In the news: China plans to impose outbound curbs, Disney cuts ties with a Chinese factory and the Chicago Stock Exchange acquisition gets scrutinized

Disney cuts off Chinese toy plant over alleged labor violations

Walt Disney Co. has said it would no longer allow its Chinese partner Dongguan Qing Xi Juantiway Plastic Factory to make products featuring the company's characters, following initial reports of labor violations and the supplier's failures to remediate hiring and HR issues identified during Disney's own investigation of the facility last year. Its memo also said that Lam Sun Toy Limited Co. was failing to meet expectations regarding accurate record-keeping, health, fire safety and HR practices, and that the toymaker will have a chance to fix the issues before Disney terminates the relationship. About 28% of Disney's 30,000 factories worldwide are located in China. China Labor Watch first released a 123-page report last year detailing alleged labor violations at five Chinese toy plants that do business with companies including Disney, and another 40-page report in June that said Lam Sun only hired women for assembly jobs and forced them to work 90 overtime hours a month, in excess of local limits, with workers also lacking safety equipment and training. China's—and most of the world's—manufacturing hub Guangdong being hit especially hard by the economic downturn is likely a key reason for some local factories' neglect for investing in work safety and labor costs. And unfortunately, traditional manufacturing workers have the most to lose as China tries to shift to an economy driven by high-end services that they just aren't qualified for, and there is a fear that low-level factory work will be driven out before enough jobs have been created in the services sector. The government is also contemplating rolling back workers' security protections as a means of rebooting the economy.

Chongqing Casin-Chicago Stock Exchange deal under review

The Chicago Stock Exchange Inc. (CHX) has released new information related to its proposed takeover by an investor group led by China's Chongqing Casin Enterprise Group to clarify that the Chinese government is not involved in the deal and has no control over any of the potential investors. The planned acquisition came under fire almost immediately after its announcement in February, with nearly 50 U.S. lawmakers raising concerns about the level of influence the Chinese state could have over one of the oldest U.S. exchanges. CHX's general counsel said that the rules of the deal safeguard against future government interference, and that the transaction would benefit both nations by enabling trading between the two largest economies in the world. 134-year-old CHX, which has less than 0.5% market share in U.S. equities, would revamp its listings program to attract medium-sized businesses that do not qualify for Nasdaq or New York Stock Exchange and provide Chinese investors more access to the U.S. market given the backlog of IPOs they face back home. The deal is under review by the U.S. Securities and Exchange Commission (SEC) and the Committee on Foreign Investment in the United States (CFIUS). The scrutiny comes as a U.S. agency responsible for monitoring trade and security submitted a report to Congress two weeks ago calling for CFIUS to block all inbound acquisitions by Chinese state-owned enterprises. Although the document is strictly advisory, market watchers say it could carry some weight given the trade and national security concerns in relation to China that were highlighted by president-elect Donald Trump's largely anti-Chinese rhetoric that fueled his election campaign.

Outbound investment curbs?

China is reportedly planning sweeping restrictions on domestic companies' overseas acquisitions, including barring investments of $10 billion or more. The government will suspend several categories of deals while leaving room for some strategic transactions to be executed, but the proposal is to restrict outbound investments of at least $1 billion in industries outside a buyer's core business, and real estate deals worth $1 billion or more by state-owned enterprises (SOEs), according to private documents. The curbs will last until the end of September 2017, and regulators will pay extra attention to deals by firms with a high leverage or poor return on assets. Officials from the People's Bank of China (PBOC) and the National Development and Reform Commission (NDRC) confirmed the tightened screening of outbound projects on Monday, and a Shanghai foreign exchange authority told banks in the city to alert Beijing of any overseas payments exceeding $5 million under the capital account. China has been trying to balance local companies' demands for acquiring foreign assets and the need to limit cross-border currency movements. And despite an NDRC draft proposing to further simplify outbound regulatory processes released this summer, lawyers have said that converting renminbi to foreign exchange has been more challenging this year, and that officials have deliberately been delaying clearances in order to prioritize the control of capital outflow.

Disney cuts off Chinese toy plant over alleged labor violations

Walt Disney Co. has said it would no longer allow its Chinese partner Dongguan Qing Xi Juantiway Plastic Factory to make products featuring the company's characters, following initial reports of labor violations and the supplier's failures to remediate hiring and HR issues identified during Disney's own investigation of the facility last year. Its memo also said that Lam Sun Toy Limited Co. was failing to meet expectations regarding accurate record-keeping, health, fire safety and HR practices, and that the toymaker will have a chance to fix the issues before Disney terminates the relationship. About 28% of Disney's 30,000 factories worldwide are located in China. China Labor Watch first released a 123-page report last year detailing alleged labor violations at five Chinese toy plants that do business with companies including Disney, and another 40-page report in June that said Lam Sun only hired women for assembly jobs and forced them to work 90 overtime hours a month, in excess of local limits, with workers also lacking safety equipment and training. China's—and most of the world's—manufacturing hub Guangdong being hit especially hard by the economic downturn is likely a key reason for some local factories' neglect for investing in work safety and labor costs. And unfortunately, traditional manufacturing workers have the most to lose as China tries to shift to an economy driven by high-end services that they just aren't qualified for, and there is a fear that low-level factory work will be driven out before enough jobs have been created in the services sector. The government is also contemplating rolling back workers' security protections as a means of rebooting the economy.

Chongqing Casin-Chicago Stock Exchange deal under review

The Chicago Stock Exchange Inc. (CHX) has released new information related to its proposed takeover by an investor group led by China's Chongqing Casin Enterprise Group to clarify that the Chinese government is not involved in the deal and has no control over any of the potential investors. The planned acquisition came under fire almost immediately after its announcement in February, with nearly 50 U.S. lawmakers raising concerns about the level of influence the Chinese state could have over one of the oldest U.S. exchanges. CHX's general counsel said that the rules of the deal safeguard against future government interference, and that the transaction would benefit both nations by enabling trading between the two largest economies in the world. 134-year-old CHX, which has less than 0.5% market share in U.S. equities, would revamp its listings program to attract medium-sized businesses that do not qualify for Nasdaq or New York Stock Exchange and provide Chinese investors more access to the U.S. market given the backlog of IPOs they face back home. The deal is under review by the U.S. Securities and Exchange Commission (SEC) and the Committee on Foreign Investment in the United States (CFIUS). The scrutiny comes as a U.S. agency responsible for monitoring trade and security submitted a report to Congress two weeks ago calling for CFIUS to block all inbound acquisitions by Chinese state-owned enterprises. Although the document is strictly advisory, market watchers say it could carry some weight given the trade and national security concerns in relation to China that were highlighted by president-elect Donald Trump's largely anti-Chinese rhetoric that fueled his election campaign.

In the news: China plans to impose outbound curbs, Disney cuts ties with a Chinese factory and the Chicago Stock Exchange acquisition gets scrutinized

This premium content is reserved for China Law & Practice Subscribers.

This premium content is reserved for
China Law & Practice Subscribers.