March 25, 2009 / 2:07 AM / 10 years ago

China says Coca-Cola could have abused juice deal

BEIJING (Reuters) - China rejected Coca-Cola’s (KO.N) bid to buy top local juice maker Huiyuan (1886.HK) because it feared the U.S. multinational could abuse its position across the whole soft drinks market, an official said in remarks published on Wednesday.

A customer takes a bottle of Coca-Cola next to packets of Huiyuan fruit juice at a supermarket in Jinan, Shandong province, September 3, 2008. REUTERS/Stringer

Ministry of Commerce spokesman Yao Jian said regulators treated carbonated soft drinks and juice beverages as a conjoined sector — one, he said, in which Coca-Cola could deter competitors to the detriment of consumers.

Yao fleshed out the ministry’s rationale for rejecting the bid last week in an interview in the official People’s Daily.

“Potential competitors would find it very difficult to enter this market and grow into substantive competitors against Coca-Cola and thereby eradicate or restrict the possibility of Coca-Cola engaging in abusive conduct,” Yao said.

Fan Gang, a member of the People’s Bank of China’s monetary policy advisory committee, also said the rejection of the deal was based on monopoly concerns, not nationalism.

“For some people it’s too easy to blame nationalism. That’s unfair,” Fan told Reuters during a conference in Hong Kong on Wednesday. “The monopoly is the issue. That’s why we introduced an anti-monopoly law. Now we can use it (and create) diversification in the market.”

Yao said multinational investment could be a boon for China’s economy, adding a broad caveat.

“If mergers and acquisitions lead to multinational companies gaining or enhancing dominant status, producing exclusionary and competition-restricting outcomes, this will hinder economic development,” he said.

China rejected the proposed deal under an anti-monopoly law enacted last year, stating that the combined concentration of the two companies would have hurt competition in the juice business.

Huiyuan controls over a tenth of the Chinese fruit and vegetable juice market, which grew 15 percent last year to $2 billion. Coca-Cola has a 9.7 percent market share. Huiyuan is listed in Hong Kong and registered in the Cayman Islands.

The decision to block the deal drew criticism from trade lawyers and economists who said China appeared willing to wield its anti-monopoly law to fend off foreign attempts to buy promising domestic firms, even when resulting market concentration would not be excessive.

But Yao said “nationalist sentiment” was not a factor.

He said Coca-Cola already had market dominance in the carbonated drinks sector, citing local industry association estimates that it holds 60.6 percent of the market. It could have leveraged that influence in the juice sector, he added.

“Although there is not strong substitutability between the carbonated beverage and juice beverage markets,” Yao said, “both are non-alcoholic drinks and belong to two closely intertwined markets.”

Coca-Cola, he said, could have used its position to “transfer its dominance of the carbonate beverage market to the juice beverage market.”

Reporting by Chris Buckley and Susan Fenton; Editing by Nick Macfie and Jonathan Hopfner

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