MNCs in the News-2016-10-28

The gap between Chinese outward FDI (OFDI) and IFDI continued to widen. For the first nine months of 2016, non-financial OFDI took place in 160 countries and regions, hitting USD $134.2 billion while IFDI ran less than 70 percent of this. The amount of Chinese OFDI (COFDI) for the first nine months of 2016 increased 53.7 percent year over year (YOY) while the amount of COFDI in September jumped 56.9 percent (YOY). A very large proportion of COFDI over the first nine months of 2016 consisted of merger and acquisition (M&A) activity, which entailed 521 deals worth USD $67.4 billion (Wang Yuqian, “Gap between Outbound Direct Investment, Foreign Direct Investment Continues to Grow,” Caixin Online, October 18, 2016, http://english.caixin.com/2016-10-18/100998228.html)

According to some observers, China’s increasing successes in the world of OFDI and M&A have to do with the growing sophistication of Chinese firms who are “learning to sooth the misgivings” of stakeholders and politicians. Some attribute this sophistication to the fact that larger Chinese companies have managers “‘who were educated abroad or have worked in international firms.’” Chinese companies have smoothed the path for deals by, among other things, avoiding hostile takeovers, pledging to keep management teams in place, guaranteeing jobs for long periods, keeping existing headquarters, and agreeing to corporate structures that give substantial independence to acquired firms (Matthew Campbell, Jonathan Browning, and Aaron Kirchfield, “How China’s Dealmakers Pulled off a $207 Billion Global Spree,” Bloomberg, October 23, 2016, http://www.bloomberg.com/news/articles/2016-10-23/china-s-art-of-the-dea...)

In mid-October, ChemChina, a state-owned enterprise, and Syngenta met with the European Commission (EC) antitrust authority to address the latter’s anxieties about ChemChina’s USD $43 billion purchase of Syngenta. An EC spokesperson said “the companies had not offered any concessions,” which led some to worry about whether or not the deal would be closed. One commentator said the EC was just trying to gain leverage and pressure ChemChina/China to come up with some offers. A news source later said that in response to an EC list of possible remedies ChemChina was ready to offer concessions to ensure its deal closed (Foo Yun Chee and Oliver Hirt, “Syngenta Slumps after EU Watchdog Sparks ChemChina Deal Doubts,” Reuters, October 24, 2016, http://www.reuters.com/article/us-syngenta-ag-m-a-chemchina-eu-idUSKCN12... Chen Aizhu and Michael Shields, “ChemChina Ready for Concessions to Clinch Delayed Syngenta Deal in 2017: Source,” Reuters, October 25, 2016,

During the 2016 China-Germany Investment and M&A Forum in Kunshan City, the Deputy Director of China’s Ministry of Commerce’s Investment Promotion Agency Yi Yang reported COFDI in Germany hit USD $10.8 billion over the first half of 2016, “nearly twice the total volume of the past decade.” In contrast, Germany’s investment in China in 2015 ran USD $40 billion “with over 8200 companies opening branches in China.” In light of the current situation, Yi opined, “‘From the previous one-way investment from Germany to China to today’s two-way investment, it is a major upgrade in trade relations between the two countries’” (“China’s Investment in Germany Surges in H1,” Xinhua, October 17, 2016, http://news.xinhuanet.com/english/2016-10/17/c_135761020.htm)

A huge business entourage accompanied Philippines’ President Rodrigo Duterte on his visit to China in mid-October in anticipation of billions of dollars in trade and investment deals, which Duterte said were a priority for the trip that included meetings with top level Chinese leaders. The delegation present for the China-Philippines Economic and Trade Forum included JG Summit Holdings President Lance Gokongwei, San Miguel President Ramon Ang, Jollibee Foods Chairman Tony Tan Caktiong, International Container Terminal Services and Bloomberry Resorts Chairman Enrique Razon, and LT Group Chairman Lucio Tan. The two sides expect cooperation in agriculture, infrastructure, resource exploitation, and tourism (Cliff Venzon, “Philippines Inc. Joins Duterte’s Pivot to China,” Nikkei Asian Review, October 17, 2016, http://asia.nikkei.com/Business/Companies/Philippines-Inc.-joins-Duterte... Chen Heying, “Duterte Rekindles Business Interests,” Global Times, October 20, 2016, http://www.globaltimes.cn/content/1012528.shtml)

At a corporate conference in Qingdao, Chen Shuang, CEO of China Everbright Ltd. remarked some Chinese overseas investment deals were “so poorly conceived and implemented that the SOEs making the acquisitions seemed to be just ‘messing around.’” Indeed, some deals were done “because the executives thought they would lose face if their companies did not make any overseas acquisitions under their watch,” with “‘this phenomenon very pronounced with M&As conducted over the past two years.’” Chen added some SOEs were buying overseas asset just to “dodge regulatory limits on capital flows” while others were just trying to manipulate stock prices (Yue Yue and Wang Yuqian, “China Everbright CEO Criticizes SOEs’ M&A Strategy,” Caixin Online, http://english.caixin.com/2016-10-24/101000105.html)

Toyota announced it will wait until after the United Kingdom (UK) announces whether, post-Brexit, any taxes will be imposed on Japanese car makers to make future investment plans. It stated, “‘we really trust that EU and UK governments will find the appropriate agreement.”’ Toyota has two plants and 3,400 employees in UK, which means its competitiveness will be damaged if new taxes or tariffs are imposed. Toyota said it will “‘talk with our UK members, to motivate the team in the UK, to balance this negative impact.”’ Nissan also is in the process of deciding about its future manufacturing plans (“Toyota will fight for UK plant after Brexit,” Japan Today, October 28, 2016, https://www.japantoday.com/category/business/view/toyota-will-fight-for-...)

Nissan has decided to manufacture its new Qashqai auto model in the United Kingdom (UK) despite Brexit, which secures at least 7,000 jobs. This contradicted Nissan CEO Carlos Ghosn’s previous comments that Nissan could cancel new investment in UK if there was no compensation for new tariffs flowing from Brexit. The plant in Sunderland where Nissan will produce the Qashqai is the biggest automobile plant in UK. Nissan also has decided to produce its X-trail crossover model at the same plant. This will be a positive signal about whether other foreign firms would continue their investment in UK after Brexit (“Nissan opts to build new model in Britain despite Brexit: source,” Japan Times, October 27, 2016, http://www.japantimes.co.jp/news/2016/10/27/business/corporate-business/...)

Japan’s Sojitz received a 64 billion yen ($616 million) order to build a freight railway from Delhi to Mumbai. It was the sixth contract that Sojitz has won for this project, contributing to greater Japan involvement in overseas railway projects. Sojitz’s latest Indian railway project will last from March 2017 to autumn 2020 and will involve laying and electrifying rails along 125km from Dadri to Rewari. Dedicated Freight Corridor Corp., an Indian SOE, will take charge of the whole project’s process. Japanese corporations also are heavily involved in the Taiwan High Speed Rail project, making 330 billion yen in contracts (“Japan's Sojitz snags $600m-plus Indian railway order,” Nikkei Asian Review, October 18, 2016, http://asia.nikkei.com/Business/Companies/Japan-s-Sojitz-snags-600m-plus...)

A consortium involving state-run Indonesian company Pertamina and Japanese companies Marubeni and Sojitz, with the latter two firms having a 60 percent stake and Pertamina the rest, won a contract for Indonesian gas-fired power plant which is worth $2 billion. The plant, which will use gas and steam turbines to reduce carbon dioxide emission, fits into the Indonesian government’s effort to implement President Joko Widodo’s promise “to open plants with an aggregate 35,000 megawatts of capacity by 2019.” The plant will be located in the east of Jakarta, and start selling its electricity from 2021 to PLN, a state utility (“Marubeni, Pertamina, Sojitz to win $2bn Indonesian gas plant contract,” Nikkei Asian Review, October 20, 2016, http://asia.nikkei.com/Business/Deals/Marubeni-Pertamina-Sojitz-to-win-2...)

Korea Electric Power Corporation (KEPCO) concluded a contract with Emirates Nuclear Energy Corp. (ENEC) worth 54 trillion won (USD $48.6 billion) to operate four UAE nuclear power plants. This award follows ots success in securing a 21 trillion won (USD $18.9 billion) deal in 2009 to build four nuclear power plants. It is expected KEPCO will sign another contract with ENEC regarding sending technicians and engineers to the UAE for a ten year period, which will make KEPCO the first company obtaining a deal putting them in charge of the whole process of building, operating, and maintaining a nuclear plant (Michael Herh, “KEPCO Signs 54-Trillion-Won Deal to Operate Nuclear Power Plant in UAE,” Business Korea, October 21, 2016, http://www.businesskorea.co.kr/english/news/industry/16266-huge-maintena...)

According to Indonesia’s Investment Board, in the third quarter of 2016, FDI flows into Indonesia, in rupiah terms, increased by 7.8 percent. During this period, FDI, exclusive of banking, oil and gas sector, reached Rp 99.7 trillion (USD $7.4 billion). According to Azhar Lubis, Investment Board Deputy for controlling and implementation, the majority of FDI flowed into sectors like metals, machinery and electronics. Singapore ranked as the largest investor. In order to attract greater foreign capital, Indonesia has adopted several policies, which includes the implementation of several economic stimulus packages and a tax alleviation program (Nilufar Rizki & Hidayat Setiaji, “Foreign Direct Investment to Indonesia Rises 7.8% in Q3,” Jakarta Globe, October 27, 2016, http://jakartaglobe.beritasatu.com/business/foreign-direct-investment-in... “FDI to Indonesia rises 7.8pc in Q3,” The Financial Express, October 27, 2016, http://www.thefinancialexpress-bd.com/2016/10/27/50894/FDI-to-Indonesia-...)

Due to rising confidence in Indonesia’s economy, Japanese FDI in Indonesia may hit its highest level in three years. It is estimated the total amount of Japanese FDI will reach $3.5-4 billion by the end of this year, with, according to Japan International Cooperation Agency (JICA), a shift in Japanese investment from automobiles to upstream industries like steel or chemicals supplying the inputs for final industry. Japanese investors also are very interested in the food and beverage, logistics, IT, and rail sectors. Japanese firms are highly concentrated in West Java and Indonesia has been encouraging them to consider investing elsewhere (Stefani Ribka, “Indonesia sees spike in Japanese investment,” The Jakarta Post, October 25, 2016, http://www.thejakartapost.com/news/2016/10/25/indonesia-sees-spike-japan...)

According to Vallop VitanKorn, vice chairman of the Federation of Thai Industries (FTI), FDI flows into Thailand are expected to increase by only 2.7 percent this year. This increase is quite minimal and indicates that foreign investors still lack confidence in the Thai economy. Despite this lack of confidence, the Thai government has increased its annual foreign investment target from 450-billion-baht last year to 550-billion-baht for this year. Vallop suggested that the Thai government should create a better investment climate and provide more investment incentives to attract more foreign investors (Lamonphet Apisitniran, “FDI sluggish as investor mood dims,” Bangkok Post, October 20, 2016, http://www.bangkokpost.com/business/news/1114589/fdi-sluggish-as-investo...)

Japan’s NTT has urged Thailand to become a digital content hub by 2018 to attract foreign internet content giants to put their servers in Thailand. Becoming a digital hub will enhance Thailand’s competitiveness and reduce the cost of internet connections. The local operating unit of Japan's NTT specifically suggested the government should “liberalize the submarine cable infrastructure market by removing the 49 percent limit on total foreign ownership” and “provide tax incentives.” For its part, Swedish telecommunication firm Ericsson is pushing Thailand to embrace 5G technology to maintain its status as a leading adopter of advanced information and communication technology (Suchit Leesa-Nguansuk, “NTT pushes Thailand to be digital hub,” Bangkok Post, October 28, 2016, http://www.bangkokpost.com/business/news/1120969/ntt-pushes-thailand-to-... Suchit Leesa-Nguansuk, “Ericsson pushing Thailand towards 5G technology,” Bangkok Post, October 13, 2016, http://www.bangkokpost.com/business/tourism-and-transport/1109101/ericss...)

The main focus of Malaysian Prime Minister Najib Razak’s week-long visit in Beijing is to secure investment that can boost his country’s flagging economy. If successful, Najib can pay for the handouts and other incentives he has promised. According to one analyst, “‘Malaysia is in desperate need of investment and the government needs to find new investors. China is an important target.’” The analyst added, “I don’t think he is willingly doing so…China is cash rich and Najib’s administration needs…some of that cash.’” Over the past year, China has been an active investor in Malaysia, especially the controversial 1MDB project (Amy Chew, “What Has Malaysian Leader Najib Razak’s China Trip Got to Do With 1mdb,” South China Morning Post, October 29, 2016, http://www.scmp.com/week-asia/geopolitics/article/2040709/what-has-malay...)

Three Chinese companies (PowerChina International, Shenzhen Yantian Port Group and Rizhao Port Group) will collaborate with Malaysia-based company, KAJ Development, to build a new deep sea port, including a liquid cargo terminal which allows for the storage of petroleum, chemical products, and vegetable oils, in the Strait of Malacca. This port is a part of the $7.2 billion Melaka Gateway Project and should be completed before 2019. Malaysia’s minister of transport Liow Tiong Lai said this cooperation demonstrated significant opportunity and potential for further development. He also mentioned that this project was in accordance with China’s Belt and Road initiative (“Chinese companies to help Malaysia build new deep sea port in Malacca,” China Daily, October 20, 2016, http://www.chinadaily.com.cn/bizchina/2016-10/20/content_27120298.htm)

*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.