Posts of February 2014

Death to Speculators! (RMB Deluxe Edition)

♠ Posted by Emmanuel in China,Currencies at 2/28/2014 09:17:00 AM

During the Asian financial crisis, then-Malaysian PM Mahathir Mohamed singled out speculators for blame. Although he didn't specifically say "death to speculators," he became associated with the catchphrase. Speaking of which, it is enjoying something of a revival. You see, Chinese monetary authorities are wary that its currency is becoming a one-way (appreciating) bet for currency speculators as China gradually strengthens then yuan and reduce its (perceived) undervaluation. In either case, speculators are persona non grata.

Over the past few weeks, Chinese authorities have thus thrown speculators a curveball in American-speak by appreciating its currency sharply by the standards of its post-2005 transition to a managed float from a strict peg, culminating with recent moves that took many by surprise:

A two-week slide in China's yuan accelerated Friday, with the currency taking its biggest tumble since a 2005 revaluation on speculation the central bank is stepping up efforts to push it lower. A 0.9% drop against the U.S. dollar Friday brought the week's losses to 1.2%, more than twice the 0.5% loss that spooked the market last week, coming as it did after years of steady gains. The yuan is down 1.8% so far in 2014, wiping out more than half its 2.9% gain last year. The slide has been engineered by Beijing to thwart short-term speculators who are betting on a continued rise and to introduce greater two-way volatility into the trading.

Still, the especially large move Friday took the market by surprise, as the central bank had set a slightly stronger morning reference rate for the currency, and it was flat in early trading. But later in the morning the slide accelerated, with traders saying the central bank was intervening in foreign-exchange markets through state-owned banks—buying up the U.S. dollar and selling the yuan.

Take that, specs! Chinese authorities are especially wary of hot money inflows riding on expectations of currency appreciation. It may even be aimed at shaking off speculators as China widens the daily trading band for its currency further as soon as next week:

The long, steady appreciation has drawn so-called hot money looking to profit from the gains; that has pumped cash into the economy and complicated the People's Bank of China's effort to curb credit growth. Concerns have been growing about bad debt and the state of the "shadow-banking" system, an assortment of trust companies, insurers, leasing firms and other informal lenders. The PBOC's moves to restrain the yuan come just before the start next week of the National People's Congress meeting, which could produce further liberalization of China's currency regime.

Ultimately, though, you can expect the yuan to revalue in the medium- to long-term. It's just that Chinese authorities wish to limit speculative inflows promoting what they believe is unwelcome monetary expansion built on leveraged bets. So it's a stronger yuan combined with, er, death to speculators!

UPDATE: Bloomberg has more on the expected widening of the trading bank to ±2% daily from its current ±1% by midyear:

The People’s Bank of China is expected to double the yuan’s trading band by the end of June, according to the majority of 29 analysts surveyed by Bloomberg, as policy makers loosen exchange-rate controls and promote greater usage of the currency in global trade and finance. Lawmakers will meet next week to decide on major economic policies and an official report tomorrow is forecast to show manufacturing expanded this month at the slowest pace since June.

Activists' Deed? PRC Drops HK for Beijing to Host APEC

♠ Posted by Emmanuel in China at 2/27/2014 03:07:00 PM

The view Beijing doesn't want you to see?

Cough, cough...the global reputation of the Chinese capital as a pollution haven is legendary. Unfortunately for APEC delegates, I guess they will have no choice but to suffer Beijing's (literally) killer air quality. Observers have now likened it to a "nuclear winter."

Sometime ago I discussed China's advantage in terms of agenda-setting over the US of being the APEC host in 2014. However, it seems they have just received bad PR as Hong Kong was originally meant to be the site of the APEC finance ministers' meeting. But, with Hong Kong pro-democracy activists promising disruptions to coincide with the APEC gatherings, PRC officialdom has reportedly decided to move the proceedings to the comfort of [cough, cough] Beijing. From Agence-France Presse:

Planned summer demonstrations by democracy activists were behind China's decision to snub Hong Kong in favour of Beijing as host of a key Asia-Pacific Economic Cooperation (APEC) finance ministers' meeting, a media report said.

Democracy activists from the "Occupy Central" group have threatened to flood the streets of Hong Kong's business district with thousands of protesters to try to force officials to guarantee electoral reform. An official said Beijing's decision to relocate the meetings planned for September was related to the ongoing civil disobedience campaign, according to Cable News TV.

However, Hong Kong's current finance minister says this is not the case:

Concerns that large-scale protests could occur if a meeting of Apec finance ministers and central bankers were held in Hong Kong were not behind a decision to relocate the event to Beijing, Financial Secretary John Tsang Chun-wah said today...

But speaking on a radio phone-in programme Tsang said neither city was concerned about the potential for being embarrassed by such protests. “I think Beijing understands that Hongkongers enjoy freedom of expression, and if the meeting were held in Hong Kong, reference must be drawn from the way we have done things in the past.”

It's almost a pick your poison situation: Hong Kong promised political turmoil, while Beijing promises environmental turmoil depending on the state of its air in a few months' time. I wouldn't have picked either town.

Buying Canadian Citizenship Costs More Now

♠ Posted by Emmanuel in Migration at 2/26/2014 11:27:00 AM

The good stuff

When it was announced that the British would hand Hong Kong back to the Chinese in the year 1997, there was a flurry among its wealthy residents to decamp to Canada. Back then, we were uncertain of whether the place would lose its freewheeling, entrepreneurial culture and be replaced by a command economy reminiscent of China's at that time (19 December 1984). True, activist Average Joe Hongkongers are unhappy with the dwindling political freedoms granted by the Beijing overseers and protest loudly by HK standards, but the business elite has largely continued as they were by toeing the CCP line. In other words, the titans of commerce still enjoy economic freedoms they did under the British, and for them that's all that really matters. Hong Kong, after all, is a town whose foundations are built on commerce.
So, many wealthy Hongkongers paid their dues and stayed for the required residency but ultimately went back to Hong Kong when they found "one country, two systems" to be a reasonably accurate implementation of the rhetoric. Ever since, Canadian authorities have been ambivalent about what to do with these "Canadians." On one hand they brought in revenue and some investment. On the other hand, they were citizens of convenience. Well, times have changed and Canada is no longer going to be the citizenship bargain of note for Chinese expats:

Tuesday, Feb. 11 was a bad day for Chinese millionaires seeking a quick, cheap route to a new life in a foreign country. Canada, which had issued some of the world’s least expensive “investor” visas, decided not to do so anymore. The terms of the Canadian program had been unbeatable: in exchange for an interest-free, five-year C$800,000 (US$732,000) loan to the Canadian government, an applicant with C$1.6 million ($1.46 million) in assets could, along with his or her dependents, receive permanent residency status, with the option of citizenship in three years.

Of the approximately 185,000 migrants who have taken advantage of Canada’s Immigrant Investor Program since the mid-1980s, roughly half originated from China and Hong Kong. It was a good deal for the migrants -- and for Canada, too. According to Hong Kong's South China Morning Post, approximately 67,000 Mainland Chinese, and 30,000 Hong Kongers, have emigrated to Canada since the program’s inception in the mid-1980s. The program brought in billions of dollars of investment and -– more crucially –- Chinese and Hong Kong entrepreneurs who filled employment niches and supported local economies (especially real estate markets).

Of course not all of those Chinese migrants made for great Canadians. Many simply fueled a wave of “reverse migration,” taking their new passports and moving back to Asia, often leaving their spouses and children behind. The SCMP reports that there are currently 295,000 Canadian citizens living in Hong Kong alone. The Canadian government’s desire to end such a liberal giveaway is in this light perfectly understandable.

What's changed? Undoubtedly, there's annoyance at the Hongkongers not making any real gestures concerning becoming "Canadian" as they come and go. Also, Canada is not exactly strapped for revenue-generating sources these days with Alberta's oil sands set to bring in a windfall lasting over quarter of a century. Bloomberg View gets it about right: many Canadians are not averse to the idea of selling citizenship, but it should not come too cheaply:

Yet what really seems to bother the Canadians isn’t the migrants' unwillingness to integrate, but rather a sense that Canada had sold out too cheaply. Finance Minister Jim Flaherty summarized this sentiment in his annual budget message last week: “For decades, [the investor scheme] has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require.”

A Canadian passport, after all, is a nice one to have. I wouldn't mind having one myself [bada-boom]. It ranks fourth in the number of countries (170) you can visit visa-free. And, of course, they don't shout "Yankee go home!" at you wherever you go, ey?

Ah well, there's always, er, Malta.

After Ukraine: Argentine, Venezuelan or Thai Gov't Falls?

♠ Posted by Emmanuel in Europe,IMF,Latin America,Southeast Asia at 2/24/2014 10:02:00 AM

Business as usual in downtown Caracas

Which shaky government will fall next? That is the question. The honest truth is that Ukraine's economic situation was hardly improved by either the pro-EU Yulia Tymoshenko or pro-Russia Yanukovych factions. Indeed, Tymoshenko leading the country into the poorhouse in the aftermath of the global financial crisis enabled Yanukovych to be elected, upon which he did nothing to fix things. With Tymoshenko ally and interim President Olexander Turchynov taking over, it is possible that things will revert to the status quo ante of her regaining power in upcoming elections. Party like it's 2004. A lot of political merry-go-round, but little progress:

S&P cut Ukraine’s credit rating to CCC on Feb. 21, eight levels below investment grade, saying it risks default without “significantly favorable changes.” The Black Sea nation is grappling with a record current-account deficit and has seen foreign reserves plunge 28 percent in the past year to $17.8 billion at the end of January, the lowest level since 2006.

If you ask me it's the same banana as the Europeans "ride to the rescue": the IMF will come in, Ukraine's leaders will balk at politically unpopular structural reforms demanded by it, and then Ukraine becomes more destitute than before as its financial situation deteriorates further as its balance of payments continues to hemorrhage money. The solution ultimately lies with Ukraine itself--not Russia, the EU, US, or IMF--but useless politicking as we've seen over the years seems to be the order of the day.

Turning to the other countries, which is going to blow out soon? What are their chances of remaining in power by the end of the year?

1. [5% survival chance] Thailand - Yingluck Shinawatra has already fled the capital Yanukovych style for an undisclosed location "150 km away" from Bangkok. Urban elites, royalists, the military and the judiciary all have an unfavorable opinion of her government. The court system will likely do her in ometime this year via corruption charges on the multibillion-dollar money-losing rice subsidy that is ruining the country's finances. It might take a while to establish a wiggle-free case, but she is most likely a goner since heavily subsidized farmers are deserting her as payments for rice are long overdue. In other words, she has next to no supporters left.

2. [33.3%] Argentina - There is now a notion that this country will experience a crisis every decade. These are usually accompanied by leadership change, so the chances of Fernandez-Kirchner staying in power are directly tied to staving off the day of reckoning:

In the 1940s, President Juan Peron closed the Argentine economy to trade with the rest of the world. In the 1960s, the country endured stagnation, inflation and military coups. In 1975, 1981 and 1989, failed economic plans led the currency to plunge. The last crisis hit in 2001, when Argentina defaulted on about $100 billion in sovereign bonds. The default—the largest ever at the time—brought down Argentina's banks, currency and government.

Actually, the Argentinian government is also prone to dabbling with socialist economics:

[...]at the University of Buenos Aires, one of the school's top professors was Axel Kicillof, an economist with lamb-chop sideburns whose dissertation was a Marxist take on John Maynard Keynes. Today, Mr. Kicillof is Argentina's economy minister—the mind behind its nationalizations and its price, import and currency controls.

3. [50%] Venezuela - This country is the most heavily mismanaged one with its retro-Leninist-Stalist-Maoist experiments in nationalization and state control. Yet, Chavismo remains strangely popular among certain segments, and it may be a while yet before the sheer economic destitution of Venezuela becomes apparent to them. With the military still in thrall, the socialists still appear safe despite everything:

There's one major reason analysts point to when they say that Venezuela's socialist government isn't approaching any sort of imminent collapse: Many people in the country are still behind the President. "Maduro has a lot of support," said George Ciccariello-Maher, an assistant professor of political science at Drexel University. "He's not Chavez, but he's seen as a relatively faithful representative of what Chavez stood for."

The cornerstone of Chavez's presidency was the Bolivarian Revolution, his ambitious plan to turn Venezuela into a socialist state. Social "missions" aimed at eradicating illiteracy, distributing staple foods and providing health care popped up across the country.

The case of Zimbabwe demonstrates that regime survival and economic mismanagement are not directly correlated with each other. Thailand is far and away the best-run economy here, yet its leader is most likely to go. OTOH, Chavismo still has its rabid adherents in Zimbabwe-esque Venezuela, probably ensuring the Bolivarian Revolution may make it to 2015.

I have a feeling that Argentina and Venezuela are wishing "Comrade Bob" Mugabe a happy 90th birthday right about now as proof of the durability of their favored policies. Speaking of whom, a power sharing agreement might just do the trick for Maduro as he meets the opposition.

Tens of Trillions of Yen Later, Abenomics is a Dud

♠ Posted by Emmanuel in Cheneynomics,Japan,Migration at 2/23/2014 10:03:00 AM

The plight of the developed world is of massive interest to developing countries such as ours for the simple reason that, since we aspire to being developed status, what comes next is of consequence. Sadly, the examples of moribund Western Europe, North America (especially the hapless US), and Japan are not especially encouraging. As our nearest neighbor in Asia, Japan's plight is especially troubling. Could American-style helicopter-dropping and free-spending economic nihilism AKA "Abenomics" really revive Japan from its lost decades?

As we are learning, the answer is loud and clear: HELL NO! It's not as if some folks were exceedingly wary of the fantastical American delusion that currency debasement and unlimited deficit spending could revive an economy. However, in combination with shutting down any number of perfectly good nuclear plants, Japan is arguably worse off than before. Flatlining GDP growth--1% in Q4 2013--has been the status quo for over two decades, but now add to this mix (1) a gargantuan, punishingly huge budget deficit [as opposed to a merely unsustainable one] and (2) a snowballing trade deficit [those energy imports more than cancel out export increases] and their situation is clearly deteriorating:

Funny thing, though: All that cash hasn't solved Japan's problems. The virtuous cycle that aggressive BOJ policies were supposed to unleash still hasn't begun. A 20 percent drop in the yen isn't raising living standards, as hoped. Nor has it convinced companies to fatten paychecks. Whatever inflation Japan is feeling is the bad kind: Energy imports are boosting consumer prices and denting business and consumer confidence.

Instead, [Bank of Japan Governor] Kuroda's main achievement in his first year has been to settle a debate once and for all. Japan's big problem clearly isn't the amount of yen in the system but how it's used. Unless people borrow and banks lend, monetary policy lacks the multiplier effect that can revive economies. Besides, deflationary forces still abound -- from Japan's aging population to China's rising influence. Just as money can't buy you love, a wall of yen can't buy Japan prosperity. "Kurodanomics" just isn't enough.

Helicopter-dropping money is easy enough. However, long-advocated structural changes are harder to come by:

He must implement the structural reforms at the heart of his "Abenomics" program -- rewriting corporate taxes, lowering trade barriers, stimulating innovation, empowering women and opening the labor market. Otherwise, Japan's best chance in years to restore vibrant growth will likely fail like every other over try the last two decades.

Here, "opening the labor market" means bringing in folks for the simple reason that Japan is well and truly depopulating. Actually, Japan has been trying to attract skilled migrants, but the trouble is that this homogeneous and closed society has trouble attracting any sort of migrants for precisely those reasons:

National Institute of Population and Social Security research projects that the current population of 127 million will be 84 million in five decades’ time. The working-age population (15–64) will apparently fall by nearly half from today’s level of 80 million to 42 million. In short, 50 years from now, not only will the population have fallen dramatically but the labour-force population will have fallen even faster. The number of elderly people 65 and over will amount to 40 per cent of the population, causing substantial strain on Japan’s workers to sustain the non-working population.

For Japan, accumulating highly skilled foreign professionals has been more difficult than expected. This is made challenging because Japan has few features that can be considered appealing to foreigners as a migration destination, including a highly homogenous country with a language barrier that makes it difficult for migrants to have a rich social life.

The pressing need to generate homegrown power aside, there is no greater issue for Japan than that which they fail to address since it's a lot harder to than, say, increasing the national debt from 200% to 400% of GDP. The debt burden also makes you wonder why anyone would come to Japan to work off being a debt slave, but hey, these questions are the sort the Japanese really need to confront instead of playing foolish economic games that leave them worse off in the long run alike Abenomics.

US Footballers from Mars, Dutch Skaters from Venus

♠ Posted by Emmanuel in Americana,Europe,Sports at 2/21/2014 01:12:00 PM

Oranje-filled, Yanqui-free speedskating podium: the new Olympic standard

Sometime ago, John Gray penned the pop psychology bestseller entitled Men are From Mars, Men are From Venus. Not to be outdone, realist author Robert Kagan said in the wake of 9/11 that, in terms of foreign policy, Americans are from Mars and Europeans are from Venus. Quoth he:

American and European perspectives are diverging. Europe is turning away from power, or to put it a little differently, it is moving beyond power into a self-contained world of laws and rules and transnational negotiation and cooperation. It is entering a post-historical paradise of peace and relative prosperity, the realization of Kant’s “Perpetual Peace.” The United States, meanwhile, remains mired in history, exercising power in the anarchic Hobbesian world where international laws and rules are unreliable and where true security and the defense and promotion of a liberal order still depend on the possession and use of military might.

I was reminded of Kagan's conception of how Americans and Europeans now differ when the Dutch speedskating coach was interviewed by CNBC. You see, the Americans were expected to win the lion's share of medals in Sochi, but came up empty to the surprise of most. The Dutch, on the other hand, won quite a lot, enabling Jillert Anema--whose national team garnered 21 [!] in the sport at Sochi--to insult the American pastime of football. In contrast to the grace and speed of speedskating, well, American football is exeedingly violent to European eyes.

First he pokes fun at the US blaming its underperforming athletes on tracksuits:

We have found something that makes the suit very fast. It's the man [sic] in the suit.

Next, he unloads on what he views as misplaced sporting priorities on American football:

You have a lot of attention on a foolish sport like American football and you waste a lot of talent, athletic talent, on a sport that is meant to kill each other, to injure each other. You're so narrow-minded, and then you want to compete against the world [in other sports] when you waste a lot of time, good talent on a sport that sucks,

From foreign policy to winter sports, it seems Americans and Europeans (specifically the Dutch) are diverging in how they view the world. Why can't Europeans accept that Americans like football precisely because it is violent? After all, the latter are the folks behind the Iraqi misadventure who continue to kill civilians from the skies without much of a second thought. Go ask America's most popular radio host Rush Limbaugh on this matter--America has a culture of violence they are quite proud of (aside from certain uppity publications). Is it inconceivable that some people enjoy killing and maiming for the heck of it?

As Kagan would say, Americans and Europeans have increasingly incompatible worldviews. Hyperbole aside, though, there is some truth in what the Dutch coach said--as these sports become more popular elsewhere, the US will have to keep up:

Anema cited a lack of domestic competition and support for American speedskaters for the team's disastrous showing, and contrasted it with the popularity of speedskating in the Netherlands, which hosts many leagues and lots of competition.

"American speedskating depends on gifted skaters—very few," he said. "They have to work their own way and they have a lack of competition. They have a lack in support. Once in four years America will all go and watch skating and then you need to bring medals home, but in the few years before [that] they are not supported and you need the support, you need the competition, and I think that's what went wrong."

Would the USA be a less violent place if one of their most popular leagues consisted of speedskating instead football? Somehow, I think we'll never know.

How Computer Forex Traders Obliterated Humans

♠ Posted by Emmanuel in Casino Capitalism,Currencies at 2/20/2014 09:57:00 AM

When I become a wheezy old grandpa reminiscing about the "good ol' days" as my captive audience of grandchildren pays scant attention, I will discuss how people [remember those?] actually did market trading back in the day. Recent international investigations into alleged collusion in foreign currency trading are the spur here, with the parent banks of FX biggies Deutsche Bank, Citigroup, Barclays and UBS AG feeling the heat. Since they have already been through countless investigations and billions of fines over subprime mortgages, tax avoidance, Libor scandals, etc., major banks have likely had enough of forex trading as well.

To ensure human frailties do not get the best of traders and the temptation to collude, what better way is there than to replace them with computers via program trading? Apparently, that's they way things are headed for forex, too:

A widening probe of the foreign-exchange market is roiling an industry already under pressure to reduce costs as computer platforms displace human traders.

Electronic dealing, which accounted for 66 percent of all currency transactions in 2013 and 20 percent in 2001, will increase to 76 percent within five years, according to Aite Group LLC, a Boston-based consulting firm that reviewed Bank for International Settlements data. About 81 percent of spot trading -- the buying and selling of currency for immediate delivery -- will be electronic by 2018, Aite said.

“Foreign-exchange traders are much like stock floor traders: a rapidly dying breed,” said Charles Geisst, author of “Wall Street: A History” and a finance professor at Manhattan College in Riverdale, New York. “Once the banks realize they are costing them money, the positions will dwindle quickly.”

The irony is that while daily forex trading volumes have gone through the roof--the article quotes a staggering $5.3 trillion daily--margins have plummeted. Hence, thin margins have likely encouraged even greater volumes to make up:

“The margins are very, very skinny in foreign exchange because it’s easy to move onto a trading platform,” said Wheeler, who tracks European lenders. “The move by banks into electronic trading in other areas has cost a large number of jobs, and we’ve seen revenue come off sharply. The foreign-exchange probe won’t help this.”

The push toward electronic trading probably will lower costs for customers and boost transparency of pricing, according to Cormac Leech, an analyst at Liberum Capital Ltd. in London. It may also squeeze margins for banks, he said.

One outcome is clear--human traders will become endangered as more forex trading becomes standardized. Computers have to be able to communicate with each other without human intervention, no? OTOH, whether forex trading volume will take another leap is an open question. To make up for even thinner margins from program trading, will trade volumes take an even greater leap forward? Or, will banks simply reduce the size of their FX trading desks?

The sensible option is the latter which involves less speculating in forex and refocusing its role in facilitating real international trade. But then again, there is little to suggest that modern-day bankers do "rational."

Ballroom Dancers 1, Anti-PRC Vietnamese Protesters 0

♠ Posted by Emmanuel in China,Southeast Asia at 2/17/2014 11:31:00 AM

We can dance if we want to / We can leave protesters behind...

This has to be my favorite Southeast Asian country versus China story of the year so far: Vietnam deploys dancers to foil [anti-PRC] protests says the headline. You see, the Vietnamese have a monument dedicated to Ly Thai To--the king who moved the capital to Hanoi--in the center of the capital. Protesters have usually made a beeline for the statue to commemorate conflicts of national importance. China's invasion of Vietnam in 1979 was provoked by Vietnamese forces in turn invading Cambodia to oust the Khmer Rouge that was said to be destabilizing Vietnam.

Expecting the protesters to come to Ly Thai To's statue to mark the 35th anniversary of the Sino-Vietnamese conflict, it appears Vietnam's leadership were a step ahead this year. When the protesters came, their speeches were drowned out by L-O-U-D aerobics classes [!] and the space they usually occupy was already taken up by ballroom dancing couples [!!]:

Anti-China protesters hoping to lay wreaths at a famous statue in the Vietnamese capital on Sunday were obstructed by an unusual sight of ballroom dancers and an energetic aerobics class held to a thumping sound system.

The demonstrators suspect the government deployed the dancers as a way to stop them from getting close to the statue and make their speeches inaudible. The few who tried to get close to the statue of Ly Thai To, the founder of Hanoi and a nationalist icon, were shooed away.

The protesters were marking the 35th anniversary of a bloody border war between China and Vietnam, where anger over Beijing's increasingly assertive territorial claims on islands in the South China Sea that Hanoi insists belong to it is already running high.

Outsmarted! Given the tense nature of Sino-Vietnamese relations over islands in the South China Sea, why doesn't Vietnam like using China as a whipping boy to relieve pressure?

The Vietnamese still claim ostensible solidarity with their fellow communists in China, hence their reservations in airing differences in public.

As the article correctly explains, while displeasure may be aimed at China, there is wariness that popular discontent can be redirected towards the Vietnamese leadership.

Apparently, these tactics are not new, either:

Nguyen Quang A, a well-known dissident, and others attending the rally in Hanoi on Sunday said the government deployed the dancers at the statue of Ly Thai To, and at another statue nearby, to prevent them gathering there. The tactic appeared to be part of a low-key approach to policing the event to avoid confrontation. There were scores of plainclothes security officers at the rally, but very few wearing uniform. Quang said he asked the dancers to stop for a few minutes but that they refused.

Whoever said apparatchiks can't be nimble on their feet?

PRC & IP: Imitation, Flattery, Copycat Culture

♠ Posted by Emmanuel in China,Innovation at 2/16/2014 09:32:00 AM

There's an interesting article from the Commonwealth publication Global: The International Briefing which goes into that age-old question of why the Chinese are not especially innovative despite having the world's second-largest economy. In short, why are there no globally-recognized Chinese brands? Also, why are many indigenous Chinese products and services me-too efforts without any real distinction from what everyone else makes?

These two questions have spawned alarm about Chinese development. First, there is little value-added in churning out commodities, possibly ensuring that Western concerns will continue to dominate in terms of where the real money is made--branding, design, and marketing. Second, China may be making itself vulnerable to legal challenges on the intellectual property front. Anyway, to the oft-cited socio-cultural roots of imitation:

China’s existence is premised on these calculated approaches to life. To succeed in public life in the past, the state originated a civil society exam-based system conducted at every level of the Chinese administrative hierarchy – after all, the highest civil status below the emperor was often the ‘grand tutor’ – and if these rigid examinations were passed at a series of levels, then the student was qualified to rise up the imperial chain. Most of these tests – just like the Chinese language itself – are premised on memorising, uniformity and repetition. With such foundation stones laid to honour the art of duplication, it is hardly surprising that it has been hardwired into the social system.

This is reinforced by the traditional master-student relationship within schools and universities where, all too often, copying is the default position. Students at university will regularly copy out essays from the internet and present them, uncited, in all innocence. In their view, there is nothing wrong with plagiarising the ‘correct answer’ from a respected expert, instead of spending time trying to give their interpretation of the answer that could be wrong. Seen through Chinese eyes, copying is not only sensible, but it is a symbol of respect for authority and, importantly, it is a way of passing the test.

There is thus an innate conservatism in how the young are taught. Take, for instance, architecture:

China’s social structures, policies and perceptions are engineered, as far as possible, so that new ideas do not rock the boat – at least, that they do not undermine the leadership position of the party. Unsurprisingly, the education industry lays the ground rules by rigidly teaching children to copy, to repeat, to trace.

School students, for example, learn an impressive set of artistic skills, but after years of study each student has merely learned to draw the same object for days and weeks until they ‘succeed’ in the acceptable portrayal of the object. They have been taught to draw particular objects – and only these objects – in a ‘correct’ way. For them, the aim is to ‘get it right’ rather than ‘have a go’. As a result, the system is designed to reinforce a process of engaging people to hone visual memory and regurgitation: it is but a short step to architects copying alluring Western projects.

It's a spin on the idea that imitation is the sincerest form of flattery, but IP laws unfortunately mean that those being copied do not necessarily see this as a compliment.There is hope, though: since the state is omnipresent in Chinese life, there is probably no better way to begin recognizing innovation than through administrative fiat:

It was fewer than ten years ago that China changed the country’s constitution to enshrine private property rights. Nowadays, the China Daily newspaper even has an IP channel that provides comprehensive reports on current and future trends in IP development in China. As part of this professionalised approach to patent rights, for instance, anyone – from a foreign company or an individual – who contributes to a patented invention that is made or completed in China is eligible for the Chinese government inventor reward and remuneration for abuse of these property rights. There has been a spate of legal cases recently, such as the defendant in Suzhou who was sentenced to a year in prison and a US$12,000 fine for counterfeiting Louis Vuitton and Gucci trademarks. But nobody is stealing too many Chinese design secrets… yet.

There are promising signs in other sectors. For instance, Chinese smartphone brands are doing well at home even against the likes of Apple and Samsung, and it is probably a matter of time that they will tackle foreign markets too with designs that are value precisely because they are Chinese-designed.

A Guide to Venezuela's Now Four-Tiered FX Rates

♠ Posted by Emmanuel in Credit Crisis,Latin America,Socialism at 2/14/2014 03:54:00 PM

Just count 'em! How many bolivars do you need to exchange for 1 USD? Here's the handy-dandy IPE Zone guide for understanding the economic wasteland that is modern day Venezuela:

6.3 bolivars - official rate for "preferential" goods (read: largely for show; few can avail of it save for the well-connected).

11.36 bolivars - rate at the last weekly auction held for greenbacks known as "Sicad" (read: still not everyone can get into this auction).

??? bolivars - rate to be set at yet another round of auctions just announced that commentators dub 'Sicad 2.' Expectations are for the rate to be rather higher since only the Venezuelan government espouses that it has greenbacks left on an appreciable scale:

Maduro, who said that the new system would be known as “Sicad 2,” has blamed inflation and shortages on an “economic war” waged by the “parasitic bourgeoisie.” He gave businesses until Feb. 10 to cut prices to “fair” levels and reduce their profit margins to a maximum of 30 percent.

Venezuela will release $42.5 billion of foreign currency to the economy this year, including $11.4 billion through auctions in the Sicad system, as it tries to ameliorate dollar shortages that are causing irregular supply of imported goods ranging from shaving blades to milk. Maduro said yesterday that the country has sufficient foreign currency to meet its needs.

“There will be four exchange rates,” Asdrubal Oliveros, director of Caracas-based consultancy Ecoanalitica, said in a telephone interview. “When I hear Maduro say that Sicad 2 will be directed by the state, it makes me think that they are not going to let the rate float and that it will be at a weaker rate than Sicad 1, maybe around 25 bolivars per dollar.”

86.92 bolivars - black market rate quoted (read: for the unlucky punters who fall into our category, which is everyone else.

Call me a lousy "parasitic bourgeoisie" even if I have no intention of holding bolivars, but why do I think 86.92 bolivars to the dollar is the only FX rate not plucked here from economic fantasyland? While we may be entertained by the utter folly of this four-tiered FX rate system, save a prayer for the people of Venezuela who are suffering considerable hardships from ruinous economic mismanagement.

The PRC-India Trade Imbalance, c/o 'Shamsung'

♠ Posted by Emmanuel in China,India,Intellectual Property,Trade at 2/12/2014 10:51:00 AM

Spot the fakery

When it comes to globalized commodities, you probably cannot outdo Chinese no-name electronics as PRC-sourced fakes are the wares of street hawkers the world over. Hence, the 'Shamsung':

Made-in-China products are also flooding into Indian markets served mainly by small and midsize local companies [read: mom-and-pop shops given limited inroads made by retail trade liberalization]. The deluge of Chinese imports is beginning to further strain a tense bilateral relationship, which is traditionally prickly because of a territorial dispute.

Indian consumers are for now embracing cut-price Chinese offerings. That may not be the case if they find themselves out of work because of relentless competition from low-cost manufacturers over the border.

Take a walk through an Indian market and the scale of the issue becomes clear. Fake Chinese cellphones are clearly visible in the sprawling black markets of Mumbai, the country's biggest commercial center. Legions of vendors spend their days selling counterfeit Samsung Electronics and Taiwan's HTC phones. Cheaper look-alikes can also be bought with little fuss. Hordes of eager shoppers bustle through the warren of cramped shops, haggling over prices.

That's at a local level. At the international level, it all adds up to an overwhelming trade balance in favor of China over India. Where have we heard this story before?

Indian companies typically import nonbrand products from China and sell them in India at extremely low prices, a senior executive at a Japanese appliance maker said. India's smartphone market is a microcosm of what is going on at a macro level. The country runs a chronic and growing trade deficit with China.

In the fiscal year through March 2013, India exported some $13.5 billion worth of goods to China and imported $52.2 billion's worth. The government in New Delhi wants to narrow the trade gap. Consumers in India benefit from the bargains, but the trade imbalance is a source of economic tension between the countries.

It's funny how the Chinese are now aping Koreans when the latter were famous for making fake European leather goods for the longest time. Meanwhile, Chinese firms don't particularly care who they are copying as long as they are able to sell their fakes. If imitation is the sincerest form of flattery, then South Korea has gone a long way. At any rate, the PRC-India trade imbalance isn't exactly improving as a result.

VW and 'Unionization' of Southern US Car Plants

♠ Posted by Emmanuel in Labor at 2/11/2014 11:16:00 AM

There's much interesting politicking going on at the moment among Southern states in the US Sun Belt hosting foreign automobile plants. For a very long time, they have been drawing Japanese and European carmakers keen on avoiding the hassles American unions--in particular, the United Auto Workers--have introduced for their American counterparts in the Rust Belt. Large financial incentives for locating in the Sun Belt have certainly lured them there, too.

Now, however, one of the European biggies in Volkswagen seems to be encouraging the formation of labor representation in its plant in Chattanooga, Tennessee. One of the longstanding complaints about German firms is that while labor representation is considered important alongside capital owners and government in setting industrial policy, they are marginalized Stateside. After years and years, it seems Volkswagen is intending to do something about matters in introducing labor representation. However, it is not exactly the same sort of arrangement American unions are familiar with, but is intended to resemble the German variant of works councils:

This would also be something new for the United Auto Workers. They wouldn't have the same relationship with VW as they do with Chrysler, General Motors, and Ford. Rather, the idea is to create something called a "works council," which are widespread across Europe and enjoy tremendous influence over how plants are run. In America, that kind of body can't be established without a union vote -- but crucially, the works council would be independent of the union, meaning the UAW would give up some control as soon as it gained it.

While the details of the arrangement would be ironed out after the election, works councils -- which are elected by all workers in a factory, both blue and white collar, whether or not they belong to the union -- usually help decide things like staffing schedules and working conditions, while the union bargains on wages and benefits. They have the right to review certain types of information about how the company is doing financially, which often means that they're more sympathetic towards management's desire to make cutbacks when times are tough. During the recession, for example, German works councils helped the company reduce hours across the board rather than laying people off, containing unemployment until the economy recovered.

In other words, the German setup is not meant to be antagonistic since works councils are involved in making management-related decisions (especially those dealing with labor, obviously). Still, others in the Sun Belt do not seem to make this distinction, thinking that VW is "unionizing" Southern plants and that there is a domino effect that may follow, making the region unattractive to labor-averse foreign firms. So, plans are afoot among Tennessee lawmakers to roll back concessions granted to union-coddling carmakers like VW:

On Monday, state Republican leaders accused Volkswagen of supporting the UAW and they threatened to withhold any tax incentives for future expansion of the three-year-old assembly plant in Chattanooga if workers vote to join the UAW.

"Should the workers at Volkswagen choose to be represented by the United Auto Workers, then I believe any additional incentives from the citizens of the State of Tennessee for expansion or otherwise will have a very tough time passing the Tennessee Senate," State Sen. Bo Watson, R-Chattanooga, said in a statement sent to the Free Press.

A worker opposition group called Southern Momentum echoed that position in a statement. "Further financial incentives — which are absolutely necessary for the expansion of the VW facility here in Chattanooga — simply will not exist if the UAW wins this election," Maury Nicely, a Chattanooga labor lawyer representing Southern Momentum said.

Take that, VW pinkos! Actually, VW is currently in need of worker support at a time when sales Stateside are slipping--blame the weak-selling US-only Passat that trades European sophistication for American softness. VW is banking on the appeal of offering the opportunity to make these works councils to keep workers on their side.

Will it work? We'll know by Friday.

UPDATE 1: Hysterics from (mostly Republican) politicians aside, the vote does not seem to matter all that much to anyone else.

UPDATE 2: The vote lost anyway--and not by a small margin. So much for the renaissance of organized labor.

Unlike US, Why EU Doesn't Hurl Expletives at Russia

♠ Posted by Emmanuel in Europe,Russia,Sports at 2/09/2014 09:36:00 AM

I strongly feel that the Sochi Olympics is a giant feast for the Western media to rip Russia to pieces. And as such, any detail, any mistake, anything negative at all no matter how small will be the centre of attention – and all the positive things will go unnoticed - Yulia Ivanova, Russian expat in London

Unfortunately for the Sochi Olympics, it seems most of the entertainment so far is not of the sporting variety. To no small extent, this is the Russian host's fault and not of Western media. While parading their (comely) female athletes in scantily-clad poses is not especially eyebrow-raising in this day and age, I think they would capture the world's attention more if they, er, actually managed to win some medals at this stage. They're athletes, right?

Another sideshow of Olympic dimensions has involved Ukranian President Viktor Yanukovych meeting his Russian counterpart Vladimir Putin at Sochi. Having eased out his rabidly pro-Russian Prime Minister Mykola Azarov in a bid to appease protesters, Yanukovych has incurred Putin's wrath and, as a result, further Russian emergency aid for Ukraine is currently in limbo. Before he left for Russia, American officials now famously met with Yanukovych in Ukraine. And, unwisely using unencrypted phones, we have a recording of the now-infamous quote where Assistant Secretary of State Victoria Nuland says the US should ""f--k the EU" to the State Department representative in Ukraine. Whether Russia deliberately snooped on the conversation or simply pointed out that it was online, I suspect they are happy it exists. German Chancellor Angela Merkel is claming outrage over the statement. Divide and conquer (Westerners) and all that jazz.

It is perhaps unfortunately common that American "diplomats" pepper their conversations with foul language. Ask Susan Rice. Why is it though that we never hear of, say, EU officials expressing their frustrations using foul language?

(1) The EU is a multinational enterprise. Their officials are not as comfortable using expletives with Europeans of other nationalities who may misunderstand their intended meaning. Americans are comfortable using foul language among themselves since the intended meaning comes across clearly, having a common language and culture. European diplomats, however, must deal with far more linguistic and cultural diversity, and the chances of offending other Europeans is much greater. So, to be on the safe side, they stick to civilized communications even during private correspondence.

(2) Another obvious political economy consideration is that Western Europe is far more reliant on trade with Russia than the United States is and thus cannot afford to be so gung-ho on Russia. While it is busy diversifying its energy supplies, much of the EU is still dependent on natural gas being supplied by the giant to the east:

Of the EU's current annual demand for 485 billion cubic metres (bcm) of gas, Russia supplies some 150 bcm.

Demand could rise to 585 bcm by 2023 with the Russians supplying as much as 175 bcm, according to Reuters calculations based on data from governments and energy companies, as well as input from research firms and consultancies. This means that the amount of gas from Russia is not only set to rise, but Russia's share of Europe's gas market will remain stable around 30 percent.

So, don't hold your breath waiting for Baroness Ashton telling EU diplomats to "f--k Russia over Ukraine." Otherwise, do enjoy the Olympic sideshow. It didn't cost $50 billion to stage and yet it is providing superior entertainment so far.

Will US Allow Lenovo to Buy Parts of IBM & Google?

♠ Posted by Emmanuel in China,FDI at 2/07/2014 11:44:00 AM

Does it come with PRC minders listening in as a standard feature, NSA style?

Call it Reds Under the Beds, Cyber Edition. The supposed land of free trade has customarily thrown significant roadblocks in the way of Chinese firms signaling their intent to purchase US tech-related firms on "national security" grounds. The reasoning usually goes like this: Chinese firms trace part of their ownership to the PRC itself, hence there is a threat that their political overlords will ask them to incorporate spying apparatus in the electronics they sell Stateside. It's a lot of "could bes" and "what ifs" when, in reality, we know that the Yankees are no slouches on surreptitiously gathering information on everyone else. There are no hypotheticals there since US spying happens all the time on friend and foe alike.

At any rate, Lenovo--which famously purchased IBM's personal computer business sometime ago--is now looking to buy Big Blue's server business. What's more, it is also looking to purchase Google's Motorola (remember them?) cell phone unit. IBM is looking to concentrate on services. By divesting the server business it will have a negligible interest in selling the "International Business Machines" it stands for. Meanwhile, Google has not exactly revived the moribund Motorola name to compete with the likes of Apple and Samsung. So, on the shopping block both go.

Following earlier, harrowing experiences of fellow Chinese companies Huawei and ZTE dealing with the multi-agency Committee on Foreign Investment in the US (CFIUS) that looks into foreign investment with "national security" implications, Lenovo is hiring high-priced talent to avoid such entrapment for both prospective deals.

Lenovo Group Ltd. has turned to national security insiders to win U.S. approval to buy Google Inc.’s Motorola Mobility phone unit and International Business Machines Corp.’s low-end server business, people familiar with the two deals said.

The world’s largest personal-computer maker hired attorneys at Steptoe & Johnson LLP who held positions at the Central Intelligence Agency and the Homeland Security Department to guide its Motorola review through a key interagency panel, one of the people said. Covington & Burling LLP partners David Fagan and Mark Plotkin are representing Lenovo in the IBM server deal, according to another person familiar with the matter...

Steptoe will guide the Motorola review through the Committee on Foreign Investment in the U.S., or CFIUS, one of the people said. Partners Stewart Baker, a former senior official at Homeland Security, and Stephen Heifetz, who served in the Justice Department, Homeland Security and the CIA, are advising China’s Lenovo on its purchase of Motorola Mobility.

Covington’s Plotkin represented IBM in the $1.25 billion sale of its personal-computer division to Lenovo. He leads the firm’s national security and defense industry group, according to his biography on the law firm’s website.

In other words, Lenovo has added to the payroll those who would likely have been on the CFIUS at an earlier time to see its acquisitions push through. Lenovo has the advantage of having gone through the CFIUS process before. What's more, the businesses it intends to buy are supposedly not "mission critical" in undergirding the US telecoms infrastructure:

Lenovo’s purchase of IBM’s PC business has already been vetted by U.S. officials, and the company was cooperative and open during that investigation, Lewis said. In addition, they’re buying low-end, consumer-oriented businesses.

“If you had to pick a Chinese company that wasn’t going to run into trouble, it would be them,” Lewis said. “This is a pretty vanilla deal, as opposed to the backbone telecom products, which have always been considered a strategic industry. No one considers servers or handsets strategic.”

I do hope so, but I somehow think that US lawmakers will make a big stink of both either way to score political points. Remember, too, that Lenovo tried to purchase Canada's BlackBerry late last year--a seemingly innocuous purchase along the same lines as Motorola--but was thwarted by the Canadian government:

Beijing-based computer manufacturer Lenovo Group Ltd. actively considered a bid for BlackBerry Ltd., but the Canadian government told the smartphone company it would not accept a Chinese takeover because of national security concerns, according to sources familiar with the situation.

Ottawa made it clear in high-level discussions with BlackBerry that it would not approve a Chinese company buying a company deeply tied into Canada’s telecom infrastructure, sources said. The government made its position known over the last one to two months. Because Ottawa made it clear such a transaction would not fly, it never formally received a proposal from BlackBerry that envisioned Lenovo acquiring a stake, sources said.

No matter how hypocritical or far-fetched, racist-protectionism persists among North Americans.

Rebuilding the USSR, Retaking the Commanding Heights

♠ Posted by Emmanuel in Russia,Sports at 2/06/2014 10:42:00 AM

The stuff of Putin's fondest dreams

With the 2014 Winter Olympic Games kicking off in Sochi, Russia, the world's attention has naturally focused on that country. The story of Boris Yeltsin handing over large swathes of Soviet-era industry to so-called "oligarchs" who purchased these interests at fire sales prices is well-known. Pressured to privatize state-owned firms by the West, Russian authorities unloaded energy and raw material concerns quickly and irrationally.

In Russian President Vladimir Putin's second term beginning in 2012, earlier nostalgia for Soviet strength from Yeltsin's handpicked successor has turned into a redoubled effort to reconsolidate state control over the aforesaid industries. In particular, the efforts of Igor Sechin, one of Putin's leading operatives, is intriguing in terms of reconstructing the "commanding heights" of state-controlled industry in the 21st century:

When Igor Sechin was working as President Vladimir Putin’s deputy chief of staff a decade ago, visitors to his Kremlin office noticed an unusual collection on the bookshelves: row after row of bound volumes containing minutes of Communist Party congresses. The record stretched across the history of the party and its socialist predecessor -- from the first meeting in March 1898 to the last one in July 1990, a year and a half before the Soviet Union collapsed...

Sechin regularly perused the documents and took notes, says Dmitry Skarga, who at the time was chief executive officer of Russia’s largest shipping company, OAO Sovcomflot. “He was drinking from this fountain of sacred knowledge so that Russia could restore its superpower status and take its rightful place in the world,” Skarga says.

Sechin’s back-to-the-future fascination with his country’s communist past is something he shares with Putin, who, soon after coming to power in 1999, restored the music (though not the lyrics) of the Soviet-era national anthem and later described the collapse of the USSR as the greatest geopolitical catastrophe of the 20th century.

Economic efficiency? Bah! Competition serving the consumer interest? Getouttahere! Enough Western nonsense; it's back to the "golden age" of Uncle Joe:

Sechin is the leading exponent of Putin’s stated determination to restore the state’s role in the Russian economy. Putin used Rosneft, through its acquisitions, to return Russian oil to state control. The company, 69.5 percent government owned, controls about 40 percent of Russia’s crude output. In a similar vein, Putin re-established majority state control of natural gas-exporting behemoth OAO Gazprom. The company had been privatized in the mid-1990s under his predecessor, Boris Yeltsin, cutting the government’s stake to 41 percent.

To develop high-technology industries such as armaments and pharmaceuticals, Putin created Rostec, a state corporation that encompasses 663 companies employing 900,000 people, or 1.2 percent of the entire Russian workforce. He expanded state-run banks OAO Sberbank and VTB Group, whose dominance in retail banking has edged out foreign rivals such as HSBC Holdings Plc and Barclays Plc.

Sechin declined requests to be interviewed or to answer written questions. In a telephone interview on Jan. 20, Putin spokesman Dmitry Peskov said of Sechin: “Sechin is a believer in the role of the state in his economic philosophy while at the same time not excluding a free-market approach. And he is firm in pursuing his viewpoint.”

Putin and Sechin see themselves as being in the, ahem, vanguard of rolling back admittedly rigged experiments in free market economics post-Soviet Union. While the West looks on with no small measure of dusgust and horror, you do have to wonder whether the era of oligarchs--coinciding with liberalization, deregulation, and privatization--did Russia any favors. By botching the former Soviet Union's transition to modern-day Russia, Westerners probably sowed the seeds of doubt which have reached their fullest expression in today's Putinism.

As the saying goes, you reap what you sow.

UPDATE: Dig the gulag-standard digs for Sochi visitors.

Repopulating Doomsville: Detroit & US Migration

♠ Posted by Emmanuel in Americana,Migration at 2/05/2014 11:01:00 AM

Followers of international migration know that there is a movement among traditional migrant-receiving nations, usually Anglophone countries Australia, Canada, New Zealand, and the United States, to steer migrants away from overcrowded gateways into less-populated areas short on labor. In other words, your chances of successfully petitioning for permanent residency are greater in, say, Toowoomba instead of Brisbane.

In the United States, something similar is happening as authorities are interested in managing demography. Instead of packing people off to [zzzzz] New York, Los Angeles or Chicago, why not send them where they are needed like, say, Detroit? To you and me it may be a terrible instance of urban decay that is in its death throes via depopulation and bankruptcy. For others, however, it is a prime example of the Land of Opportunity. The Arab American News has an interesting article along these lines as a Polish immigration lawyer says there is no better time than now to attain permanent residence in, er, Detroit:

Every year, millions of immigrants celebrate the New Year with their own traditions. For our family, it is a ham, kielbasa, horseradish, stuffed cabbage, sauerkraut and pierogis, which are a traditional Polish dishes. And each year, like billions of people around the world, we look forward to the new year with a list of hopes, dreams and resolutions.

If you are a legal permanent resident eligible for American citizenship, there is no better time than 2014 to resolve to become a citizen. As someone who has spent years working with Arab-American immigrants here in Detroit, my own resolution is to help as many of them as possible here in Detroit to take the necessary steps toward citizenship with the New Americans Campaign.

Your community is larger than you might think. Michigan is home to 130,000 lawful permanent residents who could become citizens.

The New Americas Foundation provides advice to those wishing to become naturalized US citizens. As a person championing the free flow of persons around the world in addition to goods, services and investment, I wish them well. However, they of course encounter strong political headwinds via assorted racist-protectionist forces that are unfortunately still prominent in this so-called melting pot.

Still, I do not necessarily find the idea of steering immigrants towards certain communities objectionable. If you want to live the American Dream, you have to start somewhere--even if somewhere may be Detroit. Moreover, who am I to say that Arab Americans and others do not have what it takes to revive this once-great American town? Others have given up on Detroit, but some still persist since they do see something of value you and I cannot. There is no real downside to giving them an opportunity.

Buying Thai Rice: PRC Now Cares About Corruption?

♠ Posted by Emmanuel in Agriculture,Southeast Asia at 2/04/2014 11:22:00 AM

Yinglucks legacy is a colossal waste of food and money

China is famous for espousing a policy of non-interference in the internal affairs of other countries. This, of course, is in contrast to Western powers who usually demand "good governance" for aid or investment in terms of lessening corruption, promoting democracy and so on. Critics say that in doing so China undermines others' efforts to instill better governance. On the other hand, China says it does not meddle with others' business--especially other developing countries that have grown tired of Western paternalism.

It is thus interesting how China seems to be bowing to pressures regarding the purportedly corrupt practices of the Thai leadership. In previous posts, I have detailed the extravagant waste of money [1, 2] that is the rice-pledging scheme which subsidizes rice producers to the tune of 40-50% over market value. To reduce mountains of rice purchased at above-market rates which now go unused, the current leadership hit on the brilliant idea of selling part of its stockpile to China.

But surprise, surprise--even the Chinese are not honoring previous commitments due to the current investigations into corruption allegations stemming from the so-called rice-pledging scheme:

China has canceled a deal to buy 1.2 million tonnes of Thai rice after Thailand's anti-corruption agency launched investigations into a state rice-buying scheme, the Thai commerce minister said on Tuesday. The cancellation will add to the pressure on Thailand's government, which is struggling to secure funds for the rice scheme at a time when farmers who have not been paid are protesting in the provinces.

"China lacks confidence to do business with us after the National Anti-Corruption Commission started investigations into the transparency of rice deals between Thailand and China," Niwatthamrong Bunsongphaisan told reporters.

The deal between Thailand and Chinese state enterprise Beidahuang was signed on November 20, for delivery starting in December. The shipment was delayed, however, after Prime Minister Yingluck Shinawatra dissolved parliament in December.

If anything else, the Chinese snub is going to put further financial pressure on this money-losing vote-buying scheme to win the support of rural populations in the North who've voted for the Shinawatras:

The government is desperate to get funds for the scheme because some farmers who have sold grain to the state have been waiting for months for their money. The World Bank has estimated annual losses of 200 billion baht ($6 billion) since it was introduced in 2011. The government has struggled to sell the rice because of its high price at a time when global demand is thin.

Opponents of the government are angry that taxpayers are footing the bill for a program they call tantamount to vote-buying.

The endgame for Yingluck Shinawatra is drawing even closer, with troubles being added by a most unexpected source--China of all parties suddenly becoming concerned with corruption. Weird. Meaningless elections aside, what will likely happen is court persecution of Yingluck Shinawatra over the rice-pledging scheme (tacitly supported by the military and royalty) leading to her ouster. Farmers complaining about not being paid will only undermine her support further, making her easy prey for her opponents.

All the same, Thaksinite politics are hardly finished--especially if his sister is ousted through extra-electoral means. The real question is why big brother Thaksin did not dissuade her from embarking on this ruinous rice subsidizing path given his vastly broader political experience. In the ultimate hardball of Thai politics, amateurs like little sister Yingluck get smashed fairly quickly.

Did Harry Reid KO Obama's Asian, European FTAs?

♠ Posted by Emmanuel in Economic Diplomacy,Trade at 2/02/2014 11:28:00 AM

Reid Floors Obama with Lethal 1-2 Combination

The traditional constituency of the United States' Democratic Party has always included organized labor. Despite union membership continuing to fall, organized labor remains crucial to the fortunes of many Democratic candidates come election time given their organizational strengths in mounting get-out-the-vote efforts. Tensions have always existed in the Democratic Party about the benefits of "modernizing" in the Reaganite, investor-friendly sense: fewer worker benefits, easier to hire and fire, etc.

Both Democratic presidents of recent memory, Bill Clinton and Barack Obama, have made it a standard ploy to court organized labor during election time and then ditch it after elections are won. However, it is not that easy for rank-and-file members in the legislature who do not have term limits to pull off this about-face. What's more, these can be quite powerful politicians.

A sign of Obama's lame duck status--he cannot have another term as president--is of Senate Majority Leader Harry Reid (D-NV) hitting Obama with massive blows on trade. A few days ago, the one-time boxer Reid reiterated that he will not grant Obama fast-track status for negotiated free trade agreements. At the moment, the major US initiatives are expanding the Trans-Pacific Partnership (TPP) in Asia and forming the Transatlantic Trade and Investment Partnership (TTIP) with the European Union. I've already mentioned how it will be quite challenging for either to be concluded unless significantly watered-down, but Harry Reid adds another complication. Without granting fast-track status to his president, Reid makes it possible for lawmakers to change the contents of the negotiated agreements with Asian or European counterparts instead of the legislature simply voting for or against these FTAs as hammered out during international negotiations:

Senate Majority Leader Harry Reid broke publicly with the White House Wednesday on trade policy, instantly imperiling two major international trade deals and punching a hole in one piece of the economic agenda the president outlined in his State of the Union address a day earlier. Mr. Reid told reporters he opposed legislation aimed at smoothing the passage of free-trade agreements, a vital component to negotiating any deal, and pointedly said supporters should back down.

"I'm against fast track," Mr. Reid (D., Nev.) said, using the shorthand term for legislation that prevents overseas trade agreements from being amended during the congressional approval process. "I think everyone would be well-advised just not to push this right now."

The move spells trouble for two sets of complicated talks, one with the European Union and the other with countries in the Asia-Pacific region. Both deals likely would have required such a "fast track" approval to clear the Congress. The U.S.'s negotiating partners wouldn't likely commit to a final agreement that could be unpopular back home without assurances that it couldn't be modified by U.S. lawmakers.

And lest we forget, there's organized labor lurking...

Mr. Reid, whose state has a heavy union presence, has long opposed trade deals. He also represents a caucus with several vulnerable Democrats up for election in November who might have been forced to choose between Mr. Obama and the unions that help finance campaigns.

"I think there's a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don't," said Sen. Chuck Schumer (D., N.Y.), a member of the Senate Democratic leadership.

So much for party discipline as Reid hits Obama immediately after his SOTU address. Reid is probably calculating that Obama's days are already numbered anyway, and that it's better to offend the president than traditional Democratic constituencies. Can the party afford to lose its majority in the Senate? Especially during sour economic times like the present, the Democrats' protectionist streak usually comes to the forefront. Republicans are usually more in favor of free trade and vote for such deals, but the current political situation may be inauspicious as Tea Party Republicans seemingly vote against Obama on anything--even expanding trade which is a traditional Republican advocacy.

Moreover, George W. Bush had fast track authority for most of his presidency but was unable to get any major FTAs completed, so its efficacy in concluding deals is very much dependent on first having successful negotiations at the international level.