire a domestic enterprise, the offshore reporting party must also submit notarized and authenticated documents from a local notary office. If necessary, the Office of Anti-monopoly Investigations may require the offshore reporting party in an offshore merger or acquisition to submit notarized and authenticated documents from a local notary office.

(3) Power of attorney and letter of introduction. If the reporting party is making the filing itself, it should issue a proof of identity or power of attorney for its person handling the matter. If the filing is to be made by an appointed agent, a power of attorney signed by the reporting party and a letter of introduction from the appointed agent's law firm must be submitted. The originals of the proof of identity, power of attorney and letter of introduction must be submitted.

(4) Basic particulars of the parties to the merger or acquisition. We recommend that these include but not be limited to the names of the enterprises, places of registration, scopes of business, corporate forms (company, partnership or other forms), names, positions and contact information of the contact persons, the turnovers (globally and in China) of each of the parties to the merger or acquisition during the most recent financial year, corporate size, the companies' positions in their sectors, a history of the establishment of the companies and their material changes, etc.

(5) A list and brief description of the enterprises and individuals affiliated with the parties to the merger or acquisition. We recommend that the affiliated persons and individuals be considered from the following perspectives:

(a) all the enterprises or individuals that directly or indirectly control the parties to the merger or acquisition;

(b) all the enterprises directly or indirectly controlled by the parties to the merger or acquisition;

(c) all the enterprises, other than the parties to the merger or acquisition, directly or indirectly controlled by the enterprises or individuals defined in (a); and

(d) other affiliated enterprises and individuals.

If necessary, we recommend the use of an organizational chart or other chart to explain the equity structure, de facto control and other such affiliations among the aforementioned enterprises and individuals.

(6) The approval certificates and business licences of the enterprises (including foreign-invested enterprises and their domestic invested enterprises), resident representative offices and branches established in China and other entities registered in China by the parties to the merger or acquisition.

(7) Overview of the merger or acquisition transaction. We recommend that this include the nature and method of the transaction (e.g. asset acquisition, equity acquisition, merger, establishment of a joint venture, etc.), subject matter of the transaction, amount of the transaction, merger or acquisition transaction process, estimated date of completion of the merger or acquisition transaction, control and affiliations among the relevant companies after completion of the merger or acquisition transaction (if necessary, a chart may be used to indicate the corporate structure), the industry or main products involved in the merger or acquisition transaction, the motivation for, or objective of, the merger or acquisition transaction or an analysis of its economic rationality.

(8) Definition of the relevant market. The definition of the relevant market in general includes the definition of the product market and the geographic market. Reasons should be given for defining the scope of the relevant market or why it is deemed unnecessary to define the relevant market.

(9) The sales turnover and market share of the parties to the merger or acquisition in the relevant market during the two most recent financial years, and an explanation of the source of the data and the basis for the calculations. The relevant supporting documentation should be submitted.

(10) The names of the five largest competitors in the relevant market. With a view to improving review efficiency, we encourage the submission of the market share or position in the relevant market (sector), contact persons and contact information of the aforementioned competitors.

(11) Information on the supply structure and demand structure in the relevant market. A list of the names, contact persons and contact information of the main upstream and downstream enterprises of the parties to the merger or acquisition should be submitted. With a view to improving review efficiency, we also encourage the submission of the names, contact persons and contact information of the main upstream and downstream enterprises in the relevant market.

(12) Information on the competition in the relevant market. We recommend that this include but not be limited to information describing the competition from the following perspectives:

(a) Analysis of market entry. We recommend that this include but not be limited to an analysis of the following aspects:

(1) costs of entering the market;

(2) any statutory or actual barriers to entry;

(3) restrictions arising due to intellectual property rights;

(4) information on the parties to the merger or acquisition as licensors or licensees of intellectual property in the relevant market;

(5) importance of economies of scale in the relevant products; and

(6) the number and size of competitors in the relevant market and whether there are actual or legal restrictions on the upstream or downstream markets, etc.

(b) Information on horizontal or vertical cooperation agreements among business operators in the relevant market. For example, whether agreements relating to research and development, transfers of patent use rights, joint production, distribution, long-term supply and information exchange, etc., exist. If possible, further information on the aforementioned agreements should be submitted.

(c) Information on major entries or withdrawals from the relevant market during the most recent three years. If possible, please submit such detailed information as the names, contact information, etc., of the enterprises that have entered or withdrawn.

(13) Merger or acquisition agreement. If the agreement is in a foreign language, a Chinese translation thereof or an abstract in Chinese of the material provisions thereof should also be submitted.

(14) Audited financial statements of the parties to the merger or acquisition for the preceding financial year. If the accounting statements are in a foreign language, a Chinese translation thereof or an abstract in Chinese of the major parts thereof should also be submitted.

(15) Materials in support of a request for a review waiver.

If the reporting party is of the opinion that it satisfies the conditions for a review waiver of the Provisions for the Acquisition of Domestic Enterprises by Foreign Investors and makes a claim for a review waiver, it should also submit materials in support of its review waiver.

(16) Information on the industry association in the relevant market, including whether such an industry association exists, its name, person in charge and contact information, etc.

(17) Information on the filing for and review of the merger or acquisition in any other jurisdiction.

(18) Other matters that need to be explained to the competent authority.

(19) A statement signed by the parties to the merger or acquisition and/or their authorized representatives on the truthfulness of the submitted information and/or the accuracy of the sources of information.

The filing materials should be arranged in a reasonable order to facilitate review. The front of the filing materials should have a document list and detailed contact information for the contact person.

If the reporting party finds it impossible to submit any of the foregoing materials, or, based on the actual circumstances, deems it unnecessary to submit any of the foregoing materials, it may make the same known during the discussion stage prior to the filing or explain its reasons in the filing materials. With the consent of the Office of Anti-monopoly Investigations, it may submit part of the same or be exempted from submitting the same.

4. Review Period

The period for a merger or acquisition review is 30 working days, counting from the date of receipt of the complete filing materials. If the reporting party does not receive a further review notice after the expiration of the 30 working day period, it will be deemed to have passed the review. If the reporting party receives an extension notice, the review period will be extended to the 90th working day. The reporting party should submit further information or provide a further explanation to the competent department as required by the notice.

5. Discussions Prior to Filing

With a view to increasing efficiency and ensuring review transparency and predictability, the Office of Anti-monopoly Investigations encourages reporting parties and their appointed agents to initiate informal consultations before the formal filing so as to discuss such important matters as whether a filing is required, the definition of the relevant market, etc. If a reporting party wishes to apply for discussions, it should do so as early as possible before the formal filing. A discussion request should be faxed in writing to the Office of Anti-monopoly Investigations. (Facsimile: 65198997)

With a view to improving discussion efficiency and results, we recommend that the applicant prepare materials relevant to the discussions, including transaction details and background information, information on the relevant industry and market, and the effect the transaction will have on competition in the market, etc. If the applicant for consultations is certain that it is required to make a filing, it may also provide a draft of the merger or acquisition report to serve as the basis for the discussions.

6. Confidentiality

If the reporting party does not wish the information it has submitted to be made public or disclosed, it should individually mark the documents or contents that need to be kept confidential and briefly explain the reason why the information is not to be made public or disclosed. If a request for confidentiality is made, a non-confidential version of the filing materials should also be submitted.

7. Submission Times and Location

The reporting party should submit the filing materials to the Office of Anti-monopoly Investigations during the office hours of the Ministry of Commerce. In order to facilitate timely registration and signing in receipt of such materials, please make the submission between 8:30 am and 11:00 am or between 1:30 pm and 4:00 pm.

Address of the Office of Anti-monopoly Investigations of the Ministry of Commerce: Room 3516, Ministry of Commerce, 2 East Chang'an Avenue, Beijing.

The objective of issuing these Guidelines is to provide guidance and assistance for enterprise merger and acquisition filings. The Office of Anti-monopoly Investigations will revise these guidelines in a timely manner based on the requirements of laws, regulations, rules and other normative documents and in light of actual implementation and work requirements.