MNCs in the News-2014-07-18

Last week state broadcaster China Central Television (CCTV) raised alarm that location-based services found on the Apple iPhone might cause a security risk, arguing they not only endangered user privacy, but also might endanger Chinese state secrets. Apple refuted the charges, emphasizing it and third parties have no access to the information for a variety of reasons. A senior researcher pointed out that location-based services already are widely available on mobile devices and that those on iPhones are not likely to pose special risks. Concern about iPhone security already led Chinese first lady Peng Liyuan to give up her iPhone (Eric Jou, “Apple Responds to CCTV Charge,” China Daily, July 14, 2014, http://www.chinadaily.com.cn/business/tech/2014-07/14/content_17760523.htm; Gao Yuan, “iPhone No Threat to National Security,” China Daily, July 14, 2014, http://www.chinadaily.com.cn/business/tech/2014-07/14/content_17769698.htm; and Sarak Drake, “Apple Counters Chinese Claims iPhone Pose Security Threat,” Silicon Valley Business Journal, July 14, 2014, http://www.bizjournals.com/sanjose/news/2014/07/14/apple-counters-chines...)

In tandem with the creation of the BRICs development bank and Chinese President Xi Jinping’s visit to Brazil, Chinese companies have been striking deals with the Brazilian government and Brazilian firms. BYD announced a US $91 million plant to produce electric buses, batteries, and solar panels. Baidu launched a Portuguese search engine, signed an Internet technology joint development agreement with the Brazilian Ministry of Science and Technology, and promised to build a technology innovation center. State Grid Corp. of China will work with Brazilian state company Electrobras to build high-power transmission lines to connect a giant dam in the Amazon (Mu Chen, “BYD Plans Factory in Brazil,” China Daily, July 16, 2014, http://www.chinadaily.com.cn/business/motoring/2014-07/16/content_178011... Meng Jing, “Baidu’s Portuguese Search Engine Strengthens Ties with Brazil,” China Daily, July 18, 2014, http://www.chinadaily.com.cn/business/2014-07/18/content_17841404.htm; John Lyons and Paulo Trevisani, “Brazil, China Sign-Power-Grid, Plane Deals,” Wall Street Journal, July 17, 2014, http://online.wsj.com/articles/brazil-china-sign-power-grid-plane-deals-...)

In 2012, Ralls, an affiliate of Sany (a Chinese machinery company), purchased a number of wind farms near a US naval facility in Oregon. US President Barack Obama, on the recommendation of the Committee on Foreign Investment in the United States (Cfius), blocked the deal, citing national security concerns. In response, Ralls sued the President. A lower court supported the President, but Ralls appealed and the US Court of Appeals in Washington ruled the US government had to provide Ralls with the non-classified information that supported the Cfius recommendation so that it had a chance to address the government’s concerns (Gina Chon, “Chinese Group Wins Cfius Legal Case,” Financial Times, July 16, 2014; Xie Yu, “US Ruling an ‘Early Victory’ for Sany,” China Daily, July 17, 2014, http://www.chinadaily.com.cn/business/2014-07/17/content_17810630.htm).

The US has aggressively used trade remedies against Chinese state-owned enterprises (SOEs) saying they benefit unfairly from direct and indirect Chinese government subsidies which constitute WTO non-compliant government subsidies of China’s exports. The WTO found the US defined Chinese SOEs too widely, ruling a firm was not a SOE merely because it was majority government owned, and applied countervailing duties too liberally. The US took solace in the fact that the WTO supported its use of third-country benchmarks, rather than actual transactions, to establish the true cost of exports from China. Analysts expect that the US will appeal the decision (Robert Evans, “WTO Faults U.S. over duties on Chinese, Indian Steel goods,” Reuters, July 15, 2014, http://in.reuters.com/article/2014/07/14/trade-wto-india-us-steel-idINKB... Shawn Donnan and Lucy Hornby, “WTO Rules against US on China State Companies,” Financial Times, July 15, 2014).

Foreign energy firms that have extensive business in or with China are in a quandary about how to proceed in terms of oil and gas exploration and drilling in South China Sea areas that China and Vietnam both claim. As early as 10 years ago, China warned American energy giant Chevron not to engage in activity in contested areas. The issue of what stance international energy companies will adopt has been revived by tensions resulting from China National Petroleum Corp. (CNPC)’s dispatch, in May, of an oil rig to disputed areas, a rig which it just withdrew early this week (Brian Spegele and Chester Dawson, “China Flexes Might with Energy Giants,” Wall Street Journal, July 16, 2014; “CNPC Ends Drilling off Xisha Islands,” Xihuanet, July 16, 2016, http://news.xinhuanet.com/english/china/2014-07/16/c_126757274.htm).

Shortly after Samsung stated that its audit found no child labor at hundreds of suppliers in China, a China Labor Watch report exposed Samsung’s hiring of child labor at its Shinyang site in Dongguan and detailed 15 labor violations. The New York-based watchdog reported that Shinyang hired and underpaid at least 5 children under the age of 16 for 3-6 months in order to meet its production targets. In response, Chinese authorities have started investigating the case. Samsung has suspended business ties with Shinyang and indicated that it would permanently sever their business ties if the investigation finds child laborers (Youkyung Lee, “Samsung suspends China supplier over child labor,” Yahoo News, July 14, 2014, http://news.yahoo.com/samsung-suspends-china-supplier-over-child-labor-0...)

The Farnborough air show in England is one of the world’s largest aviation trade shows. In the wake of Tokyo’s relaxation of export controls for defense equipment, Japanese firms such as Kawasaki Heavy Industries are especially keen to leverage the show to raise foreign awareness of Japanese capabilities. The Shinzo Abe administration already concluded an agreement with Australia to provide technological know-how for defense equipment and has plans to do something similar with France. One top official says the ability of the defense industry to achieve success abroad depends on the Defense Ministry which decides what private firms can do (“Japanese defense industry; Japanese firms to run booth at an English air show,” Nikkei, July 15, 2014, http://www.nikkei.com/article/DGKDASDZ1301C_U4A710C1TJ2000/)

Toyota Motor Corp. has ceased its automobile production in South Africa after a manufacturing strike significantly disrupted the flow of critical car components. South Africa is a second largest economy in Africa and Toyota is a biggest carmaker by exports there. Employers made offers to the National Union of Metalworkers of South Africa (Numsa), yet Numsa rejected them and subsequently launched a large-scale strike. 220,000 workers have participated in the strike, affecting over 12,000 companies including big automobile companies like Ford Motor Co. Numsa is demanding a 10% annual salary increase to end the strike (“Strike halts Toyota’s S. Africa production,” The Japan Times, July 15, 2014, http://www.japantimes.co.jp/news/2014/07/15/business/corporate-business/...).

Japanese automobile firms in the US are facing challenges from American labor unions that are striving to unionize their workforces. One pressing challenge is that of the United Auto Workers union (UAW), which has been boosting its presence in Southern states. After failing to unionize a Volkswagen plant in the South, the UAW has shifted its attention to Nissan’s (Japan) as well as Daimler’s (Germany) operations. The UAW’s results are of considerable interest to automakers and other manufacturers that have been moving into Southern states, partly because of low unionization rates. To date, workers at the Nissan plant have “giving the UAW the cold shoulder” because of their good working condition and a belief that the UAW contribution to the bankruptcy of GM (“UAW regained power, targeting Nissan plants,” Nikkei, July 15, 2014, http://www.nikkei.com/article/DGKDZO74249050U4A710C1FFB000/; Takashi Sugimoto, “Auto union takes aim at Nissan plant in US,” Nikkei Asian Review, July 16, 2014, http://asia.nikkei.com/Business/Companies/Auto-union-takes-aim-at-Nissan...)

China’s recently announced plans to impose import duties on raw materials coupled with its plan to sign a free trade agreement (FTA) with South Korea that will impose zero tariffs on South Korean steel mean mainland-based Taiwanese steel companies will likely start purchasing raw materials from local firms rather than sourcing from Taiwan-based suppliers. This will cause Taiwan’s steel exports to shrink substantially as most of Taiwan’s steel exports to China are raw materials for the production of steel that is shipped back to Taiwan. Moreover, Taiwanese firms will face intensified competition from South Korean steel in the China market (Helen Ku, “Steel exporters face game-changing moves by China,” Taipei Times, July 17, 2014, http://www.taipeitimes.com/News/biz/archives/2014/07/17/2003595261)

Last week was the deadline for foreign firms to apply for banking licenses in Myanmar. Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group have been gunning for licenses and, pursuant to this, had already set up representative offices in Myanmar. Despite the country’s political and economic challenges, Japanese banks want to tap the opportunities emerging from increasing Japanese non-financial investments in the country. Japan’s Financial Services Agency commissioner has gone to Myanmar several times this year and the FSA signed an agreement to help Myanmar develop its legal and regulatory framework for securities, insurance, and microfinance (Michael Peel and Ben McLannahan, “Lenders Seek Myanmar Banking Entrée,” Financial Times, July 13, 2014).

*The information compiled in the MNCs in the News digest is gathered from sources believed to be reliable, but the Wong MNC Center does not guarantee their accuracy. The content of the MNCs in the News digest does not necessarily represent the view of the Wong MNC Center, its Board of Directors, or its Advisory Board, but is intended for the non-commercial use of readers in order to foster debate and discussion and to facilitate and stimulate research.