SC seeks to transform agri sector via fintech, alternative financing

Access to finance is critical to agriculture’s future, said SC chairman
Capital market could help Malaysia achieve its food security agenda

The Securities Commission Malaysia (SC) encourages the broader adoption of financial technology (fintech) in agriculture to help achieve the country’s food security agenda.
SC Chairman Awang Adek Hussin (pic) said access to finance…Continue Reading

Deflation risk stalking China’s economic recovery

China’s central bank is pushing back with growing regularity on market worries that Asia’s biggest economy may be sliding toward deflation.

In April, China’s consumer price index rose just 0.1% year on year, putting the economy on the edge of negative territory but not yet deep into the problem.

Indeed, China may currently be experiencing “disinflation” rather than a long-term trend toward deflation. Yet if Japan taught policymakers around the globe anything it’s that deflation concerns can quickly take on a life of their own. 

That’s a problem that China must not take lightly, economists say. And it’s high time People’s Bank of China Governor Yi Gang shut down – and firmly – a narrative that Beijing hardly needs as market worries mount about the health of China’s post-Covid economic recovery.

Strategist Vincent Chan at Aletheia Capital speaks for many when he warns that China is at the “borderline of deflation.”

That same goes for analyst Kelvin Wong at OANDA. “To address this ongoing growth slowdown in China that may lead to a deflationary spiral, which in turn can potentially trigger an adverse impact on countries that export goods and services to China such as Singapore, the Chinese central bank needs to switch away from its current conservative stance to loosen its liquidity tap further to stimulate growth,” Wong argues.

Long-time Japan observers may detect some troubling echoes as Fu Linghui, spokesperson for China’s National Bureau of Statistics, insists that there’s “no deflation” in the economy. And if there is, it’s “transitory.”

This last word might trigger PTSD from similar assurances emanating from Tokyo in the late 1990s. Or their mirror image — “don’t worry, inflation is transitory” — coming from Washington these last two years.

As Nikkei Asia points out in an investigative report this week, consumer prices in mainland provinces Jilin, Shanxi, Guizhou, Liaoning, Anhui, Henan and Shanghai turned negative in April. Data from Chinese research company Wind Show corroborate Nikkei’s findings.

The question, of course, is what to do. A key Xi priority has been to reduce leverage and debt — from local government balance sheets to property developers.

Yet if the focus is on debt reduction while nothing is done to fix the housing sector, then that could be a recipe for deflation.

For now, says economist Raymond Yeung at ANZ Research, the “core view is that China’s economy is deflationary.”

Others argue it’s too early to know where China’s price trends will be six months from now.

China’s price trends could break either way in the coming six months. Photo: Facebook

“While claims that China has entered a deflationary period are excessive, the data indicate that China’s economy continues to be hamstrung by low effective demand,” says economist Yu Yongding, who served on the PBOC’s Monetary Policy Committee from 2004 to 2006. “Official figures also support the claim that China’s GDP growth has been below potential for some time.”

Yu notes that Xi’s government seems reluctant to shoot for a higher growth target than this year’s 5%, in part out of fear that it might exacerbate China’s debt imbalances. At the same time, though, Yu says there’s a risk of a “self-fulfilling prophecy, by weakening confidence and failing to exploit growth potential fully.”

Some of Beijing’s policy options, including cash transfers, might give household consumption an immediate lift.

But “as China’s government well knows,” Yu notes, “consumption is a function of income, a sustained, broad-based increase in incomes depends on economic growth, and infrastructure investment is traditionally the state’s most effective instrument for boosting growth when effective demand is weak. Despite past investments, China still has a large infrastructure gap that urgently needs to be closed.”

Rescuing the property sector might pay the highest dividends. Since January, Xi’s government unleashed a barrage of measures to reduce restrictions on borrowing by developers, curb risks of “capital chain breaks” in the sector as property purchase contracts fall through suddenly, extend lower mortgage rates to incentivize demand for homes and limit commissions for real estate agents.

Economists point out that easing the so-called “three red lines” policy is becoming more urgent. It establishes caps on key metrics debt-to-cash, debt-to-assets and debt-to-equity ratios. Many see this policy as the trigger for many of the biggest real estate stumbles in recent years.

Since the directive already demands that developers disclose details on their debts, it seems feasible to allow property companies to leverage up a bit and delay deadlines for debt targets without fanning new bubbles.

Other solutions include extending lower mortgage rates to first-home buyers in environments where prices of new properties are slumping. There’s also scope for once again allowing private equity funds to play a bigger role in raising capital for residential property projects.

Whatever the strategy, more attention must go toward restoring investor confidence, as strategist Winnie Wu at Bank of America Corp sees it. Since the property sector is “a key concern” for global investors, she says, revitalizing it seems crucial to restoring confidence in Chinese asset markets.

That confidence seems in short supply this month. Chinese stocks are on the precipice of bear market territory amid worries about a slowing economy, geopolitical and trade tensions and deflation fears.

Mainland shares traded in Hong Kong – as measured by the Hang Seng China Enterprises Index – are near the 20% loss threshold for the year.

The drop in profits among Chinese industrial firms, which had a rough first four months of 2023, is weighing on the broader indices. This downshift told skittish investors all they need to know about China’s slowing demand and deepening factory-gate deflation.

Data due out Wednesday – especially China’s Purchasing Managers Index for the manufacturing sector – are widely expected to signal further contraction in April.

A Chinese worker at a spinning factory in Xingtai City, Hebei province. Photo: Xinhua

Analyst Karl Shen at Fitch Ratings notes that China’s secondary-home market “has been cooling since April, with a fall in the number of listed-for-sale homes, lower asking prices and fewer transactions.”

This slowdown, Shen says, follows a “strong rebound” in the first quarter, “suggesting homebuyer confidence remains fragile amid an uncertain economic outlook and weak employment prospect.”

Shen says the drop in average asking prices is likely driven by homebuyers’ hesitation to make purchases and home-upgraders’ selling of their existing homes at lower prices to facilitate faster transactions.

The number of homes listed for sale has also decreased, indicating that many homeowners are delaying the sale amid pricing pressure, and may continue to weigh on transaction volume.

Even so, economist Wei He at Gavekal Research can’t help but wonder if the negativity is overdone.

“Markets have executed a complete volte-face on China’s growth prospects, from exuberance on an expected world-shaking boom to pricing in deep pessimism — is this reversal justified?” he asks.

“For commodity prices, the answer is probably yes. Even a strong cyclical rebound led by spending on consumer services was never going to be as good for commodities as the investment-driven cycles of the past. And the bounce in construction once expected by commodity producers has clearly not materialized, with property developers scarred by the past and uncertain about the future.”

Yet, He adds, “for Chinese government bonds and the renminbi, the recession trade has probably overshot. Recent market prices imply a growth outlook for 2023 as bad as that during the depths of 2022’s lockdowns — a fairly unlikely outcome. Despite all the bad headlines, the labor market is still recovering and companies are planning to expand. This could be a good moment to sell Chinese bonds and buy the renminbi.”

It’s also a good moment, though, for Xi’s new premier, Li Qiang, to buttress his reformist bona fides. Since rising to the No 2 job, Li has managed to lower the temperature surrounding Beijing’s crackdown on Big Tech. Now, it’s time to recalibrate economic dynamics in China – starting with a property market in dire need of restructuring.

The lessons from Japan are to act early and boldly to stop deflationary forces in their tracks. By the time they become ingrained, it might already be too late.

Follow William Pesek on Twitter at @WilliamPesek

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US-China trade talks end in more chip war salvos

Top US and Chinese trade officials have resumed trade talks but both sides continue to threaten each other with semiconductor industry-related sanctions. 

China’s Commerce Minister Wang Wentao and US Secretary of Commerce Gina Raimondo had “candid and substantive discussions” in a meeting in Washington on May 25, according to news reports quoting official statements.

But on May 27, Raimondo announced the conclusion of negotiations on a landmark Indo-Pacific Economic Framework for Prosperity (IPEF) Supply Chain Agreement that irked Chinese officials.

According to the agreement, 14 IPEF member countries including the US, Australia, India and Japan will create a new IPEF Supply Chain Crisis Response Network that can serve as an emergency communications channel when one or more partners face an acute supply chain crisis.

They will also create an IPEF Supply Chain Council to oversee the development of sector-specific action plans designed to build resilience and competitiveness in critical commercial areas.

“Regional cooperation frameworks, in whatever name, need to stay open and inclusive, rather than discriminatory or exclusive,” Mao Ning, a Chinese government spokesperson, said on Monday about the IPEF.

“Disrupting the function of the market, politicizing normal trade activities and setting barriers to hinder industrial cooperation such as semiconductor cooperation is the biggest risk to supply chain stability.” 

Mao said Japan and the US should not undermine other countries to perpetrate hegemony or protect what she characterized as “selfish” interests.

Chinese state media on Monday also criticized Raimondo for pushing forward an agreement expressly created to suppress and contain China. The state reports said Beijing will fight back if the US imposes more technology curbs on China.

A virtual display of the launch of the Indo-Pacific Economic Framework in Tokyo, Japan, on May 22, 2022. Image: Handout

“Fourteen IPEF countries led by the US have reached a consensus to improve the resilience and security of their supply chains of semiconductors and key minerals,” Xin Bin, a commentator, wrote in an article published by the Communist Party-run Global Times on Monday, “But this will only hurt the stability of the world’s supply chain.”

“The purpose of the Biden administration’s foreign economic policy is not to ensure the interests of the US’s allies, but to use the allies to strengthen the US’s own supply chains and contain China,” the Global Times report said.

Investment curbs

China had been unwilling to talk to the US for months after bilateral tensions spiked due a Chinese spy balloon that was spotted in North American airspace in late January.

The situation was poised to deteriorate further in April after reports indicated US President Joe Biden would soon sign an executive order to restrict US companies and private equity and venture capital funds from investing in China’s high technology sectors.

The US has not yet unveiled the investment curbs but it successfully persuaded other G7 countries to join hands to “de-risk,” rather than “decouple,” from China during the G7 Summit held in Hiroshima, Japan, from May 19-21.

Tit for tat, Beijing announced on May 21 that China’s key national infrastructure operators are barred from purchasing products from Micron Technology because the US chip maker reputedly poses network security risks. 

On May 23, the Japanese government officially said it will add 23 items, including advanced chip-making equipment, to its list of regulated exports to China. The new measures will take effect on July 23.

China’s Ministry of Commerce said Monday that Wang had expressed its diplomatic discontent to Japanese Minister of Economy, Trade and Industry Yasutoshi Nishimura during a recent meeting over the matter.

“Japan ignored China’s strong opposition and insisted on introducing semiconductor export control measures, which seriously violated international economic and trade rules and severely damaged the foundation of industrial development,” Wang told Nishimura during an APEC ministerial meeting held on May 25-26. “China is strongly dissatisfied with this and urges Japan to correct its wrong practices.”

“We hope that Japan will correct its perception of China and truly promote the stable development of economic and trade relations between the two countries with a constructive attitude,” he said.

Wang also said China firmly opposes the G7 Leaders’ Statement on Economic Resilience and Economic Security, which called for adopting a common approach to de-risk and diversify the West’s economic ties with both Beijing and Moscow.

US Secretary of Commerce Gina Raimondo. Photo: Asia Times files

Meanwhile, in a May 25 meeting with Wang in Washington, Raimondo raised concerns about the recent spate of actions Beijing has taken against US companies operating in mainland China.

She said in a media briefing on May 27 that the US government “firmly opposes” China’s ban on Micron and “won’t tolerate” the restrictions, which she characterized as “plain and simple economic coercion.”

China’s countermeasures

Similarly, Beijing expressed concerns about US trade policy, semiconductor sanctions, export bans and outbound investment screening against China at the meeting, a Shanxi-based writer said in an article published by Paitou Observe, a social media account operated by the state-owned Defense Times, on May 28.

“The US wants to resume dialogues with China but it keeps stepping up its efforts to contain China,” the columnist wrote. “Perhaps the US is now feeling guilty. It tries to use the term ‘de-risking’ to describe its decoupling with China.”

He wrote the ban on Micron’s products is likely only the first round of countermeasures to be imposed in retaliation against the US’ tech curbs. He says China will cooperate with the US only if it can show more sincerity.

Before meeting with Raimondo, Wang chaired a meeting with major US companies including Johnson & Johnson, 3M, Dow, Merck and Honeywell in Shanghai on May 22. The American Chamber of Commerce in Shanghai also attended the meeting. 

The Shanxi-based writer said in an article on May 25 that by holding a meeting with top American firms, Wang wanted to emphasize that China is still committed to high-level opening of the economy and continues to place high importance on attracting foreign investment. 

The same writer also noted that some US officials have described the Micron ban as “retaliation,” making some US firms worry that they will be targeted by China in the same way.

Semiconductor giant Micron is set to lose market share in China. Image: Facebook

“Actually, China did not ban all Micron’s products, but only those used in key information infrastructure, such as government departments, state-owned enterprises and financial institutions,” he wrote. “China’s ban on Micron is a preliminary warning: only naughty children will be punished.”

He wrote that China is confident that Micron’s current market share in the country will be absorbed by Chinese chip makers such as Yangtze Memory Technologies Co and ChangXin Memory Technologies.

Matthew Miller, a US State Department spokesperson, said on May 22 that Beijing’s action against Micron is inconsistent with China’s assertion “that it is open for business and committed to a transparent regulatory framework.” 

Read: With Micron ban, China says no to ‘de-risking’

Follow Jeff Pao on Twitter at @jeffpao3

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CNA Explains: What you need to know about Singapore's upcoming presidential election


Candidates, who must be at least 45 years old, will need to satisfy the PEC that they are a “person of integrity, good character and reputation” and must also meet the relevant public sector or private sector service requirements.

To fulfil the public sector condition, presidential candidates must have held office – for at least three years – as a minister, chief justice, Speaker of Parliament, attorney-general or permanent secretary among others. 

Chief executives of key statutory boards or government-owned companies like Temasek also qualify.

Meanwhile, private sector candidates must have served for at least three years as chief executive of a company that has at least S$500 million (US$370 million) in shareholders’ equity and has made profit after tax throughout those three years. 

On Nomination Day, prospective candidates must present their nomination papers and certificates to the returning officer in person at the nomination centre between 11am and 12pm. 

A Returning Officer is an individual who has been appointed by the Prime Minister to oversee the impartial and smooth conduct of elections.

If only one candidate is successfully nominated, the Returning Officer will declare that person as the elected president.

If more than one candidate is successfully nominated, a poll must be conducted.

The campaign period starts on Nomination Day, immediately after the conclusion of the nomination proceedings. It will end at the start of what is called “Cooling-off Day” – which is the eve of Polling Day. 

During this time, campaigning is prohibited so as to give voters time to reflect on issues raised during the election before going to the polls. 


Voting is compulsory for Singaporeans aged 21 and above. If your name has been struck off the Register of Electors for not having voted in a previous election, you may apply via the Elections Department website to restore your name.

No restoration can be made once the Writ of Election has been issued.

If the election is contested, you will receive your poll card by post at your registered residential address, two to three working days after Nomination Day. 

On Polling Day, you will need to take your poll card and NRIC to your designated station. You can cast your vote between 8am and 8pm on that day. 

After polls close, the ballot boxes will be transported to the counting centres. The Returning Officer will announce the outcome of the poll after the count is completed. 


The upcoming election will also feature new voting arrangements, following changes to the Singapore’s election laws that were passed in Parliament in March.

As part of a pilot involving around 25 to 30 nursing homes, polling stations will be set up on-site and mobile polling teams may be deployed to bring the ballot boxes and papers to voters who are bed-bound.

This comes after ELD said last May that it was collecting feedback from stakeholders including nursing home operators on introducing special voting arrangements to improve voting accessibility.

Meanwhile, eligible Singaporeans living overseas will be able to vote by post for the upcoming election. 

Overseas Singaporeans who have registered for postal voting can log in to the ELD website the day after Nomination Day to print the postal ballot paper and return envelope if the election is contested.

The return envelopes containing postal ballot papers as well as boxes containing ballot papers cast at overseas polling stations will be transported back to Singapore for counting after Polling Day. 

The envelopes and boxes must reach the custody of the Returning Officer in Singapore no later than 10 days after Polling Day.

If the number of overseas voters has no “material impact” on the election outcome, the Returning Office will declare the candidate who receives the highest number of votes to be elected, says ELD.

An example is if the total number of overseas votes is smaller than the difference between the number of local votes polled for the top two candidates.

However, if there is a material impact, the Returning Officer will announce the number of votes cast in Singapore in favour of each candidate and will defer the declaration of the candidate elected, until after the overseas votes are counted. 

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Commentary: For Singapore’s sake, we need a contest in the presidential election

According to Education Minister and Minister-in-charge of the Public Service Chan Chun Sing, responding to a question in Parliament on May 10, there are more than 1,200 companies here that meet the shareholders’ equity requirement.

It takes a courageous man or woman with a deep sense of public duty to step in the ring and face national scrutiny over his fitness to attain the highest office of the land. I know of at least one person prepared to do so and I hope there are more likewise.

Why is it important?

The elected president plays a unique role in Singapore which sets it apart from the government. Though he (or she) does not have executive powers, he can be an effective check in the two important areas he has powers over, in safeguarding the reserves and in key appointments.

There is a reason why the Constitution states that he should not be a member of any political party, to preserve his independence and autonomy.

All past presidents had links to the ruling party. All have served Singapore well but their political association have politicised the office, even if they have acted with the utmost integrity and ability.

It might not have been a problem in the past when the PAP was unchallenged electorally and able to count close to 70 per cent of the popular votes in general elections (GEs).

But there is much more contestation today and support for the ruling party has fallen to the low 60s.

In the last GE in 2020, the opposition Workers’ Party garnered more votes than the PAP in the wards contested by both parties.         

When there is such a divide, a president with close association to a political party will find it difficult to win the support of a significant segment of the population.

The problem is compounded when there is no contest and Singaporeans are deprived of their legitimate right to vote their choice.

This was most evident in the last election in 2017 which was reserved for Malay candidates, a new requirement introduced by the government to ensure minority representation at the highest level. 

The reserved presidency was already a controversial move. A no-contest because Madam Halimah was the only candidate to qualify made it even more contentious.

There were two other Malay candidates from the private sector who were interested and had applied to the Presidential Elections Committee to be qualified to take part. Alas, they failed to meet the criteria.

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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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With Micron ban, China says no to ‘de-risking’

US chip maker Micron Technology has become the first Western firm sanctioned by China after G7 countries vowed to de-risk from the world’s manufacturing hub.

China’s key national infrastructure operators are now forbidden to purchase products from Micron because the company poses network security risk, said the Cybersecurity Review Office, a unit of the Cyberspace Administration of China.
Mao Ning, a spokesperson of the Chinese Foreign Ministry, said Monday that the investigation of Micron’s products is necessary as it is aimed at preventing China’s telecom infrastructure from facing cybersecurity risks.
The US Commerce Department said China’s accusations against Micron have no basis in fact. It said it will engage directly with China to resolve restrictions on Micron chip deliveries.

“We also will engage with key allies and partners to ensure we are closely coordinated to address distortions of the memory chip market caused by China’s actions,” the department said. “This action, along with recent raids and targeting of other American firms, is inconsistent with the People’s Republic of China (PRC)’s assertions that it is opening its markets and is committed to a transparent regulatory framework.”

The US had asked South Korea to urge its chipmakers not to fill any market gap in China if Micron products were banned in the Chinese markets, according to a Financial Times report published April 24.

Jang Young-jin, South Korea’s vice minister of trade, said Monday that Samsung and SK Hynix will make a judgment on whether they should do as the US requested.

Micron said it is evaluating the conclusion made by the Cyberspace Administration and assessing its next steps.

Re-invest or leave

An article titled “Micron has done all the bad things! Now it is finally sanctioned” was widely circulated on the Internet in China on Monday, explaining the logic behind Beijing’s curbs. 

“In January 2022, when the US government pushed forward its plan to de-couple from China, Micron said it would stop cooperating with China, sack its staff and close its Shanghai-based DRAM design center,” the writer says. “It also provided skilled worker visas to more than 40 senior technicians and migrated its businesses from China to India and the US.”

‘Kill the chicken to scare the monkeys’ is an old Chinese saying. Micron has been selected for the chicken role in this phase of the chips war. Image: screenshot

The writer continues, “In the China-US chip war, Micron has always been actively playing the role of a vanguard of the US. The company makes money in the Chinese market while replying to the United States’ power to suppress Chinese chip firms. It has done all the bad things!”

He concludes, “What do we only sanction Micron but not Samsung and SK Hynix? They all make money in China but Micron does not increase its investment in the country while Samsung and SK Hynix keep re-investing.”

Media reports said last month that US President Joe Biden was set to sign an executive order that would restrict US companies and private equity and venture capital funds from investing in China’s microchips, artificial intelligence, quantum computing, biotechnology and clean energy projects and firms.

Biden had planned to announce these investment curbs before the G7 Summit, which was held in Hiroshima between last Friday and Sunday, but he has not unveiled them so far.

De-risking from China

G7 leaders said in a joint statement on Saturday that they have a common interest in preventing a narrow set of technological advances from being used by some countries to enhance their military and intelligence capabilities to undermine international peace and security. 

“A growing China that plays by international rules would be of global interest. We are not decoupling or turning inward,” they said. “At the same time, we recognize that economic resilience requires de-risking and diversifying.”

“We will continue to ensure that the clearly defined, narrow set of sensitive technologies that are crucial for national security or could threaten international peace and security are appropriately controlled, without unduly impacting broader trade in technology,” said G7 leaders. “We will enhance resilient supply chains through partnerships around the world, especially for critical goods such as critical minerals, semiconductors and batteries.”

This statement also set off the Chinese punditocracy. “G7 has become an important tool for the US to contain and suppress China,” a Hebei-based writer says in an article. Washington “is now promoting deglobalization by using subsidies and coercion to attract semiconductor firms to set up factories in the US.”

He adds, “Now the US gets what it wants as China is saying ‘no’ to US memory chip makers. Micron tried to expand in China and benefit from the US sanctions against Chinese chip firms. But it has shot itself in the foot.”

Supply shock?

Last year, Micron’s revenue from China amounted to $3.3 billion, about 11% of the company’s total revenue. The figure more than tripled from $5.3 billion in 2016 to $17.4 billion in 2018 but it started to decline after Micron had legal disputes with Chinese firms.

As early as March 31, the Cyberspace Admnistration had said it was looking into Micron’s products sold in China but it was not until Sunday evening that it announced the Micron ban.

An unnamed analyst was quoted by the National Business Daily as having said on Monday that Chinese memory chip makers, including GigaDevice, Yangtze Memory Technologies Corp (YMTC), ChangXin Memory Technologies (CXMT), Dongxin Co. Ltd and Ingenue Semiconductor, will benefit as they can grab Micron’s market share in China. 

A YMTC worker examines a semiconductor wafer. Photo: YMTC

He said that during the transition, China will not face a memory chip shortage as there is enough inventory in the markets.

YMTC, the main Chinese competitor to Micron, is developing its own supply chain by using Chinese-only equipment, the South China Morning Post reported on April 23. The company has placed orders with domestic tool suppliers, including Beijing-based Naura Technology, after receiving new funding from its state-backed investors.

However, Liu Pei-chen, a researcher at the Taiwan Institute of Economic Research, warned that China may face a memory chip shortage if suppliers in South Korea, Japan and Taiwan limit their exports to the country upon the US’s request.

Liu said China still relies heavily on the import of foreign memory chips as YMTC and CXMT have limited production capacities. She said the US may have a say in whether suppliers in South Korea, Japan and Taiwan should take up Micron’s market share in China. 

Read: Micron probe by China seen as chip war retaliation

Follow Jeff Pao on Twitter at @jeffpao3

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