Trade
Southeast Asia’s tech industry goes from a gallop to a canter
Author: Giulia Ajmone Marsan, ERIA
After a couple of years of spectacular growth, tech start-ups and tech giants alike are now facing a less optimistic outlook. During the third quarter of 2022, venture capital (VC) investments and deals globally fell to levels not seen since the beginning of the COVID-19 pandemic. This slowdown in investment is hitting North America and Europe particularly hard — but Asia is being affected too.
During 2022, the slowdown in investments hit both high-income and emerging Asia, with Asia’s largest economies, India and China, being heavily affected. Layoffs of tech workers are becoming increasingly common.
The negative outlook is the result of a complex combination of factors: the largely hawkish policies of central banks, developed economies attempting to curb post-COVID-19 inflation (primarily the rate hikes by the Federal Reserve resulting in a very strong US dollar), Russia’s invasion of Ukraine and the subsequent volatility in food and energy prices. While 2021 was an ideal year to be an early-stage tech entrepreneur and investor, the same cannot be said for 2022.
Trends across ASEAN exhibit, to some extent, a similar evolution. A fast acceleration of deals and investments in the lead up to 2022, followed by a recent slowdown, inevitably accompanied by layoffs by many tech giants. According to the ASEAN Investment Report 2022, VC investments continued to grow from the mid-2010s, to reach more than US$66 billion in mid-2022. VC investment in the region rose by a factor of 2.6 between 2015 and 2020, outperforming both China and India.
This phenomenon shows the great innovation potential of ASEAN. The significant growth of VC investments has helped the region to give origin to more than 40 ‘unicorns’ — start-ups valued at over US$1 billion. The now famous post-initial public offering (IPO) digital giants, the large majority of which operate in the digital economy sector, can also be credited to this growth. VC investments in ASEAN remain primarily concentrated in Singapore, ASEAN’s leading innovation hub, and Indonesia, ASEAN’s biggest market. But the proportion of investments going to other countries like Vietnam, Thailand, Malaysia or the Philippines has recently been growing.
In 2022, these investments have begun to slow down. The amounts raised by ASEAN start-ups were down by around 40 per cent during the second quarter of 2022 compared to the previous year. The digital economy so far appears to have remained resilient. Start-ups and deals related to tech and internet sectors were affected by smaller declines, if any. But investors are now more cautious, especially vis-a-vis late-stage investments, as IPO gains are becoming less likely in the current macroeconomic scenario.
Global conditions are currently far from ideal for investors and early-stage entrepreneurs and the global economic outlook remains extremely volatile and very difficult to predict for the medium to long term. But there is no reason to be overly pessimistic when looking at ASEAN.
The region is characterised by a strong macroeconomic performance. ASEAN’s economic growth is projected to be above 5 per cent in 2022 and 2023, outperforming China for the first time. This very favourable macroeconomic outlook will certainly be appreciated by international and regional investors.
ASEAN is still perceived by international investors as a high-growth potential and less known Asian market when compared not only to developed Asian economies, like Japan or South Korea, but also to large emerging ones, like China and India. There is also room to expand the role of regional investors. ASEAN-based private equity and VC firms are a growing source of funding for start-ups and for cross-border activities, but in 2021 they accounted for less than a quarter of investment into ASEAN-focused venture capital funds.
A vast majority of leading ASEAN venture capital firms and funds are headquartered in Singapore, but there is an opportunity for an expansion of activities in other ASEAN countries. Policies to support the emergence and consolidation of innovation ecosystems both in individual ASEAN member states and on a regional level could significantly accelerate this process.
Such policies include boosting investments in research and development in both public and private organisations and strengthening connections with leading innovation hubs in Asia to increase the quality of research and higher education institutions. Examples of initiatives going in this direction exist in both more and less advanced…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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