China’s Simplified Merger Review Program May Significantly Reduce Wait Times For Certain Global Transactions

by Cadwalader, Wickersham & Taft LLP

  • MOFCOM announces simplified merger-review program that could accelerate antitrust clearance from Chinese authorities for many transactions.  MOFCOM estimates as many as 60% of notified transactions will qualify and receive clearance in Phase I (within 30 days).
  • The simplified procedure will be available to transactions unlikely to raise competitive concerns, such as horizontal transactions resulting in less than a 15% market share; vertical and conglomerate transactions resulting in less than a 25% market share; and foreign transactions with no domestic effect in China.

On February 12, 2014, China’s Ministry of Commerce (“MOFCOM”) announced the implementation of its simplified merger-review program. Similar to the EU’s “Short Form CO,” under the new rules, transactions meeting certain thresholds will qualify for a so-called “fast track.”   MOFCOM has estimated that it could clear as many as 60 percent of notified transactions within Phase I (i.e., within 30 days).. This would represent significant time savings for companies seeking approval of global transactions from MOFCOM.

Under the fast track program, the following transactions, deemed unlikely to raise competitive concerns, meet the threshold for simplified review:

  • horizontal transactions with a combined market share less than 15 percent;
  • vertical transactions with individual market shares of less than 25 percent;
  • undertakings that are neither horizontal nor vertical with individual market shares of less than 25 percent;
  • foreign joint ventures operating outside of China; or
  • acquisitions of foreign assets or securities of companies operating outside of China.

A notable exception excludes transactions that have “a potential adverse impact on consumers and other related business operators, or to national economic development and market competition, will not be identified as simple cases.” The allowance for the “national economic development and market competition” is consistent with other provisions of Chinese antitrust law, but remains unique to China among antitrust enforcers. 

Under the merger-approval system, approval can take up to 180 days, with Phases I, II, and III taking up to 30, 90, and 60 days respectively. While it is possible for a transaction to obtain approval at Phase I, in practice, many go to Phase II, and even sometimes Phase III, due to resource constraints and the need to consult with other industry-specific trade associations and government agencies.

This new fast track program is just one part of MOFCOM’s efforts to reduce delays in its merger-review process. In September 2013, MOFCOM underwent an organizational reshuffle involving four out of the seven divisions within the Antimonopoly Bureau. Practitioners have reported that the staff changes at the Antimonopoly Bureau have already had a positive impact on review times.

Also, in November 2013, the Antimonopoly Bureau announced a project to construct a new database to collate data for the pharmaceutical, shipping, and electronic-information sectors. The database is intended, in part, to facilitate the agency’s merger-review capabilities, and it may reduce delays caused by the bureau’s need to consult other industry-specific agencies before clearing deals.

The fast-track merger review program is a welcome addition to MOFCOM’s merger review.  Its implementation bears watching, however, as critics point to the  uncertainty of how MOFCOM will apply the “national economic development” exception. Notwithstanding this exception, the new procedure will undoubtedly shorten the review time frame, and reduce regulatory costs, for many global transactions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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