Risky business makes the world go round


J. Bradford DeLong
Jan 04, 2010           
     
      

  



Perhaps the best way to view a financial crisis is to look at it as a collapse in the risk tolerance of investors in private financial markets. Whatever the cause, when the risk tolerance of the market crashes, so do prices of risky financial assets. Everybody knows that there are immense unrealised losses in financial assets, but no one is sure that they know where those losses are. To buy - or even to hold - risky assets in such a situation is a recipe for financial disaster. So is buying or holding equity in firms that may be holding risky assets, regardless of how "safe" a firm's stock was previously thought to be.

This crash in prices of risky financial assets would not overly concern the rest of us were it not for the havoc that it has wrought on the price system, which is sending a peculiar message to the real economy. The price system is saying: shut down risky production activities and don't undertake any new activities that might be risky.

But there aren't enough safe, secure and sound enterprises to absorb all the workers laid off from risky enterprises. And if the decline in nominal wages signals that there is an excess supply of labour, matters only get worse.

Ever since 1825, central banks' standard response in such situations - except in the Great Depression of the 1930s - has been the same: raise and support the prices of risky financial assets, and prevent financial markets from sending a signal to the real economy to shut down risky enterprises and eschew risky investments.

This response is understandably controversial, because it rewards those who bet on risky assets. But an effective rescue cannot be done any other way. A policy that leaves owners of risky assets impoverished is a policy that shuts down dynamism in the real economy.

The political problem can be finessed: as Don Kohn, a vice-chairman of the Federal Reserve, recently observed, teaching a few thousand feckless financiers not to over-speculate is much less important than securing the jobs of millions of Americans and tens of millions around the globe. Financial rescue operations that benefit even the unworthy can be accepted if they are seen as benefiting all - even if the unworthy gain more than their share of the benefits.

What cannot be accepted are financial rescues that benefit the unworthy and cause losses to other important groups - like taxpayers and wage earners. And that, unfortunately, is the perception held by many nowadays, particularly in the US. It is easy to see why.

When vice-presidential candidate Jack Kemp attacked vice-president Al Gore in 1996 for the Clinton administration's decision to bail out Mexico's feckless government during the 1994-95 financial crisis, Gore responded the US made US$1.5 billion on the deal.

But now, officials cannot say that a global recession has been avoided; that they "bailed in" the banks; that, other than Lehman Brothers and Bear Stearns, they forced the bad speculative actors into bankruptcy; or that the government made money on the deal.

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


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Hard to be humble


PETER KAMMERER

Jan 05, 2010           
     
      

  



Upbringing has taught me that each new year has to start with a decision that changes an aspect of my life for the better. Many people abide by such resolutions but most, like me, make pledges but rarely keep them. They are nonetheless a worthy exercise, as they force reflection. Governments would do well to adopt the practice.

This realisation came to me as I was narrowing down my resolution list. One by one, the essentials were eliminated - weight loss, be thriftier, exercise at least an hour a day three or four times a week, drink less alcohol, give more time over to my family. As worthy as these ideas may be, they have been made in the past and, as the year progressed, gradually neglected and eventually ignored. So, for 2010, I have decided on something at least attainable: humility.

This is surely the craziest suggestion a columnist could make. Only a person with a giant ego would consider putting their thoughts into words for public consumption. To suggest that it is time to be humble should therefore be accompanied not by opinions and solutions for the world, but by a note of resignation. But I concede that this time has not yet come and that, instead, there are degrees of humility.

I like to think I am not an egotistical person. Arguments are, to me, debates: my sparring partner offers a view, I suggest one, more are made and I walk away having learned facts and details I did not know before. In my mind, I am man enough to admit when I am wrong. This is, of course, not always the case.

We learn and improve by being willing to take on board ideas and suggestions. That involves setting aside what we think is right and taking the time to listen and evaluate. For every issue, there is any number of viewpoints. They are determined by factors like culture, history, religion and social standing.

Conflicts occur if we ignore the opinions of others. Doggedly, we forge ahead without regard for what we are being told. This is as true for governments as individuals. The wars in Afghanistan and Iraq, religious unrest in Pakistan, the Philippines and Thailand, and unease about China's rise, are all about a refusal to understand, learn and listen.

The first rule of diplomacy is respect. This involves treating a negotiating partner on an equal footing - which requires leaving superiority at the door of the meeting room. From such a position, an issue can be better seen through the other country's eyes. A willingness to learn about cultural, demographic and economic differences helps with understanding a viewpoint.

If the US and its allies had bothered to ask Afghanistan's people what they wanted, rather than foist on them what was thought to be best, circumstances would be considerably different. Democracy comes in many flavours and the one favoured by Washington is not necessarily to the liking of non-Americans. Nor does it readily suit a population with diverse cultural and religious backgrounds. To ignore such basics is to invite trouble; that the Afghan war is already more than eight years old with no end in sight is not surprising.

Solutions to problems should come from consensus. This requires honesty: the willingness to admit that not all answers to questions are known. Trusting relationships are built from admitting a lack of knowledge and mistakes. Working together to find the answer helps individuals - and nations - grow.

Herewith, my preaching ends. I will do my best in the coming months and years to listen, learn and understand. Every effort will be made to find amicable agreement to difficulties. I will be humble.

Nations are not individuals. They are complex and diverse. The governments that rule them do not always represent a majority view. Nonetheless, it would be good if leaders could start each year by promising to make a concerted effort to tackle a particular problem. This would stand as a record of honesty, integrity, transparency and, if kept, achievement.

With the utmost humility, I suggest that, this year, leaders collectively make a pledge to be sincerely humble.

Peter Kammerer is a senior writer at the Post

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Power players
The changing dynamics between China, India and Japan are complicating America's role in Asia

Brahma Chellaney
Jan 06, 2010           
     
      

  



At a time when Asia is in transition, with the spectre of a power imbalance looming large, it has become imperative to invest in institutionalised co-operation to reinforce the region's strategic stability. After all, not only is Asia becoming the pivot of global geopolitical change, but Asian challenges are also playing into international strategic challenges.

Asia's changing power dynamics are reflected in China's increasingly assertive foreign policy, the new Japanese government's demand for an "equal" relationship with the United States and the sharpening Sino-Indian rivalry, which has led to renewed Himalayan border tensions.

All of this is highlighting America's own challenges, which are being exacerbated by its eroding global economic pre-eminence and involvement in two overseas wars.

Such challenges dictate greater US-China co-operation to ensure continued large capital inflows from China, as well as Chinese political support on difficult issues ranging from North Korea and Burma to Pakistan and Iran.

But, just when America's Sino-centric Asia policy became noticeable, Japan put Washington on notice that it cannot indefinitely remain a faithful servant of US policies. Prime Minister Yukio Hatoyama's government is seeking to realign foreign policy and rework a 2006 deal on relocating a US marine base on Okinawa. It also announced an end to its eight-year-old Indian Ocean refuelling mission in support of the US-led war in Afghanistan.

Meanwhile, China's resurrection of its claim to the northeastern Indian state of Arunachal Pradesh, and its needling of India over Kashmir (one-fifth of which is under Chinese control), is testing the new US-India global strategic partnership.

The US has charted a course of tacit neutrality on the Arunachal Pradesh issue - to the delight of China, which aims to leave an international question mark hanging over the legitimacy of India's control of the Himalayan territory, which is more than twice as large as Taiwan. Indeed, the Obama administration has signalled its intent to abandon elements in its ties with India that could rile China, including a joint military exercise in Arunachal Pradesh and any further joint naval manoeuvres involving Japan or other parties, like Australia.

Yet, the recent Australia-India security agreement, signed during Prime Minister Kevin Rudd's visit to New Delhi, symbolises the role of common political values in helping to forge an expanding strategic constellation of Asian-Pacific countries.

The Indo-Australian agreement received little attention, but such is its significance that it mirrors key elements of Australia's security accord with Japan - and that between India and Japan. All three of these accords, plus the 2005 US-India defence framework agreement, recognise a common commitment to democracy, freedom, human rights and the rule of law, and obligate their signatories to work together to build security in Asia.

An Asian geopolitical divide centred on political values would, of course, carry significant implications. And, while Asia - with the world's fastest-growing markets, fastest-rising military expenditures and most-volatile hot spots - holds the key to the future global order, its major powers remain at loggerheads.

Central to Asia's future is the strategic triangle made up of China, India and Japan. Not since Japan rose to world-power status during the Meiji emperor's reign, in the second half of the 19th century, has another non-Western power emerged with such potential to alter the world order as China today.

Indeed, as the US intelligence community's 2009 assessment predicted, China stands to affect global geopolitics more profoundly than any other country.

China's ascent, however, is dividing Asia, and its future trajectory will depend on how its neighbours and other players, like the US, manage its rapidly accumulating power.

But, as the US-China relationship deepens in the coming years, the strains in some of America's existing partnerships could become pronounced. For example, building a stronger co-operative relationship with China is now taking precedence in US policy over the sale of advanced weaponry to Asian allies, lest the transfer of offensive arms should provoke Chinese retaliation in another area.

While the European Community was built among democracies, the political systems in Asia are so varied - and some so opaque - that building interstate trust is not easy. In Europe, the bloody wars of the past century have made armed conflict unthinkable today. But, in Asia, the wars since 1950 have failed to resolve disputes. And, while Europe has built institutions to underpin peace, Asia has yet to begin such a process in earnest.

Never before have China, Japan and India all been strong at the same time. They need to find ways to reconcile their interests in Asia so that they can coexist peacefully and prosper.

But there can be no denying that these three leading Asian powers and the US have different playbooks: America wants a unipolar world but a multipolar Asia; China seeks a multipolar world but a unipolar Asia; and Japan and India desire a multipolar Asia and a multipolar world.

Brahma Chellaney is professor of strategic studies at the Centre for Policy Research in New Delhi. Copyright: Project Syndicate


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The great fall
World markets need international, not national, rules if another global financial collapse is to be avoided

George Soros
Jan 07, 2010           
     
      

  



We are at a moment when the range of uncertainties facing the global economy is unusually wide. We have just passed through the worst financial crisis since the second world war. The only relevant comparisons are with the Japanese property bubble, which burst in 1991 (and from which Japan has not recovered), and the Great Depression of the 1930s - except that this crisis has been quantitatively much larger and qualitatively different.

Unlike the Japanese experience, this crisis involved the entire world. And, unlike the Great Depression, this time the financial system was put on artificial life support, rather than being allowed to collapse.

In fact, the magnitude of the problem today is even greater than during the Great Depression. In 1929, total credit outstanding in the United States was 160 per cent of gross domestic product and it rose to 250 per cent by 1932. In 2008, we started at 365 per cent - and this calculation leaves out the pervasive use of derivatives, which was absent in the 1930s.

Yet, artificial life support has worked. Barely a year after the bankruptcy of Lehman Brothers, financial markets have stabilised, stock markets have rebounded and the economy shows signs of recovery. People want to return to business as usual - and to think of the Crash of 2008 as a bad dream. But, the recovery is liable to run out of steam, and may even be followed by a second downturn, though I am not sure whether it will occur this year or next.

My views are far from unique, but they are at variance with the prevailing mood. The longer the turnaround lasts, the more people will believe that it will continue. But, in my judgment, this is characteristic of far-from-equilibrium situations when perceptions tend to lag behind reality.

To complicate matters, the lag works in both directions. Most people have not yet realised that this crisis is different from previous ones - that we are at the end of an era. Others - including me - failed to anticipate the extent of the rebound.

International financial authorities have handled this crisis the same way as previous ones: by bailing out failing institutions and applying monetary and fiscal stimulus. But this crisis was much bigger, and the same techniques did not work. The failed rescue of Lehman Brothers was a game-changing event: financial markets ceased to function.

Governments, then, had to effectively guarantee that no other institution whose collapse could endanger the system would be allowed to fail. So the crisis spread to the periphery of the world economy, because countries on the periphery could not provide equally credible guarantees.

Eastern Europe was the worst hit. Countries at the centre used their central banks' strong balance sheets to pump money into the system and to guarantee the liabilities of commercial banks, while governments engaged in unprecedented deficit financing to stimulate the economy.

But the growing belief that the global financial system has escaped collapse, and that we are slowly returning to business as usual, is a grave misinterpretation of the current situation. Humpty Dumpty cannot be put together again.

The globalisation of financial markets that took place since the 1980s allowed financial capital to move freely around the world, making it difficult to tax or regulate. This put financial capital in a privileged position: governments had to pay more attention to the requirements of international capital than to the aspirations of their own people. Individual countries found it difficult to offer resistance.

But the global financial system that emerged was fundamentally unstable, because it was built on the false premise that financial markets can be safely left to their own devices. That is why it broke down and that is why it cannot be put together again.

Global markets need global regulations, but the regulations that are currently in force are rooted in the principle of national sovereignty. There are some international agreements, notably the Basel Accords on minimum capital requirements, and there is also good co-operation among market regulators. But the source of the authority is always the sovereign state.

This means that it is not enough to restart a mechanism that has stalled; we need to create a regulatory mechanism that has never existed. As things stand now, each country's financial system is being sustained and supported by its own government. But governments are primarily concerned with their own economies. This gives rise to what may be called financial protectionism, which threatens to disrupt and perhaps destroy global financial markets. British regulators will never again rely on the Icelandic authorities, and Eastern European countries will be reluctant to remain dependent on foreign-owned banks.

So regulations must become international in scope. Otherwise, global financial markets will be destroyed by regulatory arbitrage.

Globalisation was successful because it forced countries to remove regulations; but the process does not work in reverse. It will be difficult to get countries to agree on uniform regulations. Different countries have different interests, which drive them towards different solutions.

This can be seen in the European Union, where the member states cannot agree on a uniform set of financial rules. How, then, can the rest of the world? In the 1930s, trade protectionism made a bad situation worse. In today's global economy, the rise of financial protectionism is a greater danger.

George Soros is chairman of Soros Fund Management and of the Open Society Institute. His most recent book is The Crash of 2008. Copyright: Project Syndicate


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A poor track record when it comes to selling mega projects


Alice Wu
Jan 08, 2010           
     
      

  



The grounds for supporting the highly controversial and politicised express rail link are obvious and the theories of economic benefits all seem reasonable. What will become of Hong Kong if it is not part of the nation's major transport artery? Investing in our part of the cross-border high-speed railway is an essential component of our search for sustainable economic growth and a way to escape being marginalised.

The legislature will decide today the fate of the high-speed railway, but all the noise - for and against - makes it necessary for the government to look closely at why it failed to make such an "easy sale". The HK$66.9 billion cost is not small and the rising price of building materials is unfortunate. The public rightfully expects lawmakers to scrutinise the proposal, especially when we consider the government's track record on forecasting economic benefits.

A decade ago, the government's sales pitch for Hong Kong Disneyland rested on estimated economic benefits amounting to HK$148 billion over 40 years. But, not only did the theme park miss its first-year visitor projection, its attendance performance fell a further 23 per cent in its second year. Add that to the additional money from the public purse for the approved expansion, and the "HK$148 billion sales pitch" looks more like a fairy tale today.

And what about our all-time favourite, Cyberport? Once considered "essential for Hong Kong's future and any role Hong Kong will play in IT and information services", this project was supposed to bring in at least HK$12 billion from online trading and another HK$9 billion in tourism. Apart from a cinema, restaurants, bridal boutiques and outlet shops, Cyberport's projected "significant positive impact on Hong Kong's long-term competitiveness" and equally "significant" economic benefits seem laughable today.

Cyberport has become a sad landmark that symbolises all of the government's bad judgment calls, and is the very reason why, when the government talks about reaping economic benefits, its figures fail to have any impact or resonate with the rest of the community. The fact that the narrative of opponents has gained more traction within the community reveals the government's growing disconnect with the public. Its failure to recognise the legitimate grievances of stakeholders has fuelled what the "Post 50s" group's advertisement called the "political show" that has been dominating headlines.

For the 150 families being forced to make way for the railway, they are having to give up not only their homes, but also their way of life. The railway will also run under Tai Kok Tsui residents' homes, leaving them worried about possible adverse effects. The government has failed to resolve these real-life issues; it has failed at politics.

Politics, by definition, refers to the methods and tactics used in formulating and applying policy. The government's job is to protect its citizens' property. Running high-speed trains underneath and across people's homes does not exactly fit that job description.

Officials' inability to placate residents of Tsoi Yuen village with compensation packages is a demonstration of failed politics - of a failure to communicate and persuade people that the government is working for, not against, them. Money is not a show of sincerity; neither is making the Heung Yee Kuk do the dirty work. Rolling up your sleeves to engage affected residents, hearing their concerns, and working together in finding a mutually acceptable alternative, is.

Not only was the government unable to communicate the benefits of the railway, it seemed incapable of understanding how the country's high-speed transport link works. It was stumped when legislators questioned why the Guangzhou station is located on the outskirts of the city, in Shibi. It is no wonder that a University of Hong Kong survey found that the number opposed to the project has tripled and, more disturbingly, nearly 60 per cent said they had little knowledge of the project. The government seems to know little about it, either.

Had the administration done its job of informing the public about the project's details, and worked closely with stakeholders to find solutions, the legislative process would not have been politicised and funding would have been approved long ago.

The government has failed to bulldoze the project onto the residents of Tsoi Yuen village and Tai Kok Tsui, and it is now bulldozing it onto the legislature.

When transport secretary Eva Cheng, in her attempt to urge lawmakers to support the railway this week, warned of a daily cost of HK$5 million for any further delays, she sounded like the boy who cried wolf. The fact is that the community has become desensitised to the government's optimistic figures - past and present - and many have grown sceptical of anything officials claim is for the city's "best interest".

This is the crux of the rail link's controversy, the cause of its delay and the price the government must pay for sales pitches gone haywire.

And this is exactly one of the "deep-rooted conflicts" that Premier Wen Jiabao asked our chief executive to get a handle on.

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The new guard
China's next generation of leaders will be hungry for change, not all of it reassuring

John Lee
Jan 11, 2010           
     
      

  



The appointment of five provincial-level Communist Party chiefs last month is a reminder that the ascension of China's next generation of leaders, who will take power in 2012, may be the most significant development in Chinese politics since Deng Xiaoping's reign begin in 1978. The upcoming generation of leaders will be the first with little or no personal memory of the turmoil and hardship endured during the Mao Zedong years. Forgetting such history might doom China to repeat the mistakes of the past; but, for better or worse, it might also ease constraints and set its leaders free.

All five appointees were born after the founding of the People's Republic in 1949. Two of them, Hu Chunhua and Sun Zhengcai , are only 46 years old. This is in line with the party's recently announced policy that the next generation of leaders should have an average age of around 55 years, with up to four top positions filled by leaders not yet in their fifties. The party's aim is to remain energetic and dynamic as China rises.

This seems a wise decision. Chinese leadership over the past decade and a half has been about fine-tuning and maintaining the momentum of Deng's state-led development model, launched after the Tiananmen protests of 1989. In this respect, China's third and fourth generation of leaders, under the technocrats Jiang Zemin and Hu Jintao , have been competent but unimaginative.

But the viability of Deng's model is nearing its end, and China is now addicted to inefficient state-led fixed investment and unsustainable export-led growth, rather than domestic consumption, to generate jobs and growth. Progress on further structural reforms - such as currency and capital-account liberalisation, and weaning state-controlled industries off state capital - has been slow, and initiatives have been piecemeal rather than comprehensive.

Likewise, since the mid-1990s, China's foreign policy has been cautious rather than bold. Both Jiang and Hu have faithfully followed Deng's dictum to "hide capacity and nourish obscurity". Although increasingly assertive in Africa and Latin America, China largely remains a free rider under the American security umbrella.

The older generations see such caution as prudence, and that conservatism is reflected in the current leaders. The lack of big-picture reform attests to the older generations' collective fear that fundamental structural changes will bring disruption and chaos, threatening the party's hold on power. They still remember the suffering of the Mao years, when China headed in the wrong direction - and tried to do too much, too quickly - and they vividly recall how the Tiananmen protests brought the regime to its knees, and how urban labour unrest erupted when centrally managed state businesses were merged or closed in the 1990s.

Similarly, though China remains fundamentally dissatisfied with its southern land borders and its sea borders to the east and southeast, its current leaders fear that isolation would result from an assertive and aggressive foreign policy. All elites - young and old - see China as Asia's natural leader and America as a recent interloper. But, for the third and fourth generation leaders, giving the US and its allies and partners an excuse to "contain" China - and restrict its economic development - remains the great nightmare.

Without personal experience of China's recent traumatic history, the next generation will be more confident and assertive. Schooled in economics, politics and law, rather than engineering, they will seek to accelerate China's rise and transformation, viewing caution as paralysis. Even now, emerging leaders argue that China is moving too slowly on economic reform and foreign-policy goals. They will not be restrained by the same fear of unintended consequences when it comes to change and experimentation.

Optimists hope that this might hasten economic liberalisation, and perhaps even lead to moderate political reform, especially greater accountability for far-flung local officials. After all, it has been China's young guns who consistently raise the issue of local corruption at party summits.

But the foreign-policy consequences could be even greater. Having grown up in a China that is now accepted as a legitimate great power, the new generation of leaders will be more impatient about China resuming its place as the paramount power in Asia. While older statesmen take pride in how far China has come, younger party figures and elites - especially those who have returned from American and other Western graduate schools - are frustrated that China's strategic position in Asia and status within global and regional institutions remain relatively weak, despite the country's rising economic power.

For example, much of the talk that China should take the lead in regional institutions, and that Chinese ships should have a greater presence in vital sea lanes such as the Malacca Strait and even the Indian Ocean, comes from the younger generation. The younger party leaders are also more impatient when it comes to a timeframe for winning back Taiwan.

China is currently in a holding pattern. But that will end when the next generation of leaders assumes power in 2012. When their time comes, the world will be dealing with a much more unpredictable power than the one we know now.

John Lee is a foreign policy fellow at the Centre for Independent Studies in Sydney and a visiting fellow at the Hudson Institute in Washington, DC. He is the author of Will China Fail? Copyright: Project Syndicate



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Let's get engaged
A radical politics of values is on the rise - but will it be any better at breaking Hong Kong's impasse

Anthony Cheung
Jan 12, 2010           
     
      

  



The picture painted by the media is that the growing radicalisation of the pro-democracy movement, the scenes of confrontation during the protests on New Year's Day, and the escalating campaign against the high-speed rail project by young activists can all be linked as the rise of the so-called post-1980s generation.

Each generation produces its own idealists and people who want to do something - and the post-1980s generation is no exception. However, the media has played up and simplified the phenomenon; it is the politics of the media as much as the new style of the network-based social movement that is at work.

The lack of substantive democratic progress since 1997 has no doubt demoralised many people and caused some to take more drastic action. Thirty years of the pro-democracy movement in the form of rallies, protest marches, walkouts and even hunger strikes has led to political fatigue. Now that pan-democrats form a critical minority in the legislature, thanks to democratisation so far, they must "countersign" any reform deal in order to move forward. This requires a new brand of negotiation and compromise that they are not ready for.

Some, especially the younger activists, could well take part in new forms of agitation, "mass resignations" or direct action. But it still raises the question of how these new actions could effectively provide hope of a breakthrough, or whether they would ultimately lead to just another round of fatigue, feeding into total despair and escapism.

The conventional politics of the ballot box and of welfare are giving way, in the new millennium, to a new politics of values; green issues, public space and cultural actions have become new focal points in the social movement. It is not only government officials who have been caught by surprise, but also our politicians and political parties, who still operate in the mindset of the 1980s and 1990s.

The New Year's Day rally is the first time pro-democracy activists and supporters have thrown their frustrations and anger at the central government's liaison office, on the grounds that Beijing holds the veto on democratisation.

While this is correct, constitutionally, in the interests of "one country, two systems" it has long been held that matters of governance should be resolved locally, through lobbying and agitating against the Hong Kong government.

The "one country, two systems" framework is, of course, not static but embedded in a political-economic context that has changed tremendously since the 1980s, when China was an economic backwater looking up to the Hong Kong model.

The equation now is gradually being turned around as China rises to become an economic power and the mainland is seen as the key factor to drive and sustain Hong Kong's prosperity (SEHK: 0803, announcements, news) .

Still, maintaining a fine line between the Hong Kong government and the liaison office is crucial both strategically and symbolically. If Hong Kong people and mainland officials unduly play up the central government dimension, or the primacy of "one country", this will not only belittle the Hong Kong government's authority, it will also feed into a restraining interpretation of the "two systems" concept.

Hong Kong people are concerned about the crackdown on political dissidents and aspire for liberalisation on the mainland. However, they also realise that the tail does not wag the dog and that democratic progress here can only be achieved if there is a harmonious relationship and mutual accommodation between the mainland and Hong Kong, where neither side pushes its own logic to the extreme.

All along, mainstream democrats have preferred a talk-and-fight approach that emphasises dialogue.

Such an approach is now questioned as being too conservative and outdated by so-called new democrats, who ironically also lack an agenda that squares with the constitutional reality and can point to a concrete way forward.

The paradox of democratisation in Hong Kong has always been that Beijing is inherently sceptical of local democracy and its spillover effect. The adversarial stance taken by some pan-democrat politicians vis-a-vis the central government does not help to remove such fears, or to improve mutual trust.

Inasmuch as the pro-democracy camp needs to think innovatively, the national and Hong Kong governments also need to develop new thinking on Hong Kong's political future and forge a new form of political engagement.

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


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Feared, not revered


FRANK CHING

Jan 13, 2010           
     
      

  



In the 1930s, the book Red Star over China, by the American writer Edgar Snow, did much to win Western sympathy and support for the Chinese communist movement and its leader, Mao Zedong, at a time when the US backed the government of president Chiang Kai-shek.

Snow became a legendary figure in China. Last month, to mark the 60th anniversary of the People's Republic, he was proclaimed one of China's top 10 international friends.

During his last visit to China, Snow was given the honour of standing next to Mao on October 1, 1970, atop the Tiananmen rostrum to view National Day festivities. On Mao's other side was Snow's wife, Lois Wheeler. When Snow became critically ill in 1972, the Chinese government sent doctors to care for him in Geneva.

Last Friday, The New York Times published a letter to the editor from Switzerland under the headline "Stifling dissent in China".

It said: "Sentencing Liu Xiaobo, a signer of Charter 08, to 11 more years in prison under the trumped-up charges of 'inciting subversion of state power' ... is another black mark for China ... Chinese leaders remain oblivious to the internationally recognised principle of responsible leadership chosen freely by a country's people and continue to ignore the basic right to freedom of expression through open discussion."

The letter was signed Lois Wheeler Snow, who is now 88.

China's decision to silence Liu, who took part in the drafting of Charter 08, a document that advocates human rights and democratic government, is proving costly in terms of the country's moral standing at a time when it is basking in international admiration of its economic success.

The condemnation by the widow of a man so widely admired in China would no doubt cause some Chinese to question the policies of their government. But its unlikely that the Communist Party would allow her views to become known.

On Saturday, The Washington Post published in its commentary section a letter to President Hu Jintao written by Vaclav Havel, who was the last president of Czechoslovakia, from 1989 to 1992 after the fall of communism in eastern Europe, and then the first president of the Czech Republic, until 2003. In the 1970s, Havel, then a dissident, co-authored Charter 77, which chastised Prague for failing to implement human rights provisions of international documents it had signed. Havel went to the Chinese embassy in Prague to deliver the letter, also signed by two associates. However, Chinese officials refused to open the door.

The letter to Hu said the trial in December was "the result of a political order for which you carry ultimate political responsibility" and said the "harsh sentence meted out to a respected, well-known and prominent citizen of your country merely for thinking and speaking critically about various political and social issues was chiefly meant as a stern warning to others not to follow his path".

Havel and the two other signatories, writer Pavel Landovsky and Vaclav Maly, Bishop of Prague, recalled that, in 1977, they had been "arrested by the police in our own country, then a one-party communist state, for 'committing' exactly the same 'crime'."

"There is nothing subversive to state security," the letter declared, "when intellectuals, artists, writers and academics exercise their core vocation: to think, rethink, ask questions, criticise, act creatively, and try to initiate open dialogue. On the contrary, the present and future well-being of a society is undermined when governments suppress intellectual debate." It called on the Chinese government "to secure a fair and genuinely open trial for Liu Xiaobo when the court hears his appeal".

The Chinese government, which refused to accept the letter in the first place, will no doubt turn a deaf ear to the plea. China seems to feel that it can safely disregard international opinion now that it has become one of the world's leading economic powers. But, it needs to learn that might does not make right.

And while its rise may cause it to be feared, it will not cause it to be liked.

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


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

A balance of payments
Britain's experience in setting a minimum wage offers valuable lessons for Hong Kong

George Cautherley
Jan 14, 2010           
     
      

  



The Provisional Minimum Wage Commission recently indicated that the British model is relevant to Hong Kong's deliberations on a minimum wage. Britain's Low Pay Commission, set up in 1998, adopted a prudent approach and Britain's initial minimum wage was set at 46 per cent of the median wage.

Citing experience from the Organisation for Economic Co-operation and Development, the Hong Kong business sector has pointed to 40 per cent of the local median wage, or about HK$5,000, as an appropriate benchmark for our minimum wage level.

Such views warrant an examination of the thoughts behind the Low Pay Commission's prudent approach, as well as a better understanding of Britain's initial minimum wage rate and the minimum-wage to median-wage ratio.

In its first report, the Low Pay Commission listed rising inequality, a substantial degree of in-work poverty and gross exploitation as its top concerns. It undertook to make a difference for low-pay workers and remove gross exploitation through the minimum wage.

At the time, Britain was also concerned about the impact of the minimum wage on the country's competitiveness. But the commission took the minimum wage and competitiveness to be complementary rather than in conflict. It considered competitiveness to be dependent on a range of factors, such as innovation and good management, rather than on labour costs alone. If firms competed simply on the basis of low pay, this could "lead to a damaging downward spiral of low wages and poor standards, which is detrimental to both businesses and workers", it said. Firms pursuing high productivity would also be unfairly undermined by competitors relying on low-wage employment.

Further, the commission was aware that, because of the social welfare system, some firms might be able to depress wages, knowing that the government would eventually provide supplements to keep workers above the breadline. The consequences would be taxpayers being called on to subsidise wage exploitation.

To the commission, therefore, the minimum wage - as well as being a labour policy - also had to be an economic policy, protecting reputable firms from being undercut by competitors relying on low pay, preventing taxpayer subsidisation of wage exploitation, and encouraging competitiveness based on product and workforce quality. Thus, the commission chose a prudent approach to allow time for industrial adjustments and to avoid putting too much risk on firms trying to upgrade their productivity and jobs. To make a difference for low-pay workers, the approach was "to find the balance between improving low pay and avoiding damage to efficient businesses and to employment opportunities".

The commission was also aware of the complexity involved in comparisons of minimum wage rates across countries. It considered the minimum-wage to median-wage ratio "an imperfect comparative measure as differences in earnings distributions mean that the same ratio may have a different effect on the labour market in different countries". This should serve as a caution against looking at a minimum wage level outside the context of a country's structure of income distribution.

For example, Hong Kong's UN Gini index - where a value of 0 represents absolute equality, and a value of 100 absolute inequality - was 43.4 in 2007-2008 while Britain's was 36. This means that Hong Kong's income distribution is significantly more unequal than Britain's. Thus, Britain's median wage is located at a higher level in its structure of income distribution. This in turn means that the median wage is closer, relatively, to the top wage, compared to the median wage in a place with unequal income distribution.

In fact, Britain's initial minimum wage level, in 1999, was in the top half when compared with that of 11 other European Union and OECD countries, in terms of purchasing power parity.

From another angle, Britain's minimum wage, in 2008, was about 23 per cent of the median earning of the top 10 per cent in the earnings distribution. If the suggested HK$5,000 minimum wage rate is similarly expressed as a proportion of the median earning of the top 10 per cent (about HK$45,000 in 2006), it is only about 11 per cent. In this light, isn't HK$5,000 too low?

Whether Britain's minimum wage level is relevant to Hong Kong, the Low Pay Commission's thoughts on minimum-wage issues should broaden local discourse. Exclusive emphasis on the negative impact of minimum wages, and mechanical interpretations of other countries' wage levels, are not conducive to helping Hong Kong find a balanced - albeit prudent - approach to this important issue.

George Cautherley is vice-chairman of the Hong Kong Democratic Foundation


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

Age of change for the fading generation still clinging to power


CHRISTINE LOH

Jan 15, 2010           
     
      

  



What is it about the self-titled post-1980s generation protesting against the express rail link? Their grandparents had a certain outlook that was a product of their own time and upbringing. The next generation, the protesters' parents, saw the world somewhat differently and, in turn, influenced the young people today about how they see the world and themselves. Each generation passes on a new set of "social genes" to the next. And, as each generation passes the zenith of its influence on society, there is a transition point where their children take up the mantle.

That midway point has been reached and influence is now passing to those born in the 1980s. This may present difficulties to their parents, as they see their influence usurped by a younger crowd with sharply different ideas and attitudes.

Let's look again at the grandparents' generation, now in their 70s and 80s, who lived through the second world war. Many were refugees from the mainland who had a hard struggle to give their families a better life. Stability was paramount; this provided the conditions to settle down.

The parents' generation, born in the 1950s, benefited from the grandparents' efforts. The parents rode the crest of Hong Kong's socio-economic rise in the 1970s. Many had the benefit of an education, and their entrepreneurialism helped them accumulate wealth. While stability was still important, opportunity made the real difference to one's ultimate achievements.

The 1980s was an unsettling period. The Sino-British negotiations over Hong Kong's future led to a decade and a half of angst. Making money was important because it provided choice and a sense of security. The post-1997 period influenced how the parents and their children born in the 1980s saw life in Hong Kong.

Both the parents and their children began to see what they considered to be institutional decay in government. Rightly or wrongly, family chitchat has been about the decline of competence in public affairs, creating a widespread sense that Hong Kong is on the decline, which is deeply frustrating.

The emergence of the 1980s generation in protests on numerous issues may be a turning point in the upheaval, when the values of the existing social and political order are questioned, and a new set of values is being shaped. Is a spark about to ignite a sense of malaise? Political trust has worn extremely thin. What will it take to make things implode? Compounding this is a widespread distrust of the rich, as seen from constant public complaints about "business-government collusion". The electoral system of functional constituencies does not help, as ordinary people see it as unfair, guaranteeing legislative seats to commercial interests.

If we lifted our heads to look beyond Hong Kong, we could see a confluence of financial, economic, geopolitical, demographic, cultural, social, religious and environmental stresses of unprecedented magnitude. There are also new developments on the horizon that offer a new paradigm - concerning knowledge, energy, biotechnology and artificial intelligence. Is the world on the verge of a shift that will define the next phase of the future?

The voices and actions of the 1980s generation may be the prelude to major change in Hong Kong. Commentators and radio talk-show hosts ask who they are and what they stand for. Those who are interviewed talk about the unfairness they see in society and how they feel a sense of civic duty to speak out.

Their emergence should be a message to the fading generation who occupy the seats of political and economic power that they need to communicate differently to a soon-to-be dominant generation. Patronising comments will only inflame tempers. Telling them to integrate with the mainstream is also useless.

The 1980s generation will deal with the coming uncertainties in the world possibly better than the current dominant generation. As much as those in power are loath to think about broad trends, it might actually help them to see to the horizon.

Christine Loh Kung-wai is chief executive of the think-tank Civic Exchange

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

Damage control
Beijing's stimulus package could have a troubled legacy if other economic issues are not resolved

Yu Yongding
Jan 18, 2010           
     
      

  



The mainland's Central Economic Work Meeting, comprising top government decision makers, recently chose to continue the expansionary fiscal and monetary policy launched in the last quarter of 2008. But it also called for greater emphasis on transforming China's development pattern and rebalancing its economic structure.

The move thus signalled the start - well ahead of other countries - of China's "exit" from crisis-driven economic policies. Indeed, Beijing should accelerate its change of course. While expansionary policies have succeeded in ensuring a  V-shaped recession, their medium- and long-term effects are worrisome.

First, the mainland's crisis management has made its growth pattern, marked by massive investment demand, even more problematic. Its investment rate is extremely high compared with other major economies and has been increasing steadily since 2001, creating first overheating and then overcapacity.

Until the global financial/economic crisis that began in 2008, however, strong export performance concealed the mainland's overcapacity problem, which, thanks to the stimulus package, is now set to become more serious. Indeed, its investment rate may have surpassed 50 per cent last year.

Second, the external imbalance may also worsen. Trade and exports accounted for 67 per cent and 37 per cent of gross domestic product, respectively, before the global crisis, but have since fallen significantly. And yet reliance on external demand remains fundamentally unchanged, even as the contribution of net exports to GDP growth has turned negative.

In fact, worsening overcapacity, together with all the many types of price distortions still in place, may push Chinese enterprises to boost production for export markets, like the United States, where protectionist tendencies are likely to intensify this year and beyond.

Third, the mainland's financial stability and fiscal position may deteriorate in the medium term. The government, well aware of the overcapacity problem, focused the stimulus package on investment in infrastructure, rather than new factories. But infrastructure is a long-term investment, revenues from which will be lower without accompanying investment in manufacturing capacity. An eight-lane highway must carry traffic to generate tolls.

Moreover, due to hasty and poorly supervised implementation, waste in infrastructure construction can be serious. With an investment rate of 50 per cent and a GDP growth rate of 8 per cent, the incremental capital to output ratio could be higher than six, compared to 4.1 in 1991-2003, implying not only low efficiency, but also the possibility of a significant increase in nonperforming loans.

Finally, monetary policy has been far too loose. Unlike the US, China did not suffer from a liquidity shortage and a credit crunch during the global financial crisis. Thus, low interest rates and non-market interference, rather than demand from enterprises, fuelled explosive credit growth in the first half of last year, surpassing the full-year target.

If commercial banks had been allowed to base lending decisions solely on economic considerations, credit and money supply would have grown more slowly, limiting the risk of rising bad-loan ratios, stalled enterprise reform, inflationary pressure and a resurgence of asset bubbles as excess liquidity enters equity and property markets.

Indeed, mainland housing prices have been skyrocketing in recent months. The government was too generous in helping revive property demand and, overwhelmed by fear of the negative impact of falling asset prices on economic growth, has been too cautious in dealing with bubbles when they have reappeared. With the housing sector accounting for 10 per cent of GDP and investment in property development accounting for 25 per cent of total fixed investment, any decision to rein in runaway housing prices will be difficult.

All in all, the negative impact of Beijing's crisis-management measures on China's long-term growth may be serious if the authorities fail to tackle the economy's structural problems head on.

But it is also worth noting that the government is well aware of the problems, and has begun to put structural adjustment back at the top of the policy agenda.

This year, for example, the government may try to boost domestic consumption by making income distribution more favourable to the household sector relative to the enterprise sector, and by providing more public goods to reduce households' precautionary savings.

Certainly, without a more equitable income distribution, official talk of creating a "harmonious society" sounds empty. Furthermore, the government should continue to eliminate price distortions by creating more flexible mechanisms, including for the exchange rate.

The government's goal should be to succeed not only in reviving the economy, but also in reversing the deterioration of China's structural problems, thereby laying a solid foundation for economic growth in the future. In this respect, the Chinese have good reason to be optimistic, for their country has defied predictions of economic demise repeatedly over the past three decades.

Yu Yongding is a former member of the monetary policy committee of the Peoples' Bank of China, a former director of the Chinese Academy of Sciences Institute of World Economics and Politics, and president of the China Society of World Economics


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

It's enough to drive you onto the streets


PETER KAMMERER

Jan 19, 2010           
     
      

  



Radicalism is not in my blood. I come from a conservative family in a conservative town in a conservative country. The city and society I now live in is even more traditional. Matters that disturb me will elicit some heated whingeing and whining, sometimes in print, but that is where my protests end.

Hong Kong, for all its soberness, is changing me. The government is to blame. Inaction on fundamental problems, deceiving and blatant lying by its unelected officials are driving me to distraction. For the first time since my university days, I am giving serious consideration to grabbing a placard and taking to the streets.

This city has been my home for more than 21 years. My inability to read Chinese, and speak and understand more than essential words of Cantonese, make me an outsider.

But what I do know and comprehend about my environs mean that I am somewhere between one-third and one-half a Hongkonger. This may not seem a lot for so much experience, but it is enough to have given me a passion for Hong Kong and its people.

We should all be given a fair deal, no matter what our backgrounds or circumstances. Every citizen deserves a decent standard of living and a reasonable wage. The air that we breathe should be clean and the food we eat safe. These are basics and minimums; a government that does not provide these is ignoring its duties.

Our government and its bloated civil service are clearly not meeting expectations. If they were, rents would not be so unreasonably high. Supermarket chains would not be blatantly ripping off customers. The environment would be given a priority.

A high-speed rail line linking Hong Kong to the mainland's network would not be bringing hundreds of young people out to demonstrate.

Those very protests on Saturday afternoon and evening are what has me on the edge of decision-making. The fact that so many people in their 20s and 30s were willing to give up their Saturday night in the name of politics was a clear indication - if ever one was needed - that all in this city is far from rosy.

Democracies have long struggled to get young people interested in government. Of all the age groups, those below 30 are the least likely to vote.

The global student activism of the 1960s is long gone; the anti-establishment mass rallies I participated in, in Australia in the early 1980s, were the dying gasps of that era. Under-30s the world over are now interested in little more than attaining qualifications, enjoying life and winning points playing the online game World of Warcraft.

The under-30s of Hong Kong are outwardly no different. What sets them apart, though, is the spirit of the student-led protests at Tiananmen Square in 1989. If there is to be change in China, it will be driven by the young: the people who have most to gain. The same holds true for this city - which is why university students and others of the so-called post-1980s generation have taken up the baton of discontent.

Hong Kong has most of the trappings of a democracy. The parts it lacks has led to a government that sees itself as above the people it serves.

The 500,000-strong march against the Article 23 anti-subversion law on July 1, 2003, taught authorities they had to show more respect. They are confused as to what to do, though; fortunately, the post-1980s crowd is showing the way ahead.

My journalism teachers drummed into me the need to be impartial and unbiased. They told me that I should not take part in demonstrations - that, when it came to my work, keeping my views to myself made it easier to talk to people on all sides of a dispute.

Beyond columns such as this one, and discussion with family and friends, I have honoured the advice. I now feel, though, that I need to change my ways.

My throat is regularly sore from roadside pollution. Cartels ensure that my shopping bills are increasing. My rent is about to rise 15 per cent based on a property bubble I believe has been concocted by the real estate sector. Decisions like the one last week to appoint a government crony to head the Equal Opportunities Commission make me angry.

It won't take much to get me airing my discontent on the streets.

Peter Kammerer is a senior writer at the Post

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

Reverse psychology


FRANK CHING

Jan 20, 2010           
     
      

  



With some pan-democratic legislators due to announce their resignation next week to trigger a "de facto referendum" on democracy, the central government has plunged into the controversy in a ham-fisted fashion. It has accused those behind the plan of mounting a "blatant challenge" to the Basic Law and Beijing's authority.

A statement by the State Council's Hong Kong and Macau Affairs Office contained what appeared to be a veiled threat that the plan by the League of Social Democrats and the Civic Party might derail universal suffrage elections scheduled for 2017. The "so-called referendum" would "damage hard-earned achievements", Beijing said.

But its expression of "grave concern" is likely to be counterproductive. If Beijing had not intervened, the by-elections may not have stirred much interest and the voter turnout would probably have been low. However, by drawing attention to the elections, the central government is unwittingly increasing interest, as well as voter turnout, thus helping the planners to claim that it was a legitimate referendum.

Chief Executive Donald Tsang Yam-kuen told the Legislative Council last Thursday that there were no legal grounds for the "so-called referendum" since the Basic Law does not provide for one, and the government would not recognise the result.

That is as definitive as it gets; there was no need for Beijing to intervene. Its statements simply make the Hong Kong administration look like a puppet government.

It is unclear what Beijing intends to achieve by issuing the statement. Certainly, the pan-democratic lawmakers who have decided to quit are not going to change their minds.

But, by calling the move "fundamentally against" the Basic Law and the 2007 decision by the National People's Congress Standing Committee to allow universal suffrage in 2017, Beijing seems to want to somehow prevent the "referendum" from going ahead.

By law, legislators have the right to resign and, by law, the government has to hold by-elections to fill the vacancies created. Beijing cannot order the legislators not to resign. And, if it orders the Tsang administration not to hold by-elections to fill those seats, it will stupidly precipitate a constitutional crisis in Hong Kong.

As it is, left to their own devices, the pan-democrats are likely to lose one or more of the five seats that they plan to vacate. This is a highly risky procedure and it is no wonder the Democratic Party decided not to take part. If - as is likely - the pan-democrats do lose seats, it will be very hard for them to claim a victory.

Since this is not really a referendum, the entire exercise hangs on the turnout and on whether the pan-democrats can hang onto their seats. Many countries require the turnout for a referendum to be higher than an ordinary election so, if it is low, there can be no claim of victory. Even if the turnout is high in Hong Kong, the pan-democrats cannot claim victory if they emerge from the elections with fewer seats. The cards are therefore stacked against the pan-democrats in a game that they themselves devised.

Beijing's attitude is similar to Taipei's when it held a referendum in 2008. It said Taiwan, as part of China, had no right to conduct a referendum. Then, when the vote on whether Taiwan should apply to join the UN failed, Xinhua trumpeted that Taiwan voters had "vetoed [the] 'UN membership referendum' pursued by Chen Shui-bian authorities".

So the failure of the Taiwan referendum caused Beijing to bestow on it a degree of legitimacy. By issuing a statement on the Hong Kong "referendum", Beijing has painted itself into a corner.

However, if central government officials were to come out and say publicly that the 2017 universal suffrage election will be genuine, and that functional constituencies will be abolished by 2020, no doubt some of the legislators involved will have second thoughts about resigning, aborting the de facto referendum. That, however, is unlikely to happen.

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


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

Western delusions


ALEX LO

Jan 21, 2010           
     
      

  



There is no such thing as a pure motive. So those who applaud Google for taking a stance on freedom of information by turning off censorship software on its mainland search engine are being a tad naive. However, cynics who think the decision was solely driven by commercial disappointment with slowed-down profits and an eroding market share are also being overly simplistic.

The clash between Google and Beijing is not just about a single company, despite the internet giant's global significance. It has much more to do with Western delusions about making money in China while democratising it with technology and globalisation, and the ability of Beijing to thwart such attempts.

Commercially, many of the great American internet brands have done poorly on the mainland by losing out to domestic rivals. eBay has been outfoxed by Taobao. Yahoo is now virtually irrelevant, and more and more people on the mainland are switching to Baidu for internet searches rather than using Google. Tencent (SEHK: 0700), Sina and Alibaba (SEHK: 1688, announcements, news) have all become authentic great China brands on the internet.

Westerners can rhapsodise about "one billion consumers" but, at least when it comes to the internet, more are turning to local service providers. Not only do mainland internet companies follow directives from Beijing without a fuss, they have learned to anticipate them. Beijing looks favourably on such developments and loves to see more of them, not only in e-commerce but also in other commercial sectors.

In fact, China may be reversing the patterns about infant industry protection usually observed in many developing economies. No successful Chinese internet brands have been national champions. But, their successes may have encouraged the recent introduction of national policies to promote technology and innovation and to create national champions. Let foreigners cry foul about no level playing fields!

This is not to say that foreign or American companies can't make a lot of money. For example, Procter & Gamble has been in China since the 1980s, long before the coining of the acronym Bric, for Brazil, Russia, India and China, or the phrase "emerging market". But selling soap is a lot less political than offering information searches. The internet is a highly politicised business - it is at the heart of the Anglo-American ideology of globalisation and democratisation.

The West's engagement with China has always been premised on the assumption that free trade and globalisation will open up China. But is this really a genuine belief, or merely an ideological cover? It helps to ease Western conscience and provides a cover for companies doing business on the mainland. How many Western companies really worry about whether what they do will bring democracy to China as long as their bottom line satisfies investors? Can these companies and Washington really care more about the welfare of Chinese people than Beijing?

That depends on whether you believe the central government is, without qualification, completely repressive and that Chinese people are, on the whole, repressed. But survey after survey have shown that many Chinese feel happy and are optimistic about their future, and that they confer a degree of legitimacy on Beijing. So, to sustain the Western narrative, they must be brainwashed or misinformed. Surely it can't be that most Chinese know where their self-interest lies? When more Chinese learn about the US and the West, thanks to services like Google's, many turn out to be not so enamoured by them. So they are now being portrayed as rabid nationalists in Western media.

Beijing's brilliant success has been to turn the Western premise of economic engagement, free trade and globalisation on its head. In doing so, it has made the nation richer, and enhanced its domestic legitimacy and overseas influence. In fact, it has been too successful. It has done so at the expense of the profitability - and often intellectual property - of many foreign companies and the influence of their governments, especially the US. Now, it's time for the backlash from the West, and Google is leading the way.

Alex Lo is a senior writer at the Post. alex.lo@scmp.com


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

When the only choice left is to walk away


Esther Dyson
Jan 22, 2010           
     
      

  



Usually, disclosure statements go at the end of an article, but let me start with mine. I sit on the board of Yandex, a Russian search company with a roughly 60 per cent market share in Russia, compared with Google's 20 per cent. I am also an investor in, and adviser to, AnchorFree, the company that offers Hotspot Shield, a publicly accessible virtual private network that allows users to keep their browsing private, whether they are concerned about thieves stealing their banking details or about governments monitoring where they surf. We have about 1 million users monthly in China (out of 7 million worldwide).
And I sit on the board of 23andMe, a company co-founded by the wife of Sergey Brin, the co-founder of Google. So I have a variety of interests in the topic of Google's recent moves in China.

In the beginning, I supported Google's presence in China. My fundamental belief is that every time a user gets information, it reinforces a little part of the brain that says: "It's good to know things. It's my right to have information, whether it's about train schedules, movie stars or the activities of the politicians who make decisions that affect my life."

If you can ask questions about some things but not about others, eventually you start to wonder about that fact itself. Google's (and my) hopes that it could help liberate China look a little naive now.

Of course, censorship is not a big secret in China. So why has Google made a fuss? The answer probably stems from a combination of - or rather a changing calculus around - business interests and values. The censorship issue has long grated at Google, but the company could argue that transparency about censorship was better than not serving China at all.

The censorship, however, has been getting worse. And while China represents a huge market in the future, it has not been an especially lucrative market for Google. China probably appeals less to investors than it did a few years ago because of constraints on the ability of any foreign entity to make serious long-term profits.

This growing disillusion was already present when a wave of cyber-attacks on Google (and other companies) forced the company to reassess its entire China strategy. There are certainly other ways Google could have handled the issue - for example, by capitulating to Beijing's various requests. That would certainly not have comported with Google's public values - and it would probably have been a bad business decision, as well.

When you go into a situation like this, you always have one option left - to walk away. If you cannot do that, you have no negotiating power. But if you do have that option, you must be ready to exercise it.

That is what Google has done in China - where its move is irrevocable.

So while Google is unlikely to re-enter China for the foreseeable future, the company has improved its negotiating position in whatever other disputes it might have in the future.

What can Google do now? AnchorFree wants Google to support Hotspot Shield in some form or other, although Google's exit from China might be support enough. Hotspot Shield is one of the best ways of "scaling the wall" to peer outside the locked-down Chinese internet and use sites such as Twitter, Facebook and Google.com (as opposed to Google.cn).

Like Google in the past, AnchorFree may operate more effectively by being discreet, without loud support from Google or other "foreign interests". Its website is often blocked in countries such as China, but there are other ways to get the software. Google, too, may be blocked, but there are ways to get to it for determined users.

In the end, China knows it can't make the internet airtight. Someone in the central government probably has regrets.

It's tempting to predict how this will end. But I think it won't end. As within Google, so within China: decisions are made, but not everyone agrees with them. There's a conflict between business interests and moral values. The tug of war will continue for the foreseeable future. But in this little battle of a long war, transparency has won a victory.

Esther Dyson, chairman of EDventure Holdings, is an active investor in a variety of start-ups around the world. Copyright: Project Syndicate


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

Chipping away
Beijing has the advantage now in the Google row, but greater freedoms will come to China in the end

Jeffrey Garten
Jan 25, 2010           
     
      

  



Google's threat to withdraw from China is not the opening salvo in a battle between the future and the past. Rather, it is a battle between two equally plausible visions of the future with initial advantage on the side of China. Granted, that's not how most people in the West see it.

The gigantic internet search engine company is, after all, the epitome of technological innovation and communication across borders that can only benefit billions around the world. In attacking Google, China, on the other hand, comes across to many Americans and Europeans as King Canute, trying to hold back the tides of progress.

From Beijing, things look much different. To officials, the future may be about continuing to lift hundreds of millions of people out of poverty, facilitating the rise of a rapidly growing middle class and providing a major boost to world trade. In their eyes, an uncontrolled internet may seem like a threat to national stability. Chinese officials no doubt look at the way America's financial system imploded, its deteriorating physical infrastructure, and its problem-plagued system of secondary education, and conclude that the West no longer has the standing to define where civilisation ought to be heading.

Google and China share certain characteristics, too. It was only in this past decade that Google burst on to the world scene with its gigantic initial public offering and China made its most far-reaching global commitments by joining the World Trade Organisation. Each is feared and even considered predatory - Google by many internet companies, China by certain segments of the US, European Union and countries in its backyard.

There is a strong case to be made that more globalisation, of the kind Google fosters, is inevitable. After all, for thousands of years, human beings have been in the process of connecting with one another across boundaries. That said, globalisation could be slowing down. The internationalisation of banking may experience some obstacles in the wake of the worldwide credit crisis. The recent fiasco in Copenhagen has set back prospects for serious cross-border co-operation on climate change. And global trade negotiations have been moribund for several years.

It has been an article of faith among most US leaders that economic engagement with China will slowly, but inexorably, bend its society towards Western values such as the rule of law and free expression. For almost three decades, the essence of that involvement has been penetration by international companies like Google. Multinationals have brought Western-style change in other parts of Asia - think about Japan, South Korea and Taiwan - so why not the Middle Kingdom?

Surely, so the reasoning also goes, all those Chinese employees of Western firms and all those Chinese students returning from US schools will exert a powerful Western influence. But, for centuries, the West has failed to make the kind of inroads it expected. The Middle Kingdom does incorporate foreign ideas, but in ways that suit its own needs, its own timing, and within the framework of its own culture and national priorities. What Yale historian Jonathan Spence wrote four decades ago about the efforts of Western advisers in China from 1625 to 1960 is still true: "China, which once surpassed the West, then almost succumbed, now offers to the world her own solutions."

The two visions of the future - openness, globalisation, Westernisation, on one hand, versus controls, nationalism, and far less Anglo-American influence, on the other - must be seen in the context of certain political realities that make China's perspective far more viable than most Westerners like to admit.

First, Washington's soaring debt and growing reliance on loans and investments from China, plus its need for Beijing's help on preventing nuclear proliferation in Iran and North Korea, ties its hands in providing high-profile support for one of its great companies, as it surely would have in the past. Many governments beholden to Beijing will probably hold their tongues: a number of them are cheering for Beijing.

Nor can Google expect very much support from other Western companies, almost none of which would risk their prospects in China's growing market.

Finally, compared to the 1980s and 1990s, the lustre and clout of Western multinationals have been vastly reduced, their reputations soiled by the Enrons and AIGs. Beyond that, emerging markets are producing their own corporate champions, which are providing ferocious competition to their developed-nation counterparts.

Hopefully, Google and China will find a way to settle amicably. For the foreseeable future, however, not only does Beijing hold all the cards, but it could actually reinforce its authority and enhance its standing among many countries of the world by humbling Google and warning all other multinationals against challenging its political power. Long term, which vision of the world will prevail? I'd say we'll end up with less openness and globalisation. Reason: in addition to China having the political winds in its sails, other issues such as concerns over privacy and the need to combat terrorist threats against critical cyber networks will slow the expansion of an open, unregulated internet.

Nevertheless, we will see more freedom than China is currently willing to allow. Ultimately, its tens of millions of tech-savvy inquisitive minds will have the ability and compulsion to scale any firewalls Chinese authorities erect. Many already do.

Jeffrey Garten is the Juan Trippe professor of international trade and finance at the Yale School of Management. He was formerly undersecretary of commerce for international trade in the first Clinton administration. Reprinted with permission from YaleGlobal Online. (http://yaleglobal.yale.edu)


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Marines pull out of Iraq, but will it be for the last time?


IRAQ
Associated Press in Washington
Jan 26, 2010           
     
      

  



It is easily lost in the hopefulness of the US marines' departure from Iraq - hailed in ceremonies as "the final chapter" - that this is not the first time they left in the expectation of never returning.
Will it be the last?

In September 2003 the marines completed a pull-out from Iraq, leaving to the army the task of winding down the war, only to be called back in March 2004 amid a fast-boil insurgency centred in the western province of Anbar. The war, of course, was far from over, but few foresaw the scope of killing and chaos to come.

This time it is different. The insurgency is diminished and while Iraq's political turmoil could upset the timetable for the withdrawal of tens of thousands of American forces this year, it is hard to imagine a circumstance in which US President Barack Obama would respond by sending back the marines.

That's not to say Anbar - cradle of the Sunni insurgency that brought the country to the brink of civil war in 2006 - is entirely peaceful or that the security gains will not unravel.

Major General Rick Tryon, the marine commander who handed over responsibility for Anbar at a ceremony on Saturday in Ramadi, the provincial capital, struck a cautionary note. "There continues to be a lingering element bent on creating havoc," Tryon said.

Marines are well acquainted with havoc. It accompanied them into Iraq and then, for a while, took cover in an illusion of peacefulness. By the time of the marines' hurried return in March 2004 havoc was back. The following month was the marines' second deadliest month of the war: 51 killed. The worst was November 2004 with 80 combat deaths, mainly in a battle to drive al-Qaeda from the city of Fallujah.

The war had started well for the marines. In March 2003 they linked up with the army to capture Baghdad, break the regime of Saddam Hussein and begin what initially looked like a transition from combat to nation building. In late April they moved to south-central Iraq, a predominantly Shiite area that gave the appearance of moving towards peace.

The top marine commander in Iraq at the time, Lieutenant General James Conway, noted in September 2003 as the last of his troops headed home that he had not lost a single soldier to hostile fire in the five months they had been operating in south-central cities such as Karbala, Najaf and Hillah.

"We went in with an attitude that the war was over," Conway said. His point: the focus was on helping the Iraqis get back on their feet and on training their police. Marines used force only when attacked.

He had a colourful way of illustrating the welcoming atmosphere in which his marines were operating. "Little kids run a quarter mile on a hot pavement with bare feet to wave."

Former marine Bing West, in his account of the war, The Strongest Tribe, writes that the south-central region was so hospitable in the summer of 2003 that the Karbala city council tried to elect a marine lieutenant colonel its mayor.

But in Anbar trouble was brewing - even as the top army commander in that area insisted he had found the key to success. Major General Chuck Swannack said on November 18, 2003, that he was aware of a need to win hearts and minds but his soldiers were going to hit and hit hard.

He said he was following the advice of a British general in the second world war: "Use a sledgehammer to crush a walnut."

And he had this to say about the state of affairs that autumn in Fallujah, the epicentre of an insurgency not yet fully understood by the Americans: "The good news is Fallujah has become quite quiet in recent days."

A little less than three months later, Swannack was accompanying General John Abizaid, the top US commander for the Middle East, to visit an Iraqi civil defence battalion headquarters in Fallujah when insurgents ambushed them, spraying gunfire but missing their mark.

Swannack's troops left in March, replaced by the marines with Conway once again in command. The insurgency grew more deadly.

Years of hard fighting followed, with the low point for the marines arguably coming in August 2006. Early that month in Fallujah, the top marine intelligence officer in Anbar, Colonel Pete Devlin, delivered a sobering message: al-Qaeda was gaining strength and prospects for winning the war, at least in Anbar, were dim.

In the weeks that followed, however, the so-called Anbar Awakening, led by tribal leaders fed up with al-Qaeda, took hold. Sunni tribes took security into their own hands, helping the Americans.

In April 2007, Conway said: "We have turned the corner."

He was proved correct and almost three years later his marines are finished with Iraq - or so they hope.


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Growing pains
Beijing should realise that Hong Kong's troubles are not so unusual for an advanced society

Anthony Cheung
Jan 27, 2010           
     
      

  



Hong Kong has never been easy to govern. First, the system of governance is inherited from the colonial days and is proving increasingly dysfunctional in the new political landscape. And, since reunification, there has been a growing distrust of the government, whose policy decisions are often suspected of favouring big business and doing Beijing's bidding.

Now comes a new social movement whose issues such as local identity and the politics of planning and the environment have displaced the old politics of welfare. Influenced by the global sustainability movement, and reinforced by many Hongkongers' worries about undue influence from the mainland, the rules of political engagement are being rewritten. When these three forces coalesce, the conditions are ripe for political implosion, as marked by the express rail-link saga.

Much can be said about how public consultation could have been done better on this and other issues. Deeply rooted structural problems - such as the lack of democratic progress, economic uncertainty and reduced social mobility - no doubt complicate matters. There are no simple solutions. Even mature democracies face demands for greater empowerment or rising discontent among the middle class.

Hong Kong faces even greater dilemmas. It is not an independent polity but has to negotiate its constitutional change with the central government. If not interpreted innovatively, the Basic Law could become a political straitjacket, as Singapore Minister Mentor Lee Kuan Yew remarked in 1998.

Hong Kong can't afford stagnation in economic growth or infrastructure development. Without expanding the economic pie, there is no way to create new opportunities for social mobility. Without integration with the mainland, our following generations will miss out on a "new horizon" of the 21st century that young people the world over hanker to explore and exploit.

Yet there is no small measure of scepticism about the distribution of economic fruits under a political system that many regard as unfair. The government either gets blamed for not acting, or for acting with doubtful intentions. People know the city's destiny cannot be separated from that of China as a whole, but they worry about losing its distinctiveness in the name of integration.

Policy debates are often clouded by larger political uneasiness and, once moral politics take over, the key question becomes: "Which side are you on?" The result is a society that fails to listen to itself and to the many views that give Hong Kong its sophistication and vibrancy.

Few major infrastructure projects in other big cities have escaped controversy - from the building of the Sydney Opera House in the 1960s to the continuing division over extending London's Heathrow Airport. Policy choices are seldom non-controversial, so policymakers must listen carefully. But, eventually, they must make the "best" choice in the circumstances.

Hong Kong needs not only democracy but also tolerance and the capacity to manage differences. As a political system, democracy works by finding compromises among conflicting interests and views, where there are not always absolute rights or wrongs. Whenever the government gets its arguments or arithmetic wrong, we don't want it to think it does not have to fully justify itself because it enjoys a guaranteed majority. Conversely, we do not want officials with a valid point of view to be ignored or discredited simply because they are part of the establishment.

Hong Kong's problems today are the ones that China's other cities will face tomorrow, when its better-educated and informed children grow up to be more independent-minded and critical, when tensions between economic growth and equity, between the new rich and newly poor, and between nation building and local identity become more acute as the country reaches a higher, but steady, stage of development.

Hong Kong should strive for more balanced development and responsive governance and national leaders should see Hong Kong's problems as normal for any advanced society, rather than as signs of a breakdown.

In this way Hong Kong can actually provide good lessons for Beijing on how to manage an emerging urbanised middle class who care about the values and quality of life as much as about material wealth and consumption.

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


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Wake up and face the reality of a city in turmoil


C.P. Ho
Jan 28, 2010           
     
      

  



The past few weeks have demonstrated the dire straits Hong Kong is in, with fierce criticism ranging from poor governance and big business cronyism to economic ills and a widening rich-poor divide.

There is nothing worse than forgetting reality. Yet, that is what often happens when people are faced with the hard facts of life; they migrate to never-never land.

Only a very few are able to keep things in perspective, and the majority does not want to "get real".

And so it is in Hong Kong. Now, more than ever, is the time for all good men and women to come to the aid of a beleaguered city endangered by battles of social, economic and political wills.

Of course, it takes courage, wisdom and determination to face up to the facts. But we also have to get real at this critical juncture.

This city has passed - with flying colours and worldwide acknowledgment - two tough tests in its passage to becoming part of China.

The first was the post-Tiananmen phase. Still a British colony in 1989, the government under governor David Wilson allowed, for the first time in the city's history, tens of thousands of people onto the streets to demonstrate against the June 4 killings. Protests and rallies have followed and, to this day, the annual candle-light vigil in Victoria Park is permitted and well-attended.

Wilson's decision was a radical departure from the British government's long-held stance that Hong Kong people did not like to be involved in anything vaguely political. His successor, Chris Patten, tried to hasten the pace of democracy and Hong Kong people, until quite recently, did not force it.

Indeed, Hong Kong people kept their cool and the city has now become one of the most democratic places in China - and, for the matter, in the world.

The second test came, of course, on July 1, 1997 - the handover. There was much apprehension, demonstrated in part by an exodus of people and capital to foreign shores. But the "one country, two systems" formula has worked, and the people and the money have returned.

Times change, however, and Hong Kong cannot afford a further disconnect between the government and the governed. The administration has got to be seen to care - and that doesn't only mean sending top officials to the scene of a disaster. It has to anticipate discontent and deal with it. To do that requires having its finger on the public pulse at all times.

Colloquially, the Legislative Council is known as the "garbage meeting", which says a lot about what the man in the street thinks of the standard of speeches there and the antics of some legislators.

Now, Hong Kong is facing its third test - and the people must be ready. Five legislators from the Civic Party and the League of Social Democrats gave up their seats yesterday, and these will be contested in by-elections. In this way, they have created what the dissenting legislators consider to be a "referendum" on electoral reform in Hong Kong.

The reality is that Hong Kong is a special administrative region of China. It has its own mini-constitution, which is subject to interpretation by the National People's Congress Standing Committee.

The word "referendum" constitutes a direct challenge to the authority of the central government. It breaks no Hong Kong law but the SAR is not a sovereign state, so is not empowered to carry out a referendum unless sanctioned by Beijing.

Why is this third test so critical for Hong Kong's future? Because the central government puts stability above all else and sees any tampering with its stance on Hong Kong's political system as not conducive to constitutional progress, or to political and economic development.

What action it will take remains to be seen. But there is a sense of foreboding. And that is the reality.

C.P. Ho, a former news agency correspondent and television executive, writes occasional articles for newspapers and magazines


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Losers all round
A lack of common sense on all sides means no winners will emerge from the by-elections fiasco

Stephen Vines
Jan 29, 2010           
     
      

  



It is almost unknown for a political crisis to leave all those involved worse off than before it began. Generally what happens is that someone emerges as a winner, while others are relegated to loser status. But this is most unlikely to happen in Hong Kong as a result of the resignation of five legislators, the impasse over constitutional reform and growing civil discontent.

The League of Social Democrats and the Civic Party were motivated to launch the referendum strategy out of sheer exasperation with the snail's pace of constitutional reform. Their logic was to force a referendum by holding by-elections in all the geographical constituencies to give the public an opportunity to express their views on democracy. Because they acted in a state of exasperation, they failed to appreciate the insurmountable difficulties of creating a referendum in conditions where they had no control over the rules of the game and no hope that their opponents would passively go along with the plan.

This strategy has split the democratic camp and produced acute tensions within the Democratic Party, which decided not to support the referendum plan. It is therefore highly likely that the result will prove to be a setback for the democratic movement.

But, on the other side of the fence, the anti-democrats have acted with equal haste and stupidity. Instead of cleverly using the by-elections to increase their presence in the legislature, they have allowed the mask to drop from the pretence of favouring democratic reform, albeit at a pace dictated by Beijing.

They really want no reform and no opportunity for open debate, to the extent of walking out of the Legislative Council to prevent those resigning from making a statement. Some are trying to block funding for the elections while others have gone so far as to initiate legislation that would ban resigned legislators from ever re-entering the chamber; a ban that does not even extend to convicted criminals who have been readmitted on release from prison.

Moreover, the anti-democrats have laid bare to whom they are accountable. A couple of brisk phone calls from Chinese officials was all it took for the Liberal Party to abandon its categorical pledge to contest these by-elections. The infinitely smarter and better organised Democratic Alliance for the Betterment and Progress of Hong Kong is likely to follow suit, under pressure from Beijing, even though the party stood every chance of doing very well in the by-elections.

Instead, it is likely to demonstrate that, when it comes to a choice between putting its case to the people or taking orders from the mainland, it will tremble and obey.

It might be imagined that, in these circumstances, the Hong Kong government would be sitting back reaping the reward from the malaise among the political parties. Any bureaucrat who thinks this way is seriously deluded because what this whole farrago demonstrates is their growing irrelevance in the political process. Even their so-called allies go directly to Beijing without even pausing for a pit stop at the Central Government Offices.

The democrats, meanwhile, did not even bother to go there on January 1 for the pro-democracy mobilisation but went straight to the central government's liaison office.

While seemingly unaware of their impotence, officials have employed a worrying level of hysterical rhetoric in this matter, throwing around charges of revolution and threats to civil order, and thus placing a question mark over their judgment.

The net result of all this is to steer Hong Kong into uncharted waters, where both the government and the established political parties are weakened as a vacuum emerges.

It may be argued that this vacuum will simply be filled by the government in Beijing. If this is so, we can say goodbye to the concept of "one country, two systems".

Another possibility is that new political forces will emerge to fill the void; however, it is hardly axiomatic that something new will be something better.

Shrewd political operators know never to get into a situation where the way out is not evident.

The fact that this piece of common sense has been ignored in Hong Kong may have something to do with the immaturity of the political system.

Stephen Vines is a Hong Kong-based journalist and entrepreneur


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Dumb and dumber
Hong Kong politics is taking on a surreal air as a disaster unfolds before our eyes

Mike Rowse
Feb 01, 2010           
     
      

  



It's like one of those nightmares you have as a child, where you wake up sweating and calling out for Mum. Two trains are moving in slow motion towards a deadly collision. You know the result will be a disaster, but you feel powerless to prevent it. Coming from one direction we have the train carrying the woefully inadequate reform proposals from the government. By maintaining corporate voting and small-circle functional constituency elections, the consultation exercise began as a farce.

And, from the opposite direction, comes the train carrying the equally farcical idea of the League of Social Democrats and Civic Party coalition for a "referendum".

What gave rise to this nightmare and how can we prevent it from turning into reality? We should begin with the consultation paper published by the Constitutional and Mainland Affairs Bureau in November. We should be fair and note that it does propose improvements in several areas. One example is the increase in membership of the Electoral College which will choose the next chief executive, and providing that all of the additional members will be elected in a more democratic way.

But the most important issue that needed to be addressed has been ducked completely. Some time before 2020, the community needs to decide whether to scrap functional constituencies altogether or make very substantial changes in the way elections for them are held.

And, whatever the final decision, we need to make a start now by abolishing corporate voting immediately and setting a minimum number of human voters in each of the functional constituencies. This number could be increased for the 2016 elections. Then by 2018, when we need to bite the bullet for 2020, we would have a more representative legislature to reach a consensus and implement it. Failure to start now would mean some of the later steps would simply be too big.

It is inconceivable that, today, private companies could still be choosing some of our legislators and others could be chosen in small-circle elections. There is not a single good argument for corporate voting to be retained. The consultation paper says that scrapping the system would be "too complicated". Such a remark is an insult to the intelligence of Hong Kong people.

With the government having got off to such a poor start, the way was open for the pro-democracy camp to give the official side a thorough thrashing in public debate. But, just to prove it's always possible to snatch defeat from the jaws of victory, the league and Civic Party camp came up with the idea of demanding direct elections for both the chief executive and all Legislative Council seats in 2012, and the immediate abolition of functional constituencies. And, to force home the point, they are implementing their by-election-cum-referendum plan.

There are so many things wrong with this proposed package that it is difficult to know where to begin. For one, we already know that Hong Kong people favour democracy by a wide margin, so we don't need expensive by-elections to prove it. For another, Beijing - whose consent to the changes is required - has already ruled that 2017 and 2020 are the magic dates and, for 2012, the functional constituencies must stay. What possible use is it to run for re-election on a manifesto that is impossible to implement? And by no stretch of the imagination do the by-elections count as a referendum.

So far, so bad. But further developments have seen us edge towards the abyss. In a strange reprise of Dumb and Dumber, pro-Beijing spokesmen scored two own goals with one shot by coming out to say that resigning to stage a referendum was illegal, thereby giving a status to the by-elections that they do not deserve.

The Liberal Party came out first with the right idea - a boycott of the whole silly exercise. As this countermeasure began to gain traction, the coalition responded by saying it would, if necessary, put up two of its own candidates in each constituency to ensure there had to be a vote. How would they be able, ever again, to criticise proposed government expenditure if they engineered such a colossal waste of public funds?

The real danger in all this is that we risk a repeat of 2005. Then, the government and democratic camp got so close to a deal, but both backed off at the last minute. Another failure to make progress would be a disaster for Hong Kong.

Can anyone save us? Just possibly, but it is going to take statesmanship and common sense, two commodities in short supply up to now.

Since the Democratic Party itself has so far had the good sense to stay above the fray, it has retained the moral high ground. It can now set out clearly, behind the scenes initially and in public later, minimum improvements to the government proposals that it will accept in return for reluctant support of the package. And the government will have to be prepared to compromise.

Mike Rowse is a retired civil servant and an adjunct professor at the Chinese University of Hong Kong


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The people's will
Public sentiment can play a dangerous role in mainland justice

Jerome A. Cohen and Oliver Zhong
Feb 03, 2010           
     
      

  



Interaction among courts, the media and public opinion is complex in every free country. The internet magnifies the complexity. Even mainland China, despite strict government controls, cannot escape it, as last summer's famous Deng Yujiao case demonstrated. Months after she fatally stabbed a government official, and a trial that roiled the nation, this young cause celebre now lives an anonymous life far from home. Once seen by a wildly supportive public as a hapless folk heroine who resisted outrageous abuse, Deng now hopes to be forgotten.

Yet, for the mainland's legal reform, it is too soon to turn the page. Recently revealed details of the case illuminate how justice was meted out.

On the night of May 10, in a hotel massage parlour in Badong county, Hubei province, two officials scuffled with Deng, who worked there. She stabbed both men with a fruit knife, killing one.

The case initially seemed to be an ordinary local tragedy. Within days, however, it turned into a nationwide phenomenon, once internet reports suggested that the men had demanded "special services" from Deng, hit her face with wads of cash and pinned her down on a sofa. An area TV station broadcast incendiary video footage of Deng claiming to have been beaten. By the time Deng's publicity minded Beijing lawyer made teary-eyed public appeals for justice, most Chinese internet users seemed convinced she had acted in self-defence and should not be prosecuted.

Seeking to prevent this media-driven scandal from stimulating mass protests, the authorities cut off all road and water travel to Badong and scoured hotels in the area for out-of-town journalists. Top Hubei officials took over all public communications and, after official pressure, Deng's mother dismissed her bold, media-savvy lawyer. The case had become what the all-powerful Communist Party Central Political-Legal Committee later called a "pan-political incident".

Amid continuing popular outrage against Deng's abusers, any thought of treating the matter as intentional homicide had long since vanished. Yet the idea of a not-guilty verdict on the grounds of self-defence, in a case where an official had been killed, was apparently intolerable to party leaders, who found it difficult enough to persuade the deceased's family to withdraw its claim for damages against the defendant. Traditional sympathy for a woman protecting her virtue had to be vindicated, but killing of an official had to be condemned.

The party soon engineered a typical mainland judicial compromise. Deng was convicted for excessive self-defence constituting aggravated assault resulting in death. But the court spared her from any punishment, even a suspended sentence. It attributed its leniency to three mitigating factors. Deng had "voluntarily" surrendered, she had been provoked by the victims' misconduct, and she was suffering from psychiatrically verified mental illness.

The online community hailed the decision as a victory for "the people's will". Yet, late last month, in a detailed investigative report, Guangzhou's reformist Southern Metropolitan Daily raised serious questions about whether public opinion had been misled and allowed to distort handling of this case. Hadn't the victims only demanded a "bath", rather than sexual intercourse, and wasn't the "sofa" actually a seat too small for pinning Deng down? Weren't the alleged mitigating factors insufficient to justify her freedom? How could her use of deadly force go unpunished?

When asked about these doubts, a local judge reportedly confided that the decision was made at a very high level and the court was merely there to "read it out". Not surprisingly, this confirmed not only the lack of independence of mainland judges in non-routine cases but also the readiness of party leaders to base their instructions, at least in part, on their perception of public opinion.

Yet, in high-profile cases that reach the trial stage, these factors usually operate against the defendant. In the recent Akmal Shaikh drug-smuggling case and in the notorious Yang Jia cop-killer case, for example, popular demands for execution overwhelmed voices opposing official refusals to give obviously disturbed defendants the thorough psychiatric examination Deng received. In the infamous Liu Yong case, the Shenyang gang leader was sent to his death by popular demand even though his conviction was, importantly, based on a confession admittedly extracted through torture.

In Deng's case, by contrast, popular outcry forced the hand of a leadership obsessed with "stability" to free someone, illustrating that, as a social safety valve, the party must also respond to public pressures for leniency.

Ad hoc political responsiveness to mass demands for justice is a dangerous game, and surely inconsistent with the rule of law. In criminal cases, democratic countries - most recently Japan - reconcile popular views with the rule of law through juries and other forms of citizen participation in an independent judicial process.

In mainland courts, restrictions on both the long-standing use of "people's assessors" and recent efforts to consult informal "juries" inhibit popular trust in criminal justice. Moreover, manipulation of the media and internet, whether by the government or the defence, often makes it difficult even to identify the authentic will of the people.

Professor Jerome A. Cohen is co-director of NYU School of Law's US-Asia Law Institute and adjunct senior fellow for Asia at the Council on Foreign Relations. Oliver Zhong is research fellow of the institute.


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Canny Canucks


ALEX LO

Feb 04, 2010           
     
      

  



I am a cultural opportunist. China's ascendancy has made me a proud Chinese, if not a rabid nationalist, yet. Accounts of the nation's achievements turn my eyes watery. But, lately, I feel like a proud Canadian, too. (Disclosure: my family emigrated from here to Canada when I was in my teens.) Canada and Canadians rarely get the recognition they deserve. But they are getting it now. Volumes of ink have been spilled over how China emerged triumphant from the global financial meltdown. That was before the potentially detrimental consequences of its loose monetary and currency policies became apparent. Now even Beijing admits there are dangers ahead.

But lately, quiet, dull and unexciting Canada has been getting its dues. The fact that, of all the Group of Seven nations, Canada is the only economy that didn't have to bail out its financial sector is surely something worth pondering seriously. Surviving this perfect financial storm was no mean feat. Somehow my own investment portfolio mimics the differing fortunes of the US and Canada. My Citigroup shares were practically zero when I bid good riddance to them whereas my Canadian bank shares held up remarkably well. Why that was so was brought home to me in an excellent article over the weekend by the Financial Times' managing editor in the US, Chrystia Freeland, a fellow Canadian.

I bet Paul Krugman read it too because The New York Times columnist and Nobel Prize-winning economist covered essentially the same grounds as Freeland in his latest opinion article. But where they differ is this: Krugman thinks Canada succeeded not because of its culture but due to the way its financial institutions are set up; Freeland thinks culture determines the way Canadian institutions are built and operate. This is, of course, an old and endless chicken-or-egg-first dispute over the priority of institution and culture. But, as a Canadian, I am with Freeland.

The distinctly Canadian characteristics that go into determining its financial regulations and institutions have made them far more robust to shocks than the more flashy British-American systems. A culture of restraint and common sense, along with an absence of the pernicious ideology of free markets, deregulation and financial innovation, mean they have no qualms about government intervention and tough regulation.

Canadians value law and order, something enshrined in their constitution. That's why it was easy to push back pressure to deregulate when that was in vogue around the world. The whole Canadian system has been designed to take away the punch bowl before the party gets too out of control. Canadians value equality, fairness and social safety nets. Their society is poles apart from the winner-takes-all ethos characteristic of US business. Like the Japanese counterparts, they simply would not tolerate the kind of ludicrous pay and bonuses American bankers and chief executive officers give themselves.

Canadian banks are required to put up much higher capital reserves and much higher quality equities within those reserves. Excessive leverage is discouraged. A simple but effective and well-co-ordinated financial services regulatory system also trumps the piecemeal system in the US, which is deliberately set up to create gaping loopholes for financial services companies to exploit. Like Hong Kong, Canadian homebuyers have to put in a high down payment, ensuring a high equity-to-loan ratio. Interest-only mortgages are unheard of. Unlike Hong Kong, most Canadian mortgages are fixed rate, rather than variable. The low level of securitisation of mortgages ensures Canadian banks did not have the kind of exposure to debts-based derivatives that burned big holes in the balance sheets of so many US banks.

Canadians today are not mired in the torturous and acrimonious debates in the US and the European Union about how to reform their systems and rein in their arrogantly destructive bankers and financiers; or the increasingly heated disputes over China's undervalued yuan. From that perspective, you start to appreciate the hard-earned and well-deserved tranquility of the Great White North.

Alex Lo is a senior writer at the Post. alex.lo@scmp.com


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New silk roads to the Middle Kingdom


John Lee
Feb 05, 2010           
     
      

  



Towards the end of the second world war, the godfather of geopolitics, Nicholas Spykman, offered his famous analysis that was to become a rule of thumb for many strategists: who controls the "Rimland" rules Eurasia, and who rules Eurasia controls the destinies of the world. In this "Asian Century", Eurasia is dismissed as having lost its importance after the cold war. But China sees Central Asia in a new light and is hoping this could lead to a geopolitical reorganisation of "Asia" itself.

There are two proud itinerant traditions in Chinese history that did much to extend the reach of its civilisation, trade and the tributary system. The first is the seafaring one best exemplified by Admiral Zheng He leading the Ming dynasty's immense armada on seven epic voyages to Indonesia, India, Africa and even Arabia six centuries ago.

The second is China's large role in developing the land-based Old Silk Road that connected East, South and Central Asia with Europe, the Middle East and North Africa.

When we view modern China it is He's seafaring tradition that we warily respect and perhaps fear. China has the most ambitious and fastest growing submarine- and ship-building programme in the world. Its emphasis on extending its influence in East and Southeast Asia - especially through its maritime presence - is predictable. After all, its great strategic vulnerability is reliance on energy imports by sea.

But although geography is permanent, geostrategy is not. China is seeking to change the geostrategic parameters of the existing game for influence in Asia. For most geostrategists, Central Asia is mostly irrelevant because it lacks clout and is characterised by an apparent strategic emptiness. But this presents new opportunities for China to rebuild its own influence.

While attention is focused on the naval rivalry in East and Southeast Asia, China has been using a "new silk road' strategy that it hopes will reshape geostrategy in Asia. First, it is attempting to build a hub-and spoke system via the Shanghai Co-operation Organisation comprising Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Russia who are building strategic, economic and diplomatic ties with China rather than separate ones with each other.

Second, Old Silk Road routes offer China the prospect of growing relief from reliance on sea-based energy imports. For example, there are pipelines linking Kazakhstan to Chinese refineries. And gas pipelines stretch from Turkmenistan, Uzbekistan, Kazakhstan and Kyrgyzstan to China.

Third, if Central Asia experiences an economic renaissance via energy resources, Beijing has plans to be the future hub between Central Asian states and those in East and Southeast Asia.

There are inherent limitations to even the best-laid plans. Even so, it makes sense for China to broaden the geostrategic construction of "Asia" to include Central Asia. By creating a second, land-based centre of strategic importance, it is well placed to dilute the traditional geostrategic order based on control of the seas in Asia.

Dr John Lee is the Foreign Policy Fellow at the Centre for Independent Studies in Sydney and author of Will China Fail? Copyright: OpinionAsia


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World of opportunity
China's new status as the leader in exports reflects the virtues of global trade

Daniel Ikenson and Alec van Gelder
Feb 08, 2010           
     
      

  



To protectionists and Sinophobes, China overtaking Germany last year to become the world's largest exporter heralds a new, unwelcome global order. But, more than a reflection of China's growing economic might, it is testament to the erosion of economic, political, physical and technological barriers to production.

China's success is because of multilateral trade with the rest of the world, despite what the anti-China lobbies in Brussels, New Delhi and Washington argue. So, when US President Barack Obama and lawmakers complain about China, they forget that Chinese exports include American exports.

Beginning with widespread liberalisation of trade and investment rules after the second world war, barriers have been falling and incomes rising around the world.

China's opening to the West in 1978; the fall of the Berlin Wall in 1989 and of the Soviet Union two years later; the collapse of communism as a model for developing countries; the advent and proliferation of containerised shipping; GPS technology; just-in-time supply; and other marvels of the information, transport and communications revolutions have spawned a global division of labour and production that defies traditional analysis. This makes trade-flow accounting highly misleading.

Global economics is no longer a competition between "us and them", between "our" producers and "their" producers. Instead, because of cross-border investment and transnational production and supply chains, the factory has broken down its walls and now spans borders and oceans. Competition is often between international brands or production and supply chains that defy national identity.

So, what does all of this have to do with China's status as the world's biggest exporter? Like Hong Kong, which blazed the way for living off international trade, the vast majority of mainland Chinese exports are hugely dependent on imports from the rest of the world: iron ore from Australia; microchips from Taiwan, South Korea or Singapore; software from teams in Redmond (Washington State) and Bangalore; new designs from Cambridge (Massachusetts or England) and Toulouse; investments raised from consortiums based in New York City, Sao Paulo or Johannesburg.

China has become the world's largest exporter primarily because of the global division of labour that has helped reduce poverty and create wealth: China provides lower-value-added production. The components of Apple's iPods and iPhones are put together in China, but their designers in California are worth more to the company's bottom line. Denmark's Ecco has shoe factories across Asia, but their most valuable footwear is still designed and manufactured in Europe, where the quality is guaranteed and the workforce is highly trained - and higher paid.

China has not become a key figure in global trade by accident. It has capitalised on the new reality of global production and supply chains: since 1983, it has unilaterally removed barriers to trade, realising they were primarily harming China. True, China's trade policies remain far from perfect. But they have liberalised quickly and considerably, which helps explain China's prominent role in global production and supply.

Calculating who earns the biggest amount from exports remains a problem. Intermediate goods are shipped to mainland China from places such as Japan, Taiwan, Singapore, Australia and the US, snapped together (or perhaps a slightly higher value-added operation), then exported.

As those goods leave the ports of Shanghai, Tianjin or Guangdong for export, simple trade-accounting rules attribute the total value of those exports to China, even when the Chinese value embedded in those goods accounts for a small fraction.

That accounting method helps explain why China's exports have surged over the decades, as the division of labour evolved and manufacturing chains proliferated.

A recent study by economists at the University of California concludes that the Chinese value-added embedded in a 30 gigabyte Apple iPod accounts for only US$4 of the total US$150 cost, yet the entire US$150 is chalked up as a Chinese export.

Other studies estimate overall Chinese value-added in all products exported from China to average somewhere between 35 and 50 per cent, a big proportion but a lot less than gross export figures imply.

Indeed, "if China grows, this pushes the world's economy - and that's good for export-oriented Germany as well", Volker Treier, a German Chamber of Industry and Commerce economist, said recently.

As we consider China's new status as global export leader, it is important to understand what it means. This data speaks much more convincingly of the virtues of economic interdependence than of China's standalone export prowess: it presents opportunities for everyone to join the global economy.

Daniel Ikenson is associate director of the Cato Institute's Centre for Trade Policy Studies and author of No Longer Us vs. Them. Alec van Gelder is a project director at International Policy Network


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