This book analyzes the specifics of corporate governance of China’s State Owned Enterprises (SOEs) and their assessment under EU merger control, which is reflected in the EU Commission’s screening of the notified economic concentrations. Guided by the going global policy and the Belt and Road Initiative, Chinese SOEs have expanded their global presence considerably. Driven by the need to acquire cutting edge technologies and other industrial policy considerations, Chinese SOEs have engaged in a series of corporate acquisitions in Europe. The main objective of this book is to demonstrate the conceptual and regulatory challenges of applying traditional merger assessment tools in cases involving Chinese SOEs due to the specifics in their corporate governance and the regulatory framework under which they operate in China. The book also explores the connection between the challenges experienced by the merger control regimes in the EU and the recent introduction of the EU foreign direct investment screening framework followed by a proposal concerning foreign subsidies. The book will be a useful guide for academics and researchers in the fields of law, international relations, political science, and political economy; legal practitioners dealing with cross-border mergers and acquisitions; national competition authorities and other public bodies carrying out merger control; policy makers, government officials, and diplomats in China and the EU engaged in bilateral economic relations.

The acquisitions notified by the Chinese state-owned enterprises (SOEs) under EU merger control regime have raised a number of questions as to the suitability of the current merger control rules and standards applied by the EU Commission for the ex ante assessment of the likely impact of such transactions on competition in the EU Internal Market. The present paper provides an overview of the EU Commission's practice to date with special focus on the concepts of “single economic unit”, “decisive influence” and “control” that have been applied by the EU Commission in the cases involving Chinese SOEs.

With the rapidly unfolding China's Belt and Road Initiative (BRI) and the ongoing reform of the State-owned enterprises (SOEs), the number of overseas acquisitions by the Chinese SOEs in various industrial and services sectors is gradually on the rise. These transactions have raised a number of questions in terms of the assessment of the economic concentrations' potential impact on competition and challenged the traditional assessment tools employed by the merger control regimes. The paper examines the evolving experience of Chinese SOEs' acquisitions in the European Union (EU), which are subject to ex ante assessment under both EU and national merger control regimes. The analysis of the merger assessment practice of the EU Commission culminating in the recent conditional approval of the ChemChina/Syngenta merger indicates that the traditional assessment tools, when applied to the acquisitions by Chinese SOEs, may no longer be adequate to grasp the essence of their corporate governance and decision-making. The review of the merger control practice of the national competition authorities (NCAs) also demonstrates the absence of a coherent assessment approach to the cases involving Chinese SOEs, which may lead to the inconsistent enforcement and strengthening of the foreign investment screening on grounds other than market competition.

In five recent cases involving the acquisition of European companies by Chinese state-owned enterprises, the European Commission has delved deeply into the relationship between Chinese state-owned enterprises and the wider Chinese State. A common issue arose in these cases: Did the notifying state-owned enterprise operate independently of the Chinese State or was there scope for the Chinese State to coordinate the behaviour of the notifying enterprise and other state-owned enterprises in the same sector? In the latter case, all the SOEs in the same sector would be treated as part of a single entity for the purpose of merger analysis. To provide an in-depth analysis of this issue, this article first reviews the historical development of the reform of state-owned enterprises and examines their current corporate governance structure. By applying the economic theory of the firm to understand the concept of “undertaking” under the EU Merger Regulation, this article reveals the flaws in the European Commission's analysis of this issue. As the single entity theory can be used as both a shield and a sword, the European Commission's decision on this issue will have far reaching implications for future antitrust cases involving Chinese state-owned enterprises.

Common ownership by the Chinese State caused a stir in Europe recently. During its review of a joint venture involving a Chinese nuclear power company, the European Commission held that it would treat all Chinese state-owned enterprises (SOEs) in the energy sector as a single entity. This decision carries significant legal and practical implications for both businesses and the regulator. It also contradicts the previous approach that the Commission has taken in dealing with European SOEs. In this Essay, I argue that the legal framework under the EU Merger Regulation (EUMR) is unsuited to deal with the anticompetitive effects of state ownership. While the delineation of the boundary of an undertaking is a prerequisite for merger review, ownership and control are not absolute. Importantly, the extent to which the coordination by the Chinese State has lessened competition is a quantitative question, rather than a qualitative one. Consequently, a bright-line approach of defining an undertaking would lead to both over-inclusive and under-inclusive outcomes. To address the EU's dilemma in dealing with Chinese SOEs, I propose that the Commission ought to view national security review as a complement to its merger review. The optimal regulatory response to the Chinese acquisitions hinges not only on economics, but also, perhaps more importantly, on politics.

This work is a continuation of the authors' earlier publication, "The China Miracle: Development Strategy and Economic Reform". The authors review the historical evolution of the state-owned enterprises, analyze the current problems, and suggest the direction for future reforms.