Posts of August 2014

Hong Kong, PRC, Democracy & the 'Sixth Column'

♠ Posted by Emmanuel in China at 8/31/2014 01:30:00 AM

Would you like to see Britannia rule again, my friend?

The worrying thing about Chinese President Xi Jinping is that unlike his modernizing predecessors, he appears not to give only lip service to Marxist-Leninist-Maoist rhetoric but may actually believe in that schtick. Once upon a time, before Xi Jinping, Hong Kong's integration was supposed to be based on "one country, two systems." These days, however, more militant residents are calling China on it while choosing who gets to stand during elections. To paraphrase Henry Ford, you can vote for anyone you like--as long as they've been vetted by the Communist Party.

During the Cold War, there was a pervasive fear that Beijing would use its legion of overseas Chinese as a "fifth column" for the infiltration of Communist ideology in freedom-loving lands (or whatever passed for them). Nowadays, Xi Jinping & Co. are inverting this logic: Hong Kong residents are being used by capitalist roaders to pollute the minds of the proletariat. Call it the "sixth column" -

Hong Kong is poised for a showdown with China when the Chinese parliament meets later on Sunday, with the largely rubber-stamp body likely to snuff out hopes for a democratic breakthrough in the regional financial hub at elections due in 2017. Political reform has been a constant source of friction between Hong Kong's pro-democracy movement and the mainland since the former British colony was handed back to Communist Party rulers in 1997...

However, Beijing will tightly curb nominations for the 2017 leadership poll to filter out any candidates it deems unacceptable, said a person with knowledge of the electoral framework. Only two or three "patriotic" candidates will be allowed on the ballot and open nominations will be ruled out. Instead, candidates must be backed by at least 50 percent of a 1,200-person "nominating committee".

Activists are once more intent on turning the financial district into a warzone:

That committee is meant to be "broadly representative" of Hong Kong interests, but will be similar in composition to an existing election committee stacked with pro-Beijing loyalists.

It's a formula that will rile Hong Kong's pro-democracy activists, who plan to blockade the city's Central business district in the coming weeks. On Saturday, Hong Kong's public broadcaster RTHK said 5,000 police will be deployed for the "Occupy Central" protest, heightening the sense of unease. The city's 28,000-strong police force is already on high alert. An initial protest planned for Sunday evening will be the start of what activists and lawmakers have described as a "full-scale, wave after wave" civil disobedience campaign.

To no one's surprise, Xi Jinping is implicated in all this. Gripping Hong Kong with a firmer hand, he hopes to squash pro-democracy irritants he's found more resilient than expected. At a counter-protest, it appears that Communist Party-friendly flunkies were bused in to show "support":

Consolidating his power after almost two years in office, President Xi Jinping has spoken of the need for a firmer hand with Hong Kong, partly out of concern that allowing greater democracy there might lead to demands for the same in other parts of China.

The regime has also been caught off-guard by the strength of the campaign for democracy known as Occupy Hong Kong, which showed its power with a huge march on July 1, the anniversary of the handover. A pro-China rally a few weeks later had a much smaller turnout, and reporters noted signs of Chinese-government organization: people arriving in fleets of buses, large numbers of Mandarin-speakers with mainland connections, and some evidence of participants being paid to attend.

On one hand, it would be nice for China to fulfill the "one country two systems" vow. On the other hand, us folks from rather poorer places on this earth aren't quite sure what the Hong Kong residents are complaining about when their standard of living is so much higher than ours. Go figure; some people complain when they have almost everything--except Western-style "freedom."

UPDATE: In today's no ^@#$ feature, the PRC has restated that all candidates standing for elections in 2017 must be pre-screened by Beijing.

IMF Conditionalities Don't Matter...If You're 'Ukraine'

♠ Posted by Emmanuel in IMF at 8/30/2014 01:30:00 AM

If we go by the Weberian definition of what a state is, "Ukraine" fails on the counts of territorial integrity and having a monopoly on the legitimate use of force. Into this muddled picture comes the IMF. The characterization of the IMF as a Western tool is well-founded and not subject to much debate, at least in IPE circles. Today's case in point is the "country" of Ukraine. While Ukraine as we know it has ceased to exist and so has its economy, the IMF is busy shoveling wads of cash in Kiev's direction and will do so for as long as it doesn't go over to the dark side (Russia). Being broke would hasten that process. If you enjoy Orwellian official-speak, get a load of this IMF press release:

In completing the review, the Executive Board approved waivers of nonobservance of performance criteria related to international reserve accumulation and the cash deficit of the general government on the basis of corrective actions taken. The Board also approved waivers of applicability of performance criteria related to the cash deficit of the general government, the cumulative change in net domestic assets of the central bank and publicly guaranteed debt. In addition, in light of the slight delay in completing the first review of the program, the Board approved the authorities’ request for merging the remaining two reviews scheduled for 2014, while keeping the total financing under the arrangement unchanged.

Reading between the lines--in plain English--let me restate that for you:

Ukraine has met few to no conditionalities because its Eastern half is embroiled in civil war. Its economy is expected to contract by 6% in 2014. The so-called "government" in Kiev has made half-hearted reform gestures that won't work anyway so we'll give them credit even though the country has ceased to exist. Part of it has already been dismembered (Crimea) and another may soon follow (Eastern Ukraine). Because it's a warzone where they shoot down commercial jetliners, IMF officials would rather not visit Ukraine for security reasons. We'll just fork over the money without going through the motions of sending officials to "approve" of Ukraine's actions (which are insufficient anyway but what the hell, keeping "Ukraine" on the West's side is a cost-no-object endeavor).

They're probably wishing they had Yanukovych back right about now. Christine Lagarde is marginally less obtuse:

The Ukrainian authorities have firmly implemented policies to stabilize the economy and revive growth. This strong policy record despite the much worse-than-expected environment is encouraging in light of the implementation problems that derailed previous programs and thus augurs well for the authorities’ ability to keep the program on track. However, the escalating conflict in the East and ongoing geopolitical tensions have weighed heavily on the economy and society, causing a deeper recession and deviations from program targets in the short term, in particular on the central bank’s net international reserves and the budget and Naftogaz deficits.

Elsewhere there's talk of "downside risks" and other euphemisms. The IPE Zone's refreshing candor on world politics: Don't leave home without it as an old advertising catchphrase used to say.

Morgan Stanley & the Making of Rosneft

♠ Posted by Emmanuel in Energy,Russia at 8/29/2014 01:30:00 AM

Morgan Stanley's John Mack chillin' with Putin back in the day.

The recent (re-)isolation of Russia after coming in from the cold after the end of the Cold War is having interesting repercussions for its Western financiers. From an IPE standpoint, the fate of the giant oil conglomerate Rosneft will be pivotal. Not only is it a gargantuan oil firm, but it is also a creation made possible through Western bankers providing the investment necessary to put it together.

Today's case in point is Morgan Stanley's involvement in the formation of modern-day Rosneft. It remains quite a reward for Igor Sechin's fealty to Vladimir Putin--the world's largest oil company by output is certainly nothing to sneeze at:

Putin and Sechin have a lot more to thank Morgan Stanley for. The American investment bank helped transform state-owned Rosneft from a business the Russian government failed to sell three times in 1998 into the world’s biggest publicly traded oil producer by output. Morgan Stanley played a key role in saving it from being acquired, and Rosneft hired three consecutive chief financial officers from the bank. In 2013, Putin approved Mack’s appointment to Rosneft’s board.

Since the Soviet Union broke up a quarter-century ago, Russia has become so closely entwined with the global economy that doing anything to unwind those ties -- or successfully impose sanctions for misbehavior -- is proving difficult for the U.S. and its allies, and awkward for western businesses that embraced Putin’s Russia. With Sechin and his oil company both under U.S. sanctions, a look at the courtship, marriage, and now separation between Morgan Stanley and Rosneft is a telling microcosm of this turnabout.

Indeed, while American trade relations with Russia are not especially large, chickens notwithstanding, investment is another matter as Western finance being limited to Rosneft and other state-owned firms closely aligned with Putin marks the end of an era:

Under the Putin regime, the line between business and government is often blurred, especially with state-controlled companies. As Rosneft expanded, in part by buying assets that Putin had forced an imprisoned political opponent’s company to sell, it became one of his favorite tools for extending Russian influence abroad.

“Rosneft was obviously not just an ordinary market participant,” said Daniel Treisman, a professor of political science at the University of California at Los Angeles and author of several books on Russia, most recently “The Return: Russia’s Journey from Gorbachev to Medvedev” in 2011.
“Sechin had been President Putin’s sidekick for years,” Treisman said. “This was a company with very good connections that was prepared to use them. I imagine the analysts at Morgan Stanley understood this.”

With the advent of a new Cold War, the U.S. barred Americans from doing business with Sechin in April, citing his “utter loyalty to Vladimir Putin -- a key component to his current standing.” Last month, the U.S. restricted companies from providing long-term debt financing to Rosneft, as Morgan Stanley and other western investment banks used to do.

The rest of the Bloomberg article delves into the nitty-gritty details of the Morgan Stanley-Rosneft relationship. Rest assured that Rosneft in its current form would not exist had it not been for Morgan Stanley providing the cash and legitimacy--both of which Rosneft has in rather short supply nowadays.

Modi's India: Japan or China as Business Muse

♠ Posted by Emmanuel in China,Development,India,Japan at 8/28/2014 01:30:00 AM

Japanese, Chinese want the "Gujarat Model" replicated across India.

The selection of Najendra Modi as India's prime minister is taken as a sign that the rest of the country wishes to follow in the footsteps of Gujarat state that he used to govern--a liberalizing, open-for-business attitude that has seen it attract a considerable amount of foreign investment. The Japanese, in particular, seems excited. Having invested a lot in Gujarat, they look forward to similar liberalization and FDI-friendly measures being put into place nationwide:

Japanese executives at the meeting were also ebullient, praising the business sense and management capabilities of the Gujarat government, which Modi presided over for 13 years. "We don't have a very cordial relationship with China," Japanese attorney Tatsuhiro Kubo said at the Ahmedabad gathering, explaining why Japanese industry likes Gujarat, "so bonding with India is only natural."

More than a year ago, Jetro [Japan Export Trade Organization--Japan's trade promotion body] took the rare step of establishing a regional office in Ahmedabad . Suzuki Motor and Hitachi are among the Japanese companies that have invested in Gujarat. "Nearly 50 Japanese companies are in the process of setting up plants in Gujarat," said Mukesh Patel, president of the Indo-Japan Friendship Association.

In a meeting with Anandiben Patel, who replaced Modi as Gujarat's chief minister, Takeshi Yagi, Japan's ambassador to India, on June 7 expressed support for an exclusive Japanese industrial cluster in Gujarat, saying the number of Japanese companies operating in the state will soon rise from 60 to more than 100. Earlier this month, that industrial cluster began to take shape near Suzuki's existing plant in Gujarat.

Essentially, the elections in May gave Indian voters their first opportunity to say "yea" or "nay" to an economic model. Modi's party, the Bharatiya Janata Party, described what Modi accomplished in Gujarat as an "economic miracle," one that Modi promised to repeat across the country if he were to ascend to the prime minister's post.

Ironically given the Japanese lawyer's comments on their investment partly being based on India simply not being China, the model which Gujarat resembles is the so-called "Shenzen model" according to admiring Chinese (see this China Daily op-ed). Speaking of whom, the Chinese are also looking to invest in India despite historical grievances over border disputes. I guess commerce cannot be ignored:

While there is talk that Japanese investors saw which way the winds were about to blow, Chinese analysts also want to be seen as clairvoyant; they have been saying Modi's Gujarat model was built around China's Shenzhen model of development.

A direct comparision with Shenzhen, or even Guangdong, is somewhat outlandish, but there are a few similarities. During his four visits to China, Modi made inquiries into the country's system of special economic zones, which he considered important tools for rapid industrial development. Now China -- which might be looking for an edge in India -- has been pushing for special economic zones in the country. The Modi government recently gave an "in principal" approval to the request.

The coming months -- as the Modi government deals closely with investors from Japan, China and other countries -- will give a clear picture of the model Modi is working with.

As Jagdish Bhagwati put it, Indians and other Asians seemingly agree with Modi that growth must be created before it can be redistributed.

Will Ebola Stop the African Cup of Nations?

♠ Posted by Emmanuel in Africa,Health at 8/27/2014 01:30:00 AM

Another Ebola Victim? The 2015 African Cup of Nations.

It's only a game, the refrain goes when people take football too seriously. In Africa, though, it may be a game of life and death. Recently, a player died from being hit by a rock thrown at the end of a match. Now, the outbreak of the deadly Ebola virus for which there is no cure is threatening to stop the continent's most prestigious international tournament, the African Cup of Nations. There always seems to be interesting IPE-ish stuff going on with this tournament. Four years ago, I discussed how China was using "football diplomacy" by building stadiums for Angola to host the 2010 tournament.

For the 2015 tournament in Morocco, things are in disarray, to put it mildly. The proximate cause is safety fears amidst Ebola outbreaks in a number of participating nations. We are currently in the qualifying stages for the tournament. Some nations refuse to play other teams coming from Ebola-hit nations. Conversely, Ebola-hit nations' teams are being turned down when asking for permission to play their qualifying matches elsewhere:

Africa’s football authorities are wrestling with difficult decisions as they try to prevent their sport becoming a vector for spreading the Ebola virus. With the next round of qualifiers for the Africa Cup of Nations fast approaching, some matches have already been moved and others are in limbo while some teams have been punished for refusing to play in locations the African Football Confederation (CAF) deems safe or against teams from Ebola-hit nations.

The problems started for CAF at the end of July when the Ministry of Health in the Seychelles refused to allow the team into the country from Sierra Leone, where the virus has killed at least 374 people, for an Africa Cup of Nations qualifying match. Seychelles forfeited the game and Sierra Leone advanced to the next round. With six rounds of Africa Nations qualifying scheduled between September 5 and November 19, CAF took the initiative. In mid-August it decided to forbid matches in Guinea and Liberia as well as Sierra Leone, where the government had already banned football games.

CAF wrote to its 54 members that despite Ebola it planned to “maintain its calendar of matches across the African continent with the exception of three countries, Guinea, Liberia and Sierra Leone, where there have been a significant number of cases.” The Confederation said it had taken the decision after consultations with the World Health Organisation. CAF asked "the three nations to move their matches to neutral countries."

I've heard of "stateless people"; with Ebola, we have "stateless football teams":

For Liberia the impact of this decision is limited as it has already been eliminated. Guinea and Sierra Leone, on the other hand, face serious problems finding countries prepared to offer their teams a temporary home. Guinea asked Senegal if it could play in Dakar. The Senegalese said no. Last week, after several days of negotiations, Moroccan authorities agreed to let Guinea play their home game against Togo in the Mohammed V stadium in Casablanca on September 5.

For Sierra Leone the situation is more complicated. They are scheduled to travel to Ivory Coast, a country which is not on CAF’s banned list, on 6 September. But last week the Ivorian Sports Ministry announced that it had forbidden all sports competitions in the country. The Ivorian football authorities have not yet said whether they will relocate the match or postpone it.

Sierra Leone, meanwhile, have held talks with Ghana about moving their home matches to Accra. The response has not been encouraging. The Ghana Football Association released a statement saying: "Though keen on offering its support, the GFA are uncertain about the health implications for the country."

Make no mistale: Ebola's outbreak is affecting all sorts of other social phenomena, too.

World's Governments vs Uber: In South Korea, India

♠ Posted by Emmanuel in India,South Korea,Technology at 8/26/2014 01:30:00 AM

To Gangnam, man, on the double! (wherever that is.)

Libertarians for the most part tout the ride-sharing service Uber as a way to avoid taxis whose need to be government-regulated allows them to charge exorbitant fares. With Uber, anyone who can afford a smartphone and a data plan can use his or her vehicle as a privateer taxicab. Break the monopoly! Or that's how Uber works in theory. In practice, local governments the world over have taken legal action against the app's developers for skirting regulations on who can offer tax services in their jurisdictions. I do not exaggerate when I say it's Uber against the world's officialdom.

Having come to Asia, Uber is under assault after complaints from taxicab services wary of being marginalized by the app. While Uber has not yet established as large a presence as it has in some Western nations, it's best to beat it up before it establishes a foothold. In tech-savvy Seoul--supposedly the most wired city in the world--the local government seeks a ban on Uber. It also plans to develop an official taxi app to counter it by the end of the year:

The Seoul city government said Monday it would seek a ban on a car-hailing smartphone app from Uber Technologies Inc., joining a global battle by municipalities and traditional taxi services against the service.

The local authority said in a statement that Uber is illegal under South Korean law, which forbids fee-paying transport services using private or rented motor vehicles unregistered with the authorities. The city added that it will launch in December an app that will provide similar features to Uber for official taxis, such as geo-location data on cabs nearby, information about them and their drivers, as well as ratings.

In India, Uber has come up against an even more formidable foe: the central bank. Because Uber's payments are handled by an offshore entity, the Reserve Bank of India is using a stipulation that payments-handling mechanisms must be locally based to effectively render Uber illegal:

Credit card rules, another road block for [Uber] which has been described as illegal by city authorities. And what's India done to put the brakes on? Well, the one stepping on the brakes is the RBI [Reserve Bank of India], the central bank.

It's closed a loophole. All actions made on India-issued credit cards have to go through a two-step procedure. For Uber users that means one additional step to the payment system and if they want to comply with the new rules, it would have to change its app or adopt a different model totally.

The actions are free [of obtaining a taxi license] with pretty much with Indian rivals have to do. This is what local taxi companies have been complaining about. [All Uber] payments are collected and transferred to a Dutch bank and the procedure goes against India's [foreign exchange control] regulations and in a way, this is what the RBI is trying to address.

To be more specific, the RBI regulations in question concern limiting capital flight emanating from foreign exchange transactions:

"It has come to our notice that there are instances of card not present transactions being effected without the mandated additional authentication validation even where the under lying transactions are essentially taking place between two residents in India," RBI said in its circular issued on Friday. A transaction is considered local where both the purchaser and service provider are in India.

"It is also observed that these entities are evading the mandate of additional authentication by following business models which are resulting in foreign exchange outflow. Such camouflaging and flouting of extant instructions on card security, which has been made possible by merchant transactions being acquired by banks located overseas resulting in an outflow of foreign exchange in the settlement of these transactions, is not acceptable as this is in violation of the directives issued under the Payment and Settlement Systems Act 2007 besides the requirements under the Foreign Exchange Management Act, 1999," the RBI said.

Also see Quartz discussing the politics behind this move. Talk about having enemies in high places. Unlike Uber and its fans, I am hardly convinced that they are on the right side of technological history. Are taxis the buggy whips of the early 21st century

The Big One: Saudi Arabia Sells Stocks to Foreigners

♠ Posted by Emmanuel in Middle East at 8/25/2014 01:30:00 AM

It's Riyadh or bust, baby.

The never-ending chase for better investment returns brings us to the doorstep of Saudi Arabia. The country remains an enigmatic mix of integration and isolation with the world economy. For instance, the same government that now funds one of the premier research institutions in the region, the King Abdullah University of Science and Technology (KAUST), has long paid what is in effect hush money to fundamentalist educational groups which have helped radicalize impressionable youths the world over. Or, the same country that is a G-20 member does not allow women to drive cars.

One of the restraints Saudi Arabia has kept is barring foreigners from buying stocks listed in the country directly. Sure you could acquire exposure to this market through mutual funds and ETFs, but not by purchasing stocks outright. However, market forces could not be curtailed forever as Saudi authorities are now finalizing plans to allow stock sales to foreigners. In terms of market capitalization, there really is no contest as far as the Middle East is concerned:

Saudi Arabia’s Capital Market Authority (CMA) said in July that it will open its $560 billion stock market to foreign financial institutions in the first half of next year. The announcement (which can be found here, but you may want to use Google Translate if your Arabic is as rusty as mine) spurred investors’ enthusiasm.

“This move by Saudi Arabia could be one of the most important catalysts for attracting significant flows of global institutional capital into this region,” said Zak Hydari, CEO of European Islamic Investment Bank-Rasmala, which manages more than $1.1 billion of assets in the Middle East. “The size and liquidity of the Saudi market, coupled with the strong regulatory framework of the CMA, will be extremely appealing to global investors, who have been waiting a long time for such a development to take place. It could be a real game changer for the region's investment and capital markets,” noted Hydari.

The stock market of Saudi Arabia, the world’s largest oil producer, stands out for its size and breadth. In comparison, Dubai and Qatar—which have been attracting attention in the past couple of years and have been promoted to emerging (from frontier) markets status on the MSCI index by Morgan Stanley—are much smaller. Dubai has a market cap of $101 billion; Qatar, $191 billion.

Make no mistake: the Tadaqul is probably the world's largest stock exchange that remains unopened to foreign investment. Consider it alongside those of other emerging markets...

“To put that in context, [the Saudi market is] just under 10% [of] the size of the Nasdaq, half the size of South Africa's stock exchange and more than twice the size of Israel's market,” said Shane Leonard at Stockflare (www.stockflare.com), an investment blog. “Saudi stocks have the potential to become a major part of the MSCI Frontier Indexes, which could drive significant foreign interest in the Tadawul,” said Leonard. “Though the devil will be in the details, and retail investors shouldn't expect to be able to buy Saudi shares directly, as there may be a requirement to be a large long-term investor.”

The Tadawul All Share Index has appreciated a healthy 20% since the beginning of the year, compared with a nearly 6% rise in the MSCI Emerging Markets Index and 7% in the MSCI GCC Countries Index.

The logic of capital marches on--what David Harvey would call a "spatial fix."

Another Papal Accolade: Top Car Salesman

♠ Posted by Emmanuel in Currencies,Religion,South Korea at 8/22/2014 01:30:00 AM

This Kia Soul pitchman beats dancing hamsters hands down.

You'd think that being "vicar of Christ" would be a heavy enough burden. To the list of many accolades accorded to the current leader of the Catholic church, however, add this one: "savior of Korean manufacturing." You see, Pope Francis recently visited South Korea after receiving an invitation to go there. Unlike the nominally godless North Korea, over a tenth of South Korea's population is composed of Catholics. It is just as well since Korea has been in need of divine intervention as of late given the economic headwind of a fast-appreciating currency. One of those negatively affected was Kia Motors, the country's second-largest automaker:

Major companies announced financial results for the second quarter yesterday, most of which declined due to the strengthening of the Korean won in the first half. Following Hyundai Motor’s slack quarterly earnings report Thursday, Kia Motors announced a decline in operating profit that it blamed on the won.

Kia Motors said its second quarter profit fell 31.7 percent from a year earlier to 769.7 billion won. Its operating profit for the first half of 2014 was 1.5 trillion won, down 17.8 percent from the same period last year. Its revenue was 23.98 trillion won, a 0.9 percent fall from last year. “As 75 percent of our business comes from exports, a currency rate that fell 58 won on average in the first half caused a deterioration in profitability,” said the automaker in a release.

Given such a scenario, Pope Francis requesting a modest compact car as his wheels of choice in South Korea was, ah, godsend for Kia. Practicing what he preaches, one of the world's most influential and powerful persons chooses to go around not in ostentatious bulletproof luxury cars but hatchbacks. Asking for a modest vehicle to carry him around, he chose the Kia Soul which is soulled [sic] around the world. Talk about free publicity:

The pope slipped into the back of the [Kia Soul] and rolled down a window to wave at the welcoming party...[t]he pontiff’s choice is a victory for Kia at a time when the won, last quarter’s fastest-appreciating major currency, is eroding South Korean exporters’ earnings. The selection also underscores the pope’s preference for small cars, a departure from past “Popemobiles,” such as the custom-built, bulletproof Mercedes-Benz Pope John Paul II used to ride on.

“This will help Kia by bringing far-reaching exposure through the mass media,” Kim Jin Kook, chief executive officer of auto researcher Marketing Insight, said by phone. “That exposure will be related to the pope, who has a very positive image among the general public, which in return will trigger a halo effect for Kia.”

No power windows in 2014? Pope Francis is clearly downsizing. At any rate, the upshot of the recent papal visit to South Korea has been increased sales of the Kia Soul. Mind you, it's a good model anyway that provides exceptional space for a compact vehicle:

The so-called "Pope Francis" effect may have extended to the "popemobile" as well. Sales of Kia Motors' Soul model shot up last week, after Pope Francis used the compact car to get around during his trip to Korea.

The company says an average of 32 cars were sold per day in the country right before the pope arrived until shortly after he left. That's up 63 percent compared to the same period last month. Kia forecasts global sales of the Soul model to spike as well in the months to come.

Catholicism in Korea is an interesting growth story that I will discuss another day. Lest you doubt its growing influence, I leave you with the 800,000-strong mass that Pope Francis held in downtown Seoul. Whatever views you may have of Catholicism, he is a huge draw in South Korea--a decidedly non-traditional market for the church in saving souls.

Futbol Geopolitics: Crimean Clubs Join Russian Leagues

♠ Posted by Emmanuel in Russia,Sports at 8/21/2014 01:30:00 AM

"We're all Russians now," Sepp tells Vlad.

With the end of the World Cup, I haven't had a single football (soccer)-related post. Let's fix that right here, right now. There's an interesting feature from BBC News on the consequences for incorporation of the Crimean peninsula into Russia through a "referendum." Say what you will about the legitimacy of that vote, but there is no doubting that a vast majority of people there would have wished to join Russia anyway.

A rather visible manifestation of this ongoing (re-)integration of Crimea into Russia is that a number of clubs that formerly belonged to the Ukrainian league have, ah, broken away to join the Russian equivalents, albeit in the third division:

The recent conflict between Russia and Ukraine has impacted directly on football in the region, with three clubs from the annexed Crimea region - including two formerly from Ukraine's top tier - starting the new season in the Russian lower leagues. The clubs - TSK Simferopol, SKChF Sevastopol and Zhemchuzhina Yalta - made their debuts in the Russian Cup this week and have been placed in the third tier of Russian league football. They will play their first matches in the division next week.

Talk about a demotion not through football but through political action. Then again, they're playing in a bigger country--at least for now. Already the Ukranian league is complaining to the Union of European Football Associations (UEFA) that this breakaway was neither approved nor sanctioned, therefore not permitted:

The Ukraine Football Federation's (FFU) president, Anatoly Konkov, sent a letter of complaint to world governing body Fifa and European football authorities Uefa, asking them to punish the Russian Football Union (RFU) for the move. "As the president of the Ukrainian national association, I am asking you to take all necessary actions to deal with the situation, including applying sanctions," Mr Konkov wrote. "This is a matter for the whole of Ukrainian football."

The Russian football authorities did not officially inform Uefa or Fifa about their decision to incorporate the teams. Uefa say they are "monitoring the situation" and are in contact with both national associations to discuss the matter, while Fifa say they are aware of it but that the matter should be dealt with by the European football governing body.

Oh boy, even in a game where twenty-two grown men chase a ball around for ninety minutes there are sanctions. The newly Russianized clubs, however, have been playing under new names and new players to erase the previous Ukranian identity. Does that qualify them as "new"? That will be a bone of contention. Additionally, there are restrictions there on players having to be Russian:

The Crimean clubs have also been renamed and been given Russian addresses. TSK was previously known as SC Tavriya, while SKChF from the city of Sevastopol - where Russia's Black Sea naval fleet is based - had been playing in the Ukrainian Premier League as FC Sevastopol. "We had certain reasons to do that [change the club's name]," a spokesperson for SKChF told the BBC. "It had to be [now known as] another club, not the one that is registered at the Ukrainian Football Federation.

"We got a Russian address and changed the squad, with players who have Russian passports, because we can't use the Crimean players yet." According to Russian third division rules, only players with Russian citizenship can take part in the league.

Therein lies the rub: under international and not Russian, er, "law," Crimea remains part of Ukraine, hence the legal maneuverings by Ukraine's football league and the breakaway clubs to change their names in preparation for Russian makeover/takeover:

Russian sports minister Vitaly Mutko - who is also a member of Fifa's executive committee - told reporters that he considers the inclusion of the Crimean clubs an internal Russian affair. One legal expert, Russian sports lawyer Michael Prokopets, questioned the RFU's decision to incorporate the Crimean clubs into the Russian league.

"Crimea at the moment is not recognised as a Russian territory by the international community," Mr Prokopets told BBC Russian. "[As far as] Fifa and Uefa [are concerned], it is the territory of Ukraine and therefore they need the permission of Fifa and the FFU."

As with more things than I can to mention, the only clear-cut victors here will be the lawyers.

Money Laundering or Investment? Chinese Buy Oz Property

♠ Posted by Emmanuel in China at 8/20/2014 01:30:00 AM

What is capitalism? What is state-driven capitalism? The blurred distinction between the two gives rise to now-frequent crackdowns on Chinese businesspersons during Xi Jinping's current drive to supposedly reduce corruption in the PRC. Unless you're a die-hard Marxist--property is theft, more so in a "Communist" state--the distinction isn't so clear. In an earlier post, I described how many Chinese are hedging their bets by seeking residences abroad should the purge in China reach Cultural Revolution proportions. While that's a remote possibility, you never know.

Apparently, one of the choice destinations for the Chinese is Australia. Closer than Europe or North America, it is still relatively affordable. Throw in a large and growing Chinese communities in several destinations and you have an attractive deal:

More wealthy Chinese are moving their money out of China to invest in Australia's property market as a corruption crackdown in the world's second biggest economy gathers momentum, property consultants and lawyers said. They said their clients had told them they had legitimate funds to invest but were concerned about being caught up in an investigation, which in China often delves into the affairs of dozens of associates of the main target, and losing that wealth.

"What we see at the moment is that there are more Chinese who would likely send more money out of the country so they don't get caught up in this crackdown," David Green-Morgan, global capital markets research director at real estate services firm Jones Lang LaSalle (JLL), told Reuters.

We're not talking about trifling sums here, either:

Australian property has long been a popular choice for Chinese money - both legitimate and illegitimate - but the flow of investment appears to have accelerated of late.

According to Australia's foreign investment review board, China was the No.1 source of foreign capital investment into Australia's real estate in 2013. It received approvals to invest nearly A$6 billion ($5.58 billion) into the sector, up 41 percent from a year ago. "They are worried so they are looking for a safe place," said a Sydney-based immigration lawyer, who is advising on setting up a new fund exclusively for Chinese investors and regularly travels to Beijing and Shanghai. "They don't want returns, not necessarily. They want a safe place," he added.

China is expected to see an annual growth of 20 percent in outbound real estate investment in the next decade, up from $11.5 billion last year, property agent Savills has forecast.
That will help push Chinese demand in Australian property by 15 percent over the next 12 months, said Andrew Taylor, co-CEO of Juwai.com, the largest real estate portal that targets Chinese buyers looking abroad.

Meanwhile, the commercial bonanza is on:

Chinese property developers have been aggressively investing abroad to cater to domestic demand and to diversify their assets in response to a cooling property market at home.

Hong Kong-listed Wanda Commercial Properties has set up a $1.6 billion fund to invest in Australian real estate, while China's Greenland Holding sold every apartment in a Sydney project last year within the first three hours for a total of 2 billion yuan ($325 million).

Century21 and Fairfax Media's Domain.com, Australian real estate portals, have launched Chinese language websites, and REA Group recently announced that SouFun, a major real estate online marketplace in China, would carry Australian listings.

Murdoch's The Australian has another angle on this story focusing on the attractiveness of suburban homes near top universities. Nevertheless, there's no doubting the new force in offshore real estate investment regardless of the "legitimacy" of the source.

If Hell Comes: Preparing for UK's EU Departure

♠ Posted by Emmanuel in Casino Capitalism,Europe at 8/19/2014 01:30:00 AM

Some are intent on killing the goose that lays the golden egg.

Never underestimate the human potential for acting stupidly: The UK's ruling Conservative Party has long been playing fire with its Eurosceptic stylings. By bashing the EU and its alleged overregulation at every turn, their intent is to use possible UK departure from the EU as a leverage point to gain more exceptions for its financial services industry. The Tories now plan to hold a referendum on the matter of EU membership if reelected out of electoral self-interest. Now, imagine if UK voters are sufficiently peeved at Europe to vote for leaving it. There's no saying it couldn't happen, but the effects of the UK being branded a "foreign" financial system would mean curtains for its status as a gateway to the EU.

Already, American banks are preparing their doomsday scenarios by moving more activities to Ireland--a classic low tax destination within the EU that is unlikely to leave the union:

[US banks] said their plans were in most cases still at very early stages. But they said the US banks had started preparing for the eurozone’s impending banking union that threatens to isolate Britain and, ultimately, for a possible UK exit from the EU. “I’m frankly looking at moving some activities to Ireland,” said one senior UK-based manager at a Wall Street bank. “I think the Irish central bank and government would welcome this. It is not so much Brexit, more about legal entity optimisation.”

Most US and Asian banks have chosen to base their main European operations in the UK, giving them an automatic passport to carry out their services across all 28 countries in the EU. But senior US banking executives said the UK was unlikely to be granted the same “passporting” rights if it left the EU – the so-called “Brexit” scenario.

Prime Minister David Cameron has promised to hold a referendum on a renegotiated EU membership if his Conservative party wins next May’s election. Executives at American banks in Europe are reluctant to speak publicly about the issue for fear of upsetting the UK regulators. One said: “I don’t think people are making enough of it – a lot of passported activities that cannot take place in London will not exist here any more.”

London, or more specifically the City of London, is the world's financial capital. New York isn't; not by a long shot. These yahoos are running the risk of turning it into another offshore economy like, say, the Cayman Islands. It may be a particularly big offshore economy, but it will become smaller as the transaction costs of doing business in a non-EU country increase. To its credit, Ireland is seeing the potential of siphoning away at least some support activities like backroom operations even if the UK ultimately stays as the baseline scenario still suggests:

The UK hosts more than 250 foreign banks and last year it generated a financial services trade surplus of $71bn, about a third of which came from trade with the EU, according to TheCityUK, a financial lobby group.

Most observers assume that if the UK did leave the EU then Frankfurt or Paris would be the most likely alternative for US banks looking to shift parts of their European activities out of the UK. But Ireland’s attractions for US banks include its low corporate tax rate, English speaking population, English-style legal system and eurozone membership. “Dublin is selling itself very hard at the moment,” said one banker.

Leaving the EU would be an unthinkably stupid thing for the UK to do, but hey, WWI looked pretty unlikely until about a hundred years ago, didn't it?

Physical Banks are History: Pakistan m-Banking

♠ Posted by Emmanuel at 8/18/2014 01:30:00 AM

It may sound strange to people from rich countries, but most people in the developing world have never set foot in a bank branch. Not only are they often confined to urban centers, but they are also geared towards meeting the needs of wealthier clients. To correct both of these failings in banking the so-called "unbanked" or folks without access to financial services, m-banking has become popular in many parts of the developing world. That is, mobile services become instruments for delivering financial services.

Today's example is particularly instructive: Pakistan is a perennially hard-up country riven by never-ending political strife. While numerous factions and politicians go at it without end, in no small part causing great harm, mobile solutions continue to proliferate:

Warid Telecom and Bank Alfalah Limited announced the launch of their marketing campaign for Branchless Banking Services under the brand name Mobile Paisa in Pakistan with Monet (Pvt) Limited as the technology provider. The launch aims to bridge the gap between banking services and consumers as it provides advanced mobile financial services, convenience, reliability and security for customers.

The services include money transfer, bill payments and customer mobile wallets. Services for consumers, corporates and G2P will be launched soon. Speaking on Mobile Paisa hitting over 10,000 agents for branchless banking, Warid Telecom Chief Executive Officer Muneer Farooqui said the facility is aimed at making mobile financial services effortless. “In this era of modernisation and technical development, it is essential to digitise and enhance transacting convenience through a secure and swift system,” said Farooqui.

They say that necessity is the mother of invention. It is unsurprising that many innovative m-banking services come from the developing world in terms of handling e-payments and extending the range of mobile services. It is conceivable that most developing countries will skip the stage of having bank branches on every major street corner and move directly into m-banking. After all, you don't need checkbooks, ATMs and tellers when your cell phone meets most of your banking needs.

Chinese Fleeing PRC: The Hotel California Effect

♠ Posted by Emmanuel in China,Migration at 8/17/2014 01:30:00 AM

There's no getting away from the PRC, mates.

There's an excellent article at the WSJ concerning wealthy Chinese leaving the PRC...for good. It is fairly common for wealthy people in poor countries to secure overseas residences in the event trouble breaks out at home. That is, they have safety nets if, say, the Communist Party starts persecuting capitalist roaders by tossing the in jail or packing them off to reeducation camps. You never can tell when the Communists have an urge to start acting communistic. What I was not aware of, however, is that a fairly large exodus is already underway even in these years of PRC prosperity. After all, there is not much to enjoy living in your Beijing mega-palace when the air is so bad and so is the traffic. So, there's a push for (literally) greener pastures:

But rapidly growing numbers are college students and the wealthy, and many of them stay away for good. A survey by the Shanghai research firm Hurun Report [of "Rich List" fame] hows that 64% of China's rich—defined as those with assets of more than $1.6 million—are either emigrating or planning to. To be sure, the departure of China's brightest and best for study and work isn't a fresh phenomenon. China's communist revolution was led, after all, by intellectuals schooled in Europe. What's new is that they are planning to leave the country in its ascendancy. More and more talented Chinese are looking at the upward trajectory of this emerging superpower and deciding, nevertheless, that they're better off elsewhere.

They are leaving in pursuit of things money can't buy:

The decision to go is often a mix of push and pull. The elite are discovering that they can buy a comfortable lifestyle at surprisingly affordable prices in places such as California and the Australian Gold Coast, while no amount of money can purchase an escape in China from the immense problems afflicting its urban society: pollution, food safety, a broken education system.

What is most interesting though is how China's sprawling Maoist-Marxist-Leninist apparatus still keeps tabs on those who have chosen to leave. To ensure that the PRC isn't defamed and that its erstwhile residents act as good ambassadors for the CCP and what it represents, no effort is spared. As the final stanza of the "Hotel California" goes, you can check out any time you like, but you can never leave:

The new political era of President Xi Jinping, meanwhile, has created as much anxiety as hope. Another aspect of this massive population outflow hasn't yet drawn much attention. Whatever their motives and wherever they go, those who depart will be shadowed by the organs of the Leninist state they've left behind. A sprawling bureaucracy—the Overseas Chinese Affairs Office of the State Council—exists to ensure that distance from the motherland doesn't dull their patriotism. Its goal is to safeguard loyalty to the Communist Party.

This often sets up an awkward dynamic between Chinese arrivals and the societies that take them in. While the newcomers try to fit in, Beijing makes every effort to use them in its campaign to project its political values, enhance its global image, harass its opponents and promote the use of standard Mandarin Chinese over the dialects spoken in Taiwan and Hong Kong.

Hokkien and Cantonese? Getouttahere! It's strange but true: these folks are choosing to leave for greener pastures, yet the country they left still seeks to recruit them in a propaganda campaign aimed at making the PRC top dog not only in Chinese communities abroad but also in communicating the official Party line to others.

It's like someone divorcing you and you wishing to hang on by asking your former spouse to support the very extra-curricular activities that drove them away in the first place. Make no mistake: being prominent Chinese has a lot of baggage wherever you go.

Atlantic City or Detroit: Which Epitomizes US Decline?

♠ Posted by Emmanuel in Americana,Hegemony at 8/14/2014 01:30:00 AM

They partied till they literally dropped.

Thousands of years into the future, when archaeologists sift through the ruins of the United States as they currently do with empires Aztec, Babylon, Carthage to Zulu, what will be their preferred excavation site for artifacts of once-unrivaled splendor reduced to absolute nothingness? Detroit is a prime candidate given its many imposing edifices long deserted. They even make massive photo essays about it. Motown, however, lacks the tabloid-grabbing bacchanalian excesses that I call "history porn": Babylon has been immortalized as the epitome of sinful existence in the Christian bible. The Emperor Caligula's mad perversion has been immortalized in bad soft porn films. Montezuma upped the ante with human sacrifices and cannibalism. Does modern-day America offer anything remotely as decadent?

Well, not quite, unless you consider "Ivan Kane's Royal Jelly Burlesque Nightclub" [?!] at the now-closed Revel Casino in Atlantic City, New Jersey. Speaking of which, its rate of decline certainly merits the Detroit comparison. If Detroit represents the death of world-leading American manufacturing, Atlantic City does the same for gambling services. It is fast disappearing at an astonishing rate:

How big a loser is Atlantic City? So big that Donald Trump sued to have his name removed from two casinos he no longer controls. He may have to amend the suit, since one of them, Trump Plaza plans to shut down next month. And it will have company. The two-year old, twice-bankrupt, $2.4 billion Revel casino will also close after its owners failed to find a buyer, company officials announced Tuesday. As the saying goes, you don’t throw good money after bad.

Revel’s shutdown brings [Atlantic City's] losing streak to four properties that announced a closing this year. The Atlantic Club was taken out earlier this year and Showboat, owned by Caesars Entertainment, locks down at the end of the month. Through June, revenues at the casinos are down 6.3%, continuing a long-term trend. The city’s casinos brought in $2.86 billion last year compared with $5.2 billion in 2006.

Why is the boardwalk such a crap place nowadays? Precisely for the same reasons America as whole is: stagnant income = fewer gamblers with less money to gamble with. Add to this the proliferation of gaming industries in other states dreaming of cheap sources of revenue and it all adds up to...lots of red ink:

In Atlantic City, some of those displaced workers will be able to catch on at the city’s remaining seven casinos—who will no doubt see an uptick in business—but the losses and closures are indications that the runaway growth days of gaming are over. Any new casino built in the region—indeed, just about anywhere– will have to take business away from somebody else.

And that’s exactly what’s been happening to Atlantic City– a municipality that never blossomed into the revived seaside resort envisioned when New Jersey opened its first legalized casino in 1978. It has remained mostly a weekend gambling jaunt for many punters, and they have since found other places to play. Oddly enough, north of Atlantic City, from Asbury Park to Long Branch, Jersey’s casino-less shore towns have revitalized and grown, despite taking a hit from Hurricane Sandy.

For those interested in modern history, Atlantic City is still around to catch the few swirling motions left before America is fully flushed down the toilet of history. (I tired of the "dustbin of history" sometime ago. So sue me.)

Like America itself, Atlantic City was a good idea that's since lost its reason for existence.

Unlike China: India's Civil Approach to Territorial Disputes

♠ Posted by Emmanuel in China,India,Southeast Asia at 8/13/2014 01:30:00 AM

Civil sorts prefer going this route.

This Southeast Asian is rather tired of intrusions by would-be imperialists into our waters: China and the United States are similarly bullying presences, with the former coming more and more into the focus as the latter embarks on the road to nowhere fast. In the study of international relations, there is the so-called "power transition theory" which is frequently invoked to explain how Southeast Asia is being caught in the crossfire between these rival powers:

One by-product of differential growth is the high potential for conflict when a challenger [China] and a preeminent or dominant nation [the United States] reaches the stage of relative equivalence of power, and specifically when the challenger is dissatisfied with the status quo. Understanding the interaction of the structural and dynamic components of power transition theory provides a probabilistic tool by which to measure these changes, and to forecast likely events in future rounds of change.

The trouble with China with regard to the so-called South China Sea is that, having asserted time and again to its citizens that it is an inseparable part of China, moves to moderate its position and accommodate its smaller neighbors the Philippines and Vietnam will not likely happen. It cannot lose face. Nevermind that China does not respect international law--the law of the sea--but they've learned from the United States that might makes right since the US isn't even a signatory to this law. Imagine, however, an alternate parallel universe where China did not adapt inflexibly totalitarian positions on territorial questions. It may, in this case, be more like India. Recently, India coming into compliance with a ruling against it at the International Tribunal on the Law of the Sea (ITLOS) meant it giving in to Bangladesh--hardly a scary threat to it:

If good fences make good neighbors, that may explain why much of Asia’s recent territorial tension has centered on the ocean. India took a step toward tighter ties with Bangladesh this month in surrendering its four-decade claim to a swathe of the Bay of Bengal about the size of Lake Ontario, opting to heed a United Nations-backed ruling. Bangladesh praised its neighbor’s move, with the head of state-run oil monopoly Petrobangla saying the newfound clarity will unlock drilling opportunities.

Contrast India's example to our rather less accommodating neighbor:

The decision provides a contrast with China, which declines to acknowledge any UN jurisdiction in its dispute with the Philippines over maritime claims. The difference in approach shows why tensions are rising in the South China Sea as companies ramp up oil and gas investment in the Bay of Bengal. “This is a showcase judgment of how countries can reach an amicable agreement,” said S. Chandrasekharan, New Delhi-based director of the South Asia Analysis Group, referring to India and Bangladesh. “The South China Sea is a glaring example of how one intransigent country can hold up everything.”

I love that dig aimed at China. To be sure, China added exceptions to its ratification of the law of the sea precisely to avoid legal entanglements with the Philippines and Vietnam over the South China Sea. That said, its neo-imperialist intransigence does nothing for its soft power. To insist on a claim so expansive means that few could call it legitimate with a straight face given that historic grounds are not considered valid by the law of the sea. Meanwhile, here is another article on the ruling. The court's site has the particulars on the decision.

Let India show China the way.

Could Military Rule Work? Thai Junta & Phuket

♠ Posted by Emmanuel in Security,Southeast Asia,Travel at 8/12/2014 01:30:00 AM

Cleaning up paradise.

As a pragmatist, I am not wedded to ideas that "democracy" and "free markets" are necessarily the best solutions in all places at all times. If you want simplistic, crusader-grade pontification, there are many other places for you to visit. For a case in point, consider what was happening to Thailand's famous beach resorts during the years when the Thaksinite red shirts were in power: wiseguys were abusing the system, making private what was public for their own gain. With the ouster of sister Yingluck Shinawatra's regime through a military coup, Westerners were ostensibly aghast at this violation of civil rights. A military coup? How barbaric! Me, I prefer to dwell on outcomes rather than processes, so here it goes.

The truth is that the restoration of order has done much to help shore Thailand's tourism industry after the tumult of the pro-Thaksinite era. Consider is the world-famous beach destination of Phuket. The military junta--there is no point calling it something else--has cracked down on abuses in the resort that made it resemble an overcommercialized tourust trap overcrowded with vendors and others encroaching on the beachfront that is supposed ot be public space:

Raddled by allegations of corruption and mismanagement by inept authorities, the Thai holiday island of Phuket looked destined within a few years to have its once-beautiful beaches destroyed by the side-effects of mass tourism. Since the 2004 tsunami made Phuket even more of a household name around the world, tourism boosters have catered to sharply increasing numbers of visitors, with the island's overwhelmed infrastructure deteriorating rapidly...

Along the foreshores at many beaches, illegal businesses sprang up and grew. Beach clubs predominated, but a visitor could spend hours in a beauty salon on the sand or even buy a time-share property. A constant stream of vendors left tourists little time to snooze. Paradise was evaporating, if it hadn't already.

The military has begun putting these slackers in their place:

Today, all that is changing, due to the arrival of khaki and camouflage-clad soldiers. They tromped Patong, Phuket's main west coast beach, enforcing the message that the hedonistic days of lazing on sunbeds were at an end, along with the vendors' privateering ways. Sand was making a comeback.

Though many Western countries have condemned Thailand's latest coup, it may just have saved Phuket from further decay -- also producing some useful social outcomes for similarly troubled holiday destinations in other parts of the country. All beaches in Thailand are public space by law. The prohibition of private business operations on these public beaches is without exception, but has been ignored on Phuket and some other tourism destinations.

Locals are beginning to understand these guys mean business:

Phuket locals interpreted the concept of public beaches as meaning anyone could use them, so first they added sunbeds, then built thatch and bamboo bars on the shore fronts. Over the years, entrepreneurs joined in, expanding the venues into large restaurants and beachclubs. Some businesses grew to the water's edge. There was no enforcement by authorities to force them off the beach.

Once the army took charge, though, local mayor Ma-Ann Samran, of Cherng Talay, says he began receiving daily visits from officers in civilian clothes. He had no hesitation in admitting he eventually acted to save the beaches in his district out of fear. ''I was genuinely scared,'' Ma-Ann said. ''The Army let me know I had to act.''

After decades of local ''law'' being applied, the Army transformation came at great speed, within days of the May 22 coup. Graders toppled beach clubs and restaurants, while the sunbeds and umbrellas were carted off in pickup trucks, banned forever. Tourists on all Phuket beaches now sit on towels.

To be fair, it is true that the military junta has been more successful at restoring peace and order than generating economic growth. That said, providing a semblance of order is more likely a prerequisite for economic growth than chaos. So we'll see what happens, but tidying up the beaches is undoubtedly a step in the right direction.

China's Plan on Full Yuan Convertibility in 2015

♠ Posted by Emmanuel in China,Currencies at 8/11/2014 01:30:00 AM

Decisions made in this building shake the world.

It's kind of hard to relinquish on Stalinesque, iron-fisted control once you get used to it: Around 2011, PRC official sources made some noises giving tacit support to the idea that their currency the yuan (RMB) would be fully convertible by 2015. Through fits and starts the yuan has gradually appreciated since then, but now the People's Bank of China (PBOC) has come to an important fork in the road of monetary development: to become fully convertible or not? That is the question that needs to be resolved before 2015 rolls around.

Just like an anxious bride-to-be antsy about leaving the familiar past for an uncertain future, the PBOC is showing second thoughts about leaving behind a monetary system that has proven relatively stable during China's transition to becoming the world's second-largest economy:

China is quietly pushing back its loose timetable to make the yuan freely convertible, policy insiders say, as authorities fear removing capital controls too soon could unleash damaging speculative flows that will make it harder to reshape the economy.

There has never been a hard target date for a freely traded yuan, although the central bank had outlined a goal of making it 'basically convertible' by 2015. That rhetoric has been toned down recently, and now analysts are looking to 2020, a deadline implied by the government's reform agenda set out last November.

Heading off a sharp slowdown in growth and domestic reforms, such as fixing the fiscal system to rein in debt, overhauling banks and state conglomerates will be done first, according to economists at top government think-tanks and policy advisers.

"Opening up the capital account will be the last of reforms. We need to improve domestic financial markets and improve legal systems first," said an influential former central bank researcher who now works for the government. "That was the reason why other emerging markets were hit by speculators," said the researcher, who requested anonymity.

A slowing Chinese economy does not quite inspire confidence. Nor does the experience of premature liberalization a la the Southeast Asian nations prior to the 1997 Asian financial crisis. With speculative flows showing few signs of letting up, authorities fear a deluge of inflows that will hurt Chinese competitiveness in export markets:

While the yuan is already convertible under China's current account, the broadest measure of trade in goods and services, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing.

Nearly one-fifth of China's trade is now settled in yuan, up from less than 1 percent in 2009, when internationalisation was seen as a way for firms to reduce currency risks and also to challenge the U.S. dollar's role as the key reserve currency.

As the yuan is increasingly used in trade and investment, as well as in offshore yuan trading hubs, investors have sought to skirt capital controls by exploiting various loopholes - some of which could remain until the currency is fully liberalised.

The government keeps a tight grip on speculative flows, but under the yuan internationalisation scheme, firms can move their funds across the border via trade settlements. One method is to borrow funds cheaply overseas and move them into China to profit from China's higher interest rates and, at least until earlier this year, a view the yuan would steadily rise. The funds are later repatriated.

In other words, don't hold your breath waiting for full yuan convertibility in 2015...or 2016, 2017, 2018 and 2019 for that matter. 2020 is the more realistic target date, but still. Reuters has a video clip of this story as well.

Pity the Children: 'War on Drugs' Fuels Asylum Seekers

♠ Posted by Emmanuel in Latin America,Migration,Underground Economy at 8/10/2014 01:30:00 AM

This train of pain begins and ends in the United States.

I am not sure if there is a moral to recent events, but the number of children seeking asylum in the United States from gang warfare-torn countries El Salvador, Guatemala and Honduras has dropped in the last month. What to do with these young people has given rise to a fierce debate Stateside on an issue Obama would likely prefer not to deal with domestically at this point in time: immigration reform. With an ever-growing Latino population, the stakes are high for center-left politicians like him. Even so, the Tea Party brigade is hung up on antiquated notions of perpetuating white majority rule despite demographic trends showing they will be less than half the population by mid-century.

In the meantime, however, stricter enforcement coupled with disabusing would-be migrants of the delusional idea that the US was granting asylum have played their part in staunching arrivals. From the Arizona Republic:

The number of children and families apprehended by the Border Patrol in July crossing the U.S.-Mexican border illegally fell by more than half from June, according to Customs and Border Protection. The significant drop reverses the recent surge in unaccompanied children and families fleeing north from Central America, and analysts cited a combination of reasons including tougher anti-smuggling measures.

The decline is much sharper than the fall in overall Border Patrol apprehensions from June to July. And it is steeper than in past years — suggesting that it's not just hotter weather that is drying up the flow of migrants coming primarily from Honduras, Guatemala and El Salvador. "I don't think this is a seasonal shift," said Doris Meissner, a senior fellow at the Migration Policy Institute, a nonpartisan Washington think tank that deals with migration and refugee policies.

"I think it's a combination of factors: stepped up anti-smuggling efforts, the fact that Mexico is returning substantially larger numbers of people crossing their territory ... and the fact that the countries themselves have been making a huge effort to tell people that what the smugglers are saying is not true and that the journey is really dangerous," added Meissner, who served as a commissioner in the former U.S. Immigration and Naturalization Service.

Believe it or not, I do not enjoy bashing the United States for the heck of it. Given its far-reaching influence, however, it bears much culpability here. Why are there gang wars in these central American states that are driving young people to leave? Because the United States' admittedly failed "war on drugs" is causing violence to spread to its backyard. Why is demand so great for illegal drugs? Because United States residents (can't use "American" in this context) consume more of them than any other country on Earth:

The refugee crisis is now our problem, which is appropriate: The drug-linked violence that the children are fleeing is in large part our fault. Anti-drug policies in the U.S. and Europe have not succeeded in curbing drug use or in raising drug prices, but they have considerably increased crime and violence worldwide. It is time to shift the effort to focus on helping drug users at home rather than battling drugmakers and traffickers abroad...

Some in the U.S. may still consider the mission accomplished: at least we’ve sent the problem elsewhere. But if the point of banning domestic production was to reduce domestic consumption, the effort has been a miserable failure—with the side effect of 60,000 kids to care for. Because production can move to countries least able to control output and trade can flow through countries least able to control transport, even the most draconian attempts to reduce overseas supply to U.S. drug consumers have had a limited impact. The U.S.-backed Plan Colombia represented an immense effort to reduce cocaine production—the size of the country’s security forces expanded from 250,000 to 850,000 between 2003 and 2006. In response, farms became more productive, and production shifted to neighboring countries, more than offsetting the increase in drug seizures and coca plant destruction according to World Bank researchers. A U.S. inspector general report suggests attempts to wipe out poppy production in Afghanistan have been a similar failure.

The lure of the US market increases as even more regulations are put in place to combat drugs:

Efforts to control international trafficking–the transport of drugs from producers to drug sellers in the U.S.—have been a little more successful than efforts to control production. The spread between cocaine export prices in Colombia and import prices in Miami reflects a 2,100 percent markup (from about $1,000/kg to $23,000/kg). That associated potential profit margin is what helps fuel gang violence in Central America. But for all the violence of the drug wars in Mexico and Honduras, the big cost of drugs in the U.S. is still accounted for by domestic wholesale and retail distribution costs. The markup from wholesale to retail is about 700 percentnot too different from the markup for imported agricultural products in general. The drug war has considerably destabilized countries in Central and South America and cost tens of thousands of lives—and yet it hasn’t even worked to make drugs in the U.S. or Europe appreciably more difficult to obtain than legal imports.

Just as Prohibition-era gangsterism came to an end with legalizing alcohol, legalizing marijuana in the United States is long overdue to reduce incentives to smuggle drugs into the US for the chance at an exorbitant profit. In this case, the Yanks really should do so on behalf of the children who are victims of the trouble they inflict on neighboring countries.

Give them back the future your country took away, Barack.

USA vs Russia: Real Victims are the Chickens

♠ Posted by Emmanuel in Agriculture,Russia,Trade at 8/08/2014 01:30:00 AM

The victims we know so well / They shine in your eyes when they kiss and tell.

The main difficulty for the United States in applying trade sanctions against Russia is that, well, there is not really that much trade between them. The US doesn't buy significant amounts of oil and gas from Russia--its main lines of export. On the other hand, Russia usually reacts to these sanctions by halting imports of the major agricultural product it does import from the US. It's not consulting services, financial services, or the like. Instead, it's poultry as the real losers in this game of chicken are our fair feathered friends:

In response to U.S.-led sanctions against Russia, Moscow is banning imports of U.S. chicken. The order issued Wednesday is expected to block access to America’s third biggest poultry export market for a year. The ban comes after Washington and its European allies imposed targeted sanctions on Russia’s energy, banking and defense industries to punish Moscow for its support of separatists in neighboring Ukraine...Russia accounts for only 7% of American poultry exports today, down from 20% as recently as 2008 and 40% in the mid-1990s.

It is war by trade means...

The move has become something of a tradition every time relations between Moscow and Washington turn frosty.In 2008, Russia banned several American poultry producers over U.S. support of Georgia in the South Ossetia War. Moscow briefly imposed a broader ban in 2002 in response to U.S. steel tariffs. When former Russian President Boris N. Yeltsin sought reelection in 1996, Moscow blocked U.S. chicken to curry favor with domestic producers.

...as Russia also implements dubious safety regulations on American poultry when relations are strained:

Russian concerns over Western food safety practices often coincide with tense political relations. In 2010, the ban was a point of pride in Russia, eschewing the Soviet-era days of the early 1990s when the first Bush administration sent over American chicken as food aid. During the South Ossetia War in 2008, Russia blacklisted several American chicken producers over U.S. support for Georgia. And in 2002, when the U.S. raised steel tariffs for foreign trade, Russia stopped importing chickens from the U.S.

As mentioned above, the chickens take it on the cackles since they're the United States' only substantive exports to Russia:

Chicken is vulnerable because it’s one of the few things the U.S. sells to Russia. “It’s the damndest thing. When Putin came to visit the U.S., he and Obama were talking about nuclear proliferation one second and then poultry the next,” said Mike Cockrell, chief financial officer and treasurer for Sanderson Farms Inc., a Mississippi company that sends about 40,000 metric tons, or 2% of its total annual production, to Russia

We don’t want to lose them. They’re a good customer,” Cockrell said of Russia. “But if we do, the industry will find alternative markets. My guess is every company in the industry is calling to find those.”

So now we know the real victims when war drums sound in the background. Such fowl play is never welcome. In the immortal words of Culture Club: And I keep on telling you / Please don't do the things you do / When you do those things / Pull my puppet strings / I have the strangest void for you...