MNCs in the News-2015-04-24

During an interview with Xinhua reporters on the sidelines of the World Bank-International Monetary Fund spring meetings, China’s Finance Minister Lou Jiwei said “his country was ‘uncomfortable with’ the negative list provided by the United States” pursuant to the two countries’ negotiations of a Bilateral Investment Treaty (BIT). Lou specifically expressed concerns about US demands relating to “key infrastructure, important technology, and national security” saying US definitions were unclear and that US requirements appeared to give Washington the ability to freely restrict ongoing Chinese investments in the US. The US and China have been fruitlessly negotiating a BIT since 2008 (“China ‘Uncomfortable with’ U.S. Negative List for Investment Treaty Talks: Lou,” Xinhua, April 21, 2015, http://www.ecns.cn/2015/04-21/162414.shtml)

As noted at the beginning of the year, China has been moving to clarify its treatment of Variable Interest Entities (VIEs), a structure that has afforded foreign investors a way to invest in otherwise inaccessible sectors. According to a Wall Street Journal analysis, the China operations of firms like Amazon.com and Expedia plus various U.S.-listed Chinese Internet companies such as Sina and Weibo are “at risk” from the law given that these VIE structures are not ultimately controlled by Chinese nationals. Depending upon how China interprets the law foreign investors may have to sell their stakes or liquidate their VIEs (Gregory J. Millman, “Foreign Companies at Risk from Proposed Chinese Law,” Wall Street Journal, April 19, 2015, http://www.wsj.com/articles/foreign-companies-at-risk-from-proposed-chin...)

IBM’s cooperation with China, which entails sharing hardware and software blueprints with a company called Teamsun and sharing advanced chip technology, raises concerns in the US given ties between some of Teamsun’s staff and China’s military, Teamsun’s avowed aim of empowering China to shun foreign IT, and China’s recent initiatives to limit the use of foreign technology in the banking sector as well as to increase its control over foreign technology generally. IBM argued its Teamsun cooperation were part of a global program and its sharing was transparent. Some observers opined IBM was giving away the keys to the store (Paul Mozur, “IBM Venture with China Stirs Concerns,” New York Times, April 19, 2015, http://mobile.nytimes.com/2015/04/20/business/ibm-project-in-china-raise...).

At an interview on the sidelines of Huawei’s annual global analyst summit in Shenzhen, Huawei CEO Eric Xu questioned China’s moves to restrict the use of foreign technology. Xu stated “‘If we’re not open, if we don’t bring in the world’s best technology, we’ll never have true information security.’” He added building stuff locally was no solution if hardware and software was at a “‘grade school level’ transparent to the ‘college students.’” While Huawei might benefit from China’s new policies, Xu raised the possibility the quality of technology in China could drop and that Huawei might face greater barriers overseas (Gerry Shin, “Exclusive: Huawei CEO Says Chinese Cybersecurity Could Backfire,” Reuters, April 21, 2015, http://www.reuters.com/article/2015/04/21/us-huawei-cybersecurity-idUSKB...)

In its recent White Paper, the American Chamber of Commerce in China (Beijing), which represents 1,000 member businesses, called upon the Chinese government to undertake a number of policy improvements, some general (like reduced internet censorship), others of relevance to specific sectors. It called for “improved working conditions for information and communication technology companies,” better protection of intellectual property and unified standards for pharmaceutical businesses, and steps to address unfair barriers and restrictions such as slow approval processes confronting the agriculture, automotive, cosmetics, entertainment, and health care sectors. Finally, it repeated past calls for better standards and greater legal transparency (Laurie Burkitt, “U.S. Firms Want China to Improve Business Conditions,” Wall Street Journal, April 20, 2015, http://www.wsj.com/articles/u-s-firms-want-china-to-improve-business-con...)

During an interview with Xinhua reporters on the sidelines of the World Bank-International Monetary Fund spring meetings, China’s Finance Minister Lou Jiwei said “his country was ‘uncomfortable with’ the negative list provided by the United States” pursuant to the two countries’ negotiations of a Bilateral Investment Treaty (BIT). Lou specifically expressed concerns about US demands relating to “key infrastructure, important technology, and national security” saying US definitions were unclear and that US requirements appeared to give Washington the ability to freely restrict ongoing Chinese investments in the US. The US and China have been fruitlessly negotiating a BIT since 2008 (“China ‘Uncomfortable with’ U.S. Negative List for Investment Treaty Talks: Lou,” Xinhua, April 21, 2015, http://www.ecns.cn/2015/04-21/162414.shtml)

China has issued new rules for FDI that will apply across four key FTZs including the Shanghai, Tianjin, and Guangdong FTZs. The unified “negative list” will reduce the number of restricted areas from 139 to 122. While there will be a unified list, each FTZ will stress specific areas. For example, Shanghai will focus on finance. In fact, there will be certain specializations within these areas. For example, within the Guangdong Zone, Zhuhai will emphasize tourism and commerce. China intends to apply a security review process to FDI in the FTZs, with investment and the security review process broadly defined (Cary Huang, “China Rolls Out New rules for Foreign Investment in Free Trade Zones,” South China Morning Post, April 20, 2015, http://www.scmp.com/news/china/economy/article/1772403/china-rolls-out-n... Lawrence Chung, “China Airs Pilot Free-Trade Zone National Rules for Foreign Investment,” South China Morning Post, April 21, 2015, http://www.scmp.com/news/china/policies-politics/article/1772420/china-a... Zhong Nan, “Curbs on Foreign Investment Cut for Four FTZs,” China Daily, April 21, 2015, http://www.chinadaily.com.cn/business/2015-04/21/content_20488909.htm)

Jiangsu Province’s Provincial Price Bureau imposed a 350 million yuan (roughly $US57 million fine) on Daimler Mercedes-Benz for price fixing, saying it had pressured with various techniques local dealers to set minimum sales prices on some of its car models and spare parts. Mercedes-Benz, which derives a substantial amount of profits from China, stated it “‘accepts the decision and takes its responsibilities under competition law very seriously.’” It also noted that it had “‘taken all appropriate steps to fully comply with the law.” Last year, Mercedes had to pay penalties relating to fixing the prices of after-sales services in China (“China Fines Daimler’s Mercedes-Benz for Price-Fixing,” BBC, April 23, 2015, http://www.bbc.com/news/business-32426042; Hao Yan, “China Fines Mercedes-Benz $57m,” China Daily, April 23, 2015, http://www.chinadaily.com.cn/business/motoring/2015-04/23/content_205186...)

Pursuant to a WTO ruling in 2012 that China had to open up its bank-clearing market, China’s State Council published rules, effective June 1, to open its bank-clearing market. MasterCard Inc. and Visa, are salivating over the opportunities to access a market with almost 7 billion transactions that has been monopolized by China UnionPay Co. Of course, what will be critical is how the China Banking Regulatory Commission and People’s Bank of China implement the State Council’s decision in terms of the granting of approvals and operating licenses. Moreover, some sources indicate the government will issue “‘only a few licenses’” (“Update-2-China to Open Bank Card Clearing Market for Foreign Firms from June,” Reuters, April 22, 2015, http://www.reuters.com/article/2015/04/22/china-banking-services-idUSL4N... Elizabeth Dexheimer, “Visa, MasterCard Surge on China Move to End Card Monopoly,” Bloomberg Business, April 23, 2015, http://www.bloomberg.com/news/articles/2015-04-22/visa-mastercard-surge-... “China UnionPay’s Monopoly of Bank Card Clearance,” WantChinaTimes.com, April 23, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150423000082&cid=...)

Last week’s MNCs in the News discussed Korea’s plans to build up a food cluster (Foodpolis), in order to advance Korea’s “creative economy” and lure companies interested in leveraging the cluster’s favorable location and workforce. To make Foodpolis more attractive, Korea’s Ministry of Agriculture, Food, and Rural Affairs plans to set up a Food Functionality Assessment Center, the Food Quality Safety Center, and the Food Packaging Center as well as to encourage cooperation among government, university, and private R&D facilities. Foodpolis also aims to enhance Korean product development capabilities in terms of commercializing traditional Korean food and making healthier food (Lee Hyo-Sik, “Food Industry Cluster is Example of Creative Economy,” Korea Times, April 19, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/04/123_177352.html)

Korean President Park Geun-hye currently is touring Latin America (Colombia, Brazil, Chile, and Peru), along with senior executives from major Korean multinationals such as Samsung Electronics, Hyundai, and LG. Much of the visit is about promoting exports of goods and services in areas like renewables, medicine, and information technology. However, Korean firms are also looking to make investments of various kinds in Latin American intelligent transportation systems, banking, and smart grid technology with the Export-Import Bank of Korea providing financing for investments in some cases (Park Si-soo, “Korea Strengthens Business Ties with Latin America,” Korea Times, April 19, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/04/123_177331.html)

The Indonesian Embassy in China will create a special “Investment Desk” that will provide information designed to increase Chinese interest in investing in Indonesia or that want to know how to invest in Indonesia. According to the Indonesian ambassador to China, Indonesian president Joko “Jokowi” Widodo gave the embassy the target of drawing US $80 billion of Chinese investment into Indonesia by 2020, an ambitious target given Chinese investment in Indonesia only totaled US $800 million in 2014. Still, as revealed during the recent Asia-Africa summit, China has big plans to invest in Indonesian ports, high-speed railways, and other sectors (Grace D. Amianti, “‘Information Desk’ to Attract Chinese Business People,” The Jakarta Post, April 20, 2015, http://www.thejakartapost.com/news/2015/04/20/information-desk-attract-c... “Indonesia and China ‘Committed to Infrastructure Cooperation,’” WantChinaTimes.com, April 24, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150424000043&cid=...)

*The information compiled in the MNCs in the News digest is gathered from sources believed to be reliable, but the Wong MNC Center does not guarantee their accuracy. The content of the MNCs in the News digest does not necessarily represent the view of the Wong MNC Center, its Board of Directors, or its Advisory Board, but is intended for the non-commercial use of readers in order to foster debate and discussion and to facilitate and stimulate research.