WILL CHINA'S COKE MOMENT SPARK RETALIATION?

The US gets worked up over ports and oil. France is sensitive about its strategic yoghurt reserves. China, it seems, gets particularly touchy when it comes to beverages.

Last November China's ministry of commerce, which oversees anti- monopoly issues, cleared the $52bn (€38bn, £36bn) acquisition by InBev of Anheuser-Busch but laid down several conditions restricting the combined group's freedom to increase its presence in China. The ruling sent the message that Beijing's anti-monopoly law, passed last August, would hold sway even over non-Chinese deals that might affect China's increasingly significant market. Last week the ministry rejected Coca-Cola's $2.4bn bid for Huiyuan Juice, killing what would have been the biggest foreign takeover of a Chinese company.

Coca-Cola has taken what some are calling China's Smoot-Hawley moment on the chin. Although privately taken aback, in public it expressed disappointment but respect for Beijing's decision, which some fear could trigger retaliatory protectionism. The US reaction too, insofar as it opines on anything other than AIG bonuses these days, has been low-key. The only people to have displayed raw emotion have been Australian MPs opposed to China's onslaught on their country's mining assets. For them, Beijing's rejection has been manna from heaven, providing another reason to block Chinese bids.

Bankers and lawyers working on the takeover of Huiyuan were convinced until recently that the agreement had Beijing's approval. But after making soothing noises for months, the ministry recently began to raise what it said were antitrust concerns. Although Coke would gain only about a 20 per cent share of juice sales, the ministry suggested it might abuse its position by “bundling” its carbonated and juice offerings to retailers. It also expressed fears that Coke might not buy its fruit from Chinese farmers, and wondered aloud what the Atlanta company intended to do with the Huiyuan brand.

Some lawyers have taken those objections at face value. But most regard them as spurious. The objection to possible bundling, for example, could easily have been dealt with by a simple stipulation that Coke refrain from such tactics. Advisers say Coke had no need to buy its fruit anywhere other than China.

That has led commentators to speculate on what might have been Beijing's real motive. Most assume the bid was struck down on national interest, rather than on competition, grounds. First, the proposed takeover was deeply unpopular with much of the Chinese public, which poured forth its anger on the internet at the prospect of a beloved brand disappearing down an American gullet. Rival drinks-makers lobbied the government, saying they would lose market share to a juiced-up Coke. Beijing may have judged that, at a time of job losses and potential social unrest, it was prudent to throw a bone to nationalist sentiment.

Second, China has recently taken a more assertive attitude towards the US. It has lectured Washington on the need to keep Beijing's massive holdings of US Treasuries safe, and even suggested that the dollar might be replaced as a reserve currency by a new global unit. With Washington desperate for Beijing to keep financing its debt, Beijing may have calculated that the US would simply have to suck up its decision without protest.

China may be feeling confident. But it is not far-fetched to suggest that its actions could help set off a round of tit-for-tat protectionism. World leaders' supposed commitment to keeping their economies open already looks pretty hollow: no fewer than 17 of the Group of 20 countries that earnestly pledged their commitment to free trade have taken protectionist measures.