January 28, 2021


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.

CHINA: Signs of monetary tightening spark market jitters

Chinese economic policymakers have clearly signaled their intention to tighten monetary and fiscal policy this year, but uncertainty remains about the pace and degree of tightening. Concerns about more rapid tightening caused market jitters this week, as a spike in short-term interest rates sparked a fall in mainland and Hong Kong stock markets. Despite obviously tight liquidity conditions, the People’s Bank of China (PBoC) surprised markets with unexpectedly small cash injections through daily open market operations. The small injections caused a net drain of liquidity, given the large cash drain from maturing open market instruments issued in previous weeks. Liquidity normally tightens ahead of the Lunar New Year holiday, but the PBoC typically accommodates holiday-related cash demand with elevated injections of short-term cash. The benchmark seven-day repo rate hit its highest level since 2018 on 27 January, while the overnight rate hit its highest level since 2015.

Comments by Ma Jun, an influential member of the PBoC’s monetary policy committee, further exacerbated fears of excess tightening. Ma warned that monetary easing had led to bubbles in China’s stock and housing markets and that these bubbles would worsen unless monetary policy shifts. But the spike in rates is likely to be temporary. Ma also said that any shift in monetary policy should be gradual, and PBoC Governor Yi Gang said on 25 January that the central bank won’t withdraw supportive policies prematurely. The latest Covid-19 outbreak in northern China will add to policymakers’ caution on policy tightening, given the likely negative impact on consumption. On the other hand, two key growth drivers in 2020 – housing and infrastructure – are likely to lose momentum this year due to policy shifts. Regulators have adopted a series of incremental measures to cool the housing market since August 2020, while authorities have recently signaled their intention to restrain local government debt, which will lead to slower infrastructure investment.

JAPAN: High stakes for Suga as government scrambles to prepare vaccination plan

The Suga administration is struggling to develop its national vaccination program ahead of the approval of the Pfizer-BioNTech vaccine in February. While the government wants to begin distributing vaccines in late February, beginning with an estimated 3.7mn frontline medical workers, the national government has given mixed signals to the local governments that will be responsible for distribution about when vaccines will be available, how quickly they should be distributed, and when residents should begin signing up for slots. Local governments have been scrambling to acquire refrigeration, set up distribution centers, and ensure they have enough personnel available to dispense vaccines. Within the government, Taro Kono, the administrative reform minister who has been tasked with managing the vaccine distribution, has been clashing with the Ministry of Health, Labor, and Welfare (MHLW) over the database the government will use to manage the process. Similarly, while MHLW has told local governments that residents over 65 should be notified about scheduling an appointment in mid-March ahead of the start of vaccinations for the elderly in late March, Kono separately suggested that the elderly would begin receiving vaccinations in April.

The political stakes of the vaccine program are immense. Prime Minister Yoshihide Suga remains on the defensive as case numbers – including severe cases – remain elevated and the number of deaths has climbed. It appears likely that Suga will extend the state of emergency currently scheduled to expire on 7 February. He has also had to fend off criticism after senior Liberal Democratic Party (LDP) executives were found to have violated guidelines to visit a hostess club. If the government is able to distribute vaccines effectively, it could offset some of the damage to his reputation done by his perceived mishandling of the third wave and improve his chances of winning a new leadership term. However, if the distribution program is mismanaged it could cripple Suga’s political prospects.

SOUTH KOREA: Government’s vaccination plan envisions herd immunity by November

The Korean Disease and Control Agency (KDCA) announced its vaccine distribution plan on Thursday, 28 January. The agency stated that it aims to vaccinate 70% of the population by November, with the first vaccinations to begin in late February for medical professionals, with the program gradually expanded to the entire population by the second half of the year. In contrast with Japan, where the central government has to coordinate with local governments regarding the logistics for distribution, the national government will manage government-designated distribution sites that will have the necessary cold storage for the Pfizer-BioNTech and Moderna vaccines. A military task force has been formed to oversee the distribution process. The national government will also unveil a nationwide reservation system in March.

The government’s plan calls for vaccinating nearly 500,000 frontline medical workers and at-risk patients at eldercare facilities through March, followed by other medical workers and people over 65 in April, and the rest of the population 18 and over in July. The vaccine will be available free of charge and the government will compensate those who experience adverse effects from the vaccine. The first vaccine to be distributed will likely be the AstraZeneca vaccine, for which approval is still pending.

MYANMAR: Vague warnings from military stir coup talk

Ambiguous statements from the country’s top general and the army spokesperson that the armed forces could act if allegations of fraud during last November’s elections remain unaddressed are generating intense speculation of a coup. Talking in reference to the alleged irregularities in last November’s polls, armed forces chief Min Aung Hlaing said Wednesday that “if the law is not respected or followed, we must abolish it. Even if it is the Constitution, we must abolish it. In the time of the Revolutionary Council, the 1947 constitution was abolished.” This followed a Tuesday statement from the armed forces spokesperson that “we do not say the Tatmadaw (military) will take power. We do not say it will not as well.”

It is possible – even likely – that the vague threats are simply meant to increase its leverage against the ruling National League for Democracy (NLD), especially after its proxy, the Union Solidarity Development Party, lost badly during the November vote. However, the opacity of the armed forces as an institution makes it difficult to fully dismiss the possibility of a military takeover more than a decade after Myanmar embarked on democratic reform.

The NLD won the elections handily, garnering 83% of the seats, but the Union Solidarity and Development Party (USDP), composed of former generals and which won only 7% of the seats, alleges fraud, primarily in the voters’ lists. Even though the poll agency, the Union Election Commission (UEC), has denied any widespread irregularities, the USDP has pushed forward with its charges, asking earlier this month that parliament convene an emergency session to discuss the matter. Ultimately, the USDP wants new elections to be held, under the supervision of the UEC and the military. It has also raised the possibility of boycotting the opening of parliament on 1 February.

The USDP’s claim has limited domestic traction; even before the elections the NLD was expected to win by a wide margin and a takeover would struggle to have any legitimacy. There is some speculation that the military may want to block Aung San Suu Kyi’s attempt at constitutional reform, which she could pursue using as a springboard the strong public support for her party based on the November election outcome. The country’s charter prevents her from becoming president and overturning this would be one of her primary goals, but the military could also see any attempt at constitutional change as possibly threatening its assured seats in parliament.

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