COP28 deal may not please every party but a big leap for global collective action, says Singapore minister

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In line with that, Singapore inked several deals to generate and buy carbon credits from countries including Papua New Guinea, Senegal and Rwanda.

Ms Cherine Fok, partner and head of KPMG’s sustainability programme Our Impact Plan, echoed Ms Fu’s view.

“The lack of progress on Article Six, clearly, is rather disappointing.  But it doesn’t stop Singapore from doing what we need to do and within what we can control,” she said.

“Our voluntary signatories and agreements with different countries on carbon trading, it falls back to us to be able to honour these promises, and to be able to demonstrate how we actually fulfil these responsibilities.”

She added that building trust in the ecosystem is important, as a great deal of why the climate agenda could not progress is due to the absence of trust in some countries.

“For Singapore, having progressed so far in the carbon trading and carbon agreements, it is a strong signal to us that we must continue to move ahead and not let perfection become a limit to progress,” she said.

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Japan steps up support for its semiconductor industry

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Japan’s ruling Liberal Democratic Party plans to include 10 years of incentives for the semiconductor and other industries in a tax reform package that is likely to take effect next year.

In the meantime, the Ministry of Economy, Trade and Industry (METI) has decided to subsidize semiconductor makers Rohm and Toshiba’s collaborative investment in power devices for electric vehicles (EVs) and industrial use. 

In addition to semiconductors, tax breaks are to be given to four other industries deemed to be strategic and/or eco-friendly: electric vehicles and batteries, sustainable aviation fuel made from biomass, steel produced with renewable energy, and chemical products made from biomass and recycled waste products. 

These are industries with growth potential in which Japan has the technology required to be internationally competitive. In the case of semiconductors, the proliferation of government promotion schemes around the world makes it imperative for Japan to do the same. 

Qualified semiconductor producers will reportedly be eligible for a reduction in corporate income tax of up to 20%, with the amount of reduction depending on the volume of production and sales. If a company makes a net loss, the tax break may be carried over to the next fiscal year for up to three years running. 

Companies will have until the end of the fiscal year ending March 2026 to submit their business plans for qualification. Subsidies will run for 10 years following the acceptance of a company’s plan. 

Prime Minister Fumio Kishida has said he favors a system that supports industries that require large initial investments and have high operating costs. To that end, on November 29, the Japanese Diet passed a supplementary budget that includes slightly more than 2 trillion yen (about US$14 billion) in subsidies for the semiconductor industry.

That was less than the 3.4 trillion yen METI had asked for, but more than the 1.3 trillion yen allocated to the semiconductor industry last fiscal year.

Where the money will go

Of the 2 trillion yen, about a third – 650 billion yen or more – will go to Rapidus, the startup integrated-circuit (IC) foundry formed by a consortium of Japanese companies that hopes to catch up with Taiwan Semiconductor Manufacturing Company’s advanced process technology. This will bring total government support for Rapidus’ new factory in Hokkaido to about 1 trillion yen.

In addition, several hundred billion yen will be provided for the construction of TSMC’s second factory in Kyushu, lifting total support for the top-ranked Taiwanese foundry’s operations in Japan toward 1 trillion yen as well.

Subsidies will also be provided to Powerchip, a smaller Taiwanese foundry that plans to build a factory in Miyagi prefecture, to Micron Technology for the upgrade of its DRAM (dynamic random access memory) factory in Hiroshima and to Intel for IC assembly and packaging research and development conducted in Japan. 

Most recently, on December 8, Rohm and Toshiba announced that their plan to cooperate in the production of power semiconductors had been officially recognized by METI as a measure supporting the development a secure and stable supply of semiconductors in Japan.

The two companies will invest in silicon carbide (SiC) and silicon (Si) power devices respectively, to enhance their production and supply capacities in a complementary fashion, utilizing each other’s facilities when appropriate. 

Rohm specializes in SiC power devices for EVs and industrial applications. Toshiba has expertise in Si power devices related to electric power, industrial and automotive applications. There is little overlap on the one hand and potential for collaboration in R&D and market development on the other. Rohm has invested 300 billion yen in the privatization of Toshiba, making it a partner rather than a competitor.

Rohm and its subsidiary Lapis Semiconductor plan to invest 289.2 billion yen while Toshiba Electronic Devices & Storage and Kaga Toshiba Electronics invest 99.1 billion yen, bringing the total to 388.3 billion yen. The maximum subsidy is set at 120.4 billion yen, or one-third of the total investment. 

Rohm will concentrate on production of SiC power devices and substrates (wafers) at a new facility in Miyazaki on the island of Kyushu. Toshiba will focus on the production of Si devices at its new Kaga plant in Ishikawa prefecture, north of Kyoto.

Rohm is migrating production from 150-millimeter to 200mm wafers, the emerging standard for SiC. The Kaga facility is designed to process 300mm, which should provide it with competitive economies of scale.

Compared with silicon, silicon carbide offers greater energy efficiency and reliability. Its advantages include resistance to higher voltages, tolerance of wider ranges of temperature and vibration, and longer device lifetimes. Silicon carbide is now replacing basic silicon in electric vehicles for use in powertrains, battery charging and other demanding applications.

Rohm plans to start making 200mm SiC wafers in Japan next year. Miyazaki will be its first domestic SiC wafer production base, supplementing its SiCrystal subsidiary in Germany, which it acquired in 2009. As demand for EVs continues to rise, SiCrystal is likely to be fully occupied meeting demand in Europe. 

Rohm is planning a steep ramp-up of production of both SiC power device and wafers, targeting combined sales of 40 billion yen this fiscal year, 130 billion yen in the year to March 2026 and 270 billion yen in the year to March 2028. If the forecasts of various market research organizations are correct, that could give the company a global market share close to 20% by the end of the decade.

In response to analysts’ questions after the release of business results for the six months to September, Rohm’s management noted that sales of SiC power devices were going according to plan, with about 90% of these sales made outside Japan. At present, the largest market for Rohm’s SiC power devices is China, followed by Europe and the US. 

Over the next several years, Rohm expects the share of sales made in Europe, the US and Japan to rise, but sales in all markets, including China, should grow. With this in mind, Rohm is already considering the use of SiC wafers made in China.

Follow this writer on Twitter @ScottFo83517667.

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Soft power is not the PRC’s thing

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A man makes a picture
A moving picture
Through the light projected
He can see himself up close

– U2

Even Xi Jinping threw China’s football team under the bus.

During a photo-op at San Francisco’s APEC summit, Thai Prime Minister Srettha Thavisin congratulated President Xi for the Chinese football team’s win over Thailand.

“I think there was a lot of luck involved,” Xi demurred. “I’m not so sure about their level.”

China’s football team was supposed to be a national project. Significant resources were directed into football academies and professional leagues. Fortunes were spent on international players and coaches to elevate China’s game. There is no compelling reason a decent national team can’t be formed from a 1.4 billion football-mad population. And yet.

The tragedy of China’s football team has become a point of national commiseration. The teams have been so awful for so long that the Chinese now celebrate just how bad they are.

Xi got in on the national lamentation in more than one way. This year, China appears to have put its football project on ice with an anti-corruption sweep of national football organizations.

As China bungles its football ambitions, it has also dropped the ball on its dreams of impacting other global cultural arenas – film, music, the media. After a decade of massive investment and regulatory support, China still has no K-Pop, no Pokemon, no K-dramas, no Super Mario, no CNN and certainly no Marvel Cinematic Universe to export.

Exceptions exist of course – Cixin Liu’s novel The Three-Body Problem, the video game Genshin Impact – but fanboys do not flock to China as they do to Tokyo, Seoul and LA.

Genshin Impact characters. Image: Epic Games

As with football, we suspect China will back-burner these soft power ambitions as well. While China may lack a certain je ne sais quoi for football success, its deficiencies in pop culture and media are fairly obvious – language hurdles, preachy propaganda, video games limits, no “sissy boys,” no gratuitous sex, no crass materialism, no fun.

In 2011, before China’s decade-long push to try to break into international cultural markets, nationalist firebrand Wang Xiaodong wrote the essay “Chinese Industrialization will Determine the Fate of China and the World: A study of the ‘Industrial Party and the ‘Sentimental Party,’” which foresaw the failure to come.

China, according to Wang Xiaodong, had become an industrial nation. It should continue as such and, as such, should not place singing and dancing in its wheelhouse.

What is there to admire in the American financial industry, in Hollywood, in the Grammys or in the NBA? We should keep smelting our iron and let the Americans do the singing and dancing.    

Wang Xiaodong was advocating for China’s so-called Industrial Party, an ambitious political identity that dispensed with the tiresome left-right divide and believed that industry, science and technology would determine China’s future.

To adherents of the Industrial Party, nonmaterial production and “discourse power” are hobby horses of the hopelessly ineffectual Sentimental Party, which includes both the traditional left and right.

To the Industrial Party, soft power is a red herring: Boy bands and superhero movies are “decadent playthings” compared with China’s “80,000-ton stamping die.” According to Wang Xiaodong, China’s soft power contributions to the world will be industrialization, science and technology:  

Not only do we want our products to “go global,” we also want our industrialization to go global, and our high-quality talent to go global. We can spread industrialization to every corner of the world. Many of our scientists and technicians will travel around the world to work, bringing with them civilization, a dignified existence, and relief from poverty. This is one thing that Westerners have been unwilling or powerless to accomplish.

Wang Xiaodong wrote the essay in 2011 when China’s industrial output had just surpassed that of the US. Today, China’s industrial output is twice US levels. China has invested heavily in the Global South, from infrastructure in Africa to manufacturing in ASEAN. But China’s export of cultural products remains inconsequential. 

In 1985, public intellectual Neil Postman wrote Amusing Ourselves to Death, a quaint polemic against the corrupting influence of American commercial television. Postman lamented: 

Our politics, religion, news, athletics, education and commerce have been transformed into congenial adjuncts of show business, largely without protest or even much popular notice. The result is that we are a people on the verge of amusing ourselves to death.

Neil Postman wrote this when only half of Americans had cable TV. Though he denied it, Postman was a lifelong Luddite who was aghast at the corrupting influences of entertainment technology:   

People will come to adore the technologies that undo their capacities to think.

Postman died in 2003 and never got to experience smartphones, Instagram, Twitter, President Trump, TikTok and PornHub. We can only imagine how he would have endured his prescience on our current house of horrors. 

In 2008, another penetrating American cultural critic, David Foster Wallace, also left us much too soon. The key insight in Wallace’s opus Infinite Jest is that the preferred state of modern man is the state of being entertained. The McGuffin of the novel is a film, Infinite Jest, that taps into primal infant desires and proves so entertaining that viewers lose interest in all else and will watch continuously in a stupor until they die from dehydration.

David Foster Wallace took his own life twelve years after the publication of Infinite Jest and a year after Apple introduced the iPhone. Had he lived, Wallace would have witnessed all the people in the modern world with their own private copies of Infinite Jest in the palms of their hands. He would have seen silent subway carriages where every last person was hunched over Infinite Jest.

We would like to think David Foster Wallace would smirk rather than recoil in Neil Postmanesque horror.  

While China has failed to penetrate global cultural markets, the massive investments may not have been a failure. China is having a banner year at the box office. More importantly, domestic films have far outperformed Hollywood, clinching all top 10 spots in box office receipts.

Poster for Full River Red. Photo: Wikipedia

On its home turf, China’s studios have outcompeted Hollywood. The top grossing film of the year, Zhang Yimou’s Full River Red, is a crime caper set in Song Dynasty China (960-1279) centered on the promulgation of a famous poem. Viewers’ knowledge of General Yue Fei (who is not a character), his heroic loyalty and the injustice of his execution was simply assumed.

Director Zhang Yimou has gotten some international recognition of his work – from “banned in China” arthouse wrist slitters like Red Sorghum and Raise the Red Lantern to kung-fu minstrel shows like Hero and House of Flying Daggers. However, a crime caper based on a poem written by a Song Dynasty general would have zero appeal in the cultural marketplace of Infinite Jest.

The more remarkable Chinese film of 2023, in our humble opinion, is 30,000 Miles from Chang’an. Only in China can one make a three-hour animated film about Tang Dynasty poets. What is shocking about this animated film is that it can only be truly appreciated by seniors. Bring the grandparents – do not bring the kids. There are no cheap Hollywood plot devices, no gratuitous love story, no bone thrown to the kiddies.

The film is Tolstoian in scope – a hymn to friendship, being young, getting old, ambition, loyalty, the choices we make, the joys of alcohol, what we owe talent, the seduction of power and regret … plenty of regret. The story follows the lifelong friendship between Gao Shi, an honorable military man and minor poet, and the incandescent Li Bai, a poet of celestial talent and endless dissipation. Tying the film together are 48 Tang Dynasty poems and “cameos” from Tang poets, generals, musicians and calligraphers.

While Wang Xiaodong and the Industrial Party would probably favor China’s number two top-grossing film of the year, the science fiction film Wandering Earth 2, they would probably celebrate the direction that cultural production in China has taken.

Let the Koreans play the minstrel with androgynous purple-haired boy bands. Let the Japanese have their anime along with their manga, otaku and creepy hentai. Let the Americans have the NBA, Marvel Cinematic Universe and twerking rapper girls. The end result is a not-to-be-celebrated if spectacular global cavalcade of Infinite Jest – as, all the while, China quietly wires up the Global South with 5G, builds high-speed railways in Laos and Indonesia and industrializes ASEAN.    

Luddite though we be, we believe the Industrial Party would appreciate Neil Postman – at least for his cultural insights. The Industrial Party will not lament China’s failure to export cultural products, especially when the cultural marketplace is what it is. We believe Neil Postman would agree and, with that, we give him the last word:

We do not measure a culture by its output of undisguised trivialities but by what it claims as significant.

‘Han Feizi’ is a Beijing-based financial industry veteran.

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Push to green data centres as they guzzle more power amid growing digital demands

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‘EVERY LITTLE BIT COUNTS’

The view is shared by companies such as Empyrion DC, a next-generation digital infrastructure platform headquartered in Singapore. 

Empyrion DC CEO Mark Fong said this involves thinking about sustainability holistically, “because every little bit counts”. 

The company has taken steps to cut down its carbon footprint, including regularly upgrading technology, properly managing e-waste and reducing water usage in the bathrooms. 

“The end goal is really to be able to tap off the grid clean energy,” said Mr Fong, adding that even starting with 10 per cent is a step in the right direction. 

Tech giant Google has been matching 100 per cent of its global annual electricity consumption with purchases of renewable energy since 2017. 

The company plans to operate its data centres around the world on carbon-free energy by 2030. 

“Obviously this is very challenging, even with… the most advanced renewable markets that we have now,” said Mr Ken Siah, head of Data Center Public Affairs (Asia Pacific) at Google. 

“The sun is not going to shine 24 hours a day. The wind is not going to blow 24 hours a day. So we have to really work with governments, energy producers, (and) renewable energy generators to make sure the grid is set up and properly equipped to make this transition.”

There is a need to encourage governments to tweak regulations, and invest in scores of renewable energy projects globally, said observers.

For Google, the transition also involves installing more efficient chips, using machine learning to slash power consumption, and even giving customers a chance to choose where in the world they want to run their cloud computing to meet their own sustainability goals.

“Customers are demanding it. Governments are demanding it. It is a business imperative that they have to become more sustainable,” said Mr Siah. 

“And I think a lot of companies recognise this, and I think that’s why you see there’s a greater push in the industry in general to have more sustainable data centres.”
 

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Yuan’s rising global role is opportunity to hasten reforms

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Amid considerable doom and gloom in China’s economy, President Xi Jinping has at least one 2023 milestone to celebrate: a near-doubling of the yuan’s role in global payments.

The yuan’s 3.6% share might not sound too impressive considering the US still commands 47% of payments. But the rate of increase from 1.9% over the last 11 months since January is sure to catch Washington’s attention.

The key now, of course, is for Xi’s team to lean into the trend by accelerating financial reform efforts. Hastening it depends on Xi’s ability to earn investors’ trust.

Developed economies have something in common: They build credible and trusted financial systems before trillions of dollars of overseas capital arrive. They methodically increase transparency, prod companies to strengthen governance, devise reliable surveillance mechanisms, develop an independent credit-rating system and erect a robust market infrastructure before the world shows up.

As 2024 approaches, investors will be paying closer attention than ever to whether Xi’s reformers can keep up with the yuan’s rise.

This week, China’s Central Economic Work Conference convened in Beijing to plot the next steps for Asia’s biggest economy. Xi’s Communist Party vowed to boost domestic demand, tackle the real-estate crisis and accelerate the development of strategic sectors to raise China’s competitive game.

“China’s economy has achieved a recovery, with solid progress made in high-quality development in 2023,” party leaders said, according to state-owned Xinhua. “China still has to overcome some difficulties and challenges to further revive the economy.”

And to continue building on the yuan’s increasing popularity. The yuan’s international profile is growing at a moment when questions about the US dollar’s dominance are surging. Concerns hit a fever pitch in mid-November when Moody’s Investors Service threatened to deprive the US of its last AAA credit rating.

US fiscal policy

That news dropped soon after America’s national debt topped $33 trillion. Moody’s also cited political dysfunction amid Washington lawmakers playing politics with the nation’s basic functioning.

“Fiscal policymaking is less robust in the US than in many AAA-rated peers, and another shutdown would be further evidence of this weakness,” Moody’s analysts argue.

“After having negotiated a contentious bipartisan debt-limit deal in June, US Congress is yet again renewing internal party disagreements that threaten a government shutdown and clearly reflect the political hurdles to US fiscal policymaking.”

Such political brinkmanship risks doing additional damage to the dollar. So is the collateral damage from 11 Federal Reserve interest-rate increases in 18 months. And fallout from President Joe Biden using the dollar as leverage in efforts to punish Russia over its Ukraine invasion.

But this milestone is the payoff for Xi’s policy of internationalizing the yuan.

The effort began gaining traction in 2016, when the governor of the People’s Bank of China at the time, Zhou Xiaochuan, secured a place for the yuan in the International Monetary Fund’s “special drawing rights” program. It marked the yuan’s inclusion in the IMF’s exclusive club of reserve currencies, joining the dollar, euro, yen and pound sterling.

In the years since, Xi’s team steadily increased and broadened the channels for foreign investors to access mainland China stock and bond markets. Mainland stocks were added to the MSCI index, while government bonds were included in the FTSE Russell benchmark.

That, and moves to increase financial transparency, boosted global demand for the yuan. More recently, Beijing’s tolerance of stronger yuan has given Xi’s Ministry of Finance some street cred in market circles as the yen plunged.

This year, the yuan overtook the euro to become the world’s second-most-utilized currency in global trade, according to data from the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. As of September, the yuan’s share of SWIFT payments hit 5.8%.

Yet as 2024 beckons, Xi’s party stands at something of a fork in the road. Accelerating yuan use in global trade and finance requires a clear and bold commitment to structural reforms.

Priorities include pivoting toward full yuan convertibility, increasing local-market liquidity and the availability of heading tools, modernizing a giant and opaque state sector and internationalizing a rudimentary credit-rating system that obscures risk and enables the chronic misallocation of capital.

Slowing growth

Xi and Premier Li Qiang also must get a handle on regional governments, namely, containing risks in the local government financing vehicles (LGFV) space. Even as China’s property crisis festers, Beijing needs to head off a reckoning involving roughly $9 trillion of off-balance-sheet municipal debt.

That’s easier said than done as China grows the slowest in 30 years and deflationary pressures mount. So far, Xi and Li have tried to do so without major public bailouts that might squander progress reducing financial leverage across sectors. Weak consumer prices and talk of “Japanification,” though, have economists betting on a more strenuous response.

Deflation could work at cross-purposes with Xi’s hopes of increasing global demand for the yuan. Chinese consumer prices fell 0.5% in November from a year ago, the worst decline since the height of the Covid-19 pandemic.

“The lingering softness in core CPI suggests domestic consumer-demand conditions may have remained weak,” write JPMorgan analysts in a recent report. Economists at Goldman Sachs argue that “weak” prices are “likely reflecting sluggish domestic economic momentum in the near term.”

Again, not the way Xi’s inner circle hoped to close out the year.

“China’s deflation problem could be a welcome disinflationary restraint for the West,” says economist Albert Edwards at Société Générale.

Edwards adds that “the fly in the ointment might well be that, if a US hard landing is imminent – reflected in weak money supply Société Générale and triggers a collapse in US domestic inflation anyway, importing an extra slug of Chinese deflation would then be extremely unwelcome and throw the Fed into a tizzy. Mind you, at least US bond investors would be delighted.”

Strategist Thierry Wizman at Macquarie Bank notes that “the longer that China fails to show that it can recover, the likelier that inflation expectations will decline in the West, as fears that China can export its deflation to the rest of the world through international trade will gain ground.”

This is hardly a narrative that a government hoping to increase the use of its currency wants.

There’s optimism, of course, that efforts by Xi and Li to boost fiscal stimulus and targeted PBOC action could turn the tide. At the same time, a 0.5% year-over-year increase in exports suggests steady external demand for Chinese goods.

Yet even here, caveats abound. Though overseas shipments might benefit from a “global upswing” in demand, economists at Nomura Holdings Inc. write that it’s “still too early to call the bottom.” The bigger picture, Nomura argues, is that “there might yet be another economic dip in spring 2024 due to a worsening property sector.”

Last week, Xi admitted that China’s economic recovery is “still at a critical stage” amid sluggish domestic demand and the drag from a staggering property sector.

According to state media, Xi delivered the comments at a meeting of the Politburo, China’s top decision-making body. There, Xi reportedly said “the development situation facing the country is complex, with increasing adverse factors in the international political and economic environment” and called for growth-stabilizing measures.

Importantly, Xi stressed that “it’s necessary to focus on accelerating the construction of a modern industrial system, expand domestic demand, (and) prevent and defuse risks.” This, he said, includes achieving greater “self-reliance” in key science and technology sectors, and moves to “accelerate the construction of a new development layout.”

The clock is ticking, though. This month, Moody’s downgraded the outlook for Beijing’s credit to “negative” from “stable,” highlighting “broad downside risks to China’s fiscal, economic and institutional strength.”

Though Xi’s Finance Ministry was “disappointed with Moody’s decision” and stressed that such worries are “unnecessary,” such headlines are the last thing Xi wants as investors plot 2024 capital-allocation plans.

Along with local-government debt levels, Moody’s fears troubles are deepening in the default-plagued property sector. Property, says Ting Lu, chief China economist at Nomura, remains “the single largest drag affecting China’s economy.”

He adds that “despite the multitude of stimulus measures announced recently,” real estate is a clear and present danger.

Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, speaks for many when he says “it’s unclear if exports can contribute as a growth pillar into next year.”

Getting reforms back on track

The good news is a late-2023 pivot back to structural reforms that moved to the back-burner amid the pandemic. At this week’s Central Economic Work Conference, Xi’s party pledged to defuse property-sector risks and to get a handle on debts plaguing both local government and medium-sized financial institutions.

Priorities include a renewed push to build affordable housing, address record youth unemployment, support for private enterprises, catalyze greater innovation in science and technology, strengthen domestic supply chains, accelerate China’s transformation toward a greener economy and develop the digital space, including artificial intelligence.

Other vital initiatives include boosting China’s declining fertility rates and the population ages. 

“It’s an ambitious document heavy on aspiration and light on details,” observes Bill Bishop, longtime China-watcher and author of the Sinocism newsletter. “I think you can find reasons to start feeling more constructive on the [Chinese] economy, but still lots of reasons to be skeptical.”

Bishop notes that the “main issues are insufficient effective demand, overcapacity in some industries, weak social expectations, and still numerous risks and hidden dangers. There are bottlenecks in the domestic big cycle, and the complexity, severity, and uncertainty of the external environment are increasing. It is necessary to enhance the awareness of potential dangers and effectively address and resolve these issues.”

On the whole, Bishop says, “the favorable conditions facing China’s development outweigh the unfavorable factors. The basic trend of economic recovery and long-term improvement has not changed, and it is important to strengthen confidence and resolve.”

All this will benefit Xi’s yuan internationalization push. So are US policies, both in terms of fiscal mismanagement and global sanctions. Biden’s sanctions regime versus Russia played into Beijing’s hands as governments around the globe buzzed about a “weaponized” dollar.

The measures spurred China to step up its campaign to eclipse the dollar and other Group of Seven currencies. The past year saw Xi’s efforts to prod nations to use the yuan in trade make progress. Xi’s Cross-Border Interbank Payment System is gaining traction. And the Belt and Road Initiative has acted as something of an accelerant for cross-border use of the yuan.

Now, the onus is on Xi and Li to step up the reform process to increase the yuan’s appeal in global markets. Discussions at this week’s China’s Central Economic Work Conference show Beijing knows what’s needed to stabilize the economy and show the dollar who’s boss. Implementation has been more vital to China’s trajectory.

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Myanmar overtakes Afghanistan as opium producer

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A man working at an illegal poppy field in Hopong, Myanmar. File photoGetty Images

Myanmar is now the world’s largest producer of opium, overtaking Afghanistan, a UN report says.

It estimates that this year Myanmar will have increased production by 36% to 1,080 tonnes of opium – the key ingredient for the hard drug heroin.

The main factors are domestic instability and a 95% drop in poppy cultivation in Afghanistan after a drug ban by the ruling Taliban last year.

Afghanistan is estimated to have produced 330 tonnes of opium this year.

The report by the United Nations Office for Drugs and Crime (UNODC) says Myanmar’s economy has been badly affected by conflict and instability since the military seized power in 2021.

“Limited availability of legitimate economic opportunities, constrained access to markets and state infrastructure, and a worsening economic climate brought on by inflation and monetary depreciation can make opium, as well as other illicit commodities, an attractive alternative or for subsistence livelihoods.

“In Myanmar, this appears to have played a significant role in farmers’ decisions in late 2022 to cultivate more poppy,” the report says.

The average prices at harvest time of fresh and dry opium have risen to $317 and $356 per kilogram.

In 2023, the document adds, the area under poppy cultivation in Myanmar (also known as Burma) is estimated to be 47,000 ha (116,140 acres) – an 18% rise compared with last year.

The region where the borders of Myanmar, Thailand and Laos meet – the so-called Golden Triangle – has historically been a major source of opium and heroin production.

Myanmar and Afghanistan are the source of most of the heroin sold around the world.

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CNA Explains: Why the price of gold has surged and where it could go from here

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Will prices remain elevated?

Since the high of Dec 4, the price of gold has gradually declined. As of Monday, it was trading at just under US$2,000 per ounce.

So where could prices go from here?

Mr Chwee said that even though markets expect the Fed to begin cutting interest rates in March 2024, OCBC does not expect this to happen until June 2024.

“This will support gold prices, though there could be some weakness if the Fed doesn’t cut rates in March 2024 as markets currently expect,” he said.

“We expect gold prices to remain elevated for the next six months,” he added.

Mr Heng Koon How, head of market strategy at UOB, said he forecasts gold prices to rise further to US$2,200 per ounce by the fourth quarter of 2024. 

“This is based on our core view that the US Fed will start cutting rates gradually across (the second half of 2024) and the US dollar will be softer as well,” he said. 

Going into 2024, the US presidential election and ongoing geopolitical tensions are likely to see more people turn towards precious metals, Mr Gregersen said.

“About a quarter of central banks also indicated their intention to increase their gold reserves further in 2024,” he added.

Mr Goh said: “Whether or not gold continues to rally will depend on the trajectory rates. If inflation continues to moderate and the Fed implements rate cuts next year, then gold will likely trend higher from here.”

“However, if there is a resurgence in inflation and the Fed is forced to hike rates further, we expect gold to retrace some of its recent gains,” the DBS analyst added. 

Should retail investors consider investing in gold?

Describing gold as a “good portfolio diversifier of risk”, Mr Heng said: “It is good from a long-term diversification point of view to allocate some gold into the portfolio.”

Silver Bullion’s Mr Gregersen said that it is a good time to buy metals, sharing that Silver Bullion saw a 300 per cent increase in sales volume last week.

“Physical gold mitigates counterparty jurisdictional and currency risks while reliably appreciating over the long term,” he said.

“It is a great choice in uncertain times.”

Mr Goh and Mr Chwee, meanwhile, highlighted several things which retail investors should take into consideration when investing in precious metals.

Mr Goh said that “counterparty risk and liquidity risk are important points to consider when investing (in precious metals) through mutual funds or (exchange-traded funds)”.

Mr Chwee also brought up liquidity as something to consider, as precious metals are subject to market fluctuations and may not be immediately convertible to cash. He added that, unlike cash, gold bears no interest. 

He also said that buyers must consider storage when buying physical gold, as it could incur additional costs, although he noted that investors can purchase precious metals digitally through banks including OCBC.

“Consumers should also consider … their risk profile and appetite, and speak with a financial adviser before making a decision to invest in gold,” he said.

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World Bank study recalibrates Middle Corridor

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The Trans-Caspian International Trade Route (TITR), a trade corridor running from China through Central Asia and the South Caucasus to Europe, has received increased attention since Western countries introduced sanctions against Russia in early 2022 for its war of aggression against Ukraine.

Its route goes from China through Kazakhstan, across the Caspian Sea to Azerbaijan and Georgia, and then to Europe via Turkey or the Black Sea.

It is worth noting that this corridor is the broader result of Azerbaijan’s own initiative with Kazakhstan to improve cross-Caspian trade flows, which began on a strictly bilateral basis over six years ago.

The TITR, colloquially called the “Middle Corridor,” has received significant attention from the international financial institutions (IFIs) – notably the Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), and the World Bank (International Bank for Reconstruction and Development, IBRD) – as well as from such national development organizations as the US Agency for International Development (USAID).

According to the IBRD’s just-published study, the TITR saw a 33% increase in container traffic in 2022. However, this surge also highlighted the corridor’s limitations. These include issues with border crossings, transshipments, and coordination challenges, all leading to long transport delays.

A decline of 37% in container traffic through the first eight months of 2023 compared with the same period in 2022 has underlined the need for improvements.

As a result, with support from the IFIs, countries including Azerbaijan, Georgia and Kazakhstan have initiated upgrades to enhance the corridor’s efficiency. In November 2022, those three countries together with Turkey signed a “roadmap” that outlined priority actions and investments. Azerbaijan, in particular, has committed to significant investments in port and rail infrastructure to facilitate this roadmap.

Azerbaijan key

Azerbaijan’s strategic location and developed infrastructure make it key to bridging Central Asia and Europe. The country has been proactive in collaborating with IFIs, leveraging its geographical advantage to enhance the corridor’s functionality, and extending connectivity and transport ties even to Central Asian countries not formally part of the TITR, such as Uzbekistan.

For Azerbaijan, the TITR not only diversifies trade routes but also positions the country as a key transit hub in the region, potentially boosting its economic growth.

For the countries of Central Asia and the South Caucasus in particular, which rely significantly on Russia for imports (in the case of Kazakhstan, 39% of all imports), the TITR presents an opportunity to diversify trade routes, reduce dependence on Russia, and open up new markets in the Middle East and North Africa, and eventually in South and Southeast Asia.

In this way, it may stimulate those countries to produce more complex and value-added products, promoting political stability by bolstering economic growth and fostering job creation. Other transcontinental and also maritime routes compete for intercontinental trade, but the TITR aligns with the aspirations of countries in the region for economic development and diversification.

The new IBRD study introduces a novel approach not undertaken by previous studies by the EBRD, ADB, or USAID. In particular, it employs a sophisticated model in order to assess comprehensively the expected trade demand for the TITR. It then examines the actions that are required to meet such increased demands for transport.

The trade model forecasts a 30% increase in trade between China and the European Union by 2030, primarily driven by westbound flows, which are expected to represent 62% of the total trade volume.

Trade from Azerbaijan, Georgia and Kazakhstan is expected to increase by 37% (with Kazakhstan’s exports being a major contributor), and their total trade with the EU is expected to increase by 28%.

Azerbaijan’s strategic location and growing trade capabilities are expected to make a significant contribution to this increased trade volume.

The IBRD study offers three advantages over an EBRD study that was concluded earlier this year and which was presented in Kazakhstan over the summer. The first is that the EBRD focused only on Central Asia and on selecting the optimal corridor there from three possibilities. (The one chosen runs principally through southern Kazakhstan.)

The IBRD study, however, concerns principally the South Caucasus, narrowing its focus to Azerbaijan, Georgia and Kazakhstan. The second is that its trade model permits a more granular examination of specific logistical upgrades that are necessary.

More than a ‘pipeline’

The third, perhaps the most geo-economically significant, is to recalibrate the TITR as an “economic corridor,” meaning that it is not just a “pipeline” for end-to-end solutions but moreover has the vocation of connecting up with the hinterlands of the countries through which it passes.

With a proper policy environment, this would encourage the formation of small and medium-sized enterprises in the countries concerned, leading to the creation of a more numerous middle class capable of guaranteeing political stability and legitimacy.

In addition to re-imagining the TITR as an “economic corridor,” the IBRD study makes four general recommendations for improving efficiency.

First, it insists on offering corridor-length logistical solutions for streamlining operations and reducing route fragmentation. Second, it is necessary to reform and simplify processes and procedures, particularly customs and data exchange.

Third, without requiring a one-size-fits-all end-to-end approach to digitization, it explains the need for real-time visibility and faster information sharing in an environment where the handling of printed paper documents is still sometimes the standard method of operation.

Finally, it points out the need to focus on connectivity and equipment acquisition (particularly railway rolling stock) in undertaking the continuing improvement of infrastructure and equipment.

On the basis of the IBRD model, it is possible to project the potential for the TITR (“Middle Corridor”) to triple its volumes by 2030 while halving transport times, if the recommended improvements are implemented.

While potentially unlocking trade and development growth for Central Asia and the South Caucasus, the corridor also offers economic and geopolitical resilience for transcontinental trade.

The IBRD study’s focus on the South Caucasus underscores Azerbaijan’s significance as a regional conduit for trade in the region. The report noted the need to ameliorate operational inefficiencies so as to maximize corridor use. It is worthwhile to mention that Baku has made significant strides in offering corridor-length logistics solutions.

The modernization of the country’s port and rail systems, under way already for some years, responds to the need imperative for logistical improvements.

Implementation of this development policy includes not only its building-out of the Port of Alat, but also Baku’s contribution to overcoming bottlenecks in the Baku-Tbilisi-Kars railway, a key infrastructure segment that looks now to quintuple its (nevertheless still relatively modest) container flows in the near future.

The main challenge now is to establish platforms where the main stakeholders can work together to address operational challenges and invest in infrastructure. Azerbaijan’s active participation in these platforms is crucial, given its strategic location and investment in corridor infrastructure, to achieve the desired efficiency and transparency.

In order to promote efficiency and transparency, the IBRD concludes that this investment should come from the private sector at least as much as from the state sector of the participating countries. How this is to be accomplished is the subject of current discussions.

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India’s transforming economic landscape

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India, boasting robust GDP growth of 7.8% in the first quarter of the 2023-24 fiscal year, positioning it as the fastest-growing nation in the Group of Twenty, is on track to achieve its ambitious US$5 trillion economy target by 2026-27.

At this critical juncture, India is undergoing a significant economic transformation, influenced by a dynamic interplay of factors that reshape both its economic terrain and demographic structure.

Several notable aspects define India’s current economic scenario. Projections from the Economic Survey 2022-23 highlight anticipated GDP growth ranging from 6.0% to 6.8% in fiscal 2023-24, with baseline growth of 6.5% in real terms.

However, inflation remains a persistent concern, prompting recent fiscal and monetary policies, including the central bank’s increase in key interest rates in 2022 to curb inflation. The government has implemented fiscal measures to address economic challenges.

Sectoral opportunities

India’s primary sector presents diverse opportunities to drive economic growth. The agricultural sector, a significant source of employment, not only contributes to poverty reduction but also ensures overall financial stability.

Initiatives like the National Mission for Sustainable Agriculture underscore the importance of technological advancements to make Indian agriculture future-ready, incorporating scientific warehousing practices.

Recognizing the sector’s pivotal role in India’s gross domestic product, recent government measures, including increased investment, long-term growth focus, and policy reforms, aim to enhance its economic contribution.

Global integration with food markets and productivity gains further emerge as avenues for economic development in agriculture. Addressing critical issues such as sustainable practices becomes paramount, given the large population dependent on agriculture for food security.

These opportunities align with the overarching goal of achieving economic growth and self-reliance in the agricultural sector.

While the manufacturing sector holds promise for integration into global value chains (GVCs), it grapples with the task of balancing scale with labor requirements. Navigating this challenge is crucial for India to leverage opportunities and address associated challenges, ensuring sustainable economic growth and increased employment for its growing population.

Opportunities abound for domestic manufacturing to strengthen its position within GVCs, enhancing the scale of its operations. However, the sector is poised to become more capital-intensive, leading to a subsequent reduction in demand for labor. Striking a balance between scaling up operations and managing the surplus labor force will be a critical challenge in the coming decade.

Labor-intensive sub-sectors within manufacturing can play a pivotal role in achieving a net increase in productivity during this transition. India’s export basket, including electronics, automobiles, iron and steel, signals increased manufacturing capacity and competitive refining services.

Labor-intensive export sectors such as toys, textiles, footwear and furniture have significant potential to generate domestic jobs and should be prioritized for growth and development.

The service sector, though employing a smaller percentage of the population compared with East Asian counterparts, consistently contributes to the national gross value added (GVA). The construction industry has shown remarkable promise within the industrial sector, with its workforce steadily expanding over the last two decades.

With 1.6 million employees, the banking sector sees a significant portion (49.1%) working in the public sector. Additionally, the emergence of gig workers, currently constituting 1.5% of the workforce, is expected to increase their contribution to total employment to 4.1% by 2029-30.

Government initiatives

The synergy between government initiatives and policies and a dynamic workforce can foster a conducive environment for job creation in India.

Noteworthy government programs include the Digital India Program, launched in 2015, which seeks to transform the nation into a knowledge economy through initiatives promoting digital literacy, expanding digital infrastructure, and enhancing e-government services.

The Pradhan Mantri Kaushal Vikas Yojana (PMKVY), also initiated in 2015, concentrates on skill development by offering free, short-duration skill training programs and providing monetary incentives upon skill certification.

The Startup India Initiative, launched in 2016, supports startups by simplifying registration, offering tax exemptions, and creating a dedicated fund, generating more than 900,000 jobs.

The Production-Linked Incentive in strategic sectors, launched in 2020, aims to strengthen manufacturing in critical sectors, leading to a substantial increase in foreign direct investment and the potential creation of 6 million jobs in five years.

Last, the Pradhan Mantri Vishwakarma Yojana, launched this September, extends financial assistance and skill-development support to traditional artisans and craftsmen, preserving traditional industries and fostering entrepreneurship.

Finally, as of January this year, India became the world’s most populous nation, surpassing China’s population of 1.417 billion. This demographic shift underscores the importance of harnessing India’s extensive human resources, particularly its young population, to strengthen its economy and establish itself as a global presence.

With more than 52% of its population below the age of 30 and a substantial Internet penetration rate of 43%, India holds significant potential.

Leveraging this demographic dividend through education, skill development, and job creation can boost economic growth, presenting both opportunities and challenges that require effective resource management and provision for the growing workforce.

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India, Korea celebrate 50th anniversary of diplomatic ties

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On December 10, India and Korea commemorated the golden jubilee of their diplomatic ties, marking five decades of a relationship that has traversed a diverse terrain of experiences. Over the past half-century, this bilateral association has weathered numerous fluctuations, witnessing both peaks and troughs.

Despite India’s pivotal role in halting the Korean War, the ensuing Cold War politics strained ties with both North and South Korea. It was only in 1973 that India could definitively establish diplomatic relations by formally recognizing both Koreas.

However, it is crucial to note that even during the period preceding the establishment of diplomatic ties, India’s connections with South Korea were not entirely severed. In fact, prior to the formal diplomatic engagement, India and South Korea were already fostering a trade relationship, with a trade volume approximating US$14 million per year.

The formalization of diplomatic ties served as a catalyst, significantly propelling the nascent trade relations to unprecedented heights. This pivotal moment ushered in an era of rapidly accelerating economic ties between the two nations.

The impact of this diplomatic milestone is exemplified by the remarkable growth in bilateral trade, surging more than 1900-fold over the last five decades. As of 2022, trade volume has soared to an impressive $27.8 billion, a testament to the resilience and dynamism of the India-Korea relationship.

At present, major South Korean conglomerates, including Hyundai Motor, POSCO, LG Electronics and Samsung Electronics, have entrenched themselves in the Indian market, operating on a substantial scale.

The intertwining of economic interests and diplomatic endeavors stands as a beacon, illuminating the substantial strides made by India and South Korea in their enduring partnership.

Chilly ties

The transformation from chilly diplomatic relations to a thaw in ties between India and South Korea unfolded against the backdrop of the Cold War era. Throughout these years, the bilateral relationship found itself relegated to the back burner, with the two nations aligning with opposing camps.

While South Korea became integrated into the US-led alliance system in the region, India gravitated toward the Soviet Union. The prevailing political considerations during this period hindered any attempts to rebuild ties between the two countries.

Economically, the divergence was stark. India, following socialist economic policies, stood in stark contrast to South Korea’s export-led strategy rooted in a liberal economic system. The ideological disparities left little common ground for collaborative efforts.

Consequently, India’s initiative to establish ties in 1973 was initially perceived merely as a diplomatic gesture, with little expectation of substantial progress. This status quo persisted until the collapse of the Soviet Union in 1990, during which the ties between the two nations saw limited improvement.

The abrupt demise of the Soviet Union and the conclusion of the Cold War marked a pivotal turning point, liberating both South Korea and India from the shackles of superpower rivalry. Impressed by the rapid economic growth of East Asian countries, Asian leaders, particularly those in India, began taking a keen interest in the success stories of South Korea and Japan.

South Korea, in particular, garnered significant attention for its remarkable transformation from a poor Third World country to a developed nation within a remarkably short timeframe.

This newfound interest prompted an influx of Indian scholars into Korean universities, seeking to study and understand the East Asian miracle. Simultaneously, as Seoul sought new markets for its export-led economy, Korean political and business leaders increasingly turned their gaze toward India.

This marked the beginning of a substantive shift in the bilateral relationship, as both nations embraced the opportunity for collaboration and mutual benefit, setting the stage for a flourishing partnership that transcended the constraints of the Cold War era.

Flurry of new agreements

The intricate web of new agreements between India and South Korea has unfolded as a consequence of their shared interests, prompting both nations to fortify their ties. A significant milestone emerged after the Cold War era when South Korean president Kim Young-sam visited Delhi in February 1996, culminating in the signing of the Future-Oriented Partnership.

This accord aimed to elevate the bilateral trade to $5 billion by the year 2000. Taking a further step, leaders of both nations signed the Korea-India Joint Committee Establishment Agreement, focusing on enhancing ties in trade, investment and culture. Special emphasis was placed on encouraging Korean companies to engage in infrastructure improvement projects in India.

The burgeoning partnership received another boost with president Roh Moo-hyun’s visit to India in 2004, solidifying the relationship with the Long-Term Cooperative Partnership for Peace and Prosperity. Buoyed by the growing ties, the political leadership set an ambitious goal of raising trade to $10 billion by 2008.

The subsequent negotiations for the Comprehensive Economic Partnership Agreement (CEPA) commenced in earnest and were officially signed in Seoul in August 2009, coming into force in January 2010.

As the partnership evolved, new dynamics entered the fray by 2010, driven by larger strategic considerations, particularly in response to the China factor.

Recognizing the need to elevate their relationship, New Delhi and Seoul signed a Strategic Partnership encompassing border security and defense collaboration to navigate the rapidly changing geopolitical situation in the region.

Progressing further, they upgraded to a Special Strategic Partnership in 2015, establishing an institutional framework for annual summit meetings through mutual visits or multilateral conferences.

This elevated engagement also manifested in the initiation of the 2+2 ministerial dialogue on foreign affairs and defense affairs to coordinate responses to the growing challenges in the region. To boost economic ties, negotiations for the revision of the CEPA were initiated to address evolving concerns on both sides.

Simultaneously, as South Korea’s defense industry gained global prominence, the Indian defense establishment expressed interest in Korean weapon systems. This led to among others the successful conclusion of a $650 million deal for the export of South Korea’s K9 self-propelled howitzers to India, with discussions about potential joint ventures for the production of weapon systems in India.

Building on these burgeoning ties, South Korean President Yoon Suk Yeol and Indian Prime Minister Narendra Modi, during their meeting at the Group of Twenty summit in New Delhi in September, pledged to strengthen further the strategic partnership between the two countries.

Challenges remain

Despite the commendable progress in their bilateral ties, persistent challenges continue to mar the relationship between India and South Korea. Despite sincere efforts, the CEPA negotiations have hit an impasse, with both nations unwilling to yield to each other’s demands, reflecting a nuanced struggle to address their respective concerns.

There are serious concerns that India and Korea may not be able to achieve their trade target of $50 billion by 2030. Korean investments in India are also not  flowing as expected. The number of Korean students studying in Indian universities is still very small, as is the number of Korean tourists visiting India.

In the realm of defense cooperation, the Korean Defense Acquisition Program Administration (DAPA) remains entrenched in a Cold War mentality, treating India as if it still belongs to an opposing camp. This mindset has repeatedly frustrated Indian attempts to acquire advanced Korean weapon systems and secure technology transfers from Korea, impeding the full realization of their defense partnership.

Compounding the challenges are lingering negative perceptions among South Koreans toward India. Stereotypes related to unsanitary public spaces, high crime rates, and social inequalities persist, casting a shadow over the economic and defense collaboration between the two nations.

The significant disparity in per capita income, with South Korea boasting markedly higher figures than India, contributes to a biased view of India as a developing country, affecting the dynamics of their partnership.

Moreover, Indian residents in South Korea grapple with social discrimination and racial biases, hindering their integration into Korean society. This disparity in lived experiences further complicates the relationship, as the population of Koreans in India grows rapidly, but the number of Indians residing in Korea on a permanent basis remains relatively small.

Conversely, India too must reassess its perspective on Korea beyond being a source for economic investment, technology transfer, and procurement of new weapons systems. As South Korea grapples with economic and societal challenges, including a projected fall to the 15th position in the global economy by 2050, India needs a comprehensive strategy to empower Seoul to navigate impending challenges.

Understanding the potential repercussions of a collapse in the South Korean economy and regional stability is paramount for Indian leadership.

Addressing these lingering challenges requires a concerted effort from both nations to foster a deeper understanding, dispel misconceptions, and bridge the gaps that persist in their economic, defense, and social partnerships.

Way forward 

An imperative exists to transcend oversimplified views and embrace a multifaceted perspective when contemplating India and its residents in Korea. While acknowledging India’s existing challenges, including economic disparity and poverty, it is crucial to underscore the positive facets of the Indian economy and its rich historical heritage.

Urgently, there is a need for Koreans to shift their perspectives on India and its people if they intend to fully harness the potential inherent in this partnership.

Essential to this paradigm shift is for Koreans to recognize India’s trajectory, projected to ascend from the fifth to the third position in global economic rankings by 2050, surpassing South Korea.

Acknowledging India’s burgeoning economic and military capabilities, along with its potential role in global supply chain reconfigurations, is vital. Similar to Japan’s proactive initiatives, South Korea should take affirmative steps to address the challenges impacting the relationship and recognize India’s evolving role in the fast-changing geopolitical security landscape.

In order to ensure the longevity of their partnership for the next 50 years, India and Korea must adapt to the evolving challenges of the time. Bridging geographical and psychological gaps is crucial for fostering a diverse and sustainable partnership. Both nations should strive to overcome obstacles hindering the growth of this partnership, contributing to its sustainable development over the coming decades.

By doing so, India and Korea can ensure that their alliance remains relevant and resilient in the face of a changing global landscape.

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