F1 & the Radically Inegalitarian Bernie Ecclestone

♠ Posted by Emmanuel in at 11/30/2014 01:30:00 AM
The puppet on the left is going to McLaren next year.
Business magazine Campaign Asia-Pacific has an illuminating interview with Formula One impresario Bernie Ecclestone in which he voices radically inegalitarian viewpoints that you cannot imagine a CEO of a large, publicly-owned enterprise making. Fortunately for him, he definitely is not running a public enterprise even if it is vast, highly visible and internationally predominant. The modern concept of F1 is embodied by Bernie Ecclestone himself, without whom the whole show grinds to a halt. If you would ask me to identify truly global sports whose impact stretches around the world, I'd indicate football (soccer) followed by F1--hence their continuous coverage in this blog.

Recently there's been much brouhaha about the financial unsustainability of the sport as two smaller teams, Caterham and Marussia, dropped out of the last few races. With all and sundry decrying the elitist, high-spending nature of the sport--including F1 insiders--Ecclestone offers the simple reply that these smaller teams haven't managed to build recognizable brands and that they aren't well-run enough to break even besides:
[Interviewer]: Is Formula One in crisis?

Bernie Ecclestone: No. Good or bad, I’ve been around Formula One a long time and I’ve seen it all. I used to own a race team and for 18 years I ran a successful team and won world championships. There are always people that haven’t managed to run their business commercially successfully. They spend more than they have for income. We’ve seen this happen before and this is what’s happened again. We’ve had, I believe, more than 60 different teams since 1950, so people come and go. Ferrari is the one team that has been there from day one. A lot of people come into Formula One and they really haven’t looked to see exactly what it means. The fact is, to be super competitive you’ve obviously got to keep up with the others so you have to spend, whether people like it or not. You’re not going to win races on the cheap. If they haven’t got the budget that allows them to spend they will eventually disappear. It’s like a poker game; if you haven’t got enough money because there are big dealers in there, don’t play the game. So, unless you can ante up with the others don’t join the game. Trouble is, they all think it’s going to be a miracle and they’re going to get a good hand. It’s the same in poker. It doesn’t happen.

[Interviewer]: Are you concerned about struggling teams and the impact this will have on F1?

Bernie Ecclestone: Not at all. Nobody will miss the two teams because they’re not front-running teams; they’ve only got a name that people would know because of the problem they’re in. If you want to get recognised you’ve got to do something. This poor guy in South Africa [Oscar Pistorius], for instance, has got more interest because of what happened with him than when he was winning gold medals. He won medals and afterwards nobody thought about him. If this case hadn’t happened he would have been forgotten, probably. Same with these two teams. You need teams like Ferrari. If you go anywhere and you say to somebody ‘Ferrari’, they’ll know what you’re talking about. If you say ‘Marussia’, they won’t. So that’s it. It’s brands again, isn’t it? Ferrari’s a brand and it’s a brand that’s particularly connected to a product and it’s known for that product.
Ah, it's the good ol' "mismanagement" explanation. I would give it more credence if it weren't for the fact that many of the smaller teams still in it are also complaining. As the post title suggests, though, whoever said that having the most visible brand names was a cheap or easy feat? Brand-building takes a lot of money, and even Ecclestone can probably appreciate that not everybody can create internationally-recognized brands overnight. Rather, some lesser-known names are participating in F1 precisely because they would like to increase their international recognition.

Speaking of which, Ecclestone goes further in blasting large swathes of his worldwide audience by saying that he's not really selling to the "young aspirational" market but the "wealthy geezer" market (composed of folks like, er, Bernie Ecclestone we presume):
[Interviewer]: How can Formula One widen its reach (beyond television) to expand its audience base?

Bernie Ecclestone: I’m not interested in tweeting, Facebook and whatever this nonsense is. I tried to find out but in any case I’m too old-fashioned. I couldn’t see any value in it. And, I don’t know what the so-called ‘young generation’ of today really wants. What is it? You ask a 15 or 16-year-old kid, ‘What do you want?’ and they don’t know. The challenge is getting the audience in the first place. I say to some of these people who start this nonsense about social media, look at what tobacco companies tried to do—get people smoking their brand early on because then people continue smoking their brand forever.

[Interviewer]: Do you believe there is no value in reaching this young audience?

Bernie Ecclestone: If you have a brand that you want to put in front of a few hundred million people, I can do that easily for you on television. Now, you’re telling me I need to find a channel to get this 15-year-old to watch Formula One because somebody wants to put out a new brand in front of them? They are not going to be interested in the slightest bit. Young kids will see the Rolex brand, but are they going to go and buy one? They can’t afford it. Or our other sponsor, UBS—these kids don’t care about banking. They haven’t got enough money to put in the bloody banks anyway. That’s what I think. I don’t know why people want to get to the so-called ‘young generation’. Why do they want to do that? Is it to sell them something? Most of these kids haven’t got any money. I’d rather get to the 70-year-old guy who’s got plenty of cash. So, there’s no point trying to reach these kids because they won’t buy any of the products here and if marketers are aiming at this audience, then maybe they should advertise with Disney.
Love him or hate him, Bernie Ecclestone is a man who speaks his mind, which is something that cannot be said about most other captains of industry. He does not perform any self-censoring in a PR-driven, politically correct era.

After all, who else would tell you things straight like "teams that exit F1 are poorly managed and deserve to leave the sport"; "social media is crap"; "young people have no money so we don't care about them"; or "out target audience is composed of rich old guys"?

Can Saudi Arabia Kill Off US Shale Producers?

♠ Posted by Emmanuel in , at 11/28/2014 01:30:00 AM
If OPEC members relied solely on energy revenues.
Here is a little background to the international political economy of the ongoing OPEC meeting. As you would expect for a multi-billion dollar industry, the stakes are very, very high. What's more, with oil prices sliding as a result of slowing growth in the world economy, the showdown is becoming an n=2 fight. For OPEC, Saudi Arabia represents the "swing" producer as the largest entity and therefore the one with the most sway within the cartel. The bogeyman, of course, is the United States which has become the world's largest energy producer on the back of the shale / hydraulic fracturing revolution that has made previously inaccessible energy supplies accessible...at a price.

The upshot of it all is that it's a highest-stakes game of chicken between Saudi Arabia--not really "OPEC"--and the US shale producers. The Saudi's gambit is to not restrict OPEC production in the expectation that, at current price levels, many shale operators will become uneconomic--especially if prices remain as they are now for a protracted period:
Then there’s Saudi Arabia, which is still at the wheel of OPEC as its top producer. The Saudis still enjoy some of the lowest production costs in the world, so they can sustain a much lower price and still not worry about financing themselves. That’s a luxury many OPEC members don’t have. Venezuela, Iran, Iraq, Libya, and even Russia all need oil prices higher than $100 a barrel to keep their deficits in check.

Right now the Saudis are a lot less worried about the budget deficits of their fellow oil exporters as they are about what’s happening in North Dakota and Texas. The biggest threat to the power the Saudis have wielded as the de-facto head of OPEC for the past 30 years isn’t cheap oil; it’s the 9 million barrels a day coming out of the U.S. The Saudis would much rather play a game of chicken with U.S. producers than bow to the wishes of Iran, which they’re in no hurry to accommodate given their disagreements over the Assad regime in Syria, not to mention Iran’s burgeoning alliance with Iraq.

For decades Saudi Arabia has been the preferred partner of the U.S. in the Middle East. At the heart of that partnership was America’s clear dependence on Saudi Arabia for its oil. But that dependence has diminished significantly over the past few years as U.S. refiners have substituted oil from the shale boom for imported oil.
As with the earlier blog post, the thing Saudi Arabia must do is keep OPEC members with higher breakeven costs in line as they keep haranguing Saudi Arabia for reduced output. Ironically, attempting to squeeze shale producers is more likely to put the squeeze on fellow OPEC members with higher production costs than the Americans using new technologies.

That said, nations with few other sources of revenue will likely persist for much longer than highly leveraged shale producers--or at least that's the reading of Saudi Arabia:
At $100 a barrel, the average oil company can generate net income on the order of $15 a barrel. But as prices fall, this margin evaporates quickly. A decline of $10 to $90 leaves a margin of only $5, that means profits plunge 66%. Thus, at current prices, the average oil company won’t be profitable at all, and the weaker ones, loaded up with debt, are the walking dead. A perfect example is Goodrich Petroleum GDP -6.41%, which announced some big new discoveries in the Tuscaloosa Marine Shale. While the oil may be there, “the play is not economic at current oil prices,” wrote Cowen & Co. analyst Christopher Walling yesterday, adding that “liquidity is a growing concern.”  Goodrich shares are down 70% in six months...

So who’s in the worst shape? The companies with a combination of high debt, high costs and relatively poor acreage, like Goodrich. Another early casualty could be Swift Energy, which has piled up $1.2 billion in debt in recent years to drill high-cost wells on marginal acreage. Swift’s investors are clamoring for change as shares have plunged 50% this year. Swift’s net debt has climbed to more than 3 times estimated 2014 EBITDA, or more than 80% of enterprise value.

According to data from U.S. Capital Advisors, other operators with high leverage that are living well outside their means include SandRidge, which has debt of 2.6 times EBITDA and 51% of enterprise value; EXCO Resources XCO -7.95% with debt 4.3 times EBITDA and 83% of enterprise value; and Magnum Hunter Resources MHR -4.38%, with debt 4.8 times EBITDA and 38% of enterprise value.
UPDATE 1: Reuters has estimates from various financial researchers on breakeven prices for American shale producers. As you can see, we are well below the weighted average breakeven point already with WTI crude's spot price now under $70. So, it's game on for Saudi Arabia and the US-based prospectors they wish to drive out of business:

ROBERT W. BAIRD EQUITY RESEARCH (Oct. 14)
    "We estimate $73 as the weighted average breakeven point for
U.S. supply."    
    
 SHALE FIELD              BREAKEVEN OIL
                          PRICE PER BARREL
 Eagle Ford Liquids Rich  $53
 Wolfcamp North Midland   $57
 Bakken Core              $61
 Niobrara Extension       $64
 Eagle Ford Oil           $65
 Niobrara Core            $68
 Wolfcamp South Midland   $75                         
 Bakken Non Core          $75
 Texas Panhandle          $81
 Mississippi Lime         $84
 Barnett Combo            $93
Bottom line - don't be surprised to see marginal shale producers driven out of business. Namely, those which are highly leveraged and have smaller plots whose reserves are harder to extract.

UPDATE 2: Tim Mullaney of MarketWatch argues that while there are marginal US shale producers, the production costs of larger firms are rather low, making Saudi Arabia's gambit a dubious one. 

World Cup, Olympics & Brazilian Corruption

♠ Posted by Emmanuel in ,, at 11/27/2014 01:30:00 AM
Flying national colors is always a risk.
In normal circumstances, winning the rights to host either the World Cup or the Olympics would be cause for celebration in any country. Imagine, then, the plight of Brazil which is regretting having won both the 2014 World Cup and the 2016 Olympics! The winner's curse, indeed. The global situation has not exactly been helpful: the cooling of global growth--especially that of China and demand for commodities--hit Brazil hard as a major commodity exporter. There's now even talk of Brazil losing its investment-grade sovereign rating. You can probably say that matters have not been helped by the home team receiving a drubbing at home at the hands of the eventual World Cup champions Germany.

And speaking of the World Cup, this event famously elicited concerns about outsized expenditures on construction projects with limited use outside of sporting events. Ditto for the 2016 Olympics. At a time when Brazil is in recession or barely moving out of it, how can you justify such frivolity? This is always the challenge for developing countries hosting these sorts of "showcase" sporting events to make it known to the rest of the world that they've arrived. Now, though, the construction firms that have done well with all these mega sporting events have managed to embroil themselves into a national corruption scandal as if things weren't challenging enough.

Brazil's news media is all agog over the so-called "Operation Car Wash" [in English] scandal that involves the country's largest construction firms colluding to drive up bids during the awarding of construction-related projects for Petrobras, the state-owned energy giant. In turn, money is allegedly being kicked back by these construction companies to Petrobras executives and Brazilian politicians in the ruling Workers' Party [PT]:
A corruption probe in Brazil is raising questions about the need for closer oversight of projects being built for the 2016 Olympic Games, as the allegations are aimed at some of the nation’s largest construction firms. Authorities are investigating allegations that the companies formed a cartel to drive up the value of contracts with state-controlled energy giant Petróleo Brasileiro SA and paid bribes to the Petrobras executives and Brazilian politicians.

The prosecutors’ targets include Brazilian-based multinational construction companies Odebrecht, Queiroz Galvão and OAS, who together are partners in billions of dollars of contracts for the Games in Rio de Janeiro. In the past week, the three companies had executives arrested, their headquarters raided by Federal Police, or both. No executive from the three companies has been charged.
Now, "corruption" and "Latin America" are no strangers to each other. What is especially galling though with these accusations is that they come at a time when Brazil wishes to improve its international image but has been brought back to this Banana Republic-ish state of affairs in which businesspeople and politicians wallow in their own filth. The upshot, however, as far as the upcoming Olympics are concerned, is this: Since all of the implicated construction companies are essentially building those 2016 event sites and their supporting infrastructure, is it realistic that the Brazilian government can discipline them? Strictly speaking, new anti-corruption laws would bar these construction firms, if found guilty, of receiving government contracts for two years. Meanwhile, many are saying "I told you so..."
The evidence that has emerged in the Petrobras investigation has reinforced what many in Brazil have long suspected about how builders do business. “I’ve been saying for years that the World Cup and Olympics together could become the biggest financial scandal in Brazilian history if they aren’t properly monitored,” said Alberto Murray Neto, a lawyer and former member-turned-critic of the Brazilian Olympic Committee. “Now, considering everything that has happened, I think these companies should be scrutinized all the more closely.”

Brazil’s construction companies, which are major donors to political campaigns, are frequently criticized for having cozy ties to the government. Their executives regularly appear alongside top politicians to inaugurate public works. “Brazil has a construction-industrial complex in the same way that the United States has a military-industrial complex,” said Christopher Gaffney, a professor at the Universidade Federal Fluminense, who has an academic focus on mega-events. He says the construction firms wield an outsize influence on public policy in Brazil. 
Brazil's "construction-industrial complex"! It's pretty hard to beat that pun, but it's instructive. Actually, my analogy from a developed world case would be that of systemically important money center American banks. Remember they were deemed "too big to fail" because of the damage they would incur on the US economy if closed down by financial regulators. In Brazil's case of a fast-growing nation with vast infrastructure needs, how do you discipline construction firms? It's a similar problem to that of confronting Americans banks since construction lies at the heart of this developing country's immediate concerns just as banks do in the highly financialized US economy.

Ultimately, I believe the Brazilian government--whose current leadership may be implicated anyway given President Dilma Rouseff's close ties with Petrobras as its board's chairwoman prior to becoming president--will eventually cut a deal with these construction companies to minimize the damage to (a) the time schedule of the upcoming Olympics, (b) the reputation of all parties concerned, and (c) the performance of Petrobras and these construction firms that are highly reliant on the state-owned giant.

At any rate, I do believe that foreign construction firms should be welcomed into bidding processes in Brazil as suggested to limit opportunities for...questionable dealings.

About Time: Rewriting College Economics Textbooks

♠ Posted by Emmanuel in at 11/26/2014 01:30:00 AM
To paraphrase anti-globalization protesters, is another kind of Econ textbook possible?
I needn't rehearse the argument made by critics of the social science of economics that the global financial crisis of 2008-2009 revealed the emperor's clothes. Leftists declared economics as "bunk" that led us into disaster. Rightists on the other hand, said that economic principles were not correctly applied, leading us into disaster. (It was "moral hazard" writ large instead.) So many years on, we are no nearer "consensus" save for the general agreement that economics education should be made more applicable to real-life situations to maintain relevance in the higher education curriculum. Writers of mainstream economics textbooks like Greg Mankiw have borne the brunt of this criticism as the world seeks more "relevant" textbooks.
The CORE project aims to salvage economics.
But how are we to go about this task? Should we introduce "heterodox" theories favored by leftists? Or, should we draw more real-life examples to illuminate economics principles? Figuring out this task has been the lot of the multi-country, multi-university CORE project, whose tagline is "teaching economics as if the last three decades happened." Ouch. Anyway, the gist of the exercise is to introduce recent innovations in economic research to introductory courses such as concepts of cognitive biases (as opposed to the machine-like rationality of homo economicus) and the interaction between markets and morality:
But economics is not fighting the last war. In the past three decades, experimental methods have shown that people are more fair-minded and moral, and less calculating than the so called Economic Man of the textbooks. The fact that we are nicer and not quite as clever as economists once assumed has direct implications for policies to address problems of financial instability, climate change, and economic disparity. The new research greatly expands the set of politically viable and economically effective policies to ensure a sustainable planet and to level the economic playing field.

Another example: improved techniques for computer modelling of complex interactions among millions of economic actors can help design policies to address financial volatility and environmental degradation. For our students, though – especially those in the core courses of the curriculum – this is all a well-kept secret. We impose a curriculum that is increasingly remote from what economists now know, and more distant still from the pressing problems that drew our students to economics in the first place.
The immediate cause of this move to rewrite introductory textbooks is of course the global financial crisis:
Since the financial crisis, student groups have attacked economics departments for failing to deal with the world’s most pressing social issues, including inequality and global warming. They have also criticised professors’ reluctance to teach a range of economic theories, with courses instead focusing on neoclassical models which they claim do little to explain the 2008 meltdown...

Robert Johnson, INET’s president, said: “There’s a problem that undergraduate courses don’t reflect the research of senior economists. There’s also an issue that the examples that we use in textbooks are often based on US data and institutions and don’t produce much excitement elsewhere, particularly in the emerging economies. We’re trying to address that.”
Take that, Greg Mankiw! You need to get a move on development economics. That said, a number of critics are still not convinced that minor tweaks here and there to include real-life cases are sufficient to update the introductory economics curriculum. Rather, a major overhaul is necessary:
Louison Cahen-Fourot, a doctoral student at Paris XIII university who has also been involved with PEPS, a French group advocating more pluralism in economics, said: “The problem is [CORE] is not really pluralism,” Mr Cahen-Fourot, said. “It’s very much mainstream and it does not meet what we would like to see at PEPS, such as more alternative voices or methodologies. We also would like to see more openness to [methods from] other social sciences,” he said.

Rafe Martyn, a doctoral student at the University of Cambridge, said: “It’s sensible to do what CORE is trying to do and base teaching in empirics and to bring the content more into line of current research. There’s a fear that CORE just wants to present the theory it thinks is right, but the people involved are diverse and it’s a work in progress.”

The plan is for the ebook to be modified by online crowdsourcing of student and faculty comments, as well as by other economists. The final version is expected at the start of the 2016 academic year.
My personal opinion is that there already are alternatives to mainstream neoclassical economics that provide an informed analysis of global financial crises, markets and morality, and so on. You have the community of IPE scholars, for instance. You also have folks who study questions from the perspective of economic sociology. In other words, there already is a plurality of perspectives on economic phenomena. Admittedly, however, IPE has not made that much inroads into the mainstream--and the same generally. holds true for economic sociology. 

Oh, for IPE to reach mainstream consciousness!

UPDATE: Speaking of the economics of textbooks, Mankiw is also a well-known price gouger. Aside from the content of these things, they have outrageous prices to answer for--especially Stateside.

The Day the World Bank (Sorta) Went on Strike

♠ Posted by Emmanuel in , at 11/25/2014 01:30:00 AM
World Bank headquarters - an unlikely site for "industrial action."
Being in the service of world development and an American-led institution has always presented a conflict of interest at the heart of the World Bank that lies unresolved. Insofar as the will of America is not quite the same as what's developmentally appropriate for developing country borrowers, the role of the World Bank has often been at the heart of the IPE puzzle. On the hard left, you have those believe that the World Bank together with the IMF are tools of American domination and exploitation of poor countries. Think of the "Fifty Years is Enough" movement that calls for the immediate end to their operations. You also have persistent critics like our colleagues at the Bretton Woods Project who think the World Bank and IMF can continue, albeit in much-changed form.

The recent leadership change to the Korean-American Jim Yong Kim has inspired a round of internal reforms that have rubbed many bank veterans the wrong way. What ignited a firestorm of controversy within the World Bank was the decision to retain CFO Bertrand Badre's hefty bonus of $94,000 on top of his base salary of $397,000 (plus other benefits) even as he was in charge of "right-sizing" the headcount through layoffs. Let's begin with details of the redundancies:
The World Bank said it plans to cut 500 jobs over the next three years as part of a broad restructuring meant to make it more efficient but that has rattled employees. The long-expected layoffs, along with budget cuts and internal reorganization, have sparked regular staff protests and fears of a broader revolt at a time when the bank is trying to ramp up its work in fighting the Ebola outbreak and other global challenges, and maintain its relevance.

The cuts, announced on Thursday, represent about an 11 percent reduction in the 4,500-employee workforce of the bank's internal-facing divisions, including finance, human resources, research and security. These divisions employ about a quarter of the bank's total staff.

Since Badre was the architect of these cuts, many World Bank employees believed that he should share in the pain instead of being rewarded for getting rid of so many jobs:
The World Bank chief financial officer is giving up part of his bonus after an uproar over cost-cutting measures at the lender. Bertrand Badre will decline the remainder of his 94,000 dollar annual bonus, the bank said. The move was an attempt to appease staff, who were angry that he got a bonus while the bank was cutting jobs.

Mr. Badre had pushed for much of the cutbacks at the organization, which is being reorganized. World Bank president Jim Yong Kim reportedly made the announcement to applause during a staff meeting on Tuesday. “Of course staff unease is natural and understandable in any large organisation undergoing such a large-scale realignment,” World Bank spokesman David Theis said.
The internal unrest was such that there was a strike of sorts occurred in which employees downed their tools:
For the first time in its seven-decade-long history, World Bank staff staged a work stoppage earlier this month. Staff are unhappy about the “Change Process,” the ongoing internal reorganization that President Jim Yong Kim initiated on his arrival at the Bank now more than two years ago...

One tell-tale indication of the internal turmoil: Recently, the vice president for Africa “resigned” just days before last month’s Annual Meetings of the World Bank and the IMF — only to be brought back two weeks later. From outside, it is easy to assume that a well-paid staff is grousing about losing status or position or even employment itself because of a reorganization. But after living through and observing reorganizations at the World Bank over the last 30 years, I have the sense that the media get that part of the story mostly wrong.
A recurrent complaint is that instead of streamlining the World Bank, the so-called reforms are making matters worse to get things done on the ground. From longtime World Bank follower and development stalwart Nancy Birdsall:
Staff, it seems, do not believe this reorganization is done — nowhere near done, let alone at the stage of fine-tuning. Their specific concerns are fundamental:
1. The new reorganization has created 14 silos where there were four — and more, not fewer management layers.
2. Decision-making is more centralized, not less.
3. Transaction costs to organize teams are higher than ever and budgeting for work with clients is not flowing.
4. A few senior managers get bonuses, while a big budget cut is slashing travel budgets. Surely management should share in the austerity.
It sounds as though structure and incentives are less aligned than before. Something is wrong, and it seems right to ask President Kim to say so and fix it
The funny thing about the World Bank is that it views labor militancy as an obstacle to development and investment when you have these well-paid economists--and they are mostly economists--complaining about losing parking spaces and breakfast allowances. It is sad that some want to strike over such meaningless perks in a world full of poverty they are supposedly committed to fight.

Meanwhile, morale at the World Bank continues to sag.

China Syndrome: Japan Sells Subs to Australia?

♠ Posted by Emmanuel in ,, at 11/24/2014 01:30:00 AM
Next stop for Soryu-class Japanese subs? The Land of Oz.
Whoa, another security-related post after the previous one on China's fisher militia. You'd think the IPE Zone is turning into Jane's Defense Weekly, but no. Simply put, security matters affect commerce and vice-versa. A particularly interesting thing for the Asia-Pacific is the simultaneous economic outreach of China as it expands its military; the former funds the latter. This phenomenon has led to all sorts of interesting tensions. While China's neighbors have benefited from it opening up to the rest of the world and, I grudgingly admit, providing lower-cost consumer goods, its rise has been accompanied by greater belligerence. Or, at least, the capacity for it.
Australia provides a useful case in point. The Land Down Under's largest trading partner is now China as the Middle Kingdom seeks raw materials to supply its mighty industrial machine. Yet, at the same time, it is aligned with the United States militarily. Therefore, it too has been alarmed by recent Chinese incursions into nearby waters. With the development of longer-range sub-launched missiles, China will have the capability of hitting the territory of Australian ally the United States:
A Chinese nuclear submarine was spotted in the Indian Ocean for the first time last December. A conventional Chinese sub was also sighted there in September. This was a game changer for Japan, the U.S. and Australia. It was a given that Chinese submarines were lurking in the East and South China seas, but now, they have to consider their presence in the Indian Ocean, a crucial shipping lane.

The possibility of even a single Chinese submarine there means more subs and antisubmarine surveillance aircraft have to accompany military vessels passing through the waters, according to Japanese and U.S. defense officials.

Some analyses suggest the Chinese military will put into service its first submarine capable of carrying ballistic missiles with a range of more than 7,500km as soon as the end of the year. This will give China an ability to launch a nuclear attack on the U.S. mainland from under the sea. Such capability could threaten the U.S. "nuclear umbrella" and impact on national security issues in Japan and Australia as well.
This all plays into the hands of that other American ally, Japan. As a manufacturer of advanced diesel-powered submarines, Australia is a putative customer for submarine technology as China advances its military reach:
Japan and the U.S. are considering increasing military cooperation with Australia by sharing submarine technology...Canberra is interested in Japanese technology. Japan's diesel-electric submarines are respected, in particular because of the quietness of the screw and engine -- crucial requirements for military submarines.
For weapons systems, such as torpedoes and cruise missiles, Australia has turned to the U.S...Japan and Australia agreed to jointly develop military equipment, including submarines, at a Nov. 12 summit between Prime Minister Shinzo Abe and his counterpart, Tony Abbott. "The hurdle for cooperating with another country in anything related to submarines is high," Japanese officials noted. "It is on a different level to cooperation on fighter jets and warships."

Submarines are the most closely guarded military secrets among countries that own them. Their ability to move undetected can sway military balance. Even between Japan and the U.S., only a fraction of the information collected by submarines is shared. The two countries do not share any information on their submarines' current locations or capabilities.
There is thus a commercial element to accompany the security element as the US urges its regional partners to pick up some of the slack patrolling Asia-Pacific waters amid current limits to significant increases in US defense spending. The notable thing is that submarine technology is not widely shared for obvious reasons, but will be among the US, Japan and Australia more out of necessity than anything. In other words, distributing burden-sharing amid Chinese maritime adventurism has led to the Yanks telling Japan to share these technologies with the Aussies:
But budgetary issues limit how much the U.S. Navy can do in the Asia-Pacific region. It is also unfeasible for Japanese submarines to frequently monitor the Indian Ocean on behalf of the U.S...Australia, which directly faces the Indian Ocean, is also located conveniently for monitoring the South China Sea. With enhanced submarine capabilities, Australia will be able to keep a close eye on those waters.

"Following technical cooperation in submarines, Japan, the U.S. and Australia will likely start working together in the operational arena," said Satoshi Morimoto, who served as defense minister under Prime Minister Yoshihiko Noda. "Australia will be in charge of the Indian Ocean and the South China Sea," he added. "Japan will mainly handle the East China Sea. With the U.S. participating in and leading trilateral cooperation, it will be possible to effectively respond to movements of Chinese submarines."
With the stridently militaristic Shinzo Abe as Japan's PM, I am sure he needs little encouragement from the US to help the Australia anyway in trying to put China in its place. Thanks to business with China among other things, Australia has quite a lot to spend on military hardware like F-35s and submarines. Therefore, by virtue of doing business with each other, both China and Australia are able to improve their strategic capabilities against each other.

Actually, Abe has already lifted restrictions on arms exports to friendly countries. With Australia's domestic submarine designs being rather, ah, subpar, the match is ideal. What's more, with Japan running consistent trade deficits, arms exports are certainly welcome in whatever quantity. There is, however, domestic protectionism to deal with at home:
Two companies, Mitsubishi Heavy Industries and Kawasaki Shipbuilding, each maintain active shipyards and produce Soryus on an alternating basis. Representatives of Kawasaki were among those Japanese officials that went to Australia to make the recent sales pitch, so it’s possible Kawasaki could produce Australian submarines while Mitsubishi could continue building boats for the Maritime Self Defense Force. Dividing the work would make any modifications requested by Australia, particularly ergonomic ones, easier to accommodate.

By all accounts, Australia will be getting a good deal. At roughly $1.87 billion dollars each, the Soryu-class submarines are a bargain against [Australia's] Future Submarine Program projections of $3 to $5 billion each. Yet the decision to buy Japanese is a politically risky one for the government of Prime Minister Tony Abbott. A survey by the Australian Industry Group estimated a next generation submarine program would employ “about 5,000 workers and 1,000 Australian businesses”...
The Australian-Japanese submarine deal will be good for both governments, and bad for Australian shipbuilders, the Japanese Left and China. You can’t please everyone. At least this time Australia will be getting what it’s looking for—reliable submarines—at a good price.
Geopolitics are weird but interesting, and the arms trade falls into the same category as an offshoot.

Territorial Disputes & China's Fisher Militia

♠ Posted by Emmanuel in ,,, at 11/23/2014 01:30:00 AM
And he said to them, “Follow me, and I will make you fishers of men” [Matthew 4:19]
Since it's the weekend, let's try something different. By now everyone knows China has maritime disputes with nearly all its neighbors in East and Southeast Asia. Like in any other sort of social relation, you are guaranteed to offend others if you mark off vast swathes of territory as your own under dubious grounds. Recalling the biblical passage above, China is seemingly attempting to redefine it militarily. Aware of the poor "optics" in violating agreements not to deploy force in regional waters to assert one's territorial claims, the Chinese have come up with another gambit. That's right--"fishers" have been baiting people instead of fish in the service of PRC interests in asserting military supremacy.

Make that paramilitary supremacy. Yes, China has a vast and growing navy, but it chooses not to use it as much as possible if the same objectives can be achieved by sending so-called "fishing vessels" to harass other disputants. Let's begin with China using "fishing vessels" as extensions of the national interest in the East China Sea against Japan:
Beijing had been trying, to some extent, to prevent Chinese fishing vessels from coming close to the Senkakus. But some Japanese policymakers believe it started easing such efforts after the Japanese government purchased the islands from a private landowner in September 2012. China likely recognizes that deploying more patrol boats to the area would only provoke Japan and its ally, the U.S., and is thus seeking to erode Japan's effective control over the islands by letting fishing boats operate near them.

China has been making only lukewarm efforts to keep its fishing boats from approaching the Senkakus. Since last year through September, there have been only around 10 cases in which a Chinese surveillance vessel stopped and inspected a Chinese fishing boat, according to a Japanese government official.
Real sneaky, eh? The same sort of modus operandi is at work off the coast of Vietnam (Paracels) as these boats act as proxy enforcers for the PRC...
China’s use of swarming tactics with fishing vessels to project and protect Beijing’s territorial claims in the South China Sea appears unstoppable, experts say. The latest example in May was the placement of a Chinese oil rig within Vietnam’s exclusive economic zone, which was pro­tected by more than 70 maritime security and fishing vessels.

“Fishing vessels are wonderful tools for autocratic governments where business and industry are under their control,” said Sam Tangredi, author of the book, “Anti-Access Warfare.” Sending them in swarms to circle a disputed area of contention or create a barrier to prevent access by other navy or coast guard vessels does not create negative media images like harassment by warships, he said. “It may be made to appear like a spontaneous peaceful protest caused by popular nationalist fervor… almost like ‘nonviolent resistance,’ as if Gandhi was a fisherman.”
The trick is to masquerade security interests as "civilian" undertakings since they involve "fishing vessels." Ditto for the western seaboard of the Philippines where hit-and-run poaching is the specific technique of aggravation. That is, you can loot all sorts of endangered species since they're endangered species in "your" waters anyway:
Three Chinese fishing vessels engaged in poaching and the illegal trade of endangered sea turtles off southern Palawan have escaped anew from maritime patrol units. Authorities earlier monitored Chinese fishing boats near Hasa-Hasa Shoal, some 60 nautical miles from mainland Palawan but which is also being claimed by China.

“The Chinese vessels were able to escape before our joint team aboard three boats could nail them down,” the source said. The source was referring to a joint operation launched on Saturday that included three vessels from the Philippine Coast Guard (PCG) and the Philippine National Police-Maritime Group Special Boat Unit (SBU) to intercept the Chinese ships poaching in the area.
There's something fishy in all this if you ask me since these "fishing vessels" would not so brazenly conduct such activities which risk international offense unless they are deliberately being condoned by the PRC. Make no mistake: they are likely deployed to harass and intimidate. The bad publicity generated by sending warships instead is thus spared. Insofar as the results are the same, the Chinese will view these activities as successes in achieving national objectives.

Redefining 'White Elephant': N Korea's New Int'l Airport

♠ Posted by Emmanuel in at 11/21/2014 01:30:00 AM
Hoping for a less lonely planet than this, they're building a new international airport.
The term "white elephant denotes massive investment into something which ultimately has little or no practical value. In the developing world, these usually refer to infrastructure projects. Think of Greece hosting the Summer Olympics in 2004. Not only was the country saddled with massive debts for the Olympian spending spree on new stadiums and the like, but these sports facilities are mostly unused nowadays. However, even the Greek tragedy has no answer to what promises to be a tragicomedy of massive proportions as the hermit kingdom of North Korea is building a new international airport. Where the guests will come from is a different question altogether.

All the same, you read that right: the country that has tried its darndest to stay away from everyone else by applying Sartre's idea that hell is other people is building an international airport. Why the hell is the reliably xenophobic North Korea seeking tourists--albeit of a "right" kind to be determined at a future date? With only a few thousand tourists a year according to media accounts, let's just say this country isn't high on the to-do list of travelers. Then again, there is all kinds of tourism nowadays, so I suppose "gulag tourism" has a unique gallows humor to it: 
Pyongyang isn't exactly an international travel hub. But attracting more tourists is one of North Korea's top agenda items to generate badly-needed foreign exchange, so thousands of soldier-builders are working feverishly these days to give the capital a fancy new airport.

The new airport, which is now in its final stages, is the latest of North Korea's "speed campaigns," mass mobilizations of labor shock brigades aimed at finishing top-priority projects in record time. Dressed in hard hats and brown or olive green uniforms, impressive swarms of workers toil under huge signs calling on them to carry out their tasks with "Korea Speed." From some corners of the site, patriotic music blares from loudspeakers to provide further motivation.
And make no mistake, it's hard labor fit for a gulag that's going on at the work site. Once completed, the "airport" is meant to replace the shack that's been the official airport of Pyongyang for a couple of years now:
With most of the construction finished, their work is now focused on flattening out a new tarmac area, digging tunnels for drainage and putting the finishing touches on the main terminal building. Most of the work appears to be done the old way, by hand or with simple tools.

Though Pyongyang is the gateway to the reclusive country by air, it is currently served by an airport building that consists of a small, temporary terminal the size of a large warehouse, with only one baggage carousel, a tiny duty free shop and a makeshift book/souvenir store. The airport receives, at most, only a few international flights a day, almost all from China, with some from Russia.

But, in search of a badly needed source of foreign currency, North Korean officials have embarked on an ambitious campaign to significantly boost the country's appeal to international tourists in the years ahead, which has made building a more impressive airport facility a top item on the government's to-do list. The date of the opening has not yet been officially announced.
There is this notion popular even in the developed world that "shovel ready" projects can provide construction jobs to the unemployed masses during economic slowdowns. North Korea has been in a decades-long economic slowdown, so I doubt whether this project is going to do any good other than serve as comic fodder for bloggers and the like. Nor do I see how this effort fits with the country's juche principle of self-reliance since building an airport represents tacit recognition that, hey, foreigners have something to offer after all.

There are only so many visits Dennis Rodman can make. On the official DPRK website, most of the attractions are communist agitprop, so I don't think there's much of interest for those seeking a good time--unless you have different ideas about what constitutes a "good time." Some have characterized the entire nation as a "Stalinist theme park." As such, being sentenced to years of hard labor for unnamed infractions cannot be entirely dismissed. So, in this case, they can build it, but I am really uncertain who will come save for dyed-in-wool masochists and true believers in Marxism-Leninism.

In the finest white elephant tradition, it is built for a purpose no sane person can fully ascertain. 

.so Appropriate: Kickass Torrents Takes Somalia Domain

♠ Posted by Emmanuel in ,, at 11/20/2014 01:30:00 AM
Psst...got the latest episode of Doctor Who?
One of the more curious things that software copyright holders have to deal with is the global public's willingness to "steal" intellectual property despite being quite averse to stealing tangible (read: manufactured) goods. Why do folks show little guilt about the former but more with the latter? Are punishments for physical theft worse, is there a social taboo to such acts, or both? That such attitudes are widespread in the largest of consumer markets in the developing world may not be all that encouraging to software firms.

As a scholar of Internet governance and intellectual property, torrent sites have been a recurrent source of fascination for me [1, 2, 3]. Out of curiosity, the latest evolution I noticed was of the widely-known torrent site Kickass Torrents moving its top-level domain once again. What's .so? I looked it up and, to my unvarnished delight, it stands for Somalia. It is of course perfectly reasonable to say that there isn't really a country of "Somalia" but three contested regions of Somaliland, Puntland and Somalia. It's a failed state, after all. No matter; in cyberspace, there is such a (virtual) place:
With millions of unique visitors per day KickassTorrents (KAT) is one of the most used torrent sites. In recent months it has even rivaled The Pirate Bay in terms of traffic. Over the years KAT has moved from domain to domain on a few occasions, to evade law enforcement and pressure from the entertainment industries. Most recently the site had been operating from the Kickass.to domain. Starting today however, the site is serving its pages from the Somalian TLD Kickass.so.
In a game of cat and mouse, Kickass regularly rotates its top-level domain to avoid restrictions and censors. Recently Google began screening its search results more thoroughly. Therefore, Torrent Freak suspects this change is a way of temporarily avoiding Google's dragnet--until it catches up with the move at least:
“We are moving to kickass.so now. As you know we change our domain regularly. Nothing more has been changed for you, so don’t worry, you can use Kickass as usually, it’s automatically redirected,” the KAT team writes. Intended or not, the domain change will have some consequences on the anti-piracy front. For example, the site will become accessible again in most countries where it has been blocked previously.

In addition all the URLs that were blocked by Google through DMCA notices, more than 1.6 million, will become accessible again under the new domain. This also means that Google’s new downranking algorithm will be bypassed, at least temporarily. In recent weeks KAT has lost a significant amount of traffic due to Google’s new anti-piracy measure, so intended or not, that may be an extra incentive to keep the yearly domain rotations going.
The other obviously fascinating thing about Somalia is that it's been a haven for real-life maritime pirates during the past few years. Even if such piracy has been declining as of late, it's still got a reputation as a pirate's den. In either case--for software pirates or maritime pirates--the impetus for choosing Somalia in its virtual or not-so-virtual iterations is exactly the same: there are no real "authorities" to speak of policing cyberspace or lawless regions of a failed state.

Dive Contest: Russian Ruble v Ukrainian Hryvnia

♠ Posted by Emmanuel in , at 11/19/2014 01:30:00 AM
Only the bravest would take a position on the RUB/UAH exchange rate.
In the Summer Olympics, they have a popular and quite watchable event called "synchronized diving." I am reminded of the sport when I observe the situation of two of the fastest-falling currencies worldwide, the Russian ruble and the Ukrainian hryvnia. Synchronized by geography, conflict and tragedy, both these countries' currencies are in dire straits. Russia's economy is a one-trick pony dependent on high global prices for energy to sustain itself. Ukraine's economy, meanwhile, lurches from one crisis to another without any end in sight. Fighting each other has further drained resources from both. There are no "winners" here to speak of. Recently, both countries have tempted fate by allowing their currencies to more or less float freely. The results are informative.

(1) Despite all Putin's showboating, the truth is that Russia could not maintain a burn rate of $2 billion or so a day defending the currency. So, it decided to allow the ruble to more or less float to find its real market value absent such large-scale market intervention. Once more, falling energy prices are impacting foreign exchange market participants' expectations about Russia going forward. For now, speculators are unwilling to push the currency past 40 ruble to the dollar. 30-some percent depreciation may have to do for 2014:
Falling oil prices, which started late July, fanned downside pressure on the ruble, battered by Russia’s flagging economic growth and Western sanctions. The country is now preparing to withstand a “catastrophic decline” in oil prices, President Vladimir Putin said in an interview to the state-run news agency TASS on Friday.

The ruble eased 0.7% to 47.13 versus the dollar by 1200 GMT, moving toward its weakest-ever level of 48.50 reached last week. Hit by a drop in Brent crude prices below $80 a barrel for the first time since September 2010, the ruble’s loss on Friday was relatively small compared to the volatility of the past few weeks.

Following a gradual weakening of the ruble to record lows in October, which prompted the central bank to spend some $30 billion to ease pressure on the currency, the Bank of Russia said on Monday that it would allow the rate to float freely in the market, eliminating its regular interventions. The central bank has warned however that it may carry out massive interventions at any level to deter speculators from betting against the ruble.

“Speculators are not opening new positions now, volatility is of cosmic proportions,” said Dmitry Stadnik, chief forex trader at Rosbank, the Russian subsidiary of French bank Société Générale.
(2) What about Ukraine's hryvnia? The re-entry of the IMF has apparently not stabilized the economic situation despite turning a blind eye to its dire straits. In other words, the IMF is lending with less regard for conditionalities given the precariousness of Ukraine's geopolitical situation. How can it be when your country's political situation involves being dismembered bit by bit? First the Crimean peninsula went, now the eastern regions are claiming to have voted for independence. Whatever; the end result is the same as in Russia--a diving currency:
Ukraine's hryvnia slid to a new historical low of UAH16.05 to the dollar at the close of November 12 on the interbank market. This marks a 50% devaluation on the UAH8 to the dollar exchange rate propped up by former president Viktor Yanukovych from 2010 through to his ousting in February 2014 - at the expense of the nation's hard currency reserves.

On November the National Bank of Ukraine reacted by deciding to raise the discount rate from 12.5% to 14.0%, partly to prop up the forex market. According to Valeriya Gontareva, head of National Bank of Ukraine (NBU), the central bank intends to fully switch to flexible exchange rate policy and inflation targeting.

Today's crossing of the psychological UAH16 to the dollar mark will not be the end of the descent, top NBU officials warned. "A balanced hryvnia exchange rate will come into being when the currency stops devalution," Serhiy Ponamerenko, the NBU's head of currency operations told newswires on November 13.

"Unfortunately, it is impossible to judge where the slide of the hrvynia might stop," says Dmitry Boyarchuk, executive director of thinktank CASE Ukraine. "If you look at the fundamentals, then there is no need for further weakening of the hryvnia. The problem is that the country has lost confidence in the leadership of the NBU, and in fact we see vicious circle of devaluation," Boyarchuk told Liga.net portal. 
As the chart above shows, relative to each other, the ruble is actually doing (gulp) better than the hryvnia even if they're both plowing historic lows. It's partly a function of Russia having by far the larger foreign exchange reserves to prop up the ruble for so long, but now that it has eased on intervention, we'll see what happens insofar as Ukraine has also let up on market meddling. As I mentioned, only the bravest foreign exchange traders would bet on the direction of the RUB/UAH currency pair. What a choice to make...

Construction Time: The Shopping Mall-ization of Mecca?

♠ Posted by Emmanuel in ,, at 11/18/2014 01:30:00 AM
In real-estate parlance, modern Mecca is a "mixed-use development."
Our Muslim brethren ("brethren" is actually a gender-neutral term since the corresponding "sistren" is now archaic) are obliged to go on the Hajj or pilgrimage to Mecca if their health and finances permit at least once during their lifetimes. There being over one and a half billion Muslims worldwide, think of the numbers of people Mecca must accommodate as this important religion continues to expand. It is not easy to cater to hundreds of millions making literally a journey of a lifetime who expect much of their visit. A captive market of 1.5+ billion! I should be so lucky (lucky, lucky, lucky).

Having done some research into tourism, I am conscious of the tradeoff between authenticity and commerce. Nowhere is this tradeoff more evident in terms of accommodating religious pilgrimages to Mecca. Hence, Saudi Arabian authorities have the difficult task of dealing with ever-larger volumes of pilgrims while simultaneously maintaining the sanctity of the site. Is this balance being achieved? The British Independent reports that some traditionalists are saying "not so" with all the construction going on:

The site in Mecca where the Prophet Mohamed is said to have been born is about to be “buried under marble” and replaced by a huge royal palace. The work is part of a multibillion-pound construction project in the holy city which has already resulted in the destruction of hundreds of historic monuments.
The project, which began several years ago, aims to expand the al-Masjid al-Haram, or the Grand Mosque, to cater for the millions of pilgrims who make their way to the holy city each year for the Hajj, the pilgrimage to Mecca that all Muslims are obliged to make at least once. Mecca is the holiest city in Islam because of its link to the birth of the Prophet, and because it is the site of the Kaaba, a cube-shaped building made from black granite and said to have been built by Abraham. The Grand Mosque is built around it, and Muslims face towards it when they pray.
It's construction time again, with allegedly harmful consequences for the historical sites in Mecca:
Many have looked on aghast at the destruction of hundreds of historic buildings and monuments to make way for the Grand Mosque’s expansion. According to the Gulf Institute, based in Washington, up to 95 per cent of Mecca’s millennium-old buildings have been destroyed, to be replaced with luxury hotels, apartments and shopping malls.

Last week, the remaining 500-year-old Ottoman columns, commemorating the Prophet’s ascent to heaven, were destroyed, Dr Irfan Alawi of the UK-based Islamic Heritage Research Foundation, told The Independent. He said that the House of Mawlid, thought to be where the Prophet was born in AD570, is likely to be destroyed before the end of the year.

We see here the contradiction that many perceive in Saudi Arabia: the caretakers of the holiest sites of Islam outwardly adopt the most conservative of stances of religion practice, yet they are also rather worldly in the sense of commercialization. Think of Saudi Arabia being the region's largest oil exporter as well.
To be fair, it is not easy to discount the argument that all these improvements are meant to facilitate handling large volumes of pilgrims. With so many millions coming to fulfill their religious obligations, the volume can literally be crushing, with fatal consequences. That said, reported plans to add shopping malls and suchlike would sit incongruously with a religious site of greatest importance.

The thing with many developing countries including Saudi Arabia is that they do not have listings like England's national heritage list that marks off sites and structures of historic importance which cannot be readily be built on. Of course, identifying such sites would require an arbiter independent of the monarchy. Is that possible? Wahhabism--the tenets of Islam followed by Saudi Arabia's leadership--may not be especially keen on placing too much emphasis on symbols such as sites--think of Protestantism's differences with Catholicism on iconography. Consider:
The brand-new Royal Mecca Clock Tower is among the tallest buildings in the world, and stands at the centre of a complex with a mall, hotel, and prayer hall. Other planned projects include an expansion of the Grand Mosque, high-rise hotel and apartment towers, and even new train lines. But those projects are drawing criticism from architects, historians, archaeologists, as well as pilgrims who question the value of the new additions.

Opponents also say rents in some of the new buildings close to the Grand Mosque are exorbitant and will only deepen the divide between rich and poor.

But the harshest condemnation has been reserved for the continued demolition of several significant historical and religious sites to make way for the new developments. Critics accuse the government of destroying those landmarks in accordance with Wahhabism, the country's official interpretation of Islam, which believes that shrines encourage idolatry. 
On one hand I have nothing against improving structures to make them fit for hosting more guests. On the other hand, the commercialization of the property into high-rise apartments and shopping centers does not necessarily follow--especially knocking down sites of religious importance to make way. Ironically, because Mecca is a religious site of such stature, millions and millions would still go there if it were remade into a theme park or something of that sort. However, would a single tourist go to, say, Shakespeare's birthplace if it were knocked down to make way for a strip mall? I think not.  All I can say is, thank heavens for national heritage trusts and their equivalents throughout the world.

Sometimes it shouldn't be about the money. Coming from the IPE Zone, that's saying something.

Three Kinds of Nations Embracing the Chinese Yuan

♠ Posted by Emmanuel in at 11/17/2014 01:30:00 AM
It's no big secret that the US dollar has been on something of a roll lately. With economic growth Stateside powering ahead of the likes of Japanese, European and even South American economies, the expectations are for the Federal Reserve to raise interest rates in the near future to stave off possible inflation. I for one don't think inflationary pressures are strong in the US with falling energy costs, non-existent wage growth and so on, but currency market movers and shakers apparently think otherwise.

That said, countries around the world are not waiting around and sticking with the US dollar en masse. Those hedging their bets in managing their currencies come in different flavors. First, there is the America-loathing group that would not want to hold their enemy's currency. There is, after all, a visceral dislike of all things American in certain parts of the world. Witness Russia receiving payment for an ever-larger share of its oil exports to China in renminbi:
In an interview with the Russian news agency Tass, Mr. Putin said that oil giant Rosneft is working with a major Chinese corporation to receive renminbi as a payments for a significant flow of oil. “We’re moving away from the diktat of the market that denominates all the commercial oil flows in U.S. dollars,” Mr. Putin said. Russian companies are increasingly shifting to direct renminbi-ruble trading to settle their imports and exports with Asia.

Turnover in direct transactions in the two currencies soared to $1.2 billion over the course of October, from $307 million in September and as low as $52 million in July, according to data available on the website of the China Foreign Exchange Trading System, the trading division of China’s central bank.
Another group of countries are China's near-neighbors in the Asia-Pacific seeing how the wind is blowing in the world economy and adjusting accordingly. In this group you have South Korea, which has aspirations to be another offshore center for yuan. This would be particularly useful for trade settlement:
Jung Eunbo, Korea’s deputy finance minister, said increasing the use of yuan for trade settlement will reduce transaction costs for local exporters. Currently 85% of Korea’s trade is settled in U.S. dollars. That means exporters need to sell yuan for dollars before turning them into Korean won.

Mr. Jung, in an interview, acknowledged that greater use of the yuan in Korea also would reduce appreciation pressures on the won. That’s because Korea over time hopes to develop a deep offshore market for yuan-denominated bonds and other financial instruments. Then Korean exporters won’t need to convert their overseas earnings into won at all.
The last group of countries are US-friendly Western nations who nonetheless see benefits in trading yuan to gain an advantage over more China-phobic countries. Witness Canada looking to get a head start over the US in North America:
Bank of Montreal and HSBC Holdings Plc are among banks that stand to benefit from Canada’s designation as the latest nation to host a trading hub for China’s currency. China on Nov. 8 gave Canada a 50 billion yuan ($7.9 billion) quota under the Renminbi Qualified Foreign Institutional Investor program as Prime Minister Stephen Harper visited Beijing.

China’s State Council also approved a three-year, C$30 billion ($26 billion) currency swap agreement with the country, while the Chinese central bank appointed Industrial and Commercial Bank of China to clear renminbi transactions in Canada. Countries around the world are bidding to establish trading centers for the yuan, which surpassed the euro last year to become the most widely used currency in trade finance after the U.S. dollar.
Unlike commonly traded currencies, critics of capitalism will be glad to note that RMB are mostly used to settle actual trade transactions. Recall, after all, that the yuan is now the second most-widely used currency for settling trade after overtaking the euro in 2013:
China’s yuan overtook the euro to become the second-most used currency in global trade finance after the dollar [in 2013], according to the Society for Worldwide Interbank Financial Telecommunication. The currency had an 8.66 percent share of letters of credit and collections in October [2013], compared with 6.64 percent for the euro, Swift said in a statement today. China, Hong Kong, Singapore, Germany and Australia were the top users of yuan in trade finance, according to the Belgium-based financial-messaging platform.

Truth or Slander? China's Stingy Philanthropy

♠ Posted by Emmanuel in at 11/15/2014 01:30:00 AM
China's rich learn to give a little.
One of the recurrent media tropes that gets rehearsed when disasters and catastrophes strike around the world is that the Chinese cheap out on helping their fellowmen. This accusation stings since China likes to portray itself as a champion of third world solidarity and is ostensibly a communist nation besides which should concern itself with the fate of a global working-class proletariat. We got a flavor of this about this same time last year when Typhoon Haiyan leveled large parts of the Philippines. Because of its ongoing territorial squabbles with the Philippines, the Chinese originally provided a measly amount for disaster relief--only for the PRC to increase it after a barrage of international criticism:
China has increased its offer of aid to the typhoon-ravaged Philippines after an embarrassing outcry over its meagre $US100,000 initial donation - but the attention has already turned to the damage to its reputation, and doubts over its military capabilities, in the very region in which it is vying for influence with the US and Japan.
The initial response to the calamity, $US100,000 from the foreign ministry, matched by the government-controlled Chinese Red Cross Society, raised eyebrows in the region and stacked up poorly compared to contributions from Australia, Japan and the US - who have all stumped tens of millions in financial aid and on-the-ground assistance.
On Wednesday, China said it would provide 10 million yuan ($1.75 million) of relief supplies - in the form of tents and blankets - to communities devastated by typhoon Haiyan.
You'd' think this would've silenced China's critics, but no. "IKEA sent more money to the Philippines than China!" cried one headline when IKEA doesn't even have stores in the Philippines. And so on and so forth.

More recently, we have the Ebola crisis in Western Africa to slam the Chinese on. China being a large investor in the continent as a source of raw materials to power its mighty industrial machine--including the Ebola-affected countries--it certainly does not escape attention. Despite sending rather more private and public funds to combat Ebola, campaigners in the West are still saying the Chinese are stingy:
China has contributed over $120 million to fight the spread of the Ebola virus, but its billionaire tycoons - it has more than anywhere outside the United States - have, publicly at least, donated little to the cause, underscoring an immature culture of philanthropy in the world's second-biggest economy.

As the ranks of China's wealthy and the success of its corporations grow, donating to good causes has yet to take off in a significant way. China sits toward the bottom of the list of countries where people give money to charity, volunteer or help a stranger, according to The World Giving Index, compiled by the Charities Aid Foundation.

Donations to charities totaled 98.9 billion yuan ($16.1 billion) in 2013, according to Chinese government data, recovering from two straight years of declines. For comparison, Americans gave more than $335 billion, according to the National Philanthropic Trust website.

Many big Chinese companies have invested in Africa - China is Africa's leading trading partner - and some 200 operate in West Africa, where Ebola has been at its most lethal, killing close to 5,000 people. These include construction, infrastructure and telecoms firms such as Huawei, China Henan International Cooperation Group and China Communications Construction Co Ltd. A Huawei spokeswoman said Africa was an important market, but declined to comment on philanthropy or specific ventures in Ebola-hit countries. China Henan and China Communications Construction did not respond to requests for comment.
I have some interest in the nonprofit and voluntary sector and find the (non-)emergence of Chinese philanthropy fascinating. (While working at LSE IDEAS, one of our partner institutions was the Institute for Philanthropy.)To be fair, there are factor militating against the emergence of major charities in China. Given its stringent controls on permissible civil society actors as potentially rival political organizations competing for the people's loyalty, you cannot expect charities to freely operate there. To the point, fundraising independent of the state is largely disallowed. On the other hand, China's critics who portray it as a malign influence in the coarsening of global public-spiritedness would link its cheapness regarding humanitarian causes to a cultural trait of hard-heartedness. Witness the media firestorm covered worldwide over motorists ignoring Wang Yue, the toddler run over by a car and ignored by passers-by until she passed away.

As with most things, I believe the truth lies somewhere between these two extremes: Officials treating do-gooders with less suspicion would certainly help in nurturing a culture of giving which is not quite as prevalent in China (yet) as it is elsewhere. That said, the government has yet to move past the "to get rich is glorious" exhortation of Deng Xiapoing to incorporate social concerns of a more globalized nature. We'll see.

Celebrity Activism & 'African' Ebola, Band Aid 30 Edition

♠ Posted by Emmanuel in , at 11/14/2014 01:30:00 AM

It was the holiday season thirty years ago when Band Aid penned the now-ubiquitous "Do They Know It's Christmas?" to draw attention to the ongoing famine in Ethiopia. Celebrity activism over Africa has elicited both praise and controversy: On the praise side, Queen Elizabeth knighted Boomtown Rats frontman Bob Geldof--he who doesn't like Mondays--for this well-meaning effort. Two decades later, U2 frontman Bono was also knighted for his humanitarian work. All the same, controversy has dogged these celebrity-led efforts for not only being superficial but also stereotyping Africans as helpless folks reliant on aid from Westerners. For a characteristic critique along these lines, see Dambisa Moyo's Dead Aid.

All these memories and all these controversies are coming back with the announcement that Sir Bob Geldof and Midge Ure of Band Aid fame are now recording a 30th anniversary iteration of the hit single featuring today's top acts like the boy band One Direction (OK, so I'm not into boy bands but it's the thought that counts, right?) Reportedly, the United Nations called Sir Bob and urged him to record a new single:

A new all-star Band Aid single will help fund relief efforts to fight the spread of the Ebola virus in West Africa, Sir Bob Geldof has confirmed. But the lyrics to Do They Know Its Christmas? have been updated because the continent’s “booming” nations no longer face a famine threat. Ed Sheeran, Sam Smith, One Direction, Chris Martin, Emeli Sande, Ellie Goulding, Bono and Chris Martin are among the names taking part in a fourth Band Aid single, marking the 30th anniversary of the original best-selling charity record.
Geldof said the younger members of Band Aid 30 had told him they had sung the song in nativity plays, such is its standing as a modern-day Christmas carol. However Geldof and his musical collaborator Midge Ure have tweaked the lyrics to remove references to hunger. The new version, which will be recorded on Saturday and released as a download on Monday, will no longer hymn those “underneath that burning sun” where “no rain nor rivers flow”...

The campaigner [Geldof] said that he decided to revive Band Aid, not out of “nostalgia” but after getting a call from the UN that the Ebola virus was “getting out of control”.
To no one's surprise, the inevitable barrage of criticism accompanying celebrity activism has returned, too. Witness:
There is a humourless danger in taking song lyrics too literally, but I can’t help it: yes, they do know it’s Christmas time in Africa because huge swaths of that vast continent are Christian; the greatest gift anyone can have is life; and actually, it is more likely to be water, not just “bitter tears”, flowing across Africa’s 54 nations...

There exists a paternalistic way of thinking about Africa, likely exacerbated by the original (and the second, and the third) Band Aid singles, in which it must be “saved”, and usually from itself. We say “Africa” in a way that we would never say “Europe”, or “Asia”...

It is interesting that Geldof says he received a call from the UN to say that Ebola was “getting out of control”. Why does the red emergency telephone go for charity, over joined-up inter-govermental action? Thirty years after the original, and lineups that include the great and the good as well as a turning carousel of opportunists, how is it still incumbent on pop stars to rise up to sing a song that manages to also gently dehumanise the people it is helping? Even the logo – an outline of Africa (no Madagascar) with BAND AID written across it, along with a hashtag “#E30LA” – feels cheap and insulting.
Ouch. There's also the recurrent criticism that the aid appeal does nothing to inform listeners of the political-economic complexity of the situations in the worst-affected countries of Liberia, Sierra Leone and Guinea, wracked as they have been by years of civil war and corruption. Before going on a hardcore leftist critique, this other Guardian commentary makes this point:
Band Aid’s simple message erased all political complexity from the Ethiopian famine – not a natural disaster pure and simple, but a catastrophe used and exacerbated by a brutal government to destroy rebel fighters challenging its authority. Today, Ebola also exists in a political context, and while agencies dealing with the crisis do need funds, Sierra Leone, Liberia and Guinea also need political solutions to challenge the exploitation that bred Ebola.
The inevitable posing by entertainers aside, it's always hard to criticize those who are well-intentioned. However, you have to wonder if years of portraying "Africa" being a helpless entity has conditioned us to view the continent as a large, undifferentiated mass in which Ethiopia is roughly the same place as the Western African countries being ravaged by the disease. That is, it reduces the vast cultural and geographic diversity of a continent to "the 'Africans' are dying again; let's give lots of money to help"! An unwelcome side effect of portraying these problems as pan-African ones is that tourists are staying away in droves from destinations which are very far from Western Africa afflicted by the virus. 

The honest truth is that most Westerners do not have a sufficient understanding of the continent, but what can be done? The trend in our sound bite-saturated age is to pack complex issues into ever-shorter, more readily digestible forms. How much relevant information can you pack into a three-minute song?  For better or worse, that is the media environment you have to deliver your message in.