Trade outcome vital to success of ASEAN Summit


March 18, 2018

Trade outcome vital to success of ASEAN Summit

by Mari Pangestu and Peter Drysdale

http://www.eastasiaforum.org/2018/03/16/trade-outcome-vital-to-success-of-asean-summit/
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Economists Dr Mari Elka Pangestu (above) and Dr. Peter Drysdale

Australia has been an ASEAN dialogue partner since 1974, an acknowledgement of the centrality of ASEAN to Australia’s regional security. There have been ASEAN summits with Japan, China, the United States and India but the ASEAN summit in Sydney this weekend is the first in Australia.

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The Host, ASEAN-Australia Special Summit 2018, Prime Minister Malcolm Turnbull

The summit comes at a time when leaders in ASEAN and Australia confront a number of strategic choices. None is more important than how they respond to the threat to the global trading system, the foundation of East Asia’s prosperity and a critical element in its security.

ASEAN centrality has been an organising framework for Asian economic policy cooperation over the past half century.

The retreat of the United States under President Trump from leading the global economic order; the rise of China with its assertive stance on the South China Sea and its infrastructure development ‘carrot’ in the Belt and Road Initiative; a putative ‘Quad’ configuration of Indo-Pacific power around the US, India, Japan and Australia; and the North Korea crisis all present significant challenges to ASEAN’s central role in the region.

Last week, Mr Trump fired the first shots in what could become a global trade war with the imposition of 25 per cent tariffs on steel imports and 10 per cent tariffs on aluminium. The action, taken under the Section 232 national security provisions of US trade law, risks provoking tit-for-tat retaliation by trading partners who, unlike Canada, Mexico and Australia, aren’t able to negotiate exemption from its impact. It also risks the WTO rules-based trading system.

Mounting uncertainty has affected confidence in trade and economic recovery since Trump translated his campaign protectionist rhetoric into an ‘America First’ agenda. But the White House announcement last week threw the international system into chaos. If Trump’s imposition of these tariffs on a flimsy national security pretext does not outright flout the rules of the WTO, then it at least flouts its widely shared norms.

The response from the European Commission was to ‘do the same stupid things to respond to stupid things’ — promising retaliatory tariffs on a range of US exports into Europe, from Harley-Davidson motor bikes to bourbon whisky. The tariff imposts also launched a process in which partners like Australia successfully begged exemption on various grounds both sound and spurious, all of which are in clear violation of the understanding that trade will be conducted under internationally agreed rules, not ad hoc bilateral deals. That’s the beginning of the rot; it may be a short-term tactical victory for countries like Australia, but it is not effective trade policy strategy.

What can be done now?

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Australia’s Prime Minister Malcolm Turnbull (R) waves with ASEAN leaders (L to 2nd R) Laos’ Prime Minister Thongloun Sisoulith, Indonesia’s President Joko Widodo, Cambodia’s Prime Minister Hun Sen, Brunei’s Sultan Hassanal Bolkiah and Thailand’s Prime Minister Prayuth Chan-O-Cha for a family picture at the ASEAN-Australia Special Summit in Sydney on March 17, 2018.

The strategic objective is to keep the WTO system alive in the face of a potentially mortal threat. The United States is playing itself out of the system. Learning to live without the United States as a rules- and norms-enforcer won’t be easy, but it is the only response that will protect the system and avoid the large-scale economic cost and the dangerous political consequences of an escalating trade war.

Asia’s response to the Trump trade threat is critical for the international system. Asia’s prosperity and political stability depends critically on its integration into the global economy through the rules-based trading system which has underpinned the growth of Asian interdependence, Asia’s economic prosperity and its political security.

China is in Trump’s cross hairs as ‘the cause of US trade deficits because of its violation of trade rules’. But China is also a crucial stakeholder in the rules-based system through its largely faithful observance of the protocols of its accession to the WTO in 2001 and the huge trade in Asia and around the world that has been built on that.

Locking in China’s entrenchment to the WTO system — and resistance to the temptation to take retaliatory actions in the face of Mr Trump’s trade antics — is thus a major element in the system’s defence.

As China and the US stare each other down with a potentially devastating trade war on the horizon, it may seem strange to turn to ASEAN, but it has a central role in the collective response to Asia’s present predicament. That is because of ASEAN leadership in the strategic conception and negotiation of the Regional Comprehensive Economic Partnership (RCEP) in East Asia.

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RCEP includes not only the ten ASEAN economies but also Japan, South Korea, China, India, Australia and New Zealand. It’s a coalition of countries with the economic weight to deliver a powerful message to the world. The signing of the Trans-Pacific Partnership agreement without the United States in Chile last week was a start in defence of the global trading system. But that agreement doesn’t include China or most of ASEAN and is not systemically important enough to make the difference. RCEP is.

The threat to the multilateral trading system is more important than the still unfinished business on the Korean peninsula and worries about the South China Sea.

ASEAN, with Indonesia at its core, is a regional enterprise with a distinctly global outlook and objectives. Intra-regional trade is only 24 per cent of ASEAN’s total trade but it is deeply integrated into trade globally.

The Australia–ASEAN summit is a singularly important opportunity for setting out strategic interests in these economic dimensions of regional security and ASEAN’s role in achieving them. A declaration from the Sydney summit that commits to avoiding retaliation to US protectionism and elevating the momentum in RCEP will help cement a broader coalition of Asian economies, including China, Japan, South Korea and India, to holding firm on the international trading system.

It will also ensure ASEAN’s continuing centrality in cooperation across the region.

Dr. Mari Pangestu is former Indonesian Trade Minister and Professor at the University of Indonesia. Dr. Peter Drysdale is Professor of Economics and Head of the Asian Bureau of Economic Research and Co-Editor of East Asia Forum in the Crawford School of Public Policy at the ANU. This article was also published in the Australian Financial Review on 15 March 2018.

 

President Donald Trump at WEF in Davos, Switzerland


January 26, 2018

President Donald Trump at WEF in Davos, Switzerland

https://www.politico.com/story/2018/01/26/full-text-trump-davos-speech-transcript-370861

The following is the speech President Donald Trump delivered at the World Economic Forum at Davos, Switzerland on January. 26, 2018.

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I believe in America. As President of the United States I will always put America first just like the leaders of other countries should put their country first also. But America first does not mean America alone. When the United States grows, so does the world. American prosperity has created countless jobs all around the globe and the drive for excellence, creativity, and innovation in the U.S. Has led to important discoveries that help people everywhere live more prosperous and far healthier lives.–President Donald J Trump

 

It’s a privilege to be here at this forum an business and science diplomacy and people from world affairs gathered for many, many years to discuss how we can to advance prosperity and peace. I’m here to represent the interests of the America people and affirm America’s friendship and partnership in building a better world.

Like all nations represented at this great forum, America hopes for a future which everyone can prosper and every child can grow up free from violence, poverty, and fear. Over the past year, we have made extraordinary strides in the U.S. We’re lifting up forgotten communities, creating exciting new opportunities, and helping every American find their path to the American dream. The dream of a great job, a safe home and a better life for their children.

After years stagnation the nights is once again experiencing strong economic growth. The stock market is smashing one record after another, and has added more than $7 trillion in new wealth since my election. Consumer confidence, business confidence, and manufacturing confidence are the highest that they have been in many decades.

Since my election we’ve created 2.4 million jobs and that number is going up very, very substantially. Small business optimism is at an all-time high. New unemployment claims are near the lowest we’ve seen in almost half a century. African-American unemployment reached the lowest rate ever recorded in the United States and so has unemployment among Hispanic-Americans.

The world is witnessing the resurgence of a strong and prosperous America. I’m here to deliver a simple message. There has never been a better time to hire, to build, to invest and to grow in the United States. America is open for business and we are competitive once again. The American economy is by far the largest in the world and we’ve just enacted the most significant tax cuts and reform in American history. We’ve massively cut taxes for the middle class, and small businesses to let working families keep more of their hard earned money.

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We lowered our corporate tax rate from 35 percent all the way down to 21 percent. As a result, millions of workers have received tax cut bonuses from their employers in amounts as large as $3,000. The tax cut bill is expected to raise the average American’s household income by more than $4,000. The world’s largest company, apple, announced it plans to bring $245 billion in overseas profits home to America. Their total investment into the United States economy will be more than $350 billion over the next five years. Now is the perfect time to bring your business, your jobs, and your investments to the United States.

This is especially true because we have undertaken the most extensively regulatory reduction ever conceived. Regulation is stealth taxation. The U.S. Like many other countries unelected bureaucrats, we have, believe me, we have them all over the place, and they have imposed crushing and anti-business and anti-worker regulations on our citizens with no vote, no legislative debate, and no real accountability. In America those days are over. I pledged to eliminate two unnecessary regulations for everyone new regulation. We have succeeded beyond our highest expectations. Instead of two for one, we have cut 22 burdensome regulations for everyone new rule. We are freeing our businesses and workers so they can thrive and flourish as never before. We are creating an environment that attracts capital, invites investment, and rewards production. America is the place to do business, so come to America where you can innovate, create and build.

I believe in America. As President of the United States I will always put America first just like the leaders of other countries should put their country first also. But America first does not mean America alone. When the United States grows, so does the world. American prosperity has created countless jobs all around the globe and led the drive for excellence, creativity, and innovation in the U.S that has led to important discoveries to enable people everywhere to live more prosperous and far healthier lives.

As the United States pursues domestic reforms to unleash jobs and growth, we are also working to reform the international trading system so that it promotes broadly-shared prosperity and rewards to those who play by the rules. We cannot have free and open trade if some countries exploit the system at the expense of others. We support free trade but it needs to be fair and it needs to be reciprocal because in the end unfair trade undermines us all. The United States will no longer turn a blind eye to unfair economic practices including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning.

These and other predatory behaviors are distorting the global markets and harming businesses and workers not just in the U.S. But around the globe. Just like we expect the leaders of other countries to protect their interests, as president of the United States, I will always protect the interests of our country, our companies, and our workers. We will enforce our trade laws and restore integrity to our trading system. Only by insisting on fair and reciprocal trade can we create a system that works not just for the U.S., but for all nations.

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As I have said, the United States is prepared to negotiate mutually beneficial, bilateral trade agreements with all countries. This will include the countries within TPP, which are very important. We have agreements with several of them already. We would consider negotiating with the rest either individually or perhaps as a group if it is in the interests of all. My administration is also taking swift action in other ways to restore American confidence and independent. We are lifting self-imposed restrictions on energy production to provide affordable power to our citizens and businesses and to promote energy security for our friend all around the world. No country should be held hostage to a single provider of energy. America is roaring back and now is the time to invest in the future of America.

We have dramatically cut taxes it make America competitive. We are eliminating burdensome regulations at a record pace. We are reforming the bureaucracy to make it lean, responsive and accountable and we are insuring our laws are enforced fairly. We have the best colleges and universities in the world and we have the best workers in the world. Energy is an abundant and affordable. There is never been a better time to do business in America. We are also making historic investments in the American military because we cannot have prosperity without security. To make the world safer from rogue regimes, terrorism and revisionist powers, we’re asking our friend and allies to invest in their own defenses and to meet their financial obligations. Our common security requires everyone to contribute their fair share.

My administration is proud to have led historic efforts at the united nations security council and all around the world to unite all civilized nations in our campaign of maximum pressure to de-nuke the Korean peninsula. We continue to call on partners to confront Iran’s support for terrorists and block Iran’s path to a nuclear weapon. We’re also working with allies and partners to destroy jihad it terrorist organizations such as ISIS and very successfully so. The nights is leading a very, very broad coalition to deny terrorists control of their territory and populations, to cut off their funding and to discredit their wicked ideology. I am pleased to the support that the coalition to defeat ISIS has retaken almost 100% of the territory once held by these killers in Iraq and Syria. There is still more fighting and worked to be done. And to consolidate our gains. We are committed to insuring that Afghanistan never again become as safe haven for terrorists who want to commit mass murder to our civilian populations.

I want to thank those nations represented here today that have joined in these crucial efforts. You are not just securing your own citizens but saving lives and restoring hope for millions and millions of people. When it comes to terrorism we will do whatever is necessary to protect our nation. We will defend our citizens and our borders. We are also securing our immigration system as a matter of both national and economic security. America is a cutting-edge economy but our immigration system is stuck in the past.

We must replace our current system of extended family chain migration with a merit-based system of admissions that selects new arrivals based on their ability to contribute to our economy, to support themselves financially, and to strengthen our country.

In rebuilding America we are also fully committed to developing our workforce. We are lifting people from dependence to Independence because we know the single-best anti-poverty program is a very simple and very beautiful paycheck. To be successful it is not enough to invest in our economy.

We must invest in our people. When people are forgotten the world becomes fractured. Only by hearing and responding to the voices of the forgotten can we create a bright future that is truly shared by all. The nation’s greatness is more than the sum of its production and a nation’s greatness is the sum of its citizens, the values, pride, love, devotion and character of the people who call that nation home.

From my first international G-7 Summit to the G-20, to the U.N. General Assembly, to APEC, to the World Trade Organization and today at the World Economic Forum my administration has not only been present but has driven our message that we are all stronger when free, sovereign nations cooperate towards shared goals and they cooperate toward shared dreams. Represented in this room are shared dreams.

Represented in this room are some of the remarkable citizens from all over the worlds. You are national leaders, business titans, industry giants and many of the brightest mind in many fields. Each of you has the power to change hearts transform lives and shape your country’s destinies. With this power comes an obligation however, a duty of loyalty to the people, workers, customers, who made you who you are.

Together let us resolve it use our power, our resources and our voices, not just for ourselves but for our people, to lift their burdens, to raise their hopes and to empower their dreams. To protect their families, their communities, their histories and their futures. That’s what we’re doing in America, and the results are totally unmistakable. It’s why new businesses and investment are flooding in. It’s why our unemployment rate is the lowest it’s been in so many decades. It’s why America’s future has negative been brighter.

Today, I am inviting all of you to become part of this incredible future we are building together. Thank you to our hosts, thank you to the leaders and innovators in the audience but most importantly, thank you, to all of the hard-working men and women who do their duty each and every day, making this a better world for everyone. Together let us send our love and our gratitude to make them because they really make our countries run. They make our countries great. Thank you and God bless you all. Thank you very much.

 

China’s Silk Road: Altering the global economic order


December 23, 2017

China’s Silk Road: Altering the global economic order

by Salman Rafi Sheikh@www.asiasentinel.com

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The world is gradually awakening to the dark side of China’s Belt and Road Initiative, often called One Belt, One Road, or OBOR and designed to bring infrastructure development to a huge slice of the world. But a growing number of projects completed or in process, including the China-Pakistan Economic Corridor (CPEC), are beginning to demonstrate the grip that China has over the target countries’ economies.

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The massive undertaking is increasing Chinese hegemony not only in Asia but elsewhere, causing concerns to grow in Europe and beyond. The AidData research lab at the College of William and Mary in Virginia in the United States found that only 21 percent of Chinese money channelled into development across 140 countries could be called traditional aid. The rest of the money is in commercial loans at stiff rates that must be repaid to Beijing with interest. The Beijing rate averages 6 percent and above. By contrast, the International Bank for Reconstruction and Development, a unit of the World Bank, charges roughly 1.5 percent above the London Interbank Offer Rate, currently standing at 2.04 percent on loans of 12 months and above for a total of about 3.5 percent.

A French Senate delegation visited Pakistan last week to study CPEC has come away with reservations.

“France enjoys close ties with China, but we feel the project may have consequences on the geopolitical situation,” Pascal Allizard, the delegation’s leader, told local media. “We would be submitting our report (to the Senate) after analysing if this initiative is Chinese regional hegemonic agenda or a step towards greater regional connectivity.”

Questions for Eurozone

China’s financial and economic incursions into Europe have already raised questions, for instance, over one of its most ambitious projects, the Budapest-Belgrade high-speed rail track, which is under investigation for violation of EU laws regarding such large projects.

Ironically enough, during the delegation’s visit, significant cracks appeared in CPEC with reports that China is rolling back a number of projects over potential disagreements with Pakistan. Among other projects excluded recently from the CPEC vision is the US$14 billion Diamer-Basha Dam in Kashmir. According to Pakistani officials, it was excluded because “Chinese conditions for financing the dam were not doable and against our interests.”

With China being now blamed for not protecting Pakistan’s vital interests, the Pakistan-China ‘all-weather’ friendship seems to be on a slippery slope, spurring conflict and divergence rather than convergence of interests.

But Pakistan isn’t the only country in the region where blowback is occurring. Sri Lanka’s Mattala Rajapaksa International Airport in Hambantota, 250 km south from Colombo, was built with Chinese loans of US$190 million at 6.3 percent annual interest, covering more than 90 percent of the total cost.

Sri Lanka in hock

Today, Sri Lanka is finding it impossible to repay that loan and is reportedly considering handing over the airport to an Indian company willing to pump US$205 million into it for a 70 percent share for 40 years.

Sri Lanka is thus finding itself in a Chinese debt trap. Colombo owes China US$8.8 billion in loans. Significantly, the Indian proposal to run the airport won a favorable review in Sri Lanka within only a fortnight of Sri Lanka’s US$1.1 billion deal with China, which had given the state-run China Merchants Port Holdings 70 percent of the revenue in a joint venture to run the Hambantota port. That is very much identical to China’s 91 percent share for the next 40 years in Pakistan’s Gwadar port.

Malaysia too

While the Sri Lankan airport has already been branded the “world’s emptiest airport,” the condition of Malaysia’s Forest City is little different. Malaysia’s former Premier, Mahathir Mohamad, has accused the incumbent government of selling the country’s most precious land to foreigners, it is coming clear that Forest City may end up nothing but a forest.

The first glimpse of the problems came in March when China imposed aggressive domestic measures to clamp down on capital outflows, resulting in cancellations by 60 major Chinese interests of their Forest City bookings and depriving Forest City’s access to its primary target market, leading some to predict that the project will become a giant white elephant.

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There is also the East Coast Rail Line (ECRL). According to reports and claims raised from within Malaysia, it is to be constructed by a Chinese state-owned firm at allegedly inflated prices, using mostly Chinese labor and building materials and funded by soft loans from Chinese state banks. While this is again quite similar to the way China is building a number of CPEC projects, as we reported previously,  it also raises the question of whether Chinese funded projects such as this one can truly be called “investments.”

This is already echoing in host countries, such as Malaysia, where political forces are questioning terms and conditions attached with loans, which the ruling elites continue to dub as “investment.”

“We do want Chinese investment,” said one Malaysian parliamentarian from the opposition Democratic Action Party, “but the type of Chinese investments that are coming to Malaysia today are either dodgy or in reality are Malaysian-paid-for investments that are not really FDI.”

Scenario unfolding in other countries

The scenario now unfolding in countries like Sri Lanka, Malaysia and Pakistan can be seen in dozens of small countries in Asia such as Thailand where disagreements and disputes over terms of business with China have appeared and greatly delayed the construction of Sino-Thai high speed train project.

The controversy has been caused by China demanding that it apply the same conditions agreed to by the Lao government for financing a high-speed rail linking that nation to southern China. According to the demands made by China, the Chinese government will be able to seize five mine assets if they fail to repay the debt. While the project has now received a go-ahead, it happened only when Bangkok decided not to rely on Chinese capital, contractors or operators, but to procure China-made rolling stock as a trade-off to mollify Beijing.

While this has also led to a project that is markedly different from the one originally planned, it also shows how some countries have already started to impose limits on what the Chinese can or can’t do with the so-called “investments.”

These developments are only proving correct the warnings made in a study of the UN Economic and Social Commission for Asia and the Pacific, which claimed that Chinese “investments” were going to increase financial risks in a host of countries in Asia where China was pumping more money than the relative size of the host country.

In this context, Chinese “investment” in Pakistan greatly outweighs the size of Pakistan’s economy. And, that explains why Pakistan has stopped agreeing to whatever China asks for in terms of giving loans.

Thus, the Silk Roads are already beginning to become Chinese inroads into other countries, aimed at altering the global economic order to its own advantage.

Salman Rafi Sheikh is a Pakistani academic and regular contributor to Asia Sentinel

The Great Annare (MIC) Hoax


October 31, 2017

The Great Annare (MIC) Hoax

When you are a race-based party ostensibly there to protect the interests of your community, but your community is not the people who voted you into office, there is really no incentive for you to look after the interests of your community beyond making superficial noises about Tamil schools and funding budding entrepreneurs.” –S. Thayaparan.

http://www.malaysiakini.com

 

 

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Does MIC care about the plight of the Indian Poor?

COMMENT | I have no idea if the Indian vote will make a difference in 60 electoral constituencies but I do know that voting for the Barisan National establishment in this election will seal the fate of the Indian marginalised poor and further class divisions within the diverse Indian community.

As someone who believes the less you need big government, the stronger you are, the disenfranchised of the Indian community which is the voting base of MIC, is the perfect example of what is wrong with the way the Umno establishment has done business all these years.

There is a robust dialectic in the Indian community which goes unnoticed in the Sino-Malay discourse that dominates the alternative press. Establishment Indian political operatives and their supporters have this strange defence as to why the disenfranchised in the Indian community remain marginalised.

Their excuse is that “rich Indians” unlike their Chinese counterparts are not doing enough for the community. While this may be true, this still does not explain why the Indian community should carry on voting for the establishment when MIC is supposed to be looking after the “interests” of the community.

 

Elites always take care of themselves first, only crumbs for the downtrodden. Expect Samy Velu and his successors in MIC to be any different from UMNO and MCA?

Furthermore, this idea that “rich Indians” are not doing enough is ludicrous because MIC is riddled with plutocrats who are the beneficiaries of a corrupt system that nurtures a feudalistic mindset. In other words, if the rich Indians in MIC cared about their community as the Chinese plutocrats in MCA do, there would be a very different dialectic going on now in the Indian community.

Meanwhile UMNO folk tell me, that whenever funds are dispersed to the Indian community, leakages prevent them from going to where it is needed most. This, of course, is rather disingenuous because everyone knows that there are “leakages”; and funds  are disbursed to ensure that votes would be bought and not that genuine progress is initiated for the disenfranchised of the Indian community.

I, of course, am the last person to talk about the Indian community. I see no reason why the interests of the Indian community should be defined by the Tamil school issue or the building of new temples. Indeed, I view all these language schools anathema to any kind of cohesive nation building but because our public schools is a hotbed of Islamic preoccupations and “ketuanan politics”, the only way young people are assured of any education not politicised by religion and racial superiority are in these kinds of schools.

Beyond that, MIC has a dismal record of holding the line when it comes to religious extremism. Have you noticed that the most disenfranchised of the Indian community – women – have been on the receiving end of Islamic extremism be it forced conversions or their children stolen from them and MIC has done nothing for them.

Indeed the only “Indian” community that has accumulated political and financial power is the Indian Muslim community–the mamaks–who should actually be part of the greater Indian community but instead is an associate member of UMNO. So that is where all the “rich Indians” went.

I mean, take this issue of stateless Indians. I have heard MIC people blame the Indian parents for not registering their newborns. Yes, blame mostly uneducated people for not understanding government bureaucracy. Is it not the job of MIC to ensure that their voting base remains healthy and vibrant? Instead, when opposition politicians bring up this issue – my sincere gratitude to those who specifically put the time and effort into handling these cases – there is this big rush to demonstrate that MIC is earning its keep.

We cannot even talk about the crime statistics, deaths in custody and the shoot first policy as advocated by the Deputy Prime Minister because victims of suspected gangsters are mostly “Malays”, because all this means confronting the issues of religious and racial supremacy and MIC has never been able to criticise the UMNO state because they know, we know and definitely the UMNO state knows, that MIC is part of the problem.

Moreover, let us be truthful especially when it comes to the nexus of crime and political power. While some folks in UMNO may praise their Tiga Line hoodlums as the last line of defence for Malay privileges and religious superiority, MIC has nurtured an overt thug culture which has seen journalists attacked and political meetings turn into freak shows.

 

 

The Tamil Malar incident is a prime example of the relationship between the MIC and UMNO. As I said then, “This merely means that people would go, “well, there is that MIC gangster culture, what do you expect” narrative and the Malay ruling elite would just think it is the price of making a display of Indian representation in the ruling coalition. I am down with that too, but it just goes to show how full of horse manure the Ministry of Youth and Sports really is.”

I can understand why MIC has been extremely ineffective in many issues. The Indian community does not have a large voting base because it is not a sizable demographic. Just like Indian politicians who cannot solely rely on their own community to vote them to power, MIC has to rely on UMNO to literally keep them in power. That always comes at the cost of communal sovereignty and independence.

When you are a race-based party ostensibly there to protect the interests of your community, but your community is not the people who voted you into office, there is really no incentive for you to look after the interests of your community beyond making superficial noises about Tamil schools and funding budding entrepreneurs.

No matter how you self-identify in the Indian community, I hope people understand that as the smallest minority, we would be the first to suffer under the assault of Islamic extremism and racial supremacy. Rejecting the establishment and their proxies is the only way to slow the tide of racial and religious extremism.


S. THAYAPARAN is Commander (Rtd) of the Royal Malaysian Navy.

The Economic Case for China’s One Belt, One Road Initiative


October 14, 2017

The Economic Case for China’s One Belt, One Road Initiative

by Shang-Jin Wei*
https://www.project-syndicate.org/commentary/china-belt-and-road-economic-case-by-shang-jin-wei-2017-10

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In recent years, many of the world’s most influential countries have turned inward, with politicians promising protectionism, immigration restrictions, and even border walls. But, to achieve stronger economic growth and development, the world needs initiatives focused on building bridges – initiatives like China’s Belt and Road.

NEW YORK – Since 2013, China has been pursuing its “Belt and Road” initiative, which aims to develop physical infrastructure and policy linkages connecting more than 60 countries across Asia, Europe, and Africa. Critics worry that China may be so focused on expanding its geopolitical influence, in order to compete with the likes of the United States and Japan, that it may pursue projects that make little economic sense. But, if a few conditions are met, the economic case for the initiative is strong.

As a recent Asian Development Bank report confirms, many Belt and Road countries are in urgent need of large-scale infrastructure investment – precisely the type of investment that China has pledged. Some, such as Bangladesh and Kyrgyzstan, lack reliable electricity supplies, which is impeding the development of their manufacturing sectors and stifling their ability to export. Others, like Indonesia, do not have enough ports for internal economic integration or international trade.

 

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The Belt and Road initiative promises to help countries overcome these constraints, by providing external funding for ports, roads, schools, hospitals, and power plants and grids. In this sense, the initiative could function much like America’s post-1945 Marshall Plan, which is universally lauded for its contribution to the reconstruction and economic recovery of war-ravaged Europe.

Of course, external funding alone is not sufficient for success. Recipient countries must also undertake key reforms that increase policy transparency and predictability, thereby reducing investment risk. Indeed, implementation of complementary reforms will be a key determinant of the economic returns on Belt and Road investments.

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President Xi Jinping’s One Belt, One  Road Initiative  aims to knit together Asia, Europe and Africa through land and maritime corridors that collectively encompass a set of countries representing about 65 percent of the world’s population and one-third of its total economic output. China plans to spend roughly $150 billion a year to advance the initiative through infrastructure projects ranging from railways and roads, to ports and pipelines, to power plants and telecommunications networks.

For China, the Belt and Road investments are economically appealing, particularly when private Chinese firms take the lead in carrying them out. In 2013, when China first proposed the Belt and Road initiative, the country was sitting on $4 trillion in foreign-exchange reserves, which were earning a very low dollar return (less than 1% a year). In terms of China’s own currency, the returns were negative, given the expected appreciation of the renminbi against the US dollar at the time.

In this sense, Belt and Road investments are not particularly costly for China, particularly when their far-reaching potential benefits are taken into account. China’s trade-to-GDP ratio exceeds 40% – substantially higher than that of the US – owing partly to underdeveloped infrastructure and inadequate economic diversification among China’s trading partners. By addressing these weaknesses, China’s Belt and Road investments can lead to a substantial increase in participant countries’ and China’s own trade volumes, benefiting firms and workers substantially.

This is not to suggest that such investments are risk-free for China. The economic returns will depend on the quality of firms’ business decisions. In particular, because efficiency is not the primary consideration, Chinese state-owned enterprises (SOEs) might purse low-return projects. That is why China’s SOE-reform process must be watched carefully. Nonetheless, while the Belt and Road initiative is clearly driven partly by strategic objectives, a cost-benefit analysis shows that the economic case is also very strong – so strong, in fact, that one might ask why China didn’t undertake it sooner.

Even the United States and other countries may reap significant economic returns. A decade after the global financial crisis erupted, recovery remains weak and tentative in much of the world. Bold, large-scale infrastructure investments can provide much-needed short-run stimulus to global aggregate demand. The US, for one, is likely to see a surge in demand for its own exports, including cars, locomotives, planes, and high-end construction equipment, and financial, accounting, educational, and legal services.

In the longer term, the new infrastructure will ease logistical bottlenecks, reducing the costs of production inputs. The result will be higher productivity and faster global growth.

If Belt and Road projects are held to high environmental and social standards, significant progress can also be made on global challenges such as climate change and inequality. The more countries choose to participate in these projects, the better the chance of achieving these standards, and the greater the global social returns will be.

In an era when some of the world’s most influential countries are turning inward, talking about erecting trade barriers and constructing border walls, the world needs initiatives focused on building bridges and roads, both literal and figurative – initiatives like the Belt and Road strategy.

 

Rethinking Southeast Asian Economic Diplomacy


September 18,2017

Rethinking Southeast Asian Economic Diplomacy

by Henry Wai-chung Yeung, NUS

http://www.eastasiaforum.org
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In today’s global economy of cross-border production networks, the need to understand the changing ways in which the state and firms work together has become even more pressing. While the state plays an important role in supporting these production networks, it is firms and other private organisations — industry associations and standards organisations, for example — which coordinate and organise these networks.

UNCTAD’s World Investment Report 2013 estimated that some 80 per cent of today’s world trade is conducted through firms in these production networks — they are the backbone and central nervous system of the global economy.

 

In Southeast Asia, many economies are heavily involved in production networks, some of which are highly regional in nature. The ASEAN Investment Report 2016 suggests that regional production networks will be critical in realising the ASEAN Economic Community’s goals, which include building a single market of over US$2.5 trillion and a single production base of over 620 million people. As Escaith et al argue in East Asia Forum Quarterly ‘Strategic Diplomacy in Asia‘, ‘understanding the nature and dynamics of these production networks will be more important to securing stable and fair growth throughout the region’.

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Donald Trump has abandoned TPP and opened the door to China in favour of America First. Now ASEAN must get on with RCEP. Towards a more calibrated approach to strategic economic diplomacy

We need to rethink the strategic diplomacy of economic development — it can no longer be entirely state-driven in an era of global production networks. I use the concept ‘strategic coupling’ to describe the mechanism of strategic economic diplomacy through which domestic firms couple their specific initiatives and advantages with those of global lead firms. Through this process, firms coordinate diverse production networks spanning across national and regional territories.

The Apple–Foxconn case is one example of strategic coupling at work. Taiwan’s Foxconn is instrumental not only in ‘manufacturing’ Apple’s iPhone success but also in integrating Taiwan and mainland China into the iPhone’s global production networks.

But this well told story has a critical and often missed dimension — the even more crucial role played by South Korea’s Samsung. Apple’s major competitor in the global mobile handsets market, Samsung has also supplied critical components to successive generations of iPhones assembled by Foxconn.

While serving as the iPhone’s largest supplier by value of components, Samsung has kept busy building its own production networks throughout East and Southeast Asia, including a giant industrial park in the Bac Ninh province of North Vietnam. Opened in 2009, Samsung’s smartphone production there has transformed a province of rice fields into Vietnam’s second-largest export centre after Ho Chi Minh City.

While the state and its policy initiatives in Taiwan, mainland China, South Korea and Vietnam facilitated this Foxconn–Apple–Samsung strategic coupling, they are not the only domain through which this new mechanism of economic development can be effective and successful.

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My recent work Strategic Coupling shows that equally if not more important than state policies are the organisational and technological innovations developed by national firms, such as Samsung and Hon Hai (Foxconn’s parent). These firms seize opportunities embedded in the cross-border production networks spearheaded by global lead firms from advanced industrial economies in North America, Western Europe and Japan.

The state’s capacity to steer national economic development and ‘govern the market’ has become more constrained since the 1990s. The transformation of state roles has led to the weakening of the state’s embedded autonomy in countries like South Korea and Taiwan. State institutions began to facilitate the redistribution of state power towards more horizontal and functional policy in support of domestic firms and industries that take advantage of growing global opportunities.

As Southeast Asian states move from active economic intervention to facilitating strategic coupling between firms and global production networks, developmental partnerships start to broaden from top-down state–firm relations to include inter-firm networks. This new mechanism of strategic economic diplomacy recommends a dynamic conception of state-firm relations that goes beyond the debilitating market–state dichotomy.

The integration of Vietnam into Samsung’s global production network is a good example of this rethinking of strategic economic diplomacy. Samsung’s US$15 billion investment in Vietnam represents a strategic imperative to diversify away from mainland China, where Foxconn is dominant. It allows Samsung to tap into strong existing industrial clusters in Singapore, Malaysia and Thailand.

What does the strategic coupling story suggest in terms of public policy? While it is now much harder for almost any Southeast Asian economy to develop internationally competitive vertically integrated industries, there remains significant room for a new kind of strategic economic diplomacy — one that encourages domestic firms to tap into the developmental opportunities inherent in most global industries.

The call for a more calibrated approach to strategic economic diplomacy brings with it the possibility of focusing on more niche policies that nudge strategic coupling. As industrial production becomes ever more fragmented and globalised, state planners in Southeast Asian economies will find it harder to identify which products and technologies should be developed in their domestic industries.

Today’s obstacles to economic development are less about large capital outlays and scale of investment, and more about developing specialised niches within different global industries. In most global industries characterised by vertical specialisation and modularisation (transport equipment, ICT, agro-food and so on), a niche approach to industrial policy is likely to yield stronger coupling networks than a ‘big spurt’ approach to state-led industrialisation.

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The politics of industrial and sectoral choice is confounded by the growing uncertainties of today’s global economy. Value creation and capture tends to be much greater in new innovation-based industries in the manufacturing and service sectors, such as nanotechnology, biomedicine, green tech and digital media. Here, catching up is not just a matter of capital investment led by state-controlled financial institutions and elite industrial development agencies. The sheer complexity and wide range of actors and interests with specialised knowledge in these industries makes it rather unruly for bureaucratic targeting, even for a state with well-coordinated industrial policy.

Looking forward, the post-developmental state should focus on creating broad-based capabilities in new technologies, product and process innovations, and market development, rather than choosing specific winning firms, industries or sectors.

Henry Wai-chung Yeung is Provost’s Chair and Professor of Economic Geography at the Department of Geography and Co-Director of the Global Production Networks Centre, National University of Singapore.

This article appeared in the East Asia Forum Quarterly, ‘Strategic diplomacy in Asia’.