A Return to Form in North Korea?

COVID–19 in South Asia; South Korea’s legislative elections; Asian currencies

The Big One.

Kim Jong Un gets back to missile testing.

As the rest of the world watches  with horror as the COVID–19 pandemic spills across borders, claiming hundreds of lives each day, North Korea has sought to project an image that it’s all business as usual in the country. To underscore that point: March 2020 marked the single busiest missile testing month in the country’s history, with eight separate missiles launched over four events. After a lull in missile testing through December, January, and February, Kim Jong Un made sure that national defense preparations returned to their usual springtime intensity.

In the Kim Jong Un era, March has usually meant a step-up in missile and military activity from North Korea in general. Before 2018, this was usually a tit-for-tat reaction to the U.S.-South Korea springtime exercises, formerly known as Key Resolve and Foal Eagle. In 2020, the alliance called off its springtime drills as South Korea faced a reckoning with COVID–19. 

To be sure, North Korea has not brushed off the pandemic. Indeed, not long after the outbreak in China’s Hubei province, North Korean state media was frank in describing the then-epidemic as a threat to the country’s “national survival.” Senior North Korean officials—but not Kim Jong Un—were photographed wearing face masks in the course of their regular duties. By the start of March’s military activities, Kim was surrounded by Korean People’s Army officers clad in face masks, indicating that COVID–19 lingered in the background of this seeming return to military normalcy: the message was that even the pandemic would not deter North Korea from maintaining military readiness.

By the final missile tests of March, the face masks were gone and North Korea was projecting that it had overcome the pandemic. This is unlikely to be true, even as the country has yet to declare a single confirmed case of the virus (either due to propaganda concerns, or simply because it lacks the diagnostic capacity to do so). In an interview with Voice of American and CNN on Thursday, General Robert Abrams, the commander of U.S. Forces Korea, said he thought that North Korea was making an “impossible claim.” He said that U.S. intelligence suggested that North Korea had cases of the virus, just like every country in the region. He added the following:

I do know by their actions that for about 30 days in February, early March, that their military was locked down. And they took draconian measures at their border crossings and inside their formations to do exactly what everybody else is doing, which is stop the spread.

That matches other known evidence. In January, for instance, satellite imagery suggested that North Korean troops were preparing for a probable February 8 military parade—as they had done in 2018. That parade could have been a moment to celebrate the hard-line policy laid out by Kim Jong Un at the Fifth Plenum of the 7th Central Committee of the Workers’ Party of Korea in December 2019, but it was promptly called off as the country went into a lockdown over COVID–19, including by closing its borders and preventing all travel in and out of its borders (result in, among other things, a total collapse in its exports to China, as Troy Stangarone discussed in The Diplomat recently). Indeed, North Korea’s COVID–19 containment efforts are going to be the closest thing to a natural experiment in what “maximum pressure” might actually like.

As April begins, North Korea has turned its attention back toward the United States, taking aim at Secretary of State Mike Pompeo for his statement after a G7 foreign ministers call that the countries should remain united against North Korea—and that sanctions relief should only be offered up for total denuclearization. A recent Foreign Ministry statement out of the country promised “payback,” suggesting that Pyongyang could step up its provocations to even transgress what has long been seen as a “red line” for U.S. President Donald J. Trump: the resumption of either long-range missile or nuclear weapons testing. Pyongyang may sense a weakened United States, distracted by the spread of COVID–19 within its own borders. In an incredible development, the country’s state television featured footage of White House press briefings on the virus situation in the United States.

All of this raises the question of how North Korea is likely to play its cards between now and the November U.S. elections. Kim Jong Un has already teased a “new strategic weapon”—something that might be shown off with a test or perhaps at an October 10, 2020, parade to commemorate the 75th anniversary of the founding of the Workers’ Party of Korea. Even as much remains unclear about how the country is faring internally with COVID–19, Pyongyang appears determined to signal that everything remains on track. As the same statement that bashed Pompeo last month put it, North Korea is determined to continue to go its “own way.”

Bottom Line: Pyongyang is pushing ahead with military testing and development, even as COVID–19 seizes global attention and energy.

Don’t Miss It: On the latest episode of the Asia Geopolitics podcast, my co-host Prashanth Parameswaran and I talk about North Korea’s busy March and what might lie ahead for the country. As always, if you like the podcast and have suggestions for future episodes, please get in touch.

Diplomat Risk Intelligence.

I’m excited to introduce a new offering from The Diplomat. Diplomat Risk Intelligence is the new consulting and analysis division of The Diplomat, the Asia-Pacific’s leading current affairs magazine. To learn more, click here.

East Asia.

On April 15, South Koreas will vote in the country’s 21st legislative election. While President Moon Jae-in won’t be on the ballot, these mid-term legislative elections are widely seen as an opportunity for South Korean voters to offer a referendum on the president’s performance by rewarding or punishing their party. Moon, having successfully “flattened” South Korea’s COVID–19 curve in recent weeks, may find himself forgiven by voters who had earlier been angered by the South Korean president’s early reaction. 

But this won’t be an election solely about COVID–19. South Korean voters have long been concerned about the state of the country’s economy, job creation, and North Korean policy as well (particularly in 2018 and 2019, as Kim Jong Un had embarked on a diplomatic charm offensive).

Campaigning for the upcoming elections began this week, as Jenna Gibson reports. “With only 14 days of campaigning allowed by law, the ruling Democratic Party is hoping to capitalize on the political momentum from the government’s largely successful coronavirus response to retain a plurality of seats in the legislature,” she writes. 

Even as the election isn’t about COVID–19, the pandemic will affect turnout and voter participation in unpredictable ways. South Korean authorities are making arrangements to allow for greater democratic participation by vulnerable groups. Critically, due to the spread of the pandemic around the world, many overseas Koreans will be unable to cast votes because their polling stations won’t be accessible as the pandemic reaches new heights in the United States and Europe (for example).

The world is learning several lessons from South Korea’s experience with COVID–19 and, depending on how the upcoming elections go, Seoul may yet have lessons for other countries that would hope to hold elections amid this pandemic. Singapore, with a general election anticipated in the coming months, may be watching closely.

Bottom Line: Moon Jae-in faces an important mid-term referendum in South Korea’s upcoming legislative elections.

Data points: With the World Bank calling for debt relief for low-income countries amid the economic hardship that is already emerging from COVID–19, researchers find that China, in particular, may have an important role to play in easing debt burdens. New research from the Center for Global Development finds that “China’s role as a creditor has likely been a key driver of more burdensome lending terms in the form of higher interest rates, shorter maturities, and shorter grace periods.” As a result, Beijing should “reconsider its approach to lending in LICs and demonstrate greater sensitivity to debt risks”—including COVID–19.

Intelligence and the pandemic: U.S. intelligence sources have told Bloomberg News that their assessment is that China is substantially concealing the true extent of its own COVID–19 outbreak, with the propaganda apparatus in the country having turned toward a narrative of successful containment. The implications of understanding the true epidemiology of the disease within China has important implications for public health efforts elsewhere. At The Diplomat, Scott Romaniuk and Tobias Burgers look at China’s COVID–19 statistics and their reliability.

South Asia.

Generic drugs have emerged as a point of contention between India and the United States. New Delhi has turned inward, restricting the export of these drugs that could come into high demand depending on what treatments are prescribed for the management of COVID–19 symptoms. Trump administration officials have reportedly officially asked the Indian government to lift restrictions. The matter could turn into a major sticking point in U.S.-India ties in the coming weeks as demand for COVID–19 treatments grows. More broadly, it underscores yet another supply chain complication arising from the pandemic’s rapid spread. There are policy solutions for the United States, including creating incentives for domestic drug manufacturers, but the Indian export restrictions will continue to be a point of focus in bilateral talks.

Don’t Miss It: On a recent episode of Asia Geopolitics, Prashanth Parameswaran and I take a look at how various South Asian countries have individually reacted to the COVID–19 pandemic and the potential for regional cooperation (through the South Asian Association for Regional Cooperation, or SAARC, which held an emergency meeting).

Asia Defense.

COVID–19 and Asia’s flashpoints. My colleague Prashanth Parameswaran contemplates the possible conflict that might arise in Asia’s many flashpoints as a result of COVID–19 in The Diplomat. Might the pandemic mark the end of the region’s so-called “long peace”? “While Asia has seen so-called ‘long peace’ since 1979 – a term often loosely used in order to characterize the steep decline in inter-state conflict relative to the past (which, notably, does not include intra-state conflict or tensions) in the region since that time – the region is still home to some key flashpoints, with the most prominent ones being North Korea, the East and South China Seas, and tensions across the Taiwan Strait, along with other unresolved territorial and maritime disputes as well that are less in the spotlight.”

Lasers and more. Patrick M. Cronin and Ryan D. Neuhard write in The Diplomat on China’s growing military use of lasers: “Beijing is leveraging lasers and other emerging technologies to expand and police its offshore sphere of influence and keep American and allied naval power at bay. The Chinese Communist Party (CCP) finds it insufficient to fabricate law with expansive nine-dash line claims and coerce others the old-fashioned way via ramming and gunboat diplomacy.”

Extras. 

Don’t miss issue 65 of The Diplomat‘s e-magazine, which is fresh off the presses for subscribers. 

This month, we look at the prospects for an elusive peace one year after the the long-awaited Mindanao deal took effect in the Philippines. We also talk with Bruneians to see how Sharia law has impacted daily life, preview what’s at stake in South Korea’s upcoming elections, and explore the new high-tech controls China rolled out to fight the COVID-19 pandemic. And, of course, we offer a range of reporting, analysis, and opinion from across the region.

This newsletter is written by Ankit Panda, senior editor for The Diplomat, and director of research at Diplomat Risk Intelligence. Please do feel free to reach out with comments, tips, and feedback at ankit@thediplomat.com and follow me on Twitter at @nktpnd and The Diplomat at @Diplomat_APAC.

Peace Is Easier Said Than Done in Afghanistan

The U.S.-Taliban ‘leap day’ deal is proving difficult to see through, even as the Afghan government tries to move forward.

The Big One.

Afghanistan has several challenges ahead.

Afghan President Ashraf Ghani opens his coat to show he’s not wearing a bulletproof vest after rockets were fired at his inauguration in Kabul last week.

Along with much of Central Asia, Iran, and parts of the Middle East, Afghanistan celebrates the Nowruz New Year festival this week. Nowruz is a time to celebrate springtime, rebirth, and new beginnings. In the aftermath of the historic February 29 U.S.-Taliban deal, it certainly has felt as if Afghanistan is due to see the start of a new era in its history. Taliban leader Mullah Abdul Ghani Baradar sat down next to Zalmay Khalilzad, the U.S. peace envoy, in Doha, Qatar, that day and the two signed an agreement that appeared to hold the key to ending almost 19 years of continuous war. 

If you missed it, the contours of the deal are fairly straightforward, even if the details are not. The United States has agreed to gradually withdraw its forces in Afghanistan over a period of 14 months provided that the Taliban prevent terrorist groups, including al-Qaeda, from using territory under their control to stage operations or attacks. 

The Afghan government, which wasn’t party to the deal, has assented to its existence, but what has become clear in the three weeks since the signing ceremony is that implementation won’t be easy. While the United States might be able to leave Afghanistan, the Afghan people themselves might not find the peace they seek too easily.

Two major issues deserve attention. The first pertains to a prisoner release that had been agreed as part of the deal. One of the reasons the Taliban agreed to the February 29 pact was because it included a provision for the release of up to 5,000 prisoners held by the Afghan government. 

Kabul has been circumspect about this provision, with President Ashraf Ghani initially reticent about releasing any prisoners, but eventually agreeing to release 1,500 in a staggered manner. One logjam now is that Ghani refuses to budge further until the Taliban begin talks in good faith with the Afghan government; the Taliban have treated this as a no-go. Read The Diplomat‘s Catherine Putz on the U.S. approach to bridging this gap.

Meanwhile, violence persists in Afghanistan, even if it isn’t directed by the Taliban at U.S. forces to keep the February 29 deal mostly intact. In the first few days after the signing, dozens of small-scale attacks carried out by Taliban fighters against Afghan forces took place, raising concerns that the group might have opportunistically used the opening with the Trump administration to engineer an American withdrawal that would leave Kabul more vulnerable than ever. Even as the United States was talking to the Taliban in the past, it was able to provide Afghan forces with close air support, intelligence, and operational assistance. Once withdrawal occurs, that much won’t be possible. Critics of the American deal with the Taliban have drawn parallels to the Nixon administration’s deal with North Vietnam, fearing a “Fall of Saigon” moment in Kabul in a matter of a few years, if not sooner, if the Taliban are able to overwhelm Afghan forces.

The Afghan government is under tremendous pressure to find a way to best manage its interests after the February 29 deal. What is looking clearer is that the Trump administration is ready to wash its hands of Afghanistan, hoping to file away the Leap Day Deal as a major foreign policy success—perhaps even something that can be touted in an election year. Trump had once promised as a presidential candidate to end U.S. overseas entanglements and keeping this deal alive will be presented to his base as a delivery on that promise.

For the Taliban, all of this presents a tremendous opportunity. If the group is able to avoid missteps that would assuredly invite an American rethink of the February 29 deal (such as a major, high casualty attack on U.S. and NATO forces), it might see great opportunity. The Afghan government continues to face several vulnerabilities as well, including the growing specter of a serious COVID-19 outbreak in the country and the lingering legitimacy crisis arising from the parallel presidential inauguration undertaken by former Chief Executive Abdullah Abdullah (who was deemed to have lost the September 2019 presidential election according to the country’s election commission). 

If March 2020 marks a new start for Afghanistan, it certainly doesn’t appear to be all that auspicious.

Diplomat Risk Intelligence.

I’m excited to introduce a new offering from The Diplomat. Diplomat Risk Intelligence is the new consulting and analysis division of The Diplomat, the Asia-Pacific’s leading current affairs magazine. To learn more, click here.

COVID-19 around Asia.

The Diplomat has featured excellent analysis and commentary on the rapidly developing COVID-19 crisis around Asia and the world in recent weeks. Below, I highlight some of the stories you might have missed elsewhere on how COVID-19 is affecting several Asian countries.

Nepal and COVID-19.

Brabim Karki, writing from Nepal, notes the disastrous economic effects COVID-19 is likely to have on the small Himalayan country. Nepal was relying on its tourism sector to boost overall GDP growth—a bet that appears to have been entirely lost now with COVID-19 shutting down tourist demand the world over:

Service industries like tourism and hotels are being hit especially hard. Tourism was expected to drive Nepal’s economic growth and contribute greatly to the high growth target of 8.5 percent that the government had set for this year, but this industry tends to have little financial cushion. The contribution of the tourism sector to Nepal’s economy stood at 7.9 percent in 2018, according to the report prepared by the World Travel and Tourism Council, which represents the private tourism industry and counts more than 200 company members.

Karki also writes on a couple other consequences, including the lack of Chinese workers traveling to Nepal to work on major infrastructure projects that Kathmandu had earlier agreed onwith Beijing. He also comments on the drop in remittances to the country as overseas Nepali workers are unable to continue working. 

COVID-19 and Southeast Asia.

The Diplomat’s David Hutt comments on the political effects of COVID-19 in Southeast Asia—particularly as the region’s overall problem with the pandemic is likely to grow worse in the coming weeks. Vietnam is notable as a regional outlier; Hutt argues the country learned something from its botched handling of the 2016 toxic spill of chemicals from the Formosa steel plant: 

So far, the Vietnamese Communist Party has been uncharacteristically transparent during the crisis, perhaps learning from its past mistakes, like during the Formosa toxic spill in 2016. But it has also stuck to its usual repression, harassing those who allegedly spread “fake news” and voice their criticism. One imagines, however, that repression will trump openness if the number of COVID-19 cases spikes in Vietnam and elsewhere in the region, especially if more locals become infected, and if healthcare systems feel the strain.

Elsewhere in the region, the political approach taken to managing the crisis is likely to mirror that favored by the Chinese Communist Party, including the probable suppression of public criticism:

Cambodia Prime Minister Hun Sen, who has fudged and fumbled his way through the crisis since January, has lashed out publicly at anyone who criticizes his government’s handling of the situation or complains about the dire state of Cambodia’s healthcare system. Malaysia now has a new government, after the more liberal Pakatan Harapan coalition fell apart last month, and the new ruling coalition is less likely to respect issues like free speech. Indeed, it has even suspended parliament until May. Philippine President Rodrigo Duterte doesn’t need an excuse for repression, while Thailand and Myanmar’s commanding militaries will instinctively strike if they sense rising dissent.

China goes official with conspiracies.

I commented last week on the remarkable centralization of conspiracy theories in China’s official narrative-building about the COVID-19 pandemic. In an attempt to detract from the origins of the virus within China’s borders, the Chinese Ministry of Foreign Affairs’ new firebrand spokesperson, Zhao Lijian, took to Twitter (on his personal account) to imply that the virus may have been brought to China by the U.S. Army—a baseless conspiracy theory. Zhao is no stranger to controversy, having built himself a large Twitter profile when posted to Pakistan as the deputy chief of mission at the Chinese embassy in Islamabad. Now, he’s taken a prominent role as the voice of Chinese diplomacy, bringing an acerbic tone to Beijing’s diplomatic messaging.

Zhao’s conspiracizing can be understood in the context of a broader attempt by China to distance itself from the disease—a trend that began before Chinese President Xi Jinping declared victory over COVID-19 in Wuhan, the central Chinese city that was the epicenter of the global outbreak:

In the weeks preceding Xi’s moment in Wuhan, official Chinese propaganda channels had started to raise the notion that the disease may not have originated within China. On February 27, Zhong Nashan, a Chinese scientist involved in Beijing’s national response, suggested the following: “Though the COVID-19 was first discovered in China, it does not mean that it originated from China.”

Over at Axios, Bethany Allen-Ebrahimian has constructed a helpful timeline of the Chinese Communist Party’s handling of the COVID-19 outbreak). Meanwhile, the Wall Street Journal, earlier this month, published a meticulously reconstructed account of some of the earliest cases in Wuhan and how they were managed by local Chinese authorities before it became clear that China had a major crisis on its hands.

COVID-19: Lessons from South Korea.

One of the most-read articles published by The Diplomat in the last month is Justin Fendos’ look at the “good, bad, and ugly” of South Korea’s COVID-19 management. Seoul’s success in mitigating and containing the pandemic within its borders has received global applause since Fendos’ piece, but his reflections on why South Korea succeeded—despite challenges—is well worth a read:

In simple terms, containing an outbreak is about identifying and quarantining infected individuals as quickly as possible, preventing them from perpetuating viral transmission. In this process, the first and most important component is having a standard operating procedure (SOP). As the Iranian outbreak has shown, there are many countries without functional SOPs, making an organized response much more difficult. Even the United States and Japan are exhibiting varying levels of confusion, making me worry they too may lack actionable containment plans.

With South Korea’s planned assembly elections now weeks away, Fendos laments the politicization of the crisis within South Korea:

As a scientist volunteering to maintain SOP compliance at the local level, I am extremely disappointed by this politicization of the outbreak. I can say with some authority that the negative coverage has started to make my job, and the jobs of my many colleagues, more difficult. Seniors, the demographic most likely to support the [opposition] United Future Party and most likely to die from COVID-19, have recently started citing Moon’s “incompetence” as an excuse to dismiss or question SOP procedures, making everyone less safe and containment of the virus unnecessarily more challenging.

The Moon administration’s response has largely been met with approval, despite initial criticism of the South Korean president for not implementing a travel ban on Chinese travelers. A larger problem will lie ahead for the administration—like so many others around the world—when the economic crisis of COVID-19 becomes fully apparent. Troy Stangarone writes on the upcoming economic crisis in South Korea as a result of the COVID-19 crisis; managing the crisis will require bold fiscal and monetary responses.

A turn toward cybercrime from North Korea amid COVID-19? 

Writing originally for the Pacific Forum, Todd Wiesel comments that the North Korean regime, feeling the economic crunch of a total shutdown on trade with China, will turn to audacious cybercrime to raise funds this year to sustain its activities: “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 North Korea’s past behavior, national security leaders should be less concerned about military action and focus their attention on shoring up their cyber defenses.”

The country has yet to acknowledge any confirmed cases of COVID-19 within its borders, even as it purports to take the matter seriously as a question of “national survival,” according to state media accounts. Last week, General Robert B. Abrams, the highest ranking U.S. military officer in South Korea, told journalists that he was “fairly certain” that COVID-19 had spread into North Korea despite Pyongyang having declared zero confirmed cases to date.

Extras.

If you’re unlucky enough to find yourself in self-isolation these days, you might be interested in a couple of our recent podcast discussions. Prashanth Parameswaran and I have two new recent episodes. The first, picking up on some of the thoughts I shared in the last edition of this newsletter, focuses on the geopolitical and economic consequences of COVID-19 globally and in Asia. We spend some time discussing the particular blowback that the pandemic might have for the U.S.-China great power relationship. 

A second podcast covers recent developments in the implementation of the U.S.-Taliban February 29 peace agreement and the recent political tumult in Malaysia, which has seen a dramatic change in government after the collapse of the Pakatan Harapan coalition government that suddenly came to power in 2018.

If you’re an iOS or Mac user, you can also subscribe to The Diplomat’s Asia Geopolitics podcast on iTunes here; if you use Windows or Android, you can subscribe on Google Play here, or on Spotify here.

This newsletter is written by Ankit Panda, senior editor for The Diplomat, and director of research at Diplomat Risk Intelligence. Please do feel free to reach out with comments, tips, and feedback at ankit@thediplomat.com and follow me on Twitter at @nktpnd and The Diplomat at @Diplomat_APAC.

‘This Is Not a Drill’: COVID-19’s Economic Fallout

Is the COVID-19 economic malaise about to get worse before it gets better?

The Big One.

COVID-19 and the specter of a global economic crisis.

Image result for coronavirus economy

“This is not a drill. ... This is a time for pulling out all the stops.”WHO Director-General Tedros Adhanom Ghebreyesus, March 5, 2020.

This issue of the newsletter will be a little different than previous ones. I want to take some time to talk about the global spread of COVID-19, the disease caused by the novel coronavirus known as SARS-nCoV-2. I should start by stating that no one really knows exactly how bad things are going to get; given this, the answer is not to give in to widespread panic, but to think carefully about managing risk under conditions of uncertainty.

Anyone exposed to Asia—and also U.S. equity markets—may be asking about what exactly is driving both a) a significant downward correction that may be pointing toward a recession, and b) sharp volatility. The last time this newsletter addressed SARS-nCoV-2, it was still being treated as a localized epidemic in China; the “COVID-19” coinage hadn’t arrived and even more remained unknown. A consequence of how the virus was covered initially was that global investors mainly anticipated supply-side shocks in China. This was far from insignificant; despite trade war manufacturing hedging, China remains the world’s factory by and large. As a small bit of respite, the initial outbreak preceded the Lunar New Year Holiday, a time of depressed factory productivity anyway. It appeared that the market saw the added burdens of COVID-19—even with the dramatic shutdowns affecting Hubei province—as an adverse event that could largely be weathered by the world’s largest China-exposed companies.

But it quickly  became clear that COVID-19 was trending toward the worse end of possible scenarios. Even as the WHO remains cautious about declaring the disease a pandemic, it is looking increasingly like the disease may have the potential to become the sort of once-in-a-100-years public health shock that sinks unprepared businesses. Billionaire philanthropist Bill Gates, writing in the New England Journal of Medicine, noted that “Covid-19 has started behaving a lot like the once-in-a-century pathogen we’ve been worried about.” He counsels that evenwithout knowing the full extent of the virus’ ability to cause real damage to human life and health—questions persist about its CFR, or case fatality rate—governments and businesses should be treating it like an epochal event.

Beginning in the final week of February, this appeared to sink in across the world. In economic terms, it became clear that COVID-19 wasn’t just going to be a contained supply shock, limited to China, but that it was going to be an unrestricted shock to interlinked global supply chains and an even less restricted shock to global demand. As the virus arrived quickly and with devastating consequences to European and American shores and panic set in worldside, it became clear that the fundamental human behaviors that underpin all “normal” economic demand would be upended. That’s why the U.S. stock market quickly shed more than 12 percent of its nominal value by the end of February and why a recovery appears to be a distant prospect at the moment.

In the midst of all this, it looks like monetary policy is not an answer to assuaging investor concerns because, fundamentally, the price of money is not the issue. The U.S. Federal Reserve’s surprise rate cut of 50 basis points—the first since the financial apocalypse of 2008—thus had little to no effect on confidence, but instead took the U.S. closer to a negative interest rate policy, leaving the Fed with little room to maneuver if and when the COVID-19 panic stabilizes. In many ways, the Fed’s move appears to have signaled to investors that the U.S. Central Bank—whose mandate, incidentally, is not concerned with the nominal value of stock indices, but with unemployment and inflation—expects COVID-19 to cut at the fundamentals of the U.S. economy. The Federal Open Market Committee observed—in a somewhat tone-deaf manner—that even as the “fundamentals of the U.S. economy remain strong … the coronavirus poses evolving risks to economic activity.” Clearly, the scale of coronavirus panic has affected the most fundamental element of the U.S.—and global—economy: human confidence and demand.

That much appears to be apparent to the Bank of Japan’s governor, Haruhiko Kuroda, who took a decidedly bleak tone this week. Tokyo’s been facing off with SARS-nCoV-2 for a little longer than the United States—at least directly—and Kuroda says he expects serious damage to the Japanese economy as a result. “If the epidemic is prolonged, it could also affect production,” he said. “We need to be mindful that the impact from the outbreak could be big.”

* * *

I’ve been in Taiwan this week, watching the spread of global panic. What’s been interesting in meetings here with business leaders is their thinking about what the Asian economic landscape might come to look like after the COVID-19 dust settles. One of the observations that I found most interesting was that many Taiwan-based manufacturers and suppliers of high-end components in the technical sector see COVID-19 as potentially accelerating a regional readjustment away from mainland China exposure more broadly. One supply chain analyst I spoke to observed that many Taiwan-based suppliers had, under the Tsai Ing-wen government’s New Southbound Policy encouragement and organic concerns about the U.S.-China trade war, started to already look away from the mainland. While COVID-19 is causing a massive bloodletting in Taiwan as it is everyone else, there’s a sense of optimism that this shock could spur a greater diversification of Asian supply chains. In a sense, the post-COVID-19 winners could be low-cost, high-value manufacturers in Southeast Asia and South Asia.

Given my epistemic hedging at the onset of this newsletter, it’s probably best not to think too hard about what the post-COVID-19 world looks like, but there’s a strong sense—at least here in Taipei—that it’ll be a shock to much of what we’ve come to know about how the Asia-Pacific does business and supply chains.

In the shorter term, the question for many businesses in Asia—particularly small and medium enterprises—is survival. Consumer businesses are hard hit and many may find themselves unable to service existing debt if depressed demand persists. In Taipei, for instance, many of the city’s most popular tourist attractions and shopping areas have been largely depopulated—and this is in Taiwan, one of the places that’s been doing an excellent job generally containing COVID-19.

* * *

In the coming days and weeks, your top priority should be doing all you can to protect those most  vulnerable to the effects of COVID-19: the elderly and immunocompromised. This mostly boils down to washing your hands effectively. Here in Asia, there’s massive social pressure to wear face masks and, even as masks are only useful once one is already sick, these are virtually everywhere. In the United States, the surgeon-general has expressed concern that panicked mask-buying could spur harmful shortages for healthcare workers, who need face masks to protect themselves.

The economic drag from COVID-19 is likely only getting started. As testing capacity increases around the world, there’ll likely be more panic, particularly as other populous emerging markets in Asia are hit (think India and Indonesia). Additionally, things appear to be set to get much worse in the United States, where there is good evidence of undetected community transmission. As U.S. capacity for testing improves, there is likely to be a significant reaction to what will be perceived as a sudden spike in confirmed cases. No one knows exactly how bad this will get, but it’s clear that we’re far from reaching “peak COVID-19.” In countries with a limited capacity for public health, such as many poorer, population-defense states in South and Southeast Asia, the human toll could be particularly dire. Economically speaking, we may be looking at a global cyclical bust—born not of debt malaise, but an epochal pandemic.

As events play out in the coming days and weeks, wash your hands, keep on top of the news, and don’t panic.

Diplomat Risk Intelligence.

I’m excited to introduce a new offering from The Diplomat. Diplomat Risk Intelligence is the new consulting and analysis division of The Diplomat, the Asia-Pacific’s leading current affairs magazine. To learn more, click here.

Reads of the week.

Thanks as always for reading the newsletter. Given the above analysis on COVID-19, I’ll point to some of our ongoing coverage and analysis at The Diplomat that you really shouldn’t miss.

Chinese military in the Philippines. My colleague Prashanth Parameswaran takes a look at fears of Chinese military personnel in the Philippines

Naturally, things are a bit uncertain after Duterte’s decision to terminate the Visiting Forces Agreement with the United States, but, Prashanth writes, the latest fears are unverified and, ultimately, “it will be important for these occasional efforts to shine light on aspects of this to be followed through on so that we can get more verification of these rising fears.”

This week, we saw another round of headlines spotlighting an aspect of this with comments by a Philippine senator. Senator Panfilo Lacson expressed concern that a good number of Chinese military personnel, numbering a few thousand by estimates that he had and had shared with Gordon as well, were currently in the Philippines for unknown purposes.

Per local media reports, Lacson said there may be an estimated “2000 to 3000” PLA members in the Philippines, with the possibility that they may have been in the country for some sort of “immersion mission” that could raise concerns. This came in the face of other concerns he had raised on illicit Chinese activities in the Philippines, including that around $446 million had been smuggled by 47 individuals into the Philippines in the span of five months, with Chinese money launderers establishing connections with government officials.

India under siege. Rajeswari Pillai Rajagopalan works to make sense of the impact India’s ongoing inter-religious turmoil is likely to have on its foreign policy. Coinciding with U.S. President Donald J. Trump’s visit to the country, New Delhi, the nation’s capital, experienced some of the worst inter-religious violence in years, with scores of deaths, injuries, and massive damage to property. As Rajagopalan notes, this wasn’t missed by world observers:

In an exceptional move, and a first for India, the Geneva-based Office of the High Commissioner for Human Rights (OHCHR) has said that it was planning to file an application on the CAA in the Indian Supreme Court. The UN Higher Commissioner for Human Rights Michelle Bachelet subsequently filed an Intervention Application against the CAA. The MEA responded to this by saying that the CAA is an internal issue of India and “no foreign party has any locus standi on issues pertaining to India’s sovereignty.”

She goes on to explore the consequences the internal strife is likely to have on India’s regional and global policy. Countries are taking note of the exceptional turn within India’s borders toward instability and violence.

Don’t Miss It: On a recent edition of the Asia Geopolitics podcast, I had Aman Thakker on to discuss the trajectory of the U.S.-India relationship after Trump’s visit to the country. Listen here.

Asia’s women of the year. TIME Magazine’s “Person of the Year” is widely regarded as influential. This year, the magazine has created 89 new covers to celebrate influential women across the years. The Diplomat’s managing editor, Catherine Putz, highlights the women from or involved in Asian affairs. Read more here

Diplomat March 2020. Don’t miss the new edition of our monthly e-magazine. This month, we evaluate the lessons learned from the Balakot strike, as seen from both Pakistan and India, and what that means for the next crisis. 

We also lay out China’s and Indonesia’s competing strategies in the waters off the Natunas in the South China Sea, retrace the precipitous fall of the Tajik opposition, and take stock of Singapore’s political landscape ahead of the next general election. And, of course, we offer a range of reporting, analysis, and opinion from across the region.

This newsletter is written by Ankit Panda, senior editor for The Diplomat, and director of research at Diplomat Risk Intelligence. Please do feel free to reach out with comments, tips, and feedback at ankit@thediplomat.com and follow me on Twitter at @nktpnd and The Diplomat at @Diplomat_APAC.

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This newsletter is written by Ankit Panda, senior editor for The Diplomat, and director of research at Diplomat Risk Intelligence. Please do feel free to reach out with comments, tips, and feedback at ankit@thediplomat.com and follow me on Twitter at @nktpnd and The Diplomat at @Diplomat_APAC.

Duterte's Gamble on the US-Philippines Alliance

Uzbek propiska reform; India’s third carrier plans; Equifax indictments

The Big One.

A reset for the U.S.-Philippine alliance?

On Tuesday, February 11, the government of the Philippines formally gave notice to the U.S. Department of State that it intended to begin the process of terminating the 1998 U.S.-Philippines Visiting Forces Agreement (VFA), a status of forces agreement that governs the presence of U.S. troops on Philippine soil. The decision sparked a 180-day process at the end of which the agreement will no longer apply. The decision, born of Philippine President Rodrigo Duterte’s longstanding anti-Americanism, injects considerable uncertainty into the alliance (which will remain in place, as the 1951 Mutual Defense Treaty will be unaffected) and has the potential to upend the U.S. position in the Indo-Pacific. 

My colleague Prashanth Parameswaran, The Diplomat’s resident Southeast Asia expert, took a longer look at the implications and origins of the Philippine decision. As he writes, the decision will complicate things for both Washington and Manila: 

The VFA’s termination also creates complexities for both the United States and the Philippines respectively. For Washington, while alliance management has never been an easy affair, this would constitute the biggest blow to any of its treaty alliance relationships in Asia since the end of the Cold War, at precisely the time when the United States is trying to refocus itself on geopolitical competition with major powers, principally China and Russia. For Manila, this would degrade a significant source of security that it has continued to rely on even as its military capabilities remain limited and the threat posed by China remains real in spite of Duterte’s much-ballyhooed charm offensive to Beijing.

Prashanth and I dedicated an episode of the Asia Geopolitics podcast to discussing the implications of the VFA decision and what exactly might happen in the 180 day period. It’s worth recalling that many of Duterte’s deputies themselves had argued against terminating the agreement and that the Philippines, despite Duterte’s feelings, remains one of the world’s most pro-American countries in general. 

Some have made the case that the decision is an attempt by Manila to favorably renegotiate the VFA to extract concessions from the United States or to assert sovereignty for political ends, but there’s no indicator that Duterte intends to back off. As has been public knowledge for years, the Philippine president is inherently skeptical of the United States. (The specific trigger for Duterte’s move appears to have been sparked by the U.S. decision to cancel a visa for Ronald dela Rosa, a Duterte ally and controversial law enforcement official). 

The U.S.-Philippine alliance has been through its ups and downs. In 1991, U.S. troops were evicted from the country, only to return in the late 1990s on a rotational basis after the VFA was concluded. The problem now, however, is that Asia’s security environment—and even the Philippines’ internal security environment—is deeply in flux, presenting several challenges to Manila and Washington alike (Jay Batongbacal has a nice summary of these issues in a recent piece on the VFA decision for the Lowy Interpreter). As the 2017 siege of Marawi City demonstrated, the Armed Forces of the Philippines can benefit greatly from U.S. assistance in counterinsurgency campaigns.

What happens from here remains unclear—not only in terms of the fate of the VFA itself, but for the Philippines’ geopolitical position. Duterte has mentioned the possibility of deepening military cooperation with other countries, including China and Russia, both of which have been actively reaching out to the U.S.-skeptical leader since his 2016 inauguration. The White House, meanwhile, is not treating the Philippine decision with urgency. Alliance skeptic President Trump brushed off Duterte’s move, saying that the end of the VFA would likely end up saving the U.S. money.

Bottom Line: A decision by Philippine President Rodrigo Duterte to end a two-decade old agreement that underlies the ability of the U.S. military to operate in the country could be a significant transformation to the longstanding alliance at a time of regional uncertainty.

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East Asia.

Chinese cyberespionage is back in the headlines. Earlier this month, the U.S. Department of Justice announced the indictment of four members of China’s People’s Liberation Army (PLA) for their involvement in the 2017 breach of U.S. credit-reporting agency Equifax. According to U.S. Attorney General William P. Barr, the four PLA members were charged with “breaking into the computer systems of the credit-reporting agency Equifax, and for stealing the sensitive personal information of nearly half of all American citizens, and also Equifax’s hard-earned intellectual property.” (Read the full Justice Department release.)

As I discussed at The Diplomat, the U.S. Justice Department’s decision to indict PLA officers linked to the Equifax breach is notable for what it tells us about the nexus between Chinese intelligence and economic espionage. A little background:

The 2017 Equifax breach represents one of the largest data breaches in history. Beyond economic espionage concerns, the data procured by the PLA over the course of the breach might be cross-referenced and integrated with data from other sources on American citizens of interest. For instance, in 2015, the U.S. federal government’s Office of Personnel Management, the body that handles, among other things, paperwork for security clearances, was breached. U.S. officials told reporters that the source of the breach was thought to have been China.

In the case of the OPM breach, the United States did not formally charge any members of the PLA or China’s Ministry of State Security, the country’s primary internal and external intelligence and counter-intelligence agency. Former U.S. National Security Agency Director Michael Hayden hinted at why this may have been the case: Hayden described the OPM breach as “legitimate state espionage, one government going after another for information that could contribute to its national security.” Speaking in 2015, he added, “As director of the National Security Agency, given the opportunity against similar Chinese information, I would not have hesitated for a second and I wouldn’t have had to get anyone’s permission to do it.”

Barr, in justifying the indictments, outlined the reason that the PLA specifically was being hit back for what was justified as economic espionage (though Equifax was made out to be a bit of a victim itself, despite the well-established evidence that it was highly delinquent in securing its data).

Over at Lawfare, Graham Webster has a nice analysis of the significance of the indictments themselves. Webster argues that there is no “clear purpose” to the indictment; rather, it “may have undermined the U.S. government’s ability to defend against true instances of economic espionage,” Webster writes.

Intensification of coronavirus: On Thursday, February 20, South Korea reported the first death from COVID-19 (the novel coronavirus) on its territory, raising concerns that death tolls outside of China, which had been relatively depressed, may begin to spike in the coming days and weeks.

Central Asia.

Uzbek reform update. The Diplomat’s Catherine Putz interviewed William Seitz on the state of Uzbekistan’s propiska reforms (its system of controlling internal movement). Seitz speaks on the propiska system, the benefits of easier internal migration, and what the Uzbek government is doing to change the system: “Changing the system requires adjusting to a different way of doing things. Propiska has long been used to direct economic development and social resources. Relaxing restrictions implies that economic activities will expand more organically instead, and in locations chosen on the basis of individual preferences.”

Kazakhstan opposition crackdown? A  nascent opposition party in Kazakhstan, the Democratic Party of Kazakhstan, is running into government obstacles as it tries to organize effectively. The Diplomat’s Catherine Putz looks into recent developments.

Asia Defense.

Seahawks for India. Ahead of an inaugural trip to India by U.S. President Donald J. Trump next week, New Delhi has finally clinched the deal to procure 24 Lockheed Martin-Sikorsky MH-60R Seahawk Romeo helicopters. As my colleague Franz-Stefan Gady writes, the deal is worth $2.6 billion. The Indian Cabinet Committee on Security authorized the deal, which is likely to be announced as a major deliverable next week during Indian Prime Minister Narendra Modi’s hosting of Trump. (The two sides need something to announce as it appears less likely that a trade agreement will be finalized in time for the summit.)

India’s third aircraft carrier plans on ice? I wrote last week on a fascinating February interview by Gen. Bipin Rawat, India’s inaugural chief of defense staff. Rawat is meant to harmonize and streamline India’s troubled military procurement processes and had a lot to say on a range of things. Something that especially caught my attention was his reflection on the Indian Navy’s third carrier requirement, which will come in the form of a second indigenously designed aircraft carrier featuring advanced aircraft launch mechanisms and a flat-top as opposed to a ski-jump. (Read the full interview here.) 

Rawat significantly recalibrated expectations, including for the timeline of the carrier’s commissioning into the Indian Navy. He said the following:

One aircraft carrier will be on the seas next year. You look at when do you really need a third one. If you get a third one, how many years will it take for it to develop? Even if you place the order for 2022 or 2023, it is not coming before 2033. Also, aircraft carrier is not just a carrier, along with it will have to come the aircraft. Where are the aircrafts coming from? Along with that we will need the armada protection for that aircraft carrier. It does not happen overnight. It will be bought if it is required… but you cannot predict what the situation will be 10 years from now. We don’t know what will happen.

Is China’s hypersonic missile nuclear-capable? The nuclear capability of China’s newfangled DF-17 hypersonic boost-glide system remains ambiguous—or at least senior U.S. officials appear determined to push back on China’s claims that the system is conventional only. I wrote a bit on recent testimony by Admiral Charles A. Richard, the commander of U.S. Strategic Command, in which he lists the DF-17 alongside other explicitly nuclear systems. “During the 70th Anniversary Parade in October 2019, the PLA unveiled new strategic nuclear systems, including the H-6N BADGER bomber, DF-41 intercontinental ballistic missile (ICBM), DF-17 medium-range ballistic missile, and improved submarine-launched ballistic missiles (SLBM),” Adm. Richard observed.  

A Russian fifth generation stealth fighter for export? Over at our Flashpoints channel, Robert Farley takes a look at buzz that Russia may be shedding its old hesitations about exporting the stealth Su-57, in an export variant, to China. Farley discusses remarks by Viktor Kladov, an official at Rostec, who said recently that “in the next two years [China] will make a decision to either procure additional Su-35s, build the Su-35 within China, or to buy a fifth-generation fighter aircraft. This could be another opportunity for the Su-57E.”

Extras.

Op-ed diplomacy. In a remarkable development, the New York Times’ opinion section has published an op-ed by none other than Sirajuddin Haqqani, the deputy leader of the Taliban and a designated terrorist by the United States for his role leading the Haqqani network. Haqqani writes:

We are about to sign an agreement with the United States and we are fully committed to carrying out its every single provision, in letter and spirit. Achieving the potential of the agreement, ensuring its success and earning lasting peace will depend on an equally scrupulous observance by the United States of each of its commitments. Only then can we have complete trust and lay the foundation for cooperation — or even a partnership — in the future.

One observation on Haqqani’s appearance in the Times’ pages rings true:

This newsletter is written by Ankit Panda, senior editor for The Diplomat, and director of research at Diplomat Risk Intelligence. Please do feel free to reach out with comments, tips, and feedback at ankit@thediplomat.com and follow me on Twitter at @nktpnd and The Diplomat at @Diplomat_APAC.

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