Govt to host fair in Riyadh

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PUBLISHED : 18 Aug 2023 at 04:00

The government will host a trade exhibition in Riyadh, Saudi Arabia, at the end of this month to promote Thai SMEs.

The Thai Trade Exhibition Saudi Arabia 2023 will be held from Aug 27–30 at the Riyadh International Convention & Exhibition Centre to expand entrepreneurs’ trading markets and investment opportunities, deputy government spokeswoman Rachada Dhnadirek said yesterday.

According to Ms Rachada, more than 100 Thai entrepreneurs and SMEs will showcase their products and services, ranging from food, clothing, wellness, and tourism, in Riyadh, where people’s purchasing power is higher.

Entrepreneurs and SMEs from Saudi Arabia and its neighbouring countries were expected to attend the exhibition.

At least 20,000 visitors and invited buyers are also expected to visit the exhibition, the deputy spokeswoman said.

The event is a result of cooperation between the Royal Thai Embassy in Riyadh and Saudi Arabia’s General Authority of Foreign Trade (GAFT) and will be one of the biggest trade exhibitions ever held in the Middle East.

It is the result of the improved diplomatic relationship after years of frayed ties and diplomatic conflict, said Ms Rachada.

In January 2022, Prime Minister Prayut Chan-o-cha visited Riyadh at the invitation of His Royal Highness Prince Mohammad bin Salman bin Abdulaziz, the Saudi crown prince.

Many MoUs and opportunities were discussed, as well as the improved ties, said Ms Rachada. Bilateral cooperation on labour, trade, and investments was also discussed during the meeting.

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Singapore MP Tin Pei Ling leaves Grab after seven months for ‘external-facing’ fintech role

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On Thursday, Ms Tin described her experience at Grab as “invaluable”. 

“It was an opportunity for me to return to the private sector, to broaden my horizons, hone new skills and allow me to make a contribution in a different way,” the MacPherson MP wrote, reiterating her admiration for the firm’s social mission of “economic empowerment”.

In response to questions from CNA, Grab said Ms Tin had “made valuable contributions supporting key projects and investments”. 

“We fully support Pei Ling’s aspiration to take on a more front-facing role and look forward to her continued championing of tech innovation in Singapore,” it added. 

Ms Tin’s next stop will be at an unnamed fintech company that “aims to pioneer innovative advancements” in the payments industry.

She will be assuming a leadership role in strategic partnerships and business development. 

“I am excited that this new role will give me the opportunity to support the company’s product innovation efforts and expansion into key Asia-Pacific markets,” Ms Tin said. 

Asked for more information on why she was leaving Grab, and for the name of the fintech firm she was joining, Ms Tin declined to comment and referred CNA back to her LinkedIn post.

She was elected to parliament in 2011, and currently chairs a Government Parliamentary Committee (GPC) for Communications and Information.

Ms Tin is also a member of the GPC for Culture, Community and Youth.

Prior to joining Grab, she was chief executive officer at Business China, a non-profit organisation cultivating Singapore-China relationships, since May 2018.

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Turkey: the merciful end of Erdoganomics

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Is the tide finally turning for Turkey? Three months after the re-election of Recep Tayyip Erdogan for his third term as president, which many feared would lead to economic chaos, ratings agency Moody’s has indicated that Turkey’s credit rating is on course for an upgrade.

Since the election, Erdogan has installed a new economic team with a commitment to reintroduce conventional monetary policies after years of a more singular approach. This has yielded some early positive results, with June recording the first current account surplus in 18 months – meaning more money came into the country than went out (mostly due to tourism and lower energy imports).

Meanwhile, Turkey’s stock market has been attracting surging interest from foreign investors, and the cost of insuring against the risk of the government defaulting on its debts has sharply declined. So what’s going on?

The mess

When Erdogan won the May election, contrary to the opinion polls, it extended his tenure as prime minister and then president to almost 20 years. This five-year term is likely to be his last, due to his deteriorating health and constitutional constraints. Thanks to the economic debacle that he created himself, it is also likely to be his most challenging.

There are two pillars to Erdoganomics: the “unorthodox” view that high interest rates cause inflation rather than the other way around, and a fixation on keeping rates as low as possible. It became much easier for him to implement after becoming executive president in 2018, which gave him much more power.

Central bank governors who have disagreed with Erdogan’s agenda have been shown the door, most notably Naci Agbal, who was sacked in March in 2021 after only four months in office.

It was the next governor, sahap Kavcıoglu, a former MP in the ruling party and columnist in a pro-Erdogan newspaper, who put Erdoganomics into overdrive. Turkey experimented with aggressively cutting rates at a time when inflation was already close to 20% and most central banks were tightening.

Official inflation skyrocketed to over 80% and the lira plummeted, forcing the central bank to sell substantial foreign exchange reserves to try and shore up the currency. The current account deficit widened to a record level in January and the earthquake in February further worsened the situation.

Turkish inflation and the falling lira

Graph showing inflation and TRYUSD
Graphic: Author provided via The Conversation

This all happened despite the fact that the authorities struggled to impose their interest rate cuts on the wider economy.

Whereas normally high-street interest rates move in line with the central bank rate, Turkish banks responded to the central-bank rate cut by increasing rates on consumer and business loans and savings accounts, signalling they didn’t think the central bank’s policy was sustainable.

Loan rates for businesses only later came down after the state-owned banks received a capital boost in the run-up to the election.

The interest rate divergence

Graph showing the difference between base and commercial rates in Turkey
Graphic: Author provided via The Conversation

A new approach?

The president has now taken a different path. He has appointed former investment banker Mehmet SimSek as finance minister. SimSek is respected by the markets due to a previous successful stint managing Turkey’s economy between 2007 and 2018. He has vowed to return to rational economic policies, announcing: “We will prioritise macro financial stability.”

Another reversal signal has been the appointment of Hafize Gaye Erkan as the first female governor of Turkey’s central bank. She too comes from investment banking, having formerly been managing director at Goldman Sachs and co-CEO of First Republic Bank in the US. She has no central banking experience, but markets nonetheless welcomed her appointment. She has an outstanding resume compared to her predecessor, Kavcıoglu.

Erkan hiked rates on June 22 from 8.5% to 15%, the highest in nearly two years. The accompanying press release expressed a clear view that this is the way to reduce inflation.

The lira has nevertheless kept losing value, while annual inflation rose from 38% to 48% in July. But along with the other improvements I mentioned at the beginning, there has also been a slight improvement in foreign exchange reserves, indicating that the central bank is under less pressure to defend the currency.

In July, the markets were further reassured by the appointments of high-profile economists as new deputy governors for the central bank. This further decreased Turkey’s credit risk. On July 20, the bank hiked interest rates again, to 17.5%.

What next?

Raising interest rates may have side effects. Turkey has one of the world’s highest percentages of “zombie firms” that have only been able to stay afloat because of low borrowing costs, so there could well be bankruptcies. Also, we know from the recent US banking failures that rate hikes inflict significant stress on banks by reducing the value of their bond portfolios.

Turkey’s banks are obviously not new to life under Erdogan. They have some fine management teams and effective risk-management practices that are used to weathering the country’s economic storms.

All the same, they look vulnerable because they hold low-yielding government bonds that could be impaired by aggressive rate hikes – particularly since they are denominated in lira, which creates exposure to further currency collapses. The government could alleviate this concern by swapping these bonds in exchange for new high-yielding ones.

The bigger question is whether we’re really seeing the end of Erdoganomics or just a lull. We can’t rule out a repeat of 2021, when Agbal was installed as central bank governor despite his orthodox economic views, then removed shortly after.

Erdogan has already put Sahap Kavcıoglu, his biddable governor from 2021-23, in charge of Turkey’s banking watchdog, which doesn’t suggest a total break from the past and has confused markets.

The danger is that Erdogan won’t allow interest rate hikes in the run-up to the local elections in March 2024. On the other hand, voters in cities such as Istanbul and Ankara have been severely affected by inflation. They overwhelmingly voted against Erdogan in the presidential election, having already handed metropolitan control to the opposition in 2019.

The Turkish lira collapsed while inflation surged. Image: Twitter

To regain these cities, Erdogan must tame inflation and alleviate the cost of living crisis. He may also be motivated by a desire to hand a better economy to his preferred successor (likely to be either his son or son-in-law), who might not enjoy his levels of popularity.

Whatever happens, much damage has already been done. The nation’s current GDP per capita is US$10,616, well below its peak of $12,508 in 2013 (albeit it has grown for the past couple of years). Turkey has lost significant numbers of skilled workers to other countries.

Halting this brain drain, or even reversing it, will be crucial for future economic growth. This seems unlikely under Erdogan’s leadership. Avoiding a financial crisis is only the first step forward.

Cem Soner is Doctoral Researcher in Finance, Bangor University

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

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VinFast: Vietnam EV maker valued at more than Ford or GM

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The Vinfast VF6 all-electric vehicle is on display at the 2022 Los Angeles Auto Show.Getty Images
By Mariko Oi
Business reporter

Vietnamese electric vehicle (EV) maker VinFast’s stock market valuation has soared above Ford and General Motors (GM) on its first day of trading.

Shares in the firm, which has yet to make a profit, surged by 255% in their debut on New York’s Nasdaq.

That gave VinFast a stock market valuation of $85bn (£67bn), much higher than Ford’s $48bn and GM’s $46bn.

It comes as motor industry giants and newer manufacturers fight for a slice of the booming EV market.

The listing added around $39bn to the wealth of VinFast’s chairman and founder Pham Nhat Vuong, who was already Vietnam’s richest man.

Regulatory filings show he controls 99% of the firm’s outstanding shares, mostly through Vietnam’s largest conglomerate, Vingroup JSC.

That limits the number of shares available for other investors to trade, which can lead to large price swings.

Trading in VinFast was relatively thin on Tuesday, with around $185 million worth of its shares changing hands.

“Investors are continuing to believe that the future is in electric and that a low-cost East Asian country will emerge as a competitor in the US,” said Bill Russo, Founder and CEO of Shanghai-based Automobility.

“The markets believe that given geopolitics that Vietnam, not China, will be that country.”

Instead of a conventional share sale, VinFast went public using a shell company, or special purpose acquisition company (Spac).

Spacs are often used by start-ups to speed up the often slow and expensive process of taking a private company public. In simple terms, it means merging a company that is not on a stock exchange with one that is.

Several EV makers – including Lordstown Motors and Faraday Future – have gone public using Spacs in the last three years.

However, both firms have lost more than 90% of their stock market value since their mergers.

Mr Russo said VinFast could be different because “they are primarily backed by Vingroup, which gives them access to funding from a business that has a proven track record of growth”.

“Most EV start-ups fail because they do not have profitable core and external funding eventually runs out as they burn capital far faster than they generate cash,” he said.

But VinFast also faces tough competition as major players fight for market domination.

Market leaders – including Elon Musk’s Tesla and BYD, which is backed by veteran investor Warren Buffett – have been cutting prices to boost sales.

In the first half of the year VinFast delivered 11,300 EVs, according to a company presentation. By comparison, Tesla delivered more than 889,000 vehicles in the same period.

“Tesla will continue to be the clear leader in EVs but there will be many winners,” said Dan Ives of Wedbush Securities.

“VinFast has built a strong foundation for EV success.”

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China’s property crisis hits state-owned developers

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Falling property prices in China have caused debt problems for not only private developers such as Evergrande and Country Garden, but also state-owned ones, which are supposed to be able to get financial resources from their rich parents.

Sino-Ocean Group, a state-owned property developer, said Monday that it had failed to pay interest of US$20.9 million for its US$700 million notes by Sunday, which was the last day of the 14-day grace period for the interest payment. It said trading of the notes had been suspended on Monday due to the default. 

The company is seeking to delay the interest payments further, to September 30, by passing an extraordinary resolution in a special meeting on Thursday.

Before this, the company had failed to repay the principal of a five-year corporate bond worth 2 billion yuan (US$275 million) on August 2. It said it will default if it fails to make full repayment of the principal and interests of the bond by September 1. 

As of Tuesday, shares of Sino-Ocean have decreased this year by 69% to 34 HK cents (4.4 US cents).

Chinese commentators said Sino-Ocean’s debt problems will worsen the home market sentiment as many homebuyers will delay their purchase plans. They said such a trend will further drag the property prices in China, causing bigger losses and financial difficulties to property developers.

When Evergrande’s debt crisis was reported in the second half of 2021, Sino-Ocean Group was praised by Chinese media as a financially healthy firm as it has two “rich daddies” –Anbang Life Insurance and Dajia Life Insurance.

Anbang Life Insurance and Dajia Life Insurance, controlled by the state-owned Assets Supervision and Administration Commission and the Ministry of Finance, respectively, each owns a 29.58% stake in Sino-Ocean Group. 

Last year, Sino-Ocean Group’s contract sales fell 26.4% to 100.29 billion yuan from a year ago. The company saw its revenue decrease by 28% to 46.13 billion yuan last year. It reported a net loss of 15.93 billion yuan in 2022, compared with a net profit of 2.7 billion yuan in 2021. 

The company said Monday it expects to record a net loss between 17 billion and 20 billion yuan in the first half of this year. In the first seven months of this year, the company’s contracted sales declined 26.6% to 38.15 billion yuan from a year earlier.

The company told its creditors that it had started working with its major shareholders on a debt plan, Bloomberg reported on July 5.

“China’s overall property market still shows few signs of a sustained turnaround, but we believe that developers with more secure state linkages, such as Yuexiu Property, will eventually emerge as survivors in the sector,” Sandra Chow, co-head of Asia Pacific Research at CreditSights, writes in a research report published on August 8.

“That said, failures of other developers with more tenuous government links, such as Sino-Ocean and Central China Real Estate, have made investors increasingly nervous about all but the safest government-linked names and Yuexiu’s bonds could be vulnerable to swings in market sentiment, or any perceived weakening in its implied government support,” she says.

A Henan-based property columnist says many property developers faced a 30% year-on-year decline on average in their contracted sales in July while 36 of the top 100 developers saw a 50% drop.

“Country Garden and Sino-Ocean will not be the last to default as a big storm has just begun,” he says. “Of the top 30 private property developers, 20 have already reported debt problems. After these, now the crisis has extended to mixed-ownership firms.”

Mixed-ownership firms refer to state-owned-enterprises that have received private investments or been listed.

As of the end of last year, Sino-Ocean had assets of 246.1 billion yuan and liabilities of 198.2 billion yuan. Net assets fell 37% to 47.9 billion yuan at the end of 2022 from 76.5 billion yuan a year earlier. 

On December 31 last year, the company had 9.4 billion yuan of cash but 38 billion yuan of borrowings due within one year.  

A Fujian-based writer says Sino-Ocean has so far failed to significantly improve its financial situation as it bought some expensive sites last year and in 2021 acquired a controlling stake in the debt-laden Hongxing Real Estate. 

He says Sino-Ocean halved the selling price of its apartments in Fuzhou to about 15,000 yuan per square meter in June, showing that it is desperate for cash.

A Guangdong-based columnist surnamed Wang says property developers’ debt problems will have a long-term negative impact on the real estate markets as many homebuyers become reluctant to enter the markets. He adds that a property crisis may also create systemic risks to the banking sector and hurt consumer confidence. 

Country Garden said on August 8 that it has not paid two dollar bond coupons due August 6 worth a total of US$22.5 million. It can pay within a 30-day grace period to avoid a default but it still has to repay US$2.9 billion of bonds by the end of this year.

Read: Country Garden’s cash crunch worries homebuyers

Follow Jeff Pao on Twitter at @jeffpao3

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Emerging Asia’s climate pledges look like empty promises

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Many emerging Asian economies require billions of development finance to meet climate and economic growth targets. Developed countries have repeatedly committed to supporting the green transition but they have consistently fallen short of expectations. 

Developed countries committed to mobilizing US$100 billion per year by 2020 to support climate action in developing countries but fell well short of expectations.

Indonesia, for example, requires about $281 billion of funding from 2018 to 2030 — or about $22 billion annually — to achieve its Nationally Determined Contributions and reduce greenhouse gas emissions by 43.20% with international support.

Several Asian economies, including Indonesia and Vietnam, have been negotiating a Just Energy Transition Partnership (JETP). 

JETP Indonesia includes $10 billion in public sector pledges from International Partners Group members and other actors such as the European Union, United States, Japan, Canada, Denmark, France, Germany, Italy, Norway and the United Kingdom. It also includes a commitment to mobilize an additional $10 billion in private financing. 

But relying solely on such promises poses risks to national climate and development progress due to uncertainties and signals of backsliding by developed countries. Indonesia and other emerging Asian economies need to recognize the challenges associated with accelerating the implementation of climate finance commitments.

Public and private climate finance is difficult to deliver internationally. This climate finance often lacks specified sovereign commitments and relies on risk-reward analysis for private-sector investments. This contrasts with China’s approach of combining public and “commercial” finance through policy banks and state-owned enterprises.

Even with international climate finance through JETP, financing large-scale green energy projects becomes challenging due to increased foreign exchange risks. This limits local financial institutions’ capacity to provide long-term loans. 

Sovereign guarantees, which are essential for derisking larger projects, are harder to obtain due to sovereign debt risks. The dominance of state-owned enterprises in most Asian developing countries’ energy markets also restricts private investor participation in power and grid projects.

Developing Asia needs developed world financing to make the green transition. Image; Facebook

Lastly, support for domestically financing the energy transition has experienced setbacks due to energy security concerns amid rising energy prices. This has resulted in increased coal production in Indonesia and reversals of no-new-coal commitments in countries like Pakistan.

Developing Asian economies can consider strategies to address these challenges such as strengthening commitments, mitigating investment risks, improving market mechanisms and cooperating with regional partners.

To accelerate the green energy transition, developing economies can strengthen political and regulatory commitments. Green-minded investors — including development finance institutions — cannot credibly provide coal-transition finance while political support for coal is not reduced. 

This was highlighted in the June 2023 draft of the Glasgow Financial Alliance for Net Zero Guide to Managed Phaseout of Coal in Asia-Pacific. The guide states that the foundation for attracting green and coal-transition finance is to ensure the “credibility of relevant energy transition and coal phaseout commitments and plans.”

Existing climate change partnerships with multilateral organizations or bilateral countries — such as Indonesia’s partnership with Norway — can help strengthen domestic institutions and capacity building.

Another strategy for developing economies is to enhance collaboration between local financial partners and major donor countries to mitigate investment risks. This can be achieved through currency hedging support and guarantee instruments to attract private investors. 

Recent discussions at the Summit for a New Global Financing Pact in Paris emphasized the importance of innovative financing mechanisms.

The development of innovative financing mechanisms could consider ASEAN’s sustainable finance taxonomy with a traffic light system which supports coal retirement and Indonesia’s new sustainable finance framework. This would help to build on Bank Indonesia’s previous experience of issuing green bonds.

Market mechanisms should also be improved to attract private investors across the green energy supply chain. Providing tax incentives for green energy projects, expediting negotiations of green energy power purchase agreements and ensuring priority payments for green electricity provision can attract these private investments. 

Encouraging green transition investments in state-owned enterprises through international partnerships could also leverage green finance instruments.

Developing economies should also seek cooperation with regional partners such as China and South Korea for additional renewable energy project funding. China’s increasing investments in overseas green energy and hydropower projects — as well as its efforts to “green” the Belt and Road Initiative — make it an important regional partner.

This picture taken on May 31, 2016 shows a Chinese-run construction site along the Mekong River in Vientiane. Grain by grain, truckload by truckload, Laos' section of the Mekong river is being dredged of sand to make cement -- a commodity being devoured by a Chinese-led building boom in the capital. But the hollowing out of the riverbed is also damaging a vital waterway that feeds hundreds of thousands of fishermen and farmers in the poverty-stricken nation. / AFP PHOTO / LILLIAN SUWANRUMPHA
This picture taken on May 31, 2016 shows a Chinese-run construction site along the Mekong River in Vientiane. Photo: Asia Times Files / AFP / Lillian Suwanrumpha

China–Indonesia partnerships, supported by the Belt and Road Initiative International Green Development Coalition and Indonesia’s Institute for Essential Services Reform, can accelerate green Chinese investments in Indonesia. 

South Korea is another promising regional partner in climate cooperation with its commitment to supporting the Green Climate Fund in providing a total of $30.3 billion for climate projects in partner countries.

Successfully accelerating the greening of the energy system in emerging Asian economies requires significant willingness and risk-taking to tackle financing and political constraints in addition to important transition considerations.

Mengdi Yue is Visiting Researcher at the Green Finance & Development Center at Fudan University.

Christoph Nedopil is Associate Professor and Director of the Green Finance & Development Center at Fudan University.

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

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Krayon Digital and Sayfer partner to enhance Web3 security | FinanceAsia

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Krayon Digital, a digital multi-party computation (MPC) wallet solutions provider to start-up and enterprise clients, recently announced its strategic partnership with Israeli blockchain security consulting company, Sayfer.

“The partnership between Krayon and Sayfer is the result of a shared ambition – to revolutionise the security landscape within digital asset management,” Hamilton Keats, CEO and co-founder of Krayon told FinanceAsia.

Typically, a cryptocurrency or digital asset wallet is paired with a single private key that authorises transactions. However, this means that if the private key is stolen or lost, it creates a single point of failure where all digital assets secured by the key are exposed to risk.

Krayon, on the other hand, provides digital wallet solutions based on MPC technology: a cryptographic protocol that enables multiple parties to contribute to a database and run computations on its basis in a secure manner, without disclosing their own input to others.

The implementation of MPC technology involves splitting private keys into pieces, or shards, that can be distributed among multiple trusted parties, such as different departments within an organisation or even different geographical locations, Keats explained.

Such deployment avoids a single party having full access to a whole private key, which greatly reduces the risk of unauthorised crypto asset access or theft.

The partnership with Sayfer will enable the development and implementation of “a comprehensive suite of [security] measures”, including end-to-end encryption, secure key generation, storage and recovery mechanisms, multi-factor authentication, and continuous security audits.

The collaboration roots from an initial all-round assessment on Krayon’s protocols, where both parties saw a lack of attention to private key management in the field, Keats told FA.

“We’ve seen so many people dealing with tens of millions of dollars [in digital wallets], but with no private key management or private key security involved,” he said.

“Our joint efforts will bring together Sayfer’s expertise in key management audits and Krayon’s cutting-edge MPC technology to deliver a secure and seamless experience for our clients,” Nir Duan, Sayfer’s CEO, commented in the release.

Blockchain and beyond

Discussing trends across the Web3 space, Keats pointed to asset tokenisation as the most exciting use of blockchain technology across Asia’s capital markets. “This revolutionary process will completely streamline global financial markets and enhance transparency.”

Although issues around security, regulatory compliance, and private key management remain some of the main challenges for the success of Web3, Keats is bullish on regulatory progress across the region.

He noted that key hubs, including Singapore and Hong Kong, are building friendly innovation framework to create regional sandboxes, and some financial institutions are seeking to tokenise their assets. These, Keats said, send promising signals of “a massive opportunity” for players building the digital asset space.

Looking ahead, Krayon aims to make MPC a more accessible and flexible solution available across the digital asset management world. The key to this lies in improving usability, which includes simplifying the complicated wallet set-up process, and offering flexibility in distribution adjustments, Keats told FA.

Embedding MPC wallet solutions into broader digital asset capabilities, such as a consumer-facing app built upon the same software development kit (SDK), is a long-term goal for the partnership.

As enterprises usually manage larger amount of asset than individual users, the ability to recover the losses, or to prevent insecurity in the first place, is crucial, Keats reiterated.

“Our ultimate goal is to offer individual clients the same level of services as we are able to offer start-ups and enterprises,” he concluded.

¬ Haymarket Media Limited. All rights reserved.

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When Albanese heads to China

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Whether Australian Prime Minister Anthony Albanese will visit China in 2023 remains uncertain, but the odds are favorable. Beijing has issued an invitation and Albanese said that the trip remains “likely.” 

Foreign Minister Penny Wong has confirmed that Canberra “would look to make sure that a visit can occur.” But there remain two factors that might derail a visit.

First, there remain unresolved bilateral disputes, including trade restrictions affecting Australian barley, lobster and wine, as well as the ongoing detention of Australian citizens like journalist Cheng Lei. 

Repurposing a talking point used with vigor by China’s Ministry of Foreign Affairs, Wong has said that these disputes work against creating the “positive atmosphere” that would be conducive to a successful leader visit.

Second, there are bureaucratic challenges to overcome. These include the public disappearance of Chinese Foreign Minister Qin Gang who was scheduled to visit Australia in late July. Qin’s visit would have likely furthered preparations for Albanese’s trip to China. 

There is also the difficulty of the Australian embassy in Beijing coordinating a prime ministerial visit when the current ambassador Graham Fletcher finishes his posting in August 2023 and his successor has yet to be announced.

“Will he or won’t he” aside, a more fundamental question is what level of ambition a prime ministerial visit could realistically target.

In late 1996, former Australian prime minister John Howard was able to overcome an earlier period of bilateral tension by settling on a “framework for handling the relationship” with his Chinese counterpart Jiang Zemin. This set up his own first and highly successful visit to Beijing just a few months later.

The Howard–Jiang framework recognized the two countries’ differences but agreed to focus on their “mutual interests.” Howard also assured Jiang that whatever Washington had in mind, Canberra was not “trying to contain China,” and more broadly, “the alliance between Australia and the United States was…not in any way directed at China.”

Re-committing to “important common interests” also constituted the backbone of a 2009 Australia–China joint statement that sought to move the relationship on from a year described by then-Australian ambassador to China Geoff Raby as “our collective annus horribilis.”

A high-ambition Albanese visit would require Beijing to live up to the 2009 joint statement’s commitment to “conduct mutually beneficial trade in accordance with market principles.”

As for Canberra, seeking to anchor a US presence in the region to provide “strategic balance” is one thing. But joining a Washington-led attempt to contain China’s rise is another thing entirely.

An Australian Army soldier sits in the audience at a ceremony marking the start of Talisman Saber 2017, a biennial joint military exercise between the United States and Australia aboard the USS Bonhomme Richard amphibious assault ship off the coast of Sydney on June 29, 2017. Photo: AFP/Jason Reed
An Australian Army soldier sits in the audience at a ceremony marking the start of Talisman Saber 2017, a biennial joint military exercise between the United States and Australia aboard the USS Bonhomme Richard amphibious assault ship off the coast of Sydney on June 29, 2017. Photo: Asia Times Files / AFP / Jason Reed

Eschewing containment would hardly represent an Australian concession. Former Australian prime minister Scott Morrison insisted in 2020 that China’s economic success was “a good thing for Australia” and juxtaposed his government’s position with that of the United States, saying “not all countries have that view, and some countries are in strategic competition with China. Australia is not one of those.” 

While the Biden administration claims that its policies do not amount to containment, this assessment is disputed by informed US analysts. It was not Tokyo, Seoul or The Hague that lobbied Washington to cut off China’s access to advanced semiconductors in October 2022. 

Rather, it took more than a year of campaigning by the Biden administration to forge an agreement, the details of which remain unclear.

Australia is not a noted producer of high-tech goods. But there have been suggestions that Canberra may cut Chinese investors off from developing projects in Australia’s critical minerals sector. 

A Critical Minerals Strategy released by the Australian government in June 2023 emphasized bolstering supply chain resilience by increasing investment from “likeminded partners.” The partners listed included the United States, the United Kingdom, the European Union, Japan, Korea and India. But not China.

In 2023, several investment proposals in Australia’s critical minerals sector connected to Chinese interests were blocked on the grounds that they were “contrary to the national interest.”

Given that Chinese industrial supply chains are “utterly dependent” on imported raw materials, including Australian iron ore and lithium, a blanket ban on Chinese companies taking stakes in mine sites would unsurprisingly be viewed dimly in Beijing. 

An alternative for Canberra is to block only those proposed investments with clear national security sensitivities or to add conditions to approvals, such as mandating that any output produced is made available on global markets.

Locking China out of regional economic integration initiatives like the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) would also be inconsistent with an approach eschewing containment. 

It would, of course, be appropriate to insist that Beijing must commit to the CPTPP’s high standards if it wishes to be considered for membership and to disabuse any notion in Beijing that it could veto another applicant, such as Taiwan, from joining.

Minister Wong is right to flag that Beijing has a responsibility for creating many of the “positive circumstances” that would set up a successful visit by Prime Minister Albanese later in 2023. But Canberra must also decide whether to aim high or low.

James Laurenceson is Professor and Director at the Australia-China Relations Institute at the University of Technology Sydney.

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Return of the ‘Big State’ will be short-lived

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Economists usually find plenty of ways to disagree about the true meaning of government economic policies.

The big innovation of the past 10-15 years was monetary, with the Bank of Japan at the forefront of what became a worldwide practice of money-creation and the mass-purchase of government securities by central banks.

Economists debated the ultimate purpose of this policy trend – was it anti-deflation, or aimed at rescuing banks and securities markets, or financing public investment? – but the trend itself was indisputable.

Now the big trend is industrial policy, with vast programs of public subsidies and investment, but strangely there is much less debate about it. President Joe Biden has led the way in the United States, which is why some call it “Bidenomics.”

Although the European Union actually got there first with its “Next Generation EU” fund that was set up during the Covid pandemic, America sees its program as bigger, better and more headline-grabbing – which is why the tempting slogan of “Bidenomics” has taken hold, following the earlier examples of Reaganomics and Abenomics.

What economists seem to agree on is that these big programs mean that what they call the Big State is back. This is epitomized in the United States by the Chips and Science Act, devoting US$52.7 billion to supporting the semiconductor industry, and the Inflation Reduction Act, under which more than $400 billion is being spent over the next 10 years on the energy transition and on infrastructure.

Joe Biden wants more things made in America. Image: Twitter

By “the Big State” is meant large-scale state intervention in industry – which also means favoring national producers at the expense of imported goods and services, which makes this policy trend also protectionist.

That protectionist aspect contributes to a widespread feeling that the era of globalization might be over. With America and the EU leading the way with big-spending industrial and infrastructure policies, it is assumed that other countries such as Japan and the United Kingdom will have to try to compete so as to stop their own firms and own production moving to where the biggest subsidies are on offer.

Thanks to that theory of competition between nations, the consensus among economists seems to be that this trend of big-spending industrial policies is here to stay – that, just as the big monetary policy trend lasted more than a decade, so will this one.

In support of that argument are two other factors: first, the fact that the battle against climate change and for the green energy transition is a long-term one, which will require public subsidies and investment if it is to succeed; and second, that the technological and military contest between the US and China is also a long-term reality that will perpetuate big-spending industrial policies designed to prevent Chinese dominance, whether military or economic.

To me, however, the idea of this as a long-term trend is both compelling and lacking in credibility. It is compelling because it is true that geopolitical competition and tensions, and the urgency of dealing with climate change, feel fundamental to our era.

But it is lacking in credibility for a simpler reason: Public subsidies and investment need somehow to be financed, and financing these ambitious industrial policies will be very difficult at a time of high levels of sovereign debt and rising interest rates.

The paradox of the previous, monetary-policy-dominated era was that when borrowing was ultra-cheap, few governments felt able to exploit it to finance big programs of public investment. Now that borrowing costs are rising, governments are nonetheless trying to finance costly programs of public investment.

Doing so would be sustainable only if those programs were to succeed in raising the long-term rate of economic growth and thus in raising tax revenues. It would be wonderful if they did have that long-term growth-boosting effect. But it is more likely that any positive effect on growth will be quite short-lived, as it is competing with the negative effects of rising borrowing costs.

Factory workers assemble and test fiber-optics systems in China. Photo: Wikimedia Commons/Ranveig

The era of big-state industrial policy feels to me as if it will actually prove quite short-lived, at least as a broad phenomenon. For example, political battles in the United States about the official ceiling on federal public debt make it hard to envisage that the Inflation Reduction Act could ever be repeated.

The smaller, geopolitical element to this industrial policy trend might well persist, since both technological export-controls and so-called “de-risking” from dependence on China are driven by politics and not economics. The larger, climate-related portion will also persist in some form, but electorates are always reluctant to vote for tax rises to pay for it.

Overall, the wider popularity of industrial policy runs up against the realities of high public debt. Now that it has been noticed and, by some at least, celebrated, the phenomenon is probably already peaking.

Currently an independent writer, lecturer and consultant on international affairs, Bill Emmott from 1993 to 2o06 was editor-in-chief of The Economist. 

This article was originally published in Japanese by Nikkei Business and in English by his Substack publication, Bill Emmott’s Global View. (Subscribe here for free to receive his posts.) It is republished by Asia Times with kind permission. Follow the author on Twitter @bill_emmott

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