MNCs in the News-2016-03-04

A China Ministry of Commerce (MOFCOM) spokesman told reporters at a press conference that country intended to “lower entry barriers for foreign investors and speed up the revision of relevant laws.” According to Shen Danyang, not only would China “further relax restrictive measures on foreign investors,” it also would “encourage them to invest in the high tech, green, and service industries, where domestic supply falls short.” China further would accelerate “the revision of regulations on foreign investment, with a specific law to be enacted. MOFCOM did not provide any details (“China to lower entry barrier for foreign investors,” China Daily, March 3, 2016, http://www.chinadaily.com.cn/business/2016-03/03/content_23715945.htm

MOFCOM’s spokesman Shen Danyang further informed those present at the aforementioned press conference that “China will support foreign participation in its drive to reform state owned enterprises (SOEs).” He noted that “mergers and acquisitions (M&As) by foreign entities will help upgrade China's industrial structure, bring in advanced management experience and sharpen domestic firms' international competitiveness.” Although “M&As involving foreign companies have been growing steadily in recent years…the overall scale and their proportion of China's foreign direct investment (FDI) are still below global standards” (China supports foreign participation in SOE reforms, China Daily, March 3, 2016, http://www.chinadaily.com.cn/business/2016-03/03/content_23716062.htm; China supports foreign participation in SOE reforms, China.org.cn, March 3, 2016, http://www.china.org.cn/business/2016-03/03/content_37921713.htm

The Ambassadors of Canada, Germany, the European Union delegation to China, Japan, and the U.S. have presented a signed letter to State Councilor and Minister of Public Security Guo Shengkun expressing their concern with China’s “new counterterrorism law, the draft security law, and a draft law on the management of foreign non-government organizations” (NGOs) which, among other things, require firms to store data locally, provide encryption keys, and so on. There are worries about the application of these laws to foreign nationals, their implications for investors, and foreign intellectual property. China emphasizes the law will not affect normal business operations (Jason Subler, “Exclusive: Major Powers Team Up to Tell China of Concerns over New Laws,” Reuters, March 1, 2016, http://www.reuters.com/article/us-china-lawmaking-idUSKCN0W225P)

American telecommunications chip giant Qualcomm recently struck a settlement with the U.S. Securities and Exchange Commission (SEC) which requires it to pay US $7.5 million to cover the period 2002 to 2012 when it “allegedly…improperly hired the relatives of Chinese officials as it sought to do more business in…[China]…“its biggest market” from which it derives almost half its revenues. Moreover, the SEC charged Qualcomm of “improperly paying for lavish junkets, golf outings, luxury gifts, and airline tickets for the children of government officials.” If true, Qualcomm’s practices do not seem to be an outlier among Western firms operating in China (Leslie Hook, “Qualcomm fined for hiring relatives of Chinese Officials,” Financial Times, March 1, 2016)

Apple is strongly opposing the US FBI regarding the latter’s request that it decrypt an iPhone that belonged to terrorist Syred Rizwan Farook. According to an LA Times report, though Apple seems willing to bend over backwards in the case of China. It has “censored apps that wouldn’t pass muster with Chinese authorities. It has moved local user data onto servers operated by the state-owned China Telecom and [it] submits to security audits by Chinese authorities.” This is not surprising given China is Apple’s “No. 1 buyer of iPhones and could one day be the largest market for Apple Pay” (David Pierson, “While it Defies U.S. Government, Apple abides by China’s Orders—and Reaps Big Rewards,” LA Times, February 26, 2016, http://www.latimes.com/business/technology/la-fi-apple-china-20160226-st...)

Three Republican members of Congress in separate letters to the U.S. Treasury Department, which oversees the Committee on Foreign Investment in the United States (CFIUS) which reviews foreign investments that have potential adverse national security implications for the U.S., have asked the U.S. Treasury to “conduct a rigorous national security review of any deal that China’s Zoomlion makes to buy U.S. crane maker Terex Corp.” This is because Terex has a number of defense contracts. One representative put it, there should be “robust scrutiny of any possible Chinese takeover of an American company that supplies resources to our service members” (“U.S. Lawmakers Urge Caution on Potential Chinese Deal to Buy U.S. Crane Maker,” Reuters, February 29, 2016, http://www.reuters.com/article/us-terex-m-a-zoomlion-idUSKCN0W22LB)

Sensitivity to Chinese foreign investment has led to increased scrutiny which has led to the abandonment of some deals and a lack of progress on others. To deal with the resulting anxieties among potential acquisition partners, Chinese firms “are offering to pay record break-up fees and are willing to settle for minority stakes.” An example is China’s HNA’s agreement to pay a USD $400 million termination fee in conjunction with its purchase of Ingram Micro, a huge multiple over the norm. One investment banker said “‘these are unusual behaviors and show that the Chinese want to get the deals done” (Denny Thomas, “Chinese Pitch Big M&A Break-Up Fees, Stakes to Allay U.S. Regulatory Fears,” Business Insider, February 29, 2016, http://www.businessinsider.com/r-chinese-pitch-big-ma-break-up-fees-smal...)

Chinese SOEs accounted for 70 percent of the record 20 billion euros invested by Chinese companies in Europe in 2015. In 2014, the comparable figures were 62 percent and 14 billion euros. Prior to 2008, the sums routinely ran less than 1 billion euros. Much of this money came from COEs including ChemChina’s 7.3 billion euro purchase of Pirelli and Shanghai Jinjiang’s purchase of Louvre Hotels. SOE acquisitions raise questions about the quality of the acquirer, their financial resources, which putatively allows for unfair competition, and the lack of reciprocal European investment opportunities in China (James Kynge, “State-owned Chinese groups’ Acquisitions in Europe Raise Concern,” Financial Times, February 29, 2016)

According to the US Justice Department, a US unit of Japan’s Olympus Corp. will pay $623 million in criminal and civil penalties “to resolve…claims relating to a scheme to pay kickbacks to donors and hospitals, and $23m to resolve criminal charges relating to the Foreign Corrupt Practices Act (FCPA) in Latin America.” Olympus admitted it “won new business and rewarded sales by giving doctors and hospitals kickbacks, including consulting payments, foreign travel, and millions of dollars in grants.” The settlement allows Olympus US to avoid prosecution if “it complies with certain reform and compliance requirements” for a three year period (Ben McLannahan, “Olympus Pays at Least $646m to Resolve Bribery Cases,” Financial Times, March 2, 2016; “Olympus to pay US Justice Dept $623m in penalties for kickback scheme,” Nikkei Asian Review, March 2, 2016, http://asia.nikkei.com/Business/Companies/Olympus-to-pay-US-Justice-Dept...)

A consortium of Japanese and Turkish companies, consisting of Renaissance Heavy Industries (Turkey) and Japanese engineering companies JGC and Chiyoda, is bidding USD $15-20 billion to build natural-gas processing facilities in Turkmenistan’s Galkynysh field, one of the world’s largest gas fields. These facilitates would include the construction of facilities that remove impurities like carbon dioxide and water from natural gas. The President of Renaissance hopes deal terms between the consortium and Turmenistan will be decided by summer. JGC and other companies signed a memorandum of understanding to build these facilities when Japanese Prime Minister Shinzo Abe visited Turkmenistan last October (“Consortium Offers Up to $20bn for Turkmenistan Gas Project,” Nikkei Asian Review, February 29, 2016, http://asia.nikkei.com/Business/Companies/Consortium-offers-up-to-20bn-f...)

A Korean delegation, led by the Korean Trade Minister and accompanied by the heads of 95 companies and organizations, journeyed to Iran to meet with top Iranian officials and businessmen. The Korean delegation proposed cooperation in social overhead capital projects and industrial base enhancement while the Iranian side invited Korea to participate in various projects. Deals struck include POSCO signing a memorandum of agreement with Iran’s Pars Kohan Diarparsian Steel to build a steel mill; state-run utility company KEPCO and two subsidiaries of POSCO signing a memorandum of agreement with the PKP; and KEPCO signing various MOUs with Iranian companies (Bae Ji-sook, “Korean Businesses Hasten Entry into Iranian Market,” The Korea Herald, February 29, 2016, http://www.koreaherald.com/view.php?ud=20160229001158)

A South Korean consortium involving Sunjin Engineering & Architecture and Pyunghwa Engineering Consultants secured an urban development deal in Bolivia worth USD $9.6 million. Korea’s Ministry of Land, Infrastructure and Transportation announced that the consortium will participate in a project to build a new city in Bolivia that will cover 58 square kilometers. The development deal will include planning the city’s utility, communications and traffic infrastructure and should generate about 1.5 trillion won of business for the relevant firms involved (“Korean Consortium Inks $9.6 mln Construction Deal in Bolivia,” The Korea Herald, March 2, 2016, http://www.koreaherald.com/view.php?ud=20160301000374)

According to Indonesia’s Investment Coordinating Board (BKPM), the government will set up a “China Desk” to better serve Chinese investors in the face of expanding Chinese outward investment. This desk will employ Chinese-speaking staff to address issues hindering potential Chinese investors such as long response times and language barriers. Chinese investment to Indonesia is increasing with 15 percent of investment interests being realized last year versus 7 percent per year during the period 2010 to 2014. China’s Ambassador to Indonesia remarked Indonesia is a priority destination for Chinese companies and that Chinese investors are optimistic about President Joko Widodo’s administration (Khoirul Amin, “Eyes on Asian powerhouse as China expands investment in RI,” The Jakarta Post, March 1 2016, http://www.thejakartapost.com/news/2016/03/01/eyes-asian-powerhouse-chin...)

Vietnam registered to invest more than USD $2.8 billion dollars in FDI during the first two months of 2016. According to Vietnam, over USD $1.9 billion consisted of 291 newly-licensed projects. The manufacturing and processing sector accounted for more than $1.99 billion of total FDI while the entertainment industry accounting for USD $210.6 million. Singapore remains the leading investor in Vietnam with USD $435.2 million, 22.8 percent of the nation’s newly registered FDI. Other important investors, in order, include Malaysia, South Korea, and Japan. Ha Noi ranks as the most attractive investment destination followed by Bac Giang and Bac Ninh (“Viet Nam’s FDI inflow surges at start of year,” Vietnam News, February 29 2016, http://vietnamnews.vn/economy/282934/viet-nams-fdi-inflow-surges-at-star...)

Vietnam should seek more foreign investment to develop domestic suppliers of parts or materials for manufacturing. Free trade agreement means that industries such as garments, textile and leather and footwear have greater opportunities in developing markets while simultaneously facing greater challenges due to rules of origin. One obstacle to progress is that the government fails to provide sufficient information to foreign investors from certain countries like Turkey. It needs to provide more information about the investment environment, industrial zones, and the projects themselves. Environmental pollution control is another factor that makes foreign investment difficult from the host country vantage point (“Foreign investment needed to develop part suppliers,” Vietnam News, March 2 2016, http://vietnamnews.vn/economy/283055/foreign-investment-needed-to-develo...)