The Week in Asia – March 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 27 MARCH 2020

China and US seek to ease tensions as G20 pledges US$5 trillion coronavirus package

Chinese President Xi Jinping and US President Donald Trump discussed the need to improve relations during a call on Friday, as tensions between the world’s two largest economies run high. Xi told Trump that he hopes the US will take substantive action to improve bilateral ties, according to China’s foreign ministry. Trump tweeted after the call that “China has been through much & has developed a strong understanding of the virus,” adding that “we are working closely together. Much respect!” The call followed Thursday’s G20 leaders meeting, convened digitally by Saudi Arabia’s leader, King Salman. The G20 pledged a US$5 trillion injection into the global economy to help blunt the economic impact of the virus.

China’s bond market shines as volatilities continue in global markets

China’s US$13 trillion bond market has emerged as an unlikely sanctuary as global markets react to the impact of the COVID-19 outbreak. US government bond prices this year have hit record highs, and yields have hit record lows, thus increasing the extra yield offered to investors on Chinese debt to almost two percentage points. Traditional havens such as US government debt, gold, and the Japanese yen have all become more volatile, highlighting the relative stability of Chinese government bonds. Offshore investors brought in US$10.7 billion to the Chinese bond market in February, and this pick up has continued since March. However, China’s bond market will not be completely smooth for foreign investors, as it has different features than other bond markets.

Dame Barbara Woodward, British Ambassador to China, briefed Asia House Corporate Members on the latest from Beijing amid the coronavirus outbreak this week. READ MORE.

Asian shares rally in wake of US stimulus package

Asian shares have rallied this week in the wake of a Wall Street rebound as the US readies a US$2 trillion stimulus package. Although gains have been seen in Asian stock markets this week, they have not made up for the huge selloff over the last month as investors dig in for a deep recession due to the COVID-19 pandemic. Government economic stimulus packages globally have reduced some investor fears over the depth of a global downturn, bolstered by initial signs that China is set to ramp up stimulus spending and is resuming manufacturing. However, there is unlikely to be much further recovery in the coming weeks.

SoftBank plans US$41 billion asset sale as COVID-19 pandemic halves share price

SoftBank is launching an emergency US$41 billion asset sale to fund a share buyback and debt reduction. This is part of a concentrated effort to reduce the damage from a collapse in the company’s share price due to the COVID-19 pandemic. SoftBank has yet to disclose which assets it will sell over the next 12 months, but analysts assume that it will at least partially include the company’s stake in Chinese e-commerce group Alibaba. The company’s share price has halved in the last month due to concerns that its investments in ride-hailing and hotel groups will be hit by the economic fallout from the pandemic. This comes as SoftBank faces other obstacles – including a rating downgrade from Moody’s and conversations with investors such as Elliott Management and Mubadala about privitisation.

Amazon and Flipkart suspend services in India amid national lockdown

India’s two biggest e-commerce services, Amazon and Walmart-owned Flipkart, have suspended or sharply reduced services in the country amid confusion over the details of a 21-day lockdown. Though Prime Minister Narendra Modi promised the continued flow of unlimited essentials and urged households to rely on e-commerce and delivery services, the lockdown order did not clarify whether couriers and delivery services were exempt from the blanket stay-at-home order. E-commerce companies globally have seen a sharp spike in demand as governments implement more regulation that requires households to stay indoors.

NEXT WEEK IN ASIA

Malaysia to review restricted movement order, unveils stimulus: Malaysia will decide next week whether it should extend its two-week restricted movement order (RMO) to contain the coronavirus outbreak. The government will also unveil its second stimulus package in as many months, as it seeks to contain the economic fallout of both the global pandemic and falling oil prices.

Nazir Razak, former Chairman of CIMB Group and member of the Asia House Advisory Board, will brief Asia House Corporate Members on March 31 on the latest developments in Malaysia, as coronavirus cases increase and economic challenges stack up. Speaking via video, Razak will also discuss the volatile political situation in the country. Find out more.

Facebook deal with India’s Reliance Jio delayed due to pandemic: Facebook’s planned deal with Reliance Jio, one of India’s biggest mobile internet services, is likely to be delayed due to the global lockdowns to combat the spread of COVID-19. If the deal goes through, it will give Facebook a strong foothold in India – a market that has been increasingly difficult for international companies to access.

FRIDAY 20 MARCH 2020

Concerns over coronavirus ‘second wave’ in Asia 

The number of COVID-19 cases in Asia increased this week, prompting fears of a ‘second wave’ of infections across the region. The increase seems to relate to imported cases, which has led to countries imposing stricter travel restrictions. In a key milestone, China – which saw industries return to work this week – reported no new domestic cases, but there were several imported cases. Across Asia, countries are speeding up plans for economic stimulus packages as the virus continues to impact markets.

Dame Barbara Woodward, British Ambassador to China, will take part in a video briefing for Asia House Corporate Members on Monday. Dame Barbara will share insights from Beijing as China comes back online. READ MORE

Journalist expulsions reflect worsening US-China relations 

Tensions over coronavirus are placing further strain on already-fractious US-China relations. This week, China’s foreign ministry announced it would expel almost all US citizens working in China for The New York Times, The Wall Street Journal, and The Washington Post as a media war between China and the US intensifies. Last month, China expelled three Post journalists over a headline relating to coronavirus, which prompted US President Donald Trump to order a reduction in the number Chinese state-media staff working in the US. This week’s move by Beijing represents the largest expulsion of Western journalists from China since the Communist takeover in 1949. In a further move, which breaks convention, the expelled journalists will be forbidden from working in Hong Kong.

Singapore edges Hong Kong to be named ‘world’s freest economy’ in global ranking

For the first time in 25 years, Hong Kong has lost its top spot in the Index of Economic Freedom, published each year by the Heritage Foundation, a US think tank. Hong Kong has topped the list since 1995, but concerns around investor freedom – driven by ongoing social unrest in the city – saw it marked down in this year’s index. Singapore was named top in the rankings, with Hong Kong now second. The Hong Kong government struck a positive tone in response, highlighting investment opportunities ahead. “With the further opening up and deepening of economic reform in the Mainland, Hong Kong is poised to be both a ‘facilitator’ and a ‘beneficiary’ of important national development strategies such as the Guangdong-Hong Kong-Macao Greater Bay Area and the Belt and Road Initiative,” a spokesperson said.

Edward Yau, Secretary for Commerce and Economic Development for Hong Kong Special Administrative Region, will be briefing Asia House Corporate Members via videolink on Wednesday March 25. READ MORE

TransferWise partners with Alipay

TransferWise, a UK-based fintech firm, has partnered with Alibaba’s Alipay to enable international money transfers to China. Through this, TransferWise will be able to tap into Alipay’s 1.2 billion strong customer base, especially important as China is projected to be one of the top remittance recipient countries globally. This move is part of a larger strategy of setting up money transfers to mobile wallets in other countries, including in Indonesia, the Philippines, and Bangladesh. These kinds of partnerships will be able to help TransferWise accelerate its customer base and increase transaction volume.

Volvo’s China operations near pre-shutdown levels with Geely merger still on track 

Volvo has announced that its Chinese business has returned to normal operations, following months of disruption due to the COVID-19 pandemic. Volvo factories and dealerships in China are now operating at close to pre-shutdown levels, but the company has this week closed both of its US and European production facilities as part of measures to impede the spread of the virus. Despite the negative economic impacts of the outbreak, Volvo’s planned merger with Chinese parent group Geely is still on track, and the resumption of Chinese operations by other companies, such as Toyota, is offering some hope for the auto sector.

NEXT WEEK IN ASIA 

Saudi Arabia to convene digital G20 summit on coronavirus: Saudi Arabia is holding a virtual summit next week with the leaders from the G20 to address the coronavirus pandemic. The kingdom is hosting the G20 this year, but the virus is necessitating a shift in how meetings are convened. A special meeting of the World Economic Forum, scheduled to take place in Riyadh next month, has already been postponed to 2021.

Fed to roll out swap lines with some Asian central banks: Details will be finalised next week for the creation of swap line facilities between the US Federal Reserve and major central banks, including Bank of Japan and the Monetary Authority of Singapore (MAS). The swap lines – which allow central banks to exchange their currency with the Fed for an equal amount of US currency – are being implemented as part of a global response to the coronavirus. The US$60 billion MAS swap line will be in place for at least six months.

FRIDAY 13 MARCH 2020

Chinese President Xi Jinping visits Wuhan

Chinese President Xi Jinping visited the city of Wuhan, the epicentre of the COVID-19 outbreak, on 10 March. During his visit to the city – his first since the outbreak began in December 2019 – President Xi declared the spread of the virus was “basically curbed” in Hubei province and Wuhan. He also said “initial success has been made in stabilising the situation and turning the tide in Hubei and Wuhan.” Xi’s visit came in the week that China recorded its lowest rise of infections, with eight new cases announced today. According to Chinese state media, the visit sends a “strong signal to the entire country and the world that China is ascending out of the darkest moment amid the outbreak.” However, most factories in Hubei won’t be allowed to resume operations until 20 March, the provincial government said this week.

Asia House will be holding a private video briefing with Dame Barbara Woodward, British Ambassador to China, who will share insights from the ground in Beijing as China gets back online. READ MORE

Saudi Arabia cuts oil prices following the collapse of OPEC+

The Brent global oil benchmark price fell by 25 per cent to US$34 a barrel on 10 March after Saudi Arabia cut its export oil prices by nearly 10 per cent. Saudi Arabia’s move followed the collapse of OPEC+ talks last week, when Russia refused to join the OPEC countries in a large production cut aimed at cushioning the slowing demand for oil due to the coronavirus pandemic. The three-year alliance between the world’s top two crude exporters has underpinned the global oil prices and the current impasse represents the biggest crisis for the OPEC+ since its creation in 2016. If Saudi Arabia and Russia move to a full price war, plummeting oil prices would hurt oil producing countries around the world, with Venezuela and Iran at particular risk.

Boris Johnson survives UK parliament revolt over Huawei 

UK Prime Minister Boris Johnson narrowly defeated a Conservative rebellion this week, which centred on the government’s decision to use Huawei technology in the country’s 5G network. The government won by just 24 votes, with 38 Conservative MPs backing a legal amendment that would ban the Chinese telecom giant from the UK’s 5G network by 2023. The rebellion highlights the strong opposition and security concerns still present in parliament over the government’s decision in January 2020 to allow Huawei to be involved in building Britain’s 5G mobile network. Following the rebellion, Huawei Vice-President Victor Zhang expressed his disappointment over “some groundless accusations,” saying that “the industry and experts agree that banning Huawei equipment would leave Britain less secure, less productive and less innovative.”

Malaysia’s new expanded cabinet aims to stabilise political sphere 

Malaysia’s new cabinet ministers were sworn in on 10 March. The ceremony came a day after Prime Minister Muhyiddin Yassin announced his extensive 70-member line-up, which includes 31 new ministers. Muhyiddin himself took oath on 1 March, a week after the unexpected resignation of Mahathir Mohamad, which threw the country into fresh political turmoil. Muhyiddin’s new cabinet is dominated by current and former members of ethnic Malay-based opposition party the United Malays National Organisation. It seems to be aimed at satisfying all the parties in the new alliance and stabilising the political sphere amid rising economic uncertainties. Instead of a deputy prime minister, the cabinet has four senior ministers for the first time in Malaysian administrative history.

ASEAN seeks to persuade India to rejoin RCEP negotiations 

The Regional Comprehensive Economic Partnership (RCEP) agreement is expected to be signed in late-2020, the ASEAN Secretary-General Dato Lim Jock Hoi said on 11 March. The ASEAN ministers discussed the RCEP deal on the sidelines of the 26th Meeting of ASEAN Economic Ministers Retreat, held in Vietnam this week. During the talks, the ministers reportedly agreed to encourage India to return to the negotiating table. In November 2019, Delhi announced it was pulling out of talks after seven years of negotiations. The RCEP includes the 10 ASEAN member states plus China, Japan, South Korea, Australia and New Zealand. India’s resistance to the liberalisation of trade in goods has been one of the main reasons for delays in concluding the negotiations. RCEP was a key talking point at the Asia House Global Trade Dialogue in Singapore in November 2019.

NEXT WEEK IN ASIA

India to suspend nearly all visas for a month: In a measure to control the spread of COVID-19, India is suspending all visas, barring diplomatic, official, employment and project visas. The suspension came into effect at 12:00GMT on 13 March at the port of departure. The visa free travel facility for Overseas Citizen of India (OCI) holders has also been suspended. The suspensions are scheduled to be effective at least until 15 April. New mandatory quarantines for Indian nationals returning from some European countries have also been issued by the government.

Japan expected to downgrade its economic outlook: The Bank of Japan (BOJ) is expected to downgrade its assessment of the country’s economy and discuss the possibility of further monetary easing at its upcoming policy meeting next week. The meeting comes amid falling business sentiment among larger Japanese firms and a deepening economic impact of the coronavirus. It also follows BOJ Governor Haruhiko Kuroda’s meeting with Prime Minister Shinzo Abe on 12 March where they discussed responses to the global market turmoil.

FRIDAY 6 MARCH 2020

UN report estimates trade impact of the COVID-19 at US$50 billion in February

A report published by the United Nations Conference on Trade and Development (UNCTAD) on 4 March estimates the trade impact of the COVID-19 epidemic to result in a US$50 billion decrease in exports across global value chains in February alone. According to the report, precision instrument, machinery, automotive and communication equipment sectors have been worst affected by the COVID-19 outbreak and the subsequent slowdown of manufacturing in China. The most-affected economies in terms of negative trade impact include the European Union (US$15.6 billion decrease in exports), the United States (US$5.8 billion), Japan (US$5.2 billion), South Korea (US$3.8 billion), Taiwan (US$ 2.6 billion) and Vietnam (US$2.3 billion).

Malaysia’s new prime minister postpones start of parliament

Malaysia’s new prime minister Muhyiddin Yassin was sworn in on 1 March. The former interior minister’s appointment comes less than a week after the unexpected resignation of Mahathir Mohamad, which threw the country into fresh political turmoil. Muhyiddin defected from Mahathir’s ruling Pakatan Harapat coalition and has now allied himself with his old party, Malay-based opposition party the United Malays National Organisation (UMNO). His parliamentary majority will not be tested until at least 18 May, as the newly appointment prime minister delayed the start of the parliamentary sessions, originally scheduled for 9 March, by two months. No reason was given for the postponement. The move came after Mahathir’s parliamentary camp claimed they had a majority and were planning to call a no-confidence vote.

Foreign Secretary Dominic Raab’s first official visit to the Gulf

UK Foreign Secretary Dominic Raab concluded his first official visit to the Gulf this week. As a part of his two-country Gulf tour, Raab visited Saudi Arabia and Oman to promote stronger post-Brexit partnerships on trade, security and closer cooperation on climate change. The UK diplomatic efforts to address the worsening humanitarian situation in Yemen were also a key part of the discussions. In Oman, Raab met with newly appointed Sultan Haitham bin Tarik and his foreign minister Yusuf bin Alawi bin Abdullah. In Saudi Arabia, Raab held talks with the country’s leadership focusing on the COP26 climate conference, set to be hosted by the UK in November 2020, and Saudi Arabia’s presidency of the G20. Asia House convened a major trade dialogue in Riyadh last week exploring the Gulf’s role in global trade. READ MORE

China resists large-scale stimulus measures to cushion COVID-19 economic impact

People’s Bank of China, the country’s central bank, this week said it will not issue any “short-term stimulus” measures to support the property sector, one of China’s most important economic engines, according to the Financial Times. Instead China has focused on targeted relief measures, such as reductions in employers’ required social insurance payments and lower electricity prices. China’s decision to resist large-scale stimulus measures to soften the economic impact of the COVID-19 outbreak is in sharp contrast to other countries affected by the novel coronavirus epidemic, including South Korea and Italy. On 3 March, the US Federal Reserve also announced a cut on its main policy rate in response to ‘evolving risks’ from the virus outbreak, making it the first emergency rate cut since the financial crisis.

India’s top court reverses ban on cryptocurrency trading

India’s Supreme Court on 4 March reversed the country’s central bank decision in April 2018 to ban banks and other financial institutions from facilitating “any service in relation to virtual currencies”. The landmark verdict comes after a nearly two-year legal battle to get virtual currencies reinstated in India. However, on 6 March, the Reserve Bank of India (RBI), India’s central bank, announced it was going to file an appeal to reinstate the ban. The RBI is concerned the ruling that allows crypto assets trading will lead to a disruption of India’s banking system. There is currently variety of regulatory frameworks for virtual currency trading in different jurisdictions, but India does not have any legal framework. Any petition must now be filed within 30 days from the date of the ruling.

NEXT WEEK IN ASIA

The United States to cancel upcoming ASEAN summit: The United States is expected to formally announce the cancellation of the Association of Southeast Asian Nations (ASEAN) summit next week due to the coronavirus outbreak, according to US officials. US President Donald Trump was due to host the 10 ASEAN leaders on 14 March in Las Vegas. The US-ASEAN summit was planned to take place after Trump did not attend a bi-annual ASEAN summit in Bangkok in late-2019.

Israel to publish election results: Israel is due to release the official results from this week’s parliamentary elections on 10 March. With over 99 percent of the ballots counted, Prime Minister Benjamin Netanyahu’s Likud party won 36 seats in the 120-seat Knesset, while Benny Gantz’s centrist Blue and White faction currently has 33 seats. However, the final count could change due to additional checks in around 20 polling stations. With Netanyahu still short of the majority, negotiations are likely to take place next week to determine who will ultimately form Israel’s next government.

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