SAMR Shuffles Top Merger Officials Amid Probes of Sensitive Chip Deals

Published on Jun 20, 2023

China’s antitrust authority has quietly made two key staff appointments in its merger department, putting a seasoned enforcer and a relative novice in charge of reviewing multibillion-dollar technology deals including Intel’s (INTC) proposed buyout of Tower Semiconductor (TSEM), said people familiar with the matter.

The State Administration for Market Regulation (SAMR) recently promoted Xu Lefu, an antitrust specialist with 15 years of experience as a case handler, to the post of director-general heading Antitrust Enforcement Department II, which conducts merger investigations, the sources said.

Succeeding Xu as deputy director-general of the department is Hu Pinjie, a former inspector at the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), a sprawling bureaucracy that monitors everything from equipment safety to animal quarantines. Lacking antitrust experience and legal knowledge, Hu will face a steep learning curve at SAMR, the sources said.

The two appointments reflect a continuing ambivalence among China’s political leaders about who should run antitrust enforcement at SAMR, which was created out of three separate authorities just five years ago and has since undergone a massive overhaul.

But antitrust lawyers were nonetheless encouraged by Xu’s promotion to lead the merger department, which suggests that the government still appreciates the value of having antitrust professionals conduct merger reviews, they said.

“It shows that the senior leadership still emphasizes the role of specialization and professionalism in the antitrust regime,” one China-based antitrust expert said.

SAMR never comments publicly on staff changes.

Tricky timing. The personnel shuffle comes at a delicate moment for chipmakers, as SAMR officials comb through Intel’s $5.4 billion buyout of Tower, MaxLinear’s (MXL) $3.8 billion acquisition of Taiwanese rival Silicon Motion (SIMO), and Broadcom’s (AVGO) $61 billion buyout of software maker VMware (VMW).

All three transactions face political and industrial headwinds in China following U.S. President Joe Biden’s decision last year to tighten controls over semiconductor exports to the country. SAMR stopped the clock on two of the deals months ago, leaving them in limbo as U.S. Secretary of State Antony Blinken began a two-day visit to Beijing on Sunday, marking the highest-level trip to China by an American official since 2018.

The appointments are equally important for the merger department itself, which suffers from a chronic staff shortage and in recent years has lost several veteran merger enforcers, who have left to join other government agencies, law firms and companies such internet conglomerate Tencent Holdings and e-commerce site Alibaba.

With only 20 to 30 officials employed at Antitrust Enforcement Department II, merger reviews have faced long delays and heightened uncertainty, especially since the introduction last year of the new clock-stopping mechanism.

Continuity and expertise. In promoting Xu Lefu to head the merger department, SAMR has chosen for continuity as well as expertise. Xu has served as deputy director-general of the department since 2018, and during the 10 years before that he held several key posts at the Antimonopoly Bureau of SAMR’s predecessor, the Ministry of Commerce (Mofcom). Those roles included supervising merger notifications and enforcing remedy agreements.

Xu holds a doctorate in international economic law from the University of International Business and Economics in Beijing. He is widely respected for his professionalism and his support for business and trade. Like an academic, he listens closely to concerns raised by company executives and appears to keep an open mind, people familiar with him said.

Before SAMR cleared Microsoft’s $68.7 billion buyout of Activision Blizzard in May, for example, Xu led a team of antitrust officials on a visit to videogame publisher NetEase in the city of Hangzhou, people familiar with the trip said.

NetEase had become a key opponent of the deal after the company failed to reach a deal with an Activision Blizzard subsidiary, Blizzard Entertainment, to renew their 14-year licensing partnership in China.

Xu listened to complaints voiced by NetEase executives but resisted their pressure to subject the transaction to remedies relating to the former partnership. In the end, SAMR approved the deal unconditionally.

Newcomer. Far less is known about Xu’s new deputy director-general, Hu Pinjie. He spent more than a decade at the AQSIQ, working as a deputy director and later as a director in charge of quality inspection.

Lawyers familiar with Hu said he lacks experience in merger investigations. That makes him very strict with companies, leading him to demand a lot of information on merger filings, they said. He still needs to familiarize himself with his new role, they said.

SAMR officials higher up the chain are also relatively new to their roles. Xu Lefu now reports to Xu Xinjian, who was appointed in October as the agency’s Antitrust Chief Director, a new position that oversees Antitrust Enforcement Department II and two other departments—Antitrust Enforcement Department I, which handles conduct investigations, and the Competition Policy Department, which formulates antitrust policies and regulations, supervises regional antitrust work and coordinates with antitrust authorities abroad.

At the ministerial level, Vice Minister Gan Lin is the head of the National Antitrust Bureau. She has overseen antitrust enforcement since 2018, when the government consolidated the country’s three antitrust agencies under one roof.

For important or politically sensitive transactions, Gan may also need a signoff from SAMR Minister Luo Wen, who was appointed to the position last June.

Deals on hold. The shifting leadership at SAMR helps explain why agency reviews of some sensitive chip deals are currently stuck in the doldrums. The Intel/Tower transaction, for example, has been under investigation in Beijing for more than 11 months. SAMR stopped the clock on its review in January but then began the remedy discussions in mid-April, a milestone that usually indicates the clock has restarted.

The MaxLinear/Silicon Motion deal has meanwhile been under review at SAMR for more than seven months. The agency paused its investigation of the transaction last month, buying more time for the merging companies to address concerns raised by domestic semiconductor customers. MaxLinear and Silicon Motion had been unable to allay the Chinese industry fears within SAMR’s standard 180-day review timeline.

China-based antitrust experts told The Capitol Forum that the new SAMR staff appointments and Secretary of State Blinken’s visit could provide an opportunity to win SAMR clearance for the two deals before they reach their final review deadlines in August.

But the White House played down expectations of any breakthrough during the visit, which was originally planned for February but delayed after a Chinese surveillance balloon flew over North America.

“We’re not going to Beijing with the intent of having some sort of breakthrough or transformation in the way that we deal with one another,” Daniel Kritenbrink, the State Department’s top diplomat for East Asia, told reporters on June 15.

Chinese President Xi Jinping met with Blinken on Monday afternoon as the top U.S. diplomat wrapped up his visit. Xi said the two sides had “made progress and reached agreement on some specific issues,” voicing hopes that “the visit could make positive contributions to stabilizing China-U.S. relations.”