Beijing's decision to put the squeeze on Coca-Cola's proposed $2.4bn acquisition of Huiyuan Juice, in what would have been the biggest foreign takeover of a Chinese company, is tin-headed. Not only does the landmark decision, the biggest test so far of anti-monopoly legislation adopted last August, send a signal that China is closed for serious business. It also provides potent ammunition to foreign governments already expressing nervousness about Chinese forays abroad. The upshot is likely to be fewer cross-border deals involving what at the moment is the world's only large dynamic economy, and a retreat into protectionism on all sides. That is precisely what Chinese leaders have been preaching against. It is also the kind of action that contributed to the 1930s global Depression.
The terse, one-page rejection of Coke's bid issued by the woefully understaffed anti-monopoly section of the Ministry of Commerce lacks clarity. It cited Article 28 of the newly adopted anti-monopoly code, which gives authority to act “where a concentration has or may have the effect of eliminating or restricting competition”. The regulators appear to have put heavy emphasis on the word “may”, and rather less on that of “concentration”, apt though it is for a juice takeover. Although Coke controls nearly 50 per cent of the fizzy drink market, it has just 8 per cent of the juice segment. Even with Huiyuan's 42 per cent or so that would not constitute a monopoly under most definitions. The regulator expressed concerns that Coke might bundle its drinks offerings. But it could have targeted such abuse much more precisely.
More plausibly, regulators are responding to a backlash from competitors and consumers, who have mounted an angry, nationalist-tinged, internet campaign denouncing the prospect of a beloved brand falling into foreign hands. Their sentiments contrast with the brusque assessment of Zhu Xinli, Huiyuan's chairman, that an entrepreneur “should breed a company like a son, but sell it like a pig”.