Slide 1:Introduction to China’s Merger Control System

Dec. 2006 Department Of Treaty & Law Anti-monopoly Office Ministry of Commerce

Slide 2:Catalogues

Merger control is one of the most important pillars of Anti-monopoly Law. Current merger control system and practice in China Introduction to the merger control system in China’s draft of Anti-monopoly Law (AML)

Slide 3:Merger control is one of the three pillars of AML

M&A has been increasingly used as a vehicle for the optimization of industrial structure and enterprise organizing structure as well as an effective means for enterprises to expand its scale and increase international competitiveness

Slide 4:Improper merger will harm competition

Merger will increase the barrier of access to the markets. Practices and experience from other countries: notification system & regulation on merger China is taking merger control as an important measure to protect competition

Slide 5:Merger Control in Anti-Monopoly Law

Concept of Merger, and China‘s draft of AML adopt the concept of Concentration. Types of concentration: combination or acquisition of property, combination of operation, combination of personnel --M&A --Takeover --Joint venture --Other forms of control

Slide 6:Establishment of Notification System of Merger Control

Pre-merger Notification, eg: U.S.A, Germany, EU Post-merger Notification, eg: Argentina, Spain Voluntary Notification, eg: France, New Zealand, Norway

Slide 7:Comments on the Notification Systems

Post-merger Notification It is more difficult for anti-monopoly agency to prohibit an accomplished merger than to prevent a would-be one. M&A may work as a remedy to rescue the enterprises from bankruptcy, It’s good for the enterprises to grasp the opportunity to implement the merger instead of waiting for the approval beforehand.

Slide 8: Thresholds of Notification

Assets, turnover and market share Comments on the different thresholds above

Slide 9:Legislation and Practice in China

Company Law, Art.183 Securities law,Chap.4 Rules on M&A of domestic enterprises by foreign investors (issued in 2003 and revised in 2006) 

Slide 10:Notification must be submitted to Ministry of Commerce if any of the following thresholds are met (Art. 51): The business turnover of a party to the merger or acquisition in the China market in the current year exceeds RMB 1.5 billion (about $182 million); The foreign investors have merged with or acquired more than 10 domestic enterprises in aggregate in the relevant industry in China within one year; The market share of a party to the merger or acquisition in the domestic market has reached 20 per cent; or The market share of a party to the merger or acquisition in the domestic market will reach 25 percent as a result of the transaction. 

Pre-merger notification in China

Slide 11:For offshore transactions, if the following thresholds are met, notification must be submitted to the Ministry of Commerce(Art.53) : ---The assets of a party to the merger or acquisition in the China exceeds RMB 3 billion (about $380 million); ---The business turnover of a party to the merger or acquisition in the China market in the current year exceeds RMB 1.5 billion (about $190 million); --- The market share of a party to the merger or acquisition in the domestic market will reach 25 per cent as the result of the transaction; or ---The foreign investors will acquire directly or indirectly more than 15 domestic enterprises’s share in aggregate in the relevant industry in China as the result of the transaction.

Continued

Slide 12:Conditions for exemption from merger control:(Art.54) 

Continued

Slide 13:Merger control practice of MOFCOM

MOFCOM has reviewed over 200 cases in accordance with the Rules on M&A Brief introduction

Slide 14:Taking into consideration the status quo of China’s economic development and market competition, in particular the significant sectoral difference, the draft set the following threshold of notification for M&A A general threshold for all sectors except provided otherwise. Empower the State Council to set specific thresholds for concentration in some special industries, such as bank and insurance, and Entrusted the anti-monopoly agency to adjust the threshold according to the development of economy after getting the approval of the State Council. Who shall notify?

Notification Threshold for Concentration in China’s AML Draft

Slide 15:Time limit for Merger Review

To keep in line with international practices, the draft took the two-phase approach: Phase I: to decide whether to take further measures or not. Undertakings could not commit concentration before the decision was made.(30 days) Phase II: to decide whether or not to prohibit the concentration.(90 days)

Slide 16:In the following occasions, the time limit may be extended: With consent of the parties involved in the concentration Inaccuracy of the documents provided by the parties, which need to be further confirmed. Significant changes after the notification. Factors taken into account in merger review

Continued

Slide 17: Substantial Criteria for Blocking a Concentration

U.S EU China’s Draft Anti-monopoly agency shall publicize its decision

Slide 18:Exemptions for concentration

General exemption is the public policy or interests If the benefits resulting from the merger, such as improving the competition conditions, outweigh the disadvantages, it is possible for anti-monopoly agency to approve. The anti-monopoly agency may approve a transaction on certain conditions. Specific regulations and guidelines will be issued after the adoption of AML

Slide 19: Q&A

Slide 20: Thank You!