MNCs in the News-2014-08-08

The Beijing Investment Promotion Bureau recently announced it planned to take measures to draw in high-end/high value-added foreign investment as part of its effort to advance economic reforms and promote growth. Above all, the city intends to implement measures that would bring in corporate headquarters, talent, technology, and brands. Targeted industries included service industries, finance, biotechnology, mobile internet, medical devices, and creative and cultural industries such as design, fashion, and film and television. Given its recent problems with pollution, traffic, and growth, Beijing officials also indicate an interest in bringing in investment relating to water treatment, water storage, and recycling (Xiao Li, “City Sets Out Guidelines to Attract High-End Industry Investors,” China Daily, July 31, 2014, http://www.chinadaily.com.cn/business/2014-07/31/content_18220527.htm)

The Shanghai Husi food safety scandal, which related to revelations of Shanghai Husi’s use of expired and dirty meat in its products, has led McDonald’s, which terminated all relations with Husi, to expand sourcing from food suppliers in China. Yum Brands, owner of KFC and Pizza Hut, also affected by the Husi scandal, has terminated all relations with OSI (US), Shanghai Husi’s parent, but has not yet revealed how it could change its China supplier relationships. On a related note, the Shanghai Food and Drug Administration and the Shanghai Industry and Commerce Administration have started a joint investigation of OSI (Wang Zhuoqiong, “McDonald’s Steps up Meat Supplies to Match Demand,” China Daily, August 2, 2014, http://www.chinadaily.com.cn/business/2014-08/02/content_18235826.htm; “China probes OSI China over Food Scandal,” China Daily, August 5, 2014, http://www.chinadaily.com.cn/business/2014-08/05/content_18251820.htm)

Starting in 2012, Shanghai Pengxin began to take stakes in numerous New Zealand farms and farming operations. While its deals have prompted concern about vertical concentration in the industry, it is only recently that Chinese investment specifically and foreign investment generally has begun to be a political hot potato, partly because of an upcoming general election. The value of foreign investment is not denied, but some are questioning whether the economic benefits are significant and beyond those which would come from a “domestic” buyer. Some have called for stricter rules on foreign land purchases and a register of foreign-owned properties (“China Farm Purchase Prompts ‘Xenophobic’ Row in NZ Election,” China Daily, August 4, 2014, http://www.chinadaily.com.cn/business/2014-08/04/content_18243690.htm)

Yet more German car companies have fallen afoul of Chinese authorities with Daimler subsidiary Mercedes-Benz confirming the government was investigating it for monopoly practices. While details were lacking, there were suspicions that government was investigating Mercedes for the prices of its cars, parts, and service. Around the same time, it was revealed that FAW-Volkswagen Audi and its dealers were being probed and that it was likely that likely Audi would be punished for anti-monopolistic practices. Earlier, Mercedes and Audi, not surprisingly, announced major spare parts and/or service price cuts. Following suit, BMW announced it, too, would initiate new price cuts (Jamil Amderlini, “Mercedes-Benz Questioned in China Pricing Probe,” Financial Times, August 5, 2014; Li Fangfang, “Mercedes-Benz Confirms Antitrust Investigation,” China Daily, August 5, 2014, http://www.chinadaily.com.cn/business/motoring/2014-08/05/content_182514... “China Cars: Hot Pursuit,” Financial Times, August 6, 2014; “Audi Faces Colossal Fines for Monopoly,” China Daily, August 8, 2014, http://www.chinadaily.com.cn/business/motoring/2014-08/08/content_182742... and “BMW to Reduce Prices Amid Antitrust Probe,” China Daily, August 9, 2014, http://www.chinadaily.com.cn/business/2014-08/09/content_18277956.htm)

According to a report in the Beijing Youth Daily, foreign security software developers Symantec Corp. and Kaspersky Lab were left off a government procurement agency approved company list (all the approved firms were Chinese antivirus software companies) while only Microsoft made it on an approved list for operating system software. Symantec emphasized that exclusion from the government list was not a ban, that it was excluded only from certain kinds of procurement (e.g., central government institutions funded by central government budgets), and that it would continue to seek out Chinese government business. Kaspersky Lab also denied China had banned it (“Foreign Security Software off China’s Government List,” China Daily, August 4, 2014, http://www.chinadaily.com.cn/business/tech/2014-08/04/content_18243703.htm; and Meng Jing, “Symantec: Products Not Banned by China,” China Daily, August 5, 2014, http://www.chinadaily.com.cn/business/tech/2014-08/05/content_18250633.htm)

China’s media microscope recently focused on Apple, charging that its products had security flaws. Not long thereafter, it was reported that the Chinese government had banned Apple products for security reasons, which increased IBM’s anxieties since it has been moving to partner closely with Apple. A leading Chinese financial website, however, said that Apple was not banned, but rather that Apple did not make a list of approved energy efficient products (government moneys have to be used to buy energy-efficient product) because it had not delivered all requisite documents. Analysts indicated the Chinese government was not a significant Apple customer (Alex Barinka, “IBM-Apple Deal for Businesses Hits Snag as China Spurns IPad,” Bloomberg, August 6, 2014, http://www.bloomberg.com/news/print/2014-08-06/ibm-apple-app-deal-for-bu... Charles Clover, “China Bans Federal Officials from Buying Apple Products,” Financial Times, August 6, 2014; Zhang Jie, “Apple’s Ban a Misunderstanding,” China Daily, August 7, 2014, http://www.chinadaily.com.cn/business/tech/2014-08/07/content_18267037.htm; and Gao Yuan, “Apple Devices Never on list of Govt Buys,” China Daily, August 8, 2014, http://www.chinadaily.com.cn/business/tech/2014-08/08/content_18274111.htm).

At the end of July, the Chinese State Administration of Industry and Commerce (SAIC) began its antitrust investigation of Microsoft, seizing documents and computers. At the beginning of this month, the SAIC issued a statement noting it “formally told Microsoft not to interfere in the investigation process.” As reported in an earlier “MNCs in the News” digest, China is investigating Microsoft for its product bundling practice and operating system and Office software suite verification systems. The antitrust investigation also has dragged in accounting firm Accenture, which does systems consulting work and financial work for Microsoft (Gao Yuan, “Don’t Block Antitrust Probe, Watchdog Warns,” China Daily, August 5, 2014, http://www.chinadaily.com.cn/business/2014-08/05/content_18247562.htm; and Accenture Involved in China’s Microsoft Probe,” China Daily, August 6, 2014, http://www.chinadaily.com.cn/business/2014-08/06/content_18260538.htm)

Microsoft hiring practices also put the mega-software multinational corporation in the news with Nokia employees, absorbed into Microsoft as part of its purchase of Nokia, protesting about the potential layoff of thousands of workers and their treatment, with severance pay apparently falling below that Nokia workers elsewhere like Taiwan. On top of this, 100 Microsoft employees signed a letter calling for top company officials to engage in a dialogue with China about the company’s layoff plans. One of the demands of the employees was for a longer work transition period (Gao Yuan, “Fears Grow over Microsoft’s Ax,” China Daily, August 5, 2014, http://www.chinadaily.com.cn/business/tech/2014-08/05/content_18247327.htm; and Gao Yuan, “Microsoft Workers Call for Talks on Retrenchment,” China Daily, August 6, 2014, http://www.chinadaily.com.cn/business/tech/2014-08/06/content_18260300.htm)

In a recent ruling, the WTO Appellate Body rejected China’s appeal of a case it previously had lost to the US, European Union, and Japan. The original case related to China’s restriction on the export of rare earth metals, where it is the world’s dominant producer. China argued its restrictions had to do with environmental protection, but the plaintiffs argued China was restricting exports to help domestic firms. Access to rare earth metals is crucial to multinational corporations because they are vital elements in defense components and devices like disk drives, wind turbines, hybrid batteries, energy-efficient lighting, and smart phones (Tom Miles, “China Loses Appeal of WTO Ruling on Exports of Rare Earths,” Reuters, August 7, 2014 http://www.reuters.com/assets/print?aid=USKBN0G71QD20140807).

China’s National Development and Reform Commission (NDRC) is investigating Japanese auto-related firms such as Yazaki Co. and Denso Co. for possible antitrust violations. The NDRC plans to issue its results and propose fines soon. The NDRC specifically has problems with the pricing of auto parts and also has been investigating a number of other western firms as shown in this and other “MNCs in the News” digests. Some contend the current Chinese administration is imposing belt-tightening and has started to “beat-up” foreign brands, especially targeting Japanese and western luxury cars (“China to research 12 Japanese firms for the violation of antitrust and propose fines; Western countries are also targeted as known as ‘Foreign beat-up,’” Sankei, August 6, 2014, http://sankei.jp.msn.com/world/news/140806/chn14080612510005-n1.htm)

The Japan-Brazil business forum was just held in Sao Paulo and Japanese Prime Minister Abe Shinzo gave a speech that emphasized the importance of Brazil-Japan economic ties. The president of Mitsui & Co. said, “With over $8 billion investment, Brazil is now as important as the US and Europe” while the chairman of Toyota commented, “Brazil became the 4th biggest market in the world and is likely to grow more.” Japan’s Federation of Economic Organizations and Brazil’s industrial federation, CNI, will hold talks this September to resolve trading issues pertaining to taxes and logistics network (“Japan-Brazil Business forum-corporations expand businesses in both countries,” Nikkei, August 4, 2014, http://www.nikkei.com/article/DGXLASGM0300E_T00C14A8FF8000/)

Hitachi will resume a nuclear power plant project in Lithuania that started in 2007, but stopped as a result of a national vote in 2012. An agreement between the Japanese and Lithuanian governments allowed for the project’s resumption. For numerous reasons, it has been increasingly difficult to build new nuclear plants in Japan and Japanese companies need overseas opportunities to sustain this business line. The Lithuania power plant project is especially crucial for Hitachi’s prospects at this challenging time. On August 1st, Toshiba’s US subsidiary, Westinghouse, agreed to build a new plant in nearby Bulgaria (“Hitachi sees the light at the end of the tunnel for its power plant export; the Lithuania power plant project talk will be resumed,” Nikkei, August 3, 2014, http://www.nikkei.com/article/DGXLZO75170010S4A800C1TJC000/; and “Toshiba’s American subsidiary will start a nuclear power plant construction in Bulgaria,” Sankei, August 2, 2014, http://sankei.jp.msn.com/economy/news/140802/biz14080200310003-n1.htm)

Japan will support Kazakhstan’s nuclear power plant construction by sharing engineers with decommissioning know-how from Japanese electric firms and nuclear power reactor manufacturers. It is doing this with an eye towards competing with Russia for a project involving the construction of a Kazakhstan nuclear power plant in 2020. Japanese Minister of Economy, Trade and Industry Toshimitsu Motegi will visit Kazakhstan to sign a memorandum of understanding with Kazakh Deputy Prime Minister Asset Issekeshev regarding nuclear power plant construction and support (“Japan to support Kazakhstan for nuclear power plant, send technicians,” Nikkei, http://www.nikkei.com/article/DGXLASFS0300F_T00C14A8NN1000/)

After the US National Highway Traffic Safety Administration announced the recall of 1.3 million cars, encompassing three models including the popular Sonata sedan, Hyundai’s chairman Chung Mong-koo flew to the US to assess the company’s market conditions and review its corporate strategies in the upcoming months. He first visited the company’s headquarters in California before heading out for Hyundai and Kia’s production plants, located in Alabama and Georgia respectively, to check car quality. However, Hyundai’s and Kia’s tightening of quality control standards might halt their sales expansion vis-à-vis their rivals (“Hyundai Motor Group head visits U.S. to assess market conditions,” The Korea Herald, August 5, 2014, http://www.koreaherald.com/view.php?ud=20140805000970)

In the wake of a US Department of Commerce preliminary ruling on anti-dumping that probed some Chinese solar-energy equipment firms, a few Taiwanese solar manufacturers have started pursuing measures to lessen the negative impact of such ruling on their sales performance. For example, Neo Solar, Taiwan’s largest solar cell manufacturer, has begun gradually diversifying export destinations. It also has begun to actively assess the possibility of building a plant in the US and other regions in Asia to supply products for US and other markets (Lisa Wang, “Neo Solar tempers pace of monthly revenue slide; Green Energy sees rise,” Taipei Times, August 6, 2014, http://www.taipeitimes.com/News/biz/archives/2014/08/06/2003596736)

After posting a net profit of NT$254 million in the first quarter, ASRock Inc, Taiwan’s third-largest motherboard producer and a subsidiary of Asustek Computer experienced an unexpected second quarter loss. It attributed the loss to anti-China riots in Vietnam in May. During the protests, ASRock suspended almost half of its production capacity in Vietnam. As a result, sales for the April-June quarter dropped almost 25 percent compared to the previous quarter, to a 16-month low (Kevin Chen, “Anti-China protests in Vietnam sends ASRock into loss,” Taipei Times, August 6, 2014, http://www.taipeitimes.com/News/biz/archives/2014/08/06/2003596739)

*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.