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With China slowing, India and the Middle East factor heavily in legal experts’ predictions of key trends that will shape 2024. George W. Russell reports

While geopolitical tensions continue to make global headlines – the Russian invasion of Ukraine has entered its third year, and there seems to be no quick resolution to the Israel-Hamas conflict – Asia is likely to be focused on economic issues in 2024. From China’s relatively struggling economy, to Indonesia’s path under a new president and India’s forthcoming general election, Asia’s outlook is headline news across the world.

This year is pivotal politically. Already there have been important elections in Taiwan, where another victory by the nationalist Democratic Progressive Party in January upset Beijing. That same month a controversial Bangladeshi general election saw long-time prime minister Sheikh Hasina returned to power.

In February, Prabowo Subianto, a former general accused of human rights violations, was forecast to have easily won an election and will become the new president. April will see a legislative election in South Korea, followed by a Mongolian parliamentary election in June. Sri Lanka votes for its next president in September and October.

But the economic focus this year remains China. On February 18, Chinese Premier Li Qiang called for “pragmatic and forceful” action to boost economic confidence, noting that the government was concerned about a sluggish recovery and plunging stock markets. “China’s economy has progressively slowed lately, with mounting imbalances and associated vulnerabilities,” says Taimur Baig, chief economist at Singapore-based regional bank DBS.

Alicia García-Herrero, chief Asia-Pacific economist at French bank Natixis CIB, says high real interest rates and China’s crackdowns on several sectors have hurt those in need of funding. On the structural front: “Chinese authorities stubbornly pile up additional investment through different industrial policy plans”. She says the result, given stagnant domestic investment and a more reluctant external demand, “is increasing overcapacity”.

China’s gloomy sentiment

Meanwhile, China’s deeply indebted property sector remains troublesome. On 20 February, the People’s Bank of China lowered the five-year loan prime rate (LPR), which commercial banks use as a benchmark to adjust their mortgage rates, to 3.95% from 4.2% – the largest cut since 2019. “This LPR cut will likely help stabilise property market sentiment,” said Tao Wang, head of Asia economics and chief China economist at UBS.

Also last month, the State Administration of Foreign Exchange reported that new international investment into China at the end of 2023 was 82% lower than the previous year’s level and the lowest overall since 1993. “For the worst to be over, consumption and business sentiment need substantial support,” says Baig.

These low levels of sentiment – across businesses as well as consumers – worry lawyers. “I’ve been in China 10 years and others have been here all their lives,” says Kanyi Lui, a partner and head of China at Pinsent Masons in Beijing. “This is the first time they have seen China slowing down. 2023 was the first year China emerged from the covid-19 pandemic, and people expected pent-up demand from lockdowns to be released, which didn’t really happen.”

However, firms say Chinese companies are already making contingency plans as the domestic economy adjusts to lower growth. State-owned enterprises, for example, are “redoubling their efforts” to expand overseas. “One red hot market is the Middle East, especially Saudi Arabia,” says Lui. Southeast Asia is also a region to watch, he adds, noting: “The Philippines is a major beneficiary of infrastructure investment with many projects done by China.”

Disputes and resolutions

The infrastructure boom, according to several Asia-focused firms, is likely to be accompanied by a boost in construction dispute work. Lui also expects a dynamic year for restructuring.

Sherlin Tung, Withers

Withers, for example, recently boosted its Asian dispute resolution team by hiring special counsel Gary Leung and promoting Alex Ye to special counsel. Sherlin Tung, a partner in Withers’ litigation and arbitration team in Hong Kong, says the appointments “reinforced our commitment to Hong Kong as a leading seat for resolving commercial disputes”, adding that the dispute resolution practice caseload has more than doubled since 2020.

One factor is Chinese courts strengthening protections for foreign firms. Arbitration clients are much more reassured because of mutual enforcement of awards, Tung adds, citing a case in which a court recently froze USD20 million in assets in China.

Leung says the general China economic downturn is causing a lot of internal disputes among companies. “There is a lot of offshore debt restructuring,” he says, citing property developers such as Country Garden, which has been putting up major projects in London for sale as part of its restructuring.

Geopolitical tensions, meanwhile, have exacerbated the potential for disputes. “The logistics sector has battled the impact of covid-19, the blockage of the Suez Canal, and now, the unexpected need for extra security when navigating through the Red Sea,” says Tung, adding that shipping companies have raised charges, attempting to invoke force majeure. “Our clients – their customers – have been faced with sudden increases in fees.”

India as alternative destination

China’s economic difficulties – as well as a search for diversification among suppliers – has boosted the fortunes of other regional economies, particularly in South Asia and Southeast Asia. “The difference today is the sheer scale of investment interest focusing on India, particularly as companies hedge their bets against an over-reliance on China,” says Roddy Martin, co-head of the India practice at Herbert Smith Freehills in London.

“The seeds of growth are already in place,” he adds of the world’s most populous country. “India’s education sector has long generated – and exported – expertise and innovation, and global tech and manufacturing companies have now established facilities in India to start to capture the best of that talent.”

The task for international law firms, which in 2023 became officially able to open offices after more than a decade of talks over restrictions, is to help ensure a “well-documented, robust regime regarding matters such as funding milestones to reassure investors that the factory will be built and receive its permits and, critically, addressing the technology transfer and the ownership and use of developments and improvements,” according to Martin.

Indian firms say the moves to allow foreign firms will provide healthy competition. “We foresee several opportunities for collaborative growth,” says Haigreve Khaitan, senior partner at Khaitan & Co in Mumbai. “This is an opportune time for such a step, with the Indian legal space ushering in a new era of legal tech-based innovation.”

Khaitan expects 2024 to see deals gather steam. “The technology, financial services and infrastructure spaces are in focus from a mergers and acquisitions (M&A) standpoint as India ramps up efforts to build a robust ecosystem,” he says. “Some exciting initial public offerings seem to be in the pipeline as well.”

Stable Japan lures investment

Japan is gripped by a weakening yen, an ageing population, increasing tensions with China and a severe labour shortage. The economy shrank in the past two quarters and household consumption remains weak.

Yet the Nikkei 225 set a 34-year record on 22 February, and has risen 17% since 1 January, making it the world’s best-performing major index, and Japanese law firms are optimistic about 2024. “Japan is a safe destination for investment in terms of the geopolitical environment,” observes Nozomi Oda, an M&A and capital markets-focused partner at Morrison & Foerster in Tokyo.

Haigreve Khaitan, Khaitan & Co

Tech is booming and Japan’s political stability, modern infrastructure and earthquake-proof buildings make it a popular destination for data centre investment. “Artificial intelligence (AI) has attracted many investors in Japan, as it has become part of such institutions as the National Health Insurance system, while life sciences and healthcare are centres of attention,” says Masahiko Ishida, DLA Piper’s country managing partner in Tokyo.

“ChatGPT is rolling out,” he adds, referring to the large AI language model increasingly used in commercial, educational and professional settings.

Ishida expects corporate governance to maintain its high profile this year. “Corporate governance in Japan is way better than before,” he says. “Activist investors exert positive pressure impact on the mentality of managers and directors, while the Tokyo stock exchange gives good guidance. Japanese companies are going in the right direction thanks to pressure from activism and markets.”

Japanese companies are expected to be heavily invested in Southeast Asia in 2024, according to Justin Ee, a partner at Nagashima Ohno & Tsunematsu in Singapore. “I have seen many infrastructure projects in Indonesia,” he says. “Southeast Asia investors see a lot of potential with cheap funds, cheap labour, huge populations and a huge market.” Ee says the trend is so significant that the firm recently opened a Jakarta office. “Vietnam is also big,” he adds.

Southeast Asia rising

Lui, at Pinsent Masons, agrees that Vietnam can expect a banner year, especially in sectors concerning supply chains, offshoring and infrastructure. “What I do see in 2024 is continuing trends of offshoring. Vietnam has been a darling because of its membership in both the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership.”

However, he warns that while Vietnam’s population is relatively young, the country is running out of key assets, including people – “Unemployment numbers are half those of everybody else” – and energy. “When I was in Hanoi they had brownouts – they are running out of power.” He adds that Laos is a significant beneficiary of the overflow from China and Vietnam, while the Philippines and Indonesia will also see growth.

Global investors are keeping close watch on government modernisation efforts and policy liberalisation developments in Southeast Asian countries such as Vietnam and the Philippines, says Theodore Heng, principal at Baker McKenzie Wong & Leow’s M&A practice in Singapore.

Heng says there have been signs of a revival of M&A activity in Southeast Asia. “It’s driven by strong interest in sectors such as healthcare, digital infrastructure and renewables, as well as the US-China trade rivalry and China economic slowdown, attracting capital which otherwise would have been deployed elsewhere,” he says.

Tung, at Withers, notes that economic development in Southeast Asia, in particular in the commodities, construction, and manufacturing industries, has also prompted rising disputes. “Arbitration is the ideal mechanism for resolving disputes,” she says, noting that the firm’s Singapore dispute resolution team has seen more cases involving Indonesian, Vietnamese, Malaysian and Thai companies.

Moving money across borders

With geopolitical tensions on the rise, several jurisdictions are ringfencing certain sectors from foreign control, or putting curbs on cross-border investment. An executive order issued by US President Joe Biden in August 2023 restricted outbound investment to China, Hong Kong and Macau in areas deemed critical to national security, mainly advanced computing chips and microelectronics, quantum technology and AI.

Nozomi Oda, Morrison & Foerster

But the Asian giants are also imposing curbs on foreign investment. China’s increased scrutiny on sectors from technology, consultancies and brokerages to education and even weather apps is damping enthusiasm, and has led many to question current investment potential in the nation.

That view is not universally held, of course. “China is the world’s second-largest economy, a significant player in the global supply chain and a leader in critical areas such as renewable energy technologies, electric vehicle batteries and mature chip production,” says Kunjal Gala, London-based head of global emerging markets at US asset manager Federated Hermes. “We do not share the view that many hold in the market that China is largely uninvestable, and we see a favourable risk-reward situation.”

Meanwhile, India continues to maintain heightened scrutiny of Chinese investments four years since a border clash cooled bilateral relations, although in January, India’s top industrial policy bureaucrat said at the annual World Economic Forum meeting in Davos that continued peace could see a relaxation of the investment curbs.

Southeast Asia has also seen tighter foreign investment rules. On 9 January, Singapore’s parliament approved the Significant Investments Review Bill to regulate foreign holdings in entities critical to national security. But Indonesia has steadily expanded sectors open to foreign investors, while “there are minimal restrictions on foreign investment participation in Malaysia”, according to a recent review by Oliver Borgers and Dominic Thérien, of Canadian firm McCarthy Tétrault.

“While the rise of national security laws and the introduction of sanctions globally could hinder M&A activity across the Asia region, within Asia itself we are seeing policy shifts geared towards attracting foreign investment,” says Heng, at Baker McKenzie.

Private equity looks further afield

Globally, private equity (PE) sentiment was more optimistic as 2024 began. “Pent-up demand, significant amounts of PE dry powder, increased availability of private debt, falling inflation levels and the expectation of lower or at least steady borrowing rates, all point to a more active global M&A market in 2024,” Ayse Yuksel, global head of corporate, M&A and securities at Norton Rose Fulbright in New York, noted in the firm’s annual M&A outlook.

But PE firms in Asia have been grappling with economic gloom, higher borrowing costs and slower fundraising. China is particularly affected, with its continuing economic sluggishness expected to impact PE funds that have historically focused on the country. As a result, China PE is looking increasingly outbound. “China PE funds are always looking for investment in Japan,” says Marcia Ellis, global co-chair of the PE practice at Morrison & Foerster in Hong Kong.

Paul Chan, Hong Kong’s financial secretary, said in January that the Chinese territory’s connections with the Middle East are rapidly growing. “For example, Saudi Arabia’s Public Investment Fund has established an office here and is already making investments,” he told the Private Equity Forum on 26 January.

Ellis adds that Middle East sovereign wealth funds (SWFs) are also opening offices in Beijing and Shanghai. “Middle East SWFs are showing a lot of interest in take-private deals for US-listed, China-headquartered companies,” she says.

Firms are also optimistic about Hong Kong’s role. “Hong Kong [is] the second-largest PE centre in Asia after mainland China,” notes Jeffrey Friedenberg, newly appointed head of private funds at Simmons & Simmons.

The challenges of technology

In technology, AI will continue to dominate headlines in 2024. “Accelerated computing and generative AI have hit the tipping point,” Jensen Huang, co-founder and chief executive of AI chipmaker Nvidia, said on 22 February, after his company posted a 265% quarterly revenue rise to USD22 billion. “Demand is surging worldwide across companies, industries and nations.”

Marcia Ellis, Morrison & Foerster

Law firms are not immune from changes wrought by AI. Harvey, an AI legal platform, has about 15,000 firms on its global waiting list. Singapore state investor Temasek led a fundraising round for Robin AI, a legal generative AI platform expected to launch in Asia this year. “Generative AI and large language models are already beginning to transform the nature of our day-to-day work,” says Paul Fontanot, a partner at Clayton Utz in Sydney.

The rise of cryptocurrencies – although bitcoin hasn’t returned to its 2021 heights, in February it passed the USD50,000 mark for the first time in more than two years – has also created a parallel digital dispute resolution industry. “There are more digital assets disputes,” says Ee, at Nagashima Ohno & Tsunematsu. “We have seen so many issues cropping up.”

Law firms will be looking at virtual asset development in both Hong Kong and Singapore. From the end of February, crypto firms are required to be licensed by the China’s Securities and Futures Commission, which in October 2023 broadened the investor range for cryptocurrency exchange-traded funds.

The Monetary Authority of Singapore recently granted licences to crypto firms Coinbase and Circle. However, some firms are sceptical about crypto’s long-term future.

Navigating risky environments

Rapid advances in technology are also creating new risks, including opportunities for criminal behaviour. Crypto, say lawyers, seems particularly susceptible to misuse. Ee says he expects more litigation related to digital assets in an environment “compounded by a lack of regulation”.

Overall, there is an increasing number of corporate fraud cases and heightened awareness of financial fraud and corruption, says Fontanot, creating opportunities for financial experts to use their experience to work alongside lawyers. “It’s likely the demand for forensic accountants’ skills will increase in the coming year,” he predicts.

Fontanot also foresees risks in the field of environmental, social and governance (ESG). “I see continued focus on ESG-related activity, both a proactive effort to identify and manage risks as well as reactive activity, for example, responding to regulatory action. We expect to see compliance become a key trend.”

“Greenwashing” – misleading investors, regulators or consumers to believe that a company or other entity is doing more to protect the environment than it is – is expected to be more prominent, adds Fontanot. “We see an increased focus on navigating greenwashing risk and ensuring compliance with ESG standards. Investigating allegations of greenwashing requires forensic skills to uncover the financial considerations.”

Rising awareness of risks, according to Tung, at Withers, means that companies are deploying more resources on due diligence. “Before jumping into a deal, companies are digging more deeply into their potential targets to ensure there are no skeletons,” she says. Leung, her colleague, says part of that is attributable to “tighter ESG legislation in many different countries”, adding that ESG is still in its infancy. “There is still a lot of uncertainty with ESG regulations.”

How Asia plays the trump card

As conflict and tension continues globally, Asia will remain a linchpin of global, finance and trade. Despite its slowdown, China will continue to have an outsized economic influence, regionally and globally. “China accounts for a third of the emerging market universe and half of emerging market gross domestic product,” notes Gala, at Federated Hermes.

Theodore Heng, Baker McKenzie Wong & Leow

Meanwhile, law firms will be counting on clients that diversify elsewhere in the region. “Indonesia and Vietnam in particular are key markets that offer long-term growth opportunities,” says Janelene Chen, who joined Mayer Brown’s banking and finance practice as a partner in Singapore in January. “Singapore is also becoming increasingly important, with many large Chinese companies setting up regional headquarters [here].”

China-focused sanctions by Washington, meanwhile, will continue to affect the wider region. For example, the US Uyghur Forced Labor Prevention Act focuses on China, but most goods detained have originated from other countries such as Malaysia, Vietnam and Thailand. “This serves as an important reminder both of transshipment risk and the critical role of Chinese materials in supply chains,” according to a January report by Scott Toussaint, a Washington senior associate at Gibson Dunn, and his colleagues.

Of course, one wild card that could upset forecasts for the region is Donald Trump. Although both Trump and incumbent Joe Biden have taken a tough stance on China, the likely Republican frontrunner has already signalled that his harsh policies towards Beijing would continue.

In a February interview with Fox News, Trump said he would impose more tariffs on Chinese goods – possibly more than 60%. “We have to do it,” he said. “You know, obviously I’m not looking to hurt China. I want to get along with China. I think it’s great. But they’ve really taken advantage of our country.”

Aside from hostility towards China and his overtures to North Korea, Trump paid little attention to Asia. For example, he attended an annual US-Asean summit only once in his four years in office. Biden re-engaged during his presidency, calling Asean “central to the regional architecture”. If Trump wins again, Asia can expect a chilly 2025.

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