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Unequal, corrupt and expensive: signs of an ailing system


BEHIND THE NEWS
Mark O'Neill
Jan 04, 2008           
     
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Government revenues on the mainland are rising yet the country's medical system is marked by inequality, corruption and high charges for treatment.

In a major report in 2005, the Development Research Centre of the State Council concluded that the market-driven medical reforms of the previous 10 years had failed.

And the public is increasingly disgruntled. The average household on the mainland devotes 12 per cent of its spending to health care, a high proportion even compared to developed countries.

Ministry of Health statistics show that one-third of rural patients do not go to hospital because they cannot afford to pay, and 45 per cent of those who go discharge themselves early for the same reason.

In villages in western China, the proportion of sick people who cannot afford to see a doctor is 62 per cent, and 75 per cent of patients leave hospital early.

More than 400 million people have no medical insurance of any kind.

With insufficient money from the state (which provides just 17 per cent of spending in the health sector), hospitals have to make profits from selling drugs and medical services. Few are run by charities or non-profit organisations and corruption is widespread.

From the middle of 2006, 16 government ministries and commissions began to prepare wide-ranging changes, aided by the World Health Organisation, consultants McKinsey and the World Bank. By last August, the outline of the policy had been agreed and it is now before the State Council.

On December 26, Health Minister Chen Zhu told members of the National People's Congress that the policy would aim to provide universal basic services at reasonable prices, with significantly higher input from the local and national governments.

It calls from better care in rural areas and for an independent system for the production, procurement and distribution of basic drugs.

Mr Chen said the profit-driven system had imposed heavy burdens on patients and led to a waste of resources. "We will gradually reduce the involvement of hospitals in drug sales in order to cut prices."

Qiu Renzong, of the China Academy of Social Sciences, said: "Patients cover 60-70 per cent of medical costs, which is unreasonable. The government coffers are full and it should contribute more."

The greatest difficulty will be in areas with a large number of poor, unemployed and retired people, where local governments do not have the money to offer better benefits. It is they, and not the central government, that will have to find the funds.


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Polar telescope scans the heavens for elusive dark energy


BEHIND THE NEWS
William Mullen
Jan 07, 2008           
     
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Anywhere on Earth it would be a big telescope, as high as a seven-storey building, with a main mirror measuring 10 metres across. But at the South Pole, it seems especially large, looming over a barren plain of ice that gets colder than any other place on the planet.

Scientists have completed the instrument at the end of the world, and in recent months have swung the massive lens skyward so they can search for clues that might identify the most powerful, plentiful but elusive substance in the universe - dark energy.

First described just nine years ago, dark energy is a mysterious force so powerful that it will decide the fate of the universe. Having already overruled the laws of gravity, it is pushing galaxies away from one another, causing the universe to expand at an ever faster rate.

Though dark energy is believed to account for 70 per cent of the mass of the universe, it is invisible and virtually undetectable. Nobody knows what it is, where it is or how it behaves.

"If you see it in your basement," jokes University of Chicago cosmologist Rocky Kolb, "you'd better get back on your medication." But he knows better than most the high priority the world's governments and scientists have placed on coming to a fuller understanding of the invisible force.

"Many think dark energy is the most important problem in physics today," said Professor Kolb, who recently served as chairman of the Dark Energy Task Force, convened in 2005 by the US Department of Energy, Nasa and the National Science Foundation.

Scientists say figuring out what dark energy is would explain the history and future of the universe and generate new understanding of physical laws that, when applied to human invention, would almost certainly change the way we live - just as breakthroughs in quantum mechanics brought us the computer chip.

Swinging its huge mirror to the heavens, the South Pole Telescope has begun to search the southern polar skies for shreds of evidence of the elusive matter. Controlled remotely from the University of Chicago, the US$19.2 million telescope has quickly succeeded in its first mission: finding unknown galaxy clusters, clues to the emergence of dark energy.

The university has a stronger astronomy presence at the pole than perhaps any other institution, having built several smaller experimental telescopes there over the past 20 years. This scope, however, was the most ambitious project by far.

Its components had to be custom-built by scientists and craftsmen in several parts of the world, then shipped to Antarctica in pieces for final assembly. The largest sections of the telescope were carefully designed so each could fit into ski-equipped military transport planes. It took 25 flights in all to ferry in the 260 tonnes of telescope components.

In 2006, a crew made up mostly of graduate students spent eight hours a day outdoors to help put them all together.

"It gets really, really cold because you aren't moving much," said Joachin Vieira, 28, a graduate student in physics. "There's steel behind you, steel in front of you, and you're holding steel tools."

Earlier, they had spent three months doing a dry run on the mirror assembly in the blazing summer heat of Kilgore, Texas. At the pole, temperatures never warmed to more than minus 29 degrees Celsius. Crew members said it took hours after returning indoors before their fingers loosened up enough to type on their computers.

"We have to get these pieces into place to within 1/2000th of an inch of accuracy," said Jeff McMahon, 29, a postdoctoral physics student. "If you move, you risk screwing it up, so you stand motionless."

Also out there, slinging two-by-fours alongside ironworkers putting together the telescope's main structure, was John Carlstrom, a veteran South Pole astronomer and University of Chicago astrophysicist who is heading up the international team that designed and constructed the telescope.

The telescope can't look for dark energy directly. Instead, it is gathering information researchers hope will lead to a better understanding of the mysterious force, by tracing for the first time how dark energy emerged and has changed over billions of years.

To do that, scientists will use the South Pole Telescope to search for enormous clusters of galaxies - the last structures in the universe to be forged by the force of gravity after the Big Bang.

First, gravity formed the stars, then the galaxies, and finally vast clusters containing 50 to 1,000 galaxies. But at some point, dark energy got the upper hand over gravity, slowing down and stopping gravitational formations and instead beginning to push galaxies away from one another.

"It's not incorrect to think of dark energy as acting like negative gravity," Professor Carlstrom said. In other words, it is a force that causes all physical matter to push away, rather than collapse together.

The idea behind the South Pole Telescope is to try to trace how many galaxy clusters have formed at different periods in the history of the universe, how they formed, and then when dark energy slowed or stopped their formation.

"We're looking at a tug-of-war with dark energy and gravity trying to expand or collapse the universe," Professor Carlstrom said.

The South Pole, with its low humidity, is the best place on Earth to look for slightly warmer spots in the cosmic microwave background. Such variations in temperature are remnants of the first light in the universe.

In addition, because of the tilt of the Earth's axis, the pole for nearly half the year is bathed in darkness 24 hours a day. That allows researchers to focus the telescope continuously on one part of the sky for long periods of time.

McClatchy-Tribune


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Leadership reveals its true colours


OBSERVER
Emily Lau
Jan 08, 2008           
     
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The National People's Congress Standing Committee decision to rule out direct elections in 2012 was not unexpected. But it was a bitter blow to those who have fought for democracy for decades. Although many Hongkongers knew it would be difficult to have a democratic government under Chinese rule, they have never given up.

The fact that most Hong Kong people wanted "double universal suffrage" - the right to elect the chief executive and all members of the Legislative Council by universal and equal suffrage - in 2012 was recognised in the report submitted by Chief Executive Donald Tsang Yam-kuen.

However, the report said that pro-Beijing and pro-business political parties, and the pro-establishment district councils, were against it. Thus, the political forces that evolved under the undemocratic system oppose the will of the people. This coincided with the wishes of the rulers in Beijing.

In dashing the hopes of millions, the Standing Committee said Hong Kong people may elect the chief executive by universal suffrage in 2017 - 20 years after the change of sovereignty. Direct elections for all members of Legco will follow, maybe in 2020.

An editorial in the China Daily said that the decision "served not only as a positive answer to what Hong Kong people had been aspiring to but also as a solemn declaration to the international community ... This has demonstrated the central government's political broadmindedness and the  profound trust it has placed in Hong Kong people."

Nothing could be further from the truth. At a meeting with Standing Committee deputy secretary general Qiao Xiaoyang at Government House on December 29, I asked why the central government has denied me, and other democrats, the right to enter the mainland for more than a decade. The ban showed the leadership is petty-minded, intolerant of dissenting views and determined to marginalise outspoken politicians. Beijing also used it as a warning to the community: anyone who dared defy the wishes of the Communist Party would suffer the same fate.

To Beijing's dismay, the electorate kept returning us to office, hence a ridiculous scenario emerged - elected representatives were being barred from the mainland.

After the NPC's announcement, pro-communist figures said the provision of a timetable should help resolve disputes over the subject and create a platform for a consensus on constitutional development.

This is wishful thinking. To me, the Standing Committee's decision showed that the concept of "one country, two systems" and "a high degree of autonomy" is in tatters. As Hong Kong people digest the edict from Beijing, they are reminded it is the central government that calls the shots.

Beijing rebuffed Hong Kong people's demand for democratic government in 2004 and 2007. Given this dismal record, there is no guarantee such vague promises of universal suffrage in 2017 and 2020 will be kept.

Furthermore, the desire for full control means that only candidates acceptable to Beijing will be allowed to stand for election. In that case, it would not be a real democratic election.

Attempts to eliminate functional constituency legislators are equally difficult. Mainland officials have indicated their preference for this form of election by limited franchise, as candidates returned in this way are more susceptible to influence by Beijing.

Hong Kong people have no guarantee they can democratically elect their chief executive in 2017. There is no telling if direct elections for all Legco members will be held in 2020. Even if they are, the ghost of functional constituencies may still haunt us.

The fight for democracy must go on. A march for democracy has been organised for Sunday. I call on all supporters of universal suffrage to join us.

Emily Lau Wai-hing is a legislative councillor for The Frontier


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A punishment that does not fit the crime


LEADER

Jan 09, 2008           
     
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Life imprisonment is a punishment meant to fit the most serious of crimes, a humane alternative to the death penalty and the maximum penalty in jurisdictions that have abolished capital punishment. On the mainland, it is often handed down for crimes which might, in other circumstances, have attracted the death penalty. It is a sentence which leaves little room for the offender to make amends or to be rehabilitated into the community.

Life imprisonment is clearly not a punishment which should be used for relatively minor crimes involving property. But unless reason prevails, that is the fate of young migrant worker Xu Ting. He was jailed for life by a Guangzhou court for repeatedly taking advantage of a malfunction in an automatic teller machine to steal more than 180,000 yuan from a bank.

In these days of electronic money transactions and self-service, that is the kind of crime that calls for a strong deterrent, but hardly one that warrants emphasis on punishment to the exclusion of rehabilitation, making amends and discharging a debt to society. It is also much harsher than sentences often imposed on tycoons and officials who have committed crimes involving much larger sums.

As we report today, the court's decision shows how justice has failed to keep up with the times. The law that prescribes the penalty was passed 10 years ago, before ATMs were in common use. It is out of line with modern income levels and the damage to society of such offences. The problem is compounded by inflexibility in the sentencing system. Courts cannot deviate from sentences laid down in the penal code. Sadly, judges are reluctant to use the only remedy open to them - to seek advice from the Supreme Court. Hopefully, eight lawyers who have jointly submitted a petition to the authorities seeking changes to the code will achieve a happier outcome.

The mainland is not the only jurisdiction struggling to keep laws up to date, a problematical task at present given the pace of social and economic change. But this case shows the need for progress towards the rule of law, with a more independent judiciary that can establish a fairer system and make the punishment fit the crime.


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China Eastern vote a missed opportunity


LEADER

Jan 10, 2008           
     
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The rejection of a tie-up between China Eastern Airlines (SEHK: 0670) and Singapore Airlines has effectively turned mainland civil aviation policy on its head. Five years ago the central government restructured the industry around three state-owned carriers, Air China (SEHK: 0753, announcements, news) , China Eastern and China Southern Airlines, to ready it for competition in more open skies.

Shanghai-based China Eastern's plan to sell a 25 per cent stake to Singapore Airlines and Temasek Holdings, in return for an injection of HK$7.16 billion in capital and international management expertise, was arguably consistent with this strategy. It won blessing at State Council level and from the State Assets Supervision and Administration Commission (Sasac), ultimate owner of the airlines.

In an apparent policy U-turn, however, the government remained silent when the parent of Beijing-based Air China, China National Aviation (CNAC) Company - itself a shareholder - stepped up a campaign to block the deal. This culminated in a promise to make an offer in the near future of no less than HK$5 a share, compared with Singapore's HK$3.80 for newly listed Hong Kong shares.

In the absence of any reaffirmation of official support for the Singapore offer, minority shareholders understandably voted against it in favour of CNAC's promised bid. In doing so, they have rejected a badly needed injection of capital - not a takeover - from a prospective foreign partner with a proven track record.

Instead, they may have cleared the way for CNAC's vision for a super airline on the mainland - in effect a two-major-airline policy for a population of 1.3 billion. An industry open to foreign partnerships has now been subjected to the kind of protection afforded strategic industries in the national interest.

When it came to the vote the Singapore offer was too low, though it represented an acceptable premium to China Eastern's share price when it was made last May. The share price has since risen to nearly double the offer price. The problem was the surge in mainland stock markets, coupled with the time it takes state-owned companies to win regulatory approval for foreign investment proposals - commonly six to nine months. This raised the sensitive political issue of the so-called cheap sale of state assets to foreigners. Mainland regulators have recently banned several proposed deals in which foreigners were to buy stakes in Chinese industries because surging share prices made the offers seem too low.

In this climate, it seems that regulatory approval does not necessarily guarantee that a deal will be closed. That is an uncertain and difficult environment in which to do business. It does not encourage foreign investors to make the commitment in time and money needed to secure approval in the first place. It is arguable therefore that the run-up in the markets potentially discourages injections of badly needed capital and expertise.

The shareholders' decision may make sense on paper now. But it represents the short-term mentality of investors in the booming mainland markets. In the longer term Singapore Airlines would have been locked into commitments to China Eastern that would have been positive for earnings and the stock price.

It is hard to see benefits from the outcome for anyone apart from Air China, whose parent has succeeded in preventing a rival from gaining capital and expertise. Singapore Airlines may have declined to enter a bidding war, but the affair has not played itself out. CNAC has yet to put a solid offer on the table and the government and regulatory authorities still have the last say.


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Accountability? It's still a foreign concept here


STEPHEN VINES

Jan 11, 2008           
     
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So, Lily Chiang Lai-lei, the chairwoman of the Hong Kong General Chamber of Commerce, has finally decided to step aside despite previously saying that there was no need because she was innocent of fraud charges.

Instead of criticising her feeble attempt to hang on to office, her colleagues praised her for a supposedly dignified decision. No doubt they also breathed a sigh of relief, having avoided a battle to get her to go. In Hong Kong, holders of public office routinely seem to believe that they can cling to office while criminal charges or other major questions about their integrity remain unresolved. Elsewhere, such uncertainty ensures the rapid relinquishing of the public stage by those involved. Here, this practice is either ignored or only followed under extreme pressure after unwarranted delay.

Chiang leads Hong Kong's premier business body and is therefore expected to be beyond reproach. A trial may well reveal that she does indeed fulfil this requirement but, in the meantime, her predicament inevitably causes embarrassment for the organisation she leads.

She retains the title of chairwoman while fighting the criminal charges and could, in defence of her decision not to quit, cite a number of precedents for staying put - starting right at the top, where senior officials deem themselves not to be responsible for their actions, or are quick in passing the blame to others. The concept of "the buck stops here" is only accepted with extreme reluctance.

It took an unseemly period of time before Antony Leung Kam-chung  resigned as financial secretary in the wake of an enormous scandal involving his purchase of a Lexus ahead of a car sales tax rise he was about to announce in his budget. And when he went, he departed under a shower of praise from his bosses.

Even more fulsome praise greeted the departure of Regina Ip Lau Suk-yee from the post of security secretary after her maladroit handling of the introduction of anti-subversion laws succeeded in mobilising some of the largest street protests seen in Hong Kong. To this day, she continues to present herself as a victim.

Lower down the government tree are other officials who give the impression that high standards of probity and competence are hardly requirements for senior positions. Most people have now forgotten the hapless Wong Ho-sang, who failed to understand the problem of heading the Inland Revenue Department while his wife ran a company giving advice on taxation.

In a society where the most senior officials are reluctant to accept responsibility for their actions, it is unsurprising that this careless attitude spreads to the political sector. When, for example, Gary Cheng Kai-nam was exposed as providing paid advice to parties with a vested interest in legislation that he was helping to formulate - without declaring an interest - his Democratic Alliance for the Betterment of Hong Kong allies did their best to protect him. They only backed off when he faced criminal charges and was subsequently jailed.

And the benefit of the doubt appears to have operated even more spectacularly in favour of the convicted fraudster Chim Pui-chung, who emerged from jail with his trademark smile and proceeded to regain election in one of the Legislative Council's functional constituencies.

Mr Chim is not alone among former convicted criminals serving as legislators; the National People's Congress Standing Committee has, among its members, Tsang Hin-chi, convicted not once but twice of fraud. Were it the case that this spirit of forgiveness was extended to all criminals who have served their time, it might be easier to understand why such generosity seems to apply to prominent government supporters.

So, Chiang had reason to ask why she should step aside. But the question is not for her alone. How much longer will the Hong Kong public tolerate leaders who think that setting an example and taking responsibility is somehow none of their business?

Stephen Vines is a Hong Kong-based journalist and entrepreneur


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Japan fumbles on false dilemmas


Brad Glosserman
Jan 14, 2008           
     
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A gloom is settling over Tokyo. A recent visit revealed deep and deepening frustration and anxiety as Japanese contemplate strategic options. Decision-makers in Tokyo have framed their choices in overly simple terms that do not reflect the range of possibilities in foreign and security policy. Worse, Japanese behaviour today may limit future choices. While the roots of Japan's insecurity will endure, Japanese can take steps to ease anxieties, create more options and raise the comfort level.

Political developments in Tokyo and Washington are the primary source of anxiety. The Democratic Party of Japan's (DPJ) victory in Upper House elections in July plunged Japan into uncharted territory. The DPJ appears determined to force a general election, fighting the government on every issue. This has resulted in virtual political paralysis.

While some recalibration of priorities after the departures of prime ministers Junichiro Koizumi and Shinzo Abe was expected, the unblinking focus on domestic politics - the phrase "navel gazing" was used in several conversations - has irritated even friends of the alliance. It is distracting decision makers and draining the energy from Japanese institutions. To take one example: two countries did not send a head of state or cabinet-level delegation to the recent Middle East peace conference in Annapolis, Maryland: Sudan and Japan. Not surprisingly, no one is expecting anyone to make the tough domestic political decisions that are needed to continue the transformation of the US-Japan security alliance.

Japanese are equally nervous about political developments in the United States. Tokyo instinctively distrusts Democrats, who are thought to be soft on security, captive to economic interests and ready to bash Japan. Memories of Bill Clinton's 1998 trip to China are quick to surface: his failure to stop in Tokyo sparked the term "Japan passing". I heard frequent references to Senator Hillary Rodham Clinton's recent Foreign Affairs article - calling US-China ties the most important bilateral relationship - and much angst about what her victory might mean for Japan.

This first false dichotomy - Republicans are good for the US-Japan relationship, Democrats are bad - is based on a mistaken assumption that Japan and China are competing for American attention. Tokyo fears Washington and Beijing will make common cause to deal with shared problems and issues; that China, with its size, resources (including a permanent seat on the UN Security Council) and confidence, has assets Japan cannot match; and that the US will become frustrated with Japanese inaction. For many Japanese, Beijing's role in the six-party talks and the evolution of US policy towards North Korea confirm the fragile alignment of US and Japanese interests and are a sign of things to come.

Japan has responded by clinging tighter to the US and searching for ways to differentiate Tokyo from Beijing. The call for "values-based diplomacy" - which aligns Japan with Washington, Australia, India and Europe - is the most visible manifestation of this effort. This policy echoes those embraced at the outset of the Meiji Restoration in 1867, when strategists pondered whether to look to Asia or the west. Japan turned its back on Asia, swiftly modernised and returned to Asia with a vengeance.

While talk of an "East Asian Community" would seem to resurrect that dichotomy, the choice today is a false one. Japan need not pick one or the other. Japan is a member of both communities: Asian by geography, but western by virtue of its post-war political and social evolution. Given its global interests - economic and political - Japan cannot be a purely "Asian" country. The key in this choice is in balancing concerns.

That is a constant and difficult process. Policymakers must be vigilant, scanning the horizon for challenges that they must then be prepared to confront. A reactive diplomacy will not serve Japan well.

While adjustments will continue, Japan can devise a framework to guide strategic thinking. First, Japan should recognise that its choice is not Asia or the west. It is an integral part of both communities and must engage both. Failure to identify with Asia, or to participate fully in the development of Asian institutions, will marginalise Tokyo within the region. Tokyo will not "speak for" one or the other - as has sometimes been suggested - but can provide insight into how each is seen by the other.

Second, Japan should seek a better and more stable relationship with China. They are the region's two biggest countries: positive relations would make almost anything possible. At a minimum, they are the foundation of an Asian community. This process appears to be under way, but is fragile and must be nurtured.

Third, Tokyo should adopt an inclusive outlook and not feel threatened by improved relations between Washington and Beijing. Just as a positive Japan-China relationship will not threaten Tokyo's ties to Washington, improved US-China relations need not undermine the US-Japan alliance. The key is ensuring that the US sees the value of an alliance with Japan; one asset will be an improved Japan-China relationship. Japan should also reach out to South Korea to ensure that Seoul doesn't feel left out of regional deliberations.

Fourth, and easiest of all, Japan should court more Democrats in the US (or at least stop bad-mouthing them). The bilateral security alliance endures because of its bipartisan support. Dismissing Democrats' views and bemoaning what a Democratic administration would do to the alliance alienates friends and allies.

These suggestions may seem simple, but they demand a radical change in how Japan sees itself and its place in the world. Japan must see itself as an actor shaping international politics, rather than a country merely reacting to external developments. That does not mean adopting a great-power mentality; it does require thinking more clearly about Japanese national interests and acting to protect them. This transformation will not be easy, but the stakes could not be higher.

Brad Glosserman is executive director of the Pacific Forum CSIS. Distributed by Pacific Forum CSIS


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Preventative medicine


JONG-WHA LEE

Jan 15, 2008           
     
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The adage used to be that when the US sneezed, Asia caught a cold. These days, some people are saying that when the US catches a cold, Asia merely sneezes. Or, in other words, they say the Asian economy is decoupling from the US. In actual fact, in an increasingly globalised economy, it matters little who sneezes or who catches the cold. It is about formulating the right medicine - the right policy mix - to stay healthy and avoid a germ becoming a systemic infection.

For emerging East Asia, which is made up of open and export-dependent economies, a cautious policy design for 2008 is critical. What's needed is a judicious mix of macroeconomic policies and continued strengthening of financial systems, and improving risk management and the regulatory and supervisory framework. China appears on the way to greater exchange rate flexibility, for example, but more could be done, along with speeded up financial sector reform and capital outflow liberalisation.

Gross domestic product growth in the region remains strong, but it is expected to ease from the estimated 8.5 per cent in 2007 to 8 per cent this year. A soft landing of the US economy - which will also help avoid a global slowdown - should mitigate the effects of the expected regional moderation in economic growth.

Thus far, the US is likely to avoid a sharp recession, though a prolonged slowdown may be in the offing. It is clear the US wants to avoid catching a cold - even if the nasty germ originated there - and maintains an array of policy tools that can supply the required medication. This is important for emerging East Asia, because while the US may avoid a recession this time around, a hard landing and ensuing global slowdown would significantly affect the region's economic performance, particularly given the continuing strong direct and indirect trade ties.

But, within the region, inflationary pressures are building. Rising prices in both goods and assets limits authorities' ability to lower policy rates. China's juggernaut economy hit an inflation rate of 6.9 per cent in November - the highest in 11 years. It needs to continue raising interest rates to stem inflation and avoid the economy overheating further. The rest of the region is also showing rising inflationary pressures - largely from oil, food and other commodity prices - and the potential of asset bubbles forming in sectors such as property and equities is worrisome. Then there is the US dollar depreciation, which translates into continued strong appreciation pressures on the region's currencies. Market intervention by central banks to ease those pressures leads to increased liquidity in the financial system, adding to inflation and asset prices. Thus, slower growth coupled with rising inflation and appreciating currencies pose major policy challenges.

The limited impact of the US subprime turmoil on emerging East Asian economies has led some economists to wonder whether the region is decoupling from US economic influence.

True, the region's resilience stems a great deal from better economic policies and a strengthened institutional framework since the 1997-1998 Asian financial crisis. But, with few exceptions, emerging East Asia's financial systems remain relatively unsophisticated. That is another major reason why it remained largely immune to the US subprime mess.

Nevertheless, continued financial volatility must be monitored closely as tighter short-term funding, persistent risk aversion, along with credit risk repricing, could result in a reversal of capital flows to the region. In several emerging East Asian economies, these inflows, along with rapid money supply and credit growth, have led to the potential for significant asset bubbles forming.

So it is really not that important whether emerging East Asia is decoupling from events in the US. The point is that emerging East Asia's potential weakness is evident not merely in the financial sector, but also in its ability to build and sustain monetary stability that best provides preventative medicine against external shocks.

Jong-wha Lee is head of the Asian Development Bank's Office of Regional Economic Integration


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Spring in winter


FRANK CHING

Jan 16, 2008           
     
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This year marks the 30th anniversary of the signing of the Sino-Japanese Treaty of Peace and Friendship, and all signs are that both countries are determined to use this symbolic date to consolidate the bilateral relationship and to take it to a new high. The symbolism is particularly strong: that treaty was signed when Takeo Fukuda, father of the current prime minister, Yasuo Fukuda, was prime minister.

Yasuo Fukuda's four-day visit to China last month helped improve relations to such an extent that both he and Premier Wen Jiabao said that "spring" has returned to the relationship even though it is the dead of winter.

In the 2,000-year history of Sino-Japanese relations, one nation was always strong while the other was weak. This is the first time when China and Japan are both strong, which makes it much more difficult to create a sense of trust and friendship rather than one of suspicion and rivalry.

However, Mr Fukuda's attitude is one of welcoming China's rise rather than fearing it. His vision is one of Japan and China working together to overcome common problems, such as battling terrorism and coping with climate change and other environmental problems.

Mr Fukuda is right in describing 2008 as "a very rare opportunity" for the development of bilateral ties. The fact that the son of the man who signed the friendship treaty is now Japan's prime minister creates an opportunity for both sides to bolster the relationship, especially as the younger Mr Fukuda is much like his father and very different from his immediate predecessors.

Even though Mr Fukuda kept most cabinet members who he inherited from his predecessor, Shinzo Abe, there is already a notable change in the handling of historical issues.

The Japanese government has agreed to reinstate history textbook references about the Imperial Japanese Army driving civilians into committing mass suicide in Okinawa in 1945. The previous government had ordered that all references to the involvement of the Imperial Japanese Army in the suicides be deleted.

Instead of trying to varnish Japan's past, Mr Fukuda promised in Beijing to "look squarely" at Japan's wartime militarism, because "we can prevent mistakes in the future only if we properly look at the past, and have the courage and wisdom to repent what we must repent".

Mr Fukuda's visit carried some risks, as there were some in the Japanese camp who did not want him to travel to Beijing until there was an agreement on the biggest outstanding problem between the two: the dispute over gas deposits in the East China Sea, where Beijing and Tokyo have overlapping claims. The two countries had wanted to resolve the issue by the second half of 2007, but an agreement remains elusive.

Mr Fukuda's decision to visit Qufu , the hometown of Confucius, was an inspired attempt to demonstrate to the people of both countries that they share common philosophical and cultural roots that bind them in a special relationship.

While the visit went well, the relationship is still delicate and must be nurtured. The visit to China was risky: Mr Fukuda is not in a strong position domestically, and he may have to call an election in a few months, the outcome of which is uncertain.

The two countries have decided to raise the East China Sea talks to vice-ministerial level before President Hu Jintao visits Japan in April, when the cherry blossoms are in full bloom.

Another issue, as Mr Fukuda put it, is the need to "nip mutual distrust in the bud while fostering confidence building through enhanced transparency". A Chinese warship recently visited Japan, and a Japanese naval vessel will reciprocate this year. What is needed is great Chinese transparency in military matters.

If these issues are resolved, the relationship will go from strength to strength. But if, say, an agreement on joint development continues to be elusive, then no matter how good the atmosphere, Sino-Japanese relations will not bloom, even if the cherry blossoms do.

Frank Ching is a Hong Kong-based writer and commentator


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America's misguided meddling in Pakistan


Doug Bandow
Jan 17, 2008           
     
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For years, the United States has attempted to mould Pakistan. The result is not pretty: an unstable, undemocratic state that possesses nuclear weapons, border provinces that offer safe haven to Taleban and al-Qaeda forces, and a people who loathe the American government. The murder of opposition leader Benazir Bhutto is merely another blow to Washington's plans.

Since 2001, Pakistan has been a frontline state in allied efforts to eradicate al-Qaeda and suppress the Taleban in Afghanistan. Yet, despite receiving more than US$10 billion from the US since September 11, Islamabad has been an indifferent ally in the "war on terror".

Pakistan also embodies the problem of nuclear proliferation, having built an "Islamic bomb" despite Washington's opposition. Worse, it has sent planeloads of nuclear materials around the world. Finally, President Pervez Musharraf has paid only the barest pretence to democratic reforms. Not that Pakistani democracy, which tended to alternate irregularly with military rule, met America's standards.

Former president Zulfiqar Ali Bhutto, his daughter Benazir and Nawaz Sharif developed nuclear weapons, allied with the Taleban, supported Middle Eastern militants and tolerated religious persecution at home. They were thought to be profoundly corrupt.

For decades, the US provided aid, sold weapons, and offered diplomatic support to whatever regime happened to be in power in Islamabad. Yet America had minimal success in promoting domestic reform.

Only by threatening to bomb did the Bush administration get Islamabad's attention after September 11. Thus, Pakistan was forced to drop the Taleban regime as a client and enlist in the coalition against al-Qaeda. But it still resisted full co-operation with the US.

Mr Musharraf's growing isolation led the Bush administration to push even harder on the democratic front. It applied strong pressure on the president to allow Bhutto back into the country.

Washington sold this as a grand step forward on the return to democracy, but Mr Musharraf saw the political advantages of winning parliamentary legitimacy for his continued rule.

With Bhuttos's assassination, the administration's plan is in ruins. But the usual suspects still shout advice from the sidelines and concoct grand new initiatives. Yet Pakistanis don't much care what the US wants.

Indeed, there's no reason to believe that any civilian Pakistani government would be notably more competent, less corrupt and more willing to combat Islamic extremism than past civilian regimes, let alone more likely to survive.

Under such circumstances, the best strategy for the US government is to distance itself from authorities in Islamabad. Co-operation would still be necessary to deal with the Taleban and al-Qaeda.

Attempting to reorder the globe is a fantasy. Decades of plans and programmes designed to remake Pakistan have come to naught.

Doug Bandow is the Robert A. Taft Fellow at the American Conservative Defence Alliance and a former special assistant to president Ronald Reagan


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Carbon loading
Instead of meeting its 2010 emissions targets, Japan is belching more smog as energy use rises

BEHIND THE NEWS
Cheung Chi-fai
Jan 18, 2008           
     
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Fierce winter cold and snow used to be the primary weather risks facing the 5.7 million residents of Hokkaido in northern Japan. That changed last year. The snow that arrived in December, some Sapporo citizens said, was different - the falls were lighter and sporadic, and interrupted by occasional showers.

A few months ago, Hokkaido recorded its hottest summer in 80 years, with temperatures hitting 35 degrees Celsius in some places. The heatwave reportedly killed some elderly people and prompted an increasing number of people to install air conditioners in their homes, a rare move for Hokkaido citizens in the past. Some now predict air conditioning might become more popular in people's homes than renewable energy devices.

Just weeks after Japanese Prime Minister Yasuo Fukuda visited China and agreed to help the mainland with climate change technology, it seems Tokyo is battling on the home front with the environmental and social effects of climate change.

Experts now say the warmer climate is shifting the energy usage pattern of Hokkaido residents, whose greenhouse gas emission per capita is already 1.4 times the national average.

Hokkaido officials admit that rather than being on track to meet the target of a 9.2 per cent reduction in emissions from 1990 to 2010, the island's emission levels rose by 14.2 per cent in 2006.

The chance of complying with the 2010 target now looks remote, unless the public and businesses - primarily the tourism and food sector - are better mobilised to change the way they use and conserve energy.

At a national level, Japan, which accounts for 5 per cent of the world's emissions, has also reported missing the Kyoto Protocol 6 per cent reduction target, by over-emitting close to 7 per cent above the 1990 level.

The nation is among other developed economies, including Spain and Portugal, that are yet to reverse the trend of rising emissions in their bid to satisfy the Kyoto requirements between 2008 and 2012. "We are in a very difficult position now and there is intense debate going on within society on what more can be done," said Yuzo Yagai, chief administrator of the climate change policy division of the Ministry of the Environment.

The missed targets in Japan are partly due to a runaway rise in emissions in the commercial and household sectors, of 40 per cent and 30 per cent respectively over 1990 levels.

Mr Yagai said increasing office automation and the proliferation of home appliances had resulted in more energy used than was being offset through measures such as energy-efficient products.

Another problem unique to Japan was the temporary closure of some of its 54 nuclear power generation facilities, which have experienced technical problems and earthquake damage in recent years. These closures alone accounted for a huge portion of the excess emissions - about 3 per cent of the total 1.34 billion tonnes of carbon dioxide emitted in 2006.

Nuclear power has played a vital role in keeping Japan running, providing one-third of the nation's energy supply.

The largest operator, Tokyo Electric Power, runs 17 plants, which have helped to stop the production of 78 million tonnes of carbon dioxide a year.

However, poor positioning of sites on or near fault lines has fed public scepticism about nuclear power. Last July, a quake rocked a nuclear power station in Niigata prefecture, leading to the closure of reactor units and subsequent power shortage in Tokyo. "The public must understand that nuclear power is a necessity. But we can't help it that opposition surfaces every time there is a nuclear power plant incident," said Issei Takaki, a spokesman for the Fukushima Daichi nuclear power station.

While reopening some of the reactors remains uncertain, plans for new reactors have been met with increasing resistance by local authorities and the long-term plan to boost the nuclear energy usage rate to 40 per cent has been thrown into uncertainty.

To try to meet reduction targets by 2012, tough measures have been suggested by the cabinet, including a domestic emissions trading scheme designed for up to 150 major manufacturing facilities.

A carbon tax - proposed at 600-700 yen (HK$43-HK$51) per tonne of carbon dioxide emitted - will also be imposed on product and services providers, in the hope that customer demand will shift to eco-products.

Complementing the tax measure is a proposed scheme to have the carbon footprint of products and services labelled to help consumers pick the ones with least impact.

Japan also plans to strengthen forestry management to help absorb more carbon dioxide and intends to buy up to 100 million tonnes of emission-reduction credits through the UN's clean development mechanism in the long term. Nippon Steel alone has secured 11 million tonnes of credits through its two joint-venture steel mills in China.

All the proposals were raised last year for public consultation before former prime minister Shinzo Abe stepped down in September.

Although the replacement of Mr Abe with Mr Fukuda may have little impact on the overall direction pursued, no concrete decision will be made until March.

But some of the proposals have already attracted strong opposition from business and industry heavyweights. They have expressed fears that further emission regulations or taxes might mean losing their international competitive edge, particularly to China or India, and may trigger the relocation of production lines overseas.

The worries are borne out by the steelmaking sector, which, although it accounts for 10 per cent to 20 per cent of the nation's total emissions, views itself as the most energy-efficient steel industry in the world.

Nippon Steel, which has lost the title of world's biggest steelmaker to India's Mittal Steel, has strongly opposed the proposed carbon tax and domestic emissions-trading scheme. "If all countries imposed the same tax, it would be fine. But if it is not introduced in China or India it will be detrimental to our international competitiveness," said Hironobu Hose, group manager of the company's environmental relations department.

Mr Hose said emission trading was only a market mechanism in disguise, effectively instructing industries on how much energy they could use.

Branding it a "speculative money game", Mr Hose said the European emissions-trading market could only benefit financial agencies, pointing out that only 50 out of 11,000 transactions were related to manufacturing facilities.

Mr Hose said Nippon Steel, consuming 4 per cent to 5 per cent of Japan's total energy, had invested massively in research to cut energy use and recycle materials, enabling the company almost to meet a target of 10 per cent emissions cuts.

He warned that an emission trading scheme would only divert research money away from finding new technological breakthroughs.

Were existing technologies adopted by all steelmakers across the world, it was estimated that up to 2 billion tonnes of carbon dioxide emissions could be avoided, representing one-thirteenth of the world total, he said.

However, it might be financially difficult for developing nations to obtain the technologies developed and used by t big players in the industry. Many like Nippon Steel believed that such a transfer of technology was, in fact, the jurisdiction of business and not part of government assistance, he said.

Koji Tsuruoka, director-general for global issues at the Ministry of Foreign Affairs, said emerging economies and major greenhouse gas emitters such as China and India should be financially capable of adopting the technologies.

"These [technologies] are business commodities. The investment and intellectual property is privately owned. Perhaps [the Japanese government] can buy them and give it to these countries. But why do we have to do this? Indian businesses are doing very well now," he said.

Mr Tsuruoka said Japan went through a painful process of cleaning up environmental pollution and saving energy in the past, and repeated that the present global warming challenges needed concerted international efforts to address them.

In the 1970s and 80s, Japanese manufacturers could still rely on expansion to cover the costs of innovation in energy savings and materials recycling, which allowed Japan to double its GDP while keeping oil consumption steady.

But the scope for marginal improvement is getting smaller and perhaps even more costly. "Meeting the target of 14 per cent emissions cutbacks is almost impossible. It may be achieved either if our population or the economy shrinks by 14 per cent. But this is not acceptable," he said.

Mr Tsuroka said global co-operation was needed to address climate change and one's neglect might be detrimental to others, particularly to developing nations.

"When you look at this global challenge, it will affect all of us. But the developed nations will be able to cope with the impact much better than developing countries, which do not have the capacity," he said.


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Excellent~~~~
Thank you for your good story

The Party Line
201 days to go

OLYMPIC COUNTDOWN
Martin Zhou
Jan 20, 2008           
     
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There are many superlatives used to describe the Beijing Olympics - the best, greatest, most important and so forth.

So it comes as little surprise to learn organisers Bocog are assembling the biggest volunteer workforce in the history of the games.

"A total of 100,000 volunteers will work at the Olympics across the venues in August and the following September Paralympics," said Liu Jian, Bocog's volunteer department chief.

So far, 80 per cent of the positions on offer have been filled, hand-picked from 800,000 - and counting - applicants. On top of the final tally, Bocog will also enlist an army of 400,000 volunteers to work at 500 volunteer stations across the capital over the two-week games period - the largest-ever total of eager, unpaid Olympic do-gooders in history.

Yet amid the bombastic Olympic statistics, some are concerned the sheer number of volunteers and the way they are being chosen might compromise the quality of service at the much-anticipated extravaganza.

The Sydney 2000 and Athens 2004 editions each had a volunteer workforce half the size or less than Beijing's.

Those cities called upon volunteers from across their civic societies - from tramp to top CEO - to donate time and a helpful smile to the Olympics.

Not so in China.

This column has learnt volunteers are being heavily vetted for their political suitability during a strict recruiting programme run by the Communist Youth League (CYL), a political force of the mainland's aristocratic-like Communist Party.

Bocog's volunteers chief Liu has a dual role. He is head of the Beijing CYL branch - and all three of his deputies hold top posts in the same organisation. Their volunteer recruiting strategy is simple: recruit only young, impressionable, patriotic and party-loyal students from the nation's top universities.

The organising body has signed contracts with more than two dozen Beijing universities and colleges to provide volunteer workers for all 76 Olympic and Paralympic venues, including 31 competition sites.

For instance, students from the prestigious Peking University have been picked to fill the 2,000 volunteer jobs at five stadiums, including the centrepiece, the Bird's Nest.

One can argue that there is no problem in this. But others worry the Olympics will be partly run by an extremely young and inexperienced volunteer workforce who have to cater to the whims of thousands of visitors from around the world.

A recent survey found that a staggering 97 per cent of the 80,000 volunteers already appointed for Beijing 2008 are aged under 35. In Athens 2004, this age group made up 62 per cent of the volunteer workforce, while in Sydney fewer than 60 per cent of volunteers were aged under 45.

If not politically motivated, then ageism is rife in the Beijing 2008 volunteer recruitment drive.

According to two campus recruiters who talked to this column, it is the newly arrived who are keenest to serve the party's call for a "One World, One Dream" Beijing Olympics.

"There has been an overwhelming response from the students to the recruitment campaign, but almost all are freshmen and sophomores," said one recruiter from Peking University.

While acknowledging the encouraging enthusiasm from youngsters towards the games, experts remain cautious about the impact of the trend.

"In previous host countries, volunteers displayed a higher level of commitment and skills than those applicants here in Beijing," Wei Na, the deputy of Beijing Olympics Humanity Research Centre, a government-affiliated think tank, told China News Weekly.

Li Shixin, a Bocog volunteer department official, admitted that 40,000 of the 80,000 volunteers recruited to date were university students - but he insisted Bocog was "sourcing the workforce from a wide spectrum of social backgrounds".

However, a reliable and highly informed source close to the Bocog volunteer department told this column that state-owned enterprise employees and civil servants made up a disproportionate number of the 80,000 volunteers recruits signed up so far.

"It is an unwritten rule during background checks to give preference to suitable students - especially when it comes to volunteers working in the venues," said the source. "Screening is a little bit more relaxed for applicants for the city volunteer jobs, which are usually designated away from the media spotlight areas such as the main Olympic sites.

"But generally, [Bocog] wants to recruit politically predictable and controllable people, and those with connections with the government in their daily life are deemed perfect volunteers. It has nothing to do with whether you are a Party member or not. Instead, it's a matter of whether your life is within the reach of the Party's control."

Government-run Bocog is making sure its volunteers will refrain from any attempt to exploit the media exposure and embarrass the country by voicing any dissent.

The Southern Weekly newspaper recently revealed that Bocog was now training 10,000 plus volunteer drivers - all recruited from government agencies and state-owned enterprises in Beijing.

This workforce will provide commuting services to athletes and their coaches and have access to core areas of each stadium.

"I think the reason they source the volunteer drivers from government agencies is to be sure such that people from this background will not cause trouble," Yu Dayong, an official and an Olympics volunteer from the Beijing municipal government's Agriculture Committee, told the respected current affairs magazine.

However, political correctness is one thing, competence another.

And the mainland's calculated, fail-safe volunteer recruiting programme merely reflects the country's strict day-to-day governance - and the desperate extra efforts being made to project a trouble-free image to the rest of the world during the Olympics.

This begs the question that by narrowing its focus to impressionable students, patriotic civil servants and state- owned enterprise employers, will the quality of the volunteer workforce be affected and the standard of service subsequently suffer?

Like so much of the speculation taking place as the build up intensifies, we'll not know the answer until the party is over in September.


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Trend is no friend


STEVEN XU

Jan 22, 2008           
     
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These days, almost everyone seems to think that, in 2008, the Chinese currency will appreciate faster against the US dollar than in previous years. The arguments for a much stronger yuan seem compelling. China's foreign-exchange reserves - US$1.5 trillion and counting - have roughly doubled in less than three years. Inflation, too, is rising. A stronger currency would be a powerful tool to counter these trends, as it would lower both China's export earnings and import prices. And, in this year of the US presidential election, a faster yuan appreciation would provide China with some political cover from accusations that cheap Chinese exports are destroying American jobs. But the consensus view isn't always right.

Chinese policymakers never cease to be amazed by outsiders' growing criticism that China's forex reform has been "too little, too slow". The yuan, after all, has gained about 12.5 per cent since it was depegged from the US dollar in July 2005. But recently another, more worrying, trend has caught them by surprise. Amid mounting expectations of a faster appreciation, the People's Bank of China (SEHK: 3988) is having difficulty maintaining its policy of a gradual rise. The real problem, though, is that China's economic cycle is increasingly diverging from that of the global economy.

While Chinese authorities are forced to tighten their monetary stance amid concerns about economic overheating, central banks in most developed countries are worried about the ongoing US subprime mortgage crisis and are easing policy. When the global economy was booming, interest rates in the US were about 3 per cent higher than in mainland China. That meant the People's Bank could set the pace of yuan appreciation at 3 per cent to 5 per cent per year, because speculators' gains from the exchange rate would be offset by the interest rate differentials. But this blissful condition disappeared when, in the last quarter of 2007, the US Federal Reserve and the People's Bank found themselves moving in opposite directions. Now, if you bet on a stronger yuan, you could be doubly rewarded with higher exchange and interest rates. People who had been deterred by the interest rate gap are jumping on the speculation bandwagon. That is why the consensus is that the yuan will appreciate faster this year.

The popular view that "trend is your friend" is often wrong, however. Otherwise, it would be too easy to speculate in currencies. Speculators should remember that Beijing can cool the economy by clamping down on bank lending, as well as by raising interest rates.

The People's Bank must do some soul-searching about forex reform. China's annual current-account surplus is between 8 per cent and 10 per cent of gross domestic product, or at least US$200 billion. Even foreign politicians demanding a 30 per cent rise of the yuan agree that China's high savings rate, not its undervalued currency, is more responsible for such immense imbalances. Meanwhile, the rapid build-up in China's forex reserves reflects the dearth of capital outflows. Because of draconian capital controls, the People's Bank is the main buyer and seller of foreign currency in the market. But Chinese central bankers are no better than Chinese firms or individuals at this. The People's Bank should allow the yuan's value to be more market determined, as a deficit in the capital account would offset the current-account surplus.

What about adopting a stronger-currency policy to fight rising inflation? Again, contrary to market consensus, the People's Bank should perhaps not do that. If the US economy slides into recession, that could help check inflation in China. To compensate for falling exports, Chinese firms would rather lower prices than cut production. And if export growth decelerates, the People's Bank will become more wary of a faster currency appreciation.

Ultimately, restricting domestic savers' ability to invest abroad, while pursuing a faster currency appreciation (hence encouraging more capital inflows), is a sure recipe for a bigger asset bubble.

So, the more critical task for Chinese policymakers this year is to allow a genuine relaxation of capital controls.

Steven Sitao Xu is the Economist Intelligence Unit Corporate Network's director of advisory services in China


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Out of sync
Traditional health practices are gaining popularity here despite Beijing's fear of them

BEHIND THE NEWS
Mark O'Neill
Jan 23, 2008           
     
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In April last year Han Guangsheng moved to Hong Kong from Beijing - to teach qigong. The classes at his new centre in Yau Ma Tei are part of a boom in qigong in Hong Kong as more people turn to traditional methods to stay healthy and cure disease.

Part of traditional Chinese medicine, qigong involves co-ordinating breathing patterns with physical postures and movements. Qi means breath or energy: practitioners believe that the body has a field of qi around it that a person can harness to maintain good health and save themselves from illness.

It has a history of thousands of years and has been widely practised in Taoist and Buddhist monasteries in China, and is associated with martial arts and spirituality.

Qigong is flourishing in Hong Kong but is strictly controlled on the mainland. After decades of suppression in the first decades of communism, it began to regain popularity in the 1980s. Dozens of schools sprang up, attracting millions of followers across the country. But their popularity and organisation alarmed the authorities, who remembered how religious movements had brought down earlier dynasties.

The banning of Falun Gong and another spiritual movement, Zhong Gong, in 1999 has stymied the re-emergence of qigong across the mainland - other schools were forced to close colleges and large-scale training programmes and adopt a low profile for fear of being outlawed, too.

In Hong Kong, the opposite is happening. The city's liberal political climate and proximity to China makes it a natural outpost for qigong schools politically sensitive across the border. In Hong Kong, schools can organise as they wish and Falun Gong members can hand out anti-government material in dozens of places.

With the arrival of more teachers like Mr Han, qigong is expected to grow increasingly popular in Hong Kong.

"Hong Kong is a very good place for qigong," says Mr Han. "People are open and have a basic understanding of Chinese culture, including qigong. It is a good form of practice in a busy life and something which you can do anywhere. In addition, the number of old people in Hong Kong is growing."

A professional teacher since 1994, Mr Han belongs to Zhi Neng (Wisdom and Ability), a school founded in 1979 by Beijing teacher Pang Ming.

The last time a survey could be conducted, before the ban on the Falun Gong, it had 6 million practitioners on the mainland and in 30 other countries. Mr Han turned to qigong in 1988 after a car accident left him with broken vertebrae, dizziness and insomnia.

"I spent several years seeing doctors but to no avail. I had given up hope. Zhi Neng qigong cured my illness and gave me back my memory and ability to sleep. It turned my character into one that is open, active, happy and self-confident," he says.

"In recent years, I have trained nearly 3,000 practitioners and cured patients with terminal cancer, diabetes, high blood pressure, coronary heart disease and arthritis. I only turned to Zhi Neng after practising at six or seven different qigong schools. I found it to be the most scientific, efficient, safe and reasonable."

He has taught in Malaysia, Singapore and Shanghai, as well as Hong Kong. One of his students is Chan Yip, 63. "Until 1998, I drove a taxi for 13 years and developed pain in the back that was unbearable. Even sleeping and getting out of bed was painful," Mr Chan says.

Looking for help but unable to pay for expensive medical treatment, he found a book by Pang Ming. Inspired by it, he went to Zhi Neng schools in Hebei province in Qinhuangdao and Shijiazhuang to learn the practice.

"Within a month of practising, the back pain had gone and has not returned. Since then, I have not fallen sick or seen a doctor. My temper improved also. I learnt to control myself better and become more optimistic. Your attitude affects your health."

As part of this life change, Mr Chan gave up driving a taxi and trained as a masseur. He opened a salon providing foot and body massage in Sham Shui Po in 2002, and he or his son are on duty every day of the year.

Another student of Mr Han is Leung Li-feng, 69, who suffered from serious arthritis in her legs. "I found it very difficult to walk and did not know what to do." Like Chan, she went to Zhi Neng schools on the mainland and can now walk normally. Another Beijing teacher who has come to Hong Kong is Liu Tianjun, a medical qigong professor at the Beijing University of Chinese Medicine, where he has been teaching and conducting research for 20 years.

Mr Liu is the only qigong professor in China qualified to guide postgraduate doctoral degree students in acupuncture or tui na (Chinese medical massage). He has also taught and lectured in more than 10 other countries.

"Hong Kong is being chosen as the base for developing medical qigong due to its geographic proximity to China and the facility of language," he says.

Mr Liu is a partner in Beijing Qi Tao Studio, which opened in Central earlier this month to promote education, training and awareness in medical qigong to the local and international communities. He will come to Hong Kong three to five days a months to give medical qigong classes at the studio, charging HK$3,000 to HK$3,500 for a course of six hourly sessions.

The director of the studio, Agnes Tang, says that to achieve results from practising qigong, a seamless combination of expert guidance and regular practice is necessary. Mr Liu will be supported by qualified qigong trainers to ensure learners keep up with the training.

In his inaugural lecture recently to an audience of 30 in a hall in Wan Chai, Mr Liu said when a person fell ill he should first take action to cure himself and only then go to a doctor if his condition deteriorated.

He said that qigong was very much the feeling of your inner state of being: combining body movements, breathing and the mind, one could reach the qigong state. The difference between other forms of exercise and qigong was that normal exercise engaged the body in postures, breathing and mind concentration separately, while qigong training merged the three into one.

Doctors trained in western medicine regard with suspicion claims that qigong can cure illnesses, saying there is no scientific evidence to support this view. They see qigong at best as a form of physical exercise and at worst a kind of fraud through which teachers earn money from vulnerable students.

Qigong treatment is recognised as a medical technique in mainland hospitals of Chinese medicine but is not on the curriculum of those that teach western medicine.

For millions of mainlanders who cannot afford either a western or Chinese doctor, it is often the only treatment available.


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Shared dream of a knowledge revolution


Jimmy Wales and Richard Baraniuk
Jan 24, 2008           
     
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As the founders of two of the world's largest open-source media platforms - Wikipedia and Connexions - we have both been accused of being dreamers. Independently, we became infected with the idea of creating a Web platform that would enable anyone to contribute their knowledge to free and open learning resources.

Almost everybody dismissed these dreams. Now, with the support of untold legions, Wikipedia and Connexions have spread around the globe.

We want to infect you with the dream that anyone can become part of a new movement with the potential to change the world of education. This movement can redefine forever how knowledge is created and used.

Today, some community college students have to quit school because their textbooks cost more than their tuition; some third graders have to share maths textbooks because there aren't enough to go around. But imagine a world where textbooks and other learning materials were available to everyone for free over the Web, and at low cost in print.

Today, language barriers prevent many immigrant parents from helping their children with their homework because the texts are only in English. But imagine a world where textbooks are adapted to many learning styles and translated into myriad languages.

Today, Pluto remains on the list of planets in science textbooks, and who knows how long it will take for it to be removed. But imagine a world where textbooks are continually updated and corrected by a legion of contributors.

Such a world was just a dream a decade ago. But now the puzzle pieces of the Open Education movement have come together, so that anyone, anywhere can write, assemble, customise and publish their own open course or textbook. Open licences make the materials legal to use and remix. Technical innovations make delivering the output technically feasible and inexpensive.

The exciting thing about Open Education is that free access is just the beginning. Open Education promises to turn the current textbook production pipeline into a vast dynamic knowledge ecosystem that is in a constant state of creation, use, reuse and improvement. It promises to provide children with learning materials tailored to their individual needs. Open Education promises new approaches to collaborative learning.

Late last year, in Cape Town, we joined delegates from around the world to reach a consensus on Open Education's ideals and approaches, and committed ourselves to them in the Cape Town Open Education Declaration, which was officially released on Tuesday.

Everyone has something to teach. Everyone has something to learn. Together, we can all help transform the way the world develops, disseminates and uses knowledge. We can help make the dream of Open Education a reality.

Jimmy Wales is founder of Wikipedia and Wikia. Richard Baraniuk, founder of Connexions, is a professor of engineering at Rice University. Copyright: Project Syndicate


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Go with the flow


PETER KAMMERER

Jan 25, 2008           
     
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What do you do if your car is approaching a green light and a small child dashes out in front of you, chasing a ball, just as a 10-tonne lorry is bearing down from behind? The question was posed to me this week by Martin Cassini, a British advocate of a radical traffic management system known as shared space.

In Mr Cassini's perfect world of shared space, such a situation is unlikely to have occurred. For one, there would have been no traffic lights or, for that matter, road signs, white lines separating vehicles and curbs keeping pedestrians on the pavement.

In such a situation, he contended, traffic would have been moving slowly and cautiously, with drivers and pedestrians keeping an eye on one another. Pedestrians, cars, bicycles and whatever else had decided to go out that day would be mingling.

The result, he said, was not chaos, but a sociable community. Streets were livelier, with people interacting, the elderly and disabled being given help, and shops doing better business.

From a traffic perspective, while vehicles moved slower, there was smooth flow, making trips shorter. Exhaust fumes were reduced because vehicles were no longer stopping for traffic signals. Studies show there are considerably fewer accidents.

Since the late Dutch traffic engineer Hans Monderman conceived the idea in the 1960s, dozens of communities in western Europe and more recently in the US, Canada and Australia have adopted it. There are impressive examples, such as at the Seven Dials road junction in London's West End, where seven roads converge at a roundabout with a sundial at the centre and vehicles and pedestrians mix, unhindered by road rules and traffic signals.

When the idea first caught my attention last month in a letter to the editor written by Paul Zimmerman, the founder of Designing Hong Kong, my German upbringing got the better of me. My childhood was governed by rules and more rules - toilet paper had to be torn off a certain way or there would be consequences, and the like - so the idea prompted disbelief. (I have since learned that the German town of Bohmte has adopted and apparently warmly embraced the shared space concept.)

Mr Zimmerman questioned the Transport Department's policy of removing pedestrian crossings so as to create two Hong Kongs - one at ground level devoted to vehicles and the other based around podiums connected by walkways and subways, where people lived and worked. To return life to the streets and reduce accidents, he suggested that crossings be restored as an interim measure to the eventual adoption, where applicable, of shared space.

He told me it would be ideal in new towns such as Tseung Kwan O and Tin Shui Wai. Among urban areas, he determined that around the Lee Garden in Causeway Bay would be ideal.

Knowing how desolate the streets of Central have been made by the walkway network, which is an impersonal rush of people at peak times, the idea is worth exploring. The chance to revitalise urban areas and cut accidents are grounds for trial schemes.

British architect and urban designer Ben Hamilton-Baillie, a specialist in traffic, uses the analogy of an ice-skating rink: Skaters of all sizes and ages interact socially, gliding without rules or signs at varying speeds and rarely colliding.

Pulling down the barriers between people on the streets - whether they are walking or driving a vehicle - would make cities more liveable, he said from his Bristol home. To segregate pedestrians and traffic, as Hong Kong appeared to be doing, was a mistake because it removed them from the civic and social context of their city.

Shared space doesn't work in every setting. Vehicle-only roads are needed to get people and goods quickly from place to place.

Given the benefits, though, there is certainly room for the concept in a number of districts in Hong Kong. If a greater sense of community is to be engendered and the number of accidents involving vehicles, pedestrians and bike riders is to be reduced, it is an idea that must be considered.

Peter Kammerer is the Post's foreign editor

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Outlook: uncertain
Once a barometer of trends, the World Economic Forum has become a mirror reflecting trendy ideas

Dominique Moisi
Jan 28, 2008           
     
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The annual World Economic Forum is rightly perceived as a global "barometer". But the sunshine in Davos recently could not avoid the shadows of the financial crisis that have enveloped the world, casting an atmosphere of gloom and doom on this year's meeting, which ended yesterday. More than ever, the forum's proud motto, "Committed to the improvement of the world", seems disconnected from reality today. It was not confidence that dominated Davos 2008, but rather a sense of impotence, if not bewilderment, at the world's growing complexity.

In fact, Davos is less a barometer that helps us understand the deep trends that are shaping the world than a mirror that reflects trendy ideas, worries and perhaps gossip. From formal debates and informal schmoozing with fellow members of the Davos crowd, one gets a sense of who the American establishment favours to win the next presidential election (Senator Hillary Rodham Clinton), predictions for the upcoming referendum in Ireland on the European "simplified" treaty (it will be very close), and French President Nicolas Sarkozy's international image (not good).

You do not need to go to Davos for this but, in the Swiss mountains, these ideas acquire an aura of legitimacy - call it the "I was told in Davos" imprimatur - which explains why political and economic analysts, and commentators, keep coming back, despite the forum's combination of pomposity and intellectual vacuity. The eminent people who pass through are given opportunities only for sound bites.

As for business leaders, despite the hefty fees they must pay to become members of the "Davos family", they, too, keep coming because for them the forum ultimately represents a time- and money-saving investment. Where else could they meet so many of their potential partners or customers, including heads of emerging states, in one place?

Of course, the danger of Davos lies in this concentrated blend of the chattering classes and the real world of politics and business. Conformism flows naturally from these encounters and creates a world in which everybody tends to think alike, as if a truly global community could create a global way of thinking, even if positions on how to address the current financial crisis are varied.

What is trendy at Davos this year is to view the crisis as reflecting two deep global trends - for example, the declining clout of the United States. After the war in Iraq and the Bush administration's slow reaction to Hurricane Katrina, America's subprime mortgage crisis is perceived by many as simply accelerating the irresistible rise of Asia and the shift from a unipolar to a multipolar world, even if the wider financial crisis will equally affect Asia's growth.

For countries like China or India, the scaling down of growth from 8 per cent to 5 per cent is nearly the equivalent of a recession in the west. Yesterday, when America sneezed, the world caught a cold. Today, when America catches pneumonia, can Asia only sneeze?

The second trend underlined at Davos is the return of the state. In the latest issue of Foreign Affairs, the forum's founder and president, Klaus Schwab, asks: "How can business help save the world?". With the financial crisis hanging over Davos participants' heads, like the sword of Damocles, the question is becoming: "Can states and international institutions save business?"

The return of the state, even when it is the power of the European Commission to sanction Microsoft, is on everyone's lips. Such a return further underlines a growing scepticism about the market and its key players' infectious and dangerous greed.

This trend, if it is confirmed by reality, could signify the end of what Davos stands for: an open, global and transparent world. But is the world ready for a return to protectionist policies and nationalist reflexes? Will today's freedom and transparency, having led to undesired results, result in a return to restrictions on movements of goods, people and capital?

In Davos this year, great hopes have given way to great apprehensions. How can you pretend to be acting to change the world if you no longer understand it?

Dominique Moisi, a founder and senior adviser at Ifri (the French Institute for International Relations), is a professor at the College of Europe in Natolin, Warsaw. Copyright: Project Syndicate


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Incinerator the best option for HK's rubbish


LEADER

Jan 30, 2008           
     
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The government has done what it should have done a decade ago and announced potential sites for a waste incinerator. Tsang Tsui in Tuen Mun and Shek Kwu Chau, south of Lantau Island, have been identified as suitable sites. There are objections from environmentalists or residents to both. Such is the way with waste disposal - no one wants anything to do with rubbish once it is put out for collection. This is why we need an incinerator urgently. Our three landfills will be full within eight years.

Tuen Mun residents have long complained of their district being used to dump Hong Kong's waste - and are now complaining again. The inclusion of Shek Kwu Chau as an alternative raises other issues. It is near fish-breeding grounds and the home of the pink dolphin. Some might even see it as a smart tactical move by the government. The idea of placing an incinerator there will, no doubt, prompt a strong backlash from the green lobby and Lantau activists, making it easier for the government to sell Tsang Tsui to the public as a more acceptable alternative. A fair assessment of both options is needed.

We cannot however ignore the fact that municipalities the world over have adopted burning garbage as the best option. Technology greatly reduces emissions, and enough electricity to power thousands of homes can be generated. Incineration is only effective if it is coupled with recycling, however. Experience elsewhere is that an incinerator can take 10 years to build. Apart from construction, environmental impact studies have to be conducted and objections dealt with. Some form of compensation will be needed, whichever site is chosen. If it's Tuen Mun, perceptions that the district is a dumping ground must be overcome. Providing better sports and leisure facilities in the area would help. In Japan, parks, swimming pools and sports centres have been built next to incinerators, turning them into attractions.

Incineration is not a perfect solution, although it is the best approach in a city with limited land, like ours. The heart of the scheme, however, must be to create a society that is more responsible about garbage. The 17,000 tonnes we produce each day - up 30 per cent from 10 years ago - shows that we are not.


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Fit to burst?
The mainland economy is still on the boil, but inflation and slowing growth spell trouble

Zhang Jun
Jan 31, 2008           
     
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Macroeconomic conditions in any country are like running water. How large and fast is the flow? Where does it originate and where does it go? The "main stream" of mainland China's economy is the vast flow of inward investment. Its economy is prone to rapid growth, with buoyant investment demand sustaining powerful short-term inflationary pressures.

As a result, credit controls on investment projects and a close watch on the money supply have been used to promote macroeconomic stability since China began its market reforms.

But in 2003, following five years of deflation, mainland China's economy entered a new phase. Overcapacity vanished, constraints on consumption were lifted, and a dramatic increase in household demand followed.

Since then, heavy industries - steel, automobiles, machinery, building materials, energy and raw materials - have experienced an unprecedented investment boom, reflecting demand for urban construction, housing, transport, infrastructure and equipment renewal. Not surprisingly, the economy began to overheat.

Productivity and profitability in manufacturing and heavy industries picked up, boosting national savings dramatically. Indeed, the huge increase in the trade surplus in recent years is a consequence not of the yuan's exchange rate, as many believe, but of the domestic savings' increase.

Yet, from 2005 to early 2007, macroeconomic policy was focused on reining in the surplus. Most importantly, the yuan was allowed to appreciate, and the export tax rebate was virtually eliminated.

In early 2007, because inflation was not really visible, the government did not regard it as a major problem. But when price increases accelerated in the second half of the year, authorities began to worry. The People's Bank of China (SEHK: 3988) initially attributed it to excess liquidity, and so resorted to monetary policy, raising interest rates five times since late 2007. As a result, the interest rate for 12-month fixed deposits has reached 3.9 per cent. And the People's Bank has issued Central Bank Notes six times, reinforcing its anti-inflationary effort.

Nevertheless, by the end of October, total money supply had increased 18.4 per cent - growing by 1.3 per cent faster year on year, and exceeding the 16 per cent target. By the start of this year, it was clear that controlling inflation and cooling an overheating economy had become the government's main economic target. Indeed, the government's key economic committee, the Central Work Committee, has concluded that, after years of "high growth and low inflation", China is on a route to "high growth with high inflation". This invariably means that fiscal and monetary stability will become a priority, while controlling the trade surplus has become a lower one.

The problem is that, until now, the major cause of inflation has been rapidly rising manufacturing costs, and there is no sign of a slowdown in energy and raw material prices. A new labour law and income policies will further raise workforce costs. And, due to rising consumer prices, the nominal interest rate will continue to rise. As a result, inflation is likely to continue as investment demand persists.

In the face of growing inflation, output is set to suffer. To curb investment demand, tighter credit rationing and monetary policy are inevitable this year, while investment projects and land use will be subject to more rigorous control.

Likewise, increasing pressure from growing labour costs will force enterprises to lower profit expectations and cut costs, negatively affecting output growth and employment in the short term.

It will be difficult to ease these inflationary pressures this year. International commodity prices will continue to rise, increases in domestic labour costs and prices of non-tradeable goods cannot easily be stemmed, the international economic situation will encourage further capital inflows, and asset inflation will persist. All these factors will push inflation above the 2007 level.

With export performance also set to slow, owing to the economic downturn in the United States, employment and growth could be weakened further, which implies mounting pressure on China's government - and thus on the fiscal deficit, creating another source of inflationary pressure. And, once an inflationary trend emerges and economic growth slows, the steady-as-you-go pattern to China's decade-long boom will be over.

Zhang Jun is director of the China Centre for Economic Studies at Fudan University, Shanghai. Copyright: Project Syndicate


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Tourist plan threatens wishing tree tradition


LEADER

Feb 01, 2008           
     
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Time-honoured traditions and modern enterprises have to be thought through carefully if they are to go hand-in-hand. To put the latter before the former will make a mockery of that which has been so carefully preserved and handed down from generation to generation.

The villagers of Lam Tsuen in Tai Po district should, therefore, not lose sight of the original purpose of their famed wishing tree when moving ahead with development plans. There is no doubt that they are enterprising. But they must ensure that the desire to attract tourists does not cheapen or detract from the tradition their forebears have endowed them with. Last month, the century-old banyan tree at the village was named the most culturally significant of its species in the city. The award after an internet poll was justified: the tree is famed far and wide for its luck-bringing properties. Luck-seekers have for years thrown offerings and messages into the branches of a wishing tree in the village. Sadly, however, the wishing tree has not always enjoyed good luck.

The original tree was burned in a fire in 1998. Its replacement collapsed. The banyan there now has been doing the job for five years. But it, too, has suffered. Three years ago a branch fell down injuring two people. Since then, the practice of tossing objects has been banned. Thankfully, the tree seems to be recovering as a result. But to bring in more tourists, a HK$5 million project will transform an old school into a museum and a banyan of a similar age donated by a businessman will be transplanted from Guangzhou. An artificial tree will be placed nearby so that objects can be thrown into it.

Transplanting an old tree to the village will give visitors a new focus for their wishes. But the move is not environmentally sound. It would be better to move a much younger one there and let it grow to maturity. Such a tree would have more meaning if it had been nurtured and grown in the village. While the wishing tree offers a money-making opportunity, it has to be handled carefully so as not to lose sight of tradition and culture.


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Crisis of confidence as pressure mounts
187 days to go

OLYMPIC COUNTDOWN
Martin Zhou
Feb 03, 2008           
     
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The self-effacing rhetoric issued by Beijing's Olympic machine to counter claims by rivals of the mainland's dominance has reached new heights. No other Olympic host country has spent so much time and effort trying to dash its own medal hopes - repeatedly telling the world its athletes could suffer a slip-up on home turf.

The gentle playdown that started a year ago has slowly been ratcheted-up by government officials. Now they're predicting their athletes will fail to shine on home soil and fall short of their second place in the 2004 Athens medals table.

In Greece, China racked up 32 gold medals, just three behind table-topping US and five more than third place Russia. This was a fluke, according to the new view adopted by the sports ministry.

"Liu Xiang's historic gold medal in the 110 hurdles..? He was lucky," appears to be the curious government line.

What classified files did Cui Dalin, the deputy sports minister, possess when he held a regular briefing with domestic media this week, during which he ordered them to adopt the latest government editorial view?

"America and Russia remain in a league of their own. In Beijing, we will be fighting for third place," he told a small gathering of editors. "The medal haul in Athens was a result of a combination of extraordinary circumstances."

For an administration that uses a huge amount of "official data" to convince and corral its citizens into various decisions, it was somewhat strange to learn of Cui's gloomy prediction - a view which goes against the statistics.

The International Olympic Committee and other official records show the host countries of the last five games performed better at home. Each claimed more medals than in their previous Olympic showing in foreign lands.

South Korea doubled its gold medal count from the six it won at the 1984 Los Angeles Olympics to 12 during the 1988 Seoul Games. Spain stunned the world with a 13-fold increase in gold medals at the 1992 Barcelona Games, having won only a single gold in Seoul. Australia won seven more golds in Sydney 2000 than it did in Atlanta. And Greece won six golds in Athens - two more than it did Down Under.

The United States improved the least with its medal count in Atlanta 1996 - but it still won seven more golds than it did in Spain, up 37 to 44.

This may be so, Cui said, but China "received a miracle" in Athens. The Chinese repeatedly overcame rivals Russia in crunch face-off competitions.

"We ended up with eight gold medals out of eight while Russia settled for eight silvers. Had it not been for that blistering streak, we would not have powered past Russia on the gold medal count," said Cui.

The sports ministry, he said, had studied the Athens stats and come to the conclusion it was a phenomenon unlikely to be repeated. "In all probability, we believe we won't enjoy similar luck in Beijing," he declared.

Cui has a point. China won the eight head-to-head events in Athens by some of the slightest margins in international sports. Team China rallied from two sets down to a 3-2 victory in the women's volleyball final, while veteran marksman Wang Yifu topped his Russian rival by a negligible 0.2 points in the men's 10-metre pistol.

And Meng Guanliang and Yang Wenjun only secured their top podium place in the men's 500m double canoe after a video replay photo finish showed they had edged past their Russian counterparts by a mere 0.164 seconds. "Those were chances of a lifetime," Cui concluded.

Besides the luck and "miracles", he said projections of a medal landslide in August by Western sports officials were flawed.

Sports officials on both sides of the Atlantic have championed a British study carried out last year because - they claim - it provides conclusive evidence the mainland's athletes are gearing up for a whitewash. The British studied the Chinese at various world championships during 2006 and 2007. By calculating the medals won in each discipline and the amount of golds, the study suggested China would top the standings with 45 gold medals - four more than the US. But Cui and his peers claim some of the statistics don't stand up to closer scrutiny.

"[The British study] counted the nine diving gold medals we won at the World Swimming Championships in Melbourne. But only seven of those events are at the Olympics," Cui said. "They also counted the five gold medals our women's weightlifters seized in the 2007 World Championships. However, each country is only allowed to compete in a maximum of four disciplines in women's Olympic weightlifting. There are many more similar errors. When combined they distort the situation."

And the pessimistic Cui says even if China is as strong as Western observers believe, the extraordinary public pressure will backfire and unnerve the home athletes. "Chinese athletes are vulnerable to fluctuations in their mentality," he said.

However, domestic critics are not buying into the sports ministry's doom mongering. Wei Jizhong, a former deputy sports minister, acknowledged the cold water effect helped relieve pressure on athletes. But he warned the excessive modesty will soon start to have a severe demoralising affect.

"I think [the government] is doing this mainly because of an urge to rid themselves of the pressure," says Wei.

Most Chinese sports officials have their promotion and bonuses tied to their athletes reaching Olympic medal targets. Setting the benchmark artificially low would make things easier for them if fiction turns to fact in the summer and China bungles. And he says the extra edge gained by competing at home would help them overcome any nerves on the starting blocks.

"Acclimatisation - a problem for visitors - won't affect us,' says Wei. "Plus we have more coaches, psychologists and have allowed athletes closer contact with their loved ones during training. That is a huge plus in fighting the pressure."


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Economic rigidity a threat to global stability


Simon Johnson and Jonathan Ostry
Feb 05, 2008           
     
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Everyone wants economic stability, and many are reluctant to abandon today what gave them stability yesterday. But trying to obtain stability from rigidity is illusory.

The stability of the international financial system today depends on the willingness of countries with rigid exchange rates to allow greater flexibility. After the international financial crisis of 1997-1998, many emerging markets found themselves highly competitive. Countries that ran significant current-account surpluses, built up large reserves and fixed their exchange rates appeared to secure external stability.

Within a few years, many countries concluded that their exchange-rate pegs could work fine if supported by large enough war chests of official reserves.

There were, of course, some less desirable effects on others. If a considerable fraction of the world economy wants to run a current-account surplus, an equal share must run a deficit. After 1998, the United States provided almost the entire required deficit.

As long as US assets were attractive to residents of surplus countries, (or there was an acceptable chain of investments from surplus countries that ended in the US), these accumulations of reserves were sustainable.

The International Monetary Fund worried about what would happen when this chain broke; the eventual break was more a matter of arithmetic than economics. The US current-account deficit can persist above roughly 3 per cent of gross domestic product only if unrealistic assumptions are made about the share of US assets the rest of the world is willing to hold.

Policy plans announced by China, the euro area, Japan, Saudi Arabia and the US last spring - in the context of the IMF's Multilateral Consultation on global imbalances - represent the world's response to the rising risks. Since then, the sense of urgency has increased.

The US dollar's depreciation helps global adjustment. Yet the pattern of other exchange-rate movements has been largely unrelated to existing current-account positions. This has also shifted the burden of adjustment disproportionately to countries with floating currencies, such as the euro. So, as the US deficit falls, a counter-balancing deficit develops elsewhere in the world - along with real effective exchange rate appreciation.

Knowing what to do is the easy part: look at the Multilateral Consultation policy plans and "just do it". As a recent US Treasury report to Congress says, the plans for China are to "rebalance its economy: boost domestic demand and consumption-led growth; reform its financial system; and achieve greater flexibility in its exchange-rate regime".

But such steps by China will not be enough if other countries do not do their part. Oil exporters must increase fiscal spending; Japan and the euro area must trigger higher growth through structural reforms; and the US must put measures in place to sustain higher savings.


Simon Johnson is economic counsellor at the IMF, and Jonathan Ostry is deputy director of the IMF's research department. Copyright: Project Syndicate


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Spring in Japan, a hard winter for China?


OBSERVER
Tom Plate
Feb 06, 2008           
     
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Snow has been falling on two of the world's greatest cities - lightly on Tokyo, brutally on Shanghai. Whether anything can or should be made of this comparative weather differential is questionable, of course. But suddenly it does seem a lot colder in China than Japan.

Let me explain. The Japanese tend to take the ups and downs of fortune and misfortune - not to mention the weather - with the serenity of time-tempered vision. "Little white flakes are falling on Tokyo, like tiny crystal cherry blossoms," e-mailed a friend, living in Japan's sprawling and slightly snowy metropolis. "It is all very pretty."

It is true that neither the Japanese economy nor polity is getting any prettier, but neither is it getting any uglier. After being nearly frozen solid in the 1990s, the economy warmed up a little during the sunny spring of Junichiro Koizumi's five years as prime minister. And the current prime minister, Yasuo Fukuda, has served Japan with  steadiness and decency in the few months he has been in the post. A generation  beneath him percolates an almost hidden class of tremendous political talent. One  has a sense that the Japanese frost will melt before too long.

By contrast, the recent bad weather over Shanghai virtually shut down parts of the nation, which has been a showcase of the most celebrated economic success story of the past decade or more.

According to Xinhua, almost countless areas were without power, water and transport. Beijing's response was apparently feeble - inviting comparisons to Washington's inept response to the initial emergency in New Orleans when the Hurricane Katrina catastrophe occurred.

The major mess in the world's most populous nation reminds us anew, it seems to me, of the way in which almost everyone in the west (including me) has been somewhat deceived by all the good-weather stories out of resurgent China. Yes, the Chinese economic miracle is no fair-weather happening. But, as the people of greater Shanghai dig out from under the avalanche, what other bad-weather reports has Xinhua  perhaps been under-reporting?

Let's start with some of the known issues. The country is probably, already, the world's biggest emitter of greenhouse gases. Its military build-up remains too secretive for anyone to completely rule out the worst. Mainland China's income gap between the rich and poor may now even top America's. Violent protests of one kind or another exceed 1,000 every week: the people's anger is often over issues of corruption and inequity. The national building boom probably reflects a severe irrational exuberance that may wind up rivalling America's subprime mortgage crisis. And, in November, the bogeyman of all troubled economies surfaced: China posted an 11-year-high inflation rate.

And, like Japan, mainland China's political system has been struggling: the one party-system is perhaps like no other in complexity and lack of transparency. But it does appear riven with internal divisions that make those of Japan's governing Liberal Democratic Party look tame by contrast.

None of this is to detract from the country's phenomenal re-emergence in just the past 25 years. But, as weathervanes go, we should note the snowy ferocity over China compared with the milk minuet mooting over Tokyo. And so I ran my weathervane scenario by my friend in Tokyo: should we read anything profound in the tea leaves of the white avalanche that was falling on parts of China? He recommended we take the long view and respect the recovery capacities and resilience of China as well as Japan. He reminded me that he is something of a major fan of Shanghai itself, about which he joked: "In Shanghai, always remember, the ladies have ways to make everything melt!"

He was not being a sexist - but a historicist. Let me leave it at that.

Tom Plate is a veteran journalist and author, most recently, of Confessions of an American Media Man


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good reading for the weekend though

Honesty the best policy in fight against pollution
180 days to go

OLYMPIC COUNTDOWN
Peter Simpson
Feb 10, 2008           
     
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The building inspectors will be examining the windows panes of Olympic Beijing this weekend following the Lunar New Year fireworks blitzkrieg that turns the capital into a proverbial shock and awe.

The loudest bangs to rattle the double-glazing at the government's Zhongnanhai compound, however, came from unexpected quarters.

One of the greatest athletes of all time, Ethiopian long-distance runner Haile Gebrselassie, lobbed a powerful firecracker over the wall straight into the heart of the Olympic pollution debate.

During a promotional tour with Olympic sponsors Adidas at Beijing Sports University, the 34-year-old marathon world-record holder strayed off the sponsorship message for several laps, much to the annoyance of his PR minders.

He briefed reporters on his greatest fears and his intentions to allay them: "I will not run if I think the pollution will harm my health," he repeated throughout the event.

Self-preservation - Gebrselassie suffers from a breathing condition related to his pollen allergy that forced him to drop out of last year's London Marathon - was not his only beef with China. He said he was concerned the government was paying too much attention to the Olympics while "forgetting about the environment".

The authorities, in partnership with big businesses, are neglecting the health of not just the citizens of Beijing - who " are really suffering" from pollution - but were also failing to safeguard the well-being of the hundreds of millions choking in smog-bound cities across the nation, he alleged.

In the eyes of Gebrselassie, China's sooty hand intertwines as it snakes across continents and oceans with those of other big polluters, the US, India and Europe. "Black rain is falling in Ethiopia," he said, his voice quivering with high emotion.

"What about the flooding in southern Africa? And the [recent, devastating] weather in China? It's the pollution. We must do something," he implored.

He was not implying China was solely responsible for the world's global-warming woes. But he was critical of the country's rush to build "a luxurious life" at the expense of the planet.

The toxic residues in the atmosphere are due to the rapier-like construction of a modern, car-driving, white-goods wanting, electricity-hungry, materialistic state ... and it it's ruining us all, was his message.

The important issue of whether Gebrselassie should use sport and the Olympics to indulge in personal politics - a move in breach of the Olympic Charter - will need to be addressed by the International Olympic Committee (IOC), the International Association of Athletics Federations and his country's National Olympic Committee.

But this explosive, high-profile threat of a face-wrecking Olympic pullout because of the pollution has, like the recent fireworks, rattled Beijing.

The combined force of government Olympic plutocrats at Bocog, flanked left and right by senior IOC officials, has tenaciously defended Beijing's air quality for six years.

It has subdued most headlines following damaging statistics from authoritative and respected bodies, including the World Health Organisation (WHO), that claim China's polluted air is so poor it kills.

China and the IOC have been able to punch above their weight, soaking up attacks from the nosiest of environmental critics without yet declaring what air testing standards will be used come August.

Then up pops Gebrselassie and his declaration to snub the games if the smallest whiff of nitrogen dioxide reaches his nose; he will not wait for the IOC to reschedule races.

Forget fey Hollywood stars calling for a boycott over Darfur, Myanmar or Tibet.

Bocog and the IOC now have a formidable foe on their hands.

A Gebrselassie pullout would become the first iconic protest since the Olympic demonstration by US athletes Tommie Smith and John Carlos, who gave the Black Power salute 40 years ago as they collected their medals. It's what Mexico 1968 is famous for.

To prevent similar controversy and embarrassment, a root and branch description of exactly how, where, when and to what effect China's anti-pollution measures will have in August are needed urgently, because the repetitious platitudes guaranteeing August blue-sky days no longer wash.

If such information is not forthcoming and a diminutive Ethiopian decides to turn into a green warrior and repeat his rhetoric in Beijing in six months time, the world will listen and rally behind him far more than they would environmental scientists waving WHO reports.

For nothing gets armchair liberals watching from afar on the edge of their seats more than the romance of a rags-to-riches African - and an Ethiopian at that - who takes on corporate governments over melting ice caps and acid rain.

Gebrselassie was very critical of the government's short-term measures to save face and artificially clean the air during 16 days of Olympic competition as the world looks on.

However, in reality, the measures are anything but short term, as anyone who has lived in Beijing for a year or more will agree. The city has been amazingly transformed, becoming much greener thanks to the Olympics.

Indeed, Bocog director of the Beijing Olympic Media Centre, Li Zhanjun, spoke frankly and accurately last week. "If you have lived here in recent years, you will have noticed the air quality has improved," he said.

China pledged last year to spend US$200 billion through 2008 to 2010 cleaning up the air and water pollution that has marred its rapid economic growth.

Last August, Chinese media reported Beijing had already spent US$240 million in research and development for "relevant technologies and facilities ... to ensure a green Olympics".

The cost of stopping construction, cutting factory production and taking millions of cars off the roads has yet to be estimated.

But Li and his ilk must speak louder, more often - and here's the rub - more factually and transparently if they are to counter the appeal of this romantic hero.

Though the loneliness of the long distance runner has been well documented over the decades, Gebrselassie can be assured of a great deal of sympathetic company on the Olympic track should he decide to get more mileage out of his green message.


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Korea slips off the radar in US presidential primaries


Donald Kirk
Feb 15, 2008           
     
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US politicians talk incessantly about the Middle East, the US military commitment in Iraq, the fighting in Afghanistan, the hunt for guerillas in Pakistan and violence between Israelis and Palestinians. But they seem to have forgotten about Korea.

No one in any of the televised debates has asked any of the candidates for the Republican or Democratic presidential nominations about North Korea's nuclear weapons. And none of the hundreds of reporters covering all the candidates has raised the issue of North Korea.

As the race to succeed US President George W. Bush narrows, however, speculation mounts as to what each of the major players - Republican Senator John McCain, and Democrats Senator Hillary Rodham Clinton and Senator Barack Obama - would do to persuade North Korea to abandon its nuclear weapons.

The question assumes mounting importance as the conservative Lee Myung-bak awaits inauguration on February 25 as president of South Korea. Mr Lee will fly to Washington after South Korea's National Assembly elections on April 9 in the hope of rebuilding rapport with Mr Bush after nearly a decade of strained relations between the two nations.

Undoubtedly, Senator McCain offers the best hope for going along with a turn to the right in South Korea's policy towards the North. In fact, Senator McCain, arguing for a semi-permanent US troop presence in Iraq, included South Korea on a list of other countries where the US has had troops "for many, many years".

At odds with both Senator Obama and Senator Clinton on the US commitment to Iraq, Senator McCain could be expected to oppose any moves to further reduce the number of US troops in South Korea.

Senator McCain wrote in the American journal Foreign Affairs, "It is unclear today whether North Korea is truly committed to verifiable denuclearisation and a full accounting of all nuclear materials and facilities, two steps that are necessary before any lasting diplomatic agreement can be reached." In future talks, the US must "take into account North Korea's ballistic missile programmes, its abduction of Japanese citizens, and its support for terrorism and proliferation" - all issues that Pyongyang is sure to refuse to discuss.

This outlook is clearly at odds with the conciliatory tone of both Senator Clinton and Senator Obama.

"North Korea responded to the Bush administration's effort to isolate it by accelerating its nuclear programme, conducting a nuclear test and building more nuclear weapons," Senator Clinton wrote in Foreign Affairs. "Only since the State Department returned to diplomacy have we been able, belatedly, to make progress."

Senator Obama has made negotiations a centrepiece of a drive to rebuild alliances. "Needed reform of these alliances and institutions will not come by bullying other countries to ratify changes we hatch in isolation," he wrote in Foreign Affairs. "We belittled South Korean efforts to improve relations with the North."

If either Senator Obama or Senator Clinton wins, a key player in foreign policy may be New Mexico governor Bill Richardson, who dropped out as a rival for the Democratic nomination but would love to be on the Democratic ticket as vice-presidential candidate.

Thus, his article in Foreign Affairs may be just as significant, especially considering that he has visited North Korea several times and has been a staunch advocate of reconciliation. It would, he wrote, "require tough and persistent US diplomacy to unite the world, including China and Russia, behind efforts to contain the nuclear ambitions of Iran and North Korea."

The bottom line, he said, is: "We should remember that no nation has ever been forced to renounce nuclear weapons but that many nations have been convinced to renounce them." He specifically cited Libya - but, clearly, he had North Korea in mind.

Donald Kirk is the author of two books and numerous articles on Korea for newspapers, magazines and journals


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Anatomy of a systemic financial meltdown


Nouriel Roubini
Feb 18, 2008           
     
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A vicious circle is currently under way in the United States, and its reach could broaden to the global economy. America's financial crisis has triggered a severe credit crunch that is making the US recession worse, while the deepening recession is leading to larger losses in financial markets - and thus undermining the economy.

The problem is no longer merely subprime mortgages, but rather a "subprime" financial system. The housing recession will eventually see house prices fall by more than 20 per cent, with millions of Americans losing their homes. Delinquencies, defaults, and foreclosures are now spreading from subprime to near-prime and prime mortgages. Thus, total losses on mortgage-related instruments - including exotic credit derivatives such as collateralised debt obligations (CDOs) - will total more than US$400 billion.

Moreover, commercial real estate is beginning to follow the downward trend in residential real estate. After all, who wants to build offices, stores and shopping centres in the empty ghost towns that litter the American West?

In addition to the downturn in real estate, a broader bubble in consumer credit is now collapsing: as the US economy slips into recession, defaults on credit cards, auto loans and student loans will increase sharply. With private consumption representing 70 per cent of aggregate US demand, cutbacks in household spending will deepen the recession.

We can also add to these financial risks the massive problems of bond insurers that guaranteed many of the risky securitisation products such as CDOs. A very likely downgrade of these insurers' credit ratings will force banks and financial institutions that hold these risky assets to write them down, adding another US$150 billion to the financial system's losses.

Then there is the exposure of banks and other financial institutions to rising losses on loans that financed reckless leveraged buyouts (LBOs). With a worsening recession, many LBOs that were loaded with too much debt and not enough equity will fail as firms with lower profits or higher losses become unable to service their loans.

Given all this, the recession will lead to a sharp increase in corporate defaults. During a typical recession, the default rate among corporations may rise to 10-15 per cent, threatening massive losses for those holding risky corporate bonds.

As a result, the market for credit default swaps - where protection against corporate defaults is bought and sold - may also experience massive losses.

On top of all this, there is a shadow financial system of non-bank financial institutions that, like banks, borrow short and liquid and invest in longer-term and illiquid assets. Like banks, these financial institutions are subject to liquidity or rollover risk - the risk of going belly up if their creditors do not rollover their short-term credit lines. But, unlike banks, they lack the safety net implied by central banks' role as lender of last resort.

Finally, in a typical US recession, the S&P 500 index falls by an average of 28 per cent as corporate revenues and profits sink. There is thus a broader risk that many leveraged investors in both equity and credit markets will be forced to sell illiquid assets in illiquid markets, leading to a cascading fall in asset prices.

The ensuing losses will aggravate the financial turmoil and economic contraction.

Indeed, adding up all these losses in financial markets, the sum hits a staggering US$1 trillion. Tighter credit rationing will then further hamper the ability of households and firms to borrow, spend, invest and sustain economic growth. The risk that a systemic financial crisis will drive a more pronounced US and global recession has quickly gone from being a theoretical possibility to becoming an increasingly plausible scenario.

Nouriel Roubini is professor of economics at the Stern School of Business, New York University


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Growth industry


REGINA IP

Feb 18, 2008           
     
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Those who bemoan the endemic narrowness of Hong Kong's mono-focused, financial services-oriented economy should take heart: new industries are sprouting in the most unlikely terrain - politics. A decade ago, parents would wince if their kids declared they were going into politics. Now talent rushes in where angels feared to tread. What caused the sea change?
The reason is not hard to surmise. For the more than 150 years that Hong Kong was a colony, bureaucrats called the shots and the route to power lay in joining the government or getting appointed as a legislative or executive councillor. Despite the modest beginnings of democracy in the last two decades of colonial rule, the election of the chief executive by universal suffrage looks set to happen in 10 years' time. Electoral politics inevitably involves building the electoral "machinery". Here are a few examples of new political industries spawned by electoral democracy.

Those who have contested an election know a picture speaks a thousand words. So a prospective candidate's first task is to get his or her photo right. This requires an image consultant, a photographer who can capture your best profile and a poster designer who can breathe new life into humdrum publicity material. Of course, you need advice from campaign strategists and speech writer on how to get your message out.

Witness the "defining" slogans in the on-going American presidential campaign - Senator Hillary Rodham Clinton's "I'm In to Win" and "Ready for Change, Ready to Lead"; Senator Barack Obama's "Yes We Can"; and Senator John McCain's "Straight Talk Express" followed by "Mac is Back!" No matter how much you disdain such canned wisdom, a candidate must come up with something catchy that becomes a talking point with the media and voters.

Political speechwriting is certainly a skill in short supply among the government's cr�me de la cr�me that is members of the Administrative Service trained to write precise Executive Council memoranda and bland Legislative Council briefs. Local candidates have few occasions for making stump speeches, but televised debates, the ineluctable highlight of any election, are bound to require a certain amount of political speechifying. Then of course you need media trainers skilled in throwing the most hostile or improbable questions at candidates, and whipping them into shape for local TV debates in the showbiz format of TVB (SEHK: 0511)'s Enjoy Yourself Tonight. For your campaign handouts, you need specialty printers familiar with campaign rules or who might even provide one-stop service that includes labelling and sealing the materials according to stringent specifications.

If the list above is not sufficiently daunting, there are other requirements. Again going on the US experience, you need political organisers to collect celebrity endorsements or deliver "block votes" (like those that saved Senator Clinton in New Hampshire and elsewhere); recruiters and organisers of volunteers for distributing publicity material and canvassing on the street in the run-up to polling day, and to attend polling stations for the counting of votes. A campaign for a geographical district like Hong Kong Island, easily needs 2,000 volunteers. Then after polling, you need contractors to help remove banners and posters.

Again, if the US experience is any guide, you need political bloggers to spread your message, cover your flanks or protect your soft belly online. Although Hong Kong candidates have yet to engage super-attractive sales-persons like the Obama girl, interesting videos have proved a big draw and I, for one, found YouTube and Facebook unexpectedly effective political tools.

You will also need staff for polling and exit polls. In the last Legco by-election, pollsters who teamed up with the media to do rolling polls amassed so much influence and profit that they could hardly blame others for jumping on their bandwagon.

There you are. Politics does spawn new industries and can be profitable. So if you're one to shun politics: think again.

Regina Ip Lau Suk-yee is chairperson of the Savantas Policy Institute

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The missing link
Incoming South Korean President Lee Myung-bak needs to spell out his vision of the US alliance

Ralph Cossa
Feb 20, 2008           
     
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The inauguration on Monday of Lee Myung-bak as South Korea's new president opens the door for a revitalisation of the country's alliance with the United States. This relationship has been severely tested and strained in recent years, as a result of policy differences and more fundamental "vision" differences between Washington and Seoul.

An increasingly pragmatic approach towards the Korean Peninsula on the part of Washington, and the advent of a more conservative, pro-alliance government in Seoul, makes improved relations more likely and perhaps even somewhat easier to achieve, but by no means assured. If the alliance relationship is to be truly revitalised, both sides need to take some decisive steps, sooner rather than later.

Mr Lee has already said that he plans to place increased importance on alliance maintenance and that he understands the centrality of the relationship to the security of the peninsula.

But what is missing, in both Seoul and Washington, has been a clear articulation of the continued rationale and vision for the alliance both today and after eventual North-South reconciliation or reunification. Such a vision existed, and was clearly articulated, during the Kim Dae-jung and Clinton administrations, but has not really been spelled out since then.

The last time that presidents Roh Moo-hyun and George W. Bush held a summit meeting, they did not even issue a joint statement. The time before that, they issued a vague statement that focused more on multilateral co-operation than on the future relevance of the bilateral relationship. One would hope that Mr Lee, shortly after his election, would issue a broad vision statement about South Korea's desired future role in Asia, and the world, and how the US alliance fits into this vision.

Mr Kim used to argue publicly and persuasively that South Korea had to maintain good relations simultaneously with its four giant neighbours - China, Japan, Russia and the United States. He said that the best, perhaps the only, way this could be accomplished was through the continued viability of the alliance with the US, which provided Seoul with the necessary security assurances to deal with its other three, more immediate, neighbours. The US, in effect, was the "outside balancer" that made Northeast Asian harmony possible. This was true in the near term, when faced with uncertainty regarding North Korea's future direction and behaviour; it would be equally, if not more, true were North Korea to either disappear or become somehow incorporated into a greater Korean confederation or unified nation under the political, economic and social system existing today in the South.

Does Mr Lee see the future in similar terms? If so, he needs to articulate his vision at any summit meeting with Mr Bush. This would then set the stage for a joint statement articulating a common vision for the alliance and its future role and relevance.

Mr Lee appears to have already reconsidered his earlier plan to dismantle the Unification Ministry and incorporate it into the Ministry of Foreign Affairs and Trade. This is regrettable but understandable, for political reasons. But it was not the existence of the Unification Ministry that caused so many problems over the past five years. It was the tendency of its various ministers to make statements that undercut the Foreign Ministry's many attempts to speak with one voice with Washington in dealing with North Korea.

The Bush administration had an equally difficult time speaking with one voice on Korea during its first four years, as the Vice-President's Office continually undercut the State Department's efforts to reach accommodation with North Korea. Fortunately, Mr Bush has exercised long-overdue leadership in placing his faith and support behind Secretary of State Condoleezza Rice and her top North Korea negotiator, Assistant Secretary of State Christopher Hill. One of Mr Lee's most important early tasks will be to ensure that his foreign and unification ministers speak from the same page.

Mr Lee has already said the right things: that his government will remain committed to North-South engagement - indeed, he has even pledged to raise the North's gross domestic product sixfold (to US$3,000) within 10 years - but only if Pyongyang honours its denuclearisation pledges. This dovetails nicely with Washington's stated position that stresses the potential pot of gold that awaits the North at the end of the denuclearisation rainbow.

There are many other issues to be addressed. Many Lee supporters want to revisit the decision to switch wartime operational control of South Korean forces from the Combined Forces Command (led by a US general) to South Korea by 2012. There is a need for contingency planning in the event of a North Korean collapse or rejection of the denuclearisation pact. The two sides also need to craft a consistent policy on North Korean human rights.

Moving forward on the Korea-US Free Trade Agreement will also have implications for the health of the alliance. Here, Mr Lee has an easier task than Mr Bush, given the politicisation of FTAs.

The essential first step is to craft a unified joint vision of how the alliance fits into Mr Lee's broader vision of where he wants to take South Korea.

Ralph Cossa is president of the Pacific Forum CSIS, a Honolulu-based non-profit research institute affiliated with the Centre for Strategic and International Studies in Washington. Distributed by Pacific Forum CSIS


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Sky's the limit
Asia will lead demand for new planes in the next 20 years, making its airline fleets a major source of pollution

Michael Richardson
Feb 21, 2008           
     
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As competition among airlines in Asia and other parts of the world intensifies, an ever-growing mass of people finds it convenient to travel by air for business and leisure. But the rapid growth of commercial aviation is having a significant impact on global warming - and Asia, the world's fastest-expanding market for air travel, is starting to feel the heat.

In its latest forecast of aviation growth, European aircraft maker Airbus said earlier this month that the world's fleet of large passenger jets (more than 100 seats) will double in the next 20 years, to nearly 33,000 aircraft. It predicted that passenger traffic will rise by 4.9 per cent per year between 2007 and 2026, almost trebling in two decades as airliners get bigger and more people fly on them. Air freight will grow even faster, by 5.8 per cent annually.

The greatest demand will come from the Asia-Pacific region, where airlines will take delivery of 31 per cent of new planes in the next 20 years, compared with 24 per cent for Europe and 27 per cent for North America. According to Airbus, the air transport industry contributes just 2 per cent of global man-made emissions of carbon dioxide, the main gas blamed for global warming. But it acknowledged that a big rise in the number of planes would mean more greenhouse gas emissions and therefore increased pressure on makers of aircraft and their engines to cut pollution.

Critics claim the airline industry is underestimating its contribution to global warming. They also say that while improved engine design and other technological advances will continue to reduce airline pollution, these gains will be offset by the sheer growth of aviation, particularly in Asia, Europe and the US.

Reacting to concerns about climate change, Europe has drafted controversial plans to make all airlines flying in to and out of the bloc buy pollution permits. The European Commission, the executive arm of the European Union, proposed last month that airlines using EU airports would be included in the bloc's emissions trading scheme from 2012, with a cap on their greenhouse emissions like carbon dioxide, nitrogen oxides and water vapour. The scheme, if approved by the European Parliament and the 27 member-states of the EU, will require airlines to gradually buy emissions certificates at auction, starting with 20 per cent of permits in 2013 and rising to 100 per cent in 2020.

EU environmental officials have promoted the airline bill as a centrepiece of Europe's campaign to lead the world in reducing greenhouse gas emissions. But the US government and many airlines insist there should be an international agreement first. They warn that without it, European airlines risk retaliation as third countries deny them access or impose punitive taxes while non-European airlines shun Europe as a hub for long-haul flights. Airlines also say the EU action could cost billions of euros and drive up ticket prices.

But the pressure outside Asia for tighter curbs on global warming emissions from passenger and freight aircraft is growing. In December, in the US, a coalition of state governments, cities and environmental groups petitioned the Environmental Protection Agency, urging it to address the effects of vast amounts of global warming pollution from the world's aircraft fleet. The petitions are the first step in a process that requires the agency to evaluate the current impact of aircraft emissions, seek public comment and develop rules to reduce aircraft pollution or explain why it will not act. The coalition says that aircraft currently account for 12 per cent of carbon dioxide emissions from US transport sources and 3 per cent of the total US carbon dioxide emissions. The US is responsible for nearly half of worldwide carbon dioxide emissions from aircraft.

However, a recent report by Britain's Royal Commission on Environmental Protection found that the net effects of ozone, aircraft condensation trails and aviation-induced cloud cover is likely to triple the warming effect of carbon dioxide emitted by aircraft. The report concluded that, if these estimates are correct and the anticipated growth in aviation occurs, aviation may be responsible for between 6 per cent and 10 per cent of the human impact on climate by 2050.

The Asian aviation industry needs to take note of these trends and developments, and move from a reactive to a proactive mode. Staying silent and adding nothing to the growing debate over aircraft pollution and climate change will simply mean that other players act to set the rules governing future air travel.

Michael Richardson works on energy and climate change issues at the Institute of Southeast Asian Studies in Singapore. This is a personal comment

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Sharks' finale?


PETER KAMMERER

Feb 22, 2008           
     
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My culinary experiences of shark's fin soup have been resoundingly disappointing. Each spoonful has been fragrant with herbs, salty with ham and chicken broth and the texture of the fin chewy; but beyond that - nothing to write home about. The problem is that the shark fin fibres, known as needles, are tasteless. Excuse my not being a connoisseur, but to my ignorant mind, a synthetic material of the same texture and colour would do the job for a fraction of the price (and among unscrupulous restaurateurs, does).

With this in mind, why are scores of the world's shark species being driven to extinction because of the hunger of Chinese communities for this expensive delicacy? Yes, I know there are centuries of tradition and saving face at important occasions at play, but putting the balance of the ocean's ecosystems in limbo when there are alternatives seems, at best, reckless.

That said, I am not about to advocate banning shark's fin and using substitutes. Rather, I prefer the wisdom of shark experts Julia Baum, of Scripps Institution of Oceanography, and Shelley Clarke, of Imperial College London, who contend that the world needs better shark fishing management, and education.

Dr Baum, a member of the shark specialist group of the World Conservation Union, said at the American Association for the Advancement of Science annual meeting in Boston last weekend that sharks are top of the list of marine fish that could become extinct in our lifetimes. A total of 126 of the estimated 400 species are already on the union's red, or alert, list and at least nine more are to be added - the once-common scalloped hammerhead to the fourth-highest category, endangered.

For Dr Baum, the scalloped hammerhead's inclusion is shocking because it was once considered immune to the effects of overfishing as it was so widely distributed. Over the past 30 years, numbers in some parts of the world have fallen by 98 per cent.

The reason for the decline of the species and other shark populations is in that bowl of shark's fin soup I was so nonplussed about. Once reserved for the rich, the rise of a middle class in mainland China over the past two decades has led to exploding demand.

Fish stocks the world over are being strained, so the fact that sharks are also affected may not seem unusual. Dr Clarke said in Hong Kong on Tuesday that sharks were problematic because little was known about their numbers even though they are the top marine predator. Unlike for commercial fish, like tuna, there is no organisation that regulates shark fishing. This, in turn, means that no one really knows how many there are. Only when a species like the scalloped hammerhead is noticeably less prevalent do we get an idea.

Much is known about the reproductive cycle of a number of shark species, though. They take considerably longer than other fish to mature - anywhere between four and 25 years.

As Dr Baum explained to me, the decrease in shark numbers is worrying because their loss to an ecosystem is unknown. Limited research suggests that marine environments become degraded, with resulting uncertainty for fisheries.

This is regardless of the cruel - and again, unregulated - practices of many of those catching sharks. Because the fins are the only valued parts, they are often cut off on the spot and the fish thrown back into the sea to bleed to death.

In light of China's ever-rising desire for shark's fin soup, Dr Baum and Dr Clarke sensibly seek the regulation of shark fishing. Because tuna trawlers so often also catch sharks, perhaps the world's tuna commissions should be in charge.

In conjunction, though, curbing demand is also needed, given that sharks do not repopulate quickly. Chinese basketball star Yao Ming's joining of the environmental group Wildaid's public awareness campaign on shark's fin is a start, as was the running of five people wearing shark suits at last weekend's Hong Kong marathon. Rising demand obviously means such efforts are not enough, though. Determining accurate shark numbers and introducing fishing quotas is, in such circumstances, essential.

Peter Kammerer is the Post's foreign editor

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Product of our times


KITTY POON

Feb 25, 2008           
     
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The death of veteran comedienne Lydia Shum Tin-ha took away some of the media glare, albeit briefly, from the celebrity sex-photos scandal that has rocked the city for weeks. Interestingly, the outpouring of grief over Shum's death contrasts sharply with the anger expressed towards Canto-pop star Gillian Chung Yan-tung, whose nude photos were viewed by thousands of netizens, and her morality condemned by parents and fans.

Though both are women, Shum has seemingly "arisen" from her deathbed, as her symbolism reaches new heights, while Chung's reputation is "dying", even though she is very much alive. Beneath the mourning for Shum and the shaming of Chung lies some conventional wisdom: we know how to differentiate good women from bad.

But do we really? Those who care little about Chung's misery argue that she has only herself to blame. First, she was wrong not to live up to her image as an innocent and adorable girl, an icon for many children and adolescents in Hong Kong. Second, she was wrong to have allowed herself to be photographed in such a manner, causing a frenzy in cyberspace and a fight between netizens and the police. Third, Chung was wrong to have offered no apology for the trauma she has caused to our disillusioned young people and for the subsequent disarray among the public.

But should she alone be held responsible for all these faults?

In reality, the innocent Chung is a creation of commercial needs. The logic of popular culture determines that illusory persona are produced to maximise profits. Masterminded by the entertainment industry, Chung's public image was nothing but a fabrication for the purpose of making money. Chung may be blamed for having complied with the conspiracy of inventing an unattainable ideal but, most likely, she is merely a tool of the entertainment industry.

Interestingly, Chung's fall from grace is also underpinned by a commercial logic. Shattering the reputation of a public icon can be just as profitable as creating one anew. Local newspapers and magazines enjoyed a boost in sales while feeding us many of the photos in the name of upholding freedom of information and protecting moral order.

Behind the sex-photos saga lies a huge market for flawless and girlish idols. Unlike their parents, who look up to war heroes and political leaders, youngsters today search for role models in the entertainment world.

The saga has raised important questions for both parents and teachers. Have they detected the danger of excessive worship of pop stars, and done enough to prevent unrealistic expectations of entertainment celebrities?

One of the most effective ways to protect youngsters from bad influences is to dispel false illusions. The loss of youngsters' innocence may be harsh, but it might be the only solution in the age of mass communication.

Behind this episode also lies a legal battle between netizens and police. Some internet users want to test the blurry legal boundaries of decency. In doing so, Chung and other figures in the photos have become mere pawns. Like any war, this one is being fought without regard for the feelings and consequences for those involved. Yet, somehow, Chung and the other women in the photos are seen as the source of trouble.

Unlike Chung, Shum lived up to her image throughout her life. She was not only a devoted comedienne, but also a virtuous woman who embodied the qualities of generosity, caring and assiduity. Raising her only daughter single-handedly, Shum appealed to our deep-rooted perception of ideal Chinese womanhood.

No doubt there will be a sense of relief when the sex-photos saga ends. But there may well be unresolved issues, including our reaction to media icons, their underlining economic and socio-psychological factors, and gender stereotypes.

Kitty Poon, an assistant professor at the Hong Kong Polytechnic University, is author of The Political Future of Hong Kong. [email]kittypoon@netvigator.com[/email]


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Australia finds a new role as Sino-US matchmaker


Greg Barns
Feb 26, 2008           
     
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Every year, Australian and US defence and foreign affairs ministers and advisers discuss security issues and how they both see the world. Last weekend, US Defence Secretary Robert Gates and the influential Deputy Secretary of State John Negroponte met newly elected Prime Minister Kevin Rudd, Defence Minister Joel Fitzgibbon and Foreign Minister Stephen Smith in Canberra to do just that. But this meeting was different: an occasion for Australia to show off its diplomatic middleman credentials.

A nation like Australia is, with its strong historical links to the US and its burgeoning economic and strategic relationship with China, well placed to perform a unique role - that of defusing the often tense atmosphere that characterises the Sino-US relationship. Under the previous administration of conservative prime minister John Howard, the interests of the US and Australia occasionally diverged. But, generally speaking, the personal closeness between Mr Howard and President George W. Bush stopped Australia straying too far from the American line on China.

But now that Mr Rudd is in charge, and Mr Bush is on the way out, that dynamic is changing. As was evident over the course of discussions between the two countries over the weekend, Australia clearly has a role to play in facilitating a more positive relationship between Washington and Beijing.

Mr Negroponte admitted that he and his colleagues were using the talks to learn from Australia about how to deal with the Chinese, particularly given Mr Rudd's extensive knowledge of China and his enviable list of contacts in Beijing. "Exchanging views and analyses about the relationship with China" was high on the list of things to be discussed with Mr Rudd and his ministers, Mr Negroponte said late last week.

And Mr Smith took the opportunity of the talks to help his US colleagues understand that dealing with China is not simply a case of love 'em or hate 'em. "It can be a win-win," he said after the talks. "We can have a very good economic relationship with China, which doesn't adversely impact upon our relationship with the United States. On the contrary, we encourage the US to have a good, positive, constructive dialogue with China."

And it would appear that the Americans were listening. "I don't think there's anything incompatible with developing an economic relationship with China and also managing our bilateral relationship and the alliance," Mr Negroponte said. In other words, it is in American's interest that one of its closest allies gets on so famously with an emerging superpower in the form of China.

To put the weekend's events in context, one could argue that it is high praise indeed for senior members of the US government to be overtly seeking the assistance of a middle-ranking nation like Australia on the vexing issue of engagement with China.

There are some immediate issues where Australia could perform this middleman role. One that springs to mind is dealing with the disquiet in the US over the extent to which China is building up its military and nuclear capacity. The US thinks the Chinese are up to no good and they have some cause to say so. Blocking access by US warships to Hong Kong, as Beijing did in November, doesn't help matters.

Over the weekend, Mr Smith observed that he has already asked the Chinese to be more transparent about the extent of their military modernisation programme. Hopefully, the Chinese will listen. And, no doubt, Mr Rudd sees that he is well placed to help the Chinese and the Americans co-exist more comfortably in the Asia-Pacific region.

There has never been a better time for Australia to assert a genuine middleman role, given the respect in which it is held in Beijing and Washington. It has made a good start.

Greg Barns is a political commentator in Australia and a former Australian government adviser


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When experience is not the best teacher


David Ignatius
Feb 27, 2008           
     
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"When it comes to foreign policy, experience is a highly overrated asset." So says a former British foreign service officer named Jonathan Clarke, who has created a blog called theswoop.net that has dedicated itself to undermining Washington's fondness for conventional wisdom.

What he means is that the set of issues and strategies that shaped the cold war generation has passed. The intellectual matrix formed by the Soviet threat, and before that by Hitler's rise in Germany, needs to be reworked. There is a new set of problems and personalities - and if America keeps trotting out the same cast of characters and policy papers, it will fail to make sense of where the world is moving.

The experience issue will dominate the final weeks of the Democratic primary campaign. Senator Hillary Rodham Clinton's only remaining trump card is that she has been in the White House before and will be ready, as she repeats so tirelessly, from Day One. But ready for what? A recapitulation of the people and policies that guided the country in the past? That's attractive only if you think that the world of the 1990s - or 1980s or 1970s - can be recreated.

The experience gap will overshadow even more the election race against Senator John McCain, the presumptive Republican nominee. With his every sinew, Senator McCain embodies the idea of a wise, battle-tested, cold-war fighter pilot who can protect the nation in a time of danger.

The assumption that experience equates with good judgment is a hard one to shake. Yet, if ever there were a test of the efficacy of experience, it was the Bush administration's decision to go to war in Iraq and its management of the post-war occupation. The president's national security advisers were arguably the most experienced in modern times. But their performance was often poor.

America is the last major nation to make the transition from cold-war thinking to something new. China and India are rising thanks to new leaders who understand how to succeed in global markets; Russia is about to elect a new president whose formative experiences came after the fall of the Soviet Union; even Fidel Castro, perhaps the iconic survivor of the cold war, has decided to step down. Only in America could Senator McCain seriously campaign for leadership as a symbol of the past.

Now, imagine Senator Barack Obama's first trip abroad as president - the crowds in the streets of Moscow, Cairo, Nairobi, Shanghai, Paris, Islamabad. Then, try to imagine the first visit by President John McCain to those same cities. Senator McCain is a great man, and he would be welcomed with respect, deference, perhaps a bit of fear. Senator Obama would generate different and more intense reactions - surprise and uncertainty, but also idealism and hope. Which image would foster a stronger and safer America?

Senator Obama's inexperience may, paradoxically, actually bolster one of his core arguments - that he would give America a fresh start.

David Ignatius is a Washington Post columnist


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End of the Age of Milton Friedman


J. Bradford DeLong
Feb 29, 2008           
     
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Harvard professor Dani Rodrik - perhaps the finest political economist of my generation - recently said that a colleague had been declaring the past three decades "the Age of Milton Friedman". According to this view, the accession to power of Ronald Reagan, Margaret Thatcher and Deng Xiaoping led to an enormous upward leap in human liberty and prosperity. Is that true?

Friedman adhered to five basic principles: First, strongly anti-inflationary monetary policy. Second, a government that understood it was the people's agent and not a dispenser of favours and benefits. Third, a government that kept its nose out of people's economic business. Fourth, a government that kept its nose out of people's private lives. And, fifth, an enthusiastic and optimistic belief in what free discussion and political democracy could do to convince people to adopt the other four principles.

Measured against these principles, Reagan failed on the second and fourth, and adopted the first only by default. Baroness Thatcher failed on the fourth principle. And Deng - while a vast improvement over Mao Zedong - failed on all five, with the possible exception of the third.

In any case, I believe that Friedman's principles do not, ultimately, deliver what they promise. My own principles would start from the observation that market economies, and free and democratic societies, are built atop a very old foundation of human sociability, communication and interdependence, and from economic anthropologist Karl Polanyi's observation that the logic of market exchange puts considerable pressure on that foundation.

Rightly or wrongly, we have more confidence in political decisions made by democratically elected representatives than in the unanticipated consequences of market processes. We also believe that government should play a powerful role in managing the market to avoid large depressions, redistributing income to produce higher social welfare, and preventing pointless industrial structuring produced by the fads that sweep the minds of financiers.

Indeed, there is a conservative argument for social-democratic principles. Post-second-world-war social democracy produced the wealthiest and most just societies the world has ever seen.

Friedman would respond that, given the state of the world in 1975, a move in the direction of his principles was a significant improvement. When I think of US president Jimmy Carter's energy policy, Arthur Scargill at the head of the British mineworkers' union, and Mao's Cultural Revolution, I have a hard time disagreeing. But there I would draw the line: while movement in Friedman's direction was, by and large, positive over the past generation, the gains to be had from further movement in that direction are far less certain.

J. Bradford DeLong is professor of economics at the University of California at Berkeley and a former assistant US Treasury secretary. Copyright: Project Syndicate


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An eye for a gold medal
159 days to go

OLYMPIC COUNTDOWN
Martin Zhou
Mar 02, 2008           
     
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Diving makes a huge splash in the psyche and the strategic Olympic game plan for the sporting powerhouse of China.

Competitive diving is seen as the jewel in the crown by many in the mainland - and for good reason. Out of the total 112 gold medals the country has collected at six Summer Olympics, the national diving squad has mined 20 precious medallions from the diving pool.

During the diving World Cup last week in Beijing, also designated as an Olympic test event, enthusiastic spectators thronged the iconic Water Cube arena.

The "Dream Team" bagged seven of the eight golds on offer. Who, many asked as they watched in admiration , can prevent a fantasy coming true and complete sweep in six months?

But as with all fantasies, nothing is as it really seems. The almost-superhuman success of the divers is coming at a physical price, according to medical experts.

A thesis published in the November 2007 edition of Chinese Sports Medicine revealed that 26 of the 184 divers selected for the national team between 2000 and 2006 suffered from serious "retina ailment", a condition that can lead to blindness.

Of the 26 inflicted with the dangerous condition, 20 were 10-metre high-platform specialists, the survey - carried out over six years - claimed.

The report made detailed data about the damage wrought on divers by the harsh training regime public for the first time, and was carried out by a joint group of physiologists from the State General Sports Administration and Beijing Tongren Hospital.

They blamed excessive pressure on divers' eyes upon water entry - especially in the higher 10m platform events - which caused an unusually high incident of torn or even detached retinas.

The article also claimed the divers' relentless "immerse-and-reemergence" in and out of the pool's chlorinated water also contributed to the injury.

Some notable names among the casualties are Hu Jia, the Athens 2004 10m platform winner, and Guo Jingjing, arguably the most popular women's athlete on the mainland with two Olympic gold medals.

Hu told the media last December that at one stage after his retina detachment diagnosis in 2005, doctors warned him if he continued his career, he would eventually lose his sight.

Even before the survey began, Hu's worsening injury mirrored that suffered by Sun Shuwei, the 1996 men's 10m platform gold medallist. His career ended when his left retina became detached - a symptom that is surgically reversible if diagnosed early enough.

However, the condition often goes unnoticed until it's too late.

Xiao Hailiang, half of the team winning the synchronised springboard event in 2000 alongside Xiong Ni, was also forced to retire after his retina became too severely damaged to be treated.

The report made few headlines in the domestic media and any serious concern was played down. And it failed to answer if this was a common threat to all divers from all nations or unique to the Chinese.

The foreign coaches and team doctors who spoke to the Sunday Morning Post (SEHK: 0583, announcements, news) at last week's World Cup said the problem was unique to China.

"The pressure on the eyes jumping from the 10m platform is 850 times higher [than that experienced naturally]," said German team doctor Sabine Krueger.

"Eyes get hurt only among those who have an extreme defect in the first place. I have not heard of such a high number of [detached retina] cases among our divers," he said, adding that the German diving system screened out those who were susceptible to the condition.

Team Canada performance director Mitch Geller said: "We had the odd one or two with such injuries but they were isolated cases. I believe this is the same experience among my European colleagues."

Geller said he believed over-training was only one cause of the high injury rate among the Chinese team.

"I'm not sure if it's something genetic or a result of [excessive] training volume," he said. "Chinese divers tend to train much more than the rest of us."

Most international divers train for 20 hours a week. Chinese divers, at national and provincial level, train for five to six hours a day, six days a week from an early age.

Xinhua reported last week that every member of national team made 60,000 dives a year on average - a figure released by proud national team officials eager to showcase to the mainland public the sacrifice the athletes make in return for Olympic glory.

The mainland doctors' thesis suggested the young entry level might be doing as much harm as over-training.

"We found that more than half of the divers with the injury began training before the age of eight," the thesis reads. "It suggests those who start practising diving at an early age are more prone to retina injury later in their career."

But recruiting divers at an early age for professional training is one of the crucial cornerstones of China's supremacy.

Li Guosheng, a retired professor from the Beijing Sports University who consulted in the research, retreated from an initial consent for an interview. "I won't talk at this sensitive time because my comments could affect the training regime of the national team, which is now in its final sprint towards Olympics success," said Li.

Yu Fen, a former national diving coach now supervising a club at Tsinghua University, did agree to talk, though she glossed over the harsh training system of the past. "The sports authorities are now carrying out regular eye checks as mandatory," said Yu, who nurtured such stars as four-time Olympic gold medal winner Fu Mingxia.

She added: "The experience is that the earlier you detect a problem, the more effective the remedy would be."

Yu said Guo was a beneficiary of the new eye checks. Her right eye retina was diagnosed as having a detachment injury in its early stages in 2001. She underwent surgery and became the star she is today.

"The sports authorities have also tried some new tricks, like creating artificial waves in the diving pool to ease the water entry pressure," Yu said.

But fears remain that the current and next generation of China's gold medal divers might be sacrificing their eyesight for the nation.


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Cuba's chance to clear socialism's name


OBSERVER
Frank Ching
Mar 04, 2008           
     
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The world's first communist state, the Soviet Union, was born in Europe in 1917 and disintegrated in 1991 at the age of 74. Meanwhile, the communist countries it spawned in eastern Europe also rapidly transformed into democracies, bringing an end to communism in most of the world.

Yet, traditional communism continued in other parts of the world, especially Asia, where China, Vietnam, North Korea and Laos are all listed as communist states in the CIA World Factbook. And, as we have just been reminded, so, too, is Cuba; the only communist country in the western hemisphere, which until this month was ruled by Fidel Castro, who was both head of state and head of government.

But the winds of change are blowing through the world's remaining communist states, as witnessed by Dr Castro's decision to step down in favour of his brother, Raul, after 49 years in power.

This makes Dr Castro something of an enlightened communist leader, since his Asian counterparts, Mao Zedong , Ho Chi Minh of Vietnam and North Korea's Kim Il-sung all clung to office until the day they died. Kim started a dynasty by naming his son, Kim Jong-il, his successor.

They were simply following in the footsteps of their "elder brother", the Soviet Union, which practised lifetime tenure in power beginning with Lenin and Stalin. Stalin's successor, Nikita Khrushchev, was ousted in a coup in 1964 but, after that, successive Soviet leaders served until death - Leonid Brezhnev, Yuri Andropov and Konstantin Chernenko - until Mikhail Gorbachev came along - and he served until the Soviet Union was no more.

Of course, Dr Castro is also being followed by another member of his family, his 76-year-old younger brother. But, given the younger Castro's age, he is to be a caretaker rather than a link in a Castro dynasty.

Yet, even though Dr Castro has given up all his titles, it appears that he still wields considerable power. He has acknowledged that the appointment of two generals was his idea rather than that of his brother.

In this, he may be borrowing a page from China, where Deng Xiaoping was acknowledged as paramount leader long after he had given up all his titles, except for being the honorary chairman of the China Bridge Association. However, whereas Dr Castro has openly acknowledged his role in the appointment of the generals, in China the fact that Deng still called the shots in retirement was a state secret.

The situation in China at that time was extremely abnormal; the man who had the title did not have the power, and the man who wielded the power did not need titles. This was strongman rule, not rule according to laws and the constitution.

But Cuba may turn out to be something different. For one thing, one of the first things Raul Castro did was to sign the two main UN human rights covenants, the International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic, Social and Cultural Rights. These were signed by Cuban Foreign Minister Felipe Perez Roque on Thursday, four days after Raul Castro formally became Cuba's leader. The question now is how soon will the Cuban parliament ratify the two covenants so that they actually come into effect. China signed the ICCPR 10 years ago and still has not ratified it.

While China talks about socialism with Chinese characteristics, perhaps Cuba under Raul Castro will develop socialism with Cuban characteristics. Socialist philosophy is compatible with democracy and human rights, as well as economic prosperity. It is unfortunate that the founding fathers of communism, starting with Lenin, took the wrong road and gave socialism a bad name. China has shown that a socialist country doesn't have to be poor. Cuba has an opportunity to show the world that a socialist country can also enjoy human rights.

Frank Ching is a Hong Kong-based writer and commentator



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Cultural devolution


THE RED LANTERN
David Eimer
Mar 05, 2008           
     
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The news that Peking Opera has become part of the curriculum in primary and secondary schools on the mainland is the latest shot in the losing battle the authorities are fighting against the decline in interest in traditional Chinese culture. Despite the fact that few music teachers know how to perform Peking Opera, 200 schools across the country began instructing their students in the arcane art form last week. If successful, the scheme will be extended to all schools on the mainland.

At the same time, Henan's education bureau announced that Shaolin boxing will become part of physical education classes for all primary schools in the provincial capital Zhengzhou . The idea is to promote traditional martial arts among the young. Girls will not be excluded from learning how to fight, but they will also have the option of practising folk dance.

Adding to the sense that desperation has replaced common sense in the authorities' attempts to defend Chinese culture against the onslaught of pernicious western influences like pop music, the State Administration of Radio, Film and TV (Sarft) has extended its ban on the screening of foreign cartoons during prime time by an hour. The likes of SpongeBob SquarePants and Pokemon were initially banned from TV's "golden hours" between 5pm and 8pm in August 2006. From May, they won't be allowed to air until after 9pm.

For Sarft, the ban is its way of protecting the domestic animation industry. But, Sarft's policy of limiting the number of western movies shown in mainland cinemas to 20 or so a year has done little to boost the domestic film industry. Likewise, preventing children from watching their favourite cartoons is no way to encourage interest in locally produced animation.

Children prefer watching Japanese and American cartoons because mainland-produced ones are inferior in every way, just as many mainland movies are less entertaining than Hollywood blockbusters. And while Peking Opera may be a 200-year-old art form, the young would rather listen to the latest pop acts from Taiwan, Hong Kong or the west.

In an age when the internet provides people with access to movies, TV shows and music from all around the world, government efforts to force-feed traditional culture to the young are doomed to failure. Authorities would do better to encourage a homegrown pop culture. A strong, relevant local entertainment industry is the best defence against the power of Hollywood and the global music industry, as the success of Bollywood movies in India demonstrates. Sadly, government officials are almost as suspicious of mainland pop singers and popular, locally produced TV shows as they are of ones from overseas. But it is time they embraced them: you fight fire with fire, not with ancient melodies.

David Eimer is a Beijing-based journalist


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Leaders aim high; now they must bring results


LEADER

Mar 06, 2008           
     
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Five years is not long enough to tackle many of the long-standing and complex problems facing the nation. President Hu Jintao and Premier Wen Jiabao have repeatedly had to confront the same issues since taking office in 2003. Governance, education, social welfare, health care, inflation, the rule of law and economic overheating have been recurrent themes in Mr Wen's work reports which mark the opening of the annual parliamentary session. Yesterday was no different. The premier returned to the familiar theme of putting the people first. But added urgency could be detected in his 2-1/2 hour speech as he tied many of the problems commonly cited with the need to help the poor and underprivileged.

Mr Wen cannot be faulted for trying to improve the conditions and prospects of people whom the benefits of the mainland's economic juggernaut have largely bypassed. But the problem has worsened, with inflation running at 7.1 per cent. This has hit the poor especially hard. The government recognises the danger, but it is not clear that administrative price controls on a wide range of commodities and daily necessities will work to push inflation down to the 2008 target of 4.8 per cent. At least the target is more realistic than the 3 per cent of last year. However, it looks likely the economy will, once again, overshoot the target growth rate of 8 per cent, after five years of double-digit expansion.

Mr Hu and Mr Wen are expected to stay in their posts for another five years. Halfway through their stewardship, there is no denying there have been tangible achievements. In 2003, the leaders faced a banking sector in disarray, a huge budget deficit and a moribund stock market. Private businesses and properties were insufficiently protected by outdated laws. Today, big state banks have cleaned up their balance sheets and are listed on stock markets on both sides of the border. All of them - for now - seem to have emerged relatively unscathed from the credit crunch that has hit the global financial sector. New laws provide better protection for commercial operators and property owners. Instead of confronting declining markets, Mr Wen yesterday railed against speculators, insiders and corrupt officials who have pushed the stock and property markets into dangerous bubble territory.

The premier rightly pointed out that spending on education, public health and social welfare had more than doubled in the last five years. Some 145 billion yuan - an increase of more than 17 per cent from last year - will be spent on helping farmers, improving rural areas and enhancing the farming sector. The education budget will jump by 45 per cent, to more than 156 billion yuan. Mr Wen also promised to provide more rent subsidies for migrant workers and more affordable housing, making generous land grants for the lower and middle classes.

Still, Mr Wen faces a long and rocky road. For example, the power supply crisis which marred the Lunar New Year and prevented millions of workers returning home exposed a lack of co-ordination between government departments and transport and power companies. The premier has promised to resolve it by creating "super ministries". Hopefully, they will help also increase energy efficiency and improve the environment, areas in which government efforts have so far proved woefully inadequate. However, it is too soon to say whether they will prove effective. A wide gulf still exists between the aims of the leaders in Beijing and what they have delivered. They need to close the gap to ensure their legacy endures.


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Flu crisis shows need to reform health services


LEADER

Mar 07, 2008           
     
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The circumstances of the death of a three-year-old girl hours after her family took her to hospital for treatment of a cough and fever has, understandably, given rise to public concern. The death has come at the height of the flu season, when hospitals are struggling to cope with an influx of patients.

Health authorities reacted yesterday by introducing sweeping infection controls reminiscent of those taken during the Sars outbreak five years ago. Such measures should have been put in place earlier, given the stresses on the system already caused by the number of flu cases. Overcrowding has left our hospitals ill prepared to cope with a more serious emergency.

The new measures are sensible, if overdue. They do not, however, tackle public unease over the little girl's death, which followed the still-unexplained death of a two-year-old boy in Prince of Wales Hospital hours after he was admitted with vomiting and a fever.

The girl died the same day she was seen by a doctor at Tuen Mun Hospital's accident and emergency department. She was sent home after the doctor diagnosed an upper respiratory tract infection. When finally admitted to hospital hours later, her heart had already stopped. Tests later showed she had a strain of H3N2 flu called Brisbane flu, but that may not be the reason she died. The case will go to the coroner's court, where the circumstances will be examined. But officials should swiftly make public any information which helps explain her death. This is the only way public concerns will be eased.

What we know of her treatment and illness raises troubling questions, not least for her family. Given the pressure on hospitals, the worry is that further tragedies may occur. In the girl's case, there is no suggestion that overcrowding, or the workload that puts on doctors and nurses, were decisive factors in the girl's treatment or the decision not to admit her in the first place for further observation of her condition. It remains a worry, however, that on the same weekend, frontline doctors warned that overcrowding had exposed the inability of Hong Kong's public hospital system to cope with the growing ranks of elderly people or with the possibility of a flu pandemic. Private hospitals report a similar predicament.

It does not take much to tax our hospital system. There are few beds or doctors and nurses to spare at the best of times. The Hospital Authority says the cold weather means occupancy rates on most medical wards are above 100 per cent. At the five busiest hospitals they are above 110 per cent.

The flu season occurs every year, but hospitals were caught unprepared. Some have begun capping accident and emergency admissions and delaying non-urgent treatment to accommodate flu patients. Given their mission of providing affordable care to all, it is difficult to see what more they can do now.

Our massively subsidised hospital system remains the envy of many other countries. But the rising demands of an ageing population, and the cost of modern medical technology, put ever bigger strains on the public purse. The current hospital crisis is a reminder of the urgency of reforming the delivery and financing of health services. Plans for greater participation by the private sector, with more emphasis on preventing illness and disease and promoting the role of the family doctor, call for a new financing model. A consultation expected to be announced next week on six financing options is unlikely to lead to concrete proposals until late this year at the earliest. Reform is needed - and should not be delayed any longer.


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Fresh faces


KITTY POON

Mar 10, 2008           
     
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As the plenary sessions of the new National People's Congress started last week, commentators in Hong Kong marvelled at the fact that nearly 70 per cent of the delegates were newcomers, including two Sichuan province women in their 20s from ethnic minorities. The call for generational change in Hong Kong's political landscape has thus intensified.

This yearning for fresh faces deserves close attention. It underscores the search for a new direction as Hong Kong nears a new decade.

In fact, the rise of youthful political leaders has been a discernable trend around the world. In 1992, the energetic 46-year-old Bill Clinton became president of the United States. Five years later, Britons voted Tony Blair into power, just days before his 44th birthday, making him the youngest prime minister since 1812. Following suit, the Spaniards and Germans also picked their most youthful leaders since the second world war, at the ages of 43 and 51, respectively.

Now, Russians have selected Dmitry Medvedev, 42, as their new president. In mainland China, the leadership reshuffle last year lowered the average age of provincial chiefs to 55, which was accompanied by a massive promotion of young and educated elites into provincial governments and national ministries.

The rise of young political leaders has been attributed to the arrival of the television age. Good looks are said to be more helpful than smart policies and experience when political contenders stand in front of the camera. While there might be some truth in this claim, a more convincing explanation is the call for change.

In many countries, voters are tired of an old political style that is often characterised by partisan voting in the legislature and a cosy relationship between the rich and the powerful. Young leaders are thus seen as possible healers for social wounds. Their inexperience is regarded as an advantage, because they carry no real or imagined baggage, unlike long-time insiders.

The call for generational change in Hong Kong politics also highlights the search for new styles as the city transforms itself into a fuller democracy amid rapid globalisation.

The underlying expectations for Hong Kong's future leaders - should they emerge through the September Legislative Council election, reshuffles in professional associations or the newly expanded political appointment system - are twofold. First, they will be tested on their ability to alleviate the stress of partisan politics that has fermented over the past decades. Parties have played a positive role in ensuring the government's accountability to the public, but excessive party politics weighs on the effectiveness of governance. With universal suffrage for the election of the chief executive on the horizon, the most divisive issue of democratic advancement is now dissipating and the public awaits signs of healing after a turbulent decade.

Second, future young leaders will also be tested on their ability to formulate and implement viable strategies to position Hong Kong in an era of globalisation. The intensified interdependence between Hong Kong and the world economy, as well as between the city and the surrounding territories, calls for leaders with a global vision and a keen awareness of the social impact of economic shifts in the world.

In this regard, new generations of political leaders will have to show an acute sense of social responsibility and a broad world vision. Merely appearing photogenic or being able to master YouTube will help little. Hongkongers will want to see substance in leadership. It is here that younger leaders will be put to the test.

Fortunately, political leaders from the post-war generation have laid the groundwork for the new generation to excel. The social capital, together with the established institutions, are assets for young leaders to work with. But much rejuvenation and reinvention are needed before Hong Kong can acquire new impetus for change.

Kitty Poon, an assistant professor at the Hong Kong Polytechnic University, is author of The Political Future of Hong Kong.

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Time to lay foundation for cities' integration


LEADER

Mar 11, 2008           
     
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Yesterday's agreements between Hong Kong and Guangdong confirm growing mutual interest in cross-border co-operation. A joint taskforce to study possible uses of the Lok Ma Chau Loop and a decision on the border crossing at Liantang follow the green light for the Hong Kong-Macau-Zhuhai bridge and last year's opening of the Western Corridor.

Guangdong, having become prosperous as the "factory of the world" with the support of investment from Hong Kong, has tended to give the impression that it no longer needs this city. The bridge, for example, won the support of Beijing and Hong Kong long before Guangdong came on board. Traffic on the Western Corridor crossing remains sparse because of cross-border licence restrictions on the other side. Nonetheless, the hardware of greater integration is slowly falling into place.

Lately, leaders across the border have conveyed a more positive approach. New provincial party secretary Wang Yang has emerged as a supporter of a "special co-operation zone" between Guangdong, Hong Kong and Macau with lower customs barriers and a liberalised flow of goods, people and funds. Provincial Governor Huang Huahua says Hong Kong and Shenzhen should consider forming twin cities. Shenzhen Mayor Xu Zongheng has called for a consensus on development of the Lok Ma Chau Loop. The long-standing interest in such closer links expressed by Chief Executive Donald Tsang Yam-kuen is being reciprocated.

The change in mindset reflects the stiffer competition being felt by the Pearl River Delta, especially from the Yangtze River Delta. Industry is defecting from the delta in the face of soaring costs of raw materials and labour and tougher pollution controls, not to mention worsening power cuts and government policies aimed at transforming the mainland into a service-based economy. In these circumstances, greater cross-border integration is an ideal whose time may be drawing closer than it seemed.

The ultimate goal of a Hong Kong-Shenzhen world-class metropolis surfaced in Mr Tsang's plan for a strategic partnership in his election platform last year. That calls for a degree of institutional integration that remains a long way off. But now that the infrastructure for closer links is taking shape, it is time for political leaders on both sides of the border to address practical obstacles to integration. For example, we should be planning for a time when vehicles from both sides can cross the border more easily. The present restrictions on people from Shenzhen coming to Hong Kong could not be maintained in a twin-city metropolis. A gradual liberalisation of the flow of people, such as extended visits to Hong Kong and a limited right to work, would extend our city's virtual boundary ahead of integration.

With the "one country, two systems" policy guaranteed until 2047, some experts, officials and businesspeople have understandably adopted a cautious approach to integration. But if it is going to happen eventually, it is in our interests to at least start thinking seriously now about putting sound stepping stones in place.


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US vies with China in the new scramble for Africa


Hagai Segal
Mar 12, 2008           
     
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Many people are likely to assume that the current tensions between the US and China are firmly centred in Asia - with Taiwan, North Korea or Central Asia as the likely area for any future conflict. But another less-headline-grabbing continent is starting to dominate Sino-American rivalries: Africa. Echoing the struggle between European colonial powers over African territory and resources in the late 19th and early 20th centuries, there is once again a "scramble for Africa".

Last week, US President George W. Bush embarked on a multistate African tour, a very visible sign of America's growing recognition of the strategic and economic importance of the continent, and its determination to catch up with China.

China's investment in Africa in the past few years has been little short of remarkable. China-Africa trade has increased tenfold from 1999 to 2006, to US$55.5 billion, according to the most recent official Chinese figures. China also satisfies just short of one-third of its oil needs from  Africa.

The US has been slower to embrace Africa and is now playing catch-up. Yet Mr Bush was last week at pains to play down Sino-American rivalries on the continent, assuring local leaders and the media that America's intentions are honourable.

In Ghana, Mr Bush said he wanted to "dispel the notion that, all of a sudden, America is bringing all kinds of military to Africa ... our policy is aimed at helping people".

He insisted that China was not the reason for his trip to the continent. "We can pursue agendas without creating a sense of competition," he said.

Despite these pronouncements, the Chinese march into Africa has seriously focused US minds, and is undoubtedly towards the forefront of US policy priorities on the continent.

On the back of Mr Bush's tour, the presidents of China and oil-rich Nigeria met on February 28 in Beijing ahead of the signing of new energy deals. Trade between the two states has more than tripled in the past six years. It has also been reported that the state-controlled China Development Bank is in talks to buy a US$5 billion stake in Nigeria-based United Bank for Africa.

China's most controversial African partnership, however, is with the government of Sudan, a regime accused of direct involvement in the genocide of more than 200,000 local Africans at the hands of government-backed Arab militia. Steven Spielberg recently said he had resigned from his role as artistic adviser to the Beijing Olympics over China's refusal to use its significant influence - as the single-largest purchaser of Sudan's oil - to apply pressure on the government in Khartoum to end the  genocide.

China has begun taking a more active role in Darfur, for example by despatching engineers to help prepare for the arrival of African Union and United Nations peacekeepers. Liu Guijin , China's special envoy to Darfur, held talks in Khartoum last week with Sudanese President Omar al-Beshir and the peacekeeping force chief, Rodolphe Adada, calling for a "concerted effort from the international community" on Darfur. But, in a statement that has dismayed China's detractors, Mr Liu reiterated that Beijing's traditional non-interventionist approach would remain a "cornerstone of Chinese foreign policy".

So, many are convinced China will remain unwilling to jeopardise its significant military, economic and diplomatic standing with Sudan by pushing too hard on Darfur.

A very 21st-century scramble for Africa is under way, with direct competition between China and the US now a reality. And, with the growing need for both to secure reliable long-term sources of energy and resources, the interest in Africa will only grow. Whether the average African citizen, never mind regional stability, will benefit from America's and China's courtships of African states remains less clear, however.

Hagai Segal, a terrorism and Middle East specialist, lectures at New York University in London


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Paranoia reaches Olympic proportions


OBSERVER
Alex Lo
Mar 13, 2008           
     
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For a paranoid person, it is often difficult to distinguish real foes from imagined ones. Politicians who have struggled for a long time in the trenches frequently display similar characteristics and have trouble telling the difference between real terrorists, political enemies and mere critics. It is telling that Wang Lequan , Xinjiang's party chief, was denouncing "terrorists, saboteurs and splittists", all in one breath. According to Mr Wang, terrorist hijackers, Uygur human rights activist Rebiya Kadeer and even the Dalai Lama all belong to these groups.

Mr Wang was speaking on Sunday on the sidelines of the National People's Congress in Beijing, where he first disclosed a police raid in January against an alleged terrorist cell run by the East Turkestan Islamic Movement, a Uygur group with links to al-Qaeda. He said the group was plotting to disrupt the Olympics. It is, evidently, not an easy job governing as a Han Chinese in a province where the ethnic Muslim minorities are the majority. The Dalai Lama, however, has reaffirmed his support for the Beijing Games this summer. It is not clear whether he was sincere.

At about the same time and in the same venue, Mr Wang's colleague, Xinjiang region chairman Nuer Baikeli, revealed that four Uygurs had been arrested last Friday for allegedly trying to blow up a China Southern flight from Urumqi to Beijing. Suddenly, Muslim terrorists are running amok in China. Or at least that was the impression the two senior Xinjiang officials have created, as their stories were splashed the next day on the front pages of most mass-circulation papers in Hong Kong.

Most ran bold headlines describing the incident last week as a "9/11-style hijacking". But since the terrorist mission, if there really was one, was thwarted, the September 11 scenario must remain hypothetical.

Actually, the controlled release of information and the hysteria in the media were very different from the terrorist attacks on the World Trade Centre. If one must draw a September 11 analogy, it was more reminiscent of the US media frenzy over Jose Padilla, one of the few terror suspects who made it to open trial and was originally accused of trying to build and explode a radioactive dirty bomb on US soil. Years after his arrest, it's clear that he was a misguided and incompetent foot soldier, "the wrong Muslim [caught] in the wrong airport on the wrong day", as one US lawyer put it.

Since there were no independent witnesses in the Xinjiang episode, we must place our trust in the official versions. We can, however, rely on our critical sense to gauge the political effects these official stories are creating. For one, they hook onto the same or roughly similar terror narrative familiar to Americans and Europeans: the threat of Muslim extremism. And they help justify an unprecedented security blanket that will envelope Beijing in the run-up to the Olympics and during the Games. But, in reality, it's hardly necessary to justify extreme security and unchecked displays of police power at important events these days, even in western democratic countries.

Ever since the mass protests and violent police response at the 1999 World Trade Organisation conference in Seattle, every international gathering has become an exercise in riot control, whether the situation calls for it or not. Ordinary citizens in western countries now tolerate police barricades, de facto curfews across whole city blocks and overwhelming use of force against protesters, during international meetings of very important people.

The Olympics is, arguably, even more significant and sensitive than any Group of Eight summit or WTO meeting. There will always be critics, but most officials and people from around the world will go along with whatever security arrangements are put in place for the Olympics. Still, Beijing is, understandably, paranoid about its most important (inter)national event in years.

Alex Lo is a senior writer at the Post


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No way forward on the Iran sanctions treadmill


Bennett Ramberg
Mar 14, 2008           
     
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The approval of fresh sanctions on Iran marks the third time that the UN Security Council has been galvanised to stem the nation's feared uranium enrichment efforts. Unfortunately, the new sanctions are unlikely to be any more effective than the first two rounds.

The United States has been on the sanctions treadmill for years. Between 2003 and last year, the US Treasury Department brought litigation against 94 companies for violating the ban against trade and investment with the Islamic republic. The State Department imposed sanctions 111 times against foreign entities that engaged in proliferation or terrorism-related activities with Iran. And both departments have used their power to freeze financial assets or access to the US financial system.

The results were barely a pin prick. Iran's nuclear programmes continued to be financed by international commerce.

Not only have sanctions failed to halt Iran's fuel cycle programmes, so have other avenues. The European Union's political and economic inducements went nowhere, as did cajoling by the International Atomic Energy Agency.

To be sure, Iran offered, in 2005 and subsequently, to tether its programme to international co-management, which arguably could have placed resident international monitors on site. But both the international community and Iran failed to follow through.

Some hope that the next US administration can stem Iran's nuclear ambitions through bilateral diplomacy. But Europe's negotiating experience raises doubts about that prospect.

Assuming that concern over Iran's nuclear "breakout" capacity mounts, this leaves the US and its allies with three options, each with its own risks. First, a naval blockade (reminiscent of the Cuban missile crisis) that halted both Iran's oil exports and imports of refined fuel would cripple the country's economy. But the US military would have to be able to prevent Iran from closing the Strait of Hormuz, through which much of the world's oil supply passes. A halt in Iran's oil exports alone would dramatically upset international markets and the Iranian leadership would probably dig in its heels to continue, if not accelerate, nuclear development.

Second, while a military strike would slow Iran's nuclear programme, facilities could be rebuilt in the absence of inspectors. The attack shock could trigger Iranian vengeance, regionally and elsewhere, with a global economic impact far exceeding that implied by a blockade.

This leaves an unsettling fallback option: an Iran on the cusp of becoming a nuclear-armed state confronting a nuclear-armed Israel. In that event, there remains the hope that mutual nuclear deterrence would promote mutual common sense.

With no dramatic improvement in the Middle East's grim political landscape, the failure of deterrence would bring the sum of all the fears of our nuclear age upon us.

Bennett Ramberg served in the US State Department's Bureau of Politico-Military Affairs during the George H. W. Bush administration


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Adroit officials duck the tough questions
145 days to go

OLYMPIC COUNTDOWN
Peter Simpson
Mar 16, 2008           
     
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The Olympics briefly took centre stage at the National Party Congress this week and government and Games organisers Bocog held a press conference in the Great Hall of the People. The event was a media crowd-puller, given that the annual government rubber-stamping sessions were occurring just 150 days before the Games.

For foreign correspondents tracking the long road to the Beijing Olympics, the opportunity to visit the citadel of Chinese politics was welcomed. Inside the Great Hall, elbow room was as tight as the security blanket that falls on the capital when the Communist Party bigwigs roll into town in their blacked-out sedans.

For fun, silly bets were placed on a new syndrome recently discovered at Bocog press conferences: It's called "Beijing Duck Question", or BDQ.

A BDQ is usually a question planted by Bocog or the government and asked by a correspondent from one of the state-media outlets. They are designed to allow the answering official to "state-the-bleeding-government-approved-obvious" in a rambling dialogue that eats up precious, serious news-hunting time.

Alternatively, a BDQ can be a random question that affords the Bocog respondent the same answer - a fortuitous opportunity to repeat statistics and platitudes.

Variants of BDQs have been around for years, of course. The new strain was so-named at a press conference two months ago. Then, 2008 Olympic promotion film directors, Briton Daryl Goodrich and Hong Kong's Andy Lau, were asked by a reporter just after Hollywood Oscar winner Steven Spielberg decided to quit his Olympic role over the Darfur situation: "Do you like Beijing duck?"

What the state media reporter of course couldn't ask, or didn't want to ask (or was oblivious to), was what the directors thought of Spielberg's snub.

Wagering on who will ask the first BDQ (and it's normally the usual suspects) and who can answer for the longest (ditto) helps quell frustration. In the Great Hall the odds were muddled, however. There were too many new faces from unknown media organisations.

As Beijing vice-mayor and Bocog vice-president Liu Jingmin led out opening-ceremony director Zhang Yimou, Bocog's deputy director of the Olympic Village Department, the former Olympic table tennis champion Deng Yaping, and vice-president of the General Administration of Sport, Cui Dalin, for questioning, all bets were off.

The presence of Zhang piqued interest, and not because he is the celebrated director tasked with raising the curtain on modern China during the opening ceremony.

Vice-mayor Liu explained with a liberal peppering of ubiquitous statistics that all was progressing smoothly with the Olympic effort. The conference was then opened to the floor, and Cui was asked the first question by a CCTV reporter.

"Will China top the gold medal table and meet the people's high expectations?"

Obviously the CCTV reporter had not seen the station's reports, nor read the many newspaper stories about the NPC Olympic sideline committee meeting held in public a week earlier.

There, Cui gave a passionate 50-minute speech urging the people to expect only a well-organised Games and not pressure athletes to beat the Americans on home soil, "because China is not very good at sports".

He all but repeated the same speech and then repeated details of the same, widely reported anti-doping measures China is planning. His total BDQ answering time was 13 minutes.

The next BDQ was directed at Deng.

"What is your specific portfolio?" asked a state-radio reporter.

BDQ answering time was just over seven minutes.

Reporters from various media organisations managed a slew of BDQs to fill the slotted probe time.

Most mainland journalists know the tough questioning adopted by foreign reporters - those designed to put officials on the spot and catch them off guard - never work in the mainland because the respondents are elusive and too well rehearsed.

Moreover, a leading question designed to ascertain truth is not worth the sacking from a hard-won job. The spectre of detention for humiliating the government is a real threat and no laughing matter.

Perhaps the mainland journalists have a name for the syndrome suffered by the international press: "Awkward But Unanswerable Show Boat Questions", or ABUSBQs.

These are the abrupt questions asked by foreign journalists - probes that act as half-reminders of real reporting yet yield the same non-news as BDQ answers in a shorter time.

"What discussions have you [during the NPC with your seniors] had on the recent terrorist incidents linked to the Olympics?" this column asked vice-mayor Liu. "I haven't any details [on this] ... I guarantee safety for all," he said.

ABUSBQs answering time was just over two minutes. Another to Cui on medal counts didn't clock 60 seconds.

Of course, the international press will never stop asking tough questions, but rarely rile officials into answering with something meaningful.

As one Bocog official told us, the likes of Liu and Cui can expect "a tsunami" of probes when the rest of the world's press arrive in town in a few months. Then, the days of the BDQs will be numbered.

As it was, it was left to Zhang to give some credence to the routine theatrics this week. He answered the awkward questions with sincerity, if not aplomb. He even had sympathy for all the interrogators.

"I feel as though I should offer you some answers," he said, and handed out a headline by revealing the opening ceremony would end with an image of 10,000 smiling children.

To counter claims that celebrities in cahoots with governments diminish politics, it should be stated - briefly: "Not in Olympic China, they don't."


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China trade a boon to US


Geoffrey Garrett
Mar 19, 2008           
     
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In the heat of the Democratic race for the presidential nomination last month, Senator Hillary Rodham Clinton summarised well the prevailing US sentiment about China: "China's steel comes here and our jobs go there. We play by the rules and they manipulate their currency."

But in reality, China is actually doing what America has long demanded on trade and exchange rates. In addition to reducing barriers to imports and export subsidies, Beijing has allowed the yuan to appreciate significantly against the dollar - by more than 14 per cent since the middle of 2005.

So why isn't the Bush administration silencing the Democrat's China bashing by trumpeting this apparent exchange rate victory? It's because the bilateral trade deficit with China, which a stronger yuan was supposed to reduce, continues to hit all-time highs - US$256 billion last year, a 10 per cent increase over 2006.

But playing to American insecurities about China is not the way to stabilise what will be the US' most important bilateral relationship over the next several decades. What the US needs is a new vision for its relations with Beijing, one based on further economic integration, not protectionism. This is the best way to sustain America's long 20th century economic boom well into this century.

Here are three trade secrets that should inform a "straight talk" revolution in Washington where China is concerned. First, the trade deficit with China will not go away soon. But this has more to do with macroeconomics than trade barriers in China.

Chinese domestic investment has boomed over the past decade, while the US economy has been driven by consumer spending. China has bought hundreds of billions of dollars to keep its currency down. But this has helped keep US interest rates low, allowing Americans to buy homes and to borrow against the real estate appreciation they expected.

All these trends have now been reversed. Beijing has allowed the yuan to appreciate against the dollar. It has also put the brakes on domestic investment for fear that its economy is overheating. In the US, the subprime meltdown has brought the economy to a near standstill in growth terms. The combined result of these abrupt macroeconomic reversals is that US exports to China have grown twice as quickly as Chinese exports to the US in the past two years.

So why does the US-China trade deficit continue to climb? The US exports to China less than one-fifth as much as it imports from China. The much faster growth on the much smaller exports base is still overwhelmed by the slower growth in the much larger import volume. Even if US exports continue to grow twice as quickly as imports from China, the bilateral deficit will increase for years to come.

But the rapid growth in US exports to China should be cause for celebration in the US. And rising Chinese imports provide affordable goods to Americans. Focusing on the trade deficit conceals this fact.

A second secret is that the bulk of Chinese exports to the US are not really made "by China". They are not even really "made in China". The Chinese economy today is in large measure an assembly platform for foreign firms to turn components designed and made elsewhere into final products, and then to export them to the rest of the world. More than 60 per cent of Chinese exports are in fact the sales outside China of multinationals operating in China.

Consider the iconic Apple iPod. Every iPod shipped from China and sold in the US adds to the country's trade deficit with China. But what Apple says on the back of every iPod is true: "designed by Apple in California, assembled in China" from chips, hard drives and screens made in the US, Korea and Japan. Chinese assembly adds only a tiny amount to the value of each iPod.

US manufacturing jobs are no doubt lost as a result. But these are in assembly - the lowest tech part of the production process. Jobs are also created, and they are in the highest tech and most innovative parts of the American economy - design, marketing, finance and logistics. This is not only a positive trade-off for the US economy, it is also positive for the US labour force.

A final secret is that the US has benefited from the vast quantities of dollars and Treasury bills (estimated at three-quarters of a trillion dollars) China has purchased in recent years to manage the dollar-yuan exchange rate. Ample China-funded credit kept US interest rates low after September 11 and the dot-com bust, fuelling both consumer spending and the run-up in housing prices.

It is time for US leaders actually to lead on China, rather than pander to understandable insecurities in middle America. Turning trade secrets into widely understood facts of life is a very good place to start.

Geoffrey Garrett is president of the Pacific Council on International Policy and Professor of International Relations at USC


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A financial crisis of confidence


Robert Samuelson
Mar 20, 2008           
     
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Some say it's the worst financial crisis since the Great Depression, but that judgment seems premature. What distinguishes this crisis is that it involves the entire financial system, not just depository institutions.

Previous financial crises so weakened US banks, and savings and loans institutions, that they lost their primacy. As recently as 1980, they supplied almost half of all lending - to companies, consumers and homebuyers. Now, their share is less than 30 per cent. The gap has been filled by "securitisation": the bundling of mortgages, credit card debt and other loans into bond-like instruments that are sold to all manner of investors (banks themselves, pension funds, hedge funds and insurance companies).

With a traditional "bank run", the object was to reassure the public. The central bank - the Federal Reserve in the US - lent cash to solvent banks to repay worried depositors and pre-empt a panic that would spread to more and more banks, ultimately depriving the economy of credit. But now the fear and uncertainty centre on the value of highly complex, opaque securities and the myriad financial institutions that hold them.

At the epicentre of the crisis are the subprime mortgages made to weaker borrowers and subsequently securitised. On paper, the financial system seems to have ample resources to absorb losses. Commercial banks have US$1.3 trillion in capital; US investment banks in 2006 had an estimated US$280 billion in capital - and other investors, including foreigners, may hold half or more of subprime loans. But no one knows who or how much. Recent estimates of subprime losses range from US$285 billion to US$400 billion. They might go higher. Ignorance breeds caution and fear.

The stunning fall of Bear Stearns reflects these realities. America's fifth-largest investment bank funded most of its operations with borrowed money. On average, the ratio of borrowed money to underlying capital for investment banks and hedge funds is 32:1, according to a recent study. Many of these loans - commercial paper, "repurchase agreements" and bank credits - are backed by the securities owned by the borrowing financial institutions.

What this means is that if lenders became worried about the worth of these securities, they might ask for more collateral or pull their loans. That's what happened to Bear Stearns. Deprived of its credit lifeblood, Bear Stearns either had to collapse or be sold to someone with credit. JP Morgan Chase bought Bear Stearns for US$236 million. It was valued at US$20 billion in January 2007.

Whether Bear Stearns was the victim of unfounded rumour or of genuine rot in its securities portfolio is unclear. But the very uncertainty defines the nature of the modern financial crisis - and the difficulties facing the Fed in trying to contain it. Financial institutions are interconnected through networks of buying, selling, borrowing and lending. These require confidence that commitments made will be honoured. If the confidence collapses, the processes of extending credit for the economy and of trading - for stocks, bonds and foreign exchange - may also collapse.

In trying to calm the markets, the Fed has spewed out huge sums of money and credit that have depressed the US dollar's exchange rate and could aggravate inflation. The effort to fix one problem may lead to others.

Robert Samuelson is a Washington Post columnist


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