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Killing the Coke deal a sensible decision in line with law and regs
By Mei Xinyu |
March 25, 2009, Wednesday
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Print Edition
Print Edition
THE Chinese government's rejection of the proposal by Coca-Cola Co. to take over China's top juice maker Huiyuan has triggered criticism both at home and abroad.
Some blame China for its protectionism, some express concern that this might discourage foreign investments in China or even affect China's outward investment.
But a closer look at the issue shows that this is a sensible decision that the central government has made based on relevant laws and regulations and relevant economic analysis.
As the Ministry of Commerce said on its Website, its investigation, which "exactly followed relevant laws and regulations," found the transaction might disturb market competition.
"If the acquisition of Huiyuan went into effect, Coca-Cola was very likely to take a dominant position in the domestic market and the consumers might have to accept the high price fixed by the company as they don't have more choices," the statement of the MOC said.
Obviously, this has nothing to do with protectionism.
After all, China has not enacted a law especially against the monopoly of foreign-invested enterprises in Chinese markets. Nor has China set barriers against the investments from a certain country.
Protectionism refers to countries that order domestic enterprises and financial institutions to reduce their overseas investment during the global economic crisis.
Countries that offer help to domestic enterprises on condition that the enterprises do not invest outward and do not close domestic factories also fall into the category.
Yet this is not the case with China, which still encourages domestic enterprises to invest overseas.
The worry that the government's decision might discourage foreign investments into China is also unnecessary.
Rather, a sensible investor would appreciate China's decision as it proves the seriousness of China's anti-monopoly law - it has not been distorted in the name of "making use of foreign investments."
And the predictability in law is one of the most important factors that make up a country's business environment.
Besides, for China, the objective of introducing foreign investments is to achieve win-win development.
It would be meaningless if China sacrifices the seriousness of law for introducing foreign investments, allowing them to draw profits from Chinese markets without abiding by Chinese laws and regulations.
In fact, during the economic crisis, the foreign investments that were enjoying preferential treatments in China acted as a major channel for the spread of the economic crisis into China. Thus, it is time for China to draw lessons from it.
And the fact that many foreign investments have temporarily lost the ability to invest outward due to huge losses during the economic crisis makes the assertion of discouraging foreign investments even more groundless.
True, Coca-Cola has made an offer of an additional US$2 billion investment in China over the next three years.
This is by no means a philanthropic action, but a move to maximize their profits.
After all, during the global economic crisis, China is almost the only big country that still sustains a relatively rapid economic growth and thus one of the few ideal destinations for investments.
Even if Coca-Cola did donate billions of US dollars to China, the money could by no means buy the law.
Given Coca-Cola's strong global brand and the dominant position of Huiyuan Juice Group Ltd in China's juice market, the two companies should not have initiated the acquisition at all.
It's wake-up time for anyone who thinks China's preferential treatment of foreign investments in the past means that two parties can distort relevant laws and regulations.
(The author is a senior researcher in the Ministry of Commerce. The views are his own. He can be reached at www.meixinyu.com.)
Some blame China for its protectionism, some express concern that this might discourage foreign investments in China or even affect China's outward investment.
But a closer look at the issue shows that this is a sensible decision that the central government has made based on relevant laws and regulations and relevant economic analysis.
As the Ministry of Commerce said on its Website, its investigation, which "exactly followed relevant laws and regulations," found the transaction might disturb market competition.
"If the acquisition of Huiyuan went into effect, Coca-Cola was very likely to take a dominant position in the domestic market and the consumers might have to accept the high price fixed by the company as they don't have more choices," the statement of the MOC said.
Obviously, this has nothing to do with protectionism.
After all, China has not enacted a law especially against the monopoly of foreign-invested enterprises in Chinese markets. Nor has China set barriers against the investments from a certain country.
Protectionism refers to countries that order domestic enterprises and financial institutions to reduce their overseas investment during the global economic crisis.
Countries that offer help to domestic enterprises on condition that the enterprises do not invest outward and do not close domestic factories also fall into the category.
Yet this is not the case with China, which still encourages domestic enterprises to invest overseas.
The worry that the government's decision might discourage foreign investments into China is also unnecessary.
Rather, a sensible investor would appreciate China's decision as it proves the seriousness of China's anti-monopoly law - it has not been distorted in the name of "making use of foreign investments."
And the predictability in law is one of the most important factors that make up a country's business environment.
Besides, for China, the objective of introducing foreign investments is to achieve win-win development.
It would be meaningless if China sacrifices the seriousness of law for introducing foreign investments, allowing them to draw profits from Chinese markets without abiding by Chinese laws and regulations.
In fact, during the economic crisis, the foreign investments that were enjoying preferential treatments in China acted as a major channel for the spread of the economic crisis into China. Thus, it is time for China to draw lessons from it.
And the fact that many foreign investments have temporarily lost the ability to invest outward due to huge losses during the economic crisis makes the assertion of discouraging foreign investments even more groundless.
True, Coca-Cola has made an offer of an additional US$2 billion investment in China over the next three years.
This is by no means a philanthropic action, but a move to maximize their profits.
After all, during the global economic crisis, China is almost the only big country that still sustains a relatively rapid economic growth and thus one of the few ideal destinations for investments.
Even if Coca-Cola did donate billions of US dollars to China, the money could by no means buy the law.
Given Coca-Cola's strong global brand and the dominant position of Huiyuan Juice Group Ltd in China's juice market, the two companies should not have initiated the acquisition at all.
It's wake-up time for anyone who thinks China's preferential treatment of foreign investments in the past means that two parties can distort relevant laws and regulations.
(The author is a senior researcher in the Ministry of Commerce. The views are his own. He can be reached at www.meixinyu.com.)
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