In the Hutong
Parent-Teacher Conference Day
In a provocative dispatch today, the Associated Press is reporting that the chief of the Anti-Monopoly Bureau of China's Ministry of Commerce, Mr. Shang Ming, acknowledged in a news conference that the only companies that have been required to scrap or change merger or acqusition plans under the 2008 Anti-Monopoly Law have been foreign companies.
Regulators have examined 140 cases [of mergers and acquisitions and whether they violated the Anti-Monopoly law] and rejected outright only one, Coca-Cola's 2008 bid to buy Chinese fruit juice maker Huiyuan, said Shang Ming, chief of the Commerce Ministry's anti-monopoly bureau. He said five other deals, all involving foreign companies, were passed with conditions such as selling off some assets.
This upsets foreign businesspeople in China, because it has been the abiding suspicion of many of our number since the drafts of the law began circulating in 2006 that the law was aimed squarely at foreign companies. I have been on the somewhat more reserved side of the equation, believing that the history of China demonstrates that what is important is not the law, but how it is enforced.
The frank admission by Mr. Shang that the foreign companies are bearing the brunt of the law tends to support the critics who saw its passage as Protectionism by Another Name. I am not yet convinced.
First, the outright rejection of a single foreign deal does not constitute a trend, and as I have argued elsewhere ("Seven Reasons for the Coke-Huiyuan Epic Fail") there were enough other miscalculations in Cokes attempt to buy Huiyuan, so it cannot be used as a litmus test. That would, I would suggest, leave us with the five deals that required some rearrangement of assets that would need to be evaluated individually before we can make a call.
Second, Mr. Shang's contention that the data is skewed because there was so much more foreign-driven M&A in the period in question than locally-driven deals may well be true. Again, we would need more data to make that call.
Third, we must consider the possibility that the foreigners are not the primary targets, but are intentionally the first targets of the law. China watchers familiar with the necessities of Chinese politics will acknowledge that any effort by an organ of the central government to block a politically powerful SOE from an acquisition is fraught with peril for the regulators involved. All the more so when the organ doing the enforcing - the Anti-Monopoly Bureau - is still building its own political legitimacy in China.
A good way of establishing that legitimacy - and the legitimacy of any later action against a Chinese enterprise - is to go after some foreign scalps first. Prove to the government, to SOEs, to the provincial leaders, and to the people that you have made the foreigners pay first, and they will be more inclined (or readily compelled) to acknowledge the legitimacy of the action against the local enterprise.
In fact, I would argue that this is the reason the Anti-Monopoly Bureau held the press conference in the first place, and why it did not shy from laying out the statistics like they did. The Ministry of Commerce is playing to a domestic audience, one that believes that foreign companies have more than their fair share of the local market. Against such popular sentiment, the first target can only be foreigners.
This is neither to apologize for the AMB nor suggest that the critics of the Anti-Monopoly Law are necessarily wrong. But it does suggest that at the very least we need more time and more data before we can make a strong case for veiled protectionism.