Tag Archives: asia

Laos’ economic growth rate revised to 6.6%, floods dampen prospects

Students in Laos

Anyone who has been flicking on screens to news of floods in Laos, extreme weather-related disasters in the region and trade frictions beyond will not be surprised to hear that such developments have subdued economic growth somewhat.

Multilateral lender Asian Development Bank agrees. Its update of its flagship annual economic publication, Asian Development Outlook (ADO) 2018 has economic growth for the Lao People’s Democratic Republic (Lao PDR) is expected to moderate in 2018.

ADB projects Lao PDR’s gross domestic product (GDP) to grow by 6.6% in 2018 and 6.9% in 2019, revised down from its April estimates of 6.8% for this year and 7.0% for next.

According to the bank’s analysis, weather-affected sectors like agriculture and mining outputs are forecast to underperform, with growth set to trend lower than previously forecast in April.

Agriculture is expected to grow by just 2.0% this year and mining outputs projected to decline by 2.0%.

Economic expansion related to electricity generation, construction, and services will partially offset these adverse effects, the bank asserts.

Electricity generation is expected to increase by 8%.

According to the ADB, construction is benefiting from foreign direct investment in hydropower and transport projects.

These include the railway line from Vientiane to the border with the People’s Republic of China now under construction.

A sharper depreciation of the Lao kip against the US dollar in the open market, compared with the official exchange rate from January 2018 to July, points to continued vulnerability to stress in external payments, the Bank states.

Inflation is forecast to be 2.5% in 2018 and 3.1% in 2019, about half a percentage point higher than ADO 2018’s projections.

The current account deficit in percent of GDP is projected at 13.8% in 2018 and 13.0% in 2019, lower than the April estimates of 14.9% and 13.7%, respectively. Despite Lao PDR’s expected improvement in the current account deficit, net international reserves are forecast to remain below $1 billion by December 2018, covering only 1.5 months of imports due to a large trade deficit weighing on the balance of payments.

Downside risks to the outlook in the near term include external payments vulnerability and the possibility of recurrent natural disasters.

With a stated commitment to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty, ADB was established in 1966. The multilateral lender is owned by 67 members including 48 from the region.

In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in co-financing.

China Is Transforming Southeast Asia Faster Than Ever

China’s investment is transforming its smaller Southeast Asian neighbors like never before while helping turn Cambodia, Laos and Myanmar into bigger destinations for its exports.

That’s driving some of the world’s fastest economic growth rates and providing Chinese companies with low-cost alternatives as they seek to move capacity out of the country. It’s also helping Asia’s largest economy and nations in its orbit adapt to what looks more and more like a new era of waning U.S. commitment to the region from a more inward-looking administration of President-elect Donald Trump.

“China’s definitely looking at these countries in general as an area where it can sell products and get good return for its investments,” said Edward Lee, an economist with Standard Chartered Plc in Singapore. “China itself is getting more expensive for its companies, and that’s reinforcing this trend.”

China is investing in everything from railroads to real estate in Cambodia, Laos and Myanmar — the frontier-market economies of the Association of Southeast Asian Nations.

China Minsheng Investment Group and LYP Group, headed by Senator Ly Yong Phat, signed a $1.5 billion deal last week to build a 2,000-hectare city near Cambodia’s capital, Phnom Penh, with a convention center, hotels, golf course, and amusement parks, the official Xinhua News Agency reported. The spending equals roughly one-tenth of the country’s $15.9 billion gross domestic product.

Belt, Road

In landlocked Laos, work started last year on the China-Laos railway, which will stretch 414 kilometers (257 miles) from the border to the capital, Vientiane. The project, part of Chinese President Xi Jinping’s One Belt, One Road initiative, will cost $5.4 billion, according to Xinhua. Xi met last week with Lao Prime Minister Thongloun Sisoulith in Beijing, where he pledged stronger ties.

Myanmar, which is liberalizing its economy and adopting market reforms after a transition to democracy, is forecast by the International Monetary Fund to expand 8.1 percent this year, the fastest in the world after Iraq. De-facto leader Aung San Suu Kyi has been quick to engage China since taking office this year, including visiting Xi in Beijing. China is its largest trading partner, accounting for about 40 percent of Myanmar’s total last year, and is building a special economic zone, power plant and deep-water seaport on the west coast.

For an explainer on China’s Silk Road, click here

Cambodia’s economy is projected to grow 7 percent this year, while Laos is set for 7.5 percent expansion. Myanmar’s currency, the kyat, was Asia’s top performer in the first five months of the year, but has weakened about 10 percent against the dollar since June as the U.S. currency strengthened

As Sino-Cambodian relations have flourished, so has trade, with two-way commerce climbing to $4.8 billion last year. That’s more than double from 2012, the year Cambodia warmed up to Beijing by opposing mention of China’s assertiveness in the South China Sea during a regional summit in Phnom Penh.

Most Chinese money flowing in to Cambodia, Laos, and Myanmar is lending on highly concessionary terms to finance construction projects run by Chinese firms, especially in Laos, said Derek Scissors, Washington-based chief economist at China Beige Book International, who specializes in studying the country’s foreign investment. Chinese construction and investment since 2005 equal about 15 percent of Lao GDP, which it couldn’t have financed from other nations, he said.

“The power sector is basically Chinese-built, bringing electricity to the majority of the population,” while China built several hydroelectric plants to increase electrification, Scissors said. “There were grand plans for Myanmar, but investment and construction actually realized is more conventional, in the energy and mining sectors.”

Garments, Shoes

Cambodia, Laos and Myanmar are becoming more incorporated with China’s supply chains, buying intermediate goods from its factories and selling consumer items such as garments and shoes that are often made by companies owned or funded by China. Its imports from the three Southeast Asian economies more than doubled in the past five years, IMF data show.

Such dependence on China isn’t without risks. Beijing accounts for the largest chunk of foreign investment in Cambodia and also about 43 percent of the country’s total debt stock, mostly in loans from Chinese development banks to Cambodia’s government, according to the IMF. Similarly, China’s railroad in Laos equals about half of its $10.5 billion 2015 GDP.

“This reliance on a narrow production and export base has many downsides,” the IMF said in a recent report. “A majority of Cambodian garment factories concentrate on cut-make-trim processes, which are at the bottom of value chain and also small part of the overall production. As a result, firms in Cambodia have limited leverage and autonomy.”

Cambodia has gained particular appeal for Chinese manufacturers seeking to relocate, which aligns with China’s strategy to export industrial capacity through initiatives such as One Belt, One Road. Cambodia’s $121 average monthly wage is just a fifth of China’s $613 average, according to the International Labour Organization in Geneva.

The biggest risk for frontier Asean economies is that Chinese inflows create “extractive” elites who entrench themselves in power, said Song Seng Wun, an economist at CIMB Private Banking in Singapore.

“These economies are getting a lot of money and opportunity from China,” he said. “If wealth is concentrated in the hands of a few, that may lead to problems and instability. The key here is developing a middle income group that Chinese companies will be targeting as a consumer.”

Source: Bloomberg Markets

Growth of Geographical Indications in South East Asia

Geographical Indications (GIs) serve as powerful tools to protect local products from domestic as well as international competitors, by guaranteeing their quality and origin. While their legal justification has been subject of much debate, South East Asian nations have decided to use them as tools of their economic expansion efforts.

In Laos, “Geographical Indications Week” organized by the Department of Intellectual Property, Ministry of Science and Technology was held on 24th-28th October. This event aimed to raise awareness of GIs, and to promote the opportunities they represent for Laotian producers. Until today no GI has ever been registered in Laos. Dr. Keobounphanh, Director of the IP Department, stated that Bolaven coffee, Khao Kai Noy rice and Phongsaly tea should be the first Lao products to seek GI registration.

It seems that Laos has been trailing behind its neighbors. Indeed, ASEAN has been the most prolific region in the world in terms of GI registrations: over 150 were registered in the past decade. Thailand has already registered GIs for 71 of its domestic products. This follows the authorities’ desire to implement the “one province, on GI” scheme whereby each of the 77 provinces in the country should have at least one Geographical Indication attached to it. A “GI Market, organized last year, similarly to Lao’s “GI Week”, aimed to encourage producers to apply for the certification in order to ensure greater recognition. Recently two more products were added to the list: Pla Kulao Khem Tak Bai fish and Phon Yang Kham beef. In addition, Sung Yod rice recently was awarded the certification by the European Union, increasing its potential of exportation for the European market. Commerce Minister Apiradi Tantraporn has stated that the Thai Intellectual Property Department would seek the EU accreditation for more domestic products.

The Vietnamese authorities succeeded in doing exactly where Thailand is aiming. In negotiating the Free Trade Agreement with the EU which will come into effect in 2018, Vietnam proposed a list of its 41 domestic GIs of which the EU agreed to protect 39 in its market. Provided Vietnam succeeds in establishing a systematic quality product check, and reduces the circulation of counterfeits and imitation goods in its domestic market, this clause undoubtedly will be of great help to Vietnamese products trying to enter the EU market.

Source: Lexology

Singapore’s DBS Pounces on ANZ Assets to Extend Asia Private Banking Push

DBS Group (DBSM.SI) plans to buy Australia and New Zealand Banking Group’s (ANZ.AX) wealth and retail businesses in five Asian markets – part of a big private banking push for the Singapore lender and the first significant retreat from Asia for ANZ.

The businesses in Singapore, Hong Kong, China, Taiwan and Indonesia, will be sold for around S$110 million ($80 million), in a deal that underscores how smaller players in private banking are being squeezed out due to lack of scale.

Where ANZ said it would have needed to invest further in branches and digital capacity to build up those businesses, Singapore’s biggest lender noted it already had the advantage of existing infrastructure in those markets and would not have to deploy much capital.

“Further investments do not make sense for us given our competitive position and the returns available to ANZ,” said Shayne Elliott, chief executive of Australia’s third-largest lender by market value.

Elliott, who announced a review of ANZ’s Asia strategy in May in a departure from his predecessor’s “super-regional strategy”, stressed the bank was not turning its back on Asia but would focus on its institutional banking business.

Clarifying earlier remarks, Elliott said ANZ would also look to exit its retail and wealth assets in the Philippines and Vietnam, but there were no plans to sell similar assets in Cambodia and Laos.

Elliott told Reuters in a separate interview ANZ plans to return to growth in its institutional business in Asia after the sale of its wealth and retail businesses. ANZ’s institutional business involves services such as trade financing, foreign exchange and cash management, mostly for corporate clients.

“It’s very different from the retail business, we have already got scale. So we just want to do more of that,” Elliott said..

PICKING UP THE PIECES

For DBS, which recently became the fifth biggest player in private banking in Asia-Pacific, the deal is part of aggressive attempts by Singapore banks to pick up assets as some Western wealth managers depart from the region unable to compete with dominant players like UBS (UBSG.S) and Credit Suisse (CSGN.S).

Driven by the emergence of more millionaires in China and India, Asia Pacific is the fastest-growing wealth region in the world and has nearly 5 million individuals with $1 million in liquid assets.

Sources have said DBS is weighing a bid for ABN AMRO’s Asian private bank, a deal estimated to be worth at least $300 million. Earlier this year, it lost out to domestic rival Oversea-Chinese Banking Corp (OCBC.SI) in bidding for Barclays wealth units in Singapore and Hong Kong.

DBS said the ANZ transactions will be completed over 15 months and are set to add S$200 million to income in 2017 and S$600 million the year after.

“This adds on and complements our Singapore and Hong Kong base quite nicely,” DBS CEO Piyush Gupta told a news conference.

The news comes as DBS posted a slight increase in third-quarter net profit, in line with expectations, although bad debt provisions rose sharply due to its exposure to the troubled oil and gas sector.

ANZ said it would take a loss of A$265 million on the sale, including writedowns and added the sale was expected to increase its Tier 1 capital ratio by 15 to 20 basis points. The losses are set to be booked in the first half of the current financial year.

“Overall, the deal looks good since it releases a bit of capital,” said Omkar Joshi, an investment analyst at Watermark Funds Management.

The latest losses will come of top of A$360 million in one-off charges that will be booked in the year just ended. Those earnings are due to released in full on Thursday.

In 2009, ANZ acquired the Royal Bank of Scotland’s (RBS.L) retail, wealth and commercial businesses in Taiwan, Singapore, Indonesia and Hong Kong as well as institutional businesses in Taiwan, the Philippines and Vietnam for $550 million.

(Reporting by Jamie Freed in Sydney and Saeed Azhar in Singapore; Additional reporting by Sumeet Chatterjee and Denny Thomas in HONG KONG; Editing by Edwina Gibbs)

Source: Reuters

East Asia Summit Cements Support for Infrastructure

The East Asia Summit (EAS) leaders have agreed on the need for efficient and sustainable infrastructure development in ASEAN to strengthen trade, investment and service competitiveness in the Asia-Pacific region.

The Latest: Obama: US Interest in Asia Not a Passing Fad

 

VIENTIANE, Laos (AP) — The Latest on President Barack Obama’s trip to Asia (all times local):

3:30 p.m.

President Barack Obama says the U.S. commitments to the Asia-Pacific region will endure over the long term.

Obama’s Laos Visit: Changing History or Asia ‘Pivot’?

WHILE Barack Obama’s visit to Laos this week is the first ever by any U.S. president and hence ‘historical’, it is not merely history that Obama is after nor is the visit aimed at washing from the public memory the horrors of massive bombing Laos was subjected to during the Vietnam War.

On the contrary, the visit is a tactical move and has come at a time when, on the one hand, the issue of South-China sea has gained special importance after a controversial ruling by the international court, and on the other, when diplomatic efforts directed at coaxing this region’s countries into the US-led Trans Pacific Partnership (TPP) are also in full swing.

The official statement issued by the White House thus reads the cardinal objective of the visit:

“This visit also will support the President’s efforts to expand opportunities for American businesses and workers to sell their products in some of the world’s fastest-growing markets. Central to this effort is the Trans-Pacific Partnership [TPP], the high-standards trade agreement that will unlock key markets to American exports and cement America’s economic leadership in the Asia-Pacific.”

The TPP, which was borne out of geopolitical considerations in Hillary Clinton’s State Department as the economic component of the Obama administration’s “strategic pivot” to Asia, continues to be the ‘best’ geopolitical toolbox that the U.S. has at its disposal to re-establish its soft and hard diplomatic primacy in order to compel China and others to play by the rules designed to govern international commerce in the 21st century.

The seemingly unprecedented significance Laos has today for the U.S. stems, as such, from the fact that the country is, due to its geographical location, a gateway for China’s “Silk Road” to enter Southeast Asia. Bordering Myanmar, China, Vietnam, Cambodia, and Thailand, it is a crossroads between much of Southeast Asia as well as the gateway into East Asia.

In developing Laos’ potential as a gateway between Southeast Asia and East Asia, China has undertaken or begun planning several massive infrastructure projects across its territory including highways and railways. China has invested around US$1 billion annually in Laos in 2014 and 2015, a step up from the US$4.5 billion invested historically before 2014, according to figures from China’s Ministry of Commerce.

Thailand has also played a role in developing Laos’ infrastructure. It has invested in a China-Laos-Thailand highway connecting the three nations, as well as constructed Laos’ first rail station across the border from Nong Khai, Thailand.

Obama, therefore, is least disturbed by the prospects of facing history in Laos.

His primary motivation is to try to wean the new Laos government away from China to, as the official statement states, pave the way for an American presence in the country.

Although it is an uphill task, given that China has strong economic presence in the land-locked country, the new government, Western diplomats seem to believe, has shown some tilt towards Vietnam which, in turn, is enjoying a ‘deep engagement’ with the U.S due to its dispute with China over the control of South China sea and its participation in the TPP.

Obama is, according to this particular understanding that does not seem to have strong basis, on a mission to exploit the “tilt” to turn in to its advantage in its last bid as the U.S. president to strengthen the U.S. “rebalance.”

However, the big question is: will the people of Laos, who continue to remain victims of bombs dropped by the U.S. during the Vietnam War, be able to reconcile American investment with maimed bodies?

Even almost 50 years after the War, during which one-third of the bombs had failed to explode on impact, Laos continues to have 500 victims a year, mainly children and farmers forced to work on their contaminated fields to sustain their families.

As of 2015, despite tens of millions of dollars spent, only 1 percent of Laos’ territory had been cleared.

It is, as such, not simply the memory of the past but the threat that past continues to pose to people that Obama has to deal with during his ‘historical’ visit.

Hence the question: Will Obama’s participation in the YSEALI summit yield the desired result of attracting the youth towards integrating themselves into the networks and institutions built by and serving Western interests rather than those of Laos and Asia?

Source: Asian Correspondent

East Asia- Latin America Coordinator Role for Laos

Laos has been assumed by the members of the Forum for East Asia-Latin America Cooperation (Fealac) as next year’s coordinator on cooperation ties between the two regions.