Was Bush al-Qaeda's best friend, after all?


Gwynne Dyer
Jan 23, 2009           
     
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President Barack Obama's inauguration increases the likelihood of a major terrorist attack in the US. That was the stark message of the South Waziristan Institute for Strategic Hermeneutics (Swish), a think-tank that offers strategic advice to some of the leading players in global politics.

Swish warned in its mid-December report to Mr Obama's transition team that al-Qaeda "will attempt a 9/11-level attack, probably within the United States, at some point between now and mid-2010. If and when that happens, your country will require exceptional levels of political leadership if you are to avoid yet another misguided military response."

Unfortunately, the institute only exists in the fertile brain of British academic and strategic analyst Paul Rogers, who publishes its reports on the website of Open Democracy.

The Swish phenomenon began as an attempt to educate western analysts in the thinking of their Islamist enemies. The reports mimicked the format used by the think-tanks that advise the US government and the Pentagon, but came from the mythical South Waziristan Institute, supposedly also hired by al-Qaeda.

The Swish reports, however, were based more deeply in reality than most of what passed for political analysis in Washington over the past eight years. Professor Rogers assumed (correctly) al-Qaeda leaders were intelligent and had coherent long-term strategies.

In particular, he assumed that a primary purpose of the September 11 attacks was to lure the US into invading Afghanistan (and other Muslim countries), as that would radicalise Muslim populations and generate waves of recruits. Once George W. Bush did that, he was al-Qaeda's man, and its main interest was keeping him in power.

So, in its first report to al-Qaeda in 2004, Swish said it could not recommend a further large terrorist attack on the US, since its impact on American public opinion was unpredictable. It might strengthen support for Mr Bush in the November 2004 election, but equally it might turn opinion against him.

The notion that the US could be a pawn in somebody else's game has gradually been making headway among US analysts. Former Homeland Security chief Tom Ridge conceded, a couple of years ago, that his success in "preventing" further al-Qaeda attacks after September 11 might have been due to the fact that it wasn't actually planning any.

But, by the same token, Mr Obama's arrival may make a new September 11 desirable. While he is not proposing a US withdrawal from Afghanistan or a complete troop withdrawal from Iraq, he seems less persuaded than Mr Bush that invading and occupying Muslim countries is a good idea.

So, if there is any way that al-Qaeda can organise a major attack on US soil in the coming 12 to 18 months, it will do so. Its main goal must be to stampede the American public back into the fearful mindset that allowed Mr Bush to launch his wars in the first place, and hope that Mr Obama will be swept along by it.

Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries


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Public lacks stomach for food and politics


OBSERVER
Alex Lo
Jan 29, 2009           
     
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Most people like to savour a good dish. Some develop a taste for cooking. It is impossible, however, to be a true foodie without knowing something about ingredients, spices and seasonings, how to handle raw meat and negotiating your way through wet markets. If you have acquired some cooking skills, you owe it to your family and friends to show them off. And, if you are a politician, what better way to win hearts and minds than through the palate? As with most endeavours, practice is much more important than true culinary talent. So, every opportunity and friend counts.

Unfortunately, some recent scandals in Asia have probably put politicians and civil servants off public gastronomy for a while. A top Singaporean civil servant was rapped this month by his boss and became the butt of jokes in countless internet chat rooms after boasting in a newspaper article about extravagant cooking courses he and his family took in Paris. And a Thai premier was removed from office last year for hosting a cooking programme on TV.

Sex and gambling used to be the usual causes of many public men's downfall; now, food can do them in just as well.

Ousted Thai prime minister Samak Sundaravej used to routinely entertain friends and visiting foreign leaders by cooking up a feast. He got such excellent feedback - well, some of his guests were diplomats, after all - that he decided to host a morning cooking show, Tasting and Grumbling, on TV. By all accounts, it was more entertaining to watch him wield a kitchen knife than making speeches. However, the country's constitutional court intervened in September and ordered him to stand down for accepting payments to host the show. He said he only claimed expenses for buying ingredients and for travel costs, but he had left an opening for his enemies to exploit successfully.

This month, Tan Yong Soon, permanent secretary in Singapore's environment ministry, caused a storm after writing in the lifestyle section of the Straits Times about his experience learning to cook French cuisine at the prestigious Le Cordon Bleu school in Paris. Singaporean bloggers and internet chat rooms blasted him for boasting about taking the extravagant five-week classes - which cost S$42,000 (HK$216,638) - with his investment banker wife and young son. He took paid leave for the trip but he and  his family paid for the cooking courses themselves.

Since then, parliamentary members have questioned the propriety of his article. Defence Minister Teo Chee Hean, who is also in charge of the civil service, described it as showing "a lack of sensitivity and was ill-judged", given the economic downturn.

In Mr Tan's defence, I would say the 2,000-word article picked the right angle and was an interesting piece of immersion journalism. He described the intensive course, which ran for 10 hours a day over three weeks. As a top pampered civil servant unused to physical work, he was cut, burned and bruised in the kitchen. By the end of the course, he was mentally and physically exhausted. His only offence was this paragraph, which he put in brackets, indicating he realised it was superfluous to his otherwise interesting narrative: "Taking five weeks' leave from work is not as difficult as one thinks. Most times, when you are at the top, you think you are indispensable. But if you are a good leader who has built up a good team, it is possible to go away for five weeks or even longer."

It was exceptionally stupid and arrogant of him to write it. But my guess is that most people who have denounced him haven't read the original article.

Public men who want to show off their kitchen skills can learn from former police commissioner Dick Lee Ming-kwai. When most police chiefs in Hong Kong have taken lucrative private sector jobs faster than you can say "conflict of interest", Mr Lee wrote a magazine food column and gathered a cult following among housewives. That's class.

Alex Lo is a senior writer at the Post


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How economic freedom declined under Bush


Robert Lawson and Joshua Hall
Jan 30, 2009           
     
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There is no doubt that US president George W. Bush's "war on terror" will dominate any assessment of his legacy. However, the marked decline in economic freedom during this time, despite Mr Bush's repeated acknowledgement of its importance, should not be overlooked.

The importance of economic freedom, domestically and abroad, was a consistent theme for Mr Bush, going back to his first presidential campaign. In 2002, the Bush administration unveiled a new approach to foreign aid, the Millennium Challenge Account, with the goal of a US$5 billion annual budget by 2006.

Mr Bush stated that aid would be given to countries that "govern justly, invest in their people and encourage economic freedom", and the US would no longer dole out funds to corrupt, autocratic governments.

Unfortunately, while he was actively trying to promote economic freedom abroad, his domestic policies were eroding that freedom for Americans. In a recent study - the "Economic Freedom of the World: 2008 Annual Report" - released by a consortium of think-tanks, America was tied for eighth place, with a score of 7.86 on a scale of 0-10, with 10 being an extremely high level of economic freedom.

The results are based on 42 different factors taken from a variety of international data sources. Hong Kong came top and the US also ranked below Switzerland, Chile, and Canada, among others. That is troubling enough. Yet, this one-year snapshot misses the significant decline in economic freedom since 2000 and how that decline reversed a long-term trend of increasing economic freedom in the US.

In 1970, the US also ranked eighth, with a score of 7.61. That rose steadily over the next three decades, to 8.55 in 2000, second only to Hong Kong. Starting in 2000, economic freedom began to decline sharply, losing nearly two-thirds of a point. Only eight countries had a decrease of half a point or more during this period. And only Niger, Venezuela, Argentina and Zimbabwe fared worse than the US.

America's decline came from three areas: government spending, legal and property rights, and regulation. First, Washington was spending and regulating more at the end of Mr Bush's presidency than at the beginning. The ranking associated with government spending fell to 39th from 18th, and the regulation ranking fell to 14th from 2nd. Second, and most disturbing, is Mr Bush's legacy in the legal and property rights arena, where the ranking fell to 28th from 9th highest in the world.

Mr Bush's attempts to highlight the importance of economic freedom around the world with the Millennium Challenge Account were laudable. Emphasising economic freedom abroad is surely the best way to promote growth and poverty alleviation. Unfortunately, Mr Bush's presidency left his own citizens less free economically.

Auburn University professor Robert Lawson is a co-author of the annual Economic Freedom of the World report, published by the Fraser and Cato institutes. Joshua Hall is an assistant professor of economics at Beloit College


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Can two faulty tools fix the economic mess?


J. Bradford DeLong
Feb 02, 2009           
     
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When an economy falls into a depression, governments can try four things to return employment to its normal level and production to its "potential" level. Call them fiscal policy, credit policy, monetary policy and inflation.

Inflation is the most straightforward to explain: the government prints lots of bank notes, and spends them. The extra cash in the economy raises prices. As prices rise, people don't want to hold cash in their pockets or their bank accounts - its value is melting away every day - so they step up the pace at which they spend, trying to get their wealth out of depreciating cash and into real assets that are worth something. This spending pulls people out of unemployment and into jobs, and pushes capacity utilisation up to normal and production up to "potential" levels.

Sane people would rather avoid inflation. It is a dangerous expedient that undermines standards of value, renders economic calculation virtually impossible and redistributes wealth at random.

The standard way to fight incipient depressions is through monetary policy. When output and employment threaten to decline, the central bank buys up government bonds for immediate cash, thus shortening the duration of the safe assets that investors hold. With fewer safe, money-yielding assets in the financial market, the price of safe wealth rises. This makes it more worthwhile for businesses to invest in expanding their capacity, thus trading away cash they could distribute to their shareholders today for a better market position that will allow them to reward their shareholders in the future. Boosting future-oriented spending today pulls people out of unemployment and pushes up capacity utilisation.

The problem with monetary policy is that the world's central banks have bought so many safe government bonds for so much cash that the price of safe wealth in the near future is absolutely flat - the nominal interest on government securities is zero. Monetary policy cannot make safe wealth in the future any more valuable.

The third tool is credit policy. We would like to boost spending immediately by getting businesses to invest not only in projects that trade safe cash now for safe profits in the future, but also in those that are risky. But few businesses are able to raise money to do so at present.

And so to the fourth tool: fiscal policy, where the government borrows and spends, thereby pulling people out of unemployment and pushing up capacity utilisation to normal levels. There are drawbacks: the subsequent deadweight loss of financing all the extra government debt, and the fear that too rapid a run-up in debt may discourage private investors from building physical assets, which form the tax base for the future governments that will have to amortise the extra debt.

But when you have only two tools left, neither of which is perfect, the rational thing is to try both - credit policy and fiscal policy - at the same time. That is what the Obama administration is attempting to do.

J. Bradford DeLong is professor of economics at the University of California at Berkeley. Copyright: Project Syndicate


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Why should we bail out the bungling bankers?


Paul Krugman
Feb 03, 2009           
     
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Question: what happens if you lose vast amounts of other people's money in America? Answer: you get a big gift from the government - but the president says some very harsh things about you before handing over the cash.

Am I being unfair? I hope so. But right now that's what seems to be happening. Just to be clear, I'm not talking about the Obama administration's plan to support jobs and output with a large, temporary rise in federal spending, which is very much the right thing to do. I'm talking, instead, about the administration's plans for a banking system rescue - plans that are shaping up as a classic exercise in "lemon socialism": taxpayers bear the cost if things go wrong, but shareholders and executives get the benefits if things go right.

When I read recent remarks on financial policy by top Obama administration officials, I feel I'm in a time warp - as if it's still 2005, Alan Greenspan is still the Maestro, and bankers are still heroes of capitalism.

"We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system," says Timothy Geithner, the Treasury secretary, as he prepares to put taxpayers on the hook for that system's immense losses.

Meanwhile, a Washington Post report based on administration sources says that Mr Geithner and Lawrence Summers, President Barack Obama's top economic adviser, "think governments make poor bank managers" - as opposed, presumably, to the private-sector geniuses who managed to lose more than US$1 trillion in just a few years.

And this prejudice in favour of private control, even when the government is putting up all the money, seems to be warping the administration's response to the financial crisis.

Now, something must be done to shore up the financial system. Letting major financial institutions collapse can be very bad for the economy's health. And a number of them are dangerously close to the edge.

So banks need more capital. In normal times, banks raise capital by selling shares to private investors. You might think, then, that if banks currently can't or won't raise enough capital from private investors, the government should do what a private investor would: provide capital in return for partial ownership.

But bank shares are worth so little these days that pumping in enough taxpayer money to make the banks sound would, in effect, turn them into publicly owned enterprises.

My response: so? If taxpayers are footing the bill for rescuing the banks, why shouldn't they get ownership, at least until private buyers can be found? But the Obama administration appears to be tying itself in knots to avoid this outcome.

If reports are right, the bank rescue plan will contain two main elements: government purchases of some troubled bank assets and guarantees against losses on other assets. The guarantees would represent a big gift to bank shareholders; the purchases might not, if the price was fair - but prices would, the Financial Times reports, probably be based on "valuation models" rather than market prices. That suggests the government would be making a big gift here, too. And, in return, for what is likely to be a huge subsidy to shareholders, taxpayers will get nothing.

Will there at least be limits on executive compensation? According to The Washington Post, "the administration is likely to refrain from imposing tougher restrictions on executive compensation at most firms receiving government aid" because "harsh limits could discourage some firms from asking for aid". This suggests Mr Obama's tough talk is just for show.

There's more at stake here than fairness, although that matters too. Saving the economy is going to be very expensive. We can't afford to squander money, giving huge windfalls to banks and their executives, merely to preserve the illusion of private ownership.

Paul Krugman is a New York Times columnist


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thanks a lot for your sharing

Net gains
If Hong Kong's tax base is too narrow, then the government should be brave enough to broaden it

Joseph Wong
Feb 04, 2009           
     
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In his consultation document on the 2009-10 budget, Financial Secretary John Tsang Chun-wah mentions a narrow tax base as one of our future challenges. The document says that, among the 3.55 million total working population, only 1.3 million (36.6 per cent) pay salaries tax. Is this problem really as serious as Mr Tsang suggests? And how shall we broaden the tax base?

Eleven years ago, the then-financial secretary, Donald Tsang Yam-kuen, in his 1997-98 budget, rejected the argument that increasing the basic allowance in salaries tax would make the tax base too narrow. "I have looked carefully at the statistical evidence on this subject," he said. "In each of the last five years, we have raised the basic allowance in real terms. Yet the total number of taxpayers - the tax net - has remained relatively stable, at around 1.4 million. I hope that members will accept my assurance that today's tax concessions will not undermine the productivity of salaries tax as a source of revenue."

At that time, 44 per cent of the city's workforce paid salaries tax. Since then, salaries tax concessions have been proposed in seven of the 10 subsequent annual budgets, including the last one. As a result, despite the increase of several hundred thousand wage earners in the past decade, the number of salaries-tax payers has declined by 100,000.

It was against this background that the government put forward a proposal in the second half of 2006 to broaden our tax base with the introduction of a goods and services tax (GST). A year later, it shelved the proposal in the face of strong opposition by the business sector and general public. Yet, in the same year, the then-financial secretary, Henry Tang Ying-yen, proposed a number of substantial salaries tax concessions that cost HK$4.9 billion annually and narrowed the tax base further. Last year, his successor, John Tsang, honoured the chief executive's election pledge and increased the level of personal allowances.

So is it not appropriate to conclude that the narrow tax base we face today is the result of the actions taken by successive financial secretaries over the past 11 years (except for Antony Leung Kam-chung, who raised salaries tax in the 2003-04 budget)? Is it not fair to say that, in winning the applause of taxpayers at the time, Donald Tsang, Henry Tang and John Tsang did not have sufficient regard for the long-term sustainability of our tax system?

The present situation is unsatisfactory and needs to be addressed. But a GST is not the answer, for two reasons. First, a tax based on goods and services is a most regressive and unfair one. It is not suited to a place with an increasing income disparity like Hong Kong. Also, while only one-third of our wage-earners pay salaries tax, almost all households pay rates based on the estimate of the annual rent of their properties. So, it is reasonable to say that most people already pay some tax.

Second, a GST is inherently complex and, once introduced, will have a lasting effect on our simple tax system. Shelving the proposal was the right decision; it should now be buried permanently.

The solution to the narrow tax base lies in increasing the percentage of salaries-tax payers to at least the previous level of 44 per cent and, preferably, higher. In the consultation document on a GST, the government did offer another option to broaden the tax base: a major reduction in personal allowances. As the administration did not favour this option, it was presented as a one-off exercise. But, if our present narrow tax base is the accumulated effect of 10 years of concessions, it is not fair to resolve the problem in one go, nor is it necessary.

The government may have to incur substantial expenditure in 2009-10 and even in the next two to three years as we brave the worst impacts of the financial crisis. But we have one of the largest foreign-exchange reserves in the world and the unfailing support of one of the financially strongest economies, in the mainland, whenever we need it. The government could afford to spend more than it receives for several years without putting our financial system or currency at risk.

The financial secretary should, therefore, propose a target for the percentage of wage earners in the salaries tax net, say 50 per cent to 60 per cent, and set a timeframe, of say 10 to 12 years, for achieving it. He should initiate a public debate on the matter. There is no urgency to reduce personal allowances. But he should send a clear message to the public that any future salaries tax concessions would be limited. Given the government estimate of a medium-range annual inflation rate of 4 per cent, our tax base will be widened substantially in the next five to 10 years, even without a major reduction in personal allowances in any year.

Widening the salaries tax net is fair and reasonable. There is no reason why most wage earners should not pay a small percentage of their income to benefit the community. It is a simpler and more equitable alternative to a GST.

In last year's budget speech, the financial secretary challenged Hong Kong citizens to have courage and aspirations, and "dare to hope" for our future. May I, in return, challenge him to take decisive steps to broaden our tax base, starting with a clear commitment that the present base will not be further narrowed during his term in office?

Joseph Wong Wing-ping, formerly secretary for the civil service, is an honorary professor at the University of Hong Kong


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Bank depositors dump roubles and seek safe places for cash


RUSSIA
Alex Rodriguez
Feb 16, 2009           
     
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The rouble has plummeted like a piece of space junk, unemployment is climbing steadily and Russian economists are predicting the worst is yet to come. Last month, Sergei Postnikov decided he had seen enough.
He withdrew from his bank accounts all the roubles he owns, converted the stack into US$33,000 and stuffed it into a safe-deposit box.



"Most of my colleagues did the same thing," said Mr Postnikov, 28, an economist at a major Moscow bank. "We are all very well aware of what's going on. We need to do this for the sake of access and security."

Legions of Russians are moving money into safe-deposit boxes in a wave of hoarding reminiscent of behaviour during the 1998 financial crisis, when Russia's economy collapsed under the weight of crippling debt and falling oil prices.

Russia bounced back from that crisis to become an energy powerhouse intent on regaining the geopolitical say-so that it once wielded as the Soviet Union. Today, however, Russians find themselves fretting about a return to the dark days of 1998, and that has many of them abandoning trust in financial institutions and stashing away their money in places that give them certain access.

The trend is the latest warning sign for a Kremlin struggling to stave off a wholesale economic meltdown — and the spread of social unrest that could come with it.

Recent demonstrations in Russia's Pacific port of Vladivostok were sparked by outrage over higher tariffs for car imports, but underpinning that anger was a growing dissatisfaction with Prime Minister Vladimir Putin's handling of the economic crisis.

During the eight years that Mr Putin was Russia's president, protests against his authoritarian rule were rare, largely because Russians were satisfied that he had the country's economy on the right track towards a swift and prosperous resurgence.

Today, that collective satisfaction with the state of the country is eroding, and a growing number of Russians are laying the blame on Mr Putin. Mr Putin, who became prime minister last year, faces his biggest challenge yet as he struggles to allay the fears of a nation worried about a return to bleaker days of the 1998 crisis, when Russians saw their life savings vanish.

"I think authorities here should start to think twice about what they're doing," said Yevgeny Chagurov, a 43-year-old pressman, as he marched with protesters through central Vladivostok, "because more and more people are coming out to the streets".

The latest dose of bad news came last month, when the Russian government predicted that gross domestic product would shrink by 0.2 per cent this year, marking the first contraction of the country's economy since 1998. Oil prices, the bulwark of the Russian economy, have fallen to below US$40 a barrel from record levels that topped US$140 last summer.

Across Russia, companies have begun carrying out mass layoffs, shortening working weeks and scaling back production. Authorities estimate that nearly 1 million people have lost their jobs since the crisis began, and predict unemployment will reach 7.5 per cent, or 5.5 million people, this year. The rouble has lost a fifth of its value since the summer and now trades at about 36 rubles to the US dollar.

"It's going to be a very hard year for Russia and its economy," said Yulia Tseplyayeva, chief economist at Merrill Lynch's Moscow office. "And it could be much worse than it was in 1998. In 1998, the crisis wasn't global, and there were healthy parts of the world economy that boosted demand for oil. Today's crisis is deeper."

The rouble's decline has triggered a frenzy among Russians to safeguard their cash. Businesses and consumers alike have been rushing to convert their roubles into US dollars or euros. At Alfa Bank, one of Russia's leading banks, 70 per cent of deposits were in roubles before the crisis, said Alfa executive Vadim Yudin. Today, more than 80 per cent of Alfa Bank's deposits are in either US dollars or euros.

Banks also have begun to run out of safe-deposit boxes. Nearly 95 per cent of Alfa Bank's safe-deposit boxes are now in use, Mr Yudin says. VTB24 Bank, another leading Russian bank, reports a 30 per cent increase in demand.

"This seems the most convenient way of keeping their assets liquid and handy," Mr Yudin said.

The Russian government's Deposit Insurance Agency insures up to 700,000 roubles (HK$156,500) of a bank customer's deposits. "But that's a limited amount of money," Mr Postnikov said. "And no one can guarantee that I'd get it quickly. It could take months."

Even Moscow's moneyed elite are withdrawing large amounts of cash and moving it into safe-deposit boxes. "There have been cases in which VIP customers have been hiring courier vehicles because they were physically incapable of carrying away their cash in bags," the Russian newspaper Gazeta reported earlier this month.

"This trend is creating serious problems for Russian banks," said Alexei Buzdalin, an analyst with Moscow's Centre for Economic Analysis.

"The amounts of money that wealthy clients are withdrawing from accounts can cause liquidity shortages and hinder the resources banks need to function."

McClatchy-Tribune


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The party's over
Business has slumped and expats are scrambling for flights out as Dubai's boom turns to bust

MIDDLE EAST
Paul Lewis
Feb 17, 2009           
     
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Arab tycoons wrapped in traditional headscarves sipped fruit-juice cocktails as they watched Russian models twirl in silk dresses. It was the most exclusive ticket in town, a private catwalk show to which the Middle East's biggest spenders had been personally invited. But, if the smiles at last week's Dubai fashion event looked more false than usual, it was for a reason. The net worth of the VIPs in attendance is a fraction of what it was six months ago.

A six-year boom that turned sand dunes into a glittering metropolis, creating the world's tallest building, its biggest shopping mall and, some say, a shrine to unbridled capitalism, is grinding to a halt. Dubai, one of seven states that make up the United Arab Emirates (UAE), is in crisis.

So too are the western expatriates, many of whom came expecting to make millions in property, and to soak up a lavish lifestyle living alongside footballers, actors and supermodels.

But the property bubble that propelled the frenetic expansion of Dubai on the back of borrowed cash and speculative investment has burst. Many westerners are being made redundant, or absconding before the sharia legal system catches up with them.

Half of all the UAE's construction projects, totalling US$582 billion, are either on hold or cancelled, leaving a trail of half-built towers stretching into the desert.

Among the casualties is the tower that tycoon Donald Trump promised would be the ultimate in luxury, a US$100 billion resort complex by the beach, and four huge theme parks and an artificial island developed by the state company Nakheel.

It is not all bad news for Dubai: the building projects still in play are almost the equivalent of the US stimulus package. And the city remains a haven for super-rich sheikhs, billionaire hedge fund managers and Russian oligarchs.

But the banks have stopped lending and the stock market has plunged 70 per cent. Scrape beneath the surface of the fashion parades and VIP parties, and the evidence of a slowdown is obvious. The luxury hotels are three-quarters empty.

Shopkeepers in newly built malls are reporting a drop in sales. In Dubai, you expect to see a Ferrari parked beside a Rolls-Royce, but not with scruffy "For Sale" signs taped to the windows.

Nowhere sums up the fortunes of expatriates in Dubai quite like Palm Jumeirah, an artificial island which fans out into the Persian Gulf and is populated by the likes of David Beckham, Michael Schumacher and even, it is said, Afghanistan's president, Hamid Karzai.

At the top of the island stands the Atlantis, a garish US$1.5 billion hotel complex with 1,539 rooms and a whale shark swimming in a million-litre fish tank.

The Atlantis' US$20 million inauguration celebration, where A-list celebrities were treated to 1.7 tonnes of lobster and 1,000 bottles of Veuve Clicquot champagne, was promoted as the world's biggest party.

For Palm residents, it was followed by an equally impressive hangover. The value of their villas and apartments fell by as much as 60 per cent in just a few months.

"Drink your last cocktail and get out of here," was the advice of Sasha Reynolds, a 33-year-old air stewardess. "My boyfriend is an engineer and work has dried up. He's been offered work in Qatar but who wants to go there? People are still making money here but the parties aren't quite the same. I'm lucky - I didn't buy."

Though there is much evidence of mass redundancies, the exact number of unemployed is not known - the Dubai government does not release figures, and prevents the press from running stories that damage the economy.

But there were sacked expatriates - bankers, lawyers and architects - in all but one of the hotel bars visited in Dubai last week.

Employees who lose their job in the UAE automatically have their visas rescinded, and generally have 30 days to leave.

"I look out of my balcony every day and I see Brits by the pool on their laptops," said Andrew Hillocks, 29, a sacked telecommunications consultant whose passport has been seized. He will be escorted to the airport this week.

"They're looking for work that just isn't there. I sold my car to cover my loan, but other people are panicking," he added.

Under Dubai's legal code, defaulting on a debt or bouncing a cheque is punishable with jail. Any expatriate in financial difficulty knows the safest bet is to take the next outbound flight.

At the airport, hundreds of cars have been abandoned in recent weeks. Keys are left in the ignition, with maxed-out credit cards and apology letters in the glove compartment.

Officials put the number of abandoned vehicles at 11. "No one believes that. There are 11 cars abandoned just on my street," said Anne, 26, a fashion editor from London. "Over the past two months, I've been getting an e-mail a day from people trying to sell their stuff. `New Jaguar - need to sell before the end of the week'."

In a world of self-made millionaires and property entrepreneurs, some remain bullish. Simon Murphy, 42, runs the exclusive Crest of Dubai social club for Palm residents. "My job is to keep people smiling," he said.

The former hedge fund adviser's apartment is a "boy's paradise". Beside the snooker table and darts board are photos of Mr Murphy beside Richard Branson and footballers Alan Shearer and Pele.

"I have the beach there. My local is that bar a couple of yards away. That's the pier where they're going to dock the QE2. People ask about the whole `living-the-dream' scenario? Ain't this it?"

Some people had to lose out, he said. "As they say: eagles fly with eagles. The motivating factor to come here is greed. You have to be selfish, have minimal social responsibility, and want to make money quick. It's the nature of the beast that not everyone wins."

In Dubai, however, the losers are the invisible majority.

Taxi drivers from Egypt, Yemen and Iraq compete for work. Their clients often ask to go to hotel bars where, at night, they will find prostitutes from eastern Europe, Africa and Asia.

Expatriates from developing countries helped maintain Dubai's orgy of consumption during the boom years. They, too, are being forced to leave.

Perhaps those who suffer most are the construction workers from South Asia, who have carried out perilous work on building sites for as little as US$100 a month.

The Indian embassy is reportedly anticipating an exodus with 20,000 seats on flights to India already "bulk booked" for next month.

Buses come to pick up 250 workers every night from one dusty street on the edge of Sonapur, a labour camp on the edge of the desert. As night falls, the gangly silhouettes of construction workers file out of the camp gates. "There is no work," said Jasvinder Singh, 24, placing his suitcase in a pick-up truck, the words "Dubai to Delhi" taped to the side.

"It has been such a drama. We came here to earn money. We are going home to see our wives but our pockets are empty," Mr Singh said.

"We were treated badly here. We were slaves to the Arabs," said Sanjit, 44, another construction worker from Punjab, gesturing angrily in the air.

But unlike their British counterparts, construction workers from India, Bangladesh and Pakistan cannot abandon lives in the glove compartment of a four-wheel drive. Most took loans to pay agent fees to come to Dubai, and their debts will follow them home.

"I sold our land and took loans in the village to come here," said Imran Hassan, a 20-year-old Bangladeshi farmer. "I paid the agent US$3,000 to bring me.

"He said I would earn 1,500 dirham [HK$3,170] a month, but we are paid 572 dirham. When I return people in the village will want their money but I have none."

A Welsh construction site manager, who would not give his name, said he had protested to his boss about the treatment of workers. "We tell them to bring their clothes to work one day and then we send them home. It makes me feel sick. I asked why it had to be done so quickly and I was told a lot of them commit suicide and we don't want that on our hands," he said.

Dubai's future will actually be decided well away from the shimmering skyscrapers. To find out why, you need to drive 150km south along the Gulf coastline, past tiny Bedouin enclaves and shimmering desert mosques.

Abu Dhabi, the oil-rich capital of the UAE and the richest emirate, has opted for a more conservative, some would say prudent, approach to growth that contrasts with Dubai's giddy expansion.

But it boasts 95 per cent of the UAE's oil reserves and more than half of its gross domestic product, and regional experts predict it will overtake Dubai as the destination of choice for westerners in the Middle East.

Dubai, which has barely a trickle of oil, is projecting a 42 per cent increase in public spending on infrastructure projects, to compensate for vanishing private investment.

But it cannot go it alone. Abu Dhabi is increasingly expected to bail out its poorer neighbour, and the two ruling families are meeting regularly to decide how to transfer cash into Dubai's ailing economy.

"The question is not if Abu Dhabi will come to the rescue, but how big it will be and how public," a source close to the negotiations said. "Abu Dhabi cannot let Dubai sink."

Abu Dhabi has its own problems, however. The emirate's sovereign wealth fund - once said to be worth US$1 trillion - has taken a hit in the global recession, while the price of the country's lifeblood, oil, is down more than 60 per cent.

Fifty kilometres from the capital, dust rises from the barren horizon where a 10km building site is being turned into al-Raha Beach, an US$18 billion waterfront city. It is a joint venture between Aldar, Abu Dhabi's largest property developer, and Laing O'Rourke, the largest construction company in Britain.

"A lot of staff have been moved over here from Dubai," said Paul, 35, a Laing O'Rourke project manager. "But it is all coming to a stop here too. There are mass redundancies now. We've gone from an expat workforce of about 1,000 to about 400. There are more waves of redundancies coming this week."

Back in Dubai the next day, a Mercedes snaked along the city's main street, Sheikh Zayed Road.

Firas Darwish, 35, an Emirati property magnate dressed in traditional Arabic clothing, sat in the driver's seat, listening as Veronica Chapman, 65, a British property agent, recalled what the city was like when she first arrived in 1980.

"No milk, no bread, no schools. It was a desert and a couple of buildings," she said.

Mr Darwish slowed the car to point out abandoned building sites where cranes stood still in the baking heat. "Here we are completely reliant on foreigners," he said. "Maybe Dubai grew too fast."

The Guardian

More bank bailouts won't get credit flowing


Douglas Diamond and Raghuram Rajan
Feb 18, 2009           
     
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Little political enthusiasm exists for further support for the banking sector. One reason is that banks which received money in the initial rescues do not seem to have increased their lending, without which monetary and fiscal stimulus are unlikely to be effective. For banks to start lending again, even more intervention may be needed.

To see why, we need to understand why banks are still so reluctant. One possibility is that they worry about borrowers' credit risk. A second possibility is that banks fear a lack of resources to meet their own creditors' demands if they lock up funds in long-term loans.

But perhaps banks fear being short of funds if investment opportunities arise. Citicorp chief executive Vikram Pandit said as much when he indicated it was cheaper to buy loans on the market than to make them.

Consider, for example, the real possibility that a large indebted financial institution faces a run on its deposits, as Lehman did, and starts dumping loans onto the market. Not only will those loans' price fall if only a few entities have the spare funds to buy them, but other distressed entities' scramble to borrow will also make it hard for any institution without funds to obtain them. Anticipating the prospect of such future fire sales, it is understandable that even strong banks will restrict their lending.

This may also explain why markets for some assets have dried up. Some distressed banks clearly possess large quantities of mortgage-backed securities, and are holding onto them in the hope that their prices will rise in the future, saving them from failure. At the same time, buyers expect even lower prices down the line. While there is a price today that reflects those expectations, it is not a price at which distressed banks want to sell.

As a result, there is an overhang of illiquid financial institutions, whose holdings could be unloaded if they run into difficulties. For some, low prices would render them insolvent. For others, low prices would be a tremendous buying opportunity. Political exhortations to lend can have some, albeit limited, impact. Any voluntary resumption of lending will necessitate reducing both fears and potential opportunities.

There are ways to reduce the overhang. First, authorities can offer to buy illiquid assets through auctions and house them in a government entity, much as was envisaged in the original Troubled Asset Relief Programme. This can reverse a freeze in the market caused by distressed entities that don't want to sell at prevailing market prices.

A second approach is to have the government ensure the stability of significant parts of the system that hold illiquid assets by recapitalising regulated entities that have a realistic possibility of survival, and merging or closing those that do not.

The sooner the authorities bite the bullet and clean up the financial system, the sooner the economy will be on the road to recovery.

Douglas Diamond and Raghuram Rajan are professors at the Booth School of Business at the University of Chicago. Copyright: Project Syndicate


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Science class no place for creationist dogma


OBSERVER
Alex Lo
Feb 19, 2009           
     
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Academic freedom does not mean university scholars are free to teach whatever they see fit in the classroom. The fact a scientist admits he has been secretly teaching what, by the scientific consensus of his peers, is a pseudo-science and a creationist dogma should have set off alarm bells.

Chris Beling, an associate physics professor at the University of Hong Kong, has appeared in the media to openly attack his faculty for banning him from formally teaching a course on intelligent design and the origins of the universe. He has also complained that the university would not let him invite prominent speakers who advocate such views. He is not shy about telling of holding secret weekly meetings in his office to teach students about the topic. A self-described Christian, it appears Dr Beling feels emboldened enough to go on the offensive and to make it sound like he is being censored.

No one is questioning his faith. As a Hong Kong resident, he must be free to believe in, and openly practise, whatever religion he subscribes to. He should be completely free to teach intelligent design in a church, or even in university classes for theology or philosophy. He should enjoy the same freedom if he were a devotee of fung shui or astrology. Indeed, I applaud him for taking part in an RTHK radio debate last week about creationism and evolution to mark the 200th anniversary of Charles Darwin's birthday. By arguing for the contentious doctrine in public, he has performed a valuable service to the community.

However, he is absolutely not free to teach the doctrine as a scientific theory that deserves equal time in a physics or biology classroom. He is no freer to do so than he would be if he were to insist on teaching fung shui or astrology as science. The HKU faculty is absolutely right - and must have the courage of its convictions - to continue to ban him from teaching the doctrine as a physics lecturer and university employee using science faculty facilities and time.

Intelligent design is a creationist dogma posing as an empirical-scientific theory. It has been primarily an American phenomenon, though it is slowly spreading elsewhere. It is not a rival to the theory of evolution and natural selection; and no responsible scientist should teach it as such. Core arguments similar to intelligence design have been around for centuries; they were levelled against Darwin in his lifetime.

But intelligent-design theory today is often clothed in modern biological or physics terminology to make it sound more scientific. Its leading advocates at the Seattle-based Discovery Institute argue "certain features of the universe and of living things are best explained by an intelligent cause, not an undirected process such as natural selection". But beneath their rhetoric, they are creationist at the core. They insist on the theory's scientific status because of the peculiar culture and politics in the US. Creationism is practically banned in all American states from being taught as science. So to get creationism through the back door into schools, fundamentalist Christians came up with intelligent design as the camouflaged vehicle.

Centuries ago, the scientific revolution came about in the west by abandoning teleological or intelligence-directed causes as scientific explanations. Now, advocates of intelligent design want to reverse this basic scientific paradigm. Investment in research based on the edifice that Darwin built has yielded compound-interest-like returns in major scientific and medical breakthroughs and technological advances.

If we were to fund intelligent design "scientists" with all the money we have now and allow them to teach their "science" everywhere, a century from now, it's a safe bet that their followers would still be repeating the same old arguments with nothing scientifically creditable to show for it. It will be a major divestment in science and cultural enlightenment the day we allow intelligent design to be taught as science.

Alex Lo is a senior writer at the Post


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The US that can say 'no' to pleas for help


Ian Bremmer
Feb 20, 2009           
     
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Early this month, Kyrgyzstan's president, Kurmanbek Bakiyev, went cap in hand to Moscow to ask for financial aid. To make his request more palatable, Mr Bakiyev announced that he was demanding that the United States close its airbase in Kyrgyzstan, which resupplies Nato troops in neighbouring Afghanistan. Similarly, late last year, Iceland's government asked Russia to help bail out its banking system, while Pakistani President Asif Ali Zardari visited China in the hope of securing an emergency infusion of cash.

Some observers cite these episodes as evidence of a decline in America's international clout. But there's a larger point: so far, except for relatively small sums offered to the Kyrgyzs, Russia and China haven't offered much help.

Amid much talk of a "post-American world", many observers see a shift from a US-dominated international order towards a multipolar system, in which countries like China and Russia compete for global leadership on a range of common challenges.

More than five years ago, President Hu Jintao proclaimed "the trend towards a multipolar world is irreversible and dominant". When Russia's then president, Vladimir Putin, complained during a conference in Munich last year that US unilateralism stoked conflict around the world, an offended Senator John McCain responded that confrontation was unnecessary in "today's multipolar world".

When Mr Putin welcomed Venezuelan President Hugo Chavez to Russia last September, he said that "Latin America is becoming a noticeable link in the chain of the multipolar world that is forming".

All of them have it wrong. US dominance is clearly on the wane, but a multipolar order implies that several emerging powers hold competing views about how the world should be run, and that they are prepared to act to advance their global agendas. That is not the case.

Instead, we are witnessing the birth of a non-polar order, in which America's chief competitors remain too busy with problems at home to shoulder the heaviest international burdens or accept responsibilities that the US can no longer afford.

Despite its growing ties with Venezuela and efforts to co-ordinate energy policy with natural-gas-rich countries in North Africa, Moscow has no aspirations to rebuild Soviet-scale influence in Latin America, Africa or Southeast Asia.

China's hunger for imported oil and other commodities has given it an international presence. But its influence is more commercial than political. Leaders must devote their attention to pressing problems at home: averting an economic slowdown, the fallout from rural land reform, and environmental and public health issues.

In short, there is a vacuum of global leadership just when it is badly needed. For the next few years, when those in crisis turn to the US for help, they are more likely to hear the word "no". And it is not at all clear that anyone else is willing and able to say "yes".

Ian Bremmer is president of Eurasia Group and a senior fellow at the World Policy Institute. Copyright: Project Syndicate


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Fulfilling the promise of US-India relationship


Frank Wisner, Charles Kaye, Vishakha Desai and Alyssa Ayres
Feb 23, 2009           
     
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Few places in the world offer as daunting a set of challenges as South Asia. A narcotics-fuelled insurgency threatens newly democratic Afghanistan. A resurgent Taleban in its tribal areas has destabilised Pakistan. The carnage in Mumbai has prompted another standoff between nuclear-armed India and Pakistan.

Each of these crises demands urgent action. But, as a new Asia Society taskforce argues, in tackling them, the world must not lose sight of the promise of the India-US relationship.

Today, both countries stand on the brink of a historic opportunity: a new relationship that will foster global security, stronger economies, nuclear non-proliferation and progress in combating climate change. But these potential gains will be realised only if US President Barack Obama gives India the attention it deserves, and if both countries broaden the strategic stake by involving their private sectors in issues that governments alone cannot resolve.

Already, the end of the cold war and painstaking diplomacy have brought the US-India relationship to a point unimaginable just 10 years ago. The US presence in Afghanistan highlights the need for stability in South Asia. India's democracy and burgeoning economy make it a major factor in the Asian balance of power, and the recent terrorist attacks in Mumbai underscore a shared struggle against violent Islamic extremism.

The recent civil nuclear agreement between the two countries paves the way for co-operation in halting the spread of nuclear weapons. At the same time, bilateral trade has soared to more than US$40 billion in 2008, from about US$12 billion in 1998. Even where the two governments continue to disagree - for example, on the Doha round of trade negotiations and the solution to climate change - the potential for co-operation outweighs differences.

To begin with security, India is a vital piece of the puzzle on questions of stability in Afghanistan and the balance of power in Asia. On global non-proliferation, the US should push for a role for India in next year's nuclear Non-Proliferation Treaty review conference to complete the country's transformation from being part of the problem to being part of the solution. In terms of counter- terrorism, the tragic events in Mumbai present an opportunity to ratchet up intelligence sharing.

Over the past decade, economics has pulled the US and India closer. It will continue to power the relationship; the US should tap India's potential as an engine for economic recovery. In the long run, a global trade agreement will not be completed without India's engagement. By getting India into the Group of Eight and other institutions, the US can ensure that India's growing global role carries commensurate responsibilities.

Beyond government co-operation, the creativity and dynamism of businesses, non-governmental groups and private citizens in both countries hold the key to what India and the US can offer each other and the world. Consider climate change. Without India, it is hard to imagine a successful conclusion to the 2009 Copenhagen conference to draft a successor agreement to the Kyoto Protocol. India and the US are natural partners in meeting this challenge, with innovative scientists and venture capitalists who can take technology breakthroughs from the lab to the market, and NGOs with vast conservation and advocacy experience.

For too long, the world's oldest and largest democracies have failed to fulfil the promise of their relationship. But if Mr Obama seizes what we believe is a rare historic opportunity this could change decisively - for the long-term benefit of America, India and the world.

Frank Wisner was US ambassador to India from 1994-1997; Charles Kaye is former chairman of the US-India Business Council and chairman of the Asia Society; Vishakha Desai is president of the Asia Society; and Alyssa Ayres is director for India and South Asia at McLarty Associates. Copyright: Project Syndicate


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No pain, no gain
Unpleasant adjustments are necessary for the future healthy development of the mainland economy

David Dollar
Feb 24, 2009           
     
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This is not the coming out party that China envisaged. Just as it emerges as the largest exporter in the world, the global market collapses and the world turns to the mainland to offer a reprieve. Beijing's export machine is in a stall. Its stimulative measures will help, but they may not be enough to generate the growth that the world and Chinese people have come to expect.

Each month's data is most disheartening; January's export figure showed an 18 per cent decline from the year before. More alarming was the 43 per cent drop in imports - many of those are parts and material for future processing, and their disappearance signals worse export performance in the months ahead. The government estimates that, already, 20 million migrant workers have lost jobs in manufacturing and construction. Painful as it is, the adjustment on the mainland is necessary for the future healthy development of the economy. The trick is managing that adjustment.

In recent years, half of mainland China's output has gone to investment and net exports. Yet they cannot be a source of growing demand forever. Trading partners cannot go on borrowing forever to cover consumption. As demand for imports from the US and other deficit countries dropped sharply, this reduced demand for mainland exports, with a quick spillover effect on construction of both factories and residences. Growth of investment in the property sector dropped to zero in the last months of 2008. Steel production was down 20 per cent from the year before; electricity use, down 10 per cent. These are indicators that the old model of growth based on exports and investment hit a wall.

Alarmed at these declines, the government quickly put together a 4 trillion yuan (HK$4.54 trillion) stimulus package, mostly of infrastructure projects. Some pundits immediately called this an attempt to hang on to the old model, but such criticism was unfair. First, there have been few efforts to try to maintain exports. Second, the infrastructure programme contains a lot of projects aimed at strengthening consumption and quality of life. However, not all details have been worked out yet, and there are some risks. The challenge is keeping the stimulus programme focused on legitimate future needs, not white elephants.

Another concern is that the package aims to limit damage in the industrial sectors. Of course, the government wants to avoid allowing these to decline too rapidly. But, over time, one would want a relative decline of industry and a shift in the growth model. The other half of the mainland's gross domestic product represents consumption. The half of the population that lives in rural areas consumes 9 per cent of GDP; the urban half about three times more (26 per cent). Government consumption - which includes public spending on health and education - is only 13 per cent. Both the welfare of Chinese people and sustainable long-term growth depend on increasing all those shares. The government has measures in all these areas: programmes to subsidise appliance purchases by rural households; stimulus to the property sector; and 850 billion yuan over three years to spread health insurance to 90 per cent of the population. These programmes all go in the right direction, and the issue is simply are they big enough to maintain a healthy rate of growth? Simple maths shows it will be hard to get growth out of consumption increases over one year.

What all this adds up to is uncertainty about the mainland's growth in 2009. The consensus view is that the fourth quarter of 2008 and first quarter of 2009 will be the bottom of the trough. The consensus forecast for 2009 is still 7 per cent. Two caveats: there is a wide range of views, from 5.5 per cent up to 8 per cent; and, forecasts for 2009 have been consistently marked down over the past year as new information, all bad, became available.

This leaves the question of how much China can contribute to global growth and stability. The first task is to limit the decline in its own growth. In academic circles there are some negative predictions that mainland growth could decline to 2 per cent or 3 per cent in 2009.

That would be a shock to global confidence and a further blow to the commodity-exporting developing countries that supply China. If growth continues to falter, my advice is, "think big" when it comes to government programmes and spending this year.

A second key task for Beijing is to keep open its trade regime and look for opportunities to liberalise further. It would be a smart move to open its service markets further, including sectors like financial services, logistics, airlines, media, telecom and transport.

While it's a bold move to liberalise during a crisis, there are two good reasons for Beijing to consider: first, global rebalancing will result in its trade surplus gradually declining. If service imports rise rapidly, then the adjustment can accompany moderate expansion of manufacturing exports. If imports do not rise, however, the adjustment may force a painful absolute decline in manufacturing. Second, more of the nation's future growth will depend on service industries. More openness and competition would create the same dynamism in services that China has already in manufacturing.

The long-term health of the mainland's economy and the global economic system largely depends on whether it successfully uses the crisis to make these adjustments.

David Dollar is World Bank country director for China and Mongolia, based in Beijing. Reprinted with permission from YaleGlobal Online. yaleglobal.yale.edu


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Think big
Hong Kong will need to make major changes to survive a new world economic order

Joseph Cheng and Anthony Cheung
Feb 25, 2009           
     
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At the recent meeting of the Group of Seven finance leaders in Rome, Italy's finance minister called for a "new world economic order" and argued that while this "might seem rhetorical ... it is a true goal we should be aiming towards". In support of this call, US Treasury Secretary Timothy Geithner agreed that "we need to begin the process of comprehensive reform ... so the world never again faces a crisis this severe".

At a Global Business Forum, held recently in Hong Kong, professional economists agreed that the global crisis will be severe, widespread, and unpredictable in its speed and shape. All this will lead to a protracted slowdown of economic activity worldwide, and a deep deterioration of confidence among investors, manufacturers and consumers. The emerging world economic order, and "disorder" in the interim, will be characterised by: much less independence for the financial sector worldwide; far greater government intervention and oversight; tighter credit across all economic sectors; rising unemployment across all salary levels; further coupling of developed and emerging economies; increased protectionism; and a trend towards globally co-ordinated fiscal and monetary polices.

Given these changes, can Hong Kong survive a new world economic order when it finally arrives? Traditionally, the city's economic prosperity (SEHK: 0803, announcements, news) has come from four major revenue sources: opportunistic property development; speculative stock market investment; entrepot cargo shipment; and, in recent years, financial services in support of mainland-related businesses. All this has been done within a macro environment, with the government expected to play a minimal role in economic affairs.

Past wisdom and success no longer suffice to equip Hong Kong to meet the challenges ahead. Increased government involvement in economic planning and oversight of financial institutions is somewhat alien to Hong Kong and will dampen opportunistic and speculative investment. The erosion of the city's position as both a trading platform of sourcing for mainland-made goods and a logistics hub for cargo shipments will further cut into its revenue base. Hong Kong people and businesses need to develop new capabilities to weather the storm and emerge as winners when the dust settles. Five major adjustments are necessary to facilitate fundamental changes and "out-of-the-box" thinking.

First, given such great uncertainties, companies need to be innovative; experience no longer applies. An innovation culture encourages people to be creative and rewards them when successful, but an experimentation culture goes one step further, by supporting and being committed to research-based creative endeavours, even if they fail. Hong Kong and many other Asian societies currently lack such a culture; taking risks that could end in failure are to be avoided.

Second, as the world's resources become increasingly constrained, coupled with the tightening of credit and increased oversight by regulatory bodies, future investment decisions will only be made after careful deliberation, not through speculation or opportunistic reasoning. A strong value-added commitment has to be instilled in Hong Kong business, with a dedication to value creation, rather than profits from transactions, as the primary means of securing returns.

Third, we need to develop a co-operative competitive environment to replace the current self-centred, tribal mentality in the Hong Kong psyche. We should encourage partnerships with neighbouring cities and nations, to launch large joint projects that strengthen the region's global competitiveness.

Fourth, we need new thinking about Hong Kong as a global city. Historically, it had benefited immensely from China's economic failure and subsequently its opening up and reform. Now, and in the future, prosperity has to come from mainland China's rise. Hong Kong must not allow itself to be marginalised but should opt to integrate effectively with the mainland and play an active role in its modernisation.

Hong Kong's international connectivity, and human and financial capital, make the city of great relevance to the mainland. The city should have global leadership aspirations, grounded in the richness of its human, capital and geographic resources.

Finally, decision-makers, in both the private and public sectors, need to develop a proactive strategic mindset. Given its colonial history, Hong Kong has not been accustomed to thinking strategically.

At a time of turbulent change, where there are no guidelines for what may come next, decision-makers need to set visionary and motivating goals that can lift the hearts and minds of the people, as well as mobilise the necessary resources to create a better tomorrow.

Otherwise, the new world order will arrive before we know it; and the opportunities will pass us by just as quickly, leaving Hong Kong lagging behind our competitors in the region, and the rest of the world.

Joseph L. C. Cheng is professor of international business and director of the Illinois Global Business Initiative at the University of Illinois. Anthony Cheung Bing-leung is an executive councillor and president of the Hong Kong Institute of Education


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A real world crisis


CHRISTINE LOH

Feb 26, 2009           
     
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As the world faces a breakdown of the global financial system, governments are negotiating a new climate-change deal this year to reduce carbon emissions. It is unclear whether the current problems will hinder or help the climate negotiations. Many say governments and business leaders will probably focus on the short term because it is easy to go along with a "business as usual" way of doing things.

The global financial crisis is intricately linked to the widespread environmental breakdown. Both are the result of an economy powered by vast quantities of fossil fuels. The accepted notion of economic growth stresses the creation of immediate value that is often far beyond the regenerative capacity of our assets or capital, whether financial or natural.



As vast sums of money are pumped into financial markets just to help stabilise them, the attention of world leaders is being diverted from the climate-change crisis. They are unable or unwilling to acknowledge that the world economy is physically limited by the resources and services provided by the environment.

Human activity cannot be separated from what nature is able to support. However, the way we waste our natural capital, through overexploitation and pollution, is seriously degrading the environment in many parts of the world. Accelerating greenhouse-gas emissions are changing the world's climate at an alarming rate, affecting agriculture, commerce and even human life through droughts, floods, extreme storms and forest fires. Species are threatened; others are adapting in unwanted ways, notably crop pests and disease-causing pathogens. The threat to civilisation is very high.

During a recent visit to South Africa for a meeting between the Tallberg Foundation - a Swedish non-profit organisation - and public- and private-sector leaders, there was a growing sense that many parts of Africa will be among the worst hit. The continent's forests are dwindling, removing a vital carbon "sink", while deserts are expanding. Governments are still allowing new coal mines to open rather than turning to renewable power. Safe water supplies are under stress as droughts and floods become more severe. The rising population only puts greater demands on limited resources.

A lot of solutions have been suggested for Africa's problems, many of them common sense rather than hi-tech. Many opportunities exist in rural areas for small solar-powered energy systems to be developed using affordable, existing technology. Conservation and efficiency projects are a priority. Low-tech farming methods such as intensive organic production can reduce water use, eliminate reliance on proprietary seeds and fertilisers, and lock up carbon in soils while raising farm productivity and improving nutrition.

The key to these solutions is that they must be practical. Our African friends complained that, all too often, foreign governments want to press on them technology and methods that are inappropriate for their communities. The message was about being disconnected. Good intentions are wasted if those who offer technology and development assistance do not understand the needs of the African people. Many Africans feel that developed countries are too quick to pass on outdated technology, to make a quick profit, while simpler and cheaper solutions are available.

The Tallberg Foundation has identified four main goals for government and business leaders. First, they must address climate change within the wider challenge of preserving the regenerative capacity of global ecosystems. Second, they should ensure that a new climate regime is developed using the most up-to-date science. Third, they must embed ethics and principles of equity at the core of the global response to climate change. Finally, they must recognise that the effectiveness of a new climate deal depends on global governance reform that promotes the common good and not just economic interests. This applies not only to Africa, but to China and the rest of Asia, too.

Christine Loh Kung-wai is chief executive of the think-tank Civic Exchange. cloh@civic-exchange.org


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He's only human


PETER KAMMERER

Feb 27, 2009           
     
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Barack Obama has been compared to Martin Luther King, the greatest American presidents of the past century and a half and, in a recent Harper's magazine article by South African writer and painter Breyten Breytenbach, Nelson Mandela. Mr Obama took office a little more than a month ago on a sea of the highest of hopes and exuberance; he has not had it all his own way with his cabinet appointments but, still, the shine has not worn off. All the world's problems have been laid at his feet and we expect him to fix them. It's time for a reality check before we get totally carried away and start referring to him as the next Jesus: he is a mere mortal, not a miracle-maker.

I don't mean to be a killjoy. Times are bad and, if a rare politician comes along who inspires and brings cause for optimism, we should give him or her our every support. Mr Obama is a breath of fresh air to a world that has lost faith in its leaders. In the absence of anyone else who inspires confidence, let's give him the ball and the opportunity to shoot a few hoops.

That said, we should not get carried away. For all his apparent qualities, he is not yet a great leader. He has no track record at the international level. Our wish list is far-reaching and broad; the majority of these issues have been on the global to-do list for decades and will not be resolved in two years, one or two presidential terms, or perhaps ever.

To his credit, the president has told us not to get too carried away. The economic meltdown will take time to come to grips with, he has said. Climate change will similarly be a tough nut to crack. But he has nonetheless told us his administration will come up with solutions and steer the world out of the gloom.

Economies move in cycles; Mr Obama is correct to say that the good times will one day roll again. Given that no one is exactly sure of just how deep the crisis will be, whether the upswing will occur while he is at the helm is a matter of guesswork. Global warming could be here to stay. Mr Obama may well get leaders together and deals struck, but just how effective they will be is a matter of wait and see.

His promised approach to foreign policy is laudable. He wants to reach out to old friends and talk to foes. Iraq-style invasions are not on his agenda. But past diplomatic failures make up the bulk of the State Department's in-tray: North Korea, Iran, the Arab-Israeli conflict and terrorism.

With this latter issue in mind, the president has taken up Afghanistan as his foreign-policy priority. Among his first orders was to send in 17,000 additional American troops. History is not on his side, though: time and again, the country's tribes have outfoxed foreigners. Two British occupations in the 19th century and the Soviet Union's invasion in 1979 ended with defeat. The US-led war is seven years and four months old and gains are being turned into losses. Taleban-inspired tribes in neighbouring Pakistan are widening the challenge; some observers are portraying the conflict as America's new Vietnam.

As daunting as all this may be, it is not enough for the Obama enthusiasts. They want him to go even further, getting leaders to reshape the multilateral framework centred on the International Monetary Fund and World Bank, restart the Doha Round of trade talks, and eradicate disease and poverty. Even activists dedicated to issues barely on the radar, like Myanmar and Sri Lanka, see him as their saviour. Expectations are irrationally high.

Mr Obama is not Superman. What he wants to get done is perhaps too broad to be achievable. Proving that he is only human, he has run into problems getting his cabinet filled. Three of his choices had to withdraw their names over tax irregularities. Treasury Secretary Timothy Geithner has proved less adept at his job than was anticipated.

The world is not in good shape. Mr Obama breaks the mould of recent American presidents and, in him, many of us see a chance for change. But, given the scale and scope of what has to be done, it would be wise to tone down the optimism a notch or two. That election campaign chant of "Yes, we can" should perhaps have been, "We'll try to do the best we can".

Peter Kammerer is the Post's foreign editor. peter.kamm@scmp.com


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India should have been on Clinton's Asia itinerary


Lee Cheong Seong
Mar 02, 2009           
     
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There is excitement throughout Asia that US Secretary of State Hillary Rodham Clinton chose the continent for her maiden international voyage, bypassing the more traditional choices of Europe or the Middle East.
This was good thinking from the new US administration; global economic power continues to shift to Asia, despite the current global crisis. But, leaving India out signalled a lack of forward thinking and, in doing so, President Barack Obama missed an exceptional opportunity.

For some, Mrs Clinton's agenda appeared flawless. A visit to China is mandatory in any Asian schedule. Key allies such as Japan and South Korea were duly included.

Indonesia - the world's most populous Islamic country, a bustling  democracy, the re-emerging power in Southeast Asia - and Mr Obama's home for four of his formative years - was a clever choice.

But a visit to India - the world's largest democracy and one of the emerging poles of political and economic power - would have been an inspired one.

In contrast to the waning US- Pakistan relationship, America's engagement with India is blossoming. The US-India nuclear pact, discussed since 2005 and signed in mid-2007, was a milestone for relations.

As former US undersecretary of state Nicholas Burns - who played a key role in the negotiations - declared, the agreement signalled the beginning of a "strategic partnership" between the two nations.

It is noteworthy that the term has not yet been used to characterise Sino-US relations even though they were initiated by president Richard Nixon in 1972.

But while the India-US bilateral relationship continues to evolve, the concern is that America under Mr Obama will continue to take a narrow, unimaginative view of the broader strategic opportunities of partnership with India.

To be sure, India takes seriously its long-standing status as an "independent rising power". Few things would be more unpalatable to New Delhi than being passed off as an American lackey.

But there are reasons to believe that a US-India partnership is plausible. For example, Washington would be happy to allow New Delhi to have a growing pre-eminence in the Indian Ocean.

Despite some co-operation, tensions between New Delhi and Beijing remain, especially since China's militarisation of the Tibetan plateau. It is estimated that Beijing has  deployed about a quarter of its nuclear intercontinental ballistic missiles in Tibet.

India might not agree to become one spoke in America's "hub-and-spokes" model of security alliances in the region, but New Delhi and Washington have common strategic interests when it comes to "managing" China. An emerging India-US partnership should be an essential pillar of this "shaping" strategy.

Although Mr Obama's Asian strategy is still being formed, the fear is that the centrepiece of the administration's regional security strategy - which largely means managing China's rise - will be to deepen its  relationship with Beijing.

Critically, this might be done primarily through direct and bilateral engagement with the Chinese, while partners such as Japan and perhaps India are left on the sidelines.

American appreciation of the possibilities for India's role in the region have historically been poor. India's absence from the Asia-Pacific Economic Co-operation forum is an enormous oversight which has not helped.

But any future American grand strategy in Asia, especially with respect to a rising China, cannot exclude India if it is to be successful.

Mrs Clinton would have done well, and displayed admirable foresight and creativity, had New Delhi been part of her inaugural overseas trip as America's top diplomat.

John Lee Cheong Seong is a foreign policy fellow at the Centre for Independent Studies in Sydney. Copyright: OpinionAsia


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No longer a local bank, HSBC faces global trials


LEADER

Mar 03, 2009           
     
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HSBC has launched a massive capital raising from its shareholders to shore up its strength following a 70 per cent fall in profits last year. Given that it remains one of the world's most strongly capitalised banks, that says something about the impact of the financial crisis on the global banking industry. It also says a lot about HSBC's relative strength that it can turn to shareholders at a time when bank stocks have little appeal to investors and major British and American rivals have had to accept government bailouts and controls.

The US$17.7 billion rights issue at five-for-12 is priced at HK$28 a share, or a discount of more than 50 per cent to Friday's closing price. In considering it, shareholders will have to weigh poor market sentiment now and likely deteriorating conditions in the bank's markets against the prospect of future gains when the global economy recovers.

For many Hongkongers who have held HSBC shares for a long time, it would mean raising their stake in a vastly different bank from the conservatively run local institution they originally invested in - one with broad international exposure to a downturn that has left its mark. Net profit fell to US$5.7 billion last year from US$19.1 billion the year before, largely as the result of losses on consumer finance in the US subprime mortgage crisis.

HSBC is still making profits in the worst environment for financial institutions since the Great Depression. It says the rights issue will raise its Tier One capital reserves - a key indicator of a bank's financial strength - to 9.8 per cent, in excess of the target range, after they fell 1 per cent to 8.3 per cent last year. The question is whether shareholders will be persuaded that the group can put the worst of the fallout from the financial crisis behind it - that it is well-placed to ride out the financial storm and acquire good assets being sold off by rivals who have been bailed out by governments.

Last night, a number of Hong Kong tycoons pledged their support for the bank, with a few even agreeing to be an underwriter for the rights issue. Others have doubts, however, given recession in the US and Europe - a major profit contributor - and slowing down in its growth markets of Asia and South America raises a lot of uncertainty.

Before the handover, when HSBC was still identified as a Hong Kong bank (SEHK: 0005, announcements, news) , it enjoyed a lot of confidence from retail investors because it was a conservatively managed, prudent institution that rode on the back of the city's success. Slowdowns and crises came and went without the bank or its shareholders losing money in the long run.

As evidenced by relatively robust capital reserves during the current crisis, expansion has not come at the cost of prudence. For example, HSBC acted before many others to account for the meltdown in the US subprime mortgage market. It has now even decided to close its operations in the US.

However, now that it has become a global institution that bills itself as the "world's local bank", shareholders need to bear in mind the tougher challenges posed by operations in different parts of the world. There has long since been more to it than putting your money in safe hands in a money-making town with the ability to bounce back stronger from adversity.


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A scholar of many talents
After a lifetime devoted to learning, Jao Tsung-I, who just won a prestigious mainland fellowship, is still passionate about knowledge

ACADEMIA
Ella Lee
Mar 04, 2009           
     
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Talking to 91-year-old Jao Tsung-I is like being in the presence of a living encyclopedia of Chinese history. Indeed, it would be very easy to lose one's way as the internationally recognised sinologist races through topics such as oracle bone inscriptions (the earliest form of Chinese writing, dating back to 1700BC), relations among ancient fortune-tellers and the Dunhuang manuscripts.

To most "modern people" - as he calls them - the topics that Professor Jao has dedicated the past seven decades to studying may appear too difficult and remote.

"Modern people are always eager for entertainment, which doesn't leave much time to pursue knowledge," Professor Jao said, in between sips of tea at the University of Hong Kong's Jao Tsung-I Petite Ecole research centre, which was set up in his name.

Professor Jao's voice was impassioned as he spoke in his signature Cantonese with a Chiu Chow accent on how to get young people interested in Chinese studies.

The first thing "modern people" need to do was maintain a calm mind and learn to live with solitude; too many spend too much time watching TV or at a computer, he said. "They are now like machines or half-machines. Their spirits are caught by the virtual world. Soccer, for example, has occupied many people's minds. How can they have time for knowledge?" Professor Jao said

There are many ways to describe Professor Jao: an outstanding contemporary scholar in Chinese literature and history; a walking encyclopedia in philosophy, art, religious studies, archaeology and etymology; or a painter, poet and an expert in classical prose, essays and the history of music.

Last month, he became the first Hong Kong scholar to be awarded a fellowship of the mainland's Central Research Institute of Culture and History, a position that is directly appointed by the premier.

In 2003, HKU set up the Jao Tsung-I Petite Ecole research centre to store his more than 20,000 books, and collection of paintings and calligraphy.

The centre was named after the French petite ecoles, which in the Middle Ages provided training in ancient Latin and Greek rhetoric.

One of Professor Jao's works best known to Hong Kong people, the ancient Buddhist prayer the Heart Sutra, is now a popular tourist attraction called The Wisdom Path, in which the prayer is displayed on 38 giant timber columns on the Lantau Trail near Ngong Ping.

The inspiration for Professor Jao to create a calligraphy of the Heart Sutra came during a visit to China in 1980, when he saw the stone carvings of the Buddhist text the Diamond Sutra on Mount Taishan in Shandong.

Professor Jao said he had dedicated his calligraphy of the Heart Sutra, which teaches people to acquire the wisdom of "emptiness", to Hong Kong people because he wanted them to regain their spirit in this "messy" world.

Professor Jao's teenage years were in stark contrast to those of most "modern" youngsters. Born in 1917, he came from a wealthy family in Chaozhou, a city in eastern Guangdong: his father was a banker and scholar who collected books on Chinese literature, Buddhist culture and history.

As a youngster, the self-confessed "bookworm" spent most of his time in the family library. At the age of 16, his father died, leaving his work, the Chaozhou Literature Gazetteer, unfinished. The teenage boy went on to complete it.

In 1935, he was appointed the editor of the Guangdong history centre by the Zhongshan University in Guangzhou.

His works included The Gazetteers of Chaozhou and The Geography of Chuci.

He moved to Hong Kong in 1949 and, between 1952 and 1968, taught at HKU where his studies included poetry and oracle bone inscriptions. In 1962, he won a French award for outstanding achievement in Chinese studies, the Prix Stanislas Julien. He was made the first chair professor and head of the department of Chinese studies at the University of Singapore in 1968.

Five years later, he returned to Hong Kong and was appointed chair professor and head of the department of Chinese language and literature at Chinese University. He specialised in the study of Dunhuang.

During his teaching years, he lectured in France, Japan, on the mainland, in Taiwan and Macau before officially retiring in 1979. Today, he remains active and recently held exhibitions at the Palace Museum of Beijing and the Shenzhen Art Museum.

He said it would be difficult for others to follow in his footsteps because his family background was unique. "My father was wealthy and he was also a scholar; I learned a lot from him," he said.

"Money has never been a problem to me, I can put all my time into studies and research. Even now, I don't have the concept of money in my mind. I never do any research for money, but only for interest.

"I am interested in many things, and I cannot stop chasing the truth. I find much joy in learning."

Professor Jao follows a "multiple-point" research method. Apart from using previously published documents and literature to aid him, he also studies related archaeological discoveries.

Visits to archaeological sites have proved fruitful in supporting his research, and he has studied the culture and history of other countries - including India, Japan and those in the Middle East - to see how Chinese culture has influenced other parts of the world.

Professor Jao said his teaching at the University of Hong Kong during the 1950s and 1960s proved to be a significant period in his academic life.

He loves Hong Kong because it is his window on the world; the city has given him academic freedom and international exposure.

At HKU, Professor Jao had many opportunities to attend overseas conferences, where he established international links. "The University of Hong Kong is a foundation of my achievement."

Because he left the mainland decades ago, Professor Jao said he did not know much about simplified Chinese characters, and therefore could not say whether they had destroyed Chinese culture, as some critics have claimed.

"Simplified characters caused some difficulties to scholars because, very often, they have to make reference to ancient books written in traditional Chinese characters," he said.

"But simplified characters do have their function, they help many people who are not very educated to understand the Chinese language easier. So, as a scholar, you have to learn both. But even now, I don't know some of the simplified characters."

Professor Jao's younger daughter, Angeline Yiu, said her childhood was influenced by her father's academic life. "My father has many friends, they used to visit us very often to chat about poetry or Chinese paintings. Sometimes they practised calligraphy together. Our home was always busy."

Ms Yiu said it had never been easy to have private time with her father. "Sometimes, he promised to take me and my elder sister to buy ice cream but he would have to cancel because he was too busy with his friends."

She said she had tried hard to learn like her father, but in vain. "When I was about 12 and 13, my father taught me Egyptian and oracle bone inscriptions. I made a lot of notes but I found those subjects too difficult. I do not have the talent and I finally gave up."

Lee Chack-fan, director of the Jao Tsung-I Petite Ecole, said Professor Jao had a "pure heart for knowledge" and a strong curiosity that made him a remarkable scholar.

"Like many successful scientists, such as Isaac Newton or Albert Einstein, Professor Jao has a very strong sense of curiosity. He thinks like a child, pursues knowledge with a pure heart and always gets great fun out of it."

Professor Lee said the research centre would continue to promote Chinese studies and hold exhibitions and seminars.

Peter Cheng Wai-man, research co-ordinator at the Petite Ecole, said Professor Jao was like "a man living in ancient times". "Professor Jao's hobbies are so different from other people. He loves playing the guqin [an ancient Chinese stringed instrument] in the countryside or composing poems with his students."

Mr Cheng, Professor Jao's student, said it would be hard for other people to be as successful. "It is very difficult for a single academic to research on a very wide range of topics like Professor Jao has done; there are too many rules and restrictions in today's academic institutions," he said.

Even after decades of study, Professor Jao, who is also interested in Chinese-Indian cultural exchanges, still has unanswered questions: he says he has still not been able to prove the hypothesis that Chinese languages came before Indian languages. "This is an answer I need to find," he said.


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Dealing with the legacy of a bankrupt ideology


Kevin Rudd
Mar 05, 2009           
     
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From time to time in human history there occur events of seismic significance, when one orthodoxy is overthrown and another takes its place. Today, the scale of the global financial crisis demands that we re-evaluate the economic policy and philosophy that brought us to this point.

George Soros has said that "the salient feature of the current financial crisis is that it was not caused by some external shock ... the crisis was generated by the system itself". Mr Soros is right. The current crisis is the culmination of a 30-year domination of economic policy by a free-market ideology that has been variously called neo-liberalism, economic liberalism or economic fundamentalism. The central thrust of this ideology has been that government activity should be constrained, and ultimately replaced, by market forces. In the past year, we have seen how unchecked market forces have brought capitalism to the precipice.

Instead of distributing risk throughout the world, the global financial system has intensified it.

Just as it fell to Franklin D. Roosevelt to rebuild American capitalism after the Great Depression, and to American Democrats strongly influenced by John Maynard Keynes to rebuild post-war domestic demand, so it falls to a new generation to reflect on and rebuild our national and international economic systems.

Centrist governments face three challenges if they are to save capitalism. First, to use the agency of the state to reconstitute properly regulated markets and to rebuild domestic and global demand. With the demise of neo-liberalism, the role of the state is once more seen as fundamental.

The second challenge for social democrats is not to throw the baby out with the bathwater. As the global financial crisis unfolds and the hard impact on jobs is felt by families, the pressure will be great to retreat to some model of an all-providing state and to abandon altogether the cause of open, competitive markets. Protectionism is a sure way of turning recession into depression, as it exacerbates the collapse in global demand.

A further challenge for governments in dealing with the current crisis is its almost unprecedented global dimensions. Governments must craft consistent global financial regulations to prevent a race to the bottom, where capital leaks out to the areas of the global economy with the weakest regulation. We must establish stronger global disclosure standards for financial institutions. We must also build stronger supervisory frameworks to provide incentives for more responsible corporate conduct, including executive remuneration.

The world has turned to co-ordinated governmental action through the G20: to help provide immediate liquidity to the global financial system; to co-ordinate sufficient fiscal stimulus to respond to the growth gap arising from the global recession; to redesign global regulatory rules for the future; and to reform the existing global public institutions - especially the International Monetary Fund - to give them the powers and resources to meet the demands of this century.

The longer-term challenge for governments is to address the imbalances that have helped destabilise the global economy - in particular, between large surplus economies such as China, Japan and the oil- exporting nations, and large debtor nations such as the United States.

For governments, it is critical that we get it right - not just to save the system of open markets from self-destruction, but also to rebuild confidence in properly regulated markets and prevent extreme reactions from the far left or far right taking hold.

Governments must get it right because the stakes are so high: the economic and social costs of long-term unemployment; poverty that is once again expanding across the developing world; and the impact on long-term power structures within the international political and strategic order. Success is not optional. Too much rides on our ability to prevail.

Kevin Rudd is the prime minister of Australia. This is an edited extract from an essay published in the Australian magazine The Monthly


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Wolves rule as wildlife returns to Chernobyl exclusion zone


BELARUS
Vasily Fedosenko
Mar 06, 2009           
     
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We venture out at dawn from a dilapidated shack nestled in a forest in Babchin, Belarus, to see the animals, although rising early is not always necessary.

Still inhospitable to humans, the Chernobyl "exclusion zone" - a contaminated 30km radius around the site of the nuclear reactor explosion of April 26, 1986 - is now a nature reserve and teems with wolves, moose, bison, wild boars and bears.

Boars, which generally confine their sorties to dusk, plunder what remains of gardens in the daytime, strolling down empty village streets, wandering into farms and settlements in search of food.

Moose also venture out - like the cow and her two calves which appear on the roadside to munch on low-hanging branches.

"Moose are very curious creatures," said Grigory Sys, one of the naturalists who oversee the animals in the still-radioactive forest.

"They'll want to have a good look at us for a couple of minutes before heading off into the forest."

Since I met him about four years ago, I've accompanied Mr Sys half a dozen times round the 2,162 sq km zone, emptied of people by the fire and explosion at the plant just over the border in Ukraine.

Belarus, downwind from the blast, was the country worst affected by the world's worst civil nuclear accident.

A quarter of its territory was contaminated and villages were deserted on both sides of the border between what were then Soviet republics.

The human hardship is untold: dozens died putting out the blaze; there were mass evacuations of tens of thousands of people - some twice as the authorities underestimated the extent of radiation - and thousands developed thyroid cancer.

But it was undeniably a good thing for wildlife. "You'll see - they run off a bit, but will then stop," Mr Sys said of the moose.

Touring the zone with Mr Sys means spending several nights in a forest shack, with few comforts beyond three simple beds and a stove.

We take my car through the zone's abandoned villages. Houses, personal possessions, shops, even amenities like amusement parks, are left untouched from late in the Soviet era.

Mr Sys says the wolves, now numbering 300, are in charge. "The wolf is very clever and cunning. He earns the respect of any adversary," he said.

"They used to be killed off at any opportunity in the hundreds, even from helicopters. But they adapted and survived."

Killing wolves is now prohibited, with only a handful culled each year for scientific research.

That has let them dominate the abandoned forests and meadows, although some farmers outside the zone say wolves raid their livestock. Residents of two villages saw wolves in the streets and one woman was killed in a confrontation with them.

Wolf tracks are everywhere. Guides hear them howling in the night.

During a break for a snack in one village, Mr Sys suddenly stops and hisses at me not to move.

The grey animal is now visible on the road about 200 metres away, trying to assess what we are doing there with our car. In an instant, it darts to the left and disappears into the forest.

Now free from the influence of human habitation, wolves have altered their feeding habits and their main prey has become the packs of boars.

The free-roaming boars now push their way into what is supposed to be a feeding station for the reserve's bison herd.

"We feed the bison here in the winter. The boars often come here in the evening to try to get their share of the feed," Mr Sys said. "It's quite fun to see how the bison chase them away."

Guides report plenty of bear tracks in the area as well as lynx - animals classed as an endangered species in Belarus.

Some wildlife have disappeared because of the changes.

The white stork, once a familiar figure in the towns, disliked the isolation and headed off in search of populated areas. But the black stork, fond of thick forests, stayed.

One newcomer is the white-tailed eagle, the largest bird of prey in Belarus, rarely spotted in proximity to man. Mr Sys said he had seen five nests in an area now clearly suited to the birds. Some birds even choose to spend their winter in the zone - catching their fill of fish at unfrozen lakes.

The Polessk State Radiation and Environmental Reserve - and the freedom afforded to animals by the absence of human habitation - remains a huge magnet to researchers. But tourists and the curious are not welcome.

"We are happy to welcome here fellow scientists from other countries to work on joint projects," said its director, Pytor Kudan.

"But I am afraid we don't want tourists or amateur bird- or animal-lovers. We have very specific conditions here. And one of them remains high radiation, sometimes very high radiation."

Reuters


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A short-lived affair with the protectionist temptress


Daniel Ikenson
Mar 09, 2009           
     
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Despite the apparent political appeal of ideas like "Buy American", and the decisions by some governments to raise tariffs and other trade barriers in response to the global economic meltdown, trade protectionism isn't nearly as resurgent as some may fear.

The world will, in the end, reject the deceptive comforts of the protectionist temptress. Yes, India did recently raise tariffs and place other restrictions on some imported steel products, and Ecuador raised tariffs by 5 per cent to 20 per cent on 940 different products. There have been similar actions in other countries and more are likely in the months ahead.

But that kind of "backsliding" is permitted under World Trade Organisation rules. The WTO affords some flexibility to governments to occasionally indulge protectionist pressures, which allows the system to bend rather than break. The risk of such measures causing a perceptible drop in global trade flows is remote.

According to recent estimates from the International Food Policy Research Institute, if all WTO members raised all tariffs to their maximum allowable rates, the value of global trade would fall by 7.7 per cent over five years. That's a substantial decline from the 5.5 per cent yearly rate of growth during this decade, and would be quite painful.

But, to put matters in perspective, global trade plummeted 66 per cent during the protectionist pandemic in the first half of the 1930s. The absence of rules in the 1930s meant that there were no proffered courses of action, no sources of adjudication or remediation, and no limits to the actions governments could take in response to external economic policies. Today, we have rules and respected institutions that have worked reasonably well to ensure the integrity of the trading system. Nearly 400 disputes have been resolved successfully during the 14-year history of the WTO, and there have been no trade wars.

In the 1930s, there were far fewer domestic constituencies advocating against protectionism. Today, there are burgeoning interests in a diversity of countries who favour lower tariffs because their livelihoods depend on access to imported raw materials, components and capital equipment. The fact that most WTO members' tariffs are well below their maximum allowable rates suggests that something besides the rules compels openness to trade.

Perhaps it has something to do with the fact that trade barriers are costly to the country imposing them. Higher prices, fewer choices, lower-quality goods and services, and the absence of competition to motivate local business have always been ingredients of economic stagnation. But the proliferation of transnational production, cross-border investment, multinational joint ventures, and equity tie-ups has rendered the "us versus them" characterisation of global competition less applicable.

Global commerce is less "our" producers competing against "their" producers as it is a competition between global supply chains to produce and deliver products in multiple countries. The most successful supply chains encounter the fewest frictions - physical and administrative, including trade barriers.

While "Buy American" proponents perpetuate the myth that imports have destroyed US jobs, there is a strong correlation between imports and job growth, and between imports and economic growth.

That dynamic is easier to appreciate when one considers that 55 per cent of all US import value in 2007 consisted of raw materials, intermediate goods and capital equipment - the kinds of products the construction and manufacturing sectors purchase. Put in this light, it is more obvious that tariffs raise the costs of production, which undermines economic growth - or, as in the current case, economic recovery.

Although governments might indulge in occasional protectionist trysts in the months ahead, a durable commitment to global engagement will emerge in the end.

Daniel Ikenson is associate director of the Centre for Trade Policy Studies at the Cato Institute



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A bigger hole
Flooding mainland businesses with cheap money won't solve the main problem of low household demand

Andy Xie
Mar 10, 2009           
     
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Liquidity has been inspiring hope lately. The mainland's banking system is flooded with liquidity, and lending has increased massively since December, mostly in the form of discounted bills. The liquidity boom has inspired hope that a quick and vigorous recovery will follow. Instead, it could be a trap, leading to stagflation. China's problem is not liquidity, but household demand. Reform, not liquidity, can bring back prosperity (SEHK: 0803, announcements, news).

The current liquidity results from the mainland's huge trade surplus due to a faster decline of imports than exports. Banks have lent some of the extra liquidity to state-owned enterprises in the form of discounted bills. As the interest rate on such loans is very low, the businesses can deposit the borrowed money without incurring significant costs and, sometimes, even pocket a small profit. The practice has rapidly expanded the balance sheet of the banking system from an accounting perspective.

The lending, however, won't turn into demand any time soon. Most industries, especially capital-intensive ones, face overcapacity. The steel industry, for example, may have 30 per cent overcapacity. The shipbuilding industry is seeing massive defaults in orders; many shipbuilders are facing bankruptcy. Most developers cannot sell their properties and, if given money to build more, would only dig a deeper hole for themselves. The mainland's supply side has too much capacity. It is unlikely that more business loans would spark an economic recovery.

Lending to government projects can support demand. It serves as a multiplier on the fiscal stimulus programme. Bank lending may double its impact. The government has budgeted a 1 trillion yuan (HK$1.13 trillion) fiscal deficit, or 3 per cent of gross domestic product, for 2009. The stimulus could stabilise the economy but not restart high growth. Exports and property were contributing 6 to 8 percentage points to the GDP growth rate per annum during the last cycle. They are now contributing a negative amount of a similar magnitude. No amount of stimulus could completely offset the impact of their contraction. Further, Beijing is already investing too much and shouldn't go too far to pump up the economy temporarily, only to face a worse downturn later.

A big drop in exports, following the bursting of the global credit bubble, and the popping of the property bubble are the sources of the shortfall in demand. To solve the problem, Beijing must boost household demand to offset the export weakness, and reduce property purchase costs to clear the existing inventory. The mainland economy cannot resume its high growth until both problems are solved. Confidence is not the main reason for the relative weakness of household demand; low household income and wealth are. The quickest solution is for the government to distribute to the people the shares it holds in listed state-owned enterprises. That will have a powerful short-term effect on consumption. As business profits improve in a rising economy, the shares will appreciate, which would further support household demand, and ensure another decade of economic boom.

To distribute the shares, the government could automatically set up an account for each citizen, with his or her ID card number, at one of the state banks.

To clear the property inventory (now equivalent to one-third of existing housing stock) the cost per square metre should be cut. In some cities, the average price per square metre is three times the average monthly salary - or higher. This should be halved. That is not low by international standards. But, as the mainland could sustain high economic growth for another 15 years or more, property prices could become higher than the international average. The reduction in purchasing costs probably needs to be shared evenly between price cuts and tax incentives. The mainland property market is enormous, but unless its health is restored, domestic demand is unlikely to resume robust growth.

Some people hope greater liquidity will improve the economy by inflating asset markets - that is, by creating another bubble. This is what then-US Federal Reserve chairman Alan Greenspan did after the tech bubble burst in 2000. Of course, his glory has become today's nightmare. But creating another bubble to deal with the consequences of a burst bubble would be irresponsible - even if it could be done, which I doubt. Some of the liquidity did flow into the mainland stock market in December and January. At its recent peak, the market had risen 40 per cent in three months. But, it is extremely hard to manufacture a stock market bubble in a difficult economy because speculators are quicker to take profits than when the economy is booming.

Further, it is virtually impossible to inflate the mainland property market by encouraging speculation (by making it easier for people to obtain funding and keeping interest rates low). The current inventory is unprecedented; it is probably the biggest overhang per capita of physical properties completed or under construction in history. It will take three years to clear even with the best policymaking. Re-inflating the bubble with liquidity is just a pipedream.

Liquidity worship became entrenched during the Greenspan era. Its effectiveness was actually a bubble phenomenon. The liquidity inflated asset prices, which boosted consumption, and created the perception of effectiveness. For two decades, the world watched Mr Greenspan's magic as he fine-tuned economic growth rates to just the "right" level. It was a bubble.

Liquidity worship today seems so out of date. Trying a liquidity fix now is dangerous. Liquidity is debt. It is neither capital nor income. When a credit bubble bursts, it forces deleveraging; liquidity can't revive the appetite for debt in such an environment. Instead, liquidity could turn into inflation through rising commodity prices, which in turn pushes up wages. What awaits today's liquidity binge could be stagflation rather than economic revival.

Andy Xie is an independent economist


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Magic number
Every year, Beijing's growth target is 8 per cent. The figure is as intriguing as it is convenient

Drew Thompson
Mar 16, 2009           
     
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There are few constants during a time of economic uncertainty. But for those seeking solace in the midst of economic torment, look to the just-concluded meetings of the National People's Congress in Beijing. Premier Wen Jiabao launched the sessions by delivering China's version of the State of the Union address. Although the world, rattled by the global financial crisis today, looks vastly different than it did a year ago, he repeated with all the certainty of a pastor pronouncing "amen" that in 2009, yet again, Beijing would be setting a target of 8 per cent annual growth.

In recent years, this official target has drastically underestimated China's actual growth. This time, many observers think it may be an overestimate. In both cases, the question remains: why is 8 per cent considered the magic figure?

Most China watchers will tell you, as though it were a certain fact, that 8 per cent growth is the approximate level needed to keep employment up - and the potential for "social unrest" down. It is typically assumed that 8 per cent is what is required to create enough jobs to absorb laid-off workers from failing state-owned enterprises and new graduates entering the labour pool. Too much more than 8 per cent, and you risk runaway inflation; much less, and unemployed workers will march in the streets and chaos will ensue. So how did 8 per cent become sacrosanct?

In all questions of faith, look first to one's creator. In this case, that means Deng Xiaoping. At the 12th Party Congress, in September 1982, Deng determined that the national economic goal would be to quadruple the annual industrial and agricultural output of the entire country by the end of the century. Prior to the big meeting, Deng asked then general secretary Hu Yaobang how the country could quadruple its economy, from 710 billion yuan in 1980 to 2.8 trillion yuan in 2000, and Hu responded that 8 per cent annual growth would do the trick. That's it.

The end of the century has come and gone, but the target has remained the same. Subsequent five-year plans have all set an annual growth target of between 7.5 and 8.5 per cent. This national objective has since become the obsession of officials at each level of the vast bureaucracy.

The truth is, it's hard to tell exactly what China's annual growth rate actually is. Because officials receive promotions based on how well they tend their economic gardens, there's a strong incentive for mandarins at all levels to fudge the figures they report up the bureaucratic food chain. Invariably, almost every province reports growth exceeding the national average - which, of course, is impossible.

This presents difficulties for senior leaders in Beijing, who have to somehow adjust for such bureaucratic "inflation". At least by now they are well aware of the phenomena. In the late 1950s, local officials showed similar zeal (and political acumen) when they inflated grain outputs in their reports to higher authorities, resulting in mass starvation when the central government failed to recognise the trend of inflationary reporting, known as "the winds of exaggeration".

China is not a federal system. Although Beijing does occasionally dispatch secret investigators, the central government remains almost entirely dependent on provincial reporting chains.

Although Beijing's obsession with employment is well known, its fear of inflation is an equally important motivator. Officials feel they must walk a fine line between creating jobs and keeping a lid on prices. Chinese historians point out that the Red Army alone did not defeat the Nationalists in 1948 - hyperinflation, which resulted in skyrocketing food prices, was an equally essential factor in undermining the Kuomintang. Later, the Communist Party saw its own authority tremble in 1988, when inflation reached 20 per cent, resulting in panic-buying and contributing to discontent that culminated in the Tiananmen Square protests of 1989.

Today, as Beijing grapples with a global financial crisis, it might all come down to pork - not wasteful government spending, but the other white meat. On the Chinese mainland, fuel and grain prices are tightly controlled. So food prices, and pork in particular, will play a significant role in the mainland's economic recovery. Food contributes to at least a third of the mainland's consumer price index (CPI) basket. As a measure of inflation, the CPI is closely watched as a barometer for potential unrest. Because lower-income families have to devote a larger portion of their income to food, the government is particularly concerned about the impact of rising food prices on citizens who have not benefited from economic development - and are potentially dissatisfied with Beijing.

Recognising this, the National Development and Reform Commission, China's economic planning ministry, placed price controls on a number of food staples and building materials last year, trying to rein in rising prices, including a pork price increase of almost 60 per cent over the previous year.

When I see Mr Wen on Chinese TV, I am often filled with sympathy for him. Taking on the challenge of creating 9 million jobs a year amid global financial turmoil and the anxiety caused by falling exports, the premier's annual work report at the NPC is reassuring in its predictability and sense of certainty. It's no secret that 8 per cent gross domestic product growth will be a difficult target this year.

But, Mr Wen is seeking to reassure his troops, preaching a message that resonates with his flock and silently invoking the convictions of Deng that China's economic growth is an article of faith.

Drew Thompson is director of China studies and Starr senior fellow at the Nixon Centre in Washington


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