MNCs in the News-2016-05-13

China’s Ministry of Commerce (MOFCOM) reported China’s inward FDI (IFDI) for the January to April period totaled $45.3 billion, a 4.8 percent increase year-over-year (YOY). Service sector IFDI, which was 70.2 percent of the total, rose 7.9 percent. High-tech service sector IFDI surged 108.6 percent, with so-called fast growth areas like information technology and scientific and development experiencing dramatic YOY increases. MOFCOM encouraged foreign companies to consider B2B opportunities like facilities management and B2C businesses. MOFCOM said it “plans a series of key measures to further ensure stable FDI inflows such as easing rules relating to culture and education IFDI (“FDI Rises on 4.8% on High-Tech, Manufacturing,” China.org.cn, May 11, 2016, http://www.china.org.cn/business/2016-05/11/content_38428812.htm)

At a national telecommunications conference on streamlining administration Chinese Premier Li Keqiang said China would redouble its “efforts to streamline government administration, transform government functions, and boost efficiency…to spur economic vitality and attract overseas investment.” He noted one reason China had to take additional measures was to deal with its diminishing demographic dividend. During the call, Shanghai touted its reform experiences including introducing a negative list, establishing dramatically faster business registration policies, and implementing 100 new trade measures such as better customs clearance procedures. Premier Li said “these measures have made a difference, and China’s business environment has greatly improved” (“Li Reiterates Streamlining Bid to Boost Foreign Investment,” China.Org.cn, May 10, 2016, http://www.china.org.cn/business/2016-05/10/content_38417586.htm)

According to Chinese sources, China’s National Development and Reform Commission (NDRC) is gathering evidence on foreign and local firms involved in drugs, distribution, and medical device manufacturing to see if they had violated competition regulations. Reportedly it “plans to launch a ‘large-scale and systematic’ anti-trust investigation” and already has summoned some firms to provide data. It is not clear if the initiative was part of China’s effort to advance its goal of reducing “its reliance on generic and more innovative drugs from overseas” (Brenda Goh, “China Regulator to Launch Probe into Foreign, Local Drug Firms: China Daily,” Reuters, May 6, 2016, http://www.reuters.com/article/us-china-healthcare-idUSKCN0XY02V)

Foreign pharmaceutical firms, which have a large share of the market, are under pressure from Chinese government demands for lower priced drugs, government limits on the amount of money that public hospitals can spend on foreign firm pharmaceuticals, and NDRC moves to equalize the pricing regime for brand name drugs and generics. In response, foreign firms have been cutting their staffs, lowering prices, focusing on the over-the-counter market, and shedding non-core operations. Nevertheless, there are few firms that would contemplate leaving China as a result of government measures given the importance of the China market (Li Yan, “Gov’t Forces Big Pharma to Swallow a Bitter Pill,” Caixin, May 12, 2016, http://english.caixin.com/2016-05-12/100942710.html)

Apple has poured $1 billion into Didi Chuxing, a Chinese car-hailing ap, which is a big rival to Uber and includes Alibaba and Tencent among its backers. Tim Cook, Apple’s CEO, “said the move would help Apple to better understand the Chinese market.” Uber is making inroads, but struggling against Didi Chuxing (formerly Didi Kuaidi) in China. Apple’s investment follows a decision by Chinese regulators to shut down Apple’s online book and movie services in China and, of course, Didi offers data gathered from its 11 million daily riders and the over 300 million users it has serviced over time (“Apple Invests in Chinese Uber Rival Didi Chuxing,” BBC News, May 13, 2016, http://www.bbc.com/news/business-36283661; Meng Jing, “Apple Invests $1b in China’s Ride-Hailing Services Didi Chuxing,” China Daily, May 13, 2016, http://www.chinadaily.com.cn/business/tech/2016-05/13/content_25253757.htm)

For the second time, a Chinese court has ruled Zhujiang Beverage, which sells porridge and milk based drinks, will not be allowed to use the Chinese trademark “lian Shun” (meaning Facebook) for its products. Zhujiang Beverage argued it had registered “lian shu” as a trademark, but the Beijing court concluded that the firm had “‘violated moral principles’ with ‘obvious intention to duplicate and copy from another high-profile trademark.’” Some take it as a favorable sign for Facebook or the success of Facebook Mark Zuckerberg’s effort to court China. Of note, the ruling follows an unfavorable trademark case ruling against Apple (Stella Tsang, “Facebook Beverages Won’t Be a thing in China after Rare Trademark Win,” Reuters, May 9, 2016, http://www.reuters.com/article/us-facebook-china-copyright-idUSKCN0Y00NE; Alyssa Abkowitz and Lilian Lin, “Facebook Wins a Trademark Battle in China,” The Wall Street Journal, May 9, 2016, http://blogs.wsj.com/chinarealtime/2016/05/09/facebook-wins-a-trademark-... “Facebook Wins a Trademark Suit in China,” China Daily, May 10, 2016, http://www.chinadaily.com.cn/business/2016-05/10/content_25183341.htm)

In 2015, Chinese firms struck $106.8 billion of cross-border deals. Even though not even six months have passed the total for 2016 has reached more than $110 billion. Of the dozens of deals struck in 2016, 17 were worth $1 billion or more with one topping $43 billion. Some suspect that China could be the top-ranked outward foreign investor globally this year and potentially outrank the United States which has been the top source of outward FDI globally since 2007. The consultancy Ernst & Young forecasts E&Y will increase 10 percent YOY and demonstrate good momentum in years to come (He Yini, “China Becomes World’s Top Cross-Border Buyer with $110b Deals,” China Daily, May 12, 2016, http://www.chinadaily.com.cn/business/2016-05/12/content_25239067.htm)

To defend against lawsuits in the U.S., some Chinese companies like Aviation Industry Corporation of China argue they cannot be sued because, as state-owned enterprises (SOEs), they are entitled to sovereign immunity. China National Building Materials Group Co. (CNBM) successfully used the defense “in a case involving allegations that Chinese-made drywall led to health problems for U.S. homeowners.” Last year, China complained to the US about plaintiff lawyers serving the drywall lawsuit on the State-owned Assets Supervision and Administration Commission (SASAC) which owns CNBM. According to some legal experts, the sovereign immunity defense “typically does not apply to commercial cases” (Matthew Miller and Michael Martina, “Chinese State Entities Argue they have ‘Sovereign Immunity’ in U.S. Courts,” Reuters, May 11, 2016, http://www.reuters.com/article/us-china-usa-companies-lawsuits-idUSKCN0Y...)

At a meeting in Seoul on May 10, SK Group chairman Choi Tae-Won and the Prime Minister of Kuwait discussed cooperation possibilities in the fields of energy, chemicals, alternative energy, and infrastructure construction. Besides talking with the prime minister, SK Group top management met with the Kuwaiti Minister of Oil and the CEO of Kuwait Petroleum Corporation (KPC) to discuss specific opportunities for mutual cooperation, with SK previously having signed a memorandum of understanding with KPC. Choi mentioned that SK group already “has worked with numerous Kuwaiti organizations and…is seeking ways to continue with such cooperation in a practical way” (Jung Min-hee, “SK Group Accelerating Businesses in Middle East,” Business Korea, May 11, 2016, http://www.businesskorea.co.kr/english/news/industry/14642-business-expa...)

The South Korean government began procedures for investor-state dispute settlement with Hanocal Holdings, which is a Dutch subsidiary of Abu Dhabi-based International Petroleum Investment Company. This case represents the second investor-state dispute case where a foreign company has sued the Korean government. Hanocal claimed that when it sold a 50 percent stake in Hyundai Oilbank to Hyundai Heavy Industries in 2010, it had to pay excess taxes to Korean government. Hanocal is demanding USD $205 million in compensation, arguing it is eligible for tax refund as the earlier payment violated the double taxation avoidance agreement between Korea and the Netherlands (Lee Hyun-jung, “S.Korean Gov’t and Hanocal Embark on Investor-State Dispute Procedures,” Pulse, May 9, 2016, http://pulsenews.co.kr/view.php?sc=30800021&year=2016&no=332711)

Indonesian President Joko “Jokowi” Widodo urged his Cabinet to improve the ease of doing business and to obtain an investment grade rating from Standard & Poor’s (S&P), a rating agency. He said an improved investor perception would lure more investment inflows. S&P is the only global rating agency that has not yet given Indonesia an investment grade rating. As for the ease of doing business, Jokowi noted the 12th policy package was critical to improving 10 indicators of business regulation. For example, licensing processes have been cut from 9 to 6 steps and 1566 days of processing reduce to 132 (Ayomi Amindoni, “Jokowi eyes ‘investment grade ‘rating from S&P,” The Jakarta Post, May 9, 2016, http://www.thejakartapost.com/news/2016/05/09/jokowi-eyes-investment-gra...)

Indonesia has made reformed numerous policies and licensing services to increase investment. The Chairman of the Investment Coordinating Board (BKPM), Franky Sibarani, told 600 investors at the HSBC Economic Outlook 2016 conference that his country’s reforms were aimed at enhancing Indonesia’s competitiveness as an investment destination. The BKPM, together with government ministries and other agencies, have streamlined licensing processes in various sectors such as electricity, industry, plantation, and tourism. The government also has issued the 12th policy package aimed at enhancing investment competitiveness. Sibarani added the government has revised negative investment list, helping to open more fields for foreign investment (“Policy Reforms to Boost Investment,” Tempo.co, May 13 2016, http://en.tempo.co/read/news/2016/05/13/056770625/Policy-Reforms-to-Boos...)

Indonesian President Joko “Jokowi” Widodo held a meeting with Chinese State Councilor Yang Jiechi at the State Palace in Jakarta on Monday. During the meeting, the two parties discussed their commitment to improve relations in all fields, particularly in investment and trade. Indonesia has proposed to establish an Indonesian Diaspora Business Council (IDBC) in Shanghai as well as a promotion center in Beijing to improve bilateral cooperation between the two countries. China investment in Indonesia has jumped by 400 percent this year and Indonesia stated it welcomes any efforts that have been made to attract foreign investment to the country (Ayomi Amindoni, “Indonesia, China to boost bilateral cooperation,” The Jakarta Post, May 10, 2016, http://www.thejakartapost.com/news/2016/05/10/indonesia-china-to-boost-b...)

At a recent conference in Hanoi, the Vietnamese Government said it will create favorable conditions for foreign investors. Vietnam’s Deputy Minister of Industry and Trade expressed his hope that foreign companies will significantly contribute to Vietnam’s economic development. He further stated Vietnam wants FDI enterprises to strengthen investment in new projects and existing ones related to textiles and footwear industry and electronics as well as to help Vietnam produce high added-value exports and form supply chains with Vietnamese businesses. The conference aims to listen to foreign-invested enterprise experiencing difficulties in implementing new policies on investment, trading, tax, export-import and customs (“Vietnam vows to facilitate FDI firms’ operation,” Vietnam net, May 11, 2016, http://english.vietnamnet.vn/fms/business/156299/vietnam-vows-to-facilit...)