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January 2, 2013 4:46 pm

MOFCOM favors structural remedies in horizontal mergers, division director

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China’s Ministry of Commerce (MOFCOM) is adopting more use of structural remedies in horizontal mergers, compared with more use of behavioral remedies in vertical mergers or companies establishing joint ventures, a director at MOFCOM has revealed.

Zhu Zhongliang, a division director of the Antimonopoly Bureau (AMB) at MOFCOM, said in a major speech witnessed by PaRR, that one major reason why MOFCOM’s decisions vary from US and European antitrust counterparts in some high-profile cases is because it focuses on the impact on the Chinese market and the likelihood of restriction of competition in China, in accordance with the country’s anti-monopoly law (AML).

Speaking at a recent competition conference attended by PaRR in Beijing, China, Zhu said that MOFCOM aims to eliminate and prevent anti-competitive problems in advance. And in horizontal mergers such as United Technologies’ (NYSE:UTX) acquisition of Goodrich Corp (NYSE:GR), MOFCOM has imposed structural remedies, requiring companies to divest certain assets or business, he said.

He also said MOFCOM aims to publish “The Measures on Imposing Restrictive Conditions of Concentration” in 2013.

So far, MOFCOM has imposed conditions in just 16 cases, and only one transaction was blocked, out of more than 500 cases it has reviewed since 2008. Out of the 16, more than ten of the deals were given behavioral remedies, he said.

“Most of the time, structural remedies are more effective,” he said. A structural remedy is like a surgical operation, while a behavioral remedy is to prescribe medicine for patients, he noted.

But for vertical mergers, MOFCOM tends to give more behavioral conditions to restrict merging companies’ conducts, he added.

For instance, in Google’s (NASDAQ: GOOG) acquisition of Motorola Mobility (NYSE: MMI), MOFCOM required “Google to keep the Android platform free and open”, and “treat all original equipment manufacturers in a non-discriminative way with respect to the Android platform”, he said.

In some hybrid transactions, such as joint ventures, MOFCOM would choose behavioral remedies to require merging parties to open information or resources, or be barred from certain operations, he said.

In a recent review of a joint venture company by ARM (London Stock Exchange: ARM), Gemalto (EPA: GTO) and Giesecke & Devrient, MOFCOM required that ARM not discriminate against others and continue licensing on the FRAND (Fair, reasonable, and non-discriminatory terms) principle.

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