Dealing with Rogue North Korea–Just a Blunter Rhetoric from Trump and Associates


May 2, 2017

Dealing with Rogue North Korea–Just a Blunter Rhetoric from Trump and Associates

by Tom Le@www.eastasiaforum.org

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For all the tough talk about going it alone if China is ‘not going to solve the problem’, Trump’s approach to North Korea is remarkably similar to every other US administration’s strategy since North Korea acquired nuclear weapons. All options have always been on the table, Trump has just been blunter about it. The dilemma the international community faces is that all options are costly.

North Korea’s weapons of mass destruction (WMD) program may be the most dangerous threat in international relations today. Since 9/11, fear of terrorist groups seeking to obtain nuclear weapons has been an ever-present concern. But North Korea is a belligerent state that already has them, posing an immediate threat of use and proliferation.

Pyongyang has shown a flagrant willingness to break international law, attack its neighbours, kidnap foreign civilians, carry out assassinations in foreign territories and threaten superpowers. Yet the international community has settled for maintaining the status quo as it has convinced itself that this is the least costly of options. Millions of North Koreans have paid for this decision with their human rights and lives.

Regional stakeholders so far have pursued two direct non-military strategies: talks and sanctions, neither of which have curtailed the WMD program or improved human rights in North Korea. Indirect approaches such as international ‘naming and shaming’ and isolation have also not had an impact.

The Six-Party Talks, first held in 2003 and discontinued in 2009 after six rounds, failed to provide a peaceful resolution to the North Korean nuclear puzzle. Renewal of talks is highly unlikely as the Trump administration has stated it is unwilling to pursue ‘20 years of a failed approach’ and North Korea seeks only bilateral talks without any preconditions. Adding to this, the current geopolitical context is not conducive to cooperation as the US–China rivalry has intensified and US–Russia relations are being scrutinised given the current FBI investigation into Russian involvement in the 2016 US presidential election.

South Korea is undergoing a leadership transition and its North Korea policy is uncertain, so it is unlikely to take the lead. Even Japan, whose Prime Minister Shinzo Abe has shown a willingness to negotiate with almost anybody and has held negotiations with North Korea on the abduction issue, is an unlikely partner. The missile test during Abe’s February US visit and subsequent united declarations that North Korea is a ’serious threat’ leaves Abe little room to pursue talks.

The Trump administration has floated the idea of tightening the screws on North Korea through additional sanctions to go along with existing ones imposed by the United States and the UN. Sanctions can be effective for sowing discontent among elites, as they may limit their ability to transfer money and travel. But sanctions are notoriously ineffective and disproportionately harm the civilians, who are themselves victims of the authoritarian regime.

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Tough talking Vice President Mike Pence–Threats won’t scare a desperate regime.

Trump would have to take a tough stance on China to fulfill his threat of wider sanctions ‘aimed at cutting North Korea off from the global financial system’ with a focus on Chinese banks. It is unlikely to eventuate given that he backed down from his One-China policy posturing. An antagonistic approach to China would also risk greater regional instability if it escalates into a trade war or affects other contentious issues.

On the other hand, 64 per cent of Americans would support the United States using military force to defend its Asian allies in the event of a serious conflict with North Korea. The United States could pursue a limited path of pre-emptive strikes targeting WMD facilities, or a more ambitious one, such as war to overthrow the Kim regime.

The less costly option of a pre-emptive strike still would not guarantee any success as it would be difficult to take out all the North Korean weapons facilities. The United States has limited knowledge of the current WMD program and facilities as there have not been inspectors in North Korea for almost a decade. A pre-emptive strike also risks a full-scale war on the Korean peninsula. North Korea has thousands of pieces of artillery aimed at Seoul and, according to some estimates, it could obliterate the city in as little as two hours.

Even if a war against North Korea is ‘successful,’ few are willing or ready to deal with the aftermath. The United States lost its taste for nation building and is unwilling to deal with state collapse after two failed efforts in the in the last 15 years. Following the collapse of the North Korean state, the region would need to aid millions of refugees, rebuild a failed state and develop and implement a unification plan in concert with South Korea.

Since 1991, South Korea has collected far short of the estimated US$500 billion needed for unification. Integration of the North Koreans would also be difficult as defectors have faced discrimination and younger South Koreans are increasingly not interested in unification at all. Questions of whether a united Korea would keep its nuclear weapons or what kind of government would follow are ones no one is ready to answer.

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War will destroy South Korea, especially Seoul

The international community has chosen to maintain the status quo because of the high costs of solutions, difficulty in finding consensus and inability to escape classic realist logic. Following the 5 April missile test, a senior White House official declared, ‘the clock has now run out and all options are on the table’ — perhaps indicating that the clock is running out for the international community as North Korea gains leverage with each passing day.

It is also important to realise that inaction means millions of North Koreans will continue to suffer under the brutal Kim regime. North Koreans are paying for their oppressive government and for an international community that has found the status quo to be more acceptable than the alternatives.

As unpalatable as it may be, the international community must accept that North Korea is a nuclear state, and open channels of negotiation with the Kim regime. The clock ran out a long time ago for millions of North Koreans. Living with failure should not be acceptable for the United States or the international community.

Tom Le is an Assistant Professor of Politics at Pomona College.

America first, geo-economic logic last


April 27, 2017

America first, geo-economic logic last

by Gary Hawke, Victoria University of Wellington

http://www.eastasiaforum.org

Image result for tomahawk over syriaTrumponomics–Military Power over Geo-Economics

The Trump Administration has introduced a new set of challenges to the international economy. It has profoundly changed the role of the United States in international economic diplomacy, ceasing to be a champion of multilateralism.

Within the first 100 days of the Trump administration, reality has overwhelmed a good deal of campaign rhetoric, and individuals experienced and skilled in conventional public management have prevailed over some who epitomised revolt against elites. But ideas that challenge longstanding US positions on the world economy and international integration remain at the core of the Trump administration.

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Get the Message, Theresa May?

Bilateral trade balances have long been known to be an inappropriate policy objective. Yet the Trump administration is pursuing this without any sound argument. Its belief is that only bilaterally balanced trade (or an excess of US exports) is ‘fair trade’. This nonsense is reinforced by concentrating on trade in goods, ignoring surpluses on services trade. And the capital account is ignored entirely.

Trump expands the idea of bilateral balance to the trading relationship with every other country. He insists on what Gary Hufbauer has called ‘mirror-image reciprocity’. Every component of a deal, every individual tariff rate, any provision about rules of origin for specific products, and any condition for foreign investment must be no less favourable for US exporters than the corresponding rule applied to the United States. This is misplaced concreteness has gone mad.

The idea of a win-win overall deal is rejected. The very idea of complementarities between economies is ignored. That this is endorsed by the chair of the newly established National Trade Council Peter Navarro, who holds a Harvard PhD in economics, is a conclusive argument for an enquiry into Harvard standards.

Two of Trump’s executive orders on trade deficits and trade laws would both fail the most elementary of economics examinations.

Under the Trump Administration, history is no more respected than economics. It has been argued that the WTO and its predecessor GATT were intended to apply only to developed economies. Those who were at the Havana conference in the 1940s and those who negotiated with developing economies in the Uruguay Round saw no such belief among their US colleagues.

This is a thin disguise for wishing to continue using subterfuge rather than economic logic in consideration of so-called ‘countervailing duties’ and ‘anti-dumping penalties’ against China. The idea that there is an indisputable definition of a ‘market economy’ is absurd, but then so is the underlying idea of dumping. Artificial lowering of prices with the intention of raising them after forcing a competitor out of business should be countered — if it were ever properly detected.

Even more absurd is the notion that ‘over capacity’ is something that requires government intervention. Consumers gain from cheap products. When producers cannot sustain output levels at such low prices, the appropriate response is for the least efficient producers to exit. In the case of steel, ‘least efficient’ is probably not the same as ‘Chinese’.

Most concerning is an attack on the WTO dispute resolution system. US opposition to it predated the Trump administration. The Obama administration vetoed the reappointment of a judge to the Appellate Body for the little-disguised reason that his decisions were uncongenial.

US resistance to the dispute resolution system has never been far from the surface. It is often rationalised by a constitutional principle that only the US Congress can create laws which bind US citizens. Some US judges can nevertheless make positive use of international reasoning, and previous administrations have recognised that membership of international institutions could require them to persuade Congress to amend US law or to compensate a foreign party.

The language in the final statement of the WTO dispute resolution system is in no way an exemption of the United States from the dispute resolution system. The words of the dispute settlement understanding that a ruling can’t ‘add to or diminish the rights or obligations’ of a member country — relate to member countries’ commitments, not US law, and their interpretation is not a US prerogative.

Rhetoric about a ‘rules-based international order’ or the ‘modern liberal international order’ is now entirely empty when set beside the declared intentions of the Trump administration. Again, the problem is deeper than Trump. No country can be an effective advocate of the rule of law when its partisan politics dominates the choice of its most senior judges. Fundamentally, the United States has to adjust to no longer being able to dominate global affairs.

Economic integration now has to be led by countries other than the United States. But successful integration elsewhere will cause responses within the United States as businesses miss profitable opportunities and as voters see that they are missing out on consumption and employment gains.

Gary Hawke is retired Head of the School of Government and Professor of Economic History, Victoria University of Wellington.

DJT’s Muddled Foreign Policy


April 23, 2017

DJT’s Muddled Foreign Policy: Holding the Free World hostage to Trump’s Oversized Ego

by Dr. Munir Majid

http://www.thestar.com.my

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DJT: Exploding from the starting blocks only to realise that as President he is in a long distance race to make America Great Again

PRESIDENT Donald J. Trump exploded from the blocks after his inauguration on January 20, but soon found out he was not in a sprint but in a long-distance race.

 

His rapid fire of orders to fulfill promises he made for his first 100 days were not as easy to shoot as he thought. Most notable, of course, were the executive orders on entry into the United States, immigrants and refugees. The way these orders were shot down was one of the most heartening evidences that the liberal system in America was alive and well – not just the laws, but the people willing to fight for others – and that the Trump avalanche could not crush it.

Trump has promised to come roaring back, but not yet. Meanwhile he has moved to the H-1B visa, signing just this week the “Buy American, Hire American” executive order in Wisconsin (where his stunning victory was part of the Rust Belt sweep that propelled him to the White House).

This order could curb the hiring of foreign technical workers and will get government agencies to buy more domestically produced products – all part of his promise to protect American jobs and wages. So there still is this anti-foreign binge, if not quite fulfilled on the alleged security front at least on the economic front, misplaced though it may be to most rational people.

For friends and foes alike, their main concern with the Trump Presidency is his threat to attack the open global trading system, which he claims has been unfair to the United States. His performance on this within these 100 days is mixed and uncertain.

The big overhang was a possible trade war between the United States and China. Though not quite averted, it does not look as if China is going to be slapped with a tariff of 45% or declared a currency manipulator in Trump’s first 100 days, or perhaps even the next.

This was a lightning campaign promise, over which wiser counsel has prevailed. The former was hyperbole of the highest order, and the latter plainly not true. This does not mean, however, that there is no prospect of trade conflict with China or that the Trump Administration has embraced free trade. It is just that some strategy or policy is forming.

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China’s first lady Peng Liyuan with senior Trump adviser Jared Kushner at Trump’s Mar-a-Lago estate

Trump’s summit meeting with Xi Jinping was just a first touch. There may even be trade-offs in the offing: Trump’s much vaunted “art of the deal”, normally called linkage politics.

This mixed and uncertain future is evident in a number of instances. The US Trade Representative office, in its report to Congress in March (while still without its head confirmed), left the part on China unfilled and referred the reader to a previous report under the Obama administration in 2016 which was just a factual rendition of China’s track record that year against its World Trade Organisation (WTO) obligations.

The other parts of the March report – the first on trade policy under the Trump administration – were clear but not trenchant on “America First” and on an emphasis on bilateral rather than multilateral trade arrangements. There were ominous references, however, to the United States not being bound by WTO rulings.

At the G-20 finance ministers meeting in Hamburg, US Treasury secretary Steven Mnuchin insisted there should be no reference in the joint communique to “avoid all forms of protectionism”, which had been an allusion after all G-20 meetings. It would be interesting to see what line Trump would take at the G-20 summit in July, also to be held in Hamburg.

And there is now this notorious list of 16 countries – Malaysia included – with whom the United States has a chronic trade deficit problem, as if the Sword of Damocles hangs over their heads.

Yet Vice-President Mike Spence was this week in Indonesia to reassure Asia on US commitment to its friends and allies in the region. Damage to trade-dependent economies cannot be good commitment, which even a Trump administration must realise.

Just to mix it up even more, the vice-president announced that Trump would be attending the APEC and ASEAN summits in November, something countries in the region were hopeful for but absolutely not sure about.

To boot, this message was conveyed after Mike Spence visited the ASEAN Secretariat in Jakarta, when he further stated the Trump administration would work with Asean on security and freedom of trade in the South China Sea. While there is uncertainty, there are also surprises, not always unpleasant.

The Mike Spence Asia trip was primarily intended to reassure South Korea and Japan, and to warn North Korea which was making everyone excitable with its nuclear weapon adventurism. There is, however, a correlation between economic capacity and defence capability of its allies, which the Trump Administration perhaps is beginning to realise. Enfeebling with trade sanctions is not the best way to boost their confidence or capability in defence.

The assurance, it would seem, would come from the Trump Administration’s willingness to shoot its way out of the troubles it may face, such as those threatened by North Korea.

This is quite dubious foreign policy strategy, as there are a limited number of bush fires that can be fought, especially as some can become overwhelming conflagrations.

The language Mike Spence has been using, like his boss through Twitter rather than based on any strategic doctrine, has been: “Choice today the same as ages past. Security through strength or an uncertain future of weakness and faltering… (America) will always seek peace but under president Trump, the shield stands guard and the sword stands ready.”

No doubt the 59 Tomahawk cruise missiles that hit a Syrian airbase in response to the Assad regime’s callous chemical attack on innocents, is the pointed reference, but surely not the armada that did not appear around North Korea.

Deterrence needs to be credible, absolutely, but easier in some situations, like Syria, and complicated in North Korea where the China factor has to be weighed more carefully than the faraway Russian Syrian interest.

The point is there is a greater complexity in international relations than a one-size-fits-all approach. There is merit in the Trump argument that there has been, in US foreign policy, a perfectionist strategic paralysis. But there is also proof that threat of an all-out action is not sustainable in all situations.

What is observable in the past almost 100 days of the Trump administration is a retreat from quite a number of the US president’s outlandish assertions and policy threats – like blanking out Nato – which have come out more as movement sideways, compensated by direct action which even has some American public intellectuals cooing.

There is still uncertainty. There will be more surprises. But will the Trump new normal be more normal than new?

Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.

Read more at http://www.thestar.com.my/opinion/columnists/comment/2017/04/22/trumps-100-days-and-still-going-wrong/#Zq3eGeO5UEqd53Bp.99

Doctor Soft Power–“What I Tell My Non-American Friends”


April 17, 2017

Doctor Soft Power–“What I Tell My Non-American Friends”

by Joseph S. Nye

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https://www.project-syndicate.org/commentary/american-institutions-resilence-trump-by-joseph-s–nye-2017-04

I frequently travel overseas, and invariably my foreign friends ask, with varying degrees of bewilderment: What in the world is going on in your country? Here is what I say.

First, do not misinterpret the 2016 election. Contrary to some commentary, the American political system has not been swept away by a wave of populism. True, we have a long history of rebelling against elites. Donald Trump tapped into a tradition associated with leaders like Andrew Jackson and William Jennings Bryan in the nineteenth century and Huey Long and George Wallace in the twentieth century.

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The Enigma that is Donald J. Trump–Keeping the World Guessing–Unpredictability

And yet Trump lost the popular vote by nearly three million. He won the election by appealing to populist resentment in three Rust Belt states – Michigan, Pennsylvania, and Wisconsin – that had previously voted Democratic. If a hundred thousand votes had been cast differently in those states, Trump would have lost the Electoral College and the Presidency.

That said, Trump’s victory points to a real problem of growing social and regional inequality in the United States. J.D. Vance’s recent best-selling book Hillbilly Elegy compellingly describes the vast difference between California and Appalachia.

Research by the Princeton economists Anne Case and Angus Deaton shows that the demographic trends among lower-income whites without a college degree are worse than those for African-Americans, who historically anchored the lower extremes of inequality. In 1999, mortality rates among whites with no college were around 30% lower than those of African-Americans; by 2015, they were 30% higher.

Moreover, manufacturing employment, once a prime source of high-paying jobs for working-class whites, has fallen sharply over the last generation, to just 12% of the workforce. These previously Democratic voters were attracted by Trump’s promises to shake things up and bring back manufacturing jobs. Ironically, Trump’s efforts to repeal President Barack Obama’s health-care legislation would make their lives worse.

The second thing I tell my foreign friends is not to underestimate Trump’s communications skills. Many are offended by his tweet storms and outrageous disregard for facts. But Trump is a veteran of reality television, where he learned that the key to success is to monopolize viewers’ attention, and that the way to do that is with extreme statements, not careful regard for the truth.

Twitter helps him to set the agenda and distract his critics. What offends commentators in the media and academia does not bother his supporters. But as he turns from his permanent self-centered campaigning to trying to govern, Twitter becomes a two-edged sword that deters needed allies.

Third, I tell my friends not to expect normal behavior. Normally, a president who loses the popular vote moves to the political center to attract additional support. This is what George W. Bush did successfully in 2001. Trump, by contrasts, proclaims that he won the popular vote and, acting as though he really did, appeals to his base voters.

While Trump has made solid centrist appointments to the Departments of Defense, State, and Homeland Security, his picks for the Environmental Protection Agency and the Department of Health and Human Services are from the extremes of the Republican Party. His White House staff is divided between pragmatists and ideologues, and he caters to both.

Fourth, no one should underestimate US institutions. Sometimes my friends talk as though the sky is falling and ask if Trump is as dangerous a narcissist as Mussolini. I tell them not to panic. The US, for all its problems, is not Italy in 1922. Our national political elites are often polarized; but so were America’s founders.

In designing the US Constitution, the founders’ goal was not to ensure harmonious government, but to constrain political power with a system of checks and balances that made it difficult to exercise. The joke goes that the founders created a political system that made it impossible for King George to rule over us – or for anyone to ever do so. Inefficiency was placed in the service of liberty.

It is still early in the Trump Presidency, and we cannot be sure what might happen after, say, a major terrorist attack. So far, however, the courts, the Congress, and the states have checked and balanced the administration, as Madison intended. And the permanent civil servants in the executive departments add ballast.

Finally, my friends ask what all of this means for American foreign policy and the liberal international order led by the US since 1945. Frankly, I don’t know, but I worry less about the rise of China than the rise of Trump.

While American leaders, including Obama, have complained about free riders, the US has long taken the lead in providing key global public goods: security, a stable international reserve currency, relatively open markets, and stewardship of the Earth’s commons. Despite the US-led international order’s problems, the world has prospered and poverty has been reduced under it. But one cannot be sure it will continue. The US will need to cooperate with China, Europe, Japan, and others to manage transnational problems.

During the 2016 campaign, Trump was the first major party candidate in 70 years to call the American alliance system into question. Since taking office in January, statements by Trump and his appointees suggest that it is likely to persist. American hard and soft power, after all, stems largely from the fact that the US has 60 allies (while China has only a few).

But the stability of the multilateral institutions that help manage the world economy and global commons is more uncertain. Trump’s Budget Director speaks of a hard-power budget, with funds cut from the State Department and the United Nations system. Other officials advocate replacing multilateral trade deals with “fair and balanced” bilateral arrangements. And Trump is repudiating Obama’s efforts to address climate change. I tell my friends I wish I could reassure them on these issues. But I cannot.

 

Trump and Asia: Transactional ‘America First’ Approach to Foreign Policy


April 5, 2017

Trump and Asia: Transactional ‘America First’ Approach to Foreign Policy. 

by Mieczysław P Boduszyński and Tom Le

http://www.eastasiaforum.org

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Ayn Rand and DJT’s America First Foreign Policy–Objectivism/Reasoned Self-Interest

Former US President Barack Obama sought to move the United States away from what he saw as costly, distracting and unwinnable entanglements in the Middle East. Instead, he pivoted his foreign policy efforts towards Asia where he believed that US military, political and economic engagement could reap much greater rewards for the country.

Obama championed the Trans-Pacific Partnership (TPP) as part of his signature ‘pivot to Asia’. Obama’s pivot served as a security reassurance for US allies in the region and fortified linkages among those allies, encouraging, for instance, reconciliation between Japan and South Korea. Most importantly, the pivot signaled to Asian allies that they would never be just an afterthought or a region only important when it was useful for US grand strategy. The future lay in Asia and the United States would be a part of that future.

Today, many of the pivot’s achievements are at risk under President Donald Trump’s brand of isolationism and a transactional ‘America First’ approach to foreign policy. The TPP is dead and alliances may be next. Trump has repeatedly stated that the United States is ‘losing’ and has suggested plans to re-evaluate Washington’s security guarantees in Asia. Despite more recent backpedaling, Trump’s apparent affection for Russia and his early willingness to barter Taiwan’s sovereignty for a good trade deal with China has signaled to longstanding US allies that the security reassurances of the Obama era are a thing of the past.

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While the ‘liberal internationalist’ tenor of Obama’s pivot may have passed, a Trumpian worldview can and should still build on Obama’s momentum in Asia. If Trump can enhance, repair and deepen alliances without committing to a US-led regional order in the mould of the Obama administration, he could stay true to his worldview by creating new opportunities for US businesses while encouraging Asian allies to play a more active role in their security. The pivot need not be reversed and there are steps Trump should take to ensure it remains.

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In lieu of the TPP, Trump could work to build new bilateral free trade agreements in East Asia, modelled on the existing US–South Korea and US–Australia Free Trade Agreements.  The region’s support for the TPP, and its potential replacement, the Regional Comprehensive Economic Partnership (RCEP), suggests that Asian countries are willing to negotiate new trade deals. But the Trump administration must be ready to make some concessions.

Trump can also capitalise on the positive personal relationships he has with Asian leaders .Obama had a very poor relationship with Filipino President Rodrigo Duterte, who flung insults, threatened to kick out US troops and sought closer relations with China. While Obama was highly critical of Duterte’s bloody anti-drug campaign, Trump’s focus on US business interests presents an opportunity to repair the US–Philippines alliance. Duterte expressed a very positive view of Trump after a brief phone call. The Philippines have longstanding historical ties to the United States and it is a crucial alliance to preserve.

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Trump’s budding relationship with Japanese Prime Minister Shinzo Abe could also serve as his basis for diplomatic success. Although the Obama–Abe relationship improved over time, it was always marred by Obama’s criticisms of Abe’s revisionist tendencies. Yet thanks in part to Obama’s pivot, Japan passed new security laws increasing its ability to defend US forces during times of war directly related to Japan’s security.

Once South Korea chooses a new president, Trump could continue to support the deployment of the Terminal High Altitude Area Defence (THAAD) missile defence system and build upon the General Security of Military Information Agreement (GSOMIA) between Japan and South Korea. Both are critical to counter the North Korean nuclear threat. But such actions are likely to draw the ire of China as the United States makes it clear that it is fully committed to its allies and the region.

Along with maintaining existing alliances, Trump could work towards forging new relations in East and Southeast Asia. Vietnam has been receptive to a US role in the region as it tries to prevent further Chinese encroachment in the South China Sea. The US–Vietnam relationship is exceptionally pragmatic and there are ample opportunities to build on an already solid foundation. Besides a free trade deal, moving forward with military linkages such as the base-sharing agreement that was announced, and cooperating in areas such as higher education and scholarships should be on Trump’s agenda.

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The pivot to Asia was by no means a resounding success. Unfinished business in Obama’s pivot gives Trump the chance to craft his unique brand of foreign policy in East Asia — a willingness to work and trade with almost anyone. This way, the United States can maintain its pre-eminence in East Asia without pursuing a comprehensive security community. Unlike highly politically charged issues such as Russia and immigration, policy in Asia need not be divisive in domestic US politics.

By leading with direction without directing, the United States can influence its East Asian allies to take more responsibility for maintaining regional stability. As the country has long advocated a rules-based order in East Asia regarding freedom of navigation and trade, the Trump administration must be present to help write those rules.

Mieczysław P Boduszyński and Tom Le are Assistant Professors of Politics at Pomona College, California.

Malaysia-China Relations: Not China but we are the financially irresponsible and reckless nation


April 4, 2017

Malaysia-China Relations: Not China but we are the financially irresponsible and reckless nation

by P. Gunasegaram@www.malaysiakini.com

Image result for Chinese investments in Malaysia

Malaysia’s sudden, new-found amour with China in a plethora of business deals worth hundreds of billions, coming in the wake of the 1Malaysia Development Bhd (1MDB) scandal where RM40 billion is already at risk or  wasted, is tremendously worrying.

The huge amount of China borrowings that will accompany such deals, with delayed payment for up to seven years in some cases, will put the country in grave economic danger in the future as many of the infrastructure projects are not viable.

If some of the projects do not raise enough cash flow to start repaying the massive borrowings by the time payments are due, a great strain will be imposed on the country’s financial position and may even result in it becoming unable to meet its obligations, leading to default.

Already, the involvement of China state-owned firms in 1MDB-related projects such as buying power assets and taking stakes in property development ventures have raised legitimate fears that some of these may involve quid pro quo arrangements in other deals which may benefit Chinese firms.

In other words, putting it bluntly, Malaysia may be giving China plum deals in return for help in covering the hole of over RM30 billion in 1MDB. More on that later but first, here’s a list of some mega deals made.

1. Purchase of 1MDB’s power assets for RM9.83 billion cash in November 2015.

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The purchase was made by China General Nuclear or CGN, putting power assets which were purchased from Malaysian private hands into a China state company. That rubbishes any claim that 1MDB was a strategic development company. The price was considered inflated, leading to speculation that other projects will go to China to compensate for this.

2. Purchase of 1MDB land for RM7.4 billion.

Less than two months later, on New Year’s Eve in 2015, 1MDB sold a 60% controlling interest in Bandar Malaysia to a consortium comprising Iskandar Waterfront Holdings and China Railway Engineering Corporation, a China state company. The latter holds a 40% stake in the venture. This is a highly questionable deal surrendering control of one of 1MDB’s two flagship projects to others, including a China company, when there is enough local property development expertise. It lends credence to there being a quid pro quo deal with China.

3. China is expected to get high-speed rail project costing RM40-80 billion.

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The high-speed rail project between Kuala Lumpur and Singapore is expected to go to a China firm despite international tenders being planned. Interestingly, the Kuala Lumpur terminus is at Bandar Malaysia.

4. The RM55 billion East Coast Rail Link (ECRL) project announced in November 2016.

China will both fund and build this project which has a seven-year delayed payment provision. Essentially a double-tracking project linking the east coast states with the west, there has been no economic viability study on it. There are genuine fears that the construction cost is terribly overstated and it is unviable.

5. A proposed RM200 billion port development in Port Klang.

China is supposedly in the running for this massive project if it does see the light of day. This is a long-term project which again may be unnecessary considering the number of ports being developed concurrently now.

6.The RM42 billion Melaka Gateway project in September 2016.

This includes four islands – three man-made, in a RM30 billion deal with China companies – a port, a bulk-and-break terminal, ship building and ship repair, mixed development, shopping complexes, ferry terminals, marina and so on. Where is the demand for these going to come from?

7. The RM400 billion gross development value Forest City off Johor.

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This massive development on four man-made islands, which may eventually house 700,000 people, is being developed by a China company, effectively in a joint venture with the Johor Sultan. Considering that it is a property development which local players could easily have undertaken, what is the rationale for bringing in yet a Chinese company into this?

Not for altruistic reasons

There are more. Prime Minister Najib Abdul Razak, after a visit to China in November, came back with memoranda of agreement for RM144 billion worth of projects. That list includes ECRL and the Melaka Gateway projects but not the others, which means there are several more projects worth tens of billions of ringgit.

What is very alarming about these projects is their dubious economic value, leading to strong suspicion that they could well be related to covering a hole of over RM30 billion in 1MDB – the Auditor-General’s Report on 1MDB reportedly says US$7 billion could not be accounted for.

In fact, the Financial Times of the UK reported in December that 1MDB is preparing to make a repayment with Chinese assistance to Abu Dhabi’s state-owned fund in settling a US$6.5 billion (RM28.6 billion) dispute over an alleged breach of contract.

The move to begin repaying what 1MDB owes Abu Dhabi’s International Petroleum Investment Company (IPIC) was confirmed by two people familiar with the matter, the FT said.

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Najib Razak and Big Momma

China has been approached as a source of funds for 1MDB, the FT said, citing three people with knowledge of the matter, one of whom said Malaysia would swap assets for financing.

China is of course not doing all of this for altruistic reasons but to further its own interests. First, it aims to get work for its companies and sometimes its own people – it sends in its own workers for many projects.

Two, if countries are unable to repay their debts, then more assets will have to be handed over to China and the affected countries become ever more indebted and linked to China in other ways, furthering China’s aim of strategic and military influence, as this article titled ‘China’s debt-trap diplomacy’ eloquently points out.

As a small country, Malaysia has been rather adept at playing the role of the nimble kijang or deer which keeps itself from getting crushed when elephants fight. But 1MDB’s problems may be leading us down a path which is even more dangerous than the garden path the so-called strategic development company led us up on earlier.

P GUNASEGARAM says throwing good money after bad is a lousy deal which only the desperate make. Email: t.p.guna@gmail.com.