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HomeArticles2023: How Shall Multinationals Embrace the Changing Antitrust Landscape in China

2023: How Shall Multinationals Embrace the Changing Antitrust Landscape in China

Antitrust Landscape in China

2022 was a year full of changes for China’s antitrust regulations. First, in August, the PRC Anti-Monopoly Law (AML) welcomed its first revision 14 years after its initial implementation. Following that, the central antitrust agency and the top court successively published several draft implementing antitrust rules and draft judicial interpretations on antitrust civil litigation, all of which are expected to be finalised in 2023.

With China’s reopening in late 2022, we expect that amid the increasing economic activities, these changes or updates on antitrust rules will broadly and deeply impact multinationals from day-to-day business operations to M&A activities in 2023. Therefore, we think it is important for multinationals to be timely aware of those key changes, properly adjust their compliance schemes, and be well prepared at the outset of 2023.

How Should Companies with Distribution Networks Adapt to the New Rules on Vertical Restraints

China’s revised AML brought significant changes to its regulatory framework for vertical restraints. In particular, it introduced the first-ever safe-harbour rule for vertical restraints and converged the long-lasting divergence on approaches against Resale Price Maintenance (RPM) between courts and agencies by setting out the rebuttable presumption of illegality rule.

While it seems that these changes may ease China’s regulations on vertical restraints to some extent, it is important to bear in mind that RPM remains to be a high risk in China. Specifically, it is very challenging and burdensome for a company to rebut an illegality presumption during an investigation and relevant individuals including management teams may even bear personal liabilities if an RPM violation is found.

Therefore, if a company intends to roll out RPM schemes in China, it is always advised to evaluate in advance its chances of successfully advocating either the “safe harbour” defense or the lack of competition effects defense. In addition, it is also recommended that such companies prepare evidence, especially time-consuming key evidence, in advance to show that it holds a limited market share, that it has a strong business rationale, and that the conduct has limited impacts on the market, etc., in order to better cope with the overwhelming pressure of responding to an antitrust investigation in China.

How Does the New Rule Change the Filing Requirements and Impact Timetable for Merger and Acquisitions Activities

Merger control in China is another area facing major changes and improvements in several aspects: (1) the filing requirements have changed by raising the turnover threshold and introducing a new threshold to address killer acquisitions; (2) State Administration for Market Regulation (SAMR) has been granted the power to “call in” a transaction below the filing threshold; (3) SAMR is allowed to “stop the clock” at any point during the review process when certain conditions are met; and (4) liabilities for gun jumping have been significantly increased.

With these changes on filing requirements coming into effect, multinationals need to carefully assess whether a transaction would trigger filing in China by following a threestep test: (1) whether the transaction meets the turnover threshold; (2) if not, whether one party has over RMB 100 billion turnover in China and whether the target company has a value of over RMB 800 million; (3) if still not, whether the transaction would be deemed as eliminating or restricting of market competition.

If A Company Intends To Roll Out Rpm Schemes In China, It Is Always Advised To Evaluate In Advance Its Chances Of Successfully Advocating Either The “safe Harbour” Defense Or The Lack Of Competition Effects Defense

Another important issue would be how the “stop-the-clock” provision would impact the transaction and its timetable. It still remains to be seen how SAMR would implement it in practice, like when and for how long SAMR would stop the clock. Given these uncertainties and SAMR’s discretion, we view that parties should plan in advance and exert extra care in order to minimise its impacts on the transaction as well as their potential defaulting risks. For instance, the parties may thoroughly map out potential stakeholders and develop an action plan to address potential challenges, and may factor China’s merger review into their agreements, etc.

How to Minimise In-House Counsel’s Exposure to the New Individual Antitrust Liabilities

In-house counsel and other relevant individuals within the companies are also strongly recommended to be aware of the potential antitrust liabilities they may be exposed to. Specifically, for the first time ever, the revised AML introduced personal liabilities of being fined up to RMB 1 million for the monopoly agreement violations.

When Encountering A Potential Antitrust Issue, Inhouse Counsel Are Always Advised To Take Necessary Measures To Show That They Have Diligently Fulfilled Their Responsibilities

While there is still no guidance on when the individuals would be found personally liable, we think those individuals who signed the monopoly agreements, who implemented the monopoly agreements, and who approved the monopoly agreements may be caught by this provision. Particularly, for in-house counsel, if they approve a monopoly agreement or fail to bear in mind the antitrust risks when they should, they may face certain risks as well.

Therefore, when encountering a potential antitrust issue, in-house counsel are always advised to take necessary measures to show that they have diligently fulfilled their responsibilities. For instance, they may conduct analysis, collect evidence, and remain aware of the risks; if necessary, they may engage external antitrust counsel to conduct a thorough assessment on the antitrust risks of a proposed arrangement as well.

 

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Wei HUANG, Tian Yuan Law Firm

Mr. Wei HUANG is a managing partner at Tian Yuan Law Firm. He leads the firm’s antitrust practice, and has extensive experience across the full spectrum of antitrust matters. He handled numerous high-profile antitrust cases across multiple industries. He has long been listed as a top antitrust lawyer. hwei@tylaw.com.cn

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Fan ZHU, Tian Yuan Law Firm

Mr. Fan ZHU is an antitrust partner at Tian Yuan Law Firm. He has practiced antitrust law for over a decade and has extensive experience in a variety of antitrust matters across multiple industries. He has been recommended by Chambers, Legal500 and others. zhufan@tylaw.com.cn

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Wendy ZHOU, Tian Yuan Law Firm

Ms. Wendy ZHOU is an antitrust partner at Tian Yuan Law Firm. She has extensive antitrust experience, especially in handling complex antitrust litigation and investigation. She has been recommended as a rising star by Legal500. zhouwen@tylaw.com.cn

 

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