China refuses Coke's aquisition plans

• Listen:
• Windows Media

SNOWDON: China's anti-monopoly law is just seven months old. It's not yet been put to the test - until now. Sighting anti-competition grounds, Chinese authorities ruled against the 2.3 billion dollar takeover by Coca Cola of the Huiyuan Juice company, a household name in China.

The ruling is short on detail and long on implications. Christopher Corr a partner at U.S. law firm White & Case in Beijing says the decision fails to clarify the anti-monoploy law and raises more questions than answers for foreign investors.

CORR: Clearly it creates anxiety in the foreign investor community and it suggests that China is going to enforce the anti-monopoly law and now in its own way and is not going to be shy about it and is going to be aggressive about it, where it thinks it needs to be. Secondly, it suggests that where a valued Chinese company is the target, the investment is going to receive a substantial amount of scrutiny.

SNOWDON: And isn't that okay in the sense that it's okay for China to be concerned about potential monopolies or reduced competition in the domestic market?

CORR: Well, of course, and the hope was that China would act in accordance with the best practices in the other major jurisdictions, the United States and the European Community, but also in Australia and other places.

SNOWDON: It might not mean a turning away from a more open economy and towards increasing nationalism as some media are suggesting.

But it comes on top of a decision by China in another case involving the formation of the world's largest beer maker through the merger of US and Belgian brands. Though not involving a Chinese firm, Beijing was able to impose conditions in relation to its own market, much as the proposed BHP-Billiton merger with Rio Tinto raised third party concerns over competition.

And it comes as Australia's Foreign Investment Review Board and Treasurer Wayne Swan deliberate on Chinalco's attempt to increase it shareholding in Rio.

Christopher Corr says its ammunition for the opponents of the Rio deal.

CORR: Yeah, I would see that this would play into the hands of those opposing the transaction, because they can argue for reciprocity and that China would not have allowed this to happen if the tables were turned, and then they could point to Coke, which is not exactly...you know juices are not exactly national security sensitive.

SNOWDON: So if the Australian Government was looking for a bit of leverage, the Chinese have just given it to them?

CORR: I would think so, and certainly it has given some leverage to the opponents of the transaction. I mean I think it also shows that China probably is more concerned about the domestic situation in China, than perhaps sending a clear signal to foreign investors, which may not be surprising.

SNOWDON: So what will be the reaction do you think in a real sense? Will foreign investors be more hesitant to put the work in, in investing in China?

CORR: I don't think one decision will, because the China market is simply too important and I also think on the Chinese side, while there may be fall out for Chinese companies seeking to make sensitive acquisitions outside of China, the fact remains that right now a lot of the companies that are for sale need Chinese cash or need cash that perhaps Chinese companies have.