MNCs in the News-2014-08-15

The Chinese government informed Korea’s Ministry of Science, ICT, and Future Planning that it had blocked Korean messaging apps Kakao Talk and Line because some terrorism-related information such as attack plotting and bomb making was flowing through them and other foreign messaging apps. Relevant Korean companies declined comment, but the Ministry of Science, ICT, and Future Planning said it was negotiating with China to minimize the service disruptions. The Chinese government previously blocked Line and Kakao Talk in connection with pro-democracy protests in Hong Kong (Se Young Lee, “China Tells South Korea it Blocked Kakao Talk, Line to Fight Terrorism,” Reuters, August 7, 2014, http://mobile.reuters.com/article/idUSKBN0G709E20140807)

A Chinese court recently sentenced private detective Peter Humphrey and his wife Yu Yingzeng to jail for 2-1/2 years for illegally obtaining information on Chinese citizens. Humphrey will be deported while his wife will be allowed to remain in China. Humphrey and Yu were charged in connection with work they were doing on behalf of British pharmaceutical giant GlaxoSmithKline which had asked them to investigate a sex tape of its top China executive. GSK and the aforesaid executive face other serious troubles, being charged with a multi-billion dollar scheme to bribe Chinese doctors and medical officials to prescribe its products (Gabriel Wildau and Andrew Ward, “China Court Sentences GSK Investigator,” Financial Times, August 8, 2014; Patti Waldmeir and Gabriel Wildau, “Corporate Investigators Jailed in China will Not Appeal Sentences,” Financial Times, August 15, 2014).

China’s growing assault, above all surprise raids, against foreign firms on charges ranging from antitrust investigations to corruption not only are leading foreign firms to prepare for such contingencies, but also to hire consultants who can help them prepare for questioning, the seizure of computers and documents, and even attorney-client communications. Complicating things is the fact that China State Administration for Industry and Commerce (SAIC) agents and National Development and Reform Commission agents and local officials do not always act in the same way. Differing legal standards for what much be disclosed and not done also complicate the situation for foreign firms (which are privileged in the US and Europe, but not in China) (Michelle Price and Norihiko Shirouzu, “Food and Flirting; How Firms Learn to Live with China Antitrust Raids,” Reuters, August 10, 2014, http://www.reuters.com/assets/print?aid=USKBN0GA0UX20140810)

In response to request from the Shanghai Municipal Food and Drug Administration, a number of foreign food chains such as McDonald’s, Burger King, and Yum Brands (owner of KFC and Pizza Hut) have published confidential information on their suppliers on their web sites. These companies used meat from Shanghai Husi, a unit of OSI Group, which was implicated in a food safety scandal several weeks ago. A local consultant observed that this could reveal information useful to competitors, but that it made sense for foreign firms to reveal the information to show the government and consumers they were being transparent (“Fast-Food Chains in China Release Supplier Information,” New York Times, August 11, 2014, http://www.nytimes.com/2014/08/12/business/international/12iht-food12.html)

Seven Chinese neodymium iron boron magnet producers including Ningbo Tongchuang Strong Magnet Material Co. Ltd. said they would file a lawsuit in the US challenging a core patent held by Hitachi Metals and subsequently challenge other related patents individually. The Chinese companies say that Hitachi Metals has only allowed Chinese companies to license about 25% of its patents which limits their freedom to export (because clients shun goods with potential patent problems) and thus profit opportunities. Neodymium iron boron is a rare earth metal known for its magnetic property and is used in the auto, wind power, and other sectors (Wang Jingjing, “Chinese Firms to File Patent Lawsuit Against Hitachi Metals,” China Daily, August 14, 2014, http://www.chinadaily.com.cn/business/2014-08/12/content_18293645.htm)

Microsoft’s plans to “downsize” its workforce, particularly employees it acquired from Nokia, continue to generate media attention in China. A petition from Microsoft’s Chinese workers calling for talks about layoffs and Cisco’s recent announcement it would layoff thousands of workers globally has only intensified the attention directed at Microsoft and other foreign IT firms. A labor rights expert at a Labor Dispute Center in Shenzhen has warned that “‘labor disputes involving overseas information technology companies are set to grow…as the Chinese economy slows.’” He advises deep-pocketed companies to be very thoughtful about the amount of severance compensation that they give (Gao Yuan, “Huge IT Layoffs Trigger Labor Friction,” China Daily, August 14, 2014, http://www.chinadaily.com.cn/business/tech/2014-08/15/content_18313287.htm)

Venezuela has recently awarded China Dongfang Electric Corporation a $1.3 billion project to modernize the Guri hydroelectric plant, its largest. The project not only will upgrade the plant, but also expand its capacity, increase operating efficiencies, and improve water usage. The deal, announced by Venezuelan Electric Energy Minister Jesse Chacon, follows Chinese President Xi Jinping’s recent visit to Latin America (“Chinese Firm to Help Upgrade Venezeula’s Hydropower Plant,” China Daily, August 15, 2014, http://www.chinadaily.com.cn/business/2014-08/15/content_18317099.htm)

Foreign companies and industry associations are complaining that they are being unfairly targeted in the current wave of Chinese antitrust and corruption cases. The European Union Chamber of Commerce, for example, stated that Chinese investigators are “picking on foreign companies, pressuring them into accepting punishments, and depriving them of full hearings.” China’s Ministry of Commerce denies China is targeting foreign firms, saying it is trying to promote fair competition and protect consumer rights. It also adds that probes of monopoly behaviors are standard operating procedure. The Ministry of Commerce emphasizes that China has investigated domestic firms, too, for anti-competitive practices (“Anti-Monopoly for Chinese consumers’ rights: govt,” China Daily, August 9, 2014, http://www.chinadaily.com.cn/business/motoring/2014-08/09/content_182791... “China Vows Fairness in Monopoly Probes,” South China Morning Post, August 11, 2014, http://www.scmp.com/print/business/china-business/article/1570830/china-... Aipeng Soo, Gregory Turk, and Alexandra Ho, “China Probes Called Intimidation as Europeans Cry Foul,” Bloomberg, August 15, 2014, http://www.bloomberg.com/news/print/2014-08-13/europe-chamber-urges-chin...)

Of the foreign firms targeted in China’s recent antitrust investigations, Chinese authorities seem to be giving auto companies a disproportionate amount of attention, investigating 12 Japanese car companies, Chrysler, Audi, and Mercedes-Benz. Recently, the Hubei Province Price Bureau fined four BMW dealers in Wuhan approximately US $265,000 for “deceptive pricing” and price fixing while General Motors (GM) revealed China was investigating GM China (most likely for the price of parts and services). Adding to GM’s woes, China’s General Administration of Quality Supervision, Inspection, and Quarantine announced that Shanghai GM would recall around 32,000 cars due to a seat belt problem (“Shanghai GM Recall over Safety Belt Defects,” China Daily, August 11, 2014, http://www.chinadaily.com.cn/business/motoring/2014-08/11/content_182830... Keith Bradsher, “China Puts Pressure on Foreign Carmakers,” New York Times, August 12, 2014, http://www.nytimes.com/2014/08/13/business/international/looking-at-gm-c... “GM China Venture Contacted by Regulators,” China Daily, August 13, 2014, http://www.chinadaily.com.cn/business/motoring/2014-08/13/content_183021... “BMW Dealers Fined 1.6m Yuan over Price Fixing,” China Daily, August 14, 2014, http://www.chinadaily.com.cn/business/motoring/2014-08/14/content_183084...)

The Chinese government recently approved United Parcel Service Inc. (UPS) and FedEx Corp. applications for licenses that would allow them to expand their domestic express package services without finding joint-venture (JV) partners. UPS, FedEx, and other delivery services salivate over the China shipping market given the explosion of online shopping and associated delivery services. The licenses are important in this regard because they will allow UPS and FedEx to go beyond just handling packages to and from overseas to delivering packages from businesses to consumers (“UPS, Fedex Get Approval for Express Services in more Chinese Cities,” Reuters, August 14, 2014, http://www.reuters.com/assets/print?aid=USKBN0GE0JQ20140814)

*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.