Note: This map represents many of the areas covered by our intelligence briefs. For the purposes of the brief, we cover mainland China, Taiwan, Southeast Asia and disputed territories in the South China Sea. This does map/image not reflect our organization’s stance on any specific regional issue, nor does it infer one country or region is more prominent than others. We maintain an apolitical stance towards regional disputes and only seek to convey facts and insight through our written assessments.
November 12, 2018
ASEAN summit underway in Singapore with landmark e-commerce agreement.
Summary: The annual series of high-level Asia summits are set to begin this week with the Association of Southeast Asian Nations summit (ASEAN) in Singapore, followed by the Asia Pacific Economic Cooperation (APEC) in Papua New Guinea over the following weekend. The Asian countries are expected to tackle questions of economic development and aim to promote the growth of Asian businesses domestically, regionally, and globally. On Monday Nov. 12th, ASEAN economic ministers enjoyed a productive start to the conference by signing an ‘e-commerce’ agreement that looks to build cross-border e-commerce transactions and increase consumer trust of digital platforms.
Why is this important? These conferences set the regional conventions and overall atmosphere of Asian economic relationships. It is a venue that will bring together major regional players, with leadership from India, Japan, South Korea, and China present at all meetings. This year will also see growing international participation in the conferences, with Russian President Vladimir Putin traveling to Singapore for the first time, likely to promote Russian military arms deals. The United States will be led by U.S. Vice President Mike Pence and National Security Advisor John Bolton.
Opportunity & Risk for Business: Asia is the largest and consumer market in the world. The recent ‘Singles-Day’ (11/11) sales through China’s Alibaba generated over 30.8 billion USD, dwarfing Amazon’s Prime Day sales figures of around 4 billion. With an increasingly tech savvy consumer base, companies across all industries, especially those that produce direct to consumer products, must be flexible in adapting to Asia’s growing digital marketplace.
Source: The Washington Post, Channel NewsAsia
China temporarily reinstates ban on rhinoceros‘ horns and tiger bones
Summary: Over the weekend, the Chinese State Council announced that it will postpone an order to lift a 25-year ban on trading those items for use in medicinal products. Over the course of the past weeks, numerous environmental groups have campaigned against this proposed policy change, with nine NGOs meeting with the State Forestry and Grassland Administration to argue their case.
Why is this important? While this is only a ‘temporary postponement,’ a policy reversal due to public pressure is very rare in China. These two items only impact a very small market; however, with only 30,000 rhinos and 3,900 left in the wild, legalization of procuring these items may increase cases of poaching that would drastically impact these species.
Opportunity & Risk for Business: Though not a direct impact to any specific industry, this event is a rare instance of Chinese state concession to a public movement. While the Chinese state likely did not have much stake in the outcome of the policy, this postponement serves as positive optics for NGOs and activism organizations that are feeling increasingly squeezed by Chinese regulations.
Source: NYT
Central Bank of China will cushion but allow for declining yuan
Summary: Since the start of the U.S.-China trade dispute, Beijing has cited the presence of ‘downward pressure’ on the yuan. There is general credibility to this statement; while the yuan’s reference rates are determined daily by the Central Bank, there is agreement that this current case of devaluation is tied to market forces. A report from the Central Bank this past Friday on Nov. 9th indicates a shift in language, hinting that the bank will be active in keeping the yuan at an equilibrium level.
Why is this important? The Chinese Central Bank appears to plan on initiating a gradual but controlled decline of the yuan. The report suggests that the bank will actively support the currency until the G20 summit in Argentina at the end of November. The summit will be an opportunity for U.S. President Donald Trump and Chinese President Xi Jinping to negotiate a resolution to the trade dispute – it’s outcome will directly impact the valuation of the yuan. Failure to do so may see a falling yuan that may pass the ‘psychologically’ important ratio of 7 yuan per dollar – a rate last seen in the 2008 financial crisis.
Opportunity & Risk for Business: A weaker yuan will serve as an advantage for China in terms of mitigating the effects of U.S. tariffs. As per basic currency principles, a weaker yuan will decrease the purchasing power of Chinese firms at the international level, which will negatively impact the level of imports, while bolstering the potential for exports.
Source: Reuters
November 14, 2018
Asia free-trade deal stalls at ASEAN
Summary: Talks in Singapore between ASEAN countries about initiating the Regional Comprehensive Economic Partnership (RCEP) have been pushed back to next year. The proposed RCEP aims to connect 16 nations in a free trade agreement that would cover over half the world’s population. The negotiations in Singapore faced resistance mainly from India, concerned about the implications of opening Indian markets to Chinese firms. China has been actively pushing this proposal as it faces continued pressure from U.S. tariffs.
Why is this important? The potential of the RCEP is massive: it would cover half the world’s population and currently one third of the world economy. While India has indicated weariness of market liberalization, Indian Commerce Minister Suresh Prabhu did declare in Singapore that the RCEP is the future. It remains to be seen if China and India can reach a level of understanding that will create an environment conducive to the RCEP
Opportunity & Risk for Business: While this news event indicates a setback to economic changes in Asia, it is indicative of the general direction envisioned by Asian leaders. A free-trade zone that would be like NAFTA or the Eurozone will improve the ease of trade between member nations. In the future, one potential drawback for non-member firms may be a trend of Asia firms to prefer regional partnerships over Western ones.
Source: scmp
Young ‘Marxists’ detained and missing in China
Summary: In China’s elite universities, student activists identifying themselves as Marxists have been detained by currently unidentified government agents. Starting in August, about two dozen students have been essentially ‘kidnapped’ in crackdowns against campus activism. These student activists have been campaigning for improved labor rights and protections for workers. The CCP has not directly commented on these detentions, though trends in recent years have demonstrated a clear increase in suppressing dissent.
Why is this important? The CCP is facing a unique challenge with these student protestors, as they proclaim to be adamant Marxists and Maoists. The suppression of these students reflects the CCP’s general policy against dissent or protest, demonstrating that it is indiscriminate of the contents in the protest.
Opportunity & Risk for Business: China is constantly facing an optics issue from the West, and this recent repression of university thought is a dangerous milestone in towards increased monitoring and censorship under Chinese President Xi Jinping’s leadership. Already, Cornell University has ended an exchange program with Beijing’s Renmin University.
Source: The Guardian
U.S. – China resume trade talks before G20 summit
Summary: On Tuesday, Nov. 13th, U.S. and Chinese leadership have restarted trade negotiations ahead of U.S. President Donald Trump and Chinese President Xi Jinping’s meeting at the G20 summit. From the two sides, the U.S. is requesting a clear Chinese offer prior to negotiations, while China wants to hold talks before any firm proposal is made. U.S. commentary from Commerce Secretary Wilbur Ross indicated that a deal with China must also address “intellectual property rights, forced technology transfers, and industrial espionage.”
Why is this important? Resuming talks is a positive indication, but the fundamental differences between the U.S. and China still have not been addressed. Currently, market fluctuations have been reactive to indication of U.S. – China dialogue, but as each encounter fails to produce indications of change, these talks remain empty. It remains to be seen if this week’s interactions will prove a positive foundation for the Trump-Xi interaction in Argentina at the G20 meeting.
Opportunity & Risk for Business: Businesses should ensure that contingency plans are in place in the event talks breakdown or tensions ratchet up. Businesses should understand the indicators for both the Chinese and U.S. side when building their contingency plans.
Source: CNN
November 16, 2018
President Xi visits APEC Summit
Summary: On Friday Nov. 16th, Chinese President Xi Jinping arrives in Papua New Guinea (PNG) ahead of the APEC summit over the weekend. Xi was greeted with much fanfare from the island nation. PNG has signed on to the Chinese Belt and Road initiative, and Xi arrived early to open a new road and school funded by Chinese loans. The apparent popularity of the Chinese leader in PNG has prompted some to label this year’s APEC as ‘XiPEC.’ However, the Chinese officials barred dozens of accredited journalists from covering the event, resulting in disappointment from many journalists. Some called the lack of transparency worrying, with others questioning the Chinese decision given the general positivity surrounding the event.
Why is this important? APEC this year will be dominated by China. The outcome and deals made at the summit will shape the Asia region and have international effects. China will look to come out of APEC with beneficial deals that will help leverage its position against the United States during upcoming trade dispute negotiations at the G20 summit in Argentina.
Opportunity & Risk for Business: Companies should watch for the outcomes of APEC, as it will indicate the current health of the BRI. Given increasing critique of China’s actions on the international stage, growing skepticism of BRI, as well as a potential U.S. alternative that will be unveiled by U.S. Vice President Mike Pence over the weekend, the Asia region is in flux and companies will do well to watch for reshaped trade relations at the end of the weekend.
Source: The Guardian, Reuters
Monetary easing supports Chinese bonds
Summary: Chinese government bonds have been the best performing sovereign notes over the past year. Despite the slowing growth of the Chinese economy amid natural economic effects and U.S. trade dispute pressure, the lowering of the reserve ratio in China has boosted the viability of the bonds. However, the downward pressures of the slowing economy have lowered bond yields, with projections of the 1o-year yield dipping below 3 percent by mid-2019.
Why is this important? There is growing uncertainty in the Chinese market, though there is still relative confidence in government bonds with the recent practice of lowering the reserve ratio requirements. Potential for a fourth reduction this year suggests that the Chinese state has tried to support the bonds.
Opportunity & Risk for Business: The lead up to G20 has increased the ‘risk appetite’ of investors, as many are counting on a deal between the U.S. and China to be made at the summit. Despite the retreat, there seems to be consensus on the health of Chinese bonds.
Source: Bloomberg
U.S. President Donald Trump raise hopes for China trade deal
Summary: On Friday, Nov. 16th, President Trump voiced his confidence that a deal will be made soon with China. This is the first time the President has commented on China’s proposals that were made earlier in the week. While he stated that there were still a few items that were not on the draft proposal, the President claimed that he’ll probably “get them too.”
Why is this important? Ahead of the G20 conference, this is a different tone from the U.S. President. Just earlier this week, he had been more threatening towards China, stating that the U.S. had another round of tariffs prepared if trade talks stall. It appears that the items President Trump wants addressed include Intellectual Property Rights violations, as well as forced technology transfers. There has been no indication from the Chinese side that they will compromise on these issues.
Opportunity & Risk for Business: The potential of a deal made at the G20 conference would see benefits to both U.S., China, as well as third party countries that have been affected by the trade dispute. Steel exports from China and Taiwan have been hit by the tariffs. At the same time, U.S. agriculture has been detrimentally affected by losing the China market.
Source: BBC
Analyst’s Bios
Analyst- Michael Tian
Michael Tian is currently a Junior at Brown University concentrating in International Relations and Economics with a focus on East Asia. Dedicated to understanding the global economy and its effects on inter-state relations, Michael seeks to promote mutual cooperation and foster cultural ties across cultures and space by developing informed and objective publications in both policy and academia. As a Chinese immigrant growing up in Boston Massachusetts, Michael is deeply invested in improving the livelihood of Asian-Americans and Asian immigrants – he has volunteered at various Chinese cultural associations in the Boston community, and currently tutors English to overseas Chinese students.
Senior China Analyst- Alicia Fawcett
Alicia Fawcett is a China analyst with expertise in US-China trade and cyber issues. Her professional experience includes U.S. Department of State, Cybersecurity firms, The National Bureau of Asian Research, the International Crisis Group, International Media, and the United Nations. She has studied and worked in Mainland China, Hong Kong and Taiwan. She holds a Master’s Degree from the University of Economics in Prague in International Economic Relations and two bachelor degrees in Economics and International Studies with China from the University of Northern Colorado. She is fluent in Mandarin Chinese and speaks German, Italian, Spanish and basic Czech. Her writing and original ideas have been published across Europe, with Asia-focused think tanks, universities, and in the D.C. based academic journal, The Washington Journal on Modern China.
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