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POLITICAL ECONOMY
China's shipping veto changes world competition landscape
by Staff Writers
Beijing (AFP) June 19, 2014


China's veto of an alliance between major Western shipping firms shows its growing heft now extends to crucial global competition regulation -- and analysts say it uses the power to protect its own commercial interests.

Beijing's commerce ministry on Tuesday rejected a proposed cooperation agreement involving the world's three largest container operators -- all Europe-based -- citing a negative impact on competition, particularly on Asia-Europe routes.

As the world's biggest container shipping user China is a key market for the trio -- Denmark's A.P. Moeller-Maersk, France's CMA CGM and the Swiss MSC Mediterranean Shipping Company -- and they immediately abandoned the plan.

It marked the first time the world's second-biggest economy had blocked a proposed move involving solely foreign entities, and analysts said it showed that concerns over the impact on its own companies was crucial.

"The main purpose is to protect the overseas development of domestic shipping companies," said Jiang Yuechun, director of the Department for World Economy and Development Studies at the China Institute of International Studies.

"Chinese companies are facing more obstacles and all sorts of troubles overseas," Jiang told AFP, adding that it was "obligatory for the ministry to make some efforts regarding the survival and development of companies overseas".

Until now, merging multinationals have largely had to worry only about US and European regulators. But the changing landscape could also have positive aspects for industries in other countries outside the Western giants.

Mario Mariniello, economist at the Brussels based think-tank Bruegel and a specialist in competition policy and regulation issues, said there was "a structural difference between the Chinese regulation and the European regulation".

"In China, the impact on national competitors is a factor, so the law itself leaves a wider scope for interpretation," he added. "In Europe, you only take into account the impact on customers."

Mariniello said, however, that China has so far taken an overwhelmingly supportive approach, noting that over a five-year period Beijing cleared 97 percent of mergers it reviewed, while most of the rest were approved with conditions.

Just a single merger -- between Coca-Cola and Chinese beverage maker Huiyuan -- was blocked in 2009.

- 'Sigh of relief' -

The proposed shipping alliance, which would have been known as P3, had already been given the go-ahead by regulators in Europe and the United States, so China's veto came as a surprise.

The aim was to cut costs on Asia-Europe, trans-Atlantic and trans-Pacific routes by creating a system similar to code-sharing agreements among airlines, allowing the companies to put cargo on each others' vessels.

But in the statement announcing its move China's commerce ministry expressed concern, saying the alliance would increase the companies' "combined capacity in container shipping on Asia-Europe routes" and give them a "substantial increase in market concentration".

"The veto will help reduce the impact on Chinese shipping companies," industry expert Wu Minghua told China's Dongfang Daily newspaper.

But firms in other countries could also benefit.

"We breathed a sigh of relief to be honest," said Kim Kyong-Hoon, general manager of the Korea Shipowners' Association.

"Shipping companies have been suffering from a global slowdown and the emergence of such a powerful alliance would have dealt a real blow to the South Korean shipping industry," Kim told AFP.

"Had it gone ahead, it would have had a major impact on us."

Chinese transportation giant COSCO is a growing influence in world shipping, and part of an alliance that includes South Korea's Hanjin Shipping, Taiwan's Yang Ming Marine Transport and Japan's "K" Line.

China's new-found veto power over international business deals is another consequence of its rise towards the top of global economic league tables.

"In terms of balance of power, China obviously has the capability to block this kind of merger," Alexandre Baradez, a financial markets analyst at derivatives trading firm IG, told AFP.

"It is an economic heavyweight, which gives Beijing a free hand."

But Jiang, of the China Institute of International Studies, warned that Beijing had to tread carefully.

"Western countries and especially China's neighbouring countries are already worried about a rising China," he said.

"If China shows a tougher stance, it might be harmful to its future development in the international arena."

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