MOFCOM speeds up simple mergers

“The statutory timetable for MOFCOM's merger review is not too different from the US or the EU, but in practice, MOFCOM's review frequently takes longer. In the US, a transaction that is a simple case could be cleared in 30 days or sooner, while in China cases often get pushed into later stages,” said Miranda So, a partner with Davis Polk in Hong Kong.

So believes the delays centre on resource constraints, but notes that the PRC Anti-monopoly Law (中华人民共和国反垄断法) is relatively new and the review process should improve as the country gains more experience.

At the moment it is not possible for international lawyers to take part in either in the pre-merger consultations or the filing process parts of MOFCOM's merger review process.

“This is inconsistent with international practice, where both international lawyers and local lawyers are permitted to meet with the competition authorities,” said Jenny Sheng, a partner with Paul Hastings in Beijing.

Which cases are simple?

The Draft Provisions allow for three rather narrow cases that may be classified as simple cases:

(1) the concentration of business operators accounts for less than 15% of the market share of the relevant market;

(2) the concentration of business operators accounts for less than 25% of the market share of the upstream and downstream markets and;

(3) the concentration of business operators not from the upstream or downstream market accounts for less than 25% of the market share of each market.

The remaining simple cases cover joint ventures and acquisitions of non-Chinese entities that do not engage in economic activity in China.

“The Draft Provisions are a step in the right direction, and fit in with similar recent efforts from MOFCOM to develop tools that more closely approximate the EU and US merger review system,” said So.

While the Provisions may be a step in the right direction, MOFCOM has also listed several circumstances where it has the right to deny a case as a simple merger even if they qualify. These cases will not be eligible for the simple merger review classification.

“By creating certain exceptions in the Draft Provisions, MOFCOM retains its discretion to re-categorise cases falling in the simple case classification as a non-simple case if any such exceptions occur,” said Livdahl.

“The absence of clear procedural mechanisms in the current Draft Provisions demonstrates that MOFCOM is still very cautious,” added Sheng.

What does fast-track mean?

While the Draft Provisions clearly states what cases will be classified as simple and under what circumstances that status can be revoked, they fail to address how simple cases will be treated.

“We expect that consultations with other governmental authorities will not be a mandatory procedure or at least will be simplified, and thus might be approved by MOFCOM within 30 days,” predicted Livdahl.

It is unclear how many transactions will qualify for simple merger classification. Practitioners expect the Provisions to be effective by the end of the year and that MOFCOM will release more information to clarify uncertainties in the meantime.

By David Tring

Further reading:

A guide to China anti-monopoly reviews and disputes

MOFCOM fast-tracks anti-monopoly reviews

PRC Anti-monopoly Law 
(中华人民共和国反垄断法)