More than one and half year after the amendments to China’s Anti-Monopoly Law (the “AML”) came into effect, the State Council of China approved on December 29, 2023 and published on January 26, 2024 revisions to China’s merger control notification thresholds (the “State Council Order”).
This blog post summarizes the main revisions introduced by the State Council Order to the merger control notification thresholds of China.
I. Revenue-Based Thresholds Are Increased
The State Council Order raises the revenue-based thresholds that have been in effect in China since 2008. The old and new thresholds are outlined in the table below.
|Revenue-based alternative test (1)
|Combined worldwide revenues > RMB 10B (c. USD1.4B; EUR 1.3B); and each of at least two undertakings’ China revenues > RMB 400M (c. USD 56.7M; EUR 52.3M)
|Combined worldwide revenues > RMB 12B (c. USD 1.7B; EUR 1.5B); and each of at least two undertakings’ China revenues > RMB 800M (c. USD 113.5M; EUR 104.6M)
|Revenue-based alternative test (2)
|Combined China revenues > RMB 2B (c. USD 283.8M; EUR 261.6M); and each of at least two undertakings’ China revenues > RMB 400M (c. USD 56.7M; EUR 52.3M)
|Combined China revenues > RMB 4B (c. USD 567.6M; EUR 523.3M); and each of at least two undertakings’ China revenues > RMB 800M (c. USD 113.5M; EUR 104.6M)
II. The Proposed Threshold for “Killer Acquisitions” Was Not Adopted
The revisions have been long anticipated and were previewed as part of the draft amendments to the “Provisions of the State Council on the Thresholds for Notifying Concentrations of Business Operators” (“Draft Provisions”) in 2022. The Draft Provisions originally proposed a new jurisdictional test based on market capitalization to capture the so-called “killer acquisitions” where the targets are often emerging companies with low revenues but high market capitalization. This new test was however not adopted.
III. SAMR’s Power to Investigate Below-Thresholds Transactions Was Reiterated
The State Council Order maintains the provision that allows SAMR to call in transactions that fall below the thresholds but there is evidence of anti-competitive effects. However, no procedural guidance is provided on how the evidence would be collected or what the standard of review would be to determine likely anti-competitive effects.
SAMR’s Measures on the Review of Concentrations of Undertakings also specify that SAMR may require below-thresholds transactions, whether implemented or not, be notified based on potential anti-competitive effects: if such transactions have not been implemented, they may not be implemented without notification and SAMR’s approval; if such transactions have been implemented, parties must submit the notification within 120 days after receiving SAMR’s request and take necessary measures (such as suspension of the implementation of the transaction) to mitigate the negative impact on competition.
IV. Other Revisions
The State Council Order introduces a new provision that mandates SAMR to investigate failure to notify transactions that meet the thresholds or have been called in by SAMR. Pursuant to the AML, parties failing to notify or closing a transaction without SAMR’s approval (i.e., “jumping the gun”) could be fined, in transactions with anti-competitive effects, for up to 10% of the company’s total revenues from the preceding year; and in transactions with no anti-competitive effects, for up to RMB 5 million (c. USD 709K; EUR 653K). The amounts can be multiplied by 2 to 5 times in egregious cases. There is no clear guidance on whether the “total revenues” here refer to the buyer’s global revenues or Chinese revenues or the total revenues of the combined entity post-transaction.
In addition to monetary fines, Article 58 of the AML also empowers SAMR to order an infringing company to take measures to restore the pre-transaction situation including unwinding the transaction, divestment, and behavioral remedies. Although SAMR has never ordered the unwinding of a transaction, the agency did impose behavioral remedies in the 2021 investigation of Tencent’s failure to notify its acquisition of China Music Group, which included terminating exclusive music copyright licenses and prohibiting certain anti-competitive commercial terms between Tencent and copyrights owners.
In addition, the State Council Order includes a new provision stating that SAMR shall assess the implementation of the merger control thresholds in accordance with economic development. It remains to be seen whether this implies that SAMR will adjust the thresholds on an annual basis, similar to the practice followed by the U.S. agencies.
 The only other time the merger control notification thresholds of China underwent revision was in 2018. That revision only involved a change of the reference to the Ministry of Commerce (“MOFCOM”) as the antitrust agency in charge of merger review to the “Anti-Monopoly Enforcement Agency of the State Council.” This change was made to reflect the institutional reform that led to merging MOFCOM’s merger review division into a newly established agency, namely the State Administration for Market Regulation (“SAMR”).
 State Council Order No. 773 Public Notice.
 All revenue thresholds refer to the revenue in the preceding financial year.