MNCs in the News-2015-06-19

China’s Ministry of Commerce (MOFCOM) reported that FDI inflows into China in May, which totaled US $9.2 billion, increased 7.8 percent YOY. While positive, the growth rate was much less than April’s YOY figure of 10.5 percent. According to MOFCOM, investment over the first five months of the year topped $53 billion with very strong growth in service-related FDI, which represented a very large proportion of overall FDI during the period. Data also reflected good growth in financial investment and FDI related to scientific research. In terms of FDI origins, European Union investment jumped significantly while US investment plummeted (“China Posts Slower 7.8% Expansion in FDI,” China.Org.Cn, June 19, 2015, http://www.china.org.cn/business/2015-06/19/content_35861016.htm)

A New York Times Editorial Board piece lauded the efforts of foreign business groups to challenge proposed Chinese government measures such as a draft nongovernmental organizations (NGOs) law, draft national security law, and banking security law. According to the piece, more than 40 American trade associations and lobbying groups have written to China’s National People’s Congress, asserting the draft law on NGOs would limit their business freedoms and might “‘hinder China’s economic development.’” The Editorial Board opined Chinese President Xi Jinping might take heed of such protests given his country was “desperate for growth and worried about an economic slowdown” (Editorial Board, “Western Business Stands Up to China,” New York Times, June 18, 2015, http://www.nytimes.com/2015/06/18/opinion/western-business-stands-up-to-...)

Cisco, “the world’s biggest maker of switching equipment and routers,” announced it planned to “invest more than US $10 billion in China along with local business partners” and, in line with this, had signed a Memorandum of Understanding (MOU) with China’s National Development and Reform Commission. Although the MOU lacked specifics, it noted Cisco’s investment in China would be used to “fund innovation, equity investment, research development, and job creation.” Observers see Cisco’s move as an effort to preserve market opportunities in China in the face of increased barriers to sales and declining government orders (Dominique Patton, “U.S. Tech Firm Cisco to Invest $10 billion in China Expansion,” Reuters, June 17, 2015, http://www.reuters.com/article/2015/06/17/us-china-cisco-idUSKBN0OX1ZP20... Gao Yuan, “Cisco Pledges $10b to Support Local Innovation, Eye on Govt Procurement,” China Daily, June 18, 2015, http://www.chinadaily.com.cn/business/tech/2015-06/18/content_21037014.htm)

The China Business News reported China’s NDRC next may turn its attention to other cases similar to Qualcomm where there is suspected abuse of IPR like patents. At present the NDRC is working on preparing draft guidelines relating to antitrust and IPR and antitrust and the auto sector. Regarding the former, one commentator suggested this meant the pharmaceutical and medical industries might become targets. The good news for foreign firms was that regulators allegedly stated their main task “is still protecting intellectual property rights rather than penalizing violators.” Moreover, “Chinese companies need to…create their own patents to improve their competitiveness” (“After Qualcomm, Who Will China’s Antitrust Watchdog Fine Next?” WantChinaTimes.com, June 15, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150615000101&cid=...)

China’s Ministry of Industry and Information Technology (MIIT) said in a brief statement posted on its website that “it would open up the online data processing and transaction processing businesses to foreign investors.” It said, too, that it would permit foreign investors to establish wholly foreign owned e-commerce companies, something that had been piloted in the Shanghai Free Trade Zone since January this year. At present, “big homegrown firms dominate” China’s e-commerce sector, which the government wants to dramatically grow (“China Relaxes E-Commerce Investor rules for Foreigners,” China.Org.Cn, June 19, 2015, http://www.china.org.cn/business/2015-06/19/content_35867347.htm)

Japanese FDI in China has been plummeting year-over-year and dropping over the first quarter of 2015. Yet according to the 21^st Century Business Herald, while there have been numerous reports of Japanese firms leaving China, the reality is that there are many Japanese firms planning to grow their China businesses by expanding production capacity, bolstering sales networks, or acquisitions. In contrast, officials from the Japan External Trade Organization noted that while improved political conditions will “prop up Japanese investment,” China’s poorer economic outlook would result in reduced FDI. Japanese companies also seem turned off by increased labor costs and unrest (“Japanese Investment in China Not as Gloomy as Reported,” WantChinaTimes.com, June 11, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150611000131&cid=... Li Xiang, “Fall in Japanese Investment ‘Set to Continue,’” China Daily, June 18, 2015, http://www.chinadaily.com.cn/business/2015-06/18/content_21036230.htm; “Japanese Companies Head for Exists as Chinese Economy Loses Steam,” Nikkei Asian Review, June 2, 2015, http://asia.nikkei.com/print/article/96657)

China’s MOFCOM reported that mainland China (excluding Hong Kong and Macao)’s non-financial outward investment totaled US $45.4 billion during the first five months of 2015. This represented a 47.4 percent increase YOY. There was a massive jump in Chinese investment in the EU and significant increases in Chinese FDI in ASEAN, Hong Kong, and the US. According to MOFCOM, Chinese outward investment in the countries falling within China’s One Belt, One Road scheme hit around $5 billion, representing more than 10 percent of China’s total outward FDI during the period (“47.4% Surge in China’s ODI in Jan-May Period,” WantChinaTimes.com, June 19, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150619000100&cid=...)

Australian policymakers laud the non-trade provisions of the recently signed China-Australia free trade agreement, touting it will give Australian companies in the areas of, inter alia, finance, education, health and elderly care newfound access to these sectors. The deal also reduces the number of Chinese investments in Australia that need to be vetted and established an investor-state dispute settlement mechanism. As far as trade is concerned, the FTA would dramatically reduce tariffs and non-tariff barriers on a wide variety of Australian foodstuffs, raw materials, and energy resources exported to China (Daniel Hurst “China and Australia Formally Sign Free Trade Agreement,” The Guardian, June 17, 2015, http://www.theguardian.com/business/2015/jun/17/china-and-australia-form... “China, Australia Sign Free-Trade Pact,” South China Morning Post, June 17, 2015, http://www.scmp.com/news/china/economy/article/1823080/chinaaustralia-si...)