Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
In The Week in Asia, Asia House Advisory takes a look at the top five developments in Asia this week affecting trade, investment and public policy.
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Friday 29 November 2019
This week, South Korea reverses Japan intelligence pact exit, they finalise a free trade deal with Indonesia and the pan-democrats win a landslide victory in Hong Kong.
South Korea and Indonesia agree free trade deal
Indonesia and South Korea reached a final agreement for a bilateral free trade deal, after seven-and-a-half years of negotiation efforts. If the South Korea-Indonesia Comprehensive Economic Partnership Agreement goes into effect, it would open 93 per cent of Indonesia’s market to South Korean firms – up from 80.1 per cent today. South Korea will open sugar and beer markets for Indonesia, in exchange for Indonesia exempting tariffs on steel, automotive, machine parts and textiles. Hyundai Motor Group also clinched a US$1.5bn deal to build an automotive plant in Indonesia, chiming well with Indonesia’s ambitions to become an electric vehicle production hub for the region. The agreement was reached at the ASEAN-South Korea Summit, which stressed co-operation and anti-protectionism in the region. ASEAN is South Korea’s second-largest trading partner, accounting for 14 per cent of trade last year.
Hong Kong pro-democracy camp wins in election landslide
The pan-democrat grouping won a landslide victory in local district elections across Hong Kong, in what was the first electoral test of public mood since protests began earlier this year. In a huge turnout of 71.2 per cent (compared to 47.01 percent in 2015), 388 out of the 452 seats went to the pan-democrat bloc, a stunning swing of almost 270 seats. This has meant that the pan-democrats have wrested control of 17 of the 18 district councils. Chief Executive Carrie Lam admitted that the results showed the disaffection that has spread among citizens, but did not offer any new concessions. The result undoubtedly creates more pressure on Lam’s administration to deal with the causes of the protests, and gives pan-democrats more influence in the election of a new Chief Executive in 2022.
Alibaba’s stock rises on Hong Kong IPO debut
Alibaba’s Hong Kong listing launched this week to a warm reception from investors. In an offering that was oversubscribed multiple times by the rush of investors, Alibaba was able to raise US$11 billion and saw its stocks rise by over seven per cent in the first 30 minutes of trading. Despite a reduction from its original plan to raise US$20 billion when it filed for its original listing in June, and unrest in the city causing a delay and scaling back of these plans, Alibaba’s Hong Kong debut is being seen as a success. It also shows that Hong Kong maintains a valuable role in connecting Chinese companies to global capital, despite the current unrest and the growth of mainland exchanges.
UAE and Saudi Arabia agree US$70bn cost for joint refinery in India
Saudi Crown Prince Mohammed bin Salman visited the UAE this week, heralding new policy initiatives between the two neighbours. MOUs were signed in fields of health, space and food, while a joint tourist visa is in the works on the back of relaxations of Saudi Arabia’s visa regime. Abu Dhabi National Oil and Saudi Aramco’s plan to build a joint oil and petrochemicals refinery in Maharashtra state, India, was also discussed. The facility is expected to produce 1.2 million barrels per day, with the initial cost estimated at US$70 billion, exceeding the US$44 billion originally predicted. Meanwhile, the Abu Dhabi Investment Authority are considering an investment of at least US$1bn in Saudi Aramco’s IPO.
South Korea reverses decision to exit intelligence pact with Japan
South Korea decided to remain in the General Security of Military Information Agreement, an intelligence-sharing pact with Japan, six hours before the deal was due to expire. Seoul planned to leave the pact amid ongoing tensions between the two neighbours over trade and security. Japan’s Prime Minister Shinzo Abe welcomed the move, highlighting the importance of co-operation between Japan, South Korea and the US in countering North Korean aggression. Japan has said it will restart talks with South Korea on the broader tensions.
TECH BONUS
Working group begins drafting China’s first facial recognition standard
A working group comprising of 27 Chinese companies has been called together by the government’s National Information Security Standardization Technical Committee to draft the country’s first facial recognition standard. The group includes Tencent, Ant Financial, Ping An Insurance and Xiaomi, among other big names in China’s tech space. They will explore problems such as how facial recognition can be protected from identity theft, fraud, and security risks from a lack of regulation on facial data collection. While it is not yet clear whether the standard will be legally binding or not, it will allow the government to gain key insights into how the field can be better regulated. The facial recognition sector in China was worth US$10.6 billion in 2018, and is expected to rise to US$20.1 billion by 2023, though concerns over facial data privacy and participation in Chinese state activities in Xinjiang led to leading unicorn Megvii to be blacklisted by the US last month.
NEXT WEEK IN ASIA
Looking ahead to next week, here are a couple of events to watch out for:
China’s Foreign Minister to make first visit to South Korea in five years: Chinese State Councillor and Foreign Minister Wang Yi will visit South Korea on 4 and 5 December – the first time he has made the trip to Seoul in more than five years. The visit will set the groundwork for a summit between South Korean President Moon Jae-in and Chinese President Xi Jinping ahead of a trilateral summit between Japan, South Korea and China in Chengdu next month.
Huawei to challenge US telecoms regulator decision: Huawei is set to challenge a US Federal Communications Commission (FCC) decision that could eliminate a key source of funding for Huawei’s biggest US business – telecoms equipment. Last week, the US telecommunications regulator voted to propose requiring carriers to remove and replace Huawei equipment from existing networks. The Chinese telecoms firm, which has found itself at the heart of US-China trade and tech tensions, is expected to file a suit challenging the FCC decision next week.
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Friday 22 November 2019
This week, SoftBank signs a US$30bn merger deal between Yahoo Japan and Line, Sri Lanka gets a new, pro-China President, and the US Congress passes its Hong Kong Bill, drawing China’s ire.
SoftBank signs US$30bn merger deal between Yahoo Japan and Line
Yahoo Japan, which is backed by SoftBank, and the messaging app Line, managed by South Korean Naver Corp, have agreed to merge to create a technology powerhouse which would have a combined market value of US$30 billion. The merger, which is expected to be completed by October 2020, would give the new group a big presence in East Asia, overtaking Japanese e-marketplace firm Rakuten in combined revenue. Line has 164 million active users across the region. There remain some obstacles, however. Regulatory approval is yet be secured and could prove tricky given the current tensions between Japan and South Korea. There is also uncertainty around whether minority stakeholders will be bought out. The group has pledged to invest US$1 billion in personalised advertising and other services to bring in new customers after the merger is complete, reflecting its ambitions in the region.
Saudi Aramco plans for record US$25.6bn IPO
With its IPO planned for December, Saudi Aramco has finalised its attempt to raise up to US$25.6 billion for 1.5 per cent of the company, which would make it the world’s largest IPO, overtaking Alibaba Group’s New York offering in 2014. However, it is clear that expectations have not been met, with a valuation in the range of US$1.6 to US$1.7 trillion falling short of Crown Prince Mohammed bin Salman’s request for a US$2 trillion mark up. In addition, the offering is now focussed on the domestic market, including regional investors and other sovereign funds. Aramco has pared down its international roadshow and the channels of international investment that it had planned to accompany the launch.
Both US houses pass Hong Kong Bill, Trump expected to sign
The Hong Kong Human Rights and Democracy Act has passed the US Congress with overwhelming bipartisan support, and is now heading to President Trump to sign into law. One of the most consequential parts of the Bill is a mechanism by which the US government is to review annually whether Hong Kong still enjoys the freedoms that it has under ‘One Country, Two Systems’. This would help officials decide whether Hong Kong should continue to receive preferential economic treatment compared to the mainland. China has condemned the passage of the Bill, calling on President Trump not to sign it and China’s Ministry of Foreign Affairs spokesman Geng Shuang claiming that it is “interfering with Chinese domestic matters”. China said it will retaliate with as-yet unspecified measures if the Bill is signed into law.
Gotabaya Rajapaksa wins Sri Lankan Presidency, look set to rebuild China relations
Gotabaya Rajapaksa has beaten Sajith Premadasa to win the Sri Lankan presidency in a closely fought campaign. A former defence secretary, Gotabaya’s victory is predicted to herald a return of pro-Chinese foreign policy that has waned over the past five years under the Sirisena administration. The former president had suspended all Chinese investment projects, citing allegations of corruption and overpricing. Gotabaya’s campaign was focused on providing a technocratic, military-style government and advisers have stated that he is keen on restoring relations with China to the level they were at before Sirisena’s election in 2015. Gotabaya’s brother, former President Mahinda Rajapaksa, has also returned as interim Prime Minister, further cementing the powerbase of this influential family. Mahinda had approved the construction of Hambantota Port, which Sri Lanka handed over to China after falling behind on loan repayments – fuelling global criticism of the Belt and Road Initiative and concerns of ‘debt trap diplomacy’.
US blacklisted Megvii prepares for Hong Kong listing as US Huawei license extended
Following the greater-than-expected interest in the Alibaba offering in Hong Kong, Chinese AI unicorn Megvii has decided to seek approval for an IPO in the city, after previously dropping its plan to list there. Megvii had previously sought an IPO in August, but put its plans on hold when the US blacklisted the company over its alleged involvement in surveillance activity in Xinjiang. Megvii is known for its innovative facial recognition technology, and the blacklisting reduced its ability to use American-made components in its products. The company is aiming to raise between US$500 million and US$1 billion in its IPO. In addition, another US blacklisted firm, Huawei, has seen a 90-day extension granted by the US government to enable US companies currently trading with them to make alternative arrangements.
NEXT WEEK IN ASIA
Looking ahead to next week, here are a couple of events to watch out for:
Hong Kong district elections to be held – Elections for local district councils in Hong Kong are due to take place on Sunday, in what could be a decisive vote in the city that has been rocked with months of protests. Observers will be watching to see if the vote – which is being seen as a referendum on support for the ongoing protests – goes ahead. International bodies such as the EU are urging that elections take place.
ASEAN-Korea Commemorative Summit – The 2019 ASEAN-Republic of Korea Commemorative Summit will take place in Busan next week, celebrating 30 years of dialogue relations. The focus will be on issues such as trade and cybersecurity. North Korea was invited to join the summit by South Korea, but declined.
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Friday 15 November 2019
This week, Alibaba announces its Hong Kong IPO while enjoying record sales, Chinese firm Jingye rescues British Steel and the Philippines’ flagship infrastructure scheme runs into trouble.
Alibaba announces Hong Kong IPO following US$38bn Singles’ Day bonanza
Alibaba has gained the required approval from the Hong Kong stock exchange for a secondary listing in the city, through which the company hopes to raise as much as US$13.4 billion. Pricing should be announced on 20 November, and shares are expected to start trading on the week commencing 25 November. The offering would represent one of the biggest fundraisings of the year, and the company is hoping to build on the momentum from their record-breaking sales on Singles’ Day this year, which topped US$38 billion across its platforms.
Philippines’ flagship infrastructure scheme hits choppy waters
The Philippines’ ‘Build, Build, Build’ infrastructure scheme, one of President Duterte’s flagship policies, took a hit this week with a new progress report finding that just two of the original 75 planned projects have been completed and only nine others started in the two-and-a-half years since the project was announced. Questions are now being raised as to the viability of the overall scheme, with some senators, such as Senate Minority Leader, Franklin Drilon, calling the scheme a failure. Big-ticket projects, which include new roads and bridges, have been axed from the scheme completely. Despite these setbacks, the government has doubled-down by releasing a new list of 100 projects – costed at more than US$84 billion – of which it hopes to complete 43 by 2022.
Chinese firm Jingye says it will invest £1.2bn to rescue British Steel
The Jingye Group, a Chinese manufacturing concern, has agreed to a £70m takeover of British Steel in a move which will save thousands of jobs while giving the group control of a third of the UK’s steel industry. Jingye, which will invest an additional £1.2 billion into the beleaguered steelmaker, said it aims to “preserve thousands of jobs in a key foundation industry for the UK”, but has not yet stated how the current 4,000 employees will be retained. With the deal giving the Chinese firm more than 30 per cent of the UK’s steel sector, concerns have been raised over national security, prompting Business Secretary Andrea Leadsom to claim that there are no “national security issues with this acquisition”.
Greece and China pen deals including US$660m expansion of key Piraeus Port
China’s President Xi Jinping visited Greece this week as it seeks to build ties and connections in Europe. The two countries signed 16 trade deals during the visit in sectors as diverse as banking, tourism and solar energy. China’s State Grid expressed its interest in a US$1.1 billion undersea cable being rolled out to Crete by Greek company ADMIE by 2023. The centrepiece, however, was the US$660 million investment by Chinese shipping company COSCO to transform the port of Piraeus into the biggest commercial harbour in Europe. The development could provide a key trade gateway into Europe for China and its businesses as part of the Belt and Road Initiative, which other EU nations have regarded with suspicion.
Iran announces discovery of new oil field
President Rouhani has announced the discovery of a new 50-billion-barrel oil field in southwest Iran. Covering an area of 2,400 sq km in Khuzestan province, the discovery could prove to be the country’s second largest oil field, behind Ahvaz, which contains an estimated 65 billion barrels. Iranian oil exports have dropped from more than 1.7 million barrels a day in March to fewer than 500,000 today amid US sanctions, which are in place due to the Trump Administration’s ongoing scepticism over the Iran nuclear deal. Increased enrichment activity was detected in the Iranian underground site of Fordow by the UN atomic watchdog this week – a development that will do little to increase the likelihood of the US relenting.
NEXT WEEK IN ASIA
Looking ahead to next week, here are a couple of events to watch out for:
Saudi Aramco IPO due: In what could be the world’s largest listing, Saudi Aramaco’s IPO is due to start trading on 17 November, according to a prospectus released by the company. Sources state that one-to-two per cent could be on offer on the Saudi stock market, though a total valuation of the company remains unknown.
Japan-South Korea intelligence pact due to expire: The intelligence pact between Japan and South Korea is due to expire next week as the latter announced its withdrawal in August, amid a trade war and dispute over historical grievances between the two countries. The countries’ defence ministers are due to meet on Sunday, while the US is urging the feud to be dropped.
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Friday 8 November 2019
This week, Saudi Aramco finally launched its IPO, China signed deals with France and the EU, and RCEP failed to be signed as India pulls out.
Saudi Aramco launches IPO
Nearly four years since Prince Mohammed bin Salman (MBS) first presented the idea, Saudi Aramco has finally kick-started its IPO after Saudi Arabia’s Capital Market Authority approved the company’s application for registration. There is hope in Riyadh that the offering, tipped to be the world’s largest, would raise as much as US$60 billion with a sale of up to three per cent of the company. This will depend, of course, on the valuation. MBS hopes a value of US$2 trillion is granted, but banks have tagged the company between US$1.1 trillion and US$2.5 trillion – with the final pricing scheduled for 5 December. The Saudi government plans to sell two per cent of the company in a domestic listing on 11 December, but they will be restricted from offering the planned three per cent on international bourses for a year after this.
China signs US$15 billion of deals with France during Macron’s visit, other EU-Chinese agreements signed
Deals worth US$15 billion have been signed between France and China during President Macron’s visit to the country this week. Deals were struck across a range of sectors, including aeronautics, energy and agriculture. Some highlights include Total’s joint venture with China’s Shenergy Group for LNG distribution in the Yangtze Delta, and Airbus’s promised investment in China, as well as state support for Chinese firms to buy their aircraft. China and the EU also reached an agreement to protect speciality and regional food and drink from imitation. This means that 100 different EU products, including Irish whiskey, Greek feta and Spanish Manchego cheese, as well as an equivalent number of Chinese products, such as Anji white tea and Panji rice, will be protected. It comes after President Xi’s speech at the China International Import Expo, in which he said he hoped to accelerate free trade deal negotiations with the EU, Japan and South Korea.
RCEP pushed to 2020 as India walk away
Talks aimed at getting India to agree to signing the Regional Comprehensive Economic Partnership (RCEP) at the ASEAN summit failed, delaying the signing to 2020 at the earliest. Indian government sources contend that the conditions were “not fair or balanced”, fearing that its economy would be flooded by cheap Chinese products. The deal has proved controversial with certain groups in Indian society, with farmers and trade associations applauding the decision to reject the deal. The other 15 nations, who had concluded negotiations on all 20 chapters and on market access, are planning to continue discussions so that signing could take place in February 2020. If this happens, RCEP would be the world’s largest free trade deal. China hopes to continue discussions with India and get them on board by the end of the year, while other nations are debating whether the deal should go ahead without India.
China offers incentives to Taiwanese firms, US pushes Taiwan to curb China chip exports
China has unveiled 26 measures to further open its market to Taiwanese firms ahead of the presidential election in Taiwan in January. The measures allow Taiwanese firms more equal treatment with their mainland counterparts when it comes to investing in different sectors, such as 5G and civil aviation. With the presidential election weeks away, Taiwan’s Mainland Affairs Council has decried thes moves as an attempt by the Chinese Communist Party to “divide Taiwan internally” and “interfere in and influence Taiwan’s election”. It follows US attempts to push Taiwan to restrict its biggest chipmaker from producing semiconductors for Huawei. Taiwan Semiconductor Manufacturing Company is the world’s largest contract chipmaker and had seen increased business after the US’s blacklisting of Huawei.
US and China agree to cancel tariffs in phases
China has said that an agreement has been made in principle with the US to remove tariffs in phases, noting that it will help to “stabilise market expectations”. Stock markets have responded favourably to the news. This is the first time the US has allowed tariff relief, and Beijing have stepped back from insisting that all tariffs had to be cancelled before a deal could be agreed. The interim deal is also expected to include the US pledge to scrap the tariffs scheduled for US$156 billion worth of Chinese goods on 15 December. Meanwhile, as wrangling over the location of the signing of the “phase one” deal continues, the ceremony itself may be delayed until December.
NEXT WEEK IN ASIA
Looking ahead to next week, here are a couple of events to watch out for:
President Erdogan scheduled to meet Trump in the US: Turkey’s President Erdogan is scheduled to meet President Trump in the US, although a recent vote by the House of Representatives to recognise the Armenian Genocide may jeopardise this. Talks are likely to centre on security and defence issues, particularly relating to the situation in Syria and the Middle East.
Sri Lanka goes to the polls for its new president: Sri Lanka will go to the polls next Saturday to choose their next president. The choice is between Gotabhaya Rajapaksa, brother of former strongman Mahinda, and Sajith Premadasa, son of a former President. Whoever wins will have to deal with a stuttering economy and whether to continue the current strong relationship with China or sign an infrastructure pact with the US.
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Friday 1 November 2019
This week, the APEC Summit cancellation means the US-China phase one trade deal signing will take place elsewhere, big deals were struck on the sidelines of Saudi Arabia’s Future Investment Initiative conference, and India made late demands in RCEP negotiations.
China invites US to Macao to sign trade deal as APEC summit cancelled
In the midst of street protests and rioting, Chilean President Sebastian Pinera has decided to cancel an APEC summit and a UN Climate Change Conference that were due to be hosted in Chile. He cited a need to prioritise solving the crisis currently engulfing the country. The APEC summit, scheduled for mid-November, would have been where the US and China would sign-off on their ‘phase one’ trade deal. Nevertheless, both sides are keen to get the agreement signed as optimism remains high that the deal is close to being finalised, according to the two countries’ trade representatives. It has been reported that China has unofficially suggested Macao as an alternative location for the summit, which will include discussions between President Xi and President Trump to form the backbone of progress towards any follow-up deal.
Saudi Arabia lands array of deals during FII conference
Saudi Arabia’s showpiece Future Investment Initiative (FII) conference took place this week, with five world leaders, heads of the world’s biggest banks and senior executives in attendance. Senior US government figures and executives such as Stephen Schwarzman, Chief Executive of Blackstone – who had pulled out of last year’s FII over the Khashoggi affair – were in attendance this time. The Saudis were able to negotiate a plethora of deals and agreements in the sidelines of the conference, such as Aramco signing more than US$2 billion worth of deals, from investment in oil infrastructure to Artificial Intelligence and data analytics. Agreements were signed with Indian Prime Minister Narendra Modi for Saudi Arabia to provide investments into downstream oil and gas projects in India, as well as Brazilian President Jair Bolsonaro for US$10 billion from Saudi Arabia’s sovereign wealth fund. Brazil was also invited by the Saudi side to consider joining OPEC, to which President Bolsonaro reacted positively.
Late Indian demands may jeopardise RCEP signing
Despite having agreed to the terms of the Regional Comprehensive Economic Partnership (RCEP), the Indian government made additional demands this week which may jeopardise progress. The preliminary deal will bring together 16 countries – half the world’s population – and is backed by China and ASEAN. The progress is due to be announced by leaders on Monday during the ASEAN Summit. India has always been a reluctant partner when it comes to RCEP, with strong domestic opposition. Indian demands have included seeking changes in base duties and product-specific rules. However, there is a sense that the government will ultimately come down on the side of agreeing to the deal, as the duties will be phased-out over a 10-20 year time frame.
US push to reform WTO ‘developing country’ status bears fruit
South Korea and Thailand have been on the frontline of President Trump’s push to reform the WTO this week. The President’s 90-day deadline for rich countries holding ‘the developing country’ status at the WTO to either drop the status or face punitive trade actions expired last week. South Korea has decided this week to no longer seek special treatment reserved for developing countries during future negotiations at the WTO, joining Taiwan and Singapore. However, other WTO members have not yet budged on the issue, leading President Trump to announce a suspension on preferential trade access on certain products from Thailand. This has affected US$1.3 billion of Thai imports to the US, which has caused the Thai government to declare its willingness to negotiate on the issue.
Hong Kong now officially in recession, protests have contributed
Hong Kong officially entered recession this week, as new figures showed Hong Kong’s economy shrank 3.2 per cent in Q3 this year compared with the quarter before. As Q2 had already witnessed a 0.4 per cent decline, it represents a stark deterioration in the economic situation, and puts the city into its first recession for almost a decade. Speaking at Asia House’s Future of Trade Conference this week, Hong Kong’s Chief Executive Carrie Lam stated that the “increasingly violent reality since June is hurting Hong Kong’s economy”. This has been borne out by Hong Kong Tourist Board announcing that tourist numbers to the city have fallen by over a third since this time last year. Mrs. Lam went on to highlight the specific opportunities of the Belt and Road Initiative and increased Greater Bay area integration as “long-term opportunities” that will put Hong Kong’s economy back on track.
NEXT WEEK IN ASIA
Looking ahead to next week, here are a couple of events to watch out for:
Thailand hosts East Asia and ASEAN Summits: Thailand is hosting two major regional summits next week: the 35th ASEAN Summit and accompanying East Asia Summit. These will bring together many senior figures from across the region, and will discuss major regional and global issues, as well as the planned announcement of the preliminary version of the RCEP deal.
China International Import Expo kicks off with keynote from President Xi: China’s showcase event for companies seeking to sell products in China kicks off on 5 November in Shanghai for the second time, with President Xi providing the keynote. Last year’s event saw US$57.8 billion worth of import deals being signed, so the forum represents a major push on the part of the Chinese government to continue encouraging imports, despite the trade war.
The Asia House Global Trade Dialogue takes place in Singapore: Asia House is convening leading figures from government, business, academia and the media for the next round of The Asia House Global Trade Dialogue, taking place at the Mandarin Oriental Singapore on 7 November 2019. Speakers from Alibaba, Arup, Google, Jardines, Pfizer and Cisco will be among those to participate. Find out more and register now
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