This article examines the likely role of competition in the regulatory analysis of bank mergers in China. Despite financial reforms, the banking sector remains subject to a complex web of financial regulation, with industrial policy favouring stability to facilitate national economic development. While there are currently no Ministry of Commerce (MOFCOM) bank merger determinations under the Anti-Monopoly Law (AML), examples of MOFCOM’s merger analysis in other sensitive industries diverge from a pure competition-based analysis, favouring grounds linked to national economic development broadly within the terms of the AML. Given the importance of banking to the Chinese economy, this article argues that competition is unlikely to play a large part in any assessment of bank mergers by MOFCOM, particularly where a foreign bank is involved. Instead, issues linked to ‘national economic development’ and stability are likely to play the most important role, leading to less predictable merger approval outcomes.
LLM (Hons) (U.Syd) LLB (U.Syd); Professor, Faculty of Law, University of New South Wales (Australia). The authors wish to thank the Centre for International Finance and Regulation for the funding used to complete this research.
BA, LLB, LLM, PHD, Peking University; Associate Professor, Faculty of Law, Tsinghua University (China).
1. This article refers to only a selection of more recent merger determinations. For more detailed discussions of earlier determinations, see Healey, Deborah, ‘Mergers with Conditions in China: Caution, Control or Industrial Policy’ in Colin Picker, Lisa Toohey and Jonathan Greenacre (eds), China in the International Economic Order: New Directions and Changing Paradigms (Cambridge University Press 2015).
2. In this article, mergers refers to the wide variety of mergers, acquisitions, partial or minority share acquisitions and other changes in control (for example, ‘control by contract’), which lead to two separate, competing entities becoming a single entity for the purposes of competition law, which may have the effect of eliminating or restricting competition.
3. See generally Healey, Deborah, ‘A comparative look at the competition law control of state-owned enterprises and government in China’ in Josef Drexl (ed.), More Common Ground for International Competition Law (Edward Elgar 2012) 122-148 .
4. In November 1993, the Decision on Some Issues Concerning the Establishing of the Socialist Market Economy was made at the Third Session of the Fourteenth Central Committee of the CPC, the first CPC document to expressly and clearly indicate the establishment of a modern enterprise system. The prime characteristics of a modern enterprise system were clearly established: an ownership structure, well-defined power and responsibilities, a separation of operation rights from ownership rights and management practices in line with market rules. See Xu Shiying, ‘Competitive Neutrality of SOEs in China’ in Deborah Healey (ed), Competitive Neutrality and its Application in Selected Developing Countries (UNCTAD 2014) 44.
5. See Jiang Zemin, ‘Report of Accelerating the Pace of Reform, Opening Up and Modernization to Win Greater Victory of Socialism with Chinese Characteristic’ (14th National Congress of the Chinese Communist Party, Beijing, 12 October 1992), quoted in Wang, Xiaoye, The Evolution of China’s Anti-Monopoly Law (Edward Elgar 2014) 35 .
6. Bremmer, Ian, The End of the Free Market: Who Wins the War between States and Corporations (Portfolio 2010) 46ff .
7. In 2011, the European Union reaffirmed that its policy objectives for merger regulation did not favour the creation of national champions: Joaquin Almunia, ‘Policy Objectives in Merger Control’ (Fordham Competition Conference, New York, 8 September 2011).
8. Ping, He Wei, Banking Regulation in China: The Role of Public and Private Sectors (Palgrave MacMillan, 2014) 11 .
9. ‘Decision on Major Issues Concerning Comprehensively Deepening Reforms in Brief’, China Daily (Beijing, 16 November 2013) <www.china.org.cn/china/third_plenary_session/2013-11/16/content_30620736.htm> accessed 26 October 2015; An (ed) ‘CPC Announces Decision on Comprehensive Reform’ Xinhuanet (China, 12 November 2013) <http://news.xinhuanet.com/english/china/2013-11/12/c_132882325.htm> accessed 26 October 2015.
10. For a nuanced representation of the ongoing debate, see Cetorelli, Nicola and Peretto, Pietro, ‘Credit quantity and credit quality: Bank competition and capital accumulation’ (2012) 147(3) Journal of Economic Theory 967 (reflecting the ‘more credit’ view, in which bank competition leads to greater credit availability, greater firm entry and greater growth); but see Thorsten Beck, ‘Bank Competition and Financial Stability: Friends or Foes?’ (World Bank Policy Research Working Paper No 4656, World Bank July 2008) <http://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-4656> accessed 8 February 2017; Beck, Thorsten, Demirguc-Kunt, Asli and Maksimovic, Vojislav, ‘Bank Competition and Access to Finance: International Evidence’ (2004) 36 (3) Journal of Money, Credit, and Banking 627 ; Berger, Allen N, Demirgüç-Kunt, Asli, Ross Levine and Joseph Haubrich, ‘Bank Concentration and Competition: An Evolution in the Making’ (2004) 36(3) Journal of Money, Credit and Banking 433 ; Berger, Allen N, Klapper, Leora F and Turk-Ariss, Rima, ‘Bank Competition and Financial Stability’ (2009) 35(2) Journal of Financial Services Research 99 (reflecting the ‘less credit’ view, where credit availability may be higher in less competitive environments).
11. OECD, ‘Policy Framework for Effective and Efficient Financial Regulation: General Guidance and High-Level Checklist’ (2009) 97 OECD Journal: Financial Market Trends 267 <www.oecd-ilibrary.org/finance-and-investment/policy-framework-for-effective-and-efficient-financial-regulation_fmt-2009-5kmn0vkxwng1> accessed 5 February 2017.
12. Anginer, Demirgüç-Kunt and Zhu found that ‘greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks’: Deniz Anginer, Asli Demirgüç-Kunt and Min Zhu ‘How Does Bank Competition Affect Systemic Stability’ (World Bank Policy Research Working Paper No 5981, World Bank March 2012) <http://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-5981> accessed 5 February 2017 (observing that an examination of impact of the institutional and regulatory environment on systemic stability shows that banking systems are more fragile in countries with weak supervision and private monitoring, high government ownership of banks, and in countries with public policies that restrict competition).
13. China Banking Regulatory Commission (CBRC), ‘Annual Report’ (CBRC 2013), 88-9 <www.cbrc.gov.cn/chinese/files/2014/A2726BEBE1AA406BB5CAC4ADA3875D35.pdf>.
14. Zhonghuarenmingongheguo Fanlongduanfa (中华人民共和国反垄断法) [Anti-Monopoly Law of the People’s Republic of China (AML)] (promulgated by the Standing Committee of National People’s Congress, 30 August 2017, effective 1 August 2008) art. 1, 4 and 11.
15. The AML refers to ‘concentrations of undertakings’ rather than mergers or acquisitions, but for simplicity ‘merger’ is used throughout this report: AML, art 28.
16. Some of the guidelines which have been issued by MOFCOM in relation to mergers are: Jingyingzhe Jizhong Shencha Banfa (经营者集中审查办法) [Rules for Review of Concentration of Undertakings] (promulgated by the Ministry of Commerce, 24 November 2009, effective 1 January 2010), Order No 12; Guanyu Pinggu Jingyingzhe Jizhong Jingzheng Yingxiang De Zanxing Guiding (关于评估竞争者集中竞争影响的暂行规定) [Interim Provisions for the Assessment of the Effects of Concentrations of Undertakings on Competition] (promulgated by the Ministry of Commerce, 29 August 2011, effective 5 September 2011) Announcement No 55; Guanyu Jingyingzhe Jizhong Fujia Xianzhixing Tiaojian De Guiding (Shixing) (关于经营者集中附加限制性条件的规定 (试行)) [Provisions on the Imposition of Restrictive Conditions on Concentrations of Undertakings (for Trial Implementation)] (promulgated by the Ministry of Commerce, 4 December 2014, effective 1 May 2015) Announcement No 6.
17. As of the last inspection of the MOFCOM lists in late 2014, no bank mergers had been notified since the commencement of the AML although it is possible that there had been provincial transactions which were notified. The merger between Pin’An Insurance Company and the Shenzin Development Bank to create the Ping’An Bank was allowed, and although there was no written decision as no conditions were imposed, the size of the merger parties indicated that it should be considered by MOFCOM and it is understood that this was the case. This was, however, not a bank merger proper but the merger of an insurance company and a bank. There appears to be one other international transaction reviewed which involved a purchase by financial services firms of some bank assets.
18. This changing approach to SOEs was reflected in late 2014 when MOFCOM announced that it had fined Tsinghua Unigroup, an SOE, for failure to notify; see ‘Competition Law in East Asia: A Month in Review’ (Norton Rose Fullbright December 2014) 5, <www.nortonrosefulbright.com/knowledge/publications/124572/competition-law-developments-in-east-asia-december-2014> accessed 26 October 2015 (copy on file with author).This issue is discussed later in this article.
19. AML, art 7 notes that ‘the State shall protect the legitimate business activities of the undertakings’ in industries dominated by SOEs that have ‘a direct bearing on national economic well-being and national security’, while also recognising an on-going role for the State in price setting. It has been suggested that this provision reconciles antitrust law and industrial policy for the purposes of the AML, with the same author also suggesting that the administrative monopoly provisions of the AML keep industrial policy in check; see Yanbei, Meng, ‘The Uneasy Relationship between Antitrust Enforcement and Industry-Specific Regulation in China’ in Adrian Emch and David Stallibrass (eds), China’s Anti-Monopoly Law: The First Five Years, (Kluwer Law International 2013) 259 , 265.
20. AML, art 51.
21. Reported comments of Mr Shang Ming, Chief Executive of MOFCOM (ABA Antitrust in Asia Conference, Beijing, 21-23 May 2014), set out in Lisha Zhou, ‘MOFCOM will continue to seek comments fromindustrial regulators in merger reviews’ (PaRR Special Report: ABA Antitrust in Asia, PaRR 12 June 2014) , 21 <www.parr-global.com/%3Fp%3D1264> accessed 26 October 2015.
22. See generally Sokol, D. Daniel, ‘What Drives Merger Control’ in Thomas K. Cheng, Ioannis Lianos and D. Daniel Sokol (eds), Competition and the State, (Stanford University Press 2014) 89 , 90ff.
23. The thresholds are: (i) worldwide business volume of all business operators exceeds 10 billion yuan (approximately USD1.6 billion) and the business volume in China of at least two parties to the merger exceeds 400 million yuan (approximately USD64 million) in the last accounting year; or (ii) business volume in China of all business operators exceeds 2 billion yuan (approximately USD320 million) in the last accounting year and the business volume in China of at least two parties to the merger exceeds 400 million yuan (approximately USD64 million) in the last accounting year; See AML, art 20; Guanyu Jingyingzhe Jizhong Shenbao Biaozhun De Guiding (关于经营者集中申报标准的规定) [Provisions on the Reporting Threshold for Concentrations of Business] (promulgated by the State Council, 3 August 2008, effective 3 August 2008) Order No 529  art 3.
24. The low thresholds for filing can lead to enforcement action for failing to file even in circumstances where notification would not be thought necessary. This occurred most recently in October 2015 when MOFCOM announced fines in respect of failure to file in four transactions, these being two joint ventures and two multi-step acquisitions; see Simon Baxter, Frederic Depoortere, Ingrid Vandenborre, James S. Venit and Andrew L Foster, ‘MOFCOM cracking down on failures to notify qualifying mergers, acquisitions and joint ventures’ (Lexology 12 October 2015) <www.lexology.com/library/detail.aspx?g=735726f9-f7f7-4ae9-916e-b4c6ef1316ba> accessed 26 October 2015.
25. The Measures were agreed between MOFCOM, the PBOC, the CBRC, the China Securities Regulatory Commission (CSRC) and the China Insurance Regulatory Commission (CIRC). The Measures list different categories of revenue which should be included in computing turnover in each of four categories of business: banking institutions; securities companies; futures companies; and fund management companies. Categories of revenue such as interest income, commissions, fees, gains of currency exchange, for example, are aggregated, and business costs are deducted to arrive at a net aggregate value. Turnover for the purposes of notification thresholds is 10 % of the net aggregate value: see The Measures were agreed between MOFCOM, the PBOC, the CBRC, the China Securities Regulatory Commission (CSRC) and the China Insurance Regulatory Commission (CIRC). The Measures list different categories of revenue which should be included in computing turnover in each of four categories of business: banking institutions; securities companies; futures companies; and fund management companies. Categories of revenue such as interest income, commissions, fees, gains of currency exchange, for example, are aggregated, and business costs are deducted to arrive at a net aggregate value. Turnover for the purposes of notification thresholds is 10 % of the net aggregate value: see Jinrongye Jingyingzhe Jizhong Shenbao Yingyee Jisuan Banfa (金融业经营者集中申报营业额计算办法) [Measures for Computation of Turnover for Notification of Concentrations by Business Operators in the Financial Sector] (Jointly promulgated by the Ministry of Commerce, People’s Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission, 15 July 2009, effective 14 August 2009) Announcement No 10, arts 3, 4, 5, 6 and 7.
26. A catch-all provision allows consideration outside these thresholds. Failure to file the required notification, particularly by SOEs, has been noticeable, and recognition of this is evidenced by the promulgation of regulations, which allow investigation and punishment for failure to file.
27. Many jurisdictions do not adjudicate control by contract under their merger provisions. Some would instead consider the relevant contract under other provisions, which would not require notification over a prescribed threshold. See Francois Renard and Michael Edwards, ‘China Merger Control Practice: A Comparative Analysis’ in Adrian Emch and David Stallibrass (eds), China’s Anti-Monopoly Law: The First Five Years (Kluwer Law International 2013) 165, 167.
28. See Savio Macchine Tessili S.P.A. by Penelope Company Limited  MOFCOM No 73 (31 October 2011) where the words ‘control or decisive influence’ were construed broadly. See also Corun, Toyota China, PEVE, Sinogy and Toyota Tsusho  MOFCOM No 49 (2 July 2014); Maersk, MSC and CMA CGM  MOFCOM No 46 (20 June 2014).
29. When considering ‘control’ or ‘decisive influence’ in the context of advising on the need to notify a joint venture transaction, the relevant Guidance states that the issues will be viewed in a practical context by looking at relevant documentation and other surrounding circumstances; see Guanyu Jingyingzhe Jizhong Shenbao De Zhidao Yijian (关于经营者集中申报的指导意见) [Guidance on Notification of Concentration of Undertakings] (promulgated by the Anti-monopoly Bureau of the Ministry of Commerce, 6 June 2014, effective 6 June 2014) arts 3, 4.
30. Uralkali and Silvinit  MOFCOM No 33 (2 June 2011), where the suppliers provided an essential product in a highly concentrated world market. See Michael Faure and Xinzhu Zhang, ‘Towards an Extraterritorial Application of the Chinese Anti-Monopoly Law that Avoids Trade Conflicts’ (2013) 45(3) The George Washington International Law Review 501.
31. Alexander Ballantyne, Jonathan Hambur, Ivan Roberts and Michelle Wright, ‘Financial Reform in Australia and China’ in Ligang Song, Ross Garnaut and Cai Fang (eds), Deepening Reform for China’s long-term growth and development, (ANU Press 2014) 251, 270.
32. Ballantyne et al (n 31).
33. He Wei Ping, ‘Banking Regulation in China: what, why, and how?’ (2012) 20(4) Journal of Financial Regulation and Compliance 367.
34. Many of the laws and regulations governing banking were passed by the Standing Committee of the National People’s Congress, signifying their importance; Roselyn Hseuh, China’s Regulatory State: A New Strategy for Globalization (Cornell University Press 2011) 198.
35. The functions and operation of the PBOC are set out in the Zhonghuarenmingongheguo Zhonghuarenminyinghangfa (中华人民共和国中国人民银行法) [Law of the People’s Republic of China on the People’s Bank of China] (promulgated by the Standing Committee of the National People’s Congress, 21 December 2003, effective 1 February 2004) Order No.12 of the President of the People’s Republic of China.
36. There are other regulators with systemic responsibilities which include the National Development and Reform Commission, which regulates prices of banking products and services, and the State-Owned Assets Supervision and Administration Commission of the State Council, which oversees the operation of SOEs generally.
37. The regulatory approach flows in part from the different meaning of regulation in China, which covers not only regulation but has connotations of supervision and management; see Ping (n 8) 3.
38. Zhonghuarenmingongheguo Yinhangye Jiandu Guanlifa (中华人民共和国银行业监督管理法) [Law of the People’s Republic of China on Regulation on Supervision over the Banking Industry] (promulgated by the Standing Committee of National People’s Congress, 31 October 2006, effective 1 January 2007) Order No 58.
39. ibid, art. 2; He Wei Ping, ‘The Powers of the China Banking Regulatory Commission’ (2012) 27 Journal of International Banking Law and Regulation 103, 104.
40. Law on Banking Regulation and Supervision, art 3 provides for the establishment and operations, both domestically and overseas, of financial instutitions in China. Other articles include providing for: improving regulation and supervision in the industry, promoting the sound development of the industry, and, preserving public trust.
41. AML, art 3 states that the industry ‘… shall be regulated and supervised in such a way as to protect fair competition in the industry and increase the competitiveness of the industry.’; Law on Banking Regulation and Supervision, arts 16, 17.
42. These criteria are, however, mentioned in other documentation which aggregates competition with other considerations; see China Banking Regulatory Commission (n 13) XVI. The same document states that its objectives are ‘To protect fair competition in the banking sector and enhance the industry’s competitiveness , and thereby promote the safety and soundness of the banking sector and maintaining public confidence in the banking sector.’: China Banking Regulatory Commission (n 13) XV.
43. Ping, ‘Banking Regulation in China: what, why, and how?’ (n 33) 12.
44. Zhonghuarenmingongheguo Shangye Yinhangfa (中华人民共和国商业银行法) [Law of the People’s Republic of China on Commercial Banks] (promulgated by the National People’s Congress, 29 August 2015, effective 1 October 2015) Order No 34.
45. Law on Commercial Banks, art 2: retail banks are defined as those which, amongst other functions, take deposits from the general public, grant loans, and handle settlements; see also Law on Commercial Banks, arts 1, 16, 17.
46. For example, commercial banks must determine their interest rates on deposits and loans in accordance with prescribed upper and lower rates set by the PBOC; Law on Commercial Banks, arts 31, 38.
47. Law on Commercial Banks, arts 25, 69. Further, it should be noted there are few specific administrative regulations which specifically relate to bank mergers, but most regulations governing corporate mergers apply.
48. Law on Commercial Banks, art. 9.
49. Law on Commercial Banks, art. 34. To some extent this mirrors the hierarchy of decision-making under the merger provisions of the AML.
50. The four major banks are all state-owned banks, namely: Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China. These banks were all listed in the top 100 companies in the world in 2013: ‘CBC Defends Top of Banking Industry on Fortune Global 500 List’ (Industrial and Commercial Bank of China 7 July 2014) <www.icbc.com.cn/icbc/newsupdates/icbc%20news/ICBCDefendsTopofBankingIndustryonFortuneGlobal500List.htm> accessed 26 October 2015. As to the development of the Bank of China to its current position, see generally Leong H. Liew, ‘A State Enterprise in China’s Capitalist Transformation: the Bank of China’ in Xu Yi-chong (ed), The Political Economy of State-Owned Enterprises in China and India, (Palgrave Macmillan 2012) 220.
51. Wei, Shen, The Anatomy of China’s Banking Sector and Regulation (Wolters Kluwer 2014) 67 .
52. Tan, Michael N., Corporate Governance and Banking in China, (Routledge 2013) 4 .
53. Shen (n 51) 51.
54. See discussion at Part IX.
55. See text to n 9.
56. Foreign banks may use representative offices, branches, local incorporation, equity participation or enter via county banks, while the CBRC generally encourages local incorporation to prioritize the safety of depositors’ funds, see Ping (n 8) 80.
57. In some cases they are only allowed to conduct more limited activities under the Banking Supervision Law and the Law on Commercial Banks.
58. China Banking Regulatory Commission (n 13) 20.
59. For example, participants in a survey on competition in Chinese bank mergers, commented on the difficulties for foreign banks in China, including governance problems, government involvement in decisionmaking and absence of power to make or influence decisions as minority shareholders. See Deborah Healey and Zhang Chenying, ‘The Chinese Anti-Monopoly Law: Lessons for Australian Banks and Chinese Regulators’ (CIFR Paper No 81/2015, Centre for International Finance and Regulation 2015) 35; Ping (n 8) 58.
60. Banking Supervision Law, art 92; for example, the Zhonghuarenmingongheguo Waiziyinhang Guanli Tiaoli (中华人民共和国外资银行管理条例) [Regulation on the Administration of Foreign-Funded Banks] (promulgated by State Council, 27 November 2014, effective 1 January 2015) Announcement No 657. has previously required different capital requirements for foreign banks. Changes made to the Regulation on Foreign-Funded Banks in late 2014 deleted the foreign-funded minimum working capital requirements, shortened or cancelled time limits in relation to business openings and requirements to show profitability, while also cancelling the requirement for an incoming foreign bank to have a representative office for two years before expansion. These changes reduced inconsistencies between domestic and foreign owned banking entities.
61. Law on Commercial Banks, arts 3, 4. Under art 2 of the same law, Chinese Funded Financial Institutions include commercial banks, urban and rural credit co-operatives, trust and investment companies of enterprise groups and financial leasing companies within China as well as other Chinese Funded Financial Institutions established with CBRC approval.
62. For example, the shareholding of a single foreign financial institution may not exceed 20%, and when the aggregate of foreign investment reaches or exceeds 25% in a non- listed Chinese funded financial institution it is regarded as a foreign-funded financial institution; see Jingwai Jinrong Jigou Touzi Rugu Zhongzi Jinrong Jigou Guanli Banfa (境外金融机构投资入股中资金融机构管理办法) [Administrative Rules Governing the Equity Investment in Chinese Financial Institutions by Overseas Financial Institutions] (promulgated by the China Banking Regulatory Commission, 8 December 2003, effective 31 December 2003) Order No 6, arts 8, 9 (Equity Investment Measures).
63. Zhongguoyinjianhui Waiziyinhang Xingzhengxukeshixiang Shishibanfa (中国银监会外资银行行政许可事项实施办法) [Implementation Measures for the Administrative Licensing Items Concerning Foreign-Funded Banks] (promulgated by the China Banking Regulatory Commission, 11 September 2014, effective 11 September 2014) Order No 6.
64. Zhongguo Yinjianhui Waizi Yinhang Xingzheng Xuke Shixiang Shishi Banfa (中国银监会外资银行行政许可事项实施办法) [Implementation Measures of the China Banking Regulatory Commission for the Administrative Licensing Items concerning Foreign-Funded Banks] (promulgated by the China Banking Regulatory Commission, 5 June 2015, effective 5 June 2015) Order No 4.
65. Christopher Bates, ‘International Regulatory Update: 8-12 June 2015’ (Clifford Chance 16 June 2015), 7 <www.cliffordchance.com/briefings/2015/06/international_regulatoryupdate812june2015.html> accessed 26 October 2015.
66. These areas include e-banking, debit card business, changes to working capital and business addresses for operating branches, and the establishment of automatic teller machines,
67. Jocelyn Gao, ‘Revised Measures Challenges and Opportunities for Foreign Bank Branch Openings and RMB Business in China’ (Wolters Kluwer Financial Services 12 February 2015) <www.wolterskluwerfs.com/geographies/asia-pacific/China/revised-measures-for-foreign-funded-banks.aspx> accessed 26 October 2015.
68. Ping (n 8) 87ff.
69. Reforms foreshadowed at the Third Plenum include allowing private capital to set up small and medium sized banks, and accelerating interest-rate liberalization and capital account convertability.
70. HSBC, Morgan Stanley and 30 other foreign institutions were approved to invest in China’s domestic bond market, in a move to open up capital markets to foreign investment; see ‘China opens up bond market to foreigners’ (Weekly News Roundup, China Law & Practice 5 May 2015) <www.chinalawandpractice.com/Article/3450410/Channel/9951/In-the-news-China-probes-GE-Royal-Philips-and-Siemens-police-raid-Ubers-office-and-the-domestic-bond.html> accessed 26 October 2015.
71. Zhongguo (Shanghai) Ziyoumaoyishiyanqu Zhongtifangan (中国(上海)自由贸易试验区总体方案) [The Overall Plan for China (Shanghai) Pilot Free Trade Zone] (promulgated by the State Council, 18 September 2013, effective 18 September 2013) Announcement No 38. See generally Wei Shen and Matthias Vanhullebusch, ‘Where is the Alchemy? The Experiment of the Shanghai Free Trade Zone in Freeing the Foreign Investment Regime in China’ (2015) 16(2) European Business Organisations Law Review 321-352.
72. China Banking Regulatory Commission (n 13) 47.
73. Zhongguoyinjianhui Guanyu Zhongguo (Shanghai) Ziyoumaoyishiyanqu Yinhangye Jianguan Youguan Wenti De Tongzhi (中国银监会关于中国(上海)自由贸易试验区银行业监管有关问题的通知) [Notice of the China Banking Regulatory Commission on Issues concerning Banking Supervision in China (Shanghai) Pilot Free Trade Zone] (promulgated by the China Banking Regulatory Commission, 28 September 2013, effective 28 September 2013) Order No 40.
74. In practice, approval of contracts and by-laws of foreign-funded enterprises have been replaced by filings to the Shanghai Municipal People’s Government, and the relevant formalities after filing are the same as requirements for local businesses unless the State Council reserves the approval requirement for particular domestic investment projects.
75. Zhongguo Shanghai Ziyoumaoyishiyanqu Waishangtouzizhunru Tebieguanlicuoshi (Fumian Qingdan) (中国(上海)自由贸易试验区外商投资准入特别管理措施(负面清单)) [Special Management Measures for the Market Entry of Foreign Investment in the China (Shanghai) Pilot Free Trade Zone (Negative List)] (promulgated by the Shanghai Municipal People’s Government, 30 June 2014, effective 30 June 2014) No 1 of 2014.
76. MOFCOM has introduced measures to streamline its filing procedures for businesses operating in China; see Waishangtouziqiye Sheli Ji Biangeng Beianguanli Zanxingbanfa (外商投资企业设立及变更备案管理暂行办法) [Interim Measures for the Recordation Administration of the Formation and Modification of Foreign-Funded Enterprises] (promulgated by the Ministry of Commerce, effective 8 October 2016) Order No. 3. These measures by MOFCOM are in addition to other initiatives which should ease the regulatory burden of dealings for all businesses, not only financial services. For example, quarantine and entry and export inspections are relaxed and made more efficient, and there will be better co-operation between government departments, such as customs, quality inspection, industry and commerce, taxation, and foreign exchange, and the Shanghai Municipal People’s Government. Other important changes include simpler administrative procedures and adjustments to various laws, including the Zhonghuarenmingongheguo Waiziqiyefa (中华人民共和国外资企业法) [Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises (2016 Amendment)] (promulgated by the Standing Committee of the National People’s Congress, 3 September 2016, effective 4 December 1986) Order No 51 <www1.lawinfochina.com/display.aspx?id=22675&lib=law> accessed 6 February 2017; Zhonghuarenmingongheguo Zhongwaihezijingyingqiyefa (中华人民共和国中外合资经营企业法) [Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures (2016 Amendment)] (promulgated by the National People’s Congress, 3 September 2016, effective 8 July 1979) Order No 51 <http://en.pkulaw.cn/display.aspx?cgid=279350&lib=law> accessed 6 February 2017; Zhonghuarenmingongheguo Zhongwaihezijingyingqiyefa (中华人民共和国中外合作经营企业法) [Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Ventures (2016Amendment)] (promulgated by the National People’s Congress, 3 September 2016, effective 13 April 1988) Order No 51 <http://en.pkulaw.cn/display.aspx?cgid=279351&lib=law> accessed 6 February 2017.
77. There are estimates that shadow banking currently finances ‘almost half of all new credit’: Shen (n 51) 596.
78. A range of entities which encompasses shadow banking includes off-balance sheet vehicles (commercial bills and entrusted loans between corporates which are off the administering bank’s balance sheet) of legitimate banks; loans structured as interbank assets to dodge lending caps; investment products backed by murky pools of loans; high risk business projects such as property development, steelmaking, mining and shipping companies; and funds borrowed by local government financing vehicles (LGFV) to finance investment in municipal infrastructure projects. The Guowuyuanbangongting Guanyu Jiaqiang Yingziyinhang Jianguan Youguan Wenti De Tongzhi (国务院办公厅关于加强影子银行监管有关问题的通知) [Circular of the General Office of State Council on Relevant Issues of Strengthening the Regulation of Shadow Banking] (promulgated by General Office of the State Council of the People’s Republic of China, 2013) State Council Circular No 107 describes shadow banking as ‘credit intermediation entities and activies outside the traditional banking system’. See generally Robin Hui Huang, The Regulation of Shadow Banking in China: International and Comparative Perspectives’ (2015) 30 Banking and Finance Law Review 481.
79. Shen (n 51) 596
81. Simin Gao and Qianyu Wang, ‘Chasing the Shadow in Different Worlds: Shadow Banking and Its Regulation in the US and China’ (2014) 11 Manchester Journal of International Economics and Law 421.
82. Shen (n 51) 592.
83. Jing Jiang, ‘Shadow Banking in China; Battling the Darkness’ The Economist (London, 10 May 2014) <www.economist.com/news/finance-and-economics/21601872-every-time-regulators-curb-one-form-non-bank-lending-another-begins> accessed 26 October 2015.
84. Other emerging shadow banking platforms include person-to-person banking (P2P), which involves individuals using online platforms like Baidu China and Alibaba, without a financial institution as a middleman to collect deposits and pay interest. In addition, wealth management products have grown exponentially and form part of the shadow banking sector as most of these are off-balance sheet products. Finally, loan sharks are the other alternative source of capital in shadow banking pools. Shen (n 51) 599.
85. Circular on Shadow Banking.
86. Gao and Wang (n 81); Circular on Shadow Banking.
87. China Banking Regulatory Commission (n 13) IX, 5, 57, 58, 98.
88. Zhongguoyinjianhuibangongting Guanyu Guifan Shangyeyinhang Tongyeyewu Zhili De Tongzhi (中国银监会办公厅关于规范商业银行同业业务治理的通知) [Notice on the Regulating the Interbank Business Governance of Commercial Banks] (promulgated by the General Office of the China Banking and Regulatory Commission, 8 May 2014, effective 8 May 2014) No 140 of 2014.
89. Gao and Wang (n 81) 455.
92. Circular on Shadow Banking.
93. For a full description of the content of the Circular on Shadow Banking, see Huang (n 78) 490-491.
94. Huang (n 78) 501.
95. Huang (n 78) 502.
96. Cunkuan Baoxian Tiaoli (存款保险条例) [Deposit Insurance Regulation] (promulgated by the State Council, 17 February 2015, effective 1 May 2015) Order No 660. This regulation had no material change from the draft regulation. For reference, see Sun Hong and Qing Hua Song, ‘Deposit insurance system formally enacted in People’s Republic of China’ (Norton Rose Fulbright 31 March 2015) <www.regulationtomorrow.com/asia/deposit-insurance-system-formally-enacted-in-peoples-republic-of-china> accessed 26 October 2015.
97. Alexander Ballantyne, Jonathan Hambur, Ivan Roberts and Michelle Wright, ‘Financial Reform in Australia and China’ (Research Discussion Paper, Reserve Bank of Australia September 2014), 29 <www.rba.gov.au/publications/rdp/2014/pdf/rdp2014-10.pdf> accessed 6 February 2017.
98. ibid 30.
99. World Bank, ‘China 2030 – Building a Modern, Harmonious, and Creative Society’ (Publication Report No 76299, The World Bank and the Development Research Centre of the State Council 23 March 2013), 111 <http://documents.worldbank.org/curated/en/781101468239669951/China-2030-building-a-modern-harmonious-and-creative-society> accessed 6 February 2017.
100. The Report recommended further commercialization of the banking sector, interest rates set by the market, deepening of capital markets and improving the legal and supervisory infrastructure to ensure financial stability and internationalization of the financial sector; see World Bank (n 99) 118–125.
101. ibid 28.
103. World Bank (n 99) 27- 30; Wing Thye Woo, ‘Increasing the Resilience of China’s Financial Sector and the Global Monetary System’ in Ligang Song, Ross Garnaut and Cai Fang (eds), Deepening Reform for China’s long-term growth and development (ANU Press 2014) 315.
104. CBRC (n 13) 89.
105. ibid 88.
106. ibid 89.
107. ‘Orderly competition’ is often mentioned in China and is actually mentioned in the AML: AML, art 4.
108. Yiping Huang, Ran Li and Bejun Wang, ‘The Last Battles of China’s Financial Reform’ in Ligang Song, Ross Garnault and Cai Fang (eds), Deepening Reform for China’s long-term growth and development (Canberra, ACT: ANU Press, 2014), 233. See also W. Zhou, D.W. Arner and R.P Buckley, ‘Regulation of Digital Financial Services in China: Last Mover Advantage’ (2015) 8(1) Tsinghua Law Review 25.
109. The Postal Savings Bank, which will reportedly soon be listed, is probably placed fifth; see Michael N. Tan, Corporate Governance and Banking in China (Routledge 2013) Appendix 1.
110. PwC, ‘Foreign Banks in China’ (PwC January 2014) <www.pwccn.com/webmedia/doc/635253186547653351_fbic_2013.pdf> accessed 26 October 2015.
111. ibid 10.
112. China Banking Regulatory Commission (n 13) IX.
113. PwC (n 110) 38.
114. For example, see the MOFCOM merger guidelines which prescribe 30 criteria for merger evaluation: ‘Guiding Opinions on Notification of Concentration of Undertakings’ (n 29).
115. For a more detailed discussion, see Deborah Healey, ‘Strange Bedfellows: Merger Regulation in China and Australia Compared’ (2012) 7 Asian Journal of Comparative Law 281, 292.
116. ibid 295.
117. This is by way of contrast to laws applied in other jurisdictions such as the US, EU and Australia which all require a substantial lessening of competition before intervention.
118. These factors are: market share of the business operators and controlling power over the market; market concentration; influence of the concentration on market access and technological progress; influence on consumers and other business operators; influence on national economic development; and other elements affecting market competition as determined by the Anti-Monopoly Enforcement Authorities under the State Council: see AML, art 27. MOFCOM uses the Herfindahl-Hirschman Index (HHI) but has not disclosed the levels which it uses or the change required to trigger a competition problem in a merger.
119. AML, art 27(4)-(5).
120. AML, art 28.
121. AML, art 26. In an attempt to provide more information, MOFCOM has more recently adopted a practice of releasing a list of approved mergers.
122. See Zhonghuarenmingongheguo Fanbuzhengdangjiangzhengfa (中华人民共和国反不正当竞争法) [Law of the People’s Republic of China Against Unfair Competition] (promulgated by the National People’s Congress, 2 September 1993, effective 1 December 1993) Order No 10. Issues of ‘fair competition’ are also relevant in the competition laws of other Asian jurisdictions, such as Japan and Korea.
123. As to this see both earlier and later comments in this article.
124. AML, art 51.
125. Key areas of industry nominated for review under this process are the military sector, key agricultural, energy, infrastructure, transport, and the technology and equipment sectors: AML, art 31.
126. For a more detailed consideration, see Healey (n 115) 32, and sources there in cited.
127. Sokol (n 22) 102.
128. By December 2015, MOFCOM had considered more than 1,277 proposed mergers since the introduction of the AML, giving written reasons for two refusals and 27% conditional approvals, with approximately 97% of the merger applications approved without conditions: Yuni Yan Sobel, ‘Domestic-to-Domestic Transactions (2014-2015) Narrowing Gap in China’s Merger Control Regime’ (The Antitrust Source February 2016), 2 <www.americanbar.org/content/dam/aba/publishing/antitrust_source/feb16_sobel_2_12f.authcheckdam.pdf> accessed 1 March 2016.
129. For example, the OECD’s report identifies competition problems in the Chinese economy, it describes a variety of factors which result in low national concentration, with many markets operating at below minimum efficient scale and significant market distortions; see OECD, ‘The Challenges of Transition for Competition Law and Policy in China’ (DAF/COMP/GF(2008)2/REV1, Note by the Secretariat, OECD 27 January 2009), 25 <www.oecd.org/daf/competition/prosecutionandlawenforcement/40016995.pdf> accessed 6 February 2017.
130. General Electric China Ltd and China Shenhua Coal to Liquid and Chemical Co., Ltd  MOFCOM No 74 (10 November 2011).
131. Weiyifa Shenbao Jingyingzhe Jizhong Diaocha Chuli Zanxing Banfa (未依法申报经营者集中调查处理暂行办法) [Interim Measures for Investigating and Punishing of Concentration of Undertakings Failing to File Notification] (promulgated by the Ministry of Commerce, 30 December 2011, effective 1 February, 2012) Order No 6 of 2011.
132. In late 2014 MOFCOM announced that it had fined Tsinghua Unigroup, an SOE, for failure to notify; see Norton Rose Fulbright (n 19) 5. Other companies which have been fined include two other SOEs. For full list up till December 2015, see Sobel (n 128) 5.
133. Sobel (n 128) 2.
134. ibid 5.
135. Although in some circumstances damaging local firms will damage competition, this depends upon the extent to which they are efficient and competitive.
136. Coca-Cola Company and Huiyuan Corporation  MOFCOM No 22 (18 March 2009).
137. In truth the major concerns were the lack of detailed explanation for the findings and support for the use of the portfolio market effect theory, which might have been better supported. This theory was also applied more recently in Merck KGa and AZ Electronic Materials SA  MOFCOM No 30 (30 April 2014).
138. Maersk, MSC and CMA CGM  MOFCOM No 46 (20 June 2014).
139. ibid. Another decision on joint ventures in Corun, Toyota China, PEVE, Sinogy and Toyota Tsusho  MOFCOM No 49 (2 July 2014) was also in the sensitive industry of batteries for use in hybrid cars, with detailed conditions imposed.
140. MOFCOM did not follow the EU practice of limiting the review of joint ventures to those ‘performing on a lasting basis all of the functions of an autonomous economic entity’, while competition authorities in the US and EU stated that they would maintain a watching brief.
141. Nate Bush, ‘MOFCOM’s hidden motives for merger review’ (China Law & Practice July 2014) <www.chinalawandpractice.com/Article/3361050/Channel/16143/MOFCOMs-hidden-motives-for-merger-review.html> accessed 26 October 2015.
142. Marubeni Corporation and Gavilon Holdings LLC  MOFCOM No 22 (22 April 2013). This merger was against the background of significant pressure on local soybean suppliers by imports. See also MediaTek Inc and MStar Semiconductor Inc (Cayman)  MOFCOM No 61 (6 August 2013). There the market shares of the parties were large but the conditions required that the LCD Master TV chip business of MStar be conducted by a Taiwanese subsidiary for at least three years, and other onerous conditions relating to separation of that business were imposed. The time limit may have been related to the changing nature of the market.
143. Xi Jiping said in November 2013 that food safety is and will always be one of the Government’s top priorities. He said China must be able to guarantee the food supply of its 1.3 billion people because “history has shown that even a huge fortune is of no use if a famine hits us”: Zhao Lei, ‘Move on reforms, but not rashly, Xi says’ China Daily (29 November 2013) <http://usa.chinadaily.com.cn/china/2013-11/29/content_17139905.htm> accessed 26 October 2015.
144. Uralkali and Silvinit  MOFCOM No 33, 2 June 2011.
145. See Frederic Jenny, ‘Export Cartels in Primary Products: The Potash Case in Perspective’ in Simon Evenett and Frederic Jenny (eds), Trade, Competition, and the Pricing of Commodities (Centre for Economic Policy Research 2012).
146. ‘MOFCOM Issues Conditional Clearance of Russian Potash Merger and Circulates Two Draft Regulations for Public Comment’ (Hogan Lovells June 2011) <www.hoganlovells.com/files/Publication/a87327ad-0095-4dbf-80d7-543c27fc5dfa/Presentation/PublicationAttachment/c17f70d7-4c2f-4344-b1fe-5f2784412a4d/11.06.23_Hogan_Lovells_ACER_Alert_China_June_2011.pdf> accessed 26 October 2015.
147. The conditions included Glencore being required to sell the USD5.7 billion Las Bambas copper project in Peru (expected to produce 400,000 tonnes per annum) within six months from the date of the acquisition; guarantee supply of specified quantities of copper concentrate to China under an annual contract for the next eight years, with a minimum quantity of 900,000 tonnes in 2013-14 (equivalent to the average sales of the two companies in the past two years); and, for both zinc concentrate and lead concentrate the merged firm was required to provide long-term contracts to customers in China on fair and reasonable terms: Glencore International and Xstrata  MOFCOM No 20 (16 April 2013).
148. Australian Competition & Consumer Commission, ‘Glencore International plc – proposed acquisition of Xstrata Plc’ (Merger Register, R45863, completed 3 July 2012).
149. John Tivey and Rebecca Campbell, ‘Glencore’s Long March to Take Over Xstrata’ (White & Case 29 April 2013) <www.whitecase.com/publications/alert/glencores-long-march-take-over-xstrata> accessed 26 October 2015.
150. European Commission (EC), ‘Mergers: Commission approves Glencore’s acquisition of Xstrata, subject to conditions’ (IP/12/1252, Press Release, EC 22 November 2012) <http://europa.eu/rapid/press-release_IP-12-1252_en.htm> accessed 6 February 2017.
151. Google’s Android held almost 74% of the market in China, with just two other much smaller competitors (Nokia and Apple). See Google and Android  MOFCOM No. 25 (31 May 2012).
152. United States Department of Justice (USDOJ), ‘Statement of the Department of Justice’s Antitrust Division on Its Decision to Close Its Investigations of Google Inc.’s Acquisition of Motorola Mobility Holdings Inc. and the Acquisition of Certain Patents by Apple Inc., Microsoft Corp.’ (USDOJ 13 February 2012) <www.justice.gov/opa/pr/statement-department-justice-s-antitrust-division-its-decision-close-its-investigations> accessed 6 February 2017; Australian Competition & Consumer Commission, ‘Google Inc – proposed acquisition of Motorola Mobility Holdings Inc’ (R46736, 21 February 2012); European Commission (EC), ‘Mergers: Commission approves acquisition of Motorola Mobility by Google’ (EC 13 February 2012) <http://europa.eu/rapid/press-release_IP-12-129_en.htm> accessed 6 February 2017. Other examples are Mitsubishi Rayon and Lucite  MOFCOM No 28, 24 April 2009 and GM and Delphi  MOFCOM No 76, 28 September 2009, both discussed in Healey (n 115) 35.
153. A similar approach was adopted in the Microsoft/Nokia conditional approval: see Microsoft and Nokia  MOFCOM No 24 (8 April 2014).
154. Seagate Technology PLC and Samsung Technology PLC  MOFCOM No 90 (12 December 2011).
155. The US, the EU and Australia allowed the Seagate/Samsung merger without conditions on the basis that the transaction was not likely to impact competition, particularly in the context of an increased likelihood of co-ordination, although both the US and the EU imposed conditions on this merger. This was despite those regulators considering similar issues relating to competitive impacts in similarly defined markets: see Federal Trade Commission, ‘FTC Issues Modified Final Order Settling Charges that Western Digital Acquisition of Hitachi Global Storage Technologies was Anticompetitive in Market for Desktop Hard Disk Drives’ (May 9 2013); Federal Trade Commission (FTC), ‘In the Matter of Western Digital Corporation, a corporation’ (FTC Matter/File Number: 1110122, Docket Number: C-4350, FTC 9 May 2013) <www.ftc.gov/news-events/press-releases/2013/05/ftc-issues-modified-final-order-settling-charges-western-digitals> accessed 6 February 2017. Other competition regulators tended to break the market down further by the form and end use of the HDDs. See, for example, the EU (separate worldwide markets for hard disk drives based on their end use application such as desktop computers, mobile computers, servers and a separate market for ‘external hard disk drives in the European Economic Area, which is downstream from hard disk drives’): European Commission (EC), ‘Mergers: Commission clears Western Digital’s acquisition of Hitachi’s hard disk drive business subject to conditions’ (EC 23 November 2011) <http://europa.eu/rapid/press-release_IP-11-1395_en.htm> accessed 6 February 2017; Australia (five separate product markets): Australian Competition & Consumer Commission, ‘Seagate Technology PLC – proposed acquisition of the hard disk drive business of Samsung Electronics Co Ltd’, (Public Competition Assessment, R46180, 13 December 2011). For MOFCOM’s assessment, see Western Digital  MOFCOM No 9 (2 March 2012).
156. Weihuan Zhou, Douglas Arner and Ross Buckley, ‘Regulation of Digital Financial Services in China: Last Mover or First Mover?’ (2015) University of Hong Kong Faculty of Law Research Paper, No 44 of 2015.
157. Thermo Fisher Scientific Inc./Life Technologies  MOFCOM No. 3, 15 January 2014. More recent decisions imposing pricing conditions involved the Merck-AZ acquisition (inputs for flat panel displays), and Corun PEVE joint venture (battery systems in hybrid cars) both of which took place in sensitive industries considered important to Chinese economy; see Merck KGa and AZ Electronic Materials SA  MOFCOM No 30 (30 April 2014); Corun, Toyota China, PEVE, Sinogy and Toyota Tsusho  MOFCOM No 49 (2 July 2014).
158. See, for example, Federal Trade Commission (FTC), ‘FTC Puts Conditions on Thermo Fisher Scientific Inc.’s Proposed Acquisition of Life Technologies Corporation’ (FTC 31 January 2014) <www.ftc.gov/news-events/press-releases/2014/01/ftc-puts-conditions-thermo-fisher-scientific-incs-proposed> accessed 6 February 2017; European Commission (Competition), ‘M.6944 Thermo Fisher Scientific/Life Technologies’ (IP/13/1167, 29 November); Australia Competition & Consumer Commission, ‘Thermo Fisher Scientific Inc. – proposed acquisition of Life Technologies Corporation’ (R52214, 25 February 2014). The ACCC in fact noted that the undertakings it accepted related to the Australian businesses which formed part of EU-ordered global divestments.
159. The additional conditions Thermo Fisher agreed to were: lowering the list prices of SSP kits and SDS-PAGE protein standards in the Chinese market by 1% per year for the next 10 years while retaining the same level of discounts offered to distributors in China; and, committing to either supply SSP kits and SDS-PAGE protein standards to the third party on an original equipment manufacturer basis, or grant the third party a perpetual and non-exclusive licence to use the technology relating to SSP kits and SDS-PAGE protein standards, at the option of the relevant third party.
160. Marubeni Corporation and Gavilon Holdings LLC  MOFCOM No 22 (22 April 2013); Glencore International and Xstrata  MOFCOM No 20 (16 April 2013); Novartis and Alcon  MOFCOM No 53 (13 August 2010).
161. Rob Nicholls and Justin O’Brien, ‘Hanging together or hanging separately: Is competition law in the process of eclipsing financial regulation?’ (2014) 8(2) Law and Financial Markets Review 178.
162. Healey and Zhang (n 59).
163. Rob Nicholls, Carolyn Evans and Deborah Healey, ‘Competition in Financial Services’ (CIFR Research Paper No RR/2015, Centre for International Finance and Regulation 2015) 133-136.
* LLM (Hons) (U.Syd) LLB (U.Syd); Professor, Faculty of Law, University of New South Wales (Australia). The authors wish to thank the Centre for International Finance and Regulation for the funding used to complete this research.
** BA, LLB, LLM, PHD, Peking University; Associate Professor, Faculty of Law, Tsinghua University (China).
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