China’s SAMR Publishes Draft Horizontal Merger Review Guidelines

On June 17, 2024, China’s State Administration for Market Regulation (“SAMR”) published draft guidelines for the review of horizontal mergers (“Draft Horizontal Mergers Guidelines”) for public comment.¹  The Draft Horizontal Mergers Guidelines are intended to improve transparency and predictability in SAMR’s merger review process and are generally consistent with international practice.

The Draft Horizontal Mergers Guidelines comprise 87 articles and a number of hypothetical case studies covering the following topics:

• Materials and information required for the merger review
• Market definition, the assessment and significance of market shares and concentration levels 
• The assessment of unilateral and coordinated effects, and the impact of a merger on potentional competition (so-called ‘killer’ acquisitions)
• Buyer power and market entry
• The assessment of merger-specific efficiences, and
• Other factors to be considered in the review of a merger including industrial policy, other public benefits and subsidies.

We summarize some of the key points discussed in the Draft Horizontal Mergers Guidelines below.

Relevant market. The Draft Horizontal Mergers Guidelines propose an exception to the general rule that the relevant markets are defined in light of the horizontal, vertical and neighbouring relationships between the products of the parties.  When the parties’ revenues on the relevant markets defined per the general rule amount to less than 50% of their total revenues, SAMR may require the parties to define the relevant markets in light of all of their business activities.  This is subject to the proviso that the parties may not need to accurately define the relevant markets for, or conduct a competition analysis for, any non-principal business with a market share of less than 5% and which accounts for less than 5% of revenues.  This new requirement does not seem likely to lead to faster reviews is the least that can be said, although SAMR has always had a discretion to look at a wide range product markets on the target side of a transaction.

Market shares.  The Draft Horizontal Mergers Guidelines shed light on when a horiztonal merger may be considered anticompetive in light of the market shares of the parties:

• A merger resulting in a combined market share ≥ 50% is generally presumed anticompetitive.  This market share threshold would also imply dominance under the Anti-Monopoly Law (“AML”) and generally result in remedies. In theory, the parties are free to rebut the presumption. 
• A merger resulting in a combined share ≥ 25% but < 50% warrants close scrutiny.  However, SAMR would be inclined to “consider” a merger resulting in a combined market share ≥ 35% and < 50% as anticompetitive.  Again, in practice SAMR has sought remedies where parties are in this range.
• A merger resulting in a combined market share ≥ 15% and < 25% is generally not considered anticompetitive, but merits a case by case assessment.
• A merger resulting in a combined market share <15% is generally presumed not to be anticompetitive.  Such a merger is also eligible for simple case treatment where other relevant conditions are met.

Concentration levels. The Draft Horizontal Mergers Guidelines provide that SAMR usually assesses the competitive effects of a merger by measuring HHI levels and the delta (ΔHHI) resulting from the merger:

• If the post-merger HHI is below 1000 or the delta is below 100, the merger is unlikely to be considered anticompetitive.
• If the post-merger HHI is between 1000 and 1800 and the delta is above 100, the merger is likely to be considered competitive.
• If the post-merger HHI is above 1800 and the delta is between 100 and 200, the merger is very likely to be consided competitive.
• If the post-merger HHI is above 1800 and the delta is above 200, the merger is presumed anticompetitive.  Again, the parties are free to rebut the presumption.

These concentration thresholds sit somewhat between the thresholds in the 2023 Merger Guidelines of the US Justice Department (“DOJ”) and the Federal Trade Commission (“FTC”)² and the thresholds in the EC Horizontal Merger Guidelines.³  The 2023 Merger Guidelines of the US DOJ and FTC provide that a merger with a post-merger HHI above 1800 and a delta above 100 is presumed to subtantially lessen competition or lead to the creation of a monopoly.  The EC Horizontal Guidelines provide that “the Commission is also unlikely to identify horizontal competition concerns in a merger with a post-merger HHI between 1000 and 2000 and a delta below 250, or a merger with a post-merger HHI above 2000 and a delta below 150, [absent] special circumstances”.

Coordinated effects. The Draft Horizontal Mergers Guidelines allow SAMR to rebuttably presume coordinated effects in the following circustances:

• The combined entity and another player collectively hold 2/3 of the market and the market shares of each of the combined entity and the other player are greater than 10%.
• The combined entity and another two players collectively hold 3/4 of the market and the market shares of each of the combined entity and the other two players are greater than 10%; or
• The merger eliminates a maverick.

These particular factors seem a rather thin basis for basing a presumption of coordinated effects though the discussion of coordinated effects and the preconditions for them in the Draft Horizontal Mergers Guidelines are otherwise aligned with general economic principle.

Other factors. In addition to exploring the more traditional aspects of the review of horizontal mergers, the Draft Horizontal Mergers Guidelines also highlight the importance of national economic development and social welfare issues for SAMR.  In this context, the Draft Horizontal Mergers Guidelines provide that SAMR may allow an anticompetitive merger to proceed if it is beneficial to “the healthy development of the national economy” or has positive public welfare effects such as the promotion of employment, the protection of an SME, energy conservation, environmental protection or disaster relief.  Interestingly though, there is no discussion of SAMR having a discretion to find an otherwise procompetitive merger to be problematic on industrial policy grounds.

The Draft Horizontal Mergers Guidelines allow for data privacy concerns to be reflected in the assessment of data-driven mergers where the level of data privacy protection can become a factor in assessing the transaction.

The Draft Horizontal Mergers Guidelines also allow SAMR to consider the impact of government (domestic and foreign) subsidies received by the merging parties.  There is perhaps in this an echo of the EU’s Foreign Subsidies Regulation although the Draft Horizontal Merger Guidelines address subidies issues only in the briefest terms.

In general, the Draft Horizontal Mergers Guidelines are consistent with the economics-based approach one is accustomed to in guidelines of this kind and may signal that SAMR is open to reassessing its more traditional structural approach to the review of mergers under the AML.

¹ The Draft Horizontal Mergers Guidelines can be accessed on the website of the SAMR here.

² Available here.

³ Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, Official Journal C 031, 05/02/2004 pp. 0005 – 0018. Available here.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Philip Monaghan, an O’Melveny partner licensed to practice law in Hong Kong, England and Wales, and Ireland; Lining Shan, an O’Melveny senior legal consultant in the firm’s Beijing office; and Vivian Wang, an O’Melveny associate licensed to practice law in New York and the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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