CONTENTS 3 | Who We Are 4 | Editor’s Note 8 | The ASEAN Proxy Chen Weiheng
13 | AIIB: The new kid on the block Tan Chikoong
16 | The ascent of China: Where does Singapore fit in? Yensiang Pang
19 | A Tale of Three Cities Chen Weiheng
24 | Online streaming – The next battlefield for Chinese tech giants? Nathan Gu
27 | Counterfeiting in China Georgie Kwok
29 | Is Renminbi the new currency of the world? Sam Ho
32 | Get used to the Renminbi Bryan Chua
36 | India: New leader, same old story Tan Chikoong
39 | Abe’s archery and Japan’s fate Bryan Chua
42 | Could South Korea escape from the Chaebol syndrome? Sam Ho
46 | Gender balance in Singapore politics: An achievable dream? Yensiang Pang
48 | An Interview with Brendan Kwok Georgie Kwok
51 | Credits
Who We Are The LSESU Asia Careers Society (‘ACS’) is the only society on campus which specializes in providing insights into different career opportunities around Asia.
We serve as a platform for our members to explore careers prospects surrounding the fields of Banking, Law, Accountancy, Consultancy, Asset Management and alternative careers. We strive to serve as the perfect channel for respective firms to recruit banking and business graduates of the highest calibre from one of the world’s most prestigious universities. In the past, we organised recruitment receptions, firm visits, presentations, career-focused trips and internship panels. This year, we are envisaging an even more comprehensive range of events e.g. interview and soft skills sessions, career forums and informal dinners with business representatives and LSE alumni. We are aiming to make the events enjoyable as well as educational for both students and future business representatives. Our flagship events are our two annual company-visit trips, Asia Exposure and Legal Insight, which visit 20+ top tier banks, consultancies and law firms in total over the summer. Our annual publication, Asia Careers Journal, provides key insights on job prospects in Asia, and comments on current market trends, lifestyle and cultural differences between Asia and Europe to prepare its readers for success in their careers. Our new Bi-weekly News Journal contains our commentaries on recent market themes and news headline updates within the financial and legal circles sent directly to your mailboxes every other week.
EDITORS’ NOTE It has been a fruitful year for the Asia Careers Society and the Asia Careers Journal. With concerted efforts from all colleagues, the Society successfully served as a rigorous and resourceful platform that tightly connects our members with promising employment opportunities in Asia. As the voice of the only student society devoted to equipping LSE graduates with essential knowledge for a career in Asia, the Asia Careers Journal continues to strive for stimulating readers with versatile and in-depth analyses on important commercial and legal issues in Asia in 2015 – 2016. By leveraging the diversity of backgrounds among our Research Sub-committee members who came from different regions of Asia, the Journal has expanded its scope of research to keep readers abreast on a wider range of events. From the futuristic establishments of AIIB and ASEAN to the struggling reforms in India and Japan, the Journal extends to accommodate a holistic set of perspectives through which readers can discern their career prospects in Asia. In addition, the Journal also includes special articles featuring comparisons between the three Asian financial hubs – Singapore, Hong Kong and Shanghai – and gender discussion for broadened perspectives on Asia. We hope that our articles will not only assist you in navigating the exciting landscape of Asia, but also stimulate your interests in all of the intriguing issues presented in this Journal.
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In order to best serve our readers with an extended variety of valuable resources, the Editorial Team has chartered into new paths and pioneered the challenging initiative of circulating our qualitative insights on commercial and legal issues every two weeks. Comprising of selected significant news headlines and in-depth analyses, the biweekly newsletter sought to take our readers to the forefront of the dynamic development in the commercial and legal world in Asia. Together with another new attempt of conducting quantitative research and publishing reports on the Forex market, we have regularly delivered critical, actionable and timely insights to our readership. As another academic year draws to a close, I hope that our readers have had a most enjoyable journey of surveying and uncovering resourceful information among our vast pool of publications this year. Finally, I would like to take this opportunity to thank all of the Sub-committee members, as well as our marketing officers and secretary, for without your exceptional diligent efforts none of the above could have been achieved. Best regards,
Nathan Gu BSc in Economics 2017 Editor-in-Chief
Georgiana Kwok LLB Bachelor of Laws Deputy Editor-in-Chief
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The ASEAN Proxy Chen Weiheng
Source: Asia Pacific Daily
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n the last day of 2015, the ASEAN Economic Community (AEC) was officially launched. This ambitious endeavour has been a work in progress dating back to 2007 when the first AEC Blueprint was established, and is one of the fundamental “pillars” of the association itself. The debut was met with little ceremonial fanfare, as multitudes of challenges remain for the economic union to truly take off towards its lofty visions. Concerns are abound regarding the development divide between the more advanced ASEAN-6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) and the other four nations in the association (Cambodia, Laos, Myanmar, Vietnam), and the effectiveness of fully embracing the terms of economic liberalisation for 8
the latter four. In fact, there are still several incomplete measures under the AEC Blueprint 2015, such as with trade liberalisation, for which extensions have been granted to the nations in the latter group. In addition, there is a lack of institutions and mechanisms to enforce compliance, casting doubts on the full commitment of the member nations. Nevertheless, the “ASEAN way”, which favours a gradual and incremental pace of progress towards further integration, can be judged to be better than swifter alternatives as in Europe, in considering ASEAN’s unique diversity of cultural, political and economic systems.1 The AEC Blueprint 2025, minted in November 1 Low, Patrick. “Asean Economic Community faces numerous challenges.” South China Morning Post, 7 Jan. 2016. Web.
2015, continues to strive for that vision. These developments lay the context for what is shaping up to be a key economic battleground in the AsiaPacific. The combined ASEAN economy has a GDP of $2.4 trillion in 2013 and would be Asia’s 3rd largest and the world’s 7th largest. It can possibly become its 4th largest in 2050 if growth trends continue. It has a potential market of over 600 million people and the 3rd largest relatively young labour force after China and India. It is also pursuing a goal of establishing a single market and production base, and infrastructure development both across and within borders will play a
major role in this progress.2 It is thus inevitable that other major economic players in the world would want in on the action and opportunities in the region. Most notably, a proxy economic competition is brewing between the other two larger Asian economies, China and Japan.
While the failure to obtain the Indonesian rail project was regarded as a black-eye for Japan and prompted domestic hand-wringing, there is a long history of Japanese economic involvement in the region and the level of overseas direct investment (ODI) by Japan still far outweighs
Source: Brennan, Hugo. “Guest post: rocky road ahead for Asean Economic Community.” Financial Times, 13 Mar. 2015. Web.
The decision by the Indonesian government to award a lucrative high-speed rail contract to China instead of Japan in October 20153 sparked much rhetoric about the decline of Japan’s role in the region’s infrastructure investment and China’s supposed newfound position as the key economic influence in Southeast-Asia (SEA). However, a well-rounded analysis of the two giants’ economic influence in the region has to take into account the recent histories of economic relations between ASEAN and China and Japan respectively, as well as the natures of those relationships.
that of China, though the ASEAN share of ODI for both nations has converged in recent years.4
Japan has demonstrated commitment to continued investment and expansion in ASEAN. In the first half of 2015, Japanese investment in ASEAN was $10 billion, up from $8.4 billion a year earlier, and the region accounted for 15.7 percent of Japanese FDI. Japanese firms showed a strong appetite for acquisitions in the region, with the three largest deals being Kintetsu World Express’s $1.2 billion acquisition of Singapore’s APL Logistics, Mitsubishi Corp’s $1.1 billion Japanese Investment – Quality and acquisition of 20% of Singapore’s Quantity Olam International, and Kirin Holdings’ $560 million purchase of 2 “ASEAN Economic Community: 12 Things to Know.” Asian Development Bank, 29 Dec. 2015. Web. 3 Harding, Robin & Chiltoki, Avantika & Mitchell, Tom. “Japan cries foul after Indonesia awards rail contract to China.” Financial Times, 1 Oct., 2015. Web.
4 Oliver, Sarah & Stahler, Kevin. “Can Japan Tell Us Where Chinese FDI Is Going In ASEAN?” Peterson Institute for International Economics, 3 Jul., 2014. Web.
55% of Myanmar Brewery.5 Official authorities have also pledged to reduce the time needed to approve Overseas Development Assistance loans and to expedite the execution of infrastructure projects.6 Beyond investments, corporate Japan has demonstrated a remarkable interest in capturing ASEAN consumer markets with 66.3% of respondent companies putting SEA on their list of strongest potential markets.7 These trends give good reason to envisage a highly active investment environment in the region, facilitated by confidence in the progress of the AEC. Chinese Investment - Playing Catch-up Direct Chinese investment into ASEAN may be small compared to that of Japan’s, but Chinese companies are making significant inroads towards becoming a credible competitor to Japan’s clout in the region. China is the largest foreign direct investor in Cambodia, Laos and Myanmar, with significant manufacturing investment in Cambodia due to rising costs of production at home, and several large infrastructure projects, such as power plants, in Laos.8 In the more developed countries of ASEAN, Chinese investments were largely directed towards commercial real estate. Mainland Chinese investors 5 Saminather, Nichola. “Japanese companies remain more keen to invest in ASEAN than China.” Reuters. Thomson Reuters, 29 Oct. 2015. Web. 6 Bland, Ben. “Japan and China step up fight for Asean infrastructure contracts.” Financial Times, 22 Nov. 2015. Web. 7 Yasukawa, Hiroyuki & Ito, Manabu. “Business chiefs say Southeast Asia most promising new market.” Nikkei Asian Review. Nikkei, 7 Jan. 2016. Web. 8 “ASEAN Investment Report 2015.” ASEAN Investment Report 2015, p.11. The ASEAN Secretariat & United Nations Conference on Trade and Development, n.d. Web.
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Source: Oliver, Sarah & Stahler, Kevin. “Can Japan Tell Us Where Chinese FDI Is Going In ASEAN?” Peterson Institute for International Economics, 3 Jul., 2014. Web.
accounted for 30% of ASEAN commercial real estate investments above $10 million, and major Chinese residential developers have over $10 billion of planned projects in Malaysia’s Iskandar region, not to mention private investors saturating the Singaporean residential property market.9 In direct competition with Japan, China is also demonstrating interest in high-speed railway projects such as the Singapore-Kuala Lumpur line, in addition to other parts of the Kunming-Singapore railway already under construction. This points towards ever greater Chinese investment presence in the region, in line with Beijing’s pledge to scale up its economic involvement in ASEAN. As a reflection of that commitment, China has planned to increase its FDI into ASEAN to a cumulative $150 billion from $30 billion currently.10 The two entities also upgraded their Free-Trade Area Agreement in November 2015 with the aim of increasing two-way trade to $1 trillion by 2020.11 9 Bowring, Gavin. “China’s investment to shape Asean’s destiny”. Financial Times, 17 Apr. 2014. Web. 10 Ibid. 11 Koh, Jeremy. “China, ASEAN seek to further boost ties.” Channel News Asia. Mediacorp News Group, 4 Jan. 2016. Web.
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Beyond Money Flows While China and Japan may jostle for infrastructure projects and direct investments, there is a highly varied matrix for evaluating the size and depth of their respective economic influences in ASEAN. That influence goes beyond simply building ambitious construction projects and acquiring stakes in companies. Japanese firms, in particular, has committed itself to conducting business more organically in the ASEAN environment, as evidenced by its involvement in Singapore where 75% of Japanese FDI is contributed by non-manufacturing industries such as wholesale, retail, finance and insurance. Many Japanese companies regard Singapore as an investment trading hub in ASEAN, and have set up regional headquarters there to the tone of at least 2000 subsidaries.12 In addition, Japan will assist ASEAN governments to set up credit gurantee systems and gradually create research groups and loan mechanisms to make it easier for financial institutions to lend to smaller companies by
12 Kuboshima, Yuki. “The new trend: Japanese FDI to ASEAN.” British Chamber of Commerce, Singapore, n.d. Web.
reducing default risk.13 Its Thilawa special economic zone joint project with Myanmar launched in September 2015 is also a highlight in its push to be more economically involved in ASEAN. Notably, it will lead the ASEAN+3 Macroeconomic Research Office (AMRO) based in Singapore, alongside China and South Korea, and convert it into an official international organisation similar to the IMF in 2016, as concerns over a possible Asian currency crisis loom on the horizon.14 China’s involvement in this organisation does not come as a surprise, as it has endeavoured to lead in Asia through economic diplomacy via other organisations, most notably the Asia Infrastructure Investment Bank (AIIB), which was officially and legally established in December 2015 and is expected to commence operations and lending in 2016.15 While rhetoric of collaboration has been floated by Japan-led Asian Development Bank’s (ADB) president Takehiko Nakao16, some still see the AIIB as a rival for economic influence in the region and a vehicle to project China’s power, especially the USA, who have sought to contain it by discouraging its allies from participating. Security and Diplomacy The contentious issue of territorial disputes in the South China Sea can hardly be skirted when discussing Sino-ASEAN relations. While land 13 “Tokyo to help create credit gurantee systems.” Nikkei Asian Review. Nikkei, 6 Jan. 2016. Web. 14 Jiji Press. “Asian version of IMF to be launched in spring.” The Japan News. The Yomuiri Shimbun, 7 Jan. 2016. Web. 15 “China Focus: AIIB formally established in Beijing.” Xinhua News. Xinhua, 25 Dec. 2015. Web. 16 “ADB’s cooperation with AIIB a winwin, ADB president.” China Daily, 9 Jan 2016. Web.
reclamation and construction works on reefs in the disputed area have been completed, China may be unlikely to escalate tensions in the region as it seeks further economic collaboration with some rival claimants, such as the Philippines and Vietnam, and progress towards resolutions on security issues.17 However, the potential for flashpoints of conflict in the region remains high as the USA
with Indonesia, as a result of agreements to negotiate on transfers of defence technology after 2+2 security talks in Tokyo between the defence and foreign ministers of both nations, the first of its kind.20 The situation on the seas is precarious, but the growing economic relationship between the stakeholders in the region could serve as a counterweight against potential conflicts.
Source: “Q&A: South China Sea dispute.” BBC News. BBC, 27 Oct. 2015. Web.
is likely to continue backing its allies in the region in the name of freedom of navigation18 while China attempts to skirt multilateral efforts on the issue and focus on its “One Belt, One Road” and “Maritime Silk Road” initiatives.19
The Next Centre ASEAN demonstrates great potential to be the world’s next hot growth region, and it has already captured the attention of players worldwide seeking to capitalise on the boom that the success of the AEC will facilitate. However, challenges remain for the Meanwhile, Japan is ramping up community to grow intra-ASEAN military and security cooperation trade, bridge development gaps, and with ASEAN nations, most notably deepen collaboration on banking and capital market integration. 17 Tiezzi, Shannon. “China Seeks to Opportunities for external players lay Woo ASEAN Through Singapore.” The Diplomat, 10 Nov. 2015. Web. predominantly in manufacturing and 18 “China wants everyone to tiptoe around the big issue.” The Economist. The Economist Newspaper, 5 Aug. 2015. Web. 19 Xue, Li & Xu, Yanzhuo. “A Preview of China-Southeast Asia Relations in 2016.” The Diplomat, 8 Jan. 2016. Web.
infrastructure investment, especially as the single market takes shape and investments into manufacturing and production increase. This subsequently fuels intra-ASEAN and extra-ASEAN trade and creates much needed demand for infrastructure development to cover its current gaps, particularly in its less-developed nations. China and Japan are both stepping in to fulfil this role, and will be intrinsic to the growth of ASEAN into an advanced production and consumption market. Not to be overlooked is the importance of ASEAN’s development of its institutional structures to facilitate further growth and trade. Both China and Japan are enhancing trade relations in the region via multilateral organisations and agreements. Investments into the region will grow more diversified and sophisticated following its development, and the two great Asian rivals will no doubt be present and influential every step of the way. ASEAN’s way forward will be to capitalise on this competition to obtain sustainable benefits for its economy, while balancing delicate security and diplomatic relationships fraught with potential conflicts. While external factors will significantly shape ASEAN’s future, much of what could potentially be realised from ASEAN’s lofty ambitions lay within itself, and whether it has the resolve to see the AEC to its full fruition and properly harness the interest from the world and turn it into full, undivided attention.
20 Kyodo in Tokyo. “Japan courts Indonesia with defence equipment as it seeks to counter China’s influence in Asia.” South China Morning Post, 17 Dec. 2015. Web.
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AIIB: The new kid on the block Tan Chikoong
Source: www.gov.cn
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he Asian Infrastructure Investment Bank (AIIB) was formed on October 2014, less than two years after the initiative was first proposed by China President Xi Jinping and Premier Li Keqiang.1 The AIIB is designed to act as a counterpart to the World Bank (WB) and Asian Development Bank (ADB), serving to promote the development of infrastructure and other productive sectors in Asia through the provision of funds. It was created in part due to China’s frustration that it was not given a higher standing in current multilateral development banks commensurate with its position in global affairs. Since its inception, the AIIB has been garnering a lot of attention, most notably over the US calls for other countries to boycott it.
While its critics have called the AIIB a political weapon, the participation of countries such as Germany, France and the United Kingdom2, all G7 members, adds credibility to the bank and should go some way in dispelling the notion of it being a political weapon. The AIIB may also help to compensate for the current inadequacy of development funding by multilateral development banks. The AIIB is unlikely to insist on free market economic policies and is expected to be less bureaucratic than the WB; it aims to be quicker and leaner than current multilateral development banks. The success of the AIIB is one that could yield benefits, not just for China but for the rest of the world as well.
1 AIIB/
2 bers/
http://www.aiib.org/html/aboutus/
http://www.aiib.org/html/pagemem-
China and the AIIB The AIIB can be viewed as part of China’s broader regional infrastructure plan, known as “One Belt, One Road”, with the AIIB providing funds to improve the economic situation of its Asian neighbours through various infrastructure projects. With the Silk Road being a cross-border initiative spanning several countries, the funding by the AIIB could help to expedite the construction of the necessary infrastructure. The share of global infrastructure spending in Asia is projected to grow from 30% in 2012 to 40% in 2018 and 48% by 2025, largely driven by China.3 In international trade, there is a model known as the gravity model. This model states that the larger 3 http://www.pwc.com/gx/en/capital-projects-infrastructure/assets/infrastructure-development-in-asia-pacific.pdf
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LSESU ACS ASIA CAREERS JOURNAL the GDPs of trading partners, the more bilateral trade occurs. Further, the greater the distance between countries, the less they will trade with each other. This model has great implications for China. As the GDPs of Asian countries increase, they will trade more with China. With the construction of infrastructure, crossborder distances will be reduced, leading to further integration within Asia. This will increase trade not just in Asia but with Europe as well.4 The funding of its neighbours’ infrastructure projects will also help China to gain goodwill and demonstrate its commitment to achieving inclusive growth within the region. This represents a great opportunity for China to build strong diplomatic ties within the region and reassure countries that it does not plan to be an antagonistic and destabilising superpower, considering that thus far, it has been involved in a few regional scuffles. Impact of AIIB Part of the frustration stemming from developing countries with regards to current multilateral development banks is that they are too slow, inefficient and have too many safeguards that put unnecessary burdens on borrowers. As an Indian official once told a former WB employee: ”Mr Dollar, the combination of our bureaucracy and your bureaucracy is deadly.” According to the ADB, Asia will need US$8.22 trillion for infrastructure between 2010 and 2020.5 Meanwhile, PwC estimates that the region will need to spend US$5.36 trillion 4 http://carnegietsinghua. org/2015/06/16/asian-infrastructure-investment-bank-win-win-for-china-eu-relations/ialz 5 http://www.cnbc.com/2015/06/25/ is-aiib-the-answer-to-asias-infrastructure-needs. html
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annually by 2025.6 However, current international finance is unable to meet this demand for funding. It is hoped that the creation of the AIIB will go some way in plugging this gap. The ADB estimates that Asia faces an annual financing shortfall of $800 billion while the bank only has $160 billion in capital. The WB has around $500 billion, but this amount is not only used for financing projects in Asia but around the world.7 The AIIB is expected to start with a capital of $100 billion, which may not be a huge amount but will go some way in alleviating the need for funding in Asia.
Having become risk averse, these banks have become slow and bureaucratic. For example, the WB has a resident executive board that meets as much as several times a week to make decisions and micromanage the bank’s activities. Given the many decisions that have to be made at the WB, the process becomes very slow and the board is a bottleneck. There is also the cost of maintaining such a board; it costs $70 million a year. The long waiting time and numerous red tapes have put off a lot of developing countries from approaching the WB to obtain a loan. Furthermore, in this information age where things move
Another important implication of the AIIB is that if it succeeds, it could serve as a new model for how multilateral development banks could be run.8 Current multilateral banks are cumbersome and unable to react quickly to new challenges, frequently imposing unreasonable/ unrealistic demands on borrowers.
quickly, it is important to be nimble to react quickly to new developments. Current institutions lack this agility and are less able to meet the needs of developing countries. The AIIB’s aim to be a lean and nimble bank with a shorter decision time may just be the antidote for developing countries.
6 http://asiahouse.org/pwc-asia-pacific-region-requires-huge-investment-infrastructure/ 7 http://www.wsj.com/articles/u-s-to-seek-collaboration-with-china-led-asian-infrastructure-investment-bank-1427057486 8 http://www.ft.com/cms/ s/0/14c9f302-0397-11e5-a70f-00144feabdc0. html#axzz3wYIyfsJU
By providing co-opetition, the AIIB could prompt the ADB and WB to reflect on the way their organisations are currently run, allowing for improvement. In the past, with most development banks following the same blueprint for setting up the way their organisations are operated,
Source: Reuters
there is a lack of incentive to improve the efficiency of their organisations. Now with the AIIB providing a different model, its success could lead to a re-think of how current development banks should be run. In a way, the AIIB can already be considered a success. The ADB has said that it will perform a review on its approval procedures in order to match the AIIB’s greater speed. Moreover, Shinzo Abe, the Japanese Prime Minister, announced that $110 million would be made available for infrastructure projects in Asia over the next 5 years. With the AIIB still in its infancy, it too can learn from the ADB and WB. In terms of identifying the warning signs of corruption, using transparency and adopting good governance practices, these are areas that the AIIB can learn from the WB and ADB to ensure that risks are mitigated. AIIB will also be working with the ADB and WB to co-finance some projects, thereby increasing the learning effects among the organisations. Through co-opetition and learning from each other, multilateral development banks can improve their operations to serve the needs of developing countries better.
What next for the AIIB? Operations are expected to begin some time in mid-January and Jin Liqun, the bank’s president, has said that he expects the bank to lend $10$15 billion in the first 5-6 years.9 This is good news for many companies around the world. With growth slowing in many regions and Asia expected to grow the most rapidly, investment in infrastructure will be a great boost in a region sorely lacking such facilities. Currently, most of the exports and imports from Asian countries were within the region, with the share of intra-regional exports growing from 41.2% in1990 to 54.7% in 2014.10 With the growing prevalence of the global value chains (GVCs) in Asia, good infrastructure, high human capital development and less restrictive labor market regulations all positively contribute to greater GVC participation for individual countries.11 Better infrastructure will make it easier for 9 http://www.ibtimes.com/china-led-development-bank-aiib-formally-established-commence-operations-january-2239908 10 http://www.adb.org/sites/default/ files/publication/175162/ki2015-rt-globalization.pdf 11 https://www.imf.org/external/pubs/ ft/reo/2015/apd/eng/pdf/areo0415.pdf
companies to conduct business while greater connectivity among Asian countries will lead to an increase in the flow of goods and services within the region, thereby further increasing growth within the region. An example of the benefits that can be reaped from better integration can be seen from the Greater Mekong Sub-Region (GMS) program. An economic corridor was envisaged to connect Thailand, Cambodia, Laos, Myanmar, Vietnam (CLMV) and two southern-most provinces of China. Close to $11 billion was invested in the infrastructure in the GMS over the last decade.12 As a result, the economies of the participants have grown rapidly and IMF projects that the CLMV economies will be the fastest growing economies in ASEAN over the period to 2017, with Laos expected to grow 8% and Cambodia 7.2% in 2016.13 While there may be other considerations involved, such as regulatory and financial integration, there is no doubt that better infrastructure will aid in physical integration that will provide benefits to countries in Asia.
12 https://www.kpmg.com/SG/en/ IssuesAndInsights/ArticlesPublications/Documents/ASEAN-Poised-for-Accelerated-Economic-Growth.pdf 13 http://www.imf.org/external/pubs/ ft/survey/so/2015/car100915a.htm
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The ascent of China: Where does Singapore fit in? Yensiang Pang
Source: AP
“W
hen China sneezes, the world could catch a cold.” This sentence appropriately summarises China’s global influence in the 21st century. In the last decade, the global balance of power has gradually shifted to the East. Meanwhile, with its strategic positioning in Asia and strong ties with China, Singapore stands to gain plenty. This article seeks to examine the bilateral relations between Singapore and China so far, and take a look at what the future possibly holds for them. In 2015, Singapore and China marked 25 years of formal diplomatic relations. Historically, China has had relations with the Southeast Asia region as early as the 6th century. There also remains cultural linkages between the two countries on account of the downwards migration of ancestors from China. But the close relationship of the two countries can generally be attributed 16
investment. In the financial markets, Singapore has become the second largest offshore market for renminbi. In the tourism industry, China is Singapore’s second largest source of tourist arrivals. Contrastingly, Singapore sends a huge proportion of tourists (in relation to its population) to China. Singapore was the first Asian country to establish a bilateral Free Trade Agreement (FTA) with China, which boosted bilateral trade and investment by over 160% and 162% respectively. To commemorate to the strong rapport between the 25 years of diplomatic relations, political leaders of each country at the FTA is set to be substantially the time, Prime Minister Lee Kuan upgraded to progress with new global Yew and Deng Xiaoping respectively. trends and challenges. Even before formally establishing diplomatic relations, Lee visited The most unique aspect of the China in 1976, while Deng made his Singapore-China relationship is first state visit to Singapore in 1978. perhaps the existence of several The high level of mutual admiration joint government-to-government and respect was key to cooperation (G-to-G) development projects, between the two countries. While notably the 1994 Suzhou Industrial China was in its economic reform Park, and 2007 Sino-Singapore phase, Deng identified Singapore as Tianjin Eco-City. A third bilateral a model China should learn from. project to be based in Chongqing was Since then, almost 50,000 Chinese announced in 2015. These projects officials have been sent to Singapore are significant because China has for training or observation of never partnered any other country Singapore’s governance. for such large-scale industrial projects on Chinese land. The developments Today, economic ties between the two allowed China to emulate Singapore’s countries are numerous and strong. tested and successful models, while China is Singapore’s largest trade helping Singaporean companies to partner, with two-way trade reaching expand their regional and global US$121.5 billion. Singapore has been presence in order to sustain their China’s largest foreign investor for economic growth. the last two years, with a cumulative total of US$72 billion worth of Where does the problem arise
then? Currently, China’s markets have been in turmoil as the country moves into a new stage of growth. Its rapid economic expansion in the last decade must eventually come to an end, and the economy is slowing down. (Although of course, figures of 6-7% economic growth are impressive compared to the rest of the world.) Being an export-reliant economy, Singapore is likely to be one of the worst affected. Economic growth in Singapore was 2.1% in 2015, the slowest in 6 years. The impact of China’s slowdown on Singapore may very well be taking effect. It is estimated that a 1% fall in China’s economic growth will subtract 1.4% from Singapore’s.1 In the past two decades, China has grown at a pace immensely faster than Singapore. In 1990, China’s GDP was 10 times larger than Singapore. Today, it is 30 times larger. Due to Singapore’s geographic positioning, cultural similarities, and stellar governance, it had the opportunity to act as a catalyst for China’s trade relations within the Southeast-Asia region. That was at a point in time where China was just beginning to open its doors to trade and international relations. However, by now, China has developed its own political and economic relationships with other countries. The “One Belt, One Road” initiative reflects China’s awareness of the importance of such cooperative relations. The problem Singapore now faces is finding a new position to meet the needs of the rapidly evolving China. Apart from G-to-G projects, Singapore and China have also collaborated in other private sector1 “China Slowdown to Hurt Export-Heavy Singapore the Most in Southeast Asia”, Karl Lester M Yap, Bloomberg, 10 Jan 2016
led joint projects. For example, the Sino-Singapore Guangzhou Knowledge City (SSGKC) is a 50-50 joint venture by Singapore and Guangzhou institutions such as Temasek Holdings and the Guangzhou Knowledge City Investment and Development Co. Ltd. While Guangzhou benefits from Singapore’s management and planning expertise, Singapore is able to capitalise on China’s economic growth as well as set the foundation for future investment and cooperation. In October 2014, the Intellectual Property Office of Singapore (IPOS) and the State Intellectual Property of China signed an agreement to enhance IP cooperation between the two countries and jointly develop the SSGKC.2 This will have a great impact on Singapore’s growth and development in the long run as it moves towards a more knowledgebased economy, and strengthens Singapore’s value to China.3 The existence of these various projects mark a significant move away from simple political and economic ties, but sharing expertise in areas such as modern connectivity, services and cities. In the short-term, upgrades of the Singapore-China FTA as well as the third G-to-G project in Chongqing will strengthen and stabilise bilateral relations. However, for a small open country like Singapore, it is always necessary to plan much further ahead. In a speech at the Global Trader Dialogue 2015, Seah Moon Ming, chairman of International Enterprise Singapore, notes Singapore’s unique 2 “Singapore to establish intellectual property representative office in China”, Channel NewsAsia, 16 Apr 2015 3 “Building intellectual capital in Singapore”, Zaid Hamzah, The Malaysian Insider, 3 Feb 2015
positioning within Asia.4 2016 will mark the 25th anniversary of AseanChina dialogue relations. Singapore is the current country coordinator, which is perhaps a representation of its crucial role as an international trade hub. With strong trading relationships and logistical services, as well as a strategic location within Asean, Singapore stands to play a constructive role in China’s Asean forage. In conclusion, Singapore must keep a close eye on China’s developments in the next decade. As China undergoes major economic restructuring, there will surely be opportunities Singapore can take advantage of. Regardless of its economic diminutiveness relative to China, Singapore retains a comparative advantage in certain niches, such as public administration and modern technology. Singapore must continue to strategically adapt itself to be able to meet China’s changing demands.
References “Singapore’s bid to sustain its unique ties with China”, John Wong, The Straits Times, 3 Nov 2015 “Singapore-China ties: 7 things to know about 25 years of diplomatic relations”, Chew Hui Min, The Straits Times, 4 Nov 2015 “Singapore, China to establish ‘all-round cooperative partnership’ to elevate ties”, Channel NewsAsia, 7 Nov 2015 “Celebrating 25 years of Singapore-China diplomatic ties”, Sun Xueling, The Business Times, 26 Nov 2015 4 “Opening remarks by Mr Seah Moon Ming, Chairman, International Enterprise Singapore, At the Global Trader Dialogue 2015”, IE Singapore Media Centre, 12 May 2015
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A Tale of Three Cities Chen Weiheng Past and Present evin Kwan’s debut novel Crazy Rich Asians and its sequel China Rich Girlfriend were bestselling hits that introduced readers to an opulent world of wealth and prosperity in Asia. Much of the narrative in those novels were centred around the activities of the rich and famous in three of Asia’s wealthiest and most dynamic cities: Hong Kong, Shanghai and Singapore. That comes as no surprise, as the rapid rise of China and the Asia-Pacific region as a whole has created the engines of growth that are these cosmopolitan cities. Even in recent history, much of the region’s growth has been centred on these three cities. During the colonial era, regional trade flow was concentrated across the three ports, and the cities themselves evolved to be cosmopolitan and economically vibrant, especially in the cases of Singapore and the Shanghai International Settlement, with the latter regarded as the largest financial centre of the Far East. While Hong Kong took the crown in the AsiaPacific after the war, the steady rise of Singapore which continues into the 21st century and Shanghai’s role as China’s new economic showcase has put the three cities in competition with one another for Asia-Pacific’s top spot.
K
Not Exactly Similar Simplistically, one may assume that the economic make-up of these three cities are similar and that may be the case on the surface level. Financial and commercial services make up much of the city’s economic structure, and
Source: Chen Weiheng
they still retain their historically strong suits of trade, port and shipping services. Hong Kong was the world’s busiest port until 2004, while Singapore took over the top spot from 2005 to 2009, and the top position has belonged to Shanghai since 2010. These three container ports still remain comfortably within the top four in the world, and are unlikely to be unseated anytime soon.1 However, recent developments in the region have very different implications for the futures of these three cities, and it remains to be seen how they will adapt and evolve to these changing conditions and navigate the uncertainty of the near to medium-term future.
between it and Singapore in an oftdebated competitive relationship, since these cities appear at first sight to be so similar. Singapore ranks first in the world for ease of doing business, as it had for nine years in a row, while Hong Kong ranks fifth2, indicating that the regulatory environments in these cities are highly suitable for businesses seeking to establish themselves, or like many have done, set up their Asia-Pacific headquarters. For a comparison, Singapore hosts 40.8% of Asia-Pacific headquarters among 319 Fortune 500 companies, while Hong Kong hosts 34%, with ever increasing numbers of large multinationals shifting their regional offices to Singapore.3 The numbers are broadly similar, but Using Hong Kong’s basis as the much commentary have been made leading Asia-Pacific financial centre, “Doing Business.” World Bank Group, we can first draw comparisons 2 1 Rapoza, Kenneth. “The World’s 10 Busiest Ports.” Forbes, 11 Nov. 2014. Web.
n.d. Web. 3 Cheng, Evelyn. “Bad news in Hong Kong is good news for Singapore.” CNBC. NBC Universal, 2 Sep. 2014. Web.
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LSESU ACS ASIA CAREERS JOURNAL
Source: Wikimedia Commons
about the decline of Hong Kong as a business destination relative to Singapore. The major wave of political protests in 2014 have led to concerns about Hong Kong’s stability and mainland China’s increasing political control over the territory. Those concerns are heightened after recent incidents involving the prominent disappearances of several publishers and booksellers from Hong Kong with the involvement of the Chinese authorities. “Bad news in Hong Kong is good news in Singapore” is even used in a headline to highlight how this affects the competition between the two cities.4 In addition, Hong Kong is cited to have much higher operational costs than that of Singapore, especially due to its skyhigh property rental prices.5 Thus, Singapore seems to be gradually developing an edge over Hong Kong in areas of political stability and realestate costs. Despite this, Hong Kong has a differing specialisation compared to Singapore. Hong Kong relies mainly on its role as the easy 4 Ibid. 5 “Singapore vs Hong Kong: Which city is better for business?” Singapore Business Review. Charlton Media Group, 3 Jul. 2015. Web.
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gateway to mainland China, which is still the destination to be although confidence has been hit by market and currency turmoil in early 2016. Hong Kong has also held on to a traditionally strong position as a global financial hub which is difficult to displace immediately. Within its financial sector, Hong Kong far eclipses Singapore in terms of IPOs, as it topped the 2015 world rankings with HK$260.3 billion raised from 123 listings, many from major mainland China firms.6 Singapore, on the other hand, only had 13 IPOs which raised SGD330 million7, and has suffered from global weakness in commodities markets. This is especially pronounced as it is a major hub for commodities trading and had a fast-growing commodity derivatives business in its exchange.8 In terms of equities, Hong Kong also far outclasses Singapore as the capitalisation of the Hong Kong Stock Exchange is almost four times 6 “Hong Kong tops 2015 – global IPO rankings” The Standard. The Standard Newspaper Publishing, 22 Dec. 2015. Web. 7 Cottle, David. “Singapore IPO market stuck in Hong Kong’s huge shadow.” News.Markets. 11 Jan. 2016. Web. 8 Grant, Jeremy. “Singapore jostles with Hong Kong for financial crown.” Financial Times. 16 Oct. 2014. Web.
the size of the Singapore Exchange.9 The much higher trading volumes and values are more attractive to banks and investors. As such, Hong Kong’s existing comparative advantages in the areas of listings and equities in the financial industry still present a formidable barrier for Singapore to overcome. Singapore’s advantages extend to different areas in the financial industry. In the forex market, Singapore is the largest hub in Asia and third-largest in the world10, and has grown in importance as an offshore RMB hub, coming hard on Hong Kong’s heels. For example, Singapore’s United Overseas Bank (UOB) is offering intermediary services for the RMB as a settlement currency, especially for Chinese companies expanding into Southeast Asia.11 Singapore is also growing its 9 Le Lesle, V. & Ohnsorge, F. & Kim M. & Seshadri S. “Why Complementarity Matters for Stability – Hong Kong SAR and Singapore as Asian Financial Centres.” p.16, Strategy, Policy and Review Department. International Monetary Fund, Jul. 2014. Web. 10 Grant, Jeremy. “Singapore jostles with Hong Kong for financial crown.” Financial Times. 16 Oct. 2014. Web. 11 Grant, Jeremy. “Battle is on for offshore renmimbi market.” Financial Times, 29 Jul. 2015. Web.
already regionally dominant wealth and asset management business to rival Hong Kong’s, with total assets under management up 30% to $2.4 trillion from 2013 to 201412, and Singapore’s private banking sector is larger than that of Hong Kong’s, mostly due to views of its similarities to traditional Swiss-style private banking.13
Shanghai has dominated headlines in business and financial news with the opening of the aforementioned stock connect, its free-trade zone and in a less positive light, the recent turmoil in its stock market. The city is seeking to become one of the world’s top financial centres and a base for technological start-ups by 2020.14 Some of its efforts towards
Looking at front-office job vacancies, Hong Kong edges out Singapore in most categories bar corporate banking, private banking and trading, where Singapore has significant advantages in FX and commodities to balance out its shortcomings in equities. Thus, while Hong Kong seems to be holding the lead in most categories, Singapore is rapidly catching up in several specialisations in the financial industry. This is even so despite the much-lauded Hong Kong-Shanghai Stock Connect, leading us to the third city muscling in on Asia’s competition.
achieving that can be seen in its freetrade zone, established in 2013, and is viewed as a competitor to low-tax Hong Kong with its tariff free ports and tax and policy breaks to foreign investors.15 However, reviews of this endeavour have been less than stellar, with complaints of the slow pace of market liberalisation.16 Despite that, current trends are indicating a likelihood of Hong Kong’s role in China’s economy being eclipsed by that of China’s larger cities, especially Shanghai, whose $354 billion GDP already far outstrips Hong Kong’s $261 billion. The latter’s share in China’s GDP has also declined from
Old World Glory, New World Order 12 Boon, Rachel. “Opportunities in niche areas for Singapore: Heng Swee Keat.” The Straits Times. Singapore Press Holdings, 13 Jan. 2016. Web. 13 Mortlock, Simon. “Hong Kong vs Singapore: Which is best for front-office banking jobs?” efinancialcareers.com. 19 Jun. 2015. Web.
14 Wan, Adrian. “Too ambitious? Shanghai aims to be both top financial hub and ‘China’s Silicon Valley’ by 2020.” South China Morning Post, 1 Apr. 2015. Web. 15 Lu, Rachel. “Hong Kong Becoming ‘Mere Second-Tier’ Chinese City.” Foreign Policy, 2 Sep. 2014. Web. 16 Wildau, Gabriel. “Shanghai free-trade zone struggles for relevance.” Financial Times, 27 Sep. 2015. Web.
15.6% in 1997 to 2.9% in 2013.17 While China’s messages to Hong Kong to downplay its significance may be politically motivated, there is no denying that Hong Kong faces stiff competition in retaining its unique advantage as a gateway to the mainland if other Chinese cities like Shanghai liberalise its policies and markets to offer more direct access to Chinese markets. Already, plans are underway to expand reforms in the Shanghai FTZ, such as an expansion of the free trade account system, under which 40,000 accounts totalling an annual income of $282 billion have already been opened.18 Financial services firms are also expanding in Shanghai. UBS AG plans to double the staff at its China wealth management teams and open a new wealth management branch in Shanghai by the end of Q1 2016, after its asset management division launched an entity in the FTZ to raise private funds for overseas investments under the Qualified Domestic Limited Partner Scheme (QDLP).19 Credit Suisse is also looking into expanding its wealth management presence in China, particularly due to the dramatic increase in the wealth of millionaires in China, which are expected to increase by 12% annually to $8.25 trillion by 2020.20 These developments point to Shanghai’s increasing attractiveness and clout as a financial centre. This is especially so as the demand for wealth management and investment services, 17 Lu, Rachel. “Hong Kong Becoming ‘Mere Second-Tier’ Chinese City.” Foreign Policy, 2 Sep. 2014. Web. 18 Shi, Jing. “Measures presented to further open Shanghai free-trade zone.” China Daily, 30 Dec. 2015. Web. 19 Heavens, Louise. “UBS plans hiring spree for China wealth management team.” Reuters. Thomson Reuters, 11 Jan. 2016. Web. 20 Voegeli, Jeffrey. “Credit Suisse CEO Says He Remains Positive on China, Echoing UBS.” Bloomberg Business. Bloomberg, 12 Jan. 2016. Web.
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LSESU ACS ASIA CAREERS JOURNAL coupled with its efforts towards market liberalisation, present an advantage in opening a world of new opportunities for financial services to get an early step in on the action.
them. Singapore could be seen as a financial centre for South East Asia while Hong Kong concentrates on mainland China and East Asia.22 Singapore has close links with the
Source: Chen Weiheng
Complements, not Substitutes Despite Shanghai’s rapid advancements, it appears that it is unlikely to take over Hong Kong’s position as the gateway into the mainland in the near future as most large Chinese companies still conduct IPOs in Hong Kong, China still receives most of its FDI via Hong Kong, and Hong Kong’s stable investment environment, clear and transparent laws and the continued development of links with the mainland, such as the stock connect and its hosting of the “dim sum” yuan-denominated overseas-issued bonds21, ensures it stays ahead of the competition.
potential hot growth region of ASEAN via the newly established ASEAN Economic Community, while Hong Kong can continue to utilise its advantage of its links with China. There are also opportunities for the two cities to collaborate on trade and business relationships.23 Mainland China has also sought to collaborate with Singapore via ambitious projects such as the ChinaSingapore Suzhou Industrial Park and the Sino-Singapore Tianjin EcoCity. Shanghai still remains behind in terms of financial services, but its future development as one of Asia’s top financial centres can almost be assured as the Chinese government
While the relationship between these three cities has been framed in a competitive light, there is much room for complements between
22 Le Lesle, V. & Ohnsorge, F. & Kim M. & Seshadri S. “Why Complementarity Matters for Stability – Hong Kong SAR and Singapore as Asian Financial Centres.” p.12, Strategy, Policy and Review Department. International Monetary Fund, Jul. 2014. Web. 23 Woo, Jacqueline. “More space for collaboration between Singapore, Hong Kong.” The Straits Times. Singapore Press Holdings, 3 Jun. 2015. Web.
21 R. S. “Why Hong Kong remains vital to China’s economy.” The Economist. The Economist Newspaper, 30 Sep. 2014. Web.
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actively seeks to develop it and others cash in on the opportunity. The story of constant evolution is the case for Singapore as well. There is anticipation for a Singapore-China stock link given Singapore’s strong yuan-clearing relationship with China, having cleared 37.5 trillion yuan of transactions in 2014.24 There are also efforts to strengthen the trading links between Singapore and other ASEAN nations to further integrate capital markets in the region, thus capturing potential growth areas in South East Asia and growing Singapore as the go-to destination for business and finance in the region.25 With the weight of the world economic and financial order shifting its way to the Asia-Pacific, the development of the three leading financial cities in the region will be watched by many. The fundamental competitive relationship between them is unlikely to fade away, even as there remain possibilities for complementary services and collaboration. This tale of three cities will guide financial growth and development in Asia for many years to come, and those seeking to step into this region will do well to pay attention to this unfolding story.
24 Goh, Eng Yeow. “Shanghai stock exchange links up with HK. Could Singapore be next?” The Straits Times. Singapore Press Holdings, 18 Apr. 2015. Web. 25 Grant, Jeremy. “Singapore urges closer Asean markets integration.” Financial Times, 12 Jun. 2015. Web.
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Online streaming – The next battlefield for Chinese tech giants? Nathan Gu
W
hen Netflix, the US online entertainment company that provides popular on-demand service of cyber movie streaming, announces that it has gone “global” on 7th January 2016, its share price took a light jump by 9%1. This gain is truly remarkable, especially at a time when the global equity market was not performing well in the wake of another round of mini-Chinese stock meltdown. However, there is a key participant missing among the “130 nations” in which Netflix users can now access its streaming service – China. This does not mean that China is populated with consumers who don’t resonate with the idea of streaming video on their digital devices. On the contrary, the Chinese streaming market worths around USD$ 5.9 billion, which is more than double the revenue of Netflix in 2012.2 Together with investors’ high spirit in endorsing the future of online streaming around the globe, the evolution of China’s e-streaming market would present a new set of opportunities and challenges faced by
First come the opportunities. One fundamental edge of online TV and movie streaming as opposed to traditional cable broadcasting is that they do not have to pay fees for cable providers. This lowers the cost of service and enables online streaming firms to provide their subscribers viewing experience at a more attractive fees.3 For instance, whilst both Netflix and HBO provide similar services of original movies and documentaries, the former chargers a lower fee and is still able to produce the same earning per subscriber as the latter. In China, Tencent charges a maximum of only 20 yuan per month subscription fee for its video sites such as v.qq.com.4 Such competitive rates widen access of online video to Chinese viewers that demand top-hit Hollywood movies such as the Star Wars series, of which the online distribution is now exclusive to Tencent according its three-way agreement with Walt
1 Kalogeropoulos, Demitrios. “Why Netflix and Wal-Mart Rose on a Down Day for Stocks -- The Motley Fool.” The Motley Fool. The Motley Fool, n.d. Web. 29 May 2016. 2 EMarketer. “Digital TV, Movie Streaming Reaches a Tipping Point - EMarketer.” EMarketer. EMarketer, n.d. Web. 29 May 2016.
3 Satell, Greg. “The Future Of TV Is Here. Can Cable Survive?6.” Forbes. Forbes Magazine, 6 June 2015. Web. 29 May 2016. 4 Tarver, Evan. “Inside Disney and Fox’s Online Streaming Deal With China’s Tencent | Investopedia.” Investopedia. Investopedia, 16 Oct. 2015. Web. 29 May 2016.
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both domestic and foreign streaming titans.
Disney, 20th Century Fox.5 This deal for distribution rights highlights the second opportunity of online streaming in China: that Chinese users prefer professionally-made content to user-made videos such as those popularised via the videosharing channel Youtube, according to a report published by McKinsey in 2010. This explains why Youku Tudou, the biggest video site in China6, also bought 100 western movie titles including top hits like “Star Trek” and “Mission: Impossible” from Paramount Television and Licensing Distributions.7 The third aspect of the opportunity comes from the digitalisation of home entertainment habits. As the most common purpose serving the internet in China, watching videos online occupied 33.1% of time spent by Chinese consumers on their PCs in June 2015.8 Also, 77% of correspondents of a survey conducted by Span Consulting chose PC as their primary entertainment centre at home as opposed to an underwhelming 7% for TV.9 Such trends in digital habits presents more options for advertisers to make their products known to costumers – a 30 second – 1 minute compulsory advertisement period ahead of a video allows advertisers to make a 5 Tarver, Evan. “Inside Disney and Fox’s Online Streaming Deal With China’s Tencent | Investopedia.” Investopedia. Investopedia, 16 Oct. 2015. Web. 29 May 2016. 6 Takada, Kazunori. “UPDATE 4-Youku to Buy Tudou, Creating China Online Video Giant.” Reuters. Reuters, 12 Mar. 2012. Web. 29 May 2016. 7 Frater, Patrick. “China’s Youku Tudou Strikes Paramount Movie Deal.” Variety. Variety, 15 Sept. 2015. Web. 29 May 2016. 8 IResearch Global. “China Online Video Market Has a Bright Future_Views_Insights_iResearch.” IResearch Global. IResearch Global, 10 Oct. 2015. Web. 29 May 2016. 9 IResearch Global. “China Online Video Market Has a Bright Future_Views_Insights_iResearch.” IResearch Global. IResearch Global, 10 Oct. 2015. Web. 29 May 2016.
longer and more detailed presence to potential buyers.10 Embedded advertisements featuring products used within the actual video content is another option to impress viewers, alongside more traditional ways such as posting the ad as a column beside the video screen or introducing “popups”.11 The variety of options also allow online streaming companies to charge more advertising revenue to subsidise their low subscription fees or buy and produce programme titles that satisfy the tastes of Chinese viewers.
However, with opportunities come challenges. Firstly, the fact that Chinese consumers prefer professionally-made content means only online firms with deep pockets who can afford to buy movie and TV series from media company and endure the low-cost competition are fit to survive. Given the current crowded landscape of the market, which accommodates several big names such as Baidu, Alibaba , Tencent (the big three is nicknamed “BAT”) and Sohu, further consolidation in the market may appear necessary in the future with each Chines internet giant specialising on providing what they happen to be best at. Secondly, piracy still appears to be an issue in China, albeit this problem may improve for good reasons. 10 Mcfarland, Jeff. “The Future of TV in Asia.” MediaCom. MediaCom, 30 Apr. 2011. Web. 29 May 2016. 11 Mcfarland, Jeff. “The Future of TV in Asia.” MediaCom. MediaCom, 30 Apr. 2011. Web. 29 May 2016.
The number one problem of piracy content is that advertisers are not willing to pay to put their ads up on an illegal video and that viewers don’t have to pay subscription charges for pirated content as opposed to viewing a licensed TV series. Both hurt the revenue of online streaming firms, which may also face lawsuits filed by media production firms. Nevertheless, the problem is not expected to last long because of a number of facts. The first cue is that online streamers such as Youku Tudou (now owned by Alibaba) employ cyber guards that search for pirated content in order to mitigate its impact on firms’ revenue and to maintain better relationships with foreign copyrights owners to buy the titles for licensed content.12 The second dose of solution is the fact that giant internet conglomerate now also invests in film production. A prominent example is Alibaba picture’s (under Alibaba Group) investment in the fifth Mission Impossible film,13 incentivising Alibaba-controlled Tmall to crack down on any pirated version of the film its parent company has invested in. The third reason why piracy is likely to be alleviated is that Chinese consumers have become increasingly prone to use credit-card for online payments such as monthly subscription fees for streaming movies. At the same time finding pirated content is becoming more difficult, hence the low subscription rate provides enough incentives for viewers to save the troubles of searching for low-quality pirated 12 Carsten, Paul, and Jane LanHee Lee. “Once Piracy Havens, China’s Internet Video Websites Turn Police.” Reuters. Thomson Reuters, 05 Dec. 2013. Web. 29 May 2016. 13 Connor, Neil. “Wanda Group, Run by China’s Richest Man, Buys Hollywood Film Studio for £2.4 Million.” The Telegraph. Telegraph Media Group, 12 Jan. 2016. Web. 29 May 2016.
video that may expose users to the risk of computer viruses.14 As a result, there are positive reasons to believe that the once “piracy-heaven” China would slowly distance itself from the infamous title. In a nutshell, the video streaming trend in China is continuing to mature and provides numerous opportunities for potential tech players within the field. The backbone of such optimism lies in the ongoing enthusiasm of the tech savvy Chinese middle class to continually digitalise their shopping, entertainment band other consumption behaviours. Leading as the world’s smartphone market, the middle kingdom can expect its consumers to gradually switch to or switch between mobile and PC for viewing videos and the story of Facebook diversifying its attention from desktop to mobile apps may inspire any firm who wishes to share a slice of this growing pie. As for consumers and investors, we can relax and enjoy the show.
Selected References Kalogeropoulos, Demitrios. “Why Netflix and Wal-Mart Rose on a Down Day for Stocks -- The Motley Fool.” The Motley Fool. The Motley Fool, n.d. Web. 29 May 2016. IResearch Global. “China Online Video Market Has a Bright Future_Views_Insights_iResearch.” IResearch Global. IResearch Global, 10 Oct. 2015. Web. 29 May 2016. Mcfarland, Jeff. “The Future of TV in Asia.” MediaCom. MediaCom, 30 Apr. 2011. Web. 29 May 2016. Lin, Lilian. “Tuning In: Video Site Says People Are Paying.” WSJ. WSJ, 22 June 2015. Web. 29 May 2016.
14 Lin, Lilian. “Tuning In: Video Site Says People Are Paying.” WSJ. WSJ, 22 June 2015. Web. 29 May 2016.
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LSESU ACS ASIA CAREERS JOURNAL
Counterfeiting in China Georgie Kwok
Source: www.gdqygs.gov.cn
A
n imitation of a branded luxury good, slavishly copied down to the colour of thread and hue of the ‘leather’, may well have become a legitimate souvenir from Shenzhen — legitimate, in eyes of the bemused tourist, such an item being so evocative of the city as a counterfeit paradise; but surely illegitimate in the eyes of the law. This expression of flattery of the sincerest sort may not be so kindly received. However, development of the intellectual property law, and the propagation of the sheer concept of intellectual property rights, are still in their infancy in most parts of Asia. In the case of China, with the rising status of the country as a global economic and political power, it is about time the government looks more closely into their legal system, and particularly the law enforcement mechanisms, which ultimately reveal the bite of the legislation.
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The flourishing counterfeit trade in China may well be the morethan-obvious evidence of an utter breakdown in enforcement of intellectual property rights law in the country, but before we completely write-off the knock-offs as an embarrassment to the nation’s legal system it is worth considering the prerequisites of a functioning IP regime, and the various economic and social factors which underlie the strength of the illegal industry of counterfeit goods. A strong robust IP regime encourages the flow of commerce and foreign investment. However, a certain level of sophistication in infrastructure, in economic development, needs to be first attained in order to construct a legal structure sturdy enough to withstand the various complex challenges in the protection of intellectual property rights. The stronger a country’s IP regime,
the more attractive it will be for international companies to flock in and invest in the country. An article on the Forbes website co-authored by George Yip and Bruce McKern eloquently condenses the two sets of factors which determine the protection of a company’s intellectual property rights: 1) the ‘appropriability regime’, i.e. the general attitude towards copying in a given country; and 2) the ‘architecture of the industry’.1 While the IP protection system in China is still evolving, multinational companies have the chance to exert positive influence on the government to enhance their appropriability regime through legislative changes or tightened enforcement. Yip and McKern give the example of Microsoft as a MNC which has successfully wielded their might to influence better practice 1 Yip, G. and McKern, B. ‘5 Ways to Protect Your Intellectual Property in China’, Forbes Asia, 1 July 2015.
in the regime as regards IP rights was shut down. The company was protection. worth as much as RMB120m, or US$19.4m, and in that year While the nation has moved on alone, underscoring the potential from the imitation for survival scale and scope of the counterfeit (manufacturing Western-style market. The nature of the goods as weaponry in those war-battered counterfeit is often unmistakable years) to imitation to satisfy consumer and unabashedly unconcealed — demand for cheaper alternatives to in fact, some of these professional the original, it appears as though copyright-infringers actively market China remains in this primitive state their goods as ‘counterfeit’, and in of mind as regards the sheer concept close resemblance to the original. The of intellectual property and the quality of products can be impressive, protection it is afforded by the law. the level of closeness in resemblance Societal attitude towards counterfeit to the original is startling, and it is goods is not contemptuous enough fair to say that even imitation is a skill to discourage production. Indeed, in itself. Take the example of Ferrari despite its stunning economic growth sports cars: only four of the vintage and expansion of the middle class, model 330 P4 were built in 1967 individual rights remain somewhat — the fifth was allegedly spotted in of a theoretical concept. Having China. a legal mechanism protecting the individual’s intellectual creation is At this point, it might be a bit of an thus even more difficult to fathom, encouragement to hear that the legal let alone practically implement. framework for IP protection in China is improving, bolstered by efforts by the government. The number of specialised IP courts have increased. Indeed, it is to be noted that attempts have been made as early as 2005 in a suite of landmark decisions, which foreshadow a new resolve in tackling the issue of counterfeiting in the Source: www.shutterstock.com country. Nonetheless, it is plain to Additionally, in the context of see that China still has a long way to China, home to one of the world’s go. Despite the government’s efforts largest counterfeit industries, over the past the decade, the scale of there are underlying social and the counterfeit industry is still not economic factors fuelling a fully- diminishing. Perhaps China should fledged industry in counterfeit take heed of what advice Singapore goods. According to the April 2013 might have to offer. Singapore report published by the UN Office now leads in the development of on Drugs and Crime, the World IP law across the Asian continent, Customs Organisation (WCO) ranking sixth this year amongst 36 estimates that 67% of counterfeit countries in the Global Intellectual items seized worldwide between Property Index by the US Chamber 2008 and 2010 were from China. of Commerce measuring the state of Last summer in July 2015, a company IP environments around the world, in Beijing that manufactured and behind Sweden, France, Germany, exported over 14,000 fake iPhones the UK and the US; with China in
22nd place.2 Up until the latter half of the 1980s, Singapore had no IP system of its own. Instead, it had latched onto the UK registration system, requiring the re-registration of such IP rights registered and protected in the UK in order for the rights to be enforced within its national jurisdiction, highlighting the relative youth of the Singaporean IP regime. It is suggested that the effectiveness of IP enforcement in Singapore is largely due to the chosen method of enforcement. Most notably, the criminal procedure is employed in Singapore in the enforcement of trademark rights, a method which has proven to be efficient and having a deterrent effect. In comparison, it seems like the PRC laws regulating IP infringement and enforcement mechanisms simply lack teeth. The vastness of the nation may be another factor that makes policing counterfeiting an all the more arduous task.
References Antons, C. ‘Intellectual Property Law in Southeast Asia: recent legislative and institutional developments’ (2006) (1) Journal of Information Law & Technology. Einhorn, B. ‘Lessons From China’s Counterfeit Crackdown’, Business Week, 11-17 May 2015, p 32. Palit, A. ‘TPP and Intellctual Property: Growing Concerns’ (2013) Foreign Trade Review Vol. 48(1), p 153-160. 2 U. S. Chamber International IP Index, Infinite Possibilities (4th edn., 2016).
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LSESU ACS ASIA CAREERS JOURNAL
Is Renminbi the new currency of the world? Sam Ho
B
esides the circuit breaker incident and the slowdown of economy in China, the Renminbi inclusion is also a heated topic nowadays. The move comes at a crucial time for China, which is managing a significant slowdown in growth and has suffered deep falls in financial markets as questions While the SDR is not technically a currency, it gives IMF member countries who hold it the right to obtain any of the currencies in the basket— currently the dollar, euro, yen and pound — to meet balance-of-payments needs. So the ability to convert SDRs into yuan on demand is crucial. Its value is currently based on weighted rates for the four currencies. Since China is deemed to be the second largest economy in the world, would the inclusion of Renminbi into the 28
basket of SDR a sign for China to replace the USA to be the new international currency? This article argues that it is impossible for Renminbi to overtake the USD as the international currency, but potential to be seen as a valid competitor. The first part of the article is a defensive account of Renminbi to cynics who believe China’s leaders will show their true colours with a competitive devaluation like what she did this summer, claiming that Renminbi is not mature enough for the SDR inclusion. The article then highlights the internationalisation of Japanese Yen as an example to warn China as a history not to be recommitted. With an official recognition of Renminbi in the international world, the article acknowledges the importance of the SDR inclusion especially its impact
in the Asia Pacific region. All these contribute to the increasing role of Renminbi in the financial markets. Cynics believe that following SDR inclusion, China’s leaders will show their true colours with a competitive devaluation like what she did this summer. However this would be unlikely under the basis of three factors.1 The first is that China’s leaders had a nasty shock when the market hammered the yuan in the days after the Aug. 11 devaluation. A balance has been seen in Cross – border capital flows after two months
1 Hughes, Jennifer. “China Inclusion in IMF Currency Basket Not Just Symbolic FT.com.” Financial Times. Financial Times, 19 Nov. 2015. Web. 29 May 2016.
of record outflows.2 Second is China’s businesses racked up more than a trillion dollars foreign borrowing at the end of the second quarter, a sudden drop in the yuan would add to the cost of repayment. Third is if China’s leaders intend to move from the symbol to the substance of reserve currency, they will need to gain the confidence of foreign central banks. Clearly, a swing to devaluation would undermine that process. Under the circumstances aforementioned, it is difficult to see a competitive devaluation of Yuan be the way out of the SDR inclusion. Even the inclusion of Renminbi into the SDR basket was not a heavily political decision therefore a currency war is overworried, the history of yen internationalisation offers a cautionary tale for the yuan. Japan’s experience suggests a floating exchange rate, free cross-border flows and stable economic growth are all prerequisites for a currency’s successful internationalisation. The challenge for China will be hitting all three criteria. In the 1980s, the currency internationalisation comes in three stages. 1. Use in trade settlement and financial transactions 2. Providing a safe asset for investment by non-residents. 3. Is to serve as an anchor for the regional and, ultimately, global market. In the 1980s and 1990s, the yen made rapid progress from stage one to stage two. Since then it has stalled and even started to retrace its steps in some respects. Use of the yen as a trade-settlement currency started in 1960. Being a major exporter, a natural advantage was given to Japan in pushing the adoption of its 2 Bloomberg Brief. “China’s Yuan : Between Stability and Decline | Emerging Markets, Foreign Exchange | Bloomberg Professional.” Bloomberg.com. Bloomberg, 30 Nov. 2015. Web. 29 May 2016.
currency. Even so, early progress has proved difficult to sustain, especially after the emergence of yuan, won and baht partly led to the diminished use of yen as foreign reserves. Triggered by the Nixon shock, when the U.S. broke dollar convertibility to gold, Japan shifted to a floating exchange rate in 1973. However, foreign investment in yen assets has dropped gradually since then. Bank for International Settlements data show the yen accounted for 27 percent of global FX turnover in 1989, behind only the dollar.3 By 2013 though, it had dropped to 23 percent and third place. The yen share of global FX reserves dropped from 6.8 percent in 1995 to 3.9 percent in 2014.4
3 Ito, Takatoshi, and Anne O. Krueger. Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows. Chicago: U of Chicago, 1994. National Bureau of Economic Research. National Bureau of Economic Research, Jan. 1994. Web. 29 May 2016. 4 Ito, Takatoshi, and Anne O. Krueger. Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows. Chicago: U of Chicago, 1994. National Bureau of Economic Research. National Bureau of Economic Research, Jan. 1994. Web. 29 May 2016.
What drove the drop in the yen’s share of trade settlement, FX turnover and FX reserves? Part of the answer lies in the appearance of new rivals — the yuan as a trade settlement currency and the euro, created in 1999, as a store of value in FX reserves. However the real reason rests in Japan’s “lost decade” of slow growth and deflation. With the initial aim of facilitating trade between Japan and other countries, the slow growth and deflation made countries to hold Yen-denominated assets useless, the allure of the yen fell when Japanese share of global economy fell with it. Barriers to foreign direct investment in Japan, and concerns about increasing government debts and an aging population compounded the problems and guaranteed the yen wouldn’t become a regional anchor. In terms of where China’s yuan stand in this process and what are its prospects for advancing, progress on adoption as a trade-settlement currency has been rapid. The government has taken steps forward on liberalising the exchange rate and opening the capital account to cross border flows. 29
LSESU ACS ASIA CAREERS JOURNAL Even so, continued controls on both areas mean that progress towards foreign investment in yuan assets has been halting. If China wants to advance the yuan further as an investment currency and even as a regional anchor, a floating yuan, free capital flows and continued steady growth are all prerequisites. As Japan has found, keeping all three targets on schedule can be tough to do. Overcoming the risks aforementioned, Renminbi’s inclusion in the SDR basket boosts the Chinese currency’s portfolio allocations across a broad class of investors. This would likely to be at the expense of U.S. dollar holdings. Preliminary estimates in August from the IMF put the yuan share of the SDR basket in a range between 14 percent and 16 percent depending on whether the yuan would be added as a fifth currency or replace an existing currency.5 Since no formal obligation on the part of the IMF’s 188 members to hold a similar proportion of international reserves, Central banks have different reserve allocations because they have different circumstances. Countries with greater reliance on dollarinvoiced imports and financing might have larger shares of dollar reserves than countries with more exposure to imports and financing from the euro area. Countries with larger current-account deficits and central banks that are more inclined to intervene in currency markets need ore reserves, while countries with major reserve currencies tend to have less. The rest of Asia’s central banks, which have the strongest trade links to China and collectively have 5 Mayeda, Andrew. “IMF Approves Reserve-Currency Status for China’s Yuan.” Bloomberg.com. Bloomberg, 1 Dec. 2015. Web. 29 May 2016.
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even larger holdings of international reserves than China- would need to hold fewer dollars for import cover in the event of a balance-of-payments crisis. Non-Asian central banks with strong trade links to China would be similarly able to justify a reduction in dollar reserves in favour of the yuan. This certification of the Renminbi would give tremendous advantage to countries, including ASEAN member states that use the greenback as their trading currency. Indonesia had originally suffered in terms of foreign exchange as most trade transactions were in US dollars, if bilateral trade between China and Indonesia involves the Renminbi, it will reduce the dollar-rupiah trade cost. Seeing it as a great opportunity, Korea is also poised to issue panda bonds, in a move that marks the latest step in Beijing’s efforts to internationalise the Renminbi and deepen its onshore debt markets.6 South Korea has made extensive efforts to deepen its economic co-operation with China, which accounts for about a quarter of its exports. Last year it launched direct trading between the Renminbi and the South Korean won, and this year signed a trade agreement with Beijing.7 In conclusion, Renminbi is definitely is as a potential competitor for financial investments to the US dollars, but soon to establish its position as the world’s currency. After the financial crisis last summer and the Renminbi devaluation, many fear the inclusion of Renminbi into 6 Mundy, Simon, Jennifer Hughes, and Gabriel Wildau. “South Korea Poised to Issue First Sovereign Panda Bond.” Financial Times. Financial Times, 8 Dec. 2015. Web. 29 May 2016. 7 Mundy, Simon, Jennifer Hughes, and Gabriel Wildau. “South Korea Poised to Issue First Sovereign Panda Bond.” Financial Times. Financial Times, 8 Dec. 2015. Web. 29 May 2016.
the basket of SDR would only pose a potential currency war in-between China and the USA. Yet, this is proven to be in lower chance by the evidence highlighted aforementioned. With the internationalisation of Yen as a warning for China, China must beware of the challenges faced by Japan in the 1980s. Luckily, the strong growing service sector in China might make China stronger than Japan in terms of their economies and the increasing purchase of the yuandenominated assets especially in Asia Pacific, China could by higher chance go further than Japan in the 80s.
References Hughes, Jennifer. “China Inclusion in IMF Currency Basket Not Just Symbolic - FT.com.” Financial Times. Financial Times, 19 Nov. 2015. Web. 29 May 2016. Mayeda, Andrew. “IMF Approves ReserveCurrency Status for China’s Yuan.” Bloomberg. com. Bloomberg, 1 Dec. 2015. Web. 29 May 2016. Mundy, Simon, Jennifer Hughes, and Gabriel Wildau. “South Korea Poised to Issue First Sovereign Panda Bond.” Financial Times. Financial Times, 8 Dec. 2015. Web. 29 May 2016.
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Get used to the Renminbi Bryan Chua
Source: Getty Images
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n 11-13 August 2015, China surprised the world with a oneoff devaluation of the Renminbi (RMB) by about two percent. 1 This came at a time when global emerging markets including many in Asia, were facing significant currency depreciation pressure. The timing of the currency adjustment also coincided with the release of a series of worse-than-expected economic data in China. Not helping the situation was the concern over capital outflow for China as evidenced by the country’s worsening capital account deficit and continuous fall in China’s foreign exchange reserves. It was therefore relatively easy to conclude that this RMB devaluation was triggered by China’s desire to regain export competitiveness. 32
What was the motivation behind August’s RMB devaluation? We will discuss the background to RMB devaluation in this section. The recent devaluation of the RMB raised concerns that China is engaging in a currency war to boost her exports. This could lead to competitive devaluation of other Asian currencies and will cause investors to reduce their allocation to Asian equities and bonds. In a world of global demand weakness, competitive devaluation may not generate gains for China. It is important to observe that China’s global export market share has actually been increasing despite an almost 40% appreciation of the RMB since 2005. Over the past 10 years, China has offset the adverse impact of currency appreciation
through productivity gains as well as moving up the value added chain in her exports. China can no longer rely on producing low end products to compete globally and hence RMB appreciation has actually helped to drive industry consolidation in low end manufacturing exports. It appears that the RMB currency adjustment in August was driven not by competitive devaluation but an attempt by the Chinese authorities to move the RMB towards a more market driven currency regime which was aimed at strengthening the chance of the RMB entering into the IMF Special Drawing Rights (SDR) basket. This was confirmed in November 2015. 2 You may wonder how all this adds up and it
may help to first understand more about the RMB. We may be aware that the RMB is a currency with various restrictions including the amount that can be taken into and out of the China, trading etc. But the Chinese government has often been criticised of being a “currency manipulator” for imposing many restrictions on her currency. And having transformed into becoming the world’s second largest economy and largest manufacturer, China will have to gradually open up its market and currency to foreigners. In essence, this would facilitate freer trade in order to continue to drive economic growth. Allowing the currency to be freely usable is one of the key steps to opening its market and in fact there is evidence that China has been relaxing restrictions on the currency. Some examples include: eliminating the conversion quota of HK dollar to RMB; the recent launch of the Shanghai-HK Connect which opens up the domestic equity market in Shanghai to foreign participation; 3 the relaxation of interbank bond and interbank foreign exchange market for investment by global central banks and sovereign funds. 4 These measures have been occurring over the past 13 months, paving the way for the RMB to become an international currency. If the RMB is allowed to be determined by market forces, it is likely that the RMB will depreciate relative to the US dollar. This is simply because the US economy has been making a recovery after a prolonged period of expansionary monetary easing while China’s economic growth has been decelerating. Besides increasing uncertainties and shocks in the stock market caused by the
invasive measures from the Chinese government, foreign investor confidence in Chinese assets had eroded. The intervention in the stock market has been criticised as being counterproductive and reduced the credibility of the government. In addition, interest rate differential is also trending negative against the RMB as the US is likely to continue to raise interest rates gradually while China is easing monetary policy. For these reasons, there would be short term selling pressure on the RMB resulting in currency depreciation. It should be noted that this currency regime adjustment was implemented at a time when there was significant currency weakness particularly amongst emerging market currencies and the subsequent speculation of further RMB devaluation resulted in significant currency volatility for the RMB requiring the Peoples Bank of China (PBOC) to intervene to stabilise the currency. While China’s motivation was for the RMB to join the SDR basket when it devalued against the USD, we should expect in the future that the RMB exchange rate will be more closely linked to a basket of currencies weighted by its trading partners.
What are the implications of RMB joining the SDR? Now that the RMB will be in the SDR currency basket with effective implementation in October 2016, what is the outlook for the RMB and what are the policy implications for financial market reforms and further capital account liberalisation in China? Given the RMB is still not fully convertible, the entry of the RMB in the SDR currency basket will appear to be a catalyst to accelerate financial market reforms and capital account liberalisation. China would need to demonstrate and strengthen global confidence that the RMB is an effective global reserve currency. With further capital account liberalisation, China would inevitably need to manage capital outflow. Hence, it is expected that there will be further opening up of the domestic equity and bond markets in China to foreign participation. Over time, foreign portfolio investment inflows will help to offset some of the potential capital outflow. In the longer term, one important advantage of the RMB being a reserve currency is that along with increasing acceptance of the RMB as a currency to facilitate global trade and transaction, China can issue liabilities in her own currency. This 33
LSESU ACS ASIA CAREERS JOURNAL allows China to manage domestic liquidity which is a challenge typically faced by many emerging market economies particularly at a time when the US is tightening monetary policy. In the short term, the SDR status for the RMB is unlikely to lead to a significant increase in demand for the RMB currency. Yet, China can still manage capital outflow with further capital account liberalisation by simply reducing the Reserve Requirement Ratio (RRR) which currently stands at a level of 17.5% when most other countries have single digit RRR. There is ample room for China’s RRR to be cut going forward and this would be an important liquidity stabilisation tool in the short/medium term.
The outlook of the RMB is that the currency will see higher volatility but is likely to move along with the trade-weighted basket of currencies. Hence, China is no longer targeting the RMB against the Dollar but rather in relation to the currencies of her trading partners including the Euro, Yen, British Pound, Korean Won, Taiwanese Dollar, etc. In the case of offshore “Dim Sum” bonds, foreign investors had been happy to accept the relatively low yields in the past as they could gain 34
from an appreciating RMB. With the currency now no longer a oneway bet, investors have demanded higher bond yields to compensate for potential currency volatility and this situation was reflected in the offshore Dim Sum bond market over the past months.
well absorbed such that bond yields in China have been falling. Yet, some Chinese companies, particularly in the property and mining sectors, are still exposed to the risk of RMB depreciation given that they still have relatively high USD debt exposure.
Is foreign debt more risky for Chinese companies as RMB weakens? From a corporate perspective, Chinese companies have in the past borrowed USD offshore to take
Summary In conclusion, it is easy to see a growing importance of the RMB in the coming decade. The conditions are there for the RMB to play a bigger role in the global economy. China will continue to implement financial market reforms to internationalise the RMB. This milestone may take some time to manifest but its significance is akin to China joining the World Trade Organization (WTO) and one should not underestimate the pace that this occurs.
While the risks are high for some With the RMB joining the SDR, sectors, as a whole, China has little we should expect China to be more foreign debt exposure and RMB disciplined in managing its reserves weakness should not cause systemic in the future. risk on foreign debt.
advantage of lower interest costs and currency gains. However, the latest RMB movement has raised concerns of potential currency loss in USD debt financing. Larger Chinese corporates which have access to onshore bond market have now shifted their financing towards domestic bond issuance. This has resulted in a sharp increase in bond supply in the onshore market. However, as domestic liquidity in China remains ample given high savings rate and lack of investment alternatives, the increase in bond supply has been
References McGee, P. (11 August 2015). China’s currency devaluation: Escalation of ‘currency wars’ or welcome gesture towards market reform and financial liberalization? Financial Times, 1-4. China (5 December 2015). The yuan joins the SDR: Maiden voyage. The Economist, 1-3. Hong Kong (17 November 2014). HKEx celebrates the launch of Shanghai-Hong Kong Stock Connect. HKEx News Release, 1-3. China (10 September 2015). China opens onshore currency market to foreign central banks. Bloomberg News, 1-4.
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India: New leader, same old story Tan Chikoong
Source: AP
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n 16 May 2014, change had come to India. Narendra Modi of the BJP party defeated Rahul Gandhi of the ruling Congress party to become the new Prime Minister of India.1 It was a landmark victory, given the Congress party’s dominance in Indian politics since the country’s independence. Modi had swept to victory by promising to revive an economy that has stalled and stagnated. His victory was met with a wave of optimism that a new dawn has come for India. However, more than a year later, is Modi’s reign threatening to become a false dawn for India?
became clear that he and his party had triumphed in the election. The victory marked a remarkable rise for Modi, from the son of a tea seller to Chief Minister of Gujarat, and now Prime Minister of India. During his tenure as the Chief Minister of Gujarat, Modi oversaw a period of economic growth for the city, successfully attracting investments from local and international firms.2 This was a point that Modi had continuously stressed during his campaign, to demonstrate his credentials for the role, and to prove that he was the right man to kick start India’s flagging economy. After the election, there was fresh optimism in India that Modi would “India has won, good days are about be the right person to bring about to come” much needed change to the country This was tweeted by Modi as it 1 http://www.bbc.co.uk/news/worldasia-27439456
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2 http://www.theguardian.com/ world/2014/mar/06/narendra-modi-india-bjp-leader-elections
and revive its fortunes, while creating jobs and wealth for its people. Modi’s appointment also generated excitement among business leaders, many of whom saw him as a probusiness leader who would make investing in the country much easier than had been the case in the past. Make in India As part of an attempt to revive India’s economy, Modi has been touting the “Make in India” slogan since 2014, a programme designed to transform the country into a manufacturing powerhouse that would attract foreign investment and create jobs for the 1 million Indians entering the job market every month.3 During his overseas trip to France, Germany, 3 http://www.ft.com/intl/cms/s/0/ c35200da-40d3-11e5-b98b-87c7270955cf. html#axzz3wvc9EWNF
the US, the UK and Canada, Modi had worked hard to pitch the idea of “Make in India” to business leaders. However, his efforts were undermined by officials back home, when the main food inspection body made the claim that the Maggi noodles produced by Nestle contained too much lead, based on disputed evidence not backed up by other countries’ findings.4 That incident showed the dilemma that multinationals still face. While the benefits that can be reaped are huge, India’s bureaucracy and regulations remain notoriously difficult to navigate.
India’s infrastructure, both physical and non-physical, is woefully inadequate. The lack of railways, ports and roads make it difficult for companies to transport raw materials and finished products, adding a layer of complexity to operations. Soft infrastructure represents another problem for India. Companies are unable to easily acquire land or fire workers, making it difficult to conduct operations efficiently. One of the factors undermining Modi’s Make in India programme is the poor transport network, or more specifically, its railway network, which has been starved of investment
More than one year on and the mood is different. The initial optimism has faded and old problems have resurfaced. An inefficient parliament, where politicians spend more time squabbling and looking after their own interests than evaluating reform plans, remains, and the bureaucracy that hinders foreign investment has not been eliminated. The three main policies that Modi has been trying to push through to improve the business climate have all stalled. Reforms on tax, land and labor have failed to pass through parliament.7 Unfortunately, these three reforms are vital to reviving the Indian economy.
The program has had some success though, after both Foxconn and Xiaomi decided to set up manufacturing plants in the country. For Xiaomi, it was attractive to set up a plant in India in part because of the popularity of its smartphone in the country; India is its second largest market globally after China.5 Unfortunately, for companies looking to use India as a manufacturing base for exporting products globally,
for decades and is currently unable to support its growing population and demand for commercial freight. A study by World Bank found that logistic expenses in India are 2 to 3 times higher than its assessment of what they should be. A comparison with China shows how much India’s railway has declined over the ages; in 1951, Indian Railways was 2.3 times larger than China’s. Now, China’s railway is 1.6 times the size of India’s.6
4 http://www.ft.com/intl/cms/s/0/ 0035fa52-87c3-11e5-90de-f44762bf9896. html#axzz3x337vo6W 5 http://www.cnbc.com/2015/11/24/ modis-make-in-india-wins-with-xiaomi-butfdi-infrastructure-a-problem.html
A false dawn
The tax reform is not a new idea, having been mooted almost a decade ago. The primary idea behind the tax reform is to unify the 29 states under a single sales tax. This would eliminate the need to comply with multiple tax rules across different states, thus making it easier to conduct business. However, there are several obstacles in implementing the reform. First, there is a trade-off between the states and businesses/consumers. Choosing a suitable tax rate is tricky due to the differing consequences for the two groups. A high tax rate would benefit states but limit gains to businesses and consumers. Second, there is a trade-off among the states, which can be classified into two categories: producers and consumers. Producing states want to continue to impose inter-state levies on goods that pass their borders, a move that will defeat the purpose of having a common goods-and-services tax (GST) rate. Such levies have often led to delays at checkpoints, which a World Bank report in 2005 said has cost India’s economy millions
6 http://www.ft.com/cms/s/0/cec50dae-a974-11e5-9700-2b669a5aeb83.html#axzz3x1pOAnJU
7 http://www.cnbc.com/2015/09/10/ indias-modi-faces-three-reform-setbacks-in-twoweeks.html
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LSESU ACS ASIA CAREERS JOURNAL of hours and billions of rupees each year. According to the Associated Chambers of Commerce & Industry of India, “implementation of the GST could drop logistics costs by 20% for some goods, boosting exports by as much as 6.3%”. Lastly, there is a matter of politics; no political party wants to grant their opponent a victory. This is despite the fact that most political parties actually support the tax reform.8 The land reform largely rests on the land acquisition bill, which is designed to make it easier for businesses to acquire land for industrial and infrastructure projects. Current land law dictates that any government acquisition of land requires the consent of the majority of the affected population. Further, any proposed project that would dispossess farmers would have to undergo a social impact assessment9. The new land bill is paramount in allowing the Modi government to start projects to improve infrastructure in India, which is poor even by developing countries’ standards. There is no doubt that if India wants to boost productivity and growth, it has to improve its infrastructure. However, the Congress party led by Rahul Gandhi has been opposing the bill. In order for the bill to become law, it needs to pass through both the lower and upper houses of parliament. While Modi’s party controls the lower house, it does not have the requisite majority in the upper house to push through the bill. Further complicating matters is the perception that Modi is oppressing the poor and small landowners to 8 http://www.bloomberg.com/news/ articles/2015-07-20/modi-tries-again-for-indias-biggest-economy-reform-since-91 9 http://www.ft.com/cms/s/0/ee2fb6ec-3e55-11e5-9abe-5b335da3a90e.html#axzz3yH8Q2KRr
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pander to the interests of businesses. It is clear, however, that to attract foreign investments, the land acquisition bill has to be passed.10
The labour reform involves giving companies greater flexibility to hire and fire employees, changes that economists say will aid in job creation and economic growth. However, this reform has faced fierce opposition, with nearly 150 million workers in banking, manufacturing and construction going on a strike and many protesting in the streets.11 Indian politicians, wary of going against popular sentiment and being seen as sympathetic towards foreign companies, are also unlikely to allow the reform to pass in parliament.
10 http://www.forbes.com/sites/ saritharai/2015/04/22/modis-economic-reforms-agenda-in-india-hits-biggest-roadblockland/ 11 http://www.reuters.com/article/us-india-reforms-protests-idUSKCN0R21ZG20150902
The elephant and the rider Having failed to deliver on his campaign promises, Modi has seen his popularity decline, with his party losing an election in Bihar, India’s third-most populous state. This setback could further slow down Modi’s reform plans, as foreign companies will be hesitant about investing if they cannot be sure that Modi will be there to push through the reform plans and maintain probusiness policies. India remains a land of great opportunities for investors if it can sort itself out, given that it is now the world’s fastest-growing large economy12, with the IMF expecting India’s economy to grow at 7.5% in both 2016 and 2017, versus China’s 6.3% and 6%.13 All that remains is for Modi to find the answers to solving India’s problems. But that is easier said than done, as Modi is finding out.
12 http://www.ft.com/intl/cms/ s/0/77bf2158-b512-11e5-b147-e5e5bba42e51. html#axzz3x337vo6W 13 http://www.imf.org/external/pubs/ ft/weo/2016/update/01/index.htm
Abe’s archery and Japan’s fate Bryan Chua
Source: Reuters
B
ased on third quarter 2015 statistics, Japan appears to head for another economic standstill as she faced yet another technical recession, the fifth in seven years. For the quarter ended September 2015, Japan’s real GDP fell by 0.8% decline due mainly to weaker exports and fall in business investment. Behind the weak GDP, real exports of goods weakened in the third quarter due to a decrease in export competitiveness of Japanese products and a slowdown in global trade. On the brighter side, Japan is benefiting from a buoyant inbound demand for services due to increasing tourists especially from China while a weaker yen will make Japanese exports more competitive. In addition, business investment reflected lower confidence in the economy and the fall in exports. For the first time in four quarters,
investment declined in the second behaviour in a nation with high quarter of 2015. savings rate. Japanese consumers tend to defer discretionary spending Together with low business to benefit from lower prices in the confidence, the pace of recovery in future and this causes consumption private consumption expenditure has to be weak. There is a circular been sluggish since April 2015. This is impact as weak consumption erodes due to bad weather affecting services business confidence which decreases such as eating at restaurants as well as investment. Such a negative spiral falling stock prices which worsened may explain part of Japan’s problem consumer sentiment. We can see in past decades and the fear is that that three important components of there may be economic standstill in aggregate demand was weak and the the quarters ahead. resulting fall in GDP contributed to price deflation. Japan’s recession is attributed to both an external decline in exports as well Core consumer price index, which as domestic weakness in consumption excludes fresh food, decreased by and investment. 0.1% in September, the second successive fall. Further driving the Challenges that Japan faces downward trend in core CPI is Japan faces a number of socio“imported deflation” in the form economic challenges in the coming of lower energy prices stemming years and we will attempt to cover from the fall in the price of oil and two significant ones. According to gas. Continued deflation has had the Pew Research Center (“Pew”), a negative impact on consumer Japan’s population is pessimistic 39
LSESU ACS ASIA CAREERS JOURNAL about its economic future due to a hollowing out of her working-age population and the government’s high public debt. By 2050, Japan’s elderly population aged 65 and older, is estimated by Pew to grow to 39.6 million from 29.2 million in 2010. 1 Worse, the United Nations forecasts that the old-age dependency ratio will double that of 2010 to 72 elderly for every 100 working Japanese making Japan the highest in the world when compared to projections of 60 per 100 in Germany, 44 in France, 39 in China and 36 in the U.S. Not surprisingly, most Japanese people view the aging population as the most significant problem facing Japan. Coupled with an aging population and lower productivity, Japan has a ballooning problem with her public debt standing at JPY349,203 billion (equivalent to USD2,886 billion) in the third quarter of 2015 or approximately 246% of GDP. 2 Earlier this year, the International Monetary Fund warned that Japan’s debt is “unsustainable” and estimates the debt problem will worsen to around 290% of GDP by 2030. This would place Japan in the unenviable position of having the highest public debt of any advanced economy. While it is easier to understand Japan’s aging problem, how did the government become so indebted? Part of the reason why the IMF thinks the problem will worsen is due to Japan’s government budget deficit of around 8% of GDP and with the economy slowing further, there is less scope to improve the deficit. Weak growth in past decades meant weak government revenue. The Japanese government took bold measures last year to address the deficit with tax increases such as raising sales tax for the first time in 17 years from 5 to 8%. 40
Source: http://www.investing.com/currencies/usd-jpy-chart
This will be further raised in April 2017 to 10% according to Japan’s finance minister, Mr Taro Aso. 3 As expected, the contractionary fiscal policy caused consumption to fall and the economy to slow further. As GDP falls, the ratio of debt to GDP worsens. But public debt in Japan is not as bad if we take into perspective the netting out of public debt held by different branches of Japanese government. The debt ratio quickly improves to around 150%. However, it remains that Japan faces very difficult challenges with an aging population while trying to address a ballooning public debt. It will place more pressure on the workforce to generate enough income to repay the national debt. Abenomics and the three arrows Named after Japan’s current Prime Minister Shinzo Abe, “Abenomics” is Abe’s economics experiment and strategy introduced in December 2012 to turn around Japan’s economic problems. Let’s first outline these
problems, namely: • Three decades lost in economic stagnation; • Stuck in a liquidity trap and unable to mobile high savings; • Aging population; and • Worst public finance amongst advanced economies With the primary aim of reviving the economy and ending deflation, Abenomics relied on “three arrows” namely aggressive monetary easing from the Bank of Japan, massive fiscal stimulus and structural reforms to boost Japan’s competitiveness. The first arrow is printing money and easing monetary policy to jolt consumer spending and weaken the yen, thus boosting exports. The Bank of Japan boosted money supply by over JPY60 trillion in 2013 and has accelerated the pace to its current level of ¥80 trillion (or US$660 billion) a year. The aim is to achieve an inflation target of 2%. 4 Monetary easing certainly had an effect of weakening the Japanese yen which fell progressively from around JPY77
per dollar to JPY121 currently.
that lack any significant impact on 5. Encourage the development the economy. He has also failed to of venture capital to fund The second arrow involved spending tackle labour laws that prevent firing investments. Relatively rare in public funds as fiscal stimulus. Abe incompetent or redundant full-time Japan, venture capital is needed started with ambitious spending workers in a society where promotion to promote innovation and packages amounting to over JPY15.8 is still largely based on seniority. entrepreneurship. trillion in 2013. Spending on 6. Participate in high-level trade healthcare and social services is set to What could Abe do better? agreements such as the Transincrease further. The latest package is On monetary easing, the BOJ is Pacific Partnership to boost additional stimulus spending of JPY2 already doing what is needed. But exports. trillion. in fiscal policy, Abe should cease 7. Improve trade relations with large further tax hikes as it only results trading neighbours particularly But we will see that the third arrow in falling consumption and does China to boost exports and is much more difficult to implement. not mobilise Japan’s high savings. investments. Structural reform to make Japan Instead, a convincing turn from more competitive requires not simply deflation to inflation would drive Can Abe do it? a few technological innovations households to spend more. With Few would envy Abe’s predicament but a package of economic reforms. deflation, households actually benefit of trying to spark back life into Reforms are needed to raise output from delaying consumption whereas economic growth while addressing growth and improved living standards the reverse is true in an inflationary significant challenges of an aging but there has been little progress environment. Most of all, Abe could population leaving a smaller in the right reforms. This includes see long term positive impact on workforce to pay for high public expanding the role of women in economic growth by taking the bold debt. His three arrows are admirable the work force as they are currently approach to structural reforms such initiatives but implementation of the limited by a range of disincentives. as: third arrow, structural reform is more Low rates of firm creation and exit 1. Labour reforms including difficult. In particular, Abe is well reflect a lack of economic dynamism encouraging women in the ingrained in “Japan Inc.” thus there in the business sector. Venture capital workforce and promotions/ is some doubt about his political investment is at an early stage of hiring/firing based on will to implement painful reforms development while more small and meritocracy. Traditionally, affecting social norms of women in medium-sized enterprises should be women face obstacles in their the workforce or how corporations encouraged. career progression in Japanese are governed. However, Japan does society and the country needs not want to remain in the doldrums Why has Abe’s archery been to modernise such outdated of economic stagnation and logic blunted? mindset. will eventually prevail. That’s when From the current recession and 2. Expand the use of foreign workers we can expect some of these reforms continuing deflation, it is clear which will provide relatively to be implemented bringing about that Abenomics has had a blunted cheap labour to supplement positive impetus to long term effect largely due to inconsistent Japan’s ageing workforce. economic growth. fiscal policy. On the one hand, 3. Encourage R&D investment to Abe’s government spent on fiscal improve the technological edge stimulus which helped in 2013 but and productivity of Japanese References Gao, G. (25 November 2014). 6 facts about last year, his government succumbed manufacturers. Japan’s downbeat economy. Pew Research Center, to political pressure to introduce a 4. Continue to upgrade corporate 1-6. 3% increase in sales tax that ran the governance which will improve Tokyo (26 September 2015). Abenomics: Less of the same. The Economist, 1-3. economy back to recession. As well, corporate transparency. Provide Harding, R. (12 February 2015). Japan affirms little improvement has been made more support to small and pledge to raise consumption tax in 2017. in structural reforms. Instead, Abe medium-sized enterprises. Financial Times, 1-3. Tokyo (30 October 2015). Monetary policy in has pushed for politically popular SMEs are crucial to re-energise Japan: The Bank of Japan keeps printing money at measures for child care and the elderly entrepreneurship. speed. The Economist, 1-3. 41
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Could South Korea escape from the Chaebol syndrome? Sam Ho
S
amsung Electronics Co. profit for the second quarter missed analysts’ estimates as new Galaxy S6 smartphones failed to lure enough customers from Apple Inc.’s iPhones and cheaper devices made in China. Samsung Electronics Co.’s new Galaxy S6 has disappointed in terms of profit.12 Yet, the decline in the firm’s profit slows down in the third quarter, the impact it makes is still significant. This has already led South Korea GDP growth fall to 2 year low 1 Dilger, Daniel Eran. “Samsung Mobile Smartphone Profits Decline; Unit Sales to Shrink for 2015.” Appleinsider. Quiller Media, 28 Oct. 2015. Web. 29 May 2016.
2
Plowright, Matthew. “Samsung Feels the Squeeze in China’s Smartphone Market FT.com.” Financial Times. Financial Times, 11 June 2015. Web. 29 May 2016.
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2.2 percent. Since South Korea is dominated by export-led Chaebol, its economy is hugely affected by the fluctuation of the macro economy. As only the declining exports to key markets including Europe, Southeast Asia and Japan could induce such an effect, should the business model in Korea be restructured remains a question. This essay aims to attack the claim of Chaebol system being irreplaceable (too big to fail) while argues that this syndrome could not be alleviated unless the government is determined to reform the chaebol system, rather than using this claim of reform as an election slogan. This essay will start by evaluating the role chaebol in the economy and thus using the decline of Nokia in
Finland as a case study to assess the benefits Korea would gain with less economic reliance on chaebol. It will then suggest a fundamental reform in the justice system would be the most practical solution for that. A chaebol-led economy is a long rooted problem and it has been exaggerated in the time of economic stagnation. Same as every other economy which dominated by a few number of firms, many afraid that these firms are too big to fail due to their role in the economy. The sales of Samsung and Hyundai Motor groups in 2012 were equivalent to
35 percent of Korea’s total GDP.3 Corporate taxes paid by Samsung and Hyundai Motor accounted for 20.6 percent of the combined total from Korea’s 482,574 companies in 2012 - 9.7 trillion won of 47.3 trillion won.4 The decline of chaebol under a stagnated economy would strike a huge blow to the Korean economy. The chaebol system would lead to problems in twofold. The first is economic polarisation and less diversity. Long domination with chaebol-centred economy dissuades the operation of small and medium businesses and suffocates the country’s attempt to shift gears and foster a more innovative servicesoriented economy powered by small businesses. If some specific firms take up a considerably large portion in the portfolio, it means the country’s economic structure is stagnant. The second problem is that Chaebol are seemed to be too big to fail. The government had propped up and granted emergency loans to most of the Chaebol after the Asia Financial Crisis 1997. Reformation of Chaebol was not effective, leaving the underlying problem to future generation.
to Microsoft.5 A dramatic change in the company’s turbulent 148-year history. Not a sheer acquisition that might have increased Microsoft’s market share of smartphone business in compete with Apple and Samsung, but putting a question mark on Finnish economy for the decade. Given as at its peak in 2000, Nokia alone contributed four percentage points of GDP annually to the Finnish economy. The collapse of Nokia’s handset business knocked the guts out of the local economy. Oulu, a northern city of Finland, has an unemployment rate of more than 17 percent – almost twice the Finnish average since the acquisition of Nokia by Microsoft.6
Stimulating the economy by offering such conglomerates tax subsidies and incentives would be a possible solution for rescuing Nokia from the plight. This is what South Korea and the USA did in the 90s and after the financial crisis respectively. Had Finland bailed out Nokia by offering it financial supports, it would have been following the footsteps of the two countries aforementioned . The result of not propping Nokia as a means to conceal its fearless of it being While Finland was deemed to be ‘Too big to fail’ is surprisingly positive. a one firm country, its transition Although it is unrealistic to claim to a field for the flourishment of that the economy could rebound new technology companies sets an back to its glorious Nokia period in example for South Korea and acts as the 00s, the recent development in a valid counter to the conglomerates technology and gaming industries are being too big to fail. In September seen as ‘the sunny side’ of its economic 2013, breaking news on the €5.4bn stagnation. The Finnish games sale of Nokia’s mobile phone business industry has seen strong growth with turnover doubling from 900 million
3 Kim, Rahn. “Korea Exposed to ‘Samsung Risks’” The Korea Times. The Korea Times, 13 Jan. 2014. Web. 29 May 2016. 4 Kim, Rahn. “Korea Exposed to ‘Samsung Risks’” The Korea Times. The Korea Times, 13 Jan. 2014. Web. 29 May 2016.
5 Waters, Richard, and Richard Milne. “Investors Cast Doubt on Microsoft Deal FT.com.” Financial Times. Financial Times, 3 Sept. 2013. Web. 29 May 2016. 6 Crouch, David. “Finland after the Boom: ‘Not as Bad as Greece, Yet, but for How Long’” The Guardian. Guardian News and Media, 15 Apr. 2015. Web. 29 May 2016.
euros ($961.8 million) in 2013 to 1.8 billion euros in 2014, according to Neogames, a Finnish non-profit games industry organization.7 An example is Rovio Entertainment, which employed talents from Nokia and developed the viral mobile game Angry Birds.8 Because of the decline of Nokia, Finland provides a unique environment, where start-ups share their ideas and tap into the wealth of knowledge gained from Finland’s bigger tech firms, Nokia. Due to the fact that the majority of the technology start-ups are dominated by ex-Nokians, this boosts that selfesteem and allows them to work in a more collaborative way in facing challenges inside and outside the country. Back to the city of Seoul, looking at such a historical event not long ago, is the decline in Chaebols’ profit a chance for innovations and small businesses growth? Should the government stop worrying about the decline in its major Chaebols on hindering its economy? Since Samsung, whose revenues are twice Nokia’s, has half its clout as a share of GDP9, South Korea’s economy is more diversified. While Finland could start to recover from its plight as a result of the overreliance on Nokia in the past decade, there must be a way reserved for the future of South Korea if decline is the verb for Chaebol in the future. Although the Korean economy 7 Milne, Richard. “Finland’s Economy: In Search of the Sunny Side.” Financial Times. Financial Times, 11 Mar. 2015. Web. 29 May 2016. 8 Scally, Derek. “Finland Struggling to Find Way in Post-Nokia World.” The Irish Times. The Irish Times, 17 Apr. 2015. Web. 29 May 2016. 9 Print. “The Nokia Effect.” The Economist. The Economist Newspaper, 25 Aug. 2012. Web. 29 May 2016.
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LSESU ACS ASIA CAREERS JOURNAL is deemed to be more diversified than that of Finland, it is difficult for Korea to copy the Finnish model of transition due to the inherent unfairness of the business environment and the government attitude on the Chaebol problem. For the former point, the Chaebol system in Korean society is a significant obstacle to the growth of otherwise-sound small and medium businesses.10 There is only a dismal rate of small firms growing up. In the decade from 2002 to 2012, only 696 SMEs out of several million companies actually grew beyond 300 employees, according to Statistics Korea.11 Jungwook Lim, managing director of Seoul’s Startup Alliance, says direct funding is less important than simplifying rules to start new businesses and grow existing ones, while shielding SMEs. The business environment is heavily tilted towards benefiting the Chaebol. Since Chaebol are now thriving to the detriment of other players in the economy - hoarding profits, increasingly focusing on overseas factories, squeezing domestic suppliers, and preventing the growth of small and medium-sized enterprises (SMEs) that employ nearly 90 per cent of South Korean workers, a decline of Chaebol would not provide a more diverse and fair field for small and medium enterprises to grow. One of the many examples, a large dairies, Namyang Dairy Products was found guilty of employing a series of unfair business practices such as forcing small retailers to accept more supplies than they needed, in breach 10 Kang, Tae-Jun. “South Korea’s SMEs Struggle to Compete.” Beyondbrics. Financial Times, 25 Nov. 2014. Web. 29 May 2016. 11 Marlow, Iain. “South Korea’s Chaebol Problem.” The Globe and Mail. Thomson Reuters, 27 Apr. 2015. Web. 29 May 2016.
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of the Fair Trade Act.12 Although the court levied a fine of 120 million won ( US$112,00) for such coercive approach to small businesses, the lawsuit against Namyang Dairy Products has already proven the unideal business environment for small and medium sized enterprises. Another structural problem is the labour market reform. ‘President Park Geun-hye’s constant cry of ‘economic democratisation’ in her manifesto would end as merely a slogan if fair trade acts and restrictions on Chaebol are not imposed tangibly.13 In the year of 2015, Park has put the labour market at the core of structural reforms aimed at reviving economic growth. The labour reform includes extending the contract period for people from two years to four years, which, will only create more contract workers with fewer rights. Already, South Korea has one of the highest rates of temporary employment 32.4 per cent - in the OECD.14 Such a reform not only grants Chaebol more power to cut jobs and increase their flexibility in hiring contract workers, but even gives them rights to amend the length of workers’ contract unilaterally. As one of the reasons why Finland could rapidly recovered from the decline of Nokia is largely contributed to an optimal business environment contributed by SME friendly governmental policies and regulations, Korea is far from it. Conclusion 12 Koo, Ken. “Korean Dairy Giant Namyang Apologises as Scandal Widens.” KoreaBANG. Internap, 14 May 2013. Web. 29 May 2016. 13 Print. “Plenty on Her Plate.” The Economist. The Economist Newspaper, 03 Jan. 2013. Web. 29 May 2016. 14 Jung-a, Song. “South Korea Contract Workers at Heart of Labour Reform Challenge - FT.com.” Financial Times. Financial Times, 20 Apr. 2015. Web. 29 May 2016.
Chaebol have been placed an important role in the economy and its poor performance in the time of economic stagnation pose a huge impact to the economy. With a business environment hugely favoured the Chaebol, this suffocates the country’s attempt to shift gears and foster a more innovative servicesoriented economy powered by small businesses and transform to a more diversified business environment. These Chaebol could be too big to fail, however proven by the Nokia case study which indicates a transformation of a singlecompany economy to a diverse one is not impossible. However, to be as successful as Finland, this essay argues a SME friendly environment, which Korea lacks, is essential. By reforming the inherent unfair economic and governmental regulation, this is the only way out for Korea’s future.
References Dilger, Daniel Eran. “Samsung Mobile Smartphone Profits Decline; Unit Sales to Shrink for 2015.” Appleinsider. Quiller Media, 28 Oct. 2015. Web. 29 May 2016. Jung-a, Song. “South Korea Contract Workers at Heart of Labour Reform Challenge - FT.com.” Financial Times. Financial Times, 20 Apr. 2015. Web. 29 May 2016. Kim, Rahn. “Korea Exposed to ‘Samsung Risks’” The Korea Times. The Korea Times, 13 Jan. 2014. Web. 29 May 2016. Koo, Ken. “Korean Dairy Giant Namyang Apologises as Scandal Widens.” KoreaBANG. Internap, 14 May 2013. Web. 29 May 2016 Waters, Richard, and Richard Milne. “Investors Cast Doubt on Microsoft Deal - FT.com.” Financial Times. Financial Times, 3 Sept. 2013. Web. 29 May 2016.
Start at the top A Career in Law Hong Kong Apply for a 2017 Allen & Overy Summer Placement to secure a 2019 trainee solicitor contract and experience it for yourself! Allen & Overy would like to invite you to apply for a four-week summer vacation placement for June or July 2017. The Hong Kong Allen & Overy graduate recruitment team will be in London for a week in February 2017 to conduct case study interviews for our Summer Placement Scheme. We are keen to receive applications from 2nd year (penultimate year)/ 3rd year (final year) LLB students and final year non-law students who are interested in joining our Summer Placement Scheme in Hong Kong in 2017, with a view to applying for a trainee solicitor position in Hong Kong in September 2019. The interview takes the form of a preparation-free case study. We will assess your ability to work as part of a team, your leadership and presentation skills and entrepreneurial spirit and energy. Excellent academic results are essential and Chinese language skills are highly advantageous. Our placements include experience in two seats in different departments, a full training programme, a series of challenging assessments, individual coaching from your trainer and a calendar packed with social and pro bono activities. We will also pay PCLL course fees and subsidise living expenses if you accept a training contract with us. APPLICATION
All interested students must visit the websites of: – The Law Society of Hong Kong; – City University of Hong Kong;
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Gender balance in Singapore politics: An achievable dream? Yensiang Pang
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n 26 December 2015, Singapore news agency Channel NewsAsia published an article online entitled “Big strides made by women in Singapore: Experts”. An accompanying photo showed Singapore’s newly formed Cabinet after the 2015 General Election (GE) – twenty ministers, of which the grand total of women was: one.1 Gender equality is a hotly debated topic globally in the 21st century, with both left and rightwing political parties acknowledging its importance. How does Singapore’s appointees. political scene fare in gender equality in comparison to the rest of the Looking back at Singapore’s history, women have traditionally world? been the overwhelming minority At present, Singapore’s parliament in politics. The aforementioned has 18 elected female members of female minister, Grace Fu, is only parliament (MPs) out of a total of 84. the second woman in Singapore’s Of these 18 MPs, 6 of them serve 1 history to serve in the Cabinet. The Minister, 2 Parliamentary Secretary, first was Lim Hwee Hua, who was and 7 Senior Minister of State appointed as a Minister in the Prime positions across the 16 ministries. Minister’s Office (PMO) in only Additionally, Halimah Yacob is the 2009. Singapore has had 7 Presidents current Speaker of Parliament [1]. since gaining independence in 1965, However, Singapore’s parliament but never a female President. In also includes nominated members of fact, no woman has ever run for the parliament (NMPs) [2], of which 5 Presidency. Nevertheless, from the out of 9 are female. Thus, including above statistics, we can conclude NMPs, Singapore’s parliament that there is a definite rising trend stands at 24.7% female. For interest’s in female participation in politics. sake, 5 of 16 ministries have a female For instance, looking at candidates Permanent Secretary, which is the fielded in the 2015 GE, 61 out of highest position in a ministry’s 168, or 36.3% of candidates were senior management behind political female. All but one political party fielded at least 1 female candidate. Female politicians may still remain 1 “Big strides made by women in Singathe minority, but the scales have pore: Experts”, Yeo Kai Ting, Channel NewsAsia, 26 Dec 2015
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balanced more in their favour over the last few years. How then does Singapore compare to other countries, both within and outside of Asia? Statistics from UN Women state that only 22% of all national parliamentarians globally were female as of August 2015.2 In Asia, the average percentage of female parliamentarians was 18.4%. For female government ministers, the global average was 17%, compared to 18.8% in Singapore. It would seem that gender representation in Singapore politics is above the average. However, Singapore fares badly in terms of representation at the top; she has yet to have a female Prime Minister (or President). Asian countries that have had female Prime Ministers include Bangladesh, 2 “Facts and Figures: Leadership and Political Participation”, UN Women, retrieved 10 January 2016
India, Pakistan, and Thailand. Asian countries that have had female Presidents include India, Indonesia, Philippines, and South Korea. Taiwan presidential elections are currently ongoing, and preliminary polls suggest that they are set to elect their first female President as well. Nevertheless, taking into account Singapore’s much shorter history, it is perhaps understandable that she has yet to have a female political leader. In November 2015, Canadian Prime Minister Justin Trudeau appointed an equally balanced Cabinet with 15 men and 15 women. Of course, a 5050 gender ratio would be the most desirable representation.3 Realistically speaking, and considering the current situation worldwide, the UN Women uses 30% as a benchmark for female representation in politics. Statistics show that only 41 countries achieved this 30% benchmark and of these 41, 34 used some form of quota to increase female political participation. The implementation of a gender quota has been one of the most “popular” and direct solutions to an imbalanced parliament. In a report on gender equality commissioned by the London School of Economics’ (LSE) Gender Institute (published October 2015), the Commission strongly recommended a mandatory quota for women selected to stand in parliament.4 The recommended legislation specifically establishes a ceiling gender quota – that is, a maximum 70% of either sex at the first GE following the legislation, then a maximum 60% at the following one, 3 “Trudeau gives Canada first cabinet with equal number of men and women”, Jessica Murphy, The Guardian, 4 Nov 2015 4 “Gender inequality is rife and ‘trivialised’ finds LSE Commission”, LSE Gender Institute, 13 Oct 2015
and finally 50% of either sex at the next. Similarly, gender parity should be achieved in the government, i.e. half of ministers should be women.
the positions. The current number of political appointees does not seem to reflect the competencies of the females in Singapore politics. The majority of government ministers worldwide oversee social sectors, such as education and family. Female representation in such domains is crucial so that females themselves can influence laws and policies that directly impact their lives. The presence of females in senior positions can be an empowering one; it breaks down the mindset that female leaders are of less significance in the governance of the country. In fact, why not have female ministers in a traditionally male field like defence?
Gender quotas are as controversial as they are popular. Critics will argue that this sort of affirmative action goes against the ideals of gender equality. Other criticisms include the fact that a gender quota would defeat the idea of meritocracy. The latter particularly applies to Singapore. Appointing female politicians due to their gender (to fulfil the quota) would be equivalent to an insult to these women, the inherent implication being that they did not have the capabilities to achieve such a position without legislation. While “hard” measures like gender quotas have their own set of advantages Such thinking is most likely and disadvantages, a change in narrow-minded and ignorant of the societal mindset is perhaps the most structural disadvantages women significant barrier to achieving better face in attempting to reach such gender representation in politics, as positions of leadership, especially well as all aspects of society. Whether in politics. If we are to assume that Singapore will continue on this male and female candidates are hopeful trend will likely depend on equally competent (and surely such the influence of its current female an assumption is fair), the startling politicians, as well as the active efforts gender imbalance in politics should of the government to make itself and can only be attributed to more diverse. structural discrimination inherent in our society. A gender quota is Notes The Speaker of Parliament is the head officer of arguably the most effective way to the Parliament. Ms Halimah is the first woman to kickstart the norm of ensuring a hold this post in Singapore history. [1] gender balance when appointing a An NMP is a MP not affiliated to any political party and does not represent any constituency. parliament or government. They are appointed by the President to bring more independent voices into Parliament. [2]
Has Singapore indeed made “big strides” as suggested by the CNA article? Quantity, i.e. the number of women in politics, is important. However, a gender quota is unlikely to be politically feasible or accepted at present. Then, perhaps what we should focus on and what is equally important is the types of appointments given to these women, i.e. the seniority and responsibility of 47
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An Interview with Brendan Kwok Georgie Kwok
Biography Brendan Kwok is a consultant at KPMG’s Actuarial Advisory Services in Sydney. Brendan was raised in Hong Kong, and attended secondary school in Australia. He obtained his undergraduate and master’s degrees at Macquarie University, where he majored in Actuarial Studies. He initially started his career at the EY Hong Kong office, before moving to KPMG’s Sydney office after a year. Why did you choose KPMG Australia? I chose KPMG’s actuarial team due to its strong reputation in Australia. It is one of the largest and most reputable actuarial consultancies in the market. Their strong client base and expertise in many aspects of the actuarial function meant that I was able to learn from some of the best actuaries in the industry. An interesting aspect is that the team also applies their actuarial expertise outside the traditional areas of insurance and finance, which is something I have always been interested in. Being part of the broader global KPMG network also offers me opportunities involving collaborations between different service lines, as well as other KPMG offices around the world. What is the day-to-day work like? One thing about being a consultant is you get a wide variety of exposure in your role. I typically spend most of my time on client engagements which involves meetings with the client to understand their needs, performing analysis and writing a report to presenting our findings. 48
The remainder of time is often have longer working hours in general, spent on business development and such that your work life becomes part administration work. of your social life. I found that I had dinner with my colleagues more often Whilst there is often a generalisation than with my family and friends. that actuaries are number crunchers, This means that I was able to bond the calculations only makes up about really quickly with my colleagues half of our work. We also spend a lot and form valuable friendships as a of time interpreting the results and result. In contrast, working hours in presenting our findings to the clients. Sydney tend to be shorter. I usually The clients are often more interested finish work by 6pm – which is in the reasons behind the numbers almost unheard of in Hong Kong. and its implications, rather than the The culture in Sydney seems to put numerical calculations themselves. a greater focus on work-life balance and for employees to have their own Consultants are also often sent on family and social life outside work. secondments to the client’s office. This means that we are sent to work Is there anything you miss about as part of the client’s team for a working in Hong Kong? period of time, ranging from a few The thing I miss the most is probably weeks to a whole year. A secondment my friends and family in Hong Kong. is an excellent opportunity to Having spent half my life in Hong gain experience, as the secondee Kong and half in Sydney, I consider can acquire first-hand corporate both places to be my home. However, experience and gain much insight there is just something special about into the operations of insurance catching up with your friends for siu companies, which allow us to see the yeh (supper) after a 14-hour work problem from the client’s perspective. day. Hong Kong is truly an energetic city that never sleeps. How did you find working in Hong Kong? Was it very much different The other thing I will probably miss is from working in Sydney? the amount of overseas opportunities. The actual work in Sydney and Hong Hong Kong being a regional hub Kong is quite similar except for the in Asia offers consultancies many fact that you are dealing with different opportunities in the region. This products, regulations and reporting means employees are often involved bases. Also, there seems to be more in overseas projects in countries non-traditional actuarial work in such as Japan, Korea and Taiwan. Australia, as the KPMG actuarial In contrast, there are less overseas team are involved in many projects opportunities in Sydney due it being outside the insurance industry. relatively geographically isolated compared to Hong Kong. In terms of culture and the working environment, I found Hong Kong to
Would you say that Hong Kong, or being in Asia in general, was a good place to start your career? I believe anywhere can be a good place to start your career. There is always something to learn, regardless of where you work. Every city will have its own culture and working style, which offers you a unique exposure that allows you to grow both personally and professionally.
this strengthen consumer protection, but will also enhance stability in the insurance sector. Although the detailed rules have not been finalised, it is anticipated that the framework will be similar to Australia’s Life and General Insurance Capital Standards (LAGIC) or Europe’s Solvency II Directive, closing the gap between regulations of Hong Kong and those of other developed nations.
grow in the future.
What advice would you give to current undergraduates and postgraduates looking to apply for consultancy placements in actuarial services in general? Consultants are often involved in multiple projects at a time, most of which will have a tight deadline and various obstacles. Hence, problemsolving skills are something many The world is becoming smaller Another key development in the employers look for. Interviewers through the process of globalisation. Asian insurance industry is that will often ask you a question that Companies often value employees many major insurers are starting to they do not expect you to know with international experience as they adopt the International Financial the answer to. They are not trying can often offer a different perspective. Accounting Standards (IFRS). to assess what you know, but rather In both Hong Kong and Sydney, This provides a common reporting it is your thinking process through my colleagues come from diverse basis so that company financials are which you arrive at your answer or backgrounds, and many of them have understandable and comparable solution, and your general approach previously worked in a number of across international boundaries. towards the question, in which they different countries. are interested. The Australian market in contrast is Personally, I have learnt a lot from a more developed market with slower In terms of personality, interviewers my experience in Hong Kong. growth. I foresee a greater connection often look at candidates that are Many of the skills and knowledge I between Asia and Australia given self-motivated, flexible and openhave developed have proved to be the geographic proximity and the minded. Show that you have transferable to my work in Australia. increasing trade activities. There has something other than grades, be Basic technical skills, such as report already been substantial knowledge involved in more extracurricular writing, excel and problem solving, transfer as a result of Australian activities such as student society will be relevant no matter which actuaries working in Hong Kong and involvement, sports or community country you are in. In terms of soft vice versa. Lately, there has also been service. These extracurricular skills, I have learnt how to work under some M&A activities with buyers in activities can also help develop your pressure, to juggle various priorities, Asia purchasing insurers in Australia. communication skills and project and to communicate with various In the future, I expect there will be management skills. stakeholders. These soft skills are some Australian insurers expanding just as important as technical skills, to Asia as they seek to achieve higher Lastly, I would also suggest getting especially as you progress further in growth and profitability. out your comfort zone and look for your career. opportunities beyond countries you A new growing area for actuaries to are familiar with. Many of my friends What kind of developments do you get involved in is data analytics. This from university pursued careers in a foresee in actuarial services in Asia area can deliver tremendous value for foreign country, they have not only and in Australia? an insurer and other organizations. enjoyed the excitement of moving The Asian market is growing rapidly Data analytics can provide insights to a new country and meeting new with a multitude of new product into many aspects of an insurer’s people, they have also gained valuable initiatives, M&A activities and operations from marketing to pricing. international experience which will regulatory changes. For example, Given an actuary’s understanding of serve them well in their career. Hong Kong will soon be rolling out insurance, data and numbers, many the Hong Kong Risk Based Capital of them have ventured into this area (HKRBC) framework. Not only will and I foresee this area to continue to 49
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A career in law is demanding, so choose somewhere that makes it all worthwhile.
Editorial Team
Editor-in-chief Nathan Gu BSc Economics n.gu1@lse.ac.uk Deputy Editor Georgie Kwok LLB Law g.kwok@lse.ac.uk Journalists Chen Weiheng BSc Economics w.chen29@lse.ac.uk Bryan Chua BSc Economics b.j.chua@lse.ac.uk Sam Ho BSc International Relations s.ho4@lse.ac.uk Yensiang Pang BSc Economics y.pang1@lse.ac.uk Tan Chikoong MSc Management and Strategy tanchikoong@hotmail.com Design Rachel Fung BSc Economics y.fung@lse.ac.uk Amelia Lim BSc Economics a.s.j.lim@lse.ac.uk
ACS Committee Frederick Ng President Eunice Lee Vice President Jennifer Sham Banking Events Officer Alyse Su Business Events Officer Rachel Chan Law Events Officer Nathan Gu Research Officer
Georgie Kwok Deputy Research Officer Amelia Lim Marketing Officer Rachel Fung Deputy Marketing Officer Declan Ng Secretary Alvina Kwok Treasurer
LSESU Asia Careers Society 2015-2016 is proudly sponsored by: