This post China?s Antimonopoly Law?One Year Down: Part 3. The AML As a Protectionist Tool? by Wentong Zheng is well worth a read
Full post and links at
In my last two posts on this space, I provided a summary of the new developments of China?s Antimonopoly Law (?AML?) (see here) and an analysis of China?s new merger review regime under the AML (see here).? One concern that is often voiced about the AML is that the AML may become or may have become a protectionist tool against foreign investment.? This concern was first raised when the AML was still being drafted.? It was magnified less than one year after the AML went into effect, when MOFCOM issued its controversial decision to block Coca-Cola?s acquisition of Huiyuan Juice Group, China?s largest fruit juice maker, in March 2009.
In its brief decision in Coca-Cola/Huiyuan (see herefor the decision in Chinese), MOFCOM stated that it decided to block the proposed deal for three reasons.? First, the deal would allow Coca-Cola to leverage its dominant position in the carbonated soft drink market to lessen competition in the fruit juice market.? Second, the deal would allow Coca-Cola to own two popular fruit juice brands in China and therefore would significantly raise the barrier to market entry.? Finally, the deal would severely limit the ability of China?s small- and medium-sized fruit juice companies to engage in innovation and competition in the fruit juice market.
MOFCOM?s decision in Coca-Cola/Huiyuan is troubling.? Although MOFCOM did not conduct an explicit market definition analysis, apparently it believed that carbonated soft drink and fruit juice belong to different product markets.? A merger between firms that do not compete with each other in the same market?or a conglomerate merger?does not usually raise antitrust concerns.? Especially, when the products of the merging firms are complementary, as seems to be the case in Coca-Cola/Huiyuan, the merger would actually lead to lower prices according to the ?Cournot effect? and thus would benefit consumers.? Therefore, if the goal of antitrust is to protect competition and enhance consumer welfare, a conglomerate merger should not be viewed as anticompetitive merely if it will lead to elimination of some competitors.
Many commentators, understandably, have suspected that the real reason behind MOFCOM?s decision is protectionism and nationalism.? Huiyuan Juice is a household name in China, and given the rising economic nationalist sentiments in China in recent years, it would not be surprising if MOFCOM blocked the Coca-Cola/Huiyuan deal out of nationalist concerns.? Furthermore, it is widely known that China?s domestic fruit juice industry, which would stand to lose if the Coca-Cola/Huiyuan deal went through, lobbied hard against the deal before MOFCOM.
