MNCs in the News-2015-01-09

Tensions between China dealers and car companies have been rising over car manufacturer policies that often damage dealer bottom lines. According to the China Automobile Dealers Association (CADA), German car giant BMW has reportedly agreed to give Chinese dealers RMB 5.1 billion in subsidies and offer dealers new business opportunities such as financing, though disagreements exist over 2015 sales targets. CADA also is negotiating with Volkswagen and earlier raised complaints with the Chinese government about the amount of stock they must accept. Some feel the bargaining position of foreign firms may be slipping due to various Chinese government anti-monopoly investigations (Tom Mitchell, “BMW offers China Dealers $820m to Stave off Potential Revolt,” Financial Times, January 5, 2015; “BMW to Pay $820m to Support China Car Dealers,” China Daily, January 5, 2015, http://www.chinadaily.com.cn/business/motoring/2015-01/05/content_192420... Samuel Shen and Edward Taylor, “BMW’s China Dealers Say Company Agrees to $820 Million Subsidy,” Reuters, January 5, 2015, http://www.reuters.com/assets/print?aid=USKBN0KE0JW20150105)

According to a MOFCOM post, China has terminated a system that restricted the exports of 17 rare earth minerals, which are used in many high-tech products and oil refining, after a World Trade Organization panel ruled against it in 2013. The US, European Union, and Japan had filed a complaint China, which once produced more than 90 percent of global rare earth, arguing China was trying to privilege domestic firms by lowering the cost of their production inputs. Some observers suggest China scrapped the quotas as part of its effort to increase the role of the market in the economy (“China Scraps Quotas on Rare Earths after WTO Complaint,” BBC News, January 5, 2015, http://www.bbc.com/news/business-30678227; Chuin-Wei Yap, “China Ends Rare-Earth Minerals Export Quotas,” The Wall Street Journal, January 5, 2015, http://www.wsj.com/articles/china-ends-rare-earth-minerals-export-quotas... Sonali Paul, “China’s Rare Earths Quotas Go, Possible Moves Stroke Supply Doubts,” Reuters, January 7, 2015, http://www.reuters.com/assets/print?aid=USL3N0UL65220150107)

For the first time since 2009, China will send a high-level delegation including Premier Li Keqiang to the Davos World Economic Forum. Analysts believe China wants to send a message to foreign companies that China remains open despite complaints China is increasingly discriminating against foreign investors. A researcher with the State Council Development Research Council posits “Li will likely make an effort to dispel concerns about China’s openness” and demonstrate “‘China’s unswerving determination to further reform and greater.’” Li’s visit in 2009 itself was a novel event since it came 17 years after the first visit by a Chinese premier (Zijing Wu and Ting Shi, “China’s Li to Become First Premier at Davos since 2009,” Bloomberg, January 7, 2015, http://www.bloomberg.com/news/print/2015-01-07/china-s-li-to-become-firs...)

US food company OSI Group, which suffered greatly from a 2014 food safety scandal relating to accusations its Shanghai plant (Shanghai Husi Food Co.) used old meat, tampered with production dates, and engaged in other questionable practices, has publicly criticized food regulators in Shanghai. Specifically, the Shanghai Food and Drug Administration deemed the food products that Shanghai Husi recalled and subsequently destroyed as “‘questionable’” which caused Shanghai Husi to retort the criticism was “‘totally without factual, scientific, or legal foundation’” given that “questionable” food means food that “did not meet food safety standards or could be harmful to human health” (Adam Jourdan, “U.S. Supplier in China Food Scare Takes Aim at Shanghai Regulator,” Reuters, January 7, 2015, http://www.reuters.com/assets/print?aid=USKBN0KG1MG20150107; “US Supplier in China Food Scare Takes Aim at Shanghai Regulator,” China Daily, January 8, 2015, http://www.chinadaily.com.cn/business/2015-01/08/content_19269688.htm)

Attending the Community of Latin America and Caribbean States (CELAC) meeting in Beijing, Venezuela obtained a US $20 billion funding commitment from China, badly needed at a time when Venezuela is suffering from declining oil prices and bad economic policies. It was not clear if the funding was “new” money and appeared to be tied aid. China has been a major source of funds for Venezuela over the past 10 years or so, pouring in US $50 billion. At the CELAC gathering, Chinese President Xi Jinping promised US $250 billion in investment in Latin America over the next 10 years (Jim Wyss, “Embattled Venezuela Says It Has Secured $20 Billion Lifeline from China,” Miami Herald, January 8, 2015, http://www.miamiherald.com/news/nation-world/world/americas/venezuela/ar... Megha Rajagopalan, “China’s Xi Woos Latin America with $250 Billion Investments,” Reuters, January 8, 2015, http://www.reuters.com/assets/print?aid=USKBN0KH06Q20150108)

China Construction Bank (CCB) has won a branch license from the UK Prudential Regulation Authority and Financial Conduct Authority that will give it the authority to conduct wholesale business banking activities. Last year, the Industrial and Commercial Bank of China won a branch banking license. The CCB noted the license would enable it to service companies’ global activities through lending and funding of major investment projects while commentators noted it would lower CCB’s operating costs. The British government has been supportive of increasing Chinese banking activities in order to promote trade and to increase London’s role in global yuan trading (Emma Dunkley, “UK Licenses Second Chinese Bank,” Financial Times, January 8, 2015).

Japanese car manufacturer Honda has been slapped with a US $70 million fine by the US National Highway Transportation Safety Administration for not revealing more than 1,700 complaints about vehicle problems that caused accidents resulting in death and injuries. US regulators imposed the maximum fines they are allowed to impose--$35 million for failure to report the death and injury complaints and another $35 million for failure to report warranty and customer satisfaction claims. Honda has agreed to pay the fines under a consent order it signed with the NTSA (Joan Lowy, “Honda Fined $70 million for Not Reporting Death, Injury Complaints,” Japan Today, January 9, 2015, http://www.japantoday.com/category/business/view/honda-fined-70-mil-in-u...)

Sony’s controversial satire about North Korea, “The Interview,” became the Japanese Studio’s biggest online hit, raking in US $31 million in revenues from Internet viewings alone. Total revenues for the movie, including box-office take, have been about $36 million. Sony initially cancelled the movie’s premier after threats of violence from hackers advising people to stay away, but the studio later backed away from its decision. It later struck deals with small movie theaters that evidenced a keen desire to defend free expression and with technology giants like Google Inc. to allow a simultaneous online release on sites like YouTube Movies (FFP-JIJI, “’The Interview’ Rakes in $31 Million, Becoming Sony’s Biggest Online Hit Ever,” Japan Times, January 7, 2015, http://www.japantimes.co.jp/news/2015/01/07/business/corporate-business/...)

The Director of the US Federal Bureau of Investigation said there was very strong evidence that North Korea was responsible for the attack against Sony Pictures that led to the release of confidential internal information, the release of embarrassing emails, and other information. The attack against Sony led the US to impose new sanctions against three North Korean entities such as the Korean Mining Development Trading Corporation and some various North Korean officials. North Korea’s motive seems to be to retaliate against a comedy depicting the assassination of North Korea’s leader (Kara Scannell, “FBI Details North Korean Attack on Sony,” Financial Times, January 7, 2015).

Inward FDI into Korea increased 30 percent in 2014, reaching a yearly total of $19 billion. The sharp rise is believed to be due to the free-trade agreements Korea that has signed with major economies. According to Kwon Pyung-oh, head of the Ministry of Trade, Industry, and Energy’s efforts to attract investment, increasing European and Chinese investment in the country also links to government policies to encourage FDI. Last year, Chinese investment into Korea increased 147.2 percent to $1.2 billion and is becoming more diversified in terms of industries. At the same time, Japanese investment into Korea decreased 7.5 percent (Yoon Ja-young, “FDI Pledges to Korea Up 30%,” Korea Times, January 5, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/01/488_171167.html)

The Korea Trade Investment Promotion Agency (KOTRA) held a forum last week on strategies to attract FDI and said it would take steps to help the government realize its aim of attracting $20 billion worth of foreign investment in 2015. The Korea-China Free Trade Agreement, which was signed recently, is expected to contribute to this target and attract Chinese investors. Invest Korea, an agency dedicated to attracting foreign investment, has encouraged KOTRA to be more active in forming strategic partnerships and alliances with Chinese investors (Park Si-Soo, “Korea-China FTA to Boost FDI Attraction: KOTRA,” Korea Times, January 7, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/01/123_171288.html)

*The information used herein is gathered from sources believed to be reliable, but the Wong MNC Center does not guarantee their accuracy. The content in this section does not necessarily represent the official view of the Wong MNC Center, its Board of Directors, or its Advisory Board.