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    The Week in Asia – May 2019

    Published On: 31 May 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 31 May 2019  

    This week Indian markets rise as Modi is sworn-in, Japan moves to block foreign ownership in high-tech industries and China pursues its Belt and Road Initiative in the Middle East.


    1. Markets rise on Modi’s swearing in, but reform challenges loom large  

    Stock markets and the Indian rupee rose strongly ahead of Prime Minister Narendra Modi’s swearing in on Thursday, as investors approved of government stability and promises to modernise the economy. Modi now faces the monumental task of delivering on this economic reform. He has pledged to spend US$1.4 trillion on infrastructure over five years, significantly invest in the weakened agricultural sector and transform India into a global manufacturing hub. The government’s fiscal deficit, officially at 3.4 per cent of GDP and still growingwill hamper these spending plans. Curtailing endemic corruption and cronyism in an environment where proximity to power is often a determinate of business success will be more difficult


    2. Japan to limit foreign ownership in high-tech industries 

    From August, Japan will add high-tech industries, including IT and telecoms, to its list of businesses in which foreign ownership is restricted. The government says the law aims to prevent the leak of technology considered important for defence and national security, although no particular country or companies were mentionedThe announcement came the same day US President Donald Trump met with Japanese Prime Minister Abe, and as pressure from the US mounts for allieto deal with cyber risks and technology transfers with China.  


    3. China plans US$10 billion investment in UAE under Belt and Road Initiative  

    A Memorandum of Understanding signed in Shanghai on Thursday between Chinese conglomerate East Hope Group and Khalifa Industrial Zone Abu Dhabi (Kizad) sets out the three phases of a planned US$10 billion industrial investment by China in the UAE. The first phase would be an alumina facility, the second a red mud research centre and recycling plant and the third a facility to process non-ferrous metals. Feasibility studies are still underway, but the plan represents a huge investment in the Middle Eastern portion of China’s Belt and Road Initiative. China sees the UAE as a hub for trade with the rest of the Middle East and Africa, and the UAE is seeking to capitalise on Chinese investment in its quest to diversify its economy and boost non-oil revenue. 


    4. Thai parliament re-opens after five years 

    Five years after the 2014 coup, Thailand’s new King opened parliament amid ongoing speculation over who will become the next Prime Minister. Early in the week, Palang Pracharat (the pro-military party headed by junta leader Prayut Chan-o-cha) looked set to gain a majority in the lower housebut this faltered when two presumed allies backtracked. Anti-junta parties are still hoping to form a majority in the lower house, but with voting for the PM spread across two houses and the Senate being military appointed, it is likely the pro-military party will win. The existing cabinet is forging ahead with policy objectives, approving a US$7 billion infrastructure contract with Thai conglomerate CP Group and China Railway Construction.      


    5. PNGs new Prime Minister vows reform of natural resource laws 

    After weeks of political turmoil, Papua New Guinea’s parliament has voted to appoint James Marapeformer finance minister, as Prime Minister. The political controversy was partly surrounding a US$13 billion LNG deal signed with French company Total and US energy giant ExxonMobil, as well as discontent over how taxes and royalties from a previous US$19 billion Exxon-led LNG project were distributed. The planned deal would double gas exports from the developing country. Marape, however, has put energy firms on notice as he vowed to reform laws to better distribute the benefits across society. The projects are still expected to go ahead, but there are likely to be two or more years of delays. 



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


    Shangri-La dialogue puts spotlight on Sino – US relations. Asia’s premier defence summit will take place in Singapore from Friday until Sunday, featuring senior ministers and defence staff from the region, including the US and ChinaAlthough the dialogue focuses on defence and security issues, Chinese and US postures will be in the spotlight due to the ongoing trade tensions. Observers will be looking for signals of each powers vision for future engagement with each other and with the region. Ministers are also set to discuss infrastructure and maritime development, competition and cybersecurity. 


    Central bank meetings. Both Australia and India have central bank policy meetings next week on Tuesday and Wednesday, respectively. There is an almost unanimous consensus forecast that Australia will cut its interest rate by 25 basis points to 1.25 per cent on the back of concerns over slowing growth. The forecast for India is split between cutting the rate by 25 basis points from the current 6 per cent or staying on hold. A third successive rate cut may be too accommodative for the central bank, as it seeks to balance slowing economic growth with inflation risks.  


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    Friday 24 May 2019  

    This week Modi wins a shock landslide victory in the Indian elections and Huawei feels the effects of US measures in the trade war.


    1. Modi secures landslide win in Indian elections

    After months of campaigning and a mammoth seven-week polling period, Narendra Modi and his Bharatiya Janata Party (BJP) have secured a landslide victory in India’s general election. Results so far indicate BJP will win at least 300 of the 543 seats in India’s lower house, the Lok Sabha. This would be a shock result, as Modi was not expected to win an outright majority. In fact, this result would surpass the amazing landslide victory they received in 2014, where they took 282 seats. India’s main opposition party, the Indian National Congress (INC), are only set to win 52 seats, a slight improvement on 2014. India’s benchmark stock index, the Sensex, surged 900 points to top 40,000 for the first time ever, as a result of the early poll counts. Read analysis from the University of Nottingham’s Asia Research Institute on the election outcome.


    2. Global companies cut ties with Huawei

    In order to comply with a US order blocking Huawei from buying goods made from 25 per cent or more of US originated technologies or materials, global companies are cutting their commercial ties with the telecomms giant. Huawei’s dependence on foreign suppliers has been exposed as it is losing access to crucial components for its products, including from Panasonic and ARM – the British firm that provides the blueprints to design the processors that power smartphones. Huawei says it has the technology to replace any supplies halted by the ban, but has also stockpiled 12 months-worth of parts. Whether it continues to be competitive remains to be seen, as mobile carriers across the world drop Huawei smartphones.


    3. Saudi Arabia defers US$9.6 billion repayments from Pakistan

    After Pakistan secured an IMF bailout deal last week, Saudi Arabia has agreed to defer a demand for US$9.6 billion worth of oil payments owed by Pakistan. The payments would have been scheduled at US$275 million per month for the next three years. This is a welcome reprieve for Pakistan, which is facing a financial crisis, weak growth and rising inflation, and follows Riyadh granting Pakistan a U$S6 billion loan last year. Although Pakistan is officially neutral on the Iran-US tensions, the timing of the loan – the same week as Iran’s foreign minister is set to visit Pakistan – seems a critical part of Saudi attempts to keep Pakistan on the Saudi-US side of the tensions.


    4. Jokowi confirmed as President, likely to face ongoing reform challenges

    Jokowi has been confirmed as the next Indonesian president, however opponent Prabowo will challenge the results in the constitutional court. International investors will be pleased with the news, as Jokowi is likely to push for regulatory reform and attempt to cut red tape. The broader policy agenda includes a huge infrastructure drive, manufacturing push and a focus on human resources. However, political and vested interests from Jokowi’s coalition partners, state-owned enterprises and the private sector are likely to create blocks for much needed structural reform.

    Meanwhile, in Australia, the incumbent Liberal Party won a shock majority in federal elections, allowing Scott Morrison to remain as Prime Minister.


    5. Concerns over South Korean economy as exports and currency are down

    New data shows South Korean exports are down again this month and economic growth is slowing, as a cyclical downturn, weaker growth in China and fallout from the trade war all hit the nation’s economy. On Wednesday the won reached its lowest point against the US dollar since early 2017, and it has lost five per cent against the US dollar since the beginning of April. Potential measures to strengthen the won will be tricky in a soft economy, but policy makers are considering their options. Results from South Korea’s economy give an indication of how supply chains will be affected across the region.



    Looking ahead to next week, pivotal election results are expected in three major regional economies. 


    Trump to visit Japan for trade talks. US President Trump will begin a four-day state visit to Japan on Saturday, as the two nations attempt to negotiate a trade deal. Japan has reportedly already agreed to remove import restrictions on US beef, however disagreement over tariffs in several other sectors remain. Japanese companies are feeling the effects of the US-China trade tensions, especially as global demand for machinery goods, cars and electronic parts is dropping. They are also affected by disruptions to their supply chains which are routed through China, and the drop in demand from both China and the US.

    EU election results and their effect on China relations. The results of this week’s EU elections will have an effect on the economic bloc’s relationship with China. The results will impact who becomes the next president of the European Commission and thus direct the bloc’s policy towards China. Europe forms a key region for Chinese growth, under both its ‘Made in China’ policy and its Belt and Road Initiative. So far, the EU’s approach to China’s growing presence has been mixed, and if parties with more protectionist tendencies are elected, this could pose roadblocks for further Chinese expansion.


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    Friday 17 May 2019  

    This week Indonesia announced is most ambitious infrastructure plan ever, Duterte cemented his power and both China and the US made moves in the ongoing trade war. 


    1. Indonesia announces US$400 billion infrastructure policy 

    Indonesia’s Minister for National Development Planning, Bambang Brodjonegoro, announced an ambitious US$412 billion infrastructure plan for 2020 – 2024. Around 60 per cent of the investment will channelled into transport related infrastructure, while the rest will be focused mainly on energy, irrigation and tourism. The government will fund 60 per cent of the policy, with a further 25 per cent coming from state owned enterprises. The remainder will be financed by the private sector. The spending plan amounts to approximately 5.7 per cent of Indonesia’s GDP, which is targeted to grow at 5.4 to 6 per cent for 2020 – 2024. Connectivity is key for the archipelagic nation, which aims to become the world’s fifth largest economy by 2040.  


    2. Duterte cements power in mid-term elections 

    In mid-term elections that were seen as a referendum on his rule, Philippine President Rodrigo Duterte and his allies maintained a dominant position in the lower house while gaining control of the upper house for the first time. This essentially removes the only remaining barrier to Duterte’s controversial legislative agenda, including his well-known anti-drug crackdown as well as tax reforms and a reorganisation of the political system to a federal model. Supporters of this controversial plan suggest it will kick-start economic growth in outlying regions, but critics suggest it may be a way for Duterte to extend his hold on power. Critics are also concerned over the state of Philippine democracy, as Duterte now has allies dominating both houses as well as the court system, and has begun attacking the media.  


    3. China retaliates against US with further tariffs 

    China retaliated this week against the most recent US tariff hike by implementing 5 – 25 per cent tariffs on US$60 billion worth of US goods. China also threatened retaliation against US moves to prevent American firms from using telecoms equipment from sources deemed a risk to national security – widely seen as an attempt to restrict Huawei’s international trade. Although the two sides are still in negotiations, there are concerns over further escalation of tensions as markets continue to react to the trickle of good and bad news coming from the talks. China’s Ambassador to the UK claimed that, while China does not want a trade war, it was “not afraid of one and would fight one if necessary”. US Treasury Secretary Steven Mnuchin will travel to Beijing soon for the next round of talks.   


    4. World’s first green sukuk listed in Dubai 

    Retail conglomerate Majid Al Futtaim has listed the world’s first ten-year corporate green sukuk on Nasdaq Dubai. Worth $US600 million and with its issuer rated at BBB, it is focused on investing in sustainable buildings, renewable energy, sustainable water management and energy efficiency. The sukuk provides a benchmark for environmentally sustainable Islamic finance, and will pioneer innovative ways to meet its green standards. The bond will contribute towards Majid Al Futtaim’s desire to be environmentally ‘net positive’ by 2040, as well as Dubai’s aim of becoming the global capital of the Islamic economy.   


    5. Imran Khan reneges on IMF position, secures loan 

    After claiming that he would rather die than negotiate an IMF loan, Pakistan’s Prime Minister Imran Khan secured a US$6 billion bailout package from the IMF this week. Although Khan had been working hard to obtain loans from friendly countries  – Saudi Arabia, the United Arab Emirates and China – the US$9.2 billion he secured was not enough to cover Pakistan’s increasing fiscal deficitrising inflation and structural weaknesses. The IMF package will be distributed over 39 months and contains structural reforms, including reforms of government revenue and spending, tax policy and state-owned enterprises. There may be a severe contraction in the economy in the short term, although markets and investors will be relieved at the prospect of longer term stability 



    Looking ahead to next week, pivotal election results are expected in three major regional economies. 


    India’s election results expected on Thursday. The final stage of voting in India’s Lok Sabha elections will take place on Sunday, with the results due on Thursday. No party is expected to gain an overall majority, so national parties will be scrambling to form coalitions with regional partners. Incumbent Prime Minister Narendra Modi’s BJP is expected to be the biggest winner, however the number of seats they secure and how far they will have to rely on coalition partners will determine whether Modi himself will be able to remain as Prime Minister. Read further analysis on the Indian elections here 

    Australia votes in federal election. Voting is compulsory in Australia’s federal election which takes place on Saturday. The Labor Party is marginally ahead in the polls against the incumbent Liberal Party, at 51 per cent to 49 per cent in two-party preferred terms, however early voters seem to be favouring the Liberal Party. The economy is a major election issue, with Australia’s 28year growth streak facing challenges. A subdued regional trade environment has weighed on exports, and inflation and consumer spending are down on targets. Ongoing results will beannounced live throughout Saturday evening.  

    Indonesia’s election results announced. Official results from Indonesia’s election will be announced on Wednesday next week. Incumbent President Jokowi is a certainty to win, receiving 56.1 per cent of the vote with 86 per cent already counted. Challenger Prabowo has been vocal in his critique of the election, claiming that he will not accept the final resultHe could challenge through legal action, however the Deputy Chairman of his Gerindra Party indicated they would not challenge in the courts as their similar claim after the last election was rejected. Although Prabowo has called on supporters to remain peaceful, Indonesia’s police are on standby ahead of the official announcement to protect against violence from Prabowo’s supporters as well as terrorist threats.   


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    Friday 10 May 2019

    This week the US–China trade war escalated again, Thai election results were released and Jokowi launched his second-term vision for Indonesia. 


    1. US increases tariffs on US$200 worth of Chinese goods 

    The US has raised tariffs from 10 per cent to 25 per cent on US$200 billion worth of Chinese goods. This serious escalation of the ongoing trade tensions came as Washington claimed China had reneged on previous commitments. Trump also threatened to impose 25 per cent tariffs on another US$325 billion of Chinese imports if talks do not progress. China’s Ministry of Commerce immediately responded by saying they have no choice but to take countermeasures. Trade talks are continuing in Washington today, however the deal that seemed so close last week is looking far less likely.  


    2. No clear winner as Thai election results confirmed 

    Official election results released on Wednesday show no party in Thailand has a clear mandate to form a government. Pro-military Palang Pracharat (whose Prime Ministerial candidate is junta leader Prayut Chan-o-cha) and its allies won 122 seats whilst the ‘democratic front’ led by Pheu Thai won 245. Neither has the requisite 376 votes needed to elect the PM. The vote however is taken across both the House and Senate, and the military appointed Senate will likely vote in Palang Pracharat’s favour. The democratic front still hopes to gain 250 seats in the House to be able to block the militaryaligned parties from holding unrestrained power, but this could lead to policy stalemates. The forming of a government and ongoing coalition building will continue for several weeks as the Senate is appointed.          


     3. Jokowi announces push to become fifthlargest economy  

    Amid reports his lead in the election count is increasing, President Jokowi launched his ‘Vision Indonesia 2045’ roadmap for Indonesia to become a developed nation and the world’s fifthlargest economy by 2045. The main focuses will be on reducing the size of government and cutting red tape, as well as driving related progress on infrastructure, equality and human resource development. The plan did not have the best start, as Q1 GDP missed targets and grew at the slowest pace in a year, at 5.07 per cent. However, presidential aides confirm Jokowi is determined to improve the investment environment and will make bold economic reforms in his second term to achieve this. 


    4. US imposes further sanctions on Iran 

    A week after not renewing sanction waivers for countries that buy Iranian oil, the US has announced sanctions on Iran’s industrial metals exports, including iron, steel, aluminium and copper. When imposed, these will hit one of the biggest remaining sources of export revenue for Iran, causing significant economic pressure. This week Iran also announced it would stop complying with parts of the 2015 Iran nuclear deal. Although the EU has been attempting to support legitimate trade with Iran, the economic benefits seen as a result of the nuclear deal have been limited due to US sanctions. 


    5. Hong Kong regulator gives licenses to Chinese tech companies  

    Four leading Chinese technology companies, including Alibaba and Tencent, have won virtual banking licenses from the Hong Kong regulator. Insurer Ping An and smart-phone maker Xiaomi also won operating licenses, in a market where both consumer loyalty and banking revenue are up for grabs. Hong Kong is seen as a kind of ‘test ground’ for Asian companies that have regional and global growth ambitions. It is also a battleground where the legacy banks and insurance providers that currently dominate the market, such as HSBC and Standard Chartered, are being challenged by tech providers.  



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


    The Philippines holds mid-term elections. On Monday 13 May, the Philippines will go to the polls for mid-term Congressional elections. The elections will be seen as a referendum on Duterte’s presidency and his capability of getting his ambitious plans through Congress, such as federalising the government and cutting corporate tax rates. Parties backing the President in the ‘Coalition for Change’ faction are expected to do well in the elections, with the President’s popularity currently at its jointhighest level.  


    Indonesia to release Sharia Economy Masterplan. On Tuesday next week Indonesian National Development Planning Agency (Bappenaswill launch the 2019 – 2024 Sharia Economy Masterplan. It will form a roadmap for development in strategic areas, including strengthening halal products, optimising the digital economy (in the form of e-commerce, marketplaces and financial technology) and using sharia finance for micro, small and medium enterprisesIndonesia is aiming to develop domestic markets, improve development indicators and upgrade the nation’s position on the Global Islamic Economy Indicator.  


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    Friday 3 May 2019

    This week there is good news in the US-China trade talks, Singapore confirms long-term cooperation with Beijing and Jokowi faces mixed developments in Indonesia.


    1. US and China move closer to a deal

    There was positive news from the US-China trade negotiations this week, as both sides reported constructive talks in Beijing. Chinese Vice Premier Liu He will travel to Washington next week, amid rumours a deal is close to being finalised. The deal would reportedly remove 10 per cent tariffs on US$200 billion worth of Chinese goods, but keep in place 25 per cent tariffs on a separate list of US$50 billion worth of goods. The all-important issue of how  has been agreed, however concerns that the WTO will not have a role in enforcing the agreement or mediating disputes leads to further questions over the future of the current world trade architecture.


    2. Singapore cements warm ties with Beijing; signs five agreements

    Singapore’s PM Lee Hsien Loong met with Chinese President Xi Jinping and Premier Li Keqiang during his five day visit to China for the Belt and Road Forum. The leaders signed five agreements related to trade, law enforcement and projects under China’s Belt and Road Initiative. PM Lee confirmed that warm ties would continue after Singapore’s leadership transition. Finance Minister Heng Swee Keat become Singapore’s sole Deputy Prime Minister this week, a clear signal that he will become Singapore’s next Prime Minister.


    3. Jokowi’s team confirms comfortable win, but corruption mires economic plans

    In a week when Jokowi’s team confirmed his comfortable election win, the President is still struggling to entirely separate his economic plans from the perennial issue of corruption. Indonesia’s anti-graft agency (KPK) accused Sofyan Basir, President of state-owned electricity company PLN, of corruption in a major public works contract in Riau Province. PLN is a central part of Jokowi’s major infrastructure drive – his government’s signature policy. Other cases, including the sentencing of a senior politician in the Golkar party, which supports Jokowi, indicates corruption is an issue likely to hamper reform efforts into Jokowi’s second term. This week Jokowi’s government also announced a historic relocation of the nation’s capital.


    4. Opposing views on the Belt and Road ‘debt trap’

    A new study published this week has scrutinised 40 debt negotiations by China across 24 countries, and found results that challenge the dominant narrative of China’s alleged participation in ‘debt trap diplomacy’. The study found that debt write-off was the most common outcome, occurring in 16 cases, whilst loan deferment was also common, occurring 11 times. The takeover of assets only occurred in the high-profile Sri Lankan Hambantota Port case, and possibly once in Tajikistan where it is unclear why land was transferred to China. These results are good news for China, which has been keen to outline its inclusive approach towards development along the Belt and Road. Nevertheless, opponents to the initiative maintain that it will lead to undue Chinese influence and unsustainable financing packages.


    5. Private sector opportunities in India’s sanitation sector

    Parameswaran Iyer, Secretary, Ministry of Drinking Water and Sanitation, has announced that the sanitation market in India is likely to reach US$60 billion by 2021. The government official called on the private sector to enter the market and take advantage of the opportunities. This comes as Prime Minister Modi’s ‘Clean India Mission’ progresses and the government increases its efforts to partner with corporates to improve health and sanitation across the country.



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


    Partial Results of Thailand’s election announced. The 350 constituency seats for the lower house of Thailand’s Parliament will be released on 9 May. The remaining 150 seats in the house are determined by proportional representation and have yet to be calculated. According to preliminary results released by the Electoral Commission, the pro-Army Palang Pracharat Party has won the popular vote with 8.4 million votes, and opposition Pheu Thai Party won 7.9 million votes. Pheu Thai, however, won an expected 137 constituency seats compared to Palang Pracharat’s 116. Both Palang Pracharat and an anti-junta coalition led by Pheu Thai have claimed a mandate to form the next government. Thailand’s King will also be coronated this weekend, after marrying his consort and making her Queen this week.


    Five central banks to meet across the region. The central banks of five countries – Thailand, the Philippines, Malaysia, Australia and New Zealand – will meet next week, with most of them looking at possible rate cuts. The region is experiencing the preconditions for easing, including slowing inflation and stagnating growth. Prospects of a US-China trade deal may, however, change perspectives. Thailand’s hawkish stance is expected to continue, despite economic conditions.


    Ramadan begins on Sunday. The Muslim Holy month of Ramadan begins on Sunday evening, and as people across the world prepare for the month of fasting, markets are also preparing for the month’s effects. Fuel, food supply and financial services will all be impacted as users change their consumption patterns.


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

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