MNCs in the News-2016-04-08

“Chinese officials have missed their own March deadline to submit a new offer for a proposed investment treaty.” According to U.S. Trade Representative Michael Froman, China specifically did not submit a revised negative list proposal. When Presidents Barack Obama and Xi Jinping met last September, the two leaders agreed the two countries should work closely to conclude a high-standard bilateral investment treaty, with the US wanting China to “‘significantly narrow its proposed negative list and demonstrate a substantial liberalization of the Chinese investment market,’” among other things. During the Washington nuclear summit, both Obama and Xi pledged to expedite talks (David Lawder, “China Misses Deadline for ‘Negative List’ Investment Offer to U.S.,” Reuters, April 1, 2016, http://www.reuters.com/article/us-usa-china-trade-idUSKCN0WY5OU)

There are many expectations China’s yuan will depreciate over the next year or so. For some, then, it is not surprising Chinese companies are racing to do deals overseas in order to diversify some asset and hedge the currency. The incentive is even stronger given that “‘Chinese companies want to become world class.’” Moreover, while the government is trying to limit capital outflows, it is “encouraging foreign deal making to win know-how and global market share.’” Finally, Chinese firms have around US $3.78 trillion of cash on their balance sheets. Lastly, overseas assets are cheap and global borrowing costs low (Kyoungwha Kim and Jonathan Browning, “China Inc.’s Record Foreign Deal Spree Shows Fear of Weaker Yuan,” Bloomberg, April 5, 2016, http://www.bloomberg.com/news/articles/2016-04-05/china-inc-s-record-for...)

In an editorial, the Washington Post raised alarm about the dangers of Chinese acquisitions of foreign firms, highlighting that some of the deals are “nationalistic” and “murky” and noting that acquisitions by “nontransparent and cronyistic” Chinese companies might pose “risks…of a kind not posed by investment from democratic allies” in non-traditional security areas like agriculture. It also noted that some Chinese acquisitions might be used to implement even more mercantilistic policies such as only taking product from Chinese-owned companies or gaining control of supply chains. Hence it suggested the U.S. adopt a “new approach to account for the new reality” (“China’s Buying up Foreign Companies, so the U.S. Might Have to Rethink its Trade Strategy,” Washington Post, April 3, 2016, https://www.washingtonpost.com/opinions/chinas-buying-spree/2016/04/03/f....

Reacting to U.S. Department of Commerce penalties, lifted on a conditional basis, charging ZTE with violating rules on the export of American technology to Iran and elsewhere, ZTE will replace three senior executives including its Chief Executive and two executive vice presidents. A document obtained by the U.S. “detailed the Chinese firm’s elaborate plans to set up shell companies to ship good to Iran without getting caught.” Originally imposed US sanctions on ZTE include blocking ZTE’s access to supplies of US components and software manufactured in the US and overseas. ZTE has warned of possible further criminal and civil liabilities (Juro Osawa, “China’s ZTE to Replace Three Senior Executives,” The Wall Street Journal, April 4, 2016, http://www.wsj.com/articles/chinas-zte-to-replace-three-senior-executive... Gao Yuan, “ZTE says US Investigation May Leads to Penalties, Sink Trading in Hong Kong,” China Daily, April 7, 2016, http://www.chinadaily.com.cn/business/tech/2016-04/07/content_24354337.htm)

China’s Beijing Urban Construction Group (BUCG) has won a bid to build a US $300 million international cargo hub and airport in Bolivia’s Viru Viru. The airport will be financed by China’s Eximbank. During the bidding process, BUCG defeated four other Chinese state-owned enterprises. The airport will present an alternative to airports in Lima, Peru and Sao Paulo, Brazil, which already have exceeded their traffic and cargo capacity. BUCG built China’s National Stadium, better known as the “Bird’s Nest,” which was a key site for the 2008 Beijing Summer Olympics (“Chinese Company Wins Bid to Build Intl Cargo Hub in Bolivia,” China Daily, April 7, 2016, http://www.chinadaily.com.cn/business/2016-04/07/content_24343679.htm)

Korea Electric Power Corp (KEPCO) won its first overseas order to build a solar power plant. It soon will sign a contract with Japan’s Hokkaido Electric Power Co. for the project, which will cost USD $101.48 million and have a total capacity of 39 Megawatts. Korea Development Bank will finance 80 percent of total project expenses. The project is expected to benefit many other Korean firms since domestic component firms will supply various inputs for the project. KEPCO will be responsible for the operation and maintenance of the solar power plant for next 20 years (Jung Min-hee, “KEPCO Wins First Overseas Solar Power Plant Project,” Business Korea, April 7, 2016, http://www.businesskorea.co.kr/english/news/industry/14328-kepco’s-adventure-kepco-wins-first-overseas-solar-power-plant-project)

Indonesia’s Investment Coordinating Board(BKPM) warned it will annul the investment permits of foreign companies that are avoiding their tax obligations. According to the BKPM, there are about 2,000 foreign investors who have avoided taxes over the last ten years by declaring losses or changing their names to obtain new tax allowances, with the total state tax loss estimated at US $38 billion. BKPM chairman Franky Sibarani said all the licenses will automatically expire and tax-avoiding companies will have to sell the assets. The government has settled some milder cases through meditation as it wants the relevant firms to continue operating (Anton Hermansyah, “Investment board warns foreign companies over tax avoidance,” The Jakarta Post, http://www.thejakartapost.com/news/2016/04/05/investment-board-warns-for...)

The Indonesian National Development Planning Ministry and the French Ministry of Foreign Trade and Tourism Promotion are developing the potential for infrastructure investment in Indonesia. According to Indonesian National Development Planning Minister Sofyan Djalil a “‘French delegation brought a number of entrepreneurs who are interested in investing and establishing cooperative projects in Indonesia that were financed by the government of France, such as telecommunications, facilities for the television industry, a green city, and transportation.’” Last year, bilateral cooperation reached a total of 4 billion Euros, with 160 French companies based in Indonesia creating 40,000 jobs (“Indonesia, France develop infrastructure investment,” Tempo.co, April 8 2016, http://en.tempo.co/read/news/2016/04/08/056760867/Indonesia-France-Devel...)

United Power of Asia Plc (UPA), a Thai company, has signed a power purchase agreement (PPA) with Myanmar’s state utility to construct a 200 megawatt gas-fired power plant, with a budget of 10 billion baht, in the Dawei special economic zone. The Myanmar state utility will pay a 1.8 baht per kilowatt-hour tariff and the plant is expected to operate commercially by 2020. Myanmar PTT Exploration and Production’s Zawtika project will supply gas for the power plant. In Myanmar, there is far from enough electrical power supply with only 30 percent of Burma’s 60 million population having access to electricity (Yuthana Praiwan, “UPA Signs B10bn Dawei Power Plant Deal,” Bangkok Post, April 4, 2016, http://www.bangkokpost.com/business/news/920669/upa-signs-b10bn-dawei-po...)

Russia and the US are competing for investment opportunities in Vietnam, with the US’s increasing presence making it harder for Russia and other countries to compete successfully in the Vietnamese market. Currently, Russia remains Vietnam’s favorite partner in sectors such as high-technology, national defense, and nuclear power while the US mostly makes investment in high technology, including information technology. For observers, the competition is a positive sign showing Vietnam’s great potential. For their part, US and Russian firms see an abundance of cheap labor and plentiful material resources in Vietnam (“US, Russia compete for investment opportunities in Vietnam” Vietnam net Bridge, April 5 2016, http://english.vietnamnet.vn/fms/business/154262/us--russia-compete-for-...)

Vietnam has published policies to attract more investment, especially FDI, in the farming industry. Specifically, its Ministry of Agriculture and Rural Development has submitted a draft strategy to the government for attracting greater amounts of FDI in the farming, forestry and fishery sector by 2030. The ministry’s draft proposes incentives for foreign investors such as corporate income tax reduction, import and export tax reductions, and exemption of land rent for the first several years of projects. The ministry forecasts FDI in the sector will reach US $5 billion by 2020 and $8 billion by 2030 (“Gov’t eyes FDI in farming sector,” Vietnam News, April 2 2016, http://vietnamnews.vn/economy/294430/govt-eyes-fdi-in-farming-sector.html)

Vietnam warmly welcomed investors from China, Hong Kong and Macau at a seminar held in Hong Kong this week. The Vietnamese Consul-General to Hong Kong and Macau said that “Hanoi welcomes large companies in China, Hong Kong and Macau to explore Vietnam.’” The country is developing its operating environment and relevant policies and constructing a legal framework that aligns with international investor requirements. The Hong Kong Special Administrative Region runs 13 investment projects in Vietnam, with a registered capital of almost US $1 billion. Vietnam and mainland China “have established numerous cooperation mechanisms in hopes of creating [bilateral] business opportunities” (“Officials highlight investment opportunities in Vietnam,” Macau Daily Times, April 8 2016, http://macaudailytimes.com.mo/officials-highlight-investment-opportuniti...)