ANTITRUST IN DEVELOPING COUNTRIES:

Impact of mergers on development

Interview with Jason Wu
Vice President, Compass Lexecon

Jason Wu (Vice President, Compass Lexecon) has been interviewed by Daniel Rubinfeld (Professor, New York University School of Law) in anticipation of the 4th edition of the joint conference co-organized by Concurrences Review and New York University School of Law, to be held in New York City on October 27, 2017. They will participate in the panel "Mergers: Impact on Development."

To see the full program and register, please click here. 

Could you give an update on how MOFCOM is dealing with global mergers, including the quality of the economics and legal staff?

MOFCOM has emerged as one major regulatory agency responsible for reviewing global mergers, together with its US or European counterparts. Since China's Anti-Monopoly Law (AML) was enacted in 2008, MOFCOM has reviewed roughly 2000 cases, blocking 2 transactions, imposing remedies on roughly 30 deals. The intervention rate is largely consistent with its US and European counterparts. 

Interestingly, MOFCOM requires economic analysis of competitive effects, an approach widely employed by US and European antitrust agencies. MOFCOM has a team of case handlers, who have shown greater interests in findings of economic expert reports submitted by parties at stake. MOFCOM has also hired outside economic experts to opine on complex global mergers.

MOFCOM has adopted economic analyses (such as UPP, price concentration analysis) that are commonly used among the international antitrust community. It has become more transparent in its decision process by publishing its decisions on some global merger cases such as Thermo Fischer/Life Technologies. Those decisions indicate that MOFCOM has placed more weight on economic and econometric analysis before reaching a conclusion. 

How is MOFCOM treating mergers that affect state-owned enterprises? 

We have seen increasing number of mergers involving SOEs. Since there is no intervention in mergers involving SOEs, we have limited information on how MOFCOm handles SOEs. It appears that MOFCOm considers an SOE as a market participant, and subjects SOE mergers and acquisitions to the same regulatory review rules and regulations. It is possible that the ministries that oversee the SOE involved in a merger may carry special weight in MOFCOM's evaluating process. 

Foreign enterprises, especially those large transnational corporations, have a long history of dealing with regulatory reviews by MOFCOM's counterparts in the US and Europe. As a result, they are often more proactive in both filing a timely notification with MOFCOM and submitting relevant data and information to facilitate MOFCOM's decision process. In contrast, AML is new to many Chinese enterprises including SOEs, and thus it is not surprising to see the lag for those entities to adapt themselves to the new regulatory environment. 

To what extent, if any, do merger remedies focus on the development of start-up industries in China?

The Internet start-up industries have expanded incredibly fast in China. Mergers and acquisitions involving those Internet based entities have also attracted the attentions from China's antitrust agencies such as MOFCOM. Nevertheless, we have not seen any significant regulatory actions regarding those entities. One challenge involving start-up is that many of the Chinese start-ups use VIE (Variable Internet Entity) ownership structure which is not currently recognized in related investment regulations. If MOFCOM takes on merger review involving VIE entities, it indirectly validates such a structure. 

MOFCOm recognizes the difficulty in dealing with the fast-developed Internet-based start-ups. MOFCOM is cautious with its enforcement actions against those Internet start-ups. It is aware that current international antitrust law and practice was largely developed in the pre-Internet era. The Internet has brought in new aspects of competition from those traditional industries. Often, start-up industries involve complex and dynamic competition, capable of delivering significant benefits from innovation to consumers. These start-ups often serve as intermediaries that connect multiple industries and markets, making the economic analysis of start-ups more challenging. 

Economic studies of the Internet start-ups industries will be more complexed than traditional industries. MOFCOM appears to recognize the challenges of market definition involved in the new products/services, and the associated market share calculations.