The Week in Asia

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

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THE WEEK IN ASIA

China expands coal capacity to boost economy

The Chinese government is approving plans for new coal power plants at its fastest rate since 2015. More plants have been approved this year than in all of 2018 and 2019 combined. The new projects will add more than 40GW to China’s power supply and boost regional and provincial economies, but will threaten the central government’s environmental targets. There are concerns that global efforts to stimulate economies hit by the COVID-19 lockdowns will push global emissions to higher levels than before the pandemic and undermine a transition towards cleaner energy sources.

Singapore announces July general election

Singapore’s Prime Minister Lee Hsien Loong this week advised President Halimah Yacob to dissolve parliament, ahead of a general election on 10 July. This is nine months before the constitutional deadline of April 2021 to hold parliamentary elections. Prime Minister Lee has said that elections will give the government a fresh mandate to tackle the impacts of the COVID-19 pandemic and will “clear the decks” to implement policy reform to support economic growth. Opposition parties have voiced concerns about holding elections during a pandemic. Singapore will follow South Korea and Taiwan in holding polls during the public health crisis.

China Pacific Insurance completes London’s second largest stock listing of 2020

China Pacific Insurance has completed London’s second largest stock listing of the year, issuing US$1.8 billion in global depositary receipts in London and backed by shares listed in Shanghai. This comes as part of a ‘stock connect’ programme that links the London and Shanghai exchanges. The company will use proceeds of the offering to expand overseas operations and invest in foreign businesses. It is the second company to use the London-Shanghai link since its launch in 2019, the first being Huatai Securities Co Ltd. The London-Shanghai link connects the two countries’ primary bourses, allowing companies that are listed in one venue to raise capital on the other.

Google considers alternative Asia destinations for undersea cable

Google is exploring an alternative location to Hong Kong for the Pacific Light Cable Network (PCLN) – a 13,000km high-capacity subsea cable that was originally planned to connect the US, Hong Kong, Taiwan, and the Philippines. The revelation came from Thomas Kurian, head of Google’s cloud computing business, during an interview this week, and follows warnings from the US government about including Hong Kong in the Google and Facebook backed PCLN. Tensions around the proposed Hong Kong national security law have prompted US fears that Hong Kong’s inclusion in the network could expose global data to China.  The development marks a new front in the ongoing tech rivalry between the US and China.

Saudi Arabia’s PIF latest to invest in India’s Jio Platforms

Saudi Arabia’s Public Investment Fund (PIF) has invested US$1.5 billion in Indian telecommunications company Jio Platforms. PIF is now the tenth investor to buy into Jio’s business since the beginning of the pandemic. Jio has now raised US$15 billion and sold nearly a quarter of the company. Last weekend, US private equity group TPG Capital and consumer fund L Catterton also took stakes in the company for US$600 million and US$250 million respectively. There is huge potential in India’s digital economy and companies globally are looking for ways to get involved in what is often a complex regulatory environment.

NEXT WEEK IN ASIA

China’s top lawmakers to meet next week: China’s top legislative body will meet next week in what some analyst see as a bid to pass national security legislation in Hong Kong more quickly.

Asia makes tentative return to international travel: Countries across the region will restart some international flights next week, marking a cautious return to international travel. Flights between Vietnam and Japan will resume, and negotiations between Thailand, Vietnam, Japan, Australia, and New Zealand will continue.

COVID-19: ASIA ROUND UP

Social distancing measures across Southeast Asia have been further relaxed this week – Hong Kong now allows public gatherings of up to 50 people; Malaysia will allow gatherings of up to 250 people; and Singapore has further opened up the economy and is now allowing small social gatherings. Travel curbs across the region are also easing, with Japan relaxing travel curbs for ‘low-risk’ countries such as Australia, New Zealand, Thailand and Vietnam. Thailand and Vietnam are planning to accept foreign travellers for the first time since the beginning of the pandemic.

However, elsewhere – in South Korea, China, India, and Iran – cases continue to rise and further restrictions may be implemented. Beijing has re-imposed social distancing measures across large parts of the city after a cluster of cases emerged. The mayor of Seoul has warned that restrictions will be re-imposed if the daily number of cases remains above 30. States in India – including the key manufacturing states of Tamil Nadu and West Bengal – have extended or re-imposed lockdown measures. Iran’s Health Ministry has warned that the COVID-19 outbreak will likely remain in Iran until 2022 and has issued calls for compulsory mask usage to try and bring down numbers, as the daily rate of positive cases continues to rise.

There remains growing concern about the hit to national economies from the pandemic. The Bank of Japan expanded financing support for businesses this week; Australia’s unemployment rate rose to 7.1 per cent in May; Indonesian Finance Minister Sri Mulyani expects Q2 GDP growth to be -3.1 per cent; and the Cambodian government has rolled out a new online business registration scheme aimed at increasing efficiency and encouraging more investment into the country.

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

FRIDAY 19 JUNE 2020

Chinese telecoms shares trend upwards as Huawei sanctions ease

Shares in Chinese telecoms groups rose this week as the US eased some of its sanctions on Chinese tech company Huawei. The US Department of Commerce will now allow American companies to collaborate with Huawei on setting technical standards that will determine the future of 5G and other emerging technologies. Shares in Chinese companies such as ZTE, Sunny Optical, and Shennan Circuits Company rose by as much as 14 per cent. However, the endurance of such promising trends will be dependent on whether international tensions around Huawei’s involvement in 5G networks worldwide continue to de-escalate.

Vietnam targets Chinese manufacturing after approval of EU-Vietnam FTA

Vietnam’s National Assembly has approved a free trade agreement (FTA) with the EU. The FTA is expected to help make Vietnam a key investment destination for manufacturers looking to diversify supply chains out of China. The EU-Vietnam FTA will take effect as early as August 2020. Under the agreement, 71 per cent of exports from Vietnam to the EU will become duty free, as will 65 per cent of EU shipments to Vietnam. There is growing hope that the FTA will attract further investment into the country, particularly in sectors such as the textile industry.

Pandemic hits value of Belt and Road Initiative projects

China’s Belt and Road Initiative (BRI) has taken a hit from the COVID-19 pandemic and resulting national lockdowns, with the value of projects falling by 64.4 per cent in the first quarter to US$137.43 billion. A new report released by Refinitiv also identified a 15.6 per cent drop in the number of new projects announced in Q1 2020. The pandemic has impacted budgets and watered-down appetite from many countries involved in the BRI network. Several emerging economies are already burdened with high debt levels, which are likely to worsen as a result of the pandemic, and slowing economic growth across the region will likely hinder the progress of the BRI over the next two years.

ByteDance in talks on banking licence bid in Singapore

Chinese technology group ByteDance, best-known for its social video app TikTok, is bidding for a digital banking licence in Singapore, marking its first foray into banking. ByteDance is in talks with an investment group in Singapore linked to the Lee family, who have a large stake in OCBC Bank. This comes as Singapore’s central bank is set to issue five virtual banking licences before the end of the year. Other companies bidding for these licences include Alibaba’s Ant Financial and Xiaomi. ByteDance has previously explored applying for a virtual banking licence in Hong Kong.

UK launches trade talks with Australia and New Zealand

The UK launched trade talks on post-Brexit FTAs with both Australia and New Zealand on 17 June. The two countries may be among the first to negotiate a trade agreement with Britain in the post-Brexit era. Key issues to be discussed in early rounds of talks include better market access for goods exports, particularly in agriculture, and high-standard rules on digital trade and investment. Early rounds of negotiations are expected to take place from mid-July.

Crawford Falconer, Chief Trade Negotiation Adviser and Second Permanent Secretary for the Department for International Trade, UK Government, will be briefing Asia House Corporate Members on these issues on 2 July. Find out more

NEXT WEEK IN ASIA

EU-China to hold mini-summit: Chinese Premier Li Keqiang will hold a mini-virtual summit with European Council President Charles Michel and other top officials on Monday. The talks come amid rising tensions over Hong Kong and tech issues.

India, China, and Russia to hold trilateral meeting next week: The three countries will hold a meeting on 23 June, amid rising military tensions between China and India. This week saw a deadly clash between Chinese and Indian security forces in Ladakh.

COVID-19: ASIA ROUND UP

Several markets across the region have begun easing lockdown and social distancing measures. Hong Kong now allows public gatherings of up to 50 people; Singapore has moved into Phase Two of easing measures, allowing most businesses to reopen and social gatherings of up to five people; Thailand lifted its nationwide curfew; and Qatar outlined a four phase plan for reopening the economy.

However, others are worried about a resurgence and second wave as new cases are reported – Beijing has locked down much of the city after more than one hundred cases were linked to a wholesale food market in the city; South Korea has extended strict social distancing measures in Seoul; and India has re-imposed a full lockdown across large parts of key manufacturing state Tamil Nadu.

As the pandemic continues to batter economies and countries report Q1 figures on imports and exports, it is clear that there will be long-term economic damage. Indonesian Finance Minister Sri Mulyani has said that the government will continue with quantitative easing and other emergency monetary and fiscal policies as long as needed to support the economy; Japan has enacted a record US$297 billion second supplementary budget to further cushion the damage; and the Australian government has earmarked an additional US$1 billion for infrastructure projects.

This week, Asia House also looked at one sector of the economy that has done well despite the grim economic outlook – e-commerce and digital solutions.

These COVID-19 insights are taken from Asia House Advisory’s focussed monitoring service, one of the ways in which Asia House is providing analysis on economic and public health policy measures taken by governments across Asia and the Middle East. Please reach out to Ed Ratcliffe, Head of Advisory, at ed.ratcliffe@asiahouse.co.uk for further details on this and our other advisory services.

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

FRIDAY 12 JUNE 2020

Rescue bid sees Hong Kong government take stake in Cathay Pacific

The Hong Kong government has announced that it will take a stake in Cathay Pacific as part of a US$5 billion rescue plan. The government will secure a 6.1 per cent stake in the airline, with Swire Pacific maintaining its role as the controlling shareholder. This marks a rare direct purchase by the state in a private company in Hong Kong. The government will also be able to send two observers to board meetings and have access to information from management. The move provides a lifeline for the carrier, which has suffered months of disruption from COVID-19 and last year’s protests; passenger numbers fell more than 99 per cent year-on-year in April. Hong Kong Financial Secretary Paul Chan has said that the city government does not intend to be a long-term shareholder in the airline.

Abu Dhabi Investment Authority invests in India’s Jio Platforms

The Abu Dhabi Investment Authority (ADIA) is investing US$752 million in India’s Jio Platforms. ADIA will acquire a 1.16 per cent equity stake in a deal that now values the company at US$65 billion. ADIA will be the seventh investor to back the digital arm of Reliance Industries since Facebook invested US$5.7 billion in April. Other companies who have invested in Jio recently include private equity firms Silver Lake, Vista Equity Partners, General Atlantic, and KKR, as well as UAE sovereign wealth fund Mubadala. Jio owner Mukesh Ambani has sold more than 20 per cent of Jio as he works to reduce the company’s net debt from above US$20 billion to zero by March 2021. Jio has disrupted India’s telecoms market since its launch in 2016, winning 388 million subscribers and leading to mass consolidation in the telecoms sector.

Australia adds national security test for future foreign investments

The Australian government has proposed a stricter national security test for foreign investment into the country. The new test will be the biggest shake up of foreign investment rules in more than 40 years. The proposed rules will give the government more authority to reject deals on national security grounds. This will include a ‘last resort’ power, which will give the finance minister powers to impose conditions or force a divestment even after deals are approved by the Foreign Investment Review Board. The proposal follows the introduction of emergency measures in March to protect essential industries from takeover bids. The rules will apply to ‘sensitive’ sectors, including telecommunications and defence.

JD.com prepares for year’s largest public offering

JD.com, one of China’s largest technology companies, will sell up to US$4.3 billion in shares in Hong Kong, in what will likely be the city’s largest public offering this year. The retail company started placing shares with institutional investors last week, offering 133 million shares that could raise US$3.8 billion. The company is set to list in Hong Kong on 18 June. JD.com shares currently trade on New York’s Nasdaq, but, along with many other Chinese companies, it is making plans to move to other markets as fears over US-China tensions increase. Other Chinese companies have made similar moves – gaming group NetEase last week announced a sale of US$2.7 billion of its shares in a secondary offering in Hong Kong, and Alibaba raised nearly US$13 billion in a secondary offering in Hong Kong last year.

UK tensions over Huawei increase

Reports have emerged this week that the UK is conducting a new review on the risks associated with Huawei’s participation in the country’s 5G projects. Earlier this year, Huawei was granted a limited role in building out the 5G network in the country, with a 35 per cent cap announced on the company’s involvement. Huawei this week has launched a major public relations campaign in the UK – with plans to take out a series of full-page advertisements in most national newspapers and online for the next three to four weeks. This comes after the US Department of Commerce last month said it was moving to restrict Huawei’s ability to manufacture and obtain semiconductor chips using American-made software and technology. There is growing tension around the company’s role in building out the UK’s 5G network, with the company also evaluating its role in the project and wider investment in the UK.

NEXT WEEK IN ASIA

Bank of Japan to meet next week: The Bank of Japan is set to meet on 15 and 16 June. The central bank will likely be largely focusing on assessing the impact of moves it has taken over the past months to boost the national economy during the COVID-19 crisis.

China and India to engage in next round of military talks: Army delegations from China and India will meet for the next round of military talks next week, coming after a stand-off along the Line of Actual Control  in eastern Ladakh.

COVID-19: ASIA ROUND UP

Governments are continuing to boost stimulus measures to support their economies, as economic data for the last few months starts to be released: South Korea unveiled its third stimulus budget of US$29 billion; Indonesia announced a US$47.6 billion economic support package; Malaysia launched a fourth stimulus package worth US$8.2 billion; and Australia announced US$91 billion in public hospital funding.

Data on economic growth over the last few months has begun trickling in – with most showing sharp contractions. China reported a contraction in exports of 3.3 per cent and a sharper than expected fall in imports of 16.7 per cent in May; Japan saw an economic contraction of 2.2 per cent between January and March; and the Philippines reported its highest-ever unemployment rate in April of 17.7 per cent.

This week, Asia House also looked at India’s prospects for recovery as economic activity begins to restart. Prospects look gloomy – labour shortages and a credit crunch will threaten efforts to boost economic growth. READ THE BRIEFING HERE

FRIDAY 5 JUNE 2020

Facebook completes deal with Indonesian unicorn Gojek

Facebook has invested in ride-hailing start up Gojek, Indonesia’s biggest unicorn. Facebook’s investment, focused on Gojek’s digital payments arm, GoPay, is estimated to be in the low hundred millions of dollars, and takes Gojek’s current fundraising round to more than US$3 billion. Digital payments have been of increasing importance for Facebook, and Indonesia is of major interest given its status as one of the world’s largest social media markets. This is Facebook’s first deal in Indonesia and its second big investment in this space in Asia in the last month. The company has also targeted Indonesia as one of four markets in which to launch WhatsApp Pay. This latest investment, which also includes investment by PayPal, will give Gojek a boost in its bid to be the key player in Southeast Asia. The deal also highlights the growing role US-based big tech is playing in Asia, coming on the heels of Facebook’s record investment into India’s Reliance Jio.

South Korea to resume WTO complaint over Japan export curbs

South Korea said on Tuesday that it would recommence proceedings against Japan at the World Trade Organization over export controls on high-tech materials. South Korea, which will continue bilateral dialogue with Japan, has accused Tokyo of not showing enough commitment to resolving their disputes. The Japanese government last year stopped preferential treatment for shipments to South Korea of three kinds of materials largely produced in Japan, which are used by large technology firms such as Samsung. This has created shipment delays of up to 90 days. These curbs have led to questions over firms’ dependence on Japanese materials.

Elliott Management in talks with Bank of East Asia

Elliott Management is nearing the end of its talks with Hong Kong’s Bank of East Asia. Elliott has held a significant stake in Bank of East Asia since 2014 and has long pushed the family owners to sell the business. Bank of East Asia is one of the largest foreign banks in mainland China and is Hong Kong’s last family-owned lender. The bank has, however, faced credit quality problems connected to its mainland business, and Elliott has claimed that the bank has been poorly managed in recent years. Both the Hong Kong and China banking businesses could be up for sale, possibly as separate entities. The COVID-19 crisis and the political unrest in Hong Kong over the last year has further disrupted the bank’s operations.

Chinese company NetEase seeking US$3 billion in Hong Kong secondary offering

Chinese gaming group NetEase has announced a secondary offering in Hong Kong, looking to sell up to US$3 billion of shares. The company is set to list in Hong Kong on 11 June. NetEase is one of the country’s biggest makers of online video games, and its shares currently trade on New York’s Nasdaq. As US-China tensions continue to escalate, Chinese companies are increasingly concerned about being caught in the crossfire. This comes after US President Donald Trump last week announced a probe into Chinese groups listed in the US, and last month ordered the main federal government pension fund not to invest in such companies. More and more companies are looking at secondary listings in Hong Kong or in Singapore to hedge their bets – and this could mark the start of a greater wave of Chinese companies raising capital in Hong Kong as tensions between Beijing and Washington only increase.

Nomura reviews scale of Hong Kong operations

Nomura, Japan’s largest investment bank, has announced a review of its Greater China strategy and the scale of its Hong Kong operations. This comes as relations between Beijing and Hong Kong deteriorated over the controversial national security law proposed during China’s National People’s Congress last month. Though Nomura’s Hong Kong operations remain its most critical Asian hub outside of Japan, the change in situation has prompted a serious review. Options could include increasing the size of Nomura’s majority-owned joint venture in mainland China, and bolstering operations in Singapore. Many other industry peers are conducting similar reviews as the political environment in Hong Kong continues to evolve.

NEXT WEEK IN ASIA

Singapore to begin ‘fast lane’ for China travel: On 8 June, Singapore will commence its ‘fast lane’ for approved business travel between Singapore and China. Travellers on both sides will be exempted from quarantine rules but will have to agree to be tested for COVID-19.

COVID-19: ASIA ROUND UP

This week, governments across the region announced further economic support, largely focused at boosting employment across various industries. South Korea announced its third budget worth US$29 billion, Indonesia unveiled another stimulus package of US$47.6 billion, and Australia has committed US$475 million specifically for the housing construction industry.

In a sign that countries are looking to return to normal operating conditions as soon as possible, discussions around implementing approved ‘fast lanes’ for business travel between countries with lower rates of infections have picked up. Singapore and China have confirmed the implementation of a fast lane for approved business travel from 8 June, which will allow select travellers to bypass quarantine requirements. Australian universities have also proposed the creation of ‘safe corridors’ to bring international students back into the country.

Other countries are resuming economic activities faster than most. Vietnam, in particular, has contained the outbreak effectively and kept infection numbers low. This week, we explore Vietnam’s response to the pandemic and how its economy is placed to emerge from the crisis.

READ NOW: COVID-19 in Focus: Vietnam

These COVID-19 insights are taken from Asia House Advisory’s focussed monitoring service, one of the ways in which Asia House is providing analysis on economic and public health policy measures taken by governments across Asia and the Middle East. Please reach out to Ed Ratcliffe, Head of Advisory, at ed.ratcliffe@asiahouse.co.uk for further details on this and our other advisory services.

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

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