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Comments on Interim Rules of the Criteria for Simple Cases of Undertaking Concentrations released by MOFCOM

Release time:2014-04-15

By Xie Guanbin and Jin Yi of Lifang & Partners

On February 11, 2014, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) released Interim Rules of the Criteria for Simple Cases of Undertaking Concentrations (the “Interim Rules”), which has been effective as of 12 February, 2014. MODIFICATIONS OF THE INTERIM RULES MADE ON ITS PREVIOUS OPINION-SOLICITING DRAFT The officially promulgated Interim Rules does not differ substantially from its previous draft for soliciting public opinions that was published on April 3, 2013 by MOFCOM. We list two major differences as below:

The final version further specifies the conditions for recognizing simple cases involving conglomerate merger & acquisition in Article 2.3. The previous draft defined that ‘undertakings participating in the concentration that have no upstream or downstream relationships and hold less than 25% shares in each market’. It should be literally interpreted that if undertakings participating in the concentration have no upstream or downstream relationships, even if one of them holds more than 25% shares in any market, the concentration cannot be considered as a simple case. The overbroad definition triggered controversies after the draft was published for soliciting opinions. In the officially promulgated version, this Article has been amended to be more precise and reasonable, that is, “the undertakings, which participate in the concentration but neither operate in the same relevant market nor have any upstream or downstream relationships, have less than 25% market shares in each relevant market related to the transaction.”

Article 5 in the draft is deleted for the reason that it is irrelevant to the determination criteria of simple cases. The removed Article 5 stipulates that ‘any applicant that conceals material information or provides false or misleading information will be pursued for legal liability in accordance with Article 52 of the Anti-monopoly Law.’ As it is but a restatement of Article 52 of Anti-monopoly Law, its removal does not affect MOFCOM’s power to hold a notifying party liable for concealing information or providing false information according to the Anti-monopoly Law. REORGANIZATION CRITERIA FOR SIMPLE CASES

Article 2 of the Interim Rules specifies six kinds of concentrations that can be treated as simple cases, which are listed below:

1. in the same relevant market, all of the undertakings participating in the concentration have less than 15% market shares;

2. where there is a upstream-downstream relationship among the undertakings participating in the concentration, the market shares of the undertakings in the upstream and the downstream markets are less than 25%;

3. where the undertakings participating in the concentration neither operate in the same relevant market nor have any upstream-downstream relationships, the market shares of the undertakings in each market are less than 25%;

4. where the undertakings participating in the concentration establish a joint venture outside China, that joint venture does not engage in any business activities within China;

5. where the undertakings participating in the concentration acquire the equity interests or assets of an overseas entity, the overseas entity does not engage in any economic activities in China; and

6. where the concentration involves a joint venture under the joint control of two or more undertakings, the joint venture will be controlled by one or more of the undertakings after the concentration.

These criteria are clearly described, and there should not be too much controversy regarding what cases are eligible for summary review in combination of the exceptions provided in Article 3. However, companies and lawyers involved in undertaking concentration filings are more concerned with procedural issues including acceptance of a simple case, timeframe of the simple case review, whether the materials required for review can be simplified, and whether the procedure of seeking external opinions can be avoided. The Interim Rules provides only criteria in determining simple cases, but does not further clarify the review procedures of simple cases.

In a press release relating to the development of anti-monopoly law enforcement in 2012, Mr. Shang Ming, Director of the Anti-monopoly Bureau of MOFCOM, introduced that “a simplified procedure may be adopted, with less consultation with other departments and less application documents required during the review, and thus the review period will be considerably shortened to 30 days or 20 days.” Under the Anti-monopoly Law and the current review procedure, Phase 1 of an undertaking concentration review procedure can take 30 days. We understand that before MOFCOM issues addtional rules on the procedure for simple cases, it may probably treat the review period of a simple case as that for completing the first phase. However, the Interim Rules still fails to give answers to whether the submission materials required will be simplified.


Article 3 of the Interim Rules stipulates that a case that meets the criteria in Article 2 will not be considered as a simple case if it falls under any of the following six circumstances:

1. a joint venture under the joint control of two or more undertakings becomes controlled by one of the parties as a result of the concentration and the undertakings and the joint venture are competitors in the same relevant market;

2. it is difficult to define the relevant markets in which the concentration of undertakings involves;

3. the concentration of undertakings may have an adverse influence on market access or technological advancement;

4. the concentration of undertakings may have an adverse impact on consumers and other undertakings;

5. the concentration of undertakings may have an adverse impact on the national economic development; or

6. other circumstances that may have an adverse impact on market competition in the opinion of MOFCOM.

In the above mentioned circumstances, except for item 1 which gives a relatively clear and objective standard, items 2 to 6 adopt subjective standards. It is not hard to see that MOFCOM will be highly discretional in determining simple cases. Since the Interim Rules does not clarify the procedure for determining a simple case, and in view of the fact that the aforesaid circumstances all involve substantial issues of undertaking concentration (such as factors like the definition of a relevant market and market access), we believe that, taking into consideration of Article 4, MOCFOM may probably permit a summary procedure for a simple case at the same time when it decides to accept the case. In the current practice, due to the serious lack of examiners handling cases, a pre-acceptance investigation generally takes rather long time. While the Anti-monopoly Law only specifies the deadline of the period after the case is accepted, the pre-acceptance period usually takes more time than the first phase review. It remains to be seen whether this pre-acceptance period will be further prolonged after the implementation of the Interim Rules, since additional decision on the summary procedure for a simple case will also be made in this period.


Article 4 of the Interim Rules lists three circumstances where MOFCOM may revoke the recognition of a simple case:

the notifying party conceals important information or provides false or misleading information;

a third party claims that the concentration of undertakings has or may have the effect of eliminating or restricting competition and provides relevant evidence; or

MOFCOM finds that there is a material change in the transaction for concentration or the competition in the relevant market.

In the course of seeking public opinions for the previous draft of the Interim Rules, some enterprises brought forth their concerns on predictability of MOFCOM’s decisions and on potential financial losses in case that after MOFCOM determines a case as a simple case and the business undertakings set up a transaction schedule according to the expected timeline, MOFCOM revokes its simple case decision to resume the normal procedure for the same case. We believe that MOFCOM’s revocation should be subject to great limitation under Article 4 after it has already determined to apply such summary review to a simple case and MOFCOM should also bear the burden of proof. Of the three circumstances in Article 4, with the exception of item 2 where evidence is provided by a third party, it takes the initiative of MOFCOM to find evidence in circumstances of items 1 and 3. It is a rather high requirement for MOFCOM’s law enforceability, however. We likely to believe that after a case is determined as a simple case, MOFCOM would be reluctantly to revoke its decision.

However, one more issue shall draw our attention. In the second circumstance of Article 4 where the recognition of a simple case shall be revoked, it requires a third party to produce relevant evidence to prove that the concentration of undertakings has or may have the effect of excluding or limiting competition. At present, as part of MOFCOM’s efforts to improve antitrust law enforcement transparency, names of unconditionally approved transactions and more detailed information of conditionally approved transactions are published quarterly. But such a release is made after the cases are concluded, which means that in MOFCOM’s current practice, a third party has no way to be aware of the ongoing applications for undertaking concentration and therefore will not be able to bring up oppositions. It means that for the seriousness of the simple case review procedure and credibility of MOFCOM, transparency of the undertaking concentration review should be further improved. It is necessary that MOFCOM disclose applications for undertakings concentration which are still in the pre-acceptance stage, at least it shall disclose those concentrations that are likely to be treated as simple cases. Information to be disclosed should at least include transaction overview, the relevant product market and territorial market, and the grounds based on which MOFCOM decides a case to be a simple one.

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