New Declaration Thresholds for Concentration of Undertakings

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Authored by: Edwarde Webre and Minning Wei

The State Council promulgated the “Rules of the State Council on Declaration Thresholds for Concentration of Undertakings” (“Rules”) on 26 January 2024, revising the declaration thresholds for concentrations of undertakings that have been unchanged for more than 15 years since 2008.  The major changes are set out as follows: –

1. Where a concentration of undertakings reaches any of the following thresholds, the undertakings shall declare the concentration to the anti-monopoly law enforcement agency under the State Council (“AML Enforcement Agency”) in advance and may not implement the concentration without the declaration: –

a. the total global turnover of all the undertakings participating in the concentration in the last accounting year exceeds RMB 12 billion (formerly RMB 10 billion), and at least two of these undertakings each have a turnover of more than RMB 800 million (formerly RMB 400 million) within China in the last accounting year; or

b. the total turnover within China of all the undertakings participating in the concentration in the last accounting year exceeds RMB 4 billion (formerly RMB 2 billion) and at least two of these undertakings each have a turnover of more than RMB 800 million (formerly RMB 400 million) within China in the last accounting year.

2. Where a concentration of undertakings does not meet either of the aforementioned turnover-based declaration thresholds, but there is evidence proving that the concentration of undertakings has or may have effect of excluding or restricting competition, the AML Enforcement Agency may require the undertakings to make a declaration.  Where any undertaking that meets a threshold or is required to make a declaration by the AML Enforcement Agency fails to make the declaration, the AML Enforcement Agency will pursuant to the law conduct an investigation on the concentration.

3. The AML Enforcement Agency shall, in light of the economic developments, evaluate the implementation of the declaration thresholds.

These Rules have come into force as of the date of promulgation.

Impact

Though the Rules are brief, they will have a significant impact on concentrations of undertakings and declaration matters: –

1. The Rules raise the declaration threshold for concentration cases.  It is expected that more undertakings implementing concentrations will be exempt from the declaration process, thus reducing transaction costs=, shortening the time required for a transaction and reducing completion uncertainty, which may help to stimulate the M&A market. Further, the AML Enforcement Agency will be able to focus more of its resources on reviewing the high-risk concentration cases, and the effectiveness of their supervision is expected to be enhanced.

2. In addition to the rigid turnover-based standards, the Rules also set up a flexible standard requiring a declaration when the concentration of undertakings does not meet any of the turnover-based thresholds but there is evidence proving that it will have or may have the effect of excluding or restricting competition. Such standard is currently vague.  It remains to be seen how the AML Enforcement Agency will apply it to a specific case. Fortunately, in such cases, the AML Enforcement Agency will first require the undertakings to make the declaration.  If the undertakings fail to do so, then the AML Enforcement Agency will conduct an investigation on the concentration case. The undertakings will thus have some time to deal with the declaration matters, rather than being subject to an immediate investigation.

Suggestions

1. Undertakings which plan to conduct a concentration should make an assessment in accordance with the new turnover thresholds to determine whether they need to make a declaration.

2. For those concentration transactions that are already in progress but do not meet the new turnover thresholds under the Rules, it would be advisable for the undertakings to communicate with the competent AML Enforcement Agency to confirm whether it is necessary to make a declare or to withdraw the declaration already submitted.

3. For those concentration transactions that do not meet the turnover thresholds, the undertakings involved should not necessarily feel secure, if they have a large market share, are industry leaders, or have arrangements in the proposed transaction that may be deemed to restrict competition.  They should assess the compliance risks further and, where necessary, communicate with the competent AML Enforcement Agency to determine whether a declaration should be made or not.

We will continue to monitor the implementation of the Rules and will advise on important developments.

Key Contacts

Edwarde Webre

Consultant | Corporate Commercial

Email or call +852 2825 9730