MNCs in the News-2017-10-20

China

During his speech at the opening of the Chinese Communist Party’s (CCP) 19^th Congress, CCP leader Xi Jinping said China would enhance the situation for foreign investors by improving market access, better protecting their rights in China, and ensuring they had a level playing field. While this is encouraging given Xi’s power, the American and Europeans are cautious given China’s failure to implement past promises coupled with other trends like China’s focus on cybersecurity (Jane Cai and Wendy Wu, “Xi Vows Wider ‘Open Door’ Policy Amid Foreign Demands for More Market Access,” South China Morning Post, October 18, 2017, http://www.scmp.com/news/china/policies-politics/article/2115951/xi-vows...)

At the 19^th Party Congress, the China Banking Regulatory Commission (CBRC)’s chairman, stated “‘we will give more space to foreign banks in the form of their establishment, the percentage of their shareholding…and their scope of business.’” He noted foreign banks’ market share had been declining for the past five years and that this was “not beneficial for promoting competition and structural optimization.” By the end of 2016, the total assets of foreign banks in China represented less than 1.30 percent of total assets (Jiang Xueqing, “Foreigners May Get More Access to China’s Banking Sector,” China Daily, October 20, 2017, http://www.chinadaily.com.cn/business/2017-10/20/content_33475686.htm)

China’s Ministry of Commerce (MOFCOM) recently reported that in the first nine months of the year outward FDI (OFDI) dropped 41.9 percent year-over-year (YOY). Over this period, Chinese firms invested USD $78 billion in more than 5000 companies in 154 companies and region. MOFCOM data indicate the “investment mainly went to the leasing and commercial services, manufacturing, wholesale and retail, and information technology sectors. Of the total, USD $9.6 billion went to Belt and Road Initiative countries, a 4 percent increase YOY over the prior period (“China’s Outbound Direct Investment Falls 41.9% in Jan-Sept,” China Daily, October 17, 2017, http://www.chinadaily.com.cn/business/2017-10/17/content_33372305.htm)

Chinese outward merger and acquisition deals fell 35 percent in the first three quarters of 2016 YOY and deals were smaller than in the past. Some attributed the fall to Beijing’s tightened controls over Chinese OFDI (COFDI), especially deals involving private firms like Anbang, Dalian Wanda, and Fosun. Others pointed to Washington’s stricter reviews of COFDI in the United States (US) as reflected in the Donald Trump Administration’s rejection of Canyon Bridge Capital Partners’ bid for Lattice Semiconductor (Yujing Liu, “Chinese Firms’ Deal Making Set Back by Beijing and Washington’s Intense Gaze,” South China Morning Post, October 16, 2017, http://www.scmp.com/business/companies/article/2115565/chinese-firms-dea...)

Japan

Japanese carmakers Toyota Motor Corp. and Mazda Motor Corp. are looking to secure state backed incentives for their planned US-based automobile joint-venture (JV). The two Japanese carmakers will build a USD $1.6 billion production plant that should lead to the creation of more than 4,000 new jobs. The two firms are reportedly seeking a minimum of USD $1 billion in tax breaks and financial support from the US states bidding for the investment deal (“Toyota, Mazda may seek $1 billion incentive package from U.S. states for joint plant,” The Japan Times, October 16, 2017, https://www.japantimes.co.jp/news/2017/10/16/business/corporate-business...)

Japanese telecommunications and Internet corporation SoftBank Group is struggling to execute its investments in the US after several of its deals have been caught up in the Committee on Foreign Investment in the US (CFIUS) review process. Softbank is attempting to push ahead on two new initiatives, investing in the ride-hailing firm Uber and a merger with Sprint, but its planned multibillion dollar acquisitions of Fortress and Boston Dynamics are still being held up by CFIUS review process which has slowed under the disorganized Trump Administration (“SoftBank deals held up before US security regulator,” Financial Times, October 18, 2017, https://www.ft.com/content/81f10306-b38c-11e7-a398-73d59db9e399)

The US Department of Justice has demanded Japan’s Kobe Steel Ltd. release all information related to its falsified steel and metal data, which may span more than 10 years and involve Kobe Steel’s various subsidies, too. At the same time, Kobe Steel’s more than 500 customers ranging from Japan’s Toyota Motors and Hitachi Ltd. to US based Ford Motors and Boeing Co. are investigating whether materials purchased from Kobe warrant product recalls. Currently, no recalls have been issued (“U.S. demands Kobe Steel provide info on manipulated product data,” The Japan Times, October 14, 2017, https://www.japantimes.co.jp/news/2017/10/17/business/corporate-business...)

South Korea

South Korea’s largest oil refiner, SK Innovation Co. and its China partner, state-owned China Petroleum & Chemical Corp. (Sinopec) are planning a USD $653 million investment to expand their Wuhan Petrochemical plant using profits from their JV, China-Korea Petrochemical. The success of the JV has been attributed to SK Innovation’s “China Insider” strategy of engaging with leading state-owned Chinese firms to create business opportunities for South Korean firms and gain a foothold in the domestic Chinese market (Jung Min-hee, “SK-Sinopec JV to Invest 740 Billion Won to Raise Production Capacity,” BusinessKorea, October 18, 2017, http://www.businesskorea.co.kr/english/news/industry/19579-%E2%80%98chin...)

South Korean electric vehicle (EV) battery producers had been forced out of the Chinese market due to the Chinese government granting subsidies to domestic battery producers. However, South Korean firms are finding backdoors into China because foreign carmakers using Korean EV batteries are partnering with Chinese companies. For instance, the proposed partnership between Germany’s BMW and China’s Great Wall Motor Co. is expected to feature Samsung batteries and US based GM has plans to build new EVs using LG Chem’s batteries (Jung Min-hee, “Could Korean EV Batteries Ride on the Global Car Brands in China?” BusinessKorea, October 18, 2017, http://www.businesskorea.co.kr/english/news/industry/19572-hopes-and-con...)

Indonesia

The Indonesian government’s need to balance its budget and quell concerns prompted by the dispute between it and Freeport-McMoRan Inc. is prompting Jakarta to renew efforts to attract private investment. In addition to reducing licensing requirements and industry restrictions for foreign investment, the government has pledged to reduce state-owned enterprises (SOEs) from dominating the domestic landscape by cutting or combining the state-owned firms to 130 SOEs, as opposed to the current 800, to make room for private investment (“Indonesia’s Jokowi roots for private investment as Freeport dispute lingers,” Deal Street Asia, October 17, 2017, https://www.dealstreetasia.com/stories/jokowi-roots-private-investment-f...)

US mining firm Freeport-McMoRan, currently in disputes with Indonesia over divestment plans, is also facing worker protests over anticipated layoffs. A Freeport-McMoRan Indonesia labor union is calling for government intervention following the potential loss of more than 8,000 jobs as a result of Freeport mine financial troubles. Freeport-McMoRan blames Jakarta for blocking exports which led to the work suspension and blames the miners for not following work protocol and returning to work when asked (Telly Nathalia and Rangga Prakoso, “Freeport Has to Face Labor Union Protests in Furlough Dispute,” Jakarta Globe, October 13, 2017, http://jakartaglobe.id/corporate-news/freeport-face-labor-union-protests...)

Thailand

As a result of the Thai Prime Minister’s recent visit to the US, a new US-Thai joint committee has been formed to increase bilateral investment, focusing on exploring opportunities in Thailand’s recently approved Eastern Economic Corridor. The joint committee, which represents 300,000 American firms and 100,000 Thai companies, will produce a memorandum of understanding, though advisors from Thailand’s Commerce Ministry and the Foreign Affairs Ministry have already committed themselves to furthering US business interests so as to make Thailand their headquarters for expansion into Southeast Asia (Phusadee Arunmas, “Thai-US committee on cooperation nears reality,” Bangkok Post, October 18, 2017, https://www.bangkokpost.com/business/news/1344406/thai-us-committee-on-c...)

Malaysia

Malaysia’s Ministry of International Trade and Industries (MITI) led a trade and investment delegation to Germany with members of its economic corridor mission and state governments to attract German investment to the country. The delegation promoted Malaysia’s attractive investment climate, highlighting Malaysian Development Authority and domestic investment promotion agency support initiatives. Several German companies, such as Hauni, Hubner, Rhode & Schwarz, and Sew-Eurodrive pledged investments or made plans to expand their Malaysian operations (“MITI: Germany will continue to be an important trade partner,” New Strait Times, October 19, 2017, https://www.nst.com.my/business/2017/10/292749/miti-germany-will-continu...)

Malaysia’s MITI reported a decline in investments as a slowdown in the real estate sector and growing competition among Southeast Asian countries pulled away investors. Still, foreign companies poured USD $2.2 billion in investments into Malaysia in the first half of 2017. Foreign companies continue to focus on manufacturing operations, though there is a new emphasis on high value chain operations which are supported by the Malaysian government as a means to upgrade the structure of Malaysia’s economy (“Malaysia’s broad-based economic structure will continue to appeal to investors,” New Straits Times, October 19, 2017, https://www.nst.com.my/business/2017/10/292786/malaysias-broad-based-eco...)

Vietnam

The Vietnamese government is beginning to implement its divestment plan for the Dung Quat Oil Refinery and has attracted foreign investors such as Spain’s Repsol, Russia’s Gazprom, and Japan’s Petrolimex. Though the divestment to foreign investors represents only 4-6 percent of the refinery’s total equity, the government plans to divest majority control by 2018. Foreign investors are especially attracted to the oil refinery as owning a refinery would allow them to legally sell petrol products in the domestic Vietnamese market (Kim Chi, “Dung Quat Oil Refinery IPO attracts foreign investors,” Vietnamnet, October 19, 2017, http://english.vietnamnet.vn/fms/business/188252/dung-quat-oil-refinery-...)

Australia’s Carlton & United Breweries, Thailand’s Thai Beverage, and Dutch brewing company Heineken are eagerly awaiting the Vietnamese government’s divestment plans for Sabeco, Vietnam’s largest domestic brewer. Vietnam plans to reduce its ownership from nearly 90 percent to 36 percent by releasing shares valued as a total of USD $4.2 billion. Vietnam will maintain at least a third of shares to guarantee veto privileges, but many foreign investors are interested in the chance to enter the Vietnamese beer market under recognizable brand (“Sabeco to submit plan to Oct 20,” Vietnam News, October 16, 2017, http://vietnamnews.vn/economy/405610/sabeco-to-submit-plan-by-oct-20.html)