The enactment of China’s Anti-Monopoly Law (AML) in 2008 raised threshold questions about the way the law would operate in the context of a socialist market economy, and particularly the relationship of the AML with China’s industrial policy. In the context of mergers, decisions of the Ministry of Commerce (MOFCOM), the appointed regulator, provide a window into the operation of competition law principles in this environment. A number of idiosyncrasies are also emerging. As might have been expected, MOFCOM tends to be more interventionist than other competition law regulators in the same transactions. While the number of market interventions by MOFCOM is not overwhelming, critical questions are whether the interventions and the conditions imposed are the result of industrial policy considerations, or are rather the result of some more benign tendency toward market intervention arising from the former command nature of the Chinese economy.

The AML, in summary, prohibits mergers and like transactions (together “concentrations”) which will lessen competition. Notification of mergers affecting Chinese markets is compulsory over certain turnover thresholds. This means that global mergers over the threshold which have an impact in China are notifiable, and these provide a rough yardstick against which MOFCOM merger determinations and imposition of conditions can be measured. The AML provides “merger factors” for consideration in assessing the impact of mergers as do other jurisdictions. Additionally MOFCOM is also able to approve a merger if it finds that the advantages of the merger exceed its disadvantages or the merger is in the public interest.  

MOFCOM is obliged to provide written determinations only where it refuses to approve a transaction or approves subject to conditions. This feature means that there is imperfect information on why mergers are approved, and about the operation of those merger factors which allow a merger to proceed. At the end of 2011 MOFCOM estimated that it had considered more than 380 mergers, with written reasons for one refusal and 13 conditional approvals. Given the size of the economy and in comparison to other jurisdictions this number seemed rather small.

Industrial policy plays a key role in the development of the economy. The objects of the AML and a number of its provisions provide scope for legitimate recourse to industrial policy in its interpretation and enforcement. For example, the AML merger factors require MOFCOM to take account of the possible effect of a merger on other undertakings and on the national economy, which injects clear industrial policy considerations.  State Owned Enterprises (SOEs) figure prominently in the economy and the government’s stated policy of promoting mergers which form large internationally competitive companies, creating national champions, is inconsistent with generally accepted competition law principles. Industry restructuring plans do not mention the AML and while MOFCOM has stated that the usual notification procedures should apply in circumstances involving SOEs, SOEs do not notify, generally arguing that their mergers are already approved by government and do not need MOFCOM approval.

Three particular trends can be discerned from considering the written determinations of MOFCOM to date.

Firstly, only one of the MOFCOM determinations imposing conditions has involved an SOE. While steps have been taken to enforce the notification requirements by the introduction of rules providing penalties for non-notification, many SOE transactions are still not notified. The failure of SOEs generally to notify is cause for concern and underscores that the relationship between the AML and industrial policy internally has not been resolved; nor has the breadth of the discretions contained in the AML: remaining unanswered is the question of whether they will they be exercised broadly to regularly deliver exclusions from strict competition rules or will they be employed by regulators from time to time in more selective situations? On the question of the role of industrial policy, MOFCOM officials expressly denied  it was a factor in the Coca Cola and Huiyuan refusal, although the determination did at one point refer to the impact of the transaction on the Chinese fruit juice market. While a number of more detailed comments could be made about the methodology employed by MOFCOM to determine merger notifications, subject to some of the unusual factors listed for consideration in the AML, relatively standard methods and techniques are employed and considerable development in legal and economic ideas can be discerned when one compares the earlier and later determinations.

Secondly, despite the concerns of foreign commentators prior to the enactment of the AML that it would be used as a protectionist tool and target foreign companies, this has not proven to be correct. Most mergers involving foreign companies have been allowed to proceed without any intervention. However, all of the conditional mergers and the one refusal have involved foreign companies.

Thirdly, there are a number of situations in which MOFCOM has imposed conditions which were more detailed than those imposed by regulators in the same transactions in other jurisdictions. Comparing competition decisions in different jurisdictions is always problematic because market conditions are never identical. The impact of a global merger on different jurisdictions may vary wildly depending upon the market position of the parties there, competition in individual markets and the strengths of competitors. Assuming that outcomes will be identical is dangerous; however, globalisation and the importance of international business suggest that at least the approach to analysis should be similar. Of the conditions imposed by MOFCOM in recent determinations, for example, the Potash case (Urakali and Silvinit) a number appeared to be quite restrictive and assure China of continuing supply on current conditions for an indeterminate period. In technology mergers involving Seagate and Samsung, Western Digital and Hitachi, and Google and Motorola Mobility, MOFCOM took quite a different view to many other regulators and also seemed intent on ensuring maintenance of the status quo for considerable periods of time. In Google and Motorola Mobility, for example, China was the only jurisdiction to require formal conditions from the acquirer.

Whether these trends persist will provide an important indicator of the likely impact of industrial policy on interpretation of the AML.