MNCs in the News-2015-05-15

According to China’s Ministry of Commerce (MOFCOM), FDI flows into China are still growing at a healthy pace, rising 11.1 per cent over the first four months of the year for a total investment amount of US $44.5 billion. Inward FDI for April was US $9.6 billion, a 10.5 percent increase year-over-year (YOY). Chinese statistics showed healthy growth in service sector FDI, which rose 24.8 percent to US $28.1 billion over the first four months of the year. Despite the relatively good news, MOFCOM noted the pressures on FDI flowing from rising costs and other countries’ efforts to attract FDI (Koh Gui Qing and Kevin Yao, “China April FDI up 10.5 percent year-on-year to $9.6 billion: Reuters Calculation,” May 13, 2015, http://www.reuters.com/article/2015/05/13/us-china-economy-fdi-idUSKBN0N...)

China has been moving since last December to eliminate special preferences that local governments provided to foreign firms. The new direction alarmed foreign companies such as Foxxconn since it meant, among other things, the possible loss of tax breaks and discounted land even though such preferences were included in written investment contracts. In the face of pressure from companies and business associations such as the U.S.-China Business Council, China’s State Council said existing contracts between foreign businesses and local governments and departments would be honored, though preferential policies with no end date would have to be adjusted in unspecified ways (Gillian Wong, “China to Honor Foreign Firms’ Tax Breaks,” The Wall Street Journal, http://www.wsj.com/articles/beijingtohonortaxbreaksforcontractswithcitie...)

During a visit to China, Apple CEO Tim Cook launched a new initiative that would have the company partner with World Wildlife Fund to protect as much as one million acres of “managed forests” to make Apple’s pulp, paper, and wood product inputs more sustainable. Cook highlighted “‘the environmental issue is very important in China,’” that Apple is trying to align itself with President Xi Jinping’s priorities, and that it is striving to cut its carbon footprint. During his visit, Cook met with Chinese Vice-Premier Liu Yandong who encouraged the firm to invest and promote China-US exchanges and scientific/educational cooperation (“Apple in Environmental Push Vows to Address Pollution in China,” TheStreet.com, May 11, 2015, http://www.thestreet.com/print/story/13146003.html; “Environment and Market Both Concerns of Apple in China: Tim Cook,” China Daily, May 12, 2015, http://www.chinadaily.com.cn/business/tech/2015-05/12/content_20690976.htm; “Chinese Vice-Premier Meets Apple CEO,” China Daily, May 13, 2015, http://www.chinadaily.com.cn/business/tech/2015-05/13/content_20702104.htm)

John Chambers, the CEO of US networking equipment giant Cisco System, observed in an interview with the Financial Times that US-China political tensions were causing problems for American technology firms. Chambers specifically remarked “‘Until our countries get along better, we’re not going to see an improvement.’” Beyond stresses in US bilateral relations with China, Cisco and its peers are dealing with the fallout of Edward Snowden’s revelations about widespread US spying. Snowden’s revelations raised many concerns in China and elsewhere about supposed back doors and other IT security risks and have driven China and others to pursue greater technological independence (Richard Waters, “China Tensions ‘Hurting US Tech Groups,’” Financial Times, May 14, 2015).

During an interview with BuzzFeed, the CEO of LinkedIn spoke about the firm’s dealings with China, which have required it to censor certain kinds of postings on its Chinese-language website. Jeff Weiner said the Chinese-language website necessitated “‘compromises that are far from ideal and can be very painful.’” Weiner noted complying with Chinese law was essential “‘in order to create value for members in China.’” He added “‘It’s a very difficult decision to compromise things that are important to you’” and that censoring was “‘gut-wrenching.’” The company does not prevent users outside China from seeing Linkedin content censored in China (Joseph Bernstein, “LinkedIn CEO on Chinese Censorship: ‘It’s Gut-Wrenching,’” BuzzFeed, May 8, 2015, http://www.buzzfeed.com/josephbernstein/linkedin-ceo-on-chinese-censorsh...)

As part of its economic reform initiatives and efforts to introduce more market based pricing, China has been removing price controls on electricity prices and power transmission, following moves to allow market based prices in oil and gas. The reforms will allow coal-fired power generators and operators of the electricity grid the ability to significantly raise prices and give incentives for greater investment and expansion. While some foreign firms will feel the pinch of raising costs, the change should open the door for more Sino-foreign power generation ventures and give foreign contractors involved in power generation and distribution newfound opportunities (Ralph Jennings, “How China’s Energy Reforms Will Raise Costs but Spur Investment,” TheStreet.com, May 9, 2015, http://www.thestreet.com/print/story/13142112.html)

Chinese firms have been looking towards Africa for investments, especially energy assets, since the mid-1990s when China became a crude oil importer. This was a function of China’s needs and the fact that it did not have investment options in the Middle East where foreign oil multinationals dominated and countries such as Saudi Arabia limited foreign investment. Some areas where China is a big investor include Angola and Nigeria. The reaction to Chinese investment varies by country but Kenya is enthusiastic with local leaders praising China for bringing increased attention to Africa and noting China’s contribution to Kenya’s manufacturing sector (“China Owns Greatest Foreign oil Assets in Africa,” WantChinaTimes.com, May 13, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150513000004&cid=... “Kenya County Chiefs Laud China’s Investment in Africa,” WantChinaTimes.com, May 11, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150511000057&cid=...)

A coincidence of needs has produced rising Chinese investment in Israel. On the one hand, investment by Chinese food companies such as Bright Foods in Israeli dairy firm Tnuva and Chinese internet giant Alibaba in Visualeada, an Israeli company specializing in QR code technology links to the desire of Chinese businesses for safe, high quality goods and products and services at the higher end of the value chain. From the Israeli side, it is appealing China is little concerned about Israeli-Palestinian issues, has money to invest and a huge market, and represents an alternative to Europe, which is struggling economically (John Reed and Charles Clover, “China Investment in Israeli Companies Rises,” Financial Times, May 14, 2015)

Chinese Premier Li Keqiang is visiting Brazil, Chile, Colombia, and Peru to promote China’s relations with these countries. He also will tout Chinese rail investment, particularly a Chinese constructed cross-Andes link that would allow Brazilian raw materials to be shipped from Peru to China and thus take the Panama Canal out of the picture. Of late, China seems to be stressing investment beyond its traditional leftist Latin American partners like Argentina and Venezuela with Peru becoming a major investment destination. Even so, Chinese firms have been cautious given the tax, labor, and political situation and increased scrutiny in some countries (Lucy Hornby and Andres Schipani, “China Tilts towards Liberal Latin American Economies,” Financial Times, May 11, 2015).

To bolster its overseas investment opportunities, POSCO Energy may set up a joint 570 billion won investment fund with Korea’s National Pension Service (NPS) with the NPS undertaking the lion’s share of investment in the joint fund. The NPS, though, would not confirm the specifics of any arrangement saying there were being negotiated. The purpose of the joint fund would be to support the construction of overseas power plants—POSCO would gain construction and management opportunities while NPS would derive investment income from its stake in the joint investment fund (Park jin-hai, “POSCO Energy Mulls Over Setting Up Investment Firm,” Korea Times, May 11, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/05/123_178735.html).

Daewoo International is negotiating with the Saudi National Automobile Manufacturing Company (SNAM) to build a car manufacturing plant in Saudi Arabia that would make about 115,000 cars annually. Major investors in the approximately US $1 billion deal would include Daewoo, SNAM, and Saudi Arabia’s sovereign wealth fund which, respectively, would have 15, 50, and 35 percent stakes. While the deal has not been finalized, Daewoo and SNAM have already started to recruit students in Korea who could serve as a bridge among the investment partners and Saudi Arabia and Korea (Park Si-Soo, “Daewoo International to Build Auto Plant in Saudi Arabia,” Korea Times, May 14, 2015, http://koreatimes.co.kr/www/news/biz/2015/05/602_178954.html)

Pursuant to a request from South Korea’s Trade, Industry, and Energy Minister, Indonesia’s Investment Coordinating Board (BKPM) head Franky Sibarani said the BKPM would work to help South Korean companies bring their investment projects in Indonesia to fruition and to ensure the investment process went smoothlyl. The request from South Korea occurred during a bilateral meeting in Indonesia and follows a visit by Franky to South Korea in early May to promote investment in Indonesia. South Korea is the 3^rd biggest FDI contributor in Indonesia (“Economy in Brief: BKPM Pledges Cooperation with S. Korean Investors,” The Jakarta Post, May 12, 2015, http://www.thejakartapost.com/news/2015/05/12/economy-brief-bkpm-pledges...)