US-Mongolia aviation pact hit as rare earths hedge

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China produced 210,000 tons of rare earths last year and remained the world’s largest exporter of the resources, according to Statista.com, with Chinese reserves amounting to about 44 million tons, followed by 22 million tons in Vietnam and 21 million tons each in China’s fellow BRICS members Brazil and Russia.

The US also has 2.3 million tons of rare earths but it has avoided exploring them due to environmental issues. This was thought to give Beijing some leverage in the current tech wars: Sanction China and we’ll whack your rare earths supply chain.

Enter Mongolia, the independent former Soviet-bloc country that borders China and Russia. A 2009 estimate by the US Geological Survey said Mongolia could have 31 million tons of rare earths reserves. The country has the potential to become a key rare earth exporter but it lacks the capital and equipment to explore them. 

And now Mongolia has signed an “open skies” agreement with the United States. Predictably the move is being criticized by many Chinese commentators, who say it will hurt Beijing’s plan to use rare earths export control to retaliate against Washington’s technology sanctions.

US Transportation Secretary Pete Buttigieg and Mongolia Road and Transport Development Minister Byambatsogt Sandag on August 4 signed an agreement that aims at “expanding options for travelers and shippers, and encouraging closer people-to-people ties” between the two countries.

the Memorandum between the Ministry of Road and Transport Development of Mongolia and the Department of Transportation of the United States on Cooperation on Issues of Mutual Interest in the Transport Sector is signed by Minister of Road and Transport Development of Mongolia S. Byambatsogt and US Secretary of Transportation Pete Buttigieg as Mongolian Prime Minister Oyun-Erdene Luvsannamsrai. Photo: Mongolia Presidential Office

Since the launch of its open skies policy in 1992, the US has liberalized international aviation markets with 132 foreign partners around the world. China and Russia are not on its list.

In an official visit to Washington, Mongolian Prime Minister Oyun-Erdene Luvsannamsrai met with US Vice President Kamala Harris at the White House on August 2. Luvsannamsrai said Mongolia will strengthen its strategic “third neighbor” partnership with the US. Both countries agreed to explore the idea of mining Mongolia’s rare earths and critical minerals for use in US high-technology products.

Chinese pundits said Mongolia failed to take Beijing’s feelings into consideration as Luvsannamsrai arrived in the US on August 1, a day when China’s export restrictions of gallium and germanium compounds took effect.

Gallium and germanium are not defined as rare earths as they do not occur naturally in the earth’s crust but are created as byproducts from the aluminum and zinc refining streams, respectively. The restrictions were announced by China on July 3 to counteract the US curbs.

It was thought that rare earths could be next. Xie Feng, the Chinese ambassador to the US, said last month that China would retaliate if Washington imposed more sanctions on China. Since then, some commentators have been saying that export control of rare earths could be an option.

“The US and other countries urgently need to find new suppliers” of rare earths, says Jiang Fuwei, a Hainan-based military columnist, in an article published on Monday. “In this case, Mongolia, with its rich rare earths resources, has entered the sights of the West.”

He adds that “Washington is now sparing no effort to win over Mongolia, which is adjacent to China in the south and Russia in the north and has the potential to become a strategic point against its neighbors. It also wants to disrupt the Power of Siberia-2 gas pipeline and other projects that are crucial to China and Russia.”

Jiang gives his imagination full rein, saying that China and Russia should pay attention to whether the US will use non-government organizations to infiltrate Mongolia, incite social unrest in the country and disrupt Mongolia-China-Russia projects. He says if the US pushes forward a “color revolution” in Mongolia, such political risks could spill over to China and Russia and threaten their national security.

He adds that it is a top mission for China and Russia to ensure that Mongolia will not lean towards the US, whether by forming economic ties with or asserting influence over the mineral-rich nation.

Ahead of more US curbs

Originally the Mongolian prime minister was set to meet US President Joe Biden but the president was away from Washington on vacation. Biden is expected to sign an executive order to restrict US companies and funds from investing in China’s semiconductor, artificial intelligence (AI) and quantum computing sectors later this month.

Mongolia Prime Minister Oyun-Erdene Luvsannamsrai and US Vice President Kamala Harris. Photo: Screenshot / White House news feed

On August 4, US Secretary of State Antony Blinken and Luvsannamsrai signed the Economic Cooperation Roadmap for the strategic Third Neighbor Partnership between the Mongolian and the US governments. They said the roadmap will serve as the foundation for increased commercial and economic ties between the two countries in the coming years. 

A Shanxi-based writer published an article with the title “US and Mongolia plan to bypass China and Russia to ship rare earths by flights. Should they seek China’s approval?”

“Civil airplanes usually fly at a height between six and 12 kilometres while the internationally-recognized territorial airspace is 100 kms above the sea level,” says the writer. “It means that Mongolia’s rare earths transported by the US will enter China’s airspace. According to China’s aviation rules, foreign flying vehicles must apply to China and get approval before entering its airspace.”

The writer says Mongolia has suggested that it rent a 10-hectare site in Tianjin Port for half a century but China may not agree as this will directly connect Mongolia and the US, especially when the Mongolian side has no plan to pay China any transit fees. He says Mongolia can ship its rare earths to South Korea but they will also pass through territories of China and Russia.

“China does not want to stop Mongolia from making money,” he says. “But at this time, a rare earth cooperation between the US and Mongolia is, in a sense, putting pressure on China. The US hopes to get rid of its dependence on China’s rare earth supply chain with the help of Mongolia.”

“In the period when the competition between China and the US is becoming increasingly fierce, Mongolia’s move does not take into account China’s feelings and positions,” he says, adding that those in the West may be issuing empty checks while they are not good enough to replace China and Russia as Mongolia’s good neighbors.

’New Cold War’

After the Qing government collapsed in 1911, Mongolia became independent from the Republic of China. It had been politically influenced by the Soviet Union during the Cold War between 1947 and 1991. It has walked on a democratic path since the 1990s but suffered from serious corruption problems.

In recent years, the country has stepped up its anti-corruption fight in a bid to attract more foreign investments.

Luvsannamsrai told the media in the US last week that countries like Mongolia would suffer if the conflicts between the US and China escalated in a so-called new Cold War.

“I fear that the new Cold War will be very different and more difficult from the first Cold War,” he said. “We cannot bear a new Cold War situation.”

He said Mongolia hopes to maintain good relations with both China and the US. He also described the US as Mongolia’s “guiding Polar Star for our democratic journey.”

He said major powers should be responsible and avoid drastic negative effects on many countries around the world.

Harris said the US and Mongolia will work together on global challenges, including the climate crisis, will uphold democracy and human rights and will address threats to the international rules-based order. She said both countries will work together to strengthen their space cooperation.

Last month, some Chinese commentators criticized Mongolia for adopting SpaceX’s Starlink internet services, which they said would pose a potential military threat against China and provide Chinese people a possible way to get around Beijing’s strict censorship regime on perceived “harmful” foreign websites.

“Mongolia is willing to become a ‘pawn’ of the West against China and Russia, but at the same time, it continues to gain economic benefits from China and Russia,” a Sichuan-based columnist says. “Mongolia’s moves really make China feel sad.”

While some Chinese pundits and netizens said Beijing and Russia should punish Mongolia, Yan Zeyang, an assistant researcher at the Institute of Northeast Asian Studies, China Institutes of Contemporary International Relations, says in an article that people should have confidence in Sino-Mongolian relations, which will not be changed by Luvsannamsrai’s single trip to the US.

Yan says there is a long way to go before Mongolia can really produce rare earths a the country will eventually have to rely on China’s refinery and logistics services. He says China is willing to deepen its strategic partnership with Mongolia but it hopes the nation’s politicians will stand on the right side on major issues. 

Read: Mongolia-SpaceX deal provokes a security stir in China

Read: Interview: Mongolian ministers have a revival plan

Follow Jeff Pao on Twitter at @jeffpao3

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Fear of AI in the West is misdirected

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The fear of artificial intelligence is largely a Western phenomenon. It is virtually absent in Asia. In contrast, East Asia sees AI as an invaluable tool to relieve humans of tedious, repetitive tasks and to deal with the problems of aging societies. AI brings productivity gains comparable to the ICT (information and communications technology) revolution of the late 20th century.

China is using AI as an integral part of the Fourth Industrial Revolution, which brings together different “Industry 4.0” technologies – high-speed (fifth-generation) communications, the Internet of Things (IoT), robotics, etc. Chinese ports unload container ships in 45 minutes, a task that can take up to a week in other countries.  

Today’s fear of AI has many parallels to the fear of machines at the end of the 19th century. French textile workers, fearing mechanical weaving would endanger their jobs and devalue their craft, threw their “sabots” (clogs) into weaving machines to render them inoperable. They gave us the word sabotage.  

In the 20th century, machines and a multitude of power tools relieved humans of most physical labor. In the 21st century, AI will relieve humans of most mental labor.

But AI’s challenge to the human mental faculty has created a growing community of AI alarmists. Much of this can be traced to science (cyber) fiction, which often features out-of-control AI systems.

Paranoia is part of AI history. The new science emerged in the 1960s on the back of cybernetics, the first coherent computer science for digital (binary) computers. The autopilot used in airliners is a textbook example of a cybernetic system.

AI is cybernetics with a self-learning function. Rather than naming it Cybernetics 2.0, its developers used the intriguing name “artificial intelligence,” assuming it would make it easier to attract funding. And they were right.

The AI pioneers predicted that a machine as intelligent as a human being would exist in no more than a generation, and they were given millions of dollars to make it happen. They didn’t bother to define the word “intelligence,” and after a few years, the project was shelved. That led to the so-called “AI winter.”

Emergence from hybernation

In the 1990s, IBM’s “Big Blue” put AI back on the front pages when it beat world chess champion Gary Kasparov. The landmark achievement was possible thanks to dramatic advances in computing power. While impressive, a computer beating a human at chess was a matter of number-crunching. Big Blue could simply calculate more winning moves faster than Kasparov could.

Thirty years later, ChatGPT has once again rekindled interest in AI, as well as the old paranoia. In March this year, a group of AI experts called on all AI labs “to immediately pause for at least six months the training of AI systems more powerful than GPT-4” (the current iteration of ChatGPT).

The open letter, signed by such luminaries as Elon Musk, piled on the paranoia. They ask: “Should we develop non-human minds that might eventually outnumber, outsmart, obsolete, and replace us? Should we risk the loss of control of our civilization?”

Other AI experts go even further, calling AI a bigger danger to humanity than climate change. Some voice the fear that humanity is at risk of being enslaved by AI. But none of these experts provide concrete examples of how such doomsday scenarios would occur.

All AI systems, whether Big Blue, a self-driving car, or ChatGPT, are domain-specific. An AI system designed for an autonomous vehicle can’t play chess. They are designed to perform a specific task within the parameters set by the designers.

AI systems consist of an algorithm that has access to an internal or external database. They operate on Boolean logic to process the information they can access (true/false/if/then/or, etc). They don’t make up facts and don’t have a will of their own.

Chat systems are impressive and will impact or even eliminate many jobs and will render entire professions obsolete, but they are only one part of a much broader technological (Industry 4.0) ecosystem. The technology is already transforming nearly all areas of the Chinese economy.  

Health care: AI is used in China’s health-care industry for medical imaging analysis, disease diagnosis, and drug research. AI algorithms analyze medical images and help doctors detect abnormalities or assist in diagnosing diseases.

Smart cities: Chinese cities are deploying AI technologies to create smart urban environments, including traffic management, energy efficiency, waste management, and public safety systems that utilize AI to optimize operations and enhance citizen services.

Education: AI is integrated into China’s education system to improve personalized learning experiences. Intelligent tutoring systems and adaptive learning platforms use AI algorithms to tailor educational content and provide personalized feedback to students.

Agriculture: AI has been deployed in agriculture for crop monitoring, pest detection, and yield optimization. Drones equipped with AI algorithms survey farmland, analyze crop health, and identify areas requiring attention.

Cultural factors, including pragmatism, explain why China has a higher level of acceptance and trust in technology than the West. The Chinese see AI as just one part of a larger development in the transition to the Fourth Industrial Revolution.

Source: Dmitry A Novikov, Institute of Control Sciences

Accidents and mistakes can happen in the development of technology, and AI needs guardrails, just like the atomic energy industry and civil aviation do. If an algorithm is allowed or enabled to get out of control, the programmer is at fault. Common sense dictates that any system able to impact the lives of millions is tested behind a firewall.

It is commonly said that in AI, the US leads in innovation and China leads in application. That may be true, but the US should be concerned that it does not innovate itself into oblivion by neglecting its infrastructure.

To be fully transformative, AI needs to operate in an Industry 4.0 ecosystem. That’s where China had a head start, and would be a better focus of concern in the American AI community.

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Performers with special needs feature at National Day Parade 2023

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However, learning certain dances was not an easy feat for Megan due to her condition.

“Some of the dance moves are fast and challenging, and I couldn’t catch the tempo. It was very difficult and I needed more encouragement to not give up,” she said.

Her mother Jasmine Lai said it was a proud moment to see her child on the national stage.

“This feeling is very strong for us because we have seen what Megan has gone through in the past. There were times she has told us that she just wanted to give up and didn’t want to try any more.

“The moment we saw her on the screen, we thought that Megan has really transformed into a young lady. It was also at this moment we felt that dancing is the right choice for her to pursue.”

After starring on the national stage, Megan hopes to achieve her dreams of becoming a dance instructor and dancing on a global stage.

Mdm Lai said that she hopes people will understand Megan and others like her through the parade and her performance.

“I feel that people will understand Megan is actually like everyone else and she is able to pursue her dreams with the determination that she has. She can tell her story in her own way, and be able to inspire others.”

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Tech shares fall as China mulls child smartphone limits

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A young boy uses an iPhone to take photos in Beijing.shabby pictures
authored by Annabelle Liang
journalist for company

Chinese tech shares decreased after the nation’s internet regulator suggested restricting smartphone use by kids under 18.

On Wednesday, stock of companies like Alibaba and the video-sharing website Bilibili dropped, and on Thursday, they lost even more.

Children would only be permitted to use their apps for a maximum of two hours per day under the proposed legislation.

It has been four years since gambling restrictions were imposed on kids in the nation’s second-largest economy.

Children will also be prohibited from accessing the internet on mobile devices between 22:00 and 06:00 local time under the rules proposed by the Cyberspace Administration of China( CAC ).

The CAC’s proposal calls for industry participants, such as manufacturers of mobile phone devices, software developers, and app stores, to create a feature called” minor mode” to set use boundaries, which change with age.

Children under the age of eight will only be given eight minutes of screen time per day, while those between the age of 16 and 18 will have two days.

The request is now available for public comment.

According to Ray Wang, the founder and CEO of Silicon Valley-based firm Constellation Research, tech giants will likely be held accountable for enforcing the rules, much like how it handled game restrictions.

There are alternatives, of program. Although children can access their parents’ devices’ passwords, the general consensus is that games restrictions have been very well put into place, according to Mr. Wang.

On Wednesday, Alibaba’s stock closed in Hong Kong more than 3 % lower. That of Bilibili decreased in the region by almost 7 %.

By midday on Thursday, Bilibili was over by 0.5 % while Alibaba was trading about 2 % lower.

Tencent, a tech behemoth, had shares that closed about 3 % lower but were 0.1 % higher in Hong Kong.

According to authorities, video game addiction is harmful to children’s health, so China has taken some steps to reduce it.

The nation imposed a ban on minors’ online gambling in November 2019.

Between 22:00 and 08:00, players under the age of 18 were prohibited from playing electronically. Additionally, they were only allowed to play for 90 days on weekends and three days on weekends and holidays.

Authorities forbade kids from entertainment for more than three days a week about two years later.

Online games had been branded by a state media outlet as” religious morphine.”

Chinese tech firms have suffered as a result of the movements. According to studies firm Newzoo, increased market regulation helped the US surpass China as the largest gambling market in the world in terms of profits.

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Private infrastructure complicates US warfare plans

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Depending on who’s telling the tale, US near-peer adversaries China and Russia may have accomplished a significant paradigm shift in their cyber operations by targeting civilian infrastructure – or they may simply be doing the same sorts of things Washington is doing with its own cyber warfare plans.

In National Defense magazine this month Josh Luckenbaugh says that, while the US and Western countries consider civilian infrastructure off-limits, its adversaries do not abide by those principles. He says that US near-peer adversaries plan to use such effects-based operations to change the US political calculus by impeding decision-making and causing social panic. 

Luckenbaugh also says that since US near-peer adversaries are looking for new ways to attack critical infrastructure, looking for new ways to partner with the private sector becomes imperative, as most US critical infrastructure is privately owned.

He also notes that the US military does not own and operate critical infrastructure, necessitating new forms of public-private partnership that secure the latter but do not affect the political calculus between free enterprise, privacy, and state security.

The Taiwan case

In the latest tit-for-tat in the ongoing cyberwar between the US and China, the US has exposed extensive Chinese cyberattacks aimed at critical infrastructure to disrupt the former’s military rescue operations in the event of an attack on Taiwan from the Chinese mainland. 

A recent New York Times report says that the Joe Biden administration is hunting for malicious computer code it believes China has hidden deep inside sensitive networks controlling power grids, communications systems, and water supplies that feed US military bases around the world, according to US military, intelligence, and national-security officials.

US Military Bases in the Indo-Pacific. Source: “The invisible empire: Why the United States is not seen as a `foreign’ threat,” Class Conscious, May 5, 2018, https://classconscious.org/2018/05/05/the-invisible-empire-why-the-united-states-is-notseen-as-a-foreign-threat/.

The Times notes that the first public hints of the Volt Typhoon malware surfaced in May when Microsoft detected mysterious code in Guam’s telecommunications systems and elsewhere in the US.

The paper says that the intrusion detected by Microsoft was just the tip of the iceberg, with more than a dozen US officials confirming that China’s espionage effort goes beyond telecommunications systems and long predates the May report. The cited officials said the US government’s efforts to hunt down and eradicate the malicious code had been under way for some time. 

The Times reports that the discovery of the malware has raised fears that People’s Liberation Army hackers have inserted code to disrupt US operations in case of a conflict over Taiwan or if China moves militarily against the self-governing island in the coming years. 

A US congressional official cited by the Times calls the malicious code in essence a “ticking time bomb” that could allow China to slow or interrupt US military deployments or resupply operations by cutting off power, water, and communications to US military bases.

US officials cited in the report also note that the malicious code could have far more devastating effects, as civilian businesses and homes depend on the same infrastructure. 

The newspaper says that the malware’s discovery touched off a series of meetings in the White House Situation Room involving officials from the US National Security Council, the Pentagon, Homeland Security and various spy agencies to understand the scope of the problem and prepare a response.

The source also says the Biden administration has briefed Congress members, some state governors, and utility companies about its findings.

Pot and kettle?

Such a long-running attack with unknown scale of damage and compromised information may have put into question US defensive capabilities. 

However, the US may also be guilty of cyber-warfare practices similar to those it accuses China of carrying out.

In May, China’s National Computer Virus Emergency Response Center (CVERC) and the Chinese cybersecurity company 360 accused the US of using “powerful cyber-weapons” to orchestrate attacks on critical information infrastructure, aerospace, research institution, oil and petrochemical industries, large internet companies, and government agencies in various countries, with such activities traceable as far back as 2011, according to a report by the South China Morning Post.

The Chinese also said information collected from foreign governments, companies, and citizens would be provided to US decision-makers for national-security intelligence and security risk assessments.

They said the CIA has been instrumental in fomenting political unrest in countries at odds with US interests, and that the US spy agency has provided political opposition movements with tools to circumvent censorship, such as the Tor browser, and communications tools for organize protests, such as Stampede – software that has enabled tactical-level command and control. 

Earlier, in September 2022, the SCMP reported that CVERC and 360 identified the US National Security Agency’s Computer Network Operations (CNO) as the culprit behind a cyberattack against  China’s Northwestern Polytechnical University in Shaanxi province, noting that the university receives funding from China’s Ministry of Industry and Information Technology and is involved in projects such as fighter-jet development.

China claimed US NSA hacked Northwestern Polytechnic University. Photo: Stack

That report claimed that the CNO used proxy servers in Japan, Germany and South Korea as springboards to infiltrate the university’s operation and maintenance network, carried out thousands of cyberattacks against the university over time, controlled multiple critical servers and stole core data using sophisticated malware.

It also said that by controlling the monitoring system and message servers of infrastructure operators, CNO could access the personal information of people with sensitive identities, package that information, encrypt it and send it back to NSA headquarters.

Mutually cool it? 

The tit-for-tat cyberespionage between the US and China illustrates the danger of proliferating covert cyber operations. 

In a 2015 article for Clingendael Institute, Sico van der Meer and Frans Paul van der Putten argued that the US retaliation approach against major cyberattacks would be detrimental to international stability.

There’s current evidence for their point: The 2023 National Cybersecurity Strategy states that the US will use all instruments of national power to disrupt and dismantle actors whose actions threaten its interests. The strategy notes that these efforts may integrate diplomatic, information, military (kinetic and cyber), financial, intelligence, and law-enforcement capabilities.

Van der Meer and van der Putten cited an obvious risk of escalation, normalization of covert retaliation against governments that are suspected of being involved in cyberattacks and proliferation of cyber threat actors – making cyberspace dangerous and unstable for all. 

Further, they suggested that US allies urge the US to avoid seeking cyber deterrence through retaliation against China and other countries. Instead, they suggested that the US and its partners work together to establish norms halting the proliferation of state-sponsored cyber espionage and covert cyber operations across borders, which they said would be the foundation of a genuinely effective deterrence strategy against state-sponsored cyber-attacks. 

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As Japan nears inflation target, fiscal policy must be addressed

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Japan’s central bank left interest rates unchanged last week despite rising inflation, but suggested that it could gradually discontinue years of ultra-cheap money, sending the yen soaring and stocks tumbling.

The Bank of Japan (BOJ) said it kept unchanged its short-term interest rate at minus-0.1% and maintained its target for the yield on 10-year government bonds at around 0%.

But the central bank of the world’s third-largest economy also noted that it would employ a more flexible stance to controlling the yield on government bonds, which affects borrowing costs, “diluting a key pillar of its long-standing ultra-loose monetary policy,” as an analyst on CNN recently said.

With Japanese inflation now at 4.2%, there are growing calls, perhaps unsurprisingly, for the BoJ to tighten monetary policy much faster. 

For instance, the sooner the BoJ moves to a “more normal structure and let bond markets, equity markets do their work that they need to do,” the better it will be for financial markets, Kevin Hebner, global investment strategist at TD Epoch, told CNBC’s Squawk Box Asia on Monday.

However, instead of rushing to increase interest rates, the Bank of Japan should focus on complementing its monetary policy with clearer fiscal plans, as advocated by Prime Minister Fumio Kishida’s government. 

Enhancing worker productivity and supporting innovation in the private sector would be instrumental in achieving sustained wage growth, aligning with the 2% target. 

However, the current debate in Japan primarily revolves around the government’s inclination to raise defense spending and fund it through methods like the potential sale of shares in telecoms company NTT, which can be seen as mere gimmicks. 

If Japan is indeed approaching sustainable inflation levels and is getting closer to achieving its target, it is crucial for the government seriously to consider implementing a fiscal policy that aligns with this economic environment. 

While the BoJ governor’s initiatives may have shown promising results, it’s essential now to recognize that the Bank of Japan cannot tackle this challenge singlehandedly. 

Collaborative efforts between the government and the central bank are necessary to ensure the success of any economic measures aimed at maintaining stable and on-target inflation.

Nigel Green is founder and CEO of deVere Group. Follow him on Twitter @nigeljgreen.

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Jordan’s cybercrime law further erodes free speech

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At first glance, a new cybersecurity law approved by Jordan’s parliament last week appears to be a genuine effort to protect people from online fraud, electronic extortion, and personal data breaches. Amid a sixfold increase in cybercrime between 2013 and 2022, the government says changes are needed to defend against technological advances.

But several articles in the legislation are vague and overly broad, and could be misused to silence and penalize critics, limit already shrinking public freedoms, stifle social media, and undermine access to information.

For starters, the law would make it a crime to criticize government officials on social-media platforms and introduce stringent penalties for doing so.

Article 15 states that intentionally sharing false information is punishable by up to three months in prison and a fine of up to 20,000 dinars (about US$28,000) after parliament’s legal committees slashed it from a proposed 40,000 dinars.

More troubling is a clause that if the alleged crime is directed toward authorities, officials, government institutions or those in public office, public prosecutors can pursue a case without requiring a personal complaint.

Article 17, meanwhile, states that the intentional use of the Internet or social media to publish content that stirs unrest or hatred, or disrespects religions, may lead to imprisonment of up to three years and a fine of up to 20,000 dinars.

Human Rights Watch says the “draconian” bill fails to comply with international law and makes it impossible for social-media users to regulate their conduct accordingly.

Vedant Patel, a top spokesman for the US State Department, recently noted that the law, with its “vague definitions and concepts, could undermine Jordan’s homegrown economic and political reform efforts and further shrink the civic space that journalists, bloggers, and other members of civil society operate in in Jordan.”

The use of ambiguous wording in Jordanian law is not uncommon and is often used as a tactic by authorities to crack down on dissent and muzzle critics. There are already restrictions on freedom of speech in Jordan’s penal code, the press and publication law, and the counterterrorism law. The cybercrime law would add legal teeth to these already restrictive measures.

“Since parliament is weak and the media controlled, social media … became a powerful tool for citizens to express their view and share information,” Yahya Shqair, a media expert in Jordan, told me recently. This latest law is simply another tool with which the government can use to “immunize itself from public scrutiny.”

The cybersecurity legislation is just the latest in a long list of moves to undermine free speech online. In December, the government banned TikTok after truck drivers staged a strike against rising fuel prices. Clubhouse, a social audio app, has been blocked since March 2021. Al Hudood, a satirical news website, was blocked in June.

The cybercrime bill will now go to the Senate for consideration.

Anyone attempting to circumvent the bans with virtual private networks (VPNs) and proxies face fines of up to 25,000 dinars.

While the government focuses on curbing speech, every day people are simply struggling to make ends meet. Nearly half of Jordanian youth are out of work, and the perception of widespread corruption has eroded public trust in the government. Parliament is largely seen as a malleable rubber-stamp entity.

Calls to revoke the cybersecurity bill persist. Free-speech advocates, including lawyers, human-rights activists, journalists, and several members of parliament have called for the bill to be shelved. So far, the government has ignored these pleas.

To be sure, cybercrime is surging in Jordan. Last year, 16,000 cybercrime complaints were reported to authorities, with an additional 8,000 recorded in the first half of this year. In 2015, there were just 2,305 cases. But the increased number of cybercrimes shouldn’t be used as an excuse to restrict freedom of expression.

The controversy surrounding the draft bill has exposed the complexities of striking a balance between safeguarding cyber and national security and protecting free speech and human rights. For now, Jordan’s leaders appear to be prioritizing the former at the cost of the latter.

At a time when Jordan is moving ahead to modernize its political system, the cybersecurity law is counterproductive. Its enactment would have grave implications not only for citizens and businesses, but also for Jordan’s reputation, especially in Western countries, whose aid has helped prop up the country’s ailing economy. 

If the bill becomes law, it will be a final nail in the coffin of public freedoms. Jordan must move quickly to revoke the bill.

This article was provided by Syndication Bureau, which holds copyright.

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A new era for DCM? | FinanceAsia

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The repercussions of recent black swan events are contributing to a new dealmaking landscape – one that continues to ebb and flow as geopolitical tensions rise and governments work to ensure that regional emissions fall.

As regulators respond to global inflation with interest rate hikes, market participants are adapting to the post-pandemic outlook, where the structural integrity of systemic lenders has been called into question; bank runs have been navigated; and a debt ceiling default, narrowly avoided.

“Volatility is the only constant,” Elaine He, head of Debt Capital Markets (DCM) Syndicate for Asia Pacific at Morgan Stanley, told FinanceAsia.

“Bond issuance has been slow as issuers wait on the sidelines because of uncertainty and the increasing rates environment,” Barclays’ head of Debt Origination, Avinash Thakur, motioned. “The biggest factor impacting dealmaking continues to be the US Federal Reserve’s tightening bias.”

“Even if there is a lot of liquidity in the market, the cost of borrowing is too high,” Singapore-based corporate practice partner at DLA Piper, Philip Lee, told FA.

“Most CFOs, CEOs or other corporate decision makers who are in their late 30s or early 40s, would not have even started their careers when interest rates were this high – in the late 1990s, or early 2000s. I suspect it will take some time for companies to adjust to this higher interest rate environment.”

But Sarah Ng, director for DCM at ANZ, holds some positivity amid current market uncertainty. She noted how recent headline events are influencing short-term market sentiment and shaping deal-focussed behaviour, for the better.

“We are seeing narrower open market windows. This has meant that issuers have had to adopt an opportunistic and nimble approach when accessing primary markets,” she offered.

“We did see a degree of caution and a flight to quality, especially post-Silicon Valley Bank (SVB) and Credit Suisse, but the sell-off was largely contained to specific bank capital products. What has been surprising, has been the speed of bounce-back in both primary and secondary market activities, with a robust pipeline of issuers and receptive investor base back in play,” she explained.

FA editorial board member and head of DCM for Asia Pacific at BNP Paribas, Manoj Agarwal, agreed that unexpected developments have made market activity very much “window-driven”.

“From an issuer perspective, being prepared and able to access markets at short notice, as and when market windows are optimal, has become important,” he said. 

Furthermore, he noted that market recovery has been much faster this year, compared to the protracted period of indecision brought about by the Covid-19 pandemic.

“Although the year has been peppered with volatility and disruption, market efficiency is also improving, helping to reduce the impact these events have on dealmaking,” he emphasised.

Going local

George Thimont, head of ESG Syndicate for Asia Pacific and leader of the regional syndicate (ex-Japan) at Crédit Agricole, observes three notable trends emerging amid the current, Asia-based dealmaking environment.

“Issuance is broadly down across the board – in spite of good demand from the investor community. From a sectoral perspective, the notable absentees are the corporates, and local market conditions in certain jurisdictions, such as South Korea, have offered good depth and pricing versus G3 currencies.”

Citing Bloomberg data, Agarwal noted that for Asia ex-Japan, 2023 year-to-date (YTD) G3 DCM volume as of mid-June was down by 35.4% year-on-year (YoY), with 2022 already down by 54% compared to the same period in 2021.

But he agreed that South Korea displays some optimism, given that its 2023 YTD deal volumes remain flat, compared to the same period in 2022.

In fact, some of the market’s larger institutions have been quite active overseas. In February, the Korea Development Bank (KDB) issued $2 billion in bonds via Singapore’s exchange (SGX) in what constituted one of the largest public market issuances by a Korean institution in recent years.

Debt from issuers such as sovereigns, supranationals and agencies (SSA) or state-owned enterprises (SOEs) has benefitted, managing director and head of Asia Pacific Debt Syndicate at Citi, Rishi Jalan, told FA. 

“We expect corporate issuance in the US dollar bond market to be a bit more robust in the second half of the year,” he explained. In the meantime, Jalan said that some issuers are selectively tapping local currency markets where financing terms are lower, such as in India, China and parts of Southeast Asia.

However, not everyone feels that Asia’s regional markets can cater to the demands of the significant dry powder at play.

“Most liquidity in the local currency market comes from the banking system,” Saurabh Dinakar, head of Fixed Income Capital Markets and Equity Linked Solutions for Asia Pacific at Morgan Stanley, told FA.

He is sceptical of the current capacity for local markets to meet the requirements of internationally minded issuers. However, he noted as an exception the samurai market, which he said had proven vibrant for some corporates with Japan-based businesses or assets.

“Larger long-term funding requirements can only be satisfied through the main offshore currencies, such as dollar securities,” he explained.

Turning to the regional initiatives that have been set up to encourage participation in Asia’s domestic markets such as Hong Kong’s Connect schemes – the most recent of which, Swap Connect, launched in May – Dinakar shared, “What we need to see is broader stability.… These developments are great, but for investors to get involved in a meaningful way, general risk-off sentiment needs to reverse.”

“There was huge optimism around reopening, post Covid-19. This has since faded as corporate earnings have disappointed and there has been no meaningful stimulus. The markets want to see policy stimulus and, as a result, corporate health improving. Performance across credit and equities will then follow.”

Sustainable momentum

One area of Asian activity that stands strong in the global arena, is ESG-related issuance.

In March, the International Capital Market Association (ICMA) published the third edition of its report on Asia’s international bond markets. The research highlighted that, in 2022, green, social, sustainability and sustainability-linked (GSSS) bonds accounted for 23% of total issuance in Asia – higher than the global ratio of 12%.

“Demand is still more than supply, and investors tend to be more buy and hold, so we’ve seen that sustainable bond issuance has been more resilient than the market as a whole,” shared Mushtaq Kapasi, managing director and chief representative for ICMA in Asia.

“ESG has come to form an integral part of the dealmaking conversation in Asia. Over 30 new ESG funds have launched here in 2023; the number of ESG-dedicated funds is up 4% YoY; and Asia makes up 11% of the global ESG fund flow as of 1Q23 – up from 5% a year ago,” said Morgan Stanley’s He. 

“The Hong Kong Special Administrative Region (HKSAR) government recently came to market as the largest green bond issuer in Asia so far this year,” she added.

Discussing the close-to-$6 billion green bond issuance, Rocky Tung, FA editorial board member, director and head of Policy Research at the Financial Services Development Council (FSDC), shared that the competitive pricing contained a variety of durations and currencies that “help construct a more effective yield curve that will set the benchmark for other issuances – public and private – to come.”

This, he explained, would not only be conducive to the development of green and sustainable finance in the region, but would specifically enrich Hong Kong’s debt capital market.

“ESG-related bonds can provide issuers with an additional selling point to attract investors,” Mark Chan, partner at Clifford Chance, told FA.

“They can demonstrate the issuer’s commitment to fighting climate change for example…. Issuers with a social agenda, such as the likes of the Hong Kong Mortgage Corporation (HKMC), can highlight their mission and objectives by issuing social bonds to enhance the investment story.”

In October last year, HKMC achieved a world first through its inaugural issuance of a dual-tranche social facility comprising Hong Kong dollar and offshore renminbi tranches, which totalled $1.44 billion.

“We are also seeing more bespoke ESG bonds such as blue and orange structures,” Chan added, referring to recent deals that the firm had advised on, including the Impact Investment Exchange’s (IIX) $50 million bond offering under its Women’s Livelihood Bond (WLB) Series; and issuance by China Merchants Bank’s London branch, of a $400 million facility – the first blue floating-rate public note to be marketed globally.

FA editorial board member and head of sustainability for HSBC’s commercial banking franchise in Asia, Sunil Veetil, noted that while Asian issuance fell in most segments, green sukuk and social bonds helped sustain momentum.

“For green debt, energy was the most financed project category in Malaysia, the Philippines, Thailand, and Vietnam, accounting for more than 50% of allocation,” he shared, citing a report by the Climate Bonds Initiative (CBI).

“In Singapore, which remains the undisputed leader of sustainable finance in Southeast Asia, around 70% of green debt went to buildings, mainly for the construction of green buildings, and to a lesser extent, for retrofits and to improve energy efficiency.”

“There continues to be regulatory support for ESG bonds, including grants provided by the Asia-based stock exchanges to list green bonds,” added Jini Lee, partner, co-division head for finance, funds and restructuring (FFR) and regional leader at Ashurst. 

A boom for private credit

Crédit Agricole’s Thimont told FA that Asian credit has remained resilient through recent global risk events. Private markets and funds are emerging as alternative sources of capital for those corporates with weaker funding lines, DLA Piper’s Lee observed.

Indeed, the further retrenchment of banks from lending has provided an opportunity for private credit players to swoop in and fill an increasingly large void. Globally, the sector has grown to account for $1.4 trillion from $500 million in 2015 and Preqin estimates that it will reach $2.3 trillion by 2027.

Once a niche asset class, investors are drawn to private credit’s floating rate nature which moves with interest rates and offers portfolio diversification.

Andrew Tan, Asia Pacific CEO for US private credit player, Muzinich & Co, earlier told FA that private credit players aim for investment returns of around 6-8% above the benchmark rate in the current environment.

The firm’s sectoral peers, including KKR, have argued that institutional investors should consider allocating as much as 10% to private credit. Alongside Blackstone and Apollo, the US global investment firm has added to its Asian private credit capabilities in recent years, while new players, including Tokyo-headquartered Softbank, have recently entered the market. In May, media reported that the Japanese tech firm sought to launch a private credit fund targetting late-stage tech startups and low double-digit returns.

Elsewhere in Japan, Blackstone recently partnered with Daiwa Securities to launch a private credit fund in the retail space, targetting individual high net worth investors (HNWIs).

Unlike in the US, where non-bank lenders now outnumber traditional financiers, “Apac remains heavily banked, so we expect to see ample room for private debt to grow in the region,” Alex Vaulkhard, client portfolio manager within Barings’ Private Credit team told FA.

He sees particular opportunity to serve the private equity (PE) space. “Although PE activity has been a bit slower in 2023, we expect activity to return, which will increase lending opportunities for private debt.”

Asia accounts for roughly $90 billion or about 6.4% of the global private credit market, according to figures cited by the Monetary Authority of Singapore (MAS) that highlight the market’s growth potential.

The biggest vehicle in Asia to date is Hong Kong-headquartered PAG’s fourth pan-Asia fund which closed in December at $2.6 billion.

However, overcrowding in some markets – notably India, where investors have amassed since new insolvency and bankruptcy laws came into force from 2016 – has made lenders increasingly compete for deals and acquiesce to “covenant-lite” structures, where investor protection is reduced.

But Tan, who is currently fundraising for Muzinich’s debut Asia Pacific fund – a mid-market credit strategy with a $500 million target, believes this only to be a problem in more developed markets such as Australia and is unlikely to become an issue in the wider region.

“If anything, the trend is in the direction of more conservative structures with increased over-collateralisation and stricter covenant protection,” he told FA.

Fundamentally, seasoned private credit participants are aware of the importance of covenant protection, so their likelihood to compromise on this is low, he added.

With monetary policies tightening at one of the fastest rates in modern history and recession looming in several markets, a key challenge for private credit is borrowers’ ability to service their debts.

“There is no doubt that default rates will go up and I would be cautious of cashflow lends with little or no asset backing,” said Christian Brehm, CEO at Sydney-headquartered private debt manager, FC Capital, calling for adequate due diligence when evaluating opportunities in the current environment.

“We would not be surprised to see an increase in default rates, but these are more likely to occur in more cyclical industries or among borrowers who have taken on too much debt in recent years,” Vaulkhard opined.

The managers suggested a tougher fundraising environment ahead, as the performance of fixed income instruments improves to offer limited partners (LPs) attractive returns.

What’s next?

The banking sector’s evolving regulatory landscape is also contributing to Asia’s changing DCM outlook.

Initially proposed as consequence of the 2008 global financial crisis (GFC) and with renewed rigour on the back of recent adversity across the banking sector, new capital requirements are set to be rolled out in the US and Europe as a final phase of Basel III. Often dubbed “Basel IV” for their magnitude, market implementation was originally scheduled for January 2023, before being delayed by a year to support the operational capacity of banks and market supervisors in response to the Covid-19 pandemic.

Experts caution that while more stringent banking regulation will challenge Asia’s traditional lending mix, it will also offer opportunity.

“There is a big amount of regulatory capital to be rolled out following the new Basel III rules, which will impact the type of debt to be issued,” said Ashurst’s Lee.

“We have been speaking to issuers who have been anticipating this uptrend as well in the coming years and are building in this scenario in their mid- to long-term treasury planning,” she added.

“Although the implementation of the Basel III final reform package was postponed in jurisdictions such as Hong Kong, those subject to it will no doubt be grappling with the new capital requirements already,” said Clifford Chance’s Chan, noting how its introduction will likely impact banks’ risk-weighted asset (RWA) portfolios.

“Aspects such as the raising of the output floor could potentially see some banks try to charge more for their lending,” he said.

Hironobu Nakamura, FA editorial board member and chief investment officer at Mizuho and Dai-Ichi Life tie-up, Asset Management One Alternative Investments (AMOAI), agreed that the new Basel reforms will lead to more scrupulous risk assessment by lenders, but how this will affect banks’ portfolio construction more concretely, remains uncertain.

“A heavy return on risk asset (Rora) requirements will likely impact banks’ risk asset allocations, region to region. [But] it is quite early to determine whether Asia is risk-off or -on at this stage, from a bank portfolio perspective.”

FA editorial board member and AMTD Group chair, Calvin Choi, proposed that if lending were to become more expensive for global players, there could be upside for regional banks.

“Updated Basel rules will impact global banks operating onshore, adding costs and making them less able to use their balance sheets. Local banks won’t have this constraint, so they will win market share,” he shared.

However, he noted that  for those Asian banks that want to participate in overseas markets, business will become more costly and compliance-heavy. “It will keep more local banks local.”

“All of this will mean a higher cost of borrowing and less capital available to banks…. It will create opportunities for non-bank lenders such as non-banking financial institutions (NBFI), family offices and private funds to fill the gap,” said DLA Piper’s Lee.

“With stricter capital requirements under ‘Basel IV’, we anticipate that bank loan funding will become more expensive for issuers. As such, we could see a return to capital market funding from issuers who have hitherto heavily relied on loan markets this year,” said ANZ’s Ng.

Choi added that this may even lead to Asia’s bond markets being viewed as more competitive than their global counterparts.

“Overall, the DCM market has become slow and stagnated,” Nakamura observed. “However, there are areas where funding is continually needed,” he said, pointing to the energy transition space as well as digital transformation. 

What exactly the new regulatory environment will mean for Asia’s market participants amid macro volatility, rising interest rates and escalating geopolitical tensions, remains unclear. But the developing outlook could offer those able to structure more creative facilities, more business; drive the advancement of Asia’s local capital markets; and support the region’s wider efforts to transition to net zero.

Proponents of private credit remain optimistic.

“Capital raising might cool down in the short-term, but the true private debt lending market is about to kick off,” said Brehm.

“We believe that there is a lot of growth ahead,” Barings’ Vaulkhard stated, sharing that conditions are likely to improve for lenders this year, with spreads widening, leverage falling, and overall credit quality enhancing. 

“We are only at the start of a multi-year growth journey,” Tan concluded.  

 

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