SWFs: Euro-Protectionism Rears Its Ugly Head

Just out is the European Community paper on A Common European Approach to Sovereign Wealth Funds. In the coming months, the EC will likely try and persuade SWFs to comply with its provisions...or else. It is a nasty read on several levels, and you can see why for yourselves. Among other things I would like to ask the EC are:
- Why aren't hedge funds operating in Europe subject to the same "transparency" provisions?
- Can't foreign investment more readily be expropriated if relations go awry with SWFs' home nations?
- In what historical cases have SWFs used their investments in the EU in a "political" way?

I doubt whether any answers are forthcoming. In any event, here are the recommendations by the EC on improved SWF "transparency":

Transparency practices that could be considered would include:
• Annual disclosure of investment positions and asset allocation, in particular for investments for which there is majority ownership;
• Exercise of ownership rights;
• Disclosure of the use of leverage and of the currency composition [this is largely a non-sequitur; SWFs hardly use any leverage but use reserve proceeds in most cases];
• Size and source of an entity's resources;
• Disclosure of the home country regulation and oversight governing the SWF.

Yuck...and here are the punitive measures the EC has in mind for potential SWF transgressors:

The free movement of capital is not absolute. As a fundamental principle of the Treaty, it may be regulated in two respects at the European level under Article 57 (2) EC: first, the Community may adopt by qualified majority measures on the movement of capital from third countries involving direct investment Second, it is not excluded that the Community can introduce – by a unanimous decision - measures that restrict direct investments.

The Merger Regulation allows Member States to take appropriate measures to protect legitimate interests other than competition. Such measures must be necessary, nondiscriminatory and proportionate as well as compatible with other provisions of Community law. Public security, plurality of the media and prudential rules are regarded as legitimate interests, whilst other interests can be considered legitimate on a case by case basis on notification to the Commission [my emphasis].

Turning to national legislation, Member States have national instruments which could be used to control and condition SWF investments or any other investors and they can also develop new measures suitable to tackle specific needs if these arise, as long as those measures are compatible with the Treaty, are proportionate and non-discriminatory, and do not contradict international obligations.

The European Court of Justice has provided further guidance on how Member States can take these national measures in full compatibility with the Treaty, stressing that purely economic grounds can never justify obstacles prohibited by the Treaty. The Court has also provided criteria to assess the proportionality of authorisation systems: these must aim at the protection of a legitimate general interest and foresee strict time limits for the exercise of opposition powers, assets or management decisions targeted must be specifically listed, and the system’s objective and stable criteria must be subject to an effective review by the courts.

Lastly, there is scope to monitor and control the behaviour of SWFs as investors on an ongoing basis via the regulatory framework, which offers an effective tool to protect public interests irrespective of ownership. This is particularly the case in network industries.

The Problem with Wind Power (No Wind)

Allocating more power production to wind makes you more vulnerable to power losses when there's little or no wind for a prolonged period of time, 'nuff said. From Reuters:

A drop in wind generation late on Tuesday, coupled with colder weather, triggered an electric emergency that caused the Texas grid operator to cut service to some large customers, the grid agency said on Wednesday.

Electric Reliability Council of Texas (ERCOT) said a decline in wind energy production in west Texas occurred at the same time evening electric demand was building as colder temperatures moved into the state.

The grid operator went directly to the second stage of an emergency plan at 6:41 PM CST (0041 GMT), ERCOT said in a statement.

System operators curtailed power to interruptible customers to shave 1,100 megawatts of demand within 10 minutes, ERCOT said. Interruptible customers are generally large industrial customers who are paid to reduce power use when emergencies occur.

No other customers lost power during the emergency, ERCOT said. Interruptible customers were restored in about 90 minutes and the emergency was over in three hours.

ERCOT said the grid's frequency dropped suddenly when wind production fell from more than 1,700 megawatts, before the event, to 300 MW when the emergency was declared.

In addition, ERCOT said multiple power suppliers fell below the amount of power they were scheduled to produce on Tuesday. That, coupled with the loss of wind generated in West Texas, created problems moving power to the west from North Texas.

ERCOT declares a stage 1 emergency when power reserves fall below 2,300 MW. A stage 2 emergency is called when reserves fall below 1,750 MW.

At the time of the emergency, ERCOT demand increased from 31,200 MW to a peak of 35,612 MW, about half the total generating capacity in the region, according to the agency's Web site.

Texas produces the most wind power of any state and the number of wind farms is expected to increase dramatically as new transmission lines are built to transfer power from the western half of the state to more populated areas in the north.

Top Ten Things the Dollar is Still Useful For

According to Iranian President Mahmoud Ahmadinejad--a blogger just like me--"the dollar has no economic value." Ol' Mahmoud wasn't quite right, but surely it's getting near that point as B-B-B-Bennie of the Feds keeps cutting rates Stateside. Inflation? What's that? Let me be perfectly honest and explain the source of my pique: since late last year, I have been trying to change my remaining dollars into something more useful, namely Euros. However, there has been no buying opportunity as dips in the EUR/USD rate have been hard to come by. And things are getting worse for dollar holders (suckers, patsies, dupes) as the Euro is now trading above $1.52. While I wait in my pumpkin patch for a buying opportunity, I've decided to vent some of my anger. I'm sure none of you who have the misfortune of holding dollars are happy, either. What a piece of junk...

Top Ten Things the Dollar is Still Useful For

10. Confetti when “President Obama” brings the troops home from Iraq
9. Styrofoam substitute when sending packages via eBay
8. Semi-flightworthy paper airplanes
7. Exceedingly narrow paper boats
6. Wrap for homemade cigarettes
5. Wrap for reefers (“Don’t Fear the Reefer” for you Blue Oyster Cult fans)
4. Replacement for Saran wrap for that smoky flavoring (tape bills together)
3. Substitute for children's play money (ooh, the irony)
2. Kitchen wipes
1. Toilet wipes (that ain’t too Charmin)

Shipbreaking: The Dirtiest Job

Journalist William Langewiesche wrote a notable article sometime ago in the Atlantic on the shipbreaking "industry"--if you can call it that. Taking apart ships to reuse the raw materials contained in them is nasty and brutish business, for sure. However, it does provide livelihoods for thousands of folks in South Asia, no matter how meager. The Atlantic article is well worth reading if you haven't seen it yet. Meanwhile, Foreign Policy offers a photo essay on shipbreaking. What jogged my memory, actually, is this 60 Minutes excerpt about the topic at hand. For more, there is also another video clip on YouTube about Chittagong in Bangladesh which may be considered as the capital of shipbreaking. It's harrowing stuff, but with commodity prices so high, scrap metal and other salvageable materials command a pretty good price nowadays. Greenpeace has an entire section on the industry and its associated ills.

Getting to Know Islamic Banking

I am fascinated by this race among financial centers and major banks to create Islamic banking products [1, 2]. With the oil windfall set this year to hit an amount unimaginable to your humble correspondent who takes public transportation and cuts out store coupons, Islamic banking has become all the rage. As you know, Shar'ia law prohibits the charging of interest. However, many observers and I myself have observed that these Islamic banking instruments basically emulate the concept of interest without actually calling it so. Is there anything fundamentally different to it, or am I correct?

In any event, one of the banner ads in the Financial Times brought me to this HSBC site hawking Islamic banking products. Here's a sample; figure out for yourselves what the difference is from regular banking. As I've said, it's beyond me...

Mudaraba [="venture capital"?]
A mudaraba transaction is an investment partnership. In a mudarab arrangement, the contract is between an investor (or financier) and an entrepreneur or investment manager known as the mudarib. Risk and rewards are shared. In the case of a profit, both parties receive their agreed-upon share of the profit. In the case of a loss, the investor bears any loss of capital while the mudarib loses his time and effort.

Transaction Process
A generic mudaraba process could take the following basic form:

• Step 1: The investor and the mudarib agree on the nature of the venture and the terms of profit sharing.
• Step 2: The investor provides capital to the mudarib.
• Step 3: The mudarib undertakes the venture agreed upon between the parties
• Step 4: Profits from the investment are shared between the investor and the mudarib

Ijara [="lease"?]
An ijara is an Islamic lease. The bank purchases an asset and leases it to a client for fixed monthly payments. An ijarah may include an option for the lessee to buy the asset at the end of the lease, though such a provision is not required.

Transaction Process
A generic ijarah process could take the following basic form:

• Step 1: The bank and the client agree on the terms of the lease.
• Step 2: The bank purchases the asset from the seller.
• Step 3: The client leases the asset from the bank, paying a fixed monthly rental
• Step 4: The client purchases the asset from the bank at the end of the lease period.

Murabaha [="installment purchase"?]
A murabahah transaction is a sale at a stated profit. In a murabahah transaction, the bank purchases something from a third party and sells it to the client at a stated profit on a deferred payment basis. In this way, the client can buy something without taking an interest-based loan.

Transaction Process
A generic murabahah process could take the following basic form:

• Step 1: The client expresses intent to engage in a murabahah transaction facilitated by the bank and, subject to bank approval, signs a "Promise to Buy".
• Step 2: The bank purchases the item from the seller.
• Step 3: The client purchases the item, in instalments, at the purchase price plus a stated profit.

Goh Chok Tong to West: R-E-S-P-E-C-T Asia's Rise

Singapore's former PM and current Senior Minister Goh Chok Tong recently made a noteworthy speech at the Second Annual Asian Leadership Conference in South Korea. In the speech, he asked the Western powers that be to consider a greater role for Asia in global governance. This is the introduction:

For more than 200 years, the West has dominated the international system both politically and economically. But Asia is now growing rapidly, shifting the balance back towards the East. It began with Japan, and was followed by Korea and the Newly Industrialised Countries, and now China and India. Asia’s continued economic growth will compel political and strategic adjustments to the established international order. Such adjustments are best brought about through win-win global cooperation rather than a winner-takes-all competition. Therefore, it is in the interest of the West to give the emerging Asian powers a stake in the existing international order and accommodate its legitimate interests. In turn, Asia must play a greater role, as a partner and not a rival of the West, in maintaining international order and preserving global stability. This requires an adjustment to relationships, based on respect on the part of both the West and Asia of each other’s aspirations. This is common sense but is easier said than done for it involves a change of mindsets and redefinition of interests by both sides. How this process is managed is a basic strategic challenge.

As you would expect, Goh has lots of meaningful things to say. He is also critical of the notion of the West imploring the developing world to become "responsible stakeholders" without having much of a stake in institutions of global governance such as the UN Security Council, the World Bank, and the IMF:

Former US Deputy Secretary of State, now World Bank President, Robert Zoellick, made the case for China to become a “responsible stakeholder” in the international system. China would then be responsible for strengthening the international system from which it has benefited and enabled it to grow and prosper. What Bob Zoellick said applies equally to the other major economies in Asia, and ultimately, to all stakeholders in the world.

But to be a “responsible stakeholder” requires a stake. And it is not unreasonable for Asia to expect some say in determining what that stake should be and not just accept the existing order or norms. Whether the West likes it or not, Asia will seek economic, political and even cultural influence commensurate with its growing economies. The awkward truth is that current international political norms, practices and institutions, as they have evolved after World War II, were driven by the West, and no longer accurately reflect the real distribution of power in the world. They are therefore unable to fully meet key global challenges or the aspirations of rising powers.

At the apex of the post-World War II institutions is the UN Security Council (UNSC). The current Permanent Members of the UNSC need to accept the fact that the inclusion of the rising powers, particularly those from regions that are currently unrepresented, would help enhance international stability and the relevance of the UN. Similarly, why, to take another example, should international financial institutions like the IMF and World Bank only be run by European and American appointees?

To be sure, this is not the first time that calls have been made for reform at the UNSC, IMF or World Bank. But we need to go beyond words to real action. The World Bank, under Bob Zoellick, has taken small steps in this direction, such as appointing Justin Lin as its Chief Economist. Lin, an eminently qualified Chinese, will be the first to occupy the position from an emerging economy. But more needs to be done, at a faster pace, to increase the representation of not just China but other emerging players from key regions.

Read the entire speech. It has several more sensible ideas.

Sarko's Latest Guise: Doha Round Fiend

One thing you cannot accuse French President Nicolas Sarkozy of being is staid. His extroverted character has taken a number of turns, many of which are in conflict with each other: tabloid fodder, potty mouth, free market skeptic, union buster, defender of French national champions..and now this. It is known by every third world campaigner and NGO from Afghanistan to Zaire that France is the European state whose farmers rely the most on farm subsidies. Furthermore, "the farm" still has a mystique (mistake?) among the French electorate that keeps it lathered in subsidies which hurt farmers in the developing world. Well, here's something that will give the Oxfam crowd fits. According to Sarkozy, Peter Mandelson is going overboard with offers to cut EU farm subsidies already. Not that they have been successful in gaining the assent of developing countries, but whatever subsidies are already on offer are too much according to Sarkozy. Somehow, I don't think this will play very well in the developing world. From Reuters:

French President Nicolas Sarkozy said on Saturday the European Union was making too many concessions in current World Trade Organisation (WTO) talks and called for emerging countries to show more goodwill. He said the EU needed to defend its interests more vigorously and France would oppose any deal that went against its interests and those of the EU bloc. "I regret that Europe is making more and more important concessions without anything in exchange. This attitude is an impasse," Sarkozy said at the inauguration of the Paris annual farm show. "The government of the French Republic will firmly oppose any agreement that would sacrifice the interests of French and EU agriculture," he added.

France is the single biggest beneficiary of the EU's farm subsidies, worth more than 40 billion euros ($58.5 billion) a year in total. Negotiations on the Doha round have ground almost to a halt in Geneva this week as diplomats pored over the revised texts issued this month to pave the way for a ministerial meeting...

"The emerging countries think that they have only rights and no obligations," Sarkozy said.

The talks, often declared dead, were revived last year, and trade ministers meeting at the World Economic Forum in Davos last month declared their determination to meet in March or April with a view to completing the deal by the end of the year [we can all dream, no?]

Showdown: US Treasury v. Iran's Central Bank

Here's more conflict escalation, American style. The US Treasury Department is in the process of gathering dirt on Iran's central bank, accusing it of facilitating the transactions of Iranian banks that have been sanctioned against by the US of A. Isolating Iran's central bank would be a major move by the US to choke off one of Iran's key remaining financial links to the rest of the world, though the US needs to gain the support of its allies. The US hopes to do so by linking Iranian financial activity to terrorist financing. This showdown will be an interesting one to watch. Unlike the US, most European countries are not as harsh in their treatment of the Islamic republic. From the Wall Street Journal:

The Treasury Department is gathering evidence it says shows that the central bank of Iran is helping other Iranian institutions elude U.S. economic sanctions, in what could be a prelude to penalties against the central bank.

The investigation, described by financial-intelligence officials in three countries, signals a potential escalation in the financial battle Washington is waging against Tehran. Beginning in 2006, the U.S. imposed sanctions against several of Iran's major private-sector banks, blacklisting them for allegedly supporting terrorism and Iran's nuclear-weapons program.

Now, financial-intelligence officials say the Iranian central bank, also known as Bank Markazi, is handling U.S.-dollar transactions for the blacklisted private banks, and is also helping them by backing their existing dollar-denominated letters of credit.

The impact of any American move to sanction the central bank would depend in large measure on the extent to which U.S. allies joined in the effort. To enlist such support, the U.S. would have to make a strong public case for action...

The central bank is the keystone of Iran's financial system and its principal remaining lifeline to the international banking system. U.S. sanctions against it could have a severe impact on Iranian trade if other nations in Europe and Asia choose to go along with them. That would intensify the economic pressures already facing Iran...

U.S. officials have begun trying to lay the groundwork for a move against the central bank in public statements and meetings with key allies. In a Feb. 8 speech, U.S. Deputy Treasury Secretary Robert Kimmitt asserted that Iranian banks are attempting to remove their names from transaction records when conducting business internationally.

"This practice, which makes it difficult, if not impossible, to determine the true parties in the transaction, is even used by Bank Markazi, Iran's central bank," Mr. Kimmitt alleged...

The U.S. has rarely sanctioned a foreign central bank, though the central bank of Iraq was included in sanctions it imposed on that country in the 1990s as it ratcheted up pressure on then Iraqi leader Saddam Hussein.

Unlike the independent Federal Reserve in the U.S., Iran's central bank is an arm of the Iranian regime and subject to political influence. Its Money and Credit Council includes the country's minister of intelligence.

Also unlike the Fed and many other central banks, Bank Markazi handles letters of credit and foreign-exchange transactions for private and state-owned companies. Because it isn't included in current American and U.N. sanctions, and has accounts with many of the major European banks, it is able to tap those banks' services on behalf of the banks the U.S. has punished with sanctions...

Under American laws, any institution that aids an entity covered by American financial sanctions is itself liable to penalties. In practice, however, officials acknowledge that getting international support for action may require them to make a more powerful case that the Iranian central bank actually aids sinister activity, such as funding terrorism.

Officials are aiming to lay that foundation as well. Between 2001 and 2006, Mr. Kimmitt alleged in his speech, Bank Saderat, an Iranian bank, "moved $50 million from the central bank of Iran through its subsidiary in London to its branch in Beirut to the benefit of Hezbollah front organizations in Lebanon that support acts of violence." Those remarks reiterated an allegation the U.S. Treasury first leveled in 2006.

Euro-Protectionism Has Fits Over SWFs

Uh-oh, here we go again. Just after I made a largely positive write-up of Peter Mandelson being interviewed in the Wall Street Journal, he springs some nasty SWF-bashing rhetoric on us. The above table from the SWF blog illustrates that the EU isn't really the largest of SWF investment destinations, so it's kind of puzzling why the EU is gearing up to protect itself from an invasion of purported SWF-body snatchers. I had been aware that the EU was becoming increasingly wary of sovereign wealth funds, but I didn't know that Mandelson was the ringleader of the whole affair. The Financial Times writes on the emerging sordid story:

The world’s sovereign wealth funds will be asked to accept a voluntary code of conduct governing their investment activities under proposals poised for approval next week by the European Commission. Peter Mandelson, the European trade commissioner, said the code would set out basic standards of governance and transparency for the funds.

“The emphasis in their investments should be on commercial motivations, not national or strategic considerations. I think such a code is possible to draw up and would get acceptance from the wealth funds,” he told the Financial Times.

Similar voluntary guidelines are being prepared by the International Monetary Fund, which estimates there are more than 20 big state-backed funds that control between $1,900bn and $2,900bn in global assets.

Sovereign wealth funds from Abu Dhabi, China, Saudi Arabia and Singapore have injected billions of dollars into some of the world’s biggest investment banks since November. The funds provided vital liquidity for world financial markets but many politicians and elements of public opinion in the US and Europe remain worried about the implications of letting the funds acquire stakes in powerful companies and business sectors.

EU officials said the Commission’s proposals, which are due to be approved on Wednesday, would contribute to international efforts to set a framework for improving the openness and accountability of the funds. The proposals represent the 27-nation European Union’s first attempt at addressing the funds’ activities at EU level. They aim to balance concerns over the alleged lack of transparency and political motivations of certain funds with a message about Europe’s openness to foreign investment.

“We should be positive, not paranoid, about the operations of sovereign wealth funds,” Mr Mandelson said. “A voluntary approach is preferable to a statutory one. Otherwise we get into a divisive debate about enforcement and sanctions.” EU finance ministers are expected to discuss the Commission’s proposals on March 4. If the funds refuse to accept a voluntary code of conduct, pressure may grow for laws obliging them, at the least, to disclose their investments.

Well of course SWFs have political interests as well as economic ones in mind. How could it be otherwise for state-owned entities? Their whole existence is a policy choice. I have always though the need for SWF disclosure overblown. This may be the only time that I agree with one Richard Posner, but it's indeed true that foreign investment may be a welcome way to ensure that the governments behind these investments do not undertake monkey business because it's so much easier to expropriate their investments when they are on home soil. Yes, the context is the EU not the US, but the idea remains the same:

...the purchase of assets by foreign nations, even when they are hostile or potentially hostile to us, does not threaten [our] welfare or security. The purchase of a company from its owners places money in the hands of those owners that they can invest for a higher return--if they did not think they could do this, they would not sell the company. So such a purchase is wealth-enhancing. It does not undermine our national security just because the purchaser is a foreign government, but on the contrary enhances our security because the investment is a hostage...

By doing this they are giving hostages to the nations in which they invest. We should welcome the fact that these investments are less liquid than the short-term securities in which governments conventionally invest their reserves. The less liquid an asset, the better a hostage it is; it can't be withdrawn as rapidly.

So again with the EU as with the US, to hell and back with this protectionist tomfoolery. Free trade is free trade is free trade: If the West wants to gain buy-in from the rest of the world for the free trade agenda, preventing SWF investment over dubious "transparency" provisos is, well, quite unfree. Bad show, Mandelson.

World's Busiest Port in 2007: The Rematch

Sometime ago I made a post regarding the world's busiest ports. Out of curiosity, I decided to look whether the status quo was preserved in 2007 of Shanghai having the world's busiest cargo port and Singapore the world's busiest container port. To understand the nature of this difference, let's go back to my earlier post's definitions. Cargo tonnage refers to the total weight of goods that are loaded and discharged at a port, whereas container throughput refers to the number of twenty-foot equivalent units (TEUs) which go through a port. For example, a forty-foot container would count as 2 TEUs.

Let us begin with cargo tonnage. In 2007, Shanghai handled 560 million tons of cargo to Singapore's 483.4M tons. In 2006, Shanghai handled 537M to Singapore's 449M tons, so Singapore is closing the gap somewhat with respect to cargo tonnage. They are in first and second place, respectively, with Rotterdam coming in third with 406M tons.

Meanwhile, Shanghai is closing in fast on Singapore's lead with respect to container throughput. In 2007, Singapore held on to its lead with 27.9M TEUs handled compared to 26.15M for Shanghai. In 2006, the difference was 24.8M TEUs in Singapore compared to 21.7M TEUs for Shanghai. Don't expect this situation to last; even the head honcho of Singapore's port authority expects Shanghai to take both crowns--cargo tonnage and container throughput--sooner or later. There are also tidbits from Portworld on Shanghai's expansion plans that aim to raise its container throughput to 34M TEUs by 2010:

The chief executive for PSA in Singapore, the world's busiest, recently admitted that Shanghai could overtake Singapore in a year or two.

The past five years has seen cargo handling at Shanghai more than double. Rapid development of the Chinese economy and the large industrial and trade base of the Yangtze River Delta region have propelled growth.

Supporting this growth has been the construction and development of the $2.3 billion Yangshan deep-water facility, which has been developed to allow deep water access at Shanghai to accommodate the world's largest vessels.

Shanghai International Port (Group) Co. Ltd. vice president Huang Xin was reported saying that the port will have a container handling capacity of 34 million TEUs by 2010, due largely to the construction of Yangshan.

The first two phases of the project with nine berths and an annual designed capacity of 4.3 million TEUs have been completed. Phase III, which will add seven new berths, is designed to bring throughput capacity to 15 million TEUs at Yangshan alone.

Perhaps not to be outdone, Singapore is doing some one-upmanship in expanding its facilities as well to be able to handle 35 million TEUs by 2009. Call it the "container wars":

Several industry players, questioned by Portworld, pointed to major expansion projects that are already currently underway to boost Singapore's capacity.

Some $1.4 billion is being spent to boost the port's annual capacity by some 40%. This expansion is slated to add 16 berths at Singapore's Pasir Panjang terminal, increasing the terminal's annual handling capacity by 14 million TEUs.

These new 16 berths, due for completion in 2013, is in additon to 13 berths currently already being built by PSA in another project due for completion in 2009.

Completion of the earlier project by 2009 will already boost PSA's total handling capacity in Singapore to 35 million TEUs.

Why does Shanghai decisively beat Singapore on cargo tonnage while lagging slightly behind on container throughput? The commonsense answer is that the goods coming into Shanghai may include more heavy commodities such as iron and copper which are much in demand to help feed China's industrial machine. Meanwhile, there is no comparable boom necessitating such an influx in Singapore. Wait until next year for the rematch, then. [Ladeez and gentlemen...in the Red(s) corner, weighing in at 560 million tons, the heavyweight shipping champion of the world...Shanghai!]

Liechtenstein und der German Pastime, Tax Evasion

It is always a sign of more difficult times when governments start cracking down harder on perceived tax cheats. The whole non-dom brouhaha here in the UK attests to this, but there's another quarrel going on in Germany that has attracted less attention. The recent free-for-all began when the former head of Germany's largest mail carrier Deutsche Post, Klaus Zimwinkel, came under fire from the government for using the tiny nearby country of Lichtenstein to help avoid taxes to the tune of Eur 1M. The Principality of Liechtenstein has fallen afoul of the OECD in recent times for being one of three non-cooperative tax havens which allegedly do not disclose information on tax cheats. In particular, the royalty-owned bank LGT is said to have facilitated the evasive maneuvers of Herr Zimwinkel and a host of other wealthy Germans. From the Financial Times:

Germany plans to “tighten the screws” on Europe’s tax havens, the country’s finance minister vowed on Friday amid a growing global government backlash against financial centres with bank secrecy rules that foster tax evasion.

The warning from Peer Steinbrück marks another escalation of the tensions with Liechtenstein that have flared over a mammoth tax investigation into bank accounts of Germans held at the principality.

Mr Steinbrück said Berlin was considering bilateral measures against Liechtenstein, such as levies on wire transfers to the principality or an obligation for German banks to declare such transfers...

Ms Merkel’s diplomatic push comes as a tax investigation of at least 750 suspected tax evaders enters its second week. The probe sprang from documents about German accounts at Liechtenstein’s LGT bank, which the BND intelligence agency bought for €4.2m ($6.2m) in 2006.

Other countries including the US, Finland and Sweden have opened, or are considering opening, investigations.

The leverage that the EU currently has over Liechtenstein is the latter's wish to enter the Schengen visa zone which facilitates easier travel across various European countries. The principality is likely keen to join to promote tourism. With the US looking into LGT as well [no, it's not a bank catering to the lesbian, gay, and transsexual market as far as I can tell], Crown Prince Alois is firing back at critics using that standard retort, "if you didn't have such a messed-up tax system, then maybe your citizens wouldn't want to evade taxes in the first place":

After days of sniping from German politicians, enraged about a domestic tax-fraud scandal involving accounts in the Alpine tax haven, the 39-year-old prince on Tuesday accused Germany of running a “campaign” against little Liechtenstein.

Germans had discovered that prosecutors bought stolen bank data from a whistleblower and were targeting hundreds of residents for owning trusts in Liechtenstein, including members of the corporate elite, such as Klaus Zumwinkel, chief executive of Deutsche Post . The Germans lashed out at Liechtenstein .

Although a quiet, reflective man, the prince decided to take a rare public stand. Accused of aiding and abetting tax fraud – the banking principality does not recognise it as a criminal offence – he shot back that Germany had “trafficked in stolen goods.”

In an apparent allusion to Germany’s belligerent history last century, he added it “still” did not know how to treat friendly nations and obviously placed “fiscal interests above the rule of law”. If it were a more direct democracy with a better tax system perhaps its citizens would not cheat, he suggested.

Last, the prince alluded to something interesting: with tax rates that are quite high, most Germans have been understandably keen on lessening the take of the tax man. The Germans are stereotyped as very thorough people in presumed contrast to their American and British counterparts. There are good reasons why Homer Simpson and Basil Fawlty caricatures do not have German equivalents. Why, just look at this bestselling German book "1000 Legal Tax Tricks" from the Amazon Germany site. It's not just 99, 100, or 101 tax tricks, it's 1000 of them. The tome clocks in at 816 pages, can you believe! That's much longer than even The Canterbury Tales. Even when they're up to mischief, our German friends do not leave much to chance. As I said, they're thorough. It seems that tax reform has a long way to go in Deutschland. Until then, taxpayers large and small will Lie-cheat-en-stealin' [just kidding; I hope I don't get hate mail from Prince Alois] the German way--with characteristic guile and persistence. From Bloomberg:

When Andreas bought a new hard drive at a Munich computer shop the clerk offered it for 127 euros with a receipt or 80 euros without. He took the lower price.

Most Germans make similar deals to avoid high taxes, the film production manager said. Klaus Zumwinkel, the former Deutsche Post AG chief executive officer being investigated for using Liechtenstein foundations to evade 1 million euros ($1.5 million) in taxes, is no different, said Andreas, who asked not to use his full name because he's breaking the law.

``Zumwinkel did nothing wrong if you take into account the fact that everyone is doing it,'' said Andreas, 22. ``The guys who make millions every year aren't going to be able to hide it without someone to help them.''

Chancellor Angela Merkel has failed to fulfill a campaign promise to simplify the tax code and reduce tax avoidance. Germans evade about 30 billion euros in taxes every year, estimated Dieter Ondracek, head of the German tax collectors' union DStG. That's more than 6 percent of the 495.3 billion euros of taxes collected at all levels of government last year.

``Unfortunately, tax evasion has become a popular sport in Germany,'' Ondracek said Feb. 19 in an interview with Bloomberg Television in Berlin.

Germany last year increased its top income tax rate to 45 percent, ranking it eighth among the 27 European Union nations. Capital gains taxes of as much as 50 percent are also among the highest in Europe.

YaHadTaBeThere: Houston's Demise as Oil's Capital?

A big ruckus was made when the Houston-based oil services firm Halliburton, once headed by US veep Dick Cheney, decided to move to Dubai. It makes some sense: with oil production in the US going down--especially in Texas and the Gulf of Mexico--major firms will shift more of their activity to other parts of the world. The exodus of, ah, "al-Halliburtoni" may be the shape of things to come as more and more exploration activity moves to the Middle East and elsewhere from unproductive US sites. The Financial Times Weekend has a nice feature from which I excerpt a bit. Do read it if you've got the scratch. Hopefully those Texans will think of something better than Enron Reloaded to juice Houston's somewhat waning fortunes:

Houston, the centre of Texas’s energy industry, recognises that it has a problem. The Greater Houston Partnership, the region’s business advocacy organisation, has appointed a committee, the Energy Collaborative, with the express purpose of sustaining Houston’s status as the energy capital of the world. Lane Sloan, director of the University of Houston’s Strategic Energy Alliance, was its second chairman.

“We’re in the middle of a phase change,” he said, just before stepping down at the beginning of this year. “Before the industrial revolution, wood was the main source of energy. Then came coal. Hydrocarbons have dominated for the past 100 years, but they now comprise only about 55 per cent of the overall energy supply. Energy demand is expected to double by 2050, and yet oil and gas are becoming increasingly harder to come by.”

Alternative sources of energy are needed to meet demand and, concurrently, to hold on to the city’s reputation. “The idea behind perpetuating Houston as the energy capital has been perpetuating its technological development,” Sloan says. So Texas has become the biggest producer of wind energy in the US, and is building a portfolio of other technologies involving solar, biofuels, coal and carbon dioxide capture. Its rush into technology has been made easier by the energy infrastructure already here. There are more than a half dozen top-notch universities, each of which features energy courses in its curriculum. But, says Sloan: “There is no one, single answer.”

Almost 50 per cent of the Houston region’s $325bn economy is energy related. To put that in perspective, Houston has what amounts to the world’s 21st largest economy – one so big it was the only US city invited to the World Economic Forum to represent its business community at a summit last year in China. On Thusday, Houston is due to host a summit on energy at which the US presidential candidates will discuss energy issues.

“We can slice the data a lot of different ways,” says Jeff Moseley, president and chief executive of the Greater Houston Partnership. “The bottom line seems to be that while the number of billionaires from Texas may be shrinking, companies here are doing very well and can contribute to its future.” Look no further than “Opportunity Houston”, a marketing effort to raise $40m over the next five years to create 600,000 jobs, $60bn in capital investment and $120bn in foreign trade, increasing to $225bn during the next 10 years. There are more than 3,600 energy companies in Houston to help meet these targets.

Yet the clock is ticking at all energy companies in the US, where the average worker is 54 and approaching retirement. Houston is desperate to attract more young people into the sector, dispatching oil executives to speak to school children and, in a more aggressive push, opening the Academy of Petroleum Exploration and Production Technology at Milby High School this year. It is the first of four public high-school learning centres focusing on the petroleum industry. At the inauguration, Mayor Bill White said: “Investing in minds is the way Houston will continue to be one of America’s great cities for opportunity and growth, especially in the petroleum industry.”

Even as some companies, or their bosses, leave Houston, others continue to be drawn to it for the businesses – and the people – who are here. “There is certainly an historic tie to doing business on a handshake that goes back to the wildcatter days,” says Moseley from the Greater Houston Partnership. Kenneth Mackie, president of Rotech Subsea, an exploration company, says that establishing headquarters in Houston is integral to international success. “You have to be here. Houston is at the heart of the world’s oil industry.”

UPDATE: The New York Times has a feature on Texas becoming America's largest wind power generating state, with even T. Boone Pickens looking to put up the world's largest wind farm there.

Coal, the Future of Clean Energy?

Wind power, biofuels, and even nukes seem to be dominating the talk about energy sources that should help reduce greenhouse gas emissions. Lost in the discussion is the possibility that ol' coal can go some way towards providing clean power using the process of underground coal gasification (UCG). This technology is particularly salient here in the UK with its large, untapped coal supplies. With the high costs of importing fuel from abroad--both economic and political--UCG is gaining a serious look. Consulting firms, energy industry, and academic institutions have already teamed up to form a UCG partnership. A whole raft of advantages are touted below that obtain from coal being utilized in situ (on site), such as avoiding transportation and storage as well as possible mining disasters [have you seen my wife, Mr. Jones?] Coupled with carbon sequestration technologies that store carbon dioxide emissions underground, the future may once more belong to the fuel that has been a large factor behind global warming. The redemption of coal, coming to an energy station near you, perhaps:

· Lower fugitive dust, noise and visual impact on the surface
· Lower water consumption
· Low risk of surface water pollution
· Reduced methane emissions
· No dirt handling and disposal at mine sites
· No coal washing and fines disposal at mine sites
· No ash handling and disposal at power station sites
· No coal stocking and transport
· Smaller surface footprints at power stations
· No minewater recovery and significant surface hazard liabilities on abandonment.

Additional benefits are:
· Health and safety
· Potentially lower overall capital and operating costs
· Flexibility of access to mineral
· Larger coal resource exploitable

The Times of London has more on the potential rebirth of coal and its possible uses:

Coal. The very same filthy fossil fuel, dirtiest of them all, that powered the industrial revolution and let global warming out of its cage. The very same that rotted miners’ lungs, blotted out the sun and choked London with smog. The very same that still generates a third of the UK’s electricity and which David Kerr describes, for all the above reasons, as an “undesirable trend”. And yet coal has a lot going for it. The domestic industry may have been Thatchered into the ground, and 80% of our supplies may now be imported, but coal worldwide is plentiful and can be sourced from countries in Europe and the Americas which are far better disposed towards us than the gas merchants of the East.

But nobody wants to fill the air with smoke. Atmospheric pollution was a public enemy long before climate change became an issue, and there can be no going back to it. If coal is to resume its historic role, then it will have to clean up its act. And this is exactly what Golby and others propose. “Clean coal technology” (CCT) is not an oxymoron. Various processes that can be summarised as “carbon capture and storage” (CCS) have been designed to do exactly what the name suggests – remove or intercept CO2 from coal and store it deep underground. It can be done before combustion by a gasification process, or afterwards by stripping carbon from flue gas. The efficacy of the technique has been shown in small-scale trials, but high development costs are holding it back commercially and it’s not something “the market” can afford to deliver.

Yet Golby, head of Britain’s biggest gas and electricity company, is unequivocal: “I believe that this is one of the really critical technologies,” he says. “Unless we can solve the problem of coal, we are going to lose the climate-change battle.” It is a problem that extends far beyond the UK’s ability to power itself sustainably. China and India are going to burn coal – more and more of it – come what may, and unless a way can be found to cut their carbon emissions, and those of every other coal-burning economy, nothing we do in Britain is going significantly to impede humanity’s march to self-immolation. “It will require an international effort not dissimilar to the US putting a man on the moon,” says Golby. “It will take tens of billions of pounds. Some of it will come from industry. Some will have to come from governments...”

For many others, the principal lunacy of the UK’s position is not that it ignores the potential for clean energy from imported coal, but rather that it ignores the wealth under its own feet. Accounts vary. One expert tells me that 75% of the coal that ever existed in the UK still lies undisturbed – a buried mountain of pent-up energy that could fuel the country for centuries. Another says the likelier figure is 98%. Either way, it’s a lot of coal. The problem, of course, is getting at it. If it was easily accessible, then the whole energy equation might look rather different. Coal would still be king, and CCS would be a no-brainer.

But there is a powerful body of opinion that says not only that much of it is accessible, but that it can be extracted with minimum environmental impact – ie, without open-cast mining – and with great benefit to national security and the carbon economy. The key to it is “underground coal gasification” (UCG), a technique devised by the Scottish chemist Sir William Ramsay. The Coal Authority thumbnails it as “a method of converting unworked coal deep underground into a combustible gas”, which, through CCS, contains no CO2. The result is “clean energy with minimal greenhouse emissions”...

This seems no less extraordinary to energy professionals than it does to laymen. “The government should be putting a big push at getting gasification technology on the road,” says the ICE’s David Kerr. “It’s the most promising technology currently available,” says Graham Chapman, managing director of the energy consultant Energy Edge. Since 2005, the campaign to promote UCG, both in the UK and worldwide, has been led by the UCG Partnership, an independent organisation in Woking, Surrey, whose members include oil and gas companies, banks, regional development agencies, universities and governments.

One of its two founding directors, Rohan Courtney, quotes the British Geological Survey, which concluded that UCG could unlock an extra 17 billion tonnes of indigenous coal – enough for another 300 years at current rates of consumption. (Compare this with the range of 200m to 2,000m tonnes estimated for “mineable” reserves). Like a schoolmaster delivering a favourite lesson, Courtney runs through the advantages at dictation speed. UCG does not suffer from the same negative public image as coal mining. It does not endanger lives underground; does not ruin the countryside; does not involve high transport and labour costs. Production, too, would cost less than either mining coal or buying oil and gas from elsewhere. We would have security of supply.

“We own the coal,” says Courtney. “We would not be subject to market forces on the price of importing energy, high transport costs and the political risks of purchasing oil, gas or coal from a country with a different agenda.” Instead of importing, we could export the technology. Best of all, with directional drilling, UCG can be used under the sea. Rich seams lie under the Firth of Forth and southern North Sea – at least five billion tonnes, and possibly much more.

Russia Plays Nice to Gain WTO Accession

This is interesting if somewhat predictable: Russia's general disdain for former Soviet republics cottoning up to the West has been set aside--for now at least--as it attempts to gain WTO accession. It needs to gain the assent of other WTO members if its long-delayed bid is to push through, and these include the Ukraine and Georgia, both of which have fallen afoul of Russia in recent times. From our second-favorite official news agency Tass (Xinhua is still tops) comes this report on the Ukraine and Russia playing nice. After (in)famously cutting gas supplies to the Ukraine in 2006, Russia is now contemplating the establishment of a free trade area with the Ukraine [aww, ain't that sweet?]:

Ukraine and Russia are going to establish a free trade zone on the basis of norms and procedures of the World Trade Organization (WTO), Ukrainian Prime Minister Yulia Timoshenko said at the government’s meeting on Friday, commenting results of her February 20-21 visit to Moscow.

She ordered the Economics Ministry to prepare respective directives.

“Ukraine has become a WTO member, but we proposed Russia during the talks before its joining the WTO our beginning to create conditions in the trade relations of Ukraine and Russia that act in the WTO, Timoshenko said.

“We can do that, and this can be made one of our priorities. We should painstakingly work on the free trade zone between Ukraine and Russia that would begin working without wavers and restrictions. This is our goal, to which we must dedicate a certain part of our work,” Timoshenko said.

Meanwhile, Georgia and Russia also seem to be getting along better by tackling "technical" issues that pertain to trade instead of "political" ones (it's always the fault of politics):

The regular round of the Russian-Georgian bilateral consultations within the framework of the process of Russia’s admission to the World Trade Organisation (WTO) has passed constructively and successfully, head of the Russian delegation at the talks, chief of the trade talks department of the Ministry of Economic Development and Trade Maxim Medvedkov told.

“The meeting with the Georgian delegation held with the participation of the WTO Secretariat that perform the functions of moderator, was effective, we considerably advanced in finding joint approaches to the settlement of questions our Georgian colleagues still have, in particular, on the activity of border checkpoints and control in the issue of trade between Russia and Georgia,” Medvevkov noted. “We agreed that our experts will work with the Georgian colleagues and corresponding ministries so that to coordinate the remaining separate questions,” the official added.

The next round of the consultations will be held in late March – early April also in Geneva. “We will look at the results, but I think that they will be positive,” according to Medvedkov. “So far our dialogue is developing rather constructively and within the framework of existing agreements we will be able to continue it successfully,” the Russian trade representative said.

He recalled that at the very beginning of the work with the Georgian colleagues the sides reached an agreement that “we sit at the table of trade talks on Russia’s admission to the WTO, that issues raised by the Georgian side are of technical nature and we should find just a technical solution.”

“We don’t want to raise at the WTO venue the political problems that exist or may emerge in relations between the two countries,” Medvedkov stressed.

The latter article also hints at the timetable Russia is looking at, with a goal for August 2008. Is it just me or did Ukranian membership spur Russian action on the matter of WTO accession?

Medvedkov said as well, “Russia has yet to coordinate five sections of the keynote report on the terms of accession to the WTO.” He also said informal multilateral consultations in Geneva on the section of the report “on intellectual property,” “technological regulation” and “phytosanitary measures” will enable Russia clearly to see the timeframe of the conclusion of the negotiating process of Russia’s accession to the WTO.

There is a technical possibility to conclude the negotiations on Russia’s accession to the WTO in August 2008, Medvedkov said on Wednesday.

Asked when Russia might join the WTO, Medvedkov said “different forecasts have been made” but “there is a technical possibility to conclude the negotiations in August.” “We are strongly determined to achieve a positive result and are interested in joining the organisation at the earliest opportunity,” Medvedkov said.

Meanwhile, Tass also reports that Russia's multilateral consultations back at Geneva are proceeding smoothly:

Consultations in a multilateral format on Russia’s accession to the World Trade Organisation (WTO) progress successfully, claimed head of the Russian delegation and chief of the trade talks department of the Russian Ministry for Economic Development and Trade Maxim Medvedkov, speaking in an interview with Itar-Tass.

He noted that consultations with the European Union were held in Geneva over the past two days. “They were a follow-up of meetings that had been staged in Moscow last week between Russian Deputy Prime Minister Alexei Kudrin as well as Minister for Economic Development and Trade Elvira Nabiullina and European trade commissioner Peter Mendelson.

“We specified some understandings that had been reached, and agreed an action plan for the near future so as to resolve remaining questions,” Medvedkov said.

He added that consultations were also held with chairman of the Working Group on Russia’s Accession to the WTO Stephan Johannesson of Iceland on some outstanding problems at the talks. “The main result was that WTO member countries agreed without a long discussion with Russia-brokered text of the report’s section on intellectual property, which is basically important, since that was one of the most difficult questions, and we worked on them with many delegations,” the head of the Russian delegation noted.

“The first multilateral discussion showed that many questions had been removed.” “This does not mean that the talks are over, but the first response is very encouraging: there are no serious remarks on the text proposed by us,” he continued.

Lies, Damned Lies, and World Poverty Statistics

Global poverty and inequality numbers are among the most controversial of statistics. Sometime ago I featured the work of Branko Milanovic on global inequality. Until now, I consider his work the most authoritative on the subject. That he is quoted a lot by both the "globalization is deepening poverty and inequality" and "globalization is reducing poverty and inequality" camps shows the respect he is accorded by the partisans. Just when you thought we had safely escaped from this controversy for a while, the World Bank completed the results of its International Comparison Program (ICP) to accurately estimate price levels across various countries. It is especially important because Chinese and Indian price levels have not been subject to price basket comparisons since the mid Eighties, causing distortions when measuring purchasing power parity (PPP) incomes in these two huge emerging countries with a combined population of 2.4B persons. PPP concerns what folks living in these countries can actually buy domestically as opposed to their international buying power based on prevailing market exchange rates.

If you will recall, I noted that the World Bank "shrunk" the Chinese and Indian economies by about 40% on a PPP basis in light of the ICP's results. In other words, goods and services that Chinese and Indians buy on a regular basis were more expensive than previously thought. Hence, estimates of their purchasing power were revised downwards and together with it their PPP outputs. In light of these changes, our good man Branko Milanovic weighs in on the implications of these new findings. One which many should find dispiriting is his belief that global inequality is higher now than ever before. I suggest that you read the whole article from Yale Global Online--it's not that long and it's very informative. Needless to say, there are many changes in store for the dark art of poverty statistics. Here are some excerpts:

These new estimates will have far-ranging consequences. Literally hundreds of scholarly papers on convergence or divergence of countries’ incomes have been published in the last decade based on what we know now were faulty numbers. With the new data, economists will revise calculations and possibly reach new conclusions.

With the study’s release, our view of the world has changed. While economists previously thought that US GDP per capita was 6 or 12 times higher than that of China and India, respectively, these numbers have been revised to 10 and 20 times. Until last month, economists thought that China accounted for 15 percent of world economy; it’s now revealed to represent less than 10 percent...

Implications for the estimates of global inequality and poverty are enormous. The new numbers show global inequality to be significantly greater than even the most pessimistic authors had thought. Until the last month, global inequality, or difference in real incomes between all individuals of the world, was estimated at around 65 Gini points – with 100 denoting complete inequality and 0 denoting total equality, with everybody’s income the same – a level of inequality somewhat higher than that of South Africa. But the new numbers show global inequality to be 70 Gini points – a level of inequality never recorded anywhere.

Similarly, until last month, the number of people living at less than $1 PPP per day was estimated at just under one billion. The call to action issued at the Davos World Economic Forum still speaks of “980 million people who live on less than 1 dollar a day.” But this was based on old estimates of price levels. Now, we know that the price levels in these and many other poor countries are higher, and the measured number of the poor will jump...

The most famous set of estimates of countries’ historical PPP-adjusted GDP, made by Angus Maddison, is based on the old data. Maddison’s numbers, the only data series of GDP per capita that include practically all the countries in the world, providing estimates for most as far back as 1820, is extensively used by econometricians and economic historians. Its revision will be massive. Much of what we think we know about comparative economic history will be reexamined.

London Mayor "Red Ken" Livingstone v. Porsche

Ladies and gentlemen, let me assure you that nearly everything humanly possible has been done to discourage automobile use here in the UK. From sky-high gas prices, cars that are nearly the same price in £ as in $ given that the prevailing exchange rate is £1.00 = $1.94, to carbon dioxide emissions duties, it simply amazes me that there are so many people who still bother to own cars here. If nothing else, the British are attached to "motoring" despite the government's efforts to tax motorists until kingdom come. Talk about cash cows (moo). Now, London is famous for its so-called congestion charge to reduce traffic on that global capital's roads especially during peak hours. Now, though, the nefarious London Mayor "Red Ken" Livingstone as he is known for his communistic stylings (but there are caveats) plans to include stricter emissions regimes into congestion charging schemes. Our favorite socialist public official plans to levy a £25 daily congestion charge for high emission (read: luxury) vehicles that enter London. Rupert Murdoch's Times of London is unsurprisingly apoplectic:

Livingstone’s latest manoeuvre in his war on motorists is a daily charge of £25 for cars with emissions over 225g/km (road tax band G), which would mean drivers entering the zone every working day facing an annual bill of about £6,000.

Can you imagine New York Mayor Michael Bloomberg levying a $50 charge on luxury cars and SUVs for the privilege of entering New York? Impossible! Interestingly, legendary German automaker Porsche is now getting into the ring to fight for the right of Londoners to enjoy powerful German machinery. If anything else, British poseurs are a large customer base for Porsche. Good with words as usual, Livingstone calls these automobiles "Chelsea Tractor[s]." It's an interesting battle and Red Ken's record so far is sterling in beating down challenges to his authori-ta: From the Daily Telegraph:

Car company Porsche is to launch a legal challenge over the decision by London mayor Ken Livingstone to hike the congestion charge in the capital from £8 to £25 for gas-guzzling vehicles.

Porsche said the decision, which affects 33,000 cars in London, was simply "unjust", representing a big increase for owners of sports cars and 4x4 vehicles. Residents in the zone who own such vehicles face a 3,025pc leap in charges against the 80p per day they currently pay.

Porsche plans to apply for a judicial review of the decision, due to take effect from October 27. "Thousands of car owners driving a huge range of cars will be hit by a disproportionate tax which is clear will have a very limited effect on CO2 emissions," said Andy Moss, managing director of Porsche Cars GB.

Mr Livingstone announced the planned charge hike earlier this month in a move to drive Band G vehicles and those that have engines over 3,000cc off the capital's roads. "Nobody needs to damage the environment by driving a gas-guzzling Chelsea Tractor in central London," he said. The move is part of the mayor's drive to reduce London's CO2 emissions by 60pc by 2025.

A spokesman for the mayor said: "No one is allowed to throw their rubbish in the street and Porsche should not be allowed to impose gas-guzzling polluting cars on Londoners who do not want them."

Brian Paddick, the Liberal Democrat mayoral candidate, countered: "Porsche have a point." He added: "This has become an emissions charge, not a congestion charge and an ineffective one at that."

Huawei & 3Com: Stupid Protectionist Tricks

Oh man, does this make my stomach churn: I thought it wouldn't end like this, but Huawei and Bain Capital's bid for US telecoms gear maker 3Com has fallen through in the same way that the CNOOC bid for Unocal did. Still, I am 100% on board with the manager at Huawei who characterized the CFIUS "national security" rigmarole as "bullsh--t." To spare itself the trouble of invasive investigations, it appears Huawei has scuppered its bid. Worse, the prospective buyers already signaled that they were willing to get rid of the sensitive bits of 3Com that sold security gear to Uncle Sam (see below).

If I were the Chinese, I'd demand much better treatment in the US over these shenanigans. The operative principle is "beggars can't be choosers" as the US keeps handing out the begging bowl to China and Co. to get a fix on its debt addiction. There are so many ways China can hurt the US and I don't think the latter fully understands the range of possible consequences for offending the real owners of America as I phrased it in an earlier post which outlines this story in more detail. Then again, few junkies understand the bind they're in and there is no reason to think debt-addled America would know better. This is ridiculous, but don't expect it to go unnoticed in Beijing. Those folks do not take slights very well. From the Financial Times:

Bain Capital and its minority Chinese partner, Huawei Technologies, have shelved their $2.2bn deal to acquire 3Com, a US computer networking company, saying a key Washington committee charged with vetting foreign investments in sensitive sectors had told Bain it would not approve the purchase.

The setback to the deal highlights rising protectionist sentiment in the US as both Democrats and Republicans seek to woo an American electorate suspicious of foreign investment and the effects of globalisation on domestic jobs.

Huawei was set to own 16.5 per cent of 3Com and get board seats, but in an effort to limit possible political objections it was to have no management control.

Bain, a US private equity firm, was prepared to divest 3Com’s Tipping Point unit, which sells security software to the government. But these offers could not overcome opposition by the Committee on Foreign Investment in the US (Cfius), according to people familiar with the matter.

Bain declined to comment. But the news comes as executives at private equity firms worry about what they see as rising US xenophobia and how their deals can become political footballs.

At the same time, Beijing has invoked national security to limit or bar foreign investments in Chinese companies.

The failure to win Cfius approval for the deal is likely to anger officials in China who already believe that Washington has repeatedly proved ready to reject Chinese investment in US companies on spurious national security grounds.

Many regard Cfius as the face of growing US financial protectionism. Jesse Wang, a senior official at China Investment Corp, the sovereign wealth fund, said at a conference in San Francisco last year, that his organisation would not even consider an investment in the US if it seemed headed for Cfius review.

US security concerns scuppered a 2005 bid by Cnooc, China’s third-ranked oil firm, for American oil group Unocal. The latest setback could complicate talks between Beijing and Washington on a bilateral investment treaty.

Huawei, a fast-growing Chinese telecoms equipment manufacturer, had trumpeted its independent status as a private company, in contrast to state-owned Cnooc. But its case was weakened by its corporate secrecy.

Ren Zhengfei, its founder and chief executive, a former People’s Liberation Army major, never gives interviews. Huawei, which is not publicly listed, also refuses to explain its shareholding structure, other than to say that it is fully owned by its employees and that Mr Ren has a stake of about 1 per cent.

In a 2005 report for the US Air Force, the Rand research organisation said Huawei had “deep ties” with the PLA. Huawei strongly disputes such suggestions, saying it has supplied the PLA with equipment but has no “special links” with the Chinese military.

China: Rips Off CDs, DVDs...and Olympic Slogans?

I am often delighted by the range of stories that the Financial Times puts out. When it comes to genuine "scoops," the FT is hard to beat. Here's another case in point: the apparatchiks were touting the slogan for the 2008 Olympic Games in Beijing ("One World, One Dream") as a homegrown creation reflecting the aspirations of the Chinese people, yadda-yadda. Actually, it turns out that an American advertising exec came up with the slogan. Knockoff CDs, DVDs, and now Olympic slogans? If imitation is the sincerest form of flattery, the PRC is an absolute slave to Western culture. No wonder it's so upset that Spielberg has pulled out from the Olympics. A week after Spielberg's action, state media is still bellyaching over the matter. Anyway, back to today's feature...

The “One World, One Dream” slogan of August’s Beijing Olympic Games was created by a US brand strategist on the basis of a phrase proposed by the honorary chairman of the organising committee, a local court has been told.

The Beijing Olympic Organising committee (Bocog) has publicly portrayed the official catchphrase as a “crystallisation of collective wisdom” based on a global appeal for ideas in 2005 that it says resulted in 210,000 suggestions.

The stress on collective credit reflected Beijing's determination to encourage public participation in Olympic campaigns as well as Bocog's general approach of limiting scrutiny of its preparations for what will be China's biggest-ever international event.

However, faced with a lawsuit from a participant in the campaign who says he suggested “One World, One Dream” first, Bocog was forced to reveal details of the personal contributions of George Hirthler, a veteran Olympic brand expert, and He Zhenliang, former sports vice-minister.

Mr He had proposed “One World, One Future” but Mr Hirthler argued that this option “lacked the power of dreams”, Bocog witnesses said during a court hearing late last week, according to a lawyer familiar with the proceedings.

“They weren’t satisfied with anything they had, which is why they were asking me if I would help them,” Mr Hirthler said in a telephone interview.

A Beijing court on Monday dismissed the lawsuit from Fang Shouwei, a city resident, in part because he could not prove that Bocog received the e-mails he said he had sent to it suggesting the slogan, and because the committee showed it came up with the phrase independently.

A Bocog spokesman said on Tuesday that Mr Hirthler had been one of a number of experts that “contributed creativity” as part of the “collective wisdom”, but he declined to comment further.

Mr Hirthler said he had first come up with “One World, One Dream” as a possible theme for the 1996 Atlanta Games, but that, given the “iterative process” involved in selecting the slogan, he had been happy for it to be considered the fruit of collective wisdom.

Mr Fang’s lawsuit threatened to embarrass Bocog, which has repeatedly stressed its commitment to protecting intellectual property and says its slogan symbolises an “Olympic spirit of unity”.

However, China’s tightly controlled state media have not reported details of the lawsuit and discussion of it on the internet has been muted, prompting a complaint from one local blogger that online search engines were censoring news of the case.

US Survey on Medical Tourism Says...

I featured a lengthier post on medical tourism sometime ago and thought this new Financial Times story complements it. Recently, the consulting firm Deloitte conducted a survey regarding Americans' willingness to try medical tourism. The answers are informative...

Two in five Americans would consider travelling abroad for a medical procedure if it cost half the US price and quality was at least equal, according to a Deloitte consumer health report published on Wednesday.

The data highlight the exploding interest in so-called medical tourism, where patients seek treatment for elective surgeries such as hip replacements available more cheaply overseas.

Medical tourism has surged into the healthcare debate as costs rise and consumers are asked to share a growing proportion of up-front expenses. The practice was once seen as a desperate move to seek care that was unavailable, unapproved or dangerously cheaper than procedures in the US. But healthcare experts have noted increasing interest in the practice from consumers, hospitals and even employers. Some researchers are looking at whether US employers would be willing to pay for a covered employee’s medical procedure of equivalent quality abroad so as to lower overall healthcare costs...

In the survey, 39 per cent said they would consider an elective procedure abroad, if it was half the cost and of equal quality, while 27 per cent might travel abroad for healthcare in the future.

The survey, part of a larger study on consumerism in American healthcare by the consultancy Deloitte Centre for Health Solutions, found that 3 per cent have already travelled outside the US for treatment. The results show that Americans are shopping for healthcare procedures across the US.

The survey found that 38 per cent might travel outside the community for care in the future, and 12 per cent have travelled beyond their local areas, while 88 per cent would consider getting medical treatment outside their community if the treatment outcomes were better and the costs equivalent.

The data also showed that people with commercial health insurance were more likely to consider travelling to another country for treatment than those on Medicare and Medicaid. More than 40 per cent with insurance said they would consider it, versus 28 and 30 per cent on Medicare and Medicaid, federal programmes for the elderly and poor, respectively.

Younger people, as well as Hispanics and Asians in the US, were more likely to consider medical tourism. Providers, such as large research hospitals, have also been monitoring the trend. Countries seen as destinations for medical tourism, include: Argentina, Brazil, Costa Rica, India, Malaysia, Mexico, Panama, Philippines, South Africa, Thailand and Turkey.

Nope, FDI Ain't Behind China's Rampant Pollution

I was browsing through the well-regarded journal International Studies Quarterly while looking for something entirely unrelated when I came across this most intriguing study by Ka Zeng and Josh Eastin. As you probably know, the "pollution haven hypothesis" concerns firms locating away from developed countries to developing countries to take advantage of laxer environmental regimes in the latter. By doing so, firms are supposedly able to manufacture their wares more cheaply by dodging higher environmental standards in the West.

What better place is there to observe a putative "pollution haven hypothesis" than China, the world's largest carbon emitter and workshop to the world? Zeng and Eastin use regression models to determine the relationship between FDI / trade openness in various Chinese provinces and sulfur dioxide emission (Model 1), industrial soot emission (Model 2), and solid waste emission (Model 3). Their findings:

In all of the model specifications, our key independent variables (e.g., fdi, openness, impgdp, and expgdp) have consistently demonstrated a negative and statistically significant relationship with our alternative measures of environmental pollution and the relationships are highly significant as well.

So much for the "pollution haven hypothesis" in China according to these researchers. Yes, there is a lot of pollution in China, but it's likely to be homegrown instead of imported from elsewhere. It seems those danged foreign investors do care about their contributions to local pollution. Let's see the anti-globalization types deal with this one:

Our empirical analysis of the effects of provincial trade openness and FDI on industrial pollution levels has yielded the somewhat surprising conclusion that increased trade openness and FDI is positively associated with environmental protection in China. It challenges the conventional view of the ‘‘impact of free trade’’ on the environment, suggesting that far from creating a ‘‘race to the bottom,’’ trade openness encourages environmental protection via firm self-regulation, and an improvement in firm-level environmental regulatory and production standards in order to ensure global export market accessibility. Additionally, FDI has the potential to introduce newer and more environmentally sustainable technologies and management practices via MNC-subsidiary linkages, and provides encouragement for local technological development through heightened competition. When taken in concert, the dynamics of economic integration through FDI and trade openness combined with a ratcheting up of developed-world environmental regulatory policies, suggests that as the world shifts toward a more globalized market, environmental standards will rise.

Will Basketball Overtake Soccer Worldwide?

After a very self-serving article on why football (soccer) is the global sport according to a British Financial Times commentator, what we have here is a return of serve on why basketball may be poised to overtake football by, er, The American. Journalistic jingoism--don't leave home without it:

Now Heidi Ueberroth has one of the most daring jobs in all sports—to make basketball the most popular game in the world, surpassing soccer, and to make the NBA the most powerful global athletic league.

Beat soccer? To most experts, the idea sounds quixotic. Soccer is more popular than basketball practically everywhere in the world outside the United States. According to the Gaskins Company, in any given year three billion fans view soccer games on TV or in person. But soccer’s capacity for growth may not be as broad as basketball’s.

Sitting in a conference room sur­rounded by huge wall posters of the biggest names in basketball—Yao Ming, Dwyane Wade, and LeBron James of the NBA, and Diana Taurasi and Swin Cash of the Women’s NBA—Heidi Ueberroth uses corporate jargon to explain her strategy.

The key, says the NBA’s 42-year-old president for International Business Operations, is “touch points.”

To supplant soccer as the top global sport, the NBA needs to “touch” fans wherever they go in the world—from the rural communities of China to the urban playgrounds of London, from the bar­rios of Latin America to the suburban schools of the Midwest. There must be constant promotion of the NBA’s stamp, its corporate partners, and its larger-than-life players. The NBA brand must become as recognizable as Coca-Cola or McDonald’s.

“The goal is to be in every point where our fans can interact with the game,” she says. “Sure, you want them playing the game. But if they’re going to watch TV, you want them watching an NBA game. If they’re going to be playing a video game after watching the game, we want them playing [an NBA game]. Then if they’re going out and buy­ing apparel, you want it to be our apparel. It’s an integrated approach.” Add to that list cell phones beeping with game updates and iPods with video highlights, restaurants and bars beaming NBA games, hundreds of clinics and tournaments for rising and established stars, Coke cans and McDonald’s restaurants celebrating NBA stars, training camps staged all over the world, and an NBA “Jam Van” hitting the road for 25,000 miles. Like fast food, PCs, mutual funds, hip-hop, and Hollywood movies, basketball—the quintessential American sport, invented by a phys-ed instructor at a YMCA training school in Springfield, Massachusetts—is going global.

Peter Mandelson, a Free Trader Till the Last

With New Labour being buffeted here in the UK over all sorts of things--lost confidential data, Northern Rock, non doms, and I don't know what else--it's somewhat comforting to know that New Labour stalwart Peter Mandelson is still sticking to his free trade stance (schtick?), no matter what. Despite being hit left and right for his stance, Mandelson has stuck by his convictions, and that is worth admiring regardless of whether you are pro- or anti-free trade (or somewhere in between) in this age of the opinion poll manufactured politician. If the Doha Round is going down, he's going down swingin', baby. Carted off to Brussels to serve as the EU trade commissioner, Mandelson is still very much the champion of free trade, however quixotic that may appear to some. The Wall Street Journal recently interviewed the venerable Mr. Mandelson, and while his thoughts are very much in line with what you would expect, it's somewhat surprising that he has not softened his approach. First, here is Mandelson stating that the US is now the #1 threat to the free trade cause:

Yet more than France, Mr. Mandelson argues on a recent afternoon -- more so than any of the EU's 27 member states -- it is America that threatens the cause of free trade today.

"You can see it in the politics of the country," he says from his armchair in an EU office in the shadow of the Eiffel Tower. "You can see it in the Congress, you can see it in the primaries, you can see it in the town-hall meetings, you can see it in the candidates who, in order to appeal to the public, articulate these arguments" of protectionism.

"I don't see anywhere in Europe similar sentiments being expressed. I hear reservations about agriculture, or . . . about whether [trade] talks are balanced." But, he adds, "You'll not find anyone running for election in Europe and questioning whether we should complete the Doha round [of world trade talks]. You hear that from some of the candidates in the U.S., some of them from the Republican and the Democrat side."

Mandelson has this to note regarding the US and the deadlocked Doha round of WTO negotiations:

On this score, the Doha talks are critical. And, Mr. Mandelson argues, they are at a critical stage. Those who follow trade talks are used to hearing about deadline after deadline after deadline being missed. But American electoral politics may mean it's true this time.

"I was very struck during the ministerial meetings I held in Davos" last month, Mr. Mandelson says, "that nobody, actually, pushed back against the argument . . . that if we do not get a breakthrough and conclude the negotiations this year that they will go nowhere in 2009 with the change of the administration in the United States, and we'll be firmly in the long grass by 2010."

It's not just a matter of momentum but, again, of the potential successors to George W. Bush. Hillary Clinton, to name one leading contender, has called for a "timeout" on free-trade deals.

"The caveat is that we're in the primary season," Mr. Mandelson observes. "That's not necessarily a position she would take into the general election, and if she did it's not necessarily one she would take into the White House if she won. But you can't ignore it.

"I've known the Clintons for over a decade, and I've always seen them as free traders. But most of the Democrat free traders seem to have taken to the hills," he laments. "I wish there was more pushback within the Democrat Party, because they know this is right, they know this is responsible, and for a long time now you've seen politicians on both sides of the aisle using trade as a wedge issue. And it's a very dangerous wedge to play with, because it's short-term, it's counterproductive, it leads you nowhere."

If there's a reason for optimism, Mr. Mandelson says, it's that "amongst the Democrat candidates, the person who's been questioning free trade most loudly and showing support for protectionism has been forced out of the race -- John Edwards. And the Republican candidate who is most strongly in favor of free trade seems to be leading the field at the moment -- John McCain."

Meanwhile, he also has this to say on the chances of the Doha round being completed while Bush is still around and the EU side of the equation:

Still, counting on a Doha deal after the 2008 campaign is risky at best. So can the Bush administration deliver?

Mr. Mandelson pauses. Then he says, slowly, "I think the verbal commitment is strong. I think the presidential will is strong." Another pause. "But we've got to see some final offers from the United States . . . [that] show more flexibility, and more generosity" -- chiefly on trade-distorting subsidies to cotton, corn, sugar and other producers -- "in return for what I hope will be reciprocal moves by others where the U.S. has legitimate interests" -- i.e., industrial goods and services.

Farming has been at the heart of Doha disagreements from the start. Emerging nations such as Brazil and India refuse to open their markets further to industrial goods and services until they see movement from the U.S. on ag subsidies and Europe on farm-product tariffs. But it's time for these fast-growing economies to liberalize, he says, both for their own good and so that they can "pick up the slack . . . when the international economy is going through difficult times," as it is now.

During our discussion, Mr. Mandelson indicates that the EU may be able to move closer to a deal if it can gain greater recognition of its trademarks for specialized goods such as wines, meats and cheeses. Known in trade lingo as "geographic indications," these trademarks usually mean that a good cannot be sold with a certain name -- say, Manchego cheese from Spain, or Parma ham from Italy -- unless it comes from the area indicated in its name.

Free traders consider this a form of protectionism; more than 160 European cheeses are sheltered in this way, including 45 from France alone. Mr. Mandelson counters that Europe is already yielding on subsidies, tariffs and export refunds, and can't come out of these talks empty-handed. "When we're lose-lose-losing like that across the agricultural board, it's necessary to bring something back," he says. "I don't think that's too much to ask."

Last, Mandelson warns that if Doha goes into the abyss, the chances for other multilateral talks such as those on climate change being completed will dim significantly. Call it a bad climate for international cooperation:

The cost of failure in the talks would be staggering. "We will have failed to put a ratchet in place to stop the global economic machine's slipping backwards under protectionist pressures," Mr. Mandelson says. "I think that the confidence in the WTO amongst developing countries and emerging economies would be damaged. . . . But beyond that, I think the cause of multilateralism will be set back."

He then makes a prediction: "I can assure you, it will be harder to find agreement in the post-Kyoto negotiations [on climate change] if we've failed to do so in the multilateral trade talks." He says the weakening of multilateralism in general would mean "we'll virtually all be losers."

Not that there aren't losers and winners from liberalization, at least in the short term. Dealing with the problems that arise from any dislocations is part of what motivates this life-long Labourite now that he directs trade policy for the world's largest free-trade zone.

"I'm not a pure market liberal. I'm a social democrat," Mr. Mandelson says. "I believe in the power of the market, I believe in free trade, but I also believe in modern social and labor-market policies that maintain the dynamism which is indispensable to our economy but which also eases adjustment and manages that change in a way that is responsive to individuals and communities."

China's Booming Suburbs--Not Too Eco-Friendly

Overcrowding, overpricing, pollution, noise...what drives folks to move away from cities and into suburbs are pretty much the same the world over. Given that these negative factors have been turned up to the max in many Chinese cities, it should come as no surprise that city dwellers in the PRC are now turning to fast-growing suburban paradises and all that they entail. What's troubling according to the TIME article excerpted below is that building the Chinese equivalents of American McMansions (McForbidden Palaces?) will require even more resources on top of the infrastructure boom currently ongoing in China. Buy more BHP Billiton and Rio Tinto stock on dips, that's all I have to say:

For the past decade and a half, the frantic pace of urbanization has been the transformative engine driving this country's economy, as some 300-400 million people from dirt-poor farming regions made their way to relative prosperity in cities. Within the contours of that great migration, however, there is another one now about to take place — less visible, but arguably no less powerful. As China's major cities — there are now 49 with populations of one million or more, compared with nine in the U.S. in 2000 — become more crowded and more expensive, a phenomenon similar to the one that reshaped the U.S. in the aftermath of World War II has begun to take hold. That is the inevitable desire among a rapidly expanding middle class for a little bit more room to live, at a reasonable price; maybe a little patch of grass for children to play on, or a whiff of cleaner air as the country's cities become ever more polluted.

This is China's Short March. A wave of those who are newly affluent and firm in the belief that their best days, economically speaking, are ahead of them, is headed for the suburbs. In Shanghai alone, urban planners believe some 5 million people will move to what are called "satellite cities" in the next 10 years. To varying degrees, the same thing is happening all across China. This process — China's own suburban flight — is at the core of the next phase of this country's development, and will be for years to come.

The consequences of this suburbanization are enormous. Think of how the U.S. was transformed, economically and socially, in the years after World War II, when GIs returned home and formed families that then fanned out to the suburbs. The comparison is not exact, of course, but it's compelling enough. The effects of China's suburbanization are just beginning to ripple across Chinese society and the global economy. It's easy to understand the persistent strength in commodity prices — steel, copper, lumber, oil — when you realize that in Emerald Riverside construction crews used more than three tons of steel in the houses and nearly a quarter of a ton of copper wiring. There are 35 housing developments either just finished or still under construction in New Songjiang alone, a town in which 500,000 people will eventually live. And as Lu Hongjiang, a vice president of the New Songjiang Development & Construction company puts it, "we're only at the very beginning of this in China..."

Fallout from the Sudan-Spielberg Free-for-All

It seems that activists are targeting more high-profile artists to back away from the Beijing Olympics according to this piece in the Guardian. As I mentioned earlier, this is as good time as any if drawing the attention of the normally insular Chinese officialdom is the objective:

Steven Spielberg was just the beginning. The Oscar-winning director's decision to resign as an artistic adviser to the Beijing Olympics this summer was a major victory for human rights groups working to shine an embarrassing international spotlight on China's role in the mass killings in Darfur.

But activists are not letting up, intensifying their focus on corporate sponsors of the Olympics and other celebrities lending their name to the games. The big names who remain on board the Beijing creative team include Quincy Jones, who said this week that he was reconsidering his deal to write the Olympics theme song, and film director Ang Lee, who censored his latest film for broadcast in China at the government's request.

"These people I know are under some pressure now to make a statement," said Jill Savitt, director of Dream for Darfur, which aims to push China into using its influence with the Sudanese government to end the brutal violence in the Darfur region.

"We saw this with Spielberg: it's not an intuitive issue," Savitt added. "How is China related to the Darfur genocide? ... There's a whole lot of activity going on, with these folks beginning to educate themselves."

Zhang Yimou, the Chinese-born director of action films Hero and Raise the Red Lantern, is also serving as an artistic adviser to the Olympics, and classical cellist Yo-Yo Ma plans to tour and perform during the Special Olympics in Shanghai. In the wake of Spielberg's withdrawal, campaigners are seeking more high-profile criticism of China for its continued weapons and oil sales to Sudan while Darfur is engulfed by violence.

The International Olympic Committee (IOC) says that it isn't going to mix it with activists trying to get it to talk with the Chinese government over Darfur, stating (surprise!) the IOC is a sporting, not a political organization. Pressure tactics are also being mounted against MNC Olympic advertising sponsors. Can the MNCs really prod China on the Darfur matter? You need to disaggregate this question into (1) do these companies have real leverage on China? and (2) are they obligated to take up the issue of human rights with China? Thorny questions, indeed...

For the corporations that are linking their brand to the games, however, activists are using a different kind of pressure. Dream for Darfur met 19 Olympic sponsors in June, asking them to commit to four gestures, Savitt said.

When the group assembled a "report card" on the corporations' cooperation, 13 of the 19 got failing grades. General Electric earned a C-plus for simply noting China's friendship with the Sudanese regime during discussions with the International Olympic Committee. "Not exactly a profile in courage," Savitt said.

Despite the dismal performance from corporate sponsors such as Microsoft, McDonald's, and Coca-Cola, a second report card is forthcoming from the group. The requests are still simple: businesses are asked to meet the actor Mia Farrow, who played a major role in persuading Spielberg to withdraw from the games; contact UN officials about the status of peacekeepers in Darfur; and call for Sudanese officials who are under indictment at the international criminal court to be barred from the Olympics.

And any companies scoring below a C on the second report card will earn public demonstrations at their offices, Savitt vowed, most likely with survivors of Darfur. Another consequence will come in the form of a mass boycott of TV adverts run by the Olympic sponsors, a campaign called Turn Off For Darfur.

What does Dream for Darfur call for? The first set of objectives is, I believe, more reasonable. UNAMID is the United Nations / African Union Mission in Darfur, BTW:

China should use all the influence at its disposal to press the Sudanese government to a) permit the swift, full and effective deployment of UNAMID; b) implement the North-South peace deal and participate constructively in the Darfur peace process; and c) allow the unfettered delivery of humanitarian aid in Darfur and Eastern Chad. China will only pass this test once Sudan has acted accordingly in all three areas.

The second set are definitely in the "dream on" category, especially the first two points:

1. Support punitive measures, such as UN Security Council targeted sanctions, against Khartoum officials, until peace and security for Darfur is achieved. UN targeted sanctions should be imposed immediately against government, rebel, or militia officials who are responsible for undermining UNAMID’s deployment, the North-South peace deal, or regional stability, such as attempting to overthrow the government in neighboring Chad.
   
   
2. Verifiably suspend all military cooperation with the Khartoum regime, including weapons transfers, until peace and security for Darfur is achieved.
   
   
3. Work with the United States, France, and the United Kingdom in a quartet supporting UN and African Union initiatives in Darfur, Southern Sudan, and Chad. This cooperative work on the peace process needs to be comprehensive. The problems of Darfur, Southern Sudan, and Chad are intertwined, so unless peace is advanced on all of these fronts it will be unlikely to be achieved on any of these fronts.

How is Chinese officialdom acting in response? One of the benefits of reading the Chinese press is that you know its line is not far from the Communist Party's, if nothing else. Here are the four key talking points from the China Daily, our favorite official publication:

Firstly, China has been working closely with the United Nations to resolve the Darfur crisis through political means, said the ambassador.

On July 31 last year, the UN Security Council adopted Resolution 1769, authorizing the deployment a hybrid UN and African Union (AU) force in Darfur, which marks a great achievement in the settlement of the crisis there.

China helped push forward the Sudanese government, the AU and the UN reaching consensus on the resolution on the hybrid force to Darfur, which did not come easily and our efforts have been applauded by the international community, Li said.

China also made proposals on the peaceful settlement of the Darfur issue, which were approved by various parties concerned.

What's more, last year when Sudan and the UN differed over the deployment of hybrid peacekeeping forces, China appointed Liu Guijin, a veteran diplomat as a special envoy on the issue, who traveled to Khartoum three times to persuade the Sudanese government to accept the UN resolution.

Liu also attended two peace talks on Darfur, and shuttled between the United States, major African countries, the UN, the AU, the Arab Union and the European Union, to facilitate the communication and coordination between various parties on the issue.

The Chinese government has also maintained sound communication with the Sudanese government, held discussions with it on the basis of respect for its sovereignty and territorial integrity. [This is not reassuring. It's the old line "we sold them weapons and it's really none of our business what they do with them."]

China sees to it that the concerns of the Sudanese government are heard, while conveying to the government the international community's concern over Darfur.

Secondly, China has actively participated in the hybrid peacekeeping efforts in Darfur upheld by the UN and the AU, and is the first non-African country to sent peacekeeping troops to the Darfur region.

China has promised to send a 315-strong engineering unit to Darfur. A 140-member advance troop arrived in Darfur last November, the first UN peacekeeping force there in the region, and more will be gradually deployed.

The Chinese engineering troops have been actively engaged in the construction and other works in the UN peacekeeping camps, their outstanding contribution there won them hearty praises from the locals, and UN officials there said Chinese peacekeeping forces are making miracles happen there [hyperbole, eh?].

Thirdly, in order to improve the humanitarian situation in Darfur, China has provided material assistance worth 80 million RMB (about 11 million U.S. dollars) to Darfur, 1.8 million U.S. dollars aid to African Union, and 500,000 U.S. dollars donation to the U.N. fund for solving Darfur issue, and Chinese firms have also offered help.

Fourthly, China also has encouraged entrepreneurs to help the development in the Darfur region.

In recent years, Chinese companies have helped dig 46 wells, build 20 small-scale power plants in Darfur and water supply projects in southern and northern Darfur states. Chinese companies also provided computer equipment and facilitated technical training in the region.

Therefore, as is obvious to anyone in the international community that is not biased against China, China has been playing its due part in helping resolve the Darfur issue, and that stance of China definitely deserves objective and just treatment, Li said.

Spielberg, Sudan, and the "Genocide Olympics"

It seems that Steven Spielberg has been taken aback by the Chinese ruling regime's indifference to his efforts to prod it on Sudan. It seems this authoritarian regime is too Jurassic for Spielberg's liking. So, he has quit his role as an adviser to the 2008 Beijing Olympics. This, of course, is partly the culmination of Mia Farrow's efforts to get Spielberg to quit working on what she has called the "Genocide Olympics." I have covered the Farrow angle elsewhere [1, 2, 3, 4]. What remains notable is China's continuing wish to sweep Tibet, Sudan, human rights, press freedom etc. under the carpet as "politics." In the dialogue of Chinese officials, as far as I can gather, politics is anything distateful that will ruin China's Olympics. In its eyes, the Olympics is the coming out party of the PRC onto the world stage. If I were a human rights campaigner, I would absolutely use the Olympics as a maximum visibility stage to get my points across. It's too bad the Chinese have taken a largely oppositional stance here that will likely continue to dog it when the Games actually begin. File this one under the Than Shwe School of PR. From the International Herald Tribune comes this snippet:

The movie director Steven Spielberg has said he is withdrawing as an artistic adviser to the 2008 Summer Olympics in Beijing after almost a year of trying unsuccessfully to prod President Hu Jintao to do more to try to end Sudan's attacks in the Darfur region.

Spielberg's decision, and the public way he announced it Tuesday, was a blow to China, which has said that its relationship with Sudan should not be linked to the Olympics, which have become a source of national pride.

In a statement sent to the Chinese ambassador and the Beijing Olympic committee on Tuesday, Spielberg said that his "conscience will not allow me to continue with business as usual."

"Sudan's government bears the bulk of the responsibility for these ongoing crimes but the international community, and particularly China, should be doing more to end the continuing human suffering there," the statement said. "China's economic, military and diplomatic ties to the government of Sudan continue to provide it with the opportunity and obligation to press for change."

Responding to Spielberg's action, a spokesman at the Chinese Embassy in Washington said, "As the Darfur issue is neither an internal issue of China nor is it caused by China, it is completely unreasonable, irresponsible and unfair to link the two as one." Officials in Beijing did not respond to requests for comment Wednesday.

Spielberg had written to Hu about Darfur twice in the past 10 months, his spokesman said, taking China to task for its "silence" while Sudan blocked the deployment of international peacekeepers and expelled aid workers from the region.

In September, Spielberg also met with China's special envoy to Darfur at the Chinese mission to the United Nations, said Spielberg's spokesman, Andy Spahn.

None of those efforts yielded the results Spielberg wanted, Spahn said. In the meantime, Spielberg had come under increasing pressure from activists working on Darfur, including a campaign by the actress Mia Farrow, to drop his association with the Beijing Olympics.

After receiving word that Spielberg had done just that, Farrow was jubilant.

"His voice and all of the moral authority it gives, used this way, brings a shred of hope to Darfur, and God knows, rations of hope are meager at this time," said Farrow, a good-will ambassador for Unicef who helped start a campaign last year to label the games in Beijing the "Genocide Olympics."

The actor Don Cheadle, a co-founder of Not On Our Watch, a Darfur advocacy group, said he hoped that Spielberg's actions would force China to rethink its position. "One guy like Steven in a position like that is like 100 other guys," he said. "Those are the kinds of moves, that if they catch fire, and other people think of boycotting, or refraining, the cumulative effect could be something that potentially could change the calculation of that government."

From TIME, the Chinese added this:

China is blaming activists with "ulterior motives" for linking the Beijing Olympics to the nation's involvement in Sudan, with top officials saying they shared concerns over the humanitarian crisis in Darfur...

China is believed to have influence over the Islamic regime because it buys two-thirds of the country's oil exports while selling it weapons and defending it in the United Nations.

In their first response to Spielberg's announcement, Games organizers said his decision would not affect planning for the opening and closing ceremonies, adding: "We express our regret over his recent personal statement."

"The Chinese government has made unremitting efforts to resolve the Darfur issue, an obvious fact to the international community which holds unprejudiced opinions on this issue," the organizers, known as BOCOG, said in a statement e-mailed to The Associated Press.

"Linking the Darfur issue to the Olympic Games will not help to resolve this issue and is not in line with the Olympic Spirit that separates sports from politics," BOCOG said.

China is on the defensive against critics using the Games to spotlight the communist regime's curbs on human rights, press freedoms, and religion.

"It is understandable if some people do not understand the Chinese government policy on Darfur," Foreign Ministry spokesman Liu Jianchao said. "But I am afraid that some people may have ulterior motives, and this we cannot accept."

Liu said China was working with the United Nations to resolve the Darfur crisis.

"China is also concerned about the humanitarian crisis there, but we have been playing a positive and constructive role in promoting peace in Darfur," he said.

Liu said China supported a hybrid African Union and United Nations force to patrol Darfur.

"This did not come easily and our efforts have been applauded by the international community," Liu said.

Liu said 140 Chinese engineers helped prepare the hybrid force and Chinese companies in Sudan had helped dig wells and build small-scale power plants in Darfur.

"On the issue of Darfur, empty rhetoric will not help," Liu said. "What is more important is to do more things to help with the peace process there and alleviate the humanitarian crisis..."

China Loses to US in WTO Auto Parts Case

In case you missed it, WTO Dispute Settlement case #339 has gone against China. This case concerns auto parts exports by the US, EU, and Canada to China for which Chinese authorities levied tariffs equivalent to those for complete automobiles. (The tariff rate that is supposed to be applied to auto parts is significantly lower than that for complete vehicles. Also note that the EU was the original complainant against China; the US latched on afterwards.) Reuters has a brief summary here:

The United States has won a preliminary ruling in a World Trade Organization case over Chinese tax policies that restrict imports of foreign auto parts, a U.S. trade official said on Wednesday.

"We can confirm that, in all major respects, the panel has agreed with the United States that China has acted inconsistently with its WTO commitments," the U.S. trade official said in response to press reports on a confidential interim report released in Geneva.

The final report in the case is expected to be made public by the second or third quarter of this year. The case would be China's first loss at the WTO.

The United States and the European Union filed the case in March 2006 and were later joined by Canada. They complained that China's tax treatment of foreign auto imports discouraged Chinese automobile manufacturers from using them...

Once a final report is issued, China would have the opportunity to appeal the decision...

Canadian Trade Minister David Emerson said the ruling, if upheld, would come at a crucial time for the ailing domestic auto parts industry, which needs to expand its "hundreds of millions" worth of exports to China to stay competitive.

"It's a market that's growing and with our companies in such tough shape right now a growing market is critically important to restoring health to our own auto parts industry."

Meanwhile, Max Baucus has hailed this ruling, as you would expect:

Senate Finance Committee Chairman Max Baucus (D-Mont) today welcomed a World Trade Organization (WTO) dispute panel’s initial finding that Chinese auto parts import policies violate WTO rules. The panel found that the Chinese policies discriminate against imported auto parts – from the U.S., for instance – and unfairly favor Chinese auto parts suppliers.

“Vigorous enforcement is the linchpin of our trading system. When we enforce WTO rules, markets open and our workers prosper,” said Baucus. “This decision is a victory for open markets and American workers.”

The auto parts dispute was brought to the WTO by the United States, the European Communities, and Canada in 2006. The three parties contended that China’s taxes on imported auto parts discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles. These regulations discriminate against imported auto parts in favor of Chinese-manufactured parts. A final panel decision is expected in March, after which China may appeal or comply with the decision.

Can auto parts manufacturers in the US, EU, and Canada ensure their survival by exporting their wares to China, or will Chinese auto parts manufacturers themselves be more than competitive? Stay tuned. This is the second straight victory for the US over China in trade disputes after getting it to back down in the subsidies case (DS 358).

Will Asia Decouple from the US Slowdown?

Is Asia going to decouple from the ongoing slowdown led by United States? The IMF's latest thoughts on the topic suggest it cannot. What becomes the question, then, is to what extent Asia will be struck by "collateral damage." The chart to the left indicates that, if anything else, the dependence of developing Asia on external markets is much higher in 2006 than in 1990. I am of two minds about this. There is no doubt that any number of Asian economies are very much export-driven. Yet, there are also possibilities not alluded to in many analyses such as those for creating domestic demand. Japan certainly won't become the next hot consumer market, but what about China, India, etc.? Ah, enough conjecture. Here is the IMF blurb:

What are the implications of growing interdependence among economies in emerging Asia?
1. Decoupling is unlikely. Given the increasing share of intra-regional trade, it may be tempting to argue that emerging Asia can decouple from the global economy. However, this is likely not the case. Developed economies outside the region remain the main destination of final good exports by emerging Asia. Indeed, the exposure of Asian economies to inter-regional exports has actually increased over the past 15 years (see Chart 2).

Indeed, it doesn't look like very encouraging stuff. Also, here are a few articles from the reliable Financial Times on the whole decoupling thingamajig. First, it writes that while US demand for Asian exports may be slowing, Europe may be taking up some of the slack (likely due to the increased buying power of the stronger euro and pound):

Asia’s export-dependent economies are hoping that decoupling – the notion that the rest of the world can grow even with the US in recession – will hold true.

There have been signs. Over the past year, Japanese shipments to China have risen by 15 per cent, to Europe and other Asian nations by 11.5 per cent, and to the “rest of world”, including the oil-flush Middle East, by 25 per cent.

Still, exports to the US have been fading fast, down 1.7 per cent on the year, and because Japan’s eagerly awaited recovery in domestic demand has never materialised, its economy has been running on only one (export-led) engine. This fiscal year its economy is expected to grow by what analysts describe as a disappointing 1.3 per cent.

Peter Morgan, chief economist for Asia Pacific at HSBC, says that one of the chinks in decoupling’s armour is Europe.

The region has been happily sucking in Asian imports thanks to its strong currency and reasonably good economic performance. But as Asian currencies appreciate, against the euro as well as the dollar, and European economies slow, that will change. “That is going to take away one of the legs of the stool,” he says.

Second, China may actually be welcoming a respite from so many consecutive years of double-digit export-led growth:

Behind the headline forecasts of decelerating Chinese output in 2008 lies a more significant trend that may mark a long-awaited turning point for the economy and its global impact.

Chinese and World Bank economists have significantly downgraded forecasts for China’s national growth in recent weeks – from 11.4 per cent in 2007 to maybe two percentage points lower this year...

The Chinese government, far from being alarmed at such a turnaround in growth, would largely welcome it.

The slowdown could dovetail with Beijing’s own aims to moderate the contentious trade surplus and, at the same time, recalibrate growth away from heavy industry in favour of consumption and services.

“If China is able to rebalance the economy, making it less intensive in resources and capital, cleaner and more widely shared, growth of 9-10 per cent a year for long periods would be the [outcome] developing countries across the world are looking for,” said Louis Kuijs of the World Bank in Beijing.

The surge of recent years in investment in heavy industry, such as steel, aluminium and cement, has strained energy resources, contributed hugely to greenhouse gas emissions and pollution and created few jobs.

Such a cocktail is anathema to Chinese leaders, who face pressure at home to create more jobs – especially with exports in relative decline – and from abroad to tackle carbon emissions.

“Five of the largest heavy industries account for over 40 per cent of the country’s energy demand yet, combined, they employ fewer people than the service sector in Guangdong province alone, and fewer people than they did a decade ago,” said Trevor Houser, a visiting fellow with the Washington-based Peterson Institute for International Economics.

Last, the Indian economy is also poised for a slowdown after years of breakneck growth:

India’s economy, an increasingly important engine of global growth, is slowing rapidly for the first time in three years, according to government statistics released on Thursday, prompting economists to cut forecasts for the coming year.

India’s growth rate for the year to March 2008 will be 8.7 per cent, down from 9.6 per cent the previous year, the government’s statistics office said on Thursday, reflecting the dual impact of an appreciating rupee and sharp monetary tightening...

Private economists studying India have also become less bullish about its growth prospects. Citigroup, which had forecast 9.3 per cent growth for the country this year, slashed its growth forecast for next year to 8.3 per cent from 9 per cent, blaming a deteriorating global environment and the likelihood of single-digit export growth.

Sonal Varma, an economist at Lehman Brothers in Mumbai, said the bank’s forecast of 8.8 per cent growth next year faced downside risks from “weakening global growth, tight domestic monetary conditions and increased financial turbulence”.

Other banks have been expecting an even sharper tailing off in India’s growth rates, with Morgan Stanley forecasting GDP growth of 7.4 per cent next year and 7.8 per cent in the year to March 2010.

Don't Offend the Chinese, America's Real Owners

Yeah! I am warming up to these corporate types in China rather quickly with this latest spat over US national security concerns (i.e., protectionism). Whenever there is a cause for concern that national security interests are being compromised by foreign investment, the US government calls on the Committee on Foreign Investment in the US (CFIUS) to investigate. Our good man Ben Muse has more than you'll ever need to know about the CFIUS.

Anyway, back to the case in question. Back in September 2007, US private equity firm Bain Capital and Chinese telecommunications gear manufacturer Huawei mounted a $2.2B bid for US firm 3Com. However, this proposed purchase met with opposition over high technology with potential security implications being forked over to the Chinese. You know, those folks who are often caught sending spies over to steal US tech secrets. The ever-so-conservative Washington Times had the following to say about the impending deal back in October of 2007:

Treasury's committee needs to take a careful look at this merger, because what is already known about the deal is deeply troubling. The firm in question, Huawei Technologies, has been linked to illegal high-tech exports to Saddam Hussein's regime and the supply of telecommunications equipment to Taliban-ruled Afghanistan. Huawei wants to join with 3Com, which provides the Pentagon and the Army with intrusion-detection equipment to keep hackers out. The deal follows a July computer attack on the Pentagon that U.S. intelligence officials say involved Chinese military hackers who were found breaking into (among other things) a system close to Defense Secretary Robert Gates.

Huawei, founded by a Chinese military officer in 1988, got its start building military communications networks. "Huawei is up to its eyeballs with the Chinese military," a Pentagon official told Bill Gertz of The Washington Times. A second Pentagon official said the deal is taking place at a time when the Pentagon has mounted an aggressive effort to stop computer intrusions from Chinese hackers and spies: "And now we are proposing to sell the PLA [the People's Liberation Army, as the Chinese military is called] a key to our front door. This is a very dangerous trend."

Nouriel Roubini once made the point that, given America's free-spending and savings-free ways, it is inevitable that bigger and bigger chunks of the US will have to be sold off to fund an addiction to McMansions, SUVs, and flat screen TVs. What is galling to me is that so much of a stink is being made over a relatively small $363 million stake by the Chinese firm. Here is the punch line from the Financial Times:

The Chinese company participating in the planned buy-out of a US telecoms equipment maker has angrily rounded on US politicians who claim the deal could endanger US national security.

Xu Zhijun, chief marketing officer at Huawei Technologies, told the Financial Times that the concerns expressed by some US lawmakers were “bullshit”.

He added there was no need to change the terms of the $2.2bn deal, under which Bain Capital, the US private equity firm, is seeking to buy 83.5 per cent of 3Com, the US network equipment maker, with Huawei taking the remaining 16.5 per cent.

The deal has sparked concerns in the US because 3Com supplies intrusion prevention technology to the US defence department, designed to protect the Pentagon against cyber attack. The Pentagon believes that hackers in China conducted a massive cyber attack on its systems last year.

Thaddeus McCotter, chairman of the Republican policy committee in the House of Representatives, last month urged US authorities to deny Huawei any part in the 3Com deal, describing the existing buy-out proposal as a “stealth assault on America’s national security”.

Asked about the concerns that the deal could endanger US national security, Mr Xu said through an interpreter: “That would be bullshit.” Pressed to clarify his remarks further, Mr Xu added: “Because we only just take 16.5 per cent.”

When Asked what message he had for US lawmakers who voiced concerns about the deal, Mr Xu said Cisco, the leading US network equipment maker, supplied products to Chinese telecoms companies: “Cisco’s equipment is everywhere in China.

“If the US government is concerned about Huawei, if some of the lawmakers are concerned about Huawei, Cisco is everywhere within China. Who should be more concerned?”

The Committee on Foreign Investment in the United States, which can block sensitive inward investment, is due to complete its scrutiny of the deal before the end of the month.

Mr Xu stressed that Huawei would be a minority shareholder at 3Com, with no final decision making powers, even if it exercised an option to raise its stake to 21.5 per cent.

He also insisted the Chinese government had no influence over Huawei, adding Beijing was not a shareholder. He described Huawei as a “private enterprise” that was owned by its 20,000 employees.

The People’s Liberation Army is one of Huawei’s customers, and Mr Xu confirmed that Ren Zhengfei, Huawei’s founder and chief executive, was a former PLA officer.

Mr Xu described the rationale behind Huawei’s role in the 3Com deal as a “business investment” from which it hoped to get “investment returns”.

As Roubini suggests, the only way to avoid furriners buying ever larger chunks of America is to get US finances in order. With $170 billion giveaway packages to further fund the US jihad on fiscal sanity (and whose proceeds probably end up in China anyway), nobody is counting on that to happen soon. US deficits from here to Chongqing will only see to it that more and more of America is sold off. Enough with this protectionist nonsense. This is free trade, pal: if the US wants more borrowed time, it had better be prepared to give up this "national security" jive talking. The real owners of the US are in the PRC. Deal with it.

Structurally Adjusting the IMF, Continued

A few moons ago, I described the need for the IMF to structurally adjust itself as very few developing countries are borrowing from it. Without interest income to fund its operations due to a shortage of loans outstanding, the IMF has fallen under hard times, indeed. I almost missed this, but the Economist has more news on the recent fate of the controversial institution. It has already laid off 380 staff members, and the axe may fall on yet more employees. Sell off the gold stash, perhaps? It seems austerity measures are much in vogue in DC. From arch-villain of globalization to rather irrelevant international organization in the space of a mere decade. It's funny how things have changed at the IMF:

And just as he is touting stimulus abroad, [IMF Director-General] Strauss-Kahn is demanding austerity at home. For the IMF finds itself in a big fiscal hole. Its $1 billion budget is traditionally funded by the small profit it makes on lending money to cash-strapped countries. But IMF lending has collapsed in recent years as developing countries have improved their economic management. As a result, the fund looks set to run a deficit of some $400m a year for the foreseeable future.

The organisation still has a fat cushion of reserves to draw on, but clearly its business model needs to change. Last year a group of “wise men” suggested creating an endowment to fund the IMF's expenses by selling some of its large gold stocks. Such a move requires the approval of the fund's member countries, which means a vote by America's Congress. Mr Strauss-Kahn, it seems, reckons he has a better chance of achieving that if the IMF develops its own cost-control plans quickly.

So the fund is downsizing. Some $100m is to be saved by getting rid of 380 staff, a reduction of around 15%. Preliminary documents obtained by The Economist suggest big cuts in most departments, and particularly among managers. Many departments, it seems, need to reduce their headcount of “B” level staff by 30-40%.

Addressing employees this week, Mr Strauss-Kahn said he hoped many departures would be voluntary. Few insiders think that is likely: the pay-offs, they moan, are too stingy, and with financial markets in turmoil, alternative employment options look grim. But for outsiders it is hard to resist a wry smile. The dispensers of fiscal rectitude are finally getting a taste of their own medicine.

BP and CSR: A Star-Crossed Relationship

Bloomberg columnist Ann Woolner has an interesting op-ed on the trials and tribulations of British Petroleum with regard to corporate social responsibility (CSR). While the company has some high-profile projects trumpeting its good eco-deeds, it has neglected less PR-friendly opportunities to make good--one of which has turned into a fatal PR fiasco. On the positive side:

When it comes to doing something good about global warming, London-based oil company BP Plc is the industry pioneer.

True, that doesn't say much.

``I don't think you can call any oil company a green company,'' says Andrew Logan of Ceres, a Boston-based coalition of environmental advocates and investors.

Groups such as Ceres that rate companies for doing the right thing give BP credit for investing in less-polluting fuels and for acknowledging a decade ago that carbon emissions can hurt the planet. They have acclaimed BP as the very model of social responsibility.

On the negative side, though, comes this well-known tragedy:

This week, BP became a pioneer of quite another sort. The company's U.S. division admitted in federal court in Houston to an attitude toward the environment so cavalier as to be criminal.

BP's unit has the distinction of becoming the first and only company prosecuted under a 1990 Clean Air Act amendment.

The air wasn't all that BP harmed.

Because of the company's keen attention to cost-cutting and a blasé approach to safety, deteriorated equipment set off a massive 2005 explosion at its Texas City, Texas, refinery.

Fifteen workers died, hundreds more were injured and walls cracked for miles around. The company last year paid a record $21 million civil fine to the feds for worker-safety violations...

Ralph Dean appeared in court this week to tell his story to the judge. Explaining that Dean himself gets ``too emotional'' to speak, his lawyer read Dean's statement about watching, seat- belted, from his forklift as a fireball knocked down and then destroyed the trailer where his wife and their fathers were working.

Dean dug through the wreckage, finding body after body, until he located his wife. She barely survived, albeit with permanent burn scars on her lungs. Both their fathers died.

``BP's true motto is ``Human life means nothing. Money means everything,''' Becky Linsenbardt, who was widowed by the explosion, told the judge.

Eva Rowe lost both parents, her mother decapitated, her father's bloody face still streaked from tears when she went to the morgue to identify his body. The daughter, 20 when the plant blew up, told the judge that pollution is the least of BP's crimes.

``BP's greed murdered 15 people,'' she said.

I suppose it's up to companies if they want to make longer-term commitments to CSR and see if financial benefits can be gained from doing so. While these efforts should be welcomed, companies should still cover the bases for what constitutes good corporate practice in everyday matters. Cost-cutting by reducing safety considerations can definitely backfire bigtime as with the case of BP's Texas plant, likely negating the good BP has done with its eco-friendly power initiatives.

Will the US Go for Diesel Cars?

Here in Europe, diesel automobiles outsell those that run on gasoline. Not only are they more economical, but they offer torquey motors that attract auto enthusiasts. Now, the question is whether American prejudices against diesel can be surmounted as top German marques such as Mercedes-Benz, BMW, and Audi take their diesel-powered luxury offerings on an Atlantic crossing. From the BBC:

In a country where the "filthy fuel" is generally reviled, most would not even consider buying a diesel-powered family vehicle.

And yet, in spite of such extreme distrust in - or disgust with - diesel, European auto makers are preparing a massive onslaught of diesel-powered models that they say will help cut fuel bills and reduce greenhouse gas emissions by up to 25%.

This year, for the first time, diesel-powered cars that meet the emissions regulations in all 50 states will arrive in the US, says Stefan Krause, BMW's executive director in charge of sales and marketing, in an interview with BBC News.

"If you point out the environmental friendliness of these cars and if you point out that it's more cost effective than petrol, then high performance diesels will be accepted," he predicts.

Dieter Zetsche, chief executive of Daimler, which owns Mercedes-Benz, agrees.

"We are very bullish about the prospects for diesel in this country," he tells BBC News.

Consequently, a growing number of industry observers agree with the claims made by manufacturers of diesel-powered cars: "Diesels can produce enormous improvements in the short-term," according to Paul Ingrassia, author of Comeback: The Fall and Rise of the American Automobile Industry.

The emergence of so-called "clean diesel" has taken Europe by storm and now outsells petrol pretty much across the board.

Diesel now accounts for more than half of all new cars sold in Europe, and only a quarter of luxury car buyers in Europe choose petrol engines, though this is largely because of tax rules that favour diesel.

In the US, meanwhile, diesel has yet to rise above a single-digit market share in any segment, though there are early signs that wealthy drivers, who are more likely to choose cars made by non-US manufacturers, are keen to embrace the fuel.

"Where we offer diesel it accounts for 20% of sales," observes Daimler's Mr Zetsche.

"Mercedes is now going for more and more diesel in the US," he adds, and so are its main European rivals, Audi and BMW.

Wheat, the Commodity of Champions

As the price of a bushel of wheat has slammed through the $10 level with relative ease, fears are growing in the US and elsewhere that food prices will escalate further as well. The Commodities Futures Trading Commission has increased its price increase limit for a bushel of wheat as trading limits have been hit on a daily basis as of late. Truly, a new age of agricultural renaissance may be upon us after years of worry about stagnant or dwindling commodity prices. Hats off to Jim Rogers who saw it all coming well before the rest of us. Rogers' reputation as a legendary investor is burnished further. From the Financial Times comes this story:

A fall in US inventories of wheat to a 60-year low drove prices of the grain sharply higher on Friday to a fresh record, intensifying fears of rising global food price inflation.

US wheat futures – global benchmarks for the grain – have jumped by their daily trading limit each day this week. Prices for Minneapolis wheat, the US variety most suitable for making flour, rose 10.7 per cent on the week, extending its price surge since the beginning of the year to 50 per cent.

“We are in uncharted territory,” said James Bower of Bower Trading. “The market is desperately trying to tell global producers that we need more acres for wheat production...”

“The US has sold too much wheat and will have to import, probably from Canada, to satisfy its domestic requirements,” said a hedge fund manager. “This will have a major impact on the rest of the world if consuming countries can’t buy US wheat and Europe becomes the global supplier.”

Global stocks of wheat are expected to fall to a 30-year low as consuming countries have scrambled to ensure they have enough supplies for domestic consumption.

Shell Pimps Its Gas to Liquids Products

One of the more interesting developments in the energy industry is that of gas to liquid conversion via the Fischer-Tropsch process, which dates to interwar Germany. Through this process, natural gas can be converted into diesel fuel for use in vehicles. What's more, using GTL diesel is claimed to result in up to 91% less carbon monoxide, 64% less hydrocarbon, and 26% less particulate emissions than regular diesel. It sounds great, right? More fuel supplies with less pollution in the process. Shell has a website pimping (I can use this term, not MSNBC commentators) its GTL technology that even features a globetrotting love story [!] Hollywood aspirations aside, there's quite a lot of informative stuff. The advertising pitch Shell is making is with more folks flocking to cities around the world, this technology promises less pollution in major urban areas.

US, UK, Japan Plan LDC Clean Energy Fund

US Treasury Secretary Henry Paulson, UK Chancellor of the Exchequer Alistair Darling, and Japanese Finance Minister Fukushiro Nukaga have an op-ed in the Financial Times detailing the plan of these countries to create a fund for clean technologies in the developing world. Interestingly, the World Bank is to administer this clean fund. With the traditional aid business of the World Bank losing ground, could this eventually become one of its major efforts?

The first step in confronting climate change is to reduce the growth of greenhouse gas emissions. All countries need to take decisive steps to cut or limit the growth of emissions. Fortunately, we know ways of doing so, by globally deploying the most advanced clean-energy technologies.

Unfortunately, without a global investment framework built on market incentives, these technologies are not affordable for many developing countries. To address this the US, UK and Japan are working to create a fund to ensure the widespread adoption of clean technologies in the developing world. Market-driven economic development is one of the great success stories of the past half century. We should ensure that growth and poverty reduction continue without adding to the costs to the environment through the emission of the greenhouse gases primarily responsible for climate change.

If energy consumption continues along the current path in developing countries, future development will have a greater impact on our climate. We have no choice but to help developing countries reduce the carbon footprint of development and make their economies climate change resilient. President George W. Bush, Gordon Brown, the British prime minister, and Yasuo Fukuda, Japan’s prime minister, have risen to the challenge by establishing a multibillion-dollar fund to accelerate the deployment of clean technologies and help the developing world deal with climate change...

The question is how to ensure that new power plants, transport systems, factories and other buildings in the developing world are as environmentally “clean” as technology allows. According to the World Bank, ensuring that these investments are made using lower carbon emission technologies could cost an extra $30bn annually.

By pooling our efforts to support a new clean technology fund, administered by the World Bank, we can help developing countries bridge the gap between dirty and clean technology. The fund will support publicly and privately financed projects that deploy technologies that can cut emissions, increase efficiency and save energy.

Bashing the IMF for Political Points in Argentina

While doing some research on the IMF, I came across a reference about current Argentinian President Cristina Fernandez (whose husband is the previous leader, Nelson Kirchner) using the IMF for political points. Justified or not, the IMF has come under fire in Argentina--as it has in many other countries--for telling nations what to do when they borrow from the organization. If you will recall, Argentina had to borrow a lot from the IMF in 2001 when it became the largest sovereign borrower to ever default with $141 billion outstanding.

In 2006, Argentina prepaid virtually all of its IMF loans, prompting celebrations in the country. The advertisement above basically goes, "my hubby kicked out the IMF from Argentina, so vote for me to make sure that it doesn't come back again." The ad is, to me at least, quite well made. The idea is ensuring that voters' children have no idea what the IMF is can only be a good thing. Note that most of the guesses made by the children about what the IMF is are put-downs:

• I think the IMF is like a herd of horses
• The IMF is a satellite that ran into the moon
• The IMF is a country where everything is upside down
• This is the IMF walking his dog [probably a poodle, eh?]
• The IMF is a place where there's plenty of animals

You get the point of the ad. Apparently, so did the Argentinean electorate.

Credit Rating Agencies: Revenge of the NINJA

[UPDATE: MarketWatch says S&P plans to change the methodology which it uses to rate structured finance products.] The Independent has a good 'un on the credit rating agencies falling under hard times as investors, regulators, and politicians are now breathing down their necks for their assorted shenanigans. Not so long ago, Timothy Sinclair described these agencies as the "new masters of capital" since their ratings are instrumental in determining who exactly is able to receive credit--and at what cost. Given their tumble in the wake of the subprime mess--does anyone still have faith in the ratings they give--these rating agencies now have a much-diminished standing. With a loss of confidence comes a loss of faith in their activities.

From the lofty status of "masters of capital," they have now turned into the "jesters of capital" by assigning AAA ratings to trashy securities containing NINJA loans (mortgages granted to those with no income, no jobs or assets) and the like. Here are some excerpts from the Independent on this fateful turn of events:

Warning: may contain nuts [good one!]. The credit-rating agencies, fingered early on as important villains in the unfolding credit crisis, have alighted on a new plan to shore up investors' confidence in their abilities and to head off potentially ruinous new rules from angry law-makers. They suggest putting a warning label on many of their credit ratings, alerting investors to the limitations of their research and the possibility that they may be wrong.

At this stage, that might look like a statement of the obvious. As Wall Street churned out more and more exotic financial instruments in recent years, agencies led by Standard & Poor's and Moody's stamped many with gold-plated triple-A credit ratings, signalling to investors that they were as safe as government bonds.

Only, that turns out to have been fantasy, and shocked investors who thought they had rock-solid portfolios have found themselves sitting on giant losses. From the retirement funds of tiny local authorities in the US, to the trading desks of the titanic Wall Street banks, more than $100bn (£50bn) of value has been wiped out because of the mushrooming numbers of defaults.

So there is no longer any doubt that the agencies have been very, very wrong in assessing the creditworthiness of exotic mortgage-related bonds and other credit derivatives, particularly the parcels of debt known as collateralised debt obligations, or CDOs.

Investigators are now looking to scoop up the dirt on these agencies:

Two Congressional committees and several attorneys-general across the US have launched formal investigations into whether the agencies gave artificially inflated ratings in order to win business from Wall Street banks, which paid for the ratings. "It is like a movie studio paying a critic to review a movie and then using a quote from his review in the commercials," one law-maker said at the time.

This week, at a meeting in Amsterdam, the International Organisation of Securities Commissions is discussing a co-ordinated regulatory response to the rating agencies' failings, while the European Union and the US Securities and Exchange Commission are pursuing parallel inquiries.

But all the agencies have insisted on their good faith, saying overly optimistic credit ratings stemmed not from conflicts of interest, but from deteriorating lending standards and fraud by mortgage brokers.

What will happen? Wait and see. It won't be very pretty, I think:

The outcome of these internal, regulatory and criminal reviews will have enormous consequences. Whether it be a bog-standard municipal government bond or a synthetically created parcel of derivatives and other complex financial instruments, the credit rating of a bond is vital to the price at which it trades.

The Pacific, Plastic, and You

I was perusing the Independent website when I came across this article expressing concern about growing mounds of plastic circulating in the Pacific Ocean. Truly scary stuff and a warning about the unmitigated use of plastics. These things do not simply vanish into the ether; what you throw out eventually ends up somewhere when it comes to non-biodegradable plastics:

A "plastic soup" of waste floating in the Pacific Ocean is growing at an alarming rate and now covers an area twice the size of the continental United States, scientists have said.

The vast expanse of debris – in effect the world's largest rubbish dump – is held in place by swirling underwater currents. This drifting "soup" stretches from about 500 nautical miles off the Californian coast, across the northern Pacific, past Hawaii and almost as far as Japan.

Charles Moore, an American oceanographer who discovered the "Great Pacific Garbage Patch" or "trash vortex", believes that about 100 million tons of flotsam are circulating in the region. Marcus Eriksen, a research director of the US-based Algalita Marine Research Foundation, which Mr Moore founded, said yesterday: "The original idea that people had was that it was an island of plastic garbage that you could almost walk on. It is not quite like that. It is almost like a plastic soup. It is endless for an area that is maybe twice the size as continental United States."

Curtis Ebbesmeyer, an oceanographer and leading authority on flotsam, has tracked the build-up of plastics in the seas for more than 15 years and compares the trash vortex to a living entity: "It moves around like a big animal without a leash." When that animal comes close to land, as it does at the Hawaiian archipelago, the results are dramatic. "The garbage patch barfs, and you get a beach covered with this confetti of plastic," he added.

We Are the French National Champions: SocGen

With French bank Societe Generale on the ropes (or is that snoozing on the canvas?) after losing, what, $7.2 billion at the hands of new alt-globalization hero Jerome Kerviel , French politicians have vowed that this "national champion" will not go to the dreaded furriners. Enjoy this latest installment of French protectionism. Free trade? Yeah sure, and I'd like to sell you some beachfront property...in Kansas. From Bloomberg:

As French politicians go to the barricades to keep foreign banks from preying on a vulnerable Societe Generale SA, their European partners are left wondering just who the enemy is.

Days after France's second-largest bank announced that unauthorized bets left it with a trading loss of 4.9 billion euros ($7.2 billion), politicians led by Prime Minister Francois Fillon jumped in to preempt a non-French takeover bid.

Such economic nationalism in a country whose companies remain among the most acquisitive in the region has other Europeans crying foul. In the past year, French firms announced 317 deals in Western Europe, outside France, valued at $89.2 billion, according to Bloomberg data. In the same period, Western European businesses initiated 286 deals in France for $67.2 billion.

Whenever a potential acquisition is considered politically important, ``it is always seen in Paris as the French versus the non-French,'' says Daniel Gros, director of the Brussels-based Center for European Policy Studies. ``There is no European solidarity...'

Fillon, 53, provided an answer in remarks to Parliament Jan. 29. ``Societe Generale is a great French bank and will remain a great French bank,'' he said.

That sentiment is widely held.

``For the French, it is extremely important that one of our oldest banks, with a 140-year history, which was founded by its employees, not by a family, which has never been subsidized by the state, remain in French hands,'' says Patrice Leclerc, head of Societe Generale's employee-shareholders' association.

The protectionist instinct is deep-seated and draws from a political tradition that dates back to the 17th century mercantilist policies of Jean-Baptiste Colbert, Louis XIV's finance minister. Colbert established a protective system of tariffs, preventing foreigners from trading in French colonies.

Ukraine is 152nd WTO Member

[Ukrainian President Viktor Yuschenko and WTO Director-General Pascal Lamy seal the deal for the Ukraine's WTO accession.]

For those of you who missed it, the Ukraine is now well on its way to WTO membership. Part of it has to do with the country trying to lessen its Soviet-era ties with Russia given the latter's increasing assertiveness aimed at keeping former territories and satellites in its sphere of influence. Consider it as another episode in the "Orange Revolution" which represented a backlash against Russian hectoring. From the WTO blurb:

The General Council today paved the way for Ukraine’s membership in the WTO by approving its accession terms. Ukraine will have to ratify the deal by 4 July 2008 and would become a WTO member 30 days after the ratification.

“Ukraine’s WTO membership will strengthen the multilateral trading system and provide this country with a stable and predictable trade environment that will boost its growth and prosperity. I am particularly pleased to welcome to the WTO President Victor Yushchenko, whose personal commitment to his country’s accession was a major factor in the successful outcome to these negotiations.” declared Director-General Pascal Lamy.

Ukraine’s President Victor Yushchenko declared “Ukraine’s membership to the WTO is truly an historic moment and is a decisive milestone in the development of our economy. We are convinced that our efforts will yield results and allow us to build closer economic ties worldwide.” Ukraine applied for WTO membership in 1993, and the Working Party concluded the negotiations on 25 January 2008 under the chairmanship of Chile’s Ambassador Mario Matus. The General Council approved the Working Party report, the market access schedules on goods and services, the General Council Decision and the Protocol of Accession.

The Great Firewall of China Extends Its Clutches

Will the Great Firewall of China be a tipping point for activism on the part of the PRC's citizens? The International Herald Tribune is ambivalent. Although most Chinese Internet users have been quiescent so far, the seeds of conflict may be sown as more and more websites are made inaccessible:

As an 18-year-old student with an interest in the Internet, Zhu Nan had been itching to say something about the country's pervasive online censorship system, widely known here as the Great Firewall.

When China's censors began blocking access to the popular photo-sharing site Flickr, Zhu felt the moment had come. Writing on his blog last year, the student, who is now a freshman at a university in this city, questioned the rationale for Internet restrictions, and in subsequent posts, began passing along tips on how to evade them.

"Officials in our country claimed that Internet censorship is done according to the law," Zhu wrote. "If so, why not let people know about this legal project, and why, instead, ban the Web sites that publicize and examine those legal policies? If you're determined to do this, you shouldn't be afraid of criticism."

Zhu's obscure blog post and his subsequent activism is a small part of what many here regard as a watershed moment. In recent months, China's censors have tightened controls over the Internet, often blacking out sites that had no discernible political content. In the process, they have fostered a backlash, as many people who previously had little interest in politics have become active in resisting the controls.

And all of it comes at a time of increasing risk for those who choose to protest. Human rights advocates say the government has been broadening its crackdown on any signs of dissent as the Olympic Games in Beijing draw near.

Will the Ukraine Beat Russia to WTO Membership?

It certainly looks likely. From the somewhat nefarious Soviet-era ITAS-TASS news agency:

Ukrainian Foreign Minister Vladimir Ogryzko claimed that a meeting of the general council of the World Trade Organisation (WTO) on February 5 “will be the final point for Ukraine’s accession to this global club”. He expressed this idea on Thursday at the general information meeting of the European Business Association.

“Ukraine should become a WTO member already in one week’s time,” the minister stated. “Appropriate juridical procedures are planned for February 5, and we hope that this will take place without any changes.” According to the minister, “the Ukrainian president’s visit to Geneva is planned in this context. During the visit, final documents, providing for Ukraine’s membership of the WTO, are to be signed.

“February 5 should be the final day which will complete the years-long process of Ukraine’s accession to this organisation. This will help Ukraine to rise to a level of countries, having civilised relations,” Ogryzko contended. At the same time, according to the minister, Ukraine “should improve some things in legislation and there are some things which are in need of specifications”.

On Wednesday, speaking at the All-Ukrainian forum “Power and business are partners”, President Viktor Yushchenko expressed confidence that on February 5, Ukraine will become a WTO member. “I’m sure nearly 100 percent that we shall be in the WTO on February 5,” Yushchenko said.

Last week, the committee on WTO expansion accepted Ukraine’s application for joining the organisation. Following the signing of an agreement on joining the WTO, Ukraine will have to ratify requirements by July 4, necessary for accession to the WTO. Then, 30 days later, Ukraine will be officially a member of the World Trade Organisation.

Ukrainian leaders see it as a way to get Russia to "behave" itself better as Ukrainian membership will mean that it has leverage over the terms of Russia's WTO accession. From Agence France Presse:

Ukraine's expected membership of the WTO will give the country leverage in trade disputes with neighboring Russia, President Viktor Yushchenko told AFP in an interview on Thursday.

The pro-Western leader said that membership of the World Trade Organization would allow Ukraine to negotiate with Russia over "restrictions" imposed on Ukrainian exports worth up to $3 billion.

"Considering Russia's own aspirations to join the WTO, we will have interesting negotiations" on thorny issues such as Russian antidumping duties, Yushchenko said.

Members of the 151-nation global trade body have the right to demand bilateral agreements with aspirant members that can be used to extract trade concessions.

Russia had planned to join the WTO this year but has continually set back its deadline for joining. Ukraine, which submitted its membership in 1993, is the biggest country besides Iran and Russia outside the WTO.

In response, Russia is accusing the Ukraine of taking on less-than-favorable conditions for entry into the WTO to gain an advantage over Russia at the expense of domestic economic stability. Translation: the Ukraine is the West's lackey according to Russia. This is what you get when you mix geopolitics and trade:

Ukraine may join the WTO on unfavorable terms just to beat Russia to it and gain advantage, Russian Finance Minister Alexei Kudrin said Saturday, adding that Russia would only take an offer that guarantees its economic stability.

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"On the wave of its political relations with the West, Ukraine will most likely join (the WTO) on unfavorable terms just to join ahead of Russia and get some advantage, so I am afraid some Ukrainian industries will be in a unfavorable position," he told the First television channel.

Obama is the Protectionist's Choice, Too

Jonathan over at Trade Diversion mentions that some are trying to market Barack Obama as the free trader's choice. I am very doubtful of this proposition. Larry Elder points out that this may be dubious based on comments made by Obama on a recent trip to his native Kenya. There, Obama justified the existence of US agricultural subsidies:

But a reporter raised an issue about which Obama possesses more influence -- dealing with American protectionism that hurts Kenyan farmers. Why, asked the reporter, do Americans retain farm subsidies and tariffs that prevent Kenyan farmers from competing in the world's biggest market?

Obama's response? He talked about the soybean farmers in Illinois, and said, "It's important to me to be sure I'm looking out for their interests. It's part of my job." Absolutely incredible.

For, in July, the European Union and five nations, including the United States and Japan, met in Geneva, Switzerland, to discuss the elimination of farm subsidies and agricultural tariffs. After all, in 2002, the World Bank estimated that African exports would increase by almost $2.5 billion if the U.S., Europe, Japan and Canada eliminated their agricultural tariffs. This is especially true as to peanuts and tobacco. African farmers run up against farmers in wealthy nations whose laws ensure their success at the expense of Third World farmers.

What should Obama have said? "You're right. America is a rich nation. You are a poor one. Poor nations generally turn into rich ones by starting out with agriculture. So when I get back to Washington, I'm going to tell my colleagues about the devastating real-world effect American protectionism has on poor nations."

There's more to rain on the parade of the Obama revisionists. Since being elected to office, he has been as committed as any politician to traditional subsidies. Case in point: his support for corn-based ethanol. I do not need to reiterate that corn-based ethanol is neither particularly inexpensive nor efficient. (See, for example, Ford Runge and Benjamin Senauer's riposte to senator turned ethanol industry lobbyist Tom Daschle in Foreign Affairs. Author Jeff Goodell is even more blunt.) Instead of allowing the importation of less expensive sugarcane-based ethanol and the like from developing countries, Obama has been and still remains a big booster of corn-based ethanol:

Obama’s support among traditional Democratic constituencies was apparent in the audience members, a number of whom worked for low-income housing, civil rights, and pro-choice groups. Grateful representatives of big-money interests were on hand as well, in the form of officials from the Illinois Soybean Association and the Illinois Corn Growers Association. “We appreciate the relationship and the help,” said the latter, who was in town as part of a lobbying blitz called the Corn Congress.

And indeed Obama has delivered for his constituents—for social activists, but also for business groups whose demands are invariably more costly. Although this is not the place to review the full history of ethanol, it’s beyond dispute that it survives only because members of Congress from farm states, whether liberal or conservative, have for decades managed to win billions of dollars in federal subsidies to underwrite its production. It is not, of course, family farmers who primarily benefit from the program but rather the agribusiness giants such as Illinois-based Aventine Renewable Energy and Archer Daniels Midland (for which ethanol accounts for just 5 percent of its sales but an estimated 23 percent of its profits). Ethanol production, as Tad Patzek of UC Berkeley’s Department of Civil and Environmental Engineering wrote in a report this year, is based on “the massive transfer of money from the collective pocket of the U.S. taxpayers to the transnational agricultural cartel.”

Since arriving on Capitol Hill, Obama has been as assiduous as any member of Congress in promoting ethanol. He has introduced a number of measures that benefit the industry—such as the “Obama Amendment” that offered oil companies a 50 percent tax credit for building stations that offer E85 fuel—and voted for the corporate-welfare-laden 2005 energy bill, which offered billions in subsidies to ethanol producers as well as lavish incentives for developing cars that run on alternative fuels.

Meanwhile, Obama, Durbin, and three other farm-state senators opposed a proposal this year by the Bush Administration to lower stiff tariffs on cheaper sugarcane-based ethanol from Brazil and other countries. To lower such tariffs, the senators suggested, would leave the nation dangerously dependent on foreign ethanol. “Our focus must be on building energy security through domestically produced renewable fuels,” wrote the senators in a letter to Bush. That Obama would lend his name to such an argument—with its dubious implication that Brazilian ethanol is a national-security liability comparable to Saudi crude—indicates that he is at least as interested in protecting domestic producers of ethanol as he is in weaning America from imported petroleum.

Bottom line: Obama is as protectionist as they wanna be, especially on corn. His rhetoric and actions do not suggest otherwise. If you're looking for a real free trader, look elsewhere. Hurting poor Kenyan and Brazilian farmers in support of the corn lobby may win votes, but it doesn't look like "free trade" to me.

Sun Never Sets on the British (Sporting) Empire

Here's a rather self-serving article by sports commentator Simon Kuper on how the British Empire has not really gone away--at least in the sports arena. With Super Bowl XLII soon upon us, he has taken to explaining why American sports haven't really caught on worldwide (basketball hasn't to the same extent as soccer, he says). This following passage makes the claim that the popularity of soccer, cricket, etc. worldwide stems from British imperialists hobnobbing with their subjects, whereas American ones kept them at arm's length:

The difference between British and American empires was summed up by an American lawyer who worked for the British government in Baghdad. He said that when American officials wanted an Iraqi to do something, they would generally call him into the Green Zone and, if necessary, “bawl him out”. Sometimes this worked. Sometimes it didn’t. But the Americans only summoned Iraqis when something needed fixing, the lawyer said. By contrast, British officials were always inviting Iraqis in, for parties or just for chats, even when there was nothing particular to discuss. This is how the British used to rule their empire: by making long-term allies.

“European imperialists spent large parts of their lives immersed in the cultures of the countries they had colonised,” explains John Gray, professor at the London School of Economics, “learning the languages and often forging enduring alliances with local rulers. As well as subjugating and exploiting their colonies, they also ruled and lived in them.”

But wait, there's more where that came from. Did you know Osama bin Laden was an erstwhile Arsenal fan? As if I needed more reasons to root for Aston Villa...

Soccer seems to possess a magic that no other sport has. Critics mock its paucity of goals, but in fact that is soccer’s strength. Fans wait so long for a goal that when one comes, it prompts an unloading of joy found in no other sport. Osama bin Laden, who watched Arsenal several times in London in 1994, remarked that he had never seen such passion as among soccer fans.

And then you've got "first-mover" advantages as well as a paucity of international sports figures in American professional leagues (nevermind NBA All-Stars Yao Ming, Tony Parker, Pau Gasol, Manu Ginobli, and MVP Dirk Nowitzki, eh?):

American sports suffer partly from having arrived late: the British empire got everywhere first. Kevin Alavy, an analyst at Initiative, says: “If people have been following the same sports for 50 or 100 years in a country, it’s hard to break into that.”

Furthermore, Alavy points out that, American football’s NFL has almost no foreign players, while baseball draws its foreigners almost exclusively from central America, Venezuela and Japan. Foreign fans elsewhere have no local heroes to root for. The British, by contrast, spread football so thoroughly that foreigners now generally outperform them. Consequently, English football’s Premiership features about 70 nationalities. Qiang Yan, Chinese author of a book on the Premiership, describes 100 million Chinese sitting up at 1am to watch two Chinese play in Everton v Manchester City. “That’s ridiculous, right?” he asks. The Premiership belongs to the Chinese, the French, the Israelis.

Kuper then makes the bolder claim that British culture is arguably more dominant than ever, not the American variety:

The US’s failure to spread its sports casts doubt on the notion that American popular culture has conquered the world. The British rule not just in soccer. The language of their empire, thanks to Americans, has gone global. The six bestselling novels of the past 100 years are all British: four Harry Potters, one Agatha Christie and one J.R.R. Tolkien. The bestselling band ever is The Beatles. And the world’s most popular soccer league is the Premiership. Mid-sized England has produced few great footballers, yet on a Saturday like today, people in Shanghai and Soweto will gather in bars to watch Tottenham play Manchester United rather than anything from Germany or Italy. That is why owners of American sports teams have begun buying Premiership clubs: they are recycling their domestic profits into sport’s biggest growth sector.

It's amusing reading even if I don't agree with a lot of it. Read it yourselves and see what you make of it. And oh yeah, Aston Villa rules.

China, Rio Tinto, BHP, and Strategic Investing

I previously noted the logic in China trying to break up BHP Billiton's hostile bid for Rio Tinto: These two Australian mining giants supply the PRC with a lot of its mineral supplies; a combination of both would increase supplier power to near-monopoly proportions--or so China fears. There were rumors that state-owned firm Baosteel would mount its on bid for Rio Tinto, but that didn't materialize. What we have here instead is China throwing a spanner into the works by buying a 9% stake in Rio Tinto. American firm Alcoa chipped in as well to raise their combined holdings to 12% in Rio Tinto. This holding is, of course, a ploy which China hopes will deter BHP Billiton's efforts to buy Rio Tinto. Will it work? Stay tuned. $14B may seem like a lot of money to throw around to ensure a hunch that a potential monopoly is in the offing is busted up, but really, it's chump change for China. Expect more geopolitical investing from the PRC in the future. Welcome to the newer international economic order. From the Financial Times:

China on Friday weighed into the bidding battle for the world’s minerals deposits when it launched the largest-ever dawn raid to snap up a 9 per cent stake in Rio Tinto, the UK-listed mining giant at the centre of a takeover battle.

Chinalco, a state-owned mining company, in a joint exercise with Alcoa, the US aluminium group, spent $14bn in a move designed to block a planned $119bn takeover bid from rival miner BHP Billiton.

Together they secured up to 12 per cent in Rio’s London-listed shares. This investment gives them a 9 per cent overall stake in Rio which enjoys dual listing in London and Sydney.

BHP had been expected to launch an offer of three BHP shares for each Rio share on Wednesday, the deadline set by the UK Takeover Panel. But the Chinalco gambit threw BHP’s plans into disarray. Marius Kloppers, its chief executive, will this weekend decide whether to plough on with the bid or walk away.

Xiao Yaqing, Chinalco president, said that his group’s acquisition of a stake in Rio was driven by a need to diversify outside China, its bullish outlook for commodity prices and “our belief in the fundamental value of Rio Tinto”. The UK-listed company owns some of the world’s best iron ore, copper and aluminium mines and is a big supplier of these metals to China.

But people close to the deal said on Friday that the primary motive was to make it more difficult for BHP to buy Rio.

The Chinese government is dismayed at the prospect of a BHP takeover of Rio as it would give the combined company a virtual monopoly on iron ore supplies to China, which it fears would lead to higher prices and damage the country’s economic growth.

“The Chinese have been grumbling, but we did not realise they would be so aggressive in trying to thwart BHP,” said a mining industry consultant in Shanghai who asked not to be named.

Chinalco and Alcoa said they did not intend to make an offer for the whole of Rio but reserved the right to “participate in an offer or possible offer” for Rio in the event BHP makes a bid.

A person close to the deal said the Chinese government had been looking at ways to block BHP’s takeover ambitions since late last year, and had finally decided that Chinalco would be the best state-owned enterprise to use as a vehicle.

One leading Rio shareholder said “this is global capitalism for political gain”.

Rio’s UK-listed shares closed up 644p at £56.00 on expectations of a bidding war, while BHP’s shares closed up 145p at £16.22, implying that some think the group will walk away rather than overpay for Rio.

Is South Korea Going "Neoliberal"?

If nothing else, South Korean President-Elect Lee Myung-Bak has chosen a very odd time to chart a market-driven course for his country. Just as well-known FT pundit Martin Wolf has called the subprime fiasco "a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism," Lee looks set to put his country on such a course. Weird. Just when you thought state-led development was all the rage with the US and UK biting the dust and East Asia on the rise, you get this. From the Wall Street Journal:

South Korean President-elect Lee Myung-bak said he wants to turbo-charge the nation's economy by tossing out the old government-led growth model and embracing more competition and foreign investors.

Now comes the big test: Just what does Mr. Lee consider as appropriate foreign investors?

In an interview on Friday with a small group of reporters -- the first since he was elected in December -- Mr. Lee laid out who he considered welcome and unwelcome.

Those who take part in managing a company are welcome, said the 66-year-old Mr. Lee. However, he added, there are others who only invest in a company and "sell their stake when the stock price goes up. It's an investment for the sake of simple capital investment." Such investors could be restricted "without [such restrictions] being so excessive that they serve as obstacles for foreign investors," he said. (See excerpts from the interview.)

Mr. Lee's cautious response shows the tightrope he must walk as he prepares for a five-year term that starts later this month. The former construction-industry executive and onetime mayor of Seoul won by a wide margin after he promised to speed up South Korea's economic growth by deregulating coddled industries and introducing a raft of pro-business policies.

But he also faces a nation that's used to achieving fast growth through central planning and is nervous about an economy that is left to its own devices. In particular, many South Koreans are sensitive to foreigners whose priority is making money, as Koreans are taught to place importance also on the well-being and growth of the country. Under the current president, Roh Moo-hyun, foreign investment slowed and the government put the brakes on profitable transactions by foreign investors. The highest-profile such case, U.S. investment fund Lone Star Funds' attempted sale of its stake in a Korean bank, took a turn today when a judge found Lone Star's South Korean head guilty in a stock manipulation case and sentenced him to five years in prison. Regulators have cited the case as a reason to hold up the stake sale.

Mr. Lee faces mounting challenges ahead. While the economy grew at a robust 4.9% last year, South Koreans are increasingly anxious because they feel growth has slowed from the go-go years of past decades, during which South Korea emerged as a top exporter of steel, autos and electronics.

Meantime, faster growth may be harder to achieve amid rising concerns that a slowdown in the U.S. economy would weigh on the rest of the world. South Korea may be particularly vulnerable because it is dependent on exports, and the U.S. is a major market.

South Korea's strong exports of industrial products to China provide it with another of engine of export growth -- but China is also emerging as a rival in world markets in areas such as shipbuilding. Amid global financial turmoil, South Korean shares have dropped more than 13% since the beginning of the year...