Pacific Money | Economy

New Year Resolutions for Asia’s Biggest Economies

Will China, Japan, and India get any relief in the Year of the Ox?

Anthony Fensom
New Year Resolutions for Asia’s Biggest Economies
Credit: Flickr/ Rob Deutscher

Asia’s Year of the Rat was plagued by the COVID-19 pandemic, a new “Cold War” between the United States and China and global recession. In hope of better times ahead, Pacific Money takes a look at some New Year resolutions for the region’s biggest economies for 2021, Asia’s Year of the Ox.

China: Keep the Champagne on Ice

China’s ruling Communist Party celebrates its 100th anniversary in July 2021, having grown from a group of around 50 revolutionaries to more than 90 million members. Yet will it be bouquets or brickbats for Chinese President Xi Jinping at this milestone event?

Economically, Xi can boast of a swift recovery from the coronavirus pandemic that first emerged a year ago in Wuhan. While China has not been immune – it is set for its slowest growth since the Mao era – it has been one of the only major economies to expand in 2020.

As a result, its share of global gross domestic product (GDP) has jumped to its highest on record at around 18 percent, according to Capital Economics. Yet the consultancy cautions against extrapolating this strength too far into the future, given China’s structural weaknesses including demographics, rising debt, and diminishing returns on investment, which are being “papered over” with stimulus.

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“China’s rebound during the global financial crisis obscured an underlying decline in trend growth that only became apparent a few years later. We think the same will be true this time,” the London-based economists predict.

March’s meeting of the National People’s Congress will see the unveiling of the next five-year plan for Asia’s biggest economy. Among key considerations for Beijing are whether structural reform including for state-owned enterprises is put back on the agenda, as well as any concrete measures to meet Xi’s commitment to net-zero emissions by 2060.

Diplomatically, China’s “wolf warrior” diplomacy has given Xi plenty of self-inflicted problems in 2021, including keeping the Belt and Road Initiative on track, dealing with a new U.S. president and resisting further push back from the United States and Europe, together with subduing Hong Kong and Taiwan.

Prospects: The success of China’s promised vaccine roll-out, both at home and abroad, will have a large bearing on its economic prospects together with any potential soft power gains internationally.

With Xi’s second term as general secretary to expire in 2022, the “president for life” will need to lay the groundwork for the party centenary and his re-election with positive results on all fronts. The champagne might have to be kept on ice a while longer.

Japan: Time For ‘Suganomics’ Step Up

The political honeymoon did not last long for Japanese Prime Minister Suga Yoshihide. After entering office in September with a sky-high 74 percent approval rating, by December his Cabinet had the confidence of just 42 percent of voters amid a growing “third wave” of COVID-19 infections and criticism of government stimulus measures such as the “Go To Travel” scheme.

With the New Year period likely to see a further spread of infections nationwide, Suga may have no choice but to push further containment measures that could curtail a fledgling economic recovery.

Highlighting the risks, on December 31, the daily number of infections in Tokyo topped 1,000 for the first time since the pandemic began, with the government announcing further curbs on restaurants and bars and a ban on foreign visitors.

The Suga administration will need to get COVID-19 vaccines rolled out rapidly and the virus under control well before July, when the rescheduled Tokyo Olympics are set to be held.

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Nevertheless, buoyed by global and local stimulus measures, Tokyo stocks ended the year at a more than three-decade high. The benchmark Nikkei Stock Average closed at 27,568, its highest finish since August 1990, during the “bubble” boom.

After promising to tackle bureaucratic barriers to reform, Suga has only months to deliver tangible results ahead of September’s Liberal Democratic Party (LDP) presidential race and expected lower house election.

Externally, Suga will have to balance the demands of the new U.S. president with a desire to improve ties with neighboring China, particularly if Xi’s postponed state visit is to occur amid increased Chinese naval incursions around the Senkaku Islands.

Prospects: The success of mass vaccinations will be key to Suga’s re-election prospects as Japan nervously marks the countdown to the Games. Party rivals will be eyeing any further missteps for an opportunity to seize the reins from the 71-year-old leader, who has suffered the shortest political honeymoon since Aso Taro.

India: Build The Foundations

Touting his goal of “self-reliance,” Indian Prime Minister Narendra Modi put some concrete steps (literally) in place by recently laying the foundation stones for the new $3.5 billion parliament building in New Delhi.

Critics blasted the move as the actions of a “mad man,” yet the nationalistic leader is already eyeing his place in history, with the building due for completion in time for India’s 75th Independence Day celebrations in August 2022.

In the meantime, the Modi administration has its hands full dealing with Asia’s worst reported outbreak of COVID-19. In December, India crossed the grim milestone of 10 million infections, with its around 148,000 reported deaths putting it third-highest in the world behind Brazil and the United States.

The pandemic has pushed some 400 million Indians into further poverty according to the International Labor Organization, challenging Modi’s ambitious economic targets.

Somewhat paradoxically, Indian stocks ended the year at record highs amid a surge in buying by both local and foreign investors.

The economy is showing signs of recovery, too. After recording negative 23.9 percent GDP growth in the second quarter, the contraction eased in the third quarter to minus 7.5 percent and GDP is expected to further increase in the fourth quarter.

The Asian Development Bank (ADB) expects Asia’s third-largest economy to post a contraction of negative 8 percent in 2020 but achieve an equivalent rebound in 2021. However, Capital Economics still expects GDP to be some 7 percent below its level had the virus not existed by the end of 2021.

Modi also faces other challenges, including a revolt by farmers against planned market-oriented reforms, growing fiscal arrears that have hit planned goods and services tax payments to the states, and a stalled privatization program.

State elections from April will test Modi’s popularity, with West Bengal attracting particular attention given the potential for the incumbent, Mamata Banarjee, to lead an anti-BJP coalition in the 2024 general elections.

Diplomatically, while India’s role in the emerging Quad that includes the United States, Japan, and Australia and its border skirmishes with China have put it apparently in the pro-Western camp, its planned import of a Russian missile defense system in 2021 will ring alarm bells in Washington.

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Prospects: Modi still has time to get his reforms back on track before the 2024 poll, but a lot will depend on his administration’s ability to get on top of COVID-19. Firefighting on domestic and external fronts will give the 70-year-old little time to look ahead to his planned legacy.

Will the Asia-Pacific bounce back from the coronavirus and the U.S.-China trade war in 2021? With India and China expected to lead the recovery, a lot is riding on the region as the world looks ahead to a brighter, post-pandemic future and a new Democrat president in Washington.

In the meantime, to all Pacific Money readers, our very best wishes for a happy and prosperous New Year!