MNCs in the News-2015-11-27

Google hopes to “launch the China version of its Google Play smartphone app store next year.” This would be an important development for the American firm which left China in 2010 as a result of disagreements with the Chinese government about the regulation of its services on mainland China. Due to Google’s move off the mainland, its search engine, e-mail, and other services are not available in the People’s Republic of China. However, Google still has employees, partners, and offices in the greater China region. Media sources indicate Google sees the app store as a “launch pad” for other offerings (“Google Play App Store to Launch Next Year in China,” China.Org.cn, November 22, 2015, http://www.china.org.cn/business/2015-11/22/content_37128629.htm)

Chinese investment in the US financial sector, which should hit a new record this year of around US $3 billion (versus a lowly $100 million in 2014), continues to grow while comparable American investment in China’s financial sector remains stunted. In 2015 it has barely topped $100 million, dropping from 2014 levels. Analysts argue the data reflect Chinese government restrictions on foreign investment in the financial sector especially equity ownership restrictions which force US investors to take minority positions. Indeed, China ranks fairly low on the OECD’s FDI Regulatory Restrictiveness Index as far as the financial services sector is concerned (Harry W.S. Lee, “Chinese Gov’t Causes an Investment Gap with U.S.,’” Caixin, November 20, 2015, http://english.caixin.com/2015-11-20/100876794.html)

At the recent U.S.-China Joint Commission on Commerce and Trade (JCCT) meeting, the U.S. announced it “had made progress on…preventing the theft of trade secrets.” Specifically, American firms reportedly gained a clearer “ability to seek preliminary injunctions in Chinese courts.” China reportedly also opened “the market wider to American manufacturers of drugs and medical devices.” China also softened its plans to require its banking sector to favor local technology. China pushed for “broader access to acquisitions…by state-owned enterprises” and pressed the US to clarify its national security review process. Bilateral investment treaty negotiations did not advance during the JCCT meeting (Neil Gough, “China and U.S. Say They’ve Made Strides in Trade Talks,” The New York Times, November 23, 2015, http://www.nytimes.com/2015/11/24/business/international/china-and-us-sa... James Pomfret, “U.S. Says China to Take Tougher Stance against Trade Secret Theft,” Reuters, November 23, 2015, http://www.reuters.com/article/2015/11/23/us-usa-china-trade-idUSKBN0TC1...)

To address its 2014 bribery debacle in China, GlaxoSmithKline (GSK) Plc. has cut a huge percentage of its sales force and focused on fewer business lines. China head Herve Gisserot said “the British firm is gambling on a new cleaner image to reboot its performance and reputation with doctors and consumers” after its illegal behaviors led to an almost $500 million fine. Measures taken by GSK to prevent future problems include “stopping all sales-based incentives for drug reps and reducing paid junkets for doctors” and have not been adopted by its rivals which has put pressure on its China sales (Adam Jourdan and Ben Hirschler, “GSK in China: Escaping the Shadow of a Scandal,” Reuters, November 25, 2015, http://www.reuters.com/article/2015/11/26/us-gsk-china-idUSKBN0TF0A92015...

MOFCOM spokesperson Shen Danyang stated that “China expects more Japanese investment in emerging sectors despite a slowdown.” He noted “the two countries can enhance cooperation in sectors such as green technology, energy conservancy, e-commerce, and old-age care.” According to the statistics, Japanese FDI into China has slowed down in recent year, falling 38.8 YOY in 2014 and down 25.1 percent in the first 10 months of this year. In the view of MOFCOM, this has partly to do with rising labor costs, China’s appreciating currency, and intensifying competition in China. Shen, however, noted that China still offers lots of opportunities (“China Expects More Japanese Investment in Emerging Sectors: MOC,” China.org.cn, November 17, 2015, http://www.china.org.cn/business/2015-11/17/content_37089561.htm)

At the 4^th Summit of China and Central and Eastern European (CEE) Countries held in late November, Chinese Premier Li Keqiang said China “is likely to invest more than US $1 trillion overseas in the next five years.” He called on attendees to “advance the China-Europe land-sea express route” and touted that China could help CEE state “with funding problems to upgrade infrastructure in transportation, electricity, industrial equipment, and other fields.” He added “‘as long as they use Chinese equipment and products, China will provide more flexible funding conditions.’” China views CEE countries as a logistic center and economic corridor (“Li: China will Invest US$1 Trln Overseas in Next 5 Years,” China.org.cn, November 25, 2015, http://www.china.org.cn/business/2015-11/25/content_37153945.htm)

China’s Ministry of Commerce (MOFCOM) Department of Outward Investment and Economic Cooperation Jiang Wenbin said China’s non-financial investment in overseas markets for the first 10 months of 2015 hit around $95.21 billion, an increase of 16.3 percent year over year (YOY). Investors included over 5000 companies in 152 countries and regions. According to MOFCOM, China’s foreign contracted projects exceeding US $100 million increased to 307, with the total contracted amount hitting $108.3 billion and occurred in the transportation, electric power, telecommunications, petrochemical, and other sectors. Chinese overseas manufacturing investment specifically took place in automobiles, medicine, computers, plastics, and so on (“China Outbound Direct Investment Rises 16.3%,” China.org.cn, November 16, 2015, http://www.china.org.cn/business/2015-11/16/content_37076130.htm)

At the 2^nd Meeting of the China Outbound Forum, the Center for China and Globalization (CCG) released the 2015 Report on Chinese Enterprise Globalization. CCG Director Wang Huiyao noted that “Chinese private companies have become a main force in going global over the past two years.” Evidencing this, private company outward FDI experience YOY growth of 295 percent. One reason for the new pattern was the increasing strength of private companies. The other was the slowdown of SOE driven investment resulting from many factors including the anti-corruption campaign. When investing abroad, Chinese private firms prefer M&A as their entry form (Chen Yingqun, “Chinese Private Companies’ Outbound Investment Sees Explosive Growth,” China Daily.com, November 21, 2015, http://www.chinadaily.com.cn/business/2015-11/21/content_22507094.htm)

MOFCOM spokesperson Shen Danyang reported that “Chinas investment in Africa collapsed in the first half of this year,” falling over 40 percent YOY and only totaling a relatively unimpressive $1.19 billion during the same period. MOFCOM believes the key factors causing the drop were the slow global economic recovery, the decline of international commodity prices, and the Ebola outbreak. Still, MOFCOM felt Chinese investment flows into Africa would remain “robust in the long run.” Shen observed that “China will continue investment programs in Africa according to market potential, business environment, and bilateral industrial development demands” (“China’s Investment in Africa Falls in H1,” China.org.cn, November 17, 2015, http://www.china.org.cn/business/2015-11/17/content_37089542.htm)

During the East Asia Summit held in Kuala Lumpur in late November, Chinese Vice Foreign Minister Liu Zhenmin stated that China would offer up to $10 billion in infrastructure loans to Association of Southeast Asian Nation (ASEAN) countries and also that China would provide aid of around $560 million to help underdeveloped states. Observers see the move as part of a Chinese strategy to “expand its influence in the developing world…with government aid programs and loans.” At this point it was not clear exactly which Chinese bank would provide the money or what conditions, if any, would accompany the loans (Megha Rajagopalan, “China Offers $10 Billion in Infrastructure Loans to Southeast Asia,” Reuters, http://www.reuters.com/article/2015/11/22/us-asean-summit-china-aid-idUS...)

In July, CRRC Zhuzhou Electric Locomotive Co. (ZELC), a part of China Railway Rolling Stock Corp., a SOE, established a more than $130 million plant in Malaysia. The plant is intended to serve as a “gateway to the rest of the ASEAN region.” CRRC ZELC already has won orders to build 10 high-speed electric trains and 20 light railway engines at its plant which produce trains as well as do assembly, testing, maintenance, and refurbishment work. The factory will result in the creation of up to 800 jobs and represents the culmination of interactions with Malaysia that began in 2009 (“Rail Firm on Track to Expand Presence in Southeast Asia,” China.org.cn, November 16, 2015, http://www.china.org.cn/business/2015-11/16/content_37072279.htm)

In mid-November China National Corporation for Overseas Economic Cooperation (CCOEC) announced it would invest $2.15 billion in Mexico’s energy sector. It signed a deal with Mexico’s Durango state, located in the north of the country, during the November 2015 China-Mexico Trade and Investment Expo and Forum. The deal specifically entails the construction of a “combined cycle plant with a capacity of 1,500 megawatts.” Durango Secretary of Economic Development Ricardo Navarrete Gomez stated that China would finance 85 percent of the project. CCOEC representatives spoke warmly about Mexico’s structural reforms and opening of the energy sector which had created new opportunities (“Chinese Firm to Invest US$2.15b in Mexico’s Energy Sector,” Xinhua, November 15, 2015, www.china.org.cn/wap/2015-11/15/content_37069184.htm)

During the 10^th summit of the G20 major economies in mid-November, China National Nuclear Corp (CNNC) signed contracts relating to work on Argentina’s 4^th nuclear reactor and the provision of a fifth nuclear power plant. The deals, which will involve extensive exports of Chinese nuclear equipment and technology (including China’s homegrown Hualong One), have the potential to be worth $4.7 billion. CNNC which has exported six nuclear reactors, several mini-neutron source reactors, and nuclear research facilities, noted that it hoped to help Argentina develop its nuclear industry and economy as well as obtain more market opportunities elsewhere in Latin America (“CNNC Clinches $4.7 bln Nuclear Deal in Argentina,” China.org.cn, November 17, 2015, http://www.china.org.cn/business/2015-11/17/content_37081591.htm)

At the ASEAN summit, Japanese Prime Minister Abe Shinzo told attendees his country would, through the vehicles of the Japanese International Cooperation Agency (JICA) and Asian Development Bank, give $10 billion in loans for public infrastructure projects and also it would “relax the conditions for its yen loan scheme for emerging countries.” Flexibilities will occur regarding requirements for state guarantees and the speed of loan implementation. Abe also said JICA would put several billion into private sector projects. Many see Tokyo’s move as a counter to recent initiatives by Beijing which include seizing a major high-speed rail deal in Indonesia (“Abe Offers ASEAN Easier Yen Loans to Counter Beijing’s Moves,” The Japan Times, November 21, 2015, http://www.japantimes.co.jp/news/2015/11/21/national/southeast-asia-set-...)

Japanese Prime Minister Shinzo Abe met with Indonesian President Joko “Jokowi” Widodo on the sidelines of the ASEAN summit. He said that while “he was disappointed Japan had lost the race to build a high-speed railway contract…Tokyo would continue offering aid for infrastructure” to Indonesia. Indonesia initially opted not to have a high speed rail system because of the cost, but eventually was swayed towards by a very generous Chinese loan offer that did not require Indonesian guarantees or state spending. Abe stressed the importance of “‘a relationship of trust and transparency” and “‘shared understanding’” on matters of future cooperation (“Jokowi Gives Abe the Nod on Rail Bid Disappointment, Aid Assurances,” The Japan Times, November 22, 2015, http://www.japantimes.co.jp/news/2015/11/22/national/politics-diplomacy/...)

The Japan Overseas Infrastructure Investment Corp., a public-private, fund, is in the final stages of negotiations that may witness it contributing billions in funding to support a high-speed rail project in Texas that would run from Dallas to Houston and make use of Central Japan Railway Co.’s shinkansen high-speed rail technology. The investment not only has value on its own terms, but it meant to show that Japan, too, can finance infrastructure activities just like its competitor China. If the project happens, it is designed to be completed by 2021 (“Japanese Public-Private Fund to Invest in Texas Bullet Train,” The Japan Times, November 20, 2015, http://www.japantimes.co.jp/news/2015/11/20/business/japanese-public-pri...)

After consultations among the Indonesia Ministry of Communications and Information, the Ministry of Trade, and the Investment Coordinating Board, the government intends to revise its negative investment list. Of note, it plans to remove foreign-established e-commerce companies from the list, giving them opportunities to operate in Indonesia. The idea is not just to attract foreign capital, but to encourage foreign firms to partner with local, established e-commerce players. Start-up and small- to medium-sized firms still will be excluded. The revision is expected to take place in 2016 since the negative list, last promulgated in 2014, is revised every two years (Khoirul Amin, “Govt to Remove E-Commerce Firms from Negative List,” The Jakarta Post, November 14, 2015 http://www.thejakartapost.com/news/2015/11/14/govt-remove-e-commerce-fir...)