The emergence of China as an economic superpower

All the analysts thought they had every scenario planned out, from rejections to counter offers, but perhaps no one expected this: China, of all places, is expected to have a regulatory role in Microsoft's takeover of Yahoo! How so? The story begins with a series of antitrust laws enacted by the National People's Congress last year. What Beijing wanted to give rise to was the right for Chinese regulators to examine the legality of foreign direct investment. Apparently too many foreign multinationals are acquiring Chinese companies under the nose of the government who notices these issues, but did not have the legal backbone to deal with the threat. But why would Chinese regulators have ties to the merger of two American multinationals? The answer is Alibaba.

Everyone who wanted to be a part of Alibaba's IPO would know that it was indeed better to invest indirectly through its parent company, Yahoo, who owns about 40% of the Chinese e-commerce business. Although Alibaba spokesmen said that Yahoo's buyout will initiate a buyback provision, thereby rendering Alibaba independent of Microsoft, Chinese officials are not so sure. Or maybe just trying to inflate their egos.

For years now, China has tried to step into the "sphere of regulatory influence," which for now is limited to the United States and the European Union. Hopefully, the new antitrust laws will change all that, but unfortunately, beginning with the Microsoft-Yahoo takeover. Considering that Microsoft and Yahoo does a substantial portion of their Asian business in China, they've learnt to cooperate with the government for the best deals, and this just might backfire on Microsoft. Regardless of China's decision, which might take longer than anyone expects, the value of the internet business may be damaged, experts say. Other Asian countries will take the outcome seriously and use it against Microsoft to their own end.

In the end, the whole regulatory thing will probably be larger than just Alibaba, as China will undoubtedly exert political and nationalist influence on the issue. Too bad for Microsoft.