Wednesday, March 18, 2009

Protecting One's Own Interests

This afternoon China announced that it was blocking Coca-Cola's $2.3 billion bid for Chinese fruit juice producer Huiyuan Juice Group Ltd to Coca-Cola.

The Ministry of Commerce said the biggest foreign takeover of a domestic company would have been "negative for competition" in China's juice market.

It claimed that Coca-Cola might have used its dominant position in the market to push up prices, making the drinks too expensive for consumers. The multinational already controls more than half of the country's soft drinks market.

The announcement led to Huiyuan's stocks in Hong Kong to drop a record 19 percent until trading was halted in Hong Kong.

The argument of making products too expensive for people is weak -- a company is not going to price itself out of the market. If anything, Coca-Cola may have made the juices more affordable with its larger buying power, or developed other fruit juices to expand Huiyuan's range.

What is also interesting about this story is that it didn't go through the courts in terms of testing the anti-monopoly law that was enacted last year. The decision-making process was hardly transparent, making it difficult for foreign companies who want to invest in China to know what they can and can't do.

In the end the effects of this decision are already being labelled as protectionist despite China's calls for other countries not to close their borders (to Chinese goods).

This announcement could also impact China's attempts to acquire companies abroad as well, with other countries using the protectionist excuse as well...

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