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Content last updated: 18-01-2021

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  • Merger Control Regime
  • Merger Screening
  • Merger Filing

1. Supranationality

1.1 Membership of Supranational Organization

1.1.1 Is the jurisdiction a member of/party to a supranational jurisdiction?

No.

1.1.2 Is the jurisdiction itself a supranational jurisdiction?

No.

1.1.3 If the answer to Section 1.1.1 and/or 1.1.2 above is in the affirmative, what are the implications hereof?

Not applicable.

2. Nature of merger control regime

2.1 Mandatory or voluntary

2.1.1 Is filing mandatory or voluntary?

Mandatory.

2.2 Suspensory effect

2.2.1 Must completion of the transaction await clearance by the relevant authorities?

Yes, a notifiable transaction must await clearance from the State Administration for Market Regulation before completion.

1. What type of transactions are caught by the merger control regime?

1.1 Concentrations

1.1.1 Type of transactions that are caught by the merger control rules?

A transaction is caught by the merger control rules if it brings a change of control due to:

a) the merger of two or more previously independent undertakings; or

b) the acquisition of securities or assets, or by contract or any other means, of direct or indirect control of the whole or parts of one or more other undertakings.

1.2 Joint ventures

1.2.1 What types of joint ventures are caught by the merger control rules?

The formation of a joint venture by creation of a new legal entity is caught by the merger control rules if two or more undertakings are deemed to have joint control over the joint venture and the jurisdictional thresholds are met.

Chinese rules do not distinguish between full-function and non-full function joint ventures.

1.3 Definition of "control"

1.3.1 How are the concepts of "control" and "change of control" defined?

Control includes both joint and sole control.

"Control" is defined as the possibility of exercising decisive influence on an undertaking by rights, contracts or any other means, either separately or in combination and having regard to the considerations of fact or law involved.

It has to be decided on the facts in each case, whether there is a possibility of exercising decisive influence over an undertaking. Decisive influence can be de jure in the form of acquisition of the majority of the voting rights or through special rights; or de facto based on a historic pattern of attendance at annual general meetings.

The State Administration for Market takes the follow factors into consideration when assessing whether control has been acquired:

the purpose of the transaction;

the group structure of the undertakings concerned;

voting rights of the undertakings concerned, including historical attendance and voting record at shareholder meetings;

- the composition of the management of the undertakings concerned;

the relationship between the undertakings concerned, including their managements;

any concerted practice;

the presence of existing business relationships and corporation between the undertakings concerned.

1.4 Minority shareholdings

1.4.1 Are minority and other interests less than control caught by the merger control rules?

Yes, if de facto control or the possibility to exercise decisive influence has been acquired as outlined under Sections 1.1.1 and 1.3.1 above, the transaction is caught by the merger control rules.

2. Establishing jurisdiction for notification of mergers

2.3 General thresholds

2.3.1 Threshold(s) for when a concentration must be notified under the general merger control regime?

Merger control filing is required when:

  • the combined global turnover of the undertakings concerned exceeded RMB 10,000,000,000 in the last financial year, and each of at least two of the undertakings concerned had an aggregate turnover exceeding RMB 400,000,000 in China in the last financial year; or
  • the combined turnover of the undertakings concerned exceeded RMB 2,000,000,000 in China in the last financial year, and each of at least two of the undertakings concerned had an aggregate turnover exceeding RMB 400,000,000 in the last financial year.

2.3.2 For each threshold, can the threshold be triggered by only one undertaking having local turnover?

Neither of the alternative sets of thresholds can be triggered by only one undertaking concerned having local turnover.

2.3.3 For each threshold, can the threshold be triggered without any undertaking having local turnover?

Neither of the alternative sets of thresholds can be triggered without at least two of the undertakings concerned having local turnover.

2.3.4 Are there any circumstances where transactions falling below these thresholds may be still investigated?

The undertakings concerned may voluntarily notify a transaction falling below the above thresholds.

The Ministry of Commerce has jurisdiction to review any transaction, regardless of the thresholds outlined in Section 2.3.1 above, if it considers that the transaction is likely to result in the “elimination or restriction of competition”.

2.4 Other national thresholds for ex ante merger control (e.g. sector-specific rules)

2.4.1 Relevant thresholds for sector-specific or other ex ante merger control rules?

There are special rules on the calculation of turnover in the following sectors: financial institutions, securities companies, futures companies, fund management companies, insurance companies.

Foreign investment:

All foreign investment in China must be notified to and approved by the Ministry of Commerce Foreign. Foreign investment is regulated on a sector-by-sector basis. Certain sectors are either not open to foreign investment or subject to foreign ownership restrictions.

Special rules apply to acquisition of “actual control” over Chinese businesses by foreign investors involving the following sectors:

  • defence
  • certain agricultural products
  • certain energy infrastructure
  • transportation
  • technology
  • equipment manufacturing.

Transactions whereby a foreign investor obtains a controlling interest in a domestic Chinese entity under the following circumstances is notifiable:

  • the target operates in a key industry
  • the transaction has an impact on state economic security
  • the target possesses a well-known trademark or established Chinese brand.

2.5 Foreign-to-foreign mergers

2.5.1 Do any exemptions, special thresholds etc. apply to foreign-to-foreign mergers, i.e. where none of the undertakings concerned is domiciled in the jurisdiction?

There are no exemptions for foreign-to-foreign transactions.

3. Calculation and allocation of turnover, asset value, transaction value etc.

3.1 Relevant turnover

3.1.1 How is turnover defined (e.g. is income from other sources than "ordinary activities to be included, and how are rebates, taxes, internal turnover etc. treated)?

The relevant turnover to be taken into account is the net turnover related to the sale of goods and/or services in the ordinary course of business exclusive of value added tax and other taxes directly related to the turnover; and (iii) group internal sales.

3.3 Relevant undertakings for the calculation of turnover

3.3.1 The undertakings whose turnover is taken into account?

The turnover of all direct and indirect parent companies, subsidiaries, joint ventures and subsidiaries of parent companies is taken into account.

3.3.2 Shall the turnover of the existing seller be included in the target's group turnover?

The turnover of the seller is not taken into account unless the seller retains a controlling interest in the target.

3.4 Geographical allocation of turnover

3.4.1 The principles for the geographical allocation of turnover?

Turnover is allocated geographically based on where the customer was located at the time of the turnover generating transaction. Thus, local turnover includes 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” also includes turnover generated within China.

3.5 Valuation and allocation of assets

3.5.1 The principles for valuation and allocation of assets?

Not applicable.

3.6 Calculation of other thresholds

3.6.1 The principles for calculation of metrics for other thresholds (e.g. transaction value, market share, share of supply etc.)?

Not applicable.

3.7 Special rules

3.7.1 Do any special rules or principles apply to the calculation, allocation etc. of turnover, assets etc. for specific undertakings (e.g. State-owned undertakings, investment funds, credit and financial institutions, insurance companies, financial holding companies, others)?

There are special rules on the calculation of turnover in the following sectors: financial institutions, securities companies, futures companies, fund management companies, insurance companies.

1. Practical information

1.2 Deadlines for filing

1.2.2 Are there any sanctions for not filing within the deadlines?

Provision of inadequate, incomplete, or inaccurate information may delay the review process as the State Administration for Market Regulation will not accept the notification until it considers it complete.

Provision of false or misleading information to the State Administration for Market Regulation is sanctionable by a fine of up to

  • RMB 200,000 for undertakings, increasing to a maximum of RMB 1,000,000 in aggravating circumstances; and
  • RMB 20,000 for natural persons, increasing to a maximum of RMB 100,000 for natural persons.

1.2.3 What are the sanctions for not filing a notifiable transaction?

Completion of a notifiable transaction without clearance from the State Administration for Market Regulation is sanctionable by a fine of up to RMB 500,000.

The State Administration for Market Regulation may also order the undertakings concerned to roll back the transaction.

This content was delivered
and last updated on 18-01-2021 by

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