America's Pacific Century - By Hillary Clinton | Foreign Policy

America's Pacific Century
The future of politics will be decided in Asia, not Afghanistan or Iraq, and the United States will be right at the center of the action.
BY HILLARY CLINTON | NOVEMBER 2011



As the war in Iraq winds down and America begins to withdraw its forces from Afghanistan, the United States stands at a pivot point. Over the last 10 years, we have allocated immense resources to those two theaters. In the next 10 years, we need to be smart and systematic about where we invest time and energy, so that we put ourselves in the best position to sustain our leadership, secure our interests, and advance our values. One of the most important tasks of American statecraft over the next decade will therefore be to lock in a substantially increased investment -- diplomatic, economic, strategic, and otherwise -- in the Asia-Pacific region.

The Asia-Pacific has become a key driver of global politics. Stretching from the Indian subcontinent to the western shores of the Americas, the region spans two oceans -- the Pacific and the Indian -- that are increasingly linked by shipping and strategy. It boasts almost half the world's population. It includes many of the key engines of the global economy, as well as the largest emitters of greenhouse gases. It is home to several of our key allies and important emerging powers like China, India, and Indonesia.

At a time when the region is building a more mature security and economic architecture to promote stability and prosperity, U.S. commitment there is essential. It will help build that architecture and pay dividends for continued American leadership well into this century, just as our post-World War II commitment to building a comprehensive and lasting transatlantic network of institutions and relationships has paid off many times over -- and continues to do so. The time has come for the United States to make similar investments as a Pacific power, a strategic course set by President Barack Obama from the outset of his administration and one that is already yielding benefits.



With Iraq and Afghanistan still in transition and serious economic challenges in our own country, there are those on the American political scene who are calling for us not to reposition, but to come home. They seek a downsizing of our foreign engagement in favor of our pressing domestic priorities. These impulses are understandable, but they are misguided. Those who say that we can no longer afford to engage with the world have it exactly backward -- we cannot afford not to. From opening new markets for American businesses to curbing nuclear proliferation to keeping the sea lanes free for commerce and navigation, our work abroad holds the key to our prosperity and security at home. For more than six decades, the United States has resisted the gravitational pull of these "come home" debates and the implicit zero-sum logic of these arguments. We must do so again.

Asia: Heirs and spares

Interesting article from the Financial Times:
Asia: Heirs and spares
Financial Times, 11:14pm Sunday 10th July 2011

By Amy Kazmin, Patti Waldmeir and Girija Shivakumar

The political, economic and social consequences of a preference for sons – and an attendant shortage of girls – is alarming policymakers

In the Indian farming village of Medina, 200km from Delhi, the narrow lanes are clogged with high-end sport utility vehicles, reflecting the prosperity brought by rising land values to this traditional community. In their mud-floored homes, residents display flatscreen televisions, refrigerators and other modern conveniences.
But Medina’s families are also using their new wealth to acquire a scarce local commodity: teenage girls to act as wives for the community’s growing cohorts of unmarried men.

Read the full article at: http://on.ft.com/o8nrCy

Sent from my iPad

Millionaires in Asia overtake Europe

FT.com / Global Economy

By Alice Ross

Published: June 22 2011 15:50 | Last updated: June 22 2011 15:50

A visitor looks at Chinese security personnel as she walks into a hall for the Top Essence luxury goods show in Beijing

Millionaires across the world are now richer than they were before the financial crisis, the latest sign that the wealthy have weathered the downturn far better than other groups.

Global wealth among individuals with $1m of investable assets or more rose to $42,700bn in 2010, up from $40,700bn in 2007, according to the Merrill Lynch Cap Gemini World Wealth Report.

Rising equity markets and Asian growth helped expand the fortunes of the global elite, with the number of Asian millionaires now exceeding that of Europe.

There were 3.3m millionaires in Asia-Pacific at the end of 2010, compared to 3.4m in the US and just 3.1m in Europe, the report found. There were 3m millionaires in both Europe and Asia at the end of 2009.

Strong stock markets last year were a key driver of the gains, with global equities rising 18 per cent on average, according to the report.

“The performance in many markets helped to contribute to the growth in wealth in 2010,” the report stated. “Equity and other asset classes rose in value, though not at the exuberant pace of 2009’s bounce-back.”

The countries with the most millionaires in the world remain the US, Japan and Germany respectively, with China and the UK in fourth and fifth place respectively. China now has 535,000 millionaires, according to the report, only about a sixth of those in the US.

The report also found that 83 per cent of the world’s global millionaires were over 45 years old and 73 per cent were male.

The report, one of the most comprehensive annual pieces of research into the world’s wealthiest individuals, indicates that millionaires in European countries with high levels of debt and sluggish economic growth are struggling to keep pace with their Asian peers.

Italy’s number of millionaires fell by 4.7 per cent in 2010, making it the only country in the study to record a drop. Spain fell down the league table from 12th to 14th place.

The ranks of millionaires in the UK showed an increase of only 1.4 per cent last year, compared to a 23.8 per cent rise in 2009. In contrast, the number of millionaires in the US grew by 8.3 per cent in 2010.

Adam Horowitz, head of UK, Ireland and Israel at Merrill Lynch Wealth Managers, said the contrast was likely to be due to differences between wealthy investors in the UK, where more people buy property, and the US, where people are more highly invested in equity markets.

The world’s millionaires also multiplied at a slower pace in 2010 than they did during the bounce back in equity markets in 2009, the report shows. The number of global millionaires rose by 8.3 per cent last year, down from a 17.1 per cent increase the previous year

FT.com / Global Economy - Millionaires in Asia overtake Europe

Nuclear industry in turmoil after Japan quake | Reuters

Nuclear industry in turmoil after Japan quake

By Julie Gordon and Lynn Adler
3:26pm EDT

* Uranium stocks hardest hit, Cameco down over 14 pct
* Germany put nuclear plants on hold, Italy pushes forward
* Utility shares fall, nuclear reactor builders down

TORONTO/NEW YORK, March 14 (Reuters) - Investors hammered companies that build nuclear reactors and supply them with fuel on Monday as Japan struggled to avert a meltdown at a stricken reactor, on fear that the whole sector could be in for a downturn, in the short and medium term at least.
But analysts said the industry could recover from the stock market setback as negative perceptions fade, and the current price slump might be a buying opportunity.
"Meltdown is a very big word in people's minds, so I think that the public sentiment is probably going to swing against nuclear power," said BMO Capital Markets analyst Edward Sterck. "But I don't think this is the end of the nuclear industry."
"With the hype that some commentators are making that this is the end of the nuclear energy, I think we're going to possibly see an overreaction in the stock prices. At some point there will be value there."
Japan's crisis, already the worst nuclear accident since the 1986 Chernobyl disaster, hit shares of industry giants like General Electric (GE.N: Quote, Profile, Research, Stock Buzz) and Hitachi (6501.T: Quote, Profile, Research, Stock Buzz), along with uranium producers Cameco (CCO.TO: Quote, Profile, Research, Stock Buzz) and Areva (CEPFi.PA: Quote, Profile, Research, Stock Buzz), and power utilities like Entergy (ETR.N: Quote, Profile, Research, Stock Buzz) and Exelon Corp (EXC.N: Quote, Profile, Research, Stock Buzz).
The Japanese reactors were designed to withstand earthquakes, but Friday's quake was a record for Japan, and a devastating tsunami knocked out backup power, causing and deepening the problems.
With the 24-hour news agenda focused on the possibility of a meltdown at one or more reactors in Japan, analysts said the market will need time to recover from losses.
"We need to see those reactors brought under control before people start to review the situation with a little more perspective," Sterck said.
Nuclear power accounted for about a third Japan's of energy generation before the quake, and the damage has raised concerns about future of the industry there.

The Economic Aftershocks of the Japanese Earthquake

The Economic Aftershocks of the Japanese Earthquake
Seeking Alpha

By David Zeiler

The 8.9 magnitude earthquake and resulting tsunami that hit northeastern Japan Friday had an immediate impact on financial markets all over the world. However, the effects of the damage and rebuilding will reverberate through the Japanese economy for months, if not years.

In the immediate aftermath of the earthquake, which struck in midafternoon, factories shut down, railways stopped running and roads, ports and airports closed. Markets remained open, but a lack of power and a disruption of the mobile networks curtailed trading after the temblor struck.

Some of Japan's biggest companies were affected:

• Nissan Motor Co., Ltd. (NSANY.PK) halted production at four factories in the area hit.
• Toyota Motor Corporation (NYSE: TM) closed two assembly plants and a parts factory.
• And Sony Corporation (NYSE: SNE) closed six factories.

"This is certainly the worst thing that can happen in Japan at the worst time," economist Nouriel Roubini told BloombergTelevision, noting that Japan's deficit is 10% of its gross domestic product (GDP) and repairing the damage from the quake will cost the country tens of billions, if not hundreds of billions of dollars.

Because Japan is the world's third-largest economy (as measured by gross domestic product), economic turmoil there soon ripples out to the global economy.

One immediate international consequence to the quake was a drop in oil prices, with oil dipping 3.6% to $99.01 a barrel in New York on Friday. In London, Brent crude dropped 2.8%.

The quake forced the closing of several refineries, including three operated by JX Nippon Oil & Energy Corporation (NPOIY.PK) that process 600,000 barrels a day. Japan normally uses a total of 4.42 million barrels a day, compared to U.S. consumption of 19.25 million.

"With Japan's economy decimated, it will constrict oil demand from Japan," Mike Fitzpatrick, editor of Energy Overview newsletter, told ABC News. "For the moment, the tsunami problem seems to have trumped Libya concerns apparently."

Concerns over the cost of the disaster slammed foreign insurance and reinsurance companies, with the stocks of several big reinsurers taking hits of 5% or more. Nevertheless, officials at major insurance companies don't expect huge losses.

While today's event is unique, it is worth noting that in the most recent major earthquake in Japan, the 1995 Great Hanshin-Awaji Earthquake in Kobe, the economic loss was estimated to be in the region of 2.5% of Japan's [gross domestic product] at the time and the insured loss was only in the region of $3 billion, which was mostly retained domestically,

James Vickers, Chairman of Willis Re International & Specialty, part of Willis Group Holdings PLC (WSH), told the Wall Street Journal.

In fact, investors already may be factoring recollections of the Kobe earthquake into their calculations.

The Japanese yen, which fell initially, quickly reversed its slide and closed stronger against the dollar as traders remembered that capital came flowing back into the country after the 1995 quake, boosting the yen to an all-time high.

Investors should also take heed of what happened to Japanese equities following the Kobe earthquake. Within six months of that January temblor, the Nikkei 225 index lost 25% of its value. But by the end of 1995, it had fully recovered.

Stocks will probably fall on Monday, especially of those companies that have factories in the affected areas. But on the whole the sell-off will likely be short-lived,

Mitsuhsige Akino, a fund manager at Ichiyoshi Investment Management,told Reuters.

One sector that stands to benefit is large construction companies, which outperformed the market in 1995. Sure enough, Kajima Corporation, a major Japanese contractor, was up 11% on the Tokyo Stock Exchange on Friday.

The Kobe experience also demonstrated how Japan, as a developed nation, has the resources to rebound from disasters relatively quickly.

Six months after that quake almost all of Kobe's factories had reopened and the city's infrastructure repaired. All the trains were running within nine months, and the port was 80% functional within a year.

Japan's biggest economic headache will be paying the bill.

"The government would have to sell more bonds, but this is an emergency, so this can't be avoided," Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo Yamamoto, told Reuters.

Analysis: Big miners make brave bet on record commods boom | Reuters

Analysis: Big miners make brave bet on record commods boom

(Reuters) - Any investors willing to bet that the commodities boom is running out of steam may need both courage and patience: major miners have wagered more than $110 billion on the opposite view.

BHP Billiton (BHP.AX), Rio Tinto (RIO.AX) and Xstrata (XTA.L) have committed themselves in the last two weeks to spending vast sums on expanding production of iron ore, copper, coal and other raw materials over the next five years.
In decades past, that would signal the beginning of the end, the exuberance that leads to oversupply and tumbling prices, but this time the miners say it's different -- and, for once, commodity markets are inclined to believe them.
"The growth fundamentals certainly support these big expansion projects," said John Robinson, chairman of investment vehicle Global Mining Investments (GMI.AX) whose funds are managed by BlackRock (BLK.N), the world's biggest asset manager.
The difference this time can be summed up in a word: China. Or maybe two: China, India.
UNPRECEDENTED
Industrialization and urbanization on the scale of China are unprecedented: in three decades, the proportion of its people living in cities has more than doubled to 45 percent, creating record demand for steel and its raw materials.
China boasts around 170 cities with more than one million residents, compared to Europe with about 35, and there are still 300 to 400 million people expected to move from the countryside to the city over the next 20 years, most of whom will live in the country's rapidly expanding forests of apartment blocks.
A typical 90-square-meter (970-square-foot) apartment in China needs six tonnes of steel and each tonne of steel requires 1.7 tonnes of iron ore. And every new building needs to be wired with copper and powered mostly by coal-fired electricity.
Add a fast-urbanizing India to the mix and it's not hard to see why billions are being spent to dig more iron ore, the primary ingredient in steel-making.
SOME DOUBTS
Outright pessimists are hard to find in commodities markets, but doubts are growing, especially over the near-term outlook, with traded iron ore prices and copper at record highs and steel-making coal prices up more than 30 percent in 12 months.
Some analysts say inflationary concerns and rising interest rates in China, coupled with forecasts for slowing growth in emerging markets overall, could take the polish off commodities.
"We have seen record highs...but you can clearly see that demand is cooling down a little on the current high prices," Commerzbank analyst Daniel Briesemann said.
Though iron ore and coal prices have yet to show signs of softening, copper is off its peaks, touching a three-week low on Thursday, and aluminum has seesawed as London Metals Exchange inventories near record highs.Read the rest here:

Analysis: Big miners make brave bet on record commods boom | Reuters

What Resource Curse? - By Charles Kenny | Foreign Policy

What Resource Curse?

Is it really true that underground riches lead to above-ground woes? No, not really.

BY CHARLES KENNY | DECEMBER 6, 2010

Bad news: Mozambique has just discovered between 6 trillion and 8 trillion cubic feet of gas sitting off its shoreline -- quite enough for commercial production. This on top of a recent coal-mining boom is destined to make the country a major natural resource exporter. Joining the East African country in recent misfortune is Papua New Guinea, scheduled to start exporting $30 billion worth of natural gas, and Afghanistan -- particularly blighted by the discovery of iron, copper, cobalt, gold, and lithium deposits with a combined value over $1 trillion. Oh, lackaday. Whatever chance they had of sustaining a stable, economically robust democracy is surely down the pit latrine now.

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How so? Enter the resource curse -- the idea that the more stuff dug out from on or under a country, the slower it will grow and the higher the risk it will descend into civil war. Versions of the curse have been around for some time. Back in the 1970s, economists worried about "Dutch disease." Countries that exported a lot of gas or oil would see their exchange rates go up as a result. This, in turn, could make their manufacturing exports uncompetitive. But the idea really picked up steam in the mid-1990s, when Jeffrey Sachs and Andrew Warner, then both at Harvard University, found that countries that exported more agricultural products, minerals, and fuels saw slower economic growth.
Sachs and Warner highlighted Dutch disease and its knock-on effects as the likely cause. But other researchers looking at the same data argued that the link might be through empowering kleptocratic leaders with resource rents or the destabilizing political impact of easy money. In a matter of a few years, resource exports were charged with a host of ill effects -- not least, low education spending, unstable government, civil war, corruption, and poor governance.
The curse is the type of counterintuitive idea that makes for a great newspaper op-ed. Nonetheless, the curse is also the kind of counterintuitive idea where intuition may have been right to begin with. In 1997, the World Bank produced some measures of total natural resource wealth -- including agricultural land, mineral and oil resources, and protected areas. The richest countries in terms of resources per citizen were Australia, Canada, New Zealand, and Norway. Their average income per head in 2008 was $24,430. Jordan and Malawi were at the bottom of the list. Jordan has a per capita income of $5,702; Malawi's is $744. Looking at mineral wealth alone, Venezuela and Norway were at the top, while Belgium, Benin, Ghana (before the recent oil discoveries), and Nepal were at the bottom. While Ghana's oil discovery suggests one problem with the rankings -- rich countries have been better explored for mineral deposits -- nonetheless, the list hardly suggests that resource scarcity is the secret to rapid growth.
Looking at recent growth across countries, Swiss economist Christa Brunnschweiler concludes that economies with greater resource wealth actually grew faster between 1970 and 2000 than resource-poor countries. She also finds no evidence that greater resource wealth is associated with weaker institutions, a finding repeated by Daron Acemoglu at the Massachusetts Institute of Technology.
Together with her colleague Erwin Bulte, Brunnschweiler also looked at the link between natural resources and civil disorder. They found that countries with more natural resource wealth were less likely to descend into civil war in the first place. The same result held whether they were using a broad measure of resource wealth or focused only on minerals or oil. Elsewhere, Stephen Haber and Victor Menaldo of Stanford University and the University of Washington, respectively, studied the relationship between oil revenues and democracy over time across countries. They found that democracies were actually made more resilient by growing oil revenues -- while they couldn't find an impact one way or another when it came to autocracies. Sure, there are cases where oil revenues and autocracy increased together. It is just that there are at least as many cases where that didn't happen -- and more cases where democracy strengthened as revenues went up.
How to reconcile these results with all the papers and articles that find a curse? Earlier studies looked at the importance of natural resource exports at a particular moment in time. There, the relationship holds -- high dependence on resource exports is associated with lower growth and risk of civil war. But that's a strange way to measure "the curse of resources." According to the usual story, the curse involves the misfortune of sitting atop an oil field or diamond-bearing rocks. It's a story of abundance -- as examined by Bulte and Brunnschweiler -- not dependence.
And dependence has got to do with a lot of other things besides mineral reserves. It is true that many countries that rely heavily on natural resource exports are poor and unstable. That's because poor and unstable countries are rarely globally competitive in banking or computer design (it's hard to develop a flourishing microchip industry as the bullets fly). Natural resources are pretty much the only thing such countries have a comparative advantage in trading. Again, countries don't get rich if all they do is produce crops and dig stuff out of the ground. Getting rich takes a vibrant services sector and at least some manufacturing. So countries where digging stuff out of the ground is an especially large part of what goes on in the economy are in trouble. But they are in trouble because they've failed so miserably to create an environment where services and manufacturing can flourish -- not because they happen to have a diamond deposit.
Do kleptocratic regimes exploit natural resources to pad their bank accounts, buy off opponents, and purchase weapons to cow holdouts? Of course they do. Exploiting, padding, bribing, and bullying are what kleptocrats do best. But they are equal-opportunity exploiters. If natural resource rents aren't available, they'll find something else -- and maybe do something worse to get it. For every Gen. Sani Abacha skimming billions off Nigeria's oil wealth, there is a Field Marshal Idi Amin massacring Ugandans by the thousands without the aid or incentive of significant mineral resources.
Happily for those countries stuck atop piles of diamonds or lakes of oil, then, it turns out the resource curse must have been enchanted by a pretty feeble witch. Once you look at the evidence more carefully, the usual argument is turned on its head. Countries that rely on natural resources for a large part of their output are indeed cursed -- by poor quality government and an institutional environment that stifles the growth of manufacturing and services. That's the good news for Afghanistan, Mozambique, and Papua New Guinea: They won't necessarily get any poorer or more unstable thanks to their massive mineral reserves. But bad news follows, too: Given the comparatively weak state of their current institutions, the countries are unlikely to use the money generated to become the next Norway, either.
That's why the most heralded talisman against the resource curse -- improving institutions through greater transparency and oversight -- makes sense regardless. In fact, because so much of the revenues from extractive industries flow through governments, improved oversight might be a particular help after a mineral find. The Extractive Industries Transparency Initiative, for example, publishes audited statements regarding payments from industry to government in royalties and taxes. Another approach, championed by Todd Moss at the Center for Global Development, is to pass on oil revenues directly to citizens -- a model adopted in Alaska. These are good ideas, and it is great news that Mozambique and Afghanistan have signed up to the Transparency Initiative.
But at heart, they are good ideas because all governments should be more transparent and increase the flow of resources to communities, no matter what's under their land. Blaming oil wealth for poverty, though, is like blaming treasure for the existence of pirates.

GIANLUIGI GUERCIA/AFP/Getty Images

Charles Kenny is a senior fellow at the Center for Global Development and a Schwartz fellow at the New America Foundation.

What Resource Curse? - By Charles Kenny | Foreign Policy

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Financial Times: China’s cycle turns the world around

World economy: The China cycle

By Geoff Dyer - FT.com
Published: September 12 2010 20:03 | Last updated: September 12 2010 20:03

Allied by alloys: a steel market in the Chinese privince of Hubei. As well as investing in fellow emerging nations' commodities, such as Brazilian iron ore, Beijing is increasingly investing in their infrastructure

Deep in the Amazon jungle, huge chunks of red earth are torn out of the ground at Carajás, the biggest iron ore mine in the world, to be transported halfway round the globe to the steel mills on China’s eastern seaboard. There they are turned into the backbone for millions of tower blocks in hundreds of booming Chinese cities.

Last year, China overtook the US to become Brazil’s biggest trading partner. The two large developing countries may be on opposite sides of the planet but their growing economic ties over the past decade have become among the enduring symbols of shifts in the global economy.

The duo could also be forging a path for one of the potential biggest realignments in the global economy over the next decade. With little fanfare, China is likely to emerge as the biggest direct investor in Brazil this year, following a string of deals announced in mining, steel, construction equipment and electricity transmission.

Such investments are part of a slow-burning but hugely important trend. Newly crowned the second-largest economy, eclipsing Japan, China is becoming the anchor for a new cycle of self-sustaining economic development between Asia and the rest of the developing world – one that is bypassing the economies of Europe and the US.

China is not only sucking in raw materials from other developing economies, just as it has during the past decade. It has also begun making investments in infrastructure and industry in those countries, some of which are made possible by its cut-price and increasingly sophisticated manufacturing companies or by the attractive financing terms it can offer. Beijing has for some years been investing in this way in parts of Africa: now such deals are being rolled out around the world. For many developing countries, the impact of the China boom is coming full circle.

“It is the start of a new cycle,” says Ben Simpfendorfer, an economist at RBS and author of The New Silk Road, a book on the surging economic ties between China and the Middle East, central Asia and south Asia. “China has companies that are willing to invest, they have products that are good enough, and they are backed by abundant liquidity in the country’s financial system.”

BEIJING MEETS BRAZIL
●Direct investment overseas by Chinese companies has increased from just $5.5bn in 2004 to $56.5bn last year. Chinese officials predicted last week that it would reach $100bn by 2013.

●About 70 per cent of the money invested last year went to other parts of Asia. Latin America came in second place with 15 per cent.

●Chinese companies have so far invested only very modestly in Brazil but Brazilian officials estimate that investment will exceed $10bn this year.

●Chinese banks have lent $10bn to Petrobras, the Brazilian oil company, and $1.23bn to Vale, the iron ore miner.

Ian Bremmer, president of the Eurasia consultancy and author of the recent book, The End of The Free Market, says there is no accident to this China-led process of decoupling from the west. It is, he says, a strategy to reduce economic – and to some extent political – dependence on the US.

“It is a very conscious policy, on the top of the agenda for the entire Chinese leadership,” he says. “They are looking for a hedging strategy because they feel uncertain about the long-term economic prospects of the developed world.”

Promoting innovation and stimulating domestic consumption are also part of that strategy, he argues, but pushing stronger economic integration with the rest of the developing world is the “one strategy that can be done quite quickly”.

Nowhere is the impact of this process being felt more keenly than in Brazil.
As trade has boomed with China during the past decade, Brazilians have sometimes complained of being relegated once again to their 20th-century role of providing commodities to the industrial powers. In the past year, however, the long-awaited wave of Chinese investment in the country appears finally to have reached Brazil’s shores. While it reached only $92m in 2009, the country’s officials estimate that it will exceed $10bn this year.

Wuhan Iron and Steel, for instance, paid $400m for a stake in a mining company owned by Brazilian industrialist Eike Batista, and is planning to build a huge steel mill beside the port near Rio de Janeiro that another of Mr Batista’s companies is constructing. Lifan, one of China’s biggest manufacturers of motorcycles and cars, already exports heavily to Brazil. Now the company’s founder, Yin Mingshan, says it is considering opening a plant to build cars in the country. “Brazil is a very promising market, with a vast territory and a big domestic market,” he says. “Some Chinese businessmen are foolish enough to ignore doing business in Brazil but I am not that stupid.”

If investment in Brazil is one symbol of this new stage of economic Chinese engagement with the developing world, another is the flurry of new rail networks taking shape globally. Chinese railway construction companies are some of the most efficient anywhere, and have for several years been operating in neighbouring countries in central and south-east Asia. But in the past year they have also signed contracts in such diverse places as Ukraine, Turkey and Argentina.


Chinese companies in the sector have not restricted their activities to the manual task of laying rail lines. They are hoping to start signing overseas deals to sell high-speed rail equipment, including locomotives and signalling systems. The first customer could be the planned high-speed line between São Paulo and Rio de Janeiro.

There are two factors that have made these new links possible. The first is that China has produced a generation of companies making capital goods that are now internationally competitive. They can offer developing countries new trains, power stations, mining machinery and telecommunications equipment of sufficient quality at prices that are often well below those of their multinational competitors.

GLOBAL RENMINBI USE
‘It’s like a Formula One starting race, everyone jostling for position’
Although China is both the second- largest economy and the biggest exporter in the world, the renminbi is virtually unseen outside the country. For global transactions, China depends on foreign currencies – in particular the US dollar.
The perils of this arrangement became clear during the financial crisis, when China’s mighty export machine was hit by a freeze in dollar-denominated trade credit. So in recent months Beijing has unveiled measures to facilitate the use of the renminbi and reshape the global monetary system. “We’re at the beginning of something huge,” says Dariusz Kowalczyk, a Hong Kong-based strategist at Crédit Agricole. “Intermediation through the dollar will be gradually eliminated.”
In June, Beijing expanded the scope of a year-old pilot scheme for settling cross-border trades in renminbi, opening it up to the world. Global banks such as HSBC, Deutsche Bank and Citigroup have since been encouraging companies from London to Tokyo to use the Chinese currency rather than the dollar. Some even offer discounted transaction fees as an incentive. “It’s like a Formula One starting race – everyone’s jostling for position,” says Philippe Jaccard of Citigroup.
The financial infrastructure is now in place to allow an Argentinian grain producer, for example, to sell goods for renminbi then use the proceeds to buy farm machinery from China. Cross-border trade in renminbi totalled Rmb70.6bn ($10bn) in the first half of the year. But that figure remains tiny compared with the $2,800bn worth of goods and services traded across China’s borders last year, most of which was settled in dollars or euros.
One of the obstacles to greater global use of the renminbi is a lack of ways for foreign companies to invest their renminbi or hedge their exposure to the currency. Strict capital controls place China’s financial markets almost entirely off limits. But that is changing. Last month, China opened its domestic interbank bond market to foreign central banks and commercial banks that have accumulated renminbi through cross-border trade settlement. Curbs on the free flow of renminbi in Hong Kong have also been lifted. Since July, financial groups in the special administrative region have been able to create a range of renminbi-denominated investment products and hedging tools – all open to global companies and investors.
McDonald’s, the US fast-food chain, last month became the first foreign multinational to issue a renminbi-denominated bond in Hong Kong. It plans to use the proceeds to fund its operations on the Chinese mainland. Robert Cookson

The second element is the financial backing from a banking system that has been mobilised to follow behind these businesses. Yi Huiman, a senior executive at Industrial and Commercial Bank of China, told a conference recently that the institution was working with the government to provide “railroads plus finance” around the world. Vale, the Brazilian company that operates the giant iron ore mine in the Amazon, announced on Friday that it had signed a $1.23bn credit with two Chinese banks to finance the purchase of 12 huge cargo ships from a Chinese shipyard, which will transport iron ore between the two countries.

The scale of these transactions is clearly much smaller than Beijing’s holdings of US securities, estimated to be in the order of $1,500bn, but the underlying dynamic is the same: the Chinese financial system is starting to recycle some of its holdings of foreign currency into the economies of its developing country trading partners, in order to stimulate demand for its own goods.

The impact is already apparent in China’s trade statistics, with the biggest increases in exports in the past year coming from developing countries. Trade with the Association of Southeast Asian Nations increased by 54.7 per cent in the first half of the year, and by 60.3 per cent with Brazil.

If Chinese investment does indeed help to kick off a growth cycle in other parts of the developing world, it will be a tonic for a global economy in which the outlook for many leading economies remains subdued, with some even facing the risk of a double-dip recession. The combination of Chinese demand and booming investment is one reason for Brazil’s ability to record China-style growth rates of 8.9 per cent in the first half of the year.

Yet for western economies there are also plenty or risks involved. The investment push is likely to herald an era of intense competition between developed-world multinationals and state-owned Chinese companies. The strong financial backing that such groups receive is also likely to fuel accusations that they are not playing on a level field. It is perhaps no surprise that some of the multinationals that in recent months have publicly voiced criticisms of Beijing’s industrial policies – GE and Siemens – operate in sectors in which China is becoming a fierce competitor, such as power equipment and railways.

China’s new clout is also raising questions about the future of the dollar. Chinese officials have talked about a long-term goal of replacing it as the global reserve currency with a basket of others, potentially including the renminbi.

As trade with the developing world balloons, Beijing has also been taking important steps to expand the international use of the renminbi, including allowing overseas holdings of the currency to be invested in the onshore bond market. Some economists believe it could become the reference currency for Asian trade over the course of the next decade.
Yet the irony is that, while there is strong economic momentum behind the Chinese currency taking on a much larger international role, Beijing is reluctant to let this happen. “China is still very hesitant about whether it really wants the currency to be international,” says Yu Yongding, an influential economist at the Chinese Academy of Social Sciences think-tank.
To become an important trading currency is one thing: but to become a global reserve currency with the power to threaten the role of the dollar, the government would need to lower capital controls and open up its domestic bond market. This would mean giving up its tight control of exchange and interest rates.
Furthermore, if economic integration with other developing countries is really to take off, it will require careful management by Beijing. There is a very real risk that the new-found interest in emerging markets will provoke a backlash, especially if China’s exports of manufactured goods keep up such a rapid pace of growth.
There are already plenty of warning signs. India, for instance, has tried this year to reduce supplies of Chinese power equipment in favour of goods made by local producers. For several months, New Delhi blocked Huawei, the Chinese maker of telecoms equipment, from the Indian market.
In Brazil, there are fears that companies such as carmaker Lifan want to use the country to assemble kits of nearly-completed cars made in China rather than promote a domestic industry. There is also concern about fresh competition for access to markets elsewhere in Latin America. Kevin Gallagher of Boston University calculates that 91 per cent of Brazilian exports of manufactured goods to the region are under threat from lower-priced Chinese products. If that market wilts away, industry is likely to become much more critical of the new China ties.
China’s growing links with the rest of the developing world could provide a huge boost both to the country itself and to the global economy during the course of the next decade. But a wave of protectionism could yet halt the process. Beijing will need to work hard to ensure its new partners in the developing world do not feel steamrollered by the Chinese juggernaut.

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China: job seekers outnumber available jobs by two to one in 2010

China: Employment Situation 'Very Grave' - Spokesman
September 10, 2010

China’s employment situation is “very grave,” with job seekers outnumbering jobs by two to one in 2010, Chinese Ministry of Human Resources and Social Security spokesman Yin Chengji said Sept. 10, Xinhua reported. Yin said 12 million jobs were available this year for 24 million people, including 6.3 million new college graduates and 6 million high school graduates. Beijing must help shift people from rural areas to cities, Yin said. There is also an issue with structural unemployment, Yin said, adding that Beijing will continue to prioritize employment. At the end of 2009, China’s urban unemployment rate was 4.3 percent, with 9.21 million unemployed, according to a Human Resources white paper.

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Why Africa won’t be the next Bric | beyondbrics | FT.com

Why Africa won’t be the next Bric

August 27, 2010 5:26pm

by Barney Jopson

Prompted by this week’s application from South Africa for Bric “membership”, the man who coined the acronym - Jim O’Neill of Goldman Sachs - asks in today’s FT whether Africa as a whole could become the next Bric.
On several measures he says the continent has a reasonably strong case, but he notes that its biggest economies would still need to raise their games on many fronts - and he misses some more profound weaknesses in the Africa-as-a-Bric idea.
O’Neill created the Bric acronym in 2001 as a neat way of grouping together four countries that shared the potential for generating rapid growth, attracting foreign investment, and reshaping the global economy.
Ngozi Okonjo-Iweala, managing director at the World Bank, latched onto the idea of Africa joining the group in a speech earlier this year in which she sold it as a “trillion dollar economy”.

It’s high time Africa saw and presented itself as the fifth Bric, an attractive destination for investment, not just aid. This is realistic and within reach. As Nelson Mandela said, “It always seems impossible until it’s done”.

But before you can decide where to squeeze an “a” into the acronym, old Africa hands will jump in to say that it’s nonsense to compare it to a single country: not only is Africa a continent, it’s arguably the most diverse on the planet in terms of economics, politics, culture and the environment.
What’s more, 20 African countries have populations of less than 5m people. O’Neill is alive to that and focuses his discussion on the biggest African economies.

If you … look at the potential of the 11 largest African economies for the next 40 years (by studying their likely demographics, the resulting changes in their working population and their productivity) their combined GDP by 2050 would reach more than $13,000bn, making them bigger than either Brazil or Russia, although not China or India.

But even those 11 are highly diverse - including two of the biggest, Egypt and Nigeria. And due to Africa’s lamentable roads and railways, as well as its internal border restrictions, many of them function as isolated economic islands.
Afro-optimists would say regional trading blocs are changing that, but the reality is that only about 10 to 12 per cent of African trade takes place with other African countries, according to a study from the UN Economic Commission for Africa and others.
For those reasons, it doesn’t make a lot of sense to suppose that Africa’s biggest economies will follow the same development trajectories over the next few years, let alone the next few decades.
Yet it’s worth remembering that the Bric grouping initially attracted flak for not having any coherence either, but its runaway popularity with western businesses and investors has given the four countries more in common than they had before.
Funnily enough, one thing they share is a growing hunger for mineral resources from Africa (notably Nigeria, Angola, the Democratic Republic of Congo, and Sudan).
But it’s doubtful whether any country other than South Africa has the right mix of factors to make it an attractive destination for serious western investment, across a broader range of sectors, which could rival that going to the Brics.
Earlier this year Shanta Devarajan, the World Bank’s chief economist for Africa, responded with a dose of scepticism to Okonjo-Iweala’s call:

The distinguishing feature of the Brics is that they are both middle-income and large. So it’s not clear how any individual African country can aspire to being a Bric. Countries such as Malaysia or Chile may be more appropriate models for most African countries.

To achieve their “2050 potential”, O’Neill says African countries need more macroeconomic stability, less external debt, a stronger rule of law, better education, (even) more mobile telephones, and a purge of corruption.
But it’s worth paying more attention to the parallel trends of population growth (seen as a good thing by many investors in India and Brazil) and job creation (a difficult task that most African governments are failing to manage).
Each of the Bric countries have their own pockets of poverty, and in some parts of Africa poverty is actually falling. But too many countries are producing more people than they can employ. And not only does that limit their potential as new consumer markets. It has ugly consequences in terms of crime, conflict and social unrest that can strangle economic growth.
Related reading:
Building Brics, FT
Is Russia the best Bric after all? beyondbrics
Why Africa won’t be the next Bric | beyondbrics | FT.com

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A Botched Hostage Rescue in the Philippines

A Botched Hostage Rescue in the
Philippines
Created Aug 26 2010 - 10:55
[1]
Not Limited Open Access
By Scott Stewart
On Aug. 23, Rolando Mendoza, a former senior police inspector with the Manila police
department, boarded a tourist bus in downtown Manila and took control of the vehicle,
holding the 25 occupants (tourists from Hong Kong and their Philippine guides) hostage.
Mendoza, who was dressed in his police inspector's uniform, was armed with an M16-type
rifle and at least one handgun.
According to the police, Mendoza had been discharged from the department after being
charged with extortion. Mendoza claimed the charges were fabricated and had fought a
protracted administrative and legal battle in his effort to be reinstated. Apparently,
Mendoza's frustration over this process led to his plan to take the hostages. The fact that
Mendoza entertained hope of regaining his police job by breaking the law and taking
hostages speaks volumes about his mental state at the time of the incident.
After several hours of negotiation failed to convince Mendoza to surrender,
communications broke down, Mendoza began to shoot hostages and police launched a
clumsy and prolonged tactical operation to storm the bus. The operation lasted for more
than an hour and left Mendoza and eight of the tourists dead at the end of a very public
and protracted case of violence stemming from a workplace grievance [2].
Hostage-rescue operations are some of the most difficult and demanding tactical
operations for police and military. To be successful, they require a great deal of training
and planning and must be carefully executed. Because of this, hostage-rescue teams are
among the most elite police and military units in the world. Since these teams are always
training and learning, they pay close attention to operations like the one in Manila and
study these operations carefully. They seek to adopt and incorporate tactics and
techniques that work and learn from any mistakes that were made so they can avoid
repeating them. Even in highly successful operations, there are always areas that can be
improved upon and lessons that can be learned.
Indeed, in the Manila case, the events that unfolded provided a litany of lessons for
hostage-rescue teams. The case will almost certainly be used in law enforcement and
military classrooms across the globe for years as a textbook example of what not to do.
Breakdown of the Incident
Shortly after 10 a.m. on Aug. 23, Mendoza commandeered the bus and its occupants (his
police inspector's uniform was likely helpful in gaining him access to the vehicle). Within
minutes, he released two female hostages. Soon thereafter he released four hostages (a
woman and three children). Mendoza used a cell phone to call the Manila police, inform
them of the situation and make his demands: that the charges against him be dropped by
the police ombudsman's office and that he be reinstated to the police force. These early
hostage releases would generally be seen as a positive sign by the authorities, showing
that Mendoza had some compassion for the women and children and that even if he was
reducing the number of hostages for pragmatic, tactical reasons (to allow him better
control over the group), he was at least reducing the number by releasing people and not
killing them.
The police maintained communications with Mendoza, who stayed aboard the bus and
kept the motor running. This not only kept the vehicle cool, but allowed Mendoza to watch
events unfold around the bus on the onboard television set. He had his hostages close the
curtains on the bus to make it more difficult for the authorities to determine where he was
in the bus.
Shortly after 1 p.m., Mendoza requested more gasoline for the bus and some food. He
released another hostage, an elderly man, in return for the gas and food. Two other
hostages, both Philippine photographers, were released as a 3 p.m. deadline for action set
by Mendoza came and went (one of the photographers was released before, one after).
There were also reports that Mendoza had initially set a 12:30 p.m. deadline for action.
The fact that these deadlines passed without violence would be an encouraging sign to the
authorities that the incident could be resolved without bloodshed. Food was again taken
out to the bus just before 5 p.m. During the afternoon, Mendoza could have been engaged
by snipers on at least two occasions, but since negotiations were proceeding well and
Mendoza did not appear to be close to shooting, the decision was made to try and wait
him out and not attempt to kill him. If the snipers failed to incapacitate Mendoza, it could
have risked the lives of the hostages.
During the ordeal, Mendoza continued to watch events unfold on the television inside the
bus and reportedly even talked to journalists via cell phone. Mendoza also ordered the bus
driver to park the vehicle sideways in the center of the road in an apparent attempt to
make it more difficult to approach without detection.
Things took a marked turn for the worse around 6:20 p.m., when negotiators,
accompanied by Mendoza's brother Gregorio (who is also a police officer and who had
earlier helped convince Mendoza to extend his deadline), approached the bus with a letter
from the office of the ombudsman offering to reopen his case. Mendoza rejected the letter,
saying he wanted his case dismissed, not reviewed. At this point, there are conflicting
reports of what happened. The police negotiators told the Philippine Daily Inquirer that
Mendoza's brother told Mendoza that the letter from the ombudsman's office was garbage
and that he should not surrender. Other press reports indicate that the brother pleaded
with Mendoza to take him hostage and release the tourists and that his pleading was seen
as counterproductive to the negotiations.
Whatever the story, Mendoza's brother was then arrested and his arrest was carried live
on television and seen by Mendoza in the bus. Shortly after his brother's arrest, Mendoza
fired two warning shots and demanded in a radio interview that all the Manila Police
Department SWAT officers be removed from the scene. Shortly after 7 p.m., Mendoza
repeated his threats and refused to speak to his family members. Growing increasingly
agitated, Mendoza shot two of the hostages when his demand for the SWAT officers to
retreat was not met. He released the Philippine bus driver, who reportedly told police that
all the hostages were dead. (We are unsure why the driver said this when only two of the
passengers had been killed, but the police would have been able to tell from the volume of
fire that Mendoza had not truly killed all the hostages.)
At about 7:30 p.m., the tires of the bus were shot out and a police tactical team
approached the vehicle and began to smash its windows with a sledgehammer. The police
attempted to slowly enter the back of the bus by crawling through one of the shattered
windows from the top of a police truck but were forced back out of the window by gunfire.
At about 8:40 p.m., police deployed tear gas into the back of the bus through the missing
windows. Gunfire erupted and Mendoza was finally killed in a hail of bullets. Six additional
hostages also perished during the exchange of gunfire. It is unclear at this point if they
were intentionally shot by Mendoza or if they were caught in the crossfire.
Hostage Situations
By the time of the rescue attempt, the saga of Mendoza's firing from the police force had
been going on for some time, and it is important to recognize that he did not make a
spontaneous decision to seize the tourist bus. Even if the bus was targeted shortly before
the attack, Mendoza's path toward violent action would have included several significant
warning signs. As in almost any case of violence that stems from issues in the workplace,
once the chain of events are examined more closely, reports will emerge that warning
signs were either missed or ignored. Had those warning signs been noted and acted
upon, this situation might have been avoided.
Since the event was not pre-empted, once it happened and developed into a hostage
situation, the primary objective of the authorities was to resolve the incident without
violence. Skillful hostage negotiators do this by allowing the hostage-taker to vent. They
also work hard to defuse any tension that has the attacker on edge and to gently wear the
attacker down to the point of surrender. One of the essential principles in this effort is to
isolate the hostage-taker so that he or she cannot receive outside communication,
motivation, encouragement or other forms of support. Hostage negotiators seek to control
the flow of all information into or out of the crime scene. That did not occur in this case.
Mendoza was able to talk to outsiders on his cell phone and even gave media interviews.
He was also able to use the television in the bus to watch live media coverage of the
incident, including video of the deployment of police officers. This gave him a considerable
advantage and far more information than what he could have observed with his eyes from
inside the curtained bus.
As shown in the November 2008 attack in Mumbai, India, it has become more difficult to
isolate assailants from outside communications in the cell phone era, but there are ways
that such communications can be disabled. It is not known why the Manila police did not
attempt to jam the outside communication signals going to and from the bus, but that is
certainly something that will come up in the after-action review, as will their handling of the
media and onlookers (one of whom was wounded) during the incident.
As negotiations are proceeding in a hostage situation, the authorities must always be
busily preparing to launch an assault in case negotiations fail. When the assailant is
agitated or mentally disturbed, the situation on the ground can sometimes change quite
rapidly, and the rescue team needs to be prepared to act on a moment's notice. Usually
the team will come in with an initial assault plan and then alter and refine their plan as
more intelligence becomes available, and as they become more familiar with the site and
the situation.
If the hostages are being held in a building, the rescue team will get the blueprints of the
building and collect as much information as possible in an effort to plan their assault on
the location where the hostages are being held. In this case, the hostages were being held
on a stationary bus, which made it far easier to collect that type of intelligence — a bus is a
bus. The authorities also had access to released hostages who, had they been debriefed,
could have described to authorities the situation inside the bus.
In a protracted hostage situation, the authorities will frequently employ technical measures
to gather additional intelligence on the activities of the hostage-taker. This may involve the
use of overt or clandestine video equipment, parabolic microphones or microphones
surreptitiously placed in or near the site. Even thermal imaging sets and technical
equipment to intercept cell phone communication or radio transmissions are sometimes
used.
All the information gleaned from such efforts will not only go to the negotiators, to help
them understand the hostage taker's frame of mind, but will also be used to help the
rescue team fine-tune their assault plan.
Meanwhile, as the assault plan is being tweaked, negotiations continue and the hostage
negotiators work to wear down the hostage-taker. It appears that the negotiators in the
Mendoza case were doing a fairly good job of keeping the situation calm until the situation
flared up involving Mendoza's brother and the letter from the ombudsman's office.
Authorities clearly erred by not sending him a letter saying they had dropped the case
against him. (They did not need the extortion charges now that they could arrest him and
charge him with kidnapping and a host of other crimes.) It is hard to understand why the
police department quibbled over words and refused to give him the piece of paper he
expressly demanded. The police then aggravated the situation greatly with the public
arrest of Mendoza's brother. Those two events caused the situation to deteriorate rapidly
and resulted in Mendoza's decision to begin shooting. Once he shot the first two hostages,
the negotiations were clearly over and it was time to implement a tactical solution to the
problem.
The Use of Force
In a hostage situation, the use of force is a last resort. If force is required, however, the
rescue team needs to hit hard, hit fast and hit accurately. There is little time for hesitation
or error: Lives hang in the balance. This is where things began to get very ugly in the
Mendoza case. Not only was there a delay between the murder of the first hostages and
the launching of the first assault attempt, the assault was not hard, fast or accurate. To
succeed, an assault should be dynamic, assume control of the scene by overwhelming
force and use surprise and confusion to catch the hostage-taker off guard and quickly
incapacitate him. The rescue team needs to dominate the place where the entry is being
made and then quickly and accurately shoot the assailant. When the police began to
smash the windows of the bus with sledgehammers and then continued to beat on the
windows for more than a minute, Mendoza had ample time to kill his hostages had he
wished to do so. The only thing that saved the hostages who did survive was Mendoza's
apparent reluctance to kill them.
It appears that the intent of the police was to smash the rear window to provide an
opening and then to continue smashing windows as they moved forward in an effort to
draw Mendoza's attention to the front of the bus while the assault team entered from the
rear. When the police did attempt to enter the bus using the roof of the police vehicle,
however, it was a slow, clumsy attempt that was quickly repelled by Mendoza once he
opened fire on the team. They did not enter the bus quickly, and their tepid approach
caused them to lose the element of tactical surprise, denied them the opportunity to
employ overwhelming force and allowed Mendoza time to think and react and begin firing.
There was no hope of the assault team's dominating the breaching point (or the rest of the
bus) when they entered in such a half-hearted manner. Then, instead of following through
with the assault by storming the front door while Mendoza was firing at the police in the
rear of the bus, the police withdrew and went back to the drawing board. Again, had
Mendoza wanted to kill all his remaining hostages, the withdrawal of the assault team
gave him ample time to do so.
More than an hour after the first assault, the police again approached the bus and
deployed tear gas grenades through the broken windows at the back of the bus. This
flushed Mendoza toward the front of the bus and, after a brief exchange of gunfire, he was
killed. There were some reports that he was killed by a police sniper, but we have seen no
evidence to corroborate those reports, and it appears that he was shot from a relatively
short range. Eight of the hostages survived the ordeal.
Granted, a bus does offer some challenges for a takedown operation, but is also a very
common form of transportation throughout the world, and there have been numerous
hostage situations involving buses in many different countries. Because of this,
professional rescue teams frequently practice bus takedowns in much the same way they
practice building takedowns or aircraft takedowns.
It was very apparent that the Manila SWAT unit lacked the experience, equipment and
training to conduct effective hostage-rescue operations, and we have seen this problem in
other local police departments in the developing world. We have not been able to learn
why the police did not seek the help of a national-level hostage-rescue unit for the tactical
aspect of this situation rather than leaving it to the Manila SWAT team to resolve. Given
the prolonged duration of the situation and the location in the nation's capital, higher-level
assets should have had time to deploy to the scene.
Unlike many cases of workplace violence, this one did not involve a disgruntled employee
charging into his former office with guns blazing. Instead, Mendoza embarked on a course
of action that would, as it turned out, cause a great deal of public humiliation for his former
employer. Indeed, the head of the Manila police district tendered his resignation Aug. 24.
Four leaders of the Manila SWAT team were also placed on administrative leave.
In the past, some botched rescue attempts have spurred inquiries that have resulted in
countries creating or dramatically improving their hostage-rescue capabilities. For
example, the failed rescue attempt in Munich in 1972 led to the creation of Germany's
GSG-9, one of the most competent hostage-rescue teams in the world. It will be
interesting to see if the Mendoza case spurs similar developments in the Philippines, a
country facing a number of security threats.
Terrorism/Security Scott Stewart China Philippines Security Portal: Featured
Analysis and Intelligence Security Weekly
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Source URL: http://www.stratfor.com/weekly/20100825_botched_hostage_rescue_philippines
Links:
[1] http://www.stratfor.com/weekly/burton_and_stewart_on_security?fn=6716995385
[2] http://www.stratfor.com/weekly/20081126_workplace_violence_myths_and_mitigation?fn=7816995364
<a href="http://www.stratfor.com/weekly/20100825_botched_hostage_rescue_philippines">A Botched Hostage Rescue in the Philippines</a> is republished with permission of STRATFOR.


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