Supply-chain disruptions are causing some turmoil in the minds of Asian investors. But while COVID-19 restrictions in China highlighted the problems with supply-chain concentration and drove many businesses to diversify to other Asian countries, we believe the impact should be short-lived. As China eases its zero-COVID policy, it should see more foreign direct investment (FDI) inflows. Still, we believe Asia ex-China stands to benefit from supply-chain diversification efforts, particularly in select labor-intensive manufacturing sectors.
Below are four reasons emerging markets debt investors may want to look at Asia.
Asia is not immune from the gloomy global outlook, which features persistently high inflation, uncertain energy prices due to the prolonged conflict in Ukraine, and depressed demand for manufactured goods thanks to slower global growth and recessionary risks.
Exports of Asian goods have trended down considerably since the third quarter of 2022, and economic growth in Asian countries is forecast to come in between 4% and 6% in 2023. And
during the pandemic, we saw Chinese imports decline, especially in industries that rely heavily on global value chains—such as electronics, healthcare, automotive, and textiles—which tend to be more susceptible to supply-chain disruptions.
“We are selectively overweight corporate and sovereign credits that may benefit from post-lockdown recovery, stronger FDI, and supply-chain diversification efforts.”
Given China’s easing of its zero-COVID policy, however, we believe Asia’s economic growth could come in toward the higher end of the range in 2023. China is reopening its borders to both inbound and outbound traffic, and the post-COVID Chinese growth story could cushion the economies of other countries in the region from a downside surprise this year. Southeast Asian countries, in particular, could see a robust recovery in tourism and consumption.
Still, we believe we can expect to see supply-chain diversification and changing FDI flows within Asia. On the following pages, we explain our thinking and then provide an overview of how it is affecting our positioning.
1: Supply-Chain Disruptions Are Driving Diversification
China has been a significant contributor to the increase in developing economies’ share of global FDI inflows. In 2020 and 2021, China ranked among the top two nations attracting the most FDI inflows globally, as exhibit 1 shows.
However, COVID-19–related supply-chain disruptions and geopolitical turmoil (including the Russia-Ukraine conflict) have driven discussions about supply-chain diversification. Supply-chain disruptions during the pandemic were big news. According to the International Monetary Fund (IMF), COVID-19 containment policies in exporting countries shocked the global supply chain, driving down imports across the world.
Because China is one of the major actors in global supply chains, accounting for up to 30% of global manufacturing output and up to a fifth of global manufacturing trade, its zero-COVID restrictions reverberated globally and led businesses to reconsider their FDI in the country.
2: COVID-19 Restrictions Dented Regional FDI, but the Impact Is Likely Temporary
There is no denying that COVID restrictions hurt FDI flows as increased economic uncertainty associated with lockdowns caused businesses to retrench. Globally, FDI fell by 42% in 2020.
However, Asia fared much better than the Americas and Europe, where FDI inflows plummeted in 2020 before rebounding swiftly in 2021. In Asia, FDI inflows remained resilient in 2020 and grew further in 2021. Asia ex-China led this growth. India received $45 billion of FDI inflows in 2021, and Association of Southeast Asian Nation (ASEAN) countries received $174 billion of FDI inflows in 2021, led by manufacturing, in areas such as electronics, electric vehicles (EVs), and EV battery plants. Exhibit 2 illustrates these trends.
One explanation for Asia’s FDI resilience in 2020 and 2021 may be that during the pandemic, demand for manufactured goods was more resilient than demand for services, and manufacturing is a significant portion of Asia’s economy—more so than in many other regions. Exhibit 3 illustrates.
Another plausible explanation may be China’s relative success in containing the COVID-19 pandemic in 2020, with less stringent restrictions than the rest of the world for most of 2020 and 2021.,
So, lockdowns, and the policy and macroeconomic uncertainty associated with them, impacted FDI, and China seems to be the relative loser in Asia, with FDI inflows to Asia ex-China increasing on the back of supply-chain disruptions. This will likely be particularly evident in 2022’s data, as exhibit 4 shows. But we believe Chinese FDI inflows remain resilient. In other words, the impact of lockdowns on FDI inflows appears to be short-term.
3: Many Factors Determine the Direction of FDI—And Asia Could Benefit
Moreover, COVID-related lockdowns are not the only driver of supply-chain diversification and FDI inflows. We believe some of these other factors bode well for China, and some bode well for Asia ex-China.
For example, another driver of supply-chain diversification may be the relative cost of labor in Asia ex-China. The Chinese minimum wage has grown over the last decade, from $157 per month in 2011 to $287 per month in 2021. This is significantly higher than other countries in the region, including India ($63 per month in 2021) and Vietnam ($159 per month in 2021), as exhibit 5 illustrates.
As a result, it may be economical for companies to shift some manufacturing capacity from China to lower-cost countries in the region. The lower cost of labor may be the prevailing factor in the decision to shift supply chains in some labor-intensive, lower-value-added manufacturing areas, such as textiles and apparel. In recent years, U.S. imports of textile and apparel goods from China have decreased, while imports from Bangladesh, Cambodia, Indonesia, and Vietnam have increased, as exhibit 6 shows.
Other considerations in diversifying supply chains include the size and growth of the market, the supply of skilled labor, transportation infrastructure, market access, and government incentive policies. In many of these areas, China still holds significant advantages over its neighboring countries. China’s FDI inflows toward high-tech industries—including advanced manufacturing, technological innovation, and technology research and development—continued to show double-digit growth in 2021 and the first half of 2022.
4: Businesses Are Now Aware of the Need for More Resilient Supply Chains
The COVID-related supply-chain disruptions highlighted the importance of diversifying supply chains to spread risk across locations,  and many international businesses reacted with the dual approach of continuing to invest in China while also diversifying outside China—the so-called “China Plus-One” strategy.
According to a survey by the German Chamber, in response to China’s prolonged zero-COVID-19 policy, 29% of companies intended to localize supply chains in China, while 29% intended to diversify supply chains away from China. Similarly, the American Chamber’s China Business Report shows that while a third of respondents have redirected planned Chinese investments to other destinations in 2022, 30% of companies increased investments in China year-over-year. Exhibit 7 illustrates some of the motivations for recalibrating supply chains.
Conclusion: FDI Likely to Remain Strong in Asia, Including China
While COVID-19 restrictions affected FDI inflows in the countries with the restrictions (China being a prime example), the bulk of the impact appears to be short-lived. But supply-chain diversification is real, for a number of reasons, and is affecting FDI.
We believe FDI in Asia ex-China should increase on the back of supply-chain diversification efforts, particularly in select labor-intensive manufacturing sectors. Selective countries from Asia could play a bigger role in global supply chains as the quest for diversification continues.
FDI in China, however, is also likely to remain strong, especially as the country eases its COVID-19 restrictions. We believe more and more multinational companies will adopt a “China Plus-One” strategy to achieve supply-chain diversification while protecting profits from pent-up domestic demand in China. This will likely keep China a core member of the global value chain and a major recipient of FDI inflows.
In sum, China will likely remain an important part of global value chains given its competitive advantages, including a vast market size, skilled labor supply, and solid infrastructure. In our opinion, the Chinese industries that attract the most FDI will likely include advanced manufacturing and investments that support its large domestic market.
We believe credit spreads can tighten in Asia ex-China and China on the back of China’s anticipated reopening recovery. In our EM debt portfolios, we are selectively overweight corporate and sovereign credits that may benefit from post-lockdown recovery, stronger FDI, and supply-chain diversification efforts. We also favor Southeast Asian currencies as we believe their balance of payments should be supported as these countries build their manufacturing capacity and enhance their export competitiveness.
Clifford Lau, CFA, is a portfolio manager on William Blair’s emerging markets debt team.
Johnny Chen, CFA, is a portfolio manager on William Blair’s emerging markets debt team.
 United Nations Statistics Division
 Rocky Roads Ahead: AHK German Chamber of Commerce in China Business Confidence Survey 2022/2023
 AmCham Shanghai: “AmCham Shanghai Releases 2022 China Business Report”
 International Trade Administration; International Labor Organization Statistics
 Embassy of the People’s Republic of China in the United States: “China’s FDI Inflow Up 16.4 Pct in First Eight Months”
 United Nations ESCAP: “Foreign Direct Investment Trends and Outlook in Asia and the Pacific in 2021/2022”
 Federal Reserve Bank of Cleveland: “Why Has Durable Goods Spending Been So Strong During the COVID-19 Pandemic?”
 The Economist: “A Clumsy Lockdown of Shanghai Is Testing the ‘Zero-Covid’ Strategy”
 ADB Economics Working Paper Series No. 653
 Global Trade and Value Chains During the Pandemic, Chapter 4 World Economic Outlook, April 2022
Which New World Order Are We Talking About?
Which New World Order Are We Talking About?
Authored by Jeff Thomas via InternationalMan.com,
Those of us who are libertarians have a tendency…
Those of us who are libertarians have a tendency to speak frequently of “the New World Order.”
When doing so, we tend to be a bit unclear as to what the New World Order is.
Is it a cabal of the heads of the world’s governments, or just the heads of Western governments?
Certainly bankers are included somewhere in the mix, but is it just the heads of the Federal Reserve and the IMF, or does it also include the heads of JPMorgan, Goldman Sachs, etc.?
And how about the Rothschilds? And the Bundesbank—surely, they’re in there, too?
And the list goes on, without apparent end.
Certainly, all of the above entities have objectives to increase their own power and profit in the world, but to what degree do they act in concert? Although many prominent individuals, world leaders included, have proclaimed that a New World Order is their ultimate objective, the details of who’s in and who’s out are fuzzy. Just as fuzzy is a list of details as to the collective objectives of these disparate individuals and groups.
So, whilst most libertarians acknowledge “the New World Order,” it’s rare that any two libertarians can agree on exactly what it is or who it’s comprised of. We allow ourselves the luxury of referring to it without being certain of its details, because, “It’s a secret society,” as evidenced by the Bilderberg Group, which meets annually but has no formal agenda and publishes no minutes. We excuse ourselves for having only a vague perception of it, although we readily accept that it’s the most powerful group in the world.
This is particularly true of Americans, as Americans often imagine that the New World Order is an American construct, created by a fascist elite of US bankers and political leaders. The New World Order may be better understood by Europeans, as, actually, it’s very much a European concept—one that’s been around for quite a long time.
It may be said to have had its beginnings in ancient Rome. As Rome became an empire, its various emperors found that conquered lands did not automatically remain conquered. They needed to be managed—a costly and tedious undertaking. Management was far from uniform, as the Gauls could not be managed in the same manner as the Egyptians, who in turn, could not be managed like the Mesopotamians.
After the fall of Rome, Europe was in many ways a shambles for centuries, but the idea of “managing” Europe was revived with the Peace of Westphalia in 1648. The peace brought an end to the Thirty Years’ War (1618-1648) in the Holy Roman Empire and the Eighty Years’ War (1568-1648) between Spain and the Dutch Republic. It brought together the Holy Roman Empire, The House of Habsburg, the Kingdoms of Spain and France, the Dutch Republic, and the Swedish Empire.
Boundaries were set, treaties were signed, and a general set of assumptions as to the autonomy within one’s borders were agreed, to the partial satisfaction of all and to the complete satisfaction of no one… Sound familiar?
Later, Mayer Rothschild made his name (and his fortune) by becoming the financier to the military adventures of the German Government. He then sent his sons out to England, Austria, France, and Italy to do the same—to create a New World Order of sorts, under the control of his family through national debt to his banks. (Deep Throat was right when he said, “Follow the Money.”)
So, the concept of a New World Order has long existed in Europe in various guises, but what does this tell us about the present and, more important, the future?
In our own time, we have seen presidents and prime ministers come and go, whilst their most prominent advisors, such as Henry Kissinger and Zbigniew Brzezinski, continue from one administration to the next, remaining advisors for decades. Such men are often seen as the voices of reason that may be the guiding force that brings about a New World Order once and for all.
Mister Brzezinski has written in his books that order in Europe depends upon a balance with Russia, which must be created through the control of Ukraine by the West. He has stated repeatedly that it’s critical for this to be done through diplomacy, that warfare would be a disaster. Yet, he has also supported the US in creating a coup in Ukraine. When Russia became angered at the takeover, he openly supported American aggression in Ukraine, whilst warning that Russian retaliation must not be tolerated.
Henry Kissinger, who has literally written volumes on his “pursuit of world peace” has, when down in the trenches, also displayed a far more aggressive personality, such as his angry recommendation to US President Gerald Ford to “smash Cuba” when Fidel Castro’s military aid to Angola threatened to ruin Mr. Kissinger’s plans to control Africa.
Whilst the most “enlightened” New World Order advisors may believe that they are working on the “Big Picture,” when it comes down to brass tacks, they clearly demonstrate the same tendency as the more aggressive world leaders, and reveal that, ultimately, they seek to dominate. They may initially recommend diplomacy but resort to force if the other side does not cave to “reason” quickly.
If we stand back and observe this drama from a distance, what we see is a theory of balance between the nations of Europe (and, by extension, the whole world)—a balance based upon intergovernmental agreements, allowing for centralised power and control.
This theory might actually be possible if all the countries of the world were identical in every way, and the goals of all concerned were also identical. But this never has been and can never be the case. Every world leader and every country will differ in its needs and objectives. Therefore, each may tentatively agree to common conditions, as they have going back to the Peace of Westphalia, yet, even before the ink has dried, each state will already be planning to gain an edge on the others.
In 1914, Europe had (once again) become a tangle of aspirations of the various powers—a time bomb, awaiting only a minor incident to set it off. That minor incident occurred when a Serbian national assassinated an Austrian crown prince. Within a month, Europe exploded into World War. As Kissinger himself has observed in his writings, “[T]hey all contributed to it, oblivious to the fact that they were dismantling an international order.”
Since 1648, for every Richelieu that has sought to create a New World Order through diplomacy, there has been a Napoleon who has taken a militaristic approach, assuring that the New World Order applecart will repeatedly be upset by those who are prone to aggression.
Further, even those who seek to operate through diplomacy ultimately will seek aggressive means when diplomatic means are not succeeding.
A true world order is unlikely.
What may occur in its stead would be repeated attempts by sovereign states to form alliances for their mutual benefit, followed by treachery, one- upmanship, and ultimately, aggression. And very possibly a new World War.
But of one thing we can be certain: Tension at present is as great as it was in 1914. We are awaiting only a minor incident to set off dramatically increased international aggression. With all the talk that’s presently about as to a New World Order, what I believe will occur instead will be a repeat of history.
If this belief is correct, much of the world will decline into not only external warfare, but internal control. Those nations that are now ramping up into police states are most at risk, as the intent is already clearly present. All that’s needed is a greater excuse to increase internal controls. Each of us, unless we favour being engulfed by such controls, might be advised to internationalise ourselves—to diversify ourselves so that, if push comes to shove, we’re able to get ourselves and our families out of harm’s way.
* * *
Unfortunately, there’s little any individual can practically do to change the course of these trends in motion. The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation. That’s precisely why bestselling author Doug Casey just released Surviving and Thriving During an Economic Collapse an urgent new PDF report. It explains what could come next and what you can do about it so you don’t become a victim. Click here to download it now.
As yen weakens and interest peaks, Bank of Japan balances on a policy precipice
Quick Take The Bank of Japan (BOJ) stands at a critical juncture, striving to maintain a delicate balance amid a changing economic landscape. Recent data…
The Bank of Japan (BOJ) stands at a critical juncture, striving to maintain a delicate balance amid a changing economic landscape. Recent data shows that the 10-year yield, which the BOJ has endeavored to keep below 1%, has touched 0.8, a peak unseen since 2013. Simultaneously, the BOJ has labored not to let the Yen weaken, yet it continues to be pressured as it drops further against the US dollar, crossing the 150 mark for the first time in over a year.
There is burgeoning speculation about possible BOJ interventions in these market movements. As the central bank continues to uphold negative interest rates, a shift towards positive rates might become inevitable in the foreseeable future. It’s a precarious fulcrum of financial strategies that the BOJ is balancing on, with market tempests stirring on one side and the stability of the national currency on the other.
This scenario highlights the intricate dynamics of monetary policies and the profound impact they can have on both national and global economies. A closer look at the situation illuminates the complexities in the BOJ’s policy decisions and the broader implications on the financial landscape.
The post As yen weakens and interest peaks, Bank of Japan balances on a policy precipice appeared first on CryptoSlate.us dollar interest rates japan
Poland, Austria, & Czechia Introduce Temporary Border-Checks With Slovakia To Curb Illegal Migration
Poland, Austria, & Czechia Introduce Temporary Border-Checks With Slovakia To Curb Illegal Migration
Authored by Thomas Brooke via Remix…
Poland, Austria and Czechia will all introduce random checks at the countries’ borders with Slovakia from midnight on Wednesday following an influx of illegal immigration.
Temporary checks will be conducted along the length of the border for an initial 10-day period until Oct. 13.
They will focus specifically on road and railway border crossings, although, pedestrians and cyclists may also be asked for documentation. Anyone within the vicinity of the border may be requested to identify themselves.
“The numbers of illegal migrants to the EU are starting to grow again,” said Czech Prime Minister Petr Fiala following the announcement. “We don’t take the situation lightly.”
“Citizens need a valid passport or identity card to cross the border,” the Czech Interior Ministry added.
The Czech policy would also be adopted by neighboring Austria, the country’s Interior Minister Gerhard Karner confirmed.
Poland had already announced its intention to reintroduce checks on the Slovak border with the number of migrants along the Balkans migration route continuing to surge. Prime Minister Mateusz Morawiecki said last week he was “instructing Minister of Interior Mariusz Kamiński to check on buses, coaches, and cars crossing the border when it is suspected there could be illegal migrants on board.”
“In recent weeks, we detected and detained 551 illegal migrants at the border with Slovakia. This situation causes us to take decisive action,” Kaminski added.
Slovak caretaker Prime Minister Ludovit Odor acknowledged the growing issue of illegal migration in his country but insisted that the problem needs a European solution rather than individual nations restricting border access.
He claimed that the decision by the three neighboring countries had been fueled by the Polish government, which is involved in a tightly contested election campaign, with Poles heading to voting booths on Oct. 15.
“The whole thing has been triggered by Poland, where an election will soon take place, and the Czech Republic has joined in,” Odor said.
Slovakia revealed last month that the number of illegal migrants detained by its authorities this year had soared nine-fold to over 27,000. The majority of detainees comprise young men from the Middle East using the Balkan migratory route through Serbia as they seek to migrate to northwestern Europe.
The winner of Sunday’s general election in Slovakia, former Prime Minister Robert Fico, has vowed to tackle the issue more robustly by promising to reintroduce border checks with neighboring Hungary.
“It will not be a pretty picture,” Fico told journalists as he threatened to use force to dispel illegal migrants detected on Slovak territory.
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