MNCs in the News-2019-05-17

China

China’s Ministry of Commerce (MOFCOM) announced foreign direct investment (FDI) from the United States (US) into China grew by 24.3 per cent in the January-April period year over year (YOY), a sharp deceleration from the 71.3 percent growth registered in the 1st quarter of the year YOY. In April 2019, total FDI into China rose 6.3 percent in yuan terms and 2.8 percent in dollar terms YOY, down from 8 percent and 4.9 percent in March (Orange Wang, “US investment in China in sharp decline, as trade war continues to hamper business,” South China Morning Post, May 16, 2019, https://www.scmp.com/economy/china-economy/article/3010515/us-investment...)

The Chinese government is strengthening its control over technologies such as cloud computing, big data, and industrial security systems. In order to bolster “national information security,” Beijing plans to implement a tighter regime of cyber rules under its existing “multilevel protection scheme” (MLPS) in December. “Foreign companies say operating within China’s restrictive but vague regulatory cyber regime is increasingly challenging,” and it has emerged that some are already under investigation for possible cyber security violations (Mercedes Ruehl, James Kynge, and Yuan Yang, “Foreign companies in China face cyber security crackdown,” Financial Times, May 15, 2019)

US President Donald Trump’s decision to impose tariffs on USD $200 billion of Chinese imports last week has already driven two multinational corporations to move their production chains out of China. Japanese office-equipment maker Ricoh and Taiwan’s Kenda Rubber Industrial announced they will move to Thailand and Vietnam respectively to avoid potential risks from US-China trade tensions. China’s investment environment has become tougher for foreign companies recently because of rising labor costs, tougher environmental standards, and domestic competition (Xiaoqing Pi, Dave McCombs, and Charlie Zhu, “Trump Tariffs Seal Deal for Companies Looking to Quit China,” Bloomberg, May 16, 2019, https://www.bloomberg.com/news/articles/2019-05-16/trump-tariffs-seal-th...)

The US Commerce Department’s proposed ban on American firms exporting hardware and services to Huawei could severely affect the Chinese tech giant as well as Huawei’s American suppliers, which represent one seventh of its global suppliers. A Huawei spokesman said, “This decision is in no one’s interest” and “will do significant economic harm[…], affect tens of thousands of jobs, and disrupt the current collaboration and mutual trust that exist on the global supply chain” (Greg Bensinger and Reed Albergotti, “Trump’s Huawei sanction underscore US dependency on China tech,” The Washington Post, May 16, 2019, https://beta.washingtonpost.com/technology/2019/05/16/trumps-huawei-sanc...)

Japan

Recently, Japanese companies have been trying to use more foreign directors to enhance corporate governance and inject new thinking into their activities. Illustrating this, Toshiba, an iconic Japanese conglomerate, just nominated four non-Japanese directors to fill its enlarged board. The change largely seems to be due to “a group of funds that have been agitating for changes.” The number of truly independent foreign directors at Nikkei 225 companies is extremely low, much lower than witnessed in countries like Germany, France and Britain (“Toshiba invites foreigners to strut their stuff as Japan rethinks corporate governance,” Global Times, May 16, 2019, http://www.globaltimes.cn/content/1150245.shtml)

Following a US Commerce Department finding that imports of vehicles and auto parts “harm national security,” US President Donald Trump said, “the U.S. needs to defend itself against foreign cars and components.” Moreover, the White House “set a 180-day deadline for negotiating deals with Japan” and others. Japan’s Toyota responded strongly, at least for a Japanese firm, saying Trump’s statement “‘sends a message to Toyota that our investments are not welcomed’” and touting all the firm’s US FDI and job creation (“Toyota rebukes Trump for sending message that carmaker 'not welcomed' in U.S.,” The Japan Times, May 18, 2019, https://www.japantimes.co.jp/news/2019/05/18/business/economy-business/t...)

South Korea

Per South Korea’s Ministry of Trade, Industry and Energy, announced FDI hit a six-year low of $3.17 billion in the first quarter of 2019, 36 percent less than the prior period year-over-year (YOY). Hardest hit was the service sector with a 43 percent decline YOY. The Ministry attributed plummeting FDI to the end of tax breaks in 2018 while others said the US-China trade war, political frictions between South Korea and Japan, and Brexit had something to do with the results witnessed (Kenichi Yamada, “Foreign investment hits 6-year low in South Korea as tax breaks end,” Nikkei Asian Review, https://asia.nikkei.com/Economy/Foreign-investment-hits-6-year-low-in-So...)

South Korea's SK Innovation announced last week it plans to invest nearly $490 million to construct “its second China factory for electric vehicle (EV) batteries.” According to SK Innovation, the goal is to serve the global market. SK also seems to be preparing for the time when Chinese subsidies for EVs end (2020) which will create a level playing field. Moreover, the battery market in China will be attractive given Beijing’s requirement 20 percent of all vehicles sold in 2025 are new energy vehicles (“SK Innovation to invest $490m in second Chinese component plant,” Global Times, May 18, 2019, http://www.globaltimes.cn/content/1150497.shtml)

*The information compiled in the MNCs in the News digest is gathered from sources believed to be reliable, but the Wong MNC Center does not guarantee their accuracy. The content of the MNCs in the News digest does not necessarily represent the view of the Wong MNC Center, its Board of Directors, or its Advisory Board, but is intended for the non-commercial use of readers in order to foster debate and discussion and to facilitate and stimulate research.