US, South Korea finalise new trade and defence deal | East Asia Tonight (Nov 14)

Key Concepts

South Korea-US Defense and Trade Deal: Includes authorization for South Korea to build nuclear-powered attack submarines, significant South Korean investment in the US, and reduced US tariffs on South Korean goods.
Taiwan Strait Tensions: China's warning to Japan against intervention over Taiwan, and Japan's stance on its position.
Chinese Space Program: Safe return of Chinese astronauts after a delay due to space debris damage to their original spacecraft.
Chinese Economy: Signs of weakness, including declining investment and sluggish consumer and industrial sectors, impacting the GDP growth target.
China's Fight Against Desertification: Technological solutions like drones for seeding and solar farms.
Japan's Beauty Standards: Redefined by "Muscle Girls" at a Tokyo fitness-themed bar.
Battery Technology Race: China's dominance and the US's lag in manufacturing and supply chain.
Myanmar's Power Crisis: Increased reliance on solar power due to electricity supply deterioration.
South Korean Climate Lawsuit: Farmers suing KEPCO for alleged contribution to climate change and crop damage.

South Korea-US Defense and Trade Deal

South Korea and the United States have finalized a new defense and trade deal. Key aspects include:

Nuclear-Powered Submarines: Washington has authorized Seoul to build nuclear-powered attack submarines. This marks the first time this has appeared in an official bilateral document. The US will cooperate on the "most sensitive part of this program," which is the nuclear fuel, endorsing South Korea's expansion of rights to enrich uranium and reprocess spent fuel. However, details regarding the quantity of uranium enrichment and the exact location of submarine construction remain unclear. South Korea anticipates the first submarine could take years to be ready.
Economic Investments: South Korea will invest $150 billion in the US shipbuilding industry and commit a further $200 billion under a memorandum of understanding.
Artificial Intelligence: The partnership includes a joint program on artificial intelligence.
Trade: The deal lowers US tariffs on South Korean goods, including cars and auto parts, from 25% to 15%. This tariff reduction is retroactive to November 1st, once the agreement is finalized and the $350 billion Korean investment package is submitted to parliament.
Reaction in South Korea: The reaction is mixed. There is relief that an agreement has been reached, but also concerns from the opposition People Power Party regarding the scale of the $350 billion investment. They also note that while the 15% tariff on automobiles places South Korea on par with Japan, it is still high compared to the zero tariffs South Korea previously enjoyed under the bilateral free trade agreement since 2016.

China-Japan Diplomatic Spat Over Taiwan

A week-long spat between China and Japan has escalated following remarks by Japanese Prime Minister Sanae Takayichi regarding Taiwan.

China's Warning: Beijing has warned Japan that it would suffer a "crushing defeat" if it intervened over Taiwan. This warning was issued after China summoned Japan's ambassador.
Japan's Position: Japan has urged China to respond appropriately and reiterated that its position on Taiwan remains unchanged. Prime Minister Takayichi suggested that if China attacked Taiwan and a cross-strait conflict ensued, Japan could respond and deploy its military.
Heated Exchanges: Both sides have lodged protests. China's consul general in Osaka made comments interpreted as a threat against Takayichi, with a CCTV-affiliated social media account labeling her a "troublemaker."
Expulsion Call: Senior Japanese officials have called for the expulsion of China's consul general in Osaka. Japan's foreign minister described the comments as regrettable and urged China to take appropriate action.
Takayichi's Stance: Takayichi has refused to retract her remarks, stating they are consistent with her government's traditional position, but has pledged to be more careful in future comments.
Economic Considerations: Professor Sajiro Takashita noted that economic ties are important for Japan and that China might retaliate through measures like imprisoning civilians or imposing economic tariffs, which he described as "unlawful." He believes Japan's Prime Minister is trying to "simmer down the flare" due to the significant economic interdependence, despite political tensions. The trend towards reducing interdependency with China, especially in global supply chains, is acknowledged as a long-term goal.

China's Economic Weakness

Recent economic data from China indicates a slowdown in growth.

October Data: Factory output has lost pace, and retail sales rose by only 2.9%, the slowest in five months. Fixed asset spending has declined, primarily due to a deeper slide in the property sector. Exports unexpectedly contracted, and credit growth is at a 13-month low.
GDP Target: Despite these signs of weakness, China is still expected to reach its annual growth target of approximately 5%. However, Q4 growth may decelerate to 4.5%. The primary challenge is anticipated for the following year.
Policy Transmission Issues: Weak credit demand among households and corporations reflects a lack of confidence in the future, even after stimulus measures. The problem lies in the insufficient boost to confidence to encourage borrowing for consumption and investment. China is experiencing a decline in nominal growth, from 10% five years ago to 5% currently.
Property Sector: There is no immediate end or recovery in sight for the property sector. A significant turnaround would likely require further interest rate cuts by a larger margin to stimulate demand and lower housing costs for households. Transaction volumes remain low, especially in smaller cities. An "L-shaped recovery" is considered a good scenario, with prices unlikely to rebound soon and investment recovery taking longer.
Equity Market: While there has been a rebound in the equity market, driven partly by banks lowering deposit rates, it is not significant enough to impact the real economy. Households still prefer keeping money in banks despite lower deposit rates, indicating a lack of confidence in consumption. Jewelry sales (gold purchases) stand out in retail sales data, suggesting households are seeking safe-haven assets.
Policy Support: More fiscal support is possible, with a focus on national-level infrastructure projects. Liquidity injections are expected early next year to support the banking sector and government debt. Interest rate cuts are dependent on the worsening situation and potential pressure on maintaining a stable RMB if the dollar weakens further. A 20 basis point cut is possible but may not be enough for a strong V-shaped recovery.
Property Defaults: Over $1 billion worth of loans are reportedly at risk of default in China's property sector. Hong Kong developer Park View Group is seeking an extension on a $940 million loan, while private equity fund Gar Capital missed a deadline on a $260 million loan. Banks are increasing provisions for potential losses in the greater China property market.

Japan's Business News

Mega Banks' Profit Forecasts

Japan's largest banks have reported strong quarterly results, leading them to raise their annual profit forecasts.

Revenue and Profit Growth: MUFG's net revenue exceeded $10 billion, up over 15% year-on-year. SMFG Group saw an increase of nearly a fifth, reaching over $8 billion. Mizuho Financial reported just under $6 billion, a 12.6% jump. Profits also saw significant increases, with SMFG recording the largest jump at nearly 60%, followed by Mizuho at over 45%, and MUFG up more than 7%.
Profit Forecasts Raised: MUFG's forecast is now over $13 billion, SMFG's is just under $10 billion, and Mizuho's is $7.5 billion.
Drivers of Growth: The banks are benefiting from a rise in interest rates and increased corporate activity, including mergers and acquisitions, which boosts demand for loans.
Resilience: Japan's mega banks have proven resilient to economic uncertainty and have outperformed the wider Tokyo Stock Exchange index over the past two years.

Early Retirement Packages

Japanese listed firms are offering early retirement packages at a four-year high as they reorganize their workforces to reduce costs associated with older workers.

Trend Shift: This trend signifies a move away from the traditional lifetime employment model.
Numbers: More than 11,000 employees at major publicly listed firms have been offered voluntary or early retirement between January and early November, according to Tokyo Shoko Research. This includes companies like Panasonic and Japan Display, as well as profitable firms like Mitsubishi Electric, Marui Holdings, and Olympus.
Target Demographic: The packages primarily target individuals in their 50s.
Rationale: The Tokyo Chamber of Commerce and Industry states this is a measure to improve the mobility of mid-career workers and maintain competitiveness.
Investor Pressure: Firms are facing pressure from investors and regulators to cut costs and improve returns in an aging society.

China's Military and Space Developments

China's Largest Amphibious Assault Ship

China's largest amphibious assault ship, the CNS Sichuan, has set sail for its maiden sea trial.

Key Features: The Type 076 vessel is the first drone-carrying ship of its kind and is equipped with electromagnetic catapults and arresting gears. It is described as the world's first drone carrier.
Role: It is considered a key asset for the Chinese Navy's unmanned aerial vehicle operations.
Sea Trial Focus: The trials will test the reliability and stability of the ship's power, electrical, and other systems.
Delivery Timeline: The Navy is expected to take delivery of the Sichuan at the end of next year.

US Arms Sale to Taiwan and China's Condemnation

The US has approved a $330 million arms sale to Taiwan, drawing condemnation from China.

US Justification: The Pentagon states the arms sale will allow Taiwan to strengthen its ability to counter current and future threats by maintaining operational readiness of its fleet.
Taiwan's Response: Taiwan's defense ministry thanked Washington and expects the sales to take effect within a month, enhancing its defense readiness against China's incursions.
China's Stance: Beijing claims Taiwan as its territory and has not ruled out using force. China's foreign ministry condemned the sale as a violation of the "one China policy."
US Policy: The US does not recognize Taiwan's claim to statehood but is legally bound to provide Taiwan with the means to defend itself and remains its most important arms supplier.

Chinese Astronauts' Safe Return

Three Chinese astronauts have returned safely to Earth in a different vessel after a 9-day delay.

Cause of Delay: Tiny cracks were found in a window of their original spacecraft, the Shenzhou 20, likely caused by space debris, making it unsafe for landing.
Return Vessel: The astronauts boarded the arriving Shenzhou 21 spacecraft for their return.
Mission: They completed a six-month mission on the Tiangong space station. The Shenzhou 20 remains in orbit for experiments.
Landing: The return capsule touched down in a remote site in China's Gobi Desert.

China's Fight Against Desertification

China is employing technology to combat desertification.

Technological Solutions: Drones are used to scatter grass seeds, and large-scale solar farms are being established.
Solar Great Wall: A 400 km solar project in Inner Mongolia aims to stabilize sand, shield from wind, and create conditions for shrub growth. It is intended to supply clean power to Beijing and surrounding areas.
Progress: As of last year, over half of China's desertified land has been reforested or stabilized. China claims to have achieved zero net land degradation.
Climate Ambitions: China has committed to cutting greenhouse gas emissions by 7-10% by 2035 and increasing its use of cleaner fuels and renewable energy capacity.
International Collaboration: China prioritizes green trade and international cooperation on green technology, viewing the energy transition as a growth engine.

Battery Technology Race

China holds a significant lead over the US in battery manufacturing and supply chains.

China's Dominance: China dominates the battery supply chain from mineral refining to battery cell assembly, reportedly being about 10 years ahead of Europe and North America.
US Lag: American battery makers often rely on overseas manufacturing in countries like South Korea and China.
Strategic Concerns: This dominance raises strategic concerns in Washington, particularly regarding potential restrictions on rare earth exports.
Demand Drivers: The demand for electric vehicles and renewable energy storage is increasing.
Cost Reduction: Battery production costs have decreased significantly, with prices around $100 per kilowatt-hour.
US Capacity: The US has hundreds of gigawatt-hours of battery capacity and has doubled its manufacturing capacity between 2022 and 2024.
Investment Needed: Keeping pace with China requires substantial investment and demand for American-made batteries. Batteries are considered a critical component for modernizing power grids and enabling the shift to renewables.

Myanmar's Power Crisis and Solar Adoption

Myanmar's electricity supply has deteriorated since the 2021 coup, leading to increased reliance on solar power.

Power Supply Issues: Thailand's decision to cut power supply to Myanmar's western border to curb scam centers has also impacted the broader community.
Solar Imports: Myanmar imported approximately $100 million worth of solar panels in the first nine months of the year, with China being the largest supplier. Shipments have increased eightfold compared to pre-pandemic levels.
Global Trend: This trend mirrors that in countries like Pakistan, Sri Lanka, and Afghanistan, where solar adoption is crucial for overcoming erratic power supply.
China's Green Trade Priority: Beijing has identified green trade, including clean energy technology, as a priority for international cooperation.

Japan's Redefinition of Beauty Standards

Tokyo's "Muscle Girls" bar is challenging traditional Japanese beauty standards.

Underground Bar: Muscle Girls is Japan's only female fitness-themed bar, featuring around 30 women who are passionate about workouts and bodybuilding.
Customer Base: The bar attracts about 100 customers daily since its opening in 2020.
Challenging Norms: While mainstream Japan often idolizes slim figures, Muscle Girls are redefining beauty through strength and swagger.
Sisterhood: The bar fosters a sense of sisterhood, with women sharing diet and training tips, supporting each other, and spending time together.
Offerings: For approximately 6,000 yen ($40 USD), customers can enjoy 80 minutes of all-you-can-eat, a drink, a protein cocktail, and a mini-workout. Add-ons include physical interactions like being slapped or hoisted.

Other Notable News

Chinese Tourists Killed in Bali: Five Chinese tourists died and eight were injured in a minibus crash in Bali, Indonesia.
Bear Attacks in Japan: Japan is enlisting retired police officers and soldiers to combat a rise in bear attacks, with new rules allowing police to shoot bears.
North Korea Denounces G7: Pyongyang has denounced the G7's call for complete denuclearization, calling it a "disguised hostile act" and asserting that nuclear deterrence is the "most correct option."
China-Thailand Cooperation: Chinese President Xi Jinping pledged greater cooperation with Thailand during the first state visit by a reigning Thai monarch to China in 50 years.
South Korean Farmers' Lawsuit: Five South Korean farmers are suing state power utility KEPCO, alleging that its reliance on fossil fuels has accelerated climate change and damaged crops. This is the first lawsuit of its kind in South Korea.