Kishida makes way

Insight: Japanese Prime Minister Fumio Kishida will not seek re-election as head of the ruling Liberal Democratic Party, undermined by a funding scandal and low approval ratings. That means Japan will have a new leader come the end of September, though the LDP will remain in power – as it has been almost continuously since 1955. Several party heavyweights will contest the succession, most of them from the same generation as 67-year-old Kishida. Those looking for more of a break and to re-energise the LDP ahead of 2025 elections are talking up former Environment Minister Shinjiro Koizumi -- son of a famous premier in the early 2000s and still in his 40s. 

Impact: Does a change in prime minister signify anything in Japan? The question is worth asking and, given the LDP’s almost inevitable retention of the levers of power, the answer is generally ‘No’. But sometimes the man at the top does matter: Shinzo Abe certainly did, as did Junichiro Koizumi, father of one of the potential successors this time around. Kishida, while no Abe, resolutely continued his predecessor’s robust foreign and defense policies in times of geopolitical turmoil, supported Japan’s economic revival, presided over a surge in the Japanese stock market and launched a program aimed at a new form of capitalism, emphasising technology development as well as a revamp of Japan’s sleepy asset management industry. Citizens and international allies will hope for continuity in all those areas. But Japan has plenty of other issues: imagine a premier that decisively advances the country’s decarbonization efforts and looks at ways to stem the demographic decline. 

2-3%

Singapore’s upgraded GDP growth forecast. The city-state's Trade and Industry Ministry says the manufacturing sector is expected to experience a faster-than-expected recovery due to “robust demand” for smartphones, as well as PC and AI-related chips amidst the generative AI boom. 

Insight: Chinese auto chip designer Horizon Robotics is the latest Chinese autonomous driving firm to apply for an international IPO. Horizon is gunning for the Hong Kong Stock Exchange, as did Black Sesame Technologies, which went public last week. Meanwhile, peers including WeRide, Pony.ai and Momenta have all placed their bets on the US.   

Impact:  These companies are seeking private equity injections to keep R&D going while they try to navigate an uncertain and still-evolving geopolitical environment. Since Didi’s delisting from the NYSE in 2022 due to regulatory concerns, only one Chinese autonomous driving firm has successfully listed in the US. Mainland startups were hoping this would change now that China is going full throttle with mass-market autonomous driving, approving road trials at a rapid pace. However, the White House is mulling a ban on Chinese software in autonomous vehicles sold in the US. For these firms, therefore, going public is about more than much-needed funding: it is also a test of their skills in geopolitical regulatory affairs strategy and risk mitigation.

Insight: Japanese online marketplace Mercari posted a group net profit high of JPY 13.4 billion (US$ 91.3 million) for FY2024. Buoyed by domestic demand and growing cross-border transactions, the firm forecasts growth upwards of 17% for 2025. Yet due to tough competition against low-priced sites like Temu, its US business has been lagging, suffering a third year of decline.   

Impact: Mercari has found it difficult to compete in its niche of hobbies and entertainment in the US. The company is now reorienting its brand identity to reinvigorate its US business, having recently opened its first-ever physical store in Los Angeles. Showcasing a curated collection of products from Japan and hosting DIY classes, Mercari is connecting its US and Japan marketplaces to leverage consumer interest in Japanese fashion, toys and collectibles. A longer-term product-focused strategy may prove successful for Mercari – Temu has not only been struggling with supplier backlash over its aggressive business model, it also is anticipating stiff competition with Amazon, who is developing its own China seller network.

With a farsighted approach to geopolitics, the West can help China solve its economic dilemma, argues Foreign Affairs. 

Insight: China’s economic woes go deeper than a moribund property market, a rising demographic burden or even growing authoritarianism. A trenchant new analysis by US-based Chinese academic Zongyuan Zoe Liu argues that in its decades-long strategy to tie business to local and central government in order to maintain social stability and political control, Beijing has systematically encouraged overinvestment in (strategic) industry after industry. This has led to overcapacity, falling profits and rising debt. Meanwhile, consumer choice and spending have been mostly ignored. 

Impact: This unbalanced approach has not only misallocated capital and destroyed wealth at home, it has also led to geopolitical tensions overseas as Chinese producers have exported surplus production at below market prices to generate enough transactions to keep going. But the West’s regulatory strategy of addressing each issue (steel or cars or solar panels) in isolation and mostly just erecting trade barriers, has been equally clumsy. Instead, suggests Liu, the US and G7 should try to negotiate a ‘grand bargain’ with Beijing, trading concessions in one area for gains in an unrelated one. This suits the Chinese approach and the West needs to understand that if incentives change, Chinese regulatory strategy can change very rapidly indeed – just recall the abrupt end to its zero-COVID policy.

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