Provisions addressing competition concerns such as self-preferencing, have been included in the newly released draft guidelines for reviewing non-horizontal mergers.
China is stepping up efforts to address frontier competition concerns such as self-preferencing, especially amid growing industrial convergence in the digital economy.
This ambition is reflected in the newly released draft guidelines for reviewing non-horizontal mergers, which the State Administration for Market Regulation, or SAMR, published last Friday for public consultation.
In a sign that these deals are becoming more common in China’s fast-changing digital landscape, China's antitrust agency has conditionally approved or blocked more than 30 cases involving non-horizontal mergers since the Anti-Monopoly Law took effect in 2008.
The new guidelines are designed to tackle a spectrum of challenges posed by non-horizontal mergers —including, but not limited to, those arising in the digital economy — while supporting the regulated and healthy growth of emerging and conventional industries.
One prominent area of focus is self-preferencing, which the draft identifies using two core scenarios as a potential anticompetitive risk in vertical mergers.
The first addresses instances where a merged entity has both the ability and incentive to access competitively sensitive information from upstream or downstream operators.
The second concerns situations where the entity grants preferential treatment to its own competing operations in upstream or downstream markets.
According to the draft, SAMR will evaluate these scenarios on a case-by-case basis, using objective evidence to determine whether the conduct may exclude or restrict competition.
When referring to conglomerate mergers in the digital economy, the guidelines noted that deals may facilitate ecosystem development and expansion by enhancing product offerings, promoting economies of scope, boosting network effects and increasing user engagement and loyalty.
However, the antitrust authority will carefully assess whether operators within these ecosystems have the ability and incentive to exclude or restrict competition in relevant markets, again basing decisions on objective, case-specific evidence.
Safe harbor rules and market-share thresholds
The draft also proposes structured indicators based on market share to differentiate the competitive risks of non-horizontal mergers and establish safe harbor rules.
However, the current version introduces several important changes compared with a narrower consultation draft circulated in August 2024.
One notable revision is the adjustment of the crucial market share benchmark from 30 percent to 35 percent.
As reported, the antitrust enforcement agency will closely scrutinize transactions involving participating businesses where market shares in upstream, downstream, or other related markets exceed 30 percent.
More significantly, the language regarding the different market share thresholds has been revised.
The regulator will now generally presume that a merger has or could have an anticompetitive effect if the parties hold more than 50 percent of the market share in closely related sectors, such as upstream, downstream, adjacent, or complementary markets, rather than merely "intending to consider" the anticompetitive possibility.
In response to this stronger language, the draft also allows merging entities the opportunity to demonstrate that their merger will not adversely affect competitive dynamics.
Another notable change is that for market shares below 25 percent, the regulator appears to no longer require additional metrics like the Herfindahl-Hirschman Index, a commonly used measure of market concentration.
Under the new guidelines, if participating operators in non-horizontal mergers have market shares below 25 percent, it is generally presumed that the merger does not pose an anticompetitive risk.
Structurally, the new draft consists of nine chapters, 82 articles and 31 examples — streamlined from the previous version, which had 12 chapters, 105 articles and 19 examples.
SAMR's horizontal merger guidelines, released for comment in June 2024 and finalized in December, may serve as a general structural reference for how the current draft might proceed, though the timeline for finalizing the non-horizontal merger guidelines remains uncertain.
Source:MLex
