Tentative Provisions for the Assessment of Competitive Effects of Concentrations of Business Operators

(Promulgated by the Ministry of Commerce on August 29 2011 and effective as of September 5 2011.)

Order of Mofcom [2011] No.55

Article 1: These Provisions have been formulated pursuant to the PRC Anti-monopoly Law in order to regulate the work associated with the anti-monopoly review of concentrations of business operators, assess the competitive effects of concentrations of business operators and guide business operators in duly carrying out the reporting work for concentrations of business operators.

Article 2: The Ministry of Commerce carries out anti-monopoly review of concentrations of business operators in accordance with the law.

Article 3: In reviewing concentrations of business operators, the following factors shall be comprehensively considered based on the specifics and particularities of each individual case:

(1) the market share in the relevant market of the business operators involved in the concentration and their degree of control of the market;

(2) the degree of concentration in the relevant market;

(3) the impact of the concentration of business operators on market entry and technological progress;

(4) the impact of the concentration of business operators on consumers and on other relevant business operators;

(5) the impact of the concentration of business operators on the development of the national economy; and

(6) other factors that have an impact on market competition and that require consideration.

Article 4: When assessing the potential for a concentration of business operators to have adverse effects on competition, an examination shall first be carried out to determine whether the concentration would give rise to or strengthen a given business operator's capacity and motivation to eliminate or restrict competition on its own and the probability thereof.

When the relevant market in which a concentration is to occur has a limited number of business operators, an examination shall also be carried out to determine whether the concentration would give rise to or strengthen the business operators' capacity and motivation to jointly eliminate or restrict competition and the probability thereof.

When the business operators involved in a concentration are not actual or potential competitors in the same relevant market, the examination shall focus on whether the concentration would or could have the effect of eliminating or restricting competition in the upstream and/or downstream market(s) or related markets.

Article 5: Market share is an important factor in analysing the structure of the relevant market and the positions of the business operators and their competitors in the relevant market. Market share directly reflects the structure of the relevant market and the positions of the business operators and their competitors in the relevant market.

When determining whether the business operators involved in a concentration would secure or increase their market control, comprehensive consideration shall be given to the following factors:

(1) the market shares in the relevant market of the business operators involved in the concentration and the state of competition in the relevant market;

(2) the extent to which there are substitutes for the products or services of the business operators involved in the concentration;

(3) the production capacity of those business operators in the relevant market that are not involved in the concentration and the extent to which their products or services can substitute for those of the business operators involved in the concentration;

(4) the capacity of the business operators involved in the concentration to control the sales market or raw materials procurement market;

(5) the capacity of the buyers of the goods of the business operators involved in the concentration to switch suppliers;

(6) the financial resources and technical conditions of the business operators involved in the concentration;

(7) the purchasing capacity of the downstream customers of the business operators involved in the concentration; and

(8) other factors that need to be considered.

Article 6: Market concentration is a description of the structure of the relevant market and, generally, the Herfindahl-Hirschman Index (the HHI Index) and the combined market share of the top N enterprises in the industry (CRn) may be used to show the degree of concentration of the business operators in the relevant market. HHI is equal to the sum of the squares of the market shares of each business operator in the relevant market in which the concentration is to occur. CRn is equal to the sum of the market shares of the top N business operators in the relevant market in which the concentration is to occur.

Market concentration is one of the important factors that needs to be considered when assessing the competitive effects of a concentration of business operators. Generally, the greater the market concentration in the relevant market and the greater the increase in market concentration after the concentration, the potential is greater for the concentration to have the effect of eliminating or restricting competition.

Article 7: A concentration of business operators may increase the barriers to entry into the relevant market. After the concentration, the business operators can exercise the market control that they secured or strengthened through the concentration and, through means such as their control of the factors of production, sales channels, technological advantages and key facilities, make entry into the relevant market by other business operators more difficult.

When assessing the competitive effects of a concentration of business operators, the offsetting effect of entry by potential competitors may be examined.

If entry into the relevant market in which a concentration is to occur is extremely easy, the business operators not involved in the concentration can react to the efforts by the parties to the concentration to eliminate or restrict competition and exercise a braking effect thereon.

When determining the degree to which it is difficult to enter the market, the possibility, timeliness and fullness of entry need to be comprehensively considered.

Article 8: Through a concentration, business operators can better integrate technology research and development resources and strengths, have a positive effect on technological progress and offset the adverse effects on competition produced by the concentration, and the positive effect produced by the technological progress is conducive to advancing the interests of consumers.

A concentration may also have a negative effect on technological progress by weakening the competitive pressure on the business operators involved in the concentration and reducing their drive for and outlays on technological innovation; and the business operators involved in the concentration, can, by means of the concentration, also increase their market control and impede outlays on, and research, development and uptake of, relevant technologies by other business operators.

Article 9: A concentration of business operators may enhance economic efficiency, give rise to economies of scale and economies of scope, reduce product costs and enhance product diversity, thereby having a positive effect on consumer interests.

A concentration may also increase the market control of the business operators involved in the concentration, strengthening their ability to carry out acts that eliminate or limit competition, increasing the possibility that they will harm consumers' interests by means such as raising prices, lowering quality, limiting production and sales volume and reducing investment in scientific and technological research and development.

Article 10: A concentration of business operators may increase the competitive pressure on the business operators in the relevant market, which is conducive to causing the other business operators to improve product quality, reduce product prices and advance consumer interests.

Based on the market control secured or strengthened through the concentration, the business operators involved in the concentration may, by way of certain business strategies or means, restrict the business expansion of business operators not involved in the concentration or weaken their competitiveness, thereby reducing competition in the relevant market and potentially having the effect of eliminating or limiting competition in the upstream and/or downstream market(s) or related markets.

Article 11: concentrations of business operators are conducive to expanding the scale of business and increasing market competitiveness, thereby improving economic efficiency and promoting development of the national economy.

Under certain circumstances, a concentration of business operators may also disrupt effective competition in the relevant market and the healthy development of the relevant industry, producing an adverse effect on the national economy.

Article 12: When assessing a concentration of business operators, in addition to considering the foregoing factors, factors such as the effect of the concentration on the public interest and on economic efficiency, whether business operators involved in the concentration are enterprises on the verge of bankruptcy and whether there are offsetting purchaser strengths shall be comprehensively considered.

Article 13: If a concentration of business operators would or could have the effect of eliminating or limiting competition, the Ministry of Commerce shall render a decision prohibiting the concentration of business operators. However, if the business operators can show that the beneficial effects on competition of the concentration are markedly greater than the adverse effects or that such concentration coincides with the public interest, the Ministry of Commerce may render a decision that does not prohibit the concentration of business operators.

With respect to a concentration of business operators that it does not prohibit, the Ministry of Commerce may decide to attach restrictive conditions that mitigate the adverse effects of the concentration on competition.

Article 14: These Tentative Provisions shall be effective as of September 5 2011.