Power And Dollar

Is New Japanese Ambassador To China Sinking Your 401k?

Japan just named its new ambassador to China without much notice in the States.  But do you own Japanese companies’ stocks?  How much does China affect Japanese manufacturers who have factories in China?  Current ambassador Uichirou Niwa (丹羽宇一郎) will be replaced by Masato Kitera (木寺昌人).  Shortly after the announcement of the appointment, Euro started appreciating against Japanese Yen from 102 to 102.50 similar to US’ appreciation against Yen from 74.40 to 74.85 in 30 minutes. Although US’s currency strength maybe explained by the better than expected unemployment data.  However, USD was actually depreciating against EUR at the same time when JPY was depreciating against all currencies.

So, if Kitera’s appointment has anything to do with the JPY depreciation, what was the rationale in the market at the time?

Kitera has no diplomatic experience in China.  Neither can he speak the language.  It is certainly not an advantage for a diplomat.  However, this is also a reverse to the earlier policy of Japanese Prime Minister Noda (野田 佳彦) to use civilian (current ambassador Niwa is not a civil servant) instead of foreign ministry’s bureaucrats for Japan’s ambassador to China.  Is this a signal interpreted by the market that Prime Minister Noda influence is waning?

Kitera’s career has been mainly related to international organizations, such as foreign aid (Grant Aid Division of Foreign Ministry), Minister to UN and WTO etc.  What does say about the intent of Japan in its relations to China amid the recent controversies over the island dispute?

His skills of cooperation with many different entities are certainly valuable.  Are there no suitable candidates who have host country knowledge and diplomatic skills to smoothen the relationship?  Is this appointment part of the upcoming lower house election calculation? 

If former, then it may show some distrust of the political elite over the close relationship between the bureaucrats with China.  If latter, then this is a clear signal that Japan may become more aggressive against China over the island dispute, despite the US public announcements toward a more peaceful environment during the US election season.  As a stretch, this appointment may enlarge the diplomatic battle field since Kitera may be able to draw his knowledge in the international institution areas.

If Japan actually cannot feel confident about the diplomatic abilities among the China experienced bureaucrats, then this appointment further shows the talent shortage of Japan, now reaching a higher level of the civil servants than previously thought. 

Since 1995, Japan ambassador to China has been around 60 years old, compared to US to China around 57 and China to Japan around 54.  Japan’s labor force has aged tremendously over the two decades without back fill.  The death of Nishimiya (西宮 伸一), the Japan to China ambassador to be, certainly was an accident, although indicative of Japan’s talent pool.  This appointment may serve as an additional indication that Japan is running out of candidates to manage its complicated affairs against a rising power.

This may further affect its trading strength in its future trade negotiation against China in the China, Korea and Japan trilateral relationships.  Export heavy companies in Japan will be further negatively impact, such as auto manufacturers.

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October 5, 2012 Posted by | China, finance, Investment, Japan, opinion, politics, stock, trading | Leave a comment

Navy Or Education?

 

Naval conflicts are obviously more exciting and therefore more headline deserving.  However, Obama’s education announcement may have a greater impact over the US competitiveness.  US’ timing of airing out these incidents at this time is interesting.  So is the timing of China’s testy behavior. 

 

US has been relying on foreign labor supply for a long time, both the high and low paying jobs, just lower than Canada’s (and thus lower college grad/capita than other western European countries).  However, tightening this foreign labor supply since 911 and later due to border control will make the quality of domestic labor supply more critical to the US competitiveness.  US can certainly produce high quality labor supply.  Given the size of the US economy, does US have sufficient quantity of high quality labor supply to sustain the complexity and sophistication of US economy?  Does US suffer from too much variation of more basic labor supply?  The answers to these questions may not matter much to the restaurant down the street.  However, they matter from call center and assembly line operators to pharmaceutical companies. 

 

Obama’s quest of the week, apparently education this time, is important not for this recession (or depression), but for the sustainability or viability of our Social Security.  America needs to find more domestic supply for higher end jobs, if America decides to continue tightening foreign supply.  America also will need to have a more consistent quality for lower paying jobs as well.  All these mean education system of the US has to pump out products that are more fitting to the buyers of the labor market.  That is why Obama is stressing on quality of education, merit pay, etc.  

 

Quality labor supply does not come easy.  They require a long investment cycle.  And they are difficult to measure.  AFT says the devil is in the details.  Obama is getting into the habit of not giving details.  Will we see something of substance to improve the education?  How long will we have to wait for this one?

 

About the naval conflict, this is similar to what happened to Bush 2 as well.  Is China testing Obama’s style or determination?  Or, is US military trying to seize the agenda of Obama’s diplomacy?  After all, DoD secretary Robert Gates is supposed to just “help out”.  In a situation like that, Department of State should be able to assert more influence than Defense.  What is the story here?  Watch how this evolve and we will get a better clue. 

March 10, 2009 Posted by | China, clinton, Current Events, 美國, Democrats, obama, opinion, politics, Republican, US politics, wordpress-political-blogs | 3 Comments

Fatal Beating, Doha, 2008 Presidential Election

This fatal beating can stage the next round of assaults between McCain and Obama regarding free trade.  The interesting news about free trade actually did not get reported in American media, although it may fuel the debate well.  The Doha round of WTO negotiation just failed.  A failed negotiation will affect American economy just as much as a successful one.  Here is a synopsis of the effects:

 

Winners:

 

Farmers in developed countries who receive exporting subsidies: America, EU, Japan, Suitland.  Subsidies to farmers will continue to be in place, ie McCain. 

Developing countries’ manufacturers who are defending their domestic markets, esp. China and India.

ASEAN and other inter-government market coordinating organizations.

Cotton producing states, ie McCain.

 

Losers:

Agriculture exporters who planned to export to China, India, US and other developed countries as well as developing countries: Brazil, Canada, Australlia

Most industries in under developed countries who planned to export to developed countries and emerging markets.  

Manufacturing industries that expect to enter India and Brazil markets: most industries in US, EU and China.

Telecom, banking (Citi) and insurance (AIG, Sunlife, Manulife) industries from the developed countries (America, EU, Japan) that wish to enter developing counties.

Cotton producing countries expected to enter US market, such as Mali, Chad.

 

Obama can still make it an anti-Bush issue since it highlights the inability of Bush to compromise with others.

July 31, 2008 Posted by | activism, advocacy, Barack Obama, business, China, Current Events, Democrats, economics, election, Election 2008, John McCain, mccain, nonprofits, obama, opinion, politics, Republican, wordpress-political-blogs | 2 Comments

What Are The Implications Of A Nuke Free North Korea?

 

CNN reports the destruction of North Korea’s nuclear facilities.  What are the implications? 

The most directly impacted nation is Japan.  The confrontation pressure in the Korea peninsula is weakened.  The need for US military presence is also weakened.  The economic incentives are there.  But Japan is not Thailand.  Japan can live without that.  The impacts will be political and military for Japan due to a nuke free North Korea. 

 

With such a hawkish new president of South Korea, it will take quite a few years for the relations between North and South Korea to warm again.  The immediate impact on the unification movement is minimal.  After all, the nuke free decision has nothing to do with unification with the South, from North Korea’s perspective.  For North Korea, warming up with the America is one step toward having a normal diplomatic relationship.  Strengthening this relationship weakens the relationship of America and South Korea.  With any luck, North Korea wants the American bases to move out of the peninsula.  All these impacts realized by North Korea are shorter term.

 

Impacts on Japan are longer term.  Japan has been having influence in Korea for centuries.  A nuclear North Korea is obvious a threat to the security of Japan.  However, it has always been a common knowledge that nuclear activity is only a bargain chip.  North Korea is perceived to be aware that they cannot keep the nuclear forever, since China does not want North Korea to have it, America does not and certainly Japan does not. 

 

With a smaller conflict, the weight of Japan will become smaller.  This nuclear free ending of the affair also demonstrates Japan has been unable to influence the outcome of the Korea peninsula affairs, or unable to influence America’s intent in the peninsula affairs. 

 

An Obama administration will be able justify a reduction of military presence in South Korea and Japan and cut some spending. 

 

If US military decreases, especially in Okiana, the negativity generated by US military in Okinawa fades.  Therefore, a weaker Okinawan independence movement will be, although it was not that a strong one to start with, more less like the Puerto Rican.   However, with the incentives by US military gone, the incentives for Okinawa to stay in Japan also go away. 

 

That will create more space for Chinese military in the area.  China will gradually gain its edge against Japan in territory dispute.  However, the dispute is fairly settled since both sides have agreed to mutually develop the area.  Again, this loss of strategic importance against Japan cannot be ignored. 

 

The fact that Japan is losing control over the development in Korean peninsula is a sign of Japan’s HR risk.  Japan had a hard filling in their chief of central bank earlier this year.  They are unable to keep themselves abreast of the peninsula, let alone influence the outcome.  Only very few international enterprises of Japan are as innovative or as quick as they used to be.  Japan is having a high turn over of politicians and an even short life span of governments.  The ageing population is showing signs of weakness in every area.  

 

With that, the six party talks now prove to be useless.  Japan is now concluded to be ineffective.  South Korea lost its edge during the negotiation.  Russia has been reduced to an attendant only.  China has become more less the notary public for the talks.  The real talk somehow happened between North Korea and America behind the curtain. 

 

June 27, 2008 Posted by | China, Current Events, Japan, korea, opinion, politics, Taiwan, wordpress-political-blogs | 1 Comment

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

Earthquake To Melt Ice

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.

 

May 30, 2008 Posted by | business, China, Current Events, Investment, Japan, opinion, politics, Thoughts, wordpress-political-blogs | 1 Comment

Is A China-Japan Joint Military Exercise Next?

A relief request from China is new.  It is so 21st 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 20th 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?

May 29, 2008 Posted by | China, Current Events, Japan, opinion, politics, Thoughts, wordpress-political-blogs, 中國 | 2 Comments

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

Where Are The Teeth Of Russia-China Agreement?

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.  

May 23, 2008 Posted by | China, Current Events, India, opinion, politics, Thoughts, wordpress-political-blogs | 5 Comments