MNCs in the News-2016-07-15

China’s State Administration of Taxation recently promulgated new guidelines “for evaluating domestic and foreign companies’ tax performance.” A State Administration of Taxation spokesman said, “the new guideline is part of an effort to build a credit reporting system in which all companies and individuals are enrolled in a national credit information database.” Companies with high credit ratings enjoy incentives relating to financing, investment, and environmental reviews. A National Development and Reform Commission official said the guidelines “encourage companies to pay taxes as required by law and to close loopholes that foster tax evasion” because tax payments figure into the ratings (Wang Yanfei, “Guideline Issued to Evaluate Tax Performance of Companies,” China Daily.com, July 13, 2016, http://www.chinadaily.com.cn/business/2016-07/13/content_26067830.htm)

China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) announced IKEA would recall around 1.7 million potentially hazardous chests and dressers it sold on the Chinese mainland between 1999 and this year.” The dressers “could fall and cause death or injury to children if not properly fixed to walls.” In June, IKEA announced it would recall millions of Malm products in North America, but said it was excluding China because the product “conformed to local regulations” and it had received no reports of deaths. IKEA, which was lambasted in state and social media, made the decision after discussions with AQSIQ (Wang Xiaodong, “Ikea to Recall Dangerous Drawers Sold in China,” China Daily, July 12, 2016, http://www.chinadaily.com.cn/business/2016-07/12/content_26055651.htm; Gabriel Wildau, “China State Media Slam Ikea ‘Arrogance’ over Toppling Dressers,” Financial Times, July 10, 2016; Gabriel Wildau, “Ikea Yields to Chinese Pressure for Furniture Recall,” Financial Times, July 11, 2016)

According to a report by Bloomberg and Samsung SDI, Anhui Jianghuai Automobile Co. (JAC) recently stopped producing the iEV6s sport utility vehicle (SUV) featuring Samsung SDI’s batteries. JAC said it took the action because the Chinese government did not approve the Samsung SDI battery, which may have implications for its ability to qualify for government subsidies for the iEV6 and thus its ability to sell the iEV6s. Some conjecture Beijing failed to approve the Samsung SDI batteries to retaliate against South Korea’s decision to accept the American Terminal High Altitude Area Defense or THAAD system (Cho Jin-Young, “Is Samsung SDI Affected by Anti-Korea Sentiment in China Due to THAAD,” Business Korea, July 12, 2016, http://www.businesskorea.co.kr/english/news/industry/15196-samsung-sdi-b...)

American Enterprise Institute expert Derek Scissors has analyzed the record flood of COFDI taking place in 2016—to date, the amount has topped USD $29 billion. He has found “almost all of the money is going into mergers and acquisitions” and “overseas investment by Chinese private enterprise is larger than that by state-owned enterprises,” and, more well known, a very large percentage of COFDI in 2016 is flowing into the US. Scissors opines the popularity of the US relates to the attractiveness of assets available here and the desire of Chinese investors to “get money out of their home market” (Derek Scissors, “The Year China Inc. Bet Big on the U.S.,” The Wall Street Journal, July 14, 2016, http://www.wsj.com/articles/the-year-china-inc-bet-big-on-the-u-s-146853...)

At the European Union’s (EU) annual summit with China, Chinese Premier Li Keqiang said that China will make good on its promise to invest about $2.21 billion in the EU’s 315-billion-euro European Fund for Strategic Investments,” a deal that was struck in 2015. EU officials noted that China has no say over the fund, but that “‘Chinese banks can expect see returns on their loans.’” Some see it as a good will gesture by Beijing to assuage some anxieties among EU member states. As well, it is a way for Beijing to “avoid past pitfalls of operating alone in Europe” (Robin Emmott, “Beijing to Make Good on Investment Pledge at EU-China Summit,” Reuters, July 10, 2016, http://www.reuters.com/article/us-china-eu-idUSKCN0ZQ12K)

In recent years, Chinese companies, notably Dalian Wanda, have been increasing their presence in the film sector. They have been spending billions on film exhibitors such as AMC Entertainment Holdings. They also have been pouring large sums into other industry sectors. This has led some to query about their potential influence over distribution as well as film content. Indeed, a high level executive with Hunan TV & Broadcast Intermediary Co. which has invested in films with Lions Gate Entertainment said that, “‘when we choose to invest in a film, our priority is to assess the film’s political and policy risks’” (Erich Schwartzel and Kathy Chu, “China’s Influence on Hollywood Grows,” The Wall Street Journal, July 14, 2016, http://www.wsj.com/articles/chinas-influence-on-hollywood-grows-1468519130)

Brexit has put Japanese car companies like Honda and Nissan into a quandary because many of them invested there under the presumption that there would be access to the European Union (EU) single market. However, as a result of Britain’s vote to leave the EU, it is not so clear this access will continue which means that many Japanese auto plants in the UK, which have low margins, will become uncompetitive and will have to consider whether to move elsewhere. Some, though, feel fears are unfounded because the UK and the EU are likely to strike a free trade agreement (Peter Campbell and Kana Inagaki, “UK Car Factories Face Uncertain Future after Brexit,” Financial Times, July 12, 2016)

The Korean Ministry of Environment learned German automaker Volkswagen manipulated the results of noise and gas emissions tests of close to 30 diesel and gasoline models of Audi and Volkswagen in order to receive environmental certificates. The Ministry of Environment will cancel the company’s certificates, order it to suspend car sales and recall sold cars, and will fine it. The ministry said that it was difficult to count specific number of vehicles that would receive the measure as the administrative measure procedures were underway. Last year, the ministry already took administrative measures against Volkswagen for manipulating exhaust gas recirculation devices (Michael Herh, “70% of Volkswagen Vehicles to Face Sales Ban,” Business Korea, July 12, 2016, http://www.businesskorea.co.kr/english/news/industry/15199-punishment-ag...)

The Korea Fair Trade Commission (KFTC) will make a final decision regarding Qualcomm Inc.’ patent licensing practices abuses, which could result in the KFTC imposing a fine of up to US $880 million on the American firm. Qualcomm Inc., the original patent holder of CDMA wireless technology, derives substantial revenues from South Korea. Last November, KFTC charged the company with abusing its dominant position and other unfair profiteering practices. The company is facing pressure from regulators around the world over its abusive technology licensing practices and paid almost a US $1 billion fine in China (Na Hyun-joon, “S. Korean Antitrust Watchdog Warns Qualcomm of Record Fine for Licensing Excess,” Pulse, July 15, 2016, http://pulsenews.co.kr/view.php?sc=30800021&year=2016&no=509029)

Indonesia is seeking US $6.8 billion in foreign investment for a number of beyond-Bali tourism destinations and plans to hold roadshows to attract potential investors. The government anticipates that tens of billions will be needed for infrastructure development and has already given four of ten designated destinations special economic zone status “which will allow investors to secure some fiscal privileges when they invest in those areas.” An official with the Ministry of Tourism said that the government plans to “develop all priority destinations into special economic zones in the future” (Ratri M.Siniwi, “Indonesia Seeks Rp 90+ investment in Nine Beyond-Bali Tourism Destinations,” Jakarta Global, July 11,2016, http://jakartaglobe.beritasatu.com/business/indonesia-seeks-rp-90t-inves...)

According to Vietnam’s National Administration of Tourism (VNAT), Vietnam expects to receive about 13-15 million foreign tourists per year by 2020. Consequently, the government is promulgating a variety of policies to attract foreign investment into the tourism sector. It also is calling for investment in areas such as restaurants and resorts as it knows night entertainment services attract tourists for longer stays. VNAT officials tout Vietnam as a “safe, friendly, as attractive destination.” Foreign investors said that the government needs to do more to tout the country’s attractiveness as a tourist destination and to work to increase regional tourism connectivity (“Foreign investors interested in Vietnam’s tourism,” Vietnam net, July 12, 2016, http://english.vietnamnet.vn/fms/travel/160302/foreign-investors-interes...)

Vietnam’s Deputy Prime Minister has required the Ministry of Transport to finish a detailed plan for the country’s 1,811 kilometer North-South Highway project. The entire project will cost around US $10.7 billion, with 49.3 percent expected to come from private and foreign investors and the balance from government borrowings and other sources. The Minister said that he wants the project to be finished by 2020. Currently, some parts are open to traffic while others are under construction. Vietnam plans to build 2,000 kilometers of highway over the next 5 years and non-state investors will have to fund a substantial part (“Foreign investors will accelerate highway plan,” Vietnam net, July 14,2016, http://english.vietnamnet.vn/fms/business/160218/foreign-investment-will...)