MNCs in the News-2017-02-24
Efforts by China to limit capital outflows and measures to ease investment in the consumer sector are leading to a significant rise in inward foreign direct investment (FDI) in China and greater inward FDI (IFDI) flows into the retail/consumer staples/leisure sector. IFDI flows in 2017 have hit USD $7.1 billion, almost double the same period last year, with flows into the retail and consumer staples sector constituting half of this. Liberalization measures, which link to government efforts to rebalance the economy away from infrastructure, industry, and exports, include the extension of a negative list nationwide and much easier approval processes (Elzio Barreto, “Inbound China M&A Takes Flight on Consumer Promise,” Reuters, February 19, 2017, http://www.reuters.com/article/us-china-m-a-inbound-idUSKBN15Y0XE)
Chinese efforts to control capital flight are affecting deals where Chinese investors may be involved. To quote one source, “‘clients were asking if it would be possible to make sure they [Chinese investors] are involved. Now, we are seeing…some…asking if we can do it without Chinese bidders.’” Some dealmakers claim “Chinese firms are unable to close deals because they cannot secure official permission to transfer yuan into foreign exchange.” Suggestive of this, Chinese outward FDI (OFDI) fell 40 percent year-over-year in January with property investment showing a big drop. To get around restrictions, Chinese companies are turning to offshore funding (John Ruwitch and Dasha Afanasieva, “Chinese Investors Find their Cash is Losing its Cachet,” Reuters, February 21, 2017, http://www.reuters.com/article/us-china-economy-idUSKBN15Z281)
There is some evidence members of the United States (US) Congress from both parties are moving “on various options that would strengthen the authority of the Committee on Foreign Investment in the United States” (CFIUS). Some want closer evaluations of technology deals while others want economic security to be taken into account when reviewing deals. The movement may result from the belief US President Donald Trump will be receptive to more aggressive policies against China and demand reciprocity in regards to COFDI in the US, meaning US access to Chinese firms in return for Chinese investor access to US firms (Paul Welitzkin, “Washington Eyes Closer Review of Chinese Investment in US,” China Daily, February 23, 2017, http://usa.chinadaily.com.cn/world/2017-02/23/content_28327599.htm)
The European Commission (EC) has begun to probe a planned Chinese 350kim high-speed railway between Belgrade and Budapest that would link to Chinese-owned Piraeus port in Greece. It investigation of the railway, part of China’s “One Belt, One Road,” scheme, has to do with “assessing the financial viability of the $2.89 billion project and looking into whether it had violated European Union [EU] laws stipulating that public tenders must be offered for large transport projects.” The EC is focusing on Hungary, a full EU member state. If there are violations, there may be fines and a reversal of any deals (James Kynge, Arthur Beesley, and Andrew Byrne, “EU Sets Collison Course with China over ‘Silk-Road’ Rail Project,” Financial Times, February 19, 2017)
A recent Reuters poll revealed that while one third of the Japanese firms are planning to boost investment at home in the next financial year, they are much less enthusiastic about increasing FDI in the US because of uncertainty about Trump administration policies. Reflecting this, just 9 percent of Japanese firms planned to increase capital spending while 79 percent expected to keep it the same. Nevertheless, Japanese auto firms, not surprisingly given the importance of the American auto market, seem to be particularly motivated by Trump’s “America First” campaign with a third considering boosting local procurement or factory utilization rates (Tetsushi Kajimoto, “Japan Inc signals boost to domestic capex but less keen on the U.S.: Reuters poll,” Reuters, February 19, 2017, http://www.reuters.com/article/us-japan-companies-idUSKBN15Y0XK)
Japan’s Suzuki Motor Corporation (SMC) informed Pakistan its total investment in Pakistan through Pak Suzuki Motor Company (PSMC) and its vendors will reach USD $660 million. According to a letter sent to the Finance Minister, SMC will commit to a state-of-the-art new greenfield plant under the condition Pakistan provide the same incentives to existing players for two years (from the start of the mass production of new models) it was planning to provide to new investors. SMC told the government PSMC would create approximately 3,000 direct jobs and 350,000 total jobs, after adding indirect jobs and jobs by its vendors (Aamir Shafaat Khan, “Suzuki promises $660m investment, subject to conditions,” Dawn, February 24, 2017, http://www.dawn.com/news/1316600/suzuki-promises-660m-investment-subject...)
China has warned South Korean conglomerate Lotte over its involvement in a planned US missile shield on the Korean peninsula named Terminal High Altitude Area Defense (THAAD). Lotte is in talks with the Korean government on trading land that the government wants for the THAAD project. China’s warning is the first time it has openly criticized the group after months of undeclared economic sanctions. A commentary in Xinhua, an official government publication, urged Lotte to either defer or reject the deal. This puts the company in a harsh position between its business interests in China and the Korean government interests (Bryan Harris, “China warns Lotte over South Korea missile shield,” Financial Times, February 20, 2017, https://www.ft.com/content/e25eced0-f72b-11e6-9516-2d969e0d3b65)
A joint venture of South Korea’s chemical company SKC Ltd. and Japan’s Mitsui Chemicals—Mitsui Chemicals & SKC Polyurethanes Inc. (MCNS)—will set up a facility in India to produce polyurethanes for car components. The construction is expected to be completed by the end of this year, and has a production capacity of 900,000 to 1 million units. Regarding the plant, a SKC official stated: “We will expand the global presence of MCNS by doubling the number of overseas manufacturing bases by 2020 especially in regions expected to grow fast” (Jung Wook, “Mitsui-SKC joint venture MCNS to add automotive polyurethane plant in India,” Pulse News, February 22, 2017, http://pulsenews.co.kr/view.php?sc=30800021&year=2017&no=125117)
US mining company Freeport-McMoRan recently warned the Indonesian government it was prepared to sue if it could not resolve the dispute that has slashed production at its flagship copper deposit there. Indonesia wants foreign mining firms to replace their current contracts with more flexible permits, and to sign up to additional agreements, including higher royalty payments to the Indonesian government and selling a 51 percent stake in their assets to local owners. Until they do so, these companies are not permitted to export unprocessed ore. Freeport considered this policy change as violations of its rights at its flagship copper deposit (Neil Hume, “Freeport-McMoRan threatens to sue Indonesia over mine dispute,” Financial Times, February 22, 2017, https://www.ft.com/content/9ba0b210-f776-11e6-9516-2d969e0d3b65)
In early March, Saudi Arabia’s King Salman will visit Jakarta and Bali, with an entourage of 1500 people including 10 ministries. Indonesian Cabinet Secretary Pramono Anung described this visit as “very historic” and said Indonesian President Joko Widodo hoped the visit would bring Saudi investments of up to USD $25 billion. In line with this, Indonesia has proposed a number of investment opportunities, mainly focusing on the non-oil and gas sector to King Salman. Vice President Jusuf Kalla noted such investments “will be in line with the Saudi government's vision for 2030, which envisages increasing international non-oil and gas investment” (Fergus Jensen,“ Saudi king to visit Indonesia in March with entourage of 1,500: Indonesian official,” Reuters, February 21, 2017, http://www.reuters.com/article/us-saudi-asia-indonesia-idUSKBN160279; “Indonesia to Offer Non-oil, Gas Investment to Saudi Arabia,” Netral News, February 25, 2017, http://www.en.netralnews.com/news/business/read/1940/indonesia.to.offer....)
Yukako Ono, “Thailand scrambles for tech investment,” Nikkei Asian Review, February 23, 2017, http://asia.nikkei.com/magazine/20170223/Politics-Economy/Thailand-scram...
“Thailand ranks tenth among foreign investors in Vietnam,” Vietnam Net, February 23, 2017, http://english.vietnamnet.vn/fms/business/173272/thailand-ranks-tenth-am...
“Pengerang has potential as largest oil and gas hub in Asia,” Malaymail Online, February 24, 2017, http://www.themalaymailonline.com/money/article/pengerang-has-potential-...
“FDI hits $3.4b in first two months,” Vietnam News, February 24, 2017, http://vietnamnews.vn/economy/351732/fdi-hits-34b-in-first-two-months.ht...
“Japan ranks second in foreign investment in Bình Dương,” Vietnam News, February 22, 2017, http://vietnamnews.vn/economy/351673/japan-ranks-second-in-foreign-inves...