MNCs in the News-2014-12-5

China’s State Administration of Taxation (SAT) announced it will set up a “comprehensive system” to monitor the profits of foreign businesses in order to ensure they do not evade taxes and “erode the tax base.”  The announcement followed recent revelations that China had forced Microsoft to pay US $150 million in back taxes, interests, and additional annual payments.  SAT said it also plans to enhance its management of tax practices by Chinese firms overseas.  At the November G-20 summit, Chinese President Xi Jinping called for “greater efforts to prevent tax evasion, improve international tax rules, and enhance tax information sharing” (Aipeng Soo, “China to Monitor Foreign Company Profits to Prevent Tax Evasion,” Bloomberg, December 1, 2014, http://www.bloomberg.com/news/print/2014-12-01/china-to-monitor-foreign-company-profits-to-prevent-tax-evasion.html; Li Xiang, “Foreign Firms Set for Tougher Tax Scrutiny,” China Daily, December 3, 2014, http://www.chinadaily.com.cn/business/2014-12/03/content_19013766.htm)

News sources indicate that China’s National Development and Reform Commission has finished its anti-monopoly investigation of American telecommunications chip giant Qualcomm.  Indications are that China will impose a US $1 billion fine on Qualcomm as well as force it to lower its product licensing charges and eliminate its cross-licensing agreements with Chinese smartphone producers.  According to media reports, the cross-licensing agreements give Qualcomm the right to patents of Chinese smartphone makers that use Qualcomm chips and thus preclude them from charging Qualcomm clients patent fees (Li Xiang, “Qualcomm Faces $1b fine, cut in Fees,” China Daily, December 3, 2014, http://www.chinadaily.com.cn/business/2014-12/03/content_19018955.htm)

Intel has announced it will invest US $1.6 billion in its Chengdu factory.  The 15-year upgrade will involve introducing the latest technology and upgrading die preparation and assembly operations.  The upgrade is part of Intel’s plans to gain traction in areas like mobile devices, the Internet of Things, and wearable devices.  As described by Intel EVP William Holt “deploying our newest advanced testing technology in China shows our commitment to innovating jointly with China.”  One analyst observed, “Intel’s taking the approach that’s appreciated by the Chinese government…if you want to make money in China, you have to invest in China” (Gao Yuan, “Intel Launches $1.6b Upgrade at Chengdu Chip Factory,” China Daily, December 4, 2014, http://www.chinadaily.com.cn/business/tech/2014-12/04/content_19021642.htm; Gerry Shin, “Intel to Invest $1.6 billion in China Factory,” Reuters, December 4, 2014, http://www.reuters.com/assets/print?aid=USKCN0JI0E520141204)

Last year, GlaxoSmithKline became involved in a major bribery scandal that led to huge fines and jail terms for some of its executives.  This crisis has pushed pharmaceutical companies in China to change the way they operate, especially in regards to the use of sales representatives.  Companies are changing sales models, management and performance evaluation systems, and not giving the same amount of stress to sales growth and direct access to hospital staff and physicians, which is no longer as easy as in the past, if even possible.  In regards to performance evaluation, integrity and transparency have risen in importance (Wang Hongyi, “Drug Firms Seek New Strategies,” China Daily, November 27, 2014, http://www.chinadaily.com.cn/business/2014-11/27/content_18985784.htm)

The extent of the corruption problem highlighted above was revealed in a recent Transparency International Corruption Perception Index, which surveys experts about their perceptions of corruption in 175 countries and “ranks states from least to most corrupt” based on judgments about the prevalence of bribery, extent of punishment for corruption, and responsive public institutions.  According to the study, China ranked 100, in line with Algeria and Suriname.  China’s poor performance came despite an aggressive campaign to root out corrupt party and government officials and to lower the incidence of corruption (Jamil Anderlini, “China Slips in Transparency International Corruption Index,” Financial Times, December 3, 2014).

Various sources indicate a Chinese consortium, consisting of China Railway Construction Corp., CSR Corp., and several Mexican companies, again will bid on a multi-billion dollar high speed rail project that it previously had won, but was eventually cancelled due to political problems.  The original bid was cancelled in early November and will be re-bid in late November.  The cause of the original bid cancellation seems to be concerns about the close financial relationship between one of the Mexican companies involved in the original bid and the wife of Mexico’s president (Brenda Goh and Gabriel Stargardter, “China Plans to Bid Again for Mexico High-Speed Rail Project,” Reuters, December 1, 2014, http://www.reuters.com/assets/print?aid=USKCN0JF1D720141201)

American “brick-and-mortar retailers” (e.g., Best Buy, Home Depot, and Target) are raising alarm bells over Alibaba in a new advertisement, after years of attacking Amazon’s sale tax exemption.  The Alliance for Main Street Fairness warned “‘it’s just a matter of time before Alibaba exploits this loophole” and thereby “‘decimates local retailers.’”  Alibaba countered it pays all the taxes that it is required to pay in the countries in which it operates.  Some outside observers quipped the Alliance was just trying to “‘play on anti-Chinese sentiment’” (Barney Jopson, “US Retailers Target Alibaba over Sales Tax ‘Loophole,’” Financial Times, December 1, 2014)

Toyota Motor Corp. is recalling 190,000 vehicles in Japan and China due to possible defective air bags made by Takata Corp, the Japanese manufacturer at the center of a growing safety scandal.  About 14 million vehicles (8 million in the US), including Toyota cars, have been recalled globally as a result of the Takata air bag recall.  The problem with the air bags is that their inflators can explode, hurling shrapnel into the passenger compartment.  At least five deaths and dozens of injuries worldwide have been linked to the problem (“Toyota Recall in Japan, China over Air Bags,” Taipei Times, December 5, 2014, http://www.taipeitimes.com/News/biz/archives/2014/12/05/2003605991)

Sources from the FBI, which is investigating the cyber-hacking into Sony Picture Entertainment computers, declared North Korea might be involved.  According to the FBI, some of the malware contained Korean language code and bear similarities in other respects to attacks that wiped out the computers of South Korean banks and broadcasters in March 2013.  The attack on Sony crippled its computer systems.  Hackers also were able to obtain copies of recent motion-picture releases that were subsequently posted on the Internet.  When asked about the attack, a spokesman for North Korea’s UN mission responded they will have to “wait and see” (Michael Riley, Chris Strohm, and Anousha Sakoui, “North Korea Fingerprints Said to Be on Sony Hack,” Bloomberg, December 3, 2014, http://www.bloomberg.com/news/2014-12-02/north-korea-s-fingerprints-said-found-in-sony-hacking.html)

Korea accuses foreign automakers such as Mercedes Benz, BMW, and Audi of charging excessively high auto parts prices.  According to the Korean government, these companies have sold parts in Korea at prices up to 2.5 times higher than those in Germany and the US.  Foreign car companies have cut prices in a fierce battle for market share, but the price of auto parts has remained largely unchanged.  The government has required foreign carmakers to disclose the names and prices of all the parts they sell in Korea since August but public discontent still remains high (Park Si-soo, “Foreign carmakers accused of overcharging for parts,” Korea Times, December 4, 2014, http://www.koreatimes.co.kr/www/news/biz/2014/12/123_169305.html)

As part of the Indonesian government’s policy to upgrade the country’s oil refineries to meet growing energy demand, the country has concluded agreements with 4 foreign companies: CNOOC Ltd., Saudi Aramco, PTT Plc., and a Japanese oil firm.  These agreements pertain to oil sales and refinery investments in the country.  Pertamina, Indonesia’s oil and natural gas corporation, is in talks with the four investors to establish joint ventures to ensure crude supplies for Indonesia’s refineries (“RI to Seal Deal with 4 Foreign Partners,” The Jakarta Post, December 4, 2014, http://www.thejakartapost.com/news/2014