Sustaining the Status Quo: The Use of Conditions in Chinese Merger Clearance

• Author: Deborah Healey, Zhang Chenying, Jack Coles
• Pages: 2-32

!

!

1

SUSTAINING THE STATUS QUO

THE USE OF CONDITIONS IN CHINESE MERGER

CLEARANCE

Deborah Healey*

Zhang Chenying**

Jack Coles***

Table of Contents

I. INTRODUCTION .......................................................................... 2!

II. THE BASIS FOR MERGER REMEDIES IN COMPETITION LAW ......... 4!

A. Addressing competition concerns through merger

remedies ...................................................................... 5!

B. The rise of behavioural remedies in merger control ..... 7!

1. Approach of the European Commission ................. 7!

2. United States: Department of Justice ...................... 8!

3. Australian Competition and Consumer

Commission ........................................................... 9!

C. Proportionality ............................................................. 10!

III. MERGER ANALYSIS UNDER THE AML ................................... 13!

A. Industrial policy and the AML .................................... 14!

IV. MOFCOM’S IMPOSITION OF CONDITIONS IN MERGERS ......... 16!

V. PAST CONDITIONAL MOFCOM MERGER APPROVALS ............ 18!

VI. REFORMS TO MOFCOM’S APPROACH TO MERGER

REMEDIES .......................................................................... 26!

A. Green shoots: MOFCOM’s approval of the NXP-

Freescale merger ....................................................... 27!

VII. CASE STUDY: CHINESE BANK MERGERS ............................... 28!

VII. CONCLUSION ....................................................................... 32!

!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

* Associate Professor, Faculty of Law, University of New South Wales.

** Associate Professor, Faculty of Law, Tsinghua University, Beijing.!

*** Research Assistant, University of New South Wales.!

2 TSINGHUA CHINA LAW REVIEW [Vol. 10:1

! !

SUSTAINING THE STATUS QUO

THE USE OF CONDITIONS IN CHINESE MERGER

CLEARANCE

Deborah Healey

Zhang Chenying

Jack Coles

Abstract

This article investigates the role of conditions or remedies in Chinese

merger approvals, drawing conclusions about their use and

suitability. The article begins by mapping the changing approach to

merger remedies by competition regulators in other major

jurisdictions such as the EU, US and Australia. Key trends are noted,

such as the decline of a clear preference for structural remedies by

regulators and convergence around a proportionality doctrine. The

article reviews the operation of the Anti-Monopoly Law (AML) and

the more recent merger remedy guidelines (Provisions of the Ministry

of Commerce on Imposing Additional Restrictive Conditions on the

Concentration of Business Operators (for Trial Implementation)) in

this conte xt. Representative Ministry of Commerce (MOFCOM)

merger approvals with conditions are examined. These indicate that

MOFCOM prefers behavioural conditions which in some instances

appear disproportionate or unrelated to the anticompetitive effects of

a merger, and tend to maintain the status quo. The article emphasizes

how potential reforms to MOFCOM’s merger remedy guidelines and

the co nditions imp osed by the regulator might better facilitate

proportionate merger remedies, and the efficiencies sought by

mergers. The article concludes by considering these issues in a case

study of a hypothetical bank merger scenario, set against the

background of a socialist market economy and the competitive

dynamics of the Chinese banking sector.

I. INTRODUCTION

While there is no standard form for remedies in merger control,1

the conditions imposed in merger approvals are generally

characterized as being either structural or behavioural in nature, or are

some combination of both. Structural conditions tend to be executed

prior to completion of the merger transaction and generally involve

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

1 For example, the OECD noted that Austria uses mainly behavioural remedies, while New Zealand

imposes only structural remedies; Competition Committee (Directorate for Financial and Enterprise

Affairs, Organisation for Economic Cooperation and Development), Remedies in Merger Cases, (30

July 2012, DAF/ COMP (2011) 13), 12.