Chinese state-owned companies face greater scrutiny of EU deals after ruling
By Michelle Price
HONG KONG (Reuters) - Chinese state-owned companies seeking to buy European assets are going to face greater regulatory scrutiny following a landmark European Commission decision on a recent deal.
In its review of a proposed joint venture between France’s EDF and state-owned China General Nuclear Power (CGN), the Commission - which has exclusive power over antitrust issues in the European Union – ruled that CGN was not independent from China’s central administrator for state-owned enterprises, the State-owned Assets Supervision and Administration Commission (SASAC). As a result, it decided that it did have the power to decide whether the deal should be cleared.
It meant that the Commission didn't only consider CGN's own revenue but the combined revenue of all Chinese energy state-owned enterprises when considering whether the deal came under its jurisdiction.
This approach automatically bumped CGN’s turnover above the minimum EU threshold for merger clearance, a warning shot for other Chinese state-owned enterprises (SOEs) who may be considering buying assets in Europe and were not anticipating needing to get a regulatory green light.
The Commission generally only reviews a merger if each party to it has more than 250 million euros ($281 million) in sales in the EU as well as combined global sales of more than 5 billion euros.
CGN’s turnover, alone, didn’t cross that 250 million euro threshold, but the Chinese energy SOEs as a whole do breach that level.
While the ruling was little noticed when the details were released in April, law firms working with Chinese companies and their targets have in the past few weeks issued warnings to their clients. They have told them the decision could force Chinese SOEs to file for EU merger clearance regardless of their size in Europe, creating an extra barrier, and at the very least delay proposed acquisitions by Chinese SOEs.