Major Developments:
Philippines and China vessels involved in a new altercation in the South China Sea.- The Philippines accused China of damaging two Filipino ships with water cannons and ramming.
- The Philippines and China have clashed multiple times over the Scarborough Shoal, which lies within both the Philippines EEZ and China’s “Nine-dash line” claims.
- An international tribunal in 2016 ruled against China’s claims, but China has rejected the verdict and continues to maintain their claim.
- The altercation occurs as the Philippines and the US increase defense cooperation.
Microsoft to invest $1.7 billion in Indonesia for AI and Cloud infrastructure.- Microsoft’s investment will include constructing data centers and the ‘latest and greatest” AI infrastructure.
- Microsoft anticipates training 2.5 million people across Southeast Asia in AI use, including 840,000 in Indonesia.
- Indonesia continues to be an attractive market for large tech investments given its strategic positioning and tech-savvy population.
Southeast Asia continues to cope with a massive heatwave.- Southeast Asia temperature records continue to fall as a massive heatwave continues, also impacting countries in East and South Asia.
- The heatwave has forced schools to close and impacted government services.
- The heatwave has also impacted agriculture, with crop failures reported in Thailand.
- Air conditioning is not widespread throughout the region, increasing the impact and effects of heat on the population.
US and the Philippines considering an agreement on Nickel supply and processing.- The US and the Philippines are believed to be considering a multi-national agreement around nickel supply and processing.
- Southeast Asia is increasingly reliant on China for nickel, a key material in batteries and many renewable energy technologies.
- The Philippines is the world’s second largest producer of nickel, but lacks sufficient processing for its supply, relying on Chinese foundries instead.
Bank Indonesia states they are prepared to do more to shore up the rupiah.- This statement follows signals from the US Fed that it will continue to hold interest rates high, which has weakened currency valuation across Southeast Asia.
- Vietnam and Japan have conducted similar interventions, while the central banks of Malaysia and South Korea have communicated they are prepared to take action as well.
Headlines from around Southeast Asia:
Indonesia may offer dual citizenship to people of Indonesian descent in bid for more skilled workers.Indonesian Volcano eruption on Sulawesi island results in permanent relocation of 10,000.Southeast Asian startup funding drops to a 5 year low.Defense Chiefs from US, Australia, Japan, and the Philippines express commitment to cooperation, urge China to adhere to the rule of law in the South China Sea.Indonesia's growth for Q1 reaches 5.11%, exceeds expectations.
Commerce Bridge Summary of the Week:
The news of this week highlights the geopolitical risks of two separate currents expected to intensify throughout the next decades, namely US-China competition and environmental impacts. This week’s volcanic eruption in the Sulawesi region is the sort of low-probability and high-impact risk that many companies are unlikely to encounter. However, the increasing probability of disruptions tied to climate change, like the ongoing regional heatwave, means that firms need to have plans in place for adapting and mitigating such environmental impacts. As noted in our overview, Southeast Asia lacks widespread air conditioning and severe heat can impact the availability of government services, which could cause major disruptions to operations and workforces based in the region. High heat and humidity could also have a severe impact on tech based industries if proper cooling of, say, data centers can’t be maintained. As unseasonal environmental impacts continue to worsen, companies operating in the region need to anticipate impacts in order to minimize potential disruptions.
The other major geopolitical current in the news this week involved US-China competition. Tensions over the South China Sea remain high, and clashes between Chinese and Filipino vessels remain frequent and provide a significant risk of escalation. China’s behavior within its claimed “9 dash line” has upset many countries in the region, pushing many towards building closer ties with the United States. Meanwhile, as US-China relations have soured, many American companies have sought to “friendshore” aspects of their business from China to more US-friendly countries in Southeast Asia, like Indonesia and the Philippines. US policy towards China has also encouraged a more independent line, trying to create more resilient supply chains for critical minerals (like Filipino nickel) and defense and technology related industries. As the world’s two largest economies continue to try to build influence in the region, companies need to be aware of incentives and risks of investing in critical industries and be aware of diplomatic overtures to investment in certain countries.
