Asia’s economy: what Boards need to know

An interview by Neil Glaser with Si Tao Xu, Deloitte China Chief Economist.

Are you putting your best leadership foot forward? Across the economic evolution of the business landscape, it’s crucial that Boards know how to continue improving their effectiveness and impact. Looking to our shores, the Asia Pacific region is a vibrant and dynamic heartbeat of productivity, growth and innovation – with a rich tapestry of insights for every Board. We sat down with Si Tao Xu, Deloitte China’s Chief Economist and put China, trade and the economy on the Boardroom table for discussion.
As markets continue to open and develop, what should Boards keep in mind?

I think one big theme to highlight is that in the past 20 or 30 years, we have seen so much liquidity and a supply of savings coming from Japan. It can take time for local markets, whether Australia or elsewhere to see the various impacts of that. It seems to me that the role of Japan as the biggest provider of excess savings might now be overshadowed by China – something for NEDs to consider.

Boards and NEDS need to also look at how they can continue to harness and leverage the opportunities coming out of China and the wider region. Across several areas, there is scope for bringing in and channeling more Chinese investment into Australia – and to look at ways in which that can be activated.

In certain sectors such as agriculture, there is greater room for opening up foreign investment. The same could be said as well for infrastructure, an interesting area for businesses to consider – especially in the context of investors wanting predictable rates of return to finance their retirement.

What do NEDs need to know about China’s trade policy developments and regulations?

I think trade is affecting both China and Australia in a very pronounced way. In the absence of the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP) is now being championed by China as the only game in town. That’s very important to know.

Secondly, it’s key to understand that assuming China creates this regional trade framework, the element of deregulation needs to be considered.

With Australia leading the way as an extremely successful economy, there needs to be further thought and discussion around foreign investment and the direction of international trade. My prediction is that in a decade, people in Australia will view Chinese investments just like investments from Japan.

What do Boards need to know about geopolitical risk?

We are all connected more than ever before. Impacts that happen on one side of the world can cause ripples across other areas.
Geopolitical risk is extremely important for NEDs to be across and understand and not necessarily because of the binary scenarios but because of the many shades in between. For example, the situation in North Korea is affecting China, South Korea, Japan, Russia, and the United States – everyone.

From trade deficits to accessibility across markets and industries spanning financial services, pharmaceuticals, agriculture and more – geopolitical risk is something that leaders need to keep top of mind.

How important is a good understanding of diversity and why should Boards keep this high on the agenda?

Diversity is fundamental to everything we do. Whether it be diversity of markets or diversity of thought, it’s critical that Boards and Directors are well equipped to understand and appreciate the nuances and detail. Across the vibrant Asia Pacific landscape, as highlighted in our Voice of Asia series, our diversity of markets reveals that things are always evolving and it’s fundamental that leaders stay on top of changing regulations and economic developments.

From Hong Kong to Singapore, Japan to China and more, we are seeing the diversity in the way in which markets are being integrated globally and the associated regulatory movements.

Organisations, leaders and boards need to understand the cultural elements across each of these markets. Non-Executive Directors (NEDs) should focus their attention on experiencing and exploring the region first hand – to gain direct insights into the diversity of developments. There is no quick way of gaining those insights. The key is for NEDs and leaders to spend more time with people from other countries and to share ideas, learnings and best practices.

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