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  • The Centre of Expertise on Trade,
    Investment and Public Policy

    The Week in Asia

    Published On: 13 September 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 13 September 2019 

    This week, Jack Ma steps down from Alibaba, Saudi Aramco selects the banks that will help prepare its IPO listing, and South Korea files a WTO complaint over Japan export curbs.


    1.  Hong Kong’s credit rating downgraded

    Global credit rating agency Fitch downgraded Hong Kong’s rating from AA+ to AA, following months of protests and unrest in the territory. This is the first time it has received a rating downgrade from the agency since 1995. Fitch have also warned that a future downgrade may be in the pipeline if protests continue. Describing its reasoning behind the downgrade, Fitch said the protests in Hong Kong threatened ‘the stability and dynamism of its business environment,’ and are ‘testing the perimeters and pliability of ‘one country, two systems,’ – but added that the current governance arrangement is likely to remain intact. The move has been decried in Chinese media as being ‘politically motivated’, while Carrie Lam, Hong Kong Chief Executive, has disagreed with Fitch’s view. Other fallout from the protests include statistics showing that tourism in Hong Kong has taken a hit, with visitor numbers 40 per cent down compared to the same time last year.


    2. Jack Ma hands over the reins of Alibaba 

    Alibaba Group’s Co-Founder and Executive Chairman, Jack Ma, has stepped down from his role as the company’s head, naming CEO Daniel Zhang as his replacement. He leaves behind one of the world’s most valuable companies, with a market cap of almost half a trillion dollars. Ma announced his retirement last September. Share prices have increased by 10 per cent over the last year, and April-June quarterly revenue was US$16.15 billion – an increase of 42 per cent from a year earlier. However, Alibaba are facing increasing challenges in a race to get new users, such the competition between Alipay and Tencent’s WeChat Pay. Nevertheless, the recent US$2 billion acquisition of Chinese cross-border e-tailer Kaola, which gives Alibaba more than half of the market share in Chinese cross-border e-commerce, shows Alibaba has no intention of slowing down as the leadership changes.


     3. Saudi Aramco taps banks in preparation for IPO listing

    Saudi Aramco has selected nine banks to take part in its planned IPO, in what could be the world’s largest stock market offering. They include international players such as J.P. Morgan, Morgan Stanley and HSBC, as well as Saudi Arabia’s own Samba. The other banks named are Goldman Sachs, Bank of America Merrill Lynch, Credit Suisse, Citi and National Commercial Bank. Aramco’s CEO announced that a foreign float would be done alongside the main domestic listing and is planned for 2020-21, though may take place sooner. The news was enough to almost wipe out this year’s gains in the Tadawul stock market – the Arab World’s biggest – as investors realise that after many delays, the IPO is likely to go ahead soon. Three years in the making, the government of Saudi Arabia hopes to raise US$100 billion by offering five per cent of the company, though whether Aramco is worth US$2 trillion is a matter of heated debate.


    4. South Korea to file WTO complaint against Japan over export curbs

    South Korea’s trade minister has announced that the country plans to take Japan to the WTO over its tighter export controls, claiming they were ‘politically motivated’ and ‘discriminatory’. Of particular impact has been the tighter export controls on materials needed for the production of smartphone chips and displays. As part of the process, South Korea will request consultations with Japan to push for the withdrawal of export curbs, and if this does not solve the issue, it will be decided by a WTO panel. However, Japan won a separate WTO case this week regarding South Korea’s tariffs on Japanese pneumatic valves in 2015. South Korea now faces a deadline by which to come into compliance or face retaliatory action, thus deepening the gulf in relations between the two countries.


    5. Issues between China and India holding up RCEP

    Negotiations on the Regional Comprehensive Economic Partnership (RCEP) are being held up, reportedly due to disagreements between India and China. India’s foreign minister has criticised China for what he described as one-sided trade policies, decrying ‘unfair’ market access which has created a trade deficit of US$53.6 billion in China’s favour. Other issues dragging negotiations include a reluctance from countries in Southeast Asia to receive large numbers of Indian workers in return for greater market access. Negotiators hope that the RCEP deal, which would encompass 16 countries and one third of global trade, will be concluded by the end of November. This would clear the way for signing in 2020, but this latest spat may delay progress and provoke a debate on whether to proceed with or without India.




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


    New UN General Assembly session begins: The world’s diplomatic showpiece conference, the UN General Assembly meeting, starts next week. There is a prospect of a US-Japan trade deal being completed and signed on the side lines of the Assembly, as well as other bilateral discussions, including talks between Indian Prime Minister Narendra Modi and US President Donald Trump.


    China’s People’s Bank tipped to start incremental rate cuts next week: The People’s Bank of China is predicted to start an extended cycle of rate cuts from as early as next week, through its new Loan Prime Rate system (LPR). LPR uses an average of the rates from 18 designated banks for their best clients to form a benchmark rate. It would follow a global monetary easing cycle, as well as the People’s Bank’s decision to pump US$126 billion into the banking system to boost lending.


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    Friday 6 September 2019

    This week, China takes the US to the WTO over tariffs, a tax and investment overhaul is in the pipeline for Indonesia, and the Philippines slap cement tariffs on Vietnam while defending their online gambling industry.


    1. China takes US to WTO over tariffs while new negotiations will begin in October
    China has made a formal complaint to the World Trade Organization (WTO) regarding the recent imposition by the US of 15 per cent tariffs on US$110 billion worth of Chinese goods. According to a statement from China’s commerce ministry, the new tariffs ‘violated the consensus reached by the two heads of state in Osaka’. Nevertheless, renewed trade talks are set to begin again in October. This news comes as several countries report feeling the effects of the trade war, with China’s industrial growth slowing since the second half of 2018 and its economic growth hitting a 30-year low. Singapore’s growth forecast for this year was downgraded from 2.1 to 0.6 per cent, with next year’s being cut from 2.4 to 1.6 per cent.


    2. Tax overhaul in pipeline for Indonesia as Jokowi tells ministers to be friendlier to foreign investment
    Indonesian finance minister, Sri Mulyani Indrawati, announced the preparation of a new tax bill that will have a big impact on international tech firms. One proposal is to make tech firms – such as Google and Amazon which have a ‘permanent establishment’ in Indonesia – liable for VAT, even if they do not have an office in the country. Wider plans include the reduction of the corporate tax rate from 25 per cent to 20 per cent from 2021, as well as a reduction for companies with a public share of at least 40 per cent from 20 to 17 per cent. Meanwhile, President Joko Widodo has demanded the government do more to accommodate foreign investors, as new data reveals that no companies relocating from China due to the trade war have moved to Indonesia, opting instead for other ASEAN members such as Vietnam, Malaysia or Thailand. Reducing the amount of time it takes to have operating permits approved was one measure the President highlighted.


    3. Philippines set to protect cement and gambling industries
    The Philippine government is introducing tariffs on cement imported from Vietnam, citing a need to protect domestic industry from cheap imports. A US$4.80 duty will be applied on every metric tonne of cement imported, to be implemented in two weeks’ time. The country’s need for cement has increased hugely due to President Duterte’s large-scale ‘Build, Build, Build’ infrastructure scheme. Meanwhile, the President has reaffirmed commitment to the country’s online gambling industry after Chinese President Xi Jinping made an implied request to ban it during their meeting last week in Beijing. There have been accusations from the Chinese side that the industry fuels cross-border money laundering. However, the government is keen to maintain the sector, due to the fact that it employs 350,000 people and is expected to create US$154 million in license fees alone this year.


    4. South Korea eyes up Southeast Asia co-operation amid trade tensions with Japan
    South Korea has signed a military intelligence-sharing agreement with Thailand, in a move regarded as reacting to the current dispute with Japan. Having already ended its intelligence-sharing agreement with Japan, South Korea’s new move upgrades the alliance with Thailand and may lead to more defence deals in the future. President Moon also agreed to support Thailand’s 4.0 strategy to promote increasing innovation and R&D co-operation. South Korea has also recently positioned itself closer to another ASEAN member state, Myanmar, with President Moon agreeing to double Seoul’s economic development cooperation fund to US$1 billion between 2018 and 2022, having already become the sixth-largest investor in the country. As trade tensions worsen with Japan, it is clear that South Korea hopes to win around ASEAN nations as part of a wider realignment of its foreign relations.


    5. Lebanon to declare economic emergency
    Lebanese Prime Minister, Saad al-Hariri, has announced he will declare a state of economic emergency in the country. The move is aimed at enabling the government to plan for the acceleration of public finance reforms, especially deficit reduction measures. Lebanon is dealing with one of the world’s heaviest public debt burdens, which currently stands at 150 per cent of GDP. The predictions from the IMF this year are that the deficit will reach 9.75 per cent of GDP, meaning the government’s aim to get it below five per cent by 2022 will be a tall order. The Prime Minister also stated that some of the measures debated include closing government units that are seen as wasteful to the treasury and to hold public offerings for some of their state-owned enterprises. He hopes the reforms will help unlock the US$11 billion pledged last year to finance investment.



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


    Japanese Government reshuffle expected: Prime Minister Shinzo Abe announced that a cabinet reshuffle will take place on 11 September. There will be particular interest in where Economic Revitalization Minister Toshimitsu Motegi lands; he was the top negotiator in trade talks with the US and is expected to be promoted to a senior cabinet position.

    Merkel visit to China to conclude: German Chancellor Angela Merkel will conclude her visit to China on Saturday. After meeting with Premier Li Keqiang, she will meet with President Xi Jinping at the head of a large business delegation, as well as travelling to Wuhan. Merkel will be hoping that an EU-China investment deal can be agreed soon, but issues surrounding Hong Kong are also likely to be brought up during the talks.


    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.