20/06/2016 Asia Business Report


20/06/2016

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Now on BBC News: All the latest business news live from Singapore.

:00:00.:00:14.

No second term. India's central-bank chief will step down in September

:00:15.:00:23.

after serving out 14 year term. And there is a long list of potential

:00:24.:00:27.

candidates to replace him. And the countdown is on to a crucial vote on

:00:28.:00:37.

Thursday. What would Brexit mean for Japanese countries doing business in

:00:38.:00:43.

the UK? Welcome to Asia Business Report, with me, Mariko Oi, in

:00:44.:00:49.

Singapore. He is one of the most outspoken and colourful of central

:00:50.:00:54.

bankers, at the head of the Reserve Bank of India, Raghuram Rajan, is

:00:55.:00:58.

leaving the post. There had been plenty of speculation about his

:00:59.:01:01.

future, and last weekend he announced he would not be signing up

:01:02.:01:03.

for a second term when his contract ends in September. Our correspondent

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has more from Mumbai. Raghuram Rajan's decision to leave the

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Reserve Bank of India has become a big talking point. He was the -- he

:01:15.:01:24.

announced his retirement over the weekend. He took office three years

:01:25.:01:28.

ago. And now his departure has thrown up lots of questions.

:01:29.:01:36.

Raghuram Rajan has said he had been opened to the idea of continuing,

:01:37.:01:40.

but took the decision after due reflection and consultation with the

:01:41.:01:45.

government. Those comments will certainly increase suspicion in some

:01:46.:01:51.

camps that he was told he was to go. He had plenty of public detractors.

:01:52.:01:54.

Some politicians and business leaders say that interest rates have

:01:55.:01:58.

not come down fast enough, and there have been personal attacks as well,

:01:59.:02:02.

including from a senior leader from the ruling BJP. While most central

:02:03.:02:11.

bankers refer -- prefer to stay low profile, Raghuram Rajan rarely did.

:02:12.:02:15.

He called for tolerance after a Muslim was lynched for allegedly

:02:16.:02:18.

eating beef and while India is the fastest-growing economy in the

:02:19.:02:21.

world, with GDP growing at around eight cents, he has cast doubt over

:02:22.:02:28.

the reliability of those numbers. Whether he walked or was pushed,

:02:29.:02:34.

Raghuram Rajan's departure will be damaging for India at least in the

:02:35.:02:37.

short term. He was seen as truly independent of the government and

:02:38.:02:40.

that is something that helped him win the confidence of both domestic

:02:41.:02:44.

and global investors. Pretty important at a time when investments

:02:45.:02:49.

are so crucial for India's economic growth, and most expect India's

:02:50.:02:54.

markets, which are already pretty volatile, to tumble when they open

:02:55.:03:00.

on Monday. Seven or eight names are already being discussed as possible

:03:01.:03:04.

replacements, but whoever gets the job will have to stay confidently --

:03:05.:03:09.

stay confidently why they are better at the job than Raghuram Rajan and

:03:10.:03:13.

what they would do differently. As for the man himself is back to the

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University of Chicago for now. But he has often been talked about as a

:03:17.:03:20.

possible head of the International Monetary Fund, an organisation where

:03:21.:03:24.

he was once the chief economist. While that job is not available

:03:25.:03:28.

right now, that is one that would be difficult for him to turn down if

:03:29.:03:35.

offered in the future. We will be analysing the impact of Raghuram

:03:36.:03:42.

Rajan's decision to step down as central bank of India Governor

:03:43.:03:49.

later. In other news:, the Chinese president Xi Jinping has arrived in

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Poland as part of a three nation tour aimed at strengthening ties

:03:53.:03:56.

between China and Europe. The Chinese president will be meeting

:03:57.:03:59.

with his counterpart in Warsaw as well as the country's Prime

:04:00.:04:03.

Minister. The two sides are expected to sign agreements in areas such as

:04:04.:04:07.

finance, civil aviation and migration. Bilateral trade between

:04:08.:04:12.

China and Poland reached $17 billion last year. Before Poland, Xi Jinping

:04:13.:04:16.

was in Serbia and will be having to Uzbekistan next. The strong Japanese

:04:17.:04:23.

currency, the yen, is curbing demand for its exports, as data this

:04:24.:04:27.

morning showed an 11% drop for the month of May compared to the same

:04:28.:04:31.

period last year. Week demand from emerging markets was also cited as

:04:32.:04:36.

one reason for the dip. Meanwhile, imports also slowed, falling by

:04:37.:04:40.

nearly 14%. The latest trade figures leave Japan with a deficit amounting

:04:41.:04:47.

to $390 million. Staying with a pan, because more than 1000 Japanese

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countries have operations in the UK, including heavyweights such as

:04:51.:04:56.

medicine and the touchy, and these companies have more than 100,000

:04:57.:04:59.

employees working for them all over the country -- Nissan. So as a

:05:00.:05:03.

result a lot of attention as you can imagine on a major vote taking place

:05:04.:05:07.

on Thursday over whether Britain will stay or leave the European

:05:08.:05:11.

Union. The preferred choice from the Japanese side, as it seems, is for

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Britain to remain in the EU. Let's hear what some of the business

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leaders told the BBC ahead of the vote. If Brexit is agreed, it would

:05:20.:05:30.

have a significant, serious impact on the global economy. TRANSLATION:

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Hitachi has been investing in the UK's infrastructure and nuclear

:05:36.:05:37.

industries, because the UK as part of the EU, so I oppose Brexit. At

:05:38.:05:44.

the UK end up leaving the European Union, it will most likely lead to a

:05:45.:05:47.

major shakeup for businesses. Earlier I spoke to Simon Black from

:05:48.:05:54.

Tokyo. He has been advising clients about the upcoming referendum. Japan

:05:55.:05:57.

is the number-1 investor in the UK outside the US, foreign investor,

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and the access to the single market is a huge factor why Japanese

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businesses have established themselves in the UK. But beyond the

:06:08.:06:12.

relationship with the single market, it is the economic and political

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uncertainty I think that the Brexit vote would trigger that is a major

:06:17.:06:20.

concern for Japanese businesses. So tell us, how would it affect you,

:06:21.:06:26.

should the Brexit happen, how would it affect business operations for

:06:27.:06:30.

Japanese companies, assuming that many of them have their European

:06:31.:06:34.

headquarters in London? Well, I think for existing operations there

:06:35.:06:39.

will be probably a limited initial impact, and companies will assess

:06:40.:06:46.

the post Brexit scenario and there are various options that could play

:06:47.:06:50.

out. And I think Japanese businesses will take their time to assess the

:06:51.:06:54.

situation. They will want the best access to information, they will

:06:55.:06:58.

want to engage in some lobbying but I think it is really for new

:06:59.:07:01.

investment that there will be the major initial impact, because there

:07:02.:07:05.

is going to be uncertainty and for new investment they are going to

:07:06.:07:08.

have a higher hurdle to jump over, if you like. But I don't expect that

:07:09.:07:13.

the Japanese businesses will make very dramatic changes initially. I

:07:14.:07:18.

think they will let the scenarios play out, they will analyse it.

:07:19.:07:24.

There are many reasons why company headquarters would be in London,

:07:25.:07:29.

access to the market is one, the city of London is another, the

:07:30.:07:32.

attractiveness of employment opportunities, all of those things

:07:33.:07:35.

are major reasons why the Japanese have chosen the UK and they are not

:07:36.:07:41.

necessarily initially affected by Brexit. Of course, Japan is not the

:07:42.:07:46.

only country with corporate interest in the UK. Other Asian economies

:07:47.:07:49.

would also be affected should the UK leave the European Union. In fact,

:07:50.:07:53.

we're already seeing some impact on region's currency. Earlier I spoke

:07:54.:08:00.

with someone who specialises in Asia-Pacific currencies. Well, if

:08:01.:08:05.

the UK wants to leave the European Union we will see a spike in global

:08:06.:08:10.

risk aversion and high volatility. So in terms of other currencies in

:08:11.:08:14.

Asia, I currencies such as the Korean, the Indonesian, and the

:08:15.:08:20.

Malaysian will likely depreciate against the US dollar more than the

:08:21.:08:23.

others and the reason for that is that South Korea is one of the most

:08:24.:08:27.

open economies in Asia. So therefore there are currency tends to put

:08:28.:08:32.

reflect market sentiment more closely. -- tends to reflect. In

:08:33.:08:37.

terms of Malaysia and Indonesia are those countries have higher levels

:08:38.:08:41.

of government debt so a spike in risk aversion would mean capital

:08:42.:08:45.

would flow out of these markets more than the others. There has been a

:08:46.:08:49.

lot of uncertainty in the markets, not just the Brexit but also the

:08:50.:08:55.

Federal Reserve, the US central bank's interest rates. What have

:08:56.:08:58.

been the major factors? Well, I think the Fed seems more cautious

:08:59.:09:05.

now. And I don't think a rate hike is imminent so therefore it is going

:09:06.:09:09.

to be interesting to see how this plays out. If we see the UK, for

:09:10.:09:14.

example, voting to stay in the European Union, I could see a spike

:09:15.:09:20.

in risk appetite globally. And therefore, in that kind of

:09:21.:09:23.

environment I don't think there is any reason for the yen to continue

:09:24.:09:26.

to strengthen and vice-versa, of course, as well. In this rather

:09:27.:09:34.

volatile market, are you seeing any countries, any currency is actually

:09:35.:09:40.

having a positive? That is a good question. I think in the medium term

:09:41.:09:44.

India has the ability to surprise on the positive side. And the reason

:09:45.:09:48.

for that is that the economy is less export-oriented than its regional

:09:49.:09:52.

peers. So therefore domestic policy-making can have a big impact

:09:53.:09:57.

on the country's economic prospects. Us we had the central bank governor

:09:58.:10:00.

announcing that he would step down. Do you think that would have an

:10:01.:10:07.

impact? Well, India now enjoys high policy credibility and has a strong

:10:08.:10:11.

monetary policy framework. So regardless of who becomes the next

:10:12.:10:15.

governor, I would expect policy continuity in India. Let's take a

:10:16.:10:20.

quick look at markets before we go, because Japan and Australia have

:10:21.:10:23.

started trading for the week and they are actually higher. The UK up

:10:24.:10:28.

by more than 2% but that is after losing some 6% last week because

:10:29.:10:32.

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