MNCs in the News-2016-10-14

China’s Ministry of Commerce (MOFCOM) reported China’s inward FDI (IFDI) for the first nine months of 2016 grew 4.2 percent YOY. IFDI in September hit USD $9.2 billion, a 1.2 percent increase YOY. IFDI in the service sector was particularly strong, representing 70.7 percent of overall IFDI for the first nine months of the year. IFDI in high-tech services was USD $11 billion for the period from January to September. Major investors in China included the United States (US), Germany, and the United Kingdom (UK). Chinese media attribute some of the IFDI increase to government efforts to ease the IFDI process (“China FDI Inflow Rises 1.2 Pct in Sept.,” Xinhua, October 13, 2016, http://news.xinhuanet.com/english/2016-10/13/c_135751853.htm)

China has adopted various measures to ease IFDI including “streamlining administrative approvals and delegating powers to lower levels” towards the end of “reviving the economy.” Chinese Premier Li Keqiang emphasized “efforts to cut red tape and simplify procedures,” adding China “‘needs advanced technology and new ideas.’” China’s new measures revise existing administrative measures in place for China’s free trade zones in Shanghai and elsewhere: IFDI is allowed if not on China’s negative list and does not “contradict” other rules in China’s Foreign Investment Catalog. Foreign investors welcomed the new steps, but wanted to see the implementation before offering final judgement (“China Pledges to Streamline Investment Approval,” Xinhua, October 8, 2016, http://news.xinhuanet.com/english/2016-10/08/c_135739044.html; Zhang Yue, “Simplified Measures for Investment,” China Daily, October 12, 2016, http://europe.chinadaily.com.cn/business/2016-10/12/content_27041360.htm; Mark Magnier, “China to Cut Red Tape to Boost Foreign Investment,” The Wall Street Journal, October 12, 2016, http://www.wsj.com/articles/china-vows-to-cut-red-tape-to-boost-foreign-...)

Shanghai Municipal Food and Drug Administration (SFDA) has “ordered a major fast food chain supplier and its parent company to pay fines” in connection with a case that came to light in 2014 when it was revealed Shanghai Husi had sold reprocessed and expired meat. SFDA imposed several million dollars in fines on Shanghai Husi Food Co. and OSI Group’s China office and “added the two companies to a blacklist of those who have committed serious legal violations” meaning there will be stricter regulation of the two firms. A Shanghai court sentenced 10 Shanghai Husi employees to prison in February (“Shanghai Food Authority Fines Fast Food Supplier over Meat Scandal,” Xinhua, October 3, 2016, http://news.xinhuanet.com/english/2016-10/03/c_135730129.htm; “Shanghai Food Authority Fines Fast Food Supplier over Meat Scandal,” China Daily.com, October 4, 2016, http://europe.chinadaily.com.cn/business/2016-10/04/content_26968641.htm)

GlaxoSmithKline (GSK), which was fined nearly USD $500 million in 2014 for paying bribes, has been moving over the past two years to enhance its R&D capabilities in China and to take other steps to enhance its ability to “better serve Chinese patients and patients around the world.” This has entailed partnerships with Chinese universities, research organizations, and firms and the establishment of a headquarters for neuroscience research and development supported by GSK’s other R&D centers in the US and the UK. GSK also plans to create a public health institute in China to help China deal with infectious diseases (“GSK Strengthens China R&D Commitment,” China Daily, October 9, 2016, http://europe.chinadaily.com.cn/business/2016-10/09/content_27000379.htm)

A report by China’s MOFCOM, National Bureau of Statistics, and State Administration of Foreign Exchange (SAFE) on Chinese foreign direct investment reported Chinese outward FDI (OFDI) in the US reached a record USD $8 billion. Half of this went into manufacturing, which experienced a 122.2 percent increase YOY. Per the report, the bulk of Chinese investment in the US, 26.3 percent or USD $10.7 billion, is in manufacturing such as car making, ferrous metal smelting, and medicine and transport equipment manufacturing. Increased COFDI in the US, among other factors, is driving increased attention to the US FDI investment review process (“China Sees Record-High Direct Investment in U.S. in 2015,” Xinhua, October 4, 2016, http://news.xinhuanet.com/english/2016-10/04/c_135731648.htm; Edward Wong, “As China Strikes Deals, U.S. Considers Expanding Foreign Reviews,” The New York Times, October 5, 2016, http://www.nytimes.com/2016/10/06/world/asia/china-congress-media-fdi.html)

During a meeting with Portugal’s Prime Minister who was visiting Beijing, Chinese President Xi Jinping said “China is willing to encourage investment in Portugal and expand to areas including finance, insurance, health care and infrastructure.” Xi also “called for maritime cooperation, saying that China supports Portugal's participation in the Belt and Road Initiative [OBOR] and encourages both countries to cooperate in maritime research and port logistics.” Portugal’s Prime Minister said his country would like to move forward with China “under the framework of Belt and Road Initiative and in areas of energy, finance, electricity, infrastructure, agriculture, manufacture, culture and tourism” (“Chinese President Encourages More Investment in Portugal,” China Daily.com, October 9, 2016, http://europe.chinadaily.com.cn/world/2016-10/09/content_26995838.htm)

During a speech to Thailand’s Ministry of Foreign Affairs, Jack Ma, the chairman and founder of Alibaba, said Alibaba would move to help small business development in Thailand as well as help Thailand by training several dozen Thai people in online trading. He also said he had spoken with the Thai government about making it easier for Chinese tourists to use his company’s mobile payment systems to make payments when in Thailand and also about helping Thailand definite a fraud proof e-payment system. Ma also touted the benefits of Thai people in rural areas using online platforms to sell goods (“Jack Ma to Work with Thai Government to Help Small Business, Boost e-Payment,” Xinhua, October 12, 2016, http://news.xinhuanet.com/english/2016-10/12/c_135746725.htm)

Chongqing “has been one of the most active provinces to spearhead efforts to implement” China’s OBOR scheme. In response to the initiative, it built the Yuxinou Railway, expanding bus service to Southeast Asian countries, and spend billions of yuan to construct the Guoyuan port on the Yangtze river. According to Guo Jiang, the head of Chongqing’s municipal commission of economy and information, these projects have given Chongqing new export opportunities, the development of Chongqing’s electronic industry, and an expansion of trans-border commerce. They have also given Chongqing new opportunities to get involved in the logistics business such as for fertilizer (“Xinhua Insight: Southwestern Chinese Metropolis Thrives on Belt and Road Strategy,” Xinhua, October 12, 2016, http://news.xinhuanet.com/english/2016-10/12/c_135749003.htm)

Fujitsu will dismiss more than 10 percent of its UK personnel or around 1800 jobs. A Fujitsu spokesman said that the employment cuts had to do with lowering “‘the cost base for our customers’” and “‘remaining competitive in the market.’” It denied the decision was related to Brexit. However, Fujitsu’s president Tatsuya Tanaka had cautioned before the Brexit referendum that “‘a vote to leave the EU would be a huge negative for the IT firm’s business in the UK.’” Nissan also has expressed worries about new investments in the UK and called for compensation if Brexit leads to new tariffs (Julia Kollewe, “Fujitsu to cut up to 1,800 UK jobs,” The Guardian, October 11, 2016, https://www.theguardian.com/business/2016/oct/11/fujitsu-to-cut-up-to-18...)

SoftBank Group and Saudi Arabia’s sovereign wealth fund Public Investment Fund (PIF) will establish a “SoftBank Vision Fund,” which will be one of the globe’s biggest tech funds. SoftBank will contribute $25 billion over the next 5 years, a record investment by a Japanese company in this kind of fund. One of the goals of the PIF and commensurately the Vision Fund is to support Saudi Arabia’s Vision 2030 plan which aims to help the Saudi economy diversify and reduce its reliance on energy. The SoftBank investment may have negative consequences for the firm if it finances it using debt (“SoftBank and Saudi Arabia plan $100bn tech fund,” Nikkei Asian Review, October 14, 2016, http://asia.nikkei.com/Business/Companies/SoftBank-Saudi-sovereign-fund-...)

Doosan Heavy Industries & Construction Co. announced that Saudi Electricity Company and Aramco, a state-owned enterprise (SOE), awarded it the “Fadhili combined cycle power plant project worth 1 trillion won (USD $896.46 million).” Doosan had prepared for the bid by forming a consortium with French energy company Engie and the partnership took effect after the award was announced. The plant, which should be completed by 2019, will produce up to 1519 megawatts of electric power and will supply power and heat to the Fadhili Gas Complex. Doosan will work on key aspects of the project, including design, manufacturing, and procurement (Jung Min-hee, “Doosan Heavy Industries Wins $900M Worth Power Plant Deal in Saudi Arabia,” Business Korea, October 10, 2016, http://www.businesskorea.co.kr/english/news/industry/16144-power-plant-d...)

South Africa’s Department of Energy selected Korea Electric Power Corporation (KEPCO) as the preferred bidder for a 40 trillion won (USD $35.59 billion) deal pursuant to which it will build and operate a 630 megawatt coal-fired thermal plant. The award makes KEPCO the first company to carry out independent power project in South Africa. For the project, KEPCO has created a consortium with Japan’s Marubeni Corp. Pursuant to its 30-year contract with Eskom Holdings SOC Ltd., a South African SOE, the consortium will sell all the electricity from the plant for 30-years to recoup its costs and make a profit (Jung Min-hee, “KEPCO Wins $35B Power Plant Construction, Operation Deal in South Africa,” Business Korea, October 12, 2016, http://www.businesskorea.co.kr/english/news/industry/16168-huge-deal-afr...)

A recent PricewaterhouseCoopers report reveals that even though the Indonesian government has increased spending on its infrastructure, revised its negative investment list, and reduced red tape, foreign investors are still waiting for further liberalization moves. Julian Smith, PwC Indonesia infrastructure advisor, said the biggest concern of foreign investors is how to receive payment. He said, “...unfortunately all payment has to be made in rupiah [a central bank regulation]. This has discouraged them from investing as it heavily increases the risks of the investment.” Other issues for foreign investors include “uncertain legal frameworks, obscure project development, and sudden government policy changes” (Sarah Yuniarni, Foreign “Investors Don't Like Getting Paid in Rupiah: PwC Report,” Jakarta Globe, October 12, 2016, http://jakartaglobe.beritasatu.com/business/foreign-investors-dont-like-...)

According to Agensi Inovasi Malaysia (AIM), GS Caltex Co, the second largest petroleum refining firm in South Korea, plans to invest RM1.2 billion in a bio-butanol plant in Malaysia to be completed by the first quarter of 2017. AIM is an agency under the Prime Minister’s Department in Malaysia and is currently assisting the realization of biobutanol (a renewable version of butanol) plants. Malaysia’s Minister of International Trade and Industry said there are endless opportunities in Malaysia’s biomass industry and that Malaysia “should be leveraging these resources to optimize the highest aggregated value these industries can bring to the country” (Ooi Tee Ching, “S.Korea's GS Caltex Co to Set Up RM1.2 billion Biobutanol plant in Msia,” New Straits Times, October 11, 2016, http://www.nst.com.my/news/2016/10/179637/skoreas-gs-caltex-co-set-rm12-...)

Samsung Vietnam has announced a recall of all Galaxy Note7 smartphones and a plan to give each buyer USD $844 and a coupon. Samsung said the move demonstrates its commitment to customer safety. Since Vietnam has supplied about 35 percent of Samsung’s smartphones worldwide, it is expected the recall will affect its economy, though no employment effects are expected. According to government statistics, due to the halt of Galaxy Note7, the export turnover of mobile phones and accessories in September dropped USD $506 million. The decrease in export turnover makes the government’s goal of 10 percent growth difficult to achieve (“Samsung Recalling Galaxy Note7,” Viet Nam News, October 13, 2016, http://vietnamnews.vn/economy/344383/samsung-recalling-galaxy-note7.html...)

According to Ho Chi Minh (HCM) City Export Processing and Industrial Zones Authority (HEPZA), since HCM city started to discourage FDI in labor-intensive sectors in favor of FDI in technology-based industries, FDI in industrial parks and export processing zones decreased significantly over the first nine months of the year YOY. Currently, most FDI flows into industries like electronics (76.29 percent) and food processing (5.73 percent). Japan was the largest foreign investor over this period, constituting almost 80 percent of the total, with Singapore and South Korea also investing significant amounts. HEPZA encourages investors to participate in high-tech and supporting industrials (“HCMC Investment shifts toward tech,” Viet Nam News, October 12, 2016, http://vietnamnews.vn/economy/344276/hcmc-investment-shifts-toward-tech....)