CHINAwatch

China's quest for Democracy

The Chinese model of development, the so-called Beijing Consensus, has served at least China remarkably well. This appears to have prompted the leader “The Paradox of Prosperity” in The Economist (28 January, 2012), suggesting that “For China’s rise to continue, the country needs to move away from the model that has served it so well." Click here

Of course, China is already changing course. The significant change in emphasis in the new Five Year Plan (2011-15) shows clearly that all is not well with the current model of development. But the thrust of the Economist article is not economic. It aims at the perennial question of Democracy and China’s One Party system.

China in fact has several recognised "democratic parties" but these are very small and the Communsit Party of China (CPC)'s authority is enshrined in the Constitution.

A single party can have a very long life even in a democracy. Look at Singapore and Japan. The same Party in Singapore remains in power since independence. The Liberal Democratic Party of Japan enjoyed power for over half a century until 2009. The point is that any party, in any system, must enjoy the support of the people if its rule is to last. But if people’s support is sufficiently strong, the same one party can last a long time.

As Winston Churchill says, "Democracy is the worst form of government except for all those others that have been tried". However, let's not forget that it took centuries of “democratic” governments for slavery to be totally abolished and even longer to allow women the right to vote. Moreover, there are many "one-man, one-vote" countries where human rights and governance leave a lot to be desired. Do I need to mention Russia?

As exposed by the financial crisis and the Occupy Movement, leading Western democracies appear to be capable of being hijacked by 1% of the people to the detriment of the 99%. Moreover, the American confrontational party system is becoming more and more dysfunctional. The resulting social discontent cannot be entirely blamed on the economy.

China's society has vastly different cultural roots, based on collectivism rather than individuality, and the sanctity of the common good over personal liberty. Chinese ancient philosophy is imbued with the concept of the “Mandate of Heaven”, rooted in the Confucian idea of the state having to win the people over by improving their lives. By this token, some dynasties like the Tang Dynasty (618 -907 CE) presided over a centuries-long period of peace and prosperity. Others tended to face an untimely demise because the rulers failed to honour the Mandate.

Of course, times have changed, and we are in the 21st century. But the principle still holds true today of winning the Mandate of people's hearts and minds.

According to PEW, a Washington-based public opinion research organization, there is a growing percentage of people in China becoming more satisfied with the country’s direction for the period from 2007 to 2010. Indeed, the Chinese government’s popularity ratings have been remaining very high in recent years (over 80%) compared to Western democracies. Overall, by comparison, the Chinese people were found to be happier and more optimistic about their future. So talk of a Jasmine Revolution in China is thought to be at least premature. Click here

In fact China has not denounced democracy. Indeed, President Hu openly repeated the word “democracy” 61 times at the opening of the Party Congress in 2007. Neither is China saying that the country is already sufficiently democratic. Successive Party School directives emphasize the need for the CPC to continue to reform and re-invent itself as a ruling party in tune with the times.

However, China remains unconvinced that the Western model of democracy is the “End of History”. China will continue her quest for her own ideal model of government, looking at some of the more successful Western models and experiences, without wanting to copy any particular system.

But with an increasing level of local unrests, rising aspirations of a “generation W(eb)”, ecological constraints, and a more hostile external environment, the Chinese system will no doubt continue to be tested.

Best regards,

Andrew

China willing to help European bailout?

"China willing to aid bailout: EU Leaders" This is the heading of the eye-catching article in the ChinaDaily.com on 28 Janaury 2012. Click here

It is at least conceivable that rather than an act of philanthropy, China would view this as a once-in-a-lifetime opportunity to enhance the nation's international image, prestigue, geopolitical and geo-economic influence.

While China would welcome and indeed make it a condition that other nations need to join in the rescue, it is apparent that no other country has financial resources big enough to match. So China is likely to be at least the primus inter pares.

Second, China could expect an understanding, if not a clear quid pro quo, that she would now be recognized as a full market economy. In any case, this would only be a few years ahead of the original target of 2015 as understood on China's first entry into the WTO. It is in any case curious that Russia, but not China, has long been recognized as a full market economy.

Third, China could also expect Europe to sell more European high technolgy to China (if not yet to lift the 21-year old arms embargo). This would help redress the trade balance with Europe (except Germany which already has a positive trade balance with China).

Fourth, China could take the opportunity of increasing the nations's share and hence voting rights in the IMF possibly to attain a veto power on par with the EU as a bloc or the US by itself.

Fifth, part of the rescue could take the form of currency swaps with individual Member States in need, including an understanding that the RMB (Chinese yuan) will be recognized for bilateral trade settlements. Like what has already happened with a number of other countries, this would help further boost the on-going internationalization of the RMB (the Chinese yuan).

Sixth, the rescue could accelerate China's ongoing efforts to construct a China-Europe high-speed rail network (initially for freight) which is designed to connect 17 European countries to China's eastern seaboard, including a possible Beijing-London link). This is slated to be the largest infrastructual project in human history. Click here Even before its completion, this gigantic project will spur European economic revival and open doors to much closer economic, trade, investment, and cultural exchanges with Europe.

Perhaps, with constructive thinking outside the box, the current European Crisis is too good to waste both for Europe, China, and indeed, the rest of the world.

Best regards,

Andrew

How to bring the jobs back home?

With the Western world still mired in a financial, economic and employment morass, there is an increasing spread of an under-current of protectionism as a counterweight against globalization. Witness President Obama's mantra on outsourcing in his State of the Union Address or a suggestion for a Plan B calling for "local content" in manufactured goods as in a YaleGlobal article in a Part I series on globalization by Pierre-Noel Giraud dated 24 January, 2012. Click here

But as another YaleGlobal Part II article in the same series by Alain Renaudin dated 27 Janaury, 2012 Click here shows, what is at stake is not so much a country label – “Made in France” or “in the United States”. What is more important for consumers is the quality and value embedded in the goods, either in terms of superior design, technical performance (e.g. an Intel Core label on computers), quality-price ratio, or environmental or other values.

Sometimes, nationalism or national pride may also play a part in opposing globalization. For example, France rejected Pepsi Cola's equity stake offer as "France doesn't want Pepsi in our yogurt".

Globalization has many faults that need correction as Joseph Stiglitz, a Novel laureate, outlined in his seminal works "Globalization and Its Discontents" (2002) and his subsequent book "Making Globalization Work" (2006).

But globalization is a natural stage of world development. As in the case of borderless Web-connectivity, the world has become much more "distributed" and inter-dependent. There is no point in going back to the past.

Developing countries like China, India, Brazil, Indonesia and countries in Africa are all struggling to climb the industrialization ladder to better living standards for their teeming billions. Many would die for the kind of low-end jobs no longer viable in the West.

On the other hand, however, fast-developing economies like China are also upgrading their technologies, skills, and innovation, out-competing more and more jobs in Western countries.

That is why Obama’s State of the Union Address is also a clarion call to continue to upgrade the skill-sets of the American people through a better and more forward-looking public education system. Click here

Countries like China need to be constantly on their toes by upgrading the competitiveness of their peoples, if necessary, by allowing the youngest and brightest who can afford to pay to further their education in the best universities abroad.

Meanwhile, overall, the West is still miles ahead of developing countries in design, creativity, innovation, and technology, as can be seen from a league table of the world’s leading brands.

But these brands are not equated to “Made in X Country” labels. Look inside a Toyota or, as illustrated in the YaleGlobal Part II article above, an Airbus A380, and one would wonder how to define where the final product is made.

As Thomas Friedman has famously termed, “the world is flat”. At the same time, the world is not static but is constantly evolving, economically, financially, socially, culturally, geopolitically and ecologically. Survival, Adaptation and Transformation remain imperative now as they have been in the past millennia.

As Jared Diamond outlines in his book “Collapse - How Societies Choose to Fail or Survive” (2005), it is often a matter of Leadership and Choice. But turning the clock back is never an option.

Best regards,

Andrew

"Super Imperialism - The Economic Strategy of American Empire"

Michael Hudson’s controversial book, “Super Imperialism - The Economic Strategy of American Empire”, Pluto Press, New Edition March 2003, offers a no-holds-barred elucidation of a plausible American Grand Design to rule the world through calculated “Monetary Imperialism”. Click here

Hudson explains how, when America was the creditor to the world, the old European powers were bankrupted with mountains of American debt during and in between two world wars, from which America emerged with holding three-quarters of the world’s gold, as an unrivalled global exporter of goods and finance, and as the issuer of the world’s leading and indispensable reserve currency – the US dollar.

This dominance has been consolidated by an international economic and monetary order underpinned by US-centric Bretton Woods institutions - the International Monetary Fund (IMF) and the World Bank. Under the banner of a “Washington Consensus” model of development, they served to anchor the US dollar as a global currency and expanded markets and access to resources for American businesses. This gradually helped America to dismantle the Sterling Bloc and eventually displace the British Empire as the global hegemon.

After becoming a budget-deficit and debtor nation in the wake of the Korean War, America has turned what would be a weakness into a hegemonic strategy that seeks “to oblige other governments to finance the deficit by lending their surpluses to the US government, and in the process, to finance its domestic budget deficit, or to let the dollar depreciate and thus favour US exports” as well as dissipate the value of America’s external debt. What is sometimes called a “benign neglect” of payment deficits has been quietly transformed into a wilful policy.

This proactive “dollar-debtor standard” interacts with powerful banking elites and an ubiquitous “military-industrial complex’, creating the largest war machine the world has ever known. The rising influence of this complex was flagged up by President Eisenhower at his farewell address in 1961. Needless to say, after the collapse of the former Soviet Union, this war machine without peer has greatly empowered American hegemony.

What is more, the costs of this militarism are increasingly being financed by the inflow of foreign surplus capital into US Treasuries as a relatively secure haven for excess national liquidity. This helps to prop up the strength of the dollar and enables America to continue to spend by exercising the unique power of seigniorage in printing as much greenback as America pleases.

This underpinned former US Treasury Secretary John Connally’s famous remark in 1971 that "The dollar is our currency, but it’s your problem.”

That remark is also the title of an April, 2005 article for the Hoover Institution by Niall Ferguson. He reckoned that the Bush administration’s combination of tax cuts and a global war on terror was being financed with a multibillion-dollar overdraft facility at the People’s Bank of China (through China’s huge purchase of Treasury bills), a kind of Chinese ‘tribute’ to the ‘American Empire’. Click here

In April, 2009, Paul Krugman, New York Times Op-ed columnist and Novel Prize laureate, called this China’s ‘Dollar Trap’.

Under a “Structuralist Rationale”, some academics tried to justify this as part and parcel of a global “liberal capitalism” where the US government is merely acting as a trusted global banker attracting deposits from national savers across the globe. Credit is expanded and invested in ways that boost the strength of this global banking system.

As regards military hegemony, well, this is what is required to maintain a safe and stable international order, which is essential for global commerce and prosperity.

Regardless of recent defence budget cuts and growing concern with mounting US national debt, it seems that the above thinking is at least lurking if not very much alive in the minds of some US national planners.

However, since the two world wars, a great deal of water has passed under the bridge. The tide has now turned and the world is a very different place. While US leadership and the US dollar may still look unassailable, how long this position may last is increasingly debatable.

The following developments are instructive -

(a) Not only has the United States lost its position as the world’s largest creditor since the Korean War, it has now lost its position as the world’s largest exporter. While there are still a range of American goods and services that the world remains loyal to, the world is no longer captive to American exports.

(b) Instead of America, China is increasingly becoming the heart of a world production and supply chain where resources, components, technologies, skills, freight and finance may congregate from all corners of the earth.

(c) Unlike the years before the Second World War, Europe is now very much a unified market, if not yet a compete financial, let alone political union. It has now displaced the United States as China’s largest trading partner and in turn China has now become Europe’s largest trading partner ahead of the United States.

(d) There is also a trend of reducing dependence on trade with America amongst developing countries. Since 1990 the average annual growth rate of trade between developing countries grew twice the rate of growth of world trade. Developing-country trade with each other is now 39% of their total trade. See an article by Mari Pangestu, Indonesia’s Trade Minister “APEC and the new dynamics of world trade”, dated December 5th, 2010 on East Asia Forum, an online platform for Economics, Politics and Public Policy in East Asia and the Pacific. Click here

(e) The faith in the greenback as a long-term storage of value for national savers is beginning to frail. Why should surplus countries continue to put all their eggs in a greenback basket when they can now deploy more of their hard-earned cash to acquire assets and resources across the globe or in other global currencies less prone to devaluation through the printing press? Despite the Euro crisis, the euro or at least other European currencies including the Swiss franc, other international currencies like the Japanese yen , as well as emerging currencies like the Chinese yuan, may in due course offer asset classes with more attractive returns.

(f) Albeit remaining non-convertible on the capital account, the Chinese yuan (RMB) is being aggressively internationalized for bilateral trade settlements, the issuance of RMB-denominated bonds and other financial products, cross-border investments, including mergers and acquisitions, and foreign direct investments (FDI) in and outward direct investments (ODI) from China. It is now beginning to be bought, though still in relatively small quantities, by some central banks including Japan and Malaysia as part of their foreign currency reserves. The day when the Chinese yuan becomes at least one of a number of leading international currencies does not look very far away.

See my recent presentation "Securing renminbi via the private sector- Renminbi Internationalization: Opportunities and Policy Implications for Central Banks" at a seminar for central banking executives in Kuala Lumpur. click here

(g) As forewarned in the National Intelligence Council Report “Global Trends 2025 – A Transformed World”, dated 21 November 2008, Click here the United States will be able to continue to lead the world in the coming decades but its capacity to lead is declining. More reliance has to be placed on multilateral efforts and sharing of responsibilities as the world has become more interdependent and complex, with new asymmetric forces and new state and non-state actors. The time for a hegemonic mindset is past.

(g) As tried in various quarters, hard power is not always effective in resolving conflicts or threats, whether global or regional. Eleven aircraft carrier battle groups may be of no avail in stamping out global terrorism or arresting the spread of nuclear weapons. Indeed, hard power may well prove to be counter-productive.

The Era of Multilateralism has arrived. While the world in many ways is still looking up to America for  leadership, there is risk that such leadership could be compromised, rather than enhanced, by a zero-sum hegemonic mindset.

To attain global peace, stability, and prosperity, and to address the many economic, financial, security, and ecological challenges the world is facing, there is room for more shared leadership and responsibility with the world’s rising powers on the basis of equality, mutual benefit, and respect for diversity instead of a winner-takes-all end-game.

Best regards,

Andrew

Critical challenges facing a China in rapid transition

YaleGlobal Online runs a two-part series on China's Challenges.

PART I is an insightful summary by Thomas Fingar dated 16 January, 2012. Click here The following addional observations may be helpful -

(a) The imbalances of less developed regions, low-cost (and energy-intensive) production and inadequate domestic consumption are being vigorously redressed in the current transformational Five Year Plan (2011-15). Don't expect miracles and a smooth ride, but like the China story of the past three decades, do not dismiss too soon the ability of the Party to achieve surprising outcomes.

(b) The growing international competition from other fast-developing emerging economies is in a way welcome as this would accelerate the transformation outlined in (a) above.

(c) China's growing "demographic deficit" of an aging population profile is well-rehearsed . For now, there is still a huge pool of young workforce from the countryside. But the built-in demographics remains an albatross around China's neck. The One-Child Policy is already being modified for families of both single-child spouses. Trust the Party to press the button to abandon the Policy when the time comes.

(d) Politics- China is a paradox of both centralization and de-centralization, each having its advantages and problems. Provincial party secretaries and governors presiding over the development and livelihood of populations the size of many mid-sized countries wield unthinkable powers compared to a Western democracy. Yet they have all earned their spurs through the ranks as part of the system beholden to the Party leadership in Beijing who, in turn, emerges from an essentially competitive, and well-tried, meritocratic system, a system not far from an ancient Chinese adage, "Those most able (note, not necessarily those popularly elected) should lead".

The Party is now headed by more highly-educated and much younger leaders (often with foreign postgraduate degrees) with years of proven track records through jobs in the provinces and ministries, including many with international exposure. Those at the top know that the Party’s survival depends on its continued ability to reform and change with the times.

The Party is trying to move towards a model of governance for the people (though not yet of or by the people). The challenges remain in the nurture of a genuinely representative electoral system starting at the village level (covering the vast proportion of the population) and the development of a more impartial judiciary system.

So far with a vibrant economy, the Party has managed to deliver the goods and still enjoys a relatively high level (over 80%) of popularity ratings, according to a PEW opinion survey in 2010.

But serious problems are bubbling, including unbridled corruption, power abuse, environmental degradation, water and other resource constraints, growing inequalities, rising levels of discontent and aspirations of a more individualistic “Generation – W (Web)” in an age of spontaneous, internet-enabled citizenry actions across the globe. (The Rise of Generation W(eb)" Chapter 1 in "China Inside Out", Bill Dodson, John Wile & Sons (Asia) Pte Ltd, 2011)

On the economic front, China is set to grow on average at a more stainable pace of about 7% annually. China’s Academy of Social Science has recently put the growth rate at 9% for 2012. While it may be too early to predict a “ Coming Collapse of China”, as the redoubtable Gordon Chang again does, all bets will remain open on the likely outcome of China’s challenging trajectory during the next few decades.

PART II is an article dated 18 January 2012 by Borje Ljunggren, revolving around a recent tale-telling mass protest in Wukan Village. Click here

The Wukan event is in many ways another milestone in China's trajectory. Mass protests and unrests, as the article depicts, are not uncommon in China and are in fact rising. But this follows on an August mass protest in Dalian which resulted in a swift shutdown of a government-sanctioned chemical plant project. Click here

What is more, the incident in Wukan, a small village in the Donghan Township in Guangdong province, saw Wang Yang, provincial party secretary (above the rank of provincial governor) swiftly intervene. Wang is a rising star tipped to make it to the Party politburo (China's state cabinet). Not only did he openly acknowledge that the villagers' complaints were legitmate, he detained various senior village officials for disciplinary investigations and basically acceded to virtually all of the villagers' demands. He further legitimized the status of the well-organised citizenry body and later appointed its leader as the secretary of a preparatory committee to lead the re-election of a new village committee in place of the current one which is being accused of land grabs and corruption. Click here

"After a deal was reached, Prime Minister Wen Jiabao in Beijing declared: “We can no longer sacrifice farmers’ land ownership right to reduce urbanization and industrialization costs,” the YaleGlobal article reports.

While it is unlikely that Beijing would choose to weaken the Party's authority by repeating this surprising response too often, there is little doubt that the Wukan incident is regarded by the current leadership, and almost definitely by the next one, as the defining clarion call to improve the Party's governance, including the issue of politicaly powerful vested commercial interests.

The urgency is particularly acute at the local, especially the village level, where officials are less well-trained and where, as the Chinese adage goes, "The mountains are high and the emperor far away."

The need for reform and improvement has become even more pressing in response to the rising aspirations of an internet and more individualistic generation who are part and parcel of a much needed rising middle class to balance China's economy towards a more consumption-oriented model.

Best regards,

Andrew

www.andrewleunginternationalconsultants.com

Would war clouds over Iran precipitate WW3?

War drums seem to be beating for military action against Iran as international pressures are being stepped up to impose more draconian sanctions on Iran and two US aircraft carrier battle groups are being deployed to the Persian Gulf.

Any conflict in the Gulf may as the Iranians threaten, lead to a closure of the choke point of the Strait of Hormuz where 40% of world energy shipping and a far higher percentage of China’s energy supplies must pass.

It is no wonder that Premier Wen chose to pay a rare high-level 6-day visit (14-19 January) to the Middle East, the source of about 60% of China’s oil supplies,  during these sensitive times. The visit by a Chinese premier to Saudi Arabia was the first in 21 years while the visits to the UAE and Qatar were the first ever by a Chinese premier.

A raft of $16 billion-worth of agreements were signed covering trade, energy, infrastructure, finance and culture, including a $5.6 billion first-ever currency swap with the Arab countries in an on-going process to internationalize the Chinese yuan, a$8.5 billion deal with Saudi Aramco for a joint venture refinery to become operational in 2014, and an agreement  between Abu Dhabai National  Oil Company (Adnoc) and the China National Petroleum Corp to develop  upstream projects.

Also on the cards was an attempt to accelerate ongoing negotiations for a free trade agreement between China and the six-nation Gulf Cooperation Council (GCC), which was launched in July 2004.

Nevertheless, the Iranian question, and the security of passage for China’s critical oil supplies, was never far from the top of the agenda.

The Premier reaffirmed China’s opposition to Iran developing nuclear weapons and China’s willingness to work with concerned parties to establish a nuclear- free Middle East, saying that China will not trade its principles for profits.

However, he also took care to reiterate the position of many other countries, that legitimate trade with Iran should be protected rather than being used as a weapon which could jeopardize the normal international order. He emphasized that the issue of an Iranian nuclear threat should be resolved through diplomatic channels involving the Six-party diplomatic group made up of the United States, China, Russia, Britain, France and Germany.

Almost on cue, on 19 January, Iran declared that she is ready to resume the talks with the “Iran-six”, agreeing to use Turkey as an intermediary venue.

Notwithstanding increasing tension in the Gulf , fuelled by growing hardline Israeli pressure, a war-wary American electorate and indeed the US Military are unlikely to by enthusiastic about a war on Iran, however triggered, which may lead to uncontrollable escalations and consequences across and beyond the region, particularly in the wake of recent US defence budget cuts and restraints.

So it may be unnecessary to dismiss the kind of alarmism about a world war to be triggered over Iran as posted on The Daily Squib, a British satirical publication established in 1862. In a posting dated 17 November 2011, entitled “If you can’t hear the drums of war, you must be deaf”, a Machiavellian Henry Kissinger was portrayed as rubbing his hands in glee that by provoking Russia and China into a world war with the United States over Iran, after the dust (and blood) has settled, the United States with its peerless war machine would emerge to reign supreme over the entire world. Click here

First, the satire gave me much mirth at the thought that someone as astute as dear old Henry Kissinger would give such a nonsensical interview.

Second, with US and Russian aircraft carriers calling in the Gulf, those who may think the story is at least plausible may run the risk of under-rating the collective intelligence of China and Russia.

In case of a US-provoked War on Iran, it is by no means certain that Russia or China or both would fall into the trap of being sucked into a WW3.

A more probable outcome would be that consistent with their common approaches to conflict resolution, both countries would condemn the military intervention as illegal under UN rules and would rally support from the war-adverse international community.

At the same time, both countries would act as good guys in mediating the military conflict through diplomatic and other channels while watching the US dragging herself into a much worse fate than Iraq at a time when the US has become less able financially, economically, and politically to embark on a war that would lead to world Armageddon.

Instead of the satirical outcome of a new era of US world dominance, the more likely outcome would be that the United States would only hasten its decline of world leadership, economically, financially, and morally.

So, let’s hope that wiser heads will prevail over Iran.

Perhaps it may be relevant to recall whether the former USSR or Vietnam changed their regimes as a result of US military action.

It may also serve as food for thought to borrow the concluding reference to Thomas Jefferson in Christopher Treble’s book “The Power Problem – How American Military Dominance Makes Us Less Safe, Less Prosperous, and Less Free”, Cornell University Press, 2009.

The Founding Father “predicted that one day, in the not too distant future, Americans “may shake a rod over the heads of all, which may make the stoutest of them tremble. But I hope our wisdom will grow with our power, and teach us, that the less we use our power, the greater it will be.”

Best regards,

Andrew

www.andrewleunginternationalconsultants.com

"China turns predominantly urban" - Wall Street Journal

The above Wall Street Journal article of 18 January 2012 reported that China's urban dwellers account for 51.27% of China's entire population of nearly 1.35 billion—or a total of 690.8 million people, according to the National Bureau of Statistics (NBS). This is the first time in China's civilization that the country is more urban than rural. Click here

With a teeming population, China needs to find at least 10 million additional jobs a year to absorb the excess of labour. Urbanization is China's chosen path to improving standards of living for her masses and to grow a large-enough middle class for balancing the economy towards domestic consumption instead of over-reliance on exports. This way, the nation aims to quadruple its 2000 GDP by 2020 to achieve a moderately well-off society (say, comparable to Turkey in per capita terms).

Notwithstanding what China is achieving in the use of renewable energies, the challenge remains how China may realize her goal of embracing a low-carbon future.

According to the McKinsey Global Institute study "Preparing for China's Urban Billion" (February 2009), China will be adding 350 million more urbanites by 2025 in 221 new cities each with a population of more than a million, compared with only 35 such cities at present in the entire Europe. Click here

Studies have shown that urbanization would lend itself to greater resource efficiency with smart power grids, conveniently-accessed and connected economic and social neighbourhoods, energy-efficient public transport systems including high-speed rail, eco-friendly buildings and a low-carbon economy.

On the other hand, as many examples of urban sprawl around the world show, cities may become hotbeds of an alarming urban divide in income, space, opportunities, and basic livelihood of food, shelter, health and education.

See the latest UN Report "State of the World's Cities 2010/2011- Bridging the Urban Divide, Earthscan, UN Human Settlements Program, 2008" Click here

In an age of scarcity, as not only China but the whole world is becoming overwhelmingly urban, the race to build more intelligent cities is on. However, buildiing an intelligent city is not just a matter of better urban planning and design. A high-level policy strategy of economic, social, political, regional and ecological policies and effective action is a prerequsite. Click here

Ultimately, in an ecologically-connected global village, what faces not only fast-developing countries like China, India, Brazil, Mexico, Indonesia and Turkey but the rest of the globe is the sustainability of a world hurling towards possibly over 9 billion people by 2050, while more and more of them are trying to attain Western standards of living.

Tim Jackson's book "Prosperity Without Growth - Economics for a Finite Planet", Earthscan, London and Washington D.C., 2011 is a timely reminder that following the past millenium of an Industrial Civlization, we are now due for an Ecological Civilization, a term first advanced by Pan Yue, Vice Minster of China's Minstry for Environmental Protection in his essay "Socialist Ecological Civilization" on 27 October 2006.

The realities of a finite world are beginning to dawn on everyone in developed and developing countries alike that standards of livng do not necessarily equate to more or better consumption.

Changing perceptions and lifestyles are just around the corner where to be minimalist is to be chic and less is more, and where true knowledge and wisdom is to live with Mother Nature, rather than to exploit it.

Best regards,

Andrew

"Rise of the TIMBIs" - Jack A Goldstone in Foreign Policy

In an article "Rise of the TIMBIs""in Foreign Policy (December 2, 2011), Jack A Goldstone cautioned "Forget the BRICs. The real economies that will shake up the world over the next few decades need a new acronym." Click here

There is a global power shift towards the emerging world which has begun to seize the lion's share of global markets, according to the Economist.  Click here

The Economist also shows that the emerging economies now have greater heft on many measures than developed ones. Click here

Amongst the emerging economies, there is no doubt that the so-called TIMBI countries are on the rise. To this grouping, one may add South Africa (already part of the new BRICS acronym) and South Korea (according to Goldman Sachs). Both are dynamic, rising economies, the former because of its leverage of a rising Africa and the latter, owing to its innovative and technological skills rivalling if not already surpassing Japan in many areas.

But it seems a little premature to demolish the BRICS grouping by dismissing China along with Russia. Even the Foreign Policy article (penultimate paragraph) admits that China’s GDP is roughly equal to the sum total of the so-called TIMBIs.

Brazil, the poster child of this newly-invented grouping, is slated to become the world’s fourth largest economy by 2025, trailing behind the US, China and Japan.

Notwithstanding this projected catch-up, China’s growth, assumed to be slowing to only 5% per year with aging demographics, would still manage to attain the world’s top position with the United States after 2050.

In advancing the TIMBIs, the article seems to be downplaying the following aspects as regards China –

(a) According to the Economist (31 December, 2011), “the year when the Chinese economy will truly eclipse America’s is in sight”. Measured by a variety of economic indicators, that year may come as early as 2018. Click here

(b) Reference is made of China’s aging population profile due to China’s One Child Policy. But the Policy is already being modified for families made up of both single-child spouses. The Policy is not cast in stone and may be totally scrapped during China’s economic trajectory.

Moreover, according to the CIA World Fact Book, China’s literacy rate of 92.2% is one of the highest in the world, ahead of any of the TIMBIs, and according to the Foreign Policy article, China may have a surfeit of university graduates. This stands in stark contrast with India where the literacy rate of 61% is the lowest of the grouping. So, while a young population can definitely be a demographic dividend, that may not be guaranteed if illiteracy and youth unemployment remain high, as in the case of India.

(c) According to an article dated 15 January, 2012 in The Telegraph, figures compiled by Thomson Reuters for the Financial Times showed that the number of peer-reviewed papers published by Chinese researchers rose 64-fold over the past 30 years. China is now second only to the US in terms of academic papers published, and will take first place by 2020 if current trends continue. Click here

Another Thomson Reuters research report dated 21 December 2011 showed that China became the world's top patent filer in 2011, surpassing the United States and Japan as it steps up innovation to improve its intellectual property rights track record. Click here

Although these numbers may belie the number of genuine breakthrough innovative ideas, it still appears a little early to belittle China’s capacity for innovation.

(d) Under an about-turn in the new Five Year Plan (2011-15), China is changing decisively towards a less export-dependent and more consumption-oriented economy. Although consumption is only 37% of China’s economy, this is set to rise by at least one percent per year in the coming decades, according to Stephen Roach, Chairman of Morgan Stanley Asia and author of "The Next Asia", John Wiley and Sons, Inc., 2009.

According to the McKinsey Quarterly (2006 Special Edition), 79.2% of households will be in the lower and upper middle classes income range of RMB 40,001 to 100,000 ) by 2015. The “mass affluent” with annual household income of RMB100,001 to 200,000 ($80,000 adjusted for purchasing power parity) will jump from 9.8% of total in 2005 to 36.4% by 2025.

Anecdotally, at the lower end of the consumption scale, Yum! Brands opened 500 new restaurants in China in 2010 including one new KFC every single day. At the high end, according to World Luxury Association's 2010-2011 annual report, China now accounts for 27 % of the global luxury market, ahead of US at 14 % and right behind Japan at 29 %. The report says China will be the world's largest luxury market in 2012.

(e) China's service sector is still below 50% of the economy. But it is growing steadily. In the new Five Year Plan (2011-15), service sector value-added output is to be boosted to 47 % of GDP, up 4 percentage points over the period. This, together with a rapidly rising consumer economy should generate more jobs to offset the lower job numbers demanded by a smaller and more technology-intensive manufacturing sector, while the latter in turn is set to offer more job and entrepreneurial opportunities to a rising university-trained workforce.

(f) According to the McKinsey Global Institute, by 2025, China will be building 221 new cities each with a population over one million, compared with 35 such cities in Europe, adding an extra 350 million urbanites. Click here

China will be 50% urban by 2015, according to a report in the People’s Daily Online dated 30 March 2010. Click here  Even if the growth rate of China’s urbanization may not be the world’s highest, its sheer size will by far be the world’s largest by 2015.

(g) Significantly, China has become the centre of the world’s production and supply chain as materials and components as well as diverse knowledge and skills across the globe are interwoven into the largest, most efficient and most cost-competitive Factory of the World honed over the years to comply with international standards. This highly efficient and globalized complex is unlikely to be displaced by the TIMBIs anytime soon.

(h) The Foreign Policy article refers to democracy several times. While there is no doubt that democracy helps to spurn innovative ideas, it is no hard and fast barrier against innovation especially in a dynamic, state-capitalist economy like China’s.

Indeed, according to a comparative empirical study by Randall Peerenboom, "China Modernizes – Threat to the West or Model for the Rest", Oxford University Press, 2007, China outperformed many other democratic developing countries according to most United Nations development indices. This is no apology for China’s slow or lack of progress towards democracy but merely serves to illustrate the fact that lack of democracy, at least in the Western sense, is not necessarily a hindrance to dynamic economic growth at certain stages of a country’s development.

Rather than dismissing “non-democratic” countries from a grouping, perhaps a more inclusive and wider grouping of the more dynamic nations of the “emerging world” may tell a better story.

According to Goldman Sachs, by 2050 the top ten economies in the world will be, in descending order, China ($70 trillion), US (about $38 trillion), India (about the same as the US), Brazil (barely over $10 trillion), Mexico (just under $10 trillion), Russia, Indonesia, Japan, United Kingdom, and, lastly, Germany (about $5 trillion).

Only four of the G7 would thus remain on this list. Except the US, the other three G7 countries, Japan, UK, and Germany, would fall to the bottom.

The combined economic weight of the six so-called Emerging and Growth-leading Economies (EAGLE), what may be called the E6, would be over two and half times more than the remaining G4.

Although it is a bold prediction and many a black swan may appear, by 2050 the E6 will have soared well above the G7 to rule the world’s economy. Welcome to a brave new Emerging World Economic Order some may think could only exist on another planet. Indeed, this may happen sooner than many people think.

Bests regards,

Andrew

"America's Mixed Asian Future"

The United States is re-focusing on the Asia-Pacific. This results partly from the need to prioritize America's defence requirements because of a declining economic and financial capacity to shape the global order (National Intelligence Council Report - Project 2025, November 2008). It also comes about as China is seen to be the biggest challenger to US dominance, particularly in the Asia-Pacific, following America's gradual withdrawal from Iraq and Afghanistan.

Secretary of State Hilary Clinton’s newly declared “America’s Pacific Century” is a thinly-disguised China Containment Strategy. Click here  So are America’s recent efforts to forge a Trans-Pacific Partnership (TPP) excluding China.

These measures are reinforced by closer American military ties with countries within the environs of the so-called “first and second island chains” within and near the approaches to the South China Sea, including countries like Australia and India. The most strategic choke point for China is the Malacca Strait, through which the bulk of China’s energy and resource imports must pass, where US military dominance is unquestionable.

This apparently water-tight containment strategy, however, contrasts with the following developments –

(a)   A great number of the countries in the South China Sea and beyond have become closely knit in a regional and global production and supply chain of which China is right at the centre. Indeed, a large number of countries already have China as their largest trading partner (including Japan and Australia) or second largest (e.g. India). So closer military and economic ties with the United States may reflect a desire to free-ride on American power as a hedge against a rising China rather than a willingness to be drawn into an anti-China bloc, least of all, into regional military conflicts these countries would rather do without.

 (b)  Through the Shanghai Cooperation Organization (SCO), China (along with Russia) has cemented very close ties with Central Asian countries. Its members include Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, with Iran, India, Pakistan, and Mongolia as Observer members, Belarus and Sri Lanka as Dialogue Members and ASEAN, CIS (Commonwealth of Independent States) and Turkmenistan for Guest Attendance. Afghanistan is being supported by Russia for inclusion as a Member. This powerful network provides a degree of insurance for the flow of China’s lifeblood of energy, resources and trade.

 (c)  China is building every closer ties with the Middle East (including Israel). Chinese Premier Wen Jiabao will be paying an official visit to Saudi Arabia, the United Arab Emirates (UAE) and Qatar from January 14 to 19 2012 at the invitation  of the respective Arab leaders. At a time when America’s popularity in the Middle East is at best strained, China is increasingly perceived in the Middle East not so much as a threat but as a gigantic, long –term energy customer.

 (d)  China has also been cultivating ever-closer ties with Europe which has become China’s largest trading partner and vice versa. In addition to trade, China is pursuing a grand high-speed rail link (for freight, initially) between China’s eastern seaboard to Europe’s ports and cites, including a two-day link between Beijing and London. If realized, this would be the largest infrastructural project in history. Click here

These multi-polar dynamics are partly captured in Trefor Moss’ article “America’s Mixed Asian Future” of 10 January, 2012 in The Diplomat, an international current-affairs magazine for the Asia-Pacific region. Click here  

China’s foreign relations strategy has been rather consistent, based on non-confrontational win-win partnership as well as mutual trust and respect, preferring dialogue to confrontation, let alone coercion. In comparison, in furtherance of a benevolent hegemony, the United States’ propensity to resort to force and coercion to shape the international order after its own image is prone to provoke criticism and often resentment, if not hatred in certain quarters. (The Hegemon’s Dilemma in The Power Problem – How American Military Dominance Makes Us Less Safe, Less Prosperous, and Less Free, by Christopher A Preble, Cornell University Press, 2009).

This is not to say that overall, China has become a more attractive nation than America. By no means, at least not quite.

But while China is trying to build up a reservoir of goodwill, the United States seems to be sacrificing the fountain of her traditional soft-power, that of liberal generosity, compassion, open-mindedness, respect for diversity, dialogue and friendly cooperation to a propensity to military force and coercion, often hijacked by narrow chauvinism, fundamentalist bias, or vested interests.

To be sure, the world with its many under-currents of instability remains beholden to American power. But it depends a lot on when, how, and what power is exercised. To say the least, Uncle Sam seems to be less than adroit in working this out, if not at limes, as in Iraq, at risk of losing the plot.

Best regards,

Andrew   

China's coming Collapse or Ascendancy?

In Foreign Policy (January 7, 2012), Gordon Chang, who has been consistently predicting the "Coming Collapse of China" in a decade since the launch of his 2001 book of the same title (Random House), resumes his conviction that the Year 2012 will prove him right, or wrong only by one year. Click here

Arguments are deployed about China's shrinking foreign investment, slowing growth, diminishing workforce, imploding unrests, a squabbling leadership resulting in sluggish decison-making (not the US Congress?), and an impending fall as the biggest victim of the imploding European crisis.

This dismal list of ills, however, coincides in stark contrast with a glowing forecast in an interactive article in The Economist (31 December 2011) "The year when the Chinese economy will truly eclipse America’s is in sight". Click here

Of all countries, China is certainly no bed of roses. A nation in rapid transition, she has all the apparent paradox and contradictions of a sphinx's riddle. It is easy to spotlight only some of the more glaring warts to make the "coming collapse" theory perennial.

However, this type of predictions often chooses to ignore the reality that China needs to restrains herself from growing too fast, that the country is changing deliberately towards a slower, more consumption-oriented and more sustainable model with higher value-added and less labour and energy-intensity, that inflation and unhealthy property prices are being brought down, and that a changing leadership, notwithstanding internal rivalry (or competition), knows which side its bread may continue to be buttered - by promoting more people-based governance.

In tandem with his article in Foreign Policy, Gordon Chang also wrote a lengthy piece in The Diplomat (January 5, 2012) entitled "China's Unstoppable Billion", which seems to insinuate that China's allegedly repressive regime risks being swept aside by a billion Chinese people with rising aspirations and personal freedoms. Click here

The article however reveals as many contradictions in China as those in its own arguments.

One side of the picture is a billion people getting used to behaving with much more personal freedom, disobeying or finding ways to ignore government diktats. The other side is a leadership trying to exercise authoritarianism and repression.

It begs the question that if the repression is so severe, there simply won't be so much personal freedom as depicted. On the other hand, if there is indeed such a rising tide of individual freedom, it must mean that the government is becoming much less repressive than it seems.

The article portraits President Hu and Premier Wen as reverting to the repression of Chairman Mao's days. This is hardly credible. Both Hu and Wen have realized that former President Jiang Zemin's pro-business policies alone won't ensure the stability of the Party as the society is becoming increasingly unequal. They have initiated the policy of "People-based Governance", trying to make government policies more responsive and relying more on public feedback, often through the internet. They have also formulated the pro-people change in direction in the latest Five Year Plan (2011-15).

As highlighted in the article, public opionions are playing a more and more important role, even in sentencing policies. Even projects decided by the State Council are now known to be allowed to retract in the light of public outcry. This is not exactly a picture of die-hard totalitarian repression.

The article's allegation also doesn't ring true that Hu and Wen tried to curb foreign investment or roll back China's globalization. Indeed, under their tutelage, China has become the world's favourite investment destination and China's economy has become the world's second largest. According to the above-mentioned article in The Economist, China's economy is set to overtake that of the United States by most measures by 2018.

The stellar growth has spawn a massive middle class, rising worker wages, and much higher farmers's disposable income. In the process, China's place in the world has gained gravitas. For the first time in over a century, the Chinese people can hold their heads high in the world. The Party's credibility has hugely benefited as a result.

Despite limited no-go areas where repression no doubt continues to apply, and a rising number of unrests caused by isolated local governance failures, the overall landscape is hardly a tinder-box for spantaneous combustion.

But the article is absolutely right in highlighting the rise of spontaneous citizen action worldwide, including the Arab Spring, empowered by the internet and social media networks. The recent Occupy Moverment started in Wall Street is another example spreading across the globe. Even Russia is experiencing this tide of rising aspirations and citizen protests. There is no doubt that China's leadership is on its toes.

Contrary to perceptions, the Politburo is seriously re-learning the need for higher standards of social justice from the rapid resolution of the high-profile stand-off in Wukan, a small county, where bold citizen action against local corruption and misfeasance forced the high-level provincial leadership to intervene and back down.

Some of China's litany of critical challenges, including the seriousness of local government indebtedness, the alleged "investment bubble" in "ghost shopping malls" and "roads to nowhere", and her elusive consumer economy, are addressed in depth in my earlier posting ëntitled "Another Coming Collpase of China" dated 1 December 2011. Click here

Compared to many Western democracies, the Party still enjoys amongst the world's highest popularity ratings, according to successive, independent citizen surveys conducted by the PEW Research Center for the People and the Press, a public opinion research organization based in Washington DC. Nor can the positive hard data in The Economist's article above be entirely dismissed as pure numbers divorced from reality.

It is correct to say that the Chinese people are becoming an unstoppable force in the world, whose creativity and aspirations have been unleached partly by a Party continuing seeking to reform and re-invent itself. The degree of openness and personal freedom in China nowadays would be unthinkable a few decades ago.

But China is in no hurry to copy the Western model of multi-party confrontational democracy, which is becoming dysfunctional in America, the very vanguard of this type of democracy where a small minority of powerful vested interests could shortchange the interests of the majority.

In an era of global challenges and paradigm shifts, the Communist Party of China is changing its policies and will need to redouble its efforts to reform itself. There may be a mismatch in the speed of change during different stages of China's development. However there is no convincing evidence that the Party will necessarily fail to harness the unstoppable force for good of the Chinese people.

Neverheless, in an age of increasing resource scarcity and geo-political and geo-economic volatility, coupled with a rapidly ageing population profile and dramatic domestic changes, China should be well advised to stay ever vigilant. While any major downturn in her fortunes is likely to invite another bout of "coming collapse" predictions, China should indeed remain thankful for these regular reminders that many black swans lie ahead and that any success would be hard-earned and by no means guaranteed.

Above all, even if China's eonomy should, as The Economist suggests, overtake that of America by 2018, the country will still remain at best a moderately well-off nation, similar to Turkey, for many more decades to come.

Best regards,

Andrew