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"How China's leadership is tempered" - a cartoon video that went viral

This unattributed cartoon video of "How China's leadership is tempered" here went viral in China and abroad.

Available in Putonghua and English, this is no doubt a thinly disguised ploy of political propaganda, leaving aside many political in-fights and manipulations inherent in a lifetime battle to get to the top. (Perhaps not very different in this regard from other political systems?) 

Nevertheless, this rendition of top leaders is unprecedented in China. Notwithstanding the gross over-simplification, it seems to offer a few grains of truth.

The climb to top leadership is no longer pre-ordained. While there are the so-called ""princelings", there is no lack of others like Premier Li Keqiang, who come from humble beginnings. In any case, amidst fierce competition, all have to work their way pretty deftly to the pinnacle, showing competitive track records, winning support and respect in the system, surviving numerous banana skins, and finally beating the age-limit of 67 for ascension to the top leadership.

A somewhat similar and perhaps less propagandist overview in defense of the Communist Party leadership selection system was delivered by Eric X Li, venture capitalist and political scientist on TED here

To gain some more insight of how the Chinese Communist Party works, please visit

"The Secretive world of the Communist Party" - CESRAN academic paper" and "How are China's top leaders selected and how stable is China's Communist Party" here.

With risks of a US default, China calls for a "de-Americanized world".

Live interview with Russia Today (RT) based in Moscow on 14 October, 2013 here

Insert of my appearance in a follow-up news track on RT on China's call for a  "de-Americanized world" on 16th October here

 

Currency war now? Well, it's been going on for decades.

China knows too well that a currency war has been underway for decades. The dollar has lost 97% of its value since the Fed came into existence. Now under the guise of QE, America is redoubling its money-printing press. America has been able to do this thanks to its "exorbitant privilege" as issuer of the world's leading currency which defines the majority of world trade, investments, and financial transactions.

Pending the maturity of her financial system, China has no choice but to put a large aprt of her hard-earned surplus into US treasuries. Alternative investment channels in China are not yet fully developed and "security" beats everything else. This situation is referred to as China's "dollar trap" by Paul Krugman and "China's tribute to the American empire" by Niall Ferguson, who points out that China's largesse was used to fund George Bush's tax cuts and the War on Iraq.

Now the situation is beginning to change. China's economy is set to exceed that of the United States within a decade. The Middle Kingdom is regarded as the largest trade partner by 124 countries, compared to 76 as regards the U.S..Click here This is because China remains at the center of the world's supply and production chain, supported by most of the World's busiest container ports at her eastern seaboard. Moreover, commensurate with her coming status as the world's largest economy, China wants the RMB to become fully convertible and attain the status of a global reserve currency at least alongside with the greenback, sooner rather than later.

See my Paper "Is the Renminbi the New Dollar? Chinese Monetary Policy and the Global Reserve Currency System" published by the Chartered Insurance Institute centenary publication in April 2012 here

Hence the RMB is fast being promoted in currency swaps worldwide and more RMB-denominated financial instruments are being issued. A new Shanghai Free Trade Zone and another in Qianhai near Hong Kong have just been set up to experiment with the liberalization of China's financial system and the free convertibility of the RMB. The aim is to come up with a robust model of financial liberalization and RMB full convertibility on the capital account which can be rolled not nationwide after three years.

Meanwhile, China (along with Russia and some of the Middle East energy producers) is buying a little less US treasuries, and instead, accumulating more gold, and acquiring hard assets such as commodities, resources and stakes in global companies. The G20 are also aware of the U.S. currency vulnerability and are promoting the Special Drawing Rights of the IMF in order to keep the world's financial and economic order on an even keel.

(James Richards, "Currency Wars - The Making of the Next Financial Crisis", Portfolio/Penguin, New York, 2011, Chapter 11 - Endgame - Paper, Gold or Chaos. The looming "dollar crisis of all times" is also the central theme of a series of presentations "The Hidden Secrets of Money" by GoldSilver.com here )

While there are talks about tapering of QE, it remains questionable whether America would be able or willing to turn off the spigot. In addition, Abe's Japan openly commits itself to a loose monetary policy to devalue the yen in order to jump-start its economy.

So beneath the apparent quiet, a currency war is already playing out The two main protagonists are the United States and China as the two superpowers are locking horns in various theaters during an epic transition of global power.

The real story behind Abe and Park's strange body language

YaleGlobal Online, a leading US journal on global affairs, features an article dated 10 October, 2013, showing in vivid body language at the recent Bali APEC Summit the rift between Japan and South Korean, despite wishes by the United States to broker an eventual  rapprochement. Click here

The YaleGlobal summarizes it well:

"Japan and South Korea are each close with the United States and could be strong allies, after adequate atonement and forgiveness for historical atrocities. But instead the gulf is widening, as indicated by a terse exchange between the two leaders attending the Asia Pacific Economic Cooperation summit, suggests journalist Shim Jae Hoon. The most recent point of contention: US-Japan Defense Cooperation guidelines will be renegotiated, likely strengthening Japan’s independent military capability, allowing new interpretations of the Japanese constitution which prohibits rearmament and perhaps even making the nation a US proxy for regional security. South Korea, alarmed by lack of notice, fears a new arrangement could limit its own strategic options and decrease leverage with China on handling North Korea. The US also negotiated agreements with South Korea. South Koreans worry that the US, with so many budgetary challenges, is relinquishing its leadership role in the region. The US president did not attend the APEC summit, but China's did. China’s President Xi assured South Korea’s President Park that it can control North Korea."

The elephant in the room is of course is the intensifying U.S.-China rivalry. The unspoken strategy is captured in a front-liner. “The US is outsourcing its anti-China policy to Japan,” announced a front-page headline in the conservative Chosun Ilbo newspaper in South Korea on October 6 shortly after Hagel’s Tokyo agreement strengthening US-Japan military alliance.

The conundrum is that while the US wants to build closer US military ties with all of China's neighbors under the Asia Pivot strategy, a China-containment strategy in all but name, most of them have China as their largest trading partner. So, while welcoming a US military umbrella as a hedge against China, very few (mainly those whose economies are not overwhelmingly dependent on China, such as the Philippines and Vietnam) want to antagonize China too much.

For South Korea, there is also the vital issue of North Korea on which China is seen better as a strategic ally rather than a foe.

On the economic front, the Asia Pivot takes the form of the Trans-Pacific Partnerhip (TPP) which, tale-tellingly, excludes the world's second largest economy - China- at least initially. The idea is to bring all of China's neighbors into a US-defined norm and to open up more regional markets for US economic influence. To start with, a string of traditional US allies such as Australia and New Zealand and several Asian countries have started preparations to join. Nevertheless, internal oppositions in some Asian countries, such as Japan, remain as vested interests resist further opening up of certain sectors, like agriculture, to America.

However, the most glaring reality that stares the TPP in the face remains China's now unalterably becoming the heart of a regional and global supply and production chain, supported by most of the world's top container ports on her eastern seaboard. Some of the production processes are diverted to China's neighbors but they can't displace China's massive scale and economic efficiency built with decades of compliance with international requirements. As for the promise of 3-D printing to bring back most jobs to America,, the technology is no rocket-science and China has already started to employ it where appropriate, as in aviation and space projects.

To cement China's pivotal role in international container-shipping, a new project has been recently approved by the Nicaraguan Congress which give a 50-year concession to a Hong Kong-based Chinese firm to build and operate a much wider and deeper rival to the Panama Canal. This will facilitate passage of the world's largest container ships which can now only be accommodated in Shanghai's Lianyungang. The early-days-yet quiet following the official approval somehow belies the dramatic project's epic significance. Click here

The TPP is unlikely to fulfill its promise of a game-changer to curb China's economic influence in the region and beyond. Indeed, as China's economy is set to overtake the US within a decade or so, such influence is likely to grow even stronger. This is being supported by China's move to speed up the internationalization of the RMB in terms of currency swaps (including London and the European Central Bank (ECB) recently) and issuance of more RMB- denominated bonds. Its capital account convertibility is now being experimented with in newly-created Free Trade Zones in Shanghai and Qianghai, near Hong Kong.

Meanwhile, in the light of the huge US debt mountain and reckless QE money-printing, the G-20 have been pressing for a greater role of the Special Drawing Rrights (SDR) of the IMF to keep the global currency system on an even keel, giving a greater role to emerging powers like China. The days when the RMB would become at least one of the leading global reserve currencies, along with a consequentially-diminished greenback, are no longer far away.

In the final analysis, any military card usually creates more problems than it is designed to solve. With so many problems and challenges remaining on her hands, China would be the last country wanting to start a war, least of all with her neighbors. Jobs and prosperity tend to weigh more heavily than guns and boots in the calculations of most of China's neighbors. There is no prize guessing which country is likely to offer the best opportunity for these in the region.

The body language in the second Yale Global photo is interesting. It remains to be seen which of the two leaders - Abe or Park - gets the big picture.

What does the U.S. government shutdown mean for China?

My live TV interview with RT (Russia Today of Moscow) on 3 October, 2013.

Click here

Nicanagra's Canal set to marginalize the Panama Canal

According to The Economist (5 October, 2013), Nicanagra's trans-oceanic canal project is, for now, no more than "a man, a plan and little else." Click here

Nicaragua's Congress has granted Wang Jing's Cayman Islands-registered HKND company a 50-year concession to develop a 286-km (178-mile) canal connecting the Caribbean with the Pacific via Lake Nicaragua, at a cost of $40 billion, to be completed in 6 years. The canal is three times longer than Panama and can accommodate the largest container vessels, those Shanghai’s Linyungang can accommodate as the world’s deepest container port.

At the center of a global supply and production chain, China has most of the world's busiest ports along her Eastern seaboard, including Lianyungang, the world's deepest. However, some of the world's largest vessels are too large for Panama, even after it is widened at a cost of $5.25 billion by 2015.

Moreover, Panama is more under the influence of the United States compared with Nicaragua, especially if a new and much wider canal is built with Chinese investment and technical skills.

So the strategic rationale for this seeming pipe-dream has been laid. Notwithstanding doubts, it defies belief that reputable international firms, including McKinsey, are all hired on a wild goose chase. Or, for that matter, that one single Chinese entrepreneur is supposed to be pulling this huge project off without strong backing of the Chinese government right from the start.

When completed, the new Nicanagra Canal would dwarf and indeed marginalize the Panama Canal. Above all, it would be a vital pivot in consolidating China's position as the center of world container freight.

To be sure, as The Economist points out, when the Arctic melts sufficiently and the Northeast Passage becomes fully navigable, the prominence of Asia's container ports may wane. But that's a long way off, and even if that happens, a super-wide canal that connects the Pacific to the Atlantic through the middle of the two Americas would always be of huge strategic importance.

At this early stage, the project may appear to be a man, a plan and little else. That is, until one sees its epocal economic and geopolitical dynamics as the elephant in the room.