The Asian Financial Forum took place in Hong Kong this week. GTR was in attendance to report back the key findings.
- Despite the positive spin, people are worried about China
There was a marked difference between the views on China shared by many of the speakers and those given by the audience. One straw poll found that the gravest concern for the global economy was a hard landing for the Chinese economy (36.3%). In another, 44.8% of attendees thought that lower Chinese growth would have a bigger impact on the pan-Asian economy than any other factor. Yet, these sentiments were largely dismissed by a succession of speakers.
Jiang Jianqing, the chairman of ICBC, claimed that high energy imports showed that China is still growing strongly and that there was little to be concerned about. “China is still the locomotive of global economic growth,” he said, adding that in restructuring the economy, the government is putting China on a path for more sustainable growth. His views were echoed by HSBC CEO Stuart Gulliver, who said that “we absolutely don’t see a hard landing” for China. He added that “we do believe that the data is accurate”, in reference to scepticism over the quality of China’s official economic indicators.
These are influential, highly-connected individuals, so perhaps they do know something that the rest of us don’t. But with cross-border deal flow from Hong Kong into Mainland China wobbling its way into 2016 and experienced trade practitioners dismissing the near 7% growth figures as “ridiculous”, it makes one wonder if there was a party line being very diligently toed.
- Infrastructure dominates the conversation
Last weekend, the Asian Infrastructure Investment Bank (AIIB) was finally inaugurated, with Jin Liqun, the bank’s first president, promising a modern institution that is “clean, lean and green”. The timing was perfect, as it gave speakers the chance to wax about the importance and necessity of China’s grand infrastructure spending plans.
Speaking of the One Belt One Road (OBOR) plan, Ronnie Chan, a Hong Kong property mogul, claimed that it was “a natural development of human history”. “It doesn’t matter if it’s China or someone else, it has to happen.”
This was a recurring theme: that the New Silk Road doesn’t belong to anyone and that the rest of the world should unite in supporting it. The logic is on one hand sound: by 2020, countries along the land and maritime belts will account for some 50% of global GDP, according to the IMF. There is also the pressing need for infrastructure investment all round Asia. The Asian Development Bank (ADB) estimates the continent needs US$8tn investment by 2020, with the western part among the least connected parts of the world. However, to suggest that China will yield control of a project on which it is spending tens of billions of dollars is slightly fanciful.
Elsewhere, ministers from as far afield as Thailand, Russia, Sweden and Luxembourg showed their support for the AIIB. Pierre Gramegna, the Luxembourg Minister of Finance, compared it to the Juncker plan in Europe, which is an effort at leveraging the European Investment Bank to raise €315bn to invest in Europe’s infrastructure. In all corners of the giant Hong Kong Conference and Exhibition Centre, people were itching to be involved.
- Banks are not doing what they’re supposed to do
A refreshing moment of candidness came from an unlikely source, Hong Kong Monetary Authority (HKMA) CEO Norman Chan. Amid the polite jibing and posturing, he called banks out for failing to deliver one of their most basic functions: lending money. “Banks are using regulation and external threats as an excuse not to perform banking services, including lending and especially SMEs… using de-risking as an excuse is not good enough,” he said, adding that it was little wonder shadow banks and fintech firms are emerging to fill the gap.
Most agree that there is ample liquidity in the market. Many bankers are sitting on their hands in the hope that projects and deals considered bankable will fall into their lap. “Talk to any Asian banker,” Chan said, “and he’ll say there’s a huge surplus and they’re looking for investment opportunities.”
Given the previous point on Asia’s infrastructure gap, it would seem that some people aren’t looking hard enough. It also suggests that eight years after the financial crisis kicked in, the need for export credit agencies and development bank financing is growing, rather than contracting.
- Rumours of a supply chain shift have been greatly exaggerated
Much has been said about the potential of Asean to replace China as the workshop of the world. A conversation at the AFF helped put the suggestion in perspective. Cambodia has seeing an uplift in textiles investment, with some companies looking to cut costs as labour becomes more expensive in China. But the population of Cambodia is the size of a suburb of Guangzhou. Vietnam, which has seen much industrial and manufacturing investment in recent years, has 15 million fewer people than the province of Guangdong. In summary: China has the scale and human capital to retain its position as the largest manufacturer in the world.
There are other issues at play too, scale aside. Kenith Poon, who heads up the Institute for Supply Management in Hong Kong, pointed out that in relocating heavy manufacturing from China to, say, India, you may struggle to source the requisite supplies and components. What’s more, as Chinese consumption grows, moving away from China means you risk moving away from a vital consumer base, incurring additional export costs in the process.
- Can Asian markets cope with dollar interest rate hikes?
After an initial raise late last year, it’s expected that the US Federal Reserve will make further steps to “normalise” the interest rate this year, with two or more hikes expected. As anticipation built before the first hike, there was an expectation that over-leveraged emerging Asia would suffer disproportionately. Indonesia, for instance, was earmarked for particularly hard times, given the fact that it is suffering more than most from the commodities downturn and – according to GTR sources – many companies there have failed to hedge against the inevitable rate rise.
But participants at the AFF were sanguine about the prospects of further increases. The esteemed former Fed chairman Ben Bernanke predicted, hopefully, that Asia has learnt its lessons from the financial crisis of the 1990s, while Zeti Akhtar Aziz, governor of Bank Negara in Malaysia, said that the hike was so highly anticipated that it had already been priced into deals and accounting. The normalisation, she said, may be positive since it removes the uncertainty and speculation around when it will come.
This is in stark contrast to a note released late in 2015 by ABN Amro’s chief economist, Arjen van Dijkhuizen, who named Malaysia and Indonesia as the most vulnerable to further raises in the dollar interest rate and one of the greatest risks to the global economy in 2016.