Competition Law

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Focus: PRC Ministry of Commerce rejects takeover as anti-competitive

25 March 2009

In brief: For the first time, the PRC Ministry of Commerce has rejected a proposed acquisition under the PRC's competition regulations. The proposed takeover by Coca-Cola of Hong Kong-listed China Huiyuan Juice Group Limited was rejected on the grounds that it would contravene the PRC Anti-Monopoly Law by adversely affecting competition in the PRC fruit juice beverage market. Partners Campbell Davidson and Carolyn Oddie (view CV)1 outline the key features and ramifications of this announcement.

How does it affect you?

  • This is the first time that the PRC Ministry of Commerce (the MOC) has used its powers under the Anti-Monopoly Law (the AML) to block an acquisition by a foreign company.
  • Although the MOC's approach to merger analysis is similar to that of other competition regulators, it appears that broader policy factors may also have played some role in this merger review.
  • Foreign companies looking to acquire a stake in a company with a presence in the PRC must be particularly vigilant in considering whether the proposed merger or acquisition raises concerns under the AML.


China Huiyuan Juice Group Limited (Huiyuan) is a company listed on the Hong Kong stock exchange and is the owner of a major domestic PRC fruit juice business. On 3 September 2008, Huiyuan announced that Coca-Cola, through a wholly-owned subsidiary, intended to purchase its listed shares. The value of the proposed transaction was stated to be approximately US$2.4 billion. Coca-Cola's strategy behind the proposed share acquisition was to expand its presence and brand in the PRC fruit juice market.

According to various reports, following the acquisition, Coca-Cola would control anywhere between 20 and 40 per cent of the China fruit and vegetable juice market, and in the past year, that market grew 15 per cent to $2 billion.2

In response to concerns raised by the MOC, Coca-Cola proposed certain 'restrictive conditions'. However, these conditions were not accepted by the MOC, and accordingly, it decided on 18th March 2009 to reject Coca-Cola's proposed acquisition of Huiyuan.

Application of the AML

The AML applies to all business operators engaged in the manufacture, distribution, sale or other activity relating to goods or the provision of services. The AML regulates monopolistic conduct within the territory of the PRC, as well as monopolistic conduct outside the PRC, which has the effect of eliminating or restricting competition in the PRC domestic market. The monopolistic conduct to which the AML applies includes:

  • monopoly agreements;
  • abuse of dominant market status; and
  • the concentration of business operators that has, or may have, the effect of eliminating or restricting competition.

Issues considered by the MOC

The MOC's 18 March announcement stated that, in reviewing the proposed takeover, the MOC took into consideration a number of issues including:

  • the market share of the respective business operators;
  • the degree of concentration in the fruit juice market that would result from the proposed acquisition;
  • the impact of business operator concentration on fruit juice market accessibility and technical innovation;
  • the impact of business operator concentration on consumers and other business operators;
  • the impact of business operator concentration on national economic development; and
  • the impact of the Huiyuan brand on competition in the fruit juice market.

The MOC appears to have concluded that the takeover would raise three competition issues:

  • Coca-Cola would be able to use its dominance in the soft drink market in the fruit juice market.
  • Coca-Cola would control Minute Maid and Huiyuan – both being prominent fruit juice brands in China. The combination of brand strength and Coca-Cola's soft drink dominance would raise barriers to entry for other competitors into the fruit juice market.
  • The takeover would make it harder for small and medium fruit juice enterprises to survive and would limit the ability of domestic enterprises to compete, and innovate, which would harm the development of the fruit juice industry.

The announcement does not provide sufficient detail to analyse the MOC decision in depth but the following observations can be made.

The first two points raised by the MOC are similar to competition issues commonly raised by regulators in other jurisdictions. For example, the Australian Competition and Consumer Commission (the ACCC) in 2003 rejected the proposed acquisition by Coca Cola Amatil Limited (CCA) of Berri Limited (the Australian fruit juice manufacturer). The ACCC considered that fruit beverages and carbonated soft drinks are complementary. It said that CCA had market power in carbonated drinks, and the ability and incentive to leverage that power to increase distribution of Berri fruit beverages to the exclusion of rivals. However, given the size of the market shares of the parties to the Huiyuan acquisition, the growth in the market and the overall size of the PRC market, overseas regulators may not have considered that the Huiyuan acquisition would have lessened competition. Further, even if there is not a domestic manufacturer able to constrain Coca Cola's pricing, PepsiCo is a substantial and competitive player in the PRC market. Attempts by Coca Cola to raise prices or leverage market power would likely see some loss in sales to PepsiCo, or see PepsiCo attempt to increase its presence in the PRC fruit juice market.

The MOC seems to have placed some emphasis on the impact on smaller Chinese firms, and there was some public disquiet at the prospect of a prominent Chinese brand being sold to a foreign corporation. It is difficult to be certain whether the decision was motivated partly by protectionism. The MOC has denied that it was,3 and the decision does not appear to have been solely protectionist. Whatever the position, companies considering investments in the PRC need to take into account the wider regulatory environment of China's economy.

Early signs – InBev

The decision of the MOC in Coca-Cola's proposed acquisition follows an earlier decision regarding the acquisition by InBev of Anheuser-Busch in November 2008. That decision was indicative of a firmer position being taken by the MOC in respect of mergers and acquisitions involving foreign business operators. In the Inbev case, the MOC imposed certain prohibitive conditions on the terms of the acquisition that prevented Inbev from later increasing its equity interest in certain Chinese beer companies or acquiring an equity interest in certain other Chinese beer companies. 

The InBev decision was also a sign that the MOC is prepared to negotiate restrictive conditions, undertakings and changes to the terms of an acquisition in order to address adverse effects on competition.


The application of the AML by the MOC in this latest instance may be viewed as further suggestion that the MOC is adopting a tougher stance on foreign mergers and acquisitions. It remains to be seen whether this will raise the bar in respect of the participation by foreign companies in the PRC domestic market or whether this is a reaction to a period of economic uncertainty and heightened anxiety by PRC officials and regulators over the long-term viability of local business.

However, what is clear is that PRC regulators are willing to implement the AML and foreign companies should take this into account where contemplating a merger or acquisition involving a PRC company.

  1. With the valuable assistance of Andrew Gun, Frank Fan and Tim Knowles.
  2. Reuters, 'China says rejection of Coke-Huiyuan deal no blow to open trade' 19 March 2009, available at and Reuters, 'China rejects $2.4 bln Coke bid for Huiyuan Juice' 18 March 2009, available at
  3. Xinhua, 'China denies Coca-Cola decision equals trade protectionism', 19 March 2009, available at

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