MNCs in the News-2015-02-20

The CBRC has proposed rules that will require the registration of source code for IT products used by banks in China. The announcement followed revelations the CBRC told bank officials they needed to move faster to reduce China’s dependence on foreign IT. American IT companies have been pressing the US government to take action for fear the new policies will lock them out of the China market or force them to reveal sensitive technologies. According to media reports, US officials have met with Chinese officials to discuss China’s new rules, with CBRC regulators emphasizing the rules will apply to everyone (Ludi Wang, “China to Require Source Code Registration for Banking IT,” Bloomberg News, February 13, 2015, http://www.bloomberg.com/news/articles/2015-02-13/china-to-require-sourc... Eva Dou, “U.S. China Discuss Proposed Banking Security Rules,” The Wall Street Journal, February 13, 2015, http://www.wsj.com/articles/china-banking-regulator-considering-source-c...)

Apple is working to get authorization for Apple iPhone users in China to use Apple Pay, its “no-card, no-cash payment system.” Caixin reports the People’s Bank of China, Union Pay (which has a wireless near-field communication point-of-sale system of its own), and various Chinese banks, which want Apple to pay them higher fees, are making it difficult for Apple to bring Apply Pay to China. As far as the Chinese government is concerned, Apple’s NFS POS technology may not meet Chinese standards. Furthermore, Apple may need to build a data center in China that will process all Apple Pay data (Li Xiaoxiao, “Great Wall Stall Frustrates Apple Pay in China,” Caixin Online, February 17, 2015, http://english.caixin.com/2015-02-17/100784720.html

China has been moving to reduce tax avoidance and evasion by multinational corporations (MNCs) operating in China. It has clarified how direct and indirect property transfers are treated for income tax purposes. It has moving to clarify its stance on transfer pricing matters. In this vein, the CSAT has concluded numerous “advanced pricing agreements” with MNCs. However, it seems to be behind the curve in introducing an “advanced ruling system” and making its advanced pricing agreements less time consuming and resource intensive. Observers are calling for China to improve its processes, transparency, and predictability in order to assuage MNC anxieties (Zheng Yangpeng, “Multinationals Yearn for Better Service,” China Daily, February 17, 2015, http://www.chinadaily.com.cn/business/2015-02/17/content_19610241.htm)

China’s anticorruption drive, which has affected hundreds of Chinese officials (who have been dismissed, arrested, and/or incarcerated), is increasingly affecting investors in Chinese companies who are witnessing huge management changes, the imposition of operating restrictions on companies in which they are invested, and so on. In response, investors are enhancing their due diligence efforts, exploring ways to protect their interests, and querying how government measures may affect their investments over the medium- to longer-term given research which indicates the cost of corporate governance problems at Chinese companies does not have long-term affects, at least in the case of stock prices (Josh Noble, “Investors Grapple with China Corruption Risks,” Financial Times, February 18, 2015)

Japan is looking to dramatically increase maximum fines for the thefts of domestic trade secrets (e.g., marketing manuals) by foreign firms from 300 million to 1 billion yen and individuals from 10 to 30 million yen. This is being done through an effort to modify the Unfair Competition Prevention Act. Tokyo seeks to discourage spying activities by foreign companies, “particularly emerging economies,” and therefore protect the position of Japanese firms whose intellectual property is one of their strengths. If the legislation passes, it would “be the first time Japan has imposed separate fines on trade secret thefts by foreign companies” (“Japan to Raise Maximum Fine for Spying by Foreign Firms,” The Japan News, February 17, 2015, http://www.japantimes.co.jp/news/2015/02/17/business/japan-to-raise-maxi...)

JICA has emphasized in a meeting with Indonesia’s National Development Planning Board (Bappenas) that it is strongly committed to supporting Indonesia President Joko “Jokowi” Widodo’s plans to foster economic growth. These plans entail hundreds of billions of dollars of spending on infrastructure from 2015 to 2019. A Bappenas official said discussions with JICA indicated “foreigners support what we have planned, not based on what they expected us to plan.” Expectations were that Japan would fund projects in the “‘energy and maritime sectors,” such as power plants, power transmission lines, and seaports, as well as maritime colleges and techno-parks and subways (Grace D. Amianti, “JICA Pledges to Back More RI Projects,” The Jakarta Post, February 16, 2015, http://www.thejakartapost.com/news/2015/02/16/jica-pledges-back-more-ri-...)

Facing complaints about working hours and working conditions at its suppliers in China and developing countries such as Bangladesh and Vietnam, Japanese firm Fast Retailing Co. is pressing its suppliers to improve “working hours, air quality, temperatures, and other working conditions.” It also stated it would enhance its surprise supplier monitoring programs as well as run training programs on labor rights for managers and workers. Fast Retailing aims to become a 5 trillion company in terms of annual sales by 2020 and claims that “‘respect for human rights and ensuring fair working conditions are top priorities for the entire industry’” (“Fast Retailing Vows to Stop Abuses at Garment Factories,” The Japan News, February 19, 2015, http://www.japantimes.co.jp/news/2015/02/19/business/corporate-business/...)

Japan’s Takata Corp. will incur a $14,000 fine per day until it supplies all the documents and data that the US Department of Transportation is demanding as part of its investigation into Takata Corp. defective car airbags. The problem seems to be not that Takata is not supplying documents, but rather that it has not responded to requests for clarification in regards to the materials it has submitted. Takata also has been disputing whether or not it needs to do a nationwide recall. Reports indicate that 5 deaths and more than 100 injuries may link to the defective Takata airbags (“U.S. to Fine Takata $14,000 a Day for Resisting Air Bag Probe,” The Japan Times, February 21, 2015, http://www.japantimes.co.jp/news/2015/02/21/business/u-s-to-fine-takata-...)

The KRPIA, which represents three-dozen foreign pharmaceutical firms in Korea, says heavy government regulation of pharmaceutical prices and reimbursements is bad policy. KRPIA CEO Lee Sang-Suk argues government policy will limit foreign firms willingness to invest, conduct clinical tests, or sell new medicines in Korea. Aside from not helping the health care situation in Korea, it also may affect the ability of Korean firms to internationalize by reducing the incentive for foreign firms to work with local firms. The KRPIA has petitioned the Korean Ministry of Health and Welfare for more flexibility in drug pricing and more generous pharmaceutical reimbursements (Park Si-Soo, “Foreign Drug Firms Call for Easing Rules on Pricing, Reimbursement,” Korean Times, February 17, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/02/123_173777.html).

In order to increase the value added content of its mineral-related exports, Indonesia previously required foreign firms to build smelters in order to undertake mining in Indonesia. PT Freeport Indonesia, a subsidiary of US mining giant Freeport-McMoRan, previously refused to build a smelter in Papua despite having mining operations there. Recently, however, it struck a deal to build a smelter in Papua. For its part, Indonesian ministries and the Papua provincial administration agreed to build an industrial zone and prepare land for the smelter. The industrial zone would support the center as well as various other downstream and related industries (Nethy Dharma Somba, “Govt, Freeport Agree to Build Smelter in Papua,” The Jakarta Post, February 15, 2015, http://www.thejakartapost.com/news/2015/02/15/govt-freeport-agree-build-...)