China's Antitrust Enforcer Adopts First Remedies in Domestic M&A Deals
The State Administration for Market Regulation's ("SAMR") remedies decisions in two recent domestic transactions are the first conditional antitrust M&A settlements in the 15-year history of antitrust enforcement under China's Anti-Monopoly Law ("AML").
For the first time, SAMR has required remedies in two recent transactions involving domestic Chinese companies. SAMR recently permitted Wanhua Chemical's acquisition of Yantai Juli Fine Chemical to proceed, subject to remedies; and in late 2022, SAMR conditionally approved a joint venture between Shanghai Airport and Eastern Air Logistics, two state-owned enterprises. SAMR has a long history with remedies, but only in conditional antitrust approvals of deals involving foreign companies.
Unlike the antipathy towards behavioral remedies in other jurisdictions (e.g., the United States), the remedies in both deals are typical of SAMR's behavioral remedies, e.g., requiring that the parties sell to customers on fair, reasonable, and non-discriminatory terms. SAMR also required the parties in the airport case to hold separate their cargo terminal services business and avoid exchanging competitively sensitive information. In the Wanhua Chemical case, SAMR required the companies to maintain or expand their production volumes, continue their research and development efforts, and not engage in "coercive" exclusive dealing.
Beyond the novel conditions on domestic companies, both cases highlight other trends at SAMR, in particular its narrow relevant product and geographic market definitions. The Wanhua Chemical case involved a relevant market for toluene diisocyanate in China, a product used largely in the production of polyurethanes. The 2022 case concerned an upstream market for airport cargo terminal services at Shanghai Pudong Airport and a downstream market for air cargo services involving Shanghai Pudong Airport as the departure or arrival location. Within those narrowly defined markets, SAMR found the parties to possess substantial market shares, i.e., more than 70% combined upstream market shares in the airport case; and more than 50% combined shares in the China toluene diisocyanate market.
In addition to those developments, China amended the AML last year, increasing its maximum fine for non-filing to RMB 5 million (approximately $750,000) for transactions without anticompetitive effects and up to 10% of annual revenue with anticompetitive effects. To examine so-called "killer acquisitions," a draft regulation would establish a new merger control threshold intended to require reporting of high-value acquisitions of targets that have nascent business and little revenue in China.
These developments demonstrate China's continued growth and expansion of antitrust enforcement in M&A. In particular, the remedies cases demonstrate SAMR's intent to converge the gap between its enforcement towards domestic and foreign companies. SAMR is likely to closely review deals involving companies with substantial shares in niche markets in China—regardless of the country of origin.
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