Asia-Pacific Region
New Chinese rules could complicate a sale of Tiktok’s US business
China appears to have complicated efforts to sell TikTok to an American company by introducing new rules that could allow Beijing to veto any potential deal.
The twist in the TikTok saga stems from notices published by the Chinese government on Friday, when officials revised rules that govern the sale of certain kinds of technology to foreign buyers. The updated list includes data processing, speech and text recognition — the kind of tech that experts say is used by the popular short-form video app.
The announcement marked the first time those rules have been revised since 2008. China’s Ministry of Commerce and Ministry of Science and Technology said the changes were meant to “formalize the management of technology export” and “protect national security.”
The notices did not name TikTok or its Beijing-based owner ByteDance, but experts have pointed out that the rule change would likely require ByteDance to obtain government permission before it could sell TikTok to a foreign company.
State-run news agency Xinhua, for example, this weekend cited trade expert Cui Fan as saying that the revisions would cover a sale of TikTok.
ByteDance should “seriously and carefully consider whether it is necessary to suspend substantive negotiations” on a potential deal given the new rules, Cui, a professor at the University of International Business and Economics, told Xinhua.
ByteDance General Counsel Erich Andersen said in a statement that the company is studying the new regulations.
“As with any cross-border transaction, we will follow the applicable laws, which in this case include those of the US and China,” he added.
Talk of a sale began as President Donald Trump issued executive orders this month threatening to ban the app unless ByteDance sells its US operations in the coming weeks. Trump and other US politicians have said the app poses a threat to national security. TikTok has denied the allegation and sued the Trump administration over one of the orders, calling it “heavily politicized.”
The app already has a handful of prospective buyers, including Microsoft (MSFT) and Walmart (WMT), which have said they are pursuing a joint bid. The tech firm Oracle (ORCL) is reportedly interested as well.
Pressure on TikTok right now is immense. Last week, CEO Kevin Mayer resigned after less than four months on the job, citing the “sharply changed” political environment.
China’s changes to its export control rules are a way for the country “to exert some leverage over the situation,” according to Anupam Chander, a law professor at Georgetown University.
“It will cause any bidder to pause and wonder how to proceed,” he added.
Microsoft and Walmart declined to comment on the new regulations from China. Oracle did not immediately respond to a request outside of working hours.
China has repeatedly pushed back against the Trump administration’s treatment of TikTok, calling it “blatant bullying” in the name of national security.
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Centre unlikely to cede ground on GST compensation
The government is unlikely to give in to demands for changing the compensation formula for goods and services tax (GST) despite opposition-ruled states demanding that the Centre borrow from the market and transfer funds to meet the shortfall between actual collections and the promised growth of 14 percent.
Top government officials told TOI that the compensation mechanism and calculations of what it should be has been “hard wired” into the law and the proposals put before the states were based on two rounds of consultation with attorney general K K Venugopal.
“It is absolutely clear that the funds must come from the cess and the 14 percent is calculated on a base year of 2015-16 for all states. This is the basis on which the Rs 97,000 crore figure has been arrived at while assuming 10 percent nominal growth,” explained a source in the government.
The finance ministry has considered possible options over the last two months since finance minister Nirmala Sitharaman assured states that there will be a GST Council meeting just to address the issue of compensation.
She has been part of meetings that might usually involve only officials at a stage where options are being studied before being put before the minister, sources told TOI. It was felt that she should provide necessary guidance in a matter that is of central importance to the finances of the Centre and states.
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Berkshire hathaway takes stakes topping $6 billion in Japan’s top five trading companies
Warren Buffett’s Berkshire Hathaway Inc. bought stakes in five of Japan’s biggest trading companies, adding to the billionaire investor’s wager on the commodities sector and marking one of his largest-ever forays into Asia’s second-largest economy.
Berkshire acquired the stakes of about 5 percent in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. over the past 12 months, the U.S. conglomerate said in a statement. The investments were valued at more than $6 billion combined after shares of all five companies jumped at least 5 percent in Tokyo trading on Monday.
While Buffett has stayed relatively cautious with his record cash hoard since COVID-19 rippled through the global economy, Berkshire has been adding to its commodities exposure with deals including a $4 billion agreement to purchase most of Dominion Energy Inc.’s natural gas pipeline and storage assets in July.
Valuations in the sector have trailed the broader stock market in recent years, dragged down by falling commodities prices and an investor rotation toward technology stocks that has accelerated during the pandemic. Most of the Japanese companies targeted by Berkshire are major players in the nation’s energy and raw-materials industries, trade at less than book value and offer higher dividend yields than the benchmark Topix index.
“These trading companies generate strong cash flow, they pay out a lot of dividends and they have businesses that can’t be easily replicated,” said Thanh Ha Pham, an analyst at Jefferies Japan Ltd.
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Buffett’s wager could help bolster sentiment toward both commodity plays and Japan. The $5 trillion economy is not only grappling with a persistent coronavirus outbreak and the postponement of the Tokyo Olympics, it’s also going through a leadership transition after Prime Minister Shinzo Abe announced his resignation for health reasons last week. Japan’s benchmark Topix index climbed as much as 1.9 percent on Monday, pacing regional gains and snapping three days of losses. Foreign investors have sold a net $43 billion of Japanese shares this year, on course for the biggest annual withdrawals since 2018.
“I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment,” Buffett said in the statement. “The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships. I hope that in the future there may be opportunities of mutual benefit.”
While Buffett visited Japan after its 2011 tsunami and nuclear disaster, he has stayed mostly quiet on investments in the country until now.
Japan’s general trading houses, known as “sogo shosha” with roots dating back hundreds of years, supply the resource-poor nation with everything from natural gas to noodles, and have spent the last few decades transforming into conglomerates that hold equity stakes in hundreds of diverse companies around the world. While they operate in areas like textiles and machinery, they still derive much of their revenue from energy, metals and other commodities.
Aside from their valuations, dividends and central role in Japan’s supply chain, the companies may have appealed to Buffett in part because the country has a reputation for trusted accounting, Pham said. Buffett also has a lot of cash to invest, with a dearth of opportunities in his home market after share prices surged to record highs, Pham added.
Berkshire said it plans to hold the Japan investments for the long term and has pledged to only own as much as 9.9 percent of the shares in any of the five companies, unless given specific approval by the investee firm’s board of directors.
Mitsui said it wasn’t aware of the reasons behind Berkshire’s investment. Sumitomo said it will engage in dialogue with Berkshire, while Marubeni declined to comment. Itochu and Mitsubishi couldn’t immediately comment.
Buffett’s investments mark a notable push abroad by his firm, which has long had its biggest holdings in U.S. companies including Apple Inc. and Coca-Cola Co. Buffett said in 2018 that there was a good number of countries he’d be willing to invest in, although foreign firms didn’t turn to Berkshire for funding as quickly as U.S. companies might. Berkshire’s offshore holdings include China’s BYD Co. through its energy business and Brazilian payment company StoneCo Ltd.
Berkshire has piled deeply into various industries before, taking stakes in four major U.S. airlines in 2016, though it ended up selling those stocks in 2020 as the pandemic brought most air travel to a halt. The company is also a major investor in U.S. banks.
Buffett, who celebrated his 90th birthday on Aug. 30, has built Berkshire into a conglomerate valued at more than $521 billion, with operations ranging from insurers to industrial giants such as Precision Castparts Corp. and retailers such as Fruit of the Loom. Berkshire’s equity portfolio totaled about $207 billion at the end of June, while it’s cash pile grew to a record $146.6 billion. Its shares have slipped 3.6 percent this year, versus an 8.6 percent gain for the S&P 500 Index.
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Malaysia extends recovery mco to year-end; ban on foreign tourists remain
Malaysia has further extended the recovery movement control order (RMCO) to December 31, 2020, while the ban on international tourists will remain in place, as Covid-19 cases across the globe continue to surge.
The RMCO, which kicked in on June 10, was slated to end on August 31. Speaking at a televised address on Friday (August 28), prime minister Muhyiddin Yassin said: “Our country is still facing challenges in curbing the spread of Covid-19, which is still actively spreading around the world.
“We cannot risk taking this super-spreading virus lightly in the country. Therefore, stricter quarantine rules at certain locations will continue to be enforced.”
While most economic sectors have been allowed to operate, nightclubs and entertainment centres remain closed as new norms would be difficult to implement in these venues.
Muhyiddin also said that foreign tourists will not be allowed to enter Malaysia for now to prevent imported cases into the country.
In a press conference on Friday, senior minister (security cluster) Ismail Sabri Yaakob echoed this further. He was quoted by The Star as saying: “For now, Malaysia is not ready to open our borders to foreign tourists. Even between Malaysia and Singapore, we only allow people from two categories (to travel), including our citizens who had been stranded in Singapore.
“The other category is for those (from Singapore) who are permitted to enter Malaysia for business-to-business purposes, such as attending meetings in Kuala Lumpur.
“Opening our border to tourists from other countries is the last thing we will look into. Apart from requests from restaurant workers from Thailand and domestic workers from Indonesia (to enter the country), we also received a request from AirAsia (to allow commercial air travel).
“At the moment, Malaysia will not grant approval to any of the requests.”