The Week in Asia

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 12 July 2019

 

This week stalled US-China trade talks tentatively re-start, India’s new budget fails to impress and there is rising interest in Southeast Asia’s tech sector.

 

1. President Trump relaxes Huawei trade ban

In an apparent concession to China in order to get stalled trade talks back on track, the US administration has relaxed the ban on US companies selling to Chinese telecom giant Huawei. Although Huawei is still on the restricted entity list, suppliers will now be allowed to sell to Huawei if they are granted a license based on the fact that there is no threat to national security. Following last week’s truce in the US-China trade war, high-level talks between the two countries restarted this week over the phone, but there are currently no further negotiations scheduled. This move may unlock billions of dollars in revenue for US suppliers, however Huawei continues to be a bargaining chip in the trade negotiations, meaning long-term policy over the company is uncertain.

 

2. India’s new budget lacks stimulus

India’s new budget has been judged as cautious, despite expectations of a stimulus to counter the country’s difficult economic environment. India is facing slow growth, debt-burdened banks and of course trade tensions with the US. Weak monsoon rains are also having an impact. The government kept its borrowing target at the same level as last budget, but the fiscal deficit target was cut to 3.3 per cent of GDP. Presenting the budget, Finance Minister Nirmala Sitharaman also suggested allowing foreign investors to have a bigger role in India’s insurance and aviation sectors as a way to boost slowing investment flows, although no detailed plans were announced. Pressure may now be on the central bank to cut interest rates in order to stimulate economic growth, which was at a five-year low in March at 6.8 per cent.

 

3. Venture capitalists home in on Southeast Asia tech

Total venture capitalist investment into Southeast Asian tech companies reached US$3.4 billion in the first half of 2019, a 300 per cent increase on the same period last year. Out of the US$3.4 billion, US$667 million was from Chinese firms, up from US$148 million last year. In comparison, venture capitalist investment into China fell 60 per cent in the first half of 2019, to US$9 billion. This trend comes as investors recognise the growing potential of Southeast Asia as a consumer hub. It has 350 million online users, with both the middle class and internet penetration on the rise. The internet economy of the region could exceed US$240 billion by 2025 and as a collective market Southeast Asia could become the world’s fourth largest economy by 2030.

 

4. Thailand’s new cabinet finally confirmed

Thailand’s new cabinet, under Prime Minister Prayut Chan-o-cha, has been officially endorsed by the Thai King. Prayut – former general and junta leader – also took the position of Defence Minister in a cabinet filled with military loyalists and coalition partners. Uttama Savanayana is the new Finance Minister and Prawit Wongsuwan, Somkid Jatusripitak and Wissanu Krea-ngam remain as deputy prime ministers. The commerce and agriculture portfolios were given to the Democrat Party whilst the health, transport and tourism portfolios were given to the Bhumjaithai Party. The mix seems to be aimed at balancing political interests, an issue that may continue to impede policy development and implementation in the 19-party coalition.

 

5. World’s biggest IPO back on the table

Preparations have re-started for the initial public offering of state-owned Saudi Arabian oil company Saudi Aramco. The IPO is part of Crown Prince Mohammad bin Salman’s (MBS) Vision 2030 plan to modernise the Saudi economy, but was put on hold last year. MBS is hoping to achieve a US$2 trillion valuation for the company and therefore raise US$100 billion from selling a five per cent stake. Aramco is the world’s most profitable company and this would be the biggest IPO in history. Challenges to the IPO remain, including the ability to achieve the US$2 trillion valuation, oil prices continuing to affect the share prices and the growing concern over investing in climate-damaging energy resources.

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch out for:

 

China GDP growth rates to be announced. China’s Q2 year-on-year GDP growth rate will be released on Monday. The consensus forecast is for the lowest growth in nearly three decades at 6.2 per cent. This downwards growth trajectory – although expected – will temper investor sentiment in the market, although it is still within the Government’s target range of 6-6.5 per cent growth for 2019. Beijing has increased stimulus in the economy this year, but it has not been able to offset the effects of the US-China trade war, slowing export demand and the results of China’s ongoing structural economic transition.

 

Results from US-India trade talks. US-India trade talks are set to resume today, after Indian Prime Minister Modi and US President Trump met on the side-lines of the G20 summit in Japan. India is under pressure from the US to reduce import tariffs on a number of US products, with Trump tweeting during the week that they were ‘No longer acceptable!’. Aside from tariffs, the talks are expected to cover restrictions on foreign companies operating in India and data localisation laws mandating foreign companies to store their data in India. The US team is led by Assistant US Trade Representative for South and Central Asia, Christopher Wilson, who will meet Indian Commerce Minister Piyush Goyal.

 

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Friday 5 July 2019

 

This week China promises once again to open up its economy, trade tensions spread in Asia and Indonesia pursues its ambitious infrastructure plans.

 

1. Chinese economy to open up faster than planned 

China will open up its financial services sector to foreign-owned companies a year earlier than planned. It will also reduce its negative investment list that restricts foreign investment and open its manufacturing sector, including the auto-industry, telecoms services and transport sectors in 2020. Chinese Premier Li Keqiang made the announcements at the World Economic Forum in Dalian, where his comments were viewed as an attempt to improve China’s global trade relations as well as convince companies to keep their supply chains in China. However, this is not the first time that China has stated its intention to give foreign firms more access to its domestic markets, and the lack of detail offered by Li may leave some businesses sceptical.

 

2. Japan and South Korea at an impasse over tech exports 

From 4 July, Japanese suppliers looking to export to South Korea’s semiconductor sector will be forced to seek government approval – a process that is expected to take up to three months. With South Korean chip manufacturers estimating reserve stock of the controlled materials to last between one and two months, this new trade spat is set to significantly impact global technology supply chains. Deteriorating trade relations between Tokyo and Seoul are frequently attributed to historical disputes dating back to WWII, however alleged South Korean intellectual property violations may also be behind these new controls. The South Korean government has pledged to respond with ‘appropriate measures’, which will include filing a complaint with the WTO.

 

3. Indonesia asks China to fund its ambitious infrastructure plans 

On the side-lines of the G20, Indonesian President Jokowi has asked China to create a special fund under its Belt and Road Initiative (BRI) to fund US$91 billion worth of infrastructure projects. Jokowi has recently announced a new infrastructure plan worth more than US$400 billion, however he must seek funds to cover 60 per cent of the plan. So far, Indonesia has not received as much BRI funding as other nations in the region due to Indonesia’s insistence that all funding under the BRI is done on a business-to-business basis. The requested special fund will seek to make up for this, while still ensuring that capital from the fund is channelled to businesses to avoid exposing the government in case of default.

 

4. Hong Kong insurer continues ASEAN drive with Thailand purchase 

In the biggest ever insurance takeover in Southeast Asia, Hong Kong’s FWD insurance group has acquired the life insurance arm of Thailand’s Siam Commercial Bank for US$3 billion. Recognising the immense potential of the Asian insurance market, FWD has been aggressively taking over competitors throughout the region. Last week FWD confirmed it had agreed to buy MetLife’s Hong Kong business, and through previous deals it has a presence in Malaysia, Singapore, Indonesia, Japan, Vietnam and the Philippines. There are concerns, however, over whether FWD can consolidate its long-term potential and compete with other regional leaders AIA and Prudential.

 

5. India plans US$330 billion investment in renewables 

India announced it requires US$330 billion in investments over the next decade to fulfil its renewable energy requirements. The plan is to raise renewable energy capacity to cover 40 per cent – up from the current 22 per cent – of India’s total energy capacity by 2030. India is the world’s most important growth market for renewable energies, considering its favourable natural resources and the fact that its energy demand growth will account for more than a quarter of net global energy demand growth in the next decade. India’s population is also set to surpass China’s in the next decade and the nation aims to be a world leader in combatting climate change. Nevertheless, the coal industry will still dominate the country’s electricity generation until at least 2050.

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to watch out for: 

 

US-China trade talks to resume. US officials have confirmed that high-level talks with China will continue next week between US Trade Representative Robert Lighthizer, US Secretary of the Treasury Steven Mnuchin and Chinese Vice Premier Liu He. President Trump made two commitments at his recent meeting with Chinese President Xi Jinping at the G20, when he agreed not to put tariffs on an additional US$300 billion in Chinese imports and loosened restrictions on trade with Chinese telecoms company Huawei. While China welcomed these decisions, there are several outstanding issues between the two sides, including the removal of existing tariffs and the enforcement of a prospective agreement.

Thailand’s new cabinet finalised. Thailand’s new cabinet may be announced next week, with sources revealing the likely figures to head the new line up. After tense negotiations between internal factions, the list is made up of people closely connected with General Prayut and his deputies. Suriya Jungrungreangkit is pencilled in for the coveted Industry Minister post, Sontirat Sontijirawong as Energy Minister, and Don Pramudwinai as Foreign Affairs Minister. Jurin Laksanavisit will be Deputy Prime Minister and Commerce Minister and Somkid Jatusripitak, Wissanu Krea-ngam and Gen Prawit Wongsuwon will all keep their roles as Deputy Prime Ministers. The difficult negotiations are a pre-cursor for what may be a challenging multi-party coalition to maintain.

 

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Friday 28 June 2019

 

This week all eyes are on President Trump, President Xi and the G20 in Japan, while other nations pursue free trade agreements to combat rising protectionism.  

 

1. US–China trade truce ahead of Trump-Xi G20 meeting 

The US and China have agreed to a tentative trade truce ahead of the meeting between US President Trump and Chinese President Xi Jinping on Saturday morning on the side-lines of the G20 summit in Japan. This truce removes the immediate threat of another round of US tariffs imposed on a further US$300 billion worth of Chinese goods. The truce was reportedly a condition set by Xi before agreeing to meet Trump. The US President has warned that, although a deal this weekend is possible, he is willing to impose tariffs on virtually all remaining tariff-free Chinese goods and gradually do less and less business with China. Trump has a number of bilateral meetings coming up at the G20, including with Australian Prime Minister Scott Morrison, Japanese Prime Minister Shinzo Abe, Indian Prime Minister Narendra Modi and Brazilian President Jair Bolsonaro.  

 

2. Australia leads secret multilateral trade negotiations  

Australia hosted the 10 ASEAN member states and China, Japan, South Korea, New Zealand and India for trade negotiations over the pan-Asian Regional Comprehensive Economic Partnership (RCEP). The highly secretive negotiations could lead to one of the most significant trade deals in the world, covering approximately 30 per cent of global GDP and 3.5 billion people. It would eclipse the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and could side-line the US. Australian Prime Minister Scott Morrison is attempting to position Australia as a mediator between China and the US, as the Australian economy is projected to lose 0.5 per cent of GDP if the trade tensions continue and up to 3.5 per cent economic growth over the next decade if the tensions escalate.  

 

3. EU ministers approve trade deal with Vietnam 

On Tuesday, Ministers representing European Union (EU) countries approved a free trade agreement with Vietnam. The deal is set to reduce tariffs on 99 per cent of goods over a decade. It is estimated the deal will boost Vietnamese exports to the EU by 18 per cent, and EU exports to Vietnam by 29 per cent. Vietnam already enjoys preferential access to EU markets under the bloc’s developing country scheme, however the deal will secure quotas for farm products, including sugar, garlic and rice. For the EU it reduces high Vietnamese import tariffs, such as 50 per cent on wine and 78 per cent on cars. The deal still needs to pass the European Parliament, but is set to be signed in Hanoi on Sunday and come into force later this year.  

 

4. Singapore plans 10,000 new tech jobs over three years 

As part of aims to become a global technology hub, Singapore will create 10,000 jobs in the technology sector in the next three years. Digital Industry Singapore – a new government office – will lead efforts by promoting international investment, supporting local tech firms and influencing the direction of public policy. This is part of the city-state’s strategy to combat slowing GDP growth rates, as it faces a challenging economic environment. Although Singapore has invested heavily in the technology sector and issued lucrative grants and incentives, the country only has one local unicorn – ride-hailing app Grab – although neighbouring Indonesia has four and regional leader China has more than 100. 

 

5. Delivery drone capabilities being tested in Indonesia  

Chinese online retailer JD.com – a rival to Alibaba – has begun testing delivery drones in Indonesia, in its first international trial of the technology. Although the potential for e-commerce in Indonesia is huge, logistics remains an intractable challenge due to the nation’s many islands, rough terrain and incomplete transport links. Accenture has estimated that Indonesia’s e-commerce market could grow from US$27 billion in 2018 to US$300 billion by 2025 if the digital ecosystem is improved. Indonesian airline Garuda is also testing larger Chinese made drones to transport cargo around the archipelago, with plans to begin operating commercial routes from the Maluku Islands to Makassar early next year.  

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to watch out for: 

 

India post-election budget released. India’s new Finance Minister Nirmala Sitharaman will release the new budget next week, as India faces its biggest economic slowdown of the past five years. The aim will likely be to keep the budget deficit at 3.4 per cent of GDP, however this will be difficult with expected fiscal stimulus, possible income tax exemptions, boosts to the housing sector and recapitalisation of public sector banks. Unemployment is another major challenge for India, with the June 2019 rate of 8.1 per cent a 45-year high. Post-elections expectations will be high after the BJP’s emphatic win, but Sitharaman has a lot of difficult considerations to balance.  

Data indicates trade war effects. New data across Asia will give further insight into the ongoing effects of the US-China trade war. Manufacturing and service sector data from China will become available, as will Korea’s trade figures. There are predictions of a double-digit trade contraction for Korea from last year, as it deals with the both the trade war and the tech industry slump. Consumer price inflation from Korea, Indonesia, the Philippines, Taiwan and Thailand could show the creeping effect of the trade war into domestic consumption. A US-China deal coming out of the G20 tomorrow would, however, go a long way to improving sentiment throughout the region.  

 

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Friday 21 June 2019

 

This week trade and investment ties across continents increase as the US trade war continues to impact national trade policies and private sector prospects.

 

1. London-Shanghai stock link opens following delay 

An initiative that links the London and Shanghai stock exchanges officially launched in London on Monday 17 June. Originally due to open in 2018, global investors will now be able to access shares in Chinese companies and Chinese investors will be able to buy London Stock Exchange-listed stocks. This is the first time that any foreign company will be able to be listed in mainland China. However, unresolved administrative issues mean the scheme could have limited impact in the short-term. The scheme was launched at a joint economic summit between Britain and China in London this week, where a package of closer economic ties were also agreed, including deals between British and Chinese companies worth more than US$630 million.

 

2. Dubai’s Landmark Group and HSBC complete pioneering blockchain transaction

A first-of-its-kind transaction this week connected two independently built blockchain platforms in order to complete a retail transaction. It involved a shipment from Bee Dee Industries in Hong Kong to Babyshop, a Landmark Group retail brand in the UAE. All participants along the supply chain were able to view documents and track progress of the shipment in real-time, which reduced the time to complete the transaction by up to 12 days, equalling a 40 per cent reduction. A letter of credit was issued by HSBC using the Voltron platform and Landmark Group’s ReChainME platform enabled the connectivity with logistics providers along the supply chain. Connecting two blockchain platforms is a significant milestone in the development of this technology and its practical applications to trade.

Asia House’s ‘The Middle East’s Pivot to Asia’ conference next week will explore the regions changing trade dynamics. Find out more and register interest in attending here.

 

3. India retaliates against the US with trade tariffs

India has implemented tariffs of up to 70 per cent on 28 US products, including apples, almonds, lentils and chemicals. This was in retaliation to the US removal of India from its Generalised System of Preferences earlier this month, which allowed some Indian goods to enter the US tariff free. This is the latest escalation in a series of worldwide trade tensions, as the US attempts to reduce its deficits with trade partners. Although India only has a small trade surplus with the US, the US decision to revoke trade privileges for India was based on opposition to Indian tariffs on a range of American products, such as motorbikes and whiskey.

 

4. China halts WTO dispute over its claim to be a market economy

China has pulled out of a World Trade Organization (WTO) dispute against the European Union (EU) where it was challenging its status as a non-market economy, which allows the US, EU and other economies to levy anti-dumping tariffs against cheap Chinese exports. China had claimed that under its 2001 WTO membership terms it must be recognised as a ‘market economy’ after 15 years. Other nations point to ongoing state interference in the Chinese economy to justify their position. China asked the WTO to suspend the claim amid reports much of the ruling so far had gone against it. This is a win for the US in the context of ongoing trade tensions, as state interference in the economy is a central issue in the dispute between China and the US.

 

5. US businesses warn Trump that trade war could cost US$1 trillion

The US Chamber of Commerce claims the US-China trade war could cost the US economy US$1 trillion over the next decade. The Chamber, one of the US’s most powerful business groups, called for a reversal of all tariffs implemented over the last two years and claimed that the proposed tariffs on a further US$300 billion worth of Chinese goods would ‘dramatically expand the harm already done’. This comes after a string of moves by the private sector to warn the Trump Administration of the harmful effects on jobs and the cost of living from his tariff policies. This also comes as Asia’s business confidence is recorded at a 10-year low this week, the lowest since the 2008 global financial crisis.

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to watch out for: 

 

Indonesia to announce tax break plans. Indonesia’s Finance Minister Sri Mulyani has announced that detailed plans for corporate tax cuts will be released as soon as next week. Several different taxes will be cut as part of a strategy to boost economic growth, which Mulyani said may not reach the government’s target of 5.3 per cent this year. The government has already raised the price threshold at which the luxury sales tax is applied to property, and the income tax rate for infrastructure-related securities will be cut from 15 per cent to five per cent. There are also plans for a deductible tax incentive, which would see businesses being able to deduct taxes at double the amount invested in skills training and triple the amount invested in research and development. Plans to cut the corporate tax rate to 20 per cent from 25 per cent are still under consideration.

Finance Minister Sri Mulyani will be at Asia House next week to brief Corporate Members on the current state of Indonesia’s financial system. Find out more here.

Trump to meet Xi at G20 Summit in Japan. On 28 June, the leaders of the world’s most powerful countries will convene in Osaka for the 14th meeting of the G20. With the authority of not just the G20, but also the multilateral global order under threat, the upcoming meeting in Japan’s second city Osaka will not only serve as an opportunity to raise and address key issues in the global economy, but will also function as a litmus test for multilateralism. Hosts Japan have set out an ambitious agenda that will see G20 leaders discuss trade and investment, innovation, the environment, women’s empowerment and data governance. A sideline bilateral meeting between President Trump and President Xi will be closely watched as businesses on both sides hope trade negotiations can get back on track.

His Excellency Liu Xiaoming, China’s Ambassador to the UK, will be in conversation with Lord Green, Chairman of Asia House on Monday 24 June 2019. Find out more and register interest in attending here.

 

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Friday 14 June 2019

 

This week, the UK secures its first post-Brexit Asian trade agreement, Southeast Asia sees benefits from the trade war and tech investment continues to soar. 

 

1. UK agrees trade deal with South Korea 

As part of its efforts to shore up global trade relationships post-Brexit, the UK has signed a stop-gap two-year trade agreement with South Korea. The UK is attempting to provide continuity in its trading relationships, and has so far signed interim deals that account for 63 per cent of trade with the world currently covered by EU agreements. This week’s deal – the UK’s first trade agreement with an Asian nation since the Brexit referendum – will calm nerves for British firms that would have been forced to close offices in South Korea after the UK’s scheduled departure from the EU on 31 October.  

 

2. Softbank plans second US$100bn technology investment fund 

Japanese conglomerate Softbank is working with Goldman Sachs Group to raise money for its second US$100 billion technology investment fund. Named the Vision Fund, the first iteration was the biggest ever of its kind. Softbank received criticism that the fund would drive up start-up valuations and hurt returns. However, founder Masayoshi Son was determined to raise capital for a second Vision Fund, citing returns of 62 per cent on 71 investments from the first. Preliminary talks have been held with sovereign wealth funds from Singapore, Saudi Arabia, Abu Dhabi, Kazakhstan and Oman who are all interested in contributing. Saudi dominated the first Vision Fund with a US$45 billion contribution, but it will be unlikely to contribute such a large portion of the fund this time, considering Softbank’s intention to diversify the investor base.

 

3. China increases Southeast Asian investment to avoid US tariffs 

New figures confirm Chinese investment in Southeast Asia is rising rapidly. Chinese investment in Vietnam has increased six-fold, as spending reached US$1.56 billion from January to May this year, already surpassing the 2018 total.  Thailand has seen a three-fold increase in Chinese companies applying to relocate their supply chains there. Indonesia and Singapore have also seen significant increases in FDI from China. This comes as a result of increasing regulation and costs in China that force companies to relocate supply chains, but also as companies respond to the ongoing trade tensions and seek to avoid current and future tariffs. High-valued start-ups in Indonesia and Singapore have also seen increased investment from China.  

 

4. Alibaba files for Hong Kong listing; aims for US$20 billion  

Alibaba Group Holding Ltd has filed for a Hong Kong listing, after the group initially floated five years ago in New York for US$25 billion. The Hong Kong listing could raise up to US$20 billion as soon as Q3 this year. This would allow the Chinese giant to increase its investment in technology, a current priority for both Alibaba’s and China’s economic growth. It would also represent the biggest follow-on share sale globally in seven years. This is a win for Hong Kong, which lost out when the city’s previous listing rules led to Alibaba opting for the New York stock exchange. Hong Kong Exchanges & Clearing has since changed its listing rules with an eye to attracting Chinese tech groups.   

 

5. DBS and Go-Jek expand payment options in Southeast Asia 

Go-Jek is expanding payment options by teaming up with DBS PayLah!. The partnership is starting in Singapore and adds another digital payment option to customers of the decacorn – a start up with a valuation of over US$10 billion. This will allow users who may not own a debit or credit card to adopt digital payments, and is significant as Go-Jek expands this payment service to Indonesia where debit and credit card usage is very low. On a drive to become the go-to Super App for Indonesians, Go-Jek has also been acquiring Indian start-ups to access their talent and R&D capabilities.    

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to watch out for: 

 

US interest rate decision. The US Federal Reserve will announce its interest rate decision after a meeting on Wednesday next week. Asian nations will be taking note as rising US interest rates heavily impacted emerging markets during the past year, especially Indonesia which had to battle to maintain the value of its Rupiah. Although there has been weak inflation in the US, rates are likely to be kept on hold as decision makers wait to see what happens during the next month in the US–China trade negotiations. There are also interest rate decisions in Indonesia, the Philippines, Japan and Taiwan that could be influenced by US moves. 

34th ASEAN Summit. The bi-annual ASEAN Summit will take place in Bangkok from 20–23 June. The agenda includes intra-regional trade negotiations, Regional Comprehensive Economic Partnership (RCEP) trade talks and a leaders’ meeting. The summit also covers a wide range of other issues including security and development. Thailand’s new cabinet is expected to be endorsed and start functioning after the summit is concluded.   

 

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Friday 7 June 2019

 

This week Thailand’s junta leader holds onto power and the US continues to reshape its global trading relationships.

 

1. Junta leader confirmed as Thailand’s Prime Minister

Junta leader Prayut Chan-o-cha was confirmed as Thailand’s Prime Minister on Wednesday following a vote in Parliament. Prayut’s party, Palang Pracharath, won the second highest number of seats in the House of Representatives, after first-placed opposition party Pheu Thai. Palang Pracharath won the vote for Prime Minister, however, with the support of smaller parties and the military-appointed 250-seat senate. Prayut will lead a fragile 19 party coalition with a four-seat majority in the lower house, creating concerns over policy continuity and the passing of legislation and budgets. Prayut also faces the same economic challenges that he did five years ago following the coup – slowing growth and sinking investor confidence.

 

2. Trump threatens further tariffs on US$300 billion worth of Chinese goods

US President Donald Trump threatened tariffs on a further US$300 billion worth of Chinese goods, if negotiations between the US and China do not progress. Last month the US increased tariffs from 10 per cent to 25 per cent on US$200 billion worth of Chinese goods, in response to perceived Chinese back-tracking in the trade negotiations. Trump said the final decision on extra tariffs would come after this month’s G20 summit, where he and his Chinese counterpart President Xi Jinping are scheduled to meet in the side-lines. The announcement comes as tensions between the two nations seep into other areas, such as the US blacklist of Huawei and China’s US travel warnings.

 

3. US abruptly revokes India’s preferential trade status

Although the US had previously signalled it would revoke India’s status as a beneficiary developing country under its Generalised System of Preferences (GSP), President Trump shocked India by revoking it abruptly this week. The GSP allows developing nations to import goods to the US tariff free or with concessionary tariffs, with the aim of boosting developing economies and creating cheap imports for the US. Trump said the move came because India did not provide “equitable and reasonable access” to its own market. The two nations are in disagreement over the US aim to sell medical devices and certain dairy products in India. New Delhi is now concerned over job losses resulting from cost pressures, and is mulling retaliation.

 

4. IMF cuts global and Chinese growth forecasts

In a report by Managing Director Christine Lagarde, the IMF said that recently imposed tariffs would cut global economic growth forecasts by 0.3 per cent for 2020. More than half of the impact would come from negative financial market sentiment and business confidence losses. China’s growth forecast has also been cut, from 6.3 per cent to 6.2 per cent for 2019 and to 6 per cent for 2020. The IMF said China’s stimulus measures were enough to stabilise growth for 2019-2020. However, other signs – such as a drop in new job growth in the US and increased willingness by the US to impose tariffs – represent warning signs for the global economy.

 

5. Singapore and Australia increase economic co-operation

Australian Prime Minister Scott Morrison met with Singaporean Prime Minister Lee Hsien Loong today as part of the Singapore-Australia Comprehensive Strategic Partnership. The leaders plan to increase cooperation in the digital economy, cyber security and food security. Both nations are aiming to be regional leaders in digital technologies and are aiming to pursue collaboration in e-invoicing, digital identities, e-payments and artificial intelligence, all of which could have transformative effects on the region’s economy.

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to watch out for: 

 

G20 Finance Ministers meeting. Finance Ministers and Central Bank Governors from the G20 group will meet this weekend in Fukuoka, Japan. This is a key forum for the world’s biggest economies to discuss major international economic issues. The priorities for this year include managing global risks (including global imbalances and ageing population), ensuring growth through quality infrastructure, resilience to natural disasters, strengthening healthcare and ensuring debt sustainability, as well as managing global responses to the changes caused by innovation. US Treasury Secretary Steven Mnuchin will meet Chinese Central Bank Governor Yi Gang at the summit, amid tense relations between the two countries.

ASEAN Customs Directors-General to meet. As part of the rolling ASEAN schedule of cooperation and integration, ASEAN Directors-General of Customs will meet in Lao PDR next week. The ASEAN Free Trade Area (AFTA) has been reasonably successful in removing tariff barriers to trade among member states, however non-tariff barriers remain. The Customs Directors-General work towards increased and smoother intra-regional trade by harmonising and simplifying customs procedures, a necessary pre-requisite to ensure the free flow of goods.

 

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Friday 31 May 2019  

 

This week Indian markets rise as Modi is sworn-in, Japan moves to block foreign ownership in high-tech industries and China pursues its Belt and Road Initiative in the Middle East.

 

1. Markets rise on Modi’s swearing in, but reform challenges loom large  

Stock markets and the Indian rupee rose strongly ahead of Prime Minister Narendra Modi’s swearing in on Thursday, as investors approved of government stability and promises to modernise the economy. Modi now faces the monumental task of delivering on this economic reform. He has pledged to spend US$1.4 trillion on infrastructure over five years, significantly invest in the weakened agricultural sector and transform India into a global manufacturing hub. The government’s fiscal deficit, officially at 3.4 per cent of GDP and still growing, will hamper these spending plans. Curtailing endemic corruption and cronyism in an environment where proximity to power is often a determinate of business success will be more difficult. 

 

2. Japan to limit foreign ownership in high-tech industries 

From 1 August, Japan will add high-tech industries, including IT and telecoms, to its list of businesses in which foreign ownership is restricted. The government says the law aims to prevent the leak of technology considered important for defence and national security, although no particular country or companies were mentioned. The announcement came the same day US President Donald Trump met with Japanese Prime Minister Abe, and as pressure from the US mounts for allies to deal with cyber risks and technology transfers with China.  

 

3. China plans US$10 billion investment in UAE under Belt and Road Initiative  

A Memorandum of Understanding signed in Shanghai on Thursday between Chinese conglomerate East Hope Group and Khalifa Industrial Zone Abu Dhabi (Kizad) sets out the three phases of a planned US$10 billion industrial investment by China in the UAE. The first phase would be an alumina facility, the second a red mud research centre and recycling plant and the third a facility to process non-ferrous metals. Feasibility studies are still underway, but the plan represents a huge investment in the Middle Eastern portion of China’s Belt and Road Initiative. China sees the UAE as a hub for trade with the rest of the Middle East and Africa, and the UAE is seeking to capitalise on Chinese investment in its quest to diversify its economy and boost non-oil revenue. 

 

4. Thai parliament re-opens after five years 

Five years after the 2014 coup, Thailand’s new King opened parliament amid ongoing speculation over who will become the next Prime Minister. Early in the week, Palang Pracharat (the pro-military party headed by junta leader Prayut Chan-o-cha) looked set to gain a majority in the lower house, but this faltered when two presumed allies backtracked. Anti-junta parties are still hoping to form a majority in the lower house, but with voting for the PM spread across two houses and the Senate being military appointed, it is likely the pro-military party will win. The existing cabinet is forging ahead with policy objectives, approving a US$7 billion infrastructure contract with Thai conglomerate CP Group and China Railway Construction.      

 

5. PNGs new Prime Minister vows reform of natural resource laws 

After weeks of political turmoil, Papua New Guinea’s parliament has voted to appoint James Marape, a former finance minister, as Prime Minister. The political controversy was partly surrounding a US$13 billion LNG deal signed with French company Total and US energy giant ExxonMobil, as well as discontent over how taxes and royalties from a previous US$19 billion Exxon-led LNG project were distributed. The planned deal would double gas exports from the developing country. Marape, however, has put energy firms on notice as he vowed to reform laws to better distribute the benefits across society. The projects are still expected to go ahead, but there are likely to be two or more years of delays. 

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to watch out for: 

 

Shangri-La dialogue puts spotlight on Sino – US relations. Asia’s premier defence summit will take place in Singapore from Friday until Sunday, featuring senior ministers and defence staff from the region, including the US and China. Although the dialogue focuses on defence and security issues, Chinese and US postures will be in the spotlight due to the ongoing trade tensions. Observers will be looking for signals of each power’s vision for future engagement with each other and with the region. Ministers are also set to discuss infrastructure and maritime development, competition and cybersecurity. 

Central bank meetings. Both Australia and India have central bank policy meetings next week on Tuesday and Wednesday, respectively. There is an almost unanimous consensus forecast that Australia will cut its interest rate by 25 basis points to 1.25 per cent on the back of concerns over slowing growth. The forecast for India is split between cutting the rate by 25 basis points from the current 6 per cent or staying on hold. A third successive rate cut may be too accommodative for the central bank, as it seeks to balance slowing economic growth with inflation risks.  

 

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Friday 24 May 2019  

 

This week Modi wins a shock landslide victory in the Indian elections and Huawei feels the effects of US measures in the trade war.

 

1. Modi secures landslide win in Indian elections

After months of campaigning and a mammoth seven-week polling period, Narendra Modi and his Bharatiya Janata Party (BJP) have secured a landslide victory in India’s general election. Results so far indicate BJP will win at least 300 of the 543 seats in India’s lower house, the Lok Sabha. This would be a shock result, as Modi was not expected to win an outright majority. In fact, this result would surpass the amazing landslide victory they received in 2014, where they took 282 seats. India’s main opposition party, the Indian National Congress (INC), are only set to win 52 seats, a slight improvement on 2014. India’s benchmark stock index, the Sensex, surged 900 points to top 40,000 for the first time ever, as a result of the early poll counts. Read analysis from the University of Nottingham’s Asia Research Institute on the election outcome.

 

2. Global companies cut ties with Huawei

In order to comply with a US order blocking Huawei from buying goods made from 25 per cent or more of US originated technologies or materials, global companies are cutting their commercial ties with the telecomms giant. Huawei’s dependence on foreign suppliers has been exposed as it is losing access to crucial components for its products, including from Panasonic and ARM – the British firm that provides the blueprints to design the processors that power smartphones. Huawei says it has the technology to replace any supplies halted by the ban, but has also stockpiled 12 months-worth of parts. Whether it continues to be competitive remains to be seen, as mobile carriers across the world drop Huawei smartphones.

 

3. Saudi Arabia defers US$9.6 billion repayments from Pakistan

After Pakistan secured an IMF bailout deal last week, Saudi Arabia has agreed to defer a demand for US$9.6 billion worth of oil payments owed by Pakistan. The payments would have been scheduled at US$275 million per month for the next three years. This is a welcome reprieve for Pakistan, which is facing a financial crisis, weak growth and rising inflation, and follows Riyadh granting Pakistan a U$S6 billion loan last year. Although Pakistan is officially neutral on the Iran-US tensions, the timing of the loan – the same week as Iran’s foreign minister is set to visit Pakistan – seems a critical part of Saudi attempts to keep Pakistan on the Saudi-US side of the tensions.

 

4. Jokowi confirmed as President, likely to face ongoing reform challenges

Jokowi has been confirmed as the next Indonesian president, however opponent Prabowo will challenge the results in the constitutional court. International investors will be pleased with the news, as Jokowi is likely to push for regulatory reform and attempt to cut red tape. The broader policy agenda includes a huge infrastructure drive, manufacturing push and a focus on human resources. However, political and vested interests from Jokowi’s coalition partners, state-owned enterprises and the private sector are likely to create blocks for much needed structural reform.

Meanwhile, in Australia, the incumbent Liberal Party won a shock majority in federal elections, allowing Scott Morrison to remain as Prime Minister.

 

5. Concerns over South Korean economy as exports and currency are down

New data shows South Korean exports are down again this month and economic growth is slowing, as a cyclical downturn, weaker growth in China and fallout from the trade war all hit the nation’s economy. On Wednesday the won reached its lowest point against the US dollar since early 2017, and it has lost five per cent against the US dollar since the beginning of April. Potential measures to strengthen the won will be tricky in a soft economy, but policy makers are considering their options. Results from South Korea’s economy give an indication of how supply chains will be affected across the region.

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, pivotal election results are expected in three major regional economies. 

 

Trump to visit Japan for trade talks. US President Trump will begin a four-day state visit to Japan on Saturday, as the two nations attempt to negotiate a trade deal. Japan has reportedly already agreed to remove import restrictions on US beef, however disagreement over tariffs in several other sectors remain. Japanese companies are feeling the effects of the US-China trade tensions, especially as global demand for machinery goods, cars and electronic parts is dropping. They are also affected by disruptions to their supply chains which are routed through China, and the drop in demand from both China and the US.

EU election results and their effect on China relations. The results of this week’s EU elections will have an effect on the economic bloc’s relationship with China. The results will impact who becomes the next president of the European Commission and thus direct the bloc’s policy towards China. Europe forms a key region for Chinese growth, under both its ‘Made in China’ policy and its Belt and Road Initiative. So far, the EU’s approach to China’s growing presence has been mixed, and if parties with more protectionist tendencies are elected, this could pose roadblocks for further Chinese expansion.

 

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Friday 17 May 2019  

 

This week Indonesia announced is most ambitious infrastructure plan ever, Duterte cemented his power and both China and the US made moves in the ongoing trade war. 

 

1. Indonesia announces US$400 billion infrastructure policy 

Indonesia’s Minister for National Development Planning, Bambang Brodjonegoro, announced an ambitious US$412 billion infrastructure plan for 2020 – 2024. Around 60 per cent of the investment will channelled into transport related infrastructure, while the rest will be focused mainly on energy, irrigation and tourism. The government will fund 60 per cent of the policy, with a further 25 per cent coming from state owned enterprises. The remainder will be financed by the private sector. The spending plan amounts to approximately 5.7 per cent of Indonesia’s GDP, which is targeted to grow at 5.4 to 6 per cent for 2020 – 2024. Connectivity is key for the archipelagic nation, which aims to become the world’s fifth largest economy by 2040.  

 

2. Duterte cements power in mid-term elections 

In mid-term elections that were seen as a referendum on his rule, Philippine President Rodrigo Duterte and his allies maintained a dominant position in the lower house while gaining control of the upper house for the first time. This essentially removes the only remaining barrier to Duterte’s controversial legislative agenda, including his well-known anti-drug crackdown as well as tax reforms and a reorganisation of the political system to a federal model. Supporters of this controversial plan suggest it will kick-start economic growth in outlying regions, but critics suggest it may be a way for Duterte to extend his hold on power. Critics are also concerned over the state of Philippine democracy, as Duterte now has allies dominating both houses as well as the court system, and has begun attacking the media.  

 

3. China retaliates against US with further tariffs 

China retaliated this week against the most recent US tariff hike by implementing 5 – 25 per cent tariffs on US$60 billion worth of US goods. China also threatened retaliation against US moves to prevent American firms from using telecoms equipment from sources deemed a risk to national security – widely seen as an attempt to restrict Huawei’s international trade. Although the two sides are still in negotiations, there are concerns over further escalation of tensions as markets continue to react to the trickle of good and bad news coming from the talks. China’s Ambassador to the UK claimed that, while China does not want a trade war, it was “not afraid of one and would fight one if necessary”. US Treasury Secretary Steven Mnuchin will travel to Beijing soon for the next round of talks.   

 

4. World’s first green sukuk listed in Dubai 

Retail conglomerate Majid Al Futtaim has listed the world’s first ten-year corporate green sukuk on Nasdaq Dubai. Worth $US600 million and with its issuer rated at BBB, it is focused on investing in sustainable buildings, renewable energy, sustainable water management and energy efficiency. The sukuk provides a benchmark for environmentally sustainable Islamic finance, and will pioneer innovative ways to meet its green standards. The bond will contribute towards Majid Al Futtaim’s desire to be environmentally ‘net positive’ by 2040, as well as Dubai’s aim of becoming the global capital of the Islamic economy.   

 

5. Imran Khan reneges on IMF position, secures loan 

After claiming that he would rather die than negotiate an IMF loan, Pakistan’s Prime Minister Imran Khan secured a US$6 billion bailout package from the IMF this week. Although Khan had been working hard to obtain loans from friendly countries  – Saudi Arabia, the United Arab Emirates and China – the US$9.2 billion he secured was not enough to cover Pakistan’s increasing fiscal deficit, rising inflation and structural weaknesses. The IMF package will be distributed over 39 months and contains structural reforms, including reforms of government revenue and spending, tax policy and state-owned enterprises. There may be a severe contraction in the economy in the short term, although markets and investors will be relieved at the prospect of longer term stability.  

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, pivotal election results are expected in three major regional economies. 

 

India’s election results expected on Thursday. The final stage of voting in India’s Lok Sabha elections will take place on Sunday, with the results due on Thursday. No party is expected to gain an overall majority, so national parties will be scrambling to form coalitions with regional partners. Incumbent Prime Minister Narendra Modi’s BJP is expected to be the biggest winner, however the number of seats they secure and how far they will have to rely on coalition partners will determine whether Modi himself will be able to remain as Prime Minister. Read further analysis on the Indian elections here.  

Australia votes in federal election. Voting is compulsory in Australia’s federal election which takes place on Saturday. The Labor Party is marginally ahead in the polls against the incumbent Liberal Party, at 51 per cent to 49 per cent in two-party preferred terms, however early voters seem to be favouring the Liberal Party. The economy is a major election issue, with Australia’s 28–year growth streak facing challenges. A subdued regional trade environment has weighed on exports, and inflation and consumer spending are down on targets. Ongoing results will be announced live throughout Saturday evening.  

Indonesia’s election results announced. Official results from Indonesia’s election will be announced on Wednesday next week. Incumbent President Jokowi is a certainty to win, receiving 56.1 per cent of the vote with 86 per cent already counted. Challenger Prabowo has been vocal in his critique of the election, claiming that he will not accept the final result. He could challenge through legal action, however the Deputy Chairman of his Gerindra Party indicated they would not challenge in the courts as their similar claim after the last election was rejected. Although Prabowo has called on supporters to remain peaceful, Indonesia’s police are on standby ahead of the official announcement to protect against violence from Prabowo’s supporters as well as terrorist threats.   

 

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Friday 10 May 2019

 

This week the US–China trade war escalated again, Thai election results were released and Jokowi launched his second-term vision for Indonesia. 

         

1. US increases tariffs on US$200 worth of Chinese goods 

The US has raised tariffs from 10 per cent to 25 per cent on US$200 billion worth of Chinese goods. This serious escalation of the ongoing trade tensions came as Washington claimed China had reneged on previous commitments. Trump also threatened to impose 25 per cent tariffs on another US$325 billion of Chinese imports if talks do not progress. China’s Ministry of Commerce immediately responded by saying they have no choice but to take countermeasures. Trade talks are continuing in Washington today, however the deal that seemed so close last week is looking far less likely.  

 

2. No clear winner as Thai election results confirmed 

Official election results released on Wednesday show no party in Thailand has a clear mandate to form a government. Pro-military Palang Pracharat (whose Prime Ministerial candidate is junta leader Prayut Chan-o-cha) and its allies won 122 seats whilst the ‘democratic front’ led by Pheu Thai won 245. Neither has the requisite 376 votes needed to elect the PM. The vote however is taken across both the House and Senate, and the military appointed Senate will likely vote in Palang Pracharat’s favour. The democratic front still hopes to gain 250 seats in the House to be able to block the military–aligned parties from holding unrestrained power, but this could lead to policy stalemates. The forming of a government and ongoing coalition building will continue for several weeks as the Senate is appointed.          

                                  

 3. Jokowi announces push to become fifth–largest economy  

Amid reports his lead in the election count is increasing, President Jokowi launched his ‘Vision Indonesia 2045’ roadmap for Indonesia to become a developed nation and the world’s fifth–largest economy by 2045. The main focuses will be on reducing the size of government and cutting red tape, as well as driving related progress on infrastructure, equality and human resource development. The plan did not have the best start, as Q1 GDP missed targets and grew at the slowest pace in a year, at 5.07 per cent. However, presidential aides confirm Jokowi is determined to improve the investment environment and will make bold economic reforms in his second term to achieve this. 

 

4. US imposes further sanctions on Iran 

A week after not renewing sanction waivers for countries that buy Iranian oil, the US has announced sanctions onIran’s industrial metals exports, including iron, steel, aluminium and copper. When imposed, these will hit one of the biggest remaining sources of export revenue for Iran, causing significant economic pressure. This week Iran also announced it would stop complying with parts of the 2015 Iran nuclear deal. Although the EU has been attempting to support legitimate trade with Iran, the economic benefits seen as a result of the nuclear deal have been limited due to US sanctions. 

 

5. Hong Kong regulator gives licenses to Chinese tech companies  

Four leading Chinese technology companies, including Alibaba and Tencent, have won virtual banking licenses from the Hong Kong regulator. Insurer Ping An and smart-phone maker Xiaomi also won operating licenses, in a market where both consumer loyalty and banking revenue are up for grabs. Hong Kong is seen as a kind of ‘test ground’ for Asian companies that have regional and global growth ambitions. It is also a battleground where the legacy banks and insurance providers that currently dominate the market, such as HSBC and Standard Chartered, are being challenged by tech providers.  

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to watch out for. 

 

The Philippines holds mid-term elections. On Monday 13 May, the Philippines will go to the polls for mid-term Congressional elections. The elections will be seen as a referendum on Duterte’s presidency and his capability of getting his ambitious plans through Congress, such as federalising the government and cutting corporate tax rates. Parties backing the President in the ‘Coalition for Change’ faction are expected to do well in the elections, with the President’s popularity currently at its joint–highest level.   

 

Indonesia to release Sharia Economy Masterplan. On Tuesday next week Indonesian National Development Planning Agency (Bappenas) will launch the 2019 – 2024 Sharia Economy Masterplan. It will form a roadmap for development in strategic areas, including strengthening halal products, optimising the digital economy (in the form of e-commerce, marketplaces and financial technology) and using sharia finance for micro, small and medium enterprises. Indonesia is aiming to develop domestic markets, improve development indicators and upgrade the nation’s position on the Global Islamic Economy Indicator.  

 

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Friday 3 May 2019

 

This week there is good news in the US-China trade talks, Singapore confirms long-term cooperation with Beijing and Jokowi faces mixed developments in Indonesia.

 

1. US and China move closer to a deal

There was positive news from the US-China trade negotiations this week, as both sides reported constructive talks in Beijing. Chinese Vice Premier Liu He will travel to Washington next week, amid rumours a deal is close to being finalised. The deal would reportedly remove 10 per cent tariffs on US$200 billion worth of Chinese goods, but keep in place 25 per cent tariffs on a separate list of US$50 billion worth of goods. The all-important issue of how  has been agreed, however concerns that the WTO will not have a role in enforcing the agreement or mediating disputes leads to further questions over the future of the current world trade architecture.

 

2. Singapore cements warm ties with Beijing; signs five agreements

Singapore’s PM Lee Hsien Loong met with Chinese President Xi Jinping and Premier Li Keqiang during his five day visit to China for the Belt and Road Forum. The leaders signed five agreements related to trade, law enforcement and projects under China’s Belt and Road Initiative. PM Lee confirmed that warm ties would continue after Singapore’s leadership transition. Finance Minister Heng Swee Keat become Singapore’s sole Deputy Prime Minister this week, a clear signal that he will become Singapore’s next Prime Minister.

 

3. Jokowi’s team confirms comfortable win, but corruption mires economic plans

In a week when Jokowi’s team confirmed his comfortable election win, the President is still struggling to entirely separate his economic plans from the perennial issue of corruption. Indonesia’s anti-graft agency (KPK) accused Sofyan Basir, President of state-owned electricity company PLN, of corruption in a major public works contract in Riau Province. PLN is a central part of Jokowi’s major infrastructure drive – his government’s signature policy. Other cases, including the sentencing of a senior politician in the Golkar party, which supports Jokowi, indicates corruption is an issue likely to hamper reform efforts into Jokowi’s second term. This week Jokowi’s government also announced a historic relocation of the nation’s capital.

 

4. Opposing views on the Belt and Road ‘debt trap’

A new study published this week has scrutinised 40 debt negotiations by China across 24 countries, and found results that challenge the dominant narrative of China’s alleged participation in ‘debt trap diplomacy’. The study found that debt write-off was the most common outcome, occurring in 16 cases, whilst loan deferment was also common, occurring 11 times. The takeover of assets only occurred in the high-profile Sri Lankan Hambantota Port case, and possibly once in Tajikistan where it is unclear why land was transferred to China. These results are good news for China, which has been keen to outline its inclusive approach towards development along the Belt and Road. Nevertheless, opponents to the initiative maintain that it will lead to undue Chinese influence and unsustainable financing packages.

 

5. Private sector opportunities in India’s sanitation sector

Parameswaran Iyer, Secretary, Ministry of Drinking Water and Sanitation, has announced that the sanitation market in India is likely to reach US$60 billion by 2021. The government official called on the private sector to enter the market and take advantage of the opportunities. This comes as Prime Minister Modi’s ‘Clean India Mission’ progresses and the government increases its efforts to partner with corporates to improve health and sanitation across the country.

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch out for.

 

Partial Results of Thailand’s election announced. The 350 constituency seats for the lower house of Thailand’s Parliament will be released on 9 May. The remaining 150 seats in the house are determined by proportional representation and have yet to be calculated. According to preliminary results released by the Electoral Commission, the pro-Army Palang Pracharat Party has won the popular vote with 8.4 million votes, and opposition Pheu Thai Party won 7.9 million votes. Pheu Thai, however, won an expected 137 constituency seats compared to Palang Pracharat’s 116. Both Palang Pracharat and an anti-junta coalition led by Pheu Thai have claimed a mandate to form the next government. Thailand’s King will also be coronated this weekend, after marrying his consort and making her Queen this week.

 

Five central banks to meet across the region. The central banks of five countries – Thailand, the Philippines, Malaysia, Australia and New Zealand – will meet next week, with most of them looking at possible rate cuts. The region is experiencing the preconditions for easing, including slowing inflation and stagnating growth. Prospects of a US-China trade deal may, however, change perspectives. Thailand’s hawkish stance is expected to continue, despite economic conditions.

 

Ramadan begins on Sunday. The Muslim Holy month of Ramadan begins on Sunday evening, and as people across the world prepare for the month of fasting, markets are also preparing for the month’s effects. Fuel, food supply and financial services will all be impacted as users change their consumption patterns.

 

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Friday 26 April 2019

 

This week, China dominates the headlines as it continues to navigate its place in the global economy, whilst South Korea pays a price for the trade war.  

 

1. China seeks to allay fears, but confirms push on Belt and Road 

China’s second Belt and Road forum kicked off on Thursday, with the Chinese leadership promoting its aims to make the Belt and Road Initiative (BRI) sustainable and prevent debt risks. The Chinese Ministry of Finance says it plans to work with its counterparts in other countries to achieve high-quality financing for BRI projects. According to China’s Central Bank Governor Yi Gang, it will focus on leveraging private sector capital and follow market principles.President Xi Jinping also said that China will not devalue the Yuan, but keep the currency stable. Some 37 heads of state attended the summit, but there is markedly less international interest than the first summit two years ago, as nations are concerned over the debt risks and China’s underlying motivation in rolling out the BRI.   

 

2. South Korea feels the effects of the trade war 

South Korea has experienced its worst quarterly contraction in economic growth since the global financial crisis, falling 0.3 per cent in Q1. The slide can be seen as a knock-on effect from the US-China trade tensions, slowing Chinese economic growth and a cooling electronics sector. President Moon is now under pressure to boost growth and improve unemployment, which is at a nine-year high. Following other companies in re-routing international supply chains in the face of changing global trade conditions, South Korean based LG Electronics will move smartphone production to Vietnam, which is becoming a manufacturing hub due to low labour and production costs. 

 

3. Chinese bid for Portuguese EDP collapses 

State-owned Chinese company China Three Gorges’ (CTG) €9 billion bid for Energias de Portugal (EDP), the Portuguese utility company, was voted down by shareholders. The deal would have been one of China’s largest takeovers in Europe. The bid has come to be seen as a litmus test for attitudes towards Chinese investment in critical infrastructure in Europe, amid the ongoing trade tensions and push by the US to have China’s Huawei banned from international 5G networks. Although technically voted down on the opposition to the scrapping of a voting rights cap for shareholders, the vote indicates continued reluctance for Chinese control over these critical infrastructure resources.  

 

4. Huawei sees wins in Asia and UK 

Malaysian Prime Minister Mohamad Mahathir visited Huawei in Beijing on Thursday, after other South East Asian nations – including the Philippines and Cambodia – agreed to increase collaboration with the technology provider. Although there were no deals done, the high-level visit was seen as a show of support for the Chinese company. Meanwhile in the UK, the National Security Council has – according to leaks – given the green light for Huawei to provide equipment for the contentious 5G networks, although not for the core of any operator’s network. These moves are politically significant, given the ongoing tensions between the US and China, and highlights the differing positions around the world over Chinese involvement in national infrastructure and the need to balance relationships between the world’s two largest economies.    

 

5. Hydrocarbon opportunities boom in Oman 

Investment in Oman’s Oil and Gas sector could reach US$40 billion in the next few years, according to Oman Oil & Orpic Group. This presents opportunities for international companies to become involved in upstream, midstream and downstream projects as Oman seeks to maximise the value creation from its natural gas and hydrocarbon resources. Most of the recently announced strategic infrastructure is linked to a huge integrated gas development in the Greater Barik area, which already involves international companies including Shell and Total.  

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch out for. 

 

Critical Phase IV in Indian election. Phase IV in the Indian Lok Sabha (lower house) election will take place on Monday 29 April, and will include the key states of Uttar Pradesh, Rajasthan and Maharashtra. Uttar Pradesh in particular is significant in Modi’s quest for re-election. The rest of the votes are scheduled to finish by 19 May, with counting completed on May 23. Asia House has partnered with the University of Nottingham’s Asia Research Institute to bring you ongoing analysis of the elections. Read the update here.

 

US sanction waivers to expire. The US will no longer exempt countries from sanctions against Iranian oil, meaning sanction waivers given to China, India, Turkey, Japan and South Korea will expire next week. Whether sanctions will be imposed immediately on these countries that trade in Iranian oil is unclear. The waivers were originally in place to prevent a spike in oil prices and are, according to the US, no longer needed due to a greater oil supply. Prices, however, jumped to a 6-month high on Monday and the end of the waivers may cause them to continue rising, increasing the cost of doing business around the world.  

 

Asian economic data to be released. Key economic data from across Asia is scheduled to be released next week, giving insight into the changing economic conditions as a result of China’s economic slowdown and the US-China trade tensions. China’s Industrial Profits as well as Manufacturing PMI will be released, which will highlight the current and future business activity in the economy with the biggest impact on the region. New South Korean imports and exports data will likely confirm the bad news from this week. PMI results from India, Malaysia, Taiwan, Thailand, South Korea and Singapore will also be released, giving a broad picture of business activity and future prospects across the region.   

 

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Friday 18 April 2019

 

This week, 193 million Indonesians voted in the world’s biggest single day election, the Philippines growth target was revised down and the US and Japan began trade talks.   

 

1. Joko Widodo set to win Indonesian presidential election

Quick count polls suggest incumbent Joko Widodo (known as Jokowi) is set for a comfortable win in the Indonesian presidential election. He is likely to receive between 54.4 per cent and 55.7 per cent of the vote, while Prabowo Subianto, his contender, getting between 43.9 per cent and 45.6 per cent. This would give Jokowi a relatively strong position to implement his policy agenda, continuing with economic reforms and pursuing international funding for infrastructure; however, the makeup of parliament is still unclear. This is good news for markets, which have already responded positively on the news, and for investors, as policy continuity under Jokowi means there is possibility for further opening up of the market. Official results for the Presidential race and parliamentary seats are expected to be released in May.

 

2. Philippines passes new budget; growth target down 

After months of delays due to squabbling between the upper and lower houses, the Philippines passed its largest ever budget at 4.1 trillion pesos (US$71 billion). A major driver of growth in the new budget is the huge infrastructure push, dubbed ‘Build, Build, Build’ by policymakers. The delay in passing the budget caused the Philippines to cut its growth target from to 6.7 per cent from 7.8 per cent for 2019. The outlook was also affected by uncertainty coming from the US-China trade tensions, which is impacting growth across the region. Last year, the Philippine economy grew the slowest in three years, based on weakening exports, manufacturing and agricultural output.   

 

3. Japan-US trade talks 

US and Japanese representatives began the first round of much-anticipated trade talks in Washington DC on Tuesday. US Trade Representative Robert Lighthizer welcomed Japanese Economic Revitalisation Minister, Toshimitsu Motegi, with the US saying it wants a temporary deal agreed in two days. Negotiations will target 22 specific areas, such as non-tariff barriers in Japan’s car market and currency, focusing on quick-win areas first. While the Americans are keen on getting tariff cuts for farm goods, the Japanese side will only agree to this if there are US concessions for Japanese industrial goods. Japan-US trade relations have been in the spotlight since President Trump’s push against the US’s large trade deficit with Japan, the world’s third largest economy, which official figures from the US Census Bureau put at US$67.6 billion for 2018. 

 

4. Singapore exports fall most since 2016 

Singapore’s non-oil exports fell 11.7 per cent in March, its largest slump since October 2016 and a lot worse than analysts’ expectations. The bad results were led by a 26.7 per cent year-on-year drop in electronics exports, following the sector shrinking over the past year – hit by the slowing demand for smartphones in Asia. This comes as economies in the region feel the effects of ongoing trade tensions as well as the slowing Chinese economy. In more bad news, Singapore’s first quarter economic growth of 1.3 per cent was the lowest year-on-year quarterly growth in a decade. The need to spur economic growth amid a challenging global environment will be a key focus for Singapore’s leadership in the run up to a general election, which must be held by April 2021. 

 

5. Media hype over China posting better Q1 results than expected 

Commentators were excited this week over China’s better-than-expected Q1 results, as it recorded growth of 6.4 per cent instead of the expected 6.3 per cent. However, this is still 0.4 per cent down from the 6.8 per cent growth a year ago. The result is probably due to Beijing’s stimulus packages, which saw industrial production surge by 8.5 per cent in March. These stimulus plans may not, however, be a sustainable way to maintain high growth. The global economic slowdown, US-China trade tensions and China’s economic transition mean China is likely to continue to see a downwards growth trajectory. 

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch:

 

Belt and Road forum in Beijing. Around 40 world leaders and delegations from 100 countries will attend China’s second Belt and Road summit in Beijing next week. Attendees are expected to announce a joint declaration at the summit, signalling stronger cooperation and a drive for sustainable economic development. Leaders attending include Russia’s Putin and Thailand’s Prayut Chan-o-cha. UK Chancellor Philip Hammond is set to attend, aiming to discuss China-British economic and financial cooperation post-Brexit.  

Pakistan Prime Minister to sign agreements with China. Pakistan’s Prime Minister Imran Khan is one of the world leaders visiting China for the Belt and Road forum in Beijing. Pakistan and China are expected to sign several agreements to enhance bilateral cooperation, although the details have not yet been released. China has already agreed around US$60 billion in infrastructure loans for Pakistan, which is a major hub along China’s Belt and Road initiative. This comes amid an economic crisis in Pakistan, despite Islamabad receiving US$10 billion in short term loans from allies including Saudi Arabia and China.  

 

We’re partnering with the University of Nottingham to bring you the latest analysis on the Indian elections. Read this week’s update here.  

 

Asia House Advisory helps organisations understand new operating environments and meet business-critical challenges. Find out more.

 

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Friday 12 April 2019

 

This week the US and China make further progress in trade talks, Modi makes more campaign promises and China attempts to ease European anxieties over economic relations.   

 

1. US and China overcome major hurdle in trade negotiations 

Both the US and China have agreed to monitoring and enforcement measures in the ongoing trade negotiations. The world’s two biggest economies agreed to establish reciprocal enforcement offices, in a sign that both sides are keen to conclude the negotiations. There is still no indication of the time-frame for a deal, but the trickle of good news coming out of negotiations suggests they are reaching their conclusion.  

 

2. Modi promises to spend US$1.44 trillion on infrastructure 

As part of his re-election bid, Indian Prime Minister Narendra Modi pledged to spend US$1.44 trillion on infrastructure to boost both the economy and living standards. This comes amid other populist campaign promises from Modi’s Bharatiya Janata Party – which is expected to win big in the elections – such as doubling farmers income and doubling manufacturing exports. The infrastructure investment would present huge opportunities for international companies, however, there are question marks over where the money will come from. Record numbers voted on Thursday 11 April as the national election began its first of seven voting phases. You can read a full weekly briefing on the Indian elections, prepared by experts at the University of Nottingham’s Asia Research Institute, on our website.

 

3. Li Keqiang tours Europe after a rise in China-EU tensions  

China’s second-highest official, Premier Li Keqiang, visited Europe this week for a five-day tour amid competing visions on the continent for future EU-China relations. At the China-EU Leaders meeting in Brussels, a signed joint statement included key Chinese concessions on curbing subsidies to domestic industries and facilitating market access for foreign companies. In Croatia, the Premier attended the 16+1 meetings between China and Central/Eastern European countries. Despite reports of unease from Poland and Romania over expanding trade deficits with China, the 16+1 meeting advanced trade and investment ties under China’s Belt and Road Initiative. Li is expected to witness an MoU signing between Huawei and Croatia, after saying the two nations are opening “a diamond period” in their relations. 

 

4. Saudi Aramco bond debut raises $US12 billion 

In one of the most oversubscribed debt offerings in history, Saudi Aramco issued US$12 billion of bonds after it received more than US$100 billion in orders from investors. The yields on the bonds are lower than those of the Saudi Arabian government which owns Aramco. The bonds sank two days in a row after the issue was complete, as oil prices dropped from a five-month high. This highlights a trend that subscriptions to highly anticipated bond deals are usually inflated by investors who are concerned on missing out on an allocation but then immediately sell off smaller allocations. The deal does indicate, however, that investors are willing to back the Kingdom’s economic future.  

 

5. Australian PM calls federal election 

Australian Prime Minister Scott Morrison has called a federal election for 18 May after his party’s position in the polls increased slightly following a budget release last week. Morrison’s liberal party are trailing behind the Labour party, however there has been a rise in unconventional voting patterns. The election is not likely to affect markets and the business environment in the short term, as it has in Australia’s regional neighbours. However, there could be long-term effects on foreign investment in certain sectors as Australia has been increasingly wary of foreign interference in domestic politics and the economy.  

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch:

 

Indonesia goes to the polls. After a long election campaign, over 190 million eligible Indonesian voters will go to the polls in simultaneous elections for the President and members of the People’s Consultative Assembly. Jokowi has a reasonably comfortable lead according to the latest polls, however there are still millions of undecided voters and one public debate to go. Notably, Prabowo’s campaign has gained momentum over the last week. Results will be released progressively from 25 April, with the new President inaugurated in October. Legal challenges to the results are to be expected, especially as Prabowo is already announcing that there will be cheating in the vote counting process.  

World Bank and IMF annual Spring meetings. Starting today, the annual Spring meeting of the International Monetary Fund (IMF) and World Bank are set to conclude on Sunday 14 April. The annual meeting brings together finance ministers, central bankers, parliamentarians and representatives from business and civil society. Discussion is set to focus on how to overcome issues of global concern, including the worsening world economic outlook and ongoing trade tensions. IMF meetings have been ongoing since Monday 8 April, where the global economic outlook was downgraded, and public seminars on uncertainty, ageing and governance attempted to tackle challenging economic trends.  

 

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Friday 5 April 2019  

 

This week the forecast for Asia’s growth is downgraded but prospects for a US-China trade deal are looking up.  

 

1. Asian Development Bank cuts growth outlook for Asia 

The Asian Development Bank’s (ADB) growth projections for Asia have been reduced in its most recent report, which states that Asia’s growth (excluding the high-income newly industrialised economies of Japan, South Korea and Brunei) is projected to drop from 6.4 per cent in 2018 to 6.2 per cent in 2019 and 6.1 per cent in 2020. Overall risksfor the outlook remain tilted to the downside, as the uncertainty surrounding current trade tensions, US fiscal policy,slowing growth in advanced economies and even a disorderly Brexit could all negatively affect growth in the region. Natural disasters will continue to be one of the biggest threats to economic growth throughout Asia.  

  

2. Optimism surrounding latest round of US trade talks 

China’s top trade negotiator, Vice Premier Liu He, is in Washington for talks with US Trade representative Robert Lighthizer and Treasury Secretary Steve Mnuchin. Reportedly a draft agreement has been drawn up but some issues remain undecided, most likely the issues of enforcement and removing of tariffs. In a sign that the talks are reaching a conclusion, President Trump met with Liu He on Thursday evening. He said that there are no plans for a summit with President Xi Jinping just yet, however the ‘Grand Daddy’ of deals has a good chance of happening. An IMF report released on Wednesday rebutted the idea that tariffs address trade imbalances, saying instead that countries should seek to address macroeconomic issues within their own economies.  

 

3. ASEAN finance ministers agree to liberalise services 

As results from the national election remain uncertain, Thailand hosted a meeting of the ASEAN finance ministers this week. The ministers will sign an agreement to liberalise financial services throughout the region, although no clear timeline has been given. Thailand will liberalise its asset-management business, which will allow ASEAN investors to hold majority stakes in asset-management firms. Ministers also agreed to make electronic payments across borders easier, helping to grow an e-commerce market which has huge potential.  

 

4. Saudi Aramco is world’s most profitable company 

With almost double the profits of Apple and more than JP Moran Chase, Google-parent Alphabet, Facebook and Exxon Mobil combined, Saudi Aramco is revealed as the world’s most profitable company, generating US$111.1 billion in net income in 2018. The opening of its book also revealed, however, the company’s close ties to the price of oil and the Saudi state. The financial data was released in a prospectus as the company prepares to raise $US15 billion through a bond sale to help finance the planned $US69 billion purchase of a state-owned petrochemical company from the Saudi sovereign wealth fund.   

 

5. Japan business confidence at two-year low 

The Bank of Japan’s quarterly business survey revealed business confidence is at a two-year low, as the effects of the trade tensions and the slowdown in the Chinese economy take their toll. Concerns over rises in crude oil prices and reduced global demand also played a role. This is concerning for Japan which is struggling in the battle against its long period of deflation and faces an uncertain economic outlook. It raises concerns over the Prime Minister’s ‘Abenomics’ policy and may cause delays to planned action on fiscal reform.   

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch:  

 

India’s election begins. The first of seven phases of voting in India’s general election begins on April 11. The seven phases are spread over five and half weeks, with the last day scheduled for 19 May. Incumbent Prime Minister Modi is battling for re-election along with his Bharatiya Janata Party and its alliance partners. The parties are mainly campaigning over economic issues, with the main opposition, Congress party, promising to raise living standards by focusing on welfare programs and subsidies.  

 

Final Indonesian election debate. The fifth and final Indonesian election debate will be held on 13 April, and will cover crucial topics, including the economy, social welfare, the financial sector, investment and industry. The fourth debate of the election was held last weekend and saw the two contestants promote their visions for the future of governmental reform, the role of technology, international relations and defence. Jokowi flexed his muscles promoting e-government, whilst Prabowo decried what he sees as the flight of Indonesian wealth through foreign ownership of strategic industries. It is now Jokowi’s election to lose as the latest poll puts Jokowi on 55.4 per cent, while Prabowo is on 37.4 per cent. 

 

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Friday 29 March 2019  

 

This week the Thai elections were hotly contested, while China continues to navigate its relationship with the EU and US.   

 

1. Thai election results unclear as both sides claim right to form government 

Officials claim that Thailand’s pro-military party Palang Pracharath won the most votes in Sunday’s election, however an anti-junta coalition is claiming it has enough seats to form a government. The leading party in the coalition, the Pheu Thai Party, won 137 seats in the 500-seat lower house. They are also claiming a further 118 seats from other anti-junta parties which may help them towards a majority. However, although the pro-military Palang Pracharath won only 97 seats in the lower house, they are likely to be able to count the 250 seats in the military-appointed senate towards their Prime Ministerial pick – incumbent Gen. Prayut Chan-o-cha. Official results are only expected to be finalised in May, as the electoral commission investigates allegations of voting irregularity. This will leave plenty of time for protests and politicking over the coming weeks. 

 

2. Xi Jinping increases economic ties in Europe 

President Xi Jinping toured Italy, France and Monaco in a six-day trip, only two weeks after the EU announced a tougher stance on economic relations with China. Italy, which has controversially signed up to China’s Belt and Road Initiative (BRI), signed 29 deals with China, worth approximately US$2.8 billion. In a coup for France, Xi signed a US$35 billion deal with French based aircraft manufactured Airbus. This is a blow to US manufacturer Boeing as it also attempts to deal with the grounding of its best-selling jet, the 737 MAX 8. European Commission President Juncker and German Chancellor Angela Merkel joined President Macron in France to meet Xi Jinping and discuss the ‘challenges of multilateralism’. Although the European leaders refused to officially sign up to the BRI, Merkel did acknowledge that EU leaders were keen to be involved.   

 

3. US hails progress in trade talks with China 

According to US negotiators, China has made an unprecedented offer related to a number of issues under negotiation in current trade talks, including the controversial topic of forced technology transfer. Despite this, intellectual property and enforcement are key issues that remain unresolved. The US has also indicated that it may not lift all tariffs even if a deal is made, in order to ensure Chinese compliance. US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer are currently in Beijing for yet another round of talks, with no clear end in sight.  

 

4. Google-backed AI start-up eyes US$1 billion valuation  

Mobvoi, a Chinese google-backed artificial intelligence start–up is close to securing funding to reach a US$1 billion valuation before its initial public offering (IPO) in China. Mobvoi is Google’s first direct investment in China after it left the country in 2010 due to strict censorship laws. Backed by Sequoia and Zhenfund, Mobvoi is looking to seize market share from Google’s competitors, such as Apple.  

 

5. Chinese Premier promises further opening up at China Development Forum   

Chinese leaders sought to assure international investors at the annual China Development Forum, which was held in Beijing on 23 – 25 March. Chinese Premier Li Keqiang assured business executives that the rights of foreign firms will be respected, and investors and companies will be able to enjoy a more open and transparent business environment in China in the future. The Vice Governor of the Central Bank said that China will keep the Yuan basically stable, based on the projected continued strong performance of the Chinese economy. This comes as Li Keqiang also promised to operationalise the recently passed foreign investment law at the annual Boao Forum for Asia.  

Asia House attended the China Development forum. Read our policy submission

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch:

 

Fourth Indonesian Presidential election debate. This Sunday will see Indonesia’s fourth election debate, where Presidential candidates Jokowi and Prabowo will debate ideology, the government, international relations and defence and security. Prabowo, a retired military general, is strong on security but will have to defend his record on his affiliation with strands of radical ideology. Jokowi will need to defend his record over government reform, as well as the decision to ban radical group Hizbut Tahrir Indonesia (HIT).  

US-China trade talks in Washington next week. Following talks this week in Beijing, Chinese officials will head to Washington to continue trade talks. Liu He, China’s Vice Premier and top trade negotiator, is expected to lead the delegation, which will attempt to thrash out issues related to intellectual property rights, market access, government subsidies for state-owned enterprises, the bilateral trade imbalance and trade barriers.  

 

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Want to get The Week in Asia direct to your inbox? Sign up to our mailing list and keep up to speed with Asian trade, investment and policy developments.

 

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Friday 22 March 2019  

 

This week we see politics continue to impact economic affairs across Asia and Europe. Thailand (finally) votes this weekend in the first Asian national election of 2019; a year that will see one billion people go to the polls across the continent. You can read our full briefing on the Thai elections here. 

 

1. Germany does not ban Huawei as it opens 5G auction 

Angela Merkel has resisted US pressure to ban Huawei from 5G networks as Germany begins selling off 5G-ready airwaves, although security requirements for mobile networks will be toughened. Germany has significant considerations to balance. The US has warned that it could reduce its sharing of sensitive information with Berlin if it fails to ban Huawei. Germany, however, doesn’t believe in singling out an individual company or nation. European carriers have also claimed that Germany’s 5G networks could be delayed by years if Huawei was banned, as it is already deeply embedded in phone networks.   

 

2. Indonesia re-thinks EU relations, trade agreement 

Indonesia is examining relations with the European Union, including the negotiations over their Comprehensive Economic Partnership Agreement, in response to an EU draft regulation that says palm oil cultivation causes excessive deforestation and its use in the EU will be brought down to zero by 2030. Whilst the EU claims the regulation is aimed at promoting sustainability in the vegetable oil sector, Indonesia claims it is a move aimed at protecting the EU’s own agriculture industry.  

 

3. Saudi Arabia launches mega project in Riyadh  

Saudi Arabia’s King Salman launched a mega infrastructure project in the capital Riyadh, investing US$23 billion in a ‘wellness upgrade’, which includes a park, sports boulevard, a green space and an arts space. There are US$15 billion worth of investment opportunities available to the private sector in residential, commercial and recreational aspects of the mega-project. This is all part of Saudi Arabia’s Vision 2030, aimed at diversifying and improving competitiveness in the Kingdom.    

 

4. Pakistan looks to Malaysia in economic crisis  

Malaysian PM Mahathir is set to sign investment deals worth nearly US$1 billion with Pakistan, who have been seeking investment since Imran Khan took office last August in order to assist with a widening current account deficit and depleting foreign reserves. While this amount pales in comparison to the US$20 billion being invested by Saudi Arabia and the US$60 billion being invested by China, it does signal warming relations between Pakistan and Malaysia. Pakistan hopes this will lead to increased economic relations with the rest of Southeast Asia, showing the nation is broadening its horizons beyond its recent dependence on China.  

 

5. Jokowi proposes 28 projects to China under Belt and Road Initiative   

On Wednesday Indonesia proposed 28 infrastructure projects worth US$91 billion to Chinese delegates at meetings in Bali under the Belt and Road Initiative. Jokowi’s administration expects at least a few of these projects to be accepted. Indonesia is insistent that the infrastructure development must be environmentally friendly and sustainable, presenting opportunities for international companies to become involved. The timing of the proposals is interesting, as during the campaign period for polls on 17 April, Jokowi has been attacked for allowing too much foreign investment into Indonesia. However, the administration is also being attacked for lagging behind on infrastructure development – something Jokowi is obviously hoping to speed up.  

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch:

 

US Delegation will head to China for further trade talks. US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin will resume trade talks in Beijing next week, in an attempt to end the eight-month trade war between the world’s two largest economies. With President Trump saying this week that he is happy to leave existing sanctions in place for as long as necessary, there is currently no end in sight to the ongoing tensions.  

Thailand votes. Thailand will vote on Sunday in its general election, the first since the Military coup against the Pheu Thai Party in 2014. Voters are generally voting on two issues – the economy and role of the military – however with a relatively un-even playing field the military is in pole position to retain large amounts of power. Advanced voting was held last Sunday amid claims by independent group PollWatch that it was rife with vote-buying and other irregularities. Read our briefing paper for a more in-depth look at the issues surrounding the Thai election.  

If you are interested in issues surrounding Southeast Asia elections, join us on 27 March 2019 at Asia House for an event on the Indonesia elections and their impact on the political and business climate moving forward. Register your interest in attending

 

Asia House Advisory helps organisations understand new operating environments and meet business-critical challenges. Find out more.

 

Want to get The Week in Asia direct to your inbox? Sign up to our mailing list and keep up to speed with Asian trade, investment and policy developments.

 

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Friday 15 March 2019  

 

This week it’s all about China again as its relationships with global and regional powers continue to play out. All eyes will soon be on Thailand however as the country goes to the polls on 24 March – you can read our briefing on the Thai elections here. 

 

1. China passes foreign investment law 

Delegates at China’s National People’s Congress voted to pass the Foreign Investment Law, which is aimed at levelling the playing field for local and foreign businesses in China. Coming into effect on 1 January 2020, the move is seen as a signal from China to the US in the context of their ongoing trade negotiations, especially considering the law was passed so quickly after drafting. However, it has been criticised for being too vague and failing to specifically address persistent investor concerns.  

 

2. EU urges tougher stance on China

The European Commission released a landmark policy paper urging European leaders to adopt a 10-point action plan in the bloc’s relationship with China, which it labelled an ‘economic competitor’ and ‘systemic rival’. The paper aims to deepen engagement with China in order to promote common interests, seek a more balanced relationship and reform its own economy to keep pace with changing economic realities. The paper comes about a month out from the China-EU summit in Brussels and indicates that the EU shares at least some of Washington’s concerns over China’s economic practices.  

 

3. Trump delays China summit but talks progress 

Chinese state-run press agency Xinhua reported that the US-China trade talks had made ‘important progress’. Two days of talks in Washington again saw discussion on the key issues of trade balance, technology transfer, IP protection and enforcement mechanisms. Although no specifics were announced, markets across Asia rose on the news, including the MSCI index, South Korea’s KOSPI, the Shanghai Composite Index and Japan’s Nikkei. Yet there is no end in sight for the trade talks as the leader’s summit is pushed back from its proposed date at the end of March.  

 

4. Hong Kong regulator imposes biggest ever fine 

The Hong Kong Securities and Future Commission has levied fines at international banks UBS, Morgan Stanley, Bank of America Merrill Lynch and Standard Chartered, totalling approximately US$100 million. The fines were linked to the IPOs of Tianhe Chemicals and China Forestry, saying the banks did not carry out adequate due diligence before the IPOs. The move is significant as it signals the regulator’s tougher stance towards allegations of fraud and misreporting. It has previously been criticised for its lack of action in a perceived attempt to attract world-class listings to Hong Kong.  

 

5. ASEAN gains from Trump’s Asia policy 

In new research released by ISEAS-Yusof Ishak Institute, Southeast Asia has been seen to benefit from the US policy stance towards China. Although trade tensions increase negative external risks, President Trump’s focus on Northeast Asia has spared Southeast Asia’s trade surpluses from retaliation and allowed them to increase. Benefits have also come in the form of greater US security activities in the region and the secondary benefits in tourism from the Trump-Kim summits.   

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch:

 

Italy to sign up to Belt and Road. Xi Jinping is set to sign a Memorandum of Understanding (MOU) with Italy’s Prime Minister in a visit to Rome on 22-23 March, mapping out cooperation between the two countries on China’s Belt and Road Initiative (BRI). This comes as the EU urges a tougher stance towards China, and both the EU and US are concerned that Italy – as a G7 nation – signing up to the Belt and Road Initiative will lend greater credibility to the project. Italy says, however, that its agreement with China will not undermine its relationships with the US and EU.  

Indonesia’s third election debate. 17 March is the date for the third Indonesian Presidential election debate between Jokowi-Ma’ruf Amin and Prabowo-Sandiaga, one month ahead of polls. The topics for debate include education, health, human resources, social issues and culture. Prabowo-Sandiaga are likely to attack the incumbent Jokowi over employment opportunities and the presence of foreign workers in Indonesia, a touchy subject throughout the nation. Jokowi is in a good position this week, however, as a surprise trade surplus was recorded in February.  

 

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Friday 8 March 2019  

 

This week one of the main challenger parties in the Thai election was banned, China’s Two Sessions were held and the Philippines made a risky appointment to Central Bank Governor.

 

1. Thai constitutional court bans Princess-linked party 

Thailand’s military-backed constitutional court banned political party Thai Raksa Chart on Thursday, dealing a blow to the Thaksin aligned opposition two weeks out from national elections. The party was banned due to its nomination of Princess Ubolratana in a move that the court deemed to violate Thai cultural and political values and norms. Thai Raksa Chart was established as an ally to the Shinawatra clan’s main party, Pheu Thai, as an insurance policy against new rules that make it difficult for any one party to gain a majority. The move intensifies simmering tensions between the ruling military junta and anti-military opposition.

 

2. National People’s Congress delivers China’s work report 

A state-sponsored rap video entitled ‘Two Sessions’ has celebrated the economic prowess and democratic system of China at its annual meetings of the National People’s Congress (NPC), and its top political advisory body, the Chinese People’s Political Consultative Conference. The 2019 government work report delivered by Premier Li Keqiang at the NPC gives some more realistic takeaways to consider. The Chinese government is concerned over the increasingly complex and unpredictable international environment, causing it to reduce its growth target to 6 – 6.5 per cent. Taxes will be cut, but infrastructure spending will continue, suggesting China will allow its debt to keep growing. The phrase ‘Made in China’ was also conspicuously left out of the report and all other speeches, suggesting China is abandoning the term due to the wariness it has caused in other governments.

 

3. New Filipino Central Bank Governor appointment sees market drop 

President Duterte has appointed former Budget Secretary Benjamin Diokno as the Governor of the central bank, Bangko Sentral ng Pilipinas. The move was a surprise, and although Diokno is an economist by trade, his experience in Duterte’s cabinet has raised concerns that the appointment is political and therefore threatens the independence of the institution. Diokno is also currently under investigation for his latest budget, which has been accused of favouring his relatives for government contracts. The Peso dropped almost one per cent against the US dollar immediately following the news and, if concerns persist, investment confidence could be affected.

 

4. Huawei files law suit against the US Government 

Huawei has filed a lawsuit against the US government claiming the ban on Huawei is unconstitutional. Meng Wanzhou, Chief Financial Officer, also filed a lawsuit against Canada, claiming she was unlawfully interrogated prior to her arrest. Although Huawei is attempting to assert its independence from the Chinese Government, China’s Foreign Minister Wang Yi has spoken out in support of the lawsuits. Continued tensions over Huawei will not help the US-China trade deal the two nations are currently attempting to conclude.

 

5. New Indonesia poll shows Jokowi maintaining lead ahead of Prabowo 

A new poll in Indonesia has shown that incumbent President Jokowi has cemented his lead ahead of challenger Prabowo in the country’s election race. Jokowi-Ma’ruf Amin are leading at 58 per cent while Prabowo-Sandiaga were trailing at 42 per cent. This is welcome news for international investors who hope for a continuation of Jokowi’s economic policies. Nevertheless, competition in the race is heating up, with police on high alert to prevent growing confrontation between supporters.

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch:

 

Election schedule for Indian lower house to be announced. The Indian Election Commission will announce the election schedule for the lower house, the Lok Sabha, which will determine the ruling party and Prime Minister of India for the next five years. The elections are likely to be spread across seven or eight phases, to cope with logistical difficulties. Incumbent Prime Minister Narendra Modi is already in re-election campaign mode, as his opposition scrambles to form alliances in an attempt to oust his ruling Hindu nationalist Bharatiya Janata Party.

South-Korean President to visit ASEAN. After announcing South Korea’s New Southern Policy, President Moon Jae-in will visit Cambodia, Malaysia and Brunei next week. The trip will look to strengthen ties between South Korea and ASEAN in science and technology, information and communications technology, transport, energy and defence.

 

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Friday 1 March 2019

 

This week, the US made progress with China on trade but failed to strike a deal with North Korea, while mergers in Thailand and Indonesia highlight the region’s increasingly competitive financial sector.

 

1. US suspends 1 March deadline for China tariff hikes

The US has suspended the scheduled tariff increases against China until further notice. This is a positive sign in a negotiation process that has worried investors and financial markets for months. There are, however, mixed signals as to the substantive progress of the talks, with President Trump saying the two sides are “very, very” close to a deal, but also saying that he is willing to walk away from talks if the China deal does not meet US demands. This week the US also won a World Trade Organization (WTO) case against China, where the WTO ruled that China provides excessive government support to grain producers.

 

2. No US-North Korea deal; South Korean stocks down

Hopes for a US-North Korea nuclear deal went unfulfilled on Thursday as President Trump and Kim Jong-un left the negotiations in Hanoi earlier than scheduled. Talks broke down as the US would not agree to remove all sanctions against the pariah state, and North Korea would not agree to the dismantling all of its nuclear facilities. Markets fell sharply in South Korea after the news broke, with the KOSPI composite index closing 1.8 per cent down and the Won down 0.6 per cent against the US dollar.

 

3. Thai merger creates region’s sixth biggest bank

A merger between Thanachart and TMB will create the sixth biggest bank in Asia, in a deal worth US$4.47 billion. A non-binding agreement was signed between the two banks, who will issue new shares worth 70 per cent of the total deal. The merged entity will have assets of around US$60 billion and 10 million retail customers. The aim of the merger is to better compete with regional rivals by creating bigger economies of scale and more efficient fundraising and lending facilities.

 

4. Indonesian SOEs join forces to compete with e-commerce start-ups

Four Indonesian state-owned banks and one telecommunications SOE will merge their payment services in an attempt to challenge the dominance of Go-Jek and OVO in the Indonesian digital payments market. The market is worth around US$3.3 billion and has huge potential to grow given the country’s large population, high mobile phone use and low participation in traditional banking. Despite the fact it will have government backing, the SOE alliance will find it difficult to compete with Go-Jek and OVO, who have access to a large customer base from their existing platforms, are able to invest heavily in marketing and are not encumbered by the decision-making bureaucracy of SOEs.

 

5. Thailand enacts restrictive cyber-security law

Thailand’s military appointed parliament has passed The Cyber Security Act, which gives sweeping powers to regulators to access networks, copy information, seize devices and take control of all internet procedures in certain situations. Businesses have raised concerns over the rule of law, the privacy of personal and corporate data, as well as the law’s territorial applicability. The law covers any overseas company that collects, uses or discloses personal data of Thai subjects, thus could dissuade foreign companies from operating in Thailand.

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, here are a couple of events to watch out for:

 

China’s ‘Two Sessions’ will be held in Beijing. China’s two major political bodies, the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC), will meet next week. At the NPC meeting, Premier Li Keqiang will outline the Communist Party’s annual Work Report and policy priorities for the upcoming year. Last year President Xi Jinping’s removal of presidential term limits took the limelight. This year observers will be focusing on any announcements that indicate China’s policy position regarding the US-China trade tensions, slowing economic growth and financial vulnerabilities.

 

Australia and Indonesia to sign free trade deal. The Indonesia-Australia Comprehensive Economic Partnership Agreement will be signed next week, after months of delays due to a diplomatic freeze. Australia’s announcement that it would consider moving its Israeli embassy to Jerusalem caused friction with Indonesia and slowed progress on reaching the trade agreement. Under the deal all Indonesian goods will enter Australia tariff free and 99 per cent of Australian goods will enter Indonesia tariff free. This represents a huge step for the bilateral relationship between the two neighbours, which has not always been smooth sailing.

 

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Friday 22 February 2019

 

This week Saudi Crown Prince Mohammad bin Salman (MBS) toured Asia, China’s Greater Bay Area development plans became clearer and US-China trade talks offered a glimmer of hope.

 

1. Saudi Arabia increases ties throughout Asia 

Saudi Crown Prince Mohammad bin Salman (MBS) embarked on a three-nation tour of Asia this week. MBS pledged US$20 billion for investment in Pakistan, signed five agreements in India and meets with Xi Jinping on Friday, where discussions will likely focus on the strategic energy relationship and development of regional economic zones. The visit highlights Saudi Arabia’s increasing economic integration with Asia.

 

2. Greater Bay Area blueprint released 

The Chinese Communist Party released plans for the Greater Bay Area, an ambitious infrastructure development covering 11 cities (including Hong Kong, Macau and Shenzhen) and forming a central node in China’s economic development plans, as well as a facilitator for the Belt and Road Initiative. The plans lay out a strategic vision for each city to become a hub in a different sector, whilst also increasing infrastructure, financial and tech links between them. It aims to increase China’s productivity and economic growth, jointly expand opening up, and strengthen international economic and trade cooperation in support of the ongoing Belt and Road Initiative. Questions remain as to how the differences in legal, political and economic systems between mainland China and Hong Kong will be managed.

 

3. Outline of an agreement emerges from US-China talks 

Chinese officials have been in Washington this week for the ninth round of ongoing trade talks with the Trump administration. According to anonymous sources, six memorandums of understanding are being drafted on the topics of forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade. Whilst these agreements are not likely to cover much in terms of substantive issues, any agreement means the two sides can avoid the consequences of Trump’s 1 March deadline for increasing US tariffs against China.

 

4. Huawei risks can be ‘managed’ in the UK 

Huawei may not be banned from operating in the UK telecoms network, as the UK National Cyber Security Centre concluded there are ways to mitigate the risks posed. This is a set-back for US efforts to persuade allies to ban Chinese companies from their 5G networks, on the basis that it presents risks of Chinese espionage or cyber-attack. Germany and other European countries are currently considering the issue and may be swayed by the UK’s position.

 

5. Australia dashes UK hope to join CPTPP 

Australian Trade Minister Simon Birmingham put a damper on British hopes of accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Australia is one of 11 members. He said, “it’s a statement of fact that the UK is not within the Pacific,” and suggested there would be other nations in Asia-Pacific who would be ahead of the UK in the queue. Birmingham did, however, say that Australia is keen to negotiate a free trade deal with a post-Brexit UK as soon as possible.

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to watch out for:

 

Official talks between Malaysia and China over Belt and Road projects. Daim Zainuddin, an advisor to Malaysian Prime Minister Mahathir, will meet Chinese officials to renegotiate the terms of the deal on the US$20 billion East Coast Rail Link. According to Saifuddin Abdullah, Malaysia’s Foreign Minister, China is open to renegotiating the cost and size of the project. This shows a conciliatory attitude from China, which has experienced push-back against its Belt and Road Initiative from across the region.

Huawei case to be heard in US. On 28 February Seattle’s Western District Court will hear the case against Huawei, based on accusations it stole proprietary technology from T-Mobile. The decision will impact on the US-China trade talks, which have been ongoing this week in Washington. It is also likely to have an impact on the US attempt to pressure allies into banning Huawei from domestic 5G networks. Huawei argues the matter was already settled in a 2017 case, where T-Mobile was awarded US$4.8 million in damages.

Consultation on Chinese foreign ownership ends next week. The National People’s Congress (NPC) public consultation on a draft foreign investment law will end on 24 February. The law will cover Chinese-foreign equity joint ventures, non-equity joint ventures and wholly owned foreign companies. The NPC, widely considered a rubber stamp for Community Party decisions, will vote on the law in March. This accelerated passage through the NPC indicates China is rushing to take actions to appease the US in the ongoing trade negotiations.

 

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Friday 15 February 2019

 

This week the Thai elections took another turn and US-China tensions continued to play out as other nations pursue economic progress in an uncertain global environment.    

 

1. Thai Princess banned from running in election 

The excitement at Princess Ubolratana’s election nomination was short-lived, as the Election Commission disqualified her on the basis that her nomination is ‘considered hostile to the constitutional monarchy’. The constitutional court is now assessing whether the Thai Raksa Chart party that nominated her will be dissolved. Ubolratana’s disqualification is a boost to the ruling junta, as she could have proven strong opposition. Dissolution of Thai Raksa Chart would also be a boost for them, as one less Thaksin-aligned party will make it harder for the opposition to gain a majority in parliament. Elections are currently scheduled for 24 March 2019.

 

2. US-China trade talks offer little progress so far 

Another round of US-China trade negotiations took place in Beijing this week, with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin meeting Chinese Vice Premier Liu He. Mnuchin said the meetings were ‘productive’, however few official details have been released. There are reports that China agreed to end market distorting subsidies. This is not official, however, and there is no indication of how and when they would act on this, with the lack of clarity being a perpetual sticking point in the ongoing trade tensions. President Xi Jinping is expected to meet with US officials on Friday evening, after which further details may be released.  

 

3. European Parliament approves Singapore free trade deal 

The European Parliament voted through a landmark free trade agreement with Singapore, which will gradually eliminate nearly all tariffs on both goods and services over the next five years. Aside from lowering the cost of doing business and opening new opportunities for businesses on both sides, the European Union-Singapore Free Trade Agreement (EUSFTA) will allow EU firms to compete for public procurement contracts in Singapore. The UK will not see these benefits if it leaves the EU without a deal.  

 

4. Ant Financial acquires WorldFirst in US$700m deal  

China’s Ant Financial has agreed to acquire British payments group WorldFirst for around US$700 million, marking the biggest push by a Chinese firm into western financial services markets. Ant Financial is affiliated with the Alibaba Group and is the most valuable tech start-up in the world, worth US$150 billion. Ant Financial’s previous attempt to enter western markets failed when its acquisition of US company MoneyGram International was blocked on national security grounds, in line with a trend of US pushback against Chinese companies operating internationally.   

 

5. Japan’s economy rebounds to growth  

According to Japan’s Cabinet Office, GDP returned to growth in Q4 last year, with an annualised growth of 1.4 per cent. This suggests Japan’s economy is robust enough to deal with the external pressures of lower demand from both Europe and China. Two factors to watch this year on Japan’s economy are whether it can successfully transition to greater reliance on domestic consumption for growth, and if it can weather the impact of a consumption tax hike in October which will increase from eight per cent to ten per cent.

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, here are a couple of events to look out for:  

 

Second Indonesian presidential election debate scheduled for this weekend. Presidential incumbent Jokowi and his running mate Ma’ruf Amin will face off against challenger Prabowo and running mate Sandiaga Uno in the second of five live election debates. This round will focus on infrastructure, the environment, natural resources, food and energy. Infrastructure is an area of particular interest for foreign investors, as billions of dollars have been sought by Jokowi’s government to fund large infrastructure projects. You can read an Asia House briefing on the elections here.   

 

Singapore’s pre-election budget to be released. Finance Minister Heng Swee Keat will deliver the budget on 18 February. It is likely to promise a high amount of spending due to both a possible election later this year and the need to counter the effects of US-China trade tensions. Singapore must hold its next election by early 2021, however the Prime Minister has hinted it could be this year.   

 

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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.

 

Friday 8 February 2019

 

This week Germany renews its push for multilateralism, the Thai elections take an interesting turn and President Trump continues to dominate the headlines.

 

1. German President Merkel met Japan’s Prime Minister Abe to discuss G20 priorities

Merkel visited Japan in pursuit of an alliance of multilateralists to counter both Trump’s America First approach to trade and China’s pursuit of its own national interest. After advocating a ‘win-win’ approach to international relations in her Davos speech last week, Merkel spoke with Abe about prioritising free trade, climate protection and multilateralism. Emphasising the close relationship with Japan comes as the Federation of German Industries (BDI) has called on Berlin and Brussels to better deal with the challenges posed by a ‘state dominated Chinese economy’.

 

2. Thai princess runs in election against military

In an unprecedented royal foray into politics, Princess Ubolratana, sister of the Thai King, was announced as a Prime Ministerial candidate for the Thai Raksa Chart party, which is aligned with former Prime Minister Thaksin Shinawatra. She will run against Sudarat Keyuraphan from the Pheu Thai party, also aligned with Shinawatra, and against military junta leader Prayut Chan-o-cha, who confirmed today he was running in next months election with the pro-military Palang Pracharat party. This dramatically shakes up the election dynamic, which was previously seen as a contest between the Thaksin-aligned populists and the royalist-military establishment.

 

3. Indian central bank unexpectedly lowers rates

The Reserve Bank of India unexpectedly lowered interest rates by 25 basis points to 6.25 per cent, in an attempt to boost the slowing economy following a sharp slowdown in the inflation rate. It also changed its stance from ‘calibrated tightening’ to ‘neutral’ and revised down predicted growth rates from 7.5 per cent to 7.2 – 7.4 per cent for April – September. Lower interest rates will be welcome news for Modi, who has promised to increase spending and cut taxes to appeal to voters ahead of the election in May.

 

4. US-China trade deficit narrows

According to the US Department of Commerce, the US trade deficit with China fell by US$2.8 billion in November to US$35.4 billion, based on a decline in US imports of consumer goods, such as mobile phones and cars. This is likely to please President Trump, who has been vocal in his opposition to large bilateral trade deficit and can only be good news going into further trade negotiations.

 

5. Trump picks his nominee to lead the World Bank

President Trump has nominated his pick for the World Bank Presidency as David Malpass – a US Treasury Official and Trump loyalist who claimed on the eve of the Global Financial Crisis that people shouldn’t panic as “housing and debt markets are not that big a part of the US economy.” By convention, the US President’s nominee assumes the role of World Bank President, and it is expected that Malpass will reform the institution by increasing private sector involvement and reducing lending to high growth markets, such as China.

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, there are a couple of events to watch out for:

 

US officials head to Beijing for further trade talks. High level trade talks between the US and China will resume in Beijing next week. With the 1 March deadline looming, officials are hoping for progress so that the US does not have to follow through on its threat to raise tariffs from 10 per cent to 25 per cent on $200 billion worth of Chinese goods.

 

US-North Korea Summit upcoming in next two weeks. US President Trump announced during his State of the Union address on Tuesday that he is scheduled to hold his second summit with Korean President Kim Jung-un in Vietnam towards the end of February. The two leaders first met in Singapore in June of last year, during which they agreed on a framework for future negotiations including North Korea’s progression towards “complete denuclearisation.” While North Korea has refrained from testing missiles or nuclear devices since the two leaders last met, observers remain sceptical due to the lack of a detailed agreement on what “denuclearisation” actually entails.

 

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Friday 1 February 2019

 

This week US-China trade talks restarted amid growing tensions over Huawei, and there was a win for free trade between the EU and Japan.

 

1. US-China trade talks resumed in Washington

According to both sides the talks held on Wednesday and Thursday this week went well. The concrete agreement coming out of the talks is that China will import five million tonnes of US soy beans, and increase imports of US agricultural products, energy products, industrial manufactured goods and service products – a concession to President Trump’s desire to reduce the trade balance between the two nations. Despite the positivity on both sides, fundamental differences over the structure of the Chinese economy, its openness to US firms and IP issues remain. Considering a draft framework for a potential agreement has not even been drawn up, a lot remains to be done before the 1 March 2019 deadline, when Trump plans to more than double punitive tariffs if an agreement is not reached.

 

2. US files criminal charges against Huawei and its CFO

The criminal charges brought by the US Department of Justice against Huawei, Meng Wanzhou and two Huawei affiliate companies include multiple counts of bank and wire fraud, obstruction of justice, theft of trade secrets and conspiring to violate trade sanctions against Iran. China’s Foreign Ministry has condemned the charges as ‘unfair and immoral’ and politically motivated. Although the US is hoping to keep this issue separate from the broader trade talks, as the Foreign Ministry’s comments indicate, China is likely to take them into account during the negotiations.

 

3. EU-Japan Economic Partnership Agreement comes into force

The landmark Economic Partnership Agreement between the EU and Japan comes into effect today, 1 February. It is the EU’s largest bilateral trade deal by market size and will create the world’s largest free trade zone. Eventually the deal will remove 99 per cent of tariffs applied by the EU to Japanese goods, and 97 per cent of tariffs applied by Japan. The EU and Japan’s commitment to strengthening rules based free trade stands in contrast to the ongoing tensions between the US and China.

 

4. Thailand’s opposition party picks Thaksin loyalist to run in elections

The Pheu Thai Party – which was democratically elected in 2011 and then ousted by the military coup in 2014 – has picked Sudarat Keyuraphan to run against the pro-military party, likely to be headed by current leader Prayuth Chan-ocha. Sudarat is a close ally of Thaksin Shinawatra, a long-time leading figure in Thai politics, who was overthrown by a military coup in 2006. Thaksin himself is banned by electoral law from influencing the campaign, one of a number of laws enacted by the current leaders to restrict election campaigning.

 

5. India releases budget; markets uncertain ahead of general election

Market uncertainty has been increasing ahead of the general election in India as investors are wary the government will overspend in its election campaign. A budget released today, Friday 1 February, has not had a large effect either way – as expected the budget included giveaways for rural India (where discontent has been rising over low agricultural incomes and unemployment) and the fiscal deficit is predicted to be an on-trend 3.4 per cent for 2019 -2020. Nevertheless, caution is likely to continue among investors who hoped for fiscal consolidation in the emerging market.

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, there are a couple of events to look out for:

Details of further US-China trade talks. Aside from the promise by China to import more from the US and vague announcements on planned Chinese reforms, little further details were released about the negotiations this week. We can expect those details to emerge next week, as well as information about future planned negotiations. The US has been invited to send a delegation to Beijing in mid-February to continue talks. President Trump has stated that any final agreement would have to be agreed by both himself and Chinese President Xi Jinping, so we can also expect a meeting between the two within the next month.

 

Details of the planned Trump-Kim summit. According to US Secretary of State Mike Pompeo, a Trump-Kim summit will be held in Asia at the end of February. US officials are somewhere in the region now in order to organise the summit and lay the foundations for further negotiations. Singapore, which hosted the US – North Korea summit last June, and Vietnam have both been mooted as possible locations for the second summit.

 

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Friday 25 January 2019

 

This week, evidence of the effects of the US-China trade war became clear, and regional election campaigns are shaping up.

 

1. Thai elections declared

Thailand’s military junta has announced that national elections will be held on 24 March 2019. It will be the first elections in eight years and will end the military rule that has been in place since the 2014 coup that took power from a Pheu Thai Party-led government. This is one month later than initially scheduled. It is still unknown when the election results will be announced, however the current government has assured investors that regulations and incentives enacted under their rule related to foreign investment will remain in place.

 

2. China’s slowest growth since 1990 confirmed

Data released by China’s National Bureau of Statistics this week confirmed the nation’s slowing pace of growth, at 6.6 percent growth for 2018. The cooling growth is related to China’s transition away from an export-led economy towards domestic consumption-led growth – what Beijing would refer to as a focus on quality rather than quantity and an attempt to create a modern, sustainable economy. Slowing Chinese economic growth, however, is one of the biggest risks to the global economy in 2019, as discussed at this weeks World Economic Forum meeting in Davos.

 

3. Priyanka Gandhi enters politics to reinvigorate India’s opposition party 

Priyanka Gandhi – whose father, grandmother and great-grandfather were all Prime Ministers of India – was appointed the Congress Party General Secretary in charge of eastern Uttar Pradesh, widely considered India’s most politically important state. Gandhi’s brother, Rahul Gandhi, is Prime Minister Modi’s main opposition for the upcoming elections, likely to be held in May. Priyanka Gandhi’s appointment is seen as a move by the Congress party to attempt to inject momentum into the party ahead of the elections, after it suffered an emphatic loss in 2014.

 

4. South Korean economic growth slows

Despite beating expectations in the fourth quarter, South Korea’s economic growth for 2018 was recorded at 2.7 per cent, the slowest growth for six years. This reflected both the global economic slowdown and South Korea’s exposure to China, which is being impacted by the ongoing US-China trade tensions. Due to this, the outlook for next year doesn’t look promising as weakness in exports are expected to continue.

 

5. ASEAN Secretary-General visits the UK and confirms importance of post-Brexit relationship

ASEAN Secretary-General Dato Lim Jock Hoi’s two-day visit to the UK resulted in a confirmation of the strong commitment of both sides to forming a stronger relationship. Future co-operation is likely to focus on key sectors, including fintech, green finance, the development of smart cities, cyber security, education and defence. UK investment throughout Southeast Asia exceeds investment in India and China and its importance is increasing as Britain looks towards post-Brexit opportunities. Cooperation between the EU and Southeast Asia also ramped up this week, as EU Trade Committee MEPs gave the green light to progress with the EU-Singapore free trade agreement.

 

NEXT WEEK IN ASIA 

 

Looking ahead to next week, there are a couple of events to look out for:

 

A Chinese delegation will visit the US for trade talks, after Vice-Premier Liu He accepts an invitation to visit Washington. He is expected to meet US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. It is hoped the talks will lead to a breakthrough in the US-China Trade War, which has been in a state of temporary truce since the G20 summit in December last year.

 

The official blueprint for China’s ‘Greater Bay Area’ is due to be released soon. China’s plan is for the development to become an innovation and technology hub to rival Silicon Valley. The ambitious project forms one of the main centres of China’s infrastructure and economic development plans and includes Hong Kong, Macau and Guangdong. It is also likely to have a large impact on the relationship between Hong Kong and China, as Hong Kong is integrated further into China’s mainland economy.

 

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Friday 18 January 2019

 

This week saw domestic and international tensions continue to play out across Asia.

 

1. Indonesia presidential debates

The first of five live Indonesia presidential debates between incumbent Jokowi, his running mate Ma’ruf Amin, and third time challenger Prabowo and his running mate Sandiaga Uno took place on Thursday evening (17 January). The candidates debated over issues related to law, human rights, corruption and terrorism – all hot button issues in the populous democracy still attempting to rid itself of corruption, radicalism and create meaningful equality. The candidates are vying for the votes of approximately 10-15 per cent of the population that are undecided. So far it hasn’t impacted the polls much, where Jokowi remains in the lead with the most recent surveys giving him 47.7-54.9 per cent of the votes, and Prabowo getting 30.6-35.5 per cent.

 

2. Thai elections postponed by a month

Thailand’s military junta has postponed scheduled elections again, saying the move is necessary so elections do not clash with preparations for the coronation of the new King, Maha Vajiralongkorn, in May. There was no objection from the two largest opposition political parties, but the pro-election movement is still calling on the government to issue a Royal Decree on the election, which would confirm it is going ahead. The junta had last month lifted a ban on political activities, allowing political parties to campaign. The postponed date is still to be confirmed, however the ruling junta prefers 24 March.

 

3. China’s Vice-Premier to visit US following preparation talks in Beijing

China’s Commerce Ministry announced that Vice-Premier and ‘economic tsar’ Liu He will visit the US at the end of January for another round of trade negotiations with the Trump administration, most likely with US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin. Last week lower level negotiations were held in Beijing, the first talks since the temporary truce announced at the G20 summit in December. Discussions ran over an extended three-day period, indicating that talks went well, however nothing concrete has been announced. The US is still seeking large-scale structural changes in China’s economy, so prospects for a breakthrough remain muted.

 

4. Asian governments prepare for Brexit

After Theresa May’s Brexit deal was decisively voted down in the UK parliament, reactions from Asian governments highlight the risks and opportunities in Brexit. Japan, which has billions invested in the UK through more than 1,000 companies, said that it would support its companies in order to minimise the impact of Brexit. South Korea, who has a FTA with the EU, will continue to look into the possibility of a similar arrangement with the UK. Similarly, Australian companies have taken Brexit contingency measures and the government is looking to set up a trade working group for free trade discussions with the UK.

 

5. Huawei faces increased resistance in the West

Following tensions arising from the arrest of Huawei CFO Meng Wanzhou in Vancouver last month, Chinese ambassador to Canada warned there would be ‘repercussions’ if Huawei was banned from Canada. The US has been pressuring allies to halt contracts with Huawei amid allegations of spying and corporate espionage. A number of countries have done so, with Germany just announcing that they are considering a ban.

 

 

NEXT WEEK IN ASIA

 

Looking ahead to next week, there are a couple of events to watch out for:

 

The World Economic Forum’s annual meeting takes place between 22 and 25 January in Davos, Switzerland. Trump, who stole the headlines at last year’s event, has cancelled US participation due to the Government’s partial shut-down. Theresa May has also cancelled her trip due to Brexit negotiations and Emmanuel Macron is staying in Paris to deal with the ‘yellow vest’ protesters. Nevertheless, discussions on free trade, global growth slowdown and trade tensions are likely to dominate discussions.

 

High level Malaysia and Singapore ministers will meet over airspace and maritime tensions.  Tensions rose between the two nations at the beginning of this week over airspace management and territorial water disputes. However, Malaysia’s Foreign Minister said communication with Singapore remained open and discussions over the issues are ongoing. Simmering tensions over the issues escalated in December, but officials insist relations are ‘still good’.

 

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