Power And Dollar

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. 

 

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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

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

Market Reacts to Taiwan’s Election

The general sentiment of the economic outlook written on 03.21 is reflected today in markets.  The article on 03.21 is here: 

https://royho.wordpress.com/2008/03/21/taiwan-count-down-1/

This is from Reuters:

http://edition.cnn.com/2008/WORLD/asiapcf/03/21/taiwan.elections/index.html#cnnSTCText

CNN:

http://money.cnn.com/2008/03/24/news/international/taiwan_markets.ap/index.htm

CNN has a summary of the post election here:

http://edition.cnn.com/2008/WORLD/asiapcf/03/23/taiwan.ma.ap/index.html#cnnSTCText

http://edition.cnn.com/2008/BUSINESS/03/24/taiwan.markets.ap/index.html

Some stocks are going up in Hong Kong and Shanghai as well.  Stocks in Shanghai will have a much shorter ride.  Since you probably cannot trade in Shanghai’s market, you cannot be exposed to it.  Your mutual fund may.  If your mutual fund does not have a local office, it may not actually understand political dymanics and the reasons for its short ride.  This is a good opportunity to watch your fund manager. 

You may happen to have some stocks in Hong Kong since HK is a lot more accessible to foreign capital and quite a good amount of their listed companies are also listed elsewhere (London, NY’s 2 markets).  This ride could be slightly longer.  New president does not come until much later.  So, all these trades are also emotional. 

Some Taiwan companies are traded overseas.  These rides are longer.  Again, new president does not come until May 2008.  So, these are sentiment trades.  One may want to wait untill some announcements come.  But it is the time to study the annual reports. 

Is the Taiwan the safest bet while the USD continues to fall?  It is not as easy to hold foreign currency in US as in some other countries.  So, holding a foriegn currency at the retail level is not easy.  The second best is to find a foreign currency/foreign money market fund.  The third is to find conservative funds with foreign positions, foreign as in outside of North America (Canada is not safe enough).  If you are a hands-on kind of guy, and you are interested in this region, then Taiwan banks are okay (among the public tradable in NY).  Avoid banks in Mainland China (for a different reason).  Some other FIs are okay, but not banks.

March 24, 2008 Posted by | business, canada economics, China, china politics, chinese, Current Affairs, Current Events, economics, election, 馬英九, finance, market, Money, opinion, politics, stock, Taiwan, Thoughts, trading, 中國 | 2 Comments

CNN provides clues to Tibetan White Scarves Organization

CNN interviewed James Miles from “The Economist”.  Miles was in Beijing in 1989.  He knows what an organized activity with Chinese style is like.  However, James Miles says he does not “see any organized activity.”  However, James Miles also provided some clue to the kind of organization (or the lack of) in this incident: 

“They marked those businesses that they knew to be Tibetan owned with white traditional scarves” 

The transcript of the interview is here:

http://www.cnn.com/2008/WORLD/asiapcf/03/20/tibet.miles.interview/ 

It is unlikely Dalai Lama is behind it.  However, white scarves had been organized.  Since no one has given these organizers a name, I get the naming right: White Scarves Organization.   

A better transportation and communication network for Tibet also means more difficult for government to control everything.  This organization may not have reached the sophistication it needs, but it certainly has put itself on the radar of everyone in this trade.   

India increasingly considers the Tibetan issue a baggage to its Chinese relationship.  However, India cannot just drop it, just like Israel cannot just drop Gaza.  If White Scarves Organization increases its sophistication, scale and damage, then it will push Mainland China to find a solution, be it a negotiation or harder crack down.   

Mainland China started to learn how to play the soft power of influence maybe about 10 years ago or so.  It is getting better.  However, it has not learnt how to play this game domestically.  Very often, it is still seeing domestic power as Us vs Them.  Therefore, the path to this lesson is uncharted.  A better way to achieve this wisdom is to learn it through the governance of Hong Kong since there is a lower level of mistrust against a former British colony inhibited by Hans.   

The sad news is, everyone is running against time, not the count down on Olympics, but the count down on Dalai Lama.  Dalai Lama was born in 1935.  He is 73 years old.  He remains healthy.  But everything has its time.   

When Dalai Lama passes away, then there will be no spiritual leader among the exile Tibetans.  A new Dalai Lama will take another 2 decades to become effective, if at all he will be a political figure in addition to his religious duties.  The movement will turn violent or die down among the Tibetans.   

Mainland China will take the opportunity to find a Dalai reincarnation domestically.  If this domestic Dalai Lama is any good, an end for these 2 Dalai Lama will be difficult.  The status of them will obviously be part of the negotiation and political solutions were provided at times during Qing dynasty.  Again, the mandate of heaven was delivered through draws.  A negotiation will then be decades away, if any.  No end will be in sight any of our life times.  This will last just as long as Palestinian cause is going to be.   

Who will get the most out of it?  India already dreads this outcome.  Tom Clancy and the like will have more material to write about.

March 21, 2008 Posted by | China, china politics, chinese, Current Affairs, Current Events, election, 西藏, opinion, politics, Taiwan, Tibet, 中國 | , , , | Leave a comment

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

Radio Appearnace: Taiwan Presidential Election

Time:

03.22.F.1730 – 1830  EST
03.23.A.1200 – 1330  EST

http://www.ccue.com/toronto/radio/

March 19, 2008 Posted by | China, china politics, chinese, Current Affairs, Current Events, election, opinion, politics, Taiwan | Leave a comment