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2021/115 “Understanding the Selective Hesitancy towards Chinese Vaccines in Southeast Asia” by Khairulanwar Zaini and Hoang Thi Ha

 

A student receives a shot of the Sinovac covid-19 coronavirus vaccine at a school in Lhokseumawe, Indonesia’s Aceh Province on 30 August 2021. Photo: AZWAR IPANK, AFP.

EXECUTIVE SUMMARY

  • China has supplied 190 million doses of its homegrown vaccines to Southeast Asia. However, perceptions of Chinese vaccines among the regional public largely trend negatively, suggesting a non-linear relationship between China’s vaccine diplomacy and its soft power in the region – especially at the popular level.
  • An examination of six countries (Indonesia, Malaysia, The Philippines, Singapore, Thailand and Vietnam) reveals some common factors driving the selective hesitance towards Chinese vaccines in the region.
  • These factors can be grouped into three broad categories: (i) General Covid-19 vaccine hesitancy; (ii) Specific concerns about the efficacy and religious permissibility of Chinese vaccines, and (iii) Political factors, namely public mistrust of national governments and/or China.
  • Some pockets of enthusiasm for Chinese vaccines exist. This is due to their use of traditional vaccine technology and China’s promise of easier passage into the country for recipients of its vaccines.

* Khairulanwar Zaini is Research Officer, and Hoang Thi Ha is Fellow and Co-coordinator of the Regional Strategic and Political Studies Programme at ISEAS – Yusof Ishak Institute.

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INTRODUCTION

Southeast Asia is a primary region for China’s vaccine diplomacy. Chinese-made Sinovac and Sinopharm are by far the most available Covid-19 vaccines in the region, with 190 million doses having been delivered, the bulk through commercial channels.[1] While most regional governments adopt the policy of diversification to obtain as many doses as possible amid the severe global shortage, they have to take into account public opinions towards the various vaccines, in their procurement and deployment decisions. This Perspective outlines some broad trends in public perceptions of Chinese vaccines in six Southeast Asian countries – Indonesia, Malaysia, The Philippines, Singapore, Thailand and Vietnam – based on publicly available data, including surveys, social media reactions, news articles and research papers.

Several polls undertaken since late 2020 paint a mixed picture of public perceptions towards China’s vaccines in these countries. These polls were conducted by different organisations at different periods of time, with different sampling methods and questionnaires. Therefore, straightforward comparative conclusions cannot be easily drawn from the data. Moreover, the fluidity of the pandemic and people’s shifting reactions may result in some inconsistencies and contradictions between the various survey results. Recognising that each survey represents a particular time-specific context, the analysis of the survey data in this Perspective is not for the sake of accurate statistical measurement, but for the purpose of parsing the thematic issues surrounding public perceptions of Chinese vaccines in the region.

A December 2020 survey indicated that 28% of respondents in Indonesia viewed Chinese vaccines positively against 23% with negative views, while in Singapore the ratio was almost inverse (23% positive versus 32% negative). (See Table 1 for comparisons of such perceptions in China and in the West).[2]

Further surveys conducted in Indonesia between late 2020 and early 2021 suggest that the Indonesians did not necessarily have a bias for or against any specific vaccine on the basis of its origins. A KOMPAS survey in January 2021 showed that respondents did not favour any particular vaccine over another — the rates of acceptance and rejection of vaccines produced in China, Europe and the United States were generally similar (Table 2).[4] This finding appears corroborated by a more granular survey done by Indikator in February 2021 (Table 3), which examined trust levels in specific vaccine brands.[5] Though the survey reveals that trust in Sinovac, the most commonly-used vaccine in Indonesia, was higher than trust in other vaccines (32.3%), it was also the most distrusted brand (33.2%).

In Thailand, a Suan Dusit poll in May 2021 (which did not include the Sinovac and Sinopharm vaccines in the mix) suggested a prevailing preference for Pfizer (75.1%) and Moderna (72.1%), followed by Johnson & Johnson (68.5%), AstraZeneca (65.9%) and Sputnik V (61.9%).[6] Another Suan Dusit poll in July 2021 suggests greater acceptance of Sinopharm vis-à-vis low trust towards Sinovac among the Thais, when they were asked about their preferred brand for the second and third jabs (Table 4).[7]

In The Philippines, a few polls were conducted since early 2021 in different localities with different samplings, offering some converging and diverging results. A survey by the OCTA Research Group in January-February 2021 indicated that only 15% of Filipinos trusted vaccines from China;[9] 41% trusted vaccines from the United States, followed by the United Kingdom (25%), Russia (20%) and India (17%). Similarly, the Social Weather Station (SWS) poll in May 2021 found that 63% of respondents preferred made-in-America vaccines versus 19% favouring Chinese ones. However, in terms of vaccine brand preference, 39% chose Sinovac, followed by Pfizer (32%), AstraZeneca (22%) and Johnson & Johnson (10%). A higher level of brand recognition for Sinovac among Filipinos could explain this seeming contradiction, given that Sinovac was the dominant vaccine deployed in the country at the time of polling.[10]

Public perceptions of Chinese vaccines in the select Southeast Asian countries are influenced by many considerations, including the severity of the pandemic outbreaks at the local or national levels, the impact of government vaccine awareness programmes versus vaccine misinformation campaigns, and the accessibility to Chinese vaccines vis-à-vis other vaccines at a given point in time.[11] This article focuses on some key common factors that can be identified in two or more of these countries. These factors are grouped in three categories: (i) General Covid-19 vaccine hesitancy; (ii) Specific concerns about the efficacy and religious permissibility of Chinese vaccines; and (iii) Political factors, namely public mistrust of national governments and/or China.

These factors are not equally salient across the countries. As the subsequent section will illustrate, general scepticism of vaccines and worries about Sinovac’s halal status are most responsible for the selective hesitancy against Chinese vaccines in Indonesia. For Thailand, the impetus is more political: Popular distrust of the government and, to some extent, of China, negatively colours public perception of Chinese vaccines. In Vietnam, the dim reception of Chinese vaccine offerings can mostly be put down to the public’s prevalent distrust of China. 

GENERAL COVID-19 VACCIne Hesitancy

YouGov’s data revealed a shifting trajectory of Covid-19 vaccine acceptance in Indonesia, Malaysia, The Philippines, Singapore, Thailand and Vietnam. Between December 2020 and July 2021, vaccine acceptance levels sharply increased across these countries, save for Thailand (Table 5).[12] Vietnam is the only country where the rate of vaccine confidence remained consistently high. Another survey conducted between October and December 2020 saw Vietnam leading the world in terms of the share of the population willing to be vaccinated (98%).[13]

The pandemic is still in a very fluid situation and massive Covid-19 outbreaks in most of these countries over recent months have driven, and will continue to drive further vaccine willingness among the public. However, there remains a considerable minority who resist Covid-19 vaccines, regardless of their origins. A number of surveys in the region indicate that the general vaccine hesitance is largely attributed to concerns about vaccine effectiveness, safety and fears about side effects (Table 6).

Some of the hesitancy towards Covid-19 vaccines can be attributed to the low health literacy about the virus in certain segments of the population, partly due to government failures in communicating relevant information about the virus and their response.[20] This situation is most extensively reported in Indonesia. For instance, 25 out of the 30 participants interviewed for a study in September 2020 expressed their “disbelief” about Covid-19, describing it as “a common cold, flu, and cough” that “has been blown out of proportion by the government” — even though Indonesia was then recording 4,000 new cases and 100 deaths daily.[21] This has prompted the Covid-19 vaccine to be construed as an unnecessary risk. Another study of 50 Indonesian women with certain vulnerabilities (HIV patients, pregnant women, frontline health workers) in early 2021 revealed their vaccine hesitance to be partly due to the belief that Covid-19 is not a severe health threat and can be mitigated by other means.[22]

Public scepticism about the existence and severity of Covid-19 feeds into vaccine hesitancy, especially in the wake of anti-vaccine disinformation campaigns. In The Philippines, anti-vaccine theories peddled by US-based evangelical Christian groups have filtered into local church networks and Facebook discussion groups.[23] In Malaysia, a ‘Covid Research Centre’ has been fearmongering about the Pfizer vaccine, while promoting “herbal and other natural treatments” as a means of preventing Covid-19.[24] Even politicians are not averse to indulging in such anti-vaccine rhetoric. In December 2020, Tengku Razaleigh Hamzah, Malaysia’s longest-serving parliamentarian, repeated the claims of anti-vaxxer Michael Yeadon that vaccines are unnecessary because “people around the world are acquiring the natural herd immunity”.[25]

Another reason for vaccine hesitance in the region could be the lack of trust in government vaccination programmes. This is salient in The Philippines and Indonesia, both having recently mismanaged vaccination campaigns involving children. In April 2016, The Philippines introduced a plan to vaccinate all nine-year-olds with the dengue vaccine Dengvaxia.[26] A public furore erupted in 2017 when Dengvaxia’s manufacturer revealed that this caused those who were dengue-naïve to be more susceptible to more severe dengue infection in future. The Dengvaxia controversy drove vaccine confidence in The Philippines to plummet from 93% in 2015 to 32% in 2018. Similarly, Indonesia’s campaign in 2018 to inoculate children against measles and rubella faltered after it was revealed that the vaccine contained “negligible traces of pork gelatin”.[27] The trauma of these botched vaccine roll-outs perhaps accounts for the initial reticence in both countries to get the Covid-19 vaccine: in December 2020, only 55% in Indonesia and 52% in The Philippines were willing to be vaccinated.

SELECTIVE HESITANCY TOWARDS CHINESE VACCINES

The selective hesitancy towards Chinese-made shots in the region is partly an extension of the general vaccine hesitancy due to the considerations above. Apart from vaccine-related factors such as efficacy and religious permissibility, political factors also drive selective hesitancy towards Chinese vaccines, especially in countries where members of the public do not trust their national governments and/or China.

Vaccine-related Factors: Efficacy and Religious Concerns

A major factor behind selective hesitancy of Chinese vaccines among Southeast Asians is widespread concerns about their reliability. As a July 2020 study in Indonesia noted, acceptance of a particular vaccine hinges on its effectiveness: While 93.3% of respondents would get a Covid-19 vaccine with an effectiveness of 95%, this drops to 67.0% for a vaccine that is 50% effective.[28] Thus, in the absence of clarity about their efficacy rates, public confidence in China’s homegrown vaccines is likely to take a hit, especially when real-world developments suggest that these vaccines may not offer robust protection against newer Covid-19 variants.

For example, Sinovac’s effectiveness remains mired in doubt, compounded by the company’s reluctance to promptly publish their trial data or actively address the diverging efficacy results. According to separate clinical trials, Sinovac’s protection rate varies between 50% to 90% — the vaccine was 83.5% effective in a Turkish study, but data from Indonesia and Brazil placed it at only slightly above 50%.[29] Moreover, a 27 July pre-print paper from a Chinese lab disclosed that the amount of Covid-19 antibodies from Sinovac decreased “below a key threshold” after six months.[30]

Sceptics of Chinese-made vaccines also look to Singapore’s reluctance to fully integrate Sinovac into its national vaccination programme. Health regulators had requested for additional clinical data from Sinovac in March 2021, but this was only submitted in July.[31] As a result, even though a shipment of 200,000 shots had arrived since February, Sinovac was only released through a select number of private clinics in June. Those interested in Sinovac were however warned by a senior health ministry official about the “significant risk of vaccine breakthrough”.[32] Moreover, recipients of Sinovac were not regarded as being properly “vaccinated” until early August, when the authorities decided to recognise all vaccines approved by the World Health Organization for emergency use.[33]

Public confidence in the Chinese vaccines is unlikely to improve with the reports of Covid-19’s resurgence in countries that had primarily relied on either Sinovac or Sinopharm.[34] This includes Indonesia, where Sinovac’s early success story is turning awry. In May 2021, the Indonesian health ministry announced that a study of 130,000 Indonesian healthcare workers showed Sinovac was at least 90% effective in preventing symptoms, hospitalisation and death.[35] However, the emergence of the more infectious and vaccine-resilient Delta variant has pushed Indonesia’s Covid-19 tally to almost double over two months (from 1,837,126 cases on 3 June to 3,496,700 cases on 3 August), with around 48,000 deaths.[36] These figures include a growing number of Indonesian healthcare workers who died from Covid-19 despite being fully vaccinated (often with Sinovac).[37]

Similar doubts about the reliability of Chinese vaccines against the Delta variant have emerged in other countries around the region. A group of doctors in Thailand have protested the government’s decision not to prioritise medical personnel for a Pfizer booster shot as worries grew after 618 Thai healthcare workers were infected between April and July despite being double-jabbed with Sinovac.[38] In Malaysia, Director-General of Health Noor Hisham Abdullah’s assurance that both “Sinovac and Pfizer are equally effective against Covid-19” was greeted with a measure of incredulity, with some taking to his Facebook page to accuse him of cherry-picking the data and ignoring Sinovac’s weaker performance against newer variants.[39] It was reported that many Filipinos skipped their appointments at vaccination centres that were using Sinovac, while a crowd formed at another centre offering Pfizer shots.[40] Similar sentiments can be found in Vietnam and Thailand, where Chinese products — including its vaccines — are seen as lacking “a good reputation for quality” or being “second-rate”.[41]

For the Muslim-majority countries of the region, a religious element drives Covid-19 vaccine hesitancy in general and reluctance towards Chinese vaccines in particular. Studies have indicated that religious concerns motivated 20.8% and 8% of vaccine hesitance in Malaysia and Indonesia respectively.[42] For one, the Chinese provenance of Sinovac has generated misgivings about its halal status, especially in Indonesia after the measles-rubella vaccine fiasco.[43] To assuage these worries, religious authorities in both countries have taken pains to assure that Sinovac was indeed halal.[44] Politicians, including Indonesian President Joko Widodo and Malaysian vaccine minister Khairy Jamaludin, also did their part to convince their citizens by taking the Sinovac jabs themselves.[45]

Intertwining concerns about the reliability and religious permissibility of Chinese vaccines may explain the relatively lower vaccination rates in southern Thailand. In the Muslim-majority provinces of Pattani, Yala and Narathiwat, those who have taken the jabs tended to be Buddhists. Many locals doubted the Sinovac’s efficacy and subscribed to the misinformation-driven religious fear that “Islam did not allow such medical measures”.[46] These objections to Sinovac are also informed by the region’s deep-seated mistrust of the Thai state following decades of secessionist struggle, a factor that will be explored further in the next section.

Political Factors: Distrust of National Governments and China

Misgivings about their reliability aside, public perceptions of the Chinese vaccines in some Southeast Asian countries have also been affected by domestic politics and popular suspicions of China.

This is particularly true of Thailand which saw a sharp decrease in public willingness for vaccination in recent months, bucking the region’s trend. Thailand has had to rely on Sinovac for the early phase of its vaccine roll-out, primarily due to the lack of alternatives. According to Tita Sanglee, “widespread distrust of the Prayut government is aggravating Sinovac hesitancy in the country” and “Sinovac faces politically motivated problems”.[47] This selective hesitancy against Sinovac signals both a rejection of Prime Minister Prayut Chan-o-cha and Thailand’s increasing tilt towards China under his leadership. Major opposition parties such as Pheu Thai and Move Forward Party have raised questions about the safety and efficacy of the Sinovac vaccine,[48] while the pro-democracy movement demanded that the government drop Sinovac in favour of Pfizer and Moderna when they took the streets in mid-July 2021.[49] Moreover, those who espouse pro-democracy leanings (especially younger Thais) generally view Beijing with askance due to the latter’s perceived support for Prayut. The dependence on Sinovac is also seen as yet another sign of Thailand being further beholden to China.

In the case of Vietnam, it is popular distrust of China, rather than lack of confidence in the government, that affects public perception of Chinese vaccines. Prior to the latest Covid-19 outbreaks, the Vietnamese government enjoyed approval ratings of above 90% for its pandemic management.[50] Hanoi remains reluctant to buy Chinese vaccines, except in limited numbers for emergency situations. Apart from concerns about efficacy, this decision is likely due to the prevalent public wariness of Beijing — China’ trust deficit in Southeast Asia is most pronounced in Vietnam. Pew’s polling data from 2017 showed that only 10% of Vietnamese respondents had a favourable view of China (against 88% who viewed it negatively)[51], a sentiment also reflected in the annual State of Southeast Asia Surveys by the ISEAS – Yusof Ishak Institute.[52]

Such anti-China feelings, seemingly ingrained among the Vietnamese public as an almost unconscious bias, explain the largely negative reaction to China’s donation of 500,000 Sinopharm doses in June 2021. On local mainstream and social media, many rejected the vaccine outright, either out of visceral anti-China attitudes or an entrenched distrust of made-in-China products. An overwhelming majority were willing to wait and pay more to get their top vaccine choices of Pfizer and Moderna, while some would rather choose AstraZeneca, Russia’s Sputnik V or Vietnam’s homegrown vaccines.[53] However, public acceptance of Chinese vaccines could grow since alternatives remain in short supply while new infections are sweeping across southern Vietnam. The authorities of the badly-hit Ho Chi Minh City (with 8492 Covid-19 deaths as of 30 August 2021) recently allowed the import of five million Sinopharm doses, and long queues have formed at some vaccination sites.[54] Some, however, reportedly left upon knowing that they would receive a Chinese vaccine.[55] 

CONCLUSION

Despite the above-mentioned factors undermining public trust in Chinese vaccines among Southeast Asians, there remain pockets of enthusiasm for Chinese vaccines. Among Singaporeans doubtful about the newer mRNA-based vaccines, Sinovac and Sinopharm have some appeal since they rely on the “more established” technology of using an inactivated virus.[56] In Singapore-based vaccine-sceptical channels on Telegram, a recurring topic of discussion revolves around Sinovac and Sinopharm as less risky alternatives to the Pfizer and Moderna shots. Those enquiring were more concerned about the vaccines’ relative safety rather than their efficacy, driven by fears about the supposed hazards of mRNA vaccine technology.[57] 

Sinovac and Sinopharm are also attractive options for those with extensive links or travel plans to China. In March 2021, Beijing announced that “it will simplify visa applications” for foreigners immunised with a Chinese vaccine.[58] Chinese embassy officials have also hinted that recipients of Sinovac would find it “very convenient” when applying for a visa.[59] Immigration considerations also underlined the agreement between Vietnam and China to reserve the 500,000 Sinopharm shots for Chinese nationals living in the Vietnam, Vietnamese citizens heading to China for work and study, and those living in the border areas.[60]

Public reactions to Chinese vaccines, which largely trend negative, suggest a non-linear relationship between China’s vaccine diplomacy and its soft power in the region – especially at the popular level. Support for Chinese vaccines appears sporadic compared to the widespread doubts on the ground about their reliability (be it scientifically-informed or misinformation-fuelled). China has its work cut out to improve public confidence in its vaccine offerings and made-in-China products more generally. Furthermore, with populist anti-China narratives against reliance on Sinopharm and Sinovac emerging in some parts of the region, it remains to be seen whether Beijing will succeed in projecting an image of a more “reliable, loveable and respectable China” among ordinary Southeast Asians.

Going forward, public opinions of Chinese vaccines in Southeast Asia will be subjected to the pandemic’s unpredictable trajectory. For some Southeast Asian countries, Chinese vaccines may be the only viable choice for large-scale vaccinations if other vaccine manufacturers are not able to provide prompt and sufficient supplies. Given the ongoing surge of infections in the region, the counsel by Indonesia’s health minister that “a good vaccine is the one that is available” still holds true. The emergence of newer variants and the need for booster shots could also change how the various vaccines are perceived. Furthermore, the “mixing and matching method” of different vaccines, pioneered by Thailand and under consideration by The Philippines and other countries,[61] suggests a pathway where Chinese and other vaccines could be deployed in a complementary rather than mutually exclusive way. Another potential game-changer is China’s venture into mRNA-based Covid-19 vaccine development.[62] If successful, this will significantly improve the appeal of China’s future vaccine offerings in the region. The game of vaccine diplomacy is not over yet. 

ISEAS Perspective 2021/115, 1 September 2021


ENDNOTES

[1] “Wang Yi: China provides over 190m COVID-19 vaccine doses to ASEAN members”, CGTN, 03 August 2021, https://news.cgtn.com/news/2021-08-03/Wang-Yi-China-provides-over-190m-vaccine-doses-to-ASEAN-members-12qBgPnY5C8/index.html. For further details, please see Khairulanwar Zaini, “China’s Vaccine Diplomacy in Southeast Asia – A Mixed Record”, ISEAS Perspective, 2021/86, /articles-commentaries/iseas-perspective/2021-86-chinas-vaccine-diplomacy-in-southeast-asia-a-mixed-record-by-khairulanwar-zaini.

[2] International COVID-19 vaccine attitudes, YouGov, https://docs.cdn.yougov.com/4e9ls5v0js/YouGov%20-%20international%20COVID-19%20vaccine%20attitudes.pdf.

[3] The ten Western countries surveyed were Australia, France, Germany, Italy, Poland, Spain, Sweden, the United States and the United Kingdom.

[4] Bestian Nainggolan, “Aroma ”Nasionalisme” dalam Pilihan Vaksin Covid-19”, Kompas, 23 January 2021, https://www.kompas.id/baca/riset/2021/01/23/aroma-nasionalisme-dalam-pilihan-vaksin-covid-19.

[5] “Siapa Enggan Divaksin? Tantangan Dan Problem Vaksinasi Covid-19 Di Indonesia”, National Survey by Indikator Politik Indonesia, Feb 2021, https://indikator.co.id/wp-content/uploads/2021/02/Materi-Rilis-Indikator-Feb_21-02-2021.pdf.

[6] Neill Fronde, “Suan Dusit Poll: most people will get gov’t Covid-19 vaccine”, Thaiger,23 May 2021, https://thethaiger.com/news/national/suan-dusit-poll-most-people-will-get-govt-covid-19-vaccine.

[7] “Most see Covid situation as ‘extremely serious’: poll”, Bangkok Post, 18 July 2021, https://www.bangkokpost.com/thailand/general/2150727/most-see-covid-situation-as-extremely-serious-poll.

[8] Interesting, 50% expressed their desire to continue with Sinopharm for their follow-up shots, with only 42.2% wanting an mRNA vaccine. This higher receptiveness towards Sinopharm could perhaps be attributed to the apparent royal imprimatur on the vaccine, since it was the royal academy of Thai Princess Chulabhorn that brought in the stock of one million doses. See “Thailand authorises Sinopharm COVID-19 vaccine, royal academy seeks 1 million doses”, Channel NewsAsia, 28 May 2021, https://www.channelnewsasia.com/asia/thailand-authorises-sinopharm-covid-19-vaccine-royal-academy-seeks-1-million-doses-1415091.

[9] Sofia Tomacruz, “46% of adult Filipinos still unwilling to get vaccinated vs COVID-19”, Rappler, 25 February 2021, https://www.rappler.com/nation/octa-research-filipinos-covid-19-vaccine-willingness-february-2021.

[10]  “First Quarter 2021 Social Weather Survey: 63% of adult Filipinos prefer the USA as a source of Covid-19 vaccines”, Social Weather Services, 24 May 2021, https://www.sws.org.ph/downloads/media_release/pr20210524%20-%20SWR%202021-I%20Preferred%20country-origins%20and%20brands%20of%20Covid19%20vaccine%20(media%20release).pdf.

[11] For example, the first vaccine that came to Indonesia was Sinovac (8 Dec 2020), followed by AstraZeneca (8 March 2021) and  Pfizer (19 August 201) and Moderna. The same goes for Thailand and the Philippines in the early months of 2021. Meanwhile, Singapore experienced the opposite – Pfizer and Moderna were made available first before Sinovac. This might influence the changing attitudes towards Chinese and other vaccines at different periods of time.

[12] COVID-19: Willingness to be vaccinated, YouGov, https://yougov.co.uk/topics/international/articles-reports/2021/01/12/covid-19-willingness-be-vaccinated.

[13] “WIN World Survey: Covid-19 Vaccine and Intention to Travel in 2021”, Worldwide Independent Network of Market Research, 27 December 2020, https://winmr.com/win-world-survey-covid19-vaccine-and-intention-to-travel-in-2021.

[14] Syed Alwi, S.A.R., E Rafidah, A Zurraini et al., “A survey on COVID-19 vaccine acceptance and concern among Malaysians”, BMC Public Health 21, no. 1129 (2021), DOI: 10.1186/s12889-021-11071-6.

[15] The Ministry of Health, National Immunization Technical Advisory Group, UNICEF, and World Health Organization, “COVID-19 Vaccine Acceptance Survey in Indonesia”, November 2020, https://covid19.go.id/storage/app/media/Hasil%20Kajian/2020/November/vaccine-acceptance-survey-en-12-11-2020final.pdf.

[16]  “Siapa Enggan Divaksin? Tantangan Dan Problem Vaksinasi Covid-19 Di Indonesia”, National Survey by Indikator Politik Indonesia, op. cit.

[17] Tomacruz, “46% of adult Filipinos”.

[18] Angelito P. Bautista Jr., Doris G. Bleza, Dianne M. Balibrea, and Cynthia Equiza, “Acceptability of Vaccination Against COVID-19 Among Selected Residents of the Cities of Caloocan, Malabon, and Navotas, Philippines”, preprints.org, April 2021, https://www.preprints.org/manuscript/202104.0702/v1.

[19] “Singapore’s Older Adults Resist COVID-19 Vaccinations”, SMU, 06 Jul 2021, https://news.smu.edu.sg/news/2021/07/06/singapores-older-adults-resist-covid-19-vaccinations.

[20] Yanuar Nugroho and Sofie Shinta Syarief, “Grave Failures in Policy and Communication in Indonesia during the COVID-19 Pandemic”, ISEAS Perspective, 2021/113, /articles-commentaries/iseas-perspective/2021-113-grave-failures-in-policy-and-communication-in-indonesia-during-the-covid-19-pandemic-by-yanuar-nugroho-and-sofie-shinta-syarief. See also Fistra Janrio Tandirerung, “Poor coronavirus handling: A warning to reshape Indonesia`s scientific literacy”, The Jakarta Post, 01 December 2020, https://www.thejakartapost.com/academia/2020/12/01/insight-poor-coronavirus-handling-a-warning-to-reshape-indonesias-scientific-literacy.html.

[21] Najmah, Siti Khodijah, Najema Alkaff et al., “Believe it or not, it’s Covid-19”, Intersections: Gender and Sexuality in Asia and the Pacific 45 (2021), http://intersections.anu.edu.au/issue45/najmah2.html.

[22] Najmah, Sharyn Graham Davies and Kusnan, “What is behind vaccine hesitancy in Indonesia?”, New Mandala, 25 May 2021, https://www.newmandala.org/whats-behind-covid-19-vaccine-hesitancy-in-indonesia.

[23] “How vaccine disinformation, hesitancy is undermining Southeast Asia’s virus response”, South China Morning Post, 1 July 2021, https://www.scmp.com/news/asia/southeast-asia/article/3139405/how-vaccine-disinformation-hesitancy-undermining-southeast.

[24] Covid Research Centre and Mustafa Ali Mohd, “Is the Pfizer vaccine suitable for Malaysia?”, Astro Awani. 12 December 2020,https://www.astroawani.com/berita-malaysia/pfizer-vaccine-suitable-malaysia-272804.

[25] “Come clean on Pfizer vaccine deal, Ku Li tells govt”, The Vibes, 7 December 2020, https://www.thevibes.com/articles/news/8794/come-clean-on-pfizer-vaccine-deal-ku-li-tells-govt.

[26] Ashley Westerman, “Filipinos hesitant about getting COVID jab after dengue fever vaccine debacle”, The World, 19 May 2021, https://www.pri.org/stories/2021-05-19/filipinos-hesitant-about-getting-covid-jab-after-dengue-fever-vaccine-debacle.

[27] David Rose, “‘Non-halal’ measles-rubella vaccine hits resistance in Muslim Indonesia”, South China Morning Post, 1 September 2018, https://www.scmp.com/week-asia/society/article/2162079/non-halal-measles-rubella-vaccine-hits-resistance-muslim-indonesia.

[28] Harapan Harapan, Abram Wager, Amanda Yufika et al., “Acceptance of a COVID-19 Vaccine in Southeast Asia: A Cross-Sectional Study in Indonesia”, Frontiers in Public Health (2020), DOI: 10.3389/fpubh.2020.00381.

[29] See “Low Efficacy of Chinese Shots Sows Concern on Global Rollout”, Bloomberg, 12 April 2021, https://www.bloomberg.com/news/articles/2021-04-11/sinovac-shot-cuts-risk-of-symptomatic-covid-in-half-in-key-study and Emma O’Brien and Dong Lyu, “China’s Biotech Learning Curve”, Bloomberg, 3 June 2021, https://www.bloomberg.com/news/newsletters/2021-06-03/china-s-biotech-learning-curve.

[30] “Antibodies from Sinovac’s COVID-19 shot fade after about 6 months, booster helps – study”, 12 August 2021, https://www.reuters.com/business/healthcare-pharmaceuticals/antibodies-sinovacs-covid-19-shot-fade-after-about-6-months-booster-helps-study-2021-07-26.

[31] Hariz Baharuddin, “HSA evaluating additional data from Sinovac on its vaccine”, Straits Times, 16 July 2021,https://www.straitstimes.com/singapore/hsa-evaluating-additional-data-from-sinovac-on-its-vaccine.

[32] Nicholas Yong, “‘Significant’ problems linked to Sinovac vaccine in other countries: MOH official”, Yahoo! News, 18 June 2021, https://sg.news.yahoo.com/significant-problems-sinovac-vaccine-other-countries-moh-official-105357031.html.

[33] Jalelah Abu Bakar, “Those who opt for Sinovac, other vaccines under WHO emergency list to be considered fully vaccinated”, Channel NewsAsia,6 August 2021, https://www.channelnewsasia.com/singapore/sinovac-vaccine-covid19-sinopharm-astrazeneca-fully-vaccinated-2096576.

[34] Sui-Lee Wee, “They Relied on Chinese Vaccines. Now They’re Battling Outbreaks.”, New York Times, 22 June 2021,https://www.nytimes.com/2021/06/22/business/economy/china-vaccines-covid-outbreak.html.

[35] Shotaro Tani, “Indonesia study shows China’s Sinovac vaccine highly effective”, Nikkei, 12 May 2021,https://asia.nikkei.com/Spotlight/Coronavirus/COVID-vaccines/Indonesia-study-shows-China-s-Sinovac-vaccine-highly-effective.

[36] United Nations Office for the Coordination of Humanitarian Affairs, “Situation Update: Response to COVID-19 in Indonesia (as of 3 June 2021), https://reliefweb.int/report/indonesia/situation-update-response-covid-19-indonesia-3-june-2021-enid and “Situation Update: Response to COVID-19 in Indonesia (as of 3 August 2021)”, https://reliefweb.int/report/indonesia/situation-update-response-covid-19-indonesia-3-august-2021-enid.

[37] See, for instance, Jon Emont, “Covid-19 Killed 26 Indonesian Doctors in June—at Least 10 Had Taken China’s Sinovac Vaccine”, Wall Street Journal, 27 June 2021,https://www.wsj.com/articles/covid-19-killed-26-indonesian-doctors-in-juneat-least-10-had-taken-chinas-sinovac-vaccine-11624769885; Tom Allard and Kate Lamb, “COVID infections imperil Indonesia’s vaccinated health workers, and hospitals”, Reuters, 7 July 2021, https://www.reuters.com/world/asia-pacific/covid-infections-imperil-indonesias-vaccinated-health-workers-hospitals-2021-07-07 and “Indonesia reports record number of doctor deaths from Covid-19 in July”, Straits Times, 18 July 2021, https://www.straitstimes.com/asia/se-asia/indonesia-reports-record-number-of-doctor-deaths-from-covid-19-in-july.

[38] Jitsiree Thongnoi, “Coronavirus: Thai doctors want Pfizer vaccines amid doubts over Sinovac’s efficacy against Delta variant”, SCMP, 14 July 2021, https://www.scmp.com/week-asia/health-environment/article/3140979/coronavirus-thai-doctors-want-pfizer-vaccines-amid.

[39] https://www.facebook.com/DGHisham/posts/4559998030690716.

[40] Alan Robles, “Most Filipinos don’t want a coronavirus vaccine. Especially not a Chinese one”, SCMP, 26 May 2021, https://www.scmp.com/week-asia/health-environment/article/3134950/most-filipinos-dont-want-coronavirus-vaccine.

[41] Sen Nguyen, “Coronavirus: Vietnam approves Sinopharm’s vaccine, but will people take it?”, SCMP, 05 June 2021, https://www.scmp.com/week-asia/health-environment/article/3136137/coronavirus-vietnam-approves-sinopharms-vaccine-will; Tita Sanglee, “Sinovac or Not: Thai Vaccine Politics”, Fulcrum, 31 May 2021, https://fulcrum.sg/sinovac-or-not-thai-vaccine-politics.

[42] Syed Alwi et al., “A survey on COVID-19 vaccine acceptance and concern among Malaysians” and Ministry of Health et al., “COVID-19 Vaccine Acceptance Survey in Indonesia”.

[43] “Indonesian President Joko warns against rushing for Covid-19 vaccines amid halal concerns”, Straits Times, 19 October 2020, https://www.straitstimes.com/asia/se-asia/indonesian-president-jokowi-warns-not-to-rush-coronavirus-vaccines-amid-halal-concern; “Indonesia’s MUI to issue fatwa on Covid-19 vaccine amid concerns over halal status”, Straits Times, 09 December 2020, https://www.straitstimes.com/asia/se-asia/indonesias-mui-to-issue-fatwa-on-covid-19-vaccine-amid-concerns-over-its-halal-status.  

[44] See Hazlin Hassan, “Malaysia says halal issue won’t affect vaccine roll-out”, Straits Times, 10 December 2020, https://www.straitstimes.com/asia/se-asia/malaysia-says-halal-issue-wont-affect-vaccine-roll-out; “Indonesian clerics declare Sinovac’s COVID-19 vaccine halal”, Reuters, 08 January 2021, https://www.reuters.com/article/us-health-coronavirus-indonesia-vaccine-idUSKBN29D16U. Only Sinovac has been certified halal by the Indonesian Islamic Religious Council (MUI). The clerical body considers Sinopharm, Pfizer, and AstraZeneca to be haram, but permits their use due to the pandemic emergency and the need to achieve herd immunity.

[45] Kiki Siregar, “President Jokowi gets Sinovac jab to officially launch Indonesia’s COVID-19 vaccination programme”, Channel NewsAsia, 13 January 2021,https://www.channelnewsasia.com/asia/indonesia-jokowi-gets-first-dose-sinovac-china-vaccine-covid-19-401726; “Minister Khairy Jamaluddin first in Malaysia to get Sinovac jab against Covid-19”, Straits Times, 18 March 2021, https://www.straitstimes.com/asia/se-asia/coronavirus-minister-khairy-jamaluddin-first-in-malaysia-to-get-sinovac-jab.

[46] Vijitra Duangdee, South China Morning Post, 29 June 2021, https://www.scmp.com/week-asia/health-environment/article/3139074/thailands-conflict-hit-deep-south-mistrust-fuels-covid; Mariyam Ahmad, “Distrust of Thai Govt Drives Vaccine Fears in Deep South, Activist Says”, Benar News, 2 July 2021, https://www.benarnews.org/english/news/thai/vaccine-fears-07022021145254.html.

[47] Tita Sanglee, “Sinovac or Not: Thai Vaccine Politics”, Fulcrum, 31 May 2021, https://fulcrum.sg/sinovac-or-not-thai-vaccine-politics.

[48] Ibid.

[49] Randy Thanthong-Knight, “Thai Protesters Adopt Vaccine Demand in Push to Widen Support”, Bloomberg, 14 July 2021, https://www.bloomberg.com/news/articles/2021-07-14/thai-protesters-adopt-vaccine-demand-in-push-to-widen-support.

[50] “WIN World Survey”

[51] “Opinion of China”, Pew Research Center, https://www.pewresearch.org/global/database/indicator/24.

[52] /category/articles-commentaries/state-of-southeast-asia-survey.

[53] Hoang Thi Ha, “A Tale of two Vaccines in Vietnam”, Fulcrum, 12 July 2021, https://fulcrum.sg/a-tale-of-two-vaccines-in-vietnam.

[54] “Người dân TP.HCM xếp hàng chờ tiêm vắc xin Vero Cell” (Ho Chi Minh City peole wait in queues for Vero Cell vaccination), vietnamnet.vn, 14 August 2021, https://vietnamnet.vn/vn/thoi-su/nguoi-dan-tp-hcm-xep-hang-cho-tiem-vac-xin-vero-cell-765885.html.

[55] “TP Hồ Chí Minh: Tiêm vaccine Vero Cell hoàn toàn tự nguyện, người dân đồng ý mới tiêm” (Ho Chi Minh City: Vero Cell inoculation is voluntary), baotintuc.vn, 13 August 2021, https://baotintuc.vn/van-de-quan-tam/tp-ho-chi-minh-tiem-vaccinevero-cell-hoan-toan-tu-nguyen-nguoi-dan-dong-y-moi-tiem-20210813174710553.htm.

[56] Chen Lin Aradhana Aravindan, “Sinovac’s vaccine finds supporters in Singapore despite effectiveness questions elsewhere”, Reuters, 16 July 2021, https://www.reuters.com/world/asia-pacific/sinovacs-vaccine-finds-supporters-singapore-despite-effectiveness-questions-2021-07-16.

[57] This is based on the author’s observations of the discussions in the various Telegram channels. For more, see Peter Guest, Febriana Firdaus and Tammy Danan, ““Fake news” laws are failing to stem Covid-19 misinformation in Southeast Asia”, Rest of the World, 28 July 2021, https://restofworld.org/2021/fake-news-laws-are-failing-to-stem-covid-19-misinformation-in-southeast-asia.

[58] “China eases visa rules for recipients of its vaccines”, Reuters, 15 March 2021, https://www.reuters.com/article/us-health-coronavirus-china-vaccine-idUSKBN2B71XM.

[59] Dewey Sim, “Singaporeans, Chinese nationals queue up for Sinovac vaccine, despite regulators’ concerns over efficacy”, South China Morning Post, 22 June 2021, https://www.scmp.com/week-asia/health-environment/article/3138309/singaporeans-chinese-nationals-queue-sinovac-vaccine.

[60] “Bộ Y tế tiếp nhận 500.000 liều vaccine Vero-Cell của SINOPHARM” (Ministry of Health receives 500,000 Vero-Cell doses of SINOPHARM), Website of the Ministry of Health of Vietnam, https://moh.gov.vn/hoat-dong-cua-lanh-dao-bo/-/asset_publisher/TW6LTp1ZtwaN/content/tiep-nhan-500-000-lieu-vaccine-vero-cell-cua-sinopharm.

[61] Shotaro Tani, “Delta-hit ASEAN turns to vaccine ‘mixing and matching’ boosters”, Nikkei Asia, 20 July 2021, https://asia.nikkei.com/Spotlight/Coronavirus/COVID-vaccines/Delta-hit-ASEAN-turns-to-vaccine-mixing-and-matching-boosters.

[62] Josephine Ma, “Domestic clinical trials planned for China’s mRNA Covid-19 vaccine”, South China Morning Post, 22 July 2021, https://www.scmp.com/news/china/science/article/3142084/domestic-clinical-trials-planned-chinas-mrna-covid-19-vaccine.

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2021/114 “Vietnam Continues Efforts to Reduce Trade Dependence on China” by Bich T. Tran

 

As of August 2021, Vietnam has officially joined 15 FTAs, including six ASEAN FTAs with regional partners (China, South Korea, Japan, India, Australia, and New Zealand) and the Regional Comprehensive Economic Partnership. In this photo, Vietnam’s Prime Minister Nguyen Xuan Phuc (R) is pictured on a TV monitor clapping next to other country signatories during the signing ceremony for the Regional Comprehensive Economic Partnership (RCEP) trade pact at the ASEAN summit that is being held online in Hanoi on 15 November 2020. Photo: Nhac NGUYEN, AFP.

EXECUTIVE SUMMARY

  • Vietnam’s trade deficit with China has grown rapidly since 2001. Its heavy dependence on Chinese intermediate and capital goods creates vulnerabilities in its entire production chain.
  • China has a history of using trade as a weapon to punish countries with which it has disputes. Escalating tensions in the South China Sea have served as a wake-up call for Hanoi to reduce its trade dependence on Beijing.
  • Towards this end, Vietnam, has over the past few years, signed a number of new-generation free trade agreements (FTAs), including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which excludes China, and the European Union-Vietnam Free Trade Agreement (EVFTA).
  • However, Vietnam’s efforts to reduce its trade dependence on China through these FTAs have not produced desired outcomes. Both the CPTPP and the EVFTA have come into force in Vietnam for a short while, and it may take more time for Vietnam to fully benefit from them.
  • In the meantime, Vietnam will need to take proactive measures to increase the utilization rate of these agreements and push forward economic and institutional reforms to strengthen its overall economic resilience. If Vietnam is successful in these efforts, its trade reliance on China, which is likely to persist in the short to medium term, will be less of a concern.

* Bich T. Tran is a Ph.D. Candidate at the University of Antwerp, a Fellow at Verve Research, and an Adjunct Fellow at the Center for Strategic & International Studies (CSIS). Her research interests include Vietnam’s grand strategy, Southeast Asian states’ relations with major powers, and political leadership.

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INTRODUCTION

China and Vietnam share a long border of 1,306 km, which has facilitated bilateral trade since the normalization of bilateral relations in 1991. The two-way trade has grown dramatically, and China has been Vietnam’s largest trading partner since 2004. The structure of bilateral trade, however, reveals Vietnam’s substantial dependence on China. Due to the intensifying disputes between the two countries in the South China Sea, this has been increasingly seen by policy makers in Hanoi as a security vulnerability for Vietnam. Hanoi has therefore made conscious efforts to reduce its trade dependence on Beijing. In particular, since 2014, it has signed a string of Free Trade Agreements (FTAs) with different countries to diversify its economic relations and mitigate its economic vulnerability vis-à-vis China.

This paper accesses the extent of Vietnam’s economic dependence on China, the developments leading to changes in Vietnam’s trade policy, Vietnam’s participation in major new-generation FTAs that excludes China, and whether these FTAs have been effective in helping Vietnam reduce its trade dependence on China.

VIETNAM-CHINA TRADE TIES BEFORE 2014

Vietnam has run a chronic trade deficit with China since the latter joined the World Trade Organization. From US$211 million in 2001, the deficit grew to US$10.01 billion in 2008, when the two countries signed a comprehensive strategic partnership of cooperation. In the joint statement announcing the partnership, “the two sides agreed to actively explore new growth points in the bilateral trade, maintain fast growth of two-way trade and at the same time adopt effective measures to improve trade mix to achieve balanced development in a spirit of complementarity, mutual benefit and win-win results”.[1] However, that objective has not been achieved as Vietnam’s trade deficit with China continues to widen, reaching US$18.52 billion in 2014. Importing too much and too easily from China has constrained Vietnam’s economic potentials and failed to motivate Vietnamese businesses to strengthen their manufacturing capabilities.

Vietnam has also relied heavily on China for intermediate goods (inputs used to produce final goods or finished products). In 2000, Vietnam imported US$1.40 billion worth of intermediate goods from China, accounting for 31.47 percent of all imports from the latter that year. By 2014, that number had soared to US$16.97 billion, accounting for 38.88 percent of Vietnam’s total imports from China.[2] Many of Vietnam’s key export industries, such as textiles, garments and footwear, still heavily depend on inputs imported from China. In 2010, for example, Vietnam imported US$3.13 billion raw materials and accessories for its textile, leather and shoe industries from China, which accounted for 31.94 percent of total imports for this product category.[3] By 2014, the main fabric supplier for Vietnam remained China, with a turnover of US$4.66 billion, accounting for 49.47 percent of all the fabrics that Vietnam imported that year.[4]

Vietnam also depends on China for capital goods, which includes machinery, equipment, vehicles, and tools used to make finished goods. In 2000, Vietnam imported US$600 million of capital goods from China, accounting for 42.85 percent of all imports from the latter. By 2014, that figure had climbed to US$20.19 billion, 33 times higher than in 2000 and accounting for 46.25 percent of Vietnam’s total imports from China.[5] Heavy dependence on imported intermediate and capital goods from China heightens the vulnerability of Vietnam’s entire production chain. If supplies from China were disrupted, Vietnam would face serious economic consequences.

Likewise, Vietnamese businesses that export mostly to China are also vulnerable. For example, China was the leading export market for Vietnam’s rubber in 2010, taking in 464,000 tons and thus accounting for 59.4 percent of Vietnam’s total rubber exports.[6] In 2014, China was still the largest export market for Vietnamese rubber. In addition, Vietnam’s fruit and vegetable products were mainly exported to China to a value of US$436 million in the same year, accounting for 29.2 percent of the country’s total export in this category.[7]

CHINA’S WEAPONIZATION OF TRADE AND VIETNAM’S POLICY CHANGES

China has a record of using trade as a weapon to punish countries with which it quarrels. In 2010, for instance, Beijing barred shipments of rare earth minerals to Japan following the latter’s detention of a Chinese fishing captain near the disputed Senkaku/Diaoyu islands.[8] Later that year, China reacted with fury when the Oslo-based Nobel Peace Prize committee revealed that it would honour Chinese dissident Liu Xiaobo. This resulted in the collapse of Norwegian exports of fresh and frozen salmon to China.[9] During the Scarborough Shoals standoff in 2012, China imposed import restrictions on bananas from the Philippines.[10] After South Korea allowed the United States to deploy a Terminal High Altitude Area Defense (THAAD) system in 2017, China carried out an aggressive campaign of economic retaliation, including allowing fewer tourists to travel to South Korea, and limiting domestic distribution of South Korean entertainment products, cosmetics as well as automobiles.[11] Following Australian Prime Minister Scott Morrison’s call for an international inquiry into the origins of the COVID-19 pandemic in 2020, China abruptly imposed a ban on lobster imports from Australia, affecting 96 percent of Australian exports of southern rock lobsters. Since then, China has also imposed restrictions on imports of Australian coal, meat, cotton, wool, barley, wheat, timber, copper, sugar and wine.[12]

Vietnam has been trade-dependent on China for a long time, but only after a major bilateral crisis in the South China Sea broke out in 2014 did Vietnam feel the urgency to diversify its economic relations away from China to mitigate risks. In May 2014, Beijing deployed a giant oil rig in Vietnam’s exclusive economic zone (EEZ) off its central coast, triggering a wave of anti-China protests and riots in Vietnam that spiralled out of the government’s control. Angry rioters in some central and southern provinces vandalized hundreds of factories thought to belong to Chinese companies, leaving at least six Chinese dead. Beijing issued travel warnings and evacuated many of its nationals. The number of Chinese tourists to Vietnam fell by half in the months that followed.[13] The crisis sparked unprecedented public discourses about the extent and consequences of Vietnam’s economic vulnerabilities vis-à-vis China.

In December 2014, Vietnamese Prime Minister Nguyen Tan Dung issued Decision No. 2146 to approve a “Blueprint on Restructuring the Industry and Trade Sectors to Serve the Cause of National Industrialization, Modernization and Sustainable Development through 2020, with a Vision toward 2030”.[14] The document urged Vietnam to continue to increase exports rapidly by developing overseas markets, build and strengthen strategic partnerships for sustainable market development, and diversify import and export markets. Most importantly, the document called for “avoiding dependence on one single import market”, the first time a Vietnamese official document has done so. It also directs the country to reasonably control imports and improve Vietnam’s trade balance with main import markets. Although the document did not name China specifically, the drafters of the document clearly had China in mind.

The political report of the 11th Central Committee of the Communist Party of Vietnam presented at the 12th National Party Congress in 2016 also guided Vietnam to “continue to research, negotiate, sign, and carefully prepare conditions for the implementation of new-generation free trade agreements,” actively integrate into the international economy, diversify international economic relations, and “avoid dependence on any particular market or partner”.[15] These points were repeated in the Party’s political report presented at its 13th National Congress in early 2021, with a view to “improving the economy’s resilience to negative impacts from external fluctuations”.[16]

NEW-GENERATION FREE TRADE AGREEMENTS AND THEIR IMPACT

Since 2014, Vietnam has made efforts to conclude many FTAs. As of August 2021, Vietnam has officially joined 15 FTAs, including six ASEAN FTAs with regional partners (China, South Korea, Japan, India, Australia, and New Zealand) and the Regional Comprehensive Economic Partnership. The Vietnam-United Kingdom FTA, which entered into force on 1 January 2021, is Vietnam’s latest trade agreement. Most notably, Vietnam is a party to two new-generation FTAs—the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which excludes China, and the European Union-Vietnam Free Trade Agreement (EVFTA). Unlike traditional FTAs that focus on tariff elimination, new-generation FTAs extend their scope to cover new areas, including state-owned enterprises, intellectual property, labour, environment, transparency, and sustainable development.[17]

The CPTPP, which was formerly known as the Trans-Pacific Partnership (TPP), came into force on 14 January 2019. It has eleven parties, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The EVFTA, which went into effect on 1 August 2020, is a trade agreement between Vietnam and 27 EU members. Joining the two FTAs provides Vietnam better access to 37 markets in Asia, Europe, and Latin America, including those with which Vietnam does not have a bilateral trade agreement. Moreover, the CPTPP and EVFTA will provide stable and long-term frameworks for economic cooperation between Vietnam and important partners such as Japan, Australia, Canada, Singapore, and EU members, to reduce its trade dependence on China and to improve its strategic position vis-à-vis China, especially in the South China Sea. As observed by the former American ambassador to Vietnam, Ted Osius, “tension in the South China Sea and the TPP were related. Vietnam viewed the TPP as a strategic agreement that would prevent China from dominating its economy and enable it to secure diplomatic support when the Chinese resorted to bullying tactics.”[18]

Implementing these new-generation FTAs will bring Vietnam great opportunities for economic growth. The CPTPP is expected to increase Vietnam’s exports by 4 percent and the country’s gross domestic product (GDP) by 1.3 percent, by 2030.[19] Meanwhile, the EVFTA is expected to increase Vietnam’s exports to the EU by 20 percent by 2020, 42.7 percent by 2025, and 44.37 percent by 2030. The increase in imports from the EU is projected at 15.28 percent by 2020, 33.06 percent by 2025, and 36.7 percent by 2030. The EVFTA is also expected to raise Vietnam’s GDP by 2.18 to 3.25 percent between 2019 and 2023, 4.57 to 5.30 percent between 2024 and 2028, and 7.07 to 7.72 percent between 2029 and 2033.[20]

New-generation FTAs like the CPTPP and EVFTA will also stimulate Vietnam’s institutional reforms, including refining the legal system and improving the investment and business environment. On 14 June 2019, for example, the National Assembly passed revised laws on insurance business and intellectual property.[21] On 20 November 2019, it also passed a new Labour Code, which took effect in January 2021. The new code offers greater protection for employees and marks the first time Vietnam has allowed the establishment of independent trade unions.[22] These moves are part of Vietnam’s efforts to comply with international standards set in the new-generation FTAs that it has signed.

Participating in the CPTPP and EVFTA also supports Vietnam’s economic restructuring. For example, the two FTAs require products made in Vietnam to use a certain percentage of inputs originating from member states to enjoy preferential treatments offered in these agreements. This will encourage Vietnamese enterprises to use inputs from domestic sources, which, in turn, will stimulate the country’s supporting industries. Before domestic suppliers can meet the demand, Vietnamese firms will need to import inputs from CPTPP and EU partners, thereby helping Vietnam reduce imports from China. In addition, modern technologies from CPTPP members and EU countries will enter Vietnam. Although they may be more expensive than Chinese counterparts, they will over time produce high-quality and international-standard products that can be exported worldwide. Vietnam will therefore have a better chance to move up the global value chains.

However, Vietnam’s endeavours to mitigate its trade dependence on China through these FTAs have not produced expected outcomes yet. After one year of CPTPP implementation, Vietnam’s trade deficit with China in 2019 continued to widen and reached a record high of US$32 billion, a 36 percent year-on-year increase.[23] That year, Vietnam imported US$35.73 billion of capital goods and US$26.60 billion of intermediate goods from China, which accounted for 47.26 percent and 35.20 percent of all imports from China, respectively.[24]

Vietnam’s continued reliance on imports from China is driven by a number of factors. First, the relatively low prices of Chinese products, made possible by China’s economies of scale and developed supply chains, and the geographical proximity between the two countries facilitate China’s exports to Vietnam. In fact, China has long been a primary source of capital goods and intermediate goods for many countries, not just Vietnam. It will be challenging for Vietnam to find substitute import markets or to develop domestic supplies to replace Chinese imports in the short term.

At the same time, many Vietnamese enterprises lack relevant information about the CPTPP and EVFTA, and have therefore not utilized them. For example, although most of them have heard about the CPTPP through media sources, only one out of every 20 businesses knows about CPTPP commitments related to their business activities, and more than 75 percent of surveyed firms are not aware of relevant trade benefits.[25] In 2019, only 1.67 percent of Vietnam’s exports to CPTPP countries took advantage of the agreement’s tariff preferences. This is a very low level of utilization compared to not only the average utilization rate of 37.20 percent for all FTAs of Vietnam in 2019, but also the rate during the first year of many other FTAs.[26]

CONCLUSION

Vietnam’s growing trade deficit with China and its overdependence on capital goods and intermediate goods imported from China are economic vulnerabilities for the country. Due to escalating tensions in the South China Sea, these issues have been considered as a matter of national security for Vietnam. The country has therefore joined the CPTPP and EVFTA to reduce its trade dependence on China. However, so far, this effort by Vietnam has not been as successful as expected. 

Since both the CPTPP and EVFTA have been in effect only for a short while, it may take more time for Vietnam to benefit properly from them, including in terms of reducing its trade dependence on China. In the meantime, Vietnam will need to take proactive measures to increase the utilization rate of these two agreements. For example, Vietnamese authorities should better educate Vietnamese businesses about the CPTPP and EVFTA, especially regarding the opportunities and challenges that they bring. At the same time, Vietnam should also push forward domestic economic and institutional reforms in line with its commitments to strengthen its overall economic resilience. If Vietnam is successful in these efforts, its trade reliance on China, which is likely to persist in the short to medium term, will become less of a security concern for the country.

ISEAS Perspective 2021/114, 27 August 2021


ENDNOTES

[1] Chinese Ministry of Foreign Affairs, “China-Viet Nam Joint Statement”, 25 October 2008, https://www.fmprc.gov.cn/mfa_eng/wjb_663304/zzjg_663340/yzs_663350/gjlb_663354/2792_663578/2793_663580/t520438.shtml

[2] World Integrated Trade Solution, “Vietnam Product Imports from China in US$ Thousand 2000-2019”, accessed 15 July 2021, https://wits.worldbank.org/CountryProfile/en/Country/VNM/StartYear/2000/EndYear/2019/TradeFlow/Import/Indicator/MPRT-TRD-VL/Partner/CHN/Product/all-groups; World Integrated Trade Solution, “Vietnam Product Import Product Share from China in percent 2000-2019”, accessed 15 July 2021, https://wits.worldbank.org/CountryProfile/en/Country/VNM/StartYear/2000/EndYear/2019/TradeFlow/Import/Indicator/MPRT-PRDCT-SHR/Partner/CHN/Product/all-groups

[3] Vietnam Customs, “Tình hình xuất nhập khẩu tháng 12 và 12 tháng năm 2010” [Import and export situation of December and 12 months of 2010], https://www.customs.gov.vn/Lists/TinHoatDong/ViewDetails.aspx?ID=18059&Category=Th

[4] Vietnam Customs, “Sơ bộ tình hình xuất khẩu, nhập khẩu hàng hóa của Việt Nam tháng 12 và 12 tháng năm 2014” [Preliminary situation of export and import of Vietnam’s goods in December and 12 months of 2014], https://www.customs.gov.vn/Lists/TinHoatDong/ViewDetails.aspx?ID=22019&Category=ThpercentE1percentBBpercent91ngpercent20kpercentC3percentAApercent20HpercentE1percentBApercentA3ipercent20quan

[5] “Vietnam Product Imports from China in US$ Thousand 2000-2019”.

[6] “Import and export situation of December and 12 months of 2010”.

[7] “Export and import of Vietnam’s goods in December and 12 months of 2014”.

[8] Keith Bradsher, “Amid Tension, China Blocks Vital Exports to Japan,”The New York Times, 22 September 2010, https://www.nytimes.com/2010/09/23/business/global/23rare.html

[9] Mark Lewis, “Norway’s salmon rot as China takes revenge for dissiden’s Nobel Prize”, Independent, 23 October 2011, https://www.independent.co.uk/news/world/europe/norway-s-salmon-rot-china-takes-revenge-dissident-s-nobel-prize-2366167.html

[10] China accounted for more than 30 percent of Philippine banana exports. See, “The China-Philippine Banana War”, Asia Sentinel, 6 June 2012, https://www.asiasentinel.com/p/the-china-philippine-banana-war

[11] Matt Stiles, “Upset over a U.S. missile defense system, China hits South Korea where it hurts — in the wallet”, Los Angeles Times, 28 February 2018, https://www.latimes.com/world/asia/la-fg-china-south-korea-tourism-20180228-htmlstory.html

[12] Kevin Rudd, “Why the Quad Alarms China”, Foreign Affairs, 6 August 2021, https://www.foreignaffairs.com/articles/united-states/2021-08-06/why-quad-alarms-china.

[13] Adam Taylor, “The $1 billion Chinese oil rig that has Vietnam in flames”, The Washington Post, 19 May 2014, https://www.washingtonpost.com/news/worldviews/wp/2014/05/14/the-1-billion-chinese-oil-rig-that-has-vietnam-in-flames/

[14] Vietnamese Prime Minister, “Quyết định số 2146/QĐ-TTg của Thủ tướng Chính phủ : Phê duyệt Đề án Tái cơ cấu ngành công thương phục vụ sự nghiệp công nghiệp hóa, hiện đại hóa và phát triển bền vững giai đoạn đến năm 2020, tầm nhìn đến năm 2030” [Decision No. 2146/QD-TTg of the Prime Minister: Approving the Project on restructuring the industry and trade sector to serve the cause of industrialization, modernization and sustainable development for the period to 2020, with a vision to 2030], 1 December 2014, http://vanban.chinhphu.vn/portal/page/portal/chinhphu/hethongvanban?class_id=2&mode=detail&document_id=177748

[15] 11th Party Central Committee, “Báo cáo chính trị của Ban Chấp hành Trung ương Đảng khóa XI tại Đại hội đại biểu toàn quốc lần thứ XII của Đảng” [Political report of the 11th Party Central Committee presented at the 12th National Party Congress], accessed 15 July 2021, https://tulieuvankien.dangcongsan.vn/ban-chap-hanh-trung-uong-dang/dai-hoi-dang/lan-thu-xii/bao-cao-chinh-tri-cua-ban-chap-hanh-trung-uong-dang-khoa-xi-tai-dai-hoi-dai-bieu-toan-quoc-lan-thu-xii-cua-dang-1600

[16] 11th Party Central Committee, “Báo cáo chính trị của Ban Chấp hành Trung ương Đảng khóa XII tại Đại hội đại biểu toàn quốc lần thứ XIII của Đảng” [Political report of the 12th Party Central Committee presented at the 13th National Party Congress], accessed 15 July 2021, https://tulieuvankien.dangcongsan.vn/ban-chap-hanh-trung-uong-dang/dai-hoi-dang/lan-thu-xiii/bao-cao-chinh-tri-cua-ban-chap-hanh-trung-uong-dang-khoa-xii-tai-dai-hoi-dai-bieu-toan-quoc-lan-thu-xiii-cua-3669

[17] WTO Center, “Full Text of CPTPP”, accessed 12 August 2021, https://wtocenter.vn/chuyen-de/12782-full-text-of-cptpp; WTO Center, “EU-Vietnam trade and investment agreements”, accessed 15 July 2021, https://wtocenter.vn/chuyen-de/12778-eu-vietnam-trade-and-investment-agreements

[18] Ted Osius, “Nothing Is Impossible: America’s Reconciliation with Vietnam” (New Brunswick, New Jersey: Rutgers University Press, 2021), p. 141.

[19] Ministry of Industry and Trade, “Câu Hỏi Thường Gặp” [Frequently Asked Questions], accessed 15 July 2021, http://cptpp.moit.gov.vn/?page=overview&category_id=9f610acd-c168-4829-b0b0-6b3a68711536

[20] WTO Center, “Hỏi – Đáp về Hiệp Định Thương Mại Tự Do giữa Việt Nam và Liên Minh Châu Âu (EVFTA)” [Questions and Answers about the Free Trade Agreement between Vietnam and the European Union (EVFTA)], accessed 15 July 2021, https://wtocenter.vn/file/18228/qa-evfta-updated2.pdf

[21] LuatVietnam, “Law No. 42/2019/QH14 dated June 14, 2019 of the National Assembly on Amending and Supplementing a Number of Articles of the Law on Insurance Business and the Law on Intellectual Property”, accessed 15 July 2021, https://english.luatvietnam.vn/aw-no-42-2019-qh14-dated-june-14-2019-of-the-national-assembly-on-amendment-and-supplement-of-a-number-of-articles-of-the-law-on-insurance-business-175004-Doc1.html

[22] Vietnam Briefing, “Vietnam Approves Labor Code for 2021” accessed 15 July 2021, https://www.vietnam-briefing.com/news/vietnam-approves-labor-code-2021.html/.

[23] Author’s calculations based on data from World Integrated Trade Solution.

[24] “Vietnam Product Imports from China in US$ Thousand 2000-2019”; “Vietnam Product Import Product Share from China in percent 2000-2019”.

[25] WTO Center, “Việt Nam sau 02 năm thực thi Hiệp định CPTPP từ góc nhìn doanh nghiệp” [Vietnam after 2 years of implementing the CPTPP from a business perspective], accessed 15 July 2021, https://wtocenter.vn/file/18394/bao-cao-danh-gia-tinh-hinh-viet-nam-sau-2-nam-thuc-thi-cptpp-tu-goc-nhin-doanh-nghiep.pdf

[26] Ibid.              

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“Pandemic Fallout, Disruptive Technologies, and Divergent Demographics: Policy Challenges Facing Countries in the Indo-Pacific” by Jayant Menon

 

 

2021/113 “Grave Failures in Policy and Communication in Indonesia during the COVID-19 Pandemic” by Yanuar Nugroho and Sofie Shinta Syarief

 

People walk in an almost empty shopping mall in Surabaya on 10 August 2021, as Indonesia implements a more restrictive form of lockdown. Picture: Juni Kriswanto, AFP.

EXECUTIVE SUMMARY

  • More than a year into the COVID-19 pandemic, the Indonesian government’s weak handling of the crisis has led to a catastrophic second wave.
  • The magnitude of Indonesia’s current crisis seems to have stemmed from the government’s lack of political  resolve to curb the pandemic and prioritise public health and safety over economic considerations, which in turn seems to be rooted in political and vested interests. This attitude was reflected in the government’s persistent reluctance to declare lockdowns and its failure to enact the Health Quarantine Law, which would have obligated the government to assist the livelihoods of those affected by quarantine.
  • The state’s weak capacity to enforce and fund the required measures is probably a key factor underlying the government’s highly inadequate pandemic response. While calling for social discipline in observing safety measures, the state has fallen severely short on testing, tracing, treatment and vaccinations. Public health facilities have been overwhelmed.   
  • The crisis has also been exacerbated by the lack of clear and consistent policy communication, which has hampered the public’s ability to fully grasp the risks of contagion. The lack of accurate data has hindered effective decision-making. There is also poor coordination of policy implementation among agencies and between central and local authorities.
  • Given the lack of transparency, and as infections and mortality numbers continue to rise, the government has a long way to go in winning back public trust in its ability to manage and eventually overcome the crisis.

* Yanuar Nugroho is Visiting Senior Fellow at ISEAS – Yusof Ishak Institute, Singapore. He was former Deputy Chief of Staff to the President of Indonesia 2015-2019. Sofie Shinta Syarief is an Indonesian journalist.

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INTRODUCTION

One day after the first COVID-19 case in Indonesia was reported on 2 March 2020, an official spokesperson was appointed. The government then established the COVID-19 Response Task Force (Gugus Tugas) on 13 March 2020. On 31 March 2020, it declared COVID-19 a public health emergency, imposed stringent social restrictions,[1] and issued several fiscal policies to contain the pandemic and mitigate its impact on the national economy.[2] On 20 July 2020, the government set up an inter-ministerial committee (known as Komite Percepatan Penanganan COVID-19 dan PEN or KPCPEN) to handle the pandemic and lead the recovery of the national economy.[3] For this, the government allocated $46.7 billion in 2020. Of this amount, only 80% was disbursed. In 2021, the figure increased 2.68% to $47.9 billion.

Several measures were implemented to strike a balance between containing the pandemic while preserving the economy.[4] However, the pandemic curve has never shown signs of ever flattening, forming one continuous wave instead, and in Q2 2021, the second wave hit even more severely (Figure 1).

Daily new confirmed cases and deaths continue to surge—reaching the highest rates in Southeast Asia.[5] On 15 July 2021, total cases reached 2,726,803, with 70,192 deaths. The highest 56,757 new daily cases and 982 (highest so far was 2,069 recorded on 27 July 2021) new daily deaths were recorded on that date. Even with these record numbers, the true scale of Indonesia’s outbreak is likely much larger than the official numbers claim. This is due to severe under testing, as reflected in the positivity rate that has consistently remained above 20%.[6] Hospitals and healthcare facilities collapsed. They ran out of beds and could not take in new patients.[7] With nearly no oxygen support, critical patients were laid down in corridors or tents.[8] Exhausted, medical workers, too, became casualties. Some groups collaboratively built shelters at community levels[9] to help ease the burden of hospitals.

Under such dire circumstances, government policy seems nevertheless to keep sending mixed messages. Barely three months into the crisis, in June 2020, the government introduced the ‘New Normal’, i.e. lifting of the large-scale social restrictions.[10] This policy was criticised as it gave the illusion that the first peak of the pandemic had been reached and the curve had been flattened. In reality, it had not; Indonesia remained in the ‘first wave’ until the second wave hit. And even now, the message from the government is not clear, in terms of taking drastic measures such as a lockdown.

In hindsight, the root of the problem is quite fundamental: what has been driving the government’s COVID-19 policy has been political self-interest.[11] It has been this self-serving nature of Indonesian politics that has clouded the deliberation process and prevented hard decisions being made. In the case of the COVID-19 pandemic, arguably there has been no political will at all to implement the Health Quarantine Law (UU No 6/2018 Kekarantinaan Kesehatan) that would stipulate the government to impose a quarantine while ensuring the livelihood of people and livestock within the quarantined area. Instead, the government has chosen to create various euphemisms for public activity restrictions to avoid using the word ‘quarantine’ or ‘lockdown’, which many suspect are attempts to avoid the obligation to provide necessary social support.[12][13] Not only does this avoidance hinder optimum pandemic response,[14] it is also one of the main reasons for low public compliance,[15][16] and creates dissonance between the government’s obligations to the people and the public’s responsibility, especially when particular laws are only being used to punish those deemed violating public activity restrictions.[17]

There has been no clear vision and division of labour in the pandemic response from the central government right down to the sub-national and across ministries and state agencies. This explains the inconsistencies in the policies, which have resulted in mixed messages to the public. These mixed messages have, in turn, had serious political implications, bringing to question the effectiveness and competency of the government in managing the crisis and undermining public trust, creating a vicious cycle which has further hampered efforts to control the pandemic.[18]

COGNITIVE DISSONANCE, SELF INTEREST AND POLICY OPTIONS

The first and foremost problem with the Indonesian pandemic response was that the government downplayed the seriousness and potential risk of the coronavirus as it started to travel across borders. The false and at times also cavalier narratives continued even after Indonesia declared its first three COVID-19 cases,[19][20] sending mixed messages regarding the danger of the virus. In a press conference on 18 March 2020, the then-government spokesperson for COVID-19 response, Achmad Yurianto, implied that Indonesia was reluctant to perform COVID-19 tests as suggested by the WHO. This indicated that, as Indonesia was clearly in continuous communication with the WHO, the downplaying of the risk was not the result of lack of information or knowledge. Instead, the policies and statements made by the government showed a degree of cognitive dissonance and a denial of the looming health crisis.[21][22] Officials were regularly dismissing the seriousness of the issue[23][24]and ignoring the recommendations of health experts.[25][26]

The government’s reluctance to perform mass testing at the beginning of the pandemic generated unreliable data which created a false sense of security, since the government itself perceived COVID-19 as something that did not affect a large number of people.[27] This resulted in a vicious cycle of its own: inaccurate data were being used as the basis of health policies, and these policies did not work because the fundamentals were incorrect. Yet, the government did very little to ramp up tests to improve data accuracy, raising the cognitive dissonance even further. This, arguably, continues until today.

At the same time, it was clear that COVID-19 was having grave effects on the global economy,[28][29] including Indonesia. The travel sector—one of the economy’s most important drivers—faced a sudden blow with steep decline of incoming tourists since the start of 2020,[30] just several days after the WHO published its first acknowledgement of the disease outbreak on 5 January 2020[31] and even before Indonesia had declared its first case. And unlike the uncertainty around the COVID-19 public health data, the economic statistics were undeniable. It is within the context of this mental mindset that we observe the government having the tendency to prioritise economic recovery instead of seriously addressing the complicated challenges of public health management in a pandemic.

Consequently, policy and policy options would be poorly communicated. This is very unfortunate, because policy communication is important during the pandemic when people take in, process, and act on information differently than they would during normal times.[32] It affects risk communication, which is essential in building risk perception among the public, and is an integral part of emergency response. It also allows authorities and experts to really understand and address people’s concerns and needs so that they create and build trust. Failure to do so consequently undermines public trust towards authorities.[33] Yet the government’s early communication missteps continued and remain a consistent feature of the government’s risk communication to this day.

The following section provides a deeper examination of the deliberations and dynamics behind two key aspects of the government’s Covid-19 policy response, namely the avoidance of a hard lockdown; and efforts to “guilt-trip” the public into complying with safety measures.

COMMUNICATING OPTIONS, BUILDING RISK PERCEPTIONS

Case #1: Anything but a Lockdown

In February 2020, while countries around the world reported a surge of cases and began imposing restrictions on mobility, closing international borders, or ordering outright lockdowns,[34] Indonesia seemed determined to keep doing business as usual despite the looming threat of an outbreak. The tourism and travel industries were given a stimulus to offer discounts, social media influencers were paid to promote tourist destinations, and the country remained largely open to anyone.

Even as it acknowledged the first cases in early March 2020, the government continued to downplay the situation. But as cases rose exponentially, critics began calling for the government to quarantine regions that had registered a surge of cases, even to impose lockdowns. With the situation seemingly getting out of hand, President Widodo declared he was willing to take extraordinary measures to curb the pandemic, but short of a ‘lockdown’.[35]

As the central government weighed its policy options and considered different legal bases and scenarios to mitigate the impacts of the pandemic and curb the spread of the disease, some regions, such as DKI Jakarta and Tegal Regency, sought to impose the so-called ‘Large-Scale Social Restriction’ (Pembatasan Sosial Berskala Besar or PSBB) policy, which was provided under the newly passed Government Regulation 21/2020. Although the policy granted local authorities the power to impose measures to restrict mobility –such as limiting operating hours or closing business activities, schools, houses of worship– they were still required to submit their proposal[36] for approval to the Ministry of Health.

In the meantime, the outbreak continued unabated. The Health Quarantine Law was not put in motion and the Health Minister’s reluctance in approving sub-national requests for PSBB reflected the overall vacillation of the central government in imposing more stringent measures, seemingly, for fear of halting the economy,[37] concerns of public unrest and security, and unwillingness to bear the statutory costs associated with declaring a national ‘state of emergency’. Such a declaration – imposed by decree in the form of a Government Regulation in Lieu of Law (PERPPU)– would actually have centralised the power with the President as the highest bearer of authority during the emergency, streamlined coordination across all levels of the government and allowed for a more coherent nationwide strategy to control the pandemic. Instead, the government opted for the lesser ‘health emergency’ declaration, which placed the main responsibility for public health measures with sub-national governments.

The consequences were immediate and dire. What epidemiologists refer to as the golden opportunity to suppress and eliminate the pandemic early and with force was wasted. There was no coordination in implementation between agencies and government levels. The all-important surveillance was inadequate and epidemiological data was suppressed as regions and politicians sought to project an image of strength. Tensions flared between regions and the many ad hoc institutions intentionally established to fight the pandemic. Although political factionalism is beyond the scope of this paper, that has clearly played a role in making an already messy situation even more ugly.[38]

A year on, Indonesian officials still seem to struggle with the idea that restricting mobility, and its consistent enforcement, is the single most effective way to halt the pandemic.[39] Amidst the second wave, there remain inconsistencies in policymaking, such as confusing messages around mudik during Eid holidays[40] and official schemes to Work from Bali or Work from Jogja.[41]

As the infection and death rate kept rising, the stance of ‘never a lockdown’ was once again the go-to decision as the President delivered his speech on 23 June 2021.[42] It was evident that the President faced a dilemma,[43] as his preference had been to mitigate the economic impact by imposing a stricter implementation of the Public Activities Restriction (PPKM Darurat) to be effected from 3-20 July 2021, rather than a hard lockdown.

Case #2: Guilt Tripping the Public, Shifting the Blame

A key to combatting a raging pandemic is having a comprehensive government action plan and risk communication that allows people to understand the risks and adopt protective behaviours. Both the government and the public have their share of responsibility and must be equally committed to doing their part. While the latter must comply with health protocol to protect themselves and their family, which will protect their community and the public at large, the former is responsible for devising an effective strategy and system to curb the pandemic—based on accurate data.

No risk communication can be effectively built without accurate data. Unfortunately, even for something as unambiguous as death count, Indonesia lacks transparency. As of the last week of July 2021, there remain discrepancies between death numbers compiled by local and regional governments versus those from the central government, with at least 19,000 deaths unaccounted for in the national data.[44] In fact, some local and regional governments downplay the definition of COVID-19 deaths set by the WHO in order to lower or underreport death counts.[45]

The government has articulated the two aspects of its public health safety management approach with the acronym 3M and 3T: 3M is memakai masker (wearing a mask), mencuci tangan (washing hands), and menjaga jarak (social distancing); while 3T is testing, tracing, and treatment.[46] There has been a heavy emphasis on the public’s responsibility to adhere to 3M. To popularise the message, the government enlisted the help of musicians, artists and social media influencers to spread the message.[47] Advertorials have also been placed in news outlets, and many are paid to produce in-house stories for the campaign.[48] In early 2021, the 3M protocols were upgraded to 5M, adding menjauhi kerumunan (staying away from crowds) and membatasi mobilitas dan interaksi (limiting mobility and interaction).[49]

However, while the 5M campaign has been extensive, there has been very little from the government in terms of their own 3T responsibility, aside from daily announcements of official statistics.[50] The government has the legal obligation to inform the public on the methods and procedures of testing, tracing, and isolation. Yet, government communication on the 3T aspect has been lacking (Farizi and Harmawan, 2020). This poor communication has led to problems in the field, with communities becoming suspicious of contact tracers, and health workers being stigmatised, even violently attacked.[51][52][53] On this matter, the Ministry of Health downplayed the issue, saying that 3T efforts are not within the public domain.[54] A government advisor even described 3T as an individual’s responsibility to notify their surroundings if they are infected, asserting that this was the main problem with the lack of testing and tracing.[55] This reflects both fundamental lack of state capacity and fundamental complacency and desire to prioritise economic livelihoods instead of lives.

The Indonesian government has been struggling to meet WHO’s target of 40,000 tests per day. These testing numbers stagnated throughout the first half of 2021, even after the Ministry of Health approved in February 2021 the use of antigen tests as part of epidemiological surveillance under WHO guidelines.[56] One of the lowest test numbers was recorded on 30 April 2021, showing merely 26,939 PCR, 246 rapid molecular, and 24,479 antigen tests.[57] A significant rise only happened after the implementation of PPKM Darurat, with the highest record dated 22 July 2021, of 104,352 PCR and 124,350 antigen tests. A WHO and Ministry of Health survey showed that most cases were discovered through contact tracing, conducted mostly manually without a proper documentation system.[58] 95 per cent of primary healthcare facilities were only able to trace less than 20 contacts per case, and half of those could only manage less than 5 contacts traced for every positive case,[59] way below WHO’s benchmark of 30.

In light of Indonesia’s lack of testing, tracing and surveillance capacity, the government seems to be shifting the blame to the public. In a blatant display of irony and guilt-tripping, during the year-end holiday season as people travelled with barely any restrictions, the spokesperson of the COVID-19 Task Force said that people who were not complying with health protocols were digging their own graves,[60] which drew harsh public criticism.

Although vaccination has begun in earnest, testing, tracing, and treatment will continue to be key in combating COVID-19 (Kucharski et al., 2020; Peng et al., 2020; Salathe et al., 2020) until enough people are vaccinated to slow its spread, which may take another year at best. Thus, experts call on the government to ramp up its 3T capacity and communicate the process transparently and effectively to the public[61][62] because, quoting WHO Director-General, “…you cannot fight a fire blindfolded. And we cannot stop this pandemic if we don’t know who is infected”.[63]

CONCLUSION

No country can escape from this pandemic. But what makes the ‘fate’ of each of them different is perhaps their capacity to address it and save lives. Proper pandemic response is a direct outcome of high state capacity as well as clear and unambiguous policy communication. Yet, such can only be built and achieved when the policy options are clear – as an outcome of strong political will. Nevertheless, while such ‘logic’ may be insufficient or inadequate to really explain the response process, it may help us understand its complexity, particularly in the case of Indonesia.

The apparent inability of the Indonesian government to really curb the pandemic is not just a direct result of low and weak state capacity or poor policy communication. Beneath it, there is, very likely, a more fundamental problem: the lack of political will to go ‘all out’ in fighting the pandemic in the first place, due to the self-serving interest nature of the politics, and cognitive dissonance in understanding the real magnitude of the pandemic.

While the enactment of the Health Quarantine Law could have helped curb the pandemic at the early stage and perhaps avoided the social-economic and even political costs, it did not happen because there was no political will to do so. Politics in Indonesia today is strongly characterized by self-serving interests, paralyzing decision making, and rendering politicians unable to take a strong stance concerning the needs of the many in the long-term. Instead, they become shortsighted and merely focus on short-term political and economic gains. The government seems to have failed in understanding the paradox they themselves created in handling the pandemic: their reluctance to declare a health emergency and to enact health quarantines is the exact cause of the current socio-economic costs they have to bear.

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ISEAS Perspective 2021/113, 25 August 2021


ENDNOTES

[1]   Government Regulation No. 21/2020 .

[2]   Among others, Government Regulation in Lieu of Law No. 1/2020 on state financial policy and maintaining financial system stability to mitigate the COVID-19 pandemic and/or other threats to the national economy and/or financial system stability (31 March 2020), Government Regulation No. 23/2020 on the National Economic Recovery (Pemulihan Ekonomi Nasional or PEN) program (9 May 2020), and Presidential Regulation No. 72/2020 (24 June 2020). Government Regulation in Lieu of Law No. 1/2020 was then enacted as Law No. 2/2020 (16 May 2020).

[3]   Presidential Regulation No. 82/2020 on the Committee for Handling COVID-19 and PEN.

[4]   From large-scale social restrictions, mask wearing and hygiene campaigns, reallocation of the state budget for pandemic response, to distribution of social assistance.

[5]   https://worldometers.info/coronavirus

[6]   Indonesia is ranked 83rd out of 86 countries surveyed for overall tests per capita and 97th out of 100 countries for overall safety. Source: https://www.reuters.com/article/us-health-coronavirus-indonesia-insight/endless-first-wave-how-indonesia-failed-to-control-coronavirus-idUSKCN25G02J. For comparison, India and The Philippines are testing four times more per capita, while the US tests 30 times more. https://www.cnnindonesia.com/nasional/20210102161718-20-588745/kembali-rekor-positivity-rate-2-januari-capai-295-persen. According to WHO, figures above 5 percent show that an outbreak is not under control.

[7]   See https://megapolitan.kompas.com/read/2021/06/21/17582471/ketika-rs-rujukan-COVID-19-di-jabodetabek-kolaps-dan-banyak-pasien?page=all

[8]   See https://www.kompas.id/baca/metro/2021/06/22/rumah-sakit-penuh-tenda-darurat-didirikan-di-depan-rsud-kota-bekasi

[9]   https://kumparan.com/tugujogja/uad-bangun-shelter-untuk-pasien-COVID-19-di-bantul-1v8PO2QmJAx

[10] In the effort to save the economy, President Joko ‘Jokowi’ Widodo urged the people to ‘make peace’ with the virus by adopting new habits, such as wearing masks, washing hands, and maintaining physical distancing. See https://nasional.kompas.com/read/2020/05/15/22185601/jokowi-kita-harus-hidup-berdampingan-dengan-COVID-19

[11] When explaining the 2020 sub-national Elections. See /articles-commentaries/iseas-perspective/iseas-perspective-2021-5-how-the-2020-pilkada-reflected-major-structural-flaws-in-indonesian-politics-by-yanuar-nugroho-yoes-c-kenawas-and-sofie-s-syarief/

[12] https://www.theguardian.com/global-development/2021/jul/22/struggling-for-work-and-food-indonesias-poorest-suffer-as-covid-crisis-deepens

[13] https://www.cnbcindonesia.com/news/20210724085837-4-263252/waspada-ri-ekonomi-tahun-ini-diramal-terseok-seok

[14] https://www.thejakartapost.com/academia/2021/07/22/cost-of-easing-lockdowns.html

[15] https://nasional.kompas.com/read/2021/07/19/18325421/pengamat-sebut-masyarakat-tak-patuhi-ppkm-karena-pemerintah-juga-tak-patuhi?page=all

[16] https://news.detik.com/berita/d-5646586/pemerintah-diminta-terapkan-uu-kekarantinaan-kesehatan-agar-ada-efek-jera

[17] https://nasional.tempo.co/read/1485316/apakah-uu-kekarantinaan-kesehatan-diterapkan-jika-ppkm-darurat-diperpanjang/full&view=ok

[18] https://www.economist.com/asia/2020/08/29/politics-is-spreading-COVID-19-in-indonesia-and-the-philippines

[19] https://news.detik.com/berita/d-4967416/ini-daftar-37-pernyataan-blunder-pemerintah-soal-corona-versi-lp3es

[20] Indonesian online news portal, Narasi, compiled all communication gaffes by the government which showed consistency in undermining the gravity of the pandemic. https://www.youtube.com/watch?v=3MSCDvbQye0

[21] https://nasional.tempo.co/read/1314620/terawan-sebut-kematian-karena-flu-lebih-tinggi-ketimbang-corona

[22] https://www.merdeka.com/peristiwa/sebelum-ada-pasien-positif-pemerintah-dinilai-remehkan-ancaman-virus-corona.html

[23] https://www.cnnindonesia.com/nasional/20200211195637-20-473740/menkes-tantang-harvard-buktikan-virus-corona-di-indonesia

[24] https://www.merdeka.com/uang/luhut-bantah-pemerintah-lamban-tangani-wabah-corona.html

[25] https://www.tribunnews.com/nasional/2021/07/05/laporCOVID-19-pemerintah-tak-dengar-masukan-para-ahli-soal-potensi-lonjakan-COVID-19

[26] https://www.abc.net.au/indonesian/2020-05-18/kebijakan-indonesia-terkait-corona-belum-miliki-bukti-sains/12242002

[27] https://finance.detik.com/berita-ekonomi-bisnis/d-4977999/luhut-heran-angka-kematian-corona-tak-sampai-500-orang

[28] https://hbr.org/2020/03/what-coronavirus-could-mean-for-the-global-economy

[29] https://edition.cnn.com/2020/02/24/business/coronavirus-global-economy/index.html

[30] https://kemenparekraf.go.id/statistik-wisatawan-mancanegara/Statistik-Kunjungan-Wisatawan-Mancanegara-2020

[31] https://www.who.int/emergencies/disease-outbreak-news/item/2020-DON229

[32] See (Covello et al., 2001; Glik, 2007).

[33] This also extends to key political elites and actors who can influence policymaking. Arguably, it is this failure to communicate the risks early and consistently that contributed to public views that the government had been slow and cumbersome in responding to the crisis (Nugroho and Negara, 2020).

[34] Such as in neighbouring Malaysia and Singapore, or in Hubei, China. See https://www.kompas.com/tren/read/2020/03/22/183000465/update-berikut-15-negara-yang-berlakukan-lockdown-akibat-virus-corona?page=all

[35] https://www.cnbcindonesia.com/news/20200331151741-4-148793/tak-mau-lockdown-jokowi-kita-tak-bisa-tiru-negara-lain

[36] The proposal must be accompanied with the requisite studies and data for justification.

[37] On March 31, when the PSBB Regulation was issued, President Widodo made it very clear that the national government was in control and that regions must not make big decisions “because the economy could stop.”

[38] See Max Lane’s analysis on this matter at /wp-content/uploads/2020/03/ISEAS_Perspective_2020_46.pdf

[39] In January 2021, as the public health system was on the verge of collapse, in one of his public addresses, President Widodo even asked citizens to be grateful that Indonesia had been successful in controlling the pandemic and, unlike other less successful countries, did not have to resort to the dreaded lockdown https://nasional.kompas.com/read/2021/01/08/15073801/jokowi-alhamdulillah-indonesia-tidak-sampai-lockdown

[40] After the weak enforcement to restrict mobility during Eid holidays, huge spikes of cases could be seen all over Java, especially in areas where the travellers were from (mainly Jakarta and its suburbs) or headed to (West, Central, and East Java), where countless family gatherings, outings, and religious events that attracted crowds happened. See https://en.tempo.co/read/1470785/COVID-19-cases-in-kudus-skyrocket-7-594-after-eid-holiday-53-4-national

[41] These are government schemes to get the civil service to to work from Bali or from Yogyakarta, and aimed at helping to revive local economy. See https://travel.kompas.com/read/2021/06/08/123930227/apa-itu-work-from-bali-ini-penjelasan-lengkapnya?page=all. Although currently the schemes are being postponed, the preparation for the programme is still ongoing. See https://www.youtube.com/watch?v=7VYvoE1SUBQ

[42] A tally of the government’s refusal for lockdown can be found here https://bisnis.tempo.co/read/1476528/penolakan-jokowi-soal-lockdown-dari-awal-pandemi-hingga-gelombang-baru-COVID-19/full&view=ok

[43] https://fulcrum.sg/to-lockdown-or-not-indonesias-dilemma-in-handling-the-COVID-19-second-wave/

[44] https://laporcovid19.org/post/lebih-dari-19-000-kematian-belum-tercatat

[45] https://www.cnnindonesia.com/nasional/20210723110456-20-671205/idi-jatim-soal-data-nol-kematian-COVID-19-coba-lihat-kuburan

[46] https://nasional.kompas.com/read/2020/11/14/16351771/tak-hanya-3m-upaya-3t-juga-penting-untuk-putus-penularan-COVID-19

[47] In October 2020, the government launched the ‘Ingat Pesan Ibu’ (Remember Mother’s Advice) campaign with Padi, one of the biggest rock bands in the country, who composed a song about a mother reminding her family to obey 3M protocols. See https://www.cnbcindonesia.com/news/20201001175054-8-191002/ingat-pesan-ibu-jadi-senjata-baru-satgas-COVID-19

[48] Case in point KompasTV. One author, Sofie Syarief, as an executive producer and news anchor of the station, experienced first-hand the various advertorial orders.

[49] https://kesehatan.kontan.co.id/news/mengenal-5m-untuk-pencegahan-COVID-19-dan-bedanya-dengan-3m

[50] Although no number can be quantitatively measured at this point regarding the proportion of 3M vs 3T campaign, the writers took the liberty of concluding thus by observing advertisements and ad-libs placed in KompasTV by governmental bodies.

[51] https://nasional.kompas.com/read/2020/07/18/19014101/pemerintah-sebut-135-tenaga-medis-diusir-karena-stigma-negatif

[52] https://regional.kompas.com/read/2021/07/06/125539478/video-viral-warga-di-jeneponto-usir-nakes-yang-akan-lakukan-pelacakan

[53] https://www.cnnindonesia.com/nasional/20200807072600-20-533086/kisah-tim-medis-covid-solo-dicaci-warga-dan-dikejar-anjing

[54] See the statement of the Director for Primary Healthcare of the Ministry of Health https://www.youtube.com/watch?v=vYyydWwnwLc

[55] https://covid19.go.id/p/berita/3m-dan-3t-untuk-putus-penularan-COVID-19

[56] https://sehatnegeriku.kemkes.go.id/baca/rilis-media/20210210/2036953/rapid-diagnostic-test-antigen-resmi-digunakan-untuk-penyelidikan-epidemiologi/

[57] https://laporcovid19.org/post/tes-COVID-19-indonesia-minim-dan-rentan-dikorupsi

[58] https://tirto.id/7-bulan-COVID-19-di-indonesia-who-tes-pcr-rendah-kematian-tinggi-f5vZ

[59] https://www.youtube.com/watch?v=vYyydWwnwLc&t=2252s

[60] https://www.kompas.tv/article/133104/tren-COVID-19-memburuk-wiku-adisasmito-masyarakat-seperti-menggali-kuburnya-sendiri

[61] https://tirto.id/masyarakat-harus-lakukan-3m-untuk-tekan-kasus-COVID-19-kata-dokter-f5xv

[62] https://nasional.kompas.com/read/2020/12/10/13154541/angka-kematian-COVID-19-tinggi-epidemiolog-pr-pemerintah-tingkatkan-testing?page=all

[63] https://www.who.int/director-general/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-COVID-19—16-march-2020

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2021/112 “Financial Inclusion and Consumer Finance in Vietnam: Challenges and Approaches to Credit Scoring” by Nicolas Lainez, Bui Thi Thu Doai, Trinh Phan Khanh, Le To Linh, To Thu Phuong, and Emmanuel Pannier

 

People walking past a local commercial bank in downtown Hanoi on 7 January 2015. Photo: HOANG DINH NAM, AFP.

EXECUTIVE SUMMARY

  • Consumer finance has grown rapidly in Vietnam despite millions of its citizens being unbanked.
  • A key prerequisite for boosting consumer finance and financial inclusion is the application of credit scoring technologies in the lending process.
  • Credit scoring technologies have expanded considerably in Vietnam, owing to the production of credit data, technological improvements, and the digitalization of the economy.
  • Consumer lenders continue to face challenges in deploying credit scoring, in particular for verifying applicants’ identity and income data, and assessing creditworthiness.
  • Lenders take variegated approaches to data verification and risk assessment, which involve statistical models, machine learning analytics and human discretion.
  • The application of credit scoring in consumer finance raises important technical and policy issues related to effectiveness, miscalculation, data privacy, data protection and cyber security.

* Nicolas Lainez is Visiting Fellow at ISEAS – Yusof Ishak Institute. Trinh Phan Khanh lives in Hanoi and is a recent political science graduate specializing in international relations from Leiden University. Bui Thi Thu Doai lives in Hanoi and is studying towards a BA in Development and Economics at the London School of Economics. Tô Thu Phuong lives in Hanoi and holds a Bachelor in Human Rights and Political Science from Columbia University and Sciences-Po Paris. Le To Linh lives in West Virginia and is studying International Studies at Hollins University. Emmanuel Pannier is Research Fellow at the French National Institute for Sustainable Development and is based in Hanoi in the University of Social Sciences and Humanities.

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INTRODUCTION

Financial inclusion and consumer finance are hot topics in Vietnam, with the government and the consumer finance industry seeking to include millions of unbanked citizens in financial markets and to facilitate access to consumer loans.

Credit scoring is a prerequisite for financial inclusion as it helps lenders determine borrowers’ creditworthiness – or the likelihood they will repay a loan – and standardize and enhance lending decisions. This scoring technology has expanded considerably in Vietnam in recent years, owing to the production of a broader variety of traditional and alternative data, a rising demand for enhanced computing ability brought by machine learning analytics, and the digitalization of the economy boosted by the Covid-19 pandemic. Consumer lenders increasingly use credit scoring to accept or reject loan applicants, determine loan pricing, and tailor financial products and recovery strategies. However, they encounter challenges when deploying this technology at scale due to a pervasive lack of knowledge where customers with no credit history are concerned.

This article describes the challenges lenders encounter in verifying personal and income data and assessing applicants’ creditworthiness, and the solutions they use to address these obstacles and gain competitiveness in a thriving consumer finance market.

Credit scoring has policy implications. It is essential for policy makers to understand the effectiveness and accuracy of this technology and to address possible errors and miscalculations in risk assessment and in the sanctioning of consumer credit. In addition, the production of traditional and alternative data for scoring purposes raises concerns about data privacy, protection and security. These issues can put borrowers at risk and hamper financial inclusion.

Data for this article comes from in-depth interviews conducted in-person and online with 36 informants from Hanoi and Ho Chi Minh City. The convenience sample comprises 14 bankers working for public banks, joint-stock commercial banks and financial companies, and 22 borrowers who took consumer loans, including twelve informants who purchased vehicles and electronic devices on instalment plans or obtained cash loans from FE Credit, the leading financial company in Vietnam.

KNOWING CUSTOMERS AND ASSESSING CREDIT RISK

Vietnam has been consolidating its financial sector within the last three decades, moving from centrally planned goals to an independent industry guided by local and global market forces[1]. Today, Vietnam’s banking sector comprises a broad mix of players: large state-owned banks such as BIDV, Vietcombank and Vietinbank; smaller joint-stock commercial banks including VPBank, PVCombank and Sacombank; foreign banks such as ANZ, Citibank and Shinhan Bank; and financial companies including FE Credit, Home Credit, HD Saison, and Shinhan Finance. These actors are boosting consumer finance and bombarding consumers with offers for secured and unsecured loans sent via SMS, phone calls, emails and social media[2]. This sector was virtually non-existent a decade ago. With an average annual growth rate of 20 per cent, it has grown steadily to account for 20.5 per cent of the total outstanding loans in the economy, 2.5 times higher than the figures in 2012.[3] However, it only accounts for 8.7 per cent of the total outstanding loans if housing loans are excluded, far behind Malaysia, Thailand and Indonesia, where consumer finance (excluding mortgage) accounts for 15 to 35 per cent of the total outstanding balance. Therefore, comparatively speaking, consumer finance still has much room for growth in Vietnam[4]. However, obstacles stand in the way of consumer lenders, including information asymmetry and sheer uncertainty.

Consumer lenders operate in a challenging environment marked by high financial exclusion. Today, between 61[5] to 70 per cent[6] of Vietnam’s 98 million population still have no bank accounts and credit history. This situation results from a long-standing lack of trust in the banking system after years of changes in government, and inflation bounds. Today, banks and financial companies strive to show transparency and change public attitudes, especially among young people.[7] They also entice new customers by offering high – yet volatile – interest rates for saving accounts, which the Covid-19 pandemics have brought close to zero, to support the economy.[8] Meanwhile, the preference for cash and gold transactions remains strong.[9] To curb these trends, the government has recently approved the national inclusive finance strategy to raise the percentage of adults with bank accounts to 80 per cent by 2025.[10] Meanwhile, financial exclusion remains a significant obstacle for consumer lenders and credit bureaus, including the Credit Information Center (CIC).[11] the national credit bureau under the State Bank, and the Vietnam Credit Information Joint Stock Company (PCB). Credit bureaus are expanding their activities and databases, but still lack credit data about tens of millions of citizens.

This lack of knowledge transpires in customer identification – or KYC for Know Your Customer – procedures, an issue rooted in administrative problems. To identify loan applicants, lenders require identification documentation such as an updated ID and household certificate. However, not all applicants can provide proper documentation. Many internal migrants cannot secure temporary residence or modify the address in their household certificate.[12] In addition, citizens can have multiple IDs with different numbers. The recent shift from IDs with nine digits to IDs with 12 digits has led to confusion and fraudulent use of loopholes. A senior officer from the CIC mentioned that “borrowers may try to conceal their information by using different papers to try and apply for different loans”. He pointed out the existence of a black market for genuine and counterfeit IDs, and the fact that lenders do not share information about fraudulent applicants for the Ministry of Public Security to press charges and for credit bureaus to flag them. As a result, identification fraud proliferates due to a lack of government agency coordination. The National Population Database in the Ministry of Public Security is currently building a unified database based on new identity cards with 12 digits, a chip, and a QR code. This system will significantly improve customer identification. Meanwhile, lenders and credit bureaus will continue to struggle to identify borrowers, exposing lenders to fraud risk. 

To determine applicants’ creditworthiness, make credit appraisals, and to get to know their customers, lenders assess their income situation as well. Collecting and verifying labour and income data can be challenging as not all workers have contracts and records for their income, in particular informal workers. While big companies pay salaries through bank transfers, smaller companies mix bank and cash payments, and informal employers use cash payments only. The second and third scenarios are challenging for lenders. In addition, some applicants embellish their loan applications by manipulating data and forging certificates. For example, in order to secure a mortgage without having a recorded income, an informant deposited money in her bank account and asked a friend for help: “I called up my friend like: ‘sign me a labour contract, make me a salary table’. I crafted my own application: a salary table, with bonuses, a title, back then I said I was ‘Head of Sales’, which means I get a manager’s salary… So, I made up all of that, typed it up, printed it, estimated the amount of money, gave it to my friend who had it signed and stamped”. Another conundrum lenders face is worker’s unstable career paths and income, especially those of many informal workers who live day by day.[13] Financial companies target these risky customers whereas banks focus on smaller but growing groups of urban, highly-educated and middle-class workers who build linear and future-oriented careers.[14] Overall, high financial exclusion, administrative barriers, informality and precarity generate uncertainty, exacerbate risk and slow consumer finance growth. However, the under-development status of consumer finance in a country with a hundred million citizens offers excellent prospects for profit and expansion.

SOLUTIONS FOR KNOWING CUSTOMERS AND ASSESSING CREDIT RISK

For consumer finance to thrive and reach millions of banked and unbanked customers in Vietnam, consumer lenders race to improve know-your-customer (KYC) procedures, build customer knowledge, and standardize credit scoring tools. Scoring systems are not homogeneous across the banking industry. Most public and joint-stock commercial banks provide housing, car, credit card and a limited range of unsecured loans to low-risk customers with stable income positions. On the contrary, financial companies such as FE Credit take a riskier approach and offer instalment plans, cash and credit card loans to millions of unbanked, low-income and ‘at-risk’ consumers. Overall, depending on their size, status, risk appetite and business model, banks and financial companies use different tools to know their customers, assess their creditworthiness and mitigate risk through pricing.

Many banks use traditional economic data and regression models to rank applicants. The Bank for Investment and Development (BIDV), a large state-owned bank founded in 1957 and a major player in retail banking, is breaking into the consumer finance sector by providing home, car, overseas education, and instalment loans to low-risk customers. According to a branch office manager, BIDV offers unsecured loans and credit cards to known customers. The requirement is that the customer opens a salary-receiving account to monitor cash flows and to set up automatic monthly deductions. To generate risk scores, BIDV uses a three-page long table with over 50 lines. Variables include demographic data (age, marital status, number of children, education level, etc.), labour status, income and repayment capacity (spouse who may contribute to repayment, debt burden ratio, and whether income is transferred through a bank or not, etc.), standing loans (with BIDV and other lenders), financial situation (savings), credit and payment history with BIDV if relevant, and other lenders based on reports from the CIC.[15] All these data facilitate credit appraisal. BIDV’s scoring table is under permanent revision to match evolving policies from the State Bank and market conditions. Other public and joint-stock banks apply similar credit scoring systems based on a limited number of economic variables and regression models. These lenders have a moderate risk flavour, meaning they prioritize secured loans and choose customers with low-risk profiles.

Financial companies like FE Credit, the consumer finance branch of VPBank, holds a more aggressive and technologically-oriented approach. In 2010, FE Credit was the first credit institution to target risky yet lucrative segments ignored by banks, and to offer an array of financial products to the masses. In 2020, it held a database of 14 million customers and a consumer debt market share of 55 per cent, with a total outstanding loans value of VND66 trillion. FE Credit performs traditional KYC procedures based on paperwork and personification. It also checks through referees. As standard practice, it requires applicants to provide the details of two to three referees, preferably close relatives, friends and employers. This KYC verification procedure based on personal networks has shortcomings as applicants may provide fake referees.

FE Credit has a first-mover advantage. It asserts its dominance by investing in risk methods based on traditional and alternative data and machine learning analytics. It takes advantage of the recent introduction of digital technologies and high internet penetration rate to glean traditional and alternative data from consumers in order to assess risk.[16] FE Credit’s risk assessment model combines multiple scores that help draw intimate ‘customer portraits’. The in-house score is based on demographic data, ID documents, and labour and income data. Brokers provide additional data on taxable income, social insurance, phone number registration, and debt status with unofficial credit providers for verification purposes. While many banks purchase scoring models based on standard sets of variables from foreign providers like McKinsey, FE Credit has developed an in-house model based on insights from its Vietnamese customers. This model takes into account its customers’ unique characteristics including identification and fraud issues, labour precarity, and income instability. This in-house score determines the interest rate, ranging from 20 to 40 per cent per annum, which also depends on loans’ characteristics and package. It complements other data for appraisal, including the amount requested, down payment if relevant, the proportion of the loan relative to the good’s price, and the value of the debt contract.

FE Credit also relies on a vendor score based on behavioral data provided by Trusting Social, a fintech start-up based in Hanoi and Singapore. This firm gleans call/SMS metadata (when, where and how long), top-up data and value-added service transactions to determine borrowers’ income, mobility patterns, financial skills, consumption profile, social capital and life habits. In addition, FE credit uses two other risk scores that are new to Vietnam. The first is a fraud score to detect suspicious behaviour and fraudulent orders based, for instance, on fake identification. The second is a repayment score based on behavioural data about the customer’s interaction with the firm that helps in determining an optimal recovery strategy. To analyze data and generate scorecards, FE Credit uses machine learning analytics. This technology allows for adjusting the inputs (variables) to maximize the outputs (scores). The most predictive variables inform selections and decisions for each case.

Despite their popularity, not all banks use regression and machine-learning tools to rank applicants. A case in point is Shinhan Bank Vietnam, a subsidiary of Shinhan Bank Korea. This bank has recently entered the burgeoning consumer finance sector in Vietnam. It proposes housing, car and unsecured loans to qualified low-risk customers, and conducts credit appraisal based on four criteria: character, collateral, loan purpose, and financial situation including ‘bad debt’ history. As opposed to most consumer lenders, Shinhan Bank does not use credit scoring to assess applicants’ creditworthiness. According to a loan appraisal officer, its thorough appraisal process suffices to limit risk. However, Shinhan Bank plans to improve its risk management tools while keeping non-performing loans low.

Another case worth mentioning is Shinhan Finance, a small financial company tied to Shinhan Card Korea, which originated from the acquisition of Prudential Vietnam Finance in 2019. Shinhan Finance provides cash loans to workers who can prove their salary and who work for ‘red listed’ companies whose workers show low delinquency rates. Although it markets its unsecured credit offer as ‘salary-based loans’, it does not collateralize workers’ salaries. According to a credit support officer, Shinhan Finance’s philosophy is that, if you don’t have enough money to live, how could you have money to repay loan interest?”. To apply for loans of up to 6-8 times their salary, workers must provide an ID, a household registration certificate and income proof. They must also agree to meet a loan officer for an interview. The lender requires referees for data verification. Like Shinhan Bank, Shinhan Finance does not use credit scoring to assess risk. It relies on appraisal based on the employer’s status, the applicant’s credit and ‘bad debt’ history with other banks and Shinhan Finance if relevant, and officers’ evaluation.

Shinhan thus seeks a reliable consumer base, which is likely to be unbanked, at the cost of having less market share. Altogether, whereas FE Credit leverages alternative data and machine-learning analytics to improve customer knowledge and risk prediction, and lend money to millions of unbanked consumers, Shinhan Finance challenges the standardization of statistically based and automated scoring systems by prioritizing income levels and human discretion to cater to a small customer base. The variety of risk assessment models and technologies shows that lenders go through an intense phase of experimentation, competition and adaptation to a relatively nascent environment.

CONCLUSION

This article described the variegated approaches to data verification and creditworthiness assessment that Vietnamese lenders adopt to address technical obstacles and position themselves in a rapidly expanding consumer finance market. It showed that this emerging sector is large and untapped enough to cater to diverse risk philosophies, technologies and procedures incorporating human discretion, regression models and cutting-edge machine learning analytics.

Credit scoring raises important technical issues in Vietnam. This technology has made substantial progress in turning radical uncertainty caused by high financial exclusion into calculable and priceable risk. However, credit scoring is subject to a permanent process of contestation and improvement[17] and its efficiency and accuracy are contingent upon available data and evolving political, economic and regulatory conditions.[18] Besides, the transfer of credit scoring technologies designed in rich countries like South Korea and Singapore to emerging economies like Vietnam raises technical challenges. Global standard models often rest on assumptions that do not apply to Vietnam, such as labour and income stability, data verification ease, and availability of credit history data.[19]

Credit scoring also raises a string of policy issues. Since the technology is imperfect and there is a lack of sufficiently large numbers of past observations for extrapolations about the future, we should expect lenders to make miscalculations and errors and for them to require adjustment and experience if they are to rank tens of millions of citizens who are new to consumer finance. The regulator has a key role to play. Vietnamese law requires creditors and regulators to continually assess and categorize debtors and loans in risk categories. However, it does not adequately protect borrowers from miscalculation and sensitive groups (the poor, women, ethnic and religious groups, etc.) from unfair discrimination and rejection. The advent of credit scoring based on alternative data and machine-learning analytics raises new concerns about opacity, algorithmic discrimination, and the loss of individual autonomy and privacy.[20] The current regulation on credit scoring is unprepared to deal with the challenges raised by machine-learning analytics. However, the State Bank is launching a pilot regulatory sandbox programme for five key fintech sectors, including machine learning-based credit scoring.[21] We can only hope that the regulator and consumer lenders realize the urgent need to update regulation on credit scoring and to find a balance between efficiency in risk prediction and consumer protection.

ISEAS Perspective 2021/112, 24 August 2021


ENDNOTES

[1] Jens Kovsted, John Rand, and Finn Tarp, From Monobank to Commercial Banking: Financial Sector Reforms in Vietnam (Singapore: NIAS Press, Institute of Southeast Asian Studies, 2004).

[2] In addition, digital lenders including peer-2-peer platforms provide microloans to consumers through easy-to-use apps.

[3] Van Luc Can, “Landscape Shift in Consumer Finance,” Vietnam Investment Review, March 30, 2021, https://vir.com.vn/landscape-shift-in-consumer-finance-83411.html.

[4] Ibid.

[5] Hai Yen Nguyen, “Fintech in Vietnam and Its Regulatory Approach,” in Regulating FinTech in Asia, ed. Mark Fenwick, Steven Van Uytsel, and Bi Ying, Perspectives in Law, Business and Innovation (Singapore: Springer, 2020), 124.

[6] World Bank, The Little Data Book on Financial Inclusion 2018 (Washington DC: World Bank, 2018), 160

[7] Allison Truitt, “Banking on the Middle Class in Ho Chi Minh City,” in The Reinvention of Distinction: Modernity and the Middle Class in Urban Vietnam, ed. Van Nguyen-Marshall, Lisa B. Welch Drummond, and Danièle Bélanger, ARI – Springer Asia Series (Dordrecht: Springer Netherlands, 2012), 129–41

[8] Vietnam+, “Deposit Interest Rate Proposed to Gradually Lower to 0 Percent,” Vietnam+, June 25, 2021, https://en.vietnamplus.vn/deposit-interest-rate-proposed-to-gradually-lower-to-0-percent/203622.vnp.

[9] Allison Truitt, “Banking on Gold in Vietnam,” Journal of Cultural Economy 14, no. 4 (July 4, 2021): 403–15

[10] VNA, “PM Ratifies National Financial Inclusion Strategy until 2025,” Vietnam Investment Review, February 3, 2020, https://www.vir.com.vn/pm-ratifies-national-financial-inclusion-strategy-until-2025-73554.html.

[11] The CIC gathers credit data from 30.8 million individuals with existing credit history and provides credit reports to consumer lenders.

[12] World Bank, VASS, Vietnam’s Household Registration System (Hanoi: Hong Duc Publishing House, 2016); see Nicolas Lainez et al., “‘Easy to Borrow, Hard to Repay’: Credit and Debt in Ho Chi Minh City’s Sex Industry,” Research Report no. 5 (Ho Chi Minh City: Alliance Anti-Trafic, 2020).

[13] Nicolas Lainez, “Treading Water: Street Sex Workers Negotiating Frantic Presents and Speculative Futures in the Mekong Delta, Vietnam,” Time & Society 28, no. 2 (2019): 804–27; Lainez et al., “‘Easy to Borrow, Hard to Repay’: Credit and Debt in Ho Chi Minh City’s Sex Industry.”

[14] Catherine Earl, Vietnam’s New Middle Classes: Gender, Career, City (Copenhagen: NIAS Press, 2014).

[15] The CIC separates Non-Performing-Loans (NPL) or ‘bad debt’ (nợ xấu) from borrowers into five groups: 1 (‘current’, debt is overdue less than ten days), 2 (‘special mentioned’, debt is unpaid from 10 to 90 days), 3 (‘sub-standard’, debt is overdue 91 to 180 days), 4 (‘doubtful’, debt is due from 181 to 360 days) and 5 (‘loss’, debt is overdue more than a year). Lenders reject borrowers from groups 3, 4 and 5, and may consider those in group 2, depending on their risk appetite. Credit blacklisting lasts for two years after the borrower has paid off an arrear.

[16] In 2016, Vietnam’s internet penetration rate had reached 52 per cent while smartphone ownership 72 and 53 per cent in urban and rural areas, respectively (Nguyen, Hai Yen. 2020. “Fintech in Vietnam and Its Regulatory Approach.” In Regulating FinTech in Asia, edited by Mark Fenwick, Steven Van Uytsel, and Bi Ying, 121. Singapore: Springer).

[17] Donncha Marron, “‘Lending by Numbers’: Credit Scoring and the Constitution of Risk within American Consumer Credit,” Economy and Society 36, no. 1 (February 2007): 103–33

[18] C. Zaloom, “How to Read the Future: The Yield Curve, Affect, and Financial Prediction,” Public Culture 21, no. 2 (April 1, 2009): 245–68.

[19] Dawn Burton, “Credit Scoring, Risk, and Consumer Lendingscapes in Emerging Markets,” Environment and Planning A: Economy and Space 44, no. 1 (January 2012): 111–24

[20] Nicolas Lainez, “The Prospects and Dangers of Algorithmic Credit Scoring in Vietnam: Regulating A Legal Blindspot,” Regional Economic Studies Working Series (Singapore: ISEAS, 2021), /category/articles-commentaries/iseas-economics-working-papers/.

[21] Linh Chi Dang and Mai Nhu Thuy Pham, “Vietnam’s Evolving Regulatory Framework for Fintech,” Perspective, no. 75 (June 7, 2021): 10.

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.  
© Copyright is held by the author or authors of each article.
Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).

 

2021/111 “The Role of Export Diversification in ASEAN’s Trade with China” by Phi Minh Hong

 

The participation of China and its suppliers in the Global Value Chains has shaped a new North-South model of trade where exports from a developing economy (China) to advanced economies are affected by the trade it has with other developing countries. This aerial photo taken on 22 June 2021 shows cargo containers stacked at Yantian port in Shenzhen in China’s southern Guangdong province. Photo: STR/AFP.

EXECUTIVE SUMMARY

  • The participation of China and its suppliers in the Global Value Chains has shaped a new North-South model of trade where exports from a developing economy (China) to advanced economies are affected by the trade it has with other developing countries.
  • Due to this pattern of trade, a real appreciation in the Renminbi (RMB) decreases China’s imports from its trading partners, instead of increasing imports, which is commonly accepted in conventional wisdom.
  • For ASEAN, a real appreciation in the RMB by 1% decreases China’s imports from the region by 0.35%, whereas in its traditional trade with the US as importer, a stronger USD by 1% induces an increase by 1.06% in the US’s imports from ASEAN.
  • China’s policy of product diversification along with a policy of commercial partnership and cooperation with its regional partners (particularly focused on standardising tariffs in Developing Asia) is part of a premeditated strategy of resilience in the face of the real appreciation of its currency.
  • Export diversification by ASEAN economies has proven to affect the responsiveness of China’s imports from these countries to the change in the RMB. The more ASEAN economies diversify their exports, the more China’s imports from these countries (or their exports to China) become resilient to changes in the relative price.

* Phi Minh Hong is ASEAN Graduate Fellow at the ASEAN Studies Centre, ISEAS – Yusof Ishak Institute and Lecturer, University of Rouen Normandie (France) and Foreign Trade University Hanoi (Vietnam).

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INTRODUCTION

In the traditional trade model, the leading economy is an advanced country, and final goods are exported directly to it from developing economies. However, the growth of Global Value Chains (GVCs) has shaped a new model of North-South trade involving “Factory Asia”. This model is shaped by how the exports to advanced economies by a developing country—China—are based on South-South trade. In this pattern of trade, the effect of a change in the Chinese currency (the Renminbi, hereafter, RMB) on the exports of its suppliers deviates from popular thinking. In this regard, in addition to examining the impact of RMB fluctuations on China’s trade relations with ASEAN, this Perspective highlights the importance of export diversification carried in ASEAN economies in ensuring the resilience of China’s imports in the face of RMB fluctuations.

THE RMB AND ASEAN-CHINA TRADE

With growing participation in the GVCs, ASEAN, a part of “Factory Asia”, has become an important player in international trade. Indeed, ASEAN, as a group, is the US’s fourth largest trading partner (after Canada, Mexico and China) and the EU’s third largest trading partner outside Europe.[1] The most recent statistics point to ASEAN having surpassed the EU to become China’s largest trading partner in 2020.[2] China has in fact been ASEAN’s largest export market since 2009. That year, the value of ASEAN’s exports to China was US$195.7 billion, accounting for 14% of ASEAN’s total exports. The US was ASEAN’s second largest export destination in 2019, involving a value of US$182.6 billion which accounted for 13% of ASEAN’s total exports.[3]

China and the US are thus ASEAN’s two largest trading partners, but they follow two different patterns of North-South trade. In the traditional North-South trade pattern, ASEAN exports directly to the North (the US). The new North-South trade pattern, however, is based on South-South trade; which means that intermediate goods are exported from ASEAN to China to be processed and then exported to the rest of the world.

As shown in Figure 1, intermediate goods exports accounted for a large part of total exports from ASEAN to China (more than 80%) over the period 2012-2018. This ratio was about 55% of the exports from ASEAN to the US.

Despite their extensive exports of intermediate goods to China, export structures vary across countries depending on the processing category. Figure 2 depicts the shift in ASEAN countries’ bilateral exports to China broken down into processing and end-use categories.[4] During the period 2012-2018, there was a transition in intermediate goods exports from primary to processed goods from ASEAN economies. Some countries in the bloc recorded a significant increase in the share of exports of intermediate goods. Among them, the proportion of Vietnam’s intermediate products in overall exports increased the most, rising from 36.9% in 2012 to 72.8% in 2018 and the country accounted for the largest exports of processed intermediate goods in the bloc (39 billion USD in 2018). The second largest rise in the share of processed intermediate goods exports belonged to Cambodia, up 20% in the given period (from 22% to 42%). Although there were changes in the export structure of intermediate goods, Laos’ and Brunei’s shares of primary intermediate goods in exports remained the highest in the bloc (69.5% for Brunei, 62% for Laos). Their increasing reliance on intermediate goods implies that ASEAN countries, particularly developing economies, are deeply integrated into a complex subcontracting network. Hence, exports from those countries can be seen to be complementary to, rather than in competition with, those of China (Hooy et al., 2015).[5]

The new triangular trade structure, with China serving as an intermediary, may have repercussions on the factors affecting these participant countries’ export performance. One of them has been the impact of the Chinese currency on these economies’ exports. Through the GVCs, changes in the RMB, which affects China’s trade performance, also influence the trade performance of its suppliers.

A quick investigation gives us a broad picture of the bilateral real exchange rate and bilateral trade between China and ASEAN economies. Figure 3 depicts real RMB appreciation against the currencies of the region’s most advanced economies (Brunei, Singapore) and upper middle-income economies (Indonesia, Malaysia, The Philippines and Thailand).[6] The RMB has depreciated versus the Lao Kip but remains relatively constant against the Vietnamese Dong and the Cambodian Riel over this period. Since 2000, Vietnam’s exports to China have increased more steadily than those of other ASEAN economies (Figure 4), with the nation being the second largest exporter to China after Malaysia in 2019 (Figure 5). While bilateral exports from the least developed nations have been gradually increasing since 2010, bilateral export growth from more advanced economies appears to have been constrained.

Several studies show the conventional impact of a rising RMB on China’s exports, namely that a real appreciation in the currency implies a decrease in China’s exports. However, the impact on the import side is still being debated. From a theoretical standpoint, a strong domestic currency increases the country’s imports because of improved domestic purchasing power.

But since a large part of China’s imports is further processed into finished goods that are then exported, the conventional impact of a rising RMB on China’s imports may not be robust. Given that an appreciation of the RMB decreases China’s exports, since the latter contain value added of imported parts and components, China’s imports from its supply chain partners would decrease as well.

Phi and Tran (2020) in their work highlight the difference in the impact of importers’ exchange rates on their imports between the two North-South trade models mentioned above.[7] In the long run, while conventional wisdom persistently holds for the US (an appreciation in the real effective exchange rate of the US dollar increases the US’ imports), the reverse impact is reported in the case of China. This result coincides with previous studies that confirm this negative impact of the RMB’s appreciation on China’s imports, regardless of the fact that those imports are ordinary or processed (Garcia-Herrero and Koivu (2008), Cheung, Chinn and Fujii (2010)).[8]

For ASEAN alone, a quick regression following the work of Phi and Tran (2020) confirms the difference between the two patterns of trade. While the US’s imports from ASEAN respond highly to a change in the USD, there is only a slight change in China’s imports following a change in the RMB. Accordingly, a USD strengthened by 1% induces an increase of 1.06% in the US’s imports from ASEAN, whereas a real appreciation in the RMB by 1% decreases China’s imports from the region only by 0.35%. The latter result supports the finding of Hooy, Law and Chan (2015) on the negative impact of an appreciation of the RMB on ASEAN’s exports to China. The authors also divide disaggregated exports into categories based on usage (basic products, parts, and components) and technological levels (high-tech, medium-tech, low-tech, resource-based, primary products). According to their calculations, a positive reaction to RMB depreciation is mostly attributable to the dominance of ASEAN high-tech and medium-tech finished products exports, as well as low-tech and resource-based exports of parts and components to China. However, the degree to which ASEAN’s exports to China respond to a change in the RMB varies across disaggregated exports categories. For instance, the impact of the change in RMB value on medium-tech exports is lower than on high-tech exports. A depreciation of 1% of the RMB raises medium-tech exports by 0.66% and high-tech exports by 1.53%. At the same time, changes in the RMB appear to have little influence on ASEAN’s low-tech manufacturing, resource-based manufacturing and primary product exports.

WHEN EXPORT DIVERSIFICATION MATTERS

The results from Hooy et al. (2015) suggest that spreading suppliers’ exports across different categories of goods may affect the sensitivity of China’s imports to changes in the RMB. In other words, export diversification may affect China’s import price elasticities (the volume of imports’ response to the change in prices). As discussed above, imports from China which employ Asian-made parts and components decline as the real exchange rate rises. The impact of an RMB appreciation on Chinese commerce has been noticed in the context of GVCs. Currency appreciation diminishes China’s demand for imports from other Asian economies by decreasing China’s export production. As a result, an appreciation of the RMB might harm Asian producers of intermediate goods. Therefore, China’s policy of product diversification along with a policy of commercial partnership and cooperation with its regional partners (particularly focused on standardising tariffs in Developing Asia) is part of a premeditated strategy of resilience in the face of a real appreciation of its currency. For China’s partner economies, including ASEAN, the diversification of exports, especially bilateral exports to China, keeps these economies’ exports to China less volatile than the rate of change in the RMB. This is because each type of imported products has a different response to the change in the RMB: a high response to a real change in the RMB of high technology goods imported, for example, will be offset by the low one of medium- or low-tech manufacturing goods imported, as shown in Hooy et al. (2015)’s work.

This intuition is confirmed in the empirical analysis by Phi and Tran (2020). For lower- and middle-income countries in the Pacific Rim, including the developing ASEAN economies, China’s imports from them become less sensitive to changes in the RMB when they have a higher degree in either export diversification in destinations or bilateral export diversification with China. More specifically, the more China’s suppliers diversify their exports, the less China’s imports from those countries decrease following an appreciation of the RMB.

Most ASEAN countries maintain a high degree of export diversification, as reflected in the lower value of the Herfindhal-Hirschman index (hereafter, HHI).[9] From 1995 to 2019, the HHI of those countries ranged from 0.008 to 0.52 for products and from 0.046 to 0.45 for partners. Following the reasoning in Phi and Tran (2020), we replicate the effect of the change in the RMB on China’s imports response to the change in the RMB (China’s import price elasticities) in ASEAN countries for the given period; the results are illustrated in Figure 4. The blue areas correspond to the HHI range for ASEAN (Table A1).[10]

Overall, the response of ASEAN’s exports to a change in the RMB is minor, ranging from 0.2% to 0.4% (in absolute value) for 1% of change in the RMB. Besides, the more an ASEAN country diversifies its exports (either bilateral with China or global), the less their exports to China change following a change in the RMB. However, there is a turning point in HHI through which the effect direction would change from positive to negative. At this level of export diversification, ASEAN’s exports to China become the most “resilient” to the change in the RMB. For instance, for countries that have a bilateral HHI greater than 0.19, an appreciation in the RMB raises China’s imports from the country. This pattern follows the conventional wisdom discussed above. In most ASEAN economies (except Brunei and Laos) where the average bilateral HHI is lower than 0.19, a stronger RMB will slightly decrease ASEAN’s exports to China instead. For the HHI in products and in partners, the turning points are 0.21 and 0.38 respectively. In sum, the results highlight the importance of the export diversification strategies of ASEAN economies in making China’s imports from the region more resilient to changes in the relative price.

With the goal of promoting trade and economic growth throughout Asia and the Pacific, the Regional Comprehensive Economic Partnership (RCEP) assembles leaders from 16 countries, namely the 10 ASEAN countries as well as the six countries in the region that currently have bilateral FTAs with ASEAN. It has been argued that the RCEP will help China to consolidate its resilience in the face of a real appreciation of the RMB. Indeed, Phi and Tran (2020) find that trading with RCEP members lessens China’s import sensitivity to any change in the RER. When the Chinese currency appreciates by 1%, imports from RCEP members would decline by 0.113%, lower than imports from non-RCEP economies in the Pacific Rim area. As China plays an intermediate role in the Global Value Chains, the RCEP will make export flows from ASEAN developing economies to China and then to the final destinations smoother. On the other hand, the Covid-19 pandemic highlights the need for diversifying sourcing to help reduce supply chain volatility. This will be an opportunity for ASEAN countries to diversify not only their bilateral exports to China but also their exports to other RCEP member countries, and hence lower the impact of changes in the RMB on ASEAN’s exports.

Considering the US as an importer for comparison, we observe that the response of ASEAN’s exports to changes in the USD is higher than for China as importer, even with a higher degree of export diversification (or low HHI) of ASEAN economies (Figure 7). Spreading ASEAN’s exports across products when trading with the US helps to decrease the response of their exports to a change in the USD. However, neither ASEAN’s export diversification in products nor in partners has an impact on the US’s import price elasticities.

CONCLUSION

The expansion of product fragmentation trade in Asia has prompted a re-examination of the influence of China’s currency on the exports of its suppliers, especially from ASEAN member states (particularly the newer members) that have actively engaged in GVCs. Because a real RMB appreciation reduces Chinese exports, it lowers imports from ASEAN, rather than increase them, as conventional wisdom would suggest. When considering the United States as an importer, this effect is much smaller than the reaction of bilateral ASEAN exports to USD changes.

Besides, ASEAN’s export diversification policies have been shown to have impact on the responsiveness of their exports to RMB appreciation. Keeping a high degree of export diversification creates greater resilience to changes in relative prices for ASEAN countries’ exports to China.

ISEAS Perspective 2021/111, 20 August 2021

APPENDIX


ENDNOTES

[1] https://ustr.gov/countries-regions/southeast-asia-pacific/association-southeast-asian-nations-asean,

https://www.csis.org/analysis/us-southeast-asia-trade-relations-age-disruption,

https://ec.europa.eu/trade/policy/countries-and-regions/regions/asean/

[2] https://www.globaltimes.cn/page/202101/1212785.shtml

[3] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=ASEAN-EU_-_international_trade_in_goods_statistics#ASEAN_countries_trade_in_goods_with_main_partners

[4] We use the BEC Rev. 5 classification to distinguish product categories.

[5] Hooy, C. W., Siong-Hook, L., & Tze-Haw, C. (2015). The impact of the Renminbi real exchange rate on ASEAN disaggregated exports to China. Economic Modelling47, 253-259.

[6] An increase in the bilateral RER indicates an appreciation in the Renminbi. In Figure 3, we excluded Myanmar’s currency for better scale. The RER of Myanmar kyat is represented in Figure A1. The kyat was devalued largely in 2012, when the foreign exchange rate reforms occurred. The official pegging of Myanmar’s currency to the special drawing right (SDR) was annulled in April 2012. The Central Bank of Myanmar then introduced a managed floating exchange rate system. The previous peg is the reason why the kyat was overvalued before 2012 (https://www.imf.org/external/pubs/ft/scr/2013/cr1313.pdf).

[7] Minh Hong, P., & Thi Anh-Dao, T. (2020). Should I stay or should I go? The role of the renminbi in trade partnerships in the Asia-Pacific region. Post-Communist Economies32(8), 1062-1088.

[8] Herrero, A. G., & Koivu, T. (2008). China’s exchange rate policy and Asian trade. Économie internationale, (4), 53-92.

Cheung, Y. W., Chinn, M. D., Fujii, E., & Frankel, J. (2010). 7. China’s Current Account and Exchange Rate (pp. 231-278). University of Chicago Press.

[9] /articles-commentaries/iseas-perspective/2021-80-the-importance-of-export-diversification-for-developing-asean-economies-by-phi-minh-hong/

[10] For bilateral export diversification, we represent the HHI range from 0.02 to 0.6 instead of from 0.02 to 1 because only in the case of Brunei does bilateral HHI approximate to 1 while other ASEAN economies have relatively low bilateral HHI.

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.  
© Copyright is held by the author or authors of each article.
Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).

 

2021/110 “The KPK Controversy Keeps Corruption a Central Issue in Public Consciousness” by Max Lane

 

Students hold a placard depicting an epitaph symbolising the death of the country’s corruption eradication commission, during a rally in front of the parliament building in Jakarta on 1 October 2019, demanding lawmakers to revoke a revised anti-corruption law. Picture: BAY ISMOYO, AFP.

EXECUTIVE SUMMARY

  • While the COVID crisis continues to dominate political discourse in Indonesia, policies affecting the Corruption Eradication Commission (KPK) have kept corruption salient in public consciousness.
  • There is growing public discontent and anger driven by the perception that the Indonesian political elites are colluding to weaken the KPK to promote their own vested interests. A controversial new law in 2020 converted KPK employees to civil servants, thus raising doubts about their autonomy in conducting corruption investigations. The appointment of a new KPK leadership was soon followed by the removal of 51 KPK officers, some of whom were pursuing prominent corruption cases. 
  • Scepticism over the government’s resolve to eradicate corruption was further stoked by the critical coverage of the KPK saga by Tempo magazine (and its affiliated newspaper) and the documentary film The End Game. Recent statements by a senior minister (Mahfud, Coordinating Minister for Politics and Security), who tried to rationalise the spread of corruption due to loss of central authority under democratic government, only served to add fuel to the public disenchantment. 
  • Public anger over endemic corruption is being aggravated by emerging signs of graft in the handling of the COVID crisis. There is an ongoing trial of a cabinet minister accused of corrupt mishandling of COVID welfare funds. There has also been public concern over alleged price gouging for COVID medicines and tests. Such developments will provide further impetus for social dissent, with corruption eradication as a key ideological plank for political opposition in the country. Reformasi Dikorupsi (Reformation is being corrupted) is now the battle-cry of dissident groups who are trying to revive the massive anger against corruption which had brought down the Soeharto regime.   

* Max Lane is Visiting Senior Fellow at ISEAS – Yusof Ishak Institute. He is the author of several books on Indonesia including Decentralization and Its Discontents: An Essay on Class, Political Agency and National Perspective in Indonesian Politics (ISEAS 2014) and An Introduction to the Politics of the Indonesian Union Movement (ISEAS 2019) and the editor of Continuity and Change after Indonesia’s Reforms: Contributions to an Ongoing Assessment (ISEAS 2019).

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Over the last three weeks, the surge in COVID cases, hospitalisations and deaths in Indonesia has dominated all media and political discussions. Prior to this, however, it was the issue of corruption, and the weakening of the Corruption Eradication Commission (KPK), that was the headline news and top issue on the country’s political agenda. For the time being, it has been overtaken by the COVID crisis, but it remains a central underlying issue of public concern.

Emblematic of this concern was the reception of the two-hour long documentary film, The End Game,[1] which analysed what it claimed was the death of the KPK as a serious organisation. There have been at least 3 million views of this documentary on YouTube over the last few weeks, and no doubt more views also through Instagram, Facebook and other media. It was made by the social issue-oriented NGO, Watchdoc Indonesia. The film maker, Dandhy Dwi Laksono, also claims that there have been hundreds of requests for permission to organise group-watching sessions.[2] This is probably an underestimation of its popularity, since many organisations and groups have organised such nobar (nontong bareng – watch together) just using the YouTube version.

In addition to Watchdoc’s The End Game, Indonesia’s premier news magazine, Tempo, and its newspaper Koran Tempo, have also critically covered developments regarding KPK. They have published an editorial on YouTube, campaigned through their social media platforms and articulated criticisms similar to those in The End Game.

In 2019 and 2020, there were several rounds of demonstrations and protests against the government, carried out under the slogan Reformasi Dikorupsi.[3] These were also provoked by the government’s and parliament’s moves regarding KPK. The primary issue was new legislation that was passed by parliament (DPR) almost without opposition and then signed into law by President Widodo. This legislation changed the character of the KPK by making all its staff civil servants and no longer independent contract staff. It also introduced changes requiring additional processes before wiretapping and raids on houses and offices can be carried out. This was criticised as for making it harder and slower for KPK to uncover and arrest corruptors. It was widely seen among civil society and among the public as a severe weakening of the KPK. The KPK has made thousands of arrests since its formation in 2003, including cabinet ministers, members of parliament and local officials.

The public dissatisfaction that was reflected in The End Game and Tempo (amongst others) was provoked by the announcement that over 70 staff members of KPK were being dismissed for failing a Tes Wawasan Kebangsaan (National Perspectives Test). The transfer of KPK staff to civil servant status meant that they all had to be tested in this way to qualify as civil servants. Many among those tested were investigators who had been previously involved in high-profile corruption investigations. This fact has given rise to suspicions that the test was used to weed out such people to weaken the KPK. This criticism has been made explicitly both in The End Game and in the Tempo editorial. It has been the cover story for several Tempo magazine and newspaper editions.

Suspicions rose as details of the test became public, with some of the dismissed staff describing their experiences publicly. Several are interviewed in The End Game. They describe how they were asked about their opinions in relation to some government decisions, their attitudes to various political organisations as well as their private life. They were asked to indicate, for example, the extent they agreed with such statements “I have a bleak future”, “I live to atone for past sins”, “Religion is the result of human thought”, “I believe in the unseen and the practice of teaching without questioning”, and “Homosexuals should be given corporal punishment”. They were also asked questions such as “Are all Chinese the same”, “Are all Japanese cruel” or religiously informed ones such as “Should blasphemers must be put to death”.[4]

The test required a written examination, essay writing and extended interviews by two people, who, it is claimed, did not reveal their names or where they came from. The candidates had to write essays on the most controversial topics such as the Free Papua Movement, the Indonesian Communist Party and the banned Islamic Defenders Front. This process involved mentioning the State Intelligence Body (BIN), National Counter Terrorist Body (BNPT), as well as the Army (TNI), which have been directly queried by critics from corruption monitoring bodies, such as Corruption Watch.[5]

The National Human Rights Commission (KomnasHam), a statutory body, has now written to BIN, BNPT and Army Intelligence to request dialogue over what they see as possible human rights violations in the conduct of the tests.[6]

As criticism of the use of the test to justify the sacking of 75 staff increased, President Widodo himself made a statement appealing for them not to be dismissed for failing the test.[7] [8] Despite this, 51 were still dismissed, including some key investigators. The refusal to accommodate the President’s request has only heightened suspicions.[9] The KPK leadership announced the dismissal of the 51 people – who were judged to be “beyond being able to be reformed” – was made 8 days after the President’s appeal.[10]

In fact, there had also been earlier criticism relating to the person unanimously selected by the DPR to be the current chairman of the KPK, South Sumatra Police Chief Insp. Gen. Firli Bahuri. When Bahuri was selected KPK Commissioner, Saut Situmorang and advisor Tsani Annafari resigned in protest because Bahuri himself had been subject to allegations of violating the KPK code of conduct in accepting 600 free tickets to a concert in Palembang, South Sumatra, in August 2019.[11] In the current wave of criticism, much is aimed at Bahiri, with Tempo magazine’s key cover carrying the words: Firli’s Dark Strategy (Siasat Gelap Firli), picturing him with other figures on a leash. That edition of Tempo also carried reports of possible involvement in graft.[12]

This controversy around the government’s and parliament’s policies towards the KPK has, of course, implications for the successful eradication or reduction of corruption in Indonesia. The extent to which current policies are shown to hinder or help any fight against corruption will be revealed only over coming months and years. There is little doubt, however, that civil society watchdogs and sections of the media will continue to investigate these questions. The extent to which KPK continues to apprehend corrupt officials, or not, and who will be apprehended will surely attract greater attention.

Corruption as a political issue is also showing itself to have deeper implications for future political trajectories in the country. Historically, the corruption issue was central to the opposition to President Suharto during the mid-1990s. The term “KKN” – standing for Corruption, Collusion, Nepotism – became a part of everybody’s political vocabulary, including at the mass level. At that time, the key focus was on President Suharto and his family and a group of businessmen close to the family and referred to as cronies.

More recently, as seen in the popularity of the slogan Reformasi Dikorupsi, protests against corruption now define public discontent. It has been key to the steady evolution of a social opposition.[13] This social opposition is located outside the electoral system. As noted earlier, there has been essential unanimity within parliament among all parties, including President Widodo’s sponsoring party, the PDIP, in relation to policies towards the KPK. The vote by DPR Commission 3, that looks after law, human rights and security, went for example unanimously for Bahuri to be made KPK Chairperson.[14] Criticisms have only ever been on minor issues.[15]

This unanimity across the political elite is visible alongside the obvious widespread corruption that exists. On average over 1,000 people a year are charged with corruption by the KPK or the police.[16] The police themselves claimed 1,400 arrests in 2020.[17] There is constant publicity around these arrests, especially when cabinet ministers, members of parliament or local district heads are involved. Surprise raids by KPK on offices and homes always attract media, including television coverage. While the KPK has been effective in making large numbers of arrests, the fact that there has been no real decline in arrests before the weakening of the KPK, has also underlined to the public that even after more than a decade of such arrests, corruption remains widespread. The impression that exists among the public is that it is endemic but that at the same time there is no political will inside the government or parliament to fight it – thus the popular phrase Reformasi Dikorupsi.

The growing gap between the political elite and the public on how to view corruption was also reinforced recently by statements from Mahfud M.D., the Coordinating Minister for Politics, Law and Security. Mahfud, who may also be interested in standing for President in 2024, made a statement on May 6 acknowledging that corruption was widespread. He linked this to democracy, arguing that under Suharto, corruption had been controlled and confined to the centre.[18] Since 1998, he explained, that centralised control of corruption had been lost and corruption had since then spread everywhere. At a later speech on 26 May, he stated: “Now in the name of perverted democracy, corruption is no longer committed in the executive but has expanded horizontally to legislative, judicial, audit, and vertically from the center to the regions.[19]” He is reported as saying that the extent of corruption today was “gila” (crazy),[20] a strong word in the Indonesian vocabulary.

Mahfud ‘s regular statements along these lines since May were clearly in recognition of what the prevailing public perceptions were and that it would be futile to try to assert that corruption was not widespread. His statements also try to identify the origins of the problem to be the shift from authoritarianism, where corruption could be controlled, to democracy – although “perverted democracy” – where, presumably, it could not be controlled.[21]

One statement by Mahfud, however, did stir some controversy, at least until he subsequently offered some clarification. On May 1, when he again acknowledged that corruption was widespread, he also said that he hoped: “that people would not be too disappointed with the government and see it as corrupt, or even oligarchic. We have also achieved some progress”.[22]” Tempo reported the statement under the headline “Indonesia has had progress despite much corruption.” Mahfud did hold out the prospect of no corruption at some point, explaining: “Even though [Indonesia’s wealth] has been managed corruptly, there has been much benefits for the people…. not to mention when later it is managed free from corruption.”

Mahfud’s statements were very widely reported in the media.

Mahfud, while not powerful in Widodo’s cabinet, does play the role of an intellectual justifier of policy. His making these frequent admissions emphasises the public perception regarding corruption being widespread. His statements must also be read as providing a justifying explanation to the public. The extent of corruption is because under the democracy that exists, there are no mechanisms for controlling the spread of the practice, he argues, adding at another seminar clarifying reports on his earlier comments that democracy can still be improved.[23] In any case, he adds, it has not held back progress all that much.

This outlook, to the extent it reflects a shared outlook within parliament and the government, contrasts with the sentiment summed up in the slogan Reformasi Dikorupsi. Reformasi – in English, perhaps ‘reformation’ or deep reform – summed up the hopes that prevailed in Indonesia in 1998 about the country’s future. “Reformation has been Corrupted” reflects a perception that those hopes have been ruined precisely by corruption.

In assessing Indonesian socio-political dynamics, especially the steady – if still slow – gap growing between the political elite and a public whose discontent is being articulated by civil society, the differences between the two outlooks on corruption are central.

In the immediate term, the COVID crisis is likely to be the focus of both elite and public attention. It should be noted, however, that while the KPK and the corruption issue may be receiving less front page attention and is not the subject of street demonstrations, articles and reports on the issue continue in the media. More recently, there was a case where corruption in the government’s handling of the Covid crisis was reported. Former Minister of Social Affairs, Juliari Peter Batubara, has been charged by KPK for corruption in December 2020 in relation to COVID welfare funds.[24] His trial is ongoing and already there are accusations that the amounts involved run into millions of dollars.[25] To date, this is the only serious case of corruption and the Covid crisis interacting. However, there have been reports reflecting concerns that there has been price gouging for medicines being used to treat Covid,[26] either within or without the medical system, as well as news about price wars over Covid tests, especially antigen tests.[27] An atmosphere of price gouging and similar practices is likely to intensify to spread the sense that profiting as presented in The End Game is dominant in policy decisions. The government has acted to set fixed prices for these medicines,[28] no doubt, but any deepening interaction or merging of the corruption issue and the Covid crisis will make corruption even more central in public consciousness than it already is. It is likely to become the defining issue in national politics, alongside internal elite rivalries.

ISEAS Perspective 2021/110, 18 August 2021


ENDNOTES

[1] https://www.youtube.com/watch?v=ebNa6TdMMmo

[2] https://www.cnnindonesia.com/nasional/20210530150604-20-648459/watchdoc-klaim-terima-ratusan-permintaan-nobar-endgame-kpk

[3] /media/commentaries/students-protest-against-the-weakening-of-corruption-eradication-commission-kpk-by-max-lane

[4] See A’an Suryana, https://fulcrum.sg/when-busting-the-graft-busters-is-not-on and also Sofie Arjon Schütte, An administrative war at the KPK: employees versus leadershipI, for a detailed summary of this process, at https://indonesiaatmelbourne.unimelb.edu.au/an-administrative-war-at-the-kpk-employees-versus-leadership

[5] https://www.cnnindonesia.com/nasional/20210511150959-12-641481/janggal-tes-kebangsaan-dan-dalih-usang-antitaliban-di-kpk

[6] https://www.cnnindonesia.com/nasional/20210623095028-20-658157/komnas-ham-surati-bin-bais-bnpt-soal-tes-wawasan-kebangsaan

[7] https://www.thejakartapost.com/news/2021/05/18/civic-test-should-not-be-used-to-dismiss-kpk-employees-jokowi.html

[8] https://en.tempo.co/read/1463179/president-jokowi-weighs-in-on-controversial-kpk-civics-test-results

[9] https://nasional.kompas.com/read/2021/05/27/09403621/mengingat-kembali-pernyataan-jokowi-soal-twk-tak-bisa-jadi-dasar?

[10] https://nasional.kompas.com/read/2021/05/27/09403621/mengingat-kembali-pernyataan-jokowi-soal-twk-tak-bisa-jadi-dasar?

[11] https://jakartaglobe.id/news/house-approves-new-kpk-leadership

[12] https://majalah.tempo.co/edisi/2552/2021-06-19

[13] On the social opposition in Indonesia, see Max Lane, Protests Against the Omnibus Law and the Evolution of Indonesia’s Social Opposition at /articles-commentaries/iseas-perspective/2020-128-protests-against-the-omnibus-law-and-the-evolution-of-indonesias-social-opposition-by-max-lane and Max Lane, COVID-19’s Impact on Indonesia’s Social Opposition: The Examples of Labour Rights and the Papuan Question at /articles-commentaries/iseas-perspective/2020-85-covid-19s-impact-on-indonesias-social-opposition-the-examples-of-labour-rights-and-the-papuan-question-by-max-lane

[14] https://nasional.kompas.com/read/2021/06/09/12443501/saat-firli-bahuri-terpilih-jadi-ketua-kpk-suara-bulat-komisi-iii-dan-dugaan?

[15] In particular Fadli Zon from Prabowo’s Gerindra Party. See https://www.tribunnews.com/nasional/2021/06/03/fadli-zon-soroti-pegawai-kpk-dilantik-bertepatan-di-hari-lahir-pancasila-singgung-polemik-twk

[16] https://nasional.kompas.com/read/2021/04/18/16135731/icw-tren-penindakan-kasus-korupsi-periode-2015-2020-cenderung-turun

[17] https://www.merdeka.com/peristiwa/sepanjang-2020-polri-garap-1412-kasus-korupsi-total-kerugian-negara-rp3-t.html

[18] https://nasional.kompas.com/read/2021/05/26/15572521/mahfud-md-setelah-reformasi-korupsi-makin-meluas-dari-segala-lini?

[19] https://nasional.kompas.com/read/2021/05/26/15572521/mahfud-md-setelah-reformasi-korupsi-makin-meluas-dari-segala-lini?

[20] https://www.youtube.com/watch?v=SxfYvk2JV7Y

[21] See also here https://www.liputan6.com/news/read/4575990/4-pernyataan-mahfud-md-terkait-praktik-korupsi-di-indonesia-saat-ini

[22] https://nasional.tempo.co/read/1458327/mahfud-md-indonesia-ada-kemajuan-meski-banyak-korupsi

[23] https://www.merdeka.com/peristiwa/mahfud-md-klarifikasi-soal-korupsi-bisa-dimaklumi-demi-kemajuan-tak-ada-itu.html

[24] https://nasional.tempo.co/read/1474877/politikus-pdip-ihsan-yunus-dipanggil-bersaksi-di-sidang-korupsi-bansos-covid-19

[25] https://nasional.tempo.co/read/1480379/penyidik-kpk-duit-suap-juliari-batubara-baru-uang-rokok-korupsi-bansos-covid-19

[26] https://mediaindonesia.com/ekonomi/416601/kecam-harga-obat-covid-19-mahal-erick-menyakiti-rakyat

[27] https://finance.detik.com/berita-ekonomi-bisnis/d-5630115/perang-harga-tes-swab-covid-19-mulai-dari-rp-74-ribu

[28] https://nasional.kontan.co.id/news/sudah-ditetapkan-menkes-ini-daftar-harga-eceran-tertinggi-11-obat-covid-19

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2021/109 “Comparing Vietnamese Responses to Chinese and American Public Diplomacy Efforts on Social Media” by Dien Nguyen An Luong

 

By and large, the Vietnamese public have shown a tendency to appear more receptive to U.S. rather than Chinese narratives. This picture taken and released by the Vietnam News Agency on July 29, 2021 shows U.S. Secretary of Defense Lloyd Austin (C) inspecting a guard of honour along with Vietnam’s Defence Minister Phan Van Giang (L) during a welcoming ceremony in Hanoi. Picture: STR/Vietnam News Agency/ AFP.

EXECUTIVE SUMMARY

  • In a bid to offer a counter narrative to Western media, China has cranked up its efforts to propagate its own views on various fronts abroad. Armed with ample resources and muscular capacity, Beijing has orchestrated a well-coordinated campaign to shape narratives on platforms such as Twitter, Facebook and YouTube. It also marshals different sophisticated methods such as the use of an army of fake accounts to amplify the narratives dictated at home.
  • But where Vietnam is concerned, China has found it challenging to sway the local media and information landscape. Several factors account for this, including the entrenched anti-China sentiments within Vietnam, the ownership, control structure and censorship of the Vietnamese media, and characteristics of Vietnam’s social media landscape that are not conducive for China’s efforts to weaponize Twitter, which is otherwise its main platform for online messaging.
  • Facebook has thus become the platform of choice for China to shape its online messaging and to conduct its public diplomacy engagement efforts in Vietnam
  • In comparing Facebook posts by the Chinese embassy and consulate with the U.S. embassy and consulate over a seven-month period, several intriguing observations emerge. A key tenet of China’s public diplomacy efforts in Vietnam has been to peddle anti-America narratives. Meanwhile, the U.S. has been more inclined to highlight issues such as education and culture. Also, whenever Washington did trade verbal barbs with Beijing on social media, the former often prevailed, as Vietnamese public sentiments show.
  • Findings from the comparative analysis of all those Facebook posts suggest that it would be a risky bet for China to continue dialling up its blistering anti-America indictment in Vietnamese cyberspace, even when it adopts a more engaging approach to communicate its messages. By and large, the Vietnamese public shows a tendency to appear more receptive to U.S. narratives.

* Dien Nguyen An Luong is Visiting Fellow with the Media, Technology and Society Programme at ISEAS – Yusof Ishak Institute. A journalist with significant experience as managing editor at Vietnam’s top newsrooms, his work has also appeared in the New York Times, the Washington Post, the Guardian, South China Morning Post, and other publications.  The author would like to thank Ms Lee Sue-Ann and Dr Le Hong Hiep for their constructive comments and suggestions.

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INTRODUCTION

As the U.S.-China rivalry for global public opinion heats up,[1] Beijing has constantly had to walk a very fine line between toughing out Western criticism and sprucing up a “credible, lovable and respectable” image.[2] That undertaking means China has to placate a nationalist domestic audience while avoiding estranging foreign supporters abroad.

In 2009, China reportedly began to pump billions of dollars into boosting its global state media presence.[3] The ultimate goal is to shape a narrative in foreign countries that benefits China. 2013 was considered a critical juncture as President Xi Jinping launched a multi-pronged campaign designed to “tell China’s story well” globally.[4] Xi has also since then stressed that China needs to “increase [its] soft power, give a good Chinese narrative, and better communicate China’s messages to the world.”[5]

But in recent years, China’s authoritarianism, its treatment of the Uyghurs, its crackdown on dissent in Hong Kong, and the Covid-19 pandemic have all combined to send global views of Beijing plummeting to unprecedented lows.[6] This is the context in which China has doubled down on its efforts to propagate its own version of the story on various fronts in a bid to offer a counter narrative to Western media. That was reiterated in a speech Xi made in early June where he stressed that China needed to build a “credible, lovable and respectable” image abroad, adding that the country was engaged in a “public opinion struggle.”[7]

As part of the state-orchestrated campaign to “tell China’s story well” to the world,[8] a bevy of Chinese diplomats, state media outlets and academics have become increasingly vocal and frequent in defending China’s policies in cyberspace. They have focused on excoriating the ills and double standards in the U.S. and its allies, and pushing back against what is perceived to be Western prejudices and stereotypes of their country. Such “Wolf Warrior” diplomacy, named after two Rambo-style Chinese box offices,[9] has drawn widespread ire for what critics call an abrasive, defiant and combative approach. The message is crystal clear, however: China is set to take up the gauntlet of standing up to the U.S.

But perhaps beset by hubris, China has blended its domestic and foreign propaganda policies even though the target audiences could not be more different. The blistering anti-America approach appears to be working well at home, but whether it sells abroad is another story. That question looms all the more large in Vietnam, where one poll after the next have shown that Washington is favoured over Beijing.[10] In that context, even though its criticism of the American agenda is not always utterly groundless, China’s messages risk being a hard sell in Vietnam.

This paper addresses these questions: How has Beijing propagated its narrative in a country where anti-China sentiments have not only permeated public discourse but are also deeply embedded in the Vietnamese psyche?[11] How receptive are social media-savvy Vietnamese netizens to China’s online messaging, compared with U.S. online messaging? What observations can we make of China and U.S. online public diplomacy strategies in winning over the hearts and minds of Vietnamese?

HOW CHINA SELLS

It is social media that has become China’s key battlefield for public opinion. Beijing’s propaganda machine has sought to make the most of Western media platforms, which are otherwise banned at home, to telegraph and amplify its official line on global affairs and current events to a broader international audience.[12] Such manipulation of online discourse has become more or less institutionalized with Twitter, Facebook and YouTube becoming China’s platforms of choice since 2017.[13] China’s global propaganda machine has functioned around this modus operandi: The party line dictated by the Ministry of Foreign Affairs and state media outlets is picked up and spread by Chinese diplomats and diplomatic missions around the world.

China has been able to deliver some results on both the mainstream media landscape and the cybersphere. Two surveys by the Brussels-based International Federation of Journalists attest to how China has significantly escalated its global media outreach. According to the first survey which was released in 2020, a total of 58 journalist unions polled from 58 different countries said the most widely reported form of Chinese outreach was journalistic exchanges and training schemes.[14] Those programmes were overwhelmingly described as “a positive experience.”

The other survey, released last May, also found journalist unions in more than half of 50 different countries confirming that coverage of China in their national media had been more positive since the start of the Covid-19 pandemic.[15] In other words, as the pandemic started to spread, China marshalled its existing media dissemination channels in developing countries to burnish its image as a reliable partner there. That mission has been accomplished apparently with a sleight of hand, however. According to the latest survey, besides propaganda, China has also sought to cultivate and shape its own narratives through the use of new tactics such as disinformation and misinformation. Many pro-China pundits have also raised hackles for allegedly resorting to conspiracy theories or disinformation to peddle Beijing-sanctioned narratives. To China and its cheerleaders, in the battle to massage public thinking, “relying on logic and facts does not always work.”[16]

Such dynamic came to the fore in cyberspace.A seven-month investigation by the Associated Press and the Oxford Internet Institute found thatan army of fake accounts have been most active in retweeting Chinese diplomats and state media to the tune of “thousands of times.”[17] In doing so, those accounts have played a crucial role in amplifying China’s propaganda to an audience that could reach the size of hundreds of millions. More importantly, they did so without necessarily divulging that the content is state-sponsored. According to the joint study, the investigation marked for the first time the large-scale inauthentic amplification that has “broadly driven engagement across official government and state media accounts.” Key issues that Beijing sought to highlight to sway public opinion included its core strategic interests such as Taiwan, Hong Kong and Xinjiang.

But against that backdrop, Beijing’s recipe for success elsewhere could risk turning out to be a debacle in Vietnam, where anti-China sentiments have percolated and been amplified in public discourse.

IS THE VIETNAM PUBLIC BUYING IT?

In fact, anti-China sentiments have thwarted Beijing’s repeated attempts to shape its narrative in Vietnam’s mainstream media, according to a 2020 study by the Washington-based Center for Naval Analysis.[18] The reasons: Anti-China sentiments, compounded by a “hostile media environment” that was fuelled chiefly by historical Sino-Vietnamese conflicts, contemporary grievances and a genuine lack of public interest in Chinese propaganda, have blunted the promotion of China’s narratives in Vietnam, according to key findings of the study. Vietnamese authorities sometimes even calibrated media coverage to exhibit a harder stance on China with regards to maritime territorial disputes, the study said.

Deep anti-China sentiments aside, another stumbling block to China’s efforts to shape the media environment in Vietnam is ironically the structural similarities between the two ideological allies. Internet censorship, strict media controls and ownership limitations have shut major avenues for Chinese companies to penetrate the Vietnamese market. Chinese-language editions have been subject to state control and censorship. Government policies and regulations have neutered China’s largesse, weaponized in many other countries to sway editorial decisions and agendas. Licensing requirements have also constrained the number of foreign journalists and media bureaus – Chinese included – in the country. In a nutshell, China’s playbook is more limited in Vietnam than elsewhere.

In the online sphere, while much of Beijing’s “Wolf Warrior” diplomacy has played out on Twitter,[19] Vietnam’s social media landscape has throttled China’s efforts to weaponize the platform to propagate its messages. Various statistics confirm that Facebook, Google’s YouTube and Zalo have been the most popular social media platforms in Vietnam.[20] (Zalo is Vietnam’s premier chatting app, launched in 2012 and currently boasting around 64 million users.[21) In that context, Facebook has become the only remaining platform available for China to shape its online messaging in Vietnam.

U.S.-CHINA RIVALRY FOR PUBLIC OPINION ONLINE

Like Chinese diplomats, the U.S. diplomatic corps has also turned to Facebook, which has between 60 to 70 million active users in Vietnam,[22] as the main venue for engaging with the Vietnamese public. This section examines the issues and key messages that the U.S. and China have telegraphed to the Vietnamese audience in the online sphere by analysing the contents of all posts on the Facebook pages of both diplomatic missions during the first seven months of this year. It also examines how receptive the Vietnamese public has been to such public diplomacy efforts by both superpowers. The topics of discussion are classified into five categories: Diplomacy & Politics, Economy & Trade, Education & Culture, Recruitment, and Vaccine Diplomacy.

An analysis of those Facebook posts and their public engagements suggests the following characteristics:

  • Between January to July, the U.S. embassy and consulate had a total of 1,155 posts covering five topics, nearly double those on the Facebook pages of the Chinese embassy and consulate (601).
  • China’s public diplomacy narratives in Vietnam have mostly peddled anti-America messages, focusing on reinforcing centrally directed messages from the Ministry of Foreign Affairs and state news outlets. Meanwhile, the U.S. employed a different tack, focusing less on U.S.-China tensions than on promoting a range of other issues with the Vietnamese. But when Washington did trade verbal barbs with Beijing on social media, the former often prevailed, going by Vietnamese public sentiments.
  • The dominant theme the U.S. sought to highlight was Education & Culture, accounting for 68% of the total number of online posts. On the other hand, Diplomacy and Politics makes up the major chunk (64%) of the total number of China’s Facebook posts (Figure 1).
  • But even though the U.S. generated the most content on Education & Culture issues, public eyeballs lay elsewhere. An analysis of the top three most-engaged posts during the seven-month period showed that Facebook posts by the U.S. that attracted the most attention belonged to the Diplomacy & Politics category. Interestingly, public engagements zeroed in on the very theme China sought to propagate its narratives on: the anti-American trope.

The focus on the Education & Culture theme crystalizes how the U.S. has sought to cash in on its soft power to win public hearts and minds in Vietnam, a move that dovetails with facts on the ground. One poll after the next has attested to the strong positive sentiments among Vietnamese toward the U.S. and its image – no matter who the U.S. president is. For instance, while – according to a 2017 Pew survey[23] – the image of the U.S. deteriorated sharply across the globe during the first year of the presidency of Donald Trump, popularity ratings only increased in Vietnam and Russia.

That positive perception has barely changed. The desire to live, study and settle down in the U.S. has remained palpable among ordinary Vietnamese. According to most recent data from the U.S. Student and Exchange Visitor Program, Vietnam had sent nearly 26,000 students to the U.S., ranked fifth among countries with the most students at American educational institutions.[24] This has enabled Vietnam to distinguish itself from Southeast Asian peers to be the top source of students in the region for the U.S.. Vietnamese, along with the Chinese and Indians,[25] have formed the biggest chunk of applicants for the EB-5 visa scheme, which offers foreign investors a fast path to a green card by investing at least $500,000 to finance a business employing at least 10 American workers. Meanwhile, Vietnamese megacities such as Hanoi or Ho Chi Minh are awash with Americano-philia: A get-together at Starbucks or an overnight queue just to get the latest iPhone version is considered emblems of chic Americanism and a tech-savvy lifestyle.

FIGURE 1. KEY THEMES PROMOTED ONLINE BY THE U.S. AND CHINA

That is the context to which U.S. online messaging hones in on how crucial a role education and culture can play in boosting bilateral ties. The “master narrative” comprises three key messages:

  • The United States is a prosperous, democratic and modern country, buttressed by a developed economy and an advanced education system.
  • The U.S. provides ample resources and opportunities for those who seek to hone their soft skills or further their studies in the States. America has always played an instrumental role in helping Vietnamese youth compare notes with their peers from all over the world on various fronts.
  • Educational and cultural exchanges have proven to be and will always be a welcome and useful bridge between the U.S. and Vietnam.

But based on the analysis of the top three most engaged Facebook posts by the U.S. from January to July this year, it was the category of Diplomacy & Politics that attracted the most public attention. The engagements in the Education & Culture category even trailed behind Recruitment (Figure 2).

FIGURE 2. MOST ENGAGED FACEBOOK POSTS BY THE U.S.

While the contents on the Facebook pages of the U.S. embassy and consulate have been almost identical, that is not the case when it comes to how China has allocated its resources for online messaging. Since last year, the Chinese embassy has refrained from posting provocative statements that are vulnerable to popular backlash. Meanwhile, the Chinese consulate has made the most of satirical illustrations, parodies, memes and sarcastic language to practice “whataboutism” to serve a dual purpose: defend China’s official line and castigate the American agenda. Practically, “whataboutism” means “raising a supposedly analogous issue in response to a perceived hypocrisy or inconsistency.”[26] This tactic is part and parcel of a uniform bandwagon that Chinese officials have jumped on to deflect Western criticism.[27]

Several prominent issues in which Beijing looked to hammer home the party line and ramp up condemnation of the U.S. and its allies include: (i) China’s stance on the U.S. presidential election,[28] (ii) China seizing on the mob attack at the U.S. Capitol on January 6 to mock America’s support of global protest movements including those in Hong Kong in mid-2019,[29] and (iii) China bristling at U.S. criticism of its treatment of Uyghurs in Xinjiang.[30] The “master narrative” of those posts consists of three key messages:

  • On the world stage, China is a more responsible and constructive player than the U.S., including in the fight against Covid-19.
  • It is the U.S., not China, that has been the purveyor of most humanitarian disasters with its “aggressive wars” and military interventions over many decades.[31]
  • America’s domestic and foreign policies are a travesty of what it has been trying to preach to the rest of the world about freedom, dignity and human rights.[32] The U.S. does not have the qualification to lecture China from a position of strength.[33] Neither do its allies.

The Diplomacy & Politics category also elicited the most online engagements from January to July. (Figure 3)

FIGURE 3. MOST ENGAGED FACEBOOK POSTS BY CHINA

Based on an analysis of the degree of public reactions to all Facebook posts by the U.S. and China during the January-July period, two key takeaways are distilled (Figure 4):

  • The Chinese embassy incurred the most “Angry” emojis while its consulate had the most “Haha” ones, even though they both sought to propagate the same narratives. One possible explanation for this discrepancy perhaps lies in the fact that the online messaging employed by the Chinese consulate was more engaging to social media-savvy users.
  • The U.S embassy and consulate attracted the most “Love” emojis, suggesting the public found their messages more appealing than those from their Chinese counterparts.

FIGURE 4. Public reactions to U.S. and China’s online messaging

When both countries seek to burnish their vaccine diplomacy campaigns on Vietnamese cyberspace, the U.S. beat China by a wide margin in terms of positive public reactions, emblematic of how the Vietnamese public prizes American vaccines over Chinese shots.[34] Such sentiments were reflected in an analysis of Facebook posts and their average engagements on vaccine diplomacy which were among the most engaged content from January to July (Figure 5).

FIGURE 5. PUBLIC SENTIMENTS ON U.S.-CHINA VACCINE DIPLOMACY

A BITTER PILL FOR CHINA

Findings from the comparative analysis of Facebook posts suggest that it would be a risky bet for China to continue dialling up its blistering anti-America indictment in Vietnamese cyberspace. Souring Sino-Vietnamese ties in recent years, fuelled chiefly by Beijing’s muscle-flexing moves in the South China Sea[35] and its damming of the Mekong River,[36] has exacerbated anti-China sentiments in Vietnam. This dynamic has whetted Vietnam’s appetite for closer defence and economic ties with the U.S..[37] Poll after poll have also corroborated that the Vietnamese public overwhelmingly favour Washington as a hedge against Beijing. In the State of Southeast Asia 2021 survey, published in February by Singapore’s ISEAS – Yusof Ishak Institute, Vietnamese – along with Filipinos – register the most palpable levels of distrust toward China in the region.[38] Those who distrust China think Beijing could wield its economic and military power to threaten their country’s interests and sovereignty. According to the same survey, Vietnamese are most leery of China’s growing strategic clout, yet most supportive of American influence in Southeast Asia.

Two waves of online backlash against China’s anti-America narrative in Vietnamese cyberspace last year are likely to have served as a bitter pill for Beijing to swallow.

In July 2020, the Facebook page of the Chinese embassy in Hanoi caused an online stir after posting a note from the Global Times editor Hu Xijin, sternly warning Vietnam not to side with the U.S. to contain China.[39] In the note, which appeared on the occasion of the 25th anniversary of U.S.-Vietnam bilateral ties, Hu minced no words in pointing to the U.S.’s “malicious intent” on pitching Hanoi against Beijing. The note also reminded the Vietnamese people of how the U.S. could pull the rug out from under Vietnam’s feet. In the wake of a public furor, the note was soon taken down.[40]

In what amounted to an ideological confrontation four months later,[41] the U.S. and China posted statements that accused each other of destabilizing the global order on the Facebook pages of their respective embassies.[42] What stood out was how the online community reacted to the diplomatic brickbat. In the comment sections of those Facebook posts, those who appeared to be Vietnamese Internet users overwhelmingly cheered on the U.S. statement while sneering at China’s response to it. This was reflected in the most-used keywords in all comments on both Facebook posts. Online reaction to the U.S. post centred on either pro-America or anti-China sentiments, such as “God bless America”, “Thank you, President Trump”, “China is the nightmare of the world” or “[China] robbed Vietnam of its islands.” Meanwhile, China-bashing comments dominated the online response to the Chinese statement, such as “No one believes in China”, “China is a hypocrite” or “China, shut up.”

A “LOVEABLE” CHINA IN VIETNAM? NOT SO FAST

China is unlikely to dial back its nationalistic rhetoric on foreign policy, for various reasons. Chief among them is that any effort to do so could be crippled by the nationalist fervour at home. In a speech that marked the centenary of the founding of the Chinese Communist Party on July 1, Xi Jinping reiterated that the country would not back down from any fight where China’s sovereignty and interests were threatened, warning against “foreign forces” that stand in the way.[43]

But as this study has shown, China might at some point wish to tone down its “chest-thumping” stance, as this seems to have been counter-productive at least where the Vietnamese audience is concerned. When it comes to the goal of making its image more “loveable” in Vietnam, it seems that Beijing still has a long way to go.

ISEAS Perspective 2021/109, 17 August 2021


ENDNOTES

[1] Teddy Ng and Laura Zhou, “US-China infowar escalates as America deploys task force in battle for power and influence”. South China Morning Post, 4 May 2021. https://www.scmp.com/news/china/military/article/3132184/us-china-infowar-escalates-america-deploys-task-force-battle

[2] “Xi Jinping calls for more ‘loveable’ image for China in bid to make friends”. BBC News, 2 June 2021. https://www.bbc.com/news/world-asia-china-57327177

[3] Danson Cheong, “The art of making China lovable”. The Straits Times, 21 June 2021. https://www.straitstimes.com/opinion/the-art-of-making-china-lovable

[4] J. Szczudlik, “‘Tell China’s Stories Well’: Implications for the Western Narrative,” Pol. Inst. Int. Aff. PISM, vol. 9, no. 169, p. 11, 2018.

[5] Wilson Center, “China’s Soft Power Campaign”, 2020. https://www.wilsoncenter.org/chinas-soft-power-campign

[6] Charissa Yong, “Global views of China remain negative, but Singapore an exception”. Straits Times, 1 July 2021. https://www.straitstimes.com/world/united-states/global-views-of-china-remain-negative-but-singapore-an-exception

[7] Xi Jinping calls for more ‘loveable’ image for China in bid to make friends”. BBC News, 2 June 2021. https://www.bbc.com/news/world-asia-china-57327177

[8] “China’s Xi urges state media to boost global influence”. Reuters, 19 February 2016. https://www.reuters.com/article/us-china-media-idUSKCN0VS1IF

[9] Katsuji Nakazawa, “China’s ‘wolf warriors’ take aim at G-7”. Nikkei Asia, 13 May 2021. https://asia.nikkei.com/Editor-s-Picks/China-up-close/Analysis-China-s-wolf-warriors-take-aim-at-G-7

[10] Mengzhen Xia and Dingding Chen, “China and the US: Who Has More Influence in Vietnam?”. The Diplomat, 21 May 2021. https://thediplomat.com/2021/05/china-and-the-us-who-has-more-influence-in-vietnam

[11] Charles Dunst, “Chinese aggression pushes Vietnam ever closer to Washington”. Nikkei Asia, 6 April 2021. https://asia.nikkei.com/Opinion/Chinese-aggression-pushes-Vietnam-ever-closer-to-Washington

[12] Z. A. Huang and R. Wang, “Building a Network to ‘Tell China Stories Well’: Chinese Diplomatic Communication Strategies on Twitter,” Int. J. Commun., vol. 13, p. 24, 2019

[13] Erika Kinetz, “Army of fake fans boosts China’s messaging on Twitter”. Associated Press, 29 May 2021. https://apnews.com/article/asia-pacific-china-europe-middle-east-government-and-politics-62b13895aa6665ae4d887dcc8d196dfc

[14] International Federation of Journalists, “Telling China’s Story: Reshaping The World’s Media”, 2020. https://www.ifj.org/fileadmin/user_upload/IFJ_ChinaReport_2020.pdf

[15] International Federation of Journalists, “The Covid-19 Story: Unmasking China’s Global Strategy”. 2021. https://www.ifj.org/fileadmin/user_upload/210512_IFJ_The_Covid_Story_Report_-_FINAL.pdf

[16] Danson Cheong, “The art of making China lovable”.

[17] Marcel Schliebs, Hannah Bailey, Jonathan Bright, Philip N. Howard. “China’s Public Diplomacy Operations: Understanding engagement and inauthentic amplification of PRC diplomats on Facebook and Twitter.” Working Paper 2021.1. Oxford, UK: Programme on Democracy and Technology, Oxford University, 2021. https://demtech.oii.ox.ac.uk/china-public-diplomacy-report.

[18] Ryan Loomis and Heidi Holz, “China’s Efforts to Shape the Information Environment in Vietnam”, Center for Naval Analysis (2020): 48. https://www.cna.org/CNA_files/PDF/IIM-2020- U-026222- Final.pdf

[19] Chun Han Wong and Chao Deng, “China’s ‘Wolf Warrior’ Diplomats Are Ready to Fight”. Wall Street Journal, 19 May 2020. https://www.wsj.com/articles/chinas-wolf-warrior-diplomats-are-ready-to-fight-11589896722

[20] Leading active social media platforms among Internet users in Vietnam as of 4th quarter of 2020. Statista, March 2021, https://www.statista.com/ statistics/941843/vietnam-leading-social-media-platforms

[21] Thảo Nguyên, “Zalo trở thành ứng dụng nhắn tin được yêu thích nhất Việt Nam” (Zalo becomes Vietnam’s Most Favorite Messaging App”. Thanh Nien, 4 June 2021. https://thanhnien.vn/cong-nghe/zalo-tro-thanh-ung-dung-nhan-tin-duoc-yeu-thich-nhat-viet-nam-1393656.html

[22] James Pearson, “How Vietnam’s ‘influencer’ army wages information warfare on Facebook”. Reuters, 9 July 2021. https://www.reuters.com/world/asia-pacific/how-vietnams-influencer-army-wages-information-warfare-facebook-2021-07-09

[23] Richard Wike, Bruce Stokes, Jacob Poushter And, Anell Fetterolf, “Trump Unpopular Worldwide, American Image Suffers”. Pew Research Center, 26 June 2017. https://www.pewresearch.org/global/2017/06/26/tarnished-american-brand

[24] Mark A Ashwill, “Will Vietnamese student numbers in the US recover post-COVID?”. University World News, 9 January 2021. https://www.universityworldnews.com/post.php?story=20210107143706792#:~:text=Over%20eight%20out%20of%2010,at%2031%2C613%20in%20March%202018.)

[25] “Investor Visa Groups Haggle Over Expiring Program’s Renewal”. Bloomberg Law, 18 June 2021. https://news.bloomberglaw.com/daily-labor-report/investor-visa-groups-haggle-over-expiring-programs-renewal

[26] Ben Yagoda, “One Cheer for Whataboutism”. New York Times, 19 July 2018. https://www.nytimes.com/2018/07/19/opinion/one-cheer-for-whataboutism.html

[27] Tsukasa Hadano, “‘Last G-7’: China revels in parody mocking US and allies”. Nikkei Asia, 16 June 201. https://asia.nikkei.com/Politics/International-relations/Last-G-7-China-revels-in-parody-mocking-US-and-allies

[28]  “In China, bemusement and scorn over unresolved U.S. election”. Reuters, 4 November 2020.https://www.reuters.com/article/us-usa-election-china-reaction-idUSKBN27K1EF

[29] Amy Gunia, “China Has Reacted to the Storming of the U.S. Capitol by Comparing It to the Wrecking of Hong Kong’s Legislature”. TIME, 11 January 2021. https://time.com/5928446/china-reaction-capitol-hong-kong-legco

[30] Ken Moritsugu, “On Eid, Xinjiang imams defend China against US criticism”. Associated Press, 14 May 2021. https://apnews.com/article/china-government-and-politics-religion-3d8fa6aee61268d105610ebc92ed1b55

[31] Alex Lo, “Beijing reads Noam Chomsky”. South China Morning Post, 15 April 2021. https://www.scmp.com/comment/opinion/article/3129571/beijing-reads-noam-chomsky

[32] Bruce Shen, “Why Chinese feel free to dismiss America’s human rights concerns in Xinjiang”. South China Morning Post, 31 March 2021. https://www.scmp.com/comment/opinion/article/3127577/why-chinese-feel-free-dismiss-americas-human-rights-concerns

[33] Amber Wang, “Alaska summit: what message did public US-China spat send to observers?”. South China Morning Post, 20 March 2021. https://www.scmp.com/news/china/diplomacy/article/3126291/us-china-talks-what-message-did-their-public-spat-send

[34] Hoang Thi Ha, “Vietnam’s attitude towards Chinese vaccines is very telling”. Channel News Asia, 14 July 2021. https://www.channelnewsasia.com/news/commentary/vietnam-vaccine-pfizer-moderna-sinovac-sinopharm-us-china-covid-15210910

[35] Rahul Mishra, “China’s Self-Inflicted Wounds in the South China Sea”. The Diplomat, 21 July 2020. https://thediplomat.com/2020/07/chinas-self-inflicted-wounds-in-the-south-china-sea

[36] Catherine Wong and Maria Siow, “Mekong dam: China cuts river flow 50 per cent, is slammed for lack of warning”. South China Morning Post, 9 January 2021. https://www.scmp.com/news/china/diplomacy/article/3116989/mekong-dam-china-cuts-river-flow-50-cent-slammed-lack-warning

[37] Huynh Tam Sang, “Facing frenemy China, Vietnam shall edge closer to America”. Think China, 14 September 2020. https://www.thinkchina.sg/facing-frenemy-china-vietnam-shall-edge-closer-america

[38] Seah, S. et al., The State of Southeast Asia: 2021 (Singapore: ISEAS – Yusof Ishak Institute, 2021). /wp-content/uploads/2021/01/The-State-of-SEA-2021-v2.pdf

[39] “China threatens Vietnam of being ‘overthrown’ if sides with the US to contain Beijing”. Thoibao.de, 18 July 2020. https://thoibao.de/blog/2020/07/18/china-threatens-vietnam-of-being-overthrown-if-sides-with-the-us-to-contain-beijing

[40] https://twitter.com/ngaphambbc/status/1282920802573221888

[41] https://www.facebook.com/usembassyhanoi/posts/3997121293650036

[42] https://www.facebook.com/ChineseEmbassyinHanoi/posts/442447523818541

[43] “On Communist Party’s Centenary, Xi Jinping Warns Against Foreign Interference”. New York Times, 1 July 2021. https://www.nytimes.com/live/2021/06/30/world/china-communist-party-anniversary

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2021/108 “COVID-19’s Economic Impact on Tourism in Singapore” by Joey Erh

 

Prior to the pandemic, the tourism sector in Singapore had been steadily growing over the years. People gather along the promenade near the Merlion statue at Marina Bay in Singapore on 25 December 2020. Picture: Roslan Rahman, AFP.

EXECUTIVE SUMMARY

  • Prior to the pandemic, the tourism sector in Singapore had been steadily growing over the years. From 2007 to 2019, total international visitor arrivals and tourism receipts both grew annually at an average of 4.5% and 5.0% respectively.
  • Amongst the five components of tourism receipts, the ‘Shopping’ component generates the highest total value added (VA), and so contributes the most to GDP. Individuals employed in the industries under the ‘Shopping’ component also enjoy the highest employee compensation coefficient.
  • The GDP generated from all tourism receipts has remained relatively constant at around 4% over the years. However, since the pandemic, spending patterns have changed, resulting in a slight dip in the magnitude in VA captured per dollar of tourism receipt.
  • Tourism from travel bubbles is not able to generate high VA such that it contributes significantly to GDP. They do however make a marked difference in industries that are highly tourist-oriented.
  • To generate high VA from tourism, Singapore needs to implement travel bubbles with China, Indonesia, India, Australia, Malaysia and Japan. Unfortunately, such arrangements depend on the COVID-19 situation in both Singapore and these countries.

* Joey Erh is Research Officer with the Regional Economic Studies Programme at ISEAS – Yusof Ishak Institute. Her research interests include innovation of firms, labour and productivity and international economics.

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INTRODUCTION

Singapore’s tourism industry has grown over the years and has become relatively sizeable. From 2007 to 2019, total international visitor arrivals and total tourism receipts both grew annually at an average of 4.5% and 5.0%, respectively. Within Southeast Asia, Singapore has the third highest amount in international tourism receipts, behind Thailand and Malaysia, amounting to US$20.4 billion in 2019 (World Bank, 2019). Globally, Singapore was the 25th most visited country in the world (by number of arrivals) and had the 22nd highest amount in international tourism receipts in 2019 (UNWTO, 2020).

Overall, there has been a steady growth in international arrivals and tourism receipts (Figure 1). However, the tourism industry was adversely affected in 2008-2009 due to the Great Financial Crisis; this downturn pales in comparison to the devastating impact of the COVID-19 pandemic; over the last three quarters, Singapore suffered a 43.2 – 99.5% decrease in number of visitors and 39.0 – 96.6% decrease in tourism receipts. For the sake of comparison, the largest decrease experienced during in Great Financial Crisis was for 2009 Q1 when international arrivals and tourist receipts fell by 13.6% and 18.2% year-on-year respectively. This is minuscule when compared to the recent decline.  

Source: (DOS, 2021a; STB, 2021)

HOW TOURISM AFFECTS SINGAPORE’S ECONOMY

Tourism contributes to the Singapore economy by increasing the demand for goods and services through tourist receipts. It also contributes through the demand for inputs used to produce these goods and services. For example, when tourists stay at hotels, they use the amenities provided and also dine in hotel restaurants. Thus, tourists’ demand for accommodation in turn generates demand for electricity and housekeeping services (other industries not part of the accommodations industry) and hotel restaurant dining services (within the accommodations industry) (Figure 2).

The effect of economic activity generated by tourism shown here is a sum of two sources. The first source effect is directly generated by the final demand industry which it is from (Accommodations industry). The second is the total value indirectly generated by tourism; the sum of all the effects generated by all other industries outside of the final demand industry producing inputs for the final demand industry (all other industries excluding accommodations). A sum of both the direct and indirect effect expresses the total economic effect of tourism.

Singapore’s tourism receipts have been segregated into five categories: Accommodations; Food and Beverages; Shopping; Sightseeing, Entertainment and Gaming, and; Others. The first three categories correspond to the accommodations, Food and Beverages services and retail trade industries, respectively. The ‘Sightseeing, Entertainment and Gaming’[1] component includes “entrance fees to attractions and nightspots, expenditure on day-tours, leisure events as well as entertainment in the Integrated Resorts (IRs)” (STB, 2020). This leaves the ‘Others’[2] component, which comprises of “expenditure on airfares on Singapore-based carriers, port taxes, local transportation, business, medical, education-related items and expenditure by transit/transfer visitors” (STB, 2020).[3]

EFFECT OF TOURISM RECEIPTS BY COMPONENTS

(a)   Value-Added (VA) Coefficient

Simply put, the value added (VA) generated is equivalent to the Gross Domestic Product (GDP) generated; a sum of the VA generated by all industries gives the GDP of Singapore. From a more technical perspective, value added is derived by subtracting the total cost of purchased inputs (e.g. intermediate and raw inputs from other industries) from the selling price. The VA coefficient captures the amount of VA generated for every $1000 of final goods purchased by tourists. A higher VA translates into a higher GDP.

Based on the data, tourists generate the greatest total VA by spending on the ‘Shopping’ component. The ‘shopping’ component also generates the greatest VA in indirect effects. On the other hand, spending on the ‘Others’ component generates the lowest total and indirect VA (Figure 3). In other words, it would be more beneficial for Singapore’s GDP if tourists were to spend more on the ‘Shopping’ component rather than on the ‘Others’ component.

Source: Author’s calculation based on (DOS, 2021b; STB, 2021)

This is a surprising find given that the industries under the ‘Shopping’ component are likely to have a high share of imports as inputs. Thus, a large share price paid for final goods by tourists is expected to be paid to imports instead of VA. One would expect the ‘SEG’ component to generate the highest total VA given that the primary inputs for this component are infrastructure and labour; infrastructure would likely have already been paid for from past investments.

(b)  Employee Compensation Coefficient

To better understand the impact tourism has on the salary of employees, we take a deeper look into the employee compensation coefficient of the primary input requirement coefficients of final demand. The employee compensation coefficient indicates the amount paid to employees for every $1000 of final output purchased by tourists.

Source: Author’s calculation based on (DOS, 2021b; STB, 2021)

Similar to the trends in VA, the impact on employee salaries is the greatest when tourists spend on ‘Shopping’ while the lowest impact is from spending on the ‘Others’ component. (Figure 4). About $427 of $1000 spent by tourists on ‘shopping’ are paid as employee salaries, while only about $328 is paid to workers employed in the ‘Others’ category.

Looking at the number of employed individuals in industries that are related to tourism spending categories,[4] there appears to be a slight increasing trend across all industries from 2010 to 2019. However, from 2019 to 2020, the number of employed residents in the wholesale & retail trade, public administration & education services and accomodation & food services sectors have fallen slightly. While not all changes observed can be attributed only to the lack of tourism in Singapore, overall, there seems to be a decrease in employment in these sectors related to tourism spending categories. Assuming that the total amount paid to employee salaries in these sectors remain the same, salary per capita would have increased. However, the total amount paid to employee salaries is likely to have decreased given the lack of demand for their services and the poorer economic outlook; employee salary per capita would have either remained the same or decreased.

OVERALL EFFECT OF TOURISM

To understand the overall impact tourism has on Singapore, a tourism coefficient is calculated based on the major components of tourism receipts and corresponding industries from the 2017 input-output tables (DOS, 2021b).[5]

(a)   Overall Value-added (VA) Coefficient

The overall VA coefficient provides an estimate of how much VA is generated for every $1000 spent by tourists, regardless of spending category. Over the last few years, the total VA generated has remained around $735 for every $1000 spent by tourists (Figure 6). However, it has dipped since the start of the pandemic in Q1 2020. The indirect and direct effects follow the same trend.

Source: Author’s calculation based on (DOS, 2021b; STB, 2021)

(b)  Overall Value-Added (VA) Coefficient

Similarly, the employee compensation coefficient has been kept at around $397 for every $1000 spent by tourists over the last few years (Figure 7). This has dipped quite a bit since the start of the pandemic in Q1 2020.

Source: Author’s calculation based on (DOS, 2021b; STB, 2021)

(c)   Reason for Change in Coefficient Magnitude

The change in coefficient magnitudes over the last few quarters for both VA and employee compensation can be explained by the change in tourists’ consumption pattern (Figure 8).  A greater share of tourism receipts was spent on the ‘Others’ component from Q2 2020 onwards (after the pandemic started), while the share of tourism receipts for ‘Shopping’ and ‘Accommodations’ fell and remained low. The ‘Others’ component has the lowest VA and employee compensation coefficient. On the other hand, both ‘Shopping’ and ‘Accommodations’ have the highest and second highest coefficients for both VA and employee compensation. With a larger share of spending on the ‘Others’ component and lower share of spending on ‘Shopping’ and ‘Accommodations’, the magnitude of the overall coefficient is pushed downwards.

Source: (DOS, 2021a)

There are a few possible explanations for the drastic change in the consumption pattern. For Q2 2020, the share of tourist expenditure on ‘Shopping’ and ‘SEG’ fell because all retail shops and tourist attractions were closed with the implementation of the ‘Circuit Breaker’ (CB). At the same time, the entry and transit ban implemented in late March was partially lifted in early June; foreigners were allowed to transit in Singapore and ‘Fast Lane arrangements were made for essential business and official travel between Singapore and six Chinese municipalities. Thus, since transit passengers’ expenditure fall under the ‘Others’ component, the relative share of expenditure spent under the ‘Others’ component rose. With only Chinese visitors, who seem to spend a relatively lower share on ‘Accomodations’ (STB,2021), on official business entering Singapore, the relative share of spending on ‘Accommodations’ fell.

From Q3 2020, ‘Reciprocal Green Lane’ and ‘Air Travel Pass’ arrangements were made with several countries.[6] These helped to increase the number of tourists, resulting in an increase in total amount of tourism receipts quarter-on-quarter (59%) and the ‘SEG’ and ‘Accommodations’ shares of expenditure. The ‘Others’ component was likely to have remained as a dominant expenditure component as transit passengers might have formed the bulk of Singapore’s visitors. In addition, with the increased inconvenience of travelling (e.g. multiple tests, stay-home notices), individuals are likely to only travel to Singapore for activities that cannot be delayed, such as medical treatment, education, and business-related matters; expenditure for all these also fall under the ‘Others’ component.

(d)  Tourism’s Contribution to GDP

By multiplying the tourism receipts with their respective VA multipliers, the total VA generated by tourism can be estimated. Prior to the pandemic, tourism’s contribution to GDP had been around 4% (Figure 9). To keep things simple, only direct and indirect effects were taken into consideration for the calculations. In reality, there are ‘induced’ effects on top of direct and indirect effects; induced effects capture the subsequent effects of purchases made by employees of the various industries increasing the impact magnitude of tourism spending. Thus, 4% is an underestimation of tourists’ contribution to the GDP. Based on past studies of the impact of tourism on Singapore’s GDP, incorporating the induced effects is likely to result in a significant jump in contribution (Khan et al., 1990). 

The pandemic has resulted in the implementation of tight travel restrictions and lockdowns, resulting in a severe drop in the number of tourists visiting our shores. Naturally, the amount of tourism receipts decreased drastically, resulting in a significant drop in contribution to GDP.

Source: Author’s calculation based on (DOS, 2021b; STB, 2021)

THE IMPACT OF TRAVEL BUBBLES

To help restart the tourism sector, the Singapore government has relaxed travel restrictions for tourists from certain countries and has also been in discussions to implement quarantine-free ‘travel bubbles’ with countries that have relatively low numbers of COVID-19 cases.

Considering travel bubbles with several countries[7] and foreigners allowed to travel to Singapore via the ‘Air Travel Pass’, the following would be the estimated value-added generated from tourism (Figure 10). The calculations assume that the tourists’ spending patterns and amounts remained the same as in 2019; and the number of arrivals is equivalent to 5% of the number tourists that visited in 2019.

Source: Author’s calculation based on (DOS, 2021b; STB, 2021)

As can be assumed from the sheer volume of Chinese tourists, the estimated value-added generated from Chinese tourists is the highest amongst the selected countries. While the numbers seem relatively high, the sum of VA generated from these countries’ tourists add up to only 0.06% of Singapore’s 2020 GDP figures.

To generate the highest VA, the Singapore government would ideally have extended the travel bubble arrangement to China, Indonesia, India, Australia, Malaysia and Japan. These countries have historically recorded the highest number of visitors and tourism expenditures per capita.[8] However, such arrangements are conditional on these countries’ number of COVID-19 cases.

Tourism has always contributed a relatively small share of Singapore’s GDP. Implementing travel bubbles with these countries is unlikely to rejuvenate the economy significantly. However, doing so will help correct the uneven demand for output from various industries i.e., generate demand for tourist-oriented industries that do not fit locals’ preferences. As shown previously, after the Singaporean government implemented the ‘Air Travel Pass’ and ‘Reciprocal Green Lane’ arrangements with several countries in Q3 2020, expenditure share of the ‘SEG’ component rose. Although the magnitude of impact might be low overall, the impact on individuals and businesses that rely greatly on tourism will still be significant.

CAVEATS

There have been several assumptions made to derive the input-output tables,[9] one of which assumes that there is “no supply constraint” i.e. any required amount of input and labour can be provided to meet demand at the same fixed price. However, the pandemic has severely affected the availability of input and labour[10] for production;[11] supply chains have been disrupted while social distancing and travel restrictions have limited the movement and availability of labour for production. These changes are likely to have affected the price of inputs and labour, as demand and supply become imbalanced. In addition, consumption preferences and patterns were assumed to remain the same as before, an unlikely outcome after the pandemic.[12] Thus, the estimates made in this article are rough calculations, as the pandemic is likely to have changed the structure of the economy.

CONCLUSION

Amongst the five components of tourism receipts, ‘Shopping’ generates the highest VA (or GDP) per $1000 spent by tourists. The ‘Others’ component generates the lowest VA per $1000 spent.

For the overall tourism coefficients, the amount of VA generated per $1000 spent by tourists  have remained somewhat constant over the years. However, in the last three quarters, due to the pandemic, consumption patterns of tourists have changed significantly. The reduction and increase in the relative amount tourists spent on shopping and the ‘others’ component respectively resulted in a slight dip for both coefficients.

Individuals employed in the industries under the shopping component seem to enjoy a significantly higher employee compensation coefficient compared to the rest. Unfortunately, because of the change in tourist consumption habits, the overall tourism employee compensation coefficient has had a slight dip in magnitude over the last three quarters.

Accounting for all the industries involved, tourism has usually contributed about 4% of Singapore’s GDP annually, but its contribution share has dropped significantly due to the pandemic. While travel bubbles with selected countries appear to generate a notable amount of VA, relative to Singapore’s GDP figures, this is very minute. However, travel bubbles are still able to make a consequential positive impact on individuals and businesses belonging to industries that are tourist oriented.

REFERENCES

DOS. (2019). Singapore Supply, Use and Input-Output Tables 2015.

DOS. (2021a). Singapore Department of Statistics (DOS) | Singstat Website. https://www.singstat.gov.sg/

DOS. (2021b). Singapore Supply, Use and Input-Output Tables 2017.

Khan, H., Seng, C. F., & Cheong, W. K. (1990). Tourism multiplier effects on Singapore.

Annals of Tourism Research, 17(3), 408–418. https://doi.org/10.1016/0160-7383(90)90006-D

Sharma, A., Adhikary, A., & Borah, S. B. (2020). COVID-19’s Impact on Supply Chain Decisions: Strategic Insights from NASDAQ 100 firms using Twitter Data. Journal of Business Research, 117, 443–449.

STB. (2020). Tourism Sector Performance Q3 2020 Report. https://www.stb.gov.sg/statistics-and-market-insights/Pages/statistics-Visitor-Arrivals.aspx

STB. (2021). Stan | Tourism Statistics. https://stan.stb.gov.sg/content/stan/en/tourism-statistics.html

Zwanka, R. J., & Buff, C. (2021). COVID-19 Generation: A Conceptual Framework of the Consumer Behavioral Shifts to be Caused by the COVID-19 Pandemic. Journal of International Consumer Marketing, 33(1), 58–67.

Annex 1

Annex 2

Singapore’s Visitor Profiles

Based on data for 2016-2019, most of Singapore’s visitors arrived from Southeast Asia (35.2%), followed by Greater China (18.7%), then Europe (11.0%). The top five countries that visitors arrived from were China (18.7%), Indonesia (16.5%), India (7.5%), Malaysia (6.6%) and Australia (6.1%).

Given the high volume of visitors from these countries, one would expect the tourism receipts from these countries to share the same ranks. However, other than the top three countries remaining the same, the fourth was Australia, followed by Japan; tourism receipts from Malaysia were ranked sixth. This is due to the varied expenditure amounts, consumption patterns and purposes of visit of tourists from different countries. Amongst the top six contributors of tourism receipts, Japanese tourists had the highest tourism receipts per capita, followed by India, China, Australia, Indonesia and Malaysia (Figure A). The low tourism receipt per capital of Malaysian tourists explains the relatively lower amount of total tourism receipts from Malaysia despite the high number of tourists visiting.

Source: Author’s calculation based on (STB, 2021)

Annex 3

Output Coefficient

The output coefficient reflects the amount of output that is generated for an industry to produce $1000 of final output purchased by tourists.

Shopping has the highest total output coefficient and highest indirect coefficient; the final demand generated by tourism receipts from shopping requires the highest amount of output from all other industries. It also requires the highest amount of output from all industries, inclusive of its own (total effect) (Figure B)

Source: Author’s calculation based on (DOS, 2021b; STB, 2021)

This is contrary to the ‘Others’ components which has the highest direct output coefficient, but lowest indirect effect. Industries involved in the ‘Others’ component of tourism receipts require the most amount of inputs from their own industries, and least amount of inputs from other industries.

However, unlike the output coefficient, the ‘shopping’ component is closely followed behind by the SEG and Accommodations components. Moreover, the Food and Beverages component, the second highest for the total output coefficient, fell to fourth for the total VA coefficient and is the last for direct VA coefficient (Figure C). It implies that despite the high total output generated, the Food and Beverages component supports upstream industries that have relatively lower value add compared to industries of the other components.

Source: Author’s calculation based on (DOS, 2021b; STB, 2021)

ISEAS Perspective 2021/108, 13 August 2021


ENDNOTES

[1] For the ‘sightseeing, entertainment and gaming’ component a weighted average of the related industries is taken. The industries are (1) travel agency, tour operator and reservation services, (2) Arts and entertainment (3) Recreation and sports. The weights are determined by the relative value of exports of goods and services of each industry to better reflect the consumption patterns of a foreigner. 

[2] For the ‘others’ component a weighted average of the related industries is taken. The industries are (1) land transport (2) air transport (3) exhibitions, conventions, and other events (4) education and (5) health services. The weights are determined by the relative value of exports of goods and services of each industry to better reflect the consumption patterns of a foreigner. 

[3] The correspondence table for the expenditure components and input-output industries can be found in Annex 1.

[4] The ‘Accommodation’ and ‘Food and Beverages’ components correspond to ‘Accommodation & Food services. The ‘SEG’ component corresponds to ‘Arts, Entertainment & Recreation’. The ‘Shopping’ component corresponds to ‘Wholesale & Retail Trade’. The ‘Others’ component corresponds to ‘Health & Social Services’, ‘Transportation & Storage’ and ‘Public Administration & Education Services’.

[5] The overall coefficients were calculated by summing up the total VA/employee compensation generated for each component, then dividing it by the total tourism receipts.

[6] Reciprocal green lane arrangements were made with Malaysia, South Korea and Japan. Air Travel Pass arrangements were made with Brunei and New Zealand.

[7] Brunei has been excluded as no data on tourism receipts per capita was available.

[8] View Annex 3 for Singapore’s visitors’ profile based on 2016 – 2019 data.

[9] Other assumptions include: “(1) All establishments classified in the same industry have the same production process and input requirements, (2) All industries have fixed input requirement proportion relative to output (3) allocation of demand to users depends on the product and not the industry selling the product (4) users always demand the same mix of products from an industry.” (DOS, 2019)

[10] See “Developers to share soaring labour costs as COVID restrictions bite, Singapore rules” at https://www.globalconstructionreview.com/news/developers-share-soaring-labour-costs-covid-restri/

[11] See (Sharma et al., 2020)

[12] See (Zwanka & Buff, 2021)

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.  
© Copyright is held by the author or authors of each article.
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Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).

 

2021/107 “Digital Islam in Indonesia: The Shift of Ritual and Religiosity during Covid-19” by Wahyudi Akmaliah and Ahmad Najib Burhani

 

Covid-19 has forced various Muslim groups to adopt digital platforms in their religious activities. Controversy, however, abounds regarding the online version of the Friday Prayer. In Islamic law, this ritual is wajib (mandatory) for male Muslims. In this picture, Muslims observe Covid-19 coronavirus social distancing measures during Friday prayers at Agung mosque in Bandung on 2 July 2021. Photo: Timur Matahari, AFP.

EXECUTIVE SUMMARY

  • Before the Covid-19 pandemic, the use of digital platforms in religious rituals was already becoming an increasingly common practice among Indonesian preachers to reach out to young audiences. During the pandemic, some Muslim organisations and individual preachers have speeded up the use of such platforms as a way to communicate with people and to continue with religious practices among the umma.
  • Among religious rituals that have shifted online are the virtual tahlil (praying and remembering dead person), silaturahim (visiting each other) during Eid al-Fitr, haul (commemorating the death of someone), and tarawih (night prayer during Ramadan). These new modes of rituals were accepted without much controversy. Controversy, however, abounds regarding the online version of the Friday Prayer. This is particularly because in Islamic law, this ritual is wajib (mandatory) for male Muslims, while the previous ones are only mustahab (recommended).
  • Notwithstanding the controversy, some progressive scholars from Muhammadiyah such as Wawan Gunawan Abdul Wahid and Usman Hamid, have put forth well-argued and well-substantiated legal arguments for the permissibility of virtual Friday prayers. Such arguments have served to address the conundrum facing pious Indonesian Muslims who desire to fulfil their religious obligations while keeping safe and healthy during a pandemic.
  • Such innovative approaches to Islamic jurisprudence also illustrate progressive strands in Indonesian Islam not observed elsewhere in the Muslim world.

* Wahyudi Akmaliah is a PhD Student at the Malay Studies Department, National University of Singapore (NUS). Ahmad Najib Burhani is Visiting Senior Fellow at ISEAS – Yusof Ishak Institute and Research Professor at the Indonesian Institute of Sciences (LIPI), Jakarta. The authors wish to thank Lee Sue-Ann and Norshahril Saat for their comments and suggestions on this article.

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INTRODUCTION

The requirements put in place to limit the spread of the Covid-19 virus, such as keeping physical distance, staying at home, and avoiding communal gatherings, have greatly affected Muslim practices that were previously conducted in mosques. Besides serving as a place for worship and religious rituals such as the five-daily prayer and the Friday Prayer, the mosque has been a space for strengthening a sense of brotherhood and solidarity. 

Mainstream Muslim organisations in Indonesia, such as Muhammadiyah and Nahdlatul Ulama (NU), gave support to government policies by recommending to their followers to avoid organising religious gatherings and to observe rituals in the privacy of their homes.[1] This was considered justifiable and in line with the objectives of Islamic law (shari’a), known as maqasid al-shari’a; these consist of al-daruriyat al-khams—protecting the basic needs of every person such as protection of life, religion, reason, progeny, and property.[2] It was apparent to most that during the pandemic, houses of worship could be venues where the virus would spread easily.[3]

The recommendation issued by Islamic organisations such as Muhammadiyah, Nahdatul Ulama (NU), and MUI, for Muslims to temporarily avoid houses of worship during Covid-19, however, has however not been entirely followed. Some Muslims, specifically those in rural areas, continue to observe religious rituals in mosques due to inadequate understanding about the seriousness and dangers of Covid-19. Meanwhile, in urban areas, some Islamic groups continue to insist on praying in mosques for different reasons. One of these is Jamaah Tabligh, which advocates a fatalistic belief that God will protect them.[4] This group has been described as the “largest viral vector of Covid-19” or a “Super-Spreader, following their large gatherings in Malaysia and Indonesia during the first few months of the pandemic.[5]

This article discusses digital platforms as alternative means for Muslims to observe religious rituals during the Covid-19 pandemic. It addresses how Indonesian Muslim groups accept Islamic rituals being conducted on digital platforms, particularly the Friday Prayer, and puts the spotlight on the flexibility of Islamic law in allowing for adjustments in difficult times. It also reveals how Indonesians implement the concept of maqasid al-shari’a (objectives of sharia) in dealing with critical issues, and how they relocate the sacredness of physical spaces to digital space.

DIGITAL ISLAM AND RELIGIOUS PRACTICES

Covid-19 has forced various Muslim groups to adopt digital platforms in their religious activities. This had previously been popular only for specific purposes such as match-making and preaching activities by young or millennial preachers. The rise of new preachers such as Hanan Attaki, Abdul Shomad and Felix Siauw, for instance, has been mostly facilitated or mediated by digital platforms, i.e. YouTube, Facebook, Twitter, and Instagram. As elaborated by Suryana and Syafiqah, these three social media preachers are among the most influential and are followed by millions of followers. Hanan Attaki, for instance, has 8.5 million Instagram followers and 1.78 million YouTube subscribers, and Felix Siauw has 4.8 million Instagram followers and 3.3 million Twitter followers.[6] Now, with Covid-19, digital platforms have become the venue for the daily activities of diverse religious groups.

Currently, one of the most popular religious rituals using digital platforms is tahlilan—commemorating and praying for someone who has died. Although it is not mandatory in Islam, tahlilan is a strong tradition within Nahdlatul Ulama (NU). Literally, tahlilan is a form of dhikr (or chant) praising of God through repetitions of la ilaha illa Allah (There is no god, but Allah). It is conducted in the house of the deceased by a number of people, mostly family, friends, and neighbours, for seven days in a row. This ritual is then repeated during the 40th, 100th, and 1,000th day after the person’s death, usually attended by many people.

The pandemic has prohibited people from having communal meetings and religious gatherings to honour deceased relatives, family members and friends. Tahlilan online has therefore become the only option. No doubt, attending tahlilan online does not evoke the same degree of “efficacy” and solemnity (kekhusu’an), but at the level of showing sincere intention (niat tulus) and praying for someone who has lost his or her loved one, it is perhaps better than nothing. It may help comfort the family, reduce their sadness, and give tribute to the deceased, and establish a new model, to use Emile Durkheim’s term, for “collective effervescence” or togetherness in Indonesian Muslim society.

Islamic sermons during the Tarawih prayer organised by the IPV. Promoting women and human rights activists. Picture: Institute of Public Virtue.

The difficulty with going online for all rituals stem from the fact that certain rituals stipulate communal gatherings as a requirement. Friday Prayer, for example, cannot be changed into individual rituals with the same name as a “Friday Prayer”. In the Shafiite school of law, which is followed by most Indonesian Muslims, the Friday Prayer can only be conducted with at least 40 participants present. Therefore, a communal gathering is mandatory. It is not surprising therefore that the introduction of a virtual Friday Prayer by Wawan Gunawan Abdul Wahid, Senior Lecturer in Islamic Law, State Islamic University of Sunan Kalijaga, Yogyakarta, received much negative response. Some segments of Indonesian Muslims reject this practice and claim that there is no clear justification for this in Islamic law.

According to Ustadz Oni Sahroni, all four schools of Islamic law agree that the Friday Prayer must be observed in a certain physical place in the presence of an imam (who leads the prayer) and of makmum (followers of the Imam). As a member of the board of the Indonesian Council of Ulama Council (MUI) and an expert on Islamic jurisprudence with a PhD degree from al-Azhar University, Sahroni has strong authority to talk about this issue. For Sahroni, the Friday Prayer is not only a venue to maintain relationship with God, but also a significant means for establishing silaturahmi and strengthening Muslims’ solidarity, through shaking hands, giving each other hugs, or just saying hello to one another.[7] Rejection of a virtual Friday Prayer has also been expressed by Buya Yahya (Yahya Zainul Maarif), one of the most popular preachers in Indonesia. Without indulging in academic references, he has argued that such a practice is prohibited in Islamic jurisprudence.[8] 

Another prominent imam opposed to the virtual Friday Prayer is Ahmad Zahro, Professor in Islamic jurisprudence at the State Islamic University of Sunan Ampel Surabaya, and imam from the National Mosque of Al-Akbar, Surabaya, East Java. He takes the view that the virtual Friday Prayer is unacceptable or unlawful based on the requirement for geographical proximity between imam and ma’mum. Friday Prayer should be conducted with the imam and makmum on the same premises. He argues that those who allow virtual Friday Prayers do not understand Islamic teaching.[9] Regrettably, he does not come up with any alternative ritual to replace the Friday Prayer during a pandemic.

A representative of Muhammadiyah and one of the members in the Muhammadiyah’s Council of Religious AffairsAsep Shalahuddin, has also rejected the virtual Friday Prayer. For him, the virtual Friday Prayer violates Islamic regulations on conducting rituals, such as the integration of worshipers in one place physically. Since participants or the makmum’s location during online worship could be physically located anywhere, it causes a problem where the line of continuity between imam and makmum is concerned. Furthermore, there is no clear position on who is actually in front as imam and who is makmum (located behind the imam), thus failing the requirement for a straight line in prayer. Hence, he asserts that it is better to replace Friday Prayers with dzuhur prayer instead, rather than conducting Friday Prayers virtually. Replacing the Friday Prayer with Zuhur prayer does not violate classical standards and would be easy to implement during the pandemic.[10] 

Flyers for some virtual Islamic rituals: Eid al-Fitr, Eid al-Adha, and Tahlilan.

Picture: Takmir Masjid Virtual Jum’atan Online, Puslitbang Bimas Agama dan Layanan Keagamaan Badan Litbang dan Diklat Kementerian Agama RI, one of Didi Kempot’s fans

THE JUM’ATAN VIRTUAL AND PROGRESSIVE ISLAM

The idea of holding a virtual Friday Prayer started when Wawan Gunawan Abdul Wahid and other young Muhammadiyah activists organised the Eid al-Fitr online on 24 May 2020. Following that event, the Friday Prayer was conducted on 29 May 2020.[11] Wawan Gunawan argues that the main reason for conducting a virtual Friday Prayer is to address the diverse demands on Islamic worship (at-tanawwu’ fil ibadah) in a time of crisis. Even though both Muhammadiyah and NU have recommended replacing the Friday Prayer with the Zuhur praying, many Muslims still desire to observe a Friday Prayer. From Wawan’s perspective, instituting a virtual Friday Prayer on digital platforms accommodates the desire of Muslims to observe Friday Prayers while at the same time prevent them from getting infected with Covid-19. This saves both soul and body (hifz an-nafs) and is consistent with the maqasid al-shari’a (the goals or objective in Sharia)in Islamic jurisprudence.[12]

Wawan then provides three reasons for the permissibility or lawfulness of conducting virtual Friday Prayers. Firstly, based on Muhammad’s story in one of the hadiths, it is permissible to use a house as a mosque. The mentioned hadith tells us that Allah has made the entire land on earth sacred space and made it possible or permitted for any space to be used as places for worship. Secondly, Wawan makes a comparison to the practice of marriage contracts (akad nikah) being carried out online. The marriage contract is a sacred agreement (mithaqan ghaliza) that involves more than one person. If a marriage contract can be done online, then the same argument can be used for Friday Prayers. Thirdly, to reconcile the issue of imam and makmum being in separate locations, the imam’s voice being projected over online platforms serves as bridge between leader and congregation. This argument is based on Ibnu Qudamah’s view from the Zahiri school, and Ahmad bin Hanbal. The Zahiri school argues that if the makmum and imam are physically separated by a river, as long as the imam’s voice can be heard from across the river, then the congregational prayer is valid.[13] 

Virtual Friday Prayer with sermons from prominent figures or human rights. Picture: Institute of Public Virtue

Wawan’s argument is supported by Muhammad Abdul Darraz, one of Muhammadiyah’s young activists, specifically through a reference to al-Imam Abu al-Faydh Ahmad bin al-Shiddiq al-Ghumari (1901-1960). That Imam had given a fatwa for allowing Friday Prayers using radio. For Abu al-Faydh, the primary reason why that is allowed is the presence of the ability to listen to the imam’s voice. As long as the makmum follow what was said and conducted by the imam, then the prayer was valid. The technological invention in audio-visual form, specifically as radio and television, was able to mediate the voice in the congregational prayer. For Darraz, Abu al-Faydh’s fatwa can be used as a reference for the permissibility of Friday Prayers, and apply to the diverse digital platforms, the most popular of which at the moment is Zoom.[14]

Eight months after observing virtual Friday Prayers held within limited circles in Muhammadiyah’s cultural community, the Institute of Public Virtue (IPV), led by Usman Hamid, a prominent Human Rights activist, adopted Wawan’s idea. Usman began organising a virtual Friday Prayer from 5 March 2021 onward, preparing those who will be khatib and imam and providing robust internet connection. Two crucial additions were made: Publishing khatib’s sermons, and; supporting sign language for the hearing impaired. Due to Usman Hamid’s popularity and strong connections, participants from various backgrounds have joined the Friday Prayer, including women such as Binny Buchori, a prominent personality in Indonesian NGO work.

Most of the topics at Friday sermons organised by the IPV have been on democracy and human rights, framed within Islamic perspectives. This has attracted a diverse audience that includes journalists, academicians, Islamic intellectuals and activists. Indeed, many women have been attending, with the highest number of them, 23 women, showing up on 19 March 2021. The virtual Friday Prayer has also been attended by some Christians, as observers.

In combining Islam with human rights issues such as women rights, ecological disasters, rights of disabled people, the crime of corruption, and poverty, these virtual Friday Prayer sessions not only present a new platform for religious rituals, but also different perspectives on Islam. These have indeed become an alternative expression of public Islam amidst conservative religious expressions.[15] Even though only 100-300 people attend them, they have served to reintroduce to Indonesian Islam a progressive face that was massively popular during the 1990s and the early 2000s.[16]

CONCLUSION

Covid-19 has forced Indonesian Muslims to change the pattern of their religious rituals. The mosque, normally a place of religious meeting and gathering, has had to be avoided to prevent the disease spreading. Following the government’s regulations, the three Islamic major organisations (Muhammadiyah, NU, and MUI) have offered religious guidance on how to observe rituals during a pandemic. One way is through the use of digital platforms, as in the exercise of online tahlilan, tarawih virtual, and silaturahmi virtual. Controversy grows strongest in the context of a virtual Friday Prayer. Muhammadiyah, as the representative of modernist Islam, officially argues against it, perceiving virtual Friday Prayers to be invalid. This argument is indirectly supported by both NU and MUI.

Nevertheless, the extended lockdowns amidst the spread of the Covid-19 Delta variant has forced some Indonesian Muslims to join virtual rituals. The virtual Eid al-Adha on 20 July 2021, for instance, was phenomenally popular, and was attended by more than a thousand people, limited only by the Zoom platform’s meeting capacity. Reflecting this, we argue that virtual religious rituals have strong prospects of becoming an answer to the problem of maintaining religiosity while keeping physically safe and healthy. It is a way to contextualize religion during the Covid-19, and to observe religious obligation while keeping both soul and body (hifz al-nafs) safe, as required by the maqasid al-shari’a.

Wawan Gunawan and Usman Hamid of the IPV believe that Islamic jurisprudence needs to adjust to the pandemic. Gunawan, Hamid, and other Islamic groups believe that virtual Friday Prayers is a possibility, and is in fact a form of ijtihad and ikhtiar as endorsed by Prophet Muhammad. Interestingly, in the Middle East, such an innovative approach to religious practice would be hard to find, since religious authorities there still tend to insist on a traditional interpretation of Sharia.[17]

ISEAS Perspective 2021/107, 12 August 2021


ENDNOTES

[1] “NU dan Muhammadiyah Umat untuk Tidak Salat Jumat di Masjid”, Republika.co.id, 20 March 2020. https://www.republika.co.id/berita/q7h73k366/nu-dan-muhammmadiyah-imbau-umat-tidak-shalat-jumat-di-masjid (accessed 25 June 2021); “Fatwa Majelis Ulama Indonesia Nomor. 14 Tahun 2020 Tentang Penyelenggaraan Ibadah dalam Situasi Terjadi Wabah Covid-19”, Mui.or.id, 17 March 2020. https://mui.or.id/berita/27674/fatwa-penyelenggaraan-ibadah-dalam-situasi-terjadi-wabah-covid-19 (accessed 24 June 2021).

[2] To understand the five basic needs in Islamic law, see Muhammad Adil Khan Afridi, “Maqasid Al-Syariah and Preservation of Basic Rights Under the Theme Islam and Its Perspectives on Global and Local Contemporary Challenges”, Journal of Education and Social Sciences, Vol. 4 (5/2016): 274-285; Muhammad Abdullah Darraz, “Fatwa Ibadah di Masa Pandemi Covid-19: Menimbang Salat Jumat Secara Virtual”, in Farinia Fianta and Fahmi Syahirul Alim (eds.), Fatwa dan Pandemi Covid-19: Diskursus, Teori, dan Praktik”, Jakarta: ICIP, 2021), pp.166-179.

[3] “Klaster Covid-19 Di tempat Ibadah Naik: Ada Masjid dan Gereja”, Tempo.co, 16 August 2020. https://metro.tempo.co/read/1376271/klaster-covid-19-di-tempat-ibadah-naik-ada-masjid-dan-gereja (accessed 23 June 2021); “Covid-19: Tempat ibadah dibuka, ‘tentang kekhawatiran terkena Covid-19, ya kita berdoa saja”. bbc.com/Indonesia, 1 June 2020. https://www.bbc.com/indonesia/indonesia-52868562 (accessed 22 June 2021).

[4] “Tanpa Izin, Jamah Tabligh Tetap Gelar Ijtima Dunia di Gowa”, Republika.co.id, 18 March 2020. https://republika.co.id/berita/q7e4lx327/tanpa-izin-jamaah-tabligh-tetap-gelar-ijtima-dunia-di-gowa (accessed 23 June 2021); “73 Jamaah Tabligh Masjid Kebun Jeruk Positif Corona”, Tempo.co, 7 April 2020. https://metro.tempo.co/read/1329053/73-jamaah-tabligh-masjid-kebon-jeruk-positif-corona (accessed 23 June 2021).

[5] Ahmad Najib Burhani. “Comparing Tablighi Jamaat and Muhammadiyah Responses to COVID-19”, ISEAS Perspective, No. 75, 13 July 2020; Muhammad Adilin Sila, “Nurturing Religious Authority among Tablighi Jamaat in Indonesia”, in Norshahril Saat and Ahmad Najib Burhani (eds), New Santri: Challenges to Traditional Religious Authority in Indonesia (Singapore: ISEAS – Yusof Ishak, 2020).

[6] A’an Suryana and Nur Syafiqah Mohd Taufek, The Serious Social Impact of Non-Violent Extremism in Indonesia (Singapore: ISEAS – Yusof Ishak, 2021), p. 9.

[7]  “ Sholat Jumat Berjamaah Secara Online – Ustadz Dr. Oni Sahroni, MA”, Muamalah Daily, 30 April 2020. https://www.youtube.com/watch?v=-x42clrWKNw (accessed 22 June 2021).

[8] “Bolehkah Tarawih Berjamaah Melalui Live Streaming atau Online?”, Buya Yahya, 8 May 2020. https://www.youtube.com/watch?v=SbBGcV_WiHs (accessed 22 June 2021).

[9] “Sholat Jum’at secara Online/Virtual: Prof Dr KH Ahmad Zahro MA al-Chafidz”, Azzahro Official, 19 April 2021. https://www.youtube.com/watch?v=WUDwUHyp7Gc (accessed 21 June 2021).

[10] Asep Shalahudin, “Fatwa tentang Shalat Jumat Online”, Pengajian Tarjih Edisi 119, 21 February 2021.

[11] “Ikhtiar Salat Jumat Online di Tengah Pandemi”, KompasTv.com, 19 February 2021. https://www.kompas.tv/article/148623/ikhtiar-salat-jumat-online-di-tengah-pandemi (accessed 29 June 2021).

[12] Wawan Gunawan Abdul Wahid, “Sekali Lagi, Tidak Ada Malah Shalat Jumat Secara Online”, Ibtimes.id, 4 May 2020. https://ibtimes.id/sekali-lagi-tidak-ada-masalah-shalat-jumat-secara-online (accessed 28 June 2021).

[13] Wawan Gunawan Abdul Wahid, “Sekali Lagi, Tidak Ada Masalah Shalat Jumat Secara Online”, Ibtimes.id, 4 May 2020. https://ibtimes.id/sekali-lagi-tidak-ada-masalah-shalat-jumat-secara-online (accessed 28 June 2021).

[14] Muhammad Abdullah Darraz, “Fatwa Ibadah di Masa Pandemi Covid-19: Menimbang Salat Jumat Secara Virtual”, in Farinia Fianta and Fahmi Syahirul Alim (eds.), Fatwa dan Pandemi Covid-19: Diskursus, Teori, dan Praktik”, Jakarta: ICIP, 2021), pp.166-179.

[15] “Masjid Terpapar Radikalisme, P3M: Tema Ujaran Kebencian Tertinggi”, Tempo.co, 22 November 2018. https://nasional.tempo.co/read/1148644/masjid-terpapar-radikalisme-p3m-tema-ujaran-kebencian-tertinggi (accessed 30 June 2021); “Riset PPIM: Tangkal Radikalisme, Sebarkan Buletin Moderat”, PPIM, 8 February 2021). https://ppim.uinjkt.ac.id/2021/02/08/riset-ppim-tangkal-radikalisme-sebarkan-buletin-jumat-moderat (accessed 30 June 2021); “Gaungkan Moderasi Beragama di Masjid Pemerintah, Kemenag Gelar Mudzakar Mudzakarah”, Kemenag, 30 March 2021. https://kemenag.go.id/read/gaungkan-moderasi-beragama-di-masjid-pemerintah-kemenag-gelar-mudzakarah-amdwq (accessed 30 June 2021).

[16] See Robert W Hefner, Civil Islam: Muslims and Democratization in Indonesia (New Jersey: Princeton University Press: 2000).

[17] “Arab Countries Are Adapting Ramadhan Traditions to Pandemic”, Deutsche Welle, 11 April 2021. https://www.dw.com/en/arab-countries-are-adapting-ramadan-traditions-to-pandemic/a-57146146 (accessed 27 July 2021).

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.  
© Copyright is held by the author or authors of each article.
Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).