East Asian Policy

In March 2018, Chinese President Xi Jinping kick-started his second term at the annual National People’s Congress, which amended the country’s constitution to allow Xi to remain in power beyond his scheduled departure in 2023. Xi’s power consolidation also came with the Party’s reinforced Leninist control of state apparatus at various levels, corporations, civil society, the media and the academia. Party-State reforms in 2018 were a reversal of Party-State separation (dangzheng fenkai) initiated by Deng Xiaoping.

China’s economy ended 2018 with 6.6% growth. Its recent supply-side structural reforms to manage the transition of its economy from an investment-driven to an innovation-driven growth model may have some achievements, but the China-US trade war and high debt level of corporations and local governments are among the major uncertainties for the Chinese economy. Since mid-2018, the government has modified its policy priorities, from a strong emphasis on structural reforms to measures that safeguard growth.

China had a bumpy year in 2018. The central government had to make a midyear adjustment with renewed emphasis on stabilising the economy and society prompted largely by the US-China trade war and a slew of domestic factors, such as the grieving middle class increasingly burdened by high living costs and growing household debts. By all signs, the year 2019 will be more difficult and a serious test is forthcoming for the Xi leadership.

The year 2018 is a watershed year in China’s foreign relations, marked by rapid deterioration of the external environment. The trade war with the United States is fought simultaneously at business, geopolitical and ideological levels.

The two were in a struggle to redefine their bilateral relations, which also affected China’s dealings with other states, including the two Koreas, Taiwan and Japan. A more cautious foreign policy is expected from China in 2019.

Hong Kong has been relatively calm under the watch of Chief Executive Carrie Lam. Connectivity in terms infrastructure between Hong Kong and China has been strengthened with a US$10 billion railway linking the most dynamic cities in southern China. Media freedom continues to be a flashpoint between foreign journalists and Beijing but in local elections, pro-government candidates like Chan Hoi-yan easily defeated experienced pan-democracy candidates in the Kowloon West by-election.

Hong Kong’s economy is projected to have grown by 3.2% in 2018, a moderation from a buoyant 3.7% in 2017. This relatively robust performance was sustained by healthy domestic demand and a steady growth in external demand. Economic ties with the Mainland continued to strengthen, with completed and new infrastructure projects. For 2019, however, Hong Kong’s economy faces new challenges, related both to uncertainties in the global economy and possible deterioration in China-US economic relations.

Declining Taiwanese nationalism, rising independent voters and more realistic public perception of democracy had contributed to the Democratic Progressive Party’s (DPP) electoral debacle in 2018. The structural dilemma of the DPP administration as a movement government significantly contributed to its rapidly declining public support. The DPP administration had to keep a delicate balance by compromising on its promises to various social movement and progressive forces after it took power, which consequently alienated many of its supporters.

Japan’s Prime Minister Abe Shinzo won a third term as Liberal Democratic Party president in September 2018 despite two crony scandals. As Abe is likely to remain as prime minister till 2021, he is set to hike consumption tax in 2019, organise the 2020 Tokyo Summer Olympics, raise defence spending and probably revise the constitution. Abe’s most significant legislative victory in 2018 was the revision of the Immigration Control and Refugee Recognition Law.

South Korea will face enormous challenges on two fronts for 2019. The country’s economic base will collapse because of the government’s inability to counter the trap it has laid on itself with a dramatic elevation of minimum wage and tax rates on property and housing. The government will be diplomatically isolated for its blind love towards North Korea, and confronted with rising friction with Japan over history issues and China on Terminal High Altitude Area Defence.

South Korea’s economy in 2018 grew by 2.7%, down from 3.1% in 2017. The slow progress of private consumption and plunge in domestic investment offset the positive effects of the government’s stimulus measures and the country’s moderate export expansion. The increase in minimum wage resulted in greater unemployment. The economic sluggishness pulled down President Moon Jaein’s approval rating from nearly 77% in Q3 2017 to below 50% at the end of 2018.

The year 2018 saw a reduction in tensions on the Korean Peninsula and one of active diplomacy and summitry, including a historic meeting between North Korean President Kim Jong-un and US President Donald Trump. However, the momentum had stalled due to different interpretations of the denuclearisation pledge and divergent priorities between the two countries. China remains a key player as Pyongyang and Washington contest over the substance and processes of difficult negotiations ahead.