PPI Asia Pacific Roundtable Insights
October 2021
The Pacific Pension & Investment Institute (PPI) convened in Pasadena, California, on October 27-29, 2021. Whether participating in person or virtually, attendees and speakers connected across formats and geographies for discussions around the theme of Long-Term Trends in a Multipolar Asia. They explored the implications of Asia’s aging demography as well as China’s domestic, regional, and global dynamics. Sessions often mirrored events unfolding in real-time as the roundtable occurred days before the United Nations Climate Change Conference (COP26) opened in Glasgow. In addition, the acuteness of the global container shortage was illustrated by congested ports mere miles from the venue. Members also heard from young entrepreneurs responding to social inequality in Asia, and from experts on technology disruption in Southeast Asia.
Demographics, Social Inequality, and Intergenerational Views
All Asia-Pacific subregions are aging, with implications for consumer patterns, workforce trends, public policies, and retirement security. The impact of mortality versus healthy mortality means that the current generation of productive workers is being squeezed – raising children while caring for elderly parents who are living longer but no longer healthy. The question also arises over whether these demographic shifts will be inflationary or deflationary.
Amid the focus on aging, the younger generation’s responses to its perceived economic future will have socioeconomic implications as well. In Asia, COVID-19 has exacerbated social inequalities, and rising disenchantment poses risks to productivity. Young entrepreneurs are harnessing tools like microfinance to tackle these problems, and they appear more willing to trade financial return for social impact.
China: Opportunities and Challenges
A series of regulatory actions in China have concerned foreign investors. However, such regulatory “crackdowns” can be viewed as appropriate internally, if baffling externally. Reforms aimed at addressing concerns over data security, privacy, and antitrust in China are similar to what countries in the West are grappling with. Investment opportunities exist, but it is important to be diversified, judicious about sectors to invest in, and mindful of the risks.
China’s strategic competition with the United States is having spillover effects on international relations. Countries are facing a binary choice of aligning themselves with either the U.S. or China (often their leading trading partner). The polarization is accelerating the development of parallel economies and technologies (such as 5G and quantum computing), which will further compel this binary choice. Investors may be motivated to pivot to Southeast or South Asia for opportunities.
The U.S.-China relationship underpins the future of the Indo-Pacific region. The conflict between the two is both inevitable and avoidable and depends on U.S. strategy toward China. Given China's rapid economic and military growth, armed conflict over Taiwan has become a real possibility. An argument is made that U.S. allies such as Japan need to be stronger militarily to counter China. Yet another argument offers that Asia’s strategic landscape in the 21st century will be defined not militarily but in economic terms, with Southeast Asia at the center.
China is a pivotal player in Latin America’s economic ties with Asia. It is the largest trading partner for many Latin American countries and has become the largest source of direct foreign investment for an increasing number of countries in the region. The United States has an opportunity to reengage with Latin America by nearshoring in the wake of global supply chain disruptions.
Managing Climate Change
For developing economies, the net zero transition presents both opportunities and challenges. In China, the government is motivated by the desire for social stability and energy independence. The challenge, more generally, lies in overcoming the structural bottlenecks to implementing this transition, as is the case in India. Along with their counterparts in Latin America and Africa, these economies can capitalize on the latecomer advantage of adopting the latest technologies and offer significant commercial opportunities in renewables. The question of how to finance the clean transition remains key, and along with it, the appropriate role of institutional investors.
In Japan, the government has been instrumental in prevailing upon the business community to support climate risk disclosure, particularly through the adoption of the Task Force on Climate-Related Financial Disclosures (TCFD) framework. Despite great strides made in increasing awareness, more needs to be done to enhance the quality of reporting. Corporate board members are advised to adopt a pragmatic view of risk management to better build sustainable businesses.
Disruptions, Bad and Good
The Global Container Shortage and Supply Chain Complications
The global container shortage is adding to inflation fears, with freight prices at multiples of pre-pandemic levels. The supply chain implications are significant if one considers the fact that the top 10 container lines control 90 percent of global shipping capacity. Port congestion is compounded by labor and warehouse shortages as well as transportation bottlenecks. The pandemic has contributed to this dire situation, which will likely persist into 2022 or longer.
Technology Ventures in Southeast Asia
The exponential growth of Southeast Asia’s technology ecosystem is expected to continue in the coming years. Factors such as COVID-19 and U.S.-China technology decoupling have impacted the landscape, and regulation plays an important role as a tempering mechanism for tech optimism. Decentralized and “new finance” is growing rapidly in the region. An indication is that in Indonesia, there are twice as many crypto-currency investors as there are stock investors.