National Sentiment toward Foreign Capital

|China

Recently there has not been green field investment, such as the establishment of single-venture enterprises and joint-venture enterprises, as the means for foreign capital to expand into the Chinese market, but rather M&As have been on the increase. The value of acquisitions for overseas enterprises by Japanese firms grew to 7,462.1 billion yen in total in 2008, 2.6 times that for the previous year (Nihon Keizai Shimbun, 6 February 2009). The investment into China of Japanese firms has also been in line with this trend.

In this instance, however, a strategy of business integrity will become important for foreign-funded enterprises to grab China’s further potential growth and seize the opportunity. This is because the national sentiment of the Chinese people has been expressed also as wariness and hostility toward foreign capital.

I sense this strongly in the report of the deliberation process in the case of the acquisition of Huiyuan by the Coca Cola Company.

On 3 September 2008 the Coca Cola Company submitted to the Ministry of Commerce application documents relating to the acquisition of Huiyuan, based on the stipulations of the Anti-Monopoly Law and the State Council’s “Provisions on the Declaration Criteria for the Concentrations of Business Operators” (issued on 4 August 2008 and effective from that same date). Six months have passed since then, and although they appear to have at last entered the final examination stage, in conversations with those involved it is said that there are a number of difficult issues in allowing the acquisition (Fazhi Ribao [Legal Daily], 12 February 2009).

The most problematic issue is said to be the national sentiment of the Chinese people. When the case of the acquisition of Huiyuan by the Coca Cola Company was reported, and when a certain site carried out a questionnaire survey online of whether the general public was for or against the plan to acquire this company, in the space of 10 days there were 462,000 hits from people accessing the URL, which follows, and those against climbed as high as 79.4%. The reason for being against it is the fact that it is hard for national sentiment to accept an indigenous brand China has nurtured being acquired by foreign capital (http://www.legaldaily.com.cn/2007fycj/2008-09/22/content_949628.htm).

Next, although technical legal problems, there is the fact that there is opaqueness in the Anti-Monopoly Law and “Provisions on the Declaration Criteria for the Concentrations of Business Operators”, with the concept of and criteria for business concentration as yet imprecise. As far as the case of the acquisition of Huiyuan by the Coca Cola Company is concerned, it is a matter of whether they evaluate it as a “beverage” sector in the broad sense, or as a “fruit juice drink” sector in the narrow sense. The Coca Cola Company constitutes 9.7% of the total sales in the fruit juice drink market, and Huiyuan 56.8%, and if the two companies combined they would have a share of over 60%. In the case of beverages, however, the two companies’ total share would be just over 20%.

At the current point in time, because precise criteria have not been stipulated based on the Anti-Monopoly Law, the discretion of the administrative organs comes into play. At this time it is said that the state of national sentiment, and in addition the associated industries and administrative organs coming to interfere in deliberations making use of that national sentiment, is becoming a problem in business.

When there are the above problems, as mentioned previously, for foreign-funded enterprises to seize the opportunity and grab China’s further potential growth a strategy of business integrity will become important. Article 5 of China’s Company Law stipulates that “. . . a company shall comply with . . . social morality and business morality. It shall act in good faith, . . . and bear social responsibilities.”At the time of the major earthquake in Sichuan in May 2008, a certain Japanese manufacturer gave humanitarian support, opening up its employees’ lodgings to those afflicted, and was evaluated extremely highly by local residents. They said that it was something that resounded in their hearts more than the support in donated money and goods, and the sense of gratitude has remained more strongly in the memory.

Where the wariness and hostility toward foreign capital exist, for foreign-funded enterprises, more than carrying out social responsibilities, locally-rooted initiatives of broad-ranging activity are necessary.

[Translated by ERINA]