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
Next Week in Asia is the Asia House weekly briefing on key trade, investment, and policy issues to watch across Asia in the week ahead, with analysis and views from our Research and Advisory team.
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The European Commission will present its ‘Fit for 55’ legislation package on 14 July, aimed at cutting the EU’s net greenhouse gas emissions by 55 per cent by 2030 (from 1990 levels). A draft proposal for a Carbon Border Adjustment Mechanism (CBAM) will also be introduced. As the CBAM mechanism effectively imposes a carbon price on imported goods (including on aluminium, steel, and iron) the details of the announcement will garner attention. Arguments have been put forward stating that CBAM cannot provide carbon leakage protection for certain sectors, nor does it cover the entire value chain for others. Some countries (including China) have argued that CBAM could enable protectionism. These concerns, along with others – such as compliance with WTO rules – could mean a potential postponement of its implementation. The EU has been in active discussion with a number of Asian economies – most recently South Korea – on how to effectively coordinate their climate change policy responses. In the past year, South Korea unveiled US$65 billion in new investment targeted to achieving carbon neutrality by 2050, in line with its own Green New Deal plan.
China’s second-quarter estimates for GDP growth are expected to show resilience. Despite this, a number of economic headwinds beyond the second quarter are likely to limit China’s growth trajectory. These include the US trade tensions weighing on bilateral trade, further supply chain disruptions stemming from regional COVID-19 outbreaks at its ports, and, in part, growing weakness in credit developments for businesses. Uneven and disparate developments in global demand may also mean that China’s trade share as a share of its total economy continues on a secular downtrend. An important silver lining in China’s outlook may be the extent to which its retail sector, and its consumption more generally, recovers. This is likely to be linked in large part to higher vaccination rates and the containment of the new COVID-19 variants. Upcoming retail sales and industrial production figures will give an indication of developments in June and are expected to have registered 8.8 per cent and 12.4 per cent annual growth respectively; this would constitute a deceleration from respective annual growth rates of 33 and 35 per cent at the start of the year.
China’s economic outlook will be discussed during an Asia House briefing with Dr Xiang Bing, Founding Dean, Professor of China Business and Globalization at the Cheung Kong Graduate School of Business, on 26 July. Find out more.
India’s economy is likely to show continued signs of recovery following the economic impacts of the COVID-19 pandemic. As with several other economies, India’s high-frequency activity data are showing particularly heightened volatility owing to a low base last year and to the impact of the country’s lockdown measures. Of interests will be whether there was continued underlying strength in industrial production trends, when assessing the second and third quarters as a whole. The impact of COVID-19 and associated lockdown measures are likely to have continued to translate into higher inflationary pressures too – particularly in wholesale prices. May’s 13 per cent annual rate was driven by a 38 per cent increase in fuel prices, as well as by food prices. This is likely to have continued to contribute to a multi-month high in the upcoming consumer price report. External developments are also unlikely to point to an underlying growth contribution, for now. India’s trade as a share of its GDP continues on a downtrend. Given this, building and re-shaping its external trade relationships will be of particular importance.
Read our latest research note on India’s economic trends, and the importance of its trading relationships in recovering from COVID-19.
US President Joe Biden will host German Chancellor Angela Merkel in Washington DC on 15 July, the first European leader to be invited to the White House during the Biden administration. Discussions are likely to include the question of patent waivers for COVID-19 vaccines, an issue which is currently opposed by Germany and supported by the US. And yet, the overarching focus of discussion is likely to be on the two countries’ shared goals including in relation to successfully tackling the COVID-19 pandemic, digitalisation and trade and climate change. Of particular interest will be how China is situated in the bilateral discussion, including perhaps around the EU-China investment agreement. President Xi Jinping, Chancellor Angela Merkel and President Emmanuel Macron have voiced their support for the investment deal in the hope that it will be soon passed. Additionally, Chancellor Merkel is reported to have stated that the EU and the US would share “no identity” with Washington on China – an indication that although the US has tried to enlist the EU in a tougher stance on China, it is unlikely that the EU will be in alignment with this stance.
China’s economic outlook will be discussed during an Asia House briefing with Dr Xiang Bing, Founding Dean, Professor of China Business and Globalization at the Cheung Kong Graduate School of Business, on 26 July. Find out more.
South Korea is on the verge of entering a new lockdown as domestic cases of COVID-19 continue to rise. Despite the new wave of cases, the domestic economy has shown signs of strength. It is now expected to grow four per cent in 2021, according to recently revised estimates by the Bank of Korea and S&P Global Ratings Agency. The Bank of Korea’s monetary policy board has indicated that the bank should prepare to withdraw some of the monetary stimulus extended during the pandemic. Bank of Korea governor Lee Ju-yeol also stated that the bank is even contemplating raising interest rates in 2021. The bank’s upcoming meeting will provide an important gauge of future policy action. Any tightening or withdrawal of stimulus would stand in contrast to developments in a number of other Asian economies where rates are likely to stay low (or be reduced further as witnessed in Malaysia recently). South Korea’s economic strategy to bolster both long-term economic growth and financial stability remains robust: it has renewed an existing bilateral swap facility with the US Federal reserve until December 2021 to ensure dollar liquidity and financial stability. Crucially, given the importance of electronics and telecommunications, it has also entered into multiple agreements (including with the US) to expand cooperation in semiconductor chip production.
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