Re: Asian political parties

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Vietnam says US $700 Million Invested in Burma Since PM's Visit

Since a Vietnamese trade delegation led by the prime minister visited Burma several months ago, Vietnam has invested in 20 projects with a value of US $700 million.

That’s according to Vietnam’s ambassador to Burma, Chu Cong Phung, in a report saying Burma is “ripe” for investment because of continuing economic and political isolation by Western governments.
Burma “needs outside support for its economic development,” said Phung.

So far, Vietnam has invested in property, telecommunications, steel timber, fisheries and mining, said Phung, quoted by Vietnamese state media this week.

Much of the investment will be supported by Vietnam’s Bank for Investment and Development which is awaiting approval to operate inside Burma, Phung said.

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India’s Loans to Burma Total US $200 Million with Latest Deals

India is “lending” Burma US $70 million to pay for goods and services it must buy from Indian state firms.

The loans push the total borrow-and-buy deals between the two countries to more than $200 million in the last year, according to statements by India’s Ministry of External Affairs in the wake of a visit to India by Burmese junta leader Snr-Gen Than Shwe.

The Indian government controlled Export Import Bank will advance $10 million for Burma to buy agricultural machinery, and another $60 million for equipment to develop railway infrastructure and rolling stock, the ministry said.

However, analysts point out that with India there is often a long bureaucratic delay between promise and delivery.

“India signed an agreement with Burma two years ago to spend $100 million at least on a river transport and port improvement project in Arakan and Sittwe, but very little has happened since,” said Collin Reynolds, an energy industries analyst-consultant in Bangkok. “Both countries are saddled with stifling bureaucracies.”

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Indian Minister Says Funds Shortage Hinders Burma Links

India’s impoverished northeastern states will not be able to improve trade links with Burma unless the central government in New Delhi invests more money improving transport infrastructure, a top state officer said.

Manipur State in particular is suffering from an “extremely poor condition” of key road links, said its chief minister Ibobi Singh in a complaint to the New Delhi government this week.

The complaint, reported by the Imphal Free Press newspaper, comes as New Delhi promises tens of millions of dollars in and aid loans to Burma—supposedly to improve its connectivity to northeastern India.

“The main reason for the poor state of affairs is inadequate allocations of funds and lack of adequate manpower and equipment,” the paper quoted Singh as saying.

The poor state of the northeast was highlighted by Singh as the New Delhi government hosted Burma junta leader Snr-Gen Than Shwe and signed agreements to improve cross-border trade.

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Pakistan cancels talks in protest at Cameron remarks
By Andrew Woodcock, Press Association

Pakistan's intelligence agency cancelled planned talks with security experts in the UK in protest at David Cameron's claim that elements within the country were promoting the export of terror, it was reported today.

The cancelled trip is the most concrete indication so far of damage done to Anglo-Pakistani relations by Mr Cameron's comments, which sparked outrage in Islamabad when he made them during this week's trip to India.

It comes days ahead of a three-day visit to the UK by Pakistani President Asif Ali Zardari, during which he is expected to stay with Mr Cameron at his country retreat Chequers.

The Times reported that senior officers from Pakistan's Inter-Services Intelligence (ISI) had been due to come to London for talks on counter-terrorism co-operation with British security services.

But an ISI spokesman told the paper: "The visit has been cancelled in reaction to the comments made by the British Prime Minister against Pakistan."

Answering questions following a speech in India, Mr Cameron said he wanted to see "a strong, stable and democratic Pakistan", adding: "But we cannot tolerate in any sense the idea that this country is allowed to look both ways and is able, in any way, to promote the export of terror whether to India, whether to Afghanistan or to anywhere else in the world."

His comments triggered an angry response from Pakistani politicians, who pointed to the country's military offensive against militants on the frontier with Afghanistan and the many victims of terrorist bombs in Pakistan.

But he did not take advantage of several opportunities to scale down his rhetoric during subsequent press conferences and interviews before his return to the UK.

The ISI spokesman said: "Such irresponsible statements could affect our co-operation with Britain."

Pakistan is regarded by UK agencies as a key nation in the fight against terror, with a majority of plots against British targets believed to have links to the country. Former Prime Minister Gordon Brown said that 75% of terror plots under investigation in the UK were linked to Pakistan.

Neither Downing Street nor the Foreign Office would comment on the reported decision by the ISI not to visit the UK.

But officials said that Mr Zardari's visit to the UK was still expected to go ahead as planned.

"Our understanding is that the visit is on," said a Foreign Office spokeswoman.

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Representatives attend a reception hosted by the Ministry of National Defence of the People's Republic of China, to mark the 83rd anniversary of the founding of the People's Liberation Army, in Beijing, capital of China, July 31, 2010. (Xinhua/Li Gang)

China to enhance army's capabilities for national interest: defense minister

China's armed forces will continue to enhance its capabilities and military readiness to safeguard sovereignty, security and development of the nation, Defense Minister Liang Guanglie said Saturday.

Liang made the remarks while addressing a reception held in Beijing to mark the 83rd anniversary of the founding of the People's Liberation Army (PLA) on Aug. 1.

"We will continue to strengthen the PLA's capability to accomplish diversified military tasks, particularly for winning regional wars under informationized circumstances, to firmly safeguard national sovereignty, security and development," he said.

He said China's core security interest will always guide the development of the Chinese army.

He said the army should strengthen military training, adopt more high and new technology weapons and equipment, improve military logistics and increase combat capabilities by using information technology.

The PLA will actively take part in and support economic development, keep sabotage of hostile and separatist forces at bay, and contribute to the development and stability of the country, he said.

Liang, also a member of the Central Military Commission (CMC) and a state councilor, said the army will continue to devote itself to the country's complete reunification while promoting a peaceful development of relations between the Chinese mainland and Taiwan.

"We will continue to oppose separatist activities of 'Taiwan independence' forces, while firmly safeguarding national sovereignty, security and territorial integrity," Liang said.

"The PLA will enhance exchanges and cooperation with armed forces of all countries, in accordance with the principles of mutual respect, equal negotiation, and reciprocity," he said.

"The Chinese army will also actively fulfill international responsibilities and obligations, and will contribute to the world peace and development," Liang said.

In August 1927, armed forces led by the Communist Party of China held an uprising against warlords. The first day of August was later designated as the PLA's founding day.

Source: Xinhua

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China and Rio Tinto complete Guinea mining deal

Chinalco will invest $1.35bn in the Simandou project

Mining giant Rio Tinto has completed a deal with Chinese firm Chalco to enter a joint venture in West Africa.

The agreement follows a memorandum of understanding between Rio and Chalco's parent company Chinalco in March.

The venture will develop Rio's Simandou iron ore project in Guinea.

Rio's ties with Beijing became strained when four of its workers in China were arrested last year, suspected of commercial espionage and taking bribes. They were convicted in March 2010.

And in June last year, Rio disappointed the Chinese firm by pulling out of a proposed joint venture in favour of a tie-up with rival BHP Billiton.'Important deal'

"Developing our relationship and business links with China is a key priority for Rio Tinto. This agreement takes our relationship with China and our largest shareholder Chinalco to a new level," said Rio chairman Jan du Plessis.

James Bevan at CCLA Investment Management agreed. He told the BBC: "This is a really important deal for Rio. It will heal some of the damage in its relationship with China."

Chinalco, which has a 9% stake in Rio, will invest $1.35bn (£860m) in the Simandou project.
Chinalco president Xiong Weiping said: "This project can also efficiently balance China's need for security on the global iron ore market.

"We expect the two sides will regard co-operation on the Simandou project to be the foundation for further pushing forward the co-operation of the two companies in other resource projects."
He said he hoped it would help Guinea, too.

"We believe the successful development of the Simandou project will greatly quicken the pace of local infrastructure construction and economic development," Mr Xiong Weiping said.

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Indian expert: China plays crucial role in economic recovery

China has spurred economic growth after the financial crisis and played an active role in promoting balanced growth in the world economy, said Manoranjan Mohanty, director of Institute of China Studies in New Delhi, India during an interview with People's Daily.

Mohanty earned his doctorate at the University of California Berkeley and has researched the theoretical and empirical aspects of the development experiences of India and China.

Mohanty said that the role China has played in world economic recovery could be summarized in three points.

First, China actively took part in cooperation under the framework of G20, safeguarded the common interests of the developing nations and contributed to world economic recovery.

Second, China expanded its domestic market and stimulated domestic demand. Since the beginning of this year, China witnessed a large increase in imports, a sharp decline in trade surplus and led the world in economic growth.

Third, China actively participated in multi-lateral cooperation under BRIC, the platform for cooperation of the world's biggest emerging economies of Brazil, Russia, India and China. It collaborated with member countries in boosting global economic recovery, maintaining world economic balance and supporting sustainable development.

As to the root of the global contraction, Mohanty said the crisis originated in the western hemisphere, which proved the failure of neo-liberalism. When the industrialized nations were suffering from high unemployment and weak economic recovery, countries like China and India successfully bottomed out and maintained rapid economic growth.

Facts proved that the unrestrained free market economy could not solve the world's problems, Mohanty added.

Author: Liao Zhengjun People’s Daily, August 2, 2010 Translator: Zhang Xinyi

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A new paradigm for thinking about China’s economy

Author: Peter Drysdale

Just as policy makers in Washington and Beijing are settling in for a new round in the dogfight over appreciation of the Chinese currency, the renminbi, Ross Garnaut argues in the lead essay this week that there are clear signs that the way in which we view the Chinese economy needs to change fundamentally.

The Chinese economy is facing a major turning point — or a turning ‘period’ as he calls it— through which the way in which the economy operates will change dramatically, requiring a new approach to economic policy strategies in China, and leading to a very different set of interactions with the global economy from those which have characterised the period of rapid low wage-driven, export-oriented industrialisation over the last 20 or 30 years.

In the early stages of growth, economies like that of China, can grow with remarkable speed by applying well established technologies and capital to seemingly unlimited supplies of labour without substantial pressure on wage costs. There comes a turning point, as Arthur Lewis called it, when that phase of development comes to an end and long term wage pressures come to dominate the way the economy works. This may take a while in a large economy like that of China —hence Garnaut’s talk of a ‘turning period’ rather than a ‘turning point’ — but once the process starts there are big ramifications for everything about the way in which the economy works and how it is managed at home and abroad. The work on the Chinese economy organised around the ANU’s China Update every year provides more and more confident evidence that China’s turning point is under way.

Garnaut highlights four major implications.

First, we’ll see large and continuing increases in real wages and in the wage share of income. The rise in the wage share of income will also be reflected in a growing share of consumption in expenditure and a reduction in the national savings rate.

Second, China’s savings rate is likely to fall more than its investment rate and therefore cut the trade and current account surplus. This will ease US and international pressures over payments imbalances and exchange rates. The impact effect might alleviate balance of payments problems for America but the complication is that reduced Chinese surpluses will cut the supply of international savings, thereby put upward pressure on interest rates and require the United States to get serious about balancing its domestic expenditures and public debt.

Third, China will shift its trade competitiveness away from labour-intensive goods to a whole range of new, more diverse goods that use more capital and technology to produce. So the nature of Chinese competition in the international market will change significantly.

Fourth, although they might try, the Chinese authorities will ultimately be unable to resist substantial appreciation of the currency, a development that will ameliorate growing inequalities as well as macro-economic policy management in China. In the process, labour and other factors will become more productive.

Garnaut concludes that whether or not China succeeds in maintaining the high aggregate rates of economic growth it has enjoyed so far until it reaches the frontiers of the world economy, most of us will be surprised by how quickly China catches up with industrial countries now that we are at this turning point. China’s real exchange rate will rise rapidly — whether that occurs through inflation, nominal exchange rate appreciation or a combination of the two. The value of China’s output when measured in the national accounts and converted into international currency at current exchange rates, he says, will converge towards the much higher ‘purchasing power’ estimates of GDP. People in China and abroad who focus on conventional measures of national output will find that China catches up with the world’s most productive economies in output per person — and with the United States in total output — much more quickly than they had been expecting from extrapolation of differentials in national growth rates.

And that’s another challenge altogether for the political psychology of managing the adjustment in the rest of the world to China’s rising economic power.

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Africa Might Ditch Asian Rice if Prices Increase
By MIRIAM MANNAK / IPS WRITER

CAPE TOWN — Thailand and other major rice exporting countries are at risk of losing Africa as an important trading partner if they raise their rice prices. Half of the 10 million tons of rice exported by Thailand last year went to Africa. Nigeria, Benin, Cote d’Ivoire and South Africa were among the main buyers of rice in Africa.

"Some Asian governments are considering raising rice prices, mainly in support of their farmers. In Thailand for instance, 80 percent of the population works in agriculture and they therefore form the bulk of the government’s voters," says Mozambican-born Miguel Lima, a trading director working for SeaRice Limited.

This Swiss company specialises in exporting rice. Lima has been working in the African rice business for the past 25 years.

Earlier this year, the main farmers’ association of Thailand—after China the world’s biggest rice producer and exporter—asked the government to intervene to increase the price of this crop.

The motivation behind the association’s request was the drop in the price of rice over the past few months. Reasons for this include that foreign buyers postpone purchases in expectation of further price cuts.

African countries purchased 1.4 million tons of Thai rice over the first five months of this year, figures by Thailand’s government show. Over the same period last year, this amount came close to two million tons. The decline in export volume led to a price decrease.

Thai farmers fear that without government intervention the price will drop further.

"The problem with increasing prices, which came down after they skyrocketed in 2007 and 2008, is that rice-producing countries are forgetting about their most important buyers, which are African countries," Lima argues.

"In general people in Africa simply do not have a lot of money to spend," he adds.

"I agree that farmers should earn a decent living, but one should not push the boundaries too far. African consumers will back off if rice becomes too expensive. They will look for other staple foods. That will destroy the market."

According to the Food and Agricultural Organisation (FAO), the average world prices for rice rose by 217 percent between 2006 and 2008. In 2008 rice was 80 percent more expensive, compared to 2007. The price hit a record 1,038 dollars per metric ton in May that year.

Although prices have since come down, uncertainty remains.

One of the problems, Lima noted, is that once someone has changed from rice to another staple food, like millet or cassava, there is usually no turning back.

This is the case "not only because changing these patterns takes a lot of effort, but also because farming and buying grains like millet is a lot cheaper. If people realise this, they usually will not go back to a more expensive staple food."

Moses Adewuyi, director of agro-processing at Nigeria’s ministry of agriculture and rural development, agrees with Lima’s statements.

"If prices should increase like they did in 2007 and 2008, Nigerian consumers will switch to other staple foods such as cassava, maize, millet, plantain, beans, and yam.

"Nigeria, like other African countries, has plenty of staple foods that are a good substitute for rice if the latter becomes too expensive for the consumer," he says.

"Last year, prices came down in my country," Adewuyi continues. "Today, consumers pay approximately 450 dollars per 50kg bag. In the 2007/2008 financial year, the same bag cost up to 900 dollars. We cannot have history repeat itself."

One of the ways in which Nigeria—an importer of two million tons of rice per annum, of which the bulk comes from Thailand—wants to gear itself against new price hikes is to develop the local rice industry.

Adewuyi told IPS: "We, the government, are planning to increase production so that we are less dependent on the Far East in case Thai rice becomes too expensive."

Nigeria is Africa’s largest consumer of rice as well as the continent’s main grower of the crop.

"We produce 2.1 millions tons of milled or white rice a year and 4.2 million tons of paddy or unprocessed rice that has not been milled," Adewuyi explains.

"We want to increase our output and the quality of our processing plants. I think other governments of African rice-growing countries should do the same."

Duong Phuong Thao, trade officer at Vietnam’s department of export and import, defends the call of Asian farmers for government intervention when it comes to the rice price.

Vietnam produces 24.3 million tons of rice per annum, of which approximately eight million tons is exported. About 30 percent of these exports go to Africa.

"Vietnamese farmers currently sell their rice below the cost price, and that is not sustainable for them. We need to think about our farmers too."

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Economic and political transition in China and Indonesia
Author: Sherry Tao Kong, ANU

China and Indonesia are two of the world’s largest countries. Combined, they account for nearly 30 per cent of the developing world population. Surprisingly few studies have put them side by side, even though these two Asian giants share comparable political and economic growth experiences over the past 60 years.

The initial conditions of China and Indonesia can be described as those of underdeveloped agrarian economies.

At the founding of both republics, each had political institutions dominated by their respective charismatic leaders, Sukarno in Indonesia and Mao in China. The rule of each of these leaders ended in economic disasters where development was severely set back. In the aftermath, both countries embarked on a journey striving for economic prosperity. As a result, both economies subsequently experienced decades-long rapid economic growth combined with deepening integration into the global economy.

Up to this point, the two countries shared remarkable similarities in their economic and political development. The Asian financial crisis in 1997-1998 changed Indonesia’s economic and political landscape virtually overnight. Indonesia was one of the worst casualties of the krismon (monetary crisis), and the resultant economic disaster severely damaged the legitimacy of the New Order regime, eventually triggering President Suharto’s political demise. This in turn catalysed a swift transition in Indonesia characterised by deep political and economic decentralisation. During the 10 years since this ‘big-bang’ reform occurred, Indonesia has displayed modest yet positive economic growth, dealt with major separatist movements, and established arguably the most democratic state in the region.

China, by contrast, was much less affected by the Asian financial crisis. It kept its economic development in the fast lane with an average annual growth of 10 per cent and maintained a seemingly unchanged political landscape. Yet China too has unmistakeably become less authoritarian over the past two decades. To an increasing extent, the government delegated responsibilities previously exclusive to central or provincial governments to other economic and social actors. In the absence of fundamental change to its political structure, China’s political institutions have evolved into what is often referred to as ‘fragmented authoritarianism’.

Against this backdrop of hard-earned optimism, both countries are pursuing their long-term development goals.

The Indonesian economy is driven significantly by domestic consumption, which arguably sheltered Indonesia from unfavourable external shocks during the recent global financial crisis. In the long run, Indonesia aims to be better integrated into regional production networks and the global economy. However, some of its long-identified impediments to development, such as infrastructure deficiency and pervasive corruption, remain to be addressed. To assess these economic challenges, one needs to view them in the context of politics and institutions.

As democracy deepened, political strife in Indonesia shifted up a gear, bringing political contests into the open. Two major events occupied the Indonesian domestic political stage over the past 12 months, the KPK (Corruption Eradication Commission) saga, and the case of Bank Century. The KPK affair eventually ended with the final clearing of two troubled KPK senior officials. The Bank Century case cost Indonesia a very capable finance minister and resulted in the regrettable departure of a number of key macroeconomists.

What does this suggest about Indonesia’s reform path? The Bank Century case may be seen as the somewhat understandable outcome of the fact that the government is still a so-called ‘rainbow coalition’ and that President Yudhoyono’s Democrat Party remains as a minority in the lower house of parliament. This case alone does not suggest that the anti-reform block is winning an upper hand over the liberal technocrats. Nevertheless, the loss of a champion of reform in the Indonesian Finance Minister, as well as disappointment in the extent of President’s compromise, must necessarily cast some doubt over Indonesia’s reform agenda.

A further consequence of democratisation and decentralisation, Pemakaran daerah, the proliferation of jurisdiction, has emerged as an additional concern for Indonesia. Between 1999 and 2009, more than 200 new autonomous jurisdictions were established. The staggering number of new jurisdictions has yet to deliver the intended purpose of responding to heterogeneous needs and aspirations across different localities. Instead, electoral financing, local capture and inadequate capability may have undermined local political and economic authorities and even raised doubts over the motivations behind the formation of new jurisdiction.

Democratisation and decentralisation can be messy, since the process necessarily involves bringing in together diverse and often conflicting interests and agendas.

Indonesia will likely go through a long and complex process before the current political institutional setting grows into a fully-fledged democracy. But Indonesia’s decentralised democracy as a political system must deliver economic prosperity in order to ensure its legitimacy. The question remains as to how to unleash the power of checks and balances of a democratic system and ensure the accountability of those in positions of authority.

China faces similar development issues. Rapid urbanisation, limited social protection and widening internal social-economic disparities are but a few of the most pressing concerns that need to be addressed. China must juggle the often conflicting organisational and political interests of various vertical agencies and spatial regions. On the one hand, the party-state system exhibits much liveliness and continues to attract well-educated members of younger generations into its apparatus, resembling a powerful meritocracy. In addition, the public sectors have been engaged in wide-ranging reforms, from improvements in social welfare policies and fiscal rules to the introduction of performance-based measures to govern the promotion of civil servants.

On the other hand, China faces growing unresolved grievances caused by issues such as misappropriation of private property, rampant corruption and widening inequality. Even official statistics indicate a ten-fold increase in the occurrence of social unrest between 1993 and 2005 (reaching 87, 000 per year by 2005). The government appears to be struggling to respond to the public’s increasing demands for governance quality and accountability. The recent case of the outspoken chief editor of Caijing Magazine, who resigned with a large number of her fellow journalists, serves as a testimony of the self-censorship enforced by the authority. But the public’s discontent is more expressed in the hope that it can be addressed within the current system rather than a plea for anything other than the status quo.

Keenly aware of the potentially prohibitively high costs and uncertainty of the success of a democratisation process, the Chinese government seems to advocate a measured approach towards political reform. The mixed signals suggest that the government envisions a future that shares elements of contemporary Western-style democracies but remains distinctively Chinese. But the question remains whether, in the absence of democratic checks and balances, the government will be able to maintain legitimacy in the eyes of its people by achieving economic prosperity and improving social justice.

How will these two countries evolve economically and politically? The questions that both face highlight the similarity of the fundamental challenges confronting the Chinese and Indonesian governments, and contrast their respective choices and associated risks. Economic progress is the objective China and Indonesia share. In each case, however, the political and institutional evolution ahead involves a degree of danger. Pushing forward a political and institutional reform agenda might awaken popular demand for a more accountable and effective government, yet too fast a political reform may be deemed to be politically unviable. To achieve an improvement in living standards for the majority of people, each country needs to devise its own strategy that is compatible with the prevailing political and institutional context. Given time, economic performance feeds back to politics and institutions, and thus completes the circle of co-evolution of economic development and political institutions.

Sherry Tao Kong is a Research Fellowwith The Rural-Urban Migration in China and Indonesia Project (RUMiCI) in the Economics Program of the Research School of Social Sciences, ANU.

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Asian Stock Markets Drop as China Imports Slow

BANGKOK — Asian markets slid Tuesday on signs China's economy continues to slow and ahead of a Federal Reserve meeting that may bring new measures to prop up sputtering US growth.

Shanghai stocks led the retreat in Asia after China's July trade figures showed a big drop in the growth rate for imports—an indication that rapid expansion in the world's No. 3 economy is cooling.

Beijing has clamped down on a boom in bank lending and construction, denting demand for raw materials like iron ore and other commodities from overseas. Economic growth slowed from the first quarter's 11.9 percent to 10.3 percent in the second quarter.

The import figures dampened sentiment across the region, dragging most markets into the red. Weakness in China's demand for imports could dent its ability to help to drive a global recovery amid Europe's debt crisis and slack sales elsewhere.

Investors are also waiting for the outcome later Tuesday of the US Federal Reserve's policy meeting.

The central bank is expected to keep interest rates unchanged at a record-low level and investors are speculating it will announce new quantative easing measures—market jargon for pumping more money into the economy—to reinvigorate a sputtering recovery.

"Whether Fed policymakers oblige the markets or not only time will tell. Though the markets may welcome such a move, it will only confirm that the US has hit a soft patch. And that will not be good news," investment house India Infoline said in a report.

The Shanghai Composite Index tumbled 54.15 points, or 2.1 percent, to 2,618.38 after the government announced growth in imports for July slowed to 22.7 percent from 53 percent in June. Exports, meanwhile, continued to grow strongly. Other figures showed house prices steadying after big increases and cars sales weakening.

A strong yen hurt shares of Japanese exporters, with the Nikkei 225 stock average off 39.69, or 0.4 percent, at 9,532.80.

South Korea's Kospi shed 0.6 percent to 1,780.19, Australia's S&P/ASX 200 dropped 1.1 percent to 4,544.60 and Hong Kong's Hang Seng retreated 1 percent to 21,580.59.

Markets in Taiwan, India, Singapore and Indonesia also fell while benchmarks in the Philippines and Malaysia rose.

Shares ended higher overnight on Wall Street, but volume was low as investors awaited the Fed's assessment of the US economy and any plans to resume stimulus measures.

In the US on Monday, the Dow Jones industrial average ended 0.4 percent higher at 10,698.75. The broader Standard & Poor's 500 index gained 0.6 percent to 1,127.79.

In currencies, the dollar slipped to 85.88 yen from 85.92 yen in New York late Monday. The euro dropped to $1.3152 from $1.3215.

Benchmark crude for September delivery was down 48 cents at $81 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 78 cents to settle at $81.48 on Monday.

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How the US plays into the East Asia Summit for ASEAN

Author: Pavin Chachavalpongpun, ISEAS

Members of the Association of Southeast Asian Nations (ASEAN) have agreed to invite the United States and Russia to participate in the region-wide forum, the East Asia Summit (EAS), which encompasses ASEAN plust six: Japan, China, South Korea, Australia, New Zealand and India. The invitation immediately met with a favourable response from Kurt Campbell, US Assistant Secretary of State for East Asia and the Pacific, emphasising the US’s renewed interest in its relations with Southeast Asia.

It is generally believed US’s participation will minimise China’s increasing domination of the EAS. Long years of US disengagement with ASEAN, particularly during the Bush administration, allowed China to take a leading role in ASEAN-led regional platforms. This situation coincided with the rise of China, both economically and militarily.

Over the years, China worked to erase its image as a threat. The popular catchphrase ‘China’s peaceful rise’ is frequently heard as Beijing does business with its Southeast Asian neighbours. But the territorial disputes in the South China Sea have effectively spoiled this peace-loving image. The US’s reengagement with the region, through EAS, could be employed to counterbalance China’s military might. In other words, the US is needed and is urged to resume its Cold War role as a security guarantor for countries in Southeast Asia.

And what does China really think about the US’s admission into the EAS? Madam Xue Hanqin, China’s Ambassador to ASEAN, once provocatively asked, ‘Why do many Southeast Asians talk about the US’s reengagement with ASEAN when in fact the US has never actually left the region?’ Despite her sarcasm, China has at times signalled that it also wanted the United States ‘to be around’ in the region, particularly to ensure that Japan remains ‘demilitarised’. Bitter history and mutual distrust remain forceful elements in Northeast Asian international politics.

ASEAN has until recently been scarily aware of emerging concepts of regional architectures and feared its relevance could be diminished. Japan’s idea of East Asia Community (EAC) and Australia’s Asia-Pacific Community (APC) posed a serious threat to the very existence of ASEAN. Would ASEAN lose its competitiveness in a world replete with new regional organisations?

Former Australian Prime Minister Kevin Rudd’s initiative of the APC threatened to lessen ASEAN influence.. In retaliation, the group was willing to go to the extra mile to question the APC concept, including employing regional media to rebuke Rudd’s idea of disintegrating the region, rather than integrating it.

Hence, the invitation extended to the United States to attend the EAS can be perceived as a part of ASEAN’s plot to retain its centric role in Southeast Asia and beyond. ASEAN recognises the Obama administration has shifted its policy toward Southeast Asia. ‘ASEAN is the most successful regional forum in Southeast Asia and it provides a legitimate channel for the United States to play its role’, said one ASEAN diplomat.

Not all members of the EAS are ecstatic about the admission of the United States. Myanmar for one is not too keen about having the United States around in the region. True, Washington has re-modified its position vis-à-vis Naypyidaw. But US sanctions have not been dismantled. The US government has been critical of the upcoming election in Myanmar which it considered a charade. Some ASEAN members are trying to downplay Myanmar’s discontentment of the US’s involvement in EAS, offering a more upbeat outlook, claiming the EAS could be used as an extra avenue for Washington and Naypyidaw to ‘get to know’ each other better.

Overall, the US membership of the EAS serves to fulfil ASEAN’s fundamental objectives, both to engage with outside powers and to strengthen its position as the core organisation in Southeast Asia. For Washington, its involvement in the EAS will not be merely symbolic, but may assist in transforming ASEAN from a known talk-shop, as often described by its critics, to a substance-based forum.

Pavin Chachavalpongpun is a Fellow and a Lead Researcher for Political and Strategic Affairs at the ASEAN Studies Centre, Institute of Southeast Asian Studies, Singapore.

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China’s steel and resource demand likely to remain strong, for now

Authors: Huw McKay, Yu Sheng and Ligang Song, ANU

China’s increasing demand for resources has been a key feature of the global landscape over the last decade. Despite its now dominant position in many spheres of the resources market, China’s per capita consumption of resources is still relatively low, consistent with its low income status. The path that China’s takes from here will have profound implications for the global demand and supply balance.

Will China continue to follow a path similar to Korea, will it eventually look more like Japan, a resource-intensive high-income economy, or will it transition to a resting place similar to that of Western Europe and the United States? These are questions of both practical and theoretical interest.

Linking resource demand and economic development

Our analysis these questions extends previous work that attempted to codify a robust relationship between metal demand and economic development. Our predeccessors in the field focused on the ‘intensity of use’ curve, an upside down U shape in metal use per unit of output and income per capita space. We choose to shift the focus to per capita scaling, placing metal use per head beside other aggregate development indicators. In fact, we have recast the issue in the terms used by the famous economists. Kuznets: we are interested in the Kuznets Curve for Steel (the KCS).

To measure metal demand, we take the variable of total crude steel consumption. To measure economic development, we use the variables of GDP, investment (defined as gross fixed capital formation), electricity use, private automobile ownership, openness to trade (defined as exports plus imports over GDP, scaled by GDP), and urbanisation rates (the percentage of urban residents in the total population).

Moving beyond a simple framework of extrapolation utilising only cross sections or short time series of GDP per capita, we use a variety of development variables, to analyse steel production and consumption in 14 countries and regions between 1890 and 2008. This analysis establishes a clear relationship between metal demand and economic development that is shaped like an upside down U through time: this is the KCS.

Patterns of demand

The historical record shows a clear similarity in terms of the pattern of rising steel output per capita for the United States from the mid 1930s to the end of the Korean War, and for Canada, Europe and the CIS from the 1950s to the 1970s.

The experience of Japan from the early 1950s to the 1970s and Korea from the early 1970s to the present day, and China since 2000, are also quite similar to each other, but exhibit a much greater amplitude than the western experience. Japan and Korea’s levels of per capita steel production have reached a point much higher than that reached by other industrialised countries. In fact, these levels are unprecedented in the Western history of industrialisation. In the case of Japan, the phase of acceleration lasted for about 20 years (1950 to 1970), while the path has been more protracted for Korea at almost 40 years and still counting.

What does this mean for China’s future trajectory?

China has defined its own trajectory to form a unique economic history. Its future will also be distinctive.

In China during the past three decades, investment, resource demand and openness to trade have all expanded at rapid rates. Urbanisation has also been increasing, but at a slower rate. These factors will contribute to the future course of income per capita and, combined with technological progress and changing consumption preferences, will determine steel consumption per capita and demand for other resources.

Unlike the countries in our historical sample, China will have to face the challenges of global imbalances, climate change and the ageing society. Indeed, no currently wealthy country had to deal with such an unpropitious global environmental backdrop. The imperative for China to pursue resource saving technological change in the future is greater than that of any of the individual economies in our sample.

A cautious projection.

Chinese GDP per capita grew at a compound rate of 7 per cent between 1980 and 2008. Extrapolating current growth rates in urbanisation plus investment and trade propensity, our framework produces the result that peak demand for steel will be reached when China’s GDP per capita level is US$15,449. If China continues on its post-1980 trajectory of 7 per cent compound growth, China would reach this point during 2024.

In 2008, China’s level of per capita income was US$5,449. Hence, per capita income must almost triple before peak steel intensity is attained. Even if the somewhat faster post-1990 pace of 7.8 per cent is used (a rate consistent with GDP per capita more than doubling each decade) then the peak is reached three years earlier.

Based on this projection, in per capita terms, China’s demand for steel will be higher than the peak level reached in the West, but lower than the peaks seen in Japan, Korea and Taiwan. China is unlikely to continue to closely follow the Korean path once it moves deeper into middle-income status, because it will be compelled to alter its mode of economic growth. China’s final path is likely to emulate certain aspects of the experience of North America (building a continental economy), Japan (a large trading economy) and emerging Asia, rather than faithfully following the historical course forged by any single country.

In sum, China’s impact on the global resources demand/supply balance will be profound. The world should plan for a time when upwards of 700kgs of steel are produced per Chinese citizen. Such is China’s scale, and even assuming environmentally positive structural change, its development promises to generate a second global Kuznets Curve for Steel that is still more than a decade from its turning point.

Huw McKay is Senior International Economist at Westpac Banking Corporation. Yu Sheng is Principal Economist, Productivity Section, Productivity, Water and Fisheries Branch Australian Bureau of Agricultural and Resource Economics (ABARE). Ligang Song is Associate Professor and Director of the China Economy Program at the Crawford School of Economics and Government, Australian National University.

[sunny]

Avoiding economic crashes on China’s road to prosperity
Author: Wing Thye Woo, University of California at Davis

China’s economy during the past three decades can be likened to a speeding car. The CCP leadership in 2006 saw that the car could crash in the future because there were several high-probability failures that might occur and cause economic collapse. There are three classes of failures that could occur: hardware failure, software failure and power supply failure.

A hardware failure refers to the breakdown of an economic mechanism—a development that is analogous to the collapse of the chassis of a car. In China, probable hardware failures include a banking crisis that causes a credit crunch, a budget crisis that necessitates reductions in important infrastructure and social expenditure (and possibly generates high inflation and balance-of-payments difficulties as well) and a serious slowdown in productivity growth from the accumulation of micro-inefficiencies created by state intervention.

A software failure refers to a flaw in governance that creates frequent widespread social disorders, disrupting economy-wide production and discouraging private investment. This situation is similar to a car crash resulting from a fight among the people inside the speeding car. Software failures could come from the present high-growth strategy producing inequality and corruption, which in turn may generate severe social unrest, and from the State not being responsive enough to rising social expectations, which may cause social and economic disorder.

A power supply failure refers to the economy being unable to move forward because it hits either a natural limit or an externally imposed limit—a situation that is akin to the car running out of fuel (a natural limit) or into a roadblock erected by foreigners (an externally imposed constraint). Examples of power supply failures are an environmental collapse and a collapse in China’s exports because of a trade war.

The probabilities of either a software failure or a power supply failure are higher than the probability of a hardware failure. This is because the first two are harder problems to deal with. For most hardware problems, China can learn from the experiences of the rest of the world, especially those of the richer countries in East Asia, as long as ideological constraints on methods of economic management continue to wither. The 1868 insight of the Meiji reformists that success in economic catch-up largely involves a willingness to adopt and adapt to ‘best international practices’ will continue to apply to China until its per capita GDP converges with that of Japan and Western Europe.

Dealing with software failure is harder than dealing with hardware failure for two major reasons. The first is that development policymaking in China has become more challenging because popular expectations of administrative performance have risen dramatically with income growth and, more importantly, with increasing knowledge of the outside world. A Chinese government that consistently fails to produce results in line with the rise in social expectations runs the increasing risk of being challenged by internal factions within the CCP, culminating in an open split, with each side seeking the support of non-party groups.

The second reason is that successful reconfiguration of the administrative software requires not just highly developed political skills but favourable circumstances in the domestic political arena and a benign international environment—both of which are normally beyond the reach of most politicians. What happens in the future will depend on whether the CCP is sufficiently confident and politically skilful enough to lead the democratic transition and emerge afterwards as the most important political force. History tells us that the French and British monarchies reacted very differently to popular requests for reform of the administrative software—and the outcomes were very different in each case. The practical issue is whether the CCP can do a better job in political transition than the Kuomintang did in Taiwan during the period 1983–88.

Dealing with power supply problems is much harder than dealing with hardware problems. This is because power supply problems are often issues of which the world has few (mostly, no) successful experiences, (for example, a global carbon dioxide emission pact) or it involves powerful foreign partners where differentiation between well-meaning cultural misunderstanding and unstated national rivalry is not easy. Sometimes, it involves working with both of these difficult conditions. In addition, most solutions to power supply failures require a mobilisation of international effort—which China has historically been too weak to participate in meaningfully.

China and the other major powers will need to have a similar opinion of China’s responsibilities in the world economy before there can be significant cooperation on common problems. China’s economy has now become an important shaping force of the global economy and, Chinese civil society has come to possess more and more of the middle-class aspirations common in the industrialised world. China’s continued high growth now necessitates a new development strategy that also emphasises the creation of a harmonious society and a harmonious world—and this will require an improvement in its administrative software and in its contributions to the protection of the global environmental commons and of global security.

Wing Thye Woo is Professor of Economics at the University of California at Davis. He is also a non-resident Senior Fellow in the, Foreign Policy and Global Economy and Development programs at the Brookings Institution.

[hacksecrets]

Russia in Asia and the Pacific

Author: Georgy Toloraya, CSCAP, Russia

The Asia Pacific is a global region of primary significance. It is imperative that Russia grasps this fact, and lays out a comprehensive vision for its role in the region. If Russia can do this, it can greatly advance the cause of developing effective arrangements in the region.

What are the key elements of the economic, political and security situation in the Asia-Pacific region?

The region (including North America) accounts for the largest portion of world output. And globalisation has intensified economic interdependence and forced a convergence of states’ interests, which has in turn led to increased regional stability.
Although the Asia-Pacific remains economically heterogeneous, it weathered the global financial crisis better than other parts of the world.

The Asia-Pacific is diverse politically. Yet most nations have synthesised certain democratic principles drawn primarily from the Anglo-American tradition with their own particular political culture. For example, the Westminster parliamentary model coexists with the caste system in India, while in Sri Lanka the Buddhist state coexists with democracy.

The Asia-Pacific is also a region with several potential flashpoints for conflict. Defence spending within the region has grown, and so too has the military maneuvering associated with it. The Korean peninsula continues to be a source of instability, and the Afghan war is a constant threat hanging over South Asia. And the threat of bi-polar conflict between the US and China is palpable.

Russia is not often seen as a Euro-Pacific country. But both geographically and culturally, it can potentially act as a bridge between the Asia-Pacific region and Europe.

If Russia acts as an Asia-Pacific country and engages with existing Asia-Pacific regional organisations, a number of strategic benefits will result.

Consider the problem of regional organisations.

The Asia-Pacific plays host to a number of regional forums. ASEAN, ASEAN+3, APEC, and, to a lesser extent, ASEAN+6, are all organisations designed to foster regional cooperation. But for the most part, these organisations deal in economic integration. They do not deal with security imperatives. And these organisations can hardly be called a fully-fledged regional architecture. Rather, the region has a plethora of multi-member institutions at different stages of development, divided and heterogeneous by nature, objectives and composition.

What can Russia offer?

For a start, it can offer the Asia-Pacific region a more complete concept of regional architecture and Russia’s role in it, developed around its Chairmanship of the APEC summit in Vladivostock in 2012. If Russia takes the initiative then, it might contribute to tidying up the currently untidiness in regional architecture.

Russia’s proposal could involve all of the Asia-Pacific states, use existing and network diplomacy as organisational groundwork, helping to lay the foundation for the creation of a regional community. In addition, the current security framework, which places the US as putative head of the region, is not working. By virtue of its position as a large, non-aligned Asian nation, Russia’s vision can attempt to lay the foundations for a more inclusive, Asia-based security framework.

Almost half of the G20 are Asia-Pacific countries: Australia, Canada, China, India, Indonesia, Japan, Russia, South Korea, the United States and Mexico. As a member of the G20, Russia can use this increasingly prominent organisation to propel any discussion of a new Asia-Pacific regional model.

A Russian model for an Asian security community will also have the advantage of focusing in upon the neighbouring region of Northeast Asia. This region has no effective security or stability mechanisms. This needs to be remedied. Russia has repeatedly raised the question of defining a cooperative agenda for Northeast Asia. The agenda for this could cover a broad range of issues – from the economy, energy and the environment to disarmament, terrorism, and confidence-building measures. The dialogue, particularly if it involved the G20, could also use six-party talks as a basis for ensuring peace and development in Northeast Asia.

What must Russia do in order to lay the foundation for this Asia-Pacific regional vision?

Primarily, Russia first must meet its domestic obligations. In particular, Russia must focus upon developing the Far East. In more specific terms, the Far East of Russia has a comparative advantage in natural resources. In the Urals region and Russia’s eastern-most provinces, investors, including foreign investors, should be offered preferential investment terms and free economic zones.

In addition, Russia must deal individually with China, Japan, and the Korean peninsula. The growing imbalance between Russia and China means that Russia has no alternative to pursuing a policy of friendship, further dialogue, and joint economic development. But Russia should be prudent. It must remember its own interests and create a partnership with China.

In dealing with Japan, Russia might conclude a ‘Treaty on Peace, Friendship, Cooperation and Security’ (rather than an out-of-date ‘Peace Treaty’) which would determine the basics and principles of relations in this century. Ideally, this would solve the problem of border demarcation. Russia should also attempt to promote further foreign investment in the Kurile islands.

And in dealing with Korean Peninsula, Russia should be measured. It is more realistic to strive toward the freezing of North’s Korea’s nuclear missile potential than towards its immediate denuclearisation. Fundamentally, the key to strengthening Russia’s position on the Korean Peninsula is the maintenance of a continuous dialogue with the North Korean leadership with a view to positive evolution of the regime.

By virtue of its position as a bridge between Europe and Asia, Russia has the geo-strategic keys to the Asia Pacific region. Provided that it acts in a measured and realistic way, Russia can make a valuable contribution to regional stability by articulating a comprehensive vision for Asia-Pacific regionalism.

Georgy Toroloya is vice president of the Russia Mir Foundation and has recently been a visiting fellow at the Brookings Institution. Dr Toloraya has previously served as the Russian Consul-General in Australia and served the Russian Foreign Ministry in Pyongyang and Seoul.

[sunny]

China and Japan in landmark shift in Asian economic power?

Author: Peter Drysdale

At the end of last month, quarterly GDP data revealed that China surged ahead of Japan to become the world’s second biggest economy, in aggregate and measured in current exchange rate terms — a first in modern times. Japan’s seasonally unadjusted GDP totalled US$1.29 trillion in the second quarter, slightly less than China’s US$1.34 trillion, in current dollar terms. As Justin Li in this week’s lead essay points out, this development had been widely anticipated as a major landmark in the shift in the structure of Asian economic power.

In reality China’s has been a bigger economy than that of Japan for at least close to a decade, measured in real terms (or in purchasing power parity) not in terms of nominal GDP converted at current exchange rates. In purchasing power parity terms, on the IMF’s reckoning, China overtook Japan as the world’s second largest economy in 2001.

Developing countries, like China, commonly have much lower prices than rich economies so the purchasing power parity (PPP) calculation of GDP corrects for the underestimation of real income at nominal exchange rate converted values by measuring the same goods and services at the same prices. As the late Ian Castles, former Australian Commonwealth Statistician and international expert on national income accounting, has argued before on this Forum getting these comparisons right is important for policy and not just a not just a matter of taste.

Measured in PPP terms, the difference between China’s GDP and that of Japan has been steadily contracting since the implementation of China’s reforms and China’s share of world GDP has been rising. The PPP measure of China’s GDP reached US$8.77 trillion (or 12.6 per cent of the world output) in 2009, which was just over twice as large as that of Japan’s GDP (US$4.16 trillion) and almost 62 per cent of that of the United States.

So what was all the fuss about at the end of last month?

China has been absolutely larger than Japan, on the sensible measure of these things, since 2001. Although in current prices, America’s GDP is US$14 trillion, Europe’s US$16 trillion and China’s US$4 trillion, in real terms, China is already more than half the size of the United States.

It is the dynamics of the changes under way that matter. Around 30 per cent of the output of all the major Japanese manufacturing firms is actually produced in China, not in Japan. China is already Australia’s largest single trading partner; it is also Japan’s, Korea’s and Taiwan’s, and my projections suggest that by 2020 China will be the largest economic partner of every single country in our region. And it is projected to overtake the United States as the largest economy in the world in the next ten or fifteen years, not the next fifty years.

Certainly, with this growth in the sheer scale of Chinese output, China is the leading edge of a huge shift in the structure of economic power in Asia and the Pacific. In not much more than a decade, there will be a big transformation in the structure of regional and world power, not only economic weight but also the political power that inevitably follows economic power in some form or other, since size matters to political heft.

Yet, though already very big in world terms, China is on average a poor country in per capita income terms and will remain so for many years. China’s relative poverty translates into many economic, social and political weaknesses. It’s appropriate, therefore, that the landmark of overtaking Japanese GDP in current exchange rate terms was greeted with caution and humility in China itself. As Li notes, by a whole range of measures, China has a long way to go to catch up to Japan. In 2009, it was ranked 99th in per capita income by the IMF, with per capita income just 20 per cent that of Japan in real terms or 10 per cent at current exchange rates. And in terms of energy efficiency, equityand other measures of welfare, Japan is way ahead of China. Life expectancy, infant mortality, access to education, electricity consumption in China are today roughly the same as they were in Japan 40 to 50 years ago.

This is an unusual circumstance in international affairs — to have such a big player with such weaknesses at the core of its political economy. The challenge for all will be to manage the growing weight and power of China with understanding of these vulnerabilities and how they might make uncertain strategic and yet constrain behaviour all sides round.