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'No protectionism' in blocking Coke

THE Ministry of Commerce said yesterday that trade protectionism was not a factor in its rejection of Coca-Cola's acquisition of China Huiyuan Juice Group.

MOC spokesman Yao Jian said there has been no change in China's policies on foreign investment and that the country will continue to accept capital from overseas, enhance "opening up" and provide foreigners with a good investment environment.

The remarks came after Coke's planned US$2.4 billion acquisition of Huiyuan failed to pass an anti-monopoly review on Wednesday. The commerce ministry said that the transaction would be bad for open-market competition.

Yao said the ministry made the decision based "on sufficient investigation and research, on the basis of facts and strictly in line with the country's anti-monopoly law."

Foreign Ministry spokesman Qin Gang echoed Yao's comments, saying the decision aimed to maintain market competition, protect consumers and safeguard the public interest.

Huiyuan's shares plunged 42 percent to close at HK$4.80 (62 US cents) yesterday, back to their level before Coke announced the deal and well below the HK$12.20 per share offered by Coca-Cola in September.

The ministry's rejection of the acquisition drew criticism from some lawyers and industry analysts who said it signaled that China doesn't want foreign companies to control its national brands and leading domestic companies, even if the sector is not considered strategically sensitive.

"The case could diminish foreign companies' interest in taking over Chinese firms," said Liang Jiaming, an analyst at Huafu Finance.

Buying Huiyuan would have enabled Coke to gain quick access to China's fruit-and-vegetable-juice market, which is forecast to rise 20 percent to US$14 billion this year.

Huiyuan is China's leading maker of pure fruit juices, holding about 42 percent of the market.

Coca-Cola, which controls more than 50 percent of the soft-drink market, has a 10-percent share of the fruit-and-vegetable-juice market.

Liu Kan, an analyst at Guoyuan Securities Co Ltd, said the denial of the deal will benefit the long-term development of smaller domestic juice makers.

"Huiyuan has great advantages in product development, distribution and brand awareness, and there is a risk that even such a big brand would disappear after being taken by a foreign rival," he said.

"The food and beverage industry is one of the fastest growing markets amid expanding domestic consumption, so it's necessary to maintain the strength of Chinese companies."

Coke said on Wednesday it was disappointed but respected the ministry's decision.

The beverage maker said it remained confident in its development in China and will continue to diversify its products, including juices.

It earlier announced that it will invest US$2 billion in China over the next three years.


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