Eris in Asia

East Asian Free Trade Area is looking more likely!

2011-12-11T10:03:00.000+09:00

This year has seen significant progress in negotiations, the outcome of which were only revealed at the ASEAN Plus Three summit in November. Early indications that an agreement might finally be reached occurred in August at the 14^th ASEAN Economic Ministers Plus Three (AEM+3) Meeting in Indonesia. The final communication of which welcomed “the joint proposal by China and Japan, ‘Initiative on Speeding up the Establishment of an East Asia Free Trade Area (EAFTA) and Comprehensive Economic Partnership in East Asia (CEPEA)’.

Until this joint proposal by China and Japan on the future of an East Asian Trade Area, the whole process had been held hostage to the Sino-Japanese strategic rivalry. This deadlock was eventually broken by the worsening global economic situation and, relatedly, the United States bid to boost its flagging growth through exports which drove a return to Asia via the Trans Pacific Partnership. For China, the TPP is seen as particularly threatening as its intellectual property and investment protection requirements will pose a formidable barrier to joining – even if China were actually to be invited (which it is not). This new reality seems to have been enough to shift China’s priorities towards reaching an agreement in East Asia, even if that meant moving towards Japan’s position on issues of coverage and membership.

The outcome of this shift in strategic perceptions was the joint proposal by China and Japan calling for the East Asian Free Trade Area to cover goods, services and investment, i.e. an agreement which brings in Japan’s WTO-plus interests. Since the outset of negotiations on the EAFTA, Japan has been focussed on the investment related issues (and rather less interested in tariff liberalization). Since Japan has few tariffs left to cut, and those that remain are in the politically sensitive agricultural area, any EAFTA which focussed solely on tariff measures would not be of much interest to Japan politically. Specifically with regards to China, Japan has been unwilling to enter an agreement which does not address its concerns about its firms ability to confidently invest in the growing Chinese market — indeed, it is partly for this reason that the bilateral China-Japan FTA remains frozen. However, outside the bilateral negotiations and in the context of the EAFTA, China is willing to discuss Japan’s wider set of economic interests. This year Japan and China have jointly sponsored setting up three working groups to deal with trade in goods, services and investment respectively which will begin work in April of 2012, with the start of negotiations on the final text scheduled to begin in November of next year.

More importantly, the joint agreement virtually concludes the long standing disagreement over membership. China had been adamant about the EAFTA being limited to the ASEAN Plus Three process only, however it appears that the final agreement will include a wider membership than that. The East Asia Summit grouping of Australia, New Zealand and India is clearly the next logical step.

It is likely that Australia, New Zealand and India — each of whom have their own ASEAN + 1 Free Trade Agreement in place — would be brought into the new trade area via the so-called “ASEAN + +” institutional mechanism. While the set up of this mechanism is not yet finalized, it is clear that it will aim to “roll up” the series of ASEAN + 1 agreements. The framework is being negotiated at the ASEAN Plus Working Groups, which are considering rules of origin, tariff nomenclature, customs procedures, and economic cooperation. These will feed into the working groups on trade, services and investment to provide the single template agreement.

Yet there remain some major hurdles. Firstly, the terminology has not been settled, with both the EAFTA and CEPEA still being bantered around. This suggests that the Chinese bargaining position has not been dropped, and there may still be some tussles over the membership. Secondly, while the Japanese and Chinese leaders have directed the bureaucrats to start negotiations, political leadership will be required to sign the agreement into force. However, the Heads of Government only enter the process next year, and in the mean time another flare up in Sino-Japanese relations could put everything back into deep freeze.

Notwithstanding those issues, it is clear that the halting trend towards the realization of an EAFTA is progressing. While there will no doubt be more setbacks, an EAFTA now seems to be more a question of when than if.

A more polished version appears on the East Asia Forum here.

China: Control the gold

2011-12-03T10:06:00.004+09:00

I was reading idly the Annual report on exchange arrangements and exchange restrictions and discovered an interesting little fact about the Chinese monetary system:

By law, all gold produced in China is sold to the PBOC, which in turn sells it on to those wishing to use the gold jewelry, industrial or other purposes. Since most currency in China (like elsewhere) is paper money, the original purpose of the law (to ensure supply of precious metal for coin) is forgotten and this must just be a nice way of taking a cut for the Bank.

It sort of makes sense too in that it forces Chinese mainlanders to settle in RMB. If inflation becomes a bigger problem for people, they will not be happy with that but the government at least keeps control (esp as the standing committee runs the PBOC). Contrast that with what is happening Vietnam as the Dong inflation is driving people to settle debts in gold and other metals.

No doubt there will be other random posts on China shortly...

How to waste an opportunity: Ira Kan

2011-06-05T15:53:00.003+09:00

Kan Naoto managed to survive the no confidence moved against him, in fact he 'won' hansomely with vote of 152 for to 293 against.

Wow, Kan appears to be slowing but surely winning against the influence of Ozawa faction. This is the third major win. Maybe Japan will turn the corner yet!

Or not.

In order to defeat the no confidence motion, Kan had to promise to step down in the near term (undefined).

His win has set himself up as (yet another) lame duck PM in Japan. Great.

Japan is therefore still on course to play the master game of strategic irrelevance - and they are not going to like the cards dealt them.

Sino-Japanese relations: fleeting flirtation or long-term engagement?

2011-05-21T09:34:00.001+09:00

This weekend (21-22 May) the leaders of China and Korea are hosted by Japan for the Fourth Trilateral Summit, the first such Summit since the triple disaster of March 11. As a part of this visit, Wen Jiabao and Lee Myung-bak will travel to Fukushima to demonstrate their nation’s continuing support of Japan’s reconstruction.

Indeed, both China and South Korea have already contributed significantly during Japan’s disaster response in the immediate aftermath of the crisis, providing emergency relief teams and the provision of material support. The large (and unprecedented) level of support that China offered, especially the prompt dispatch of a Chinese search and rescue team, has led some to posit that warming relationships between Japan, China and Korea may be the silver-lining to Japan’s national tragedy. Especially with regard to China, with whom Japan’s relationship slumped precariously after a fishing infraction turned into a territorial dispute in November of 2010, the quake represented for some a possible circuit-breaker.

Certainly there has been an improvement in the relationship at the societal level. China’s media commented very favourably about the Japanese people’s resilience and lawfulness under the extreme duress of the power, food and water shortages – not to mention failing communications and concerns about family members. The Chinese media wondered aloud if China could ever reach such levels of civility. That peers in Asia were viewing the Japanese societal response favourably was a story which was in turn picked up the Japanese media and became a source of national pride for the many Japanese doing it hard. At that moment the empathy and mutual respect between the Japanese and Chinese (and others around the world) was at its zenith.

Yet in the longer term it is very unlikely that the earthquake will mark a turning point in the Sino-Japanese relationship. This is because tensions in the Sino-Japanese relationship are due to more than societal distrust but the basic strategic interests and perceptions of the two powers.

In this context it worth remembering that in the aftermath of the triple disaster China’s full offer of a PLAN hospital ship and expanded rescue team were not accepted by Japan.

This refusal by Japan was due the fundamentally different strategic orientations of the two countries and a (reasonable) lack of trust of the Chinese military in Japanese policy circles, not to mention the political implications of inviting Chinese military personal into Japan to work next to the US forces under Operation Tomodachi. Japanese politicians too would have had some difficulty in explaining a major Chinese presence after recent and damaging disputes – especially over the export of rare earth (a subject that Kan has flagged for discussion during the Trilateral Summit). Japan already made clear its order of preference (and trust) during the crisis, and despite the positive appraisals of Chinese assistance in the media, the fact is that Japan accepted only limited Chinese assistance due to a fundamental differences and competing interests.

Even the initial societal level warming up of the relationship is starting to cool. The Chinese media is reporting negatively on the choice of Fukushima as feature of the Trilateral summit, while discussion is Japan about how to cope a regional order that China is increasing being able to influence and in which Japan will play a junior role is heating up. Opinion within Japan is divided. The influential journalist Yoichi Funabashi has been arguing that Japan must ‘cleave to’ China in the future, but he acknowledges that a reorientation towards China would require political courage – a commodity in desperately short supply.

There is therefore no reason to expect that Japan’s even weaker domestic political and economic situation after the crisis will help to improve the Sino-Japanese relationship in the long term. Rather, despite the current warming of ties at the societal level, the most likely course for this important relationship is unfortunately the reassertion of old and competitive patterns of interaction.

Joel Rathus is a recent PhD graduate from Adelaide University, an EAF scholar and a regular contributor to the East Asia Forum. His other posts can be found here.

Japan and territory, the cat is away?

2011-04-18T14:44:00.002+09:00

As Japanese politicians have turned towards dealing with the reconstruction effort, and with the hawkish Maehara standing down over a scandal, Japan's neighbors are considering their choices.

Alot has already been noted on China's positive and friendly response, more than phone calls, china sent to Japan personnel to help with the disaster in the same way that Japan had sent personnel (JSDF) to China to help during their earthquake in the West. (http://www.eastasiaforum.org/2011/04/15/opportunity-in-crisis-sino-japanese-relations-after-the-earthquake/)

Korea has also been sympathetic. But the Korea defense establish has taken the opportunity to press forward its claims on the takeshima/dokdo islands. see,

http://www.asahi.com/politics/update/0413/TKY201104120653.html?ref=rss
http://www.asahi.com/politics/update/0412/TKY201104120480.html?ref=rss
http://rss.asahi.com/click.phdo?i=83f4ab513f8b7ad000ad7d990a13c63a

Give a man a fish: Japanese fisherman becoming bureaucrats?

2011-04-09T20:41:00.003+09:00

Due to the high levels of radiation found in Squid caught by fishermen in Ibaraki-shi (near Fukushima) a decision has been made not to fish - fairly obviously this is because they can not sell the produce has it is detrimental to public health.

More curiuosly, the local government decided to hire of the fishermen out of work as local government officials for one year. I have no idea what they will do, neither do they.

Compensation is one thing, but taking these men out of the workforce for one year to twiddle their thumbs is not a solution - although in the short term more boots on the ground for reconstruction may not be a bad thing.

http://www.asahi.com/politics/update/0409/TKY201104090353.html?ref=rss

Cross post: Shakedown artists

2011-03-26T10:24:00.002+09:00

Highlights:

US Commerce Dept. used as black mail tool by US companies, esp. towards Chinese.

The role of the USTR and Special 301 in pushing TRIPS ahead by picking off opposing countries and denying them GSP tarriff preferences.

Author: Henry on March 25, 2011 at Crooked Timber.

Via Alex Tabarrok, this Wall Street Journal article is very interesting.

Some U.S. furniture makers and their lawyers have found a reliable way to extract cash from Chinese competitors deemed by U.S. officials to have “dumped” their products in the U.S., selling them at unfairly low prices. Each year since 2006, they have asked the Commerce Department to review the U.S. duties paid by Chinese manufacturers on imports of wooden bedroom furniture. Many Chinese firms, fearing a steep rise in duties, agreed within months each time to pay cash to their U.S. competitors in return for being removed from the review list. “Everybody in the industry in the U.S. and China understands that these payments are clever shakedowns,” said William Silverman, a lawyer representing U.S. furniture retailers, big importers of Chinese products, at an October hearing of the U.S. International Trade Commission. … About $13 million was paid to a group of 20 U.S. furniture makers from 2006 through 2009, according to a November ITC report. The U.S. firms told the ITC that a much larger, but unspecified, amount of money went to pay the U.S. firms’ lawyers.

Not many people realize how much of US trade policy is effectively set by private industry groups, whose interest in free trade, for better or worse, is largely opportunistic. This is especially obvious in the area of property rights. I recently finished reading an excellent report edited by Joe Karaganis on the politics of the piracy debate, which has a good chapter on just this topic by Sean Flynn and Karaganis.

The so-called “Special 301” process, under which the US identifies purported offenders against US-preferred intellectual property standards, is especially open to abuse.

US copyright industries and the USTR have, in key respects, a symbiotic relationship. The IIPA was instrumental in the creation of the Special 301 process, and annual IIPA country submissions furnish the primary and often only evidence on copyright issues cited in the Special 301 reports. In all but a few cases in any given year, the USTR closely follows IIPA recommendations in assigning countries to the watch lists. In 2008, the USTR accepted forty-six of the IIPA’s fifty-four recommendations (84%). In 2010, it accepted all the Priority Watch List recommendations and twenty-one of twenty-four for the Watch List (an acceptance rate of 91%). For the most part, IIPA findings and recommendations simply pass through into USTR reporting.

This close relationship is not an accident. The USTR was created in 1974 to explicitly strengthen the ties between industry and government in trade negotiations. Its mandate was revised repeatedly in the 1970s and 1980s to make the USTR more responsive to business needs and revised further to ensure that it would not be limited or constrained by the provisions of existing trade agreements, such as the GATT and later the WTO. … The 1985 case against Korea, also primarily on pharmaceutical patents, established what one negotiator described as a “blueprint” for the resolution of Special 301 disputes: bilateral treaties, or side agreements, that committed the targeted country to higher levels of patent and copyright protection …

The strategic dimension of these actions grew more explicit in the late 1980s as the Uruguay Round of GATT negotiations neared its conclusion and set the stage for a new international trade agreement—the eventual WTO. Developing countries, led by India and Brazil, supported the strengthening of existing provisions on counterfeiting but opposed the inclusion of broader IP rules in the form of TRIPS. … The United States placed five of the ten “hard-liners” opposing TRIPS in the first Special 301 Report in 1989—Brazil, India, Argentina, Yugoslavia, and Egypt. Two years later, India, China, and Thailand became the first Priority Foreign Countries, triggering Section 301 investigations. Brazil lost its GSP benefits in 1988, Thailand in 1989, and India in 1992—all on matters related to pharmaceutical patents. US pressure, combined with assurances that TRIPS would end such unilateral action, eventually broke the anti-TRIPS coalition. … Congress [then] amended the trade statute in 1994 to specify that even countries fully compliant with TRIPS might lack “adequate and effective” IP protection. The amended statute authorized the use of Special 301 to promote IP and enforcement policy beyond what was required by TRIPS.

The USTR has direct ties to industry through various advisory committees. … long-standing revolving door between the USTR and its industry clients, which creates a reward system for USTR officials who cater to industry requests …

Flynn and Karaganis suggest that the process has become slightly more open in the last couple of years – countries which are targeted now have a little time to present their counter-arguments. But it is hard to escape the conclusion that the USTR is effectively an instrument through which US businesses can use government processes to threaten harsh retaliation against countries which do not conform to a very specific and narrow set of intellectual property standards, that favor US producers, but are not at all in the interests of these countries themselves.

Unfortunate event in East China Sea

2011-03-10T08:37:00.002+09:00

Maehara Seiji pretty made his name on the back the Senkaku dispute September of last year. His name was mud in Beijing, which ironically, is an advantage of sorts. The newly appointed Matsumoto Takeaki is unlikely to has the punch to be able to take the fight to Beijing over the East China Sea issue and will be a responsive player. As much as anything, the upcoming trilateral meeting between the CJK make making a stand on the start of production (extraction of Oil) by China's state owned SNOOC in the disputed areas (Shirakaba) too difficult I suspect.

While Chief Cabinet Sect. Edano has noted with concern the development of CNOOC going into the area to start production, he is waiting before responding.

I think Maehara would have picked up the phone and starting making a fuss already.

http://www.asahi.com/politics/update/0309/TKY201103090225.html?ref=rss

Maehara Resigns

2011-03-08T06:46:00.001+09:00

Maehara seiji has resign as Foreign Minister.

Initially I expected he would fight off the charges, which are frankly a little ridiculous. If Ozawa can fight through decades of scandal, then Maehara certainly could whip this obviously minor case.

However, it is clear that Maehara is in for the long game (perhaps a little too obviously!). His decision to steep down reflects his belief that Kan will not be able to win the next election, which is now more likely to be called than ever.

Evidence: on the way out, Maehara very statesman-like said "an election would be for the national interest" - here.

Gillard to Tokyo: pushing on a string?

2011-02-27T14:40:00.003+09:00

Julia Gillard will visit Japan from April 20 including a summit with Kan Naoto. It is unlikely however that Australia’s efforts will result in any major deals being brokered at this meeting as Japan’s ruling party continuing to fragment and as Japan’s limited political dynamism is hit further.

The major issue which both Australia and Japan would like to be able to resolve is the Free Trade Agreement negotiations. These negotiations have been tortured, with liberalization of agricultural goods being the chief problem. The negotiations, which began in 2007, were most recently this February and marked a return to the table after nearly ten months hiatus. Yet the official negotiators from Japan and Australia were still unable to make a break through, prompting Trade Minister Kaieda Banri to call for the negotiations to be resolved at the political level. This is an appropriate response, as the Agreement was initially proposed by Prime Minister Abe Shinzo as part of a political calculus of the benefits of such an agreement to both countries. It is in this context that Gillard is making her four day long visit to Japan, a visit aimed to resolve at the political level the issues still outstanding in the FTA.

But while success would be quite a coup for either leader, there are good reasons to doubt that visit may be in vain.

The DJP is imploding over the issue of trade liberalization. Kan Naoto has been leading with a concept of “re-opening Japan”, the flagship of which has been the joining Trans-Pacific Partnership. It is important to understand that Japan-Australia FTA is perceived as a litmus test for the viability of including Japan in the TPP process. Thus Japan’s membership in the TPP will come only when others are convinced that Japan is serious about comprehensive liberalization of trade – including the political sensitive agricultural sector.

But already the Party has split on the TPP issue. The former Minister of Agriculture, Forestry and Fishery Yamada Masahiko is leading a group of parliamentarians bitterly opposed to the TPP. The group, which is called the “Serious Consideration of the TPP”, is nearly 180 Diet-men strong and announced its establishment on the 24 February. Moreover, the Group has organized a series of public hearings on the dangers of the TPP led by a prominent economist Uzawa Hirofumi which directly undercuts the Kan administration’s public information session in the rural regions which address the benefits of agricultural reform. The opposition to the TPP is also a stalking horse for opposition to an Australia-Japan FTA which includes agriculture. Indeed, Yamada Masahiko (Ozawa faction) is strongly opposed to such an FTA and has written publicly about the costs of signing onto an FTA with Australia.

Kan’s leadership of the DPJ is also in question. While there is no obvious challenger to leadership of the Party, the most recent public polling showed low support for the Kan administration (21%). The fact that Kan Naoto might well lead the Party to defeat in the next election has made it difficult for Kan to prevent individual parliamentarians from taking up local issues at the cost of national strategy. While the announcement of an FTA with Australia, as a prelude to joining and eventually acceding to the TPP, might help Kan somewhat recover political momentum, it is unlikely to make a major difference and as such Kan is likely to focus his efforts and what remains of political capital elsewhere. Moreover, although the current administration wishes to reverse the current situation of rural votes (which overwhelming, even passionately oppose FTAs) holding a disproportionate influence (a rural vote can be worth an ‘unconstitutional’ 2.5 urban votes), were an election to be called it is likely that the DJP would lose its majority and hence government.

In conclusion, it is unlikely that Kan Naoto and the leading DPJ have the political will (or coherence) to be able to meet the expectations of Julia Gillard and the ALP on the degree and type of liberalization within the FTA. Rather, the summit is likely to produce an agreement on Japanese investment into Australian rare earth and some other bureaucratic matters (replacing Mclean).

Border Bias, totally reasonable?

2011-02-22T09:13:00.003+09:00

The Scientific American is running a piece on Border Bias.

Essentially noting that political borders matter for decision making in ways that are not entirely rational. Of course, political factors are rational after their own fashion, but requires a different type of thinking - and pol. sci. love borders! (not the bookshop, we shop bookdepository.com.)

The experiment had an(hypothetical) earthquake strike within 200 miles of one's possible new house - one choice of house was in state of the quake and one choice out of state (but both 200 miles from epicenter). Unsurprising people generally chose to be out of state althought the risk of another quake is identical. The authors are surprised.

They should not be. Queensland is going to be doing a lot of budget heavy lifting with knock on effects in education and health due the flood - and if the quake occurs in your state then you suffer these indirect effects which would be better to avoid by being out of state- even if risk of future quakes is identical.

perfectly reasonable really

Inequality and Crisis

2011-02-20T07:14:00.003+09:00

There is no doubt that economic inequality breeds societal instability. Recent events in the Middle East and in particular Egypt correlate strong with youth unemployment/underemployment, and China remains on guard against inflation wiping out gains of its poorest citizens for the same reason.

Indeed, one could argue that relovultion is is function of just two variables, inequality and populations density - although I had better write a paper on that rather than just assert it.

An arguement is now emerging in the United States, a country with high inequality by OECD (Developed Western) standards, that the GFC is linked to inequality.

The arguement runs, " Poorer Americans’ debt troubles, the logic goes, stemmed in part from their efforts to bridge the gap with the rich by borrowing money. A flood of cash from China, together with enterprising bankers and mortgage subsidies from the U.S. government, created the perfect environment for those efforts to get out of control."

That is as maybe, but I think it overlooks the role of inequality among US richest households. The Gini CoEf is steeper among the top 1% than top 5%, 5 is steeper than 10%, which steeper than 25% etc. In other words, the higher you get the more 'disadvantaged' you feel (so keep it real chump).

Borrowing to finance lifestyle beyond their means is a more forgivable moral failing among the disadvantaged or poorer members of the community, but it is not limited to them. The borrowing I believe was societal wide.

With money coming in on bargain basement interest rate, both rich and poor alike borrowed to satisfy there immediate demands - be a new TV or new Pink and Gold Humvee.

http://blogs.wsj.com/economics/2011/02/19/number-of-the-week-the-perils-of-inequality/?mod=WSJBlog&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29&utm_content=Google+Reader

Circle is complete

2011-02-19T16:11:00.002+09:00

For those of you who still haven't read Andrew Sheng's From Asian to Global Financial Crisis - get onto it.

Ben Bernanke is now claiming that it is effectively "hot money" Foreign Investment which caused the GFC in the US. This is a photo-stat of Asia's arguement in 1997-8 during their Crisis - which resulted in Asia as a collectively moving away from the washington concensus and capital account liberalization. The US's complaint is ironic, but also helps to explain why a new concensus on capital account liberalization is emerging. Now liberal investment would be great if you can trust the pricing mechanism - the global credit rating agency have proven their useless so amazing that this is unlikely. The irrational bias of investor towards their home market is starting to look pretty sensible.

Quotes

Ben Bernanke - "Foreign investors’ hunger for safe US assets helped to cause the 2007-2009 crisis by encouraging banks to turn risky mortgages into AAA rated bonds, Ben Bernanke, US Federal Reserve chairman, argued in Paris on Friday.

“The preference by so many investors for perceived safety created strong incentives for US financial engineers to develop investment products that ‘transformed’ risky loans into highly rated securities,” said Mr Bernanke, presenting a new research paper that he co-wrote with other Fed economists."

This AMAZING anecdote courtesty of the FT.

http://www.ft.com/cms/s/0/eea1957c-3b5e-11e0-9970-00144feabdc0.html#axzz1EO1UIahc

Cross listing,

2011-02-18T07:13:00.002+09:00

Another knock on effect of the GFC: Stock exchanges merge as companies seek to both signal higher credibility and maintain access to working capital. This means that global exchange markets might shrink to just 2 or 3 main players. NYSE is a shoe-in, but London vs Deutsche is less clear cut.

Singapore, Tokyo, Shanghai and Hongkong share Asia and is a real toss up for who will get the Asia's capital capital. Part of the reason why this battle will take a while, "Asia's lack of a regional regulator means it hasn't undergone any of the cross-border market liberalization measures seen in the west such as Europe's Market in Financial Instruments Directive (MiFID). This means there is a huge fragmentation of rules and regulations between markets, limiting the scope for cross-border trading and reducing liquidity."

By the numbers,

The Shanghai Stock Exchange and BM&F Bovespa, more on Brazil and China at http://www.eastasiaforum.org/2010/10/28/china-a-motivator-for-latin-america/
this is an interesting story.

Deutsche Börse and NYSE Euronext, with interesting historical parallels. http://www.cfr.org/economics/big-bourse-mergers-back-but-hold-hyperbole/p24112

the London Stock Exchange and Toronto’s TMX Group,

SGX of Singapore and Australia’s ASX are all in takeover talks.

see,

http://www.reuters.com/article/2011/02/14/us-asia-exchanges-idUSTRE71D0Z120110214?pageNumber=2

From: http://www.ft.com/cms/s/0/7c6d8f9a-3a07-11e0-441-00144feabdc0.html#axzz1EFzVNauD

Babbage's thesis is to dismember

2011-02-15T13:40:00.003+09:00

It is good to know that in a rapidly changing strategic environment, some things do not change. Like Ross Babbage's thinking on dismemberment.

Here is an excerpt from his 1978 Doctoral thesis, which observes that Australia should consider (he does not expressly recommend) a global strategic deterant capacity (nuclear weapon) capable to "tear a limb off" a superpower aggressor (read, Soviet union). For the record, Dismemberment in normal english means 'deter by being able to so damage the oppopent as to make any operation against Australia too costly to consider' (my paraphrase). (...and are't we that already?)

Arm ripping returns in his response to the 2008 Defense White paper, as Dobell notes here.

An in current Kokoda Paper he advocates for "asymmetric operations against China, host American bases, develop long range persistent strike capabilities and acquire nuclear attack submarines." Which is to say, a strategy premised on damaging so badly the superpower aggressor (now read China) as to deter attack aka Dismemberment.

Now the circle is complete

http://www.lowyinterpreter.org/?d=D%20-%20Ross%20Babbage%20and%20Australia%27s%20strategic%20edge

We don't owe you anything

2011-02-13T15:24:00.002+09:00

Chinese Foreign Ministry Spokeswoman Ma Zhao Xu (馬朝旭) has gone on record stating that Japan does not have any grounds to claim damages for the Senkaku/Diaoyutai island collision.

Reason: Because China asked Japan for compensation.

This response is due to the Japan Coast Guard recent delivery of a demand for compensation to the (now heroic) Capt. Zhan.

Still, Ma is tame choice for a response. At least China did not wheel on the Ultimo Ratio Regis known as Spokeswoman Jiang Yu (scary - watch her in action here).

http://www.asahi.com/politics/update/0213/TKY201102120264.html?ref=rss

Then who is the b*tch?

2011-02-13T12:25:00.003+09:00

Maehara Seiji, MOFA Minister on Japan, discusses the Russia-Japan relationship as similar to Male-Female relations. Reason: "Because a Peace Treaty (still unsigned since 1945) will be based on the mutual feeling of how we important we are".

Maehara adds, "But those islands are so ours, boy-o"

http://www.asahi.com/politics/update/0213/TKY201102130029.html?ref=rss

Japan and Australia FTA resumed

2011-02-01T10:04:00.001+09:00

After the China-Australia FTA negotiations were restarted last year, the Japan-Australia FTA has also resumed. Maybe a break was for the best, certainly demonstrated that Australia can wait.

More interesting, after Kevin Rudd trip to Japan last year and the positive sounding he got on the FTA, there is evidence that Japan is trying serious to get the negotiations up.

Maehara Seiji in his recent speech to Diet on Foreign Policy (here) called for early conclusion to negotiations with Australia. Maybe by the end of this year we will have the framework agreement in place.

Crowding out the government!?

2011-01-13T19:51:00.002+09:00

I post this mostly for amusement, but it raises serious questions.

Queensland, and Brisbane (wher eI came from) has been hit by a massive flood - so large that even the BBC news lead with it.

Now there are appeals for people to contribute charity to help rebuild.

Fair enough, but are private contributions really good? Consider, that these are Tax Deductable.

This is therefore the private sector crowding out the public section by reducing federal tax income and increasing the Queensland income. It simply can not be efficient to do this, the charity is fine but making it tax deducable is inappropriate in this case as it will warp rebuilding priorities.

I expect to be a popular man in canberra?

Japan needs space, no space given

2010-11-10T08:53:00.002+09:00

After President Medvedev's visit to the Kurils, or Northern Territories a few days ago on the back of China's protest in the East China Sea, Japanese people and policy makers got even more rattled. Not withstanding the legality or otherwise of claims (see me here), it is clear that everyone needs to calm down and stop being provocative.

In that regard, a big 'Thank You China' for sending another survey ship into disputed areas.

http://www.asahi.com/politics/update/1109/TKY201011090552.html?ref=rss

This is just dumb. The fact that the Chinese survey ship turned around and left once requested by the JCG shows that China is at least a little sensitive to the fact that it can ill afford another run in Japan. But if these type of events increase, another 'accident' is almost guaranteed.

TPP vs the Farmers:

2010-11-02T09:19:00.003+09:00

In recent weeks, Kan Naoto has sounded out the possibility of Japan joining the TPP.

Today, the GOJ declared that an Agriculture Reform Promotion Headquarters would be set-up within the National Strategy Office. Together with other reforms to this Office, it is clear that Kan is gunning to run through this office the painful reforms necessary to get Japan on the TPP bandwagon and open up the Japanese economy.

Yamada and other pro-Agriculture voices within the DPJ aside, Kan at least seems determined to push it.

http://www.asahi.com/politics/update/1102/TKY201011010535.html?ref=rss

Dietmen view video of Senkaku collision

2010-11-01T16:29:00.002+09:00

The Japanese Diet today saw the video taken by the coast guard of the collision. see, http://www.asahi.com/politics/update/1101/TKY201011010172.html

At least the first collision at 10.15am seems to be a deliberate "attack" act. The Japanese Yonakuni (1350t) is nearly 10 times the size of the Chinese fisher (166t). Damage taken by the Yonakuni is to the aft of the boat belie a Japanese "attack" on the fisherboat (Bin Pu Yu, I think).

The second collision is harder to say, as the Fishermen were clearly running home with a Japanese boat in pursuit. There is a chance that Japanese boat "Mizuki" tried to cut off the BinPuyu. Again, the marking suggest differently (drag in wrong direction) but I am not a forensic analyst. It is likely however that the Binpuyu could have either steered to avoid or simply decelerated to avoid the collision.

The 11 hours wait between stopping the boat and arresting the captain also suggest that the MOFA were involved, as initially thought. The decision potentially an act of Maehara Seiji.

The location of the collisions is also revealing, as is the site of the formal arrest. The decisions here suggest that Japan clearly thought it had authority although see, http://www.eastasiaforum.org/2010/09/30/china-japan-trawler-incident-japans-unwise-and-borderline-illegal-detention-of-the-chinese-skipper/

Maehara scraps the 1978 understanding

2010-10-21T18:58:00.002+09:00

Foreign Minister Maehara scraps the 1978 informal understanding (with Deng Xiaoping) over the Senkakus.

Ai ya~

http://www.asahi.com/politics/update/1021/TKY201010210259.html

Yasukuni calms situation (reverso-land post)

2010-10-19T13:27:00.002+09:00

Event: 66 Japanese Diet-men go to the Yasukuni Shrine (19OCT2010)11am.

Argument and Significance: This is likely to inflame China nationalist passions by conflating territory and history issues in Sino-Japanese relations. This will impact on ability to reach a political conclusion to the dispute (dragging it on).

Analysis: As Anti-Japanese protest continue to rock China (esp. Sichuan province), the decision of a number of Japanese Diet-men to visit the Yasukuni Shrine today is likely be have negative effects.

The first and most important is simply that it puts unneeded pressure on the Chinese Gov't which already calling for calm.

Secondly, it undercuts Japan gov't's own message of remaining calm, both to its own citizens and to the Chinese side.

Lastly, by conflating history and territory issues, Japan is making it easier for the East China Sea to go from a failed attempt at a 'Sea of fraternity' to an outright 'Sea of Hostility.' The Sea of Hostility is most likely to be of an unofficial nature initially, but no doubt Chinese nationalists and Japanese nationalist will be getting in their boats soon. While China has been preventing such boats from launching thus far, the CCP's ability to continue doing so is uncertain.

Senkaku flare up prospects: China pressures Google?

2010-10-14T08:37:00.002+09:00

While the Senkaku issue has mostly blown over, the possibility for it to flare up is marked.

Firstly, today the Diet Budget committee agreed to view the footage of the actual collision - although no decision is yet made on whether to release it. I imagine it will be released however, in time and one way or another. The timing of that decision counts, too early and flare up is possible.

Secondly, Japanese media reports that China has asked Google to list the Senkaku islands under two names, the Japanese one and Diaoyutai (chinese name) - in light of the apparent territorial dispute.

After Google's fight with China over access to the market and freedom of speak, the company has less to lose by saying no but absolutely nothing to gain either. Google will probably dual list the island on google maps as asked.

Lastly, the rare earth export issue is still not resolved. This one is really bizarre and the world needs to know what is going on here.

http://www.asahi.com/politics/update/1013/TKY201010130515.html?ref=rss

AMRO, a Thai Head?

2010-10-11T09:43:00.002+09:00

Bandid Nijathaworn, the Bank of Thailand's (Central Bank) deputy governor for monetary stability, will resign in order to position himself for a bid as the head of AMRO - the CMIM's secretariat. Being as Thailand initially championed the idea (Chiang Mai Initiatives says it all) but was denied the secretariat due to (continuing) internal civil unrest, it is conceivable that Thailand could win the post of Governor (or whatever) of AMRO as fair dues.

That said, without Thailand firmly behind Bandid (unsure how much time PM Abhisit Vejjajiva has to push his country-man forward) and not being a greater contributor to the fund than other tier 1 ASEAN members, his chances are little more 50:50. Expect to see other challengers come forward.

Senkakus, Japan public rattled

2010-10-01T11:45:00.002+09:00

I am still thinking through this months East China Sea issue. But for the time being some observations on Japanese public's view on the issue.

It is no longer just the usual right-wing hacks which are calling China a threat and demanding a more robust response to China’s rise, but now also the main stream which is moving into an anti-China mood.

Newspapers: The left of center Asahi Newspaper run nearly five pages of its Saturday issue with the focus on Japan’s failure to stand up to China. Yomiuri has been averaging about the same of the last week, although less hawkish that than Asahi.

TV: The popular movie director Beat Takeshi joined the chorus on Newscaster on Saturday 25th, leading discussion on China as threat together with his guests. Newscaster probably matters more for public opinion than NHK in certain sections of the less educated in Japan. Interviews with Japanese reveal that most are unhappy with their government's handling, and would prefer an more robust response in the future. Statements of fear and anxiety towards China also are shown from everyday Japanese.

Street-level observations: At train stations and on the Shinkansen, electronic billboards flash the latest news about the Senkaku islands and people stop to look and voice concerns.

Official: Official results of Japan’s public sentiment towards major countries is due out in December and no major media have yet conducted an emergency poll. (still looking).

The results of a (highly unscientific) poll conducted in China on Sino-Japanese relations which revealled 93% of Chinese think the tension will be long term is being reported as news. A feed-back loop of 'they hate us, so we can not trust them' is starting up in japanese media.

FTAs trigger anti-dumping

2010-09-15T09:48:00.002+09:00

Prusa and Teh have just done the number crunching to show what was suspected all along -that FTAs trigger anti-dumping disputes between non-members. Data replicated below and link.

Table 1. Antidumping activity by FTA status

	Target Country
	Non-FTA Country	FTA Country
Pre-FTA	506	370
	(58%)	(42%)

Post-FTA	3554	375
	(90%)	(10%)

http://www.voxeu.org/index.php?q=node/5515

At this stage however, Prusa&Teh have not disaggregated their data, and there is clearly alot more here. I would be interested to see the pattern of disputes and FTAs in the Asia Pacific, in any case.

It seems that FTAs really do run trade and politics concerns together - at some stage it will be asked whether this is rational. FTA as an investment policy anyone?

Australia: not worth it

2010-09-11T14:28:00.002+09:00

Japan's Cabinet Office which runs the Foreign Policy Opinion Polling has had its budget slashed.

One of the unfortunate results is that polling on Japan's popular sentiment towards Australia will not be conducted this year - or subsequent years.

Currently only five countries are identified for specific treatment; America, China, Korea, Russia and India. Australia and New Zealand are not specified, instead being called 'pacific countries'.

This comes as a blow for those interested in Japan-Australia relations, and alternatives will have to be found.

Japan's priorities shifting?

2010-08-26T09:50:00.003+09:00

Yesterday (25-08-2010), Japan's Foreign Minister Okada issued a new policy to shift 100 diplomats from the developed countries to new emerging countries. The re-focus away from traditional western powers towards the likes of India, South Africa, Brazil and Turkey will be manifested institutionally in the creation of a "Emerging Countries Bureau" at the Ministry of Foreign Affairs.* In particular, the Japan's embassy in the EU (economic branch) is to have its numbers reduced to make way for increases elsewhere.

Citing the development of the G20 as a forum in which emerging powers are holding great sway Okada said, "as a power shift in the world economy occurs, so too does the Ministry staff. Moving quickly is very important."**

There is also movement to bring in the influential (but not ministry-level) institutions of JETRO, JBIC, and JICA under Foreign Affair's control by bundling them in with the other embassy functions.

See article here.

* Not the first Bureau that Okada has set up, also the 'FTA Promotion Bureau' has been significant.

** "世界経済のパワーシフトに応じて、外交の人員も変えていく。迅速に行っていくことが非常に大事"

Status and Saving

2010-08-11T08:53:00.004+09:00

The house-hold saving rate in the US is soaring, up from about 1% prior to the crisis to nearly 6.4% this quarter. Without dwelling too much on whether this is sufficient, the mechanics of why the rate is changing is worth thinking about.

Indeed, a crisis is usually associated with growing debt. No doubt the US government is doing so on behalf of households, but it does not follow necessarily that the household sector saving rate would automatically increase. Indeed, in a globalized world it is possible that US government, firms and households might all opt to save less.

I am beginning to think that house-hold rate increase in the US is only in part a rational response to economic conditions (i.e. increased uncertainty), rather a more sociological phenomena. To whit, people are starting to save as an expression of their status, identity and morality.

Whereas before, as the US became a society of leisure and consumption became a conspicuous marker of status, the new marker of high status is reserved to 'saving.' Saving can be thought of as conspicuous in terms of the goods and services foregone. Saving is now a marker of moral fiber (aka high status) whereas before it was scoffed at. Indeed, as one bank ad claims, "saving is the new spending."

Video

(Quite why a bank is promoting this, and people following another avenue for thought).

Moreover, the new savers are not in general the lower class I imagine - but rather aspirant middle class. These new savers in the US are also likely to be well educated and highly skilled, circumstantial evidence for which might be found below.

http://www.nytimes.com/2010/08/08/business/08consume.html?src=me&ref=general

My thoughts concluded, saving as a social activity? The concept certainly challenges the rational model and suggests that there is an extra social variable in determining when the US pulls itself out of its current economic problems.

2010-08-05T15:58:00.002+09:00

I dug this chart out of data360 looking for something else, it shows the cost of torts relative to the US economy.

At nearly 2%, the US has to be the world's most litigious society.

Australia seems be heading the same way, discussion of tort costs outstripping GDP growth (no evidence on the site). Peter Gordon's blog further quotes from the Fin Review a comparison with other countries (2004);

Denmark 0.4
UK 0.6
France 0.8
Canada 0.8
Japan 0.8
Switzerland 0.9
Spain 1.0
Australia 1.1
Belgium 1.1
Germany 1.3
Italy 1.7
U.S. 1.9

Interesting, eh?

The US, ASEAN and China: a new alignment emerging?

2010-07-29T23:33:00.000+09:00

In November of last year, President Barack Obama pledged that he would be a “Pacific President.” While the audience in Suntory Hall may have wondered about the content of that statement few in attendance doubted the sincerity or conviction of the President. As relationships between the US, ASEAN and China have been re-drawn, especially after latest series of ASEAN hosted diplomatic meeting in Hanoi, the meaning of a Pacific President is starting to become clearer. Three sites of change in particular warrant special mention; the East Asia Summit, the South China Sea and the Korean Peninsula. In all three cases, the United States and ASEAN states are becoming closer, while China is finding itself distanced from decision-making. Put more directly, the early 21^st century phenomena of China-ASEAN relations being closer that US-ASEAN is reversing itself.

This realignment can firstly be seen in the United States advancing its claim for a seat at the East Asian Summit. Last week the US received an expression of general support from the Foreign Ministers after the Informal Consultation Meeting and Singapore’s Foreign Minister George Yeo later indicated that ASEAN has already decided to include the US in the EAS. Hilary Clinton’s determination to return to Vietnam in October for the EAS together with Obama being scheduled to attend the next year’s EAS in Indonesia suggests that the US is confident that its accession is assured over the medium term. As a part of this process, ASEAN Ministers also welcomed the decision to include the US in the first ASEAN Defence Minister's Plus with Eight Dialogue Partners scheduled for October.

Unsurprisingly perhaps, the only player to not greet increased US involvement in the region warmly was China. China’s Foreign Minister Yang Jiechi was quoted as saying that China "took notes with open attitude" of the ASEAN proposal for an expanded EAS and "look[ed] forward for consultations" with ASEAN on subject (the Nation, July 22). But while China is dissatisfied with the direction the EAS is taking; this is a battle it already knows it has lost. As Wu Jianmin (a member of the Foreign Policy Advisory Group) observed last year, ‘We know that China could not stop the US if it really wants to join the EAS.’ Indeed, according the declaration establishing the EAS, membership is determined by ASEAN alone – and while China is influential it simply can not veto a proposal (unlike in UNSC).

Moreover, China has seen the US and ASEAN draw closer on an issues of major interest to it, the territorial disputes in the South China Sea. Secretary of State Clinton’s identification of this issue as a “pivot” of regional security brings the United States back as a player after more than a decade of diplomatic passivity (to China’s notable discomfort).

The emerging US-ASEAN-China realignment can also be seen in Clinton’s proposal (together with 12 other Asian nations, including the host Vietnam) for a dispute resolution mechanism to be established. Such a mechanism would build on (or over) the 2002 Declaration on the Conduct of Parties in the South China Sea signed between ASEAN and the PRC. This Declaration can essentially be interpreted as a response to the 1992 ‘Law on the Territorial Waters and continuous Area‘, and reflects an agreement to shelve the issue rather than resolve it – hence the lack of a dispute resolution mechanism. ASEAN efforts to move from ‘shelving’ to ‘resolving’ this issue have been systematically thwarted by China, and so it unsurprising that China would again register dissatisfaction. China’s Foreign Minister Yang Jiechi noting, “turning the bilateral issue into an international, or multilateral one, would only worsen the situation and add difficulties to resolving the issue.” (WSJ China rebuts Clinton). Perhaps Yang meant to add “for China.”?

China’s 1947 Map: basis of the South China Sea Claim: fat dotted lines as limit of territory.

Lastly, this re-alignment can be seen in US-South Korea relations and posturing in the ARF over the sinking of the South Korean corvette, the Cheonan. Again China and the US found themselves in opposite corners over this issue, China reportedly working to remove references to the sinking as a North Korean attack. This disagreement over wording caused adoption of the Chairman’s statement to be delayed a day. Korea’s growing frustration with China’s role in diplomatically supporting the North has, similarly to ASEAN, caused South Korea to look to its traditional security provider, the US. This week’s war games off the Korean peninsula, while clearly focussed on the North, have caused concerns in Beijing. Yet notwithstanding the repositioning of the nuclear powered aircraft carrier the George Washington on the East side of the peninsula, the US and Korea have been willing to disregard China’s warnings. Intriguingly, Japanese officers are observing the joint U.S.-Korean exercises.

In conclusion, a realignment is underway in East Asia. Increasingly, ASEAN (and Korea) are moving closer to the geographically distant US, while China is finding itself surprising distant from its neighbours.

Fedfail Australia - RB Success!

2010-07-29T12:33:00.002+09:00

Further to the previous post on the US federal reverse failing its own targets, and a comparison to the Australian experience. This graph show inflation back within the target zone. Which together with Australia's unemployment rate of nearly 5% indicates a 'Fed (rb) success.'

Graph from Peter Martin's Blog.

Klassic Krugman: Fed Fail!

2010-07-22T09:35:00.005+09:00

An amusing graph by Krugman, with even more amusing assumptions.

It is called the FedFail index, and shows how far core economic indicators (inflation and employment) are from the Fed's targets. It is calculated by "1.3* ABS(unemployment – 5) + 2* ABS(core inflation – 2)." And looks like:

Having read through Rudebusch (San Fran Reserve)'s letter, I understand very roughly were Paul is getting the weightings of 1.3 and 2 for inflation and employment. But there is clearly a value judgement implicit in these weighting - i.e. employment more important than inflation. An unsurprising value judgement given Paul's politics perhaps, but something to be leery of.

Additionally, it is likely that the target for inflation and employment at the Fed has shifted - and it seems clear that they are more interested in reigning in inflation than employment.

If I get truely bored this weekend I might try to knock one of these up for Australia, see how we stack up.

For more see,

http://krugman.blogs.nytimes.com/2010/07/21/the-fedfail-index/

http://www.frbsf.org/publications/economics/letter/2009/el2009-17.html

Tachi Agare Australia!

2010-07-18T14:16:00.003+09:00

In response to the ALP's "going forward" rhetoric the Liberal Part have come up with "standing up Australia."

May I be the first to welcome "Tachi Agare Australia."

CMIM : Phillipines an equal.

2010-07-17T19:31:00.000+09:00

When the CMIM was declared in December of last year a political decision was made regarding each countries' contribution and multiplier. Essentially a three tier system was set up for the multiplier (the multiplier determines how many times more than the contribution a given country can access). The multiplier also determines were one stands as a giver or taker of resources and is negetively correlated to contribution - it is therefore a marker of a rule giver or taker for the CMIM as a whole.

Those with a multiplier of 1 could not extract more from the CMIM that they put in. China, Japan and Korea as the suppliers of the international public good are on this top tier. On the other extreme are the undeveloped ASEAN members (the CLMV plus Brunei) which have a multiplier of 5.

Then there are the developed ASEAN-5 members (Indonesia, Malaysia, Singapore, Thailand and the Philippines) with multipliers of 2.5. Until May, the ASEAN-5 countries contributed 4.77 billion, except the Philippines (3.6). However, at the ASEAN Finance Minister's meeting in Tashkent saw this be revised (paywalled). The ASEAN-5 (with 2.5 multipler) now have a uniformed contribution of 4.5 billion, with the Phillipines commiting more and the other pairing back their commitments.

This represents a victory of sorts for ASEAN cooperation. As "the four other ASEAN founding states had agreed to an interim arrangement to temporarily cover part of the Philippines’ obligation to the fund, pending sufficient levels of gross international reserves (GIR) to cover this regional commitment, a BSP officer explained yesterday." On the other hand, the fact that the other ASEAN countries had to reduce their commitments demonstrates that the NEA:SEA 80:20 split rule is still in force. Certainly neither China or Japan would want to reduce their commitments - while ASEAN is still more interested in what they can get out of the CMIM than what they can put in.

Before the Phillipines could agreement to expanding its commitment, it was important the its reserves be in a healthier position. Thus it was only after "The country’s GIR rose to $47 billion as of end-April, enough to cover 9.3 months of imports of goods and services. It is also equivalent to 11.8 times the country’s short-term external debt based on original maturity" that the commitment could be made. But it is worth noting that the Philippines can only source 11.38 billion from the CMIM, enough to help in the event of short-term liquidity shocks or balance-of-payments difficulties but far from what would be needed to decouple from the IMF

Just a thought but as the CMIM pact does not require an upfront transfer until after a swap request has been approved, I can not see why the Phillipines was not in position to start at 4.55 from the outset.

h/t the emerging scholars who encouraged me to restart this project

Whaling: No news is good news.

2010-05-28T17:21:00.003+09:00

Today the Australian government decided to take the Japanese government to the ICJ over the issue of research whaling.

As the Australian reported, both Smith and Okada as Foreign Ministers emphasized the importance of not letting the issue affect the bilateral relationship. While this decision is no doubt a little foolish strategically - as Lowy's Cook noted today- this folly is offset but the genuine lack of interest in the issue by Japan as I have suggested earlier.

Evidence for this is the fact that 'Australia takes Japan to ICJ over Whaling' did not break on the main page of the Yomiuri Shimbun's online top stories for any length of time (3 hours perhaps), and was pushed out by the 3pm update by events in Franch, Iran and the NPT. There was a short piece by Singapore based journalist Okazaki (lifted from reuters sources I imagine) noting only the facts. Fishing around Yahoo news garnered few extra reports, three.

No doubt an opinion will be forthcoming, but I suspect that the focus will be events in court surrounding the Acid Milk Attack by Peter Bethune. I have not seen any television reporting of it yet.

Perhaps this event will prove a game-changer in the bilateral relationship between Japan and Australia. But it still seems unlikely to me.

Chiang Mai Inititative: now in Singapore

2010-04-20T20:07:00.003+09:00

Despite its name and its origins lying in Thailand, the Chiang-Mai Initiative Multilateralization will have its surveillance mechanism, and the attendant secretariat, housed in Singapore.

For Thailand this is a bitter pill to swallow, as since 2000 (when the CMI begun), Thailand was the assumed country to house the secretariat. Political instability has cost Thailand dearly again, as this set-back is more than simply embarassing. Unlike the failure to successfully host the East Asian Summit in late 2008 (a farce that saw the EAS rescheduled four times), failure to win the secretariat will cost Thailand influence in the region. The secretariat would have attracted finance and central bank officials to Thailand, and been a site at which Thailand local officials could interact with the region more widely. Instead, Singapore has reinforced its position as a financial hub.

It will be interesting to see how the surveillance mechanism (so-called ASEAN-plus-three Macroeconomic Research Office or AMRO) will work, it is scheduled for activation in May of next year. Already Zheng Xiaosong, Director General of the International Department at China's Ministry of Finance has noted that, "we should prevent it [AMRO] from intervening in other countries' internal affairs, because the so-called monitoring function is, in other words, only a supervision or performance tracing role in order to provide necessary consultation to relevant countries," - suggesting that China still is - at best - disinterested in developing a rigorous surveillance mechanism, with all problems that brings with it.

Japan’s political vacuum, some thoughts.

2010-04-05T11:22:00.004+09:00

The Yomiuri Shimbun has just released the results of its latest public opinion poll. Questions included “Do you support the DPJ”, and “who is the most suitable as Prime Minister.” Even though the DPJ (together with its coalition partners) holds a super-majority in Diet, and is therefore theoretically in a position to push through any and all reforms it sees fit, slipping popular support threatens to undermine the psychological basis for successful political leadership. Recall that former PM Koizumi’s ability to go over the head of his own party and directly appeal to the Japanese people was crucial to allowing his reforms to be successfully passed. Thus, the answers to the current polling questions are important in charting where the DPJ goes from here. The chart below summarizes the last six months; the blue line is “do not support Hatayama Cabinet.”

As you can see, the DPJ has fallen from a high of 75% support (red) to 33% and the blue line of “do not support” has gone from 17% to 56% - implying that most Japanese have gone from optimism to pessimism about this administration (see also here). That was certainly the feeling on the ground last month, but why?

The poll result supports Tobias Harris’s argument that the problem with the DPJ and its popularity is Hatoyama himself. In response to the question, “who is the most suitable as Prime Minister?”, Hatoyama name comes not first, but sixth. Indeed, even more bitterly for the DPJ, the opposition LDP Masazoe Yoichi comes first at 29%. This result gives Masazoe further ammunition in his struggle to become Leader of the Opposition against the incumbent Tanigaki. Hatayama even scored lower than his Foreign Minister Okada, Transport Minister Maehara, and Deputy Minister Kan but none exceeded 10% approval in any case.

There are various causes of this decline, but management of the Global Financial crisis seems not to be one of them. Rather domestic issues such as the corruption scandals plaguing the DPJ (focused mostly on Ozawa but Hatayama himself is also under scrutiny) are center stage. Problems relating to the relocation of the US military base at Futenma are also important, as is postal savings reform.

But overall the problem is a lack of “getting things done” – indeed 44% of Japanese cited this as the biggest problem of the Hatoyama administration. So rather than focusing on a project such as the East Asian Community which may or may not “succeed” (and how to even measure that), Hatayama’s next few months ought to focus on getting a clear success. Given his domestic situation, there are opportunities and risks for other countries wishing to cooperate with Japan, but overall Japan’s biggest contribution to East Asia will be to get its ship back in order.

Stern Hu: Limits of the evolution

2010-03-30T10:27:00.001+09:00

Coming back to Australia I see how big the Stern Hu corruption charge is, and while no new information is presented here, I will chip in my three cents on China’s Law, Australian identity and the interaction between these two.

Chinese leadership subscribes to the rule by law, rather than the rule of law. The concept of individual rights versus the state is not well established and the basis of western law, that justice be done and be seen to be done is also a principle that has not yet penetrated China. Hence not allowing Australian representatives sit in on hearing as guaranteed under the Consular agreement of 1999.

More than this, China does not distinguish between the state and market in quite the same clear cut (if somewhat artificial manner) of the West. While at the same time, there exists an underlying fear that outsiders, and their even more contemptible Chinese proxies like Hu, will steal Chinese wealth. The first expression of these feelings in modern China might be traced back to the “Three Anti” and “Five Anti” movements of the early 1950s, which targeted westerns and made a ‘sin’ out of “stealing state economic information”.

These ‘old’ ideas seem to have survived in Chinese law. I suspect that the reason for this is the evolutionary nature of change, which allows atavistic traits to survive by dint off their highly infrequent lack of expression – a fact brought on by lack of challenges. For an evolutionary approach to improving Chinese law to work more and more intense interaction with the outside world is necessary – and this is coming. But at the same time, the Chinese side must be willing to let die those laws which do not pass the justice test. Without justice being done, and being seen to be done, it will hard for China and Australia to build a trusting relationship, a relationship pretty valuable to both sides and for the region more widely.

Lowy Linkage

2010-03-29T14:28:00.002+09:00

Lowy Institute's Malcolm Cook and I had an exchange on the state of Japan-Australia relationship. Linkage here,

http://www.lowyinterpreter.org/post/2010/03/17/Japan-Australia-relations-Signs-of-damage.aspx

http://www.lowyinterpreter.org/post/2010/03/23/Japan-Australia-relations-just-fine.aspx

http://www.lowyinterpreter.org/post/2010/03/24/Australia-Japan-relations-are-not-fine.aspx

A good exchange of ideas, and informative for all and sundry. Hurrah.

Reflections on the JIIA Syposium on East Asian Community.

2010-03-18T12:23:00.000+09:00

Yesterday (17^th) at Prince Hotel the Japan Institute for International Affairs convened a symposium on East Asian community. With the opening speech delivered by Hatoyama himself, and a promise to broadcast the entire proceedings both domestically within Japan and overseas, the event was quite high profile. I will discuss the significance of the symposium, and then reflect on some of the speeches and discussions.

Significance of the symposium:

The presenters themselves represented the cream of Asia’s Track II diplomacy. A point underlined by the fact, in addition to handshakes with the PM, Foreign Minister Okada will meet with the international academics after at dinner. Thus, the conclusions of the symposium will find a place (at least informally) in the policy-making process of Japan, and perhaps more broadly.

And interesting side point, there was a similar symposium at Aoyama Gaku-in on Friday (12^th) last week on East Asian community. This symposium was also populated with high level academics, such as Korea’s former Ambassador to the US Han Sungjun and China’s former Ambassador to France Wu Jianmin and Japan’s former Ambassador to the United Nations Taniguchi Makoto. There are simply too many high-level academics in Tokyo this week for sheer coincidence. This Friday meeting was a really by and for Japanese-only affair with most presentations in Japanese, although English translation was provided. Indeed, I was the only white person in the room who was not a presenter, suggesting that the outputs will only travel as far as Japan.

The nationality of the presenters at the JIIA symposium was also interesting and deliberate. First up, the representatives of Northeast Asia, Shiraishi Takashi (Japan), Gong Ro Myung (Korea), and Wang Li Zhou (China). With Hassan Wirajuda otherwise engaged, Tommy Koh (Singapore) was the only representative from Southeast Asia. Then came the ‘others’, TJ Pempel and Ezra Vogel (US), Rajiv Sikri (India) and Peter Drysdale (Australia). The consensus in the group of academics was clearly in favor of the East Asian Summit as opposed to the ASEAN+3, even Wang (China) was careful to note the value and significance of the 16 party grouping.

Hatoyama’s speech:

Hatoyama’s speech was good, but not ground breaking. That Hatoyama would chose to come (he was unable to come to the Friday meet at Aoyama) to this meeting is significant. It is a symbol that he continues to be interested in the EAc idea and is serious about promoting it. While no major policy shifts were announced, he did make clear his determination to “break open” Japan and pursue a kind of regionalism that will impact on Japan and the Japanese rather than an abstract elite level sort of regionalism. This implies a determination to trump local interests, particularly the agricultural lobby, in the pursuit of Japan’s greater economic and political interests in the region.

Panelist’s Discussions:

Shiraishi Takashi, is never bad to listen to. Shiraishi revealed that the Hatoyama administrations had recently approved of a plan to propose a regional scientific and technical community be established at the East Asia Summit. Another part of Japan’s efforts to lift the significance of the 16 party group and assert its leadership no doubt, but a valuable contribution no less. Shiraishi also identified the biggest problem of the East Asia Summit as the lack of any ‘big’ success. In contrast to the ASEAN Plus Three which will activate of the 24^th the Chiang Mai Initiatives, the EAS has managed only a series of moderate, non-headline grabbing initiatives such as the ERIA. I could not agree more.

Gong Ro-myung, put together a simple presentation focusing on one issue – regional security cooperation. Or more accurately, the lack there of. Gong stated that all the initiatives in East Asia on technical issues, economic and non-traditional security (pandemics, disaster relief, piracy etc) was not spilling over into cooperation in security. He contrasted this to the European experience, and urged the regional governments to let spill over occur. This idea is interesting because it suggests that security cooperation would be a nature occurring phenomena arising from other initiatives but that regional governments are actively preventing it. I imagine he was thinking about the North Korea issue, but this point is true to an extent also in Southeast Asia.

Tommy Koh, was challenged by Funabashi Yoichi (Asahi Shimbun) about the whether the ASEAN deserves to sit in the drivers seat of regional integration. Koh noted that the ASEAN position as driver is due to default, acknowledging that ASEAN not the best driver (ie hardly ideal) for integration but the only one that all were comfortable with.

ASEAN was also challenged by Vogel, who asked Koh is ASEAN was perhaps not up to the task of managing a real crisis (I think security is what he had in mind). In defending the honor for the ASEAN, Koh responded (revealing for first time apparently) by relaying a story about cyclone Nargis and Burma. In the aftermath of the cyclone, the military Junta in Burma initially turned down offers of international food aid, causing additional unnecessary hunger, disease and suffering for its people. ASEAN members confront the Burmese foreign minister (on Buddha’s birthday as the story goes) and demanded that he call his masters and tell them that Burma’s decision not to accept aid is harming the reputation of ASEAN, and that Burma must accept international aid. Like, in the event of Tsunami, ASEAN head of states were able to call each other immediately to coordinate response and help set up an international pledging conference.

While interesting, I do not think Tommy Koh’s response actually answered the question – or answered it indirectly. Managing cyclones and tsunami, which are both natural disasters, can be considered crisis management. But I feel the question was about security, and Koh’s deft side stepping of the issue merely re-enforced the view that ASEAN was in fact not up the task.

All in all, a highly interesting symposium. Thanks go to Yuzawa Takashi for setting up and the participants.

Japan-India and Japan-China: Evidence of competition positive but mixed

2010-02-28T17:49:00.001+09:00

It is often suggested that Japan's growing relations with India are due in part to a desire to balance China's influence. Specifically, that during the Koizumi administration, failure to secure top level meetings with China's leaders (due to Koizumi's Yasukuni Shrine visits), drove Japan to build up its relationship with India (and Australia).

A close look at high level meetings reveals that this explanation is flawed.

Source: MOFA Homepage, India and China Basic Information (Japanese).

In particular, the years 2005, 2006 and 2007 saw less visits to China than would be expected. These years too also saw Japan and India sign onto a strategic framework with the US and Australia which clearly is driven by concerns at some level about growing Chinese power. To an extent we could characterize these years as the "balancing" years.

But it is also clear that this pattern is a aberration, the correlation between high level visits to China and India is high. And with the exemption of the years cited above, Japan-India and Japan-China high level visits move in virtual lock-step. Indeed, 2008-09 saw both sets of meeting fall back to the pre-Koizumi levels and balance.

This suggests that continual, long term interests, both strategic and economic, is what motivates Japanese top level diplomacy, and that striking a balance between China and India is one of those interests. While the short term of Koizumi is noticable, acting overly interested in one or either party is just not good diplomacy in the long term.

Another transition: China overtakes Japan as ‘more trustworthy’ financially. Another hit for Japanese identity.

2010-02-21T19:54:00.002+09:00

According to the Weekly Economist (Japanese publication, not the UK one), Japan’s sovereign risk is now estimated to be higher than that of China. In other words, the financial world trusts China more than Japan. That has to hurt.

The insurance premium on Japanese Government bonds rose to .71% in the CDS market as opposed to China’s (.64%) in Jaruary, reflecting the perceived rise in Japan’s sovereign risk. At the same time, major credit rating agency Standard and Poor’s has reappraised Japan’s long-term government bonds down from stable to negative.

This is yet another blow to Japan’s national identity as economic leader of Asia.

The Japanese, and the rest of the world, are waiting for when, not if, China finally overtakes Japan, (as nearly happened last year). Indeed, as Shirashi Takeshi eloquently points out in January’s Chuo Koron, Japan’s politicians are less and less couching Japan’s role in the world as that of an economic leader.

With the partial exception of Koizumi’s general policy speech (Shoshin Hyomei Ensetsu – a set piece annual speech), the most recent Prime Minister’s of Japan have progressively moved from an economic identity for their nation (Keizai Taikoku). In his general policy speech, Abe studiously avoided the economy, talking about an idealized ‘beautiful’ Japan. This shift is also true of Fukuda and Aso. Hatoyama’s policy speech last year also holds to this trend, starting off by stating that Japan can contribute in more areas than the just the economy – and talking even about how Japan needs Asia (not the other way around). His speech was even titled “Japan as a bridge”, i.e. an (in-itself useless) road connecting two places which are (in themselves) important.

It is clear that the transition with China is impacting on Japan’s identity – make a good thesis topic. Eh, Kai?

Yuan as leader, but a race to the bottom?

2010-02-19T12:28:00.004+09:00

If M. Ariff is correct, and Malaysia and Thailand find that they have no choice but to peg their currencies to the RMB in order not to be disadvantaged as the USD falls, then the race to the bottom is on in East Asia. I doubt it comes to that, but in the event that it does, it will be the end of East Asia's chances of financial regionalism. A switch to RMD would be the biggest story in international political economy since the USD took over from the pound Stirling as the world reserve currency.

Pegging to the dollar is simply a "begger-thy-neighbour" policy. It is important to note that these distortions will not just damage the US, but also each countries' regional neighbours. Thus, the pain will be felt door in Indonesia if Malaysia pegs to the RMB, in the form of lost export market share and therefore higher unemployment. If Malaysia or Thailand were to peg to the RMB, it could potentially trigger others to do likewise in order to avoid the pain.

Pegging to the USD is simply opting out of the region, and pegging to the RMB would have similar effect. If more economies start to proxy dollarize via a peg to the RMB, exchange risks would come down and exports would go up. East Asian central banks would lose control of the interest rate lever and the US would start piling on more debt.

Due to this, gone would be the incentive to see financial risks and burdens be distributed throughout the region on market basis, as each country sets about politically manipulating its exposure. Gone too then would be the precious trust which underlies the international economy.

China peg's is simply no longer a domestic concern - as if it ever were. The solution is not for others to peg to China but for China to either move to a basket of currencies that actually includes more than the USD (it current "basket" adopted in 2005 is really all USD) such as the Yen, Euro and etc or to go with a pure float.

To realise the insanity of the situation imagine what would happen if the US started to peg to the RMB as its sovereign right?

Japan’s China policy: No re-adjustment towards Beijing.

2010-02-12T18:35:00.000+09:00

Much has been made of late about the possibility of Japan drawing closer to China. I suggest that on the major issues, Japan’s China policy is unchanged under the DPJ, and unlikely to change.

Firstly, on the question of history, Hatoyama is unlikely to make major changes here. According to the Japanese Ministry of Foreign Affairs, Hatoyama has no plans to visit Nanjing this year, and as far as MOFA is aware there is no plan for an apology of any form. Indeed, after rumors broke that there might be a “Hatayama to Nanjing, Hu to Hiroshima” swap this year, the only country not to check-in with the MOFA’s China desk about whether or not it were true was China itself, being aware that this was a dreamt up story by the French but accepted even in Japan. Yet as the recent conclusion of joint historical research by China and Japan reveals, major differences still remain in official interpretation of events. It seems unlikely that Hatoyama would visit Nanjing when the basic question of how many were killed still remains unsettled.

Secondly, on the issue of trade, Hatoyama is little different to the LDP. Hatoyama has proposed further research to be conducted into a Japan, China, Korea trilateral free trade agreement. And while this time it is official government-level research, there are no promises on the Japanese side and not much enthusiasm. No doubt a part of the reason for the elevation to official level is that the academics whom had conducted the informal research since 2001 had simply run out of areas to research.

No surprise that even now Hatoyama appears to looking for wiggle room by suggesting an investment treaty, (although a quick look at the way in which Hatayma handling Futenma suggests that wiggle is Hatoyama’s natural state). Indeed, post-LDP Japan’s real interest remains such an investment protection pact be signed either in addition, or even instead, of an FTA with China.

Of course, in any discussion of Japan’s FTA’s the agricultural issue is important – and the Ministry of Agriculture, Farming and Fishery has hardly changed its position. The MAFF is continuing to oppose any deal with China which includes agriculture (with China being Japan’s second largest supplier of food import, this rather nixes a deal unless the PM comes out clearly in favor). Of course, the establishment within the MOFA of a new FTA promotion facility is viewed generally an attack on the influence of the MAFF in FTA policy making (with the MAFF already on the backfoot) – but the target is more likely to be Australia than China at least for the time being. Indeed, Hatoyama’s administration remains positively appraised of Australia and might well be looking for new ways to further institutionalize the relationship.

Thirdly, in the field of security, Hatoyama has made no major changes. The issue of natural resource exploration by China in the East China Sea remains problematic. Foreign Minister Okada has raised Japan’s concerns with his opposite Yang Jiechi twice already, most recently on January 17th at which time Okada stated that “he would like to enter into negotiations to conclude international agreements promptly, and expressed desire for Minister Yang's cooperation and for him [Jiechi] to issue instructions to enable substantive progress to be made going forward, in contrast with the lack of progress so far.”

From the perspective of the Japanese Ministry of Foreign Affairs, this reflects a continuation of the China policy set out by the LDP in 2008 under “the Mutually Beneficial Relationship Based on Common Strategic Interests" Joint Statement. Under this Joint Statement, a commitment was made to resolve or at least ameliorate the political problems caused by Chinese exploration in East China Sea. Of course, the DPJ is still keen for military exchanges and the like to continue, but Japan’s posture on these core national interests has hardly softened.

Taken together, the Hatoyama administration has thus far changed little in Japan’s policy towards China.

Taiwan: Think further

2010-02-03T18:32:00.003+09:00

America's sale of PAC3 Patriot Missiles to Taiwan is stirring up trouble. Excellent article by Leigh Moses here. Highly, highly recommended.

In my mind, I see the decision to go ahead with this sale as a least in part motivated by US concerns about Chinese power. Obama I think has lost patience with the Chinese already, being a liberal (and a socially-conscious lawyer) he seems more concerned about justice than order. The negative position of the Chinese at the COP15 Summit also probably a factor in turning Obama into a China skeptic.

But Obama concerns with justice over order might cause greater injustice still if Moses is correct and the sale of arms to Taiwan tips the domestic balance power away from the CCP towards the PLA in China.

BRICs or briCs: perspective

2010-02-02T14:33:00.003+09:00

One of these things is not like others.

China is larger than the other three "BRICs" countries put together.

Can we please just put China in a catagory of its own. It is just not like anything else.

Japan’s public perception of China: Are things on the mend with Hatoyama?

2010-01-28T22:07:00.002+09:00

In my previous post I discussed Japanese popular sentiment and some of its internal contradictions. Here is a Chart I have generated from the National Polls, conducted by the Cabinet Office on various questions. This question is “Do you trust China?”, or perhaps, "do you feel China is a trustworthy country."

Chart first, discussion later.

What I think I see here is the marked effect of Hatoyama’s victory on Japanese public opinion towards China. Hatayama was elected in August, and assumed office on September 16th. The polling for the 2009 Cabinet Office Public Opinion Survey was carried out October, (15-25th). With all the rhetoric fresh and without actually having done anything, this is almost ideal timing to see what the effect of a regime change is on public perceptions. Of course, we must not discount the fact that Aso managed, dispute himself, not to cause any major trouble in the Sino-Japanese relationship and kept it on an even till. But this he inherited from Fukuda, and neither Abe, Aso or Fukuda between them the three of them were able to improve public opinion towards China, with trust at historic lows since the Koizumi period.

Digging into the data a little more, some interesting trends come out. Firstly, compared to last year, the overall improvement of little of 8% is a little misleading. The improvement is larger, because if we disaggregate the “Do not trust (at all)” and “Do not trust, rather than trust” then we see that movement toward the latter. Secondly, the big shift was not where it mattered. The 20 to 30 year old shifting 5%, in other words the “average” adjustment. The big shift was in the 50-60, and 60-70 year olds who already tended to have a higher trust. The recovery, in other words, has not returned Japan back to pre-Koizumi times, even among the section of the population most likely to make a difference in Japan’s future policy.

Raw data can be found here.

Anecdote: Only in Japan, I hope.

2010-01-21T22:07:00.001+09:00

In Japan, where marriage itself is an institution under threat, a new phenomenon of actors taking the place bridesmaids, best-men, friends and family in wedding ceremonies is increasing.

The demand is great enough that some companies specialize in providing actors to stand in at Wedding. One such company “Wedding Assist”, said every year sees more demand. It already has 30 actors as members of staff. Another “freelancer” took over one hundred jobs as a stand-in friend last year.

These actors are often given quite specific instructions, such details of how they met the wife (it is normally women who request actors) and what to say. In some cases, actors requested to give a speech, to bless the marriage. In one case, the company was asked to provide actor to play the parents, brothers and sisters of one woman – the whole family.

Often the actors are hired by one party (the bride) without the knowledge of the husband. One woman confessed that she had hired actors because she could not fill her quota of friends for the wedding ceremony. She felt so embarrassed that she could not tell her husband, and instead hired actors. She had changed jobs so many times that she had lost all connection to her friends. Another woman said that after she quit Uni her friends circle had collapsed.

These women had no time for a hobby, or religious service, and no social network outside of work or Uni. But in a society under economic pressure those networks are failing. A society on the edge, the isolation of Tokyo and other big cities in Japan is truly turning out some strange social phenomena.

This was inspired from the late night news story about marriage in Japan. Not normally an area I care much about, but it chimed with my experiences of Japan. The story was called “Muen Shakai”, perhaps translated best as “A Society Without Social Bonds (Friends).”

Pro-China, Pro-Yasukuni, Half Japanese.

2010-01-19T17:48:00.000+09:00

In this month’s issue of Voice, a public poll was conducted looking at, among other things, Japan’s China policy. Polling on three questions in particular are quite interesting for what they say about the Japanese ability to both desire a friendly relationship with China and a prominent place for Yasukuni in the national psyche without seeing a contradiction in these goals.

Firstly, the numbers. In response to the question, “do you agree with the new Administration’s China policy; East Asian community, and East Sea Joint Development etc.”, half of respondents agreed and 35% disagreed. This shows again that after a few scary years under Koizumi, most Japanese still want a closer, “warmer” political relationship with their largest neighbor.

In response to the question “should the PM visit the Yasukuni shrine on August 15 [Remembrance Day]”, again half of respondents agreed. Despite the fact that China has made it very clear that improvement in the political are dependent on the PM not setting foot in the Shrine, still half of Japanese prioritize the PM’s ceremonial role as mourner in chief.

More intriguing, in response to the question “Should a seperate facility be created to allow for formal mourning of the war dead?” I.e. should the Yasukuni Shrine lose its monopoly on war bereavement and division of state and religion be restored? Answer, 58% opposed. Most Japan view the Yasukuni Shrine itself, in and of itself, as special – thereby preventing the promising work around that Koizumi had aired before being boxed into a corner.

Hatoyama clearly is trying to take the Japan-China to the next level. This can be seen in his symbolic displays in various international fora, the recent 600 man delegation to China and more recently rumors of Hatoyama to Nanjing – which if it occurred to involve a formal apology and the possible beginnings of real reconciliation between Japan and China. While all and sundry must be aware that Hatoyama will not be visiting Yasukuni in any formal capacity (he has promised this much) – underlying Japanese sentiments about the Shrine will complicate any reconciliation effort with China that Hatoyama’s administration might attempt.

Haiti Earthquake, China and Japan

2010-01-16T16:57:00.003+09:00

The recent and terrible earthquake in Haiti has revealed an interesting development in Japan's reporting of China.

On NHK TV News, the role of China in the international rescue effort is attracting more attention than that of Japan's own. The use of words such as "China arrived first and quickly put up its national flag" is unnecessarily evocative - creating the image of China stretching out its power world-wide. Japan it seems, really has China on the mind.

Of course, to an extend that is justifiable. China's role in Haiti is probably larger than Japan's. In fact, China had (before the quake) over one thousand riot police in Haiti to assist the UN Peacekeeping Operation (MINUSTAH) compared to Japan's presence of zero boots on ground. In fact, some of the Chinese PKO police (4 apparently) are currently missing - and are likely dead.

Japan has offered a cheque to Haiti (worth $5 mil.) and a S&R team.

Any wonder the Japanese are feeling in awe of China?

ERIA: Centrality, Odd men out, and quest for regional “research” leadership.

2010-01-05T16:23:00.000+09:00

Previously, Malcolm Cook at the Lowy Interpreter and I briefly exchanged notes on the Economic Research Institute for ASEAN and East Asia (ERIA) and its meaning in the broader East Asian context. I should like to continue those thoughts here, arguing that the story of ERIA neatly encapsulates the story of East Asian regionalism. I will show that ERIA’s formation is not a sign of strength of East Asian regionalism but another yet manifestation of the contest for centrality in East Asia between China and Japan.

The order of the title is no accident. I tend to believe that without a clear central leader, it is impossible to define regional membership (let alone borderline cases like odd men in). Indeed, contestation over the borders of the region (such as in East Asia today) is a good indication that the position of central leader is itself contested (chiefly between China and Japan). Under these conditions, any field even the esoteric (almost irrelevantly so) field of semi-formal research into economic regionalism acquires a political connotation.

So, what is ERIA? From a technocratic point of view, the ERIA is a research body designed to help with policy development and coordination in East Asia. But politically, it represents a Japanese leadership bid in response to China’s growing influence in the field of regionalism research. Specifically, Japan’s concerns were raised by China bid to house the Network of East Asia Thinktanks (NEAT) – an idea based on the recommendation of the East Asian Study Group (the first annual conference of which was held in China in 2003).

In response, Japanese policy-makers started to propose alternative groups to carry out research. Japan first pushed for the Asian Development Bank to take on this role, but meeting US resistance (and no doubt limited, if any, Chinese support at the ADB’s Board of Executives), shifted its attention to the ASEAN+3 research groups where Japanese research institutes were doing well. However, neither provided the leadership dividends Japan was after – the only option then was to start up its own “independent” research institution. Enter ERIA stage right.

Building on then Economy, Trade and Industry Minister Nikai’s proposal for a 16 party FTA, Japan’s former PM Abe called for the creation of ERIA at the 2007 ASEAN+3. ERIA was to be a research clearing house and policy coordination facility – a sort of OECD for Asia, minus the Charter and all the western legalistic trapping. At the 3rd East Asian Summit in 2008, the ERIA idea was approved unanimously – and debate shifted on where to base the secretariat.

Not withstanding the fact that Japan was to provide the money (and most of the brains) for this enterprise, ASEAN insisted on deciding amongst itself where to base the ERIA. The intense diplomacy among ASEAN nations for the privilege of housing the ERIA only subsided when the decision was made to temporary house in the ASEAN secretariat in Jarkarta, Indonesia. Thus while officially the ERIA is only temporary in Jarkarta, the green light has gone ahead to build it its own building, something of a fait accompli for Indonesia although unlikely to garner the kind of trust ERIA will require to do its work.

I am inclined to believe that this outcome reflects not so much a weakness in ASEAN as in Northeast Asia. If ERIA was to be an OECD for Asia, then it ought to be based in a Paris-equivalent city in Asia (i.e. the capitals of either China or Japan), which Jakarta (despite being very nice) simply is not. If, on the other hand, the goal of the ERIA was to boost Japan’s presence in southeast, this outcome makes more sense (Japan would likely lose political points for insisting the ERIA be based in Tokyo, better to pawn it out to ASEAN).

In fact, Japan’s influence on ERIA was clear from the outset. Firstly, Japan offered to fund the organization through its first ten years to the tune of 10 billion yen over ten years. Secondly, ERIA was established with institutional links to the Japanese External Trade Research Organisation (JETRO). The Chairman of JETRO Watanabe Osamu has carefully played down any Japanese influence within ERIA, even as it negotiated with ASEAN members were to establish the secretariat.

Unsurprisingly, the ERIA came to support the METI’s and JETRO’s position on the merits of the 16 party Free Trade Area, (known in Japan as Comprehensive Economic Partnership East Asia, CEPEA). No surprise either that Australia, New Zealand and India have stepped forward to pitch additional monies and more importantly legitimacy to the organization – often visibly and vocally supporting ERIA as something of a hat tip to Japan. These countries would be the major beneficiary of such a trade area, and perhaps just as crucially, are keen to shed their status as “odd men” and gain acceptance as a true regional member – something Japan just might be able to provide.

P.S. One of the effects of ERIA foundation was to put pressure of the NEAT process. In fact, the NEAT itself was hardly a success. NEAT is not an international institution of the same level as the ERIA, it does not possess its own headquarters, research staff or budget and is more or less an alliance of academics with good political connections. Indeed, the 2007 report entitled “Future Direction of NEAT” prepared by Thailand notes, “NEAT activities do not governmental support and are now facing possible competition from other newly established mechanisms like Economic Research Institute for ASEAN and East Asia (ERIA).” Additionally, the Japanese CEAC seems to have taken over running the NEAT, and the whole agenda there is shifting. It seems likely therefore that ERIA will win out as the lead research body in East Asian regionalism.

Brother Leader Qathafi: King of Kings (of Africa)

2009-12-15T18:36:00.004+09:00

Today, Col. Qathafi of Libya gave a speech at Meiji University over satellite link-up.

It was madness.

I will briefly discuss three different madness's. The Madness of Qathafi (as expected), the Madness of the Japanese (less expected), and a bit of personal Madness.

Qathafi started the satellite lecture by looking bored and reading a report without making eye contact or acknowledging the audience...despite having previously requested (or demanded) "thunderous applause" upon entering the chamber (his personal library). He completely blanked the Prof. Fukuda (more later) during the greeting.

His lecture began by lecturing at the Japanese. Specifically, he queried why does Japan continue to be friends with the US - a country which used nuclear weapons on Japanese nationals not to long ago. Apart from the hypocrisy of his recent reproachment with the US, Libyia's own previous designs on acquiring nuclear weapons ought to have given the audience pause for thought.

But no. The Japanese were also mad, sycophantically so. Prof. Fukuda said "It is great, and so true. America has killed many thousands of Japanese with the nuclear weapon, why are we interested in being friends with them?" Oh dear.

Qudafi continued by presenting his "the future map of the world." Peter Katzenstein's, "A world of regions" ought to include this map for truly - the world had been divided up into five regions; EU, Africa, North America, South America, Russia Plus and a then a scattered few others. It is a well known fact that Quthafi loves regionalism, but even he projected that Japan, China and Korea would remain independent even his future map of the world. If Col Qathafi sees a lack of political regionalism in East Asia - why does Hatoyama proclaim it?

Qathafi also proposed a new country be formed by merging Israel and Palastine. It would be called Isratine. Madness.

Then it was time for questions. Insanely, these questions from the floor were not vetted. Here was a prefect opportunity for a Japanese to ask about nuclear weapons, or Iraq or Afghanistan. Instead we got questions about education, Obama as a Muslim, and from a Malaysian exchange student "why is not the Israel-Palastine problem solved when Africa/Arab Zone has all the oil and manpower?" (Qathadi said, have you considered the role of the US?)

The soft-pitching of questions is unforgivable enough, but as if to make even clearer who was top dog, the Japanese were told to greet the Col. with "Leader Qathadi." Firstly, English is neither the first language of either Libya or Japan so why "Leader"? Secondly, the Japanese put their addresses after the name, meaning that Col. Qathafi was greeted rather cutely as "Qathafi-ReeDaa."

Oh, And then the Japanese at Meiji invited Qathafi to come in person to give a lecture, and offered to set-up an Col. Qathafi Chair at the Peace and Disarmament Center. This was said with straight face. Prof. Fukuda thanked Qathafi for his great words of wisdom and it was over.

The last bit of madness was personal. I really wanted to ask Col. Qathadi a question, a really difficult question. I wonder why, sort of like mountain climbing I guess. In the end, I found watching others much more interesting.

Japan: the DPJ wins as the GRU weakens the LDP machine.

2009-11-29T13:50:00.001+09:00

As Michael Cucek wrote last week, Japan has witnessed the subdued brutality of the DPJ’s Government Re-vitalization Unit (GRU) taking back Y1.4 trillion from various extremely unhappy NGOs and bureaucrats. This process of creative destruction is rarely seen in Japan, and while comparisons to the Meiji Restoration by some DPJ politicians are exaggerations, the fact is Japan is witnessing a real shake up in power distribution. And like any such shake up, there are winners and losers.

In this case the winners are the DPJ over the LDP and the Ministry of Finance over the other Ministries. Let me talk about the DPJ first.

Not withstanding the fact that the LDP has fallen of its bicycle since the last election, the GRU process has further benefited the DPJ in its political struggle with the LDP in three ways. Firstly, the GRU process was aimed cleaning up the mess of subsidies that years of LDP administration had built up, in the process airing a laundry list of useless and hopeless projects the LDP had let through at the public’s expense. This was always going to have a positive political windfall for the DPJ, unless very poorly stage managed.

Although the decision to freeze spending on developing “super-computer” technology caused some public concern, the general feeling was that the LDP had acted like a bull in a China shop, wrecking public finances by allowing the “Independent Administrative Organs” (dokuritsu gyousei houjin) to build duplicate building or give themselves repeated pay increases without any oversight. And indeed when pressed, to fail to defend the decisions they had made in a reasonable manner; the Educational Facilities IAO in particular is the stand-out example. The DPJ, by taking this “bull by the horns” as it were, is showing leadership and polls show continued support for GRU process and the DPJ.

Secondly, the GRU has weakened the old sinews of powers which connected the LDP to Ministries. The GRU was aimed at cutting budgetary excesses of IAO, but the effect (and quite deliberately so) is to wipe out bureaucrats’ post-career placement at a related IAO (a phenomena called Ama-kudari). The LDP had allowed bureaucrats to build themselves such golden parachutes as a quid pro quo for ministerial policy support in enacting the LDP’s preferred pork-barrel politics; a sort of you scratch my back and I’ll scratch yours relationship.

However, because the DPJ thinks it can do without the back-scratching (and the associated risk of back-stabbing) the former deal is off. This might drive the ministries to support an early LDP return. But as the LDP is cut off from power, they have nothing to offer the ministries that might induce them to turn against their de jure political masters. As such, the lessening of the ministries’ discretionary funds sees them more dependent on the DPJ politicians than before, if not necessarily more loyal.

Thirdly, the GRU has weakened the LDP’s links to rural voters. The importance of rural voters in the LDP’s election strategy is well known (see Tobias), and the GRU anti-pork barrel politics will no doubt be a threat to the LDP. In the past (paywalled, p48-9), the LDP provided a generous budget for the Ministry of Agriculture, Forestry and Fishery (MAFF). The MAFF supported the IAO Japan Agriculture Association (JA), which in turn provided electoral support to the LDP and provided financial support for farming families, ie LDP voters.

However, due to the GRU process, the JA and morphologically similar IAOs have been dealt a serious blow. The GRU recently seeing through a spate of cuts to the MAFF’s budget, including to the JA‘s education programs. Thus weakened, the JA will be less able to perform its traditional role in the LDP election strategy. As argued in the second point, with the LDP out of power and unable to provide the pork, the JA has little incentive to risk attracting the opprobrium of the DPJ by making a stand just yet; although during an election the JA is expected to be right behind the LDP, even with (or especially because) its feathers have been clipped. Additionally, the DPJ (cynical) policy of cutting out the JA and going “over their heads” to provide farming families with a direct support (via the household income support facility) further erodes the old LDP-JA-Rural voter link.

In conclusion, the GRU has seen the DPJ win large versus its rival the LDP. The GRU only by demonstrated the slipshod political guidance of the LDP as contrasted with the DPJ’s ‘fresh’ approach, but also cut important bonds between LDP and the Ministries, the Independent Administrative Organs and voters. The power shake up is on.

Japan-Thai FTA: "Movement of natural persons"

2009-11-28T17:50:00.003+09:00

Earlier today in a bookshop I picked a glossy magazine of conservative news type, it may have been "Will", but in honesty I have forgotten.

One of the stories focused on the "vice industry", prostitution in particular, in Japan being controlled by foreigners. A suggestion was made that the Japan-Thailand FTA had made this easier. Dismissing it as conservatism hype, I put the magazine down and moved, but according to more respectable sources - sex workers may indeed find it easier to move (or be moved) to Japan post-FTA (read here).

Then just now, I thought I would read the text of the Japan-Thailand FTA. Sure enough under the "movement of natural persons" is liberalisation of visa requirement for "Spa services." Apparently there is some traditional Thai Spa services for which only a Thai trained and licenced person will do.

But is this for real? It does not take a lot of imagination to see how this could be abused, a massage parlor would simply notify immigration that they had hired a "Thai Spa service provider" to provide "spa services" and then get the visa. In fact it is almost as if the door was left open on purpose. Odd things, these FTAs.

Hatoyama’s FTA strategy; no strategy at all?

2009-11-22T21:21:00.016+09:00

PM Hatoyama has now had several opportunities to put forward his view on a Free Trade Area in East Asia. Thus far his “vision” has proven to be more dependent on the audience, rather than economic or strategic factors. I will discuss the CJK-FTA, or China-Japan-Korea trilateral FTA as it is also known, and then zoom out to the larger issue of US partipation in the East Asian FTA project.

Firstly, with regard to the CJK-FTA, Hatoyama proposed on October 10 Beijing Trilateral (Beijing) that such an FTA be accelerated. At the same time Hatoyama proposed that an investment pact among the three be concluded. China’s position from the outset has been than an investment agreement would not be considered outside of an FTA – on reflection this was an early indication that progress had been made on CJK-FTA.

But while Japan’s interests in an investment agreement (to protect intellectual property, manufacture technique and brand-names), have both been aired and are well understood, Japan’s interests in a trade deal with China are much less clear. Indeed, Koizumi had turned down several requests from the Chinese side that an FTA be formed; in the process willfully ignoring the results of joint research which urged an early conclusion to the trialateral FTA[1].

Just over two weeks later in Hua Hin (Thailand), Hatoyama progressed the CJK-FTA idea with the announcement of working groups to do joint research on the CJK-FTA. While this is the third time research has been commissioned, it is the first time government departments are involved.

Why did Hatoyama reverse the LDP's position? Was it because China was doing something important differently, like its internal politics or trade policy? No. Was it because the World Financial Crisis demanded that Japan export to someone, even China, in order to keep jobs? Perhaps, but an FTA with China could just as easily cause the opposite (more unemployment) in the Japanese economy.[2]

Although it is possible Hatoyama or the Trade Minister Naoshima had talks with the relevant bureau in the Ministry of Foreign Affairs, I am told that the Ministry of Economy, Trade and Industry has not been asked to provide any sort of policy brief as to the implications of a CJK to Hatoyama (or his Office) prior to his announcements at either of the above forums.

This is suggestive of a short-term motivation. Considering the manner in which CEPEA was launched, there exists a precedent for Japanese politicians to just announce an FTA/EPA with shocking little 'nemawashi' or domestic consensus building first. Rather each of these announcements by Hatoyama seems to be made on the moment with the current audience in mind.

The commitment to the CJK-FTA was announced suddenly by Hatoyama at the Trilateral summit, and was warmly welcomed by the PRC. Since Japan's benefits are uncertain, and at any rate little effort was apparently made to understand the possible gains, might this be simply a proposal aimed at warming the relationship with China brought on by the fact of the Summit itself. In other words, no summit - no proposal. Or more precisely, this was a policy spectacle produced with audience in mind rather than specific gains. This commitment was re-affirmed at the APT, and the same can more or less be said there too.

Zooming out from the narrow issue of of CJK-FTA, if policy is being made to suit the audience rather than the national interest, it will be difficult to predict where Japan eventually decides to stand on the 'big' issue of US inclusion in the East Asian FTA project. The trajectory thus far has been towards US inclusion, but Hatoyama temperament and "right" series of events might prompt a surprise another turn-around. For the US, PM Hatoyama is man to checked on more, rather than less, frequently.

Intriguingly, the clear statement by US President Obama about the importance of the Pacific to US strategy and US-Japan relations in Tokyo prior to APEC and Singaporean PM Lee’s appeal that the US be included in any regional trade pact seems to have shifted Hatoyama’s assessment [3]. When commenting on membership at a post-APEC forum, Hatoyama (mindful of his APEC audience) noted membership would be 'open', to any who “shared the dream”[4]. Again, the audience counts significantly. Prehaps at new years APEC which Japan will host Hatoyama will put the US in the picture fully and formally. Then again, perhaps not.

1. Alan jr. Yonan, "Asia Economy Watch; Japan, China, S Korea Mull Trade Pact," Dow Jones International News, 30 Janurary 2004.

2. Baldwin, "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade."p1491

3. http://www.eastasiaforum.org/2009/10/13/hatoyamas-east-asia-community/

4. http://www.kantei.go.jp/foreign/hatoyama/statement/200911/15singapore_e.html

Obama in Tokyo

2009-11-16T16:05:00.003+09:00

On Saturday, Obama delivered a speech in Suntory hall. I had the good luck to attend. I think others can do better justice to what he said that I can, but several points could be noted.

Obama made clear the US sees itself as part of the region. The message was simple, "Hatoyama, do not try to exclude us from the EAc." Previously, Hatoyama had diplomatically 'not included' the US in the EAc idea (to the surprise of the Chinese). But now, if Hatoyama really wants to exclude the US, he will have to come out and say publicly and explicitly. Obama has made it a fact on the ground that US assumes and expects Japan will support its role in the region, clearly raising the political stakes for Hatoyama.

Secondly, "balanced growth" was a key word. Others have discussed this, and believe Obama is referring to the need more US exports to the region. I get the feeling he was referring to more than that, a warning the US might be able import as much as expected. The "balanced growth" sound bite I heard to mean "scale back your expectations, we are."

Lastly, on a personal note, despite the pomp and ceremony and the "historical" nature of Obama as President and his return to this region, he was extra-ordinary capable of being ordinary and humble. I got the feeling that this incredible man is just a man after all - the occasional mispronunciation of Asian words for example, complete with a sheepish yet presidential smile, was the trigger for this.

America, China and Japan; military and monetary networks misaligned?

2009-11-09T19:44:00.004+09:00

At this year’s Japanese Association of International Relations conference, Inoguchi Takashi (editor of International Relations of the Asia Pacific) chaired a session entitled “military and monetary networks.” Speakers included, T.J.Pempel, Daniel Drezner, and Chung-in Moon.

The papers themselves were all of a high quality, but it was in the discussion afterwards that the significance of the theme became apparent. Taken together, what these papers suggested to me was that the military and monetary networks in East Asia are no longer neatly aligned with each other.

It is now common knowledge that East Asia played a major role in the current financial crisis. While not dismissing the negligence of the US authorities, the global imbalance which permitted (or even encouraged) bubbles in US economy to emerge had their origin in the post-Asian Financial Crisis decision of East Asian government’s to build up excessive foreign reserves in a bid to ensure that “never again” would they need to go to the IMF.

What is less common knowledge is that this decision to rely on the dollar in Asia, (and thereby to effectively underwrite the US profligacy) has had major political implications. Make no mistake, East Asian states are not choosing to use the dollar (as a reserve currency, and importantly to denominate their trade and credit) out of the kindness of their hearts. Inoguchi called this “the kindness of strangers.” They expect something in return.

In the case of Japan and Korea, part of the kickback is a security guarantee. Japan (and Korea) support the US dollar in part (perhaps large part) because of a political logic. During the Asian Financial Crisis, Japan’s proposal for an Asian Monetary Fund was seen as a sort treachery by the US. Indeed, as Prof. Chung-In noted Korea did not endorse it for fears of US retaliation. Would a movement away from the US dollar really affect the region’s security order? Who can say. But in the minds of decision-makers at the top, clearly a link existed between the military and monetary networks.

But what about China? Now the world’s largest holder of US treasury bonds and the US’s only potential rival, what does China expect from US in return for supporting the dollar’s role until now? Obviously, China does not want any kind of security guarantee, China will provide protection for its own national integrity, national dignity and nationals - Thank-you. What about political favors? Also unlikely, as a permanent member of the UNSC, China is already at the top. The US played that card in 1972. Taiwan? Maybe, but hard to imagine.

In fact, China is most likely after an economic return. This should hardly be surprising, the CCP’s regime legitimacy depends now on being able to deliver economic growth and development – and to do so consistently. The accumulation of US dollars, whether in foreign reserves, treasury bonds or bank accounts, was a function of the decision to maintain a peg (or de facto peg) of the RMB to the USD. As Drezner argues, it was not a deliberate decision – but rather came out of China’s export orientated development strategy, a strategy which had been successfully road tested by both Japan and Korea (both of whom alliance partners of the US!). The fact that China ended up “supporting” the US hegemonic position in finance was neither here nor there.

Until now. Now China has realized that sitting of 2 trillion of USD is not a proposition that carries no costs – quite the opposite, it is risky. China finds itself having effectively bought ‘war bonds’ from the US, a country which - while a largely benevolent hegemon - is nevertheless a hegemon feeling challenged by China’s rise. China’s is now worried that that investment will not be repaid in full. Simple inflation might wipe out significant value, as would appreciation in the RMB versus the dollar – something China is now under pressure to do.

At the same time that China is reconsidering its position in the US’s monetary network, Japan and Korea are reconsidering their position in the so-called “Pax Americana” military network. Indeed, Hatoyama’s administration’s difficulties in negotiating US base arrangements (over the noise of vocal protests in Okinawa) are suggestive of this shift in Japan. Just how this will effect Japan’s orientation towards the monetary network is still unknown, but it is unlikely that Japan is going more interested in supporting the USD in the longer term.

In a related point, Prof. Tadokoro noted that while all eyes are one the big holders of US debt in North-east Asia, ASEAN countries have the possibility of “sneaking out” the US monetary network, evidence for such can be seen in the Chiang-Mai Initiatives (some of which are denominated in Yen and RMB).

The misalignment of the security network which excludes China, and the monetary network in which China and US so close as to be mutually dependent is thrown into sharp relief by the current World Financial Crisis. A crisis with its origin in this region.

(The papers presented at the session should be released in a special issue of IRAP next year.)

Hatoyama is brave, maybe foolhardy

2009-11-02T20:27:00.006+09:00

Hatoyama today stood before the Diet and declared that "if the policies contained within the manifesto are not realised, he as PM will take responsibility." When press further, Hatoyama noted that he would likely call an election as a sort of national judgement on his progress. Of course, this leaves the timing up to him but, nevertheless, this is still brave. Maybe foolhardy, as no doubt in four years (the time he allowed his administration to pass into law the manifesto's various policies), he will be called to account by the opposition. Read it here.

The problem is he has now locked himself into delivering (in principle) on all those policies. But I doubt all of his policies (specifically the toll-free highways) are entirely sensible, either politically (public polling on toll-free policy very negative) or economic. A full dicussion of which was in this week's Economist (the Japanese one, not the UK one).

If the future debate is framed about what the DPJ has achieved in terms of its manifesto, then this strategy might pay off. But it runs higher than usual risks.

Unconvinced by Shiraishi’s column (Yomiuri)

2009-11-01T20:33:00.002+09:00

I know Shiraishi to be something of a minimalist, and he is true to form here, arguing that the US-alliance and East Asian community building do not run at cross purposes, the reason being that the DPJ is not trying to unwind the alliance relationship.

Specifically, Shiraishi argues that Hatoyama has been criticized because people tend to think about international relations in a zero-sum manner, when in fact it is not true in this case. Shirashi argues that Japan is able to maintain the US-centered alliance hub-and-spokes regional order while also constructing a new regional order which excludes the US. While in theory the two structures could run parallel, in practice it is unlikely to occur. Firstly, there is the problem of Japan’s actual national interests – which does not necessarily correspond to Hatoyama’s rhetoric. And secondly, there is problem of perception gap in the China-America-Japan strategic triangle

One problem is that Japan’s interests lie with both the US security guarantee (chiefly from China) and excellent political relations and integration with East Asia (chiefly with China). As Shiraishi himself has argued previously, East Asian is economic gravity is moving to China even as the US remains at the center of regional security with Japan caught between the two.

What this means is that as long as Japan feels it is necessity to maintain the U.S. alliance, it is unlikely to simultaneously feel that China can be trusted enough for the kind of deep European-style cooperation that Hatoyama has envisioned. The alliance is hedge against a threat, and no state will actually cooperate with a threatening partner – even Japan.

Let it be remembered that each act of East Asia regionalism thus far has occurred due to failings of the United States, and the consequential shift in Japan’s priorities towards Asia. The current financial crisis has been another such example, with calls within Japan (and China) for internal demand driven growth being short-hand for less dependence on the vagaries of the US, thus consequently greater focus on each other and the region. But each time Japan has not liked what it saw in China and has returned to the US fold, will this time be any different?

The second problem with Shiraishi’s argument is that he does not factor in the current perceptions of the other major players – the US and China. Firstly, the US historically has not viewed regionalism in East Asia positively – even APEC is linked closely to global institutions like the WTO. Under the current Obama administration the US has been more positive about East Asian regionalism, on one proviso – that the US be included. If that proviso is not met, there is every reason to believe that the US will return to a negative position on regionalism. In fact, the United States has no reason to provide regional security to East Asia (through the alliance framework) if they are going to be excluded politically from the region, or face additional economic barriers. Is Hatoyama really going to the one to say no to the US?

In the case of China, integration with Japan is not a politically cost-free endeavor. The CCP’s regime legitimacy depends now on continued economic growth to be sure, but historically its mandate is derived from successfully repelling the Japanese invader. Overcoming these political hurdles (presumably from the PLA) is possible, but it is unlikely as long as American troops are based in Japan. Thus, even if Shiraishi was right about Japan being post-strategic, its putative partner in East Asia is clearly not.

Indeed, Shiraishi seems to believe that the U.S.-alliance can be used to stabilize the balance of power while the EAc can be used to sustain economic growth via the creation of shared technical rules; a sort of narrower (“closed”?) APEC perhaps. If that is all there was to it then mutual co-existence is possible between the two structures.

But while the East Asia community (EAc) is currently envisaged as chiefly an economic community, founded on a Free Trade Area and perhaps later a common currency – it is clearly going to also have a political function as well. One would not expect a unified East Asian foreign policy anytime soon, but the EAc would in time demand it have a final say concerning matters within East Asia. This would be problematic for the United States at best.

In short, Shiraishi has tried to strip out the political connotations of the EAc and the U.S.-alliance and just examine the two structures in a minimalistic and functionalist manner. However, this type of analysis fails to appreciate that the political meaning attached to these structures differs in each of the major actors.

Merging Japanese and Australian proposals for East Asian community-building; US participation.

2009-11-01T15:56:00.001+09:00

At the fourth East Asian Summit, held on October 25^th in Thailand, the leaders of Japan and Australia had the opportunity to air their views about the future form and function of East Asian regionalism.

As Acharya has noted, these two visions may be in competition with each other. At this stage however little can be known for sure as both proposals share a level of deliberately in-built vagueness. Indeed, Hatoyama’s proposal is seemly contradictory – or at least unsure – on what role the US ought to play in the region.

While Hatoyama’s is still dissimulating about membership, Rudd’s Asia-Pacific community has signposted from the outset US participation. However, it is likely that Japan and Australia will adopt a common position in favor of US participation (i.e. Japan coming out and supporting the Australian position). Indeed, there are signs that the Japanese and Australian positions are already beginning to merge.

In many ways this is only to be expected. Japan and Australia have a record of diplomatic cooperation and joint leadership in the field of regional organization building. That does not necessarily imply that the two will coordinate this time, but there are some structural reasons which suggests that cooperation is more likely.

Specifically, Japan and Australia have common national interests in the management of China and the desire for a US presence in East Asia. Specifically, the logic of China’s rising power necessitates US involvement in Asia if Japan is to preserve its influence, a fact true also for Australia.

However, for the time being Japan has not endorsed US membership. What would bring that about?

Firstly, ASEAN. As Achrya has pointed out, ASEAN is the base on which regionalist projects will be constructed – and proposals from Australia and Japan will have to be mediated by ASEAN. Hatoyama’s rhetoric leading up to the trilateral summit suggests that Hatoyama seems to have believed that Japan could lead the formation of an East Asia community. However, due to the lack of progress at that summit, Hatoyama has likely realized the importance of ASEAN. As it becomes more likely that ASEAN will invite the US into the region, via the Treaty of Amity and Cooperation, Hatoyama may well decide to “go with the flow.”

However, one ASEAN official has noted that ASEAN’s support for US participation is split 50:50; with the archipelagic southeast states in favor and those bordering China more ambivalent. This split in ASEAN is due to China’s rising influence. Indeed, China has pushed forward its credentials as a leader – this year offering Southeast Asian states a 10 billion dollar China-ASEAN investment fund (chiefly for infrastructure building it seems). Under these circumstances, it is unlikely that ASEAN states would push the US issue.

Secondly, China. It is possible that China is backing away from a strong position on US participation. One newspaper reported China’s Ambassador to ASEAN Xue HanQin (薛捍勤) stating that the US could be a participant, although whether this reflects a real change in policy is still uncertain. Has China embraced Tow’s cynical strategy of sinking a proposal by endorsing it? Certainly Chinese foreign policy makers must be aware that a strong move to exclude the US by China might have exactly the opposite effect. This uncertainty on both sides has created a situation in which neither China or Japan is willing to discuss the role of the US in East Asia, for fear of harming their political relationship.

Lastly, Australia. With ASEAN still divided on the issue of US involvement, and China-Japan circling the issue, active Australian diplomacy is more likely to pay off. What it may take is some “double edged diplomacy”, convincing Japan that ASEAN really does support US involvement. Australia has been able to play this middle power role in the past, and is in a good position now to make a valued, and potentially strategically valuable, contribution.

The National Strategy Office: Delays, ambiguity and the real agenda.

2009-10-21T15:02:00.001+09:00

Just three days after coming to power, Hatoyama and Kan Naoto (Vice-PM) opened the National Strategy Office. One of the DPJ’s policy pledges had been the creation of such an Office, to provide an overarching “vision for Japan” and policy coordination across departments. Although the terms of reference have since changed, and will likely change again, the NSO potentially a major innovation in how Japanese politics is conducted.

In normal usage, “national strategy” would refer to matters of foreign policy – particularly national defense. That is not what it means here however, as the NSO is currently charged mostly with matters referring to the budget, taxation, and economic management in general. Although, the Minister of Finance Fujii has stated that matters pertaining the budget will be ultimately decided by Ministry of Finance (not the NSO).

In fact, the NSO has been established to win domestic political battles, national security is not specifically mentioned as yet (although it is still early days). The NSO is first and foremost aimed to help the DPJ “defeat” the bureaucracy, which they perceive as an illegitimate shadow government still too strongly attached to the LDP.

This is apparent in having the NSO being headed by Kan Naoto, a politician whose contempt for bureaucrats is (unfortunately) well known. Kan has forced bureaucracies to reveal embarrassing internal reports (in particular, as Welfare Minister in 1996 Kan revealed the extent of Aids contaminated blood for transfusions and slammed the ministry for sitting on its hands). The NSO`s anti-bureaucracy purpose is also apparent in Kan’s desire to, in the manner of Britian’s Policy Office, stock the NSO with politically appointed private persons (i.e. non-politicans/non-bureucrats).

However, Kan’s goals have been dealt a series of setbacks. The most important of which is the “rank” of the NSO – which has not yet had the requisite laws passed to start formally inserting itself into policy. The NSO’s current status also means it has no mandate, no authority and (essentially) no staff. Worse still, the passing of these necessary laws is likely to be put back to when the Diet meets in regular session.

Indeed, Kan currently sits in limbo. This fact is compounded by the winding up of the Policy Research group within the DPJ (which Kan had headed). It is no longer apparent how Kan and the NSO will impact on policy.

Hatoyama remains popular

2009-10-21T09:08:00.003+09:00

Yesterday’s Mainichi reported on results of public polling. It found that Japanese public still overwhelming support (72%) Hatoyama’s government. While dipping somewhat from his highest (77%) immediately after forming government one month ago, this is still surprisingly good. The previous three PM each lost 10% in their first month, as did the more historically similar Hosogawa Administration of the mid-nineties.

The honeymoon is clearly still on, but there are some reasons to think that it will last awhile yet. Firstly, Japanese expectations are not very high. Secondly, Hatoyama is proving himself more media savvy than expected. Thirdly, the administration is actually pushing ahead with policy.

With regard to the first point, Japanese are not expecting all that much of the DPJ. If the DPJ can get Japan through the crisis, then that is success. In responding to the question “do you think your living standard will improve due to DPJ policy, 45% said that they do not think it will change. But just on numbers, two thirds of those should be DPJ supporters. In other words, even maintaining the status quo should be enough to satisfy the majority of Japanese a win a second term.

In addition to this, the dominant reason for supporting the DPJ (78%), was “belief that they can change the way politics is done”. This underlies the importance of the DJP’s attempt to shift Japan into a kind of Westminster-type system, at least with regard to government-bureaucrat relations. Even if the DPJ is unable to actually improve the lot of the average Japanese, providing political reform is seen to be progressing then a good deal of its support should stay.

Secondly, Hatoyama is surprisingly media-savvy. Whether through accident or design, Hatoyama has managed to humanize himself very successfully. The relationship with his wife (Miyuki) has clearly played a role here, but his native humor (something suppressed during the elections) also counts. Anecdotally, Hatoyama carried himself much better at the Sumo than Aso did – engaging in light repartee with Asashoryu (Photo in previous post).

Hatoyama’s administration also benefits from the continued wrangling within the LDP. The chairman of the LDP (not quite the Leader of the Opposition) Tanigaki is not very popular, with 55% not expecting he will really do anything. While a fine politician, Tanigaki’s moves to create a shadow cabinet within the LDP are still delayed, and his appeals for new conservative revival are not likely to distinguish him from the “bad, old LDP”.

Thirdly, and perhaps most importantly, Hatoyama’s cabinet is appears to be driving policy along a good clip. Of the 178 policies promised during the election, Hatoyama’s administration already begun implementing half (49%). Admittedly, only three of those policies have advance beyond the initial stage, but still well ahead of the LDP in terms of dynamism. Even contentious policies, such as Yanba Dam, the DJP have pushed along aggressively, trumping local objections by arguing national mandate. Making Expressways toll free may prove a bridge too far.

Of course, the wild card in all this is the World Financial Crisis 2009. Hatoyama has had a pretty good crisis so far - i.e. he was not at the wheel during the crash. And just by luck, his first month has coincided with some not so bad numbers. Consumption is up, Industrial Activity is up, the unemployment rate has stopped hemorrhaging and Japanese exports are recovering slowly. That will all help Hatoyma and it is all true – but only relative to last month; compared to year ago...well, Japan still a long way to go. If the worsening of the people’s livelihood is placed at the DPJ’s door, then Hatoyama’s popularity will crash – along with a chance to push through his promised reforms. Whether he ends up being blamed in anyway is a question of stage management.

An interesting note, more men support the DPJ than women. I wonder why. Maybe men are by nature more willing to take a risk (on the DPJ) or less forgiving (of the LDP’s incompetence). Any cross country studies on gender and voting patterns?

Hatoyama and Asashouryu

2009-10-11T21:43:00.004+09:00

This week's post is at the East Asia Forum, here.

I will leave you with a photo I took last week at the Sumo.

Social Constructivists are right.

2009-10-03T09:26:00.002+09:00

Theoretical debates in International Relations are interesting, but too often the so-called "great debates" are pathetic spectacles in which each sides advances differing views of human nature. As much as it pains the idealists, the in-group/out-group dichotomy (identity) is a necessary insight into how human in fact behave.

However, getting to these valuable insights requires an inter-disciplinary approach, and a certain adventurousness of the mind. And IR scholars are simply going back to the same material.

I stumbled across this nugget in a neuro-science journal. It establishes that empathic feelings (of pain) are stronger within the same ethnic group, and much weaker across groups. It perhaps provides the best explaination as why a liberal, democratic country such as America would remain in Vietnam, and perhaps now Iraq, for so much longer than expected .

To whit, ethnic out-group apathy in International Relations theory. Social Constructivists got it right.

The Asian Develop Bank’s Regional Cooperation and Integration Strategy: Merits and Issues. Part 3

2009-10-02T19:07:00.002+09:00

As outlined last week, the ADB’s RCI strategy confronts two problems which the close country focus does not, specifically coordination problems arising from negotiating with multiple actors at once, and the free rider problem. Today I will address the second of those, the free rider problem. Here, the ADB has sought to resolve regional countries’ concerns about a free rider in two ways.

Firstly, in cases where the client countries’ are unable to reach a consensus on burden sharing, (what this means practically is that the countries’ pledges sum to less that 100% of the expected cost of a projects), the ADB has sought to “pay the difference” from its own pockets. Of course, the ADB is unable to simply provide compensatory cash payments to the “losers” of any project, and so Bank has been required to use a more round-about method for achieving the same. Specifically, the ADB has sought to lengthen the shadow of the future by “bundling” each individual regional project in with other such projects. This bundling allows the ADB to spread out the ‘losses’ over time. Of course, in any one project some country/s might “get” more than others, but with the ADB taking a longer term view and communicating its vision to the client-nations, these individual projects can go ahead with each country feeling that it is being treated fairly. But it is hardly optimal, despite the best of intensions, and may likely create its own set of problems.

Indeed, it is precisely because the ADB is not mandated and equipped to function like the European Commission’s Structural Funds mechanism that the ADB is having difficulty with effectively and efficiently evening out the costs and benefits of regionalism.[1] In the future this might be changed; having the ADB adopt such a role is indeed a logical extension of the RCI, but for the time being the ADB risks institutional overreach in its attempts to help the poor of Asia to help themselves.

The second way the ADB has sought to ameliorate the free rider problem is rather to get someone else to “pay the difference.”[2] Here, however, there are only two candidates; Japan and China. This is because neither the US or Europe are much interested in such schemes, indeed it seems that the US is unfriendly towards the regional cooperation agenda.[3] These two regional powers have both the necessary deep pockets and deep political interests in the region to allow taking on such a role, but of course there are very obvious risks.

The most obvious of these risks is that these Great powers will start to play games in southeast’s backyard. This is precisely what has happened with North-South corridor and the East-West corridor. The North-south corridor (funded by China) links Yunan Province to the Mekong. While the East-West corridor (funded by Japan) opens an better access to the same markets for Japanese goods arriving by sea (likely at the port of Da Neng in Vietnam).

More insidiously, China has become skilled in taping the regional allowances outlined earlier, usually in combination with its own PRC Special Fund, to direct the ADB towards financing regional projects that benefits China. One example involves a project aimed at “facilitating sustainable, environmental-friendly regional power trading in the greater Mekong subregion”, co-financed by the ADB and the PRC Special Fund. The purpose of this project for “developing the hydropower plants for exporting power to Yunan province or other potential hydropower sources for inclusion in the power trade” to the tune of 2mil.[4] Another example involves providing trade negotiation training via Regional Technical Assistance to countries with which the China is in the process of negotiating trade deals. Which ought to raise some eyebrows.

The ADB is risking its reputation by letting, or appearing to let, the big powers influence and direct the RCI. If the RCI is to be “done right”, and to win approval and acceptance which will see it live past the end of Kuroda term, the ADB will need to maintain scrupulous, and unquestioned, ethnical standards. As always it is a question of money however. If the ADB is to undertake such regionalist activities, then it ought to be given the resources to successfully do so.

[1] Giovanni Capannelli, "East Asian and European Economic Integration: A Comparative Analysis," in Working Paper Series on Regional Economic Integration (Manila: Asian Development Bank 2009).
[2] "Regional Cooperation and Intergration Strategy," (Asian Development Bank, 2006). See, Article 94. “Additional financial resources will also be required. Two types of financial resources are needed to implement　the strategy effectively. First, with regard to the lending component of the strategy, for the immediate future, it is　proposed to use existing OCR and ADF resources within available headroom and to catalyze additional public　funding (particularly from larger economies).”
[3] The US is one of the few countries willing to be on record as opposing a proposal at the Board of Directors, for its own reasons the US has consistently voiced its opposition to regionalist approaches. The US opposed the creation of the Regional Cooperation and Integration Fund on the 22 March, 2007. However, US opposition can also look mean-spirited, such as the opposition in November 2005 to a Communicate-able Disease Control Project for the Mekong.
[4] "Indicative Rolling Regional Cooperation Operations Business Plan," (Manila: ADB, 2007). 8, 22

English in Japan

2009-10-01T14:52:00.002+09:00

A while ago I heard Eisaku Sakakibara talk about why Japan needs to improve its english competence. I was not totally persuaded because I felt at the top there was enough language competence. But behold the response to Novel Influence! On the GOJ homepage no less!

I hope more serious matters get better proofing.

CMI and IMF, a thought.

2009-09-30T20:40:00.002+09:00

Apparently the G20 has made some break-thru with IMF reform.

One idea, which I read here , suggests that the EU should take a single seat at the IMF rather than have country level representation. Doing so would mean that the IMF would have to be based in Europe, as the law establishing the Fund states.

This would be in exchange for the western european powers giving up their over-representation at the Fund, a patently unfair situtation arrising from historical circumstance and now threatening the legitmacy of the Fund as a whole. Of course, the beneficiaries of a redistributation would be Asian nations. And, in the face of the WFC, keeping the Asian countries in, and invovled, at the Fund is very sensible.

A good idea perhaps, and not beyond the bounds of international law. However, the article further suggested that if the Asians did not like this arrangements they could go and formally establish the CMI.

But infact IMF reform would reduce the chances of the CMI ending its 20% link the IMF. In fact, the whole raison d'etre of the CMI comes crashing down if the Asian nations are granted better access to the Fund and its decision making processes. One might even interpret the CMI as a call for precisely such reform, a call for help. (Of course, there is more going on).

The Asian Develop Bank’s Regional Cooperation and Integration Strategy: Merits and Issues. Part 2

2009-09-28T18:35:00.001+09:00

The Asian Develop Bank’s Regional Cooperation and Integration Strategy: Merits and Issues. Part 1

2009-09-25T16:13:00.002+09:00

In 2006, the Asian Development Bank’s (ADB) president Kuroda announced a new ‘regional’ platform in the Bank’s development strategy. The Regional Cooperation and Integration Strategy (RCI) as it is known, is now three years old. It is time to reflect on the problems it has confronted and managed, successfully or otherwise, and to examine how it might fare from here on.

Of course, some might wonder how significant this new RCI approach is in terms of actual effect on the ADB’s operations and overall development strategy. In fact, the RCI is a very significant departure from the ADB’s prior practice. In the 2012 Strategy paper the ADB declared its intention to have 30% of its operations “regional” in the near future. Since the ADB loaned roughly four and a half billion dollars to East Asia in 2008, nearly twice that of the World Bank, thus we should be expecting at least one billion in regional projects annually. This is a lot of money in both relative and absolute terms for East Asia, and it is important that the regional strategy deliver at least as much as a national strategy, if not more.

Let it also be noted that the RCI is itself a new idea. The World Bank, the basic reference point for economic development thinking and practice, has favored a so-called country-level approach; under which each country has its own development strategy and applies for/receives loans independently of its neighbors. There are benefits to prescribing individual remedies to individual aid clients, and while a great deal of work (especially poverty reduction) can be achieved with such a close-country focus, there are costs. The most obvious cost is that under such an heuristic, cross-border infrastructure or technical assistance, which can have a great (and cost-effective) impact on economic development and living standards might be missed. To see such opportunities a different pair of glasses are needed, specifically those with a ‘regional’ tint.

This is where the RCI approach has its value added. While the World Bank continues to be, rightly so, the leading development bank at the individual country level, the ADB has an opportunity, indeed a responsibility, to find those worthwhile projects hidden in the spaces between its regional member countries. This function is even laid out in the Charter of the ADB, although it has until now played down this role.

However, a regional strategy is by its nature more complicated and difficult to manage than close-country approach such as the WB favors. Whereas a country focus would limit the number of actors at the table to two (ADB and client), a regional strategy necessarily involves bringing more actors to the table. This is a case of “two is company, three is a crowd”, as the addition of even one extra country at the table significantly complicated negotiations.

Let us take the example of a road construction project. If the road were to be country-level project then only the ADB and client would have to agree, for a total of one agreement. If however the road were to link two countries, such as the southern economic corridor from Thailand to Cambodia, then Thailand and Cambodia must agree, Thailand and the ADB must agree and Cambodia and the ADB must agree (total of three agreements). Let us say the project involves another country, the road also passes through Laos say, then the total number of agreements required is six. Thus, each additional country involved exponentially increases the complexity, costs and risks of negotiations. This is a “coordination problem” as it is know in the literature.

Moreover, since each country will benefit to differing degrees, each country wishes only to pay its “fair” share. Or put another way, no country wishes to subsidize others’ costs. In addition to whatever local political problems of distrust that might exist, this fear of a “free rider” (while strictly rational) will likely prevent real cooperation. This is because without some guarantee that any loss incurred in the regional project will be covered (insured?) by the winners, each country is unwilling to commit its resources. Let us not forget that these countries are genuinely poor, and will therefore jealously guard their meager resources, certainly in preference to gambling on the good faith of neighbors. This is a sort of “free rider” problem (or perhaps a “stag hunt”).

So how has the ADB sought to resolve these two issues; coordination problems arising from negotiating with multiple actors at once, and the free rider/stag hunt problem implicit in the new RCI strategy? And how much success has the ADB had? The answers to these questions are to be found in Part II, due Monday.

The ASEAN regional forum is a dead-end, but so what?

2009-09-14T06:00:00.001+09:00

I have recently been examining the reports and minutes from the ASEAN Regional Forum’s Inter-Sessional Group on Confidence Building and Preventative Diplomacy, the ISG-CBMs. This group is the litmus test of mutual trust in East Asia. More than that, it is window into the thinking of the members’ nations on the prospect of regional inter-state violence, up to and including, war.

While East Asia’s recent moves towards more and deeper regionalism, driven in part by uneasiness inspired by the Bush administration’s unilateralism and inattention to the region, would suggest a greater level of trust between the regional countries – the results of the ISG-CBMs are less than inspiring. Indeed, on reading what was being claimed as a CBM, I lost some confidence that Asia could learn from Europe and find its way to a true peace predicated on trust rather than a cold, or at least cool, peace based on the US hegemonic stabilizer and functional elite relations overlying popular fear and mistrust.

Indeed, the flurry of regionalism at the economic level is perhaps due in large part to the inability to achieve more difficult political cooperation. This should not be surprising. The rush towards Free Trade Agreements (FTAs) in East Asia is one such example. Greater political cooperation would envisage a single regional FTA, rather than the so-called “noodle bowl” (some say network, others hodge-podge) of bilateral trade agreements now crisscrossing the region. Likewise, I have already discussed trust in regional financial arrangements.

But returning to the ISG-CBMs, I will quote at length from the text of the 2009 report – at which the group discussed the future of the ARF.

“Thailand briefed the Meeting on the development of the draft ARF Vision Statement…Some delegations expressed their view that the Vision Statement should be a strong statement focusing on… concrete initiatives that ARF should undertake…[Other] members noted that the Vision Statement should [be]…a declaration of ARF principles and …not a plan of action.”

There was no agreement reached. Let me repeat, there was no agreement reached on the Vision Statement. That means, there is no shared Vision for the ARF. But with no shared vision there can be no future for the ARF, only an institutional dead-end. Indeed, the fact this is debate is still going on fifteen (15) years after the creation of the ARF, suggests that the ARF has been in arrested development for a while. But so what? Does it matter greatly the ARF has been unable to advance a vision, and in particular to advance its CBMs agenda?

Yes, it matters. The failure of the ARF (and specifically the ISG-CBMs) to progress military transparency in a manner similar to the Helsinki Accords of 1975 is arguably the most important factor driving the Japan into the arms of America, and in projecting itself into the regional by proposing and signing mini-lateral security agreements (such as with Australia and India). These closed shops will do nothing for the Chinese sense of national security; indeed, it is precisely this kind activity which feeds the regional security dilemma. Of course, Chinese resistance within the ARF was a factor no doubt in the inability of the ARF to engender habits of cooperation (ie diffuse reciprocity) and reach common political vision. But once another major regional player, such as Japan, defaults to closed-door, zero-sum type external balancing, then trust, and peace, become increasingly unlikely.

So yes, it matters.

Is the DPJ eating a crazy woman’s breakfast?

2009-09-11T20:02:00.001+09:00

Oh dear. The DPJ are in a spot of entirely predictable policy trouble. We were all aware that if the DPJ got in then there would be a “period of adjustment”, in which the DPJ would go from proposing things which might win an election to things which might actually work.

These two things sometimes are at loggerheads. And just now the DPJ finds itself arguing for two contradictory policies; the policy aimed at reducing Greenhouse gas emissions by 30%, and the policy to reduce the toll on freeways to zero. I am not sure how many others have caught onto this one, but at a minimum this is (further) evidence that the DPJ does not yet have a unified vision for the country. Taxing petrol and discouraging private road use is a good way to drive down greenhouse gas emissions, and the link between these two policies is so obvious that one wonders why the DPJ did not detect it themselves.

One only hopes that Kan Naoto as the head so-called “national strategy” will be able to harmonize the DPJ’s disparate policies. If this kind of oversight does not occur then the DPJ will not be able to deliver a better Japan than LDP likely would have, something the voters will punish later on. Indeed, the honeymoon for Hatoyama and the DPJ is fast fading.

Currency Diplomacy, now and then.

2009-09-03T13:45:00.004+09:00

Time is like a river, and history repeats. Japan’s ‘novel’ idea of a currency union for Asia, is modelled partly on the experience of the Euro. But in fact a closer match for Asia’s current political-economy might well be Europe of 19th Century, rather than the 20th. Even then, in 1865, the idea of common regional currency was being debated in Europe, and its outcome is instructive for today’s currency politics in Asia.

In mid-1800s, Napoleon III of France launched a project to tie other European currencies to the Franc in what was called the Latin Monetary Union (LMU). At this time, France fixed the Franc to contain a certain quantity of silver (4.5 grams) and proposed that other currencies adopt its standard. Doing so, the French argued, would facilitate international trade by removing risks and transaction costs associated with exchanging one currency for another, or indeed due to movements within the bimetallic exchange rate. Harmonising the currencies of Europe was rational, scientific (metric!) and civilised argued the French. Notwithstanding the limits of the eventual agreement, (private persons/ Banks were not obliged to accept foreign minted but LMU-consistent coinage), the LMU did gather significant support – indeed lasting until the 1920s.

The French were particularly keen for the British to sign onto the scheme. And indeed, although Britain was on the gold standard rather than bimetallism, a minimal adjustment of the quantity of gold within the pound and a (much needed) technical reform (decimalising the currency) and the British could have joined the LMU, if they had wanted to, relatively easily. But here politics got in the way of economics. Britain had little love or trust for the revolutionary French, whatever the potential benefits. In fact, the British believed the LMU was a rouse, a part of the French master strategy to secure its economic hegemony in Europe and to wrestle away from London its status as a financial centre. With Britain refusing to sign on, the LMU was confined to France’s poorer, southern neighbours for whom the marginal cost of aligning their currencies to the French mint’s standards was perceived worthwhile in order to “facilitate international trade, import a better internal currency, acquire monetary credibility and gain access to international [French] financial markets”, see Einaudi.

Now, from Napoleon III’s Paris, we leap forward in time and space, roughly 150 years and more precisely 9738km, to Tokyo in the present. Here we find that, over the years since the Asian Financial Crisis, some within Japan have argued for a regional exchange rate mechanism for Asia.

While not identical to the LMU, the diplomacy surrounding the Asian Monetary Union (AMU) as it might be called does share some similar features. In terms of style, Japan’s Ministry of Finance has argued that it is rational for the nations of Asia to adopt a common currency, and a veritable “.pdf” tidal wave of scientific/economic research has been presented to support this vision - much the same way France postured in the mid-1800s minus the modern software. In terms of membership, like the LMU, the most receptive audience is the smaller, poorer nations to the south – in this case ASEAN states rather than Belgium et al.[1] And like the LMU, at least one major regional power is opposed to the scheme. China.

China has little love or trust for the Japanese, regardless of the possible benefits of a common Asian coin. Indeed, China has dismissed some of the proposed weightings for a future Pan-Asian currency which have been raised in various East Asian multilateral fora. This is because, in the first instance, China believes that the whole scheme is a rouse designed to ensure Japan’s economic hegemony and project its position as a financial centre for Asia; and, in the second instance, that as a matter of national pride the Yuan ought to be the most important currency in any “designer” Asian money. Taking its cue from Japan, China has starting arguing that others, including the ASEAN states should place greater weight on the Chinese Renminbi (RMB). Indeed, already smaller states close to the border of China are using the RMB in settling their international (and indeed some internal) trade. Of course, these are the same target states for Japan’s ‘scientific’ common currency proposals.

Of course, Japan is not France, China is not the UK and the AMU proposal is not the LMU. But if a lesson can be drawn from history it is that without a level of trust and cooperation among the major powers of the region, currency coordination efforts are doomed to become a competitive and futile exercise. Much like France of the 19th Century, Japan has not presented a unified vision. Moreover, Japan has copied some of France’s mistakes, linking membership in the proposed AMU to the political alignment of prospective member countries.[2] It is no surprise then that the plan is viewed suspiciously by Beijing. As Balassa suggests, if Japan and China are not even able to conclude a FTA between themselves, then cooperation in the creation of a regional currency is beyond them.[3]

[1] Italy, Switzerland, Spain, Greece, Romania, Austria-Hungary, Bulgaria, Venezuela, Serbia, Montenegro, San Marino and later the Papal States, although the Papal States were later thrown out due to the practice of debasing their coins.
[2] Smaller German not yet part of Bismark’s second Reich looked to the LMU as a way of gaining French support for the independence. Taiwan and Hong Kong are playing similar games, as are countries such as Laos in the Mekong Delta.
[3] Bela Balassa, The Theory of Economic Integration (Homewood: Irwin, 1961).

Yes We Can't!

2009-09-02T20:03:00.001+09:00

Today’s Asahi Shinbun carries the results of its spot opinion polling in the wake of Japan’s recent elections. This might be called the morning after poll. And true to form, some voters are looking across at their newly elected leader (and his party) and are wondering, did I do the right thing?

According to the poll, most voters believe they elected the DPJ in the passion of the historical moment, with 81% saying that the DPJ won because the voters wanted (emotionally) a change. Only 38% believe that the DPJ won because of their superior policy platform. In fact, 52% reported that did not believe that the policy platform came significantly into the voters’ decision one way or another.

Perhaps for the DPJ that is for best. Polling on support for big ticket items in the DPJ’s agenda reveals an underlying negativity. Nearly 49% of respondents were opposed to the Child Support policy (compared to 31% who agreed), presumably due to fears of greater suffering in the 40s and 50s demographic. And there was next to no support for the abolishment of tolls on high speed roadways, 65% against to 20% for. One can only assume that voters were even less taken by the LDP’s offering, the trust in that relationship having been broken by the LDP’s four years of instability and the changing face of the man on top of that political machine.

But despite such voter indifference, or even negativity, towards the DPJ’s actual policies, most (74%) of those responding said they hoped that DPJ would do something good for Japan. A vague hope paired with some doubts, as 46% of respondents believed that the DPJ will not be able to make any significant changes.

This contrasts with recent American and Australian experiences. After the upset elections in both the U.S. and Australia, the voters who had supported the winning party were happy for a week, and for some the joy lasted a month or more. In Japan, it seems, the afterglow does not last even one news cycle.

Should we be optimistic or pessimistic about the new DPJ government? Foreign Policy prognosis.

2009-08-31T13:47:00.000+09:00

Last night Japan made history; throwing out the LDP and giving Hatoyama’s DPJ an overwhelming majority in the Diet and clear mandate to pursue his policies.

Before the election, while most observers (myself included) believed that the DPJ would be able make government without a coalition partner. But I was surprised that the DPJ took the 300-plus seats which had been projected by the opinion polls, a landslide.

Make no mistake about it; this is a great result for Japan as a whole. If the DPJ had unexpectedly failed to win government somehow, the subsequent administration would have faced a huge legitimacy deficit, big enough indeed to put Japan national debt in the shade. Or, if the DPJ had won government but needed to form a coalition to do so, it is unlikely that it could aggressively pursue its preferred policies. And that is surely the point; this outcome means that the DPJ has the ability aggressively pursue the kinds of policy shifts that Japan needs, for instance in foreign policy.

But this doesn’t mean the DPJ will. In fact, although the DPJ has displayed a preference to lean away from the US towards Asia, the specifics of such an important strategy move are still undecided, suggesting that little will in fact change. Thus, the DPJ is at risk of drifting with Japan’s foreign policy. This risk, when the rise of China, the re-ordering of the US’s Asian priorities and a financial crisis conspire to make decisiveness more than virtue, but a necessity, needs to be faced head on.

For instance, with regard to the DPJ’s potential drift away from the US; during the election the existence of a secret agreement which undercut Japan’s non-nuclear principles (hikaku gensoku) came to light. The DPJ has promised to investigate whether a secret agreement exists, but has not promised necessarily to report the outcome to the Japanese people. Likewise, although the DPJ had promised to reach a trade deal with the US, promises here have also been diluted. Both trade and security aspects of the US relationship might drift.

On the flip side, the DPJ has declared its interests in Asia. But what precisely they intend to do is still a vague and uncertain. The DPJ has indicated its interest in an FTA with South Korea, but at the same time there remain questions about whether the DPJ will have the spine to take on the domestic agricultural lobby. At the same time, Korea has its own concerns about an FTA with Japan, although agriculture is no longer one of them. Interestingly, the DPJ has proposed a new party level bureau to manage CCP-DPJ exchange, that is to say a direct exchange between the Chinese Communist Party and itself. Apart from the dubious utility of such an arrangement, it is uncertain if the Chinese side will accept such a proposal in any case. Indeed, the DPJ may learn that Asia is not willing to embrace Japan, and Japanese initiatives, quite as eagerly as the DPJ believes.

We will see the DPJ do will foreign policy soon enough, for an early indication of Japan’s orientation looking to FTAs seems a good bet as no doubt there will be a declaration about this soon enough.

Japanese university students and the election; some thoughts channeled.

2009-08-21T18:20:00.002+09:00

Being in Japan during this election is an opportunity to write about more than just what is in the papers. Instead, I would like to write about what my Japanese university friends are thinking and feeling about this election. May it be of interest, if not use.

Upfront the results are, DPJ 7, LDP 3, Undecided 3. Survey results not to be extrapolated from as Meiji Uni is noted as left leaning, and disproportionate number surveyed are men (10) and non-scientific methods were used in collection of data (some subjects spoke in the proximity of alcohol). I will talk first about the post-grads, with whom I have more contact and more interesting observations.

Firstly, most post-grads are voting for the DPJ. But despite the fact that most are voting for the DPJ, as expected of young urbanites, none of them are really happy it. Their support for the DPJ is based more on a rejection of the ruling LDP rather than support for the DPJ itself.

This can be seen in how many of them project the outcome of the election. Although recent polling suggests that the DPJ might take as many as 300 of the 480 seats thereby establishing single party government, all post-grad students projected that the DPJ would have to form a coalition. Even those most emotionally interested in the DPJ winning an absolute majority said they could not believe that it would actually occur; this student projecting 220-230 seats for the DPJ. Those declaring an intention to vote for the LDP agreed, believing that the DPJ would win government but fall short of an absolute majority.

I asked what would happen if the DPJ failed to win single party government, one student responded ominously, “if the DPJ forms coalition with the Social Democrats they are finished. If the DPJ forms coalition with the Communists, they are finished. If the DPJ forms coalition with the Kokumin Shin Tou, they are finished. And if they are foolish enough to form coalition with either the LDP or Komeito, then they are finished for good.”

This unhappiness with either the LDP or DPJ is at least a little troubling. It suggests that this, the next generation of voters, have neither loyalty to the LDP or to any other party. I asked some of the post-grads if they are not loyal to party, what are they politically loyal to (ideas? money?) - and got mostly uncomfortable silence. One answered honestly that her vote depended mostly on her parents, and that their decision was in turn based mostly on which of the two parties would provide more for them financially (answer: LDP). Another LDP inclined voter, although extremely unhappy about it, noted that he thought that the DPJ would be even more disorderly that the LDP and in particular their ideas about national defense were idealistic (he means, dangerous). He said he valued stability. That seems to be word which came up often as well.

On the other hand, another of the post-grads told me that he will vote for the DPJ just s to see the mythic seiken kotai, he believed that otherwise the two parties were as bad as each other. Another declared DPJ voter was more firm about in his reasons, stating that while the DPJ is a little idealistic, idealism is what Japan needs now. Most others were vague in the reasons for their support of the DPJ, it is possible they may be being influenced by a zeitgeist of change coming from the US. Indeed, DPJ Hatoyama has deliberately used this English word in order I suspect foment such a mood. The point again to be underlined is that the support for the DPJ is fragile, even among this demographic which ought to be supporting them.

The undergraduates that I have talked were also undecided on the whole about which of the two parties to support (none of them mentioned any of the smaller parties). For these undergraduates, this was their first election and making a decision about which party to support was proving difficult. Although they read the newspaper and knew a few things about the parties, they were less informed (as expected) than the older (more mature?) post grad cohort. I asked why had not they decided, and the answer seems to be that they feel that they just do not “know” which is better. One of them reflected that his parents had not decided yet, so how could he. Most agreed that they would decide on the day.

Interestingly, levels of awareness of the two parties policy platforms (manifestos) is unbalanced. Most are aware (and not enthusiastic) about the DPJ’s policies, but they are not so aware of the LDP’s policy – strange given that the LDP ought be considered the default base from which one compares alternate policies. This probably can be chalked up to the media, which has focused on some of the less well thought out DPJ policies. In particular, problems over funding their child support and highway policies while not at the same time raising the consumption tax. This means that for some of the DPJ they are comparing the policies they know that DPJ is promoting with “nothing.” This stand in contrast with the post-grads who were comparing the two parties manifestoes.

In conclusion, talking to the university students has me a little concerned. A lot of newspapers are already calling the election for the DPJ. Some are suggesting a landslide victory the DPJ propelling them into single party government. But my friends and colleagues at university are less sure. This election holds the promise of change, no doubt, but it also holds the potential wreck Japanese self-confidence if the DPJ unable to do anything either due to its own failings or because they are forced into coalition.

The Ministry of Agriculture, Farming and Fishery; double game.

2009-08-16T15:15:00.004+09:00

This is from today’s Sunday Project (Tsuiseki). It is an article of common knowledge that Japanese bureaucracies are able to control indirectly policy output in ways that other governments (such as Australia) simply would not allow. But the Sunday Project today opened my eyes to the extent that one Ministry, the Ministry of Agriculture, Farming and Fishery (MAFF), will go in order to control public discourse (and thus policy) on issues it considers important. Important, that is, to the farm lobby, as the MAFF reports on food self-sufficiency (Jikyuu-ritsu) can not be concerned by a fair and balanced contribution to the public debate.

Anyone who reads the Japanese newspapers regularly would know this term. And some might even remember the number that goes with it, 40%. Jikyuu-ritsu forty percent is almost a mantra for the MAFF, and via their reports it now featured widely in news, commentary and even children’s textbooks (complete with ‘40%, that is low (bad)’ implicit in the text. Indeed, there is a question about whether this figure is indeed low and whether that is ‘bad’, but first a note about the somewhat unusual manner of calculation.

Japan, like Korea (one assumes for similar reasons), uses the calorific method of calculation, rather than the near universal cost-base calculation. This method divides the number of calories an average Japanese consumes by the amount that Japan produces. The reason is simple enough, 40% is lower than 66%, the figure produced if the cost-base calculation were to be used instead. (Another way of saying this would be that the Japanese mostly buy Japanese produce but that the produce bought is mostly low-calorie yielding. Again this is due to the oddity of the calculation method, which factors out meat, milk and eggs that is produced using imported feed.)

But the MAFF has deliberately chosen the calorific method anyhow. Perhaps this is because 66% simply is not sufficiently panic causing. Especially since the MAFF has repeatedly stated that Japan’s self-sufficiently rate is the lowest in the world (they mean lowest in the OECD, but it quickly becomes confused in the media, thanks Chris). This claim would not be true if one were to use the cost method, with the UK scoring much lower in this case. Even the minister in charge, Ishiba noted on the Sunday Project program, that this method of calculation was somehow odd or confusing.

It is clear then that the MAFF is trying to steer Japanese policy toward building up (subsidizing) domestically produced farm produces. While this kind of protectionism might go well over with the agricultural lobby, it is costing Japan – agriculture is after all just 1% of Japan’s GDP (see, Mulgan at the EAF.) Worse still the argument for a high Self-Sufficiency score is itself pretty poor. If one thinks about it, a country only needs high scores on self-sufficiently during a major war. Such a war is not likely any time soon, so Japan should be putting its economic priorities first. Moreover, there is a good argument for liberalizing Japanese agricultural markets for strategic reasons. Signing an FTA with the US, or Australia for that matter, which covered farm products would not just give an Japan’s economy a boost, but would also help to lock-in American (or other 3rd countries) security interests in Japan. While it is true that Chinese farm exports to Japan are growing steeply, if Japan is really worried about this issue as one of national security then supporting domestic farmers is not the answer. Japan is going to have to dependent to some extent on someone for its food security, it will have to make a choice.

Japan, the DJP and Regional Financial Arrangements; a preliminary view.

2009-08-11T13:30:00.003+09:00

In recent days both the Liberal-Democratic Party (LDP) and the Democratic Party of Japan (DPJ), in addition to trading barbs, have released their respective ‘manifestos’, or policy platforms. Unsurprisingly, the focus in these documents is on domestic political matters almost exclusively with the pension system again taking centre stage.

Despite the preoccupation with internal affairs, Japan will not be able to shut out events in the outside world. The global financial crisis will propel the new government headlong into international affairs, ready or not.

It is increasingly likely that the DPJ will win this election. What are the DPJ’s views on Japan’s role in the international economy?

A central question is whether Japan will throw its weight behind the effort to de-throne the US dollar’s global role. It is worth remembering that in 1999, in the aftermath of the Asian financial crisis, the then PM Obuchi proposed ‘yen internationalisation’ as a means of achieving exactly this. Japan’s intentions are still important because unlike China - the current ‘leader’ (or at least the most vocal member) of the putative movement to replace the dollar, the Japanese yen has the greater ability to replace to some extent the dollar’s role, at least within East Asia.

The first point is that the DPJ has no declared policy on the role of the yen. At least not yet. But it has ideas, and ideas which in time might morph into policy. Indeed, Yukio Hatoyama, the DPJ’s leader and potential Prime Minister, has commented about currency coordination in East Asia in the Diet. In 2005, Hatoyama said in a Diet session focused on constitutional reform, that ‘it is important now to have a discussion about how to include in our constitution a clause enabling us, Japan, to give up a portion of our sovereignty to regional level governance, like the members of the EU did with the Euro. I believe that such an East Asian Community is necessary.’ While not a comment on ‘yen internationalisation’ per se, these comments suggest that the idea of common currency in Asia (the effect of which would be to displace or reduce the role of the USD) has attraction for him personally.

Others within the DPJ have been more specific. Nakagawa Masaharu, the Nekusuto (shadow) treasurer, hit all the buttons in an interview with Bloomberg in early July, in one sentence alone calling for yen internationalisation, IMF-SDR denominated bonds, and the US to issue some of its bonds in yen (aka Samurai bonds). Taken together, these ideas if they became policy would move Japan from its current position supporting the USD’s role as key currency, to adding Japan’s not inconsiderable weight to those seeking to unseat the USD (or at least its privilege in debt denomination).

Hatoyama’s belief is that the question of the USD’s role (and yen’s role in any new regional financial architecture) is ultimately a political question, as closely tied to the rise of China as to the perceived excesses of the US. Hatoyama recently published a piece called ‘My political philosophy’ in this month’s Voice, a leading news magazine in which he writes, ‘The realisation of regional currency integration (an Asian Common Currency) ought to be our goal, however this ought to occur in the context of building a permanent East Asian security frame-work’. That is a fairly unequivocal statement of support for the Asian Currency Unit (ACU) idea – an idea which has been voiced in Japanese Ministry of Finance and related research bodies, and by influential people such as former PM Nakasone. Taken together with Hatoyama’s earlier statements in the same article about American economic hegemony failing, we can conclude that he is (at the moment, as the leader of the non-governing party) sympathetic to idea of reforming the current financial system in which the USD is the key currency. Hatoyama’s ideas about an Asian Common Currency (presumably including China) were married to the belief that the move (effectively toward China) should be taken in tandem with the development (and progress towards) a regional security framework.

It is still early days, but what is apparent is that the DPJ and Hatayama are more pre-disposed than the LDP toward reaching a new understanding with China. The emphasis on China is clearly signposted in the DPJ manifesto, as is the interest in cooperating with China in regional architecture building, including in the financial arena.

Neither Hatoyama nor Nakagawa have a background in international finance, (graduates of engineering and international politics respectively), so once the DPJ is in government and as the trade offs of moving beyond the dollar become clearer there remains every possibility that the DPJ will back away from taking on the USD, at least initially. But if there were signs already the Japan was tipping away from the US-led Pacific, open regional order towards a more exclusive economic arrangement with its partners in East Asia, the results of this election could accelerate those trends.

what is fair?

2009-08-04T12:57:00.006+09:00

Just came back from China, I had hoped to post there but the great wall of fire prevented me from accessing blogspot.

While in China, I watched the CCTV 9 News program (English). It is not bad, I think I might even prefer it to Foxx News, if only because the biases are more cleverly hidden. One of the items that the CCTV News reported on was the Strategic and Economic Talks between the US and China. Rather than getting into the interviewer's questions or the line up of apparently experts, what stuck me was the different senses of what was a fair outcome for the China-US (more broadly China-West) relations.

The CCTV news provided the view that these S&E talks should not allowed to draw China in a G2, and that China should take as little responsibility as possible for fixing the world's current economic problems - including those of America. On the flip side, America are expecting that China will come to table to hammer out a deal that will help the US to recover (and thereby help China too).

The gap between these two going into the discussion seems large. No doubt there are areas of common concern at which an agreement can be made, but it seems to me that there is the potential here that once the crisis ends one or other party will feel "unfairly" done by. Probably China, as it is they who are being asked/forced to fork out more and more for America - (US treasury were bought at a record rate in this month, despite poor trade numbers, and in spite of warning by China about the risk of holding dollars).

If its expects are not met, it might be a wounded China that comes out of this economic crisis, and the possibility that China's disillusionment with the world system and US leadership do not bode well.

2009-07-17T14:50:00.002+09:00

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.

Internationalisation of the Yen Yuan

2009-07-15T17:53:00.008+09:00

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.

Japan-India relationship, back to economics?

2009-07-13T17:51:00.003+09:00

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.

Xinjiang、Uighers and the Asian Development Bank

2009-07-10T13:54:00.005+09:00

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.

Asia's monetary integration - diffusion

2009-07-08T09:48:00.004+09:00

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.