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[Analytics] Ill ease of doing business rising across Asia

People walk at an office building at a business district in Tokyo, Japan, February 29, 2016. REUTERS/Yuya Shino/File Photo

Pan Pacific Agency | COMMUICATION AGENCY FOR PACIFICA REGIONS

Asian governments appear increasingly reluctant to implement the kind of pro-business reforms that could help offset slowing economic growth and other debilitating impacts of the US-China trade war. Simon Roughneen specially for the Asia Times.

The World Bank’s latest “Doing Business” survey, a comparative global measure of countries’ business environments, shows the number of “business climate-enhancing” reforms implemented in East Asia and the Pacific fell by a quarter over the 12 months through May this year compared with the previous year.

Referring to the region, the World Bank’s survey said “the overall pace of reforms slowed.” The Doing Business survey released last week compiles 11 criteria ranging from electricity access to labor market rules that it sees as crucial to the commercial success of small and medium-sized enterprises.

The survey does not take into account wider issues such as national financial systems, macroeconomic policies or perceptions of political stability.

A quarter of the pro-business reforms accounted for across the region were undertaken in China alone, the survey shows. Beijing is scrambling to offset the impact of the US government’s tariff hikes on Chinese goods and attempts to curb the reach of technology powerhouses such as Huawei.

Outside of China, Myanmar and Indonesia, two countries seemingly eager to attract more foreign investment that in the past typically went to nearby Thailand and Malaysia, carried out another third of the region’s business reforms between them.

However, pro-business moves such as Myanmar’s new online business registration platform were not enough to lift what was once a synonym for economic isolation above war-ravaged Iraq on the World Bank’s rankings.

The rest of the region, meanwhile, implemented only a handful of the kind of laws that might make commercial life easier for business bosses wary of the next US-China trade war salvo, despite a current wave of optimism that a first phase deal may be achieved by years-end.

Last week, Joko Widodo, the recently re-elected president of Indonesia, one of the more reform-inclined countries according to the survey, announced a new cabinet line-up that sent mixed signals about whether his second term would push more or less business and investor-friendly reforms.

Some of the recent changes noted by the World Bank, such as enhancing online processing of export customs declarations, a smoothing-out that “reduc[es] border compliance time for exporting by seven hours” could help offset Indonesia’s reputation for time-consuming bureaucracy and sticky red tape.

But while Widodo named young businessman Nadiem Makarim, co-founder of ride-hailing app Go-Jek, as his new education minister, EurasiaGroup, a US-based political risk consultancy, noted that the president’s right-hand man Luhut Pandjaitan has been given oversight of investment after the departure of investment board head Thomas Lembong – personnel changes that do not “bode well for significant foreign investment liberalization.”

Widely touted as the regional country that has benefitted the most from the US-China trade war, Vietnam did little by way of business reform over the past year and remains a mid-table 69th on the World Bank’s list.

Nonetheless, most assessments predict that the communist-run single party state will continue attracting investment, including factories fleeing China due to the trade war, and growing at around 6-7% a year for the foreseeable future.

While wheel-greasing deregulation or one-click permit portals are not necessarily antidotes to wider ease of doing business concerns, making life easier for the private sector can only benefit the region’s economies, even at the best of times.

“Improving the business environment is always in the best interests of a country, regardless of the external factors taking place,” said Gareth Leather of UK-based Capital Economics.

While three of the world’s top five countries for doing business are Asian, namely Singapore, Hong Kong and South Korea, only two others, Taiwan and Malaysia, make the World Bank’s global top 25.

That, business executives and analysts say, points to imbalances across an East Asia region that has been the world’s growth fulcrum over the last two decades faced with slow-to-absent gross domestic product (GDP) expansion across Europe, Japan and North America.

While the Doing Business 2020 report said Asia outdoes developed countries in certain areas, it lags in others.

The survey gave the example that in Asia it takes 12 days or less on average to connect a new warehouse to a country’s power grid, compared with the average of 75 days across the Organization for Economic Cooperation and Development (OECD), a grouping of wealthy economies.

But the survey also warned that the East Asia and Pacific region “still underperforms in several areas, such as contract enforcement” while the World Bank’s tally suggested that only 33 business-friendly reforms were enacted across the entire region during the May 2018-19 period.

This torpor could be a reaction to the flux caused by the China-US stand-off, as demand from China stalls and concerns linger about the potential for protectionism to spread across the region.

“Reforms that ease the cost of doing business are usually sidelined during periods of economic turbulence or uncertainty,” said Jayant Menon, lead economist at the Asian Development Bank, a Manila-based regional lender.

“Weakening global demand, including from China, and heightened uncertainty around ongoing US-China trade tensions has led to a decline in exports and investment growth, testing the resilience of the region,” the World Bank noted earlier in October.

Around the same time, ING Economics, a research outfit linked to Dutch bank ING, envisaged that “concerns about an economic recession” could intensify in Asia while citing a “tense” US-China relationship and a near two-decade low in Chinese industrial production growth.

Lower growth in China, the biggest trade partner for most Southeast Asian countries, could offset any Vietnam-driven gains accrued from the trade war, noted bank HSBC in an October 14 report.

“[E]ven if supply-chain rejigging may lead to marginal gains for some economies as they displace Chinese exports to the US, the region is highly exposed to slowing demand in China as well.”

Although enacting pro-business reforms might on the surface seem like the logical response to these external headwinds, uncertainty can, it seems, have the opposite effect, leading to stasis or vacillation among lawmakers and officials.

“Since these reforms usually involve short-term adjustment pains in return for long-term benefits, there is a tendency to put them off while trying to bolster more immediate returns,” Menon said.

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