Commentary: Deflation is the last thing China’s recovery needs

By:
On:
In: Asia

CHEAPER STUFF ISN’T A BLESSING

Given the surge in inflation in most major economies last year, you might think cheaper stuff is a blessing for China – or any country. Not really. A protracted fall in prices tends to create the expectation that, if companies or consumers wait a bit longer to make a major purchase, then things will be even less expensive.

Businesses relentlessly seek ways to cut their own costs, including investment and, in time, wages and jobs. In a widely cited 2002 speech, Ben Bernanke, then a Fed governor, left no doubt about its corrosiveness. “Sustained deflation can be highly destructive to a modern economy and should be strongly resisted,” he warned.

Interest rates can be cut. The PBOC has been lowering them for a while, though it’s been reluctant to make deep reductions. Bloomberg Economics projects a trim of 10 basis points in the main rate next week.

There’s a huge role for fiscal policy, too, and Beijing appears to be on board. Last month, the legislature green-lighted the deficit exceeding the traditional limit of 3 per cent of GDP. There’s now a greater sense of urgency.

The dour statistics remind us how far China has to go before its economy can hum again – at a pace of growth more like that of other major powers, not the exceptional beast of yesteryear. Given the traumas in global policymaking in the past few years, it’s easy to forget that in 2017 Janet Yellen, then Fed chair, almost sounded wistful about perky inflation.

Its quiescence in the midst of a long expansion was dubbed a “mystery” by Yellen, who is now Treasury secretary. China can probably relate. Such is the tyranny of being a grown-up economy, complete with ups and downs.

Continue Reading

Commentary: Indonesia's 'golden visa' pitch to big-time investors must endure beyond Jokowi's term

By:
On:
In: Asia

DRUMMING UP Growth Money

Indonesia invested US$ 5.7 billion in standard copper mine for the first half of 2023, both domestically and abroad. In the same six-month phase, the telecommunications and transportation industries booked US$ 5.1 billion.

The four pillars of Jokowi’s growth strategy for attracting foreign and domestic investment were discussed by Luhut in a new website interview.

The first step is downstreaming. This is the domestic production of goods that benefit from Indonesia’s nutrient and plentiful resources. This might increase regional income, lower buy spending, and boost export income.

Copper metal mined in Sulawesi Island is the subject of a significant downstreaming plan. Jokowi wants to use metal internally to produce higher generating batteries for electric vehicles and has banned the trade of nickel as a natural material. Similar river manufacturing of numerous metal-based tools, including cookware and health utensils, is also possible with tin, bauxite, and copper.

Algae and hand fuel stand out on bio-based products. High-value seaweed extract carrageenan is primarily used in food and cosmetics as a gelling broker. Alternative uses include biodiesel, fertilizer, animal feed, waste therapy, and bioplastic to address the problem of plastics clogging the atmosphere. Seaweed is get downstreamed as biodiesel along with fuel palm, lowering Indonesia’s oil import bill. Indonesia had a$ 13.3 billion oil and gas industry gap in 2021.

The next component is digitization. Nowadays, digitalization is used for nearly all government document. On bright phones or personal computers, people can fill out forms for investment, tax returns, business allows, documents, and doctor visits at common health facilities and facilities.

Indonesia wants to create an AI ecology as well. Potential online applications for broadband attract major players like Sam Altman.

Continue Reading

Commentary: Malaysia sets it sights on wealthy investors

By:
On:
In: Asia

THE GLOBAL RACE FOR INVESTMENT

Malaysia’s pursuit of wealthy investors is part of a larger global race among nations to secure foreign capital and talent. In 2022, global foreign direct investment (FDI) flows reached US$1.3 trillion. For Malaysia specifically, FDI accounted for 61.7 per cent of total approved investments in the country last year, or RM163.3 billion (US$34.8 billion).

The infusion of wealth and capital from rich investors can have a transformative impact on Malaysia’s economy. These investors bring not only financial resources but also expertise, networks and connections that can stimulate local industries.

One of the key strategies Malaysia has implemented to attract overseas retirees and wealthy investors is the Malaysia My Second Home programme (MM2H).

Launched in 2002, the programme grants eligible participants a multiple-entry social visit pass, allowing them to stay in Malaysia for up to 10 years, with the option of renewal. Between 2002 and 2019, close to 50,000 foreigners were approved under the MM2H programme.

In a surprising move, however, the government in 2021 introduced more demanding requirements, reducing uptake for the scheme. This included a quadrupling of the minimum monthly income to RM40,000 and increasing the required period for physical presence to 90 days in a year.

This was not all. More onerous was the new bank deposit requirement of RM1 million, up from the previous amount of RM150,000 to RM300,000, and that of liquid assets of RM1.5 million (up from RM350,000 to RM500,000 previously).

It was almost as if the revised MM2H wanted to dissuade potential applicants since other countries in the region had less stringent thresholds. Since the regulations were tightened in 2021, there have been a 90 per cent drop in the number of applicants.

A second programme to attract wealthy foreigners is the Premium Visa Programme (PVIP). This programme is not by any stretch of imagination less demanding in its requirements than that for MM2H, with applicants having to open a local fixed deposit account of about RM1 million.

PVIP differs from MM2H in that it allows applicants to conduct business and seek employment; it does not require a minimum period of stay in Malaysia and waives the need to show proof of liquid assets.

At first glance it is quizzical why a country that seeks to attract wealthy investors should raise the thresholds; and why it should position itself to be less competitive than other countries in the region.

There have been calls from various quarters for the MM2H regulations to be eased, with the Johor sultan urging the government on multiple occasions to revise the conditions. In April, the government confirmed that it would review the criteria for the programme.

Continue Reading

Commentary: Why would foreigners want an Indonesian golden visa?

By:
On:
In: Asia

Washington doesn’t follow a meal, according to the Congressional Budget Office. Rather, it predicts that over the next ten years, the fiscal deficit will total at 6.1 percent of the gross domestic product. The government has already spent the highest amount since 1998 — 14 %— on net interest payments.

Treasury bonds may no longer be owned by long-term investors, according to Jefferies capital strategist Christopher Wood.

Financial Control IN INDONESIA

Purchasing US$ 350,000 value of local government bonds appears to be a safer bet in this world environment. Indonesia also upholds fiscal discipline, possibly in large part as a result of the cash outflows it experienced during the Global Financial Crisis.

These days, Jakarta maintains a 3 % self-imposed cap on its fiscal shortfall, even at the cost of slower growth. The most recent Income forecast for 2024 is 2.29 percent.

This conservative stance is a welcome story in an environment full of purchase. Buyers are concerned about how little debt is excessive and when a full-fledged economic collapse may occur in China, the European Union, and the US.

However, in Indonesia, household debt only makes up 9 % of GDP andnbsp; in fact, less than 60 % of the country’s 274 million young people have bank accounts.

For tech companies who want to be more than quiet investors and experiment with banking and financial participation, this balance-sheet environment offers a great option. People prefer to possess smartphones over televisions and washing machines because portable devices are so common.

Social media sites like TikTok, on the other hand, have a significant impact on Gen Z because they connect Indonesians while also protecting them from the turbulent, debt-fueled world.

And Bali, the sub-tropical riding and yoga haven, should not be overlooked. I observed young digital nomad typing frantically on their laptops in chic cafes last summer while participating in a yoga retreat it.

I felt jealous. I’d like to relocate it. The beautiful visa of Indonesia certainly merits a good look.

Continue Reading

Commentary: Does India’s disruption of the global rice market pose new threat to food security?

By:
On:
In: Asia

BALANCING DOMESTIC NEEDS WITH EXPORTS

As chair of the 2023 G20, and with Indonesia’s successful 2022 G20 Summit still fresh in mind, India seeks to balance domestic needs with export reliability.

As the Indian shock to the world rice market unfolds, three countries are in the spotlight.

First, the question remains whether Indonesia will receive the full 1 million tonnes of rice it contracted from India. If it does, that will calm the whole world rice market.

Second, the status of the Philippines’ rice stocks is crucial. A number of experienced technocrats in the Philippine Cabinet have likely planned for this contingency.

Third, Vietnam’s export patterns warrant scrutiny. While its crop outlook seems good, there is always the danger that the Vietnamese government might restrict exports in response to domestic hoarding. Managing price expectations in Vietnam will be critical.

In a rice emergency, all eyes inevitably turn to China. Its rice production has suffered significantly from heat and floods. The exact level of rice stocks is a state secret but they are by far the largest in the world. Still, they are dispersed geographically, which somewhat limits central government access and control.

Food security in China is a high priority, and with both wheat and rice prices rising, it is hard to tell what the Chinese response will be. Any effort to pre-emptively procure more imports will spook the market.

In a real rice panic, Japan might play a similar role as in 2007. Then, the mere announcement by Japan’s prime minister that Japan would start negotiations with the Philippines to sell some of its surplus WTO rice was sufficient to prick the speculative bubble. This sent world rice prices sliding.

Japanese rice stocks are smaller now than in 2007, but even an offer of half a million tonnes to the neediest buyers in the region could calm any panic buying.

Continue Reading

Commentary: Japan’s high standards of service face ‘shrinkflation’

By:
On:
In: Asia

JAPAN’S CHRONIC LABOUR SHORTAGE

Even global brands such as McDonald’s which seek to replicate a particular dining experience across the globe know they have to raise their game in Japan – and have historically done so.

The variable these days is Japan’s chronic labour shortage – a slow-burning crisis of demographics and hesitancy about immigration which, as examples highlight almost daily, is making its mark across the economy. Last week, in a Kyodo survey of 114 of Japan’s largest companies, 49 per cent said they were short of staff. Tokyo Shoko Research, meanwhile, reported that in the first six months of this year, bankruptcies directly caused by staff shortages were 2.5 times higher than the same period in 2022. 

Versions of the crisis are everywhere – some are unsettling. In a country where most of the land mass is hills and valleys, members of the Japan Society of Civil Engineers worry about the huge national shortfall of expertise in bridges and tunnels. 

But for now, at least, large parts of consumer-facing Japan are entering a complex charade that seems to draw inspiration from another bit of corporate gamesmanship. After many years of deflation and loss of pricing power, Japanese food companies became absolute masters in the dark arts of “shrinkflation” – reducing the quantity of product while maintaining familiar sizes of packaging. Japan was hardly alone in this practice, but squeamishness around raising prices meant it became a more entrenched habit than elsewhere. 

Grumpy Japanese websites track in great detail the ways, measurements and timeframe in which shrinkflation has reduced the length of beloved ice lollies, the number of processed cheese slices in a pack or the number of Melty Kiss chocolates in a sachet. A favourite joke centres on Fujiya’s popular Country Ma’am chocolate chip cookies and the forecast that, under its current rates of shrinkflation, each one will be smaller than a  ¥1 coin by 2040.

The shrinkflation deception uses visual consistency in the packaging to anchor expectations while delivering less. It also postpones for as long as possible a fundamental change of relationship with customers.

Continue Reading

Commentary: Outside of politics, Thailand has a good story to tell

By:
On:
In: Asia

SINGAPORE: When central bankers line up almost daily to assert their commitment to fighting inflation, it makes me think of Thailand. Not the fine resorts and great food. The country’s untrumpeted success is seriously taming prices to the point where officials might want to think about easing up, lest the economy slows too much.

Like the rest of Southeast Asia, Thailand has been blindsided by the modest nature of China’s rebound. Tourism, a key industry, is gradually recovering. The number of Chinese visitors is heading in the right direction, but nothing like the surge that was anticipated when Beijing canceled zero-COVID.

Thailand’s divisive politics aren’t helpful: Two months after an election, the country is without a prime minister.

Don’t let these caveats subtract from a fine story. Most policymakers would prefer to forget that when inflation first started to climb in 2021, they played it down. Having wrestled with how to fire it up in the years before the pandemic, they weren’t going to jump at the initial upticks.

A host of terms were used to describe the benign scenario: Temporary, short-lived and, of course, the now infamous “transitory.” Federal Reserve Chair Jerome Powell stuck by the “T” word too long, before ultimately burying it and embarking on an aggressive tightening.

The Bank of Thailand, by contrast, has embraced transitory – and rightly so. The pace of consumer price increases retreated to 0.2 per cent in June from a year earlier. That’s a dramatic decline from almost 8 per cent in August 2022.

Officials don’t see it staying so anemic for long, but even forecasts of 2.4 per cent next year mean inflation is well and truly reined in. And they did it without smothering the economy by panicking and ratcheting up borrowing costs too rapidly.  

Continue Reading

Commentary: Alibaba’s latest shakeup highlights its conundrum

By:
On:
In: Asia

Putting Tsai, a long-time confidant of founder Jack Ma, in charge should help steady the ship. With each of the spun-off units operating independently, the holding company will have far less to do than in the past. 

That’s because the parent will largely comprise Taobao, as well as the group’s cash and investments. So it makes sense for Wu, who runs the Taobao unit, to also be CEO of Alibaba Group. 

It’s now up to him to reignite growth at Alibaba’s cash cow, and if not then Tsai will be tasked with finding someone who can.

ALIBABA CEO DANIEL ZHANG’S FATE

This does seem like a demotion for Zhang. It’s hard to view his removal from the chairmanship of a US$240 billion company as anything else. 

But there’s another way to look at it. Zhang is a lion at the company. 

He helped propel Tmall – the online store for branded products – and Taobao, the more general marketplace, through some boom years, including the invention of the 11.11 Singles’ Day shopping event. He’s been a chief financial officer and a chief operating officer, which makes him a well-rounded executive.

Cloud computing has offered great promise to Alibaba and rivals including Tencent and Huawei. But the potential has yet to be realised, with Alibaba Cloud continuing to lose money. 

If Zhang turns it around and produces sustained profits, then he’ll be the hero in charge of what could grow to become worth just as much as the parent is today. If it fails, then his future at the company will be in doubt.

Continue Reading

Commentary: What Western tech firms can learn from LinkedIn’s failure in China

By:
On:
In: Asia

For instance, it was not possible for users to immediately click on a new connection’s profile; the only way to find them was to remember their name and search for it on the platform.

Shen’s team raised a request to create a list of new contacts that users can navigate – taking a page from the Chinese social tool WeChat – but the US product managers were “too lazy to copy a feature that works for a competitor”. 

On the surface, it seems that arrogance and lack of market understanding are the key reasons for LinkedIn China’s eventual demise. But these are merely symptoms of deeper issues, namely a lack of mental bandwidth at the top and the organisation’s setup.

To succeed in a new market, thousands of decisions need to be made, products need to be continuously iterated, and sometimes complete pivots are necessary. This is especially when you are facing strong homegrown competitors led by committed founders with ready access to the best talent. 

All of these demand leaders’ attention. How much resources to dedicate to the new market, knowing that things rarely go according to the business plan? When products change or additional resources are required, how fast can you get them to the ground? When the business significantly underperforms, would you continue to invest or cut the loss?

HARD FOR TECH GIANTS TO ADJUST TO FOREIGN MARKETS

That was the challenge that US e-commerce juggernaut Amazon faced. Amazon entered China in 2004, around the same time Alibaba launched Taobao.com, but exited in 2019. The market for Amazon in China was small compared to its home market in the US. 

As a company, Amazon was (and still is) logical and strong in execution. In the US, it uses sales predictions to allocate resources and inventories. The natural thing to do is to apply the same logic to China – so if it predicted sales in China were going to shrink, it would reduce inventories and logistical infrastructure to rein in cost.

Continue Reading

Commentary: Anwar Ibrahim's struggle for economic rejuvenation in Malaysia

By:
On:
In: Asia

POLICY STANCE ON GOVERNMENT SPENDING NOT SUSTAINABLE

Politics aside, economic headwinds remain Mr Anwar’s most serious challenge. 

Once one of the region’s budding tiger economies, Malaysia has fallen to fifth place among the economies in the Association of Southeast Asian Nations (ASEAN). It has been overtaken by Vietnam that ranks in the top four together with Indonesia, Thailand and Singapore.

The effects of the continuing global slowdown showed up starkly in the country’s export performance, which contracted 17.4 per cent year-on-year in April.

Bank Muamalat’s chief economist Mohd Afzanizam Abdul Rashid forecasts that overall exports this year could decline by 9 per cent, compared with a 25 per cent growth in 2022. “This will leave domestic demand as the main economic driver for overall growth,” he said.

Economists noted that domestic demand, made up by government spending and private consumption, has accounted for more than 70 per cent of GDP since 2019. 

But this growth option is no longer sustainable. Malaysia is now suffering a serious financial hangover for the spending binge, with government debt ballooning to 1.08 trillion ringgit at end-2022, almost doubling in six years.

“The policy stance of government spending is no longer sustainable, and Malaysia needs a new economic narrative,” Sunway University’s Professor Yeah Kim Leng, who sits on a five-member panel advising Mr Anwar on financial matters, told CNA.

“The new path must feature shifting the economy to more value-added production driven by attracting technology intensive industries that will in turn boost wages,” added Prof Yeah.

Leslie Lopez is a senior correspondent at CNA Digital who reports on political and economic affairs in the region.

Continue Reading