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• Over Discretion. Since the M&A Rules give no guidance on the methodology in determining whether a transaction would result in excessive concentration, impeding or disturbing rightful competition, and harming domestic consumers’ benefits, MOC and SAIC actually enjoy full discretion to determine whether a specific transaction presents serious antitrust concerns. For foreign investors contemplating an acquisition in China, this is likely to create completion risk and increase transaction costs.
• Market Definition. With respect to the market share test, it is unclear whether China market share refers to market share in a defined industry, or with respect to a specific product or service. The M&A Rules offer no guidance regarding the methodology for calculating China market share of a specific party in the transaction, or which authority(ies) is/are to make such determination.
• Recent Acquisitions. Concerning the condition that the foreign investor merge with or acquire over 10 domestic enterprises in the associated industry within a given year, the M&A rules include no definition to the term “associated industry”, which could be interpreted broadly. Moreover, it is unclear whether the relevant time period is any given 12-month period, or any calendar year.
• Responsibilities Division. The M&A Rules expressly grant both MOFTEC (now the Ministry of Commerce (MOC)) and SAIC the power to regulate the antitrust filing and to conduct the antitrust review in merger & acquisition transactions. However, the M&A Rules are silent on the allocation of responsibilities between these two agencies in reviewing the antitrust filing, which could be procedural challenges in the initial phase of the M&A Rules implementation.
A side effect of the limited role for courts is that they will continue to lack experience in complex and even intractable questions of antitrust law and knowledge in the sophisticated economics underlying antitrust practices in the West.
The Ways to Improve Chinese Anti-trust Rules
Countries with mature antitrust laws and regulations, such as UK and US, have accumulated precious experience in controlling the anti-competitive practices arising from large-scale combination. The newly launched counterpart rules in China are still lagged behind. With reference to the successful precedents in other jurisdictions, many vital measures or provisions should be introduced into China’s antitrust legal system, among which some have already appeared in the latest draft of competition law. However, the following points are still left for further clarification:
• Specification of the Exemption from Antitrust Review. Under Article 22 of the M&A Rules, if the transaction has the potential to have a positive impact on competitive conditions, involves restructuring a loss-making enterprise and assures employment, introduces advanced technology and managerial talent, improves the company''s international competitiveness, or improves the environment, the parties may apply to MOC and SAIC for an exemption from antitrust inquiry. Most of these criteria are relatively vague and thus are in effect subject to the sole discretion of MOC and SAIC. The most useful exemption seems to be that for a transaction involving restructuring of a loss-making enterprise in a manner which assures employment. Such restructuring may serve to avoid the antitrust filing requirement for many M&A transactions.
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