Chris Kuehl, Ph.D.
Xi Jinping will be starting his next five-year term as the head of the Communist Party of China and thus of the People’s Republic of China itself. It can be argued that he is about to cement his place in the panoply of Chinese leaders who have altered the course of the country. He has already been compared favorably to Mao Zedong and Deng Xiaoping, and it is assumed by many observers that he will be more important to the future of China than either of them.
The latest Party Congress is perhaps the most important in decades because it has allowed him to elevate his closest allies, while reducing the role of those who have not been supporters in the past—not that anybody really openly advocated against him, but there have been skeptics who questioned his desire to shift the Chinese economy toward an internally focused and consumer-driven model.
The speech lasted hours. As with most of these events, it was long on rhetorical flourish and short on specifics. However, it is clear enough that China has goals as far as the economy and geopolitics and that Xi is of the opinion the next few decades will belong to China. The sense is that most of the world leaders today are weak and uninterested in playing a bigger role. The U.S. was the nation that strove to influence the world, but under Donald Trump, these ambitions have vanished and many countries that once looked to the U.S. are seeking other options.
European leaders are too busy trying to save their own institutions and have much reduced power bases due to the spread of nationalism and populism. The U.K. is still trying to figure out what Brexit will bring; Angela Merkel will be hemmed in by coalition politics in Germany; and France’s Emmanuel Macron still has lots to prove. The Russian economy simply can’t support Vladimir Putin’s ambitions, and India has started to fall backward as Prime Minister NarendraModi’s reforms have been slow to take hold. In fact, the only nation that seems interested in challenging for some influence is Japan, but there are major economic hurdles to deal with there.
The three overarching goals for Xi seem to include a shift in the economy from an export-centered platform that is based on being the low-cost producer for the world. This is the strategy that allowed the Chinese to expand and grow, but maintaining that role means that China has to constantly compete with the other low-cost producers and that slows the growth of the newly emerging Chinese middle class. Xi wants an economy that stands on its own with its own consumers. He wants more consumers with more money, and he wants an economy that reduces its dependence on other nation’s consumption.
In keeping with his desire to appeal to the emerging Chinese middle class, he wants to address its concerns and desires. He has targeted environmental issues and wants to clean up the air and water in his country. There has been an aggressive pursuit of alternative energy as China now leads in the production of solar panels and wind turbines. The country has a long way to go in this regard, but it is now a priority.
Finally, Xi sees a global leadership void, and he fully intends to step into it. The U.S. has all but abandoned its traditional place as it cuts back on foreign aid and walks away from its diplomatic role. The U.S. military remains far more engaged than China’s, but already China has carved out a position in East Asia that the U.S. can do little about. The action in the South China Sea is one example, and the North Korean threat is another. Only China can exert control over Pyongyang. Right now, it is turning to the western states and asking: If I help you, what is in it for me?
Nine in 10 suppliers surveyed in the Asia Pacific have experienced late payment of invoices from their business-to-business (B2B) customers over the past year, according to trade credit insurer Atradius.
“This translates into an average of 45.4% of the total value of B2B invoices being unpaid at due date,” Atradius noted in the October 2017 edition of its Payment Practices Barometer for Asia Pacific.
Nearly 44% of respondents in the region said late payment from domestic B2B customers occurred most often due to insufficient availability of funds. Foreign B2B customers, instead, delayed invoice payment most often due to the complexity of the payment procedure.
On average, survey respondents reported that they wrote off 2.1% of B2B receivables as uncollectable. This was mainly because the customer went bankrupt or out of business (47.4% of respondents); the debt was too old (36.2%); or the customer could not be located (35.4%).
To protect their businesses from late payments, about a third of the suppliers surveyed reported taking specific measures to correct cash flow. “Despite this, concern over an increase in DSO appears to have grown significantly among suppliers surveyed in the region,” the firm noted.
Despite the ongoing deceleration and rebalancing of the Chinese economy, GDP in Asia is forecast to grow 5.8% this year. Even though growth was strong in some parts of the region, countries such as Indonesia and Singapore were said to be vulnerable to regional economic developments. India, however, was noted as the apparent global growth leader.
In FCIB’s October International Credit & Collections Survey, which looks at credit professionals’ payment experiences in parts of Asia, increases in payment delays were noted in Hong Kong (10% of respondents), India (15%), Japan (3%), Singapore (15%) and South Korea (9%).
Across the board, customer payment policies ranked high among causes for payment delays. Other primary causes included cash flow issues, except for Japan where only 4% of respondents said it was the cause. Disputes, billing and others, also ranked high. Members can access the complete survey results here (FCIB member login required).
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Fintech initiatives in the Middle East and North Africa region are expected to more than double from 2016 to 2020.
And fintech investment is projected to rise 270% in the Middle East this year, said Bana Akkad Azhari, head of relationship management CIS & MEA, Treasury Services at BNY Mellon, in the Oct. 20 TXF Trade & Commodity Finance newsletter.
“With appetite and opportunities for modernized processes growing, banks have a major role to play in pushing the fintech agenda along, and providing new capabilities that enhance the client experience,” Akkad Azhari wrote.
Effecting change in the corporate sector, however, is challenging “due to the often more complex, cross-border nature of corporate payments and the accompanying regulations and security requirements,” she said. “Still, with demand for modernized solutions growing in the corporate world, projects and innovations that are designed to transform the corporate payments industry are underway.”
For example, she pointed out SWIFT’s global payments innovation initiative, which aims to establish global standards to “enhance the correspondent banking sector’s ability to provide interoperable and transparent payment services” as well as its gpi tracker to enable monitoring of international payments in real-time and fee deductions in the payment process throughout the correspondent banking model. “This will help to deliver unprecedented transparency for cross-border transactions,” Akkad Azhari said.
She maintains that trade finance shows great potential for digitalization—with “significant benefits for the Middle East. … New fintech developments could help to streamline the trade and value chain process—replacing time consuming manual procedures and paper-based documents with automation. This means improved efficiency, improved cash flow and reduced costs.”
Optimal character recognition (OCR) and intelligent character recognition (ICR) were among the artificial intelligence technologies she highlighted as having potential benefits for trade finance. “OCR converts images of paper documents into machine-encoded text, enabling documents used in trade transactions to be verified automatically,” she said, “while ICR is able to learn and identify patterns of behavior embedded in trade documentation.”
With regard to enhanced transparency and security, she finds that “distributed ledger technology such as blockchain—the cryptographic database that is the foundation of bitcoin’s infrastructure—is perhaps one of the most promising. With blockchain, when information is entered into a ‘block,’ it is automatically in the public domain and cannot be changed. This centralized, cloud-based ledger ensures that records cannot be duplicated, manipulated or faked, creating a level of transparency that is unparalleled across the financial services industry. And for the Middle East in particular, where economic risk can be a barrier to trade, the potential for blockchain to create an improved trade landscape could be particularly beneficial.”
Akkad Azhari’s piece goes on to consider the challenges as well as collaboration and partnerships among interested stakeholders. Click here to read it in its entirety.
Spain plans new elections in Catalonia to end independence bid: Opposition. The Spanish government has secured opposition support for dissolving Catalonia’s parliament and holding new elections there in January in its bid to defuse the regional government’s push for independence. (Reuters)
Austrian vote nudges Europe’s balance to right as populists gain. Austrian voters paved the way for the nationalist Freedom Party to enter government, heralding a shift to the political right that’s likely to make the country a pricklier ally for its European partners. (Business Mirror)
Foreign currency crisis tells the story of Angola's economic peril. One of Angola's biggest challenges is lack of foreign currency. The rich can't access dollars to build or even pay their expat workers. For the poor, a ballooning Kwanza means basics are unaffordable. (NPR)
IBM launches cryptocurrency cross-border payments. IBM and a number of banks have launched a new blockchain-powered solution to clear and settle cross-border payments, using cryptocurrency as a bridge between fiat currencies. The move could see cryptocurrencies integrated with IBM’s trade finance blockchain projects at a later stage. (Global Trade Review)
Japan’s trade recovery powers ahead with strong September growth. Japanese exports grew by double digits for a third straight month in September, as a trade recovery underway this year showed no signs of letting up. (HSN)
Japan's Emperor Akihito likely to abdicate at end-March 2019. Japan’s Emperor Akihito is likely to abdicate at the end of March 2019, and Crown Prince Naruhito is expected to ascend the throne in April, the first abdication by a Japanese monarch in nearly two centuries, the Asahi newspaper reported on Oct. 20. (Reuters)
Britain's May wins Brexit reprieve, faces tough weeks ahead. British Prime Minister Theresa May won a modest reprieve in stalled Brexit talks on Oct. 20, with European Union leaders signaling their readiness to move the negotiations forward in the coming months. (Reuters)
After fourth NAFTA round, pessimism. The fourth round of negotiations to remake the North American Free Trade Agreement (NAFTA) wrapped up in Washington earlier this week, and there is reason to believe that the chances for a successful outcome—defined here as an agreement for an updated NAFTA—are lower than they were before. (Global Trade Magazine)
Auto industry sees threat to profits, jobs in Trump’s bid to revamp NAFTA. The Trump administration’s push to change the automobile rules in the NAFTA will lead to higher costs on manufacturers and could put jobs at risk, according to research sponsored by an auto supplier trade association. (Business Mirror)
Russia’s growing influence in Venezuela is part of a wider strategy. Russia’s cash and credit are helping to keep Venezuela politically and economically afloat. For Russia, access to Venezuela’s oil market is part of its objective to achieve influence in the Latin American region—and beyond. (Global Risk Insights)
Cuba sanctions 2017. President Trump’s issuance of a National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba on June 16 signaled a sweeping shift from the Obama-era Cuba policy that concentrated on ending the United States’ longstanding sanctions program on Cuba and the Castro regime. However, as of October, OFAC has yet to issue any concrete regulatory amendments effectuating the changes described in the president’s June Cuba memo. (Global Trade Magazine)
Trump’s attack on nuclear deal is bad news for Iran—and for America. U.S. President Donald Trump dealt a blow to the Iran nuclear deal on Oct. 13, as he announced that he would not certify that Iran is in compliance with the agreement. While the unraveling of the deal is neither automatic nor certain, Trump’s announcement will have clear implications for the agreement—and for U.S. diplomacy. (Global Risk Insights)
U.S. will not interfere in EU trade with Iran: Tillerson. The United States does not aim to impede European trade and business transactions with Iran despite President Donald Trump’s decision last week to decertify the 2015 nuclear agreement, Secretary of State Rex Tillerson told the Wall Street Journal. (Reuters)
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations