China could squash Microsoft-Yahoo deal

As if Microsoft's attempt to buy out Yahoo wasn't in enough hot water, here comes more trouble: A new Chinese antimonopoly law, slated to take effect in August, could end up killing the deal.

The New York Times reports that the law "gives Chinese regulators authority to examine foreign mergers when they involve acquisitions of Chinese companies or foreign businesses investing in Chinese companies’ operations."

At issue would be Yahoo's 2005 investment in China's largest e-commerce firm, Alibaba.com. Yahoo owns 40% of the company.

It's too early to tell whether China will try to squash the buyout, but I'm betting that it will. Recently, the Chinese company Huawei Technologies was forced to pull out of a planned investment in 3Com because of national security concerns in the U.S. So China may well have payback in mind.

In addition, as the Times points out, "the Chinese have in recent years become more and more alert to the role the Internet plays in their economic and political affairs." So any deal involving the Internet will most likely come under scrutiny, especially a blockbuster like this one.

If the deal doesn't go through, I think it will be a good thing for Microsoft. As I've written before, the buyout would saddle Microsoft with an underperforming company, and divert its money and resources from more important ventures.

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