As Covid-19 dominates global headlines, it is easy to lose track of other news and developments. Here are some of the issues that Access Asia Group has been following in Southeast Asia under the shadow of Covid-19.
Vietnam – United States ties
In a time of diminishing ties between the United States and the Association of Southeast Asian Nations (ASEAN), one ASEAN country is seeing a clear boost in bilateral relations with Washington: Vietnam. In early March, the U.S. Navy aircraft carrier Theodore Roosevelt docked in Danang, the second American naval vessel to make a port call since the Vietnam War. “[This] constituted both a boost to the defense aspect of the relationship as well as a visible symbol of American regional presence, which is rare for a non-U.S. allied Southeast Asian state to support,” The Diplomat reported on the visit.
Economic ties between the former foes have also been strongly improving. However, with Washington’s decision in February to delist Vietnam as a “developing country”, trade tensions could worsen as the move gives the U.S. more clout to investigate whether Vietnamese export subsidies hurt U.S. industries. President Donald Trump has made Vietnam’s massive trade surplus with the U.S. a key issue in relations, and Hanoi has repeatedly signed new import deals over recent years to reduce the surplus. But as Vietnam’s economy faces downward pressure from the global recession caused by the COVID-19 pandemic, exports will become even more important, and it is most probably that Vietnam’s trade surplus with the US will rise again, to Trump’s frustration.
Positively for Vietnam, the China-U.S. trade war has also been hastening the movement of business south from the People’s Republic of China (PRC) to Vietnam, with big tech names such as Samsung, Nintendo and Google relocating parts of their production to Vietnam and others such as Apple expected to follow suit.
As Access Asia Group previously reported here, one certainty looking ahead, however the coronavirus supply-chain crisis plays out globally, businesses are going to look for alternatives to putting “all their eggs” in the basket of the PRC. Vietnam has been the go-to destination for PRC-disinvestment and that trend can now only accelerate.
South China Sea
Tensions have been ramping up in the South China Sea since December, when China engaged in a standoff with Indonesia, a rival claimant to territory in the waters but typically quiet about its claims. The following month, Chinese fishing vessels and their accompanying militia squared off against Malaysian vessels, another typically hesitant claimant. As always, tensions remained high between China and Vietnam, the most forceful rival claimant to territory in the waters. For much of last year, Chinese surveillance vessels harassed Vietnamese oil-drilling exploration efforts near the Vanguard Bank.
Analysts expect Beijing to ramp up its activity in the South China Sea, now that the world’s attention is focused on the COVID-19 pandemic and rival Southeast Asian claimants are distracted by critical domestic problems. On March 20, Chinese media reported that China had built two new research stations on Fiery Cross and Subic Reef, two of its man-made islands in the South China Sea.
Regional states should worry about Beijing’s motives. The COVID-19 outbreak in China has greatly dented the reputation of the ruling Chinese Communist Party (CCP) at home and abroad, and in times of crisis Beijing can always fall back on whipping up nationalism, as the CCP predictably does when confronted with potentially destabilizing events. Beijing likely also perceives weakness in the U.S., which has come to defense of countries like Vietnam.
In January, when political and business leaders gathered in Davos for the World Economic Forum, it seemed the world’s greatest threat was climate change. COVID-19 came along, however, proving itself to be a far more urgent and tangible threat. But in Southeast Asia, climate issues remain pertinent.
Much of Mekong region is currently experiencing yet another drought, after low rainfall last year pushed the agricultural sectors in Cambodia and Vietnam to breaking point. Earlier this month, several provinces in Vietnam’s southern Mekong delta, its rice-bowl, declared a state of emergency after months of drought. Vietnamese authorities asserted that 33,000 hectares of rice fields had been damaged and nearly 70,000 households were suffering from lack of water.
Droughts are expected to become regular occurrences in the coming years, and have only been exacerbated by dam building on the upper stretches of the Mekong river in Laos and China. In early March the Cambodian government agreed to suspend new hydropower dam projects for the next 10 years, a sensible move given the environmental costs, but also because future droughts are likely to limit the generating capacity of such dams. Last year, parts of Cambodia experienced months of blackouts as low water levels caused their hydropower dams to stop running.
The COVID-19 pandemic has mutated from a global health concern into a global economic crisis. The Economist Intelligence Unit recently predicted global trade will grow by just 0.4 percent this year, compared to its previous estimate of 2.3 percent made before the pandemic. Other economists warn the world is already in a recession and might not emerge from it until early next year.
For Southeast Asia, this is dire. Singapore and Thailand will be lucky to record any positive growth this year, while the likes of Vietnam, Cambodia and Malaysia are likely to suffer their worst growth rates in decades, according to current forecasts by ratings agencies such as Moody’s. Expect an economic crisis in the region far worse than after the 2008 financial collapse, and perhaps worse still than the 1997 Asian financial crisis.
But, for many states, the pandemic has laid bare pre-existing economic symptoms. As Singapore marks the fifth anniversary of the death of its “founding father” Lee Kuan Yew, it is gripped by major economic problems. GDP growth slumped to just 0.7% last year, from 3.1% in 2018. This can be attributed, at least in part, to the U.S.-China trade war, but it also exposed Singapore’s reliance on international trade.
Economic stagnation has also revealed problems of governance. The People’s Action Party (PAP), in power since Singapore was founded in 1965, must call an election by April 2021, and could face a real challenge from a new PAP splinter party, the Progress Singapore Party, which has the support of Prime Minister Lee Hsien Loong’s estranged brother, Lee Hsien Yang. (Both are engaged in a public spat over the estate of their late father, Lee Kuan Yew).
Thailand’s economy was also under threat before the pandemic. Like Singapore, it has an aging population. Last year its economy grew by just 2.4%, one of the lowest rates in years. Bangkok will be lucky if it doesn’t slide into recession in 2020. Poverty rates have risen since 2014, from 7.21% to 9.85% between 2015 and 2018, according to the World Bank, while the middle class is also suffering. Most of its economic woes stem from natural decline, as it struggles to move up supply chains to higher-end manufacturing, and as it loses its once preponderance in mainland Southeast Asia because rivals, like Vietnam, are going from strength to strength.
But many economists chart the economic slump to the 2014 military coup, which ousted a democratically-elected government. Now Prime Minister Prayut Chan-o-cha and his military-cum-civilian government, elected last year, are proving incompetent at economic management, and even repeated stimulus packages and populist bailouts haven’t turned things around. The Covid-19 crisis will only worsen the situation in Thailand.