The dispute between Chinese beverage company Wahaha and its French partner Danone took another unusual and very public twist on Friday with the Wahaha president admitting he made mistakes but insisting the original contract he signed isn't valid.

Wahaha's president Zong Qinghou says the original agreementbetween the two beverage giants was never approved by China'strademark office and so is not in force or effect.

In a letter posted on one of China's major web portals,Sina.com, Zong said a trademark-license contract must be approvedby the Trademark Office of the State Administration for Industryand Commerce but he never submitted the original which restrictsChina's largest drink producer from independently expanding.

"We did sign the contract," admitted the president of theHangzhou-based conglomerate. "At the time, Wahaha was only focusedon management concerns and the interests of employees and knewnothing about capital operations."

"My ignorance and breach of duty brought trouble to thedevelopment of the Wahaha brand," said Zong.

"Wahaha has fallen into a trap deliberately set by Danone," hesaid.

The ugly board room dispute spilled into the public domain whenWahaha complained that Danone was putting it in a developmentstraightjacket, while the French company was actively investing inother beverage companies around the country.

Danone says the joint-venture agreement does not allow Wahaha tocreate new businesses that exclude the French company, but Wahahahas set up a series of independent companies that compete withproducts made by the joint venture.

Wahaha responds to that allegation, by saying Danone has doneeven greater damage to the partnership by investing tens ofmillions of yuan in numerous other competing beverage makers inChina.

In Friday's on-line letter Wahaha says, "Danone is trying toforce Wahaha to implement the invalid contract...in defiance ofChinese law."

Hangzhou Wahaha Group Co. Ltd., which is 51 percent owned byDanone, has turned down the French firm's offer of four billionyuan for its remaining assets.

The French food giant on Wednesday issued an ultimatum, givingits Chinese partner 30 days to end the feud, otherwise Wahaha'sbusinesses that were established outside the joint venture will besued.

At Wednesday's news conference, Danone accused Wahaha ofviolating a non-compete clause in a joint venture contract signedin 1996 by secretly setting up independent sales companies.

"Wahaha did set up other companies, but not secretly," Wahahasaid in response. "These companies were audited by Danone everyyear."

"The fact is Danone has violated the spirit of the contract,"said Wahaha.

Wahaha accuses Danone of doing a number of deals in China thathave undermined the Wahaha-Danone joint venture. According toWahaha, these include:

-- In 2000, Danone bought 92 percent of Wahaha's biggest rival,Guangdong Robust Group, which Wahaha says cost it market share andthe loss of 49 million yuan in profits that year.

-- The French company has bought stakes in at least sevenleading Chinese food and dairy companies.

-- It has 45.2 percent stake in Shanghai-based Bright Dairy andFood Co, and a 22 percent stake in Beijing-based Huiyuan JuiceHoldings Co.

-- Last December, Danone also set up joint ventures with MengniuDairy Co, China's largest liquid milk producer, in which it owns 49percent of the stake.

"Danone has pumped over US$170 million into the joint venturesover the past decade," said Zong.

Danone issued a brief announcement Friday evening, expressingstrong dissatisfaction with Wahaha's on-line announcement, andreminding the Chinese company of the deadline for solving theproblem.

When commenting on the dispute, a spokesman for China's Ministryof Commerce said that the ministry will handle the issue accordingto the country's existing rules and regulations on foreignacquisitions.

Chinese authorities have a delicate balancing act on their handsin trying to find a solution that both beverage companies canswallow. The spokesman says the ministry wants foreign investors tomaintain their confidence in the Chinese market but must alsoprotect the rights and interests of domestic enterprises.

Wahaha, which started off as a factory in a small school, hasgrown into a conglomerate that produces more than a dozen productsincluding bottled mineral water, dairy products, and juicepacks.

(Xinhua News Agency April 15, 2007)