Driving commercial and political engagement between Asia, the Middle East and Europe

  • Asia House
  • 63 New Cavendish Street
  • London W1G 7LP
  • enquiries@asiahouse.co.uk
  • +44 (0) 20 7307 5454
  • Driving commercial and political engagement between Asia, the Middle East and Europe

    Next Week in Asia – 7 October 2021

    Published On: 6 October 2021

    Next Week in Asia is the Asia House weekly briefing on key trade, investment, and policy issues to watch across Asia in the week ahead, with analysis and views from our Research and Advisory team.

    JOIN OUR MAILING LIST to receive Next Week in Asia direct to your inbox.


    Data expected to show expanding US-China trade 

    China’s trade data for September will be published in the week ahead, revealing the degree to which its trade surplus has increased. China’s trade surplus with the US is expected to continue widening; in August, the bilateral trade surplus expanded to US$37.68 billion, from US$35.43 billion in July. The surplus will be of particular interest given the muted response to Washington’s recently-announced China trade strategy, which reflected a continuation of the Trump administration’s approach. Moving forward, how China targets and subsidises its own key sectors – what are deemed to be uncompetitive practices by some in the US – are likely to continue to be a point of contention in the bilateral trade relationship.

    Rising energy demand may accelerate inflation and increase CO2 emissions

    Inflation gauges from the US, China, India, and Japan will be published in the week ahead, and are expected to indicate accelerating price pressures. Energy costs in particular are likely to have fuelled the price rises. If the recent uptrend in energy prices persists, its impact is likely to drive a triple shock in emerging and developing Asian economies – financial instability, a significantly weaker economic recovery for some, and supressed household incomes. Looking ahead, energy prices are likely to continue to increase around the world in the light of extreme weather conditions in certain regions, rising demand, and continued supply constraints. High demand has led to natural gas shortages in Europe and China in particular. This high demand, in part, prompted some power companies to substitute gas for oil. The International Energy Agency projects that in 2021, global energy-related CO2 emissions will grow by 4.8 per cent as demand for coal, oil and gas rebounds – the largest single increase since the (carbon-intensive) economic recovery from the 2008-09 global financial crisis.

    China’s green finance initiatives will underpin strength in lending

    China’s loan statistics will be released next week. Although credit has remained resilient, China’s small and medium-sized enterprises (SMEs) – which will be instrumental in managing its energy transition – have struggled to gain access to affordable finance. Although there has been some improvement, restrictive borrowing standards (such as collateral requirements twice the loan amount) reflect the difficulty associated with the perceived risk profile of SMEs. China’s domestic banks, therefore, may be less willing to extend credit and charge higher lending rates when they do (partly due to fees and surcharges). These challenges are particularly acute in China’s smaller cities. China’s current ‘green penetration’ in its financial system is around four per cent. As China’s capital market continues to liberalise and evolve, and key stakeholders become familiar with the range of growing green financial instruments, their usage and uptake will expand, underpinning the country’s green transition.

    Read Asia House’s latest research report exploring the role of green finance in Asia’s SME funding.

    Renewed impetus for green growth needed at the 2021 IMF meetings

    The IMF-World Bank meetings will take place from 11 October to 17 October. A theme that should emerge is the need for further coordination as the global economy emerges from the COVID-19 crisis. Policymakers and multinational organisations need to reincentivise global financial coordination for green growth. In particular, promoting and building digital infrastructure for greater blended finance will facilitate the burden sharing inherent in global decarbonisation. Given this, global financial coordination and heightened standard setting is essential. It will ensure a just energy transition for both mitigation and adaptation, in order to safeguard more vulnerable economies, and those that cannot afford to finance themselves. Concrete international cooperation is needed to allocate funding for the climate crisis, as it is a unique global problem. This is crucial at a time when global debates have been dominated by an opposition to multilateralism, international cooperation and coordination.

    Japan heightens focus on economic resilience ahead of elections

    In the week ahead, Japan’s economic indicators pertaining to its industrial sector – both industrial output and machinery orders – will be published. The state of Japan’s economy will be of particular consequence as it emerges from its latest COVID-19 wave of infections and from its prolonged state of emergency, which was only recently lifted. Japan’s incoming 100th Prime Minister, Fumio Kishida, is likely to face a number of economic challenges as he takes office, including the need to bolster Japan’s investment spending (it has been stagnant or in decline in both advanced and developing economies). The new Prime Minister has called a parliamentary election for 31 October and has pledged to bolster the government’s policies to respond to the COVID-19 pandemic, including through the use of further stimulus measures. Most notably, the Prime Minister has appointed a Minister for Economic Security, reportedly aimed – in part – at relations with China. Takayuki Kobayashi, a former vice minister for defence, has been appointed to the role.