China is asserting itself on global deal making, on par with U.S. and EU regulators, after it put the kibosh on a shipping alliance that officials here said would hold too much sway over trade lanes to Europe.
The decision unveiled on Tuesday marks only the second time China’s Ministry of Commerce has stepped in to block a corporate combination since the country enacted its antitrust law in 2008. The move came despite approvals for the shipping alliance in Europe and the U.S.
Other Chinese agencies have also stepped in to set conditions on deals, including when no Chinese company was directly involved. They include the merger that formed mining giant Glencore Xstrata PLC as well as separate deals by Microsoft Corp. and Google Inc. to acquire mobile device makers. Foreign makers of infant formula and eyewear products also have faced penalties under China’s antimonopoly law.
“It’s only beginning,” said Charles F. Rule, head of the antitrust group at the law firm of Cadwalader, Wickersham & Taft LLP and a former head of the U.S. Justice Department’s antitrust division during the Reagan administration. Citing the potential cost to business, he added, “that should be something of a concern for everybody else.”
In a statement on its website posted late Tuesday local time, the Commerce Ministry said it believed the proposed P3 Alliance that would have included AP Møller-Mærsk A/S’s Maersk Line, CMA CGM SA and Mediterranean Shipping Co. would control about 47% of the Asia-to-Europe container-shipping market. The parties, it said, “failed to demonstrate that the alliance would bring more benefit than harm or that it is in line with the public interest.”
Ministry officials didn’t pick up the phone late Tuesday.
China’s ambition to have greater say in global pricing trends is one driving factor behind its increasingly expansive use of its antitrust laws. China is the world’s largest trading nation in terms of imports and exports, making it a major customer for big shipping lines. It is the world’s largest importer of copper, soybeans and iron ore, and it is challenging the U.S. as the world’s largest importer of oil.
China’s biggest shipping companies continue to suffer from overcapacity. China Cosco Holdings Co., the listed arm of China’s biggest state-run shipping company, posted combined losses of 20 billion yuan ($3.2 billion) in 2011 and 2012 before eking out a profit last year due to asset sales to its state-owned parent. No. 2 China Shipping Container Lines Co. posted a loss of 2.65 billion yuan last year. Both companies said on Tuesday they weren’t involved in the Commerce Ministry’s decision.
Zhang Shouguo, executive vice chairman of the China Shipowners’ Association, which represents China’s major shipping operators, said on Tuesday that the group had expressed concerns about the P3 Alliance, which would have given “the world’s top three container shipping operators a dominant position” in some of the world’s major trade lanes.
Pricing can be a charged issue in China, which has sometimes seen bouts of steep inflation.
“Most other major economies rely much more broadly on the market mechanism for setting prices and allocating resources efficiently,” said H. Stephen Harris Jr., partner at Winston & Strawn LLP. China is moving toward market pricing but “they are doing it in lurches,” he said.
Last year Beijing approved the $62 billion deal to combine mining companies Glencore and Xstrata only after Glencore agreed to divest a giant copper mine in Peru. The combined company this year agreed to sell it to a Chinese consortium for $5.8 billion. It also agreed to sell copper concentrate to Chinese customers at specified prices.
China’s approach also reflects fundamental differences in its economy versus those in the U.S. and Europe, said Fay Zhou, a Beijing-based partner at law firm Linklaters LLP who formerly worked at the Commerce Ministry, or Mofcom. As well as a massive consumer, China is a major manufacturing and export hub, giving those industries and related government agencies added heft in antitrust discussions.
“China is a large market. It’s natural that China may have different interests than other jurisdictions,” Ms. Zhou said.
She added, “Mofcom is particularly sensitive to the opinions of the Chinese stakeholder.”
That leads to extra scrutiny in fields like mobile devices, in which China is both a major manufacturer for many global players as well as home to a number of ambitious companies that sell their own brands.
Major deals for which China imposed conditions included Microsoft’s purchase of Nokia Corp.’s phone business earlier this year and Google’s 2012 purchase of Motorola Mobility Holdings Inc.
China first used its antitrust law in 2009, when it was only a year old, when Mofcom blocked Coca-Cola Co.’s $2.4 billion deal to purchase juice maker China Huiyuan Juice Group Co.
Last year, regulators levied more than $100 million in fines against six dairy companies over anticompetitive pricing, and six foreign makers of liquid-crystal displays were hit by fines totaling 353 million yuan under a separate law.
More recently, China’s Ministry of Commerce still hadn’t approved the planned merger of Omnicom Group Inc. and Publicis Groupe SA–which was announced last July–when the deal was called off last month.
China enacted its antimonopoly law with the intent to gain equal footing with the U.S. and Europe, said Mr. Rule of Cadwalader. He said China in practice has followed a somewhat similar route to the European Union in the 1990s and early 2000s, when under its new antitrust laws it moved to block General Electric Co.’s planned purchase of Honeywell International Inc. and pursued an antitrust case over Microsoft involving Web browsers. “The most aggressive regime tends to set the rules,” he said.