CHINA CONTINUES TO RENATIONALISE; 'THE SECOND-COMING OF STATE OWNED ENTERPRISES'

What's yours is mine in China's coalfields

The Australian
January 25, 2010

NOWHERE is renationalisation more blatant than in the rich
coalfields of Shanxi.

Yet there's money lying beneath this unalluring mix. Loads
of it. Taiyuan is scattered with Bentley showrooms, Rolex
boutiques -- in fact, all the luxury brand names from New
York, London, Paris, Hong Kong and Shanghai. And the locals
like to talk about money.

"When a Shanxi businessman goes to Beijing to look for
houses, he doesn't just look at one apartment -- he looks
at the entire side of the building," a Shanxi executive
said in Taiyuan last week.

Most of the money has come from coal, the black gold that
fuels China's power stations and its steelmaking blast
furnaces, processing Australia's iron ore. Fortunes have
been built on the back of the province's mine workers, and
with their blood: there were 2631 deaths in China's coal
mining sector as a result of mine accidents last year, but
the figure was down by 20 per cent on 2008.

Shanxi is changing. Once home to thousands of small and
mid-sized mines and mining companies, now the government is
taking over again. Shanxi's coal sector is a high-profile
symbol of renationalisation: the second coming of
state-owned enterprises.

Tens of thousands of state-owned enterprises were pulled
apart in the 1980s to allow capitalism to develop. But now
the country's leadership is becalmed as it heads into its
last two years in power after years of only incremental
economic reform.

China's ruling politico-corporate complex has also been
emboldened by the opportunities of the global financial
crisis, which saw more than $US1.5 trillion pumped into the
economy, most into state-run companies.

The crisis has also been used to step up plans for
consolidation in eight key industries: the aim of this is
to have a smaller number of large companies which China
wants to be able to compete with large foreign
multinationals as well as expanding globally.

It's not just on a national level. In Shanxi, home to 30
million people, seven provincial coal miners have been
allocated a slice of the private sector at a bargain price.

In Shanxi close to 2000 small mines have been forceably
reclaimed, officially for efficiency, health and safety and
environmental concerns. These are real concerns: the
government attributes the fall in deaths to small mine
closures and says 70 per cent of fatalities are at small
mines. But one miner owner says he instituted the extra
safety and environmental controls but was still forced to
sell to the government at a loss of 5 million yuan
($833,000).

Businesses from the wealthy province of Zhejiang and its
famously rich capital Wenzhou are the biggest single source
of investment in Shanxi's coal sector.

"Wenzhou, one of the regions with the most active private
economy, has only 4.5 per cent GDP growth in the first half
of last year, far below national level," Xia Yeliang, a
professor at Beijing University, says.

"One of the reasons is Wenzhou's private entrepreneurs have
invested in about 600 coal mines in Shanxi with 200 billion
yuan, which face mergers now.

"It has severely hit Wenzhou's economy. The
renationalisation will have irrevocable impacts on China's
economy. It will have a profound negative effect on wealth
distribution and future development of China, and it must
be stopped now."

Lawyers claim their clients are getting only about 30 per
cent of the real value of the business in the forced sale
of coal mines. The provincial government has appointed its
own valuer, but lawyers have claimed this is against the
law. Mines are effectively being bought back for the price
of exploration licences handed out during the first decade
of the century and this does not take into account capital
spending and commercial contracts, says Zhang Yucheng, a
lawyer at national Chinese law firm Dacheng Law Office.

Last year China depended entirely on government funding to
achieve its 8.7 per cent growth. It was a tough year for
businesses in China -- recent government figures showed 20
per cent of small businesses went broke between November
and May and a further 20 per cent went close to collapse --
but China's state-owned enterprises got richer.

Last week the state press reported that China's SOEs were
expected to generate 750 billion yuan in profits and
achieve sales revenue of 12 trillion yuan in 2009.

In the first 11 months of 2009, the 131 SOEs under the
direct supervision of the State Assets Supervision and
Administration Commission (SASAC) posted 3.4 per cent
year-on-year growth in profits to 710.9 billion yuan on
revenues of 11.1 trillion yuan. "China will continue to
push ahead with the restructuring of its SOEs next year and
will encourage state-owned companies to pursue mergers and
acquisitions across different regions and countries," SASAC
director Lo Rongrong says. "We will also back private
enterprise investments in state-owned entities."

Initially, aggrieved mine owners, unaware of their legal
rights, were loath to take on the government. But now
China's biggest law firm, Dacheng, has taken on the case
for a group of mine owners.

"The Shanxi government has no right to handle the ownership
of private coal mines. It violates the Chinese
constitution, contract law and mineral resource law," Zhang
says.

"The transfer deal price should be assessed according to
market value."

The law firm is pushing for the appointment of an
independent arbiter to reassess the valuation of the mines
and says the Shanxi government has breached a number of
laws and regulations.

This is an interesting case in a country with no private
property rights.

sainsburychina@gmail.com - Michael Sainsbury

CHINESE GOVERNMENT CRACKS DOWN ON PROPERTY SPECULATION

China rolls out fresh measures for property market amid rising house prices



BEIJING, Jan. 10 (Xinhua) -- The General Office of the State Council, China's cabinet, Sunday issued a notice that required central governmental departments and local governments to strengthen management, stabilize market expectations and facilitate stable and sound development of the real estate market.

"With the recovery of the real estate market, such problems as excessively rising house prices have recently emerged in some cities, which call for great attention," said the notice.

It listed 11 specific measures which should be taken in five aspects -- increasing supply of low-cost houses for low-income families and common residential houses, encouraging reasonable house buying while restraining purchases for speculation and investment, strengthening real estate project loan risk management and market supervision, speeding up construction of housing projects for low-income households, and specifying responsibilities of local governments.

On increasing supply of low-cost houses for low-income families and increasing supply of common residential houses, the notice said efforts should be made to construct more smaller-sized low- and medium-pricing apartments while increasing land supply for residential housing projects.

According to the notice, governments at all levels should act to push property developers to quicken project development and sales of finished projects.

The notice also said cities nationwide, especially those with high house prices and excessively rising house prices, should step up efforts to build more affordable or low-rent housing projects for low and medium income families.

To increase land supply for residential housing projects, the notice required city governments nationwide to lay out as soon as possible the residential housing construction plan for 2010-2012, which should be specific on each year's construction scale of smaller-sized low- and medium-pricing houses, low-rent houses and affordable houses for low and medium income families.

On encouraging reasonable house buying while restraining purchases for speculation and investment, the notice said financial institutions should continue encouraging first-time ordinary home buying while strictly carrying out mortgage loan policies on second-time home purchasing.

It said the down payment requirement for those families applying to buy a second or more houses backed with loans should be no less than 40 percent, and the mortgage rates should be strictly settled on the basis of loan risks.

On strengthening property project loan risk management and market supervision, the notice said financial institutions should not grant loans to any developers failing to meet the minimum amount of capital needed to jumpstart a new commercial property.

It also asked the People's Bank of China and the China Banking Regulatory Commission to enhance supervision on property credit among commercial financial institutions.

Efforts should also be made to strengthen monitoring of capital flow and trans-boundary investment and financing activities so as to prevent credit from entering the real estate sector illegally and stop overseas speculative funds from jeopardizing China's property market, it said.

The notice also asked the Ministry of Housing and Urban-Rural Development and other departments to take more measures to crack down on property developers that hoarded land or houses for more profits, and on real estate brokerage which conducted price deception or spread rumors to jack up house prices.

The taxation authority should thoroughly investigate tax fraud cases by property developers and severely punish those violators, while the State-owned Assets Supervision and Administration Commission should further regulate investment activities by major state-owned enterprises in the property market, according to the notice.

On speeding up construction of residential housing projects for low-income households, the notice said governments at all levels should strive to help solve the housing problem of 15.4 million low-income urban households by the end of 2012.

It urged local governments to make more efforts on the renovation of "shanty towns" and increase low-rent houses and affordable houses to low-income families.

On the fifth and final aspect, the notice said more work needed to be done to improve the working mechanism in which provincial governments should assume general responsibility in stabilizing property market and solving the housing problem for low-income families while city-level governments should take the responsibility of implementing specific measures.

Local governments should annul any rules in the property market that were in conflict with the macro-control policies adopted by the central government, it said.

The lengthy notice came after house prices in 70 large and medium-sized Chinese cities rose 5.7 percent year-on-year in November 2009, continuing an escalation which has triggered fresh concerns over property speculation and property bubble in the country.

The November rise, which was 1.8 percentage points higher than the jump in October, was the ninth straight monthly increase of house prices in the survey of real estate across major Chinese cities.

China's property market received a blow and began to fall in late 2008 after the global financial crisis crippled China's once-essential exports and the economy as a whole.

But a series of favorable measures, a credit boom and speculative investment in 2009 had led to a quick recovery of China's property market and price hikes, which started around March 2009.

Statistics from Goldman Sachs showed that over the past six years, housing price hikes had outpaced income rises by 30 percentage points in Shanghai and 80 percentage points in Beijing.

In Beijing, the housing price of per square meter is as much as a resident's seven months' salary on average.

Chinese Premier Wen Jiabao told Xinhua in an interview on Dec. 27 that the government would use taxes and mortgage rates to stabilize house prices and take measures to clamp down on house speculation.

Starting Jan. 1 this year, the government started to reimpose a sales tax on homes sold within five years of their purchase, after cutting the period to two years in January of 2009 to boost the then falling property market.

ARTICLE ARGUES: 'US CANNOT FIGHT CHINA WITHOUT OCCUPYING YEMEN'

Obama's Yemeni odyssey targets China
By M K Bhadrakumar

Asia Times

A year ago, Yemeni President Ali Abdallah Saleh made the
startling revelation that his country's security forces
apprehended a group of Islamists linked to the Israeli
intelligence forces. "A terrorist cell was apprehended and
will be referred to the courts for its links with the
Israeli intelligence services," he promised.

Saleh added, "You will hear about the trial proceedings."
Nothing was ever heard and the trail went cold. Welcome to
the magical land of Yemen, where in the womb of time the
Arabian Nights were played out.

Combine Yemen with the mystique of Islam, Osama bin Laden,
al-Qaeda and the Israeli intelligence and you get a heady
mix. The head of the US Central Command, General David
Petraeus, dropped in at the capital, Sana'a, on Saturday
and vowed to Saleh increased American aid to fight
al-Qaeda. United States President Barack Obama promptly
echoed Petraeus' promise, assuring that the US would step
up intelligence-sharing and training of Yemeni forces and
perhaps carry out joint attacks against militants in the
region.

Another Afghanistan?

Many accounts say that Obama, who is
widely regarded as a gifted and intelligent politician, is
blundering into a catastrophic mistake by starting another
war that could turn out to be as bloody and chaotic and
unwinnable as Iraq and Afghanistan. Yes, on the face of it,
Obama does seem erratic. The parallels with Afghanistan are
striking. There has been an attempt to destroy a US plane
by a Nigerian student who says he received training in
Yemen. And America wants to go to war.

Yemen, too, is a land of wonderfully beautiful rugged
mountains that could be a guerilla paradise. Yemenis are a
hospitable lot, like Afghan tribesmen, but as Irish
journalist Patrick Cockurn recollects, while they are
generous to passing strangers, they "deem the laws of
hospitality to lapse when the stranger leaves their tribal
territory, at which time he becomes 'a good back to shoot
at'." Surely, there is romance in the air - almost like in
the Hindu Kush. Fiercely nationalistic, almost every Yemeni
has a gun. Yemen is also, like Afghanistan, a land of
conflicting authorities, and with foreign intervention, a
little civil war is waiting to flare up.

Is Obama so incredibly forgetful of his own December 1
speech outlining his Afghan strategy that he violated his
own canons? Certainly not. Obama is a smart man. The
intervention in Yemen will go down as one of the smartest
moves that he ever made for perpetuating the US's global
hegemony. It is America's answer to China's surge.

A cursory look at the map of region will show that Yemen is
one of the most strategic lands adjoining waters of the
Persian Gulf and the Arabian Peninsula. It flanks Saudi
Arabia and Oman, which are vital American protectorates. In
effect, Uncle Sam is "marking territory" - like a dog on a
lamppost. Russia has been toying with the idea of reopening
its Soviet-era base in Aden. Well, the US has pipped Moscow
in the race.

The US has signaled that the odyssey doesn't end with
Yemen. It is also moving into Somalia and Kenya. With that,
the US establishes its military presence in an entire
unbroken stretch of real estate all along the Indian
Ocean's western rim. Chinese officials have of late spoken
of their need to establish a naval base in the region. The
US has now foreclosed China's options. The only country
with a coastline that is available for China to set up a
naval base in the region will be Iran. All other countries
have a Western military presence.

The American intervention in Yemen is not going to be on
the pattern of Iraq and Afghanistan. Obama will ensure he
doesn't receive any body bags of American servicemen
serving in Yemen. That is what the American public expects
from him. He will only deploy drone aircraft and special
forces and "focus on providing intelligence and training to
help Yemen counter al-Qaeda militants", according to the US
military. Obama's main core objective will be to establish
an enduring military presence in Yemen. This serves many
purposes.

A new great game begins First, the US move has to be viewed
against the historic backdrop of the Shi'ite awakening in
the region. The Shi'ites (mostly of the Zaidi group) have
been traditionally suppressed in Yemen. Shi'ite uprisings
have been a recurring theme in Yemen's history. There has
been a deliberate attempt to minimize the percentage of
Shi'ites in Yemen, but they could be anywhere up to 45%.

More importantly, in the northern part of the country, they
constitute the majority. What bothers the US and moderate
Sunni Arab states - and Israel - is that the Believing
Youth Organization led by Hussein Badr al-Houthi, which is
entrenched in northern Yemen, is modeled after Hezbollah in
Lebanon in all respects - politically, economically,
socially and culturally.

Yemenis are an intelligent people and are famous in the
Arabian Peninsula for their democratic temperament. The
Yemeni Shi'ite empowerment on a Hezbollah-model would have
far-reaching regional implications. Next-door Oman, which
is a key American base, is predominantly Shi'ite. Even more
sensitive is the likelihood of the dangerous idea of
Shi'ite empowerment spreading to Saudi Arabia's highly
restive Shi'ite regions adjoining Yemen, which on top of it
all, also happen to be the reservoir of the country's
fabulous oil wealth.

Saudi Arabia is entering a highly sensitive phase of
political transition as a new generation is set to take
over the leadership in Riyadh, and the palace intrigues and
fault lines within the royal family are likely to get
exacerbated. To put it mildly, given the vast scale of
institutionalized Shi'ite persecution in Saudi Arabia by
the Wahhabi establishment, Shi'ite empowerment is a
veritable minefield that Riyadh is petrified about at this
juncture. Its threshold of patience is wearing thin, as the
recent uncharacteristic resort to military power against
the north Yemeni Shi'ite communities bordering Saudi Arabia
testifies.

The US faces a classic dilemma. It is all right for Obama
to highlight the need of reform in Muslim societies - as he
did eloquently in his Cairo speech last June. But
democratization in the Yemeni context - ironically, in the
Arab context - would involve Shi'ite empowerment. After the
searing experience in Iraq, Washington is literally perched
like a cat on a hot tin roof. It would much rather be
aligned with the repressive, autocratic government of Saleh
than let the genie of reform out of the bottle in the oil
rich-region in which it has profound interests.

Obama has an erudite mind and he is not unaware that what
Yemen desperately needs is reform, but he simply doesn't
want to think about it. The paradox he faces is that with
all its imperfections, Iran happens to be the only
"democratic" system operating in that entire region.

Iran's shadow over the Yemeni Shi'ite consciousness worries
the US to no end. Simply put, in the ideological struggle
going on in the region, Obama finds himself with the
ultra-conservative and brutally autocratic oligarchies that
constitute the ruling class in the region. Conceivably, he
isn't finding it easy. If his own memoirs are to be
believed, there could be times when the vague recollections
of his childhood in Indonesia and his precious memories of
his own mother, who from all accounts was a free-wheeling
intellectual and humanist, must be stalking him in the
White House corridors.

Israel moves in But Obama is first and foremost a realist.
Emotions and personal beliefs drain away and strategic
considerations weigh uppermost when he works in the Oval
Office. With the military presence in Yemen, the US has
tightened the cordon around Iran. In the event of a
military attack on Iran, Yemen could be put to use as a
springboard by the Israelis. These are weighty
considerations for Obama.

The fact is that no one is in control as a Yemeni
authority. It is a cakewalk for the formidable Israeli
intelligence to carve out a niche in Yemen - just as it did
in northern Iraq under somewhat comparable circumstances.

Islamism doesn't deter Israel at all. Saleh couldn't have
been far off the mark when he alleged last year that
Israeli intelligence had been exposed as having kept links
with Yemeni Islamists. The point is, Yemeni Islamists are a
highly fragmented lot and no one is sure who owes what sort
of allegiance to whom. Israeli intelligence operates
marvelously in such twilight zones when the horizon is
lacerated with the blood of the vanishing sun.

Israel will find a toehold in Yemen to be a god-sent gift
insofar as it registers its presence in the Arabian
Peninsula. This is a dream come true for Israel, whose
effectiveness as a regional power has always been seriously
handicapped by its lack of access to the Persian Gulf
region. The overarching US military presence helps Israel
politically to consolidate its Yemeni chapter. Without
doubt, Petraeus is moving on Yemen in tandem with Israel
(and Britain). But the "pro-West" Arab states with their
rentier mentality have no choice except to remain as mute
spectators on the sidelines.

Some among them may actually acquiesce with the Israeli
security presence in the region as a safer bet than the
spread of the dangerous ideas of Shi'ite empowerment
emanating out of Iran, Iraq and Hezbollah. Also, at some
stage, Israeli intelligence will begin to infiltrate the
extremist Sunni outfits in Yemen, which are commonly known
as affiliates of al-Qaeda. That is, if it hasn't done that
already. Any such link makes Israel an invaluable ally for
the US in its fight against al-Qaeda. In sum, infinite
possibilities exist in the paradigm that is taking shape in
the Muslim world abutting into the strategic Persian Gulf.

It's all about China

Most important, however, for US global
strategies will be the massive gain of control of the port
of Aden in Yemen. Britain can vouchsafe that Aden is the
gateway to Asia. Control of Aden and the Malacca Strait
will put the US in an unassailable position in the "great
game" of the Indian Ocean. The sea lanes of the Indian
Ocean are literally the jugular veins of China's economy.
By controlling them, Washington sends a strong message to
Beijing that any notions by the latter that the US is a
declining power in Asia would be nothing more than an
extravagant indulgence in fantasy.

In the Indian Ocean region, China is increasingly coming
under pressure. India is a natural ally of the US in the
Indian Ocean region. Both disfavor any significant Chinese
naval presence. India is mediating a rapprochement between
Washington and Colombo that would help roll back Chinese
influence in Sri Lanka. The US has taken a u-turn in its
Myanmar policy and is engaging the regime there with the
primary intent of eroding China's influence with the
military rulers. The Chinese strategy aimed at
strengthening influence in Sri Lanka and Myanmar so as to
open a new transportation route towards the Middle East,
the Persian Gulf and Africa, where it has begun contesting
traditional Western economic dominance.

China is keen to whittle down its dependence on the Malacca
Strait for its commerce with Europe and West Asia. The US,
on the contrary, is determined that China remains
vulnerable to the choke point between Indonesia and
Malaysia.

An engrossing struggle is breaking out. The US is unhappy
with China's efforts to reach the warm waters of the
Persian Gulf through the Central Asian region and Pakistan.
Slowly but steadily, Washington is tightening the noose
around the neck of the Pakistani elites - civilian and
military - and forcing them to make a strategic choice
between the US and China. This will put those elites in an
unenviable dilemma. Like their Indian counterparts, they
are inherently "pro-Western" (even when they are
"anti-American") and if the Chinese connection is important
for Islamabad, that is primarily because it balances
perceived Indian hegemony.

The existential questions with which the Pakistani elites
are grappling are apparent. They are seeking answers from
Obama. Can Obama maintain a balanced relationship vis-a-vis
Pakistan and India? Or, will Obama lapse back to the George
W Bush era strategy of building up India as the pre-eminent
power in the Indian Ocean under whose shadow Pakistan will
have to learn to live?


US-India-Israel axis

On the other hand, the Indian elites
are in no compromising mood. Delhi was on a roll during the
Bush days. Now, after the initial misgivings about Obama's
political philosophy, Delhi is concluding that he is all
but a clone of his illustrious predecessor as regards the
broad contours of the US's global strategy - of which
containment of China is a core template.

The comfort level is palpably rising in Delhi with regard
to the Obama presidency. Delhi takes the surge of the
Israeli lobby in Washington as the litmus test for the
Obama presidency. The surge suits Delhi, since the Jewish
lobby was always a helpful ally in cultivating influence in
the US Congress, media and the rabble-rousing think-tankers
as well as successive administrations. And all this is
happening at a time when the India-Israel security
relationship is gaining greater momentum.

United States Defense Secretary Robert Gates is due to
visit Delhi in the coming days. The Obama administration is
reportedly adopting an increasingly accommodative attitude
toward India's longstanding quest for "dual-use" technology
from the US. If so, a massive avenue of military
cooperation is about to open between the two countries,
which will make India a serious challenger to China's
growing military prowess. It is a win-win situation as the
great Indian arms bazaar offers highly lucrative business
for American companies.

Clearly, a cozy three-way US-Israel-India alliance provides
the underpinning for all the maneuvering that is going on.
It will have significance for the security of the Indian
Ocean, the Persian Gulf and the Arabian Peninsula. Last
year, India formalized a naval presence in Oman.

All-in-all, terrorism experts are counting the trees and
missing the wood when they analyze the US foray into Yemen
in the limited terms of hunting down al-Qaeda. The hard
reality is that Obama, whose main plank used to be
"change", has careened away and increasingly defaults to
the global strategies of the Bush era. The freshness of the
Obama magic is dissipating. Traces of the "revisionism" in
his foreign policy orientation are beginning to surface. We
can see them already with regard to Iran, Afghanistan, the
Middle East and the Israel-Palestine problem, Central Asia
and towards China and Russia.

Arguably, this sort of "return of the native" by Obama was
inevitable. For one thing, he is but a creature of his
circumstances. As someone put it brilliantly, Obama's
presidency is like driving a train rather than a car: a
train cannot be "steered", the driver can at best set its
speed, but ultimately, it must run on its tracks.

Besides, history has no instances of a declining world
power meekly accepting its destiny and walking into the
sunset. The US cannot give up on its global dominance
without putting up a real fight. And the reality of all
such momentous struggles is that they cannot be fought
piece-meal. You cannot fight China without occupying Yemen.

Ambassador M K Bhadrakumar was a career diplomat in the
Indian Foreign Service. His assignments included the Soviet
Union, South Korea, Sri Lanka, Germany, Afghanistan,
Pakistan, Uzbekistan, Kuwait and Turkey.

VOICE OF BRITISH FINANCIAL ELITE: US ARE LOSING THE FREE WORLD

America is losing the free world

By Gideon Rachman

4 Jan, 2010, FT

Ever since 1945, the US has regarded itself as the leader of the “free world”. But the Obama administration is facing an unexpected and unwelcome development in global politics. Four of the biggest and most strategically important democracies in the developing world – Brazil, India, South Africa and Turkey – are increasingly at odds with American foreign policy. Rather than siding with the US on the big international issues, they are just as likely to line up with authoritarian powers such as China and Iran.

The US has been slow to pick up on this development, perhaps because it seems so surprising and unnatural. Most Americans assume that fellow democracies will share their values and opinions on international affairs. During the last presidential election campaign, John McCain, the Republican candidate, called for the formation of a global alliance of democracies to push back against authoritarian powers. Some of President Barack Obama’s senior advisers have also written enthusiastically about an international league of democracies.

But the assumption that the world’s democracies will naturally stick together is proving unfounded. The latest example came during the Copenhagen climate summit. On the last day of the talks, the Americans tried to fix up one-to-one meetings between Mr Obama and the leaders of South Africa, Brazil and India – but failed each time. The Indians even said that their prime minister, Manmohan Singh, had already left for the airport.

So Mr Obama must have felt something of a chump when he arrived for a last-minute meeting with Wen Jiabao, the Chinese prime minister, only to find him already deep in negotiations with the leaders of none other than Brazil, South Africa and India. Symbolically, the leaders had to squeeze up to make space for the American president around the table.

There was more than symbolism at work. In Copenhagen, Brazil, South Africa and India decided that their status as developing nations was more important than their status as democracies. Like the Chinese, they argued that it is fundamentally unjust to cap the greenhouse gas emissions of poor countries at a lower level than the emissions of the US or the European Union; all the more so since the industrialised west is responsible for the great bulk of the carbon dioxide already in the atmosphere.

Revealingly, both Brazilian and Chinese leaders have made the same pointed joke – likening the US to a rich man who, after gorging himself at a banquet, then invites the neighbours in for coffee and asks them to split the bill.

If climate change were an isolated example, it might be dismissed as an important but anomalous issue that is almost designed to split countries along rich-poor lines. But, in fact, if you look at Brazil, South Africa, India and Turkey – the four most important democracies in Latin America, Africa, Asia and the greater Middle East – it is clear that none of them can be counted as a reliable ally of the US, or of a broader “community of democracies”.

In the past year, President Luiz Inácio Lula da Silva of Brazil has cut a lucrative oil deal with China, spoken warmly of Hugo Chávez, president of Venezuela, and congratulated Mahmoud Ahmadi-Nejad on his “victory” in the Iranian presidential election, while welcoming him on a state visit to Brazil.

During a two-year stint on the United Nations Security Council from 2006, the South Africans routinely joined China and Russia in blocking resolutions on human rights and protecting authoritarian regimes such as Zimbabwe, Uzbekistan and Iran.

Turkey, once regarded as a crucial American ally in the cold war and then trumpeted as the only example of a secular, pro-western, Muslim democracy, is also no longer a reliable partner for the west. Ever since the US-led invasion of Iraq, opinion polls there have shown very high levels of anti-Americanism. The mildly Islamist AKP government has engaged with America’s regional enemies – including Hamas, Hizbollah and Iran – and alarmed the Americans by taking an increasingly hostile attitude to Israel.

India’s leaders do seem to cherish the idea that they have a “special relationship” with the US. But even the Indians regularly line up against the Americans on a range of international issues, from climate change to the Doha round of trade negotiations and the pursuit of sanctions against Iran or Burma.

So what is going on? The answer is that Brazil, South Africa, Turkey and India are all countries whose identities as democracies are now being balanced – or even trumped – by their identities as developing nations that are not part of the white, rich, western world. All four countries have ruling parties that see themselves as champions of social justice at home and a more equitable global order overseas. Brazil’s Workers’ party, India’s Congress party, Turkey’s AKP and South Africa’s African National Congress have all adapted to globalisation – but they all retain traces of the old suspicions of global capitalism and of the US.

Mr Obama is seen as a huge improvement on George W. Bush – but he is still an American president. As emerging global powers and developing nations, Brazil, India, South Africa and Turkey may often feel they have more in common with a rising China than with the democratic US.

CHINESE MILITIAWOMEN AT 60th ANNIVERSARY PARADE: 'WOMEN HOLD UP HALF OF THE SKY'

INTERVIEW WITH PROGRESSIVE SOUTH ASIAN ANALYST ON US-CHINA RELATIONS

WHAT ROLE CHINA PLAYS FOR SOUTH-EAST ASIA AND ASEAN

China-ASEAN pact offers more than win-win

By Brantly Womack
Asia Times Online

"Every country in Southeast Asia has benefited from broader and deeper relations with China, and ASEAN as a regional organization has been strengthened by China's involvement"

The formal inauguration of the ASEAN-China Free Trade Area
(ACFTA) on January 1 marks the culmination of arguably the
most successful big-power diplomacy of the post-Cold War
era.

Since 1991, China's relations with Southeast Asia have
moved from an alliance of convenience with the Association
of Southeast Asian Nations (ASEAN) against Vietnam,
Cambodia and Laos to close and multi-dimensional
interaction with an expanded 10-member ASEAN and with each
of the association's member states (in addition to the
above-mentioned trio, the group now includes Myanmar
alongside founding members Brunei, Indonesia, Malaysia, the
Philippines, Singapore and Thailand).

A similar pattern of China's successful engagement with
neighbors can be seen in the Shanghai Cooperation
Organization with Russia and Central Asia and, less
successfully, in the six-party talks in northeast Asia over
North Korea's nuclear program. With the exception of
China's trans-Himalayan border, promotion of regional
multilateral institutions has progressed hand-in-hand with
strengthening bilateral relationships.

The formula for China's successful good neighbor policy has
many labels, but the simplest is "win-win". Every country
in Southeast Asia has benefited from broader and deeper
relations with China, and ASEAN as a regional organization
has been strengthened by China's involvement.

Trade, investment and tourism have blossomed. China's
willingness to sign the Framework Agreement on
Comprehensive Economic Cooperation in 2002 and the Treaty
of Amity and Cooperation in 2003 encouraged other nations
to follow suit. Despite global economic uncertainty
displacing US-centered globalization, China and ASEAN are
off on the right foot in a new era. But the path ahead is
not simply a yellow brick road of win-win policies.

Why not? What could possibly be wrong with win-win? A
cynical power theorist would say that if one side wins more
than the other, the one who wins less may end up being
dominated by the one who wins more. But this hardly applies
to Southeast Asia. No individual state in Southeast Asia
has ever considered itself the equal of China. Moreover,
China's military budget surpassed the aggregate military
budgets of Southeast Asia in the 1990s. And ASEAN is no
North Atlantic Treaty Organization. Rather than being a
security umbrella for coordinating action in crisis
situations, ASEAN is more of a consensual parasol that
works best in sunny weather. If losing parity with China
were the tipping point for subjugation, Southeast Asia lost
long ago.

Win-win is too simple a formula precisely because of the
disparities between China and Southeast Asia. Individually
and collectively, Southeast Asian nations are more exposed
in their relationship with China than vice versa. According
to estimates of the Central Intelligence Agency in the
United States, all of ASEAN together in 2008 had only
one-third of China's gross domestic product (GDP) in terms
of purchasing power parity (PPP). The economy of Shanghai
is one-and-a-half times that of Singapore. Guangdong's GDP
exceeds that of Indonesia, while the combined economies of
Guangxi and Yunnan, middling provinces by Chinese
standards, exceed those of their neighbors Vietnam, Laos
and Myanmar.

Therefore, Southeast Asia is necessarily more alert to the
risks as well as the opportunities of its relationship to
China. Proportionally, it has more at stake, and the sense
of risk as well as opportunity is all the more vivid to
individual states in Southeast Asia.

Southeast Asia's dilemmas in dealing with China can be
illustrated by the recent controversy in Vietnam over
Chinese investments in bauxite mining and processing. It is
certainly a win-win situation. The Chinese company
involved, Chinalco, is a major global investor in bauxite
mining and alumina processing. Bauxite occurs in limestone
areas with poor agricultural prospects. Vietnam has the
world's third-largest bauxite reserves, and hopes to
attract US$15 billion in investment in this area by 2025.
It needs the investment in the current global economic
climate, and it also needs to offset its severe balance of
payments deficit with China.

But the Vietnamese people have been very concerned about
Chinese bauxite development. They are concerned about the
ecological effects of mining; about the major stake that a
powerful Chinese company would have in central Vietnam; and
about losing jobs to imported Chinese workers. They do not
want to have the future of a major national resource in the
hands of an outside power. Win-win is not enough. Vietnam
wants reassurance about its long-term interests because it
is dealing with a much larger neighbor.

Similarly, the proposal of two corridors, rail and highway,
from Nanning, the capital of the coastal Guangxi autonomous
region, bordering Vietnam, to Singapore would undoubtedly
benefit Vietnam. The corridors would run most of the length
of Vietnam, thereby improving domestic transportation as
well as connections to China and to the rest of mainland
Southeast Asia. However, given current patterns of trade,
far more goods will be coming down the corridors from China
than going up from Vietnam, and much of Vietnam's exports
would continue to be raw materials and resources.

This is still win-win for China's producers and Vietnam's
consumers, but consumers also need to produce, and
Vietnam's economy must continue to modernize and become
more sophisticated. It is therefore hardly a surprise that
on such win-win projects China pushes forward while Vietnam
hesitates. A change at the periphery of China's economy
could affect the heartland of Vietnam's.

Vietnam is the most sensitive country in Southeast Asia to
China, but the entire region is aware that its interests
and China's interests are not identical, even if many are
compatible. The problem of asymmetric relationships cannot
be solved, it can only be managed.

Take for example China's single most successful gesture in
its regional relations. In 1997, China held the value of
the yuan steady against the dollar while the Southeast
Asian currencies were falling. Its neighbors were impressed
that China could succeed where they failed, and they were
grateful that China prevented a race to the bottom in
currency devaluations.

Since August 2008, China has pursued exactly the same
policy, but its effects on Southeast Asia are the opposite
of a decade earlier. Now the yuan's peg to a declining US
dollar is forcing neighbors to compress their currency
values in order to maintain market share. China's neighbors
wonder how long currency compression will last and what
will happen when the yuan finally does revalue. There is
little reassurance from China, and no claim that it is
helping the neighborhood.

The tension between China and Southeast Asian states over
conflicting claims in the South China Sea has become the
symbol of the region's collective uneasiness concerning
China's commitment to cooperation. The "Declaration on the
Conduct of Parties in the South China Sea" signed in 2002
was a watershed event in regional confidence-building, but
there has been little further progress.

Moreover, China's expansion of naval facilities on Hainan
raises concerns throughout the region regarding China's
military transparency and intentions. In fact, however,
multilateral cooperation is the only feasible way for any
country, China included, to profit from the disputed area.
It would be difficult to extract oil at gunpoint, and the
costs to China's regional and even global relations would
outweigh any possible gains. The only winning path in the
South China is one of more serious cooperation and
reassurance.

While win-win is the slogan of the day, deeper principles
have lain behind China's successes of the past two decades.
China's willingness to work with multilateral regional
institutions has been a big part of the winning formula.
Participation in ASEAN's general relationship with China
buffers the exposure of each individual state. This
benefits China as well as ASEAN.

Vulnerability causes smaller states to hesitate in
asymmetric relationships, while collective agreements
reduce individual vulnerability. Within each bilateral
relationship, sensitivity to the dilemmas faced by the
smaller side even in a win-win situation is essential for
continued development.

For example, not only does Vietnam have reason to expand
its merchandise market in China, but China has an interest
in Vietnam's marketing success. Currently, Vietnam's weak
sales to China are a major trade bottleneck; a more
balanced relationship would enable trade volume to expand
on a solid basis.

Finally and most importantly, China's traditional respect
for the sovereignty and autonomy of all states becomes ever
more important with the growth of China's relative power.
As Sophie Richardson's recent book on China-Cambodia
relations demonstrates, the "Five Principles of Peaceful
Coexistence" have been an especially important foundation
of China's relations with smaller states. [1] The time has
come to multilateralize the five principles into a general
respect for regional consensus and international agreements
and institutions.

In the new era of global economic uncertainty, the risks
that smaller countries face are more vivid than their
opportunities. The special task faced by regional powers,
whether China, or South Africa, or Brazil, or India, or
Russia, is to earn regional leadership by reassuring
neighbors that their interests and voices will be
respected.

Moreover, they need to take the lead in regional projects
that address common problems. But to do so effectively they
must act in a spirit of multilateral respect. For the past
two decades, China has led the cohort of regional powers in
developing cooperative relationships with neighbors, and
one of the fruits of success is the successful beginning of
ACFTA. But it is only a successful beginning, it is not the
end of the road.

Note 1. China, Cambodia, and the Five Principles of
Peaceful Coexistence, by Sophie Richardson. Columbia
University Press, 2009.


Brantly Womack is the Cumming Memorial Professor of Foreign Affairs at the University of Virginia. His recent books include China and Vietnam: The Politics of Asymmetry (Cambridge University Press, 2006) and China among Unequals: Asymmetric Foreign Relations in Asia (World Scientific, forthcoming).

SCOTTISH NEWSPAPER POINTS OUT BRITISH COLONIAL ATTITUDE TOWARDS CHINA

Britain stands on shaky ground when
attacking Chinese justice

From 1839 to 1842 Britain went to war with China to force it to
accept the opium which Britain was pumping into the country

The Scotsman
Dec 31 2009
George Kerevan

IN ITS imperial heyday, the sun never set on the British
Empire. Of course, as the Irish were wont to point out,
that was only because God did not trust the British in the
dark. These days, most Britons have forgotten the empire,
except as a backdrop for BBC costume dramas. The rest of
the world is not so accommodating, having borne the brunt
of our uninvited foreign adventures.

A case in point is Chinese anger at Britain's outspoken
public criticism of the execution on Tuesday of a UK
citizen, Akmal Shaikh, who was convicted of drug smuggling,
despite claims he was suffering from bipolar disorder, a
form of manic depression. Shaikh's execution went ahead
despite voluble calls from the British government for
clemency. The Foreign Office minister Ivan Lewis lectured
the Chinese ambassador to her face that "China had failed
in its basic human rights responsibilities".

I have no personal knowledge of Shaikh, though there seems
to be no opposition to the fact that he was caught
red-handed smuggling four kilos of heroin into Urumqi, the
largest city in China's western interior. Urumqi is the
centre of the heroin trade in China, owing to its proximity
to Afghanistan and Pakistan - a dangerous place to be.

Shaikh's family say he was duped into transporting the
drugs as a direct result of his illness - they claim he was
prone to violent mood swings and delusions that diminished
his sense of responsibility. However, while it could be a
result of a chemical imbalance in the brain, there are no
medical tests for the condition. Diagnosis is made solely
on the basis of symptoms - mild or serious. Diagnosis can
be problematic, especially if episodes are intermittent.

Yet there is a strong association between bipolar disorder
and what society deems to be criminal behaviour. The US
department of justice reports that 16 per cent of all
inmates in state and federal jails have a severe mental
illness, particularly bipolar disorder. On the other hand,
the link between manic depression and "wrongdoing" tends to
be through self-harm or violent, psychotic episodes rather
than organised crime. I am not in a position to judge the
rights and wrongs of Shaikh's case. He does seem to have a
history of delusional behaviour. However, I do worry that
British politicians and the media are sometimes too ready
to accuse foreign governments of incompetence, bias or lack
of elementary human rights when dealing with UK citizens
who have broken local laws.

There was the case of the three NatWest bankers extradited
to the US in 2006 on fraud charges linked to the Enron
scandal. A huge media campaign was mounted against this
"fast-track" extradition and many crocodile tears were shed
regarding the fate of the bankers in a "politicised" US
court system. Strangely enough, once in the US the trio
admitted their guilt and accepted a modest 37-month jail
sentence, which they actually served in Britain.

Attacking foreign jurisdictions for being legally
incompetent when dealing with British citizens makes for
good headlines in the UK. But it can make matters a lot
worse for the accused, especially if those foreign nations
feel they are being patronised by British politicians who
have short memories about what Britain got up to in its
imperial past.

Look at the case of Akmal Shaikh through Chinese eyes. The
execution and the British reaction are big news in the
local media. Ever polite, the Chinese have refrained from
mentioning the two wars we fought in the 19th century in
order to force China to let British (and Scottish)
merchants export opium to that country - an intervention
that plunged China into anarchy. Only now, 140 years later,
has China returned to its rightful place in the global
community, but the psychological scars run deep. It is no
surprise, then, that the Chinese will not take lectures
from Ivan Lewis.

The Chinese foreign ministry makes the obvious point that,
for years, Britain has accused China of lacking the rule of
law and an independent judiciary. But now the Chinese are
trying to establish the independence of their courts, we
suddenly want the Chinese government to set aside their
verdict for a foreign national.

Whatever the rights and wrongs of the Shaikh execution, the
strident form of the British protest comes across to
ordinary Chinese as both hypocritical and racist. We can
disagree with their reaction, but we should not ignore it.

The Chinese maintain that Shaikh enjoyed due process,
including two appeal trials after his original conviction.
They argue that, while the British authorities demanded a
psychiatric evaluation of Shaikh, they did not provide
sufficient detailed medical evidence (other than hearsay)
to convince the Chinese Supreme Court that it should take
such a step.

Had it been up to me, I would not have executed Shaikh. My
point is different: I am worried that he has been turned
into a pawn in a domestic power game designed to "prove"
British politicians are more important in the world than
they really are.

Yet when Gordon Brown lectures Hamid Karzai about
corruption in Afghanistan, ordinary Afghanis think about
British MPs and duck ponds. When we denounce miscarriages
of justice abroad, we should remember with shame the
Guilford Four, the Maguire Seven and the Birmingham Six -
proof of racism towards the Irish that infected the British
justice system throughout the 1970s.

In 1952, Derek Bentley, a 19-year-old petty thief, was
under arrest when his accomplice, Chris Craig, shot a
police officer. Craig escaped the gallows because he was a
minor, but Bentley was hanged. It took just 88 days from
the shots being fired till Bentley was executed. In 1998,
the Court of Appeal cleared his name, declaring he had been
denied "the fair trial which is the birthright of every
British citizen". Bentley had a mental age of 11. Let him
without sin cast the first stone. Or, in modern terms: the
successful diplomat is not necessarily the one who shouts
loudest.