4: The bumpy road out of COVID – Reviving the Asian economy

Host:
Hello, and welcome to Ashurst Business Agenda. From containment to agile thinking, many Asian countries are outperforming their Western neighbors when it comes to life of the pandemic. Featured in this episode is Jini Lee, head of region for Asia, the global co-head of the finance funds and restructuring division, and partner in Ashurst finance practice. Jini is joined by Janet Pau, Hong Kong director at the Economist Corporate Network. Jini and Janet discuss macro economic competence, social inequity and the future of work. You are listening to Ashurst Business Agenda. Jini, Janet, welcome to Business Agenda. I believe this is a discussion 12 months in the making. Am I right in saying that you got together almost a year ago now with the idea of wanting to talk about the way out of the pandemic for Asian economies? Now fast-forward to present day and the first thing to ask is what's changed over the last year or so, and probably more to the point, what's been the same?

Jini Lee:
Yeah. Thanks very much and it's lovely to see Janet here today and Janet is fabulous, talking to her she's always passionate full of ideas and she's got so much data packed in that little head of her's that when we talk about Asia and the economies and what's going on, I just always go away or with the amount of data and information she has, and I think that's the reason for inviting Janet back today to talk to us and to our clients. And really, I think circling back 12 months ago in the summer of 2020, we got together, I think to discuss everyone's struggles with the pandemic, what was going on and how leaders really... we start to emerge from the pandemic, how they're going to face the challenges just as a business and how we get back to pre-COVID norms.

And so looking now, I think the narrative has changed in a more subtle way. I think it's less of, how do we get back to pre-COVID. I think it's more of a recognition that this is going to stay with us for a while. Many economies I think in Asia, having been locked down, come out again and multiple ways of COVID that has hit us. And I think that settling a little bit more with business leaders. So I think that conversation is changing a little bit as reality sets in for this is the way that it's going to be with us, I think we're a little while more and more cautious optimism, I think as we look forward.

Janet Pau:
I very much agree with you. I remember last year we were talking about the light at the end of the tunnel, but I think what has surprised so many of us is that there are so many uncertainties that have put us on this stop, start pattern. And the path out of COVID has certainly been bumpier than we had thought. And I think one of the things that has not changed so much, but has evolved a little bit is last year, Jini, you and I spoke about what I had called the process of slow realization, where globalization is very sluggish. And I think that is still true, and now we are seeing this continued escalation, especially of U.S, China tensions. But what we are seeing is that a trade is still going on, however, it has become a little bit more regional and there are closer trade ties among Asian economies.

Host:
There's a lot of media headlines around at the moment talking about the way out of the pandemic for Asian economies, and they're highlighting how uneven it's going to be. So lopsided not only from an economic viewpoint, but also socially. So perhaps Janet, did you want to highlight some examples of what this uneven recovery looks like for some nations?

Janet Pau:
Sure. And I think there's certainly bifurcated story between the rich world and the poor world regarding vaccinations. So largely the rich world really succeeded in producing very effective vaccines and remarkably quickly and quantity set are sufficient to its needs. However, in a way that infrastructure that the rich world built has created constraints on expanding vaccinations for the poor world and the most vulnerable unvaccinated people actually look unlikely to be vaccinated soon because building that extra capacity will not be very quick.

Jini Lee:
Yeah, that's a really good point, Janet. I'm struck by how patchy and how uneven the vaccine rollout is. So when we have conversations, I think with people that we work with in Vietnam in Cambodia, et cetera. A lot of them are barely, I think, have started on the vaccination journey. Whereas, if you're talking about Singapore, Hong Kong, quite a... it's available. So anybody can really pretty much come and get a vaccine if they wanted to in Hong Kong. But that level of access is certainly not felt even in the developing world.

Janet Pau:
I think what we have seen here in Asia is that Asia has been somewhat of a model continent in terms of infection control, but not as much in vaccinations. And in a way we have seen the countries that have curved COVID-19 very quickly being slower to vaccinate their populations. So I think that this is still going to be an issue in 2021, these issues of equity, volumes, and also the vaccine hesitancy that we're seeing. However, as Jeni says, what we're seeing is that some of the developed economies in Asia have been able to get adequate supply of vaccines. So at the Economist Intelligence Unit, we still expect them to achieve widespread vaccinations later this year or early in 2022.

Jini Lee:
I'm struck by the picture I think that you sent to us in terms of the vaccine rollout in all the economies in Asia. And when we focus on getting to herd immunity that really puts into visual effects in terms of how uneven and how patchy it is.

Host:
That infographic is available in the show notes to this episode. Janet, I was wondering whether you were able to talk through just comparing some of the nations in regards to that vaccine rollout and what maybe that means for business confidence in terms of those economies.

Janet Pau:
I think that what we have seen is that in Western countries, a lot of the nations like the U.S, Britain and parts of Europe have as of yesterday, vaccinated more than 50% of their populations. And so they are reaching widespread vaccination, whether it's herd immunity, it depends on the percentage that the scientists are talking about, but I think there's a really big uptake.

However, in parts of Asia, I think there's still a very low vaccination rate, especially countries like Japan, they have really only vaccinated single digits and it's not because they don't have enough supply, but I think they are trying to work out the logistics. It's also a really big country. There's high vaccine hesitancy among the populations. So I would divide countries into the ones that have largely seen a really big uptake. And there's a lot of trust in scientists and governments and the ones that maybe are seeing less of a supply, but also ones that are seeing a pretty widespread vaccine hesitancy and in Hong Kong for sure, that is one of the places that we're seeing that. And at the economist what we are seeing in terms of business reopening is that last year we talked a lot about travel bubbles, right?

I think you will remember that and Jini and I talked about that a little bit. But I think in 2021, what we're seeing is what the economist we have called bubble trouble. So a lot of the travel bubbles have failed to come to pass, even though they were planned for instance, the one between Hong Kong and Singapore, and that just really outlines and underscores how this sporadic tightening and also the sporadic outbreaks will threaten to derail these openings. And so I think we just have to be a little bit more adaptable with this stop, stop pattern.

Jini Lee:
You're breaking my heart now, Janet, because... you remember we had this conversation last summer and I told you I was going to book my tickets to Singapore very excitedly and make use of a bubble. I've got an ongoing joke with my team here that the travel bubble is cursed. So every time we talk about it in a big way, we put up these balloon arches at the airports, it deflates and burst.

So my big idea is that we shouldn't talk about the travel bubble. It's all a big secret and we would just do it secretly and once it's launched, then everybody can come out and say, "We've done the travel bubble. It happened over the weekend. It was fantastic and it worked."

Janet Pau:
I wanted to also bring up one other difference that we are seeing relative to last year. I think we will remember that last year in 2020 governments were very quick to respond to many of the outbreaks and they were quick to... in a way, shut down their economies in order to control the infection. However, what we're seeing in COVID-19 year number two, if you will, is that there has been quite a notable difference.

For example, some of the governments around Asia, like the Japanese and Malaysian governments, while they have placed their countries in a very high emergency phase, they have allowed commercial operations to continue. So I think that governments are trying to now balance the infection control and also movement restrictions with economic opening, and so I think very few of them have imposed further national lockdowns for long periods of times that have really affected business because of the high economic costs. So I think we'll see more of that, cautious reopening, and trying to make the infection control, movement restriction efforts less disruptive to business.

Jini Lee:
Yeah, I totally agree, Janet. In terms of China, we've seen very... well actually strict lockdowns, but not at big province levels. So in the neighborhood level if there's a single case basically the whole neighborhood would get locked down and to try and contain it very quickly. Hong Kong tried to follow the same strategy, I think in locking down whole buildings where have been cases in sending people to quarantine. So obviously that's very targeted lockdown has been very inconvenient for residents of that particular building or that neighborhood but it's ensured that everywhere else, I think businesses are continuing, shops can remain open and schools can remain open.

Host:
So with vaccine and travel bubbles on the horizon, we look further afield and that is to the full implementation of the regional comprehensive economic partnership. Now this is a big deal because when it's signed off, it will create a free trade zone covering about 30 of the world's gross domestic product. It also marks the first time Japan will have an agreement with China and South Korea. So my questions are, what can we expect in the lead up to full implementation? What's the risks and opportunities?

Jini Lee:
Very significant in Asia, it is a real watershed in terms of the 15 signatory states working together. So that's the RCN 10 plus China, Korea, Japan, Australia, and New Zealand, and the doors kept open for India to join if they want to later down stage. And most of these states they have individual free trade agreements with the other countries, but notably certain States like Japan and Korea, China, and Japan, these really is the first time that we've all come together and joined the family. And in terms of numbers, the 30% number certainly been talked about, but I think it's important to know the Asian trade is already larger than Asia trade with North America and Europe combined. So this whole new scheme, I think it's really the growth engine, which will propel the whole Asia Pacific region to work closely together in the coming decades.

Janet Pau:
Yes, Jini, there has been a lot of interest in our separate agreement and what this will mean for Asian economic integration going forward. And certainly RSF has enabled a tidying up of this patchwork of preexisting free trade agreements that we have seen over many years. And ASEAN has really been the big beneficiary of RSF and they have been pushing for this for a long time. And I think a lot of people think that China is the leading party in this. However, ASEAN has been the one that has really been pushing for this, although China's involvement in the RSF is very significant economically and also geopolitically as well. And I think what we will see with RSF is that some of these harmonized, customized procedures and also the lowering of logistics costs will really help businesses in the region.

Jini Lee:
Yeah, that's really interesting, a lots of people have asked, so what is this big trade agreement really mean in terms of the details, right? The devil's always in the details. It's not going to be a fast process, but the idea is that about 65% of trade Paris within the regions are going to be eliminated. And in the coming years after implementation, it's moving toward as much as 90% elimination of tariffs. So according to the China, vice minister of commerce, RSF will remove terrorism, maybe 30% of China's exports in this region. So that's happy news I think for consumers, hopefully they'll see a reduction of prices for you and I when we go out shopping and with COVID as well, I think the whole conversation on the shifting of supply chains around the region, and this will, I think eliminate some costs as well.

Janet Pau:
Yeah, certainly I think one of the areas that we will see the biggest impact is in agricultural products because prior to the RSF, China, Japan, and South Korea generally operated with each other under the most favorite nation terrorists. And these terrorists are quite high for agricultural products and so the ability for instance, Japan, to have new access to Chinese consumers is quite significant. However, I do want to mention some of the things that we have to watch out for as we look forward to RSF and one of the things we have to look out for is that services trade, which is really growing in the region remains largely untouched. And also much of the agreement is non-binding and so in terms of the consequences for non-compliance and also the dispute resolution system, even though it is thorough, the enforceability still is relatively weak. So I am hopeful that some of the countries will bring this to the fore on the agenda as they move forward in terms of this agreement.

Jini Lee:
I think a framework for bringing the 15 states together to share the same room and share the same platform, but how they decide to interact with each other after that, I think it's... we've got some time before the actual implementation. I think as we understand it, hopefully we will get to full ratification and implementation by early next year, but the rollout will depends on individual countries at the moment.

Janet Pau:
I think one of the things that we hear about a lot is also in addition to RSF, the CPTP agreement, which the U.S withdrew from but it's now led by Japan, which is another regional but also extra regional trade agreements that businesses are looking at very closely. And I think that the CPTP is another trade agreement that is very significant. It has some of the standards, especially in services trade that the RSF doesn't have. So I think that's going to be very significant in terms of fostering closer economic integration as well, and I think one of the things that's really interesting is the exclusion of the U.S from the CPTP and of course also RSF while China of course is included in RSF, but it has floated the idea of perhaps considering the CPTP. So I think that we will see this narrative play out in terms of the influence economically of China versus the U.S in the region going forward.

Host:
Now thinking about the pandemic and it's long lasting impacts to businesses at that micro level, what influence has the new ways of working in the future of work had particularly for businesses having to invest in new technology?

Jini Lee:
Yeah, I think in terms of the new hybrid working model, I think that's something that's probably going to stay with us. At Ashes, I think we've always been quite flexible in the way that we work, but even more so now. So we're all laptop based. We've got rid of all our desk phones. We can print from anywhere within the network and we've gone for 60, 40. So that's 60% in the office and 40% from home. But really those are broad concepts and people choose to come in or work at home depending on what suits them best. So this, I think for businesses is a fundamental shift in terms of the way we think about work, how office space is going to be used. And these will lead on to making real decisions for people in terms of where they live.

So lots of people are choosing to move away from the community belt to the traditional CBD area, this in turn has an impact in terms of businesses who service the CBD area, the coffee shop, the dry cleaners, this affects community timings in terms of when people get on trains, when people get off trains decisions in terms of which cars they decide to buy whether they buy a car or not. And then we talked about the investment on new technology. So I think businesses as a whole are having to invest a lot more in tech. So all of these Zoom, BlueJeans, whatever is your choice of working remotely. These I think are going to keep growing. So I think there are fundamental shifts that are happening in terms of the businesses and how they're going to operate going forward.

Janet Pau:
I think that one of the trends that the pandemic has accelerated is technological adoption and certainly that trend was ongoing before the pandemic. But at the economist, we have talked about this word tech celebration as a result of the COVID pandemic in which the adoption of digital technology will be far more widespread among businesses and citizens as well. And at the Economist Corporate Network, we actually did a member's poll in which members are saying and more than half are saying that they would continue their flexible working arrangements post pandemic for more than half of their employees. So I think it's very much jives with what Jini is talking about. And one of the interesting things that we have talked about in our magazine is that there is a large rise in the share of new patent filings for work from home technologies. So that is a concrete indicator that the work from home trend, the remote working trend is taking off.

And it is something that is a permanent shift, and as Jini was mentioning this shift to a hybrid world of work that is going to be what we're seeing in the future. And there's growing demand for virtual offices. So many companies are actually rethinking how they have to manage their IT infrastructure, for example. So when people are working from home, you have to think about where you need to be investing in terms of your data centers. And also I think team work is a really big aspect of not always being able to meet in the office, but how do you ensure that you have the right equipment in place? How do you ensure you train managers and leaders so they can have effective collaboration even while people are working remotely part of the time?

Jini Lee:
That's such a good point, Janet. I think when we talk about investment, people automatically think about hard assets or technology but really I think investment on people is really important. A lot of the skillset I think, needs to be upgraded, but how we actually convey trust and engagement to a virtual audience. How we actually are able to behave empathically with our staff in terms of our clients and these are all really difficult skills, I think a whole generation will basically have to grapple with and to upgrade.

And I think the pandemic was a time where we didn't see family or we didn't see colleagues and friends for an extended period of time in person and all of us have had to adjust to it. But I think that it is so true that technology has also enabled some of the people exchanges that we did not have before, and we were able to forge many new connections that we would not otherwise be able to have. And there are many new opportunities to work together, to innovate together and to problem solve together. And I think that on the person to person level on the business level and also on the country level to foster understanding, and we do some miscalculations and this understanding between different countries on complex issues, that is also something that I think technology has enabled continued exchanges, despite the pandemic.

Host:
So thinking about the macro economic conditions, which we've discussed and then on the macro level within the office environment, what are some of the key takeaways for business leaders to consider over the next 12 months?

Janet Pau:
I think through the pandemic, we've had a lot of time to be introspective and reflect on a bit on how we have done things and I think that for me, there are several priorities that I see for business leaders. So the first thing is really to adapt and also seize the opportunity for change and as I was talking about with tax allocation, I think that there were trends, or there were things that people wanted to invest in like technology that maybe was not top, top priority before the pandemic but the pandemic has actually accelerated the change, and so there are many other issues besides technology. So for example, climate change is another area where I think business leaders really can seize the opportunity to change. The second thing is I think Jini and I were talking a little bit about the the people aspect of things.

And I think as business leaders have adapted to this new way of work under the pandemic, there have been more opportunities to listen and empathize with people, either employees or customers and also to enable continued people exchanges. And I am cautiously hopeful that things are going to get better, but I think that one big lesson is that we have to be very, very prepared in terms of ensuring redundancy and resilience. And I think what the pandemic has really fostered us to do is to expect uncertainty and to expect that crisis can actually come in multiple forms and often with very little notice, and while we may not develop a lengthy playbook in advance, we need to be developing the flexibility and the muscle, if you will, to deal with crises in general. I think a lot of the business leaders have talked about ensuring business continuity, but I think of it as also ensuring that there is some discontinuity in the sense that there are certain processes that may be ineffective and certain practices that may need to be discontinued so they can be more agile and adaptive to whatever crisis may come.

Jini Lee:
It's a shame that this is a podcast because you guys would have seen me furiously nodding to what Janet has been saying, completely agree with all of that. There's so many key things I think for business leaders to be looking at as they plan forward in terms of the business. When you're looking at your strategy, think about your key stress points. A lot of businesses I think have already completed this exercise and they will be better businesses for it, post pandemic. Think about capital and liquidity buffers, your access to capital. What are you going to do in terms of a liquidity crunch? Think about restructuring of debt and a lot of smart businesses, I think with strong balance sheets will be making use of this time to make some real key investments for their business. On the people funds, which Janet mentioned.

I completely agree with that, there are some big shifts in terms of how the world is going to operate. One question I think I get asked from my team is, "How do you make decisions when the ground underneath you is shifting?" And I say, "Well, you may not know where the bus is driving to, but you make sure you have the best people on the bus." So, in terms of your hiring decisions, make sure that you've got people that are really thinking widely. Leaders don't have to have all the answers, but think about whether the voices you're hearing are diverse enough in their views because the world is changing so quickly. The third point, I think in terms of what Janet has mentioned, the optimism, I think humans have gone through this before and much worse and the ride will be rough, but I'm sure that we will emerge from this stronger and better than before.

Host:
So it definitely sounds like cautious optimism is the key message for this podcast. Janet, Jini, I just wanted to thank you very much for your expert commentary and valuable insights.

Jini Lee:
Thank you very much, [inaudible 00:27:35] see you again again.

Janet Pau:
Thank you very much and great to have a conversation with you again, Jini.

Host:
Thank you for listening to Ashurst Business Agenda. We hope you found this episode both worthwhile and insightful. To learn more about our podcast channels, please visit ashurst.com/podcast. To ensure you don't miss future episodes, subscribe now on Apple Podcasts, Spotify, or your favorite podcast platform. While there please feel free to keep the conversation going and leave us a rating or review. Thanks again for listening and goodbye for now.