MNCs in the News-2015-09-18

China and the U.S exchanged revised BIT offers on the eve of Chinese President Xi Jinping’s visit to the US. The big issue is the negative list given China’s numerous sectoral investment restrictions. The US said it expects a Chinese negative list that is “limited, narrow, and represents a substantial liberalization.” American businesses are lobbying for progress while China’s MOFCOM observed BIT negotiations would “make up most of the discussions during” Xi’s visit. Some expect China’s recent stock market turmoil to make it more comprising while former MOFCOM vice-minister Wei Jianguo expressed optimism that there would be a basic agreement (Krista Hughes and David Brunnstrom, “U.S., China Exchange New Investment Treaty Offers Ahead of Xi’s Visit,” Reuters, September 15, 2015, http://www.reuters.com/article/2015/09/15/us-usa-china-investment-idUSKC... “Xi to Press the Case for Early BIT,” China.org.cn, September 17, 2015, http://www.china.org.cn/business/2015-09/17/content_36608593.htm; “Former Official Expects Basic BIT Agreement,” China.Org.cn, September 17, 2015, http://www.china.org.cn/business/2015-09/17/content_36611331.htm)

It was revealed the China Information Technology Security Evaluation Center has asked various American tech companies to sign a document committing to “not harm China’s national security and store Chinese user data” in China and to ensure their products are “‘secure and controllable,” which could mean anything from giving China source code to building back doors into products. Many technology companies are struggling to determine how they should respond to China’s demands given their interest in preserving access to the China market. To keep the government happy, computer, semiconductor, and other companies such as Dell and Intel have transferred technology, invested, and partnered with Chinese firms (Paul Mozur, “China Tries to Extract Pledge of Compliance from U.S. Tech Firms,” The New York Times, September 16, 2015, http://www.nytimes.com/2015/09/17/technology/china-tries-to-extract-pled... Eva Dou and Don Clark, “U.S. Tech Companies Cozy Up to China,” The Wall Street Journal, September 13, 2015, http://www.wsj.com/articles/u-s-tech-companies-cozy-up-to-china-1442184436)

Contrary to prior reports, the U.S. has decided not to impose sanctions on Chinese companies that have gained from commercial cyber espionage prior to Xi’s upcoming state visit to the US. The sanctions could have had severe negative ramifications for Xi’s trip. According to US media, the delay occurred due to senior US and Chinese officials reaching “‘substantial agreement’” on several cybersecurity issues.” This does not mean, though, that the US will not later impose sanctions on Chinese companies or Chinese individuals. Obama has stressed that he will speak frankly with Xi about US concerns about “China’s behavior in cyberspace” (Ellen Nakashima, “U.S. Won’t Impose Sanctions on Chinese Companies Before Xi’s Visit,” The Washington Post, September 14, 2015, https://www.washingtonpost.com/world/national-security/the-us-will-not-i... Roberta Rampton, “White House Says Obama Will Raise Cybersecurity Issues with China’s Xi,” The New York Times, September 15, 2015, http://www.nytimes.com/reuters/2015/09/15/technology/15reuters-usa-china...)

China’s General Administration of Quality Supervision, Inspections, and Quarantine told FAW-Volkswagen to do more in regards to corrective measures meant to deal with a potential defect with the rear suspension of its new Sagitar that could lead to fractures to the trailing arms on the torsion-beam of the rear suspension. FAW-Volkswagen’s recall of more than 550,000 Sagitars, which has involved installing metal plates seems to help, but does not eliminate all risks. “Volkswagen Group China, FAW-Volkswagen, and Volkswagen Imports all have announced they accept and respect the government’s investigation results and promised to take more measures to address concerns” (Hao Yan, “Volkswagen Says It ‘Accepts and Respects’ Watchdog’s Findings,” China Daily, September 14, 2015, http://www.chinadaily.com.cn/business/motoring/2015-09/14/content_218505...)

For the first eight months of 2015, China’s MOFCOM reported outward FDI grew 18.2 percent to USD $74.3 billion. Significant amounts of money went to Australia, Singapore, the US, and Hong Kong with investment in OBOR countries surging 48.2 percent to $10.73 billion. For all of 2014, the first year China was a net capital exporter, China’s total outbound FDI hit $123.12 billion, up 14.2 percent year-over-year with a strong interest in financial services. In 2014, investment in OBOR countries totaled $13.66 billion, 11.1 percent of the total. This year, the total stock of Chinese OFDI could top $1 trillion (China Outbound Direct Investment Jumps 18.2%,” China.Org.cn, September 16, 2015, http://www.china.org.cn/business/2015-09/16/content_36603502.htm; “China 2014 ODI Revised to US$123.12 bln,” China.Org.cn, September 17, 2015, http://www.china.org.cn/business/2015-09/17/content_36610297.htm; “Updated China OFDI Data Shows More Impressive Growth,” China.Org.cn, September 17, 2015, http://www.china.org.cn/business/2015-09/17/content_36612286.htm; “China’s Total Offshore Investment on Track to exceed US$1 trillion by end of 2015,” South China Morning Post, September 15, 2015, http://www.scmp.com/news/china/economy/article/1859123/chinastotaloffsho...)

In 2014, Lenovo bought IBM’s x86 low-end server business. Thereafter, it was reported the US Department of Homeland Security had security concerns leading the US Navy to place limits on purchases of Lenovo BladeCenter server products, which was Lenovo’s rebranding of the x86 server line, and indeed to consider dropping Lenovo servers. Lenovo representatives said they did not thinking their servers were on any blocked list and that, in any event, it was “‘going through the process of being certified and looking to get approved for specific opportunities in certain sides of the US government’” (Lenovo Seeks Approval for Sale of Its Servers in US,” WantChinaTimes.com, September 17, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150917000082&cid=...)

According to remarks by Lu Wei, the Minister of China’s Cyberspace Administration of China (CAC) at the China-ASEAN Information Harbor Forum (hosted by the CAC, China’s National Development and Reform Commission, and the Guangxi provincial government), “China will set up a special fund for internet and telecommunications infrastructure.” Lu touted that the fund would enhance the region’s technological levels, break information barriers, and promote the 21^st Century Maritime Silk Road. China also intends to set up a base for the China-ASEAN Information Harbor in Nanning, the capital of Guangxi Zhuang (“Beijing to Set Up Special Fund for ASEAN Internet Cooperation,” WantChinaTimes.com, September 14, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?cid=1201&MainCatID=12&...)

The US Justice Department will impose a $62 million fine on Japanese automotive and hydraulic equipment maker Kayaba Industries Co. (KYB Corp.) because of KYB Corp.’s role in a price fixing scheme for shock absorbers for automobiles and motorcycles sold in the US. KYB “pleased guilty to the allegation that it conspired to rig the prices of the component sold in the United States to Japanese automakers and their subsidiaries from the mid-1990s to 2012.” KYB’s co-conspirators were not named, but adversely affected firms included Fuji Heavy Industries (the maker of Subaru cars), Honda Motor Co., and Toyota Motor Corp. (“Japan’s Auto Parts Maker Kayaba Fined $62 mil. For Price Fixing,” Nikkei Asian Review, September 17, 2015, http://asia.nikkei.com/Business/Companies/Japan-s-auto-parts-maker-Kayab...)

Korea’s National Tax Service (NTS) is conducting an audit of Mercedes-Benz Korea, which has been enjoying fantastic sales growth in recent years, as well as Mercedes-Benz Financial Services. A Mercedes-Benz Korea spokeswoman said the audit was a “‘regular’ audit that occurs every four or five years.” Various sources told the Korea Times, however, that the NTS audit might be related to an illegal arrangements whereby Mercedes-Benz “illegal inflated the import price of vehicles in order to reduce the taxes they had to pay in Korea” (Park Si-Soo, “Mercedes-Benz Korea Under Tax Probe,” The Korea Times, September 13, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/09/123_186732.html)

At a gathering of several hundred CEOs and human resource managers from foreign companies, Korean Vice Minister of Employment and Labor Koh Young-Sun lobbied foreign firm’s to create more jobs saying it was their “‘most important corporate social responsibility.’” He also pushed foreign companies to employ more young people and touted the recent conclusion of a government, labor, and business labor agreement. Foreign firms noted it was not so easy to hire more workers given rising labor costs, diminishing productivity, and high benefit costs. The CEO of GM Korea also complained about the burdensome need to renegotiate wages every year (Lee Hyo-Sik, “Foreign Firms Urged to hire More Young People,” The Korea Times, September 18, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/09/123_187128.html)

A goal of the Indonesian government is to increase the number of refineries in the country to improve its energy security by decreasing the country’s need to import crude oil and refined oil products. Thus, it is working on a series of regulations that will create incentives, including fiscal ones, for investors. A representative of Indonesia’s Energy and Mineral Resources Ministry said various national oil firms from China, Iran, and Kuwait already had expressed interest in building refineries. Saudi Arabian firm Aramco already had committed USD $10 billion for projects like an oil refinery and a storage and distribution network (Raras Cahyafitri, “Govt Preparing Incentives for Refiners,” The Jakarta Post, September 15, 2015, http://www.thejakartapost.com/news/2015/09/15/govt-preparing-incentives-...)

At a recent gathering, Vietnamese Ministry of Finance officials met with Korean business representatives to update them on recent tax and customs developments as well as to give them a chance to voice their concerns. Korean businesses are especially important to Vietnam since Korean FDI is the largest in the country and companies like Samsung have billions of dollars of new investments planned. Vietnamese Deputy Minister of Finance Do Hoang Anh Tuan said the government would move to create better conditions for investment and Vietnamese officials noted that Vietnam has been moving to reduce tax filing time, among other things (“Ministry Discusses Customs, Taxes with S Korean Firms,” Vietnam News, September 15, 2015, http://vietnamnews.vn/in-bai/275791/ministry-discusses-customs-taxes-wit...)