China mulls market rescue as tears of regret flow - Asia Times

After falling 12.2% this year, Hong Kong’s stocks rebounded 2.63% on Tuesday on news that Beijing may mobilize about 2 trillion yuan (US$278 billion) through offshore entities to support beaten-down Chinese stocks.

The Hang Seng Index, the benchmark of Hong Kong markets, increased 392 points to close at 15,353 on Tuesday. But it is still down 32% from 22,566 a year earlier – and sob stories are plentiful and heart-rending.

For comparison, Japan’s Nikkei 225 from the end of last year grew 9.7% to 36,517 on Tuesday. It has risen 33.8% over the last one year. The Taiwan Weighted Index has eased 0.3% to 17,874 this year but it has gained 19.7% over the past year. 

The Dow Jones Index closed at 38,001 on Monday, up 13% from a year ago, while the S&P 500 gained 22.7% to 4,850.

The rebound in Hong Kong stocks came after Bloomberg reported that Chinese authorities are considering a rescue package backed by offshore money to boost sentiment in the H-share markets.

The report also said Beijing has already put aside 300 billion yuan of local funds that would be used to invest in A-shares. 

Some analysts said Hong Kong stocks’ decline in recent weeks came partly because investors were disappointed by a potential delay of the rate cuts in the United States. They said Hong Kong shares were also dragged down by a slower-than-expected recovery of China’s consumption markets. 

Linus Yip, chief strategist at First Shanghai Securities, told mainland media that there will be support for the Hang Seng Index at about 14,600 points within the short run, but the future trend of Hong Kong stocks will depend on the Chinese economy and people’s consuming power.

Kenny Wan, head of investment strategy at KGI Asia, said the Hang Seng Index was affected by different factors, including the US interest rates and geopolitics. He said many investors have adopted a wait-and-see approach and hoped that Beijing would unveil some supportive measures. 

Meanwhile, some veteran investors blamed Chinese policy makers’ inconsistency in fighting against deflation.

Sob story #1: big mistake

Chua Soon Hock, founder and chief investment officer of Singapore-based Asia Genesis Asset Management, said Tuesday that his firm decided to close its Asia Genesis Macro Fund and return money to clients.

The fund, launched in 2020, declined 18.8% in the first few weeks of January, Chua said in a letter to investors seen by Reuters.  

He admitted that he had made a big mistake by increasing long positions in Hong Kong and China and short ones in Japan. He said he thought that China would outperform Japan this year after being sold off for the past three years while Japan would correct after a 30% gain in 2023.

“I still do not understand the inconsistency of China policymakers’ not fighting against deflation, leading to continued loss of market confidence and prolonged bear market,” he wrote in the letter.

“I have lost my knowledge, trading and psychological edge,” he wrote. “I have reached the stage whereby my confidence as a trader is lost.”

He said his past experience is no longer valid and instead it is working against him. 

Chua said in a post on LinkedIn last month that 2024 would be the beginning of a multi-year bull market for Chinese stocks. Investors had anticipated that the People’s Bank of China would cut the rate for medium-term lending facility (MLF) on January 15 but it did not. 

Next spring

On January 12, the National Bureau of Statistics said China’s consumer price index (CPI) decreased by 0.3 percent year-on-year in December 2023. The figure has been declining for the third straight month. 

State-owned Xinhua News Agency said many foreign media were wrong to jump to the conclusion that China has slid into deflation, and even hyped the possibility of a long-term deflation.

It said the CPI’s low-range performance is mainly a structural issue. It said the core CPI, which strips out volatile food and energy prices, has posted a rather stable year-on-year growth in 2023. 

Hu Xijin, a “patriotic” political commentator and the former editor-in-chief of the Global Times, tried to boost people’s confidence in the stock markets by buying A-shares with his own money.

Initially, the newbie injected 100,000 yuan in his investment account last June, and gradually invested the amount to 480,000 yuan.

On Monday, when the Shanghai Composite Index fell 2.7% to 2,754, the lowest since April 2020, Hu said he felt sad that he lost 10,444 yuan in a single day. He said he has so far suffered a loss of 71,024 yuan, or 17.4% of his money.  

He said it’s urgent for policy makers to launch supportive measures to boost market sentiment. Last month, when his accumulative loss exceeded 42,000 yuan, he said he still believed the Winter of China’s stock markets will soon pass while the Spring will come.  

Prepare for the worst

On Monday, a regular State Council meeting chaired by Chinese Premier Li Qiang said the government will increase the quality and investment value of listed firms and encourage mid-and-long-term capital to enter and stabilize the stock markets.

The call was followed by Bloomberg’s report about the potential launch of a rescue package to support Hong Kong stocks. In fact, Chinese media said some state-owned funds had already entered the A-share markets last week. 

However, Lau Kwan-ming, a Hong Kong financial writer, said in an article on January 16 that once US and European stock markets had started to correct from current high levels, the Hang Seng Index likely would drop farther, perhaps to as low as 12,000. 

He said investors should prepare for the worst – a market crash similar to the ones seen in the Asian Financial Crisis in 1998 and the Global Financial Crisis in 2008. 

In a two-day meeting chaired by Chinese Communist Party General Secretary Xi Jinping on December 11 and 12, the Central Economic Work Conference said the government should direct public opinion to promote the bright side of the Chinese economy.

On December 7, Liu Jipeng, dean of the Capital Finance Institute of China University of Political Science and Law, said he had left his position. His sudden departure came after he’d said in a forum on December 1 that individual investors should avoid entering A-share markets as some outdated listing rules needed to be changed.

Read: Chinese stocks slump after Moody’s outlook cut

Follow Jeff Pao on Twitter at @jeffpao3

Read: Chinese stocks slump after Moody’s outlook cut

Follow Jeff Pao on Twitter at @jeffpao3

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Nobel Sustainability Trust launches digital currency initiative

MUNICH, Nov. 9, 2023 —A meeting sponsored by the Nobel Sustainability Trust today launched the Central Bank Digital Currency Collaboration Organization (CBDCCO), under the chairmanship of Peter Nobel, president of the Trust. The organization’s goal is to nurture sustainable economic growth and stability by encouraging the adoption of digital currencies.

The inauguration ceremony represents the culmination of years of activity on the part of a pioneering global Central Bank Digital Currency research organization, the International Telecommunications Union Focus group headed by Dr. David Wen. Dr. Wen is the Director-General of the new CBDCCO.

The new initiative draws on experts from leading regulatory and financial organizations, including the European Security and Market Authority, the Federal Reserve, the Official Monetary and Financial Institutions Forum, China Merchant Bank, CBDC solution provider eCurrency, and technology experts from CBDC solution providers like eCurrency, and Modern Sustainable Solutions (MOSS), a leading carbon offset provider.

Dr. Bruno Wu, the President of CBDCCO and Director-General of the World Sustainability Standard Organization (WSSO), outlined a seven-part program in his keynote speech to the founding conference. Dr. Wu was the honoree of last year’s Nobel Sustainability Trust award.

Under the theme “Star Bridge,” the CBDCCO program will work with central banks to develop digital technology, assist in the integration of digital financial infrastructure, promote accounting standards that corporate sustainability data in accounting standards, apply CBDC technology to Real World Asset Management, develop digital infrastructure for improved global carbon asset management, foster technical standards for a wide range of CBDC solutions, and provide innovative technology for regulatory oversight of sustainability products.

Dr. Wu is a shareholder of the parent company of Asia Times.

Peter Nobel, representing the Nobel Sustainability Trust, stressed the importance of embedding sustainability into the core of future economies. They stated, “Digital currencies present a unique opportunity to rebuild and reshape our financial systems with sustainability at their core.” The Nobel Sustainability Trust, long active in the sustainability space, will provide expertise and support for the new organization.

The CBDCCO and the Nobel Sustainability Trust extended an invitation to other organizations and governments to join their endeavors in forging a sustainable and inclusive financial future.

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China driving Marcos deeper into American arms

MANILA – “I’m not aware of any such arrangement or agreement that the Philippines will remove from its own territory its ship,” Philippine President Ferdinand Marcos Jr said when asked about China’s recent request for the removal of the BRP Sierra Madre grounded vessel from the contested Second Thomas Shoal.

“And let me go further: If there does exist such an agreement, I rescind that agreement now,” Marcos added, the latest fusillade in the leader’s tough stand on China amid escalating tensions in the South China Sea.

The Filipino president was responding to claims by the Chinese Foreign Ministry on August 7 following yet another major incident in the maritime area that Manila had “promised several times” to tow the Sierra Madre away “but has yet to act.”

Over the weekend, Philippine authorities released footage showing China Coast Guard ships blocking and harassing Philippine resupply vessels approaching the Second Thomas Shoal, where a detachment of Philippine marines are stationed over the rusty, half-sunken ship.

China has denied blocking resupply of food and water supplies, but it has defended its latest action by accusing Manila of efforts to transfer construction materials to the area.

The Sierra Madre, a rusted warship that has been grounded on the Second Thomas Shoal since 1999, has been kept in place as a way to reinforce the Philippine claim to the shoal. Photo: Asia Times files / AFP via Getty / Jay Directo

While China has engaged in massive reclamation activities in the disputed sea, it has at the same time opposed any similar efforts by rival claimant states. The Asian powerhouse has also opposed the Philippines’ recent efforts to expand military cooperation with the United States under the Enhanced Defense Cooperation Agreement (EDCA).

The recently enhanced agreement gives US troops rotational access to Philippine bases, including strategic facilities situated close to Taiwan. Speculation has grown in recent months that the US may eventually seek to preposition weapons pointed toward China on Philippine soil.

Confronting growing harassment by Chinese vessels in the South China Sea, top senators and political figures in the Philippines are egging on Marcos to adopt even tougher measures vis-a-vis Beijing. As a result, the notoriously conflict-averse Filipino leader is being forced to harden his line towards China.

Shifting mood

By all indications, the Marcos administration’s foreign policy pivot toward the United States has taken China by surprise. Just weeks after a high-profile state visit to Beijing, Marcos greenlighted an expanded EDCA with the US. Months later, he traveled to the White House and the Pentagon to upgrade bilateral defense ties further.

To be sure, the Filipino president did repeatedly seek to reassure China by vowing that EDCA sites would not be weaponized by the Pentagon. His top defense officials also downplayed the proximity of some of the EDCA sites to Taiwan’s southern shores, emphasizing that Philippine defensive capability development was the main focus of growing cooperation with the United States.

Public statements, however, indicate that China is unconvinced. In a direct challenge to Marcos’s mandate, former president Rodrigo Duterte accepted an invitation to visit top Chinese leaders including President Xi Jinping in Beijing, reportedly to mediate rising tensions.

In recent months, the popular former president has wasted no opportunities to criticize his successor’s pro-US foreign policy, most notably the enhanced EDCA, as unnecessarily provocative toward China and potentially devastating for Philippine sovereignty.

Aside from exerting pressure on Marcos via pro-Beijing figures in the Philippines, China has also upped the ante in the South China Sea. Ever since the Philippines cleared an expanded EDCA with the US, Chinese vessels have engaged in various forms of intimidation against Philippine counterparts.

Beijing’s tough tactics, including the Chinese Coast Guard’s recent use of water cannons against Philippine resupply ships destined for the Second Thomas Shoal, have galvanized Manila’s political elite.

“I’m begging you to stop bullying Filipinos,” exclaimed Philippine Senator Christopher “Bong” Go during a particularly spirited speech earlier this year.

“Just because we are a small country we will be oppressed? Don’t do that!” said Go, vice-chairman of the Senate Committee on National Defense. “Let’s maintain respect. We will fight for what is ours. What is ours is ours. That’s ours. So stop using violence or bullying.”

What makes Go’s comments particularly noteworthy is that the senator is the de facto right-hand man of former president Duterte.

Go, who is of Chinese-Filipino descent, repeatedly accompanied Duterte during trips to Beijing in order to elevate bilateral strategic ties. But now, even this top advocate of Philippine-China relations has begun adopting a more critical stance, at least in public.

Philippine President Ferdinand Marcos Jr (L) and his predecessor Rodrigo Duterte (R) don’t see eye to eye on China. Image: Twitter Screengrab / ABS-CBN

Other key Duterte allies have adopted similar lines. Senator Francis Tolentino, former political affairs secretary under Duterte, has been a leading advocate of stronger defense ties with Western allies.

Earlier this year, he even called for a “new quadrilateral” security alliance with Australia, Japan and the US to counter China’s assertiveness in the South China Sea.

Following the latest incident in the disputed waters, other pro-administration stalwarts have also taken harder lines.

“China’s bullying only promotes discord and instability, which does not do well for regional peace and harmony,” said Senator Ramon Revilla Jr, another key Duterte ally. “We have long advocated for a coexistence built on respect and amity. And with this incident, we must put our foot down and draw the line where the safety and interest of our countrymen are endangered.”

Radical measures

Senators JV Ejercito and Joel Villanueva, who belong to the majority bloc in the 24-member Senate, have called on the Marcos administration to ramp up measures against China while enhancing the country’s defensive capabilities.

In fact, there seems to be growing support for opposition Senator Risa Hontiveros’s earlier call to take China to the United Nations over there South China Sea disputes, as well as pursue joint patrols with Southeast Asian claimant states in the contested waters.

Senate President Juan Miguel Zubiri cited China’s recent “atrocities” as a reason to consider more extreme measures beyond the hundreds of notes verbales filed by the Department of Foreign Affairs (DFA) to Beijing against China’s various actions in the disputed waters.

“Those acts done were completely illegal and therefore a complaint should be filed under the United Nations Convention on the Law of the Sea with the UN,” said Zubiri.

“Not just notes verbale. With due respect to the DFA, with the number of notes verbale – with the number of diplomatic protests – we can gift wrap the Chinese embassy in Metro Manila yet we are still ignored,” the Senate president added, underscoring the hardening stance among the Philippine political elite on the issue.

Top political figures have also called on the government to start refurbishing the Philippine position on the ground, most especially the grounded vessel in the Second Thomas Shoal.

Under the Duterte administration, the Philippines upgraded its facilities across the Spratly group of islands, most notably on Thitu Island, which hosts a relatively large Filipino community composed of both civilians and military personnel.

But refurbishing the Sierra Madre vessel in the disputed area risks provoking an even more aggressive response from Beijing. So far, Marcos seems determined to avoid direct clashes with China, but he will also have to contend with growing public pressure.

An authoritative survey released earlier this year showed that more than eight out of 10 Filipinos want the government to seek US assistance to better defend the Philippines’ position in the South China Sea. Meanwhile, a more recent survey by the New York-based Eurasia Group consultancy showed that 69.8% of respondents held negative views of China.

This photo taken by the Philippine Coast Guard shows Chinese vessels anchored at the Whitsun Reef 175 nautical miles west of Bataraza in Palawan in the South China Sea. Photo: AFP

In the Philippines, public opinion is often king and could eventually force the president’s hands. If the status quo persists, Marcos will have no choice but to further enhance military cooperation with the US to better defend his country’s position in the South China Sea.

He may also seek the Pentagon’s assistance – even if indirectly through security guarantees in the event of potential clashes with China – to refurbish Philippine facilities in the Spratlys.

By resorting to intimidation tactics rather than providing meaningful concessions and incentives, Beijing may have inadvertently alienated a potential ally in one of the most strategically situated nations in the Indo-Pacific, with major implications for the trajectory of US-China rivalry in the region.

Follow Richard Javad Heydarian on Twitter at @Richeydarian

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Singapore’s plant-based entrepreneurs are targeting meat eaters

In an unassuming butcher’s shop on Singapore’s Ann Siang Hill, juicy steaks hang from hooks in the windows. Local favourites – chicken satay skewers and beef rendang – sit in cool glass booths. 

But the meatiness is an illusion, the satays are soy-based and the steaks pumped up with shiitake mushroom. But, Love Handle, Asia’s first plant-based butcher, is not targeting Singapore’s vegans, or the vegetarian diets of the country’s Buddhist and Hindu communities. About 70% of its customers are meat eaters and its mission is to reach the mainstream. 

“Our target audience is specifically not vegans,” said Ken Kuguru, Love Handle’s CEO and founder. “It’s a bit of a paradox. [But in everything] we are a little bit paradoxical.” 

Love Handle CEO and co-founder Ken Kuguru (right) works to bring meaty flavours to plant-based dishes at his meat-free butcher. (Photo supplied)

As a city-state that imports more than 90% of its food and has little room for actual livestock, Singapore has a vested supply chain interest in shifting from traditional meats. 

Last year, a three-month chicken export ban from Malaysia, which provides the Lion City with about 34% of its poultry, halted the normal inflow of approximately 1.8 million broiler chickens a month. The ban caused a hike in poultry prices and concern over the country’s food security.

At the same time, environmental sustainability concerns are pushing many in Singapore and beyond to rethink their diets to reduce consumption of animal products. Restaurants and suppliers are increasingly following a similar path as Love Handle in using plant-based foods to reach customers beyond just vegans and vegetarians. Though challenges remain in making a convincing meat substitute, a rising class of Singaporean food entrepreneurs are betting on new techniques to recreate favourite dishes in a more eco-friendly way. 

For some of them, this isn’t just a business decision – it’s a way to possibly prevent the worst outcomes of global climate change while preparing for a new world brought on by environmental crises.

Hawker Neo Cheng Leong (right) and his apprentice Lim Wei Keat at Neo’s chicken rice stall in Singapore. Recent chicken export bans have triggered food supply chain fears for the country, which imports 90% of its food. (Photo: Roslan Rahman/AFP)

In the Lion City, about 7% of the population are vegan or vegetarian, according to a 2020 poll by research firm YouGov Singapore. Individual reasons for the diet typically include environmental and health concerns, which together accounted for 70% of the reasons to give up meat.But it is unlikely that change will be driven by the small minorities who are willing to fully embrace a plant-based diet. 

“There’s a lot of dishes that already cater to this community,” said Kuguru. “It’s established, it’s traditional, it’s there – but it hasn’t grown.”

To penetrate beyond this small and set demographic, he believes it’s important to emulate the “meaty” flavours that might hold people back from moving away from animal proteins. 

Love Handle’s products replicate the umami tones of meat by catalysing the natural chemical interactions released from vegetables through the cooking process. Some plant-based companies replicate meat’s bloody qualities through leghemoglobin, a red protein found in soybeans. 

These kinds of efforts are already showing promise in the marketplace as consumers around the world gain a taste for the meat-free lifestyle. According to Bloomberg Intelligence data, the global market for plant-based foods could see fivefold growth by 2030

On the other hand, the quantity of meat produced over the past 50 years has increased threefold and remains on an upward trajectory, according to an October report on sustainable food by accounting giant PwC’s strategy consulting business. 

Another report by the Stockholm Environment Institute a month later stated animal-based foods could be responsible for at least 16.5% of total greenhouse gas emissions. The report warned that if current consumption trends continue, it will be impossible to keep global warming below the 1.5° Celsius mark and increasingly challenging to stay below the 2° Celsius upper limit.

Vegan alternatives of popular local food … appeal[s] to the masses, draws them in to give vegan food a try”

LK Ong, Chef, VeganBliss

The high environmental stakes have provided extra motivation to those hunting the elusive secrets of re-creating meatiness. 

For VeganBliss restaurant, which opened last year amongst the bright Peranakan shophouses of Joo Chiat Road, the key to selling a wider market on sustainable eating has been emulating not just the meat, but also the meal. The restaurant’s “roast chicken rice” bestseller is made from natural gluten but resembles the sliced fillets found at most of the country’s popular hawker food markets. 

“Making vegan alternatives of popular local food … appeal[s] to the masses, draws them in to give vegan food a try, [and shows them] that the switch to veganism doesn’t entail sacrificing your favourite food,” says LK Ong, chef at VeganBliss. 

For other restaurants, branching out from familiarity of local favourites has raised a challenge.

“In Asia, we eat based on tradition. You eat what you do because that’s what your mum did and grandmother did,” said Christina Rasumussen, a chef and entrepreneur. “But this doesn’t work for our planet anymore … we have to change.” 

Chef and entrepreneur, Christina Rasmussen is tackling preconceptions of what a plant-based diet should look like. (Photo supplied)

After working at Michelin-starred restaurant Noma and a plant-based collective in her native Denmark, Rasmussen moved to Singapore in 2022. When launching Mallow, her first pop-up concept in the city-state, she grappled with the challenge of how to integrate a vegan business into a culinary culture that celebrates local dishes such as poached Hainanese chicken rice and seafood laksa soup noodles and where traditional hawker food markets have gained UNESCO heritage status.  

“Overall, vegan concepts are not popular like you may find in other western cities,” she said.

Most of Mallow’s customers were not vegan. As she prepares to launch her first permanent restaurant, Fura, she has consciously moved away from “plant-based” or “plant-forward” labels, to instead focus on “what our diet could look like in the future, due to climate change”. The menu will use ingredients that are in abundant supply, including insect proteins. 

“We don’t openly brand ourselves as being vegan on purpose as it turns many away, instead we say plant-focused,” Rasmussen said. “[We’re] slowly changing people’s perceptions of what being conscious can look and taste like.”

Meat-free roast chicken fillet made from gluten resembles its animal-based counterpart. (Photo: Amanda Oon/Southeast Asia Globe)

As a small island metropolis, making sustainable diets the norm in Singapore will rely on sustainable supply chains.

Last year’s upheaval of chicken imports brought this fact into stark relief. 

“We intend to grow more food locally to serve as a buffer in times of supply disruption,” said Grace Fu, minister for sustainability and the environment, in a parliamentary response to the chicken situation.

Fu and others in government used the issue to promote Singapore’s “30 by 30” campaign, an ongoing effort that aims to boost domestic food production to about 30% of everything consumed in the city-state by the end of the decade. 

A demonstration for flavour smell testing room at ADM’s Plant-based Innovation Lab in Singapore. (Photo: Roslan Rahman/AFP)

Restaurants including Love Handle and Fura focus on native ingredients such as soybeans, jackfruit and mushrooms. But the market still faces serious challenges in cost accessibility. Currently, Love Handle’s prices parallel those of high-end meat butchers in the city. 

“Green Rebel” beef steak, made from mushrooms and seasoned with Cajun spices, costs $5.91 (SGD 8) for a 180 gram portion, while a 100 gram packet of vegetable “sausage” mince is priced at $5.17 (SGD 7). 

In comparison, $10.16 (SGD 13.75) can buy 500 grams of Australian grass-fed beef mince and a 250 gram New Zealand striploin beef steak costs $8.49 (SGD 11.50) at local supermarket FairPrice. At local wet markets, prices can be even cheaper. 

“In order to bring plant-based meats closer to the [meat-eating] consumer, the company will often add in additives, flavourings, colours, textures – when you add in all these new ingredients, you add to the cost, you add to the energy consumed in the process,” said Willam Chen, a professor in food science and technology at Singapore’s Nanyang Technological University. 

“Subsequent processing of plant-based protein foods to suit consumers’ demand also needs energy. There is no holy grail.”

Nuggets made from lab-grown chicken meat are displayed during a media presentation in Singapore, the first country to allow the sale of meat created without slaughtering any animals, in December 2020. (Photo: Nicholas Yeo/AFP)

To address this issue, some innovation hubs are developing alternative proteins grown from animal cells in labs. Last year, Singapore became the first country in the world to grant regulatory approval for the sale of lab-cultured meat.

It’s a sector of innovation that fascinates Kuguru. For Love Handle’s next venture, he is  partnering with a research lab to fuse animal and plant cells to create alternative proteins at a larger scale. 

While not involving the slaughter of live animals, these new hybrid meats would not be considered vegan. But Kuguru is confident this move will not shut most vegans out.

“Anecdotally, the vast majority of vegans and vegetarians opted to move to a vegan and vegetarian diet because of either environmental reasons or animal cruelty reasons,” he said. “For those groups, moving to hybrid meat products would solve their core issues and allow them to reintroduce sustainable and ethical meat products back into their diets.”

As companies vye to keep up with consumer tastes, the wider industry has a more pressing issue on its plate. For Kuguru, switching to greener alternatives from traditionally farmed, animal meats may quite literally be a way to save the earth. 

“Given the data on the beef industry, the carbon emissions, the amount of land that’s available, the math doesn’t work,” he said. “The planet is going to implode.”

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Volatility expected as debt ceiling negotiations intensify

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Investment strategy: How to trade the 14th Amendment?

David Woo writes that markets have largely disregarded the debt ceiling negotiation as a major risk due to the growth of passive investing and a lack of urgency from negotiators. However, concerns are rising over whether the positive talk is a mere show, and there is speculation that President Biden may invoke the 14th amendment if a deal cannot be reached.

Global Uncertainty Index Remains at Zero Line

David Goldman assesses how declining foreign deposits at US banks, signalling a global squeeze on dollar credit, could potentially lead to increased volatility and a shift towards alternative currencies in international trade, further impacting America’s economic position.

Russians strategize offensive options after the fall of Bakhmut

James Davis details how the war in Ukraine has entered a phase of increased uncertainty as neither side has a defined strategy. Both sides are regrouping after the Wagner group’s capture of Bakhmut, where Ukrainian troops suffered significant losses in morale and resources, with Russia now considering various offensive options.

China declares Micron a cyber threat while the long-term outlook favors Korean chipmakers

Scott Foster delves into China’s move to ban the use of Micron’s memory chips due to concerns over national security, which is seen as retaliation against US sanctions and is expected to lead to tougher sanctions on the Chinese semiconductor industry, favoring Korean competitors like Samsung and SK Hynix.

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Singapore pulling all stops to avert a housing collapse

Singapore’s housing market is going through some big changes. It has a dual market structure consisting of a public and a private market. The public housing market is divided into a primary and a secondary (resale) market.

The Housing & Development Board is responsible for building and selling public housing flats at concessionary prices in the primary market to Singaporeans.

The primary public housing market is regulated and only open to Singaporean families, subject to a monthly household income cap of 14,000 Singapore dollars (US$10,400). After meeting the minimum occupation period of five years, owners can sell their flats in the secondary public housing market to Singaporean citizens and permanent residents who do not own private houses.

The private housing market is a laissez-faire market that supplies non-landed houses, such as apartments and condominiums, as well as landed houses, such as terrace, semi-detached and detached houses. Foreigners are prohibited from owning public housing flats. While they can buy and sell non-landed apartments and condominiums, they can only buy landed houses on Sentosa Island.

Despite Covid-19-related disruptions to supply chains and economic activities, the benchmark private residential property price index experienced 12 consecutive quarters of growth of 25% total after exiting the “circuit breaker” in June 2020. The resale public housing price grew by 28% over the same period.

The government introduced three rounds of cooling measures to pre-empt housing prices from diverging from economic fundamentals. On December 16, 2021, the government raised the Additional Buyer’s Stamp Duty (ABSD) — a form of transaction tax when buying private residential Singaporean properties — for foreigners from 20-30%.

The ABSD was also raised to 17% and 25% for Singaporean citizens and permanent residents respectively when buying second properties and 25% and 30% respectively when buying third and subsequent properties. Property developers also pay the ABSD of 40% — but 35% is remittable if developed units are sold within five years of the land acquisition date.

Another intervention occurred on September 29, 2022, when government agencies raised the medium-term interest rate floor — which is used to calculate the loan quantum granted by private financial institutions for property purchases — from 3.5-4%. The government also imposed a 15-month wait-out period for private owners to insulate first-time home buyers against intense competition in the public resale market.

The government is concerned about high housing prices weakening its social compact. Although foreign investments only constituted 7% of private property sales in 2023, they significantly drove up private housing prices, especially in the luxury housing segment. The latest ABSD rate hikes were intended to check the flows of oversea “hot money”, which have inflationary effects on the private housing markets.

On April 26, 2023, the government increased the ABSD from 30-60% for foreigners when buying private residential properties in Singapore. Singaporean citizens and permanent residents will now have to pay ABSD of 20% and 30% respectively — an increase of 3% and 5% — when purchasing second private properties for investment purposes.

Private residential property prices are already at historically high levels, with average launch prices ranging from S$2,000-S$2,900 (US$1,485–$2,153) per square foot. The current median housing price is 14 times that of medium-income — such high prices will make the private housing market unaffordable and inaccessible for medium-income families.

Using a recent project launched after the new ABSD rule, Blossoms by the Park, a local buyer purchasing a 3-room unit at S$2.28 million (US$1.7 million) will make a down payment of S$570,000 (US$423,000), based on a loan-to-value ratio of 75%.

Because of the 4% interest rate floor, their monthly mortgage payment will be S$10,360 (US$7,693). Based on the total debt servicing ratio of 55%, their monthly income must be at least S$18,840 (US$13,990) to obtain a mortgage loan from a local bank. This means that only the top 10% of Singaporean households by income could afford the unit in the Blossoms by the Park.

Interest rate hikes and geopolitical tension add significant risks to investing in private real estate markets. If macro-risks trigger negative economic outcomes — such as recession and unemployment — private housing market prices could spiral, leading to more socioeconomic consequences.

While the potential effects of the new ABSD of 60% are unclear, the costs of inaction could be more detrimental regardless of the direction private housing prices go.

A market failure could have a widespread impact on every stakeholder In the market. Developers may not recover the costs of investments and local buyers will face a negative equity situation when their housing value drops. Foreigners will lose money by selling their properties below the original costs. 

The housing market crash would destabilize Singapore’s financial system when borrowers default on their mortgage loans. But the economic costs of inaction would be higher than an intervention that curbs short-term foreign investment flows into the property market.

Tien Foo Sing is the Provost’s Chair Professor at the Department of Real Estate, Business School, National University of Singapore. The views expressed here are the author’s and do not represent the views of their companies and affiliates.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Indonesia’s economic reform deeper than recognized

The Covid-19 pandemic posed a tremendous economic challenge, especially for emerging economies such as Indonesia. But it also marked a watershed moment for the country’s economic reform efforts. The crisis enabled Indonesia to reduce its reliance on volatile foreign capital inflows and rethink its growth pathway.

During the pandemic, Indonesia was temporarily set free from its reliance on foreign capital as global investors fled emerging markets bonds and equity. At the same time, slumping domestic demand, which suppressed imports, and relatively large national savings ameliorated Indonesia’s current account deficit problem.

Russia’s war in Ukraine led to a commodity price boom that further boosted the domestic economy while it was still recovering from the pandemic.

Indonesia’s current account deficit problem stems from insufficient foreign direct investment (FDI). In 2021, Indonesia’s FDI inflow was only 1.8% of GDP, compared to Vietnam’s 4.3% and Malaysia’s 5%.

Instead, the economy has depended on volatile commodity-related exports and volatile foreign inflows in bonds and equity markets. The shallow and inadequate domestic financial market has not been able to sufficiently mobilize savings to finance the country’s investment needs.

In previous cycles of global volatility, subsequent outflows of foreign capital have significantly depreciated the Indonesian rupiah and caused liquidity crunches in the financial system.

This negatively impacted the domestic economy by increasing the government and corporate sector’s debt burden, creating inflationary pressure and raising funding costs and non-performing loans in the banking system.

Reform efforts to handle the problem by shrinking the account deficit have faced challenges. In previous years, reducing the current account deficit usually meant slowing down domestic consumption and imports, which inhibits economic growth. Efforts to boost manufacturing exports also have hit a brick wall.

The Indonesia rupiah is near a 20-year low. Photo: AFP / Bay Ismoyo
Stacks of Indonesian rupiah. Photo: AFP / Bay Ismoyo

As Indonesian wages are relatively higher, other Asian exporters — notably Vietnam and Bangladesh — have become more competitive.

Numerous financial scandals have undermined efforts to effectively mobilize savings and deepen financial markets. Despite these setbacks, institutional reforms are making some headway. The Ministry of Finance and Bank Indonesia are increasingly seen as credible institutions that adopt evidence-based policies, defend Western-style central bank independence and are led by respected figures.

Implementing measures to prevent excessive capital flows has proved complicated. Even a hint of capital controls or other regulations that would restrain the country’s relatively free and open capital markets have been met with resistance due to the experience of the Asian financial crisis. Relatively loose global monetary policy and prudent fiscal policies have also led to Indonesia’s rising popularity for foreign portfolio investment.

The government was quick to implement policy reforms that have partly borne fruit. The first of them is reform in the real economy. The government pushed through the Omnibus law in November 2020, which aims to improve Indonesia’s competitiveness and encourage labor-intensive industries’ growth. But its implementation is yet to be seen due to pushback by special interest groups.

The global energy crisis also inspired the government to enact a series of controversial policies, including “downstreaming” and the prohibition of raw material exports. These policies have partly contributed to increasing exports of nickel derivatives between 2011–2022 and stimulated economic growth in regional provinces.

The second policy group included financial sector reforms. The government passed a new financial omnibus bill to improve the credibility of the financial system, widen and deepen the domestic financial market, support new technologies growth and clarify crisis responses. Plans were also put in place to restructure the entire non-bank financial system after the collapse of a major state-owned insurance company in 2020.

The local bond market has grown substantially since the pandemic. Local banks are inclined to hold a large number of government bonds due to slumping credit demand, significantly boosting local ownership. The Ministry of Finance’s successful campaign to push savvy domestic investors to buy retail government bonds further mobilizes consumer savings and improves market discovery.

Indonesia’s central bank — Bank Indonesia — has also pulled its act in the domestic foreign exchange market. New derivative instruments have succeeded in driving market expectations of local currency movements and relieving pressure on the current exchange rate. The launch of a new time deposit facility for exporters also boosted foreign exchange supply.

A fishing boat is seen near a container terminal in Tanjung Priok , north Jakarta Indonesia November 16, 2016. Photo: Reuters/Darren Whiteside/File Photo
A fishing boat is seen near a container terminal in Tanjung Priok , north Jakarta Indonesia November 16, 2016. Photo: Agencies

In anticipating the sudden global dollar liquidity crunch, the central bank has intensified efforts to proliferate local currency settlements (LCS) — a program that encourages using local currencies to settle bilateral transactions — with Indonesia’s main trade partners.

Its efforts have significantly increased its monthly LCS usage. The central bank has also sought to reduce Indonesia’s reliance on foreign service providers by launching a new national credit card gateway.

Bank Indonesia has also embraced digitalization. The Indonesian QR standard has become widely available, logging over 24 million merchants and daily transactions of more than US$800 million.

It has enabled millions of informal sector vendors to interact with the mainstream financial system via Indonesia’s growing digital banking industry. This could be a potential goldmine for the government to increase fiscal policy effectiveness.

Indonesia has taken advantage of the Covid-19 pandemic and undergone fundamental reforms to address its previous flaws. Its job now is to finish implementing those “structural reforms” by enhancing the ease of doing business, reducing investment barriers and improving labor productivity and financial inclusion.

Suryaputra Wijaksana is an economist at Bank Rakyat Indonesia. The views expressed in this article are the author’s own.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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A primer on US debt default purgatory

Republicans and Democrats are again playing a game of chicken over the US debt ceiling – with the nation’s financial stability at stake.

Treasury Secretary Janet Yellen recently said that June 1, 2023, is a “hard deadline” for raising the debt limit, currently set at US$31.38 trillion, to avoid an unprecedented default. The government hit the ceiling back in January and has been using “extraordinary measures” since then to keep paying its bills.

Last-minute negotiations between the White House and Republicans have been mostly fruitless as conservatives in the House push for big spending cuts and policy changes, while President Joe Biden has insisted on lifting the ceiling with no strings attached. They are expected to continue to meet in the coming days.

Economist Steven Pressman explains what the debt ceiling is and why we have it – and why it may be time to abolish it.

1. What is the debt ceiling?

Like the rest of us, governments must borrow when they spend more money than they receive. They do so by issuing bonds, which are IOUs that promise to repay the money in the future and make regular interest payments. Government debt is the total sum of all this borrowed money.

The debt ceiling, which Congress established a century ago, is the maximum amount the government can borrow. It’s a limit on the national debt.

2. What’s the national debt?

The US government debt of $31.38 trillion is about 22% more than the value of all goods and services that will be produced in the US economy this year.

Around one-quarter of this money the government actually owes itself. The Social Security Administration has accumulated a surplus and invests the extra money, currently $2.8 trillion, in government bonds. And the Federal Reserve holds $5.5 trillion in US Treasurys.

The rest is public debt. As of October 2022, foreign countries, companies and individuals owned $7.2 trillion of US government debt. Japan and China are the largest holders, with around $1 trillion each. The rest is owed to US citizens and businesses, as well as state and local governments.

3. Why is there a borrowing limit?

Before 1917, Congress would authorize the government to borrow a fixed sum of money for a specified term. When loans were repaid, the government could not borrow again without asking Congress for approval.

The Second Liberty Bond Act of 1917, which created the debt ceiling, changed this. It allowed a continual rollover of debt without congressional approval.

Congress enacted this measure to let then-President Woodrow Wilson spend the money he deemed necessary to fight World War I without waiting for often-absent lawmakers to act. Congress, however, did not want to write the president a blank check, so it limited borrowing to $11.5 billion and required legislation for any increase.

The debt ceiling has been increased dozens of times since then and suspended on several occasions. The last change occurred in December 2021, when it was raised to $31.38 trillion.

4. What happens when the US hits the ceiling?

Whenever the US nears its debt limit, the Treasury secretary can use “extraordinary measures” to conserve cash, which she indicated began on January 19. One such measure is temporarily not funding retirement programs for government employees. The expectation will be that once the ceiling is raised, the government would make up the difference. But this will buy only a small amount of time.

If the debt ceiling isn’t raised before the Treasury Department exhausts its options, decisions will have to be made about who gets paid with daily tax revenues. Further borrowing will not be possible. Government employees or contractors may not be paid in full. Loans to small businesses or college students may stop.

When the government can’t pay all its bills, it is technically in default. Policymakers, economists and Wall Street are concerned about a calamitous financial and economic crisis. Many fear that a government default would have dire economic consequences – soaring interest rates, financial markets in panic and maybe an economic depression.

Under normal circumstances, once markets start panicking, Congress and the president usually act. This is what happened in 2013 when Republicans sought to use the debt ceiling to defund the Affordable Care Act.

But we no longer live in normal political times. The major political parties are more polarized than ever, and the concessions McCarthy gave right-wing Republicans may make it impossible to get a deal on the debt ceiling.

5. Is there a better way?

One possible solution is a legal loophole allowing the US Treasury to mint platinum coins of any denomination. If the US Treasury were to mint a $1 trillion coin and deposit it into its bank account at the Federal Reserve, the money could be used to pay for government programs or repay government bondholders.

This could even be justified by appealing to Section 4 of the 14th Amendment to the US Constitution: “The validity of the public debt of the United States … shall not be questioned.”

Few countries even have a debt ceiling. Other governments operate effectively without it. America could too. A debt ceiling is dysfunctional and periodically puts the US economy in jeopardy because of political grandstanding.

The best solution would be to scrap the debt ceiling altogether. Congress already approved the spending and the tax laws that require more debt. Why should it also have to approve the additional borrowing?

It should be remembered that the original debt ceiling was put in place because Congress couldn’t meet quickly and approve needed spending to fight a war. In 1917 cross-country travel was by rail, requiring days to get to Washington. This made some sense then. Today, when Congress can vote online from home, this is no longer the case.

Steven Pressman is Part-Time Professor of Economics, The New School

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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No clarity yet on China’s confused tech crackdown

As China lifts Covid-19 restrictions and returns to normalcy, prospects for private business in the post-Covid economic recovery remain uncertain.

Despite former Vice Premier Liu He’s reiteration of the central government’s adherence to market principles at the World Economic Forum in January 2023, there are mixed messages about the Party’s stance towards the private tech sector.

The detention of Bao Fan, chairman and CEO of investment bank China Renaissance Holdings, in February sent shockwaves through international markets and among Chinese tech entrepreneurs. Bao was widely regarded as the country’s top dealmaker, whose company presided over several high-profile domestic tech deals.

On the other hand, Alibaba’s Jack Ma made a surprise reappearance in China in March, after traveling abroad for over a year. In a seemingly friendly gesture to the private sector, the Cyberspace Administration of China announced a campaign to crack down on false publicly circulated information which damages the reputation of private enterprises and entrepreneurs. But all of this does not suffice in restoring confidence in investors and businesses about a rollback of regulatory scrutiny of private tech companies.

To some, Bao’s detention indicates a continuation of Beijing’s heavy-handed approach to the country’s rising entrepreneurs that began with scuttling an initial public offering (IPO) for Ant Group, the e-payments platform founded by Jack Ma, in late 2020. This continued with tightened regulation over data security and anti-monopoly practices involving tech companies.

The Party’s stance and policy towards the tech sector — or more precisely, technology platforms and their partners — should be read in light of the multiple, often competing, challenges that the Party faces in governing modern China.

Chinese big tech and innovative entrepreneurs have contributed significantly to China’s transformation into a digital economy. At the same time, their rapid growth in size and wealth, as well as their evolving business models, have generated new challenges and instabilities.

Fintech regulation is one of these contradictions. Despite the merits of financial technology, excessive microlending without adequate security could create a financial bubble, posing systemic risk to the national financial system. Fintech companies like Ant have been forced to restructure and made subject to similar regulatory rules that govern other lending institutions.

The logo of Ant Group in Hangzhou Photo: AFP

Another area of contest is in the competition for talent across various fields related to technology development. The 14th Five-year Plan (2021–2025) spelled out ambitious objectives to turn China into a manufacturing powerhouse and a leader in emerging industries.

Competitive remuneration packages and unparalleled career prospects offered by leading platform companies, as well as the perceived invulnerability of the industry, had drawn many bright, young minds into technology-related business fields. This has changed since the government’s policy shift in 2020.

China now needs people to contribute to scientific and technological self-sufficiency in areas such as semiconductor development, robotics and climate change. The state’s clampdown on the business tech sector is thought to have had the effect of pushing people and resources into other areas — such as materials science, industrial machinery and biotechnology — deemed important to China’s overall technological capacity.

The Party’s tough treatment of some tech entrepreneurs could also have been connected to power struggles within the Party itself. Some key investors behind Ant Group’s IPO were known to be linked to top officials and elites with strong ties to former leader Jiang Zemin.

The tech sector may have become the site of a contest for political power. It is unclear with whom Bao is associated inside political circles, but he may have been caught up in a broader political struggle.

Party leaders will certainly continue to rely on China’s tech giants and their innovation to drive the economy. But ensuring that data is managed and used to the benefit of the Party as well as the public, not just private actors, remains a key logic in the Chinese Communist Party’s governance.

The announcement at the “Two Sessions” of the establishment of a National Data Bureau is Beijing’s latest step to exploit the country’s massive data trove. This will allow institutionalization of the management and control of data, while also facilitating circulation of both public and private data resources to promote economic and social development.

Setting up the new National Data Bureau under the National Development and Reform Commission will give focus to implementing policies that help drive digital and cutting-edge industries. The bureau could potentially become a driver of “Digital China“, after years of slow development because of the pandemic and regulatory scrutiny.

Given the Party’s overriding priorities of rebuilding a strong domestic economy and maintaining robust supply chains against external threats, it is unlikely to embark on an extensive campaign like it did in 2020 and 2021 to rein in technology platforms. That would undermine an important engine of growth and investor confidence, adding pressures to government finances.

One can still expect uncertainties over how the Party treats individual private businesses. This is especially so when China’s political leaders deem it necessary to prioritize certain objectives, such as political control and maintaining social stability over other priorities including economic recovery and growth.

Yvette To is a Postdoctoral Fellow in the Department of Public and International Affairs at the City University of Hong Kong.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Taiwan pushes FTA after closing US trade deal

Taiwan is seeking to reach a free trade agreement (FTA) with the United States after both sides concluded a trade initiative to boost their economic ties.

The United States Trade Representative announced on Thursday that the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) have concluded negotiations on the US-Taiwan Initiative on 21st Century Trade.

The agreement came just before the three-day G7 Summit started in Hiroshima in Japan on Friday.

Taiwanese media said Hsiao Bi-khim, representative of the Republic of China to the US, will visit Washington and sign the first phase of the trade initiative with her US counterpart within the coming weeks.

The first phase of this agreement covers five areas, including customs administration and trade facilitation, good regulatory practices, domestic services regulation, anticorruption and small-and-medium-sized-enterprises (SMEs).

“This agreement is not only the most comprehensive trade agreement signed between Taiwan and the US since 1979, but also represents an important milestone for Taiwan’s economic and trade system to meet high international standards,” the Office of Trade Negotiations, Taiwan’s Executive Yuan says in a statement. “This is also an important step in completing the Taiwan-US FTA by means of building blocks.”

In January 1979, the US established diplomatic relations with the People’s Republic of China as the Chinese Communist Party claimed to be a united front with the West against the Soviet Union. It also ended its diplomatic relations with Taiwan but has maintained trade and cultural exchanges with the island under the Taiwan Relations Act
 
On Friday, Beijing said it resolutely opposes the US-Taiwan Trade Initiative.

“China firmly opposes all forms of official interaction with the Taiwan region by countries having diplomatic ties with China, including negotiating or concluding agreements with implications of sovereignty and of official nature,” Wang Wenbin, a spokesperson of the Chinese Foreign Ministry, said Friday. 

Wang said the US must stop sending wrong signals to Taiwan separatists in the name of forming trade and economic ties with the island. He said the US should strictly abide by the one-China principle and the three Joint Communiqués with real actions.

Meanwhile, the State Council’s Taiwan Affairs Office (TAO) announced on Friday that China had reopened its doors to Taiwanese tour groups with immediate effect.

“We warmly welcome Taiwan compatriots to see the beautiful scenery and recent developments in the mainland,” said TAO spokesperson Ma Xiaoguang.
 
The symbolic move is seen as Beijing’s effort to increase exchanges with the island ahead of its presidential election in early 2024.

The central committee of Kuomintang (KMT), favored by the Chinese Communist Party (CCP), on Wednesday nominated New Taipei mayor Hou Yu-ih as KMT’s presidential candidate without having a primary election within the party.

Hou Yu-ih, Photo: Wikimedia Commons

Regional trade deals

In September 2021, Taiwan formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) but progress has been slow so far.
 
In May last year, the Biden administration launched the Indo-Pacific Economic Framework for Prosperity (IPEF) but did not include Taiwan as a founding member. Founding nations include Australia, Brunei, Fiji India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. 

Last June, the US and Taiwan said they would begin bilateral trade talks. Both sides met initially last November and held a four-day negotiation in January this year with fruitful results.
 
“It’s usually easier to reach a bilateral trade deal than a multilateral one that involves more parties,” Darson Chiu, a research fellow of the Department of International Affairs and Macroeconomic Forecasting Center, Taiwan Institute of Economic Research, said in January. “The US-Taiwan Trade Initiative will help Taiwan enter the IPEF.” 

On Friday, the US and Taiwan finalized the first phase of the trade initiative. Taiwan’s Minister Without Portfolio and Trade Representative John Deng said earlier this month that the second phase of the agreement, which covers seven areas such as agriculture and labor, should be reached by the end of this year.
 
“This accomplishment represents an important step forward in strengthening the US-Taiwan economic relationship,” US Trade Representative Katherine Tai said Thursday. “We look forward to continuing these negotiations and finalizing a robust and high-standard trade agreement that tackles pressing 21st century economic challenges.”

Tai said US businesses will be able to bring more products to Taiwan and Taiwanese customers, while creating more transparent and streamlined regulatory procedures that can facilitate investment and economic opportunities in both markets, particularly for SMEs.

Chinese pundits’ criticism

While Taiwanese President Tsai Ing-wen said Taiwan will be able to sign a FTA with the US, Chinese commentators poured cold water on the idea.

“The biggest intention of the Democratic Progressive Party (DPP) to sign the so-called US-Taiwan Trade Initiative is to sell Taiwan to the US and maximize the US’s benefits on the island,” Kong Fan, a Sichuan-based reporter for Nouvelles d’Europe, a pro-Beijing newspaper, writes in an article on Friday. 

Kong says the DPP wants to use this deal to form stronger political and military ties with the US in order to promote Taiwan independence.

He says the US avoided discussing tariff exemptions and market access but highlighted its benefits. He says before this, the US has been pressuring TSMC to build foundries in Arizona and the Taiwanese government to buy US weapons.

On June 2 last year, Tseng Ming-chung, convener of the KMT legislative caucus, criticized the DPP for exaggerating the benefits of the US-Taiwan Trade Initiative, which does not mention FTA or CPTPP membership. 

But after seeing the actual trade initiative on Friday, Tseng said the Tsai administration should “sign it as soon as possible” and make good use of the close bilateral relations to resolve tariff and double taxation issues with the US.

Read: Beijing cools Taiwan issues ahead of G7 Summit

Read: US-Taiwan trade deal talks defy China’s warning

Follow Jeff Pao on Twitter at @jeffpao3

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