A day after the Chinese government stonewalled Coke's attempts to buy local juice maker Huiyuan (See: China trips Coke on Huiyuan Juice acquisition), it has come out strongly against accusations of protectionism, saying that the decision was consistent with its anti-monopoly law and the country remains open to foreign investment.

The Chinese ministry of commerce said it had ruled against Coca-Cola's $2.4-billion acquisition of Huiyuan as the deal would unduly restrict competition. The ruling, the first big test of China's antimonopoly law that took effect in August, could discourage foreign investment and undermine Beijing's calls against protectionism in global markets.

Huiyuan's founders and major shareholders endorsed the Coca-Cola deal as a way to improve marketing and product development. On Thursday, Huiyuan shares traded in Hong Kong plunged 42 per cent as investors sold stock they had bought in anticipation of a possible Coca-Cola takeover.

"The Chinese government's rejection of Coca-Cola buying Huiyuan is an objective judgment based on the anti-monopoly law. It's not trade protectionism," foreign ministry spokesman Qin Gang said at a news briefing.

"China's policy of expanding, opening up and positively utilising foreign investment has never changed," Qin said, noting that as he spoke, he was sipping from a glass of mineral water made by the Chinese arm of Switzerland's Nestle SA.

Qin gave no additional details of the reasons for Wednesday's denial. A brief report by the official Xinhua News Agency cited commerce ministry spokesman Yao Jian as saying Chinese policy on foreign investment would not be affected. "China, as always, proposes to actively attract foreign investment...and will create good conditions for investors from abroad to start operations in China," Yao said.

Coca-Cola's communications director for the Pacific region, Kenth Kaerhoeg, said the beverage giant made a "very comprehensive submission" to the ministry of commerce expressing its view that "there were no significant competition issues," and proposed solutions to issues raised by the ministry. "Despite all this the ministry of commerce has decided not to approve our application," he said.

The rejection of Coca-Cola's bid came despite its announcement this month that it would invest $2 billion in China over the next three years. Some observers took that as an attempt to build Chinese support for the Huiyuan takeover.

China is a top destination for foreign investment but the purchase of existing companies is still unusual and politically sensitive. After Atlanta-based Coca-Cola announced its bid, comments posted on Chinese Web sites called its founder, Zhu Xinli, a traitor. Huiyuan defended the deal as being in the best interests of the Chinese economy.

Beijing issued rules in 2006 that bar foreign ownership of companies in power generation, weapons and other industries, but fruit juice makers are not mentioned.