Asia

By Carlos Mera, Rabobank

As the world grapples with major economic and geo-political changes, we have predicted that food prices – which like all commodities are influenced by such forces – will remain low during 2017.

We believe the fundamentals support that view: while the spectre of inflation stalks some economies, stock levels of food commodities are at record levels, applying some downward pressure to prices. Many of these reserves are held by China. Therefore, what action the world’s most populous country takes in 2017 will have profound repercussions for everybody else. Read more

Donald Trump won the US election on a promise to ‘make America great again’. Now he is in the Oval Office, he will actually have to make good on those promises. He will need to create new jobs and improve living standards for America’s ‘left-behind’ who turned out en masse to vote him in. Trump appears to believe that the quickest way to achieve this is by revamping and restructuring the US’s global economic relationships, particularly with China.

Inevitably, such an upheaval will cause geopolitical tensions and Britain must be careful not to get sucked into a vortex of trade warfare. However, if we play our cards right, the process could provide a fantastic global opportunity for the UK. Read more

By Ganeshan Wignaraja and Juzhong Zhuang*

Rising protectionist sentiment in the West and a dramatic decline in global trade since 2011 have led many to speculate that Asia’s era of export-led growth will end soon. This speculation is overdone. While the slowdown in trade does demand responses, Asia is well positioned to be a bulwark against protectionism. In fact, it can lead global trade in the years to come.

But, getting the responses right will require a clear understanding of the causes. Policy makers need to ask first what explains the export slowdown, and what this means for Asian economies. The story starts with the great recession in 2008, which left advanced countries stuck in low growth, low demand environments that have weighed heavily on Asia’s export-dominated economies. Read more

By Paola Subacchi, Chatham House

The few weeks between the beginning of 2017 and the Chinese new year may be used by the Chinese monetary authorities to tweak some policies. The exchange rate is an area in desperate need of reform.

Will China finally embrace the market and let the renminbi float?

Despite the ambition to turn it into an international currency – i.e. a currency used to invoice and settle international trade, and to be held as an asset – the renminbi remains a currency with limited international demand. Read more

India is a land of extremes. Its fast-growing economy will rank beside those of China and the US as the world’s third largest by 2030. Its global diaspora is famed for its people’s prowess in business, technology and entrepreneurism.

But the country faces one serious problem that is not abating: alarmingly high rates of hunger and malnutrition. This month, a new food sustainability index produced by the Economist Intelligence Unit with the Barilla Center for Food and Nutrition shows that India continues to suffer widespread nutritional challenges that belie its status as an emerging market giant. Read more

By Jon Fredrik Baksaas, GSMA

There are a myriad of social and economic benefits made possible by bringing communication services to previously unconnected populations. This commitment to “Digital Inclusion” – the ability to extend connectivity to all corners of the globe – is driving internet access and usage, and providing access to vital services such as healthcare, education and commerce.

One barrier to digital inclusion is the availability of networks. To address this mobile operators have invested billions rolling out 3G/4G mobile broadband across the globe. Today mobile broadband networks cover 80 per cent of the world’s population, providing internet access to many markets where fixed access is either prohibitively expensive or non-existent. Read more

A month before his official inauguration, Donald Trump is already tossing diplomatic grenades in China’s direction. It is a sign of things to come. 2017 is shaping up to be a highly eventful, taut and precarious year for China-US relations. This is partly due to a simple scheduling coincidence.

2017 will be the first time ever when both the US and the PRC in the same year will usher in new governments. The US will kick things off on January 20th by swearing in Donald Trump as President. China, meanwhile, will undertake its own large political upheaval, its five-yearly change in political leadership, culminating in the 19th Communist Party Congress sometime late in the year. Virtually the entire government hierarchy, from local mayors on up, will be changed in a monumental job-swapping exercise orchestrated by Xi Jinping, China’s president. Read more

For two decades China’s economy – second in size only to that of the US – roared ahead at annual double-digit rates of growth. This year, according to official data, it is growing at 6.7 per cent. The current rate would be significantly less were it not for the continued willingness of China’s authorities to pump increasing amounts of cash into overheated real estate, financial and state owned enterprise sectors.

The risks of this policy are substantial, not just to China’s economic prospects, but to world financial markets. Read more

Apple is to launch two new research and development (R&D) facilities in China, aiming to expand its presence in this burgeoning consumer market and facilitate closer working relationships with some of the world’s leading consumer electronics and hardware manufacturers. Whether this investment will reverse the trend of falling revenues, however, remains to be seen.

In September, it was revealed that Apple is planning to open a $45m research centre in Beijing, employing 500 people tasked with the development of innovative hardware. One month later, it was announced that a further R&D facility will go ahead in Shenzhen, Guangdong, an area often described as China’s ‘Silicon Valley’. Read more

By Kevin Martin, HSBC

China’s consumers are by no means the wealthiest in the world. But they are years ahead of their counterparts in many developed economies in terms of how they shop and pay for what they buy. In this, they are revolutionising the way consumer finance is conducted in the world’s second-biggest economy.

Like so many of the changes sweeping China, the uptake of internet and digital technologies has happened with head-spinning speed.

As recently as 2000, a mere 1.7 per cent of mainland Chinese were online. Now, the country has more than 700m internet users – a penetration rate of more than 50 per cent.  Read more

By Raffaello Pantucci, RUSI

There has been much speculation on the role of the Silk Road Fund (SRF) and Asian Infrastructure Investment Bank (AIIB) in China’s outward investment push.

They are both instruments created by Beijing to provide economic firepower and bring international credibility to the ‘Belt and Road’ vision that has become President Xi Jinping’s keynote foreign policy concept. But in reality they have both undertaken a series of investments that, while substantial and linked to ‘Belt and Road’ countries, pale in size next to China’s overall outward investments. Read more

By Martin Fischer, Alaco

A series of recent Chinese takeovers of Germany’s top tech companies has unnerved many Germans who fear the trend could undermine the economy. Germany has always been more comfortable as an investor than a recipient of investment, with the Chinese shopping spree sparking a wave of protectionist sentiment, which some German politicians are looking to exploit.

Germany has emerged as the preferred destination for Chinese takeovers in Europe. In the first half of 2016 alone, EY, an accountancy firm, reported that Chinese investment in Germany exceeded $10bn – more than the combined total for the previous five years. But Germans are nervous about the influx of cash, primarily because the companies being acquired are small and medium-sized enterprises that form the backbone of the economy. Read more

By Isabel Stoker, Alaco

Sri Lanka is set to sign a major trade deal with India later this year, which it hopes will be the first step towards the island becoming a financial and business hub in the region. But the government of Ranil Wickremesinghe, prime minister, will have to work harder to win over domestic opponents of the Economic and Technological Cooperation Agreement (ETCA) who fear it will result in the country’s exploitation by Indian businesses.

Earlier this month Mr Wickremesinghe announced that the ETCA would be signed by the end of December. Sri Lanka has two other free trade agreements in the pipeline, with Singapore and China. The government began negotiations on the former in June and is expected to complete the latter by March 2017. Read more

We now know that the UK will trigger Article 50 of the Lisbon Treaty by the end of March 2017, giving the country two years to negotiate its exit from the European Union. But while most pundits have focused on the UK’s future policies regarding the EU, the UK must think seriously about how to use the opportunity of Brexit to reconsider its trading relationships with Asia, the world’s fastest-growing region.

Asia is a bright spot in a fragile world economy. While advanced economies are projected to grow at an anaemic 1.4 per cent this year, developing countries in Asia continue to grow at 5.7 per cent, with India leading the way at an impressive 7.4 per cent clip. What’s more, the region is home to a growing consumption-oriented middle class, which will reach over 2bn people by 2030. Read more

By Max J. Zenglein, Mercator Institute for China Studies

China’s leaders place high hopes on the vibrancy of the economy’s service sector, but in reality it has not been able to fill the void left by the decline of manufacturing. The inability of services to pick up the slack in turn creates a temptation for the government to delay overdue structural reforms while maintaining a reliance on investment-driven growth. Read more

The end is in sight for Google’s seven wilderness years in China. With none of the theatrics that accompanied its voluntary withdrawal from the country due to web-search censorship in January 2010, Google is now firmly on a path not only to return to China but also to potentially seize a spot alongside Apple as one of the most profitable tech companies there.

This is a likely outcome of Google’s announcement last week that it is entering with full force the global consumer hardware industry. Google Pixel mobile phones, Google Home artificial intelligence-enabled speakers, Google Daydream View virtual reality headsets, these will be the engines of Google’s revival in China. Based on what Google has so far revealed – including pricing – these products may find a large market among Chinese consumers.

The company has made no specific mention of plans to re-enter China. China’s government will not likely strew the ground with rose petals to welcome Google back. Read more

By Bruno Lannes, Wei Yu and Jason Ding, Bain

Yoghurt is flying off the shelves in China. The value of yoghurt sold in 2015 grew by more than 20 per cent. Meanwhile, instant noodles are suffering a slump. Consumers in China bought 12.5 per cent fewer containers of instant noodles in 2015 than they did a year earlier.

It seems that China’s market for fast-moving consumer goods (FMCG) now operates at two distinct speeds: slow and fast.

The engine behind two-speed China is the government’s official “new normal” policy, which is managing GDP growth at 6.5 per cent to 7 per cent, shifting focus from manufacturing to services and consumption, and pushing for innovation-led growth over investment-led growth. Read more

By Jenny Huang and Ying Wang, Fitch

It’s clear that China is embracing “supply-side reform” to reduce excess industrial capacity and shed unviable assets because its debt-driven growth policies were not working. The shift is essential for battling the middle income trap, but the reform’s effectiveness remains uncertain.

While Chinese leaders have set the tone to let the market play a decisive role, many reform policies have deviated from this principle in light of hefty social and financial costs.

One of the greatest reform challenges is employee settlement in heavy industries plagued by overcapacity including steel, coal and aluminium. More than 2m workers may be affected. Read more

By Eric Lascelles, RBC Global Asset Management

China now commands the world’s attention, having transformed itself into an economic superpower that generates a startling one-third of global economic growth. In a growth-scarce world, the thought of losing even a smidgen of this is unsettling.

For this reason, it is of crucial important to track the constellation of vulnerabilities and unknowns that orbit China. Among these, the country’s housing market is a subject of disproportionate importance. This is due to its centrality, its sheer heft, and also its seeming vulnerability.

Housing acts as something of an economic fulcrum that exerts an outsized influence over China’s banks, heavy industries, builders and households. We figure it is directly or indirectly responsible for a whopping 19 per cent of China’s economic output. Read more

Tourists steer clear of Brazil, Russia, India and Nigeria because of onerous visa requirements, EM Squared reported last week. But even with easy tourist visas in place, these emerging market giants won’t reach their full potential. The real key lies in enhancing the ease of doing business and developing adequate infrastructure.

Visa policies are certainly a real barrier to tourist arrivals. No matter how beautiful or intriguing your country is as a tourist destination, if you make it too complicated for tourists to visit, they will stay away. That problem is not limited to emerging markets. A few years ago, US Travel Association estimated that the US lost the equivalent of 467,000 jobs due to the difficulty for citizens of primarily Brazil, India and China to obtain a visa. Read more