Monday, January 15, 2007

EDITORIAL/LEADER
Keeping an open mind on a narrow tax base



  
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   Treasury officials who are still reeling from the shelved bid by the government to introduce a goods and services tax should find the results of the latest SCMP/TNS Opinions Leaders Survey heartening. Despite widespread opposition to a GST, the poll has found that most opinion leaders agree with the government that our tax base is too narrow. They are even open to the idea of introducing a tax on luxury goods or a green tax, as a means of broadening it.
Still, it is most unlikely that such sentiments will be acted upon in the forthcoming budget. Having suffered a defeat over GST, officials will not be hurrying to prompt another public row by bringing in new taxes. With the government expected to achieve a fiscal surplus of HK$30 billion this financial year, the case for asking the public to pay a new tax is weak.





Yet, even as the government accounts are looking good, there is no doubt that something is wrong with the way Hong Kong taxes and spends. The trouble is there are major differences of opinion over precisely what the problems are and how they should be tackled.

The government maintains that the main problem of our tax system is that revenue is highly volatile. About 45 per cent of government revenue comes from profits and salaries taxes, which are exposed to variations in global economic cycles and external shocks. Moreover, these two taxes are paid by a relatively small number of businesses and individuals. Volatile recurrent tax receipts explain the government's reluctance to increase recurrent spending on education, health care and welfare.

Our non-tax revenue is similarly unreliable. Over the past 10 years, land premiums accounted for between 3 and 28 per cent of government revenue, while earnings from fiscal reserves contributed between 0.5 and 18 per cent. That is why the government treats this revenue as non-recurrent, and uses it only to fund capital spending.

To broaden the tax base and reduce volatility, the government's preferred solution is to introduce a GST, a measure endorsed by the International Monetary Fund in a recent report. The report also warned that Hong Kong should prepare for the dual challenges of volatile revenue and spending pressures arising from an ageing population.

If no GST or health-care financing reform was introduced, it said, Hong Kong would have to build larger fiscal reserves as a buffer. The desired level of fiscal reserves by 2030 would have to be up to between 30 and 50 per cent of gross domestic product, said the report. By comparison, our current fiscal reserves amount to just about 22 per cent of GDP.

Critics beg to differ, however. While agreeing that our tax receipts are inherently volatile, they argue that the answer should lie in reducing volatility by changing the way land is taxed. The current practice of selling land by auction amounts to levying a housing or accommodation tax indirectly on end-users of built properties. It is the root cause of Hong Kong's high housing costs. It also tends to aggravate price fluctuations as the business cycle changes.

A possible solution, they suggest, may lie in levying different levels of tax on land zoned for different purposes. Moreover, the government's finances would look a lot healthier if they were compiled on an accrual basis by offsetting liabilities against assets. More creative uses of bonds and loans to finance capital spending would also enable the government to do more with less.

These are fundamental changes that any government - not least one without a direct mandate from the people - would be loath to undertake. After all, why tamper with a system that has worked pretty well for years in driving Hong Kong to become a prosperous metropolis? The answer is that it is not difficult to see problems coming if the system is not changed. The debate on tax reform must continue.

Making progress should be one of the key objectives of Chief Executive Donald Tsang Yam-kuen if, as expected, he wins a second term in March.


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Tuesday, January 16, 2007

EDITORIAL/LEADER
HK has more to contribute to nation



  
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   September's economic summit on the strategy Hong Kong should adopt in the economic development of China was an unprecedented exercise. Its significance went beyond the policy proposals aired by participants at the conference. What mattered more was the way in which the high-level exercise was seen to be conducted.
The event saw Hong Kong's best and brightest engaging publicly in considering how the city should react to the country's 11th five-year plan. This followed the inclusion of the city in the plan for the first time. It provides that under "one country, two systems", the mainland supports the development of Hong Kong's financial services, logistics, tourism and information services industries, and maintenance of our status as an international centre of financial services, trade and shipping.


Entitled "Our Way Forward", the summit's report contains 50 strategic recommendations and 207 specific measures. Many of them are not really new and had been floated on various occasions by their proponents. But now that they have been raised in the context of how Hong Kong can contribute to the nation's development, the central government should become more receptive to the ideas. For one thing, they would be less likely to be seen as self-serving. And that is important.

As Hong Kong is set to mark the 10th anniversary of its reunification with China, a widely held misconception is that we have been going to Beijing with a begging bowl for favourable policies. That is how the Closer Economic Partnership Arrangement between the mainland and Hong Kong is seen, as is the scheme allowing mainland residents to visit Hong Kong on individual visas.

While Hong Kong does benefit from these measures, what has been overlooked is that they are also putting right past wrongs. For too long, the mainland has put too many hurdles in the way of the free flow of capital, goods and people across the border. More balanced and unhindered cross-border flows benefit the nation as a whole, not just Hong Kong.

The summit was also a useful exercise in giving focus to Hong Kong's positioning. Hong Kong has long been struggling to find its place in an emerging China that no longer needs our city as a "middle-man" enabling it to interact with the outside world. Under former chief executive Tung Chee-hwa, there was a frantic search for new locomotives for the economy. Various proposals, such as developing Hong Kong as so-called ports for traditional Chinese medicine and information technology, were bandied about. Some ideas, such as Cyberport, were acted upon without spurring the coveted growth they were supposed to bring about.

In an oblique reference to that well-intentioned but misguided exercise, Chief Executive Donald Tsang Yam-kuen yesterday said that "we should not be distracted by whimsical thoughts and should not divert our resources to try on every type of industry". He was right. Instead of aimlessly searching for new directions, we should focus on doing better at what we are good at. That means pursuing excellence in financial services, logistics, tourism, information and professional services, trade and shipping.

As a free-wheeling part of a largely planned national economy under "one country, two systems", Hong Kong has to play a delicate balancing act in charting our way forward. We must protect our core values. Our economy must remain business-driven, or we will lose our flexibility and competitiveness. But our government has to be more proactive in helping businesses and professionals by lobbying the central government to remove policy bottlenecks that bar them from playing a bigger role on the mainland.

Having formulated a plan of action, officials should now articulate Hong Kong's vision of our role in the national development blueprint not just to the central government, but to every province. Their job is to convince the central and provincial governments that it is in the national interest to leverage Hong Kong's strengths as they strive for sustainable growth.


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Wednesday, January 17, 2007

OBSERVER
Where has all the talent gone?


CHRIS YEUNG
   
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   Rumour has it that the then chief executive, Tung Chee-hwa, was emboldened when his idea of a political appointment system for principal officials drew an enthusiastic response from like-minded friends in 2000.
But it did not take him long to realise the practical difficulty of his proposal when he started composing his team after being re-elected in 2002.


Despite his insistence on surrounding himself with the best-possible team in his second term, it is an open secret that some prominent names originally on his wish list shunned his offer.

The Tung team that was sworn in on July 1, 2002, featured a mix of old hands from the civil service and a smattering of new faces from the private sector.

Aside from the resignation of three principal officials in the wake of the protests on July 1, 2003, the same team has survived the leadership change triggered by the departure of Mr Tung in 2005.

For the sake of continuity and stability at the top level, Mr Tung's successor, Donald Tsang Yam-kuen, said he would not make any changes to the team during his two-year term.

Now, two months before the chief executive election is to be held - and less than six months ahead of Mr Tsang's expected swearing-in for a second term - the guessing game has begun. Who will remain, who will go and will there be many new faces?

Secretary for Environment, Transport and Works Sarah Liao Sau-tung has indicated clearly that she has no regrets about her decision to quit her consultancy work to join the Tung team in 2002. She has been non-committal about her post-July 1 political fate.

Speculation over the fate of Secretary for Financial Services and the Treasury Frederick Ma Si-hang, meanwhile, grew last week after it was revealed he had booked a six-star hotel to host a party on July 1. The planned event is generally seen as a celebration for the completion of his five-year political journey, not the beginning of another trip.

In a related development, the jockeying for the post of chief secretary appears to be growing more tense as the clock ticks down to the election, scheduled for March 25.

This is because of signs that Chief Secretary Rafael Hui Si-yan is sticking to his plan to quit on July 1, as expected.

These imminent changes to the ruling team have raised a question that remains unanswered. That is, are there sufficiently strong incentives for competent candidates to want to join the ruling team?

The question arises not so much because of the dearth of political talent with a burning desire to serve their fellow citizens from high office.

Neither is it because quality people can easily earn more money by pursuing their professional careers and businesses.

Instead, the first and foremost task facing people who want to join the government is to try to convince themselves that it would be a worthwhile and rewarding endeavour; one where they could achieve something for the well-being of society as a whole, in both the short and long terms.


To them, such a position ought to be a real challenge, involving working with fellow citizens to identify problems and challenges.

Then, they want to be able to go about finding solutions through open, candid discussions based on the ideals and values cherished by the community.


The driving force for more political talent to come forward should be a growing sense of belonging. These people should identify with society, and understand people's feelings of crisis and despondency.

But generally, this has not been the case.

Many may have been scared away by the flawed political system and the air of futility that have brought about stagnation in important developments and policy debates.

Worse still, potential talent may have greater reservations when politics is no longer seen to be about striving for good governance by turning visions and ideals into reality. Instead, in today's political world, opportunism masquerades as reality for the sake of expediency.

Chris Yeung is the Post's editor-at-large. chris.yeung@scmp.com



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Thursday, January 18, 2007

EDITORIAL/LEADER
HK must work harder to earn the tourist dollar



  
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   The relatively sluggish growth of Hong Kong's tourism industry and the robust surge of Macau's in 2006 are a wake-up call to this city. The message is that we cannot be complacent about our status as a premier tourist destination in the region.
Considering that Hong Kong has launched two new tourist attractions - Hong Kong Disneyland and the Ngong Ping 360 cable car - over the past two years, the development is all the more disappointing.


It is not difficult to pin down the reasons for Hong Kong's modest 8 per cent growth in visitor numbers to 25.2 million last year, compared with a target increase of 15 per cent. The year got off to a bad start when news broke of Hong Kong Disneyland shutting its gates to visitors with pre-paid tickets. Even before that, negative reviews about the small size of the theme park, which opened in 2005, were discouraging visitors from flocking there. The ticketing problem was the last straw that apparently prompted many mainland visitors to ditch their plans to come here during the Lunar New Year.

The mid-year opening of Ngong Ping 360 could have provided the impetus for an upturn. But the prolonged teething problems it encountered meant that its contributions were not going to be realised last year.

Even as the cable car overcame its initial difficulties, the high-pressure tactics that our tour guides used to fleece mainland tourists caused even more damage. In October, a busload of tourists on a so-called zero-fee tour were abandoned by their guide, because they refused to make purchases at inflated prices. The guide was hoping that the tactic would force them to buy, so he could pocket the commission to cover the tour's costs.

Measures have since been taken to prevent similar incidents. Hopefully, as their effects kick in, last year's shortfall in projected visitors will be more than covered by rising numbers this year. But Hong Kong will have to do more than that to boost its appeal.

Tourism in places close to one another need not be a zero-sum game. Yet, the latest visitor figures show that Macau has emerged as a strong competitor to Hong Kong. Gone are the days when the former Portuguese enclave depended on arrivals from Hong Kong, including foreign tourists making a brief trip. Today, many tourists are finding that Macau is a worthwhile destination in its own right. The small city's rich cultural legacies and glitzy casinos are attracting visitors from both the mainland and overseas.

Local hotels have expressed concern that they are losing to Macau their so-called MICE business - meeting, incentive, convention and exhibition. A number of new hotels due to be completed there will feature not just glamorous gaming parlours, but also the best conference halls and family entertainment facilities. And their rates are likely to be lower than those charged by Hong Kong hotels. Already, some mainland tour groups spend more nights in cheaper accommodation in Shenzhen or Macau, rather than Hong Kong.

On Monday, the government released a report on how Hong Kong could exploit opportunities presented by the nation's five-year plan. On tourism, a key proposal is promoting "multi-destination" itineraries that take in multiple spots in the region. Certainly, Hong Kong should try to make itself a key stopover in this regional playground for tourists, such as by expediting plans for an inter-city rail link with Guangzhou. Already, a trip that takes in Shenzhen, Hong Kong and Macau is becoming the norm. What is important, is to encourage tourists to stay here longer.

As a vibrant business centre, Hong Kong will always attract many visitors. And we can take pride in having Ocean Park, among other key attractions, to give them a good time. But our efforts to maintain our allure must continue. Developing more attractions and making Hong Kong more affordable to the average tourist, such as by building more budget hotels, are ways that will help keep our tourism industry strong.


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Friday, January 19, 2007

EDITORIAL/LEADER
Denial of the past will impede China's future



   
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   Fifty years ago, Chinese Communist Party chief Mao Zedong launched the infamous "anti-rightist campaign" that saw an estimated half a million people banished for daring to speak out against the party. This year, therefore, marks a sensitive anniversary for Beijing. It came as no surprise that a recent party directive requires mainland media to seek permission to cover significant historic events. After all, the central government has a tradition of tightening its grip ahead of key dates.
Still, the scope of the current ban is worrying. Not only are the official media barred from marking the campaign, even books that touch upon that period of history or allude to the dark side of the mainland's authoritarian system, including those already published, are being suppressed.


High on a list of eight banned authors is Zhang Yihe , daughter of former transport minister Zhang Bojun, who was one of the campaign's most prominent targets. Her sentimental writings about the noble character of her father's victimised contemporaries have become best-sellers on the mainland and overseas. Also banned are the works of a former journalist of the People's Daily. His account of his experience as the party's official mouthpiece is being suppressed for allegedly disclosing state secrets.

The ban is a reflection of Beijing's concern that the 50th anniversary of the anti-rightist campaign might be seized upon by dissidents as an opportunity to galvanise grievances towards the ruling regime. But it is ironic that state leaders should feel so insecure about allowing people to discuss a political campaign the Communist Party has long admitted to have been a mistake. Most "rightists" had their labels removed as long ago as the late 1970s, when reformists took charge of the country after the death of Mao and the end of the Cultural Revolution. Since then, the party has led the country on a path to prosperity. Among the rehabilitated are many prominent state leaders, such as former premier Zhu Rongji .

The party's aversion to talking about its tumultuous past makes a mockery of state leaders' practice of urging leaders of other nations to learn from history. It shows they still feel that the best way of dealing with unsavoury chapters in the party's history is to stop people discussing them. It is also a sign that they have no faith in the ability of the political system to accommodate differences of opinion.

But a country that maintains such forbidden zones in the realm of free speech can never be the centre of innovation and creativity the Communist Party wants China to become. Achieving that goal must start with allowing people to critically examine the past so that steps can be taken to prevent history from repeating itself. Allowing the free circulation of Zhang's works might be the best means of ensuring a similarly senseless political campaign will never happen again.


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Monday, January 22, 2007

EDITORIAL/LEADER
Vatican entreaty an important step forward



  
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   The establishment of a Vatican committee to explore ways to mend relations with Beijing is a step forward in efforts to bring about better relations. It has been accompanied by conciliatory language from the Vatican and has met with a positive reaction from the mainland.
But the new committee has an onerous task: no matter what approach it takes, mainland authorities will always hold sway. At the heart of the problem is Beijing's assertion of a right to determine what goes on within its national borders.



China, like every other nation, jealously guards that right. But the grip must be loosened if Catholics are to be able to properly follow their religion. The matter is complex. Unlike other religions, the issue of faith is tied with the fact that the Vatican is a political entity and has a head of state in its leader, Pope Benedict.

There is little the Vatican can offer to strike a deal to repair the 56-year-old rift. Holy See officials have long indicated a willingness to switch diplomatic recognition from Taipei to Beijing, but that is only part of the problem. The sticking point is China's refusal to accept the church's structure in which the Pope has a central role. What the Pope says and does is watched by Catholics and his edicts are expected to be followed. Other religions generally have a looser style of governing, with individual congregations having greater autonomy over their affairs.

To ensure that the pope's word is properly disseminated and implemented, the Vatican appoints the most senior clergy. They are trained and kept abreast of developments by Vatican officials.

Such an approach is seen by Beijing as interference in its internal affairs and was the reason relations with the Vatican were severed in 1951. Mainland authorities set up "patriotic churches" covering each of the major faiths in the years after the communists took control. Their insistence on appointing clergy for each was not overly disruptive for most religions, but flew in the face of Catholic tradition.

Only by allowing China's estimated 10 million Catholics to practise their faith as their church dictates can they have the rights that they are entitled to. China has gone some way towards allowing this, albeit on its own terms.

Until Deng Xiaoping's economic reforms took hold during the 1980s, Catholics on the mainland remained isolated. They were oblivious to the orders of the second Vatican council, whose decrees in 1965 radically reshaped the church and its teachings. That the church was fragmented between the officially sanctioned group with state-appointed bishops and an illegal, underground movement made for even greater difficulties for Catholics.

China is aware of the problems, which is why it has unofficially permitted Catholics greater freedoms over the past two decades. There has been increased contact between Vatican-trained clergy and their mainland counterparts, for example. Beijing has also shown more willingness to appoint bishops seen by the Vatican as being allied to its views.

This does not hold true all the time; occasionally, the central government reveals the strength of its hand by choosing a bishop not recognised by the Holy See, as it did last year. At such times, the rhetoric from Beijing towards the Vatican can often be caustic, just as it can be scathing when directed in the opposite direction. Always, the mainland is uncompromising on its demand that diplomatic recognition be shifted to Beijing and that internal matters are its own affair.

There has been an apparent shift in recent days. The Vatican clearly wants to explore new ways to bridge the divide and the rhetoric from both sides has been cast aside in favour of friendly words.

Beijing is capable of making the concessions needed to allow Catholics their full rights. Authorities could, for example, work to ensure that only bishops who meet both mainland and Vatican approval are appointed. Religious freedom is a major component of a nation's acceptance internationally. China can enhance its role on the world stage, especially with the Beijing Olympics approaching, by allowing mainland Catholics that right. Both sides should be seeking to maintain the momentum created by the positive developments in recent days.


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Tuesday, January 23, 2007

EDITORIAL/LEADER
China, Japan must build on warming ties



  
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   China and Japan would seem to be well on the road to patching up strained relations, if recent top-level contacts between their leaders are any guide. Japanese Prime Minister Shinzo Abe has met Premier Wen Jiabao twice since taking office four months ago and a third meeting is planned in Tokyo in April.
Feelings run deep, however, and years of animosity will not be wiped away merely through talks. That can come about only through a genuine desire at all levels on both sides to put the past behind them and to work towards unbridled co-operation. In Mr Abe's case, that most immediately means resisting the pressure from nationalist elements within his government. For China, patience and tolerance is the key as the process of ending seven decades of hostility and mistrust can only be gradual.


So far, both sides have followed that formula, with positive results. In recent days alone, the controversial Yasukuni Shrine has altered the text on some of its museum exhibits and a deal on Chinese fishing boats operating in Japanese waters has been struck. There is also talk of warship exchange visits and the number of mainland cities where Japanese visas for tourists can be issued has been increased from four to six.

Given the nature of fractured ties during the term of Mr Abe's predecessor, Junichiro Koizumi, these are steps forward. But while they are positive indicators that the new leader's conciliatory approach towards China is bearing fruit, they are no assurance that a permanent shift is in the offing. The reality is that each step forward can just as easily be pushed backwards by a careless remark, off-hand gesture or diplomatic insensitivity. For Chinese, as with Koreans, the wounds of Japanese occupation run deep through the generations and words in themselves are not enough to properly heal them.

That was proven each time Mr Koizumi visited Yasukuni, where war criminals are honoured. No matter how he tried to justify his decision, he was viewed as an antagonist. Every aspect of the nation under his rule, from its school textbooks to its entertainment industry, was under close scrutiny by those looking to find fault with efforts to atone for the past. Naturally, Japan was found wanting - with damaging results for wider issues of conflict, such as disputed territory, fishing and oil and gas exploration rights.

Mr Abe, despite having the same political credentials as Mr Koizumi and having visited Yasukuni before becoming prime minister, has realised there is no gain from sticking doggedly to such an agenda. After all, the benefits of co-operation with China are too great to let them pass by.

Economic integration is already deep, but the potential for further growth would be enhanced through improved diplomatic relations. The threat of North Korea's nuclear weapons and missiles would be allayed for Tokyo with Beijing, Pyongyang's foremost ally, on side. Japan would have a powerful advocate for its bid for a permanent seat on the UN Security Council if it had China's blessing. For East Asia, resolution of disputes over islands and energy reserves would help bring much-needed stability.

These will not be achieved as a result of a state visit, by any single agreement or as the result of a heartfelt apology for Japanese wartime aggression. Rather, they will come about gradually - but only if both sides are willing to respect the delicate nature of the task ahead.

In essence, the onus is on Mr Abe. China must be mindful of the balancing act that the Japanese leader has to perform before his political colleagues and constituents, though; it must seize every olive branch offered.

Thankfully, that script is being faithfully followed. Mr Wen will in three months reciprocate Mr Abe's landmark visit to Beijing after accepting an invitation at a meeting on the sidelines of the Association of Southeast Asian Nations' summit on January 14. From there, on all levels, the co-operation must push ahead. The path to peace has been forged. Now, Mr Abe must avoid the pitfalls.


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Wednesday, January 24, 2007

EDITORIAL/LEADER
Change of focus needed on population policies



  
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   The mainland's one-child policy has been given a new lease of life but - significantly - it is a short one. Beijing will maintain current family planning policies until 2010 to meet a population target by that year of 1.36 billion. That is 60 million more than the landmark 1.3 billion reached two years ago.
Population and family planning minister Zhang Weiqing stopped short yesterday of extending the one-child policy in order to meet the government's pledge to keep the population less than 1.45 billion by 2020. If this means the days of the one-child policy are numbered that is to be welcomed on social and human-rights grounds, even if the Communist Party contends it has aided economic development by preventing 400 million births. There are also good economic reasons for rethinking the policy. By 2010 state planners may expect to find themselves between a rock and a hard place, trying to balance population control with the diminishing competitive advantage of unlimited workforce supply. Ageing - caused in part by the one-child policy - will be catching up with the world's most populous nation.


As baby boomers retire from the workforce, fewer young people will be there to take their place, thanks to restrictive family planning policies begun in the 1970s. This will place strains on the workforce and inhibit the growth needed to meet the demands and aspirations of one-fifth of the world's people. Therefore the economic considerations that gave birth to a bad law to limit population growth may be the imperative that gets rid of it.

The one-child rule is an egregious example of bad law. Given the emphasis on male births to continue the family line, it must fall harder on half of all new parents. For traditional reasons it applies unequally between city and country, where couples are allowed two children. It has spawned peculiar exceptions that help bring it into wider contempt, such as a second (hopefully male) child for a couple who have a girl, and more than one child for parents who themselves were only children. Migrant workers living in the cities evade the restriction.

The policy has led normally law-abiding people to break the law by having abortions after scans revealed a female fetus, by forging proof of congenital disease in a first child to justify having another or by corruptly buying permission to have another. And it has aggravated resentment over the growing wealth gap because wealthy people get round the restriction by paying the stiff penalties for having as many children as they like.

It all adds up to an undesirable social influence. And that does not even take into account the dangerous consequence of a growing gender imbalance in the nation's nurseries. Mr Zhang says it widened to 117 male births for every 100 girls in 2005. In some regions it has hit 130/100, compared with the average for industrialised countries of 104-107/100. As a result, it is predicted that there will be 40 million Chinese men without partners by the year 2020. It is difficult to see how Beijing can allow this to continue.

A reported switch in focus of population policy to structural aspects such as ageing and gender imbalance is overdue.

The party central committee and the State Council are right to promise tighter controls over fetus testing and sex-selective abortions. It may be true that after allowing for the various exceptions to the one-child rule, only 35.9 per cent of the population - mostly urban - are subject to it. But that is small comfort, given the worrying demographic distortions and the contempt for the law.

China's economic planners predict the country will reach well-off status in 2020. The experience of industrialised societies in such places as North America, Europe and Japan is that economic success goes hand in hand with lower birth rates and a reduced rate of workforce growth - not always a welcome development. It can only be hoped that the mainland will experience a similar economically driven drop in births and that the state will no longer feel compelled to meddle in family planning.


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Thursday, January 25, 2007

EDITORIAL/LEADER
Bush misses chance to make a difference



  
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   US President George W. Bush failed to acknowledge in his State of the Union address yesterday that global warming is one of the biggest international threats. In doing so he missed an opportunity to help make the world a better place. Instead, while he did unveil measures to reduce his nation's dependence on oil, one of the fuels responsible for causing temperatures to rise, the issue was framed in terms of energy security rather than climate change.
As a national leader, Mr Bush is obligated to put domestic matters before foreign ones. But his refusal to accept that America's thirst for energy is contributing more than any other nation to altering the world's climate is as much a foreign issue as a domestic one. There is nonetheless hope of global warming rising up the US to-do list now that the opposition Democratic Party has control of both houses of Congress. Democrats, at least, seem dedicated to ensuring that, as the world's biggest producer of the greenhouse gases that cause global warming, the US has to rein in its air pollution.





In laying out his policies for the coming year, the president understandably put Iraq at the top of his foreign agenda. With more than 130,000 US troops there and a further 21,500 on the way in a bid to ensure the democracy and stability he promised Iraqis when he ordered an invasion almost four years ago, the matter is a drain on US finances. It has dragged his popularity to record lows and made him politically weak.

But as commander-in-chief of his country's military, Iraq is the issue Mr Bush can feel most confident of getting his way on now that Congress is in the hands of his political rivals. He has less control over the key domestic matters he raised, energy, health care and illegal immigration foremost among them.

On energy, the approach he mapped out was insubstantial. Continuing a theme he broached in a previous State of the Union speech, he repeated that the US had to become more energy self-sufficient to minimise the risk of disruptions of foreign oil and gas. Central to his target of reducing petrol consumption by 20 per cent over the next decade was a mandatory, almost five-fold, increase in production of alternative fuels for vehicles, backed by a push for better vehicle fuel efficiency. Producers of ethanol and other biofuels will benefit, although how the large amount of land needed to grow the crops necessary for such a venture will be acquired was left unsaid. Similarly, finding the number of producers for such a target in so short a time frame would seem to make the figure fanciful.

But it was the silence on the need for the US to come to terms with its role in causing global warming that was most worrying. Rather than talking in terms of the US being able to produce its own petrol, Mr Bush should have been focusing on reducing emissions of carbon dioxide and other pollutants from all sources, not just vehicles. The US has, after all, just 4 per cent of the world's population yet creates 25 per cent of the greenhouse gases. One-third of those pollutants in 2005 came from vehicles, while 40 per cent was from the electricity generation sector. The US produced 0.3 per cent more carbon dioxide, the main greenhouse gas, in 2005 than the previous year.

Mr Bush has refused to ratify the Kyoto Protocol on climate change, the internationally accepted agreement signed by his Democratic predecessor Bill Clinton that requires participants to cut greenhouse gas emissions to 1990 levels by 2012. His reasoning is that US economic growth will be harmed; his nation and Australia are the only holdouts in the developed world, preferring to be part of the rival Asia Pacific Partnership on Clean Development and Climate, which has voluntary requirements.

Mr Bush began his speech yesterday by reaching out to Democrats and saying they were obligated to reach consensus with Republicans to better the lives of Americans. He should have also used that opportunity to make the world less threatened by climate change by accepting his country's role in global warming.


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Friday, January 26, 2007

EDITORIAL/LEADER
Openness key to putting corruption to flight



   
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   President Hu Jintao has made fighting corruption a priority and takes every opportunity to warn officials of the consequences of being dishonest and unethical. His objective, reiterated at a Communist Party conference this month, is that government officials and cadres be modest, prudent, hard-working and frugal and put the people they administer ahead of themselves.
Such an aim is no different from that which governments the world over wish of the people who work for them. But whereas systems of oversight in developed countries generally ensure the honesty of government workers, achieving this on the mainland will be impossible as long as transparency remains lacking.


Mr Hu's campaign is based on law enforcement and would seem to have paid dividends. Thousands of officials and cadres were disciplined last year, among them Shanghai's former Communist Party chief Chen Liangyu , Beijing's former vice-mayor Liu Zhihua and one-time top statistician Qiu Xiaohua . The head of the food and drug administration until last July, Zheng Xiaoyu , is the latest top official to be implicated in wrongdoing; he is being investigated for bribery.

With the Olympic Games fast approaching, agencies like the Communist Party's Central Commission for Discipline Inspection have gone into over-drive to ensure China's image is squeaky clean for the event. The main target is officials in a position to give advantage to companies in return for financial and material gain.

Given China's economic boom, the opportunity for those in power to cross the line of honesty is enticing. Between August 2005 and last June, 3,128 cases involving government employees and 968 million yuan were uncovered - and this is only the tip of the problem.

But penalties such as dismissal, loss of party membership, fines and imprisonment will do little to stamp out corruption while the government remains in charge of investigating itself. Offenders will always know that they have a chance of impunity through friendships, loyalties, connections and affiliations.

Only through independent checks and balances like a free judiciary, media and anti-corruption body can graft truly be stamped out. This cannot happen, of course, while the ruling Communist Party insists on controlling such key aspects of society rather than allowing them to operate without interference. Nor will there be any change while being corrupt remains good economic sense for those in authority.

Mr Hu knows that only through crushing corruption can China join the developed world. The reforms he has put in place are making inroads.

But until he also realises the need for transparency, fraud and corruption will continue to stain whatever achievements are made.


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Monday, January 29, 2007

EDITORIAL/LEADER
China's surge leaves problems in its wake



  
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   Premier Wen Jiabao pledged a year ago that building a harmonious society would be at the top of the central government's agenda and a series of policies to attain that laudable objective have since been launched. With continued impressive economic growth rates, achieving many social goals should become easier; where the approach has failed, though, is in meeting social development and environmental targets.
Just how badly those aims were missed was highlighted at the weekend in the Modernisation Report 2007, detailing the research and opinions of top scholars. On the environment, the experts found that on matters like reducing pollution and cutting energy use, the mainland was no better off than at the time of the last report three years ago.


Of 118 developed and developing countries, the nation remained rooted at position 100.

This is despite environmental issues being much highlighted by the leadership, which clearly understands that there can be no harmony in society while uncontrolled economic development degrades the quality of the air, land and water. Their words will remain empty, though, as long as a disconnect remains between the economy, development and environment.

The problem is structural: only financial matters are dealt with at ministerial level, while the government agencies responsible for social development and the environment are at the agency level. While they remain of secondary importance, the necessary funding, enforcement mechanisms and manpower will be lacking.

Mr Wen's speech greeting the Lunar New Year last January implied otherwise. In promising efforts to improve education, employment, the environment, housing, medical care, poverty and security, he said: "We will pay full, meticulous attention to protect the most cared about, most immediate and most practical interests of the people."

All are of concern on the mainland, where the march towards modernisation fuelled by economic growth is not uniform.

While tens of millions of people are yearly discarding poverty and embracing a comfortable lifestyle, hundreds of millions more remain in precarious circumstances with little opportunity for improvement.

There is no shortage of finance to help them. With the gross domestic product growth rate at 10.7 per cent and showing no sign of falling despite government attempts to cool the economy, the reserves will continue to substantially rise.

Nonetheless, many of the problems Mr Wen outlined remain as bad and even worse now than a year ago. None is more noticeable - or affects as many people - than environmental matters.

Increased air and water pollution and the loss of farmland, forests and nature reserves are directly tied to the weakness of government agencies dealing with the environment, energy and development. This will remain the case while the Ministry of Finance gets its way on economic matters and such issues keep being dealt with at the agency level as if they were second-rung concerns.

There would seem little hope of imminent change. With the Communist Party's 17th national congress being held in autumn and the possibility of a shuffle of leadership, ensuring that economic data remains strong will be a priority for potential candidates. The environment, energy security and social issues will be consequently set aside for the new leaders to take up.

No matter who is in power, though, China's future will always be dependent on the welfare of its people. Unless all on the mainland can be guaranteed the basics of existence - clean air and water key among them - progress towards development will be stunted.

Giving such matters the highest possible priority through raising them to the foremost level of the government's decision-making process is therefore important.


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Tuesday, January 30, 2007

EDITORIAL/LEADER
China's responsibility on the world stage



  
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   President Hu Jintao's third trip to Africa in four years shows the importance Beijing attaches to the world's poorest, but one of its most resource-rich, continents. Past visits have concentrated on trade, aid and investment, but with Sudan among the nations on the itinerary starting today, politics must also now be broached.
As a world power with ever-growing influence, China can no longer ignore its international responsibilities. Those are being amply fulfilled when it comes to improving the lives of Africans economically; they are not, however, when it comes to protecting their rights.


In Sudan, where government-approved genocide continues to take place in the Darfur region despite a UN Security Council resolution and the presence of peacekeepers from the African Union, the rights of millions of Africans are being violated. China, through lucrative oil and trade deals to be boosted by pacts during Mr Hu's two-day visit beginning on Friday, has considerable leverage to stop the killings, rape and displacement of people.

To do otherwise by putting accords on oil exploration and trade ahead of those obligations damages the nation's claim to be a worthy partner for global peace, security and stability.

State leaders have long argued that respecting a nation's sovereignty is foremost in any relationship it is involved in. Criticising a government for violating the basic rights of its people is considered an infringement of that sovereignty, even if international law is being ignored. So, too, is an insistence that any accords are reliant on governments cleaning up corruption and shedding dubious ethics.

The rationale behind this "no strings attached" policy is not hard to fathom. China does not want to be told what to do; it will cease to be credible if it turns around and tells other countries what to do. When it was first conceived in the 1950s, the policy won China applause from developing countries that felt victimised by their former colonial powers, which attached all kinds of conditions on trading links with them. Over time, however, the policy is seen more as a defensive move by China to ward off foreign criticisms of its own shortcomings.

Today, the policy is bringing convenient benefits to its booming economy, particularly its resource-hungry manufacturing and industrial sectors. African governments have welcomed the tens of billions of dollars in trade. For signing contracts they have been rewarded with US$5 billion in aid, a figure mainland leaders agreed at a summit with African leaders in Beijing last November to double by 2009. Repressive governments like those in Sudan and Zimbabwe have found the approach more appealing than that adopted by western nations, which often insist on political and human rights reforms when drawing up pacts.

But as much as Beijing likes to portray its manner of deal-making as mutually beneficial, of partners treating one another equally and devoid of the conditions of one-time colonial rulers, ignoring abuses is doing more harm than good. Sudan - where more than 200,000 people have been killed, 2.5 million more made refugees and tens of thousands of women raped while the government claims otherwise - is ample evidence.

Elsewhere in Africa, endemic corruption continues to flourish, reaping rewards for those in power while negating for the continent's poor whatever benefits China's dealings may bring. Ignoring abuses and anomalies was possible in the past when the nation was struggling with the same problems as African counterparts. The nation's economic and political ascendancy internationally dictates that the same can no longer apply.

Mr Hu well realises this; that is why China has taken a lead role in trying to defuse tensions in East Asia by trying to convince North Korea to scrap its nuclear weapons programme. The same responsibility must apply to other nations where people are threatened. This was ignored on a recent Security Council resolution on Myanmar, which Beijing refused to sanction. But with Mr Hu about to meet Sudan's leaders and under pressure from UN secretary-general Ban Ki-moon to use his influence to bring peace to Darfur, the only option is to be a worthy global player.

Expectations have been raised by China calling on Sudan to co-operate with the UN in finding a solution. That impetus must continue, not only during Mr Hu's visit but with other situations around the world where people's lives are being destroyed by abusive, corrupt or irresponsible governments.


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Wednesday, January 31, 2007

EDITORIAL/LEADER
Emissions deal just a step in right direction



  
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   The much-vaunted pilot emissions trading scheme for the region's power plants has been announced and details of how it will operate laid bare. Now, it is up to the participants - the Hong Kong and Guangdong governments, power companies and, perhaps as importantly, all electricity consumers - to make it work.
Doing so is in our interests. Combatting air pollution is, after all, central to Hong Kong's future. While our air quality remains poor, our health will suffer and life expectancy can be expected to decline. The economic effects could be as dramatic: as long as word of our grey skies spreads, attracting tourists, investors and talent for our companies will become increasingly difficult.





The Hong Kong-Guangdong Emissions Trading Panel holds great promise. If it works, it could be enlarged to cover factories and other industrial concerns across the Pearl River Delta. Similar schemes have achieved much success in the US, substantially cutting emissions of pollutants like sulfur dioxide.

Nothing can be taken for granted, though, despite the opportunity being held out and the urgency of our problem. The scheme, as a first step, is voluntary and the mechanism for enforcement is unclear. As good as the idea is, transparency, especially among mainland firms, has to be a worry. Co-operation between our government and that of Guangdong, essential to such a project, is not always as it should be. Also, the decision not to include one of the biggest pollutants - carbon dioxide - in the scheme raises concerns.


The region's coal- and oil-fired power plants are among the main polluters of our air and controlling their emissions is essential if inroads are to be made. This is just one of many steps that must be taken, but getting it operational and embraced by as many companies as possible could be the key to making our skies blue again.

So far, efforts undertaken have had mixed results. Converting Hong Kong's public transport to clean fuel has gone without a hitch, substantially improving roadside air quality. But a 2002 agreement between Hong Kong and Guangdong to cut emissions of sulfur dioxide to 40 per cent below 1997 levels by 2010 is off target.

Chief Executive Donald Tsang Yam-kuen has not shown encouraging leadership on the matter, downplaying the importance of air pollution by saying it is no worse here than in Tokyo and Los Angeles - when data shows the opposite to be true. He has contended our high life expectancy proves "we have the most environmentally friendly place for people, for executives, for Hong Kong people to live".

With his re-election approaching, Mr Tsang has changed his tune, promising recently that air quality will be substantially better in five years. His platform, when he discusses it with Election Committee members on Friday, must outline how this is to be achieved.

There is also considerable hope that a firmer direction is put in place with the emissions trading scheme for the region's power plants. Of the proposals that could have been chosen, the scheme is the one most widely accepted by experts as having the potential to cut air pollution.

Foremost in such a plan is regulation. This will require the Hong Kong government's full commitment, without which gains will be patchy at best. Our two electricity producers have not committed to the scheme, but must be given every incentive to do so.

Guangdong's authorities have to be as strong-willed and it is up to our government to ensure they realise the seriousness of air pollution. Without the participation of power companies across the border, the plan will be weak.

We, as consumers, can also contribute by using less electricity. The less we use, by switching off appliances and lights when they are not in use, the less fuel power stations will need to burn; consequently, emissions will be lowered.

Above all, though, reducing air pollution depends on the commitment of our leaders. Emissions trading is a step in that direction, but our government has to do its utmost to ensure it works.


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Thursday, February 1, 2007

EDITORIAL/LEADER
A tricky North Korean presence in Macau



  
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   China and North Korea have always had close relations and those ties are reflected in the manner in which Pyongyang's top officials are treated when on the mainland. They are fˆ§ted at banquets, meet leading figures and are accorded VIP treatment wherever they go.
When the North's leader, Kim Jong-il, visits, he travels on his own train and rail timetables are cleared so that he can move at his leisure. His entourage takes up floors of hotels, as happened when he stayed in Guangzhou last year.


In light of such circumstances, it might not be seen as especially surprising that one of Mr Kim's sons is living in Macau. There is no suggestion he has committed any crime and he, like anyone else, is entitled to freedom of movement.

But the matter is not quite as simple as that. With a North Korean bank in the special administrative region one of the sticking points in six-nation talks aimed at getting Pyongyang to scrap its nuclear weapons programme, and the UN having condemned the North Korean regime as a threat to global peace, Kim Jong-nam's presence in China is, at least, a potential embarrassment.

He is Kim Jong-il's eldest son. He has been living in Macau for three years. He stays at some of the best hotels and appears to lead a very relaxed lifestyle, visiting restaurants, saunas, nightclubs and casinos. This way of life is in stark contrast to that experienced by the majority of his countrymen back home.


More importantly, the revelation of his presence also comes at a sensitive time. North Korea's Banco Delta Asia in Macau has been implicated in money-laundering. That is why the bank's assets were frozen at the instigation of the US Treasury Department and why North Korea has made the issue the linchpin of the six-party talks, which resume in Beijing next Thursday.

North Korea has caused instability in East Asia through its testing of a nuclear device on October 9, threats of further tests and firing of ballistic missiles towards Japan and the US. A large portion of the nation's one million-strong military is poised at the border with South Korea, with which a peace deal to end the 1950 to 1953 Korean war has never been signed. The UN Security Council imposed sanctions against Pyongyang on October 14 for exploding the nuclear device.

Beijing had reservations about supporting the measures, but did not use its power of veto and voted for them nonetheless. They require all nations to cease trade in military and luxury goods with the North.

The presence of Kim Jong-nam in Macau will, in such circumstances, not make the delicate diplomatic efforts to solve the North Korean problem any easier. Questions might well be asked by other nations participating in the talks. But it should not be forgotten that Macau has the right to determine who can come and go and stay there under the terms of its Basic Law. This must be respected.

Kim Jong-nam is not implicated in any wrongdoing. He was arrested and deported by Japan in 2001 for travelling on a false passport but there is no indication that he has again committed such a crime in being in Macau. He appears to have settled in well and to have made friends among the local people.

There might even be a hope that what the Swiss-educated Mr Kim learns about life in Macau may have a positive effect on him and any influence he may be able to exert over his father's regime.




There is, however, no escaping the wider context. Beijing - not Macau - is responsible for foreign affairs and the presence of Kim Jong-nam in China may well raise tricky diplomatic issues.

Beijing's taking a lead role in trying to resolve the North Korean nuclear standoff is laudable; its backing of the Security Council measures shows its concern for weapons proliferation in the region and the threat that Pyongyang poses.

The fact that the son of North Korea's leader is living on Chinese territory in the midst of such tensions will not help these efforts. It is important his presence is not allowed to undermine them.


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Friday, February 2, 2007

WORLD TRADE
Why China and India need to lead


MIKE MOORE
   
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   It looks like good news: ministers meeting on the fringes of last week's annual talkfest in Davos, Switzerland, have said there was a glimpse of movement that could allow the resumption of the suspended Doha Development Round of trade negotiations.
Recent talks by ambassadors in Geneva were put on hold because no new instructions had been received from their respective governments that would allow any meaningful progress. The animosity and distrust between key players, such as the US and the European Union, were so bad in the 1990s that phone calls were not returned. It's not quite that bad now; there's enough blame for everyone to share and sometimes there are more effective ways of catching someone's eye than poking them with an accusing finger.


Thankfully, the World Trade Organisation has been enlarged, so it's not just a matter of the big guys making a deal and the rest accepting it. Yet, nothing can be done unless they show some common cause. As always, it comes down to agriculture, where the EU needs to improve on present offers over market access, and the United States must move on domestic support or subsidies.

Then there's the fearful Trojan horse of something called "special or sensitive products" which can mean rice, dairy, sugar, or whatever domestic interests fear could undermine them. If there isn't a real desire to nail down this issue, it will end in tears and disputes, and could make the round pointless for many. For those who have seen their core products, such as coffee, sugar or rice, locked out of the system, it would be a betrayal of monumental proportions. The G20 - a group of 20 developing countries - has shown solidarity and would rather have no deal if it doesn't include substantial progress.

Another few years of the present growth and the world would have seen the greatest, most successful, expansion of the global economy ever. No wonder finance ministers in most places look self-satisfied, even smug. All this has been underpinned by WTO rules, and the countries that have done the best are those which have opened and reformed their economies to be part of this growing global supply chain. Hard decisions by Australia, New Zealand and Britain in the 1980s are being rewarded. Those which have been slower to reform - Germany, France and Japan - have seen slower progress.

China and India are the two economies that have played the biggest role in global growth recently. Those people who feared competition from them should ponder this question: Where would we all be without the appetites of China and India? Their leaders have shown courage by opening up their economies, but they need to go further.

This round needs the leadership of China and India, but both are doing well out of existing rules and agreements. However, protectionist sentiment is always there, and the clouds are gathering in Washington - and have never left Paris.

Japan is showing some flexibility. If China and India can show the way, and if the big guys are prepared to save their taxpayers and reward consumers in agriculture - and if a decent deal is done for the poorest countries - then we have an endgame in sight. Jean-Claude Trichet, the French president of the European Central Bank, has warned of the danger to the global economy and to the fight against poverty if the deal is not done.

The view of some commentators that the Doha round was too ambitious is disappointing. They are the same people who said that we would never launch the round in the first place, and that China posed a threat to the global marketplace and would never live up to its commitments. Getting China into the WTO was, in my view, more important than launching the round.

A recent survey of business, government officials and agencies reports that China has implemented nearly 80 per cent of its WTO commitments. A lot more needs to be done, but in tariff cuts and opening markets it is mainly on target and on time.

Mike Moore is a former prime minister of New Zealand and was director-general of the World Trade Organisation.



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Monday, February 5, 2007

HONG KONG'S LEADERS
So ignorant of the big picture


PHILIP BOWRING
   
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Last week, President Hu Jintao embarked on an 11-day tour of African countries, hisfourth since becoming China's leader. It was the latest step in the development of China's relations with Africa and followed the summit of African leaders in Beijing late last year.
But don't expect the leaders of "Asia's world city" to take much interest in Africa, or indeed anything outside their preoccupations with bureaucratic power plays or proving loyalty to the motherland.

By coincidence, on the day Mr Hu left for Cameroon, the former South African president F.W. de Klerk was in Hong Kong. He gave a talk to the Foreign Correspondents' Club about African and global governance issues which went almost completely unreported. Nor did our city's business groups regard him as worthy of public attention. Nor even was he received by our bow-tied leader. It is not clear whether this was out of ignorance, pre-occupation with his re-election or out of irritation that Mr de Klerk was in town as part of a group of which Anson Chan Fang On-sang is a member. Could Donald Tsang Yam-kuen be so petty?


The lack of interest was an indictment of Hong Kong's general parochialism and the ignorance of international issues, business and political, which characterises its leadership. Mr de Klerk may have left the presidency of South Africa more than a decade ago. But he is a Nobel Peace Prize winner, a man who shares, with his successor Nelson Mandela, the achievement of having rescued his country from what seemed certain civil war. In doing so, he had to admit that for decades he had promoted a monstrous injustice - apartheid. He is also the only leader to end his country's nuclear-power status.

Mr de Klerk, now 70, speaks with a coherence and authority that Mr Tsang so sadly lacks. And he remains a hugely influential figure in South Africa, the most important country in sub-Saharan Africa. It is also a country with which Hong Kong has much direct trade and tourism, is connected by daily flights and is a gateway to all of southern and central Africa.

It is painfully obvious that Hong Kong leaders - not just the chief executive - who have spent their whole working lives in the cocoon of the local bureaucracy are incapable of understanding the city's global and regional role and capitalising on it. It is far more important, it often seems, to be seen to be patriotic by "promoting" Hong Kong to provincial officials.

Our one advantage over the likes of Shanghai is our difference; our international connections as defined by attitudes as well as free trade, open access and a non-Chinese legal system. Freeing up cross-border transport and investment is fine, but in itself does nothing to exploit Hong Kong's unique status. Beijing may - very naturally - want Hong Kong's differences to fade rapidly. But the duty of Hong Kong's leader is to exploit them to the full and sustain the differences which enable the city to be freer and richer. That process must focus on the international, which includes treating the likes of Mr de Klerk as at least as significant as party functionaries from Guizhou , or spending far more time in mainland provinces than developing Hong Kong's external links.

The city's lifeblood is international trade and commercial services. The present power elite comes from quite different sectors - the jobs-for-life senior bureaucrats, the property developers, who are essentially leeches on the businesses driving the external economy, and a collection of rich rentiers of whom Financial Secretary Henry Tang Ying-yen and Liberal Party leader James Tien Pei-chun are the most prominent.


Thus, it is no surprise that the recent financial services boom owes itself almost entirely to the combination of mainland stock market listings and the presence of foreign major league investment banks. Little credit can be claimed by an inward-looking broking community which has failed to create the conditions to attract foreign listings as even Singapore, let alone London, has done.

So while Mr Hu looks as far as lesser-known African countries as part of China's global engagement, Mr Tsang and his team gaze at their navels and talk in platitudes which reveal their ignorance of what makes a leading-edge world city in the early 21st century.

Philip Bowring is a Hong Kong-based journalist and commentator.



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Tuesday, February 6, 2007

CENTRAL GOVERNMENT INTERVENTION
Getting to grips with bubble trouble


ANDY XIE
   
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Beijing officials are signalling their worries about the stock market bubble. If their pressure doesn't work, central government authorities may take cooling actions soon. This follows extensive government interventions to cool the property market: obviously, mainland asset markets are not free. But is it wrong for Beijing to intervene to this extent?
Bubbles do occur. If a government sees one in the early stages of development, it makes sense to try to stop it. Bubbles waste resources through the misallocation of capital, and redistribute wealth from the ignorant masses to a few in the know. The trouble is that one can never know for sure whether a buoyant market is a healthy bull market or a bubble.

Former US Federal Reserve chief Alan Greenspan says that a central bank shouldn't bother with identifying bubbles, and should concentrate on coping with the consequences when bubbles burst. However, post-bubble consequences for Japan and Southeast Asia in recent decades suggest that the laissez-faire approach can be too costly. Their  societies would have been much better off if their authorities had acted to contain their bubbles.

China is even less capable of coping with the consequences of a massive bubble bursting. One-third of mainlanders already live in industrialised areas, mainly along the eastern seaboard, and two-thirds still hope to. If the mainland economy suffers prolonged stagnation, their aspirations would be dashed and society could become unstable. If Beijing took Mr Greenspan's advice, it could cause a national calamity.

Coping with asset bubbles will be a long-term challenge for mainland China. It has the ideal conditions for creating them: a high savings rate, rapid growth in productivity and optimism over China's future at home and abroad. The mainland's high savings rate is due to its one-child policy and the high level of government ownership of productive assets.

The latter is the most important factor. Income from oil, coal, land, telecoms and banking monopolies automatically goes into investment. This is why two-thirds of the mainland's gross savings are generated by the government and enterprise sectors. To decrease its savings rate and make the nation's economy less bubble-prone, Beijing should distribute its assets among its people. Britain did this under prime minister Margaret Thatcher, and the beneficial effects on consumption and efficiency laid the foundation for the nation's subsequent prosperity.

Mainland China's one-child policy is producing an extreme demographic cycle that is affecting the household savings rate. The falling dependency ratio - the 65-and-over population as a proportion of the 15-to-64 population - was a critical tailwind in the successful economic development of Japan, South Korea and Taiwan. The mainland's one-child policy has turbocharged this force. The nation's household savings rate is over 30 per cent, the highest in the world. As the baby boomers worry about financing their retirements, the savings rate is likely to rise in the coming decade. But by 2025, the mainland's population will be as grey as Japan's was in 1995. So China must become a developed economy in the next 15 to 20 years, or it will become too old to grow. So it must use its savings wisely.


A faster pace of urbanisation could decrease the risk of a bubble. The cost of urbanisation - for housing, infrastructure construction and capital for employment - is probably about US$25,000 per person. Funds in the current account surplus could be used to increase urbanisation by 7 million people a year above the current rate of 12 million. But, how would that square with the fact that China is already overinvesting? There is no contradiction: rather, urbanisation is spread too thin.

Many places should not industrialise or urbanise, as they will never scale up enough to reach self-sustaining levels of growth or pay off their investment. This is why Beijing wants to cap investment growth. If China concentrated its resources to build up 25 cities that could house 40 million to 50 million people each, the investment would pay off and there would be no need to limit investment growth.

There are ways to decrease the risk of a bubble. But, under current conditions, the mainland will face bubble trouble for the next two decades - until the savings rate begins to decline with an ageing population. Beijing has the right to intervene in asset markets when it sees bubbles getting too big. That may sound unorthodox, but no country has developed successfully by being a slave to orthodoxy. Pragmatism has been the key to China's past economic success, and it will remain so in the future.

Andy Xie is an independent economist.


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Wednesday, February 7, 2007

EDITORIAL/LEADER
Cool heads needed over Fairview standoff



  
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   The standoff between residents of Fairview Park, container truck drivers and nearby villagers is about three matters close to the hearts of all Hong Kong people: lifestyle, safety and livelihoods. Attaining all three is possible, but it will require cooler heads and greater understanding than has been on display.
That Fairview Park residents are upset is understandable in light of the death of schoolboy Kam Ho-wah, killed by a container truck while cycling with his brother last week. The tragedy could have been avoided if authorities had listened to complaints about heavy vehicles using Fairview Boulevard, a private road running through the community.


While safeguarding lives has become the foremost issue - and the one that has raised emotions - the community has long been concerned about preserving its character. Fairview Park is not a typical Hong Kong residential area, after all. Conceived in the 1970s and 15 years in the making, it was the first and remains the largest low-rise development in the city. The developers' aim was to build a  peaceful alternative to the concrete jungle of high-rise living elsewhere - and the 25,000 residents cherish that difference.

Hong Kong has changed markedly since then, especially in the Yuen Long area in the New Territories, where Fairview Park is located. Where once there was greenery and tranquility, there are now truck-filled roads, container parks and pollution-choked skies. Those living in the development have semi-detached homes with private gardens. They jealously guard their lifestyle, seeing themselves as being in an oasis amid what has in many places become an environmental eyesore. That has been increasingly impossible with the virtually uncontrolled encroachment of container parks and the truck traffic associated with them.

In such circumstances, residents have not viewed truck drivers sympathetically. Nor have they taken kindly to their private road being used as a short-cut to nearby container parks. Their complaints to authorities achieved results in 2005 with the completion of a new road, providing an alternative route, carved from drainage land beside Fairview Park. But this road, which adds up to 10 minutes' travel time to truck drivers' journeys, remained closed until recently because of a legal dispute between residents and the government. It was opened only after the death of Ho-wah.

Truck drivers have busy schedules. They need to get from one job to another quickly. Opting for the shorter route makes better sense; for them, the adage "time is money" is truly applicable. Villagers are angry at Fairview Park residents because their incomes are tied to the container parks in the area. Being generally less wealthy than those in the residential development, their allegiances are obvious. A disruption to the lives of the drivers who frequent their shops and stalls is to them also disturbing harmony.

When Fairview residents put up barricades and blocked truck traffic on Monday, a confrontation was inevitable. Only because police intervened were the sides kept apart.

Resolving the matter in the short-term would now seem to rest with a meeting today between residents and senior government officials. Common sense would say that the outcome is obvious: truck drivers should be required to use the new road.

This they started conscientiously doing for the first time yesterday, under advice from police. If they had done this from 2005, when the road was completed, and followed signs telling them not to use Fairview Boulevard, Ho-wah would still be alive. Tempers would not have flared to the point of near-clashes. The harmony of the district would have been preserved.

The court's ruling later this year should settle the matter. At that time, the legal position for all sides will be made clear and the judgment must be respected. In the meantime, level-headedness must prevail. Only by keeping tempers in check can a resolution properly and fairly be reached.


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Thursday, February 8, 2007

EDITORIAL/LEADER
Quality, not quantity, the right tourism strategy



   
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   When the performance of a key economic sector fails to meet forecasts, people are understandably concerned. For years, the number of visitors to Hong Kong invariably exceeded the forecasts put out by the Tourism Board, except for the awful Sars year of 2003. So alarm bells inevitably rang when last year's number, 25.25 million visitors, was released last month - it was about 6.5 per cent less than projected.
The disappointing results no doubt prompted the board to project a far less optimistic 26.4 million visitors for this year - a mere 4.5 per cent increase from last year's actual figure - at an industry and media briefing yesterday.


The tourism industry is facing many daunting challenges, but focusing solely on visitor numbers, with the unstated assumption that more is better, may be misguided. The government under former chief executive Tung Chee-hwa seems to have oversold the potential of a huge supply of mainland visitors through the solo travel scheme and the lucrative proceeds they would generate with Disneyland as a key attraction. Mainlanders make up more than half the visitors to the city each year, but their numbers are levelling off.

Just how many tourists can Hong Kong accommodate without ruining all the fun for them - and us? In comparison, Thailand as a premier tourist destination in Southeast Asia has just half the number of visitors. The problem of crowding has plagued key attractions: it is not unusual to queue 45 minutes for a ride at Disneyland; longer at the cheaper Ocean Park and on weekends and holidays at the Ngong Ping 360.

Yet with a crisis comes the proverbial opportunity. In dollar terms, the board's forecasts for visitor spending in 2005 (HK$97.8 billion) and 2006 (HK$114.7 billion) were actually exceeded by HK$7.8 billion and HK$2.6 billion respectively.

The board's promotion strategy has been switching from quantity to quality. Instead of emphasising tourist numbers, it is focusing on high-yield, or convention, visitors and their families - people who spend about HK$10,000 or more per visit, as opposed to the average HK$4,600-plus.

On this front, there is cause for optimism. In its first 12 months, AsiaWorld-Expo played host to about 40 events. Of these, five, including the ITU Telecom World, fully occupied the 760,000 sq ft site. The Convention and Exhibition Centre hosted 158 events last year and has already booked 78 this year. It is expanding to create more space.

Our city also scored a major coup when organiser Reed Exhibitions said it would move its influential Asian Aerospace trade fair from Singapore to AsiaWorld-Expo in September. Hong Kong is competing for convention business with Singapore, Macau, Shenzhen and Guangzhou. But as a major financial centre, we have our inherent advantages. Whether this strategy will succeed remains unclear, but it is a step in the right direction.





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Friday, February 9, 2007

EDITORIAL/LEADER
Broad approach needed to tackle drug problem



   
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   Regardless of the views of Hong Kong's party-going youths, drugs are considered harmful by society. That is why laws are in place banning their use and imposing penalties for those found with them in their possession.
There can be no sadder proof of the ill-effects of drug abuse than the case of 13-year-old Cheuk Wai-yin, who collapsed and died on a Mong Kok footpath on July 26 last year after partying at a nearby nightclub. The coroner, concluding yesterday that she had taken 10 times the lethal dose of Ecstasy and a considerable amount of ketamine, entered a verdict of death by misadventure.


That a life was taken so young through ignorance of drugs is regrettable. Her death will serve as a lesson for those who knew her or hear of the story. But as is the case with all substances of abuse, it will not alone deter those seeking to use them.

Getting the message across needs a concerted effort by the whole community, starting with the family, continuing through school and other groups in society and concluding at the penalty stage in the courts. There, the message can be delivered loudest to those who choose to ignore what they have been taught: that involvement with drugs that are illegal will lead to punishment.

If the comments by the coroner and, in a separate case, the Court of Appeal are any guide, it would seem that not enough is being done to discourage young people from taking drugs. The coroner suggested there was a need for greater efforts to educate young people about drugs. He said police should increase patrols of night spots frequented by youths to stem what he perceived to be a rising problem.

His comments were backed by outreach groups, which claimed there was a reluctance by some schools and parents to discuss drug use with children for fear of kindling an interest in their use. The same arguments have been made about sex education in school - with the result that in societies where such lessons are not taught, there are more teenage pregnancies and the incidence of sexually transmitted diseases is greater.

The Court of Appeal case highlighted another problem familiar to other jurisdictions in developed parts of the world: the high use of ketamine and Ecstasy by teenagers. Hong Kong's circumstances differ, however, in the vast quantities of ketamine that are being produced on the mainland and smuggled here.

With the two drugs being treated the same in the eyes of the law, the court considered the time had come in Hong Kong for a review. There is certainly a need for such a process when judges see increasingly serious cases before them.

Reservations about drug education clearly need to be put aside. Similarly, the penalties for ketamine and Ecstasy should be reconsidered and efforts to police their use toughened. With so many young lives depending on such steps, moving quickly is essential.



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Monday, February 12, 2007

EDITORIAL/LEADER
Inquiry needed into academic freedom row



  
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   The allegations of government interference in academic freedom, to be discussed by legislators today, raise very serious issues. The accusations strike at the heart of free speech, one of Hong Kong's biggest assets. It is therefore essential that these accusations, made by academics at the Hong Kong Institute of Education, are thoroughly - and independently - investigated. The truth must be made known.
The allegations paint a disturbing picture. They have been levelled against several officials, including education minister Arthur Li Kwok-cheung. They include the suggestion that the institute's president, Paul Morris, is being removed from his post because he is unwilling to support Professor Li's desire to merge the teacher-training college with Chinese University. The institute's governing council, dominated by government appointees, voted not to renew the president's contract last month, despite support for him from staff and students.


But officials are also being accused of seeking to stop academics publicly disagreeing with the government's education policies. The most serious allegation is made by the institute's vice-president for academic affairs, Bernard Luk Hung-kay. He says a senior official demanded that four academics be sacked for criticising the government's reforms.

None of the accusations has been substantiated and they are strenuously denied by the government. But wherever the truth lies, this is not a matter that can be left unresolved. The perception that the government might have been involved in such interference is a damaging one. It will hit confidence not only in the administration of Donald Tsang Yam-kuen, but also in Hong Kong's reputation as a place where people are free to express their opinions openly. It is especially important that academics feel they can publicly air their views on the government's education policies without fear of reprisal. Only through open debate can the right way forward be found for our city's education system.

The timing of the controversy has attracted much comment. It coincides with the election campaign for chief executive. Democrat legislators have, not surprisingly, been quick to seize on the row, which has the potential to damage Mr Tsang as he bids for a second term.

Officials have suggested the timing of the allegations is deliberate and linked to the election. The fact that Professor Luk is a founding member of the Civic Party, which is fielding a candidate against Mr Tsang in next month's poll, raises a question mark as to whether the academic's accusations may be politically motivated. This, he has denied. But the government should be taking the allegations of interference seriously. Mr Tsang reportedly suggested there was an election-related conspiracy behind them. Such remarks, if he made them, are unwise.

Mr Tsang should have swiftly and publicly defended Hong Kong's freedom of expression and declared a determination to pursue these allegations in order to get at the truth. But the chief executive refused to comment publicly until yesterday. It is good to see he took the opportunity to pledge that he would strive to ensure the truth was revealed. Now, those words must be backed up by action.

There is a need for a truly independent investigation. The government should take steps to establish an inquiry. But when doing so it must make sure that the composition of any panel and its procedures are such that the public can have absolute confidence in the impartiality of its findings. These allegations are far too serious to be swept under the carpet. It would be pointless to establish an investigation if the results are generally regarded as a whitewash.

If the government is unable or unwilling to establish such an inquiry, then a Legislative Council probe will be needed. This will, by its nature, be partisan. That is not ideal, but at least the procedures are well-established and the process transparent. 'Freedom of speech is one of our city's core values. Only a credible investigation will ensure it is protected.


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Tuesday, February 13, 2007

EDITORIAL/LEADER
China's migrant workers deserve a fairer deal



   
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   Workers drawn from mainland China's poorer provinces to the factories and construction sites of its booming southeast have been crucial to the nation's spectacular economic rise. Yet, rather than being rewarded handsomely for their efforts, they have suffered from low wages and have not being given their due by employers or the government.
Beijing has long recognised the plight of the tens of millions of people involved. But its efforts to correct the injustices have had limited effect. Working conditions for the majority are still harsh, safety standards remain poor and the legal system is still failing to hear their grievances fairly.


Our two-part series on the plight of migrant workers, which concludes today on page A6, reveals just how shocking are the circumstances of those whose low-cost labour has helped generate the huge trade surpluses that swell the government's foreign reserves. If not for the poor pay and conditions they have been willing to endure, China would be much poorer.

Nations that benefit from the workers' circumstances have shown little concern. While they are getting low-cost goods of a high quality, the fact that China, the workshop of the world, is also - for many - a sweatshop has been of little concern.

Some nations, the US among them, have been worried about correcting a trade imbalance. But Washington's insistence that the yuan must be further revalued will not help mainland factory workers; rather, the pressure for factory owners to produce goods priced even more competitively to make up for the correction could worsen their circumstances.

In the meantime, there is no let-up in the pressure workers face. Exports last month were up by a third on those in January last year.

As migrant workers head home for the Lunar New Year holiday, many will be reconsidering their position. Wages have barely moved over the past year, despite the economy growing by almost 10 per cent.

Many have not received back-wages, often because subcontractors have absconded. This is despite government efforts to tackle the problem of wage arrears. Protests against working conditions or ill-treatment have been broken up by the authorities.

The profits made by mainland and foreign firms and the benefits to the government from its migrant workforce have been enormous. China has powered forward on their sweat.

The time has come for a change. Migrant workers need a better deal, and this can only be achieved by the central government making good on its pledges to improve their lot. More effective measures are needed. That means ensuring wages are fairer, conditions better, contracts fulfilled and legal rights enforced.


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Wednesday, February 14, 2007

OBSERVER
Living out Deng's dream


CHRIS YEUNG
   
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   Monday will be the 10th anniversary of the death of paramount leader Deng Xiaoping , who envisioned the policy of "one country, two systems" - the reality in Hong Kong since July 1, 1997.
Ten years on, the changes in Hong Kong and on the mainland could not be more startling. The mainland's rising economic might has posed challenges and brought opportunities for Hong Kong. Greater economic and social integration is set to bring about profound changes for "one country, two systems".


If Deng were still alive, he would be relieved that his experimental blend of pragmatism and innovative thinking on the Hong Kong question has borne fruit. Against the background of 1997's jitters, post-handover developments show that "one country, two systems" has worked.

A survivor of the protracted political and ideological infighting of the 1960s and 1970s, Deng was a firm believer in pragmatism and a results-oriented approach to solving problems.

So he saw that the best way to preserve the city's capitalist system was to let Hongkongers run their own affairs within a managed, gradual move towards full democracy. The fact that the Basic Law stipulates universal suffrage as the ultimate goal shows Deng's faith in Hongkongers' ability to run the city.

Hong Kong's success could, in turn, be emulated by more Chinese cities, to help speed up the country's modernisation.

Within 50 years, the mainland's development will reach a stage similar to Hong Kong's, making the separation between the two systems insignificant.

Deng's faith and far-sightedness stemmed from his conviction that the trend towards reform and openness was irreversible. When people see for themselves the practical benefits of reform, they become stakeholders and champions of reform.

Battered by economic shocks and political wrangling since the handover, Hong Kong is at a juncture of major change. Economically, the breathtaking economic growth on the mainland has sent a warning signal to the city to work harder to maintain its premier status.

Politically, there is a growing consensus that the city's current system is fundamentally flawed, and too seriously crippled to cope with society's increasing conflicts. Further delay in remedying the systemic deficiencies will not only undermine good governance. Worse, it will perpetuate political rows, worsen the overall environment and dampen a sense of purpose in Hong Kong society.

Any political leader with a sense of pragmatism and far-sightedness would unerringly understand that the achievement of universal suffrage is critically important to help solve the current governance problems. It would help build enduring relations between government and people.

Faced with the electoral challenge from Alan Leong Kah-kit, Donald Tsang Yam-kuen feels the pressure to address the issue of universal suffrage in his campaign - regardless of his personal belief in democratic values.

The consultation exercise on universal suffrage, scheduled for the summer, will emerge as a test of the collective wisdom, shared sense of purpose and far-sightedness of Hongkongers and Beijing authorities.

After more than two decades of divisive debate over universal suffrage most, if not all, concerns about giving everyone a vote have proved ill-founded. Even some diehard opponents of universal suffrage have changed their minds and embraced democracy. The argument that Hongkongers are not ready for universal suffrage has become increasingly weak, if there is even a case at all.

Let's assume that Mr Tsang was telling the truth when he said the central authorities would love to see universal suffrage introduced as early as possible. There are good reasons for optimism that pragmatically minded, intelligent Hongkongers will be able to reach a broad consensus on an electoral model.

If Deng had lived to see the 10th anniversary of the handover, he might have been disappointed to see that universal suffrage had still not been adopted.

Chris Yeung is the Post's editor-at-large.

chris.yeung@scmp.com



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Thursday, February 15, 2007

OBSERVER
More than just a trade deal


TROY STANGARONE
   
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   As the US Congress continues to debate Iraq and the future ofAmerican foreign policy, negotiations are taking place near the Capitol that may provide a glimpse of that policy's future.
The US and South Korea this week are undertaking the seventh, and likely final, round of free-trade agreement negotiations.


These talks are significant for the Washington-Seoul relationship, and the US role in Asia.

Northeast Asia is the world's most dynamic region. As China "rises" and a global economy emerges, the locus of economic and political power is being dispersed at an ever increasing pace.

The US response to these changes will shape the 21st century and America's place in it.

Over the past few years, the US-South Korea alliance has begun to evolve to better reflect both current realities in foreign affairs and South Korea's status as a developed nation.

The US is in the process of returning wartime military control of South Korean forces to Seoul and moving American forces out of the South Korean capital and into the countryside.

The US has nearly 30,000 troops stationed in South Korea, and military co-operation extends beyond the Korean Peninsula. South Korea has the largest contingent of troops in Iraq after Britain.

The free-trade talks are part of this larger process. South Korea, located between two economic giants, is the world's 11th-largest economy. It is America's seventh-largest trading partner: two-way trade tops US$72 billion.

For South Korea, a free-trade agreement with the US offers greater access to the world's largest consumer market, and guarantees continued economic relations with its most important military ally.

For the US, a trade deal offers increased market access in what would be the largest market opening for American goods since the North American Free-Trade Agreement. It strengthens the ability to set new standards for similar deals in Asia and between developed economies.

Moreover, a Washington-Seoul trade pact would give the US an economic beachhead in a region where free-trade agreements are rapidly proliferating and setting higher standards for market access - which will benefit US businesses.

For both sides, this agreement will help to move the alliance beyond its historical roots in the conflict with North Korea: it will begin to develop a more permanent and sustainable dimension to the alliance.

As economic power becomes more significant and China plays a larger role in the region, it will become important to ensure that the US does not become too Japan-focused.

As the two sides work to reach an agreement this week, significant issues must still be addressed. Among Washington's leading concerns are the removal of non-tariff barriers that have hindered the access of US goods such as cars; improved access for innovative American drugs; and more access for US agricultural products in the South Korean market.

South Korea is likely to present a new proposal to address its needs in the area of trade remedies, and look for increased access for its textile producers in the US market. These issues do not include the most politically sensitive concerns: the return of American beef to the South Korean market - once the third-largest export market for United States beef; and Seoul's request that products from a South Korean-run industrial complex in North Korea be considered South Korean, rather than North Korean, goods.

In one sense, the US-Seoul free-trade agreement is a commercial deal, negotiated on commercial terms.

In another, it is a pact that will be woven into the fabric of a changing bilateral alliance.

Both sides must now decide what type of alliance they want that to be: one that is ad hoc and primarily rooted in short-term benefits, or one grounded in shared, long-term interests.

Troy Stangarone is the director of Congressional Affairs and Trade for the Korea Economic Institute of America. These views are his own. Distributed by Pacific Forum CSIS




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Friday, February 16, 2007

EDITORIAL/LEADER
Revamped alert system will boost typhoon readiness



   
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   Climate change has made forecasting weather conditions increasingly difficult, so it is good that the Hong Kong Observatory has revamped the system of determining how threatening typhoons are. No approach is fool proof, however, given the circumstances, and meteorologists will have to ensure they get the right balance in their calculations to ensure the highest safety standards.
That balance was missing last August when Typhoon Prapiroon roared past, causing havoc in the New Territories and at the airport, toppling stacks of containers at the port, and uprooting hundreds of trees.


The Observatory, using criteria for raising warning signals that have existed for decades - wind speeds in Victoria Harbour - determined that only the signal  No 3 was warranted. With 3,000 passengers stranded at the airport because of cancelled flights, the call was clearly wrong - even if, as Observatory director Lam Chiu-ying insisted, the science in making the decision had been right and impartiality foremost.

Hong Kong has an excellent track record when it comes to advising residents of approaching inclement weather. The number of deaths as a result of storms and floods is remarkably low, proof of the skills of those who issue warnings.

But no matter how good the expertise of our meteorologists and the superiority of the equipment they use, nature can never be fully predicted. A typhoon can make a sharp turn without warning, or slow or speed up at will. The meteorologist's job is to ensure that we are kept as up to date as possible and told quickly about any threats.

In keeping with the high standards, Mr Lam has come good with his pledge after the controversy over Prapiroon. He has reviewed the signal system, found it wanting, and revised it. Rather than being centred on the harbour, wind speed monitors will now be positioned across Hong Kong and the average reading will determine which signal is hoisted.

With a wider net of monitors, the new method will mean that more No 8 signals may be raised each typhoon season. As a result, there will likely be increased disruption to commercial activities, schools, welfare centres and transport. Just how much inconvenience will be caused will not be clear until the system is assessed at the end of the coming typhoon season, after which alterations might be needed to create as near-perfect a system as possible.

Global weather conditions appear to be getting increasingly unstable, making it important for the Observatory to use its expertise as effectively as possible.

Hong Kong should not be unnecessarily shut down time and again, but neither should lives be put at risk. Finding the right balance will not be easy, but getting as close as possible to striking it is essential.



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