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. kittypoon@netvigator.com


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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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