Japan’s Law Firms Benefit as Companies Move From China to SE Asia

As an increasing number of Japanese companies move production out of China in order to protect their supply chains, hefty investments made by Japan’s Big 4 law firms into Southeast Asia are paying off.

All four of the firms—Mori, Hamada & Matsumoto; Nishimura & Asahi; Anderson Mori & Tomotsune; and Nagashima Ohno & Tsunematsu—have established offices in Southeast Asia and are well-positioned in the region, where their clients, assisted by the Japanese government, are now actively relocating factories from China. In July, the Japanese government announced subsidies of up to US$114 million for 30 companies that were transferring their factories from China to Southeast Asia.

The moves have accelerated as Japanese companies seek to avoid getting caught up in increased U.S.-China trade tensions, political turmoil in Hong Kong and country lockdowns prompted by the COVID-19 pandemic. But for the Japanese firms, moving into Southeast Asia is not new. Mori Hamada was one of the first Japanese firms to make its foray into the region, opening an office in Singapore back in 2012. Since then, it has established offices in Yangon, Ho Chi Minch City and Bangkok.*

In a sense, Southeast Asia was a fallback for the firms. Before 2012, they had assessed global markets for expansion opportunities but decided against Hong Kong because there was too much foreign firm competition there, all chasing after major Chinese state-owned enterprise M&As. They also concluded it would be too costly to set up offices in the U.S. and the U.K., where there was already a deep pool of well-entrenched competitors, lawyers say.

So all four firms followed their clients, which included major trading houses such as Mitsubishi Corp., Mitsui & Co., Sumitomo Corp., Itochu and Marubeni, into the greenfield that was Southeast Asia.

Now, their investments are reaping rewards. Over the past decade, Japanese companies have invested US$139 billion into Indonesia, Malaysia, Vietnam, Thailand and the Philippines. The pace of total investment over 10 years is double that of Japanese investment into China.

Nishimura & Asahi partner Masato Yamanaka, the Singapore office co-representative, said Japanese clients are investing in a much broader range of sectors in Southeast Asia. Traditional sectors included infrastructure projects and manufacturing, but technology and real estate have taken over in a big way. While the bulk of the firm’s work was traditionally dominated by banks and construction companies, it is increasingly adding tech companies to its list.

“We are also starting to see more funds, startups and financial services companies moving their operations to Singapore as a result of Hong Kong’s political challenges,” Yamanaka said.

But law firms and their clients are not just benefiting from their presence in Singapore. Indonesia, for example, Southeast Asia’s largest economy, has seen a surge in Japanese investment as companies look to protect supply chains and avoid repercussions of the U.S.-China conflict and Hong Kong political turmoil. In June, the Indonesian government announced that three Japanese companies, including Denso Corp. and Panasonic Corp., have relocated their plants from China to Indonesia.

And the work in Southeast Asia is not limited to Japanese law firms. Earlier this year, U.S.-based Morrison & Foerster, one of the largest international law firms in Japan, advised three entities within the Mitsubishi UFJ Financial Group—MUFG Bank, MUFG Innovation Partners and Krungsri Finnovate—on a US$706 million investment into Grab Holdings, Southeast Asia’s biggest ride-hailing company. Grab had separately received a US$3 billion investment from the Japanese conglomerate Softbank in 2019.

Law firms are also benefiting as Japanese industry makes moves into Vietnam, Myanmar and the Philippines. Last year, Sumitomo bought a 19 percent stake in the Light Rail Manila Corp., the operator of the Manila Light Rail Transit System Line 1—the only privately-operated rail system in the Philippines, for US$60 million. Morrison Foerster advised on the deal.

In 2019, Japan became the second-largest foreign investor in Vietnam, with over 4,300 projects totaling more than US$59 billion. Japanese investors see great opportunity in the country’s infrastructure sector, with pending projects worth over US$200 billion.

With such a positive outlook, lawyers predict more competitors will scurry into the region.

“I don’t think the traditional, smaller but long-standing Japanese firms will expand much internationally, but there is a new group of young lawyers that have trained in big local and international firms that are setting up their own firms,” said Nishimura & Asahi’s Yamanaka. “These lawyers will see and understand the opportunities outside of Japan; they have experience in advising startups. So we should see more of those [coming in].”

In June, Nishimura & Asahi became the first Japanese legal practice to establish a Formal Law Alliance (FLA) with a local Singapore firm. Nishimura & Asahi-Bayfront Law Alliance focuses on corporate M&A and arbitration matters. “The alliance is still new but we believe there will be an increase in ASEAN clients wanting to invest in real estate in Japan as a result of our alliance.”

Just weeks after Nishimura & Asahi’s formal law alliance announcement, Anderson Mori & Tomotsune announced it had formed an alliance with seven-lawyer DOP Law Corp.

However, Mori Hamada has not announced plans for a tie-up, despite it being among the first Japanese firms to break into the region. Nor has Nagashima Ohno.*

“It is not easy. We have spent years trying to look for the right partner,” said one Big 4 Japanese law firm partner who did not wish to be named. “Bigger firms don’t want to link up and smaller firms have not been the right fit.”

Chinese Investment in US Plummets Under Increased Scrutiny

New U.S. government data shows a massive drop in acquisitions of U.S. businesses by Chinese investors, particularly in critical technologies, evidence of the chilling effect of the Trump administration’s heightened scrutiny of Chinese investments.

The data, released by the Committee on Foreign Investment in the United States, provides evidence of the impact of strained U.S.-China relations on U.S. inbound Chinese investment. It also sheds light on the practical impact of recent reforms bolstering CFIUS’s powers.

In 2019, China was not the biggest source of transaction notices filed to CFIUS, a position it had held since 2011. Instead, that distinction fell to Japan, which filed 46 notices to CFIUS. This indicates that inbound Chinese investment to the U.S. for the year was lower than previous years, as CFIUS had fewer Chinese transactions to review, according to Darshak Dholakia, a partner at Dechert in Washington, D.C.

According to its annual report to Congress for 2019, published on July 31, CFIUS reviewed 25 Chinese transactions last year, a more than 50% drop from 55 the previous year and 60 in 2017. There was also a corresponding drop in Chinese investment in critical technologies, from eight acquisitions in 2018 to just three last year.

“Most of these publicly notified transactions that have received CFIUS scrutiny and CFIUS has either killed the deal through onerous mitigation measures or President Trump has recommended blocking the deal—those overwhelmingly have involved critical technologies,” Dholakia said.

In March, President Donald Trump blocked the acquisition of U.S. hotel management software company StayNTouch Inc. by Chinese company Beijing Shiji Information Technology Co. through a presidential order. Although there were no such orders issued in 2019, according to the CFIUS report, five of the six presidential orders issued over CFIUS’s 40-year history were issued in the last eight years. Moreover, five of the six orders related to Chinese investments.

According to a Rhodium Group report published in May, Chinese investment in the U.S. in 2019 fell to $5 billion, its lowest level in more than a decade. In addition to growing CFIUS scrutiny, the report also cited China’s restrictions on outbound investment and worsening U.S.-China relations as significant headwinds for Chinese investors.

CFIUS reviews foreign investment for national security risks. According to Cooley, examples of transactions that CFIUS typically scrutinizes include those involving U.S. businesses that have contracts with the U.S. government, as well as transactions that would result in foreign control over critical infrastructure.

Comprising nine government agencies, including the Department of Justice and the Department of the Treasury, CFIUS has the power to recommend the president block or unwind transactions as well as modify transactions by imposing mitigation measures.

In recent years, CFIUS has seen its review powers bolstered, most notably in 2018 with the passage of the Foreign Investment Risk Review Modernization Act. Some of the main changes include a greater focus on foreign investment in U.S. critical technologies, as well as the introduction of mandatory filing requirements for certain transactions, including those involving critical technologies.

“This discussion about how to properly frame CFIUS’s jurisdiction has been caught up in a larger discussion about cybersecurity, IP theft, resilience of American critical infrastructure, and sufficiency of its national industrial base,” said Jeremy Zucker, co-chair of Dechert’s international trade and government regulation practice based in Washington. D.C.

Chinese investors should pay close attention to CFIUS’s tightened filing requirements as a result of FIRRMA, Zucker said. He pointed out that CFIUS has seen its budget significantly expanded, which has led to the establishment of a new office dedicated to reviewing transactions that are not voluntarily submitted to CFIUS for review.

“There is more monitoring of the investment universe than ever, so a decision not to file is a riskier decision than it used to be. If the goal is to be able to close the deal with confidence that the U.S. government won’t interfere, then it’s certainly wiser to seek that clearance on a preclose basis than to close and then hide and hope that the government won’t come looking for you later,” Zucker said.

In recent years, CFIUS has unwound Chinese acquisitions of U.S. businesses several years following their completion. In March, Chinese company Kunlun was forced to divest from its acquisition of gay dating app Grindr in 2016 following a CFIUS review. Earlier this month, Trump issued an executive order banning TikTok from the U.S. market following a CFIUS review of the Chinese video-sharing platform’s acquisition of U.S. social media app Musical.ly in 2017.

Zucker believes Chinese investment in the U.S. is still possible, as long as Chinese investors are proactive in addressing known concerns of the U.S. government. These include whether the Chinese investor is an operating entity in the same industry as the investment target; the commercial merits of the investment; and the ultimate ownership of the investor itself.

“The most important thing for Chinese investors to do [moving forward] is to try put themselves in the shoes of U.S. government officials reviewing their investments,” Zucker said. “We’re representing Chinese investors in front of CFIUS right now, and we certainly are not under the impression that those investments are doomed.”

Goldman Sachs to pay $3.9B settlement in Malaysia 1MDB corruption case

The Malaysian government announced Friday that Goldman Sachs has agreed to a total settlement of USD $3.9 billion in the 1Malaysia Development Berhad (1MDB) corruption scandal. In return, the government will dissolve all the criminal charges and proceedings against the firm. The agreement includes a $2.5 billion cash payout by the investment bank and a guarantee to return at least $1.4 billion in proceeds from assets seized by authorities all over the world in relation to this scandal.

Goldman had raised $6.5 billion for 1MDB by arranging three bond sales in 2012 and 2013. Malaysian government officials, including former prime minister Najib Razak, had allegedly siphoned money from the state investment fund. Consequently, the Attorney General of Malaysia instituted criminal proceedings against the Goldman Sachs subsidiaries in December 2018.

The US Department of Justice (DOJ) had finalized a settlement agreement with Malaysian authorities in October 2019. The DOJ had recovered $700 million from Low Taek Jho, who was the mastermind behind the scheme. Combining all the agreements, the Malaysian government will now receive over $4.5 billion. Minister of Finance Tengku Dato’ Sri Zafrul Aziz said, “This settlement represents assets that rightfully belong to the Malaysian people. We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations.”

Vietnam Adopts Amended Law on Enterprises and Law on Investment

On June 17, Vietnam’s National Assembly (NA) passed the amended Law on Investment and Law on Enterprises, both of which will take effect on January 1, 2021.

The amended Law on Enterprises simplifies the business registration process, redefines state-owned enterprise (SOE), and excludes household business from the scope of the current law. The amended Law on Investment provides updates on conditional business lines, investment incentives, support mechanisms while removing administrative approval for certain types of investment projects.

To understand the changes, Vietnam Briefing discusses these key updates in detail:

Changes to the Law on Enterprises

  1. Removal of seal specimen

The amended Law on Enterprises removes the procedure to notify the seal specimens, including the carving seal and digital signatures, to the Business Registration Authority (BRA). Additionally, enterprises are allowed to decide on the type, number, form, and content of the seals for its branch, representative offices (ROs) and other units without notifying the BRA.

The requirement on changes to the personal information of a businesses’ manager has also been removed.

  1. Separate law for household businesses

Due to the differences between household businesses and enterprises, the NA voted to form a separate law for household business. Until this law is issued, the government will oversee regulations related to household businesses.

  1. New definition of SOE

Enterprises with more than 50 percent of the charter capital owned by the State will be considered SOEs as compared to the current ratio of 100 percent. Article 88 of the Law on Enterprises also divides types of SOE according to the different levels of ownership.

  1. Protection for minority shareholders

The revised law removes the requirement that a shareholder or a group of shareholders must hold ordinary shares for at least six consecutive months to exercise the rights of shareholders. Moreover, shareholder(s) that own five percent or more of common shares have the following rights:

  • Review, search, and extract the minutes’ books and resolution, decisions of the Board of Directors, financial statements, except documents related to trade and business secrets;
  • Request a convening of a general meeting of shareholders in some specific cases; and
  • Request the Supervisory Board to examine each specific issue related to management and administration when deeming it necessary.

Changes to the Law on Investment

  1. Conditional business lines

Among the new changes, the law makes amendments to the list of sectors and business lines requiring conditional market access. Conditional market access are business lines in which the investment must satisfy specific statutory conditions in order to gain market access. Especially, the amended law outlaw’s debt collection services, while abolishing or reducing conditions for 22 business lines, such as commercial arbitration, and franchising and logistics services.

In addition, several sectors have been added to the list that are subject to conditional market access. These are:

  • Tobacco detoxication provision services;
  • HIV/AIDS treatment;
  • Elderly care;
  • Water sanitization;
  • Architectural services;
  • Import press distribution services;
  • Electronic identification and authentication services;
  • Fishing vessel registration; and
  • Fishing vessel crew training, among others.

The law also contemplates a list of business lines restricted to foreign investment. The NA Standing Committee has emphasized the need to balance national security and investment attraction for socio-economic development, especially for coastal and remote areas.

  1. Incentives and investment support

To ensure the quality of foreign investment, the amended law includes specific conditions for sectors that are entitled to investment incentives. These include:

  • Innovation-related sectors such as Information Technology (IT), R&D, digital content, hi-tech, new and clean energy, and production of intermediate goods participating in value chains and industry clusters, among others;
  • To ensure the effectiveness of incentive schemes, maintaining incentives is conditional to the performance of the previous support package. More specifically, the government would set a definite term for incentives and would extend or scrap it in accordance with the outcome of the incentive;
  • The Prime Minister can apply special incentives to create a favorable mechanism and policies to attract FDI inflows. Notably, the law allows a maximum discount rate of more than 50 percent compared to the highest level prescribed by the current law; and
  • The law also provides special incentives for projects with an investment capital of over VND 3 trillion (USD 128.4 million), and VND 10 trillion (USD 428 million), with certain conditions.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

Insight into: Ajay Sahni & Associates

Ajay Sahni & Associates (ASA) is a boutique corporate law practice focused on intellectual property, innovation and technology. The firm was founded in 1983 with the objective of rendering creative, robust and effective strategic legal advice and representational services.

ASA is committed to delivering out-of-the-box, avant garde solutions to complex problems faced by its clients. The team strives to work with its clients as partners, helping them manage risk and navigate challenging legal and business landscapes.

ASA has a very strong disputes and enforcement practice with over 100 reported judgments in leading law journals and reports to its credit. The firm handles large IP portfolios for many Fortune 500 clients (both Indian and international) on the prosecution side. It has various awards and listings to its credit, such as the International Client Choice Award (Trademark), World Trademark Review (Leading firm and individual in enforcement & litigation as well as prosecution & strategy categories), Thomson Reuters Asian Legal Business IP Rankings (Tier 1 firm for Trademark and Copyright, Tier 2 firm for Patent) and Thomson Reuters Asian Legal Business India Rising Stars 2019, among others. Its members serve on various committees and expert groups in international associations, as well as government bodies.

ASA works with a sophisticated artificial intelligence and automation based in-house trademark portfolio management system to manage compliances, monitor threats and alerts for clients. It is also the first law firm in India to offer blockchain-based IP protection services.

ASA is led by its founder Ajay Sahni, who has been practising IP law since 1983 at the Supreme Court, high courts, district courts and tribunal levels across India. He has argued numerous landmark cases, many of which have been reported in leading law reports and journals. His dispute resolution experience covers a wide spectrum of industries, including pharmaceutical, retail, infrastructure, real estate, automotive, finance, fast-moving consumer goods, power, telecommunications, education, chemical and industrial products.

A strong founder

Mr Sahni’s experience is evident in the number of key positions he holds or has held:

  • former vice president at Intellectual Property Attorneys Association, New Delhi;
  • former vice president at Asian Patent Attorneys Association (India Chapter);
  • invited by the Rajya Sabha Secretariat (upper house of the Parliament of India) and examined as an expert witness by the Parliamentary Standing Committee on Commerce in relation to the Trademarks (Amendment) Bill 2007;
  • member on the Advisory Board of The Patents and Trademarks Cases, a leading monthly journal of IP case law in India;
  • regular speaker on IP laws at the Institute of Company Secretaries, the Institute of Chartered Accountants, the Haryana Police Academy and the Export Promotion Council of India; and
  • formerly appointed as a senior panel counsel in the High Court of Delhi for conducting central government cases.

In addition, Mr Sahni has written extensively on the subject of IP law, including as:

  • a revising author of Lal’s Commentary on the Indian Copyright Act, 1957; and
  • a co-author of seven volumes of the book titled Cases and Materials on Trademarks and Allied Laws.

Firm’s key service offerings

Litigation, enforcement and dispute resolution

  • Handling civil, criminal and regulatory cases on infringement of patent, trademark, copyright, design, trade secrets, unfair competition; commercial mediation and arbitration
  • IP dawn raids, enforcement cases and domain name disputes
  • Dispute strategy, risk assessment, drafting of submissions, preparation of documentation, evidence, witnesses

Prosecution, compliance and audit

  • IP prosecution
  • Entry assistance: clearance searches, landscape studies, freedom-to-operate searches
  • IP audits and health checks
  • IP compliance management services
  • Cutting-edge tools based on automation and AI for 360-degree IP monitoring, threat assessment and compliance management services

Transactional

  • Acquisition and commercialisation of IP assets
  • IP valuation
  • Technology transactions and licensing
  • Safeguarding IP assets in mergers, acquisitions and joint ventures Advisory and public policy

Advisory and public policy

  • Anti-counterfeit investigations, forensics and enforcement strategy
  • Customs border protection assistance and strategy
  • Branding, advertising, marketing, packaging and labelling strategies
  • Drug and pharma regulatory filings, representation and support
  • Data protection and privacy
  • Public policy advisory, advocacy and strategic litigation support

Baker McKenzie Reshuffles Asia Practice

Baker McKenzie has appointed new leaders for seven of its Asia Pacific practice and industry groups. The new heads will join 12 other continuing practice and industry group leaders in the region on July 1.

The Tokyo office will see most changes in this round of leadership shuffle; four of the five incumbent practice and industry leaders in the office will step down leaving one Tokyo partner among the newly appointed leaders. Singapore-based Emmanuel Hadjidakis will replace Tokyo-based Gavin Raftery as Asia Pacific chair of banking and finance, while Kuala Lumpur-based Brian Chia will replace Tokyo-based Hideo Norikoshi as regional M&A chair.

Singapore-based Nandakumar Ponniya will take over from Tokyo-based Yoshiaki Muto as regional dispute resolution chair, while Sydney-based Anne Petterd will succeed Tokyo-based Kana Itabashi as regional chair of the firm’s international commercial and trade practice.

The one remaining Tokyo-based regional head will be Yaeko Hodaka, chair of the Asia Pacific industrials, manufacturing and transportation industry group. Hodaka will now share her duties with Shanghai-based Cherrie Shi, who works under Baker McKenzie’s special alliance with local firm FenXun Partners in the Shanghai Free Trade Zone.

Shi will join Shanghai-based Brendan Kelly, regional chair of the firm’s tax practice, and Beijing-based Bee Chun Boo, regional chair of the energy, mining and infrastructure industry group, to make a total of three regional heads in China.

The Singapore office will see its importance boosted with the addition of two new heads to make a total of five, the three other partners continuing in their leadership roles being Stephanie Magnus, Kelvin Poa and Martin David, regional chairs of the financial institutions industry group, private equity, and projects respectively.

The number of practice and industry leaders in Hong Kong office will be unchanged at four, with three regional heads there continuing in their positions, namely Ivy Wong, Stephen Crosswell and LokeKhoon Tan, chairs of capital markets, antitrust and competition, and the consumer goods and retail industry group respectively. The only change there involves a shift in role for Isabella Liu, who will replace Bangkok-based Say Sujintaya as regional chair of the firm’s intellectual property and technology practice following a stint as regional chair of the healthcare and life science industry group.

The healthcare and life science group will be led by Sydney-based Elisabeth White, who along with Petterd will bring the number of regional heads in Australia up to five. The three continuing regional heads are Adrian Lawrence, Michael Michalandos and Bruce Webb, chairs of TMT, employment, and real estate respectively.

“I am delighted to welcome our new practice and industry group leaders to the leadership team. What is particularly exciting is that among the seven new Asia Pacific leaders, four are women,” said Baker McKenzie’s Asia Pacific chair Ai Ai Wong.

Wong was appointed to her current position in 2018 when Baker McKenzie reshuffled its overall leadership in Asia Pacific. There have been changes among those leaders since then. Last year, Hong Kong partner Milton Cheng, then managing partner for the firm’s Hong Kong and mainland China offices, became the firm’s first-ever Asia-based global chairman. The China offices are now run by Hong Kong-based partner Steven Sieker, who previously led the firm’s regional tax practice.

 

Thailand Postpones Effective Date of Data Privacy Law

Background

The Thai Cabinet, on May 19, 2020, approved a Royal Decree on Organizations and Businesses which shall be exempted from compliance with the Personal Data Protection Act B.E. 2562 (2019) (“Royal Decree“) to delay the enforcement date of the Personal Data Protection Act B.E. 2562 (2019) (“PDPA“). The Royal Decree has been published in the Royal Gazette on May 21, 2020 and will be effective from May 27,2020 to May 31, 2021. It provides exemptions to data controllers listed under the Royal Decree to certain chapters and section under the PDPA which include:

–          Chapter 2 (data controllers’ obligations relating to the use, collection, and disclosure of personal data, privacy notices, consent requirements, exemptions and cross-border of data privacy);

–          Chapter 3 (data subject rights, data protection officer and record of processing);

–          Chapter 5 (complaints and administrative punishments);

–          Chapter 6 (civil penalties and punitive damages);

–          Chapter 7 (criminal liabilities and administrative punishments); and

–          Section 95 (transitional matter).

Data controllers who shall obtain the exemptions under the Royal Decree are as follows:

1)      Government authorities;

2)      Foreign public authorities and international organizations;

3)      Foundations, associations, religious organizations, and non-profit organizations;

4)      Agricultural businesses;

5)      Industrial businesses;

6)      Commercial businesses;

7)      Medical and public health businesses;

8)      Energy, steam, water and waste disposal businesses, including their related business;

9)      Construction businesses;

10)  Repair and maintenance businesses;

11)  Transportation, logistic, and warehouse business;

12)  Tourist businesses;

13)  Communication, telecommunication, computer, and digital businesses;

14)  Financial, banking and insurance business;

15)  Real estate businesses;

16)  Professional businesses;

17)  Management and support services business;

18)  Scientific and technological, academic social welfare and artistic businesses;

19)  Educational businesses;

20)  Entertainment and recreational businesses;

21)  Security business; and

22)  Household and community enterprise businesses whose activities cannot be clearly classified.

If there is any question as to whether particular organizations or businesses are fallen under the above list, the Personal Data Protection Committee (PDPC) shall consider and render its final decision at its sole discretion.

The main reason as specified in the Royal Decree is to provide more time for the business operators, which shall be regarded as data controllers by the PDPA, to prepare themselves to be fully compliant with the PDPA. The Royal Decree further specifies that business operators, including private and government sectors, are not ready to be in compliance with the PDPA. This was mainly due to requests from the private sector filed with the government indicating problems with the economy and within their organizations, such as the economic impact and other restrictions due to Covid-19 situation.

The extension is not to be interpreted that the Government of Thailand is relaxing its readiness to implement the PDPA. An essential action by the Thai government is that the PDPC committee has been appointed and will start the process of formulating regulations and an enforcement culture surrounding the PDPA.  The list of the PDPC members approved by the Cabinet as announced by the government’s spokesperson on 19 May 2020 are as follows (note that this list is not official until published in The Government Gazette):

1)      The Chairman: Mr. Thienchai Na Nakorn

Professor of faculty of law, Sukhothai Thammatirat Open University

Former Constitution Drafting Committee (CDC)

Former senior member of various committees (e.g. Committee of Official Information Commission, Committee of National Institute of Educational Testing Service (NIETS) and secretary-general of Political Development Council).

2)      Senior committee (personal data protection): Mr. Nawanan Theera-Ampornpunt

Technocrat on health informatics;

Deputy dean on practitioner level of faculty of medicine, Ramathibodi Hospital.

3)      Senior committee (consumer protection): Pol.Lt.Col Thienrath Vichiensan

Senior committee of Official Information Commission;

Former chief of inspector of Prime Minister Office;

Director of the Official Information Commission.

4)      Senior Committee (Information and communication technology): Mr. Pansak Siriruchatapong

Former Vice Minister of Ministry of Digital Economy and Society;

Former director of National Electronics and Computer Technology Center (NECTEC)

5)      Senior committee (social science): Asst. Prof. Tossapon Tassanakunlapan

Professor and researcher of faculty of law, Chiang Mai University

6)      Senior committee (legal): Ms. Thitirat Thipsamritkul

Teacher of faculty of law, Thammasat University

7)      Senior committee (legal): Prof. Supalak Pinitpuvadol

Professor of faculty of law, Chulalongkorn University

8)      Senior committee (health): Prof. Prasit Watanapa

Dean of faculty of medicine, Siriraj Hospital

9)      Senior Committee (finance): Ms. Ruenvadee Suwanmongkol

Secretary-general of the Securities and Exchange Commission

10)  Senior Committee (Government Information Management): Mrs. Methinee Thepmanee

Former secretary-general, Office of the Civil Service Commission (OCSC);

Former permanent secretary, Ministry of Information and Communication Technology (ICT).

In addition to the abovementioned members, please note that the PDPA requires that the PDPC must appoint permanent secretary of the MDES as the vice-president of the PDPC, together with 5 additional board members which include (i) the permanent secretary of the Prime Minister Office, (ii) the secretary-general of the juridical council, (iii) the secretary-general of the office of consumer protection board, (iv) the director-general of the Rights and Liberties Protection Department, and (v) the attorney-general. Please note that as of the writing of this article 27 May 2020, the official list of the PDPC members are not yet published in The Government Gazette.

The above is for general information purposes only and should not be relied upon as legal advice.

Vietnam’s Automobile Industry and Opportunities for EU Investors

Vietnam’s automobile industry has grown significantly in recent years. The average growth rate of domestically assembled vehicles was approximately 10 percent per year in the 2015-2018 period. With major manufacturers such as Toyota, Honda, Ford, Nissan, and Kia in the Vietnamese market, the number of spare parts suppliers have also invested in the industry giving the sector a much-needed boost.

The motorbike is ubiquitous to Vietnam, but with the country’s fast-growing middle class, car ownership is steadily rising. This growth, however, is likely to be stunted in the short term due to the COVID-19 pandemic but expected to resume in the long run as Vietnam reopens its economy.

Vietnam’s Industrial Policy and Strategy Institute predicts 750,000 to 800,000 vehicles will be sold annually by 2025 up from 288,683 in 2018.

The automotive industry is a major contributor to the GDP of many countries in the world:

Auto industry GDP

As displayed above, with such a high share in Vietnam’s GDP, the automotive industry has always received special attention from the government. There are currently many large automotive assembly and production projects in Vietnam with the aim of not only meeting domestic demand but also tapping into the regional market.

Local conglomerate Vingroup officially inaugurated its Vinfast factory on June 14, 2019, making it the first domestic automobile factory in Vietnam. The factory is not only state-of-the-art but also in line with Industry 4.0 standards.

However, the Vietnamese automotive industry faces stiff competition. Part of the reason for this is the zero-tariff policy between ASEAN countries that Vietnam is part of. Thus imports are cheaper than domestically produced vehicles.

Although Vietnam is one of the four largest automobile manufacturers in Southeast Asia, it has one of the lowest average localization rate in this region (only around 10-15 percent, and is still far behind Thailand, Indonesia and Malaysia).

In addition, the local automobile industry has not been able to invest in core and high technology products such as engine production and transmission systems. Localized parts are mostly of low technology products such as tires, seats, mirrors, glasses, cable harnesses, batteries, and plastic products.

About 80-90 percent of the main raw materials used to manufacture components are still imported. As a result, companies are required to import approximately US$2 billion to US$3.5 billion in components and parts for vehicle manufacturing, assembly, and repair each year.

For this reason, domestic automobile production costs are 10-20 percent higher than in other countries in Southeast Asia. As a result, the cost of cars produced domestically are at a disadvantage compared to completely build units (CBUs) that are imported.

Increasing car ownership

Vietnam imported more than 109,000 CBUs in the first nine months of 2019 with a turnover of US$2.4 billion as per official statistics. Compared to the same period in 2018, imported cars increased by 267 percent in volume and 257 percent in value.

Cars with less than nine seats led imports – with about 75,848 vehicles valued at US$1.5 billion. This shows the increasing purchasing power and the changing demands of customers. In addition, the vehicles imported from the EU mainly come from Germany. As per the General Department of Vietnam Customs in 2018, 1,197 imported cars from Germany were registered in Vietnam. Germany’s ZF Friedrichshafen inaugurated its first plant producing chassis modules for cars in Haiphong in November 2019.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

China introduces new Hong Kong security law

China introduced a controversial national security law Thursday that could place restraints on the pro-democracy movement in Hong Kong.

The law prohibits acts of “sedition, foreign interference, terrorism and secession.” China cited national security concerns for implementing the measure, but many warn the law will be interpreted broadly and cover protests.

China’s legislature begins its annual National People’s Congress meeting on Friday, where it could pass the law without deliberation from the legislature in Hong Kong.

Under the institution of “one country, two systems,” such a measure would need to pass the Hong Kong legislature. The legislature attempted to pass national security legislation earlier this year, but failed after being met with opposition from protesters.

The summer of 2019 marked a significant resistance to the Chinese government from pro-democracy protestors. The movement has since subsided in the form of public protest as the COVID-19 outbreak has spread throughout the world, including in Hong Kong.

Pro-democracy leaders are speaking out against the proposal and its procedure. “This is the end of Hong Kong. This is the end of ‘One Country, Two Systems.’ … Beijing has completely breached its promise to the Hong People. A promise enshrined … in the basic law,” declared lawmaker Dennis Kwok.

Vietnam Issues Investment Incentives for SMEs

As the outbreak of COVID-19 hampers business activity, Vietnam introduced Decree No. 37/2020/ND-CP (Decree 37) on March 30 to update the list of sectors and industries access to investment incentives under Decree 118/2015/ND-CP. The move underlines the government’s efforts to support businesses and particularly small and medium-sized enterprises (SMEs) affected by COVID-19.

Decree 37 will take effect on May 15.

The regulation expands the list of business lines eligible for investment incentives. This includes four types of SME business lines which are:

  • Small and mediums sized enterprises (SMEs) supply chains;
  • Business incubators for SMEs,
  • Technical support facilities for SMEs; and
  • Co-working spaces of SMEs.

The aforementioned businesses will now be eligible for import duty exemptions on fixed assets as well as other exemptions based on location.

SMEs continue to play a major role in Vietnam, accounting for 98 percent of all enterprises, 40 percent of GDP, and 50 percent of employment or 1.2 million jobs. As per the Ministry of Finance, Vietnam has more than 600,000 firms, with nearly 500,000 private and 96 percent being small and micro-enterprises.

However, SMEs continue to face problems such as access to finance, market access, and competition with foreign firms. We highlight three issues faced by SMEs below.

Access to finance

Credit access is a major concern for the Vietnamese SMEs. Banks providing commercial loans prefer to allocate their resources to larger firms rather than SMEs. According to banks, higher default risks, lack of financial transparency, and lack of assets for a mortgage are the major factors for not providing loans to SMEs. SMEs have to increase transparency and introduce newer production technologies, to reduce risks and increase efficiency to increase their chances of acquiring commercial loans.

Global supply chains

A study by the International Finance Corporation shows that only 21 percent of Vietnamese SMEs are linked with global supply chains, much lower than 30 percent and 46 percent in Thailand and Malaysia respectively. Integrating further with global supply chains in terms of procurement, operations, and sales will allow firms to manage competition, reduce risks, and reduce production costs, which currently is 20 percent higher than those of neighboring countries, such as Thailand and China.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.