Singapore: Johor Special Economic Zone, US Anti-China Reverse CFIUS & Regional Trade Diversification with Shiyan Koh - E473

Shiyan Koh, Managing Partner of Hustle Fund, and ​​Jeremy Au discussed:

1. Johor Special Economic Zone (SEZ): They explored the potential impact of the upcoming Johor-Singapore SEZ agreement, scheduled for signing in November. The SEZ, which is more than 4 times the size of Singapore, is seen as an opportunity to deepen economic ties between the two regions by leveraging Singapore’s capital, technology, and skilled workforce alongside Johor’s land and infrastructure. They noted regulatory challenges such as Johor’s year-long permit approval process, which contrasts with quicker timelines in other Malaysian states like Selangor. Both emphasized that political cooperation across Malaysia's federal government, Singapore and Johor's state government & king would be essential to the SEZ’s success, particularly in attracting multinational corporations (MNCs) and improving labor mobility across the border. They discussed the anticipated real estate developments, economic forecasts and potential surge in cross-border economic activities.

2. US Anti-China "Reverse CFIUS": The discussion covered the upcoming introduction of America's "reverse Committee on Foreign Investment in the United States (CFIUS)" legislation, which restricts US citizens, entities and LPs from investing in Chinese funds or companies involved in sectors like artificial intelligence (AI), quantum computing, and microchips. These measures are expected to reduce China VC investments as US LPs steer clear of the compliance risks associated any funds that invest into China-linked companies. Reverse CFIUS reflects a broader change in global capital flows, signaling the end of the globalization era that had previously driven much of the world's economic integration. This shift could redirect capital towards Southeast Asia, offering opportunities for local investors but also presenting serious challenges.

3. Regional Trade Diversification: They examined Southeast Asia’s growing significance as part of the “China Plus One” strategy, where MNCs diversify operations beyond China due to rising trade tensions. The SEZ’s strategic location and proximity to Singapore’s financial and skilled labor markets could become a key hub for industries such as electronics and automotive manufacturing. They noted that improved infrastructure like direct international flights would enhance the region’s connectivity and attractiveness for global businesses. They also underscored that seamless collaboration and regulatory improvements to streamline bureaucratic processes are critical to fully capitalizing on these emerging opportunities.

Jeremy and Shiyan discussed several emerging topics including diabetic horses healthcare, Singapore's longevity, crypto and VC conferences and the challenges of maintaining balanced diplomatic and economic strategies amidst global policy shifts.

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(01:44) Jeremy Au:

Morning, Shiyan.

(01:45) Shiyan Koh:

Good morning from beautiful Farmstay, in God knows where, Margaret River. Hello.

(01:51) Jeremy Au:

What are you doing on a farmstay? Sounds so quaint.

(01:53) Shiyan Koh:

It's the September holidays for my kids, and so we wanted something close by. And I think, in general, the goal for holidays is just have them be outside as much as possible. So this kind of fit the bill. I can hear goats bleeding from my bedroom window, but there's sheep and chickens and ducks, fish and a diabetic horse. So, lots of animals for the kids to feed and interact with.

(02:19) Jeremy Au:

Did you say diabetic horse? Is that a real thing?

(02:21) Shiyan Koh:

Yeah, horses also get diabetes and we learned this because the farmer was like, contrary to what you might have read in books, you cannot feed this horse apples or sugar lumps. You can only feed it carrots.

(02:34) Jeremy Au:

Did they get diabetes from people giving them?

(02:36) Shiyan Koh:

Well, I think he's just old and has diabetes, but yes, so they have to like, manage his blood sugar because you know what? It is literally like humans. Basically what happens is his his hooves rot.

(02:46) Jeremy Au:

Oh, no.

(02:47) Shiyan Koh:

Like how humans, like, they, get issues with their feet, their extremities, with uncontrolled diabetes. It's the same thing.

(02:53) Jeremy Au:

Well, I don't know. Has the horse heard about Ozempic GLP 1, the wonder drug for longevity folks? And have they heard of Metformin, which will help you with your diabetes, but also gives you life extension? I'm just triggered because the upcoming Don't Die conference by longevity champion Brian Johnson is coming to Singapore in a few weeks.

(03:11) Shiyan Koh:

Have you also been re-targeted by their Instagram ads? Because I keep seeing ads for that conference.

(03:17) Jeremy Au:

Well, it is my fault. I have, you know, got previous Don't Die ads and you had to read about this stuff and I guess I'm bang in the middle, right? It's like middle age, tacky,

(03:27) Shiyan Koh:

Well, I did not ask the farmer about the horses' consideration of Ozempic, but, he did mention that because they have nationalized healthcare in Australia. So, they're used to pretty affordable health care, but obviously there's no nationalized health care for animals right? So he's like, yeah, you get the vet out here and it's $500 or you know, it's very very expensive. There's no subsidies. So I somehow doubt that there's a horse is gonna, you know, get on ozempic anytime soon but now that's making me curious likehave they done like,, I mean there is an overweight pet problem in developed countries. So I wonder if anybody has done like a pet focused, weight or diabetes management solution.

(04:07) Shiyan Koh:

That's the next goldmine, Jeremy!

(04:09) Jeremy Au:

This thesis-driven investing.

(04:11) Shiyan Koh:

Well, okay, but it's not totally ridiculous. One, people do spend a lot of money on their pets. And two there's that company that's doing longevity experiments on dogs, right?

(04:21) Jeremy Au:

Yeah.

(04:21) Shiyan Koh:

They're proving, they're trying to prove out that the drug will extend life on dogs first, because, they live shorter lives so you get data faster, but also regulatory bar is lower, right?

(04:31) Jeremy Au:

Yeah. No, I think this also works because, I think, Shark Tank, there's also a startup that did really well, which was just doing kind of like DNA testing for dogs. And they're really well, and I watched that clip and I was like, yeah, maybe there could be one DNA testing, but for cats in Southeast Asia. and dogs, that could be a really large business and you have an Indonesia thesis and et cetera, et cetera.

(04:49) Shiyan Koh:

No, no, no. It still goes back to per capita disposal income.

(04:55) Jeremy Au:

Yeah.

(04:55) Shiyan Koh:

Asians are not spending that on cats.

(04:57) Jeremy Au:

Well, we're here in a brainstorm mode. We're here to diverge, not converge and et cetera, et cetera. Building mode. But yeah, talking about building mode, we wanted to talk because there's a big news about the Johor Singapore special economic zone that's coming up. Sounds like it is a potential signing date in November this year. So, Ooh, what do you think about that Shiyan?

(05:15) Shiyan Koh:

I think it's awesome! I mean, like there's always that very famous clip of LKY tearing up in the announcement of the separation, and the fears of not having a hinterland, and so I think that the more integration we can have with Malaysia and the more both countries could take advantage of their relative strengths, I think this is a grow the pie sort of thing, right? And, I mean, I think the SEZ is like five times the size of Singapore. And there's already been some spillover, right? When we did the moratorium on the data centers, people went over to Johor to build data centers. They clearly have way more land. And I think this is good, right? It's a win-win if we can get it off the ground.

I mean, I do think there are probably some challenges in terms of red tape. It's not totally clear, like the grid, power management, all that kind of stuff, if you know, we're gonna try to move it that direction. How much of that has already been planned for, but, I mean, I think at a high level, it's good, and maybe, once MRT is up and running as well, so it's not so onerous to get over the border, like there's no reason why People can't live in JB and work in Singapore or vice versa, which I think just opens up also access to real estate at different price points. There's a reason artists don't live in Manhattan. Artists live in Brooklyn or Queens, but they want access to dense theater going populations in Manhattan or whatever it is, right? I think that's like, building a greater, more integrated economic zone is an awesome development for both Singapore and Malaysia. How about you, Jeremy? What do you think?

(06:44) Jeremy Au:

Well, you made me laugh talking about real estate because it's always every Singaporean's dream to buy a home in Johor Bahru and et cetera, et cetera. Rent out the Singapore home. I think zooming out here, it makes sense because Singapore has the capital stack as well as technology and high skilled labor. And obviously Johor has a lot of land, its infrastructure is coming together. So I think there's a, like you said, the sum is larger than the composition of its parts here. And this is actually kind of creating a potential alternative to, for example, MNCs are looking to build in Vietnam as part of China plus one or Indonesia as part of the China one plus one strategy. I think Johor plus Singapore would be a really attractive industrial park.

I think because a lot of executives, for example, the MNCs, HQs are based in Singapore, for example, that's one, but two, of course they need access to infrastructure and in Johor and Singapore both have enough energy. And both Johor and Singapore have a lot of deep water ports as well. So it's not a detour, for example, if you were in Indonesia industrial park, it's a bit of a detour for the shipping as well in terms of logistics costs. So I think there's a lot of things that we like to call the blocks. That makes sense.

(07:50) Shiyan Koh:

Yeah, I think it's awesome. I have a small dream. Like, I don't know if this dream is possible, but I would love to be able to build a cabin by myself with my own two hands somewhere that I can drive to. So any listeners have ideas for where in Johor this may be possible, please let me know, I'm all ears, but yes, that is like I The Hudson Valley, right? You can go to, can go have your cottage somewhere. Plant vegetables. So, enjoy your farmer's market.

(08:19) Jeremy Au:

Build a farmstay. Actually, that's not a bad idea. That could be a business, a farmstay in Johor Bahru for Singaporeans who would rather fly to Australia currently.

(08:27) Shiyan Koh:

Oh, but I have heard, the big talk down here is that there may be direct international flights from Singapore to Busselton, which is the small airport closest to Margaret which would be amazing because that would save the like almost three hour drive from Perth, which is how you fly in and out.

(08:45) Jeremy Au:

So thinking about the SEZ, what are the key things to believe, or perhaps risk factors?

(08:52) Shiyan Koh:

Well, for whom, right? I think for investors is, you need to believe that the local state government can align its processes to and facilitate some of this investment. I was reading something about how Selangor has like a hundred day guarantee on getting permits done, whereas in JB, it can take up to a year. And so, I think things like that, it's all the very boring, but essential logistical details of getting companies up and running. And so it's like, Oh, okay, I need to make an investment. What do I need? I need to incorporate a business. I need to get my factory set up. So I need to get access to land. I need building permits. Oh, I need workers. So then I need work permits, right? Like the whole stack of basically, wrote down a list of all the things it would take you to get up running, I need import permits for my machinery, whatever it is, can the local government, which may not be used to dealing with some of these things, which could be more federal types of processes work together to facilitate seamless onboarding. I think that's what's going to drive the attractiveness of it because it's one thing to have the marketing message, but it's another thing to actually like, execute against that. So I mean, I recently had an experience where one of our companies got acquired by a Abu Dhabi incorporated business. And there's a big push for Dubai Abu Dhabi, like, Hey, come do business here, blah, blah, blah. So I was like, okay, I expect this to be like a very seamless process, but it's been months and the transaction is still not done because there's some KYC requirement that is kind of above and beyond any other KYC requirement I've ever seen.

And this is like a small company. And so this poor founder is running around to all these Angels and small funds to be like, I need this ninth level of KYC and we've gone back and forth with the lawyers and we've been like, Hey, like what's your goal, right? Instead of just trying to check every box, what's your goal? What are we, how do we like get this done? And they're like, no, this is just required. And so I think there's like a mismatch between the marketing message and the actual, like on the ground, like how do you do business? And so I think the risk is, can we iron out all those kinks and make sure that the first 50, first hundred people who come have a great experience? We start building the muscle there. And then I think there's the collaboration, which is like, how do both sides collaborate on ensuring that it's seamless, not just within JB or within Singapore, but like across the two administrative functions to create those benefits that we're hoping will happen.

(11:14) Jeremy Au:

Yeah, I think it's super key. I agree with you because point of a special economic zone is that it's supposed to make that paperwork in that sense, be much more streamlined because what often happens for the SEZ is like all the rules and regulations that don't make sense for import export, trade kind of creates a regulatory tax. So I think that's really key. The fix, I would say and I think I will add to it is, I think labor movements will be pretty important. Like, can Singaporeans travel to the SEZ very well? Can other folks within Malaysia travel to SEZ and move or migrate necessarily to service it? And then of course, I think politics, obviously, I think the Singapore government is obviously cohesive because regional and local elections are effectively the same in this one.

But of course Johor is different from the national Malaysia government. And so, having that kind of three way conversation is quite key to keep that trust and regulatory alignment together for the SEZ.

(12:09) Shiyan Koh:

Exactly.

(12:09) Jeremy Au:

So talking about the SEZ, obviously a big part of it is because there's a shift in manufacturing activity from, China towards Southeast Asia because of the deterioration in trade relations between the US and China. So I was reading about a new piece of legislation that I was very surprised by, which is called the Reverse CFIUS. So C-F-I-U-S was a kind of like committee that basically says, Hey, the US government can veto inbound investments to America from China, which killed a lot of investment activity by Chinese capital players in within America, but this is the reverse version of that, which is American people cannot invest in China if they're considered to be strategic or national importance.

(12:47) Shiyan Koh:

So I think, Jeremy, you're totally right in that the original CFIUS bill cast a real pall on Chinese investment into the US. A lot of investors who thought they were going to do direct investing sort of killed their direct investing programs to become LPs instead, so that they're one degree removed but even more recently, there's been one more layer of cooling where funds are not even wanting to accept Chinese LPs so, you can sort of see the, withdrawal of capital by level from direct to LP investing to even funds now saying Hey, actually, we don't want to take the money because we don't want the initial scrutiny or, or have that perception that we're backed by Chinese money. And so the reverse CFIUS plan is pretty onerous as well. So it's saying that any US person or US entity cannot invest in a Chinese owned entity that touches AI, security, quantum computing. And if you read the definitions of AI, like it's actually pretty broad, and there is like a rule about what the threshold on ownership is, which is that if it is more than 50% owned by Chinese people, it's considered a Chinese entity. So, even if your company were, as I read it, it could be U. S. Incorporated, SafeShell, Incorporated, Singapore, Harvard, but let's say they were, six founders and they held Chinese passports and they had 10% ownership, each that's 60%, that's considered like a Chinese investee that a US person would be prohibited from investing in if that company was working in any of these restricted area. So this is a one of these like self reporting burdens.

So I think a lot of people just won't want to deal with it. And so they'll just avoid investing in it, which is kind of unfortunate. And I think the logic is that, even getting investment benefits the Chinese economy in some way, and given the sort of dual use cases of AI and some of these security technologies, there's no other way to prevent China from benefitting.

(14:49) Jeremy Au:

Yeah, I think it's definitely a huge dynamic, because I think effectively it just means that you're not going to see any American citizen touch a Chinese citizen, I think, effectively in practice in terms of investments.

(15:01) Shiyan Koh:

Yeah but I mean, I think it's a bit of a pity, right? It's like, maybe we just, we grew up in the golden age of globalization where it's like, the world is flat, it's the end of history, Francis Fukuyama, everything, and then now this is like the really rip roaring backlash on the way back but, did you see there was somebody who served in Cuomo and current New York governor, Kathy Hochul's administration who's been charged as a Chinese agent?

(15:26) Jeremy Au:

I don't know what's up with that.

(15:27) Shiyan Koh:

It was crazy. It's like, I don't even think she was that senior, but it was something like she was the liaison to the Asian American communities or whatever. The really funny thing was that, she was charged with receiving money, but also special ducks. Like, I don't know, they, like, delivered special ducks, like, quack quack, like, food! It's so Chinese! Like, some sort of special ducks were delivered to her house every six months during this period where apparently she was working for the Chinese government, but she also apparently blocked, like some Taiwanese delegation wanted to meet with the governor and she blocked it. You know, she like removed every comment around Taiwan for many official statements just like that like that but yeah, it was, it's, I'll send you the article. I mean, it's not amusing, obviously to have spies, but the type of things that you receive as benefits is pretty amusing.

(16:14) Jeremy Au:

Yeah, I think it's a definitely a big surprise because I think that people felt, at least I did, that I think Trump obviously set up a bunch of tariffs. And then, Biden kind of like double down on those types of tariffs, in the specific goods, but didn't necessarily create new types of goods covered by those tariffs. So in other words, it was kind of a bit of status quo. I was already priced in, and then of course, I think what's interesting is that this ban, I want to say ban, this restriction on American capital in Chinese affiliated companies, either in the form of people or in the form of geography, regardless of whether you are a direct investment or an LP, is basically, kind of like cutting off a huge amount of capital flows that would just make it, I think, very difficult. And it makes me wonder if there'll be more types of that, right? This is currently for investors, but you can imagine like, could you imagine American manufacturers, could there be legislation that covers American manufacturers looking at setting up or partnering or JVing with Chinese companies as well?

(17:09) Shiyan Koh:

I don't think Biden administration was neutral on China. I mean, I think they took the Trump measures and amped them up. The one thing Republicans and Democrats can agree on is that it is politically favorable to be harsh on China. I think they differ in terms of what's the right way to do it, but I think they're both in agreement on that. And I think Biden actually took Trump's ideas and extended them. I mean, if you look at, all the defense spending, all the things that are going on there, I think the Americans are really worried and they're really trying to put their money where their mouth is in terms otheir innovation on And then also in all the sort of blocks put on the Chinese. So it's, just going to get worse and I think it's going to be challenging for us as Singapore to kind of keep walking our line between those two big elephants in the room and not to be sort of portrayed by any one side to be on the other, the other superpower side.

(18:02) Jeremy Au:

And on that cheerful note, let's peace out. See you next time.