China’s competing interests

Since its introduction in 2008, China’s anti-monopoly law has ­received much attention from corporates, their professional advisers and academic commentators.
How would China apply competition law when the core principles conflict with Chinese industrial policy goals? How would competition law be applied to foreign corporations? Would protectionism trump free-market policies? How would China apply competition law to its own state-owned enterprises (SOEs)? Would they simply be immune?

Four years on, some stock-taking is justifiable. One simple conclusion for corporations is evident: in global deals you ignore China at your peril. Mofcom, the Anti-Monopoly Bureau of the Ministry of Commerce which enforces the law in China, has muscle and is increasingly willing to use it, as are the other enforcement bodies.

The thresholds in China mean many international deals require ­notification. By the end of 2011, 381 clearance decisions had been taken, 10 of which were subject to conditions, and there was one rejection - Coca-Cola’s 2009 attempted acquisition of Huiyuan, on ostensibly ­competition law grounds. International criticism of this decision has been offset somewhat by the recent ­approval given to Nestlé’s (partial) ­acquisition of Chinese company Hsu Fu Chi.

The first decision involving a joint venture was published in November 2011 and was also the first decision involving an SOE: GE (China)/Shenhua. Mofcom sent a clear signal that SOEs are subject to scrutiny and must comply with the notification process and remedies like any other enterprise. The next challenge for Mofcom must be a full examination of an M&A by a ­Chinese SOE.

Provisional measures have been ­issued by Mofcom to introduce ­investigations and penalties for non-notification in China, and tackling failures to notify is a priority for it in 2012. A real test of Mofcom’s strength will be the extent to which any such penalties could be applied to SOEs.

One criticism regularly made of Chinese procedure is its opacity. It is not uncommon for vast quantities of information to be requested from ­notifying parties, where the nexus of some of the data sought can seem ­remote. Time limits for decision-making are, in practice, vague. The review process can take much longer than in the EU or US, with unexpected requirements.

A good current example is Western Digital’s acquisition of Hitachi’s HDD business, where Western Digital was required by the EU and US to divest certain assets. Toshiba agreed to be the purchaser and the acquisition by Western Digital was cleared in both jurisdictions.

Mofcom also cleared the acquisition, subject to a variety of behavioural remedies, taking a record 297 days, but then surprised all involved by establishing a trustee to investigate the terms of the ­divestiture to Toshiba, unexpectedly delaying clearance of the divestiture part of the deal.

However, the impact of two recent moves by Mofcom - the release of guidance in September 2011 on its ­approach to evaluating M&A deals notified to it and its ­intent to intensify cooperation with EU and US -regulators - should mean a welcome increase of transparency and predictability for all involved.