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: New bank regulations will trim scale of fintech loans
China's banking regulator issued new rules restricting the ability of fintech platforms like Ant Group to partner with commercial banks to offer loans to consumers and small businesses. As previously noted, regulators had grown concerned about Ant Group and Tencent's ability to leverage their huge troves of proprietary data from digital payment transactions to encroach on territory traditionally reserved for state-owned commercial banks. Long the dominant players in China's financial system, banks were growing increasingly reliant on fintech groups for customer acquisition and credit risk assessment. The new rules require fintech groups to have more “skin in the game” by contributing at least 30% of the funding for loans offered jointly with traditional lenders. By contrast, Ant Group's IPO prospectus indicated that the company was only contributing 2% on average. The rules also restrict commercial banks' participation in such partnerships by limiting the scale of loans made in partnership with any single fintech group to 30% of tier-1 capital. Regulators released a draft version of the rules for public comment in July, prompting Chinese fintech shares to drop. The latest rules are final and will take effect in 2022.
Beyond online lending, financial risk control is expected to be a major theme of Chinese economic policy in 2021, after a major expansion of credit in 2020 due to pandemic-related stimulus measures. The crackdown on Ant-style online lending follows the near-total collapse of China's peer-to-peer lending industry, which boomed from 2014 before defaults and regulatory pressure in 2017-18 sent the industry into decline. In addition to concerns about financial risk, regulators are uncomfortable with business models based on high-interest loans to low-income groups. The rules will likely reduce the overall supply of consumer credit in China, as credit card penetration remains limited.
JAPAN: Government relaxes state of emergency; vaccine supply concerns remain
Despite ongoing concerns about the availability of the Pfizer-BioNTech vaccine, Taro Kono, the minister responsible for vaccine distribution, indicated on Friday, 26 February, that the Suga administration is aiming to distribute to local governments all of the doses needed to vaccinate the 36mn residents aged 65 and older by the end of June. Kono’s announcement comes after the government scaled back plans to begin vaccinating the 65-and-older population from the beginning of April. While the administration intends to vaccinate a limited number of elderly residents starting on 12 April, it will not begin distributing large numbers of doses to localities until the end of April. The government’s ability to follow this timetable remains dependent on whether shipments from Europe arrive on schedule.
Nevertheless, the medical situation nationwide has continued to improve, leading the administration to announce on Friday, 26 February, that at the end of the month it would lift the state of emergency in six of the 10 prefectures where it is still in effect, including Osaka prefecture and its neighbors Kyoto and Hyogo prefectures, Fukuoka prefecture, and Aichi and Gifu prefectures. The declaration will remain in effect in Tokyo and its three neighboring prefectures at least until 7 March, when it is scheduled to expire. This decision was not without controversy, as the administration was pulled between medical experts, who fear that relaxing restrictions on public activities, particularly for restaurants and bars (the main focus of the state of emergency), could lead case numbers to rise again as new Covid-19 variants spread. Prefectural governors, however, warned of the economic costs of keeping restrictions in place even as conditions improve. Both the national governments and governments of the prefectures exempted from the emergency declaration are likely to remain cautious; restrictions on opening hours for restaurants and bars will likely be relaxed gradually.
Far from being a political victory for the prime minister, the decision to relax the state of emergency was overshadowed by his decision not to hold a formal press conference to announce it, which reporters speculated could have been intended to keep Makiko Yamada, his embattled public affairs adviser, out of view – a claim the prime minister denied. The controversy regarding his son’s entertaining of Ministry of Internal Affairs and Communications (MIC) officials will continue to draw scrutiny after the company announced on Friday that the president and other executives would step down, and Seigo Suga would be reprimanded.
SOUTH KOREA: Moon administration begins vaccinations but has to grapple with public anxieties
The South Korean government began its vaccination campaign on Friday, 26 February, as more than 5,200 frontline medical workers and residents of long-term care facilities under 65 received shots of the AstraZeneca-Oxford vaccine. (The government has ruled that for now the AstraZeneca vaccine will not be given to people over 65.) For the first wave of vaccinations, a South Korean pharmaceutical company has produced and distributed nearly 1.6mn doses, ensuring that roughly 780,000 people will be vaccinated over the next month. This total will be supplemented by medical workers who will receive doses of the Pfizer-BioNTech vaccine received from COVAX beginning on Saturday, 27 February. The Moon administration has announced that it is aiming for herd immunity by November.
While the government has some comparative strengths – its centralized political system means that the national government will set up distribution centers and manage the logistical process – the government nevertheless may face political obstacles, most notably public concerns about the safety of the vaccines. The government’s policy to withhold inoculating the elderly population with the AstraZeneca vaccine – a result of insufficient data rather than specific fears about side effects – could nevertheless be boosting public anxieties about the vaccine that will have to be addressed by the administration as more of the population becomes eligible for inoculation. Meanwhile, although local production of the AstraZeneca vaccine will enable the government to begin the vaccination campaign smoothly, the bulk of vaccines for which South Korea has contracted will have to be imported, raising the risk of supply disruptions in the coming months.
Although case numbers remain at a relatively low level, Prime Minister Chung Sye-kyun announced Friday that the greater Seoul region will remain under heightened social distancing restrictions – level 2, the third of five levels – and the rest of the country at level 1.5 for another two weeks amidst concerns about ongoing cluster infections.
MYANMAR: No signs of political cooling while near-term economic worries grow
Sporadic confrontations between protesters and security forces have been rising the past week in many of the major cities, even though overall casualties have remained low. Police are also conducting more arrests. Obtaining accurate numbers is difficult because of general restrictions on media. For now, even with these developments, the opposition still seems resolved to continue with their mobilizations, which sustains the risk of a heavy-handed government response. There are some reports that a military-appointed commission has already nullified the November polls won by Aung San Suu Kyi. These developments are likely to continue to stoke public opposition.
In addition, the junta may be worried about the crisis’ worsening effects on the economy. There are regular disruptions across a wide range of sectors as both public and private employees have been joining the protests, and there are some worries that payrolls could be disrupted at the end of the month, further raising popular anger and political tensions. There are already limits on ATM withdrawals, fueling speculation about a looming cash shortage.
Over the medium term, the economy may suffer even more as foreign investors avoid being exposed to Myanmar’s political instability. Two weeks ago, Kirin Brewery announced its decision to sell its stake in a local brewery, while on Thursday Toyota Motors announced the postponement of its Myanmar plant. The World Bank also announced today, 26 February, that requests for disbursements for its projects made after 1 February would not be paid. The Japanese government is reportedly considering suspending new development assistance. The number of Covid-19 tests and vaccinations have also dropped significantly, slowing the country’s exit from the pandemic.