Briefing MONTHLY #6 | April 2018
Summit countdown | China’s new mandarins | Asian business success
BAD, BUT NO LONGER MAD
If the prospect of four summits involving North Korean leader Kim Jong-un in three months has done one thing, it has ended the popular media presentation of the latest Kim dynasty scion as a Dr Strangelove-style madman. North Korea might be a brutal place and the risks of a nuclear disaster still remain high, but Kim seems to have pulled out the same playbook which saw his grandfather and father manage their neighbours for half a century. And to put all this in perspective, until Kim suddenly met Chinese President Xi Jinping in late March, he had not left the country or met any foreign leader since he took over in 2011.
Here’s the increasingly crowded summit diary:
April 27: Meeting with South Korean President Moon Jae-in near the border. Moon has been the real mediator in all this summiting, but he is really only marching his two leftist presidential predecessors who met Kim’s father in 2007 and 2000.
April 17–18: US President Donald Trump meets Japanese Prime Minister Shinzo Abe in Florida again. A side event but potentially very important given the two men have a golfing bromance but Abe looks left out of the summit action and left off the tariff exemption list.
May 8–9: The reported date for the first China/Japan/South Korea leaders’ summit since 2015 which is likely to focus more on economics.
Late May: The still not certain Trump-Kim meeting at an unknown location amid growing debate about whether Trump is actually as prepared as Kim may be given the old China-North Korea bond has been restored.
Early June: A reported but unconfirmed Abe-Kim meeting would give Abe a role in any US-North Korea nuclear deal and underline Japan’s key role in any associated aid package.
Later: A Kim meeting with Russian President Vladimir Putin would round out his quest to one-up his ancestors on the diplomatic circuit.
NEIGHBOURHOOD WATCH
MANDARINS ON THE MOVE
If US President Donald Trump replaced four cabinet secretaries and the Federal Reserve governor on the same day, the TV commentators would be lining up all the way down the street. So, it shows Australia’s relative disengagement from the administrative detail of its biggest trading partner that when President Xi Jinping did something similar (four vice premiers instead of cabinet secretaries) in mid-March there was much less commentary in Australia than for even more modest personnel change in the US. Xi hasn’t helped the case for paying attention to Chinese bureaucratic reform with his undermining of the established system by ending the presidential two-term limit.
But the attention deficit still brings to mind former foreign affairs official Alan Gyngell’s observation that Australia will need to know as much as about Beijing as Washington if it is going to successfully live with the rise of China. Indeed, the bureaucratic shake-up in China this month is much more extensive than the top-level changes.
* This Bloomberg story provides a short summary of the five most important changes from the central bank to the environment.
* China Policy says this was the most ambitious restructuring in decades, creating seven new ministries and adjusting the structure of nearly every national agency at the risk of some disruption.
* Asia Society Policy Institute president Kevin Rudd explains to the US West Point Military Academy how Xi came to be in a position to make these changes.
COMRADES AND CAPITALISTS
They are amongst the last longstanding communist allies in the world, but that didn’t stop Vietnamese Communist Party General Secretary Nguyen Phu Trong telling his old Cuban comrades that market economic reforms are the only way during visit to Havana in late March. What Trong called “socialism with success” has been on a roll since Prime Minister Nguyen Xuan Phuc signed a Strategic Partnership with Australia before the ASEAN-Australia Summit. Trong warned in this Nikkei interview he is taking a lead from Chinese President Xi Jinping’s anti-corruption campaign to run the country. And Phuc said in this parallel Financial Times interview he wanted the country to generate half of its economic output from the private sector within two years. Meanwhile GDP rose an annualised 7.38% in the first quarter due to an export boom.
THIRD TIME LUCKY
It is hard to see Malaysian Prime Minister Najib Razak losing the much anticipatedelection now underway given the country’s relatively strong recent economic growth, the latest seat redistribution which favours the government and the last minute action to deregister the new opposition party led by former Prime Minister Mahathir Mohamad. But the status of Najib’s Barisan Nasional (BN) coalition as the world’s longest running regularly re-elected government has clearly been under challenge. In 2008 it lost the two-thirds majority in Parliament which has long served as the benchmark for success or failure in a country where the government has never lost power. In 2013 it lost the popular vote with only 47% support but still won a majority of seats. This time it may well lose its status as a real coalition given the Malaysian Chinese Association and the Malaysian Indian Congress are in danger of winning almost no seats as their voters shift to various opposition parties. That would leave the BN as a near empty shell for Najib’s own United Malays National Organisation (UMNO). UMNO has really run the show since 1957 but it has always helped national harmony for it operate within the guise of a multi-ethnic, multi-geographic coalition.
ASIAN NATION
TO JOIN OR NOT TO JOIN
It wasn’t ever on the official agenda and is unlikely to be in the foreseeable future, but Indonesian President Joko Widodo’s support for Australia joining the Association of Southeast Asian Nations may well go down as the most memorable part of the ASEAN-Australia summit. Australia has many other pathways to greater integration with its closest Asian neighbours which will be more immediately productive than pursuing Widodo’s apparition. And there were clearer outcomes from the Summit like the Strategic Partnership with Vietnam and the agreement on regional counterterrorism cooperation. Our Briefing MONTHLY ASEAN Special Summit Wrap contains the only deconstruction of the Sydney Declaration comparing it with the statements from Australia’s last summit with ASEAN leaders in 2016 and the Leaders’ own summit statement from last year. But the more interesting Sydney Summit retrospectives keep coming back to membership. See Australian Strategic Policy Institute’s Graeme Dobell, an advocate, here and La Trobe University’s Nick Bisley, a sceptic, here.
TWO CHINAS
Not since the days of the so-called Indonesian Lobby during the late Soeharto era has Australian academia seen such a deep public divide over how to deal with a single country. And even then, there was a somewhat predictable logic to a divide which, in part, reflected economic welfare gains versus human rights stasis. But the division which has now broken out amongst Australia’s China experts only serves to underline how the rise of China is deeply impacting on Australia’s self-image. Here’s the statement from 30 scholars on March 19, in response to the Federal Government’s new national security legislation, which exposed this academic divide. “The complex political landscape of Chinese Australia is not reducible to a simplistic ‘pro’ or ‘anti-Beijing’ binary. Yet, if the debate continues to be conducted in these terms … we run the risk of creating just such a polarisation,” these scholars say. And here’s the response from 35 other academics who argue that: “We strongly believe that an open debate on the activities of the Chinese Communist Party in this country is essential to intellectual freedom, democratic rights and national security. This debate is valuable and necessary.”
FOOD FOR THOUGHT 1: EXPORTS
Packaging industry heavyweight Anthony Pratt has stepped up his campaign to boost Australian food exports at his latest Global Food Forum event in Sydney in March with backing for a new scheme to reduce farm wastage. Pratt argues that food exports have risen about a third since the first Forum in 2013 while iron ore exports have fallen slightly in a sign a transition is occurring from the mining boom to the so-called dining boom. But he says reducing wastage is the key to producing higher yields from Australia’s comparatively dry farmland and this needs more technology investment at the source. Pratt’s export ambitions drew strong support from Sunny Verghese, the chief executive of commodities giant Olam which is part owned by Singapore’s Termsek Holdings, who said Australia was the most innovative agricultural nation in the world.
FOOD FOR THOUGHT 2: INDONESIA
While here may be positive news on the supply side of this Asian food export push the demand side is less positive in Indonesia, one of the key long-term markets. These two East Asia Forum articles suggest Indonesia’s protectionist food security policies have failed the country’s poorer people and raise the question of whether President Joko Widodo can fashion a populist political agenda by pushing prices down with more imports. Meanwhile Ross Ainsworth’s latest Southeast Asian Beef Market Report has another fascinating account from the grassroots level, this time on how the arrival of Indian meat is pushing Australian product out of the market for the Indonesian delicacy bakso (meatball soup). He estimates this intrusion into Australia’s backyard by a Hindu nation which notionally reveres the cow could remarkably cost Australian farmers up to $400 million in live cattle exports. Now that’s wastage.
FOOD FOR THOUGHT 3: AID INNOVATION
Reports of further development aid cuts in the May Budget have made the World Bank’s just released study of Australia’s Pacific guest worker program even more timely. The six-year-old program is one of the few in the world that explicitly links labour imports to economic development in the source country and so provides insights that have global value. The reports suggests Pacific workers face more regulatory hurdles than backpackers but are more likely to return to their mostly rural employers and do send a large share of their income back home. The bottom line is that an expansion of the program could have a considerable positive economic impact in source countries. For example, the net $100 million Tonga has received in remittances since the program began is about double Australian’s annual aid spending there. Expanding the program should be part of any new round of aid cuts.
DEALS AND DOLLARS
AMP STICKS WITH CHINA
Departing AMP chief executive Craig Meller says the company’s rapidly growing investments in China can provide a growth engine for his successor. During its first ever strategy day for investors, AMP outlined plans to grow its China Life Pension company interests by 20 per cent a year over the next five years. AMP also indicated it had big ambitions for its China Life AMP Asset Management business, saying it expects to become a top 20 investment manager in China within three years. AMP holds a 19.99 per cent stake in the leading pension provider China Life Pension Company, after a 2014 deal which was the first time a foreign company was allowed to buy into a domestic Chinese pension fund.
ASIAN SUCCESS STORIES
Put executives from three of Australia’s more successful Asian businesses together on a panel and it quickly becomes clear that there is no simple formula for overcoming the relatively low (compared with the English-speaking world) level of investment in the region. But in trying to answer that question at the Financial Review/BHP Business Summit in Sydney, Cochlear chief executive Dig Howitt, Lynas chief executive Amanda Lacaze and Macquarie Capital Asia vice-chairman John Walker did leave some strong messages. Howitt says the country head should be a local person who understands the place; the shareholder base must understand the need to reinvest; and investment alongside distributors is a good strategy. Lacaze says expatriate technicians to educate locals in Australian standards and skills are as important as managers; top corporate management should be located where a company makes its product or sells its product; and concentrate on what can be changed offshore not what would be changed in Australia. Walker says a grand plan is less important than finding a niche from which to make some early profits; pay attention to policy and demographic changes; and look for cultural sensitivity in expatriate workers not just number skills.
GASSED UP
Mitsui & Co has declared it won’t extend its deadline beyond April 6 in its $602 million takeover of oil and gas company AWE. The Japanese trading company initially triumphed over two other bidders — including China Energy Reserve and Chemical Group — to snare the West Australian Waitsia gas field, which is one of the largest onshore gas discoveries in Australia for many years. The takeover continues its shift towards operating more businesses in Australia rather than just holding investments Mitsui executives have said that gaining experience in operating gas projects in Australia will set the company up to pursue other energy deals in the country.
FAST MONEY
The advance by Chinese electronic payment systems into Australia has stepped up with both Alipay and JD.com increasing their presence. Alipay has entered an agreement with Cabcharge to allow Chinese travellers to use Alipay in the 22,000 cars which use Cabcharge. And JD.com is opening a local business office in Melbourne due to rising demand from its customers from Australian products. The moves make Australia a new frontline in the increasingly global battle between China’s e-commerce giants with Alipay part-owned by Alibaba and JD.com increasingly linked to internet giant Tencent.
DIPLOMATICALLY SPEAKING
“This (the South China Sea) is an issue which we can manage, which we can help prevent from escalating, but it is not an issue which can in a definitive way resolve in any short period of time. We have to accept that and work together in good faith and to the utmost ability which we have in order to maintain a stable situation and gradually to make progress.” ASEAN chairman and Singapore Prime Minister Lee Hsien Loong.
DATAWATCH
Value Penguin has evaluated available economic data to determine the best countries in Asia-Pacific for startups. Covering the general economic health, cost of doing business, business environment and labor force quality in Asia’s 12 leading nations. For the full findings and methodology visit here. (The lower score, the better)
WHAT WE’RE READING
OUR TIME HAS COME, BY ALYSSA AYRES (Oxford University Press)
Alyssa Ayers finishes this ode to the rise of India and the need for a closer US-India bilateral relationship with a long list of engagement proposals that would be very familiar for Australians who advocate closer relations with Asia. It includes language study, bringing India into more global institutions, finding specific shared objectives, looking past current difficulties to the long term and so on. This is all sensible stuff in a book driven by youthful immersion in India as a student which led to a senior policy making role on South Asia for the Obama Administration. But the underlying tendency from such an India enthusiast to see the country as a logical interlocutor or even much more for the US sometimes seems a little at odds with an insightful earlier chapter on the deep idiosyncratic cultural influences on India’s approaches to the world. This examination of why western notions of left and right or liberal and conservative don’t work easily in India is also useful reading for Australians captivated by the idea of democratic India as a natural ally. Ayers survey ranges from the fourth century BCE statecraft text the Arthashastra to Mahatma Gandhi’s swadeshi philosophy in explaining the sources of influence on otherwise modern looking Indian leaders. There’s a fascinating back to the future story about the Hindu proselytiser Swami Vivekananda cutting a swathe across the US on a speaking tour in the 1890s. But despite quibbles about whether India sees itself as a new recruit to an established order or wants to shape the world in its own ways, it is hard to quarrel with Ayers’ basic point: “We are witnessing a country chart its course to power, and explicitly seeking not to displace others but to be recognised amongst the club of powers, one in which it believes its membership is well overdue.”
Watch: ‘Has India’s Time Come?’ Alyssa Ayres speaking at Asia Society New York, Jan 2018.
ON THE HORIZON
It’s an iron law of politics that when politicians set deadlines they don’t meet they just create the appetite for even more deadlines. And so the negotiations over the Indonesia-Australia Closer Economic Partnership Agreement (IA-CEPA) are now into the phase of multiplying deadlines eight years after the process started. President Joko Widodo arrived at the Sydney ASEAN Summit saying only technical issues remained which would be easily resolved, possibly during the summit. Trade Minister Steve Ciobo is much more cautious only talking about later in the year. That makes the Indonesian Independence Day target of August 17 from Investment Minister Tom Lembong the day to watch. Lembong is not strictly a negotiator, but he is the most public campaigner for the deal, including as the Asia Society Australia-Victoria Distinguished Fellow.
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Briefing MONTHLY is a public update with news and original analysis on Asia and Australia-Asia relations. As Australia debates its future in Asia, and the Australian media footprint in Asia continues to shrink, it is an opportune time to offer Australians at the forefront of Australia’s engagement with Asia a professionally edited, succinct and authoritative curation of the most relevant content on Asia and Australia-Asia relations. Focused on business, geopolitics, education and culture, Briefing MONTHLY is distinctly Australian and internationalist, highlighting trends, deals, visits, stories and events in our region that matter.
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