• SAMR lacks a standalone subsidy review regime similar to EU’s FSR
• Subsidy impact can be assessed in competition analysis during merger reviews
• Future subsidy scrutiny could emerge in sensitive sectors such as semiconductors

A proposal by Chinese competition law scholar Liu Xu urging the State Administration for Market Regulation (SAMR) to examine government subsidies in Kimberly-Clark’s proposed acquisition of Kenvue is unlikely to materially influence the agency’s review of the transaction, according to legal practitioners.

Liu recently published on his public Wechat account a letter submitted to SAMR, in which he urged the regulator to examine whether government subsidies received by the deal parties, both domestically and overseas, could affect competition in the relevant markets. In support of his argument, Liu cited provisions in SAMR’s horizontal and non-horizontal merger review guidelines.

Article 82 of SAMR’s horizontal merger review guidelines and Article 77 of its non-horizontal merger review guidelines provide that, where there is evidence that government subsidies, whether domestic or foreign, obtained by deal parties may adversely affect competition in the relevant markets, the merger control regulator may request information about those subsidies and consider their competitive effects during its review.

Three legal practitioners told this news service that, despite the inclusion of the subsidy-related provisions in the two merger review guidelines, SAMR has yet to establish a regime for conducting standalone subsidy reviews of transactions. As a result, there are no legal grounds nor independent administrative procedures for SAMR to conduct such a subsidy-related review, according to the first legal practitioner, who is a competition law scholar.

Merger guidelines are soft law, the scholar said. With the subsidy provisions in the merger review guidelines, SAMR can examine the potential competitive impact of subsidies in its competition analysis of the transaction if necessary, according to the scholar and the second legal practitioner who is a competition lawyer. However, conducting a standalone subsidy review akin to the European Commission’s (EC) scrutiny under the Foreign Subsidy Regulation (FSR) would require a dedicated legal framework including establishing new laws, implementing regulations and supporting administrative procedures, according to the scholar.

China could choose to establish such a regime in the future if policymakers determine there is a need, but the conditions for doing so do not yet appear to be in place, the scholar added.

A review by this news service that included contacting multiple legal practitioners indicated that, to date, no law firm has either proactively submitted information on subsidies or been asked by SAMR to provide such information during merger reviews.

Several practitioners said they believe SAMR currently has limited incentive to scrutinize subsidies. Unlike the EU’s FSR, SAMR does not have a clearly defined analytical framework for assessing foreign or domestic subsidies, making it difficult to rely on subsidies alone as a basis for identifying competition concerns, they said.

Some practitioners said they believe SAMR could consider examining subsidy-related issues in certain sensitive industries. For example, semiconductor companies that have received subsidies from foreign governments, including the US government, could potentially attract greater scrutiny.

The Kenvue/Kimberly-Clark transaction was initially accepted under the simplified review procedure by the Shaanxi Administration for Market Regulation (Shaanxi AMR) but was subsequently pulled and refiled under the normal procedure with SAMR following complaints submitted by Liu, as previously reported. SAMR accepted the refiling in late July, and the transaction is currently in the first month of phase II.

SAMR does not comment on ongoing deals. Kimberly-Clark and Kenvue did not respond to comment seeking requests.