BEIJING — China’s first antimonopoly law has raised trade tensions in recent months, as international businesses try to negotiate new territory for mergers and other deals. Despite some red flags, legal experts say there is no hard evidence the law will be used as a purely protectionist trade tool.
This story first appeared in the June 2, 2009 issue of WWD. Subscribe Today.
Since the new law came into effect Aug. 1, China’s antimonopoly body has asserted its authority in four separate cases, but has reviewed without public comment a total of 40 deals. The lack of transparency about reviews is partly to blame for heightened fears over the possibility of the government using the law as a trade protection measure, said Nathan Bush, a Beijing-based antitrust attorney. “The Chinese authorities at [the Ministry of Commerce] have waded into a very difficult area of economic policy,” said Bush. “For all the criticism, they have done a remarkable job of coming a long way in a short period.”
The latest of the four antimonopoly decisions has drawn the least international criticism, but still raised some concerns about how China intends to use the new law. In the most recent case, after several months of negotiations, China’s antimonopoly authority on April 24 said it would impose stringent conditions on the $1.6 billion takeover by Japan’s Mitsubishi Rayon Co. of U.K.-based Lucite International, neither of which is based here.
According to the ruling, China imposed conditions because the newly created company would hold a 64 percent share of the domestic methyl methacrylate (MMA) market and threaten competition. For that reason, the ruling said, the new company will have to sell to an unrelated party at least 50 percent of its China production capacity within six months at no additional profit. In addition, the ruling said, Mitsubishi Rayon cannot build any new MMA production capacity in China.
Bush said that, of China’s four antimonopoly rulings thus far, the Lucite-Rayon decision appeared most in line with standard international practices, except for one trouble spot. The restriction on increasing future production capacity over the new company “may have been driven to protect the Chinese producers rather than the Chinese consumers,” he said.
Earlier cases were far more controversial than the Rayon-Lucite ruling. In March, the regulatory body blocked the Coca-Cola Co.’s proposed $2.4 billion purchase of China’s Huiyuan Juice Group, which would have marked the largest buyout of a Chinese company by an international competitor. The Coke-Huiyan case became a nationalist rallying cry on the Internet and elsewhere for many Chinese, who rallied against the deal by saying it was a matter of national pride for China.
After its ruling, the antimonopoly body came under intense scrutiny, as many international trade experts said China failed to give adequate legal reasons to block the deal.
Chen Zhonghe, a Beijing antitrust lawyer, said he believes accusations of protectionism dog every government involved in antimonopoly regulation. Chen said he believes the Chinese government is trying to be as fair as possible as it navigates the complicated legal landscape.
China, he said, is in a special situation because it came to market economics and antitrust law late in the game. That said, he believes authorities want to be fair, and create a good environment for international trade.
“The Chinese Ministry of Commerce will not aggressively intervene in market economic behavior, because no government wants to give this impression to the world,” said Chen. “I think the compromise model used in the [Lucite-Rayon] case will become the ongoing model for future decisions.”