In the high-stakes arena of technology giants versus regulators, American tech corporations are finding themselves under increased scrutiny from Chinese antitrust authorities, intensifying the tension in a broader narrative that began to unfold after the Sino-US chip war initiated a tech-centric showdown between the global giants. The Trump Administration set the stage with aggressive prosecution of Chinese tech companies, including a staggering $1.19 billion fine on ZTE, a telecommunications specialist, and charges against Huawei and its subsidiaries for skirting US sanctions on Iran. While China initially refrained from overt retaliation, the tech war’s lingering effects have become apparent, culminating in the recent wave of antitrust actions against American tech companies. 

But what makes antitrust such a powerful tool? Within the framework of China’s Anti-Monopoly Law (AML), the effects doctrine grants Chinese authorities’ jurisdiction over entities or individuals operating beyond the nation’s borders, provided their actions impact Chinese territory. This means that irrespective of whether a business operation occurs on foreign soil and appears unrelated to China, the nation can assert its legal authority as long as the parties involved generate significant sales within the Chinese market.

Antitrust enforcement holds considerable sway over business operations, especially concerning merger deals. One of the primary instruments employed under China’s AML is the ability to delay or withhold approvals for takeover transactions. China’s stringent approach to antitrust was evident in the case of Qualcomm’s $44 billion acquisition of NXP Semiconductors, a US tech giant. In 2018, while the acquisition received the green light from various global regulators, China remained a holdout. The European Commission had raised concerns about potential anticompetitive consequences, specifically regarding technology access, chip interoperability, and intellectual property portfolios. In response, Qualcomm and NXP Semiconductors proposed substantial behavioral remedies, eventually securing clearance. As for the case in China, the Chinese antitrust authority did not explicitly block the deal but delaying the approval could result in a call-off of the deal. The prolonged antitrust review brought uncertainty to the deal, which made Qualcomm believe there was a high possibility that the deal would be withheld in the future. 

More recently, in August 2023, a situation similar to that of Qualcomm-NXP unfolded when Intel announced its agreement to terminate a merger plan with Tower Semiconductor following a protracted antitrust review delay in China.

Such delays can pose significant challenges for antitrust practitioners, including uncertainty about whether a deal can close within the existing financing window, decreased willingness among customers to enter into new agreements with the target firm, and potential staff attrition due to job uncertainty. In China, the ordinary antitrust review procedure typically spans six to nine months or more, even for cases that do not raise serious competition or industrial policy issues. Complex cases can extend to nine to 12 months or longer if they present particular challenges for stakeholders in China. Although statutory time frames for reviews are shorter, there are no practical consequences for the agency when deadlines are missed. In fact, the State Administration for Market Regulation (SAMR) was granted the authority to stop the review clock, further enhancing its power to suspend reviews.

In this constantly evolving regulatory landscape, American tech giants must exercise caution and meticulous planning. Advanced preparations are paramount. Long before formalizing agreements, parties involved must assess China’s likely level of interest in a deal, identify potential Chinese stakeholders with incentives to utilize SAMR’s review process to their advantage, and explore competitive, geopolitical, and industrial policy factors that could influence their decisions. Thorough stakeholder mapping and the development of action plans to address potential challenges are indispensable. As the tech war persists, tech companies must navigate uncertainty, evaluate risks, and capitalize on opportunities within China’s expansive market. Engaging with Chinese regulators and staying ahead of developments is the strategy of the day.

As tech giants confront their most formidable regulatory challenge to date, they grapple with a pressing question: Can they adapt to the winds of change, or will they be left in the wake of this new era of competition?