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Amid the above legislative improvements, China maintains its crucial presence in the global economy, continuing to attract international market players and giving rise to the fact that an enormous number of international M&A deals are required to put forward ex ante notifications before SAMR. The statistics published by SAMR show that 797 cases were accepted by SAMR in 2023 alone, 782 of which were approved unconditionally and 4 of which were approved with remedies. Deals involving foreign enterprises account for 44% of the cases approved.[1]

Most notably, SAMR’s decision plays a decisive role in progressing forward many high-profile deals with global influence in 2023, for instance, the MaxLinear/Silicon Motion (2023)[2] and Broadcom/VMware (2023). Although the turnover thresholds for merger notifications were elevated, which may lead to a decrease of approximately 200 cases annually, high-profile deals that are likely to restrict or eliminate competition or relate to certain industries with some special strategic considerations will still be under the spotlight of SAMR’s review. We term those deals as “complex deals” and will discuss in this article on how to navigate the merger review of them properly under the context of amended AML.

The article aims at providing practical guidance for handling complex deals over the lifetime of its review process under the AML, based on SAMR’s recent practice. We first reveal the characteristics of complex deals and advise on the way of planning and designing appropriate and feasible merger filing strategies thereof. We then explore and highlight the key considerations in remedy design and implementation when the deal comes to the stage where relevant parties are required to propose and implement remedies.

Since the enactment of the AML in 2008, cases cleared with remedies by SAMR or its predecessor, the Anti-monopoly Bureau of the Ministry of Commerce (“MOFCOM”), have been a unique spotlight across worldwide major antitrust jurisdictions - as the world's largest manufacturing country, it is natural to look at issues from different perspectives, so that there will be differences in market definition, competitive analysis, etc. For those high-profile international deals, identifying the complexity of the deal appropriately and navigating the merger control filing strategy in advance have naturally become pivotal to progressing the deal.

The identification of a complex deal

In order to address the regulator’s concerns to facilitate the merger review process, one has to appropriately identify whether the deal in question constitutes a “complex” one. Normally, there are two perspectives that are of consideration in this regard: competition assessment and industrial policy evaluation.

Competition assessment

Competition assessment is at the heart of a merger control review. Transactions that have or may have any effect of eliminating or restricting competition in China will certainly complicate the review process and lengthen the timelines. The regulator would take an in-depth review of the notifying parties’ submission of an assessment of the concentration’s competitive impact, evaluate any potential competition concerns and seek any possible commitments or remedies that can ease the concerns.

In order for the parties to identify a complex deal from a competition assessment perspective and be prepared in advance, one needs to learn what factors would be under SAMR’s radar. In line with international antitrust regulator’s practice, SAMR would adopt the theories of harm and assess the unilateral or coordinated effects for horizontal mergers and evaluate the foreclosure effects in case of vertical or conglomerate mergers. The following factors would be primarily considered in SAMR’s review process:

It is worth mentioning that compared with other jurisdictions, SAMR tends to take a closer examination of those cases with high market shares despite the deal is a conglomerate transaction. Based on observations on SAMR’s recent practice, its conglomerate concerns primarily shadow on the possible tying, imposing less favourable trade terms post-transaction, refusal to deal, degrading interoperability, etc.

Industrial policy evaluation

In addition to weighing the competition-wide effects, other factors closely related to economic development, such as industrial policy, are also taken into account in the review process, which is in line with the legislative purpose of the AML set out in Article 1 thereof (safeguarding the interests of consumers and the public and promoting the sound development of the socialist market economy).[3] To be more specific, SAMR would consider the impact of the concentration on national economic development, i.e., SAMR would analyse the impact on economic efficiency, business scale, the development of the relevant industries, etc. In other words, SAMR would analyse industrial policy concerns during merger review process, in particular in deals involving industries that are of strategic importance to China and/or closely related to people’s livelihood, such as electronic information, semiconductor, aerospace, ocean engineering, new energy, new materials, agriculture, pharmaceuticals, etc. Thus, deals which fall within the above industries might need to be paid rigorous attention.

Taking deals in the field of agriculture as an example, despite moderate market shares in the relevant markets, if the deals are likely to have a significant and strategic impact on the agricultural value chain and thereby on people’s livelihood, they would be, in most cases, subject to strict and lengthy scrutiny and may be approved with restrictive conditions.

Given such, while a complex deal is at hand or around the corner, a close and early planned monitoring of the concerned industrial policies issued by the relevant governmental authority or trade association is a pragmatic and advisable approach.

Conduct holistic analysis towards the relevant markets and the competition landscape

Whereas a deal has been identified as a complex one, the traditional competition perspective assessment (as illustrated above) shall have already been properly conducted by the parties. However, a more holistic and in-depth analysis towards the relevant markets and the competition landscape might contribute more to addressing and alleviating SAMR’s potential concerns. Most of SAMR’s competition concerns stem from possible synergies the transaction parties might have and any input/customer foreclosure the transaction may result in. Thus, beyond the corresponding stances under the traditional competition perspective, it is advisable to take a closer assessment of the rate of capacity utilization, countervailing power from buyers, dynamic impact of new technology on the relevant industry, as well as any efficiency increment. Engaging economists and conducting detailed economic analysis might be of assistance as well.

Maintain an adequate and constructive communication with SAMR

The parties can choose to take advantage of SAMR’s pre-filing consultation mechanism and apply for a preliminary communication with SAMR, during which the parties can seek SAMR’s guidance on procedural (such as review length, filing requirements, etc.) or substantive issues (such as market definition, market data calculation, industry policy, etc.) under the scheduled notification. The parties can then be more prepared and adjust/supplement the filing materials accordingly. Through this, SAMR’s inquiries on the completeness of the filing materials may be reduced to a certain extent and therefore might shorten SAMR’s pre-acceptance period.

Procedurally, upon SAMR’s formal acceptance of the case, SAMR will seek third-party stakeholders’ opinions on the transaction, which is a formal process under the non-simplified filing procedure. Usually, stakeholders would include PRC customers, suppliers, trade associations, sector regulators, etc., and their views and concerns would play an essential role when SAMR formulates its attitudes and competition concerns over the case. Thus, it is advisable to keep a smooth communication with SAMR post-acceptance, especially to anticipate proactive communications after SAMR receives stakeholders’ opinions to get a sense on whether received opinions are negative/positive/neutral.

If SAMR preliminarily identifies competitive concerns over the case and intends to require remedies, it will normally call for a meeting to convey such concerns to the parties. The parties would then be required to formulate a commitment proposal to SAMR to address those concerns and to explain why such commitments could be able to lift those concerns effectively, which will lead to rounds of back-and-forth negotiations and discussions between parties and SAMR on possible remedies. For cases also being filed in other jurisdictions, SAMR would commonly exchange review opinions with its peer regulators, thus, parties need to coordinate remedy proposals across different jurisdictions as well, and maintain continuous and effective communications with both SAMR and its peer regulators.

Initiate appropriate and pragmatic stakeholders reachouts

As being mentioned above, stakeholders’ views and concerns over the transaction could be pivotal to SAMR’s stance on the necessity to impose remedies. In order to take initiatives over the reviewing process (including possible remedy negotiation process) and formulate a commitment proposal (if needed) as soon as possible that can effectively address SAMR’s concerns and pass SAMR’s market test(s), the parties need to take the stakeholders reachouts seriously and commence the process at an appropriate time.

To be more specific, the parties need to firstly identify possible stakeholders that may raise inquiries/concerns to SAMR and anticipate their possible concerns of such identified stakeholders. Based on such, the parties shall further come up with an outreach plan on when to approach stakeholders, the attendees of the expected meeting, how to explain the transaction background and relevant information, and how to address their concerns and the corresponding solutions in order to alleviate their concerns to the greatest extend.

For the identified stakeholders, such reachout may happen more than once and as the reviewing process moving forward, the reachout strategy and the topics may need to be tailor-made and adjusted from time to time. If the parties’ proposed solution can in fact alleviate stakeholders’ concerns, the expectation is that there won't be a lot of complaints by market participants escalating to the regulator's level, which in turn may facilitate the review process and benefit the review outcome (ideally by receiving a clearance without conditions).

As mentioned above, when SAMR concludes that the proposed transaction will likely impede competition, instead of suggesting appropriate remedies, SAMR will hold the alignment meeting to communicate its competition concerns to the parties (similar to the EU Commission’s statement of objection (SO)) and the parties must then formulate appropriate and corresponding remedies proposals that would effectively alleviate SAMR’s concerns. Upon receipt, SAMR will evaluate the effectiveness, feasibility and timeliness of the commitment proposal and will notify the parties the evaluation outcome.[4] Through several rounds of remedy negotiations and market test(s), SAMR may eventually deem whether the commitment proposal is sufficient to eliminate the identified concerns. If yes, SAMR will clear the transaction with conditions; if the notifying parties fail to address SAMR’s competition concerns, the transaction may be blocked or the parties may decide to proactively abandon the deal.

Hence, the appropriate design of commitment proposals sometimes means “the life or death” of a deal and the below three key considerations deserve special attention when doing so.

Tailor the commitment proposal to SAMR’s competition concerns

In line with global trends, SAMR accepts commitments in two categories, structural remedies (such as divestiture of tangible assets and intangible assets like intellectual property, data, etc.) and behavioural remedies (such as no price increase, continuous stable supply on FRAND terms, no tied-up sales, no reduction in the level of interoperability, hold separate, etc.). With various types of remedy at hand, it is paramount to identify and select the appropriate remedy approach to address and eliminate SAMR’s identified concerns, which is the overarching principle when designing the commitments. Such design is a dedicated work requiring an in-depth understanding of the theory of harm, close and effective communications with SAMR and the flexible use of various remedies alone or in combination.

Take the latest case as an example, in Broadcom/VMware (2023),[5] SAMR raised concerns mostly in regard to the merged entities’ conglomeraterelations, and in addressing those concerns, behaviour remedy would be more to the point than structural remedy and SAMR eventually accepted tailor-made behaviour commitments, among others, not to engage in tie-in sales, to ensure interoperability, and to take protective measures for possible unjustified use of rivals’ confidential information, etc. It is worth mentioning that the Broadcom/VMwaredeal were notified in various jurisdictions, including the EU, the US, Korea, China, etc. This case also appears to be a showcase where peer competition regulators would cooperate in the merger review process. Comparing the review decisions from different jurisdictions, it is observed that the competition concerns being addressed are basically the same, while the imposed remedies are divergent to certain extent. For example, both EU Decision and China Decision accepted the parties’ commitments to ensure interoperability with VMware's server virtualisation software, but the scope of the remedies accepted by SAMR appears to be broader, and the level of granularity appears to be higher. 

Take account of both efficiency and feasibility when designing the commitment proposal

The ideal approach for designing a commitment proposal efficiently is to ensure the proposal is just sufficient enough to address SAMR’s competition concerns while avoiding imposing disproportionate burdens on the daily operation of the obligor(s). The parties need to weigh the pros and cons of different types of remedies and carefully consider the concrete content of the proposal and the viability for the implementation before submitting it to SAMR.

From the efficiency perspective, generally speaking, structural remedies would eliminate SAMR’s competition concerns once and for all and would affect the parties immediately, directly and in a relatively shorter period (typically within one year),[6] whereas behaviour remedies require the obligor(s), i.e., the undertaking to perform the relevant obligations, to devote constant efforts to the implementation in a longer period (usually longer than five years judging from the most recent SAMR cases). Despite this, one cannot confidently conclude that the parties should prioritise structural remedies over behaviour remedies because the obligor(s) is required to work with immense workloads and intense timelines in the year when primary obligations of structural remedies are implemented, while the workload of behaviour remedies are typically averagely scattered during the whole implementation period.

From the feasibility perspective, it is important and essential to make sure the proposal is both feasible and workable and would not result in an adverse impact on the routine business of the obligor(s). This requires a close and in-depth teamwork - typically, the legal department, along with outside counsels, would put forward a proposal draft, and such draft is advisable to be reviewed and adjusted by other related business units, such as the sales and R&D departments, so that the commitment proposal could fit into the business model and corporate governance of the obligor(s), and after all would benefit and ease the actual implementation of the commitments.

Align and coordinate commitment proposals globally

High-profile cross-border transactions usually need to obtain green lights in several jurisdictions. During the reviewing process, competition authorities from different jurisdictions normally would exchange views and information on the transactions, especially when discussing and evaluating the proposed remedies. For example, since 2015, Directorate-General (DG) for Competition, the European Competition Authority, and MOFCOM have signed best practices for cooperation on reviewing mergers, facilitating information sharing between the two competition authorities and allowing them to discuss timetables at key stages of investigations with each other and with the merging companies.[7] China has also signed memorandums of understanding to enhance cooperation in competition law enforcement with several other countries, such as the US,[8] Korea and Japan.[9] Sometimes, when a global divestiture is expected to be adopted, peer regulators would need to evaluate the consistency of their subset to the global divestiture. Thus, it is important for the parties (together with outside counsels from different jurisdictions) to fully align and coordinate commitment proposals globally so that the implementation of commitments worldwide would not result in possible conflicts, which might eventually lead to compliance issues.

Under the regime of Chinese merger regulations, the implementation of structural remedies, in particular divestitures, shall follow a strict timeline. Normally, it could be considered appropriate to retain a period of approximately six months for finding a suitable buyer and concluding the sale and purchase agreement (an extension of an extra three months can be realized subject to SAMR’s approval), and an additional period of three months for transferring the divestment business.[10] Given such a strict timeline, it is pivotal to come up with a well-planned transaction roadmap and key milestones that adhere to SAMR’s requirement, and then follow it strictly and diligently, avoiding any deviations from the timeline. To this end, the below three aspects stand at the heart of the whole process, during which creating the needed conditions for the emergence of a viable and competitive competitor against the merged entity serves as the general baseline.

Implementing behaviour remedies in a cost-effective way

Behaviour remedies provide for the rules that the obligor(s) should follow and comply with during its daily operation within the implementation period. The obligor(s) will be required to submit compliance report to SAMR and the monitoring trustee in writing on a regular basis (usually once a year or every six months). Hence, implementing the remedies in a cost-effective way is crucial to both satisfy the compliance requirements as set forth in SAMR’s review decision and maintain the routine business un-disturbed nor negatively impacted.

Based on our experience, it is recommended for obligor(s) to adopt a top-down approach to realize such balance: the obligor(s) to set up effective compliance mechanisms at the early stage of implementation and to execute them accordingly. For example, to address the competition concerns in relation to the unjustified use of rivals’ data for the advantage of the obligor(s), SAMR usually accepts ring-fencing obligations, ranging from signing confidentiality agreements, storing confidential information separately and preventing the use of the same, to ensuring the separation of relevant personnel etc. In adopting the top-down approach in this scenario, it is recommended for the obligor(s) to formulate protocols and set up firewall procedures, as early as deemed appropriate, which could serve as guiding principles/rules for the obligor(s) to follow and execute, lessening uncertainties and benefiting the implementation afterwards.

In addition, it is also recommended, in an innovative way, to make full use of the already-established tools of the obligor(s), which have already been used for its internal management. Taking supply commitment as an example, to prove that the obligor(s) has fulfilled required deliveries in a full volume and in time, the obligor(s), instead of using traditional methods by collecting a large number of paper evidence, is recommended to make full use of the existing data on its existing business management system, which is supposed to contain the full set of data of the complete process of “order to cash”, sparing the workloads in relation to the time-consuming manual information gathering exercise. Likewise, obligor(s) can also dig deep into other available tools and use those established tools innovatively for the sake of efficiency and effectiveness to satisfy compliance requirements.

Similar to the review process, SAMR will also carry out market test(s) and solicit third-party stakeholders’ opinions towards the proposed modification or lifting of the conditions. If the market test(s) result is positive and no concerns/objections are raised, SAMR will conclude the final conclusion and publicize the decision accordingly. However, if the market test(s) result is negative, further negotiations with SAMR would be needed in order to respond to and address stakeholders’ concerns, and sometimes the obligor(s) may need to take a step back and adjust its application.

●  China’s Anti-Monopoly Law
(https://www.samr.gov.cn/zw/zfxxgk/fdzdgknr/fgs/art/2023/art_f0fae9eb3a684fc39e84d89eabfc2caa.html)