MNCs in the News-2016-11-11

China has approved a cyber security law that will take effect in June 2017. China has dismissed the concerns of foreign business associations, firms, and governments, touting the law as a way to fight terrorism and cyberattacks. The latter criticized the law because of the requirements for security certifications, cooperation with Chinese security agencies, and mainland data storage (all which may lead to the loss of intellectual property, creation of back doors, and raise costs), the fact it seems to exclude foreign companies from certain sectors while privileging Chinese firms, and the law’s vagueness and ambiguity. But it still passed (Sue-Lin Wong and Michael Martina, “China Adopts Cyber Security Law in Face of Overseas Opposition,” Reuters, November 7, 2016, http://www.reuters.com/article/us-china-parliament-cyber-idUSKBN132049; “China Adopts Cybersecurity Law Despite Foreign Opposition,” Bloomberg News, November 7, 2016, https://www.bloomberg.com/news/articles/2016-11-07/china-passes-cybersec... Zhuang Pinghui, “China Pushes Through Cybersecurity Law Despite Foreign Business Fears,” South China Morning Post, November 7, 2016, http://www.scmp.com/print/news/china/policies-politics/article/2043646/c... Paul Mozur, “China’s Internet Controls Will Get Stricter, to Dismay of Foreign Business,” The New York Times, November 7, 2016, http://www.nytimes.com/2016/11/08/business/international/china-cyber-sec...)

As part of US-China trade and investment negotiations, China is considering “allowing Wall Street firms to run their own investment-banking businesses on the mainland” (the current policy is that they need to have a joint venture partner). American firms are salivating at this prospect given the size of China’s two stock markets and its domestic bond market, but they will face intense competition given Chinese banks and investment banks have state support and large balance sheets, and now have much experience. At present, foreign investments handle less than 5 percent of investment banking, trading, and other securities businesses in China (Julie Steinberg, “China Weighs Giving Wall Street Investment Banks Greater Mainland Access,” The Wall Street Journal, November 6, 2016, http://www.wsj.com/articles/china-might-finally-give-wall-street-what-it...)

China Development Bank Capital (CDBC) and Microsoft have formed a partnership to “promote technology innovation and smart city development.” Pursuant to the arrangement, “the two sides will jointly build up innovation incubators and accelerators to support excellent startups, and explore the new development mode of smart city based on Microsoft’s intelligent cloud platform and productivity services.” For its part, Microsoft will provide “turnkey technologies for productivity as well as cloud services, tools, and technical support and offer Chinese startups training…and connectivity with the company’s global resources.” CDBC sees the initiative fitting well with its “specialized investment platform for technological-innovation enterprises” (Fan Feifei, “Microsoft, CDBC Sign Deal to Push Innovation and Smart City Development,” China Daily, November 3, 2016, http://europe.chinadaily.com.cn/business/2016-11/03/content_27259860.htm)

Germany has withdrawn approval for a group of Chinese investors’ 670 million euro purchase of chip equipment maker Aixtron. The government said the deal was terminated and a deal review reopened because the government had received “‘previously unknown security information.’” For some, “the decision reflects a growing protectionist backlash against Chinese investments in Germany.’” Policymakers are worried about increased Chinese purchases as well as restrictions on their companies in China. Germany’s economic minister is pushing for the ability to restrict the acquisition of European Union companies if they “‘involve key technologies that are of particular importance for further industrial progress’” (Guy Chazan, “Germany Withdraws Approval for Chinese Takeover of Tech Group,” Financial Times, October 24, 2016)

Germany is seeking greater powers to block Chinese acquisitions, when firms are in strategic sectors and/or investors have strong state ties. Germany’s deputy economics minister said Berlin “was wary of deals that seemed to be state-directed or were only about gaining access to German technology.’” He added, “‘We need to have the powers to really investigate deals when it is clear they are driven by industrial policy or to enable technology transfers” and “‘When necessary…[we need] maybe even to say we’re not going to allow [certain deals].’” German businesses want Berlin to focus more on opening China than closing Germany (Guy Chazan and Stefan Wagstyl, “Berlin Pushes for EU-Wide Rules to Block Chinese Takeovers,” Financial Times, October 28, 2016)

After Germany cancelled the Aixtron deal, China’s Ministry of Commerce (MOFCOM) said it “hopes the German government’s recent investigation on a cross-border acquisition by a Chinese company is “‘an exception’ and doesn’t represent its economic policy against Chinese businesses.’” MOFCOM added “it is unnecessary for German officials to worry that German technology and jobs will be lost as a result of Chinese investment.’” In Beijing, Chinese Premier Li Keqiang told a German official “China and Germany should firmly push forward with liberalization of trade and investment, as well as oppose protectionism.” China was one of Germany’s largest investors in 2015 (Zhong Nan and Hu Yongqi, “Govt Lobbies for Level Playing Field in German Deals,” China Daily, November 3, 2016, http://europe.chinadaily.com.cn/business/2016-11/03/content_27267996.htm)

Prior to heading to China at the beginning of November, German Vice Chancellor Sigmar Gabriel planned to talk with Chinese officials about opening China and keeping the Chinese state out of German businesses. At a press conference, he emphasized “‘It’s not only that Germany sacrifices its companies on the altar of free markets, while at the same time our own companies have huge problems investing in China.’’” China, displeased with Germany’s rejection of the Aixtron sale, already had issued a formal diplomatic protest and while in China Gabriel found himself the victim of “a catalog of snubs and cancelled meetings” (Janosch Delcker, “Sigmar Gabriel’s Mission to Halt China’s Investment Spree,” Politico, November 1, 2016, http://www.politico.eu/article/sigmar-gabriels-mission-to-halt-chinas-in... Guy Chazan, “Chinese Snub of Minister Highlights Tensions with Germany,” Financial Times, November 4, 2016)

After British Prime Minister Theresa May ordered a review of a major Chinese investment in the Hinkley nuclear power plant project in July, it appeared Sino-UK economic relations would be headed for trouble. However, the project was approved and Britain’s Finance Minister and Chinese Vice Premier Ma Kai recently met and announced new cooperation involving, among other things, the opening of Chinese financial firm offices in London and allowing British companies to have greater shares in China’s financial sector. Meeting with Ma, May lobbied for increased Chinese infrastructure investment in northern England. China offered encouraging words regarding the Brexit process (“UK and China Seek to Bury Power Plant Spat with Deeper Finance Ties,” Reuters, November 10, 2016, http://www.reuters.com/article/us-britain-china-finance-idUSKBN135004)

The Japanese “government is lobbying Japanese firms to invest in Russian projects to help secure a breakthrough” regarding the Russo-Japanese Northern Territories/Southern Kurils dispute. Japanese Prime Minister Abe Shinzo feels the “lure of investment from Japanese companies could set the stage for progress.” However, Japanese companies are quite cautious because of the challenging investment environment in Russia and Western sanctions. One former official said “‘if it is not profitable, even under pressure, they wouldn’t say yes.’” Japan also plans to pursue increased cooperation with Russia in energy and medical technology while Russia is seeking help in agriculture, fisheries, and infrastructure (Linda Sieg and Takashi Umekawa, “Government Lobbies Wary Firms to Invest in Russia in Bid to Resolve Territorial Dispute,” The Japan Times, November 2, 2016, http://www.japantimes.co.jp/news/2016/11/02/national/politics-diplomacy/...

Japan announced “Japanese Trade minister Hiroshige Seko and Russian Far East Development Minister Alexander Galushka agreed to promote economic development projects in Russia’s Far East ahead of a summit between their leaders in December.” Seko told Galushka at a meeting in Moscow that Japan wants to advance development projects in the region for a successful summit by Prime Minister Shinzo Abe and Russian President Vladimir Putin in Japan. Galushka emphasized the importance of promoting infrastructure and other projects involving Japanese companies. The Russian ministry for Far East development has requested Tokyo’s cooperation on 18 projects (“Russia, Japan Agree to Promote Economic Cooperation in Russian Far East,” The Japan Times, November 5, 2016, http://www.japantimes.co.jp/news/2016/11/05/business/russia-japan-agree-...)

Japan’s JFE Engineering Corporation will start constructing greenhouses in Primorsky Krai (the largest economy in the Russian Far East), in cooperation with a Russian federal state enterprise Dalnevostochnoye, the biggest greenhouse integrated plant in the region, which will afford an opportunity for more active gas usage, among other things. The project’s total investment value will be one billion roubles. JGC Evergreen, a Japanese-Russian agricultural company, already is participating in a project for vegetable cultivation in the Khabarovsh region in Russia (Tatiana Kanunnikova, “Japanese JFE Engineering starts greenhouse project in Russia,” Construction.RU, October 31, 2016, http://russianconstruction.com/news-1/25321-japanese-jfe-engineering-lau...)

The President of the Japanese chambers of commerce in Britain and the European CEO of Mitsubishi, revealed “‘some Japanese companies have already started receiving offers from alternative European host countries’” and “could postpone investment decisions if Theresa May’s government fails to negotiate a close economic relationship with the EU.” He added “‘more than general reassurances are called for…to ensure that the Japanese investment presence in the UK is not diminished for lack of consultation and information sharing.’” Japanese firms are worried about the future of the single passport system, the free movement of skilled workers, and the uncertain investment environment (“Japanese companies in UK 'already receiving offers from EU',” The Guardian, October 31, 2016, https://www.theguardian.com/politics/2016/oct/31/nissan-assurances-over-...)

At the 5th meeting of the Korea-Oman Joint Committee for Economic Cooperation, which has been held biennially since 2009, in Seoul at the beginning of November, Korean and Omani government officials laid a foundation for Korean corporations to participate in Omani energy and infrastructure project worth USD $27.1 billion. At the meeting, the two countries agreed to permit Korean companies to participate in Omani energy and infrastructure project (including oil refinery, petrochemical plant, and railway construction), establish a “Korean Desk” in Oman, and form a working-level group with government and business representatives on cooperation in renewable energy and energy storage (Jhoo Dong-chan, “Korean firms to participate in Oman's 31 trillion won infrastructure project,” The Korea Times, November 1, 2016, http://www.koreatimes.co.kr/www/news/biz/2016/11/123_217301.html)

Korea Gas Corporation (KOGAS) representatives have been meeting with officials representing state-owned enterprises (SOEs) China National Petroleum Corporation (CNPC), PetroChina, and China National Oil & Gas Exploration & Development Corporation to discuss cooperation opportunities in areas like natural gas trading, joint international projects, and information sharing. KOGAS already has a partnership with CNPC for LNG development in Canada and Mozambique. Recent discussions are expected to lead to “more efficient project operations and partnerships in the other countries including China.” CNPC is a globally competitive company which operates 80 percent of the gas pipelines in China (Jung Min-hee, “KOGAS to Work Together with China National Petroleum Corporation,” Business Korea, November 4, 2016, http://www.businesskorea.co.kr/english/news/industry/16384-energy-cooper...)

According to the Indonesia Investment Coordinating Board, Chinese FDI in Indonesia was only USD $600 million in 2015. However, after Indonesia President Joko Widodo’s five meetings with Chinese President Xi Jinping, the figure soared to $1.6 billion during the first nine months in 2016 alone. Moreover, Chinese investors pledged USD $6.1 billion in investments during the same period. China is now the third largest foreign investor in Indonesia and has been focusing on automotive, cement, mineral smelters, and steel industries. Despite maritime tensions, China’s attractiveness as an investor has increased because Widodo has aggressive plans for boosting his country’s infrastructure (Kutty Abraham, “Why Indonesia Is Chasing China's Billions,” Bloomberg, October 31, 2016, http://www.bloomberg.com/news/articles/2016-10-31/china-deepens-economic...)

Donald Trump’s victory in the US presidential election may lead to some potential adverse implications for US businesses in Indonesia. During the election campaign, Trump showed a clear anti-immigrant, anti-Islam and anti-free competition stance. Since Indonesia has the largest Muslim population in the world, Trump’s remarks and attitudes have spurred strong criticism by the public. However, only with a stable and predictable business environment will foreign investors such as ExxonMobil, Chevron, and ConocoPhilips boost their investments in Indonesia. Therefore, Trump’s potentially inflammatory policies not only might hurt U.S. multinational corporations, but also damage Indonesia’s economy (Damon Evans, “Trump Is Bad News for U.S. Oil Companies in Indonesia,” Forbes, November 11, 2016, http://www.forbes.com/sites/damonevans/2016/11/11/trump-is-bad-news-for-...)

Last week, Jack Ma, the president of Chinese e-commerce giant Alibaba Group, agreed to act as an advisor to the Malaysian government on the e-commerce economy rather than Indonesia’s. Indonesian Communications and Information Minister Rudiantara expressed regret over the loss: “We made a lot of fuss about it, but eventually we lost and Malaysia got to him first.” According to the Alibaba Group, Indonesia is a “difficult” market to operate in. Although it has a huge market with over 250 million people, its consumers have wide ranging characteristics and preferences (“Indonesia not despairing over losing Jack Ma to Malaysia: Minister,” The Jakarta Post, November 11, 2016, http://www.thejakartapost.com/news/2016/11/11/indonesia-not-despairing-o... Esther Samboh, “China's Alibaba discusses challenges in penetrating Indonesia,” The Jakarta Post, November 11, 2016, http://www.thejakartapost.com/news/2016/11/11/chinas-alibaba-discusses-c...)

Chinese technology giants such as Alibaba, Tencent, and Wanda Group have expressed their interests in participating in Malaysia’s digital economy plan. Malaysian Prime Minister Najib Razak already has met with Alibaba’s founder and chief executive Jack Ma as well as officials from both Tencent and Wanda Group. Prime Minister Najib said: “You can see that China is the place to be. It has 300 million middle-class people, larger than (the) US population. We hope, together with Alibaba, we can make Malaysia and China more prosperous” (“Alibaba's Jack Ma to advise Malaysia on digital economy ambitions, says Najib,” The Straits Times, November 4, 2016, http://www.straitstimes.com/asia/east-asia/alibabas-jack-ma-to-advise-ma... Lokman Mansor, “Alibaba, Tencent and Wanda Group keen on Malaysia's digital economy,” New Straits Times, November 04, 2016, http://www.nst.com.my/news/2016/11/185984/alibaba-tencent-and-wanda-grou...)

During his recent visit to China, Malaysian Prime Minister Najib Razak welcomed Chinese foreign direct investment (FDI) and signed 14 memorandum of understandings totaling USD $47.5 billion. Some believe Chinese investors cannot wait to speed up their investments in Malaysia which will boost economic activity. Although a small proportion of the public criticized Najib’s behavior as “selling Malaysia to China,” Najib responded “My conscience is clear, and I am doing it for Malaysia and the rakyat in ensuring that the country’s economy is at a high level.” Najib also explained FDI can create high-salary jobs and better prospects for Malaysians (“Investment important for Malaysia to create job opportunities-Najib,” Borneo Post, November 5, 2016, http://www.theborneopost.com/2016/11/06/investment-important-for-malaysi... “Reel in Chinese investments into Malaysia: The Star,” Straits Times, November 8, 2016, http://www.straitstimes.com/asia/se-asia/reel-in-chinese-investments-int...)

Responding to news Malaysia and China had signed 14 agreements for proposed investments worth around RM144 billion, pundits opined that if Malaysia’s economic environment remains favorable and the deals work out, Chinese investors will pay increasing attention to Malaysian as a FDI destination. One analyst from the University of Malaya said, “We welcome China’s FDI,” but also expressed concern, noting “There are risks of course. Chinese investors may create pressure for local competitors. China-invested projects may not trickle down to benefit local businesses.” Another analyst noted the risk of dependency and risks to local quotas for Malaysian ownership and employment (Ida Lim & Shazwan Mustafa Kamal, “After Malaysia-China’s RM144b deals, pundits say more investments possible,” The Malaymail Online, November 3, 2016, http://www.themalaymailonline.com/malaysia/article/after-malaysia-china-...)