December 2022
Di Wu and Teresa Huang
In 2022, the Standing Committee of the National People’s Congress amended the Anti-Monopoly Law to improve the declaration system for concentration of business operators and add a stop-clock system and a classified and graded review system. At the same time, the State Administration for Market Regulation released the Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators (Revised Draft for Public Comments)” (hereinafter referred to as the “Draft”) for public comments. The Draft has partially amended the original Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators (hereinafter referred to as the “Old Standard”) in accordance with the adopted amendment to the Anti-Monopoly Law to expand the content thereof from the original 5 articles to 7 articles. The Draft redefines the entry standard for the review of operator concentration declarations but is not yet in effect. The clarification of the standard for declaration of concentration of business operators is not only beneficial to the participants of concentration of business operators to prepare for the declaration, but also facilitate enterprises to better predict and control the legal risks of concentration of business operators and clarify the declaration obligations. Moreover, it can guide regulators to reasonably define the scope of regulation, improve the efficiency of review, and clarify the risk of market monopoly.
According to the key points of amendments to the declaration system for concentration of business operators in the Anti-Monopoly Law and the Draft, the article will provide a brief analysis thereon as follows.
I. A concentration not meeting standard but has or may have the effect of eliminating or restricting competition shall also be declared
Paragraph 2 of Article 26 of the new Anti-Monopoly Law stipulates that if a concentration of business operators does not meet the standard for declaration prescribed by the State Council, but there is evidence that the concentration of business operators has or may have the effect of eliminating or restricting competition, the Anti-Monopoly Law Enforcement Agency under the State Council may require the business operators to make a declaration. Paragraph 3 of the same Article provides that if the business operators fail to make a declaration in accordance with the provisions, the Anti-Monopoly Law Enforcement Agency under the State Council shall conduct an investigation in accordance with the law.
The new Anti-Monopoly Law does not determine whether the declaration is required solely on the basis of the turnover of the business operators to be concentrated, but further refines it. The new Paragraph 2 gives the Anti-Monopoly Law Enforcement Agency the authority to “require the business operators to make a declaration”, while Paragraph 3 provides that the Anti-Monopoly Law Enforcement Agency shall take the initiative to “conduct an investigation in accordance with the law” if the business operators fail to make a declaration of the transaction as required. The Paragraph in fact increases the scrutiny of concentration of business operators and fills a gap in the previous declaration procedures, reflecting the attention of the law enforcement agencies to such concentration transactions. For example, some Internet platform companies implement transactions of concentration of business operators. Although the turnover concerned is not high, but the relevant market concentration is high, as the number of participating competitors is small. Thus, the implementation of concentration action will in fact form a monopoly in the relevant market. Therefore, when implementing such a concentration transaction, the business operators need to fully assess whether the transaction may have the possibility of eliminating or restricting competition effects.
II. The new Anti-Monopoly Law has added a “stop-clock system”
Article 32 of the Anti-Monopoly Law provides that the Anti-Monopoly Law Enforcement Agency under the State Council may decide to suspend the calculation of the review period of a concentration of business operators and notify the business operators in writing in any of the following circumstances:
(i) The business operators fail to submit documents or materials as required, which makes it impossible to carry out the review;
(ii) Any new circumstance or fact that has a significant impact on the review of the concentration of business operators emerges, which will result in the review being unable to proceed without verification;
(iii) The restrictive conditions attached to the concentration of business operators need to be further assessed, and the business operators make a suspension request.
The review period shall resume from the date when the circumstance suspending the calculation of the review period is eliminated, and the Anti-Monopoly Law Enforcement Agency under the State Council shall notify the business operators in writing.
The review of concentration of business operators is different from the ex-post facto review mode for monopoly agreement and abuse of dominant market position, and aims at preventing the occurrence of monopolistic behavior. Due to the procedural nature of the ex-ante review, the Anti-Monopoly Law sets a strict review period for the review of concentration of business operators. According to the old Anti-Monopoly Law, the review of concentration of business operators can be divided into two stages: preliminary review and further review. Specifically, in case of a specified circumstance, the anti-monopoly law enforcement agency may extend the review period, but the maximum accumulative period shall not exceed 180 calendar days. In practice, due to the large number of cases, it is difficult to ensure that each case is dealt fully and seriously.
The new Anti-Monopoly Law mark the formal introduction of the “stop-clock system”, which means that if the anti-monopoly law enforcement agency requires the declaring party of a concentration of business operators to provide additional materials or conduct inspection on the business operators due to the reasons of the declaring party, the review period shall be suspended until the relevant issues are resolved. The introduction of this system can buy more time for the law enforcement agency to review the concentration of business operators, and if any circumstance specified in the law arises, the law enforcement agency may suspend the review of the concentration of business operators until the circumstance leading to the suspension disappear.
According to this Article, the enterprise fulfilling the declaration obligations in the declaration of concentration of business operators needs to cooperate more actively with the Anti-Monopoly Bureau’s review work in the declaration process. In order not to affect the overall process of the transaction, the declaring enterprise should improve the material as much as possible and submit documents and materials in a timely manner when required by the Anti-Monopoly Bureau. It is recommended that the declaring enterprise should cooperate with professionals as early as possible to improve the professionalism and completeness of the declared materials to avoid affecting the overall transaction process due to incomplete materials and other problems.
III. The new classified and graded review system has been added
Article 37 of the new Anti-Monopoly Law provides that the Anti-Monopoly Law Enforcement Agency under the State Council shall perfect the classified and graded review system for concentration of business operators, strengthen the review of concentration of business operators in important areas such as those related to the national economy and people’s livelihood in accordance with the law, and improve the quality and efficiency of the review.
As the number of cases of declaration of concentration of business operators has been increasing in recent years, the classified and graded review system for concentration of business operators has been added in order to improve the quality and efficiency of the review. Firstly, the introduction of the graded review system helps to reasonably allocate law enforcement resources, improve the efficiency of the review of concentration of business operators, and guarantee the scientificalness and reasonableness of the review conclusions. Secondly, the system can guide the law enforcement resources to focus on the concentration of business operators that may trigger monopoly risks and prevent potential monopoly behaviors in key industries and key areas. Thirdly, the system is conducive to improve the predictability of the review of concentration of business operators in important areas related to the national economy and people’s livelihood and enhancing and maintaining the openness and vitality of the market. Fourthly, the system makes it possible for provincial market regulation bureaus to carry out the review of concentration of business operators in the future, and improve the law enforcement capability of the Anti-Monopoly Bureau as a whole to better guide the market.
IV. The turnover requirements in the standard for declaration has been raised significantly
Article 3 of the Draft stipulates that if a concentration of business operators meets one of the following standards, the business operators shall make a declaration to the Anti-Monopoly Law Enforcement Agency under the State Council in advance and the concentration shall not be implemented if it is not declared:
(i) The aggregate worldwide turnover of all business operators involved in the concentration is more than RMB12 billion in the preceding financial year, and the turnover within China of each of at least two of the business operators concerned is more than RMB800 million in the preceding financial year.
(ii) The aggregate turnover within China of all business operators involved in the concentration is more than RMB4 billion in the preceding financial year, and the turnover within China of each of at least two of the business operators concerned is more than RMB800 million in the preceding financial year.
With the continuous development of society and the constant improvement of economic level, in order to match the actual level of market economic development, the provisions of the Draft have significantly increased the turnover standard for the declarants compared to the Old Standard. Since the introduction of the Old Standard, the declaration standards for turnover had not been amended. It is obvious that the declaration standards were unable to adapt to the existing economic conditions of society. In practice, many small and medium-sized business operators meet such standards but do not cause any impact on the market. The significant increase of the turnover standards in the declaration/review standards will reduce this part of the review procedures for declaration of concentration of business operators and effectively reduce the related declarations, thus lowering transaction costs and improving efficiency.
V. The declaration standards for large domestic enterprises involved in special transactions have been added
Article 4 of the Draft provides that if a concentration of business operators does not meet the declaration standards set forth in Article 3 of the Draft, but meets all the following conditions, the business operators shall make a declaration to the Anti-Monopoly Law Enforcement Agency under the State Council in advance, and the concentration shall not be implemented if it is not declared.
(i) The turnover within China of one of the business operators involved in the concentration is more than RMB100 billion in the preceding financial year;
(ii) The market value (or valuation) of the other party(ies) to the merger under Article 2 (1) or other business operator(s) under Article 2 (2) and Article 2 (3) of the Draft is not less than RMB800 million, and its (their) turnover within China in the preceding financial year accounts for more than one-third of its (their) worldwide turnover in the same year.
In order to increase the scrutiny of the concentration of giant enterprises, platform enterprises and technology-based or web-based platforms and other startups, the Draft has added the provisions of this Article.
As the economic form continues to change, the modes of business operator subjects are also increasing. As a large number of Internet, mobile communications and other emerging industries and capital forces have emerged, and a large number of resources, including technology, data, land, capital and other market factors, are held by a few large enterprises, monopoly and competition risks are also increasing. In order to prevent giant enterprises, platform enterprises and technology-based or web-based platforms and other startups from abusing market dominance and hindering the healthy development of the market, the Draft has added the provisions of this Article for promoting the review of their concentration behavior so as to avoid market imbalances that distort competition. Such provisions also indicate that giant enterprises should carry out a pre-review before implementing such a concentration of business operators. If the concentration meets the standards, it should be declared as soon as possible to avoid any penalty caused by failure to declare.
To sum up, from the amendments to the Anti-Monopoly Law and the Draft regarding the declaration of concentration of business operators, it can be seen that the State attaches much more importance to the anti-monopoly of enterprises, which will have a different impact on the operation of medium and large enterprises. It is expected that enterprises should consult with legal professionals as early as possible to prepare for the relevant declaration procedures in advance to avoid disputes.
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