May 21, 2020

ASIA: The politics of coronavirus – Weekly update

BY Bob Herrera-Lim, Gabriel Wildau, Tobias Harris

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( 7 mins)

Below is the latest edition of our weekly Asia coronavirus update. Please do not hesitate to contact us if you want to discuss any of the countries mentioned in more detail.

China

China’s central government dispatched its senior official leading the coronavirus response, Vice Premier Sun Chunlan, to northeast China’s Jilin province. Around 40 new cases emerged in Jilin city and the satellite city of Shulan in recent weeks. But in what could be a model for dealing with future localized outbreaks, authorities imposed a targeted lockdown in certain districts of the city, as authorities conduct contact tracing. Around 90,000 people in Jilin city and Shulan had been tested by Monday, and a notice said that anyone who had purchased fever medication since 1 April would be contacted to answer questions. A senior advisor to China’s National Health Commission said that the recent outbreak in new infections in Jilin and neighboring Heilongjiang provinces has exhibited different clinical features than earlier waves. The asymptomatic incubation period is longer, and the recovery period is longer. Symptoms were also different: fevers are rare, and organ damage is mostly confined to lungs, with other organs unaffected.

Meanwhile, President Xi Jinping gave a speech to the World Health Assembly in which he sought to project Chinese global leadership. Xi also pledged USD 2bn to the WHO for pandemic response; proposed a new partnership program between Chinese and African hospitals; and pledged to make any Chinese-made vaccine available as a “global public good,” though without specifying exactly what this would mean. Xi also appeared to soften China’s opposition to an international investigation into the pandemic, saying that China supports the idea of a “comprehensive review” of the global response, once the pandemic is brought under control. But Xi indicated that Beijing wants the focus of any review to extend beyond the question of origins; to cover the global response, not just China; and to avoid political criticisms.

Japan

The Liberal Democratic Party (LDP) has prepared a draft proposal for a second supplemental budget, as the Abe government considers plans to address a worsening economic outlook. Whereas the first supplemental budget was ultimately focused on providing broad stimulus to all households – in the form of JPY 100,000 (USD 929) payments to every individual – the second budget will focus on targeted relief for vulnerable constituencies. The most notable components will include assistance for lower-income university students unable to secure part-time work to pay for school; relief for single parents; more generous support for employers that retain their workers at full pay; a rent subsidy program, particularly for small businesses; and more subsidies for local governments. While the party is delivering its proposal to Prime Minister Shinzo Abe Thursday, the final price tag remains undecided.

Amidst growing concerns that the economic impact of the Covid-19 pandemic could be deeper and longer than anticipated, LDP lawmakers are pushing for a larger stimulus package and more deficit spending, although the second supplemental budget will in all likelihood be smaller than the record-breaking first FY2020 supplemental budget. This week’s Q1 preliminary GDP report confirmed that Japan is already in recession, and April data has begun to show that the Covid-19 shock has been significant. Japan’s exports fell by 21.2% year-over-year in April, while the number of inbound tourists plunged by 99.9%, suggesting the possibility of significant job losses and bankruptcies in the tourist sector and adjacent sectors, especially given expectations of record numbers of tourists connected to the rescheduled Tokyo Olympics.

South Korea

High school seniors returned to school on Wednesday, 20 May after the start of the new school year was delayed by more than two months. However, the reopening was not entirely without incident, as the discovery of cases linked to the Seoul nightclub cluster forced high schools in two provinces to close early. The high school cases were part of a marked uptick in new cases in the greater Seoul region Wednesday. Authorities have been struggling to contain both the nightclub cluster and a new cluster at a Seoul hospital. The ability of a small number of infections to force dozens of schools to send home students early shows the disease’s disruptive potential even in a country where it has been largely tamed. However, the government’s ability to detect and isolate a small number of cases and respond appropriately suggests that the test-trace-isolate program could continue to prevent large-scale shutdowns of economic and social institutions going forward.

Thailand/Indonesia

Two governments took different paths in their approach to troubled national carriers. The Thai cabinet this week agreed to a restructuring of its national flag carrier Thai Airways through bankruptcy proceedings. The airline’s powerful union had initially opposed the bankruptcy filing, but later agreed. Public support for an unconditional bailout was weak. Not only are there broad perceptions of long-standing problems of corruption and mismanagement at the airline but granting Thai Airways an outsized financial lifeline while the government struggled to deliver cash aid to lower-income groups could have been very unpopular and given the opposition an opportunity to attack the administration. The Thai government reportedly plans to provide the airline with a bridge loan of about USD 1.6bn, but in the longer term will become a minority owner, thus ending Thai’s status as a state enterprise (although there may still be other governmental shareholdings that could give it still majority control if the formal ministry of finance holdings are only reduced to 49%). The initial speculation in Bangkok is that it could shed about 1/3 of its workforce. Thai Airways has a total of 74 leased and owned aircraft.

In contrast, the Indonesian government will provide USD 1bn in government support to state airline Garuda Indonesia. Equity injections for state enterprises have become routine. Also, Indonesia needs Garuda’s services – its subsidiaries Citilink and Sriwijaya account for the bulk of domestic flights across the archipelago. Finally, the state enterprise minister inducted last October, Erick Thohir, is still generally respected, and his support for providing Garuda with a lifeline is unlikely to be controversial domestically.

Philippines/Indonesia

To shore up revenues, Indonesia will collect a value-added tax (VAT) from streaming services and digital goods providers starting in July, while the Philippines is considering similar legislation. In Indonesia, the finance ministry will on 1 July start collecting a 10% VAT on imported digital goods and services, including streaming services. This would include services such as Netflix, meeting-provider Zoom and online games. The Philippine government is considering levying taxes on Netflix, Facebook ads, Google and sellers on e-commerce platforms – a measure that one member of congress estimates could raise up to USD 600mn, or slightly less than a fifth of one percent of GDP. In both cases, the objective is to raise money to fund their expansive fiscal programs.

In the Philippines, sellers on popular local sites, many of which sell directly from China, do not pay a 12% VAT. Under the plan, the e-commerce website would act as a withholding tax agent. Also, to force streaming companies and those selling ad space to pay the tax, they would be required to register in the Philippines or else have their access blocked. A bill has already been filed in the lower house and has the support of the powerful chair of the ways and means committee, but the position of President Rodrigo Duterte is still unclear as the finance minister has said that they are still studying the idea. The government is planning a major push for legislation in the next few months for new spending, corporate tax incentives and a new investment incentive regime.

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