MNCs in the News-2014-09-05

Those browsing the news on foreign companies in China and past MNCs in the News digests know that Chinese antitrust regulators have been searching Microsoft for evidence of inappropriate bundling and other practices and have explicitly criticized Microsoft’s willingness to be forthcoming with relevant information. Matters apparently have escalated lately with China’s State Administration for Industry and Commerce (SAIC) publicly and strongly criticizing the American software giant for its transparency. According to observers, the publication of SAIC’s warnings is unprecedented and is suggestive that China may impose severe fines on Microsoft as companies that are deemed cooperative typically receive leniency (Charles Clover, “Microsoft Ordered to Comply over China Antitrust Allegations,” Financial Times, September 1, 2014)

For some time now, warm China-Russia relations and a coincidence of economic needs have been lubricating increasing energy cooperation between the two countries at the government-to-government and company-to-company levels. Russian energy giant Rosneft, for instance, is courting Chinese investment, most likely by CNPC, which already cooperates with Rosneft, in Vankor, a Rosneft onshore energy subsidiary. Rosneft’s proposal came in tandem with a ceremony launching work on the Russia-China Siberia pipeline that will deliver US $400 billion of Russian gas to China. Chinese Vice-premier Zhang Gaoli expressed hope that hoped Chinese and Russian oil and gas companies will increase their cooperation (Jack Farchy and Lucy Hornby, “Rosneft Proposes Chinese company take Stake in Russian Oilfield,” Financial Times, September 1, 2014; “Russia and China to Start Construction of Joint Gas Pipeline,” WantChinaTimes.com, September 2, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20140902000044&cid=... and “Zhang Gaoli Hopes Chiense, Russian Energy Giants Expand Cooperation,” WantChinaTimes.com, September 3, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20140903000074&cid=...)

A 2014-08-29 “MNCs in the News” digest offered summary information about China’s plan to boost the health of its health care services industry by allowing foreign investors, in various pilot cities and provinces such as Beijing, Tianjin, and Hainan, to wholly own hospitals. At present, there already are wholly owned private hospitals in China, but they are owned by Hong Kong and Taiwan investors. Of note is a planned investment by German Artemed Group, which plans to establish the first wholly foreign funded institution in the Shanghai Free Trade Zone (“Overseas-Invested Hospitals to Push China’s Healthcare Reforms,” China Daily, September 1, 2014, http://www.chinadaily.com.cn/business/2014-09/01/content_18523081.htm)

China continues to emphasize that recent antitrust probes against foreign firms and the scale of punishment have nothing to do with a firm’s nationality. Xu Kunlin, the Director of the National Development and Reform Commission (NDRC) Bureau of Price Supervision and Anti-Monopoly, stated, “we treat local and overseas companies equally,” arguing that the NDRC’s actions had to do with the government’s desire to increase the role of the market, protect consumers, and increase efficiency. Xu added most NDRC probes flow from public complaints and pointed out China also has fined domestic premium liquor producers, milk powder producers, and so on (Lan Lan, “Monopoly Probes Treat Firms Equally,” China Daily, September 2, 2014, http://www.chinadaily.com.cn/business/2014-09/02/content_18527162.htm; “China’s Anti-Monopoly Law Fair and Strict: Official,” China Daily, September 3, 2014, http://www.chinadaily.com.cn/business/2014-09/03/content_18542073.htm)

As if on cue, the NDRC announced it had fined the Zhejiang Insurance Industry and 23 provincial-level insurance companies roughly US $18 million for fixing new car insurance discounts and other anticompetitive practices. It also reported that it had dropped its probe of nine other insurance firms including US insurance firm Liberty Mutual’s Zhejiang subsidiary and Japan’s Aioi insurance. Around the same time, government state broadcaster China Central Television suggested in a report that Xiaomi had accessed the private data of users in Taiwan without their consent with Xiaomi later changing its operating system to provide for increased user privacy (Lan Lan, “Chinese Insurance Firms Fined $18m for price-fixing,” China Daily, September 2, 2014, http://www.chinadaily.com.cn/business/2014-09/02/content_18534324.htm; Liang Shih-Huang and staff, “CCTV Asks if Xiaomi Has Accessed Users’ Private Data,” WantChinaTimes.com, September 2, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20140902000028&cid=...)

Accelerating its efforts to secure its position in China, German car company Mercedes has been undertaking various changes. These have included the reorganization of its dealership structure, increased investments in its BAIC Motor joint-venture, and efforts to transfer technology and facilitate Chinese auto exports. The company also has been trying to prepare for penalties in conjunction with an NDRC investigation of its spare part, vehicle, and service pricing practices. Suspicions that NDRC penalties will be substantive flow from a Chinese regulator’s comments and the fact that Mercedes has been slower to reduce spare prices than other firms such as BMW (Tom Mitchell, ‘Mercedes Faces Speed Bump in Luxury Car Sales Drive in China,” Financial Times, September 2, 2014).

The Shanghai Husi Food Co. scandal continues to generate fallout across the Chinese food sector and for indirectly stigmatized firms such as Yum Brands. For example, McDonald’s, a Shanghai Husi client, will increase its surprise inspections of its China food suppliers and push harder for continuous video monitoring of supplier plants. McDonald’s also created a position for food safety in China and a whistleblower hotline. In an effort to repair its image, OSI, the parent of Shanghai Husi, has hired US Golden State Foods to manage its plant in Guangzhou, though some reports indicate the company may quit China entirely (“McDonald’s Plans for More Surprise Inspections,” China Daily, September 3, 2014, http://www.chinadaily.com.cn/business/2014-09/03/content_18536250.htm; Wang Zhuoqiong, “OSI Hires Manager from US for Meat Plant,” China Daily, September 3, 2014, http://www.chinadaily.com.cn/business/2014-09/03/content_18536249.htm; “Yum Sales in China Slide after Husi Probe,” China Daily, September 5, 2014, http://www.chinadaily.com.cn/business/2014-09/05/content_18550142.htm; “McDonald’s Meat Supplier OSI Might Quit China after Scandal,” WantChinaTimes.com, September 4, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20140904000140&cid=...)

Foreign food companies have been stepping up their corporate social responsibility initiatives in tandem with rising concern about food safety, childhood obesity, and diabetes. Most recently, Ferrero China, a subsidiary of an Italian confectionary company that produces the famous Ferrero Rocher chocolate, has been working with the Chinese Center for Healthy Education to increase nutrition knowledge, to encourage exercise, and to improve school efforts to train students in healthy lifestyles (Liu Zhihua, “Ferrero Hits Sweet Spot with School Program,” China Daily, September 3, 2014, http://www.chinadaily.com.cn/business/2014-09/03/content_18536256.htm)

American non-profit charities China Labor Watch and Green America have focused attention on the practices of Catcher Technology, a Taiwanese firm that makes casings for smartphones, tablets, laptops, and MP3 players in China for firms such as Apple, Dell, LG, Samsung, and Sony. According to an investigation by these groups a Catcher Technology plant in Suqian, workers have been exposed to toxic chemicals, made to pay for drinking water, and cheated of wages. Moreover, the plant polluted local rivers and imposed forced overtime and neglected safety training. Many of these violations seem to persist despite previous revelations to end customers (Joe Miller, “Apple and Dell Supplier in China ‘Neglects Staff Safety,’” BBC News, September 4, 2014, http://www.bbc.com/news/technology-29062514)

During a recent visit to Japan, Indian Prime Minister Narendra Modi touted India’s young and skilled workforce and the size of its market and promised to loosen regulations in areas such as rail, defense, and nuclear equipment. He said Japanese manufactures like Suzuki will lead the workforce by providing training. Suzuki has historically cultivated a strong relation with India and is the biggest auto manufacturer in India. During the visit, Modi and Japanese Prime Minister Shinzo Abe developed a 5 year-plan to increase the amount of Japanese investment and lending in India’s public and private sectors by US$ 33.2 billion (“Modi markets India to Japan Inc.,” Nikkei Asian Review, September 3, 2014, http://asia.nikkei.com/Politics-Economy/International-Relations/Modi-mar... “Suzuki Chairman says ‘Hope Modi will serve as a bridge for the stronger Japan-India relationship’ at the Modi’s lecture presentation,” Nikkei, September 2, 2014, http://www.nikkei.com/article/DGXLASDZ02H70_S4A900C1000000/

Japanese Prime Minister Shinzo Abe will visit Bangladesh and Sri Lanka with the CEOs of 40 small to medium-sized trading and construction firms like Itochu Co. and organizations like JETRO as part of Japan’s effort to gain a greater share of infrastructure work in these two countries. In Bangladesh, Japan will support the construction of the country’s electric grid and roads. Bangladesh’s GDP has grown over 6 percent per year which has led the Japanese government to see great opportunities for Japanese firms. Abe’s visit to Sri Lanka also has to do with strengthening sea-lane security in the Indian Ocean (“Japanese Prime Minister visits Bangladesh and Sri Lanka with 40 companies and organizations,” Nikkei, September 2, 2014, http://www.nikkei.com/article/DGXLASFS01H16_R00C14A9PP8000/)

At the 11^th Asia Pacific Economic Cooperation (APEC) forum Energy Ministerial Meeting, energy ministers from 21 APEC economies, which consumes most of the world’s energy, issued a declaration calling on an end to fossil fuel subsidies that promote wasteful consumption, launched a new liquid natural gas Trade Facilitation Initiative, and inaugurated an APEC Sustainable Energy Research Center that will promote information exchange, research and development, and the application of new technologies. Of further relevance to multinational corporations is the effort to promote low carbon model towns, increase the share of renewables, and to facilitate trade and investment in energy goods and services (APEC, “APEC Ministers Open New Chapter in Energy Cooperation with Beijing Declaration,” September 3, 2014).