MNCs in the News-2015-04-17

Media reports indicate that the China Banking Regulatory Commission and China’s Ministry of Industry and Information Technology have suspended rules requiring banking IT to be secure and controllable until they receive feedback. Some believe the delay resulted not from external pressure, but a realization “‘foreign servers could not be replaced overnight.’” Moreover, the rules may clash with China’s WTO obligations. On top of this, Chinese President Xi Jinping is going to the US in September and thus China may have wanted to ensure a smooth visit. While the delay is a positive, it remains unclear exactly what will be changed (Paul Mozur, “Trade Groups Seek China’s Written Assurance on Tech Policy,” The New York Times, April 13, 2015, http://bits.blogs.nytimes.com/2015/04/13/trade-groups-seek-chinas-writte... Gillian Wong, “China Halts Implementation of Banking-Technology Rules,” The Wall Street Journal, April 16, 2015, http://www.wsj.com/articles/china-halts-implementation-of-banking-tech-g... Paul Mozur and Jane Perlez, “China Halts New Policy on Tech for Banks,” The New York Times, April 16, 2015, http://www.nytimes.com/2015/04/17/business/international/china-suspends-... “China Rows Back on Bank Technology Regulations,” Financial Times, April 17, 2015)

Foreign businesses are anxious about China’s plans to require companies to maintain their data severs in China and to provide Chinese authorities with methods to access the data coupled with existing restrictions on the overseas transmission or processing of health care, credit, and other data. They fret about the impact in terms of costs and operational flexibility. China has defended its measures as “in line with prevailing international standards.” Industry associations and foreign governments have raised red flags, warning China’s measures are causing firms to avoid the Chinese market. Some companies already have indicated they will comply with China’s requirements (Charles Clover and Lucy Hornby, “Business Alarmed at Chinese Plans to Curb Data Transfer,” Financial Times, April 14, 2015; Gerry Shih, “China’s Cyber Laws Could Saddle Firms with Redundant Data Centers: U.S. Lobby,” Reuters, April 14, 2015, http://www.reuters.com/article/2015/04/14/us-china-cybersecurity-localis... Michael Martina, “Cyber Threats Must be Addressed without Trade Barriers: U.S. Commerce Secretary,” Reuters, April 14, 2015, http://www.reuters.com/article/2015/04/14/us-usa-china-cybersecurity-idU...)

China’s Ministry of Commerce stated, “China is still importing more capital than it is exporting” with inward FDI in March up 2.2% year-over-year (YOY). For the first quarter of 2014, China drew in $34.88 billion of FDI, up 11.3% YOY, though one-off deals may have distorted the numbers somewhat. China’s “New Normal” of slower economic growth does not appear to be having much of a negative impact and inward FDI is a bright spot in a data picture that shows problems in investment, trade, and other areas. Inward FDI from Europe was especially strong in the first quarter of 2014 (“China Trade Minister Says Foreign Investment Not Leaving Country,” The New York Times, April 15, 2015, http://www.nytimes.com/reuters/2015/04/15/business/15reuters-china-econo... “China March FDI Robust $12.4 billion, outbound flows up 29.6 percent in first-quarter,” Reuters, April 16, 2015, http://www.reuters.com/article/2015/04/16/us-china-economy-inflation-idU...)

At a recent press conference, NDRC Vice-Chairman Lian Weiliang said “China will promote a management mode based on “‘negative list’” this year and move away from its long standing practice of relying on a foreign investment catalog, which contained encouraged, restricted, and prohibited categories. In contrast to the catalog, the negative list allows all investment that is not banned and will reduce the number of restricted service sectors from 79 to 38. The Negative List system builds on the momentum of the Shanghai Free Trade Zone where the number of restricted inward FDI sectors was dropped from 190 to 139 (Lan Lan, “New ‘Negative List’ to Be Launched in Foreign Investment Sector,” China Daily, April 17, 2015, http://www.chinadaily.com.cn/business/2015-04/17/content_20460721.htm)

The Director of Shanghai’s Intellectual Property Administration Lu Guoqiang emphasized Shanghai would work hard to protect the IP rights of Disney’s massive resort that will open in Shanghai in 2016. He stressed that Shanghai’s trademark and copyright administrations, customs, and law enforcement offices would work together to protect Disney’s patents, trademarks, copyrights, and logos. In 2014, Shanghai Customs took action against a large number of goods that violating Disney’s IP, seizing close to 70,000 goods (“Disneyland IP to be Protected,” Shanghai.Gov, April 14, 2015, http://www.shanghai.gov.cn/shanghai/node27118/node27818/u22ai79709.html)

Last year, China’s NDRC fined Qualcomm, a major American telecommunications chip company, roughly US $1 billion for abusing its market position. Qualcomm is moving to collect up to hundreds of millions of dollars that some of its Chinese clients delayed paying while the Chinese government pursued its antitrust case against Qualcomm. Some Chinese commentators believe the NDRC was soft on Qualcomm. Regardless, Qualcomm is awareness of the need to enhance its client relations in China with the President of Qualcomm stating that “‘one of the lessons that we learned…was that we probably weren’t engaging as much as we should’ve been’” (“Qualcomm Gets Back to Business after Record Fine in China,’” WantChinaTimes.com, April 14, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150414000046&cid=...)

In 2007, China Metallurgical Group (MCC) won a contract in Afghanistan to develop a US $3 billion mine lying under the ruins of an ancient Buddhist city. The Mes Aynak project has been delayed by increased Taliban attacks against the project, China’s demands the Afghani government slash royalties, falling copper prices, and a lack of infrastructure and power. Delaying the project even further is the need to preserve the archaeological site and Afghanistan’s slow work in doing so. Afghanistan feels great pressure to accommodate Chinese demands given its need for revenues and the project’s potential to create thousands of jobs (Frank Jack Daniel and Mirwais Harooni, “Chinese Demands, Rebels, and Buddhist Ruins Stall Afghan Copper Dream,” Reuters, April 11, 2015, http://www.reuters.com/article/2015/04/12/us-afghanistan-china-copper-id...)

The Southeast Asia general manager for Xiaomi, China’s largest cell phone maker, stated the firm was planning to assemble products in Indonesia in order to increase the percentage of local content in its phones. This addresses an Indonesia Communication and Information Ministry’s plan, linked to the government’s “Made in Indonesia” plan, which will impose a 40 percent local content requirement for 4G handsets by 2017. Xiaomi has yet to sign any contracts with local component firms, though it has been working with Indonesian e-commerce sites and mobile phone retailers to sell its phones in Indonesia, its third largest market globally (Khorul Amin, “China’s Xiaomi to Assemble Phones Locally,” The Jakarta Post, April 13, 2015, http://www.thejakartapost.com/news/2015/04/13/china-s-xiaomi-assemble-ph...)

Korea aims to build a food industry hub in Northeast Asia that will serve as a “base for multinational food companies looking to enter China, Japan and other Asian countries.” The hub, formally called the Korea National Food Cluster and nicknamed Foodpolis,” will receive a government investment of roughly US $500 million and lure firms interested in exporting value-added, processed food products. Korea will offer tax breaks and other benefits to companies investing in Foodpolis and is touting the benefits of the Korea-China Free Trade Agreement for those investing in Foodpolis as well as the site’s infrastructure, location, and talent (Lee Hyo-Sik, “Foodpolis Aims to become Food Industry Hub in Northeast Asia,” Korea Times, April 13, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/04/123_176983.html)