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June 12, 2020

ASIA: Weekly politics update

BY Tobias Harris, Bob Herrera-Lim, Gabriel Wildau

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Below is the first edition of a weekly update of political developments across East Asia. Please do not hesitate to contact us if you want to discuss any of the countries mentioned in more detail.

China

Chinese Premier Li Keqiang has called for the “street vendor economy” to help meet the country’s daunting unemployment challenge while boosting consumption. Though China’s economy has substantially recovered from the pandemic shock, total employment may still be tens of millions of jobs below the pre-pandemic level. Top leaders have made it clear that stabilizing employment – even more than GDP growth – is the top policy priority. In recent years, city governments had moved to eliminate street hawkers, which were viewed as an eyesore and a symbol of underdevelopment. But Li said that street businesses are a practical solution for low-income workers due to the low start-up and operating costs.

Top-tier cities like Beijing, Shanghai, Shenzhen, and Guangzhou have already indicated that they will not embrace street vendors on a large scale. These cities have been the most aggressive in cracking down previously and do not intend to reverse course. Some observers interpreted Beijing’s dismissive response to Li’s proposal as a sign of Li’s weak political standing and lack of influence compared to President Xi Jinping, but a more plausible interpretation is that Li’s appeal was never intended for the richest cities. Li praised Chengdu, capital of Sichuan province, for creating 100,000 jobs by allowing 36,000 street stalls, and other cities have announced measures to encourage hawkers.

In promoting street vendors, Li cited a statistic that 600mn Chinese people earn less than RMB 1,000 (USD 141) per month. While Li’s proposal reflects the government’s willingness to deploy unorthodox policies, it also highlights China’s weak social safety net. Unlike other major economies, China’s pandemic-related stimulus policies have focused on support for businesses instead of significant income support targeted at households.

Japan

The shadow contest for advantage in the race to succeed Prime Minister Shinzo Abe was roiled this week when Liberal Democratic Party (LDP) Secretary-General Toshiro Nikai, a key powerbroker whose support could be critical in the succession battle, praised Shigeru Ishiba as a “star of hope” for the ruling party. Ishiba, a maverick defense hawk, was defeated by Abe in 2012 and 2018 thanks in part because Ishiba struggled to win support from his parliamentary colleagues. However, he has long enjoyed strong support among the LDP’s grassroots supporters and he has consistently been the public’s first choice when asked in polls who should be Japan’s next leader. Nikai’s praise is important because it could signal a shift in Ishiba’s ability to assemble a winning majority within the parliamentary party. If Abe’s support continues to fade and depresses the LDP’s support, other lawmakers could reconsider their hostility to Ishiba, whose popular following could lift the party’s support in a manner which Fumio Kishida, the presumptive frontrunner who may have Abe’s backing but lacks broad public support, could not.

While it has long appeared likely that the succession race would be between the anti-Abe candidate Ishiba and the “kinder, gentler” post-Abe Kishida, this week also saw the first signs of mobilization by the LDP’s nationalist right wing. Hakubun Shimomura and Tomomi Inada, some of Abe’s closest ideological allies, announced the creation of a 130-member LDP study group to reimagine the state in the post-Covid-19 world. The group’s creation is a reminder that the right wing will also be a factor in the succession fight, and at this point it has neither a standard bearer of its own nor a natural affinity for Ishiba or Kishida. (Despite Ishiba’s hawkish views, he is not an ideological nationalist.)

Korean Peninsula

Moon Jae-in’s administration has cracked down on civil society groups sending leaflets across the de-militarized zone (DMZ) to North Korea after Pyongyang used cross-DMZ leafleting to justify breaking communication links with the south only two years after Moon became the first South Korean president to visit Pyongyang. The Moon administration has stressed that the leaflets violate both domestic law and inter-Korean accords and will use criminal penalties to combat these activities. Provincial governments along the DMZ have also signaled that they will try to detect and prevent potential propaganda activities. These steps have prompted criticism from conservatives that Moon is violating civil liberties in order to revive his stagnant diplomatic outreach to North Korea.

North Korea’s decision to cut off communication with South Korea – which Pyongyang warned Friday could lead to “regrettable and painful” times – has accompanied a darker tone towards the US. Pyongyang marked the second anniversary Friday of Kim Jong Un’s summit with US President Donald Trump in Singapore by vowing to build a “more reliable force” to counter US threats.

Indonesia

The daily diagnoses of Covid-19 cases increased significantly in Jakarta and most major regions this week, a marked changed from the trend since late May. The most substantial changes were in small provinces outside Java, East Java, and Jakarta. Problematically, the increase was reported even though the PCR testing rate had dropped from the previous week. This in turn caused President Joko Widodo to warn categorically that the phased easing of movement and business restrictions could be halted or even reversed should the case increase accelerate. The high level of economic pain brought about by movement restrictions are causing local governments to proceed with reopening despite the risks. For instance, in East Java, the large-scale social restrictions in the provincial capital of Surabaya and the regencies of Gresik and Sidoarjo will be lifted and over the next two weeks transitional measures will be put in place ahead of “new normal” rules for reducing the risk of infection and transmission.

Thailand/Indonesia/Philippines

The Thai cabinet this week approved planned legislation that would levy a value-added tax (VAT) on foreign platforms that provide services in Thailand, such as Netflix and Spotify, or even those that sell videogames such as Steam. Indonesia plans to collect a 10% VAT starting in July, and legislation to the same effect has been filed in the Philippines, although whether the government of President Rodrigo Duterte will support it remains to be seen. The Philippines is also targeting small sellers on shopping platforms. The governments are justifying the measures as supporting the expansive spending needed to counter the economic slowdown brought about by the pandemic, even though the likely revenues are relatively low. In the case of Thailand, for instance, the government’s estimated take is about USD 97mn.

Philippines

The general community quarantine (GCQ) now in effect over the capital will likely continue for two more weeks, based on the statements of Department of Interior and Local Governments Secretary Eduardo Ano. He is also the vice-chair of the inter-agency task force that is coordinating the government’s response to the pandemic. There may still be some tweaking of rules – for instance, restaurants will be allowed to reopen with reduced seating capacity starting next week. However, the main concern for many of Metro Manila’s residents will continue to be mobility; under the GCQ, the tens of thousands of small passenger buses (locally called jeepneys) often used by the lower-income classes are not allowed to operate.