NAUGHTON ON CHINA

CHINA'S REFORM CREDIBILITY PROBLEM

Verbal commitments to progress should be backed up with concrete actions, and changes to state-owned enterprises are a good place to start

Barry Naughton

Caixin, December 31, 2012

There is a great deal of consensus in China about changing the growth model and the need to restart and reinvigorate economic reforms, but there's much less consensus about which economic reforms should be implemented first and right away.

Reforms in the past have achieved a great deal. Things that haven't been done today are especially difficult. They are either technically difficult or they create opposition or they need ideological breakthroughs to help people understand the kind of society and economy that China is becoming.

China's commitment to reform has been consistent, in theory, over the past thirty years. But the actual progress in reform has sometimes been great and sometimes less impressive. This means that the verbal commitment to reform no longer has the kind of impact that it had in the past. In 1992, a commitment to a socialist market economy could have enormous impact. But today, to commit to a general principle means nothing because the commitment was made so long ago. What is required instead is specific policy.

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A CHINESE RENAISSANCE?

CHINA’S GREAT DREAM

Beijing’s new communist party boss, Xi Jinping is inspiring his countrymen with talk of a Chinese renaissance.

Melinda Liu

Newsweek, December 30, 2012

The first changes were small, more style than substance. Citizens long accustomed to heavily scripted official pomp were startled by televised scenes of a surprisingly relaxed top leadership meeting. China’s new Communist Party boss, Xi Jinping, and six other members of the Politburo Standing Committee were dressed informally. Xi spoke off the cuff, in contrast with his uptight predecessor Hu Jintao, whom many Chinese dubbed “robotic.” On other occasions, two senior leaders called on authorities to cut the jargon and grandstanding.

Then, China’s new top graft buster, Wang Qishan, met with a number of anti-corruption experts and interrupted one who addressed him as “dear respected secretary.” “Drop the formalities,” Wang reportedly told the group. The new message from the top: just get to the point. After less than a month into his job, Xi ushered in a new leadership style that’s taken China by surprise. He has exhorted citizens to pursue “national rejuvenation” and a “Great Chinese Dream,” while cracking down on graft, trimming official perks, and streamlining bureaucracy. At least in some key areas, Xi seems poised to break with the past decade of stagnation, during which time China’s economy slowed and political reforms regressed. If the changes take hold, they could have far-reaching implications both at home and abroad. Many Chinese seem heartened, even inspired, by Xi’s down-to-earth style. But many of China’s jittery neighbors worry that Beijing’s dream could become their nightmare, leading to an increasingly nationalistic and aggressive foreign policy.

Since Xi and his new team were promoted to the top of the party in mid-November, their to-do list has focused on repairing the regime’s tarnished image.

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A NUCLEAR TEST IN NORTH KOREA?

N. KOREA LOOKS TECHNICALLY SET FOR NUKE TEST: U.S. THINK TANK

Lee Chi-dong

Yonhap, December 29, 2012

North Korea appears to be ready to conduct a nuclear test in as little as two weeks once a political decision is made to move forward, a U.S. think tank said Friday in an assessment based on satellite imagery.

"Satellite photos as recent as December 13 show that Pyongyang is determined to maintain a state of readiness at the area of the Punggye-ri nuclear test site, where a third test is expected even in the dead of winter," the U.S.-Korea Institute at the Johns Hopkins School of Advanced International Studies said on its website, 38 North.

The institute scrutinized several satellite photos of the North's nuclear test site, taken by GeoEye, a commercial geospatial information provider, in March and April and then again on Oct. 3, Nov. 19, Dec. 2 and Dec. 13.

A previously unidentified structure was spotted that may be intended to protect data-gathering equipment from inclement weather, the institute said.

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CHINA IN 2013

THE CHINESE ECONOMY IN 2013

SinoShipNews, December 28, 2012

Dalian: This year has been a tough one for the Chinese economy, and yet it has come through it in a manner to make most in the West envious. Next year, the consensus is that the Chinese economy, unarguably the most important nation affecting world shipping, will perform in the 7.5 to 8.5% growth area. Nevertheless, the new leadership will have much to do.

Citi Bank reckons both GDP and manufacturing will be firm next year. The US bank’s concerns are on the brittle nature of real estate and the local banks, which is likely to see less loans being issued. Citi reckons the appreciation of the RMB will lessen in 2013.

The Chinese Academy of Social Sciences (CASS) believes the adjustment in real estate market will lead to investment declining. CASS sees GDP growth next year of 8.2% in the world’s most populous nation.

The Asian Development Bank, meanwhile, thinks the growth of the Chinese economy in 2013 will be lower than earlier expected, but the financial stimulus packages of central and local governments will help the nation to a stable year.

HSBC Bank chief economist Stephen King sees China's GDP growing 8.6% in 2013.

"Even if the Chinese economy is slowing, its impact on the global economy is paradoxically rising," he noted, something that is also true of world shipping.

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JAPAN’S CHALLENGE

ABE MUST AVOID ISOLATING JAPAN FROM REST OF THE WORLD

The Asahi Shimbun, December 27, 2012

After more than three years of the trouble-plagued government led by the Democratic Party of Japan, newly elected Prime Minister Shinzo Abe and his Liberal Democratic Party now face the challenge of restoring stability in the nation’s politics.

Five years after he abruptly abandoned the helm of government by resigning as prime minister, Abe, having made a spectacular political comeback, has returned to the nation’s top office. But is he really ready to meet the expectations of the people who have supported the LDP’s return to power?

During those five years, the political waters surrounding Japan have become more choppy and treacherous.

There is a long list of formidable challenges confronting the nation: the devastating effects of last year’s Great East Japan Earthquake, tsunami and the Fukushima nuclear disaster; deflationary doldrums with no end in sight; towering government debt reaching a staggering 1,000 trillion yen ($12 trillion); bitter territorial disputes with China and South Korea; and a stalled plan to relocate the U.S. Marine Corps Air Station Futenma in Okinawa Prefecture.

Finding a solution to any of these problems would be a daunting task for any leader.

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INDIA’S AND INDONESIA’S POLICY DILEMMA

INDIA JOINS INDONESIA FACING HEIGHTENED POLICY DILEMMA: ECONOMY

Shamim Adam

Bloomberg, December 26, 2012

Central banks in Indonesia and India, with the worst-performing currencies among Asian emerging markets this year, will face more challenges in 2013 as they balance inflation risks with the need to boost growth.

The Reserve Bank of India must deal with “conflicting cues” from elevated prices and an economic slowdown, complicating policy decisions even after it recently signaled there is room to lower interest rates, Mizuho Corporate Bank Ltd. economist Vishnu Varathan said. Indonesia’s inflation may be at the upper end of the central bank’s targeted range, forcing it to raise borrowing costs “aggressively,” according to HSBC Holdings Plc.

Demand for higher wages, reduced government subsidies and greater capital inflows may drive up price pressures in the world’s fastest-growing region. Bank Indonesia refrained from raising rates this year even as the currency slumped and costs accelerated, while delayed reforms and infrastructure bottlenecks in India have spurred the most rapid inflation among the largest emerging nations.

(…) [article here]

CHINA’S PEACEFUL DEVELOPMENT

FROM CHINA’S ‘PEACEFUL RISE’ TO ‘PEACEFUL DEVELOPMENT’: THE RHETORIC AND MORE – ANALYSIS

Eurasia Review, December 25, 2012

Dr. B R Deepak

In the wake of China’s mammoth economic growth that catapulted China as the second largest economy of the world in 2010, and the military expenditure corresponding to its economy, everyone including the Chinese is talking about China’s rise and its emergence as a challenger to the unipolar world.

Chinese think tanks and government alike on their part have been looking for their own answers in the best Confucian tradition where the rectification of names is attached great importance. They came up with the concept of “Peaceful Rise of China” (Zhongguo de heping jueqi 中国的和平崛起) during the 1990s. However, the term became a fad after it was used by Zheng Bijian, the former Vice Principal of the Central Party School in November 2003 during the Boao Forum for Asia, and later by the outgoing Chinese President Hu Jintao in a speech on the occasion of the 110^th birth anniversary of Mao Zedong in December 2003. Hu Jintao (2003) had remarked that adherence to the road of socialism with Chinese characteristics is adherence to the “developmental road of peaceful rise.” Following this, the term was used by Chinese Premier, Wen Jiabao at the Association of Southeast Asian Nations (ASEAN) meeting, and a speech at the Harvard University during his visit to the United States. Wen had tried to justify China’s rise and reassure the world when he said (Guo 2004: 2 in preface), “the developmental road China has taken is different from that taken by some major powers, and China’s developmental road is the road of peaceful rise.”

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INDIA AND ASEAN DISPUTES WITH CHINA

A GOLDEN OPPORTUNITY FOR INDIA TO LEAD

Umesh Pandey

The Bangkok Post, December 24, 2012

The gathering of Asean leaders in New Delhi late last week was unprecedented in the history of India and the 10-member Southeast Asian grouping, and marks a new beginning to a relationship that could be crucial for the development of the two regions.

The heads of government were in the Indian capital to commemorate the 20th anniversary of engagement by once-introverted India with Asean. The timing and location were significant given the backdrop of rising tensions between various Asean members and China and between India and China.

The disputes in the South China Sea have been amply documented. Vietnam, the Philippines, Malaysia, Brunei and Indonesia all have claims that overlap those of China, and sometimes those of each other as well.

India and China have had border issues for decades, and lately Delhi has grown extremely wary of the growing might of the world’s second largest economy. The last straw came with the issuance this year of new Chinese passports with maps showing parts of northeastern India as Chinese territory.

In this respect New Delhi was not alone, as the ambitious Chinese mapmakers also managed to anger the Philippines, Vietnam, Taiwan and possibly others.

Therefore, the meeting last week took on added significance. Many heads of government held bilateral talks with the Indian leaders, and expectations are that the two sides discussed ways to increase bilateral and multilateral cooperation, apart from raising the issue of the rising power of China.

In fairness, China has seldom been the aggressor and even in the 1962 war with India, which by the way India lost, China withdrew its forces from Indian territory. But that was then — China at the time was still not rich enough to support an all-out campaign of aggression against a large neighbour, while today things are very different.

China has the world’s largest foreign-exchange reserves, estimated at $3.3 trillion. It is the darling of all investors (except perhaps the Japanese lately), and has been spending heavily on upgrading its military power over the past decade. To top this off, nationalist propaganda has been on the rise, something that was very much evident from the protests and boycotts of Japanese products over the disputed Senkaku islands, which China refers to as the Diaoyu chain.

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OPTIMISM FOR ASIA’S GROWTH IN 2013

ASIA ECONOMIES SURGE AHEAD DESPITE GLOBAL SLOWDOWN

China.org.cn, December 23, 2012

Emerging economies in Asia have surged ahead despite the impact of debt crisis in Europe, the slow world economic recovery, and the feared U.S. "fiscal cliff".

These economies performed well in 2012 although their growths were slower than expected. A United Nations report released recently says that economic growth of Asia and the Pacific in 2012 is forecast to be 5.6 percent, down from an earlier forecast of 6. 5 percent.

For the upcoming 2013, economists are generally optimistic on the continued growth in the Asia Pacific with strong domestic demand expected to offset weak export growth.

Goldman Sachs recently released 2013 Asian Economic Outlook report, expressing optimism about the economic outlook for next year in the region excluding Japan.

It predicted that economic growth in Asia would average 6.9 percent in 2013 and to further expand to 7.3 percent from 2014 to 2016.

EMERGING TREND FOR ASIAN ECONOMIES

Singapore, for its part, which is more open to the outside world, was obviously the most affected by the weak global economy. The European Union (EU) is Singapore's second largest trading partner, second only to its neighboring Malaysia.

According to official data, the bilateral trade between Singapore and the European Union reached 106 billion Singapore dollars (about 86.9 billion U.S. dollars) in 2011, an increase of 7 percent. This year, Singapore's non-oil exports to the EU fell by 16.5 percent in the third quarter of this year.

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INDIA AND ASEAN

FILLING THE STRATEGIC SPACE IN SOUTH-EAST ASIA

To fulfil Asean’s need for a regional balancing power, India must prove itself as a credible security and economic partner

Harsh V. Pant

The Hindu, December 22, 2012

This week India and the ten-member Association of South East Asian Nations (Asean) marked their 20 years of partnership with a commemorative summit in New Delhi. The significance that Asean members are increasingly according India can be gauged from the presence of the Prime Ministers of Singapore, Cambodia, Malaysia, and Vietnam, the Presidents of Myanmar and Indonesia and the Vice-President of Philippines in India for the India-Asean summit. The highlight of the summit was clearly the conclusion of talks on Free Trade Agreement (FTA) on services and investment which is expected to increase bilateral trade to $200 billion by 2022 and lead to talks on the Regional Comprehensive Economic Partnership which also includes Australia, China, Japan, South Korea and New Zealand. As Prime Minister Manmohan Singh underlined, together India and the Asean states “constitute a community of 1.8 billion people, representing one-fourth of humanity, with a combined GDP of $3.8 trillion” and therefore “it is only natural that India should attach the highest priority to its relationship with Asean.”

India was admitted as sectoral dialogue partner of the Asean in 1992 and went on to become a full-fledged dialogue partner in 1996. There has been a significant increase in India-Asean trade from $42 billion in 2008 to $80 billion last year. This trade relationship will get a further boost with the two signing the FTA on services and investment. The FTA on goods was signed in 2009 despite some significant opposition in India and since its implementation last year India has been keen on expanding trade in services in order to leverage its own strengths. The relationship is now officially ‘strategic’ with the two sides deciding to elevate their ties from a mere dialogue partnership.

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THE GRAVITATIONAL PULL OF CHINA

CHINA INCREASINGLY LEADING WORLD ECONOMY: HSBC ECONOMIST

China Daily, December 21, 2012

LONDON - HSBC Bank chief economist Stephen King said the world is moving away from an "old world" dominated by Europe, the US and Japan, and to a "new world" led by China.

King said the world economy is increasingly led by China, and countries raising their exposure to China have outperformed those with low exposure to China, in his latest report "The Great Rotation" obtained by Xinhua on Thursday.

"China's impact on the rest of the world in recent years has been revolutionary. No longer is it possible to understand the behavior of the global economy without acknowledging the gravitational pull of China," he said.

The "new world" has dominated the global economy over the last decade, which led to re-acceleration of global growth, while contributions to global growth from the "old world" have shrivelled.

"A stronger China connection pays dividends." King said, noting that countries like the Democratic People's Republic of Korea, Malaysia and Singapore which significantly increased their export exposure to China in the last 10 years, had enjoyed a better-off growth, while the US, Germany, Britain had low export-to-China per GDP ratios.

King said China managed to shrug off external difficulties mainly caused by "old world" weakness in 2012, with more domestic infrastructure spending.

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PARK AND HER PROMISES

AFTER HER ELECTION, PARK NEEDS TO MAKE GOOD ON HER PROMISES

The Hankyoreh, December 20, 2012

Park Geun-hye of the Saenuri Party (NFP) was elected on Dec. 19 as the 18th president of South Korea and the country’s leader for the next five years. Her victory means that by the time her term ends, conservatives will have held power for a decade since Lee Myung-bak took office in 2008. The public chose to hand the reins over to Park for another five years of Saenuri Party rule. There are other noteworthy aspects of her election: she becomes the country’s first female president, and she and Park Chung-hee (president from 1962 until his 1979 assassination) become the first father and daughter to both hold the post.

It was a tightly contested elected with the Democratic United Party’s Moon Jae-in, and Park’s triumph shows just how imposing the conservative barrier is in South Korea. Evidence of the country’s conservatism was apparent in the dramatic distortions of public opinion by conservative newspapers and broadcasters, as well as deeply rooted regionalism and generational gaps. The reason Moon lost the election - at a time when anger at the Lee administration and hopes for a change of administrations were higher than ever - is that the opposition failed to win the public’s trust. Having shown no real signs of change since its parliamentary election defeat this April, it was unable to win over the moderates.

The most urgent task facing President-elect Park now is uniting a divided country. The election was nearly without precedent in how united a front conservatives and progressives both presented. It is impossible to truly call either side the victor when a country is so clearly split in half. It is, rather, a half-and-half mixture of victory and defeat. This is why politics, now more than ever, need to be geared toward unity and shared benefits. It is not enough to set up some organization and stick a few politicians in it. The winner should consider the wishes of the half of the public who voted for her, but she also needs to tend to the half who didn’t.

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ABE AND CHINA-JAPAN ROW

TO JAPAN-CHINA ROW, ADD ONE POTENTIAL PROVOCATEUR

Mark McDonald

IHT Rendezvous, December 19, 2012

HONG KONG — The idea that armed conflict could break out in the Pacific over a handful of godforsaken islands is almost unthinkable, not only for the violence involved but also for the potentially calamitous economic and political repercussions. Political leaders, military officials and security analysts can barely utter the W-word out loud for fear they might be unbottling the genie.

But the dispute between China and Japan in the East China Sea took another harrowing turn last week when a Chinese plane overflew the islands and Japan scrambled some fighter jets in response. The Japanese Defense Ministry said it was “the first known violation of Japanese airspace by a Chinese plane” in half a century, as my colleague Hiroko Tabuchi reported.

Naval vessels from both countries have been patrolling the islands, which are known as the Senkaku in Japan and the Diaoyu in China. Bilateral tensions have been high enough that a bumping or brushing incident at sea — even an accidental one — might well lead to actual fighting.

Sheila Smith, senior fellow for Japan studies at the Council on Foreign Relations, said the dispute “has left both countries deeply suspicious of each other, and public antipathy on both sides of the East China Sea is running high.” In China there have been nasty anti-Japanese riots.

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CHINA’S REBALANCING ACT

TIME RUNNING OUT FOR CHINA TO COMPLETE REBALANCING ACT

Charlie Fell

The Irish Times, December 18, 2012

Serious Money: The world’s financial markets are focused on the US administration’s negotiations to avoid the fiscal cliff, as well as policymakers’ efforts in the euro zone to effect reform and draw a line under the region’s ongoing crisis. What each means for economic growth in 2013 and beyond is of enormous concern, but more attention should be paid to China, the world’s primary growth engine, as it addresses the urgent need to rebalance its lop-sided economy.

China has enjoyed spectacular growth since Deng Xiaoping set the economy on an export path in 1978. GDP growth has averaged close to 10 per cent a year over the past three decades, and living standards have increased by a factor of 13 over the same period.

The economic performance was fuelled by large-scale investment in physical capital, facilitated by high gross domestic savings rates channelled through state-owned banks, largely to state-owned enterprises. For most of the past three decades, the country’s investment rate has not been out-of-line with the precedent set by its high-achieving Asian neighbours during their corresponding periods of economic development.

The investment share of GDP averaged close to 35 per cent during the latter half of the 1970s through the 1980s, and increased to an average of 39 per cent in the 1990s. These figures are like the average investment rate of 33 per cent registered in Japan between 1961 and 1973, or the 32 per cent average recorded in South Korea from 1983 to 1991.

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NUKE REVIVAL IN JAPAN

JAPAN VOTES FOR NUKE REVIVAL

The Journal of Turkish Weekly, December 17, 2012

Japanese citizens chose the conservative Liberal Democrat Party (LDP) to lead the country in an election spurned by over half of voters despite a heavy agenda loaded with economic burdens, the nation’s nuclear future and tense regional ties with both China and North Korea.

Incoming Prime Minister Shinzo Abe is a tough nuclear power defender expected to also harden Japan’s tone with its neighbors and strengthen the military.

The LDP won nearly 300 seats of the 480-member lower house, according to unofficial results, claiming power alongside its ally, the New Komeito party, which is projected to maintain 300 seats to give the duo a two-thirds majority in the body.

‘Abe short-sighted’
The new government will likely hold the parliamentary power required for changes yet the LDP expects to make major moves only after the upper house elections in June, which will change half of the seats there. Abe aims to re-open closed nuclear plants in the country despite public reactions after the devastating disaster in Fukushima last year. The mayor of Minamisoma, one of the areas most affected by the earthquake and that has districts located only 16 kilometers from the wreck of the Daiichi nuclear facility, has said he strongly opposes further nuclear moves.

(...) [artículo aquí]

WHAT RESPONSE TO NORTH KOREA?

N. KOREA'S LATEST MISSILE-LAUNCH AND THE ELUSIVE SEARCH FOR A RESPONSE WITH TEETH

Arthur I. Cyr

The China Post, December 16, 2012

The successful launch on Dec. 12 of a space satellite by North Korea is cause for concern, but no sign of a basic strategic shift — yet. Nonetheless, a tough response with teeth is required by the world community.

For almost two decades, Pyongyang has oscillated between apparent accommodation and bombastic hard-line. In late February, North Korea's official news agency and the U.S. State Department jointly announced that Pyongyang would cease uranium enrichment and nuclear weapons tests, and permit inspection of nuclear facilities. In return, the U.S. would resume shipments of substantial amounts of humanitarian food relief.

This was followed in April by a test of a long-range missile. That missile launch led to immediate cessation of U.S. aid. Even in closed North Korea, news leaked out to the undernourished population that anticipated provisions had been stopped. The past several years have seen some unrest amid the apparently total discipline imposed from the top. Space shot publicity will not change this.

A report last September by the Rand Corp., a defense policy think tank, argues North Korea's long-term but erratic efforts to develop long-range missiles do not represent a major threat to the global balance of power. Markus Schiller, author of the study, emphasizes that obsolete Russian engines were used, with both range and payload too small to support a credible intercontinental ballistic missile.

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ELECTIONS IN JAPAN AND SOUTH KOREA

A TURNING POINT IN EAST ASIA

Brahma Chellaney

The Japan Times, December 15, 2012

NEW DELHI — Political transitions in East Asia promise to mark a defining moment in the region's jittery geopolitics. After the ascension in China of Xi Jinping, regarded by the People's Liberation Army (PLA) as its own man, Japan seems set to swing to the right in its impending election — an outcome likely to fuel nationalist passion on both sides of the Sino-Japanese rivalry.

Japan's expected rightward turn comes more than three years after voters put the left-leaning Democratic Party of Japan (DPJ) in power.

By contrast, South Korea's election — scheduled for Dec. 19, just three days after the Japanese go to the polls — could take that country to the left, after the nearly five-year rule of rightist President Lee Myung Bak, who proved to be a polarizing leader.

These political transitions could compound East Asia's challenges, which include the need to institute a regional balance of power and dispense with historical baggage that weighs down interstate relationships, particularly among China, Japan and South Korea. Booming trade in the region has failed to mute or moderate territorial and other disputes; on the contrary, it has only sharpened regional geopolitics and unleashed high-stakes brinkmanship. Economic interdependence cannot deliver regional stability unless rival states undertake genuine efforts to mend their political relations.

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ABE’S SEVEN MONTHS

ABE SET FOR JAPAN VICTORY FACES 7-MONTH WINDOW TO KEEP HOLD

Isabel Reynolds and Takashi Hirokawa

Bloomberg, December 14, 2012

Shinzo Abe’s Liberal Democratic Party is on the verge of reclaiming power in Japan, giving him seven months to convince voters he can revive the economy before another round of elections in July.

The LDP is forecast to crush Prime Minister Yoshihiko Noda’s Democratic Party of Japan in the Dec. 16 election for the lower house of parliament. A victory would give Abe a second chance to lead the country five years after he quit his first term for health reasons. No premier has stayed in office for more than 15 months since.

Abe will inherit a country in recession, a split parliament, and an electorate still reeling from the 2011 earthquake and nuclear crisis. With elections for the upper house looming in July, his plans for aggressive monetary easing and fiscal stimulus need to produce results or he may not last any longer than his five predecessors.

“If he fails on the economy, there’s no doubt he will face a drubbing in the July upper house election and be forced to step down,” said independent economic analyst Tsukasa Jonen.“The real test is next year.”

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A NORTH KOREAN SATELLITE?

QUESTIONS ASKED ABOUT N. KOREAN SATELLITE

UPI.com, December 13, 2012

PYONGYANG, North Korea, Dec. 13 (UPI) -- North Korea may claim to have put a satellite in space using a long-range rocket, but questions arose Thursday about its mission or success.

The South Korean Defense Ministry said the satellite launched by North Korea Wednesday was circling the Earth with an orbital period of 95.4 minutes but its success will not be known for about two weeks, Yonhap News reported.

The ministry, quoting data from the North American Aerospace Defense Command, said the Kwangmyongsong-3 satellite was circling the Earth at 4.7 miles per second, with an oval radius of up to 367 miles.

"It is not yet known what kind of mission the satellite is conducting," ministry spokesman Kim Min-seok said, Yonhap reported. "It usually takes two weeks to evaluate whether a satellite is successful. For the time being, it is working normally."

The rocket launch has been widely condemned as the North is prohibited by U.N. Security Council resolutions from further nuclear or missile tests after the country conducted two nuclear tests in 2006 and 2009. The North has said its latest test is for peaceful purposes.

Critics see the rocket firing as a cover by the North to test ballistic missile capable to carrying nuclear weapons.

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THE NORTH KOREAN SATELLITE

NORTH KOREA'S ROCKET VICTORY HAS DEEP CONSEQUENCES

Sam Kim and Peter Enav (AP)

The Huffington Post, December 12, 2012

After several failures, including one this spring, North Korea successfully launched a satellite into space Wednesday, an achievement met with cheers in Pyongyang and trepidation almost everywhere else.

North Korea says it wanted a satellite to help track the weather and send back data. But the United States, South Korea and their allies see the Unha-3 rocket that launched it as a potential weapon, theoretically capable of delivering high-impact munitions as far as California.

Even traditional backers Russia and China expressed worry about the launch. Moscow had urged Pyongyang to cancel the space bid and Beijing conspicuously withheld its approval.

Here are some key points about the launch:

GETTING INTO ORBIT

The Unha-3 is a three-stage "carrier rocket" with a range that experts estimate is about 10,000 kilometers (6,300 miles).

That was enough to get the Kwangmyongsong satellite into orbit – a historic victory for North Korean scientists who had four failures since 1998, including April's first-stage flameout 90 seconds after launch.

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US IN 2030: “FIRST AMONG EQUALS”

INDIA-CHINA UNLIKELY TO TOPPLE AMERICAN SUPREMACY BY 2030: INTELLIGENCE

The Economic Times, December 11, 2012

The US will be the "first among equals" in a world not dominated by a hegemonic power as neither China nor India are likely to topple the American supremacy to create a new international order by 2030, the US intelligence believes.

The replacement of the US by another global power and the creation of a new international order seem to be the least likely outcome in this time period.
"No other power is likely to achieve such a role in the time frame under any plausible scenario,"Christopher Kojm, Chairman of National Intelligence Council, told reporters at a news conference.

Kojm was responding to questions after the release of 'Global Trend 2030' report of the National Intelligence Council (NIC).

Mathew Burrows, Counselor to the NIC and author of the report insisted that Asian giants like China and India are unlikely to replace the US as the world power, because like Washington, Beijing or New Delhi do not have the capacity to form an international coalition or mobilise global opinion on any particular issue.

"Well, the economy is one important factor in a country's power. And our main point here is that, the Asian powers... talking here about China and India -- don't have the means like the US does of really pulling together coalitions -- these are coalitions not only of states but also non-state actors -- in dealing with the global challenges.

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CHINA: RECOVERY ON TRACK

CHINA: RECOVERY CONTINUES TO STRENGTHEN

Flemming J. Nielsen | Danske Bank A/S

FX Street, December 10, 2012

On balance the November data released so far suggests that the recovery in China remains on track supported by improving domestic demand. We maintain our forecast that GDP growth is set to accelerate to 7.8% y/y in Q4 from 7.4% y/y in Q3, but there now appears to be some upside risk to our forecast. We maintain our above-consensus forecast of 8.6% GDP growth in 2013.

While the headline investment data disappointed slightly, the overall investment picture still appears to be improving, supported by increasing infrastructure spending and continued recovery in the residential property market where sales of new homes and housing starts improved markedly in November.

Although the volatile foreign trade data disappointed in November, exports still appear to be recovering moderately as suggested by the recent improvement in new orders in the manufacturing PMIs. However, exports to Europe remain very weak, while exports to other emerging markets in Asia are strong. The external development is the biggest short-term risk for China.

(...) [article here]

INDIA: THE MOST COMPLEX OF THE BRICS

INDIAN ECONOMY MAY BEAT EXPECTATIONS IN 2013: GOLDMAN SACHS

India's economic growth slipped in July-September quarter to 5.3%

Press Trust of India

Business Standard, December 9, 2012

India's GDP may exceed all expectations next year as there are signs that policymakers might spring up positive surprises, Goldman Sachs has said.

"India in many ways remains the most complex of the four (Bric nations), with its demographics giving it the best potential GDP growth rate, but its inability to introduce effective policy change is a persistent source of disappointment" leading international fund house Goldman Sachs asset management chairman Jim O'Neill said.

"This being said, there are lots of policy changes being discussed and the Indian stock market seems to be quite excited about something.

"We think 2013 Indian GDP will probably exceed expectations, as there are indeed signs that policymakers might also positively surprise," O'Neill said in a research note, but did not put any figures to his estimates.

(...) [article here]

SOUTHEAST ASIA RISING

ADB REMAINS BULLISH ON SOUTHEAST ASIA’S ECONOMY BY RAISING ITS FORECAST

Dion Bisara

The Jakarta Globe, December 08, 2012

The Asian Development Bank revised up its forecast on economic growth in Indonesia and other countries in the Southeast Asia region, citing strong private consumption and investments.

The Manila-based lender estimated that the regional economy this year can grow by 5.3 percent, slightly up from its forecast of 5.2 percent made in October. The bank, whose mission is to eradiate poverty in the Asia-Pacific region, maintained the region’s growth estimate at 5.5 percent for next year.

The region — comprised of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam — grew by 4.6 percent in 2011.

ADB chief economist Changyong Rhee said in a press statement on Friday that “ there are highly encouraging signs from Southeast Asia.”

Stronger-than-expected results in the third quarter, particularly in Malaysia and the Philippines, has supported higher growth in the region, ADB said in a report. Malaysia’s domestic demand continues to be strong, driven by private consumption and both private and public investment, the bank said.

(...) [article here]

CHINA’S NATIONALISM

CHINA'S NEW BOSS XI HITS NATIONALIST NOTE WITH TALK OF "REVIVAL"

He has been quick to invoke nationalistic themes to win public support.

Reuters, December 07, 2012

SHANGHAI - In his first three weeks as China's Communist Party boss, Xi Jinping has shown himself to be more confident, direct and relaxed than his predecessor - but also quick to invoke nationalistic themes to win public support and legitimacy.

He has at least twice spoken publicly, and in heroic terms, about national "rejuvenation" and the "revival of the Chinese nation".

The phrase has been uttered by all of Xi's predecessors as party boss, but his frequent usage so early in his tenure is intended to "create cohesion" through nationalism, said Li Weidong, a political commentator and former magazine editor.

Political observers say the language Xi has used is mainly intended for domestic political consumption, but it has come at an awkward time for China internationally: tensions with its neighbours in the South and East China Seas have increased since Xi became general secretary of the Communist Party last month.

On Thursday, China told Vietnam to stop unilateral oil exploration in contested areas of the South China Sea and not harass Chinese fishing boats, the latest rhetorical shot at one of its neighbours as a result of the territorial disputes.

(...) [article here]

CHINA HAS BOTTOMED OUT

FIVE YEARS THAT WILL SHAPE CHINA'S FUTURE

Yu Yongding

The National, December 6, 2012

The most recent official data shows convincingly that the Chinese economy has bottomed out, and it is now widely expected that annual GDP growth should reach about 7.8 per cent this year. This should come as no surprise.

To rein in rising house prices and pre-empt the inflationary impact of the strongly expansionary fiscal and monetary policies implemented during the global financial crisis, China's monetary authorities began to tighten financial conditions in January 2010.

Monetary tightening, administrative measures introduced by various municipal governments to stem the run-up in the housing market, and the waning effect of the government's US$642.3 billion (Dh2.35 trillion) stimulus package resulted in a gradual economic slowdown.

(...) [article here]

CHINA’S OVERINVESTMENT

CHINA'S SPENDING COULD CAUSE CRISIS, IMF EXPERTS WARN

Kevin Rafferty

The South China Morning Post, December 5, 2012

A report by IMF experts warns China is overinvesting at a speed that could plunge it into crisis and burden its SMEs and households

Economists from the International Monetary Fund have joined critics in warning that China may be overindulging in its investment binge, with potentially dangerous consequences, economically and socially.

The authors claim: "Now, with investment to GDP already close to 50 per cent, the current growth model may have run its course … In China, a large burden of the financing of overinvestment is borne by households, estimated at close to 4 per cent of GDP per year, while SMEs are paying a higher price of capital because of the funding priority given to larger corporations."

The three authors are ultracareful and sensitive in handling the topic. Their working paper, entitled Is China Over-investing And Does it Matter?, contains the caveat that the views in the paper "do not necessarily reflect those of the IMF".

Two of the authors, Il Houng Lee and Murtaza Syed, are, respectively, the senior and the deputy resident representative of the IMF's China office, so it is hard to get more authoritative or officially close to the IMF's informed thinking.

(...) [article here]

INDIA’S DRAGS ON GROWTH

INDIA’S ECONOMIC WOES CONTINUE

Even as markets rise, weak growth numbers and a steadily accumulating debt are a drag on India's economy.

The Diplomat, December 4, 2012

James Parker

The latest Indian economic data continues to paint a subdued picture. Third quarter GDP growth fell back to 5.3% year-on-year (YoY), the same level as in the first three months of the year, and lower than the 5.5% recorded in the second quarter. Despite this and the challenges of carrying out the necessary reforms, Indian markets ended November on a high.

Underlying this low (for India) figure, weak manufacturing expansion – at 0.8% YoY, and weak agricultural numbers – 1.2% YoY growth, were only partially offset by the main financial/business services sectors (Finance, Insurance, Real Estate and Business Services), which account for 55% of India’s total output, and grew by 9.4% on the previous year.

As covered previously on this blog, Indian monetary policy is facing a dilemma, with high inflation remaining a dangerous check on any attempt by the government to stimulate growth. Friday’s Consumer Price Index (CPI) for Industrial workers rose to 9.6% in October, up from 9.14% in September. Even as the Reserve Bank of India (RBI) faces this inflation/growth straitjacket, on the fiscal side a high budget deficit also constrains policy. India’s budget deficit is predicted to be 5.3% of GDP in the current year, slightly higher than the official target of 5.1%. The long term goal, announced by Finance Minister Palaniappan Chidambaram in late October, is for the deficit to hit 3% by 2017. This target does not sit well with any hopes for further fiscal stimulus to the economy.

(...) [article here]

NORTH KOREA’S LAUNCH

S. KOREA, U.S. STEP UP MILITARY POSTURE AHEAD OF N. KOREAN ROCKET LAUNCH

Kim Eun-jung

Yonhap Daily News, December 3, 2012

SEOUL, Dec. 3 (Yonhap) -- South Korea and the United States have stepped up their surveillance activities and military readiness to prepare for North Korea's rocket launch scheduled for later this month, military officials and government sources in Seoul said Monday.

After Pyongyang on Saturday announced its decision to launch a rocket carrying a "working satellite" between Dec. 10 and 22, Seoul and Washington have deployed satellites and spy planes to monitor the Dongchang-ri launch site in the North's northwestern tip.

"South Korean and U.S. forces have jointly prepared a firm surveillance status and military readiness to thoroughly monitor all activities related to North Korea's long-range rocket launch," defense ministry spokesman Kim Min-seok said.

Following the announcement, the South Korean military has detected signs of preparation for live artillery drills at the North's bases near the tensely guarded western sea border, according to military officials.

The latest move comes after Pyongyang went ahead with its launch preparations in defiance of international calls to cancel the plan.

According a senior government source, the North has installed the first stage of its three-stage rocket onto its launch pad, which means the communist nation will be able to set up all stages of the long-range rocket in the next three or four days.

(...) [article here]

CHINA AND INDIA: GROWTH DRIVERS

'INDIA, CHINA TO BE MAIN GROWTH DRIVERS AMONG BRIC'

PTI

Hindustan Times, December 2, 2012

India and China are likely to be main growth drivers among the Bric nations and the growth gap between two Asian giants is expected to narrow down in the years ahead, a Credit Suisse report has said. According to the report, though the slowing growth rate of Bric (Brazil, Russia, India and China) countries has raised questions over the countries' longer term prospects, going forward, China and India are expected to be main growth drivers among the group, however a return to pre-crisis levels is unlikely.

The report added that "within this picture, we believe that the growth gap between China and India will narrow".

Factors like moderate investment spending and constraints to labour force growth would limit China's growth rate, while, India in principle has the best potential to generate high growth over the longer term, the report said.

"India in principle has the best potential to generate high growth over the longer term, simply because its starting point is the lowest and its catch-up potential thus highest," the report said.

Explaining further, the report said the "pool" of labour that can be moved out of agriculture into more advanced and productive sectors is still enormous. India had been growing around 8-9 per cent before the global financial meltdown in 2008. The growth rate in 2011-12 slipped to a nine-year low of 6.5 per cent.

According to the official data, the Indian economy grew by 5.3 per cent in the July-September period this year, while in the quarter ended June 30, the economy grew by 5.5 per cent. Regarding India, the report said the key to success is to further encourage (already high) private saving and guide it into private sector investment instead of inefficient government spending.

(...) [article here]

CHINA AND TIBET

CHINA: TIBETAN IMMOLATIONS, SECURITY MEASURES ESCALATE

Eurasia Review, December 1, 2012

The self-immolation of seven Tibetans since November 26, 2012, highlights the failure of Chinese authorities to address Tibetan grievances, Human Rights Watch said.

Increasingly pervasive and punitive security measures in response to protests have exacerbated the situation in Tibetan areas of China.

A total of 89 Tibetans have self-immolated since February 2009, almost all of whom shouted slogans or left statements calling for the return of the Dalai Lama to Tibet, Tibetan freedom, relaxation of religious and cultural policy, and related issues. In 2012, 76 Tibetans self-immolated, including 27 in November. Of the 89, 74 died, 7 reportedly survived, and the condition of 6 is unknown.

(...) [article here]

INDIA: 5.3% IN JULY-SEPTEMBER

EXPERT VIEWS: INDIA’S ECONOMY GROWS 5.3 PERCENT IN SEPTEMBER QUARTER

Reuters, November 30, 2012

MUMBAI (Reuters) - India's economy grew at a lower-than-expected 5.3 percent in the quarter ending in September, against an analysts' forecast of 5.4 percent, government data showed on Friday.

The manufacturing sector grew an annual 0.8 percent during the quarter while farm output rose 1.2 percent, the data showed. In the quarter ending in June economic growth was at 5.5 percent.

Asia's third largest economy is still growing faster than many other major economies, but it has slowed from 6.5 percent in the 2011/12 fiscal year and 8.4 percent in the previous two fiscal years.

COMMENTARY

RAJEEV MALIK, SENIOR ECONOMIST, CLSA, SINGAPORE

"The GDP data are pretty much in line with expectation and we expect the December quarter GDP to be in the 5.0-5.5 percent range as well, before improving in the March quarter.

"There is a low-level stabilisation in the economic activity taking place. The GDP data do not alter our full-year 2012/13 GDP growth forecast of 5.5 percent, improving slightly to 6 percent in 2013/14.

"The government only woke up at the end of September, and this GDP data do not capture the impact of that change. There will be a time lag as financial markets discount the likely real economy impact."

(...) [article here]

INDIA’S 5.5 PERCENT

WHY INDIA STRUGGLES TO DELIVER ITS GROWTH POTENTIAL

India is going to deliver its third quarter growth numbers on Friday and expectations are running low as Asia`s third largest economy has had a disappointing year so far, with gross domestic product (GDP) growth languishing around 5.5 percent.

CNBC-MoneyControl, November 29, 2012

The world`s largest democracy, which boasts of a burgeoning domestic market coupled with a youthful population, has seen much better days - just two years ago it was growing at a robust 8-plus percent.

But today it`s faced with the prospect of being the first BRIC (Brazil, Russia, India, China) nation to have its credit ratings cut to junk as investors begin to lose faith in India`s growth story.

(Read more: Does IMF's Dismal India Forecast Signal a Hard Landing?)

Uncertainty surrounding government policies - despite recent reforms to attract foreign investment - a ballooning deficit, sky-high inflation and a currency that has slumped over the last year, have all added to India`s growth woes eroding investor confidence, said experts.

"The key factor that has led to the deceleration in GDP growth from above 8 percent levels to the last quarterly print of 5.5 percent is a near collapse in investments," Rohini Malkani, economist at Citi, wrote in a report.

Growth in capital formation, or the transfer of savings from households and the government to businesses, has fallen from double-digits in the 2005 fiscal year to single-digits in 2011, according to Citi data.

(...) [artículo aquí]

CHINA’S GROWTH IN 2012

CHINA CERTAIN TO HIT 7.5 PCT 2012 GDP GROWTH TARGET: COMMERCE MINISTER

Reuters

The Economic Times, November 28, 2012

BEIJING: China is certain to hit the government's economic growth target of 7.5 percent for 2012 and could even exceed it, Commerce Minister Chen Deming said on Wednesday.

Chen made the comment at a conference, adding that China would likely spend more than $70 billion this year on non-financial outbound direct investment.

"In the first three quarters, China's economy has grown 7.7 percent from a year ago, therefore, it is for certain that we can achieve the annual GDP target of 7.5 per cent or above, " Chen said in a speech.

The minister's remarks on growth echo those made by an official from the National Bureau of Statistics in October when economic data for the third quarter revealed annual growth had dipped to 7.4 per cent.

China's growth rate has slowed for seven successive quarters and is on course for its weakest full year of expansion since 1999, albeit at a pace that far outstrips the rest of the world's major economies. Analysts polled by Reuters expect China, the world's second biggest economy, to grow by 7.7 per cent in 2012.

(...) [article here]

THE PATH TO CONSUMPTION IN CHINA

CHINA NEEDS MORE REFORMS TO MAKE A CONSUMPTION-DRIVEN ECONOMY

Jonathan Woetzel, Lillian Li and William Cheng

Shanghai Daily, November 27, 2012

CHINA'S economy is starting to shift to a more consumption-driven and service-driven model that should help to sustain the country's growth, albeit at a slower rate, over the next decade and beyond.

Over the past two decades, the growth in China's GDP has been largely powered by investment by government and the corporate sector - primarily state-owned enterprises that retained or reinvested their relatively high returns on investment.

Investment has increased at such a fast rate that although household income has risen consistently over the period since 1990, as a percentage of GDP, it has fallen from 70 percent in 1990 to 57 percent in 2011. However, our projections suggest that within the next five years, the household income share of GDP will start to rebound.

Three drivers
We see three drivers for this acceleration in household income growth.

First, wages are likely to rise due to government policies and structural changes in the labor market. Policy makers have set a clear target that per capita disposable income should rise at least as fast as GDP in the 12th Five-Year Plan. The main steps are focused on increasing minimum wages and the reference wage.

Supply and demand dynamics are pushing in the same direction as government policy. China's labor pool is shrinking due to demographics and a reduced flow of migrant labor from rural areas, and this is exerting upward pressure on wages.

(...) [article here]

CHINA’S AND INDIA´S SLOWDOWN

WHY GROWTH IN INDIA SLOWED MORE THAN CHINA

Alok Sheel

The Economic Times, November 26, 2012

India was, till recently, the second-fastest growing major economy after China. Following the sustained slowdown in the global economy since the financial crisis of 2007, growth has fallen across the board, including in China and India (see accompanying table).

It was expected that China would be more affected, given its dependence on export markets for growth. For the same reason, it was expected that India, a more domestically driven economy, would be less affected — in 2009, goods and services exports comprised 40% of GDP in China, against 20% in India.

Although, in 2010, it may have seemed that this was indeed the case, in retrospect, the reverse seems to have happened, i.e, India has slowed more than China. As a result, Indonesia, which like India, is a more domestically-driven economy — goods and services exports at 24% of GDP in 2009 — has now replaced India as the second-fastest growing major economy. We need to understand why this is the case so that corrective steps can be taken.

While China experienced a huge external shock through the trading channel on account of the sharp decline in growth in its export markets in western countries, the impact on growth was not commensurate on account of its huge investment-oriented stimulus package. India too had a timely 'fiscal stimulus' — mostly by default than design — although not as large as that of China.

While the final budgetary stimulus in 2008-09 was almost identical in both countries at about 3% of GDP, the actual Chinese stimulus through budgetary and banking channels may have been in the region of 4 trillion yuan, or about 14% of GDP. However, since private investment and consumption demand held up reasonably well in India, its recovery matched that of China.

(...) [article here]

CHINA’S MISSING RULE OF LAW

BEYOND THE LAW IN CHINA

Editorial Board

The Washington Post, November 25, 2012

THE LEADERS of China talk about corruption as if it were merely a failure of party discipline. The new general secretary of the Chinese Communist Party, Xi Jinping, became the latest to suggest this in a speech delivered just after his rise to the top post on Nov. 17. “We must be vigilant,” Mr. Xi declared, warning that corruption threatens to corrode both the party and state.

He’s right about the threat. Corruption is rife in Chinese government, business and society, blossoming along with China’s remarkable economic growth. But Mr. Xi’s admonition will do nothing to stop corruption, and the reasons are not hard to find. China possesses a semblance of a legal system, with courts, lawyers and trials. But it has yet to create a genuine rule of law. The definition of rule of law is that no one — not even the party’s elite — is above the law. Yet in China today, the party stands beyond. It often uses the law to punish those who challenge its monopoly on power.

Two recent examples illuminate the party’s exalted position. The first was the downfall of Chongqing party chieftain Bo Xilai, a rising figure in the elite until it was revealed that his wife was involved in a murder scandal surrounding the death of a British businessman. Mr. Bo’s abuses shocked many Chinese when they were revealed, and served to underscore how the system works, enriching and protecting those in power. Mr. Bo lost his footing, but he was the exception rather than the rule. Mr. Xi seemed to acknowledge this in his speech, saying, “In recent years, there have been grave violations of disciplinary rules and laws within the party that have been extremely malign in nature and utterly destructive politically, shocking people to the core.”

(...) [article here]

THE US AND ASIA

MR. OBAMA'S FOCUS ON ASIA

The Japan Times, November 24, 2012

U.S. President Barack Obama has concluded a three-country Southeast Asia tour designed to punctuate his administration's intention to focus on Asia. The intentions are good and the strategy is correct: Asia deserves a more prominent place in U.S. thinking and planning.

But the realities of governing conspired to overshadow Mr. Obama's intent: A crisis in the Gaza Strip and the prospect of a fiscal crisis in the United States distracted the president from his pledge to focus more attention on Asia.

Mr. Obama visited Thailand, Myanmar and Cambodia on his first trip after winning re-election.

In Bangkok, he strengthened his country's alliance with Thailand, and Prime Minister Yingluck Shinawatra said her country was prepared to begin negotiations on joining the Trans-Pacific Partnership trade agreement.

In a gesture that meant much to the country's residents, Mr. Obama visited Thailand's ailing 84-year-old king in the hospital.

From there Mr. Obama went to Myanmar, marking the first visit ever by a U.S. president to that country. He met President Thein Sein and encouraged him to continue his country's efforts toward political and economic reform.

Mr. Obama announced a new mission from the U.S. Agency for International Development and pledged a two-year aid package worth $170 million.

[article here]

MYANMAR, THE US, AND CHINA

US-MYANMAR TIES FORCE CHINA RETHINK

Didier Lauras, AFP

The China Post, November 23, 2012

BANGKOK -- After years of almost unchallenged dominance, China's influence in Myanmar is under threat as the United States and other nations seek closer ties with the former pariah state, experts say.

The Asian economic powerhouse has long helped keep Myanmar afloat through trade ties, arms sales, and by shielding it from U.N. sanctions over rights abuses as a veto-wielding, permanent member of the Security Council.

In return, China was assured of a stable neighbor and access to Myanmar's oil, gas and other natural resources.

But since Myanmar's military ceded power last year, China has lost some of its leverage over the country formerly known as Burma.

European and U.S. firms are no longer banned from doing business there, leaving them scrambling to catch up with rivals from China, India and elsewhere in Asia in the competition for its resources and consumer markets.

U.S. President Barack Obama's historic visit to Yangon this week was the clearest indication yet of the sea change in relations under way between Washington and Myanmar.

(...) [article here]