The rejection of Coca Cola's proposed takeover of China's Huiyuan Juice Company is typical of business dealing with China, today.  After all, China is a country that has closed itself off from the rest of the world, for much of the past.  In opening up to the West, it is not seeking to become a global friend but, instead, is motivated by the realization that they are several decades behind the rest of the world, and they can also use the rest of the world to pull themselves up.

That is why the Yuan is priced the way it is against foreign currencies.  The low price not only allows Chinese exports an advantage in the international markets but, also, penalizes imports.  Thus, I can buy lunch for the week with the same amount of money that it costs to buy a small bottle of Listerine, in China.  Plus, there are import tariffs.  When I first came to China, I ordered a battery for my computer from Gateway (there were no knock-offs available).  With import fees and shipping, it cost about $300.

The Chinese also employ a lot of foreign experts to help with various things, but they are not loved nor really wanted.  Again, it is the realization that they need help from people from outside the country, but they wish they did not.

It is a more general phenomena than just these few examples.  When you take it to the top level, investment in China by outsiders, it is not very welcome, and it is always made difficult.  To incorporate as a foreign company, in China, for example, one is required to have Y1,000,000 of equity capital; similar investment by a local requires orders of magnitude less in initial capitalization.  Then, when you talk of foreign investment in the stocks of listed Chinese companies, there is a multi-tier system of stock ownership rights.  Government officials can own shares with the most rights, and foreign investors have the least rights.  

As a merger arbitrageur in the 1980's, we did a lot to do away with unfair, multi-tier stock systems.  In those cases, we were helping U.S. takeover law to evolve into something that was not tantamount to management entrenchment.  With the system of Chinese stock tiers, we have always been cautious.  Now, that it comes time for true colors to be shown, in something like a venerable international corporation trying to buy a simple juice company, in China (moreover, one listed on a major stock exchange), it may be time to think about what investment, in China, will really get for you. 

The rules of the game are still being developed in China, in general.  As I tell my students and clients, information is the most important thing, in investment; uncertainty translates into risk.  A lot of laws have been put into place, around the word, to ensure that disclosure of information is maximized, in order to promote a fair investment landscape.  China, however, still only has a partially opened door, concerning information.  You can barely find newspapers and magazines from outside of China, and I once saw the police come into a Starbucks and tell the manager that he should not display the English language version of a local Chinese newspaper.  China still has a long way to go, in many ways.  As far as concerns development of law for business, it is still minimal, and the old boy network is a larger factor than the written law (the local expression is guanxi).  Of course, that particular aspect is not a uniquely Chinese, communist or socialist problem.  In the 1980's, for example, one of my friends tried to takeover a British company, and the British old boy network, not the actual written law, defeated him.  However, most of the world has come a long way, in developing protection and disclosure laws for business and investors. 

Of course, if you look at how New Zealand's Fonterra lost several hundred million in its investment in the Chinese milk company, Sanlu, perhaps it is not such a bad thing that Coke lost out on its Huiyuan bid.  Moreover, Fonterra could never have guessed that they would ever have such a problem with a simple product, like milk.  Even worse, people made sure that the discovery of the problem with the milk was covered up, not disclosed, for more than a year.

In a more recent article in Forbes (June 18, 2009) Wang Xiaodong, an outspoken pro-China essayist, is quoted as saying that the rejection of the Coke deal was just stupid revenge [for how the West treats China] http://www.forbes.com/2009/06/18/china-wang-xiaodong-rio-tinto-bhp-beijing-dispatch.html