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PRC Merger Control: MOFCOM Finalises Rules on the Assessment of Concentrations

Victor Ho, Thomas E. Jones, Richard Kim, François Renard, Mitchell Silk, and Ji Zou, Allen & Overy Insight, October 17, 2011.

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On 2 September 2011, China’s Ministry of Commerce (MOFCOM) published Provisional Rules on the Assessment of the Competitive Effects of a Concentration of Business Operators (Announcement [2011] No. 55, the Rules). They entered into force on the same day.

The Rules have confirmed in writing the methodology which MOFCOM has been adopting for the last three years when conducting its competitive analysis of business concentrations. However, the Rules simply provide a list of criteria that MOFCOM employs when assessing concentrations without giving much additional guidance on them. In publishing these Rules, MOFCOM could have given greater explanation and clarity as to how it conducts its review of business concentrations. Instead, MOFCOM has left it to competition law practitioners and companies to rely on their own experience in dealing with the authority and on guidance from other jurisdictions in order to predict how MOFCOM might interpret a particular case.

The Rules contain 14 articles, which cover both the methodology and the factors which MOFCOM applies when assessing the competitive effects of a business concentration, as listed in Article 27 of the Anti-monopoly Law (AML) of the PRC.

Overall, the Rules highlight market share/market control power as one of the most important factors that MOFCOM considers when assessing the competitive effects of a business concentration. The Rules also emphasize the importance of the degree of market concentration, barriers to entry, impact on technological development, and positive efficiencies.

The Rules provide a written consolidation of MOFCOM’s methodology to date. They also show how the AML merger control regime is being brought another step closer in its alignment with similarly broad-reaching antitrust regimes, such as the EU and U.S.

Article 4 refers to MOFCOM evaluating whether a concentration will create or strengthen the capability, incentive and likelihood for a single operator to “unilaterally exclude or restrict competition”. It then goes on to say that where the operators are not actual or potential competitors in the same relevant market, MOFCOM will focus on whether the concentration is likely to exclude or restrict competition in the upstream, downstream or adjacent markets, in line with EU practice in particular. Whilst the Rules do not adopt terminology such as "unilateral effects/coordinated effects" (in "horizontal" mergers), "foreclosure effect" (likely to be caused by a "vertical" merger) or "portfolio effect" (likely to be caused by a conglomerate merger), experience shows that the Rules, as well as MOFCOM’s own practices, are in line with MOFCOM’s foreign antitrust counterparts. It is important to note that these concepts were already contained in the draft Guidance on Review of Unilateral and Coordinated Effects of Horizontal Concentrations of 19 November 2009 (the 2009 Draft Guidance), which the Rules appear to replace. In fact, the 2009 Draft Guidance provided far more detailed guidance as to the application of these concepts in the merger review context.

Some further comments on key provisions of the Rules are provided below:

General comment: little guidance

The Rules, which are only three pages in length, deal with the relevant concepts in a disappointingly broad manner, particular in comparison to the earlier 2009 Draft Guidance, and do not provide any guidance or examples when listing the factors that MOFCOM will use when making its assessment.

For instance, Article 12 refers to concepts such as the public interest, economic efficiency, a defence of bankruptcy and countervailing buyer power as additional factors which MOFCOM will weigh up during its review process, and also creates a defence of bankruptcy. However, it does not seek to further define or elaborate on these concepts.

According to Article 4, and as already discussed above, if the relevant business operators are not actual or potential competitors at the same level of trade in a market, review of the concentration will focus on whether the concentration would eliminate or restrict competition in upstream or downstream markets, or in a market that is related to the relevant market ("vertical" or "conglomerate" effects). The same provision also recognizes that some concentrations in concentrated markets may lead to so-called coordinated effects in the relevant market. This analysis is adopted in other major antitrust jurisdictions such as the EU. However, unlike the relevant laws in those jurisdictions, the Rules do not provide any detail regarding the assessment of non-horizontal mergers and horizontal mergers in concentrated markets, or the possible effects that such mergers could have.

Finally, some of the articles also contain sub-paragraphs which operate as ’catch-all’ provisions to capture any factors that might not have already been explicitly covered in earlier provisions. An example of this can be found in Article 3, in which the last factor that MOFCOM will consider as part of its overall assessment is described simply as: "other factors affecting market competition". Equally, Article 5 allows for "other factors" to be considered by MOFCOM when determining a business operator’s market share. Again, no indication is given in either of these provisions as to what these "other factors" might be, and MOFCOM will therefore have broad discretion to interpret these "other factors" widely. Nonetheless, as discussed above, competition law practitioners will be able to draw upon precedents and principles in other antitrust jurisdictions in order to predict what these other factors might include. For example, based on EU competition law, some of the factors that could be looked at when considering market shares are the existing market dynamics and the level of differentiation between products, as well as the development of market shares over time, or the existence of a bidding market, where high market shares may not necessarily translate into a dominant position.

Assessing "market control power"

Although the AML prohibits concentrations that "may eliminate or restrict market competition", the Rules suggest a more specific criterion, namely, whether the merging parties will obtain "the power to control the market or enhance their existing power to control the market".

Article 5 lists factors that are relevant to MOFCOM’s assessment of merging parties’ market control power, which are more detailed than Article 3 of the Rules and Article 27 of the AML. These factors are relatively common to many merger control systems. They include market share, substitutability of products or services, the ability to control the sales market or the procurement market for raw materials, production capability of non-merging parties and the purchasing power of the merging parties’ downstream customers, etc.

A number of these factors were taken from Article 18 of the AML, which deals with abuse of dominance. This is in line with international practice, but the Rules do not reveal any additional details about these criteria or their relative importance in the context of merger control review. For example, there is no information regarding how MOFCOM should evaluate the "substitutability" of products, the parties’ ability to control sales or purchasing markets or customers’ purchasing power. Furthermore, the Rules do not clarify whether some of these factors are more important than others. The 2009 Draft Guidance, which contained a more detailed list of criteria in the section concerning unilateral effects of concentrations, might constitute a better reference in this context.

Market concentration levels measured by the Herfindahl-Hirschman Index (HHI) and the Concentration Ratio Index (CRn)

HHI and CRn are economic concepts that are widely recognised by major antitrust jurisdictions as important statistical tools in assessing the level of concentration in a relevant market. MOFCOM’s use of these economic tools (albeit with considerable discretion) shows that it is following the practices of the U.S. and EU.

Article 6 of the Rules confirms the importance of these concepts. It defines HHI as the sum of the squares of the market shares of individual operators in a relevant market, and CRn as the sum of the market shares of the leaving N operators in a relevant market. The Rules further set out the basic criteria for assessing the competitive effects of a transaction on the basis of the degree of concentration in the market. In particular, the higher the degree of concentration in a relevant market, and the higher the increase of the concentration level post-merger, the more likely a merger will have anti-competitive effects.

However, unlike the U.S. and EU guidelines, the Rules fail to specify the HHI or CRn ranges that may indicate a problematic degree of market concentration, nor do the Rules make it clear what emphasis MOFCOM will place on these measures of concentration.

No guidance on the assessment of the impact of concentrations on "national economic development"

The Rules state that MOFCOM will take into account "the impact of the concentration on national economic development" when reviewing a concentration. Some commentators have pointed out that this is an unnecessary repetition of the wording used in Article 27(v) of the AML. However, the Rules were adopted only a couple of months after the new rules on national security (Allen & Overy’s earlier eBulletin on the new MOFCOM implementing rules for national security review is available here. Taken together, these developments confirm that MOFCOM will go further than just considering "national security" when assessing the impact of concentrations on national economic development. Sadly, there is still no guidance on how this concept will be interpreted.


While the Rules may reflect a traditional approach to competition law and confirm the practice of the PRC merger control authority, they also leave many questions unanswered. Both MOFCOM itself and competition law practitioners in China will have to look to the EU and U.S. guidelines for inspiration in applying the Rules. The Rules’ lack of detail is particularly disappointing in areas where the EU and U.S. may not provide useful parallels, for example, when determining a transaction’s effect on competitors or the national economy. For such criteria, practitioners will need to refer to the limited precedents available from the implementation of the AML in order to predict how these concepts will be interpreted.

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