Asia Outlook: The Biggest of Everything

same ages Mark. So let's continue talking about population today in light of the topic we're going to discuss, which is Asia. So there were four point four billion people on the planet when Mark was born, which is incidentally the same number that lived in Asia, just in Asia. That was almost half a decade ago, so there are actually more people living just to Asia then there were everywhere on the globe the year Mark was born. Huh okay,

that's a lot of people. And uh yeah, if you feel like back calculating, you know, my age based on that number, go ahead. I won't be offended. But when I think about that in the context of ben If, it makes a lot of sense. So if you look at our twenty nineteen electric vehicle forecast, about six of new vehicles sold in twenty nineteen are being sold just in China. That's just one country. Or our new Energy outlook for twenty nine of clean energy investment between today

and it will be in Asia. So with over half of global greenhouse gas emissions coming from Asia, it is also a big part of the solution, and that's important context for the podcast today where we'll be interviewing our colleague Justin Wu, who is based out of our Tokyo office and is the head of Asia Pacific for ben IF.

We wanted to talk to him about some of the trends that he's seeing in the region, but we realized this was a pretty lofty task, so we instead asked him to give us a few case study countries just to narrow it down a bit. He chose China, India, and Japan. So in today's episode of Switch Down, we'll be talking about a few research notes that we've recently done. First is the two aged twenty nineteen China Market Outlook.

Second or next is a note titled Japan to take on Plastics but it's not quite in the bag, and the New Energy Outlook twenty nineteen section on India. You can find all three of these notes on the Bloomberg terminal at BNF Go or on BNF dot Com or

on the BNF mobile app. If you want to know more about BNS perspectives on Asia and you're not one of our clients attending our summit in Shanghai at the beginning of December, you'll be able to see a selection of videos from our speakers on our public website about dot BNF dot com forwards last summit forward slash Shanghai and a quick reminder, BENIF does not provide an investment or strategy advice, and you can hear a full disclaimer again in the show. Hi, justin thank you for joining

us today. Hid great to be here. Not all of our guests before they come on the show get a challenge, but you did get a challenge, and the challenge that we pose to you was to represent some of the changing dynamics in the industry that we cover in Asia and to select three countries and ultimately three binn F research notes that would explain that. Can you tell us what those three countries are and why you picked them? Well, thank you Dana for for acknowledging the challenge, Um, you know,

I do. I do get this question a lot. Pick three countries or three things to represent a region which is Asia, which is you know, more than two thirds of the world and and uh significant part of the two thirds of the population, two thirds of the economy, et cetera. So I took the easy route. I picked three countries, and I picked China, Japan, and India. Essentially

they're the three largest economies in Asia. So it's important to look at them because obviously what happens in them is going to have a major impact on how we think about climate change or how we experience climate change

in the future. And often we have to acknowledge that even though things are moving in the right direction in some of these countries with regards to growing a earness for sustainability or policy changes that that sort of help to cap emissions, etcetera, we still have a long way to go, and there's certainly a lot of hurdles still to overcome in these places. Maybe jump into the first one. Let's start with Japan. There's a story to be had there.

So one thing I didn't know was that Japan uses is the second biggest consumer of is it single use or all plastics. All plastics yea, And yeah, I'm I moved um actually moved to Tokyo last year, so that this sort of issue became really fun and center to me.

You know, what was really funny is actually when one thing I know is after I moved there was that I had to sort my trash and they really detailed in manner essentially, you know, there are differences between different types of plastics, things that could be incinerated and things that could not be incenterated. So you don't want to apparently burn batteries because they blow up or something like that.

But anyway, but what occurs to me is that actually Japan is a country that actually takes recycling extremely seriously, but as the note points, as we looked at it and from a research perspective, and actually is the second largest per capitive user of plastics in the world after the US. And then you know, this year was a very special year in Japan because it hosted the G twenty conference in Osaka in June, and ahead of that, the Japanese government, along with many of the companies, wanted

to make a show for corporate sustainability. So this manifested itself in a number of ways. One was the Task

Force for a Climate Related Financial Disclosures essentially Japan. There's over almost two hundred companies in Japan that have become a member of the TCFD, meaning that they will voluntarily disclose their business risks and opportunities with regards to what might happen if the climate change is the risk associate with climate change um, and also what they're going to do about it essentially, are they gonna help sort of

mitigate climate change, etcetera. And then there's you know, two other indicators that happened was one was around sort of twenty five companies also joined the r E one hundred, which is a group that pledges to use renewable energy for its operations by a certain year. Uh. And then the other one is what we just discussed, which is this plastic spand but I think, you know, I think one of the issues is that this is all great that we see all this progress this year, but I

think still Japan has a long way to go. And essentially all these companies made these pledges and there's really sort of high hopes for these things. Um. But then it's it's a bit like Okay, what do we do now the motivation for these commitments. Do you feel that it is predominantly coming from government incentives and will end up with regulation. Is it coming from the companies themselves and wanting to attract customers in capital? Where is the

Japanese motivation from your perspective. That's a really good question. I mean, I think in this case we can say that it is coming. Um, at least this year, a lot of this stuff is coming from government. The government, UM. You know, the prime minister, Prime Minister Abbe is actually leading or pushing some of these efforts to a certain extent. The government is doing us because it wants to put on a good sort of good face ahead before the

G twenty meeting. UM. And also Japanese companies, I think realized that you know, many of them are pretty sophisticated, that pretty uh businesses around the world. They have a lot of operations in Europe where you know, this conversation is further event. So they realized that actually they are falling behind their some of their global counterparts, uh, and

they need to do something about it. And there are you know, there's some evidence to show that Japanese consumers are sort of waking up to this, but still it's you know, being in London last two days, I've noticed that actually, you know, we you know, we don't really use a single use straws or a lot. It's gonna use plastics now and sort of coffee shops and supermarkets

here that's not the case in Japan. Um, when you go buy something, you still get pretty a lot of packaging and plastics, whether you ask for it or not. So the interest levels high and perhaps there are some easy gains to be made, but still a long way to go in terms of of starting point to finish line. Let's say. Yeah, And you know, I think one observation I made and this is sort of my my personal

view on this. And you know, if if you live in Japan, it's, um, the environment is really really nice, right, there's not air pollution is not a problem. The waste is mostly incinerated. Actually more than half of all the plastics in Japan that gets discarded are incinerated, so you don't have these massive landfills and things like that. It's that's much higher than global average. So in some ways you live in a very nice environment. Uh, and you don't really realize that sort of waste is a major

issue because you don't see it. The streets are really really clean, and there's no you don't see sort of evening news stories about plastic in the ocean and things like that. Um and you don't experience for air pollution. I used to live in China and then air pollution was a major visible issue and the government had to do something about immediately. So I don't want to use

the word complacent, but it is. It is not there right, and I think actually that makes it a little bit more difficult sometimes to uh, to get well, to feel sense of urgency towards issues like this. I'm glad you brought China up because that is another country that you listed, and I think you really can't talk about energy or Asia without talking about China. They have come a long

way in the last few years. And I think our forecasts and I'm looking specifically at our H two twenty nineteen China market outlooks, so we're looking out into the future there. The forecast we're showing is a lot more renewable energy in their future. So can you talk a little bit about where we see China now and where we see China, going sure, I mean, we really can't talk about a lot of things. He's he's not thinking about China, right, It's it's sort of the big, the

elephant in the room and on a lot of things. UM. One thing we know is about China is that there is a first of all, there is a slowdown in China in in sort of the first half of this this year. When we say slow down, we mean a number of things. One is that the GDP growth rate is the lowest in twenty seven years. You know, some of that has to do with the trade issues that are ongoing and other factors, but more relevant to what we look at as well, UM power demand growth is

the lowest in a number of years as well. Still growing pretty pretty robustly, but that's slowing. And then another sort of shocking number we noticed was that in the last fourteen months, UM there's been negative growth in car sales, specifically sort of internal combustion engine car sales. And this is the world's obviously the world's largest auto market. So that's a that's a pretty surprising statistic for a lot

of people to get their heads around. But while all this happening, you might say Okay, if if, if, sort of there's some economic headwinds in China right now, does it mean the clean energy transition or all the other things that we talked about before in China, is all of that going to be derailed or slowed in some way? And the good news is that we don't. We don't

see that. So we see that for instance, even though car sales overall have been down for over a year, electric vehicle sales are still growing and we expect actually something like one point eight million electric vehicles to be sold in China this year versus a million last Year's

almost a doubling of of of that. We see that clean energy capacity UH is still increasing um, not as you know, not as much as before, but still still increasing, and that um in some ways that now eight percent of China's electricity comes from wind and solar, which is not an insignificant number, and you know, we think that might cross the threshold of ten percent at some point

within the next year. So that's that would be a really interesting milestone I think for UH, you know the world's largest electricity system, which is a story not only just about China supplying energy to Chinese citizens, but also from a scope three emission standpoint. So if you're thinking about the emissions that are associated with all of the materials that then go into things that are manufactured in other parts of the world, a great number of them

are manufactured in China. So I suppose that this is really a global story in addition to it being their story. So my question ultimately about China is that you would think if renewable energy is really going to take off, it's a policy decision. Do you see that reinforced or do you see a lot of companies looking at just the economics as you do in some places like the U S. Or you see power purchase agreements and saying well, actually this is just the cheapest form of energy. Yeah,

of course. I mean it is all policies driven, right, and the government in China, both the central government and local governments, they all play a pretty important role in

all of this um in some ways. If if you look at UM policy in China, it's um you know, obviously a lot of it was needed at the beginning to to spur all this growth in both renewable energy capacity that's being deployed in the country and also in all the manufacturing that took place, and you know that manufact that sort of scalpe and manufacturing capacity is what in some ways helped us get to really cheap renewable

energy today for um, almost everywhere in the world. So yeah, so so policy still plays a very very very important role. What's interesting in China is that actually for years, what the government has been trying to do is build a so called zero subsidy renewable energy. Now that's a slightly a miss a misnomer. Doesn't mean that these are um,

what we call merchant projects in other countries. In other words, you you you kind of um, you leave a renewable energy project to the whims of the power market, right without giving it any subsidies. Essentially, what it what it means is that, uh, they want to build wind and solar projects UM at the same price as and give it the same price as as a coal fire power plant essentially, which is a regulated price. UM. And of course, thanks to UM you know, cheaper and cheaper equipment and

and sort of lower costs of all these projects. UM, the government is getting very very close to this goal. So we have more and more projects now that are being built without additional subsidies, um so, and that that's helped, but we have to remember it's still a very long way to go, right, Um it's and you know there's a figure where um, there's over something like thirty two billion dollars of subsidies being old to renewable energy projects in China because of you know, the subsidies used to

be so generous for these these projects. There's a huge backlog. So if we want to see China sort of complete this transformation and build more and more renewable energy projects, that obviously cannot subsidize them at that kind of a rate has to find a different way. But it's gonna take time. It's gonna take time to steer the ship around.

Wouldn't the returns be difficult at that rate too, because the cold plans are running at a higher capacity factor more of the time as opposed to win or solar.

That's right, Yeah. I mean what what's interesting is that I think one of the barriers obviously keeping um, preventing renewable energy from let's say, achieving its potential is that, um, you know, we have to keep the lights on, right, you have to run these co fire power plants and you have to run them met a certain rate otherwise they become uncompetitive, or that the machinery suffered from breakdowns

and all this other stuff. But I think now actually we see some evidence at least in the beginning of the year that UM renewable energy is getting more priority to dispatch in some cases, and and actually co fired power plants are, you know, being scaled down a little bit. So that's that's a very good sign. But you know, we have to remember, I think even though some parts of the world now we talk about sort of net zero missions were shutting down all the coal fire power plants,

China still building new copier power plants. Actually, in our sort of UM forecasts, we expect China build its last coal fire power plant in something in two thousand seven, so it's still many years ago. And of the coal fire power plants in China today, UM, it's a very young fleet. So them were built in less than ten years as it goes, so they still have a long

way to go. So it shows you that even though renewable energy is ramping up, and you can kind of create a lot of positive headlines around that story, there's still you know, there's still a lot of coal, and we still will still take time to get through all of that. Just before this interview being published, a research note that said, you know, I know, I know, we're getting out of Japan, China, and India here, but Indonesia for now, coal remains king where the government is pushing

a kind of a coal agenda. But it seems from our modeling that the coal is being pushed out of the out of the market earlier than expected in Indonesia. So there seems to be signs that coal is kind of on the way out in Asia, but still gonna be around for quite a while, That's right, Yeah, I mean we we always say that it is it is gonna be on its way out. Obviously, renewable energy will be competitive against cole Eventually these plans will shut down.

It's it's always a question of of when, not not so much if. But I think the caution I would I would bring to this is that the wind could be actually quite a while longer um and and Indonesia is one of these cases. Obviously, it has a lot of domestic sources of coal that it wants to deploy India, which I think we'll talk about in a moment. Is another one of these cases where there's there's a lot of coal and it's going to take time before that that's all going to sort of be be sort of

shut down or or decommissioned. Let's do India, Let's move that direction right now, because I think that's a very different story than the other two countries, where you're seeing citizens, economic incentives, companies all kind of pushing in the same direction. India is really interesting because there's just a lot of different things all kind of happening concurrently, and maybe it's a little more difficult to figure out what the direction

of travel is. Absolutely, I mean, if we if we just sort of take a step back and think about India, right, it wasn't it wasn't so long ago that India, or the Indian government rather would advance the argument that, look, climate change is a problem for rich countries to deal with. We are a developing country. We still need to develop and and and sort of lift millions and million, hundreds

of millions of people out of poverty. Um. And that's going to require emissions, right, and industry and and and coal and all this other stuff. Um. But of course you know, we we see now that actually um, even that sort of narrative is starting to shift in in India. UH, that the government is becoming, you know, open to the idea of of of talking about sort of climate change

and doing something to its emissions. The point about India is that actually, UM, one sort of interesting or perhaps shocking number that we notice is that, uh, in about less than ten years time, India is going to overtake the US and become the world's second largest emitter of carbon dioxide. So, you know, we need to take a closer look at India. And that's because of growth in India or reducing demand in US. It's it's a little

bit of both. Obviously, the US is becoming cleaner in the sense from a carbon emissions perspective because of all the gas that's that's coming online. But yeah, and also it's growth in India of course, right India, India's economy is let's remember, India's economy is about half the size of Japan UM and it has about six times the population of that of Japan. We talked about this in our road Fuels episode not too long ago. We noticed that a big part of the emissions from transport will

come from India. And then your future because of the growth in transportation from private vehicles and and hired vehicles and deliveries. So is that where the missions are coming from or is it mostly coming from stationary sources like coal.

It's it's gonna be both. Um. You know, we have to remember the India has a lot of room to grow almost everywhere, right if you if you if you learn at all the sectors transport, industry, agriculture, even power gen and you know, everything, India will have room to grow. A lot of it, yes, will be you know, we are talking actually about um in this case about power sector emissions. Um. So yes, it is a lot of that growth will be coming from the new co fire

power plants that are being built in India. Simply, Um, there's not enough electricity in India for its population or for its economy to grow at the moment, so you will result in a lot of new building of co fire power plants. But the only thing I want to say is actually this might be a little bit of a doom and story about India, but actually there are signs of hope as well. Right. One thing is that you know, India has some of the most competitive wind

and solar auctions in the world, so it helps. It achieved very low prices for solar projects, so some of the solar projects built are actually very competitive, even though some of them do run into problems here and there, but nevertheless, it's it's a good it's a good thing. On the other hand, the Indian government, it's also very ambitious.

Um recently it's sort of well after Moody was sort of returned for his second term, they've announced some fairly ambitious goals towards electrification of of of transport, whether it's sort of the two or three wheelers, the tuk tuks if you will, that you see on the on the roads in in in Indian cities, or towards some of the heavier stuff as well. So there is ambition to

do something about it. But again, you know, it's it's a case of um, it still has a wayte to go, and the question is is it gonna be too little too late? Right? Can the world sort of afford India to get rich before it gets clean? And you know, that's that's an age old sort of debate. But obviously, you know, we're hopeful in the sense at least it's the government and companies that are actually open to considering

solutions and looking at new things. What's stopping India from and I know we don't love this term, but leap frogging some of the traditional high carbon energy sources of the Industrial revolution and maybe skipping a little bit to some of the stuff that has a lower cost associated

with it in other regions apparently not so cheap there. Look, I mean, I think that is a great hope of many people, right that in the sense that for countries today, any developing country today, it doesn't have to do things that are countries did a hundred years ago. There are other ways to do it. A certain extent, that is true. I mean, I think in the India itself there is

a debate about that as well. For instance, there's a debate about whether you know that the so called China development model is the right one, right, whether Indians would go for heavy manufacturing um And if it does do that, obviously it's consumption of fossil fuels will increase significantly and its emissions and increased significantly. So is that the way to go or should it sort of leaf from that and look for high tech and new technologies and and

things that are less sort of energy intensive. So there's a debate about that. But but you know, I think it's it's not that simple obviously, right. I think there is there's still heavy industry there. There's still a need for power and energy. Even if you take a slightly lower carbon and you know, less carbon intensive route, you still need a lot more of this stuff. And it's still relatively poor place, and and it requires, uh, I think a lot of investment in growth before it can

make these kind of decisions. So you know, I don't want to sound like I'm sort of excusing it, um, but I think the challenge is pretty enormous and we I think we have to sort of acknowledge that. So we gave you this challenge of three countries, which was a little bit unfair because we put the onus on you to decide the notes that we were going to focus on and then mark through Indonesia into the conversation.

If there was another country, what was the runner up that you would have wanted to talk about that we don't have time to talk about today. Well, actually Indonesia is a pretty good one, so that that was good. Um. I think interesting things are also happening across Southeast Asia. So Indonesia would would be one. Obviously it's very large, their significant contributor to emissions, etcetera. But other ones we

see progress are places like Malaysia or or Thailand. Malaysia, for instance, was a country that didn't really have a very let's say, sophisticated view not long ago at least, you know, wasn't really talking a lot about any of this stuff but energy transition, climate or things like that. But recently, I think has actually made a lot of progress, has looked at sort of deregulating its power market, looked at evs, look at UM, sort of advancing environmental policy.

So there's a lot of things happening there and that's that's very interesting. UM One more all throw in there actually is Vietnam. There's also a lot of interest there because it's um It has one of the fastest power demand sort of growth UM stories in the region, has a lot of co fire power plants, and there are a lot of countries lining up to build more co

fire power plants in the Vietnam. But actually Vietnam experienced a very large boom and solar in the first half of this year thanks to actually some new policies and some new activities that took place there. So yeah, I think it's it's it'll be good to keep an eye on these countries actually because they are like India, they're growing faster, but also like India and China to a certain extent, they're becoming more and more open to looking

at new things and new ideas. It's good to know that we will have plenty to talk about next time you passed through London justin. Think you very much for joining us today. Thank you, thank you for having me. Bloombergin e F is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor it should it be construed as investment advice, investment recommendations, or a recommendation as to an investment or other strategy.

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