MNCs in the News-2014-11-07

FAW-Volkswagen Automotive, a joint venture (JV) between FAW Group and Volkswagen (VW), is recalling roughly 270,000 cars to address a software related airbag problem. The JV also is grappling with dissatisfaction relating to a rear axle, trailing arm recall in 580,000 New Sagitar and Beetle Vehicles that have led to some reported protests and calls by China’s General Administration of Quality Supervision, Inspection, and Quarantine (ASSIQ) for more information to validate the sufficiency of the recall, which VW Group China executives have defended. Coincidentally, perhaps, VW just opened a wholly invested auto parts plant, its first outside Germany, in Tianjin (“FAW-Volkswagen Recalls 270,635 Cars in China,” China Daily, October 29, 2014, http://www.chinadaily.com.cn/business/motoring/2014-10/29/content_188244... “FAW-Volkswagen Required to Submit Recall Materials,” China Daily, November 2, 2014, http://www.chinadaily.com.cn/business/motoring/2014-11/02/content_188434... “VW Defends Safety of Recalled New Sagitar,” China Daily, October 29, 2014, http://www.chinadaily.com.cn/business/motoring/2014-10/29/content_188241... “Volkswagen Opens Automobile Parts Plant in Tianjin,” China Daily, November 5, 2014, http://www.chinadaily.com.cn/business/motoring/2014-11/05/content_188700...)

Foreign multinationals in China are now facing a new challenge because the Chinese government is turning its attention to possible tax avoidance by foreign firms who, according to Chinese media are making use of China’s “labor, land, water, and resources…and huge market” but are avoiding paying taxes by sending profits abroad. To be fair, China is not the only country devoting attention to tax avoidance and Chinese media noted “Chinese multinationals…would be held to the same standards.” Regardless, foreign businesses will be waiting to see if China is just trying to find another excuse to “impose harsher regulations” on them (Scott Cendrowski, “China announces its next Target: Multinationals’ Tax Schemes,” Fortune, October 14, 2014, http://fortune.com/2014/10/14/china-announces-its-next-target-multinatio...)

The National Development and Reform Commission has proposed new foreign direct investment regulations that cut the number of sectors restricted or off limits to FDI from 79 to 35. Some of the sectors to be opened include steel, automotive electronics, electric transmission, international ocean shipping, and e-commerce. China also plans to reduce the number of sectors limited to JVs and partnerships from 43 to 11 and to reduce the number requiring majority Chinese ownership from 44 to 22. One journalist noted many of the opened sectors are small, restricted by separate regulations, or are dominated by “highly competitive Chinese companies” (“China Publishes Proposed Changes to Rules for Investment,” Bloomberg, November 4, 2014, http://www.bloomberg.com/news/print/2014-11-04/china-publishes-proposed-... “More Sectors Opened to Foreign Investment,” China Daily, November 5, 2014, http://www.chinadaily.com.cn/business/2014-11/05/content_18867344.htm; Jamil Anderlini, “China Looks to Ease Curbs on Foreign Investment,” Financial Times, November 5, 2014)

Qualcomm, a leading maker of smartphone chips and the holder of CDMA technology, is suffering serious sales and profit pressure as a result of its declining operating situation in China. Most importantly, the Chinese government is investigating Qualcomm for anti-competitive behavior in regards to its licensing practices and the relationship between Qualcomm’s licensing and chip making unit. Per Qualcomm, the situation is leading some Chinese phone makers to refuse to pay Qualcomm fees on more than 200 million handsets that use its technology. The US Federal Trade Commission and the European Commission also are probing Qualcomm’s licensing and chip businesses (Ian King, “Qualcomm Profit Curbed by China Inquiry, Faces New Probes,” Bloomberg, November 6, 2014, http://www.bloomberg.com/news/print/2014-11-05/qualcomm-says-china-licen...)

The Minister-Counselor of the Economic and Commercial Office at the Chinese UK Embassy voiced concern about British visa restrictions on Chinese workers. Well aware of the need to demonstrate Chinese firms were creating jobs in the UK, he pointed out that a majority of workers at certain Chinese firms in the UK were locals. Moreover, China was increasing R&D work in the UK and cooperating with local institutions. Chinese banks and firms have been expanding in the UK to acquire technology and brands. In the process, British firms get capital, expanded access to the China market, and enhanced production capabilities (Cecily Liu, “Chinese Companies Make Strides in the UK,” China Daily, November 1, 2014, http://www.chinadaily.com.cn/world/2014-11/01/content_18839296.htm)

Different ministries of the Namibian government have selected 20 Namibian Information and Telecommunication (ICT) personnel to travel to Shenzhen to participate in a two-week training session at Huawei Technologies’ Shenzhen headquarters. Huawei provides a large number of services in Namibia including voice communication, high-speed internet, and digital television and the firm made a promise to train Namibian ICT personnel, which are in “‘acute shortage’”, when Namibian Prime Minister Hage Geingob visited its headquarters in April (“Huawei to Train Namibian ICT Personnel,” China Daily, November 5, 2014, http://www.chinadaily.com.cn/business/tech/2014-11/05/content_18872379.htm)

Transparency International, a Berlin-based anti-corruption organization, issued a report criticizing many companies for failing to disclose sufficiency their foreign tax payments, revenues, subsidiaries, and measures to prevent corruption. While Transparency International’s report hit American entities including some well-known ones such as Apple, Google, and IBM, it highlighted Bank of China, Bank of Communications, and Agricultural Bank of China as 3 of the least transparent companies. Moreover, 6 Chinese companies were among the 10 worst performers (Michael Nienaberm “Big Companies Disclose Too Little on Operations Abroad: Watchdog,” Reuters, November 5, 2014, http://www.reuters.com/assets/print?aid=USKBN01POC620141105)

After Japan, in April, put forth a new defense policy known as the “Three principles on Transfer of Defense Technology and Equipment,” foreign countries have become increasingly interested in using Japanese defense technology despite the fact that Mitsubishi Heavy Industry and Turkey’s co-development of a combat vehicle failed to materialize. In particular, Australia and India are interested in Japanese defense technology. To illustrate, Australia and Japan agreed to cooperate in the development of a submarine. As for India, it has begun talks with Japan relating to the export of a Japanese amphibious plane to India (“A half year after new defense principles; Accepted levels of Japanese defense export,” Nikkei, November 1, 2014, http://asia.nikkei.com/Business/Companies/Japan-s-Chubu-Electric-to-impo...)

A Japanese utility company, Chubu Electric Power, and Pavilion Gas Singapore signed a memorandum of understanding relating to joint procurement liquefied natural gas (LNG) procurement. Pavilion Gas is a subsidiary of Singapore’s government affiliated company Temasek Holdings. Japanese utility firms, including Chubu Electric and Tokyo Electric Power, currently pay high prices for LNG from the Middle East and other places due to long-term contracts and strive to reduce contract costs by partnering with foreign firms. Earlier, Chubu Electric concluded a contract with India’s national utility firm for joint LNG procurement (“Japan’s Chubu electric to import LNG with Singapore,” Nikkei Asian Review, October 31, 2014, http://asia.nikkei.com/Business/Companies/Japan-s-Chubu-Electric-to-impo...)

One of Japan’s largest trading houses, Mitsui & Co., will invest in a Brazilian subway project led by Brazilian construction & engineering conglomerate Obedrecht. Mitsui plans to take a twenty percent stake in the subway firm, Move Sao Paulo, led by Odebrecht and will co-operate in the construction of a new railway line in the future. The Infrastructure Fund, created by Japan’s Ministry of Land, Infrastructure, Transportation and Tourism, is considering financing Move Sao Paulo, which could be a role model for infrastructure export via public-private collaboration, one of the Japanese government’s central growth strategies (“Mitsui & Co.to invest in Brazilian subway, Ministry of Land, Infrastructure, Transportation and Tourism may partially finance,” Sankei News, November 6, 2014, http://www.sankei.com/economy/news/141106/ecn1411060002-n1.html)

The US National Highway Traffic Safety Administration (NHTSA) has ordered Honda to provide documents concerning Japanese auto parts maker Takata’s allegedly defective air bags, which have been subject to a recall in the US. There were six incidents in the US where air bags ruptured and led to minor injuries and seven million cars have been recalled since then. The NHTSA has requested Honda to provide communications with Takata, internal memos, product designs, and a list of all lawsuits and injury and death reports. Honda stated that it has initiated a third party audit and will cooperate with the NHTSA (“NHTSA tells Honda to hand over Takata faulty air bag documents,” The Japan Times, November 6, 2014, http://www.japantimes.co.jp/news/2014/11/06/business/nhtsa-tells-honda-h...)

Signs of renewed Australian interest in investing in Fiji appeared after Australian Foreign Minister Julie Bishop recently visited the country. Business links between the two cooled following the 2006 coup, but according to Fiji’s Prime Minister Frank Bainimarma, there is a new interest in both countries in growing bilateral trade and investment, particularly given the two side’s strong emotional bond. Australia-Fiji Business Council President Greg Pawson gushed there were exciting investment opportunities in several sectors such as agriculture and manufacturing (Jemima Garrett, “Renewed Interest in Fiji from Australian Investors Following Foreign Minister Julie Bishop’s Visit,” ABC News, November 4, 2014, http://www.abc.net.au/news/2014-11-05/china-accused-of-blocking-anti-cor...)

South Korean Automotive Group Hyundai-Kia will pay a US $100 million fine for exaggerating fuel efficiency for more than a million cars sold in the US. This fine is the largest civil penalty ever imposed under the Clean Air Act. In addition, the automaker has agreed to give up 4.75 million greenhouse gas emission credits and invest US $50 million to improve the quality of its mileage certification claims in the future. The company had been under investigation by the US Environmental Protection Agency, accused of overstating fuel economy for about 1.2 million cars from 2011 to 2013 model cars (“Hyundai-Kia Agrees to Pay $100 Million for Fuel Efficiency Exaggeration,” Korea Herald, November 4, 2014, http://www.abc.net.au/news/2014-11-04/australian-investors-show-renewed-...)

The Iranian government has expressed interest in investing in Indonesia’s oil and gas sector. Iranian government representatives met with Acting Director for the Indonesian Oil and Gas Ministry Naryanto Wagimin to discuss their desire to develop refineries, petrochemicals and liquefied natural gas in Indonesia. Indonesia’s demand for oil is growing faster than its ability to secure hydrocarbons. Currently, the country has six refineries nationwide, operated by the State-Owned Enterprise PT Pertamina, which are running below full capacity. Poor refinery facilities have increased Indonesia’s dependency on oil import. Therefore, the Indonesia government has welcomed Iranian overtures (Raras Cahyafitri, “Iran Set to Build Refineries as Demand Rises,” The Jakarta Post, November 7, 2014, http://www.thejakartapost.com/news/2014/11/07/iran-set-build-refineries-...)