Ultimately, the Ministry of Commerce’s rejection of Coca-Cola’s US$2.3 billion bid for Huiyuan, China’s leading juice maker, was not a surprise. As with any high-profile foreign investment in any country, there was always a risk that – regardless of the deal’s merits – politics would intervene.
That was especially true given the intentional fuzziness of China’s updated Anti-monopoly Law – a law so vague that it was even unclear whether it could be applied to the deal.
Expected, maybe, but still disappointing. As we argued in a story last November (which expressed optimism that the deal would succeed), China’s juice market is highly fragmented. Huiyuan has a commanding presence in two areas – pure juice and nectar – but these are only small segments within the broader soft drink market, where Huiyuan’s share is 2.4% and Coca-Cola’s is 15.5%. As a test case for the Anti-monopoly Law, one could therefore make a strong argument for approving the deal
For all the hard analysis of potential price-fixing strategies and threats to minority players that appeared in the ministry’s official statement, the deal – and its rejection – was in fact all about the brand. Huiyuan is one of few successful brands widely respected and recognized within China. Though not in a strategically important industry, Beijing was probably loath to let a foreign firm profit from the success of a star domestic company.
A natural question is what this means for Beijing’s own outbound deals, notably Aluminum Corp of China’s (Chinalco) proposed US$19.5 billion investment in Rio Tinto. It isn’t a takeover, but if approved it would give the Chinese firm unprecedented access to the Australian mining giant’s assets. There is also a host of other Chinese metals firms following in Chinalco’s wake, all hunting for Australian resources. Populist politicians in the country have raised the specter of a Chinese invasion.
It’s dangerous to try to draw too many parallels between these deals. Huiyuan is not a company in need of rescue. It’s profitable and has huge prospects for growth. Australia’s overleveraged resource companies, on the other hand, are desperate for cash as demand dries up and commodity prices fall.
And, crucially, Australia is accustomed to foreign investment in its mining sector, which wouldn’t be where it is today without Japanese money. There are transparent processes for assessing deals and established structures that try to balance foreign ownership and national interest. It’s a far cry from Coke-Huiyuan.
The economic crisis has found China in a relatively strong position. It is wise to take advantage of that, but it would do well to be mindful of political implications beyond its borders. Restricting access to its domestic market does not bode well for China’s own attempts to secure resources and markets overseas.