Trade Flows and ASEAN Cake
Trade flows are followed by the flag and style never goes out of fashion, but the recession prone US and EU want the ASEAN cake and eat China too - just call it the Indo-Pacific strategy.
UPDATE: Today’s Long Mekong Daily takes a peek at the global fashion industry to gain insights for ASEANs garment producers and exporters. Vietnam’s Vinfast automaker is set to list in the US. President Xi Jinping’s three-day visit to meet with 30 Arab heads of state promises a major shift in the global commodity and currency markets. German police arrest 25 suspects in plot to overthrow state. Japan’s economy is headed for a recession in 2023. And, lastly, while the US and EU plunge into recession, there is still time to ‘imagine’ how they can “Understand and Address Challenges in the Mekong Region” - however, it is really all about China, trade flows and China.
The State of Fashion 2023: Holding onto growth as global clouds gather
After experiencing 18 months of robust growth (early 2021 through mid-2022), the fashion industry is again facing a challenging climate. Hyperinflation and depressed customer sentiments have already resulted in declining growth rates in the second half of 2022. We expect that the slowdown is likely to continue through 2023.
ASEAN’s garment exporters need to anticipate supply-chain headwinds and financial impacts just as much as style directions and market trends. Many industry players are in a stronger position than they were a year ago, however. The fashion industry delivered a 21 percent increase in revenues in 2020–21, and EBITA margins doubled by 6 percentage points to 12.3 percent.
Looking forward, we anticipate that the luxury sector will outperform the rest of the industry, as wealthy shoppers continue to travel and spend, and thus remain more insulated from the effects of hyperinflation. Based on McKinsey’s analysis of fashion forecasts, the luxury sector is expected to grow between 5 and 10 percent in 2023, driven by strong momentum in China (projected to grow between 9 and 14 percent) and in the United States (projected to grow between 5 and 10 percent). Europe, on the other hand, is under high pressure from currency rates and a growing energy crisis, which are likely to result in modest sales growth for the luxury sector (projected to grow between 3 and 8 percent).
The fashion market, excluding the luxury sector, will struggle to deliver significant growth in 2023. McKinsey analysis of fashion forecasts projects relatively slow sales growth of between –2 and +3 percent, weighed down by a contraction in the European market (expected to shrink between 1 and 4 percent) (exhibit). China and the United States are expected to fare better, growing between 2 and 7 percent and between 1 and 6 percent, respectively. These forecasts are reflective of inflation and are calculated in local currencies, meaning that the real impact for the sector could be more negative than these figures suggest.
Download the full report here.
The GCC is increasingly looking eastward for economic alternatives.
Five months after his frosty fist-bump with President Joe Biden, Saudi Arabia’s Crown Prince Mohammed bin Salman is rolling out the red carpet for Chinese President Xi Jinping, who arrived in Riyadh on Wednesday evening for a three-day trip underscoring Beijing’s growing role in the Persian Gulf.
Xi, who last visited Saudi Arabia in 2016, will take part in summits with the leaders of the six-member Gulf Cooperation Council and other Arab states, where the Chinese delegation is expected to sign a flurry of deals.
The visit comes as relations between Washington and Riyadh are in disarray following the OPEC+ decision in October to slash oil production by 2 million barrels per day, despite US warnings that the cuts would benefit Russia.
A fuming Biden administration vowed to re-evaluate the decades-long US partnership with Saudi Arabia, already strained over the kingdom’s rights record, military campaign in Yemen and murder of journalist Jamal Khashoggi. Congressional Democrats responded to the OPEC+ cuts with calls to restrict arms sales and security cooperation with Riyadh.
For China, the latest friction in the US-Saudi relationship has created an opening.
Robert Mogielnicki, a senior resident scholar at the Arab Gulf States Institute in Washington, described the trip to Al-Monitor as providing “an opportunity for President Xi to display a different state of relations that doesn’t have visible tensions and obvious barriers to closer ties.”
Chinese-Saudi economic relations have deepened in recent decades, with China as Saudi Arabia’s largest trading partner and biggest purchaser of Saudi oil. Ahead of Xi’s visit, the official Saudi Press Agency reported that Riyadh and Beijing would ink preliminary agreements this week worth more than US$29 billion.
In defending his much-criticized visit to the Saudi city of Jeddah this July, Biden said engaging Saudi leaders would put the United States “in the best possible position to outcompete China.”
But as Salim A. Essaid reports, the GCC is increasingly looking eastward for economic alternatives. Chinese bilateral trade with Iran and the GCC states totalled US$248 billion in 2021 — four times those countries’ trade with the United States. China has also made inroads into the region's armed drone market, raising alarm bells in Washington.
Read the full article here.
Vietnam’s VinFast files for IPO in the US
VinFast, a major electric vehicle (EV) maker out of Vietnam, has filed a registration statement to list its shares in the US. The company is expected to trade on the Nasdaq under the VFS symbol.
The number of VinFast shares to be offered in the IPO is yet to be disclosed. Citigroup Global Markets, Morgan Stanley, Credit Suisse Securities, and JP Morgan Securities will act as lead book-running managers for the offering. The development follows VinFast bolstering its expansion efforts in the US. In July, the company opened six showrooms in California and plans to launch a total of 30 by the end of the year.
It also acquired US$1.2 billion in incentives from the state of North Carolina to build a manufacturing facility in the state. In addition, VinFast reportedly inked an agreement with Credit Suisse and Citigroup to raise US$4 billion to bankroll its US expansion plans.
Launched in 2017, VinFast is a subsidiary of Vietnamese conglomerate Vingroup. The company initially produced internal combustion engine cars before transitioning to EVs in January this year.
Read the full article here.
German police arrest 25 suspects in plot to overthrow state
Police have arrested 25 suspected members or supporters of a "domestic terrorist organisation" aiming to topple the German state. Justice Minister Marco Buschmann said the network was part of the "Reichsbürger scene." In a nationwide raid, 25 suspected members and supporters of a terrorist organisation in Germany were arrested early Wednesday.
Officials said the network is part of a well established wider right-wing movement with a concrete plan to overthrow the German state by force and install a new government.
The raids were announced by Germany's federal prosecution agency and German Justice Minister Marco Buschmann. The minister said the investigations were directed against a suspected terrorist network with known ties to the Reichsbürger movement. He said that the raids had taken place on individuals suspected of planning an armed attack on state institutions.
The search operation is reported to have covered 130 properties belonging to 52 suspects in 11 German states. According to prosecution officials, the arrested suspects "belong to a terrorist organisation" that was believed to have been founded at the end of November 2021. The group "set itself the goal of overcoming the existing state order in Germany and replacing it with its own form of state, which has already been worked out in outline," prosecutors added.
Of the 25 men and women arrested, 24 were from Germany and one suspected supporter is from Russia. One arrest took place in Austria and one in Italy. There are 27 other suspects, the federal prosecutor's office said.
Read more here.
Japan’s economy could enter a recession in 2023
Japan’s economy is set to enter into recession as export growth slows, according to Capital Economics. “We think the Japanese economy will enter a recession sometime next year,” said Marcel Thieliant, senior Japan economist at Capital Economics, said CNBC’s “Squawk Box Asia” Tuesday.
The recession will “mostly be driven by a drop in exports and also by becoming more cautious, which is typically what you see when exports start to fall,” he said. Japan most recently reported a larger-than-expected trade deficit of $15 billion for the month of October. Exports rose by 25.3%, slower than a year-on-year growth of 28.9% seen in September.
Meanwhile, imports jumped 53.5% year-on-year in October, higher than a year-on-year growth of 45% the previous month. The nation is slated to report its monthly trade data on Dec. 15. Separately, Japan is due to release revised third quarter GDP on Thursday. Analysts polled by Reuters expect a 1.1% annualized contraction for the July to September period – after previously reporting a 1.2% contraction.
That would mean it’s already headed for what is commonly categorized as a technical recession, defined as two consecutive quarters of negative growth. However, the National Bureau of Economic Research defines recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
Read full interview here.
Understanding and Addressing Challenges in the Mekong Region
China, China, China!
OPEN hearing of the Committee on Foreign Affairs, held by the Subcommittee on Asia, the Pacific, Central Asia, and Nonproliferation.
Watch the hearing here
Why Southeast Asia Matters for German National Security
China, China, China!
Beyond its fame as a tropical touristic destination, Southeast Asia is a key partner on security. As Berlin crafts its upcoming National Security Strategy, it should focus on building bridges in the region. Southeast Asia is home to nearly 700 million people living at the intersection of Chinese and Indian civilizations. For thousands of years, the area has been the heart of the Indo-Pacific and Asia Pacific regions in terms of politics, and hosts key annual summits that are attended by world leaders. In light of its global significance, it is high time for Berlin to take Southeast Asia more seriously.
At the moment, Germany is entering its Zeitenwende – or turning point – era and composing its first-ever National Security Strategy. And it does so in the wake of Russia’s brutal invasion of Ukraine. Under these conditions, it is inevitable for Berlin to realize Southeast Asia’s strategic importance to its national security, as the region’s geo-strategic and geo-economic circumstances are vividly linked to Europe. Berlin needs a Southeast Asia strategy that is elastic, cohesive and comprehensive in order to engage more meaningfully in this thriving region of the East. And to be successful, it should also be more specific than the Germany’s 2020 Policy Guidelines on the Indo-Pacific.
German Chancellor Olaf Scholz’s recent visit to the region highlighted this sentiment. Setting foot in Hanoi, Singapore and Bali, the German leader stressed that the Asia Pacific as a region is something “much more than China,” confirming the need to enhance economic, security and political cooperation with the states in Southeast Asia.
Economic Security Is National Security
At the same time that Germany’s Wandel-durch-Handel – or change-through-trade – approach received its final death blow with Russia’s invasion of Ukraine, Germany’s economic ties with authoritarian China came under the spotlight. Ahead of his somewhat controversial first visit to Beijing as German Chancellor, Scholz spoke out against decoupling from China but also warned of economic “over-reliance” on the Communist state.
Southeast Asia’s 4.53 trillion dollar economies offer a long-term answer to Germany’s quest for economic diversification. The region’s young and dynamic workforce, conducive geography to global trade and supply chains, as well as its rapid transition out of the pandemic make it an attractive alternative to its next-door neighbor, China. The fast-emerging middle class in Southeast Asia would also be a worthwhile choice for German companies looking to diversify their export destinations. In addition, as Scholz emphasised in Hanoi, supplies of raw industrial materials, including rare earth, can also be sourced from the region.
Southeast Asia’s 4.53 trillion dollar economies offer a long-term answer to Germany’s quest for economic diversification.
— Chhengpor Aun
Further, Germany has the opportunity to be a timely and competent partner in the region’s pro-business drive to fight corruption and raise the standard of social and consumer protections. Germany’s experiences in data protection, digital safety and cyber-security would provide key insights from which the region could learn. As a leading bloc promoting free trade, Southeast Asia is also a potential partner for Germany to counter de-globalization trends.
It Is Always Political
To productively engage with Southeast Asia, Germany will need to consider an unorthodox path that allows it to flexibly maneuver between a strategic and value-based approach. Making democratic norms the backbone of its Southeast Asia strategy would undoubtedly backfire: the political realityis that some Southeast Asian states are run by authoritarian regimes, and most others are fragile democracies. Certainly, Southeast Asia is no stranger to the routine abuse of civic and political rights.
Countries in the region are fiercely sensitive to criticisms of their internal conduct, though they usually leave a small window of opportunity for opposition dissidents and civil society critiques. To navigate this environment, the best way forward for Germany is to have a presence in the region, and to listen and understand the on-the-ground perspectives. Berlin should lend its much-needed support to the groups and communities promoting peace, stability, democracy, and human rights in Southeast Asian states, both at the national and grassroots levels. Already, foundations affiliated with the German political parties are performing well with key players across Southeast Asian governments, think-tanks, civil societies, and the private sector, where they engage with a diverse set of issues.
Key Points:
Southeast Asian states represent potential partners for Germany in addressing global security challenges and bolstering its economy.
It is in Germany’s security interests to defend democracy in Southeast Asia. Thus, Berlin should aid local scholars, politicians and activists committed to the rule of law.
To mitigate future conflicts in the region, Germany should assist Southeast Asian armed forces in upholding professional standards and preparing for the geopolitical challenges ahead.
It is in Germany’s national security interest to defend and promote democracy in regions like Southeast Asia. While there is no quick fix for democratizing the region, Germany is well-placed to provide long-term, consistent assistance to emerging scholars, politicians and activists committed to democracy and the rule of law. These actors play key roles in holding governments in the region to account.
During these exchanges, Germany would be wise to absorb the diverse perspectives on governance as well as distinctive approaches to statecraft and foreign policy in each Southeast Asian state – some of which are rapidly developing their defense capability in response to disputes with Beijing in the South China Sea.
Read the full article here.