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

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)

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

"There's only one China... composed of two separate and completely different Chinas"

A friend of mine from Taiwan brought this to my attention. It's a brilliant tongue-and-cheek explanation of Taiwan Strait Issue by Michael Chamberlain and Charlie Pickering of The Mansion, a 2008 Australian satirical news show.

Professor Robert Berring of UC Berkeley once called the Taiwan Strait Issue an unusual (and perhaps unnatural) situation in international law. From this video, it's pretty self-evident as to why.