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    The Week in Asia – February 2020

    Published On: 28 February 2020

    Asia House Advisory takes a look at the top developments in Asia this week affecting trade, investment and public policy.

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    FRIDAY 28 FEBRUARY 2020

     

    China postpones National People’s Congress amid coronavirus outbreak

    In an unprecedented move, China has postponed the National People’s Congress – its annual parliamentary meeting – as authorities struggle to contain the coronavirus outbreak. The National People’s Congress gathers hundreds of delegates every March, and key economic and legislation targets are usually unveiled at the gathering. The outbreak has had a strong impact on both the national and international economy. Concerns are rising globally, with the World Bank’s pandemic bonds sinking as investors bet that the bond will pay out relief funds to countries affected by the virus. In China, lenders have cut a benchmark lending rate in a bid to prop up the economy and ease conditions.

     

    Trump visits India with mixed outcomes

    US President Donald Trump made his first official visit to India this week, amid high expectations of a trade deal. US-India state-level trips have traditionally come with hopes of new agreements being signed, but this week’s highly anticipated trade deal did not materialise. Though trade negotiators made some headway towards reaching a smaller agreement, the deal that many were expecting was not signed between the two leaders. Joint statements released this week point to a ‘phase one’ trade deal in 2020. There were also further positive signs about the strategic cooperation between the two countries, with shared concerns over terrorism and a rising Chinese presence in the region leading to deepened defence and security ties over the last three years.

    ANALYSIS: Read Asia House Advisory’s new briefing on US-India trade relations.

     

    Coronavirus dominates major trade dialogue in Saudi Arabia

    The coronavirus outbreak could cost China one month in lost economic activity, while companies in the UK are fearing Christmas shortages due to the virus, leading business and policy figures told the Asia House Middle East Trade Dialogue in Riyadh this week. Speaking via a live Skype link to Beijing, leading China commentator Victor Gao said he expects the country to lose a month’s worth of economic activity due to the virus, with manufacturing to be hit particularly hard. This is causing considerable concern in the UK, according to Simon Penney, Her Majesty’s Trade Commissioner for the Middle East, who said businesses are worried about long term effects. “Retailers in the UK are already anxious about stock for Christmas – that’s 10 months away,” Penney said, adding that the virus will have “a very material impact” on growth and global trade. Lubna Olayan, Chair, Saudi British Bank, gave a keynote address at the conference which highlighted strengthening ties between the Middle East and Asia. READ MORE

     

    Malaysian government introduces stimulus package to boost flagging economy

    Malaysian interim prime minister Mahathir Mohamad unveiled a financial stimulus package worth RM 20 billion in a bid to boost the country’s flagging economy, impacted further by the coronavirus outbreak and growing political uncertainty. Mahathir formally submitted his resignation this week, throwing the country’s political class into chaos as candidates seek to gain majority support from Malaysia’s 222 members of parliament. The stimulus package seeks to address three things: to ease the cashflow of affected businesses, to assist affected individuals, and to stimulate demand for travel and tourism. This will include tax breaks and rescheduling of loans. The additional spending is likely to place further strain on fiscal deficit, which is expected to rise to 3.4 per cent of GDP.

     

    Thai court dissolves opposition party

    Thailand’s constitutional court this week ordered the dissolution of the country’s opposition party, Future Forward. The court found party leader Thanathorn Juangroongruangkit guilty of taking an illegal loan, and ruled that Future Forward’s leaders be banned from holding political office for ten years. Future Forward has been calling for the removal of the military from politics and a return to full democracy. This decision comes ahead of a no-confidence debate called by opposition parties in parliament next week. The government has been criticised in recent weeks for its handling of both the coronavirus outbreak and its management of Thailand’s slowing economy. The decision, against a backdrop of eroding democracy in the country, is likely to undermine political stability in Thailand.

     

    NEXT WEEK IN ASIA

     

    Malaysian parliament to choose new prime minister at next sitting: Following Prime Minister Mahathir Mohamad’s shock resignation this week, no candidate has been able to gain the support of a majority of the country’s 222 members of parliament. As a result, the matter will now lie in the hands of parliament, with a decision due next week. If a vote of confidence in parliament does not yield a definite result, elections will be called.

     

    US commission on international religious freedom to discuss India and Myanmar next week: The US Commission on International Religious Freedom (USCIRF) will hold a hearing next week to review how citizenship laws in countries such as India and Myanmar are leverages to deny religious minorities protection. There has been widespread controversy around new regulations around citizenship and asylum in the region over the last two months.

     


    FRIDAY 21 FEBRUARY 2020

     

    Singapore introduces budget incorporating impact of coronavirus

    Singapore’s annual budget was unveiled this week (on 18 February) and includes US$4.5 billion in financial measures to help businesses, workers and households weather the negative economic impact of the coronavirus outbreak. The budget will pave the way for a record budget deficit and comes ahead of general elections expected in early 2021. Despite the negative impact of the virus on the economy, Singapore is still expected to see some positive growth in 2020, with a particular focus on stabilising the economy and addressing long-term structural issues. Technology, innovation, and entrepreneurship have been highlighted as key areas for growth.

     

    Malaysia deliberating future of 5G

    Malaysia’s Minister of Communications and Multimedia, Gobind Singh Deo, said on Monday that Malaysia’s security standards will dictate which companies take part in the country’s planned 5G project this year. Though aware of the concerns around Huawei’s involvement in 5G rollouts,  Deo stated that companies will be judged in accordance with Malaysia’s own security standards. The government is planning to issue tenders in April for 5G development, with Chinese company Huawei seeking to play a role having already signed a 5G deal with Malaysian mobile network operator Maxis. Other companies, such as Europe’s Nokia and Ericsson, are planning to bid for a role in Malaysia’s network.

    Malaysia’s Minister for International Trade and Industry, Darell Leiking, visited Asia House last month to share his insights on the country’s economic prospects. READ MORE

     

    Widespread opposition to India’s proposed data protection bill

    India has again proposed its first major piece of legislation on the use and control of its populations’ personal data. The law would restrict how companies, particularly technology companies, are able to manage sensitive information, while also giving government authorities widespread access to such data. The bill has met with broad opposition due to the amount of access the government would have to personal data. The bill also seeks to give all government agencies the ability to bypass data safeguards on the grounds of national security. The latest draft of the bill has been met with surprise across the board, as analysts were expecting it to be more in line with both Europe’s General Data Protection Regulation and China’s approach to personal data.

     

    Vodafone’s future in India under question

    India’s supreme court this week rejected an appeal from the country’s telecommunications companies to defer paying huge levies to the government. Telecoms companies such as Vodafone Idea (Vodafone’s joint venture) and Bharti Airtel have been ordered to pay US$13 billion to the government by mid-March, in addition to retrospective license and spectrum fees the companies already owe. Vodafone Idea’s shares fell following the ruling, and have brought into question the company’s future in India. The government’s reluctance to help boost the telecoms sector could make foreign investors more wary and make it harder for Prime Minister Modi to meet his promise to making India a US$5 trillion economy by 2025.

     

    Economic disruption from coronavirus continues

    The coronavirus outbreak is continuing to impact global business and could cost the world economy more than US$1 trillion in lost output should it turn into a pandemic. The virus has already had a negative impact on major companies and regional economies, particularly in Asia, as supply chains have been disrupted. Companies such as Apple and Jaguar Land Rover have told investors that quarterly revenue targets would be difficult to meet if supply chains continue to be affected. Chinese banks have cut a lending benchmark rate by 0.1 percentage points in a bid to prop up the national economy and ease lending conditions.

     

    NEXT WEEK IN ASIA

     

    G20 Finance Ministers meet in Saudi Arabia: G20 finance ministers and central bank officials are meeting in Riyadh this weekend to discuss key risks and policy responses to the global economy, with coronavirus likely to be high on the agenda. Saudi Arabia is the G20 host for 2020, and has set out a range of priorities including sustainability, renewable energies and diversity.

    Asia House is holding a major conference in Riyadh on 25 February to explore these issues. Lubna Olayan, Chair, Saudi British Bank, will give the keynote speech. REGISTER NOW

     

    Steering committee on Indonesia’s new capital city to meet: As the Indonesian government continues to finalise plans for its new capital city in East Kalimantan, a steering committee is set to meet with President Joko Widodo next week. SoftBank CEO Masayoshi Son and former British Prime Minister Tony Blair are expected to meet with Widodo for further discussions on the project.

     

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

     


    FRIDAY 14 FEBRUARY 2020

     

    EU-Vietnam trade agreement to come into force this year

    On 12 February, the European Parliament approved the EU-Vietnam trade agreement (EVFTA) and Investment Protection Agreement. The agreements will now enter into force, most likely in summer 2020, pending ratification by the Vietnamese National Assembly, expected in April/May. The EVFTA will eliminate 99 per cent of all customs duties on exports to and from Vietnam over a 10-year period, with 65 per cent of EU products and 71 per cent of exports from Vietnam getting duty-free access immediately after the deal takes effect. Vietnam is the EU’s second-largest trading partner in the Association of Southeast Asian Nations (ASEAN) after Singapore, with two-way trade valuing nearly €50 billion (US$55 billion) in 2018. Export sectors expected to benefit most from the EVFTA include Vietnamese textiles, shoes, smartphone and computer parts, as well as European dairy, vehicles, pharmaceuticals, wine and chocolate. Vietnam’s Ministry of Planning and Investment expects the two deals to boost Vietnam’s GDP by 4.6 per cent and its exports to the EU by 42.7 per cent by 2025. In addition to tariff reductions and investment protection, the EVFTA covers labour and environment requirements and is the most ambitious FTA concluded by the EU with a developing economy.

     

    Malaysia seeks to cushion coronavirus impact on tourism, aviation and retail

    The Malaysian Ministry of Economic Affairs confirmed this week that it is drafting a stimulus package for the tourism, retail and aviation industries due to the coronavirus (COVID-19) outbreak. The confirmation comes one day after Prime Minister Mahathir Mohamad said Malaysia is looking to mitigate the economic impact of the outbreak, which has so far seen the tourism industry most affected, with Malaysian Airlines and AirAsia among an increasing number of airlines cancelling flights to and from China amid growing fears over the virus. The government launched the Visit Malaysia 2020 campaign in January with a target of 30 million inbound tourist arrivals and US$24 billion worth of tourism revenue for 2020. With China the third largest contributor of tourist arrivals to Malaysia after Singapore and Indonesia, and the second largest contributor to the tourist expenditure, the absence of Chinese tourists will have a direct and significant impact on the industry. The total number of Chinese visitors to Malaysia reached 2.94 million in 2019, compared to 7.89 million and 2.79 million visitors from Singapore and Indonesia respectively. The country hoped to increase that number to 3.48 million in 2020.

     

    US and India move towards closer trade and defence ties

    US President Donald Trump will make a two-day state visit to India on 24-25 February, it was announced this week. Trump will meet Indian Prime Minister Narendra Modi and is expected to sign the first-ever trade agreement between the US and India. US Trade Representative Robert Lighthizer is also expected to visit India this month to finalise the trade deal, although no dates for the visit have been confirmed. Issues at the top of the agenda include India’s demand for the full restoration of the Generalised System of Preferences and the US demand for access for its agricultural products and data-related relaxations. India has also finalised two large-scale defence deals with the US, worth more than US$3.5 billion, for 30 heavy-duty military helicopters. The deals are expected to get their final approval next week, raising the total value of Indian defence contracts with the US since 2007 to more than US$20 billion.

     

    UK reshuffle sees changes to Asia-Pacific and Middle East briefs

    UK Prime Minister Boris Johnson’s government reshuffle on Thursday has seen changes to ministerial Asia briefs. Heather Wheeler MP, who visited Asia House in 2019, is no longer Minister for Asia-Pacific, while Andrew Murrison is no longer the Minister for the Middle East and North Africa. Replacements for the ministerial roles have yet to be announced. Meanwhile, Dominic Raab – who remains Foreign Secretary – completed his Asia-Pacific visit this week, meeting with ministers in Australia, Japan, Malaysia and Singapore.

    ANALYSIS: Read Asia House Advisory’s take on Dominic Raab’s Asia-Pacific visit.

     

    Japan seeks WTO consultations with South Korea over shipping subsidies

    A dispute between Japan and South Korea over alleged subsidies provided by the Seoul government to its shipping industry escalated this week, with Japan filing a second complaint with the World Trade Organization (WTO). Japan’s request for dispute consultations with South Korea over measures related to the development, production, marketing and sales of commercial vessels was circulated to WTO members on 10 February. In November 2018, Japan filed its first complaint with the WTO, saying South Korean subsidies to its shipbuilders damaged the Japanese industry, but did not push further with the case at the time. South Korea’s Ministry of Trade, Industry and Energy has previously said in response that its measures are line with international norms. If the two fail to settle the dispute within 60 days of consultations, Japan can call the WTO to adjudicate.

    READ WTO Deputy Director General Yi Xiaozhun’s article for Asia House: ‘Asia should lead on WTO reform’

     

    NEXT WEEK IN ASIA

     

    Automakers gradually resume production in China: Several international automakers, including General Motors, Mazda, Nissan and Toyota, are planning to gradually reopen factories in China next week amid the ongoing coronavirus outbreak. While Ford Motor and Tesla already resumed production in China earlier this week following the end of the extended holiday shutdown on 10 February, the majority have held off restarting operations until next week. Due to the shutdown in China and subsequent supply shortages of parts, international automakers based in Korea and Japan have also been forced to suspend production lines and scale back operations.

    Singapore budget: Deputy Prime Minister and Minister for Finance Heng Swee Keat will present Singapore’s national budget on 18 February, for the fiscal year starting 1 April. The comprehensive budget comes as the government is battling with the highest number of coronavirus cases outside of China. The budget is expected to outline measures to support businesses – namely the transport and tourism sectors – and people to cope with the economic fallout from the virus. It is also expected to promote environmental sustainability, and help workers to update their skills and seize new opportunities in the digital revolution.

    WATCH Singapore’s Minister for Communications and Information, S Iswaran, discuss the need to embrace digital opportunities at the 2019 Asia House Global Trade Dialogue.

     

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

     


    7 FEBRUARY 2020

     

    India absent from RCEP talks as 2020 signing seems likely 

    The 15 Asia-Pacific nations set to form the Regional Comprehensive Economic Partnership (RCEP) met for the latest round of talks this week – but India stayed away. The 10 ASEAN countries plus China, Japan, South Korea, Australia and New Zealand convened in Bali on 3-4 February to progress what would be the world’s largest trade deal. However, India’s absence is further indication that it will not join RCEP. In November 2019, it announced it was pulling out of talks after seven years of negotiations. Analysts have widely attributed this to India’s strong domestic opposition to RCEP’s market-opening requirements and feared negative effects on manufacturing and the dairy industry. India’s resistance to the liberalisation of trade in goods has been one of the main reasons for delays in concluding the negotiations. Delhi’s withdrawal, therefore, should pave the way for the deal’s conclusion this year – something the remaining countries have expressed a commitment to achieve. However, India’s absence represents a blow to RCEP, substantially reducing the scale of the free trade area, which will now account for 29 per cent of global GDP.

    RCEP was a key talking point at the Asia House Global Trade Dialogue in Singapore.

     

    Indonesian growth slows as exports and investment fall

    Indonesia’s economy last year saw its slowest growth since 2015, Statistics Indonesia announced this week. According to the government data released on 5 February, GDP expanded 5.02 per cent on an annual basis in 2019, compared to 5.17 per cent in 2018. Indonesia’s economic expansion also slowed to 4.97 per cent year-on-year in the last quarter of 2019, the slowest since 2016’s Q4. The slowdown comes amid sluggish global growth and a challenging trade environment for Indonesia, which saw the US-China trade war hit important commodity exports and deter investors. The slowdown comes despite Bank Indonesia having cut its main policy rate four times this financial year in an effort to stimulate growth. Consumer spending, which  accounts for over half of GDP, grew by 5.04 per cent, which provides some support to the economy, and Indonesia’s Finance Minister Sri Mulyani Indrawati, who visited Asia House in 2019, noted that the growth rate was still ahead of many countries. However, with the coronavirus outbreak likely to hurt the global economy in 2020, more rate cuts should be expected.

     

    Fears over coronavirus impact on China’s ‘Phase One’ deal commitments

    The coronavirus outbreak may delay China’s scheduled purchases of US goods and services under the terms of the ‘Phase One’ trade deal, US President Donald Trump’s Chief Economic Advisor, Larry Kudlow, warned on 4 February. The comments were met with a prompt response from Huang Ping, Consul General of the People’s Republic of China in New York, who said he hoped the virus would not affect China’s ability to meet its commitments. However, this is likely to depend on how long the outbreak and associated disruption will last. The highly anticipated ‘Phase One’ deal, signed in January, is scheduled to take effect on 14 February. Under the agreement, China has agreed to a US$200 billion increase in its purchase of US agricultural, energy and manufacturing goods and financial services – against the 2017 baseline of US$183.8 billion – over the next two years. Even prior to the coronavirus outbreak, there was widespread scepticism among analysts about whether the targets, especially in agriculture, are attainable, given the previously low levels. The outbreak has so far shut major business centres and factories in China and led to severe supply chain disruptions in Asia that will also negatively affect the Chinese economy.

    ANALYSIS: Read Asia House Advisory’s analysis on the ‘Phase One’ deal.

     

    EU sees strong export growth with Japan one year in to EPA

    1 February marked the first anniversary of the EU-Japan Economic Partnership Agreement (EPA) coming into force. The EPA removed the majority of the €1 billion in duties charged annually on EU exports to Japan. According to Eurostats data, in the first 10 months following the EPA implementation, EU exports to Japan went up by 6.6 per cent compared to the same period in 2018. This outperformed the average 4.7 per cent growth seen in the past three years. During the same period, Japan’s EU exports grew by 6.3 per cent. The EU sectors that seem to have benefitted from the EU-Japan EPA the most include meat exports (up by 12 per cent), dairy exports (up by 10.4 per cent), beverages (up by 20 per cent) and electrical machinery exports (up by 16.4 per cent). In addition to eliminating customs duties and providing new export opportunities for EU farmers and food producers, the EPA has also opened the door for EU companies to participate on a more equal footing in bids for public procurement tenders in Japan. The promising results appear to justify the optimism for the deal expressed by Yasumasa Nagamine, then Japanese Deputy Foreign Minister and the lead negotiator for the EU-Japan EPA, when he spoke to Asia House during the negotiations.

     

    Investors underwhelmed by India’s budget amid economic slowdown

    Indian Finance Minister Nirmala Sitharaman has announced the budget for the 2020/21 fiscal year, which aims to boost spending by offering income tax cuts to the lower-middle class. The government is also hoping to double farmers’ income by 2022 with increased rural spending, and enable continued development of health, education and infrastructure sectors with additional incentives. To raise funds, the government has proposed the sale of a stake in Life Insurance Corporation of India, the country’s largest insurance company. The budget is aimed at reviving India’s economy, which is expected to see its slowest economic growth (below five per cent in 2019-20) in 11 years. However, a wide fiscal deficit of 3.8 per cent for the 2019-20 financial year seems to have limited spending. The budget has widely been seen as disappointing by investors, who hoped for more bold reforms. The Bombay Stock Exchange’s benchmark Sensex index fell 2.4 per cent following the unveiling of the budget.

     

    NEXT WEEK IN ASIA

     

    Looking ahead to next week, here are some developments to watch out for:

    UK Foreign Secretary visits Asia-Pacific

    Dominic Raab, the UK’s Foreign Secretary, is heading to Asia-Pacific as he seeks to woo a region high on the UK’s trade priority list. Raab begins his tour in Canberra, where he will discuss a potential UK-Australia FTA with Australian Foreign Minister Marise Payne. He will then move on to meet ministers in Japan, Malaysia and Singapore. This is the Foreign Secretary’s first international trip  since the UK left the EU on 31 January, reflecting the importance the UK is placing on Asia for its post-Brexit trade strategy. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which the UK has previously expressed an interest in joining, could also be on the agenda.

    China to halve tariffs on selected US imports

    China will cut tariffs on some US$75 billion of US imports next week as part of reciprocal roll backs agreed under the ‘Phase One’ deal. China is preparing to halve the extra tariffs on US goods that went into effect last September, including those on crude oil, soybeans, pork and beef. The reductions, due to take place on 14 February, do not affect the bulk of tariffs that have been implemented throughout the trade war, which remain in place while negotiations continue.

     

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