China’s new antitrust rules could increase Big Tech scrutiny, adding hurdles to start-up acquisitions
- Under the new rules, companies valued at US$120 million or more would need regulatory approval for M&A deals involving firms with US$15 billion in revenue
- The proposed rules from China’s market regulator come ahead of the revised Anti-Monopoly Law taking effect in August
Under one of six proposed rules released by the State Administration for Market Regulation (SAMR) on Monday, a planned merger or acquisition will need regulatory approval if it involves one company with revenue surpassing 100 billion yuan (US$14.9 billion) and another with a valuation of at least 800 million yuan.
If the new rule goes into effect, it will change a process that currently relies only on revenue as a benchmark for whether a deal needs to seek approval. The main impetus for the rule change is to target internet giants’ acquisitions of start-ups, according to Du Guangpu, an antitrust lawyer with the Jingsh Law Firm in Beijing.
Many internet companies in their early stages have very little revenue, Du said, so this targets start-up acquisitions based on the potential impact on the market, which is gauged through company valuations.
Technology companies are not the only ones that would be affected by the new rule, Du noted. Large state-owned enterprises and major real estate companies are among those that may need to seek antitrust reviews for planned deals if the change is enacted.
After the law goes into effect on August 1, a procedural failure to notify authorities of a merger or acquisition that requires a review could result in a fine of 5 million yuan, a tenfold increase from the previous version of the law. This even applies if the deal is found to not be anticompetitive.
“The SAMR is expected to closely monitor the merger transactions of large tech firms and will have the discretion to intervene in mergers even if they do not meet the notification thresholds,” said Angela Zhang, an associate professor with the University of Hong Kong’s Faculty of Law.
The amended law also ambiguously targets a number of behaviours that could increase scrutiny of the technology sector. One article of the law now bans any monopolistic behaviours using data, algorithms, technology, capital advantage or platform rules.
“This confirms the senior leadership’s endorsement of the SAMR’s campaign targeting monopoly agreements, abuse of dominance, and anticompetitive mergers in China’s digital markets since October 2020,” lawyers at DLA Piper wrote in an article published to the firm’s website on Monday.
However, the updated Anti-Monopoly Law does not specify the technology industry as one subject to priority enforcement for merger reviews, which was in the October draft. Instead, it only pledges to strengthen antitrust scrutiny of “important areas involving the national economy and people’s livelihoods”.
Not all of the SAMR’s proposed rule changes create more onerous restrictions for companies. One change would raise the threshold for triggering an antitrust review to when one party has global annual revenue of more than 12 billion yuan and at least two parties each have domestic annual revenue of 800 million yuan. The previous threshold was 10 billion yuan and 400 million yuan, respectively.
This kind of increase is normal to accommodate China’s growing economy, Jingsh Law’s Du said.
Another notable change forbids platform operators from using data, algorithms, technology and platform rules for “self-preferencing”. This includes prioritising the display of their own products, which one of the proposed rules labels an abuse of market power.