Since the Ministry of Commerce (MOFCOM) promulgated its decision to block the acquisition of Huiyuan Juice Group by The Coca-Cola Company, the decision has been subject to tremendous criticism from trade lawyers and economists. Some have argued China appears willing to wield its Anti-monopoly Law to fend off foreign attempts at buying promising domestic firms (though Huiyuan was incorporated in the Cayman Islands), even when the resulting market concentration would not be excessive.
In an attempt to provide clarification of the final decision, Ministry of Commerce spokesman, Yao Jian, in an interview in the People’s Daily, tried to flesh out the Ministry’s rationale for rejecting the bid.
Mr. Yao stated that MOFCOM took the following factors into consideration; market shares; market strength and the potential influence of the concentration on entry to the relevant market for consumers and other competitors and for competition as a whole. He also emphasized the rejection was based solely on monopoly concerns, not nationalism, as many members of the foreign media had suggested.
In his speech, Mr. Yao acknowledged the most crucial and difficult decision is how to define the relevant market. Theoretically speaking, two ways may be employed. The first is substitutability of demand from a consumers’ perspective. In general, if consumers are more likely to buy B as a substitute of A, then competition exists between B and A, both belong to the same relevant market. The other way is substitutability of supply, from suppliers’ perspective. If suppliers of B can easily offer a closely related product to A with little extra risk, then B and A belong to the same relevant market.
In the Coca-Cola and Huiyuan decision, as Mr. Yao addressed, two sub-sectors under the non-alcoholic beverage sector are present. These are the sectors of juice beverages and carbonated soft drinks. The relevant market in this case is the juice beverage market.
Mr. Yao further explained that Coca-Cola already had market dominance in the carbonated drinks sector, citing local industry association estimates that it holds 60.6 percent of the market. Huiyuan controls more than a tenth of the Chinese fruit and vegetable juice market and has also gained great market strength in the juice beverage market. Although there is not strong substitutability between the carbonated beverage and juice beverage markets, both are non-alcoholic drinks. On this basis the two sectors are closely intertwined markets. If the deal went through, Coca-cola would have leveraged influence in the juice sector and could use its position to "transfer its dominance of the carbonate beverage market to the juice beverage market".
However, Mr. Yao’s speech does not cover how Coca-Cola would transfer its dominance of the carbonate beverage market to the juice beverage market. In theory, this would be impossible to explain in less than two pages, the length of the actual judgment in Chinese characters. The absence is one reason behind the lack of persuasiveness in the judgment, leading to further arguments as to whether this transaction should have been banned.