MNCs in the News-2015-01-30

According to UNCTAD, the country receiving the greatest amount of inward FDI (IFDI) in 2014 was China, which took in US $127.6 billion versus $123.9 billion in 2013. This was the first time since 2003 the US was not in the top position. Observers said the data was a reflection of the shift of IFDI to the developing world (primarily Asia), and China’s continuing attractiveness as an investment destination. Verizon’s purchase of its shares in a JV with Vodafone influenced the data because it counted as a reduction in US IFDI. Of note, Chinese IFDI is increasingly going into services (Paul Hannon, “China Trumps U.S. For Foreign Investment,” Wall Street Journal, January 29, 2015, http://www.wsj.com/articles/china-trumps-u-s-for-foreign-investment-1422... “FDI in China Largest in the World, Relegating US to No. 2,” WantChinaTimes.com, January 31, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150131000069&cid=...)

In January, Chia Tai Bright Investment Co., a JV involving a Japanese trading house and Thai conglomerate, took an approximately US $10 billion (20 percent) stake in Citic Ltd., a state-owned enterprise (SOE), with sprawling businesses, listed in Hong Kong. The deal, involving the biggest foreign investment in an SOE and the biggest Japanese investment in China, engendered great concerns in China’s Ministry of Finance, which did not want to reduce the government’s stake too substantially. However, the desire to gain knowledge from firms more experienced in the consumer sector and to promote SOE reform and internationalization eventually won out (Liu Caiping and Yang Gang, ‘Gov’t Had Reservations about Selling Stake in Citic Ltd. to Foreigners,” Caixin, January 26, 2015, http://english.caixin.com/2015-01-26/100778414.html)

Chinese information security concerns have led Chinese policymakers to give greater attention to all kinds of information technology, both “hard” and “soft.” Not surprisingly, they have pushed Beijing to try to build up its domestic semiconductor sector which supplies key components for phones, computers, networking equipment, mass consumer products, and other devices. Security anxieties coupled with the desire to promote indigenous technology/innovation have led the government to ramp up funding, which currently may run around US $25 billion, to foster domestic chips. China has a long way to go in advanced chips and still imports 90 percent of its chips (Eva Dou and Don Clark, “China Looks to Prop Up Domestic Chip Makers,” The Wall Street Journal, January 27, 2015, http://www.wsj.com/articles/china-looks-to-prop-up-domestic-chip-makers-...)

Information security concerns are reflected in China’s policies towards the financial sector, too. Chinese media report that the CBRC is researching hardware, software, and services across the financial sector in order to assess China’s security vulnerabilities. In fact, the CBRC released a policy in 2014 saying that China wants “to have at least 75 percent of the IT products used in the financial sector under its control.” Chinese firms have jumped at the opportunities flowing from this stance. Analysts do not believe Beijing wants to exclude foreign technology, though foreign firms probably will have to provide information to government authorities (Gao Yuan and Jiang Xueqing, “Foreign High-Tech Vendors May Face Stricter Controls in China,” China Daily, January 27, 2015, http://www.chinadaily.com.cn/business/tech/2015-01/27/content_19413953.htm)

Regarding the above, China has embraced regulations requiring companies providing computer equipment to Chinese financial institutions to “turn over secret source code, submit to invasive audits, and build so-called back doors into hardware and software.” Foreign firms argue the policies are about protectionism rather than information security. In many cases, foreign firms will not be willing to comply with Chinese demands because of the potential leakage of intellectual property and the fact Chinese rules would require R & D center investments, special worker permits, and impose other burdens. Foreign firms have asked for a delay in the rules and discussion (Paul Mozur, “New Rules in China upset Western Tech Companies,” New York Times, January 28, 2015, http://www.nytimes.com/2015/01/29/technology/in-china-new-cybersecurity-... Kevin Rawlinson, “US Tech Firms Ask China to Postpone ‘Intrusive’ Rules,” BBC News, January 29, 2015, http://www.bbc.com/news/technology-31039227)

Wen Wu, the Director of the Telecom Department at the MIIT, said in regards to the blockage of VPNs in China that “‘the development of the Internet has to be in accordance with Chinese laws.” Even though it is illegal for foreign companies to offer VPN services in China, dozens of firms still offer such services. Moreover, companies offering VPN services are required to register their services with the MIIT, though not a single company has done so. The MIIT position is that the regulation of VPNs is part of the methods that China has to adopt to “maintain cybersecurity” (Gao Yuan, “Internet Firms ‘Must Obey Rules,’” China Daily, January 28, 2015, http://www.chinadaily.com.cn/business/tech/2015-01/28/content_19424478.htm)

Severe overcapacity and declining demand are driving China to increase its support for the internationalization of its firms. One manifestation is China’s “One Road, One Belt” strategy which involves building billions of dollars of infrastructure in Central Asian, Southeast Asian, and South Asian countries and will boost demand for Chinese infrastructure firms, equipment, and Chinese produced commodities like cement and steel. Another manifestation is increased Chinese support for overseas stock listings and bond issuances, the widened use of China’s massive US $4 trillion foreign currency reserves, the provision of “‘reasonable and convenient’” financing, and subsidies (Lucy Hornby, “China Seeks to Forge Demand for Its Industrial Output,” Financial Times, January 26, 2015; Koh Gui Qing and Megha Rajagopalan, “China Says to Throw its Weight Behind Firms Expanding Overseas,” Reuters, January 28, 2015, http://www.reuters.com/assets/print?aid=USKBN0L116W20150128)

On the sidelines of the 24^th AU summit in Addis Ababa, China and the AU signed a MOU pursuant to which China and the AU will “cooperate on major infrastructure networks and the industrialization process.” More specifically, there will be bilateral cooperation on “continental transport, high speed railway, aviation, road highways, and industrialization. The MOU, which flows from discussions between the AU Commission chair and Premier Li Keqiang in 2014, fits with the AU’s goal of “accelerating the continental integration of Africa.” The MOU ties to a broader China-AU cooperation framework which gives the AU a “coordinating role in implementation” (“African Union and China to Partner on Infrastructure, Industrialization,” WantChinaTimes.com, January 28, 2015,

Japanese automotive parts maker Sanden Corp. has entered into a settlement with the US Justice Department pursuant to which it will plead guilty for fixing the prices of compressors used in automobile air conditioners and pay a fine totaling US $3.2 million. This is the latest in a series of investigations in which several companies from different countries have pleaded guilty to fixing the prices of dozens of 30 types of car parts. Sanden is the 33rd company that has been charged in the US (Diane Bartz, “Sandan Agrees to Plead Guilty to Price Fixing in U.S., Pay Fine,” Reuters, January 27, 2015, http://www.reuters.com/article/2015/01/27/sanden-pricefixing-idUSL1N0V62...)

The KFTC is conducting an anti-trust investigation of five undisclosed Japanese and German companies, which supply auto parts to Korea’s largest auto manufacturers Hyundai and Kia, for potential price rigging. The KFTC suspects the companies colluded to supply their products at higher-than-market prices, which could have added hundreds of billions of won to the cost of producing vehicles. The KFTC, which conducted a similar investigation in 2013, will likely impose hundreds of billions of won in fines on those found to have fixed prices and may also file criminal charges (Lee Hyo-sik, “Japanese, German Auto Parts Makers under Probe,” Korea Times, January 28, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/01/123_172606.html)

Seoul is launching a project to build a public emergency communication network, planning to spend more than 2 trillion won by 2017. The initiative, which has drawn much attention because the winning bidder is the Chinese telecommunications giant Huawei, follows a series of recent disasters in Korea including the sinking of the ferry Sewol. Huawei defended itself against security concerns raised in the US and other places, saying they are “groundless.” The company demonstrated its public safety network to the Korean government while stating emphatically that it was “confident it could satisfy all the security requirements of the Korean government” (Yoon Sung-Won, “Huawei Bid for Emergency Network Deal,” Korea Times, January 28, 2015, http://www.koreatimes.co.kr/www/news/tech/2015/01/133_172596.html)