Chinese war of words hits Danone

The row with Wahaha is no laughing matter for Danone

A bitter dispute has broken out between French food group Danone and China's largest drinks maker, Wahaha Group.

Wahaha founder and chairman Zong Qinghou has derided a legal action from Danone, its joint venture partner, as "despicable and laughable".

Danone has filed a US lawsuit claiming Wahaha, its joint venture partner, is illegally selling copies of its juices.

Danone says Wahaha units are selling fruit drinks that are identical to those marketed by the joint venture.

Valuable brand

Wahaha has dismissed Danone's claim as a ruse to undermine the market value of its subsidiaries. It declares this is a tactic intended to force it sell off manufacturing units to Danone at a reduced price.

The departure of Danone from China and the capital market is not far away. Shan Qining, Wahaha spokesman

Danone agreed to set up five joint venture companies with Wahaha in 1996.

Under the terms of this deal Wahaha is prohibited from making products that compete with Danone's range.

Danone recently agreed to invest a further four billion yuan (£262m;$519m) into the deal in return for control over several Wahaha subsidiaries and the right to sell foodstuffs under the Wahaha brand.

It is these subsidiaries that make the disputed products.

While Danone claims Wahaha "is making unlawful use of the joint ventures' distributors and suppliers" in selling copies of its products, Wahaha, which means "laughing baby", has hit back hard at the French group.

Shan Qining, a spokesman for Wahaha, declared that "the departure of Danone from China and the capital market is not far away."

Rivals fall out

Zong Qinghou founded Wahaha in 1987 selling milk products from a school store.

The deal with Danone enabled Wahaha to invest in advanced production facilities and its output doubled between 1996 and 1997.

With its headquarters in Hangzhou in Eastern China, Wahaha has 70 subsidiaries spread across 40 manufacturing sites.

Danone, which is France's largest food company, has also faced other pressure from the Chinese authorities.

Last week customs officials in Shanghai seized thousands of bottles of Evian water, owned by Danone, on the grounds that they contained harmful bacteria.