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While many of 2019's big themes stemmed from the worsening trade war, 2020 may hold other surprises. (Photo illustration by Nikkei)
The Big Story

Asia in 2020: from tech turmoil to SoftBank's next crisis

Watch these emerging trends and political flashpoints in the year ahead

Nikkei staff writers | China

A "synchronized slowdown," a raft of elections, a tech industry crossroads: 2020 promises to shake up the order of things. Read on for the Nikkei Asian Review's guide to 20 companies, people and pivotal events to watch in the coming year.

 

BUSINESS & TECHNOLOGY

Supply chain pinch points; The SoftBank hangover; Brakes on growth; Banking on China; Autonomous vehicles break out; HSBC; Oyo; Alibaba; Netflix; Nissan

Supply chain pinch points

It was an underrated chokepoint for the world's biggest producer of memory chips. In July, as a political spat between South Korea and Japan developed, Tokyo abruptly restricted the export of three chemicals to South Korea. Etching gas, fluorinated polyimide and photoresist are all crucial for chipmakers, and with Japan controlling 90% of the South Korean market for the latter two, the move starved manufacturing giants Samsung Electronics and SK Hynix of a vital piece of their supply chains.

Codependencies run deeply through the globalized technology industry. U.S. companies such as KLA and Lam Research supply semiconductor equipment and chip design tools to the world's largest chipmakers; Chinese display makers, such as BOE Technology Group, depend on American suppliers like Applied Materials and Corning.

An industrial port in Shanghai: The U.S.-China trade rift is forcing technology companies to remake their supply chains.   © Reuters

The use of trade tariffs and bans as a blunt geopolitical instrument has highlighted how exposed these critical supply nodes can be; the sudden U.S. ban on technology exports to China left some of the country's largest companies scrambling for new sources of supply.

Fixing those vulnerabilities will be a major focus for 2020, as companies around the world look to secure supplies of strategic materials and components. China's tech giants are investing heavily in their own homegrown alternatives to U.S. components, buoyed by billions of dollars of state support and the new tech-centered STAR market, billed as a Chinese Nasdaq, which opened in Shanghai in July.

This decoupling could be a long-term trend, and hard to reverse -- despite a tentative rapprochement between the U.S. and China.

"In areas like semiconductor equipment, critical materials, I think it's very challenging for China to bypass leading U.S., Japanese and European companies," said Arisa Liu, an analyst at the Taiwan Institute of Economic Research. "They will want to develop their own ones domestically, but that really needs accumulated efforts and long-term investment."  -- CHENG TING-FANG and LAULY LI, Nikkei staff writers

 

The SoftBank hangover

In a few short years, SoftBank Group and its $97 billion Vision Fund has emerged to become the most important player in global technology, backing disruptive companies such as Uber Technologies, Grab and WeWork. But the fund's "winner takes all" approach -- flooding its portfolio companies with capital to dominate markets, and valuing growth above sustainable profits -- now seems less than visionary, after several major public listings faltered.

SoftBank is not going away. But the company's losses -- $6.5 billion between July and September 2019 -- and its difficulties in raising a successor fund have reverberated across the venture capital and tech industries in Asia. Post-WeWork, VCs, and the tech industry in general, are sobering up.

"It was just capital-driven growth, which was, in some cases, the primary driver or differentiator. I think that fundamental is being questioned now. You can't grow a company and then go back and solve a lot of problems which are core to what the business is," said Anurag Srivastava, co-founder and managing partner at Singapore-based Jungle Ventures. -- PETER GUEST, Nikkei staff writer

Fueled by investment writedowns, SoftBank Group posted a loss of around $6.5 billion in the July-September quarter -- its first such result in 14 years. (Photo by Kosaku Mimura)

 

 Brakes on growth 

Falling manufacturing and trade flows, driven by tit-for-tat tariffs and prolonged uncertainty, pushed global economic growth to just 3% in 2019, according to the International Monetary Fund. The IMF predicts that the "synchronized global slowdown" will only be marginally tempered in 2020, with growth forecast at 3.4%. China, which has powered the global economy for more than a decade, is faltering. The country's 2020 GDP growth is forecast at less than 6%, the slowest since 1990.

That will inevitably have knock-on impacts across Asia, where both developed and developing economies have been pulled along in China's wake. Still, Asia-Pacific growth should be "resilient," at 4.2%, said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit.

"The contagion effects of the U.S.-China trade war are continuing to hit the export sectors of many Asian nations, including Japan, South Korea and some [Association of Southeast Asian Nations] economies," Biswas said. "Even if a stage one trade deal is concluded between the U.S. and China, most of the U.S. tariffs on China are expected to remain in place until a more comprehensive trade deal is reached." -- PETER GUEST, Nikkei staff writer

 

Banking on China

Beijing has long said that it wants to internationalize its financial markets. But for years, foreign players have had to operate through minority ownership of local banks and brokers. Those rules will finally be relaxed in 2020, and major global banks, including JPMorgan Chase, Nomura Holdings and Morgan Stanley have already moved to take controlling stakes in their local joint ventures.

It is unlikely to be a big bang moment. The Chinese economy is slowing and many local banks are struggling with bad loans. Competition will also be stiff, particularly from state-backed rivals.

"Right now it is about building brand recognition in China while being aware that profits may be some time away," said Eugenie Shen, the head of the asset management group at the Asia Securities Industry & Financial Markets Association in Hong Kong. "It is a market that serious players can't turn away from, and companies should be ready to take a long-term view on China. Strategy and commitment are key." -- NARAYANAN SOMASUNDARAM, Nikkei Asian Review chief banking and financial correspondent

 

Autonomous vehicles break out

China's tech giants and startups are surging ahead in the race to roll out fully autonomous taxis, with trials scheduled across multiple Chinese cities, including Guangzhou and Changsha, in the new year. Baidu, WeRide.ai and Pony.ai are all expanding their fleets, while Hong Kong-based startup AutoX and ride-hailing giant Didi Chuxing are expected to roll out robotaxis in the coming months.

Traditional automakers are rushing to catch up, setting up their own specialist units and signing partnerships with tech companies. Analysts expect that new models will increasingly incorporate self-driving features as a first step toward fuller automation. However, while the autonomous sector is growing rapidly, it has had its casualties, as some startups run out of road.

"Companies have taken the first step for the commercialization of autonomous driving," said Feng Linyan, an analyst at Beijing-based research company EqualOcean. "The more important challenge is whether they can keep up their own pace and survive through the winter of venture capital." -- NIKKI SUN, Nikkei staff writer

 

COMPANIES TO WATCH

HSBC Holdings

The Anglo-Hong Kong bank is searching for a new chief executive after previous incumbent John Flint was ousted after less than 18 months in the job. Interim CEO Noel Quinn, a contender for the role, has already begun a major restructuring of the Asia-focused lender, concentrating on emerging markets and pulling back from developed ones.

With as many as 10,000 jobs on the block, the process could take up to two years -- all while facing the complications of a slowdown in China, disruptions in Hong Kong, and growing competition from digital banks. "Capital constraints, coupled with the revenue trajectory, could determine the pace and scale of the restructuring," Goldman Sachs analyst Gurpreet Singh Sahi said. -- NARAYANAN SOMASUNDARAM, Nikkei Asian Review chief banking and financial correspondent

 

Alibaba

Alibaba Group Holding is flush with cash as it enters its first year without its charismatic founder, Jack Ma, at the helm. The e-commerce company raised around $13 billion in a Hong Kong listing in November, and has managed to hold up growth despite an economic downturn in its home market. Ma handed over the chairmanship to CEO Daniel Zhang in September.

Zhang inherits a strong business, though it faces headwinds from the ongoing U.S.-China trade rift, which has dampened Chinese tech companies' advances into the American market. A growing cloud computing business, heated competition with food delivery rivals and a potential IPO of its subsidiary Ant Financial mean that "the coming year holds profound risks and opportunities for Alibaba," according to Brock Silvers, a managing director of Adamas Asset Management. -- COCO LIU, Nikkei staff writer

 

Oyo

In a few short years, startup Oyo has grown into India's largest hotel chain, expanding abroad and spilling into ventures like cafes and wedding planning. More recently, though, the company has been missing internal targets, while its reputation has suffered from disputes with hotel owners. Its challenges are amplified by turmoil at SoftBank, its biggest shareholder, whose investment in the struggling coworking company WeWork has exposed the risks of inorganic, capital-driven growth.

Next year will be a test for whether Ritesh Agarwal, Oyo's 26-year-old founder, can prove skeptics wrong. "After WeWork's fallout, there is increasing concern that Oyo is in danger," said an executive at an Asian venture capital company. "Whether it can maintain its valuation next year will be an important benchmark for the whole industry." -- WATARU SUZUKI, Nikkei staff writer

Oyo's ability to see out 2020 is being viewed as a benchmark for startup "disrupters" at large, says one Asian venture capitalist. (Photo by Akira Kodaka)

 

Netflix

The streaming giant that reshaped television in the U.S. is now barreling into Asia. Netflix has announced several major investments into local productions in India, Japan and Southeast Asia, hoping to win over audiences with a mixture of international and targeted local content. It is an approach that has already paid off in India, where the company experienced a 700% growth in revenues in the 2018-19 fiscal year.

Other global operators, including Amazon's Prime Video and The Walt Disney Co.'s Disney+ service, are also making a play for the region's consumers. The ultimate winners will be those who invest widely in entertainment that resonates with ordinary viewers, said Vikram Malhotra, founder of Indian production house Abundantia Entertainment. "It's not about the top 5% or 10% of the international show watching audience that is going to give you scale in the market. It's going to be how deep can you reach to the bottom of the pyramid." -- PETER GUEST, Nikkei staff writer

 

Nissan

Makoto Uchida took on his new role as CEO of Nissan Motor on Dec. 1, capping another tumultuous year for the automaker. Uchida will be hoping to draw a line under the scandals that have beset Nissan since the arrest of its chairman, Carlos Ghosn, and the subsequent resignation of its CEO, Hiroto Saikawa.

Top of his slate will be to repair relations with Nissan's largest shareholder, Renault, and to rationalize a struggling U.S. operation. His predecessor said that the restructuring would mean 12,500 job cuts, though where the ax will fall remains to be seen. The current fiscal year could suffer another earnings downgrade, according to Seiji Sugiura, senior analyst at the Tokai Tokyo Research Institute, who said that the automaker may announce "some drastic decisions to mark a settlement of past assets," including a liquidation of some of its plants. -- ERI SUGIURA, Nikkei staff writer

 

 

POLITICS & ECONOMICS

Modinomics on the rocks; Trade war shakedown; Election interference; Open Japan; Anonymous revolutionaries; Donald Trump; Heng Swee Keat; Tsai Ing-wen; Apirat Kongsompong; Ho Iat-seng

Modinomics on the rocks

Indian Prime Minister Narendra Modi returned on a landslide election victory in spring, with bold promises of growth and prosperity that include a pledge to turn India from a $2.7 trillion economy into a $5 trillion one.

To achieve that over his five-year term, and to ensure enough jobs for the millions entering the workforce, annual growth in gross domestic product would need to exceed 8%. September figures were the weakest in more than six years, and the IMF forecasts overall growth of just over 6% in 2019. Many sectors, from banking to real estate to automotive, are severely stressed.

Modi is pushing parliament to adopt labor reforms, and the government has cut corporate taxes, injected capital into the banking system and eased restrictions on foreign investment. Nevertheless, reversing the slowdown is a daunting task.

"The whole idea of dreaming a growth which is in excess of 8% is almost out for the next three to four years," Sunil Kumar Sinha, principal economist at the Fitch Group's local arm India Ratings and Research, told the Nikkei Asian Review. -- KIRAN SHARMA, Nikkei staff writer

Indian Prime Minister Narendra Modi is under pressure to deliver on bold reelection promises in 2020. (Photo by Kosaku Mimura)

 

Trade war shakedown

Throughout 2019, U.S. President Donald Trump's use of tariffs as a bludgeon drove huge disruptions to global trade, splintering along global supply chains for consumer goods, technology and food. Many of those supply chains start in Asia, where some countries have certainly benefited in the short term. Dozens of Chinese companies have shifted production to Vietnam in order to skirt Washington's tariffs, for example. With Vietnam's trade surplus with the U.S. rising, however, many analysts expect the White House's ire to turn on Hanoi in the new year.

Over the longer term, however, the reshuffling of supply chains from China, South Korea and Japan into Southeast Asia has sped up the region's economic integration. And the U.S. withdrawal from the Trans-Pacific Partnership has skewed the deal toward an Asia-led treaty, while 15 Asia-Pacific countries have signed up to the China-led Regional Comprehensive Economic Partnership, another regional free trade agreement.

"This began before the trade war, but now you have the trade war accelerating it, and you have the TPP and RCEP," said Parag Khanna, managing partner of advisory company FutureMap. "There is no question that the trade war has accelerated the 'Asianization' of Asia." -- PETER GUEST, Nikkei staff writer

 

Election interference

How, and how much, foreign actors interfered in the last U.S. presidential election will remain a subject of intense discussion up to and beyond the 2020 polls. But the disputed vote exposed how social media can be used to spread disinformation and manipulate voters.

Social media platforms have pledged to regulate themselves to prevent manipulation. Facebook has been under particular pressure due to its scale, with 577 million active users in the Asia-Pacific, and because its platforms, including the messaging service WhatsApp, have been implicated in spreading false stories in the Philippines, India and Myanmar. Others, including Twitter, Line and Weibo, have all faced similar accusations.

These companies' policies on political advertising and "fake news" will be tested this year, with elections taking place across Asia, including in Myanmar, South Korea and Taiwan.

Hackers and media outlets tied to China have already been accused of spreading disinformation in Taiwan. Facebook, Line, and Weibo have formed the battleground, although traditional media outlets owned by pro-Beijing businesses have also played a role, according to Joshua Kurlantzick, senior fellow at the Council on Foreign Relations.

South Korea is accustomed to disinformation attacks from Pyongyang, and should be well prepared. Over in Myanmar, the challenge comes mostly from domestic actors. "Authorities are incapable or unwilling to do much to stop disinformation," Kurlantzick said. "In fact, in some ways they actually facilitate disinformation." -- FRANCESCA REGALADO, Nikkei staff writer

 

Open Japan

Tokyo's hosting of the Olympic Games this summer has been billed as a showpiece for Japan's new open, global outlook. Facing a declining, aging population and a tight labor market, Prime Minister Shinzo Abe's government has relaxed the country's strict rules on immigration in an attempt to attract global talent. Progress has been slow. A new working visa was introduced in April, but by November only 1,019 foreigners had acquired one -- just 2.5% of the policy's March 2020 target.

New rules on foreign investment, set to come into force in the spring, have also been criticized as a backward step. Foreign investors will have to obtain approval from regulators before buying 1% or more of a Japanese company's shares. "The restriction is likely to make investors question the openness of Japanese companies and make fewer investors pour money into the Japanese market," said Yuki Kanemoto, director at the Daiwa Institute of Research. -- RURI IMAHASHI, Nikkei staff writer

Tokyo's new National Stadium, recently unveiled for the 2020 Summer Olympics. (Photo by Hirofumi Yamamoto) 

 

Anonymous revolutionaries

Leaderless, fluid and at once highly organized and flexible, Hong Kong's "water" protests have been constantly ahead of the police's attempts to clamp down. Large-scale arrests and a ban on face coverings -- since ruled unlawful by the High Court -- have failed to undermine the movement. Similarly structureless protest groups have now sprung up around the world, from Catalonia to Chile to Lebanon.

Although all have different roots, they have mostly started with a single clear trigger -- an extradition bill in Hong Kong; a rise in subway fares in Chile -- and quickly expanded into wider demands for systemic change.

"The other common feature is that they are enabled by technology," said Carne Ross, author of "The Leaderless Revolution," a book about the phenomenon. "You couldn't do it without technology like Telegram or Signal or WhatsApp that are allowing people to spread tactics, strategies, information horizontally. But it's also preventing authorities from picking off leadership figures."

Authorities in Beijing are concerned that Hong Kong's protests could inspire similar movements to take root in the mainland, while authoritarian regimes across Asia may be increasingly aware of cracks in the architectures they have built to control dissent. However, Ross warned that in advanced autocracies, technologies that have enabled protest could also be turned against these movements.

"The history of social media demonstrates that it can be as much a force for repression and extremism as it is a force for democracy and mass protest," he said. -- PETER GUEST, Nikkei staff writer

 

PEOPLE TO WATCH

Donald Trump

With elections looming and impeachment proceedings in full swing, President Donald Trump is expected to court his base by doubling down on his attacks on globalization, the multilateral system, and, in particular, on America's trading partners.

Any country that has a trade surplus with the U.S. "can trigger Trump's wrath anytime," said Howard Yu, professor of strategic management at IMD Business School. "After all, he called steel imports from Canada 'a national security threat.'"

This just means more disruption, up to, and probably beyond the 2020 elections. "A trade war is not boxing match. It's the destruction of international cooperation, the decline of predictability and the surge of chaos," Yu said. -- PETER GUEST, Nikkei staff writer

U.S. President Donald Trump is expected to court his base by doubling down on his attacks on globalization, the multilateral system -- and America's trading partners.   © Reuters

 

Heng Swee Keat

Singapore's political succession will be under scrutiny as the city-state enters election season. Polls are widely tipped to be called in the spring of 2020, with the ruling People's Action Party likely to remain in power. What happens afterward is also largely settled.

Prime Minister Lee Hsien Loong, son of modern Singapore's founder Lee Kuan Yew, is expected to hand over his post to his current deputy, finance minister Heng Swee Keat -- who overcame a stroke in 2016 to become front-runner for the position -- sometime within the next term of government.

"The crucial challenge for Heng is for him to be his own man, establish his unique political identity, and to lead without fear or favor," said political pundit Eugene Tan, associate professor of law at the Singapore Management University. -- DYLAN LOH, Nikkei staff writer

 

Tsai Ing-wen

Nine months ago, Taiwan's President Tsai Ing-wen was on the verge of losing the nomination for her own party. Now, with presidential and legislative elections just weeks away, her lead in the polls looks unassailable.

Tsai's China-skeptic Democratic Progressive Party has been boosted by the ongoing unrest in Hong Kong, where the pro-Beijing government has failed to address fears of eroding civil liberties.

"The incumbent Tsai administration has the upper hand in this elections, as long as Tsai and the DPP do not make huge mistakes before the big day. The polls show the swing voters do not favor Han," said Pan Chao-min, a professor at Tunghai University's Graduate Institute of Political Science in Taiwan.

However, with Beijing still making threatening noises, and a capricious leader in its most important ally, the U.S., Tsai's challenges will not end with victory in January. -- CHENG TING-FANG and LAULY LI, Nikkei staff writers

Taiwanese leader Tsai Ing-wen has charged back as the favorite contender for next year's election, but her challenges will not end there. (Photo by Ken Kobayashi)

 

Apirat Kongsompong

With the Thai military having cemented its power base in the 2019 elections, and the political climate leaning toward a reactionary, royalist tilt, army commander Gen. Apirat Kongsompong has been thrust into the front lines again.

A fitness fanatic with a taste for fine wine and cigars, Apirat is key to the current government's grip on power. "Apirat has been a go-to person willing to take action," one analyst said. "His gift for that was his current position."

Apirat will retire from the army in September, having hit the mandatory retirement age of 60, and will relinquish his ex officio seat in the Senate when he goes. He is unlikely, however, to disappear. He may be inducted into the militarized Privy Council; some pundits have also speculated that he might become prime minister, even though, by law, former senators are barred from holding ministerial portfolios for two years. In various bellicose public statements, Apirat has refused to rule out a more direct route to power -- yet another coup. -- DOMINIC FAULDER, Nikkei Asian Review associate editor

 

Ho Iat-seng

Macao's new Chief Executive Ho Iat-seng took office on Dec. 20, just as the territory celebrated the 20th anniversary of its handover back to mainland China. Ho, appointed by Beijing after a single candidate race, is seen as a safe pair of hands. "The new government [will] not rock the boat," said scholar Sonny Lo, author of "Political Change in Macao."

Ho inherits his predecessor's task of trying to diversify the economy away from its reliance on the casino industry. He may be boosted by support from Chinese President Xi Jinping, who praised the island's stability on a recent visit -- in contrast to its restive neighbor, Hong Kong. -- ZACH COLEMAN, Nikkei Asian Review deputy editor

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