Another notable development is the Regional Comprehensive Economic
Partnership (RCEP), a free trade agreement between the ten ASEAN
countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam) together with six partners
(Australia, China, India, Japan, South Korea and New Zealand). The
agreement, which could incorporate 3.4 billion people and 30% of global
trade, is intended to lower trade barriers and improve market access for
goods and services for Asian businesses.
In addition to the RCEP, Sharma notes that Asia as a whole “will
benefit from the region’s collective efforts to further liberalise
trade, which also include the economic integration of ASEAN and the
pending ratification of the CPTPP”.
Likewise, Vivek Gupta, Head of Trade and Supply Chain for Greater
China and North Asia at ANZ notes that a number of regulator-sponsored
trade-related initiatives are progressing well, including the Hong Kong
Monetary Authority (HKMA) sponsored Trade Finance Blockchain Project set
to go live in the fourth quarter of 2018, the Singapore National Trade
Platform (NTP) and the Global Trade and Connectivity Network (GTCN)
project which is jointly sponsored by the HKMA and the Monetary
Authority of Singapore (MAS).
Alongside these initiatives, there may be space for some of the less
prominent players in the region to make headway in intra-regional trade.
“In the last couple of years, we’ve seen the gradual movement away from
‘Made in China’,” comments Aziz Parvez, head of Trade and Supply Chain
Finance, Asia Pacific, Global Transaction Services at Bank of America
Merrill Lynch. “Benefiting from lower labour costs, land and resources,
businesses – particularly consumption-driven industries – are relocating
their manufacturing centres into ASEAN and South Asia.”
Parvez notes that manufacturing is increasingly tilting towards
countries such as Vietnam, Indonesia, India, Sri Lanka and Bangladesh.
“Evolving patterns of consumption in Asia are also altering existing
supply chain designs,” he observes. “We are seeing the emergence of
Asian economies being major consumers of industrial and commercial
goods. The above developments, combined with changes that may occur if
the trade dispute extends, would require businesses to closely partner
with their banks as they look to rework their supply chains.”
That’s not to say that the big players will be falling by the
wayside. Agatha Lee, Head of Global Trade and Loan Products for Asia
Pacific at J.P. Morgan predicts that traditionally strong contributors –
namely China, Korea and Japan – will maintain their stronghold on
intra-Asia trade. “Not only have Japanese, Korean and Chinese corporates
evolved into MNCs, expanding their manufacturing outside home markets
starting with APAC countries, there has also been increasing demand for
‘made-in’ Japan, Korea and China goods across the region,” she explains.
“But the rising stars are the fast-growing ASEAN economies – the likes
of Vietnam, Cambodia, Philippines and Indonesia – which have seen a
significant uptick in the production and exports of consumer items
including clothing, electronics, perishables and general goods to the
Challenges and headwinds
Alongside these opportunities, there are also a number of challenges
for companies operating in this environment. “Consumption economies in
Asia tend to be heterogeneous and diversified,” comments Rakshith
Kundha, head of Trade and Supply Chain Solutions, South East Asia and
India, Global Transaction Services at Bank of America Merrill Lynch.
“Apart from different rules, legal constructs and regulations, each
differs in its consumption preferences, language and market practices.”
He notes that companies need to navigate different financial markets
with varied rates of financing, as well as dealing with a larger number
of currencies – and, consequently, increasingly complex foreign exchange
Trade costs can also be an obstacle for trade within the region. “The
UN reports that average intra-Asian trade costs, excluding tariffs, can
range from 51% to 130% of the value of the goods, depending on the
source and destination,” notes Sharma, adding that intra-EU represents
‘best practice’ as trade costs are 42%.
Looking ahead, ANZ’s Gupta cites several headwinds affecting trade
finance in the region. These include the possibility of US and China
tariffs reducing demand down the line as costs to the ultimate consumer
increase, as well as the depreciation of emerging market currencies and
the possibility of rising domestic interest rates as emerging market
central banks increase their interest rates.
This could lead to higher working capital costs for companies and
their supply chains, alongside potential long-term structural impact of
tariffs on supply chains. Gupta also cites the prospect of “rapid
regulatory changes in Asian countries impacting access to trade
finance”, and the resulting importance of remaining close to key trade
But alongside these challenges, trade barriers arising from
protectionism can sometimes have a different effect. J.P. Morgan’s Lee
observes that protectionist measures “sometimes have the potential to
bring trading partners closer, and in turn drive more intra-regional
activity”. She notes that an agribusiness conglomerate significantly
boosted shipments from Australia to China earlier this year after
Beijing imposed tariffs on US agricultural products, adding: “We expect
similar such activities, which would bolster regional trade.”
Lee notes that other factors can act as a barrier to intra-Asia
trade. She notes that World Bank figures show that South Asia’s rate of
intra-regional trade remains among the lowest in the world. She also
notes that a lack of funding options can inhibit trade in developing
markets. “In markets like Cambodia, Myanmar and Laos, local financing
can be challenging given their less developed financial infrastructure,”
How can treasurers help?
As treasurers take on an increasingly strategic role within their
organisations, there is much that they can do to support their
companies’ trading activities in this environment. First and foremost,
it is important to understand that strategies that may be effective in
other regions are not always suitable in Asia.
“Given the different regulatory and legal constructs in various Asian
markets, treasurers would need to plan carefully for future growth,”
comments Bank of America Merrill Lynch’s Kundha. “A model geared towards
centralisation of cash flow, procurement and sales may bring tremendous
efficiencies in open markets, but may not always work across
In addition, there are a number of other ways in which treasurers can support their organisations in this climate:
Understand procurement patterns.
Kundha advises that treasurers should consider current
procurement and sales patterns, taking into account factors such as the
locations of shared service centres and pool headers, the technology
solutions deployed and the entities through which sales are routed.
Lee points out that contingency planning is key in this
environment: “Treasurers will be relied upon to take a holistic view and
ensure the business is well-prepared regardless of scenarios and
outcomes,” she says, adding that strategies around FX hedging, cash flow
forecasting, risk mitigation and ensuring sufficient credit and funding
“will be critical”.
Staying close to regulators.
Lee also notes the importance of staying close to regulators.
“Maintaining frequent and open dialogues with regulators will be key to
ensuring clear understanding of government’s objectives around trade
policy changes that impact corporates, and for both sides to work
towards a mutual solution,” she says.
Leverage supply chain finance.
Kundha points out that supply chain finance “can be an important
tool to ensure funding across a physical supply chain that is spread
over several geographies”. And Gupta notes that some fintechs are now
offering niche supply chain finance (SCF) solutions, which have the
potential to accelerate supplier onboarding and the fuller utilisation
of SCF programmes.
Engage with the industry.
Lee observes that engaging with industry organisations, forums
and conferences can help treasurers keep abreast of best practices and
gain insights from their peers.
Work with the right banks.
Also important is choosing banking partners which have detailed
knowledge of the relevant local markets, from business culture to the
regulatory climate, and taking advantage of their support.
Looking to the future
Predicting the future is never straightforward, but it seems likely
that initiatives currently under way could play an important role in
reshaping Asia’s trade patterns in the future. “We see increasing
engagement among the Asian governments to intensify the economic
integration; the proposed free trade agreement between ASEAN member
states, or Regional Comprehensive Economic Partnership (RCEP), is a good
example,” comments Lee. “This should help boost to intra-Asia trade
volumes going forward.”
Parvez, likewise, predicts that intra-Asia trade is set to grow,
supported by initiatives such as the CPTPP. “Supply chains will continue
to shift, given lower cost manufacturing locations and new centres of
consumption,” he says. “Apart from large corporates, both Asian and
global, who will look to manufacture and sell within Asia, we are also
likely to see a lot of activity in the MME space.”
In the meantime, Parvez notes that there is already a high volume of
manufactured goods coming from the Chinese MME segment to different
Asian markets. “While they clearly have the advantage of scale, we may
in future see some of them also shifting manufacturing bases, a trend
already playing out in the large corporate space,” he concludes.