Abstract
This article investigates the role of conditions or remedies in Chinese merger approvals, drawing conclusions about their use and suitability. The article begins by mapping the changing approach to merger remedies by competition regulators in other major jurisdictions such as the EU, US and Australia. Key trends are noted, such as the decline of a clear preference for structural remedies by regulators and convergence around a proportionality doctrine. The article reviews the operation of the Anti-Monopoly Law (AML) and the more recent merger remedy guidelines (Provisions of the Ministry of Commerce on Imposing Additional Restrictive Conditions on the Concentration of Business Operators (for Trial Implementation)) in this context. Representative Ministry of Commerce (MOFCOM) merger approvals with conditions are examined. These indicate that MOFCOM prefers behavioural conditions which in some instances appear disproportionate or unrelated to the anticompetitive effects of a merger, and tend to maintain the status quo. The article emphasizes how potential reforms to MOFCOM’s merger remedy guidelines and the conditions imposed by the regulator might better facilitate proportionate merger remedies, and the efficiencies sought by mergers. The article concludes by considering these issues in a case study of a hypothetical bank merger scenario, set against the background of a socialist market economy and the competitive dynamics of the Chinese banking sector.

I. Introduction

 While there is no standard form for remedies in merger control, the conditions imposed in merger approvals are generally characterized as being either structural or behavioural in nature, or are some combination of both. Structural conditions tend to be executed prior to completion of the merger transaction and generally involve some form of compulsory divestment or asset transfer. Behavioural conditions “… allow the parties to integrate but then impose certain operating rules on their business behavior so as to prevent competition from being undermined or compromised.” In contrast to structural conditions, behavioural conditions continue to apply to the merged entity following completion of the transaction, involving some ongoing oversight and enforcement by the competition regulator. In some mergers, regulators have applied a mix of structural and behavioural remedies, which some regulators refer to as hybrid conditions. There is no international consensus regarding the circumstances in which a behavioural or structural remedy is to be preferred, although it has been found by the Organisation for Economic Co-operation and Development (OECD) that regulators tend “to use structural remedies for horizontal mergers and behavioural remedies for vertical mergers”. Competition issues are more likely to arise in horizontal mergers, than vertical mergers, leading to structural remedies being more commonly imposed by regulators.

The Ministry of Commerce (MOFCOM) has had jurisdiction under Chinese antitrust law, the Anti-Monopoly Law (AML), since 2008 to impose conditional merger approvals when reviewing concentrations amongst undertakings operating in China. The merger conditions so far imposed by MOFCOM have included structural, behavioural and hybrid remedies. While the more recent decisions of MOFCOM show an increasing level of sophistication in competition analysis, there has been criticism of the regulator in the past for imposing conditions that are too onerous and negate the dynamic efficiencies to be achieved by the transaction. This article seeks to investigate the basis for this assertion and determine whether there is a need for potential reform of either the AML or MOFCOM’s merger remedy guidelines (Provisions of the Ministry of Commerce on Imposing Additional Restrictive Conditions on the Concentration of Business Operators (for Trial Implementation)) (Provisions on Restrictive Conditions) so as to better facilitate attainment of dynamic efficiencies from mergers.

This article investigates MOFCOM’s approach to merger remedies beginning with an analysis of global trends, setting out the renewed emphasis amongst regulators on conditions addressing the specific competitive detriment of a merger, the increasing use of behavioural conditions, and the role of proportionality in merger control. The article then examines closely the structure of the AML and the Provisions on Restrictive Conditions, considering relevant provisions and issues impacting on the design of merger remedies in China, in the context of the political economy. An analysis of past conditional merger approvals of MOFCOM suggests remedies favour behavioural conditions as opposed to structural conditions. Some of these conditions appear somewhat disproportionate to the competition concerns posed by the transaction itself, or unrelated to them in any particular sense. The trend in a number of examples is to maintain the status quo of competitive dynamics. The article proffers potential reforms in light of these findings, before concluding with an analysis of potential merger remedies that could be employed in a Chinese bank merger, an important industry not yet subject to a conditional merger approval. The industry was chosen for its importance, both domestically and globally, to growth and stability. In sum, the article finds that while MOFCOM’s conditional merger approvals show increasingly sophisticated analysis, the historic approach of the regulator, in imposing conditional merger approvals that favour behavioural conditions, appears, at times, to impose disproportionate remedies to the actual competition concerns occasioned by proposed transactions. The implications of this for the banking industry are potentially significant. This suggests there is scope for the regulator to subtly reform its merger remedy policy, particularly in light of the approaches adopted in other jurisdictions around the world.