China's Competition Law - New Regulatory and Policy Developments
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China’s Anti-monopoly Law took effect on 1 August 2008. During the last four years, over 400 business transactions have been reviewed under this law, including most of the world’s largest international transactions. This article looks at some of the major developments in this area of Chinese law, from a regulatory and policy perspective.
[Review Process]
Any domestic or foreign transaction can trigger a review by the Ministry of Commerce (MOFCOM). Such a review in China includes three formal phases: 30 days’ preliminary review phase, 90 days’ further review phase and 60 days’ final extended review phase. Meanwhile, there is also a pre-acceptance phase needed to be concerned as the preliminary review phase starts to be calculated when MOFCOM thinks all the documents required by MOFCOM are provided.
During the four years, the Ministry of Commerce (MOFCOM) had issued a series of rules on how to review a transaction which may affect competition in the Chinese market.
In August 2011, MOFCOM issued Interim Provisions on Assessing the Competitive Effects of a Concentration. It clarifies those specific considerations and standards for assessing the competitive effects of a concentration, and refined Article 27 and 28 of the Law including how to look at market share and market control, the concept and significance of market concentration, effects to market entry, effects to technological progress and so on.
Up to now, MOFCOM has reviewed over 450 transactions in which over 95% were approved unconditionally, 14 transactions were approved conditionally and 1 was disapproved. In 2012, it has already published 4 conditional approvals. They are the concentration between Henkel Hong Kong and Tiande Chemical, Western Digital acquisition of Hitachi Storage, Google acquisition of Motorola Mobile and United Technologies acquisition of Goodrich. All of these four transactions were reviewed by MOFCOM for at least or over half a year.
In order to improve review efficiency, MOFCOM has issued Interim Measures on How to Dispose the Concentrations Failure to File the Declarations according to the Law on 30 December 2011. It became effective on 1 February 2012. In addition, MOFCOM is drafting other two departmental rules including Provisions on Adding Restrictive Conditions to Concentrations, and Investigated Approaches to the Concentrations which is below the Declaration Criteria but Suspected of Monopoly.
Meanwhile, MOFCOM released a new filing form in June this year. It clarifies some important issues occurred during the practice of concentration declaration. For example, it guides the applicants on how to identification of the operators involved in the concentration under different situations. But it also includes additional information requirements. For example, it requires submitting research, analysis and report submitted by the directors or executives or prepared by the internal or third-party for the directors or executives. These research, analysis and report includes market share, competition conditions, actual or potential competitors, reasonableness of the concentration, the sales growth or potential of expansion into other product or geographic market, overall market conditions, and the synergies and efficiency brought by the concentration. While no such document can be provided, detailed reasons for not filing of it shall be given instead. Moreover, it requires the applicants discloses of its concentration situations in the relevant market during the past three years.
[Fast- Track Reviews]
It is expected that the MOFCOM is going to introduce a fast-track review procedure in order to simplify and speed up the review process for those cases which cannot lead to competition concern obviously. According to the draft proposal, it will only apply to cases with simple relevant markets, small market shares. It is estimated that it will benefit more than half of the transactions once it is formally introduced as all the applicants with accurate determination of relevant market can apply this fast-track review procedure.
The draft proposal classifies cases into three categories, simple, normal and major, according to their combined market share and Herfindahl-Hirschman Index (HHI) mainly. The other relevant factors include the size of the deal, industry sectors and categorization of markets. Decisions for simple cases will be made within 30 days after MOFCOM formally accepts the declaration. Decisions for normal cases will be made within 30 days or can be extended for no more than 75 days. And decisions for Major cases will be made within 120 days or 180 days.
[Supreme Court Comments]
By the end of 2011, the Courts in China had accepted 61 first instance anti-monopoly cases in which 53 cases has been closed and most cases are involved in abuse of market dominant position.
On 1 June this year, the Supreme People’s Court issued Provisions on Several Issues Concerning the Application of the Law in Trials of Civil Dispute Cases Arising from Monopolistic Acts (the Provisions). It sets forth a variety of procedure and substantive rules for anti-monopoly lawsuits, and laid out basic framework for private anti-monopoly actions in China.
Article 7 of the Provision provides that the defendant shall bear the burden of proof that its agreement isn’t has any eliminate and restrict effect to competition where the claimed monopoly act belongs to the agreement specified in Article 17 (1) (i) to 17 (1) (v) of the Law. It shifts the burden of proof to the defendant in cases where horizontal agreements are alleged to have obvious effects on limiting or excluding competition.
Meanwhile, Article 9 provides that the court may make a finding based on the market structure and competition that a defendant has a dominant market position where the defendant is a public utility enterprise or an enterprise having an exclusive market position permitted by law. According to Article 8, it is the plaintiff who bears the burden of proof that the defendant has abused its market position.
Furthermore, Article 10 provides that the plaintiff can use any information publicly disclosed by the defendant as the evidence of the defendant’s dominant market position. Article 11 puts a special focus on the protection of confidential materials. Article 12 allows one or two professionals to illustrate the technical issues related to the case. And Article 13 indicates that a market research or economic analysis issued by an authorized professional organization or professionals on specialized issues can be valid evidence.
The Provisions came less than a month after the first People’s Higher Court began hearing a landmark dispute between software companies Qihoo and Tencent. Because many issues are not clarified yet, this case is followed by lots of practitioners in China. They want to conclude a set of methodologies to determine some issues such as market definition, substantive evidence, expert witness and the burden of proof through observing this case.
[Conclusion]
It is true that China Anti-monopoly Law copies many of EU’s, and it is still learning from many courtiers and from themselves as well. During the past four years, we found China has improved its anti-monopoly law system not just by copying but putting a bit more Chinese factors because it seems that China want to use anti-monopoly review system to manage, assist or protect its domestic operators.
ABOUT THE AUTHOR: Xia Yu
Xia Yu is an Associate in the MMLC Group.
Copyright MMLC Group
More information about MMLC Group
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Any domestic or foreign transaction can trigger a review by the Ministry of Commerce (MOFCOM). Such a review in China includes three formal phases: 30 days’ preliminary review phase, 90 days’ further review phase and 60 days’ final extended review phase. Meanwhile, there is also a pre-acceptance phase needed to be concerned as the preliminary review phase starts to be calculated when MOFCOM thinks all the documents required by MOFCOM are provided.
During the four years, the Ministry of Commerce (MOFCOM) had issued a series of rules on how to review a transaction which may affect competition in the Chinese market.
In August 2011, MOFCOM issued Interim Provisions on Assessing the Competitive Effects of a Concentration. It clarifies those specific considerations and standards for assessing the competitive effects of a concentration, and refined Article 27 and 28 of the Law including how to look at market share and market control, the concept and significance of market concentration, effects to market entry, effects to technological progress and so on.
Up to now, MOFCOM has reviewed over 450 transactions in which over 95% were approved unconditionally, 14 transactions were approved conditionally and 1 was disapproved. In 2012, it has already published 4 conditional approvals. They are the concentration between Henkel Hong Kong and Tiande Chemical, Western Digital acquisition of Hitachi Storage, Google acquisition of Motorola Mobile and United Technologies acquisition of Goodrich. All of these four transactions were reviewed by MOFCOM for at least or over half a year.
In order to improve review efficiency, MOFCOM has issued Interim Measures on How to Dispose the Concentrations Failure to File the Declarations according to the Law on 30 December 2011. It became effective on 1 February 2012. In addition, MOFCOM is drafting other two departmental rules including Provisions on Adding Restrictive Conditions to Concentrations, and Investigated Approaches to the Concentrations which is below the Declaration Criteria but Suspected of Monopoly.
Meanwhile, MOFCOM released a new filing form in June this year. It clarifies some important issues occurred during the practice of concentration declaration. For example, it guides the applicants on how to identification of the operators involved in the concentration under different situations. But it also includes additional information requirements. For example, it requires submitting research, analysis and report submitted by the directors or executives or prepared by the internal or third-party for the directors or executives. These research, analysis and report includes market share, competition conditions, actual or potential competitors, reasonableness of the concentration, the sales growth or potential of expansion into other product or geographic market, overall market conditions, and the synergies and efficiency brought by the concentration. While no such document can be provided, detailed reasons for not filing of it shall be given instead. Moreover, it requires the applicants discloses of its concentration situations in the relevant market during the past three years.
[Fast- Track Reviews]
It is expected that the MOFCOM is going to introduce a fast-track review procedure in order to simplify and speed up the review process for those cases which cannot lead to competition concern obviously. According to the draft proposal, it will only apply to cases with simple relevant markets, small market shares. It is estimated that it will benefit more than half of the transactions once it is formally introduced as all the applicants with accurate determination of relevant market can apply this fast-track review procedure.
The draft proposal classifies cases into three categories, simple, normal and major, according to their combined market share and Herfindahl-Hirschman Index (HHI) mainly. The other relevant factors include the size of the deal, industry sectors and categorization of markets. Decisions for simple cases will be made within 30 days after MOFCOM formally accepts the declaration. Decisions for normal cases will be made within 30 days or can be extended for no more than 75 days. And decisions for Major cases will be made within 120 days or 180 days.
[Supreme Court Comments]
By the end of 2011, the Courts in China had accepted 61 first instance anti-monopoly cases in which 53 cases has been closed and most cases are involved in abuse of market dominant position.
On 1 June this year, the Supreme People’s Court issued Provisions on Several Issues Concerning the Application of the Law in Trials of Civil Dispute Cases Arising from Monopolistic Acts (the Provisions). It sets forth a variety of procedure and substantive rules for anti-monopoly lawsuits, and laid out basic framework for private anti-monopoly actions in China.
Article 7 of the Provision provides that the defendant shall bear the burden of proof that its agreement isn’t has any eliminate and restrict effect to competition where the claimed monopoly act belongs to the agreement specified in Article 17 (1) (i) to 17 (1) (v) of the Law. It shifts the burden of proof to the defendant in cases where horizontal agreements are alleged to have obvious effects on limiting or excluding competition.
Meanwhile, Article 9 provides that the court may make a finding based on the market structure and competition that a defendant has a dominant market position where the defendant is a public utility enterprise or an enterprise having an exclusive market position permitted by law. According to Article 8, it is the plaintiff who bears the burden of proof that the defendant has abused its market position.
Furthermore, Article 10 provides that the plaintiff can use any information publicly disclosed by the defendant as the evidence of the defendant’s dominant market position. Article 11 puts a special focus on the protection of confidential materials. Article 12 allows one or two professionals to illustrate the technical issues related to the case. And Article 13 indicates that a market research or economic analysis issued by an authorized professional organization or professionals on specialized issues can be valid evidence.
The Provisions came less than a month after the first People’s Higher Court began hearing a landmark dispute between software companies Qihoo and Tencent. Because many issues are not clarified yet, this case is followed by lots of practitioners in China. They want to conclude a set of methodologies to determine some issues such as market definition, substantive evidence, expert witness and the burden of proof through observing this case.
[Conclusion]
It is true that China Anti-monopoly Law copies many of EU’s, and it is still learning from many courtiers and from themselves as well. During the past four years, we found China has improved its anti-monopoly law system not just by copying but putting a bit more Chinese factors because it seems that China want to use anti-monopoly review system to manage, assist or protect its domestic operators.
ABOUT THE AUTHOR: Xia Yu
Xia Yu is an Associate in the MMLC Group.
Copyright MMLC Group
More information about MMLC Group
View all articles published by MMLC Group
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
