China+1 strategy makes Southeast Asia favourite for diversifying supply chains

Southeast Asia is becoming a top choice for firms looking to diversify production away from China, including Chinese companies, amid escalating tensions between the two major global economies.

The region is benefiting from the “China Plus One” strategy adopted by many manufacturers that seeks to reduce the risks associated with total reliance on China’s market or supply chain through diversifying manufacturing operations, expanding into other countries while still maintaining a presence in China.

“Southeast Asia is well-placed to benefit significantly from the China+1 phenomenon as both foreign and Chinese companies diversify their supply chains and operations,” said Kuo-Yi Lim, co-founder and managing partner of Southeast Asian venture capital firm Monk’s Hill Ventures. “Geopolitical [tensions have] accelerated these activities, which started during the Covid lockdowns.”

The trend has spurred greater investments into the ASEAN bloc. Foreign direct investment (FDI)into the ASEAN economies of Indonesia, Malaysia, Philippines, Thailand, Singapore and Vietnam rose to US$236 billion in 2023 compared with an annual average of US$190 billion between 2020 and 2022, Oversea-Chinese Banking Corp (OCBC) economists reported last month.

The inflows mostly came from the US, Japan, the European Union as well as Mainland China and Hong Kong.

“The ASEAN-6 region has benefited from a diversification of global and regional supply chain as well as the adoption of ‘China+1’ strategies,ʺ the OCBC economists noted. ʺFDIinflows from Mainland China and Hong Kong Special Administrative Region (SAR) into the region have risen, with manufacturing and certain services receiving the bulk of inflows.”

Vietnam has become a key manufacturing location for Apple as the US tech giant seeks to diversify the assembly of its products away from China. Malaysia has seen semiconductor firms including Intel, GlobalFoundries and Infineon setting up or expanding operations in the country in recent years amid US-China tensions.

Indonesia offers vast resources of copper, nickel, cobalt and bauxite needed for the manufacturing of electric vehicle batteries and the Indonesian government has been luring EV companies with incentives to set up local manufacturing bases. Singapore has been “a preeminent destination” for firms looking to set up regional headquarters as well as expand across the region, according to a report by ASEAN Briefing. Chinese companies including TikTok and Shein have set up regional headquarters in Singapore, which is seen as a stable base amid geopolitical volatility.

 

UK Labour government ʺcould borrow more without sparking bond market backlash”

An incoming Labour government on 5 July could raise extra money for UK investment from bond markets without triggering a gilts crisis similar to the one that ended former prime minister Liz Truss’s short-lived premiership in October 2022, fund managers have told the Financial Times.

Shadow chancellor Rachel Reeves has pledged to retain the Conservative government’s commitment that debt as a proportion of gross domestic product (GDP) must be on track to fall in five years if the opposition Labour party wins next Thursday’s election. She also ditched an earlier pledge to spend £28 billion (US$35.4 billion) a year on green investment to underline Labour’s commitment to fiscal responsibility.

But bond investors said the market could be forgiving if a new UK government decided to boost borrowing and amend its debt rules, provided funds were channelled towards measures to stimulate the economy.

“If Labour borrows to invest, markets will not worry about it,” Tom Roderick, portfolio manager at hedge fund firm Trium Capital told the FT. “What markets are more worried about is borrowing to cut taxes, or increase social security payments, which doesn’t sound that likely.”

Labour has regularly reassured markets it will avoid a repeat of Truss’s 2022 “mini” Budget, when a package of £45 billion of unfunded tax cuts triggered a run on the pound and a spike in UK government borrowing costs. 

In an interview with the FT, Reeves emphasised that Labour would focus on growing the economy as “the only way out of this mess”, referring to tax take and borrowing at multi-decade highs. 

“Borrowing more is not an alternative because debt as a share of GDP is the highest it’s been since the 1960s,” said Reeves, adding that taxing more was also “not an alternative because tax is already at a 70-year high”.

Investors broadly expect Reeves to stick to the current plans for net gilt issuance of £216 bilion in the current financial year, the highest on record adjusting for Bank of England sales and purchases.

With Labour enjoying a commanding lead in opinion polls, her fiscal cautiousness has helped the gilt market to remain relatively calm leading up to the election, in contrast to turmoil in French debt sparked by the prospect of a far-right government. Sterling has been the only major developed market currency to hold its value against a rising dollar this year.

However, investors say there is scope for modest increases in borrowing in 2025.

“If the UK were to borrow a little bit more, would it get out of hand? No,” said Ales Koutny, head of international rates at Vanguard. Since the turmoil sparked by Truss subsided, “markets have been quite agnostic about high deficit.”

 

BBVA plans German digital bank launch in 2025

Spain’s second largest bank, Banco Bilbao Vizcaya Argentaria (BBVA), plans to extend its digital banking services to Germany with a focus on expanding its customer base and emulating its recent digital banking launch success in Italy.

Reports state that Bilbao headquartered BBVA has invested heavily in digital banking services in line with key Spanish rival Santander. Both banks have been targeting growth in emerging economies such as Mexico as BBVA struggled traditionally to achieve sustainable income growth in mature markets.

"Logically we are replicating the successful model we have had in Italy in the German market where we hope to have a digital bank by 2025” commented BBVA Espana Country Manager Peio Belausteguigoitia.

The digital model in Italy, BBVA Italia – a market it entered in 2021 – has been a resounding success, and BBVA hopes to expand its customer base to 600,000 in the country by the end of 2024. 

BBVA’s planned German expansion comes after the submission of a US$13.2 billion hostile takeover bid for Sabadell, investing heavily in digital banking services and expanding in emerging markets, such as Mexico. 

A LatAm expansion is something BBVA’s rival, Santander, has also done – as both institutions look to expand customer bases internationally. 

Emerging markets like Mexico have helped BBVA boost income when it has struggled in more mature markets. 

BBVA intends to offload 300 branches in its native Spain, and its move to acquire Sadabell is aimed to further its business banking operations. Sabadell has a significant market position in small and mid-sized lending in Spain, where BBVA now hopes to add 80,000 SME clients by the end of 2024. 

However, its bid to acquire Sabadell is currently opposed by the Spanish government and was rejected by Sabadell’s board – prompting BBVA to plan a direct acquisition attempt via Sadabell’s shareholders. 

Speculation has been mounting that BBVA may look to sell UK high street bank TSB to fund an improved bid for Sadabell. Should its bid – made directly to Sadabell holders – succeed, it’s unclear if BBVA would still plan to offload TSB. 

The group has set itself a minimum Sadabell share approval threshold of 50.01% but says the regulatory takeover approval process could take between six to eight months before a bid can be formally submitted to shareholders.

 

Cashless Sweden “has become a high-crime nation”

Sweden’s growing level of financial crime has attracted fewer headlines than the country’s recent surge in gang-related gun violence, reports Fortune magazine.

It has nonetheless become a growing risk for the Scandinavian country. “Beyond its borders, Sweden is an important test case on fighting cashless crime because it’s gone further on ditching paper money than almost any other country in Europe,” the US business magazine notes.

Online fraud and digital crime in Sweden have surged, with criminals taking kronor (SEK) 1.2 billion (US$110 million) in 2023 through various scams, double the 2021 total. Law-enforcement agencies estimate that the size of Sweden’s criminal economy could amount to as much as 2.5% of the country’s gross domestic product (GDP).

To counter the digital crime spree, Swedish authorities have put pressure on banks to tighten security measures and deter tech-savvy criminals, but it’s a delicate balancing act. Going too far could slow down the economy, while doing too little erodes trust and damages legitimate businesses in the process. 

Using complex webs of fake companies and forging documents to gain access to Sweden’s welfare system, sophisticated fraudsters have made Sweden a “Silicon Valley for criminal entrepreneurship,” said Daniel Larson, a senior economic crime prosecutor.

While the shock of armed violence has grabbed public attention — the nation’s gun-homicide rate tripled between 2012 and 2022 — economic crime underlies gang activity and needs to be tackled as aggressively, he added.

“That has been a strategic mistake,” Larson said. “This profit-generating crime is what’s fuelling organized crime and, in some cases, leads to these conflicts.”

Sweden’s switch to electronic cash started after a surge of armed robberies in the 1990s, and by 2022, only 8% of Swedes said they had used cash for their latest purchase, according to a central bank survey. Along with neighbouring Norway, Sweden has Europe’s lowest number of ATMs per capita, according to the IMF.

The prevalence of BankID play a role in Sweden’s vulnerability. The system works like an online signature. If used, it’s considered a done deal and the transaction gets executed immediately. It was designed by Sweden’s banks to make electronic payments even quicker and easier than handing over a stack of bills. 

Since its original rollout in 2001, it’s become part of the everyday Swedish life. On average, the service — which requires a six-digit code, a fingerprint or a face scan for authentication — is used more than twice a day by every adult Swede and is involved in everything from filing tax returns to paying for bus tickets. 

Originally intended as a product by banks for their customers, its use exploded in 2005 after Sweden’s tax agency adopted the technology as an identification for tax returns, giving it the government’s official seal of approval. The launch of BankID on mobile phones in 2010 increased usage even further, along with public perception that associated cash with criminality. 

The country’s central bank has acknowledged that some of those connotations may have gone too far. “We have to be very clear that there are still honest people using cash,” Riksbank Governor Erik Thedeen told Bloomberg.

BankID is controlled by a consortium of the country’s private lenders, including Swedbank AB, SEB AB and Svenska Handelsbanken AB. A number of changes have been implemented to improve its security, as the government investigates the prospects of offering a state-issued digital ID.

 

China wants Visa and Mastercard to reduce bank card transaction fees

China is pushing for Visa and Mastercard to lower their bank card transaction fees in the country to encourage spending by foreign visitors, according to reports citing an inside source.

The Payment & Clearing Association of China (PCAC) is proposing lowering the fees charged on foreign card transactions to 1.5% from between 2% and 3%.

If implemented, the proposal could cut costs for foreign nationals visiting China. While merchants bear the fees charged by Visa and Mastercard, they often pass these on to their customers through price hikes.

Regulators worldwide have attempted to rein in the fees Visa and Mastercard charge merchants for processing transactions. Earlier this year, the duo reached one of the largest settlements in US history to limit credit and debit card fees. But a New York judge has indicated she would reject the agreement that would have ended longstanding litigation in the US over the fees.

Mastercard told Bloomberg it had received PCAC’s proposal and would work with partners to lower costs for local merchants accepting foreign bank cards.

 

Santander and Amazon negotiate EU consumer finance partnership

Spain’s Banco Santander and Amazon are reportedly close to reaching a deal in which the bank would provide financing options for Amazon shoppers across the Europe Union (EU).

Unnamed sources confirm that negotiations between the companies are at an advanced stage. If a deal is reached, the consumer finance partnership will be launched in Germany and then expanded to other European countries, according to the report.

Santander has previously said that it aims to grow its digital consumer finance business by signing deals with global tech companies.

Partnerships like these allow consumers to access loans to finance their purchase at checkout, and they enable retailers to sell products that customers may not be able to afford otherwise, per the report.

This report comes days after Santander said that its digital consumer finance platform Zinia became the provider of consumer finance services for Apple in Germany, both in physical stores and at apple.de.

With this agreement, Zinia will offer Apple customers the option to defer payments by splitting the total amount into instalments or by deferring the payment 30 days after shipment or in-store pickup.

The sign-up takes seconds, and the experience is “agile, intuitive and secure,” the bank said.

 

 

ABN Amro nears deal to buy HSBC’s German private bank

ABN Amro is seeking to further expand in Germany and is concluding a deal to acquire HSBC's wealth management unit in the country, newspaper Boersenzeitung reported, without specifying its sources.

The Dutch bank’s takeover of the business, formerly known as Trinkaus & Burkhardt, could be announced over the next two to three weeks, the paper said

The transaction would extend ABN Amro's foray into Germany, Europe's largest wealth management market, after it last month signed a deal to buy Fosun's private bank Hauck Aufhaeuser Lampe for €672 million (US$730 million).

The addition of HSBC's German private bank would boost ABN Amro's assets under management by €26 billion from about €70 billion, the report added.

ABN said it is fully focused on the addition of Hauck Aufhaeuser Lampe and on seeking regulatory approval for it, declining to comment further.

HSBC is seeking to further overhaul its German operations according to inside sources and has attracted State Street, BNP Paribas and Caceis as potential bidders for its fund administration unit INKA and custody business.

 

Standard Chartered building a spot trading desk for bitcoin

Standard Chartered is reported to be setting up a spot trading desk for buying and selling bitcoin and ether.

The new London-based desk will start operations soon and be part of the bank's FX trading unit, Standard Chartered confirmed. The news was first reported by Bloomberg, citing people familiar the matter.

Standard Chartered would become one of the first global banks to enter spot cryptocurrency trading, although others have been trading crypto derivatives for several years.

ʺWe have been working closely with our regulators to support demand from our institutional clients to trade Bitcoin and Ethereum, in line with our strategy to support clients across the wider digital asset ecosystem, from access and custody to tokenization and interoperability,” Standard Chartered said in an emailed statement.

The group’s involvement in cryptocurrency is now well established, as a backer of digital asset custodian Zodia Custody and its exchange arm Zodia Markets.

 

Open banking ʺcould be a mainstream payment method within five yearsʺ

Global payment service provider and acquirer emerchantpay reports that there is strong market potential for merchants who prioritise the adoption of open banking payments early in their payment strategies.

The firm’s survey of UK consumers found that one in two people are unknowingly using this payment method during checkout, with 51% of the UK population unfamiliar with the term ‘open banking’.

Once consumers were informed about what open banking was, 45% of respondents that had not heard of the term claimed they had in fact used open banking for purchases. This suggests that although the term is not widely recognised, but open banking payments are actively being used by consumers. Of those who had heard of it, usage increased significantly to 58%, indicating that, once understood, consumers are eager to use open banking solutions.

The outlook for open banking is also positive, with 19% of respondents saying that they will use open banking more frequently in five years’ time. This compares to 14% saying the same for Buy Now Pay Later (BNPL) and 7% for crypto. Merchants in many sectors can leverage the opportunities of open banking, with 44% of respondents saying they would use it for online retail, 36% for utility bills, 34% for hotels, 30% for airline tickets, and 25% for online subscriptions.

Younger consumers demonstrated more awareness of open banking, with 25–34-year-olds most likely to have heard of it (45%).