MNCs in the News-2016-04-22

Chinese Ministry of Commerce (MOFCOM) officials expressed confidence inward FDI (IFDI) flows would maintain good momentum even though they might not grow rapidly, with some investment professionals stressing China was still one of the most popular investment locations. MOFCOM noted March year over year (YOY) IFDI flows surged 7.8 percent with strong growth in M&A in 2016’s first quarter and in March. It underlined IFDI into China’s western regions was quite healthy with a 42.5 percent increase YOY over the prior first quarter. MOFCOM also reported IFDI in the service and high-tech service sectors showed strong 1st quarter YOY growth (“China Remains Top Global Investment Destination,” China.Org.cn, April 12, 2016, http://www.china.org.cn/business/2016-04/12/content_38223877.htm; “China’s FDI Rises 4.5% in Q1,” China.Org.cn, April 13, 2016, http://www.china.org.cn/business/2016-04/13/content_38231956.htm; “China’s FDI to Maintain Steady Growth This Year,” China.Org.cn, April 19, 2016, http://www.china.org.cn/business/2016-04/19/content_38278784.htm).

China’s State Administration for Industry & Commerce (SAIC) released data indicating “China has seen a rapidly growing presence of foreign-funded firms in its economy over the past five years.” SAIC data showed nearly 200,000 foreign funded enterprises (FFEs) were set up from 2011 to 2015, with total investment of $1.39 trillion. By the end of 2015, there were more than 480,000 FFEs in China with a total investment of $4.54 trillion. The service sector was a big target of IFDI between 2011 and 2015, garnering 160,000 FFEs and around $598 billion of investment. Manufacturing showed declines from 2011 to 2015 (“China Sees Growing Presence of Foreign Firms,” China.org.cn, April 13, 2016, http://www.china.org.cn/business/2016-04/13/content_38233067.htm)

China’s National Development and Reform Commission (NDRC) announced it will test a “negative list” approach, which identifies areas where IFDI is prohibited or restricted, in Fujian, Guangdong, Shanghai, and Tianjin. The NDRC’s draft negative list details 96 items that are off limits and 233 items that are restricted. According to the government, “the pilot is a major step towards government aim to explore a system that could be replicated nationwide…in 2018 as part of efforts to streamline government administration and give more freedom to the market.” In 2013, China adopted its first “negative list” in the Shanghai Free Trade Zone (“China Tests ‘Negative List’ Approach in Four Regions,” China Daily, April 9, 2016, http://www.chinadaily.com.cn/business/2016-04/09/content_24397247.htm).

In its annual China Business Climate survey, the American Chamber of Commerce in China expressed concern about various Chinese government policies and the government’s commitment to reform. It said “China’s national security regulations and industrial policies [like Internet Plus and Made in China 2025] are at odds with [China’s] reform goals” and that China’s policies “‘had led to doubt about the government’s intentions to reform and open the economy’” and made foreign firms feel they were being subject to discrimination. Chinese leaders have said the government is not discriminating and intends to implement policies that will support increased foreign investment (Michael Martina, “U.S. Business Lobby Says China’s Policies Conflict with Reform Goals,” Reuters, April 15, 2016, http://www.reuters.com/article/us-china-usa-business-idUSKCN0XC0G5)

Testifying under oath before the U.S. Congress about issues relating to the Federal Bureau of Investigation (FBI)’s request that Apple unlock encrypted data on an IPhone belonging to one of the individuals involved in the December 2015 San Bernardino terrorist attack, Apple stated it had “been asked by Chinese authorities within the last two years to hand over its source code, but refused.” Apple General Bruce Sewell said, “‘we have not provided source code to the Chinese government.’” “Some law enforcement officials have attempted to portray Apple as possibly complicit in handling over information to China’s government for business reasons” (Dustin Volz, “Apple Refused China Request for Source Code in Last Two years: Lawyer,” Reuters, April 20, 2016, http://www.reuters.com/article/us-apple-encryption-idUSKCN0XG28Z)

In its earlier anti-monopoly investigations, China focused on German and Japanese automakers when examining whether or not there were potential anti-monopoly violations. More recently, however, it seems to be turning its attention to Korean firms. It recently found Hankook Tire’s affiliate in Shanghai violated regulations because of its so-called “minimum resale price maintenance” between 2012 and 2013 and fined the company $334,000, equivalent to 1 percent of its annual sales. This is the first time that China has fined a Korean tire company in China (“Hankook Tire Fined in China for Resale Price-Related Violation,” The Korea Herald, April 19, 2016, http://www.koreaherald.com/view.php?ud=20160419000365).

“Chinese companies continue to invest big in the overseas market.” In Q1, non-financial COFDI surged 55.4 percent YOY to more than $40 billion, with Thomson Reuters saying overseas deals hit $101 billion in Q1 (versus $109.5 billion in 2015). M&A deals in Q1 hit $16.6 billion. Per MOFCOM, “Hong Kong attracted the most investment…accounting for 51.6 percent of the total, while investment to the United States…doubled to $5.24 billion.’” $5.4 billion was poured into manufacturing. MOFCOM reports One Belt, One Road COFDI increased 40.2 percent YOY. Surging COFDI links to gaining technology and brands, tapping new markets, and bargain shopping (“China’s Non-Financial Outbound Investment Surged in Q1,” China.Org.cn, April 15, 2016, http://www.china.org.cn/business/2016-04/15/content_38249109.htm; Tetsuya Abe and Akira Yamashita, “China Shatters Quarterly Record for Foreign M&A Deals,” Nikkei Asian Review, April 20, 2016, http://asia.nikkei.com/Business/Deals/China-shatters-quarterly-record-fo... Zhong Nan, “Overseas Buying Helps Push Quarter’s M&A Past $16b,” China Daily, April 20, 2016, http://www.chinadaily.com.cn/business/2016-04/20/content_24679001.htm)

A study by EY, a consultancy, expects Chinese outward FDI (COFDI) will grow at an annual rate of 10 percent with good momentum over the next five years because of China’s “continuous promotion of the ‘Go Global’ policy and the gradual implementation of the national strategies of the Belt and Road initiative as well as ‘Made in China 2025.’” Good growth is expected in high-speed rail and nuclear power, where China firms have experience, low costs, advanced technology, and good financial support, with Chinese investment becoming “more diversified and of higher quality” as Chinese firms acquire technology and marketing networks (Guo Xiaohong, “China’s 2016 Investment Expected to Grow over 10%,” China.Org.cn, April 15, 2016, http://www.china.org.cn/business/2016-04/15/content_38252098.htm).

According to South Korea’s Fair Trade Commission (FTC), after months of negotiations, Apple Korea Inc., the local unit of the US tech company, has revised the problematic Authorized Service Agreement that it has with six local maintenance service firms, the first time Apple has revised its Agreement. Previously, Apple could terminate contracts with local suppliers unilaterally without notification or any compensation for losses caused by Apple’s withdrawal. In addition, local firms had to accept the English version of the Agreement (“Apple Revises Unfair Service Agreement with Local Repair Businesses,” The Korea Herald, April 21, 2016, http://www.koreaherald.com/view.php?ud=20160421000774)

The Korea-China Free Trade Agreement (FTA) has stimulated foreign investment into Korea. Korean Ministry of Trade, Industry, and Energy data shows that COFDI into Korea reached $375 million over the first three months of the year, a dramatic increase over the same period YOY. COFDI in the manufacturing sector has shown particularly large increases as Chinese firms have sought to secure popular Made in Korea products. Furthermore, companies seeking to expand their presence in China have leveraged Korea as a springboard. Many investments involve manufacturing facilities located in the west coast of Korea, the best route for exports to China (Seo Dong-cheol, Chang Young-suk, “Foreign Firms up Investments in Korea to Benefit from Korea-China FTA,” Pulse, April 12, 2016, http://pulsenews.co.kr/view.php?sc=30800021&year=2016&no=267504)

Samsung Heavy Industries Co. faces cancellations of several billion dollars worth of offshore projects. The President of Malaysia’s state-owned oil company Petroliam Nasional Berhad (Petronas) plans to push back delivery of a floating liquefied natural gas (FLNG) assigned to Samsung Heavy Industries. In addition, Total S.A. (France) hints an offshore deal in Australia with Samsung Heavy Industries might not be fulfilled as planned. On top of this, the Australian government is delaying a major FLNG project for several years. Samsung Heavy Industries won an order for the FLNG facility, and would lose a major opportunity if Australia cancels the project (Park Yong-beom, “Samsung Heavy Industries in More Multibillion-dollar Offshore Setbacks,” Pulse, April 15, 2016, http://pulsenews.co.kr/view.php?sc=30800021&year=2016&no=276067)

Indonesia’s President Joko Widodo Jokowi’s planned European trip is expected to boost FDI from Europe to Indonesia. During the period from 2010 to 2015, realized investment from Europe reached Rp149.8 trillion. Indonesian investment authorities hope Widodo’s visit, which will entail trips to the Netherlands, Britain, Germany, and Belgium, will serve to boost Europe investment in Indonesia. Jokowi will attend a business forum in every country and each forum is expected to draw some 200 to 250 businesspeople. Europe ranks third among major foreign investors in Indonesia and the four countries on Jokowi’s agenda are important sources of FDI for Indonesia (Jumat, “Indonesia optimistic of attracting more foreign direct investment from Europe,” Antaranews, April 15 2016, http://www.antaranews.com/en/news/104179/indonesia-optimistic-of-attract...)

The Danish government has concluded a Memorandum of Understanding (MoU), effective for 5 years, with Indonesia’s Agriculture Ministry pursuant to which it will invest at least US $152.7 million in Indonesia’s cattle, corn, and sugar plantation industries. Denmark will provide agriculture technology to Indonesia while Indonesia will provide two million hectares of land for investment. Indonesia expressed its eagerness to provide the land for different plantations and said that Indonesia’s president has approved the plan. Denmark’s Environment and Food Minister showed interest in poultry, pig meat, and dairy and said his country’s technology can improve the production of individual farmers (Anton Hermansyah, “Denmark invests Rp 2 trillion in Indonesia’s agriculture sector,” The Jakarta Post, April 13, 2016, http://www.thejakartapost.com/news/2016/04/13/denmark-invests-rp-2-trill...)

Experts said Vietnam should be more cautious when providing FDI tax incentives. They also stressed the country needs to improve its tax legal system and management to prevent tax evasion and avoidance, especially by foreign investing firms. According to the report by ActionAid Vietnam and Vietnam Tax Consultants Association, generous incentives for inward foreign direct investors have caused losses in the millions of dollars to the State Budget. They asserted that it is time to be more selective in attracting FDI by gearing it towards the sectors needing development. Beyond this, they noted authorities should improve their FDI management capabilities (“Experts urge tax incentive caution,” Vietnam News, April 16 2016, http://vietnamnews.vn/economy/295319/experts-urge-tax-incentive-caution....)

The government of Myanmar has granted a license to Vietnam’s military-run Telecommunications Group (Viettel) to build, in conjunction with two local firms, a modern, $1.5 billion telecommunication network across the country. The network will use 3G technology and should reach 95 percent of Myanmar’s population in three years. Viettel will quickly supply 4G service if it receives an addition license from the government. Cooperation with local companies should make it easier for Viettel to gain easier access to the Myanmar market as well as to build the telecommunication network. Viettel’s long-term investment strategy covers networks nationwide, providing advanced network quality (“Viettel to invest $1.5b in Myanmar,” Vietnam News, April 16 2016, http://vietnamnews.vn/economy/295462/viettel-to-invest-15b-in-myanmar.html)

*The information used herein is gathered from sources believed to be reliable, but the Wong MNC Center does not guarantee their accuracy. The content in this section does not necessarily represent the official view of the Wong MNC Center, its Board of Directors, or its Advisory Board.