MNCs in the News-2017-01-27

China’s Ministry of Industry and Information Technology (MIIT)’s moves to outlaw a number of VPN services alarms foreign firms who feared it would limit their ability to access popular email programs and search engines, websites like Bloomberg, the New York Times, and Reuters which are blocked in China, and social networking services like Facebook and Twitter. MIIT said that its crackdown on unlicensed VPN providers was “aimed at parties engaged in unauthorized cross-border online activity and should not affect international companies using legal channels.” MIIT said that if VPN services are required then they “can turn to officially authorized offerings” (Yang Ge, “Beijing Says Multinationals Need Not Fear VPN Crackdown,” Caixin, January 25, 2017, http://www.caixinglobal.com/2017-01-25/101048967.html)

Donald Trump’s trade team “is backing a call from the Obama administration to take a hard line on China over semiconductors.” There are concerns ranging from security to dominating a sector crucial for the 21^st century IT economy to potential Chinese chip overproduction. A report prepared for the prior Obama administration called for the United States (US) to do more to create a supportive environment for its firms and strength export controls. Dealing with US anxieties, China is playing down its ambitions and achievements. US semiconductor firms investing in China are struggling to maintain a balance between Washington and Beijing (Shawn Donnan, “Trump Team Backs Call for Crackdown on China Over Semiconductors,” Financial Times, January 20, 2017; Eva Dou, “China Seeks to Calm U.S. Over its Semiconductor Ambitions,” Wall Street Journal, January 26, 2017, https://www.wsj.com/articles/china-seeks-to-calm-u-s-over-its-semiconduc...)

Chinese outward foreign direct investment (FDI) in the US has been surging and China is at pains to note how this FDI is leading to new manufacturing plants and creating hundreds of jobs in areas like subway train, auto glass, and other manufacturing areas. According to some studies Chinese outward FDI could hit USD $200 billion by 2020 and, at present, supports more than 100,000 jobs. One representative of the National Committee on U.S.-China Relations asserted Chinese companies are “‘building communities of Americans that will better understand China and work toward a constructive U.S.-China relation” (“Economic Watch: Made by China in America Wins Big Stateside,” Xinhua, January 25, 2017, http://news.xinhuanet.com/english/2017-01/25/c_136012582.htm)

Terry Gou, the Chairman of Hon Hai Precision Industry Co., a leading contract manufacturer for firms such as Apple and Sony, affirmed last week that his company was “considering a USD $7 billion investment to make flat panels in the US in a joint project with Japan’s SoftBank.” He said the investment could create 30,000-50,000 jobs and highlighted Pennsylvania was very active in courting him and implied that if other states wanted his investment they would have to offer good incentives. Hon Hai already has a plant in Virginia and will be investing in a precision tool facility in Pennsylvania (“Hon Hai Chief Confirms $7 Billion U.S. Investment in Works,” The Japan Times, January 23, 2017, http://www.japantimes.co.jp/news/2017/01/23/business/corporate-business/...)

Spurred by reaction to the lease of the Darwin port to Chinese investors and bids by Chinese firms for Ausgrid that eventually were blocked, Australia is “drawing up a register of key assets that can be used to judge if the sale of any assets to foreign investors would raise national security concerns. The failure of the Ausgrid deal and another deal selling S Kidman to Chinese investors has led investors to call for greater policy clarity. The review, though, will not be public document and the review will not determine the specific position Australia will take on asset sales (Jamie Smyth, “Australia Bolsters Protection of Strategic Assets,” Financial Times, January 23, 2017)

Toyota Motor Corp announced that it will add 400 jobs at its US plants as part of a USD $600 million initiative to upgrade its plants and were part of its plans to invest USD $10 billion investment in US over the next five years. It came on the heels of Trump decision to withdraw the US from the Trans-Pacific Partnership (TPP). Trump also is planning to impose a 35 percent tariff on imported vehicles and renegotiate the North American Free Trade Agreement. The US is Toyota’s biggest market and the firm produced around 1.4 million vehicles there last year (Naomi Tajitsu and David Shepardson, “Toyota Motor to add 400 jobs at Indiana assembly plant,” Reuters, January 24, 2017, http://www.reuters.com/article/us-toyota-usa-jobs-idUSKBN1582CG)

Toshiba and Engie have a consortium called NuGen that is working on a multibillion-pound nuclear power plant at Moorside (UK). However, Toshiba’s serious financial problems, which flow from billion dollar write downs on its US nuclear business, are leading to pressures to get financing from the British government and Korea Electric Power Corporation (KEPCO), which seeks to join the consortium. Toshiba might get money from KEPCO by selling part of its 60 percent stake in the project. Elsewhere, the UK and Japan are talking about possible support for a nuclear power plant to be built by Hitachi at another location (Andrew Ward and Jim Pickard, “Toshiba Faces Pressure to Secure Funding for UK Nuclear Project,” Financial Times, January 23, 2017)

Compared to 2015, Indonesian inward FDI (IFDI) in 2016 increased by 8.4 percent to around USD $30 billion. However, in the fourth quarter of 2016, IFDI grew by only 2.1 percent, slowing significantly when compared to 7.8 percent in the previous quarter. Moreover, this figure was the smallest quarterly increase over the past five years. According to analysts, the political tension in Jakarta pertaining to upcoming regional elections and worries flowing from Donald Trump’s victory may be responsible for what transpired. The slow-down in IFDI may dent efforts to boost the speed at which the Southeast Asia’s largest economy expands (Nilufar Rizki, Hidayat Setiaji, Gayatri Suroyo & Richard Borsuk, “Foreign direct investment growth in Indonesia slows in Q4,” Reuters, January 25, 2017, http://www.reuters.com/article/indonesia-economy-investment-idUSJ9N1EZ00T; “Indonesia attracts tepid foreign direct investment inflow in Q4,” Business Times, January 25, 2017, http://www.businesstimes.com.sg/government-economy/indonesia-attracts-te...)

Indonesia witnessed a sharp rise in IFDI from China, which jumped from $600 million in 2015 to $2.7 billion in 2016. And in the last quarter of 2016, China surpassed Japan as the country’s second largest foreign investor. However, it is unclear if past trends will continue if Chinese investors become seriously concerned about Indonesia’s political stability. For example, rumors have been spread that Chinese workers have stolen jobs in Indonesia, which intensifies anti-Chinese sentiment there. Indonesia’s Investment board chairman has dismissed these concerns, saying “We shouldn’t let political fights have a spill-over effect to the economic and investment arena” (Diko Oktara, “Indonesia Sees Sharp Rise in Investment from China in 2016,” Temp.co, January 26, 2017, https://en.tempo.co/read/news/2017/01/26/056839934/Indonesia-Sees-Sharp-... “Indonesia attracts tepid foreign direct investment inflow in Q4,” Business Times, January 25, 2017, http://www.businesstimes.com.sg/government-economy/indonesia-attracts-te... Wataru Suzuki & Erwida Maulia, “China overtakes Japan in Indonesia direct investment,” Nikkei Asian Review, January 25, 2017, http://asia.nikkei.com/Politics-Economy/International-Relations/China-ov...)