Asia in 2021: through a screen darkly

The reality of 2020 represented a wild departure from the tidy predictions made around this time last year. Rather than a turning point, however, the pandemic was more akin to a time warp. Things that were already happening started happening faster: the rise of China, the decline of the West, the restructuring of world trade, the focus on climate goals, and the supremacy of Big Tech were all hastened by a unique chain reaction unleashed by the virus. COVID-19 "will not so much change the basic direction of world history as accelerate it," according to Richard Haass, president of the Council on Foreign Relations in New York.

With a new dose of humility, therefore, we are once again turning our gaze to the new year. One thing most people rule out is optimism for imminent change. But at the same time, the lesson of 2020 is the danger of predicting continuity. Read on for Nikkei Asia's top correspondents' best bets on where 2021 will take us. 

Next year's vaccines will not turn back the clock

For better or for worse, we'll continue gazing at our colleagues through screens in 2021. Experts say that as the vaccine slowly rolls out in Asia, the blurred lines between home and work are hardening into more permanent change.

  © Illustration by Eric Chow

Some of this is good for countries clinging to analog, labor-intensive ways. Take Japan: Working from home began as an emergency pandemic response, but it quickly turned out to help relieve labor shortages that had dogged the country's declining and aging population.

Sompo Japan, a Japanese insurance company founded in the 19th century, has even made it standard practice. "With the labor force shrinking, we must make society more friendly to working parents," said Kengo Sakurada, the company's president, in May.

But perfecting it is still a work in progress. A Nomura Research Institute survey found that nearly 90% of women with small children felt disruptions working at home, though 79% of all respondents appreciated the time-saving upside of no commute. And in a country of multigenerational households, workers with older parents to look after are also feeling relief. Businesses are noticing that productivity has not suffered -- or has even improved.

In September, logistics giant Yamato Holdings began testing delivery robots on the streets of Tokyo, attempting to reduce COVID-19 exposure while lifting the pressures of soaring demand from their workforce. Parcel sorting is likely to be eventually automated too, predicts Yosuke Yasui, a Japan Research Institute analyst and former Bank of Japan official. Factories that accelerated automation to address concerns about infection have realized that, actually, they can do with fewer people as well.

That's how things stand for the third-largest economy in the world. Will things be different in developing Asia, where labor is more abundant, the population young and incentive for automation lower?

Some industries such as manufacturing and construction, crucial to a country like India, do require the physical presence of workers, notes Dharmakirti Joshi, chief economist at Indian research and rating company Crisil.

The country is also a major exporter of call-center support for consumers in advanced economies, and the pandemic has forced even more rapid digitization with artificial intelligence and chatbots. But "people need to interact, work in groups and discuss together. Technology cannot be a full substitute for that," Joshi says. "Although people work differently now, they will not give up completely their old way of doing things." -- MITSURU OBE, Nikkei staff writer

Stock markets: Big Tech saves the day

When the first wave of the coronavirus pandemic crashed over Asia's economies around March, stocks fell sharply over fears of an economic downturn. Sequoia Capital, one of the world's most well-known startup investors, called the coronavirus "the black swan of 2020," and urged founders to prepare for the worst.

The downturn bit deeply into economic growth and unleashed trillions of dollars in government stimulus in Asia. Many countries are still grappling with an even larger wave of infections. But the region's business landscape looks surprisingly different: Stocks have rebounded to pre-pandemic levels, driven by major tech companies. More government stimulus and prospects of a vaccine are only part of the recovery in investor confidence.

"The positive surprise for us was just how quickly the capital markets and the digital world have adapted to this new normal," Abheek Anand, managing director at the same Sequoia Capital, said recently in an online summit. The pandemic has dramatically accelerated the adoption of digital services across the board, including areas like education and health care which have long lagged in going online. Many investors believe the behavioral patterns developed during the pandemic are here to stay.

"People who have experienced the convenience of telemedicine are unlikely to completely return to the offline world once the pandemic ends," said Chiharu Goto of venture capital firm Spiral Ventures. "It is less a temporary boost in demand [for digital services] and more of an accelerated pace of digital transformation."

Zoom, the remote working tool that defined 2020, may still enjoy healthy demand as companies continue with work-from-home policies. But Asia also has its own share of homegrown enterprise software companies, like the Japanese accounting software provider Freee which saw its stock price roughly triple in 2020. Ever-rising need for online shopping is raising speculation for a stock listing for some of Asia's largest e-commerce players, including South Korea's Coupang and Indonesia's Bukalapak. 

In the early stages of the pandemic, the inability to do face-to-face meetings hampered opportunities for companies in Asia to attract investors from the West. An effective global rollout of vaccines will raise hopes for unleashing a funding frenzy. On the other hand, a delayed vaccination process may lead to another form of deal-making: consolidation. Talks are underway for Grab and Gojek, Southeast Asia's two largest tech companies, to merge. -- WATARU SUZUKI, Nikkei staff writer

  © Illustration by Eric Chow

Travel: in it for the long haul

Governments and travel industry executives are praying that vaccines being rolled out by companies like Pfizer, AstraZeneca, and Moderna in the West, and state entities in China and Russia, can rescue the world's decimated hospitality and aviation industries. By estimates from the International Air Transport Association, the main aviation lobby group, airlines alone are expected to lose $157 billion in 2020 and 2021 combined -- far more than imagined.

Proving that the vaccines work is only one of the enormous obstacles ahead. Vaccinating the world has been described as the "mission of the century." Shipping and delivering billions of doses of delicate vaccines will require global air freighter capacity and cold-chain infrastructure that are far from in place.

In a flash of irony, airlines are still at the center of the effort. "This will be the largest and most complex logistical exercise ever," said Alexandre de Juniac, chief executive of IATA. "The world is counting on us."

With the U.S. and many European countries' case numbers continuing to build ahead of the vaccine's rollout, East and Southeast Asia are likely to find their best recovery prospects regionally. Before the pandemic, 79% of Asia's international tourist arrivals were already from other parts of the region, led by China according to the United Nations World Tourism Organization.

Attempts in 2020 to create "travel bubbles" between countries relatively free of COVID-19 have failed. Most Asia-Pacific countries kept their borders closed, and applied stringent quarantining and testing to the very few visitors allowed in.

"A return to normal travel and tourism practices is still some way off," Priyanka Kishore of Oxford Economics told Nikkei Asia. Even for domestic travel, she said, 2019 levels were unlikely to be achieved before 2022, and 2024 for international travel. Some experts say business travel may never recover.

Qantas Airways Chief Executive Alan Joyce recently said his airline would be likely to adopt a "no-vaccination, no-fly" policy. Leading airlines are already experimenting with "vaccination passports" that enable check-in staff to digitally verify with accredited labs that boarding passengers have had the tests and vaccinations required by destination countries.

A similar idea called CommonPass, developed by nonprofit the Commons Project along with the World Economic Forum is being tested on flights between the U.K. and the U.S. The IATA Travel Pass is also imminent. Concerns have already been raised about privacy and exclusion risks inherent in these systems, as well as possible authoritarian creep. Anti-vaccine activists will likely be staying home alone for a long time yet. -- DOMINIC FAULDER and ERI SUGIURA, Nikkei staff writers

Climate change: Business keeps a nervous eye on the weather

2020 was not the year anyone expected ambitious climate policy -- especially from governments distracted by the pandemic. But over the space of a few months, three of Asia's largest economies -- China, Japan and South Korea -- announced net-zero carbon targets.

"Humankind can no longer afford to ignore the repeated warnings of nature," Chinese President Xi Jinping said on Sept. 22, addressing the U.N. General Assembly by video.

Business in Japan and South Korea has been blissfully complacent without government direction. But "changes for companies could be felt very soon in Asia," said Yuito Yamada, partner at McKinsey & Co. "Many financial institutions are discussing [climate-related] agendas."

In China, businesses generally do what government policies tell them to, however. "In the next five years, China will continue investing in everything," from solar, wind and electric vehicles to coal and gas, said Alex Whitworth, head of Asia-Pacific power and renewables research at Wood Mackenzie. Eyes are on the country's next five-year economic plan for clues to its level of demand for fuels and supply of technology, all of which will reverberate through global markets.

  © Illustration by Eric Chow

In Japan, others have reacted with unease, rather than frantic investment. Some businesses in critical sectors were finally pushed to start assessing the state of their emissions, said Yamada, after years of stagnation. Among the hardest sectors to decarbonize include steel and cement. Still, at the government level, ministries have only just started discussing how to reflect the new commitment into actual plans.

For South Korea, the path is even less clear. According to the International Energy Agency, the share of renewable electricity was under 4% in 2018. However, "coming late to renewables development has advantages as well as disadvantages" because the costs have now come down, said Whitworth.

Japan and South Korea aim to achieve carbon neutrality by 2050, while China (which emitted nearly six times the emissions of both countries combined, according to the Global Carbon Project), has committed to a 2060 target. The rest of the world is moving, too: the U.S.'s expected reentry into the Paris Agreement, the European Green Deal, and the Glasgow U.N. conference, which would determine carbon pricing, are all expected to push next steps.

Whatever the pace, companies look set to be held to a higher standard. As three Asian countries that together pump out more than 30% of the world's carbon emissions, the targets offer unforeseen potential for the world to lower its emissions -- helping to prevent the 2 degree temperature rise that's required to avoid catastrophic climate change. -- AKANE OKUTSU, Nikkei staff writer

The politics of the next pandemic

Hindsight, as they say, is 20/20. Economists now claim to have seen the global financial crisis coming before 2008, but red flags in the overheating housing market were ignored by regulators. Likewise, annual hurricane seasons seem to catch authorities off guard and unprepared each year, as resources for a flood that might happen are redirected to short-term needs.

This year, the world ignored, rather than missed, the first signs of a new coronavirus, said Yanzhong Huang, senior fellow for global health at the Council on Foreign Relations. "By Jan. 10, there were already cases of health care workers being infected," he said. "That should have been the smoking gun of a highly transmissible virus."

When and where the next global health crisis will begin is nearly impossible to forecast. But one thing is for sure: Flawed assumptions and political circumstances have gotten in the way of responses to foreseeable crises, and will continue to do so.

"One of the lessons we can draw from the outbreak is those countries that we thought have strong health care systems -- or were prepared for a disease outbreak -- happened not to be so prepared," said Huang, citing the U.S., where he also teaches global health security at Seton Hall University.

Countries cited for having successful COVID-19 responses appear to be the ones who learned the lessons of the SARS pandemic in 2003. With that memory in mind, Vietnam, Taiwan and South Korea responded early and quickly to atypical pneumonia rumors trickling out of China.

A delivery man checks an address in Incheon, South Korea, in March.   © Reuters

Now that those countries have earned accolades, the hope is that neighbors in Asia and other regions will learn from example to take early action and to maintain clear and consistent communications with the public. But politics are tricky: While Taiwan's COVID-19 response has been praised, its attempt to take a seat at the World Health Organization and share its expertise, however, was scuttled by Beijing.

And the best intentions to prevent crisis can go nowhere. The Obama administration developed a pandemic playbook from its experience with the 2009 swine flu scare, recommending a national stockpile of personal protective equipment and coordinating state and federal responses. But while public health officials in the U.S. received early COVID-19 warnings as early as January, the Trump White House did not use the pandemic playbook.

"The World Health Organization should be reformed to have its own intelligence-gathering capacity free from political interference," Huang suggests, and to give the U.N. power to mobilize disease resources. "There's no regularity in terms of the gaps between pandemics. There's no room for complacency," said Huang. -- FRANCESCA REGALADO, Nikkei staff writer

  © Illustration by Eric Chow

The engine that could: Will China lead the world economy out of crisis?

2021 promises to be a tremendous opportunity for China. Having largely controlled the virus within its borders, China's domestic economy is growing and its influence abroad is expanding, not least because its vaccines are the only immediate choice for much of the developing world. The ruling Chinese Communist Party's 100th-year anniversary in July is set to be a victorious one.

Aside from a sharp dip in the first quarter, the country's economic growth beat expectations in the following two. China is set to lead a global economic recovery while other major economies are still preoccupied with controlling the pandemic. State lender Bank of China's research institute projected a 7.5% annual growth in 2021, up from 2.1% expected in 2020.

"China's rebound has been reflected globally in the recent relative strength of manufacturing versus service sector indicators, the pickup in world trade and the recovery in commodity prices since April," Brian Coulton, chief economist at Fitch Ratings, told Nikkei. "It will be particularly beneficial for emerging markets in Asia and elsewhere."

Economists caution, however, that growth has been fueled mainly by support to the supply side of the economy through corporate taxes reduction and infrastructure projects, and less by consumer spending.

Michael Pettis, a nonresident senior fellow at Beijing's Carnegie-Tsinghua Center for Global Policy, sees two ways out of it. "One way is to boost domestic public sector spending to absorb excess production, and the other is with a sharp increase in the trade surplus," Pettis said in an interview.

China already has a combination of both, added Pettis, but the focus on domestic consumption is expected to accelerate under the "dual circulation" strategy that will drive its 2021-25 economic plan.

Economists expect a greater emphasis on job creation and increasing income level in order to drive domestic consumption as the country moves away from export-oriented model that fueled growth in the past decades.

But for 2021, China is expected to continue to be an importer of last resort for the world economy. A stronger yuan, which has appreciated by 4% as of November compared with the average level in 2019 will boost import, which is expected to grow by 7.2% according to HSBC Global Research.

China is also expected to grow its share of exports as one of the few economies with an intact production base. HSBC projects exports to grow 7.9%, up from the 3.4% estimate for 2020. -- CK TAN, Nikkei staff writer

Vaccines made by China's Sinovac await loading onto a Garuda airplane at Beijing International Airport on Dec. 6.    © AP

Magic Money or Hocus Pocus?

"Never let a good crisis go to waste," goes a policymaking maxim advocating reform. Yet governments appear prepared to indefinitely -- even riskily -- throw stimulus after lockdowns.

Nations are jacking up public spending in the face of an unprecedented economic catastrophe. S&P Global Ratings projects outstanding debt, including that of governments, corporates and households, across the world will rise 10% to a record $200 trillion in 2020, peaking at an average 265% of gross domestic product by year-end.

But who will carry the cost of the COVID-19 era debt bubble? The assumption is all this spending, combined with vaccines, will be enough to bring the pandemic under control and reboot the economy. This theory of massive stimulus -- "magic money," in the words of economist Sebastian Mallaby -- appeared to work during the 2008-09 global financial crisis. The economic rebound would increase tax revenues and give governments the means to repay and finance future borrowings.

"Although we're heading toward record levels of debt-to-GDP, we believe a near-term debt crisis is unlikely," said Alexandra Dimitrijevic, global head of research at S&P. "This is based on our assumption of a continuing, albeit choppy, global economic recovery. The recovery, in turn, is predicated on the wide availability of a COVID-19 vaccine by mid-2021, continuing accommodative financing conditions supported by monetary policies from major central banks, and the return of private-sector demand."

Credit Suisse expects the global economy to expand by 4.1% in 2021. The economic rebound along with interest rates at or below zero in all major developed economies would continue to support equities that hit record levels in 2020, the bank said.

A straw poll of two global fund managers and equities analysts indicated investors' risk appetite has risen following the U.S. election in which Joe Biden ousted Donald Trump. The four remained "positive" on equities despite the rally in 2020, and recommended beaten-down cyclical sectors. They, however, warned investors need to be selective, as some sectors were overvalued.

"We continue to regard equities as offering the most compelling return prospects," said John Woods, chief investment officer for Asia-Pacific at Credit Suisse. "The aftermath of the U.S. elections has turned out favorably for Asian risk markets as uncertainty faded. A combination of reduced trade tensions, a weaker dollar, higher-tech exposure, and better COVID-19 containment should see North Asian equity markets continue to dominate the regional investment narrative." -- NARAYANAN SOMASUNDARAM, Nikkei staff writer

Mirror mirror: America repairs its image in Asia

"America is back," declared incoming President Joe Biden. But it will be far from a triumphant return. Left on the sidelines of recent bumper trade deals -- the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the even larger Regional Comprehensive Economic Partnership -- the U.S. is isolated. Asia's willingness to move forward is an "indictment" of Washington, said William Choong, a senior fellow at Singapore's ISEAS-Yusof Ishak Institute.

The silence shows "[America's] failure to recognize that, in order to be seen as a leader in a region, you have to be front and center" in these pacts, he said. The U.S., in other words, is no longer "the indispensable nation," as then-Secretary of State Madeleine Albright put in 1998.

At home, the former vice president, once sworn in, will be preoccupied with coaxing America's economy back to recovery from the ravages of COVID-19. And it will be no easy matter for Biden to restore America's diplomatic centrality since his predecessor "damaged its credibility with Asian partners by demonstrating the U.S.'s chaotic domestic politics," Choong added.

What are the obvious options? In 2021, Biden could work to form an alliance in Asia with Japan, India, and Australia to balance China, according to David Denoon, director of the Center on U.S.-China Relations at New York University, something usually referred to as the "Quad." India may want to remain autonomous, but the South Asian country is clearly threatened by China's advances in the region: At least 20 Indian soldiers were killed in a border skirmish with Chinese forces in the summer of 2020. The Biden administration could leverage these tensions to gain a commitment of support.

"The critical element is that all of our democracies are potentially willing to balance China, and if we have a stable arrangement, China is not likely to undermine it," said Denoon. "The combination of GDP and technological strength in Japan, India, the U.S. and Australia is a formidable coalition. Other countries may eventually join with the Quad, but I think this is the basis for a future security relationship in the Pacific."

In terms of political security, Choong said it "helps" that the Biden administration "will emphasize the strengths in American traditional alliances and partnerships," likely combining that with "the Indo-Pacific strategy that was propagated under Trump and take it to perhaps version 2.0." That might extend to include working with allies and partners on regional infrastructure while helping small states in the South China Sea build out their maritime domain awareness and strengthen their maritime security.

"And if this is done, it's all good news for the region," he said. -- MARRIAN ZHOU and ALEX FANG, Nikkei staff writers