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Saturday, May 18, 2013

The China dream



Tan Sri Lin See-Yan analyses the China Dream' and that President Xi Jinping needs to assure middle-class Chinese that the nation can remain rich and strong.
 
PRESIDENT Xi Jinping, general-secretary of the ruling Communist Party as well as chairman of the Military Commission, talked of the “China dream” to unite an increasingly diverse nation of 1.35 billion people. What's Xi's vision which incidentally sounds somewhat like the American dream?; even evokes Martin Luther King's “I have a dream,” reflecting some US-style aspiration.

Since the revolution, China's goals have centred on unity, strength and wealth. Mao Zedong tried to attain them through Marxism and failed: the cultural revolution ended with his death in 1976. Deng Xiaoping's catchphrase was more practical: “reform and opening-up.” Then, Jiang Zemin pushed the more arcane “Three represents” to embody the changed society, including allowing private businessmen to join the party. Lately, Hu Jintao championed the “scientific-development” outlook which was about being greener and dealt with disharmony created by the divisive wealth gap. His Prime Minister Wen Jiabao dwelt repeatedly with the need to rid the economy of the 4-UNs unstable, unbalanced, uncoordinated and ultimately unsustainable growth.

Now, Xi talks of his dream of “the great revival of the Chinese nation,” of a “strong army dream,” and of our mission “to meet the people's desire for a happy life.” He also alludes to ordinary citizens wanting “to own a home, send a child to university and just have fun.” The Chinese dream, he said “is an ideal. Communists should have a higher ideal, and that is Communism.” Frankly, even though short on detail, Xi's dream is different from his two predecessors' stodgy ideologies. I see practical politics at work here. With growth slowing, Xi's new vision appears to emphasise nationalism going beyond middle-class material comfort. Of course, there is the usual tough talk on the rule of law and on corruption (“fighting tigers and flies at the same time”); also on meeting the public's wish for “better education and more stable jobs.” His dream seems designed to inspire rather than inform. In the end, “The China dream is the people's dream,” so he says.

Promises and pledges

China's US$8.3 trillion economy went through its worst slowdown in 13 years in 2012 when weak exports and increases in interest rates dragged annual growth to 7.8%, the grimmest since 1999. The economy faces more headwinds as it struggles with surplus production capacity and underlying risks in the financial system. So it's not surprising the new administration has called for sweeping reforms and lessening state control. Areas requiring pressing change include freeing interest rates, promoting private investment, encouraging consumption and “greener” growth, and enforcing the rule of law. It has even declared “fair competition is our common goal,” vowing to end subsidising SOEs (state owned enterprises) and levelling the playing field for private enterprise.

The new leadership has since pledged to slash bureaucracy, commit to market-oriented reforms, boost social spending and services, and fight pollution. China is expected to rely on migration to the cities to boost domestic consumption and re-make the economy to be less dependent on massive outlays on fixed investment at home and exports abroad. Such “rebalancing” needs to give markets room to operate competitively. In finance, market forces will be given freer play in setting interest and exchange rates, to ensure savers get a better deal, and businesses have ready access to funding through more effective capital markets.

The Xi administration now puts China's fast growing consumer class at centre stage. Perhaps, the most far reaching change thus far is the urbanisation policy being pursued. This involves reforming the rigid urban hukou household registration system by giving residency permits to some 220 million migrants to the cities, and allowing farmers to sell land at market prices to protect their land rights and boost incomes. Empowering a whole new class of consumers underpins the national drive to reorganise the entire economy from government to banks to SOEs. Such radical overhaul is needed to seriously expand domestic demand. China's plan includes adding 9 million new jobs in urban areas to keep unemployment at or below 4.6% to ensure that real per capita income for both urban and rural residents continue to increase. Its inflation target this year remains at 3.5%, lower than 4% last year. China's actual inflation last year came-in well below that at 2.6%. But these achievements came at the cost of widening inequality and environmental degradation. China's Gini coefficient a measure of income differences was 0.474 last year, higher than the 0.4 level which signals a potential for social unrest.

Transformation

China's GDP (gross domestic product) rose 7.7% in the first quarter this year (down from 7.9% in the fourth quarter 2012), slower than the median analysts' forecast of 8%. Given continuing weak US conditions and a eurozone locked in recession, disappointing Chinese data cast a long shadow over the global outlook. Frankly, I am not as worried provided it reflects the transformation that's said to be already in train. Elements of this reform include shift from investment-export led growth to a new structure providing widespread support for domestic private consumption. This rebalancing will involve new initiatives emanating from services-led consumption, which in turn relies on more labour-intensive services. These require 35% more jobs per unit of GDP compared with manufacturing and construction (thus ensuring rising employment and poverty reduction), with a much smaller resource and carbon footprint.

Xi’s dream is different from his two predecessors.Xi’s dream is different from his two predecessors.

As I understand it, this services-led pro-consumption reform remains a core initiative in the current 12th 5-year Plan. The agenda needs complementary support from implementing an enlarged and better designed social safety net; reform of SOEs; and ending financial depression of households by raising the artificially low interest rates on saving. But there are strong headwinds coming from several directions: deteriorating credit quality affecting the integrity of bank balance sheets; weakening export competitiveness reflecting continuing rising wages; pollution, corruption and inequality; and political economy missteps, including escalating disputes with Japan and others. China has come through two major crises in the past four years. Its economy remains robust and resilient but it still needs to modernise. Make no mistake, the risks are real. Only purposeful transformation can provide China with the needed strength and resolve to pull through future crises. Reality check: as the economy matures, its pace of growth will surely slacken.

Urbanisation

Urbanisation (movement of rural population into cities and towns) has become a focus of China's reform plans. Its urban population reached 690 million in 2011, against 170 million in 1978. The percentage of urban population rose to more than 51% in 2011 (17.9% in 1978) and will touch 60% by 2020. Consequently, rural population fell from 82.1% in 1978 to 48.7% in 2011. This movement highlights the strategy to rebalance the economy:

● It drives market demand; per capita consumption ratio of urban residents to rural is about 3.3:1;

● Pushes investment in infrastructure and social housing which in turn creates employment and new incomes, which further raises consumption. A 1-1.5 percentage point rise in urbanisation adds 15-20 million people to the city;

● Promotes industrial restructuring and upgrading thereby raising the quality and productivity of employment;

● Increases jobs in the service industry. According to the World Bank, emigrants send home US$45bil a year, with some sending as much as 80% of their income to support their families. This leads to rising rural spending on better homes, education, consumer durables and higher grade groceries. Contrary to common belief, migrants actually maintain their rural shopper habits as they work and sleep in urban environments. The entire process will help to restructure the economy. It is projected that 400 million people will become urban dwellers over the next decade. Under the 12th 5-year plan (ending 2015), 36 million social housing units will have to be built in addition to the 7.2 million units built in 2012. To meet the growing demand for urban jobs, China created 10.24 million new jobs in the first nine months of 2012 (exceeding the 9 million target set for the entire year).

But urbanisation comes at a cost. It is accompanied by chronic environmental degradation and worsening pollution, posing a serious threat to human health and social stability. Urban migration is drastically changing patterns of consumption and behaviour city residents use three times more electricity than rural dwellers; consume 10 times as much sugar, and require vastly more infrastructure and utilities to service their daily lives. Despite efforts to make cities greener, progress is slow because local officials are rewarded for high investment and fast growth, rather than for sustainability. Hence, repeated calls for urbanisation to be “balanced with ecological security.” Additionally, there is fear that the surge of migration would turn cities into Latin-American style slums. But urban reformers are pushing for “bigger-is-better” the idea that cities gain by having people more tightly packed forcing greater use of public transportation (hence, raising its effectiveness), forcing old-line high polluting industries to relocate (thus raising productivity and freeing valuable social space), forcing new energies into a city thus, helping to create new businesses and investment.

Surprisingly, many of China's biggest cities are much less densely populated than Singapore, Seoul, Manhattan and downtown Tokyo, all of which have made strong, successful transitions to the consumer-led service-industry model China wants. Beijing (20 million) has a density of less than 5,000 per sq km and Shanghai (18 million), less than 6,000 against 11,000 in Singapore, 18,500 in New York and 10,400 in Seoul. Rightly so, the Chinese leadership is worried about building super-size urban centres because they create slums, worsen pollution or spur pockets of political dissent.

What then, are we to do?

National unity requires China to be one big bed. But its people can, and do have different dreams indeed, as many as 1.35 billion. The challenge is to get them all to dream the same dream. Xi hopes this would be his “China dream.” China's rise in national strength is well known. It's already the world's second largest economy and the world's largest exporter. Over the past decade, the economy rose 9.3% on the average, raising per capital income to over US$6,000 by 2012. Historians remind us that in 1820, China's GDP was one-third of the world. Then humiliation of the century brought it down to a low so that by the 1960s China's share fell to just 4%. Now, it has recovered to about one-sixth in purchasing-power parity terms. Xi's dream needs to reassure the new middle-class that China can remain “rich and strong” in the hope of reigniting “the great revival of the Chinese nation.”

From the “people first” approach to the “Scientific Outlook” on development, and then to campaigning for a “harmonious society” and “inclusive growth”, the Hu-Wen administration shifted the single-minded pursuit of GDP growth towards more emphasis on balance, reorienting its strategies towards a stronger focus on social security (by 2012, 480 million were on pension and 1.3 billion covered by medical insurance); education (reforms at decentralisation and addressing the need for innovation and entrepreneurship); urban-rural divide (reform of subsidies and taxes, and free and compulsory education in rural areas); and social housing (leading to massive building). Despite much progress, these areas remain of deep enough concern to require bold and innovative action by China's new fifth generation leadership. As I see it, gradualism (instead of cold turkey) is still the tone of future reforms. I see this manifested by the new emphasis on introducing pilot programmes first to test their workability on the ground when carrying out major reforms.

As part of reform, it does appear now there won't be any large-scale stimulus to boost growth as the government pares the state's role and rely more on workings of the market mechanism and the initiative of private enterprise. Many analysts have since begun to lower China's 2013 growth to 7.6% for the year as a whole, as the road ahead gets bumpy. It's unlikely to grow at 8.2% in 2014 (International Monetary Fund forecast). For the Xi administration, speed isn't everything. Better balance holds the key to unlocking China's dream.


WHAT ARE WE TO DO
By TAN SRI LIN SEE-YAN

Friday, May 17, 2013

Taiwan stages military drill as Philippines killing Chinese fishermen

Taiwan on Thursday staged a military exercise in waters near the northern Philippines in response to the killing of a Taiwanese fisherman, after rejecting repeated apologies for the death.

Philippine coastguards shot dead the 65-year-old last week after they said his vessel illegally sailed into Philippine waters. Outrage in Taiwan at the incident has grown amid a perceived lack of remorse in Manila.



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A flotilla of one destroyer, two frigates and four coastguard ships sailed to the waters near Batan island to press Taiwan’s territorial claims in the area, defence authorities said.

Taiwan’s Foreign Minister David Lin and the fisherman’s family refused to meet a personal representative sent by President Benigno Aquino in a bid to contain the diplomatic fallout. He was due to return to Manila later on Thursday.
“I came to convey the president’s and the Filipino people’s deep regret and apology over the unfortunate and unintended loss of life,” Amadeo R Perez told reporters at the airport.

Philippine special envoy Amadeo Perez (centre) and Philippine envoy in Taipei Antonio Basilio (right) meet the media during a visit to Taiwan's Foreign Affairs Ministry in Taipei on Wednesday. Photo: AFP 
Perez is chairman of the Manila Economic and Cultural Office which handles relations with Taiwan in the absence of diplomatic ties. The Philippines, like most countries, formally recognises China over Taiwan.

Taiwan has deemed it “unacceptable” that the death has been described as unintended by the Philippines.

Tensions mounted after Taiwan on Wednesday slapped sanctions on the Philippines, including a ban on the hiring of new workers, a “red” travel alert urging Taiwanese not to visit the Philippines and the suspension of exchanges between high-level officials, trade and academic affairs.

Taiwan’s President Ma Ying-jeou reiterated on Thursday that the Philippines should take the responsibility over the fisherman’s death.

“I do hope they (the Philippines) will understand they have to be responsible in the international community. Shooting unarmed and innocent people in the open seas is not an act tolerated by civilised nations,” Ma said.

Taipei has repeatedly pressed Manila to issue a formal apology by its government, to compensate the fisherman’s family and to apprehend the killer.

It also rejected an initial apology on Wednesday by the Philippines’ de-facto ambassador.

Maritime tensions are already high over rival claims in the South China Sea, adjacent to where last Thursday’s shooting took place.

China, the Philippines, Taiwan, Vietnam, Malaysia and Brunei all have competing claims to parts of the strategic and resource-rich maritime region.

“This (exercise) highlights Taiwan’s navigation and fishing rights,” said Vice Admiral Hsu Pei-shan, the Navy Chief of Staff, Central News Agency reported.

Thursday, May 16, 2013

The Philippines recklessness killing Chinese Taiwan fishermen

The killing of 65-year old Taiwanese fisherman Hung Shih-cheng is not the first incident involving Philippine Coast Guard shooting at Taiwanese fishermen. In 2006, another fishing boat was attacked, which led to the death of 67-year-old captain Chen An-lao. 




The Philippines initially denied the shooting, then admitted its coast guard did fire at the fishing boat. Recently, it agreed to make an apology.

Abigail Valte, spokeswoman for the presidential office of the Philippines declared that "The Taiwanese fishing boat attempted to ram our coast guard ship. It was without a doubt a provocative action."

Armand Balilo, Philippine coast guard spokesman detailed the story on the same day. According to the Manila Times, Balilo emphasized the incident happened in Philippine waters. He said the coast guard quickly left the area after they saw a third vessel, "a big white ship," besides the two Taiwan fishing boats they tried to approach, and felt threatened.

The actions of the Philippine coast guard narrated by both spokespersons could be interpreted from two perspectives.

For one thing, although the Philippines claimed the incident took place in Philippine waters, the Philippines doesn't have competent jurisdiction over the region, otherwise, the coast guard would not have been allowed to beat a hasty retreat.

It also shows that the Philippine authorities are very supportive of stirring disputes in disputed regions.

The Philippine government argued that the boat was attacked in waters where claims of rights of two sides overlap. In a region with controversial rights issues, each could come up with reasonable queries for the other.

The rights of Taipei and Manila in the disputed regions are undifferentiated. In past years Taiwan authorities didn't take enough action over the Philippines seizing and even killing Taiwanese fishermen, but that doesn't mean the Philippines can violate the international laws.

According to the United Nations Convention on the Law of the Sea (UNCLOS), coastal countries have the right of hot pursuit in their territorial waters. It grants coastal states the right to pursue and arrest ships escaping to international waters.

According to the Article 111 of the UNCLOS, "the hot pursuit of a foreign ship may be undertaken when the competent authorities of the coastal state have good reason to believe that the ship has violated the laws and regulations of that state. Such pursuit must be commenced when the foreign ship or one of its boats is within the internal waters, the archipelagic waters, the territorial sea or the contiguous zone of the pursuing state, and may only be continued outside the territorial sea or the contiguous zone if the pursuit has not been interrupted."

As a nod to the territorial principle, "the right of hot pursuit ceases as soon as the ship pursued enters the territorial sea of its own state or of a third state."

Hot pursuit is the most powerful right that international law grants to coastal countries over illegal operations of foreign ships in their waters.

However, the recent incident took place at 20 degrees north latitude and 123 degrees east longitude. It's not in the territorial waters of the Philippines, but in the overlapping region of exclusive economic zones.

The Philippines are not qualified to exert the right of hot pursuit in the region.

Even it could, the hot pursuit right is not applied to attacks by heavy weapons like the machine gun used in the latest case.

When international laws and principles that we think can protect us are violated yet again, we need to calm down and think carefully about how to deal with the other side.

By Ju Hailong
The author is a senior research fellow of the Institute of Southeast Asian Studies at Jinan University based in Guangzhou. opinion@globaltimes.com.cn

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