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Top 10 on Asia

By Siah Hwee Ang

Today's Top 10 is a guest post from Professor Siah Hwee Ang, the BNZ chair in business in Asia who also chairs the enabling our Asia-Pacific trading nation distinctiveness theme at Victoria University.

1. China is encouraging imports.

With effect from 1 July 2018, China will lower tariffs on 1,449 categories of goods.

The changes will cover areas such as apparel, aquaculture products, cosmetics, healthcare products, and household appliances.

This is the second time in seven months that China has reduced tariffs on consumer goods. December 1, 2017 also saw tariffs cut for nearly 200 types of consumer goods.

The move will reduce the country’s trade surplus with most of its partners. But more importantly, it will allow the economy to grow significantly more sustainably than at its current rate.

Amidst looming trade wars, this is welcome news for consumer goods exporters.

2. E-commerce becomes a popular channel for Chinese exports.

While China is boosting its imports to reduce trade imbalance, Chinese exports continue to flood the economies of the globe, this time round through e-commerce channels.

The statistics show that in 2017 around US$140 billion worth of Chinese goods were exported to more than 200 countries and regions through e-commerce platforms.

For example, AliExpress, Alibaba’s business-to-consumer website, serves 224 countries and regions.

By 2020, the value of exports is expected to increase 140% from 2017 figures.

3. E-commerce market in India.

While China’s e-commerce market continues to hit record numbers, India’s e-commerce has unexpectedly begun to stagnate, according to RedSeer Consulting.

The frequency of purchases and the average order value are both growing at single digits, despite the potential of the market.

Only 20% of internet users purchase goods online in India, in comparison to 55% in China and 79% in the US.

These figures are not consistent with the general optimism in the market, as showcased by Walmart’s recent purchase of Flipkart.

This is definitely a space to look out for, should you be considering India’s consumer market for your products.

4. FDI in India has declined.

The slowdown of e-commerce purchases is not the only concern +with the India at the moment.

The 2018 World Investment Report by the UN Conference on Trade and Development (UNCTAD) shows a dip in Foreign Direct Investment (FDI) in India from US$44 billion in 2016 to US$40 billion in 2017.

FDI outflow, though, more than doubled to US$11 billion. This is not too bad given the 23% global decline of FDI flows.

However, it does mean that India is not spared the effects of this global trend. Better pitches for foreign companies may be needed, and the country may need to up its motivation for rising up the ranks of World Bank’s Ease of Doing Business index.

5. ASEAN and India deepen their ties.

Despite their 25-year ties, the strength of the relationship between India and ASEAN has not been strong.

ASEAN’s trade with India is well below its trade with China.

Nonetheless, we are beginning to see signs of strengthening ties between the two parties. This year, ASEAN was invited as a VIP to India’s Republic Day.

Just a couple of weeks ago, Indian Prime Minister Narendra Modi paid visits to both Indonesia and Singapore.

During the Indonesia trip, 15 agreements were signed, and a 30-day free visa was agreed upon that will allow Indonesian citizens to travel to India. The countries set a goal to boost bilateral trade to US$50 billion by 2025. Bilateral trade was US$18 billion in 2017.

In Singapore, the countries agreed to cut tariffs to another 30 products under the preferential tariff scheme.

The chances of establishing an “Indo-Pacific” presence in the Pacific Rim, in which India would play a big part, will rest on its ability to nurture its relationship with ASEAN.

6. Malaysia back in the mix on global matters.

With the new government in place in Malaysia, Prime Minister Mahathir Mohamad did not waste much time to get into action.

First up, he queried the terms of the US$14 billion rail deal in Malaysia involving Chinese partners.

The East Coast Rail Link, a 688 kilometre route connecting the South China Sea at the Thai border in the east with the shipping routes of the Straits of Malacca in the west, is part of China’s One Belt One Road Initiative.

The Malaysian Prime Minister also questioned whether the link was indeed necessary.

In principle, the deal may still go ahead, but we will wait to see if there’s more drama ahead.

Just last week, he called for a review of the Comprehensive and Progressive Trans-Pacific Partnership trade agreement, sparking concern among the 11-member trade pact.

We will have to wait and see what exactly he means by ‘review’. There is no sign that Malaysia is considering a withdrawal.

7. Australia and China going at each other?

Recent attention has very much been focused on the US and China going at each other, and the potential for this to cumulate in a trade war.

But closer to home, New Zealand’s noisy neighbour, Australia, is also seemingly having a go at China.

In comparison to New Zealand, Australia does have a better position from which to deal with disputes with China.

Nonetheless, the strain on Australia’s relationship with China is starting to show, as beef and wine exports are failing to overcome obstacles in China.

While attribution is not direct, the effects of political events on business have been prevalent in times.

8. Are we running out of meat after all?

The Farm Animal and Investment Risk and Return initiative (FAIRR), supported by asset managers worth US$5.9 trillion, recently suggested that meat, fish and dairy groups are risking their long-term growth if they do not invest in alternative protein businesses.

In fact, they went so far as to urge 16 global food companies to address the risks of industrial-scale farming by diversifying into plant-based sources of protein.

According to FAIRR, the increasing global demand for protein will have far-reaching financial, environmental and social consequences.

In their report, they state that only five out of 60 leading listed international food groups have backed plant-based meat alternatives grown in laboratories as well as dairy alternatives. These are Tyson Foods and Hormel Foods of the US, Canada’s Maple Leaf, China Mengniu Dairy, and Vietnam Dairy.

This issue is certainly one for New Zealand producers and consumers to ponder, if they have not done so already.

9. US: “Let’s have Russia!”

US President, Donald Trump, has stirred the pot again by suggesting that Russia be readmitted to the G7.

Russia was originally part of G8, but due to its actions in Crimea and its support of pro-Russia separatists in Ukraine, it was asked to leave the group in 2014.

There are mixed feelings in the group about this, in particular given Russia’s continued support of the Syrian regime, and its suspected involvement in the Salisbury poisoning case earlier this year.

From the US perspective, it makes sense to keep Russia closer to avoid Russia sticking close to China.

10. Highlight of the week: Trump meets Kim.

The highlight of this week in the Asia-Pacific has to be the meeting of US President Donald Trump with North Korean leader Kim Jong Un in Singapore.

The world was watching as the two leaders flew in to Singapore for the historic event.

Singapore was deemed a good neutral location for the event, and is one of the few countries that still maintains a North Korean diplomatic presence. From a US point of view, President Trump has signalled that he doesn’t need the help of China to establish a dialogue with North Korea.

As the spectacle unfolded, the Asian powerhouses of China, Japan and South Korea were reduced to watching from the side lines. They too had a lot riding on the outcome of the event.

After close to five hours of talks, the meeting produced an agreement in which Mr Kim signalled his commitment to the denuclearisation of the Korean peninsula, and Mr Trump agreed to provide security guarantees to the rogue state.

The agreement, described by some as vague and lacking substance, has also been likened to a ‘starting gun for a marathon process’. The real substance, perhaps, lies in the fact that the meeting took place at all.