More bank bailouts won't get credit flowing


Douglas Diamond and Raghuram Rajan
Feb 18, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... sight&s=Opinion

Science class no place for creationist dogma


OBSERVER
Alex Lo
Feb 19, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

Alex Lo is a senior writer at the Post


http://www.scmp.com/portal/site/ ... lumns&s=Opinion

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


Ian Bremmer
Feb 20, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... sight&s=Opinion

Fulfilling the promise of US-India relationship


Frank Wisner, Charles Kaye, Vishakha Desai and Alyssa Ayres
Feb 23, 2009           
     
  |   

  



Few places in the world offer as daunting a set of challenges as South Asia. A narcotics-fuelled insurgency threatens newly democratic Afghanistan. A resurgent Taleban in its tribal areas has destabilised Pakistan. The carnage in Mumbai has prompted another standoff between nuclear-armed India and Pakistan.

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... sight&s=Opinion

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

David Dollar
Feb 24, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... ss=China&s=News

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

Joseph Cheng and Anthony Cheung
Feb 25, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... ong+Kong&s=News

A real world crisis


CHRISTINE LOH

Feb 26, 2009           
     
  |   

  



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

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



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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... lumns&s=Opinion

He's only human


PETER KAMMERER

Feb 27, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... lumns&s=Opinion

India should have been on Clinton's Asia itinerary


Lee Cheong Seong
Mar 02, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... sight&s=Opinion

No longer a local bank, HSBC faces global trials


LEADER

Mar 03, 2009           
     
  |   

  



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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... sight&s=Opinion

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

ACADEMIA
Ella Lee
Mar 04, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... sight&s=Opinion

Dealing with the legacy of a bankrupt ideology


Kevin Rudd
Mar 05, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... sight&s=Opinion

Wolves rule as wildlife returns to Chernobyl exclusion zone


BELARUS
Vasily Fedosenko
Mar 06, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Some wildlife have disappeared because of the changes.

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

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

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

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

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

Reuters


http://www.scmp.com/portal/site/ ... sight&s=Opinion

A short-lived affair with the protectionist temptress


Daniel Ikenson
Mar 09, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

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



http://www.scmp.com/portal/site/ ... sight&s=Opinion

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

Andy Xie
Mar 10, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

Andy Xie is an independent economist


http://www.scmp.com/portal/site/ ... ss=China&s=News

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

Drew Thompson
Mar 16, 2009           
     
  |   

  



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

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

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

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

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

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

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

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

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

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

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

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

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

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


http://www.scmp.com/portal/site/ ... ss=China&s=News

The hidden hoards of 'small government'


Philip Bowring
Mar 17, 2009           
     
  |   

  



Official hoarding of cash which belongs to Hong Kong citizens goes far beyond what is usually recognised. The government's fiscal reserves are listed at HK$488 billion. This is already about 28 per cent of gross domestic product and almost two years of recurrent government expenditure.

It makes the 2 per cent of GDP deficit announced by Financial Secretary John Tsang Chun-wah, in the face of the worst economic prospects at least since 1974, look more miserly.

But this is not half the actual reserves squirrelled away by leaders who fear that freeloaders and welfare seekers will want to raid the hoard. Coming from the mouths of overpaid officials and the inherited-wealth billionaires on the Executive Council, most of whom pay little, if any, tax, the arrogance is stunning.

Here is a list of other publicly owned reserve assets:


HK$480 billion (as at the end of 2008) in the undistributed profits of the Monetary Authority's Exchange Fund. In principle, none of this is needed to defend the currency peg which is protected by the convertibility of the note issue and by the operation of interest rates. Even if cash reserves also provide additional defence, as the fiscal reserves are mostly in foreign currency, they could be used to defend the currency - just as they were in 1998 to support the stock market.
Most should either be added to the fiscal reserves or, best of all, added to Mandatory Provident Fund accounts in a way that would recognise the contribution of older workers to Hong Kong's development in the 1960s and 1970s and relieve pressure on future recurrent spending on old-age-related benefits.

Then there is an additional almost HK$265 billion in unspent cash sitting in various funds as follows (from March 2008, the latest consolidated government accounts available).


HK$150 billion in the Land Fund. This fund received land sales revenue in the period of restricted land sales in the lead-up to the handover. Since then it has had no purpose - other than to obscure reality. It should be transferred to the fiscal reserves now.

HK$65 billion in the Capital Works Reserve Fund. This is unspent prior-year allocations for capital works, whether from land sales or transfers from the operating surplus. The hoard is now almost two years' worth of capital spending. Why?

HK$18.5 billion in the Civil Service Pension Reserve Fund - yet another sop to bureaucracy interests on top of the pensions paid out of recurrent revenue they are already promised.

HK$19 billion in the Loan Fund, HK$6 billion in the Lotteries Fund, HK$4.6 billion in the Innovation and Technology Fund: these are all allocations from prior years that remain unspent either because they were not needed or because of the lethargy of the bureaucracy in making them available. The Loan Fund should be sold to the private sector, the Lotteries money distributed to worthy causes for which it is intended, and the innovation fund either used or closed.
The above comes to HK$1.23 trillion, or 70 per cent of GDP - or five years of total operating expenditure!

All the above reserves are on a cash-accounting basis. On an accrual basis - used by companies - reserves were, according to the consolidated accounts at March 31, HK$1.22 trillion. That is after making provision for future civil service pensions of HK$497 billion. The difference between the accrual and cash accounts is primarily the HK$238 billion value of its income-generating businesses, and HK$280 billion in the depreciated value of buildings and infrastructure, minus the pension provision.

Even deducting HK$280 billion for essential services, net assets after pension provision are still HK$939 billion. That excludes land, which is still mostly government owned.

The administration may believe in "small government" when providing services and support to citizens. But it believes in "big government" when acquiring assets it can control.

Philip Bowring is a Hong Kong-based journalist and commentator


http://www.scmp.com/portal/site/ ... sight&s=Opinion

Government should get out of wet markets


LEADER

Mar 18, 2009           
     
  |   

  



Wet markets are an integral part of Hong Kong's cultural fabric. They are where many of us get our fresh food and produce and catch up on gossip. Few other places are as colourful, vibrant or friendly. Yet government complexes set up decades ago to make an often chaotic sector more orderly are more often than not forlorn and empty - and increasingly so.

The government auction of stalls at one such building in Tsuen Wan yesterday was telling. Such spaces should be in hot demand given how engrained wet markets have traditionally been in the lives of Hong Kong people. This was not the case, with only a small percentage of stalls on offer being taken up despite low rents.

Supermarkets have contributed to the decline. They have cleverly taken the wet market concept and used it to their advantage, providing a similar shopping experience in sections of their shops for fruit, vegetables, meat and fish in a considerably more comfortable environment. Prices can be higher, because bargaining is not permitted, but studies show that their market share is steadily growing. Air conditioning, labelling and cleanliness are clearly what shoppers favour.

Part of the problem is that the wet markets are run by the government - they are managed by the Food and Environmental Hygiene Department. This sort of commercial activity would be much better operated by the private sector. Yesterday's auction to rent out vacant stalls is a good example of where things are going wrong. Auctions are the government's preferred method of renting or selling property, but this is no way to operate a shopping centre. The right tenants have to be found and they have to sell an attractive mix of products. There has to be a pleasant shopping environment.

The government complexes are generally cramped and can be overly hot or cold, depending on the season. Smells can at times be overpowering. Poorly thought-out drainage means that the wet markets live up to their name. There is a sense they are unhygienic.

The government should not be in the business of managing wet markets. It realised this with shopping centres and wet markets in public housing estates and divested them to the private sector. That model may not suit the task at hand - co-operatives or a development corporation may be better alternatives. Regardless, the role of authorities should be plain: to provide the leadership to bring together hawkers and commercial expertise. Such a move will be politically difficult, given the history of wet markets. But it is the right way to proceed.

Getting shoppers into the wet market complexes will be challenging. The buildings have to be made comfortable to shop in. Products not available in supermarkets have to be a selling point. A friendly atmosphere has to be created. The to-do list is long, complex and perhaps expensive. What is certain, though, is that the government should step back and let the private sector take over.


http://www.scmp.com/portal/site/ ... sight&s=Opinion

One-track minds
Beijing's 8 per cent growth targets may make political sense, but the economic argument is flimsy

Xu Sitao
Mar 19, 2009           
     
  |   

  



As expected, Chinese leaders reaffirmed their commitment to achieve 8 per cent gross domestic product growth in 2009 during the annual National People's Congress session this month. Why did they do that? Rightly or wrongly, most Chinese policymakers adhere to the  8 per cent figure as the minimum growth threshold to create enough jobs for the country's enormous population. But this is a myth. There is no empirical evidence to suggest that if growth fell below 8 per cent, unemployment would rocket, sparking social unrest.

Still, it is worth asking whether Beijing can achieve 8 per cent growth this year. Let's begin with the Economist Intelligence Unit's baseline scenario. We believe that the world economy this year will be in a deep recession, but not a depression. A corollary to this is that protectionism will rise and cause more trade frictions but not a full-blown trade war. This is a good start.

For the mainland to reach the 8 per cent target for all of 2009, it must grow by more than that towards the latter part of the year. That is because the economy's downward momentum since mid-2007 may still be continuing. In the fourth quarter of 2008, GDP grew by only 6.8 per cent and evidence for this year so far indicates that the worst may not be over.

For instance, exports in January-February plunged 21.1 per cent, year on year, compared with a 2.8 per cent drop in December. If this presages a first-quarter performance similar to that of the fourth quarter, Beijing must deliver an average quarterly growth rate that is closer to 8.5 per cent for the rest of 2009.

The blow to growth from evaporating external demand should not be underestimated. As the yuan has remained strong against most other currencies throughout the global credit crisis, Beijing also faces a severe policy challenge in cushioning exporters' pain, as many of them operate in labour-intensive sectors employing large numbers of workers. But mindful of rising protectionist sentiment abroad, and the dangers of competitive devaluations, leaders have said they will keep the value of the yuan stable.

Instead, Beijing may dish out various subsidies to struggling exporters. Even this may not be enough to re-establish net exports as the robust source of growth that it has been in the past few years. Given the lack of global demand, it is possible that net exports could remain a drag on growth in 2009 (shaving off as much as 1.5 to  2 percentage points from the headline GDP growth rate).

In that case, the mainland must rely on government expenditure, domestic investment and, most importantly, private consumption to power the economy. The government has already turned on the fiscal spigot with its 4 trillion yuan (HK$4.54 trillion) stimulus package, and early signs are that investments are coming alive as a result. But, encouraging private consumption in this time of economic uncertainty will be very hard.

One way to change Chinese consumers' behaviour would be to raise spending significantly on the social safety net so people feel less of a need to save. Another is to lower the tax burden. But the finance ministry is reluctant to raise the personal income-tax threshold. Neither is it keen to expand nationwide the experiment of handing out consumption coupons that has been tried recently in some localities. From the government's perspective, it has already assumed large fiscal burdens with the stimulus and tax reliefs for the property and export sectors.

With the threat of inflation rapidly receding, however, Beijing has ample leeway on monetary policy to pump-prime the economy. The fact that the central bank has set its inflation target for 2009 at 4 per cent when deflation has returned suggests that monetary policy could become much more accommodating in the coming months. With relatively healthy balance sheets, state-owned banks can also afford to live with a narrower interest-rate spread (which is more than 3 per cent now) should financial authorities slash lending rates.

Should growth lag more than expected, Beijing will pull out all policy stops, including some tinkering with the exchange rate. Unfortunately, policy-makers so far seem fixated on jump-starting investment rather than promoting more consumption - which is more sustainable in the long run.

Certainly, they are likely to get more bang for their buck by showering money on infrastructure projects than on consumption coupons. But, the danger is whether they can swiftly remove such potent booster shots to the economy when the recovery takes off without causing adverse side effects, such as industrial overcapacity and bureaucratic excess.

The government's commitment to underwrite 8 per cent growth at all costs may make political sense. The economic argument for such a policy, however, is dubious at best.

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


http://www.scmp.com/portal/site/ ... ss=China&s=News

Exemption from rules just another top-job perk


Stephen Vines
Mar 20, 2009           
     
  |   

  



The Hong Kong government has an uncanny knack for trying to solve one problem by creating another. As legislators pursue their inquiries into the scandal surrounding former housing director Leung Chin-man's involvement in the Hunghom Peninsula redevelopment, the government has launched a more wide-ranging consultation on the whole question of civil servants' post-retirement employment. This exercise could have provided an opportunity to tackle the wider issue of post-retirement conditions for all senior public officials but, yet again, it has been ignored by a government which is developing a reputation for only being able to do one thing at a time.

So, as matters stand, there will be yet another review of regulations for senior civil servants while the need to impose post-retirement conditions on their bosses, the so-called ministers or political appointees, is ignored. This review will also exclude conditions to be imposed on the so-called "mini-ministers", who have been appointed more recently.

More significantly, there is still no plan to look at the post-retirement roles of some of the highest-paid public officials, such as the head of the Monetary Authority and the Securities and Futures Commission, who are not classed as civil servants but who have occupied key posts, with heavy regulatory responsibilities and access to sensitive information not in the public domain.

It is not as though this major oversight is somehow accidental. When the consultation exercise was announced, legislator Regina Ip Lau Suk-yee pointed out the problem - only to be told by Ronald Arculli, who heads the review body, that she was not the first to mention the issue but he had no intention of addressing it. Mr Arculli has emerged as the government's default safe pair of hands who is regularly called in to handle sensitive matters but who will never rock the boat.

However, this is a boat that needs rocking because the unanswered questions go to the very heart of the credibility and integrity of the public service. How can the public trust officials who are allowed to move without restriction from regulatory bodies to companies they once regulated? Why are the most senior people in government exempt from controls imposed on their subordinates? And why is the government afraid to even address these issues?

The suspicion lingers that senior officials are far too interested in protecting their own interests rather than those of the public at large.

Sure, civil servants have rights but, in most jurisdictions, it is understood that entering the public service entails giving up certain rights in return for job security and, in Hong Kong, very high pay. Moreover, public employees are supposed to sign up to an ethos of public service. All this amounts to the very real concept that, even in retirement, public officials have responsibilities that are not imposed on their counterparts in other forms of employment.

Protecting the civil liberties of public servants needs to be weighed carefully against their responsibilities. In Hong Kong, this is clearly recognised by the constantly changing regulations for the post-retirement employment of senior civil servants but curiously ignored for others paid from the public purse who occupy even more senior positions.

It is unfair to assume that those leaving public service deliberately set out to exploit their past experience and privileged access to knowledge (although there have been far too many instances of this happening). But, to provide confidence in the service as a whole, the public must see a fair and equal system is in place to ensure transparency and probity for anyone who has enjoyed high office at their expense.

Why the government fails to recognise this crucial issue is a mystery but I cannot help but point out that those primarily responsible for this negligence are precisely the people currently excluded from restrictions on their retirement employment.

Stephen Vines is a Hong Kong-based journalist and entrepreneur


http://www.scmp.com/portal/site/ ... sight&s=Opinion

Stretched to the limit
Wildly varying human fertility rates among nations could threaten future global security

Joseph Chamie
Mar 23, 2009           
     
  |   

  



The world's population could reach 7 billion in just two years, and perhaps 8 billion in the next two decades. But that's not the only story. Dramatic declines in fertility rates in some countries and high rates in others pose a critical challenge. Without restoring some balance, the world could be heading towards instability and turmoil.

One must be reminded that the growth of world population - which now stands at an estimated 6.8 billion - has had a great impact on all life forms and the entire natural environment on the planet.

Although the world's population continues to grow substantially, by 79 million per year, the rate has declined by nearly half over the past 40 years - from  2 per cent to 1.2 per cent per annum. The cause is declining fertility rates.

However, while average global fertility has dropped from about 5 to 2.6 births per woman during the past 50 years, considerable uncertainty exists about the future. Insofar as fertility is the engine driving the future size of world population, this uncertainty about the path of fertility in the coming years is one of the central and challenging questions of this century.

Before the 20th century, world population grew slowly because, while fertility rates were high, so were mortality rates. In striking contrast, the 20th century ushered in the world's most rapid rates of population growth because, while mortality rates fell to relatively low levels, fertility rates remained comparatively high. World population nearly quadrupled during the past century, with 80 per cent of the growth occurring during its second half. The 2 billion mark was reached in 1927; 3 billion in 1960; 4 billion in 1974;  5 billion in 1987; 6 billion in 1999.

Behind these global population figures are enormous differences among regions and countries. For example, of the 79 million people added to the world every year, six of the most populous countries - India, China, Nigeria, Pakistan, Indonesia and Bangladesh - account for about half of this growth. India alone accounts for 21 per cent of global population growth, followed by China, which contributes 11 per cent. India's population is expected to exceed China's in about 20 years.

In contrast, among the more developed regions, little demographic growth is taking place. Many European countries and Japan are entering a period of population decline, and these trends are likely to continue.

In terms of annual rates of growth, the world's most rapidly growing region is Africa due to the large gap between high birth rates and comparatively low death rates. During the past half a century, Africa's population more than tripled, increasing from 227 million to 819 million. High fertility and vigorous demographic growth are expected to continue, with the African continent projected to have 2 billion inhabitants by mid-century. The populations of Asia and Latin America are also expected to rise by about 25 per cent over the next 50 years.

While future population growth remains uncertain, most current rates of population growth are unsustainable over the long term. In the near term, there's little doubt that the world's population will reach 7 billion, probably by 2011. Will the world reach 8 billion? Most demographic observers would say that it's highly likely, perhaps by 2025. After that, things become considerably less certain.

While, on average, fertility levels continue to decline, considerable variations exist across and within regions. Among more developed countries, rates are often below replacement levels, that is, about 2 births per woman, with some populations already shrinking. The average level for Europe, for example, is well below replacement, at 1.5 births per woman. Fertility rates in less-developed countries, in contrast, are often well above replacement. A notable exception is China, where fertility is 1.8 births per woman.

Some demographers expect that world fertility will remain above replacement for some time to come, pointing out that nearly all of sub-Saharan Africa and most of South and West Asia have high fertility levels. Others, however, see below-replacement fertility becoming the global norm in coming decades. Average world fertility, they note, is about half the level it was in the 1950s.

The uncertainty about the path of fertility is a central and challenging question of this century, given its impact on the future size of world population. Many demographers making long-range population projections see fertility levels eventually fluctuating around the replacement level. To do otherwise would lead in the long term to either extremely large, expanding populations or very small, shrinking populations. Assuming fertility rates gravitate to replacement during the coming decades and subsequently fluctuate closely around it, world population could in due course stabilise at around 9 to 10 billion.

Stabilisation of world population is perhaps the paramount issue of the 21st century. Without such stabilisation, humankind will find it much more difficult to deal with the critical issues facing the planet, like global warming, biodiversity, the environment, energy, food/water supplies, migration and security.

The path to population stabilisation requires sustained and critical attention, and informed policymaking at all levels. Today's decisions not only affect human well-being, but that of all life forms on Earth in the coming decades and beyond.

Joseph Chamie, former director of the UN Population Division, is research director at the Centre for Migration Studies.

Reprinted with permission from YaleGlobal Online. yaleglobal.yale.edu


http://www.scmp.com/portal/site/ ... 26+World&s=News

Look to 1989, not 1929, for a vision of the future


Dominique Moisi
Mar 24, 2009           
     
  |   

  



As the economic crisis deepens and widens, the world has been searching for historical analogies to help us understand what has been happening. At the start of the crisis, many people likened it to 1982 or 1973, which was reassuring, because both dates refer to classical cyclical downturns.

Today, the mood is much grimmer, with references to 1929 and 1931 beginning to abound, even if some governments continue to behave as if the crisis was more classical than exceptional. The tendency is either excessive restraint (Europe) or a diffusion of the effort (the United States). Europe is being cautious in the name of avoiding debt and defending the euro, whereas the US has moved on many fronts in order not to waste an ideal opportunity to implement badly needed structural reforms.

For geostrategists, however, the year that comes to mind is 1989. Of course, the fall of Lehman Brothers has nothing to do with the fall of the Berlin Wall. Indeed, on the surface it seems to be its antithesis: the collapse of a wall symbolising oppression and artificial divisions versus the collapse of a seemingly indestructible institution of financial capitalism.

Yet 2008-2009, like 1989, may very well correspond to an epochal change. The end of the East-West ideological divide and the end of absolute faith in markets are historical turning points. And what happens in 2009 may jeopardise some of the positive results of 1989, including the peaceful reunification of Europe and the triumph of democratic principles over nationalist, if not xenophobic, tendencies.

In 1989, liberal democracy triumphed over the socialist ideology incarnated and promoted by the Soviet bloc. For many of his supporters, it was US president Ronald Reagan who, with his deliberate escalation of the arms race, pushed the Soviet economy to the brink, thereby fully demonstrating the superiority of liberal societies and free markets.

Of course, there are differences between 1989 and now. First, the revolutions of 1989 and the subsequent collapse of the Soviet Union put an end to global bipolarity. By contrast, 2009 is likely to pave the way to a new form of bipolarity, but with China substituting for the Soviet Union.

Second, whereas democracy and market capitalism appeared as clear winners in 1989, it is difficult in 2009 to distinguish winners from losers. Everyone seems to be a loser, even if some are more affected than others.

Yet, history is unfair, and the US, despite its greater responsibility for today's global crisis, may emerge in better shape than most countries. In better shape, but not alone. As a visiting professor at Harvard and Massachusetts Institute of Technology, I get a preview of what the world could look like when the crisis passes. One senses something like the making of an American-Asian dominated universe. From the incredible media lab at MIT to the mathematics and economics departments at Harvard, Asians - Chinese and Indians, in particular - are everywhere, like the Romans in Athens in the first century BC: full of admiration for those from whom they were learning so much, and whom they would overcome in the coming decades.

But before this new order appears, the world may be faced with spreading disorder, if not outright chaos. What, for example, will happen to a country as central and vulnerable as Egypt when thousands of Egyptians working in the Gulf are forced to return to their homeland as a result of the crisis in the oil-producing countries? And what about the foreign workers who have reached for the "European dream" and are now faced with potential explosions of xenophobia in Europe's supposedly open countries?

The consequences of 1989 ended up being less enduring than many observers, including me, would have assumed. We can only hope the consequences of 2009 similarly prove to be far less dramatic than we now - intuitively and in our historical reflexes - feel them to be.

Dominique Moisi is a visiting professor at Harvard University. Copyright: Project Syndicate


http://www.scmp.com/portal/site/ ... sight&s=Opinion

Cash-help proposals merit serious G20 study


LEADER

Mar 25, 2009           
     
  |   

  



Cognoscenti have been debating, with some urgency in the past few months, an arcane international reserve asset known as "special drawing rights" issued by the International Monetary Fund to its member states. Now, China's central banker Zhou Xiaochuan has put that debate at the centre of the global agenda dictated by the financial crisis. Ahead of next week's Group of 20 summit meeting, finance chiefs and central bankers of the world's leading economies are under intense pressure to prepare concrete and creditable measures. Proposals - by China and others - to expand the use of SDRs may also push forward discussion of a new economic order which, in future, could be less dependent on the US dollar.

SDRs are asset units created by the IMF and allotted to each member state in proportion to that country's quotas (or voting power) and financial obligations to provide funding to the organisation. The richest economies - the US and the European Union - have the most SDRs and therefore the most voting rights. But the asset units can also function as a quasi-currency and a credit facility among member countries for trading and lending purposes. However, such uses have been limited up to now.

Mr Zhou may well be right about the world being better off with SDRs as a new international reserve currency to replace the US dollar. But any such far-reaching overhaul of the global monetary system will surely lie in the future. G20 chiefs have a more urgent task - to contain the immediate damage inflicted by the economic turmoil. As a key G20 participant, Mr Zhou is no different. What he did not say about the envisioned wider use of SDRs is that it will directly address two of China's perennial economic concerns: the need to diversify its massive holdings of unstable US dollars in its foreign reserve without triggering a massive plunge in the dollar's value; and its quest for a greater say in IMF decisions.

The proposal's appeal is that countries like China could convert their excess US dollars into a diversified asset like SDRs, whose value is currently determined by a basket of four of the world's leading currencies. The beauty of such a "substitution", at least in theory, is that it has no net impact on the worldwide money supply - and therefore on inflation. It would not accelerate the dollar's decline.

Meanwhile, by explicitly promising to provide extra funding to the IMF for the first time this week, Beijing will surely expect to be allotted more SDRs and, therefore, greater voting power. In all this, China is pursuing its self-interest, but in a way which, through the increasing use of SDRS, would be for the good of all.

China currently has a massive reserve cushion; the US, despite being the originator of the global crisis, continues to be able to borrow cheaply - for example, from China. But many developing economies either cannot borrow or are made to pay exorbitant interest while the IMF may not have enough emergency funds to help them. The collapse or destabilisation of these economies will reverberate back to the developed countries and hinder the latter's economic recovery. Financier George Soros and Nobel Prize-winning economist Joseph Stiglitz have recently proposed richer countries should expand the use of their SDRs as a low-interest credit facility to lend hard currencies to troubled economies. Their proposal, along with China's, will help tackle a myriad of problems plaguing the world economy. But, despite Mr Zhou's assertion, they do not threaten the dollar's reserve currency status, at least for now. They do, however, deserve serious attention at the G20 meeting.


http://www.scmp.com/portal/site/ ... ss=China&s=News

Issuing bonds won't solve MPF problems


LEADER

Mar 26, 2009           
     
  |   

  



When the Mandatory Provident Fund was set up more than eight years ago, only a third of Hong Kong workers had financial protection for their retirement. Now nearly all are using the MPF to save for their old age. With a rapidly ageing population, that is reassuring. But worries raised from the beginning remain, such as whether contributions are high enough to fund people's retirement as life spans increase, and whether exorbitant management fees will seriously erode their savings.

Inadequacies in the scheme have been cruelly exposed by the stock-market slump, with MPF investments having lost 10 per cent this year on top of a 31.5 per cent loss last year. It will take a sustained market recovery to make up these losses. Even then, someone facing retirement within 10 or 15 years could not afford another hit from a crash in the markets.

It is against this background that the government is suggesting that some of the retirement savings of 2 million workers could be invested in government bonds when they are issued for the first time this year. A government source says contributors with a low risk appetite may find the bonds an attractive alternative. Granted, they would offer a safe return, but this still leaves key problems with the scheme unresolved.

A review is needed to ensure that it can deliver the hoped-for social dividend and security in old age. The contributions formula of 5 per cent each from employer and employee, capped at HK$2,000 per month, are insufficient to guarantee a decent retirement sum for two reasons. First, as a defined contributions scheme, it does not promise account holders fixed benefits. Second, as things stand, a lot of the money is ploughed into shares.

Despite their superior performance in the long term, returns on shares can be erratic, making retirement planning more difficult. The government's move to provide MPF account holders with a means to invest in bonds is welcome, but with most contributions still likely to be invested in shares, the danger of fluctuating returns - a key weakness of the scheme - remains.

So do the problems with the performance of MPF funds. Tax deductions have been suggested to encourage account holders to contribute more, but this would be meaningless to more than half the working population, since they do not pay salaries tax. It would increase the retirement payouts of the better paid and remove some of the incentive to risk too much for too long in the stock market. But a review of the scheme should lead to an equitable way of encouraging higher contributions.

The authorities must expedite a plan to allow workers to choose which MPF provider will manage their own savings, but more than that must be done to bring down management fees that are estimated to cost investors up to 50 per cent of the contributions over a 40-year span.

Meanwhile, the issuance of government bonds should help broaden the depth of Hong Kong as a financial centre. The irony is that the government, with its massive fiscal reserves, does not need the money. That is an odd situation. In the US, for example, the government issues bonds to finance the public deficit, but Hong Kong does not want to use bonds to finance expenditure.

A review of the MPF scheme should come up with the reforms needed to achieve its objectives - ensuring an adequate sum of money is available when needed for each contributor's retirement.


http://www.scmp.com/portal/site/ ... sight&s=Opinion

Financial 'experts'? A chimp could do as well


Nicholas Kristof
Mar 27, 2009           
     
  |   

  



Ever wonder how financial experts could lead the world over the economic cliff? One explanation is that so-called experts often turn out to be a stunningly poor source of expertise. There's evidence that what matters in making a sound forecast or decision isn't so much knowledge or experience as good judgment - or, to be more precise, the way a person's mind works.

But first, let's acknowledge that even very smart people allow themselves to be baffled by an apparent "expert" on occasion.

The best example of the awe that an "expert" inspires is the "Dr Fox effect", named for a pioneering series of psychology experiments in which an actor was paid to give a meaningless presentation to professional educators.

The actor was introduced as "Dr Myron L. Fox" (no such real person existed), an "eminent authority" on the application of mathematics to human behaviour. He then gave a lecture on "mathematical game theory as applied to physician education" - except that it was devoid of substance. But, it was warmly delivered and full of jokes.

Afterwards, those in attendance were given questionnaires and asked to rate "Dr Fox". They were mostly impressed.

A different study illustrated the genuflection to "experts" another way. It found that a president who goes on TV to make a case moves public opinion by less than a percentage point. But experts trotted out on TV can move public opinion by more than 3 percentage points, because they seem to be reliable or impartial authorities.

But do experts actually get it right themselves? The expert on experts is Philip Tetlock, a professor at the University of California, Berkeley. His 2005 book, Expert Political Judgment, is based on two decades of tracking some 82,000 predictions by 284 experts. The experts' forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about.

The result? The predictions of experts were, on average, only a tiny bit better than random guesses - the same as a chimpanzee throwing darts at a board. Other studies have confirmed the general sense that expertise is overrated. In one experiment, psychologists did no better than their secretaries in their diagnoses. In another, a white rat repeatedly beat groups of Yale students in figuring the optimal way to get food dropped in a maze.

The marketplace of ideas for now doesn't clear out bad pundits and bad ideas, partly because there's no accountability. We trumpet our successes and ignore failures.

For example, I boast about having warned in 2002 and 2003 that Iraq would be a violent mess after we invaded. But I tend to make excuses for my own incorrect forecast in early 2007 that the troop "surge" would fail.

So what about a system to evaluate us prognosticators? Professor Tetlock suggests that various foundations might try to create "trans-ideological consumer reports for punditry", monitoring and evaluating the records of experts and pundits as a public service. I agree: hold us accountable!

Nicholas D. Kristof is a New York Times columnist


http://www.scmp.com/portal/site/ ... sight&s=Opinion