From the other side of the Silk Road: MSFS in Saudi Arabia (2012)

Georgetown Historian John McNeill on US-China Cold War Parallels

[GJIA] What similarities or differences do you see with the situation developing between the US and China now and that which developed between the US and the Soviet Union after World War II?

[McNeill] I don’t see a strong historical parallel. In the late 1940s the US had all of the economic advantages and most of the geopolitical ones. For a period the US possessed half of the world’s industrial capacity and had politically-assured access to most of earth’s oil and coal resources. In post-1945 USSR, meanwhile, people were literally starving in provincial cities. Its political system had some appeal around the world, and it acquired an important ally (for ten years) with the 1949 Chinese Revolution. But its political position was effectively circumscribed by US containment efforts. Today, the authoritarian and nominally communist PRC has a much stronger economic and political position than that of the USSR from 1945 to 1991, while the US economic position is weaker relative to that of the late 1940s.

Importantly, China and the US are economically interdependent in a way that the US and USSR never were. China holds trillions of dollars of US debt and could destroy public finance in the US in a week if it so wished. But China also needs the US to keep buying its products. Even after the US started selling grain to the USSR in the 1970s those two economies were never greatly intertwined. In both cases the pairs of countries were by some measures the two strongest in the international system, but beyond this, I see only a weak parallel.

Link to the full interview:
http://journal.georgetown.edu/2012/02/07/parallels-and-precedents-five-minutes-with-historian-john-mcneill/

China's Demographic Transition and the Hukou System

Google now has a cabinet position in Taiwan

More significant business-government interactions (also known as public-private partnerships) are an emerging trend in international relations. Google's having a cabinet position (minister without portfolio) in the current Taiwan government is significant evidence of this.

The google data center that is being constructed in central Taiwan will be a huge boon to the local economy.

Graphic is from the Taipei Times article: Cabinet reshuffle sees 16 new names

Madeleine Albright on the future of U.S.-China Relations

KGA: Based on your experience, both in office and from what you’ve observed in recent trips to the country, what do you believe is the likely future of the U.S. relationship with China?

MA: It’s hard to predict. President Obama is looking for partners, for countries we can work with. There are discussions about the Chinese helping the Europeans out of their debt crisis. We’d like to see China not only as a global power but as a power that actually takes responsibility and isn’t a free rider in the international system.

On the other hand, there continue to be issues such as the South China Sea. Secretary Clinton has suggested that there is a multilateral solution, rather than the Chinese unilaterally deciding that they have access to the sea and the islands and arguing with Vietnam and the Philippines. I was just in Beijing for the third high-level dialogue between a bipartisan U.S. delegation and the International Department of the Communist Party of China, and as a result of those discussions, I got the sense that there are actually a number of issues where we can see commonalities. For example, trying to deal with global problems related to the environment and energy.

It is one of those very fluid relationships that depend on who’s in power, and we’re going to see how that works with the transition in power in China this year, coupled with the fact that we have an election going on at home. In every election that I’ve seen the challenger tries to portray China in the worst possible way, and we’re already seeing that China-bashing going on. So it is a peculiar year to look at it all. The future of our relationship is still very uncertain, and this can be viewed as a threat or an opportunity- or treated as both.

As orginally published in the Georgetown Journal of International Affairs blog page on November 14, 2011. Please find the rest of the interview at the Georgetown Journal of International Affairs

Summer 2011: Ulaanbaatar, Mongolia

Link to a video on my summer work project.

Enjoy!

Far East Forum Special Report from Suqian, China: Refining Small Business Development in China- (Posted by 任翔 on behalf of 安东武 )

Refining Small Business Development in China

ZHANG CAIJUN

So I've never set foot inside a developing-world corn oil refinery until today, but after an hour climbing fractured sheet metal staircases to various levels of gleaming freshly-installed machinery, I now have a basic understanding of both the production process and the business challenges facing its ebullient and ambitious owner. At this point a lack of business and management training are pretty much the only hurdles between Zhang Caijun and his goal- selling his own corn oil brand directly to customers. He has already secured access to a line of microcredit through Opportunity International (OI) China's Suqian branch, where I'm working this summer.

Zhang demonstrated the function of each machine in the factory with intimate familiarity, for he had singlehandedly overseen their purchase and installation, and is primarily responsible for their operation, maintenance and replacement. He seemed to take almost a father's pride in sharing the production process with us, from start to finish.

Running at full capacity the factory requires only five additional employees, whom he trains personally. At this point he conducts every administrative aspect of the of the business himself. The result is forty tons of kitchen-ready corn oil per day, which is sold at rock-bottom prices to distributors, slapped with their label, then shipped and sold at much higher cost to supermarkets and food manufacturers. Starting as an uneducated corn oil peddler, Zhang was able to build the factory from the ground up and secure a series of loans to purchase new equipment (the hardware) and refine his product, yet he lacks the training and expertise (software, as he described it in Mandarin) to transition into a company capable of marketing and distributing its own brand.

Zhang's dilemma is how to cut out the middlemen (distributors), when the only public advertisement he has bearing his own label is printed on the sign above the factory, and his brand recognition is limited to a handful of tenants who rent property on the compound during the off-season to help him make ends meet, along with a small cohort of ten part-time* workers.

OI CHINA

Visiting the workplaces of OI China's microfinance clients affords a unique look into business in its infancy- all of the genetic material is present for evolution into a larger and mature entity, but things are underdeveloped, awkwardly proportioned, in need of guidance- often in the form of financial support and professional training.

The CEO of OI China- a personable Australian of Chinese descent and stalwart Christian faith named Aaron White- privately compared his microfinance philosophy to the holistic approach of traditional Chinese medicine. Western medicine and capitalism tend to favor the scalpel: isolate and remove the harmful or unproductive elements, then prescribe and administer an external cure based on what has empirically proven to work best for the greatest fraction of test cases.

Aaron's strategy (paralleling Chinese medicine) evaluates the subject as a holistic individual, determines what is out of balance, and then patiently sets to work remedying that imbalance. Operationally, this can be accomplished through small loans with conditions and repayment plans tailored to the unique business cycle of the client's industry, through financial or management training from volunteer consultants*, or to insurance policies which help hedge against drought and other factors not commonly covered by commercial financial services. (Microfinance institutions (MFIs) abroad often also collect savings, which helps both client and MFI, but government regulations at the state and provincial levels currently prohibit this in the PRC.)

When I ask the clients we meet why the choose OI China as a business partner, their first response usually concerns the flexibility of repayment options, followed by the personal relationships developed through frequent check-ins and visits, and finally the training services offered by the organization. Many clients lack collateral or are seeking such small loans that banks aren't interested in them as profitable customers, so microfinance providers may be their only option. Competitive interest rates relative to the MFI competition, and the use of innovations like mobile banking (using vans to reach more remote clients; when they reach sufficient scale they will look into partnering with China Mobile to provide cell phone banking), are helping OI China to quickly expand into rural areas.

That's all for now out of Suqian. Until next time,

安东武

*I've learned from other site visits that production in many of the areas rurally-based industries is spotty during the harvest season, because higher relative wages (or the farmers' own family demands) gathering wheat, rice, and other crops pull laborers out of the factories.

*One consultant, David Mumma, accompanied us to Zhang Caijun's oil factory- he was involved with shoe manufacturing factories throughout East Asia until retirement. The other intern here in the office with me is Tracy Quek, a former journalist for Singapore's Straits Times and current master's degree candidate at Johns Hopkins' SAIS in DC.

Taiwan's Soft Power Potential

Taiwan touches your heart -- or so the old slogan of its tourism bureau tells you. Warm fuzziness aside, I've always found the slogan to be a good place to start a discussion on Taiwan's soft power. For whether Taiwan manages to touch the hearts of people outside of its borders is fundamentally dependent on whether it manages to create and employ soft power. The following are some of my thoughts on the subject, fleshed out with the invaluable help of two friends from UC Berkeley.

"Soft power", by the definition of Joseph Nye, is "the ability to get preferred outcomes through the co-optive means of agenda-setting, persuasion, and attraction". This is in contrast to "hard power" -- the coercive power of military or economic might. Taiwan is interested in soft power because, quite frankly, its hard power (particularly military power) resources are very limited. It therefore behooves Taiwan to look to soft power as it designs strategies to secure its goal of gaining a seat and voice in the international community. 

Taiwan's current soft power strategy seems involve an aggressive tourism blitz. It's a good start, but this strategy in and of itself only sets up Taiwan to be the Hawaii of China. It doesn't necessarily improve Taiwan's ability to attract, persuade, or set agendas on the international issues that matter. In short, it's not enough. But then, what would an effective strategy look like?

The Core Messages:
If Taiwan's goal is to gain a seat and voice in the international community, it needs to make sure that its country branding and public diplomacy policies broadcast two key messages:

1. Taiwanese people are warm, open, and generous. 
2. Taiwan intends to be a responsible stakeholder in the international community. 

The first message is important because, in the end, soft power is about making oneself well-liked. The second is important because it implies the notion that international participation isn't about nationalism or secessionist sentiment -- it's simply a matter of being responsible.

The Shining City on the Hill:
Taiwan has several key attributes that it can derive soft power from. It has a strong market economy,  a functioning democratic government, an attractive popular culture, free speech and press, and mostly uninhibited Internet access.

Since Taiwan is governed by the Republic of China, it is often juxtaposed against mainland China, which is governed by the People's Republic of China. Notice that a lot of the power resources listed above are those that the mainland doesn't have. What Taiwan can therefore do is use these to frame itself as the China that the mainland can strive to be --  a possible future for mainland China where a democratic system can co-exist with a reasonably stable (dare I say "harmonious"?) society. This is a variation of what Joseph Nye calls the "city-on-the-hill" effect.

Citizen Diplomacy:
Mainland China primarily uses soft power strategies that are top-down and state-driven. Taiwan should do the opposite -- put citizen diplomacy in the forefront of its strategies. In fact, I would argue that Taiwan should have its youth and students spearhead many of its policies.

There are two reasons for this. The first is that young people are generally better versed with social media and networking. The second is that things that young people say are going to sound a lot more earnest and genuine than anything that comes out of a government bureaucracy.

Student Exchange:
Based on its power resources, a long-term strategy that Taiwan can implement is what I call the "Rhodes Strategy" -- ensuring that a generation of world leaders has set foot in a country in their formative years as students. In fact, Taiwan can frame itself as a potential political future for mainland China, and then augment that "city-on-the-hill" effect by creating an elite student exchange program that teaches comparative politics in the Chinese-speaking world.

This program can be a joint-project between National Taiwan University and Academia Sinica. In it's test-pilot stage, it can form a partnership with University of Hong Kong to attract Hong Kong's top students. If this works out, I recommend branching out to other top schools, perhaps including:

• Harvard's Kennedy School of Government (U.S.) 
• Georgetown's Walsh School of Foreign Service (U.S.) 
• Columbia's School of International and Public Affairs (U.S.)
• National University of Singapore (Singapore)
• Peking University (PRC)
• Fudan Unviversity (PRC)

Colbert Report: The Kim Bojang-ils

The Colbert Report
Tags: Colbert Report Full Episodes,Political Humor & Satire Blog,Video Archive

Last week, Stephen Colbert poked fun at North Korea and its Dear Leader.

"Without tap dance technology, Kim Jong-il will never be able to crush his people with a jazz hand."

Real Estate in Asia: Where are the bubbles, and where is it safe to invest? Far East Forum Special Edition from Ulaanbaatar, Mongolia

People have been talking about it for more than six months. Various and sundry predictions as to when it is going to happen have floated around analysts desks, newspaper editors ears, and even across the coffee or tea table. Yet, thus far, there has been scant definitive, damning evidence and even less written on the subject. I am of course referring to the Mainland Chinese real estate boom (soon to be bust).

Last week’s WSJ article did a tidy job of explaining where the market is heading in Beijing. There is really no telling how fast this is going to happen. Prices have been skyrocketing in Shanghai and Beijing (in particular) as well as Hong Kong over the past few years. Just this past fall the Beijing government attempted to cool the market via restricting home ownership to two properties per person.

This has a number of important implications for the world, as it could be a burst as opposed to simply a ‘deflation.’ Real estate risk is substantial in China because much of the growth has been predicated on increasing land and property values. This will no doubt have an impact on commodity prices for things like sheetrock, steel, copper (as pointed out in the WSJ article), as well as numerous other building supplies.

In addition to the commodity price downturn, Chinese banks holding mortgages could face problems similar to those experienced by US banks during the financial crisis. If the property values decline by 10-20% (as this article suggests), there could be a drastic increase in default risk.

In Hong Kong, the local government is taking up a number of measures including building public housing, re-zoning land, lowering the mortgage amounts that can be borrowed, penalizing back-to-back sales (they have a multi-tiered penalty system within 2 years, and a 15% penalty if a property is re-sold within 6 months!), and increasing the cost of buying for non-residents. (See the South China Morning Post’s article entitled. “Tough Measures to cool homes market”). All of these measures are designed to slow a market whose prices have gone up 18% in the last year (See SCMP’s “Market boom leads to gloom”).

Even across the Strait in the de-facto independent Taiwanese market, prices are still on the rise (somewhere between 10-20% depending on location). There was a lot of speculation about the sharp price increases after Taipei opened the Taiwan home market up to Mainland Chinese in June 2010. The government in Taiwan has also acted to cool the prices by introducing a luxury tax on properties that reach a threshold value. This has apparently worked to some extent because brokerages reported a 20-30% decline in sales after the announcement of this policy (See the China Post’s article entitled “Home prices rise in May despite luxury tax: real estate firms”).

All this begs the question, where should real estate investors send their money in Asia? Based on my own recent experience, I suggest Ulaanbaatar, Mongolia as a destination. Rent prices here are comparable to many American cities (depending on the place). Even more lucrative than this is a business known as ‘mediation.’ Exactly as it sounds, this involves someone fluent in both English and Mongolian that acts as a go-between for foreign tenants and local landlords. They often charge tenants and landlords $500 US each for ‘facilitating and managing the transaction.’ It strikes me that the value-added of this kind of service is extremely low, and offers huge potential for anyone willing and able to provide similar services.

Offices, luxury brand shopping, and a complete (excepting a single Kenny Rogers Roasters) dearth of western food chains in the city are three of the most lucrative opportunities I have witnessed since moving here. Next to Sukhbaatar Square the Central Tower claims a Louis Vuitton, Armani, and Hugo Boss store. People in UB claim that for at least a short period of time the LV Store was the highest grossing in all of Asia. Right across the street is another new gleaming building, the Blue Sky Tower, which according to MAD investment solutions is the tallest structure in Mongolia (Article). Yet, there is not a single Starbucks, McDonald’s, Pizza Hut, or KFC. Not that any one brand is necessary, it is striking that most developing countries have at least one of these to offer whereas Mongolia has not even one.

Up Next: China’s New Conflict in the South China Sea