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1 Talking Point 6 Week in 60 Seconds 7 Economy Week in China 8 Cross Straits 9 Internet and Tech 10 China and the World 11 Banking and Finance 13 Chinese Consumer 14 Energy and Resources 26 April 2013 15 Society and Culture Issue 190 18 And Finally www.weekinchina.com 19 The Back Page Not without conditions m o c . n i e t s p e a t i n e b . w w w Calling a halt: why China’s antitrust bosses are flexing their muscles in international M&A Brought to you by Week in China Talking Point 26 April 2013 Strings will be attached International M&A deals now face a formidable hurdle: China ong stretches of China’s com - What’s the background to the Lmercial history have been about latest antitrust cases? defending domestic monopo - Beijing has granted approvals lies rather than worrying for two high-profile deals this about anti-competitive be - month. First to get the green haviour. The manufacture of light was Glencore’s $30 billion silk was protected on pain of takeover of Xstrata. The deal death, for instance, with the had proved challenging from threat of a grisly end for any - the start, living up to its Everest one caught smuggling silk - codename (John Bond, depart - worms out of the country. ing chairman of Xstrata, and Si - That stopped the trade from mon Murray, who chairs Glen - arriving on the fringes of Eu - core, are both said to be rope until the middle of the mountaineering enthusiasts). sixth century, when two There was even last-minute Nestorian monks brought silk - drama, when former British worm eggs to the court of the leader Tony Blair was called Emperor Justinian in Byzan - in to bridge differences be - tium. tween Glencore and the It was the same for Qatari Investment Author - paper, invented by the ity, a leading shareholder Chinese but kept hid - in Xstrata, over price. den from foreign eyes According to the until 751 AD, when the British media, the two Ottoman Turks de - sides were brought to - feated a Tang Dynasty gether at a midnight army. Among the spoils meeting at Claridge’s, the of war was a small group London hotel, with Blair of Chinese papermakers, who pocketing a fee of $1 mil - were marched to Samarkand lion for his role in break - and forced to reveal their craft. ing the impasse. Much later there was the Glencore made its origi - demise of China’s tea monopoly, nal offer to take over Xs - when the British employed an ad - trata last February, although venturous botanist to smuggle the bid didn’t get approval seedlings into India to break the from shareholders until Novem - Chinese grip on the hugely popular changing, with China’s antitrust reg - ber. But the longest wait of all – 15 drink (see WiC57). ulators growing increasingly promi - months – was for China’s antitrust P h o t o In each case, China’s imperial nent overseas too. As multinationals team to announce its own re - S o u r c court was anxious to protect its in - seek their approval for mergers and sponse. That finally came last week, e : I m a terests. But its efforts were largely takeovers, China’s decisionmakers as an approval but with conditions. g i n e C focused within its own borders. In are becoming more ambitious in Glencore must sell its $5 billion Las h i n a the modern era, that emphasis is their reach than ever before. Bambas copper project in Peru and 1 Week in China Talking Point 26 April 2013 the new entity must supply a mini - mum of 900,000 tonnes of copper to its Chinese clients for each of the next eight years. At least 200,000 tonnes of this total will be priced at an annual benchmark level. Then this week there was news that China’s Ministry of Commerce (Mofcom) was also approving Japan - ese trading house Marubeni Corp’s $5.6 billion purchase of US grain merchant Gavilon. Again, fairly stiff conditions are being imposed with Mofcom insisting that Gavilon and Marubeni must maintain separate, independent trading units when selling soybeans to China, with strict firewalls to prevent any exchange of market information. So Chinese regulators are flexing their muscles? Although other government agen - cies are involved in policing anti- monopoly rules inside China, Mof - com has taken the lead in reviewing international mergers that may im - pact on the Chinese market, under an Anti-Monopoly Law that came into effect in 2008. Of course, few multinational businesses will want to rile the au - thorities in Beijing if they are plan - Merger proved turbulent for Xstrata’s departing chairman, John Bond ning to boost sales to Chinese consumers. But China’s regulators even if they have a relatively minor look similar to Chinese approval of have also set the benchmarks for effect on the Chinese market or in - a takeover by Russian potash firm triggering antitrust reviews rather volve companies lacking significant Uralkali for its compatriot Silvinit low, requiring that any “business assets in the country. two years ago. At the time Mofcom concentration” with $63 million in Aside from the number of deals claimed the merger threatened to annual China sales, as well as $1.5 undergoing review, there is also a push up prices for potassium chlo - billion in global revenues, must be sense that the Chinese can be more ride, so it stipulated that the new submitted for regulatory approval. demanding than other antitrust entity must continue selling to Chi - Inevitably, this means that many regimes in applying conditions to nese buyers in the same way as be - multinational acquisitions will transactions. fore, with prices established by the need to be reviewed and last year Glencore’s experience is one ex - “customary negotiation process”. alone there were 201 notifications ample, with both types of condi - Two acquisitions in the hard disk from companies wanting clearance, tionality applied: structural (in the drive sector – Seagate’s purchase of (about the same total as the year be - divestment of the Las Bambas mine) Samsung’s HDD business, and fore). and behavioural (in the stipulations Western Digital’s buy-out of Hi - P h o t o It also means that Mofcom is as - that copper be sold at pre-deter - tachi’s disk drive unit – were also S o u r suming a much more prominent mined quantities and within a pre- approved with more onerous con - c e : R e role in international M&A than be - agreed pricing structure). ditions than many had anticipated, u t e r s fore, applying the rule to takeovers In particular, the pricing rules with both purchasers required to 2 Week in China Talking Point 26 April 2013 Finally got the go-ahead to buy Xstrata: Glencore’s chairman, Simon Murray “hold separate” their acquisitions, and treat all original equipment “This is extremely low for a mar - maintaining them as independent manufacturers in a non-discrimina - ket threshold,” a source told the FT. competitors with standalone sales tory manner. “This case is about China securing and pricing. access to resources at a fair price; it This was another case of the Chi - It’s not just market economics at has nothing to do with antitrust.” nese authorities going further than work? their counterparts in Europe and No, there’s a sense that politics So China’s rulings have different North America. The Seagate-Sam - trumps economics in some of Mof - motives to reviews in the US or Eu - sung transaction saw no remedies com’s decisions, and that there are rope? required by the US or EU competi - other factors being considered, in - Much of China’s antitrust approach tion authorities, while the EU re - dustrial policy among them. draws on similar legislation in the quired only minor remedies in the These realities reappeared in the West in assessing market concen - Western Digital case. media discussion of the bids from tration, as well as its impact on mar - Then in May last year Mofcom Glencore and Marubeni this month. ket access, technological progress was once again the only antitrust Noting that the takeover of Xstrata and pricing for consumers. authority to impose conditions in didn’t seem to raise the same level But the Chinese have also added clearing a deal, this time for of concern about potential market further criteria that allow for more Google’s $12.5 billion bid for phone abuse with other regulators, the Fi - of an industrial policy edge to their maker Motorola Mobility. After ex - nancial Times highlighted that the decisionmaking, especially a clause pressing concerns about the new combined share of copper sales by requiring an assessment of how a combination of Google’s hugely Glencore and Xstrata to Chinese merger or takeover might impact P h o t o popular Android operating system buyers looks relatively small (a little on “national economic develop - S o u r c and Motorola’s extensive portfolio less than 18% of imports in 2011 – or ment”, as well as a loosely-defined e : I m a of tech patents, Mofcom added pro - well below the 30-35% level that typ - stipulation that allows for consider - g i n e C visos including that Google provide ically triggers antitrust action in Eu - ation of “other factors as defined by h i n a Android on a “free and open basis” rope or the United States). the State Council Anti-Monopoly 3 Week in China Talking Point 26 April 2013 Planet China Strange but true stories from the new China IN HOT WATER.

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