1) Is a merger control regulation in force?

Yes. Merger control regulation was introduced in Part 4 of the Anti-monopoly Law of the People's Republic of China (“AML”) in 2008.

2) Which authorities enforce the merger control regulation?

The State Administration for Market Regulation (“SAMR”) enforces the AML including the merger regulation contained therein. 

3) Relevant regulations and guidelines with links:

The merger regulation is contained in Part 4 of the AML. More detailed rules can be found in various regulations, decrees and guidelines. Links to the relevant regulations, decrees, guidelines and forms are listed here:

4) Does general competition regulation apply to mergers or ancillary restrictions?

Generally, restrictions of competition that are ancillary to the merger, for instance a non-competition obligation on the mergingparties, are considered inherent parts of the merger and are not subject to separate scrutiny under the general competition regulation. However, restrictions that go beyond what may be considered ancillary may cause a separate investigation against the restrictions in the transaction agreements.

5) May an authority order a split-up of a business irrespective of a merger?

No.

6) Other authorities that also require merger filing or may prohibit transaction
(Note that this may not be an exhaustive list and that industry-specific legislation should always be considered. Furthermore, a merger will often require change of registrations with – but not approval from – the companies register, land register and authorities that have issued permits for the activities of the merging parties.)

SAMR is the only authority who is in charge of merger filing. However, transactions in relation to certain industries are subject to other review procedures by other government agencies:

Approval from the State-owned Assets Supervision and Administration Commission

If the subject assets or equity in a merger transaction is state owned, transfer of the assets or equity must get approval from the State-owned Assets Supervision and Administration Commission concerned.

Foreign investment control

The National Development and Reform Commission and the Ministry of Commerce jointly promulgate a Negative List every year. The Negative list specifies certain fields that foreign investors are prohibited from investing in. Non-prohibited fields covered in the Negative List are subject to licensing for admission of foreign investment. Furthermore, the Negative list specifies certain fields subject to equity ratio requirement, restricting investments by foreign-funded partnership enterprises.

The industries involved in the negative list are various, including agriculture, mining, manufacturing, energy supplying, trade, logistics, telecommunication, scientific research, education, culture, entertainment and etc. Certain fields within the industries are prohibited from investment from foreign investors and certain fields are subject to multiple restriction requirements, including equity ratio, licensing, identity of the legal representative and etc. The Negative list can be found here. 

7) Are any parts of the territory exempted or covered by particular regulation?

The AML only covers Chinese Mainland and not Hong Kong, Macao and Taiwan. Hong Kong and Taiwan each have their own separate competition regulations. 

8) Is merger filing mandatory or voluntary?

Merger filing is mandatory, provided the thresholds are met.

9) Is there a general definition of transactions subject to merger control?

Yes, according to the AML, a the following transactions may be subject to merger control:

1. merger of undertakings;
2. acquisition of the controlling stake in other undertakings by an undertaking through acquisition of equity or assets;
3. acquisition of the controlling stake in other undertakings by way of contracting or decisive influence by an undertaking over other undertakings.

Note that certain transactions under exemption conditions are not subject to merger control (see topics 19 and 20).

10) Is "change of control" of a business required?

Yes, generally a merger will only be considered to take place if the transaction results in a change of control over a business.

However, transactions that result in the establishment of a joint venture jointly controlled by two or more businesses might also constitute a merger.

11) How is “control” defined?

“Control” under Chinese merger rules includes sole control and joint control.

Whether an undertaking obtains control over other undertakings or is able to exercise decisive influence over other undertakings through transactions (control and decisive influence hereinafter collectively known as "Control") depends on a number of legal and factual factors. The merger agreement and the articles of association of the target undertaking are important basis for determining control, but not the only one. If it is not possible to determine from the merger agreement and articles of association whether the control is obtained, control may be deemed to exist on the basis of share diversification, i.e. for instance because a big minority shareholding de facto allows a shareholder to exercise control because the remaining shares are spread on a high number of independent shareholders.  

To determine whether an undertaking has obtained the control over other undertakings, usually a number of factors shall be taken into account, including but not limited to:

1. The purpose of the transaction and future plans;
2. The shareholding structure of the target and the changes to that structure;
3. Reserved matters and voting mechanism of the shareholders' meeting of the target and its historical attendance rate and voting record;
4. The composition and voting mechanism of the board of directors and board of supervisors of the target;
5. The right to appoint and dismiss senior management of the target;
6. The relationship between the shareholders and directors of the target, including whether there is any proxy voting arrangement or persons acting in concert; and
7. The existence of any material business relationship or cooperation agreement between the acquirer and the target.

Control may be directly obtained by the undertaking, or indirectly obtained through undertakings under its control.

12) Acquisition of a minority interest

Acquisition of a minority interest that does not result in anyone gaining control over a business is not subject to merger control.

However, if acquisition of a minority interest confers merging parties with “decisive” control of a business, the transaction will be subject to merger control. This is, for instance, the case if the buyer is provided with veto rights regarding decisions that are essential for the strategic behavior of the business or if the remaining shares are spread over a large number of shareholders and the acquired shares de facto confer the buyer with a decisive influence on general meetings.

13) Joint ventures/joint control – which transactions constitute mergers?

The following transactions regarding businesses subject to joint control may be subject to merger control:

1. Establishment of a joint venture;
2. Change from sole control of an enterprise to joint control;
3. Change of one or more of the parents having joint control;

Chinese rules do not distinguish between full-function and non-full function joint ventures, both of which are subject to filing if the threshold are met. 

14) Which thresholds decide whether a merger notification must be filed?
(Unless explicitly stated otherwise, the thresholds described under one threshold category are not cumulative with those described under another category. Thus for instance if there is a market share threshold and a turnover threshold, it is sufficient to meet one of these, unless stated otherwise.)

a) Turnover thresholds

A merger notification must be filed if:

1. During the previous fiscal year, the total global turnover of all merging parties exceeded RMB 10 billion, and at least two of these parties each had a turnover of more than RMB 400 million within China; or
2. During the previous fiscal year, the total turnover within China of all the merging parties exceeded RMB 2 billion, and at least two of these parties each had a turnover of more than RMB 400 million within China.

b) Market share thresholds

N/A

c) Value of transaction thresholds

N/A

d) Assets requirements

N/A

e) Other

Where merging parties do not reach the general threshold of notification, but the facts and evidence collected indicate that the merger has or may have effect of eliminating or restricting competition, the SAMR shall conduct investigations in accordance with the law. In this situation, the merging parties must file a merger notification upon a request from the SAMR. However, this rarely happens in practice. 

15) Special thresholds for particular businesses

The thresholds stated in topic 14 apply to all transactions except for banking, insurance, securities, futures and other special financial industries and sectors, where the calculation of turnover shall take into consideration the actual circumstances (see topics 17).

16) Rules on calculation and geographical allocation of turnover

Turnover includes revenues received by relevant undertakings from selling products and providing services in the last fiscal year, with relevant taxes and surcharges deducted.

“Chinese turnover” refers to an undertaking’s sales of products or services to customers within the territory of China, including exports to China from other nations or regions, but excluding the products or services exported from China to other nations or regions.

“Global turnover” includes the turnover generated within the territory of China.

The turnover of an individual merging party shall include the total turnover of any direct or indirect parent companies, subsidiaries, joint ventures and subsidiaries of parent companies. Turnover between such businesses (intra group turnover) must be deducted. Thus, the principle is that the turnover of any entity under the umbrella of control shall only be counted once, and related transaction between this entity with its related company shall be excluded when calculating the group’s turnover. 

The turnover that businesses under joint control have with third parties must be allocated equally between the controlling parties. 

If a merging party is jointly controlled by two or more parties, its turnover shall include that of all the controlling parties. The turnover of the seller is irrelevant, unless the seller retains a controlling interest in the target.  

Is the seller/seller's group turnover relevant in a standard acquisition of sole control?

No. 

17) Special rules on calculation of turnover for particular businesses

Turnover calculation for undertakings in the financial sector is subject to a special regulation, “Measures for the Computation of Turnover for Declaration of the Concentration of Undertakings in the Financial Sector”. 

The undertakings comprised by the special regulation include financial institutions in the banking industry, securities companies, futures companies, fund management companies and insurance companies, etc. 

The provisions for financial institutions in the banking industry also apply to financial assets management companies, trust companies, finance companies, financial leasing companies, auto financial companies, money brokerage companies and other financial institutions established with approval by the banking regulatory authorities.

The general formula for turnover calculation is:

Turnover = (Aggregate of elements of turnover – business tax and surcharge) * 10%

For financial institutions in the banking industry, the elements of turnover include:

1. Net income from interest;
2. Net income from handling fees and commissions;
3. Investment income;
4. Gains from changes in fair value;
5. Exchange gain; and 
6. Income from other businesses.

For securities companies, the elements of turnover include:

1. Net income from handling fees and commissions;
2. Net income from interest;
3. Investment income;
4. Exchange gain; and
5. Income from other business.

For futures companies, the elements of turnover include:

1. Net income from handling fees and commissions; and 
2. Net income from interest of bank deposits.

For fund management companies, the elements of turnover include:

1. Income from management fees; and 
2. Income from handling fees.

The following specific formula applies for calculation of turnover of insurance companies:

Turnover = (Income from insurance premiums - business tax and surcharge) × 10%

Income from insurance premiums = income from insurance premiums of original insurance contracts + ceded-in insurance premiums - ceded-out insurance premiums.

18) Series of transactions that must be treated as one transaction

Interdependent mergers between the same undertakings within a two-year period that do not separately trigger the turnover threshold shall be treated as one transaction. 

The interdependent merger is deemed to take place at the time of occurrence of the last merger transaction and the turnover of the mergers is aggregated for the purpose of the turnover calculation.

This rule also applies to mergers carried out by an undertaking through other undertakings which are controlled by or control it.

19) Temporary change of control

There is no exemption for “temporary change of control”. 

20) Special industries, owners or types of transactions

There is no exemption for merger transactions in relation to special industries, owners or types under Chinese merger control rules.

21) Transactions involving only foreign businesses (foreign-to-foreign)

There is no exemption for foreign-to-foreign transactions, but there is a simplified procedure available if the parties in the transaction do not have business and assets in Chinese mainland.

22) No overlap of activities of the parties

There is no exemption for transactions with no overlap of activities under Chinese merger control rules.

23) Other exemptions from notification duty even if thresholds ARE met?

N/A

24) May a merging party file voluntarily even if the thresholds are not exceeded?

Yes. Where a merger does not meet the thresholds, but the undertakings voluntarily make a notification, the SAMR shall accept and review the case and make decisions according to the AML if it deems necessary for case acceptance after receipt of notification documents and materials.

During the period of notification and review procedure, the merging parties may determine, at their sole discretion, whether to suspend their transactions, but they will bear the corresponding consequences in case the merger is not approved unconditionally.

25) May the competition authority request a merger notification or oppose a transaction even if thresholds are not met?

Where a merger does not reach the general threshold of notification, but the facts and evidence indicate that the merger has or may have effect of eliminating or restricting competition, the SAMR shall conduct investigations in accordance with the law and may prohibit the transaction or subject it to conditions.

26) Referral within the jurisdiction

SAMR is the only competent authority which is entitled to accept and review the merger filing in accordance to AML and auxiliary merger control rules. 

27) Referral from another jurisdiction

SAMR cannot handle a merger filing based on referrals from other jurisdictions.

28) Referral to another jurisdiction

SAMR cannot refer a merger filing to another jurisdiction.

29) May the merging parties request or oppose a referral decision?

No.

30) Stage of transaction when notification must be filed

A merger notification must be filed when a binding agreement has been concluded. A published acquisition report of a takeover bid can be deemed as a binding agreement. There is no specific deadline, but the transaction cannot be implemented before the merger has been approved by SAMR. SAMR will not accept notification materials before a binding agreement has been concluded.

31) Pre-notification consultations

The merging parties can apply for a pre-notification consultation meeting with SAMR, which will give guiding opinions on the issues it may have concerns about based on the information provided by the pre-notification consultation applicant.

A pre-notification consultation is not a mandatory process. The merging parties can decide at their own discretion whether to apply for a pre-notification consultation meeting.

The application for a pre-notification consultation meeting shall be submitted in writing, either by fax or by courier to SAMR.

32) Special rules on timing of notification in case of public takeover bids and acquisitions on stock exchanges

A merger that is a consequence of acquisition of securities on a stock exchange or a public takeover bid must be notified after the publication of the takeover bid. 

Where a listed company is acquired by way of an open offer, the published report of acquisition by offer may be regarded as a signed binding agreement. Since the merger transaction is not allowed to be implemented before approval by the SAMR, the acquirer is prevented either from closing the deal or from exercising its rights as a shareholder.

33) Forms available for completing a notification

There are two forms available: one for simplified notification and one for full notification. Both can be found on the website of SAMR (see links under topic 3).

Simplified notification is possible if:

1. On all affected relevant markets, the sum of market shares taken up by all undertakings participating in the concentration is less than 15%;
2. The market share taken by all merging parties that have an upstream-downstream relationship is less than 25% on both the upstream and downstream markets; and
3. The market share taken by the merging parties that are not on the same relevant market and have no upstream-downstream relationship between them, is less than 25% shares on each market related to the merger.

Simplified notification is also possible in each of the following cases:

1. The merging parties establish a joint venture outside China which does not conduct business activities inside China;
2. The merging parties purchase equity or assets of an enterprise outside China which does not conduct business activities inside China; or
3. buy-out by one or more existing JV shareholder(s) of other existing JV shareholder(s), except where the sole controller competes with the joint venture in the same relevant market.

34) Languages that may be applied in notifications and communication

In Chinese only. All notification documents and materials are required to be presented in Chinese or with Chinese translation.

35) Documents that must be supplied with notification

The following documents should always be supplied with a merger notification whether simplified or full:

1. Legalized and notarized certificate of incorporation;
2. Original copy of a POA;
3. Shareholding structure chart;
4. Audited financial statements for the previous fiscal year;
5. Annual report of the previous fiscal year;
6. Research analysis and report made by the undertakings or by third parties;
7. Transaction agreement, including subscription agreement, joint venture agreement etc.;
8. Shareholding Structure Charts before and after the Transaction;
9. Market shares and analysis regarding the affected relevant markets;
10. Contact information of major competitors;
11. Notification information in other jurisdictions;
12. Statement made by the parties confirming that the deal and parties involved comply with applicable law and regulations of China besides for AML; and
13. Non-confidential version of the notification (to be supplied to third parties) and a public disclosure form for simplified notification.

36) Filing fees

There is no charge for merger filing in China.

37) Is implementation of the merger before approval prohibited?

Yes. The merging businesses must be run separately and independently until the merger has been approved. 

38) May the parties get permission to implement before approval?

No. Article 25 of AML expressly stipulates that before a decision made by SAMR, the merging parties shall not implement the merger. There is no exemption for merger implementation before approval. 

39) Due diligence and other preparatory steps

There are no specific rules or guidelines under Chinese merger control rules on to what extent due diligence and preparatory steps are allowed before approval. Generally speaking, preparatory steps are not allowed before approval of the merger. 

However, the merging parties may voluntarily prepare and provide documents and materials that can help SAMR review and make decisions on the merger, such as opinions of the local government and competent authorities, and various reports supporting the merger agreement, including feasibility study report of the merger transaction, due diligence report, industry development research report, merger plan report, and post-transaction forecast report.

40) Veto rights before closing and "Ordinary course of business" clauses

There are no specific rules or guidelines in this regard. Generally speaking, veto rights before closing and “Ordinary course of business” clauses are not acceptable under Chinese merger control regime.

41) Implementation outside the jurisdiction before approval – "Carve out"

There are no specific rules or guidelines on “carve out” of the Chinese part of a transaction to avoid delaying implementation in the rest of the world pending approval in China.

42) Consequences of implementing without approval/permission

According to the AML, where the merger parties implement the merger without approval, SAMR can order the merging parties to stop implementing merger, to dispose of the shares or assets within a stipulated period or to transfer the business within a stipulated period and to adopt other necessary measures to reinstate the pre-merger status; a fine of not more than RMB 500,000 can be imposed. But the it is under discussion by legislators to increase the fines on failure to make filings. 

43) Phases and deadlines

44) Tests or criteria applied when a merger is assessed

It is assessed whether the merger will "significantly impede effective competition – in particular due to the creation or strengthening of a dominant position".

The following factors shall be taken into consideration:

1. the market share of the merging parties in the relevant market and their control over the market;
2. the market concentration in the relevant market;
3. the impact of the merger on market entry and technological advancement;
4. the impact of the merger on consumers and other relevant business operators;
5. the impact of the merger on the development of national economy; and
6. other factors which have an impact on market competition to be taken into consideration by SAMR. 

45) May any non-competition issues be considered?

Yes. According to AML, a merger transaction shall be subject to national security review if the merger involves acquisition of domestic enterprises by foreign-funded undertakings or any other methods which may affect national security. 

In addition, the impact of the merger to public interests may also be considered by SAMR.

46) Special tests or criteria applicable for joint ventures

The assessment for joint ventures is the same as for other mergers.

47) Decisions and remedies/commitments available

A merger may be approved, approved with conditions/commitments or prohibited.

If SAMR and/or relevant domestic industry in China expresses serious concerns about the merger, it is important that the parties enter into negotiations of possible commitments well before the expiry of the deadlines, as the SAMR will normally only consider an approval with conditions if the parties have offered commitments.

Commitments can be either structural or behavioral and with or without time limitations.

SAMR may revoke an approval if at any time it becomes aware that incorrect or misleading information has been provided by the parties or if the parties do not comply with the conditions/commitments contained in the approval.

SAMR can also make a decision on prohibition. However, prohibition cases are very rare in China.

48) How and when will details about the merger be published?

SAMR will make a public announcement when the decision of a merger filing has been made. If the decision is an approval with conditions, the conditions and commitments made by the parties shall be published along with the decision.

In case of simplified notifications, a disclosure form for the merger transaction submitted by the parties will be published on SAMR’s website for public comments.

However, the non-confidential version of a notification will not be published to the public and will be only sent to some particular third parties for comments, such as relevant industry associations. 

49) Access to the file for the merging parties and third parties

The merging parties:

Beside the notification materials submitted, the merging parties are not able to access any files provided from third parties unless the SAMR believes access is necessary. For example, SAMR may forward comments or arguments received from the public to the merging parties and request the merger parties to respond to such comments and arguments. Usually, the identity of the third party will be redacted as confidential information.

Third parties:

Beside the notification materials submitted, the merging parties are not able to access any files provided from third parties unless the SAMR believes access is necessary. For example, SAMR may forward comments or arguments received from the public to the merging parties and request the merger parties to respond to such comments and arguments. Usually, the identity of the third party will be redacted as confidential information.

50) Who can appeal and what may be appealed?

In theory, any interested parties, such as the merging parties and other undertakings involved in the relevant market and upstream/downstream industries which are negatively affected by the decision may appeal the decision. 

The appeal can be divided into administrative review and an administrative lawsuit. Administrative review is initiated by complaint to the legal department of SAMR, whereas administrative lawsuits may be lodged with the First Middle Court in Beijing. Importantly, the administrative lawsuit shall not be initiated unless parties have gone through the procedure of administrative review. But, in practice, both levels of appeal are rare.