Hong Kong and China interest in AI and regtech ‘palpable’ despite soft fintech funding: report | FinanceAsia

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Fintech companies in Asia Pacific received $5.1 billion of funding in the first half of 2023, a further drop from $6.7 billion during the same period last year, a recent KPMG report has revealed.

The figure points to a “very soft” fintech funding landscape in the region, in contrast with $36.1 billion of funding in the Americas, and $11.2 billion in Europe, Middle East and Africa (EMEA), the study showed.

In terms of number of fintech funding deals, 432 were completed in the Apac region, compared with 1,011 in the Americas, and 702 in EMEA.

“The global fintech market has seen challenges, with a decline in both funding and deals,” Barnaby Robson, deal advisory partner at KPMG China told FinanceAsia.

“Public companies have changed materially, with entire industries trading at fractions of previous valuations. But founder expectations have not moved as fast, meaning private valuations are adjusting slowly as companies seek new funding,” he explained.

The report, Pulse of Fintech H1’23, aggregated data from global venture capital (VC), private equity (PE) and mergers and acquisitions (M&A) deals in 2023’s first half, and looked into various segments including payments, insurtech, regtech, cyber security, wealthtech and blockchain.

The largest fintech deal H1 2023 in the region was $1.5 billion raised by Chongqing Ant Consumer Finance, the consumer finance unit of China’s Ant Group, which faced Beijing’s pressure to restructure in compliance with regulatory limits.

“Fintech funding in China is very dry” outside of Chongqing Ant Consumer Finance’s deal, the report noted. Businesses and investors in China tend to prioritise post-pandemic recovery, waiting for outcomes from prior investments, it explained.

Other significant deals in Asia include $304 million raised by India-based Vistaar Finance, and $270 million raised by Kredivo Holdings in Singapore.

Rebound potential

Despite slowing deal activity and slashed valuation, the intrinsic value and potential of the fintech sector in Hong Kong, mainland China, and Asia in general, remained robust, Robson told FA.

Fintech firms in the area are increasingly looking at leveraging artificial intelligence-generated content (AIGC), the report identified.

“In mainland China, the focus on AI in insurtech, creditech and wealthtech is evident. Hong Kong, with its global connectivity, needs to navigate the growing challenges of dealing two different AI regimes and mainland China data onshoring rules. The diverse financial landscape and low productivity in emerging Asia, offers a fertile ground for AI-driven fintech innovations,” Robson detailed.

“AI’s potential to revolutionise fintech segments is undeniable.”

Despite the US and Europe being leaders in regtech, or regulatory technology, interest from Hong Kong and China is palpable, according to Robson.

“With the People’s Bank of China’s (PBOC) recent announcements and Hong Kong’s agile regulatory framework, it’s clear that the region is gearing up for a more transparent and efficient financial ecosystem,” he said.

China’s central bank released a set of draft administrative measures on data security management last month for public consultation, signalling the watchdog’s enhanced emphasis on data processing securities amid geopolitical tensions.

Many financial institutions are embracing regtech to improve the efficiency and effectiveness of addressing compliance and regulatory requirements, Robson noted.

In his view, the confluence of AI advancements, regulatory shifts, and a growing middle class could very likely help catalyse fintech funding in Hong Kong, mainland China as well as the broader Asia region.

But that would be possible only after “a more complete reset in multiples to get to where valuations reflect fundamentals, and market clearing prices exist”.

He pointed to late 2024 or 2025 as a likely timing for such a rebound, citing fintech being properly valued on a realistic discounted cash flow (DCF) or free cash flow (FCF) basis as a contributing element.

“It’s a matter of when, not if,”

¬ Haymarket Media Limited. All rights reserved.

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On a China-built train from Mombasa to Nairobi

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Having spent the last five weeks in East Africa after a long hiatus, I sensed that Kenyans are more confident than at any time since achieving independence in 1963 of their ability to attract reliable partners as the country moves ahead in its quest for long-term economic growth. In this connection, the development of infrastructure has been a top priority for successive Kenyan governments.

Among Kenya’s potential international development partners are its traditional ones – the United Kingdom, the European Union, and the United States – and/or the newcomers – BRICS members Brazil, China, India, Russia and South Africa, among others.  

In Nairobi and Mombasa, a sense of strategic autonomy is palpable. 

If any of Kenya’s traditional development partners were to offer Nairobi a deal that is economically uncompetitive, vulnerable to extraterritorial sanctions or unacceptable for ideological reasons, or because it would offend the cultural sensibilities of the people, then Kenya would likely get up from the negotiating table and go elsewhere. It has options. 

Across Africa, the picture is much the same.

What’s more, more and more African leaders recognize the predatory, velociraptor-like nature of neoliberal economic theory, which functions as a highly sophisticated wealth transfer mechanism disguised as the false god of perpetual progress and prosperity for all.

Africa’s new strategic autonomy is evidenced not only by the growing number of projects funded by non-Western sources but by increasing calls for more of the same across the continent.  

Africans’ emerging ability to pick and choose their development partners is driving some Western leaders bonkers. Witness this remark uttered this month in Nigeria by UK Foreign Secretary James Cleverly: “We are living through an era when the tectonic plates of world politics are shifting decisively. And a battle of ideas is taking place once again.  This time, its focus is on the nature and the future of the international order.”  

These words are no mere “talking points.” They come from the gut and evince an undertone of something like panic.  

Clean, comfortable and on time

These thoughts about Africa’s emerging strategic autonomy raced through my head as Kenya’s crack, Chinese-built Standard Gauge Railway sent me hurtling from Mombasa, East Africa’s largest port, to the bustling capital Nairobi. Coach class, with ingratiating, uniformed waiters beckoning from their food-laden trollies, surpassed Amtrak’s equivalent from Washington to New York.  

The train was clean, comfortable, air-conditioned and on time.

In Nairobi, I spoke at length with several highly accomplished civil engineers with decades of professional experience in Kenya about the Nairobi-Mombasa express. They unequivocally stated that the China Road and Bridge Corporation, the principal Chinese contractor, had done a “very good job” from an engineering, planning, design, and construction perspective. 

For its part, the Wilson Center recently noted: “The [Kenyan Standard Gauge Railway] has had some important successes. Trains run faster than the former [British-built] railway or road traffic, and its passenger services are popular. The amount of freight carried by the SGR has risen significantly since commercial operations began, and it has helped to decongest port operations, speed freight transportation, and enhance cargo security.”

While there have been concerns about the railway’s cost-effectiveness, it appears to be on the verge of profitability. According to Dhahabu Kenya, as of year-end 2022, its revenues increased 6.4% to 15.3 billion Kenyan shillings (US$116.4 million), which compares to costs of “about 18 billion shillings ($136.98 million) to operate the passenger and cargo trains.” 

If accurate, the SGR has almost broken even, which is remarkable, as many mega-projects across the globe – according to the Cato Institute (“Megaprojects: Over Budget, Over Times, Over and Over”) – are money-losing propositions.

Caesar Mwangi, the dean of Strathmore University Business School in Nairobi, told me: “if London, Paris or Brussels wants to compete successfully against China, or any of the BRICS, in Africa, then Western governments must get serious about public-private partnerships.

“Western governments need to tone down their claims of exceptionality on technical matters, stop blaming others for shoddy work when it’s not, put forth reasonable proposals, and gin up money on acceptable terms with realistic timetables. Otherwise, China, Turkey and India will continue to take the lion’s share of projects.”

This helps explain why The Taipei Times, citing the Center for Global Development’s 2022 study, reported that “China’s development banks provided $23 billion in financing for infrastructure projects in sub-Saharan Africa from 2007 to 2020, more than double the amount lent by such banks in the US, Germany, Japan and France combined.”

Lamentably, the West has failed to advance its strategic interests in Africa because most African countries have had enough of Western specialists and academics spouting off about “best practices,” “human rights,” “future prosperity” and “equity.” 

Some African leaders may buy into the West’s ideological agenda out of conviction or because they are simply corrupt, but the majority will not sign up for overpriced projects with unrealistic timelines and unacceptable conditions no matter how slick the PR presentation.

Deeper problem afflicts Western interests in Africa

Over the past 20 years, neoliberal economic theory – the belief that financial markets are (and should be) the driving force in socio-economic decision-making, and that they will, at some undisclosed point in the future, bring about equitable development – has devastated the poor and much of the middle class across the globe.

Neoliberalism has helped undermine societal cohesion and pitted one community against another, wiping out traditions, degrading the environment, and ruining cultural identities in the process.   

Mwangi emphasizes that “neoliberalism as an economic model has not served the common good of societies across Africa. Rather, it has delivered greater inequality and social insecurity. Its claim of reducing poverty is not supported by the evidence.”

In the case of Kenya, The Daily Nation reported in June that “nationally, about 30% of [Kenyans] are unable to meet their food needs, with more rural than urban dwellers living in hunger.” In 2016, 16.8 million Kenyans were living in a state of poverty versus 19.2 million in 2022, an increase of more than 14%.

Other African states have experienced a similar deterioration of living standards over the same period, and the blame cannot be pinned strictly on Covid. 

The United States also has geopolitical headaches of its own making.

Many of the businessmen I met in East Africa (though certainly not all) expressed deep frustration with US diplomatic outreach over the past several years. One described it as “little more than a sales pitch delivered by a failing commercial enterprise selling third-rate products and overpriced ideas that smack of a disguised form of neocolonialism.”

What’s more, Africans increasingly understand that just as the June 2021 US-led “Build Back Better World” (B3W) infrastructure initiative turned out to be a flop, so, in all likelihood, will the Partnership for Global Infrastructure and Investment as codified in the G7 Hiroshima Leaders’ Communiqué (May 20, 2023). The failure of the domestic version of B3W in the United States is well known in Africa.

For this and other reasons, the West’s claim to be Africa’s development partner of choice has worn thin. Across Africa, leaders are increasingly holding Britain and France at arm’s length. Pretoria, Algiers and Bamako, for example, are in no mood to be lectured by their former colonial overlords.

The countries of the Sahel have all but booted the French out.

At the 15th BRICS Summit in South Africa (August 22-24), heads of state are discussing new membership criteria, new funding mechanisms, new infrastructure projects and a new currency – as the West looks on in horror as multipolarity gains momentum.

More than 20 countries have formally applied to join BRICS, including Argentina, Egypt, Ethiopia, Indonesia, Iran, Saudi Arabia and United Arab Emirates. Many more have expressed an interest. 

The Nairobi-Mombasa express and other infrastructure projects across the continent show that Africans have options. They are no longer dependent on their former colonial patrons for technical or financial support because they are increasingly able to look elsewhere. 

If the West wants to remain relevant in Africa, it must compete for African business and find new ways to peddle its influence in a world growing rapidly more multipolar. It must deal with Africans as equals, ditch any lingering colonial attitudes of superiority, and delink programming for economic development from dogmas and doctrines of an ideological nature.

The countries assembling at the 15th BRICS Summit in Africa this month are not bluffing about gaining strategic autonomy in international relations. When in East Africa, I recommend taking the Nairobi-Mombasa express to understand that Kenya’s self-confidence in development matters is real. 

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Is the dollar finally on its way out?

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The United States has been instrumental in leading the post-war global economic system which it helped create. Yet its economic weight has declined over time and strategic competitors in emerging markets are calling for change, including possible ‘decoupling’. Some suggest that the US dollar’s days as the central global currency are numbered.

The US dollar’s role continues to be central to the functioning of the international financial system. The Bank of International Settlements estimates that the US dollar is involved in almost 90% of foreign exchange transactions and accounts for 85% of transactions in spot, forward and swap markets. Half of global trade and three-fourths of Asia-Pacific trade is denominated in US dollars.

The share of the US dollar held as official foreign exchange reserves has fallen from 61.5% in 2012 to 58.4% in 2022, but so has the euro (from 24.1% to 20.5%) and the renminbi share remains under 3%. Foreign currency debt denominated in US dollars has remained at about 70% since 2010. The Fed’s Index of International Currency Usage has also remained constant at about 68%.

Dissatisfaction with the dominant role of the US dollar emerges periodically, usually corresponding to a major shift in the global economy or an international crisis. For example, when Japan emerged as an “economic juggernaut” in the late 1980s, many thought the yen would and should take on a much bigger role. 

It didn’t. Today, the yen only constitutes about 5% of foreign exchange reserve holdings. Even greater expectations arose when the euro was created, but outside of Europe the currency has not taken on a larger role.

The same is true for the major shock of China’s extraordinary rise over the past generation. The Index of Foreign Currency Usage gives the renminbi a 3% share, half that of the British pound and two-fifths that of the Japanese yen. It turns out it is very difficult to dethrone the US dollar.

Criticism of this outsized role for the US dollar has been more vocal in recent years, particularly in light of geopolitical tensions. By controlling the US dollar, the US government can yield a very big stick through, for example, blocking access to the SWIFT system of cross-border interbank transfers, as in the case of the Russian war on Ukraine.

It is no coincidence that countries that have been the most vocal about reducing the role of the US dollar in the global financial system tend to be geopolitical rivals of the United States. 

But some countries which have a less prickly relationship with the United States, including Malaysia and Brazil, have also been pushing for diversification. There is even a plan to resurrect the idea of an Asian Monetary Fund, first proposed by Japan during the Asian financial crisis.

Recent sanctions on Russia have led to its dealing more in renminbi and other currencies, highlighting the ability of the United States to apply pressure through its control of international financial markets, leaving other countries exposed. 

China’s yuan is gaining certain ground as an international currency. Photo: Facebook

In 2023, Bolivia became the third Latin American country after Argentina and Brazil to use the renminbi in settling trade transactions. Even Saudi Arabia is considering using the renminbi in oil trade with China.

But it is unlikely that there will be any major shift soon. The US economy is not only the largest economy in the world but is also diversified, dynamic, innovative and relatively flexible. While its share of global GDP has fallen, this is due to rising shares of emerging markets. The US share in total OECD GDP has actually risen from 37% in 2000 to 43% in 2023.

The Chinese financial system is still relatively closed and the Chinese government is unlikely to be willing to free up its financial markets in the short- or medium-term — at least not under the current administration, whose priorities are moving in the opposite direction. 

If countries wish to avoid the US dollar because of potential sanctions, they probably would not be comfortable being exposed to China either, as it also applies sanctions and has been accused of “debt-trap diplomacy”, or other OECD countries whose approaches to sanctions generally dovetail that of the United States.

While politics in the United States are unpredictable and increasingly fraught, the government is stable and, despite the deteriorating fiscal policy outlook, the reputation of its monetary authority is solid. International actors continue to consider it a safe and secure place to invest.

The US government has been able to sustain large trade deficits over time — the result of excess net national savings in the global economy and its own excess public and private debt creation. Many other governments would find this to be a political non-starter. China, for example, has not had a current account deficit since its dual currency system was unified in 1994.

Loud calls to replace the US dollar appeal more to local domestic constituencies than to international financial actors. The global system gains from having an internationally accepted currency like the US dollar as a medium of exchange, unit of account and store of value. 

But its role will diminish at the margin at a rate that will be the function of exogenous factors, such as changes in the international marketplace, and endogenous factors, such as how the United States faces its financial and trade challenges.

Michael G Plummer is Director at SAIS Europe and Eni Professor of International Economics at Johns Hopkins University.

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

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Property, local debt hurt China corporate earnings

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Chinese stocks have been under pressure recently as investors worry that property and local debt crises have become a double whammy that will hurt corporate earrings. 

Goldman Sachs cut its full-year earnings-per-share growth estimate for the MSCI China Index to 11% from 14% and also reduced the 12-month index target to 67 from 70. The new target implies a 13% increase from the closing level on August 18.

The investment bank said in a research note on Monday that “the ailing housing market and its potential contagion to the real and financial economies are the widely-cited reasons for the correction.” It said economic growth pressures in China have resulted in renewed downgrades in Chinese firms’ profit expectations.

The Hang Seng Index, benchmark of Hong Kong’s markets, on Monday fell 327 points, or 1.82%, to 17,623, the lowest level since last November. The Shanghai Composite Index dropped 38.98 points, or 1.24%, to close at 3,092.

Shares of the heavily-indebted Country Garden decreased 2.6% to 74 HK cents (9.43 US cents). Shares of Longfor Group, dubbed as the most financially-healthy Chinese property firm, plunged 3.39% to HK$15.98 after CLSA lowered its forecasts for the company’s earnings by 13.3%, 23.5% and 24.2% for 2023, 2024 and 2025, respectively.

Chinese banking stocks continued their falling trend on Monday. Agricultural Bank of China dropped 1.57% while Industrial and Commercial Bank of China was down 1.47%.

The People’s Bank of China (PBoC) said Sunday that it had held a virtual meeting with the National Administration of Financial Regulation (NAFR) and the China Securities Regulatory Commission (CSRC) on August 18 and urged major Chinese financial institutions to increase their support for the real economy, as well as to help prevent and lower local government debt risks.

“The country’s economic recovery has been a wave-like development and a tortuous process,” the meeting said. “Financial support for the real economy should be strong in intensity, steady in pace, sound in structure and sustainable in prices.”

It said financial regulators should enrich the tools and means to prevent and resolve debt risks, strengthen risk monitoring, assessment and prevention and control mechanisms, promote risk disposal in key areas, and “firmly hold the bottom line of having no systemic risk.”

Two separate crises

Many property developers in China are suffering from a liquidity crunch as they saw a decline in their contracted sales and net profits in the first half of this year. Separately, Chinese banks are urged by the central government to sacrifice their margins by extending loans for local government financing vehicles amid a local debt crisis.

The property and local debt crises are both caused by a drop in property demand in China. And they, in return, are dragging down the Chinese economy and domestic consumption.

As of last Friday, about 80 listed property developers had announced their results for the first six months of this year, of which 60% reported net losses. The combined losses amounted to at least 100 billion yuan (US$13.8 billion), according to a calculation made by the China Real Estate Weekly. 

Yuzhou Group said it might have lost 6 to 7 billion yuan while Sunac China Holdings expected a first-half net loss of 15 to 16 billion yuan. Country Garden said it had lost about 45 to 55 billion yuan in the first half.

An unnamed executive of Country Garden told Yicai.com on Sunday that the company has enough financial resources to complete 400,000 apartments by the end of this year and 400,000 more in 2024 but for the moment it may not have enough cash to pay its domestic creditors fully. 

China Times reported that Country Garden will hold meetings with its domestic creditors between Wednesday and Friday. It said the company will seek to extend by three years the payment of a 3.9 billion yuan bond, which otherwise will default if it is unpaid on September 2.

“Affected by multiple unfavorable factors, some property firms have faced difficulties in their operations this year,” said Bai Wenxi, chief economist at IPG China.“The weakening demand is one of the main factors restricting the recovery of the real estate market.”

Bai said risks in the property market are growing as many supportive measures have not yet been implemented.

“The profitability of property developers depends on the stability of their long-term operations. However, the current market sentiment is affected by various factors, including homebuyers’ expectation for a drop in income,” said Liu Shui, head of business research at the China Index Academy.

Liu said that whether or not the property market situation improves in the second half of this year will depend on the strength of the government’s supportive measures.

Supportive measures

The CSRC announced on August 18 that it had established a special working group, devised a dedicated work plan, and formulated a package of policies and measures. It said it would unveil new measures that can increase sources of funds, reduce transaction costs and improve convenience in trading in both the A-share and Hong Kong stock markets.

“We believe the policy tailwind could give a boost to securities firms’ fundamentals and, subsequently, earnings expectations could see improvement and average return-on-equity could trend up over the medium to long term,” the CICC, a Chinese investment bank, said in a research note on Monday. “Meanwhile, efforts to boost the activity of A-share and Hong Kong stock markets should also benefit the Stock Exchange of Hong Kong (HKEx).”

The PBoC on August 15 cut the rate on one-year medium-term lending facility (MLF) loans by 15bp to 2.5%. On Monday, it lowered the one-year loan prime rate (LPR) by 10 basis points to 3.45% from 3.55% earlier, while the five-year LPR was left at 4.20%. Analysts had previously expected that both the one-year and five year LPRs would be cut by 15 basis points.

Some analysts said the recent downward pressure on the Chinese currency means Beijing has limited room for rate cuts, which will widen China’s yield gap with other major economies.

Meanwhile, Cailian Press reported on Monday that the central government will allow 12 local governments, including those in Tianjin, Chongqing, Yunnan and Shaanxi, to issue 1.5 trillion yuan of special bonds to refinance their local debts in the second half of this year. 

Caixin.com said local governments that can issue special bonds will have to cut their expenses. But it added that proceeds from the special bonds won’t be enough to resolve all the problems as local governments borrowed 35 trillion yuan of official debts, plus more than 40 to 50 trillion yuan of hidden loans.

A Zhejiang-based financial writer says it will take a very long time for local governments to resolve their debt problems as the process will involve a structural change in the Chinese economy.

He says local governments will cut the number of civil servants, and demand for fewer construction workers for their city renewal projects. He says as people now realise that there are no more “iron rice bowls,” or jobs for life, they will become more cautious in home purchases while this trend will continue to suppress property prices.

Read: Evergrande’s debt case hits China’s stock markets

Follow Jeff Pao on Twitter at @jeffpao3

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Climate change making debt more expensive everywhere

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Earth is overheating due to the greenhouse gas emissions from burning fossil fuels. This is “the biggest market failure the world has seen” according to economist Nicholas Stern.

The rational behavior of companies that pollute by making profitable commodities, and consequences of most people’s desire to drive everywhere are creating irrational outcomes for everyone: an increase in the average global temperature which threatens to make the planet uninhabitable.

But our recent research indicates that this pollution will have a direct financial cost. We used artificial intelligence to combine Standard and Poor’s (S&P) credit ratings formula (which captures the ability of those who borrow money to pay it back) with climate-economic models to simulate the effects of climate change on sovereign ratings for 109 countries over the next ten, 30 and 50 years, and by the end of the century.

We found that by 2030, 59 countries will see a deterioration in their ability to pay back their debts and an increased cost of borrowing as a result of climate change. Our predictions to 2100 entail the number of countries rising to 81.

Financial markets and businesses need credible information on how climate change translates into material risks to be able to factor them into all decisions they make. Although it is important to design economic tools and policies that can mitigate the effects of climate change, the field of economics responsible for doing so is relatively young.

New financial products have emerged to help countries and investors take better account of the climate and environment being degraded as a result of debt markets, but several problems remain.

Credit ratings or environmental, social and governance (ESG) ratings (which assess how well a company manages these kinds of risks) are not based on scientific information, and are often charged with greenwashing. For example, some investment funds branded as green according to these ratings have been linked to fossil fuel companies.

Financial institutions such as banks frequently misunderstand models for predicting the economic costs of climate change and underestimate risks such as temperature rises, according to a recent report by actuaries – people who use mathematics to measure and manage risk and uncertainty.

Their research found “a clear disconnect” between climate scientists, economists, the people building these economic models and the financial institutions using them.

Economic modeling has been slow to respond to the increasingly alarming effects of climate change. Photo: EPA-EFE / Ikonomou Vassilis / The Conversation

In our study, we tried to integrate climate science into financial indicators widely used and understood by investors, such as credit ratings. Without such science-based indicators, financial decision making will reflect risk calculations which are incorrect and misrepresent the economic consequences of climate change.

Debt servicing to rise far and wide

Credit ratings express a country’s ability and willingness to pay back debt and affect the cost of borrowing to nations as well as other entities, such as corporations and banks. Inevitably, these costs are passed on to the public.

When interest rates rise for banks, businesses find it more expensive to fund their operations and so raise prices for consumers. Higher costs to banks also mean higher mortgage interest rates for residential borrowers.

When banks invest savings such as pensions in bonds offered by countries hit by climate disasters, their worth is affected too, meaning that pensions may fall in value.

Our paper has three key findings. First, in contrast to much of the economics literature, we found that climate change could have material effects on economies and credit ratings as early as 2030.

Credit ratings are categorized in a 20-notch ladder scale, with default being the lowest rating, equivalent to one notch, and AAA being the highest rating at 20 notches. The highest rating signifies the lowest risk of an entity not paying back its debts and vice versa.

Under a high-emissions scenario in which recent emissions continue on an upwards trajectory, 59 countries would suffer downgrades of just under a notch by 2030, rising to 81 countries facing an average downgrade of two notches by 2100.

The nations which would be most affected include Canada, Chile, China, India, Malaysia, Mexico, Slovakia and the US. More importantly, our results show that virtually all countries, whether rich or poor, hot or cold, will suffer downgrades if the current trajectory of carbon emissions is maintained.

A global map depicting how much each country's credit rating is expected to fall.
Rating downgrades under a high-emissions scenario (20-notch scale). Author provided / The Conversation

Second, if countries honored the Paris Agreement and limited warming to below 2°C, the impact on ratings would be minimal.

Third, we calculated the additional costs of servicing debt for countries (best interpreted as increases in annual interest payments) to be between US$45–67 billion under a low-emissions scenario, and $135–203 billion under a high-emissions one. These translate to additional annual costs of servicing corporate debt, ranging from $9.9–17.3 billion to $35–61 billion in each case.

As climate change batters national economies, debt will become harder and more expensive to service. By connecting climate science with indicators that are already baked into the financial system, we’ve shown that climate risk can be assessed without compromising the integrity of scientific assessments, the economic validity of the modeling and the timeliness necessary for making effective policies.

Patrycja Klusak, Affiliated Researcher, Bennett Institute of Public Policy, University of Cambridge and Associate Professor in Banking and Finance, University of East Anglia and Matt Burke, WTW Research Fellow, University of Oxford

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

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Ng Kok Song announces list of assentors, including former presidential hopeful Mohamed Salleh Marican

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SINGAPORE: Presidential hopeful Ng Kok Song on Monday (Aug 21) revealed his proposer, seconder and list of assentors on the eve of Nomination Day.

His eight assentors include businessman Mohamed Salleh Marican, who applied to contest in the 2017 Presidential Election but did not qualify to run.

Mr Salleh is the founder and CEO of mainboard-listed Second Chance Properties, which started out as a clothing retail business.

Presidential hopefuls must fill in the names of a proposer, a seconder and four to eight assentors on their nomination papers. 

Mr Ng’s proposer is Mr Quah Wee Ghee, who used to be GIC’s president of public markets. Mr Ng and Mr Quah are co-founders of Avanda, an investment management firm. 

His seconder is Dr Carol Tan, a geriatrician with The Good Life Medical Center. 

His eight assentors are:

  • Ameerali Abdeali, a Malay-Muslim community leader and a Justice of Peace. He has served on the Inter-Religious Organisation of Singapore, the National Safety Council of Singapore, the Tabung Amal Aidilfitri Trust Fund as well as the Muslim Kidney Action Association
  • Ho Tian Yee, the current chairman of Fullerton Fund Management and Mount Alvernia Hospital. He is also the deputy chairman of Pavilion Capitol and the director of Seviora Holdings. Seviora is the operational holding company for four asset management companies currently owned or affiliated with Temasek – Fullerton Fund Management is one of the four
  • Chua Cher Choon, a former chairman of the Montfort School Management Committee
  • Mohamed Salleh Marican, the founder and CEO of Second Chance Properties, and former presidential hopeful
  • Margaret Chan, who is a philantrophist and the wife of the late UOB founder Dr Lien Ying Chow. She serves as governor emeritus at Lien Foundation. 
  • Abdul Hamid Abdullah, a Malay-Muslim community leader and a founding member of the Association of Muslim Professionals. He used to be an audit director with the Auditor-General’s Office until he retired in 2017 after 38 years in public service. 
  • Tjio Hans, who teaches at the National University of Singapore’s law faculty, and is a consultant with TSMP Law. 
  • Angelene Chan, the chairman of DP Architects who is best known for her work on Resorts World Sentosa, The Dubai Mall, as well as the transformation of Wisma Atria shopping mall. 

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India’s rice export ban could make China a binge buyer

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Both rice and wheat supplies are now facing alarming shortages. The prospect of another world food crisis that would rival those in 2007–08, 1972–74 and 1966–68 is front-page news. 

In the past three years, the world food economy has been severely stressed by Covid-19 supply disruptions, adverse weather, Russia’s escalation against Ukraine’s grain shipping and storage facilities and the rapid emergence of drought-inducing El Nino. Regional conflicts in Africa, which cut off food supplies to vulnerable populations, have become a constant.

The great paradox of food security is that only governments can ensure it, but markets must “do the heavy lifting.” Learning to manage this symbiotic relationship has proven a challenge for most countries.

Indonesia demonstrated the lessons it has learned when it steered the 2022 G20 Summit in Bali to a dramatic declaration that started with a primer on food security. It is uncertain if India, the current G20 chair, can provide similar leadership on calming an increasingly turbulent world food economy.

India’s rice export ban on 21 July 2023 needs to be understood in this context. Food security begins at home, and the general election scheduled for the spring of 2024 has politicians’ eyes focused on stabilizing staple food prices. 

India will still try to manage the rice export ban carefully to minimize its impact on regular customers. Exempting par-boiled rice protects Bangladesh and a few African markets. Existing contracts for physical loadings are likely to be honored.

As chair of the 2023 G20, and with Indonesia’s successful 2022 G20 Summit still fresh in mind, India seeks to balance domestic needs with export reliability. As the Indian shock to the world rice market unfolds, three countries are in the spotlight.

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

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

A Filipino rice farm at harvest season. Photo: Twitter

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

In a rice emergency, all eyes inevitably turn to China. Its rice production has suffered significantly from heat and floods. The exact level of rice stocks is a state secret but they are by far the largest in the world. 

Still, they are dispersed geographically, which somewhat limits central government access and control. Food security in China is a high priority, and with both wheat and rice prices rising, it is hard to tell what the Chinese response will be. Any effort to pre-emptively procure more imports will spook the market.

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

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

Rice experts at the US Department of Agriculture (USDA) are reasonably optimistic the world can get through the projected rice shortages. In their August 2023 release of the World Agriculture Supply and Demand Estimates, world rice production for the 2023–24 marketing year is forecast to be 8.1 million tonnes larger than in 2022–23. 

World consumption is forecast to decrease by 1 million tonnes due to fewer imports by many countries in Asia and Sub-Saharan Africa. There will doubtless be some localized hunger from reduced consumption, but widespread rice shortages are not in the USDA’s forecast.

China is a net rice importer. Image: Facebook

The Asian outlook is surprisingly reassuring considering El Nino and India’s partial rice export ban. A projected decline in China’s rice imports in 2022–23 and a subsequent large drawdown in domestic rice stocks should have a favorable impact. The USDA also expects Indonesia and the Philippines to come through the global rice shortages with ample stocks.

Rice is a more valuable commodity than before the start of El Nino and the Russian attacks on Ukraine’s wheat and corn exports. Rice prices are likely to rise over the next 6–12 months, perhaps by another US$100 per metric tonne for Thai or Vietnamese rice.

The big question though is whether the price rise will be gradual – giving consumers time to adjust without panic – or whether there will be a rapid spike. The fact that there has been little panic since India’s announcement in July gives hope that the increase in rice prices will be gradual and contained.

Peter Timmer is Thomas D Cabot Emeritus Professor of Development Studies at Harvard University.

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

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Time for US to develop a BRICS policy

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When leaders of the BRICS group of large emerging economies – Brazil, Russia, India, China and South Africa – meet in Johannesburg for two days beginning on August 22, 2023, foreign policymakers in Washington will no doubt be listening carefully.

The BRICS group has been challenging some key tenets of US global leadership in recent years. On the diplomatic front, it has undermined the White House’s strategy on Ukraine by countering the Western use of sanctions on Russia. Economically, it has sought to chip away at US dominance by weakening the dollar’s role as the world’s default currency.

And now the group is looking at expanding, with 23 formal candidates. Such a move – especially if BRICS accepts Iran, Cuba or Venezuela – would likely strengthen the group’s anti-US positioning.

So what can Washington expect next, and how can it respond?

Our research team at Tufts University has been working on a multiyear Rising Power Alliances project that has analyzed the evolution of BRICS and the group’s relationship with the US. What we have found is that the common portrayal of BRICS as a China-dominated group primarily pursuing anti-US agendas is misplaced.

Rather, the BRICS countries connect around common development interests and a quest for a multipolar world order in which no single power dominates. Yet BRICS consolidation has turned the group into a potent negotiation force that now challenges Washington’s geopolitical and economic goals.

Ignoring BRICS as a major policy force – something the US has been prone to do in the past – is no longer an option.

Reining in the America bashing

At the dawn of BRIC cooperation in 2008 – before South Africa joined in 2010, adding an “S” – members were mindful that the group’s existence could lead to tensions with policymakers who viewed the US as the world’s “indispensable nation.”

As Brazil’s former Foreign Minister Celso Amorim observed at the time, “We should promote a more democratic world order by ensuring the fullest participation of developing countries in decision-making bodies.” He saw BRIC countries “as a bridge between industrialized and developing countries for sustainable development and a more balanced international economic policy.”

While such realignments would certainly dilute US power, BRIC explicitly refrained from anti-US rhetoric.

After the 2009 BRIC summit, the Chinese foreign ministry clarified that BRIC cooperation should not be “directed against a third party.” Indian Foreign Secretary Shivshankar Menon had already confirmed that there would be no America bashing at BRIC and directly rejected China’s and Russia’s efforts to weaken the dollar’s dominance.

Rather, the new entity complemented existing efforts toward multipolarity – including China-Russia cooperation and the India, Brazil, South Africa trilateral dialogue. Not only was BRIC envisioned as a forum for ideas rather than ideologies, but it also planned to stay open and transparent.

BRICS alignment and tensions with the US

Today, BRICS is a formidable group – it accounts for 41% of the world’s population, 31.5% of global gross domestic product and 16% of global trade. As such, it has a lot of bargaining power if the countries act together – which they increasingly do.

During the Ukraine war, Moscow’s BRICS partners have ensured Russia’s economic and diplomatic survival in the face of Western attempts to isolate Moscow. Brazil, India, China and South Africa engaged with Russia in 166 BRICS events in 2022. And some members became crucial export markets for Russia.

The group’s political development – through which it has continually added new areas of cooperation and extra “bodies” – is impressive, considering the vast differences among its members.

We designed a BRICS convergence index to measure how BRICS states converged around 47 specific policies between 2009 and 2021, ranging from economics and security to sustainable development. We found deepening convergence and cooperation across these issues and particularly around industrial development and finance.

But BRICS convergence does not necessarily lead to greater tension with the US. Our data finds limited divergence between the joint policies of BRICS and that of the US on a wide range of issues. Our research also counters the argument that BRICS is China-driven.

Indeed, China has been unable to advance some key policy proposals. For example, since the 2011 BRICS summit, China has sought to establish a BRICS free trade agreement but could not get support from other states. And despite various trade coordination mechanisms in BRICS, the overall trade among BRICS remains low – only 6% of the countries’ combined trade.

However, tensions between the United States and BRICS exist, especially when BRICS turns “bloc-like” and when US global interests are at stake. The turning point for this was 2015, when BRICS achieved major institutional growth under Russia’s presidency.

This coincided with Moscow enhancing its pivot to China and BRICS following Western sanctions over Russia’s annexation of Crimea in 2014. Russia was eager to develop alternatives to Western-led institutional and market mechanisms it could no longer benefit from.

That said, important champions of BRICS convergence are also close strategic partners to the US. For example, India has played a major role in strengthening the security dimension of BRICS cooperation, championing a counter-terrorism agenda that has drawn US opposition due to its vague definition of terrorist actors.

Further constraints on US power may emerge from BRICS transitioning to using local currencies over the dollar and encouraging BRICS candidate countries to do the same. Meanwhile, China and Russia’s efforts to engage BRICS on outer space governance is another trend for policymakers in Washington to watch.

Toward a US BRICS Policy?

So where does a more robust – and potentially larger – BRICS leave the US?

To date, US policy has largely ignored BRICS as an entity. The US foreign and defense policymaking apparatus is regionally oriented. In the past 20 years, it has pivoted from the Middle East to Asia and most recently to the Indo-Pacific region.

When it comes to the BRICS nations, Washington has focused on developing bilateral relations with Brazil, India and South Africa, while managing tensions with China and isolating Russia. The challenge for the Biden administration is understanding how, as a group, BRICS’ operations and institutions affect US global interests.

Meanwhile, BRICS expansion raises new questions. When asked about US partners such as Algeria and Egypt wanting to join BRICS, the Biden administration explained that it does not ask partners to choose between the United States and other countries.

But the international demand for joining BRICS calls for a deeper reflection on how Washington pursues foreign policy.

Designing a BRICS-focused foreign policy is an opportunity for the United States to innovate around addressing development needs. Rather than dividing countries into friendly democracies and others, a BRICS-focused policy can see the Biden administration lead on universal development issues and build development-focused, close relationships that encourage a better alignment between countries of the Global South and the US.

It could also allow the Biden administration to deepen cooperation with India, Brazil, South Africa and some of the new BRICS candidates. Areas of focus could include issues where the BRICS countries have struggled to coordinate their policy, such as AI development and governance, energy security and global restrictions on chemical and biological weapons.

Developing a BRICS policy could help re-imagine US foreign policy and ensure that the US is well positioned in a multipolar world.

Mihaela Papa is Senior Fellow, The Fletcher School, Tufts University; Frank O’Donnell is Adjunct Lecturer in the International Studies Program, Boston College, and Zhen Han is Assistant Professor of Global Studies, Sacred Heart University

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

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Maiden Pharmaceuticals: Fury in The Gambia a year after cough syrup deaths

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Ebrima Sajnia and his wife watched their son die last year
By Vineet Khare
BBC Hindi, Banjul, The Gambia

In September last year, Ebrima Sajnia watched helplessly as his young son slowly died in front of his eyes.

Mr Sajnia, who works as a taxi driver in The Gambia, says three-year-old Lamin was set to start attending nursery school in a few weeks when he got a fever. A doctor at a local clinic prescribed medicines, including a cough syrup, but the feverish child refused to take them.

“I forced Lamin to drink the syrup,” recalls Mr Sajnia, sitting at his home in Banjul, capital of The Gambia.

Over the next few days, Lamin’s condition deteriorated as he struggled to eat and even urinate. He was admitted to a hospital, where doctors detected kidney issues. Within seven days, Lamin was dead.

He was among around 70 children – younger than five – who died in The Gambia of acute kidney injuries between July and October last year after consuming one of four cough syrups made by an Indian company called Maiden Pharmaceuticals.

In October, the World Health Organization (WHO) linked the deaths to the syrups, saying it had found “unacceptable” levels of toxins in the medicines.

A Gambian parliamentary panel also concluded after investigations that the deaths were the result of the children ingesting the syrups.

Both Maiden Pharmaceuticals and the Indian government have denied this – India said in December that the syrups complied with quality standards when tested domestically.

It’s an assessment that Amadou Camara, chairperson of the Gambian panel that investigated the deaths, strongly disagrees with.

“We have evidence. We tested these drugs. [They] contained unacceptable amounts of ethylene glycol and diethylene glycol, and these were directly imported from India, manufactured by Maiden,” he says. Ethylene glycol and diethylene glycol are toxic to humans and could be fatal if consumed.

Banjul, the capital of The Gambia

It’s a difficult situation for The Gambia, one of Africa’s smallest countries, which imports most of its medicines from India. Some bereaved parents say they don’t trust Indian-made drugs anymore.

“When I read that a medicine is from India, I barely touch it,” said Lamin Danso, who lost his nine-month-old son.

But the reliance on Indian drugs is unlikely to change anytime soon.

“Most pharmacists are still bringing in drugs from India – it’s far cheaper than importing drugs from America or Europe,” says journalist Mustapha Darboe.

India is the world’s largest exporter of generic drugs, meeting much of the medical needs of developing countries. But allegations that its drugs have caused tragedies like the one in The Gambia – and in other countries such as Uzbekistan and the US – have raised questions about manufacturing practices and quality standards.

“If you see the tragedy, and the kind of alerts declared by WHO, so many countries are thinking twice. They are regularly enquiring. It’s not very comfortable. I call it an aberration. It’s a costly aberration,” says Udaya Bhaskar, director general of the Pharmaceuticals Export Promotion Council of India.

He says while incidents like the one in The Gambia and Uzbekistan have “made a dent” on the Indian pharmaceutical industry’s image, it hasn’t impacted exports.

India exported medicines worth $25.4bn (£20bn) in the financial year ending in March 2023 – of these, $3.6bn was to countries in Africa. Mr Bhaskar points out that the country has already exported drugs worth more than $6bn in the first quarter of the current financial year.

But India has announced steps such as making it compulsory for companies to get cough syrup samples tested at government-approved laboratories before exporting. The Gambia, which does not have drug testing laboratories, has also made this mandatory for medicines exported from India since July.

India has also set deadlines for its pharma companies to adopt WHO-standard good manufacturing practices.

Some of the families have filed a case in the Gambian high court

But some Indian activists allege that the country has had a “two-tier manufacturing system” for a long time.

“What we export to the US and Europe, we try and use much more stringent standards compared to drugs made for local consumption and exported to less regulated markets,” alleges Dinesh Thakur, a public health activist.

Mr Bhaskar disagrees, saying that several countries in Africa – India’s third-largest export destination – have “robust” regulatory mechanisms.

A recent Gambian government report on the tragedy has recommended the establishment of a quality control laboratory and two drug regulators have been dismissed.

“We know the anger in the society. We know the anger among the victims,” says Billay G Tunkara, the majority leader of the Gambian National Assembly and head of government business.

But devastated parents say nothing has changed in the country’s health sector over the past year – the medical system struggled to cope with the influx of fever cases and some parents were forced to raise funds to send their children to neighbouring Senegal.

Momodou Dambelleh, who sells wood for a living, was one of them. He last saw Aminata, his 22-month-old daughter, on a video call as she lay unresponsive on a hospital bed.

“I could only see her head moving. I was trying to let her know it was me, her papa,” he says. That was shortly before she died.

“Those who committed the crime, including the health minister, should face the full force of the law,” says Ebrima EF Saidy, spokesperson for a group representing the parents of the victims.

Dr Ahmadou Lamin Samateh, health minister of the Gambia, did not respond to the BBC’s request for an interview.

Momodou Dambelleh and his wife sent their daughter to neighbouring Senegal for treatment

A year on, many of the parents say they are determined to make sure that others in The Gambia don’t have to experience such pain again.

The families of 19 children have sued local health officials and Maiden Pharmaceuticals in the Gambian high court. They say they won’t hesitate to approach Indian and international courts as well if needed.

“The government’s negligence made the children die,” says Mr Sagnia, who is part of the group.

This is the first in a two-part series.

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