MNCs in the News-2016-03-11

According to Chinese Ministry of Commerce (MOFCOM) statistics, foreign direct investment (FDI) flows into China in January and February 2016 topped USD $22.5 billion, an increase of 2.7 percent year over year (YOY), despite the economy’s slow growth. Of this total inward FDI (IFDI), USD $14 billion or nearly 63 percent constituted investment in the service sector. IFDI in the high tech sector grew dramatically, surging approximately 157 percent YOY to reach more than USD $2.5 billion. The biggest investors in China during the two month period were the United Kingdom, United States, and Singapore (“China’s FDI Grows in Jan.-Feb.,” China.org.cn, March 11, 2016, http://www.china.org.cn/business/2016-03/11/content_38000570.htm)

In October 2015, Bristol-Myers Squibb, a large US pharmaceutical company, entered into a settlement with the US SEC relating to charges that its China joint venture (JV) had garnered millions of dollars of profits by violating the Foreign Corrupt Practices Act (FCPA). Supposed FCPA violations included providing Chinese health care providers cash, entertainment, gifts, jewelers, and meals. To prevent reoccurrences, Bristol-Meyers Squibb has cracked down on entertaining doctors or paying them to attend events. The company stated, we have “‘voluntarily stopped certain initiatives in China as the company continues to review its activities and build upon its business model in China’” (Andrew Ward, “Bristol-Myers Squibb Shakes Up China Operations to Combat Bribery,” Financial Times, March 8, 2016)

China’ General Administration of Quality Supervision, Inspection, and Quarantine recently announced in a statement posted on its website that Chrysler would recall nearly 21,000 automobiles due to an oil pipe defect that had the potential to cause oil leaks that might result in a fire. The affected cars include imported Compass and Patriot models manufactured between January 1, 2015 and May 11, 2015. Chrysler said it would replace any faulty components at its own expense (“Chrysler Recalls 20,670 Vehicles in China,” China Daily, March 10, 2016, http://www.chinadaily.com.cn/business/motoring/2016-03/10/content_238144...)

In January 2016, COFDI hit USD $12 billion, a dramatic increase over the prior month and an 18.2 percent increase YOY. According to statistics from Morning Whistle Group, 92.5 percent of investment in January 2016 was done by smaller enterprises. Moreover, private companies represented 77 percent of M&A deals last year. Chinese firms invested heavily in agriculture, media, natural resources, technology, and telecommunications, with about 13 percent of money going into manufacturing and 13 percent flowing to the US. Abundant cash, low interest rates, government funding vehicles like the Silk Road Fund, overseas bargains, among other things, are fueling COFDI (“Record Year in Sight for Overseas Mergers and Acquisitions,” China.org.cn, http://www.china.org.cn/business/2016-03/05/content_37946133.htm)

Recent analyses show that COFDI in Europe (meaning the European Union, Norway, and Switzerland) has reached record highs with state-owned and private businesses pouring USD $23 billion into the region in 2015. This represented a 28 percent increase YOY. In 2014, when COFDI ran $18 billion, the YOY increase in percentage terms was 200 percent. In 2015, Italy received the biggest share of COFDI in Europe, though much of it was associated with one deal, ChemChina’s acquisition of Pirelli. There are some who see investment slowing, but investment in 2016 to date seems fairly strong (Claire Jones, “Chinese Investment in Europe Hits $23bn Record,” Financial Times, March 10, 2016)

At a press conference on the sidelines of China’s annual national legislature session, Minister of Agriculture Han Changfu told reporters that “China is encouraging more enterprises to invest in agriculture in Russia’s Far East.” Han said that investment from places like Heilongjiang province in China had “yielded handsome returns” and that he expected “more Sino-Russian cooperation in agricultural research and development as well as professional training.” He added that the two countries had “a solid foundation to expand agricultural cooperation” (“China to Invest More in Russia’s Far East,” China.org.cn, March 7, 2016, http://www.china.org.cn/business/2016-03/07/content_37957654.htm)

COFDI in the US hit a record USD $15.7 billion in 2015 and should exceed that in 2016. In the view of some observers, “the investment is part of a nascent trend that is reshaping the economic relationship between China and the US—and may one day alter longstanding electoral habits,” making some voters embrace a more favorable stance towards China. Still, “the numbers [in terms of overall investment and employment] remain relatively small compared with other longstanding Asian investors.” For example, Japanese firms employed 900,000 American workers in 2014 versus 80,000 for Chinese companies (Shawn Donnan, “China Rust Belt Investment Set to Challenge US Voting Habits,” Financial Times, March 10, 2016)

The Chicago Transit Authority has awarded China Railway Rolling Stock Corp. subsidiary CSR Sifang America, a JV of CRRC Qingdao Sifang Co. Ltd. and CSR America, a USD $1.3 billion order to supply up to 850 railcars. The cars will be locally assembled at a “new purpose-built plant.” The expectation is the plant will create nearly 170 jobs. 400 railcars should be delivered in 2019 and start service in 2020 with an option for 446 cars later. National People’s Congress deputy Wang Mengshu said the deal represented “‘another major breakthrough for the Chinese railway industry in the North American market’” (Zhong Nan and Xie Chuanjiao, “CRRC Offshoot Wins $1.3b Order for Chicago Railcars,” China Daily, March 11, 2016, http://www.chinadaily.com.cn/business/2016-03/11/content_23820329.htm)

Electricity of Vietnam, a state-owned enterprise (SOE), has awarded a contract worth around USD $620 million to Mitsubishi Corp., a Japanese trading house, and Doosan Heavy Industries & Construction, to build a coal-fired power plant in southern Vietnam. Mitsubishi and Doosan already are working with two local Vietnamese partners to build two 600-megawatt coal power plants and the new order will expand capacity (though the new plant will be more efficient and environmentally friendly). Mitsubishi will provide steam turbines and power generation equipment while Doosan will provide boilers and do requisite construction. The companies’ local partners will supply auxiliary equipment (“Mitsubishi, Doosan Heavy Win Power Plant Order in Vietnam,” Nikkei Asian Review, March 11, 2016, http://asia.nikkei.com/Business/Companies/Mitsubishi-Doosan-Heavy-win-po...)

A recently released survey of 139 European firm executives by the European Chamber of Commerce in Korea and consulting firm Roland Berger shows European companies in Korea have little confidence in Korea’s legislative and regulatory system. The biggest concern about Korea’s legislative and regulatory environment is discretionary enforcement of regulations with many firms dissatisfied. The government’s constant changes in regulations of special consumption tax last year are an example of the problems foreign businesses confront. Foreign firms are pushing for “a reliable business environment for stable pricing, system and marketing strategies” and want the government to improve its legislative system (Shin Ji-hye, “European Firms Don’t Trust Korea’s Regulatory System,” The Korea Herald, March 9, 2016, http://www.koreaherald.com/view.php?ud=20160308000814)

The Korea Trade-Investment Promotion Agency (KOTRA) has signed a MOU with Italy’s SIMEST, a financial institution set up by the Italian Ministry for Economic Development to boost Italian companies’ foreign investment. Italy has many prominent companies in sectors such as cold chain, automobile components, and fashion and beauty, but they have not invested much in Korea. Under the MOU, Invest KOREA, a KOTRA investment promotion agency, and SIMEST will share economic and industrial information and provide financial support to promote bilateral investment. The head of Invest Korea said the arrangement will facilitate more Italian companies investing in Korea going forward (Jung Min-hee, “KOTRA Signs MOU with SIMEST to Promote Investment in Korea,” Business Korea, March 9, 2016, http://www.businesskorea.co.kr/english/news/politics/14037-investment-pr...)

In early March, South Korean President Park Geun-hye and Egyptian President Abdel Fattah el-Sisi met in Seoul. During the summit, they signed nine Memorandums of Understanding (MOUs), which will give Korean companies an opportunity to assume a bigger role in Egyptian infrastructure construction projects. The nine MOUs also include one relating to financial cooperation, which will help Korean companies bid for big projects. The two countries also will cooperate more on construction and engineering projects such as a seawater desalination project. They also plan to expand their cooperation in solar power generation, waste recycling and energy production, and nuclear power (Jung Suk-yee, “Korean Enterprises to Join Infrastructure Projects in Egypt,” Business Korea, March 4, 2016, http://www.businesskorea.co.kr/english/news/politics/14003-korea-egypt-s...)

The liberalization of certain industrial sectors such as the film sector in February has generated new interest among foreign investors. For example, according to Indonesia Investment Coordinating Board (IICB), South Korean investors plan to invest up to USD $200 million to build new cinema screens across up to 800 points in the country while a Taiwanese company plans to sink in $5 million to build new screens. The cinema field remains a huge market for investment and more and more people investing in the field can generate a huge multiplier effect for the Indonesian economy (“South Korea, Taiwanese players show interest to invest in Indonesia cinema biz,” Deal Street Asia, March 9 2016, http://www.dealstreetasia.com/stories/south-korea-taiwanese-investors-to...)

The Thai Business Development Department (TBDD) will work with the Franchise License Association (FLA) to assist franchise business operators conduct business in eleven foreign markets, namely Association of Southeast Asian Nations (ASEAN) countries, China, and Japan. The TBDD and FLA will focus on sectors like food, beauty, and education. At present Thailand has 22 franchise businesses overseas with the TBDD seeking to raise the number to 30. TBDD and the FLA hope their collaboration will increase overseas-branch income from Bt70 billion to Bt80 billion annually (“Push for More Franchising across Borders,” The Nation, March 5, 2016, http://www.nationmultimedia.com/business/Push-for-more-franchising-acros...)

The State Railway of Thailand (SRT) welcomes foreign construction companies to join government investment projects as long as they find a Thai partner and obey Thai rules and regulations. At a seminar entitled “Infrastructure Development Plan,” the governor of SRT Wuthichart Kalyanamitra expressed his support for JVs, saying “the authority was not preventing foreign firms from participating in the bidding for construction of the government's investment projects.” This year, the SRT is endeavoring to launch six dual-track railway construction projects and also is considering a Sino-Thai medium-speed rail project, three Japanese-Thai high-speed projects, and extensions of certain urban rail routes (Sasithorn Ongdee, “SRT Calls for Foreign-Thai JVs,” The Nation, March 8, 2016, http://www.nationmultimedia.com/business/SRT-calls-for-foreign-Thai-JVs-...)