You are being snooped on, Malaysia views US-NSA spying seriously!

Asia being snooped on, too 

Spying by foreign intelligence agencies is also prevalent in Malaysia and other regional countries via the Internet or spying equipment located in embassies.

SO last week it was the turn of Asians to learn that their region was also the subject of foreign spying.

This was no surprise. If American intelligence is spying on Americans, on Latin Americans, and on Europeans (including its top political leader, Angela Merkel of Germany), it is a foregone conclusion that Asia would not be left out.

There is no revelation yet that Asian prime ministers and presidents have had their personal mobile phones and e-mails tapped.

But it is also a foregone conclusion that these things are happening. Be prepared, therefore, to read in the coming weeks about famous Asian leaders, opposition stalwarts, journalists and celebrities being the subjects of snooping.

Nevertheless, the news that American and Australian embassies are being used to snoop on Asian countries justifiably caused outrage in our region. The Australian surveillance is reportedly in cooperation with the United States.

Malaysia is one of the places where Australian intelligence operates to spy, according to reports in the Der Spiegel and Sydney Morning Herald. They revealed that the spying takes place from the Australian High Commission in Kuala Lumpur.

Other Asian countries where the intelligence collection is conducted is the Australian embassies in China, Thailand, Indonesia, Vietnam, Timor Leste and Papua New Guinea.

The news reports also revealed that the US embassies have also been conducting surveillance activities in many Asian countries including Malaysia, Indonesia, China, Thailand, Cambodia and Myanmar.

Malaysia last Friday registered its protests in official notes handed to the Australian High Commissioner and the US Deputy Chief of Mission who were summoned to Wisma Putra. The notes warned that surveillance of close friends could severely damage relations.

Indonesia warned the United States and Australia that the continuation of surveillance facilities inside their embassies threatened to derail years of trust built up between countries.

China also responded to the report that the American embassy in Beijing and consulates in Shanghai and Chengdu operated special spying facilities.

Its Foreign Ministry has demanded an explanation from the United States, saying that “foreign entities must not in any form engage in activities that are incompatible with their status and that are harmful to China’s national security and interest”.

Also last Friday, Brazil and Germany introduced a draft resolution to a United Nations General Assembly committee calling for an end to excessive surveillance.

The press reports on spying in Asian countries are based on information leaked by Edward Snowden, a former contractor with the US National Security Agency.

Newspapers and magazines had previously revealed that the personal phones of the German chancellor and the Brazilian president had been tapped. Both leaders have registered protests directly to US President Barack Obama.

Last week also saw revelations by the Washington Post that the US and British intelligence agencies had found a way of intercepting communications from Google as well as Yahoo as the data were being passed between their data centres.

“We are outraged at the lengths to which the government seems to have gone,” said Google’s chief legal officer.

The Internet giant companies have found that their encryptment system protecting e-mail and other information flowing through its data centres is not secure after all.

The technology companies are worried that their millions of customers will no longer trust that their privacy will be protected.

How will this affect the use of browsing, e-mail, Facebook and other facets of the Internet technology?

US companies and entities currently dominate the global Internet business. Much of the world’s flow of data go through Internet companies based in the United States.

The US administration had projected itself as an honest host of the Internet centres, respecting the rights and privacy of the world’s Internet and e-mail users, and a champion of Internet freedom.

That image has been shattered by the series of revelations emerging from Snowden’s leaked files. The opposite image has replaced it, of a government that has used high technology to gather billions of bits of data on practically all Internet users.

If counter-terrorism was the official reason, this now seems to be only a pretext for also spying on any important person, including one’s closest allies.

Now that they have lost confidence that the United States or other countries will respect privacy of the politicians, companies and citizens of their countries, some governments are now planning to limit the reach of American-based Internet companies.

The Financial Times reported that Brazil is planning regulations that would force technology companies to retain information on the Internet about its citizens and institutions within Brazil itself.

It also said that European officials are discussing the need to have stronger cloud computing capabilities in Europe to protect their citizens’ privacy.

Brazil is also planning to bring up in various UN agencies and fora the need for a global framework to respect and protect privacy on the Internet.

Contributed by Global Trends Martiin Khor
The views expressed are entirely the writer’s own.

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Malaysia views spying seriously

KLUANG: Spying activities on Malaysia by its allies is a serious matter, says Defence Minister Datuk Seri Hishammuddin Hussein.

This is because it can cause relations between Malaysia and these countries, long established based on trust and sincerity, to be tense.

“I believe if this (spying) is not fully explained, our long-established good relations can be adversely affected. Therefore, we need a full explanation on the extent of the spying activities and for what purpose.

“Tensions can be avoided if the allies involved uphold the trust and sincerity in their relations with Malaysia,” he said.

Hishammuddin said this to reporters after attending a Deepavali open house hosted by Johor Unity and Human Resources Committee chairman R.Vidyanathan here yesterday.

The spying issue arose following media reports on the claim made by intelligence informant Edward Snowden that the United States had 90 electronic surveillance facilities throughout the world, including at its embassy in Kuala Lumpur.

In light of this, Hishammuddin wanted a detailed explanation on the matter as such activities could threaten Malaysia’s security and its other interests.

The US ambassador to Malaysia, Joseph Y. Yun, was reported to have explained on the spying claim to Wisma Putra.

Foreign Minister Datuk Seri Anifah Aman said Yun had stated that all surveillance activities by the United States throughout the world were specifically for security, to detect threats of terrorism and weapons of mass destruction.

On his trip to China last month, Hishammuddin said it was aimed at enhancing cooperation in the area of defence, especially through joint exercises, exchange programmes involving navy and other military officers, establishing cooperation between the defence industries of both countries, and efforts to combat terrorism and transnational crime.

Meanwhile in Yan, Inspector-General of Police Tan Sri Khalid Abu Bakar said they would arrest any foreign diplomat found to be involved in spying activities.

“We will not hesitate because spying is a threat to the country’s sovereignty. In the 1980s, we have arrested foreign diplomats involved in spying activities.

“We will do the same again if there is proof of such activities,” he told newsmen after a briefing on the Sungai Limau by-election at the Yan police headquarters yesterday.

- The Star/Asia News Network Monday Nov 4, 2013

China demystifying nuclear subs a welcome move

Wide coverage has been given to the Chinese nuclear submarine force in Chinese State media recently, considered to be a showcase of China's strategic master card. China's debut in this field is believed to have deep implication.  

Being confident is of prime importance to achieve military transparency. US submarines are open to visitors, so are parts of the Pentagon. Washington prefers to display power, which will convince the public of the national security while deterring opponents. It obviously believes that core military power being exposed to the public could generate more positive effects, distracting attention from worrying about the "leakage of secrets." 

Chinese understanding of "state secrets" is changing as its military power keeps increasing. On one hand, China is facing a heavier burden of keeping secrets due to soaring external interests on intelligence information about it. On the other hand, it has more room to win strategic gains through actively releasing some information. Is China safe? Are there any external forces daring to risk a strategic showdown with China or radically provoke China over its core interests? Such questions linger on in the minds of the public.

Besides being an economic giant, China is powerful in possessing a ­credible second-strike nuclear ­capability. However, some countries haven't taken this into serious consideration when constituting their China policy, leading to a frivolous attitude ­toward China in public opinion. 

Therefore, partly revealing the Chinese nuclear submarine force is in the interests of China. It could strengthen cohesion of Chinese society and enhance a comprehensive understanding of China. There is necessity that China should summarize its efforts in realizing military transparency and keep on moving forward.

For a modern power, there is rare opportunity to input core military power, which is mainly assuming a deterrent role, into practical war. To build the military we need to ensure its actual combat capacity, as well as convert it into strategic deterrence. Being in a sensitive position in the process of a peaceful rise, China will see a growing demand for strategic deterrence.

The current nuclear capability of China and the world's understanding of it cannot guarantee China's strategic deterrence not to be challenged. The limited number of its nuclear submarines is not enough to quell the idea of damaging China's interest in an extreme way. Jimmy Kimmel's shocking show demonstrates that many people in the West think they can choose to be friendly with China, but they don't have to be.

China needs to make it clear that the only choice is not to challenge China's core interest. To cultivate such thinking, there remains tedious work to do. Developing marine-based nuclear power is part of such work. Perhaps it will give excuse to "China Threat" speculation but the benefit will far eclipse the trouble created by external opinions.

Domestically it is of great significance to open some of the strategic military facilities where the public can have direct access to learn about China's aircraft carrier, missile base or witness a major military exercise. It is a way to help foster people's support for national defense, which is more and more important in modern society.

By Global Times

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China's steams ahead; Reforms enter critical stage

Industrial Output growth at quickest pace in 17 months

China’s industrial output grew at the fastest pace in 17 months in August and the broadest measure of new credit almost doubled from July as a recovery in the world’s second-largest economy gains traction.

Factory production rose 10.4 percent from a year earlier, the National Bureau of Statistics said in Beijing today, Aggregate financing was 1.57 trillion yuan ($257 billion), the central bank said, topping the median analyst estimate of 950 billion yuan. UBS AG said China’s liquidity and credit squeeze appears over, while Societe Generale SA said corporate and local-government debt is rising from already alarming levels.

Premier Li Keqiang said today that August data show a recovery trend, after the government used measures from tax cuts to extra spending on railways to defend the year’s 7.5 percent expansion goal. As Communist Party leaders prepare for a November meeting to discuss policy reforms, Li said that industrialization and urbanization will fuel growth, the official Xinhua News Agency reported.

“The government growth target appears within reach, which reduces the chance of stimulus and allows the government to focus on reform,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

The benchmark Shanghai Composite Index rose 1.2 percent to the highest close since June. The yuan was little changed at 6.1200 per dollar.

The gain in output compared with a median forecast of 9.9 percent in a Bloomberg News survey. The government doesn’t release separate industrial data for January and February, which are distorted by the Chinese New Year holiday.

‘Downside Risk’

“If credit growth picks up persistently from here, China’s current growth recovery may well last a bit longer and go a bit further,” said Yao Wei, China economist at Societe Generale in Hong Kong. “However, that only adds to the downside risk afterwards, as the leverage of Chinese corporates and local governments keeps rising from the already alarmingly high level.”

Industrial production topped all 45 analysts’ estimates in a Bloomberg News survey, with projections ranging from 9.2 percent to 10.2 percent, following a 9.7 percent gain in July. Thirty-nine of 41 industries reported growth, including a 13.6 percent gain in ferrous metals and 12.3 percent in chemicals, according to the statistics agency.

Steel production rose 15.6 percent in August, up from 10.9 percent in July, and electricity output expanded 13.4 percent, compared with 8.1 percent the previous month.

Retail Sales

Retail sales advanced 13.4 percent, while fixed-asset investment excluding rural households increased 20.3 percent in the January-August period, both topping estimates.

The median estimate for retail sales was a 13.3 percent advance after 13.2 percent in July. Fixed-asset investment was projected by economists to rise 20.2 percent in the January-August period, after a 20.1 percent gain in the first seven months of the year.

A separate report today showed China’s passenger-vehicle sales gained the most in four months in August, led by sales of sport utility vehicles. Wholesale deliveries of cars, multipurpose and sport utility vehicles climbed 11 percent to 1.35 million units, according to the state-backed China Association of Automobile Manufacturers today.

China’s exports rose 7.2 percent from a year earlier, the General Administration of Customs said Sept. 8. That exceeded the 5.5 percent median estimate of analysts. At the same time, imports rose a less-than-estimated 7 percent from a year earlier, leaving a trade surplus of more than $28 billion.

Inflation, Stimulus

Consumer prices rose 2.6 percent in August, the statistics bureau said yesterday, leaving room for extra stimulus if needed. The producer-price index (SHCOMP) fell 1.6 percent, the least since February.

Premier Li, in an opinion article published yesterday in the Financial Times, said the economy “will maintain its sustained and healthy growth,” with expansion around a 7.5 percent “lower limit” intended to ensure steady growth and employment.

Goldman Sachs Group Inc. last week raised its estimate for China’s economic growth for the third and fourth quarters, citing improving global demand and a stronger-than-expected domestic industrial recovery. JPMorgan Chase & Co. and Deutsche Bank AG raised their growth forecasts over the past month, bolstering optimism that Li will meet the government’s target for expansion this year.

Analyst Forecasts

Analysts surveyed by Bloomberg News last month gave a median estimate for 7.5 percent expansion this quarter and 7.3 percent in the October-December period.

China’s top solar-panel makers are returning to profitability following two years of losses as higher demand and prices drive up margins. JinkoSolar Holding Co. last month reported second-quarter net income of $8 million, its first profit since the third quarter of 2011, as sales jumped 43 percent from a year earlier.

In other economies today, French industrial production unexpectedly fell in July from the previous month, while Italy released final figures for second-quarter gross domestic product that showed a deeper contraction than initially estimated.

- Contributed  by Bloomberg News

 Reforms enter critical stage, says Premier Li Keqiang 

Finance-sector restructuring poses the greatest challenges as drive moves into 'deep-water zone'

Premier Li Keqiang says Beijing's economic restructuring drive has entered a critical stage, with an overhaul of the financial sector one of the most important and most complicated tasks to be tackled.

Indicating concerns that the world's second-largest economy might decelerate too much as overdone, Li said the central government was confident it could meet this year's economic goals through structural reform, ruling out the need to significantly loosen fiscal or monetary policy to stimulate short-term growth.

Financial reform is an important part of economic system reform. It is a complex, systemic project.

In his opening speech to the World Economic Forum in Dalian yesterday, Li also said the government would seek to identify the core issues in reforms, which, once implemented, could exert a major impact on the entire process.

"Financial reform is an important part of economic system reform," he said. "It is a complex, systemic project, and because it is such a complex, systemic project, it means China's reforms have entered a deep-water zone, or the most difficult phase." In the next stage, he said, the key was to stick to market-oriented principles. The government would "actively and steadily" push forward with interest rate and exchange rate liberalisation, promote the yuan's convertibility under the capital account, and ease barriers for new, smaller players to enter the state-dominated financial industry, he said.

The steps already taken by Beijing to stem a sharp slowdown in economic growth had had an effect, he said.

"Some people expressed concern about whether China's growth might decelerate too fast, as some other countries experienced, or even see a so-called hard landing," he said.

But Li said the economy's fundamentals were "sound" and its operations stable.

The mainland's economic growth cooled to 7.5 per cent in the second quarter, from 7.7 per cent in the first and 7.9 per cent in the fourth quarter of last year, hit by global headwinds and excess capacity at home.

Since then, Beijing has cut tax for small companies, boosted investment in railways in poorer regions, and raised spending on urban facilities, while maintaining its grip on credit growth.

Industrial output growth jumped to a 17-month high last month while export growth quickened, suggesting a solid recovery in economic dynamics.

Li also said that local governments' borrowings, highlighted by analysts as an area of concern for financial risks, remained "safe and controllable".

- Contributed by Victoria Ruan South China Morning Post

Premier Li Keqiang's Profile:

Li Keqiang, born in 1955, became China's premier in March 2013. Like ex-president Hu Jintao, his power base lies with the Communist Youth League, where he was a member of the secretariat of the league’s central committee in the 1980s and later in the 1990s the secretariat’s first secretary. His regional governance experience includes a period as vice party boss, governor and party boss of Henan province between 1998 and 2003 and party boss of Liaoning province beginning in 2004. He became vice premier in 2008. Li graduated from Peking University with a degree in economics.

Emerging economies in turmoil

The G20 Summit last week discussed a new phenomenon – economic turmoil beginning in some major developing countries – even as coordination to prevent future crises is still elusive.



WHAT a difference half a year makes. At the G20 Summit last week, attention turned to the weakening of the emerging economies.

This was a contrast to previous summits. Then, the major developing countries were seen as the drivers of global growth, as the developed countries’ economies were faltering.

For two years or so, the European crisis was the focus of anxiety. The American economy was also plagued with domestic problems. The economies of the developing world, including China, India, Brazil and Indonesia and other Asean countries, were the safety net keeping the global economy afloat.

But in its report for the G20 summit in St Petersburg, the IMF had to do an embarrassing about-turn. It reversed its previous theory that the emerging economies were on the fast-track and keeping the global growth going.

It now warned that the stagnation in these countries is now a drag on the global economy.

Developing countries’ leaders correctly point out that their economies have been victims to the developed countries’ monetary policies, especially the United States’ “quantitative easing” (QE), under which the Federal Reserve has been pumping US$85bil (RM283bil) a month into its banking system.

A lot of this ended up in developing countries’ equity and bond markets, as US investors searched for higher yields there, since the US interest rates have been kept near zero.

However, when the Fed chairman indicated the QE would be “tapering off” and long-term interest rates started rising in response, the capital invested in developing countries has been flowing back to the US.

Vulnerable emerging economies have been hard hit, and worse may yet come. Especially vulnerable are those which have a current account deficit, since they depend on capital inflows to fund these deficits.

The outflow of needed capital and the increased risk have caused their currencies and their stock markets to plunge. This in turn leads to more capital outflow, due to anticipation of further falls in equity prices and in the domestic currency itself. The currency depreciation also fuels inflation.

Thus, former stalwarts India, Indonesia, Brazil, South Africa, Turkey are now the victims of a vicious circle.

In Indonesia, the currency fell last week across the 11,000 rupiah to the dollar mark (it was 9,500 a year ago), as the July monthly trade deficit rose to US$2.3bil (RM7.6bil) and the annual inflation rate hit 8.8% in August.

In India, the currency fell to 68 rupee to the dollar (from 56 a year ago) before recovering to 65 rupee after a well-received inaugural media conference by the new Central Bank Governor last Thursday.

India’s current account balance is running at around US$90bil a year, making it very dependent on capital inflows.

In mid-August, the government introduced limited capital control measures including restricting citizens’ money outflows to US$75,000 a person (from US$200,000 previously) and restraining local companies’ investments abroad.

The current account deficits are also significant in South Africa (US$25 billion in latest 12 months), Brazil (US$78 billion) and Turkey (US$54 billion), making them vulnerable to the vagaries of capital flows.

The South African rand has fallen in value by 18%. President Jacob Zuma blamed the currency slide on the potential tapering of the US quantitative easing.

“Decisions taken countries based solely on their own national interest can have serious implications for other countries,” he justifiably complained.

Malaysia’s currency value has also dropped recently, but the country is not as vulnerable as it has been running a current account surplus (US$14.2bil in the 12 months to June). However, the trade surplus has not been as strong recently and there is always a danger of “contagion effect”, which we know is often not based on rationality.

Countries affected have a few policy tools to deal with the situation. One is to try to stabilise the currency through the Central Bank purchasing the local currency by selling the US dollar.

But this is expensive, and the country may draw down its reserves, especially if speculators keep betting that its currency will fall by more. This is the bitter lesson that Thailand and others learnt in the 1997 financial crisis.

Another policy measure is capital controls. Ideally this should be imposed to prevent inflows.

But most countries allow the inflows in the good times, and then when these suddenly turn into outflows, the boom-bust problem if laid bare.

Malaysia in 1998-99 imposed controls on outflows of both residents and foreigners, which was effective in stopping the crisis. It was heavily criticised at that time, but now even the International Monetary Fund is recommending capital controls if the situation is bad enough.

Ultimately there has to be international reforms to prevent excessive capital flows from the source countries, and developed countries have to be disciplined so that their economic policies do not have negative fallout effects on developing countries.

But we will have to wait for such useful international coordination on capital flows and economic policies to take place.

Contributed by Global Trends, Martin Khor

> The views expressed are entirely the writer’s own.

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India’s financial crisis a drag on region

After many years of galloping growth rates, India is grinding to a halt, and countries in the region may soon feel the impact.

To ease pressure on the rupee, the government said it had set up a panel to look at paying for imported items in rupees rather than foreign exchange under bilateral currency swap agreements. Photo: Reuters

INDIA is in the news and for all the wrong reasons. With the rupee collapsing, the current account deficit exploding and corporate debt set to melt down (trimming its contribution to Forbes billionaires’ list), China’s strategic challenger looks set to drag the rest of Asia-Pacific into a prolonged economic crisis.

After many years of galloping GDP growth rates, India is grinding to a halt. Growth in 2012 was 6.3% – this year it will be lucky if it can get above 3%.

For a proud nation with a US$4.684 trillion (RM15.4 trillion) economy, its own nuclear bomb and a navy equipped with both aircraft carriers and submarines, this is a massive loss of face and, indeed, opportunity.

India may well go down in the annals of contemporary economic history as being the trigger of the 2013 financial crisis – much as the South Koreans and Thais were the forerunners of the 1998 meltdown.

So what went wrong in India? Wasn’t the subcontinent’s giant supposed to be a great developmental success story and what are the lessons for us in Malaysia?

According to a pair of extremely high-profile economists, Jean Dreze and Nobel Prize winner Amartya Sen, whose book An Uncertain Glory: India and its Contradictions was launched earlier this year, India allowed its public sector, especially healthcare and education, to wither. This failure of governance and execution compounded deeply-rooted iniquities at the heart of its complex – a caste-driven society.

And with a general election slated for next year, there’s little doubt that a floundering Congress-led administration under Manmohan Singh will once again fail to tackle one of the world’s most inefficient and corrupt bureaucracies.

So, with the precipice fast approaching, it would be wise for Malaysian readers to acknowledge that India will not suddenly rebound and we will all be tainted by association. Moreover when the fear sweeps the markets, the contagion often ends up being far worse than anything crafted by Hollywood’s merchants of doom.

To be fair, India’s track record has been stellar if you’re middle-class and above.

Opportunities have abounded, despite the odd infrastructural glitch such as the July 2012 power blackout across Northern India (at the height of the summer heat).

However, for those at the bottom of the social scale, life has been less enthralling.

Take, for instance, the Indian government’s meagre spending on healthcare – only 1.2% of GDP alongside China’s 2.7% and Latin America’s 3.8%. Converted into absolute expenditure (at PPP terms), India has been spending US$39 (RM125) per capita whilst China has spent US$203 (RM655) per capita.

To put things into perspective, Malaysia spends 4.8% of its GDP on healthcare or about US$400 (RM1,292) per capita. Indonesia spends 2.7% of its GDP and US$100 (RM323) per capita.

Understandably, India has reaped a bitter harvest from this shocking under-investment, achieving Quality of Life indices that pale in comparison even with neighbouring Bangla-desh. This is despite Bangladesh having a GDP per capita of US$747 (RM2,413) compared to India’s US$3,557 (RM11,490).

But it’s the weaker sections of society that have been the most imperilled: women, tribal people and the lower castes. Indeed, female empowerment in Muslim Bangladesh far surpasses anything in India.

However, the story isn’t uniformly bad. India is a vast nation and there are differences in the various indices between the country’s North and West (sub-Saharan African bad) and its South (generally good). So, if one is to subscribe to the Sen/Dreze formulation, India’s failure is primarily a failure of governance with more public money being spent on notoriously corrupt fertilizer subsidies rather than healthcare and education.

We cannot underestimate the cost of this neglect to invest in its people: not only due to higher crime and squalor, but also in terms of lost opportunities via better human capital.

As a result of this terrible under-investment in their own people, India’s “demographic boom” may well be worthless as its burgeoning youth population of some 430 million won’t be adequately educated, employed and/or fed.

Of course, the two men’s thesis hasn’t been uniformly accepted. Free-market thinkers like Columbia University’s Jagdish Bhagwati have taken issue with their prescriptions, seeing rather the need for less state intervention and greater private sector participation. The ensuing debate between the two prominent thinkers has been sharp and acrimonious, reflecting the underlying sense of unease.

Ultimately, the correct policy path for India probably lies midway between the two positions, but for now, we can be sure that little will be done to improve the lot of India’s hundreds of millions of poor.

Dreze and Sen have also criticised India’s free market and much-lauded democracy, arguing that neither has helped address its fundamental inequalities.

Look across the Himalayas to China, however, whose authoritarian system has brought it great wealth, but also the same inequalities and social dislocations and things don’t seem that rosy either.

Where should developing economies go then? Perhaps this is the great paradox of modern capitalism: that nothing countries do will ever be right in the long run and that periodic market scares, if not an outright collapse are only to be expected!

Only then will governments be forced to reassess and change their policies. So as emerging markets ready themselves for the impending squalls, we in Malaysia should also be sharpening our policy “tools” and readying ourselves to address the many failings in our policy “tool-box”.

Contributed by KARIM RASLAN
> The views expressed are entirely the writer’s own.

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Serious deficits that cannot be financed could lead to bigger global crisis!

A bigger global crisis possible

GEORGE TOWN: A global financial crisis bigger than the one in 2008 is conceivable in five to 10 years.

Value Partners Group chairman and co-investment officer Cheah Cheng Hye said the crisis, which would not be V-shaped in nature, would bring about capital flights, volatile markets, rising inflation and social unrest.

“The global financial crisis would have to do with the very serious deficits that cannot be financed.

Developed and developing countries have over the years accumulated such deficits by making promises that cannot be realised in order to get re-elected.

“These deficits would sow the seeds of future social and political unrest,” he said at a public lecture entitled From Journalist to Fund Manager, which was officiated by Penang Chief Minister Lim Guan Eng.

Also present was Penang Institute chief executive officer Zairil Khir Johari.

On Malaysia, Cheah said Value Partners was not bullish about the country.

“Malaysia’s Government and household debts are higher than those in Indonesia, China and Thailand. Half of the country’s government bonds are held by foreigners, who would be the first to run in a crisis.

“The Malaysian workforce is now less productive than the workforce in Thailand and the Philippines. Malaysia is also importing more oil than selling it,” he said.

On making investments, Cheah advised investors to have well-diversified portfolios.

“They should have investments in gold, real estate and a high level of cash of at least 25% of their savings to prepare for future uncertainties,” he said.

Cheah attributes his success to being at the right place at the right time more than the decisions he chose to undertake.

Born in Penang, Cheah, 59, has been dubbed the “Warren Buffett of the East” by the media in Hong Kong.

A Penang Free School boy, Cheah had worked as a journalist in The Star in the early 1970s.

- Contributed by DAVID TAN  davidtan@thestar.com.my

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New China-US relationship can avoid past traps

 

President Xi Jinping of China and President Obama took a walk Saturday on the grounds of the Sunnylands estate in California. 

At the informal meeting between the heads of China and the US on Friday, Xi Jinping expressed China's confidence that the two nations can avoid repeating history of conflicts between two powers; while Barack Obama welcomed China's peaceful rise.

This may be the most exciting statement between an existing power and a rising power. As Chinese, we can feel that the Chinese leader was speaking from the nation's heart, though we do not know if Obama was just trying to assure his guest, or expressing the real feelings of Americans.

This is a reflection of long-term strategic distrust between the two countries. We often doubt whether the real intentions of the US are not as friendly as its leader has stated. On the other hand, the Americans may not really believe what China has declared.

Relations between China and the US are more complicated than ever. There are numerous cases of frictions between the two countries in various areas, which have heavily influenced public opinions on both sides.

China cares about individual issues as much as the US. But it baffles us when the US raises many issues, such as cyber security, to a height closely related to strategic relations between the two countries. Is it a hoax to threaten China, or is it because the US believes each of the issues is more important than anything else?

The US leadership style has changed as each opposing political party takes charge. It appears urgent for each president to solve a particular issue. They have to make sure the handling of the Sino-US relationship is practical and yields tangible results as soon as possible.

It's unfair to think that China does not want to solve concrete issues. But what the US has demanded is often impossible for China to comply with.

Some of the demands are too selfish, which may require China to compromise its national interests while the US refuses to concede an inch. Other issues, such as intellectual property rights, may simply be too complicated to immediately solve.

The new relationship between the two powers will be based on a restructuring of the two countries' strategic thoughts as well as approaches in particular issues. It is not going to be easy for either leader to avoid misinterpreting the other side's intentions.

The new ties will require greater tolerance of each other. China and the US must realize that even a husband and wife can not avoid quarrels and have to tolerate each other.

Although the Sino-US relationship will see ups and downs, we know it would be even more difficult to deal with a major setback, as that would be against this historic momentum - Global Times

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The China dream

Tan Sri Lin See-Yan analyses the China Dream' and that President Xi Jinping needs to assure middle-class Chinese that the nation can remain rich and strong.
 
PRESIDENT Xi Jinping, general-secretary of the ruling Communist Party as well as chairman of the Military Commission, talked of the “China dream” to unite an increasingly diverse nation of 1.35 billion people. What's Xi's vision which incidentally sounds somewhat like the American dream?; even evokes Martin Luther King's “I have a dream,” reflecting some US-style aspiration.

Since the revolution, China's goals have centred on unity, strength and wealth. Mao Zedong tried to attain them through Marxism and failed: the cultural revolution ended with his death in 1976. Deng Xiaoping's catchphrase was more practical: “reform and opening-up.” Then, Jiang Zemin pushed the more arcane “Three represents” to embody the changed society, including allowing private businessmen to join the party. Lately, Hu Jintao championed the “scientific-development” outlook which was about being greener and dealt with disharmony created by the divisive wealth gap. His Prime Minister Wen Jiabao dwelt repeatedly with the need to rid the economy of the 4-UNs unstable, unbalanced, uncoordinated and ultimately unsustainable growth.

Now, Xi talks of his dream of “the great revival of the Chinese nation,” of a “strong army dream,” and of our mission “to meet the people's desire for a happy life.” He also alludes to ordinary citizens wanting “to own a home, send a child to university and just have fun.” The Chinese dream, he said “is an ideal. Communists should have a higher ideal, and that is Communism.” Frankly, even though short on detail, Xi's dream is different from his two predecessors' stodgy ideologies. I see practical politics at work here. With growth slowing, Xi's new vision appears to emphasise nationalism going beyond middle-class material comfort. Of course, there is the usual tough talk on the rule of law and on corruption (“fighting tigers and flies at the same time”); also on meeting the public's wish for “better education and more stable jobs.” His dream seems designed to inspire rather than inform. In the end, “The China dream is the people's dream,” so he says.

Promises and pledges

China's US$8.3 trillion economy went through its worst slowdown in 13 years in 2012 when weak exports and increases in interest rates dragged annual growth to 7.8%, the grimmest since 1999. The economy faces more headwinds as it struggles with surplus production capacity and underlying risks in the financial system. So it's not surprising the new administration has called for sweeping reforms and lessening state control. Areas requiring pressing change include freeing interest rates, promoting private investment, encouraging consumption and “greener” growth, and enforcing the rule of law. It has even declared “fair competition is our common goal,” vowing to end subsidising SOEs (state owned enterprises) and levelling the playing field for private enterprise.

The new leadership has since pledged to slash bureaucracy, commit to market-oriented reforms, boost social spending and services, and fight pollution. China is expected to rely on migration to the cities to boost domestic consumption and re-make the economy to be less dependent on massive outlays on fixed investment at home and exports abroad. Such “rebalancing” needs to give markets room to operate competitively. In finance, market forces will be given freer play in setting interest and exchange rates, to ensure savers get a better deal, and businesses have ready access to funding through more effective capital markets.

The Xi administration now puts China's fast growing consumer class at centre stage. Perhaps, the most far reaching change thus far is the urbanisation policy being pursued. This involves reforming the rigid urban hukou household registration system by giving residency permits to some 220 million migrants to the cities, and allowing farmers to sell land at market prices to protect their land rights and boost incomes. Empowering a whole new class of consumers underpins the national drive to reorganise the entire economy from government to banks to SOEs. Such radical overhaul is needed to seriously expand domestic demand. China's plan includes adding 9 million new jobs in urban areas to keep unemployment at or below 4.6% to ensure that real per capita income for both urban and rural residents continue to increase. Its inflation target this year remains at 3.5%, lower than 4% last year. China's actual inflation last year came-in well below that at 2.6%. But these achievements came at the cost of widening inequality and environmental degradation. China's Gini coefficient a measure of income differences was 0.474 last year, higher than the 0.4 level which signals a potential for social unrest.

Transformation

China's GDP (gross domestic product) rose 7.7% in the first quarter this year (down from 7.9% in the fourth quarter 2012), slower than the median analysts' forecast of 8%. Given continuing weak US conditions and a eurozone locked in recession, disappointing Chinese data cast a long shadow over the global outlook. Frankly, I am not as worried provided it reflects the transformation that's said to be already in train. Elements of this reform include shift from investment-export led growth to a new structure providing widespread support for domestic private consumption. This rebalancing will involve new initiatives emanating from services-led consumption, which in turn relies on more labour-intensive services. These require 35% more jobs per unit of GDP compared with manufacturing and construction (thus ensuring rising employment and poverty reduction), with a much smaller resource and carbon footprint.

Xi’s dream is different from his two predecessors.

As I understand it, this services-led pro-consumption reform remains a core initiative in the current 12th 5-year Plan. The agenda needs complementary support from implementing an enlarged and better designed social safety net; reform of SOEs; and ending financial depression of households by raising the artificially low interest rates on saving. But there are strong headwinds coming from several directions: deteriorating credit quality affecting the integrity of bank balance sheets; weakening export competitiveness reflecting continuing rising wages; pollution, corruption and inequality; and political economy missteps, including escalating disputes with Japan and others. China has come through two major crises in the past four years. Its economy remains robust and resilient but it still needs to modernise. Make no mistake, the risks are real. Only purposeful transformation can provide China with the needed strength and resolve to pull through future crises. Reality check: as the economy matures, its pace of growth will surely slacken.

Urbanisation

Urbanisation (movement of rural population into cities and towns) has become a focus of China's reform plans. Its urban population reached 690 million in 2011, against 170 million in 1978. The percentage of urban population rose to more than 51% in 2011 (17.9% in 1978) and will touch 60% by 2020. Consequently, rural population fell from 82.1% in 1978 to 48.7% in 2011. This movement highlights the strategy to rebalance the economy:

● It drives market demand; per capita consumption ratio of urban residents to rural is about 3.3:1;

● Pushes investment in infrastructure and social housing which in turn creates employment and new incomes, which further raises consumption. A 1-1.5 percentage point rise in urbanisation adds 15-20 million people to the city;

● Promotes industrial restructuring and upgrading thereby raising the quality and productivity of employment;

● Increases jobs in the service industry. According to the World Bank, emigrants send home US$45bil a year, with some sending as much as 80% of their income to support their families. This leads to rising rural spending on better homes, education, consumer durables and higher grade groceries. Contrary to common belief, migrants actually maintain their rural shopper habits as they work and sleep in urban environments. The entire process will help to restructure the economy. It is projected that 400 million people will become urban dwellers over the next decade. Under the 12th 5-year plan (ending 2015), 36 million social housing units will have to be built in addition to the 7.2 million units built in 2012. To meet the growing demand for urban jobs, China created 10.24 million new jobs in the first nine months of 2012 (exceeding the 9 million target set for the entire year).

But urbanisation comes at a cost. It is accompanied by chronic environmental degradation and worsening pollution, posing a serious threat to human health and social stability. Urban migration is drastically changing patterns of consumption and behaviour city residents use three times more electricity than rural dwellers; consume 10 times as much sugar, and require vastly more infrastructure and utilities to service their daily lives. Despite efforts to make cities greener, progress is slow because local officials are rewarded for high investment and fast growth, rather than for sustainability. Hence, repeated calls for urbanisation to be “balanced with ecological security.” Additionally, there is fear that the surge of migration would turn cities into Latin-American style slums. But urban reformers are pushing for “bigger-is-better” the idea that cities gain by having people more tightly packed forcing greater use of public transportation (hence, raising its effectiveness), forcing old-line high polluting industries to relocate (thus raising productivity and freeing valuable social space), forcing new energies into a city thus, helping to create new businesses and investment.

Surprisingly, many of China's biggest cities are much less densely populated than Singapore, Seoul, Manhattan and downtown Tokyo, all of which have made strong, successful transitions to the consumer-led service-industry model China wants. Beijing (20 million) has a density of less than 5,000 per sq km and Shanghai (18 million), less than 6,000 against 11,000 in Singapore, 18,500 in New York and 10,400 in Seoul. Rightly so, the Chinese leadership is worried about building super-size urban centres because they create slums, worsen pollution or spur pockets of political dissent.

What then, are we to do?

National unity requires China to be one big bed. But its people can, and do have different dreams indeed, as many as 1.35 billion. The challenge is to get them all to dream the same dream. Xi hopes this would be his “China dream.” China's rise in national strength is well known. It's already the world's second largest economy and the world's largest exporter. Over the past decade, the economy rose 9.3% on the average, raising per capital income to over US$6,000 by 2012. Historians remind us that in 1820, China's GDP was one-third of the world. Then humiliation of the century brought it down to a low so that by the 1960s China's share fell to just 4%. Now, it has recovered to about one-sixth in purchasing-power parity terms. Xi's dream needs to reassure the new middle-class that China can remain “rich and strong” in the hope of reigniting “the great revival of the Chinese nation.”

From the “people first” approach to the “Scientific Outlook” on development, and then to campaigning for a “harmonious society” and “inclusive growth”, the Hu-Wen administration shifted the single-minded pursuit of GDP growth towards more emphasis on balance, reorienting its strategies towards a stronger focus on social security (by 2012, 480 million were on pension and 1.3 billion covered by medical insurance); education (reforms at decentralisation and addressing the need for innovation and entrepreneurship); urban-rural divide (reform of subsidies and taxes, and free and compulsory education in rural areas); and social housing (leading to massive building). Despite much progress, these areas remain of deep enough concern to require bold and innovative action by China's new fifth generation leadership. As I see it, gradualism (instead of cold turkey) is still the tone of future reforms. I see this manifested by the new emphasis on introducing pilot programmes first to test their workability on the ground when carrying out major reforms.

As part of reform, it does appear now there won't be any large-scale stimulus to boost growth as the government pares the state's role and rely more on workings of the market mechanism and the initiative of private enterprise. Many analysts have since begun to lower China's 2013 growth to 7.6% for the year as a whole, as the road ahead gets bumpy. It's unlikely to grow at 8.2% in 2014 (International Monetary Fund forecast). For the Xi administration, speed isn't everything. Better balance holds the key to unlocking China's dream.

WHAT ARE WE TO DO
By TAN SRI LIN SEE-YAN

● Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who speaks, writes and consults on economic and financial issues. Feedback is most welcome; email: starbiz@thestar.com.my.

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West is failing to capitalise on rising China

We are rapidly moving away from an 'old world' dominated by Europe, the United States and Japan to a 'new world' led by China

 

SINGAPORE: Western nations have failed to capitalise on China's economic rise as they struggle with their own problems, leaving others to benefit from the Asian giant's insatiable demand, HSBC said.
 
"The world economy is increasingly led by China. Those nations raising their China exposure have outperformed. Western nations, faced with internal discord, have failed to grab the opportunity," the bank said.

"We are rapidly moving away from an 'old world' dominated by Europe, the US and Japan to a 'new world' led by China," it said in a report entitled "The Great Rotation".

Among the beneficiaries of the global shift are countries located close to China and far-flung exporters that supply the Asian giant's demand for commodities, the report noted.

South Korea's exports to China currently account for 12 percent of its gross domestic product (GDP), up from 3.5 percent in 2000, HSBC said.

Malaysia and Singapore are also key industrial exporters to China while commodities producers like Australia, Chile, Kazakhstan and Saudi Arabia "have also shared in the spoils," the bank added.

"And in demonstrating China's ever-increasing connections with Africa, Angola is now China's 14th most important source of imports ahead of India, France, Canada, Italy and Britain," it said.

Western countries, in contrast, have failed to exploit Chinese demand, it said.

US exports to China account for a mere 0.7 percent of US GDP, with Canada, France and Italy "more or less" at the same level, HSBC said.

Britain's exports to China are even less significant at 0.4 percent of British GDP, it said.

While Germany has expanded its trade ties with China, this was overshadowed by a bigger increase in its dependence on the rest of Europe, HSBC noted.

This is "one reason why, despite its competitive advantages, Germany found itself succumbing in the second half of 2012 to a crisis which had already engulfed other parts of the eurozone," the bank said.

HSBC forecasts China's economy to grow 8.6 percent this year, up from an estimated 7.8 percent expansion in 2012.

The US and Japanese economies are expected to grow 1.7 percent and 0.2 percent respectively next year while the eurozone is likely to contract 0.2 percent, the bank said.- AFP

US Fiscal Cliff poses threat to economy worldwide!

Falling off the fiscal cliff would have a global economic impact, analysts say

The so-called "fiscal cliff" has been on the horizon for two years, but now the 31 December deadline is almost here.

Now that the presidential election is over it is hoped that policymakers will knuckle down to find a solution.

US fiscal cliff may hamper Malaysian economy, says economist

KUALA LUMPUR: Malaysia could experience a slower economic growth of between 3% and 4% next year if the US fiscal cliff kicks in by next January, OCBC Bank Bhd's economist Gundy Cahyadi (pic) said.

“It's going to create a huge impact if this were to happen. The fiscal cliff will create a recession in the US where its economy will likely contract by 0.5% and this may lead to a bigger than expected recession in the eurozone. The spill over effects may lead to global trade falling quite significantly.

“On the whole, we expect a growth of between 3% and 4% for next year,'' he said at a press briefing on OCBC's regional and global economic outlook for 2013. Fiscal cliff involves the simultaneous move to increase tax and spending cuts to reduce budget deficit.

He said on the whole OCBC was projecting the country's gross domestic product (GDP) for next year to be at 5.2% year-on-year, adding that at this juncture, the risk posed by the fiscal cliff was expected to be limited as the US government might finalise a new deal.

Gundy said the economic growth would be supported by Malaysia's investment growth, which was more than 20% for the first three quarters of this year, and strong positive momentum in private consumption growth.

However, he added the 20% investment growth would not recur next year but it would still expand by close to double digit, at least in the first half of 2013 as the Government was expected to continue ramping up infrastructure overhaul currently in progress.

The main risk to the bank's projection he said was the possible slump of global demand, especially as exports remained a main drag to Malaysia's growth in 2012.

External demand had continued to be a large drag on the country's economy, he said, noting that in terms of nominal value and its contribution to GDP growth, net exports were at a record low in the third quarter of this year.

Exports growth had been sluggish throughout the year, he said partly on the back of commodity price correction, and falling exports earnings would not only affect growth directly but would have negative spillover effects to households' spending behaviour.

There may be further pressure from the recent slump in crude palm oil prices which could be quite detrimental given the commodity boom seen in the past several years had led to a spike in investment in palm oil related industries, Gundy added.

On inflation, he said OCBC expected it to trend higher next year to about 3% from the likelihood of below 2% this year.

BY DALJIT DHESI The Star/Asia News Network

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