MNCs in the News-2015-12-18

According to China’s Ministry of Commerce (MOFCOM), the country received USD $114 billion of FDI over the first 11 months of 2015, a 7.9 percent increase year-over-year (YOY). November inflows totaled USD $10.36 billion, a 1.9 percent YOY increase. For January-November period, the service sector drew in the greatest amount of inward FDI (IFDI), attracting over USD $11 billion, or close to 10 percent of China’s total IFDI. The media report did not give any further FDI breakdowns by sector (“FDI Inflows Jump 7.9% to US$114b,” Shanghai Daily.com, December 12, 2015, http://www.shanghaidaily.com/business/finance/FDI-inflows-jump-79-to-US1...)

Foreign observers have questioned China’s seriousness in attracting foreign investment given its plan to publish two national negative lists. First, two lists may serve to obfuscate rather than clarify. Second, the mere existence of a negative list goes against the commitment China made at the 2013 Third Plenum to allow the market to play a decisive role in the economy. On top of this, the negative list for foreign companies would not come into play until 2018. China’s policies may discourage European firms from increasing their FDI in China and may limit China’s progress in moving up the value-added chain (Joerg Wuttke, “China’s Self-Defeating Investment Strategy,” Wall Street Journal, December 15, 2015, http://www.wsj.com/articles/chinas-self-defeating-investment-strategy-14...)

In the beginning of fall, it was revealed that VW, the German automobile giant, had falsified emission data for millions of its diesel engine cars by installing special software that “switched pollution controls on when the vehicles were tested but switched them off during driving to achieve higher fuel efficiency.” Relative few Chinese VW imports, less than 2000, were involved in the scandal. Still, the China Biodiversity Conservation and Green Development Foundation, a Beijing-based NGO, saw fit to file a lawsuit “‘in the public interest.’” It called upon VW to apologize, pay compensation for the pollution it caused, and undertake “environmental remediation” (Zheng Jinran, “Environmental Group Sues VW for Emission Cheating,” China Daily, December 15, 2015, http://www.chinadaily.com.cn/business/motoring/2015-12/15/content_227143...)

At the 2^nd annual World Internet Conference in Wuzhen China, Chinese President Xi Jinping stated, China’s “‘safeguarding the legal rights of foreign-invested businesses will not change,” adding “‘as long as China’s laws are respected, we warmly welcome companies and entrepreneurs from all countries to invest in China.’” While foreign firms are drooling over the opportunities presented by China’s 700 million strong internet population, they have numerous concerns about China’s regulation of the internet and information technology especially given China’s recent cybersecurity and national security laws (Paul Carsten, “President Xi Says China will Guarantee Foreign Companies’ Legal Rights,” Reuters, December 15, 2015, http://www.reuters.com/article/us-china-economy-xi-idUSKBN0TZ0AR20151216)

At a press conference for the 2^nd World Internet Conference (WIC), Cyberspace Administration of China’s Director Lu Wei said that China would “continue highlighting the rule of law and innovation in cyberspace.” China’s hope is that the WIC would “reduce misunderstandings.” At the opening of the WIC, Chinese President Xi called “on all nations to respect each other’s cyber sovereignty and said there should be no Internet hegemony.” The conference brought renewed attention to China’s cybersecurity law, which, among other things, discusses the review of technology products and services, the development of emergency systems, and the obligations of internet enterprises (Cao Yin, “China Develops New Vision to Manage Internet,” China Daily, December 15, 2015, http://www.chinadaily.com.cn/business/tech/2015-12/15/content_22714522.htm; Cao Yin, “Draft Law Puts Information Security at Center Stage,” China Daily, December 15, 2015, http://www.chinadaily.com.cn/business/tech/2015-12/15/content_22716342.htm; “Xi Underscores Cyber Sovereignty,” China.org.cn, December 16, 2015, http://www.china.org.cn/business/2015-12/16/content_37328894.htm

UN diplomats recently finalized an “outcome document” called the “Ten-Year Review of the World Summit on the Information Society” which China adopted at the same time as the 2^nd WIC. China was very active in trying to shape the document to ensure it recognized the primary of states, granted authority to international bodies where China has influence, and mentions the UN Charter which stresses state sovereignty and nonintervention. Still, the document includes much content China dislikes. Media reports suggest some Western businesses and governments avoided the WIC because they feared being pressured to sign a document more to China’s liking (Dan Levin, “At U.N., China Tries to Influence Fight over Internet Control,” The New York Times, December 16, 2015, http://www.nytimes.com/2015/12/17/technology/china-wins-battle-with-un-o...)

At the WIC, Microsoft Corp. signed an agreement with China Electronics Technology Group (CETG), a state-owned enterprise (SOE), to create a Beijing-based, joint-venture (JV), called C&M Information Technologies, that would allow it “to bring the Windows 10 operating system to [the] government procurement market,” which, in practice, means the government and SOEs. According to the JV agreement, CETG will have 51 percent of the venture while Microsoft will hold 41 percent. Per the CEO of Microsoft China, the JV also will provide support and service, and work on localizing Microsoft products for the China market (Gao Yuan, “Microsoft Forms Tie-Up to Bring Windows 10 to Govt Procurement Market,” China Daily.com, December 17, 2015, http://www.chinadaily.com.cn/business/tech/2015-12/17/content_22735353.htm)

British pharmaceutical company AstraZeneca, which is the second largest player in China, will invest more than USD $800 million in China, the world’s second largest drug market, over the next 10 years, primarily in partnership with Chinese firm WuXi AppTec. It also will make and develop more medicines locally. AstraZeneca’s goal is to speed up the approval of its drugs by China’s Food and Drug Administration with one AstraZeneca division head saying, “‘we don’t want to have drugs that are approved in the US and elsewhere and it then takes another five or six years to bring them to patients’” (“AstraZeneca Investing US$800m to Go Local in China,” The Star Online, December 16, 2015, http://www.thestar.com.my/business/business-news/2015/12/16/astrazeneca-...$800m-to-go-local-in-china/)

China’s MOFCOM spokesperson Shen Danyang reported that for the first 11 months of this year, China’s non-financial outward FDI totaled $104.13 billion, an increase of 16 percent YOY. In November, total non-financial OFDI was $8.92 billion, which represented a jump of 12.6 percent YOY. Chinese investment in the Association of Southeast Asian Nations and the United States stood out for its dramatic increases YOY. In November China also reported an increase of contracted projects of 1.3 percent YOY to $130.12 billion (“China’s Outbound Direct Investment Up 12.6%,” China.org.cn, December 17, 2015, http://www.china.org.cn/business/2015-12/17/content_37339651.htm)

Sinopec Corp.’s microblog announced the company would spend three months to a year to complete a filling station and associated storage tank on Woody/Yongxin Islands in the Paracels/Xisha Islands, which is a cluster of islets and reefs in the South China Sea over which China took full control in 1974. While the Paracels has a small population, China is offering cruises there and “the filling station and storage tank will satisfy fuel needs in Chinese-controlled islands and reefs,” especially the need for infrastructure projects fuel. The move comes as China is “expanding its civilian infrastructure throughout the South China Sea” (Adam Rose, “China’s Sinopec Building Filling Station in Disputed South China Sea,” Reuters, December 14, 2015, http://www.reuters.com/article/us-southchinasea-china-sinopec-idUSKBN0TX... “Sinopec Builds Service Station in Sansha,” China.Org.cn, December 16, 2015, http://www.china.org.cn/business/2015-12/16/content_37328575.htm)

Australia’s Defense Department has strongly criticized anxieties about the long-term lease of a port in northern city of Darwin to a Chinese firm for $366 million. It slammed worries “the People’s Liberation Army could use the purchase…to secure access to port facilities as ‘alarmist nonsense.’” It added that the port would not give Chinese vessels opportunities to spy on U.S.-Australian communications ‘because naval vessels go silent in any commercial port.” The US also has expressed concern about the deal because US Marines are based in Darwin, leading the Australian government to “review its “rules for selling state-owned infrastructure to foreigners” (Jason Scott, “China Spy Fears over Aussie Port Deal Are Absurd, Defense Says,” Bloomberg Business, December 14, 2015, http://www.bloomberg.com/news/articles/2015-12-15/china-spy-fears-over-a...)

Last week, China’s State Power Investment Corporation signed a deal to buy Pacific Hydro, a renewable energy business, which would give it a portfolio of hydroelectric and wind farms in Australia, Chile, and Brazil. The transaction is the latest in a series of prominent Chinese deals relating to Australia infrastructure assets (e.g., China Merchants Group-Newcastle Port; China Communications Construction Company-John Holland; and Landbridge-Northern Territory) which have “heightened political concerns over foreign investment.” To assuage job and other worries, the chairman of State Power said his firm was “‘committed to maintain the stability of Pacific Hydro’s current business and management teams’” (Jamie Smyth, “Chinese SOE Snaps Up Australia Wind Farms Group,” Financial Times, December 16, 2015).

During Japanese Prime Minister Abe Shinzo’s India visit, it was announced Japan would provide a “‘highly concessional loan’” to India worth USD $12 billion with an interest rate of 0.1 percent, a repayment period of 50 years, and a moratorium of 15 years. The loan would be used to fund the construction a 500-km, $14.6 billion bullet train, India’s first, connecting Mumbai and Ahmedabad. In tandem, it was announced that the two countries also intend to share military technology, equipment, and information. The two countries did not succeed, though, in striking deals relating to civil-nuclear technology or military aircraft sales (Nidhi Verma, “India to Get Japan’s Bullet Train, Deepens Defense and Nuclear Ties,” Reuters, December 12, 2015, http://www.reuters.com/article/india-japan-idUSKBN0TV07D20151212; “Japan, India Agree on Rail, Nuclear Deal,” The Japan Times, December 12, 2015, http://www.japantimes.co.jp/news/2015/12/12/national/politics-diplomacy/... “Japan and India Sign Bullet Train Deal Amid Closer Ties,” BBC News, December 13, 2015, http://www.bbc.com/news/business-35086944)

As reported in a previous MNCs in the News, Nissan was considering initiating various countermeasures in order to block action by the French government that could lead it, through Renault (whose largest shareholder is the French government) to have influence on the Nissan-Renault JV and Nissan (whose largest shareholder is Renault). Nissan’s threats won, with Nissan, Renault, and France eventually coming to an agreement that the French government would not interfere in Nissan’s government. Nissan “also received the right to increase its shareholdings in Renault in the event that the Japanese automaker faces unfair interference” (Takashi Oku, “Japanese Carmaker Wins Big Concession From French Government,” Nikkei Asian Review, December 17, 2015, http://asia.nikkei.com/Business/Companies/Japanese-carmaker-wins-big-con...)

On the heels of striking a large bullet train deal with India, Japan is looking to play a leading role in the construction of a bullet train linking Singapore and Kuala Lumpur, severely cutting the current travel time for the 300 km journey, and giving Japanese firms such as Hitachi Ltd. and Mitsubishi Heavy Industries Ltd. new business opportunities. China is the leader in providing rolling stock in Malaysia, but Malaysia’s Land Public Transport Commission Chairman said the deal, which has attracted very strong interest, would depend upon competitive bidding (“Japan Eyes Singapore-Malaysia bullet Train Project,” The Star Online, December 16, 2015, http://www.thestar.com.my/business/business-news/2015/12/16/japan-eyes-s...)

As part of its 2016 Economic Policy Direction, the Korean government has developed a “‘New Industry Strategy’” to facilitate Korean firms going global. This strategy will involve the creation of industrial complexes in China and Vietnam to help domestic small and medium enterprises (SMEs) go global. It also will entail the establishment of Korean Business Centers in places like Beijing and New York that gather business support service providers in one place. The government further “plans to create overseas venture complexes…to arrange a space for and intensively foster companies in promising areas” for venture capitalists (Jung Suk-Yee, “S. Korea Gov’t to Directly Create Industrial Complexes in China, Vietnam,” business Korea, December 17, 2015, http://www.businesskorea.co.kr/english/news/industry/13325-overseas-indu...)

Korea is “growing the cloud market through its ‘cloud computing stimulation plan’” and data protection and relevant cloud computing laws. It also intends to “change its e-government services to cloud services by 2017, actively expanding the cloud market in the public sector.’” All of this has made Korea’s cloud market attractive to cloud computing companies such as Amazon Web Services, Microsoft, and IBM. It is leading them to invest in Korea or to partner with Korean firms like SK Holdings. Analysts believe that firms based in Korea also will have the opportunity to provide cloud services to China and Japan (Cho Jin-Young, “Global IT Giants Compete to Preoccupy Korean Cloud Market,” Business Korea, December 18, 2015, http://www.businesskorea.co.kr/english/news/ict/13340-cloud-competition-...)

Korea’s Financial Services Commission announced it had given China Everbright Bank, a unit of the SOE Everbright Group, China’s 12^th largest bank, and the world’s 57^th largest bank with $447.3 billion in assets, permission to set up a branch in Seoul. This increased the number of foreign banks in Seoul from 41 to 42. Already six Chinese banks including some of China’s biggest operate there: these include Industrial and Commerce Bank of China, Construction Bank of China, Bank of Communications, and Agricultural Bank of China (“S. Korea Approves China Everbright Bank’s Operation in Seoul,” China Daily, December 16, 2015, http://www.chinadaily.com.cn/business/2015-12/16/content_22728230.htm)

Energy think-tank Indonesia Resource Studies (IRESS) recently called on the Indonesia government to declare it would not extend the contract of Freeport Indonesia when it expires in 2021 and to take control of the mine through national and regional SOEs. IRESS said Indonesia deserved a bigger percentage of profits and benefits and it called for people to sign a petition to press the government to “uphold the sovereignty and dignity of the nation.” It also called for Freeport Indonesia to “pay compensation for the environmental damage caused by its mine” (Ayomi Amindoni, “Calls Mount for Govt to Deny Freeport Contract Extension,” The Jakarta Post, December 17, 2015, http://www.thejakartapost.com/news/2015/12/17/calls-mount-govt-deny-free...)