China’s amended AML includes substantial changes, but some additions need clarity

Legal Analysis 11 July

China’s amended AML includes substantial changes, but some additions need clarity

PaRR offers global intelligence on competition law and regulatory change.

The ability to 'stop the clock' during merger reviews and to impose heavier penalties are among the most notable changes to China’s amended Antimonopoly Law (AML), but there are also indications that provincial regulators will take on greater enforcement roles to allow the State Administration for Market Regulation (SAMR) to focus on larger and more important merger cases in key sectors, lawyers and scholars have told PaRR.

As is typically the case when China’s laws are revised or updated, though, certain clauses in the amended AML will need further clarification in practice, they said.

The AML was approved by China’s top legislative body, the Standing Committee of the National People’s Congress (NPCSC), on 24 June and will take effect on 1 August, as reported. This is the first amendment to the AML since it took effect in 2008.

The final version has kept most of the substantial changes made in the first draft that was published for public consultation after NPCSC’s first deliberation last October, including the 'stop-the-clock' mechanism and the two- to five-time penalty multipliers for severe violations.

But there are a few new additions. For example, the safe harbor provision, which applies to monopolistic agreements other than mergers, is no longer a stand-alone clause but is now positioned under the provision on vertical monopolistic agreements.

Also, under the General Principles chapter, 'encouraging innovation' has been added as a goal of the AML, ranking third in importance behind 'preventing and curbing monopolistic conduct' and 'protecting market competition'. However, this is unlikely to have a direct impact on antitrust enforcement, said Wang Xiaoye, a law professor at the Chinese Academy of Social Sciences and former member of the Expert Advisory Board to the State Council’s Antimonopoly Commission. In practice, the market regulator is likely to continue to prioritize ‘protecting competition’ over 'encouraging innovation', she said.

Other goals for the AML that remain from the original version include increasing economic efficiency, safeguarding consumer interest and social welfare, and facilitating the socialist market economy, according to Article 1.

Meanwhile, Article 13(1) of the amended AML states that the State Council’s antimonopoly enforcement institution will oversee and lead antitrust enforcement.

Currently, that refers to SAMR, but the use of the phrase 'State Council’s antimonopoly enforcement institution' instead of naming SAMR directly, as the previous draft did, leaves room for a potential restructuring of the antitrust enforcement body in the future, said Huang Yong, professor at the University of International Business and Economics and a member of the Expert Advisory Board to the State Council’s Antimonopoly Commission.

This provision also makes it clear that the antitrust enforcement body is the one that plays the leading role in tackling competition problems, even in areas where there are powerful sector regulators and sector-specific knowledge is required for regulation, Huang said. The banking and insurance sectors would be two examples, he noted.

Merger Review Chapter

Article 32 lists three merger review scenarios under which the review clock can be stopped: when the filing parties fail to submit supplementary documents; when important new situations or facts need to be verified; and when remedy proposals need to be further evaluated.

The amended AML does not provide further clarity or specifics about these three scenarios, noted one Beijing-based competition lawyer. And nor do the draft Provisions Examination of Concentration of Undertakings (the Provisions) – the implementation rules for the AML that SAMR recently put out for consultation. This may suggest that SAMR prefers to have a certain amount of discretion on these issues, he said.

Indeed, lawyers and scholars who spoke to PaRR, have different opinions on how the new mechanism will impact the regulatory timeline for M&A deals subject to a merger control review.

The review timeline of complex cases may be further prolonged by the ‘stop-the-clock’ mechanism, but it is unlikely to influence cases reviewed under the simplified procedure, argued the Beijing-based lawyer.

Ye Han, partner at Merits & Tree law firm, on the other hand, believed the ‘stop-the-clock’ mechanism will have a positive impact on the review process.

It may help accelerate the speed by which SAMR accepts merger filings, Ye told PaRR. At present, SAMR tends to accept a filing when the materials are 100% ready so as to reduce the timeline pressure once the review starts; now, case handlers may be more comfortable accepting materials that are generally satisfactory and use a time suspension to ask the deal parties to submit additional documents when needed, Ye noted.

The mechanism will also help deal parties understand how long each step takes within the 180-day review period, Ye said. For example, it will shed a light on how many days are used by SAMR to solicit third-party comments, to conduct a market test and to conduct economic analysis, and also how many days are used by deal parties to submit additional material and come up with remedy proposals, Ye explained.

At present, SAMR will ask the deal parties to withdraw and refile their applications if it needs more time than the 180 days available under the normal case review timeline.  

Zhan Hao, partner at AnJie Law Firm, told PaRR that the time suspension mechanism can be used in any of the three phases that make up the 180-day normal case review. As for ongoing deals, they are unlikely to be affected by the ‘stop-the-clock’ mechanism, Zhan suggested, citing the principle of nulla poena sine lege, which means ‘the law does not operate retroactively’.

A source familiar with SAMR was less certain about this and told PaRR that it is still unclear whether the time suspension mechanism can be applied to ongoing deals. But either way, it cannot be used at least until the draft amendments to the Provisions have been approved and come into effect, the source added.

The draft amendments to the Provisions were released by SAMR on 27 June, together with five other draft amendments to the implementation rules for the AML. All six drafts are soliciting public comments until 27 July.

The other five implementation rules focus on the areas of monopoly agreements, abuse of dominance, monopolistic conduct related to intellectual property rights, administrative monopoly and merger filing thresholds.

Another crucial change under the Merger Review chapter is Article 37, which stipulates that SAMR will enhance its merger reviews in key sectors and will build a merger review system by 'categorization and classification'. It is the first time this phrase appears in China’s antitrust law and regulations.

In this context, 'classification' indicates that SAMR may ask provincial market regulators to conduct certain types of merger reviews so that the central-level enforcer can focus on important cases in key sectors, said Frances Xu, a partner at Kewei law firm.

'Classification' may refer to attaching different levels of importance to different merger cases and 'categorization' may refer to adopting different review standards to merger cases in different sectors, added Zhai Wei, associate professor at the East China University of Political Science and Law.

It is possible that SAMR will work together with relevant regulators to release detailed implementation rules for merger reviews in key sectors, Zhai said.

Monopolistic Agreements

A key amendment under the Monopolistic Agreement chapter is the 'safe harbor' provision, included as Article 18(3). It states that when the market share of business operators is lower than certain thresholds stipulated by SAMR, relevant agreements will not constitute violations of the AML. According to the draft Provisions on Prohibiting Monopolistic Agreements, for vertical agreements, the market share in question is 15%. If it is lower than that, agreements between the business operators will be allowed.

This suggests that China’s 'safe harbor' provision will only apply to vertical agreements, and it can apply to price-related vertical restraints, which are viewed as a form of hard-core cartel. This is different from 'safe harbor' provisions in other jurisdictions, Ye, Zhan and Hou Liyang, a professor at the Shanghai Jiao Tong University, all said. For instance, in the US and the European Union, 'safe harbor' provisions apply to both horizontal and vertical agreements, but cannot be used to exempt hardcore cartels, they noted.

This change is inconsistent with previous enforcement practices in China and lacks support in academic studies, Hou said.


With regard to the heavier penalties, the maximum fine for gun-jumping has risen to 10% of the previous year’s annual revenue from CNY 500,000 (USD 74,621), while AML violations can now result in criminal sanctions and will be written into a company’s social credit record. Gun-jumping refers to the act of going ahead with a merger that meets the filing standard without notifying the regulator or closing the deal before obtaining approval.  

Also, the municipal-level People’s Procuratorate will have the right to file public interest litigation for AML violations and the law adds a maximum CNY 1m (USD 156,473) pecuniary penalty for individuals, including company legal representatives, senior executives and staff who are directly responsible for the violations under the Monopolistic Agreement chapter.

The most remarkable change is found in Article 63, which gives enforcers the right to impose a fine of between 2x and 5x the amount of the ordinary penalties when the violation involves extremely serious conduct and results in extremely serious consequences.

Lawyers and experts noted that the higher penalties for breaches will increase the deterrence of the amended AML. But this also calls for more detailed implementation rules to guide the enforcer on the use of its discretionary rights, for instance in determining what constitutes "serious conduct" and "extremely serious consequences", they said.

Also, for gun-jumping cases with a negative impact on market competition, Article 58 states that enforcers can impose a fine of up to 10% of a company’s annual revenue. The clause does not set a minimum, however, which leaves enforcers with a lot of discretion on how to calculate the fine, Zhan said. Enforcers should issue detailed implementation rules to give more clarity on the issue, he said.

At a June 27 webinar, Shi Jianzhong, professor at the China University of Political Science and Law and a member of the Expert Advisory Board to the State Council’s Antimonopoly Commission, also expressed concern over the dramatically boosted penalties under Article 63.

If a 5x multiplier is used, a company can face a fine of up to 50% of its annual revenue. "It is impossible for any company to survive that," Shi said, fearing that "too many fines" might be counterproductive.

Wang, the Chinese Academy law professor, noted the importance of the law being predictable, stable and practicable. She said SAMR should explain under which circumstances a 2x multiplier will be applied, and under which circumstances a 5x multiplier will be applied, etc.

Looking forward, legal partner Zhan and Professor Zhai both believe antitrust enforcement will become normalized, a term used to describe regular and frequent enforcement. It is not going to be a campaign-like enforcement, Zhan noted.

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