China’s new guidelines provide a prescribed roadmap

in short

On December 20, 2024, the China National Regulatory Administration (SAMR) officially released the final version of the guide on the merger of the level of review (“guide”), effective on the same day. The guidelines provide a comprehensive framework for key regulatory considerations under China’s merger control regime, from actual or potential competitors to create potential competition laws and outline the possible mitigation of these Possible arguments to the problem.

The guide provides companies with clearer insights on how to evaluate their deals under the Chinese merger control regime. This guide not only provides detailed and comprehensive guidance, but also includes practical examples to illustrate complex antitrust concepts. SAMR’s emphasis on pre-merger compliance encourages companies to evaluate the potential impact of China’s merger control requirements on transaction feasibility and timelines rather than waiting until signed.

The guidelines are based primarily on SAMR’s past enforcement experience and are more consistent with international antitrust guidelines such as the EU and the United States. Businesses engaged in cross-border transactions can benefit from a more familiar and standardized approach in the merger review process of SAMR and benefit from consistency across jurisdictions.

It is worth noting that the guidelines now include provisions on government subsidies, which appear to be in response to EU foreign subsidy regulations¹ and the U.S. Act that requires foreign opponents to disclose subsidies². The guide states that SAMR now has the right to request information from the transaction party (“reunion”) Regarding the subsidies granted by the government, and will analyze whether such government subsidies will have any adverse impact on competition in the relevant markets during the merger review.

SAMR is currently developing guidelines for non-recreational merger reviews. The non-Horizontal merger guide will address vertical mergers between suppliers and their customers, as well as group mergers that are particularly relevant to rapidly merged sectors such as semiconductors and technologies. The enactment of the guidelines and the upcoming non-recreational merger guidelines represent an important step in enhancing the reliability and effectiveness of merger controls in China.

Some notable developments in the guide include:

(1) Set market share and HHI data thresholds for competition analysis

To assess the market capabilities of each party and the competitiveness of the markets they participate in, global competitive institutions tend to rely on quantitative indicators such as market share and the Herfindahl-Hirschman Index (HHI).

Although SAMR follows this approach, the criteria is the first guideline to explicitly provide market share and HHI thresholds that demonstrate putative anticompetitive effects. Compared with international standards, China’s more detailed and multi-layered approach improves clarity and predictability during the merger review process:

market share

hhi

Usually not anti-competitive	hhi <1000; ORΔHHI <100	hhi <1000;1000≤hhi≤2000 and ΔHhi<250; Orhhi> 2000 and ΔHhi<150	/
Probably anti-competitive	1000≤hhi≤1800 and ΔHhi> 100; Orhhi> 1800 and 100≤ΔHHI≤200	/	/
Presumed anti-competitive	HHI> 1800 and ΔHHI> 200	/	HHI> 1800 and ΔHhi> 100

These thresholds help simplify the review process, but should not be considered conclusive, as these assumptions can be refuted by further analyzing competitive dynamics and potential efficiency. That is, these thresholds provide greater transparency for the parties who conduct self-assessment and determine their application strategies.

(2) More flexibility in market definition

Traditionally, SAMR requires a precise definition of relevant markets to assess concentration levels and competitive dynamics, which often lead to differences in submissions across jurisdictions. The guidelines now introduce a more flexible EU-like approach: exploring market definitions, but can remain open as long as the outcome of the competition assessment does not depend on a particular market definition. This shift is expected to reduce the burden of application, especially for short-form filings without obvious anti-competitive issues.

This is not SAMR’s first plan to simplify the archiving process of deals without major anti-competitive issues. As reiterated in the guide, transactions eligible for short-term applications no longer require formal competitive assessments, while the parties have a combined market share of less than 15%.

(3) Consistent with traditional harm theory

The guide mainly deals with two hazard theories related to horizontal mergers: the one-sided effect (also known as the single silver effect) and the coordination effect (also known as the auxiliary effect), which have been widely adopted worldwide. These effects can be evaluated separately or together according to market dynamics, but should be mainly based on their impact on consumers. If the merger leads to higher prices or lower innovation, it is often faced with stricter scrutiny unless there is a reason for efficiency.

• Unilateral effect: This occurs when the merger enables the parties to unilaterally increase prices or reduce output without coordination with competitors. This includes situations where mergers can create major players in the market, greatly reducing competitive pressure.
• Coordination effect: This occurs when the merger creates or enhances the ability or motivation for companies to coordinate their behavior in related markets, which may lead to default collusion or explicit cartel behavior. For example, in standardized product manufacturing, consolidation reduces the number of active competitors may lead to price setting behavior among the remaining companies, especially in related markets with high market transparency.

Additionally, SAMR will assess whether the merger may create barriers to entry by strengthening both parties’ market position, even if it is not dominant, making it difficult for new competitors to enter the market or existing competitors to effectively expand their business.

(4) Clearer guidance on potential mitigation factors

The guide also presents arguments that may mitigate the potential anti-competitive impacts caused by horizontal mergers.

• efficiency: To exploit the efficiency argument, the parties should demonstrate that (i) the merger will produce huge efficiency (e.g., cost savings, innovation, better product quality), and (ii) such efficiency improvement must exceed any potential for competition Restrictive effects (e.g., prices for consumers rise or decrease choices). For example, in the technology field, a merger between two competing software companies may eliminate competition but produce synergies that accelerate innovation or reduce marketing time for key products, thus benefiting consumers. The parties should provide clear and credible evidence that these efficiencies may be achieved and will benefit consumers.
• Obstacles to entry/extend: In markets with low barriers to entry or expansion, parties may face huge competitive pressure from new entrants or existing competitors. The guidelines suggest that the potential harm of mergers in such markets may be reduced. When evaluating whether there are barriers to entry/scaling, relevant considerations include total cost of entry, regulatory barriers, technical requirements, economies of scale, and access to necessary infrastructure/raw materials. In recent years, parties can also provide real examples of actual and/or potential players to support arguments about the low barriers to entry/expansion of relevant markets. Consistent with the EU and US approach, only market entries that have been proven to be timely and sufficient to exceed the potential anticompetitive effects can be considered by SAMR.
• Counterattack on buyer’s strength: Important buyers (such as large retail chains or other major buyers) may have the ability to fight back, preventing parties from raising prices or reducing output. Both sides may argue that such buyers can put enough pressure to offset the damage of reducing competition. For example, in the pharmaceutical industry, large private health care groups or public health systems may have the leverage to negotiate lower prices, mitigating the competitive harm caused by the merger.
• Corporate defense failed: If one of the parties is in serious financial difficulties and is likely to exit the market without a merger, then SAMR can also allow a merger, even if it leads to reduced competition. For example, in manufacturing, if one of the leading companies is nearly bankrupt, it can allow the merger to maintain its capabilities and protect consumers from supply disruptions. The guide emphasizes that such defense must be supported by strong evidence, such as financial statements and the lack of less anti-competitive alternatives to troubled companies.
• Dynamic market characteristics: The guide recognizes that even with relatively high market share and/or HHI data, the combined entity may not have material anticompetitive problems with the relevant markets. This is especially true in rapidly changing industries that are characterized by rapid product innovation or technological advancement. Innovation and technological development may be key considerations when conducting competitive analysis.

(5) The importance of internal documents

In addition to external evidence collected from industry regulators, trade associations and market participants, internal documents produced by the parties are also crucial for the review of SAMR. These documents often provide key insights on strategic intentions, competitive dynamics, and potential risks associated with transactions. For example, in the healthcare merger, SAMR found that internal documents discuss pricing strategies, gaining market segments, and potential supplier exclusivity, clearly showing the parties’ real reason for the transaction.

The guide highlights that SAMR can closely review internal communications of transactions that may cause competition issues, such as strategic planning documents, board minutes and emails between key decision makers. It can be interpreted as a statement that implies anti-competitive motivation, such as “the deal is intended to eliminate potential competitors” or “without this deal, we will lose competitiveness in the eyes of our customers”, which can be harmful. These types of statements may inadvertently indicate that the parties intend to reduce the merger competition, or that the deal was caused by efforts to undermine future competition threats.

To avoid misunderstanding statements (e.g., removal from the context), parties should take extra care when drafting internal documents and communications related to potential transactions. Neutral language should be used, focusing on legal efficiency or synergies caused by mergers.

1See Foreign Subsidy Regulations, link:

2 See the 2022 Merger Application Fee Modernization Law, link:

3 Please refer to the guide to the merger of the level of assessment according to the Council’s regulations, link: link:

4 See Merger Guide 2023, Link: Merger Guide Summary 2023 can be provided here:

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