What Coca-Cola Did Wrong, And Right, In China
The company moved very wisely in trying to buy Huiyuan--except when it came to dealing with the government and the law.
The Chinese government rejected Coca-Cola's planned $2.3 billion acquisition of the Chinese company Huiyuan Juice, despite Coke's announcement a week earlier that it would commit $2 billion on top of that to expansion in China over the next three years. When the government declared the deal dead, a chill blanketed boardrooms around the world. Is the climate for foreign firms in China cooling? Is protectionism rearing its ugly head?
Retail sales in China are still growing at a double-digit rate despite the global financial turmoil. The country can no longer be considered an emerging market for many brands. It became the largest market in the world for automobiles earlier this year; car sales rose 25% in February after the government started issuing tax rebates for small engines. Companies are getting more and more of their revenues from China; Yum! Brands (nyse: YUM - news - people ) generates about a third of its revenue from its KFC and Pizza Hut sales in China. If the country turned inward, the effect on the bottom-line of businesses from Unilever to General Motors would be huge.
However, China's government went to great lengths to indicate that the rejection of the deal was about monopoly, not protectionism. My own observations suggest that local officials throughout the country are green-lighting more investment projects faster now than at any time in the last three years, as fears about overheating and inflation give way to worries that more jobs will be lost on top of the 20 million already gone.
While what some see as socialism creeps into American economic policy, China is going all out to jump-start its economy by becoming more capitalistic. Local officials in Beijing...