Mergers with Conditions in China

Abstract

China is a major global economy. Its size and nature ensure that it has a very significant impact on world markets. Competition law worldwide regulates mergers and acquisitions based on the assumption that the aggregation of businesses may inhibit competition, with structural change often making other prohibited forms of anticompetitive conduct unnecessary. Most jurisdictions with competition laws have provisions dealing with mergers and acquisitions. A number of key regulators, in particular the United States and the European Union (EU), have traditionally determined the competitive impact of international mergers, and there has been a trend toward a more unified method of analysis of merger outcomes from a competitive perspective, although there are still differences in the way that individual jurisdictions determine outcomes. The enactment of China’s first comprehensive competition law, the Anti-Monopoly Law (AML) in 2007, raised threshold questions about the way the AML would operate in the context of a socialist market economy. In particular, the relationship of the AML to China’s industrial policy is an issue of major interest. China’s new status as a nation that has a competition law, coupled with its large internal markets and growing foreign investment, meant that it is not a minor player in the competition law world. Along with other jurisdictions it has a significant role as an adjudicator of a growing number of international mergers. Arguably, the Ministry of Commerce (MOFCOM) is the third most important competition law regulator after the United States and the EU. The impact on global transactions of a substantially different approach to merger regulation in China would be significant to international investors and to global mergers. This chapter considers whether the Chinese regulator, MOFCOM, adopts a standard approach to merger adjudication that, put simply, looks at the likely impact on competition of the merger in relevant markets. It examines the potential impact on its merger adjudication of China’s political economy. It explores important questions about the thresholds for adjudication and the nature of MOFCOM’s interventions. It considers whether divergent merger outcomes under the AML are the result of the caution of a new regulator, the natural tendency toward market intervention arising from the former command nature of the Chinese economy, or industrial policy considerations. In reviewing the merger provisions of AML in the political and economic context, and a number of examples where merger outcomes in China have diverged from outcomes in other jurisdictions, possible reasons for the divergences are canvassed. The question is important in the context of understanding whether the Chinese merger regime is predictable, how it might affect global transactions, and ultimately how it might impact the international economic order. The chapter argues that there are a number of examples where MOFCOM’s determinations do diverge, that the reasons for the divergences are founded in each of the factors identified earlier, and that the outcomes are uniquely Chinese. The implications of these conclusions for both Chinese domestic and international merger regulation are considered. In a small but significant way merger adjudication in China creates a new paradigm coexisting with the larger world of competition regulation.