The Week in Asia – February 2019

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.

Join our mailing list and get The Week in Asia direct to your inbox 

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.

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.

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.   

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.

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 Chancellor 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 perceived 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 month’s 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, David Malpass – Under Secretary of the Treasury for International Affairs 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 US$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.

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.

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.

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.