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China: New Measures to Discourage Unreported Business Concentration

(Mar. 2, 2012) Mergers and acquisitions in China are subject to regulations on business concentration. Under the Chinese anti-monopoly regime, a “business concentration” means a business transaction involving (1) merger with another business; (2) acquisition of control over a business by acquisition of all or part of its equities or assets; or (3) acquisition of the right to control or to exert decisive influence over a business as a result of a contract or any other arrangement. (The Anti-Monopoly Law of the People's Republic of China (Aug. 30, 2007), art.20, Investment Promotion Agency of the Ministry of Commerce website.)

In order to discover and stem anti-competitive transactions, business operators are required by law to report to the anti-monopoly enforcement authority, the Ministry of Commerce (MOFCOM), before they engage in business concentrations that reach the statutory declaration threshold. (Id. arts. 3.3 &21; Jingyingzhe Jizhong Shenbao Banfa [Measures for the Declaration of Concentration of Business Operators], art 2, MOFCOM website (posted on Nov. 27, 2009).) Concentrations that are not reported are generally outlawed, unless there are acceptable reasons for them.

In order to fully enforce the Anti-Monopoly Law, on December 30, 2011, MOFCOM issued the Interim Measures for Investigating and Handling Concentrations of Business Operators That Fail to Report in Accordance with the Law (Measures). (Wei Yifa Shenbao Jingyingzhe Jizhong Diaocha Chuli Zanxing Banfa, Central People's Government (CPG) website (posted on Jan. 5, 2012).) These Measures, which came into force on February 1, 2012, standardize the investigation procedures and sanctions applicable to unreported business concentrations that may have reached the declaration threshold set in the Provisions of the State Council on the Application Criteria for Concentrations of Business Operators (Guowuyuan guanyu Jingyingzhe Jizhong Shenbao Biaozhun de Guiding, CPG website (posted on Aug. 4, 2008)), and thus violate the Anti-Monopoly Law.

The Measures basically formulate a two-stage investigation procedure, the Preliminary Investigation and the Further Investigation, to be executed by MOFCOM. An investigation may be initiated after MOFCOM receives a confidential report of a non-declared concentration from an entity or individual with preliminary facts and evidence that persuade MOFCOM of possible non-compliance. MOFCOM will notify the operators reported by the whistleblower that a case has been registered in the official record for investigation. (Measures, arts. 4 & 5, supra.)

Within 30 days of receiving the notification, the operator should submit relevant materials and documents to MOFCOM for review as part of the Preliminary Investigation, which may last as long as 60 days following MOFCOM's receipt of the materials. (Id. art. 7.) The Preliminary Investigation is focused on whether the reported transaction is a business concentration that reaches the declaration threshold and whether it has been executed. (Id. art. 6.)

A Further Investigation will only be undertaken if MOFCOM concludes that the transaction is an unreported business concentration that has met the declaration criteria and notifies the investigated operator of this result. (Id. art. 7.) The investigated operator is required, with 30 days of the date the notice was received, to submit supplementary materials that should be in accordance with the Measures for the Declaration of Concentration of Business Operators (Jingyingzhe Jizhong Shenbao Biaozhun, MOFCOM website (posted on Nov. 27, 2009)). MOFCOM will then estimate the impact of the concentration on market competition and make a final decision within 180 days. (Id. art 8.)

A non-compliant non-declaration by an operator could result in a fine of no more than RMB500,000 (about US$79,440). An anti-competitive business concentration may be stopped by MOFCOM through an order demanding that the operator (1) halt the concentration; (2) dispose of relevant shares and assets or transfer certain business by a specified deadline; or (3) take other necessary measurements to restore the pre-concentration status. (Id. art. 12.)

Prepared by Rong Xiang, Law Library Intern, under the guidance of Kelly Buchanan, Chief, Foreign, Comparative and International Law (FCIL) I. Ms. Xiang has a Bachelor of Laws degree from Nanjing University in China and an LL.M degree from the City University of Hong Kong. She recently earned an LL.M. in International Business Law from The American University Washington College of Law.