MNCs in the News-2014-10-24

Facebook, banned in China (though the company has an office in China and sells online advertising to Chinese companies through a Hong Kong office), has moved to enhance its China presence and contribution with Facebook founder and CEO Mark Zuckerberg joining the advisory board of the Tsinghua University School of Economics and Management, already populated with foreign and Chinese business and financial bigwigs. Commentators were not optimistic that Facebook would be unblocked any time soon given government sensitivity about the sector and recent actions against Google, Line, Flickr, and, most noteworthy, Facebook-owned photo-sharing ap Instagram, which was not previously blocked (Sarah Frier, “Facebook CEO Joins Board of Beijing Business School,” Bloomberg, October 20, 2014, http://www.bloomberg.com/news/print/2014-10-20/facebook-ceo-joins-board-... “Facebook’s Zuckerberg Lands Spot on Chinese Advisory Board,” WantChinaTimes.com, October 22, 2014, http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20141022000010&c... 2/; Carlos Tejada, Yang Jie, and Newley Purnell, “Apple, Facekbook Chiefs Press the Flesh in China,” Wall Street Journal, October 22, 2014, http://blogs.wsj.com/chinarealtime/2014/10/22/apple-facebook-chiefs-pres...)

Apple CEO Tim Cook also made his way to China last week on the heels of the launch of the iPhone 6 and a report that Chinese hackers may have attempted to steal information from users of Apple’s iCloud service. Cook met with Chinese Vice-Premier Ma Kai where, according to Chinese reports, the two exchanged views about cooperation and the protection of user information. Regarding the latter, Chinese media have previously raised questions about Apple’s protection of user privacy. During his visit, Cook also went to a Foxconn factory, touted Apple Pay, and hinted Apple might open more Apple stores (Carlos Tejada, Yang Jie, and Newley Purnell, “Apple, Facekbook Chiefs Press the Flesh in China,” Wall Street Journal, October 22, 2014, http://blogs.wsj.com/chinarealtime/2014/10/22/apple-facebook-chiefs-pres... Gao Yuan, “Security on Agenda as Apple Head Visits,” China Daily, October 23, 2014, http://www.chinadaily.com.cn/business/tech/2014-10/23/content_18787522.htm; “Apple CEO Inspects Chinese iPhone6 Workshops,” WantChinaTimes.com, October 23, 2014, http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20141023000150&c... ; “Apple Looks to Make Bigger Inroads into Chna’s Market: CEO,” WantChinaTimes.com, October 25, 2014, http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1206&MainCatID=...)

China’s Ministry of Commerce (MOFCOM) anti-monopoly bureau has introduced a simpler approval process that has, among other things, allowed it to shorten the approval process for so-called “simple cases” in half from 5-8 months to 3-5 months, similar to the EU. Outside observers lauded the change, though it remains unclear what qualifies as “simple,” and also pointed out that MOFCOM was “‘getting much better at transparency.’” MOFCOM has faced criticism for being overly strict, though it only blocked two deals since 2008, imposing unreasonable conditions, and being opaque. Outside analysts believe the bad press has motivated MOFCOM to enhance its processes (“MOFCOM Praised for Simplified M&A Clearance Process,” China Daily, October 23, 2014, http://www.chinadaily.com.cn/business/2014-10/23/content_18787814.htm; Michelle Price, “Shorter Wait: China’s M&A Watchdog Halves Time Taken to Approve Deals,” Reuters, October 20, 2014, http://www.reuters.com/article/2014/10/20/us-china-regulator-m-a-idUSKCN...)

Chinese sources indicate Chinese Premier Li Keqiang played a critical role in resolving the China-European Union (EU) telecommunications dispute, highlighted in earlier MNCs in the News digests. Li lobbied publicly for an end to the dispute (which arose over EU concerns about Chinese telecommunications subsidies), expressed a willingness to actively negotiate over the dispute, raised the issue during his conversations with German Chancellor Angela Merkel and high-level European Union officials. In conjunction with Li’s trip, MOFCOM head Gao Hucheng engaged in aggressive talks with EU officials. Previously, Li played a role in the resolution of China-EU disputes over solar cells (“Li Keqiang Behind Settlement of Telecoms Dispute with EU,” WantChinaTimes.com, October 22, 2014, http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20141022000121&c...(

A Wall Street Journal contributor has claimed that “‘foreign companies are wielding their axes in China,’” the result of a combination of foreign firm overexpansion, slower Chinese growth, China’s perceived crackdown on foreign firm, and cost pressures. Not only are European firms cutting back, far fewer are expecting to add staff. According to one Chinese recruiting firm partner, “‘the gold-rush stage is over.’” Cost-cutting seems to be the rage with American businesses, too, with a noteworthy decline in the number planning expansion. In some cases, cuts are not just a function of the situation in China, but global workforce reductions (Wei Gu, “Foreign Companies are Cooling on China,” Wall Street Journal, October 23, 2014, http://online.wsj.com/articles/foreign-companies-are-cooling-on-china-14...)

Recently, the MOFCOM reported that Chinese outward foreign direct investment (FDI) for September had soared by 90.5 percent year-over-year (YOY) to hit US $9.8 billion with the nine-month figure running approximately US $75 billion, up 21.6 percent YOY. Interestingly, around 75 percent of the outward FDI went to Australia, the Association of Southeast Asian Nations, Hong Kong, the EU, Russia, and the United States. Outward FDI to EU showed a particularly large percentage increase as did outward FDI to Japan and Russia. MOFCOM officials forecast that Chinese outward FDI for the year might exceed inward FDI for the first time (“Outbound Investment from China Nearly Doubles in September,” WantChinaTimes.com, October 18, 2014, http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20141018000022&c... Jamil Anderlini, “China’s Outbound Investment Set to Eclipse Inbound for the First Time,” Financial Times, October 22, 2014).

Mexico’s Ministry of Communication and Transportation announces a Chinese-orchestrated railway consortium, consisting of China Railway Construction Corp. (CRC), China South Locomotive and Rolling Stock Co., and others, is the sole bidder for a roughly US $4 billion high-speed passenger railway line linking Mexico City and Queretaro, part of Mexican President Enrique Pena Nieto’s plan to reinvigorate Mexico’s railway system. Queretaro’s claim to fame is the fact that it is the center of Mexico’s aerospace industry. A Chinese professor argued that Chinese infrastructure firms have a comparative advantage in pricing, overseas experience, logistics, and construction technologies (Zhong Nan, “China-Led Group Sole Bidder for Mexican Rail Construction Deal,” China Daily, October 21, 2014, http://www.chinadaily.com.cn/business/2014-10/21/content_18774218.htm)

CNR Corp, a state-owned company, and US-based SunGroup USA, is pushing for the sale of its high-speed trains to California as is its Chinese rival CSR Corp. California has been visible about courting Chinese investment in its planned high-speed rail line and California Governor Jerry Brown reportedly met with Chinese rail officials to discuss the project. A Sun Group spokesman said the company would open a factory to make trains in California if it won the bid. CNR recently won a contract to provide trains for the greater Boston subway system, which requires it to build a Massachusetts’ assembly plant (“On Track for High-Speed Growth,” China Daily, October 22, 2014, http://www.chinadaily.com.cn/business/2014-10/22/content_18781013.htm; “Chinese Trainmakers to Go Head to Head for US Deal,” China Daily, October 23, 2014, http://www.chinadaily.com.cn/business/2014-10/23/content_18791656.htm; and Paul Welitzkin, “Chinese Rail Partnership Wins Landmark Boston Subway Deal,” China Daily, October 24, 2014, http://www.chinadaily.com.cn/business/2014-10/24/content_18794616.htm)

Uganda had previously considered issuing sovereign debt to finance infrastructure projects relating to hydropower and railways, but has now decided such financing may be too costly. Now, it hoping China will step into the breach and provide billions. In an interview with the Financial Times, Ugandan President Yoweri Museveni has touted Chinese money as abundant and cheap, adding that the Chinese do not try to push “middle class values on a pre-industrial society.” Museveni argues his embrace of China is, in part, a way to gain leverage vis-à-vis the West (James Kynge, “Uganda Turns East; Chinese Money will Build Infrastructure Says Museveni,” Financial Times, October 21, 2014).

The Japanese government established an infrastructure export institution on October 20 to support Japanese infrastructure exports to Asia and Central and South Americas. About 50 firms, including East Japan Railway, Mitsubishi, and Hitachi, will invest in this institution. The decisions of infrastructure project partner governments can have a great effect on infrastructure, especially if they lead to sudden changes in an on-going project. Japan has opted to play the role of a mediator, taking a lead role in negotiation and working to create an environment that will make foreign infrastructure projects accessible to Japanese firms (“50 firms including East JR and Hitachi will invest in the Infrastructure Export Support institution on the 20th,” Nikkei, October 20, http://www.nikkei.com/article/DGXLASDF19006_Q4A021C1MM0000/)

Prime Minister Abe Shinzo’s administration is working with an American company, Northeast Maglev, to push a US $10 billion Japanese magnetic levitation train for the 40-mile Washington to Baltimore trip. The Japanese government may absorb half of Central Japan Railway Co. (JR Tokai)’s cost while Northeast Maglev will seek federal funds and work to recuirt private investment. Last week, the Japanese government approved JR Tokai’s 5.5 trillion yen plan (US $52 billion) to build a maglev line between Tokyo and Nagoya and has indicated a willingness to export maglev technology (Chris Cooper, “Maglev train seen making Washington-Baltimore trip at 311 MPH,” Bloomberg, October 22, 2014, http://www.bloomberg.com/news/2014-10-21/washington-baltimore-15-minute-...)

Japan intends to provide a 20 billion yen (US $186 million) loan to Myanmar to repair the Shinkansen railway in Yangon, the largest industrial city in Myanmar. Prime Minister Shinzo Abe hopes that a Japanese corporate alliance, such as trading houses and railway manufactures, will win an order for railway repair work that will begin in 2016. Myanmar has been home to a large number of infrastructure project such as ports and airports in recent times. In line with this, Abe will meet Myanmar President Thein Sein next month to press the plan and steer business towards the Japanese alliance (“The Japanese government to finance Myanmar railway repairs a 20 billion yen loan,” Nikkei, October 19, 2014, http://www.nikkei.com/article/DGXLASFS19H09_Z11C14A0PE8000/)

Since the introduction of the investor visa program in 2012, foreign investors, mostly from China, have invested about 2 billion Australian dollars into Australia in exchange for Australian residency. Some of this investment is in government bonds and, according to Andrew Robb, the Minister of Trade and Investment, is not considered valuable to the Australian economy. The federal government now has a new plan to Channel investor’s money to riskier areas, such as venture capital and small start-up companies, where the returns might be higher (Peter Cai, “How China’s Richest Will Fund Australian Innovation,” Business Spectator, October 23, 2014 http://www.businessspectator.com.au/article/2014/10/23/australian-news/h...)

FDI flows into Indonesia grew by 16.9 percent year-over-year and reached US $6.4 billion in the third quarter this year due to the new government’s policy to promote investment for growth and reform. Foreigners poured the greater amount of money into the transportation, warehousing, and telecommunications sectors. Experts believe that by the end of this year total FDI investment could experience a 15 percent increase. The new administration aim for a 18 percent growth in total realized investment next year (Satria Sambijantoro, “FDI Grows on Investors’ Hopes for New Government,” The Jakarta Post, October 18, 2014, http://www.thejakartapost.com/news/2014/10/18/fdi-grows-investors-hopes-...)

Indonesian president-elect Joko Widodo (“Jokowi”) has sent a signal to Taiwanese investors that they are welcome by inviting Hon Hai Chairman Terry Gou, whose firm promised to invest US $1 billion in Indonesia, to attend his inauguration ceremony. Even before he won election, Jokowi courted Taiwanese investment, totaling about US $400 million in 2013, telling Taiwan’s CNA that Indonesia and Taiwan needed to continue their cooperation. Jokowi who seeks to make Indonesia a trade and manufacturing center and create jobs, sees Taiwan as a potential valuable partner given “its strong and excellent manufacturing industry, good management system, and investment talent.” (“Indonesia’s Jokowi Keen to See Taiwanese Investment Grow,” WantChinaTimes.com, October 20, 2014, http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20141020000053&c...)

While opening some areas, Indonesia has made it more difficult for foreign investors in the agricultural sector. The Indonesian House of Representatives recently passed a law calling for limits on foreign investment in the sector, based on crop type, size of the producing company, and geographic conditions. The law is noteworthy not only for its limits, but that fact that it will be applied retroactively once a foreign company’s extant license experiences. Foreign businesses have five years to comply with the law (“Rising Plantation Protectionism in Indonesia,” CARI Captures, No. 193 (October 23, 2014).

Hong Kong Secretary of Commerce and Economic Development Greg So Lam-Leung said that overseas investors have been expressing doubt about Hong Kong’s investment environment. However, leading developers in Hong Kong are dismissing worries pro-democratic protests will hurt their investments. Sino Land chairman Robert Ng Chee Siong said protests were planned for the last year, even while a 18 billion HK dollar deal was signed. He explained protests are only temporary because Hong Kong is built on the rule of law (Sandy Li, “Hong Kong Developers Deny Pro-Democratic Protects Would Dent Property Profits,” South China Morning Post, October 23, 2014, http://www.scmp.com/business/companies/article/1622887/sino-land-remains...)

Human rights activists from Taiwan urged the Ministry of Economic Affairs’ Investment Commission to block big conglomerates operating in China from buying cable television operator China Network Systems (CNS), which serves about 30 percent of cable television customers in Taiwan. Activists are concerned that these companies—e.g., Ting Hsin International group, Hon Hai Group, and Far Eastern Group—would undermine the freedom of press if they purchased CNS. Specifically, if one of these companies acquired CNS, then CNS indirectly might become subject to mainland China’s pressure, which, in turn, would endanger Taiwan’s freedom of press (Lauly Li, “Investment Commission Urges to Reject Bid for CNS to Protect Freedom of Press”, Taipei Times, October 24, 2014, http://www.taipeitimes.com/News/biz/archives/2014/10/24/2003602749)