Cover story, issue no. 375 July 7 2008
Translated by Liu Peng
Original article: [Chinese]

The rules may change for businesses that would need to file for antitrust review under a soon-to-be-effective antitrust law in China.

Higher thresholds have been included in a working draft meant to flesh out details in the Antitrust Law, which was passed last year and slated to come into effect this August, according to one source close to the legislation. 

The source added that compared to previous versions, this latest draft of rules regarding pre-consolidation filings has also abolished the requirement for businesses based on market share. 

According to the previous draft, if a prospective merger or acquisition would lead to a business having exceeded 25% of the market, it would have to first file with regulators. 

Compared with a March draft of the rules which were released to the public for feedback, the EO learned that the number of clauses contained in this latest draft had been chopped down to 6 from 19.

The rules were being drafted by the State Council Legislative Affairs Office, with participation from the Ministry of Commerce, National Development and Reform Commission (NDRC) and the State Administration for Industry and Commerce (SAIC).

Raising the Bar for Concentration of Businesses
A source close to the drafting process said only two requirements remained for pre-consolidation filings meant to notify regulators.

The first trigger for a filing: If the global turnover of companies involved in a consolidation exceeded 10 billion yuan in the previous accounting year, and at least two of the companies each saw over 400 million yuan of turnover in China over the same period. 

The second: If the mainland turnover of all consolidating companies exceeded 2 billion yuan, with at least two of the businesses each saw 400 million yuan of mainland turnover during the previous accounting year.

The March draft stated a global turnover thresholds of 9 billion yuan, and mainland China turnover thresholds of 1.7 billion yuan, with at least two of the companies each seeing 300 million yuan of turnover.

Under the rules, "consolidation of business operators" meant mergers of business operators; acquisition of equities or assets of other businesses; and the controls over other businesses through contracts and other means.

The source said fierce debates over using market share as a benchmark by which businesses might qualify as monopolies resulted in the scrapping of a clause that would have forced companies with over 25% of the market share to file.

That, the source said, was because market share could be calculated with varied formulas and would lead to lacking a standard benchmark, adding, "If these kinds of market share thresholds, which are uncertain, were inscribed in the regulations, it would be difficult to enforce."

In contrast, business turnover could be taken straight from the company's accounting statements and thus could serve as a less controversial yardstick.

Some multinationals have expressed concern that the rules would affect their normal merging operations.

"Many companies clearly misunderstood the pre-concentration filing," the source said, adding: "Meeting the threshold doesn't mean that companies have violated the Antitrust Law. Whether or not the consolidation activities are illegal depended on further examination."

The draft rules had yet to explicitly name what organs would enforce the Law, only saying that departments designated by the State Council would do so.

A source from the Ministry of Commerce told the EO that an investigative bureau would be established under the Ministry to look into monopoly behavior in the market.

In addition, the National Development and Reform Commission and the State Administration of Industry and Commerce would also establish review and enforcement units to investigate price monopolies and the abuse of dominant market position respectively.