MNCs in the News-2014-12-26

China’s State Council recently revised a slew of banking rules including reduced the waiting period for foreign banks, miniscule local players, to apply to conduct RMB business from three years to one year. It also eliminated the requirement that banks be profitable for two consecutive years before applying for a RMB license and removed a stricture that required bank parents to provide a certain amount of noncallable capital. It remains unclear if the changes mean much given most of the world’s largest foreign banks already have RMB licenses. Furthermore, foreign banks may continue to find it challenging to open branches (Gabriel Wildau, “China Eases Rules for Foreign Banks,” Financial Times, December 21, 2014; Jiang Xueqing, “China Further Opens Access for Foreign Banks,” China Daily, December 22, 2014, http://www.chinadaily.com.cn/business/2014-12/22/content_19136999.htm; “Market Access Eases for Foreign Banks in China,” WantChinaTimes.com, December 22, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20141222000003&cid=...)

Recent reports, including NDRC public statements, indicate the NDRC is close to settling its anti-trust case against Qualcomm, a US telecommunications giant. According to sources, the NDRC wants Qualcomm to lower the royalty payments that it requires from Chinese smartphone makers. The NDRC also make force Qualcomm to terminate its bundling agreements. Qualcomm is unenthusiastic about the NDRC’s demands given the potential financial impact on its business practices inside and outside China and seems to favor a large fine in lieu of modifying its practices. The case and others have drawn the attention of foreign leaders, businesses, and industry associations (“Qualcomm ‘Pressed to Accept Lower Royalties,’” China Daily, December 24, 2014, http://www.chinadaily.com.cn/business/tech/2014-12/24/content_19153657.htm; “China’s Antitrust Regulator Says Qualcomm Case to be Settled Soon,” Reuters, December 26, 2014, http://www.reuters.com/assets/print?aid=USKBN0K406B20141226; “China to form final ruling on Qualcomm case,” China Daily, December 27, 2014, http://www.chinadaily.com.cn/business/2014-12/27/content_19180589.htm).

China’s State Council intends to eliminate requirements for administrative approvals for foreign firms that want to invest in three planned FTZs planned for Guangdong province, Fujian province, and Tianjin. In lieu of having to get administrative approval, foreign companies will only have to register. The State Council’s plans require National People’s Congress approval since they do not sync with extant rules pertaining to foreign investment, Sino-foreign joint ventures, and Taiwan investors. At present, details are lacking as to exactly to which kinds of companies the new rules will/will not apply (“China May Ease Investment Rules in FTZs,” China Daily, December 26, 2014, http://www.chinadaily.com.cn/business/2014-12/26/content_19176114.htm)

As part of its effort to give Chinese firms new opportunities abroad, China will end the requirement that companies investing overseas register prior to exchanging money. The government also announced it will help provide more credit, especially for large equipment makers. The government also plans to “simplify its approval procedure for banks to set up branches overseas, to list stock and issue bonds abroad, and to pursue mergers & acquisitions (Kevin Yao, “China Offers Fresh Support for Outbound Investment,” Reuters, December 24, 2014, http://www.reuters.com/assets/print?aid=USKBN0K20S120141224).

Corruption has a huge impact on business dealings inside China and on Chinese outward FDI. Recent reports reveal several recent China National Petroleum Corporation (CNPC) investments in Indonesia to be worth hundreds of millions of dollars less than paid, with CNPC employees and others expected to have pocketed the premium. The cases not only reveal the dangers of the opaqueness of China’s state-owned enterprises, but also the challenges of managing such a massive corporate empire (Charlie Zhu and David Lague, “China Oil Giant Probes ‘Worthless’ Deals in Indonesia,” Reuters, December 19, 2014, http://www.reuters.com/assets/print?aid=USKBN0JX00N20141219; Charlie Zhu, David Lague, and Fergus Jensen, “Special Report: Depleted Oil Field is Window into China’s Corruption Crackdown,” Reuters, December 19, 2014, http://www.reuters.com/assets/print?aid=USKBN0JX00720141219)

Many Chinese firms investing overseas encounter problems relating to the environment, workers, and corruption. One cause is their failure to link up with local communities and players. They do not seem to realize that they need to address the negative externalities associated with their business. Indeed, they often do not have staff that can help them deal with such matters. A recent protest in Myanmar against a Chinese-run copper mine that resulted in some deaths led the Chinese government to call on Chinese firms to be respectful and responsible about social responsibility and the environment (“Poor Management Dogs China’s Overseas Investment Projects,” WantChinaTimes.com, December 25, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20141225000105&cid=... Megha Rajagopalan, “China Expresses Concern after Protests at Myanmar Mine,” Reuters, December 24, 2014, http://www.reuters.com/assets/print?aid=USKBN0K20GT20141224)

Taiwan Foxxconn, a major technology contract supplier, suspends production at Chennai (India) plant building Nokia phones, leading to massive protests by workers and the arrest of more than 500 workers attempting to break into the factory. The workers were trying to get Foxxconn to promise not to shut down the factory whose suspension has affected more than 1700 workers who were promised paychecks and benefits only until January 31, 2015 (“Protesting Foxxconn India Workers Dispersed Outside Suspended Plant,” WantChinaTimes.com, December 25, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20141225000120&cid=...)

Authorities in Taiwan and China have are investigating Uber, best known for a taxi-hailing phone app, for using unlicensed drivers. Uber, also under scrutiny in Thailand and Spain and banned by various cities and countries globally, faces fines against itself and/or its drivers on the Chinese mainland and in Taiwan and Korea and the possible blocking of its website and apps in Taiwan. The Taiwan government has demanded that Uber gets a proper car transportation business licenses. In South Korea, the government has indicted Uber’s CEO and local subsidiary for violating laws governing public transport. Uber has promised “full cooperation” (“Uber ‘Disappointed at Taiwan Govt’s Opposition to its Operations,” WantChinaTimes.com, December 20, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20141220000048&cid=... “Licensing Issues Hobble Uber in Taiwan and China,” New York Times, December 22, 2014, http://www.nytimes.com/2014/12/23/business/international/licensing-issue... Se Young Lee, “South Korea Indicts Uber CEO, Local Unit for Transport Law Breach,” Reuters, December 24, 2014, http://www.reuters.com/assets/print?aid=USKBN0K207T20141224)