This article was first published in the June 2020 China edition of
Accounting and Business magazine.

Asian economies are nearing an inflection point in their struggle to overcome the public health crisis caused by Covid-19 and the ensuing economic crash. However, they are reaching this point at different speeds, which tells us a lot about the underlying strengths and weaknesses of these countries. South Korea, in particular, has emerged from this crisis with its reputation burnished.

How quickly economic activity returns to normal will depend on several factors. First is how soon the rate of new infections falls to single digits for at least a couple of weeks – only then will most governments allow a substantial easing of restrictions. Another factor is whether healthcare systems have enough testing facilities, hospital beds and acute care capacity. A third determinant is how effective their policies to support the economy have been. Finally, countries with strong links to an already recovering mainland China will tend to do better.

South Korea has succeeded in limiting the rate of new infections, while Hong Kong and Vietnam have also performed impressively. Consequently, these economies are ahead of others in Asia in relaxing stringent restrictions on activity that hurt economic growth. They also count mainland China as one of their most substantial economic partners. There, the economy has been getting back to normal since early April and, backed by powerful stimulus measures, is set to accelerate.  

Meanwhile, Singapore had initially done well but misjudgments led to an explosion of new infections that is only now coming under control. Thailand and Malaysia have also succeeded in reducing new infections but have decided to extend their restrictions for a few more weeks, while countries with large populations such as India, Indonesia and the Philippines have some way to go before the crisis is effectively under control, with a very real danger of a large second wave of infections.

Why did South Korea in particular perform so well? It certainly had an advantage in the form of a well-developed healthcare system, with spare capacity in its excellent hospitals, plenty of medical professionals and solid crisis management protocols. Its government had also developed strong technocratic capacity, which helped it to swiftly conceive and implement stimulus measures. Moreover, the government demonstrated sound judgment in making the right – but hard – decisions in conditions of great uncertainty. It also helped that considerable social trust had built up over time, thanks to government transparency and competence.

The Covid-19 pandemic has been a crisis of enormous proportions. Its long-lasting consequences will only become clearer over time. An important takeaway from this current crisis is that state capacity matters – strong institutions and sound policy leadership. Those countries that demonstrated strength in these areas have tended to do better in containing this crisis – and will better handle the serious challenges that will emerge in the post-crisis period.

Manu Bhaskaran is CEO at Centennial Asia Advisors.