MNCs in the News-2016-12-23

American firms are worried Donald Trump’s strong (potentially revisionist) statements about China trade policy and the United States (US) “One China” policy may lead China to punish the US by retaliating against American firms in China or US exports to China. Consequently, they and their industry associations have reached out to the Trump team to highlight the potential risks, which, for some firms like General Motors, Ford, and Walmart, could be quite significant. Illustrating this, a Chinese government official warned in mid-December that Chinese officials “could slap a penalty on an unnamed U.S. automaker for monopolistic behavior,” specifically price fixing (Nick Carey and Ginger Gibson, “Trump’s Tough Trade Talk Makes U.S. Firms Fear China Retribution,” Reuter, December 13, 2016, http://www.reuters.com/article/us-usa-trump-china-companies-idUSKBN1412Q7; John Ruwitch and Jake Spring, “China May Penalize U.S. Automaker over Price-Fixing; GM, Ford Shares Off,” Reuters, December 15, 2016, http://www.reuters.com/article/us-china-autos-penalty-idUSKBN143014; Arshad Mohammed, Matt Spetalnick, and Benjamin Kang Lim, “Targeting U.S. Automaker Signals Possible China Retaliation over Trump Talk,” Reuters, December 15, 2016, http://www.reuters.com/article/us-usa-trump-china-ramifications-analysi-...)

TOBESOFT Co., a South Korean software and platform provider, has revealed that China’s state-owned investment company International Sourcing Promotion Center China (ISPC) “abruptly notified it of the termination of a deal signed with its subsidiary SF Holdings Co. to jointly invest in a startup fund.” One of the reasons for the termination of the venture was due to “sensitive issues between the two countries including” the South Korean government’s plans to deploy the U.S. THAAD system. There have been other Chinese actions such as investigations against Lotte’s operations in China, but none have been explicitly linked to the THAAD system (Kim Tae-Joon and Yoo Tae-Yang, “China Drops Deal with Korean Firm over THAAD Controversy,” Pulse, December 22, 2016, http://pulsenews.co.kr/view.php?sc=30800021&year=2016&no=884229)

Brunswick, a consulting firm, surveyed firms in Germany, the United Kingdom (UK), and the US and learned “China’s state-owned enterprises (SOEs) are the least-trusted by foreign decision makers in overseas mergers and acquisitions (M&A) deals” and that many foreign business leaders believe Chinese firms “underperform on transparency, ethical conduct, treatment of employees, and environmental protection.” However, a majority of business leaders have positive attitudes about private Chinese firms and those with greater knowledge of China and Chinese firms tend to have more favorable stances towards Chinese companies. This suggests those with plans to expand overseas need to “‘establish a profile’” (Coco Feng, “Overseas Decision Makers Distrust SOEs in M&A Deals, Survey Shows,” Caixin, December 9, 2016, http://www.caixinglobal.com/2016-12-09/101025343.html)

In Beijing at the annual meeting of China entrepreneurs, Chinese billionaire Wang Jianlin said “his recent U.S. entertainment-related investments total more than $10 billion and that the companies’ more than 20,000 employees could suffer [“wouldn’t have anything to eat”] ‘should things be handled poorly’ by U.S. President-elect Donald Trump.” Among other companies, Wang’s Wanda group has purchased AMC Entertainment and Legendary Entertainment and is seeking to buy Carmike Cinemas and Dick Clark Productions. In September, about 20 US Congressional representatives prepared a letter calling for revisiting the rigor of rules regarding the review of Chinese acquisitions in the entertainment sector (Yang Ge, “Wanda’s Wang Cautions Trump on Playing Politics with Hollywood M&A,” Caixin, December 12, 2016, http://www.caixinglobal.com/2016-12-12/101026026.html)

Responding to charges by Western media that the Belt and Road Initiative (OBOR) is a scheme by China to dump excess production on countries along the OBOR routes, Chinese analysts argue critics overlook “‘double circulation’” or “‘developed economies-China’ circulation’ and the “‘China-developing economies’ circulation.’” In other words, while China is “climbing up the global industrial chains to the middle and high ends” it is concurrently “transferring some of its relatively lower-end production capacity into other economies.” Consequently, there will be the “creation of new demand by enhancing effective supply” which will rebalance the world economy and help OBOR countries globalize (Liao Bingqing and Jin Minmin, “Commentary: Belt and Road Initiative Seeks World Economic Rebalancing, Inclusive Globalization,” Xinhua, December 20, 2016, http://news.xinhuanet.com/english/2016-12/20/c_135918968.htm)

Japan’s rapidly rising healthcare costs, resulting in no small part from a rapidly ageing population, have led Japanese leaders to push for the aggressive review of drug prices. This has led the government, which bears the brunt of healthcare costs, to announce plans to move from a biennial to an annual repricing system under which “prices could be changed from products where there is a large discrepancy in the government-set final price and the wholesale price.” Foreign firms and their lobbying associations warn the new system may hinder investment and “deter drug makers from launching new products in the country” (Kana Inagaki, “Japan to Step up Drug Price Reviews in Effort to Cut Health Spending,” Financial Times, December 20, 2016)

Following discussions between US President-elect Donald Trump and SoftBank Group Chief Executive Officer Masayoshi Son pursuant to which Son promised USD $50 billion in investment in the US that would create 50,000 jobs, Softbank recently announced a USD $1 billion investment in US satellite start up OneWeb Ltd. This funding will support the construction of a satellite building facility in Florida generating 3,000 engineering, manufacturing, and support jobs. Son described the recent investment as the “first step in his earlier commitment.” Some see the investment as a way to facilitate a merger between Son’s Sprint Corp. and T-Mobile U.S. Inc. (“On Heels of Talk with Trump, SoftBank Announces Investment Expected to Spur 3,000 Jobs,” The Japan Times, December 20, 2016, http://www.japantimes.co.jp/news/2016/12/20/business/corporate-business/...)

Japan, Russia, and companies from the two countries signed 82 new joint project agreements (the majority being private sector projects) in mid-December. These agreements will take the relationship beyond its focus on energy (from Russia) and auto/auto part exports to Russia to areas like agriculture, medicine, infrastructure, housing, and plant factories. Generally, Russia welcomes greater cooperation while Japanese businesses see mutually beneficial opportunities given the size of the Russian market, “Russia’s vast landmass and a wealth of natural resources, and Japan’s technology and money.” However, Japanese firms worry about the Russian business environment and US and European sanctions on Russia (“Japanese companies respond to Tokyo's call for Russian deals,” Nikkei Asian Review, December 17, 2016, http://asia.nikkei.com/Japan-Update/Japanese-companies-respond-to-Tokyo-...)

There has been much noise about the potential adverse effects of Brexit on Japanese investment in the UK, but there are Japanese firms that see it as an opportunity to make new investments. Indeed, “over the past six months…[Japanese firms] have emerged as Asia’s most aggressive buyer of British companies,” investing USD $33.5 billion in 2016 to date. While much of this relates to SoftBank’s investment in Arm Holdings, there are other companies striking deals because of the opportunities flowing from the falling pound. Japanese firms also see UK as open to deals and like its labor and legal environments (Kana Inagaki and Leo Lewis, “Japan Inc on the Hunt for Post-Brexit Deals,” Financial Times, December 20, 2016)

The UK and Japan have concluded a nuclear cooperation agreement which “paves the way for Japanese companies to construct nuclear plants in the UK” and will allow British firms to participate in decommission and decontamination work at the stricken Fukushima nuclear plant. The UK has described the agreement as a vital to its industrial strategy and clean energy plans. The deal may give Hitachi and Toshiba opportunities to build nuclear reactors in Britain provided financing can be arranged, with signs present the Japanese Bank for International Cooperation and the Development Bank of Japan may lend up to USD $8.6 billion (Julian Ryall, “Britain and Japan Sign Nuclear Energy Cooperation Agreement,” The Telegraph, December 23, 2016, http://www.telegraph.co.uk/news/2016/12/23/britain-japan-sign-nuclear-en...)

The European Commission (EC) fined Sony Corp., Panasonic Corp., and Sanyo Electric Co. $176 million for “‘collusion on the pricing of rechargeable lithium-ion batteries.”’ Each company received fines for forming a price-fixing cartel with Samsung SDI Co. from February 2004 to November 2007. The EC fined Sony €29.8 million, Panasonic €38.9 million, and Sanyo with €97.1 million. European Commissioner for Competition Margrethe Vestager stated that they made this decision because the collusion “‘affected the prices of a number of goods sold to European consumers.”’ The EC did not fine Samsung SDI because it revealed the cartel’s existence to the EC (“EU slaps €166 million fine on Sony, Sanyo, Panasonic battery units over price cartel,” Japan Times, December 13, 2016, http://www.japantimes.co.jp/news/2016/12/13/business/corporate-business/...)

South Korea’s Ministry of Trade, Industry, and Energy Free Economic Zone Planning Office has announced that “the seven free economic zones in South Korea are estimated to record a reported foreign direct investment (FDI) of approximately USD $2.42 billion,” a jump of more than 66 percent over 2015. However, it fell below the amount recorded in 2012. The main area garnering FDI was the Incheon Free Economic Zone, which scored USD $1.57 billion. However, the amount received is running far below reported FDI which led the Ministry to state it would ensure a greater amount of reported FDI was realized (Jung Suk-Yee, “Annual Total FDI in Free Economic Zones in S. Korea Estimated at US$2.4 Billion,” Business Korea, December 21, 2016, http://www.businesskorea.co.kr/english/news/industry/16810-increased-inv...)

Hyundai Heavy Industries Co. (HHI) won two orders totaling USD $1.3 billion (1.52 trillion won). Iran’s state-owned Islamic Republic of Iran Shipping Lines awarded a USD $700 million order for building four 14,500 twenty-foot equivalent containerships and six 49,000 deadweight ton tankers for petrochemical products. This is a meaningful order because HHI won the first ship order from the Middle Eastern country since international sanctions were lifted early this year and “‘marked its foothold for future business in Iran.”’ HHI recently got another deal for shipyard constructing project in Saudi Arabia worth USD $4.26 billion (Jung Min-hee, “Hyundai Heavy Wins $1.3B Order Including $700M from Iran,” Business Korea, December 12, 2016, http://www.businesskorea.co.kr/english/news/industry/16726-year-end-gift...)

Per the head of Indonesia’s tax office, Google’s offer for settling a tax underpayment case was too low. Thus, no deal has been reached even though, according to the main Indonesian investigator, both two parties aspired to reach a settlement. At present, the situation is that the government wants Google to open its books while Google has requested more time to prepare its accounts. If Google disputes the results of the investigation and is taken to court, it will face up to a penalty equal to back taxes plus 150 percent of the taxes owed if it loses its case (Gayatri Suroyo & Edwina Gibbs, “Indonesia says Google tax settlement offer too small, no deal this year,” Reuters, December 16, 2016, http://www.reuters.com/article/us-indonesia-google-tax-idUSKBN1450XP)

Thailand’s Prime Minister Prayuth Chan-ocha has ordered a mine operated by Australian gold miner Kingsgate subsidiary Akara Resources to shut down on New Year’s Eve for health and environmental reasons. This was the first time Prayuth has used his powers against a multinational company in Thailand. The chairman of Kingsgate responded that the compulsory shutdown will negatively influence the investment environment, especially in the mining sector. Kingsgate is trying to lobby Thailand through the Australian government and has rejected the charges against it, arguing that the closure only will hurt the local governments and families (Lindsay Murdoch,“ Thai Prime Minister Prayuth Chan-ocha's gold mine decision send 'horrendous' message, says Kingsgate chairman,” Bangkok Post, December 15, 2016, http://www.smh.com.au/business/mining-and-resources/thai-prime-minister-...)

Vietnam’s Foreign Investment Agency reported FDI hit a new low for 2016, in line with a downward trend that started in September. By November 20, the total value of projects receiving investment certificates totaled $13 billion, a slight decrease versus the same period last year. However, the number of investors planning increases dropped 25 percent. Analysts claim two factors led to this decrease: delayed FDI due to the US presidential elections and the Vietnamese government’s focus on attracting better FDI after some serious environment scandals. A Vietnamese representative said “HCM City does not intend to attract FDI at any cost” (“As Vietnam becomes choosier about investment projects, FDI decreases,” VietnamNet, December 15, 2016, http://english.vietnamnet.vn/fms/business/169354/as-vietnam-becomes-choo...)

*The information used herein is gathered from sources believed to be reliable, but the Wong MNC Center does not guarantee their accuracy. The content in this section does not necessarily represent the official view of the Wong MNC Center, its Board of Directors, or its Advisory Board.