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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.
JAPAN: Flooding prompts calls for new fiscal package
Prime Minister Shinzo Abe deployed around 20,000 Self-Defense Forces (SDF) personnel to help with search, rescue, and relief operations after days of heavy rain caused flooding and mudslides on the island of Kyushu. At least 60 people are confirmed dead, another 16 are missing, and nearly 1mn people across western and central Japan were ordered to evacuate as the storm system moved eastward. The rains have forced factories and other businesses to suspend operations and could complicate economic recovery in some of the country’s largest population centers. Opposition lawmakers have already begun calling for a third supplemental budget to provide disaster relief, but – with heavy rains continuing across the country and the final toll still unknown – Finance Minister Taro Aso has said only that the government will use the reserve funds included in the second supplemental budget.
SOUTH KOREA: New Covid-19 clusters outside Seoul
While Seoul saw a sharp drop in new Covid-19 cases, clusters emerged in other parts of the country, keeping the number of daily new cases nationwide no lower than 50 this week. The city of Gwangju, in southwestern Korea, has emerged as the new epicenter, with churches as the major source of new infections. The national government imposed restrictions on religious gatherings and mandated the use of QR code scanners to register and track congregants, prompting protests from church federations. Meanwhile, the government is also on alert for imported cases, which have stayed in double digits for two weeks, including 33 on 8 July, the highest figure in three months.
KOREAN PENINSULA: Pyongyang rejects Trump’s overture but refrains from new provocations
US Deputy Secretary of State and North Korea special envoy Stephen Biegun voiced US support for South Korea’s pursuit of cooperation with North Korea – which has stalled since North Korea cut off communications and bombed a liaison office – and indicated that the Trump administration is still interested in talks with Pyongyang. US President Donald Trump himself said in an interview this week that he would be willing to meet North Korean leader Kim Jong Un before the US presidential election in November. Despite these signals from Washington, North Korean officials have expressed no interest in returning to the table, dismissing US gestures as a ploy by Trump to help his re-election. However, while North Korea has warned that it is strengthening its nuclear deterrent, Pyongyang has also continued to refrain from nuclear and long-range ballistic missile tests that would provoke Washington.
CHINA: Worries about a new stock market bubble
China’s stock market is surging, with the Shanghai Composite Index rising for eight straight days through 9 July to close at its highest level since January 2018. The index has gained 16.5% since 28 June, fueled by easy liquidity from the People’s Bank of China and several months of generally positive economic data. State media also appeared to encourage the rally this week, but some observers warn that the market gains are outstripping corporate fundamentals, positioning the market for a repeat of the infamous 2015 boom-bust cycle. Retail investors, who have rushed to open new stock-trading accounts in recent weeks, would suffer most from a correction.
Margin lending from securities brokerages, which was crucial to the 2015 bubble, has reached its highest level since early 2016, though the outstanding balance remains far below its 2015 peak. After the market collapse began in 2015, a so-called “national team” of state-owned financial institutions spent hundreds of billions of dollars to curb further losses, due in part to concern about financial instability and the impact on retail investors. But there are signs that regulators are aware of market risks and taking initial steps to curb speculation. On 8 July, the China Securities Regulatory Commission named and shamed a list of institutions offering illegal margin finance, which occurs outside regulated securities brokerages and offers investors far higher leverage ratios.
PHILIPPINES: The fate of largest TV and radio network rests with Duterte allies
A congressional committee will meet on 10 July to decide whether to endorse congress’s granting of a new broadcasting license to ABS-CBN, the country’s largest television and radio network. The network’s previous broadcasting license expired in April, requiring the network to halt broadcasting starting in May. The broadcaster continues to stream programs online, where it has only a fraction of its normal audience. Given the tone of congressional hearings in recent weeks, the pro-administration congress is likely to deny ABS-CBN’s application. For years, President Rodrigo Duterte has expressed his desire to shut down the network, citing both personal reasons – he claims ABS-CBN took his campaign funds in 2016 without airing his ads – to the political – he believes ABS-CBN is part of a web of elites that has conspired against his anti-drug campaign and wants to bring him down.
The network has the country’s most popular shows, but there is unlikely to be any large public reaction to a license denial, which will only further polarize the minority that already opposes Duterte. The medium-term consequences may be more important, as the opposition will portray the decision as reflecting Duterte’s continued disdain for press freedom and his tendency towards arbitrary use of power, which poses risks for businesses and investors that run afoul of the administration. Eventually, this message may add to the public discontent and weaken Duterte politically, especially if the economic recovery is weak.