China's rejection of global shipping cartel a sign of strength

PUBLISHED : Monday, 23 June, 2014, 3:00am
UPDATED : Monday, 23 June, 2014, 9:31am

China's regulators have flexed their muscles and sunk a proposed global container-shipping alliance. The plan, led by Denmark's A.P. Moeller-Maersk, Mediterranean Shipping Co and CMA CGM SA, aimed to address the industry's chronic overcapacity and low charter rates since the start of the global financial crisis. Competition regulators at the Ministry of Commerce not unreasonably argued that the alliance, if approved, could lead to price-fixing between some of the world's largest shippers and stifle competition. Analysts have also observed that the tie-up could increase the foreign shippers' dominance of the vital Asia-Europe route at the expense of Chinese shippers.

But the decision - only the second by the ministry and a first that involves all non-Chinese companies - carries high risks for the whole industry, as it cannot fully recover at current low charter rates. This will hurt mainland shippers as well.

The first time the ministry blocked a transaction on competition grounds was when it scuppered an attempt by Coca-Cola to buy mainland juice-maker Huiyuan in 2009.

The proposed alliance has been approved by American and European Union regulators, but the three groups' US$64 million annual revenue on the mainland was enough to justify the intervention of the mainland regulators.

The move is widely seen as an attempt to protect domestic shippers, though some critics point out that the deal could have benefited them as well by lowering costs and helping to raise rates.

The mainland decision may also have broader significance. It may indicate that China is more ready than before to intervene in international business deals when it considers it necessary to guard its own national and industry interests when foreign companies band together. Maersk, the groups' leader, has accepted China's verdict and will "give up" on the alliance plan. Instead, it will consider other options to cut costs and address overcapacity.

Since the onset of the global financial crisis, regulators in major economies have stepped up and enhanced their enforcement powers against companies. China's are no exception. The latest decision is a shot across the bows that China's regulators will have to be factored in when businesses consider forming international alliances and mergers. It's a new global business environment with the rise of a resurgent China.