After Britannia, Danone locks horns with its Chinese partner

It may sound like a hearty laugh to most, but France''s largest food group, Danone, has found that its dispute over imitation products with China''s largest drinks maker, the Wahaha Group, is no laughing matter. Incidentally Wahaha means, "laughing baby".

The two have got embroiled in a bitter dispute that has led to the French company filing a lawsuit in the US claiming Wahaha, its joint venture partner, of illegally selling copies of its juices, a charge that Wahaha founder and chairman Zong Qinghou has dismissed as "despicable and laughable".

Danone has accused its Chinese partner of selling fruit drinks that are identical to those marketed by the joint venture, which Wahaha claims as a ruse to undermine the market value of its subsidiaries.

Wahaha has also contended that the lawsuit is a ploy on Danone''s part to force it to sell- off manufacturing units to Danone at a low price.

Observers say that the dispute may lead to Danone''s departure from China and the Chinese stock markets.

In 1996 Danone and Wahaha agreed to set up five joint venture companies in China and Wahaha agreed not to make products that would compete with Danone''s range.

Danone recently agreed to invest a further $519 million into their venture in return for control over several Wahaha subsidiaries and the right to sell foodstuffs under the Wahaha brand.

Danone has said that it is these subsidiaries that make the disputed products and has accused Wahaha of "making unlawful use of the joint ventures'' distributors and suppliers" to sell imitations of its products.

Zong Qinghou, who founded Wahaha in 1987, selling milk products from a school store used the deal with Danone to invest in sophisticated production facilities, doubling its output between 1996 and 1997. Today, it owns 70 subsidiaries across 40 manufacturing sites.

The Chinese authorities are clearly not amused with Danone; last week Shanghai customs officials seized Danone''s stocks of its mineral water brand Evian claiming that the product contained harmful bacteria.

Danone was recently embroiled in a dispute with the Wadia-owned Britannia Industries over the overseas marketing rights of the Tiger brand of biscuits.