Asia in the time of Covid-19

To adapt IMF’s comments: this is the worst downturn since Deng Xiaoping began opening the economy in the 1980s (for China); the worst challenge since the 1991 balance of payments crisis (for India); and the biggest contraction since the 1997-98 East Asian Economic Crisis (for Indonesia). This is certainly bad — remember the latter felled the Suharto dictatorship and precipitated race riots in which perhaps thousands died — but it is not the Great Depression.

There is also a lot of speculation that the damage and change wrought by the pandemic will create a new epoque. A “New Normal” or “New Abnormal” are some of the phrases being bandied about.

Such statements are justified by factors such as: people will have learned to do a lot more just by staying put; the digital economy will explode now that consumers have been forced by lockdowns to use it; people and countries are going to be far warier of foreigners in their midst in the wake of this “disease of globalisation”; and, governments will be expected to get much more directly involved in economic and social management after the exigencies of Covid-19. Relatedly, Covid-19 is revealing to us the vulnerability of supply chains and the need to bring strategic elements of these closer to home.

But look again, and you will see that none of those things are the unique creation of the pandemic. All of them — from digitisation to economic nativism — were all in play four short months ago, when nobody had heard of Covid-19.

As the pandemic crashes through our societies, it is not so much remaking them as catalysing things already well under way. This is an acceleration of, not a break with, what was going on prior to the pandemic.

In Asia, the thing that has been most profoundly in motion for some time, is the rise of China (think Belt and Road Initiative, standing up to Washington’s trade demands, and no compromises on sovereignty claims). A lot of Chinese officials will currently be feeling that the pandemic has really galvanised that rise.

Notwithstanding the initial denials and early cover-ups in Wuhan, President Xi Jinping is having — for want of a better term — a great pandemic. If the US media in January gloated at a Chinese system that had mismanaged the initial spread of Covid-19, it is now the turn of Chinese media to gloat at the sometimes bizarre free-for-all of US pandemic management that has the US surpassing China’s Covid official death toll by a factor of more than 10 and counting.

Many governments, including the Trump administration, are now scrambling to develop the type of Covid-19 data-gathering and tracking system which has been deployed by China to great effect. These are the same techniques that a couple of months ago were being derided by Western governments as Orwellian.

And of course, governments globally are watching intently to see how or if China can fully resurrect its economy after building such an effective cage around itself.

The illusion of soft power accelerates

And yet, coming out of Covid-19, China will remain the distrusted contentious power it was before. Indeed, the Trump Administration has taken time out from pandemic management to ban the China Telecommunications Corporation from its market on national security grounds.

While the US is perhaps not a country to be emulated when it comes to Covid-19 management, many leaders in Asia will nonetheless stick to the playbook of deepening their alliances with Washington to parry this growing Chinese self-confidence in their region. Meanwhile, the US, possibly humbled by the horrors of recent months, may consider its friends more thoughtfully than it has in the past.

Similarly, Xi Jinping will find that his dream of having China’s technology giants hoover up distressed Western assets as the Covid-19 tide goes out will face growing regulatory resistance, not less, in the wake of the pandemic.

In Europe, China has once again grabbed a soft power defeat from the jaws of victory. And, of course, the people of Hong Kong will waste no time in resuming their challenge to Xi’s vision of China just as soon as major riotous assembly becomes viable again.

On the positive side of the ledger, even in the eye of its Covid-19 storm we and our clients found that China’s treatment of foreign manufacturers was for the most part exemplary, and broadly lacked the arbitrary confusion and incoherence that has characterised subsequent attempted lockdowns in other Asian economies like India, Malaysia, and the Philippines. Enquiry, consultation, collaboration and a degree of empathy were the watchwords here.

For company strategists, the pandemic has been a reminder that you can diversify your production sources, but you totally close the door on your China supply chain at your peril. As a top-down regime, China’s foreign policy architects have learned nothing from this positive example.

Indonesia: Covid control experiment

If China is Asia’s poster child for effective infection suppression, Indonesia is at the other end of the spectrum. Jakarta’s management of the crisis is shaping up to be a somewhat scary control experiment in how a population and a major economy is going to be impacted by an outbreak of Covid-19 that is left largely uncontained.

Yes, towards the end of April, a modicum of lockdown kicked in in Jakarta and some other major cities, but it has been widely ignored and is even more widely meaningless in the cramped slums and informal markets. And then there is Mudik, the annual exodus of city dwellers to their hometowns and villages, in the run-up to Idul Fitri (the end of the Islamic holy month of Ramadan) on May 23. The government only attempted to arrest this mass movement after it was well underway. Perhaps millions have already dispersed to the four corners of the archipelago — and taken the disease with them.

For First World observers, the Covid-19 disaster for emerging markets like Indonesia may primarily look like one of public health, given the lack of medical infrastructure to deal with the illness. However, the likely bigger disaster for most Indonesians will be an interruption to normal life imposed by serious state efforts to curb infection. Poor Indonesians are fatalistically accepting of the fact that Covid-19 is just another disease or disaster that the state will not help them with.

The government for its part knows that people expect to be allowed to keep working, for prices to remain stable, and for food distribution to continue. Tragic and cynical though it is, it is the government’s protection of this trifecta, rather than efforts to curb several hundred thousand deaths, that will keep President Jokowi in power and people off the streets.

Meanwhile, in the country’s smaller formal sector (where ministers and officials know they can misgovern without serious repercussions), industry is now forced to cope with and pay for a slew of contradictory departmental edicts, initiatives and bylaws.

More positively, Indonesia is one of the emerging world’s most wired economies (think Gojek, Tokopedia, OVO and others) and precisely because Indonesia is a “self-help” economy, its experience of Covid-19 is going to see just as much, if not more acceleration of usage of those digital platforms compared to its richer neighbours.

The Learners

If China is the most buttoned-up Covid-19 responder and Indonesia one of the most buttoned-down, other Asian economies have taken a variety of paths between the two.

One group, which we could call “the Learners” are particularly interesting. These are jurisdictions that are uniquely Asian, wealthy, and — most importantly — did learn at least some lessons from the SARS crisis of 2003.

These lessons were learned particularly in the realm of mass communication on infectious diseases, contact tracing and efficient deployment of medical resources. South Korea, Singapore, Taiwan and Hong Kong are four most obvious members of this club, but I would also bestow this honour on Vietnam which has managed to achieve similar results to its far wealthier neighbours using a clever mix of toned-down Chinese authoritarianism and very targeted resourcing.

All five of these Asian economies have flattened their respective infection curves (until Singapore realised it had forgotten that more than 20% of the population lives in foreign worker dormitories) and are currently some of the world’s most effective pandemic management bureaucracies. Tightly controlled moderation rather than economically debilitating eradication has been The Learners’ broad format.

But there the similarities end. Any post-Covid-19 brand boost that the Hong Kong administration’s effective management of the pandemic might have bought them will be squandered by its diametrically opposite tragic handling of Hong Kong’s slow, violent, nervous breakdown over its relationship with Beijing.

The main acceleration that Covid-19 will provide Hong Kong is unfortunately the depth and breadth of the recession it was going into when the disease struck; the IMF envisages an unprecedented contraction of 4.8% this year. The arbitrage between the truly bleak mood of Hong Kong and the territory’s still very attractive legal, financial, and physical infrastructure has never been wider.

In contrast, South Korea’s President Moon Jae-In on April 15 managed to pull off a parliamentary election in a country that still has 60,000 people in quarantine. Furthermore, Moon’s Democratic Party achieved a resounding victory on a (physical, not remote) turnout of 66%. This will go down as the world’s first Covid-19 election: a poll that is mainly a referendum on the incumbent’s handling of the pandemic. Singapore and Japan may well be the region’s next in the months ahead.

For Singapore’s ruling People’s Action Party (PAP), the next 12 months are looking bleakly positive. The PAP will win that Covid-19 election, notwithstanding its vast misstep of creating the conditions for a “pandemic within a pandemic” in its crowded foreign worker camps.

However, the PAP will have to reconcile Singapore’s status as a global entrepot with a post-Covid-19 de-globalising world. Regional post-pandemic fear and frugality will impact its banking, real estate, tourism and transport pillars while an economy expected to shrink by 3.5% will accelerate the tensions between local Singaporeans and the foreigners that proliferate (at both the bottom and the top of) its private sector industries.

Of all The Learners, Vietnam stands out most prominently. Once again, bucking the now tired trope that it is just a smaller version of China, the Vietnamese authorities have mounted a highly sophisticated, low cost, low economic impact campaign of deep quarantine and mobile testing, coupled with blanket but relatively light-touch social distancing measures, finally boosted by a very strong focus on keeping its export-orientated manufacturing sector open for business. This leaves the country arguably even further down the road to recovery than its much-vaunted northern neighbour. Countries with limited resources but a reasonably efficient bureaucracy should be looking to Vietnam rather than China for their pandemic battle plan.

Japan’s pandemic particularism

And then there is the example of Japan, which frankly provides no example at all to be emulated. Japan might go down as the unique case of a country that could protect itself against the ravages of Covid-19 almost entirely through the deployment of existing social norms.

Prime Minister Abe Shinzo is traversing a political arc as follows: ignore pandemic; actively suppress testing; focus on viability of the Olympics until forcibly shelved; complain your hands are tied by constitutional constraints; feud with the more proactive governor of Tokyo. While Abe is now in a somewhat more realistic place, the intervening weeks of dithering should have produced an exponential explosion of Covid-19 cases, as seen elsewhere. But not in Japan, or at least not yet.

Perhaps this is simply because Japan’s population is not tactile, washes its hands religiously, and wears its masks willingly, long before the pandemic arrived. If Abe has indeed dodged that bullet, it will allow him to reap the political benefits of deploying his record US$989-billion ($1.4-trillion) stimulus package which he will not only use to keep the Japanese economy’s lights on, but will direct towards executing his pre-existing plan to repatriate huge chunks of Japanese manufacturing from China.

The Possessives: Ego meets action

While the Learners occupy the middle ground between China’s pandemic totalitarianism and Indonesia’s laissez faire attitude, there are also “The Possessives”. These are countries that occupy a more dangerous corner of this middling response to pandemic.

Modi’s India or Rodrigo Duterte’s Philippines spring to mind — with their mixtures of personalised pandemic response leadership that has imposed very effective Chinese-style lockdowns, using bureaucratic machinery that is coherent and funded enough to impose major economic disruption, but lacks the financial resources to sustain millions of people on the breadline through a lengthy lockdown timetable. A “Covid versus bread” reckoning may be coming.

Prayut Chan-o-cha’s Thailand and Muhyiddin Yasin’s Malaysia also resemble elements of this format. Rebellions by India’s migrant workers and those in Metro Manila’s vast informal sector against lockdowns are likely to spread if the economic pain drags on. The spike in lock down suicides in India due to economic hardship far outstrips Covid deaths.

Thailand’s agony will be prolonged by its huge exposure to (Chinese) tourism, the global demand impact on its auto sector and, again, by the fact it was suffering from the pre-existing condition of having a polity unfit for the 21st century. King Maha Vajiralongkorn’s self-isolation in a German lake-side villa is the starkest manifestation of this disconnect, and it will be touch and go as to whether Thailand will be able to come out of the pandemic without staggering straight into another round of major anti-establishment civil unrest.

Malaysia’s Muhyiddin, the consummate grey man, will either be made by this pandemic, or be Malaysia’s shortest-lived leader dragged down by his bureaucracy’s woeful handling of pandemic responses to date.

Accelerated outcomes

Asia’s regional shipping flows are already on the uptick and China, South Korea, Taiwan and Vietnam are already moving well into resumption mode, if still a long way from recovery. The bottom line is that many of the region’s economies will still grow this year despite this catastrophe.

Nevertheless, Asia, by virtue of its vast population, may ultimately end up with the world’s highest number of Covid-19 deaths. The pandemic still has a long, long way to go in Asia and, again, China is the bellwether of opening without releasing unmanageable levels of re-infection, and approaching anything like recovery in the eye of a global slump in demand.

Yet for all the IMF’s talk about the Great Depression, the 6.3% decline in world GDP against pre-pandemic estimates this year will be due to a global capacity and demand that has been arrested.

The real destruction is beginning now. What appears increasingly clear is most global leaders will not take their lockdowns into the realm of major systemic wealth destruction — constituencies and electorates are now waking up to that trade-off. A hiatus then, is how historians of the pandemic might characterise Asia’s experience — one that was a huge test of the region’s political managers: some of whom took only hubris from it; others were strengthened by it; and, for several more, saw it accelerate their political demise.

Steve Wilford is head of global risks analysis in APAC at Control Risks.