Asia Pacific Macro – January 21, 2022

| January 21st, 2022

The spectre of inflation is still plaguing the region, impacting many facets of most economies. The most important one is China, as the actions of other Central Banks (Fed especially) against inflation may hamper the efforts of the PBOC, which is starting to shift to increasingly looser policies. Those may however prove to be fruitless regardless, as demand for loans has been decreasing and there are further signs of worry in their property market.

  1. CENTRAL BANKS

1.1 China forex regulator aims to defuse risk of external shocks – Reuters

China must prevent and defuse the risk of external shocks this year while strengthening macro-prudential management and guiding market expectations, the country’s foreign exchange regulator said on Friday.

The comments come as the U.S. Federal Reserve is widely expected to start hiking interest rates as early as March, while its Chinese counterpart has stepped up monetary easing to prop up a slowing economy, raising concerns about possible capital outflows due to the policy divergence.

During the previous round of Fed tightening in 2018, China’s currency depreciated sharply.

China is better able to cope with external changes, and “this round of tightening by the Federal Reserve may have less spillover effect than the previous round,” Wang Chunying, spokesperson of the State Administration of Foreign Exchange (SAFE), told a news conference on Friday.

On Wednesday, Chinese government bond yields fell across the curve after an official’s comments heightened expectations that the country’s benchmark lending rate will be cut as early as this week to shore up the cooling economy. read more

Comment: While it is true that the Fed tightening will raise concerns about possible capital outflows, there are reasons for that to happen independently from what Powell et al do. Examples of this are provided below, with an article about the Chinese stock market from the Telegraph and the news regarding Jack Ma being involved in a corruption case (soon after renewed focus on corruption from Xi).

With this said, the divergence of policies between the Fed and the PBOC will worsen this risk, at a time when the Chinese economy is showing signs of slowing down.

In terms of policy, the PBOC is urging banks to increase lending after a slow start of 2022, underscoring the urgency to stabilise the economy. This is in addition to the rate cuts, which have now led to the overnight standing lending facility as well (10 basis point cut to 2.95%).

It is however doubtful that the combined action of the PBOC will have a meaningful effect, as many lenders are worried about loans going bad (especially with what has been happening in the property sector). 

2. ECONOMIC DATA

2.1 Govt should not rush to bring down fiscal deficit, put more money in hands of consumers: India – Financial Express

The government should not be in a rush to bring down the fiscal deficit and must continue with measures to put more money in the hands of consumers, especially in rural areas where FMCG volume growth has turned negative, HUL Chairman and Managing Director Sanjiv Mehta said on Thursday. With “unprecedented” inflation of commodity prices impacting rural consumption, he said all the relief provided by the government in the last few years for the rural consumers through schemes like MGNREGA and free food supply “ought to be extended in the next fiscal because the economy is still in the process of recovery”.

“The government should not be in a rush to bring down the fiscal deficit because during the period that the private consumption is low and the capital investment is yet to pick up, government investments have got a very big role,” Mehta told reporters in an earnings conference call. He further said, “… if the government can find ways and means of putting more money in the hands of consumers, especially the rural consumers, that is going to help immensely and the government has done that during the last two years. That should be continued, not just to be continued but perhaps we should look at how do we even do a bit more because we have to understand that the economy is under recovery.” Mehta pointed out that the tax collection of the government has been very robust, especially in the first seven months of the year and when compared it to “not 2020 but 2019, the tax collections have gone up by 30 per cent which is absolutely fabulous”.

Comment: With the economy projected to grow at 7.6% in the next fiscal year, it should be easier to keep the debt-to-GDP in check and have room for consumer-centric measures. After all, as shown by neighbouring China (or Japan in the ‘80s), having a strong consumper is key to bringing sustainable growth.

This issue also ties into unemployment, with the problem being worse in urban areas than in rural ones, as we saw previously. Still, measures targeting the needs of both would be beneficial for the Indian economy and society as a whole, especially after the record-setting tax collection.

The Finance Ministry seems to agree with this assessment, as it eased spending norms for the fourth quarter with a view to boosting economic activities slowed down due to the impact of COVID-19.

As per the existing guidelines, more than 33 per cent and 15 per cent of the budget estimates (BE) shall be permissible to be spent by ministries and departments in the last quarter and last month of the financial year, respectively.

Meanwhile, there are further signs of optimism for the Indian economy: a recent survey from Deloitte, conducted across 10 industries and with 163 respondents, resulted in 75% of respondents being confident about the economy’s recovery and expansion despite the surge seen in the third wave of COVID-19. Other metrics improved as well, as shown below.

While of course such a survey is not definitive proof, it is a sign in the right direction. Hopefully, the upcoming budget will be able to bring about the necessary changes for India to take the next step and become the next success story.

2.2 Cabinet approves 14-tln won extra budget for small merchants – Yonhap News

The Cabinet on Friday approved a 14 trillion won (US$11.8 billion) extra budget plan aimed at supporting small merchants hit by the pandemic.

The proposal passed an extraordinary Cabinet session presided over by Prime Minister Kim Boo-kyum and is expected to be submitted to the National Assembly next Monday for approval.

The request includes an additional 3 million won in relief payments for 3.2 million merchants following the extension of the government’s antivirus curbs, including a cap on the size of private gatherings and business curfews.

“We are less than a month into the new year, but the government urgently drew up a supplementary budget to ease the pain of small merchants and the self-employed as soon as possible,” Kim said at the meeting.

“As the ruling and opposition parties have discussed the need for an extra budget in consideration of the pressing situation, I hope they will actively cooperate to swiftly pass the extra budget proposal through the National Assembly,” he added.

Both the ruling Democratic Party and main opposition People Power Party have called for increasing the amount despite criticism the payments are an act of vote-buying ahead of the March 9 presidential election.

Comment: This is another measure taken by the Cabinet, as it plans to increase beef supply ahead of the Lunar Year in order to counter inflation. Those have had an impact on the state finances: South Korea’s national debt and the national debt per capita will likely reach an all-time high of 1,075.7 trillion won ($901.6 billion) and 20.83 million won, respectively, in the wake of the recent extra budget fostered by the government, with planned state funds aggravating the fiscal deficit.

While potentially well intentioned, they risk compromising the soundness of the South Korean finances, especially in conjunction with the Bank of Korea’s tightening. There is also the concern of fiscal measures fanning inflationary pressures: asked about the possibility of the supplementary budget fanning inflationary pressure, Finance Minister Hong Nam-ki said the “direct impact on consumer prices is projected to be limited.” But he suggested that worries over consumer prices could be bigger if the volume of the budget exceeds 14 trillion won.

2.3 Australia turns to backpackers as Omicron devastates workforce – FT

Canberra has issued an urgent appeal for foreign backpackers to help staff Australia’s farms, shops and restaurants after a crippling labour shortage forced store closures and squeezed the fresh fruit and meat supply.

The invitation marks a striking turnaround for Australia. The government all but sealed its borders almost two years ago to protect the country from the coronavirus pandemic, with many Australian citizens stranded abroad for months.

The strict border policies hit the farming industry particularly hard. The industry has historically relied on backpackers, who make up about 80 per cent of the 40,000- strong seasonal workforce.

When border restrictions were lifted in December for vaccinated travellers, “there was a cry of joy and delight from the industry”, said Ben Rogers at the National Farmers’ Federation. “It was really welcome news.”

Comment: The worker shortage in Australia is very severe and it is impacting several sectors at the same time. For example, Fortescue warned on Friday that a delay by the state of Western Australia in reopening its borders may worsen a labour shortage currently affecting the mining sector.

The lack of workers, coupled with the restrictions, may act as a drag for the economy while, at the same time, potentially boost wages, as the companies fight for the available workforce. In both cases, there are implications regarding the RBA policies, plus of course incentives for both federal and local governments to reconsider their actions when it comes to Covid.

2.4 Japanese inflation rises 0.5% for second month as fuel costs surge – FT

Japanese inflation rose 0.5 per cent last month compared to the previous year, increasing at its fastest pace in almost two years for a second consecutive month as rising energy costs added to pressure on households.

The government said on Friday that consumer prices grew at the same rate as in November, the largest increase since February 2020 and the fourth consecutive monthly rise. The consumer price index excluded fresh food but covered energy costs, which rose 16.4 per cent.

The data were published just days after the Bank of Japan changed its view on inflation risk for the first time since 2014, revising its projection upward from 0.9 per cent to 1.1 per cent for the fiscal year starting in April.

The central bank did not change its ultra-loose monetary stance as inflation has remained below its 2 per cent target. But BoJ governor Haruhiko Kuroda told a press conference on Tuesday that the central bank would maintain a “close eye” on whether rising prices had a negative impact on incomes and households’ purchasing power.

Comment: This news shows how vulnerable Japan is when it comes to energy, being entirely reliant on imports for its energy needs. More on this in a following piece about energy independence and how it trumped the pledges related to the environment, especially after the shocks the region has faced lately.

On inflation itself, the data is still far from the 2% target set by the BoJ but, given how high the PPI is, their vigilance is more than understandable. After all, the current risk is to see producers offload all their additional costs, of which energy is but a part, onto consumers. If that were to happen, the CPI could go well above the 2% mark (or at least rise quickly enough to require some action from the most dovish Central Bank of the flock).

3. REAL ESTATE

3.1 New home sales show builders face a tough 2022 – AFR

Home builders face a tough 2022 as soaring demand for new houses and rising costs and labour shortages put them at risk of a profitless boom.

The Housing Industry Association – which last week said builders wanted to pass on rising costs to customers – on Thursday said the industry was in for a “very challenging” year after new home sales rose 11.3 per cent last month to their highest monthly total since March.

Even though the home-building boom is coming off its stimulus-induced high, activity is likely to remain elevated for much of this year.

While the critical issue for builders was land availability, other inputs were pressuring them, HIA chief economist Tim Reardon said.

“There is the capacity for individual builders to experience a profitless boom, but the vast majority of builders have been through these cycles before – perhaps not to this extent – and they’ll continue to trade through it,” Mr Reardon told The Australian Financial Review.

“It’s a very challenging year for builders given the huge level of demand for materials, labour and [drop in] migration.”

A growing string of builders is already going under. On Tuesday, western Sydney-based Dyldam Developments Pty Ltd went into voluntary administration with liabilities that Cathro & Partners administrators Andrew Blundell and Simon Cathro put at about $80 million.

Comment: Developers may have a tough time in the coming months, especially as land prices are making buying parcels more expensive. This, coupled with the rising labour and material costs, risks squeezing their margins as the price of houses is simultaneously dropping.

3.2 Chinese Developer Country Garden Raises $501 Million as Investor Mood Lifts – WSJ

China’s largest developer by contracted sales took advantage of a pickup in investor sentiment toward the property sector to sell convertible bonds, after deciding against pursuing a similar deal last week.

Country Garden Holdings Co. said Friday that it had raised 3.9 billion Hong Kong dollars, the equivalent of $501 million, by issuing the securities a day earlier.

However, the bonds pay a comparatively high interest rate and can be converted at a modest premium to the company’s recent share price—showing that stronger players in the sector still need to pay up to secure backing from investors.

Country Garden’s shares have swung sharply in the past two weeks, and last week the company decided not to proceed with a potential $300 million convertible issuance. The property giant said it wouldn’t consider issuing convertible debt in unsuitable market conditions.

That hiccup unnerved the market, as investors worried that even comparatively strong developers might struggle to tap new funds, and Country Garden shares hit a near-five-year low on Monday.

Since then, however, Country Garden shares have clawed back some losses, as part of an industrywide rebound. The recovery was fueled by central-bank easing and hopes regulators could give Chinese developers more access to cash payments made by customers for unfinished apartments.

The new convertible bonds are due 2026. They pay a 4.95% coupon and carry a conversion price of HK$8.10. That is the equivalent of $1.04 a share and represents a 16% premium to the developer’s Thursday closing price.

Comment: Given that Country Garden is the largest in terms of sales, and far from being the worst in finances, the conditions put in place for the convertible bonds are concerning. Moreover, the rebound of the whole sector may very well be premature.

As highlighted in this article from Caixin, the whole sector has a massive amount of obligations coming due in Q1, of which the most concerning is the whopping 1.1 trillion yuan in deferred wages. While Beijing may turn a blind eye to offshore creditors not being paid, as they are already doing, this is something they cannot afford to gloss over. Moreover, the (small) easing of the PBOC is of no help in this, as lenders may still be wary of loans to the sector (when they are already overly exposed thereto).

4. MARKETS

4.1 Xi Jinping’s great leap backwards is killing China’s growth miracle – The Telegraph

China, land of perpetual growth and boundless opportunity, forging its way to a glorious future of global hegemony and unchallenged economic prowess under the inspired and benevolent leadership of the all powerful President Xi Jinping.

The West’s political leaders may all be at a befuddled loss over how to deal with an ever more assertive China, but our major corporations and financial institutions cannot get enough of it. However grovelling the kowtow required, if it secures a foothold in Chinese markets, it’s judged worth the humiliation.

Time for a reality check. This may come as a surprise, but China was the world’s second worst performing stock market last year, ranking 58th out of 59, only marginally ahead of Pakistan – this despite seeming to have had a far better pandemic than virtually all Western counterparts.

The long term picture scarcely looks any better. Over the past 30 years, Chinese stock markets as measured by the MSCI China Index have delivered a paltry 1.76pc annualised rate of return, compared to 7.47pc for emerging markets as a whole and 10.72pc for the US S&P 500.

Comment: This graph alone should dispel the series of people from Wall Street clamouring about China being the perfect investment. Still, as Jeremy Warner says, the stock market is not the economy. Even here, China leaves much to be desired, at least as far as a foreign investor is concerned (offshore creditors of Evergrande can attest to this).

The issue is however long standing: after the isolation period under Mao, which brought misery (as Xi himself can attest), China managed to grow looking outwards. Eventually, it started to rely on overinvestment, an ever increasing amount of debt and on the inflated property sector (whose bubble has been deflated).

Like Mao, Xi is making China look inward again (to a certain extent, as exports are acting as a lifeline) and that may bring about further instability within its economy. The slowing economy since Q2 of 2021 attests to this, although the question is whether it will continue to slow down.

The (small) easing from the PBOC, coupled with the renewed focus on infrastructure, show that Beijing has taken notice, although it may be too little, too late (notwithstanding that most of the slowdown is self-inflicted, between Zero Covid and the crackdown).

Citing from Wang Hui, a Chinese intellectual: “the more the state depends on growth for stability, the more difficult it is to change the growth model.”

Given how important the economy is for the continued rule of the CCP, as it has used growth as a propaganda tool, the implications may be more than economics, and if the slowdown continues in 2022 it will play a role in the upcoming Congress. While their survival may not be at stake, for the moment at least, their reputation definitely is.

4.2 Equities savaged as interest rate expectations rise – AFR

Growing nervousness about rising interest rates across global financial markets spilled over onto the ASX on Friday, pushing the Australian sharemarket to its biggest weekly loss since 2020, as investors prepare for higher interest rates to control inflation.

The selling pressure sent local miners tumbling and sapped some of the pandemic’s hottest global winners, with Netflix and Peloton plunging on Wall Street, vindicating bearish investors who worry a dangerous sharemarket bubble will soon pop.

The anxious trading signals a shift away from the risk-on mood dominating financial markets as central banks around the world, including the US Federal Reserve and Reserve Bank of Australia, prepare to unwind ultra-easy pandemic-era policies.

Friday’s sell-off comes ahead of the Fed’s monetary policy committee meeting next week, and Tuesday’s release of Australian inflation data for the December quarter.

The Fed is almost certain to increase its key lending rate in March, with at least three hikes anticipated by the market in 2022. Australia is also on course to terminate its quantitative easing program, and economists anticipate the first RBA rate rise in a decade could happen as soon as August.

Comment: As anticipated by Nick Glinsman in this week’s podcast, a tantrum due to the Fed was possible and this is merel one sign. More may follow, depending on how next week’s meeting goes and on the inflation data. India too is on a losing streak, with the following quote providing clarity regarding its reasons:

“The ongoing selling by FIIs and weak Indian rupee forced the domestic market to continue surrendering its gains, with all major sectors trading under pressure. Weak sentiments from global markets due to persistent inflationary worries and weaker-than-expected earnings also added to the selling pressure,” said Vinod Nair, Head of Research at Geojit Financial Services.

4.3 India’s bond market has Rs 2.25 trillion riding on index inclusion – The Print

India is inching toward a major milestone: opening its $1 trillion government bond market to more international investors, one of the most ambitious attempts to attract foreign inflows since the country liberalized its economy three decades ago.

Policy makers have spent months preparing to join global indexes, key benchmarks that increasingly determine how large asset managers allocate their capital. And now, after a series of fits and starts, analysts expect the world’s last big emerging market to finally get the nod this year or early 2023 by providers such as JPMorgan Chase & Co. and FTSE Russell.

Entry into major indexes is a step change for India, which has long lagged behind peers like Brazil and South Africa in tapping global financial markets. Foreign investors hold only about 2% of all outstanding government securities and the country’s central bank has historically been averse to large debt inflows.

But inclusion may finally make India a hot ticket for capital: In the three years since China was added to global indexes, foreign ownership of the nation’s government bonds rose to almost 11%, up from 7.6%, leading to a boost in confidence in its fixed-income market and internationalization of the yuan.

Prime Minister Narendra Modi needs overseas buyers. Local demand for government debt is drying up and the Reserve Bank of India is no longer buying bonds. But big investment banks expect index inclusion to prompt one-off flows of $30 billion to $40 billion. That amount would fill a funding gap, lower public-borrowing costs and potentially strengthen the rupee.

Comment: This change will be needed to further integrate India in the global economy, while at the same time strengthen its position globally. There are actions to take first.

For example, a capital gains tax on foreigners who invest in local debt has held India back, as has a cap of 6% on global ownership of government bonds. India has also been trying for years to get its bonds on international clearing platforms like Euroclear, which investors often see as a sign that index inclusion is imminent.

To remove barriers, India made the cap flexible in 2020 by allowing a new set of bonds to be fully eligible for foreign ownership. The national budget in February may exempt Euroclear settlements from taxes, too, further paving the way for inclusion, Bloomberg News reported in November.

But embracing an open bond market is still a change of mindset for India. The central bank has tended to see international debt inflows as volatile and adding to the headache of managing a partially convertible rupee, as opposed to a fully floating one like most Group of 10 economies have. A large outflow from foreign-bond investors in 2013, for example, coincided with a steep drop in the rupee.

If successful, it may lower the rates and subsequently free up resources for fiscal policies, as they are currently on a pre-pandemic high.

5. ENERGY/COMMODITIES

5.1 Asia on the front line as energy security outranks climate change – Nikkei Asia

For much of the last decade, plentiful supplies and falling prices have taken the issue of energy security off the agenda. The only topic that mattered, it seemed, was climate change and how rapidly countries and companies could commit to reducing carbon emissions to zero.

With population and prosperity growing despite the COVID pandemic, energy demand is up and the world remains dependent on fossil fuels: coal, oil and natural gas. Renewables are certainly growing, but in 2021 wind, solar and hydro provided just over 10% of global final energy demand. Oil, coal and gas accounted for over 80%.

The energy security challenge is that current supplies of oil and gas are concentrated in a limited number of areas, while demand is focused in the strongest economies.

What has changed in the last 20 years is the geography of the market. While the main suppliers and exporters are still the natural resource rich countries of the Middle East and Russia, the main energy importers are the new growth economies of Asia led by China. The U.S., through the development of shale oil and gas, has moved from being a significant energy importer to self-sufficient. The result is that energy security is now an Asian issue.

The numbers tell the story. Of the total world oil demand of 97 million barrels a day, almost half is traded across national boundaries before it is consumed. Twenty years ago, Asia accounted for less than a third of that trade. Now China alone is importing over 11 million barrels per day — a growth of almost 9% a year over the last decade. The rest of Asia imports another 12 million barrels a day.

Natural gas trade has been more limited but has grown rapidly, with Asia again leading the world market. Chinese gas imports have grown by over 30% a year for the last 10 years.

While prices were low, allowing trade to grow seemed an easy option. Now, in China in particular, the decision looks to have been a great strategic mistake. The uncontrolled growth of imports has opened up an uncomfortable degree of dependence and vulnerability to fluctuations in a global market that even Beijing cannot control.

Comment: Several events since 2020 have shown how important energy security is. In regards to Asia Pacific, the most important event has been China’s mostly self inflicted energy shortage, which prompted them to boost coal production (Greta and the environmental commitment be damned).

Another event which showed how important it is to be energy independent is the month-long export embargo imposed by Indonesia to its coal miners, which only now shows signs of easing. Authorities have started a calibrated easing for firms that meet a Domestic Market Obligation (DMO) that has been central to the high-profile suspension, which was introduced to ward off widespread power outages after local plants reported critically low coal inventories.

After all, while it is reasonable to care about the future of humanity, this should be done while considering the here and now. Energy, for better or worse, is the most important commodity and entire continents will have an increasing need for it (like Africa, for example). As such, it should be treated with more consideration and care, instead of being merely ideological.

5.2 India’s mineral production up 5 pc in November 2021 – Financial Express

India’s mineral production rose five per cent in November 2021 compared to the year-ago period, according to the mines ministry.

The index of mineral production of mining and quarrying sector for November 2021 stood at 111.9, which was five per cent higher compared to the level in November 2020.

The cumulative growth for the April-November period of the ongoing fiscal over the same period a year ago was 18.2 per cent.

Production level of important minerals in November 2021 includes coal at 679 lakh tonnes, lignite at 33 lakh tonnes, natural gas (utilised) at 2,798 million cu m, petroleum (crude) at 24 lakh tonnes and bauxite at 1,710 thousand tonnes, the mines ministry said in a statement on Thursday.

The production of important minerals showing positive growth during November 2021 over the year-ago period included gold, magnesite, natural gas (U), chromite and lignite.

“The production of other important minerals showing negative growth is: petroleum (crude) (-2.2 per cent), iron ore (-2.4 per cent), copper conc (-7.8 per cent), limestone (-8.7 per cent), bauxite (-9.5 per cent), phosphorite (-9.8 per cent), and manganese ore (-15.2 per cent),” it said.

Comment: While the overall sector has increased production, it is mostly driven by coal as India is paying more attention to its energy independence (with consequences across the board, as the subsequent lack of rail freight has led to disruptions in rice exports). The decrease in production in some metals, like copper, may put further pressure on prices (although in this case events in Chile and elsewhere may be more impactful).

5.3 ‘This is an end’: Serbia revokes Rio Tinto’s lithium mine licences – Sydney Morning Herald

Australian miner Rio Tinto’s plans to build a new lithium project have been thrown into disarray after Serbian Prime Minister Ana Brnabic revoked the company’s permits.

Rio Tinto is seeking to develop the $US2.4 billion ($3.3 billion) Jadar mine in western Serbia as part of its foray into lithium, a sought-after battery raw material that will be needed in increasingly vast quantities as carmakers roll out millions of electric vehicles in coming years.

However, the project has been facing intensifying local opposition in Serbia and large-scale protests in recent months, with campaigners calling on the government to cancel the project amid concerns about the potentially harmful environmental impact of mining in the agricultural region.

The decision to revoke Rio Tinto’s licences comes with the Serbian government under significant public pressure ahead of a general election in April. Relations between Serbia and Australia have also deteriorated since the deportation of unvaccinated tennis star Novak Djokovic.

“We are listening to our people and it is our job to protect their interests even when we think differently,” Ms Brnabic told reporters.

Comment: While the dispute over Djokovic may have played a factor, it sounds more of a convenient excuse: the project, as stated in the article, faced local opposition and the Serbian government is facing elections. As such, revoking the licence is an easy way to garner votes in the short term, even though it may hurt the country in the long term.

After all, lithium is a commodity in high demand and demand can only go upwards, as the electrification efforts increase. Meanwhile, supply is not ramping up fast enough, as shown by this tweet from our Commodities expert Tracy Shuchart.

6. TECH

6.1 Jack Ma’s Ant Group implicated in corruption scandal by Chinese media – Nikkei Asia

China’s state broadcaster has implicated Jack Ma’s Ant Group in a corruption scandal, ratcheting up pressure on the billionaire following a crackdown that has wiped billions of dollars from his internet empire.

A documentary on state-run China Central Television alleged that private companies made “unreasonably high payments” to the brother of the former Chinese Communist Party head of Hangzhou, an eastern city that is home to Ant Group’s headquarters, in return for government policy incentives and support with buying real estate.

According to public records and two sources close to the deals, a unit of Ant Group bought two plots of land at a discount in Hangzhou in 2019 after taking stakes in two mobile payment businesses owned by the party secretary’s younger brother that were named in the documentary.

While the documentary did not name Jack Ma’s company, the Ant unit was the only external corporate investor in one of these businesses, according to the public records, and was among three corporate investors in the second.

“The nature of such a transfer of interests is an exchange of power and capital,” said the documentary, produced by the party’s Central Commission for Discipline Inspection. Material aired by China’s state broadcaster represents the official party line.

The program has intensified pressure on Ant, as the fintech group with more than 1 billion users struggles to overhaul its business to comply with authorities’ demands. Chinese regulators pulled the plug on a $37 billion initial public offering planned by the company in 2020 and forced it to restructure.

Comment: How convenient, as just three days ago Xi stressed ‘zero tolerance’ for corruption. Moreover, given historic precedents on the matter, it may be a prelude to additional measures against Jack Ma and Ant, coupled with CCP officials who may not be entirely in line with Xi.

7. TRADE/SUPPLY CHAINS

7.1 Decarbonizing shipping will cost ‘$1.5tn over 20-30 years’ – Nikkei Asia

Shipping companies around the world have seen profits surge during the pandemic as a supply chain crunch boosted freight rates, but much more investment is needed to accelerate the industry’s decarbonization, a shipping executive told a forum in Singapore on Thursday.

“$10 or $20 billion worth of profit as an industry is good,” said Jeremy Nixon, the global chief executive of Ocean Network Express, a Singapore-based shipping company. “But we have got to make close to $1.5 trillion worth of investment to decarbonize our industry over the next 20-30 years. We need sustainable profitability.”

Nixon was speaking on a panel discussing “Green businesses: Sustainable development through decarbonization” at the Nikkei Forum Innovative Asia held in Singapore on Jan. 20.

99.9% of ships still use fossil fuel, and that produces about 3% of global carbon emissions. Nixon said that there is “growing consensus” among shipping companies about the need to get to net zero emissions by 2050, rather than the industry regulator’s target of halving its footprint between 2008 and 2050. But unlike cars, which are rapidly going electric, “battery technology at the moment is not sufficient to run 1,000 ton ships across oceans for 30 days.”

The key to the transition will be securing renewable energy at scale and at affordable prices, Nixon said, and called on regulators to step in. “We need to work on having market-based measures which will make fuel oil come up to a more competitive level in line with the zero emission fuels and give back some type of revenue to companies which are moving with the low emission fuels.”

Comment: Yet another example of greenflation, as it would be very expensive to decarbonise the sector. It is technically doable, after all there are military ships which use nuclear power for propulsion, but that option does not seem to be under consideration (and even then, it would be very expensive to mass deploy the technology in the shipping sector).

7.2 India-UK FTA talks will go very, very quickly, says Mayor Andy Street – Financial Express

The negotiations between India and the UK to strike a free trade agreement (FTA), which launched last week, will conclude quickly due to an “absolute agreement” at the senior political level, the Mayor for the West Midlands region of England has said. Andy Street, who is in charge of the West Midlands Combined Authority that covers some of England’s major industrial hubs of Birmingham and Coventry, expects his region to hugely benefit from such an FTA.

The UK’s Department for International Trade (DIT) confirmed on Thursday that the FTA talks kick-started virtually on Monday and the first round is expected to last two weeks. Last week, UK International Trade Secretary Anne-Marie Trevelyan met her Commerce and Industry Minister Piyush Goyal in New Delhi to formally flag off the negotiations. While their joint statement sets an end of the year timeline for conclusion of negotiations, there is much speculation that such discussions are likely to drag on much further.

These things tend to be rather longer than one would wish,” Andy Street told PTI. “But I think there’s a critical ingredient here: there seems to me to be absolute agreement at the senior political level that this has got to happen as quickly as possible. It is surprising how that can unlock these deals more quickly than otherwise. So, I think this will go very, very quickly,” he said.

Comment: Given the shift in focus from Downing Street towards the region and the historic relationship with India, an FTA between London and New Delhi should be possible. The only real issue stems from Johnson and the possible revolt against him, after the scandals he was involved in.

Following a similar vein, the new president of the influential US India Business Council (USIBC), Atul Keshap, has said the US and India must now set bold goals to take their ties to a new level and achieve the ambitious target of USD 500 billion in bilateral trade.

“I think it’s vitally important that we show that democracies can deliver; that the United States and India can be a driver of global growth, growth and a model for prosperity and development in the 21st century,” Keshap told PTI in an interview. Keshap, a veteran American diplomat, has served in various capacities during his illustrious career with the US State Department. These included the US Ambassador to Sri Lanka and the Maldives and Principal Deputy Assistant Secretary of State.

Both, while not providing tangible results as of this moment, may bring about positive developments for the Indian economy and, subsequently, for New Delhi’s standing in the region.