Pan-Asia

Looking For Growth? Forecasts for Asia 2015

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Op-Ed Commentary: Chris Devonshire-Ellis

As the IMF recently released a report stating that growth in the United States and the Eurozone is likely to be 3.3 percent and 1.3 percent, respectively, next year – highlighting the continuation of considerable risks – the quest continues for alternatives to get growth back on track. Asia, however, continues to power ahead – the World Bank has just released data suggesting that East Asia will show growth rates averaging 7 percent next year.

The region, however, remains a mosaic of divergent development rates and dynamics, and just because growth is high doesn’t mean a destination is necessarily manufacturing investment-grade. It is easy to show high growth rates when starting from a very low base, and countries such as Myanmar spring to mind in this regard. Yes, it is nice and alluring and the United States wishes to promote democracy there, but in reality little infrastructure is in place and no noteworthy investment has been injected into the country since the end of World War Two.

Even Mongolia possesses better quality infrastructure than Myanmar, whose actual growth rates for 2014 are expected to be 8.5%. That may appear healthy, but much remains to be done in countries such as these, which remain the preserve of big ticket investors – who will put in the infrastructure themselves – but are not yet ready for middle market investors. Myanmar is at least a decade away from becoming investment-grade as applicable to foreign manufacture or service companies, as are numerous other Asian nations. For this reason I have left them out of this article and concentrate only on the significant players that offer a high degree of business and operational certainty.

The trick then when assessing growth rates and what they actually represent for a global manufacturer/sourcing company or service entity is to look for those countries where infrastructure and regulatory climate are complementary, with a growth rate strong enough to reflect an acceptable amount of operational risk. It is a given that in all countries there are significant regional variations, but as a rule of thumb, these are my picks as investment grade destinations for 2015 as concerns the global sourcing, manufacturing and service industries, together with my comments on each.

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The Curious Case of Asia’s Highest Denominated Banknotes

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Op-Ed Commentary: Chris Devonshire-Ellis

A quirky way to examine the development of Asia’s many and varied economies is to take a glance at its banknotes. Quite apart from the staggering array of art and pomp on display, there is also a correlation with the value of their respective economies. I’m not aware of any scientific study that relates high denomination banknotes to the wealth of an economy, but as the chart below suggests, wealthy Asian countries such as Japan (USD97) tend to have higher value denominated banknotes than poorer ones such as Bangladesh (USD12). That is quite a disparity, and reflective of the higher costs of products in Tokyo as opposed to Dhaka.

currencies

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A Wary Mongolia Signs Infrastructure & Investment Deals with China

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Op-Ed Commentary: Chris Devonshire-Ellis

Chinese President Xi Jinping has signed off on US$5 billion worth of trade deals with the country’s northern neighbor Mongolia, and pledged to assist with further opening up what remain important and potentially lucrative mineral deposits in the country. Bilateral trade, currently running at some US$6 billion per annum, accounts for close to 90 percent of all Mongolian exports. Yet Mongolian wariness as concerns China – which dates back centuries – means that both countries will need to tread carefully to hit future bilateral growth and development plans.

Mongolia has already made a strategic choice concerning its destiny once before, when in the 1920s they opted, in a no-win independence political struggle of the time, to side with the Russians when faced with imminent occupation by either Russia or China. Wary of Sinification and acutely realistic concerning contemporary Tibetan history, Mongolia has to play a careful strategic position with China in order not to become over dependent.

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ASEAN Economic Ministers Set New Targets for FTAs with East Asia

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New targets were set for promoting trade between ASEAN and its partners this week at the 46th ASEAN Economic Ministers Meeting (AEM) in the Burmese capital of Nay Pyi Taw. The four-day meeting specifically focused on the implementation of free trade agreements (FTAs) between ASEAN and East Asia, as well as the removal of non-tariff barriers to trade—identified as a major stumbling block for unlocking growth in the region.

In his opening address, Myanmar President U Thein Sein reiterated the need to meet the targets specified in the ASEAN Economic Community (AEC) Blueprint, which were said to currently stand at 82.1 percent fulfillment. Thein praised the recent launch of negotiations on an ASEAN-Hong Kong FTA, and stated that Myanmar is prioritizing the development of SMEs as a means to narrow the inequity gap between ASEAN nations.

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Myanmar Implements New Special Economic Zone to Boost Trade with China

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In a bid to further boost trade with China and address the increasing demand for transport and infrastructure, Myanmar is implementing a Central Economic Zone in the border town of Muse, project officials announced last Tuesday.

Following a series of economic and democratic tax reforms intended to encourage foreign direct investment, Myanmar saw FDI increase from US$300 million in 2009-10 to US$20 billion in 2010-11 and a resulting rise in GDP rate from 5 percent in 2009 to 6 percent in 2012.

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China Leads East Asian Nations on Global Retail Development Index

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China leads among East-Asian nations in the Global Retail Development Index, ranking second globally. Other Eastern Asian nations in the index include Malaysia (9), Indonesia (15), Sri Lanka (18), India (20), the Philippines (23) and Vietnam (28).

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Prime Real Estate Prices to Trend Higher Across Asia with Eyes on China’s Market

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Going into the second half of 2014, office rental around Asia continues on the up and up, though analysts are cautious about the effect of the slowing Chinese economy on the rest of the region, according to a recent report.

On the back of rising economic sentiment and tightening supply, prime markets in Hong Kong, Singapore, Tokyo and Bangkok saw solid rental growth in both price and volume, according to the Q2 Asia Pacific Prime Office Rental Index by Knight Frank.

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Asian Nations Rank High on Global Innovation Index

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Singapore and Hong Kong have ranked among the top 10 in the 2014 Global Innovation Index, sponsored by Cornell University, INSEAD and the UN’s World Intellectual Property Organization.

In the ranking of innovative capabilities and progress of 143 economies, Singapore is the seventh highest in the world; Hong Kong places 10th. South Korea (16), Australia (17), New Zealand (18) and Japan (21) all make it within the top 25.

The Global Innovation Index (GII), launched in 2007, is published annually. This year’s edition focuses on what it calls the “Human Factor” in innovation, which pertains mostly to education and how countries can produce, attract and retain talented individuals. Singapore is a leader in this respect, drawing educated individuals from around the world and acting as a hub where critical mass can be reached.

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Enterprises Adopt Cloud Computing to Boost Business Efficiency in Asia

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Cloud computing is the future of business in Asia, and companies around the region are beginning to jump on board the train, although infrastructural and regulatory challenges remain, according to the Economist Corporate Network’s recent report.

Given the immense cost-saving, convenience and efficiency benefits brought about by cloud-based services, Asian firms have been eager to invest in internet technology for their business. Almost a fifth of Asian-based enterprises are actively converting most of their IT capabilities into cloud, “on-demand” or other utility models, indicative of a technologically forward-looking culture, according to the study.

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Australia-Asia Trade on the Rise

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Australia’s trade and investment links with Asia are set to strengthen in the coming years, with Asian nations continuing to be the country’s largest export markets, according to a recent HSBC report.

According to Paul Bloxham, Chief Economist for Australia and New Zealand at HSBC, more than 80 percent of Australia’s exports will head to Asia by 2020, in comparison to 73 percent now and only 50 percent in 2000. Australia’s current top four export destinations –China, Japan, Korea and India- are all in Asia. In fact, exports to China, Japan and South Korea alone account for more than 60 percent of Australia’s exports and nearly half of Australia’s overall trade. Malaysia is expected to become Australia’s fifth largest export market by 2030.

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