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 ([email protected]) is a visiting researcher at Stanford University and a Clinton Global Initiative University (CGI U) fellow at Clinton Foundation.

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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 ([email protected]) 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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PacNet #8 – Who cares if the US is in a “New Cold War” with China?

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Enough already. It is time to stop debating whether the United States stands at the threshold of a “new Cold War” with China. The question has become an obsession among China watchers and foreign policy analysts. But the debate’s poorly defined nature sheds little light on the excruciating choices policymakers face when dealing with Beijing.

Let’s start by examining why the controversy amounts to geopolitical empty calories—energizing but lacking in the substance needed to prescribe policy.

Those who reject the new Cold War framework essentially make the argument that Case A is not Case B. It is literally not the 20th century, China is literally not the Soviet Union. They rightly contend that the world has changed in countless ways since the original Cold War. But the argument falls apart by setting a standard that cannot be met without a time machine. If “Cold War” is a category of one—the twilight struggle between Washington and Moscow in the latter half of the last century—then proclaiming that today’s matchup does not fit into the framework tells us very little about the current state of US-China relations.

Conversely, the proponents of the new Cold War concept tend to make the definition too loose. For them, the contest is a new Cold War because the challenge a muscular China poses goes beyond the tin pot dictators and transnational problems that have occupied American strategists since the Berlin Wall fell. (In fairness, some in this school prefer the term “great power competition” because it is more general.) But the simple fact of big countries competing for influence should not lead policymakers toward an unthinking reversion to the strategies of yesteryear.

Adopting a new Cold War framework might be useful in one critical way: In a democracy, leaders need to explain national security decisions to the public in understandable terms. And Americans commonly understand that a “cold war” means a competition among powerful countries that encompasses the political, technological, military, and values spheres. It is therefore useful, albeit loaded, shorthand, although only when paired with appropriate caveats about what is new this time around.

Paradoxically, despite their differing assessments about the nature of the problem, the two schools largely agree on the major elements for how Washington should deal with Beijing: strengthen US alliances, maintain an effective military deterrent, uphold democratic values, foster domestic renewal, and seek out pragmatic cooperation with China. When it comes to implementing those broad strokes, however, a number of difficult questions arise. How US policymakers answer such questions will shape Sino-American relations much more than generalized observations on Cold Wars or lack thereof.

Here are just a few of those questions.

When it comes to economics and trade, does interdependence make the two countries less likely to fight? Or would some degree of separation between them actually be stabilizing? To the extent that trade helps China grow its economy and fund its military, is there a point where US policy should move beyond trying to control particular technologies and seek to restrain China’s economy generally? Which regional and global trade agreements should Washington pursue in order to shape the terms of international trade?

On technology, can America sustain its advantages through radical openness? Or is it more important to shield US centers of innovation from an onslaught of theft and espionage? Should Washington resurrect some form of industrial policy to cultivate innovation, and if so, what would it look like?

For the military, where should Washington draw a forward defensive line in Asia, if at all, and what costs are Americans willing to bear to uphold it? Should the line stay fixed indefinitely, or be redrawn periodically to accommodate Beijing’s growing power? Would Chinese leaders be reassured or emboldened by any accommodative moves? For example, if Washington allows Beijing to seize Taiwan, will China be satiated, or would it just pick a new target for conquest?

Even if America and China are not locked in a global ideological contest—itself a matter of some debate—Beijing still perceives intense ideological pressure from Washington. Will China feel more room to liberalize with less day-to-day foreign prodding, or will it only open up politically if democracies exert consistent, firm stance on values? How should Washington support human rights in China and counter Beijing’s authoritarian example without convincing Chinese leaders that the United States is an implacable adversary? Or, more provocatively, are expanding freedoms always going to be a mirage under the Communist Party?

Washington and Moscow grudgingly found ways to cooperate during the Cold War, so working together should always be possible. But where, exactly, can the United States cooperate with China today? The list seems to shrink constantly, even as the need for effective transnational cooperation grows. Does it make sense for Washington to accept concessions on some issues in order to garner Beijing’s help on others? Should America try to link different issues together or compartmentalize them? Will China be amenable to either approach?

Crafting responses to these vexing dilemmas will determine where the proverbial rubber hits the road on US-China relations. Notably, most of those tradeoffs are just as agonizing whether or not one believes Washington and Beijing are locked in a new Cold War—which should tell us something about the value of that discussion overall. Let’s put the whole debate to bed and get down to discussing the harder but more consequential tradeoffs that will shape US-China relations in the decades to come.

Jacob Stokes is a senior policy analyst in the China program at the United States Institute of Peace. He previously served on the national security staff for Vice President Joe Biden and as a professional staff member for the US-China Economic and Security Review Commission. He can be reached at [email protected].

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.

YL Blog #18: The Realignment of Strategic Priorities for Combined Regional Deterrence

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The US-ROK-Japan strategic partnership sends an important message across the globe as the bastion of the liberal democracy in the Northeast Asia. The strategic triangle shares moments of historical discordances and harmony in the past. The recent anxiety over the difference of national priorities centering the North Korean security dilemma and economic trade between the Republic of Korea and Japan exactly exemplifies a discordant instance. With the Republic of Korea as a mediator, the denuclearization negotiations between the United States and North Korea remain an entanglement that provides both the opportunity and adversity for the region. In response to this frequently changing regional security environment, the partners use various political and economic assets to maintain the regional balance of power and project their capabilities in hopes of demonstrating the resolve and engaging others to open up for negotiations.

Recent international and domestic political developments in each state influenced the strategic decoupling of the triangle. A rupture within the triangle emerged when the national priorities clashed and could no longer stay aligned. The strategic decoupling also resulted in the misperceptions of others’ strategic developments regarding military reform and advancements. While the concept of deterrence is openly discussed and commonly accepted, the implementation of deterrence strategy can be perceived differently among the three states.

ROK’s Defense Reform 2.0 and Self-Reliant Strategy

The Ministry of National Defense’s 2018 Defense White Paper defined the ROK’s national security goal as “a peaceful and prosperous Korean Peninsula” and outlined its national defense objectives as “protecting the nation from external military threats and attack”, “supporting a peaceful unification of the Korean Peninsula”, and “contributing to regional stability and world peace”.

In achieving the national defense objectives, a self-reliant national defense was emphasized and led to an extensive military reform. The Defense Reform 2.0 aims to “build an innovative, creative, ‘elite and advanced strong force’ by transforming the command structure that is “capable of executing integrated, offensive operations in an informatized, high-tech network-focused environment suitable for future warfare.” This pertains to resizing and equipping the military with the strategic, operational and tactical assets including mechanized equipment, multiple rocket launcher systems and enhanced C4ISR (Command, Control, Communication, Computer, Intelligence, Surveillance, Reconnaissance) equipment.

The Republic of Korea’s 4D (Detection, Disruption, Destruction and Defense) Operational Concept, a concept for comprehensive counter-missile operations, is an expansion of previously conceptualized Korea Air and Missile Defense, a multi-layered defense system for missile interception. As there is only a single battery of Terminal High Altitude Area Defense deployed in Seongju, Korea, ROK Air Force strives to develop the KAMD system for deployment as soon as possible. Through force development including command restructuring and technological advancements, the Ministry of National Defense prepares for the wartime operational control transition in order to have a self-reliant defense against omnidirectional security threats, including the North Korean nuclear threat.

United States Indo-Pacific Strategy

The Defense Department’s Indo-Pacific Strategy Report centers on a vision for preserving “a free and open Indo-Pacific”. The report describes the People’s Republic of China as a revisionist power due to its military modernization and coercive actions through “political warfare, disinformation, A2/AD networks, subversion and economic leverage,” while it continues to label the Democratic People’s Republic of Korea as a rogue state. The revisionist actions of China inherently clash in interest with the “adherence to international rules and norms, including those of freedom of navigation and overflight” and “peace through strength by rebuilding the military”.

In enhancing the balances of power and advancing the international order, the defense strategy emphasizes a process of preparing, partnering and promoting a networked region. Besides advancing the defense capacity and capability in the region, the strategy calls for increased ISR capabilities and multi-domain operations. It also intends for the security partners “to shoulder a fair share of the burden of responsibility to protect against common threats.” The foreign military sales as the first instrument of resort in effort to maintain alliances have been effective in providing remedy for the allies in exchange for increased shared of burden. Taking an advantage of this, the Republic of Korea will continue to purchase additional F-35 variants to replace its outdated F-16s.

A shared security in the Indo-Pacific through the promotion of a networked region remains a challenge with different national priorities and uneasy interoperability and coordination among the regional allies. The expansion of the hub-and-spokes approach to a regional network of alliances through bilateral and multilateral arrangements has been fruitful. Still, the divergence of the national priorities, political agenda of each leadership and public opinion dimmed a shadow on the bilateral relations when alliance management matters. The quasi-alliance between the ROK and Japan requires an unwavering commitment from the United States.

Strategic Realignment

ROK’s recent inaction to renew the General Sharing of Military Information in response to Japan’s export control added onto the strategic uncertainties that already exist. In spite of Seoul’s debate on GSOMIA as a non-necessity, the ROK’s Ministry of National Defense recently required further intelligence on recent North Korea’s missile test. The political and economic tensions between the ROK and Japan may contribute to a number of uncertainties, but the strategic triangle is nevertheless necessary and remains a strong force of deterrence in the region. The strategic priorities of partners may be realigned for increased partnership and coordination among the security partners.

The strategic triangle concerns over North Korea’s nuclear and missile tests against the United Nations sanctions. It also has a growing concern for the impact of new technologies in the security environment in the region. The difference in perceptions of the strategic environment, however, had born strategic decoupling. Seoul troubles over détente and self-reliant policies. Tokyo focuses on the protection of its citizens from the North Korea’s security threats including North Korea’s abductions of its citizens. Washington commits to maintaining the rule-based international order and preserving networked region to have an effective deterrence against any threat to the international order.

A dilemma on the combined deterrence due to strategic decoupling can be addressed without having to realign the national priorities and with the realignment of economic policies and political assurances. Though East Asian partners have become more export-driven economies and have successfully grown their economies in the past decades, the recent economic growths of ROK and Japan show the least promise with 2.7% and 0.8%, respectively, in 2018 due to the global recession. Likewise, the “America First” policy of the United States has yet to show its impact on its economy. The reluctance to promote regional trade and network the region with economic ties left the countries to seek economic growth through other means. This has also led to the ROK-Japan economic tension and its spillover to the ROK’s inaction on GSOMIA.

The challenge lies in enclosing the economic gap among the triangle in a strategic environment where the US-China strategic competition has the greatest impact on the region. “China’s growing global economic influence” has considerable implications on the United States and its partners. The incomplete transformation into a free-market driven economy and lack of regulations bare challenges, such as the theft of high-valued intellectual properties, to the economic interests of the triangle. The externalities, such as trade restrictions and export control, in the trade can also be considered as an obstacle and move onto a freer trade among the partners. The use of economic instrument for the realignment of regional strategies can be useful in addressing current strategic decoupling.

Conclusion

Securing the economic ties can ensure the partners to put their national sentiments and historical learning behind and prioritize their national strategies centered on network-based economic growth and, eventually, regional security. In a network-based region, enhanced alliance coordination can be an opportunity for stronger economic and security ties. In such strategic environment, the partners can engage in trilateral exchanges to discuss the deterrence at the policy level and nurture a common understanding on deterrence to eventually develop a combined regional deterrence. In this regard, the partners’ common assumption on the feasibility of “NATO-like” deterrence in the Northeast Asia can be explored. After all, NATO’s deterrence mechanism entails the forward deployment of missile defense systems and partners’ burden sharing.

Disclaimer: All opinions in this article are solely those of the author and do not represent any organization.

PacNet #5 – Hong Kong hurts itself by financially excluding foreign domestic workers

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Some 385,000 foreign domestic workers (FDWs) are employed in Hong Kong. A total of 69.9% were from the Philippines. FDWs comprised 10% of the local workforce. Statistics from the Hong Kong government revealed that the number of FDWs citywide will rise to 600,000 by 2047. The soaring number of FDWs in Hong Kong is partially due to the city’s relatively liberal policy toward foreign workers—the government does not impose any quota on FDW intake so long as employers and employees fulfil the requisite conditions set out in the standard contract.

The Hong Kong government has permitted FDWs to work in the city since the 1970s in order to meet the shortage of local full-time domestic workers. The arrangement has been in line with the fundamental principle of the government’s labor policy, in which employers are entitled to hire imported laborers if they cannot recruit suitable local workers in Hong Kong.

Alternatively, a shortage of an estimated 7 million domestic workers has been reported in mainland China, predominantly due to the growing intensity of work for urban families and, therefore, an increasing need to hire domestic workers. In contrast to Hong Kong’s situation, on the mainland most chores are performed by migrant workers from within the country rather than FDWs.

The influx of FDWs within Hong Kong, alongside the increasing educational attainment of local women, enables Hong Kong women to join in the labour market and seek paid work. This is because FDWs are subject to time-consuming, physically demanding household duties that local women disdain, thus facilitating the economic activity of the local female workforce. Figures published by the World Bank indicated that female labour force participation rate (LFPR) in Hong Kong grew from 49% in 2000 to 54% in 2018.

Aside from indirect economic contributions, Hong Kong parents favor hiring Filipino FDWs due to their English proficiency relative to FDWs from other Southeast Asian countries. Bilingualism is an important asset helping Hong Kong develop as a major commercial and economic centre at the crossroads between West and East. Hiring domestic helpers from the Philippines, who use English in everyday communication, is conducive to aiding Hong Kong children to read and write English, an intellectual and cultural capital helping generate economic value in the long-term.

A report, entitled “The Value of Care: Key Contributions of Migrant Domestic Workers to Economic Growth and Family Well-being in Asia,” was commissioned by Experian, a global information services company, in partnership with Enrich, Hong Kong’s leading educational organisation promoting the economic empowerment of migrant domestic workers. According to the report, FDWs in Hong Kong contributed an estimated $12.6 billion to the city’s economy, or 3.6% of local GDP. Additionally, only 49% of Hong Kong’s mothers aged 25 to 54 would be able to participate in the labour market if they did not employ FDWs. After hiring FDWs, however, the female LFPR increases to 78%.

Aside from directly contributing to family wellbeing, employing FDWs also indirectly adds $2.6 billion to Hong Kong’s economy. Hiring FDWs for childcare, alternatively, is at least three times cheaper than sending children to childcare centres and finding private tutors, further securing Hong Kong households’ financial wellbeing.

Despite their significant financial contribution to local economy, FDWs are exploited to a substantial degree. Hong Kong’s foreign domestic workers are entitled to a minimum wage and protected under the Employment Ordinance and the Standard Contract for the Employment of a Foreign Domestic Helper. However, FDWs are paid a low salary. The minimum wage was set at HK$4,310 (US$551) per month in 2017, excluding food allowance, a rise of 2.3% from the previous year. The wage, with the food allowance included, amounts to HK$5,205. Despite a yearly adjustment of FDWs’ salary level, the adjustment is often below FDWs’ expectations. The Hong Kong government should adjust the minimum wage yearly as per the inflation rate, in order to maintain the financial wellbeing of FDWs. This helps minimise their need to seek second, informal, and illegal job opportunities, thus increasing the likelihood of their being fined or deported.

One statistic highlights the demeaning financial exclusion of FDWs within the city: only 18% of Hong Kong’s FDWs have local bank accounts, far lower than FDWs in Singapore (51%) and Malaysia (86%). Taking the Singaporean government as a reference, the Hong Kong government should consider applying public policies mandating that employers pay FDWs through bank accounts and encourage more banks to offer no minimum amounts when opening a bank account.

According to Secretary for Labor and Welfare Dr. Law Chi-kwong, Hong Kong needs an extra 240,000 FDWs in the next three decades. FDWs are a crucial asset to help Hong Kong sustain its economic prosperity. However, the Hong Kong government is treating FDWs from the Philippines and other Southeast Asian countries as foreigners and low-class workers. The government financially isolates FDWs from the wider population. Local academics and journalists dub the government’s practices an exercise in modern-day slavery.

Without the employment of FDWs, local household revenues would decrease while expenses would increase significantly. If the Hong Kong government continues its financial limitation and exclusion against FDWs, FDWs may relocate to neighboring countries, putting the economic sustainability of Hong Kong at stake.

At the end of 2019, the secretary for labor and welfare warned that mainland China’s recent labor policies, of opening up to workers from the Philippines, pose a significant threat to Hong Kong’s economic development. As he noted, if wages for FDWs in the mainland were double those of the city, half of Hong Kong’s 190,000 Filipino FDWs would leave to seek work across the border.

It is noteworthy that in the recent months of Hong Kong’s political unrest, the Filipino Migrant Workers’ Union (FMWU) and Indonesian Migrant Workers’ Union (IMWU) announced FDWs are concerned about the disrupted transportation systems and their arbitrary, irregular day-off schedules. This socio-political interruption has barred FDWs from meeting and socialising with relatives and friends during the statutory holidays, resulting in a rise in their anxiety levels.

Financial limitation and exclusion, political unrest and uncertainty, and mainland China’s recent policies of increasingly opening up to FDWs would all affect the economic landscape of Hong Kong. Substantial economic reforms benefitting FDWs—raising economic inclusion and benefits for these migrant cohorts—should be prioritised, or else the economic performance of Hong Kong will be jeopardized in the coming decades.

Jason Hung (LinkedIn: https://www.linkedin.com/in/jase-h-y-s-929415110/) is a visiting researcher at Stanford University, a Clinton Global Initiative University (CGI U) fellow (2019 cohort) and a freelance columnist at South China Morning Post. He previously worked as a country director of China at Global Peace Chain.

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 #3 – Nuclear flexibility necessary for North Korea’s economic development

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This article originally appeared at the Council on Foreign Relations and is republished with permission

Although Kim Jong-un’s latest words on New Year’s eve are a cause for concern, they seem more for negotiating leverage than indicative of a real change in North Korea’s trajectory. The global community needs to encourage the North Korean leader’s efforts to improve his country’s economy and make it more of a “normal country.”

Instead of giving a New Year’s speech, as he had previously done annually, Kim delivered a report concluding a four-day Workers’ Party Central Committee plenum. About 70% of the report addressed the economy, showing that economic improvement is of paramount importance to Kim. Kim was candid in admitting the economy was in trouble, revealing that a lack of economic progress in the past year was a major source of frustration for him. Kim highlighted areas that needed reform and declared that global sanctions on his country were choking its economic potential.

Indeed, it is the economic damage of sanctions that apparently drove Kim’s statements in the national security arena. Alleging that his country has received no economic benefit from dismantling a nuclear testing site and putting a moratorium on nuclear and long-range missile testing, Kim questioned his country’s all-out focus on economic development since the shift from the previous byungjin strategy (simultaneous development of the economy and military). Claiming that the United States has not made any concessions in spite of his unilateral concessions on denuclearization, Kim implied that Pyongyang would resume nuclear and long-range missile testing and even unveil a “new strategic weapon” if the sanctions are not lifted.

Although these statements are disconcerting, they are clearly intended to maximize Pyongyang’s negotiating leverage, as Kim added that the extent and scope of his military response would depend on Washington’s reaction to his statements, making it clear that he was open to further negotiation. Further evidence that Kim is open to negotiations is that he did not name Trump even as he was criticizing the United States and he did not stage any military provocation, despite the previously threatened “Christmas gift.”

The onus is now on both Pyongyang and Washington to work out their differences if they are to avoid a reversion to the days of nuclear brinkmanship and high tension (the days of so-called “fire and fury”) before the Pyeongchang Winter Olympics in 2018. Apparently, North Korea has demanded a gradual step-by-step denuclearization, reciprocated by relaxation of sanctions, while Washington has insisted on a comprehensive roadmap starting with defining the final denuclearized state and then spelling out the steps leading to that state. Whatever may have been the exact negotiating positions of the two sides, there was a serious enough difference between the two to cause a breakdown in the talks. This current impasse has led to Pyongyang’s demand for a new approach from Washington and Washington’s promise of a new flexibility.

The two sides must now show real flexibility in their actions, not merely in their words. Pyongyang must take more tangible steps for denuclearization beyond the symbolic dismantling of an old testing site, and Washington must seriously consider partial relaxation of sanctions in response. Perhaps a way to start would be finding a path forward on reconnecting rail and road links between the Koreas without explicitly violating the sanctions regime. Such an endeavor can help build the mutual confidence necessary for further progress in denuclearization and may eventually lead to building a gas pipeline across North Korea carrying Russian gas into South Korea.

The global community must encourage economic reform in North Korea and help persuade a frustrated Kim Jong-un that though such reform is not easy and may take time, it is necessary and worthwhile. The global community must support negotiations between Pyongyang and Washington by offering creative ideas to build mutual trust and break the impasse. Although the recent proposal by China and Russia at the UN for partial relaxation of sanctions has gone nowhere, Washington, Seoul, and Tokyo would do well to consult closely with Beijing and Moscow to discuss a common gradual approach to denuclearization accompanied by partial easing of sanctions.

Jongsoo Lee ([email protected]) is Senior Managing Director at Brock Securities and Center Associate at the Davis Center for Russian and Eurasian Studies, Harvard University. He is also Adjunct Fellow at Hawaii-based Pacific Forum. The opinions expressed in this essay are solely his own. He can be followed on Twitter at @jameslee004.

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