McDonald's franchise-right sale in China may be stopped by monopoly complaint: lawyer

McDonald's restaurant in Beijing. Photo: AP

The efforts of McDonald's to sell its franchise right in China is likely to take a hit after a Chinese management consultancy lodged a complaint to Chinese regulator over concerns that the transaction may hurt the country's workers and consumers, a lawyer said on Monday.

Last week, Hejun Vanguard Group, a Beijing-based management consultancy famous for fighting against monopoly behaviors of foreign companies on behalf of domestic firms, filed a complaint to China's Ministry of Commerce, elaborating on legal violations by McDonald's in China and calling for stricter scrutiny over the American fast food company's deal.

Hejun's complaint follows a 20-year deal in January, under which McDonald's agreed to sell the franchise right of its restaurants in the Chinese mainland and Hong Kong to the Chinese government-backed conglomerate CITIC Ltd, CITIC Capital and American private equity firm Carlyle Group. The $2.08 billion agreement, which is under review by the ministry, allows the two Chinese investors to own a controlling stake of combined 52 percent in a newly established joint venture, which will act as the master franchisee of McDonald's outlets in the Chinese mainland and Hong Kong for the next 20 years, while Carlyle Group and McDonald's will have 28 percent and 20 percent of the new company respectively.

"If confirmed that the McDonald's transaction goes against Chinese laws related to anti-monopoly and franchise business, the country's regulators will accordingly impose punishments and even call a halt to the deal," Hao Junbo, a Beijing-based lawyer, told the Sino-US.com.

Considering Hejun's complaint that accuses McDonald's for selling its China franchise right at an unreasonably high price, the US fast food chain, if convicted, will be found guilty of violating Article 17 of China's Anti-monopoly Law, which bans companies with dominate market position from selling commodities at unfairly high prices, Hao said.

The lawyer, who has rich insights into international litigation, added that the deal signed by the four large companies is also suspected of "violating Article 20 of the Anti-monopoly Law, which outlaws concentration of business operators".

Hejun squatted on the higher-than-average royalties McDonald's charges in China. "By abusing its dominant market status, McDonald's charges royalties of 6 percent of its sales in China, compared with an average 3 percent globally and 4 percent in the United States," the complaint said.

However, the lawyer stressed that a bone of contention lies in whether or not the allegations against McDonald's are based on the factual violation of laws, which needs a thorough investigation of the Ministry of Commerce.

"There is no similar case in the world. Although the victories of Hejun in the previous anti-monopoly lawsuits indicate that it has some experience in the area, the final conclusion in the case will be based on the investigation of the commerce ministry," Hao said. "No matter what Hejun's motive is, the media attention (on the McDonald's case) will at least draw close attention from the related departments to such a kind of a deal, which places great value on China's efforts to enhance the transparency of approval over important (international) deals and promote the rule of law."

Hejun became famous for its efforts in helping several Chinese companies in their anti-trust battles against Coca-Cola and Apple, according to media reports.


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