- The Washington Times - Wednesday, March 18, 2009

BEIJING (AP) - China denied Coca-Cola Co.’s closely watched $2.5 billion bid to buy a major Chinese juice producer Wednesday, highlighting Beijing’s rejection of foreign control over its top companies even as they step up acquisitions abroad.

The refusal to allow the foreign acquisition in a non-strategic business such as fruit juice could backfire abroad as state-owned Chinese companies pursue investments in mining and other sensitive industries.

Coca-Cola’s acquisition of Huiyuan Juice Group Ltd. was rejected because it would reduce competition and raise prices, the Commerce Ministry said. But the bid also provoked an outcry from nationalists who opposed letting a successful Chinese brand fall into foreign hands.

“At the end of the day, they just want to protect their own brands,” said Renee Tai, senior vice president for research at CIMB-GK Securities Pte. Ltd. in Hong Kong. “If it’s an established brand with a track record, I think it will be more difficult for foreigners to participate.”

Coca-Cola Chief Executive Muhtar Kent said Coke would now focus on existing brands and innovation of new brands, including juices.

“We are disappointed, but we also respect the decision,” Kent said in a statement.

Kent reiterated the company’s plan to invest $2 billion in China over the next three years to open new plants and distribution channels.

A woman who answered the phone at Huiyuan said no one was available to comment. A ministry official, Chen Rongkai, said there is no way for Coca-Cola to appeal.

Creating profitable brands is a key element in the communist government’s development strategy, and officials hope to make Chinese companies more competitive during the current economic slump, in preparation for the recovery of world growth.

China is a top destination for foreign investment and attracted $5.8 billion in February despite a decline amid global financial turmoil. But foreign purchases of existing companies are rare and politically sensitive.

Last year, U.S. investment firm Carlyle Group dropped an effort to buy control of Xugong Group, a maker of construction equipment. Regulators and Xugong’s domestic rivals opposed the deal even though the Chinese company sought Carlyle’s backing to expand.

Some observers, while declining to characterize China’s actions, warned generally of increasing protectionism.

World Bank President Robert Zoellick said Wednesday that additional protectionist moves could worsen the global economic slowdown. The World Bank released a report Tuesday that said 17 of the Group of 20 nations have taken measures to restrict trade since the group pledged not to do so in November. The G-20 includes wealthy nations such as the United States, France and Germany, as well as emerging economies like China, India and Brazil.

Nancy McLernon, president of the Washington, D.C.-based Organization for International Investment, said she hopes China’s decision doesn’t spur retaliation in the U.S. The OFII represents companies such as Sony Corp., Nokia Inc. and Nestle USA Inc.

McLernon said foreign investment is providing needed capital to the United States during a recession. A Commerce Department report Wednesday showed that foreign companies and individuals invested $325.2 billion in the U.S. in 2008, up 37 percent from the previous year.

In the Huiyuan case, the company’s founders and major shareholders endorsed the Coca-Cola deal as a way to improve marketing and product development.

Unlike major Chinese banks, oil producers and phone companies, which were created by government decree, Huiyuan is part of a pioneering group that has succeeded by supplying products customers want to buy.

China’s own companies are stepping up acquisitions abroad. Its biggest aluminum producer, Aluminum Corp. of China, or Chinalco, struck a deal last month to invest $19.5 billion in Rio Tinto Group, an Anglo-Australian mining company.

Some Australian lawmakers are pressing their government to reject the deal, arguing that a state-owned foreign company should not control part of their nation’s resource wealth.

The failure of the Coca-Cola bid might make some Australians more comfortable with blocking the Chinese investment, said Sen. Barnaby Joyce, a member of Australia’s conservative opposition coalition who opposes the Chinalco deal.

“Seeing that people in China have exactly the same concern on a similar issue, we’ll say, ‘Well, they backed their people, that’s all we want, to back our own people,’ ” Joyce said by phone from Canberra.

Coca-Cola has been China’s top soft drink brand since the 1990s, with 15.3 percent of the market in 2008, according to research firm Euromonitor International. Euromonitor said the acquisition of Huiyuan would have raised that to about 18 percent.

The Huiyuan bid was the first corporate acquisition rejected on anti-monopoly grounds since a new Chinese law on the issue took effect last August, the government’s China News Service reported.

The ministry said it has investigated 29 proposed acquisitions under the anti-monopoly law and approved 24. It did not give the status of the others. The law forbids mergers that hurt competition but leaves regulators wide discretion in deciding how to determine that.

The European Chamber of Commerce in China said it was closely watching the Coca-Cola case and hoped regulators would detail the reasons for their verdict.

A competitive market “can best be achieved by welcoming more international investors into the Chinese market,” the chamber said in a statement.

Beijing issued rules in 2006 that bar foreign ownership of companies in power generation, weapons and other industries, but fruit juice makers are not mentioned.

The rejection might also be a response to U.S. criticism of Chinese investments, said Joseph Cheng, director of the Contemporary China Research Center at the City University of Hong Kong. He noted the 2005 bid by CNOOC Ltd. for American oil company Unocal Corp., which was withdrawn after critics said it might endanger American energy security.

“China is saying, `Look, if you reject CNOOC’s acquisition of Unocal, I can do the same, so why don’t we respect each other?’” he said.


AP Economics Writer Christopher S. Rugaber contributed to this report from Washington. Associated Press researcher Bonnie Cao in Beijing and AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.


On the Net:

China Huiyuan Juice Group Ltd.: https://www.huiyuan.com.cn/en

Coca-Cola Co.: https://www.coca-cola.com

Chinese Ministry of Commerce (in Chinese): https://www.mofcom.gov.cn



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