Pesek's View From Asia
Good morning, everyone. Here's my take on some of the stories driving the debate in politics, finance and social issues across Asia today:
China’s manufacturing unexpectedly strengthened, sparking hopes its economic slowdown has already run its course.
Let's not get too excited about the July rise in the Purchasing Managers’ Index to 50.3, which beat the median forecast for a 49.8 reading and June’s 50.1 level. Expect downside surprises to far outnumber the occasional positive one. Those cheered by a single manufacturing reading forget China can't escape gravity. Its investment- and export-heavy economy will lose altitude until Beijing finds healthier growth sources that increase incomes, get households to spend more and encourage companies to create new and innovative goods and services. China's slowdown has only just begun.
Asian markets cheered as the Federal Reserve maintained its quantitative easing program.
Economies in the world's most dynamic region have a schizophrenic take on Fed Chairman Ben Bernanke's massive bond-buying scheme. At first, they hated the waves of hot money it sent Asia's way, which fanned asset bubbles and inflation. Now, Asian leaders worry the tapering process will starve economies of investment flows. The key is for Asia to be ready for that inevitability. That means central banks standing prepared to add liquidity to keep credit lines open and governments ready to deploy fiscal-policy levers. In extreme cases, even capital controls. For now, though, Asia investors are basking in the glow of Bernanke's largess.
Taro Aso, Japan's deputy prime minister, seemed to suggest that Tokyo could learn from Nazi Germany when it comes to constitutional reform, drawing rebukes from around the globe.
Even for the gaffe-prone Aso, this was a shocker. Aso and his spokespeople spent the day trying to explain away his comments to a conservative think tank. But there's no finessing a public suggestion that Japan should rewrite its pacifist post-war constitution on the stealth, as Weimar Germany supposedly did (a disputable point in itself). It's an ill-timed reminder that Prime Minister Shinzo Abe's endgame may be more about correcting wrongs he believes were perpetrated against Japan decades ago than ending deflation. Aso, after all, is also Abe's finance minister. When Japan's top economic policy maker is lost in the weeds of Nazi history, he's not tending to the restructuring that voters and investors demand.
At least six major airlines are launching direct flights to Jakarta, underscoring the rising confidence in the trajectory of Indonesia's economy.
British Airways, Oman Air, Egypt Air and others say they'll begin direct flights by year end. The political stability fostered by President Susilo Bambang Yudhoyono is trumping concerns about bad infrastructure, inefficiency and corruption. Indonesia welcomed 72.6 million air travelers in 2012, a nearly 15 percent jump from 2011. This year may see as many as 83 million passengers. Not too shabby for a nation that looked bound for basket-case status 10 years ago.
Singapore’s state-owned investment company hired Robert Zoellick to its board as it looks to open its first office in the U.S.
As shrewd investments go, the one savvy market-timer Temasek Holdings is making in the former World Bank president and Goldman Sachs alumnus is a standout. What's more, it may say more about the U.S. economy than Singapore's. Sure, Singapore wants Zoellick's connections; he served as U.S. trade representative in 2001 to 2005, during which America signed a free-trade agreement with Singapore, its first in Asia. But this is also a sign that cash-rich Singapore sees the U.S. economy as a buy. It could be the harbinger of increased Asian investment for which the U.S. has been hoping for years.
(William Pesek is a Bloomberg View columnist. Follow him on Twitter.)