Trade beyond borders | Standard Chartered

Renminbi tracker: How global is the renminbi?

Roberts, Martin — Tue, 12 Nov 2019 00:30:58 +0000

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Trade will continue to grow despite US-China tensions

José Viñals — Tue, 22 Oct 2019 10:51:39 +0000

Global trade has been expanding more slowly since the 2008 global financial crisis, and US-China trade tensions have created fresh uncertainties. However, those who fear that disputes between the world’s two biggest exporters will sound the death knell for trade, are missing the bigger picture. Trade is a key driver of economic growth, so we must get it right.

The risk of disruption in global trade is real – and would be very damaging for the world economy. But if we look at what is going on away from the US-China axis, there is good news.

"Trade is a key driver of economic growth so we must get it right"

A new study by Standard Chartered, Trade20, shows that a wide range of economies in Asia-Pacific, Africa and the Middle East have significantly improved their potential for trade growth by opening up their markets, diversifying their exports, improving their economic dynamism, and strengthening their physical and digital infrastructure.

Buoyed by regional trade deals and liberalising policies, several members of the Association of Southeast Asian Nations — Vietnam, Indonesia and Thailand — have been making particularly strong progress in opening for trade, as has India. With supply chains via China under threat, international companies are already diversifying into these economies, making them more interesting as investment opportunities, export markets and supply chain partners.

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Of course, larger economies have the greatest trade potential in absolute terms, but smaller countries may rival them in terms of speed of progress and potential for trade growth relative to their size. Côte d’Ivoire, Kenya and Oman are on an upward trajectory, progressing at pace from a relatively low starting point. Smaller countries such as these could also benefit as multinationals diversify their supply chains.

Even if the US and China do manage to agree on a new trade deal – which would bring huge benefits – the push for diversified supply chains will continue. Having tasted uncertainty, many companies will want to protect themselves against future interruptions to trade or new tariffs by producing or sourcing the same product in more than one country.

While this may be disruptive initially, and be less efficient, it will make global trade more resilient in the long term. Further trade growth is likely, no matter what happens to the US and China. Most countries recognise that trade is a critical lever to accelerate economic development, increase competition and improve productivity. Patterns of trade will continue to become more complex and diversified, as new markets move into prominence – particularly India and the ASEAN economies.

Another positive sign for global trade is that a wide range of new free-trade agreements are being signed or are under negotiation. The EU is negotiating numerous trade deals and has recently reached agreements with Japan, Vietnam and the South American trade bloc Mercosur. There are also several regional pacts in Asia and Africa. A post-Brexit Britain will also be looking to negotiate new trade deals and will want to do them quickly.

"The real question we should be asking now is: how do we ensure free trade is recognised as a true force for good?"

Trade agreements boost exports and gross domestic product over time, studies have shown. Larger-scale regional trade deals increase competitive pressures in the participating countries, which drives local businesses to become more efficient and productive. It also offers the chance for countries to specialise in the most productive industries.

The real question we should be asking now is: how do we ensure free trade is recognised as a true force for good? We must never forget that voter unease about globalisation led to rising protectionism and much of the hostility to trade in the first place. The 2008 crisis highlighted the unequal distribution of the benefits from globalisation. The resulting economic downturn hit vulnerable populations hard, causing them to question the merits of immigration, free trade and investment.

Undoubtedly, free trade has tremendous power to drive prosperity across the globe. But rising populism and current trade disputes remind us that we must work harder to ensure the benefits are felt as widely as possible within countries. Political leaders have a responsibility to implement inclusive social and economic policies, and private companies must act responsibly and invest in the communities they serve.

If no US-China trade agreement can be reached, this will be very unfortunate and disruptive to the global economy, but the trend toward increasing world trade is far from over. It remains our best hope for growth.

This article originally appeared in the Financial Times on 22 October 2019.

Infographic: Meet the rising stars of trade in our new Trade20 index

Invisible author — Mon, 23 Sep 2019 07:52:40 +0000

Want to know more about the findings? Get the full picture here.

Elevated expectations: the next step for the Greater Bay Area

Kelvin Lau — Thu, 05 Sep 2019 08:08:49 +0000

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The Pearl River Delta (PRD) region has long been China’s manufacturing powerhouse, spearheading its economic and financial opening. It is, however, now undergoing a major upgrade and integration to form the world’s largest city cluster called the Greater Bay Area (GBA) linking Guangdong, Hong Kong and Macau.

With the announcement of the GBA Outline Development Plan in February, aligning one of China’s most robust and dynamic regions with the country’s long-term economic priorities, the GBA is expected to drive China’s economic transformation and reshape how companies operate in the region for decades to come. In our 10th annual survey of PRD manufacturers, we spoke to over 250 manufacturers to find out about their growth expectations, relocation and industrial upgrading plans and opportunities and challenges arising from the GBA.

A reality check amid trade headwinds

The dual headwinds of rising US-China trade friction and slowing global growth have impacted clients’ growth expectations for 2019. Almost 80 per cent of respondents see the US-China trade dispute having either some or a substantial impact on their sales and orders in 2019 up from 74 per cent in 2018. It is therefore no surprise that the trade war topped the list of concerns for 2019 followed by Renminbi volatility and China’s slowdown making the top three.

The China-ASEAN connection strengthens

As trade uncertainty looms, moving overseas remains an attractive proposition from a cost-saving perceptive with the added benefit of diversification. Almost two-thirds of respondents are actively considering (or would be willing to consider) moving capacity outside China with about 70 per cent of them saying that the US-China trade dispute has made them more actively consider such a move.

Vietnam and Cambodia are the top destinations for survey respondents looking to move out of China, followed by Bangladesh, Thailand and Myanmar. Labour availability (both quantity and quality) remains the top-cited reason for moving out. This matches our findings that ASEAN economies are likely to be winners (relative to other regions) from lingering US-China trade tensions if production to meet US demand moves from China.

Industrial upgrading faces a short-term slowdown

When asked about their industrial upgrading plans in 2019, more respondents see a ‘deceleration’ than ‘acceleration’ across all key forms, including artificial intelligence, robotics, big data and internet-related investment, citing uncertain economic and business outlooks as the biggest hurdles to industrial upgrading (29 per cent of respondents). This is evidence of the long shadow cast by the US-China trade war.

Long-term GBA optimism

The good news is that despite the headwinds, a strong 64 per cent respondents see the GBA presenting new business opportunities some years down the road. This is up from a mere 49 per cent a year prior, suggesting that all the market talk running up to and following the announcement of the GBA Outline Development Plan has clearly boosted awareness and lifted expectations.

We believe this optimism is based on the GBA’s size and uniqueness, and on GBA-related policies. A decent 63 per cent respondents said that an accelerated launch of GBA policies would have positive impact on their business in 2019. Clients favour more direct and immediate policy reliefs, like ‘more tax cuts’ (72 per cent), ‘more support to SMEs and private enterprises’ (72 per cent) and ‘fee reduction’ (69 per cent), possibly in hopes of geographical- or industry-specific benefits boosting market access.

The Greater Bay Area has a comprehensive plan and strong policy backing but to achieve its full potential, the GBA would require freer flow of capital, goods, people and information, better integration of different legal systems, and functional specialisation via well-defined roles and priorities, among many other things. We believe the need to integrate multiple legal and social systems is a unique challenge and opportunity for the GBA; the key is to uphold the ‘one country, two systems’ principle.

Emerging Asia is the present and future for growth

David Mann — Tue, 27 Aug 2019 09:49:03 +0000

A recent article in the Financial Times questions the attractiveness of investing in emerging markets, citing their poor growth performance. The key message was that excluding India and China, EM-30 countries have seen slower per-capita GDP growth on average than advanced economies since 2015, and they face rising risks from a trade slowdown and high leverage.

This tailored story exists because, over this period, GDP has been weak across many well-known emerging economies including Argentina, Brazil, Mexico, South Africa and Nigeria. But this story does not hold up for Eastern Europe, the rest of sub-Saharan Africa and emerging Asia (even excluding India and China).

"If investors want exposure to global growth, they need to invest in companies that are doing business in emerging Asia"

Emerging Asia has the strongest fundamentals of all emerging market regions and is too important a part of global growth for investors to ignore.

We break down our view into three parts:

1. Emerging Asia accounts for two-thirds of global growth currently

The world’s middle class is at a tipping point – by 2020, a majority of the world population will be classified as middle class or above, according to the Brookings Institute. Asia will lead the increase in middle-class populations, as those in the West stagnate. The domestic consumption story is compelling. We forecast global growth at 3.4%. Without emerging Asia’s contribution, it would be closer to 1.1%, the weakest performance in decades (with the exception of 2009).

Even excluding China and India, emerging Asia’s contribution to world growth today already exceeds that of the US and is three times the size of the euro area.

2. A domestically driven story

While growth in advanced economies has disappointed in the past decade, Asia’s growth has met even our high expectations. The region’s outperformance reflects its reduced growth dependence on Western economies and its boost to domestic demand instead. China-ASEAN has been one of the world’s fastest-growing trade corridors. Asia’s rising middle class will offer a growing pool of consumer demand to counter the weakening trend in the West for many years to come. A growing middle class will also mean greater south-south or intra-EM trade.

3. Some Asian economies’ growth may double every decade as Developed Markets stagnates

In a world of stagnating growth, the contrast with emerging Asia stands out. We expect selected Asian economies to grow by at least 7% in the coming years – roughly the pace at which an economy can double in size every decade. The region’s likely ‘7 per cent club’ members in the 2020s include India, Bangladesh, Vietnam and the Philippines.

In 2019, China surpassed Japan to become the world’s second-largest capital market. Today, a quarter of the world’s fixed income universe is negative yielding. The push and pull factors exist to attract more investors to emerging Asia. Why would investors walk away from the most dynamic economies in the next few decades?

"For them (South Asia), threat from rising anti-globalisation sentiment and the increase in factory automation are key concerns"

The risks for emerging Asia

There are risks to the growth outlook, however.

Ageing populations in advanced economies and some Asian economies will increasingly weigh on global growth. However, the growing global middle class is likely to at least partically offset this demographic drag.

Countries in South Asia still enjoy a demographic dividend. For them, the threat from rising anti-globalisation sentiment and the increase in factory automation are key concerns. However, the world is turning more services-oriented, with the services sector now accounting for around 65% of total world GDP – and countries that focus on upgrading skills will have an edge. Malaysia, the Philippines and Indonesia are doing well on skills indicators, while India, Thailand and countries need to focus more on this.

Productivity growth will be a key differentiator across economies, and it is directly linked to reform momentum. Countries such as the Philippines, Indonesia, Bangladesh and India have seen a pick-up in the pace of reforms and productivity growth, while Sri Lanka will have to do more on both fronts.

In the short run, global liquidity conditions are set to ease. The growing dovish wave among major central banks will likely start to weigh on the USD. A renewed hunt for yield by investors will favour emerging markets that offer the right mix of reforms and productivity growth. Emerging Asia has the strongest fundamentals of all emerging-market regions and dominates world growth. Investors cannot ignore it.

Top five ‘winners’ from the US-China trade war

Invisible author — Mon, 22 Jul 2019 08:42:03 +0000

The US and China trade war was reignited in May, when the US Government increased tariffs on Chinese goods and began to target individual companies. While the impact on economies and sectors vary, some markets such as Mexico, South Korea, Taiwan, the Philippines and Vietnam have emerged as the top five ‘winners’.

Read our report to find out why raising tariffs benefits these economies and why a sudden trade deal to retract the tariffs could see the winners become losers, and vice versa.

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Where will growth be fastest in the next decade?

Invisible author — Mon, 01 Jul 2019 09:42:20 +0000

Economies growing at 7 per cent or more each year will roughly double in size in a decade. In the 2020s, we believe just seven countries will make it into the 7 per cent Club, and most of them will be in Asia.

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Our Global Chief Economist, David Mann, talks us through his forecast:

The countries in the 7 per cent Club in the 2020s are likely to be: India, Bangladesh, Vietnam, the Philippines, Ethiopia and Côte d’Ivoire
China has exited the Club, after being a member for almost four decades, reflecting both a slowdown in economic growth and a progression towards higher per-capita incomes that makes faster growth rates more difficult to sustain
With young labour forces and accelerating structural reforms, India and Bangladesh will likely dominate the 7 per cent Club in 2020s
Some bright spots to watch out for from the ASEAN region, are Vietnam (with its manufacturing and export growth) and the Philippines (with its greater infrastructure spending)
Sustained reforms would help Ethiopia and Côte d'Ivoire to extend their stay in the 7 per cent Club into the 2020s
7 per cent Club members tend to have national savings rates of at least 20-25 per cent of GDP

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US vs China: a zero-sum game?

Invisible author — Mon, 24 Jun 2019 04:00:05 +0000

Given the US-China trade tensions, questions about how the situation will develop and its effects on global economics and trade are getting more urgent. There are no easy answers in a situation where US-China economic ties are mixed inextricably with issues of strategic competition, technological supremacy and national security – the result of what Mr Goh Chok Tong, Emeritus Senior Minister of the Republic of Singapore called “a tectonic shift in geopolitics.”

"When elephants fight, it is the grass below that suffers"

Beyond bilateral trade

Speaking at the first Standard Chartered Connectors event in New York, one thread addressed by Mr Goh was that the bilateral dispute has global consequences, citing an African proverb, “When elephants fight, it is the grass below that suffers.”

Focusing only on the economic implications, Standard Chartered research has shown that if the US were to levy 25 per cent tariffs on all imports from China, it would deduct 1.2 percentage points from China’s estimated GDP growth of 6-6.5 per cent. Since China accounts for one-third of global economic growth, the impact on the whole world would be significant.

Moreover, the knock-on effects of a long trade dispute on increasingly complex global supply chains could be sizeable. It also puts countries that have economic and strategic reasons to maintain good relations with both China and the US in a tough spot.

“The fear now is what would the US do to countries in the Asia Pacific that maintain close ties, especially economic ties, with China?” Mr Goh asked. “Would the US begin to put pressure on them?”

Technology tussles

Perhaps the most contentious issue at stake is global leadership in in next-generation technology. But here too, both Mr Goh and the Honorable Jacob J. Lew, 76th United States Treasury of the State noted, the problem of mixing strategic and economic concerns has complicated the issue, with US sanctions on Huawei a prime example.

As Mr Lew said, “When those two things [trade and national security] are confused, it raises the stakes that our national security concerns will be treated as unfounded in the future.”

For Mr Goh, since China wouldn’t stop innovating, the issue over technological competition raises the spectre of having competing standards. “Would the world be divided into two different technological systems?” he asked. “That’s going to introduce new complications to global trade and business operations.”

China's charm offensive

Meanwhile, China has sought to improve economic and diplomatic ties elsewhere and to increase transparency on the Belt & Road Initiative.

Mr Goh noted the irony “that China now champions multilateral free trade while the US practices selective protectionism.” This comes as China continues to employ soft power and – as it closes in on becoming the world’s largest economy – seeks to make the renminbi more widely used.

China’s bid for global authority requires that it addresses legitimate concerns, Mr Goh said. “China will have to work to gain the world’s respect by shouldering more global responsibilities, and convincing other countries that it will be a responsible power that will help uphold the global world order and the multilateral trading system at all times.”

Zero-sum game?

Globalisation and international trade have for many decades delivered huge benefits to both nations and to the wider world and imposing obstacles to trade threatens to undermine those.

“Strategic competition between the US and China seems inevitable, but it does not have to be a zero-sum game,” Mr Goh said. “Nor should it close off opportunities for mutually beneficial cooperation.”

Mr Lew dismissed the idea that conflict between an incumbent and a rising superpower was inevitable. “The whole idea of the Thucydides Trap being inevitable is abandoning leadership. It’s up to leaders on both sides to make that kind of self-fulfilling prophecy not become real and not lead to conflict.”

The G20 summit in end June is being touted as the last, best chance to prevent an all-out trade war.

While Mr Goh believes a meeting between the two leaders “cannot restore trust or resolve fundamental differences immediately,” he hopes that voices of moderation, led by those caught between the two “fighting elephants”, could help the US and China see the benefits of co-operation and consider the larger interests of the world.

“This moderate voice is… a voice for peace and stability, growth and prosperity, and an interdependent rule-based multinational order that is not reliant on the benevolence of superpowers.”

It is a voice that the whole world is hoping the US and China listen to.

A historic traversing of new trade routes

Mohamed Salama — Tue, 02 Apr 2019 12:08:45 +0000

For centuries, trade routes have connected empires, markets, goods and above all, people. They have shaped civilisations, influenced cultures and spawned thriving centres of commerce.

The globalised landscape of today might be different to the days when Marco Polo found his way to China and back; however, we nevertheless continue to benefit from the positive impact of trade between countries and people.

Most recently, the Belt & Road Initiative, the most ambitious and far-reaching project of its kind, is bringing unprecedented potentials in cross-border trade and investment between China and the Africa, Middle East region.

In Africa, Belt and Road (B&R) transactions are related to major projects in the power and infrastructure sector and related financing. Playing an integral role in B&R, East Africa, is the gateway to the continent’s ambitions for hyper-connected rail, road and energy networks. Furthermore, China’s construction of power plants and transmission lines in East Africa is predicted to be a gamechanger for local industry. According to statistics from the General Administration of Customs in China, China’s total import and export volume with Africa was USD134.15 billion from January to August 2018, representing a year-on-year increase of 20.4 per cent. Over the same period, the growth rate of China’s foreign trade with Africa was the highest in the world.

In June 2018, Chinese premier President Xi Jinping made a historic three-day visit to the UAE, when the two nations announced a number of strategic partnerships. China is already the UAE’s leading import partner, second only to the European Union bloc. The UAE’s non-oil trade with China amounted to USD53.3 billion in 2017 and is projected to grow to USD70 billion by 2020.

"The UAE features prominently as a key component of China’s trade strategy in the AME region, as 60 percent of China-UAE trade is re-exported to Africa or Europe, thus supporting the B&R’s mandate."

The UAE also hopes to become a major transhipment centre in China’s logistics corridor. The B&R Initiative creates extraordinary opportunities for GCC infrastructure, logistics, services and real estate development companies that are internationally competitive.

As one of the first countries to support the B&R Initiative, the UAE has demonstrated its recognition of the importance of the Asian markets to enhancing trade. In March 2019, the Crown Prince of Dubai, His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, approved and announced the Dubai Silk Road Strategy to focus on enhancing strategic and operational connection of logistics services and build on Dubai’s success as a vital trade link between east and west, and north and south.

The Belt & Road Initiative is at the core of Standard Chartered Bank’s operations. In 2017, we committed additional financing for B&R projects of at least USD20 billion by 2020, and we have been involved in more than B&R deals worth more than USD10 billion across a range of products and services.

We recently announced the launch of the Standard Chartered Belt & Road Relay, the first-ever global running event spanning 44 B&R markets over 90 days. Led by eight staff athletes from Standard Chartered, selected from the Bank’s diverse footprint across Asia, Africa, the Middle East, Europe and the Americas, the Relay aims to highlight the Bank’s continued commitment to B&R, and the positive impact of the initiative to communities and businesses globally. By traversing the B&R markets on foot and engaging local clients, governments, media communities, our Standard Chartered Belt & Road Relay athletes will demonstrate our commitment to be the One Bank for the Belt and Road.

Infographic: China’s road to capital markets liberalisation

Invisible author — Thu, 17 Jan 2019 10:35:19 +0000

Since the early 1990s, China has been making a concerted effort to try to make its capital markets more appealing to international investors. From the introduction of new technologies to regulatory changes, the aim is to bring more foreign money into China's equity and bond markets, which have a combined worth of nearly USD20 trillion. The infographic below shows some of the steps that have brought China's markets toward liberalisation.

Trade beyond borders | Standard Chartered

Renminbi tracker: How global is the renminbi?

One Belt. One Road. One Bank.

Trade will continue to grow despite US-China tensions

Download the full report

Infographic: Meet the rising stars of trade in our new Trade20 index

Elevated expectations: the next step for the Greater Bay Area

Download the full infographic

A reality check amid trade headwinds

The China-ASEAN connection strengthens

Industrial upgrading faces a short-term slowdown

Long-term GBA optimism

Emerging Asia is the present and future for growth

1. Emerging Asia accounts for two-thirds of global growth currently

2. A domestically driven story

3. Some Asian economies’ growth may double every decade as Developed Markets stagnates

The risks for emerging Asia

Top five ‘winners’ from the US-China trade war

Download the full report

Where will growth be fastest in the next decade?

View the full report

Hear from David Mann Asia is likely to dominate the 7 per cent Club in the 2020s

Download the full report

US vs China: a zero-sum game?

Beyond bilateral trade

Technology tussles

Standard Chartered Connectors - New York "Would the world be divided into two different technological systems?"

China's charm offensive

Zero-sum game?

A historic traversing of new trade routes

Infographic: China’s road to capital markets liberalisation