Mofcom’s Didi, Uber non-notification probe grinds on in preliminary phase

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14 March 2017. By Xu Yuan and Yonnex Li.

China's Ministry of Commerce is still in the middle of a preliminary investigation of the merger of Didi Chuxing, China's biggest taxi-hailing company, with Uber China, MLex has learned. That probe was prompted by allegations that the companies failed to notify the deal for an antitrust review, MLex understands.

The ministry's Antimonopoly Bureau, which serves as the country's merger control agency, is expected to decide whether the merger should have been notified by the end of this stage of probe, it is understood.

It is said that Didi's operation under a variable-interest-entity structure — a controversial arrangement used in China to bypass foreign investment rules — will not prevent Mofcom from taking up the case.

VIE structures, used by many Chinese Internet companies, allow foreign-invested Chinese firms to operate in industries that are subject to restrictions on foreign investment, such as the Internet and telecoms sectors. Their legality has been questioned.

Mofcom's sustained silence on the case since late last year has hardly reflected the ongoing progress of its investigation.

Last September the ministry said it had summoned Didi executives to meetings and asked the company to explain details of the transaction, following complaints alleging the companies' failure to notify the deal. There have been no updates since.

Typically, a formal investigation is launched after preliminary facts and evidence show there has been a failure to notify a deal in accordance with the law.

According to the Interim Measures for Investigating and Sanctioning Failures to Notify Concentrations of Undertakings Pursuant to the Law, a preliminary investigation has two parts.

During the first phase, companies under investigation are required to submit relevant documents within 30 days. Those documents should explain whether the transaction qualifies as a concentration of undertakings, whether it meets notification thresholds, and whether it has been executed without notification.

In the second phase of a preliminary investigation, Mofcom has up to 60 days to decide whether a transaction should have been notified for an antitrust review.

If it decides that a merger requires scrutiny, the companies involved will be asked to submit more information within 30 days, before the ministry launches a standard review of the deal, which can take up to 180 days.

The merger between Didi and Uber China was completed on Aug. 2 last year, one day after it was announced.

Earlier this month, senior Mofcom antitrust official Wang Liyuan said the bureau was dealing with a case of non-notification in the Big Data sector that involved the merger of a certain industry's top two players, which had a combined market share possibly exceeding 80 percent.

Wang did not identify the companies, but scholars and complainants have said that the combination of Didi and Uber had given the merged entity a market share of 80 to 90 percent.

However, it is understood the companies may argue that, taking into account the traditional taxi sector, their share of the market is just 1 percent.

In a March 3 speech, Wang said Mofcom faced challenges in the investigation, such as calculating revenues, defining the market for the assessment of market power and market share, and assessing the deal's effects on competition.

"The investigation is now in process," she said. "We hope that the issue can be solved in a proper way."