China Raises Turnover Threshold for Anti-Monopoly Filing in M&A Deals
On January 26, 2024, the State Council of China published the “Regulations of the Filing Threshold for Operators’ Concentration (2024 Revision)” (the “New Filing Threshold”), which took effect on the same day. This amendment to the filing thresholds for operators’ concentration will enhance the allocation of anti-monopoly enforcement resources, and represents another step China takes to improve its competition policy, and foster the development of a more transparent and efficient competition regulatory framework.
1. Significantly increased the turnover thresholds for operators’ concentration filing.
Under Chinese anti-monopoly law, the “turnover test” is used to determine whether the parties to an M&A deal need to submit filings for operators’ concentration. The New Filing Threshold, while retaining the “turnover test”, has significantly raised the relevant amount of turnover that would trigger such filing, in consideration of China’s socio-economic development in the past few decades. The amendment is as follows:
| At least two of all the operators involved in the concentration had a respective turnover of more than RMB 800 million within China. (Prior to the recent amendment, the requirement was RMB 400 million.) | And | The combined turnover within China of all operators involved in the concentration exceeded RMB 4 billion in the last fiscal year. (Prior to the recent amendment, the requirement was RMB 2 billion.) |
| Or | ||
| The combined global turnover of all operators involved in the concentration exceeded RMB 12 billion in the last fiscal year. (Prior to the recent amendment, the requirement was RMB 10 billion.) |
It is noteworthy that turnover is the sole criterion when determining whether the filing for operators’ concentration is required under PRC’s anti-monopoly law, and the market share or whether the operators involved in the concentration has any overlapping business is irrelevant to such determination. Even unconventional acquisitions, such as an electric vehicle giant acquiring a fried chicken restaurant or two cell phone manufacturers jointly establishing a cosmetic surgery company, would require filing for operator concentration if the operators involved met the above turnover threshold. In addition, we note that the current turnover threshold of 800 million RMB is closer to the U.S. HSR filing threshold of 119.5 million USD.
China’s State Administration for Market Regulation (SAMR) reported that 797 cases of operators’ concentration were concluded in 2023, with 786 approved and 11 withdrawn after submission. Only four cases were approved with restrictive conditions, representing a mere 0.5% of all cases filed.[1]
The significant increase in the turnover filing thresholds is anticipated to reduce the number of cases filed, thus improving the efficiency of the enforcement authorities. However, it’s noteworthy that the New Filing Threshold, effecting from January 26, 2024, does not explicitly address transactions signed but not yet closed before this date. Therefore, it is recommended to assess such transactions on a case-by-case basis and, if necessary, consult with the competent authority for confirmation.
2.Proactive investigative powers of anti-monopoly enforcement agencies
The Anti-monopoly Law (Amendment 2022), effective from August 1, 2022, clarified at the legislative level the powers of anti-monopoly enforcement agencies to investigate transactions that do not meet the State Council’s filing thresholds but may potentially prohibit or restrict competition. The New Filing Threshold echoes this, allowing anti-monopoly enforcement agencies to require filings for concentrations that fall below the filing threshold if there is evidence indicating that the concentration may potentially prohibit or restrict competition. This underscores the authorities’ proactive role in addressing potential anti-competitive practices, even in the cases where the New Filing Threshold is not met.
3.The New Filing Threshold does not formally introduce “Killer Acquisitions“.
The Exposure Draft of the New Filing Threshold (the “Draft Rule”) proposed a new filing threshold for “Killer Acquisitions,” aiming to discourage mega-corporations from acquiring startups to eliminate emerging competition. However, the Draft Rule did not offer guidance on how to calculate the “market capitalization” or “valuation” for this purpose. This provision has been subsequently removed in the promulgated version of the New Filing Threshold.
FOOTNOTES
[1]
