MNCs in the News-2015-03-20

According to MOFCOM data, China’s FDI in February grew just 0.9 percent YOY versus a 29.4 percent YOY increase in January. February FDI at US $8.6 billion was 38 percent lower than January figures. The figures result from many factors including overcapacity, barriers against foreign investment, and a slowing economy. Some observers felt that the “weak February FDI numbers” did not mean much given season fluctuations and noted January and February inward FDI combined showed good YOY increases, albeit as a result of one-off deals. China’s shift towards services continues to be reflected in strong FDI into the service sector (Kevin Yao, “China February FDI Grows at Slowest Pace in Six Months, Outbound Flows Jump,” Reuters, March 17, 2015, http://www.reuters.com/assets/print?aid=USKBN0MD05Y20150317)

China has “put on hold a draft counter-terrorism law that would require technology firms to hand over sensitive information” like encryption keys, install backdoors, and keep servers within China. A senior NPC Standing Committee official said the NPC would delay vote on the bill. Some felt the postponement was nothing more than a delay while others concluded the law would be softened because China was not “‘ready to kick out all foreign companies’” or that China saw advantages to modifying the law to avoid “‘diplomatic confrontation.’” The looming law put great pressure on foreign firms to find a local partner (Krista Hughes, “China Puts Tech Bill that Concerns West on Hold: U.S. Official,” Reuters, March 13, 2015, http://mobile.reuters.com/article/idUSKBN0M91ZT20150313; Gao Yuang and Jiang Xueqing, “‘Not Much Time Left’ to adapt to New Terror Law,” China Daily, March 17, 2015, http://www.chinadaily.com.cn/business/tech/2015-03/17/content_19831949.htm)

China has begun implementing CBRC and MIIT drafted rules mandating banks ensure by 2019 that 75 percent of their IT products (mainframes, software, and point-of-sale terminals) are “‘secure and controllable.’” The US, EU, and various industry associations have strongly challenged these rules that would force bank IT suppliers to conduct R&D in China and share source code. Some believe China will be cautious about how far it goes given World Trade Organization rules while others are optimistic China may back off its demands for source codes. Yet others believe foreign companies will have to localize production or develop China-specific products (Tom Mitchell, “China On Collision Course with EU and US over Bank IT Rules,” Financial Times, March 15, 2015; Gillian Wong and Eva Dou, “Stiffer Bank-Technology Rules Loom in China,” The Wall Street Journal, March 15, 2015, http://www.wsj.com/articles/stiffer-bank-technology-rules-loom-in-china-... Robin Emmott, “EU Joins U.S. to Try to Stop China’s New Technology Rules,” Reuters, March 19, 2015, http://www.reuters.com/assets/print?aid=USKBN0MF1YH20150319)

Qualcomm, still reeling from its huge anti-trust fine, faces a trademark suit from Shanghai Gao Tong Semiconductor which charges that the Qualcomm brand in China violates its trademark. Shanghai Gao Tong, which is seeking about 100 million yuan in damages, argues that between 1992 and 2004 it registered five trademarks containing the same characters Qualcomm uses. Shanghai Gao Tong is represented by the same firm Hejun Vanguard Group that helped a Chinese company sue Apple over the iPad trademark. Hejun opined it has to “safeguard the dignity of Chinese national brands and defend the rights and interests of Chinese enterprises” (Edmond Lococo, “Qualcomm Faces Team that Beat Apple in Trademark Fight,” Bloomberg News, March 17, 2015, http://www.bloomberg.com/news/articles/2015-03-17/qualcomm-faces-team-th... “Qualcomm Now Being Challenged on Chinese Trademark,” China Daily, March 18, 2015, http://www.chinadaily.com.cn/business/2015-03/18/content_19838620.htm

Yahoo will shut down its China operations as CEO Marissa Meyer responds to pressure to cut costs. The specific operation being terminated is Yahoo’s Beijing research center, which was established in 2009 as one of Yahoo’s three global R&D centers, and the termination will lead to 300 or more employees, engineers and scientists, losing their jobs. Yahoo already terminated its China email service in 2013. Yahoo maintains a considerable stake in Alibaba, though it has plans to dispose of it. Some say the problem of the Beijing R&D center was the rising salaries of employees (Jillian D’Onfro, “Yahoo Just Pulled Out of China and Axed at Least 200 Employees,” Business Insider, March 18, 2015, http://www.businessinsider.com/yahoo-lays-off-200-in-china-more-than-700... Adrian Wan, “Yahoo to Close Beijing Research Centre as Company Seeks to Downsize,” South China Morning Post, March 18, 2015, http://www.scmp.com/print/lifestyle/technology/enterprises/article/17410... Li Huiling, “Yahoo Said to Close R&D Center in Beijing Employing Hundreds,” Caixin, March 19, 2015, http://english.caixin.com/2015-03-19/100792826.html)

CCTV recent “3.15” consumer rights day show charged foreign auto firms Volkswagen AG, Nissan Motor Co., and Daimler AG Mercedes Benz with “overselling repairs and spare parts” and Jaguar Land Rover with gearbox problems. Mercedes said it would undertake an investigation. Nissan responded by saying it would “set up a team to investigate allegations and strengthen regulatory teams.” Volkswagen already was a target of the show in 2013 in regards to gearbox problems and in a separate show CCTV attacked Volkswagen for neglecting “dangerous engine leaks,” drawing apologies from the firm which partners with SAIC and FAW Group in China (Adam Jourdan and Sue-Lin Wog, “China Consumer Show Targets Volkswagen, Nissan, Mercedes,” Reuters, March 16, 2015, http://www.reuters.com/assets/print?aid=USKBN0MB0TB20150316; “Nissan Joint Venture Starts Probe after China Criticism,” The Japan News, March 17, 2015, http://the-japan-news.com/news/article/0002009615; Jake Spring, “Volkswagen Hit by Second Chinese State Television Expose in One Week,” Reuters, March 18, 2015, http://www.reuters.com/assets/print?aid=USKBN0ME11920150318)

Chinese firms are some of the “biggest players in the global infrastructure industry” with China State Construction International Holdings, China Construction Corporations, and China Railway Group being ranked as the world’s top three contractors globally for the past four years. Furthermore, “25 percent of the world’s 250 biggest international project contractors are Chinese.” China has helped these firms win projects by providing billions in loans for railway, power station, and other projects in Argentina, Nigeria, and Thailand. As one paper put it, “promoting Chinese products and helping Chinese companies win business orders has become a “‘new norm’” of China’s diplomacy” (“China Using Diplomacy to Help Companies Win Orders,” WantChinaTimes.com, March 14, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150314000087&cid=...)

According to China’s State-owned Assets Supervision and Administration Commission, China will appoint “independent auditors to assess the value of overseas assets belong to the country’s biggest state enterprises” which refers to China’s 113 central state enterprises. Apparently, to date, there has “been no real audit of overseas investments by major SOEs and a lot of information needs to be filled in and parsed.” The audit was designed to limit “unreasonable competition,” corruption, prevent defaults, and increase awareness of the overseas performance of China firms, some which are losing hundreds of millions of dollars due to poor business planning or management (Duncan Hewitt, “China Promises Transparent Audit of State Enterprises $690B in Overseas Investment,” International Business Times, March 17, 2015, http://www.ibtimes.com/china-promises-transparent-audit-state-enterprise... “Beijing to Audit Overseas Assets of SOEs,” WantChinaTimes.com, March 18, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150318000163&cid=...

In late February, China and South Korea initialed a FTA. The FTA will cut tariffs on numerous products, including certain kinds of buses and trucks, over a 20-year period. The FTA does not provide for any tariff reductions in regards to passenger cars and thus Korean car makers such as Hyundai and Kia will move to expand production, particularly to fit the government’s western development strategy, as well as R&D centers. This hardly surprises. As the executive director of the Korean Automobile Manufacturers Association put it, “it is meaningless to think about an auto industry without having China in mind” (“Hyundai to Boost Localization after China-S. Korea FTA,” WantChinaTimes.com, March 14, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150314000053&cid=...)

The Consumer Union of Korea (CUK) charged that IKEA, the Swedish furniture multinational, priced its product in Korea “higher than in other developed countries,” saying IKEA’s Korea prices were the 2^nd most expensive out of 28 developed countries (mostly OECD countries) even after taking into account exchange rates. IKEA dispute the survey, which the CUK said it compiled using online and onsite data gathering. It responded that the CUK had looked at only a very small proportion of the thousands of goods that IKEA sold in Korea and did not adequately take into account purchasing patterns between Korea and Europe (Park Si-Soo, “IKEA Accused of Pricing Higher in Korea,” Korea Times, March 19, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/03/123_175514.html)