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China Law Case Study

China Law Case: Coca-Cola Takeover Huiyuan

Coca-Cola deal major test for China's new anti-monopoly law (2008-09-04 AFP Shanghai)

The fate of Coca-Cola's proposed takeover of China's Huiyuan Juice Group is now in the hands of Chinese regulators in the first high-profile test of Beijing's fledgling anti-monopoly law.

If approved by authorities, analysts say Coca-Cola's 2.4-billion-dollar purchase would be the largest takeover of a Chinese company by a foreign firm.

Coke officials are saying little about how long it will take for Beijing authorities to approve the deal or how difficult a process it could be.

The deal is the most significant since China's anti-monopoly law took effect last month. Huiyuan's shares closed 7.68 percent lower in Hong Kong Thursday at 10.10 Hong Kong dollars (1.29 US dollars), in part due to fears regulators might reject the deal.

The purchase of the Hong Kong-listed firm must be reviewed because the companies' combined global turnover was more than 10 billion yuan (1.5 billion US dollars) last year and each made more than 400 million yuan in China.

The move is part of Coke's global efforts to diversify beyond carbonated drinks amid expectations that Chinese demand for concentrated juices will increase with rising incomes and healthier lifestyles.

Together, the two companies would control 37 percent of China's juice drink market, according to a Merrill Lynch report.

"I can't see any grounds for rejecting this deal other than an allergy to having a big Chinese company taken over by a foreign one," said Arthur Kroeber, managing director of the Beijing-based economics research firm Dragonomics.

Nationalist opposition to the deal has already begun rearing its head. In a straw poll on the web portal, a majority of respondents said they opposed the deal.

But anti-trust experts said there appeared to be little legal reason for barring the transaction.

"It doesn't raise national security issues, it's just juice," said Susan Finder, a Kong Kong anti-trust lawyer for the US firm Heller Ehrman. "Is Huiyuan a national treasure of a brand? I don't think so."

However, how long the approval process will take remains unclear.

The government has still only issued minimal guidelines since the law was introduced last month, and much about how the law will work in practice has not been clarified.

"Chinese regulators know these are tough issues so their approach is 'let's take time'," Finder said.

But Chinese officials have also in the past used playing for time as a way to stop deals without formally rejecting them.

In July, US private equity firm Carlyle Group abandoned an attempt to buy a stake in Chinese construction machinery maker Xugong Group after waiting three years for regulatory approval.

"One of the key concerns for foreign investors is you never know when you will get a formal acceptance from the authorities," said Cheng Yuan, a Beijing-based anti-trust lawyer at the firm Linklaters. "This has not been resolved."

If the deal receives initial approval but the Ministry of Commerce conducts a detailed "Phase Two" anti-trust review, legal expert will be watching closely how the competition analysis will be conducted.

Previously such reviews were informal, perhaps involving companies and industry associations, but if regulators issue a written anti-trust review of the Coke deal, it would be the first ever published by the government, Cheng said.

Coke's market position could depend very much on the fine print, according to observers.

"They could elect to impose certain conditions on it. They might say 'You could do it except for the apple juice, you need to sell that, or the pear drink you need to dispose of it'," said Thomas Jones, a Beijing-based partner for Allen and Overy.

Jones said his firm has already had one deal successfully approved under the new law for a merger outside of China that now required Chinese government approval because at least one of the companies has a strong presence here. He declined to name the company.

"I think that the process is working," Jones said.


China's first anti-monopoly law takes effect

BEIJING, Aug. 1 2008 (Xinhua) -- China's first anti-monopoly law took effect on Friday, viewed as a milestone of the country's efforts in promoting a fair competition market and cracking down on monopoly activities.

The law, which was proposed 14 years ago and finally received official approval last year from the Standing Committee of the National People's Congress, the country's top legislature, aimed to build a uniform, open, transparent market, and to encourage fair competition, experts said.

Sheng Jiemin, a Peking University law professor, told Xinhua it had introduced some advanced concepts from America's anti-monopoly law, which strikes at dominating enterprises' monopolistic activities and puts safeguarding consumer rights as priority.

 "It is different from other economic laws," Sheng explained. "Punishment usually comes after a long and thorough investigation and research under the anti-monopoly law."

The State Council, China's Cabinet, said it had established an Anti-monopoly Committee earlier this week. It will research and map out relevant laws, investigate and monitor enterprises and companies, assess the competition situation in the market and cooperate with other government bodies to enforce the law.

Despite this significant improvement in the country's economic reform and legal system, experts felt the government still had a lot to do to perfect the law and enhance its efficiency. "There is possibility for crossing and overlay of the functions between the three law enforcement bodies," Sheng said. "It is hoped that an unified institution comes out in the coming years, which will be better in accordance with the country's situation."

"The country currently has no better measures to solve the monopoly problem in some crucial centrally-administrated and state-owned large enterprise and industrials," said Zhang Yansheng, the NDRC's International Economic Research Institute director.

Any activities that harm consumer rights were discouraged, Zhang added.

Three government organs, including the National Development and Reform Commission (NDRC), the Ministry of Commerce, and the State Administration for Industry and Commerce (SAIC), will enforce the law and carry out its implementation in a coordinated fashion.

The SAIC said earlier it had established an independent bureau, which was in charge of investigating and punishing unfair competition, commercial bribery, smuggling and other cases that broke relevant economic laws.

In addition, the country's top economic regulator, the NDRC, finished a draft of the anti-price monopoly law regulation earlier this week, which was a component of the anti-monopoly law.

According to the draft, monopolizing enterprises that intended to control prices, dump their products at extremely low prices and sold products at various prices between different consumers at random, would face punishment.

"The anti-price monopoly law regulation will determine the government's actions in cracking down on price monopoly via a legal basis," said Li Lei of the NDRC's price supervision department.

 The anti-monopoly law was not expected to shake the country's "4S" automobile marketing mode, which features a combination of "sales, spare parts, service, and survey," market analysts said.

 "Since no single automobile enterprise dominates the domestic market, there is no monopoly in this sector," said a Ministry of Commerce official who declined to be named. "The only problem is excessive competition."

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Facts and Figures

  • Total number of lawyers in China 118,000 - about 0.8 per 10 thousand population (source: Ministry of Justice 2007)
  • Total number of law firms: 11,000, 70% of them are partnership firms.
  • Total number of judges: 190, 961 (2004)
  • Total number of laws and regulations: 1979-1983: 4119 issued; 1996-2000: 37775 issued
    2001-2004: 94288, issued
  • Total number of verdicts made: 1,179,388 (1981); 5,625,310 (2004)



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Report: China Remains Top Executioner

Executions jumped by a third in Iran and quadrupled in Saudi Arabia last year, causing the total number of executions around the world to rise yet again in 2007, a human rights group reported, adding that China remained far in front as the world's top executioner.

The Rome-based Hands Off Cain, which campaigns to stop the death penalty, said that while countries were increasingly renouncing the death penalty, more people were put to death in 2007 than in either of the previous two years.

In all, the number of executions increased last year to at least 5,851, compared with 5,635 in 2006 and 5,494 in 2005, the group said in its annual report.

The gradual trend of abolishing capital punishment continued, with 49 countries retaining the death penalty, compared with 51 in 2006 and 54 in 2005. Only 26 countries that have capital punishment on their books actually used it in 2007, down from 28 in 2006, the report said.

China alone accounted for at least 5,000 executions, the rights group estimated, based on reports by the media and other human rights groups. The exact number of executions in China remains a state secret. This was the same estimate the group gave for China last year.

However, Hands Off Cain said there were indications of a reduction in the number of death sentences in China.

Citing reports by magistrates, researchers and rights groups, the group said death sentences issued by Chinese courts may have dropped by up to 30% in 2007. China's own Supreme People's Court has said it rejected 15 percent of all death sentences reviewed in the first half of this year.

In Iran, at least 355 people were put to death last year, compared with 215 in 2006, the group said, adding that the figure may be even higher because Tehran does not publish official statistics.

Saudi Arabia carried out 166 executions, compared with 39 a year earlier, the report said. Hands Off Cain said both Iran and Saudi Arabia executed minors, in violation of the UN Convention on the Rights of the Child. Pakistan also continued an upward trend, executing at least 134 people.

The US remained the only country in the Americas that carried out death sentences in 2007 - putting 42 people to death, 11 less than in 2006 and the lowest number in 13 years.



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