Power And Dollar

What Does North Korea’s Six-Party Talk Matter?

North Korea is the next news item after G8.  Six-party talk starts on 07.10.  This is expected to be a minister level meeting.  Therefore, some big items are to be discussed.  Bush needs to accomplish something more than Iraq and Afganistan.  North Korea also wants to cash out something out of a desperate President and then start the next round of talks.  Some results will come out before11.04.  Some real progress can be made in the next Six-Party talk.  What does it matter? 

 

This will produce a lot of long term effect.  Short terms are logistics and symbolic, such as an agreement, declaration of some sort (peace), exchanging offices, etc.

 

A minister level meeting is an indication that a conclusion is in sight.  This is not just about sanctions, economic aid or light water reactor.  They are, literally small potatoes, for a minister level meeting.  Will the end of Korean War finally be an agenda item?  Finalizing the border between North and South Koreas? 

 

If these questions are on the table, then the outcome will give us a sketch of what the unification process for North and South Koreas will be.  If the meeting will not reach to that point, then it would be interesting to see what derails since Japan has no clout in Six-Party talk; South Korea has no position against North Korea; China is generally believed to want a nuclear free Korea peninsula. 

 

Of course, if all goes well, South Korea can finally convince itself that peace is here.  Fiscal spending can decrease.  The ripple effect will be: what about the military bases?  If they will stay, who pays?  The same question can be asked about the bases in Japan.  What will China’s position be in the middle of all this?

 

What about the border that defines South Korea and Japan?  If there will be mutual recognition of the two Koreas, they need to agree to each other’s boundary.  What will North Korea’s position on the border dispute between Japan and South Korea?  Will North Korea even drag the WW2 war crime into the agenda too?  How far will and can North Korea stretch Japan?  What is the price to pay to get the Japanese abductees back to Japan?

 

Or, will the talk turn first to the commercial projects?  Does Russia want more investors at the eastern end of Siberia?  How is that Siberia oil pipeline going?  Will this be a pre-text for some Northeast Asia security mechanism or trust building exercise?  Will this bring up the border dispute between Russia and Japan? 

 

Any kind of Northeast Asia security mechanism leads to re-balancing the response time of US military.  How will Japan react to that?  Since these border disputes are created by the final days of WW2, will the end of Six – Party talk pull out a long overdue clean-up talk?  That is something Japan wants to avoid badly.

 

 

If Okinawan independence movement is an institutionalized movement, then this is the time to plot their moves.  The end of Six – Party inevitably leads to Taiwan Strait, another WW2 antique problem. 

 

If so, a behind the scene negotiation between China and America is the real determinant.  In that context, North Korea is really the pivot of a lot of things.

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July 10, 2008 Posted by | Current Events, Japan, korea, opinion, politics, wordpress-political-blogs, 台灣, 国事, 天下事, 中國 | 2 Comments

Where are Beijing and Taipei heading to?

Beijing and Taipei just signed their agreement to have direct flights (36 flights / annum).  In addition to establishing direct flights, both sides will also establish visa granting offices.  What are the important and relevant points here?

 

It is too early to say which entity will carry this function on the Taipei side.  On the Beijing side, it is obvious that will be China Travel Services .   This is a company total owned by the Beijing government.  The implication here is Taipei needs to have a debate about what to be done about Mainland China companies operating in Taiwan.  This is something Taiwan did not prepare for. 

 

What Taiwan should really want is: if there is any grease to be distributed on the Mainland side, make sure the grease is distributed to a non-government owned entity.  If that is not possible, then make the recipient as remotely government controlled as possible.  Diluting (or weakening) the influence of Communist Party is the goal when unification comes.  Since reciprocity is a must in an agreement like this, Taiwan has no problem in instituting such a condition on its own end.  If Mainland doesn’t like it, it just becomes another chip on the table.  So the requests can work out like these: the tourist companies need to be publicly traded which no stocks are owned by government or government owned companies.  The visa applications will be collected by tourist companies and forwarded to a government agency.  

 

In fact this office establishing was not on the original agenda.  This again shows Taiwan has a lot more development potential for its negotiation staff.  And it also shows Taiwan needs to check its own inventory: what chips does Taiwan have, especially Mainland China will get stronger annually?

 

Outside of this agreement and moving forward, what Taiwan needs is some space in the international arena.  And Mainland China President Hu is really selling the co-inhabitant atmosphere.  Hu is selling so hard for the following reasons:

1)      Hu is having his second and final term of presidency.  Taiwan is the holy grail for any Mainland China or Taipei president;

2)      Tibet gave China a bad rep and Olympics is coming;

3)      Sichuan earthquake, no matter how well Mainland China government performed during the crisis, is still a negative.

 

For relationship and confidence building purposes, now is the time to give more exposure to Taiwan.  APEC could be a place for it since Mainland China should be very confident about its own influence there.  WHO is another place since sovereignty is not as prominent as health security in that organization.  If Hu wants this as his accomplishment, then he needs to dance with Taiwan: Give more love offense to Taiwan.  

 

We all know the famous line of Roosevelt: “we have nothing to fear but fear itself.”  However, will this same line work if a Mainland Chinese president says it while the audience is Taiwan voters?

June 13, 2008 Posted by | business, China, Current Events, economics, 香港, opinion, politics, Taiwan, wordpress-political-blogs, 台灣, 中國 | Leave a comment

How a Presidential Candidate Promise Puts Country at Corner

Mainland China and Taiwan started their first negotiation in a decade.  A big topic of this negotiation is the direct flight between two sides.  This negotiation serves as an example to America how election campaign promises should be carefully drafted since the presidential election is under way, for instance the date of Iraqi withdrawal, whether to negotiate with Iran, North Korea, Cuba and the like.

 

This negotiation is the first priority for President Ma of Taiwan since one of his campaign promises is direct flight starting on July 1 of 2008.  

 

This campaign promise possibly led the negotiation team to have a very short time frame to draft their agenda and options during the negotiation and subsequently affect the negotiation result.  

 

Passenger flights are of top priority since the photo op of passengers getting off the plane is too valuable.  Therefore, the goods transportation is likely to be off the table.  However, that can be of higher importance to Taiwan.

 

Furthermore, Taiwan possibly left other aviation priorities off the tables.  Here are a few:

 

1)      Can flights fly to a second destination within the territory?  Example:  can a flight from Taiwan to Shanghai fly to Beijing afterwards?

2)      Can flights fly to another country afterwards?  Example:  can a flight from Taiwan to Shanghai fly to Japan afterwards?

3)      Can airlines establish maintenance hubs in the other’s territory?  

 

All these questions actually benefit more for the Taiwan side than the mainland side.  However, once a negotiation is over, another aviation negotiation probably will take another few years while the governments tackle other big political items, such as sea ports.  Thus, the next aviation negotiation probably will begin with another president term at best.

 

Now why are they important?

 

For the first question, Taiwan is a much smaller space. It has a lot fewer air traffic nodes.  The gain for Mainland airlines is actually small, especially the number of flights and airlines are supposed to be reciprocal in aviation negotiations.  However, Mainland China has another 100 cities each with a population of 1 million.  The gain for Taiwan aviation industry will take years to realize financially.  

 

For the second question, President Ma of Taiwan’s business plan is to be the bridge to China for the West, analogous to UK to continental Europe for America.  For that to realize, the first item to tackle is for Taiwan to become a transportation hub.  The second question becomes vital.

 

The negotiation is about flight between 2 sides and not about domestic aviation market.  However, having a hub in the other side is beachhead to fight the domestic market.  Since the mainland China’s domestic aviation is the ultimate price for Taiwan aviation industry, if economic integration is to follow through, eliminating this big hurdle is important.  The scale of a hub is of course negligible at this stage.  However, this will be an expensive item to negotiation in the future.  While the goodwill is overloaded, this should be item to cash in right now, right here.  

 

Aviation business has a long investment cycle.  Aviation manufacturing has defense implication.  Taiwan needs to muster every advantage at every step to prevent a big swallow by Mainland China in the future.  Therefore, this third question will add a lot of points to Taiwan.  If ignored, Taiwan will give up a great asset for a future show down of unification negotiation.

 

Because of a promise on a date of direct flight, Taiwan probably forgot a basket of items.  American voters have to see if the candidates are giving promises that will put the future presidency at an inflexible corner.

June 12, 2008 Posted by | Barack Obama, China, Current Events, economics, election, Election 2008, John McCain, mccain, obama, opinion, politics, Thoughts, wordpress-political-blogs, 台灣, 中國 | Leave a comment

First Democratically Elected Chinese Mayor

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.

May 28, 2008 Posted by | China, Current Events, election, 香港, opinion, politics, Taiwan, Thoughts, Tibet, wordpress-political-blogs, 台灣, 中國 | , | 2 Comments

Taiwan’s Bank buys Mainland China’s

Fubon has been approved to buy approximately 20% of Xiamen City Commercial Bank at a price of US$34 M.  The biggest shareholder of Xiamen City Commercial Bank is the Xiamen City government’s Commerce Bureau, approximately 24%.  Fubon is traded in international exchanges.  Fubon is expected to name members to the board.

Xiamen City Commercial Bank is a local bank.  Xiamen (Amoy) has the heavies concentration of Taiwan businesses.  This local bank is not a troubled bank.  The significance is not who bought whom, but the approval by Taiwan’s authorities.  This will be considered a plus for Fubon. 

Taiwan’s government bureaucrats are quick to recognize the president elect Ma and quickly steering to approvals that would be considered as consistent with his platform.  There probably will be other approvals before May that are considered favourable to businesses/industries building ties to Mainland China. 

April 3, 2008 Posted by | banking, business, China, Current Events, economics, finance, market, Money, stock, Taiwan, trading, wordpress-political-blogs, 台灣, 中國 | Leave a comment

Some Progress on Taiwan Strait

It seems like a match can finally begin.  Hu may not be able concentrate on too many items.  He is more inclined to deal with a positive opening (Taiwan) than a hot spot for now (Tibet).Important press releases by both US and China, below.  Read the question started by the keyword “Olympics”.  And follow all the subsequent questions by the keyword “China”.  http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080327005800&newsLang=en

http://news.xinhuanet.com/english/2008-03/27/content_7865209.htm

March 27, 2008 Posted by | america politics, China, china politics, chinese, Current Affairs, Current Events, opinion, politics, Taiwan, Thoughts, US politics, wordpress-political-blogs, 台灣, 中國 | Leave a comment

What is the next Taiwan surprise?

Taiwan is in the news lately.  First off the election, then a great win and now a missile parts mis-shipment by Defense Department:

http://edition.cnn.com/2008/WORLD/asiapcf/03/26/china.taiwan.missiles/index.html?iref=mpstoryview

http://edition.cnn.com/2008/US/03/25/taiwan.missiles/index.html

(And the recipient had to call back “what is this?”)

(Pay helicopter batteries and get nose-cone fuses for nuclear warheads. Not a bad deal!)

 

What is next?  Taiwan’s president faces the reality and finds out he cannot deliver?  Taiwan’s president Ma has nicknamed “Mr. Clean” and “Mr. Teflon” since he has no scandal attached him and no accusation against him ever sticks.  He was a well liked mayor of Taipei. 

How will he fail?  He got close to 60% of the votes!

Well, that is the start: He now has to face high expectation.  And high expectation is not easy to match with high results.  

It is said Taiwan, the island of 23 million, has 7,000 political appointments made by the president.  Now, no wonder it was so easy for president Chen to get into financial scandals.  Gasoline is sold by government owned monopoly.  So is cigarette, alcohol, lottery ticket and even sugar.  Boards of the banks got a seat for the president’s appointee since the government has a substantial portion of the stocks.  Now how tempting is it for any president? Or his appointee?  Will this newest president be able to stand against the temptations of his own but also his appointees?  How will anyone manage the ethical conducts of his own 7,000 appointees?

Remember this following line from Bush after 2004 presidential election?

“I earned capital in the campaign, political capital, and now I intend to spend it. It is my style.” 

It means the politician is able to accomplish objectives without fear of losing votes.  If the initiative means well, then it is to offer something to the opposite.  Of course, it could also mean initiatives that would be unpopular (say increasing taxes for Social Security or Medicare).  This is the situation Taiwan now has.  President Ma has a lot of capital.  He may be mean well, but would it be unpopular?

President Ma got 60% of the votes and he advocates a closer tie with Mainland China and his party is the pro-unification party.  Great.  His every move in relations to Mainland can be viewed as a betrayal by the pro-independence voters and possibly by the voters who want to keep the status quo.  There will be no easy way out of this corner.  The best person to calm the separatist sentiment is a president of the DPP affiliation.  In order to pacify the completely opposite side, he needs a name to join his camp.  President Ma promises to invite talents of all affiliation to join his camp.  But who from DPP has the talent in this Mainland-Taiwan relationship management?  Tsai is unlikely to join since she still wants to pursue further in her political career.  If Ma cannot find a respectable name to stand with him for Mainland relationship management, he can forever be haunted for this traitor status.  

Taiwan has to deal with another Mainland China dilemma.  If a closer tie with Mainland translates to more manufacturing migrating to Mainland, what will Taiwan be able to offer?  What is the plan for industrial upgrade?  If Taiwan is to become the bridge to China, similar to UK for the continental Europe when marketing itself to US, then Taiwan is to compete against Hong Kong, Singapore and Shanghai.  What advantage does Taiwan have?  Easy access to capital? HK got it.  IPO centre?  HK got it.  Shipping? All these 3 cities are great shipping centres.  Language advantage?  HK and Singapore both speak English better than Taiwan.  Judicial independence?  HK and Singapore are better.  Political stability? 

Taiwan has a lot of work to do.  Where is Taiwan going?  President Ma has a very strong sense of historical responsibility.  Is he accomplishing his ideals or delivering his voters wishes?  Or his voters simply wanted to get rid of DPP without a clear goal in mind?

March 26, 2008 Posted by | China, chinese, Current Affairs, Current Events, election, opinion, politics, Taiwan, Thoughts, wordpress-political-blogs, 台灣, 中國 | 3 Comments

How is Taiwan’s Election Affecting Your Portfolio?

Taiwan’s presidential election is to be held on 2008.03.22.A.  Since Taiwan is half a day ahead of US, the stations will open starting tonight.  What is at stake (of your wallet)?  CNN gives a decent last day summary: 

http://www.cnn.com/2008/WORLD/asiapcf/03/21/taiwan.elections.ap/index.html 

The first industry is computer component manufacturing.  Taiwan’s computer component manufacturing has the greatest market share in the world.  It will directly affect the manufacturing costs of everyone from Dell and HP to IBM.  Taiwan’s computer component manufacturers can produce any kind of PCs without outside vendors.  The only thing they lack is brand name.  If Ma Ying-jeouwins this election, the costs from these manufacturers will come down because Ma Ying-jeou’s policy will favour stronger commercial ties between Mainland China and Taiwan.   

Financial services industry will get a real boost.  If Ma Ying-jeouwins, that will create foreseeable stability required for Taiwan.  FDI will increase as a result.  Taiwan FIs will be able operate in Mainland, not only a greater amount of them, but also in a greater geographic span.  Currently, only 1 bank is allowed to operate in only 1 city in China.  Capital of Taiwan residents and companies held in overseas will also flow back to domestic market.   

Shipping and hospitality industries will get receive more customers from Mainland China.  Taiwan airlines will get a better coverage in the future.  Their air fleets will finally get the cash flow to finance needed replacements.   

However, this is not a sure win for Ma Ying-jeou.  DPP is within a striking distance.  The poll may suggest a comfortable lead for Ma Ying-jeouover DPP by US standard.  These polls are known to be unreliable not by the bias of the pollsters but by voters.  DPP voters traditionally lie to the pollsters or remain silent.  Conventional wisdom gives an additional 20% point to DPP. 

In the case of a DPP victory, it will not be the end of the world.  CPP may have learnt something no one is privy of in this election and thus gave sweet announcement to DPP’s outgoing president Chen Shui-bian in the past days to prepare for DPP’s victory.  If DPP indeed wins, computer component manufacturing will not get anything as a result.  FIs will not get the benefit above.  Shipping and hospitality will get some reward due to DPP’s convergence of its Mainland policy to Ma Ying-jeou.  However, the benefit will not be as great.  Agriculture has been rumored to be negatively affected by this election in the case of Ma Ying-jeou.  However, Taiwan does not have big publicly traded agriculture companies.   

The advantage of Taiwan’s agriculture over Mainland is the R&D side of agriculture.  The most potential of Taiwan’s agriculture is how to turn their R&D into more productive scale: for a bigger market and/or for more capital intensive firms. 

All Japanese firms with heavy investments in Taiwan will get affected.  One particular industry people may oversee is content distribution industry.  If KMT wins, these firms may get crowded by a Mainland fever.  So, these contents range from comic books to cables to films.

Since the results will only be known on Sat US time, the first trading day to react is Monday.  There is no need to rush for anything.  Do not place bets in haste.

March 21, 2008 Posted by | business, China, china politics, chinese, Current Affairs, Current Events, economics, election, 馬英九, finance, opinion, politics, stock, Taiwan, Thoughts, trading, 台灣, 中國 | 3 Comments