The law is in, the rules are out, and we know who's in charge of enforcing it all. Any surprises now that it is public?
The rules reflect the latest draft so no surprises there. However, the implementation rules are much shorter than the draft published in March and leave much more discretion to the Ministry of Commerce to provide guidelines. We expected the rules to be issued later but it is good that they've been issued now to provide some certainty. Many questions remain unanswered however, and the Ministry of Commerce is going to play a crucial role in shaping the merger review regime in China.
Is it going to even the playing field or will it make things harder for foreign investors?
The Anti-Monopoly Law (AML) û including the merger review section û applies to all companies equally irrelevant of their place of registration. However, the fact that the AML has no independent enforcement authority but relies on the existing agencies, which also have other powers such as control of foreign investment, may influence the actual enforcement and interpretation of the law. We shall be watching this closely.
This type of law is nothing new to foreign investors, but will it affect the way they're used to sourcing and closing deals in China?
The previous merger filing regime did not contain penalties for failing to notify transactions, companies filing in China usually did so for political reasons rather than any legal requirement. The AML and the implementation rules are sure to change the strategy of those companies. For anti-competitive agreements and abuse of dominant positions, the AML will at least enable companies to re-consider and evaluate their commercial activities in China. The actual impact will depend on the actual enforcement of the law by the relevant agencies.
Can we be sure that enforcement will be smooth with so many bodies involved?
China is not the only country with more than one enforcement agency; again we will need to monitor how this works in practice. There will be a co-ordination committee based in the Ministry of Commerce but its actual role remains unclear. However, the Ministry of Commerce will be the only body responsible for merger control, unlike under the current regime (where the State Administration for Industry & Commerce is also involved). It is clear which regulator is responsible for enforcing each part of the AML.
What will the affect be on private equity and hedge funds, who like to move fast and close deals under the radar in China?
They will need to work in the 30-working-day review period in China when planning a transaction so they should be taking antitrust legal advice much earlier in the transaction to evaluate if a filing will be required and if so, start to prepare the filing as early as possible, as it will be a pacing item for closing. Private equity and hedge funds will need to take note of the penalties for non-compliance, including the risk of deals being unwound.
China deals û intra, inbound or outbound û already take many months to complete. How many months will AML add to process?
If a deal already needs approval from high level agencies such as the National Development and Reform Commission, the AML review may not add any extra days to the process. The first phase review is 30 working days and the second phase is 90 working days if the Ministry of Commerce considers there may be anti-competitive aspects to the transaction.