China’s surprise rejection of the P3 Network — an ambitious VSA involving Maersk Line, Mediterranean Shipping Co. and CMA CGM — was fueled largely by its concerns that the three largest global carriers would have controlled up to 47 percent of capacity in the Asia-Europe trade, said Richard Gluck, of the law firm Garvey Schubert Barer. But Chinese authorities looked beyond just market share and how the P3 fit into the country’s industrial policy, he said.

　　Gluck said the rejection of the P3 on June 17 was more about wanting to ensure affordable rates for exports and imports than protection of its top two national carriers, Cosco and China Shipping, as many in the industry have speculated.

　　“They looked at the deal on not just how it would affect the shipping industry but China’s economy, jobs in China and the five-year plan,” Gluck said, quoting the maxim that the U.S. is run by lawyers, while China is run by engineers and economists.

　　The P3 carriers tried several times to amend the VSA to the satisfaction of Chinese authorities, but the Anti-Monopoly Bureau of China’s Ministry of Commerce, known as MOFCOM, didn’t find the proposed remedies sufficient, according to a report by global legal firm Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates.

　　It’s important not to view China’s regulatory process through a Western lens, Gluck said. MOFCOM didn’t make the decision solely, having consulted with the National Development and Reform Commission, the arm of the state council. This is the rough equivalent of the U.S. Federal Maritime Commission consulting with the White House on whether to allow the P3 to operate in the trans-Atlantic and trans-Pacific trade lanes.

　　In an analysis of the MOFCOM’s decision, Skadden noted Chinese authorities took issue with the VSA going beyond the traditional loosely structured format to “a tightly, jointly operated concentration in which only the technical management of individual vessels remained independent from an operating perspective.”

　　The decision also said the pact would raise barriers to entry into the market, though the law firm noted MOFCOM didn’t support the finding with detailed analysis. The pact would also “squeeze development” of other carriers, the law firm said in its analysis of the MOFCOM decision.

　　Aside from claiming the P3 would “significantly enhance” the market power of the parties, according to a translation of its decision, MOFCOM also pointed out how the degree of concentration would rise using the Herfindahl-Hirschman Index, a metric used by the U.S. Department of Justice. China’s use of the index shouldn’t be surprising since it modeled its roughly 5-year-old maritime regulatory process on that of the FMC.

　　“China focuses on what’s good for China. They are not going to be swayed by what the U.S. and Europeans do,” said Gluck, referring to how FMC allowed the P3 to go forward and the European Union said the pact didn’t raise any immediate anti-competitive concerns.

　　There were also likely cultural issues at play, too, Gluck said. Many in Chinese leadership recall onerous burdens placed on the country in past years by the Japanese and Westerners dating back to the 1800s.

　　Carriers “should talk to (Chinese regulators) and get a read on the proposal before they announce it,” Gluck said. “It’s better to see whether they can ameliorate concerns rather than filing it and waiting to see what happens.”