The Week in Asia – March 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.

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Friday 29 March 2019  

This week the Thai elections were hotly contested, while China continues to navigate its relationship with the EU and US.   

1. Thai election results unclear as both sides claim right to form government 

Officials claim that Thailand’s pro-military party Palang Pracharath won the most votes in Sunday’s election, however an anti-junta coalition is claiming it has enough seats to form a government. The leading party in the coalition, the Pheu Thai Party, won 137 seats in the 500-seat lower house. They are also claiming a further 118 seats from other anti-junta parties which may help them towards a majority. However, although the pro-military Palang Pracharath won only 97 seats in the lower house, they are likely to be able to count the 250 seats in the military-appointed senate towards their Prime Ministerial pick – incumbent Gen. Prayut Chan-o-cha. Official results are only expected to be finalised in May, as the electoral commission investigates allegations of voting irregularity. This will leave plenty of time for protests and politicking over the coming weeks. 

2. Xi Jinping increases economic ties in Europe 

President Xi Jinping toured Italy, France and Monaco in a six-day trip, only two weeks after the EU announced a tougher stance on economic relations with China. Italy, which has controversially signed up to China’s Belt and Road Initiative (BRI), signed 29 deals with China, worth approximately US$2.8 billion. In a coup for France, Xi signed a US$35 billion deal with French based aircraft manufactured Airbus. This is a blow to US manufacturer Boeing as it also attempts to deal with the grounding of its best-selling jet, the 737 MAX 8. European Commission President Juncker and German Chancellor Angela Merkel joined President Macron in France to meet Xi Jinping and discuss the ‘challenges of multilateralism’. Although the European leaders refused to officially sign up to the BRI, Merkel did acknowledge that EU leaders were keen to be involved.   

3. US hails progress in trade talks with China 

According to US negotiators, China has made an unprecedented offer related to a number of issues under negotiation in current trade talks, including the controversial topic of forced technology transfer. Despite this, intellectual property and enforcement are key issues that remain unresolved. The US has also indicated that it may not lift all tariffs even if a deal is made, in order to ensure Chinese compliance. US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer are currently in Beijing for yet another round of talks, with no clear end in sight.  

4. Google-backed AI start-up eyes US$1 billion valuation  

Mobvoi, a Chinese google-backed artificial intelligence start–up is close to securing funding to reach a US$1 billion valuation before its initial public offering (IPO) in China. Mobvoi is Google’s first direct investment in China after it left the country in 2010 due to strict censorship laws. Backed by Sequoia and Zhenfund, Mobvoi is looking to seize market share from Google’s competitors, such as Apple.  

5. Chinese Premier promises further opening up at China Development Forum   

Chinese leaders sought to assure international investors at the annual China Development Forum, which was held in Beijing on 23 – 25 March. Chinese Premier Li Keqiang assured business executives that the rights of foreign firms will be respected, and investors and companies will be able to enjoy a more open and transparent business environment in China in the future. The Vice Governor of the Central Bank said that China will keep the Yuan basically stable, based on the projected continued strong performance of the Chinese economy. This comes as Li Keqiang also promised to operationalise the recently passed foreign investment law at the annual Boao Forum for Asia.  

Asia House attended the China Development forum. Read our policy submission

NEXT WEEK IN ASIA

Looking ahead to next week, here are a couple of events to watch:

Fourth Indonesian Presidential election debate. This Sunday will see Indonesia’s fourth election debate, where Presidential candidates Jokowi and Prabowo will debate ideology, the government, international relations and defence and security. Prabowo, a retired military general, is strong on security but will have to defend his record on his affiliation with strands of radical ideology. Jokowi will need to defend his record over government reform, as well as the decision to ban radical group Hizbut Tahrir Indonesia (HIT).  

US-China trade talks in Washington next week. Following talks this week in Beijing, Chinese officials will head to Washington to continue trade talks. Liu He, China’s Vice Premier and top trade negotiator, is expected to lead the delegation, which will attempt to thrash out issues related to intellectual property rights, market access, government subsidies for state-owned enterprises, the bilateral trade imbalance and trade barriers.  

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Friday 22 March 2019  

This week we see politics continue to impact economic affairs across Asia and Europe. Thailand (finally) votes this weekend in the first Asian national election of 2019; a year that will see one billion people go to the polls across the continent. You can read our full briefing on the Thai elections here. 

1. Germany does not ban Huawei as it opens 5G auction 

Angela Merkel has resisted US pressure to ban Huawei from 5G networks as Germany begins selling off 5G-ready airwaves, although security requirements for mobile networks will be toughened. Germany has significant considerations to balance. The US has warned that it could reduce its sharing of sensitive information with Berlin if it fails to ban Huawei. Germany, however, doesn’t believe in singling out an individual company or nation. European carriers have also claimed that Germany’s 5G networks could be delayed by years if Huawei was banned, as it is already deeply embedded in phone networks.   

2. Indonesia re-thinks EU relations, trade agreement 

Indonesia is examining relations with the European Union, including the negotiations over their Comprehensive Economic Partnership Agreement, in response to an EU draft regulation that says palm oil cultivation causes excessive deforestation and its use in the EU will be brought down to zero by 2030. Whilst the EU claims the regulation is aimed at promoting sustainability in the vegetable oil sector, Indonesia claims it is a move aimed at protecting the EU’s own agriculture industry.  

3. Saudi Arabia launches mega project in Riyadh  

Saudi Arabia’s King Salman launched a mega infrastructure project in the capital Riyadh, investing US$23 billion in a ‘wellness upgrade’, which includes a park, sports boulevard, a green space and an arts space. There are US$15 billion worth of investment opportunities available to the private sector in residential, commercial and recreational aspects of the mega-project. This is all part of Saudi Arabia’s Vision 2030, aimed at diversifying and improving competitiveness in the Kingdom.    

4. Pakistan looks to Malaysia in economic crisis  

Malaysian PM Mahathir is set to sign investment deals worth nearly US$1 billion with Pakistan, who have been seeking investment since Imran Khan took office last August in order to assist with a widening current account deficit and depleting foreign reserves. While this amount pales in comparison to the US$20 billion being invested by Saudi Arabia and the US$60 billion being invested by China, it does signal warming relations between Pakistan and Malaysia. Pakistan hopes this will lead to increased economic relations with the rest of Southeast Asia, showing the nation is broadening its horizons beyond its recent dependence on China.  

5. Jokowi proposes 28 projects to China under Belt and Road Initiative   

On Wednesday Indonesia proposed 28 infrastructure projects worth US$91 billion to Chinese delegates at meetings in Bali under the Belt and Road Initiative. Jokowi’s administration expects at least a few of these projects to be accepted. Indonesia is insistent that the infrastructure development must be environmentally friendly and sustainable, presenting opportunities for international companies to become involved. The timing of the proposals is interesting, as during the campaign period for polls on 17 April, Jokowi has been attacked for allowing too much foreign investment into Indonesia. However, the administration is also being attacked for lagging behind on infrastructure development – something Jokowi is obviously hoping to speed up.  

NEXT WEEK IN ASIA

Looking ahead to next week, here are a couple of events to watch:

US Delegation will head to China for further trade talks. US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin will resume trade talks in Beijing next week, in an attempt to end the eight-month trade war between the world’s two largest economies. With President Trump saying this week that he is happy to leave existing sanctions in place for as long as necessary, there is currently no end in sight to the ongoing tensions.  

Thailand votes. Thailand will vote on Sunday in its general election, the first since the Military coup against the Pheu Thai Party in 2014. Voters are generally voting on two issues – the economy and role of the military – however with a relatively un-even playing field the military is in pole position to retain large amounts of power. Advanced voting was held last Sunday amid claims by independent group PollWatch that it was rife with vote-buying and other irregularities. Read our briefing paper for a more in-depth look at the issues surrounding the Thai election.  

If you are interested in issues surrounding Southeast Asia elections, join us on 27 March 2019 at Asia House for an event on the Indonesia elections and their impact on the political and business climate moving forward. Register your interest in attending

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 March 2019  

This week it’s all about China again as its relationships with global and regional powers continue to play out. All eyes will soon be on Thailand however as the country goes to the polls on 24 March – you can read our briefing on the Thai elections here. 

1. China passes foreign investment law 

Delegates at China’s National People’s Congress voted to pass the Foreign Investment Law, which is aimed at levelling the playing field for local and foreign businesses in China. Coming into effect on 1 January 2020, the move is seen as a signal from China to the US in the context of their ongoing trade negotiations, especially considering the law was passed so quickly after drafting. However, it has been criticised for being too vague and failing to specifically address persistent investor concerns.  

2. EU urges tougher stance on China

The European Commission released a landmark policy paper urging European leaders to adopt a 10-point action plan in the bloc’s relationship with China, which it labelled an ‘economic competitor’ and ‘systemic rival’. The paper aims to deepen engagement with China in order to promote common interests, seek a more balanced relationship and reform its own economy to keep pace with changing economic realities. The paper comes about a month out from the China-EU summit in Brussels and indicates that the EU shares at least some of Washington’s concerns over China’s economic practices.  

3. Trump delays China summit but talks progress 

Chinese state-run press agency Xinhua reported that the US-China trade talks had made ‘important progress’. Two days of talks in Washington again saw discussion on the key issues of trade balance, technology transfer, IP protection and enforcement mechanisms. Although no specifics were announced, markets across Asia rose on the news, including the MSCI index, South Korea’s KOSPI, the Shanghai Composite Index and Japan’s Nikkei. Yet there is no end in sight for the trade talks as the leader’s summit is pushed back from its proposed date at the end of March.  

4. Hong Kong regulator imposes biggest ever fine 

The Hong Kong Securities and Future Commission has levied fines at international banks UBS, Morgan Stanley, Bank of America Merrill Lynch and Standard Chartered, totalling approximately US$100 million. The fines were linked to the IPOs of Tianhe Chemicals and China Forestry, saying the banks did not carry out adequate due diligence before the IPOs. The move is significant as it signals the regulator’s tougher stance towards allegations of fraud and misreporting. It has previously been criticised for its lack of action in a perceived attempt to attract world-class listings to Hong Kong.  

5. ASEAN gains from Trump’s Asia policy 

In new research released by ISEAS-Yusof Ishak Institute, Southeast Asia has been seen to benefit from the US policy stance towards China. Although trade tensions increase negative external risks, President Trump’s focus on Northeast Asia has spared Southeast Asia’s trade surpluses from retaliation and allowed them to increase. Benefits have also come in the form of greater US security activities in the region and the secondary benefits in tourism from the Trump-Kim summits.   

NEXT WEEK IN ASIA

Looking ahead to next week, here are a couple of events to watch:

Italy to sign up to Belt and Road. Xi Jinping is set to sign a Memorandum of Understanding (MOU) with Italy’s Prime Minister in a visit to Rome on 22-23 March, mapping out cooperation between the two countries on China’s Belt and Road Initiative (BRI). This comes as the EU urges a tougher stance towards China, and both the EU and US are concerned that Italy – as a G7 nation – signing up to the Belt and Road Initiative will lend greater credibility to the project. Italy says, however, that its agreement with China will not undermine its relationships with the US and EU.  

Indonesia’s third election debate. 17 March is the date for the third Indonesian Presidential election debate between Jokowi-Ma’ruf Amin and Prabowo-Sandiaga, one month ahead of polls. The topics for debate include education, health, human resources, social issues and culture. Prabowo-Sandiaga are likely to attack the incumbent Jokowi over employment opportunities and the presence of foreign workers in Indonesia, a touchy subject throughout the nation. Jokowi is in a good position this week, however, as a surprise trade surplus was recorded in February.  

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Friday 8 March 2019  

This week one of the main challenger parties in the Thai election was banned, China’s Two Sessions were held and the Philippines made a risky appointment to Central Bank Governor.

1. Thai constitutional court bans Princess-linked party 

Thailand’s military-backed constitutional court banned political party Thai Raksa Chart on Thursday, dealing a blow to the Thaksin aligned opposition two weeks out from national elections. The party was banned due to its nomination of Princess Ubolratana in a move that the court deemed to violate Thai cultural and political values and norms. Thai Raksa Chart was established as an ally to the Shinawatra clan’s main party, Pheu Thai, as an insurance policy against new rules that make it difficult for any one party to gain a majority. The move intensifies simmering tensions between the ruling military junta and anti-military opposition.

2. National People’s Congress delivers China’s work report 

A state-sponsored rap video entitled ‘Two Sessions’ has celebrated the economic prowess and democratic system of China at its annual meetings of the National People’s Congress (NPC), and its top political advisory body, the Chinese People’s Political Consultative Conference. The 2019 government work report delivered by Premier Li Keqiang at the NPC gives some more realistic takeaways to consider. The Chinese government is concerned over the increasingly complex and unpredictable international environment, causing it to reduce its growth target to 6 – 6.5 per cent. Taxes will be cut, but infrastructure spending will continue, suggesting China will allow its debt to keep growing. The phrase ‘Made in China’ was also conspicuously left out of the report and all other speeches, suggesting China is abandoning the term due to the wariness it has caused in other governments.

3. New Filipino Central Bank Governor appointment sees market drop 

President Duterte has appointed former Budget Secretary Benjamin Diokno as the Governor of the central bank, Bangko Sentral ng Pilipinas. The move was a surprise, and although Diokno is an economist by trade, his experience in Duterte’s cabinet has raised concerns that the appointment is political and therefore threatens the independence of the institution. Diokno is also currently under investigation for his latest budget, which has been accused of favouring his relatives for government contracts. The Peso dropped almost one per cent against the US dollar immediately following the news and, if concerns persist, investment confidence could be affected.

4. Huawei files law suit against the US Government 

Huawei has filed a lawsuit against the US government claiming the ban on Huawei is unconstitutional. Meng Wanzhou, Chief Financial Officer, also filed a lawsuit against Canada, claiming she was unlawfully interrogated prior to her arrest. Although Huawei is attempting to assert its independence from the Chinese Government, China’s Foreign Minister Wang Yi has spoken out in support of the lawsuits. Continued tensions over Huawei will not help the US-China trade deal the two nations are currently attempting to conclude.

5. New Indonesia poll shows Jokowi maintaining lead ahead of Prabowo 

A new poll in Indonesia has shown that incumbent President Jokowi has cemented his lead ahead of challenger Prabowo in the country’s election race. Jokowi-Ma’ruf Amin are leading at 58 per cent while Prabowo-Sandiaga were trailing at 42 per cent. This is welcome news for international investors who hope for a continuation of Jokowi’s economic policies. Nevertheless, competition in the race is heating up, with police on high alert to prevent growing confrontation between supporters.

NEXT WEEK IN ASIA

Looking ahead to next week, here are a couple of events to watch:

Election schedule for Indian lower house to be announced. The Indian Election Commission will announce the election schedule for the lower house, the Lok Sabha, which will determine the ruling party and Prime Minister of India for the next five years. The elections are likely to be spread across seven or eight phases, to cope with logistical difficulties. Incumbent Prime Minister Narendra Modi is already in re-election campaign mode, as his opposition scrambles to form alliances in an attempt to oust his ruling Hindu nationalist Bharatiya Janata Party.

South-Korean President to visit ASEAN. After announcing South Korea’s New Southern Policy, President Moon Jae-in will visit Cambodia, Malaysia and Brunei next week. The trip will look to strengthen ties between South Korea and ASEAN in science and technology, information and communications technology, transport, energy and defence.

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 March 2019

This week, the US made progress with China on trade but failed to strike a deal with North Korea, while mergers in Thailand and Indonesia highlight the region’s increasingly competitive financial sector.

1. US suspends 1 March deadline for China tariff hikes

The US has suspended the scheduled tariff increases against China until further notice. This is a positive sign in a negotiation process that has worried investors and financial markets for months. There are, however, mixed signals as to the substantive progress of the talks, with President Trump saying the two sides are “very, very” close to a deal, but also saying that he is willing to walk away from talks if the China deal does not meet US demands. This week the US also won a World Trade Organization (WTO) case against China, where the WTO ruled that China provides excessive government support to grain producers.

2. No US-North Korea deal; South Korean stocks down

Hopes for a US-North Korea nuclear deal went unfulfilled on Thursday as President Trump and Kim Jong-un left the negotiations in Hanoi earlier than scheduled. Talks broke down as the US would not agree to remove all sanctions against the pariah state, and North Korea would not agree to the dismantling all of its nuclear facilities. Markets fell sharply in South Korea after the news broke, with the KOSPI composite index closing 1.8 per cent down and the Won down 0.6 per cent against the US dollar.

3. Thai merger creates region’s sixth biggest bank

A merger between Thanachart and TMB will create the sixth biggest bank in Asia, in a deal worth US$4.47 billion. A non-binding agreement was signed between the two banks, who will issue new shares worth 70 per cent of the total deal. The merged entity will have assets of around US$60 billion and 10 million retail customers. The aim of the merger is to better compete with regional rivals by creating bigger economies of scale and more efficient fundraising and lending facilities.

4. Indonesian SOEs join forces to compete with e-commerce start-ups

Four Indonesian state-owned banks and one telecommunications SOE will merge their payment services in an attempt to challenge the dominance of Go-Jek and OVO in the Indonesian digital payments market. The market is worth around US$3.3 billion and has huge potential to grow given the country’s large population, high mobile phone use and low participation in traditional banking. Despite the fact it will have government backing, the SOE alliance will find it difficult to compete with Go-Jek and OVO, who have access to a large customer base from their existing platforms, are able to invest heavily in marketing and are not encumbered by the decision-making bureaucracy of SOEs.

5. Thailand enacts restrictive cyber-security law

Thailand’s military appointed parliament has passed The Cyber Security Act, which gives sweeping powers to regulators to access networks, copy information, seize devices and take control of all internet procedures in certain situations. Businesses have raised concerns over the rule of law, the privacy of personal and corporate data, as well as the law’s territorial applicability. The law covers any overseas company that collects, uses or discloses personal data of Thai subjects, thus could dissuade foreign companies from operating in Thailand.

NEXT WEEK IN ASIA

Looking ahead to next week, here are a couple of events to watch out for:

China’s ‘Two Sessions’ will be held in Beijing. China’s two major political bodies, the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC), will meet next week. At the NPC meeting, Premier Li Keqiang will outline the Communist Party’s annual Work Report and policy priorities for the upcoming year. Last year President Xi Jinping’s removal of presidential term limits took the limelight. This year observers will be focusing on any announcements that indicate China’s policy position regarding the US-China trade tensions, slowing economic growth and financial vulnerabilities.

Australia and Indonesia to sign free trade deal. The Indonesia-Australia Comprehensive Economic Partnership Agreement will be signed next week, after months of delays due to a diplomatic freeze. Australia’s announcement that it would consider moving its Israeli embassy to Jerusalem caused friction with Indonesia and slowed progress on reaching the trade agreement. Under the deal all Indonesian goods will enter Australia tariff free and 99 per cent of Australian goods will enter Indonesia tariff free. This represents a huge step for the bilateral relationship between the two neighbours, which has not always been smooth sailing.

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