China doubled its merger notification thresholds effective on January 26, 2024.
China's State Council recently published new merger control notification thresholds doubling the previous China revenue thresholds in an amended Regulation on Notification Thresholds for Concentrations of Business Operators (the "Regulation"), the first time since the Chinese Anti-Monopoly Law ("AML") came into effect in 2008.
Transactions now require prior notification to and approval from the Chinese antitrust regulator, the State Administration of Market Regulation ("SAMR"), if at least two parties each have more than CNY 800 million (approximately $116 million) in China revenues in the preceding fiscal year, assuming other tests relating to their combined global (CNY 12 billion /approximately $1.74 billion) or China revenues (CNY 4 billion/approximately $580 million) also are met.
Below are a few observations about the likely impact of these updated thresholds:
- Encourage more transactions. The revised thresholds likely will reduce the number of transactions that must be notified to SAMR. This in turn may encourage more transactions, particularly in sensitive sectors in which transaction parties otherwise would be concerned about lengthy and uncertain China merger reviews.
- Focus review resources on high-profile cases. Since 2022, SAMR has partly delegated the review of simple merger filings to its provincial offices. The higher notification thresholds likely will further decrease SAMR's caseload, allowing its officials to focus more on significant transactions with potential competition concerns.
- Killer acquisitions remain controversial. The Regulation as promulgated omitted a proposed new set of thresholds that had been floated in earlier drafts and was intended to cover "killer acquisitions." This omission removes some potential uncertainty for large acquirors—although it does nothing to prevent SAMR from using its powers under the AML to investigate such below-thresholds transactions sua sponte if in SAMR's view they have the effect of restricting or eliminating competition in China.
- The regulation is effective now—with a caveat. The Regulation became effective on January 26, 2024, upon promulgation. Although the Regulation itself is not clear, it is understood that the new thresholds likely will apply to any transactions filed (or not filed but not yet closed) after the effective date, regardless of when the transactions were signed.
In short, the new and increased China merger notification thresholds will spare more transactions by eliminating the costs and uncertainties of SAMR merger filings. However, given SAMR's power to investigate below-thresholds transactions, even after closing, parties still must carefully assess the potential impacts of proposed transactions on competition in China—as well as on affected stakeholders and potential complainants.
