Amendments to China Anti-Monopoly Law 4 key themes
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China's Anti-Monopoly Law (AML) has been amended for the first time since it came into force in 2008.
The amendments are significant and will impact businesses. They can be grouped into, and characterised by, the following four themes:
(1) Greater discretion on mergers
(2) Clarifications on approaches to vertical arrangements
(3) Focus on the digital economy
(4) Increased penalties
The amended AML will come into force on 1 August 2022.
On 24 June 2022, the Standing Committee of the National People's Congress of China adopted amendments to China's Anti-Monopoly Law (AML). The amended AML will come into force on 1 August 2022. This is the first set of amendments to the AML since it first came into force in 2008. The amendments are significant and will impact on businesses.
This alert outlines the salient changes to the AML and implications for businesses. The changes can be grouped into the following 4 key themes:
(1) Greater discretion on mergers
(2) Clarifications on approaches to vertical arrangements
(3) Focus on the digital economy
(4) Increased penalties
The amendments concerning merger control afford more discretion to the SAMR throughout the merger review process, and address perceived "loopholes" in the current merger regime.
The key amendments to the AML relevant to merger control include:
The SAMR will initiate investigations into transactions which do not exceed merger notification thresholds but nevertheless have or could have the effect of eliminating or restricting competition.
This amendment is aimed at capturing "killer acquisitions" where an incumbent (ie, particularly in the digital industry) acquires an innovative target solely to pre-empt future competition.
This amendment will be further bolstered by proposed changes to notification thresholds. The Draft Rules contain the following amended and new thresholds:
The proposed increase in primary thresholds is aimed at capturing transactions with greater impact in China and decreasing transaction costs for small to medium undertakings. The new supplementary thresholds are aimed at capturing killer acquisitions.
A "stop the clock" regime will be introduced. The SAMR will have the power to suspend the merger review in the following circumstances: (i) where undertakings fail to provide necessary information or documentation; (ii) where new material facts which affect the review of the concentration need to be examined; and/or (iii) where conditions to be placed on the proposed concentration need to be further evaluated and a relevant undertaking makes a request for suspension.
This amendment will afford the SAMR more time and flexibility to review mergers, particularly complex ones. Prior to the amendment, the maximum period for review of complex mergers is 180 calendar days. In practice, the SAMR extends review periods by requesting that transacting parties "pull and refile". With this amendment, we might see less “pull and refile” requests. Of note is the fact that the amended AML does not contain a maximum length of time in which the merger review can be suspended.
The SAMR will improve its "classification" and "grading systems" for mergers. Critical areas of focus would include industries concerning "national development and livelihood".
It is expected that the SAMR will focus on and prioritise reviews of transactions in specific sectors. In a previous iteration of the amended AML, this provision highlighted the following industries: "livelihood, finance, science, technology and media".
Previously, fines were capped at RMB 500,000 (c. USD 75,000) for unreported mergers. This has been increased to: (a) up to RMB 5 million (c. USD 747,000) for unreported mergers which do not result in competition concerns; and (b) up to 10% of turnover for unreported mergers which would result in competition concerns.
If, however, the SAMR considers the unreported merger to be a "serious violation", it would have the power to impose fines of between 2 to 5 times of the above penalties.
This large increase in failure to file penalties is likely aimed at unreported mergers with significant impact on Chinese markets as well as on recalcitrant and repeat offenders.
Approaches to vertical arrangements have been clarified by the amendments. More clarifications are required, especially with regards to how the new safe harbour regime will be implemented.
Resale price maintenance will continue to be prohibited in principle, unless undertakings are able to prove that this conduct did not result in anticompetitive effects.
In addition, this article introduces a market share safe harbour in which vertical arrangements may be exempt. It is not clear, however, how the market share safe harbour will be applied to resale price maintenance.
The Draft Rules state that the market share threshold is 15%.
Provisions which target conduct undertaken by digital economy businesses (in particular digital platforms) have been introduced. These additions are unsurprising given the focus of the Chinese Government on conduct in digital economy markets and the SAMR's recent enforcement actions against Chinese e-commerce platforms.
The key amendments to the AML relevant to the digital economy include:
The objectives of the AML now include "encouraging innovation".
This is a recognition of innovation as a key driver of competition in the Chinese and global economy.
Undertakings shall not use data, algorithms, technology and capital advantages and platform rules to engage in monopolistic acts.
Undertakings with a dominant market position shall not use data, algorithms and platform rules to engage in an abuse of dominance.
The amendments increase penalties for various contraventions of the AML (see table below attached). Significantly, fines for individuals who are responsible for the conclusion of monopoly agreements have been introduced.
Contravening conduct | Penalties |
---|---|
Monopoly agreements which have been concluded | For businesses Fines of between 1% to 10% of turnover and confiscation of illegal gains Fines of up to RMB 5 million (c. USD 747,000) in circumstances where an infringing undertaking has no turnover in the last year; credit records impacted For trade associations Fines of up to RMB 3 million (c. USD 448,000); revocation of license; credit records impacted For individuals1 Fines of up to RMB 1 million (c. USD 149,000) |
Monopoly agreements which have not been concluded | Fines of up to RMB 3 million (c. USD 448,000) (amended from a fine of up to RMB 500,000 (c. USD 75,000)) |
Organisers and facilitators of monopoly agreements | The penalties pertaining to monopoly agreements apply (as above) |
Failure to file mergers | Mergers with competition concerns Fines of up to 10% of sales revenue; other remedies including ceasing completion of the concentration, disposal of shares or assets, divesting part of the business or any other necessary measures to reinstate the position prior to the concentration Mergers with no competition concerns Fines of up to RMB 5 million (c. USD 747,000) |
Undertakings which fail to cooperate with an investigation by the SAMR | For businesses Fines of up to 1% of turnover in the last year; fines of up to RMB 5 million (c. USD 747,000) if the company had no turnover in the last year or if it is difficult to calculate the turnover in the last year; credit records impacted For individuals Fines of up to RMB 500,000 (c. USD 75,000) In addition, criminal liability applies where violations to the amended AML constitutes a crime. |
Serious violations of the AML | Between two to five times the amounts specified (new provision) |
Six implementing rules and regulations relevant to the AML2 will be updated to reflect and further clarify the amendments. On 27 June 2022, the State Administration for Market Regulation (SAMR) (China's antitrust enforcement agency) released draft amendments to these rules and regulations for consultation. The consultation period concludes on 27 July 2022.
Going forward, it is important for businesses to review their policies and strategies to ensure compliance with the amended AML. Businesses should also watch out for the final amendments to the Draft Rules as these are expected to be instructive as to the operation of the new and amended clauses of the AML.
Authors: Angie Ng (Partner, Ashurst); Guan Yue (Partner, Guantao); and Adelle Elhosni (Senior Associate, Ashurst).
Special thanks also to Veronica Murdoch (Associate, Ashurst) for her contributions to this alert.
1. This includes the undertaking's legal representative, person in charge or directly responsible person.
2. These are: (i) Regulations on the Merger Control Filing Thresholds; (ii) Provisions on Prohibition of Monopoly Agreements; (iii) Provisions on Prohibition of Abuse of Dominance; (iv) Provisions on the elimination and restriction of competition through the abuse of Intellectual Property Rights; (v) Provisions on the elimination and restriction of competition through abuse of administrative power; and (vi) Provisions on Merger Control Review.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.
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