On December 20, 2024, the State Administration for Market Supervision and Regulation (“SAMR”) issued and enacted the “Guidelines for the Review of Horizontal Concentration of Undertakings” (“the Guidelines”). The Guidelines integrate regulatory provisions with practical case studies, reflecting SAMR’s accumulated experience and insights from reviewing horizontal concentration in recent years. This article highlights eight key takeaways from the Guidelines, offering insights and compliance suggestions for companies involved in horizontal merger and acquisition (M&A) that require merger clearance in China.

 

Key Takeaway #1: the Guidelines emphasize that the review process is pre-emptive (Article 2), primarily focusing on competitive issues arising from the concentration (Article 3).

In other words, historical competition issues prior to the concentration are not the main focus of the review, although they may still be taken into account and should be addressed appropriately. For example, if there is a history of coordination in the relevant market and the concentration could facilitate either explicit or implicit coordination, the concentrating parties must proactively provide specific evidence to alleviate potential anti-competitive concerns related to such coordination.

 

Key Takeaway #2: the Guidelines highlight that objective evidence carries greater probative value than subjective evidence (Article 10).

Objective evidence, such as internal documents generated during daily operations, is considered more reliable than materials specifically prepared for the merger notification.

It is also noted that SAMR will exercise caution when evaluating the views of individual parties, including competitors or, in cases of hostile acquisitions, the target company. Due to their unique perspective and roles, SAMR will carefully assess their views to determine whether they genuinely reflect competitive concerns, even if such parties provide objective information to support their claims. This demonstrates SAMR’s sophistication in handling concentrations with complex backgrounds and underscores the necessity for the parties involved to prepare comprehensive evidence and strategies to effectively safeguard their interests.

 

Key Takeaway #3: the Guidelines highlight the importance of internal documents; the concentrating parties shall avoid any internal documents indicating the purpose of the transaction is to restrict competition (Article 11).

For the first time, the Guidelines introduce the “evidence of purpose” rule, stating that if evidence suggests the primary purpose of the concentration is to eliminate or restrict competition, SAMR is likely to consider the concentration as having or potentially having anti-competitive effects, unless the parties can prove otherwise. SAMR provides specific examples, such as internal documents where the parties assess the acquisition using language like “eliminating the competitive threat posed by the competitor's products,” “gradually driving the competitor out of the market,” or “consolidating control over the market.” Such expressions may be interpreted as indicative of an anti-competitive purpose. This aligns with practices in other jurisdictions, such as the U.S., which similarly focus on identifying anti-competitive intentions through internal documents[1]. Moreover, acquisitions involving start-ups face heightened scrutiny from this perspective (Article 62). Therefore, it is advisable for the parties involved to be cautious even when preparing internal materials, such as feasibility reports and board minutes.

 

Key Takeaway #4: the Guidelines outline two possible approaches to define  relevant markets for differentiated products (Article 16).

When defining the relevant market based on characteristics or quality is challenging - such as in sectors like pharmaceuticals (e.g., generic drugs vs. branded drugs) - the Guidelines suggest two approaches: (i) defining a relevant market that includes multiple differentiated products, or (ii) treating each differentiated product as a separate relevant market. Even with a broader market definition, the competition analysis will focus on whether the concentrating parties are close competitors and the degree to which they impose competitive constraints on one another.

Even within a broader relevant product market, it is critical to thoroughly analyze factors such as customer overlap and the similarity of sales strategies between differentiated products to assess the concentration’s competitive effects (Article 36). This emphasizes that while a broader relevant product market may be accepted, careful evaluation of competitive concerns within the narrowly defined market is still necessary. Specifically, one must consider whether the proposed concentration could result in reduced competition, for example, by diminishing the number of close substitute competitors or increasing prices due to inadequate competitive constraints.

 

Key Takeaway #5: the Guidelines specify that a relevant market can be defined separately for specific products targeting at a particular customer group, with key considerations including factors like "the existence of price discrimination" and "product availability" (Article 17).

In previous practice, when defining the relevant product market within specific industries, the issue of products targeting at specific customer groups has been an important factor in market definition. For example, under the Antitrust Guidelines for the Auto Sector, the aftermarket for autos may be defined based on auto brands, meaning that aftermarket services for a single brand could constitute a relevant product market.

The Guidelines address the issue of products targeting at specific customer groups in the context of defining the relevant geographic market. In cases where the supplier can price discriminate between different customer groups, and where the concentration could exclude or restrict competition for a particular customer group, a narrower definition of the geographic market may be appropriate. For example, if a supplier can charge higher prices to Chinese customers, the relevant geographic market might be defined as the Chinese market rather than the global market. This approach ensures that the analysis accurately reflects the competitive dynamics and potential harm to specific customer groups.

Additionally, the Guidelines highlight the importance of considering the impact of laws, policies, and administrative measures on product availability. For concentrations in sensitive industries, such as semiconductors, these factors should be carefully evaluated when defining the relevant geographic market, calculating market shares, analyzing competitive effects, and negotiating remedies.

 

Key Takeaway #6: the Guidelines establish a “safe harbor”for market share and the HHI Index, which helps identify the risk of  scrutiny and develop an evidence-gathering strategy (Articles 22&29)

The Guidelines specify thresholds for HHI (Herfindahl-Hirschman Index) and the change in HHI (ΔHHI) to indicate presumptive anti-competitive effects:

1. If the post-concentration HHI is below 1000, or the HHI is below 100, the concentration generally will not be considered to have or may have the effect of excluding or restricting competition;
2. If the post-concentration HHI exceed 1800 and the HHI is between 100-200, it is more inclined to believe that the concentration has or may have the effect of excluding or restricting competition, requiring a comprehensive review;
3. If the post-concentration HHI exceeds 1800 and the ΔHHI exceeds 200, it is usually presumed that the concentration has or may have the effect of excluding or restricting competition, unless the undertaking can prove that the concentration will not adversely affect competition.

These thresholds align closely with practices in the U.S. and EU[2], facilitating a more efficient risk assessment and evidence-gathering strategy for concentrations subject to antitrust scrutiny across multiple jurisdictions. Moreover, China’s more detailed “four-tier” standards enable companies to prepare with greater precision and efficiency when focusing on the Chinese market. This approach allows businesses to navigate regulatory requirements more effectively, tailor their compliance efforts, and address market-specific concerns, ultimately enhancing their ability to operate within China’s regulatory framework.

 

Key Takeaway #7: The Guidelines further highlight the risks associated with “killer acquisitions” and provide more detailed criteria for assessing their competitive effects. These include evaluating the purpose of the concentration, potential competition, and its impact on innovation (Article 62).

Following the 2022 amendment to the Anti-Monopoly Law of China, the SAMR is empowered to review concentrations that fall below the filing thresholds but may still raise anti-competitive concerns (“call-in”). The 2023 revision to the Regulations on the Review of Concentrations of Business Operators introduces more procedural rules for "call-in" scenarios, providing undertakings clearer guidelines on how to avoid the

risks of “gun-jumping” - implementing the concentration before receiving merger clearance. Building on these regulatory provisions, the Guidelines provide further insights into the assessment of “killer acquisitions”, with a strong focus on the purpose of the concentration, its impact on potential competition, and its effect on the innovation capabilities of the market.

In industries prone to these kinds of acquisitions - such as high-tech, pharmaceuticals and the internet - companies should carefully consider factors like the level of industry interest in the transaction, the reactions of Chinese stakeholders, and the factors outlined in the Guidelines when structuring deals and evaluating antitrust risks. Thoroughly organizing evidence can help mitigate concerns and reduce uncertainties in such transactions.

 

Key Takeaway #8: The Guidelines provide a more comprehensive framework for assessing joint venture cases. Joint venture focused solely on joint sales may fall within monopolistic agreements, requiring detailed scrutiny (Article 83).

According to the Guidelines, when a joint venture operates only within specific segments of the business chains of the parties - such as R&D, raw material procurement, production, marketing, or sales - the competition analysis will depend on the particular segment involved. Generally, the more removed the joint venture’s activities are from the sales segment, the less likely it is to negatively impact market competition. However, establishment of a joint venture that only involve joint sales may also fall within monopolistic agreements and could raise serious competitive concerns, thereby requiring a close review.

This concern has been addressed in several prior horizontal monopolistic agreement cases. A recent example is the Zibo lianhe Cement Enterprise case, where seven cement producers jointly invested in creating a joint venture called “Lianhe Enterprise.”[3] The joint venture established rules for cement pricing, production, and sales within a specific region. Both the regulatory authority and the court concluded that the parties had closely coordinated through the joint venture, forming a horizontal monopolistic agreement that fixed prices, restricted production, and divided markets.

The Guidelines underscore the importance of addressing potential antitrust issues related to joint ventures and collaboration among competitors within the same industry. Parties involved in such arrangements should carefully assess the purpose and structure of the joint venture, particularly focusing on role division, cooperation terms, and non-compete clauses. They should also evaluate whether the joint venture or cooperation could be viewed as a disguised cartel, thereby "piercing the veil of monopoly" through antitrust law enforcement. If the arrangement qualifies as a concentration requiring notification, the parties must provide a thorough justification for the joint venture and proactively address any risks associated with the exchange of sensitive information.

 

* Intern Xuetong Guo contributed to this article.

 

 

[1]See Case No. 1:20-cv-03590-JEB, FEDERAL TRADE COMMISSION v. META PLATFORMS, INC.

[2]See EU, “Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings”:

https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52004XC0205%2802%29；See US, “2023 Merger Guidelines”: https://www.justice.gov/atr/merger-guidelines；

[3]See Case Lu Shi Jian Xing Chu Zi [2021] No. 11.