MNCs in the News-2015-03-06

China is moving to adopt a counterterrorism law that will impose onerous requirements on foreign technology companies including requiring them to hand over encryption keys, install security backdoors, keep servers and user data within China, supply authorities with communications records, and censor terrorism-related content. Some contend this law, China’s new banking rules, and other policies are designed to exclude foreign companies. The US has forcefully challenged China’s new law at the highest levels, arguing it is about protecting Chinese companies, not ensuring cybersecurity. China counters the law is about fighting terrorism and nothing different than what the US has done (Michael Martina and Krista Hughes, “China Draft Counterterror Law Strikes Fear in Foreign Tech Firms,” Reuters, February 27, 2015, http://www.reuters.com/assets/print?aid=USKBN0LV19020150227; Jeff Mason, ‘Exclusive: Obama Sharply Criticizes China’s Plans for New Technology Rules,” Reuters, March 2015, http://www.reuters.com/assets/print?aid=USKBN0LY2H520150302; “China Plays Down US Concerns over Anti-Terror Legislation,” New York Times, March 3, 2015, http://www.nytimes.com/aponline/2015/03/03/world/asia/ap-as-china-terror... “China Responds to U.S. Concern Over Counterterrorism Law,” Xinhua, March 3, 2015, http://news.xinhuanet.com/english/2015-03/03/c_134034443.htm; Gerry Shih and Paul Carstein, “China Says Tech Firms Have Nothing to Fear from Anti-Terror Law,” Reuters, March 4, 2015, http://www.reuters.com/assets/print?aid=USKBN0M00IU20150304)

Foreign firms like Apple and Cisco are struggling to protect their positions in China and gain traction in new areas in the face of unfavorable Chinese government policies like eliminating foreign firms from approved procurement lists. Others are looking to the World Trade Organization, though there are serious limits to their ability to use the WTO. Intel has opted to increase its footprint in China by bolstering its domestic investment and enhancing its partnerships with Lenovo and Tencent and government tied entities. To illustrate, last year, Intel invested $1.5 billion in Tsinghua Unigroup ltd. which controls two domestic mobile chipmakers (Bien Perez, “WTO Rules Make it Difficult for Cisco and Apple to Challenge Chinese government’s ‘black list,’ South China Morning Post, February 27, 2015, http://www.scmp.com/print/business/companies/article/1724817/difficult-c... “Intel Spending Big in China to Catch Up,” China Daily, February 28, 2015, http://www.chinadaily.com.cn/business/tech/2015-02/28/content_19676337.htm)

In the face of foreign business and government concerns about China’s supposed hostility towards foreign investment, He Zhimin, a Deputy Commission of SIPO and National People’s Congress deputy, stated that China’s intellectual property (IP) policies are about “ensuring market fairness” and preventing companies from “using their IP advantages to gain ‘monopolistic and unjustified profit.’” He added that the country’s policies were in line with international practice and were equally applied to domestic and foreign firms. Li stated SIPO would assist Chinese companies defending their IP abroad and alleged “‘some foreign markets tend to use IP rules to contain Chinese enterprises’” (Li Xiang, “China’s IPR Policy to Create Balanced System,” China Daily, March 5, 2015, http://www.chinadaily.com.cn/business/2015-03/05/content_19723409.htm)

In his speech to the ongoing Chinese National People’s Congress, Premier Li Keqiang stated that China would significantly revise the Foreign Investment Catalog, cutting by half the number where foreign investment is restricted. The focus would be on encouraging more investment in services and manufacturing sectors, more specifically areas like steelmaking, automobile manufacturing, e-commerce, and liquor production. Last November, the National Development and Reform Commission (NDRC) already had proposed that the next Foreign Investment Catalog cut the number of restricted areas from 79 to 35. According to Chinese media, the cut in restricted sectors would be the largest since 1995 (“China Plans More Opening to Foreign Investment, Li Tells NPC,” Caixin, March 5, 2015, http://english.caixin.com/2015-03-05/100788416.html?mc_cid=5b5510cd98&mc...)

The American Chamber of Commerce in Shanghai’s annual business satisfaction survey indicates about “85 percent of US businesses in China are still ‘optimistic’ or ‘slightly optimistic’ in their outlook” towards the China market. This is the case despite China’s slowing economy, rising costs, and rising competition from domestic firms. Higher costs were a concern, but were not driving firms to relocate overseas and indeed a large amount had increased investment in 2014 and planned to increase investment in 2015. Chinese government policies which some see as becoming more anti-foreign did not rank among the top three concerns of foreign businesses (“US Firms Optimistic of China Outlook: Report,” WantChinaTimes, March 6, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150306000052&cid=...)

Taiwan will impose diverse penalties on Alibaba’s Taiwan affiliate, Alibaba Singapore E-Commerce Private Ltd., which has been operating as a non-mainland company in Taiwab since 2008. Taiwan officials changed their thinking after Alibaba’s initial public offering, which showed individuals on the Chinese mainland control Alibaba. As a mainland controlled entity, Alibaba has to undergo a special review. If Alibaba fails to submit required information, it may have to withdraw from Taiwan. Many in Taiwan are concerned about inroads from mainland e-Commerce firms. Recognizing this, Alibaba has set up a fund to help Taiwanese enterprises take advantage of Alibaba’s online platforms (Shi Jing, “Alibaba Faces Fine in Taiwan over Registration,” China Daily, March 3, 2015, http://www.chinadaily.com.cn/business/tech/2015-03/03/content_19698477.htm; Tim Culpan, “How Alibaba’s U.S. IPO Got the Company Ordered out of Taiwan,” Bloomberg Business, March 5, 2015, http://www.bloomberg.com/news/articles/2015-03-04/how-alibaba-s-u-s-ipo-...)

Lenovo, the world’s largest PC company, is the subject of an investigation by the Connecticut Attorney General’s office which is looking into Lenovo’s sale of laptops pre-loaded with Superfish software which the US government has warned makes users vulnerable to cyber attacks because it tracks users web search and browsing activities. Connecticut has sent letters to both Lenovo and Superfish asking them to clarify their partnership and criticizing the software. North Carolina’s Attorney General also reportedly is monitoring the situation (Jim Finkle and Karen Freifeld, “Connecticut Launches Probe into Lenovo Superfish Software,” Reuters, March 2, 2015, http://www.reuters.com/assets/print?aid=USKBN0LY2AU20150302; “Connecticut Launches Probe inot Lenovo Use of Superfish Software,” China Daily, March 3, 2015, http://www.chinadaily.com.cn/business/tech/2015-03/03/content_19703238.htm)

The Japanese government has been probing ways to limit the power of Google. It is trying to make it easier to public and private entities in Japan to collaborate so they can compete with Google and create new technology businesses. Among other things, Tokyo is looking to use its laws and regulations to limit Google’s market dominance, to find ways to support companies that can compete with Google, and to intensify the protection of private information. Japan’s Ministry of Economy, Trade, and Industry already has held several related expert meetings (“Government Eyes Strategy to Compete with Google,” The Japan News, March 1, 2015, http://the-japan-news.com/news/article/0001961099)

To encourage greater foreign investment in Japan, the Japanese central government and Tokyo Metropolitan government will establish a “One-Stop Shop” that will eliminate the need for foreign investors to visit multiple agencies such as the pension, tax, and Legal Affairs Bureau prior to establishing a business. Aside from eliminating hassles, the hope is that the One-Stop Shop will reduce business establishment time, which currently is triple the amount of time required in Hong Kong or Singapore. Tokyo also plans to offer business matching services and provide information to interested investors (Kazuaki Nagata, “Tokyo to Open ‘One-Stop’ Office to help Foreigners Launch Businesses,” The Japan Times, March 6, 2015, http://www.japantimes.co.jp/news/2015/03/06/business/tokyo-to-open-one-s...)

In early March, the Korean Chamber of Commerce and Industry and Council of Saudi Chambers, organized a large business forum in Saudi Arabia, which was attended by several hundred government and high-level business officials from South Korea and Saudi Arabia. The meeting, attending by South Korea’s president, focused on potential cooperation opportunities in construction, information technology, energy, healthcare, and steel between the two countries. Korean firms touted how they could help elevate the technological level and expertise of Saudi firms (Lee Hyo-Sik, “Korea Holds Largest-Ever Business Forum in Saudi Arabia,” Korea Times, March 4, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/03/123_174584.html)

South Korea’s POSCO, the world’s third-largest steelmaker, has signed an agreement with the Saudi Arabian Public Investment Fund (PIF) pursuant to which Saudi Arabia’s PIF will invest US $1 billion in POSCO E&C, a POSCO-owned construction company. POSCO, via its trading subsidiary Daewoo International, and Saudi Arabia PIF also will look into a joint venture to manufacture 150,000 cars annually in Saudi Arabia. Daewoo International would manage automobile production while POSCO E&C would undertake the construction of the car plant (Park Jin-Hai, “POSCO to Partner with Saudi Arabian Fund to Build Auto Plant,” Korea Times, March 4, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/03/123_174619.html)