MNCs in the News-2016-01-15

China’s MOFCOM reported China’s inward FDI (IFDI), including financial sector FDI, hit USD $126.27 billion in 2015, an increase of 6.4 percent year over year (YOY). Particularly strong results were seen in the service sector which represented 61.1 percent of all IFDI. Manufacturing sector FDI ran around $39.54 billion or 31.4 percent while high-tech manufacturing investment rose 9.5 percent to reach USD $9.41 billion. According to MOFCOM, the strong numbers were attributable to the cutting of red tape and free trade zone (FTZ) development. Of total inward FDI, 14.1 percent took the form of M&A versus 6.3 percent in 2014 (“China’s FDI Rises by 6.4% Despite Slowing Economy,” China.Org.Cn, January 14, 2016, http://www.china.org.cn/business/2016-01/14/content_37577199.htm)

During a trip to Beijing, Apple’s Vice President of Environment, Policy, and Social Initiative Lisa Jackson said that Apple had role out a program at 18 final assembly plants in China that aimed for zero waste and increased use of solar power. Zero waste not only entails limiting waste from production, but also in areas ranging from component packaging to food waste from worker canteens. Apple believes that its programs have led to the reduction of 50,000 metric tons of waste. Apple further is working with its suppliers to cut water use by eliminating leaks, waste, and innovative recycling methods (“Apple to Turn Chinese Suppliers Green with Environmental Programs,” China Daily.com, January 13, 2016, http://www.chinadaily.com.cn/business/tech/2016-01/13/content_23073681.htm)

China’s National Business Daily reported that Apple paid more than USD $980 million in taxes in 2015, making it the third-highest tax payer in the Shanghai service sector. The only others who paid more were the Bank of Communications and Shanghai Pudong Development Bank, which each paid about twice as much in taxes as Apple. Shanghai Volkswagen, a joint venture, was the second highest tax payer in the industrial sector. The story pointed out, despite Apple’s contribution, that the company was fined millions in yuan 2015 for a failure to pay sufficient taxes in 2013 (He Yini, “Apple Becomes the Third-Highest Tax Payment in Shanghai Service Sector,” China Daily.com, January 11, 2016, http://www.chinadaily.com.cn/business/2016-01/11/content_23028212.htm)

GAC Group announced that its “overseas subsidiary, Zhonglong Investment Co., had invested about $100 million in Uber.” In December, it already signed a strategic partnership agreement with Uber “pursuant to which it would cooperate with Uber China in sectors like equity investment, sales, financing, service, and market operations.” Its subsidiary GAC Motor Corp. already has provided a number of alternative energy vehicles to Uber. Uber needs a partner to grow in China while GAC hopes to sell more alternative energy vehicles. According to news reports, Uber has already invested USD $1 billion USD in China (Qiu Quanlin, “GAC Backs Uber to Boost Sales,” China Daily.com, January 14, 2016, http://www.chinadaily.com.cn/business/motoring/2016-01/14/content_230827...)

Dealogic reports indicate that China’s outward M&A totals reached a record USD $111.9 billion in 2015, the six consecutive year of growth and topping USD $100 billion for the first time. Europe was a favorite destination of Chinese buyers, accounting for almost 1/3^rd of total volume (USD $31.3 billion). A good chunk of this was accounted for by China National Chemical Corp.’s USD $9 billion acquisition of Pirelli & C SpA. In 2015, Chinese M&A showed a preference for technology, with deals by companies such as Baidu Inc., Alibaba Group, and Tencent Holdings, totaling about $18.8 billion of outbound Chinese M&A (“China’s Outbound M&A hit $111.9b in 2015,” China.Org.cn, January 13, 2016, http://www.china.org.cn/business/2016-01/13/content_37568072.htm)

Beijing Kunlun Tech Company has taken a majority stake in Grindr, a “dating and social networking app for gay men.” The investment of $93 million will give Beijing Kunlun a 60 percent stake in Kunlun. Grindr accepted the investment to expand its potential user base, tap Beijing Kunlun’s “digital expertise,” as well as Beijing Kunlun’s willingness not to tinker with existing staffing. Beijing Kunlun sees the investment as a way to expand its user base, grow its ecosystem beyond mobile games and gain access to wider markets. Per analysts, the investment is noteworthy given restrictions in China on same-sex unions (Mike Isaac, “Grindr Sells Stake to Chinese Company,” The New York Times, January 11, 2016, http://www.nytimes.com/2016/01/12/technology/grindr-sells-stake-to-chine... Paresh Dave, “Gay Dating App Grindr Gets $93-million investment from Chinese Company,” LA Times, January 11, 2016, http://www.latimes.com/business/technology/la-fi-tn-grindr-kunlun-201601... Ma Si, “Beijing Kunlun Buys 60% of US Dating App Grindr,” China Daily.com, January 13, 2016, http://www.chinadaily.com.cn/business/2016-01/13/content_23057996.htm)

Japan’s Toyo Construction and JFE Engineering won a $117 million contract from the Myanmar government to construct port facilities, with a planned handling capacity of 187,000 20-foot equivalent units a year, in the Thilawa special economic zone (SEZ) near Yangon. JFE Engineering will produce steel materials while Toyo Construction will prepare the land and dredge. Japan will provide official development assistance to support the project. The Thilawa SEZ is a joint Japan-Myanmar public-private partnership designed to attract IFDI, with many Japanese companies beginning operations there as Myanmar resolves infrastructure gaps (“Toyo Construction, JFE to Build Port in Myanmar,” Nikkei Asian Review, January 13, 2016, http://asia.nikkei.com/Business/Companies/Toyo-Construction-JFE-to-build...)

Traditionally, Korean banks have avoided transactions with Islamic banks because of the complicated financial structures that must be used, tax complications associated with such deals, and other factors. However, Korea’s Woori Bank recently completed the first Korean bank transaction with Qatar Islamic bank that meets the requirements of Shariah law; i.e., does not involve interest or fees for loans of money. The transaction involves the purchase and sale of assets and the payment of principal and earnings to Woori, which has the largest network in the Islamic region and wants to minimize earnings volatility and identify new sources of income (Jung Suk-Yee, “Woori Bank Becomes Nation’s First Bank to Make Financial Transaction with Islam Bank,” Business Korea, January 13, 2016, http://www.businesskorea.co.kr/english/news/money/13547-banking-islamic-...)

At a meeting between Indonesian President Joko “Jokowi” Widodo and Russian Industry and Trade Minister Denis Manturov the two individuals spoke about bilateral investment, trade, and other economic cooperation issues. In regards to investment, Indonesian Economic Minister Darmin Nasution stated, “‘Russia asked for our attention in terms of ease of doing business related to their ongoing investments’” and planned infrastructure projects as well as various tax issues. Previously Jokowi asked Russian President Vladimir Putin to boost investment in energy, power plants, agriculture, and other sectors. The two countries also are examining cooperation in aviation, nuclear energy, shipyards, and so on (Ina Parlina, “Indonesia, Russia to Pool Economic Resources,” The Jakarta Post, January 9, 2016, http://www.thejakartapost.com/news/2016/01/09/indonesia-russia-pool-econ...)

The Indonesian National Human Rights Commission, a “state-sanctioned but independent human rights commission,” has formally “‘asked Japanese Prime Minister Shinzo Abe and (the Japanese) parliament to seriously review Japan’s involvement in’” a USD $4 billion thermal power plant project in Indonesia that is funded by a joint consortium “because…human rights violations in the land acquisition process had been uncovered.” These human rights issues relate to charges that land was forcibly taken from villagers by the government for the project. The joint consortium, called PT Bhimasena Power Indonesia, includes Japan’s Electric Power Development Co. and Itochu Group, and Indonesia’s Adaro Energy (“Indonesian Rights Commission Tells Japan to Review Power Project,” The Japan Times, January 9, 2016, http://www.japantimes.co.jp/news/2016/01/09/national/indonesian-rights-c...)

Thailand’s Board of Investment (BoI) reported “total investment applied for by foreign companies between January and November 2015 plunged 78 percent” YOY to 93.8 billion baht. IFDI was dragged down not just by a struggling economy which weakened foreign investor confidence, but intensifying competition from other investment destinations such as Cambodia, Myanmar, and Vietnam. Japanese FDI, traditionally a strongpoint, plummeted by more than 80 percent. European and American investment also plunged though “Chinese investment was only down slightly.” Thai officials argue while the overall numbers were down, the country was doing well in attracting FDI into target sectors like high-tech (“Foreign Investment Plummeted in 2015, Data Show,” Bangkok Post, January 13, 2016, http://www.bangkokpost.com/business/news/825020/foreign-investment-plumm...)

Vallop Vitanakorn, vice-chairman of the Federation of Thai Industries (FTI), noted that there were concerns that foreign companies would avoid Thailand and invest in those Association of Southeast Asian Nations (ASEAN) countries like Malaysia, Singapore, and Vietnam that had signed the Trans-Pacific Partnership (TPP) because of the “‘greater incentives and privileges [associated] with the TPP.’” Not only might the TPP result in reduced investment in Thailand, but it could result in greater competition between goods produced elsewhere and Thai goods (Lamonphet Apisitniran, “TPP Sparks Exodus Fears,” The Bangkok Post, January 12, 2016, http://www.bangkokpost.com/business/news/823228/tpp-sparks-exodus-fears)

It has long been a tradition that Thai nationals have managed Thai Airways International (THAI). However, the carrier has been struggling financially, having lost billions of baht in 2015, and it is going to appoint a foreigner Bryan Banston as a vice president for sales, breaking this long-time tradition. THAI’s tradition is not only its tradition, but a long-term tradition for Thai state enterprises generally. There has been criticism of the compensation package that will be given to Banston since it potentially will be much higher than his Thai peers (Boonsong Kositchotethana, “THAI Expat Deal Causes a Stir,” Bangkok Post, January 12, 2016, http://www.bangkokpost.com/business/tourism-and-transport/823264/thai-ex...)

Vietnam’s state carrier Vietnam Airlines will sell a 8.8 percent stake to Japan’s ANA Holdings for about USD $108 million. With the deal, Vietnam Airlines gets funds and a partner that can bring it more operational and management know-how as it seeks to improve its return on equity and expand into other markets in Asia, Australia, and Europe. For its part, ANA Holdings moves forward in its quest to expand in regional markets. The deal also advances the government’s efforts to accelerate its privatization initiatives, which have been moving slowly (Mai Nguyen and Siva Govindasamy, “ANA Becomes Vietnam Airlines’ Main Partner with $108 Million Stake Purchase,” Reuters, January 12, 2016, http://www.reuters.com/article/us-ana-vietnam-airlines-idUSKCN0UQ05J2016...)

Ho Chi Minh (HCM) City’s tax department has informed Uber “it must declare and pay taxes as the ride-sharing service provider has consistently refused to do so.” A tax department representative has warned that Uber may face fines for late payment if it does not address concerns soon and complained that Uber has repeatedly ignored tax requests from the HCM tax department. At present, Uber, in Vietnam since 2014, has about 4,000 taxis operating in HCM, but has only registered as a marketing company in Vietnam and thus pays taxes only on marketing fees received rather than taxi revenues generated (“HCM City Demands Uber Pay Tax,” Viet Nam News, January 12, 2016, http://vietnamnews.vn/economy/281029/hcm-city-demands-uber-pay-tax.html)

SOEs are prevalent in Vietnam, generating 30 percent of the country’s GDP and employing 10 percent of its workforce. However, they are extremely inefficient and thus the government has been trying to reform them. Reform has become even more urgent because of intensifying competition from foreign companies, the conclusion of TPP negotiations, and Vietnam’s accession to the World Trade Organization in 2007 which requires form. One Vietnamese government strategy has been to encourage SOEs to partner with foreign companies, but this has moving slowly because foreign companies worry about corruption, a lack of transparency, and management quality, among other things (Atsushi Tomiyama, “State-owned Companies Face New Reforms,” Nikkei Asian Review, January 15, 2016, http://asia.nikkei.com/Business/Companies/State-owned-companies-face-new...)