China

2023 Merger Filings

In 2023, State Administration for Market Regulation (“SAMR”) saw a slight increase of 1.2% in merger filings compared to last year. It reviewed and cleared 786 deals, 782 of which were approved without any conditions, while 4 were approved subject to remedies, namely Wanhua Chemical/Yantai Juli, MaxLinear/SiliconMotion, Simcere Pharma/Tobishi, and Broadcom/VMware. Improving the efficiency of merger review has been one of the top priorities for SAMR. The majority (more than 80%) of the notified mergers were filed through the simplified case procedure; and of all filings made in 2023, SAMR managed to grant clearance within 25.7 days (on average) of case acceptance, 0.8 days fewer than the average the previous year.

Of the four remedy decisions in 2023, structural remedies were imposed in Simcere Pharma/Tobishi, while behavioral remedies were imposed in all other cases. The behavioral remedies imposed in global technology deals such as MaxLinear/SiliconMotion are typical of SAMR practice in the past few years, which include the requirement that the merged entity will ensure supplies of its products and services to Chinese customers on a fair, reasonable, and non-discriminatory basis, and refrain from engaging in tying or imposing other terms on counterparties that are deemed to be unfair.

Fewer Merger Filings in 2024 Under New Filing Thresholds?

According to data released by SAMR in February 2024, the increased filing thresholds, effective as of January 26, 2024, may have the result of reducing the number of merger filings with SAMR by about 30% from the 2023 levels.

In the coming year, SAMR likely will focus much of its enforcement efforts on high-profile M&A deals between global multinational companies in industry sectors such as semiconductors, manufacturing, and life sciences. SAMR will, of course, also expend resources reviewing transactions in any industry if SAMR perceives a transaction as presenting potentially serious competition concerns.

Other Developments Relating to Merger Review

In the context of US-China technology competition, U.S. export controls will continue to impact China’s review of transactions, particularly global technology deals. Specifically, SAMR officials have indicated that the trade policy (e.g., export control) considerations have been increasingly an important factor in China’s antitrust review of global deals.

In addition, SAMR may step up enforcement against gun-jumping cases now that businesses have more clarity on when they need to file under the new thresholds. The penalties for gun jumping are significantly higher. For example, the maximum penalty for deals with no competition concerns has been increased ten-fold since 2022. 

In 2023, the SAMR, China’s antitrust authority, stepped up its rulemaking efforts by promulgating new or revised implementing provisions and guidelines to provide more guidance on the enforcement of the Anti-Monopoly Law (“AML”). The rulemaking efforts cover a wide range of enforcement areas, including amendments to provisions relating to anti-competitive agreements, merger review, and the abuse of intellectual property rights.

Significant Increase in the Merger Filing Thresholds

Under the new thresholds, effective as of January 26, 2024, companies will be required to file mergers and acquisitions (“concentration of undertakings”) if :

• The combined global turnover of the undertakings concerned in the concentration in the previous financial year exceeded RMB 12 billion (approximately US$ 1.67 billion) and the PRC turnover of each of at least two undertakings in the previous financial year exceeded RMB 800 million (approximately US$ 111 million); or
• The combined PRC turnover of the undertakings concerned in the concentration in the previous financial year exceeded RMB 4 billion (approximately US$ 556.8 million) and the PRC turnover of each of at least two undertakings in the previous financial year exceeded RMB 800 million (approximately US$ 111 million).

SAMR retains the authority to investigate transactions that may impact competition even if they do not meet the filing thresholds. Historically, SAMR has rarely used its power to review below-threshold deals.

New Antitrust Guidelines for Trade Associations

On January 10, 2024, SAMR released the Anti-monopoly Guidelines for Industry Associations ("the Guidelines"), which became effective immediately. These new guidelines are part of SAMR’s efforts to strengthen the oversight of potential anti-competitive conduct by trade associations, particularly in certain industries such as construction materials, insurance, and vehicle services.

The Guidelines discuss circumstances in which industry associations could violate the AML by organizing their members to form and/or implement monopoly agreements. In addition, the Guidelines provide detailed guidance to trade associations on overseeing their members' efforts to strengthen antitrust compliance. The Guidelines state that trade associations and their member companies will bear their respective and separate legal liabilities for antitrust violations,

In 2023, consistent with their enforcement priorities in the past few years, SAMR and its provincial and local agencies continued to focus on a few high-priority sectors, such as life science (pharmaceuticals and medical devices), consumer goods, utilities, and cartels organized or facilitated by trade associations. As a result, 27 investigations of cartels and abuse of dominance were concluded in 2023, with the amount of penalties totaling more than RMB 3 billion (approximately US$ 420 million).

Potential New Focus on Labor Market Restrictions

Since the AML was enacted in 2008, Chinese enforcers have not focused on restrictions in the labor market as a priority for antitrust scrutiny. In July of 2023, however, SAMR expressed its new position in publishing a case involving a potential no-poach agreement among a number of hog farming companies. This matter likely signals expanded interest of the Chinese enforcer in restrictions in the labor market. Accordingly, businesses in all industry sectors should take note of this development and consider whether to re-evaluate their compliance efforts relating to labor markets.

Determining “Excessively High Price” of Drugs

On December 22, 2023, Shanghai AMR imposed RMB 1.2 billion (US$ 167 million) in total penalties on four pharmaceutical companies for abusing their dominance in the drug Polymyxin B Sulfate (for Injection) by selling it at an unfairly high price. Shanghai AMR formally launched the antitrust investigation on July 31, 2023 and substantiated its test for determining “excessively high price” of drugs, an unfair abuse of dominance, in its penalty decision issued in December 2023. Specifically, the enforcer found that (1) the price-to-cost ratio of the product at issue was significantly higher than that of other medical preparations made from the same production line of the manufacturer; (2) unfair means were used to inflate the price of the product; and (3) the China domestic sales price was significantly higher than that of the same product in other countries in the world for the same period. The test used in the case of Polymyxin B Sulfate (for Injection) can shed light on how enforcers in China will determine whether “excessively high prices” exist in future unfair abuse cases, particularly in the pharmaceutical sector.

More Informal Reviews

Towards the end of 2023, SAMR announced the establishment of a warning system for antitrust compliance and enforcement. Under the system, companies will receive warnings and reminders about their potential violations, and/or invited to attend “consultation meetings” with the regulator. These companies will be given the chance to respond to SAMR’s concerns and/or to change their conduct and thereby possibly persuade SAMR not to initiate formal investigations and not to impose penalties.