China: Merger Control

The State Administration for Market Regulation (“SAMR”), as a ministerial-level government agency, is responsible for anti-monopoly administrative law enforcement. The Anti-Monopoly Law Enforcement Bureau II of SAMR is responsible for conducting merger control review, investigating and punishing cases of concentration of undertakings that are illegally implemented, investigating and punishing cases of concentration of undertakings that do not meet the filing thresholds but may exclude or restrict competition, and carrying out merger control review on the concentration of undertakings in the digital economy, and supervising and enforcing the conditions attached to the concentration of undertakings.

According to the Announcement of SAMR on Pilot Entrusting the Merger Control Review of Some Concentration Cases of Undertakings, SAMR has entrusted the market supervision and administration departments of five provinces (municipalities) including Beijing, Shanghai, Guangdong, Chongqing, and Shaanxi to carry out part of the pilot program of merger control review of concentration of undertakings.

The merger control legislation in China consists of the Anti-Monopoly Law (“AML”), notification thresholds regulations, implementation regulations and the guidelines.

China’s merger control regime is governed by the AML.  The AML became effective on August 1, 2008 and was amended on August 1, 2022.

The Provisions of the State Council on the Notification Thresholds of Concentrations of Undertakings (August 3, 2008) (“Notification Thresholds Provisions”) regulates the turnover thresholds of merger control filing.  In addition, there are separate rules for the calculation of notification thresholds for the financial industry.

On October 23, 2020, SAMR issued the Interim Provisions on the Review of Concentrations of Undertakings, and the Provisions on the Review of Concentrations of Undertakings (“Interim Provisions”).  The Interim Provisions: consolidate the substantive and procedural provisions of the merger control review; regulate the procedures of merger control notification, merger control review, through monitoring and implementing restrictive conditions, and investigating failure to notify etc.; and establish a unified and complete merger control review system.

After the amendment of the AML, the Notification Thresholds Provisions and the Interim Provisions are all under revision.

In general, notification is mandatory. As long as the transaction constitutes a concentration of undertakings and meets the notification thresholds, the concentration of undertakings must be notified before closing.

For the concentration of undertakings that do not meet the notification thresholds, if the transaction has or may have anti-competitive effects, in order to avoid being required by SAMR to notify the concentration of undertakings in the future, avoiding uncertainty in the transaction, the undertakings participating in the concentration may select voluntary notification. In addition, if there are other ministries that explicitly require transactions to be approved by SAMR, SAMR may accept voluntary notifications after coordinating with the relevant ministries. Voluntary notification needs to be made prior to closing.

Closing or completion of the transaction is prohibited prior to clearance, if the transaction constitutes a concentration of undertakings and meets the notification thresholds.

There is no proceeding in China to apply derogation from SAMR in order to complete the transaction prior to clearance. In practice, the notifying party may notify SAMR about the conflict and try to get clearance ASAP.

In order to accelerate the merger control review process, for instance, the market share of certain business line is too high and may delay the clearance, it is possible to carve out certain assets or subsidiaries in preparation of the transaction. Please note that transactions between the same undertakings are treated as one single transaction if they occur within two years.

There are no express provisions within the AML or in its accompanying regulations which provide for exceptions that allow parties to close a cross-border transaction by carving out local completion of a merger to avoid delaying global completion prior to clearance by SAMR.

The AML and its related regulations do not expressly allow parties to cross-border transactions to carve out Chinese mergers and acquisitions from the global transaction, so that the global completion can be done prior to clearance by SAMR.

In China, transactions which amount to a “concentration” will be notifiable or reviewable if the notification thresholds are met.

A concentration is defined as: (a) a merger of undertakings; (b) an acquisition of a controlling stake in other undertakings by an undertaking through the acquisition of equity or assets; and (c) an acquisition of a controlling stake in other undertakings by way of concluding contracts or exercising decisive influence.

According to the Interim Provisions, to determine whether an undertaking obtains control over another undertaking or is able to exert decisive influence on another undertaking through a transaction, the following factors shall be considered:

1. the purpose of the transaction and future plans;
2. the shareholding structure of the other undertaking before and after the transaction and the changes thereof;
3. voting matters and voting mechanism of the general meeting of shareholders of the other undertaking as well as its historical attendance and voting;
4. composition and voting mechanism of the board of directors or board of supervisors of the other undertaking;
5. appointment and dismissal of senior management personnel of other undertakings;
6. for the relationship between the shareholders and directors of the other undertaking, whether there is any exercise of voting right by proxy or any person acting in concert;
7. whether there is any material business relationship or cooperation agreement between the undertaking and the other undertaking; and
8. other factors that shall be considered.

There are no provisions under the AML or in its related rules that address the acquisition of minority ownership interests.  However, the acquisition of minority interests may also give rise to a notifiable transaction, depending on whether such acquisition may confer “control” of the target company on the acquirer.

The “control” under the AML is different from that under the Corporation Law. Generally, minority shareholders might exercise joint control over the target company together with the majority shareholders through their veto rights at the shareholders’ meetings or their appointed directors at the board meetings; however, if the minority shareholders’ veto rights in resolutions made at the shareholders’ meetings or the board meetings have exceeded general protections for minority shareholders (i.e., resolutions on any amendment to the company’s articles of association, resolutions on any increase or decrease of registered capital, or resolutions on any merger, division, dissolution or change of corporate form), for example, where they have veto rights on important business matters, such as business plans, budgets, investments, changes of the business scope, or appointments or dismissals of senior officers, it is highly likely that the minority shareholders will possess joint control over the target company. Besides the above factors, one of the other factors to determine whether minority shareholders have control over the target company may be that whether minority shareholders are able to appoint the general manager and the chief financial officer. We suggest to contact the company’s legal and compliance department or hire an external lawyer to make a case analysis in order to determine whether the transaction constitutes a concentration of undertakings.

It is worth noting that shifting alliance is generally not considered to constitute control in China. In practice, SAMR confirmed in many cases a no-control conclusion of shifting alliance. However, we have also noticed that some case handlers take stricter standards in the consultation, so shifting alliance needs to be analyzed on a case-by-case basis.

China adopts only the following turnover thresholds:

• during the previous fiscal year, the total global turnover of all the undertakings participating in the transaction exceeds RMB 10 billion, and at least two of these undertakings each had a turnover of more than RMB 400 million within China; or
• during the previous fiscal year, the total turnover within China of all the undertakings participating in the concentration exceeded RMB 2 billion, and at least two of these undertakings each had a turnover of more than RMB 400 million within China.

The turnover thresholds apply to all sectors, but the law may provide different criteria for the calculation of turnover for certain sectors. For example, the Turnover Calculation Method for Concentration of Undertakings in Finance Sector provides detailed guidance on turnover calculation for undertakings engaged in the financial sector, including financial institutions, securities companies, futures companies and fund management companies.

1. The previous fiscal year refers to the previous year on the date of signing the transaction agreement, not the previous year on the date of closing.
2. Turnover within China requires that the product buyers or service recipients of the undertaking are located within China.
3. For the calculation of turnover, the turnover of the undertakings participating in the concentration is the aggregate of the turnover of the following undertakings:
   • the undertaking itself;
   • subsidiaries directly or indirectly controlled by the undertaking;
   • other parent companies that directly or indirectly control the undertaking;
   • other sister companies directly or indirectly controlled by the parent company; and
   • other undertakings jointly controlled by the above two or more undertakings.

Since the RMB is relatively stable, since the AML came into effect, the amount of RMB has been used directly as the notification threshold, without the need to specify a benchmark and floating exchange rates to calculate turnover.

If the financial report of an undertaking is calculated in foreign currency, the exchange rate is generally the arithmetic mean of the central parity rate for the corresponding fiscal year announced by the People’s Bank of China.

According to the Guiding Opinions of the Notification of Concentration of Undertakings released by SAMR, the establishment of a joint venture is subject to merger notification if more than two undertakings are determined as having joint control over the joint venture, and meanwhile the notification thresholds are met.  If only one undertaking controls such joint venture independently and other undertakings share no control, no concentration of undertakings is constituted.

Other factors will not be considered in determining whether the joint venture is notifiable, such as whether the joint venture is a newly established company, or whether it is an acquisition of joint control over an existing business. In addition, if the joint venture does not have sufficient resources to operate independently or for a long time in the market, such a joint venture does not constitute a full-function joint venture, and the establishment of such joint venture also needs to be notified in China.

Transactions between the same groups are treated by the Guiding Opinions for the Notification of Concentration of Undertakings as one single transaction if they occur within a time period of two years.

Moreover, if an integrated transaction, for whatever reason, is structured or completed in a series of different steps, as long as the integrated transaction is notifiable, the transaction shall be notified at its first step.

The same notification thresholds apply in concentrations implemented by foreign undertakings outside China.

According to the Interim Provisions, a concentration will be eligible for simplified procedure if the undertakings participating in the concentration establish a joint venture outside the territory of China and the joint venture conducts no economic activities within China.

The law does not prohibit undertakings from voluntarily file for merger notification, and the factors to be reviewed by SAMR would be identical to those for mandatory files.

According to the AML, the substantive test is whether the concentration of undertakings has or may have an effect of eliminating or restricting competition. If the answer is affirmative, SAMR will make a decision to prohibit the concentration of undertakings. Where the involved undertaking is able to prove that the pros of the concentration to competition far outweighs the cons, or such concentration promotes public interests, SAMR may impose certain restrictive conditions on the concentration to mitigate the anti-competitive effect.

The following factors will be taken into account to evaluate the impact or potential impact of anti-competitive effect in a review of concentration of undertakings:

1. the market shares of the undertakings involved in the concentration and their controlling power over the market;
2. the degree of concentration in the relevant market;
3. the impact of the concentration of undertakings on market entry and technological advancement;
4. the impact of the concentration of undertakings on consumers and other stakeholders;
5. the impact of the concentration of undertakings on the development of national economy; and
6. other factors which affect the market competition and the SAMR deems necessary to consider.

The above tests apply to all sectors.

Non-competitive factors are not relevant for the decision of SAMR. In general, SAMR only focuses on competition issues in merger control review. Only when conditions are involved or the concentration of undertakings is prohibited, SAMR will comprehensively consider public interests and efficiency factors. SAMR also needs to ensure that these public interests and efficiency are brought about by the concentration, and the benefits can be passed to consumers.

The ancillary restraints is not explicitly regulated under the AML or relevant regulations. However, any ancillary agreements not to compete may be reviewed by SAMR. SAMR focus on the following:

1. whether such restrictions serve the primary purpose of the concentration;
2. whether the restrictions are necessary to achieve the objectives of the concentration (goods/services covered by the non-compete clause, the geographic scope and time limit);
3. whether the restrictions are targeting undertakings participating in the concentration (i.e. usually joint ventures) or the target company; and
4. whether the restrictions are independent ones or ancillary to the concentration.

The law does not provide a specific deadline for notification. Normally parties will file for merger notification as soon as the transaction documents have been executed, but as long as the parties refrain from completing the concentration before clearance, they are free to choose when to notify.

In practice, completing a concentration includes but is not limited to completing the registration of changes in shareholders or rights, appointing senior management personnel, actually participating in business decision-making and management, exchanging sensitive information with other undertakings, and substantively integrating business, etc.

In general, the notification can only be filed after the execution of the transaction documents and before the closing.  For the acquisition of a listed company in the form of a public offer, the announced report on the acquisition by offer can be regarded as a signed transaction document.

A party can file the notification prior to signing a definitive agreement.  However, SAMR may not accept the notification until the parties have provided the formal executed transaction documents.

Under very exceptional circumstances, SAMR would also accept the notification without the executed definitive agreement.  In order to ask SAMR to waive the requirement of the executed definitive agreement, sufficient evidence needs to be submitted to prove that the executed transaction agreements cannot be submitted due to mandatory legal requirements of China or other jurisdictions or any other legitimate reasons.  In such a situation, the notification could be filed with the relevant memorandums, framework agreements, draft agreements or tender offers, accompanied by the main terms and conditions of the transaction at the time of submission, instead of the executed definitive agreement.

Once the definitive agreement is executed, the undertakings should provide it to SAMR without delay and point out all differences compared with previously submitted materials. In case such  differences may have a major impact on the review and decision of SAMR, the undertakings should notify SAMR immediately, update materials or resubmit.

Pre-notification consultations are optional, and undertakings are free to choose whether to consult the anti-monopoly agencies. The consultation mainly revolves one topic, that is, whether the transaction needs to be notified to SAMR (including whether the transaction constitutes a concentration of undertakings and whether it meets the notification threshold). The purpose of undertakings choosing to consult is to file the transaction with SAMR, and to let SAMR endorsing the judgment of notification, so as to prevent future investigations and penalties.

At present, most of the pre-notification consultations are conducted electronically. The applicant needs to submit a consultation application to SAMR, detailing the transaction background, analysis and conclusions to let SAMR review and confirm. The consultation application shall also provide the proposed time for consultation.

After SAMR receives the application for consultation, it generally takes one to two weeks for SAMR to decide whether and when to consult with the applicant. The specific waiting time depends on the nature and complexity of the application. During the consultation, the case hander will emphasize that the consultation opinion is not legally binding. It is still up to the applicant to decide whether to notify the concentration of undertakings.

The following are the phases of review in relation to an antitrust merger notification:

Phase I of review takes a maximum of 30 calendar days (from the date on which SAMR informs applicant(s) in writing that the filing is formally accepted).

Phase II of review takes a maximum of 90 calendar days.  SAMR will inform the applicant(s) in writing if the review period is extended from Phase I to Phase II.

SAMR has discretion to move the filing into a further extended phase of review for a maximum of 60 calendar days, provided that:

1. the applicant(s) agree(s) to extend the time limit for the review;
2. the documents submitted by the applicant(s) are inaccurate and require further verification; or
3. the circumstances surrounding the transaction have changed significantly after notification by the applicant(s).

If SAMR fails to make a determination at the expiry of each set period of time as stated above, the parties may execute the transaction.

SAMR may decide to suspend the calculation of the merger control review period and notify the undertakings involved in writing if any of the following circumstances occurs:

1. The undertakings fail to submit any document or material as required, resulting in the review unable to proceed;
2. Any new circumstance or new fact emerges which has a material impact on the review of the concentration of undertakings, and if it is not verified, the review will not be able to proceed; or
3. The restrictive conditions to be placed on the concentration of undertakings need to be further evaluated, and a request for suspension is made by the undertakings.

From the day when the circumstance that caused the suspension of the calculation of the merger control review period disappears, the review period shall resume running, which shall be notified to the undertakings in writing by SAMR.

The notification form for the simplified procedure is shorter than the form for the general procedure, and requires less information, and the approval process is faster. Merger control review subject to simplified procedure can usually be approved in the Phase I (less than 30 calendar days), and the “stop the clock” rules does not apply to simplified procedure.

The simplified procedure is applicable to the following situations:

• Horizontal mergers where the collective market share of all undertakings is less than 15%.
• Vertical mergers where the market share of each of the operators concerned in the concentration in each of the relevant upstream and downstream markets is less than 25%.
• Mergers that are neither horizontal nor vertical, and where the market share of each of the operators concerned in the concentration in each of the markets is less than 25%.
• Off-shore joint ventures which do not engage in any business operations in China.
• Acquisitions of off-shore targets which do not engage in any business operations in China.
• A reduction of the number of existing controlling shareholders where a joint venture jointly controlled by two or more operators is controlled by one or more existing operators as a result of the concentration.

Despite meeting the above criteria, a notification may still be ineligible for a simplified procedure due to reasons such as the relevant market being difficult to define, or if the concentration may adversely affect market entry, technology development, consumers or national economic development.

In addition, the notifying parties, regardless of what notification procedure applies, may consider submitting an urgency letter to SAMR. In the urgency letter, the undertakings can explain the significant pressure encountered by them if the transaction could not be closed by some certain time. In practice, SAMR will often accommodate such request and expedite its review where possible.

The party acquiring control shall be responsible for making the notification.

Specifically, for a concentration of undertakings implemented in the form of a merger, all the parties participating in the merger shall make the notification; for a concentration of undertakings in other forms, the undertaking that has obtained control shall make notification, and the other undertakings shall cooperate.  Moreover, if there are two or more undertakings who are obliged to notify, they could agree that one of them is responsible for making the notification, or they can jointly make the notification.  However, if the undertaking that has agreed to make the notification fails to do so, the aforementioned agreement shall not exempt the other undertakings’ legal liability for failing to notify the concentration in accordance with the law.

In addition, if the notification obligator fails to make the notification of a concentration, the other undertakings participating in the concentration may propose to make the notification.

Under normal procedure, the following information and documents are required:

1. Corporate related information: basic corporate information of undertakings participating in the concentration (including business scope, information regarding subsidiaries or affiliates, etc.), the notifying party’s identity document or company registration evidence, power of attorney (if applicable), declaration of authenticity of information, compliance statement, audited financial statements.
2. Transaction related information: executed transaction agreement, introduction of the transaction, background, motive and economic rationality of this transaction.
3. Competition analysis: definition of the relevant market, market shares of undertakings participating in the concentration and main competitors in each relevant market, competition analysis on the transaction’s impact on each relevant market, supply and demand structure, main customers and suppliers, market entry barriers and potential entrants, efficiency generated by the concentration, etc.

Under simplified procedure, the following information is not required: supply and demand structure, main customers and suppliers, market entry barriers and potential entrants of each relevant market, efficiency generated by the concentration, etc.

Normally the following documents should be submitted to SAMR:

• The notifying party’s identity document or company registration evidence. Note that for a foreign person or entity, the original identity document or certificate of incorporation should be notarized by a local public notary and legalized by the Chinese Embassy or consulate located in that country.
• A power of attorney signed by the notifying party, if the party has appointed an agent to file on its behalf (usually a law firm);
• A declaration of authenticity of information signed by the undertakings participating in the concentration.
• The executed transaction agreement, such as shares or assets purchase agreement, and joint venture agreement.

Audited financial statements of undertakings participating in the concentration.

There is no filing fee under China’s merger control regime.

For cases subject to a simplified procedure, SAMR will release a Public Notice Form which includes an introduction of the deal and the reasons for applying a simplified procedure on its website during the review period. See https://www.samr.gov.cn/fldes/ajgs/jyaj/.

For cases prohibited or cleared with conditions, SAMR will publish its decision, which includes the review timetable, the analysis SAMR made, and the supplementary conditions, if any.  See https://www.samr.gov.cn/fldes/tzgg/ftj/.

For non-conditionally cleared cases, SAMR will publish a list which includes the names of these deals and the dates of approval on a weekly basis. See https://www.samr.gov.cn/fldes/ajgs/wtjjz/.

For the notification subject to simplified procedure, SAMR will invite third parties’ views during the 10-day public notice.

For the notification subject to general procedure, SAMR normally will seek views from relevant government authorities (for example, the Ministry of Industry and Information Technology), industry associations, other undertakings and consumers of the relevant market(s) where needed.

For the transactions which may be attached with conditions, SAMR will conduct a market test on the remedy plan proposed by the notifying party, and will seek views from relevant government authorities, industry associations, other undertakings and consumers of the relevant market(s) where needed.

Notifying parties are requested to provide both confidential and public versions of the notification form submitted to SAMR. The public version often serves as the basis for opinion-soliciting purposes, i.e. SAMR may provide the non-confidential notification or relevant sections of it to government authorities, industry associations, other undertakings and consumers to consult their views.

As of 2020, SAMR has signed 55 cooperation documents with anti-monopoly law enforcement agencies in 33 countries and regions including the United States, the European Union, Russia, the United Kingdom, Japan, South Korea, Brazil, etc., and agreed on the content and methods of cooperation, and established a normalized cooperation mechanism. Regularly carry out cooperation activities such as the China-US Antitrust High-level Dialogue, China-EU Competition Policy Week, and the BRICS Competition Conference to exchange work progress, coordinate law enforcement positions, and jointly maintain fair competition in the international market.

In May 2019, SAMR and the European Union’s Directorate-General for Competition signed the Practical Guidelines on Investigation and Cooperation in Antitrust Cases, which established a framework for cooperation in monopoly agreements and abuse of market dominance cases between the two parties.

To mitigate a concentration’s potential adverse impact on competition in the relevant market, the notifying party may propose remedial measures to SAMR in exchange for a clearance decision with restrictive conditions. The types of restrictive conditions may include:

• Structural conditions, such as divesture of tangible assets, intellectual property and other intangible assets or related interest;
• Behavioral conditions, such as opening up network or platform and other infrastructure, licensing key technologies (including patents, know-how or other intellectual property rights), terminating exclusive agreements; and
• Hybrid conditions combining structural and behavioral conditions.

Where SAMR raises competition concerns to the undertakings participating in the concentration, the parties will be obliged to prepare and submit remedy proposals to SAMR to address the competition concerns. If necessary, the parties may voluntarily propose remedies before SAMR’s expressing competition concerns.

SAMR negotiates with the parties on the restrictive conditions proposed, assess the effectiveness, feasibility and timeliness of the proposals, and inform the parties of the assessment results. In the process of its evaluation, SAMR may bring it to market test and solicit opinions from stakeholders such as government authorities, industry associations, other business operators and consumers by means of questionnaires, organizing hearings, organizing relevant experts to conduct feasibility studies.

The parties may revise remedy proposals subject to market test results and a final plan shall be submitted to SAMR within 20 calendar days prior to the deadline of the further review phase.

SAMR will publish its conditional clearance decision on its official website, which includes the final remedy commitments of the parties accepted by SAMR.

Pursuant to Article 58 of the AML, if the undertakings fail to seek clearance in relation to a notifiable concentration, they could face the following sanctions:

• if the concentration of undertakings has or may have an effect of excluding or limiting competition
  1. order it to end the concentration;
  2. dispose of the shares or assets or transfer the undertaking within a time limit, or take other necessary measures to restore its status to the pre-concentration state; and
  3. impose on it a fine of not more than ten percent of its last year’s sales revenue;
• if the concentration of undertakings does not have an effect of excluding or limiting competition – impose on it a fine of not more than RMB 5 million.

If the notifying party conceals relevant information or submits false notification materials, SAMR may not file the case or may revoke the case, and impose :

• a fine of 1% of the previous year’s sales on the notifying party;
• a fine of less than RMB 1,000,000 if there is no sales in the previous year or the sales are difficult to calculate; and/or
• a fine of less than RMB 500,000 on individuals.

Pursuant to Article 65 of the AML, undertakings that are not satisfied with a clearance decision of SAMR in respect of merger control may seek a review of the decision (i.e., administrative review) by SAMR.

Undertakings who are dissatisfied with the administrative review decision of SAMR may bring administrative lawsuits before the courts (i.e., judicial review).

According to the 2021 Annual Report on China’s Anti-Monopoly Law Enforcement, SAMR received 824 applications for concentration of undertakings and concluded 727 merger control review, an increase of 58.5% and 52.9% respectively.

DouYu/HUYA

On 16 November 2020, SAMR received Tencent’s filing. Under the proposal, Tencent planned to acquire all shares in DouYu International Holdings Limited (“DouYu”) [NASDAQ:DOYU] through HUYA and obtain sole control over the merged entity. On 4 January 2021, SAMR filed a case for the concentration. On 2 February, SAMR decided to conduct an in-depth review and extended the duration of the review. On 24 June, Tencent revoked the filing with SAMR’s consent, and SAMR started a review for the re-filing on the same day.

SAMR found that HUYA and DouYu have horizontal overlap in the game, entertainment, and e-commerce live streaming and short video markets. Tencent is engaged in online game operation services which is the upstream field of game live streaming.

Through the review, SAMR held that this concentration has or may have the effect of excluding and restricting competition for the game live streaming market and online game operation service market in China. The concentration will strengthen Tencent’s dominant position in China’s game live streaming market, which may adversely affect consumers and harm the interests of game live streaming practitioners. After the concentration, Tencent will have strong market control over both upstream and downstream markets and the ability and motivation to block online game copyright licensing against its competitors in the downstream game live streaming market and block live streaming promotion against competitors in the upstream market. Thus, the upstream and downstream markets will form a closed loop to squeeze out existing competitors and stifle potential competitors.

During the review process, SAMR conducted multiple rounds of talks with the notifying party on the issues including how to reduce the adverse effects of the concentration of undertakings on competition. After an assessment, SAMR determined that the commitment proposal could not effectively reduce the adverse impact of concentration on the competition in the game live streaming market and online game operation service market in China. In July 2021, SAMR decided to prohibit the concentration of undertakings.

With the rapid development of China’s economy, the notification thresholds formulated in 2008 gradually do not meet the requirements of high-quality development. On the one hand, the turnover setting of the current notification thresholds is relatively low. On the other hand, it is necessary to further improve the ability to accurately identify and prevent risks in the merger control review.

1. Raise turnover thresholds

The Draft Filing Threshold will increase the total global turnover, total domestic turnover in China and unilateral turnover in China of undertakings from the current RMB 10 billion, RMB 2 billion and RMB 400 million to RMB 12 billion, RMB 4 billion and RMB 800 million respectively. After the turnover threshold is raised, many small and medium-sized mergers and acquisitions will no longer need to be notified.

2. Optimize the notification thresholds

The Draft Filing Thresholds adds a mixed threshold of “turnover + market value/valuation”, which mainly regulates the acquisition of small and medium-sized enterprises (especially start-up enterprises) by super-large enterprises. The Draft Filing Thresholds stipulates that the turnover of one undertaking in China exceeds RMB100 billion, and the market value (or valuation) of the target company is not less than RMB 800 million and more than one-third of the turnover is from China, it should also be notified.

Draft Provisions on the Review of Concentrations of Undertakings

1. “stop the clock”

“The undertaking fails to submit documents and materials in accordance with the regulations” does not necessarily lead to the suspension of the calculation of the review period. SAMR should first notify the undertaking in writing to make corrections within a time limit, and may extend the period for supplementation and correction as appropriate according to the undertaking’s application. SAMR will only make a decision to stop the clock if the undertaking fails to submit documents and materials within the time limit for corrections, or if the submitted documents and materials do not meet the requirements.

2. Review and investigation of concentration of undertakings that do not meet the notification thresholds

If SAMR requires undertakings to make notifications, it shall notify the relevant undertakings in writing. For those that have not yet implemented the concentration, the undertaking shall not implement the concentration before the notification or approval has been obtained; if the concentration has been implemented, SAMR may require the undertaking to make a supplementary notification within 180 days, and may also require the undertaking to stop the implementation of the concentration or take other necessary measures.

If the undertaking fails to notify upon the request of SAMR, it will investigate the illegal implementation of the concentration of undertakings.

3. The implementation of concentration

According to the Draft Provisions on the Review of Concentrations of Undertakings the “implementation of concentration” includes but is not limited to completing the registration of changes in shareholders or rights, appointing senior management personnel, actually participating in business decision-making and management, exchanging sensitive information with other undertakingss, and substantively integrating business, etc.

4. Previous fiscal year

The Draft Provisions on the Review of Concentrations of Undertakings clarifies that the “previous fiscal year” turnover in the notification threshold refers to the previous fiscal year on the date when the concentration agreement was signed, rather than the previous fiscal year on the date of closing.

5. Legal liability

Regarding the legal responsibility of the filing party, the Draft Provisions on the Review of Concentrations of Undertakings stipulates that if the filing party conceals relevant information or submits false notification materials, SAMR may not file or revoke the case, and impose a penalty of 1% of the previous year’s sales on the filing party. A fine of less than RMB 1,000,000 shall be imposed if there is no sales in the previous year or the sales are difficult to calculate; a fine of less than RMB 500,000 shall be imposed on individuals.

In addition, the Draft Provisions on the Review of Concentrations of Undertakings also raised the upper limit of fines for trustees and divested business buyers for failing to perform their obligations from RMB 30,000 to RMB 200,000.