MNCs in the News-2014-09-26

China imposed a 3 billion yuan (roughly US $490 million fine), the largest fine in Chinese history, on UK pharmaceutical behemoth GlaxoSmithKline (GSK) China (GSKC) as a penalty for bribing doctors, hospitals, and medical staff, and government officials. China also sentenced Mark Reilly, GSK’s former head of China operations, and three other GSKC executives to short (suspended) jail sentences for their “active” bribery operations, which involved a cover-up. GSK publicly apologized and noted that it would invest “‘to support the government’s health care reform and plans for economic growth,’” and would offer “price flexibility” to support rural access to medicines (“GlaxoSmithKline Fined $490m by China for Bribery,” BBC News, September 19, 2014, http://www.bbc.com/news/business-29274822; “GSK China Faces Record Fine for Bribery,” China Daily, September 19, 2014, http://www.chinadaily.com.cn/business/2014-09/19/content_18630086.htm; “GSK China Hit with Record Fine, Says Sorry,” China Daily, September 19, 2014, http://www.chinadaily.com.cn/china/2014-09/19/content_18630584.htm; Keith Bradsher and Chris Buckley, “China Fines GlaxoSmithKline Nearly $500 Million in Bribery Case,” New York Times, September 19, 2014, http://www.nytimes.com/2014/09/20/business/international/gsk-china-fines...)

Shanghai Husi Food, the scandal-plagued meat processing company, has fallen afoul of its failure to adequate monitor food product safety. Shanghai Husi’s parent, OSI China, announced that it would soon release almost 340 workers from its firm due to losses of customers and other problems flowing from revelations of it repacking or relabeling expired meats. The firm is retaining some workers to assist with the government’s investigation. Shanghai Husi reported it had been working with local government and trade unions to ensure its properly dispatches all its severance obligations and to provide training and job search assistance to layoff workers (“Scandal-tainted Shanghai Husi to fire 340 Workers,” China Daily, September 22, 2014, http://www.chinadaily.com.cn/business/2014-09/22/content_18639948.htm; Wang Hongyi and Wang Zhuoqiong, “OSI Lays Off Food Workers at Scandal-Hit Suppliers,” China Daily, September 23, 2014, http://www.chinadaily.com.cn/business/2014-09/23/content_18642538.htm)

In an interview with the China Daily, Satya Nadella, CEO of Microsoft stated that Microsoft has to “trust the Chinese government and work with industry regulators in order to expand its business in the country.” Nadella added that “‘Microsoft had benefited from China’s human capital…and vibrant innovation culture’” and will work to “‘foster the success of local partners’” and “‘grow innovation in China.’” Such words were not surprising given that the Chinese government is conducting an antitrust investigation of Mr. Softee. Nadella is visiting China for the first time as CEO and will be meeting with government officials and businesspeople (Gao Yuan, “‘We Have to Turst the Government,’” Says Microsoft CEO,” China Daily, September 25, 2014, http://www.chinadaily.com.cn/business/tech/2014-09/25/content_18661124.htm)

As noted in an earlier MNCs in the News digest, the Chinese government has begun to open its delivery market to qualified foreign companies like FedEx as well as to expedite the processing of relevant licenses. It sees the move as increasing competition and thus spurring domestic companies to improve their services, which, ideally, will, in turn, lead to more demand for express delivery services and subsequently more jobs. Firms like UPS, which have been waiting since 2009 for greater flexibility, welcomed the policy development since it likely will result in them obtaining a greater number of permits more quickly (Shi Jing, “Express Delivery Sector Opens Up,” China Daily, September 25, 2014, http://www.chinadaily.com.cn/business/2014-09/25/content_18658168.htm; “Delivery Services in China to be Opened to Overseas Operators,” WantChinaTimes.com, September 26, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20140926000098&cid=...)

China’s State Council recently approved a pilot economic and cultural zone in Shantou, Guangdong for overseas Chinese. Chinese media note that the zone will work to draw in overseas Chinese investment while also “exploring new reform ideas and ways of opening up” in regards to cross-border investment mechanisms, global conforming rules, and so on. Not long afterwards, China’s Ministry of Commerce (MOFCOM) emphasized during a press conference that local authorities in China were not authorized to set up “negative lists” for foreign investment like that China (Shanghai) Pilot Free Trade Zone (SFTZ) unless they had first had central government approval (“China Nods Pilot Economic Zone for Overseas Chinese in Shantou,” China Daily, September 20, 2014, http://www.chinadaily.com.cn/business/2014-09/20/content_18633645.htm; “MOC Bans Local ‘Negative List’ For Foreign Investment,” China Daily, September 24, 2014, http://www.chinadaily.com.cn/business/2014-09/24/content_18653132.htm)

Changan Ford Automobile, a partnership between the American auto company Ford and Changhan, has been intensifying its corporate social responsibility (CSR) activities. The President and CEO of Changan Ford stated, “‘we believe it’s our responsibility as a company to provide opportunities for young people.’” As part of its revved up CSR activities, the company has been sponsoring safe driver training courses, technical training initiatives, and charity fund raising programs. Changan Ford has not forgotten the hard side of business with plans to massively expand its dealer network in China as well as to open a plant in Chongqing and Hangzhou (Fu Chao, “With Sales Robust, Ford Gears Up CSR Effort,” China Daily, September 22, 2014, http://www.chinadaily.com.cn/business/2014-09/22/content_18638221.htm)

Chinese state-owned enterprises (SOEs) traditionally have dominated Chinese outward investment. Recently, private firms such as Lenovo, Fosun, and Alibaba have been assuming increasing prominence as they invest overseas to acquire brands, technology, and distribution networks. To illustrate, in 2014, to date, private investment is running around US $21 billion while SOE investment is running $23 billion, a $2 billion difference. In 2010, the gap was $24 billion! Analysts attribute the reduced gap to fewer attractive resource investment opportunities and Beijing’s anti-corruption drive, which has focused on major Chinese energy firms, historically major outward investors, and generally has made people cautious (Yvonne Lee, “Chinese Overseas Buying Increasingly Shifts to Private Sector,” Wall Street Journal, September 21, 2014, http://online.wsj.com/articles/chinese-overseas-buying-increasingly-shif... Jamil Anderlini, “China’s War on Graft Leads to Drop in Outbound Investment,” Financial Times, September 22, 2014)

Several weeks ago, China National Nuclear Corp (CNNC) agreed to provide assistance (technology, service, and machinery) worth US $2 billion to Nucleoeletrica Argentina SA (NASA), a state-owned Argentine company, which is building Argentina’s fourth nuclear power station, situated close to Buenos Aires. The agreement followed in the wake of Chinese President Xi Jinping’s state visit to Argentina, which witnessed several agreements relating to infrastructure construction. Chinese media described the agreement as “another gesture of support by China for the Latin American country mired in a continuing debt crisis.” CNNC also has been bolstering cooperation with Pakistan, the UK, and France (Zhang Fan, “China Invests $2b in Argentina’s Nuclear Power Plant,” China Daily, September 22, 2014, http://usa.chinadaily.com.cn/world/2014-09/22/content_18636273.htm)

A Chinese Defense Ministry issued a statement noting that China would send 700 troops to facilitate a U.N. peacekeeping mission in South Sudan, where it has been very involved diplomatically and Chinese energy companies have substantial investments. A Chinese Defense Ministry spokesman said that the troops will assist with protecting citizens, humanitarian workers, and other security activities. U.N. representatives stated that this would be the first time China will be contributing a battalion to a U.N. peacekeeping mission, though it is not the first time China has sent peacekeepers abroad (“China to Send 700 Troops to South Sudan to Assist U.N. Mission,” Reuters, September 25, 2014, http://www.reuters.com/assets/print?aid=USKCN0HK0WQ20140925)

A Japan-China Economic Association delegation, led by Toyota’s honorary chairman, Fujio Cho, went to Beijing, hoping to improve relations between China and Japan. The association consists of about 200 executives from top Japanese companies, including the head of Keidanren, Japan’s biggest business lobby, Sadayuki Sakakibara, and Takashi Imai, honorary chairman of Nippon steel and Sumitomo Metal Corp. The delegation held discussion about economic issues with China’s Ministry of Commerce and top government officials. The delegation hoped it would have an opportunity to meet Chinese President Xi Jinping or Premier Li Keqiang during its visit, but such a meeting never happened (“Business delegation sets foot in Beijing,” Japan Times, September 22, 2014, http://www.japantimes.co.jp/news/2014/09/22/business/business-delegation... “The delegation to China could not meet China’s “top 2,” Nikkei, September 25, 2014, http://www.nikkei.com/article/DGXLASDF24H0U_U4A920C1EE8000/)

For first time after World War II, Japan will start developing an all Japan-made fighter aircraft. The government will collaborate with major defense contractors like Mitsubishi Heavy Industries and IHI Corp. and start testing engine and stealth fighter functions beginning next year. For a long time, the US opposed Japanese attempts to develop its own fighter, arguing Japan lacked the necessary technology and that it made more sense to undertake joint projects. The US also worried about the possible leak of important technologies to Japanese companies. This history has made Japanese defense officials very desirous of a domestic combat aircraft (“Japanese combat aircraft—ambition for revival,” Nikkei, September 19, 2014, http://www.nikkei.com/article/DGXLZO77254590Z10C14A9SHA000/)

Mitsubishi Co. offered Norway’s Cermaq ASA about 150 billion yen to acquire its world’s 3^rd largest salmon farming business. Cermaq is a well-established firm in Norway, Canada and Chile, as well as emerging markets, which makes this acquisition is quite attractive for Mitsubishi. The Norwegian government holds about 60% stake in the company and is willing to accept the offer, yet still has the right to accept offers from other competitors. If this deal is closed, Mitsubishi will become the second largest salmon farmer in the world. Mitsubishi has partially shifted its focus from natural resources to food and fashions (“Trader Mitsubishi to acquire world’s 3rd largest salmon farmer,” Mainichi, September 23, 2014, http://mainichi.jp/english/english/newsselect/news/20140923p2g00m0bu0010... “Mitsubishi to acquire Norway’s salmon farming firm, Cermaq, for 150 billion yen,” Reuters, September 22, 2014, http://jp.reuters.com/article/businessNews/idJPKCN0HH0ZZ20140922)

Japanese trading conglomerate, Mitsui and Co., is investing in a joint venture, Safi Energy Company, with Morocco’s Nareva and France’s GDF Suez. Safi has secured US $2.6 billion in financing to build a coal-fired power plant in Morocco. The Bank of Japan, Japan’s three mega banks, two Moroccan banks, and various international banks provided the financing. Morocco needs power domestically and plans to export renewable energy to the European Union and Safi will be able to supply 25 percent of Morocco’s domestic power needs. The Moroccan government plans to build another power plant in the area within a few years (“Safi Energy secures $2.6 bln financing to build Moroccan power plant,” Reuters, September 18, 2014, http://www.reuters.com/article/2014/09/18/us-morocco-power-safi-idUSKBN0...)

A Wall Street Journal story suggests China’s anti-corruption campaign will hurt the Korean economy in the short term by reducing Chinese investment. Since the beginning of the campaign, which was initiated in 2012 by Chinese President Xi Jinping, more than 182,000 officials have been investigated. China has arrested thirty-two leaders, ranked at high levels of vice minister and above, including five members of the communist party. The reason that the anti-corruption campaign has had a negative effect is that investigations and arrests have put many new investment projects on hold (Yi Whan-woo, “Beijing’s Graft Fight May Hurt Korean Economy,” Korea Times, September 26, 2014, http://www.koreatimes.co.kr/www/news/nation/2014/09/120_165279.html)

Korean multinational corporations have become increasingly interested in Myanmar, following the country’s new openness to foreign investment. Korean investors are attracted by the cheap labor, natural resources and wide range of investor-friendly governmental politics. China used to be the main attraction for Korean MNCs. However, difficult regulations and growing labor cost have pushed these companies to Vietnam, Indonesia and other growing Southeast Asian economies. Recently, labor costs in these countries have risen, too, and thus Korean corporations are looking to relocate to Myanmar. Korean- based companies such as Daewoo international, Lotteria and Worri Bank are already operating in the country (Lee Hyo-sik, “Manufactures Migrating en Masse to Myanmar,” Korea Times, September 22, 2014, http://www.koreatimes.co.kr/www/news/biz/2014/09/123_165026.html)

For the first eight months of this year versus last year, Taiwan received 25.15 percent less investment (in terms of amount) from mainland China, with the number of investments only decreasing by approximately 7.5 percent. Taiwan’s Investment Commission attributed the drop to the stagnation of the China-Taiwan trade-in-services agreement, due to public protests and other factors, as well as upcoming local elections in Taiwan which have “made [mainland] investors cautious” (“China’s Investments in Taiwan Drops by 25%,” WantChinaTimes.com, September 23, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?cid=1203&MainCatID=12&...)

An Arcadis Consultant Report deemed Singapore the most attractive market for infrastructure investment due to the country’s strategic plan which links infrastructure with business and social requirements. The Singaporean government is planning to raise the population from 5.5 to 7 million by 2030 and, accordingly, is planning a number of major infrastructure projects such as doubling the length of the light rail system and increasing airport capacity. The report stressed ambitious Southeast Asian infrastructure plans offer many juicy investment opportunities (Daniel Shane, “Singapore Best Market for Infrastructure Investment,” Asia Asset Management, September 26 2014, http://www.asiaasset.com/news/Singapore_best_market_for_infrastructure_i...)