In this week’s edition:
- Burma, the new crossroads of the East
- China to patrol the Mekong River: the start of something new?
- Hedgefunds in Asia: making the tricky move
- True Chinese dog, fake British hound
Burma, the new crossroads of the East
Burma, pariah nation and home of the military junta that brutally suppressed the 2007 Saffron Revolution, is having a makeover. President Obama has recently announced that Hillary Clinton will be making the first Secretary of State’s visit to Burma in 50 years.
To make matters even better for Burma’s rulers, the country has been given the support of its neighbours to chair the Association of South East Asian Nations in 2014, which commentators believe is a major step in the country being welcomed back into the regional fold after years of bitter arguments over human rights and international posturing.
The official reason for the US visit is to kindle “flickers of progress” in the nation given the return to politics of democracy activist Aung San Suu Kyi after decades of persecution.
Aung San Suu Kyi: right place, right time?
Yet as with the re-admittance of Libya onto the international stage in 2004, there is more to this than meets the eye. Pushing democracy may be important to the US, but so is the containment of China.
Indeed, Beijing feels that this move by America is just another attempt by the superpower to restrict China’s room for strategic growth. China has until now been Burma’s main international sponsor, and its second largest trading partner after Thailand. The military connection between the two countries is deep too, with Burma receiving equipment and training over a sustained period of time. In return, China gets access to a deep water port in the Bay of Bengal, where it is able to keep an eye on its main local rival, India.
But it appears that Burma’s leaders are at last waking up to their importance on the geopolitical scene, and realising that having all their diplomatic eggs in one basket is not a sensible thing to do. By realigning away from sole reliance on China for support, Burma will lead itself less open to manipulation and perhaps be able to capitalise on its strategically important location, at the crossroads between two giant nations.
An indication of this change in foreign affairs came last month when the Burmese government suspended China’s construction of a $3.6 billion dam on the Irrawaddy River. Officially this was due to local residents’ concern about the human, environmental impact and perceived benefits: most of the power generated will be exported to Yunnan province in China and local residents claimed the lack of community feedback in the planning process.
Yet in reality, it would be unlikely that a tightly controlled Government like Burma’s - and one which does not have a tradition of putting villagers’ interests first – would not have timed this to fit in with the American and Aung San Suu Kyi announcements.
Beijing will interpret any move by Burma to realign its international position as a direct threat to its future. Other regional players will see this as China being out-manoeuvred by America yet again, following on from the Trans-Pacific Partnership and the Australia military deployment earlier this month.
So it will be interesting to see how much more China will take before it starts its own strategic moves. And with Europe verging on bankruptcy, and in America’s own backyard, where better place to start?
China to patrol the Mekong River: the start of something new?
Beijing is not going to give up South East Asia without a struggle. It was announced recently that China will be sending 1,000 police to start joint patrols with Thai, Laotian and Burmese Vietnamese forces along the Mekong River.
Shipping has been suspended since thirteen Chinese sailors were killed there in October, and the Chinese deployment is officially aimed at protecting trade along the river.
Many local commentators – and more importantly, local public opinion – believe that this is just a front by China to extend its influence in the countries. The police patrols for instance will certainly be Chinese run: the headquarters for the initiative will be founded in China and there will be a coordination office in each of the other three countries, the China Daily reports.
There is some worry that this will set a precedent for China to send its forces to protect its commercial interests,This would be less of an issue if these investments weren’t seen as being of asymmetric benefit to China.
Take for example a huge new project to transform a piece of land once home to drug-makers and warlords. The communist government of Laos granted to the Chinese firm King Romans Group a 99 year lease of 10,000 hectares in the province of Boke, to create a modern tourist resort. The idea was to transform the Golden Triangle – once famed for being the world centre of heroin production – into a legitimate traveller destination, with great benefit to the local economy.
Chinese casinos in Laos: not for the locals
The problem is that of the 4,500 jobs being created, 4,000 of them would be for Chinese people moved over to Laos. This is on top of an estimated 300,000 Chinese workers that have already been moved to the tiny country – population 6.5 million – over the last few years to build Beijing-sponsored infrastructure.
It is therefore not a surprise that many in Laos – and Burma and Thailand too – fear the Mekong deployment to be the start of something far wider ranging, namely Chinese colonisation of the region backed up by military force.
Do not be surprised if Burma’s move to internationalise its foreign affairs is quickly followed by Laos. The Mekong patrol may be the thin end of a wedge, and the local governments know it.
Hedgefunds in Asia: making the tricky move
With returns in the West severely depressed, it is not unusual for financiers to be looking to invest in different parts of the world. High growth and maturing equity and credit markets should mean Asia offering a host of opportunities.
As the Economist reports, there is little by way of an asset-management industry in much of Asia. Investors’ portfolios mostly consist of just property and stocks, which leaves lots of room for hedge funds’ offerings. And there are vast numbers of millionaires to whom such offers can be made.
But hedgefunds have yet to make their mark here. As can be seen in the graph (below left), assets in Asia-focused hedge funds now stand at $130 billion, well below their 2007 peak, and account for less than 8% of the $1.8 trillion invested in hedge funds globally. They saw just $11 billion of net inflows in the past 12 months. The number of funds, once soaring, has in the past few years merely held steady.
There are several reasons why hedgefunds aren’t booming in Asia.
- Hedgefunds in Asia – not so popular
Local culture is a big inhibitor to fund success. Property is considered to be a core investment, as anyone who has seen the construction boom in China will testify. Hong Kong has long been supported by property wealth, and it is unusual here to find local successes who haven’t made at least part of their fortune in buildings. So making money from funds is not something in the investment DNA. And with so much wealth already created by their own canny investments, why should Asian entrepreneurs pay 2% to Western hedgefund managers?
Regulation is also a problem for wannabe funds in Asia. Shanghai, the sixth largest equity market in the world, has tough restrictions. Taiwan does not allow any offshore funds at all.
In addition, new SEC rules have made it tougher for lesser funds to raise money in the US: one of the region’s smaller players, Singapore-based Solaris, told the China Daily earlier this year that it does not plan to register with the SEC or raise money from US investors. The cost of complying with US rules would be “very high,” according to Thomas Tey, Solaris’ managing partner. As 45% of the hedge funds in Asia manage less than $25 million and 90% of fund assets come from either America or Europe, according to Singapore-based industry data tracker Eurekahedge, then it is easy to see why funds struggle to grow.
While a fund remains small then it remains out of reach of sovereign wealth funds and other large institutions that prefer to see detailed and costly reporting schemes. And hedge funds are not in principle the place for bullish bets on Asian growth. In a bull market hedges should diminish returns. Paul Smith of TripleA Partners, which advises foreigners on investing in Asian funds, says there is twice as much money looking for long-only funds as for hedge funds.
But this all may be about to change. Several governments and cities are looking to encourage funds. South Korea recently changed rules to allow onshore hedge funds for the first time. Hong Kong and Singapore are keen to become hedge-fund capitals to rival New York and London, and are working hard to craft regulatory regimes that will help. They require hedge funds to register, but aren’t as demanding as America and Europe. And, as the Economist points out, income-tax rates for high earners in Hong Kong (17%) and Singapore (20%) are much lower than in Britain (50%). “That’s a powerful argument to a footloose trader” it notes.
Although Asian sovereign-wealth funds, including not just Singapore’s GIC and Temasek but also China’s CIC, have in the past couple of years started to funnel money into hedge funds, there still remains a problem of finding investors to actually make the funds work. And unfortunately for Western money-men, the core of this issue is the local investor mindset. Until the Asian millionaire can be convinced that a fund manager can create returns that he or she cannot make by just using traditional investment channels, then there will be a struggle for Asian funds to grow to their rightful level. The fishing might be better in the increasingly shallow waters of the West for many years to come.
True Chinese dog, fake British hound
Every nation needs its myths. America was inspired by the Founding Fathers, the Liberty Bell and the Cowboy. France still harks back to the storming of the Bastille, despite the inconvenient fact that it housed only seven old men: four forgers, two lunatics and a deviant aristocrat. And Britain had the 19th century legend of Greyfriars Bobby, the Skye terrier that kept a 14 year vigil beside his late master’s Edinburgh grave.
Until now that is. The Chinese press is delighted to report that the Scottish hound was in fact a marketing scam to drum up tourist revenue. But lovers of anthropomorphic tales of fealty shouldn’t worry, because – naturally – there is a Chinese dog to step into the breach.
As with so many things invented or first documented in the West, it is actually China that got there first: according to the Chinese, at any rate. Golf, you might think, would be a classic example of Scottish invention. Not so – Chinese wall hangings from 1368 naturally prove the British origin a fairytale. And Colombus was the first to discover America? Of course not: a Chinese fleet arrived there first in 1421.
Greyfriars Bobby: faker
But with Greyfriars Bobby dropped in the dustbin of history, we are fortunate that the China Daily has uncovered a replacement for us. Simply known as ‘Loyal Dog’, he has been sitting at his late owner’s graveside for a few weeks now. Locals are feeding him and, no doubt inspired by the tourist pounds generated by the Scottish forebear, are building him a kennel.
And if it is a success, then surely we can look forward to many more faithful pets appearing at graveyards up and down the country.