Recently, we have accepted and acted as an agent for some consultation and declaration related to the business concentration of state-owned enterprises. Although the author has written in the past on the academic viewpoint of whether mergers and acquisitions between state-owned enterprises should be reported for concentration of managers, in order to better reflect and guide the reporting activities of state-owned enterprises in practice, the following analysis and introduction are again provided for the benefit of readers.

1、 Mergers between state-owned enterprises should still be declared, even under the management of the same SASAC

China's "Anti monopoly Law" does not provide special exemptions for anti monopoly declarations by state-owned enterprises. For mergers, equity acquisitions, asset acquisitions, changes in control rights, and other concentration of operators regulated by the Anti Monopoly Law in which state-owned enterprises participate, once the turnover of state-owned enterprises reaches the declaration threshold, they still need to apply for anti monopoly in accordance with the provisions of the Anti Monopoly Law. In practice, it is more puzzling whether state-owned enterprises should be exempted from reporting if they are held by the same shareholder or the same SASAC.

1. The shareholders or direct controllers of both parties to the transaction are the same state-owned enterprise

Article 22 of the Anti monopoly Law stipulates: "In any of the following circumstances, a concentration of business operators may not be reported to the anti monopoly law enforcement authority of the State Council:

（1） One operator participating in the concentration owns more than 50% of the voting shares or assets of each other operator;

（2） "More than 50% of the voting shares or assets of each operator participating in the concentration are owned by the same operator that is not participating in the concentration."

If the shareholders or controllers of both parties to the transaction are the same state-owned enterprise, we tend to believe that they comply with the provisions of Article 22 (2) of the Anti monopoly Law and can be exempted from reporting.

2. The shareholders or direct controllers of both parties to the transaction are different state-owned enterprises, but the relevant state-owned enterprises are all managed by the same or different SASAC

If the shareholders or direct controllers of both parties to the transaction are different state-owned enterprises, but the relevant state-owned enterprises are all managed by the same SASAC. Although the ultimate controller is the same SASAC, in practice, the antimonopoly law enforcement department does not recognize the SASAC as an operator, so even if it is managed by the same SASAC, it cannot be recognized that the same operator is controlled as the ultimate controller, so it is still necessary to declare.

Similarly, if the state-owned enterprise participating in the transaction is under the management of different SASACs, since the SASAC is not recognized as an operator, it will not be considered to be controlled by the same operator as the ultimate controller.

3. Speculation on the reasons why mergers and acquisitions of state-owned enterprises still need to be declared

Article 12 of the Anti Monopoly Law defines a business operator, which means "the term business operator as used in this Law refers to natural persons, legal persons, and other organizations engaged in the production, operation, or provision of services of commodities.". In a narrow sense, government funded departments are not directly engaged in the production, operation, or provision of services. In addition, other organizations generally refer to non-governmental organizations. Therefore, it can be concluded that the SASAC is not an operator as defined in the Anti monopoly Law.

We suspect that the attitude of the China Anti monopoly Bureau in this regard may also be related to the difficulties faced by state-owned enterprises in overseas anti monopoly supervision. Foreign regulatory bodies, such as the European Commission, often review multiple state-owned enterprises held by the SASAC as a whole to assess the competitive impact during the review of merger and acquisition transactions. If the SASAC is identified as the ultimate controller, it will make it more difficult for state-owned enterprises to invest overseas in terms of entities and procedures. Therefore, the China Anti monopoly Bureau treats different state-owned enterprises under the same China SASAC as independent entities, requiring domestic declarations, which is conducive to demonstrating to overseas law enforcement agencies that China's state-owned enterprises are independently operating entities, and the state only exercises capital contributions and limited management rights. In order to facilitate external efforts, China's state-owned enterprises will not be reviewed as a whole.

2、 Legal Risks of State-owned Enterprises Not Declaring According to Law

Article 48 of the Anti monopoly Law stipulates that "If an operator violates the provisions of this Law by implementing concentration, the anti monopoly law enforcement authority under the State Council shall order it to stop the implementation of concentration, dispose of its shares or assets within a specified time limit, transfer its business within a specified time limit, and take other necessary measures to restore it to the state before concentration, and may impose a fine of not more than 500000 yuan."

Currently, a large number of mergers and acquisitions between state-owned enterprises have been declared in practice. Cases of administrative penalties for failing to declare in accordance with the law have also emerged.

For example, a typical case where the merger and consolidation of state-owned enterprises has not been declared in accordance with the law is the case where Liaoning Port Group acquires the equity of Dalian Port Group and Yingkou Port Group. According to the administrative penalty decision in this case, Liaoning Port Group (formerly known as Liaoning Port and Shipping) was established by the State-owned Assets Supervision and Administration Commission of Liaoning Province to integrate the port resources of Liaoning Province. On December 20, 2017, the State-owned Assets Supervision and Administration Commission of Dalian City and the State-owned Assets Supervision and Administration Commission of Yingkou City signed the "Agreement on the Free Transfer of Equity of Dalian Port Group Co., Ltd." and the "Agreement on the Free Transfer of Equity of Yingkou Port Group Co., Ltd." with Liaoning Port and Waterway, respectively. The 100% equity of Dalian Port Group and Yingkou Port and Waterway Group was transferred to Liaoning Port and Waterway without compensation. On February 9, 2018, Dalian Port Group and Yingkou Port Group respectively completed changes in the industrial and commercial registration of shareholders. Due to the fact that the turnover of the acquiree has reached the declaration threshold, the State Administration of Market Supervision has determined that this acquisition constitutes a concentration of business operators that has not been declared in accordance with the law. However, due to its failure to eliminate or restrict competition, Liaoning Port Group has been fined 350000 yuan. The acquisition has obvious characteristics of state-owned enterprise integration. The acquiree is owned by different municipal SASACs, and the state-owned enterprise nature of the enterprise has not changed before and after the integration. However, due to the fact that the declaration threshold has been met and there is no exemption from declaration, it is ultimately determined that the declaration has not been made in accordance with the law, and a fine will be imposed.

Although the upper limit of the fine is 500000 yuan, which is not particularly significant, once subjected to such penalties, it may still be considered a significant administrative penalty, which may have a negative impact on the reputation of the enterprise, financing behavior in the bond market, etc. In addition, the draft for comment on the revision of the Anti monopoly Law has also proposed raising the upper limit of penalties for not reporting according to law to 10% of operating revenue. Therefore, especially in the context of strengthening the compliance management of state-owned enterprises and playing a leading role in state-owned enterprises, state-owned enterprises should actively respond to national policies, strengthen compliance management, and avoid facing administrative penalties for failing to declare in accordance with the law.

3、 Conclusion

Currently, China is vigorously promoting the reform of state-owned enterprises, and the merger and integration of state-owned enterprises may also increase accordingly. Due to the large size of state-owned enterprises, it may be relatively easy to meet the threshold for antitrust declaration. When state-owned enterprises engage in concurrent mergers and acquisitions, they need to conduct an antitrust evaluation. It should be noted that government led mergers and acquisitions cannot exempt state-owned enterprises from their reporting obligations, and conducting antitrust reporting in accordance with the law will lead to delays in the transaction process, or lead to legal risks of bearing administrative penalties for failing to report in accordance with the law.

(This article is translated by software translator for reference only.)