MNCs in the News-2016-01-22

Chinese MOFCOM statistics indicate inward FDI (IFDI) ran roughly USD $12.23 billion in December 2015, a 5.8 percent drop year-over-year (YOY) and the first YOY drop since August 2014. A MOFCOM spokesman argued that the drop was due to the fact that IFDI in December 2014 was relatively high coupled with “changing currency trends and market conditions.” MOFCOM further touted that 2,000 foreign-funded enterprises set up shop in China in December while its spokesman stressed inward FDI for 2015 still showed an increase of 6.4 percent, hitting USD $126.27 billion (“China Records First FDI Drop in Months,” China.Org.cn, January 20, 2016, http://www.china.org.cn/business/2016-01/20/content_37620662.htm)

The American Chamber of Commerce in China recently released its annual Business Climate Survey. Of nearly 500 companies surveyed, 60 percent see China “as one of the top three investment destinations” while 25 percent see China as their number 1 investment priority. Many companies admit continuing concerns over uncertainties in the regulatory and legal environment, 75 percent of surveyed firms “feel less welcome than in the past,” and 80 percent note internet/web controls hindered their activities while others noted internet controls discouraged investment. Still, 64 percent of respondents reported profits and many noted improving protection of their intellectual property rights (“Foreign Firms Optimistic about China Investment: AmCham,” China.org.cn, January 20, 2016, http://www.china.org.cn/business/2016-01/20/content_37623646.htm; Xu Yangjinjing and Simon Denyer, “Six Charts that Explain Why U.S Companies Feel Unwelcome in China,” The Washington Post, January 20, 2016, https://www.washingtonpost.com/news/worldviews/wp/2016/01/20/six-charts-... Julia Makinen and Chuan Xu, “Survey of U.S. Companies in China Finds that Not All’s Well,” LA Times, January 21, 2016, http://www.latimes.com/business/la-fi-business-survey-china-20160121-sto...)

American chip maker Qualcomm, which China slapped with a $975 billion anti-monopoly fine in February 2015, has established a $280 million joint venture (JV), majority owned by the Guizhou provincial government, which will “focus on the design, development, and sales of ‘advanced server chipset technology.’” The JV also will “license its proprietary server chip technology and provide research and development processes to the venture.” Provincial officials gushed the venture would help Guizhou boost its semiconductor industry and boost high-tech sectors such as cloud computing. Officials at the National Development and Reform Commission stressed how venture could help develop China’s West (“Qualcomm to Invest US$280m in China’s Guizhou,” China.Org.cn, January 18, 2016, http://www.china.org.cn/business/2016-01/18/content_37599291.htm)

Saudi Aramco, Saudi Arabia’s state oil and gas company, is negotiating with CNPC and Sinopec, Saudi Aramco’s largest customer, to invest in refineries in China and also negotiating with the two companies about investment opportunities in “refining, marketing, and petrochemicals.” The Chairman of Saudi Aramco Khalid al-Falih told reporters “‘Aramco would like to invest more in China.’” Aramco sees investment as a way to increase its sales to China at a time of declining oil prices and increasing competition. Saudi Aramco already has a major venture with Sinopec, the Yasref oil refinery, in Saudi Arabia (Rania El Gamal, Reem Shamseddine, and Katie Paul, “Saudi Aramco in Advanced Talks to Buy China Refinery Stakes: Chairman,” Reuters, January 20, 2016, http://www.reuters.com/article/us-saudi-energy-aramco-idUSKCN0UY2US)

Chinese President Xi Jinping is visiting the Middle East at a time when the end of sanctions against Iran has opened up increased opportunities for Chinese investment. Iranian elites have stressed their strong interest in cooperating with China and their intense desire for more Chinese infrastructure investment. Egypt also is courting greater Chinese investment. Many wonder if China’s increased involvement in the Middle East will lead it to become more involved diplomatically in issues like frictions between Iran and Saudi Arabia and the Syrian civil war. The evidence is that Beijing is becoming more active, but in only limited ways (Charles Clover, Heba Saleh, Najmeh Bozorgmehr, and Simeon Kerr, “Xi Faces Diplomatic Test on First Middle East Visit,” Financial Times, January 18, 2016; Michael Martina and Chen Aizhu, “As Xi Heads into Middle East Feud, China Says Aims for Balance,” Reuters, January 18, 2016, http://www.reuters.com/article/us-china-mideast-idUSKCN0UW0CL)

During President Xi Jinping’s visit to the Middle East, China Nuclear Engineering Group Corp. (CNEC) concluded an agreement with Saudi Arabia “to develop its homegrown fourth-generation nuclear technology.” Gu Jun, president and general manager of CNEC, touted that the agreement would help China develop and export its homegrown fourth-generation nuclear technology jointly developed by his firm and Tsinghua University. It seems odd that oil rich Middle East countries would want nuclear power plants, but they do need to satiate growing energy demands and reduce pollution (“China Nuclear to Bring Nuclear Power to Saudi Arabia,” China.Org.cn, January 21, 2016, http://www.china.org.cn/business/2016-01/21/content_37628359.htm)

According to the CEO of the Egypt TEDA Special Economic Zone (SEZ) Development Company, work to expand the China-Egypt Suez Economic and Trade Cooperation Zone will begin soon. The expansion will focus on export-oriented manufacturing, warehouses, and logistics and associated living and service facilities. The first phase will encompass a bonded logistics park, a high-end manufacturing zone, a business center, and recreation center. Guangzhou Dayun Motorcycle Co. Ltd. has committed to be the first Chinese company to set up a manufacturing plant in the SEZ. The project has created 2000 jobs and generated USD $35 million in taxes for Egypt (“Expansion of Sino-Egyptian Economic Zone to Start Soon,” China.org.cn, January 21, 2016, http://www.china.org.cn/business/2016-01/21/content_37627649.htm)

Wanda Group Co. has struck an agreement with the northern Indian state of Haryana to construct a USD $10 billion industrial park. The project, which could represent one of the largest developments in Indian history, is intended to create facilities for companies in sectors such as cars, healthcare, and software and also could have a residential district. Per analysts, if it comes to fruition, the project would constitute one of the largest foreign investments in India. Wanda’s role will be to build the initial infrastructure and to attract Chinese and other international companies to set up shop in the park (“China’s Richest Man Plans $10 Billion India Development Project, January 21, 2016, http://www.bloomberg.com/news/articles/2016-01-22/china-s-richest-man-pl...)

Due to some recent deaths linked to Takata air bag inflators, the U.S. NHTSA has “ordered a new recall of about 5 million vehicles with potentially defective Takata Corp. air bags, covering some automakers not previously affected by one of the biggest auto safety recalls in U.S. history.” After this recall almost 28 million Takata air bag inflators will have been recalled, with newly affected automakers including Volkswagen, Audi, Mercedes-Benz, and Saab. In November 2015, Takata paid a USD $70 million fine due to its faulty air bag inflators and it faces additional penalties of up to USD $130 million (David Shepardson and Bernie Woodall, “New Takata Air Bag Recall to Cover Five Million U.S. Vehicles,” Reuters, January 22, 2016, http://www.reuters.com/article/us-autos-takata-recalls-exclusive-idUSKCN...

Korea’s environmental ministry will “file a criminal complaint against the head of Volkswagen AG and Audi AG’s local unit” Johannes Thammer because VWs recall plan for emissions-cheating cars does not meet the country’s legal requirements. The specific problem is Volkswagen’s proposal for fixing its cars “failed to explain why the problem occurred and how it would be fixed.” In a statement, VW said “‘Audi Volkswagen Korea was doing its utmost to resolve the emissions issue.’” In November 2015, Korea levied a USD $11.7 million fine against Audi Volkswagen Korea and commanded the local subsidiary to recall more than 120,000 cars (“South Korea Says to Bring Criminal Case against VW’s Local Chief,” Nikkei Asian Review, January 19, 2016, http://asia.nikkei.com/Business/Companies/South-Korea-says-to-bring-crim...)

This month, the ambassadors of Australia, the United Kingdom, and the United States have met with the head of the Korean parliamentary legislation and judiciary committee to express their displeasure with a pending bill that would restrict the activity and entry of foreign law firms. The bill specifically “would limit foreign firms to specific areas of local law, and then only through joint ventures where local firms hold the majority stake—an unworkable requirement” according to foreign lawyers. This is not the first time foreign governments have challenged South Korea about its implementation of the trade deals it has concluded (Simon Mundy, “Foreign Law Firms Rap South Korea over New Bill,” Financial Times, January 17, 2016)

Amnesty, in conjunction with African Resources Watch, has produced a report on the cobalt trade in the Democratic Republic of Congo. The report asserts child labor is widely used in the production of cobalt and that companies like Sony and Samsung are not doing enough to ensure the cobalt they obtained was not produced with child labor. Sony said “‘we are working with suppliers to address issues related to human rights and labour conditions at the production sites.” Samsung stated it “‘had a zero tolerance policy’” towards child labor and that it…conducted regular and rigourous audits of its supply chain” (Jane Wakefield, “Apple, Samsung, and Sony Face Child Labour Claims,” BBC News, January 19, 2016, http://www.bbc.com/news/technology-35311456)

Thai transportation minister Arkhom Termpittayapaisith announced after several rounds of discussions China had agreed to reduce the rate it will charge on a joint medium-speed rail project in Thailand from 2.5 to 2.0 percent. It expects the pledge made by Chinese Vice Premier Wang Yang to “become official at the two countries’ next meeting.” In the future, Thailand’s transportation and finance ministries also will consider whether or not to increase China’s stake from the current 60 percent to 70 percent. A change in China’s stake, though, will not affect the fact Thailand will take over all operations after seven years (Amornrat Mahitthirook, “China to Drop Loan Rate for Train Project,” Bangkok Post, January 19, 2016, http://www.bangkokpost.com/business/tourism-and-transport/831872/china-t...)

Deloitte Singapore and Southeast Asia, a unit of the Deloitte global consultancy, has written in a commentary on Singapore’s 2016 budget that the country faces a threat from neighboring countries which are trying to lure multinational corporations by offering a panoply of incentives for them to move treasure centers and headquarters. It argues that Singapore needs to extend its incentive and put forth improved, industry-specific tax incentives to deal with the challenge from Hong Kong, Malaysia, and Thailand. Of course, tax incentives need to mesh with the OECD’s Base Erosion and Profit Shifting (BEPS) Project (“Singapore’s Dominance Under Threat as Neighbours Roll Out Enticing Tax Incentives,” Singapore Business Review, January 19, 2016, http://sbr.com.sg/financial-services/news/singapore%E2%80%99s-dominance-...)