Iron congee bowl


PHILIP BOWRING

Dec 23, 2008           
     
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There have been many highlights in Donald Tsang Yam-kuen's long career as a servant of his superiors, British and Chinese - but last week was outstanding. At this time of growing unease in Hong Kong over the recession, there he was again in Beijing to get a pat on the head from President Hu Jintao.

Last Saturday's South China Morning Post (SEHK: 0583, announcements, news) front-page picture of a grinning "Santa" Tsang shaking hands with a serious-looking president says volumes about his self-image. That he needs to seek constant reassurance from those who appointed him, rather than those for whom he is responsible, is troubling.

As for the 14 measures by which, it is claimed, the mainland will help Hong Kong through the downturn, they deserve critical analysis. First, though, the principle that a rich Hong Kong should need or ask for help from a mostly still poor motherland is contrary to the principles of the Basic Law and Joint Declaration. If Hong Kong, with massive fiscal and foreign exchange reserves, cannot stand on its own feet in the same way as smaller Singapore, what justification does it have for retaining the exceptional economic and social freedoms that it regards as its birthright?

Missing from the 14 items is any reference to the one thing most important to Hong Kong's commercial role: that the recession should not be an excuse for protectionist actions to shield national industries or disrupt the free flow of capital. But, instead of focusing on Hong Kong's global role and commitment to open trade, Mr Tsang's ambition, seen through this list, is to further the city's integration into a Greater Shenzhen and to devalue its free-trade reputation by seeking preferential deals.

Two of the 14 items relate to currency trading use of the yuan. That's fine, if they are part of a broader mainland policy on yuan usage, or Hong Kong is being used as a testing ground. But, let the mainland make its own currency policies according to its needs, and not pretend that they should be devised for Hong Kong's special benefit.

Likewise, mainland policies on the listing of firms in Hong Kong have been, and should continue to be, based on China's perceived needs. It is dishonest to suggest that Beijing will, or should, put Hong Kong's interests before those of mainland markets.

Then there is speeding up cross-border physical links - the Hong-Kong-Macau-Zhuhai bridge, the rail links between airports, and to Guangzhou. These are politically motivated mega projects of scant economic benefit to Hong Kong which will generate few of the kind of jobs the city needs. They are part of "making the Pearl River delta a world-class metropolis" - a code phrase for submerging Hong Kong's identity with its poorer and disorderly neighbours.

Some of the 14 "gifts" are pleas for special treatment for Hong Kong which will be noticed by other members of the World Trade Organisation, who will then use them as an excuse to put up barriers to a Hong Kong as a mainland surrogate. One is the suggestion that the mainland should raise export tax rebates (a highly contentious issue in global trade) to help Hong Kong firms. Another is that Hong Kong companies should be supported in bidding for the next phase of the Shenzhen metro. Yet another is that more mainland services should be opened to Hong Kong (but not other WTO member) firms.

Others among the 14 items are platitudes such as "secure stable water, food and fuel supplies from the mainland" and "facilitate co-ordination between the delta's container ports". But they add to the impression that Hong Kong needs mainland support.

For sure, there might come a time when specific help is needed - for example, currency swap arrangements, should the Hong Kong dollar come under pressure. But, such deals already exist between countries - most recently between China and South Korea. They are part of international and intra-regional co-operation. Hong Kong should act in that context if it is to retain its separate economic and social system. As it is, the chief servant seems set - to use the biblical phrase - on "selling its birthright for a mess of pottage", or bowl of congee.

Philip Bowring is a Hong Kong-based journalist and commentator


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A humble reminder of wisdom and light


OBSERVER
Peter Gordon
Dec 24, 2008           
     
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Amid all the recent reports of redundancies, bankruptcies and disappearing billions, something more hopeful might be called for, especially at this time of year. A few weeks ago, I attended an anniversary celebration for Mu Kuang English School in Kwun Tong - it's 55th. Mu Kuang is a school co-founded and still supervised by someone with her own place in the annals of Hong Kong, Elsie Tu.

Any educational institution (or, indeed, any educator) still standing in Hong Kong after 55 years of teaching deserves a celebration, it seems to me, especially one educating children from what are not, after all, the most affluent neighbourhoods.

I was led, to my mild embarrassment, to the front row of an auditorium filled with invariably polite teenagers. The stage, adorned with red, white and blue bunting, triggered a twinge of nostalgia for my American youth, as did a flag-raising ceremony performed by a team of students kitted out in crisp uniforms with caps and braid.

As this was an "open day", I was later given a tour, which included English, science (popular experiments involved explosions of one sort or another; some things never change) and what was called "shop" in my day: the same hand-held jigsaws and drills hung against the wall, but this facility had a computer laser-cutting and engraving device and the students were battling robots.

Education is, as it should be, a subject of ongoing discussion and often fervent debate: curricular reform, purported declines in English standards, and how well students are being prepared for the world they will face after graduation. Recent results from the Trends in International Mathematics and Science Study once again ranked Hong Kong students among the world's best. But I am agnostic, if not sceptical, about the educational relevance of this result.

However, actually visiting a school is a reminder that theories and exam results alone cannot capture the essence of students learning from teachers. Malcolm Gladwell (author of The Tipping Point) wrote recently in The New Yorker that "the difference between good teachers and poor teachers turns out to be vast", and that "your child is actually better off in a 'bad' school with an excellent teacher than in an excellent school with a bad teacher".

American research estimated that students of a very good teacher can learn a year and a half of material in a school year, while a very poor teacher will only impart half a year's worth of material. "Teacher effects", he says, seem to outweigh class size, curriculum design or funding levels. Not, of course, that these factors don't matter, but I am sure all of us can remember instances of the "good teacher effect" in our schooling.

Gladwell ends by asking, in a reference to the development of financial professionals: "What does it say about a society that it devotes more care and patience to the selection of those who handle its money than of those who handle its children?"

I read the article after I visited Mu Kuang, but similar thoughts had crossed my mind as I watched teachers being warmly applauded for decades of service, as well as considering what must motivate someone to stick with educating in Kwun Tong through more than half a century: it surely isn't financial gain.

Columnists are prone to complaining; that is, I suppose, part of the job spec. But this visit provided salutary reminders that Hong Kong has many people, in many schools and many other walks of life, dedicated to making the community a better place, and that it is often people rather than policies that determine the degree of success, success that is sometimes shown by something as simple as Cantonese students giving a public reading in English.

Mu Kuang's school shield displays the motto Sapientia et Lux, "wisdom and light" if my minimal Latin serves: there are few better things to wish for these holidays.

Peter Gordon is a Hong Kong-based businessman, writer, editor and publisher


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Scraping the bottom of the (oil) barrel?


OBSERVER
Gwynne Dyer
Dec 29, 2008           
     
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Worried about "peak oil"? The International Energy Agency's (IEA) annual report, "The World Energy Outlook 2008", admits for the first time that "although global oil production in total is not expected to peak before 2030, production of conventional oil ... is projected to level off towards the end of the projection period". When The Guardian's environmental columnist, George Monbiot, pressed IEA director Fatih Birol on that opaque phrase, the actual date turned out to be 2020.

The IEA's previous reports, which assured everyone that there was plenty of oil until 2030, were based on what Dr Birol called "a global assumption about the world's oilfields": that the rate of decline in the output of existing oilfields was 3.7 per cent a year. But, this year, some of the staff actually turned up for work occasionally and did a "very, very detailed" survey on the actual rate of decline. It turns out that production in the older fields is really falling at 6.7 per cent a year.

There are still some new oilfields coming into production, but this number means that the production of conventional oil - oil that you pump out of the ground or the seabed in the good, old-fashioned way - will peak in 2020, 11 years from now. Dr Birol assumes, or rather pretends, that new production of "unconventional oil" will allow total production to match demand for another decade, until 2030, but this is sheer fantasy.

The IEA presumes that demand for oil will rise indefinitely, so the price of oil only gets higher after "peak oil" but, in technology, nothing is forever. Set into the front doorstep of my house (and most other 19th-century houses in London) is an iron contrivance called a boot scraper. It is a device for scraping the horse manure off your boots before coming into the house, and it is worn into a shallow curve by half a century of use.

London in the 1890s had 11,000 horse-drawn taxis and several thousand buses, each of which required 12 horses a day. There were at least 100,000 horses on the streets of London every day - each producing an average of 10kg of manure.

As the cities grew, even more horses were needed and the problem grew steadily worse. One Times writer in 1894 estimated that, in 50 years, the streets of London would be buried under three metres of manure.

In fact, within 35 years, the streets of London were almost completely free of horses, and filled with cars instead. They created a different kind of pollution. The same fate is likely to overtake petrol- and diesel-fuelled vehicles in the next 35 years.

The shift will be driven by concerns about foreign exchange costs and energy independence, and increasingly by the need to curb greenhouse-gas emissions. It is starting with ever-tightening standards for fuel efficiency. That will be followed by the first mass-market generation of electric vehicles, due in the next two or three years. The coup de grace will be delivered by third-generation biofuels, probably produced from algae that do not use valuable agricultural land, that are fully competitive with oil in price and energy content.

We will never get back the eight wasted years of the Bush administration, and it may now be too late to avoid drastic climate change, but US president-elect Barack Obama is clearly going to try. You do not appoint Steven Chu as your energy secretary, Carol Browner as your "climate tsarina", and John Holdren as your chief scientific adviser if you intend to evade the issue.

The same is true elsewhere. Indeed, it is a safe bet that the demand for oil is going to fall faster than the supply over the next 10 or 15 years, even if we are already at or near "peak oil", for the annual decline in oil production just after the peak is actually quite shallow - around 2 per cent. And, if demand falls faster than supply, the price will also collapse.

Ladies and gentlemen, place your bets.

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



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Hard times


LAURENCE BRAHM

Dec 30, 2008           
     
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For weeks, China's leading economists have been babbling away on news talk shows about how certain they are that the mainland's economy is insulated from the global financial crisis because of its "Chinese characteristics". The nation's leaders, however, may now be thinking otherwise, and possibly getting a bit jittery.

As the Communist Party Central Committee's economic working commission began meeting in Beijing early this month, the streets around Tiananmen Square were full of police armament and hardware. That was a far cry from the "social harmony" the state news tells everyone to strive for.

While the leadership may seem to be from the Jurassic era when it comes to the speed with which it makes decisions, once a choice is made, the dragon tends to overreact like a lumbering Tyrannosaurus rex. China's leaders decided to boost domestic consumption, so the new attitude is: who needs America's market? China's is big enough, so just shut the trade gates. They point to China's 4 trillion yuan (HK$4.53 trillion) stimulus package as equivalent to one year of exports to America and Europe.

So Beijing thinks it can afford to isolate the country next year by avoiding exports, thereby thumbing its nose at major trading partners. That is how confident the leadership is. But didn't they try that in the Ming and Qing dynasties, too?

There might be a few intrinsic flaws in the stimulus-package-and-consumption theory. To begin with, the structure of the mainland's economy differs greatly from that of America. Savings remain strong; people rely on cash and do not borrow to consume. Americans do, and the whole financial system is structured to facilitate this. Consequently, the mainland's consumption is a mere one-thirty-fifth, per capita, of America's, and is considered lower than the average for most Asian countries. The situation has not improved in a decade. China's economy still depends on exports and fixed-asset investments, not consumption; exports currently account for almost 40 per cent of gross domestic product. There have been limited gains in value-added: for example, while 90 per cent of the world's laptops are "made in China", all the parts are imported and China only assembles the pieces, because of its cheap labour. What happens when the cost of labour and administration goes up? That is how vulnerable the mainland's value-added economy is.

But the leadership needn't worry: the stimulus package is all about boosting fixed-asset investment. In 1998, this accounted for 34 per cent of gross domestic product, rising to 41 per cent this year. Industry - meaning overproduction of cement and steel - accounts for nearly 50 per cent of GDP; agriculture just 12 per cent.

So China will continue exploiting Africa's resources, ignoring genocide in Darfur and destroying the environment, just to keep greedy officials in the manner to which they have become accustomed. At least officials will be happy, if not the people.

How might the stimulus package work? It is estimated that only 1.18 trillion yuan will come from central government coffers - with the rest covered by local governments and business, and the issuance of 500 billion yuan of state treasury bonds per year over the next two years. But remember: local governments have hardly any fiscal income; they can only raise money by auctioning off land. That means forcibly removing people, confiscating the land for property tycoons who are usually officials' relatives.

Development will be financed by local bank loans. Local governments will ensure banks assume all responsibility; officials will also force branches to offer conciliatory loans to developers. There will be lots of highways, ports and the like - and non-performing loans will build up massively, making China's black hole bigger than America's credit pyramid.

Putting things in perspective, the 1997 Asian crisis was small fry compared with today's turmoil. In 1998, then-premier Zhu Rongji managed to control the mainland's economic contraction, calling it a "soft landing". In 2009, expect anything but.

Laurence Brahm is a political economist, author, filmmaker and founder of Shambhala. laurence@shambhala-ngo.org


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No time for another botched US presidency


Richard Halloran
Jan 02, 2009           
     
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At noon on January 20, the United States will have experienced 16 years of contentious, divisive and mediocre government. This bleak period will have been evenly split between Democrats, led by president Bill Clinton and Republicans, led by President George W. Bush.

That dismal record will test Barack Obama, who takes office that day, as much as, or more than, the economic recession; the issues of immigration, energy, education and health care; the bog of Iraq and Afghanistan; the eruption of conflict between Israelis and Palestinians; and a litany of other difficulties.

Moreover, the new president's task will be hard because only 33 per cent of the eligible voters in America cast their ballots for him. Mr Obama cannot claim a mandate to ram through his proposals.

Nevertheless, all Americans should wish Mr Obama well and hope that his presidency is successful, if for no other reason that America cannot afford another four or eight years of discordant, second-rate government.

The same wish should be true for allies and friends of the US, particularly in Asia.

Despite America's troubles, the constructive application of American power is still vital to the well-being of nations from Britain to South Africa and Japan.

Further, potential adversaries such as China should hope that Mr Obama can steer a course that serves America's interests, as well as preclude an armed conflict with them.

It won't be easy. In Asia, the incoming administration will be confronted immediately with a looming crisis between India and Pakistan caused by the attack in late November on Mumbai, the financial centre of India, presumably by Pakistani terrorists.

"If there's another Mumbai, India will have to respond," said an informed US officer. Both sides have moved troops to the border between them.

A conflict between India and Pakistan would jeopardise US military operations in Afghanistan. A main supply route from the Pakistani port of Karachi through Peshawar in northwest Pakistan, thence through the mountains via the Khyber Pass into Afghanistan, has already been cut either by Taleban terrorists or Pakistani troops pursuing the terrorists.

In a larger context, several US administrations have tried to treat India and Pakistan in an even-handed manner but have not acquired enough influence to restrain either.

A complication is the posture of China, a long-time ally of Pakistan and a rival with India for prominence in Asia.

Moreover, both India and Pakistan have nuclear weapons and a nuclear exchange would have unpredictable consequences.

So far, Mr Obama has said little about South Asia. On his website, he does not mention India and says about Pakistan only that it will be held "accountable for security in the border region with Afghanistan".

Richard Halloran is a former New York Times foreign correspondent in Asia and military correspondent in Washington


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Lifting our game
Governance could be worse in Hong Kong. But the city needs a new vision to secure a bright future

Anthony Cheung
Jan 05, 2009           
     
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Reading commentaries on the state of Hong Kong's governance or economy towards the latter part of last year, one gained the strong impression of an annus horribilis (a term made popular by Britain's Queen Elizabeth in 1992). Hong Kong is not alone in experiencing such frustrations; newspaper headlines and commentaries worldwide have all described the past year as a terrible one.

The unfolding global financial crisis is widely believed to have compounded Hong Kong's governance problems. Government mishaps - such as political appointments; the foreign domestic helper levy; the old-age allowance; Lehman minibonds; and the alleged slow response in repatriating Hong Kong tourists stranded in Thailand - have been much talked about since mid-2008.

A knee-jerk view has been that the administration lacks legitimacy because it is not democratically elected, hence its insensitivity to public opinion and alienation from ordinary people. The government needs to take such sentiments seriously.

Yet, would democracy have saved Chief Executive Donald Tsang Yam-kuen and his government from the current influx of distrust and hostility? The answer may not be a definite "yes". Even though only 23 per cent of those polled are satisfied with the government's performance, the new cohort of elected legislators has not fared better, despite their role as government watchdogs - only 26 per cent are satisfied with their overall performance, according to the polls.

Other developed economies in the region such as Japan, South Korea and Taiwan are facing similarly high levels of dissatisfaction and distrust in political institutions. Taiwan's president, Ma Ying-jeou, and South Korean President Lee Myung-bak were both elected with high popularity ratings; these are now far lower than that of Mr Tsang. This, of course, is not a defence of Hong Kong's faulty political system, but serves to illustrate the need to put things in a broader perspective when assessing government systems.

Many local academics and commentators have long questioned Hong Kong's system of governance. The media has often painted a terrible picture of government performance and the competence of our officials. However, if one refers to the World Bank's governance indicators, Hong Kong has persistently been doing very well compared to other countries, despite its lack of a fully democratic system.

The World Bank's worldwide governance indicators project has been following 212 countries and territories since 1996, using six factors of governance. The 2007 indicators show that both Hong Kong and Singapore stand at the top end in terms of political stability and absence of violence; government effectiveness; regulatory quality; rule of law; and control of corruption. Hong Kong's only drawback is in "voice and accountability" but, on that score, it still does much better than Singapore and is on a par with South Korea and Taiwan, both democracies.

Despite economic setbacks, Hong Kong still enjoys a stable currency, a relatively healthy fiscal reserve, high standards of government effectiveness and regulatory quality, overall competitiveness and a global financial centre. These are institutional assets not to be discarded casually despite the gloomy climate. Besides, it has one of the highest per capita gross domestic products in Asia, and has the best opportunity to take advantage of China's rise in the 21st century.

No doubt, Hong Kong faces multiple problems in governance. Since 1997, it has been suffering one legitimacy crisis after another. It is embroiled in an increasingly fragmented polity. Public distrust is spreading and tension between the executive and legislative branches persists, making it difficult for any government to govern. The lack of democratic progress has made it harder to build trust, at a time when trust is needed for political institutions to co-operate and for the government to lead society, to find policy solutions to various social problems.

While Hong Kong people should in no way be complacent, they do not have the luxury to be unduly pessimistic about the city's future - lest it become a self-fulfilling prophecy. Optimism has to be earned. Hong Kong's future lies in its capacity to be a leading global city of China that is able to shape events whether nationally or internationally. That calls for a new vision that cannot grow from a mindset still too bogged down in its colonial "legacy".

Anthony Cheung Bing-leung is an executive councillor and founder of SynergyNet, a policy think-tank


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Dwindling job pool and loss of benefits will raise social tensions


SPAIN
Sonya Dowsett
Jan 06, 2009           
     
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Tensions mounting between native job-seekers and immigrants competing for a declining pool of work in Spain will intensify this year as generous benefits for those laid off reach the end of their fixed terms.
Unemployment, at 12.8 per cent in November - a 12-year high and by far the highest rate in the European Union - could reach 20 per cent of the workforce in 2010 as a slump in construction spreads into the wider economy, experts say.

That is a level not seen since the 1990s and, as Spain heads for its deepest recession in 50 years, it may trigger social unrest like that of the 1980s, when high unemployment and low wages led to countrywide demonstrations and violent strikes.

Spain makes payouts of up to 70 per cent of salaries for up to two years, depending on how long workers have been paying into the social security system.

With nearly 3 million out of work, many of those laid off during 2008 will come to the end of dole payouts next year and will struggle to make ends meet in a worsening labour market with no sign of paid work.

"This coming year, a lot of people will stop receiving the dole," said Sandalio Gomez, professor of labour relations at IESE Business School. "We could end up with social unrest as people take to the streets."

The makeup of Spain's workforce has changed drastically with the arrival of nearly 5 million immigrants boosting the population by 15 per cent over the past decade.

Desperate Spaniards who have lost jobs in construction are taking up work they formerly shunned, from cleaning bars to fruit-picking, displacing immigrants who struggle to find alternative work.

Thousands of Andalusians applied to pick olives for this year's harvest from December to January, according to an Andalusian job agency, leaving the previous workforce of African immigrants without employment.

Despite offers from local authorities to pay their coach fares back to Africa, immigrants are sleeping rough or in homeless shelters in a situation described by one charity as a genuine social problem. Another flashpoint in the southern region could be February's strawberry harvest in Huelva, on the border with Portugal, where migrants traditionally find work.

Felix Veliz, a Madrid-based former construction-sector worker from Ecuador who worked for a firm that installed safety equipment in building sites, says many of his colleagues were forced to sleep rough when the company filed for administration in September.

The 49-year-old, who came to Spain nearly 10 years ago, cannot claim welfare or seek other work as, under Spanish law, he is still tied to his former company while it files for administration.

"All we want is that the judge and the labour authorities reach a decision as soon as possible so we can claim the dole or get a job with another company," he said at a commercial court in Madrid where he and fellow former employees have put in a plea to break their ties with the company. "This is like a charity case now."

Married with two adult children, Mr Veliz used to earn up to 1,300 euros (about HK$14,000) per month - equal to his mortgage repayments.

"They started docking our salaries in May," he said, his hands thrust into the pockets of a blue corduroy jacket in the cold wind outside the wrought-iron doors of the court.

"In July, the company stopped paying altogether. That's nearly six months, up to now. We are living off loans from friends and family."

Ripples from a crumbling construction sector are spreading out into the wider economy, bringing down peripheral businesses like air-conditioning installers and tile manufacturers.

The number of companies entering administration in the third quarter nearly quadrupled from the same period a year ago, according to the National Statistics Institute.

"It's the domino effect from the construction sector," said Jose Luis Corell Badia, a lawyer and head of corporate restructuring at Ernst & Young Abogados. "I don't see light at the end of the tunnel. It's job destruction."

Cristina Ballesteros, a 29-year-old former secretary for the vice-president of a multinational cement company, said competition for work is such that potential employers ask her if she plans to have children, even though it is illegal to do so.

She lives with her boyfriend but has taken to saying she is single to improve her chances.

"I share a rented flat, but if it was not for that, I'd be back living with my mother," she said. "I studied to be a secretary: it's not a degree, it's a two-year diploma, but now I find there are many employers who want you to have a degree to do a secretary's job. People accept it, because they have no choice. They are asking for more and more, when it's really not necessary."

Outside the Madrid commercial court, others are fighting to receive payments to which they are entitled. Rafael Pliego, 54, was recently fired from his job as a security guard and has already signed up for the dole but had not yet received his cheque.

"I have an illness and they told me I couldn't continue working and they fired me. It happened on October 30. I had only been working with them for five months," he said.

"I carry on looking for work, of course. I had the bad luck to get sick, and this happened."

Spain's government ran the second-highest surplus in the euro zone in 2007, equal to 2.2 per cent of gross domestic product, but the public accounts are sinking into the red as tax income falls and the number of people claiming unemployment benefit rises.

The central government budget deficit leapt to 14 billion euros in the first 11 months of 2008 - equivalent to 1.28 per cent of GDP. The central government deficit is part of Spain's wider public sector budget, which includes the social security system, regional and municipal accounts.

Social security payouts alone in 2009 will double to 3 per cent of GDP, according to Funcas savings bank consultancy. "It's grown this year at an incredible rate," said Funcas analyst Angel Laborda.

Funcas forecasts for the budget deficit in 2009 and 2010 are already obsolete, he said, and will probably come in at around 6 per cent of GDP in 2009 and 7.5 per cent in 2010.

That would shatter a European Union limit of 3 per cent of GDP.

Prime Minister Jose Luis Rodriguez Zapatero said on Saturday the country would start to see the first shoots of economic recovery within the coming year.

But Vicente Balmaseda, 36, who lost his job as a conference-stand designer six months ago, is pessimistic.

"I've sent around 200 resumes. At best, I've had three or four interviews. It's getting me down. From what they say on the TV, it's only going to get worse next year."

Reuters


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Workable solution
China wants better, cleaner industry for tomorrow, but needs jobs and stability today

Joseph Cheng
Jan 08, 2009           
     
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The Guangdong leadership has been promoting industrial upgrading in the Pearl River Delta for many years, and this is perceived as the inevitable path of economic development. The processing factories in the delta are mainly labour-intensive manufacturing; their products are low value-added with minimum technological content. They are also responsible for the region's environmental pollution. Hence, their demise is considered progress.

In the last two or three years, labour shortages in the delta have been pushing up wages, and industrial land is in short supply. The Guangdong authorities are also eager to tackle the issue of environmental protection, as pollution has had an adverse impact on the quality of life. These are obvious intermediate and long-term trends, and are not unexpected.

In early 2007, the Guangdong leadership began to take active steps not only to promote industrial upgrading, but to exert pressure on the processing factories in the delta as well. Hong Kong businessmen in the region felt the pressure.

Their plight was exacerbated by other developments. China's export boom and huge trade surpluses pushed the yuan higher, and the Bush administration in the US, as well as other western governments, exerted pressure on Beijing to further appreciate its currency.

The Labour Contract Law was scheduled to be fully implemented at the start of 2008, which added a range of pension and insurance expenditure to the wages bill. Most processing factories operate at very low profit margins, sometimes only 3 per cent to 5 per cent, and it was natural that some had to cut back, relocate or even close down.

The Guangdong policy was in line with the central government's broad economic development strategy. The Chinese leadership endorsed the approach. The new Guangdong Communist Party secretary, Wang Yang , appealed to local cadres to "adopt new thinking and to further liberate their thoughts". However, when the impact of the global financial crisis began to be felt in late summer last year, the situation became different.

The crisis has certainly worsened the situation. Many processing factories have stopped operating, and millions of migrant workers have lost their jobs. Some have begun to return to their villages.

There are over 200 million migrant workers in China, according to Ministry of Agriculture assessments; 10 per cent of them losing their jobs means more than 20 million unemployed. The fact that factories are closing down has also generated a lot of labour disputes; migrant workers who have not received all their wages and benefits have joined street protests. This has affected social stability.

From the Guangdong leadership's point of view, an economic downturn may be a good opportunity to accelerate industrial upgrading, as demonstrated by past experience in Japan. Developing more advanced, innovative industries and weeding out backward processing factories would raise Guangdong's international competitiveness.

The Guangdong authorities are, therefore, inclined to keep with the existing policy, and are reluctant to help the labour-intensive small and medium-sized industrial enterprises.

The return of migrant workers to their villages, again, will not cause serious social and economic problems for Guangdong as most of these low-wage, unskilled workers come from less-developed neighbouring provinces. In fact, their departure will reduce pressure on Guangdong's social services.

The central government, on the other hand, has a national, macro view. The current leadership accords the highest priority to stability. For many years, it has been trying hard to maintain an annual growth rate of 8 per cent or more.

The objective is to offer employment to new entrants in the labour market, as well as underemployed rural workers. Keeping a low unemployment rate is essential to maintaining social stability.

The promotion of industrial upgrading and reducing pollution in the coastal provinces have been supported by Beijing.

In the past decade, some labour-intensive industrial enterprises in the Yangtze River Delta have moved to central provinces. Less-prosperous Jiangxi province, for example, has been actively attracting factories to relocate there to boost its own industrialisation.

At this stage, however, the central government is more concerned with containing unemployment and ensuring social stability. Premier Wen Jiabao now advocates state support for small and medium-sized enterprises, for fear that their failure would cause only more unemployment.

Hence, this has become an issue to be negotiated between Guangdong and Beijing - but whose outcome will affect Hong Kong businessmen in the Pearl River Delta.

Joseph Cheng Yu-shek is a professor of political science at City University of Hong Kong


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Boom and bust, again
Smart investors would do well to ignore the exuberance over the latest surge in stock markets

Sin-ming Shaw
Jan 09, 2009           
     
  |   

  



Stock markets are suddenly showing signs of breaking out from their respective lows reached late last year. As of Wednesday, the Hang Seng Index was up more than 40 per cent, the Dow Jones, 21 per cent and the Nikkei, 32 per cent. These broad indices mask even more impressive performance of individual stocks.
China Life (SEHK: 2628, announcements, news) , in an industry plagued by the implosion of American giant AIG, is up 60 per cent from its low. Bank of East Asia (SEHK: 0023), hurt by rumours and by a rogue trader, is up 44 per cent.

Shipping stocks have staged a comeback that seems to ignore all the daily bad news about slower world trade. Former chief executive Tung Chee-hwa's flagship company, OOIL (SEHK: 0316), at HK$19.60 on Wednesday, is up almost 100 per cent from its October low of HK$9.92.

What is going on? Do investors read the same papers as we do? Are we not watching the greatest meltdown since the Great Depression, with shrinking world trade and massive deleveraging of banks and companies? The economic realities remain depressing and grim. China, the "factory of the world", is facing its largest economic challenge since 1949. Factories are dropping like flies. Those that are surviving face a Hobson's choice: if you accept an order, the buyer might default but, if you don't take it, production must be cut and workers fired.

Property prices in Hong Kong, London and elsewhere are down between 30 per cent and 50 per cent. Interest rates are already close to zero but deflation in the US is at minus 13 per cent per annum, indicating lower rates are not having a positive effect on consumer behaviour. Banks flush with liquidity are afraid to lend as they are unsure whether the borrowers are creditworthy.

Nouriel Roubini, a professor at New York University, was one of the few academics to predict the crisis, yet his warnings were disastrously dismissed as drivel by Wall Street. He is predicting an "uglier" 2009. So are stock markets irrational again? Think of a play with three acts.

Act One consists of the financial meltdown, with stock markets plunging and Wall Street and parts of Main Street decimated. That act is drawing to a close, if it hasn't done so already.

Act Two is unfolding, with Main Street melting down at a speed substantially slower than that of Wall Street. The very nature of engaging in making "real" things in factories - moving industrial materials around the world to be made into parts and then assembled into a product to be distributed to global sales points - means that the process takes longer to start and is slower to unwind. We are far from at its end right now. Professor Roubini was spot on about it getting "uglier" in this respect.

Act Three is what the stock market investors are turning their sights to: highly inflationary policies pursued by governments around the world. They are keeping the money printing press running around the clock and are announcing massive "New Deal"-type programmes.

The popular press has crowned US president-elect Barack Obama a modern-day Franklin D. Roosevelt whose historic New Deal helped get the US out of the Great Depression.

Governments around the world have finally understood that the deadly combination of US housing folly and Wall Street machinations was not a localised US phenomenon. They are now acting to save their own countries.

Zero interest rates alone have proved to be inadequate. John Maynard Keynes long ago warned that a "liquidity trap" in a depression would require massive government action. Japan, in the 1980s, found itself in the same trap with a lethargic government politically unable to inflate the economy through massive spending.

These days, public policymakers are less restrained. Mr Obama has chosen as his close economic advisers experts on the Great Depression. Larry Summers, Mr Obama's top adviser, chastened after years of complacency regarding the stability of the US financial system, has urged Mr Obama to err on the side of "overspending". US federal deficits are now projected to be well over US$1 trillion for 2009 and probably in 2010.

So Act Three is music to the ears of the financial markets. In this script, the world economy should get back on an even keel in less than a year, saving it from a lethal hard landing. Some experts expect the global economy to hit bottom by, at latest, the fourth quarter of this year.

Should retail investors jump back into stocks with both feet, assuming the current budding exuberance is on the mark?

Is the market going to go higher in the months to come? Lee Shau-kee, who made his fortune selling apartments in Hong Kong's rigged property market and was once nicknamed "Asia's Warren Buffett" has now humbly disowned that honorific because he has fallen flat too often with his flawed forecasts.

Before regaining our exuberance, we should remember what the real Warren Buffett said long ago: every minute spent guessing what the markets will do is a minute wasted. He made his reputation and fortune by focusing on company realities. He finds great companies selling at reasonable prices, rather than guessing what market indices will do. It pays to remember his words.

Sin-ming Shaw is a former professional investor


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Macau needs to put eggs in more than one basket


LEADER

Jan 12, 2009           
     
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A financial downturn tends to expose the weaknesses of any economy. That is doubly so in Macau, where the gaming industry is at once a strength and weakness because the city has too many eggs in the one basket. As a result, the global crisis has delivered a body blow to the city's growth. The tightening of restrictions imposed by the central government on travel by mainlanders to the gambling mecca has exacerbated it.

Understandably, the city had high hopes that its first visit from Vice-President Xi Jinping , who is in charge of Hong Kong and Macau affairs, might result in relief measures such as a relaxation of travel restrictions. Alas, Mr Xi departed yesterday without any sign of such a move. Instead, he called for unity in the face of difficulties and pointed out that the city's government had already taken steps to mitigate the effects of the downturn. Indeed, the government unveiled two generous assistance packages last year. It is arguable, however, that they restored a measure of social equity to ordinary people who missed out on the benefits of the gaming boom after the liberalisation of casino licences.

Mr Xi also called on Macau to diversify its economy to make it more resilient and said the development of nearby Hengqin Island would offer opportunities to do so. In the long term, it is in this regard that help from the mainland can offer lasting, sustainable benefits. Macau remains a small economy dependent on the gambling industry, and to a large extent on the mainland for tourists and gamblers. It cannot escape its structural economic problems. If it is to make a serious attempt to do so by diversifying, it must ensure that its economy is more integrated with that of the mainland. That raises complicated questions that cannot be solved without Beijing's support.

In the shorter term, there is a case for liberalising the travel restrictions. Curbing everyone's freedom of movement is not the way to deal with the problem of officials and businessmen gambling with ill-gotten funds. It only treats the symptoms of social problems, such as corruption in the public and private sectors, instead of addressing a lack of transparency and accountability. Limiting or vetting individual visits to Macau by mainland officials may be a justifiable measure for the time being to safeguard public funds, but travel curbs on ordinary mainlanders should be relaxed.

Mr Xi gave no public clues as to who might succeed Edmund Ho Hau-wah as chief executive when he retires in December after 10 years in office. Mr Ho was seen as having done well during his first six or seven years. It is worth remembering, however, that even as Mr Ho basked in Beijing's praise of Macau as a model of "one country, two systems", President Hu Jintao added a warning about deep-rooted problems that called for diligent, clean and effective government. Two years ago, Mr Ho's standing was diminished by a corruption scandal involving a former minister who is now in jail.

The need for government to be seen to be clean will be a priority for his successor. This means strengthening public institutions to ensure transparent oversight of the gaming and construction sectors. The task calls for a person of the highest integrity, with the political and administrative skills and determination to maintain public confidence in a gambling-led economy. In such a small, closely connected society as Macau's, that will be no easy task.


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Asian immigrants are turning to technology in quest for a son


UNITED STATES
Mike Swift
Jan 13, 2009           
     
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Researchers are finding the first evidence that some Asian immigrant families are using US medical technology to have sons instead of daughters, apparently acting on an age-old cultural prejudice that has led to high ratios of boys to girls in parts of China and India.

The new research, produced by independent teams of economists who arrived at similar conclusions, focused on Indian, Chinese and Korean families who first had girls and then used modern technology to have a son.

With birth records in Santa Clara County, California, showing that Asian mothers are more likely to give birth to sons than white or Latino mothers are, the new data could reawaken a local controversy. Some local South Asian women have pressured local Indo-American newspapers and magazines in recent years to stop running ads for medical procedures that offer prospective parents the promise of a son.

For some South Asian couples, having a boy is a "status symbol", said Deepka Lalwani, the founder and president of Indian Business & Professional Women, a non-profit business support network. "If a woman has male children, she feels in her family, certainly with her in-laws, that her status will go up because now she is the mother of a male child."

Such cultural pressures may explain the recent findings. A Columbia University study suggests that Chinese, Indian and Korean immigrants have been using medical technology, most likely including abortion, to assure their later children were boys. And a soon-to-be published analysis of birth records by a University of Texas economist estimates there were 2,000 "missing girls" between 1991 and 2004 among immigrant families from China and India living in the US - children never born because their parents chose to have sons instead.

"We didn't expect to see a male bias. And, for the first child, we didn't find one. It seems to appear after a first daughter, and more strongly after a second daughter," said Douglas Almond, co-author of the Columbia study.

Among Indian families in Santa Clara County in the 1990s, Texas economist Jason Abrevaya found a 58 per cent chance of having a son among families that first had two girls - significantly higher than the natural 51 per cent chance of having a boy.

The teams found no comparable bias toward boys among white, African-American and Japanese-American families that first had girls.

Dr Abrevaya found evidence that female infanticide, a practice documented in India and China, is not happening in the US. The economists' data indicates only that some couples have manipulated the natural odds of having a son or daughter; it does not identify the means they used to do it.

"If gender-selective abortion is the cause for the unusual Asian Indian boy birth ratios, then the abortion rate would be 20 per cent to 25 per cent of female fetuses who otherwise would have been the family's third or fourth child," he said.

For Jeffrey Steinberg, a doctor, the demand for a son is a business opportunity. While abortion might have been the common medical procedure available for sex selection in the early 1990s, one of the methods advertised among ethnic communities today is PGD — pre-implantation genetic diagnosis.

Dr Steinberg, the medical director of the Fertility Institutes of Los Angeles, uses PGD to harvest fertilised embryos, identify their sex after a few cellular divisions, and implant the chosen gender. Chinese and Indian couples, who pay up to US$18,000 per attempt to have a boy, are a major source of his clients, he said.

"Clearly, among the Chinese population, there's heavy interest in male children. The Indian population also has a heavy interest in boys," he said. The US is one of a very few countries that does not ban using techniques like PGD for gender selection. It was developed to screen for hereditary diseases like cystic fibrosis.

Among Dr Steinberg's Chinese clients who use PGD to assure a son, 40 per cent come from the San Francisco Bay Area, 40 per cent travel from China, and 20 per cent come from Southern California and the rest of the world.

"It's emotional for them, and it's emotional for us," Dr Steinberg said. "They come in feeling that they owe me an excuse for wanting to be there."

Not all his clients are interested only in boys. Canadians, for instance, tend to prefer girls. "That keeps us very comfortable with what we're doing ethically," he said.

The normal ratio of boys to girls at birth is about 105 boys per 100 girls. But in parts of India and China, as ultrasound and other medical technology became available to reveal the sex of unborn children, the ratio of boys to girls aged four or younger jumped from 104 boys per 100 girls in 1981 to about 108 boys in 2001, according to a recent UN Population Fund report.

The preference for sons goes back 2,500 years in some parts of China, with economic and social roots through marriage dowries and other traditions. In India, some Hindus believe only a son can perform certain funeral rites for a father. And sons are expected to financially care for their parents in their old age.

Some who study the Indian diaspora say son-selection may not die out, even in the US. Dr Abrevaya, who found much stronger evidence for son selection among Indians than among Chinese living in the US, worries that more people will use PGD as it becomes cheaper.

Preeti Shekar, a Berkeley -based journalist and activist who believes there are "sexist and racist consequences" to medical technologies like PGD, has urged a petition campaign to stop the ethnic media from running ads for Dr Steinberg's clinic.

"There needs to be a lot of consciousness-raising," she said. "We do need to do things with the South Asian community because, especially in Silicon Valley, they are pretty conservative."

McClatchy-Tribune


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One world, one crisis
Only a worldwide fiscal stimulus can counteract falling private demand

Kemal Dervis and Juan Somavia
Jan 14, 2009           
     
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As recession spreads around the world, the global production networks that arose with the globalisation of the world economy have become sources of cutbacks and job losses. Postponing purchases of new winter coats in the United States means job losses in Poland or China. These losses then translate into reduced demand for American or German machine tools.

Unemployment and reduced sales then feed back into new losses in banks' loan portfolios, further weakening the battered financial sector. As a result, anxiety, hopelessness and anger are spreading, as what was a financial crisis becomes an economic and human crisis. Unchecked, it could become a security crisis.

Trying to rescue the financial sector without supporting a recovery in terms of businesses, jobs and family purchasing power will not work. What is needed is a large worldwide fiscal stimulus to counteract falling private demand.

Different countries' capacity to act depends on their indebtedness, foreign exchange reserves and current-account deficits. Germany and China can do more than others. America can do a lot, in part because of the US dollar's status as the main international reserve currency. Low interest rates mean that the additional debt burdens that public borrowing will create can remain manageable.

Moreover, if the stimulus succeeds and leads to an early recovery, the additional income gained may more than offset the increase in debt. Given the collapse of commodity prices and excess production capacities, there is no short-term inflation danger, even if part of the stimulus is financed directly by central banks.

The argument for a strong fiscal stimulus is overwhelming. Several countries have already announced measures, but there is a need to evaluate what they all amount to in reality.

The argument is strong for providing stimulus through increased government expenditure rather than relying on, say, tax cuts, because panicked consumers might save the money instead of spending it. Debt and inflation will reappear as medium-term problems, so it is critical that the fiscal ammunition used helps long-term productivity, growth and sustainability.

Of course, fiscal stimulus does not mean just throwing money at the problem. There needs to be a strategy, priorities must be weighed, and empirical evidence analysed. We should also remember that what growth there is in the world economy in 2009-10 will come mostly from developing economies. Policies supporting their growth are critical to prospects in the advanced economies, too.

Each country may hope that others will stimulate their demand while it preserves its fiscal headroom, thereby relying on exports as the engine of recovery. Each country may also be tempted by protectionist measures, trying to preserve domestic jobs at the expense of imports. Such "beggar-thy-neighbour" policies in the 1930s aggravated and deepened the Great Depression.

The car industry is a good example. Measures to keep it afloat in one country look like unfair competition to others. But the answer is not to let a collapse in the world's car industry fuel a deeper recession. The answer is to co-ordinate a global recovery package, which creates the opportunity to point recovery in the direction of a new generation of fuel-efficient and low-carbon-emission vehicles and green jobs.

Sovereign countries will have the final say on their recovery packages, but global co-ordination will increase the effectiveness of everyone's actions. Moreover, fairness and security considerations demand that the most vulnerable, who had no role in the making of this crisis, receive support.

Extending social safety nets helps the most vulnerable and is likely to have high multiplier effects, as the need to spend is most urgent for the poorest people. Training programmes, including for green jobs, should be significantly increased. Public expenditure must be focused on programmes with strong employment content, such as in small- and medium-scale infrastructure projects and support to local governments.

Credit lines should be kept open to smaller businesses, which employ the bulk of the world's workers but have the least access to credit. Donors must maintain the promised (and very modest) levels of development aid for the poorer countries, and the drive to achieve the Millennium Development Goals must be renewed. The availability and affordability of trade finance should be improved.

The Bretton Woods institutions have a key role to play. The International Monetary Fund and central banks should increase liquidity in a co-ordinated fashion in the form of short-term credit to emerging-market economies suffering from cuts in capital inflows and export earnings.

The World Bank should increase lending to help finance growth-supporting expenditure in developing countries. Tangible progress is needed in global trade negotiations.

While these recovery measures are put in place, the world must also build the institutions for the 21st-century economy. The International Labour Organisation's Decent Work Agenda of employment and enterprise, social protection, sound labour relations and fundamental rights at work creates a solid stage for fair globalisation.

Any crisis is also an opportunity. This crisis has demonstrated that the destinies of countries around the world are linked. Policy co-ordination and a global strategy that instils confidence and hope will bring a quicker and stronger recovery to us all.

Kemal Dervis is executive head of the UN Development Programme. Juan Somavia is director general of the International Labour Organisation. Copyright: Project Syndicate


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Gaza goals
As with Hezbollah in 2006, Israel should be trying to 'educate', not annihilate, Hamas

Thomas Friedman
Jan 15, 2009           
     
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I have only one question about Israel's military operation in Gaza: What is the goal? Is it the education of Hamas or the eradication of Hamas? I hope that it's the education of Hamas. Let me explain why. I was one of the few people who argued back in 2006 that Israel actually won the war in Lebanon started by Hezbollah. You need to study that war and its aftermath to understand Gaza and how it is part of a new strategic ball game in the Arab-Israel arena, which will demand of the Obama team a new approach.
What Hezbollah did in 2006 - in launching an unprovoked war across the UN-recognised Israel-Lebanon border, after Israel had unilaterally withdrawn from Lebanon - was to both upend Israel's long-standing peace strategy and to unveil a new phase in the Hezbollah-Iran war strategy against Israel.

There have always been two camps in Israel when it comes to the logic of peace, notes Gidi Grinstein, president of the Israeli think-tank, the Reut Institute. One camp says that all the problems Israel faces from the Palestinians or Lebanese emanate from occupying their territories. "Therefore, the fundamental problem is staying - and the fundamental remedy is leaving," says Mr Grinstein.

The other camp argues that Israel's Arab foes are implacably hostile, and leaving would only invite more hostility. Therefore, at least when it comes to the Palestinians, Israel needs to control their territories indefinitely. Since the mid-1990s, the first camp has dominated Israeli thinking. This led to the negotiated and unilateral withdrawals from the West Bank, Lebanon and Gaza.

Hezbollah's unprovoked attack from Lebanon into Israel in 2006 both undermined the argument that withdrawal led to security and presented Israel with a much more vexing military strategy aimed at neutralising Israel's military superiority. Hezbollah created a very "flat" military network, built on small teams of guerillas and mobile missile-batteries, deeply embedded in the local towns and villages.

And this Hezbollah force, rather than confronting Israel's army head-on, focused on demoralising Israeli civilians with rockets in their homes, challenging Israel to inflict massive civilian casualties in order to hit Hezbollah fighters and, when Israel did strike Hezbollah and also killed civilians, inflaming the Arab-Muslim street, making life very difficult for Arab or European leaders aligned with Israel.

Israel's counterstrategy was to use its air force to pummel Hezbollah and, while not directly targeting the Lebanese civilians with whom Hezbollah was intertwined, to inflict substantial property damage and collateral casualties on Lebanon at large. It was not pretty, but it was logical. Israel basically said that, when dealing with a non-state actor, Hezbollah, nested among civilians, the only long-term source of deterrence was to exact enough pain on the civilians - the families and employers of the militants - to restrain Hezbollah in the future.

Israel's military was not focused on the morning after the war in Lebanon - when Hezbollah declared victory and the Israeli press declared defeat.

It was focused on the morning after the morning after, when all the real business happens in the Middle East.

That's when Lebanese civilians, in anguish, said to Hezbollah: "What were you thinking? Look what destruction you have visited on your own community! For what? For whom?"

Here's what Hassan Nasrallah, Hezbollah's leader, said the morning after the morning after about his decision to start that war by abducting two Israeli soldiers on July 12, 2006: "We did not think, even 1 per cent, that the capture would lead to a war at this time and of this magnitude. You ask me, if I had known on July 11 ... that the operation would lead to such a war, would I do it? I say no, absolutely not."

That was the education of Hezbollah. Has Israel seen its last conflict with Hezbollah? I doubt it. But Hezbollah, which has done nothing for Hamas, will think three times next time. That is probably all Israel can achieve with a non-state actor.

In Gaza, I still can't tell if Israel is trying to eradicate or "educate" Hamas, by inflicting a heavy death toll on militants and heavy pain on the Gaza population. If it is out to destroy Hamas, casualties will be horrific and the aftermath could be Somalia-like chaos.

If it is out to educate Hamas, Israel may have achieved its aims. Now its focus, and the Obama team's focus, should be on creating a clear choice for Hamas for the world to see: are you about destroying Israel or building Gaza?

But that requires diplomacy. Israel de facto recognises Hamas' right to rule Gaza and to provide for the well-being and security of the people of Gaza - which was actually the original campaign message of Hamas, not rocketing Israel.

In return, Hamas has to signal a willingness to assume responsibility for a lasting ceasefire and to abandon efforts to change the strategic equation with Israel by deploying longer- and longer-range rockets.

That's the only deal. Let's give it a try.

Thomas L. Friedman is a New York Times columnist


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The other Bush legacy


PETER KAMMERER

Jan 16, 2009           
     
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In a matter of days, I will have the wish I have wanted for years: the 43rd president of the US, George W. Bush, will saddle up and ride off into the sunset. From retirement at the US$2.1 million house he has bought in Dallas at a bargain-basement price - thanks to a plunge in the property market that I am sure he had nothing to do with - he will work on his designer presidential library and write his memoirs. There is no need to partake of either when they are finished as he has made clear the content during his farewell tour. In essence, he has no regrets and even less remorse for the decisions made during his eight years in the White House.

As one American leader gives way to another, talk traditionally turns to legacies. Mr Bush believes he will be remembered as a liberator of 50 million people in the Middle East. He contends he has done much for the American education system with his "no child will be left behind" policy. But, first and foremost, he is proud that he will leave Washington with the same set of values that he arrived with; in other words, he did not sell his soul for the sake of politics.

Legacies are a matter of opinion. The US remains deeply divided, politically, despite the feel-good factor of Barack Obama's election win. Mr Bush's Republican Party supporters offer a long list of perceived achievements while detractors from the soon-to-be-in-power Democrats have little good to say about his presidency. History is the final judge, of course - but for now, I prefer to stay firmly with the detractors.

Look at the record: the humiliation and torture of prisoners at Abu Ghraib; the illegal incarceration of terror suspects at Guantanamo Bay; the mishandling of Hurricane Katrina; the intelligence failure over Iraq's alleged weapons of mass destruction; and the go-it-alone diplomatic approach that tore to shreds previous international co-operation. He censored science, battered American prestige and spent as if there was no tomorrow.

Given my lack of anything good to say, it is best that I do not even attempt to mark the end of Mr Bush's presidential era with my take on his place in history. There is, however, another person from his administration who, in my humble estimation, has left a sizeable legacy: his wife, Laura.

There are no guidelines as to the role of the first lady. She does as she wishes, taking up whichever cause or issue seems warranted. Mrs Bush, a former teacher and school librarian, naturally turned to what she knew best, initially: the rights of children, specifically literacy, health, cognitive development and life-long learning programmes. As she grew into the position, she broadened the scope of her work to encompass a range of weightier issues far wider than any previous first lady had tackled.

There has been determined support for the pro-democracy movement in Myanmar, and efforts to improve the lot of the victims of last year's devastating cyclone; pushing the rights of women and girls in Afghanistan through repeated visits; high-profile trips to the Middle East and Africa; and encouraging - against China's wishes - contacts between the US and Tibet's exiled spiritual leader, the Dalai Lama. Her quiet-spoken diplomacy was in marked contrast to the approach adopted by her husband. He may have made the tough decisions, but it is her grit and determination that, for me, shone through.

All the while, Mrs Bush found time to do what first ladies are expected to: stand by the president. This she did to the hilt, even when it was probably against her interests - as when Mr Bush vetoed a children's health insurance bill. While his popularity has sunk, her ratings have remained high. She is universally liked across the American political spectrum.

Politics gets in the way of determining Mr Bush's legacy. There is no such problem in evaluating his wife's contribution to the Bush years. She has created the template for the first lady which Michelle Obama and whoever follows her will have to do their utmost to fit into. It is a legacy to be proud of.

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


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No on-off switch for lasting change in Iraq


David Ignatius
Jan 19, 2009           
     
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US President George W. Bush teased his ambassador in Baghdad by giving him the nickname "Sunshine", because of his sometimes-gloomy assessments of the political situation there. But Ryan Crocker persisted down to the last days in describing things precisely as he saw them.

Journalists probably shouldn't have heroes, but Mr Crocker is one of mine. We first met in 1981 in Lebanon, and I've watched over the years as he took on the toughest challenges in the Foreign Service and became a superstar diplomat, without losing his mordant sense of humour or his determination to speak truth to power.

What made Mr Crocker so unusual was his raw curiosity about the world. In the summer of 1970, when he was a student at Whitman College and determined not to spend the rest of his life in Walla Walla, Washington, he hitchhiked from Amsterdam to Calcutta. Travelling across the vast arc of the Middle East, he developed a fascination that never left him.

Mr Crocker joined the State Department in 1971. He served in Iran and Qatar and then spent two years at a language school in Tunis, where he acquired his fluent Arabic. In 1981, he was sent to Lebanon as a political counsellor, an assignment that shaped his career.

Mr Crocker's innate scepticism made him wary about Mr Bush's decision to invade Iraq. He won't talk about his policy views, except to say: "It was all opaque to me. I couldn't see what would happen." But he argues: "It doesn't matter what I or anyone else thinks about the wisdom of going in 2003. It's a distraction. We're in. We've been in for six years ... The focus has to be on where we go now."

Mr Crocker arrived as ambassador in Baghdad in March 2007. Mr Bush had already decided on a surge of additional US troops there, but Mr Crocker remembers wondering in the early days: "How on Earth are we going to make this a better place?"

The key to success in Iraq, Mr Crocker said, was the impact of Mr Bush's decision to add more troops. "In the teeth of ferociously negative popular opinion, in the face of a lot of well-reasoned advice to the contrary, he said he was going forward, not backward."

Soon, Iraq will be Barack Obama's problem. Asked what mistakes the new administration could make, Mr Crocker says he thinks they will avoid these errors, but lists them anyway: "Concluding this was the Bush administration's war; that it's stable enough now; that we don't want to inherit it, so we're going to back away."

Most of all, he says, policymakers must understand that this is a long game. A lasting change in Iraq isn't an on-off switch: "Not this year, not in five years, maybe not in 10 years."

The overriding lesson, not just of Iraq but of his entire career, is that events have consequences that cannot be predicted, or escaped: "When we are part of a sweeping and traumatic set of events, we've got to understand that currents are set in motion that will play themselves out for many years, in ways we can't always understand."

David Ignatius is a Washington Post columnist


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Credibility gap


FRANK CHING

Jan 21, 2009           
     
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When results of the Pew Global Attitudes Survey were released last summer, something odd was apparent: Chinese people generally thought their country was popular abroad, but the survey showed international views of China were actually increasingly negative. While 77 per cent of Chinese surveyed said their country enjoyed international popularity, in reality, majorities in only seven of 23 nations had a positive opinion of China.

Now, Beijing appears set to do something about improving its image abroad - by giving 45 billion yuan (HK$51 billion) to Xinhua, CCTV and other government-controlled media organs to vastly increase its outreach, especially to the English-speaking world.

But throwing money at the issue will not solve the problem. All it will do is improve the packaging. For the rest of the world to take the official Chinese media seriously, there must be a basic change in China: it must no longer be subject to censorship.

Even in the mainland, the official media lacks credibility. Last week, a group of 22 Chinese intellectuals issued an open letter calling for a boycott of CCTV, saying it broadcasts propaganda rather than news. It cited a broadcast days before the outbreak of the tainted-milk scandal in which the Sanlu Group's dairy products were praised as being nutritious and safe. Meanwhile, stories about social unrest went unreported.

Such a boycott is unlikely to be effective, since viewers do not have a viable alternative. As Wang Jianhong, deputy director of the CCTV general editing department, said: "China has more than 1.2 billion TV viewers. Even if 22 people boycott, I personally don't think it'll have any effect or harm the reputation of CCTV."

But, where the international community is concerned, it is a different story. There, the mainland will be competing with genuine news organisations such as CNN and the BBC. If the Chinese outlets continue the policy of reporting only good news, they will have little credibility. Sure, people interested in China may watch, but they will have at the back of their minds doubts as to the accuracy and completeness of the news, features and documentaries being aired.

These programmes will be seen as propaganda that presents the official Chinese government line rather than objective accounts. Beijing will benefit little from spending billions of dollars, except to create jobs for the many foreign journalists that it will have to hire to work as "foreign experts" for the mainland media.

If Beijing does not want its overseas broadcasts and publications to be seen as mere propaganda, it will have to end the censorship. And that is actually possible if the Chinese government has a little more confidence in itself.

Only a few days ago, the website of the official Beijing Daily carried an article by Shen Minte, a professor at the Communication University of China, in which he called for genuine freedom of speech, which is after all enshrined in the Chinese constitution. Some comrades, he wrote, do not have a deep understanding of freedom of speech and raise the argument that "absurd speech" should not be allowed. But, he said, there is actually no way of knowing in advance whether "an unspoken speech is `absurd' or not" unless one is "an omniscient god who can judge unspoken speech".

The fact that the Beijing Daily can allow such an article to be published is a sign of progress. The next logical step is to actually allow freedom of speech, which inevitably means freedom of the press. With genuine freedom of the press, Chinese media would have the same credibility as foreign media.

Of course, there will be times when China may be seen in a negative light if news about protests, injustices and poverty are carried. But, then, foreign viewers will see that even the official media is allowed to carry such reports, and that itself will help bolster the country's image. Then, if Beijing still wants to spend billions of dollars to enable foreigners to learn more about China, it will be money well spent because the message will go to a receptive, rather than sceptical, audience.

Frank Ching is a Hong Kong-based writer and commentator. frank.ching@scmp.com


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The monster devouring our English capability


Philip Yeung
Jan 22, 2009           
     
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Opinions are plastic. But facts are stubbornly metallic. Of 100,000 candidates at last year's Hong Kong Certificate of Education Examination, more than 12,000 earned a score of "0" in English. The failure rate is nearly 60 per cent, if you consider scoring 2 out of 5+ a failure. The repeater rate is 30 per cent. In A-levels, it is downright disastrous: more than 70 per cent of students from the Chinese-medium schools failed their English, dashing their dreams of going to university.

Yet, those who fathered the much-maligned mother-tongue teaching policy are fighting tooth and nail with those who favour change. But they are all barking up the wrong tree. Label or no label, the problems will not go away. What is defeating our children and our schools is an exam system that turns classrooms into torture chambers.

Local teachers are one-trick performers: herding students through a maze of drills towards the exam inferno. There are no cultural crossings, no joy, no love of the world's most flexible language. For all its billions of educational dollars, Hong Kong is simply not getting its money's worth. Forget about being a hub. We are too damaged educationally for such a pipe dream.

This twisted system dictates what is taught, how it is taught and where. It defines the role of principals and marginalises native English teachers who are underutilised by not being a part of the exam charade. Exam results are a principal's report card. No principal will risk his or her reputation or the survival of the school by not overdrilling students for the monster exams. The teachers themselves are older victims of the same system. How do you expect them to teach differently?

Providers of teacher-training programmes are gearing up to breed more English teachers to feed the need enlarged by the loosening of the language leash. But, until the exam evil is exorcised, there is not a ghost of a chance that English will improve in Hong Kong. It will most certainly bedevil any reform.

Judging by the educational ills, Hong Kong is ill-qualified to design English exams. Ours is a system that has given us idiotic essay topics such as "Lemon Tea".

It has also given us the deadly benchmark exams for teachers. These exams are an unmitigated disaster. The exam paper on metalanguage, in particular, has been the downfall of many popular and passionate teachers. In one truly tragic case, a Harvard graduate whose father donated tens of millions of dollars to set up local schools for the poor volunteered to teach in his father's schools. But, to his utter dismay, he flunked this single baffling benchmark paper. Today, he hides in shame and is lost to teaching. He, alas, is not alone.

Don't pin our hopes on changing the school labels. Pin them on the head of the examination authority issuing a one-word command to his English team: "disband". Until that happens, you can argue till kingdom come about the pros and cons of mother-tongue teaching, but it won't affect the number of victims of, or refugees from, our wretched education system.

Philip Yeung is a Hong Kong-based university editor. philipkcyeung2@yahoo.com

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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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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           
     
  |   

  



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           
     
  |   

  


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