The State Council of the People’s Republic of China published the updated merger control notification thresholds on January 26, 2024, which came into effect from that date. The updated thresholds significantly increased the turnover thresholds. A merger control notification is now required in China if one of the two turnover-based tests below are met:
- In the preceding fiscal year, the combined worldwide turnover of all participating undertakings exceeded RMB12 billion (increased from RMB10 billion), and at least two participating undertakings had turnover from China exceeding RMB800 million (increased from RMB400 million), respectively
- In the preceding fiscal year, the combined turnover from China of all participating undertakings exceeded RMB4 billion (increased from RMB2 billion), and at least two participating undertakings had turnover from China exceeding RMB800 million (increased from RMB400 million), respectively
Notably, a draft regulation on the update of notification thresholds released for public comments in 2023 also contemplated a threshold based on a participating undertaking’s turnover and a target’s valuation (i.e., in the preceding fiscal year, at least one participating undertaking had turnover from China exceeding RMB100 billion, and the market value (or estimate market value) of the target in the event of an acquisition, or any other merging entity in the event of a merger, was no less than RMB800 million and the turnover of such undertaking from China accounted for more than one-third of its worldwide turnover in the preceding fiscal year). Such threshold, however, is removed from the final regulation.
With the updated notification thresholds, fewer transactions will be subject to a merger control notification in China, allowing the State Administration for Market Regulation (SAMR), the state competition authority in China, and its local counterparts to take a closer look at transactions that are, in reality, more likely to give rise to competition concerns. Transactions that are below the thresholds, however, are not completely off SAMR’s radar. Under the regulation on the updated thresholds, SAMR remains authorized to proactively require a merger control notification even if the turnover thresholds are not met, provided that there is evidence that a transaction has, or may have, the effect of eliminating or restricting competition. Whereas SAMR rarely (if ever) exercised such power, one should not be surprised if it opts to do so in the future.
The heightened notification thresholds are certainly applicable to any transactions signed on or after January 26, 2024. It seems unclear under the final regulation what companies should do with respect to their transactions signed but not yet notified or notified but not yet cleared as of that date. Technically, a notifying party may, subject to SAMR’s consent, withdraw a notification at any time before SAMR reaches a conclusion. To assess whether a withdrawal is desirable, a company may need to consider, among other things, the anticipated result of SAMR’s review based on the identified overlaps and relationships, the anticipated remaining time for the completion of such review and any restriction on timing under the transaction agreements, and the potential risk that SAMR will exercise its power to review a transaction that is below the thresholds (if withdrawn).
