MNCs in the News-2015-10-30

On the eve of her trip to China last week, German Chancellor Angela Merkel faced pressure to push German business interests relating to trade, inward investment, and German businesses operating in China. According to some calculations, German firms have invested more than $53 billion into China and currently run close to 5,000 businesses. There are hopes Merkel will conclude an airline joint venture, some financial investment deals, and protect the interests of Germany’s automobile sector. Indeed, Volkswagen CEO Matthias Mueller who will participate in the delegation accompanying Merkel will give the Chancellor a special briefing on the VW emissions scandal (“VW CEO to Update Merkel on Emissions Probe on China Trip: Source,” Reuters, October 25, 2015, http://www.reuters.com/article/2015/10/25/us-volkswagen-emissions-china-... Paul Carrel, “Merkel Heads to China to Defend Under-Pressure German Business,” Reuters, October 27, 2015, http://www.reuters.com/article/2015/10/27/us-china-germany-idUSKCN0SL1KT...).

China’s Ministry of Commerce (MOFCOM) announced China and the US have begun another round, their 22^nd since 2008, of bilateral investment treaty (BIT) negotiations. According to MOFCOM, “‘both sides will try to advance the BIT negotiations with great effort and to speed up the process in hope of reaching a high-standard and mutually beneficial deal.’” During Chinese President Xi Jinping’s state visit to the US in September, he and US President Barack Obama “agreed the negotiation of a high-standard BIT [was] a top economic priority” and both countries said, in a statement, they would “‘intensify the negotiations and work expeditiously’” (“China, US Start New Round of BIT Talks,” China.Org.cn, October 28, 2015, http://www.china.org.cn/business/2015-10/28/content_36914912.htm)

Beijing “has promised to draft guidelines to manage the new companies” that will come into being pursuant to the central government’s new plan to open the capital’s service sector to foreign investment. These new businesses will include, among others, travel agencies that provide services to Chinese travelers going abroad as well as to Hong Kong and Macao, aircraft maintenance services, foreign engineering design companies, event promoters, and certain insurance agencies. Different businesses will have different limitations on foreign ownership stakes, business location, and the relaxed rules will persist until May 2018, subsequent to which they may be rolled out nationwide (Beijing Relaxes Foreign Investment Rules,” China Daily.com, October 28, 2015, http://www.chinadaily.com.cn/business/2015-10/28/content_22302359.htm; “Beijing Service Sector Opens Further to Foreign Investment,” WantChinaTimes.com, October 29, 2015, http://www.wantchinatimes.com/news/content?id=20151029000026&cid=1102; “Beijing to Guide New Companies under Relaxed FI Rules,” WantChinaTimes.com, October 29, 2015, http://www.wantchinatimes.com/news/content?id=20151029000004&cid=1102)

Tianjin has ordered ConocoPhillips to pay $265,000 to 21 fisherman who claimed in a lawsuit “their fishing interests and livelihoods were severely damaged by the 2011 Bohai Bay Oil Spill.” While China National Offshore Oil Corp. (CNOOC) was a partner in the operation that had the spill, the Tianjin Maritime Court exempted it from liability saying it was not the operator of the oil field and “did not control the source of the spill.” Three years ago, the Chinese government levied more than $300 million in fines on ConocoPhillips and CNOOC for damage caused to fishermen and the marine eco-system (“ConocoPhillips Ordered to Pay 1.7m Yuan over Damages in Oil Spill,” China Daily.com, October 30, 2015, http://www.chinadaily.com.cn/business/2015-10/30/content_22327822.htm)

A CHKD survey of Chinese firms doing business in Germany found that more than half felt Germany’s economic prospects were bright. Furthermore, around two-thirds had no plans to change their investments in Europe’s largest economy while one third actually planned to boost their investments there. The CHKD survey indicates most Chinese firms investing in Germany are in the trade, mechanical engineering, and mining sectors and have a preference for investing in Germany’s western states. In 2014, Chinese firms constituted the largest foreign investors in Germany (“Chinese Firms Stick to Investment Plans in Germany,” China.Org.Cn, October 27, 2015, http://www.china.org.cn/business/2015-10/27/content_36901297.htm)

China Communications Construction Company (CCCC) has signed a deal with Mexico’s Jalisco state entailing a feasibility study for the development of a 500-hectare space into an industrial park for Chinese manufacturers. CCCC currently is looking exactly where to situate the park and identifying manufacturers that might set up shop in it. Reports suggest Jalisco would subsidize the cost of half of the land with Chinese investors absorbing the other half and the entire cost of developing the park. The deal might help remove some of the bad blood flowing from Mexico’s cancellation of a Chinese high-speed rail contract in 2014 (David Graham, “Mexican State in Deal with China for Industrial Park,” Reuters, October 27, 2015, http://www.reuters.com/article/2015/10/27/us-mexico-china-idUSKCN0SL1V62...)

Chinese firms have been aggressive purchasers of New Zealand farmland. Indeed, Shanghai Pengxin Group has bought so much farmland that it is now New Zealand’s third largest dairy producer. The buying spree has provoked a backlash with the government rejecting Pengxin’s plan to buy the Lochinver farm. Pengxin is suing the government over its action and has terminated another major deal. Some see Chinese investment as vital at a time when farmland prices are dropping and the economy is growing slowly. Others fear a Chinese takeover of the sector as well as a loss of identity and sovereignty more generally (Rajeshni Naidu-Ghelani, “China’s New Zealand Farm-Buying Runs into Opposition,” BBC News, October 29, 2015, http://www.bbc.com/news/business-34513287)

Korea has garnered a ranking as the world’s 4^th business friendly country, its highest ever, in the World Bank recent assessment of 189 countries. The study takes into account factors like ease of establishing and closing a business and the tax payment situation. As far as multinationals are concerned, though, Korea’s rankings slipped in terms of tax payments and building permits. Moreover, critics of the study argue that its conclusions are flawed because they do not take into account Korea’s radical labor sector and tough labor regulations. Thus, foreign investor rankings of Korea may be less positive than the study’s (Michael Herh, “WB Ranks Korea 4^th Most Company-Friendly Nation,” Business Korea, October 29, 2015, http://www.businesskorea.co.kr/english/news/industry/12671-friendly-comp...)

In contrast to the positive tenor of the World Bank Study, Korea ranks rather poorly in labor market efficiency among the seven countries having a per capita income of at least USD $20,000 and a population of at least 50 million. For the period from 2009 and 2015, Korea ranked six out of seven countries on a World Economic Forum ranking that takes into account “labor-management cooperation, redundancy costs, employment and dismissal practices, flexibility of wage determination, and female participation in the workforce.” Korea ranked particularly low regarding the “time and costs taken for a prior notice of redundancy” (Jung Suk-Yee, “Korean Labor Market Still Far from Efficient,” Business Korea, October 27, 2015, http://www.businesskorea.co.kr/english/news/money/12641-little-redundanc...)

The Korea Electric Power Corporation (KEPCO) and the Dubai Electricity & Water Authority (DEWA) concluded a $3 million deal to construct a pilot smart grid in Dubai that will entail photovoltaic power generators, energy storage systems, and integration operation systems. The project, which should be completed by 2021, will be “the first time that Korea has exported its smart grid and city models abroad” and is Korea’s first big achievement in terms of landing a project in the Middle East in the alternative energy sector. KEPCO seeks to partner with Kuwait, Guam, Ecuador, and others (Marie Kim, “KEPCO to Build Smart Grid Systems in Dubai,” Business Korea, October 30, 2015, http://www.businesskorea.co.kr/english/news/industry/12693-pilot-project...)

Malaysian Deputy International Trade and Industry Ministry Minister Datuk Ahmad Maslan said the country’s small and medium enterprises (SMEs) have to put more efforts into labelling, branding and halal certification if they hope to capitalize on the enlargement of markets that will occur as a result of the Trans-Pacific Partnership Agreement. Maslan, who opened the SME Corp Halal Certification Seminar and the Importance of Packaging and Branding Workshop, emphasized the global halal market was huge, the seminar was timely, and that local SMEs should not ignore these issues if they wanted to gain a slice of the growing Halal market (“SMEs need to give emphasis to labelling, branding, halal certification,” Daily Express, October 26, 2015, http://www.dailyexpress.com.my/news.cfm?NewsID=104073)

Malaysia has surpassed Indonesia as an Asian Islamic finance hub. While Indonesia boasts the world’s biggest Muslim population, Malaysia has been more aggressive in supporting the industry and has taken a number of measures such as including Sharia-compliant bonds in its infrastructure funding activities. Malaysia’s Islamic banking assets rose 13.7 percent to a record $158 billion in the first eight months of 2015 YOY while those of Indonesia fell 27 percent. “The continuation of incentives for Islamic banking…given by the government are a key factor for the industry’s growth.” said Abas A. Jalil, chief executive officer at Amanah Capital Group (Y-Sing Liau and Yudith Ho,” Indonesia Shariah Hub Goal Fading as Malaysia Assets Race Ahead,” Bloomberg Business, October 27, 2015, http://www.bloomberg.com/news/articles/2015-10-26/indonesia-shariah-hub-...)

Responding to intense lobbying and complaints from companies, the Indonesian government has eliminated rules that required companies to hire 10 Indonesian workers for every foreign worker. The government also scrapped permit requirements for non-residential directors, foreigners attending work meetings, and giving speeches. Hery Sudarmanto, a government official overseeing foreign workers, said “‘we are hearing suggestions from all sides. We dropped this to support investment because when investors come, they would create jobs.’” Previously the government backtracked on a requirement that would require foreign workers to pass local language proficiency tests (“Indonesia Scraps Rules Restricting Foreign Workers,” Bangkok Post, October 28, 2015, http://www.bangkokpost.com/business/world/746680/indonesia-scraps-rules-...)

In the World Bank’s latest “Doing Business 2016” report, Thailand’s business friendliness ranking fell from 46^th to 49^th due to the challenges of starting a businesses and getting credit. Not only is there a lack of public credit registry (which would provide information on prospective borrowers), but financial institutions remain reluctant to provide credit to individuals and small companies. Still Thailand ranked as the third business friendliest country in the Association of Southeast Asian Nations after Singapore and Malaysia and far ahead of Brunei, Vietnam, and Indonesia. The bad news is that Thailand is slipping in almost all ranking categories (Pathom Sangwongwanich, “Thailand Slides in Global Ranks,” Bangkok Post, October 29, 2015, http://www.bangkokpost.com/business/news/747000/thailand-slides-in-globa...)

Vietnam’s General Statistics Office reported that foreign direct investment in October surged 40 percent year-over-year (YOY). FDI totaled USD $12.4 billion while total new projects ran around 1,650. These constituted increases, respectively, of 27 percent YOY and 25 percent YOY. FDI especially flowed into the processing and manufacturing sectors which drew greater more than 64 percent of the country’s total registered FDI. Vietnam’s south was a particularly attractive destination for foreign investors. The top regional investor in Vietnam in October was Malaysia while the top extra regional investors were Korea, the United Kingdom, and Japan (“Foreign Investment in VN Surges 40% to $19.2 Billion,” Viet Nam News, October 28, 2015, http://vietnamnews.vn/in-bai/277692/foreign-investment-in-vn-surges-40-t...)

Vietnam ranked as the 90^th business friendly country in the World Bank’s latest Doing Business Report. This seemed to be a substantial decline versus last year’s report when the country occupied the report’s 78^th position. However, analysts point out that the decline may relate more to changes in the report’s calculation methodology rather than actual declines in Vietnam’s situation. Vietnam’s measures relating to ease of starting a business, getting permits, and getting electricity rose and the country showed progress in measures relating to getting credit and paying taxes. However, it declined in terms of variables such as protecting minority investors (“VN Rises in Business Ease World Rankings,” Vietn Nam News, October 29, 2015, http://vietnamnews.vn/in-bai/277755/vn-rises-in-business-ease-world-rank...)