MNCs in the News-2015-08-21

In February, China’s CBRC promulgated a set of rules designed to make banking technology (e.g., mainframes, personal computers, and software) “secure and controllable.” The rules pose considerable risks to foreign tech firms by requiring domestic banks to buy local technology or forcing foreign firms to share critical source code. In April, China suspended the plan due, some argued, to successful lobbying by the US government and other governments, industry associations, and foreign companies. The CBRC, however, has recently resurrected the rules despite Chinese President Xi Jinping’s upcoming state visit to the US where the latter certainly will criticize the rules (Gerry Shih, “China Summons Western Tech Firms, Revives Bank Cyber Rules,” Reuters, August 19, 2015, http://www.reuters.com/article/2015/08/19/us-china-cyber-banks-idUSKCN0Q...)

In 2013, China adopted a new labor law to reduce the number of “dispatch” workers or workers that are used through an agency that dispatches workers and is responsible for their compensation and benefits. China adopted the new law because a number of dispatch agencies failed to deliver the benefits and salaries as promised. As a result of the law, which must be implemented by February 2016, Japanese firms in China like Nippon Manufacturing Service are turning to contract manufacturing services since they cannot/will not hire as full-time workers the number of workers they used to use through dispatch agencies (Noriyuki Doi, “Nippon Manufacturing to Triple Contract Staffing in China,” Nikkei Asian Review, August 18, 2015, http://asia.nikkei.com/Business/Companies/Nippon-Manufacturing-to-triple...)

Hong Kong is becoming a magnet for tech firms that want to profit from all the low-cost manufacturing capabilities mainland China offers for their high-tech products, especially Internet of Things products, while at the same time taking advantage of Hong Kong’s greater policy transparency, stronger intellectual property protections, low taxes, and unrestricted Internet. Proximity to the mainland also gives firms access to the massive China market. Hong Kong also is quite welcoming to such investment as a way to diversify away from its reliance on financial services, waning mainland tourism, and to tap new technology markets such as financial technology (Ben Bland, “Tech Start-Ups Flock to Hong Kong,” Financial Times, August 20, 2015)

China’s CBRC and NDRC issue guidelines to prod banks to boost lending for “major projects in key fields” abroad and domestically such as the One Belt, One Road Initiative (OBOR). Han Zhifeng, deputy director-general of the NDRC’s Investment Department implied that the measures related to slow investment growth. Chinese analysts noted that one problem was the poor returns associated with public projects, an issue when government guidelines also require banks to ensure projects run smoothly and to control their financial risks. The NDRC plans to build a database of major projects in order to keep banks informed of lending opportunities (“Lenders Ordered to Give Green Light to Key National Projects,” China Daily, August 21, 2015, http://www.chinadaily.com.cn/business/2015-08/21/content_21668599.htm)

Through its company the Sycamore Tree Investment Platform, China’s State Administration of Foreign Exchange (SAFE) recently provided USD $48 billion to the China Development Bank, owned primarily by the Ministry of Finance, Central Huijin, and SAFE, and $45 billion to the Export-Import Bank of China. The purpose of the fund injection was to boost capital at both institutions, increase funding available for OBOR and domestic projects, and boost resources for “‘international cooperation in the manufacturing sector’” and China’s “going out” policy, a central focus of the Ex-Im Bank of China. Observers expectation there will be additional funding allocation this year (Chen Jia, “Policy Banks get $90b Cash Infusion,” China Daily, August 19, 2015, http://www.chinadaily.com.cn/business/2015-08/19/content_21643373.htm)

The defeat of Sri Lankan President Mahinda Rajapaksa led to a series of government reviews and anti-corruption probes of a number of large Chinese-backed projects such as the Colombo Port City property development that his administration had approved. Nevertheless, the successor administration of Prime Minister Ranil Wickramasinghe and President Maithripala Sirisena has expressed its continuing interest in Chinese investment. Wickramasinghe said “‘We have told the Chinese, the Japanese, and everyone else that all loans must be on competitive terms…but if there are other [new] investment projects…the Chinese or anyone else are free to come in, on terms set by us’” (James Crabtree, “Sri Lanka’s Prime Minister Pledges Continued China Ties,” Financial Times, August 17, 2015)

A Korean consortium led by Samsung C&T and Korea Electric power Corp. (KEPCO) is involved in a USD $5 billion 1,320 megawatt coal-fired power plant project in Kazakhstan. To support the project, the Export-Import Bank of Korea and Korea Trade Insurance Corp. pledged up to $3.5 billion. However, Kazakhstan now seems unwilling to provide payment guarantees for the project, which means the Korean lenders may decline to provide financing for the project, which, in turn, means the project would not to happen. It is reported that Samsung C&T already spent $200 million to build infrastructure like railways for the plant (Choi Kyong-ae, “$5 bln Kazakh Project May Derail,” Korea Times, August 16, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/08/123_184918.html)

LG International, an arm of LG Group, is working to build up its activities in western China, recently having scored a USD $510.4 million coal-fired power plant deal in Gansu Province. Other LG affiliates such as LG Chem and LG Display have invested billions of dollars in battery and display projects in Gansu. LG’s successes are seen to link to LG Group’s Koo Bon Moo’s good ties with top Chinese politicians, positive interactions between LG International CEO Song Chi-Ho and Gansu province governor Liu Weiping, and China’s OBOR project, which has led to increased attention to Gansu given its location (Park Si-soo, “LG International Bets Big on Western China,” Korea Times, August 16, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/08/123_184843.html)

Despite Indonesia’s economic slowdown, its Industry Ministry and the Investment Coordinating Board (BKPM) are optimistic about the potential for the growth of FDI in Indonesia’s manufacturing sector, especially in areas like automotive, food and beverages, and pharmaceuticals. The second quarter of this year, manufacturing FDI jumped 14.5 percent year-over-year. Inward FDI in manufacturing will enjoy a big boost because of a GM-SAIC Motor Corporation planned USD $700-800 million factory. Indonesia has been pushing manufacturing investment pursuant to Indonesian President Joko “Jokowi” Widodo goal make Indonesia more of a production-based economy and BKMP will formulate special deals to facilitate manufacturing investment (Grace D. Amianti, “Govt Expects to Woo More Investors as Manufacturing Grows,” Jakarta Post, August 18, 2015, http://www.thejakartapost.com/news/2015/08/18/govt-expects-woo-more-inve...)

Vietnam’s Ministry of Industry and Trade has announced that the government will move to reduce its stake in a variety of state energy companies. In particular, it plans to sell 49 percent stakes in Binh Son Refining and Petrochemical Limited (BSR) and PetroVietnam Oil Corporation (PVOil) and will consider reducing its stake in Vietnam Oil and Gas Group subsidiaries PVGas and Viet Nam National Petroleum Group, though it will still maintain a dominant stake in these subsidiaries given their importance. It is not clear how much foreign investors will be allowed to own, though they clearly will have some role (“VN to Privatize Parts of Energy Industry,” Viet Nam News, August 15, 2015, http://vietnamnews.vn/economy/274516/vn-to-privatise-parts-of-energy-ind...)

Vietnam’s tuna industry is facing serious challenges include declining fisheries and declining demand resulting from economic conditions as well as the unstable quality of Vietnam’s tuna supply. Vietnam thus is seeking international cooperation to modernize its tuna fleets and ports, gain access to more technology, develop its processing capabilities, and reach new markets. Aside from working with other countries, Vietnamese provinces and cities are working with firms like Japan’s Hokugan Ltd. which will build a seafood processing plant in Vietnam as well as provide equipment and training to local fishermen (“Japan to Process Tuna in Phu Yen,” Vietnam News, August 18, 2015, http://vietnamnews.vn/economy/274615/japan-to-process-tuna-in-phu-yen.html)