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COVID-19 threatens democracy in Southeast Asia

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00Author: Murray Hiebert, Bower Group Asia

COVID-19 has been tough on the health and economies of Southeast Asia, but the region’s fledgling quasi-democracies are also under threat. Efforts to control the virus are giving authoritarian rulers the perfect cover to adopt draconian levers to rein in their opponents and critics.

A soldier wearing a face mask holds on his weapon as he guards an empty street following the lockdown imposed to contain the coronavirus disease (COVID-19) in Manila, Philippines, 25 April 2020 (Photo:Reuters/Eloisa Lopez).‘The authoritarian leaders of Cambodia and the Philippines certainly rode the COVID-19 wave to their advantage in accruing political power and controls, while Thailand and Myanmar are poised to lean in further if they determine the political situation requires it’, says Phil Robertson, Human Rights Watch’s deputy director in Asia.

In Thailand, Prayut Chan-o-cha — a general who seized power in a 2014 coup and then became prime minister through carefully orchestrated elections in 2019 — took advantage of an existing emergency decree to impose sweeping control measures in March. As COVID-19 continues to spread, the control measures grant him the authority to ‘censor or shut down media if deemed necessary’.

For example, a 42-year-old Thai artist was arrested after posting online that he had arrived from Spain and exited Bangkok’s main international airport without any screening. He was charged under the Computer Crimes Act and could be punished for up to five years in prison because his post ‘created panic for the public and eroded their confidence in Suvarnabhumi airport’ — in the words of the Ministry of Digital Economy and Society.

Philippine President Rodrigo Duterte, best known for his brutal war on drugs, signed a law in late March granting himself ‘special temporary power’ for three months. On 1 April, he ordered the police and the military to shoot violators of his ‘enhanced community quarantine’ if they were unruly or threatened law enforcement officers. Three days later, a man in his early 60s, apparently drunk, was shot dead after allegedly threatening police at a checkpoint with a scythe.

In April, the Philippine police arrested seven activists distributing food assistance north of Manila and charged them with violating emergency laws. They were indicted with inciting sedition after anti-government newspapers were found in their vehicle. In early May, ABS-CBN — the country’s largest television broadcaster — was forced off the air in a move many observers interpreted as Duterte’s attempt to further muzzle the media at a time when unbiased reporting on COVID-19 outbreak was needed.

In Myanmar, the military appears to be taking advantage of COVID-19 by leveraging the power it retained during reforms that gave rise to a quasi-civilian government. In late March, the military set up a powerful 10-member COVID-19 taskforce to investigate cases of the virus and suppress ‘disinformation’ by punishing those who create ‘panic among the people’. This taskforce, made up of senior military officers and cabinet ministers appointed by the military, was created two weeks after the government had established a COVID-19 committee led by State Counsellor Aung San Suu Kyi.

The military taskforce runs parallel to the civilian government and ensures that the military retains a high profile as the country prepares for elections before the end of the year. The military also arranged facilities in key cities to quarantine people infected by COVID-19 and sent military helicopters to deliver medical supplies to remote regions of the country.

In Cambodia, where Prime Minister Hun Sen cracked down on opposition political parties and shrunk the country’s political space ahead of 2018 elections, the National Assembly passed a state of emergency law granting Hun Sen greater power in handling the pandemic. Between January and April, Human Rights Watch documented the arrest of at least 30 people on charges of spreading ‘fake news’, including commentaries on the government’s handling of the pandemic.

No opinion polls in Southeast Asia have measured public perceptions about the more authoritarian measures governments introduced to tackle the pandemic. A Gallup poll of Thai attitudes toward the government’s overall handling of the virus in late April found 81 per cent disapproval — the highest among 18 countries. In contrast, 80 per cent of people in the Philippines approved of their government’s handling of the virus, in line with Duterte’s approval ratings during his war on drugs.

Interestingly, the poor rating of the Thai government seems to be due to perceptions of officials not going far enough rather than being too draconian. Veteran politicians criticised Prayut’s administration for not using ‘hard measures’ earlier to control the virus.

There is no evidence that the use of tough policies in Cambodia, the Philippines, Thailand or Myanmar are producing a more effective pandemic response. ‘Any public health practitioner would immediately tell you that responding to a public health crisis requires eliciting the willing cooperation and support of the people’, says Robertson. Using power to arrest, quarantine and curfew violators is an exercise that ‘resembles emptying the ocean with a bucket’. Advances toward democracy in Southeast Asia that came at immense cost are at risk of being steadily eroded away.

Murray Hiebert is Head of Research at Bower Group Asia and Senior Associate of the Southeast Asia Program at the Center for Strategic and International Studies (CSIS), Washington DC. He is author of Under Beijing’s Shadow: Southeast Asia’s China Challenge (Forthcoming: August 2020).



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ASIAN (H)

COVID-19 unmasks Indonesia’s investment conditions

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Authors: Arianto Patunru and Andree Surianta, ANU

Indonesian President Joko ‘Jokowi’ Widodo submitted a draft bill of the Omnibus Law on Job Creation to parliament this February in an attempt to improve the country’s investment climate. But the bill is unlikely to address the problems that have caused Indonesia to miss out on global investment opportunities such as those created by the shift of production and procurement away from China. COVID-19 may exacerbate these trends, so it is important that the Omnibus bill is the first step toward a more dramatic overhaul of Indonesia’s investment framework.

Women laborers carry placards stating 'Against Omnibus Law and Foreign Workers' as they participate in a protest outside Indonesia's parliament building in Jakarta, Indonesia, 20 January 2020 (Photo: Reuters/Willy Kurniawan).

The COVID-19 pandemic has developed into one of the greatest challenges to international trade and investment. Instincts to restrict global commerce goes against the interconnectedness that is vital for global value chains (GVCs).

The World Trade Organization expects international trade to fall between 13–32 per cent and the UN Conference on Trade and Development forecasts that FDI will fall by 40 per cent. This is especially challenging for a country like Indonesia that is struggling to attract FDI while also showing a decline in GVC participation.

Before the COVID-19 outbreak, the US–China trade war had started pushing corporations to explore alternative business locations to circumvent the increase in tariffs. As the outbreak shuts down global supply chains, multinational enterprises (MNEs) are under pressure to diversify supply chains beyond China.

China’s major trade and investment partners are actively encouraging their corporations to return home due to the pandemic. The US government is mulling the possibility of absorbing all reshoring costs, South Korea is offering over US$3.6 billion in reshoring loans and Japan is allocating US$2 billion for a rescue package to help companies with reshoring operations.

But many MNEs prefer to relocate their Chinese facilities to Southeast Asia. The main reason is the availability of low-cost labour and investment incentives. Reports state that the pandemic has spurred on Apple and Google’s exploration of alternative locations (that began in 2019) in Vietnam and Thailand.

Nearly one thousand Japanese manufacturers are diversifying procurement away from China. The Japanese government is allocating over US$200 million towards the diversification of production across Southeast Asia. Amid the dark clouds on global investment, Southeast Asian economies may benefit from an exodus from China.

Such GVC diversion should have been welcome news for Indonesia as the largest economy in Southeast Asia. Yet compared to its neighbours, Indonesia is relatively unattractive to foreign investors. Due to restrictions on FDI, as well as weak infrastructure and higher labour costs, Indonesia was largely bypassed by 33 Chinese-listed companies looking for alternative business locations in 2019.

Without serious efforts to reduce FDI restrictions, Indonesia will fall even further behind after the COVID-19 crisis ends. The World Bank similarly states that the highly complex regulatory landscape in Indonesia is a major deterrent for foreign investors. It points to the sheer number of ministerial and regional regulations, and the many inconsistencies they cause.

There are nearly 15,000 ministerial regulations in Indonesia, 95 per cent of which were issued since 2010. Each province, city and regency can also issue their own regulations. Added to this are sectoral-specific policies, issued by the ministers of Transportation, Education, Agriculture, Energy and Mineral Resources, Construction, Communication and Information Technology, and Tourism. After escaping this central regulatory labyrinth, investors need to overcome hundreds of regional regulations.

If this ‘regulatory obesity’ is not addressed, Indonesia will continue to struggle to attract foreign investors. The Jokowi government expects to use the Omnibus Law to revoke or revise over 1200 articles in 79 laws deemed problematic for investors. The bill covers a broad swathe of policy — from licensing to economic zones — sending a positive signal to the investment community.

But there is staunch public opposition to the bill, especially from labour unions, due to its perceived lack of transparency and rushed process. This has led to a slowdown in the deliberation process and possible rebranding of the bill itself.

The bill’s contents cast doubt on its ‘simplification’ role. First, it trims the highest level of regulation — the laws themselves — while Indonesia’s ‘regulatory obesity’ is actually far below at the ministerial level.

Second, in the Indonesian legal system, changing an article in a law does not automatically void its implemented regulations, risking overlap between old and new rules.

Third, the bill sets out an ambitious legislative and political timeline for its roll out. Hundreds of subsequent adjustments and drafts must be done within one month of the bill passing, compromising the overall quality of the proposed reforms.

Lastly, the bill still does not cover all of the regulations that pose unnecessary burdens to businesses. The Indonesian government should not consider the bill as the final goal of reform, but as the starting momentum needed to usher in greater economic openness in the future.

While the COVID-19 crisis crystallises the need for regulatory reform, the Indonesian government should not put too much weight on the speed of reform at the expense of its quality. This is no easy task, especially as the pressure for a quick economic recovery following the crisis amplifies.

Arianto A Patunru is a member of the Indonesia Project and a Fellow at the Arndt-Corden Department of Economics, The Australian National University (ANU).

Andree Surianta is an Australia Awards PhD Scholar at the Crawford School of Public Policy, ANU, and a research associate at the Centre for Indonesian Policy Studies (CIPS), Jakarta.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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ASIAN (H)

A relationship in need of adult supervision

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Author: Editorial Board, ANU

As most of the world grapples with controlling the spread of the coronavirus pandemic, some governments and societies are facing the next phase of the crisis: testing the gradual lifting of lockdown measures. Australia, China, South Korea, New Zealand, Taiwan and Vietnam are among those lifting restrictions earlier. Japan appears to be close to joining that group. East Asia looks poised to lead the global economic recovery.

G20 leaders discuss the coronavirus outbreak and its economic impacts, from the perspective of Planalto Palace in Brasilia, Brazil, 26 March 2020 (Photo: Marcos Correa/Brazilian Presidency/Reuters).

System of government does not explain the success in these countries, but governance does. These governments have largely followed expert medical advice. How shallow their economic downturns have been and how many long-term unemployed will result depends on whether they listen to expert economic advice. What explains success in exit from the crisis is yet to be made clear.

The global economic downturn is the worst since the Great Depression in the 1930s, an event exacerbated and prolonged by a retreat to protectionism. The risk of repeating that mistake was real in the global financial crisis as economies faltered and trade collapsed, but the rejection of protectionism at the London G20 Summit of April 2009 helped pull the world back from the brink.

Whether the world is able to step back from the brink in this crisis remains an open question. There is a risk of turning the recession into a global depression. The Great Depression preceded, and was only ended by, world war.

International cooperation that keeps markets open and is necessary for economic recovery was already fractured before the COVID-19 pandemic by strategic competition between the United States and China. The once in more than a lifetime crisis has led to a further deterioration of the relations between the two superpowers.

As Sheila Smith writes in one of this week’s features, ‘beyond exposing a diminished American will to lead, the pandemic response is revealing a new reality — that of US incompetence’. Add a US election and fear of a rising China, the world’s most powerful country will increasingly be a source of global instability.

At these times what other countries do matters. Middle powers can work to bridge differences between the superpowers, creating the space for cooperation and compromise. If there was ever a shared interest that requires cooperation, it’s dealing with the COVID-19 pandemic and resulting global economic crisis. Easier said than done, of course.

Australia is well placed to play a role. A US ally that has over a third of its trade with China, Australia is a key middle power that can mobilise others to help find global solutions. Its own success in dealing with the pandemic allowed capacity to play into the international effort. It has used that capacity to push for an international inquiry into the origins of the COVID-19 pandemic, claiming victory with the EU-initiated World Health Organization (WHO) motion, supported by China.

Right outcome, excruciating execution. Australia’s initial proposal for the inquiry was advanced without consulting other governments, except perhaps the Trump administration, and in a way that was either designed to purposefully rile China, or demonstrated a complete lack of understanding of how China was likely to respond.

Canberra succeeded in catching Beijing’s attention. A mature and confident China might have protested and moved on. As Peter Drysdale argues in another feature this week, ‘both Australia and China are tripping over their increasingly complicated relationships with Washington and the reality that China is now a great power too — perhaps more sensitive than most because of the way foreign criticism plays into domestic politics’.

China sees an extremely hostile external environment in which it can do no right. As Jia Qingguo explains, ‘the Chinese government encouraged its diplomats to launch a new round of counter-China bashing campaigns’.

The Chinese Ambassador to Australia clumsily suggested that Chinese consumers might choose to boycott Australian products if relations deteriorated further. To complicate matters, an 18-month Chinese investigation into Australian barley dumping was brought to a head with Chinese tariffs of up to 80 per cent imposed on AU$600 million (US$392 million) worth of Australian barley exports by Chinese authorities. At the same time, four of Australia’s largest abattoirs were accused of technical export infringements, putting AU$200 million (US$131 million) of Australian beef exports to China at risk.

China’s moves fit with what are becoming increasingly dominant narratives of a more assertive China that is overly sensitive to external criticism and quick to use its economic levers to flex its political muscle. Ugly nationalism and self-righteousness have been unleashed in both countries. A more innocent reading of China’s moves is that the anti-dumping action was simply designed to protect Chinese barley farmers. Yet such protectionist measures fly in the face of China’s economic recovery and its championing of openness, and raise the costs of doing business with China.

Neither Beijing nor Canberra could explain with a straight face that their actions towards each other are in their national interest. The ‘Australia–China relationship desperately needs adult supervision and getting back on track’, as Drysdale argues.

Both need to step back from the childish bickering and focus together on the opportunity and the need to work together with others in the region and around the world on economic repair and the post-COVID recovery. Right now Australia looks like America’s deputy sheriff in the region and China a petulant adolescent not a great power.

With the successful response to the COVID-19 health crisis in key countries in East Asia, the region is well positioned to lead global recovery. It will only do so if it works together on cooperative strategies and avoids spreading protectionism, fear and enmity. At this time, getting foreign policy right is central to economic recovery from the pandemic. Working with others in the region will help Australia and China to nest their tricky bilateral relationship within a wider regional framework. This will boost regional cooperation and help Australia and China repair their trust.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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ASIAN (H)

US pandemic politics spells trouble for its Asian partners

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Author: Sheila A Smith, Council on Foreign Relations

The Trump administration’s lack of interest in a global response to COVID-19, or even extending a helping hand to its allies and partners, is bringing home the possibility that US leadership may be gone for good. Beyond exposing a diminished American will to lead, the pandemic response is revealing a new reality — that of US incompetence.

US President Donald Trump holds up a protective face shield during a tour of the Ford Rawsonville Components Plant that is manufacturing ventilators, masks and other medical supplies during the coronavirus disease (COVID-19) pandemic in Ypsilanti, Michigan, 21 May 2020 (Photo: REUTERS/Leah Millis).

This could have a far more devastating impact on Washington’s allies and partners as they confront a region that demands ever greater strategic finesse. But it is the reassertion of old racial sentiments about Asia that might be most alarming. The association of the virus with race is a dangerous undercurrent in today’s geopolitics.

The building blocks of this association are deeply domestic for US President Donald Trump. COVID-19 is demonstrating vividly that Trump’s political instincts translate badly to national crisis response. Instead of uniting the country around a reaction to arguably the worst global crisis since World War II, federal government relief efforts reveal a shocking partisanship. Red states are pitted against blue states, corporations are privileged over workers, and politics trumps science in a national medical emergency that demands empiricism and analysis. Partisanship and division prevail.

The blame game extends abroad as well. The Trump administration is taking aim at China — accelerating an already deepening strategic distrust with Beijing — and is undermining its longstanding partners. At the G7 meeting convened to discuss the crisis in March, US Secretary of State Mike Pompeo insisted on assigning COVID-19 a name that would indict China. When other members refused to call it the ‘Wuhan virus’, the United States in turn refused to sign a joint statement — handicapping the organisation of wealthy states best positioned to organise a global pandemic response. This was a blatant case of ‘my way or the highway’ diplomacy.

This new bully-on-the-block use of American power in the face of a pandemic impacts everyone else. Withdrawing funding from the World Health Organization, the organisation that could make or break the ability of less wealthy countries to survive the onslaught of COVID-19, showed how little interest the current US government has in a leadership role.

Even more baldly, throughout a rush to claim medical supplies, reports emerged of the United States ‘pirating’ masks and other personal protective equipment. No empathy was extended to US allies either. Even as South Korea was devastated by an early outbreak of COVID-19, Washington did not relent in its pressure on Seoul’s spending for US forces there, and carried out its threat to furlough South Korean workers on US military bases amid the crisis.

The ‘America First’ pandemic response is also revealing troubling signs of anti-Asian discrimination. This xenophobia harkens to an earlier episode of US history when Asian migrants to the United States in the early 20th century were met with racism and violence. Growing discrimination against Asian-Americans and Asian visitors to the United States during the COVID-19 crisis is provoking considerable outrage in the United States. Yet Trump continues to play to an audience that is quite willing to believe that foreigners are the cause of America’s problems.

The line between domestic politics and foreign policy decisions in the United States is blurring, with particular repercussions for Asia. This year’s presidential election is heightening the confounding of personal ambition with the pandemic response. Already precarious, Chinese management of the early weeks of the COVID-19 outbreak in Wuhan prompted considerable suspicion and antagonism in the United States.

While many across the region recognise the pitfalls of strategic rivalry between Washington and Beijing, the pandemic is unleashing a far more poisonous downward spiral. Anti-China sentiment in the United States is growing and taking on a dangerous cast.

The Chinese government is clearly not rising to the challenge of this global pandemic either, with its bluster and false claims of superiority. Calls by US partners, such as Australia, for an investigation into the origins of COVID-19 are drawing Beijing’s ire and threats of economic sanctions — fuelling deeper distrust of China’s motives.

Be prepared for the acrimony to worsen as November’s presidential election approaches, and as the death toll in the United States rises. It is a precarious time for US partners in the region.

Sheila A Smith is a Senior Fellow of Japan Studies at the Council on Foreign Relations, Washington DC.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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China crucial to early post-COVID-19 economic recovery

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Author: Wei Li and Hans Hendrischke, Sydney University

China’s economy is poised for a quick rebound. In March, factories reopened and in April, schools started reopening in China’s biggest cities. Daily coal consumption has returned to 90 per cent of pre-COVID-19 levels. But due to the risk of a second wave of infections, social distancing is still strictly enforced. Australia is facing an economic crisis and is more closely interconnected with China than ever before. Can trade links with China assist Australia’s economic recovery as it did through the post-global financial crisis (GFC) period?

Chinese customers shop for wine imported from Australia, the United States or France at a supermarket in Xuchang city, central China's Henan province, 17 October 2013 (Photo: Reuters).

The Australia–China economic partnership was crucial for Australia’s 2008–09 GFC recovery. The story was simple. China became Australia’s largest two-way trading partner in 2007, accounting for 13 per cent (AU$58 billion) of total trade. China needed iron ore for its infrastructure stimulus package and Australia could supply high-quality iron ore in reliable quantities.

Ten years later, in 2018–19, two-way trade with China surged past AU$230 billion, well over double the volume of trade with Australia’s second-ranked trading partner, Japan (AU$88.5 billion). Nearly 40 per cent of Australian exports now go to China and one fifth of imports are from China.

Compared to 10 years ago, trade with China is more diversified and linked with a larger number of small and medium businesses in Australia. During the GFC, China was Australia’s top market for intermediate products such as minerals, fuels and agricultural produce — products in high demand in China’s state-owned sector. Today, China’s middle-class consumers have become Australia’s top market for high-quality consumer products such as food, beauty and health products, as well as services like healthcare, tourism and education.

Australian small and medium exporters are targeting China’s expanding middle class. According to Alibaba, during the 24-hour Singles’ Day sale on 11 November 2019, over 2000 Australian brands were selling their goods through TMall and TMall Global. Australia was the fourth-ranked country selling into China — behind Japan, the United States and South Korea but ahead of Germany.

High-quality products involve more Australian service industries and higher value added. For example, digital traceability and blockchain technology facilitate exports of seafood and dairy products to China. For each dollar worth of total Australian exports to China, at least 28 cents of value added is contributed by domestic service industries.

The China trade effect that was concentrated on the resources industry after the GFC is now spread much more widely across Australia’s rural and urban industries.

Australia’s regional and urban export industries, including the tourism and education sectors, will therefore benefit from a quick post-COVID-19 recovery of Chinese consumer demand. China’s consumer spending, now the most important contributor to China’s GDP growth (57.8 per cent in 2019), is showing signs of recovery. China has relied on digital technologies and decentralised economic policy to drive up consumption, rather than centralised stimulus payments through direct deposits or debt-financed guarantees as seen in Australia.

A total of 19 billion RMB (US$2.7 billion) worth of consumption coupons have been handed out by local governments in over 170 Chinese cities. This consumer stimulus is rolled out through digital technologies via Alipay, Meituan, Dianping and WeChat mobile applications. Consumption coupons are efficient, flexible, easy to track and can target specific sectors that suit local circumstances.

During the 1 May holiday week, consumption rebounded strongly. Average daily retail sales increased by one third (32.1 per cent) over the Qingming holiday sales in the previous month. This recovery in middle-class consumer demand bodes well for the future. Middle-class families plan ahead for the future, including for health and retirement expenditure and not least, education for their children, including overseas education.

Growth in consumption is undergirded by stimulus measures for Chinese small and medium-sized enterprises (SMEs). SMEs are the backbone of job creation in China. Many of them now focus on domestic markets, but those focusing on exports rely on government support.

Unlike the post-GFC stimulus in China which targeted physical infrastructure building, the post-COVID-19 stimulus targets communication and service infrastructure such as mobile communication, which is of more immediate benefit to SMEs in the manufacturing and service sectors.

Domestic investment is being directed to ‘new infrastructure’. In May, several local governments published recovery roadmaps for digital transformation including 5G, artificial intelligence and industrial internet, as well as new manufacturing and industrial clusters such as extra-high voltage, intercity high-speed railway, urban subway systems, new energy cars and charging stations.

China remains globally integrated. Foreign direct investment (FDI) in China continues to increase. While the COVID-19 pandemic exposed the vulnerability of global supply chains, localisation of operations leads to more investment in China. US investment in China reached US$14 billion in 2019 from US$13 billion in 2018. FDI into China is less likely to be in labour-intensive manufacturing, but more in digital economy, services and high value added manufacturing. French pharmaceutical company Sanofi has opened its first Asian research and development centre in Chengdu, while German industrial manufacturing company Siemens opened its first artificial intelligence lab outside of Germany in Beijing in 2019.

Australia is facing a bigger crisis now than it did post-GFC, and it is also more closely interconnected with China. This makes the Australia–China economic partnership even more important than it was post-GFC.

Wei Li is a Lecturer in International Business at the University of Sydney Business School.

Hans Hendrischke is Professor of Chinese Business and Management at the University of Sydney Business School.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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ASIAN (H)

Australia loses big if China ties unravel

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Author: James Laurenceson, UTS

The value of Australia’s deep economic engagement with China has never been more contested.

Silos are loaded with barley in a farm near Gunnedah, 275 miles (443 km) northwest of Sydney, 4 July 2011 (Photo: Reuters/Daniel Munoz).

In 2016, the Executive Director of the Australian Strategic Policy Institute (ASPI) Peter Jennings warned that ‘if Beijing wants to adopt politically coercive policies, it’s in a fairly strong position to do so with us because of that level of trade dependence’.

COVID-19 has heightened sensitivities as news stories draw attention to examples of Chinese demand wavering and supply chains being disrupted.

China’s own actions have added more fuel to the fire.

Rather than unequivocally stating that the Chinese government would continue to support trade ties even in the face of political disagreements, Chinese Ambassador to Canberra Cheng Jingye instead mused last month that consumers in China might come to view Australia as unfriendly and be less fond of its beef, wine, tourism and education. This was quickly followed up by trade restriction measures applied to Australian barley and beef exports to China.

Some commentators are now calling for the Australian government to force a decoupling of the Australian and Chinese economies.

In April, ASPI’s Director of Defence and Strategy Michael Shoebridge argued that ‘with COVID-19, the Chinese state has created unacceptable risks for the rest of us and it will continue to do so ¼ until we reduce our dependence on activities within its jurisdiction’.

On 2 May, Peter Jennings claimed that ‘a view is hardening that economic dependence on China is dangerous and steps must be taken to reduce that dependence’.

There have also been suggestions that Canberra would benefit from signing on to Washington’s own China decoupling agenda.

In April, Paula Dobriansky argued in the Wall Street Journal that the United States and partners like Australia should ‘create an international economic order that is less dependent on China’, one in which trading ties ‘better align ¼ with political and security relationships’.

Charles Edel followed up with an assessment that ‘our existing alliances now have the opportunity to move beyond the military realm and into the economic arena’.

But Australia’s circumstances are vastly different from those of the United States, with a domestic market of just 25 million people and a trade bundle that matches China’s.

Trade is, by definition, mutually beneficial. As Deputy Prime Minister Michael McCormack explained to Sky News on 13 May, ‘trade equals jobs and more trade means more jobs’.

For all the attention that instances of possible Chinese economic punishment directed at Australia receive and despite serious political tensions since 2017, two-way trade currently stands at US$235 billion, a record high. This is more than 2.5 times greater than Australia’s trade with Japan, in second place.

These market-driven outcomes do not rule out the possibility of niche areas where Australia–US cooperation could pass some sensible cost-benefit test.

For example, questions have previously been raised around the resilience of supply chains for rare earth metals. The Productivity Commission could undertake an investigation and invite national security analysts to detail their concerns. If a problem is revealed, the Commission could then recommend appropriate government interventions.

The COVID-19 shock to the Australian economy is global, not China-specific.

Having quickly controlled the public health crisis, China is the first major economy to begin a slow return to something approaching normality.

Even in the first four months of 2020, when the Chinese government locked down its economy to control the spread of COVID-19, the value of Australian goods exports to China stood at US$37.8 billion. This was actually up 2.7 per cent compared with the same period in 2019.

This year, the International Monetary Fund expects Australia’s economy to shrink by 6.7 per cent. With 33 per cent of exports going to China where the economy is forecast to grow by 1.2 per cent, Australia remains better placed than some peers.

Pity Canada, which relies on the United States to buy 75 per cent of its exports, but which is forecast to contract by 5.9 per cent.

Or the United Kingdom with 45 per cent of exports going to an EU market set to go backwards by 7.5 per cent.

It’s one thing to remind Australian businesses they need to take seriously the prospect they could find themselves a target of Chinese government retaliation. But it’s quite another to advocate that Canberra should insist businesses undertake the economic equivalent of self-harm.

Australian businesses are not ignorant of risk; they engage with China because there is no comparable market.

Over the past decade the annual value of Australia’s exports has increased by a net AU$180 billion (US$117.5 billion). But this has only been possible because one country delivered 60 per cent of the jump: China.

Any opportunities in China that Australian businesses were forced to leave on the table would quickly be snapped up by international competitors.

The frequency with which misinformation is appearing in discussions of the Australia–China economic relationship is also alarming.

In April, former foreign minister Alexander Downer said that Australia should reduce its dependence on Chinese pharmaceuticals. But trade data reveals that only two per cent of Australia’s medicament and pharmaceutical imports come from China (SITC codes 541 and 542), compared with 47 per cent from the European Union and 21 per cent from the United States.

China may be involved in manufacturing inputs like active pharmaceutical ingredients, but European and American pharmaceutical giants like Pfizer and Roche mostly control the global value chains that absorb these. With the world’s second largest pharmaceutical market, it is hardly surprising that China should have significant production capabilities.

Now more than ever, facts and evidence around Australia’s economic relationship with China are needed, not vague policy propositions accompanied by sound-bites that appear intended to scare.

James Laurenceson is Professor and Director of the Australia–China Relations Institute at The University of Technology Sydney.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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ASIAN (H)

Rethinking economic coercion as Australia–China relations fracture

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Author: Weihuan Zhou, UNSW

Australia has become collateral damage in the US–China ‘blame game’ over the origins of the COVID-19 outbreak. While Prime Minister Scott Morrison has tried to distance Australia from US theories and advocate for international cooperation in objectively assessing the origins of the pandemic, China believes that Australia’s position, like that of the United States, is politically motivated. And China has responded accordingly.

Imported barley is transported from a cargo ship at the port of Nantong, Jiangsu province, China, 21 February 2014 (Photo: China Stringer Network via Reuters).

China took action right after Ambassador to Canberra Cheng Jingye flagged the possibility of a Chinese consumer boycott of Australian goods and services. Subsequently, on 18 May, China’s Ministry of Commerce made a decision to impose a 73.6 per cent anti-dumping tariff and a 6.9 per cent anti-subsidy tariff — a total of 80.5 per cent — on Australian barley exports to China.

Notably, the anti-dumping duty is a substantial increase from the rate of 56.14 per cent originally requested by the Chinese barley industry in 2018. The imposition of the barley tariff was accompanied by an import ban on Australian beef from four abattoirs. These prohibitive measures could cause large economic losses for Australian farmers and encourage Chinese importers to switch to other sources of supply.

Calling ongoing China–Australia tensions a trade war is an overstatement. A trade war, like the one between the United States and China over the past two years, involves tit-for-tat trade measures by both sides. Australia has never responded to China’s economic sanctions through trade measures and has made it clear that it will not do so this time. Instead, Australia is trying to resolve these issues through diplomatic channels.

The ongoing deterioration of China–Australia relations is the result of Australia’s reactions in a series of politically sensitive areas. This is not the first time that China has used trade sanctions to resolve political disputes or retaliate against trade measures. While both governments deny any connection between the trade measures and the COVID-19 investigation, the actions have provoked accusations from Australia of Chinese economic coercion.

As an emerging superpower, China is criticised for falling into the classic behavioural patterns of an economic hegemon, like the United States. Yet China has been more moderate in exercising economic power and is herself vulnerable to US economic coercion. As amply demonstrated in the US–China trade war, US economic sanctions were persistent and escalated until the intended outcomes were achieved. In comparison, China was merely responding to a wave of US tariff escalations and eventually had to yield to US pressure in signing a largely non-reciprocal trade deal.

In the context of the Australia–China relationship, China has been very cautious about its use of economic power and retaliatory measures. For example, China has not retaliated against anti-dumping measures taken against China by Australia until the barley investigation. This is in spite of the fact that Australia has continued to treat China as a non-market economy after granting China full market-economy status in 2005. Australia has imposed anti-dumping duties on a range of Chinese exports over the past decade. When political disagreements arose, China’s coercion was generally short-term, designed to send a message rather than inflict actual economic harm. Amid the ongoing tensions, China has continued this practice by stressing that further escalations would be neither desirable nor necessary.

While restrictive trade measures are economically detrimental to both nations, Australia may suffer more. The prohibitive tariff on barley would effectively exclude Australian barley from the Chinese market, which accounted for over 70 per cent of Australia’s barley exports between 2015 and 2018. The beef ban is set to affect over AU$1 billion (US$660 million) of Australia’s beef exports, with rising fears that other agricultural sectors such as dairy and wine might also be targeted. In the face of a record high unemployment rate of 6.2 per cent, Australia cannot afford an escalation of trade tensions with China.

In contrast, Chinese barley and beef importers have reportedly begun to turn to other major suppliers to meet their demand. In particular, the trade tensions with Australia seem to have created room for China to fulfil its massive purchase commitments under the US–China phase one trade deal.

Among other things, China committed to increase purchases of US agricultural goods by an additional US$12.5 billion in 2020 and a further US$19.5 billion in 2021. Barley, beef, dairy products, wine, cotton and wool are all on China’s shopping list. China has already taken steps to facilitate imports of US barley. China may continue to switch imports away from Australia and towards the United States should trade tensions escalate. A reported potential ban on imports of Australian coal is the latest development, though initial claims are that China is looking to strengthen local coal production. Together with liquefied natural gas, crude oil and refined products, coal does fall within China’s commitment to increase purchases of energy products from the United States to a total of US$52.4 billion in two years, including an increase of US$18.5 billion in 2020 and an additional US$33.9 billion in 2021.

Given China’s good record of compliance with the rulings of the World Trade Organization (WTO), Australia may bring a WTO case to push China to change or remove restrictive measures. But WTO litigation takes time and does not guarantee a win. In the meantime, Australia should engage in diplomatic dialogue with China to start rebuilding the relationship. To strengthen bilateral economic ties in the long-run, both governments will need to take concrete steps to avoid unnecessary confrontations and reinvigorate the political will needed to further economic cooperation and liberalisation for mutual benefit.

What needs uncoupling is countries’ political and economic goals. For Australia, a strong economic partnership with China will continue to create large opportunities for its pursuit of production diversification, expansion of its agricultural and services sectors, and advancement of digitalisation and innovation, all of which are crucial to Australia’s economic growth and recovery in a post-COVID-19 world. Australia needs to have a healthier economic relationship with China — not to be a casualty in the crossfire between the two superpowers.

Weihuan Zhou is a Senior Lecturer and a member of the Herbert Smith Freehills CIBEL Centre at the Faculty of Law, The University of New South Wales, Sydney.



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Exposing the fragility of EU–China relations

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Author: Tim Rühlig, Swedish Institute of International Affairs

2020 was supposed to be an important year for EU–China relations as the European Union’s China policy is undergoing a deep transformation. Four summits had been planned this year. The first two were cancelled and a mid-September leaders’ meeting in Leipzig risks suffering the same fate. It also seems unlikely that the two sides will conclude an EU–China Comprehensive Agreement on Investment in 2020 after seven years of negotiations.

Chinese Foreign Minister Wang Yi waits before a meeting with European Council President Charles Michel at the EU council headquarters in Brussels, Belgium, 17 December 2019 (Photo: Reuters/John Thys).

COVID-19 is shrinking Beijing’s limited willingness to give in to European demands on unfair trade practices and more ambitious measures to curb climate change. This only adds to growing discomfort in the European Union over at least three developments shaping the relationship since 2016.

First, the perception among European policymakers and the traditionally optimistic European business community of China as an unfair competitor has increased significantly. Second, European assessments of political developments in China are increasingly negative regularly concluding that China under President Xi Jinping is turning even more authoritarian and nationalist. Beijing’s handling of demands for political reform in Xinjiang and Hong Kong only fuel European perceptions of a systemic difference between China and the European Union. Third, many EU officials worry that Chinese diplomacy is undermining European unity.

China’s targeted diplomacy highlights fractures in European China policy. While bilateral meetings never irritated Brussels, the 16+1 format, later known as the 17+1 format after Greece joined in 2019, includes China plus 17 central and central-eastern European countries, including 12 EU member states. Critics suggest that some government officials — such as those in Hungary and Greece — refused to criticise China, despite most EU member states advocating for a strong common position. Italy’s signing of a Belt and Road Initiative Memorandum of Understanding is yet another significant example of an EU country breaking ranks with European foreign policy unity. Recent criticism that the European External Action Service watered down a report on Chinese disinformation during the COVID-19 crisis is not convincing. Only days later, however, marking 45 years of diplomatic relations, EU Ambassador Nicolas Chapuis accepted to censor a passage in a remarkably friendly-toned op-ed published in China Daily co-authored by all EU ambassadors to China.

In 2019 the European Union adopted a new EU–China strategic outlook, describing China not only as a ‘partner’ but also an ‘economic competitor’ and ‘systemic rival’. The new European Commission characterises itself as a ‘geopolitical’ one. What appears to most observers an empty phrase might turn out to be a substantial EU policy shift on China. The new European Commission seems to be willing to adopt a ‘whole-of-Commission’ approach to EU–China relations. It now internally coordinates strategic objectives more closely to better leverage European power to achieve its core interests. But this new geopolitical turn is in its very early stages and there is no consensus over its priorities.

At the same time, Europe lacks unity and very different challenges now shape its relations with China. Widespread hope among central-eastern, eastern and southern European countries for major Chinese investments, after disappointment over EU solidarity in the global financial and the Euro crises that led Eurosceptics to gain influence, was followed by disenchantment. China’s foreign direct investment — once seen as an opportunity to gain more independent from the EU — was mostly directed towards high-technology industries in the continent’s north and west. At this point in time, a similar dynamic could occur in the COVID-19 crisis: the early successes of China’s mask diplomacy seem to have evaporated and the COVID-19 crisis may damage China’s reputation in the long term.

Growing rivalry between the United States and China is leaving its imprint in Europe. Poland and the Baltic states aim to maintain strong transatlantic partnerships because they perceive NATO and the United States as crucial security guarantors. But other EU member states, including Germany and France, are adopting a more critical approach towards US China policy.

The future of EU–China relations will largely be determined by four factors, of which China has influence over only one.

First, much will depend on whether or not EU member states — particularly the Eurogroup — will show solidarity in overcoming the economic consequences of COVID-19. EU solidarity will decrease European appetite for Chinese foreign direct investment and reduce China’s influence in some member states including Hungary, Croatia, Greece, Portugal and Italy.

Second, further integration of policymaking — most importantly the introduction of qualified majority voting on EU foreign and defence policy — could make Europe less vulnerable to China’s divisive tactics and strengthen EU cohesion.

Third, the US presidential elections in November 2020 and the question of what kind of China policy the United States will adopt from 2021 will prove decisive for EU–China relations. A litmus test will be how EU member states work with the European Commission and the European Union Agency for Cyber Security. The question to be answered is to what extent Huawei will be able to participate in the rollout of 5G infrastructure in Europe.

Fourth, domestic economic liberalisation in China that levels the playing field for European businesses in China could make the European Union reconsider its policy choices. Adopting a tougher approach was largely driven by the European business community and could be reversed by it. But a fundamental change in Chinese economic policy is unlikely, not least because economic relations are undergoing securitisation in both Europe and China.

Across Europe, perceptions of China are turning more critical. A debate leading up to an urgently-needed consensus should consider the protection of EU citizens and entities, address the gravest violations of international norms that the European Union considers to be constitutive and recognise the fields in which it has the most leverage. Only if Europe finds consensus over policy prioritises and instruments along these three criteria can it positively shape its China relationship with autonomy.

Dr Tim Rühlig is a Research Fellow at The Swedish Institute of International Affairs.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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Japan’s contributions to maritime stability in the Bay of Bengal

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Author: Michael van Ginkel, Stable Seas

Japan has a vested interest in contributing to regional maritime stability in the Bay of Bengal. It holds important Sea Lines of Communication (SLOC) that open commercial opportunities by increasing connectivity with littoral countries. Japan has more actively contributed to the maritime stability and security efforts of countries like India, Myanmar and Bangladesh in its transition from isolationism to internationalism. While Japan’s expanding role in the Indo-Pacific has elicited close scrutiny, the potential for mutual economic gains has encouraged Japan to continue increasing its maritime presence in the Bay of Bengal.

A floating dock of the Indian navy is pictured at the naval base at Port Blair in Andaman and Nicobar Islands, India, 1 July 2015 (Photo: Reuters/Sanjeev Miglani).

Increasing regional stability in the Bay of Bengal has significant economic benefits for Japan as it imports almost 80 per cent of its foreign oil from Middle Eastern countries. Protecting its energy shipments through the SLOC in the Bay of Bengal remains imperative for Japan as it attempts to diversify its oil sources. Non-traditional threats of piracy, armed robbery and maritime terrorism threaten the security of these commercial shipping lanes.

Increasing connectivity with the rapidly developing economies of littoral countries provides Japan with many commercial opportunities. Myanmar experienced an average annual GDP growth of 7.2 per cent from 2012 to 2016, over twice the global average of 2.7 per cent. Highlighted in the Stable Seas: Bay of Bengal maritime security report, low coastal welfare, poor rule of law and under-developed blue economies in littoral countries diminishes the region’s economic potential and also acts as a catalyst for illicit activity, which further detracts from economic output. By contributing to coastal infrastructure and maritime law enforcement efforts, Japan has a positive impact on the region’s maritime stability and economic resilience.

Japan’s support of coastal infrastructure projects around the Bay of Bengal improves maritime security. Japan relies heavily on the Japan International Cooperation Agency (JICA), the country’s overseas aid agency, to fund local maritime infrastructure projects. On South Andaman Island, JICA is working with India to create a 15 megawatt diesel power plant and has expressed interest in follow-up projects. The power plant and associated infrastructure create a functioning forward base from which India can project its maritime surveillance around the Strait of Malacca.

Complemented by assets like India’s Boeing P-8s, the patrols launched from the islands will enhance India’s awareness in the maritime domain and help reduce non-traditional maritime threats like smuggling, illegal, unreported, and unregulated fishing (IUU), mixed migration and trafficking.

JICA also provided funding for Bangladesh’s Matarbari deep-sea port and to Myanmar’s Thilawa port. These ports contribute to coastal stability by increasing national revenue and providing local economic opportunities, reducing incentives for coastal communities to engage in illicit activities to sustain themselves. In playing a supporting role in ongoing coastal infrastructure projects and security initiatives, Japan is building strong relationships with local stakeholders while contributing to regional maritime stability.

Japan helps build up the maritime capacity of littoral countries in the Bay of Bengal by enhancing maritime law enforcement training and donating law enforcement vessels. In January 2020, the Japanese and Indian coast guards worked together in the Sahyog–Kaijin exercise, the 18th installation of the Japan–India joint exercise. The exercises allow Japan to share skillsets and law enforcement protocols while increasing interoperability in coordinating operations between Japan and India.

In the case of Bangladesh, Japan facilitated the country’s ability to contend with non-traditional threats by providing a JICA grant to obtain 20 rescue boats. Both the skillsets and assets Japan has provided for littoral countries build capacity to counter maritime security threats in the region.

Although Japan’s primary form of contribution to Bay of Bengal stability takes the form of capacity building and infrastructure projects, the country also uses Japan Maritime Self-Defence Force (MSDF) vessels to bolster maritime security and signal its regional commitment. MSDF deployed vessels to the Indian Ocean between 2001 and 2008 as part of Operation Enduring Freedom following the 9/11 terrorist attacks. In 2017 and 2018, Japan continued to show its commitment to protecting the vital SLOC running through the Bay of Bengal by deploying its largest warship — the JS Kaga helicopter carrier — to the region where it also conducted port visits in India and Sri Lanka.

The Stable Seas: Bay of Bengal maritime security report identifies several areas of focus in the Bay of Bengal that require attention in order to improve underlying drivers of regional maritime insecurity, including IUU fishing, piracy and armed robbery, and coastal welfare. Capacity-building support and resource contributions from extra-regional states like Japan enhance existing maritime stability initiatives.

The positive reception to Japan in the Bay of Bengal has even led to ongoing discussions between Japan and India, the region’s most powerful littoral country, on an Acquisition and Cross-Servicing Agreement which would allow Japan to access Indian naval facilities in the Andaman and Nicobar Islands and India to use the Japanese naval facilities in Djibouti and potentially bases in Japanese territory. Such a cooperative measure has the potential to build further trust between the two nations, increase interoperability during joint operations and allow for a more sustained overseas Japanese presence.

By working with nations to not only monitor and patrol against non-traditional security threats but also cooperatively address drivers of illicit maritime activity, Japan is actively contributing to the region’s security and prosperity.

Michael van Ginkel is a research assistant at Stable Seas, a program of the One Earth Future foundation, based in Colorado.

This article is drawn from a longer paper published here on Stable Seas.



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The power and limits of China’s ‘mask diplomacy’

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Author: Dylan MH Loh, NTU

Despite initial missteps surrounding COVID-19, particularly in releasing timely information and providing accurate updates, China has largely contained their coronavirus outbreak. As a result, Beijing has turned its attention to helping other countries through the provision of medical supplies, test kits and technical expertise. China hopes to build goodwill in recipient countries and garner positive international media attention.The Consulate General of the People's Republic of China, Lin Jing (right) delivered food and medical supplies to Vice President of Parliament Solomon Lechesa Tsenoli (center) in Cape Town, South Africa 13 May 2020 (Courtney Africa/ ANA/Latin America News Agency via Reuters).

For instance, China has provided test kits to Cambodia, sent ventilators to New York City, deployed medics to Iran and increased its funding to the World Health Organization (WHO) by US$30 million (following Washington’s suspension of WHO funding on 14 April). While the humanitarian impetus is undoubtedly a major motivator, it is difficult to ignore the political calculus involved in China’s outreach efforts.

Beijing is endeavouring to soften criticism of its initial management and to burnish its global leadership credentials. This shifts the narrative from China being the ‘originator’ of the disease to one where China is stepping up to help the world battle the virus. These moves send a message: China has passed its own COVID-19 test and is now able to turn its efforts to helping others.

China has also used private philanthropic efforts to push this narrative. Alibaba founder Jack Ma’s contributions of masks and medical supplies to places such as the Maldives, Mongolia, Myanmar, Nepal and French Polynesia, among others, were widely lauded in Chinese media. While there is no evidence to show any coordination between Ma and the Chinese government, it is noteworthy that these recipient countries do not have formal ties to Taiwan. It is not surprising that countries receiving the most help are countries that already enjoy close ties to China or are important gateways in China’s Belt and Road Initiative.

China’s ‘mask diplomacy’ is not only carried out on a bilateral basis through public and private actors — Beijing is also directly engaging with Chinese citizens living overseas. The Chinese embassy in Singapore, for instance, has been active in engaging and helping its overseas Chinese citizens. The embassy procured and gave 60,000 masks to Chinese workers in Singapore, with the words ‘wishing our Chinese compatriots well, the Motherland longs for you’ emblazoned on boxes filled with masks.

China’s capacity to mobilise Chinese businesses and communities overseas for diplomatic and humanitarian ends is clear. The China Enterprise Association (Singapore) has also been working with the Chinese embassy in Singapore to distribute masks. Earlier, the Chinese Ambassador to Singapore conducted visits to universities and schools to extend ‘concern from [the] homeland government to Chinese students studying abroad’. Singapore is not unique in this regard — the Chinese embassy in Malaysia has also engaged with local hospitals, NGOs and political groups to assist in the fight against COVID-19.

But Chinese efforts to soothe public discourse surrounding its role in the pandemic are not without problems. It has been reported, for example, that Spain has stopped using a Chinese-made rapid test kit because it had an accuracy rate of less than 30 per cent. India, among other countries, has also stopped using Chinese rapid test kits owing to similar accuracy concerns. China insists that these are small issues and that worries over quality were ‘overblown’.

China has found it hard to convince Western media and governments to shed their cynicism. The United States has been relentless in its criticism of China’s handling of the coronavirus. The Attorney General of the US state of Missouri recently initiated a lawsuit against China. Mississippi has since filed a similar lawsuit. This has found some found some traction within the White House, with Trump saying that he exploring ways to make China pay. Australia and New Zealand have also echoed Washington’s calls for an independent investigation into the original outbreak in Wuhan, thus showing the limits of China’s public relations push.

A newly released EU report will be of great concern to China’s diplomats and its public relations push. The document notes that there is ‘significant evidence of covert Chinese operations on social media’, as it seeks to drown out ‘accusations that it made the crisis worse by trying to cover up its own outbreak’. What’s more, Beijing’s outreach efforts could also be viewed with suspicion by host governments. While there is no suggestion of anything nefarious with regard to Chinese COVID-19 outreach practices, concerns over foreign interference and political mobilisation are an ever-present fear.

The narrative that China is pushing has had limited success. Tellingly, it has achieved favourable results in Eastern European countries such as Hungary and Serbia, which are critical nodes in China’s Belt and Road project. Perhaps, what matters most for Beijing is how its own citizens view its crisis management efforts and entrenching the dependencies of countries already close to China.

Dylan MH Loh is Assistant Professor at the Public Policy and Global Affairs Division, Nanyang Technological University (NTU), Singapore. He is also the founding editor of ThePolitburo.org.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.



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