Illustration by Rocco Fazzari.

PLUS CA CHANGE?

Bangladesh and Vietnam are separated by about 2000 kilometres and centuries of different cultural and colonial culture. But with two of the longest serving rulers amongst major Asian countries during the past two decades, this century they have been pillars of economic certainty.

That may now be in question with the death of Vietnamese Communist Party general secretary Nguyen Phu Trong and the imposition of an internet blackout by Prime Minister Sheik Hasina in Bangladesh, the world’s second largest clothing exporter.

The events are unrelated but illustrate how long-serving governing conventions in rigid regimes can become points of fragility without the sort of public debate that might occur in more open societies.

And so, the erosion of the four pillars of leadership power in Vietnam has left the country exposed to the sudden death of an aged strongman. In Bangladesh, the privileges awarded to families of the country’s founding independence generation have become inconsistent with developing the talent needed for a globalised economy. See NEIGHBOURHOOD WATCH

Meanwhile, there has been rising optimism in recent years that the Australian and Indonesian economies are becoming more complementary after historically being competing resource exporters despite increasingly close diplomatic relations. Indonesian policymakers like to call this a “powerhouse” relationship, while their Australian counterparts tend to prefer the vernacular of more integrated supply chains.

Nevertheless, events this month from the federal government green manufacturing policy to the travails of two existing or proposed cross-border business ventures in agribusiness show the much mooted powerhouse needs some more attention in the policymaking wheelhouse. See DEALS AND DOLLARS

Greg Earl
Briefing MONTHLY editor

NEIGHBOURHOOD WATCH

BANGLADESH: history’s long arm

Sheik Hasina Wazed has steadily imposed more authoritarian civil liberties measures on her country as she has become the world’s longest female leader after being elected prime minister (for the second time) in 2009.

But while the crackdowns on free speech and opposition political parties seem to have been at least grudgingly accepted by the country’s youthful population, an unemployment crisis means the line has now been drawn at longstanding privileges for her core supporters.

Hasina’s government shut down the internet this month in an attempt to curtail student protests that were joined by supporters of opposition political parties. More than 150 people were killed and thousands injured as the government put troops on the streets, declared a curfew, closed education institutions, and cut communications.

The students were protesting against a court decision that reinstated a longstanding system that reserved 30 per cent of public sector jobs for families of veterans who fought in the early 1970s war of independence from Pakistan. That independence movement was led by Hasina’s father and the reserved jobs have helped cement the power of the governing Awami League political party associated with her family.

Bangladesh was only recently Asia’s fastest growing large economy and an emerging development success fuelled by the way it has made itself a world leading textile exporter. And western countries tended to turn a blind eye to the human rights crackdowns to keep the burgeoning economic links growing and keep the country neutral in rivalry with China.

The Supreme Court has now largely removed the quota system after the protests leaving behind uncertainty about whether opposition forces will be inspired to use more civil turmoil to pressure the government on other issues. Meanwhile the internet shutdown forced factory closures and disrupted shipments of textiles, potentially undermining the one industry that has a demonstrated capacity to provide jobs to young people.

• M. Niaz Asadullah, at Project Syndicate, says the protests have the capacity to become a Bangladeshi version of the Arab Spring. 

VIETNAM: leadership vacuum

Nguyen Phu Trong rose to power in 2011 as Communist Party general secretary in an authoritarian system which nevertheless embraced leadership turnover and some shared power with the state president, prime minister, and National Assembly chief.

But his death at 80 this month follows an unprecedented 20-month period of political turmoil in which an estimated seven of the 18 members elected to the politburo at the 13th Party Congress in January 2021 were forced to resign. This included the president and national assembly chief only this year amid concerns about the most senior leader’s health.

While there are precedents for one person to hold both the general secretary and president jobs as Trong did for a time and hold one for three terms, Vietnam nevertheless seemed to be embracing the modern concentration of power seen in China under Xi Jinping, with the parallel corruption crackdown on opponents.

Trong’s Marxist-Leninist credentials and attitudes allowed him to maintain good relations with China while also making Vietnam a favoured destination for foreign investors from around the region, not least Australia. In 2015 he became the first secretary general to visit the US White House.

Trong has now been replaced by the relatively new President To Lam in a notionally smooth, if sudden, hand over but one which leaves questions about whether the recent in-fighting over power via corruption allegations will continue and erode the country’s reputation for offering a stable climate for foreign investment.

• At Nikkei Asia, Zachary Abuza says that while Lam has a security background, he is not an idealogue like Trong and that offers hope of a return to economic pragmatism.

CHINA: actions beat words

When China unexpectedly cut interest rates a day after releasing a long-awaited blueprint for economic recovery, it ran the risk of being seen to lack confidence in its own plan.

The plan for up to 300 reforms in a 22,000 word document from the from the Third Plenum came against a back story of slowing economic growth aggravated by a slump in the property market and growing trade tensions with major western economies.

The plan is heavy on proposals to boost technology, science and innovation with an emphasis on heavy manufacturing promising “great rejuvenation of the Chinese nation” by promoting “scientific and technological self-reliance”.

But there was little to address the imbalance between overproduction and weak consumer demand which is at the heart of trading partner concerns about dumping of Chinese goods. So, the suite of interest rate cuts looked like reaching backwards for a new policy.

The emphasis on technological rejuvenation does not appear to herald any softening in the crackdown on the private tech sector in recent years with the document emphasising better arrangements for “state-owned enterprises to promote original innovation”.

• Neil Thomas, from Asia Society’s Center for China Analysis, argues that only an economic collapse will persuade Xi to consider market reforms and demand side measures to rejuvenate the economy.

INDIA: coalition economics

Finance minister Nirmala Sitharaman with the Budget   Picture: India.com

Prime Minister Narendra Modi has bought his new government some respite from this year’s unexpected election setback by spending big in the two states where he needs to retain coalition partners.

The first post-election Budget contains special incentives for Bihar and Andra Pradesh amid a broader plan to spend more than $40 billion over five years to generate jobs for the country’s unemployed young people who failed to support Modi’s Bharatiya Janata Party (BJP) at the May election.

Bihar and Andhra Pradesh are governed by BJP allies Janata Dal (United) led by Nitish Kumar and Telugu Desam Party led by N. Chandrababu Naidu who are crucial to the BJP retaining a majority. Modi is governing in coalition for the first time in his two decades of state and national government.

The Budget says India will grow 6.5-7 per cent this year and remain the world’s fastest growing large economy but spending will grow 8.5 per cent underlining how Modi is moving quickly to buy back public support. Finance Minister Nirmala Sitharaman specifically talked up the need to look after the poor, women, youth and farmers in the world’s most populous country in a shift from the government’s previous economic rhetoric about technological leap-frogging.

• Modi may have been diminished by the election, but triumphalism about his setback is short-sighted, says Sushant Singh at The Caravan.

ASIAN NATION

HARDWIRED

Quad foreign ministers in Tokyo this week   Picture: DFAT

Australia is doubling down on communications network security in the broader region with $18 million in funding for a Canberra-based Cable Connectivity and Resilience Centre to help Indo-Pacific countries which are rolling out new cable networks.

It follows the more dramatic move to underwrite Telstra’s purchase of Digicel Pacific in 2022 to prevent a rumoured Chinese purchase and the country specific funding for telecommunications cables in places including the Solomons, Micronesia, Nauru and Papua New Guinea.

The Centre will provide technical assistance and training across the Indo-Pacific; commission research and analysis to support governments with policy development, regulations and decision-making regarding undersea cables; and share information to strengthen engagement between governments and industry.

Foreign Minister Penny Wong announced the initiative at a meeting of foreign ministers from the Quad (Australia, Japan, India and the US) group in Tokyo this week which also issued a statement which, in effect, criticises China’s aggressive maritime actions in the South China Sea and the East China Sea.

DOLLAR DIPLOMACY

The Productivity Commission’s warning this month about the growth of more than 1800 new industrial policy measures around the world this year has only underlined the rise of economics in diplomacy.

Now the Asia-Pacific Development, Diplomacy & Defence Dialogue (AP4D) has outlined a roadmap for more formalised connectivity between the foreign and domestic arms of economic policy to give more substance to the Albanese government’s embrace of economic statecraft. And it brings a particular lens to how this should be done in Australia’s immediate sphere of influence in the South Pacific and Southeast Asia.

The report says that while the government has talked up economic statecraft in many places from the Defence Strategic Review to the national Budget itself, it has “not yet engaged widely in the Indo Pacific region on this topic, including assisting its regional neighbours.”

This is despite the fact that: “Australia’s support to regional partners through acts of positive economic statecraft and helping them to navigate acts of negative economic statecraft contributes to regional resilience and positions Australia as a reliable and trustworthy partner.”

So, the report outlines a series of measures to: establish a national coordinating mechanism for economic statecraft; maintaining close relationships with regional partners; promoting and advance a transparent, predictable and rules-based global trading system; and work with business to create certainty and ensuring business is aware of government economic statecraft policies.

CHINA TRADE

Australia has called on China to give up its claim to still be a developing nation in the World Trade Organisation (WTO) in the latest example of the two mutually trade dependent countries manoeuvring over broader policy.

In a statement to the institution’s trade policy review of China, Australia’s WTO ambassador James Baxter said while recent steps to improve trade cooperation were welcome, a number of difficult issues remained.

With China still to remove remaining sanctions against Australian lobster and some meat abattoirs, Australia also called out Beijing for shunning international standards and continuing to shield state-owned enterprises from foreign competition. (see the wine export slump in DATAWATCH)

Baxter welcomed China’s “helpful contributions” to the WTO discussions over the organisation’s dispute settlement procedures which have been paralysed by US failure to appoint new judges. He said: “We note the important role that the binding WTO dispute settlement system has played in resolving Australia’s concerns about Chinese impediments to imports of Australian wine and barley.”

But he went on to urge China give up its claim to being a developing nation, which gives those countries more favourable treatment under WTO agreements, such as longer implementation times and reduced tariffs. “China should relinquish its use of special and differential treatment, commensurately with its size and weight in the global trading system,” Baxter said.

GOOD MORNING PACIFIC

Picture: ABC

The Albanese Government's is spending $68 million over five years to implement an election campaign to increase access to trusted and reliable news, deliver quality content, and foster engagement across the Pacific island region, Southeast Asia, and South Asia.

The key new elements of the longstanding Australian commitment to both increase awareness of Australia and improve the quality of local media operations are:

• $48 million over five years for the ABC to increase its content for and about the Pacific; expanding its Radio Australia FM transmission footprint across the region; and enhancing media and training activities.
• The PacificAus TV program will get continuing funding of $28 million over five years to allow commercial Australian content producers to provide sport, news, entertainment and children’s programming to broadcasters in the Pacific.

This spending builds on Australia's longstanding support for the region, such as the Pacific Media Assistance Scheme and the PNG-focused Media Development Initiative which have supported the resilience, independence and professionalism of the Pacific media sector for more than a decade.

DEALS AND DOLLARS

BANKING THE PACIFIC

First it was ports, then it was telecommunications. Now banking has become the latest focus on the Federal government’s appetite for investing in Pacific infrastructure.

Treasurer Jim Chalmers has provided $6.3 million for initiatives designed to bolster anti-money laundering and counterterrorism financing laws in the Pacific to make commercial banking less risky and thus keep some Australian banks in the region.

The initiative will provide:

• $2.9 million to the World Bank to support the development of inclusive and secure digital identity infrastructure across Pacific island countries.
• $1.7 million to the Asian Development Bank to enhance regional compliance with anti‑money laundering and counter‑terrorism financing requirements.
• $1.7 million for the Attorney‑General’s Department to assist with criminal justice and law enforcement capacity in the region.

Speaking at a Pacific Banking Summit in Brisbane Chalmers warned that “the Pacific has seen the fastest withdrawal of correspondent banking services of any region in the world. We know these vital services help communities to access foreign currencies and international payment systems. And we also know that without them, large parts of the Pacific risk being cut off from the global financial system.”

Westpac and the ANZ have progressively cut back banking services across the Pacific in recent years, or in some cases failed to find buyers to allow them to exit, in order to derisk themselves from potential money laundering and terrorism transactions due to weak regulatory regimes.

But the government is concerned this commercial withdrawal will increase the influence of China in the region as its mostly state-owned banks move in to support Chinese investors and fill the void facing local businesses as Australian banks withdraw. The latest case was in Nauru earlier this year when Bendigo Bank was considering closing down what was the only bank in the country.

POWERHOUSE OUTAGE

One of Australia’s more emblematic business partnerships in Indonesia appears to be on the brink of dissolution with the Perth-based CBH grain co-operative seeking to exit its grain processing and logistics venture with the Salim family.

The Australian Financial Review reported that CBH, controlled by 3500 West Australian farmers, wants to sell its share of the Interflour joint venture, which owns and operates nine flour mills spread across Indonesia, Malaysia, Vietnam and the Philippines.

The Interflour business has existed 20 years but is a classic example of the sort of integrated supply chain between Australia and Indonesia that has been sought by both governments as part of bilateral initiatives such as the Indonesia-Australia Comprehensive Economic Partnership Agreement and the recent Moore Report on Southeast Asian economics ties. Indonesians often refer to this as the “powerhouse” concept.  In this case Australian wheat and barley is processed into flour and beer in Southeast Asia with the wheat then exported to third markets as noodles.

Since the venture was founded there has been discontent amongst the grain farmers over the way Interflour often chooses to buy grain from CBH competitors in other countries rather than from the CBH farmers. While it had revenue of $1.3 billion last year, it only had a small profit and CBH values its half share at $133 million.

The departure of CBH from Indonesia would follow the departure of two other long-running Australian businesses - the Ramsay Health Care Group in hospitals and the Commonwealth Bank of Australia in retail banking.  Ironically the move to end the partnership comes as the Salim Group has moved to increase its mining footprint in Australia.

PUPUK DEAL OFF

Another bid to create a new supply chain between Australia and Indonesia has fallen over with Incitec Pivot ending negotiations to sell its fertiliser business Indonesian state-owned company PT Pupuk Kalimantan Timur.

New chief executive Mauro Neves had planned to transform the business by selling the struggling fertiliser operations to the Indonesian group, which is one of the largest urea, ammonia and fertiliser producers in Asia. He is now pursuing a share buyback instead.

He said the negotiations with the potential Indonesian buyer had taken too long after dragging on for a year. There was also uncertainty over approval by the Foreign Investment Review Board, due to the importance of fertiliser supply to Australia’s farmers.

The proposed deal could had added new depth to the bilateral economic relationship with an Indonesian company investing in Australian resources to produce fertilisers needed to improve agriculture productivity at home. 

DIPLOMATICALLY SPEAKING

India and Russia are walking shoulder-and-shoulder and infusing new energy into global prosperity. Any mention of Russia reminds every Indian of an ally that has been with us through good times and bad, as a trusted friend of India. 
- Indian Prime Minister Narendra Modi (Moscow, July 8)

I thank you for the attention you are paying to the most acute problems including trying to find ways to resolve the Ukrainian crisis, above all by peaceful means, of course.
- Russian President Vladimir Putin

It is a huge disappointment and a devastating blow to peace efforts to see the leader of the world’s largest democracy hug the world’s most bloody criminal in Moscow on such a day (of a hospital bombing).
- Ukraine president, Volodymyr Zelensky,

Any person who believes in humanity feels pain when people die, and especially when innocent children die. When we feel such pain, the heart simply explodes, and I had the opportunity to talk about these issues with you (Putin) yesterday.
- Modi

DATAWATCH

ONE MORE ROUND: how wine exports to China are recovering

Source: ABS

ON THE HORIZON

BRICS DIPLOMACY

Wooing Southeast Asia … the BRICS leaders from Brazil, China, South Africa, India, and Russia last year.

Southeast Asia’s regional unity is facing an interesting new test as some of the group’s largest economies are taking different paths toward new external economic links.

Early in the year Indonesia switched its attention from a dalliance with the BRICS (Brazil, Russia, India, China and South Africa) developing nations group to instead start accession discussions with the Organisation for Economic Cooperation and Development (OECD) group of western industrial economies.

But now Thailand and Malaysia have quickly followed with bids to join the BRICS perhaps seeking to assuming the economic connections that could have been once pursued by Indonesia.

Last year Indonesian President Joko Widodo appeared to lend his country’s considerable weight to an expansion of the BRICS alongside peers including Egypt, Iran, and Saudi Arabia. But Indonesia then shifted its attention to becoming the first Southeast member of the OECD, with Australia backing that approach.

With the Group of Seven large economies seeking to muscle up to the idea of the BRICS as a competing global economic group, providing a pathway for Indonesia to the OECD was a strategic victory.

But in May Thailand said it would join the BRICS to enhance its reputation amongst developing countries which it is continuing to do,  despite also getting approval to the start discussions with the OECD in June. This process then became more competitive when Malaysian Prime Minister Anwar Ibrahim said he was seeking Chinese support to also join the BRICS.

Thailand and Vietnam have presented their moves as avoiding getting caught up in US-China geoeconomic rivalry. But with Vietnam also showing some interest in the BRICS while Indonesia plays its OECD membership card, questions will arise about how this detracts from the Association of Southeast Asian Nations (ASEAN) group’s ability to play a unified central role on global issues. 

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