PacNet #39 – Covid-19 Recovery: Re-energizing Hawaii with Regional Insights

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As part of our long-standing Honolulu International Forum, the Pacific Forum launched a special virtual series, “Covid-19 Recovery: Re-energizing Hawaii with Regional Insights,” to provide Hawaii’s policy leaders with insights from the region to inform both its public health and economic responses to Covid-19.

Below is a summary of Covid-19 Recovery highlights with a link to key insights from each talk, which we hope will be valuable to our readers well beyond Hawaii.

  1. Taiwan (April 24, 2020)

Taiwan has been able to avoid wide-spread public shutdowns, containing the spread to relatively low numbers. Much of Taiwan’s success has been due to lessons learned during the SARS and MERS outbreaks, which impressed upon the Taiwanese public the importance of following guidelines from relevant authorities. The talk by Michael Y.K. Tseng, Director General of the Taipei Economic and Cultural Office in Honolulu, Hawaii, focused on three main themes: technology and big data, community measures, and organizational structure.

Technology and Big Data: Taiwan officials integrated the national health insurance database with the immigration database to track the 14-day travel histories and symptoms of citizens returning from high-risk countries. Taiwan’s “digital fence” monitoring system allowed it to monitor quarantined individuals in real time.

Community measures: Taiwan has not enacted widespread public shutdowns, adopting effective community measures instead. These included wearing masks in confined areas, granting healthcare access to foreign workers, and adopting social distancing measures in schools.

Organizational structure: Taiwan CDC allocated the key tasks of identification and treatment of new cases to two separate groups. This approach sought to eliminate a potential conflict of interest, giving the “hunting” group a free hand to identify infected individuals without having the responsibility to also treat them.

  1. South Korea (May 6, 2020)

South Korea has been widely praised as a Covid-19 success story, avoiding wide-spread public shutdowns and counting a low number of deaths. Dr. Victor Cha, Professor and Vice-dean at Georgetown University and Korea Chair at the Center for Strategic and International Studies described South Korea’s response as centered on four main themes: the importance of early, decisive action; the ability to quickly deploy innovative measures; and resources for contact tracing. He also provided insight into North Korea’s handling of the crisis. 

Early action: Despite a slow start and some initial mistakes, within a month of detecting the first imported case of Covid-19, the government rolled out a robust response and testing regime, elevating the infectious disease alert level to the highest category.

Innovative healthcare facilities and reorganization of existing ones: South Korea developed drive-through testing facilities to meet the high testing demand and avoid widespread infections in hospitals. It also designated some hospitals for Covid-19 patients only.

Contact tracing: Two main mobile apps have been developed to track patients and help the public avoid outbreak areas. They provide information regarding Covid-19 patients’ recent locations and other details without revealing names or identities.

North Korea: North Korea’s response to Covid-19 is consistent with its past behavior during Ebola and MERS: closing its borders and shutting down domestic and international travel, then asking for international assistance a few months later.

  1. Singapore (May 14, 2020)

Despite early virus chains of transmission, Singapore has experienced no exponential rise in new cases for about three months until a recent surge took place, forcing the country to enter a “circuit breaker” period in early April. Benjamin Ang, Senior Fellow at the S. Rajaratnam School of International Studies (RSIS), discussed the “ecosystem” of Covid-19 services and how various tools can assist human tracers and the public at large.

Contact tracing: The Government Technology Agency of Singapore developed the mobile app “TraceTogether” to aid the efforts of the contact tracing teams, thereby reducing the spread of Covid-19. TraceTogether does not track the user’s location but instead uses Bluetooth to determine if the user has been in close proximity with another user of the app.

Technological innovations: New technologies have facilitated business operations in different areas such as e-commerce, delivery services, wet market live streaming, and home-based learning. Robots are being used to encourage social distancing and monitor crowd density in parks.

Travel quarantine: Singapore has striven to simplify its 14-day mandatory quarantine system for travelers by presenting new arrivals with a pre-designated quarantine itinerary and utilizing existing infrastructure like empty hotels.

  1. INDO-PACOM (May 21, 2020)

Dr. John Wood, Director of United States Indo-Pacific Command (INDOPACOM) J9 Pacific Outreach discussed the Department of Defense’s perspectives on responding to the pandemic. His talk focused on INDOPACOM’s readiness to support the State of Hawaii, regional partners, and allies, and how the military will continue to contribute to the state’s economy.

Support for the State of Hawaii: INDOPACOM’s primary focus is to protect the health and safety of servicemembers while maintaining the force’s readiness to respond to challenges in the region and carry out its mission. It is also standing by to help Hawaii as well as Guam, American Samoa, the Compact of Free Association (COFA) states, and the Northern Mariana Islands.

Maintaining friends, allies, partners, and readiness during the pandemic: The US Navy will host a modified version of the Rim of the Pacific (RIMPAC) exercises this year. USAID, the Department of the Interior and the Department of Defense are providing financial aid and equipment to countries in INDOPACOM’s area of responsibility.

Building up Hawaii’s non-tourism economy: While Washington has the lion’s share of resources, Hawaii’s strength is that it is home to the region’s leading authorities on Asia-Pacific affairs. Hawaii-based institutions excel in environmental stewardship, sustainable and renewable energy, and Pacific Islands relations.

  1. Japan (May 28, 2020)

Dr. Kazuto Suzuki, Vice Dean and Professor of International Politics at Public Policy School of Hokkaido University discussed Japan’s approach to managing Covid-19. Japan has successfully contained the number of deaths without introducing strict lockdowns and pervasive testing policies. Dr. Suzuki’s talk focused on three main themes: Japan’s overall strategy, testing and contact tracing, and cultural norms.

“Hammer and Dance” strategy: Japan’s strategy does not aim to eliminate the virus but to distribute its spread over a longer period, creating a sustainable balance between public health and the economy. The “hammer” refers to the imposition of draconian measures when there is an exponential increase in new cases, whereas the “dance” refers to the use of containment measures to mitigate the spread of Covid-19.

Limited resources guiding testing and tracing regimes: The role of testing has been limited due to low supplies of testing kits and concerns over the accuracy of results. Local health centers in each community have conducted contact tracing by phone.

Role of culture and social stigma: Certain social norms in Japan support compliance with public health measures, such as good hygiene and high scientific literacy. In addition to low-contact gestures such as bowing, face coverings are widely used in Japan.

  1. New Zealand (June 1, 2020)

New Zealand has been able to contain the spread of Covid-19 imposing strict measures since the very outset of the outbreak. Its strategy has been successful, and Prime Minister Jacinta Arden declared the country “virus-free” in early June. Dr. Jane Rovins, Senior Lecturer and International Coordinator at the Joint Centre for Disaster Research (JCDR) at Massey University described New Zealand’s “go hard, go early” approach to managing the Covid-19 public health crisis and the nation’s emerging path to economic recovery.

Travel: New Zealand suspended domestic travel during its highest level of alert, then gradually eased restrictions on movement as the emergency deescalated. International travel remains limited to specific class visas, and all incoming travelers are placed in managed isolation facilities for 14 days.

Economy: New Zealand has elaborated financial support schemes to help businesses and their employees recover from the effects of Covid-19.

Community & social distancing measures: The measures adopted varied depending on the alert level. Measures included movement restrictions, school closures, and limited-to-no public gatherings. The government has left the choice of using masks up to citizens.

Public messaging, enforcement, and protecting vulnerable communities: Covid-19 multimedia messaging translated into numerous languages allowed the government to be open and transparent and connect with all community groups about the public health crisis.

  1. Australia (June 25, 2020)

Australia has been able to successfully suppress Covid-19, flattening the curve and significantly reducing the rate of transmission. Ambassador Jane Hardy, Australia’s Consul-General in Honolulu, discussed Australia’s strategy for managing the Covid-19 pandemic. Her talk emphasized the country’s highly internationalized nature and its holistic approach to recovery on both the national and regional levels.

Public health measures: Australia adopted a strategy of “suppression” as opposed to one of elimination, which included a complete lockdown followed by a phased opening of society divided in three steps. Contact tracing was supported by the adoption of a mobile app, and testing was expanded to include asymptomatic cases.

Travel and tourism: Domestic travel has increased as many Australians are traveling within the country’s borders. Australia and New Zealand have been discussing the possibility of implementing a “Trans-Tasman Bubble,” i.e., opening travel between Australia and New Zealand without requiring travelers to undergo 14-day quarantines.

Economic assistance measures: Australia’s government passed a suite of economic packages supporting the workforce and healthcare, including aid for aboriginal communities. Australia has also reframed aid and the capabilities of its programs supporting its Pacific Island neighbors and Southeast Asia as Covid-19 resilience and response efforts.

In summary, while there is no “one-size-fits-all” approach to managing the virus, these countries took the challenge seriously with timely steps to mitigate the impact. Various factors have contributed to certain Asia-Pacific countries’ success, including definitive government action, experience with epidemics like SARS and MERS, and cultural norms, resulting in better timeliness, preparedness, and ability to adapt as circumstances changed. Asia-Pacific countries deployed efficient testing and contact tracing systems, tailored technological solutions, and community measures. The United States has contributed to the regional pandemic response by providing financial aid and equipment to countries in INDOPACOM’s area of responsibility. Visit our website for other Covid-19 related research and perspectives, such as a living document analyzing successful response measures of regional economies.

Eugenio Benincasa (eugenio@pacforum.org) is a resident WSD-Handa Fellow at Pacific Forum.

Crystal Pryor (crystal@pacforum.org) is Director of Non-proliferation, Technology, and Fellowships at Pacific Forum.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #31 – Taiwan’s Covid-19 Diplomacy and WHO Participation: Losing the Battle but Winning the War?

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Taiwan’s pragmatic “warm power” diplomacy during the coronavirus (Covid-19) outbreak represents a low-key approach to boosting its international participation while minimizing the burden for its sympathetic international partners and friends. The government of President Tsai Ing-Wen’s successful management of the Covid-19 crisis has also made a strong case for liberal democracies as the superior form of government for public health crisis governance. This, in turn, has translated into more positive international publicity for Taiwan, as well as greater opportunities to network with other states’ relevant agencies and potentials for functional spillover into other forms of cooperation at the governmental level.

China, the alleged origin of the virus, has seemingly kept its official toll relatively low. While officially China has less than 100,000 confirmed cases, several Western liberal democracies—even, some have argued, with more reaction time and insight from the Chinese experience—have suffered greatly, with more than a million confirmed cases in the United States and over a 100,000 each in five populous Western European nations (Spain, Italy, the United Kingdom, Germany, and France).

Assuming these official statistics are dependable, this development might have engendered yet another blow to liberal democracies in the ongoing battle over perceived performance legitimacy between authoritarian and liberal democratic regime types, adding fuel to what Larry Diamond has termed the global democratic recession.

It is in this context that Taiwan finds a way into the international collective narrative. Despite Taiwan’s geographic proximity, as well as close economic and demographic linkages with China, it has kept its Covid-19 toll remarkably low—with less than 450 confirmed cases to date and a death toll in the single digits. Together with fellow high performers such as South Korea, Taiwan’s performance provides solid proof that liberal democracies can be just as effective in public health governance as authoritarian polities. In so doing, Taiwan helps prevent the Covid-19 crisis from diminishing the case for democracy in the global marketplace of ideas.

Accordingly, Taiwan’s public diplomacy efforts have focused on presenting itself as a persecuted but nonetheless gracious international good Samaritan. Case in point: in an opinion piece for Time, Tsai says that although Taiwan has been “unfairly excluded” from the World Health Organization (WHO), it remains “willing and able” to contribute to global public health during the crisis using its strength in manufacturing, medicine, and technology.

Taiwan’s “mask diplomacy” represents the first significant initiative in this area. In a campaign titled “Taiwan can help; health for all,” Taipei has so far announced three rounds of international humanitarian assistance in the form of mask donation. These took place on April 1, April 9, and May 5, when it pledged to donate 10 million, 6 million, and 7 million masks to the international community.

The choice of priority recipient countries seems consciously tied-in with Taiwan’s soft power strategy. The aid goes to three broad categories: first, to the so-called “like-minded democracies” in the North Atlantic that share Taiwan’s liberal democratic values—a key theme that Tsai drove home in her June 2018 address at the Taiwan Foundation for Democracy; second, to Taiwan’s 15 diplomatic allies that frequently voice support for Taiwan in international forums, as reciprocity for their goodwill; and third, to a select number of worst-hit developing nations, in a show of international good citizenship.

The approach has dove-tailed with both Taiwan’s image projection needs and its coalition-building strategy. First, the initiative instills the image of Taiwan as an altruistic actor that repays slights with kindness. That despite it being it largely shut out of the World Health Organization and the public health expertise and support that participation would have engendered, Taiwan still harbors no grudge, remains gracious and empathetic towards the needs of other societies, and is keen to lend assistance to those in more dire situations.

For its international “good samaritanship,” Taiwan has earned an extraordinary amount of goodwill from numerous Western governments, especially on Twitter, that dual-use messaging platform where official statements come with a cloak of informality and plausible deniability. Often hash-tagged #StrongerTogether, these messages include: from Japan, Prime Minister Abe Shinzo’s open expression of gratitude and pledge to combat Covid-19 together on Twitter; from Europe, European Commission President Ursula von der Leyen became the first EC president to directly address Taiwan in an official communication when she thanked Taiwan for mask donations; from the United States, numerous tweets from the White House National Security Council and various State Department missions’ accounts form an echo chamber that acknowledges the people of Taiwan’s gestures of goodwill, while noting Taiwan’s significance in safeguarding a free and open Indo-Pacific.

On coalition-building, Taiwan is capitalizing on this outpouring of international goodwill to enhance bilateral relations and rally support for regaining participation at the World Health Assembly (WHA). Taiwan’s Ministry of Foreign Affairs has not been shy about espousing what it calls “the Taiwan Model for Combating Covid-19,” on which New Zealand’s Prime Minister Jacinda Ardern and the US State Secretary Mike Pompeo had lavished praise and claimed to borrow significantly from for their respective Covid-19 responses. In addition, numerous bilateral functional linkages have sprung up for Taiwan, as Taiwan’s vice president (a renowned epidemiologist), vice premier, and health minister have all joined virtual track 1 or track 1.5 exchanges, often with US cabinet secretary and deputy secretary level dialogue partners—hitherto politically sensitive but now legitimized in the name of global public (health) interests. While these talks may be functional and technical in nature, the establishment of regularized channels of communication at high levels may be expected to have a functional spillover effect facilitating future discussions at more political levels.

By exporting its best practice lessons to the world, Taiwan exploits that intersection where the very interdependence of the global common’s non-traditional security needs (in pandemic mitigation) meets Taiwan’s particularist interests in greater international participation. In the name of enlightened self-interest, where health for one is dependent on health for all, Taiwan has built a multinational coalition to support its bid for meaningful participation in the World Health Assembly (WHA). The Foreign Affairs Committees of both houses of the US Congress wrote a public letter to 55 countries urging them to support Taiwan’s participation at the WHA session and the WHO more broadly. The US State Department’s various missions launched a #TweetForTaiwan initiative over Twitter to marshal media interests. Meanwhile leaders from Australia, New Zealand, Japan, and others have openly announced support for Taiwan’s participation as either an observer or a guest.

Ultimately, whether Taiwan’s bid for WHA observer status comes to fruition or not may be secondary. During Covid-19, Taipei has branded itself as a champion of liberal democracies in the ongoing contest of legitimacy between liberal and authoritarian regime types. Moreover, its coalition-building effort over WHA participation has set a politically useful precedent of sympathetic partners’ collective bargaining on behalf of Taiwan, thus further diminishing their cost of supporting Taiwan in the future, especially when they chain-gang. In this sense, even if Taiwan is losing the WHA 2020 battle, it may still be winning the war of greater international space.

Wen-Ti Sung (wentisung@gmail.com) is a visiting fellow at the Australian Centre on China in the World at The Australian National University. His research covers cross-strait relations, Chinese elite politics, and think tank diplomacy in US-China-Taiwan strategic triangle. He tweets at @wentisung.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #29 – Post Covid-19, the US-China Rivalry Will Only Get Worse

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A version of this was originally published as one of a series of regional commentaries commissioned by the Australian Committee of CSCAP on Asialink Insights (University of Melbourne).

While it’s become commonplace to say that the Covid-19 crisis will lead to a “new normal” in international affairs, it’s not at all clear what that means or indeed what “normal” has been in recent years. Some commentators are seeing the crisis as a “game-changer,” but that is far from certain—the tendency once the crisis has past may well be to simply lapse back into old habits and patterns.

In some areas, patterns and attitudes that are already evident will be accentuated. To take one example, those who have been suspicious of China will have even more reason to be suspicious, while those who have been excusing China and overlooking its negatives will have even more excuses to offer.

Some trends that were already underway will be accelerated. This is so regarding US-China trade. US business was already turning away from China. Xi Jinping’s policies have been discouraging Americans. China’s business culture is increasingly one in which “rule by law” is prevailing over “rule of law,” and anyway market forces have been working against China—it is becoming more expensive. This trend away from China towards other markets and suppliers is likely to be accentuated as China looks less attractive in the wake of the pandemic and others, like Vietnam, where the business culture at this stage is a lot better, become more attractive. In fact, I have been saying for a while now that “China is the present, Vietnam is the future.”

There is an argument to be made that in the commercial world globalisation will be eroded, and it has been in some ways. It is likely, for instance, that as a result of the pandemic the stock-piling of goods judged to be strategically important will become more common at both the national and business levels, and it is likely that more of these sorts of goods will be manufactured at home rather than imported. But at the end of the day business will go where it’s cheapest, and this is likely to lead to more manufacturing opportunities not just for Vietnam but also for Bangladesh, Indonesia, and (for the US) South America as more companies pull out of China.

It’s hard to see the US-China relationship going any way but backwards. This is usually the case in an American election year. This year, with China’s failings more evident and with the pandemic hitting the US so badly, the political class will focus even more on China and in particular the administration will want to blame China.

As to the future of American foreign policy, a lot depends on the result of November’s presidential election. Historically it has been said that US foreign policy is defined more by continuity than change, but that rule will not apply this year: the policies of the two candidates in this election are very different. The pundits are of course making their predictions and many see Trump being re-elected, but this is only April and November is a long way away.

It is important here to understand the context of current US policy making in respect of China. Two distinct views are in play. President Trump sees the relationship almost exclusively in economic terms, transactionally, and seeks instant gratification from it. It doesn’t matter to him that the ruling party in China is communist. Secretary of State Mike Pompeo, on the other hand, takes an ideological view: his concern is no longer just about China’s behaviour, it is much more about the fact that the regime is communist. Reflecting this, US embassies have been instructed to stress in all their dealings with their hosts that China is being ruled by a Communist Party. This can turn a struggle for influence into a new ideological Cold War with little opportunity for compromise or cooperation.

Some of China’s diplomacy has been effective as the crisis has developed, extending as it has as far afield as Europe, Africa, and the South Pacific. But it is also being seen for what it is – an attempt to offset the cost of China’s early failings as the pandemic developed. As well, some of what China has done has not gone well—for example, ventilators sent abroad didn’t work. And of course the claim that the US military brought the virus to Hubei was not only silly in itself but triggered a “blame game” from which no one is benefiting.

While it is too early to pick “winners” and “losers” among those responding to the pandemic, it is worth noting that Taiwan has done well in managing the crisis—and as a result its stocks have improved further in Washington. The Moon Jae-in administration in South Korea is also seen to have done well, which has already paid dividends domestically. Japan is now facing a second wave, but will probably emerge quite well. ASEAN has been a useful “club” with some notable economic achievements over the years, but it has offered nothing in this particular crisis. There has been no “ASEAN response” to the pandemic; each country has acted on its own.

As to multilateral institutions generally, there is a continuing need for bodies like the WHO, but the Covid-19 crisis has been a timely reminder that many of them—especially the WHO—need serious reform. The extent to which the US plays a part in this will depend, again, on what happens in November.

Ralph Cossa (Ralph@pacforum.org) is Pacific Forum president emeritus and WSD-Handa Chair in Peace Studies.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #20 – Pacific Forum Coverage on Covid-19

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The Covid-19 pandemic has changed how people live and work around the world, and regional security experts in the Indo-Pacific are no exception. 2020 looked to be a year of important firsts  – like Xi Jinping’s first state visit to Japan in April – and crucial diplomatic maneuvering – like the Las Vegas summit the US set for March to smooth over remaining tensions with ASEAN leaders.

Both are now cancelled, and for the time being negotiations take place in different, and generally distant, settings.

But regional security and diplomacy are as relevant as ever. Despite deep differences of opinion with both Koreas, Washington has sought to reach out to both during the pandemic, either to seek or offer assistance. China has stepped up its efforts to lay claim to territory in the South China Sea, even as it seeks to portray itself as a benevolent force on the global stage, eager to help Europe address its outbreaks. Taiwan, though, has announced its willingness to compete with Beijing, and even to surpass it, on this front by leveraging its successful response to the outbreak.

The jury very much remains out as to whether China or the US will emerge stronger from the pandemic. Will Beijing’s initial cover-up of the outbreak in Hubei Province harm its international standing, and will the global public trust its claims of zero new infections? Or will its global PR campaign be to its advantage while the US struggles with the virus at the federal and state level?

Authors of Pacific Forum’s PacNet series have wrestled with these topics as the pandemic has spread. Stephen Nagy asked in PacNet #16 whether Beijing, having overcome the first-order problem of the initial outbreak, could overcome the second- and third-order problems of a depressed industrial production and declining demand in its overseas markets.

That, and a sense that its former partners must now insulate themselves from China’s market: “Supply chains have also been negatively impacted by the Covid-19 outbreak in China and the crisis has exposed the dangers of overexposure to the Chinese market, resulting in calls to diversity supply chains,” Nagy writes. “This is a wake-up call to states and businesses alike who have not built a diverse trade portfolio to insulate themselves from a shock in the China-centered global production network.”

Jagganath Panda, in PacNet #19 discusses the challenges the outbreak presents to the international model Xi has promoted as China’s paramount leader. Once praised for its international assistance, and able to control the flow of information into and out of the country, Beijing’s initial response to the virus left its trading partners vulnerable, especially considering its suppression of whistleblowers early in the outbreak. “In a way, the Covid-19 has shown the international community how the trade, people-to-people contact, and connectivity China’s Belt and Road Initiative boasted of can export not only goods, but the dangers of a communist and authoritarian model based on suppression of news, information, and speech,” he writes.

China, of course, is not the only country struggling with changes to its economic and strategic calculations. In PacNet #13, Todd Wiesel argues that North Korea, more isolated than ever from the global economy, may step up the cyber crime activities it has become notorious for: “An economically strangled North Korea has much to gain from global disruptions, and we must brace ourselves and develop our cyber defenses accordingly.”

And in Hong Kong, rocked by Covid-19 the year after anti-government protests devastated its economy, Jason Hung argues in PacNet #15 that the SAR government must consider cash payments to keep its economy—normally reliant on trade and tourism—afloat. This includes, he argues, businesses that explicitly supported the protesters: “These businesses have been hit the hardest in this critical period,” he says. “The delivery of one-off economic stimuli, as an olive branch, is particularly conducive to the sustainability of small and medium sized retail businesses and minimization of anti-governmental sentiments among local entrepreneurs.”

The US and its regional partners must recalibrate as well. In PacNet #18 Lucio Blanco Pitlo III says the cancellation of the Las Vegas summit presents the US and ASEAN with an opportunity to come up with an agenda for a future meeting serving both sides’ interests better. In PacNet #17 David Scott notes how the virus has presented an opportunity to bring India into greater regional cooperation with other regional players, forming a counterweight to China: “Further India-US cooperation was on show with their convening, from March 20 onward, of weekly Quad-plus discussions, in which the four Quad members were joined by New Zealand, Vietnam, and South Korea (but not China) to coordinate responses to the Covid-19 virus.”

As Pacific Forum adjusts to the new reality of social distancing and stay in place orders, our coverage of this global phenomenon will continue through the PacNet series, as well as our Issues & Insights papers, and we welcome informed contributions to both. The pandemic will figure prominently in May’s issue of Comparative Connections: A Triannual E-Journal of Bilateral Relations in the Indo-Pacific as well, along with the Daily Digest roundup of the most relevant news and analysis from the region, also found at the Comparative Connections webpage.

Our mission—“To find a better way to enhance mutual understanding and trust, promote sustainable cooperative solutions to common challenges, mitigate conflicts, and contribute to peace and stability in the Indo-Pacific”—will continue across all of our work.

Rob York (rob@pacforum.org) is director for regional affairs at the Pacific Forum. He previously worked as a production editor for The South China Morning Post and chief editor of NK News. He is also a PhD candidate in Korean history at the University of Hawaii at Manoa.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription

PacNet #16 – Covid-19: As China Recovers, Will Its Economy Follow?

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President Xi Jinping’s visit to the epicentre of the Covid-19 pandemic in Wuhan in mid-March should be understood as the end of the 1st-order problems associated with the outbreak. With the health crisis potentially under control, what lies ahead will further challenge the authoritarian regime as the 2nd– and 3rd-order problems associated with the mismanagement of the initial outbreak ensue and serious downstream consequences for China and the global economy emerge.

The draconian quarantining of Hubei Province, as well as nationwide measures to stem the spread of the elusive virus, have been costly. China’s exports plunged 17.2% in the January-February period compared with last year. Imports fell 4%. On March 6, the China Enterprise Confederation (CEC) released the results of another survey assessing the Q1 performance of 299 large manufacturers, and more than 95% of companies saw revenues drop, while more than 80% saw operational costs go up.

The purchasing managers’ index, which measures China’s service sector activity, fell by half last month and public transport in Beijing was at 15% capacity. Importantly, consumption fell significantly from 51.8 in January to 26.5 in February.

These are the 2nd-order effects of the Covid-19 pandemic. A significant drop in consumption in China, a slow return to the full functioning of the economy, and the slow return of migrants and other workers to manufacturing centres and cities mean one of the engines of global growth is running on half speed.

Beijing’s anxiety over the reputational costs associated with the Covid-19 pandemic continues to mount. It has launched a campaign of disinformation domestically and globally, insinuating that the virus originated in the US. It has also proactively nurtured a narrative that the CCP’s response to the outbreak has been comprehensive, effective, and systematic (unlike in the US and other states).

Disinformation tactics, such as disseminating fake news about chaotic Covid-19 responses in foreign countries have come hand-in-hand with efforts to silence prominent critics of Xi and the CCP response to the outbreak, for example, the recent disappearance of Chinese tycoon Ren Zhiqiang.

Prominent scholars such as Tsinghua University’s professor Xu Zhangrun have also disappeared from public life after releasing photos on social media (to avoid censors) of his hand-written critical essay “Viral Alarm: When Fury Overcomes Fear.”

Online censorship by the state has also tried to suppress the voices of Chinese citizens most effected by the Covid-19 outbreak by censoring key words on WeChat, like factual descriptions of the flu-like pneumonia disease, references to the name of the location considered the source of the novel virus, local government agencies in Wuhan, and discussions of the similarity between the outbreak in Wuhan and SARS.

Some of these voices have been translated and preserved in the Wuhan Diaries blog by the political cartoonist and human right activist Badiuchao, who has voluntarily translated diaries of Wuhanese in the locked-down mega-city. This has led to pursuit by the Chinese government.

These voices, critical of Xi and the party, suggest cracks are emerging in the Great Fire Wall and Chinese netizens are not content with the government’s response, nor with the lack of freedom to share life-saving information.

As 2nd-order economic issues continue to put downward pressure on the Chinese economy, the CCP’s bargain with its citizens, in which they retain political control in exchange for steady and stable economic growth, will become increasingly more difficult to sustain.

This is where the 3rd-order problems will aggravate domestic contradictions in the Chinese system.

Now that the Covid-19 virus has spread to North America and Europe, we see major economies around the world adopting social distancing measures. These measures have shocked stock markets and unleashed uncertainty related to global growth and to the extent the Covid-19 will spread, impacting the health and dynamism of economies.

Supply chains have also been negatively impacted by the Covid-19 outbreak in China and the crisis has exposed the dangers of overexposure to the Chinese market, resulting in calls to diversity supply chains. This is a wake-up call to states and businesses alike who have not built a diverse trade portfolio to insulate themselves from a shock in the China-centered global production network.

Perhaps more critically, now that Covid-19 has spread to rich, developed regions, China’s ability to provide steady economic growth for its citizens will be strained at best. Facing a demand shock, the question is not when the Chinese economy will be online again, but who it will sell its products to.

The demand shock and possibility of the virus’ reintroduction or re-emergence in China are 3rd-order problems the Chinese government will not be able to manage as effectively as its initial wave of quarantine efforts.

Demand will only increase if North America, Europe, Japan, and other wealthy states effectively halt the spread of the virus and quickly return to normal socio-economic activities. Initial estimates suggest that Europe and the US have done poorly compared to Japan, Hong Kong, Singapore, and South Korea, suggesting the demand side of growth will not return anytime soon.

Preventing the reintroduction or re-emergence of the virus in China may already be past the point of no return due to skepticism about data on the outbreak in China and because many Chinese citizens are returning home from abroad, based on the rationale that China has effectively contained the outbreak.

A return of Covid-19 in any form to China will accelerate the decoupling and deglobalization process beginning with President Donald Trump’s trade war with China. It will also inculcate more instability into US-China relations, the global economy, and the global community’s ability to deal with global issues such as climate change, transnational diseases, and the next Black Swan event.

How Xi and the CCP manage the ensuing 2nd– and 3rd-order problems associated with the Covid-19 pandemic will impact China, but also regional and global stability. Its initial reaction to the Covid-19 outbreak exposed the institutional challenges associated with calcifying authoritarian rule. It also demonstrated that its system can quickly martial resources to suppress viral transmission.

Whether it can negotiate the demand shock side of the Covid-19 pandemic, as well as another possible outbreak are questionable. The answer to these lines of inquiry are unknown, but the potential repercussions are several.

A successful response may solidify Xi’s and CCP rule in China and provide it domestic legitimacy, even increasing its political capital globally for effective governance.

While not impossible, this outcome is not likely, as China requires the global community to buy the goods produced in its export-based economy. With that in mind, the options for the Chinese leadership are narrowing and it will be increasingly difficult to maintain stable, sustainable economic growth.

More crucially, without sustainable economic growth, the CCP’s goals of “socialist modernization” by 2035 and a “modern socialist country that is strong, prosperous, democratic, culturally advanced, and harmonious” by 2049, are less likely than China finding itself in the middle-income trap. This may leave the party searching for a new source of legitimacy or purpose based on assertive nationalistic enterprises—such as forceful reunification with Taiwan—or other initiatives to maintain social cohesion under the guise of a nationalistic endeavour.

Dr. Stephen Nagy (nagy@icu.ac.jp) is a senior associate professor at the International Christian University in Tokyo; a distinguished fellow with Canada’s Asia Pacific Foundation; a fellow at the Canadian Global Affairs Institute (CGAI); and a visiting fellow with the Japan Institute for International Affairs (JIIA).

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PacNet #15 – Covid-19 and protests need not cripple tourism-heavy Hong Kong

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On April 3, 2019, the Hong Kong government introduced amendments to Hong Kong’s extradition bills that would enable criminal suspects to be sent to mainland China for trial. This decision sparked Hong Kong’s anti-extradition bill protests—the number of individuals going out to demonstrate peaked on June 16 at an estimated 2 million individuals. To date, more than 1,000 protesters have been arrested.

The continuing demonstrations, which have evolved into a call for democratic reforms and police accountability, have been a heavy blow to local tourism. The number of mainland Chinese visitors from late September until the end of 2019 dropped by some 60% year-on-year. Forward bookings for travel to Hong Kong from the mainland between September 24 to December 30 plummeted by 58.2% compared to the same period in 2018. Even during the week following China’s National Day last October, dubbed “Golden Week,” bookings for travel fell by 39.7% relative to 2018.

According to Jameson Wong, APAC business development director of ForwardKeys, “Mainland China is Hong Kong’s most important source market and the tourism industry offers 300,000 jobs in Hong Kong, [so] these numbers reveal that the demonstrations are delivering a devasting blow to the economy of Hong Kong.”

Impact of the outbreak

In January 2020, Hong Kong welcomed an average of 100,000 visitors daily, a 53% decline from the 200,000 daily arrivals recorded in the first half of 2019.  The outbreak of Covid-19 has compounded the loss of mainland Chinese visitors, as the Hong Kong government has restricted the flow of individuals between Hong Kong and the mainland. From late January onwards, the number of visitors in Hong Kong plunged to 65,000 per day, and the number further dropped in February to below 3,000 visitors per day. Of these, 75% were non-mainland visitors.

Hong Kong has more than 350 confirmed Covid-19 cases as March 20. Hong Kong’s Financial Secretary Paul Chan Mo-po argues the economic impact of the coronavirus outbreak could be more severe than that of 2003’s SARS ordeal. As he highlights, the city’s growing reliance on tourism and retail would put the occupational security of employees in these sectors at risk.

The contribution of travel and tourism to the city’s GDP was 17.4% in 2018, the year prior to the massive outbreak of socio-political unrest. For context, travel and tourism’s contribution to Hong Kong’s GDP was some 9.0% in 1998. The data demonstrate that Hong Kong has been growing overly dependent on tourism. In specific, Hong Kong’s economic growth has primarily relied on the influx of mainland tourists. Just before the crises occurred, 78% of arrivals were mainland visitors, ecas compared with 41% from 2002, the year before the outbreak of SARS.

Status quo

Due to the combination of socio-political and health crises, according to data from the Census and Statistics Department, the retail sales dropped 21.4 percent YoY to US$37.8 billion in January 2020, as compared to the retail performance in January 2019. The reduction in retail sales in this January marked the 12th consecutive month of decrease in the value of retail sales in Hong Kong.

In addition, several countries have issued travel bans or restrictions against Hong Kong nationals. The Philippines, for example, announced that arrivals from Hong Kong would be banned. Alternatively, the United Kingdom, Israel, Thailand, and other countries announced a 14-day self-quarantine order for all visitors coming from Hong Kong. International travel bans and restrictions on individuals coming from Hong Kong hint the city may become less appealing for visitors due to the widespread Covid-19, where local tourism and retail industries may be further hit in the coming months.

Recommended policies

In response to both socio-political and health crises, the Hong Kong government should increase the amount of one-time cash handouts distributed to local businesses within the retail industry as economic stimuli. These should even include local small and medium-sized businesses, such as Lung Mun Cafe and Fu Kee Noodles, that offer advantages to customers who support the anti-extradition bill demonstrations. These businesses have been hit the hardest in this critical period. The delivery of one-off economic stimuli, as an olive branch, is particularly conducive to the sustainability of small and medium sized retail businesses and minimization of anti-governmental sentiments among local entrepreneurs. In doing so, retail companies’ decisions to liquidate might decrease despite the financial hardship and uncertainty citywide. Fewer employees might therefore be laid off and the government’s subsidies to unemployed Hong Kong citizens could be minimized.

Moreover, the Hong Kong government should incentivize alternative business opportunities within the retail industry. Hong Kong’s revenue in the e-commerce market is projected to amount to $5.511 billion in 2020. Revenue is expected to show an annual growth rate of 6.8% from 2020 to 2024. The government should therefore lower the profit tax rates charged toward newly registered e-commerce businesses in this fiscal year. As a result, more retail companies are motivated to establish their online businesses, minimising the decline in sales revenues due to the plunge of the numbers among mainland and non-mainland visitors. In the long-term, the transition from in-store to online sales can benefit Hong Kong’s economic sustainability as the retail industry would be less dependent on the tourism performance.

Jason Hung (sociowriting@jasehung.com) is a visiting researcher at Stanford University and a Clinton Global Initiative University (CGI U) fellow at Clinton Foundation.

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PacNet #14 – A Special Message from Pacific Forum

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Aloha to our Readers and Supporters:

Due to the ongoing Covid-19 pandemic and in the interest of the health and safety of our staff—and community—Pacific Forum has transitioned to tele-work mode effective Monday, March 16, 2020, with all employees working from home. Pacific Forum functions will continue in this mode until the situation permits a return to normal operations.

For questions or to reach Pacific Forum staff regarding ongoing planning, coordination, and execution of specific programs and projects, please contact us via e-mail as we continue to work in place:

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We will continue to researchconnect, and inform, and wish all remain safe and healthy as the nation, and the world, works through this shared challenge.

Sincerely,

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President

PacNet #13 – Keep an eye on North Korean cyber-crime as the Covid-19 spreads

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The Covid-19 outbreak continues to cause tumult in the global economy, with countries like South Korea and Italy reporting a rapid increase in diagnoses and many companies requesting that employees work from home to keep the virus from spreading.

In North Korea’s case, it has had its Chinese borders closed for over a month, long before the rest of the world began to react to the virus. Even if it were, as its state media claims, coronavirus-free, how long could their economy sustain total global isolation? By sealing their border with their largest economic partner, North Korea has effectively placed itself at the mercy of UN sanctions.

Kim Jong-un knows that his country cannot last like this for very long, and with so much of his power stemming from the support of Pyongyang’s elite, we must prepare ourselves for their reaction. Learning from the DPRK’s past behavior, national security leaders should be less concerned about military action and focus their attention on shoring up their cyber defenses.

Jonathan Corrado, policy director for the Korea Society, noted in a recent article the extreme lengths North Korea has gone to prevent the spread of coronavirus in the country. These border closures, although necessary to reduce the chance of viral contagion, will have a lasting impact on their already minuscule economy.

Even prior to the closures, UN Security Council sanctions already heavily impacted North Korean exports. Yet, despite the cuts to the DPRK’s exports, World Bank data indicates that North Korea’s GDP has been slowly rising since 2015. This financial discrepancy can be explained primarily through North Korea’s burgeoning international crime economy.

According to the 2017 Global Initiative against Transnational Organized Crime’s 30-page report entitled Diplomats and Deceit: North Korea’s Criminal Activities in Africa, North Korean diplomats travel “regularly to Pyongyang and Beijing in China with diplomatic bags filled with contraband.” These members of diplomatic missions to countries on the African content would smuggle illegal items such as diamonds, gold, and ivory back to the DPRK and China, where they sell for exorbitant prices.

In 2016, Angolan leaders had been meeting with North Korean liaisons to collaborate on national security projects. This collaboration did not come as a surprise—Angola has long been militarily linked to North Korea. A 2015 Washington Times article identified a number of UN sanctions that Angola had violated by engaging in business with the DPRK. Angola was found to be purchasing military training, weapons, and over 4.5 tons of ship engines and parts, to service the naval boats they had purchased from Pyongyang in 2011. North Korean arms are also believed to be regularly supplied to Ethiopia, where they have been providing and manufacturing weapons since the mid-80s.

North Korea has not limited its illegal activities to Africa. DPRK embassies have long been (correctly) accused of facilitating the international trade of crystal meth, taking advantage of the high premiums their products can garner and abusing diplomatic channels to smuggle the drug into foreign countries.

However, thanks to Covid-19, protecting the elites of Pyongyang has become such a priority that the state has sent all Chinese diplomats back to China, while simultaneously suspending all flights, trains, and travel with the outside world. The shutdown means North Korea will no longer be able to rely on its diplomats returning from trips abroad to produce the much-needed cash for the economy.

To ensure that their country can continue to function while they weather the global crisis, North Korea may very likely double down on cybercrime. While smuggling and other forms of illicit trading require the physical moving of goods and/or services, cybercrime can be committed from anywhere, even a sealed North Korea.

North Korea has already proven itself adept at infiltrating computer systems around the world. Bureau 121, an elite cyber warfare agency in North Korea, has been named the leading suspect for many famous cyber-attacks, including the Sony hack in 2014, the SWIFT banking hack in 2015, and the Bangladesh Bank Robbery in 2016. All together, these operations are estimated to have cost over $100 million in stolen funds, and billions of dollars in cybersecurity damages.

The most alarming of North Korea’s alleged cyberattacks is the 2017 WannaCry ransomware attack. This ransomware—which locked 200,000 devices in a single day and demanded ransom payments in bitcoin—caused severe disruptions among businesses around the globe. But WannaCry did not just target private corporations. The attack also infected the National Health Service (NHS) in England and Scotland, causing NHS services to divert ambulances and turn away patients.

Fortunately, May 2017 was not a time of global health panic. However, as the Covid-19 continues to spread, the DPRK’s vice minister of public health declared that the Chinese border will remain shut indefinitely until a cure is completely ready. We must prepare ourselves for attempts to disrupt healthcare systems. An economically strangled North Korea has much to gain from global disruptions, and we must brace ourselves and develop our cyber defenses accordingly.

Todd Wiesel (tjw2144@columbia.edu) is a student at Columbia University completing his bachelor’s in Political Science and East Asian Studies. He is also an MBA candidate at London Metropolitan University, where his research focuses on the impact and effects of corporate social responsibility on capital markets. He previously earned a master’s degree in Innovation, Leadership and Business Management from Oxademy Business School, and is a former Kim Koo Fellow at the Korea Society, focusing his research on the inter-Korean negotiation process. Before enrolling in Columbia, he worked as the managing director of The Negotiation Institute. Prior to his tenure at TNI he served as an urban warfare and counter-terror specialist in the Israel Defense Forces.

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