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The US & Asia: Beyond the first 100 days, what difference can Biden make? ; India state elections: BJP’s political juggernaut stopped in its tracks

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Highlights from the CAA Weekly Table:

  • Asian economies: We estimate that the tragic surge in COVID infections in India should peak sometime in the third quarter. In the meantime, growth will slow, inflation rise, and key policy initiatives will be delayed. Elsewhere the news is decidedly better, with South Korea and Taiwan firing on all cylinders, Thailand seeing tentative signs of improvement, Indonesian enjoying higher foreign investment inflows and Singapore continuing to do well.
  • Asian political risks: In Indonesia, the latest cabinet reshuffle demonstrated the increased clout that President Joko Widodo (Jokowi) wields. He is better-placed to appoint competent technocrats rather than political hacks and is less afraid of standing up for religious moderation.

The US & Asia: Beyond the first 100 days, what difference can Biden make?

Looking beyond the commentaries on Biden’s first 100 days, we believe two themes will drive Biden’s longer term impact on Asia.

  • First, the ideological changes his economic policies represent will influence policy making in Asia as well, encouraging a larger role for the state. Biden’s ambitious economic programmes will also help strengthen demand for Asian exports for several years. However, Biden’s trade policies may carry less favourable implications for Asia.
  • Second, the geo-political consequences may be more mixed. America’s re-engagement with allies in Asia and tough posture towards China will give the smaller Asian nations more room to manoeuvre against an assertive China. But China is undeterred for now, and may well step up its pressure on Taiwan and other countries with whom it has territorial disputes.

India state elections: BJP’s political juggernaut stopped in its tracks

Assembly elections were held in five states outside the Hindi heartland where the ruling BJP has its base. The result was a clear rebuff to Premier Modi’s ruling BJP party. 4 key takeaways:

  • First, the limits of the Hindu nationalism that the BJP espouses are being reached. While the BJP’s vote share in West Bengal soared, it still fell far short of winning the state as it had expected – despite a massive personal effort by Modi and his senior colleagues. It barely made gains in south India though it held onto its strong position in Assam.
  • Second, the BJP’s opponents are finding ways to blunt the BJP’s use of Hindu nationalism, showing they can maintain their appeal to Hindus while not forsaking the Muslim vote, which is significant in states such as West Bengal and Kerala.
  • Third, it looks like the BJP was under-performing electorally even before the horrendous surge in COVID infections and deaths might have turned voters against it. It is fair to assume that its current standing with voters is probably even worse than the results showed.
  • Finally, the Indian polity remains highly fragmented. The former ruling party, the Indian National Congress continued to lose votes and only parties with a limited regional base appear able to stand up to the BJP. That fact may help the BJP maintain its overall grip on national power.

s trouble brewing for Xi Jinping under the calm surface of Chinese politics? ; China: Economy on firmer footing

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Highlights from the Weekly Table:

Asian political risk: ASEAN pulled off a success by getting Myanmar’s junta to sign onto a consensus statement on the Myanmar crisis. However, we doubt whether there will be more than a short pause to the violence in Myanmar: we do not see the junta making major concessions.

Asian economies

  • Korean and Taiwanese trade data affirm our view that the shape of global demand is broadening out beyond the sorts of goods that were greatly in demand during the pandemic such as electronics.
  • India is wilting as the pandemic turns into a tragedy. Given the limited options for policy support to offset the damage, the economic recovery will be set back for several months. Premier Modi’s popularity will be hurt but he has shown a capacity to overcome political adversity. Neither is India’s crisis likely to affect the global economy given its relatively small footprint.
  • Bank Indonesia has acknowledged the slower-than-desired pace of economic normalisation but its room for policy easing is clearly constrained by its concerns for the Rupiah.

Is trouble brewing for Xi Jinping under the calm surface of Chinese politics?

  • Much is happening in Chinese politics in the run-up to the 20th party congress in November 2022. Former Premier Wen’s essay indirectly criticizing President Xi Jinping is just the most prominent example of potential disaffection with Xi.
  • While Xi has crushed these recent expressions of dissent and is likely to continue firming his grip on power in the near term, his position is not so indomitable as it might seem.
  • Xi has built a power base but there are questions over how loyal his acolytes really are. He has made many enemies as well and has reversed the reforms which had helped China’s political system offset some of the downsides of authoritarianism. Any serious misjudgement in either the domestic sphere or in foreign policy would crystallise these weaknesses in Xi’s position.

China: Economy on firmer footing

  • There is considerable debate over the outlook for the Chinese economy given recent adverse news on housing market regulation and fears of policy tightening. The authorities have also ramped up antitrust probes into the practices of major tech companies such as Alibaba and Tencent, further impacting sentiment.
  • Our analysis suggests that these fears are likely overdone. We now expect full-year GDP growth to print 8.6%, up from 8.0% previously.
  • Two main factors underpin our revised forecasts: a bigger expected contribution from exports and industrial production followed by a less accentuated slowdown in the interest-rate sensitive sectors – more than offsetting persistent weakness in consumer spending. Moreover, the balance of risks to the outlook are in our view tilted to the upside, should private sector investment show signs of a turnaround by year-end.