Report Contents

December 10, 2020

Asia

ASIA: Weekly politics update

BY Gabriel Wildau, Bob Herrera-Lim, Tobias Harris

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( 7 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.

US/CHINA/CANADA: US prosecutors considering deal to release Huawei CFO

Two years after Canadian authorities arrested Huawei Chief Financial Officer Meng Wanzhou at Washington’s request – leading Beijing to arrest two Canadian nationals in apparent retaliation –, the issue may be heading to a resolution. The Trump administration’s Justice Department is reportedly considering a deferred prosecution agreement that would allow Meng to return to China in return for admitting wrongdoing. A deal could be reached in the coming weeks, though the process may also spill over into the early Biden administration.

To be workable, any deal would need to include the release of the two Canadians, Michael Kovrig and Michael Spavor. Neither Washington nor Beijing would want to explicitly acknowledge any Meng/Kovrig/Spavor quid pro quo, since doing so would amount to an admission of political influence on law enforcement, but any deal that did not include release of the “Two Michaels” would be politically untenable in the US and Canada.

Ottawa is frustrated at being trapped between two superpowers and would favor a deal that allows Meng to be released without requiring Canada to defy the US extradition request. A former Canadian former foreign minister suggested this week that the US could bring criminal charges against Huawei as a corporate entity but drop charges against Meng personally, which is broadly consistent with the approach that US prosecutors are reportedly considering. A former Canadian ambassador to China also expressed support for that approach. Canada desperately wants to regain its autonomy in relations with China.

JAPAN: Suga flexes agenda-setting power in tax and health care policy

The Liberal Democratic Party (LDP) and Komeito reached an agreement on a FY2021 tax plan that will include up to JPY 64bn (USD 614mn) in tax relief. While the plan includes several measures to support the Suga administration’s efforts to promote economic recovery – including extensions of special tax cuts for mortgages and “eco cars” that were set to expire – it also includes several measures intended to support Prime Minister Yoshihide Suga’s priorities for boosting long-term growth, highlighting Suga’s ability to set the agenda for the ruling coalition.

Companies investing in reducing emissions will be able to deduct up to 10% of the value of relevant investments from their corporate tax bill. To support Suga’s digitalization initiative, businesses will receive tax benefits for using cloud computing and other digital services. Another tax incentive will allow companies to report certain M&A costs as losses for tax purposes. Meanwhile, as part of an effort to improve Tokyo’s attractiveness as a financial center, the plan includes tax incentives for long-term foreign residents such as an exemption from an inheritance tax.

At the same time, Komeito extracted some concessions from Suga on 9 December when the prime minister and Komeito leader Natsuo Yamaguchi resolved a dispute over a proposal to increase out-of-pocket medical costs for people over 75 years old. To trim costs for the healthcare system, the Ministry of Health, Labor, and Welfare (MHLW) had been seeking to introduce a higher rate of out-of-pocket fees for over-75s with incomes in the top 38%.

Currently, over-75s pay 10% if they earn less than JPY 3.83mn (roughly USD 37,000) annually in single-person households or 30% if their income exceeds this threshold. Reflecting Komeito’s older, urban middle-class base, the party pushed for smaller increases in out-of-pocket costs than what Suga had proposed. This effort ultimately prevailed: those with annual incomes of at least JPY 2mn (USD 19,175) – roughly the top 30% of earners over age 75 – will now pay a higher out-of-pocket rate of 20%, and the new system will be introduced no earlier than late 2022. While Komeito did not get the exact conditions it preferred, the prolonged negotiations and the ultimate compromise indicate that the junior coalition partner still has the power to extract meaningful concessions from its senior partner under a new prime minister.

SOUTH KOREA: Third Covid-19 wave threatens ailing Moon administration

After health authorities raised social distancing guidelines for the greater Seoul region to level 2.5, the second-highest level, on 8 December, South Korea recorded more than 700 new cases for two straight days, with many of the new cases concentrated in the capital region. The rest of the country remains at level 2. The surge of new cases is already straining medical capacity, as medical authorities warn of bed shortages and forcing patients to wait at home for space to open up in hospitals.

Under the stricter social distancing guidelines, which will be in effect until at least 28 December, gatherings of more than 50 people are banned; high-risk facilities including bars and clubs, karaoke parlors, and indoor sports facilities are closed; and restaurants, stores, and other indoor service providers will have to close at 9pm (though restaurants will be able to provide takeout past that time). No spectators will be allowed at sporting events, and religious services will have to move online. Beyond these measures, Prime Minister Chung Sye-kyun has called upon residents of the capital region to avoid leaving the house for all but essential activities, as the government tries to curb the surging third wave. Concerned with rising positivity rates, the government also announced that tests would be available free of charge in areas under at least level 2 social distancing.

As cases rise again, the Moon administration has also begun finalizing plans to acquire vaccines after initially declining to join the global race to stockpile them. The government has announced that it has secured enough doses for 44mn people – nearly 90% of the country – from Pfizer, AstraZeneca, Johnson & Johnson, and Moderna, as well as the WHO’s COVAX initiative.

The third wave comes at a sensitive moment for President Moon Jae-in, whose approval ratings have fallen to record lows this month amid concerns about surging housing costs and an ongoing battle with the Justice Department’s prosecutors. Moon reshuffled his cabinet on 4 December, but the likely impact of the third wave on the medical system and South Korea’s economy could further depress Moon’s support heading into 2021.

PHILIPPINES: Independent-minded Supreme Court judge faces impeachment

The second-most senior associate justice on the Supreme Court is facing impeachment, after a lawyer who is both a known supporter of President Rodrigo Duterte and is associated with the family of former president Ferdinand Marcos filed a complaint. On its face, the complaint claims that Associate Justice Marvic Leonen failed to file a required public disclosure of his finances for 15 years while he was still a professor at the University of the Philippines. All public officials, whether elected or appointed, are required by law to file an annual “statement of assets and liabilities.” The complaint also alleges that Leonen has been derelict in his duty for failing to resolve more than three dozen cases that were assigned to him, exceeding the maximum 24-month window set forth in the constitution.

The most important case Leonen is handling is the election protest filed by Ferdinand Marcos, Jr., the son of the former autocrat, against Vice President Leonor Robredo. Marcos lost by a narrow 260,000 votes – just 0.36% of all votes cast. This case may be the real reason for the charge against Leonen. Both Marcos Jr. and Duterte’s solicitor general asked Leonen to recuse himself last year, claiming that he was biased against the Marcoses.

Leonen is a known human rights advocate who dissented from a 2016 court decision that allowed the burial of Marcos at the National Heroes’ Cemetery. Marcos likely believes that Leonen is blocking the resolution of his case against Robredo, though the evidence of actual election fraud is thin. But Marcos only needs the Supreme Court to agree to his claim to invalidate the elections in three provinces, which would erase Robredo’s lead and allow Marcos to replace her. This outcome would position Marcos well for the 2022 presidential elections. Impeachment hearings in the lower house could start early next year.