Briefing MONTHLY #40 | July 2021
The Philippines election may be a Duterte family affair. See NEIGHBOURHOOD WATCH. Illustration by Rocco Fazzari. View the full animation here.
Is this a divorce or just a trial separation? Either way, decoupling from China is proving just as messy as dividing the wedding silver.
This month saw a new report showing that realised Chinese investment in Australia fell to the lowest level since 2007 – last year at $2.7 billion – and the number of deals halved compared with 2019. Still, 60 per cent of local Chinese executives surveyed thought Australia was a safer environment than many other countries.
A separate survey showed China continued to rank as the most important foreign business country for Australian companies – even higher than in 2016 and 2018. And it found that the bilateral trade agreement with China is still ranked as the most used trade deal.
However, the latest data on wine exports revealed sales to China slumped to $16 million in the first half of this year after the imposition of draconian dumping sanctions, compared with $467 million in the same time last year.
In the international education sector, where the government has told universities to reduce dependence on Chinese students, the latest figures show how those same students steadily now studying online at home in China have prevented a bigger crisis in tertiary education.
In the Pacific, the Morrison government is deploying an approach somewhat akin to China’s Belt and Road Initiative in pressuring Telstra to help buy Digicel Pacific and head-off a rumoured Chinese takeover. But doing this patriotic duty in the Pacific could create new risks for Telstra’s data centres in China, its regional head office in Hong Kong, and its undersea cables which often link through Hong Kong.
In domestic politics the Barnaby Joyce-led Nationals seem to be elevating China above environmentalists as a threat while they wrangle internally over climate change. But last weekend’s Group of 20 energy ministers meeting might be cause for a double take. China’s support for coal use and fossil fuel subsidies makes it look like a fellow traveller of the Nationals.
So, while the Morrison government has found its broadest coalition of the willing to stand up to China in the Microsoft Exchange cyber hacking statement, the ties that bind are hard to unravel.
- See DEALS AND DOLLARS
FIGHTING THE LAST WAR
In 2002 Japan and South Korea were persuaded to share the football World Cup despite their deep historical grievances and economic rivalry, in order for the event to be held for the first time in the region that was the new heart of the global economy.
So, it says a lot about the depth of the old tensions between these neighbours that two decades on their current leaders still couldn’t agree to use the Tokyo Olympic Games for their first meeting in almost two years. Japan’s Prime Minister Yoshihide Suga and Korea’s President Moon Jae-in were supposed to meet under the guidance of US President Joe Biden at the Group of Seven summit in June, but didn’t.
Then the Olympics were supposed to provide the next opportunity to resolve how tensions dating to Japan’s colonial control of Korea have blown up yet again in the past year. Korean courts have awarded damages claims against Japanese companies and Japan has imposed trade restrictions on Korea.
The final blow came when a Japanese diplomat made disparaging comments about Moon, whose left-wing party is rapidly losing support ahead of a presidential election next year and needs to be seen as standing up to Japan.
This simmering breakdown in relations between two US allies gets little attention in Australia where the Morrison government is relying on increased cooperation amongst US allies as a core part of its policy for dealing with China.
The best prospect of some reconciliation now seems likely to depend on a more conservative candidate winning the presidential election next March and being prepared to reshape domestic sentiment towards Japan, possibly with a new Japanese leader as well.
At East Asia Forum, Daniel Sneider writes that the Biden Administration may have decided to wait for a new leadership before trying to oversee another reconciliation.
- See ON THE HORIZON: Winter Games showdown
President junior? … Sara Duterte on the campaign trail
GLOVES OFF: SARA vs MANNY
The Philippines has a striking record of women in national leadership – from Cory Aquino leading the return of democracy in 1986 to incumbent Vice President Leni Robredo’s lonely internal battles with President Rodrigo Duterte.
But in a new twist on this theme, Duterte is trialling the idea of backing his daughter Sara as president at next year’s elections, so he can run as vice-president and remain the effective leader.
The Philippines has limited presidents to one six-year term since the end of the Ferdinand Marcos martial law era, but this doesn’t apply to the vice-president who is elected separately to the top position.
The Duterte clan has already exchanged jobs in the southern city of Davao where they have created a new mini-dynasty. But Sara Duterte has created her own political party which co-exists with her father’s political machine and has been equivocal about whether she wants to run with her father.
While there is a long tradition of political dynasties in the Philippines – most recently in the more liberal Aquino family – swapping the top jobs would take this to a new level of power concentration and potential corruption.
But the Dutertes’ posturing means they are now facing an unexpected challenge to this family transition with world boxing champion Manny Pacquiao, a senator and former Duterte supporter, emerging as a potential rallying point for the opposition groups.
Pacquiao has normally alienated liberal groups with his conservative social views on issues like same sex marriage. But his sudden attacks on Duterte for corruption and being soft on China will force the fragmented opposition – from Robredo’s supporters to the Aquino family’s Liberal Party – to take a deep breath and consider whether he is the most compelling alternative.
- This Philippine Daily Inquirer piece shows how various political factions are lining up behind the woman who could be the country’s third female president.
Decolonisation and revolution long ago removed royal families from power in most of Asia, leaving Japan’s emperors as the last hereditary monarchs of much significance to periodically exert some subtle influence.
But the past year has seen the region’s most abundant class of royals – the rajas and sultans of the old Malay dynasties – exert unexpected power over the country’s fragmenting political parties.
Nine of the Malaysian states are constitutionally headed by traditional Malay rulers who meet every five years to elect a king, or Yang di-Pertuan Agong, as the national head of state.
On Monday July 26, the Malaysian Parliament resumed sitting after the longest suspension since 1969 due to the COVID-19 crisis which had allowed Prime Minister Muhyiddin Yassin to avoid testing whether he actually had a majority. But the prime minister was aiming to avoid any votes which would test his fragile majority.
King Abdullah took an unusually hands-on role in resolving the country’s leadership when the government led by former long-serving Prime Minister Mahathir Mohamad collapsed in February last year.
Over the past year he has both resisted and then endorsed a state of emergency but then on June 16 swung back to urging a resumption of Parliament after a meeting with the other state rulers. But in a more remarkable twist, the other rulers then issued their own separate statement calling for an end to the state of emergency, prompting this week’s return of Parliament.
- Serina Rahman from the ISEAS-Yusof Ishak Institute says in this Channel News Asia analysis the royal houses are now seen as “the only remaining institution of sense that can act in the interests of the people.”
2.8 BILLION … AND COUNTING
It might be one of the biggest real time experiments in social engineering ever: India and China are at the crossroads on population control.
Within days of each other this month, India’s most populous state proposed a two-child limit with tough penalties to back it up, and China’s State Council announced a package of childcare and education incentives to boost family size.
China’s latest census has prompted forecasts that its population (now 1.411 billion) will be overtaken by India (now 1.379 billion) in the next three years, which is earlier than previously expected.
China enforced a one child policy for many of its citizens between 1980 and 2015 with questionable success. But after a coercive sterilisation program in the 1970s, India has tended to rely on education programs and rising affluence in a more democratic contrast to China’s authoritarian approach.
However, now Uttar Pradesh state (which could be the world’s fifth biggest country with 240 million people) is proposing to terminate government benefits and jobs for couples with more than two children.
It is the second Indian state after Assam to take this path amid Hindu nationalist concerns about a rising Muslim population in India. And significantly it is run by one of the toughest politicians from Prime Minister Narendra Modi’s Bharatiya Janata Party, Yogi Adityanath, who is facing a state election next year.
Meanwhile, China is shifting towards direct incentives in a concession that simply ending the old one (or in some cases two) child policy has failed to fix the demographic miscalculations from the past. The new measures will cut the costs of births, childcare and education, increase access to those services, and protect women’s employment rights.
- Raghav Bahl at The Quint says “China is progressing after learning the lessons of history, but India is regressing after unlearning the same lessons.”
RESEARCH GAP LOOMS
Collaborative research in the humanities by Australian academics in Asia is in danger of flatlining despite the rise of the region in the country’s security and economic priorities, according to a new study of the role of the humanities in Asian engagement.
It says Australian Research Council funded projects that involve collaboration in the humanities between Australian and Asian institutions in 2005-15 showed no noticeable increase.
“Institutional support from governments, funding bodies, and universities is relatively weak, and Asia-orientated collaborative research in the humanities is currently in danger of flatlining,” the report by the Australian Academy of the Humanities says.
The study began when the internationalisation of education was growing with rising numbers of foreign students and the introduction of the New Colombo Plan raising hopes of more collaboration in future.
At the same time there was a notable increase in the humanities in some Asian education systems such as South Korea and India which created new possibilities for Australian collaboration.
But with the COVID-19 pandemic interceding, report editor Antonia Finnane says: “Whatever the pace of recovery in regional economies, and however sturdy the existing foundations of humanities education and research in various countries in the region, the rupture occasioned by the pandemic is likely to prove profound.”
The report provides a snapshot of the state of humanities in Asian education and the prospects for more collaboration by Australian institutions and scholars.
“Based as they are in a mainly English-speaking society, in a country that is situated in close proximity to the states of Southeast Asia, Australian researchers are in a good position to get in on the ground of an expanded humanities research enterprise in Asia,” Finnane argues.
But she says this requires an institution that will allow scholars, institutions, industry participants and bureaucrats to see what is happening in humanities across the region to provide Australians opportunities for engagement.
BOOSTING INDONESIA TRADE
A year after the launch of the bilateral trade deal with Indonesia, Australia is rolling out a $40 million economic cooperation program to underpin increased trade.
The Katalis program (from the Indonesian word for catalyst) aims to provide market insights, education, technical advice, policy reform and workplace skills exchange to support economic growth under the Indonesia-Australia Comprehensive Economic Cooperation Agreement (IA-CEPA).
It is funded for five years specifically focussed on agrifood, advanced manufacturing and selected services sectors seen as having potential for two-way business growth under the agreement.
While the program responds to the criticism from some business groups that new trade agreements are not well enough understood and promoted, it also reflects the specific development cooperation focus in the IA-CEPA.
Katalis was launched at the inaugural annual meeting of economic ministers from the two countries in July, which was held online amid some criticism that there have been no in-person bilateral ministerial meetings since President Joko Widodo was in Australia in January 2020.
The ministerial meeting also discussed what role Australia can play in assisting Indonesia chair the Group of 20 next year and noted the role of quality infrastructure in driving economic growth.
COVID’S MEDIA SHADOW
Source: Alliance for Journalists' Freedom
A new attempt to chart the contraction in media freedom across the Asia-Pacific has chosen not to follow the typical approach for such exercises which is to rank countries on their performance.
The Alliance for Journalists’ Freedom (AJF) says its Press Freedom Tracker “aims to be as un-biased as possible in its recording of press freedom” because the Alliance tries to work diplomatically with countries.
“We do not rank or grade countries, but instead provide concise record of instances that have hampered journalists’ abilities to carry out their work. As this map develops, AJF also hopes to include instances where press freedom has been supported in the region,” it says.
The PFT looks at press freedom incidents across the Asia–Pacific from 2018 onwards, with a focus on major events, such as COVID-19 and the Myanmar crisis. It now tracks 14 countries, with a growing capacity across incident types and countries.
A significant trend in that time is the spike in press freedom incidents since the beginning of the pandemic. Government crackdowns and regulations account for more than 60 per cent of those incidents.
DEALS AND DOLLARS
SILICON VALLEY SOUTH
Nurturing minds … Springfield pioneer Maha Sinnathamby at the summit
The Indian government’s senior adviser on Australian business engagement has called for the creation of a joint innovation investment fund to fast-track information technology bilateral business ventures.
Anil Wadhwa, who has written the Australia Economic Strategy to parallel Australia’s India Economic Strategy, also said both governments should be looking at visa, taxation, banking, and other support.
Wadhwa was speaking at an Australia India Technology Summit in the Queensland city of Springfield which was aimed at finding ways of encouraging more Indian technology companies to establish operations in Australia.
Efforts to reach agreement on a bilateral trade agreement have faltered over the past decade, but Australia India Business Council (AIBC) chair Jim Varghese said: “IT is one form of trade that can fast-track the relationship.”
Wadhwa said Indian IT companies had been operating in Australia successfully for more than a decade but some Indian company executives speaking at the summit said they had trouble attracting enough staff in Australia.
But Infosys vice president Ashok Mysore said: “Australia is where these companies want to be, but they are also being courted by other developing nations. The opportunity is for Australia to show that it is the best place for these organisations to establish and grow.”
The summit was hosted by Springfield founder Maha Sinnathamby, who is positioning his purpose-built city as a health, education and technology hub to Indian companies and touting it as the Silicon Valley of the southern hemisphere.
He said: “The demand for knowledge workers over the next decade will be crucial in this country and we want to play our role in nurturing the minds in our national and local economy to enable them to participate actively in the knowledge economy as it continues to grow.”
“Over the next twenty years, India will require access to goods and services, which Australia is well positioned to supply, and IT tends to be a critical component of facilitating the supply of these goods and services,” said Malaysian born Sinnathamby, who ranks 64th on The Australian Financial Review Rich 200 list.
- See Briefing MONTHLY’s Asian Rich List here.
IAG EXITS MALAYSIA
The departure from Asia by financial services companies is continuing with insurance company IAG selling its 49 per cent stake in Malaysian insurer AmGeneral Holdings Berhad for $340 million. IAG ended a 12-year Asian expansion phase in 2018 when it started selling interests in Thailand, Vietnam, Indonesia and India, with the Malaysia sale virtually finishing that exit. By contrast US insurer Liberty Mutual is going in the other direction buying both IAG’s stake in the Malaysian motor and general insurance company and the shareholding owned by AmBank Group.
CAR SALES DEAL
Entrepreneur Patrick Grove’s Catcha Group is selling its Asian online car sales business iCar Asia to Malaysian platform Carsome in a deal worth more than US$200 million.
The sale follows the failure of a bid for iCar from a Chinese company Autohome last year which was complicated by the deteriorating bilateral relationship with China.
The sale means Grove, who is based in Malaysia, will become a shareholder in Carsome which is touted as Malaysia’s first tech unicorn (or company valued at $1 billion).
The companies say the deal will bring together the nine million online visitors which ASX-listed iCar has, with the 13,000 car dealers that Carsome has.
Singapore-born Grove dropped out of the Financial Review Rich List last year after Catcha Group also sold out of a planned Southeast Asian video streaming service.
AUSTRALIA’S OWN BRI
Export Finance Australia’s expanding role in economic diplomacy is set to get bigger with the Morrison government pressing Telstra to buy mobile communications company Digicel Pacific in a likely joint venture with the trade finance agency.
In June Trade Minister Dan Tehan quietly announced that the agency (formerly called Export Finance Insurance Corporation) would be allowed to provide equity finance in “certain circumstances” that “serve Australia's national interests and priorities”.
While the detail of the new power will be fleshed out in legislation, Tehan said: “While used sparingly, this power will give EFA more flexibility to support important infrastructure investments in the Indo-Pacific or export-linked projects in Australia.”
But Tehan’s announcement came just weeks before it was revealed that the government was urging Telstra to join EFA in a potential $2 billion bid to buy Digicel Pacific to head off a potential purchase of the company by a Chinese investor.
EFA received a significant upgrade when it was renamed as part of the Pacific Step-up in 2018, and received an extra $1 billion in callable capital along with an additional role in implementing the $2 billion Australian Infrastructure Facility for the Pacific.
But it has also been charged with overseeing the $3 billion defence export support scheme and supporting the development of critical minerals in Australia.
WESTPAC’S PACIFIC SETBACK
The pressure on Telstra to step up in the Pacific alongside Export Finance Australia partly reflects the way Australian companies – especially in banking and construction – have been pulling out of this region just as Chinese investment has been emerging.
But now one of the higher-profile departures appears to be in turmoil with Papua New Guinea’s competition regulator rejecting the sale of Westpac’s Pacific banking operations to ASX-listed Kina Securities.
Westpac said last December it would sell its Fiji operations and its 89.91 per cent stake in Westpac Pacific PNG Limited to Kina following the sale of operations in some smaller countries.
But the PNG Independent Consumer and Competition Commission says the sale could lead to a substantial lessening of competition because Kina Bank is the country second-largest retail bank.
CHINA: TRADE STILL STRONG …
Top countries for Australian business trade. Source: ACCI
China continues to be the most frequently listed trade destination for Australian business and even more so than in 2018 and 2016, according to the latest Australian Chamber of Commerce and Industry survey.
And it is a more important destination for the smallest and largest businesses surveyed rather than those in the middle.
But despite this continued dependence on China, the survey found that bilateral relations were under pressure before the pandemic hit due to business issues rather than geopolitics.
“The market size; difficulty of understanding how to do business; and establishing a brand and a presence are the underlying issues, rather than more recent geopolitical issues. COVID-19 and the interruption to supply chains and difficulties this entails over the past 18 months are to some extent providing a spotlight on what senior managers have known for some time,” the ACCI report says.
Consistent with China’s top ranking overall, the bilateral trade agreement was nominated as the most used by 26 per cent of businesses, followed by the US bilateral agreement and AANZFTA agreement, which also includes New Zealand.
These agreements were rated as slightly to very useful by 35-45 per cent of businesses. But Australia’s other Asian agreements including those covering Thailand, Malaysia, Japan and the CPTPP were described as not useful or not heard of by 60 per cent of respondents.
… BUT INVESTMENT WANES
Chinese investment into Australia dropped 27 per cent last year to $2.5 billion which was the lowest level since 2007 and compares with figures above $10 billion in the years leading up to 2017.
And the number of completed deals fell to 20 from 42 the previous year as Chinese investors shifted towards smaller sized investments in less sensitive industries such as commercial real estate.
Commercial real estate and mining each absorbed more than one third of the inflow, whereas the healthcare and agrifood sectors which were once favoured targets for Chinese business have waned to each take less than five per cent of the inflow.
The latest report on Chinese investment from KPMG and The University of Sydney says: “This is the cumulative effect of Chinese government restrictions on capital outflow, increasing regulatory screening of Chinese and other foreign investment, deteriorating bilateral diplomatic relations, disruptions to business communication and contact caused by the COVID-19 pandemic.”
But the accompanying survey of Chinese executives in Australia showed continuing resilience with 60 per cent saying Australia remained a safer environment than other countries although they felt less welcome.
“I’m not sure that they (China) have the strategic thinking to go back to a different kind of diplomacy towards Australia right now. I see a harshness in their approach that appears to be unyielding.”
“Do I believe that China and the United States can co-exist peacefully? Yes, I do. But I do think this challenge is going to be enormously difficult for this generation and the next.”
- White House coordinator for the Indo-Pacific Kurt Campbell (July 6)
- Watch Kurt Campbell’s Asia Society briefing here.
Vaccinations across developing Asia
How the case numbers are shifting
These charts from the Asian Development Bank’s latest economic update are drawn from Our World in Data and the Bloomberg COVID-19 Vaccine Tracker. While they show a diversity in vaccine rollout and a shift in the main virus risk from South Asia to Southeast Asia, the ADB remains sanguine about the economic outlook. It forecasts developing Asia will grow by 7.2 per cent this year, which is slightly lower than the 7.3 per cent expected in April. But it is expected to grow by 5.4 per cent next year compared with 5.3 per cent in April.
WHAT WE'RE READING
AUSTRALIA-SOUTHEAST ASIA RELATIONS edited by Matt Smith (La Trobe Asia)
With Southeast Asia now reeling at the new global epicentre of the COVID-19 epidemic, this collection of essays has reflections on what has gone wrong and some frameworks for the future.
The Morrison government stepped up Australia’s engagement with these close neighbours last year with the biggest aid spending since the Aceh tsunami but the general message here is that more needs to be done as these countries both fragment and look beyond Australia.
Caitlin Byrne provides a good wrap of how vaccine diplomacy may change the region arguing “the geopolitics of vaccine distribution has exposed the disaggregated nature of politics within Southeast Asia.”
Lina Alexandra says that after the pandemic turmoil ASEAN countries will need to prove themselves worthy of their claim to being strategic partners in the regional for external countries. But she warns that as Australia becomes increasingly preoccupied by the “China factor”, it will need to understand that Southeast Asian countries see China as “too powerful and too costly to confront and they do not want to aggravate a potential partner”.
While the essays have an unsurprising focus on strategic and economic relations, there is also welcome attention on improving people-to-people ties and how Australia should do more to support civil society forces in the region. James Gomez and Robin Ramcharan say this will be particularly important as struggles over the nature of democracy continue in countries including Cambodia, Malaysia, Myanmar, Thailand and the Philippines.
- Asia Society Switzerland’s annual summer reading list is well worth a look for an insight into what European-based Asiaphiles are reading. And in a change of pace from Australian bookshops these days, there is a distinct lack of new writing about declining relations with China. See the list here.
ON THE HORIZON
While the management of the Summer Olympics in Tokyo is being closely watched for what it means for embattled Japanese Prime Minister Yoshihide Suga at an expected September election, another post-Olympic deadline is also coming into view.
The geopolitical focus on the Olympics is moving on to the campaign for a boycott of the Winter Olympics in Beijing in February in response to China’s treatment of Muslim minorities in Xianjiang.
The British and European parliaments have stepped up this pressure by voting to support a diplomatic boycott of the Beijing event. This will create a particularly delicate situation for Australia after having just acquired a new stake in defending the Olympic system by winning the right to host the 2032 games in Brisbane.
And then immediately after the Beijing Games end, February 21 will be the 50th anniversary of President Richard Nixon’s visit to meet Mao Zedong for a summit which transformed the international order.
Gough Whitlam’s visit a year earlier has been a focus in Australia in the past month. But how the US and China agree to mark this other historic anniversary will say more about the potential for a stable relationship between them in the medium term than the current skirmishing over issues like cyber security.
Chinese President Xi Jinping has sought to emulate Mao’s personalised power structure and possibly his time in office, but he has also prompted the shift to a more competitive and confrontational approach to the modern US.
The visit to Beijing by US deputy secretary of state Wendy Sherman in the last week of July could have been expected to take the first steps towards resolving how to deal with the anniversary. But the cool reception for her suggests otherwise.
ABOUT BRIEFING MONTHLY
Briefing MONTHLY is a public update with news and original analysis on Asia and Australia-Asia relations. As Australia debates its future in Asia, and the Australian media footprint in Asia continues to shrink, it is an opportune time to offer Australians at the forefront of Australia’s engagement with Asia a professionally edited, succinct and authoritative curation of the most relevant content on Asia and Australia-Asia relations. Focused on business, geopolitics, education and culture, Briefing MONTHLY is distinctly Australian and internationalist, highlighting trends, deals, visits, stories and events in our region that matter.
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