East Asian Policy

China’s gross domestic product (GDP) in 2019 grew by 6.1% in the face of rising global uncertainties and underperforming structural reforms. Productivity growth had also slowed down, and this is associated with resource misallocation at the micro level. In 2019, the Chinese government had introduced various policies to promote productivity and to support the new economy. These policies have yet to make substantial changes, and local governments are lacking the incentives and capacity to implement structural reforms.

China’s economic growth has declined steadily since 2010. In 2019, trade conflict between China and the United States added uncertainties and weakened business and consumer confidence, thereby leading to further deceleration. Although the Chinese government has adopted policies to facilitate structural changes and support growth, changes would take time to occur and there may also be contradictions among policies.

Promotion of the non-state sector may be difficult with the government’s prominent role in resource allocation. The year 2020 may be even more challenging for China’s economy. In addition to declining profits and slower income growth, the ongoing coronavirus disease 2019 (COVID-19) outbreak is a huge negative shock bringing new uncertainties.

It was another difficult year for China in 2019. The Chinese economy and government revenue registered the lowest growth in nearly three decades. The employment situation has worsened and inflation driven by the surge in pork prices has reached its peak since 2012. Spending huge amounts of government money on social programmes has been China’s core coping strategy. This approach is however facing difficulties in localities with a smaller and less diverse revenue base. Social challenges will become even more manifest in 2020.

Society-wise in China, 2019 was largely devoid of violent incidents. The most significant incidents were labour rights protests in high-tech industries, and outcries from middle-class parents over food and vaccine safety hazards. As the economic slowdown and US–China trade war have posed greater challenges for Chinese society, the Party-state has sought to deepen its control of society. State-of-the-art digital technologies have been incorporated in traditional Leninist control at the grassroots, and greater efforts have been invested in promoting ideological education. While such a strategy may seem to have maintained stability and peace now, its actual effects in the long run remain to be seen.

Hong Kong’s real gross domestic product (GDP) growth for 2019 was estimated to register the first annual decline since 2009. The economic slowdown and recession in Hong Kong were driven by both weakening domestic and external demand, aggravated by local social unrest which had disrupted social stability, transportation and commerce. Hong Kong’s economic prospects hinge on how its sociopolitical situation and the US–China trade tensions will evolve. Despite short-term headwinds, Hong Kong’s competitiveness in the long term will likely remain strong if it maintains its unique institutional space and advantages in bridging mainland China and the rest of the global economy.

Taiwan’s economy expanded moderately by 2.71% in 2019 despite the ongoing US–China trade war. The growing inward investment made by Taiwanese firms with overseas business operation had underpinned Taiwan’s economy despite falling exports. While mounting investment inflows to Taiwan would continue to buttress the economy, the rapid spread of coronavirus could threaten its growth prospects in 2020. In the long run, Taiwan’s lack of free trade agreements may further constrain its external trade development. Taiwan’s rapidly ageing population, one of key demographic trends, presents another challenge to its long-term economic prosperity.

South Korea’s gross domestic product (GDP) growth was projected to recover to 2.3% in 2020 from 2.0% in 2019, aided by the recovery in the price of semiconductors. The manufacturing sector is South Korea’s most important sector for the highly export-dependent economy. China remains the top trading partner, but Vietnam has rapidly risen to become the third-largest export and the seventh-largest import market. South Korea plans to be ahead in the fourth industrial revolution by investing in data technologies, artificial intelligence and bio-health. The challenge is to manage both its industrial transition and social welfare expenditure while the young population continues to decline.

The global value chain strategy, which is key to the success of the Chinese mobile phone industry, provides an effective channel for the industry to innovate and catch up with foreign competitors. The innovation activities prevented Chinese firms from falling into the low value-added trap. They have captured increasingly more value added from both home-grown and foreign brand mobile phones. The strategy has successfully nurtured a few home-grown brands, namely Huawei, OPPO and Xiaomi.

Hong Kong Chief Executive Carrie Lam presented her housing policies at the 2019 annual address in broad strokes, including using ordinances to resume undeveloped land in accordance with the law. The Hong Kong government could use its regulatory power as disincentives for private development of land given the highly bureaucratic, time-consuming and expensive land development approval process. The Hong Kong government would also work jointly with private sector landlords to potentially develop public housing and profit-driven projects, which would then be negotiated based on the Hong Kong government’s terms and conditions.