GTR Asia returned to Singapore on September 3-4, 2019, reflecting on a momentous year for global trade and developments in the Asian market. Bringing together almost 1,300 participants – a new record – the event saw players from local and international banks to multinational corporations and SMEs, independent financiers, commodity brokers and traders, insurers and risk managers, lawyers, consultants, ECAs and multilaterals, join to discuss a wide range of topics, from the impacts on Asia of the China-US trade war to the outlook for intra-regional trade, and the perennial hot topic of digitisation. In this post-conference wrap-up, we bring together some of the main takeaways and key insights.
The trade war and geopolitical uncertainty are keeping everyone up at night, but optimism remains
As exporters across Asia re-examine their trade strategies in the wake of tussles between Beijing and Washington, it was not surprising that the US-China trade war and the rise of populism featured heavily in discussions across the two days. In his opening comments, Parag Khanna, founder and managing partner of FutureMap and chairman of the event’s first day, set the scene: “Globalisation today is, actually, the battlefield of geopolitics,” he said.
“The US government believes that the world has changed, that China has changed, and the old commitments that China made are no longer fair,” said Timothy Stratford, managing partner at Covington & Burling and former assistant US trade representative, adding that “there are fundamental differences between the Chinese economic development model and the US model. The US feels that this is incompatible and results in unfair competitive conditions.” He added that the areas of national security and trade, once separate, were now impinging on one another – a theme also picked up on by Rebecca Harding, CEO of Coriolis Technologies in the independent expert session.
As a result, insurers and risk management professionals have found themselves in increasing demand both within and outside of the region. “We’ve got geopolitical issues, we’ve got tankers being seized in the Gulf, we’ve got a weaponisation of finance and currency, we have increasing regulatory scrutiny,” said Stuart Ashworth, managing director of financial solutions, Asia Pacific at Willis Towers Watson. For James Ponsford, regional director and growth leader, credit solutions Asia at Aon, this creates an opportunity. “In the credit and political risk product at the moment, I don’t think our product has ever been as relevant as it is today. There’s a lot of demand and a lot of risk out there,” he said.
But although the spectres of Trump, tariffs and unpredictable tweets stalked the stage, most panels looked beyond the current tensions to the myriad opportunities for Asia.
In an entertaining set of slides that most memorably included the title “Mao Money, Mao Problems”, Michael Avery, head of financial markets research, Asia Pacific at Rabobank, challenged that the current tensions were anything but new, pointing to isolationist quotes from such historical figures as Theodore Roosevelt and Abraham Lincoln.
Meanwhile, Ajay Sharma, regional head of global trade and receivables finance, Asia Pacific at HSBC, drew nods of agreement from the audience with a markedly upbeat assessment of the current situation. “This is the Asian century. We are very bullish in terms of where Asia is headed,” he said, adding, “Urbanisation, consumption growth, middle class growth, all of these trends are suggesting that we are for a good ride.”
Asia is bucking the trend away from globalisation… or is it?
“We talk about deglobalisation, and we can clearly see that taking shape,” said Claire Thompson, executive vice-president, enterprise partnerships at Mastercard, during a panel on the future of trade.
While this is true for much of the world, in recent years, the Association of Southeast Asian Nations (Asean) has emerged as a champion of trade liberalisation and multilateralism. The grouping of 10 nations – Indonesia, Thailand, Singapore, Malaysia, Philippines, Vietnam, Cambodia, Brunei, Myanmar and Laos – has brought tariffs down to practically zero for most trade within the bloc, while merrily signing free trade pacts with regional giants including India and China.
But just how free trade actually is in Asean was quite literally up for debate during the morning of the first day. After hearing from Theodoor Bakker, senior foreign counsel at law firm ABNR, Burkhard Ziegenhorn, managing director and head of global transaction banking in Asean at Deutsche Bank, and Jayant Menon, lead economist at the Asian Development Bank, who argued each side of the statement “Is free trade a misnomer in Asean?”, the audience were given the chance to vote. Despite a series of positive developments highlighted by Bakker, those in attendance made their opinion felt: “Not enough has been done” by the bloc to promote and protect free trade.
Mind the (trade finance) gap
In a session which saw the launch of the results of the 2019 Asian Development Bank (ADB) trade finance gaps survey, Steven Beck, the bank’s head of trade finance and supply chain finance joined the World Trade Organization’s Marc Auboin, BNY Mellon’s Mohanavelu Muthukrishnan, and fintech expert and consultant Kaushalya Somasundaram to discuss whether new developments in the industry might go some way toward addressing the issue.
The headline number from the survey – US$1.5tn in unfinanced trade finance requests – has remained stubbornly stable for a number of years. According to the results, 45% of trade finance applications by surveyed SMEs are rejected, compared to 39% for mid and larger-sized firms and 17% for multinational corporations.
“The huge trade finance gap is a global challenge that shackles economic growth and harms efforts to reduce poverty,” said Beck. “Given the uncertain economic outlook, it is critical that more efficient, stable, and sustainable trade finance channels are created to spur global growth and development.”
For Muthukrishnan, the key to closing the gap, much of which is in developing Asia, will be more cooperation between financiers. “There are ways by which we can distribute a transaction so that the local bank don’t need to take a credit risk on the obligor. There needs to be a lot more collaboration between the global and local banks,” he said.
Digitisation: is everyone on board?
After several years of exciting talk but little in the way of actionable initiatives, comments from panellists and participants broadly seemed to indicate that the use of blockchain and progress in digitisation initiatives across trade finance are picking up, with Asia very much at the heart of that change. But, as Vinay Mendonca, global head of product and proposition, trade and receivables finance at HSBC, pointed out in a session titled ‘Can blockchain and wider digitisation smooth the frictions in global trade?’, one big challenge remains: how are these solutions going to reach commercial scale?
Acknowledging recent research that indicates that a large number of Asian companies are unsure whether digital technologies will improve their businesses, how to ensure banks keep the needs of corporates in mind throughout the digitisation journey was a particular point of note. In another session later the same day, Mark Troutman, managing director and group head of sales, global transaction services at DBS, highlighted findings from the bank’s digital treasury index, which found that seven in 10 companies in the Asia Pacific region risk being left behind in digitisation.
“Asking corporates to switch from their current process whether it’s paper or somewhat digitised to more digital, whether it’s DLT or non DLT, is like asking them to do an oil change while they’re going down the highway,” said Wai Yee Choo, deputy director of Singapore’s Networked Trade Platform (NTP).
However, some see patchy digitisation progress among corporates as the fault of short-sightedness on the part of solution providers. Claudia Villasis-Wallraff, manager of commercial treasury, operations and risk excellence at Rio Tinto highlighted that few – or no – fintech companies are currently focussing on solving problems for multinational companies. “There are a lot of solutions for SMEs, but when you try to solve anything for an MNC, the market is really empty.”