April 1, 2021

Asia

ASIA: Weekly politics update

BY Tobias Harris, Bob Herrera-Lim, Gabriel Wildau

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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: People’s Bank of China calls on global central banks to avoid “dollarization” of digital currencies

The People’s Bank of China (PBoC) said that its planned digital currency will operate in parallel with existing digital payment platforms like Ant Group’s Alipay and Tencent’s WeChat Pay and is not intended as a replacement. Speaking at a forum hosted by the Bank for International Settlements, Mu Changchun, director of the PBoC’s Digital Currency Research Institute, said that digital renminbi could “provide a backup or redundancy for the retail payment system.” The PBoC has previously said that digital renminbi is not intended to replace bank deposits (i.e., commercial bank money, M1), while Mu repeated earlier pledges that paper banknotes would also continue to circulate. Taken together, these statements undermine widespread speculation that the PBoC aims to grab market share — and with it, valuable transaction data derived from digital payments — from Alipay and WeChat Pay. Others believe the PBoC intends to eliminate all possibilities for non-traceable payments.

But Mu outlined other motivations for the PBoC’s development of digital currency, including protecting “monetary sovereignty” and ensuring the efficacy of Chinese capital controls from the threat posed by bitcoin and other cryptocurrencies; more efficient payments; and financial inclusion. Addressing concerns about privacy and surveillance, Mu claimed that a digital renminbi would enhance privacy relative to existing digital payment systems, which in some cases enable vendors to see payors’ personal information. Mu also proposed a set of principles that should guide the development of digital currency systems globally, calling on central banks to avoid the “dollarization” of digital currencies.

He added that one central bank’s digital currency should not interfere with other central banks’ ability to ensure monetary and financial stability. Still, such systems should be interoperable, with the eventual goal of creating a scalable foreign exchange trading platform based on digital ledger technology.

JAPAN: Government introduces targeted measures as cases rise, limiting Suga’s options

A surge of new Covid-19 cases — concentrated mainly in the greater Osaka region and the northern prefecture of Miyagi — has led national and local governments to reintroduce stricter measures ten days after the Suga administration lifted a state of emergency in the greater Tokyo region and a month after it was lifted in greater Osaka and other hotspots. Medical experts have warned that new variants could lead case numbers to rebound after the state of emergency was lifted; over the past week, case numbers in Osaka and its neighboring prefectures have doubled. Accordingly, on Thursday, 1 April, the Suga administration invoked provisions of the newly revised special measures law on novel influenzas and other infectious diseases to impose stricter measures in Osaka, its neighbor Hyogo prefecture, and Miyagi through 5 May.

The new preventive measures are intended to be more targeted than a new state of emergency, targeting the largest population centers in these prefectures. As with the former state of emergency, the new order will try to minimize the economic impact by requesting that restaurants and bars close early instead of closing entirely. Businesses that comply with voluntary requests will be eligible to receive subsidies; those that do not could face binding orders to comply, at which point they could face fines of up to JPY 200,000 (USD 1,808) for non-compliance. Prefectural governments will also urge more testing and encourage more telecommuting. While this order does not cover greater Tokyo, Tokyo has kept similar measures in place since the state of emergency was lifted, reflecting still-elevated case numbers.

The political ramifications of this decision could be significant. Having had to impose new measures shortly after lifting a state of emergency despite warnings from medical experts about the risks of a rebound in cases, Prime Minister Yoshihide Suga could again find himself on the defensive regarding his handling of the pandemic. Therefore, it could be more difficult for the prime minister to call an early election, which some had suggested could otherwise be called as early as this month.

US/JAPAN/SOUTH KOREA: Trilateral meeting unlikely to reduce significant gaps between US allies

US National Security Adviser Jake Sullivan will host a trilateral meeting with his Japanese counterpart Shigeru Kitamura and South Korean counterpart Suh Hoon in Annapolis on Friday, 2 April. It is unlikely that the meeting will yield breakthroughs on the tensions between Tokyo and Seoul on historical reconciliation and reparations. Similarly, as the new US administration finishes its North Korea policy review, the trilateral is unlikely to herald the beginning of a new approach, not least because Japan and South Korea have divergent hopes for US policy.

The Moon administration wants the US to be more open to negotiations with Pyongyang; Tokyo still prefers pressure to diplomacy, particularly without concrete steps by North Korea to reduce the threat its arsenal poses to Japan. There may also be differences between the US and Japanese governments, which are both increasingly looking to the Quad as a platform for regional coordination, and the South Korean government, which has resisted joining a “Quad+” arrangement. Foreign Minister Chung Eui-yong reiterated on Wednesday, before a meeting with Chinese Foreign Minister Wang Yi in Xiamen on Saturday, that South Korea does not wish to choose between the US and China.

Nevertheless, Friday’s national security advisers meeting is another signal of the Biden administration’s focus on East Asia and its determination to bolster cooperation with longstanding US allies. Washington faces not only an increasingly assertive China but also North Korea, post-pandemic recovery, and climate change.

THAILAND: Start of a new program to bring back tourists

After the largely failed attempt to lure in tourists last year that showed the impracticality of a 14-day quarantine, Thailand today launched the first of a four-phased plan to bring back travelers and reestablish the country as a tourism destination in time for end-year peak tourist season. The program is focused on gradually reducing quarantine periods as more vaccinations are done both abroad and in the country’s main tourist destinations. Even then, Covid-19 tests will still be required before arrival and during their first days in the country.

Starting 1 April, tourists who have completed their vaccine shots at least 14 days before traveling to Thailand will be required to quarantine for only seven days, half of the original period. Those who have received only one shot or completed their shots less than 14 days before their arrival will need to quarantine for ten days. The 14-day quarantine requirement will be maintained for unvaccinated travelers and those from countries where more contagious variants are in the wild. In July, the next phase will allow those having complete vaccinations and flying directly to Phuket to enter without a quarantine. Chinese tourists are the initial target for this scheme. Still, Thailand hopes that the absence of a quarantine requirement will eventually attract European travelers and if no significant outbreaks are reported. The province is also accelerating its vaccination scheme to have 70% of its residents before the reopening.

The third phase will expand the no-quarantine Phuket scheme to four other destinations, Krabi, Pattaya, Chiang Mai, and Phang Nga, creating a so-called sandbox. Already, some Bangkok groups are lobbying that the metropolis be included in the third-phase plans. The final phase will start 1 January 2022, when all vaccinated travelers will be allowed to enter the country regardless of destination without a quarantine.

With tourism a key economic sector, there is substantial pressure on the government not to lose the 2021-2022 season, which peaks from November to April.

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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