Monday, March 30, 2009

China's economic stimulus: Acting locally

While Rome was burning, Nero fiddled. Now, while the Obama Administration is working to douse the economic firestorm, politicians and pundits from both ends of the spectrum continue to indulge on petty politics.

At least that’s what it looked like on CNN to someone who was travelling in China—namely, politics as usual in Washington. Pundit Rush Limbaugh even publicly wished that Obama would fail and a good contingent of politicians rushed to prostrate before this idol of babble.

Wishing Obama to fail? “You can’t be serious,” to use the words of a famous tennis idol. There is life after a wrong call by the line judge but I shudder to think about what life is going to be like if Obama does not pull America out of the economic tailspin.

By virtually every account I have read, China is confronting the economic crisis much more effectively than Washington. The local governments are working in step with the central government to stimulate the economy and nobody is wishing that the Hu Jintao government should fail.

The Business Class cabin on the transpacific flight was not even half full, and I was able to buy an air ticket from Wuhan to Shanghai at 70% off list. All the domestic flights inside China I was on were not full. No question, China is also feeling the economic drag of worldwide downturn.

China’s domestic flights would’ve been emptier were it not for tour groups of Chinese. I saw groups sporting identical caps and travel bags at all the airports getting ready to go somewhere. I was seeing a lot of travelers in a normally non-busy part of the travel season.

Beijing’s Wangfujing was busy and full of shoppers. Normally a popular commercial street and tourist attraction, the open pedestrian mall showed no strains of economic slow-down. If anything, the parade of organized tour groups led by guides holding up their banners contributed to a festive atmosphere.

Nearby Tiananmen Square was as full of tourists as if in midst of a busy tourist season. The only difference was that virtually all the tourists were from inside China.

During my short stroll at Tiananmen, I was handed bills advertising group tours to attractions around Beijing. One all-day outing included the Great Wall, Ming Tombs, nearby reservoir, a typical old Beijing courtyard residence, the Olympic stadium and nearby Water Cube (where swimming competition took place), along with assorted brief stops on the way.

For the inclusive price equivalent to US$15, the tourist gets pick-up and return delivery, ride in air conditioned luxury coach, all admissions to attractions, fancy buffet lunch, CD disc of the tour including 36 photos taken by a photographer accompanying the tour guide, a Great Wall “hero” certificate, a pair of “climbing” shoes, and a travel bag. The price represented one-third off the regular price and furthermore, a family of four can go for the price of three.

That was for the deluxe tour. A standard tour of the same list of attractions but a plain lunch of eight dishes and one soup and a tee shirt and cap instead of shoes and bag went for half the price. And, the advertisements advised that the tours will not include any obligatory shopping stops.

I found out that many of the major tourist spots in China were heavily promoting local tourism. Hangzhou, for example, handed out vouchers to their own residents as well as to out-of-towners good for free admission to their seven most popular attractions. The cut rate package tours were apparently the way the Beijing Tourism Bureau was promoting their attractions.

Nationally, Beijing just announced the opening of two new high-speed rail segments, linking Wuhan to Shanghai and Taiyuan to Beijing. There are now 200 high speed trains running at over 200 miles per hours on the national network. The number of trains will quadruple in three years. This development will reduce the time and cost to travel and further encourage tourism.

The local acquaintances I talked to seemed generally optimistic that China will weather the economic crisis. They were more concerned as to how the U.S. will work through their challenges.

I asked my friends whether China will achieve the 8% increase in GDP as publicly stated by Premier Wen Jiabao, they merely shrugged and indicated that those government figures, one way or the other, do not mean much to them. It is how the local economy will be doing that they are watching.

Thursday, March 12, 2009

Does High Seas Drama Spell America's Economic Doom?

The U.S. and Chinese military appeared to be engaged in a new round of brinksmanship. Eight years ago, a collision of planes occurred in the air over Hainan Island--this time, near collision of ships on the high seas near Hainan.

In both cases, the American side was engaged in “routine” surveillance and the Chinese side strenuously objected to being spied on. In the case of USNS Impeccable, Pentagon admitted that the ship was trolling for data on the development of China’s submarine base on the Hainan Island.

Pentagon said that the crew was made of civilians, as if that would render the mission benign—no doubt on same logic as hiring mercenaries in Iraq to lessen the appearance of American involvement.

The question is why would the Pentagon provoke an incident at a sensitive time when the Obama Administration is cultivating closer cooperation with Beijing for a host of reasons from international stability to economic recovery?

In late 2006, a Chinese submarine surfaced in midst of a flotilla surrounding the aircraft carrier, Kitty Hawk, to the surprise and embarrassment of the U.S. Navy for not even knowing the sub was there. Perhaps the Pentagon wished to have no more such surprises.

Another reason for the Pentagon action is to reinforce the justification needed for the amount Obama has set aside for defense, which at $663.7 billion is nearly half of the total national budget. Take away $130 billion for the two-front wars in Afghanistan and Iraq, the budget still leaves over $530 billion for “advanced weapon systems development.”

The only other budgeted spending that seems remotely comparable to defense is the $633.8 billion Obama has set aside for national health care—but to be spent over 10 years, not one.

As we face mounting deficit, how can we justify spending such vast sum of money for weapon development, especially now that the former evil empire, USSR, has imploded? Perhaps Pentagon feels that a pumped up China as a potential threat will convince Congress that the same state of urgent threat continues.

China in its nuanced way has been trying to tell the Pentagon that China is not a participant in an arms race, but is merely satisfied to maintain a credible second strike capability to deter any other powers from entertaining funny ideas.

Surprising the Kitty Hawk flotilla was one way to tell the U.S. that China has silent running subs. Shooting down one of their old satellites was to provide another benchmark for the Pentagon.

In the mid 1990’s Chinese nuclear scientists were delighted to find Danny Stillman of Los Alamos, who was in charge of gathering intelligence on China’s nuclear weapon development. They invited Stillman to make numerous trips to China to visit their nuclear test and development centers so that he can accurately report on state of China’s nuclear weapons—a sort of reverse espionage to make sure the other party gets it right.

Unfortunately, Pentagon failed or did not want to comprehend China’s message but instead choose to consider each development as justification to work on even more deadly offensive weapons—as if Pentagon needs to absolutely overwhelm China’s capability. However, it seems intuitive that the expenditure required to develop a second strike capability is orders of magnitude less than it is to develop the offensive capability necessary to snuff out second strikes.

President Ronald Reagan has been largely credited with introducing the star wars strategy and convincing the Russians that they need keep up with the American level of spending for arms until suddenly the USSR discovered that they were bankrupted.

Now there is no one around to drive the Americans to bankruptcy but we seemed determined to spend into bankruptcy anyway. Perhaps Pentagon believes that they can borrow from the Chinese to finance the over the top defense budget?

An edited version is in New America Media.

Friday, March 6, 2009

Notes on Tunisia

Tunisia is a small nation sandwiched between two giant neighbors, Algeria and Libya. By some quirk of fate, this country shaped like an elongated seahorse was spared the heavy boot of colonialism and managed to maintain some semblance of self-identity as a protectorate of France. Some positive fallout of its relationship with France are that Tunisians make great tasting bread, croissants and pastries and most of the population have some fluency in French.

About a decade after WWII, Tunisia achieved its independence from France, more or less amicably with only a modicum amount of bloodshed. Since independence, the country has been blessed (or cursed depending on one’s point of view) with two strong national leaders. Bourguiba, (1903-2000) the first leader after independence, was a progressive who pushed the country to establish a national identity and modernize, provided free public education and enacted the emancipation of women. Whether his being educated in France and marrying a French woman had anything to do to influence his ideas is worthy of ponder. He also kept the country secular and a lid on the Islamic religious institutions from getting too powerful. In 1975, the National Assembly made an error of electing him president for life, not anticipating that he was to become senile within a decade.

Since Bourguiba lived to a ripe old age of 96, it was a good thing that his then prime minister, Ben Ali forcibly retired the president-for-life on November 7, 1987, and took over the presidency. There are now monuments in virtually every town square celebrating this date, most notably being the clock tower on Bourguiba Avenue, the main drag of the capital Tunis. Since then, Ben Ali has been successively re-elected to 5 year terms of office, president for life in effect though not in name. Ben Ali, ubiquitous portraits of his friendly smiling face everywhere, has basically continued his predecessor’s progressive policies and the country has enjoyed decades of stability.

With stability, Tunisia enjoyed a standard of living superior to its neighbors and the population seems generally content. The economy is growing at a healthy 5% per year and the population at around 1%. The steady loosening of Tunisia, the emphasis on stability and the drive to modernize seem reminiscent of Deng Xiao Ping’s pragmatic policies, except Bourguiba pre-dated Deng by more than two decades. Deng also studied in France in his early formative years. Perhaps there is something about France that is nurturing to progressive revolutionaries.

Sidi Bou Said