I am gone to China for field research, and this is the automatic blogger speaking. My intention is to talk about some of the interviews I get in Beijing but that is not for another week.
So one weeks break.
Friday, 17 July 2009
Wednesday, 15 July 2009
Internationalisation of the Yen Yuan
As Mark Thirwell notes here, China is on the long march to increase the internationalisation of the Yuan.
What is not usually raised in the discussion of China's (high profile) criticism of the USD is that China is not the first Asian giant to propose that the world, or at least the region, move away from the dollar as the intermediate currency of choice. Nearly a decade before Japan was calling, quietly, for something similar. But whereas Japan was, and still is, dependent on the US for its security and status in the international order, China is not. Or at least, China, unlike Japan, seems to believe that it is a great power in its own right. More on that in subsequent posts.
In fact China is really riding on Japan's coat tails with regard to the whole internationalisation of the Yuan idea. Since the early 1990s, Japan started talking about the internationalisation of the yen, with the goal of reducing the region's reliance on the dollar. Japan has already done all the research necessary to argue persuasively for the need to move away from the dollar. But unfortunately for Japan, while it has made its case that the dollar should go "down", it has not persuaded the region that the Yen should go "up". Infact, since the Asian Financial Crisis of 1997, holdings of the yen have in fact fallen in the central banks of the region.
Unsurprisingly, China's moves have caused some consternation among Japan monetary policy makers as yet another example of China stealing regional leadership from under Japan's nose. Well not exactly.
It pays to keep things in perspective. China's RMB is not convertible, and this limits its appeal as a replacement to the USD. How significant is inconvertiblity? Well, according to the Bank of International Settlement figures, the RMB is going nowhere fast. In fact the cause of the Yen continuous fall since 1990s has been a combination of its own domestic recession and the rise of the Euro. China simply does not figure as a cause for Japan's currency being run down in the region's central banks, and it is unlike that the RMB will be able to steal a march on the yen as the region's intermediate currency.
As Japan's IIMA points out, Japanese Yen is still a more suitable currency to inherit part of the USD mantle than the Chinese yuan. But as Japan has learnt, in addition to suitability based on actual use/usability (ribensei), it is vitally important that the economy have a "presence" of its own in the world market. While China is probably ahead in this regard, let's not forget Japan's role in initiating these discussions about the role of the USD.
What is not usually raised in the discussion of China's (high profile) criticism of the USD is that China is not the first Asian giant to propose that the world, or at least the region, move away from the dollar as the intermediate currency of choice. Nearly a decade before Japan was calling, quietly, for something similar. But whereas Japan was, and still is, dependent on the US for its security and status in the international order, China is not. Or at least, China, unlike Japan, seems to believe that it is a great power in its own right. More on that in subsequent posts.
In fact China is really riding on Japan's coat tails with regard to the whole internationalisation of the Yuan idea. Since the early 1990s, Japan started talking about the internationalisation of the yen, with the goal of reducing the region's reliance on the dollar. Japan has already done all the research necessary to argue persuasively for the need to move away from the dollar. But unfortunately for Japan, while it has made its case that the dollar should go "down", it has not persuaded the region that the Yen should go "up". Infact, since the Asian Financial Crisis of 1997, holdings of the yen have in fact fallen in the central banks of the region.
Unsurprisingly, China's moves have caused some consternation among Japan monetary policy makers as yet another example of China stealing regional leadership from under Japan's nose. Well not exactly.
It pays to keep things in perspective. China's RMB is not convertible, and this limits its appeal as a replacement to the USD. How significant is inconvertiblity? Well, according to the Bank of International Settlement figures, the RMB is going nowhere fast. In fact the cause of the Yen continuous fall since 1990s has been a combination of its own domestic recession and the rise of the Euro. China simply does not figure as a cause for Japan's currency being run down in the region's central banks, and it is unlike that the RMB will be able to steal a march on the yen as the region's intermediate currency.
As Japan's IIMA points out, Japanese Yen is still a more suitable currency to inherit part of the USD mantle than the Chinese yuan. But as Japan has learnt, in addition to suitability based on actual use/usability (ribensei), it is vitally important that the economy have a "presence" of its own in the world market. While China is probably ahead in this regard, let's not forget Japan's role in initiating these discussions about the role of the USD.
Monday, 13 July 2009
Japan-India relationship, back to economics?
Japan's Foreign Minister Nakasone wrapped up a visit to India earlier in the month. That Japan's interests in India are expanding should come as no surprise, India too is a rising power in international affairs. What is interesting however is the approach to India that Japan has taken. It is no secret that India is viewed as something of a strategic hedge against China in some if the conservative circles in Japan. The Quadrilateral Initiative was a clear indication of this strategic assessment by Japan. Indeed, PM Abe who set up the Quad was crystal clear about the need to balance China out in the region when he discussed it with President Bush in 2007. But the Indians were in no mood to be added to a balancing coalition and this type of obvious strategic coordination collapsed in short order (early 2008). If India does not view China in quite the same way as Japan, how has Japan attempt to persuade them?
The same as always it seems, by providing economic side payments. The most important of these is the Japan-India Free Trade Agreement currently under negotiation. The Japan-India FTA is a strategic issue for Japan, as much as an economic one. Let's compare some figures. The bilateral trade flow between India and Japan is hoped to reach USD 20 billion by 2010. While, in spite of the current world financial crisis (which has knocked off nearly a quarter of trade versus the previous year) China and Japan's bilateral trade flow is over twice that at 45 billion. But Japan and China are not discussing an FTA. While, on the other hand, Japan and India are discussing an FTA.
With India accession to an ASEAN plus FTA, and the Australia/New Zealand-ASEAN FTA in place, Japan's FTA with India will lock-in the East Asia Summit (preferred by Japan to the APT) as the focus point for future regionalism.
The same as always it seems, by providing economic side payments. The most important of these is the Japan-India Free Trade Agreement currently under negotiation. The Japan-India FTA is a strategic issue for Japan, as much as an economic one. Let's compare some figures. The bilateral trade flow between India and Japan is hoped to reach USD 20 billion by 2010. While, in spite of the current world financial crisis (which has knocked off nearly a quarter of trade versus the previous year) China and Japan's bilateral trade flow is over twice that at 45 billion. But Japan and China are not discussing an FTA. While, on the other hand, Japan and India are discussing an FTA.
With India accession to an ASEAN plus FTA, and the Australia/New Zealand-ASEAN FTA in place, Japan's FTA with India will lock-in the East Asia Summit (preferred by Japan to the APT) as the focus point for future regionalism.
Friday, 10 July 2009
Xinjiang、Uighers and the Asian Development Bank
The news of this week seems to be focused on the violence rocking Xinjing, a province in the far west of China. This domestic political problem of the PRC might at first glance have little to do with the ADB, but this is not quite the case.
Firstly, the ADB is more involved in China's Western development than the World Bank, and indeed provides a better statistical picture of the economic problems there. The most significant of these problems is inequality. Income inequality in Xinjiang province is the worst in China, moreover Xinjiang on the whole is lagging behind the more developed Eastern provinces. Worse, this income inequality seems to be favoring the Han majority Chinese over the Turkic speaking Uigher minority. No surprise then that violent protesters and calls for secession from the PRC crop up again and again.
China has recognised the problems of inequality as a source for social disruption, and under Hu Jintao (formerly a Tibet hand), China has begun to focus on the vast interior. The ADB, and Japan in the ADB, have played no small role in this about face of the Chinese Government. Until the mid-nineties China would hear nothing about the need for social/environment development in the Central provinces and continuously prioritized the industrial development of the Eastern provinces. In the aftermath of the 1995 Lop Norr nuclear tests (coincidentally in Xinjiang Provence), Japan become increasing concerned that their ODA/Aid and the ADB's loans were subsiding the Chinese military. Japan's concerns about the Chinese military, and nuclear weapons specifically, prompted the GOJ to produce a new ODA/Aid Charter. Japan also took the fight to the ADB, and started to push for the ADB to prioritize the West and Central provinces and poverty reduction focused loaning to the social and environmental sectors, both geared towards less direct military spillover.
Eventually, China came to agree to these terms - although a new sector of so-called social infrastructure had to be invented as a compromise in the early 2000s. China recognised that the ADB would have greater legitimacy in dealing with Xinjiang and the Xinjiangese development problems than the Central Government in Beijing, especially due to the difficult race relations between the Han Chinese and minority Uighers. This has brought the ADB increasingly into Xinjiang. But while the ADB is focused on development, it is clear that its operations in Xinjiang are for reasons of domestic and international politics.
Firstly, the ADB is more involved in China's Western development than the World Bank, and indeed provides a better statistical picture of the economic problems there. The most significant of these problems is inequality. Income inequality in Xinjiang province is the worst in China, moreover Xinjiang on the whole is lagging behind the more developed Eastern provinces. Worse, this income inequality seems to be favoring the Han majority Chinese over the Turkic speaking Uigher minority. No surprise then that violent protesters and calls for secession from the PRC crop up again and again.
China has recognised the problems of inequality as a source for social disruption, and under Hu Jintao (formerly a Tibet hand), China has begun to focus on the vast interior. The ADB, and Japan in the ADB, have played no small role in this about face of the Chinese Government. Until the mid-nineties China would hear nothing about the need for social/environment development in the Central provinces and continuously prioritized the industrial development of the Eastern provinces. In the aftermath of the 1995 Lop Norr nuclear tests (coincidentally in Xinjiang Provence), Japan become increasing concerned that their ODA/Aid and the ADB's loans were subsiding the Chinese military. Japan's concerns about the Chinese military, and nuclear weapons specifically, prompted the GOJ to produce a new ODA/Aid Charter. Japan also took the fight to the ADB, and started to push for the ADB to prioritize the West and Central provinces and poverty reduction focused loaning to the social and environmental sectors, both geared towards less direct military spillover.
Eventually, China came to agree to these terms - although a new sector of so-called social infrastructure had to be invented as a compromise in the early 2000s. China recognised that the ADB would have greater legitimacy in dealing with Xinjiang and the Xinjiangese development problems than the Central Government in Beijing, especially due to the difficult race relations between the Han Chinese and minority Uighers. This has brought the ADB increasingly into Xinjiang. But while the ADB is focused on development, it is clear that its operations in Xinjiang are for reasons of domestic and international politics.
Wednesday, 8 July 2009
Asia's monetary integration - diffusion
Japan has just extended 16bn USD worth of currency swap to Indonesia, see here. There are two points of interest in this.
Firstly, this agreement falls outside the other smaller Bilateral Swap Agreements denominated in USD, thereby shoring up Japan's new trend of denominating its BSAs in yen.
Secondly, this agreement comes outside of the Chiang Mai Initiative (CMI).
In the context of the World Financial Crisis, the pressure for states to accept any BSA agreement which may bolster confidence in their economies and even help to fend off currency speculation is growing. For Japan, this WFC looks rather like the Asian Financial Crisis (AFC) writ large, and provides another opportunity for Japan to try and cement its leadership in regional monetary affairs having failed to establish in 1998 the Asian Monetary Fund.
But by providing these new BSAs outside of the CMI, Japan is risking sidelining an organisation that, while still nascent, provides the best hope for Asian economic integration in the longer term. Of course, Japan's interest in seeing the CMI go ahead are well known, indeed it spearheaded the CMI. Thus, this move is puzzling. There are two main possible reasons why Japan might do so,
1/ Japan does not believe these BSAs affects the CMI, or that it is not significant (unlikely)
2/ In fact, Japan does not want the CMI to go ahead, or wants a hedge in case the organisation gets too independent too quickly (more likely)
Why is the second reason more likely? In the first instance, even as the CMI has developed, Japan been signing BSAs in increasing numbers, particular to its ASEAN partners (China has also extended similar). That has to reflect a certain dissatisfaction with the CMI. Moreover this dissatisfaction is likely to do this future voting weights. With Japan only holding a likely 32% of the future voting weight, China and ASEAN can vote themselves access to the CMI treasure chest over Japan. Japan would still rather have a larger (veto-ing) voice in the future CMI. But at the same time Japan seems locked in competition to provide economic security to ASEAN, both with the US and IMF and increasingly with China. The result is support for the CMI and at the same time BSAs.
Firstly, this agreement falls outside the other smaller Bilateral Swap Agreements denominated in USD, thereby shoring up Japan's new trend of denominating its BSAs in yen.
Secondly, this agreement comes outside of the Chiang Mai Initiative (CMI).
In the context of the World Financial Crisis, the pressure for states to accept any BSA agreement which may bolster confidence in their economies and even help to fend off currency speculation is growing. For Japan, this WFC looks rather like the Asian Financial Crisis (AFC) writ large, and provides another opportunity for Japan to try and cement its leadership in regional monetary affairs having failed to establish in 1998 the Asian Monetary Fund.
But by providing these new BSAs outside of the CMI, Japan is risking sidelining an organisation that, while still nascent, provides the best hope for Asian economic integration in the longer term. Of course, Japan's interest in seeing the CMI go ahead are well known, indeed it spearheaded the CMI. Thus, this move is puzzling. There are two main possible reasons why Japan might do so,
1/ Japan does not believe these BSAs affects the CMI, or that it is not significant (unlikely)
2/ In fact, Japan does not want the CMI to go ahead, or wants a hedge in case the organisation gets too independent too quickly (more likely)
Why is the second reason more likely? In the first instance, even as the CMI has developed, Japan been signing BSAs in increasing numbers, particular to its ASEAN partners (China has also extended similar). That has to reflect a certain dissatisfaction with the CMI. Moreover this dissatisfaction is likely to do this future voting weights. With Japan only holding a likely 32% of the future voting weight, China and ASEAN can vote themselves access to the CMI treasure chest over Japan. Japan would still rather have a larger (veto-ing) voice in the future CMI. But at the same time Japan seems locked in competition to provide economic security to ASEAN, both with the US and IMF and increasingly with China. The result is support for the CMI and at the same time BSAs.
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