On 26 January 2024, China released its updated merger filing thresholds (known as the new “Provisions on Thresholds for Prior Notification”, or new “Provisions”). The new Provisions came into effect immediately upon publication. This is the first time that China has revised the turnover thresholds since the implementation of the Anti-Monopoly Law on 1 August 2008. This letter aims to provide a brief overview of the new Provisions and analyze their implications for merger filing compliance in China.
1. Turnover Thresholds have been significantly increased.
Under the new Provisions, an ex ante notification would be triggered if the following criteria are satisfied:
- The aggregated global turnover of all the undertakings concerned in the concentration exceeded CNY 12bn (increased from CNY 10bn), OR the aggregate turnover within China exceeded CNY 4bn (previously CNY 2bn) during the preceding financial year; and
- Each of at least two of the undertakings concerned in the concentration had a turnover exceeded CNY 800m (previously 400m) within China during the preceding financial year.
The increased turnover thresholds reflect the recent economic and social development in China. The new Provisions also include a mechanism for the State Administration for Market Regulation (“SAMR”) to re-evaluate the application of these thresholds, taking into account the economic situation. This mechanism aligns with the approach taken by other major antitrust enforcement jurisdictions, where merger filing thresholds are adjusted in accordance with economic development. With the increased turnover thresholds, it is anticipated that transaction costs among enterprises will decrease, enhancing efficiency in the handling of merger filing cases.
Since the new Provisions came into effect immediately upon publication, the determination of whether a merger filing will be triggered in China for transactions with transaction agreements executed on or after 26 January 2024 must be made according to the new thresholds. However, for transactions with transaction agreements executed before 26 January 2024 but which has not yet consummated, there remains some room for discussion regarding whether these transactions should be assessed under the new thresholds. As a result, enterprises involved in such transactions may consider engaging in discussions with the SAMR to obtain case-by-case guidance.
2. Size-of-transaction thresholds for “killer acquisitions” have not been preserved in the new Provisions.
In previous public consultation version of the Provisions, a size-of-transaction ex ante threshold was proposed for addressing “killer acquisitions”, which read that a transaction must be filed if:
- The turnover within China of one undertaking concerned in the concentration is more than CNY 100bn during the preceding financial year; AND
- The market value (or market valuation) of the other undertaking in a merger or the target in an acquisition is no less than CNY 800m, AND its turnover within China is more than one-third of its worldwide turnover.
The above provisions attracted significant attention and prompted heated debates during the public consultation period. Nevertheless, they are ultimately not included in this new Provisions. It is presumed that the primary concern behind this decision could be the potential uncertainties that might arise in practice, particularly when evaluating the market value/market valuation of the transaction.
3. Below-threshold concentrations that may eliminate or restrict competition, continue to be relevant under the new Provisions.
In line with the amended Anti-Monopoly Law and Provisions on the Review of Concentrations of Undertakings, the new Provisions reiterated that SAMR has the authority to call-in a transaction if it has or may have the potential to eliminate or restrict competition. In cases where the transaction was not notified in time when called-in, SAMR will initiate investigations.
This is a reminder that “killer acquisitions” will continue to be one of the focuses of antitrust law enforcement in the upcoming years. Therefore, when engaging in mergers and acquisitions, companies should thoroughly assess factors such as the relevant industry involved, market share, and the change of market structure, etc., in order to address potential risks associated with such transactions.
Following is a comparison table between the old Provisions on Thresholds for Prior Notification and the new Provisions on Thresholds for Prior Notification for your kind reference.
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Old Provisions on Thresholds for Prior Notification (effective on 3 August 2008, revised in 2018) |
New Provisions on Thresholds for Prior Notification (effective on 26 January 2024) |
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Article 1 In order to clarify the notification standards for concentrations of undertakings, these Provisions are formulated in accordance with the Anti-Monopoly Law of the People's Republic of China. |
Article 1 In order to clarify the notification standards for concentrations of undertakings, these Provisions are formulated in accordance with the Anti-Monopoly Law of the People's Republic of China. |
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Article 2 Concentrations of undertakings include the following: (1) Mergers between undertakings; (2) Acquiring control of other undertakings through the acquisition of shares or assets; (3) Acquiring control of other undertakings, or the ability to exercise decisive influence over other undertakings, by contract or other means. |
Article 2 Concentrations of undertakings include the following: (1) Mergers between undertakings; (2) Acquiring control of other undertakings through the acquisition of shares or assets; (3) Acquiring control of other undertakings, or the ability to exercise decisive influence over other undertakings, by contract or other means. |
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Article 3 Where a concentration of undertakings reaches any of the following thresholds, the undertaking(s) concerned shall file a prior notification with the anti-monopoly law enforcement agency of the State Council (the antitrust agency), and no such concentration may be implemented without the clearance of prior notification:
(1) the aggregated worldwide turnover of all the undertakings concerned in the preceding financial year is more than CNY 10bn (approximately USD 1.4bn), and the turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than CNY 400m; or
(2) the aggregated turnover within China of all the undertakings concerned in the preceding financial year is more than CNY 2bn, and the turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than CNY 400m.
In the calculation of turnover, the unique circumstances of such special industries or sectors as banking, insurance, securities, and futures shall be taken into account, and specific measures shall be formulated by the antitrust agency in conjunction with other relevant departments of the State Council. |
Article 3 Where a concentration of undertakings reaches any of the following thresholds, the undertaking(s) concerned shall file a prior notification with the anti-monopoly law enforcement agency of the State Council (the antitrust agency), and no such concentration may be implemented without the clearance of prior notification:
(1) the aggregated worldwide turnover of all the undertakings concerned in the preceding financial year is more than CNY 12bn (approximately USD 1.7bn), and the turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than CNY 800m; or
(2) the aggregated turnover within China of all the undertakings concerned in the preceding financial year is more than CNY 4bn, and the turnover within China of each of at least two of the undertakings concerned in the preceding financial year is more than CNY 800m.
In the calculation of turnover, the unique circumstances of such special industries or sectors as banking, insurance, securities, and futures shall be taken into account, and specific measures shall be formulated by the antitrust agency in conjunction with other relevant departments of the State Council. |
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Article 4 Where a concentration of undertakings does not reach any of the thresholds specified in Article 3 of these Provisions, but facts and evidence collected through due process infers that such concentration effects, or is likely to effect, the elimination or restriction of competition, the antitrust agency shall initiate an investigation in accordance with law. |
Article 4 Where a concentration of undertakings does not reach any of the thresholds specified in Article 3 of these Provisions, but evidence infers that such concentration effects, or is likely to effect, the elimination or restriction of competition, the antitrust agency can require the undertaking(s) to file a notification. |
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Article 5 Where undertakings fail to make a prior notification in accordance with Articles 3 and 4 of these Provisions, the antitrust agency shall initiate an investigation in accordance with law. |
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Article 6 The antitrust agency shall assess the implementation of the notification criteria stipulated in these Provisions based on economic development conditions. |
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Article 5 The Provisions shall enter into force on its publication date. |
Article 7 The Provisions shall enter into force on its publication date. |
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