Pandemic complacency increases the risks for Japan, Taiwan, South Korea

Low-risk Taiwan, lying 15th out of 174 countries in Euromoney’s global risk rankings, and moderate risk South Korea (45th) were notable for their declining risk scores in Euromoney’s latest survey of economists and other risk experts conducted in Q1 2021.

Other countries in Asia mostly improved.

Japan, now ranking 42nd and, like South Korea, a tier-two (of five) category of risk, improved slightly, but the survey was undertaken before the latest Covid wave gained momentum.

Now, analysts are less confident with restrictions reimposed and the economy struggling.

Japan has experienced two Covid waves this year, one which peaked in mid-January and an even worse one in May.

The latter called into question the Tokyo Olympics this summer, but the International Olympic Committee is adamant it will go ahead, under restrictions and without any foreign visitors, or anyone in attendance at all, if necessary.

The country’s vaccine deployment has been painfully slow to date. The government is now racing to speed up the process by establishing state-run mass inoculation centres in large cities and new vaccination sites in workplaces and universities.

The vaccination programme was only launched in February, and initially only for healthcare workers, before being extended to the elderly in April. Presently, less than 10% of the total population of 126 million have received an initial dose.

Euromoney survey expert Prachi Gupta, adjunct professor at Japan’s Temple University, says the Japanese government has a reputation for providing strong support to domestic firms, which is just as well, given that the investor outlook is “more cautious”.

She adds: “Japanese businesses have been restructuring their strategies as sales have dipped and the economy is in recession.”

There are reservations within the corporate sector about holding the Olympics. Gupta notes that Hiroshi Mikitani, the CEO of e-commerce company Rakuten, said Japan would be on a “suicide mission” if it holds the Games, given the pandemic situation.

Gupta says Japan is entering a riskier stage due to the slow vaccine rollout, the third extension of the state of emergency and an over-stretched healthcare system.

With the economy and investment contracting, and the jobless rate rising, invariably scores for economic risk indicators will be toned down in Euromoney’s forthcoming survey for Q2 2021.

They will be worsened by the fact the government’s fiscal stimulus transfers to households last year mostly went into savings rather than being spent, which would have helped the economy recover.

Last year, the Taiwanese authorities imposed rapid and effective measures to protect the population. Despite being geographically close to the outbreak on the Chinese mainland, the number of cases, and deaths, was mercifully low.

This enabled the economy to stay open, avoiding the harsher economic effects felt in other countries worldwide, and in turn it led to strong support for president Tsai Ing-wen and her nationalist, centre-left Democratic Progressive Party government, which has a solid majority in the unicameral legislature.

However, Taiwan’s implementation of the vaccine programme has proved to be one of the worst in the region, with insufficient supply to meet demand.

As of end-May, just 2% of its 23 million population were vaccinated, with the government complaining of difficulty procuring vaccine supplies, while refusing assistance from China, given the fractured nature of cross-Strait relations over Taiwan’s status.

Although the number of infections remains low, an upsurge in May that led to the government tightening regulations on gatherings and indoor dining put Tsai under pressure.

She is struggling to convince voters her rejection of Chinese philanthropy is the right decision, given that the authorities openly admit to finding it hard to secure sufficient vaccine supplies.

The variant spread faster and was more wide-ranging in northern Taiwan, according to survey expert Szu-Min Chien, an associate research fellow at the Taiwan Institute of Economic Research (TIER).

“The Taiwanese considered the Covid-19 transmission rate was not high, and they did not know much about the British variant of the virus, so they relaxed their vigilance against the pandemic,” she says.

The fact that many Taiwanese were not afraid of becoming infected, coupled with reports of some blood-clotting problems, made Taiwan’s citizens reluctant to be vaccinated.

Survey expert Friedrich Wu, a professor at the Nanyang Technological University, says: “It is a typical case of initial success leading to complacency, self-congratulation and hubris, which in turn led to the premature relaxation of previously tough measures.

“The Taiwan authorities are also not as vigilant and tough as their mainland counterparts. In China, even [a small] outbreak can trigger a whole district or an entire city lockdown, and compulsory/comprehensive tests of millions of residents.”

He adds: “The dysfunctional democratic government in Taiwan simply does not have the political will to implement such draconian measures that are required to beat the Covid-19 virus.”

Wei-Jen Hsieh, assistant vice-president of the Export-Import Bank of the Republic of China, says the recent Covid-19 surge has been controlled to a certain extent, and investors remain optimistic about prospects, judging by the trading volume and trend of Taiwan’s stock market.

Even so, Jimmy Kuo, CEO of the Corporate Development Research Centre (CDRC), warns it is conceivable that before large quantities of vaccines are imported in July or August, or before the vaccination rate reaches 30% to 50%, the epidemic will be difficult to control.

“In addition, the Tsai government’s attitude towards the development of a domestic Covid-19 vaccine has impacted on imports of international vaccines – from Pfizer, Oxford-AstraZeneca and Moderna,” he says.

“The government supports local companies, Medigen Vaccine Biologics and United Biomedical Inc Asia, and expects domestic vaccines to be rolled out in the summer.”

Kuo adds: “This has raised a series of debates in Taiwan on the effectiveness of these domestic vaccines and doubt as to their recognition by the World Health Organization.”

The president has appeared on national television to mollify discontent, but Taiwan’s bureaucracy and institutions are being criticised for what would appear to be chaotic healthcare management.

This is emphasized by the fact that despite the central government attempting to purchase vaccines, it has said that local governments and even the corporate sector and religious groups can pursue their own solutions subject to central government authorization.

The inefficiency and incompetence of central government authorities is highlighted by Foxconn Technology Group’s billionaire owner Terry Gou announcing that his charity will import five million doses of the BioNTech vaccine, leaving the government to blame China for blocking a deal.

Relations with China will remain tense, but it is unlikely that it will evolve into full-scale conflict in the short term. The risks are mostly confined to economic growth, employment and the government’s finances, most analysts believe.

TIER’s Szu-Min Chien notes that the sudden outbreak of cases in May has dealt a blow to the services sector, notably catering, hotels and tourism, which affects many employees. However, the overall effect will depend on when and how the pandemic diminishes.

The failure to procure sufficient vaccines, invest in research or fast-track approvals is a familiar tale in a region that initially managed the crisis competently – but South Korea is also now reeling from complacency and delays.

The country has had difficulty in flattening the curve since a peak in new cases occurred in December, resulting in restrictions, including mask-wearing in public remaining in place until July.

The vaccination campaign only got going towards the end of February and out of a population of 51.7 million, only 5.4 million have received a dose, with 2.1 million fully vaccinated as of the end of May.

Despite this, CDRC’s Kuo notes that South Korea’s vaccine and hospital preparations have been as complete as possible “and there is great hope that it can maintain success in epidemic management”.

The late introduction of the vaccine has nevertheless hit the government’s approval rating, notes survey contributor Hyun Hak Kim, associate professor in the department of economics at Kookmin University.

He also refers to the political fallout from a recent property market scandal involving public corporations.

However, Kim remains sanguine and notes the fact that because the rest of the world is emerging from the pandemic, “it definitely helps South Korea’s gains from trade”.

The medium-to-long term interrelated problems of population ageing and pensions remain though.

“The birth rate of South Korea is the lowest in the world and it is expected the population will decrease in the near future,” he says.

This is a problem for sustaining pensions, exacerbated by the current administration’s expansionary fiscal policy. Kim suggests this is a more important issue than geopolitical tensions with China, Japan or North Korea.