MNCs in the News-2014-11-21

Chinese President Xi Jinping’s anti-extravagance campaign, anti-corruption movement, and softening economy have affected the demand for luxury cars (especially ultra-luxury cars), among other things. Given the importance of the China market, however, firms are opting to deal with the evolving situation not by lowering production but by cutting costs, reducing sales discounts, offering “entry-level,” smaller luxury cars, and partnering with local firms. Partnering with local firms and producing in China enables foreign firms to lower costs, escape import duties, and stay abreast of market trends (Samuel Shen and Kazunori Takada, “As China’s Luxury Car Wave Ebbs, Foreign Firms Seek Domestic Foothold,” Reuters, November 18, 2014, http://www.reuters.com/assets/print?aid=USKCN0J20MS20141118).

During a conference on the internet, Chinese Premier Li Keqiang stated Qualcomm, the subject of a government anti-monopoly investigation that likely will lead to a US $1 billion fine, has “opportunities exceeding the challenges” and that “‘even though there were some challenges, it will be solved with a win-win solution.” The Chairman of Qualcomm said the company was “working towards a win-win solution” and would “continue to cooperate with the Chinese government and contribute to China’s mobile Internet industry,” while stressing the importance of a level playing field. Qualcomm already has been moving to transfer technology and establish new partnerships (Zhao Yinan, “Li Positive on govt-Qualcomm Resolution,” China Daily, November 20, 2014, http://www.chinadaily.com.cn/business/tech/2014-11/20/content_18949438.htm; Paul Carsten, “China Premier Says Qualcomm’s ‘Opportunities Greater than Challenges,’” Reuters, November 20, 2014, http://www.reuters.com/assets/print?aid=USKCN0J40MF20141120)

At the aforementioned conference, Premier Li also stated that “China wants to promote an interconnected world that is shared and governed by all and to construct a common code to make competition more fair,” which Chinese analysts interpreted to mean that China will pursue its up own rules in cyberspace. This is a reflection of Edward Snowden’s revelations of US spying and the related fact that China is “‘transforming from a participant of the Internet to having a leading and dominant role in it.’” Outsiders view such plans negatively given China’s active censorship of websites, internet content, and social messaging (“China Seeks Global Internet Influence at CEO Forum on Canal Bank,” Bloomberg, November 17, 2014, http://www.bloomberg.com/news/print/2014-11-18/china-seeks-global-intern... Zhao Yinan and Cao Yin, “China Wants its Voice Heard in Cyberspace,” China Daily, November 21, 2014, http://www.chinadaily.com.cn/business/2014-11/21/content_18951155.htm)

China’s internet censorship raises new challenges for businesses as China blocks access to HSBC, Sony Mobile, and EdgeCast, one of the world’s biggest content delivery networks that delivers content for various magazines and Mozilla (the Firefox browser), in order to crackdown on access to mirror sites that let users access a variety of obstructed internet sites. Analysts interpreted the Chinese government’s action as evidence it is willing to go to extreme lengths, including stopping commerce, to close small gaps that allowed access to blocked sites (Rory Carroll, “China Steps Up Web Censorship and Blocks HSBC,” The Guardian, November 18, 2014, http://www.theguardian.com/world/2014/nov/18/china-blocks-hsbc-web-crack...)

China’s Railway Construction Corporation (CRCC) has signed a US $12 billion contract with Nigeria involving the construction of a 1,400-kilometer railway along Nigeria’s coast. According to the Chairman of the CRCC, the contract is valuable not just because of the money to be gained from building infrastructure, but also because of the export opportunities, something of great interest to Chinese government officials that wants to see China move up the value-added chain by exporting high technology, and the tens of thousands of local jobs expected to be created. The Nigerian government badly wants the railway given its decaying railway infrastructure (Tom Mitchell, “China Rail Group Signs $12bn Nigeria Deal,” Financial Times, November 20, 2014; “China Railway Construction Wins $12 billion Nigeria Deal: Xinhua,” Reuters, November 20, 2014, http://www.reuters.com/assets/print?aid=USKCN0J40C420141120; “Nigeria Signs US$12bn contract with China for New Railway,” WantChinaTimes.com, November 20, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20141120000138&cid=...)

The Indian government has chosen a Japanese trading house, Sojitz, to install power-equipment for the 915-km Delhi-Mumbai cargo railway system. The contract is estimated to have a value of 50 billion yen (US $425 million). This railway is a key part of the Delhi-Mumbai Industrial Corridor Infrastructure project, which is one of Japan and Modi administration’s cooperation initiatives. Sojitz plans to draw upon other Japanese electric manufactures for component sourcing and this will hopefully promote Japan’s high-tech exports. Power equipment orders for the cargo system will increase related business, with the total value is estimated to be 160 billion yen (“Japan’s Sojitz wins railway contract,” Nikkei Asian Review, November 19, 2014, http://asia.nikkei.com/Business/Deals/Japan-s-Sojitz-wins-railway-contract)

The Bank of Tokyo Mitsubishi UFJ will pay a US $315 million fine and sanction some employees due to a money laundering case in the US. Some UFJ employees reportedly pressured PricewaterhouseCoopers, a consultancy, to alter a “historical transaction review” which included wire transactions to countries like Iran, Sudan, and Myanmar that are were or are under US sanctions. UFJ handled about 28,000 US dollar transactions totaling US $100 billion from 2002 to 2007. Two former UFJ employees have been banned from any business involving the New York-regulated bank and a third employee has resigned (“Japanese bank to pay U.S. $315M in laundering case,” Mainichi Shinbun, November 19, 2014, http://mainichi.jp/english/english/newsselect/news/20141119p2g00m0bu0210...)

Japanese trading house, Mitsubishi Corp. and Jalux, a Japanese aviation firm, will partner with Myanmar’s Yoma Strategic Holdings Ltd to operate Myanmar’s second-largest airport. They will establish a joint company, MC-Jalux Airport Services Co., that will operate the Mandalay airport for 30 years. This is the first time that a Japanese company has had the opportunity to participate in the privatization of a national company in the public infrastructure field. JICA has provided safety equipment at six airports and also may install a wide-ranging radar system at the main airport (Jared Ferrie, “Mitsubishi, Jalux and Yoma to operate Myanmar’s second-largest airport,” Reuters, November 18, 2014, http://www.reuters.com/article/2014/11/18/myanmar-airport-idUSL3N0T83C32...)

Japan’s Hitachi has offered to buy railway and rail signaling sectors of Italian Industrial conglomerate Finmeccanica, in which the Italian government has 32% stake. Finmeccanica is heavily indebted and is planning to focus on aerospace and defense business, which have more growth potential. It has shortlisted Hitachi and China’s CNR Corporation as candidates for its rail-related businesses. The details of the deal are unknown, yet Hitachi may have offered Finmeccanica $1.7 billion for the assets. The company’s CEO, Maulo Moretti, will consider the offers and announce the decision this year (“Italian Finmeccanica to sell its 150 year railway business; Hitachi offers,” Bloomberg, November 19, 2014, http://www.bloomberg.co.jp/news/123-NF9HUA6JIJVE01.html; Stephen Jewke S, “Japan’s Hitachi closes in on Finmeccanica rail asset,” Reuters, November 18, 2014, http://www.reuters.com/article/2014/11/18/us-finmeccanica-m-a-hitachi-id...)

Even before commencing operations in Korea in December, Ikea (Sweden), the world's largest furniture retailer, has found itself the target of heavily local criticism. On November 13, the company released its pricing information and received a torrent of complaints about overpricing and accusations of discriminatory pricing in the Korean market. To make things worse, the company’s website designated the sea to the east of the Korean Peninsula as the “Sea of Japan” and is selling the offending map as a wall decoration in many markets (Lina Jang, “IKEA Beat up by Korean Consumers Even before Landing in December,” The Korea BizWire, November 17, 2014, http://koreabizwire.com/ikea-beat-up-by-korean-consumers-even-before-lan...)

Indonesia President Joko "Jokowi" Widodo has been reassuring the Indonesian public that foreign direct investment (FDI) in the country’s development projects will not undermine its sovereignty over its natural resources. Jokowi has been aggressively promoting various infrastructure projects to foreign business communities since his inauguration last month. Speaking in front of the participants of the National Resilience Institute's annual training on Tuesday, he promised FDI, in any form, will only be positive for the nation (Hasyim Widhiarto, “Govt Maintains Economic Sovereignty despite Aggressive Call on Foreign Investment,” The Jakarta Post, November 18, 2014, http://www.thejakartapost.com/news/2014/11/18/ri-needs-37-billion-develo...)

Queensland Premier Campbell Newman has invited Singaporean companies to participate in infrastructure projects in Queensland, Australia’s second-largest state. Singapore Prime Minister Lee Hsien Loong has welcomed the invitation, emphasizing both countries, having already signed a free trade agreement, have good relations. Furthermore, the two countries are in the midst of concluding a strategic partnership agreement. Given this, investors on both sides should know that business mood is friendly and that they can proceed with confidence (Fiona Chan, “Singapore firms, Queensland welcomes you”, Asia One Business, November 17, 2014, http://business.asiaone.com/news/singapore-firms-queensland-welcomes-you)