Roy Ho’s Blog

China is not doing only the relief work, such as moving people away from potential threats.  China is capitalizing this earthquake event on its diplomatic front (Japan) as well.  The news that Japan confirms to deliver aid through its military aircraft proves this post’s analysis is right on target: China wants to use this event to melt a 6 decade long ice with Japan.  And it is no easy task.

The above linked post concludes that the request from China is inconsistent with past behaviour, i.e. China did not want Japanese military to be active outside of Japan due to WW2.  However, China is requesting Japan to deliver aid through its military aircraft.  The aid can be bought elsewhere.  The aid can be delivered by someone else or even Japanese civilian aircraft. 

Yumimuri also confirms that the move is about melting ice.  So, the advertisement here is: this blog got to the same conclusion one day earlier than the most authoritative source in Japan.

Now, what is the implication?  What do we care? 

To Be Continued.

UK’s former Northern Ireland police chief Sir Hugh Orde says “talking and engaging” is the way to end terrorist campaigns.  Having the policing experience against the terrorist campaign by IRA makes his statement a lot more news worthy than some academic or peace activist.  What justifies his argument?  How is his argument relevant to us?  Who should listen to his argument other than the US?  May be China?

What supports the argument?

He pointed out that no terrorist campaign has been ended without negotiation.  Terrorism is very cost effective.  Terrorism takes very little resources to be operational and terrorism consumes a lot of resources to police, be it Afghanistan military operation style or Northern Ireland civilian style of policing.  

This is a result of modern technology.  Technology makes destructions effective.  It took a lot of man power, weapons, management and communication to kill 2,974 lives when you are using swords or even rifles.  However, it took 19 people and other back-end support operation personnel with 4 airliners to kill 2, 974 lives. 

How much does it take to remove Taliban from Afghanistan? 

Operation Enduring Freedom – Afghanistan cost 400 – 800 million USD for its 25 days operation and ½ to 1 billion / month afterwards.  

This is the cost on the US military alone and not including cost by UK and other countries and no including the lives lost at both sides.  Did it achieve the objective of neutralizing Al Qaeda?

That is only the direct cost, the military expenditure.  What about the economic impact?  Increase in fiscal expenditure at that scale will decrease civilian output, create credit crunch, i.e. crowding out effect.  

What is the relevance?

Certainly, terrorists are running in fear of being captured.  But is it about their fear or about our “domestic Tranquility”, “general Welfare”, “Liberty”, and “our Posterity”?  Do we enjoy spending 500 million dollars to make a few hundred or thousands terrorists running and hiding in fear of being captured?  

Religion is blamed for terrorism.  However, religion is only a lighted match thrown to the gasoline, no different than an inspiring political ideology.  The cause is about the living conditions and the social injustice of those participating populations (Remember the quote from Harry Truman?).  That is the brewing ground. 

Negotiating to the terrorists is no different than negotiating to another power broker.  The refusal to negotiate is not about right or wrong, it is about refusing to negotiate to a non-state actor (we already have enough countries in this world.  How many more do we have to deal with?).  One becomes a terrorist when one sees nothing else to lose in life and motivated by ideology for a higher calling.  How can they lose in a war?

Military conflicts are not about winning.  Wars are waged to resolve differences.  

When the US becomes more independent of oil, the US will adopt a foreign policy that is less manipulative in the Middle East.  When that happens, a lot of root causes will slowly move out of the way.  Otherwise, we will just be muddling along. 

That is what China needs to keep in mind when they think of Tibet again.

The $ Relevance

So, what Obama promises will have positive effects to resolve conflicts.  And they are destined to be tactical.  The fundementals cannot be changed during his presidency.  Therefore, the fundementals of security companies (not necessary military, defense type) will not change.  This type of security stocks would be emergency response, monitoring, data encryption, and auditing.  Credit will continue to be expensive, aside from the fact it has been too low for the last decade and many other factors.

Obama is willing to compromise on the delegates of Michigan and Florida.  In fact he is willing to “concede an advantage” to Clinton on Michigan and Florida delegate disput.

Obama is showing this because he is confident he can afford to concede and still wins.  This is exactly the kind of “love offense” this post talks about.

Obama wants a 50-state strategy.  That will require a lot of political operatives.  Obama will need a lot of these operatives from Clinton’s camp.  This is to show Obama is big enough to accept their new loyalty, when Clinton’s campaign’s over.  This will destabilize Clinton camp’s morale.  Operatives may even start changing employers.  

However, this move is not a TV friendly move.  It may not get much TV time at all.  Obama will need something flashier to catch people’s attention. 

Moves like these will force Clinton to sell.  The question remains: At what price will Clinton sell?  Is it about the best price for Clinton or running for the sake of running?

A relief request from China is new.  It is so 21^st century of China.  However, it is a request to Japan military from Beijing government.  The announcement came from the Foreign Ministry.  The request was previously submitted to the Japanese military by the Chinese military.  The significance is Japanese military is prevented “operating” overseas.  China (Beijing or Taipei) has been against Japanese military operations overseas in different degrees.  Thus, this request originating China is very unusual.

In fact Chinese military first cleared out the request with Japanese military before the diplomatic request.

The material requested are tents, blankets, and food, which require no expertise of Japanese technology or products uniquely produced by Japan.  The same material can be supplied by US (with bases in Japan), Taiwan, or South Korea.  Chinese military wants to strengthen its relationship with Japanese military. 

If the motive is about strengthening the relationship and the material and the transportation are the primary motives, then the intent to strengthen this relationship is of interests to the US.  

To strengthen the relationships between these two military is to build trusts not only among these two militaries but also the governments.  Japan’s primary defense need is North Korea and China.  So, China is trying to use this opportunity to remove itself as a military threat against Japan, similar to China’s insistence on bringing all sides (six sides) to the nuclear talks with North Korea.  

Why?

A peaceful Korea peninsula, whether it is a unified Korea or not, is what South Koreans need to justify the removal of all American bases.  Convincing Japan that China will not avenge Japanese invasion and war crimes from the 20^th century is the only thing for Japan to remove all American bases.  

Japan’s domestic operation only policy for the military is a result of WW2.  And as a result, Japan always feels its incompleteness as a sovereign country.  Is China passing a signal that this domestic operation only policy is negotiable?  Or is this an opportunity provided by China for Japan to earn its merit of a complete sovereign country?  What is next? A joint miltary exercise with Japan?

Japan has also been convincing the rest of the world that Japan deserves to be a member of the UN security-council.  China has been the main opponent for that exactly because of Japan’s role in WW2.  

Hu’s recent visit in Japan stressed the point that China is only asking Japan to recognize history and not to deny history and that China has no interests in retribution.  All Chinese leaders said something similar in regard to “no retribution”.  However, the difference with Hu is he stressed that Japan need not “deny” history.  Is this a move from Hu to melt the ice?

Or is this completely a humanitarian effort?

Democracy and human rights often accompany each other when the developing countries are criticized.  Ever since Bush 2, US is now on the human rights violation list too.  China is of course a major human rights violator.  However there is something interesting going on:  China is contemplating having a mayor (among 18 other political reforms) democratically elected.  Protecting human rights requires a reliable judicial system.  The outcome of this study becomes important not only for China human rights activists but also others who study China’s financial sector.

Well, China’s mayors have always been “democratically” elected.  It’s just they always have one candidate.  But now, China is getting a (yes, one) mayor position to be elected with multiple candidates.  The proposal is not studying the question of “if” but “how”.

What is the significance?  Why there? Why now?

The city is Shenzhen, a city next to Hong Kong.  The first impact is on Hong Kong.  Multiple candidates are allowed for Hong Kong mayor election.  However, the mayor is elected by 800 electors, hand picked by China.  However, China’s election is always elected by residents of the municipalities.  Therefore, once Shenzhen’s proposal is implemented, this will be a pressure for Hong Kong to have a more democratic election.  

Shenzhen has always been the most open spot in China.  It is the closest spot Hong Kong, the place for most open information, most new ideas.  This city has the Nasdaq of China.  The first hi-tech companies started in Shenzhen.  It has the longest traditional of R&D firms in China.  Motherboards, solar panel companies were all first started here, either through Hong Kong capital or through foreign companies with a management base in Hong Kong.  This would be the place with the most educated voters.  In addition, this city has the least political influence of all economically charged municipalities, unlike Guangzhou (the capital of Guangdong province) Shanghai or Beijing.  So, of all suitable municipalities, this city has the least political risk.

This election is still years away since it is still in the proposal stage.  Elections are anything new to China.  Timing is the second significance.  China chose to start this process now probably in anticipation of more serious talks with Taiwan.  Taiwan has a mature democracy.  For a unification of Mainland China and Taiwan, Taiwan will obviously demand a more democratic Mainland China, as a delay tactic or not.  Therefore, some sort of reform will be inevitable.  Thus, this is the pre-emptive strike on the Mainland China part.  

Among the 18 other items are direct election of congressmen (instead of Communist Party appointment); more judicial independence; transparency of public officials’ income and asset; public debate before voting; the separation of executive, legislative and judicial powers; strengthening the management of public finances; monitoring the government owned enterprises; reform of public education; reform of public medical services; delegation of local authorities to manage local economy.  

The implementation of judicial reform will strengthen the credibility of Shenzhen courts, especially when Shenzhen is getting more and more complicated cases, not only personal property dispute, but also securities laws, patent laws, foreign trade laws.  The multiple candidate election and direct election of congressmen will give more influence to the new middle class residents, who tend not to be party members.  These changes will actually make Shenzhen a more attractive securities market and become more competitive against Shanghai’s securities market.

How to assess the impact of the Russia-China anti global missle defense agreement?  This anti global missle defense agreement produces no action.  The key will be India.  How can US protect its interests? 

Both Russia and China do more business with the West (United States) than with each other.  This anti global missle defense agreement is a symbol.  However, China is the first overseas trip for the new Russian President.  This is also a symbol.  But this symbol is carried with action: the first visit.

Heads of states visit overseas after inauguration, no different than you meeting your peer managers after your promotion or you meeting your neighbours after your move.  The thing to watch is the order of the visits.  The first one is China means China is now the important country to Russia.  

Other than action, the next thing to check is: are there incentives to substantiate the agreement?  Or there disincentives to substantiate the agreement?  Given US is the biggest trading partner of China and Russia takes up only 12% of that US-China trade, any action will come with only political will without popular support.  Therefore, it will be a long process for the two countries to build up the substance.  Russia-China trade is focused on very few items: Russia exports heavy industrial products, especially with technology transfer; and natural resources.  China exports everything it manufactures, no different than what it does to US or Mozambique.

Following that, are China and Russia looking for more friends to join this “multi polar” tent?  If so, then they acknowledge that they alone cannot accomplish that goal at this time and they need help to dilute the US influence.  China is taking that move already. 

India is an observer in Shanghai Cooperation Organization (founded in 1996) while China is an observer in South Asian Association of Regional Cooperation (founded in 1985).  China is now considering having India as a full member so that India can participate in regional security matters.  Similarly, China wants to be a full member of SAARC. 

Where is the vested interest?

Both countries want to have more access to oil, be it from Iran or Sudan.  And they both see the United States as manipulating word oil supply.  

India sees China’s involvement in Central Asia as building up a thick and heavy pressure on India’s north.  If India becomes a full member, India will feel more secure and melts more ice.  India wants to focus on domestic economic issues and sees border issues against China and Tibetans’ movements as a liability.  

India also sees US support to Pakistan as a check on India.  Therefore, any US counter offer is met with skeptism.

Same for China.  China wants to be a member of SAARC so that it can get involved in the regional security issues.  This can be interpreted as a hedge against the instability of Pakistan.  However, by being more friendly with India, China will have it back secured from US containment.  Oil supply route will pass through a long series of friendly countries without fear of interruption.  Its ports at Pakistan and Myanmar will have no questionable threat agents in between.  For India, it can support anti global missle defense to the extent it does not affect its economic development.

China-India trade has been increasing by 50% annually.  There is enough domestic support to strengthen a political tie based on economic ties.  Therefore, this is a much easier route to strengthen the common interests than through Russia.  

For Russia, by being an important partner in Shanghai Cooperation Organization, Russia’s eastern front is a lot more secure that is west, when NATO refuses Russia to join.  And if India becomes a member, Russia will not have to worry about US building its base from Persian Gulf eastward.   

Therefore, the next thing to watch is: Will India want to play along? 

What can US do to protect its interests?

London has been getting a lot of foreign companies’ listing business in their London Stock Exchange.  By having a lot of investors owning the shares of the biggest Indian companies, English now have influence on the boards of the more influential institutions in India.  If US wants to be heard in India or China beyond its inter-governmental relationships, then one peaceful means to use the its superior financial environment to attract more companies to list their stocks in NYSE.  Most of the retail investors do not vote.  Board seats are held by institution investors, each usually with only a few percent points.  US has been the melting pot.  Melt them into US economy so that their companies see that their interest is the interest of the US.  

Obama started looking for a VP.  A VP is supposed to complement the candidate.  One constituency that Obama needs help, as showcased by the media, is white blue collar voters.  If Obama sees this a need, then Edwards could have been a possible running mate.  However, Edwards decreased his chances by his own actions.  Or inactions. 

Had Edwards endorsed and campaigned for Obama earlier, say before the Pennsylvania’s primary, then Edwards may have been able prevent Clinton’s victory there and closed the deal then and there.  And Edwards held his cards.  Did Edwards have doubts about the race issue?  Now that Edwards endorsed so late in the game, his influence in the VP search is probably minimized.  However, Edwards has publicly said he is not interested at being a VP.  And that probably is a wise choice on Edwards’ part.  

Does Obama need help to cover the white women group, a core constituency group of Clinton?  If Pelosi sensed that could have been a weakness of Obama and that Pelosi showed any emotions of disappointment with the reporters, then she might have had hoped of being on the ticket.  

Obama may also want to have a state governor on the ticket simply because Obama is a senator who is known to be a good orator, not a debater and no inxperience in executive.  And if that is the case, then the list has 28 people.  Of those, 5 are women. 

Geographically, Obama will want someone from the South.  Yes, that comes back to Edwards again.  However, Obama knows he needs to cast a wider net and get a bigger pool. Kansas governor is Sebelius, the southern most state with a female governor. 

If Obama is concerned with the “Angry White Men”, then he would be looking for a blue collar swing state male governor.  Now, this is a short list.

Does Obama need help to cover the Hispanics voters?  Bill Richardson will come into mind.  And he is a governor who has served the federal government.  In particular, he served the Energy Department.  So he has experience with nuclear security issues.  That would boast his chances.  Since Richardson is already 60 years old, his senior age can help elevate some of the concerns that Obama is too young.

How does Clinton play in this game?  What can Clinton offer?  A Clinton was a lightning rod prior to 2008, either because of Mrs. Clinton herself or Mr. Clinton.  Clinton does not have a war chest.  Even if she has, Obama is not short of campaign funds.  Clinton does not have southern roots to balance Obama’s weakness other than her Arkansas days.  Clinton has a campaign machine.  However, the Democrat establishment is increasingly going toward Obama.  How much this campaign machine is worth will soon become a question, not too different than the value of Yahoo to Microsoft.  Is this a tactic of Obama, similar to what Microsoft is doing to Yahoo?  Probably not.  Obama may have enough chips now to move on.  Obama probably is more fearful to the damage Clinton may give to him than the values Clinton can offer.  

If Obama wants Clinton off his back, he can.  What Obama has shown is constraint on his part not to anger Clinton and Clinton’s supporters.  And he needs to heal the wounds before McCain can exploit that opportunity.  If Obama does not act quick enough, McCain can rip the Democrats apart without Clinton’s doing.  At this stage, since Obama is so inevitable, Obama can employ some Love Offense.

Obama can, at the very least, help Clinton to retire the debt.  This is “very least” because Obama has the resources either through his time to fundraise for Clinton or transfer his campaign funds to her.  Obama says he cannot consider that route because the contest is still going.  That is very true.  Given Obama is all for change and positive politics.  That is a little un-Obama.

Obama can also have Clinton as his running mate, only if that option can be appreciated.  Obama does not want to discuss that option either for the same reason.  By having this option open, John Edwards being a VP for the second time is now possible, although John Edwards does not want it.

Whether Clinton appreciates the gestures or not is not as important as Clinton’s supporters’ appreciation (not voters).  Obama needs to convince that Obama will accept Clinton’s volunteers, political staffers, elected officers or party officers (say county Democratic Party chairs).  Obama has to assure that these people will continue to have a political future under the Obama banner, they will not be sidelined or removed by Obama loyalists.  If Obama failed to do that, then a lot of volunteers, voting precinct captains will stay and decrease the Democrat turn-out.  

Obama can offer plenty of love to win that infrastructure.  A winner can always offer benevolence.  A loser can only lose it with grace.  Obama has enough comfort zone to offer loves and hugs to Clinton even if Clinton does not accept.  In fact, Clinton’s supporters may get turn off by Clinton if Clinton refuses to sell at the best price offered by Obama (Remember Icahn gets grumpy after Yahoo refuse to sell to Microsoft?).  

Love can be just as offensive. 

Clinton will stay until June 3.  And Clinton has shown her constraint: stop attacking Obama.  By being the front runner, Obama has moved on to McCain.  However, Obama has to take care of his back-end.  Exposing the wounds to McCain will be Obama’s fault and not Clinton’s bitterness.  After all, it is the Obama’s presidency on the line, not Clinton’s.  He has more at stake.  So, this better not be about an on-going contest of the Democratic nomination.  It is about Obama winning the White House.  He is the only one who can fix it.  

Democratic primary is getting close to a close.  It is now May and we still have not seen much of the Republican candidate in the TV yet.  How will McCain define himself before the TV?  What will contrast him against the Democrat other than his age?

Since the incumbent is Republican, he has to make himself more centrist, i.e. less Republican, de-Bush himself, especially when the incumbent is unpopular.  However, defining what you are not is very defensive and passive.  Defining what you are takes you back to control the battlefield.  

McCain may have sensed a few items that he can try to do without alienating the core Republican base.  The first is environmental issues.  He is less environmental than most of the Democrats.  However, he can feel comfortable to claim he is the most environmental Republican.  He votes out of line of his own party than any of the Democrats against the Democratic Party.  For that reason, he can be more “centrist” and less “ideological” than the Democratic nominee.  If he can show that he understands the issue and the solutions are at least with some sense, he can save some votes from the youth and urbanites groups.

The second issue he is trying is the transparency and governance issue.  Obama is very much into the open transparency governance.  And McCain seems to want to out compete Obama on this front.  He wants to appear in the Congress regularly and have Q&As.  This will give a lot more power to the legislature from the executive.  This has a profound and long lasting effect.  However, this may not be easily understood in a general election.  This issue serves more like a party annual general meeting kind of platform item from policy wonks.  Thus, it could be like a balloon for testing sentiments.  

We will see more balloons coming out from McCain and his surrogates to see what ideas stick and what not.  McCain needs to try harder to define what makes him unique and not just out compete something Obama is already known for.

Myanmar has finally accepted foreign experts to enter its soil, although only among its neighbors, the ASEAN countries.  Its death toll is above 100k now, half of 2004 Tsunami.  Myanmar is likely to miss the spring farming seasons, which will creates a second disaster: famine.  

China started its 3-day mourning on the 19^th.  Flood is now another up and coming disaster.  Floods may damage railroad connecting Vietnam and transportation network to Myanmar.  This area has some research and development sites, including nuclear research facilities.  A destruction of the facilities does not present as much damage as the removal of the research community.  

135 dams/reservoirs are in danger, as in having cracks or not functional.  18 are in danger of collapse. 

Equipments can be replaced.  No matter how expensive the equipments are, a vendor can still produce another one.  However, if the research personnel are displaced (the better scenario) to other institutions, then the knowledge goes with it as well.  Physical capital is no longer the important critical factor to a modern economy.  The most important asset in a knowledge economy is community.  The value of research personnel community is not the knowledge stored in the brains of their individual brains.  If that were the case, one would just need to buy more disk space to store the knowledge.  A research community is facilitated by a group of research personnel where they interact with each other while having a chat off work, in the corridor, or even a conversation with colleagues who have only a peripheral relevance to their research project.  Once a community is disintegrated, it cannot be re-builded. 

A good example is the Canadian fighter jet research community.  Canada spent a lot of resources to research an ideal fighter jet suitable for the northern climate (metal fatigue, engine ignition, everything).  Given the strategic value Canada was during the Cold War to defend the Artic, a fighter jet designed for the Artic was invaluable.  However, US were unwilling to place a sizable order to make the production financially viable.  Canada’s order alone could not have made last either.  So, all the research personnel had to find their new employers.  Some people went to NASA.  Some people went to civilian aerospace industry.  However, the asset (being this research community) was forever gone.  

The same could be said about any company, not only technology companies.  Say financial industry.  Each company is more experienced in a specific kind of product; say yours is more experienced in smokers’ life insurance products or self-employed mortgage applications.  A spreadsheet (or database) can only go so far.  The knowledge / experience is among the seasoned employees and their collective ability to train to the others.  This is the same reason why big companies like GE would send their management staff across departments to get a better exposure.  GE continues their management culture, and sustains their P/E ratio, through this kind of cross department experience.  That contributes a great part of its asset.

Does your company have a Plan B to continue a critical part of your business?  In case of unforeseeable event, be it natural disaster or political risk event, does your company have a Plan B to protect your critical asset?