Transactions With Chinese State-Owned Companies More Likely To Trigger Merger Filing

The European Commission recently published a decision which may significantly impact future transactions involving Chinese state-owned entities. In its decision regarding the joint venture between Chinese state-owned CGN and French EDF, the Commission held that CGN should be deemed to be controlled by the Chinese State and forms an economic unit with other state-owned entities in the energy sector. Consequently, the Commission looked at the aggregated turnover and market shares of all Chinese state-owned entities in the energy sector to establish whether the filing thresholds were met and whether the transaction caused any competition concern. If the Commission follows the same reasoning for other sectors as well, transactions involving Chinese state-owned entities are more likely to trigger merger filings in Europe, and the filing procedures will be more complex and cumbersome. We recommend carefully assessing in each transaction by a Chinese SOE in Europe whether the Commission or a national competition authority could have jurisdiction over the transaction, taking into account the turnover of other SOEs in the same sector.

On 26 April 2016, the European Commission published its decision clearing the UK joint venture between China General Nuclear Power Corporation (CGN), a Chinese state-owned enterprise (SOE), and Électricité de France (EDF). The joint venture between CGN and EDF has been set up to develop and operate three nuclear power plants in Britain.

The majority of the shares in CGN are held by the Central State Assets Supervision and Administration Commission of China (Central SASAC), the entity administering Chinese SOEs supervised by the central Chinese government. In previous decisions involving Chinese SOEs, the Commission raised the question of whether Chinese SOEs in the same sector should be considered as one economic unit, but the Commission did not reach a clear conclusion on this. For example, in its 2011 decision relating to the joint venture between DSM and Chinese SOE Sinochem, the Commission suggested that Chinese SOEs in the same sector may be viewed as forming one economic unit, but did not further consider this issue. This was because competition analysis showed that even if the market shares of all Chinese SOEs in the relevant sector were taken together, the combined market shares would remain moderate. In the CGN / EDF joint venture, however, the assessment was relevant, as CGN on its own did not reach the...

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