Beijing's Road to Renewal

03 March 2013 | Issue 5080

ByJohn Lee

Klipping The Moscow Times

In a speech at the Center for Strategic and International Studies in Washington on Feb. 22, Japanese Prime Minister Shinzo Abe informed the audience that Japan is "back" and will not stand down in its ongoing sovereignty dispute with China over the Senkaku/Diaoyu Islands. With Chinese provocations on the rise, U.S. President Barack Obama, Abe's host, appealed for calm and restraint on both sides.
Japan is likely to accede — grudgingly — to Washington's request, as it remains dependent on its alliance with the U.S. for its security. But it will be much more difficult to persuade China that it should stand down.
China's assertiveness over its sovereignty claim reflects more than a desire to exploit seabed resources or to gain a widened strategic gateway into the Pacific. It is also about national renewal and rejuvenation — the core of the Chinese Communist Party's raison d'être. Turning away from a fight with its former occupier and historical rival would be a step backward in this six-decade-long quest.
The idea of Chinese renewal or rejuvenation was popularized by then-Premier Zhao Ziyang in the late 1980s and promoted by Presidents Jiang Zemin and Hu Jintao. Most recently, incoming President Xi Jinping, visiting the National Museum of China's "Road Toward Renewal" exhibition, pledged to continue the "great renewal of the Chinese nation."
What does "renewal" or "rejuvenation" mean to the Chinese? All nations — great and small — embody a combination of historical fact and myth. In this case, Beijing's view of rejuvenation is built on the belief that the zenith of Chinese power under the Ming and Qing dynasties represents the natural, just and permanent state of affairs for a 5,000-year-old civilization.
When Mao Zedong took power in 1949, his immediate goal was to re-establish the "greater China" of the Qing Dynasty (1644-1912), insisting that the Manchu-led empire was the permanent and enduring China. But while the assault on the Qing Dynasty by foreign powers is a historical fact, the notion that there has been one enduring China struggling against avaricious outsiders across several millennia is false and self-serving.
Mao achieved his goal following the so-called peaceful liberation of the East Turkestan Republic (now Xinjiang) in 1949 and the invasion of Tibet in 1950, which promptly increased China's size by more than one-third. Every Communist Party leader since has carried forward his vision of a greater China, adjusting and expanding it as the country's power grows.
The same can be said for China's growing stridency with respect to its claims in the South China Sea. In 2009, relying heavily on a dubious historical claim, China formally tabled its "nine-dotted line" map to the United Nations Commission on the Limits of the Continental Shelf, and has since referred to almost all of the South China Sea as being under its "indisputable sovereignty."
Having dominated East and Southeast Asia for all but the last two centuries of the past two millennia, China is chafing at the current U.S.-led regional order of sovereign states, in which even the smallest enjoys the same rights, privileges and protection as the largest. Modern China has benefited largely from this arrangement. Nonetheless, there is keen resentment that the Chinese civilization-state's vast achievements over several thousand years offer China no special status.
To a people imbued with a deep sense of superior moral worth, historical achievement and victimization by foreign powers, this state of affairs is unjust and unnatural. It follows that pulling back from any territorial dispute with smaller and inferior states would be seen as a humiliating defeat, rather than a step toward ensuring long-term regional stability.
Moreover, an expanding view of greater China implies that a resolution of the dispute over the Senkaku/Diaoyu Islands in China's favor would be likely to embolden rather than satisfy its ambitions. Making good on its claim to the South China Sea could be next.
As Obama and Abe forge a common strategy aimed at helping to manage China's rise peacefully, they must understand that China's conception of renewal seeks to resurrect a glorious past. This implies revision, not affirmation, of the existing regional order. It also means that they will have to limit China's strategic and military options, even if they cannot constrain its ambitions.

John Lee is a fellow and professor at the Center for International Security Studies, Sydney University. © Project Syndicate

Read more:http://www.themoscowtimes.com/opinion/article/beijings-road-to-renewal/476355.html#ixzz2MfK1Onwr
The Moscow Times

Renewing the South Korean Economic Miracle

04 March 2013 | Issue 5081

ByWonsik ChoiandRichard Dobbs

Klipping The Moscow Times

South Korea's incoming president, Park Geun-hye, takes over a country that has been a global role model for economic development. But with the economy slowing, it has become a model in need of renewal.
The so-called Miracle on the Han River took root with the reforms initiated by Park's late father, Park Chung-hee, the country's ruler for much of the 1960s and 1970s. A measure of South Korea's success is that it was the first country to make the transition from recipient of aid from Organization for Economic Cooperation and Development to donor, with per capita gross domestic product today exceeding $30,000 in terms of purchasing power parity.
But the growth formula that long underpinned South Korea's success, a form of state-guided capitalism that focuses on export-led manufacturing, is no longer working for many South Koreans. GDP has nearly tripled over the past 20 years, but with real wages rising at less than half this rate, growth has become decoupled from the fate of ordinary citizens.
More than half of middle-income households spend more each month than they earn. The signs of social distress are multiplying. South Korea's divorce rate has doubled, fertility rates have fallen to the fourth-lowest among advanced economies, and the suicide rate is the highest in the OECD.
South Korea is troubled for two key reasons. First, although some parts of the economy reached advanced industrialization in record time, other parts — and institutions — are struggling to catch up. Manufacturing conglomerates such as Hyundai, LG and Samsung have morphed into highly productive global giants, whose growth creates fewer high-quality jobs at home than before.
Employment at the country's largest companies is falling, and the share of South Korean jobs at such companies has dropped by one-third since 1995.
But South Korea does not have a well-developed service sector to provide a new source of high-paying jobs. Worse still, service industries are falling farther behind large manufacturers in terms of productivity and wages.
This leads to the second challenge: the dire financial straits of middle-income households. Many families now face stagnating wages, owing to the kinds of jobs now available, but are determined to cling to a lifestyle they can no longer afford. Families with children are engaged in an escalating "educational arms race," devoting large shares of their income to private education and tutoring to prepare children for entrance into elite universities and a shot at a secure job at a major corporation.
Middle-income families also insist on buying homes despite the highest multiple of home price to income among advanced economies and a housing-finance system that imposes high borrowing costs. South Korean women still drop out of the labor force when they marry or have children. Only 38 percent of families have two wage earners, half the OECD average.
One of the most pernicious effects of the squeeze on middle-income households and the cost of the educational arms race is a voluntary one-child policy, which has reduced the country's fertility rate to 1.2 births per woman, among the lowest in the industrialized world. The population is aging at an accelerating rate, and the net flow of working-age citizens into the labor force has turned negative.
Without action, the economy faces the threat of declining consumption and even shrinking output. South Korea badly needs measures to relieve the stresses on middle-income finances and a new growth formula based on a globally competitive service sector and entrepreneurial small and medium-size, or SME, businesses that create well-paying jobs.
Major reforms are necessary to help middle-income families escape crushing monthly payments for housing and education. Housing payments are higher because mortgages are of short duration (an average of 10 years) and tight loan-to-value restrictions force borrowers to seek additional higher-cost loans from second-tier deposit institutions and nonfinancial companies.
These conditions need to change. Because banks would need to accept higher risk, a secondary market for mortgages is necessary. Policymakers should also consider measures to reduce demand for home ownership, including relaxing regulations on investment by insurance and other companies in residential housing, thereby creating better rental choices for middle-income households.
South Korea also needs to improve its public schools, particularly at the secondary level, and significantly upgrade vocational training. Families invest in private education because they fear that the public education system will not get their children into elite universities and good jobs. "Meister" high schools, introduced in 2010 specifically to prepare young people for high-skilled jobs, are a positive step.
Aggressive development of services such as transportation, retail and restaurants — which today are dominated by low-productivity, low-paying local businesses, many run by sole proprietors — is another imperative. South Korea has excellent opportunities to build up health care services and compete in the global medical-tourism business. Other tourism, too, can expand to provide fuller advantage of cultural and sports attractions. In financial services, the government should aim to produce three to four regional champions.
Finally, Koreans must relearn the entrepreneurialism that built the chaebol, the family-owned industrial conglomerates that powered the economy's development. Today, South Korea has many small family-owned businesses but few entrepreneurs.
Fostering a more dynamic, innovative SME sector that will produce tomorrow's globally competitive large companies requires removing disincentives to growth, such as the inheritance-tax exemption for family-owned businesses, which rewards owners for keeping their businesses small. A bankruptcy system that allows entrepreneurs to survive the inevitable failures that accompany innovation is also needed, as are stronger protection of intellectual property and improved access to equity finance.
Park takes over at a pivotal point in South Korea's history. The new government needs to take the pragmatic steps that can overcome the limitations of today's economic model and save the country from declining growth, higher unemployment and rising inequality. The task is no less than to achieve South Korea's second miracle on the Han River.

Wonsik Choi is managing director of McKinsey South Korea. Richard Dobbs is director of the McKinsey Global Institute. © Project Syndicate

Read more:http://www.themoscowtimes.com/opinion/article/renewing-the-south-korean-economic-miracle/476428.html#ixzz2MfIO9HW1
The Moscow Times

China's Secret Foreign Policy

25 February 2013 | Issue 5075

ByRichard Lourie

Klipping The Moscow Times

Everyone is afraid of China. One reason is an instinctive reflex to avoid anything enormous moving at great speed. But even more important is that China's true intent can't be gauged. Is China a threat to the world order, or at least to its region? Is it a rival to the U.S. or an enemy? Should it be balanced or contained? Or should China be envied and admired for its achievements in accruing wealth and power?
China is difficult to decipher because China itself has not yet made up its mind about its true direction and aspirations. China, however, most likely will have to make those decisions during the next decade under its new leader, Xi Jinping. External conditions — threats to China's energy sources, territorial disputes, the North Korean nuclear gnat — combined with internal tensions — restive populations in Tibet and Xinjiang, anti-corruption protests and social media, the budgetary issues caused by an aging population — will cause the country, or at least the regime, to show its true colors.
In some respects, China is a natural candidate for a vengeful nationalism because of its deep-seated feeling of humiliation, which New York Times columnist Thomas Friedman calls "the single most underrated factor in international relations." Just as European textbooks routinely refer to the Hundred Years' War, Chinese texts and maps routinely refer to the "Hundred Years of Humiliation," the foreign domination during the opium wars of the mid-19th century to the Japanese occupation in the mid-20th century.
One answer to the Chinese enigma lies in how the Chinese overcome that humiliation. Will China settle accounts with the West by building a society that is more productive and stronger than the deadlocked democracies of Europe and the U.S.? Or will China need to humiliate the West by turning it into a servile debtor while pilfering its economic secrets from its computers?
In that sense, the Russians are lucky. Except for some fighter jets and weapons systems that the Chinese haven't yet reverse-engineered, Russia has few R&D secrets worth stealing. Moscow's worries concern the population imbalances in the Far East: sparse on the Russian side of the border, burgeoning on the Chinese.
The recent revelations about the Chinese government-backed hacking of U.S. businesses and institutions are about more than saving money on research and development. They are part of a three-pronged foreign policy strategy in which China will combine cyberespionage with economic pressure to bring the West under its sway while projecting traditional military might in its own region. The third prong is nuclear. Currently, China is in the same league as England and France but is pushing ahead with intercontinental ballistic missiles and submarine-based missiles. You can't be a superpower without them.
China is also investing heavily in its navy, which is the only way to protect the flow of energy and raw materials into China, and the export of finished goods. Besides protecting its economic lifeline, naval power allows China to deny or delay U.S. access to the South China Sea and East China Sea in the event of a crisis over Taiwan. Beefed-up naval power will also help in negotiations over the various disputed islands.
For all the money Beijing is pouring into modernizing its armed forces, it still spends more on domestic security than on defense. According to official figures, since 2010 the budget for the police, the state security forces, the courts and prisons has exceeded the money spent on the military. Even China is afraid of China.

Richard Lourie is author of "The Autobiography of Joseph Stalin" and "Sakharov: A Biography."

Read more:http://www.themoscowtimes.com/opinion/article/chinas-secret-foreign-policy/475982.html#ixzz2M05fhXpA
The Moscow Times

Insight: RI’s active role in global affairs: An Indonesian to head the WTO?

Jusuf Wanandi and Djisman Simandjuntak | Insight | Mon, February 25 2013, 9:20 AM

Klipping The Jakarta Post

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Paper Edition | Page: 3

One of the hallmarks of President Susilo Bambang Yudhoyono’s second term has been Indonesia’s willingness to once again take a leadership role in international and regional affairs.

The Indonesian government’s decision to put Tourism and Creative Economy Minister (and former trade minister) Mari Elka Pangestu forward as a candidate for director general of the World Trade Organization (WTO) is further proof of an Indonesia that is confident about its role in global affairs.

If Mari is elected as the new WTO director general, she will not only break the glass ceiling of being the first woman to hold this job, but will also remove another important barrier. Historically, Indonesia has been unwilling to send the best and brightest to international institutions because they are needed at home. It is something we all can be proud of. Indonesians taking top positions in global organizations is a testament to the progress we have made as a nation.

As an internationally renowned economist and academic with a seven-year tenure as Indonesian trade minister, Mari is widely held as one of the most capable candidates in a nine-person field of contenders for the WTO position.

Mari’s term as trade minister gave her wide exposure to the complexities and sensitivities of trade policy. Out-of-the box thinking, building consensus and finding inclusive solutions have been her trademark, and they are qualities that would serve her well at the WTO.

She was in charge when Indonesia’s free trade agreements with China, Japan and Korea (ROK) were negotiated, pursuing them as a second-best measure at a time when negotiations under the multilateral trading system (WTO) were at a standstill. When China and Japan could not agree whether an ASEAN +3 or an ASEAN +6 should become the template for free trade in East Asia, she and other ASEAN colleagues took the initiative to establish the Regional Comprehensive Economic Partnership (RCEP), consisting of all ASEAN free trade agreements with the ASEAN +6 members and balanced commitments on measures of greater inclusion and sustainability.

That is why it is only appropriate that she will get support from East Asian governments. She has the experience, commitment, intellectual capacity and demeanor for the post she is being proposed to serve.

With stalled multilateral negotiations and the global trading system constantly under threat from narrow domestic agendas and beggar-thy-neighbor policies, it is more important than ever to look for the best candidate. And especially for a candidate from a region that is serving the world as the main source of economic growth and dynamism.

Mari can enrich the WTO process and the international community with valuable lessons from East Asian experiences of policy making. This is one of those opportunities where Indonesia’s achievements and leadership could be recognized, with a candidate who stands out as one of the best in her own right, and who will make a difference for
future free and fair trade globally.

Mari has the unique combination of being a scholar in trade economics, a “second track” activist with worldwide networking that has given ideas and input to governments and the public, as well as a practitioner in the form of trade minister.

Jusuf Wanandi is vice chair of the Board of Trustees at the Centre for Strategic and International Studies (CSIS) Foundation. Djisman Simandjuntak is chair of the Board of Directors, CSIS Foundation.

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