MNCs in the News-2015-08-28

This week China changed the leadership at its three largest telecommunications operators: China Telecom, China Unicom, and China Mobile. The former two swapped chairmen while a “senior regulator became chairman of China Mobile.” This is the third time a vice minister has become the head of the head of China Mobile, a USD $243 billion company with more than 800 million subscribers. Analysts were mixed about the implications of the leadership shuffle for the strategies and performance of the three firms while others pointed out how the leadership change showed the continuing link between these multinational corporations and the government (Charles Clover, “Leadership Reshuffle at China’s Three Biggest Telecoms Groups,” Financial Times, August 24, 2015).

China’s Tsinghua Unigroup previously made an informal US $23 billion bid for US semiconductor maker Micron Technology, a leading DRAM chip maker, which the latter rejected on the basis such a deal would not be approved by the US government. Leading US politicians already have raised strong concerns about such a deal arguing it would have adverse national security implications. This week Unigroup Chairman Zhao Weiguo is traveling to the US to try lobby the Micron board as well as to better understand the situation in Washington. Despite the unreceptive atmosphere, Unigroup still seems optimistic it can consummate a deal (Krista Hughes and Gerry Shih, “China’s Unigroup Chairman Visiting U.S. to Discuss Micro Bid: Sources,” Reuters, August 28, 2015, http://www.reuters.com/article/2015/08/28/us-micron-tech-tsinghua-idUSKC...)

The U.K. has received major amounts of investment from Chinese state-owned enterprises (SOEs), state investment funds (e.g., China Investment Corporation), and companies, especially in existing infrastructure such as airports, water utilities, and student dorms. Some analysts believe the turmoil in the Chinese stock market as well as volatile economic growth will make the UK even more attractive as an investment destination. Investment in the UK not only offers diversification, but stable/predictable returns fostered by supportive government policies and monopolies in some cases. Not every deal, however, transpires quickly or smoothly (Michael Porter, “China Turmoil Boosts UK’s Allure for Investors,” Financial Times, August 25, 2015)

Yunnan province has been aggressively building highways, ports, logistics hubs, and railways and associated facilitates to bolster commerce and the movement of peoples between the province and neighboring countries such as Thailand, Vietnam, Myanmar, and India. The province sees the infrastructure as contributing to China’s OBOR initiative as well as the Bangladesh-China-India-Myanmar (BCIM) economic corridor. According to provincial officials, increased linkages with India and Myanmar will boost trade and give the province and China increased access to South Asian markets (“Yunnan Investing Big to Link Up with South Asia,” WantChinaTimes.com, August 26, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150826000033&cid=...)

This year, Taiwan’s Ministry of Economic Affairs Investment Commission fined Alibaba USD $3,800 for violating Taiwan’s investment regulations for mainland China companies and required Alibaba to provide certain kinds of documentation, lest it have to leave Taiwan. Alibaba appealed the ruling to Taiwan’s Executive Yuan Administrative Appeals Commission and has won a 6-month reprieve while the Administrative Appeals Commission completes its review of the case (Liu Ching-Yu, “Alibaba Given Six-Month Extension for Taiwan Operations,” WantChinaTimes.com, August 27, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150827000013&cid=...)

The Japanese Health, Labor, and Welfare Ministry, which aims to bolster the medical products and pharmaceutical (generic and non-generic) sectors to promote growth, is encouraging Japanese firms to consider mergers. The feeling is that consolidation will enable Japanese firms to compete more effectively with foreign companies. The Japanese government also will take measures to bolster the domestic sector by supporting drug development, improving the new drug approval process, and offering higher prices for pharmaceutical products (“Govt Seeks to Promote Drug Industry Mergers,” The Japan News, August 24, 2015, http://the-japan-news.com/news/article/0002376784)

A meeting between Japan, Cambodia, Laos, Myanmar, Thailand, and Vietnam witnessed the adoption of a “Mekong Industrial Development Vision” calling for harmonizing standards and certifications, developing special economic zones in border areas, and cooperation with Japanese businesses and universities in various areas. It builds upon Japan’s earlier pledges of more than USD $100 billion in infrastructure aid, which is designed to accelerate regional development and leverage Association of Southeast Asian Nations (ASEAN) Economic Community integration, Japanese infrastructure exports, and counter Chinese initiatives. The Japanese International Cooperation Agency, Japan External Trade Organization, and Asian Development Bank will help implement the “Vision” (“Japan Charts Road to Industrialization for Mekong Region,” The Japan Times, August 24, 2015, http://www.japantimes.co.jp/news/2015/08/24/business/japan-charts-road-i... “Mekong Nations, Japan Agree on Industrialization Plan,” Bangkok Post, August 24, 2015, http://www.bangkokpost.com/business/news/667212/mekong-nations-japan-agr...)

Japan and China are in “the final stage of a competition” to build a high-speed train linking Indonesia’s capital Jakarta with Bandung. Japan stresses the safety of its technology while China touts its ability to build a high-speed rail line quickly (3 years versus Japan’s 6 years). Indonesian President Joko “Jokowi” Widodo seems to favor China’s proposal, even though the Japanese proposal is cheaper, because China is willing to offer funding that does not require Indonesia government guarantees and would complete the project before Jokowi’s term in office ends. Indonesian ministries and sub-national governments have different perspectives on the bids (“Japan, China in Final Stage of Indonesia Train Bid,” The Japan News, August 24, 2015, http://the-japan-news.com/news/article/0002377221)

Korea’s Ministry of Trade, Industry, and Energy plans to leverage its free trade agreements (FTA) with China and other countries to “promote Korea as a strategic post for multinational corporations seeking to enter China and other Asian countries.” Korea, which wants to double the amount of FDI flowing into the country to USD $20 billion from $10.3 billion in 2014, as inter alia a way to bolster growth, touts it “advanced industrial infrastructure” and proximity to other East Asian markets, too. Korea further plans to publicize its investments incentives and eliminate restrictions to draw investors into its free economic zones (Lee Hyo-Sik, “Korea Seeks to Double FDI,” The Korea Times, August 26, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/08/123_185627.html).

Korea’s Ministry of Land, Infrastructure, and Transport has ordered Ferrari, Harley-Davidson, and Volvo Trucks to implement recalls of various vehicles because of sundry product defects, though the overall recall numbers are relatively small. Some of the Ferrari cars have flawed driver-side airbags while others have faulty head restraints and tire pressure sensors. Recalled Harley-Davidson motorcycles have rear wheel steady bolt defects that affect saddlebags. Finally, Volvo will have to recall trucks that have defective bolts leading to excessive noise and affect steering performance. All the recall repairs will be done for free for affected consumers (Lee Hyo-Sik, “Ferrari, Harley-Davidson, Volvo Ordered to Recall for Defects,” The Korea Times, August 27, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/08/123_185700.html).

A dispute over tariffs and taxes with local authorities has lead Toyota to decide to halt production of its Prius hybrid in Thailand, its largest Southeast Asian production base. The Thai government says Toyota is not using enough domestic parts in the production of its Prius cars and thus must pay higher tariffs and taxes associated with imported finished vehicles. Toyota is fighting with the government in the courts, but because the matter will take several years and Toyota might lose its case, it ultimately decided to cease production. Toyota also is motivated to stop production because of slowing sales (“Toyota to Suspend Prius Production in Thailand,” Nikkei Asian Review, August 25, 2015, http://asia.nikkei.com/Business/Companies/Toyota-to-suspend-Prius-produc...)

The bombing of the Erawan Shrine in Bangkok is not expected to meaningfully impact FDI flows into Thailand. The president of the American Chamber of Commerce in Thailand (AmCham Thailand) Darren Buckley said that the “‘incident cannot deter us”’ and AmCham was “confident the government would pursue all means necessary to help improve the situation and the economy.” While the Japan External Trade Organization viewed the “situation as sensitive” it believed there “was no change in the Japanese investment outlook following the bombing.” The Executive Director of the Thai-European Business Association stated his group “‘realized an attack can happen anywhere’” (“Investors Unfazed by Deadly Blast,” The Bangkok Post, August 22, 2015, http://www.bangkokpost.com/business/news/664908/investors-unfazed-by-dea...)

Vietnam’s Ministry of Finance issued a circular (Circular 123/2015/TT-BTC) designed to simplify procedures and paperwork for foreign investors by, for example, reducing the volume of documents required, and make it easier for public companies to bolster the amount of stakes taken by foreign investors. Investors and firms roundly expressed disappointment in the Circular’s vagueness saying it did not make clear the sectors in which foreign investors could invest (there currently are 267 restricted sectors) and the amount of stakes foreign investors could take. One investment firm analyst observed, “the new regulation did nothing to help companies raise their foreign stakes” (“Foreign Investment Guide Disappointing,” Viet Nam News, August 22, 2015, http://vietnamnews.vn/in-bai/274832/foreign-investment-guide-disappointi...)