- MOFCOM's Second Conditional Clearance on Concentration after the Release of Its Guidance on Analysis of Competitive Influence
- March 8, 2012
- Law Firm: Grandall Law Firm - Beijing Office
MOFCOM is getting more and more efficient upon dealing with its own work. Only 10 days after the Alpha V/Savio conditional clearance, MOFCOM imposed conditions on another proposed concentration between General Electric (China)., Ltd (hereinafter referred to as GE China) and China Shenhua Coal to Liquid and Chemical Co., Ltd (hereinafter referred to as CSCLC) on 10th, November, 2011. It is noticed that GE China/CSCLC is already the NO.2 conditional clearance on concentration only two months after the “Provisional Regulation on the Assessment on the Competitive Effects of Concentration of Undertakings” is officially released in the end of August (hereinafter referred to as “Provisional Regulation”). That to some extent gives people the impression that the Provisional Regulation does not only give administrative counterparts guidance, but also standardized and facilitated MOFCOM’s antitrust reviewing work on concentration in some degree.
On 13th April 2011, GE China and CSCLC officially submitted notification filing to MOFCOM regarding proposed concentration by means of establishing Joint venture. After examination, MOFCOM found that submitted documents and materials were not complete and hence required a further supplementary submission. On 16th May 2011, MOFCOM confirmed that the supplemented documents satisfied requirements provided in Article 23 of AML, and therefore officially accepted the filing and meanwhile initiated a preliminary assessment.
Through preliminary review, MOFCOM established that concerning concentration may produce effects of excluding or restricting competition on the relevant market, thus decided to commence the second-phase review in a further step on 15th, June. Furthermore, on 13th September, MOFCOM made another decision of extending the reviewing period.
After such a long road of nearly 6 months, nevertheless, the said concentration still hasn’t escape being imposed conditions by MOFCOM. Finally on 28th October, after several rounds of negotiation, MOFCOM and the filing parties agreed on the solutions that CSCLC and Shenhua Group undertook not to force licensees of coal-water slurry (CWS) gasification technology to employ JV's technology by the threat of restraining the supply of raw coal or simply not supplying, nor to raise the cost of such supply for those using other technologies.
2. Competition Concerns
MOFCOM explained the conditional clearance on GE China/CSCLC in the No.74 Notice, mainly by relying on 4 grounds.
High market share
Pursuant to Article (3) paragraph (1) of the Provisional Regulation, the market share and market power of concentration parties on the relevant market are one factor that should be taken account on primarily when reviewing concentration of undertakings. In GE China/CSCLC case, MOFCOM established that GE's CWS gasification technology has the highest share in the relevant market--(CWS) gasification technology market, together with the fact there are only three main suppliers in the relevant market, which is therefore an oligopolistic market.
Highly concentrated market
In pursuing Article (3) paragraph (2) of the Provisional Regulation, the market concentration level is another factor that should be assessed in reviewing the competitive influence of a concentration. Back to the said case, it is readily noticed that the (CWS) gasification technology market in the territory of PRC is highly concentrated with only three main suppliers: GE Infrastructure Technology, Yankuang Group &East China University of Science and Technology, and the Northwest Research Institute of Chemical Industry.
According to Article (3) paragraph (3) of the Provisional Regulation, MOFCOM will consider the extent to which entry barriers exist and the possible influence on technology development that the concentration may produce. By investigation, MOFCOM reached the conclusion that there is high-degree entry barrier existed in the relevant market owing the following facts. First, (CWS) gasification technology is a collection of a number of complex technologies, most of which demand long period of practice to be mature. Second, the new technology without adequate test bears high commercial risks. Third, this technology is involved with large amount of patents protection. Fourth, R&D and industrialization application period is very long.
Power on raw material procurement
In view of Article (5) paragraph (4) of the Provisional Regulation, the undertaking’s power on raw material procurement will be considered as one main indicator of market power possessed by undertakings. In GE China/CSCLC, CSCLC is the largest supplier of raw coal in China; therefore, concerning combination would confer on GE China the market power in (CWS) gasification technology market by giving it the controlling power on raw coal’s procurement. Consequently, CE China may levy its controlling power on the upstream market of supply of raw coal on the relevant market of (CWS) gasification technology market.
3. Tips for enterprises
a. To prepare and submit adequate information to MOFCOM
As we have observed in many concentration filings, MOFCOM often required supplementary submission, which therefore would delay MOFCOM‘s official acceptance of notification filing. For the purpose of guaranteeing transaction schedule, it is highly suggested enterprises prepare and submit as adequate information as possible to MOFCOM.
b. To ask professional lawyers to prepare several solutions for conditional clearance in advance.
For those highly suspicious cases, we suggest enterprises to prepare several solutions (such as Plan A, Plan B, Plan C) in advance, instead of after MOFCOM makes the final conclusion that there are competition concerns existed, so as to decrease the negotiation time with MOFCOM.