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July 2, 2020

ASIA: Weekly politics update

BY Tobias Harris, Bob Herrera-Lim, Gabriel Wildau

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( 6 mins)

Below is the 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: HK Autonomy Act headed for approval

On 1 July, the US House of Representatives passed the Hong Kong Autonomy Act, which imposes sanctions on Chinese officials who implement the National Security Law (NSL) in Hong Kong and on banks that service them. The US Senate passed the same bill last week, but congressional rules require the Senate to vote on it again before it is sent to President Donald Trump. He is likely to approve the bill but may still resist the law’s efforts to force him to impose sanctions on China beyond those already announced. On 26 June, the State Department said it would deny visas to an unnamed group of Chinese officials involved with the law. On 29 June, the Commerce Department followed up by extending export controls on certain technology exports to China to cover Hong Kong as well, while the State Department said it would cut military exports to Hong Kong.

After China’s parliament formally approved the National Security Law on 30 June, a US National Security Council spokesman said the US will “continue to take strong actions” but did not elaborate. Meanwhile, Democratic presidential candidate Joe Biden threatened new sanctions, saying he would “prohibit US companies from abetting repression” in Hong Kong. His statement was similarly light on specifics but suggests that a Biden administration may use the Commerce Department’s entity list to bar US companies from selling to Chinese companies deemed complicit in repression. Commerce has already blacklisted companies alleged to be involved in repression in Xinjiang. Beyond this measure – which would have limited practical impact on China – it is unclear what other measures are available to the US that would not inflict significant collateral damage on US companies and/or US supporters in Hong Kong.

JAPAN: LDP begins debate as government prepares national security review

The debate has begun in earnest over the future of Japanese national security policy, which was prompted by Minister of Defense Taro Kono’s abrupt decision to suspend deployment of the Aegis Ashore missile defense system amid local opposition and cost overruns. On 30 June, a team of defense policy specialists in the ruling Liberal Democratic Party (LDP) held their first meeting to draft recommendations that they hope will influence the Abe government’s deliberations later this year as it updates its National Security Strategy, National Defense Program Guidelines, and mid-term defense spending plan.

The LDP study group, chaired by former defense minister Itsunori Onodera, is expected not only to consider alternative approaches to strengthening Japan’s missile defenses that could sidestep the local opposition that derailed Aegis Ashore but will also debate whether Japan should acquire military capabilities that would enable its Self-Defense Forces to strike targets in foreign countries. Prevailing interpretations of Article 9 of Japan’s constitution suggest that striking foreign targets – including preemptively – is not inherently unconstitutional, although it could be at odds with Japan’s longstanding “exclusively defensive” posture. As on previous occasions when this proposal surfaced, most recently in 2018, political constraints could prove more salient than constitutional constraints. It is unclear whether Prime Minister Shinzo Abe will have the political strength to implement what would be a controversial departure from the status quo, particularly given likely opposition from the LDP’s junior coalition partner Komeito. The debate could also lead to friction with the US, not only because of uncertainties surrounding the US presidential election but also because US officials have historically questioned how Japanese strike capabilities would fit within the current framework for allied cooperation.

SOUTH KOREA: Democrats break parliamentary impasse to begin budget review

The National Assembly returned to business under the control of the ruling Democratic Party of Korea (DPK) after the DPK decided to take control of 17 of 18 committees (the government and opposition are required by law to agree on a candidate to lead the National Intelligence committee). The opposition United Future Party (UFP) has boycotted the assembly for several weeks after talks between the DPK and the UFP over the distribution of committee chairs broke down. Norms introduced after democratization mandated that a senior opposition lawmaker would chair the powerful Legislation and Judiciary committee, which judges on the constitutionality of laws before they are voted on by the whole assembly, as well as chairing other committees. However, the DPK’s victory in April was so significant that the ruling party felt entitled to control the assembly’s most-powerful committees, leading the UFP to leave talks and boycott parliamentary deliberations.

With the committee chairs distributed, the assembly can resume work, although the UFP has continued its boycott. In doing so, the UFP is gambling that the public will punish the DPK for violating democratic norms. However, the DPK has criticized the UFP for obstructing the work of government during a crisis and increasing public hardships, since the UFP’s boycott has prevented the passage of a KRW 35.3tn (USD 29bn) third supplementary budget proposed by the Moon administration to mitigate the effects of the Covid-19 pandemic. The newly formed committees took the first step towards passing the budget on 30 June by completing a mandatory review that added KRW 3.1tn (USD 2.6bn) to the budget. The draft will now go to a special budget committee for further review before going before the whole assembly. The UFP is demanding a lengthier debate on the budget as a condition for ending its boycott.

PHILIPPINES: Some additional stimulus planned, but still among the lowest in SE Asia

President Rodrigo Duterte will call a special session of Congress in the next two weeks to pass limited stimulus measures. Congress is scheduled to resume its regular session on 26 July, but Secretary of Finance Carlos Dominguez wants the bill to be approved earlier, not only to hasten its implementation but to avoid the debates being entangled with the administration’s tax reform proposals and the budget process. The Philippines has implemented one of the smallest stimulus programs in the region, equivalent to slightly more than 1% of GDP. The second stimulus program will be slightly smaller than that at roughly 0.75% of GDP, or about USD 2.8bn, and be used on different programs for labor, tourism and agriculture; it would also include a capital infusion for government financial institutions.

Dominguez and economic planning secretary Karl Chua are against a proposal from the House of Representatives for an immediate stimulus that would total around USD 26bn, or roughly 7% of GDP, saying that it would be fiscally irresponsible and possibly violate the constitution. However, opinions are divided in Manila over the need for more stimulus, especially with the larger amounts being spent by its peers such as Indonesia, Thailand and Malaysia, and the sense that the Philippines could suffer a deeper recession should the current stimulus prove inadequate. If the economic recovery remains weak, which is a possibility given the persistence of local transmissions, then more spending could be included in the main 2021 budget, which is due to be discussed in the House starting in August and approved by December.

CHINA: Power shortages lead to durable market reforms

( 5 mins) Severe power rationing has led to significant long-term reforms to China’s electricity pricing system that go beyond emergency stop-gap measures. Under the new system, coal-powered generators can pass on higher coal prices to electricity users;

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ASIA: What the Quad’s evolution means for Asia

( 6 mins) The evolution of the Quadrilateral Security Dialogue into new areas of cooperation at this week’s summit has important implications for the delicate balance of political and economic relations across Asia. For Japan, the Quad represents

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