Animation by Rocco Fazzari.

BIGGER THAN CHINA

The Federal government’s Southeast Asia economic adviser has forecast that business opportunities in that region will be better than what Australia experienced in the past from Japan and China.

Former Macquarie Group chief executive Nicholas Moore told the Australia ASEAN Business Summit this week that the ASEAN region should be seen as a continuation of the growth Australian business was familiar with from North Asian engagement over more than half a century.

“It’s a much more prospective area. We have a very strong basis on which we can build and continue to build on any increasing growth that we can see in the region. More than the prosperity that we saw coming from Japan, and Korea and Taiwan and then China in terms of our closest neighbours and the growth that we will see from them,” he said.

Moore, who is leading the Department of Foreign Affairs and Trade Southeast Asian economic strategy to 2040, also revealed how he had settled on four broad areas of recommendations for the latest Australian government effort to foster a deeper and broader economic connection with the eleven Asian neighbours.

They will be:

• Awareness: ranging from increasing knowledge of the region in the education system to providing better case study style examples of successful trade and investment businesses.
• Barriers: how to make two-way trade and investment between Australia and Southeast Asia more free flowing.
• Capability: with a particular focus on renewable energy (but extending to other sectors like healthcare), how can Australia build its own capability which is also relevant in the region.
• Money: what can the government do to use its own balance sheet to provide financial support for trade and investment.

Moore outlined his thinking on the report - which has so far drawn on 500 personal engagements and 200 submissions over the past half year - at the summit in Sydney attended by high level regional business figures and chaired by Adelaide-based businessman Francis Wong.

Moore’s comments followed Prime Minister Anthony Albanese’s use of a trip to speak at the Shangri La Dialogue this month to also deepen ties with two of Australia’s oldest and newest close ASEAN interlocutors – Singapore and Vietnam. And electric vehicle manufacturing cooperation will be a key topic for discussion when Indonesian President Joko Widodo visits Australia in July. See: ASIAN NATION 

Meanwhile, it has been another rollercoaster month for living with a more assertive China. The latest Lowy Institute poll suggests the sharp three-year downturn in Australian public sentiment towards China may have now turned back up slightly. And a new University of Sydney Business School study identifies scope for useful collaboration between young entrepreneurs in Australia and China.

However, just a day after US President Joe Biden declared his Secretary of State Antony Blinken had done “a hell of a job” stabilising bilateral ties on the first such high level US visit to China in five years, he then abruptly called his Chinese counterpart Xi Jinping a “dictator”. See: NEIGHBOURHOOD WATCH and DIPLOMATICALLY SPEAKING

The fractious rivalry between the region’s two superpowers makes the Australian government’s quest to graft deeper economic ties onto the existing diplomatic connections with ASEAN countries seem more important than ever, especially as Chinese aid to ASEAN countries seems to be waning.

And for a change of pace, a look at the richest Asian Australians shows they have been barely keeping pace with the country’s other wealthy citizens over the past year. But two tech entrepreneurs have shot up the Rich List. See: DEALS AND DOLLARS

Greg Earl
Briefing MONTHLY editor

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 NEIGHBOURHOOD WATCH

CHINA TENSIONS

Australia’s delicate balancing act over China relations appeared to get harder this month when the highest level diplomatic contact between the US and China ended with President Joe Biden calling his Chinese counterpart a dictator.

US Secretary of State Antony Blinken had earlier expressed optimism his two day visit to Beijing would improve communication in future and President Xi Jinping had declared agreement on unspecified issues.

While Biden later maintained he was still optimistic about the prospects for a meeting with Xi Jinping when the US hosts the Asia Pacific Economic Cooperation (APEC) group summit in November, the contrast with other China visit action couldn’t be starker.

China’s new Prime Minister Li Quiang used his first foreign trip since being appointed in March to woo German business back to China and warn against the costs of “derisking” from economic contact with China as the Biden Administration is urging.

Then this week New Zealand Prime Minister Chris Hipkins quickly dismissed Biden’s dictator description on the way to China with a trade delegation and with the strong support from his conservative political opposition at home for a “balanced” approach to China.

Meanwhile Prime Minister Anthony Albanese could only try to change the subject when asked this week when he would be responding to a Chinese invitation to visit Beijing which the opposition says should not occur until all Chinese trade impediments are removed. “We'll finalise the date at an appropriate time. And we will, we are conscious as well of domestic concerns. My next visit will be to the NATO Summit, that will be very important that Australia is represented there,” the prime minister replied.

It appears that the stand-off over providing China with some form of improved investment access in Australia in return for it removing the remaining trade impediments has some time to run. China’s anaemic economic recovery since its dramatic reopening from the pandemic at the beginning of the year could also become a factor in how it addresses the trade issues with Australia as it seeks new sources of growth.

Chinese Foreign Minister Qin Gang is expected to visit Australia soon to finalise an Albanese visit. But the US-China revived tensions so soon after Blinken’s diplomacy have underlined how any visit to mark the anniversary of former Labor Prime Minister Gough Whitlam’s 1973 visit is hostage to many external events.

• Dan Rosen, from the Rhodium Group, says China's emerging economic weaknesses since reopening will be jarring for Australia. 

THAILAND'S LIMBO

Thailand’s new Parliament is due to convene on July 3 but the uncertainty over who will actually lead the new government still seems likely to continue much further into the month.

The first major decision of the new Parliament to choose a new Speaker and two deputies is shaping up as a test of the two major parties in the new proposed coalition government. They are the winner of the most seats and more reform-oriented Move Forward Party (MFP) and the much older Pheu Thai Party, which is associated with former prime minister Thaksin Shinawatra and has more experience in both government and opposition.

Pheu Thai has been seeking the Speakership as a consolation prize because it has more experience candidates, more experience in government, and it only won ten less seats at the election than the 151 for Future Forward. But the speaker’s job may also become more important in a fractious Parliament with an unwieldy coalition government most likely led by Move Forward leader Pita Limjaroenrat, as prime minister.

The MFP coalition has 312 seats in the 500 seat Parliament but if the two main parties can’t agree on the job, there could be a free vote which Pheu Thai would be more likely to win. The biggest party doesn’t always hold the speakership in Thailand.

Rather than pave the way for Pita to then take the prime ministership, a contested free vote may only prompt more political gamesmanship overt the prime ministership which requires 376 votes in a combined chamber of the House and 250 member Senate.

There are widely conflicting accounts of how much support Pita has in the Senate, which was appointed by the previous military dominated government, although he claims to have enough support. But exiled Thai political scientist Pavin Chachavalpongpun told a University of Sydney seminar on the election result this month that he believed Pita was so committed to long term political reform he was prepared to return to opposition rather than compromise on an ineffective coalition.

• Former foreign minister Kasit Piromya says at Fulcrum that the Thai establishment needs to venture outside its bubble to understand the change in the country.

FIXING MYANMAR

Indonesia has finally asserted its regional diplomatic clout over the Myanmar crisis by staring down a controversial effort by the outgoing Thai military-linked government to engage with Myanmar’s military regime.

In one of the more revealing splits amongst Southeast Asian nations since the military took over in early 2021, Thailand could only attract foreign ministers from Myanmar and Laos to a June 18 regional meeting it hosted on the basis it needed communication with the military regime in order to protect the Thai border.

Indonesia, Singapore and Malaysia boycotted the meeting.  However, Brunei, Cambodia, the Philippines, and Vietnam reportedly sent lower-level officials.

And in an unusual rejection of a fellow large Association of Southeast Asian Nations (ASEAN) member, Indonesia said that meetings with only one stakeholder in the Myanmar conflict were not conducive to achieving peace. The clash has only highlighted how Indonesia and Thailand have both cooperated and competed over the years within ASEAN. But they have been noticeably distant during the years since President Joko Widodo took office and Thailand has been run by the military. 

Indonesia has been facing criticism for not making much obvious progress in resolving the conflict so far during its influential year as ASEAN chair but says it has done more than 75 engagements with various partners and Myanmar stakeholders.

Thailand’s invitation to the meeting reportedly said ASEAN should re-engage with Myanmar at the leadership level which is at odds with ASEAN’s more than year old five-point consensus which bars engaging with the military regime until some form of cease fire in the civil war is agreed.

The reformist coalition moving towards power in Thailand has backed the ASEAN consensus but the incumbent government action while it is in caretaker mode has underlined how the transition of power is still uncertain.

• At East Asia Forum Nicholas Farrelly asks whether a more diplomatically active China might play a key role in resolving the Myanmar conflict.

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 ASIAN NATION

ASEAN BUSINESS

Southeast Asian ambassadors at the Summit                          Picture: Greg Earl

The Federal government’s Southeast Asia economic strategy is set to emphasise the need to see the region as a source of imports as well as an export destination, in a clear adjunct to the government’s diversification rhetoric amid tensions with China.

Government adviser leader Nicholas Moore told the Australia ASEAN Business Summit: “What our strategy is all about is it’s about two-way trade and investment and one of the positive messages we are giving out that is well received is that for us a success is increasing imports from the region at least as much as increasing exports to the region. And similarly, from an investment viewpoint we are very much charged with how we can increase Australian investment in the region.”

He sought to derisk the idea of investing in the region by arguing that the new sources of economic growth there should be seen as similar to what Australian superannuation funds and companies had already invested in at home. “There’s a lot of natural growth that will be taking place when you look at urbanisation, when you look at agriculture, mining, as we look at the digitisation of the economy, where we’ve had heavy investment at home and therefore it’s logical to flow on into the region.”

And Moore seems set to step up the pressure on the pension funds to invest in the ASEAN region by highlighting in his report on opportunities to 2040 that their funds under management will triple to $9 trillion by that date.

Southeast Asian speakers at the summit highlighted how there was more capital flowing into Australian renewable energy from countries including Singapore, Indonesia and the Philippines than vice versa.

Moore’s response to this is set to be to argue that Australian governments and businesses needed to have a strategy of developing technology, human skills and other resources in Australia which re transferable to neighbouring countries. “The opportunity is not just an investment one, but one of building the skills of a workforce that can work here in Australia and work across the region,” he said. “Part of the reason we are seeing investment from the region in Australia is to develop those skills and actually to bring them back to the region.”

BEER AND BAHN-MI

Anthony Albanese meets some locals in Hanoi                                   Picture: PMO

Prime Minister Anthony Albanese’s visit to Vietnam was overshadowed by the somewhat overhyped lead up to his speech at the Shangri La Dialogue, but it only underlined how far this relationship has shifted since the Indochina wars.

Prime Minister Pham Minh Chinh slipped in a cryptic reference to anti-Vietnam government sentiment in parts of the Australian refugee community after the leaders’ meeting urging the Australian government to “create favourable conditions for the local Vietnamese community to settle down”. But Albanese was able to secure clemency for two Australians facing the death penalty in Vietnam in a subtle display of a more productive relationship in this respect than has been the case in some other Asian countries.

Perhaps in a reversal of the way the three Bs of Bali (drugs), boats (for refugees) and beef (trade disputes) sometimes upset relations with Indonesia, Albanese conjured up a two Bs formulation for Vietnam. He pointed out how Vietnamese beer was made with Australian barley and its bahn-mi increasingly contained Australian wheat.

The visit was mostly focused on adding some more depth to the bilateral enhanced economic engagement ambitions to become top ten trading partners and double bilateral investment. But it also marked the 50th anniversary of diplomatic ties.

In the key developments:

• Australia announced a $105 million assistance package for sustainable infrastructure planning, stimulating private investment in energy infrastructure, and delivering technical assistance to develop Vietnam's critical minerals sector.
• The Aus4Innovation program will be expanded with CSIRO build partnerships to commercialise joint scientific research in areas like applied agriculture and food research.
• An agreement between AUSTRAC and the State Bank of Vietnam will enable financial intelligence to be shared to interrupt money laundering and terrorism financing.
• RMIT opened its Hanoi Industry and Innovation Hub and outlined plans to upgrade is Ho Chi Minh City campus. And Western Sydney University established 60 new scholarships.
• Vietnam Airlines and Viet Jet announced increased flights to Australia.

SOOTHING SINGAPORE

Singapore has welcomed an Australian commitment to be a reliable gas supplier just weeks after reported private Singapore concerns over the security of Australian gas exports.

After a bilateral meeting on June 2, Singapore’s acting and eventual future prime minister Lawrence Wong publicly welcomed assurances from Prime Minister Anthony Albanese on this issue and reinforced the point saying: “We both want more resilient supply chains, particularly in critical areas like food and energy.”

The comment came after reports that Singapore had quietly broached the issue of Australian gas exports ahead of a foreign ministers meeting in early May in contrast to the more open criticism of Australian gas reservation policies from Japanese diplomats. Natural gas is Australia’s biggest export to Singapore.

The leaders doubled down on the issue saying that they would explore ways to expand collaboration on energy security and clean energy development, and strengthen cooperation on secure, open and connected supply chains.

Meanwhile the two leaders announced three initiatives to advance the Green Economy Agreement signed last year:

• A $20 million over four years Go-Green Co-Innovation program to support private sector collaboration
• An S$5 million Asia Climate Solutions Grant program, to support blended finance projects on renewable energy, sustainable cities and nature-based solutions.
• Initial work to establish a green shipping corridor that will support net zero shipping between the two countries.   

KOREA CALLING

Deputy Prime Minister and Defence Minister Richard Marles appears to have soothed South Korean concerns about its defence companies being significant losers from the Defence Strategic Review (DSR) by directing attention to a new strategic cooperation framework.

The DSR killed off a second round of self-propelled howitzers for the Australian army that Hanwha was going to build and also scaled back the size of a contract for a new generation of armoured troop carriers which Hanwha is competing to supply with a German company. This prompted warnings that Australia was seen as an unreliable defence partner in Korea and is particularly sensitive for Marles since Hanwha was planning a factory in his Geelong electorate.

But after a meeting on May 30, Marles and Minister of National Defense Lee Jong-sup announced the two countries would begin work on an enhanced bilateral framework building on the 2011 Memorandum of Understanding on Defence Cooperation. They said the new bilateral framework would enable deeper cooperation including on the interoperability of the defence forces.

Marles held a discussion with Korean defence industry representatives on opportunities for them from the DSR. But the Korean defence establishment perhaps spoke louder a few days after the meeting with an agreement to expand defence cooperation and trade with Poland and suggestions Poland would become the base for a major Korean defence push into Europe.

CONVERGING LANES

The Australian public’s attitude to China appears to have taken yet another twist with a slight warming towards China through a security lens after a sharp decline, but now a more mixed view of it as an economic partner.

The latest Lowy Institute poll found that a majority of Australians (56 per cent) see the resumption of diplomatic contact between Australian and Chinese ministers as either ‘very’ or ‘somewhat’ positive for Australia’s national interests.

While a majority of respondents (52 per cent) still see China as more of a security threat than an economic partner (44 per cent), as has been the case for the past three years, the security threat camp has fallen significantly from 62 per cent. The Lowy poll was notable for recording a continued strong public support for China as an economic partner rather than a security threat between 2016 and 2020 when diplomatic relations were already in a decline.

But now with a shift back towards seeing China as an economic partner, a new question in the poll about “friendshoring” of trade and more secure supply chains suggests people want to see less dependence on China.

Seventy per cent of respondents said that trade supply chains should run through countries which are friendly to Australia even if that involves paying higher prices. Only 29 per cent favoured keeping prices as low as possible even if that meant relying on countries that were unfriendly towards Australia.

Government emphasis on diversifying supply chains has probably influenced this thinking but although the question did not specifically mention China, it raises dilemmas. China still supplies about on fifth of Australia imports and accounts for a third of exports which in effect pay for the imports. And that’s before accounting for Chinese production which comes to Australia via secondary imports from other Asian countries.

Despite the noticeable change, other questions underline continued n nervousness about China with 75 per cent of respondents thinking it is at least somewhat likely to become a military threat to Australia in the next 20 years compared with 45 per cent in 2018.

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 DEALS AND DOLLARS

CHANGING PLACES

The richest Asian Australians are struggling to maintain their stature amongst the country’s wealthiest people amid an uncertain economy and volatile property prices, with some notable exceptions.

The latest list of the richest 200 Australian citizens published by The Australian Financial Review shows two people of Asian origin dropped out this year and more than half suffered a slide in their overall ranking, although some still increased their wealth.

The two notable exceptions to this relative decline were Chinese-born Jack Zhang and Bangladesh born Robin Khuda who shot up the ranks of the Rich List as part of the trend towards technology entrepreneurs making their presence felt amongst the tradition resources and property fortunes. And that was despite the general decline in technology stocks due to higher interest rates.

Zhang founded Airwallex in 2015 to provide businesses with a cheaper, faster way to make cross-border payments; and it now provides services include bank accounts, borderless cards), and online payments. Khuda also founded AirTrunk in 2015 to provide data storage but sold most of it in 2020.

Source: AFR Rich List

People of Asian origin comprise eight per cent of the Rich List which is only about half the total population share of people of Asian origin. But it is now roughly the same as the share of Asian Australians in the House of Representatives after the significant increase at the last Federal election. However more significantly, the Rich List share is greater than share of Asian directors in ASX300 companies based on a 2020 survey which found only a five per cent share for people of a non-Anglo background.

POWER LINKS

The likelihood of Sun Cable solar power project becoming a new foundation of the broader business relationship between Australia and near neighbours Indonesia and Singapore may be receding with the restructuring of the company’s ownership.

Quinbrook Infrastructure Partners’ managing director, David Scaysbrook, has described himself as agnostic about the proposed 4200-kilometre undersea transmission cable between Darwin and Singapore which was the original aim of Sun Cable. Quinbrook is the new partner in Sun Cable with technology entrepreneur Mike Cannon-Brooks’ Grok venture after the failure of the previous partnership with Andrew Forrest’s Fortescue Future Industries.

The previous partnership had been having trouble making progress with Singapore power purchase commitments and difficulties securing access to Indonesian territory while talking up the prospect of the venture reshaping Australian business relations with those two countries.

Mr Scaysbrook told The Australian Financial Review it might take a six-month assessment of Sun Cable to decide whether it was indeed a project, but he talked up other possibilities for the company’s solar power generation capacity in the Northern Territory including production of green hydrogen and onshore processing.

“If we can achieve our mission in this project, it will help underwrite the viability of the cable. If we’re successful … we will be supplying to probably four or five different offtakers, one of which would be the cable,” he said.

BANKING ON INDIA

ANZ Bank has become the largest Australia company to talk up its commitment to India in the wake of the recent high-level diplomacy between the two countries, the interim trade agreement and India overtaking China’s population.

During a Board visit to India this month, chief executive Shayne Elliott revealed that his bank was earning double digit returns on equity from deploying $500 million in capital mainly to finance Indian company activity in the rest of Asia rather than at home.

That is still smaller than it has deployed in Japan, Singapore and Hong Kong. But Elliott said: “We’re profitable, growing business with real momentum, low risk from a customer point of view. So now we want to grow.”

ANZ is the only Australian bank with a licence in India currently despite selling out of its Grindlays subsidiary there in 2000 as part of an earlier pull back from Asia. But Elliott talked up his bank’s position now saying: “Now that the institutional bank is going well, we see more opportunity there. We will pivot more of our capital and resources to institutional – we have that optionality that other [big Australian banks] don’t have.”

ANZ calls itself the largest Australian company operating in India, ahead of others like manufacturers Bluescope and Orica, and Macquarie in investment banking.  And it has 8000 employees or 20 per cent of its workforce located there.

Meanwhile two of its competitors have also joined the push into India with National Australia Bank and Commonwealth Bank of Australia planning to replace external information technology suppliers with expanded full-time workforces in India.

The Australian Financial Review reported that NAB will add up to 3000 staff to its Indian operations in an offshore innovation centre outside of Delhi. CBA is looking for new premises in Bangalore to add 1500 people to its existing 3500 staff there.

The ANZ Board visit to India marks a stepping up of ANZ’s efforts to recover from the negative publicity surrounding its pull back from owning subsidiary banks in Asia, with the bank also now looking at expanded operations in China.

Institutional banking chief Mark Whelan said he was more confident about China after the first visit by a senior Australian banker since the pandemic began and would seek new licences.

INDONESIAN HEALTHCARE

The trade diversification ambitions implicit in the 2021 trade agreement with Indonesia have received a significant boost with construction beginning on an international hospital joint venture outside Jakarta.

The 200-bed hospital in Depok, West Java, is part of a $1.3 billion agreement to build hospitals and public health clinics in Indonesia between Australian companies Aspen Medical and Docta with a West Java government company Jasa Sarana. Aspen Medical is investing $60-70 million in the first hospital.

The Australia-Indonesia Comprehensive Economic Partnership Agreement (IA-CEPA) identified healthcare as a new trade and investment opportunity in Indonesia as the country experiences rising consumer demand for better healthcare and also wants to reduce the foreign exchanges losses from wealthier Indonesians going abroad for treatment.

Launching the construction, senior economic minister Airlangga Hartarto hinted at even bigger health ambitions saying the “government is actively supporting the establishment of hospitals that are on par with the quality and standards of this Aspen Medical hospital, so that it can have a positive impact on the future of Indonesia’s medical tourism.”

Aspen executive chairman Glenn Keys told the Australian ASEAN Business Summit this week that Indonesia had the opportunity to leapfrog traditional health infrastructure in developed countries such as Australia to develop a more efficient and sustainable model for rolling out new facilities.

BEYOND GUANXI

Australian economic engagement with China would benefit from better links between two distinct groups of transnational entrepreneurs who are building new business ecosystems almost parallel to each other.

The University of Sydney Business School/KPMG study argues that Australian entrepreneurs in China (AECs) and Chinese Australian entrepreneurs (CAEs) tends to operate independently of each other. They are also different to the networks of guanxi (or personal connections) that often prevail in China-related business and instead operate in a larger more dynamic environment.

The study of 175 of these new businesspeople showed they maintained active cross border links with multiple stakeholders drawing on local business links, ethnic ties and cross-border connections. 

But it says: “While both groups maintain active links with multiple similar stakeholders, we find that their ecosystems have remained independent of each other.  We believe that closer interaction between the two groups and leveraging their combined ecosystems would give both access to wider markets, resources, and expertise.

The study acknowledges that bilateral economic relations between Australia and China are changing from predominantly direct linkages to indirect linkages reflecting both China’s maturing economy and recent trade impediments which makes the regional cross border linkages of these new younger entrepreneurs more valuable.  

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 DIPLOMATICALLY SPEAKING

“I often say that the foundation of China-U.S. relations lies in the people. We always place our hopes on the American people and hope that the friendship between the two peoples will continue.”
- Xi Jinping after meeting Microsoft founder Bill Gates (June 16)

"The Secretary emphasised the importance of diplomacy and maintaining open channels of communication across the full range of issues to reduce the risk of misperception and miscalculation."
- US statement after Secretary of State Antony Blinken met Foreign Minister Qin Gang (June 18)

"Sino-US relations are at the lowest point since the establishment of diplomatic relations. This does not conform to the fundamental interests of the two peoples, nor does it meet the common expectations of the international community."
- Chinese foreign ministry statement after the meeting

“Wang Yi said that Mr. Secretary of State’s trip to Beijing coincides with a critical juncture in China-U.S. relations, and it is necessary to make a choice between dialogue or confrontation, cooperation or conflict.”
- Chinese Ministry of Foreign Affairs statement after Blinken met former foreign minister Wang Yi (June 19)

"The two sides have also made progress and reached the agreement on some specific issues. This is very good."

- Xi Jinping after meeting Blinken (June 19)

"The relationship was at a point of instability, and both sides recognised the need to work to stabilise it. But progress is hard. It takes time. And it’s not the product of one visit, one trip, one conversation. My hope and expectation is we will have better communications, better engagement going forward."
- Blinken departing China (June 19)

"We're on the right trail here … He (Blinken) did a hell of a job."
- Joe Biden (June 19)

"The reason why Xi Jinping got very upset in terms of when I shot that balloon down with two box cars full of spy equipment in it was he didn't know it was there. I’m serious. That’s what’s a great embarrassment for dictators, when they didn't know what happened."
- Biden (June 20)

"The remarks seriously contradict basic facts, seriously violate diplomatic etiquette, and seriously infringe on China’s political dignity."
- Chinese foreign ministry (June 21)

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 DATAWATCH

HEARTS AND MINDS

China has been Southeast Asia’s largest aid donor for several years, but this has been declining in the past two years as the Asian Development Bank has stepped up amid China’s own economic slowdown.

Official development finance by development partner
Spent, 2015–21 annual average, constant 2021 US$

Source: Lowy Institute Southeast Asia Aid Map

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 ON THE HORIZON

ANWAR'S TEST

Malaysian Prime Minister Anwar Ibrahim has faced so many upheavals in a five-decade political career that facing the voters again scarcely half a year after assembling a fragile government may not seem daunting.

But Anwar faces an uncomfortable test of his self-image as a unifying and reformist leader by August with state elections imminent in six of the country’s 13 states.

Anwar’s Pakatan Harapan (Hope Coalition) alliance failed to win a majority in Parliament in last November’s national election even though he managed to manoeuvre between two longstanding rivals – Mahathir Mohamad and Muhyiddin Yassin - to become the prime minister. But that involved aligning with the discredited long ruling United Malays National Organisation (UMNO) which tarnished Anwar’s reformist image.

Five-year state assembly terms expire in Penang, Selangor, Negeri Sembilan, Kedah, Kelantan and Terengganu at the end of June. Anwar’s Pakatan Harapan is in power in the first three which are relatively wealthy states, and the other three are held by the opposition Perikatan Nasional opposition coalition led by Muhyiddin.

The results will not directly challenge Anwar’s majority coalition at the national level, but it could unsettle its discipline. It could lead to the opposition taking on a more strident Islamic tone arguing that Anwar does not sufficiently represent the country’s Malay majority.

The economy has been performing relatively well since Anwar took office and he has been wooing the expanded youth vote with education and other social reforms. But he has moved slowly on the bigger task of making more substantive economic reforms to improve the competitiveness of the economy.

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