Vice Chairman and Executive Director, The Paulson Institute
Panelists discuss the effects of the coronavirus across Asia, including lockdowns, economic challenges, and prospects for recovery.
LEHR: We’re so delighted that all of you are able to join us for another one of the Council on Foreign Relations’ very timely webinars. Today’s it’s on Asia and its response to the coronavirus. I’m Deborah Lehr, the executive director of the Paulson Institute.
We have really a great panel of experts from the Council to share their thoughts and insights on what’s happening in the region currently, as well as some of the changing political dynamics and the economic situation. So we will try to jump right in. Let me just introduce our panelists very briefly. Huang Yanzhong is the senior fellow in charge of global health policy at the Council. Shelia Smith is the senior fellow overseeing Japan policy. Joshua Kurlantzick is the senior fellow for Southeast Asia. And Scott Snyder is the senior fellow for Korea studies.
So let me start by asking each of you to share a brief overview on what’s happening in the country that you cover or in the region that you’re covering. What state are they in in dealing with the virus, in the status of going back to work? And in the cases where they are, how is that going on?
And, Shelia, why don’t we start with you on Japan?
SMITH: Great, Deborah. Thank you.
So the Japanese case is interesting in that today you’ve got about fourteen thousand cases of people who have been—tested positive for the coronavirus, but Japan had a very slow start. there were very few people. By the end of January I think it was seventeen. Japan had the Diamond Princess cruise ship arrive, and it allowed it to quarantine off of the Yokohama harbor, which brought in—which raised its numbers considerably. But it was really in March that you started to see community transmission and the numbers start to tick up, especially noticeable in Tokyo. So the Japanese government started slow, with a very cluster focused strategy. Lots of contact tracing. But my March, there was a new law passed in the parliament, the Japanese Diet, and the prime minister declared a state of emergency by the end of the month.
I think the second point to note about the Japanese response, of course, has been the economic response. Like the United States, Japan has passed a tremendous stimulus, roughly about 20 percent of its annual GDP, $1.1 trillion. And we can talk more about the details of that later. And then finally, Mr. Abe. Mr. Abe was seeing 2020 as his, you know, year of celebration. He was going to preside over the Olympics, which have now been postponed. There was going to be a general election at the end of the year, which his party thought it would win hands-down. And so his future fate is also up for grabs.
LEHR: OK. Yanzhong, how about China?
HUANG: Yeah. Well, China, as we all know, that it’s the first country affected by the pandemic. And it also is among the first to contain the virus outbreak. On April 8, it lifted the lockdown on Wuhan and started—or, actually even before that started the economic recovery. You know, certainly China has strong incentives for the economic recovery and reopening, because we have seen the data suggesting that shrinking fiscal income, expanding fiscal deficit, and that the unemployment rate is extremely high according to a study suggesting that five million people lost their jobs in the first two months of this year. And about two hundred million, they say, risk losing their jobs this year. And the fiscal deficit for 2020, they say, is going to be close to $1 trillion. And the economic growth rate, according to official report, it will be extremely difficult even to keep a 0 to 2 percent economic growth rate. That means it’s very likely to be negative growth.
But so far, China’s experience show that a full economic recovery will take time, will be very difficult, given this increasing risk of imported cases. We have seen what happened in Harbin, China’s northeast. Just one imported case actually led to the infection of more than seventy-two cases in the city. So the challenge for the government is how to maintain this process of economic reopening while sustaining the stability of the growth of the new cases.
LEHR: Although, and by and large most people are back at work in China now.
HUANG: That’s correct. About—for the large firms, they say that 100 percent of them are open. But for those small businesses, the more recent data is, like, 75 percent—more than 75 percent have reopened.
LEHR: And, Scott, how about Korea?
SNYDER: Well, this is a great day to talk about South Korea, because they are just ending six weeks of social distancing. They have had zero cases of community transmission within the country for the past two days. And they’ve gone from two months ago being second in terms of the country that has had the most cases to thirty-seventh today. And so this is, for the most part, a real success story in South Korea. I should also mention that today’s opening day for the Korean baseball organization. And so I think that what we’ve seen in South Korea is a relatively competent response based on very professional public health infrastructure that really tested itself five years ago with the response to the Middle East respiratory syndrome virus. And so they put in place a public campaign that focused on testing, very active tracing, and treating cases. And that has proved to be relatively successful.
The way I would describe it is that South Korea, the environment has been subdued rather than suppressed. For instance, restaurants weren’t told to close, but they just didn’t have customers because nobody would come in. And of course, public events were banned in South Korea. The biggest, I think, success for South Korea really has been being the first country to have a successful national election in the pandemic era. And that election yielded a record turnout, despite the public health protocols that were required in order to be able to vote. It was the highest turnout in twenty-four years. And now we’re two weeks later, so we know there was not a bump up in terms of transmission. And so the immediate domestic reward has gone to South Korea’s ruling party for—really, for generating such a positive performance, especially in international contacts. And I think that that resulted in an overwhelming victory for the ruling party. They now own 60 percent of the seats in South Korea’s National Assembly.
And just briefly in North Korea, we know where Kim Jong-un is, but we don’t know how many cases North Korea really has of the virus. We know that state media has been very active in publicizing it, so it’s likely that they do have cases. But in terms of what is actually happening on the ground, I think there’s a lot that remains to be known there. We know that North Korea has been asking for equipment and test kits, but so far has not admitted to actually having cases.
LEHR: Joshua, you cover Southeast Asia. And you’ve seen really mixed developments there.
KURLANTZICK: Right. So Southeast Asia is a pretty big region, geographically, and with massive economic diversity. So I think there’s four points to be made. First, there’s a huge disparity between the effectiveness that various countries have brought to bear, ranging from Vietnam and Singapore at the top—although, Singapore has now had a huge blind spot with their migrant worker populations and actually has the most COVID cases in the region. But at least the approach by Vietnam and Singapore had initially, and with Vietnam continues to be extremely effective. Vietnam’s approach required methods—intensive quarantine methods that might not be replicable elsewhere.
To other countries like Thailand, for example, that have got a slow start but have done a relatively effective job since then. Malaysia as well. To countries farther down, some of which have very, very weak public health infrastructure or didn’t take things seriously at all, like Myanmar, Laos, Cambodia, Indonesia, the Philippines, at least at first, and still are struggling with it. So most of the region is not really ready for reopening.
The second point is that unlike, say, Japan or United States, other developed countries, most Southeast Asian states don’t have—with the exception of Singapore—they don’t have the ability to pass massive stimulus package to cushion the blow because investors are not going to be willing to grant them a lifeline to cumulatively buy up debt from even middle-income countries like Thailand, and Malaysia, and Indonesia, let alone places like Cambodia. So the economic blow is going to be quite severe. And some of these countries, like Thailand particular, are intensely reliant on tourism, which has fallen off a cliff, as well as on regional trade.
The third point is—I would say is one thing that’s interesting to raise about Southeast Asia is there continues to be significant caseloads and domestic transmission. And unfortunately, and I’m not a scientist, but it raises the question of whether heat really is a factor in reducing the coronavirus because Southeast Asia is one of the hottest places in the world. And right now, April/May, in some of these places like Songkran—in Thailand, where they’re having Songkran like Thai new year, in April, you’re, like, almost living on the face of the sun by May. So at this level of heat if it doesn’t really do anything, that raises questions.
And then the fourth point I’d make is compared to some of these other places, leaving aside China, you know, Southeast Asia has a lot of sort of hybrid regimes, or regimes—countries that are somewhere between democracy and authoritarian rule. And you’ve had this disturbing trend in the Philippines, in and Myanmar, and Thailand, Cambodia where a lot of the governments have utilized the pandemic to amass greater executive power, repress the press, and take other measures that potentially push them more towards authoritarian rule.
LEHR: Great. Well, I think let’s pick up on your last point, because I think some of you did touch upon the politics. And I think we see shifting politics in the region as a result of some of the—both the health impact, obviously, but the economic impact that’s occurring, and a lot of anger at China for some of its—for its late response, and perhaps not—its lack of transparency initially in sharing any of the numbers. And so do you see shifting dynamics, shifting attitudes towards the United States or towards China as a result of what’s been happening with the virus, Shelia? Unmute.
SMITH: My cat entered the screen, so I had to mute myself.
So the Japanese case with China is interesting. The timing, of course, was important for Tokyo. It was expecting to welcome Chinese President Xi Jinping on his first state visit to Tokyo in April. And that had taken years of very careful structured and measured diplomacy on both sides. But you know, both countries had to pull back on that. The Chinese-Japanese interaction at the civil society level, not the government-to-government, of course, is largely based on tourism today and economic ties between the two countries. So like in other countries around Asia, the tourism to Japan by Chinese tourists in particular dropped by 50 percent by February. So there was a huge impact there in terms of popular interaction.
And on the business side, the Japan-China relationship has always relied on the ballast of economic ties to offset their growing strategic unease. And I think the economic ties were really sorely hit by the Wuhan lockdown. And you saw 37 percent of companies in China—Japanese companies in China kind of raising their hands and saying: We’d like to relocate out of the country. Which is a pretty large proportion of the 2,600 countries—companies—sorry—that are in China. So you’ve got some shaky, I think, signals coming not just on the government-to-government side of the Japan-China relationship, but from the civil society interactions. I think these are weakening—the coronavirus has weakened that set of opportunities.
I don’t see that the Japanese, however, have jumped into the blame game. You know, they don’t point at China and point at Wuhan. They were very resistant, for example at the G-7 meeting, to—you know, to respond to our secretary of state’s desire to call it the Wuhan virus. I think there’s been a little bit more of a push for a global investigation of the pandemic—the causes, the best practices, what happened on the ground across the—across the world. And I think that’s the Japanese approach, rather than to jump quite into the—producing more tension with China.
I don’t know that there’s implications for Japan’s relationship with us at the moment. I think there’s larger questions about the alliance. And of course, our election in November is very much on the minds on Japanese policymakers. But I don’t see that the coronavirus, per se, has had a difficult for the United States and Japan.
LEHR: Scott, how about with the Koreas?
SNYDER: Well, South Korea sees pandemic politics heating up between the U.S. and China, and they really want to try to keep their head down for the most part. To some extent, South Korean companies, they do do a lot of business in China, but there has also been a diversification underway, especially with relocation of plants to Vietnam that has gone on for some time. That doesn’t mean that there isn’t concern about supply chains that run through China, and the potential impact of decoupling. And then also, South Korea has emerged as a potential alternative supplier for test kits and personal protective equipment on the other side of the curve, along with China. But I would say that South Korea really primarily wants to compete based on market competition, not on the basis of any kind of ideological competition with China. And so mostly I would say there’s a reticence by South Korea to being drawn into any kind of ideological framing of a response to the pandemic.
LEHR: And, Joshua, how about in Southeast Asia?
KURLANTZICK: Well, all of those things that are true for Japan and South Korea are true exponentially in Southeast Asia, because you have countries that are in China’s closest neighborhood, many of them are extremely reliant on China for trade, for diplomatic cover, for countries like Myanmar, and Thailand, and Cambodia, and for aid and, in this crisis, for aid as well. So you have—actually, in the last couple months China has continued to be assertive in the South China Sea. I think there’s a debate about whether they’re more assertive than they were, you know, in 2019. But there’s certainly been no letup in the assertiveness in terms of near—in waters claimed by them and Malaysia, in waters claimed by China and Vietnam.
And there’s been some pushback from the—from the U.S. But from countries in the region, they have almost all, with the exception of Vietnam, pretty much stayed silent about China’s assertiveness in the South China Sea at this time, which is indicative of—no one in South East Asia, other than Vietnam and occasionally Singapore, wants to be in any type of conflict with China, ideological, et cetera. And that was before this. And certainly now they don’t want to.
In terms of their views of the U.S., I mean, you have a number of countries that are sort of drifting away slowly and more rapidly from the U.S. anyway, like our two treaty allies, Thailand and, even more, the Philippines, at least at the leadership level. So I think this will speed that up for most of the countries.
LEHR: And what do you see—as you look at what your concerns are across the region, whether it’s a rise in terrorism, or social unrest, any of these issues, what sort of is your biggest concern, looking at the region?
KURLANTZICK: Are you asking me?
KURLANTZICK: OK. Well, I mean, I think Southeast Asian countries are going to be absolutely battered economically. And that’s going to be even more devastating than in wealthier countries. There’s likely to be, like I said, a consolidation of either authoritarian or semi-authoritarian regimes in a number of places. And I think that you also have the potential in some of these places for a lot of the economic integration with China to speed up, while the economic integration with the United States slows down. But mostly the first two things—economic devastation, with all the attendant effects of that, and rising autocracy.
LEHR: OK. So, Yanzhong, let’s talk about international institutions. And you’ve written about the WHO as an ailing institution. And you wrote that back in 2016, that it was underfunded and overstretched, and unable to respond effectively to existing and anticipated global health challenges. What do you see as the role of the WHO in the region, and how do you see it going forward, and what can the international institutions be doing to help at this time of crisis?
HUANG: Well, I would hope that WHO at this time could play a leadership role in coordinating the international response to the region—in the region to the coronavirus outbreak. And also I would hope the WHO could provide timely and accurate information about the virus and the outbreak so that other countries could react in a timely and efficient manner. And while we have seen the organization playing an important role in declaring a public health emergency of international concern, and also providing information in a transparent manner for other countries to act upon, I was a little bit disappointed that they were—they were not as diligent in terms of digging information on the outbreak in the beginning stage of the outbreak.
I’m talking about early January, that instead they just accepted whatever the government told them. They used the government-provided information to determine—to make the decisions to determine whether the need to announce or declare a public health emergency of international concern. And also, I was a little bit disappointed in terms of its ability to coordinate effectively the international response. If you look at, you know, how—the way they praised the Chinese government for doing a great thing of containing the spread, but in the meantime in the beginning stage we actually they were calling other countries in overreacting in responding to the outbreak. And so in a sense there’s some inconsistencies here as well. And that, I think, undermined WHO’s credibility and the leadership in effectively coordinating the international response.
LEHR: Mmm hmm. Well, I think that’s very helpful.
Now, as we kind of look ahead into this post-COVID world and looking at the region where there is such economic devastation, we see China obviously starting to go back to work and trying to restart their economy. In the United States we’re behind. We’re slowly doing it, but actually Goldman Sachs came out with a study today that they actually think it will end up being more of a U-shaped recovery, which is positive looking towards the end of the year. What do you see economically in your various countries covering regions looking ahead? And how should Washington be thinking about the changes in its policy towards the region coming out of this?
Shelia, do you want to start?
SMITH: Well, I’ll talk a little bit about Japan’s economy. The forecast for Japan is serious but, as Josh mentioned, Japan is a relatively wealthy country, compared to the vast array of different kinds of economic development going on in Asia today. But still, if we want to quote Goldman Sachs, Goldman Sachs did another report on what they thought was going to happen to the Japanese economy as a result of this pandemic, and they projected a 25 percent loss in terms—25 percent of GDP loss for Japan in 2020, which is severe.
I think the anticipation of the Japanese government was that this would be the year, of course, of the boost to the economy that would come from the Olympics, and hundreds of thousands of people spending money. That’s not going to happen. Instead, the costs of the postponement of the Olympics to 2021 are going to go from what—the original estimate was somewhere around $2 billion, and then moved up to $6 billion. Now the postponement looks like it could cost Japan $23 billion, just for the Olympics alone.
But I think you’re going to see another stimulus package is going to be required. That’s an awful lot of spending that’s going to be needed for the Japanese economy to come out of this in any way, shape, or form. Right now unemployment in Japan, to be comparative here with some of the other speakers, is reasonably OK. The constituency in Japan that has lost their economic security are people who are not in full-time employment, but in the kind of the part time employment sector. And so those people will definitely need far more social support from the state, again, something that we haven’t seen in Japan to date.
Trade exports, Japan’s economy is highly dependent on China. Not completely dependent on China, but what happens in China matters. So you’re going to see a real pullback and contraction, not necessarily the full sort of decoupling that I suggested earlier, but you’re going to see an awful lot of damage from whatever happens in China will spillover to Japan very quickly.
The needs of the region—you know, Mr. Abe has largely crafted an Indo-Pacific strategy, a place for Japan in the region based on its ability to provide technologies, infrastructure, funding for development in the region. Not necessarily on par with the amount of cash that China is providing, but certainly a very substantial role for Japan in helping the Asia-Pacific or Indo-Pacific with its economic needs. That is going to also be—that will contract as well if we have the kind of damage, and especially if we’ve got sustained damage to the Japanese economy.
LEHR: Great. Scott?
SNYDER: Yeah. So the South Korean economy was already in a kind of low-growth mode. And President Moon needed to try to find a way to pursue an economic strategy. His strategy had largely been public sector led. And I think that the global response to the pandemic actually helps to justify his approach to a certain extent, and maybe to depoliticize it to some degree. The South Korean National Assembly has already passed a $12 billion package essentially putting cash into the pockets of every Korean household later this week. The big problem is that South Korea, as a largely export-dependent country needs an engine to hitch to. And it’s not clear that there is a reliable engine that can help pull South Korean exports forward. And so I think that that is going to be a real source of challenge for the South Korean economy as it tries to kind of get its footing in the context of a new environment.
LEHR: Joshua or Yanzhong?
KURLANTZICK: Well, not to be the—(laughs)—more pessimistic again, but I mean, I think there’s just no way around it. I mean, in Southeast Asia, except for Singapore and Brunei, you have—and even Singapore is incredibly trade dependent. So in the 2009 crisis, Singapore’s economy was actually battered. But you have a ton of countries that don’t have the ability to provide stimulus on this level. They’re emerging markets. They have massive informal sectors, but with no support for them. They’re going to be subject to damage from the retreat of supply chains as countries potentially renationalize aspects of their supply chains. Several of these countries, like Thailand and Cambodia, Myanmar, are incredibly tourism dependent. So a lot of these countries, with the exception of Singapore and a few others, have pretty poor economic management at the top level. So you have a pretty terrible short-term and medium-term scenario that I’m not sure—they have minimal control over what they can do.
LEHR: Yanzhong, anything you’d like to add?
HUANG: Yeah, I think when we look at China it is interesting that 2020 was supposed to be the year that China fulfilled that dream to become a so-called bearer of society, you know, that they were going to double to the size of the GDP compared to 2010. And but in order to achieve that objective, this year they’re supposed to achieve at least a 5.5 percent GDP growth. That, I think, becomes very unlikely given the COVID-19 outbreak. So I think that is going to have profound implications for its ability to project its influence internationally, including influence in the region, because here—you know, I’m not sure whether this is going to be exactly negative, because if you look at incentives, right, to do so, certainly, right, because of that bar to claim global leadership or regional leadership has now become lower—you know, especially considering, like, countries in Southeast Asia, maybe also Japan, South Korea, they might look to China for help or support.
And so I expect that probably that their Belt and Road Initiative will continue implement. But the second side of this problem is the capabilities. We already said, you know, this year all we’ve seen actually the lowest fiscal revenue growth since 1987. And it projected that they are going to have very likely negative economic growth, and the fiscal revenue is—the deficit—the fiscal deficit will be close to $1 trillion. So there’s the issue that whether they have the resources actually to project that influence, although we have heard they have this—many of the provinces have already rolled out stimulus packages totaling around $10 trillion. And in Yunnan they actually have—this is close to Southeast Asia—they have this stimulus package that was about, I’m sorry, $0.8 trillion. So potentially this could be used to support this Belt and Road Initiative and reach out to other countries.
LEHR: Mmm hmm. Great.
Well, we’ve sort of reached the end of our discussion and are going to open it up for questions from the audience. And so we’ll turn it back to the operator to help handle the questions.
OPERATOR: (Gives queuing instructions.)
We will take our first question from Nick Turse.
Q: Yes. I want to thank all of you for conducting this today.
And I wanted to ask each of you to talk about what’s the most important lesson the United States can take away from Asia’s response to COVID-19?
SNYDER: Well, I’ll jump in here because I think that South Korea has proven to be an innovator that we’ve been pretty rapid to draw from—for instance, with the drive-in testing facility. And I think that South Korea has an opportunity to continue to contribute to post-COVID recovery best practices and may serve as a kind of model in other aspects for how the U.S. can move forward. But I would also say that as part of that, in the context of the Trump administration’s focus on burden sharing with South Korea, we need to more explicitly look at South Korea as a partner, rather than a free rider. And so I think that that is a very important shift, which is in some ways a prerequisite for continued goodwill and effective partnership between the U.S. and South Korea.
HUANG: Well, I’d like to—(laughs)—paraphrase Leo Tolstoy, you know, that every successful country’s all alike, and every unsuccessful country is unhappy in its own way. That I think for many of those countries that we consider successful examples in East Asia, as Scott just alluded to, right, they have all responded early. They have all been conducting extensive testing, tracking close contacts, doing isolation and quarantine measures, including also imposing the wearing masks, right, masks and social distancing measures. I think this might be—this could be something in common between all those countries.
I think for the United States, you know, it’s not that we don’t have that capacity, right? It’s just that I think—actually, if you look at the CDC, that is the gold standard bearer. And I think it’s just that our complacence, our—the politicians, you know, just failed to realize how serious the problem is, that really hurt us. And we pay for the price for that complacency and inaction.
KURLANTZICK: If I could just add that, I mean, I think Yanzhong just got at this, but I wanted to just add in, these countries are not in Asia, but I’ve been writing about them a fair amount, Australia and New Zealand to the mix. And just to make this point that a number of these countries that have been successful have apolitical leadership in a crisis, either because they’re an authoritarian state like Vietnam or China were opposition politics is not allowed. Now, that’s not to mean that that’s the reason why. Or, because like in Australia, New Zealand, and some of these other places, like Taiwan for example, the leadership has been apolitical.
The opposition party and ruling parties have worked together and collaborated with a bipartisan or a complete lack, a minimization of leadership. Federal and state, like in Australia, governments have worked together. And they have adopted best practices based on expertise. There also tends to be in a lot in of these countries where it’s been successful, including Australia and New Zealand, a high degree of social trust, of intra-social trust as well as a high degree of trust in political leadership. Whether that trust is created by authoritarian rule, which—whose legitimacy can derive from a lot of different sources, that’s not really the point. But all of those factors played huge roles in these places, including Australia and New Zealand. And you can ask yourself whether the United States has intra-societal trust, has had an apolitical response, one supported in a bipartisan way in a federal and state level collaboratively.
SMITH: Just to—you know, my colleagues have laid out a lot of factors, Nick, to answer your question. I think one of the things that’s been impressive to me—and, again, all of us probably here in the United States are implicitly comparing to what’s going on here versus what’s happening in some of the more successful countries that are, you know, geographically located in Asia. One thing that’s very obvious, though, is that there is a trust in science. And that’s the expertise part. That there is not a questioning that I’ve seen here on display among the politicians. But there is a trust, basically, in most of these societies—be it South Korea, Japan, New Zealand, Australia, right across the board, that science matters and that science contributes to public health decision making in a valuable way.
The other, I think across the citizenry of many of these countries you have an expectation of competency. Governments are expected to be competent. And when they’re not, they pay a price. And the debate in Japan today a little bit, the political debate and Prime Minister Abe’s falling rate of approval, is largely to do with that. It doesn’t have to do with whether he got it right specifically at this moment or that moment, but is he capable of managing this public health crisis? And I think, you know, Scott’s example about President Moon’s election speaks to the other. When you’re successful and competent—rather, when you’re competent, you’re successful at the polls. So I think citizens in many of these countries reward competency. And I think those two factors, both the science and the demand for competency from government, I think are pretty important in the countries that have succeeded. The leaders know it, that they need to get it right.
LEHR: Next question.
OPERATOR: We will take our next question from John Holden.
Q: Yes, good afternoon. It’s great to see you all.
My question has to do with the we can anticipate business reconnecting between the U.S. and China, given the fact that China is reluctant to allow foreigners into the country for fear or restarting the pandemic again. At the moment, American businesspeople are not allowed to come into China. And if they do come in, they have to be quarantined for two weeks, some say three. So looking ahead, is there any way to anticipate an answer to this question without knowing when the pandemic ends in the U.S.?
HUANG: Yeah. Thank you, John. I think, yeah, this is indeed a major concern here. You know, why I expect other countries actually to open to China, given that it’s already successfully brought down the cases, you know, and started the economic recovery. But China now actually essentially imposed their travel ban on all foreigners. You know, they are—there was—rumor has it that they’re starting talks with other countries, you know, on relaxing the travel ban. But I don’t know whether that means that China will itself lower the travel barriers. And I suspected that given its now utmost concern for the imported cases, we have to—I think this situation is very likely to continue through the fall, you know, before the virus becomes—I’m sorry—before the vaccines become available and mass distributed.
LEHR: Next question.
OPERATOR: Our next question comes from Lyric Hale.
Q: Yes. Hello. This is following on John’s question a bit, but primarily is for Josh. If COVID is really heat sensitive, and if international trade is on the process of de-Sinicization, and India continues to do smart things like offer land to companies who want to relocate, why won’t Southeast Asia big a huge winner? So just wanted to push back on this a little bit, because I think there could be some economic opportunities. Thank you.
KURLANTZICK: OK. Well, thanks for the question. I can’t answer the first question. I’m not a scientist. I was just raising the question that there—the evidence isn’t in one way or another whether it’s heat sensitive, and that we don’t really know. In fact, the most this goes on it becomes apparent to nonscientists that there’s a lot we don’t know.
From the U.S.-China trade conflict before some countries in Southeast Asia have benefitted somewhat. Like, Vietnam in particularly has benefitted from supply chains moving to Southeast Asia. But overall, I just think that you’re going to have a ton of devastated economies. You’re going to have massive rises in unemployment. Most of these places don’t have the ability to provide for people. Whether or not India is providing land—I mean, India’s interaction with Southeast Asia has never actually lived up to the potential that is often promised. But I don’t think that it’s going to make up for the huge blow to almost all of these—to all of these countries. And so I guess there could be some business opportunity there, particularly if there continues to be decoupling from China. But for now, I mean, most of the Southeast Asian economies are going to be in dire shape.
LEHR: Next question.
OPERATOR: We will now take our next question from Cedric Suzman.
Q: OK. Thank you. I wondered if you could comment on the response of the American companies that do business in the region, specifically what steps they’re taking to relocate suppliers and their own manufacturing across Southeast Asia, away from China dependence, and how that is playing out. Thank you.
KURLANTZICK: All right. Well, there has been—before COVID there was not just American companies but a whole range of multinationals were adopting China+1 strategies or exiting China completely in some fields, and looking to places in Southeast Asia, or South Asia, and other parts in the world, particularly, like I said, Vietnam, and some other places to some extent. And there are a number of economies in Southeast Asia, like Thailand for example, that where even if you wanted to move your supply chain, the factors are worse than they were ten years ago. The population’s older. The government hasn’t really invested heavily in higher-value areas, except auto and some others. So it’s not necessarily prepared to take advantage of shifting supply chains. But Vietnam benefitted. Indonesia’s benefitted somewhat.
But we have to balance that at the same time most of these countries in Southeast Asia are enormously dependent on their trade relationship with China. And so any disturbance to the overall trade relationship with China—this is all pre-COVID anyway—affects them as well. I don’t know what the effect is going to be on, say—of COVID on people moving supply chains or not. It might continue. It might not. It also might continue—it might be impacted by the state of the U.S.-China relationship. But other countries in the region, the one that had benefited the most was Vietnam, and the others have benefitted marginally from movement of supply chains.
HUANG: Yeah. Actually, just to follow-up on what Josh said. I can just use the pharmaceutical industry as an example because this is what the Trump administration has been highlighting, is the need for actually to move, relocate the API, active pharmaceutical ingredients, medical devices production back to the United States. You know, and just a concern about this rationale of doing that. Because certainly, you know, the United States, for example, actually has, like, 36 percent of those factories producing API is in the U.S. So you would expect it would scale up and might not be a big issue. But I told probably it’s going to take a decade actually to have all this industries completely relocated back to the states.
And secondly, when we talk about those concerns, right, we’re basically concerned about, well, what if there was major pandemic, epidemic, that is going to disrupt the supply chain, right? This is what is happening, you know, that they used it to argue against, you know, over-depending on China, you know, for APIs. But the thing is that when we are hit by a pandemic, every country is going to be affected, including the United States. So relocating that doesn’t really solve the problem. You are just going to be rearranging the deck floor of the Titanic, right, essentially.
And secondly, with the concern about the national security issues, that China might use that leverage against the United States, but at least as far as pharmaceutical products are concerned, so far we haven’t seen actually China use that as a leverage. In fact, they are actually doing all they can trying to maximize the production of the API support to resume the supply chain. The third issue is about the quality and safety of the Chinese pharmaceuticals. You know, that is indeed a concern. But shifting to other countries probably won’t solve this problem, because other countries, like India for example, that face a similar issue of drug safety.
Q: Thank you.
LEHR: Next question.
OPERATOR: Our next question comes from Stapleton Roy.
Q: My question is directed to Scott. I was stunned, Scott, by your statement that South Korea reports no new infection. This is so different from the American experience because we have now been in quarantine and maintaining distance for over a month now. And we are not seeing any results that approximate a curve that would take us to zero infections in a reasonable period of time. China for a period was claiming no new infections, and I think they’re still claiming only one or two, or scattered infections. You say South Korea has gone to zero. I don’t know what Taiwan’s rate of infection is, but that’s another example that would be worth looking at. But the discrepancy between the experience in Asia and the American experience is so great it suggests that there’s something missing in our understanding of the way that the virus is propagating itself. Could you comment on that, and maybe Yanzhong could add something on that.
KURLANTZICK: Sure. No, it is very interesting. I think it’s a testament to the success of the testing and tracing regime that South Korea pursued. And of course, one ingredient of that success was a very rapid public-private partnership to develop test kits in South Korea that enables the KCDC to be able to have availability of tests. And I think that also social adherence to the guidelines, actually based on the prior experience that South Korea had gone through in 2015, probably helped a lot for South Korea to kind of get a handle on this and find a way to get itself ahead of the curve.
And so those would—those would be two aspects, I think, that I would focus on related to South Korea’s experience. There may be others, but, you know, at this point I think that South Korea is regarding itself as having weathered the storm. They are reopening. I ask my friends in South Korea, when I talk to them on the phone, what it’s like to be on the other side of the curve. And I think the most important thing is this shows that there is a way to respond to the virus that doesn’t necessarily involve a complete government-enforced quarantine lockdown.
LEHR: Yanzhong, anything to add?
HUANG: Yeah. I think I’m glad that, Ambassador, you raised this case of Taiwan. You know, Taiwan should be I think also considered another example—successful example, so is Hong Kong—that we haven’t mentioned that. In fact, if you compare, like, Hong Kong with Singapore, I would say Hong Kong probably is more successful that Singapore in dealing with the outbreak. But they do have something in common. You know, that is they all reacted early. But they’ve all learned lessons from the 2003 SARS outbreak. But the Singapore, you know, saw this resurge of the cases, especially among the foreign workers, you know, because this is the—they failed to realize in this—because social determinants of health. But the Hong Kongers have been more, I think, prescient in the sense that they closed the schools. You know, they have been undertaking more drastic measures in containing the spread of the virus.
You know, you’ve had—I mean, the main reason is that we are facing a virus that is very different than the SARS outbreak. You know, this is highly transmissible. This is very pathogenic. You know, you have to rely on very drastic, very stringent containment measures. And China happened to get it right. You know, I’m not endorsing that approach. But it happened that they—this is the right approach in dealing with that kind of virus. So if you compare those East Asian countries, including Taiwan and also a region like Hong Kong, you know, whatever country that is able to be—to adopt more draconian, more stringent measure in containing the spread of virus is going to have to be more successful in handling outbreak.
LEHR: Great. Next question.
OPERATOR: We’ll take our next question from Paul Speltz.
Q: Just unmuting. Sorry.
Actually, Stape covered the questions—a couple of questions I was going to ask, and so did the others. And I want to start off by saying I congratulate all of you for a very well-done program here. Like everybody else, I’ve been tuning into a lot.
Let me just ask one question to Yanzhong. And that is, you know, the effect of everything that’s going on and so on. The world watches pretty carefully what’s going on between our State Department and the Chinese Ministry of Foreign Affairs, and the flying back and forth of some pretty unpleasant rhetoric. Do you have any suggestions about how to cool this off a little bit, so that we can cooperate better on this pandemic? (Laughter.) Sorry, that’s a big question.
HUANG: It is, actually. And I’ve been giving some thought about that, though I’m not sure whether I have any, like, pragmatic, realistic solutions to the problem. It is very clear, right, that this pandemic instead of bringing the two countries together, it’s actually setting us two further apart. And with, you know, the onset of this unprecedented pandemic, you know, the stage has actually been set for both sides to cast aspersions on the other. You know, and so we are going to—are going to—and in terms of the future of U.S.-China relations, I’m really—I’m not that optimistic. And especially if you consider that this Chinese—the government legitimacy, there are two pillars of the legitimacy.
One is basically economic—robust economic growth. The other is nationalism. You know, now that the economy is hit particularly bad by the pandemic, I think they’re very likely going to more rely on nationalism, you know, to beef up its legitimacy. And already, we are seeing, right, that in China, right, that not just the public but many of the intellectuals who used to be pro-American, you know, now have become more critical of the United States, and also lost their confidence, right, on the United States giving its—what it has in doing—in handling the outbreak.
And secondly, if you look at on the U.S. side, right, even under the Trump administration we know that this—you know, it leads into their—they have been on the same page, you know, in terms of reckoning that the engagement strategy. But, you know, until very recently the public was not mobilized against Trump, but this seems to be changing, again, because of the pandemic. The recent Pew survey said that—shows there’s a significant increase in this percent of people who show a negative opinion on China. You know, so I don’t really have any solutions, you know, to this knot of the U.S.-China relations looks like. We are not going to see probably fundamental change in terms of geoeconomic power shift, but China’s relationship with the rest of the world very likely could be fundamentally changed by the pandemic.
SMITH: Can I add to Yanzhong’s point here? I think it’s a very important one that we recognize, is it’s not only the deterioration, as Paul said, of the China-U.S. relationship, but it’s also the spillover effects that we’re going to see with other countries around the region. I think, you know, Japan has its strategic concerns about China, and its use of power—especially military power. And Abe and President Xi were just trying to build their way back to a more healthy relationship when the summit was derailed by the pandemic.
But I do think a lot of countries around the region are looking at us, and how we’re managing this pandemic. And especially by the kind of pull up the drawbridges, you know, take away funding from the WHO, play the blame game with China. I think it’s making a lot of countries around the region, even our closest allies, very, very nervous about how we are going to manage our strategic rivalry, or at least strategic balancing act with China going forward. And you know, so many countries—Japan, South Korea, countries in Southeast Asia as well—depend on the stability of the strategic setting in Asia for their economic well-being. And, again, even our closest allies I think are looking at this rhetorical flourish brought on by the pandemic, in a very—see it as a very worrisome sign about the future.
LEHR: Well, I think it’s not just in the region there, but also in other parts. In Europe, the Middle East, Africa as well. So yes. Exactly. Anyone else like to add to the point before we go onto the next question? Yeah, OK. Next question, please.
OPERATOR: We’ll take our next question from Ko-Yung Tung.
Q: Hi. This is Ko-Yung Tung from Harvard Law School. First of all, thank you very much for your overview from the Asia perspective.
I have a question. I think it’s specific to Josh, probably. This is the flipside of the question that Deborah had first asked, which had to do with the turn, especially in the United States and perhaps in other countries, of criticizing China for its slow start and its non-transparency. And the question is whether or not there is this COVID diplomacy, so to speak, of China trying to help out countries, particularly in Southeast Asia, with the PPEs and maybe vaccines in the future, so that they would win the minds and hearts of the Southeast Asians.
KURLANTZICK: Well, I think Yanzhong can probably speak to this a little bit better in other places, but, I mean, China has been using this diplomacy not just in Southeast Asia. They’ve been providing PPE to other countries, like Iran, including Spain. There’s been some problems with some of the PPE. But yeah. I mean, I think in Southeast Asia there is the—China has definitely tried to utilize this in several ways, providing assistance, not just PPE but other types of assistance. And in South Asia, they provided contingency loans to Sri Lanka.
There is among Southeast Asian countries the same, you know, concern or anger at China’s lack of transparency at first, as there is everywhere else. So there is going to be some degree of reckoning with that everywhere. Right now most of the leaders in Southeast Asia are consumed with their own domestic problems. But I think many of them harbor the same concerns and you would have them expressed by Trump administration, foreign secretary of Britain, Emmanuel Macron, et cetera, that this originated and there was a lack of transparency. But Southeast Asian states, other than Vietnam and Singapore, are not going to publicly express that ever.
Well before COVID, Southeast Asian countries had moved in a significant direction that, other than Vietnam and Singapore, they’re not allying with China—although, I’d say Myanmar, Laos, and Cambodia are essentially in China’s orbit at this point. But the Duterte administration has clearly—had already clearly broken from one hundred years or, at least, you could say, since an independent Philippines emerged, of the relationship with the United States. They haven’t—they’ve gone—had already gone close to essentially formally abrogating the alliance. Not formally, but the measures that Duterte had taken had, I think, moved away from the U.S. in various ways.
So this cycle’s already gone on for a number of years. And I think the recriminations against China you’re seeing in the U.S., you will see in other countries because of the initial lack of transparency, like I said, are there in Southeast Asia, but they’re going to be minimized. And China’s diplomacy—it’s not necessarily diplomacy, but just simply the reality of how dependent most of these countries are and how strategically dominant China is in the region, it’s not going to go away.
LEHR: Well, unfortunately we have come to the end of our time. Just keeping this on track. I think it’s a discussion that we could continue on for a long time, as there’s still so many issues to cover. But it was a very nice snapshot, I think, of what’s happening in Asia, and the dynamics between the U.S. and China in the region as well. So many thanks to all our panelists. We really appreciate you taking the time this afternoon to join us on the webinar. And to all of those of you watching and listening, we really appreciate you being with us. On behalf of the Council on Foreign Relations, many thanks.
SMITH: Thank you, Deborah.
HUANG: Thank you, Deborah.