- August 15, 2022
- Posted by: admin
- Category: Centennial Asia Insights
US-China-Taiwan: Just how much has political risk changed?
US House Speaker Pelosi’s visit has set in train developments that will raise big power frictions structurally, and for a long time.
- However, the US and China will do what is necessary to avoid direct clashes. They may even restart direct talks which China just cancelled. But, tensions will persist as China intensifies its pressures on Taiwan while the US steps up its support for it.
- China’s strategy to reunify Taiwan with the mainland was never principally about an invasion. It was always about relentlessly increasing the suffocating pressure of diplomatic, economic and military actions so as to force Taiwan to eventually negotiate with it on Beijing’s terms. Pelosi’s visit allowed China to double up on this strategy.
China: economic conditions deteriorate further, policy has to give
- There was little good news in the latest batch of Chinese economic data. Domestic demand is weakening again after a brief rebound in June. External demand appears strong on the surface but new export orders are falling, suggesting that exports will lose momentum soon.
- The drags on the economy are now deeply rooted – a contracting real estate sector whose ill-effects are spilling over into consumer despondency, weak investment and credit stresses.
- Policy responses remain inadequate and sometimes contradictory. Policy makers are betting that incremental and cautious measures will allow employment and incomes to stabilise. We suspect that they are too optimistic.
What has changed recently:
- Inflation has peaked in India, although subsequent inflation prints will still remain elevated in the near-term. Activity indicators for 2Q22 were flattered by base effects when Covid-19 woes were salient in the year-ago period as we expect 2Q22 GDP growth upwards of 15%.
- Retail sales and consumer confidence are in healthy spirits in Indonesia , marked by broad-based strength across all components in the former. All eyes now turn to July’s trade data.
- There is upside risk to our GDP growth forecast for Malaysia following the breakneck pace of growth in 2Q22. Robust external demand, particularly in the commodity and electronics space, continues to buoy Malaysian exports.
- Singapore’s economy remains in good shape despite the government’s cautious tone. The pipeline of high-value manufacturing investments remains strong while the financial sector will benefit from the inflow of wealth management activities.
- While the Philippines’ 2Q22 GDP print surprised on the downside , the recovery still has legs. Notably, excess private savings actually increased in the period, suggesting cutbacks to discretionary spending, perhaps because of the spike in Covid-19 caseloads or the high-inflation environment.
Read more: CAA-Weekly-15-Aug-22.pdf