Run aground

China veto is wake-up call for world's dealmakers

Chinese regulators have sunk their first overseas transaction, killing a container-shipping alliance led by Denmark's Maersk. The particular national interest made this tie-up especially vulnerable. But there's a real risk China could torpedo other global deals.

Antitrust blocks from China are rare. Though Beijing has made acquirers like Glencore wait months and agree concessions to win approval, this is the first time the Ministry of Commerce (MOFCOM) has denied a deal between non-Chinese firms. And it's only the second-ever "no" since the regulator blocked Coca-Cola's attempt to purchase juice-maker Huiyuan in 2009. This is a reminder of the wide-ranging powers granted under China's refreshed competition law six years ago. None of the parties to the deal were Chinese. But groups need only make $64 million in annual sales in the People's Republic to face scrutiny.

Based on MOFCOM's terse announcement, the decision seems justifiable. Maersk wanted to cut costs by sharing ships with Switzerland's Mediterranean Shipping and France's CMA CGM. But Chinese shipping associations balked at the proposed "P3" network, fearing future price-fixing. MOFCOM concurred, saying the tie-up would have raised the groups' control of the vital Asia-Europe route to levels that would stifle competition and harm the public interest.

There was an important wrinkle here. Chinese rules are stricter than US or EU laws on classing some industry alliances as mergers. The P3 network sidestepped formal merger reviews in Brussels and Washington.

But Chinese law also allows authorities to look more widely at the industrial consequences. The P3 alliance would have transformed a sector that houses big Chinese players such as COSCO and China Shipping. Moreover, as the world's largest goods trading nation, with $4.16 trillion of exports and imports in 2013, China has an obvious interest in ensuring global trade stays cheap. For dealmakers, the denial is a shot across the bows just as mergers and acquisitions activity takes off. Global M&A is up 68 per cent in the year to date, at $1.51 trillion, according to Thomson Reuters data. Other tie-ups such as Holcim-Lafarge are awaiting clearance. And, MOFCOM has proved it isn't afraid to capsize deals it doesn't like.