This Coke’s Not for You

The flight from Hong Kong to Shanghai must have started to feel like a regular commute for Peter Lee.

The Vice-President for Coca-Cola in the Asia-Pacific region, Lee came to Shanghai often during summer and fall 1981. July, August, September—the trip was routine.

Seemingly a lot was at stake each time Lee came to Shanghai. Coca-Cola had already negotiated its way into the Beijing market, and now Lee was charged with bringing Coke back to Shanghai (it had not been legally sold there since the Chinese Civil War). His success or failure would determine Coca-Cola’s growth projections for the Chinese market, while also showing foreign multinationals the degree of China’s opening and the depth of its reforms.

After a courtesy call on the municipal government in July, Lee’s negotiations with the Shanghai Investment and Trust Cooperation began in earnest in August 1981. Coca-Cola wanted a production facility and bottling line in Shanghai, and it wanted to sell drinks to both foreign tourists and domestic consumers.

In exchange for access, Lee promised to hand over a refurbished bottling line capable of filling 500 bottles of Coke per minute. While not top of the line for Coca-Cola at the time (the Beijing line filled 1000/b.p.m.), the machinery was a step above anything which existed then in Shanghai. Lee also pledged new equipment for water treatment, CO2 purification, and packaging to sweeten the deal.

Lee’s counterparts in Shanghai were clearly excited about Coca-Cola’s offer. Privately, they expressed that Coke’s material contribution would greatly enhance carbonated beverage production in the city. Even the glass bottles and the caps sealing contents inside would see tremendous improvements in quality.

In order to protect Coca-Cola’s secret recipe, producers in Shanghai would still have to purchase the patented concentrate for the drink, but this did not seem to deter Shanghai’s trade officers. They were also not too concerned about a foreign company cornering the local market. They saw plenty of room for growth in Shanghai’s beverage sector and believed the city could accommodate both local and international soft-drinks. “As consumption levels grow,” the Municipal Import-Export Office explained, “the number [of soft-drink cases produced annually] will undoubtedly need to grow.” A new Coke bottling line could help to satisfy the growing demand Shanghai locals had for sugary drinks.

Lee often reiterated what the officials were already saying amongst themselves. In one letter to the Investment and Trust Corporation, he commented that Coke could bring delight to Shanghai’s consumers and knowledge to China’s beverage manufactures. “The soft drink industry in China must be truly revamped,” he wrote, and Coca-Cola was ready to be a part of this industrial transformation. “As the world’s largest soft drink Company, we are confident that Shanghai could look forward to a first class bottling plant.”

Lee also was a strong believer in the Shanghai market. He reminded his counterparts in China that “Shanghai sold about one million cases of Coca-Cola in 1948” and it could “easily” do so again in 1982. Coke knew that Shanghai’s citizens had a taste for cola in 1981, and that local demand would experience consistent, fast-paced growth.

While the negotiations were hardly finished in August-September 1981, an agreement to open a Coca-Cola production and bottling facility in Shanghai must have seemed within reach to both Lee and the Investment and Trust Corporation. The quibbles over what equipment Coke would provide or what amenities and infrastructure Shanghai would be responsible for looked like points of discussion that could easily be resolved.

There was one major roadblock in the way of the negotiations—although it is unclear whether Coca-Cola saw it coming. The trade officials in Shanghai knew that a deal with Coke was not a decision to be made by Shanghai alone. The central government in Beijing had to consent. As the Municipal Import-Export Office wrote, “[If] Shanghai is going to sell [Coca-Cola] to the masses, [we] must request approval from the State Council.”

News of the negotiations with Coca-Cola slowly reached higher-ups in Shanghai and, eventually, policy makers in Beijing. Finally, in late October, the National Economic Council and the National Import-Export Council made a decision: the world’s bestselling soft drink would not be coming to Shanghai—or any other Chinese city besides Beijing—any time soon.

The two central trade offices rationalized that Beijing’s opening to Coca-Cola was experimental and that the country as a whole was not ready to jump into the embrace of a foreign multinational. There were apparently many reasons to be cautious when it came to Coke. “The experience of some Third World countries,” their directive announced, “proves that importing concentrate or other ingredients to produce beverages not only wastes a lot of foreign currency reserves, but it also crowds out the domestic market.” The central government was not ready to sacrifice China’s homegrown beverage industry by giving Coca-Cola unfettered access to the country’s consumers.

The Economic and Import-Export Councils instructed all localities to cease negotiations with foreign soft-drink manufactures immediately, thus bringing Peter Lee’s efforts to an unsuccessful conclusion. Officials in Shanghai and other cities were, moreover, told to “strengthen their leadership” over domestic beverage production and ensure that the soft-drink market remained dominated by Chinese beverages.

While Coca-Cola was still allowed to sell its products to hotels accommodating foreigners and other tourist destinations across the country, the 1981 directive to “control” the sale of Coke certainly scaled back the company’s expectations for growth. Lee’s commuting to Shanghai—all for naught—also demonstrated the limits of China’s reform and opening in 1981. China’s central government sought to carefully manage the country’s economic engagement with the outside world, even as local stakeholders in China and foreign multinationals were agitating for more rapid economic reforms.

All of the above information and quotes are derived from Shanghai Municipal Archives (SMA) B246-5-408 (国家经委、进出口委等单位关于严格控制经销可口可乐、特区设厂的通知).


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