China's manufacturing powerhouse Guangdong eyes technological transformation

By:
On:
In: Asia

Using a PIN to Face Challenges

Local and foreign producers have been asked to reevaluate their supply chain methods by rising costs and rising costs. Some businesses have relocated some of their activities to different areas, such as South Asia and Southeast Asia.

Chinese electronic vehicle manufacturers, for instance, have just received government support to establish export-oriented supply chains in response to US and European trade restrictions.

Wang Weizhong, government of Guangdong, noted that despite the challenges still present, the region has also improved the law-based, market-oriented setting to draw significant foreign-funded projects.

He claimed that more than 1, 900 of these companies opened stores in Guangdong in January this year, an increase of 106 % over the previous month.

” We does actively promote the high-end, intelligent, and efficient business. According to Mr. Wang,” we will diligently apply the government’s new round of large-scale equipment regeneration and deployment, as well as major policy measures like reducing logistics costs and trade-in of consumer goods,” he told CNA.

He added that Guangdong’s local technology potential has been in the top spot for the past seven times.

” We will view the creation of new quality productivity as a strategic move and a long-term move,” he said,” and this shows ) strong confidence in the development of Guangdong’s manufacturing industry.” &nbsp, &nbsp,

ATTRACTING TALENT AND Assets

The place has been a key force behind China’s financial reform and expansion. It is located at the intersection of China’s Greater Bay Area ( GBA ), a hub for rapid high-tech advancements that attracts significant foreign investment.

” The GBA will enable the agility of a lot of skills, including those from mainland China, Hong Kong, Macao, and even those from other parts of the world,” said one analyst. Therefore, it is difficult for Guangdong to maintain its current talent while attracting more talent from other regions, according to political scientist Professor Sonny Lo.

He thinks Guangdong continues to be a hotbed for foreign buyers as a result of increasing investments in technical knowledge and better communication to Hong Kong and Macao.

Continue Reading

Firmer, less peaceful language on Taiwan reunification - Asia Times

By:
On:
In: Asia

It was less than two days into 2024 when Song Tao, the director of China’s Taiwan Affairs Office, called on all Taiwanese to promote “peaceful reunification” with the mainland.

But down in the text, the New Year’s message posted to the office’s website had not-so-subtle wording, as Song warned “the motherland will eventually be reunified, and it will inevitably be reunified.”

The message came less than two weeks before Taiwan held its presidential and parliamentary elections and coincided with Chinese President Xi Jinping’s message that reunification was an all but foregone conclusion.

The thin rhetorical veneer of peaceful reunification has been gradually but significantly replaced with language that is more crisp in “advancing the cause of reunification.”

This week, upon releasing budget figures at the opening of the National People’s Congress, Premier Li Qiang dropped mention of “peaceful reunification” in his government report, according to a Reuters analysis of his speech.

Li reiterated China’s call for “reunification” with Taiwan but added emphasis that it wants to “be firm” in doing so and dropped the descriptor “peaceful”, which had been used in previous reports, Reuters noted.

To be sure, it was not the first time a top Chinese official had omitted the word “peaceful” when referring to Taiwan “reunification.” The firmer language has been repeatedly used by Chinese state officials and has been a mainstay in Chinese Communist Party (CCP) speeches, including in Xi’s speech before the 20th Party Congress in October 2022.

In the president’s words then, he and his countrymen “firmly” grasp “the leading position and initiative in cross-Strait relations, and unswervingly promote the great cause of the reunification of the motherland, which is the goal of work on Taiwan.”

In Xi’s China, the master historical narrative is much more important than the veneer of a peaceful transition. This makes the removal of the language a reflection of current realities and an affirmation that “rejuvenation” through peaceful or more violent methods is the primary focus of the state.

In this effort, China has been consistent dating back Xi’s speech at a 2012 “Road To Renewal” exhibition, where the restoration of China takes precedence over all other objectives. Taiwan is seen as a critical element, as Beijing has called its separation a “result of weakness and chaos in our nation” as noted in a 2022 White Paper, “The Taiwan Question and China’s Reunification in the New Era.”

Reunification is also extension of the “Chinese Dream,” which is a collection of national myths and collective traumas manufactured by the state to extend beyond memory, back to the ancient Sui Dynasty of the 6th Century and the glories of the Ming Dynasty, which lasted until 1644. Failure to hold Taiwan is a part of China’s trauma-based nationalism.

So injurious to the Chinese Dream is the threat of failure that “compatriots” in Taiwan who were delicately described as “brothers and sisters” in 1978 are more commonly associated with conspiring to commit the most serious crimes of secession and treason.

Dead now are the remnants of Jiang Zemin’s diplomacy aimed at peaceful Cross-Strait relations, echoed in his report to the 16th Party Congress in 2002, in which the word “peaceful” was used in the Taiwan context nearly a dozen times.

The election outcome in Taiwan was a setback for China, as Democratic Progressive Party (DPP) candidate William Lai won more than 40% of the vote – even though China’s Taiwan Affairs Office had warned on the Thursday before the January weekend election that he represented Taiwan slipping “ever further away from peace and prosperity, and ever closer to war and decline.”

Now, despite economic deflation, there are steep increases in China’s defense spending, up 7.2% for 2024 at US$230.6 billion. The surge in spending comes amid stern warnings about “external interference” and opposition to separatist activities aimed at promoting Taiwanese independence.

Long gone is a much milder approach, evidenced also in Hong Kong well prior to June 2020, when the promise of “one country, two systems” was that of a “high degree of autonomy.”

The decling rhetorical use of “peaceful reunification” also marks the broader realization that Taiwan has moved farther and farther from the control of mainland China. Taiwan’s investment in South Asia and Southeast Asia in 2022 was greater than investments the self-governing island made in mainland China.

Former Taiwanese President Tsai Ing-wen has not only moved Taiwanese companies back from China, but has worked to engineer trade away from the mainland into the broader Indo-Pacific.

Taiwan’s New Southbound Policy, which targets 18 countries, almost doubled between 2016 and 2022. And the breadth of Taipei’s defense-related procurement and related military aid from the United States and other aligned countries makes the island a much more potent foe than it was 20 years ago.

With this reality, Beijing has set its sights on a reunion along the coercive terms it sets. As Taiwan becomes less interconnected and dependent on the mainland, more threats and less diplomacy are likely from Beijing.

Instead, contingency planning will continue to increase, evidenced by the recent weighing of options to blunt the effect of US sanctions in the case of a Taiwan conflict or recent mock drills simulating an island invasion by the military. While the language might simply be the removal of old rhetoric from an old, abandoned foreign policy, it also is symbolic of this new, more dangerous and volatile era.

Mark S Cogan is an associate professor of peace and conflict studies at Kansai Gaidai University in Osaka, Japan. His research interests include Southeast Asia and the broader Indo-Pacific region, as well as security studies, peacebuilding, counter-terrorism and human rights. He is a former communications specialist with the United Nations, serving in Southeast Asia, Sub-Saharan Africa and the Middle East.

Continue Reading

IWD Deal Analysis: How IIX’s WLB6 Orange bond helps women’s livelihoods in Asia | FinanceAsia

By:
On:
In: Asia, Finance, South-East Asia

In a growing regional trend, December 2023 saw the sixth issuance of Impact Investment Exchange (IIX)’s Women’s Livelihood Bond (WLB) Series, the $100 million Women’s Livelihood Bond 6 (WLB6).

Altogether the IIX, since 2017, has raised $228 million to support women’s economic empowerment in Asia, with the overall trend in deal size on an upward trend. FinanceAsia discussed the investors, the rationale and the processes involved in order to celebrate International Women’s Day (IWD) 2024 on Friday, March 9 and the drive towards diversity, equity and inclusion (DEI) across the region. 

The closing of WLB6 marked the world’s largest sustainable debt security and was issued in compliance with the Orange Bond Principles and aims to uplift over 880,000 women and girls in the Global South.

Global law firm Clifford Chance advised Australia and New Zealand Banking Group (ANZ) and Standard Chartered Bank pro bono as placement agents.

Proceeds from WLB6 will be used to promote the growth of women-focused businesses and sustainable livelihoods across six sectors: agriculture; water and sanitation; clean energy; affordable housing; SME lending and microfinance across India, Cambodia, Indonesia, Kenya and Vietnam. 100% of the $100 million proceeds designed to advance UN’s Sustainable Development Goals (SDG) 5: gender equality and 25-30% designed to advance SDG 13 — climate action.

Robert Kraybill, chief investment officer, IIX, told FA: “The Women’s Livelihood Bond (WLB) Series is a blended finance instrument that pools capital from public-sector development finance institutions and private-sector investors. The public sector investors provide risk-tolerant “first-loss” capital in the form of subordinated notes, while the private sector investors purchase the senior bonds.”

“The WLB Series targets a range of private sector investors seeking a combination of high impact with low risk and an appropriate return. From the outset, beginning with the WLB1, the bonds have attracted both family offices and institutional investors. Initially, this was skewed towards family offices. As the WLB issuances increased, we saw increased interest from institutional investors, such that over 90% of the WLB6 was placed with institutions,” added Kraybill. 

For WLB6, there were global investors on the deal including from the US, Europe and Asia Pacific (Apac). The WLB6 bonds comply with the EU and UK securitisation regulations, making it easier for European institutional investors to participate. For example, one of the investors was Dutch pension fund APG Asset Management which invested $30 million.

Kraybill said: “Throughout building the loan portfolios for the WLBs – from sourcing and screening to due diligence – we integrate traditional credit criteria with impact criteria. We look to invest in companies meeting our credit and financial criteria while delivering meaningful positive impact.”

“We are proud that we have not experienced any payment defaults or credit losses on any of the WLB loan portfolios, demonstrating the resilience of the high-impact women-focused businesses that we work with, even in the face of challenges posed by the Covid-19 pandemic. The first two bonds in the WLB Series – WLB1 and WLB2 – have matured and been fully retired, meeting all of their obligations to bondholders,” Kraybill added. 

The IIX, which is headquartered in Singapore and has offices in Australia, Bangladesh, Brunei, India, Indonesia, the Philippines, Sri Lanka and Vietnam, also tracks the impact outcomes generated by its investment throughout the life of the bonds and reports on the targets. WLB1 and WLB2 exceeded impact projections, according to IIX.   

Complex deal

Given the number of parties involved and a myriad of regulations and compliance, the deal was not easy to put together. 

Gareth Deiner, partner at Clifford Chance, explained to FA the law firm’s role in the deal: “We’ve been involved for several years on these transactions, and this is not the first woman’s livelihood bond that the IIX team has put together.”

Singapore-based Deiner continued: “Historically, we have acted on the trustee side, but we have been advising the lead managers of the transaction for the last three offerings. It’s approximately a three to four month execution process to make sure we get the documentation agreed and the structure in place. IIX do the underlying due diligence on the borrowers, which is necessary given that the financing is raised from the international capital markets. Together with their counsel, they work on the disclosure in the offering document for the bond transaction.”

“As counsel to the lead managers, we are responsible for the underlying contractual documentation for the notes and the offering, but it’s IIX who retain control over the loan documentation with the notes proceeds end-users, and putting the loan pool together. They’re doing due diligence on the on the underlying borrowers of the deal,” he explained. 

This is backed up by IIX’s due diligence. IIX’s Kraybill explained: “The financial due diligence conducted by our credit team is similar to that of other emerging market lenders. What sets us apart is the upfront impact due diligence and ongoing impact monitoring and reporting conducted by our impact assessment team. Our team screens potential investments against rigorous eligibility criteria to ensure they contribute to positive outcomes for underserved women and gender minorities in the Global South while often empowering women as agents of climate action.”

Navigating US legal rules and dealing with investors from around the world also added to the complexity. 

Deiner said: “Dealing with a wide range of investors, including qualified institutional buyers in the US, we needed to comply with US federal securities law, including limiting the sale of the notes to qualified purchasers under the US Investment Company Act. There were also certain structural considerations raised by the EU and UK securitisation regulation.”

“From a legal perspective, it was an interesting deal because there’s a wide range of highly technical substantive law, which required the input from specialists across the Clifford Chance network. We have the expertise across the globe and do a lot of sustainable financing work,” continued Deiner. 

“Recently we’ve advised on some market-leading and groundbreaking transactions in terms of bringing sustainability finance technology to capital markets transactions,” he added.

However, this deal, in particular, involved social governance goals. 

Deiner explained: “What we like about this particular transaction is that so much of the Environmental Social and Governance (ESG) agenda is about the environmental (E) angle, such as green bonds related to carbon transition and climate action. That encompasses sustainable  development goal 13 of the UN Sustainable Development Goals (SDG).”

“However, you rarely hear about sustainable finance transactions that focus on the S and the G in ESG, which IIX champions. Each of the sustainable development goals (SDG) has its own hue, its own colour. This transaction focusses on SDG 5, which is gender equality, and are referred to as Orange bonds – orange being the hue for SGD 5. In addition, IIX has developed its own framework and principles to really drive that S in the ESG,” he added.

Tracking societal impact

There is still a key issue on how to track the impact of where the money ends up.

IIX’s due diligence process includes interviews with beneficiaries and stakeholders of investees,  using its own digital impact assessment tool to incorporate input from a broad group of female beneficiaries. This verifies impact claims while giving a voice and value to the women it is assisting, according to Kraybill.

He continued: “Our selection process for projects funded through WLB6 closely aligns with the objectives of The Orange Movement. Each of the bonds in the WLB Series adheres to The Orange Bond Principles, which focuses on empowering women, girls, and gender minorities, particularly in climate action and adaptation.”

IIX looks at the potential of each project’s mission, vision, goals, and business structure, to evaluate alignment with the core values of the WLB Series and The Orange Movement. Its impact assessment team conducts due diligence to ensure selected projects meet criteria outlined by The Orange Movement and contribute to promoting gender equity and addressing climate challenges in emerging markets, according to Kraybill.

With the rise of bonds connected to ESG and DEI, the scrutiny from investors is also increasing, especially with the prevalence of greenwashing. 

Clifford Chance’s Deiner said: “The legal landscape for green bonds and sustainability-linked bonds has evolved considerably in recent years, particularly regarding due diligence. When a company issues a green bond under a green bond framework, substantial work is required to ensure the bond’s integrity. This diligence has become a critical factor in investment decisions, as investors need to be confident that the environmental credentials are genuine and not merely an instance of greenwashing.”

“One of the key parts of the Orange bond initiative is achieving transparency in the investment process and decision, and the subsequent reporting, as the proceeds are going to an issuer who is on-lending it again, to, for example, a microfinance lender. It’s a combination of seeking an investment return and a view on the credit profile. The funds have specific objectives regarding capital allocation, and the appeal of the Orange bond aspect aligns with this focus,” Deiner added. 

$10 billion goal

The IIX has an ambitious goal of mobilising $10 billion by 2030 and optimism abounds. 

Kraybill said: “We remain optimistic about reaching our ambitious goal through sustained collaboration and concerted action, empowering women and girls worldwide while fostering inclusive and sustainable development.”

“Partnerships with the Orange Bond Steering Committee organisations, like the Australian government’s Department of Foreign Affairs and Trade (DFAT), the UN Capital Development Fund (UNCDF), Nuveen, and others, are vital in this endeavour. Together, we aim to build a gender-empowered financing system, mobilise new capital, and accelerate progress toward gender equality and women’s empowerment globally,” Kraybill added.

The Orange Movement is also building “Orange Alliances” at regional and national levels to bring together gender lens investors and other stakeholders. IIX is conducting training programs to train and certify Orange Bond verification agents.

“We’re introducing an “Orange Seal” for MSMEs and other organisations, which enhances their gender, DEI, and climate bona fides. We have expanded our transaction tagging functionality to include innovative finance instruments that adhere to the Orange Bond Principles framework. Furthermore, we’re eagerly anticipating the launch of the Orange Loan Facility, alongside numerous other initiatives to further the Orange Movement’s mission,” Kraybill said. 

He said: “We remain optimistic about reaching our ambitious goal through sustained collaboration and concerted action, empowering women and girls worldwide while fostering inclusive and sustainable development.”

The next bond could potentially be much larger than WLB6’s $100 million. 

Clifford Chance’s Deiner is also optimistic: “There’s a flow of transactions that we’re going to see over the next 12 months, and this an area that people are paying more attention to. The transactions have grown considerably over the years. These transactions have involved deals from around $20 million up to the latest offering of $100 million. So, there is clearly increasing demand for these transactions each year.”

Standard Chartered declined to provide a comment for the article.


¬ Haymarket Media Limited. All rights reserved.

Continue Reading

IWD Deal Analysis: IIX’s WLB6 Orange Bond helping women’s livelihoods in Asia | FinanceAsia

By:
On:
In: Asia, Finance, South-East Asia

In a growing regional trend, December 2023 saw the sixth issuance of Impact Investment Exchange (IIX)’s Women’s Livelihood Bond (WLB) Series, the $100 million Women’s Livelihood Bond 6 (WLB6).

Altogether the IIX, since 2017, has raised $228 million to support women’s economic empowerment in Asia, with the overall trend in deal size on an upward trend. FinanceAsia discussed the investors, the rationale and the processes involved in order to celebrate International Women’s Day (IWD) 2024 on Friday, March 9 and the drive towards diversity, equity and inclusion (DEI) across the region. 

The closing of WLB6 marked the world’s largest sustainable debt security and was issued in compliance with the Orange Bond Principle and aims to uplift over 880,000 women and girls in the Global South.

Global law firm Clifford Chance advised Australia and New Zealand Banking Group (ANZ) and Standard Chartered Bank pro bono as placement agents.

Proceeds from WLB6 will be used to promote the growth of women-focused businesses and sustainable livelihoods across six sectors: agriculture; water and sanitation; clean energy; affordable housing; SME lending and microfinance across India, Cambodia, Indonesia, Kenya and Vietnam. 100% of the $100 million proceeds designed to advance UN’s Sustainable Development Goals (SDG) 5: gender equality and 25-30% designed to advance SDG 13 — climate action.

Robert Kraybill, chief investment officer, IIX, told FA: “The Women’s Livelihood Bond (WLB) Series is a blended finance instrument that pools capital from public-sector development finance institutions and private-sector investors. The public sector investors provide risk-tolerant “first-loss” capital in the form of subordinated notes, while the private sector investors purchase the senior bonds.”

“The WLB Series targets a range of private sector investors seeking a combination of high impact with low risk and an appropriate return. From the outset, beginning with the WLB1, the bonds have attracted both family offices and institutional investors. Initially, this was skewed towards family offices. As the WLB issuances increased, we saw increased interest from institutional investors, such that over 90% of the WLB6 was placed with institutions,” added Kraybill. 

For WLB6, there were global investors on the deal including from the US, Europe and Asia Pacific (Apac). The WLB6 bonds comply with the EU and UK securitisation regulations, making it easier for European institutional investors to participate. For example, one of the investors was Dutch pension fund APG Asset Management which invested $30 million.

Kraybill said: “Throughout building the loan portfolios for the WLBs – from sourcing and screening to due diligence – we integrate traditional credit criteria with impact criteria. We look to invest in companies meeting our credit and financial criteria while delivering meaningful positive impact.”

“We are proud that we have not experienced any payment defaults or credit losses on any of the WLB loan portfolios, demonstrating the resilience of the high-impact women-focused businesses that we work with, even in the face of challenges posed by the Covid-19 pandemic. The first two bonds in the WLB Series – WLB1 and WLB2 – have matured and been fully retired, meeting all of their obligations to bondholders,” Kraybill added. 

The IIX, which is headquartered in Singapore and has offices in Australia, Bangladesh, Brunei, India, Indonesia, the Philippines, Sri Lanka and Vietnam, also tracks the impact outcomes generated by its investment throughout the life of the bonds and reports on the targets. WLB1 and WLB2 exceeded impact projections, according to IIX.   

Complex deal

Given the number of parties involved and a myriad of regulations and compliance, the deal was not easy to put together. 

Gareth Deiner, partner at Clifford Chance, explained to FA the law firm’s role in the deal: “We’ve been involved for several years on these transactions, and this is not the first woman’s livelihood bond that the IIX team has put together.”

Singapore-based Deiner continued: “Historically, we have acted on the trustee side, but we have been advising the lead managers of the transaction for the last three offerings. It’s approximately a three to four month execution process to make sure we get the documentation agreed and the structure in place. IIX do the underlying due diligence on the borrowers, which is necessary given that the financing is raised from the international capital markets. Together with their counsel, they work on the disclosure in the offering document for the bond transaction.”

“As counsel to the lead managers, we are responsible for the underlying contractual documentation for the notes and the offering, but it’s IIX who retain control over the loan documentation with the notes proceeds end-users, and putting the loan pool together. They’re doing due diligence on the on the underlying borrowers of the deal,” he explained. 

This is backed up by IIX’s due diligence. IIX’s Kraybill explained: “The financial due diligence conducted by our credit team is similar to that of other emerging market lenders. What sets us apart is the upfront impact due diligence and ongoing impact monitoring and reporting conducted by our impact assessment team. Our team screens potential investments against rigorous eligibility criteria to ensure they contribute to positive outcomes for underserved women and gender minorities in the Global South while often empowering women as agents of climate action.”

Navigating US legal rules and dealing with investors from around the world also added to the complexity. 

Deiner said: “Dealing with a wide range of investors, including qualified institutional buyers in the US, we needed to comply with US federal securities law, including limiting the sale of the notes to qualified purchasers under the US Investment Company Act. There were also certain structural considerations raised by the EU and UK securitisation regulation.”

“From a legal perspective, it was an interesting deal because there’s a wide range of highly technical substantive law, which required the input from specialists across the Clifford Chance network. We have the expertise across the globe and do a lot of sustainable financing work,” continued Deiner. 

“Recently we’ve advised on some market-leading and groundbreaking transactions in terms of bringing sustainability finance technology to capital markets transactions,” he added.

However, this deal, in particular involved social governance goals. 

Deiner explained: “What we like about this particular transaction is that so much of the Environmental Social and Governance (ESG) agenda is about the environmental (E) angle, such as green bonds related to carbon transition and climate action. That encompasses sustainable  development goal 13 of the UN Sustainable Development Goals (SDG).”

“However, you rarely hear about sustainable finance transactions that focus on the S and the G in ESG, which IIX champions. Each of the sustainable development goals (SDG) has its own hue, its own colour. This transaction focusses on SDG 5, which is gender equality, and are referred to as Orange bonds – orange being the hue for SGD 5. In addition, IIX has developed its own framework and principles to really drive that S in the ESG,” he added.

Tracking societal impact

There is still a key issue on how to track the impact of where the money ends up.

IIX’s due diligence process includes interviews with beneficiaries and stakeholders of investees,  using its own digital impact assessment tool to incorporate input from a broad group of female beneficiaries. This verifies impact claims while giving a voice and value to the women it is assisting, according to Kraybill.

He continued: “Our selection process for projects funded through WLB6 closely aligns with the objectives of The Orange Movement. Each of the bonds in the WLB Series adheres to The Orange Bond Principles, which focuses on empowering women, girls, and gender minorities, particularly in climate action and adaptation.”

IIX looks at the potential of each project’s mission, vision, goals, and business structure, to evaluate alignment with the core values of the WLB Series and The Orange Movement. Its impact assessment team conducts due diligence to ensure selected projects meet criteria outlined by The Orange Movement and contribute to promoting gender equity and addressing climate challenges in emerging markets, according to Kraybill.

With the rise of bonds connected to ESG and DEI, the scrutiny from investors is also increasing, especially with the prevalence of greenwashing. 

Clifford Chance’s Deiner said: “The legal landscape for green bonds and sustainability-linked bonds has evolved considerably in recent years, particularly regarding due diligence. When a company issues a green bond under a green bond framework, substantial work is required to ensure the bond’s integrity. This diligence has become a critical factor in investment decisions, as investors need to be confident that the environmental credentials are genuine and not merely an instance of greenwashing.”

“One of the key parts of the Orange bond initiative is achieving transparency in the investment process and decision, and the subsequent reporting, as the proceeds are going to an issuer who is on-lending it again, to, for example, a microfinance lender. It’s a combination of seeking an investment return and a view on the credit profile. The funds have specific objectives regarding capital allocation, and the appeal of the Orange bond aspect aligns with this focus,” Deiner added. 

$10 billion goal

The IIX has an ambitious goal of mobilising $10 billion by 2030 and optimism abounds. 

Kraybill said: “We remain optimistic about reaching our ambitious goal through sustained collaboration and concerted action, empowering women and girls worldwide while fostering inclusive and sustainable development.”

“Partnerships with the Orange Bond Steering Committee organisations, like the Australian government’s Department of Foreign Affairs and Trade (DFAT), the UN Capital Development Fund (UNCDF), Nuveen, and others, are vital in this endeavour. Together, we aim to build a gender-empowered financing system, mobilise new capital, and accelerate progress toward gender equality and women’s empowerment globally,” Kraybill added.

The Orange Movement is also building “Orange Alliances” at regional and national levels to bring together gender lens investors and other stakeholders. IIX is conducting training programs to train and certify Orange Bond verification agents.

“We’re introducing an “Orange Seal” for MSMEs and other organisations, which enhances their gender, DEI, and climate bona fides. We have expanded our transaction tagging functionality to include innovative finance instruments that adhere to the Orange Bond Principles framework. Furthermore, we’re eagerly anticipating the launch of the Orange Loan Facility, alongside numerous other initiatives to further the Orange Movement’s mission,” Kraybill said. 

He said: “We remain optimistic about reaching our ambitious goal through sustained collaboration and concerted action, empowering women and girls worldwide while fostering inclusive and sustainable development.”

The next bond could potentially be much larger than WLB6’s $100 million. 

Clifford Chance’s Deiner is also optimistic: “There’s a flow of transactions that we’re going to see over the next 12 months, and this an area that people are paying more attention to. The transactions have grown considerably over the years. These transactions have involved deals from around $20 million up to the latest offering of $100 million. So, there is clearly increasing demand for these transactions each year.”

Standard Chartered declined to provide a comment for the article.


¬ Haymarket Media Limited. All rights reserved.

Continue Reading

Volume One 2024 magazine out now | FinanceAsia

By:
On:
In: Asia, Finance, South-East Asia

We are delighted to announce that the first volume of FinanceAsia’s 2024 bi-annual magazine, is now available for your perusal. 

In this edition, we celebrate all the winners the FinanceAsia Achievement Awards 2023 and explain the rationale behind why each institution won. In addition to the Deal and House Awards for Asia and Australia and New Zealand (ANZ); this year we added a new category, the Dealmaker Poll, which recognises key individuals and companies based on market feedback. 

 

In feature format, Christopher Chu examines the potential and reach of artificial intelligence (AI) in Asia – the fast-moving technology is presenting both huge challenges and opportunities for investors. While it remains caught in the cross-hairs of geopolitics and regulation, he examines how AI could be a game-changer for productivity.

 

Ryan Li explores the proposed breakup of Chinese giant Alibaba and how the firm’s ambitions fit in with wider developments across China’s tech sector.

 

Also in the magazine, Andrew Tjaardstra reviews IPO activity across key Asian markets in 2023 and looks ahead to how public markets might perform in 2024 – while it certainly hasn’t been an easy ride for the region’s equity markets over the last 12 months, there have been some bright spots, notably India and Japan, which are set to continue their momentum this year.

 

Finally, read Ella Arwyn Jones’ exclusive interview with Rachel Huf, the new Hong Kong CEO of Barclays. Huf shares her transition from lawyer to leader, offering insights around her career path and the strategic direction of the bank in the Special Administrative Region (SAR) over months to come. 

 

Click here to read the full magazine issue online. 

 


¬ Haymarket Media Limited. All rights reserved.

Continue Reading

Asia seeks 2024 redemption for IPOs | FinanceAsia

By:
On:
In: Asia, Finance, South-East Asia

After a relatively poor 2022, while some Asian stock markets performed well in 2023, such as India and Japan, others including China, Hong Kong, Singapore and Australia languished as geopolitical tensions, rising interest rates and poor performing domestic economies knocked investor confidence.

There was also a downturn in mergers and acquisitions (M&A) in Asia Pacific (Apac), with 155 deals completed in 2023 with volumes down 23% compared to 200 deals in 2022, according to WTW.

Broadly, investors were spooked by a combination of higher for longer interest rates from the US Federal Reserve, a lacklustre economic performance in China post-pandemic with the property sector dragging confidence, and wider geopolitical tensions.

Will Cai, partner and head of Asia capital markets practice and co-chair of China corporate practice at law firm Cooley, told FinanceAsia: “2023 was a very challenging year for all major capital markets in Asia, with Japan as the only exception. There were several contributing factors: the slower-than-expected post-Covid-19 economic recovery in China, the current regional and global geopolitical tensions, as well as the high interest rates.”

He added: “High interest rates have a significant negative impact on capital market deals. The logic is very simple: if treasury bonds can provide 5% annual return, risk free, investors will expect a much higher return on high-risk equity deals – which unfortunately is not what many companies can deliver in a tough market. We probably need to see a moderate reduction on interest rates before equity investors return to the market.”

Amid the gloom, other avenues in the equity space beyond IPOs, performed relatively well, with banks needing to respond to changing client needs.

Kenneth Chow, co-head of Asia equity capital markets, Citi, said: “These are challenging market conditions and as a bank you need to be nimble and flexible. However, there are always opportunities in Asia, such as convertible bonds and block trades.”

Japan and India rising

There were arguably two Asian ‘star’ performers in 2023: Japan and India.

Despite a weak yen, Japan saw a breakout from years of deflation, corporate governance reform and a solid domestic economy, while India saw strong GDP growth of around 7% and a continuation of reforms.

Udhay Furtado, co-head of Asia equity capital markets, Citi, told FA: “Japan and India have recently emerged as IPO hotspots, while Indonesia has also seen positive momentum. There is an increasing interest in the energy transition story, including the makers of electric vehicles and batteries.” 

Japan, with IPO proceeds up 82% compared with 2022, was the standout Asian market last year.

Peter Guenthardt, head of Asia Pacific investment banking at Bank of America, said: “There are many opportunities in Japan with the fee pool increasing 20% in 2023, while overall fees were down by the same figure across Apac. The fee pool was twice the size of China this year. Japan could remain the largest fee pool in Apac in 2024.”

Guenthardt added: “In Japan, there has been an increase of IPOs, block trades and convertible bonds, with that trend set to continue. There has also been a rise in activist investors – for which it is the second most active market in the world.”

He continued: “Japanese companies are also looking to expand abroad for M&A opportunities, with the US being the most popular market and where sectors such as technology are particularly attractive.”  

In India, the market saw a big improvement in the second half of the year. While many companies conducted IPOs outside of India, the local stock markets saw the number of issuers increase by over 50% to 239, according to data from the London Stock Exchange Group (LSEG). With the second half of the year doing particularly well, this bodes well for 2024, with some experts tipping the world’s fifth largest economy to lead the way in IPOs globally this year. 

Citi’s Furtado said in a media release: “We hope to see a turn in the IPO markets, as we have been seeing in India in late 2023 and we also expect to see [a] continued pick up in convertible bond activity (given refinancing efficiencies), alongside a robust follow-on/ block calendar.”

2024 Hong Kong bounceback?

One of the big questions for Asia in 2024 is can Hong Kong, one of the pre-eminent financing hubs, return to something resembling its former glory after years of protest and pandemic turmoil. Any turnaround in Hong Kong should also indicate improved confidence in Chinese equities given that the majority of companies listed on the Hong Kong Stock Exchange (HKEX) are Chinese.

PwC is predicting HK$100 billion ($12.8 billion) of deals in 2024 with around 80 deals in the pipeline, and KPMG is expecting Hong Kong to return to the top five of the IPO global rankings.

While the fundamentals are still strong in the Special Administrative Region (SAR), a recent reliance on Chinese companies, which have been buffeted by domestic headwinds and rising US interest rates, has damaged the market. In addition, the potential implications of the SAR’s new national security law have rattled global investor appetite.

However, in a sign of optimism, already in 2024, two Chinese bubble tea firms have applied for listings on the HKEX suggesting that market appetite could be rebounding in China – especially for companies supplying consumer staples.

Although stock markets in mainland China are providing stiff competition to Hong Kong, foreign investors and Chinese firms are still attracted to Hong Kong’s greater flexibility. In addition, geopolitical tensions mean that Chinese and Hong Kong firms are becoming more cautious about listing in the US.

Stephen Chan, Hong Kong-based partner at Dechert, told FA: “2023 was relatively challenging for the Hong Kong IPO market, with the number of deals and proceeds raised having declined year on year. We have seen a number of potential listing applicants choose to delay their listing timetable in view of the underperforming stock price of recent new listings.”

A sluggish stock market performance, low valuations for newly listed companies and the macroeconomic environment contributed to potential listing applicants opting for the wait-and-see approach, with the SAR facing strong headwinds.

Chan added: “The US interest rates hikes saw investors opt for products with high interest rates and fixed income.” This dampened the demand for IPOs, and in turn affected the valuation of potential IPOs and hence weakened the urge for potential listing applicants, explained Chan. 

He said: “Increased borrowing costs and lower consumer spending in general – due to the high interest rate cycle – have also affected the operational and financial performance of the potential listing applicants. Improvements to both investor sentiment towards the equity market and companies’ operating and financial performance would be essential before companies could reconsider fundraising through IPO.”

Certain sectors have been performing better than others, including technology, media and telecom (TMT) and biotech and healthcare companies. These are likely to continue to lead the IPO market in terms of the deal count and deal size in Hong Kong, especially with January 1, 2024’s HKEX regulatory reform for the new Chapter 18C (known as the GEM reforms) for specialist technology companies, and an expanding market for biotech and healthcare under Chapter 18A which was launched in 2018.

Chan added: “The HKEX has taken the opportunity to introduce a number of modifications to improve the fundraising process including the new settlement platform, FINI, which will shorten the time gap between IPO pricing and trading and hence reduce the market risk and modernise and digitalise the entire IPO process.”

“The GEM listing reform aiming to enhance attractiveness for SMEs to seek listings. . . will also boost the number of deal counts for the Hong Kong IPO market and provide SMEs with development potential a viable pathway for pursuing listing in the main board in the future.”

A continuation of the return of visitors to around 65% of pre-pandemic levels to the SAR in 2023 should also help build momentum in the local economy. In addition, the SAR has been reaching out to the Middle East for investment and is increasing its trade cooperation with Asean countries.

Asia outlook

While China appears to still be struggling to turn its economy around, Asia will continue its overall growth trajectory as the middle class grows, technology evolves and connectivity improves. The relatively young populations of Asean countries such as Indonesia, Vietnam and Thailand will also continue to provide a boon for investors.

Cooley’s Cai said: “In terms of deal counts, there were still relatively more biotech deals in 2023. Part of the reason is that biotech companies must raise capital regardless of market conditions (and therefore, the price). We also see companies from the ‘new consumer’ sectors looking to IPO. We believe these two sectors likely can do well in 2024.”

He continued: “We hope 2024 will be better than 2023, but we may need to wait a bit longer for a booming market.”

There is certainly a long way to go before seeing the region’s previous robust IPO levels.

“2024 is going to be a volatile year with the upcoming elections in the likes of the US and India, but there is a strong pipeline of deals if risk appetite returns, which will partly depend on the pace of monetary loosening,” said Citi’s Furtado.

Alongside a host of elections, there are ongoing conflicts in the Middle East and Ukraine, meaning there is much uncertainty over global supply chains, oil prices and the inflation trajectory.

While investors will be hoping that inflation can be kept under control so the US Fed can start cutting rates sooner rather than later, solid economic fundamentals and growth in many large countries in the region should provide confidence in Asia’s equity markets moving forward.

This article first appeared in Volume One 2024 of the FinanceAsia print magazine which is available online here. 


¬ Haymarket Media Limited. All rights reserved.

Continue Reading

US should wade carefully into the Indian Ocean - Asia Times

By:
On:
In: Asia

The strategic significance of the Indian Ocean region is considerable and growing.

Consisting of vast and diverse maritime geography of several subregions, including the Indian subcontinent, parts of Australia and Southeast Asia, West Asia, and Eastern and Southern Africa; it is home to 2.7 billion people — over a third of the global population — with an average age of 30 years old; it is resource-rich; and it is comprised of some of the fastest growing countries.

The region also connects peoples and economies worldwide via sealines and telecommunication fiber optic submarine cables; significantly, 80% of global maritime oil shipments traverse Indian Ocean waters.

The region, of course, faces major challenges, including actions by nefarious non-state actors such as pirates, smugglers, and terrorists. The ongoing attacks by Iran-backed Houthi rebels in the Red and Arabian Seas that are wreaking havoc on global maritime trade exemplify this problem.

Other challenges include the impact of climate change, which affects the region disproportionately, and growing naval competition, notably as China is increasingly flexing its muscles in the region.

How should the United States approach the Indian Ocean region?

Ambitions and realities

The United States recognizes the importance of maintaining a peaceful, secure and prosperous Indian Ocean region.

In recent years, Washington has embraced the terminology “Indo-Pacific,” as opposed to “Asia-Pacific,” and in 2018 it renamed the US Pacific Command the US Indo-Pacific Command. Even if US strategy documents say little about the Indian Ocean region, several US officials have recently stressed that Washington is committed to elevating its engagement there, notably through new partnerships.

Admiral Eileen Laubacher, special assistant to US President Joe Biden and senior director for South Asia at the US National Security Council, reiterated this commitment at the recently concluded 2024 Indian Ocean Conference.

Admiral Eileen Laubacher. Photo: US Navy

The annual event is spearheaded by the India Foundation and this year was hosted by the Perth USAsia Center in Australia and supported by the Indian Ministry of External Affairs and the Australian Department of Foreign Affairs and Trade.

There are problems, however. The US bureaucracy is not structured to engage the Indian Ocean region.

The US Department of State approaches it through four different bureaus: African Affairs, East Asian and Pacific Affairs, Near Eastern Affairs, and South and Central Asian Affairs. The US Department of Defense, for its part, separates it into three combatant commands: the Indo-Pacific Command, Central Command, and Africa Command.

These divisions make it difficult for the United States to appreciate and address dynamics of the region as a whole, especially maritime developments.

Another problem is that the United States – unlike India, Australia, Japan, and a few others – does not include the Western Indian Ocean or the eastern coast of Africa in its conceptualization of the Indo-Pacific.

The US framing of the Indo-Pacific coincides with the Indo-Pacific Command’s area of responsibility, which ends with India. That further complicates the United States’ ability to craft a unified strategy for the Indian Ocean region.

Perhaps partly due to these bureaucratic and conceptual issues, US engagement of the region has been limited.

US military planes parked at Diego Garcia military base, December 2017. Photo: Facebook

Recognizing it as a priority route and theater for US military power projection, the United States has of late improved its technology and facilities, notably its joint naval base (with the United Kingdom) at Diego Garcia, and increased logistics and supply cooperation with India, with which it wants to strengthen relations, notably as both countries worry about China’s rising power.

But the United States has been slow to roll out non-military programs and engage smaller regional countries. It only has one “ship-rider” agreement in the region (with Seychelles), constraining its ability to promote security cooperation, and only three embassies and two defense attaches to cover seven countries.

The United States also participates as a dialogue partner in one of the two primary regional multilateral bodies, the Indian Ocean Rim Association. But it’s not part of the other, the Indian Ocean Naval Symposium. More worryingly, in terms of assistance for the development of small regional countries the United States is falling behind China, which is investing massively in ports, fiber optic cables, and other maritime infrastructure.

The United States, therefore, should take immediate steps to adapt its approach to the Indian Ocean region. It should do so by embracing the region as a whole and ramping up engagement, notably by acting as a problem-solver and committed partner.

Embrace the region as a whole

The United States should begin by clearly defining its interests, goals, and priorities in the region as a whole and developing a strategy for it. That work, as mentioned, has not been done.

Broadening the US Indo-Pacific construct to include the Western Indian Ocean and eastern coast of Africa would be a good start. Not only would it bring the United States in line with many of its key partners, notably India, Australia, and Japan, but it would also help identify ways to implement the US Indo-Pacific Strategy in the region.

Meanwhile, the United States should probably steer clear of undertaking a major bureaucratic restructuring to better grasp, and act on, dynamics in the Indian Ocean region because it is too labor-intensive and time-consuming. Yet the appointment of nodal points or coordinators for the region in the US State and Defense Departments would be a good, easy fix to address the problems associated with the current US bureaucratic structure.

Act as problem-solver

The United States could be tempted to engage the region primarily — even only – with an eye to countering China because, after all, that goal is driving much of its foreign policy. Some have made that case, advocating that Washington focus its competition with Beijing in the Indian Ocean region because it has a bigger advantage there than closer to China’s coastline.

A blockade in the region, the argument goes, could help deter Chinese adventurism in the Pacific because it would force Beijing to devote resources to a distant area where it has disadvantages and trigger greater balancing by regional countries, notably India, which would feel threatened by a larger Chinese presence in the theater. The idea is that horizontal escalation in the region could replace vertical escalation in the Pacific.

It is unclear that this approach would work, however, either at the required speed or at all. Balancing by regional countries would also not be given because many have a favorable view of China, and even those that do not, are not prepared to go “all in” against China.

S Jaishankar, Indian minister of external affairs. Photo: Sputnik

Of note, virtually no one participating in the Indian Ocean Conference in Perth this month uttered the words “China” or “deterrence,” let alone in the same sentence. Even S Jaishankar, India’s minister of external affairs, only took oblique swipes at China in his keynote address, never mentioning it explicitly. Besides, many Indian Ocean regional states are suspicious about, and some even opposed to, cooperation with the United States, and there is a deep tradition of non-alignment in the region.

Rather than “countering China,” then, the organizing principle for US engagement in the region should be “fixing problems.” The United States should present itself as a problem-solver, a country that can help address issues of direct concern to IOR countries.

Although regional countries have different goals and priorities, by and large, that means helping respond to non-traditional security threats, including, but not limited to, nefarious non-state actors; illicit trafficking of all sorts; illegal, unregulated, unreported fishing; or climate change.

The recent US commitment to do just that is a good first step, but words should quickly turn into deeds so that regional countries can “see” more concrete deliverables, more regularly.

In this regard, the United States should bear in mind that building partner capacity to respond to non-traditional security threats can have multiple purposes, and therefore multiple payoffs. Enhancing a partner’s ability to combat maritime crime, for instance, simultaneously provides tools useful vis-à-vis China’s maritime developments.

Be a committed partner

Doing more in the Indian Ocean region does not mean that the United States will have to divert resources away from other theaters or the Pacific. The United States can – and should – ramp up engagement of the region while remaining focused on the Pacific.

In addition to repurposing some of its in-theater resources from continental to maritime challenges and maximizing its diplomatic and military visits to regional countries as it transits in the region, as some have recommended, the United States can do more by building on its existing relationships with regional countries and, more importantly, supporting regional leaders.

So, the United States should present itself not just as a problem-solver, but also as a committed partner.

Partnering with India, the predominant regional power, should be priority number one. The United States should build upon the recent flurry of cooperation agreements it has concluded with India and work out ways it can best support Indian activities in the region, be it through

In so doing, the United States should let India be in the driver’s seat, both because Washington should focus on the Pacific and because of possible backyard anxieties from New Delhi about an overly active US presence in the Indian Ocean region.

Ram Madhav. Photo: Wikipedia

Such an approach could benefit the United States in other ways. For instance, Ram Madhav, the President of the India Foundation, has argued that US appreciation and upholding of India’s primacy in the region would encourage New Delhi to “get involved in the imperatives of the Pacific region.”

In other words, US support for Indian leadership in the Indian Ocean region will trigger Indian support for US leadership in the Pacific, a clear upside from a US perspective.

Of course, the United States should work with other regional leaders as well. A staunch US ally often described as the United States’ “southern anchor” in the Indo-Pacific, Australia immediately comes to mind. So do other non-Indian Ocean regional countries, such as Japan, France or the United Kingdom, all of which play important roles in the region.

The United States should seek to leverage their roles to do more in the region, including to resolve longstanding issues such as the Diego Garcia stalemate; some have proposed innovative approaches to the problem.

Alfred Thayer Mahan. Photo: Naval History and Heritage Command

The United States also should urge mini-lateral arrangements such as the Quad, a security arrangement that includes Australia, India, Japan, and the United States, to pivot to the Indian Ocean region and perhaps even to develop ties with the “I2U2 group,” a new cooperative partnership between India, Israel, the United Arab Emirates, and the United States.

Alfred Thayer Mahan, the now famous US naval strategist, reportedly prophesied in the late 1890s shortly before he became admiral that “The destiny of the world will be decided” on Indian Ocean waters. These words continue to ring true today, and it is thus high time the United States gave the Indo side of the Indo-Pacific the attention it deserves, even as it remains focused on the Pacific.

David Santoro ([email protected]) is president of the Pacific Forum. He specializes in strategic deterrence, arms control, and nonproliferation. Santoro’s current interests focus on great-power dynamics and US alliances, particularly the role of China in an era of nuclear multipolarity.

This article, originally published by Pacific Forum, is republished with permission.

Continue Reading

Pakistan needs a plan - Asia Times

By:
On:
In: Asia

Pakistan is a vast country of 231.4 million people. It’s one of only nine countries in the world with nuclear weapons. It’s located in South Asia, which is now one of the world’s most dynamic and fast-growing regions. It has generally favorable relationships with both the United States and China.

It has a long coastline in a generally peaceful region of the ocean. It has plenty of talented people, as evidenced by the fact that Pakistani Americans, on average, out-earn almost all other ethnic groups in the US.

And yet despite these natural advantages, Pakistan is one of the world’s biggest economic basket cases. It’s a poor country, and its income is growing only very slowly; it has now been passed up by India and Bangladesh, despite starting significantly richer:

If recent growth rates hold, Pakistan is projected to fall far behind its South Asian peers.

And it gets worse. Pakistan isn’t just poor and stagnant; it’s also in a huge amount of debt. In order to make its citizens feel just a little less poor, Pakistan has borrowed quite a lot of money over the past few decades. Mostly, this money was borrowed from the International Monetary Fund.

But because its economy is poor and stagnant and it’s not very good at collecting taxes, Pakistan generally hasn’t been able to pay the money back.

Its solution has been to borrow even more money from the IMF in order to cover the debt that it already owes. As you might expect, this strategy led Pakistan’s foreign debt to increase relentlessly over the years.

More recently, though, Pakistan started borrowing a lot of money from other countries as well — from Saudi Arabia and UAE, but especially from China. Much of the debt from China was related to the Belt and Road project, which was supposed to build new high-quality infrastructure in Pakistan, but…didn’t.

Now Pakistan, like many of the Belt and Road borrowers, is discovering that all those Chinese loans weren’t contingent on whether the projects actually worked out. Shehad Qazi, managing director at China Beige Book, explains:

And Brad Setser provides some additional context, declaring that “Pakistan’s leaders should panic a bit more.”

The IMF has bailed out Pakistan many, many times, but that was when it was the IMF itself that Pakistan mainly owed money to. The organization will probably be less willing to lend Pakistan money to cover its Chinese debt, as this would make the Chinese government whole while leaving the IMF holding the bag.

And China is unlikely to extend Pakistan a neverending string of bailouts, as the IMF has done. As the Pakistani American economist Atif Mian puts it, “the country is bankrupt.”

What this means is that Pakistan is in ever greater danger of a classic emerging-market currency crisis, in which a country’s currency gets so cheap that the only ways to pay off foreign debt are either by default or by high inflation — either of which hurts the real economy a lot. Already, the Pakistani rupee has lost a lot of its value:

And inflation is pretty high:

Already, some are talking about the possibility of a Pakistani default.

Pakistan had elections earlier this month. Although the party of the recently ousted Imran Khan won a plurality, Khan’s opponents made a parliamentary coalition and thus managed to take control.

The government is negotiating with the IMF for yet another bailout, which probably won’t alleviate the Chinese debt problem much, but would at least provide some breathing space. Mian, however, is not optimistic that the new government is really serious about solving the country’s long-term problems:

If Mian is right, and Pakistan’s elites have little or no interest in solving the country’s problems, then that’s the whole ball game — Pakistan is doomed, and only a revolution will replace those elites with someone who actually cares enough to take decisive action.

But a revolution would be very likely to either break up the country or burden it with an ideological, totalitarian regime, which would also spell doom. So Pakistan’s leaders have a very large incentive to prove Mian wrong and to make a concerted effort to fix their country’s economy.

Escaping the debt trap is obviously job #1. An IMF bailout will replace old debt with new debt, so it’s just a delaying tactic. A better idea, as Samir Tata writes, is a privatization program — selling off government assets to pay down debt:

The key to escape Pakistan’s sovereign debt trap is hiding in plain sight – deleveraging…[P]rivate holders (e.g., portfolio investment funds, sovereign wealth funds, and corporate investors) of existing Pakistani sovereign debt denominated in foreign currencies would swap such debt for shares of state-owned enterprises that are to be privatized…

Privatization would have two objectives: raising cash via the sale of state-owned assets and reducing the budgetary burden of supporting poorly performing loss-making state-owned enterprises…An example of an individual transaction to transfer control of an SOE to a foreign company could be the sale of Pakistan International Airlines (PIA) to a foreign airline company.

That trick would really only work once — you pretty quickly run out of SOEs to privatize — but it would give Pakistan a single golden opportunity to escape from the crushing cycle of foreign debt that has characterized the last forty years.

So how can Pakistan take advantage of that one-time opportunity? The answer, in broad strokes, is that it needs to invest more.

Right now, Pakistan builds very, very little new capital. Whereas Bangladesh and India are reinvesting 32 and 29% of their GDP each year, respectively, Pakistan is reinvesting only 14%:

As I put it in a post back in 2021, this means Pakistan is a low-income consumption society:

Pakistan is eating its proverbial seed corn instead of planting it in the ground. Bangladesh and India, in contrast, are planting their seed corn — foregoing current consumption in order to build productive capital and be richer tomorrow…Pakistan is behaving like a lot of natural resource exporters behave — but without the natural resources. Instead of a middle-income or high-income consumption society, it’s a low-income consumption society — keeping its people barely treading water, with lots of help from external largesse.

How can Pakistan increase investment? Obviously, when the government is so strapped for cash, it can’t do much.

A privatization program, coupled with bailouts, might get it out from under the debt burden, but it would still have to figure out how to tax the economy more effectively. That’s a worthy goal, but one that will probably take a lot of time and effort.

In lieu of government investment, Pakistan will have to rely on the private sector. Pakistani businesses will invest more if the country is both politically stable and macroeconomically stable. The former is something that Pakistan’s elites have to work out for themselves, while the latter mainly requires reducing the foreign debt burden and curbing inflation.

But that leaves one important actor: foreign investors. FDI is a tried-and-true strategy that has lifted countries like Malaysia to near-developed status, and which helped Bangladesh grow quickly in the 2000s and 2010s.

The most important type of FDI for Pakistan, by far, will be greenfield investment in export manufacturing.

This is when companies come to set up factories in Pakistan to make stuff to sell elsewhere. This kind of export-oriented investment can help narrow a country’s trade deficit, even as it also provides employment, raises productivity, and pumps money into the country’s financial system.

Pakistan has low wages, but by itself, that’s not typically enough to attract a bunch of FDI. Foreign companies need more than just low wages — they need water and electricity and transport infrastructure, they need government assistance in setting up their business, they need cheap financing, and they need low regulatory and tax burdens.

But most of all, they need security. They need to know they aren’t going to lose their business. There are basically three kinds of people who can destroy or appropriate your business assets — the government, rebels/terrorists, and criminals.

If Pakistan’s government is serious about attracting FDI, it’ll avoid expropriating foreign businesses’ assets; instead, it’ll roll out the red carpet and give them what they need.

Rebels and terrorists are a bigger threat, as Pakistan has both. Baloch separatists have attacked Chinese workers and projects. And various Islamist terrorists, including the Taliban, have attacked Pakistani cities. They might conceivably try to blow up foreign factories.

Crime is also a problem. Karachi, the country’s biggest port, is beset by chronic gang warfare, and for a while was considered one of the world’s most dangerous cities. There has been a big effort to clean it up, but high violence rates persist.

Yet Pakistan has shown that it’s capable of creating pockets of public safety, if it really wants to. The capital, Islamabad, is generally viewed as an extremely safe city.

So the best approach for Pakistan is to make heavy use of special economic zones. SEZs are places where foreign businesses can cluster and find qualified workers easily. But they’re much more than that — they’re places where governments in poor countries can create pockets of stability and good infrastructure.

Within a designated factory zone on the coast, Pakistan’s government can use the army and police to provide security from terrorists and criminal gangs. And even its meager resources are probably enough to provide those small areas with electricity, water, roads, port infrastructure, and so on.

Pakistan already has a few SEZs, many of them created as part of Pakistan’s economic partnership with China. These should be upgraded and expanded, if possible. But more importantly, these existing SEZs and some new SEZs should be opened up to countries other than China.

Companies in the US, France, South Korea, and other developed democracies are eager to de-risk their operations by moving them out of China; right now they’re moving to India, Vietnam, and Mexico, but Pakistan could make itself another contender. All it has to do is to encourage developed democracies to come set up shop in its special economic zones, right alongside their Chinese rivals.

Pakistan has been playing the developed democracies off against China for a while now, using its possession of nuclear weapons and its strategic importance in fighting terrorism to pressure both sides of Cold War 2 into letting it borrow cheaply and in large volumes. Now it’s time to use that same strategic importance to encourage FDI instead of loans.

There are a couple of other ingredients Pakistan will need in order to take advantage of FDI. One is education. No country is an attractive base of operations without a large base of workers who can read, write, and do basic math.

Pakistan scores notoriously poorly on international measures of education, with much lower literacy rates than Bangladesh. Indices of human capital place Pakistan more on a level with the very poor countries of Sub-Saharan Africa.

This obviously needs to change, and quickly. Simply spending more on public education is clearly the solution here. The government is strapped for cash, but if foreign debt can be reduced and tax collection improved, then there will be some money to invest in quality public schooling for the mass of Pakistanis.

The final thing Pakistan needs is peace with India. This idea will doubtless ruffle some feathers in the Pakistani military and the more nationalistic elements of Pakistani society, who view resistance to India as their country’s national purpose.

But it’s time to face facts — Pakistan has gone to war against India four times, in 1947, 1965, 1971, and 1999, and it lost every time. India is just way too big for Pakistan to ever beat.

The old adage goes: “If you can’t beat ‘em, join ‘em.” Pakistan has failed to defeat India in more than 70 years of trying, and it’s time to stop. Pakistan should recognize that it controls part of Kashmir, and India controls the other part, and that’s how it’s going to stay.

A lasting rapprochement between these two countries may sound like an unrealistic pipe dream, but it happened to Germany and France, and it’s now happening to Japan and Korea, so maybe it could happen to Pakistan and India as well.

Instead, the focus should be on opening up trade links and economic cooperation between the two countries. This will improve Pakistan’s security because it will free up military resources to provide security for special economic zones and foreign investors.

It could also improve Pakistan’s fiscal position since it would allow decreased spending on the military. And most importantly, trade with India would give Pakistan’s economy a direct boost.

This is South Asia’s moment to shine in the global economy. Pakistan needs to take advantage of that moment before it’s too late. If it misses the window, it’ll end up being a poor, dysfunctional backwater, while India and Bangladesh advance confidently to middle-income status and beyond.

Success will require determination, pragmatism, compromise, dogged purposefulness, and some smart planning on the part of Pakistan’s elites. But the alternatives are just too awful to contemplate.

This article was first published on Noah Smith’s Noahpinion Substack and is republished with kind permission. Read the original and become a Noahopinion subscriber here.

Continue Reading

Multilateralism a catalyst for sustainable development - Asia Times

By:
On:
In: Asia

The pursuit of the Sustainable Development Goals (SDGs) represents a concerted effort by the international community to confront the most pressing global challenges of our era.

These goals, which were adopted by the United Nations in 2015, articulate a shared vision for achieving a sustainable future that is equitable, inclusive, and resilient. The SDGs are comprehensive, covering a broad spectrum of issues, including poverty, health, education, climate change, and environmental protection.

As a collective framework, they offer a unique opportunity to transform our world by the year 2030, but this transformation demands more than just aspiration; it requires a robust commitment to multilateralism and international cooperation.

The SDGs were designed to be universal, taking into account the different realities, capacities, and levels of development across nations, and respecting national policies and priorities. However, the journey toward achieving these goals has been fraught with challenges.

Complex challenges

The complexity of the SDGs is evident as they encompass a broad range of interrelated issues.

Poverty eradication (SDG 1) remains a persistent challenge, with the World Bank reporting that more than 700 million people still live in extreme poverty, struggling to fulfill the most basic needs such as health, education, and access to water and sanitation​​.

The pursuit of zero hunger (SDG 2) is another critical challenge, as food insecurity and malnutrition continue to affect millions, compounded by the impacts of climate change on agriculture and food production.

The Covid-19 pandemic had a substantial impact on progress toward good health and well-being (SDG 3), disrupting global public-health achievements and impeding pathways to ensure healthy lives and well-being for all.

The repercussions extended to other SDGs, notably affecting vulnerable groups such as women, youth, and low-wage workers, particularly under SDG 10 (reduced inequalities).

Recognizing the interconnected nature of global challenges, the World Health Organization underscores the significance of strong partnerships where multilateralism is deemed essential for post-Covid recovery, aligning with the SDGs.

In addressing quality education (SDG 4), substantial progress has been made, but disparities in access and quality persist, particularly in sub-Saharan Africa and South Asia.

The United Nations Educational, Scientific and Cultural Organization (UNESCO) has reported that about 258 million children and youth are out of school, indicating a significant gap in achieving inclusive and equitable quality education for all.

The goal of gender equality (SDG 5) is foundational to the SDGs, recognizing that empowering women and girls has a multiplier effect and accelerates progress across all development areas​​.

The challenges of climate action (SDG 13) are becoming ever more apparent. The Intergovernmental Panel on Climate Change (IPCC) warns of the dire consequences of global warming, which is projected to reach 1.5 degrees Celsius above pre-industrial levels by 2040 if current trends continue.

To mitigate climate change and its impacts, there is an urgent need for significant investments in renewable energy, sustainable infrastructure, and climate-resilient practices.

Collaboration essential

The call for multilateralism in achieving the SDGs is not merely about collaboration but about a fundamental restructuring of international cooperation. It requires a concerted effort to create a global partnership for sustainable development (SDG 17) that is predicated on shared values, visions, and goals.

The United Nations has repeatedly emphasized the need for a renewed approach to multilateralism – one that is more networked, inclusive, and effective​​​​.

Financial reform is also a critical aspect of this new multilateralism. There is a significant financing gap in developing countries, which has been exacerbated by the Covid-19 pandemic.

According to the Organization for Economic Cooperation and Development (OECD), achieving the SDGs by 2030 will require an annual investment of about US$6 trillion. Closing this gap will necessitate not only increased aid and domestic resource mobilisation but also innovative financing mechanisms that can leverage private capital​​.

The digital divide presents another profound challenge in the pursuit of the SDGs. As the International Telecommunication Union (ITU) reports, despite growing Internet penetration, nearly half the world’s population remains offline.

Addressing this divide is crucial for ensuring access to information and knowledge, as well as for the full participation in the digital economy, which can be a lever for development and a means of achieving the SDGs​​.

In conclusion, the path toward 2030 is complex. Achieving the SDGs requires persistent efforts, innovative solutions, and a renewed commitment to multilateralism.

The world needs to bridge the gap between current realities and the sustainable future we aspire to create. This calls for a paradigm shift in the way nations cooperate, finance development, and embrace technology.

It is only through such transformative changes that the international community can hope to fulfill the ambitious agenda set forth by the SDGs and ensure that no one is left behind.

The vision for a sustainable future is within reach, but it mandates that all stakeholders work together in an unprecedented alliance of shared responsibilities and coordinated action.

Continue Reading

'Cheap Japan' falling fast on global economy tables - Asia Times

By:
On:
In: Asia

TOKYO – No Japanese leader wants to preside over a bad milestone — like your economy dropping from No 3 to No 4 globally.

Welcome to Prime Minister Fumio Kishida’s hellish 2024. Barely six weeks in, Kishida’s Liberal Democratic Party is struggling to spin Japan’s falling behind Germany’s gross domestic product (GDP) in US dollar terms and the LDP’s culpability for this symbolic changing of the guard.

Kishida’s party is also giving Chinese leader Xi Jinping something of a much-needed soft power win. At a moment when Beijing is struggling to tame a property crisis, head off deflationary forces, restore confidence in the stock market and address record youth unemployment, news that it is pulling further ahead of arch-rival Tokyo sure is making for a welcome positive news cycle.

Japan, meanwhile, entered 2024 in recession. GDP contracted an annualized 0.4% in the October-December period after a 3.3% retreat in the previous quarter. “Japan’s economy is in poor shape,” says Stefan Angrick, senior economist at Moody’s Analytics.

Yet that’s true, too, of the longer-term trajectory as Germany surpassing Japan indicates.

Granted, this change in the league tables might rock Tokyo a bit less than China blowing past Japan’s annual output. Depending on which data set you use, that happened in 2010 or 2011, somewhere between the premierships of Naoto Kan and Yoshihiko Noda, and set the stage for the LDP’s return to power in 2012.

At the time, premier Shinzo Abe didn’t exactly sell his return to power as a beat-China mission. But so-called “Abenomics” was indeed a reformist retort to China becoming the world’s No 2 and Japan relegated to third place.

Sadly, the Abe era prioritized weakening the yen over reviving Japan’s once-vaunted innovative spirits. That failure, 11 years on, did more than anything to enable Germany to put Japan in the rearview mirror.

Adding insult to injury is the “sick man of Europe” narrative now plaguing Chancellor Olaf Scholz’s economy.

Germany’s once-fabled growth model has lost its groove. China’s slowdown and Russia’s war on Ukraine have become headwinds for Germany. So is softening global demand for autos, machinery, chemicals and other vital German industrial products.

At a moment when Europe is desperate for growth engines, Germany is looking at its second year of post-pandemic economic disappointment.

“At this point, economic underperformance of the German economy and the whole Eurozone is the key risk to the downside to our forecasts,” says Juraj Kotian, an economist at Erste Group Bank AG.

Economist Daniel Kral at Oxford Economics says “it’s clear that Germany was the worst performer among the major eurozone economies last year.”

In other words, it’s debatable whether Germany overtook Japan or Tokyo ceded the road to its fellow Group of Seven member. And this gets us back to Kishida, who’s now fighting for his political life.

Japanese Prime Minister Fumio Kishida looks wobbly. Image: Twitter Screengrab

Kishida ended 2023 with a 17% approval rating largely because inflation has been outpacing top-line growth and wage gains. On top of a host of political finance scandals afflicting his party, Kishida is now struggling to finesse the second bad milestone of recent months.

The other: China overtaking Japan to become the globe’s largest exporter of automobiles. Those headlines brought back that 2010-2011 feeling that Japan has little choice but to accept China’s rising dominance in Asia.

But might this latest wake-up call be the one that jolts the LDP from its legislative slumber?

Since October 2021, Kishida telegraphed a series of promising ideas to take control of the economic narrative. One was a “new capitalism” that redistributes wealth to middle-class families to boost consumption. Another was catalyzing a startup boom to disrupt Japan’s top-down and rigid economic system.

This latter scheme seemed particularly promising. It entails opening a path for the $1.5 trillion Government Pension Investment Fund, the world’s largest such entity, to help finance entrepreneurs and provide incentives to pull more overseas innovators Japan’s way.

But just as during the 2012-2020 tenure of mentor Abe, Kishida’s 28-plus months in office have been maddeningly unproductive from a structural reform perspective. In fact, Kishida has put virtually no upgrades on the scoreboard.

Falling to No 4 globally seems as good a reason as any to get busy. What better way to get Kishida’s approval ratings back toward 30% than clawing back Japan’s global economic status?

Were economic time travel possible, imagine where Japan might be if Kishida’s party had acted boldly since 2012. If only it had moved more assertively then to reduce bureaucracy, increase innovation and productivity, alter the tax code in favor of startups, empower women, lure foreign talent and remind global CEOs and investors that Tokyo is as good a place to be as any.

Yet the second-best moment to launch a financial “big bang” is the present. First, though, Kishida and his party have to move beyond the weak yen crutch on which they have been leaning.

An undervalued exchange rate and hyper-aggressive Bank of Japan policies took pressure off government officials and corporate chieftains to do the hard work of recalibrating growth engines or taking risks.

Now, Tokyo’s weak yen-centric strategy is backfiring. The reason? The “cheap Japan” strategy of recent years is increasingly diminishing Japan’s global relevance in GDP terms.

This characterization has been popularized in recent years by economist Hideo Kumano at Dai-Ichi Life Research Institute. Since at least 2019, he’s been warning that reducing Japanese purchasing power in the long run is a risky way to boost GDP in the short run.

The costs of this complacency can be seen in Kishida’s abysmal approval ratings but also in how Japan is essentially walking in place as even troubled Germany steps forward.

Meanwhile, India is setting the stage for the next round of surpassing-Japan headlines that Tokyo must explain to the next generation of voters. Being surpassed by South Asia’s biggest economy would be another big blow to the collective Japanese psyche.

Of course, the magnitude of headwinds facing Germany is a source of keen debate. At Davos in January, German Finance Minister Christian Lindner dismissed the “sick man” label.

“I know what some of you are thinking: Germany probably is a sick man. Germany is not a sick man — Germany is a tired man after a short night,” Lindner said, arguing that the economy just needs a “cup of coffee” to regain momentum.

Japan bulls make a similar point as Tokyo stocks rally to the highest levels in 30-plus years. “We remain bullish on Japan equities which are our largest overweight recommendation in our coverage universe,” says strategist Jonathan Garner at Morgan Stanley MUFG.

The Nikkei 225 Stock Average is currently over 38,000 and “now seems likely to break near term the all-time high of 38,916 which was set as long ago as December 1989,” Garner says.

“In our view, the major turning point for the Japanese equity market came in late 2012 – when the Nikkei was below 9,000 – with the launch of the three arrows of Abenomics and [the BOJ’s] initiation of an innovative policy approach to combat deflation,” he says.

Amundi Asset Management strategist Eric Mijot argues that Japan’s stock market “remains attractive.” As economic headwinds intensify, he says, “this robust performance is unlikely to be replicated with the same strength in 2024, but the outlook for the market remains favorable.”

Sadly, though, all Japan is proving in 2024 is that 1980s-style “trickle-down economics” works no better today.

A woman looks at shoes on sale at an outlet store in Tokyo’s shopping district, Japan. Photo: Asia Times Files / Twitter Screengrab

Abe did indeed take steps to strengthen corporate governance, setting the stage for record profits and share buybacks. But none of these tweaks translated into significant wage increases or broad-based efforts to increase productivity and innovation.

At the same time, everything BOJ officials thought they knew about 2024 is going awry. “The Bank of Japan will likely now become even more cautious about any policy change,” says economist Min Joo Kang at ING Bank.

Just six weeks ago, it seemed a foregone conclusion that BOJ Governor Kazuo Ueda would end quantitative easing (QE) and raise rates as soon as next month. Now, economists are scrambling to walk back those expectations.

A similar whiplash is confronting Fed watchers in the US as the economy confounds the skeptics.

“While pricing for the March [Fed meeting] has been trimmed to negligible levels, there’s still latent upside fuel for the US dollar in pricing for FOMC meetings beyond that,” says strategist Richard Franulovich at Westpac. “We assume US resilience can extend well into 2024 … and will make for a bumpy disinflation last mile.”

In the meantime, as the “cheap Japan” problem ruins Tokyo’s year, the race is on to see what drops faster: Kishida’s approval numbers, Japan’s GDP – or any remaining hope that Japan will ever regain its position as a top-three global economy.

Follow William Pesek on X, formerly Twitter, at @WilliamPesek

Continue Reading