CN04 - China clamps down on merger control

On 5 January 2022, China's State Administration for Market Regulation ("SAMR") imposed a total of RMB 10.5 million (c. USD 1.65 million) in penalties for "gun-jumping" against a range of high-profile companies in relation to 13 separate transactions.

Key takeaways 

• Continuing its active merger control enforcement trend, the SAMR has imposed a string of maximum penalties against high profile companies that have failed to comply with notification and clearance obligations under the Anti-Monopoly Law ("AML").
• While current penalties for gun-jumping are capped at RMB 500,000, proposed reforms to the AML appear set to increase these caps to potentially up to 10% of turnover.
• The SAMR's enforcement actions are part of a noticeable trend of enforcement by competition authorities in the APAC region to penalise entities for gun-jumping conduct. Businesses need to ensure that they stay on top of merger clearance requirements in relevant jurisdictions in which they are active in order to avoid unnecessary penalties and enforcement action.

This isn't the first time that the SAMR has announced multiple penalty decisions in a short period of time. For instance, between 13 and 17 November 2021, the SAMR imposed fines of RMB 27.5 million (c. USD 4.3 million) for gun-jumping conduct in relation to 43 transactions.

The 13 transactions

The following details should be noted in relation to the 13 transactions:

• none of the transactions were found to have the effect of eliminating or restricting competition;
• a majority of the transactions involved Tencent Holdings (ie, in line with the SAMR's enforcement focus against companies in the e-platforms sector during the past 2 years); and
• two private equity firms, Sequoia and Huasheng Lingfei were also found culpable of gun-jumping conduct. In the case of Sequoia for instance, it held a minority interest of only 6% of the joint venture and this was sufficient to confer it with "control" (pursuant to China's merger regime definition) over the joint venture.

Concluding remarks

Competition authorities across the APAC region are increasing enforcement action against entities that have proceeded to complete notifiable transactions prior to receiving required clearance. The SAMR is no exception. In particular, it appears to be continuing its enforcement "rampage" against companies in the e-platforms and digital media sectors. It also continues to take a very broad approach to the concept of "control" – such that non-strategic investors and minority investors such as private equity firms could also be culpable of gun-jumping conduct.  

While maximum fines for gun-jumping are capped at RMB 500,000 (c. USD 79,000), there is a proposal to increase gun-jumping fines to up to 10% of turnover for each undertaking involved.  Penalties involving transactions which do not restrict or eliminate competition in Chinese markets will be capped at RMB 5 million (c. USD 790,000).