After years of crafting - as The Economist reports - China has passed what many have termed an “economic constitution.” The CCP has enacted the nation’s first anti-trust law. It is ironic that a nation like China would enact a law to break up private monopolies when the state is the largest overseer of business monopolies.

The view that China’s new anti-trust may usher in a more competitive economy because the state would now break-up domestic monopolies, was made to be a fallacy shortly after passage. The law intent - it now appears - is not to make the domestic economy more competitive. On the contrary, the Chinese government has recently pressured private domestic firms “steel, cars and airlines” to consolidate “and just . . . imposed a new oligopoly in telecoms.”

Rather, the law intent is to stifle the ambitions of foreign firms in China. The first firm to run afoul of the law has been America’s Coca-Cola. The drinks giant is a major player in China controlling 50% of the carbonated beverage market, but it holds a minimal presence in juices. Always being business savvy, Cola decided to get in the juice business by buying China’s largest juice company - China Huiyuan - at $2.4 billion. When the deal was first proposed in September 2008, Cola was offering Huiyuan three times its market value. Due to the economic recession, Cola $2.4B bid is now several times the would-be bought firm’s market value. Thus Huiyuan may very well be willingly to be bought out and cash in. But China’s authorities have blocked the deal, to the great shock of world observers.

[Marxists.org]

China authorities claim that the buy would give Cola to buy market control in China. This is an ostensible claim since Cola would then only have 20% of the juice market and the proliferation of substitute juices acts as a control on Cola’s efforts - if it had any - raise prices on consumers.

Most Western observers reject China’s official comment, but, rather, see the merger block as a precursor to a more protectionist minded China. They believe that China is not opposed to foreign acquisitions per se, but has decided to block such deals in response to some foreign government opposing acquisitions by the Chinese government. In other words, China has employed and will continue to use its anti-monopoly law as payback for foreign governments who stand in the way of acquisitions by Beijing. The United States Congress, for instance, has previously blocked the acquisition of a small American oil company by a Chinese state firm. Cola is now paying the cost of that action.

Reasonable acquisitions by China should not be blocked. But authoritarian China is being petty here. There is a difference between a private American beverage company acquiring a juice maker and a state-run oil firm acquiring another oil firm particularly when America sees itself in somewhat of a competition with China over resources.

The United States government or any Western state isn’t using an ambiguous law to engage in selective payback, but China is in a manner that should be a reminded that in spite of the glitz of the Olympics China is still a rather unfortunate place with an often myopic government.