MNCs in the News-2016-09-16

Per China’s Ministry of Commerce (MOFCOM), inward FDI (FDI) hit USD $8.8 billion in August, an increase of 5.7 percent YOY. For the first eight months of 2016, IFDI, which reached USD $85.9 billion, showed a 4.5 percent increase YOY, a slight improvement over the first seven months YOY. FDI in the service sector, which represented over 70 percent of total IFDI, went up 10 percent YOY. FDI in high tech services nearly doubled from a year earlier. Looking at major investors, American IFDI jumped 79.7 percent, German IFDI increased by 79.2 percent, and British IFDI surged by 96.6 percent (“China’s FDI Returns to Growth in August,” China Daily, September 13, 2016, http://www.chinadaily.com.cn/business/chinadata/2016-09/13/content_26786...)

According to China’s State Council, the country plans to embrace a nationwide “negative list” on October 1. In the words of MOFCOM, the negative list means “Companies who want to tap sectors outside the list no longer need government approval before investing…[but] need only to submit a detailed plan and register with MOFCOM.” While many market sectors will be opened to foreign investors afterwards, China still plans to restrict fisheries, the domestic courier business, rare metals exploitation, and the defense sector, among others. The adoption follows three years of experimentation in various test zones like the Shanghai Free Trade Zone (Wang Xinyi and Coco Feng, “China to Roll out Nationwide ‘Negative list’ by Oct. 1,” Caixin Online, September 7, 2016, http://english.caixin.com/2016-09-07/100986385.html)

MOFCOM data indicates Chinese OFDI (COFDI) exploded to USD $118.06 billion over the first eight months of 2016, a 53.3 percent increase YOY. A substantial amount, almost 20 percent, of COFDI flowed into the manufacturing sector while much of it went into developed countries and regions like the Association of Southeast Nations, the European Union, Hong Kong, the United States, and Russia. China’s One Belt, One Road initiative saw impressive investment results while Yangtze River Economic Zones provinces and municipalities were major sources of outward FDI with Shanghai sending $17.62 billion overseas over the first 8 months of 2016 YOY (“China’s ODI Surges 53.3 pct in First 8 Months,” Xinhua, September 14, 2016, http://news.xinhuanet.com/english/2016-09/14/c_135687740.htm)

The British government, after launching a surprise review in July, has approved a nuclear power plant at Hinkley Point in which China General Nuclear Corporation (CGNC) is a critical investor and participant. According to London, the government will implement measures that give it stronger control over the project and in future nuclear deals, though all other terms of the Hinkley deal remain the same. CGNC will have a role in developing a nuclear power station in Sizewell and also expects to gain approval for a Chinese-led and designed project at Bradwell. The deal still faces various technical and legal challenges (“Hinkley Point: UK Approves Nuclear Plant Deal,” BBC News, September 15, 2016, http://www.bbc.com/news/business-37369786; Andrew Ward, Jim Pickard, and Michael Stothard, “Hinkley Go-Ahead after ‘National Security’ Safeguards,” Financial Times, September 15, 2016; Andrew Ward, Jim Pickard, and Michael Stothard, “UK Gives Go-Ahead for ‘Revised’ £18bn Hinkley Point Plant,” Financial Times, September 15, 2016)

Commenting on British Prime Minister Theresa May’s decision to approve the Hinkley Point deal, China said “approval is in the interest of all parties.” CGNC stated “‘we are delighted that the British government has decided to proceed…we are now able to move forward and deliver much-needed nuclear capacity at Hinkley Point, Sizewell, and Bradwell.’” CGNC looks forward to approval by British authorities of its technology at Bradwell because this would open the door to future deals involving Chinese nuclear technology in other developed countries. Writers opined the deal would bolster China-Britain relations and support further Chinese investment in Great Britain (Chris Peterson, “UK’s May Approves Chinese-invested Hinkley Point Nuclear Station,” China Daily, September 16, 2016, http://www.chinadaily.com.cn/world/2016-09/16/content_26804972.htm; George Parker and Jim Pickard, “Hinkley Point Compromise Satisfies All Sides,” Financial Times, September 15, 2016; Graham Ruddick, “China Plans Central Role in UK Nuclear Industry after Hinkley Point,” The Guardian, September 15, https://www.theguardian.com/business/2016/sep/15/hinkley-point-chinese-f...)

According to Myanmar’s Directorate of Investment and Company Administration (DICA), China was the largest investor in Myanmar’s power sector for the first four months of the 2016-2017 fiscal year. Its investment of USD $1.3 billion in the electricity sector was almost two times as large as the second largest investor Singapore. Myanmar has ambitious power construction plans given its rising power demand and need to expand the population’s access to electricity and is thus looking for substantial investment in hydroelectric, wind, solar, gas, and biofuel projects, some of which will be structured as build-operate-transfer deals and others as joint ventures (“China Stands as Largest Investor in Myanmar’s Power Sector,” Xinhua, September 8, 2016, http://news.xinhuanet.com/english/2016-09/08/c_135673133.htm)

In a news interview, the President of Peru Pedro Pablo Kuczynski noted, during a recent visit to China, he had expressed concerns to China’s main railway builder about the financial viability and environmental consequences of a Chinese-proposed transcontinental railway designed to connect Brazil’s Atlantic Coast with Peru’s east coast. Kuczynski’s predecessor had agreed with China to study the feasibility of such a 5,300-kilometer railway. Kuczynski said that the Chinese rail company remained interested in building a commuter train on Peru’s central coast and noted various other Chinese firms were interested in building alloy smelting and steel plates factories in Peru (Mitra Taj and Marco Aquino, “Peru’s President Throws Cold Water on Chinese Railway Proposal,” Reuters, September 13, 2016, http://www.reuters.com/article/us-peru-china-train-idUSKCN11J2I1)

Japan’s partner in Europe has been Britain with the latter a favorite destination for Japanese investment and a strong supporter for European Union (EU) liberalization. However, Brexit has the potential to make Britain less attractive as an investment destination and to diminish its voice in the EU. Thus, Japanese-British ties may weaken with Japan seeking closer ties with France or Germany. Some Japanese companies are in a “wait and see” mode while others will try to influence the terms of Britain’s exit from the EU. Some Japanese companies may find improved deals as London and Brussels compete against one another (William Hollingworth, “Brexit May Carry Costs for Japan, Making EU More Pro-China: Experts,” The Japan Times, September 13, 2016, http://www.japantimes.co.jp/news/2016/09/13/national/politics-diplomacy/...)

Since mid-August, GM Korea workers have been striking for higher basic wages and a substantial performance-based bonus. The strike has severely dented GM Korea’s production and sales, especially of its popular model the Malibu. The President of GM Korea James Kim recently pleaded to workers for an end to the strike and the resumption of vehicle production. He noted the strike meant the company would not have a bright outlook in the second half of the year. He emphasized that “‘although proper compensations must be given to employees for their contributions” the company also had to ensure a “sustainable future” (Michael Herh, “Labor Dispute Hinder Production at GM Korea,” BusinessKorea, September 5, 2016, http://www.businesskorea.co.kr/english/news/industry/15752-win-win-situa...)

Korean fintech firms such as Korea NFC, Kona 1, Cashbee, and Interpay have agreed to ask the Korean Fair Trade Commission (FTC) to force Apple to open its application programming interface (API) for near field communication (NFC). At present, Apple is only willing to use NFC functions for Apple Pay. This limits the use of NFC services in Korea because many services such as the subways and certain mobile payments currently do not accept Apple Pay. The aforementioned parties argue Apple’s policies violate consumer rights and hinder normal business development in Korea. Apple is facing a similar action in Australia (Cho Jin-Young, “Local Fintech Firms will Appeal to FTC over Apple’s Closed Policies,” Business Korea, September 12, 2016, http://www.businesskorea.co.kr/english/news/ict/15836-appeal-against-app...)

In the wake of a high level meeting between Korean president Park Geun-Hye and Russian president Vladimir Putin in Vladivostok, Korean companies won opportunities to participate in large fertilizer plant, ship, and other projects worth almost USD $5.4 billion with various Russian corporate partners, most state-owned and operated. Involved Korean firms include Hyundai Heavy Industries, DSEC (a subsidiary of Daewoo Shipbuilding & Marine Engineering), and Hyundai Engineering and Hyundai Engineering & Construction. Korea and Russia also signed 24 memorandum of understandings for USD $395 million of Far East Development projects (Jung Suk-Yee, “S. Korea Wins Russia’s 3 Largest Projects Worth 6 Trillion Won,” Business Korea, September 5, 2016, http://www.businesskorea.co.kr/english/news/politics/15747-s-korea-russi...)

Indonesia has modified its tax amnesty program to boost the amount of money repatriated and thus the amount of tax revenues it collects. Pursuant to the program, Indonesians who have poured money overseas into a special purpose company (set up for tax avoidance) have to declare the assets and repatriate the money, though they are allowed to transfer and register the company in Indonesia. If they do, they have a reduced tax rate, during a defined period of time, for assets declared and assets repatriated. If they do not declare or transfer, then they may later be subject to penalties (Erwida Maulia and Simon Roughneen, “Indonesia Targets Shell Companies under Tax Amnesty,” Nikkei Asian Review, September 9, 2016, http://asia.nikkei.com/Business/Companies/Indonesia-targets-shell-compan...)

Indonesia’s interim Energy and Mineral Resources Minister Luhut Landjaitan has suggested that companies that were making progress in smelter development and facing problematic commodity prices be given longer export licenses and that, in line with this, the 2009 Mining Law be revised. One researcher argued that this would only direct mining companies to focus on exporting while Indonesia’s Processing and Smelting Companies Association said an extension would “create uncertainty for investors about the government’s seriousness in developing the downstream sector” and encourage large mining companies, who had been dragging their feet, to “further postpone any development in favor of exporting” (Fedina S. Sundaryani, “Govt Warned of Risks from Policy Flip-Flop,” The Jakarta Post, September 9, 2016, http://www.thejakartapost.com/news/2016/09/09/govt-warned-of-risks-from-...)

Following talks with China, Thai Deputy Prime Minister Prajin Juntong said the first phase of the China-Thailand high-speed railway is expected to start in the second quarter of 2017. He stated “‘we have agreed to proceed with the first phase of construction, which entails a 250-kilometer stretch from Bangkok to Nakhon Ratchasima. Chinese technology will be utilized, but Thailand will be fully responsible for project investment.’” The multiple section project has been stalled because of disagreements about cost and for it to move forward the two sides also have to resolve issues about construction parameters, the environment, and so on (Pathom Sangwongwanich, “Sino-Thai Rail Project Put Back on Track,” Bangkok Post, September 15, 2016, http://www.bangkokpost.com/business/news/1086276/sino-thai-rail-project-...)