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Client Update: China - Competition Law – 4 August 2008

China's anti-monopoly law starts

In brief: On 1 August 2008, China's Anti-Monopoly Law came into force. Its key provisions will be broadly familiar to businesses operating in Australia, Europe and the USA in that it prohibits anti-competitive ('monopoly') agreements and abuse of a dominant market position, and requires notification of mergers and acquisitions ('concentrations') that meet certain thresholds. However, the Chinese Government is yet to release regulations or final guidelines on a number of aspects of the law that require clarification. Partner Carolyn Oddie (view CV) and Lawyer Andrew Gun report.

Concentration notification thresholds

Guidance from the PRC Government on notification requirements for concentrations will be of particular interest to foreign companies conducting or contemplating business in China. The most recent draft of the pre-concentration notification requirements states that a concentration must be notified if, during the previous financial year:

  • total worldwide turnover for all parties to the concentration was in excess of RMB 10 billion (approximately A$1.5 billion) and at least two parties each had turnover in China of more than RMB 400 million (approximately A$60 million); or
  • total turnover in China of all parties to the concentration exceeded RMB 2 billion (approximately A$300 million) and at least two parties each had turnover in China of more than RMB 400 million (approximately A$60 million).

Until further guidance is given on how turnover is to be calculated, foreign businesses will face some uncertainty as to which concentrations will require notification. It is encouraging, however, that the most recent draft of the notification requirements dispenses with the market-share test that appeared in earlier drafts (although market share will remain an important factor in the relevant authority's consideration of a concentration).

Notwithstanding Article 2 of the Anti-Monopoly Law (the AML), which states that the law applies to conduct outside China that has anti-competitive effect within China, the purely turnover-based thresholds can be interpreted as requiring notification of a merger between two foreign companies where the thresholds are met, regardless of the likely effect on competition within China. Accordingly, parties to offshore transactions that meet the thresholds should be conscious of the possibility that any offshore merger will require notification in China.

Further, the current draft notification requirements also allow the relevant authority to investigate a concentration that does not meet the thresholds where the authority determines that the concentration may be anti-competitive.

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Authorities

The AML provides for the appointment of anti-monopoly enforcement agencies that are to be responsible for enforcement, but it does not define which actual department (or departments) will fulfil this role. Although it is yet to be confirmed, there have been indications that AML enforcement will be split between three existing departments:

  • the Ministry of Commerce will be responsible for control of concentrations;
  • the State Administration for Industry & Commerce will enforce the prohibitions against monopoly agreements and abuse of dominant market position; and
  • the National Development & Reform Commission will continue its prices oversight role.

Although this is perhaps an unwieldy administration and may not be conducive to the consistent application of policy, it does broadly reflect the roles of the respective departments under existing competition-related laws. The current allocation of responsibilities may have the advantage of a continuity of responsibilities and of maintaining institutional knowledge and experience, which may be important in the early years of the AML.

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Conclusion

Companies operating in China should ensure that their practices are compliant with the AML and should be aware that concentrations may require notification to the Chinese anti-monopoly authorities, even where neither the acquirer nor the target are Chinese companies. If you have any queries about this or any other competition matter feel free to contact one of the partners below.

For further information, please contact:

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