Tech giants face new curbs from antitrust rules

Draft includes adding valuation as a benchmark for buyout approval

Several new draft antitrust rules released by China’s market regulator threaten to place more restrictions on the country’s big tech firms, about a month before an updated Anti-Monopoly Law is due to take effect.

Under one of six proposed rules released by the State Administration for Market Regulation (SAMR) on Monday, a planned merger or acquisition would need regulatory approval if it involved one company with revenue surpassing 100 billion yuan (HK$117 billion) and another with a valuation of at least 800 million yuan.

If the new rule goes into effect, it will change a process that currently relies only on revenue as a benchmark for whether a deal requires approval.

The main impetus for the rule change is to target internet giants’ acquisitions of start-ups, according to Du Guangpu, an antitrust lawyer with Jingsh Law Firm in Beijing.

Many early-stage internet firms had very little revenue, Du said, so the proposed rule change targeted start-up acquisitions based on their potential impact on the market, which was gauged through company valuations.

Besides technology firms, large state-owned enterprises and property companies were among those that might need to seek antitrust reviews for planned deals if the change was enacted, Du said.

The SAMR published the new rules as its power is set to increase under a revised Anti-Monopoly Law, which also raises penalties for violations. The changes proposed last October led to the first amendment to the law since it was passed in 2008.

After the law goes into effect on August 1, failure to notify authorities of a deal that requires a review could result in a fine of 5 million yuan, a tenfold increase from before. This even applies if the deal is found to be anti-competitive.

“The SAMR is expected to closely monitor the mergers of large tech firms and will have the discretion to intervene even when they do not meet the notification thresholds,” said Angela Zhang, an associate professor with the University of Hong Kong’s faculty of law.

The amended law also targets behaviours that could increase scrutiny of the technology sector, banning any monopolistic behaviours using data, algorithms, technology, capital advantage or platform rules.

“This confirms the senior leadership’s endorsement of the SAMR’s campaign targeting monopoly agreements, abuse of dominance and anti-competitive mergers in China’s digital markets since October 2020,” lawyers at DLA Piper wrote in an article published on the firm’s website on Monday.

However, the updated AntiMonopoly Law does not specify the technology industry as one subject to priority enforcement for merger reviews, as did the October draft. Instead, it only pledges to strengthen antitrust scrutiny of “important areas involving the national economy and people’s livelihoods”.

Not all of the SAMR’s proposed rule changes create more onerous restrictions, however.

One change would raise the revenue thresholds for triggering an antitrust review. Previously, such reviews will be needed if one party has global annual revenue of 10 billion yuan and at least two parties each have domestic revenue of 400 million yuan. Under the proposed rule, the limit has been raised to more than 12 billion yuan and 800 million yuan, respectively.

This kind of increase was normal to accommodate a growing economy, Du said.

Another notable change is that platform operators will be prohibited from using data, algorithms, technology or platform rules for “self-preferencing”. This includes prioritising the display of their own products, which one of the proposed rules considers as an abuse of market power.