The new "Stop-the-Clock" Mechanism under the Amended Antimonopoly Law

Disclaimer: Reproduced with permission from the Legal Industry Review. The article was first published in The Legal Industry Review – China & Hong Kong chapter September 2023. Click here for the full article.

The August 2022 amendments to the Antimonopoly Law introduced a new “stop-the-clock” mechanism in the merger review process.  This mechanism allows the antimonopoly enforcement authority (the State Administration of Market Regulation, the “SAMR”) to suspend the merger control review period under specific circumstances, namely in case:

• the parties fail to provide requested information or materials;
• new events or situations require further investigation; or
• the parties request for a suspension to evaluate potential remedies.

There were concerns among businesses and legal professionals that the merger review timelines in China could be extended, potentially causing delays in deal closures.  However, a recent SAMR decision offers insight into this mechanism’s practical application.

On 26 July 2023, the SAMR conditionally approved US chipmaker MaxLinear's USD 3.8 billion acquisition of Taiwanese firm Silicon Motion, a leading player in the global and Chinese NAND flash controllers market with market shares exceeding 50 per cent.  The SAMR expressed concerns about potential supply disruption of Silicon Motion's products in the Chinese market, especially given the current restrictions on US investment in technology sectors in China.  To address these concerns, the SAMR imposed conditions on the parties, aiming at ensuring fair supply to Chinese customers, requiring the parties to fulfill Silicon Motion's existing contracts and maintaining its current business relationship and model.  The decision also required the parties retain Silicon Motion's R&D work in Taiwan and its field-application engineers in mainland China and banned the insertion of "malicious codes" in the design of the parties’ NAND controllers sold in China, an unusual condition applied by the SAMR for the first time.

In terms of duration, the parties notified the SAMR on 15 September 2022, and the official review commenced on 28 October.  The clock was stopped on 6 January 2023 and resumed on 14 July, marking a suspension of just over six months.  The transaction was then cleared on 26 July 2023, around 10 months after the parties notified the transaction to the SAMR.

It is worth noting that the review of similar transactions cleared with commitments in the semiconductor sector was of comparable duration prior to the introduction of the stop the clock mechanism, with cases cleared within 12 months from filing (see for example, SK Hynix/Intel, GlobalWafers/Siltronic and AMD/Xilinx).  However, parties were often compelled to pull and refile notifications to renew the 180-day statutory limit for merger reviews, adding administrative burden both on the parties and the authority.  

Looking at the broader landscape of merger reviews in China, nearly 90% of all cases were reviewed under the simple case procedure, with the SAMR typically completing reviews in less than 20 days.  For transactions necessitating a more extended standard review, the "stop-the-clock" mechanism has been used sparingly so far.  Up until June 2023, a full 10 months after the introduction of the new rules, this mechanism was invoked in fewer than 10 cases, as highlighted by the SAMR in a recent seminar with law firms.  This represents less than 1.5% of all merger control cases during that period.  Such data suggests that the SAMR is exercising caution, ensuring that the efficiency of the merger review process is upheld.