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China opens new land cargo route to boost Afghanistan’s economy

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Afghanistan’s desire for regional integration has further improved after the first freight train to traverse a new freight line departed China toward Afghanistan.

The train departed from Lanzhou, capital of northwest China’s Gansu province last week and headed for Hairatan in Afghanistan. The freight train is now making the launch of a new cargo route between the two neighboring countries, where the experts extolled the move and labeled it key for boosting the fragile economy of Afghanistan.

The 3,125km route uses both railways and roads and passes through Kyrgyzstan and Uzbekistan until it reaches the Afghan border town of Hairatan.

State news agency Xinhua reported that the first train to leave Lanzhou was carrying $1.5 million of freight, including car parts, furniture, machinery and equipment from Gansu province and other places.

“We hope to normalize the route for Sino-Afghanistan express service and aim to run four times a month,” Li Wei, a marketing manager from New Land-Sea Corridor Operation Co, one of the main firms involved in the shipment, told Xinhua.

China making efforts to improve Afghanistan’s economy

China has been helping Afghanistan in the last over two decades in different fields and Beijing did not stop its cooperation after the takeover of Afghanistan by the Taliban. In August 15 2021, the US troops hastily withdrew from Afghanistan that resulted in the collapse of the former republic government.

However, the regime change also resulted in a cut in a number of routes into the country and most freight and traffic goes via Pakistan right now. Several embassies suspended its activities and many more closed its doors and froze cooperation with the new government under the Taliban leadership. But few embassies, including the Chinese embassy had remained active in Afghanistan and also intensified business engagement with the new government in Afghanistan aimed at bolstering up its economy.

China also invested in several other projects, including the start of the air corridor by shipping pine nuts from Afghanistan to help boost its economy.

“We expect more from China. These projects are important to improve the economy, but it’s not enough. As our neighbor, we expect more business engagement from China,” an Afghan economic pundit, Jawad Naqashbandi said.

Speaking to Harici he said that Beijing can do much more, and this land route is a good start. “If China really wants to help improve the economy, it needs to invest in the extraction of natural resources of Afghanistan which is estimated around three billion dollars,” he added.

Another investment in medical area 

In another development, a Chinese company named TNA said it will invest $10m in Afghanistan’s pharmaceutical sector.

The National and Drug Authority (AFDS) said that TNA announced its willingness to donate $10 million for the construction of a pharmaceutical factory in Afghanistan.

Mohammad Javid Hazheer, a spokesman for NFDA said that the executive director of TNA during his meeting with the Deputy Minister of Food and Drug Authority has shown interest in investing $10 million in a pharmaceutical factory.

During the meeting, the executive director had asked for land to start the construction of the pharmaceutical factory. He also demanded security during the construction process.

Furthermore, in June another Chinese company named Snow Pharma executed an investment of $50 million in the southern province of Kandahar.

The company will produce tablets, capsules and Syrups in Kandahar and it will have the capacity to create 5.6 million pills, 2 million capsules, and 60,000 bottles of syrup within a single eight-hour shift.

Afghanistan’s Drug Manufacturing Companies Union praised the Chinese company for investing in medical areas, and said the level of medical treatment in the country will improve by producing tablets inside the country.

$300 million invested in pharmaceutical manufacturing sector

There has already been more than $300 million invested in Afghanistan’s pharmaceutical manufacturing sector.

Meanwhile, Afghan Mines and Petroleum Minister, Sheikh Shahabuddin Delawar held a meeting with Turkish investors, in which they expressed readiness to invest in Afghanistan’s mineral resources and assured that the investment and processing of Afghanistan’s minerals will make Afghanistan a challenge.

Thanking the Turkish investors for their interest in Afghanistan’s mines, Delawar had promised to cooperate with them by Afghanistan’s mining laws, according to Bakhtar news agency.

Both sides also discussed the economic and basic programs of these ministries, such as the extraction and management of mineral resources and the production of Afghanistan’s agricultural products.

Boosting connectivity between China and Afghanistan

Indeed, with the new route, trade connectivity between China and Afghanistan will further improve. The train route not only boosts connectivity between Beijing and Kabul but also the Central Asian countries.

The train which departed China on 5th of July will take at least 15 days to reach Hairatan, which is much faster compared to other seas and air routes. This will also cost less.

The second important point is that the new land route with China will also diversify Afghanistan’s export markets and reduce its dependence on Pakistan’s ports. It has been reported that China is Afghanistan’s largest trading partner and source of foreign investment.

China’s launch of the cargo train to Afghanistan comes amid Taliban’s claim of fully maintaining security across the country since the withdrawal of US troops.

Afghanistan is part of BRI

Though China did not recognize the Taliban government, it always stressed that Afghanistan is an important country for its Belt and Road Initiative (BRI), a multi-billion transcontinental infrastructure initiative.

The new land route could also be taken as part of the BRI project.

The Taliban had recently said that China is interested in investing in Afghanistan’s oil and gas industries. Afghanistan is rich in gas and oil and the Taliban expected China to help extract them to improve the economy situation of the country.

In January, the Taliban signed an agreement with a Chinese firm to extract oil from the Amu Darya basin and both sides signed the agreement at a ceremony attended by high-ranking officials from the two countries.

Afghanistan’s acting mines and petroleum minister Shahabuddin Delawar during the signing ceremony held in Kabul said that during the initial three-year period, more than $540 million will be invested in exploration.

China has reportedly invested around $2 billion in Afghanistan after the fall of the previous government, according to the Afghan Ministry of Industry and Commerce.

 

ASIA

How will Trump’s potential tariffs affect Southeast Asia?

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Southeast Asia is worried about Donald Trump’s threat of universal tariffs and a new trade war with China. Five of the region’s six largest economies run a trade surplus with the United States.

But experts say the situation may not be so bad. The region, which tries to remain geopolitically neutral, saw an increase in gross trade with both China and the U.S. between 2017 and 2020 during Trump’s first presidency. Vietnam, Indonesia, Malaysia, and Thailand have benefited as companies from China, Japan, South Korea, Taiwan, and the U.S. have expanded their production bases in Southeast Asia to avoid U.S. tariffs.

Experts say exports and economic growth will take a hit in the short term, but the region could benefit from trade diversion and substitution.

What is Trump’s tariff threat?

The goal of Trump’s trade policy is to bring manufacturing jobs back to the U.S. and decouple supply chains from China. Trump and his advisers claim that China’s trade advantage is due to “currency manipulation, intellectual property theft and forced technology transfer”.

During his first term, Trump used executive powers to impose tariffs of up to 25% on $250bn of electronics, machinery and consumer goods imported from China. Beijing retaliated with similar measures on U.S. agricultural, automotive and technology exports.

Now Trump has proposed a 60 per cent tariff on all Chinese goods entering the U.S. and tariffs of up to 20 per cent on imports from everywhere else.

How bad could it be for Southeast Asia?

According to Oxford Economics, about 40 per cent of Cambodia’s exports go to the U.S., making it the largest exporter in Asean as a percentage of total exports, followed by Vietnam with 27.4 per cent and Thailand with 17 per cent. Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce, said the Thai economy could take a 160.5 billion baht ($4.6 billion) hit if Trump fulfils his promises.

Vietnam has the world’s fourth-largest trade surplus with the United States. This imbalance has been growing rapidly as Chinese, Taiwanese and South Korean companies have used Vietnam to avoid Trump-era tariffs. Vietnam’s fortunes could change just as quickly, especially if the U.S. continues to classify Vietnam as a ‘non-market economy’, which requires higher tariffs.

Uncertainty over Trump’s tariffs could cause companies to pause or halt investment plans in Southeast Asia. U.S. companies accounted for about half of Singapore’s $9.5 billion in fixed-asset investment last year, according to the city-state’s Economic Development Board. In his congratulatory letter to Trump, Prime Minister Lawrence Wong was quick to remind him that the United States enjoys a “consistent trade surplus” with Singapore.

Any blow to the Chinese economy will have repercussions for Asean countries that depend on Chinese consumption, export demand and tourism. A reduced appetite for Chinese goods will also affect Southeast Asian suppliers of inputs to Chinese producers. Indonesia, Southeast Asia’s largest economy, will suffer the most because it exports 24.2 per cent of its goods to China, mainly commodities.

Unable to send their goods to the U.S., Chinese exporters may turn to Southeast Asia, where governments have faced complaints from local producers hurt by dumping in metals, textiles, and consumer goods.

What is Southeast Asia’s advantage?

Southeast Asia’s current manufacturing boom started because of the trade war. Over time, analysts expect trade substitution and diversion to outweigh the hit to growth.

“We think a stronger crackdown on China could lead to more supply chain diversion as Chinese companies trade and invest more in Asia,” said Jayden Vantarakis, head of ASEAN research at Macquarie Capital.

“Electric vehicle factories, which some Southeast Asian governments are aggressively pursuing, could provide an economic buffer. Demand for EVs is also growing outside the U.S., so I think there could be a net benefit for Indonesia. Smaller countries that are trying to be carbon neutral, especially as petrol prices get more expensive, will try to take over the supply and buy more electric cars,” said Sumit Agarwal, a professor at the National University of Singapore’s School of Business.

Trump’s promised tariffs could embolden Asean governments to impose anti-dumping duties on Chinese goods, as Thailand did on rolled steel this year. Stricter U.S. rules of origin could also give governments an opportunity to ensure that more high-value parts are produced and assembled locally.

How will Southeast Asian currencies and markets be affected?

Trump’s tariffs could reduce pressure on Southeast Asian central banks to ease monetary policy further.

“Essentially, Trump’s victory is inflationary for the world because of his planned tariffs, so the global monetary normalization or easing cycle will probably not be as sharp as previously thought, including in the Philippines,” said Miguel Chanco, chief emerging Asia economist at UK-based Pantheon Macroeconomics.

Speaking to Nikkei Asia, Chanco said Southeast Asian currencies will not strengthen as much as previously expected, partly because markets are re-pricing the pace of easing by the U.S. Federal Reserve and thus the dollar will continue to strengthen.

Among Southeast Asia’s six major economies, the Thai baht and Malaysian ringgit have been the worst-performing currencies since Trump’s victory, losing 3.2 per cent and 2.9 per cent respectively against the U.S. dollar through Wednesday.

Thai brokerage InnovestX recommended stocks that would benefit from a strong dollar and weak baht. These include companies with significant export earnings, such as CP Foods and Delta Electronics, or tourism-related companies such as Airports of Thailand, property developers and hoteliers.

Governments are already taking steps to reduce their over-dependence on the U.S. or China by deepening ties with other countries and regions and emphasizing their neutrality.

Southeast Asian economies in particular are also expected to focus on building resilience by strengthening intra-ASEAN trade.

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ASIA

Japan’s exports rise despite global risks, boosted by China

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Japan’s exports rose more than expected in October, driven by strong demand from China and other parts of Asia, despite growing uncertainties in global markets.

Exports increased by 3.1% year-on-year, led by significant growth in shipments of chip-making equipment, particularly to China, according to the Finance Ministry’s report on Wednesday. This marked a rebound following the first drop in 10 months in September. October’s figures exceeded economists’ forecasts of a 1% rise and were also bolstered by increased shipments of medical products to the United States.

Meanwhile, imports edged up by 0.4%, defying expectations of a 1.9% decline. As a result, the trade deficit widened to 461.2 billion yen ($2.98 billion), compared to 294.1 billion yen in the previous month.

This stronger-than-expected export performance has raised optimism about Japan’s economic recovery. Although the country’s gross domestic product (GDP) expanded for the second consecutive quarter through September, the pace of growth has been tempered by the drag from net exports.

“Today’s data raises hopes that external demand will revive in the October-December quarter,” said Hiroshi Miyazaki, Senior Research Fellow at the Itochu Research Institute. “The Chinese government’s stimulus measures have stabilized its economy and reversed the prior decline.”

Exports to China rose by 1.5% last month, rebounding from a 7.3% drop in September, with semiconductor manufacturing equipment exports surging by nearly a third. These gains align with signs that China’s stimulus policies are beginning to yield results, driving growth in certain sectors and boosting consumer spending.

Notably, Japanese exports grew despite the yen’s strengthening against the dollar, averaging 145.87 yen per dollar in October—2% stronger than the previous year, according to ministry data.

The export rebound occurs against a backdrop of heightened concerns about global trade policies. Business leaders are bracing for the potential return of Donald Trump to the White House, with fears that his proposed tariffs—60% on imports from China and 20% on other nations—could disrupt international commerce.

Some regions are already experiencing a slowdown. Shipments to the United States and Europe declined by 6.2% and 11.3%, respectively, in October.

The Bank of Japan (BoJ) is closely monitoring these developments. BoJ Governor Kazuo Ueda noted on Monday that while the Federal Reserve’s prospects for a soft landing have improved, risks tied to the U.S. economy and their impact on global markets require careful consideration.

The most pressing concern for Japan’s trade outlook is the impact of potential U.S. tariffs. Historical data from the U.S.-China trade war (2018-2019) suggests that a 1% increase in export prices, including tariffs, led to a 0.35 percentage-point reduction in profit margins for Chinese exporters, according to research from Stanford University’s Centre for Chinese Economics and Institutions. A similar scenario could hurt Japanese firms’ profitability, counteracting gains from the yen’s depreciation.

“We are not yet at a stage where Trump’s tariff policy is clearly impacting export volumes or exporters’ behavior,” Miyazaki told The Japan Times. “However, there remains significant uncertainty, and we must continue to monitor the policy stance of the next Trump administration,” he added.

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IMF reviews Pakistan’s $7bn bailout

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An International Monetary Fund (IMF) team conducted an unscheduled visit to Pakistan last week to assess the country’s progress on the terms of its $7 billion bailout package. The surprise visit, coming less than two months after the loan’s approval, has raised questions about the future of the bailout program. IMF staff are expected to present their findings to the Washington-based executive board for review.

What prompted the IMF’s unexpected visit to Pakistan?

Several officials, speaking to Nikkei Asia on condition of anonymity, highlighted key factors prompting the visit. These included a $685 million shortfall in the government’s tax collection target for the first quarter of the current fiscal year and a $2.5 billion deficit in the external financing required under the bailout terms. Compounding these issues was the failed sale of Pakistan International Airlines (PIA), a key component of the IMF-recommended privatisation drive.

While routine IMF program review visits are standard, the timing of this visit—just seven weeks after board approval—has raised concerns. “This suggests significant difficulties in implementing the program,” said Naafey Sardar, an economics professor at St. Olaf College in the United States, speaking to Nikkei Asia.

Ikram ul Haq, a lawyer specializing in economic and tax policy, added, “The reality is that the government’s promises to the IMF have not been fulfilled.”

What were the key issues discussed?

The IMF raised the issue of the tax gap and urged action to ensure that Pakistan meets its annual tax collection target of $46 billion.

Islamabad was also asked to engage with Saudi Arabia and China, the largest investor, to bridge the external financing gap. Promised energy sector reforms and the repayment of billions of dollars of debt owed to mostly Chinese-backed power plants in Pakistan were also discussed.

Another issue was for the IMF to press provincial governments for more funds, such as the Benazir Income Support Programme, which provides a $2.1 billion annual cash transfer for poverty alleviation, currently paid for by the central government.

How does agricultural income tax fit into this picture?

As part of the loan agreement, Pakistan’s provinces missed an end-October deadline to harmonize their agricultural income tax laws with the federal income tax.

The IMF had previously said that Pakistan’s loan agreement would be in jeopardy if agricultural income remained largely untaxed. During the meetings, provincial government officials told the IMF that they would face significant difficulties in implementing a higher tax.

Economist Aqdas Afzal said such a move would face significant opposition from big landowners, who are disproportionately represented in the federal and provincial assemblies.

“Given the weak mandate of the current government, a higher agricultural income tax is unlikely as it could trigger major social and political unrest,” he added.

What assurances has the government given to the IMF?

Pakistan has assured the IMF that it will increase the provincial agricultural income tax rate by up to 45 percent. It has also pledged to meet annual tax collection targets and to continue reforms in the energy sector and state-owned enterprises.

“This is an ongoing dialogue process and there have been discussions [with the IMF] on energy and SOE reforms, the privatization agenda and public finance,” Pakistan’s Finance and Revenue Minister Muhammad Aurangzeb told local media.

Haq, a tax expert, said the government’s primary focus would be on meeting the six-month revenue collection target set by Pakistan’s Federal Board of Revenue, a government agency that regulates and collects taxes.

What are the challenges ahead for Pakistan’s loan agreement?

Meeting tough tax targets and implementing structural reforms are major hurdles for the government to overcome.

The IMF has previously cancelled other loan programmes when conditions were not met. Payments to Pakistan could be suspended or stopped altogether, which would be a serious blow to a country struggling with a sputtering economy.

The IMF is pressing for cuts in government spending.

“Structural reforms are being resisted by vested interests, making efforts to meet IMF conditions even more difficult,” Haq said.

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