MNCs in the News-2015-01-23

In 2010, HP purchased 3Com, acquiring H3C Technologies, a telecommunications equipment maker in Hangzhou, China that sells LAN switches and enterprise routers. According to some sources, thousands of workers at the company protested over HP’s plan to have its China chairman become the head of H3C’s Board of Directors, arguing this could hurt the company’s business given it has extensive dealings with the Chinese government. HP managers met with the employees to discuss their concerns. The protest, which some have labeled a strike, is the third incident involving workers and a “major US tech company over the past 12 months” (Gao Yuan, “Protest Breaks Out at HP Subsidiary,” China Daily, January 19, 2015, http://www.chinadaily.com.cn/business/2015-01/19/content_19350744.htm; Gao Yuan, “Protest at China Subsidiary will Not Impact Customers,” China Daily, January 20, 2015, http://www.chinadaily.com.cn/business/tech/2015-01/20/content_19360135.htm)

MOFCOM recently released a draft law setting forth China’s plans for a formal inter-ministerial security review process for FDI in areas such as defense, energy, information technology, and grain. The plan, which should clarify procedures, allows foreign investors to apply for review preemptively and allows “related government agencies, industry associations, enterprises in the same industry or in the production chain” to make suggestions for security reviews. MOFCOM also expressed a plan to move to a “negative list” system for foreign investment, only requiring registration for investments not on the list, and to regulate foreign investment based on nationality of control (Zhong Nan, “New Foreign Investment Law on Cards,” China Daily, January 19, 2014, http://www.chinadaily.com.cn/business/2015-01/19/content_19351576.htm; “China to Ease Restrictions on Foreign Investment,” Xinhua, January 20, 2015, http://www.ecns.cn/business/2015/01-20/151340.shtml; Mu Chen, Zhong Nan, and Gao Yuan, “New Foreign Investment Law offers Level-Playing Field,” China Daily, January 21, 2015, http://www.chinadaily.com.cn/business/2015-01/21/content_19364648.htm)

Foreign investors have poured billions into sensitive sectors in China like telecommunications and education through a mechanism known as a Variable Interest Entity (VIE), even though the mechanism had never been formally approved. VIEs are offshore companies with shareholders that lack ownership rights but still have contractual rights to revenues. China is considering legalizing such entities, which would have the benefits of assuring foreign investors (where domestic actors remain in control of the VIE) and giving China a way to influence VIEs listed abroad by deeming them “Chinese invested,” though the consequences where foreigner holders are majority shareholders remains unclear (Charles Clover, “China Proposes to Change Foreign Status of Foreign Stakes in Tech Sector,” Financial Times, January 22, 2015; Dinny McMahon, “China Looking to Ease Foreign-Investment Rules Covering Internet Companies,” The Wall Street Journal, January 24, 2015, http://www.wsj.com/articles/china-looking-to-ease-foreign-investment-rul... Gillian Wong and Juro Osawa, “How China’s New Foreign Investment Rules Might Play Out,” The Wall Street Journal, January 22, 2015, http://blogs.wsj.com/digits/2015/01/22/how-chinas-new-vie-rules-might-pl...)

The Cyberspace Administration of China has established a system, involving new laws, regulations, and government bodies, to vet foreign IT that will become effective this year. The new system will review both products and services and ban those that “aren’t deemed safe and controllable.” Foreign media already have reported that China aims to limit severely foreign technology in banks, the military, state-owned enterprises, and key government agencies by 2020, replacing it with domestic products. Perhaps anticipating some kind of security review, Apple CEO Tim Cook reportedly told Lu Wei, China’s cybersecurity czar, last December that he was willing to submit Apple products for security evaluations (Keith Zhai, “China to Begin Security Vetting of Foreign Technology This Year,” Bloomberg, January 21, 2015, http://www.bloomberg.com/news/print/2015-01-21/china-to-begin-security-v... “Apple Willing to Submit Products to Chinese Authorities for Evaluation,” WantChinaTimes, January 22, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150122000147&cid=...)

According to various sources, Microsoft Outlook was hacked in China, attacked for one day or so through a “man-in-the-middle” technique that allows the attacker to “insert itself between victim’s connections, relaying messages” and being able to read all the victims’ messages while the victims’ continue to believe they have a private connection. One investigating organization pointed at the China Internet Network Information Center, run by the Cyberspace Administration of China, as the guilty party. The Cyberspace Administration, though, labeled such accusations as “‘groundless slander’” by “‘anti-China forces’” designed to “‘incite dissatisfaction” and noted it opposes any kind of cyber attack (Sarah Perez, “Microsoft Outlook Hacked in China, New Report Finds,” TechCrunch, January 19, 2015, http://techcrunch.com/2015/01/19/microsoft-outlook-hacked-in-china-new-r... "China Rebukes Outlook Hacking Allegation," China Daily, January 23, 2015, http://usa.chinadaily.com.cn/china/2015-01/23/content_19383597.htm)

In October 2014, while attending the 19^th China-Russia Prime Ministers’ Regular Meeting and following the conclusion of a massive multi-billion dollar natural gas supply contract between China and Russia, Chinese Premier Li Keqiang proposed a Beijing-Moscow high-speed rail that would cut the train travel time between Beijing and Moscow from six days to two. The Beijing city government recently publicized that China will build the 7,000 kilometer line, which will take 8-10 years to build and cost more than US $240 billion. The line will be a “key project in the Silk Road economic belt” championed by China (Wang Jingjing, “China Plans to build Beijing-Moscow High-Speed Railway,” China Daily, January 22, 2015, http://www.chinadaily.com.cn/business/2015-01/22/content_19379736.htm; Michael S. Arnold, “China, Russia Plan $242 Million Beijing-Moscow Railway Link,” Bloomberg, January 22, 2015, http://www.bloomberg.com/news/print/2015-01-22/china-russia-plan-242-bil...)

Sri Lankan Prime Minister Ranil Wickremesinghe, when campaigning, said he would cancel a US $1.5 billion port deal (in Colombo) with China Communications Construction Co. Ltd. Lately, the new government seems inclined to pursue renegotiation, saying it needs to “‘see the feasibility study…see the environmental impact assessment…and reassess the concessions given…and land ownership issues.’” The project is controversial because it would give 108 hectares of land to China Communications Construction Corp. It also has drawn the attention of India given the increased influence it signals for China and the large number of Indian-bound cargoes that go through the Colombo port (Shihar Aneez, “Sri Lanka Softens Its Stance on China Port City Deal,” Reuters, January 22, 2015, http://www.reuters.com/assets/print?aid=USKBN0KV2FV20150122)

In 2014, Japanese FDI in China fell sharply by 38 percent, declining to US $4.33 billion, per Chinese MOFCOM statistics. Shrinking Japanese investment ties to the slowdown of China’s economy growth as well as rising labor costs. According to specialists, other factors driving declining Japanese FDI include the yen’s depreciation and rough China- Japan relations last year. Japan is not the only country whose FDI in China is falling. To illustrate, US FDI dropped by 20.6 percent while European Union FDI dropped by 5.2 percent (Jiji Press, “Japan’s Investment in China Declines Sharply in 2014,” The Japan News, January 16, 2015, http://the-japan-news.com/news/article/0001859934)

Volvo Korea and J Commerce, a Canadian Retailer, are under fire for false advertisements in Korea. The KFTC took action against both firms for misleading costumers. The KFTC charged the local unit of the “Swedish” carmaker with exaggerating the safety features of one of its cars and ordered it to correct an advertisement that appeared in 2013. J Commerce’s transgression was a commercial that showed one of its knives cutting titanium golf clubs and iron locks. The fabricated scene led the KFTC to fine J Commerce five million won and issue an ad correction order (Park Jin-Hai, “Volvo, J Commerce Accused of False Advertising,” Korea Times, January 18, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/01/127_171913.html)

During his visit to Japan, Indonesian Trade Minister Rachmat Gobel told Japanese investors in Indonesia that the Indonesian government is striving to secure more investments from Japan. The minister expects that an expanding number of Japanese investment projects will add value to Indonesian products and boost Indonesian oil exports, which are expected to rise by 300 percent over the next 5 years. During his trip, Rachmat plans to meet with Japanese Prime Minister Shinzo Abe and Economic, Trade and Investment Minister Yoichi Miyazawa to discuss various trade and investment issues (“RI Expects More Investment from Japan, Says Minister,” The Jakarta Post, January 18, 2015, http://www.thejakartapost.com/news/2015/01/18/ri-expects-more-investment...)

The Taiwanese Economic and Trade Office in Indonesia (TETO) met with Indonesian Industry Minister Husin this week. TETO representatives expressed strong confident in the new government’s investment policies and expressed an interest in building a closer relationship. The Taiwan-Indonesia bilateral investment relationship will receive a major boost from Taiwan-based E United Group’s plan to build a US $280 million nickel smelter with a local Indonesian partner. The two governments believe there is ample room for further development of the investment relationship, which will create win-win situation for both sides, paving the way for stronger bilateral ties between the two countries (Linda Yulisman, “Taiwan Throws Weight Behind RI Govt, Set to Invest,” The Jakarta Post, January 22, 2015, http://www.thejakartapost.com/news/2015/01/22/taiwan-throws-weight-behin...