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ASIAN INTELLIGENCE An Independent Fortnightly Report on Asian Business and Politics No.
1,089 Wednesday, April 6, 2022 REGIONAL OVERVIEW .......................... 2 PHILIPPINES ............................................ 9 CHINA ......................................................... 3 SINGAPORE............................................. 10 HONG KONG ............................................. 4 SOUTH KOREA ....................................... 11 INDIA .......................................................... 5 TAIWAN ................................................... 11 INDONESIA ............................................... 6 THAILAND .............................................. 14 JAPAN ......................................................... 7 VIETNAM ................................................. 15 MALAYSIA ................................................. 8 EXCHANGE RATES ................................ 16 POLITICAL & ECONOMIC RISK CONSULTANCY LTD. Russia’s Importance as a Market and Supplier(Russia’s share of total exports and imports in 2021)0.10.10.30.20.60.41.00.30.81.01.52.00.30.30.50.60.60.70.71.31.51.82.53.00.00.51.01.52.02.53.03.5ExportsImportsPercent Political & Economic Risk Consultancy, Ltd. Issue #1,089 REGIONAL OVERVIEW Likely fallout for Asia from Russia-Ukraine War Key questions arising from the unity being displayed by the US, the EU, and their allies in reacting to Russia’s invasion of Ukraine are, first, how long will that unity last and, second, will it extend to the imposition of secondary sanctions on China if Beijing is seen to be giving Russia so much support that it threatens to significantly reduce the impact of those sanctions?
Closely related to these questions are whether China can be dissuaded from giving Russia this support?

Can Beijing drive a wedge between the US and EU and between the US and its main allies in Asia (namely, South Korea and Japan) on issues that do not involve the conflict in Ukraine?

And how profoundly has Beijing’s long-term game in Asia been threatened by Putin’s short-term gamble on Ukraine?
Had Putin succeeded in defeating Ukraine quickly, the answers to these questions would have been much more uncertain and the odds might have favored a new cold war, with China, Russia, and their allies on one side, and the US and its allies on the other.

However, the longer the war drags on and the more it looks like Putin has seriously miscalculated, the clearer the answers are looking to these questions and the less likely it is that China will throw its full support behind Russia.
the The unity the US, the EU, and other allies are displaying toward the Ukraine crisis is likely to last as long as the crisis lasts.

After that, national priorities will be less aligned, leaving more room for disagreements between governments of democratic systems to get attention, but that is only to be expected.

There are always going to be points of disagreement in any alliance involving this many countries.

However, the situation is unlikely to return to what existed before Russia invaded Ukraine.
Following the deep concerns created by the way the former government headed by Donald Trump actively weakened NATO and other key US alliances, followed by the speed and effectiveness of the Biden government in rebuilding these alliances and showing how valuable they are in stopping a might-makes-right philosophy favored by autocrats from reshaping the world, there is a lot more incentive by all concerned to maintain this unity going forward on shared democratic principles even if it means paying an economic cost.
It is not just that strength comes from unity but also that a perceived lack of unity can cause leaders of rival, more autocratic systems to take gambles that have very negative global repercussions.

The answer to the question of whether the alliance of democracies would extend the imposition of secondary sanctions on China if Beijing offers what the alliance considers too much support for Russia is yes, it would.
Just as in the case of the sanctions against Russia, there would be debate among the allies over what should be exempted.

China is too important in the supply chains of most countries to simply cut off overnight, and those links differ from country to country.

But China’s economy is also so vulnerable that carefully selected sanctions could still be extremely disruptive for Beijing and apply tremendous pressure on China’s leaders.
The EU made it very clear to Xi Jinping during a recent video meeting with European Commission president Ursula von der Leven that Ukraine is a defining moment for the EU’s relationship with China and that anything China does to support Russia’s ability to wage war would be strongly opposed by the EU.

companies will The answer to the question of whether China can be dissuaded from giving Russia support to offset the US-EU sanctions is mixed, but the bottom line is also yes.
China will not officially support sanctions against Russia and will continue to permit more trade to be done using national currencies, including importing oil, gas, and other commodities.

Some Chinese for business opportunities in Russia that arise from the exodus of Western companies.

Chinese banks will not refuse to freeze as comprehensively as banks in countries supporting the sanctions are doing.
This will give Beijing the evidence it needs to say it has remained a friend of Russia throughout the crisis and also to repeat Russia’s argument – with which Beijing agrees – that the US and NATO expansions after the collapse of the USSR were really to blame for the Ukraine crisis, transactions with Russian banks look Page 2 ASIAN INTELLIGENCE April 6, 2022 Issue #1,089 Political & Economic Risk Consultancy, Ltd. rather than Putin, and that Russia’s national security was threatened.
However, major Mainland companies, especially state-owned banks and enterprises, will not do anything with Russia that has not been previously cleared with Beijing, and so far the authorities there have told the banks and big companies to proceed very cautiously because they do not want to trigger secondary sanctions.
So far Beijing has not provided military support to Russia, China’s oil companies have put major investment projects in Russia on hold, and China is not providing nearly enough extra trade, investment, and financial support to enable Russia to ignore the sanctions.

Beijing’s challenge now is to continue finessing its position.
Beijing can keep voicing its opposition to the sanctions and refuse to condemn Moscow's actions in Ukraine or call them an invasion, but China is still likely to refrain from violating the sanctions too blatantly to avoid being punished by the US and EU.

Developments to date have already been very negative for China and might have profoundly hurt Beijing’s long-term game in Asia.

The unity displayed by the US and its allies could in the into their approach to negotiating differences with China.
future carry over in Ukraine and identifying what worked well Taiwan’s vulnerabilities are that need fortifying.

Even Singapore has come out with a clear position condemning Russia’s actions, arguing that neutrality is not an option in some instances for small countries intent on defending their sovereignty.

Russia’s invasion of Ukraine is one of those instances.

Some principles need to be defended even if doing so entails risks and economic costs.
The implication is that Beijing’s policy agenda for East and Southeast Asia has been seriously set back by its approach to Russia’s invasion of Ukraine.

The leadership in Beijing will now be trying to set things right again.

It will be watching how South Korea, Japan, and the US react to North Korea’s recent missile tests.
It will have to react strongly if Taiwan tries to change the status quo too much in the direction of reducing its international isolation and becoming a much harder target for the Chinese military.
Beijing’s reaction might include even more displays of air and sea power in ways that underscore its sovereignty claims and superiority as a fighting force, but it is likely to use backroom channels to send signals to Taipei, Washington, and Tokyo that it really wants to preserve the status quo for the time being and will do so as long as it is not pushed so far that it feels it needs to react more strongly.
The Ukraine crisis has pushed South Korea and Japan closer together and fortified their alliances with the US in ways that will probably cause them to spend more on their defense to make them a bigger national security threat to China.
Taiwan has been inspired by Ukraine’s response to the Russian invasion and is moving fast to enhance its defensive capabilities, taking valuable lessons from what has Beijing will also want to take full advantage of its membership in bodies like the G20 as well as programs like the Belt and Road Initiative and the Regional Comprehensive Economic Partnership to stress not just its leadership credentials but also its commitment to a new form of globalization at a time when the US is turning more protectionist.
CHINA Comments China’s economic relationship with Russia is asymmetrical, and Russia’s invasion of Ukraine will make it more so – in China’s favor.

This is a trend that the leadership in Beijing would like to see continue, which is one reason – while not admitting it officially – China is likely to try to adhere enough to the sanctions demanded by the US and its allies to avoid being slapped with major secondary sanctions.
To be sure, smaller Mainland companies will try to displace foreign suppliers who are applying sanctions or exiting Russia altogether.

But larger Chinese companies, including major state-owned enterprises like April 6, 2022 ASIAN INTELLIGENCE Page 3 Political & Economic Risk Consultancy, Ltd. Issue #1,089 Sinopec, will tread carefully.

This is shown by the way Sinopec and other Mainland oil companies have already suspended talks for a major petrochemical investment and a gas marketing venture in Russia.
Russia needs China a lot more than China needs Russia.

From Russia’s perspective, China is its largest single trading partner.

In 2021, China accounted for 23.9% of Russia’s total exports and 28.2% of its total imports.

However, from China’s perspective, its exports to Russia last year accounted for a mere 2.0% of its total exports.
To be sure, Russia is China's largest source of energy imports and the second-largest source of crude oil imports, but even including these purchases, China’s total imports from Russia were only 3.0% of its global imports.

This places Russia a distant 14th on China’s list of trading partners.

Gaining market share in Russia would be low-hanging fruit for Chinese companies while the world’s other major trading economies are boycotting doing business with Russia.
Similarly, China could command extremely favorable financial terms for direct investments or long-term commodity sourcing deals it might negotiate with Russia at this time.

However, the potential for new business here would have to be weighed against the potential loss in business China might incur from sanctions by the US and other countries – and the balance is not even close.
Just the leading countries that are sticking together in imposing sanctions against Russia account for 50.5% of China’s total exports and imports.
Having a downside risk that large is just not worth it, especially when Washington has already made it very clear to Beijing that there “will absolutely be consequences for large-scale sanctions evasion efforts or support to Russia to backfill them.” Certainly, Beijing’s leaders might ignore the US warning, believing that other countries have too much at stake and would not support such secondary sanctions against China.

However, that would still be a huge risk.


The ability of the US and its allies to pull together quickly and effectively was a strategic miscalculation by President Putin that China’s president, Xi Jinping, is unlikely to make during a year when he is moving to consolidate his control over the Communist Party and extend the term of his leadership.
Dealing with a slowing economy and a renewed flare-up in COVID that has shut down Shanghai and is sapping the confidence of China’s population in the government’s ability to fight the pandemic are enough to have on his plate.
As strong as Mr. Xi has professed China’s friendship with Russia to be, this is still just rhetoric that will have no political consequences in affecting the thinking of average Chinese or China’s future relations with Russia, especially when President Putin’s chances for a quick and clean victory achieving his goals concerning invading Ukraine are looking increasingly poor.
Russia will still need China as a market for its commodities and as a supplier of many other products the West might not be willing to provide.

Beijing will also look for ways to reduce the solidarity of the alliances the US has strengthened since Russia invaded Ukraine.
President Xi has already called on the EU to act more independently from the US, but Brussel’s response so far has been to repeat Washington’s warning that anything China does to support Russia’s ability to wage war will do “major reputational damage” to China in Europe.

Any similar approach to South Korea or Japan is likely to meet with another cold shoulder.
HONG KONG Comments Hong Kong’s position toward Russia’s invasion of Ukraine is not just in line with Beijing’s official (and unofficial) position, it is identical to it.

This is a matter of foreign policy, and there is no debate even within Hong Kong that the authority for that rests in Beijing.

That means Hong Kong government officials will probably not even comment on the matter, while their actions will be what Beijing tells them to do.
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There are very few economic linkages between Hong Kong and both Russia and Ukraine.

The value of trade between Hong Kong and Ukraine is insignificant, while Russia accounts for just 0.3% of Hong Kong’s total imports and 0.1% of its exports.
There is very little direct investment in either direction and non-stop flights between Hong Kong and Moscow, always limited, have been suspended since the start of the pandemic.

Perhaps the most interesting link between Hong Kong and Russia is that one Russian company, aluminum producer Rusal, is listed on the Hong Kong Stock Exchange, and as of this writing the trading of its shares has not been suspended.
This contrasts with other markets like London, New York, and Singapore, all of which suspended trading in companies with strong links to Russia.

US investment houses in Hong Kong are refusing to trade in Rusal shares, but plenty of other investors are willing to do so.

Turnover has been brisk and pricing very volatile.

Immediately after Russia’s invasion and the US mounted a campaign to isolate Russia economically, Rusal’s share price in Hong Kong plunged 60%.
However, it has since moved nearly 26% higher than its March 3 low, enhancing Hong Kong’s reputation for being a refuge market for companies facing geopolitical pressure from the West.

Many Mainland companies, facing pressure to delist in New York, have already come to that conclusion.

With the Ukraine crisis in mind, two scenarios are worth considering in addition to the current situation in which US-led sanctions are being applied to Russian companies.
One is if the crisis ends and the US drops its sanctions.

Because of their negative experiences in other markets during the war, a much wider range of Russian companies, including Gazprom, Lukoil, and Severstal, might consider listing in Hong Kong and even opening offices in Hong Kong to help support their business in the region.

This would enhance Hong Kong’s credentials as an international financial and business center.
A second scenario worth considering sees the US and its allies broadening their sanctions against Russia to include secondary sanctions against China if they perceive Beijing to be undermining their efforts to apply pressure on Moscow to withdraw its troops from Ukraine and negotiate a peaceful solution to their differences.
If this were to happen, Chinese companies with listings abroad could suddenly find trading in their shares suspended except in Hong Kong, which would be following Beijing’s instructions.

This is a bad scenario for Hong Kong that would significantly narrow its role as a business hub from one with global appeal to one with a much more limited bloc appeal.

However, within this China-led bloc, it would have a special, privileged position.
INDIA Comments India has strong links with Russia that have stopped it from condemning Putin on Ukraine.

Instead, it abstained from the UN vote.

Moreover, in a recent visit to New Delhi by Russian foreign minister Sergei Lavrov, India’s prime minister, Narendra Modi, indicated he wanted to stay “neutral.” What this means is to do what is in India’s best interests.

This means India will not condemn Russia for its invasion of Ukraine.
It might buy more oil and gas from Russia in the near term and use national currencies to settle the transactions.

On the other hand, India also wants to maintain smooth relations with the US, the UK, and the EU.

Consequently, India is likely to avoid doing so much business with Russia that it is considered to be a major sanction-buster.
It will try to use its leverage to pressure the US to sell more advanced arms and weapons systems to India so it can reduce its reliance on Russian arms in the medium term, and it will try to use its leverage with Russia to pressure Moscow to use more of its influence to reduce the economic and military threat posed by China.

Although Russia has decreased in importance to India as a supplier of military equipment in recent years, it still accounts for 60% of India’s total defense orders.
India has US$15 billion in outstanding defense orders from Russia.

April 6, 2022 ASIAN INTELLIGENCE Page 5 Political & Economic Risk Consultancy, Ltd. Issue #1,089 Of India’s total imports, 18.5% are in the form of oil.

It is the world’s third-largest importer of crude.


Although oil accounted for 52% of Russia’s total exports to India in 2021, Russia’s share of India’s total oil imports was only 4.1%, and India’s total imports from Russia in 2021, at US$8.44 billion, accounted for less than 1.5% of India’s total imports for the year of US$573.75 billion.
There could be a big jump in India’s imports of oil from Russia this year, judging from recent reports, which put the level of Russia’s oil exports to India in March at nearly four times their 2021 average.

The threat to India comes mainly from the way the Ukraine-Russia conflict is pushing up global prices for crude than from the threat it poses directly to India’s crude imports from Russia.
What would be significant for New Delhi, therefore, would be if it could get Russia to give India a big discount on the oil and gas it purchases.

India is not dependent on either Russia or Ukraine for its wheat imports, but it does import significant amounts of fertilizer from Russia.

To protect this trade, India is reported to be considering reviving an old rupee-ruble payment mechanism for trade that ended with the collapse of the Soviet Union.
Of India’s total exports of US$395.51 billion in 2021, only US$3.33 billion went to Russia.

This was equal to only 0.8% of the total.

Ukraine is even less important to India as a trading partner.

India’s imports from Ukraine accounted for only 0.5% of its total imports in 2021, while its exports to Ukraine were only 0.1% of India’s total exports.

Neither Russia nor Ukraine is a major direct investor in India.
Ukraine has no direct investments in India to speak of, while the cumulative value of Russia’s direct investments in India is less than 0.22% of the total.

Russia and Ukraine have been destinations for Indians opting to study medicine abroad.

According to data tabled by the Ministry of External Affairs in Parliament in June 2021, India had 18,000 Indian students enrolled in educational institutions in Ukraine, more than in Russia (16,500).
Almost a quarter of international students in Ukraine are Indians, with medicine, nursing, and dentistry being the main subjects.

India’s economy was slowing and inflation was accelerating before Russia invaded Ukraine.

Both these trends are likely to be aggravated by the war.
In particular, higher oil prices will aggravate local inflation and be a drag on economic growth, while the negative impact of higher fertilizer prices on agricultural production could be another factor slowing growth and pushing up inflation.

Despite the higher rate of inflation, the Reserve Bank will refrain from raising local interest rates.

This could put the rupee under more downward pressure against the US dollar.

The Indian unit has already weakened by 1.9% this year.
On the other hand, if the Reserve Bank feels compelled to raise interest rates and the government tries to limit the increase in pump prices of oil, the Modi government might decide to reduce excise duties on oil.

However, such a move would hit government revenues hard and sharply push up the fiscal deficit.

INDONESIA Comments Indonesia was not as outspoken as Singapore in condemning Russia’s invasion of Ukraine.
Jakarta did not single out Russia by name, but said it was concerned about “the escalation of the armed conflict in Ukraine” and affirmed that international law and the UN charter regarding the territorial integrity of a country must be adhered to.
Indonesia did eventually vote in favor of both the UN General Assembly resolution condemning Page 6 ASIAN INTELLIGENCE April 6, 2022 Issue #1,089 Political & Economic Risk Consultancy, Ltd. Russian aggression and the UN High Commissioner on Human Rights decision establishing an independent commission to investigate all alleged human rights violations in the war.
Ukraine wanted more from Indonesia, which currently holds the presidency of the G20 and is scheduled to host the group’s conference in Bali this coming November.

But it was precisely for this reason that Jakarta did not want to go further.

Washington had been trying to rally support for barring Russia from the group, but Beijing nixed the idea.

Jakarta does not want to be seen taking sides, especially when it concerns the US vs China.

It is not worried about the direct economic fallout from the war.
Indonesia trades little with Ukraine, while Russia accounts for only about 0.6% of Indonesia’s exports and imports.

There is no direct investment at stake, and to the extent that the war pushes up oil and other commodity prices, Indonesia stands to benefit.

However, the indirect fallout could be substantial.
Jakarta will not take sides, especially if it would heighten the risk that the Ukraine crisis turns into an issue that causes a more substantive rupture in US-China relations than it has done already.
It is not so much that Indonesia would be able to maintain its neutrality the way it did during the Vietnam War, but choosing one side over the other would drag Indonesia into the broader dispute and be divisive within Indonesia, where the Russian narrative of the war and the reasons for its actions has gained traction through social media discussion groups among significant portions of the population.
President Widodo would have to lay a lot of groundwork at home preparing Indonesians for any policy that slants too much toward the US, and he does not seem to be prepared to do that.

Of course, the US could try to apply pressure on Indonesia to support sanctions and other measures to isolate Russia and, if necessary China, but that would meet such strong resistance in Indonesia that it risks damaging US-Indonesian relations.
As in the case of India, President Widodo is betting that Washington won’t want to do that and will let Indonesia’s position stay vague and nuanced.

JAPAN Comment Japan’s relationship with Russia has long been testy.

After World War II, Japan never signed a peace treaty with the then-Soviet Union because of an unresolved dispute over what Japan calls the Northern Territories and what Russia calls the southern Kuril Islands.

Russia seized them in 1945.


Japan was the first Asian country to respond positively to the US call for sanctions on Russia.

Japan has frozen the assets of 25 more Russians and prohibited exports to 81 Russian organizations.

It has also restricted Russia’s access to the SWIFT international payments system.

Moscow responded immediately by pulling out of stalled peace talks, citing what it called Japan's unfriendly positions.
While Japan has joined the US and other countries in imposing sanctions on Russia, it has excluded Russian natural gas and oil from the sanctions, arguing that Japan’s energy security would be jeopardized.

Japan gets around 9% of its natural gas from Russia under long-term contracts.

The value of these imports last year was just over US$3 billion, but if it had to replace these in the short term from other sources, it would cost Japan much more.
However, Japan has banned exports of Russia-bound oil refinery equipment.

Even including energy imports, Japan’s imports from Russia in 2021 were equal to only 1.8% of its total imports, while its exports to Russia are equal to about 1.0% of Japan’s total exports.

Japan’s trade with Ukraine is less important, accounting for only 0.1% of Japan’s total exports and imports.
In recent years, Russia has increased its imports of Japanese ships and floating structures, various chemical and pharmaceutical products, and some textiles.

Japan’s imports from Russia are mainly comprised of raw materials, primarily fuels, metals, fish, and wood.
April 6, 2022 ASIAN INTELLIGENCE Page 7 Political & Economic Risk Consultancy, Ltd. Issue #1,089 Japan has more direct investments in Russia than do most other Asian countries, but its cumulative value is still only about 0.1% of Japan’s total FDI.

Russia ranked only 31st as a destination for Japanese outbound investment in 2020.

The most attractive industries for Japanese FDI in Russia are oil and gas (mainly in the Sakhalin region), vehicle production, and auto parts.
There are joint investment projects in the electric power industry, chemical, timber processing, pharmaceuticals, power engineering, agriculture, and medicine.
As worried as Japan is by the negative impact of Russia’s invasion of Ukraine on Japan-Russia relations, the bigger concern is that the crisis could aggravate Japan’s differences with Mainland China, which, on the one hand, is the biggest single national security threat to Japan, while, on the other hand, is one of Japan’s biggest trading partners and sites of its direct investments.
A Nikkei poll released on February 28 showed that 77% of Japanese respondents were concerned that the Ukraine invasion increases the odds of China using force against Taiwan.

The Ukraine crisis has pushed the national security threat posed by China to the front of the thinking of Japanese leaders.

It is with China in mind that Japanese Prime Minister Fumio Kishida recently traveled to both India and Australia to cement security ties and build alliances to contain China’s influence in the Indo-Pacific.
Tokyo is also bolstering security cooperation with the US, Japan’s closest ally.

Even before Russia invaded Ukraine, Japan and the US were deepening their relationship through the Quad grouping.

At the end of last year, Japan agreed to pay US$9.33 billion for the upkeep of US forces over five years to 2026.

About 54,000 US troops are currently stationed in Japan.
Leaders of the ruling LDP are likely to use the Ukraine crisis to nudge Japan closer to the point where a majority of the population will vote to revise the country’s pacifist constitution, paving the way for Japan to do more on its own to protect its national security instead of relying on the US to do so.
Despite the limited economic links between Japan and Ukraine, Tokyo has sent non-lethal aid to Ukraine and even agreed to accept Ukrainian refugees – which, perhaps more than anything – suggests how Russia’s invasion has prompted a shift in thinking in Japan.

The invasion has also amplified calls for more defense spending in Japan.
The current crisis is PM Kishida’s opportunity to break with past precedent and distinguish himself from his predecessor, Shinzo Abe, while demonstrating solidarity with the West.

The Ukraine crisis is bolstering support at home for Mr. Kishida's government.

Poll data suggests that the proportion of Japanese people supporting alignment with US sanctions has grown from 43% in January to 61% in late February after the start of the conflict.
With crucial elections just months away, nearly 70% of respondents to a different recent survey (one conducted by the Nikkei daily and TV Tokyo) said they approved of Prime Minister Kishida’s response to Russia's invasion of Ukraine.

Only 22% disapproved.

A strong win for his ruling Liberal Democratic Party (LDP) in the election for the upper house of parliament in July could allow him several election-free, politically stable years in which to pursue his policy goals.
MALAYSIA Comments Malaysia voted in favor of the resolution condemning Moscow’s aggression on Ukraine, but it has refrained from imposing sanctions at this time, saying there should be a ceasefire and negotiation.

It left the door open to joining in sanctions at a later date, but these should go through the UN.

In any event, any sanctions by Malaysia would be largely symbolic.

There is no direct investment between the country and either Russia or Ukraine.
Malaysia’s exports to Russia accounted for only 0.31% of its total exports in 2021, while its exports to Ukraine were only 0.06% of the total.

Imports from both are also small: only 0.50% of the total in the case of Russia and 0.07% for Ukraine.

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The new conflict might prompt Malaysia to review its future military purchases, and trade with Russia does figure here.
Malaysia’s air force is currently comprised of both Russian and US fighter jets.

Russian fighter jets represent more than half of the combat aviation capabilities in Malaysia’s current inventory, but the fleet is old and needs to be replaced.
Before the Russian invasion of Ukraine, Malaysia had indicated that it wanted to keep relying on Russian-made planes, but this could have significant negative fallout if it follows through on new arms purchases at a time when the US is pushing countries to join in imposing trade sanctions on Russia.

If Malaysia goes ahead with the purchase of more Russian-made Su-30MKM planes anytime soon, it could place a heavy strain on its relations with the US.
On the other hand, if it does not buy the Russian planes but now buys the US-made F/A-18E/F Super Hornet instead, it might convince the US not to worry too much about Malaysia’s refusal to join the official sanctions against Russia.

The economic impact of the war on Malaysia will be mixed.

On the one hand, there will be benefits.


Petronas should reap higher profits from the rise in oil prices, enabling the state-owned oil and gas company to give more revenue to the government, helping its fiscal accounts.

Higher commodity prices resulting from the conflict should benefit palm oil producers in Malaysia.

In addition to increasing Malaysia’s exports, the country’s GDP growth should also receive a boost.
On the other hand, higher oil prices will also inflate the subsidies paid by the Ministry of Finance.

It will also drive up the global prices of gas and coal, causing an increase in the costs of operations of power plants in Malaysia.

The war in Ukraine will put even more upward pressure on the price of animal feed and, indirectly, food and other prices in Malaysia.

At present, consumer price inflation in Malaysia is still low.

It was only 2.2% in February-over-February.


Moreover, government subsidies on petrol should help to limit the acceleration in pump prices for petrol.

Consequently, even if food prices increase, overall inflation in Malaysia could stay lower than in most other countries in the region.

However, the Malaysian ringgit is still weakening in the foreign exchange market.
It has so far depreciated by 1.10% against the US dollar since the start of this year, and the outlook is for a further weakening during 2022 as interest rates in the US rise.

This is all quite manageable for Malaysia.


However, as elsewhere in the region, the complications would grow dramatically if the Ukraine-Russia conflict results in a more open split between the US and China, with each side using sanctions and other weapons at their disposal – which almost certainly means economic and diplomatic weapons at first – to pressure other counties to take a position that is compatible with their own.
This is something Malaysia would resist, but “neutrality” would probably entail significant economic costs and might not even be possible.

Moreover, it is worthwhile remembering that even being geographically distant from the dispute, neutral in its approach to both governments directly involved (Russia and Ukraine), and economically unconnected to both do not guarantee that Malaysia will not be dragged into the war in very unwanted ways.
This already happened once before: back in 2014, when previous, more limited fighting between Russia and Ukraine resulted in the shooting down of the Malaysian Airlines 777 plane — MH17 — along with the lives of 255 individuals in eastern Ukraine.

PHILIPPINES Comments The Ukraine-Russia conflict will have only a limited direct impact on Philippines’ foreign trade.

Neither country is a major trading partner with the RP.
According to the Central Bank, the Philippines’ total exports to April 6, 2022 ASIAN INTELLIGENCE Page 9 Political & Economic Risk Consultancy, Ltd. Issue #1,089 Russia in 2021 amounted to about US$120 million, or about 0.16% of its total exports, while the country’s exports to Ukraine totaled a mere US$5 million, or 0.01% of total exports.

Philippine imports from Russia in 2021, at US$738 million, were 0.59% of its total imports, and for Ukraine, 0.12%.
Neither country has any direct investments in the Philippines to speak of, while the Philippines did not have any in either Russia or Ukraine.

The biggest economic impact of the crisis will be the upward pressure it places on international commodity prices, especially petroleum and food.

The Philippines produces little oil of its own and must import what it consumers.

The total annual bill before the recent upsurge in prices was about 20% of the total import bill.
This is going to increase in 2022 in both dollar and percentage terms.

It will place pressure on both the country’s current account of the balance of payment and on inflation, which is currently running at an annual rate of 3.0% in terms of consumer prices.

During its last policy meeting on February 17, the Central Bank projected inflation to average 3.7% in 2022 and 3.3% in 2023, but that was before Russia’s invasion.
Both of those forecasts might have to be doubled because of the war, depending on how long it lasts and how severely it disrupts global supply lines.

Unlike in many other countries, neither Russia nor Ukraine hosts many workers from the Philippines, so the Philippines’ exposure in human terms is not very large, and the potential loss in remittances is minimal.

Before the war, there were only an estimated 200 Filipinos in Ukraine, many of whom were married to Ukrainian nationals.
There are believed to be around 10,000 Filipinos living in Russia.

They are working mainly as domestic helpers who are undocumented due to the limited work visas available in that category.

Filipino workers in Russia sent home via the banking system a total of PHP115.8 million or US$2.3 million in 2021.

This does not mean the war in Ukraine is unimportant for the Philippines.

It has the potential to define the country’s future relationship with China and the US.
Ever since Rodrigo Duterte was first elected president, he has tried to reorient the country more toward China and away from the US, but he is in a minority of political leaders in the country who favor such a shift, and his future time in office is very limited.

Even in his final months, he seems to be following the advice of his political advisers and has been trying to improve relations with the US.
It is telling that, although the Philippines is trying to remain “neutral” on the Ukraine crisis, it admits that the country might eventually have to choose sides.

This does not mean a choice between Ukraine and Russia but between the US and China.

Indeed, without formally admitting it, Manila is already moving closer to the US.

The Philippines did not follow China in abstaining in the recent UN vote condemning Russia’s invasion.
Instead, it condemned the invasion and supported the resolution calling for Russia to pull its troops out of the country.

Moreover, Manila’s ambassador to Washington, Jose Manuel Romualdez, recently said the Philippines is ready to open the country’s “facilities” to American forces under a 1951 mutual defense treaty if Russia’s war against Ukraine turns for the worse and embroils the United States in the fighting.
The implication is that if the war becomes the catalyst that splits the US and China into two rival camps, the Philippines intends to join the US camp.

Given the speed that developments are unfolding, that decision will ultimately be up to Mr. Duterte’s successor, but none of the leading candidates running for the presidency have adopted platforms that advocate a fundamentally different response.
SINGAPORE Comments Singapore moved even before the UN vote to condemn Russia for its invasion of Ukraine and to impose sanctions.

Singapore’s prime minister, Lee Hsien Loong, was also the first Asian head of state to visit Washington Page 10 ASIAN INTELLIGENCE April 6, 2022 Issue #1,089 Political & Economic Risk Consultancy, Ltd. after the Ukraine crisis began, and he joined with US President Biden to condemn Russia’s actions in Ukraine.
This was the strongest response of any ASEAN nation and has made Singapore stand out as being one country in the region that is not sitting on the fence on this issue.

However, Singapore also is sensitive to the awkward position in which China now finds itself and is trying to convince the US that it would not be a good idea to impose sanctions against China.
Singapore recognizes the full implications of the invasion and its potential to split further the US and China, which would be very bad for Singapore.

Singapore is also using the Ukraine crisis as a model to study closely to see what Singapore needs to do to bolster its defense.

For decades, Singapore has used Israel as an example on which to build its defense.

To a large degree, that is still the case.


However, Russia’s invasion of Ukraine, the way Ukraine is defending against it, and how the weapons of the war extend beyond guns, radar systems, and aircraft to also include trade sanctions, being cut off from the Swift financial messaging, and freezing the assets of oligarchs globally provide valuable new lessons for Singapore.

The financial sanctions that have been imposed on Russia mean Singapore cannot be neutral.
It could adopt Hong Kong’s position, which is to do what China says – and to leave its stock market open to trading in shares of Russian companies, but this could have put Singapore too much at odds with the US, Japan, Australia, and EU countries.

It is telling just how quickly the Singapore government moved to block certain Russian banks and financial transactions connected to Russia, and how fast it suspended trading in PJSC Gazprom's global depository receipts on Singapore’s stock exchange (SGX).
The sanctions also involve a ban on the export of electronics, computers, and military goods to Russia.

Singapore’s leaders are keeping their fingers crossed that Beijing will not go too far in supporting Russia and will ultimately succeed in finessing a position in which it can claim to be a friend of Russia but still be upholding the principles of independence, sovereignty, and territorial integrity.
But one thing Singapore’s government quickly decided it could not do was to refrain from staking out its position on this issue and risk sending a signal to Beijing that its influence is so strong in the region that smaller countries like Singapore would be willing to subjugate their national security interests for the sake of maintaining smooth relations with China.

By condemning Russia’s actions as quickly and forcefully as it has, Singapore has left no doubt that it is putting its interests first.
Those are the interests of a small, sovereign nation that does not want to have a world in which might makes right.

Singapore’s exports to Russia account for only about 0.1% of total exports and its imports from Russia account for about 0.3% of total imports.

However, Singapore companies do have some direct investments in Russia, and they also are major traders in commodities in which Russia figures prominently as a producer.
These firms are trying to find out if they are or are not in compliance with the sanctions policies and, in cases where they are not, are moving fast to correct it.

Singapore-listed issuers with businesses in Russia include oil trader Trafigura, and food commodities traders Wilmar International and Olam International.
SOUTH KOREA Comments Even before Russia invaded Ukraine, there was speculation that if Yoon Suk-yeol were elected president, he would move South Korea closer to the US, take a harder line against North Korea, and be less worried about offending Mainland China if it meant safeguarding Korea’s national interests.
Now, Yoon has been elected and April 6, 2022 ASIAN INTELLIGENCE Page 11 Political & Economic Risk Consultancy, Ltd. Issue #1,089 Russia’s invasion of Ukraine has highlighted the risks the South is facing from having a belligerent neighbor on its northern border flanked by even larger and potentially more menacing autocratic states.

Seoul will be even less worried about maintaining strategic neutrality to avoid being caught in the growing geopolitical competition between China and the US.
The outgoing government headed by Moon Jae-in has already started to make that shift.

His government has supported the US call to condemn Russia’s invasion and join in imposing trade and other sanctions, including banning major Russian banks from the Swift international payments network.

The incoming government will do more to demonstrate how strong the South’s relationship is with the US and how it is less worried about offending China.
The first and foremost lesson the South’s in-coming government is likely to take from the Ukraine conflict is that it needs to beef up its defense capabilities.

This means investing more in its military.

It will buy more weapons from the US, including systems that China finds threatening.

It will show little interest in negotiating with North Korea, especially since the North has just undertaken new missile tests as part of its plan to modernize its weapons.
South Korea might also raise its profile in regional defense initiatives like the Quadrilateral Security Dialogue or Quad.

Recognizing that treating China more as a threat could prompt Beijing to punish the South economically as it did when Seoul ignored Beijing’s opposition and deployed the US-made THAAD missile defense system, the new Korean government will call on South Koreans to make the economic sacrifices needed to ensure the country’s national security is protected.
The bravery and effectiveness of the Ukrainians in fighting a much larger Russian invasion force will be an inspiration for South Koreans, who have always been among the most nationalistic of Asian societies in the face of national emergencies.

It will not be hard for President-elect Yoon to convince them that Korea is facing just such a threat now and that the South must be willing to accept a more difficult economic relationship with China if that is needed to protect the South’s national security.
Those economic costs are almost exclusively confined to the South’s trade and investments with China, which are substantial.

The South’s economic ties to both Russia and Ukraine are too limited to be very worried about.

To be sure, some industries are exposed, including Korean banks, shipbuilders, car companies, and electronic manufacturers.

Korea’s major shipbuilders have contracts with Russian entities valued at around US$6 billion.
However, the South’s total exports to Russia and Ukraine are equal to only 1.5% and 0.1%, respectively, of its total exports.

Their shares of the ROK’s total imports are 2.8% and 0.1%, with Russia providing mainly fertilizer, coal, and wheat, while Ukraine provides the South mainly with wheat and corn.
Perhaps more important from the perspective of Korean business, Ukraine is also a leading provider of noble gases that are used in lasers that print circuits on semiconductor chips – South Korea’s single largest export item.

Korea currently purchases 31% of its krypton from Ukraine, alongside 23% of its neon gas and 18% of its xenon.

If the ongoing war disrupts the output of these gases, finding a substitute quickly will be difficult.
In addition to disrupting supply lines further, the war in Ukraine will push up world prices for Korea’s major imports, namely, oil and gas imports, as well as foodstuffs.

This will add to inflation pressures.

Consumer price inflation in February-over-February was 3.7%, and the Central Bank was forecasting an inflation rate for the full year of 3.1%.

However, that was before the war.


Actual inflation for this year could be several percentages higher than the current prediction, especially since the won has already depreciated by 2.5% against the US dollar this year, and a further fall is likely.

TAIWAN Comments Page 12 ASIAN INTELLIGENCE April 6, 2022 Issue #1,089 Political & Economic Risk Consultancy, Ltd.
Observers who have warned that the Russian invasion of Ukraine showed the possibility of a PLA attack on Taiwan must be taken seriously are missing the point.

Any observer worth his or her salt has been taking such an invasion possibility very seriously for years.

The question is whether Russia’s invasion has made a Chinese attack on Taiwan more or less likely in the near term.

The answer to this question is probably less likely.
Had Russian troops marched into Ukraine and taken over the country quickly, while Europe and the US stayed on the sidelines and complained, it would have been a different matter.

Such an unfolding of events in Ukraine would have pushed up short-term risks in Taiwan substantially.
However, the poor performance of the Russian military in the face of determined opposition by a much smaller and less well-equipped force has almost certainly deflated the confidence of PLA generals and made China’s leaders aware of just how bad they would look if they presided over the same kind of failure.

The only reason we said “probably” instead of less likely is that China’s leaders will also be weighing the risk of how much more remote their chances will be of ever retaking Taiwan if they wait.
Taiwan’s leaders will also be learning from the Ukraine War.

They will be studying how to enhance their chances in any future asymmetric war with China, which means Taiwan will be beefing up its military substantially.

There will be a renewed urgency to address the weaknesses of Taiwan’s military, including the fitness of its troops in terms of training and commitment.
It will be stockpiling more weapons like Stinger antiaircraft missiles, buying more sophisticated weapons systems from the US, and developing its capability to manufacture weapons, especially things like drones and missile systems that can defend against Chinese missile and air attacks.

Taiwan’s leaders know the Ukraine conflict has created an opportunity in the short term to push through unpopular measures that would be needed to improve the island’s defense capabilities.
For example, they are considering the possibility of extending compulsory military service beyond four months to 12 months.

Taiwan’s leaders will try to use the example of the brave and united response of Ukrainians to instill a similar sense of patriotism and urgency in Taiwan’s population.
There is a big gap between what exists today and what will be needed in case China mounts an invasion, and the Ukraine conflict has eliminated the luxury of simply being able to talk about what Taiwan needs to do to be combat-ready.

It has to start acting now.

For example, the US agreed to sell Taiwan four MQ-9 Reaper drones back in 2020, but Taipei has yet to order them.
These kinds of delays have been common in the past as if Taiwan was satisfied just getting the US to agree to a controversial sale to anger Beijing but then delayed implementing the deals to save money.

China will also see how Russia’s invasion of Ukraine has united the US and its NATO allies and how they were willing to provide weapons and other assistance to Ukraine even though they would not agree to send in troops of their own.
Leaders in Beijing are probably less confident now than they were before Russia’s invasion that the US and its allies would be too disunited to support Taiwan.

They might not be willing to send troops, but they would provide weapons and equipment to Taiwan if its people show they are willing to fight.

They would also slap sanctions on China, and China can see just how disrupting those sanctions can be, including cutting China off from the global financial system.
China’s approach will more likely be to favor the long-term option over a short-term invasion.

That still keeps the door open to reunification, which could still be achieved in the long term if China keeps gaining economic leverage over Taiwan.

Time could also reduce the sense of urgency in Taiwan which is turning it into a harder target in the short term.
The more immediate challenge for Beijing if it does rule out the short-term option is to convince the US that Beijing wants to preserve the status quo with Taiwan and does not want Ukraine to become an issue that prevents China’s continuing engagement with the US but also does not interfere with Beijing’s other foreign policy priorities like asserting its control over the South China Sea and increasing its influence in Asia while limiting the ability or desire of the US to expand its influence in the region.
Such a balancing act will be difficult to manage, but this is the kind of diplomacy at which Beijing excels.

April 6, 2022 ASIAN INTELLIGENCE Page 13 Political & Economic Risk Consultancy, Ltd. Issue #1,089 The economic costs to Taiwan from the Ukraine conflict and from participating in sanctions are not especially heavy.

Trade with Ukraine is very small (less than 0.1% of the island’s exports and imports).
The ROC’s exports to Russia account for 0.3% of its total exports, and its imports from Russia are 1.3% of total imports.

Of the imports, most are raw materials like coal, petroleum, gases, iron, and unwrought aluminum.

These can be shifted to other sources.

Exported items to Russia in 2021 included US$374 million in computing and storage media parts, US$255 million in machinery products, US$178 million in stainless steel products and screws, and US$36 million in electronic parts and chips.
Although Taiwan’s semiconductor chip exports to Russia do not amount to much in dollar terms, there is a greater significance to these exports than their value.

Russian companies can design extremely sophisticated chips, but they cannot manufacture them.

Consequently, these Russian design companies have been outsourcing actual production to Taiwan Semiconductor Manufacturing Compay (TSMC).

To show its support for the US, Taiwan has banned the export of sensitive technology to Russia.
TSMC has promised to comply.

TSMC’s ban has fortified the thinking of the US and Taiwan (as well as China) that semiconductor manufacturing capability is not just needed to tackle current supply chain issues but also is a way to forge closer links between countries (when the manufacturing capacity is shared) or to hold back the development capabilities of the other side (when the manufacturing capacity is denied).
Going forward, therefore, Taiwan is likely to be much more active in using its chip manufacturing capabilities and investment muscle to forge stronger links with the US and Japan (and maybe even some European countries), and will probably become more selective in making this technology available to China.

This makes sense for protecting both the island’s economic competitiveness and its national security.
THAILAND Comments Thailand is trying to stay on the sidelines concerning Russia’s invasion of Ukraine, which means it is refusing to criticize Russia or participate in sanctions.

Although Thailand joined with 140 other countries (including seven of its ASEAN partners) in voting for a non-binding UN General Assembly resolution ‘deploring’ Russia’s attack, its foreign ministry has refused to condemn Russia by name.
However, the Kingdom’s banks and companies are still affected by the sanctions mainly because of the difficulties Russians are having in transferring funds to Thailand and the unwillingness of airlines and ships to travel between Russia and Thailand.

The biggest impact of the sanctions is to delay further the recovery of Thailand’s tourism sector.
Due to COVID, the numbers were way down even before the invasion, but the Thai government has been trying to open the industry and get more foreigners to travel to the Kingdom.

In 2019, before the pandemic, 1.4 million Russians visited Thailand, equivalent to 5.4% of total foreign visitors to Thailand that year.

They were also big spenders, accounting for 9.1% of total tourism receipts that year.

The return of this business is now going to be delayed indefinitely.
The disruption to travel and fund transfers has created a new problem for Thailand: thousands of Russians (and an estimated 3,000 Ukrainians as well) are currently stranded in the Kingdom’s beach resorts.

Merchandise trade between Thailand and Russia is limited.

Russia accounts for only 0.4% of Thailand‘s total exports and 0.65% of its imports.

Of the imports, oil and gas figure prominently.

They account for 5%-6% of Thailand’s total imports of oil and gas.
Trade with Ukraine is even less: 0.05% of Thailand’s exports and 0.09% of its imports.

Therefore, the impact on the Kingdom’s direct trade with these two countries is not a big concern.

However, what is a worry is the potential for the war to push up global prices for oil and other commodities that Thailand must import, causing inflation to accelerate.
Page 14 ASIAN INTELLIGENCE April 6, 2022 Issue #1,089 Political & Economic Risk Consultancy, Ltd. Thai consumer price inflation in February rose to 5.28%, the highest rate in 13 years and well above the level of inflation in most other countries in the region.

So far, the baht is still holding its own against the US dollar.
The Thai unit has weakened only 0.9% against the greenback since the start of this year, which is in line with or less than the changes most other Southeast Asian exchange rates have experienced this year, but that could change if the Thai economy starts performing noticeably weaker than others in the region and its rate of inflation is higher.

VIETNAM Comments Vietnam is closer to Russia than any other country in Southeast Asia.
The links have weakened economically over the past two decades, but diplomatic relations remain fairly close.

Russia stood by Vietnam through its war with the US.

During the 1979 Vietnam-China War, Moscow made it clear to Beijing that it would not intervene as long as the conflict remained localized along the common border between China and Vietnam, and it sent several naval vessels to Vietnamese waters and initiated an arms lift to Vietnam.
When the Soviet Union collapsed, the economic dimension of the special relationship between Russia and Vietnam faded almost overnight.

Trade and investment went into a steep decline, as Vietnam shift its attention to the West.

By 2021, Vietnam’s exports to Russia (half of which are telephones and parts) accounted for less than 1.0% of its total exports, and its imports from Russia (mainly arms, fertilizer, coal, and wheat) were only 0.7% of the total.
The outstanding cumulative value of direct investment from Russia in Vietnam is less than US$950 million, or 0.24% of total FDI, and there have been no recent direct investments from Russia.

Russia has repeatedly vowed to hike trade with its former Cold War-era allies in Asia like Vietnam, but the growth of its ties has lagged well behind Moscow's cheery rhetoric.
Moreover, the relationship between Vietnam and Russia has been strained by a dispute over repaying Vietnam's ruble debt to the former USSR, inherited by Russia.

Vietnam still owes Moscow 10.5 billion transferable rubles, Soviet quasi-currency, and conversion estimates range from US$2 to US$17 billion.

Much of the debt emerged from several showcase projects that Moscow backed in the past.

However, the amount that will be paid back by Vietnam is expected to be far less than the original loans.
Apart from the debt problem, bilateral trade is hindered by high transport costs, lack of capital, and cumbersome bureaucracy in both countries.

In many ways, Moscow has shown itself to be consistent with its support for Vietnam.

For this reason alone, Hanoi is not about to turn its back on Russia.

However, the relationship is not as close as it once was.
This was demonstrated by Hanoi’s refusal to join a very small number of countries like North Korea, Belarus, Eritrea, and Syria that have backed Putin’s invasion of Ukraine.

Instead, Vietnam was one of the 12 countries that abstained from the UN proposal to condemn the invasion, and it is not about to join in sanctions against Russia.

The presence of some 100,000 Vietnamese in Russia, mainly in Moscow, remains a link between the two nations.
Russia also provides higher education to more than 3,000 Vietnamese nationals.

Moreover, around 7,000 Vietnamese were working or studying in Ukraine before the war broke out.

However, Vietnam’s trade and investment links with Ukraine are even weaker than its links with Russia.

Vietnam’s exports to and imports from Ukraine accounted for only about 0.1% of its total trade last year.

Most exports were mobile phones and parts, while wheat was the biggest single import.
Russia’s invasion of Ukraine has put Hanoi in a very tricky position.

“The enemy of my enemy is my friend” philosophy does not apply in the line-up of allies following the current Ukraine conflict, since Hanoi still April 6, 2022 ASIAN INTELLIGENCE Page 15 Political & Economic Risk Consultancy, Ltd. Issue #1,089 views Moscow as being more of a “friend” than it does the US, and it does not want to be placed in a position where it has to choose between Beijing and Washington.
The leadership in Hanoi does not trust either the US or China and wants to preserve some distance in its relationship with both.

However, Hanoi cannot give its support to Russia’s invasion or to even to a negotiated solution that results in Russia taking territory away from Ukraine, since China, through its support of Russia, could use the same argument to wrest control over islets and waters in the South China Sea also claimed by Vietnam.
Hanoi’s immediate priority, therefore, is to do what it can to prevent the Ukraine crisis from dividing the US and China more than it has already.

Beijing’s current failure to support Russia outright and its call for a negotiated solution are at least in line with Hanoi’s thinking.

If China keeps retreating in its support for Russia and shows that its friendship is conditional, Hanoi will be able to breathe easier.
But if Beijing decides it is in its strategic interests to throw more support behind Moscow and this prompts the US to impose secondary sanctions on China, Vietnam’s choice would be starker.

Its national interests would probably be best served by supporting the US since that would raise the chances of the US using its muscle to counterbalance a more aggressive posture by China in the South China Sea, but overall tensions around Vietnam’s borders would still be higher without any real reduction in risks.
EXCHANGE RATES Currency Chinese renminbi Hong Kong dollar 4/01/22 6.3631 7.8339 Indian rupee 75.98125 Indonesia rupiah Japanese yen Malaysian ringgit Philippine peso Singapore dollar South Korean won Taiwan dollar Thai baht Vietnamese dong 14,368 122.53 4.2105 51.5920 1.3567 1,219.77 28.68 33.520 22,839 Commercial middle rate expressed in terms of US$1.

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