China: Government Blocks Coca-Cola

Last week China’s Ministry of Commerce announced its decision to block Coca-Cola’s acquisition of Huiyuan Group, China’s largest privately-owned beverage company. The proposed buyout raised alarm that not only would Coke gain a monopolistic position in China’s beverage market, but also that a well-known domestic brand would be eliminated by a foreign company. This was the first such case that was decided according to China’s two year-old Anti-Monopoly Law.

The Commerce Ministry’s official announcement states:

Upon investigation, the Commerce Ministry has determined that this consolidation would have a negative influence on competition. The Coca-Cola Company would possibly use its dominant position in the carbonated beverage market to tie up fruit juice sales or implement other business conditions of an exclusionary nature to consolidate and limit competition in the juice beverage market. This would lead to consumers being forced to pay higher prices for fewer selections. Concurrently, due to the effect of current brands restricting market entry, it would be difficult for potential competition to eliminate these competitive restrictions. Also, consolidation would also squeeze the survival space of domestic small and medium-sized beverage companies. This would have an adverse influence on the competitive state of the Chinese juice beverage market.

In a commentary in the Southern Metropolis Daily, one of China’s leading commercial newspapers, lawyer and economist Ma Guangyuan asserts that 80% of Chinese netizens were opposed to the deal. It is unclear how he came up with that figure, but it cannot be denied that the case was controversial. As a result, the Commerce Ministry’s decision was not made solely according to the merits of the case:

In my estimation, the [reasons] provided by the Commerce Ministry lack direct evidence for how a marriage between Coca-Cola and Huiyuan would influence other people’s livelihoods. Instead, their reasoning is based on indirect judgments. This is probably the hidden danger that will cast doubt on this decision for days to come. The ministry’s official announcement revealed a detail that supports this point: the Commerce Ministry … requested that Coca-Cola provide a proposal for a possible solution, but Coca-Cola’s preliminary and revised proposals failed to obtain the ministry’s approval.

Because the announcement did not give any specifics, we do not know anything about the recommendations given by the ministry. We also do not know anything about the alternate proposals provided by Coca-Cola. However, according to external sources, the Commerce Ministry wanted Coca-Cola to give up the Huiyuan trademark after the acquisition. If that is true, than it implies that the merger would not have set up any competitive obstacles or restrictions. The problem still seems to be wrapped up with the preservation of national brands and other non-legal issues.