China Syndrome: Japan Sells Subs to Australia?

♠ Posted by Emmanuel in ,, at 11/24/2014 01:30:00 AM
Next stop for Soryu-class Japanese subs? The Land of Oz.
Whoa, another security-related post after the previous one on China's fisher militia. You'd think the IPE Zone is turning into Jane's Defense Weekly, but no. Simply put, security matters affect commerce and vice-versa. A particularly interesting thing for the Asia-Pacific is the simultaneous economic outreach of China as it expands its military; the former funds the latter. This phenomenon has led to all sorts of interesting tensions. While China's neighbors have benefited from it opening up to the rest of the world and, I grudgingly admit, providing lower-cost consumer goods, its rise has been accompanied by greater belligerence. Or, at least, the capacity for it.
Australia provides a useful case in point. The Land Down Under's largest trading partner is now China as the Middle Kingdom seeks raw materials to supply its mighty industrial machine. Yet, at the same time, it is aligned with the United States militarily. Therefore, it too has been alarmed by recent Chinese incursions into nearby waters. With the development of longer-range sub-launched missiles, China will have the capability of hitting the territory of Australian ally the United States:
A Chinese nuclear submarine was spotted in the Indian Ocean for the first time last December. A conventional Chinese sub was also sighted there in September. This was a game changer for Japan, the U.S. and Australia. It was a given that Chinese submarines were lurking in the East and South China seas, but now, they have to consider their presence in the Indian Ocean, a crucial shipping lane.

The possibility of even a single Chinese submarine there means more subs and antisubmarine surveillance aircraft have to accompany military vessels passing through the waters, according to Japanese and U.S. defense officials.

Some analyses suggest the Chinese military will put into service its first submarine capable of carrying ballistic missiles with a range of more than 7,500km as soon as the end of the year. This will give China an ability to launch a nuclear attack on the U.S. mainland from under the sea. Such capability could threaten the U.S. "nuclear umbrella" and impact on national security issues in Japan and Australia as well.
This all plays into the hands of that other American ally, Japan. As a manufacturer of advanced diesel-powered submarines, Australia is a putative customer for submarine technology as China advances its military reach:
Japan and the U.S. are considering increasing military cooperation with Australia by sharing submarine technology...Canberra is interested in Japanese technology. Japan's diesel-electric submarines are respected, in particular because of the quietness of the screw and engine -- crucial requirements for military submarines.
For weapons systems, such as torpedoes and cruise missiles, Australia has turned to the U.S...Japan and Australia agreed to jointly develop military equipment, including submarines, at a Nov. 12 summit between Prime Minister Shinzo Abe and his counterpart, Tony Abbott. "The hurdle for cooperating with another country in anything related to submarines is high," Japanese officials noted. "It is on a different level to cooperation on fighter jets and warships."

Submarines are the most closely guarded military secrets among countries that own them. Their ability to move undetected can sway military balance. Even between Japan and the U.S., only a fraction of the information collected by submarines is shared. The two countries do not share any information on their submarines' current locations or capabilities.
There is thus a commercial element to accompany the security element as the US urges its regional partners to pick up some of the slack patrolling Asia-Pacific waters amid current limits to significant increases in US defense spending. The notable thing is that submarine technology is not widely shared for obvious reasons, but will be among the US, Japan and Australia more out of necessity than anything. In other words, distributing burden-sharing amid Chinese maritime adventurism has led to the Yanks telling Japan to share these technologies with the Aussies:
But budgetary issues limit how much the U.S. Navy can do in the Asia-Pacific region. It is also unfeasible for Japanese submarines to frequently monitor the Indian Ocean on behalf of the U.S...Australia, which directly faces the Indian Ocean, is also located conveniently for monitoring the South China Sea. With enhanced submarine capabilities, Australia will be able to keep a close eye on those waters.

"Following technical cooperation in submarines, Japan, the U.S. and Australia will likely start working together in the operational arena," said Satoshi Morimoto, who served as defense minister under Prime Minister Yoshihiko Noda. "Australia will be in charge of the Indian Ocean and the South China Sea," he added. "Japan will mainly handle the East China Sea. With the U.S. participating in and leading trilateral cooperation, it will be possible to effectively respond to movements of Chinese submarines."
With the stridently militaristic Shinzo Abe as Japan's PM, I am sure he needs little encouragement from the US to help the Australia anyway in trying to put China in its place. Thanks to business with China among other things, Australia has quite a lot to spend on military hardware like F-35s and submarines. Therefore, by virtue of doing business with each other, both China and Australia are able to improve their strategic capabilities against each other.

Actually, Abe has already lifted restrictions on arms exports to friendly countries. With Australia's domestic submarine designs being rather, ah, subpar, the match is ideal. What's more, with Japan running consistent trade deficits, arms exports are certainly welcome in whatever quantity. There is, however, domestic protectionism to deal with at home:
Two companies, Mitsubishi Heavy Industries and Kawasaki Shipbuilding, each maintain active shipyards and produce Soryus on an alternating basis. Representatives of Kawasaki were among those Japanese officials that went to Australia to make the recent sales pitch, so it’s possible Kawasaki could produce Australian submarines while Mitsubishi could continue building boats for the Maritime Self Defense Force. Dividing the work would make any modifications requested by Australia, particularly ergonomic ones, easier to accommodate.

By all accounts, Australia will be getting a good deal. At roughly $1.87 billion dollars each, the Soryu-class submarines are a bargain against [Australia's] Future Submarine Program projections of $3 to $5 billion each. Yet the decision to buy Japanese is a politically risky one for the government of Prime Minister Tony Abbott. A survey by the Australian Industry Group estimated a next generation submarine program would employ “about 5,000 workers and 1,000 Australian businesses”...
The Australian-Japanese submarine deal will be good for both governments, and bad for Australian shipbuilders, the Japanese Left and China. You can’t please everyone. At least this time Australia will be getting what it’s looking for—reliable submarines—at a good price.
Geopolitics are weird but interesting, and the arms trade falls into the same category as an offshoot.

Territorial Disputes & China's Fisher Militia

♠ Posted by Emmanuel in ,,, at 11/23/2014 01:30:00 AM
And he said to them, “Follow me, and I will make you fishers of men” [Matthew 4:19]
Since it's the weekend, let's try something different. By now everyone knows China has maritime disputes with nearly all its neighbors in East and Southeast Asia. Like in any other sort of social relation, you are guaranteed to offend others if you mark off vast swathes of territory as your own under dubious grounds. Recalling the biblical passage above, China is seemingly attempting to redefine it militarily. Aware of the poor "optics" in violating agreements not to deploy force in regional waters to assert one's territorial claims, the Chinese have come up with another gambit. That's right--"fishers" have been baiting people instead of fish in the service of PRC interests in asserting military supremacy.

Make that paramilitary supremacy. Yes, China has a vast and growing navy, but it chooses not to use it as much as possible if the same objectives can be achieved by sending so-called "fishing vessels" to harass other disputants. Let's begin with China using "fishing vessels" as extensions of the national interest in the East China Sea against Japan:
Beijing had been trying, to some extent, to prevent Chinese fishing vessels from coming close to the Senkakus. But some Japanese policymakers believe it started easing such efforts after the Japanese government purchased the islands from a private landowner in September 2012. China likely recognizes that deploying more patrol boats to the area would only provoke Japan and its ally, the U.S., and is thus seeking to erode Japan's effective control over the islands by letting fishing boats operate near them.

China has been making only lukewarm efforts to keep its fishing boats from approaching the Senkakus. Since last year through September, there have been only around 10 cases in which a Chinese surveillance vessel stopped and inspected a Chinese fishing boat, according to a Japanese government official.
Real sneaky, eh? The same sort of modus operandi is at work off the coast of Vietnam (Paracels) as these boats act as proxy enforcers for the PRC...
China’s use of swarming tactics with fishing vessels to project and protect Beijing’s territorial claims in the South China Sea appears unstoppable, experts say. The latest example in May was the placement of a Chinese oil rig within Vietnam’s exclusive economic zone, which was pro­tected by more than 70 maritime security and fishing vessels.

“Fishing vessels are wonderful tools for autocratic governments where business and industry are under their control,” said Sam Tangredi, author of the book, “Anti-Access Warfare.” Sending them in swarms to circle a disputed area of contention or create a barrier to prevent access by other navy or coast guard vessels does not create negative media images like harassment by warships, he said. “It may be made to appear like a spontaneous peaceful protest caused by popular nationalist fervor… almost like ‘nonviolent resistance,’ as if Gandhi was a fisherman.”
The trick is to masquerade security interests as "civilian" undertakings since they involve "fishing vessels." Ditto for the western seaboard of the Philippines where hit-and-run poaching is the specific technique of aggravation. That is, you can loot all sorts of endangered species since they're endangered species in "your" waters anyway:
Three Chinese fishing vessels engaged in poaching and the illegal trade of endangered sea turtles off southern Palawan have escaped anew from maritime patrol units. Authorities earlier monitored Chinese fishing boats near Hasa-Hasa Shoal, some 60 nautical miles from mainland Palawan but which is also being claimed by China.

“The Chinese vessels were able to escape before our joint team aboard three boats could nail them down,” the source said. The source was referring to a joint operation launched on Saturday that included three vessels from the Philippine Coast Guard (PCG) and the Philippine National Police-Maritime Group Special Boat Unit (SBU) to intercept the Chinese ships poaching in the area.
There's something fishy in all this if you ask me since these "fishing vessels" would not so brazenly conduct such activities which risk international offense unless they are deliberately being condoned by the PRC. Make no mistake: they are likely deployed to harass and intimidate. The bad publicity generated by sending warships instead is thus spared. Insofar as the results are the same, the Chinese will view these activities as successes in achieving national objectives.

Redefining 'White Elephant': N Korea's New Int'l Airport

♠ Posted by Emmanuel in at 11/21/2014 01:30:00 AM
Hoping for a less lonely planet than this, they're building a new international airport.
The term "white elephant denotes massive investment into something which ultimately has little or no practical value. In the developing world, these usually refer to infrastructure projects. Think of Greece hosting the Summer Olympics in 2004. Not only was the country saddled with massive debts for the Olympian spending spree on new stadiums and the like, but these sports facilities are mostly unused nowadays. However, even the Greek tragedy has no answer to what promises to be a tragicomedy of massive proportions as the hermit kingdom of North Korea is building a new international airport. Where the guests will come from is a different question altogether.

All the same, you read that right: the country that has tried its darndest to stay away from everyone else by applying Sartre's idea that hell is other people is building an international airport. Why the hell is the reliably xenophobic North Korea seeking tourists--albeit of a "right" kind to be determined at a future date? With only a few thousand tourists a year according to media accounts, let's just say this country isn't high on the to-do list of travelers. Then again, there is all kinds of tourism nowadays, so I suppose "gulag tourism" has a unique gallows humor to it: 
Pyongyang isn't exactly an international travel hub. But attracting more tourists is one of North Korea's top agenda items to generate badly-needed foreign exchange, so thousands of soldier-builders are working feverishly these days to give the capital a fancy new airport.

The new airport, which is now in its final stages, is the latest of North Korea's "speed campaigns," mass mobilizations of labor shock brigades aimed at finishing top-priority projects in record time. Dressed in hard hats and brown or olive green uniforms, impressive swarms of workers toil under huge signs calling on them to carry out their tasks with "Korea Speed." From some corners of the site, patriotic music blares from loudspeakers to provide further motivation.
And make no mistake, it's hard labor fit for a gulag that's going on at the work site. Once completed, the "airport" is meant to replace the shack that's been the official airport of Pyongyang for a couple of years now:
With most of the construction finished, their work is now focused on flattening out a new tarmac area, digging tunnels for drainage and putting the finishing touches on the main terminal building. Most of the work appears to be done the old way, by hand or with simple tools.

Though Pyongyang is the gateway to the reclusive country by air, it is currently served by an airport building that consists of a small, temporary terminal the size of a large warehouse, with only one baggage carousel, a tiny duty free shop and a makeshift book/souvenir store. The airport receives, at most, only a few international flights a day, almost all from China, with some from Russia.

But, in search of a badly needed source of foreign currency, North Korean officials have embarked on an ambitious campaign to significantly boost the country's appeal to international tourists in the years ahead, which has made building a more impressive airport facility a top item on the government's to-do list. The date of the opening has not yet been officially announced.
There is this notion popular even in the developed world that "shovel ready" projects can provide construction jobs to the unemployed masses during economic slowdowns. North Korea has been in a decades-long economic slowdown, so I doubt whether this project is going to do any good other than serve as comic fodder for bloggers and the like. Nor do I see how this effort fits with the country's juche principle of self-reliance since building an airport represents tacit recognition that, hey, foreigners have something to offer after all.

There are only so many visits Dennis Rodman can make. On the official DPRK website, most of the attractions are communist agitprop, so I don't think there's much of interest for those seeking a good time--unless you have different ideas about what constitutes a "good time." Some have characterized the entire nation as a "Stalinist theme park." As such, being sentenced to years of hard labor for unnamed infractions cannot be entirely dismissed. So, in this case, they can build it, but I am really uncertain who will come save for dyed-in-wool masochists and true believers in Marxism-Leninism.

In the finest white elephant tradition, it is built for a purpose no sane person can fully ascertain. 

.so Appropriate: Kickass Torrents Takes Somalia Domain

♠ Posted by Emmanuel in , at 11/20/2014 01:30:00 AM
Psst...got the latest episode of Doctor Who?
One of the more curious things that software copyright holders have to deal with is the global public's willingness to "steal" intellectual property despite being quite averse to stealing tangible (read: manufactured) goods. Why do folks show little guilt about the former but more with the latter? Are punishments for physical theft worse, is there a social taboo to such acts, or both? That such attitudes are widespread in the largest of consumer markets in the developing world may not be all that encouraging to software firms.

As a scholar of Internet governance and intellectual property, torrent sites have been a recurrent source of fascination for me [1, 2, 3]. Out of curiosity, the latest evolution I noticed was of the widely-known torrent site Kickass Torrents moving its top-level domain once again. What's .so? I looked it up and, to my unvarnished delight, it stands for Somalia. It is of course perfectly reasonable to say that there isn't really a country of "Somalia" but three contested regions of Somaliland, Puntland and Somalia. It's a failed state, after all. No matter; in cyberspace, there is such a (virtual) place:
With millions of unique visitors per day KickassTorrents (KAT) is one of the most used torrent sites. In recent months it has even rivaled The Pirate Bay in terms of traffic. Over the years KAT has moved from domain to domain on a few occasions, to evade law enforcement and pressure from the entertainment industries. Most recently the site had been operating from the Kickass.to domain. Starting today however, the site is serving its pages from the Somalian TLD Kickass.so.
In a game of cat and mouse, Kickass regularly rotates its top-level domain to avoid restrictions and censors. Recently Google began screening its search results more thoroughly. Therefore, Torrent Freak suspects this change is a way of temporarily avoiding Google's dragnet--until it catches up with the move at least:
“We are moving to kickass.so now. As you know we change our domain regularly. Nothing more has been changed for you, so don’t worry, you can use Kickass as usually, it’s automatically redirected,” the KAT team writes. Intended or not, the domain change will have some consequences on the anti-piracy front. For example, the site will become accessible again in most countries where it has been blocked previously.

In addition all the URLs that were blocked by Google through DMCA notices, more than 1.6 million, will become accessible again under the new domain. This also means that Google’s new downranking algorithm will be bypassed, at least temporarily. In recent weeks KAT has lost a significant amount of traffic due to Google’s new anti-piracy measure, so intended or not, that may be an extra incentive to keep the yearly domain rotations going.
The other obviously fascinating thing about Somalia is that it's been a haven for real-life maritime pirates during the past few years. Even if such piracy has been declining as of late, it's still got a reputation as a pirate's den. In either case--for software pirates or maritime pirates--the impetus for choosing Somalia in its virtual or not-so-virtual iterations is exactly the same: there are no real "authorities" to speak of policing cyberspace or lawless regions of a failed state.

Dive Contest: Russian Ruble v Ukrainian Hryvnia

♠ Posted by Emmanuel in , at 11/19/2014 01:30:00 AM
Only the bravest would take a position on the RUB/UAH exchange rate.
In the Summer Olympics, they have a popular and quite watchable event called "synchronized diving." I am reminded of the sport when I observe the situation of two of the fastest-falling currencies worldwide, the Russian ruble and the Ukrainian hryvnia. Synchronized by geography, conflict and tragedy, both these countries' currencies are in dire straits. Russia's economy is a one-trick pony dependent on high global prices for energy to sustain itself. Ukraine's economy, meanwhile, lurches from one crisis to another without any end in sight. Fighting each other has further drained resources from both. There are no "winners" here to speak of. Recently, both countries have tempted fate by allowing their currencies to more or less float freely. The results are informative.

(1) Despite all Putin's showboating, the truth is that Russia could not maintain a burn rate of $2 billion or so a day defending the currency. So, it decided to allow the ruble to more or less float to find its real market value absent such large-scale market intervention. Once more, falling energy prices are impacting foreign exchange market participants' expectations about Russia going forward. For now, speculators are unwilling to push the currency past 40 ruble to the dollar. 30-some percent depreciation may have to do for 2014:
Falling oil prices, which started late July, fanned downside pressure on the ruble, battered by Russia’s flagging economic growth and Western sanctions. The country is now preparing to withstand a “catastrophic decline” in oil prices, President Vladimir Putin said in an interview to the state-run news agency TASS on Friday.

The ruble eased 0.7% to 47.13 versus the dollar by 1200 GMT, moving toward its weakest-ever level of 48.50 reached last week. Hit by a drop in Brent crude prices below $80 a barrel for the first time since September 2010, the ruble’s loss on Friday was relatively small compared to the volatility of the past few weeks.

Following a gradual weakening of the ruble to record lows in October, which prompted the central bank to spend some $30 billion to ease pressure on the currency, the Bank of Russia said on Monday that it would allow the rate to float freely in the market, eliminating its regular interventions. The central bank has warned however that it may carry out massive interventions at any level to deter speculators from betting against the ruble.

“Speculators are not opening new positions now, volatility is of cosmic proportions,” said Dmitry Stadnik, chief forex trader at Rosbank, the Russian subsidiary of French bank Société Générale.
(2) What about Ukraine's hryvnia? The re-entry of the IMF has apparently not stabilized the economic situation despite turning a blind eye to its dire straits. In other words, the IMF is lending with less regard for conditionalities given the precariousness of Ukraine's geopolitical situation. How can it be when your country's political situation involves being dismembered bit by bit? First the Crimean peninsula went, now the eastern regions are claiming to have voted for independence. Whatever; the end result is the same as in Russia--a diving currency:
Ukraine's hryvnia slid to a new historical low of UAH16.05 to the dollar at the close of November 12 on the interbank market. This marks a 50% devaluation on the UAH8 to the dollar exchange rate propped up by former president Viktor Yanukovych from 2010 through to his ousting in February 2014 - at the expense of the nation's hard currency reserves.

On November the National Bank of Ukraine reacted by deciding to raise the discount rate from 12.5% to 14.0%, partly to prop up the forex market. According to Valeriya Gontareva, head of National Bank of Ukraine (NBU), the central bank intends to fully switch to flexible exchange rate policy and inflation targeting.

Today's crossing of the psychological UAH16 to the dollar mark will not be the end of the descent, top NBU officials warned. "A balanced hryvnia exchange rate will come into being when the currency stops devalution," Serhiy Ponamerenko, the NBU's head of currency operations told newswires on November 13.

"Unfortunately, it is impossible to judge where the slide of the hrvynia might stop," says Dmitry Boyarchuk, executive director of thinktank CASE Ukraine. "If you look at the fundamentals, then there is no need for further weakening of the hryvnia. The problem is that the country has lost confidence in the leadership of the NBU, and in fact we see vicious circle of devaluation," Boyarchuk told Liga.net portal. 
As the chart above shows, relative to each other, the ruble is actually doing (gulp) better than the hryvnia even if they're both plowing historic lows. It's partly a function of Russia having by far the larger foreign exchange reserves to prop up the ruble for so long, but now that it has eased on intervention, we'll see what happens insofar as Ukraine has also let up on market meddling. As I mentioned, only the bravest foreign exchange traders would bet on the direction of the RUB/UAH currency pair. What a choice to make...

Construction Time: The Shopping Mall-ization of Mecca?

♠ Posted by Emmanuel in ,, at 11/18/2014 01:30:00 AM
In real-estate parlance, modern Mecca is a "mixed-use development."
Our Muslim brethren ("brethren" is actually a gender-neutral term since the corresponding "sistren" is now archaic) are obliged to go on the Hajj or pilgrimage to Mecca if their health and finances permit at least once during their lifetimes. There being over one and a half billion Muslims worldwide, think of the numbers of people Mecca must accommodate as this important religion continues to expand. It is not easy to cater to hundreds of millions making literally a journey of a lifetime who expect much of their visit. A captive market of 1.5+ billion! I should be so lucky (lucky, lucky, lucky).

Having done some research into tourism, I am conscious of the tradeoff between authenticity and commerce. Nowhere is this tradeoff more evident in terms of accommodating religious pilgrimages to Mecca. Hence, Saudi Arabian authorities have the difficult task of dealing with ever-larger volumes of pilgrims while simultaneously maintaining the sanctity of the site. Is this balance being achieved? The British Independent reports that some traditionalists are saying "not so" with all the construction going on:

The site in Mecca where the Prophet Mohamed is said to have been born is about to be “buried under marble” and replaced by a huge royal palace. The work is part of a multibillion-pound construction project in the holy city which has already resulted in the destruction of hundreds of historic monuments.
The project, which began several years ago, aims to expand the al-Masjid al-Haram, or the Grand Mosque, to cater for the millions of pilgrims who make their way to the holy city each year for the Hajj, the pilgrimage to Mecca that all Muslims are obliged to make at least once. Mecca is the holiest city in Islam because of its link to the birth of the Prophet, and because it is the site of the Kaaba, a cube-shaped building made from black granite and said to have been built by Abraham. The Grand Mosque is built around it, and Muslims face towards it when they pray.
It's construction time again, with allegedly harmful consequences for the historical sites in Mecca:
Many have looked on aghast at the destruction of hundreds of historic buildings and monuments to make way for the Grand Mosque’s expansion. According to the Gulf Institute, based in Washington, up to 95 per cent of Mecca’s millennium-old buildings have been destroyed, to be replaced with luxury hotels, apartments and shopping malls.

Last week, the remaining 500-year-old Ottoman columns, commemorating the Prophet’s ascent to heaven, were destroyed, Dr Irfan Alawi of the UK-based Islamic Heritage Research Foundation, told The Independent. He said that the House of Mawlid, thought to be where the Prophet was born in AD570, is likely to be destroyed before the end of the year.

We see here the contradiction that many perceive in Saudi Arabia: the caretakers of the holiest sites of Islam outwardly adopt the most conservative of stances of religion practice, yet they are also rather worldly in the sense of commercialization. Think of Saudi Arabia being the region's largest oil exporter as well.
To be fair, it is not easy to discount the argument that all these improvements are meant to facilitate handling large volumes of pilgrims. With so many millions coming to fulfill their religious obligations, the volume can literally be crushing, with fatal consequences. That said, reported plans to add shopping malls and suchlike would sit incongruously with a religious site of greatest importance.

The thing with many developing countries including Saudi Arabia is that they do not have listings like England's national heritage list that marks off sites and structures of historic importance which cannot be readily be built on. Of course, identifying such sites would require an arbiter independent of the monarchy. Is that possible? Wahhabism--the tenets of Islam followed by Saudi Arabia's leadership--may not be especially keen on placing too much emphasis on symbols such as sites--think of Protestantism's differences with Catholicism on iconography. Consider:
The brand-new Royal Mecca Clock Tower is among the tallest buildings in the world, and stands at the centre of a complex with a mall, hotel, and prayer hall. Other planned projects include an expansion of the Grand Mosque, high-rise hotel and apartment towers, and even new train lines. But those projects are drawing criticism from architects, historians, archaeologists, as well as pilgrims who question the value of the new additions.

Opponents also say rents in some of the new buildings close to the Grand Mosque are exorbitant and will only deepen the divide between rich and poor.

But the harshest condemnation has been reserved for the continued demolition of several significant historical and religious sites to make way for the new developments. Critics accuse the government of destroying those landmarks in accordance with Wahhabism, the country's official interpretation of Islam, which believes that shrines encourage idolatry. 
On one hand I have nothing against improving structures to make them fit for hosting more guests. On the other hand, the commercialization of the property into high-rise apartments and shopping centers does not necessarily follow--especially knocking down sites of religious importance to make way. Ironically, because Mecca is a religious site of such stature, millions and millions would still go there if it were remade into a theme park or something of that sort. However, would a single tourist go to, say, Shakespeare's birthplace if it were knocked down to make way for a strip mall? I think not.  All I can say is, thank heavens for national heritage trusts and their equivalents throughout the world.

Sometimes it shouldn't be about the money. Coming from the IPE Zone, that's saying something.

Three Kinds of Nations Embracing the Chinese Yuan

♠ Posted by Emmanuel in at 11/17/2014 01:30:00 AM
It's no big secret that the US dollar has been on something of a roll lately. With economic growth Stateside powering ahead of the likes of Japanese, European and even South American economies, the expectations are for the Federal Reserve to raise interest rates in the near future to stave off possible inflation. I for one don't think inflationary pressures are strong in the US with falling energy costs, non-existent wage growth and so on, but currency market movers and shakers apparently think otherwise.

That said, countries around the world are not waiting around and sticking with the US dollar en masse. Those hedging their bets in managing their currencies come in different flavors. First, there is the America-loathing group that would not want to hold their enemy's currency. There is, after all, a visceral dislike of all things American in certain parts of the world. Witness Russia receiving payment for an ever-larger share of its oil exports to China in renminbi:
In an interview with the Russian news agency Tass, Mr. Putin said that oil giant Rosneft is working with a major Chinese corporation to receive renminbi as a payments for a significant flow of oil. “We’re moving away from the diktat of the market that denominates all the commercial oil flows in U.S. dollars,” Mr. Putin said. Russian companies are increasingly shifting to direct renminbi-ruble trading to settle their imports and exports with Asia.

Turnover in direct transactions in the two currencies soared to $1.2 billion over the course of October, from $307 million in September and as low as $52 million in July, according to data available on the website of the China Foreign Exchange Trading System, the trading division of China’s central bank.
Another group of countries are China's near-neighbors in the Asia-Pacific seeing how the wind is blowing in the world economy and adjusting accordingly. In this group you have South Korea, which has aspirations to be another offshore center for yuan. This would be particularly useful for trade settlement:
Jung Eunbo, Korea’s deputy finance minister, said increasing the use of yuan for trade settlement will reduce transaction costs for local exporters. Currently 85% of Korea’s trade is settled in U.S. dollars. That means exporters need to sell yuan for dollars before turning them into Korean won.

Mr. Jung, in an interview, acknowledged that greater use of the yuan in Korea also would reduce appreciation pressures on the won. That’s because Korea over time hopes to develop a deep offshore market for yuan-denominated bonds and other financial instruments. Then Korean exporters won’t need to convert their overseas earnings into won at all.
The last group of countries are US-friendly Western nations who nonetheless see benefits in trading yuan to gain an advantage over more China-phobic countries. Witness Canada looking to get a head start over the US in North America:
Bank of Montreal and HSBC Holdings Plc are among banks that stand to benefit from Canada’s designation as the latest nation to host a trading hub for China’s currency. China on Nov. 8 gave Canada a 50 billion yuan ($7.9 billion) quota under the Renminbi Qualified Foreign Institutional Investor program as Prime Minister Stephen Harper visited Beijing.

China’s State Council also approved a three-year, C$30 billion ($26 billion) currency swap agreement with the country, while the Chinese central bank appointed Industrial and Commercial Bank of China to clear renminbi transactions in Canada. Countries around the world are bidding to establish trading centers for the yuan, which surpassed the euro last year to become the most widely used currency in trade finance after the U.S. dollar.
Unlike commonly traded currencies, critics of capitalism will be glad to note that RMB are mostly used to settle actual trade transactions. Recall, after all, that the yuan is now the second most-widely used currency for settling trade after overtaking the euro in 2013:
China’s yuan overtook the euro to become the second-most used currency in global trade finance after the dollar [in 2013], according to the Society for Worldwide Interbank Financial Telecommunication. The currency had an 8.66 percent share of letters of credit and collections in October [2013], compared with 6.64 percent for the euro, Swift said in a statement today. China, Hong Kong, Singapore, Germany and Australia were the top users of yuan in trade finance, according to the Belgium-based financial-messaging platform.

Truth or Slander? China's Stingy Philanthropy

♠ Posted by Emmanuel in at 11/15/2014 01:30:00 AM
China's rich learn to give a little.
One of the recurrent media tropes that gets rehearsed when disasters and catastrophes strike around the world is that the Chinese cheap out on helping their fellowmen. This accusation stings since China likes to portray itself as a champion of third world solidarity and is ostensibly a communist nation besides which should concern itself with the fate of a global working-class proletariat. We got a flavor of this about this same time last year when Typhoon Haiyan leveled large parts of the Philippines. Because of its ongoing territorial squabbles with the Philippines, the Chinese originally provided a measly amount for disaster relief--only for the PRC to increase it after a barrage of international criticism:
China has increased its offer of aid to the typhoon-ravaged Philippines after an embarrassing outcry over its meagre $US100,000 initial donation - but the attention has already turned to the damage to its reputation, and doubts over its military capabilities, in the very region in which it is vying for influence with the US and Japan.
The initial response to the calamity, $US100,000 from the foreign ministry, matched by the government-controlled Chinese Red Cross Society, raised eyebrows in the region and stacked up poorly compared to contributions from Australia, Japan and the US - who have all stumped tens of millions in financial aid and on-the-ground assistance.
On Wednesday, China said it would provide 10 million yuan ($1.75 million) of relief supplies - in the form of tents and blankets - to communities devastated by typhoon Haiyan.
You'd' think this would've silenced China's critics, but no. "IKEA sent more money to the Philippines than China!" cried one headline when IKEA doesn't even have stores in the Philippines. And so on and so forth.

More recently, we have the Ebola crisis in Western Africa to slam the Chinese on. China being a large investor in the continent as a source of raw materials to power its mighty industrial machine--including the Ebola-affected countries--it certainly does not escape attention. Despite sending rather more private and public funds to combat Ebola, campaigners in the West are still saying the Chinese are stingy:
China has contributed over $120 million to fight the spread of the Ebola virus, but its billionaire tycoons - it has more than anywhere outside the United States - have, publicly at least, donated little to the cause, underscoring an immature culture of philanthropy in the world's second-biggest economy.

As the ranks of China's wealthy and the success of its corporations grow, donating to good causes has yet to take off in a significant way. China sits toward the bottom of the list of countries where people give money to charity, volunteer or help a stranger, according to The World Giving Index, compiled by the Charities Aid Foundation.

Donations to charities totaled 98.9 billion yuan ($16.1 billion) in 2013, according to Chinese government data, recovering from two straight years of declines. For comparison, Americans gave more than $335 billion, according to the National Philanthropic Trust website.

Many big Chinese companies have invested in Africa - China is Africa's leading trading partner - and some 200 operate in West Africa, where Ebola has been at its most lethal, killing close to 5,000 people. These include construction, infrastructure and telecoms firms such as Huawei, China Henan International Cooperation Group and China Communications Construction Co Ltd. A Huawei spokeswoman said Africa was an important market, but declined to comment on philanthropy or specific ventures in Ebola-hit countries. China Henan and China Communications Construction did not respond to requests for comment.
I have some interest in the nonprofit and voluntary sector and find the (non-)emergence of Chinese philanthropy fascinating. (While working at LSE IDEAS, one of our partner institutions was the Institute for Philanthropy.)To be fair, there are factor militating against the emergence of major charities in China. Given its stringent controls on permissible civil society actors as potentially rival political organizations competing for the people's loyalty, you cannot expect charities to freely operate there. To the point, fundraising independent of the state is largely disallowed. On the other hand, China's critics who portray it as a malign influence in the coarsening of global public-spiritedness would link its cheapness regarding humanitarian causes to a cultural trait of hard-heartedness. Witness the media firestorm covered worldwide over motorists ignoring Wang Yue, the toddler run over by a car and ignored by passers-by until she passed away.

As with most things, I believe the truth lies somewhere between these two extremes: Officials treating do-gooders with less suspicion would certainly help in nurturing a culture of giving which is not quite as prevalent in China (yet) as it is elsewhere. That said, the government has yet to move past the "to get rich is glorious" exhortation of Deng Xiapoing to incorporate social concerns of a more globalized nature. We'll see.

Celebrity Activism & 'African' Ebola, Band Aid 30 Edition

♠ Posted by Emmanuel in , at 11/14/2014 01:30:00 AM

It was the holiday season thirty years ago when Band Aid penned the now-ubiquitous "Do They Know It's Christmas?" to draw attention to the ongoing famine in Ethiopia. Celebrity activism over Africa has elicited both praise and controversy: On the praise side, Queen Elizabeth knighted Boomtown Rats frontman Bob Geldof--he who doesn't like Mondays--for this well-meaning effort. Two decades later, U2 frontman Bono was also knighted for his humanitarian work. All the same, controversy has dogged these celebrity-led efforts for not only being superficial but also stereotyping Africans as helpless folks reliant on aid from Westerners. For a characteristic critique along these lines, see Dambisa Moyo's Dead Aid.

All these memories and all these controversies are coming back with the announcement that Sir Bob Geldof and Midge Ure of Band Aid fame are now recording a 30th anniversary iteration of the hit single featuring today's top acts like the boy band One Direction (OK, so I'm not into boy bands but it's the thought that counts, right?) Reportedly, the United Nations called Sir Bob and urged him to record a new single:

A new all-star Band Aid single will help fund relief efforts to fight the spread of the Ebola virus in West Africa, Sir Bob Geldof has confirmed. But the lyrics to Do They Know Its Christmas? have been updated because the continent’s “booming” nations no longer face a famine threat. Ed Sheeran, Sam Smith, One Direction, Chris Martin, Emeli Sande, Ellie Goulding, Bono and Chris Martin are among the names taking part in a fourth Band Aid single, marking the 30th anniversary of the original best-selling charity record.
Geldof said the younger members of Band Aid 30 had told him they had sung the song in nativity plays, such is its standing as a modern-day Christmas carol. However Geldof and his musical collaborator Midge Ure have tweaked the lyrics to remove references to hunger. The new version, which will be recorded on Saturday and released as a download on Monday, will no longer hymn those “underneath that burning sun” where “no rain nor rivers flow”...

The campaigner [Geldof] said that he decided to revive Band Aid, not out of “nostalgia” but after getting a call from the UN that the Ebola virus was “getting out of control”.
To no one's surprise, the inevitable barrage of criticism accompanying celebrity activism has returned, too. Witness:
There is a humourless danger in taking song lyrics too literally, but I can’t help it: yes, they do know it’s Christmas time in Africa because huge swaths of that vast continent are Christian; the greatest gift anyone can have is life; and actually, it is more likely to be water, not just “bitter tears”, flowing across Africa’s 54 nations...

There exists a paternalistic way of thinking about Africa, likely exacerbated by the original (and the second, and the third) Band Aid singles, in which it must be “saved”, and usually from itself. We say “Africa” in a way that we would never say “Europe”, or “Asia”...

It is interesting that Geldof says he received a call from the UN to say that Ebola was “getting out of control”. Why does the red emergency telephone go for charity, over joined-up inter-govermental action? Thirty years after the original, and lineups that include the great and the good as well as a turning carousel of opportunists, how is it still incumbent on pop stars to rise up to sing a song that manages to also gently dehumanise the people it is helping? Even the logo – an outline of Africa (no Madagascar) with BAND AID written across it, along with a hashtag “#E30LA” – feels cheap and insulting.
Ouch. There's also the recurrent criticism that the aid appeal does nothing to inform listeners of the political-economic complexity of the situations in the worst-affected countries of Liberia, Sierra Leone and Guinea, wracked as they have been by years of civil war and corruption. Before going on a hardcore leftist critique, this other Guardian commentary makes this point:
Band Aid’s simple message erased all political complexity from the Ethiopian famine – not a natural disaster pure and simple, but a catastrophe used and exacerbated by a brutal government to destroy rebel fighters challenging its authority. Today, Ebola also exists in a political context, and while agencies dealing with the crisis do need funds, Sierra Leone, Liberia and Guinea also need political solutions to challenge the exploitation that bred Ebola.
The inevitable posing by entertainers aside, it's always hard to criticize those who are well-intentioned. However, you have to wonder if years of portraying "Africa" being a helpless entity has conditioned us to view the continent as a large, undifferentiated mass in which Ethiopia is roughly the same place as the Western African countries being ravaged by the disease. That is, it reduces the vast cultural and geographic diversity of a continent to "the 'Africans' are dying again; let's give lots of money to help"! An unwelcome side effect of portraying these problems as pan-African ones is that tourists are staying away in droves from destinations which are very far from Western Africa afflicted by the virus. 

The honest truth is that most Westerners do not have a sufficient understanding of the continent, but what can be done? The trend in our sound bite-saturated age is to pack complex issues into ever-shorter, more readily digestible forms. How much relevant information can you pack into a three-minute song?  For better or worse, that is the media environment you have to deliver your message in.

25 Years Later, are Post-Communist Europeans Better Off?

♠ Posted by Emmanuel in , at 11/13/2014 01:30:00 AM
Did 1989 really matter all that much economics-wise?
9 November 1989 is the date when the historians consider the Berlin Wall to have gone down. Festivities in Germany have marked the twenty-fifth anniversary of this momentous occasion. For Francis Fukuyama, this event symbolized the End of History in which all political economies would converge on democratic capitalist systems in the absence of other viable alternatives. Alas, such has not been the case with the persistence of other systems--especially those of China and Vietnam which have successfully combined elements of an authoritarian state, central planning, and capitalist institutions on the margin. However, that counterexample pales in comparison to an even greater blast from the past: are "post-Soviet" states actually better off economically?

An interesting article in Businessweek suggests "not always" as many newly-formed countries are actually falling behind in the global economic league tables:
According to World Bank figures, the low and middle-income countries of Eastern Europe and Central Asia as a region have increased their average GDP per capita 43 percent since 1990. That’s slightly better than Sub-Saharan Africa but worse than South and East Asia, Latin America, or the Middle East and North Africa. For 25 countries in the former Eastern bloc, the per-capita GDPs of 13 (containing most of the region’s population) have expanded more slowly since 1990 than the global average. Of the 165 countries for which the World Bank has data, Russia’s GDP per capita (measured in purchasing power parity) was 33rd highest in 1990 and 42nd highest in 2013. Ukraine dropped from 55th to 93rd. Bulgaria and Latvia dropped one spot, Romania four, and Hungary eight. Poland did manage to climb 16 spots, to 45th richest, but it was very much in the minority. While Albania, Poland, Belarus, and Armenia have more than doubled their income per capita since 1990, six countries in the region are poorer than they were that year, including Ukraine and Georgia.
More alarming yet is the notion that these countries actually did better during the Soviet era:
It isn’t just compared with countries in the rest of the world that growth rates across much of the former communist bloc are disappointing—it’s compared with their performance under communism. The Maddison project has historical data for 46 economies covering 1939, 1989, and 2010. That includes Bulgaria, Hungary, the former Yugoslavia and its successor states, and the former USSR and its successor states. In 1939, Bulgaria was the 36th richest of the 46 countries. It climbed to 31st richest by 1989 and reached 30th richest by 2010. The USSR was in 27th place in 1939. It reached 26th place by 1989, before the successor states as a group fell back to 34th by 2010.
Having mentioned China and Vietnam, it all brings to mind the common accusation that Western one-size-fits-all prescriptions of deregulation, liberalization and privatization do not necessarily promote growth:
The trouble for such theories is that as a group, post-Communist countries have performed badly—and some of the countries that have adopted the most liberal policies have seen the weakest growth. It’s true that Poland introduced stronger reforms than nearly all other former communist states and has since fared much better in economic performance. But Georgia has also been a darling of the international community for the strength of its reform program; the World Bank’s Doing Business report, which purports to measure the quality of regulation surrounding starting and operating a business, suggests Georgia’s regulatory environment is better than Canada’s, Taiwan’s, or that of the Netherlands. Yet the country (wracked by Russian interventionism) remains poorer than it was at independence.
As it so happens, the IMF which made many post-Communist states implement such reforms via conditionalities for liberalization, privatization and deregulation has also just released another report entitled 25 Years of Transition: Post-Communist Europe and the IMF. The IMF is more sanguine on the fate of these states, and unsurprisingly suggests that incomplete reform is to blame for certain cases of underperformance:
The past 25 years have seen a dramatic transformation in Europe’s former communist countries, resulting in their reintegration into the global economy, and, in most cases, major improvements in living standards. But the task of building full market economies has been difficult and protracted. Liberalization of trade and prices came quickly, but institutional reforms in areas such as governance, competition policy, labor markets, privatization and enterprise restructuring often faced opposition from vested interests. 
For some strange reason, the IMF does not include Georgia in its survey. Another thing it does is compare the performance of post-Communist states solely in terms of their rankings relative to other European states (Western ones included). Is this a fairer comparison to look at pan-European performance instead of on a global basis? Also, they do not compare Soviet-era performance with post-Soviet era performance. For what it's worth, they offer the illustration below and its accompanying description:
The macroeconomic ranking is based on a weighted average of seven macroeconomic indicators (current account balance, inflation, unemployment, government balance and debt, GDP per capita at PPP and real GDP growth). Weights were generated by principal components analysis [factor analysis] of EU14 countries (EU15 excl. Luxembourg) using 2000–14 averages, which yielded results fairly close to equal weighting across the seven variables (with all taking the expected signs). The variables were normalized against 2000-14 EU14 benchmarks. 
While it may be fair to point out that European countries' economic performance has lagged that of other regions (and therefore excuses the measured performance of certain post-Communist European states), the IMF skirts the issues of comparing post-Communist European states' performance on a global basis and over time--especially the Communist era. Granted, the accuracy of economic record-keeping during Communist times is somewhat suspect, but unless the relevant comparisons are made, there will always be doubters.