Notable Developments: US-China Trade War
The US-China trade war reached an inflection point on 24 October 2019, with the two sides agreeing to a ‘phase-one deal’ which will see the suspension of the proposed 25% levy on USD250.0Bn worth of Chinese exports that was proposed in September 2019. However, the United States did not retract the existing 15% levy on c.USD160.0Bn worth of exports poised to take place in December. In addition, the United States denied China’s appeals for the levies to be lifted from Huawei products. In the context of China’s slowing economy, the phase-one deal is a welcome development. As a result of the tariffs, China’s economic growth has been slowing, reaching 6.6% at the close of 2018 and 6.0% by 3Q19, its lowest figure since 1992. In order to combat this, the People’s Bank of China maintained its one-year loan prime rate at 4.2% which is its lowest since 2014 and is a 0.12% decrease from August 2019. Moreover, to increase liquidity, additional monetary measures such as a further lowering of banks’ cash reserve requirements by 0.50%, reaching 13.0% in aggregate, has been implemented. Correspondingly, the United States has also cut rates to add buoyancy to the economy during the trade war. As a result, the United States Federal Reserve cut rates to 2.0%, contracting by 0.25% from July 2019, with banks’ cash reserve requirements remaining steady at 3.0% since October 2016. On balance, the unprecedented monetary easing observed in China and rate cuts in the United States demonstrates the uncertainty that each country has faced as a result of the trade war. Consequently, the phase-one deal is a welcome development to markets, with the S&P 500 gaining 1.4%, the Dow Jones Industrial Average improving by 1.2% and the Nasdaq rising by 1.3% following the phase-one deal announcement on 11 October 2019. However, the continued bull market in the United States has long been skeptical of the impact of the trade war as shown by the S&P 500, Dow Jones Industrial Average and Nasdaq improving 22.7%, 17.7% and 27.1% on the year respectively.
Emerging Asian Economies
Trade outlooks in emerging economies across Asia have received a boost recently, with exports to the United States from the region growing by 10.0% year on year. Two nations were at the forefront of this increase: Vietnam and Bangladesh. Vietnamese exports to the United States swelled by over 30.0% generating a USD39.5Bn trade surplus in August 2019, an increase of USD1.2Bn compared to the previous year. It is thought that a large portion of this growth has been driven by technology products which are now being manufactured or obtained in Vietnam by companies such as Apple and Amazon. This development comes as companies look to move their operations away from China as a consequence of fragmented supplier relationships. In Bangladesh, exports to the United States increased by over 13.0% with a trade surplus of USD4.6Bn as of August 2019. This is a USD0.6Bn increase compared to 2018. Driving this increase has been Bangladesh’s increased control of the textile market, which unlike Chinese products, are not subject to material levies. It is expected that the benefit to national trade will boost each nation’s economy. The Asian Development Bank’s forecasts support this, as Vietnam and Bangladesh are expected to generate a 2.3% increase in GDP by 2020. Overall, the trade war has conferred a significant benefit not only on the health of Vietnam and Bangladesh’s national trade but also their respective economies.
Alibaba AI Development
Alibaba, the prominent Chinese conglomerate with holdings in e-commerce, technology and internet interests, recently revealed that they had completed the development of a neural processing chip, known as the Hanguang 800. It is expected to be implemented in machine learning engagements and is to be used in Alibaba’s e-commerce business to improve efficiency. This development is significant as it assists in driving China’s motivation to develop a domestic computer chip business which was outlined in the Made in China 2025 plan. Behind this motivation is China’s over-reliance on chips produced abroad, many of which are from companies headquartered in the United States. This reliance is represented by the USD227.4Bn trade deficit generated by China solely on the impact of computer chips. In addition, only 16% of the semiconductors used in manufacturing the chips are produced within China. It is hoped that the Hanguang 800 can help transform the domestic chip industry in China and provide an incentive for Chinese businesses to engage in the semiconductor industry.
Focus Industry: Asian Entertainment
With the entertainment industry booming in Asia, it is also emerging as a strong cultural force. In the past, the global entertainment industry was dominated by Western production of content. However, Asia’s cultural richness and diversity are able to support the development of a prominent entertainment industry, especially in film, television and music. A film which exemplifies this is the Asian produced blockbuster film, Dragon Ball Z: Resurrection "F", which earned USD8.1MM in its first two days in Japan, while also grossing USD8.4MM in the United States in just 9 days. This was a record in the domestic market as well as for an Asian film in the United States.
Asia also has the resources and impact to make future blockbusters for the film industry. In 2007, Asia created USD6.5 billion in film industry profits or around 25 percent of the worldwide aggregate. A decade later, this figure has increased 2.6 times to USD16.7 billion, which is c.22.0% of the worldwide total. In contrast to this, the United States film industry profits expanded by a multiple of 1.2 but represents 41 percent of worldwide income.
In television, programs originating in Asia are experiencing increases in both profitability and viewership. Exemplifying this is the South Korean series Descendants of the Sun, which had its streaming rights purchased by Baidu’s video streaming company iQiyi, who reportedly paid USD250.0k per episode for the rights. Upon the programs’ release in China and South Korea, the viewership numbers were strong with over one billion views to date. Further illustrating the increasing popularity of Asian entertainment is Netflix’s purchase of the rights to the program in order to stream it to international audiences.
India is a prominent representative of the Asian entertainment industry. In 2018, the number of Bollywood films created reached its highest ever figure at 1,813, which is nearly double the amount produced by China. By contrast, during 2018 Hollywood only released 814 films. The Indian film industry grossed USD2.1Bn in revenue in 2018 but is forecast to reach USD3.7Bn by 2021. Moreover, revenue earned overseas in 2017, the year India’s prominent film Dangal was released, was USD367.0MM; such strong overseas revenues support the claim that Indian films’ reach is increasing as well as strengthening domestically.
Finally, Asian music has been experiencing a similar growth trajectory. Nowhere is this more prominent than South Korea. In 2018, the countries music industry, driven by the rise of K-pop, experienced revenue growth of 17.9% year on year whereas the global music industry’s revenue grew by 9.7%. More generally, the Asian music industry has recently become the second largest region for both physical and digital music sales. One of the most significant drivers of this has been the success of K-pop group BTS, which was the second most-streamed group on Spotify. Globally, BTS’s albums in 2018 achieved the second and third greatest number of sales, selling 2.7 and 2.3 million units respectively.
On balance, as shown by the above examples, Asian culture is beginning to have a widespread impact across the global entertainment industry. This is especially true of Asian films and music which are rapidly expanding into the Western marketplace. Even within Asia, entertainment products from one Asian nation, such as South Korea’s Descendants of the Sun, have gained massive popularity in other Asian markets. Moreover, as the region’s economies continue to modernise, further increasing their global reach, the Asian entertainment industry could one day rival that of the West.