Coca-Cola's bid for Huiyuan juice could catapult it to a lead position in China's emerging juice market, but the soft drinks giant must first placate China's competition watchdog.

Shares in China Huiyuan Juice Group slipped back from HK$11.2 to HK10.9 by the end of trading on 3 September, following reports that China's competition authorities may block a US$2.4bn takeover bid by Coca-Cola.

China's official news agency, Xinhua, quoted an academic from a 'think tank' tied to the Ministry of Commerce as saying that the proposed acquisition "faced many difficulties".

The deal, one of the largest foreign takeovers ever proposed in China, looks increasingly likely to be a test case with competition authorities, which have previously shown reluctance to allow Chinese firms to fall under foreign control.

Part of the problem is that China enacted a new Anti-Monopoly Law in August 2007, which offers relatively little time for precedents in this case.

And, in a country where even Google is not the number one search engine, it is clear that China values and promotes its homegrown talent. Authorities have previously stepped in to prevent foreign property buyers from taking control of domestic firms.

Market research group Datamonitor estimates that Huiyuan, actually based in Hong Kong, has a 40% share of the Chinese juice market.

However, one analyst said today of the battle to gain regulatory approval: "China's juice market is fragmented, and the proposed combination would not create a dominant player."

For Coca-Cola, a successful deal would be one of the largest in its history, and analysts say that it would hand the group a strong position in China's blossoming juice market.

That market was worth around US$1.3bn in 2006, according to Datamonitor's Matthew Taylor. He said annual growth rate had been an average 7-8% since 1999.

"China is showing a similar growth rate to the UK, compared to the US, which has been pretty static. However, China's market is comparatively much smaller than the UK's market," Taylor told just-drinks today (4 September).

Some observers have questioned Coca-Cola's bid price, which had represented more than a three-fold increase on Huiyuan's pre-offer share price.

Taylor said that pay-back from the deal could take time, but that Coca-Cola would benefit long-term from the market position it stood to gain. He said that the current struggle for power on China's emerging soft drinks market was "all about volume".