Publication in Economics, Politics and Public Policy in East Asia and the Pacific

The politics of Japan’s new Takeovers Guidelines

Author: Luke Nottage

As outlined in FDI and Corporate Governance in Japan, in the context of growing inbound FDI and M&A activity, Japan is developing a hybrid approach to setting parameters for hostile takeovers. It is worthwhile taking a closer look at a third Report recently from a Study Group playing a major role, along with the courts, in elaborating Guidelines on permissible defensive measures. The Group’s membership seems to be changing, and differences are emerging compared to both the Anglo-Australian and American approaches to substantive rules on takeovers as well as the process for defining them. Read more…

Interventions to assist the Island Pacific

Author: Satish Chand

The recent Australian generosity to Nauru has the potential to reduce poverty and save the need for further transfers down the track. This would be the preferred outcome, but one likely to be achieved only if aid was effective in inducing development. There is no guarantee of that outcome. Worse still, large sums of unencumbered aid can undermine development by creating an expectation of ongoing support and the basis for a welfare state. As a taxpayer, I will be appalled by such an outcome.

What could be done to maximise the chances of aid being effective in inducing development? Read more…

Anwar’s victory boosts Malaysian democracy

Author: Gregore Lopez, ANU

Mr Anwar Ibrahim, returns to Parliament today (28 August 2008) as Opposition Leader, 10 years after he was sacked as Deputy Prime Minister and Finance Minister of Malaysia and heir apparent to the ‘throne’ of Dr Mahathir.

In many ways, the sacking of Anwar was probably the single most important event in the process of Malaysia becoming a mature democracy. For once, Malaysians had ‘a shared history’ – a story or a myth that brought Malaysians together.

Prior to Anwar Ibrahim’s sacking this common myth was May 13th – the race riot that was used over and over by the ruling Barisan Nasional (United Front) to blackmail Malaysians into submission. This myth was perpetuated by the successful developmentist state. Credit, no doubt must be given to Barisan Nasional, of which Anwar Ibrahim was part and parcel of for a good 14 years, for delivering on economic growth, peace and stability (read here). Read more…

Strategic economic engagement for stronger Sino-American ties

Author: Jane Golley

Henry Paulson Jr.’s article in the September/October 2008 issue of Foreign Affairs provides a timely and insightful analysis of how strategic economic engagement is strengthening the U.S.-China bilateral relationship. Paulson, U.S. Secretary of the Treasury, starts with the premise that engagement is the best path for the next American president to choose in response to China’s emergence as a global power. While recognising that there will inevitably be tensions between the two countries – particularly in the realms of China’s military modernization, its enforcement of intellectual property and its human rights record – Paulson argues that nothing should stand in the way of cooperation, based on mutual understanding, equality and trust. To illustrate, he focuses on the successes of the U.S.-China Strategic Economic Dialogue (SED), launched by President George W. Bush and President Hu Jintao in 2006. Read more…

Asia literacy: making a good policy better

Author: Kent Anderson

Prime Minister Kevin Rudd has made ‘Asia Literacy’ a key goal for his government. I am one of the strongest supporters of this agenda. Nevertheless, let me identify two significant issues that hamper our current approach.

First, Asia Literacy is a term that has to be interpreted broadly. It is commonly given too restricted a meaning. Doubtless the prime minister sees Asia literacy in its broadest meaning but it is important that language alone, however critical, will not make us an Asia literate nation.

On the language front, Asia Literacy in practice is represented by the National Asian Languages and Studies in Schools Program (NALSSP),essentially is a cheaper version of the Rudd-designed National Asian Languages and Studies in Australian Schools Program, or NALSAS, that ran from 1994-2002. NALSSP will put $62.4 million over three years into developing secondary teaching of Chinese, Japanese, Indonesian, and Korean.

Targeting these four languages as priorities is a pretty good bet. China is our largest trading partner; Japan is our largest export market; Indonesia is our closest neighbour; and if you were going to pick one country on which to take a punt Korea as our fourth largest trading partner provides pretty good odds. Read more…

Larry Summers on higher education and development

Author: Shiro Armstrong

Professor Larry Summers at the conference on Financing Higher Education and Economic Development in East Asia: [See the video of the whole speech (20 mins)]

Human capital plays a key role in the development of all economies. A decade ago, discussions of education and development tended to be categorised by focussing on the importance of primary and secondary services. Certainly primary and secondary education are both important elements of the sector – not least because they feed directly into the quality of higher levels of education. But the lessons of recent economic history also highlight both the importance of strong higher educational outcomes obtained through universities and of the need for delivering substantial economic support.

The current world economy is going to be increasingly dominated by knowledge based industries over the coming decades. Agricultural, industrial and technical revolution will all give way to increases in knowledge. Manufactures will continue to be displaced by services and salary differences between knowledge based and non-knowledge based industries will continue to rise. The widening of these economic differentials highlights the importance of investing in knowledge and getting the fundamentals of each country’s higher education sector right.

Australia’s Asia literacy and an Asia Pacific Community

Author: Charles Prestidge-King

Kevin Rudd’s focus on China began as an undergraduate and hasn’t waned.

This is worth keeping in mind as context to his comments on Australia’s approach to Asia, on his recent trip to Singapore.

Rudd considers the ‘rise of China’ as the greatest event and policy challenge for the coming century, and restated his commitment to make Australia ‘the most Asia-literate country in the West’, stressing the importance of what he called ‘functional expertise’, as well as linguistic and cultural understanding of our region. He also reiterated his idea that good policy is underpinned by good scholarship.

Rudd’s comments in Singapore, echoed sentiments expressed at the Crawford School’s China Update. In Singapore, Rudd signed a security pact with his counterpart, Prime Minister Lee Hsien Loong, and he talked about his idea of an Asia Pacific Community. Singaporean think tanks had earlier greeted that with a fair degree of skepticism. Read more…

Vietnam: back from the brink?

Author: Suiwah Leung

The economic policy authorities in Vietnam seem to have had some success in pulling the economy back from the brink. The latest month-on-month inflation rate has begun to slow down and the economy may have passed the point of macroeconomic danger, though it is too soon to declare victory yet.

Vietnam’s problems are different from those of the rest of Southeast Asia in the Asian financial crisis. They are more like those of Southeast Asia in the early 1980s or China in the early 1990s: the darling of international investors and an ill-disciplined policy response to all the attention. The tough policy choices required have been nowhere to be seen until the last few months.

The turnabout now seems in train. Read more…

Incentives to suicide

Author: Shiro Armstrong

The incidence of suicide in Japan appears high. Are there insurance incentives to suicide? Indeed, Chen, Choi and Sawada in a recent paper titled Suicide and Life Insurance find a positive relationship between the suicide rate and the availability of life insurance with a death benefit associated with suicide. They claim that suicide is a rational decision after taking into account the exemption period (the period that the death benefit is not available after the insurance is purchased – to minimise adverse selection).

It is apparently not uncommon to have life insurers provide a payout for suicide. Most OECD countries have the option of a death benefit in life insurance payable in the event of suicide with exemption periods ranging from 1 to 3 years.

What is the social rationale for having such insurance options? Should a regulatory authority or supervisory body in the insurance industry allow insurance that, in some circumstances, provides incentive for suicide? You can imagine the adverse selection problems that arise. Read more…

Rivals: China, India and Japan – Economic, not Olympic?

Author: Luke Nottage

Ryan Manuel’s posting on ‘Market failure, the state and Olympic sport’ generated further thought-provoking views, from Dominic Meagher, as well as a follow-up on ‘switching costs‘. Relatedly, in the Sydney Morning Herald last Saturday, Hamish McDonald asked: ‘Billion Indians, but where are all their medals?’. We might pose a similar question about Japan, in contrast to China. This provides a springboard for introducing and assessing the new book by the former editor of The Economist, Bill Emmott’s Rivals – How the Power Struggle Between China, India and Japan Will Shape Our Next Decade. Read more…

China’s grid price for electricity goes up (band-aid solution)

Author: Dominic Meagher

In May we wrote about China running out of coal and repeated the economic truism that there’s no such thing as a shortage; only a price that needs to go up.

Yesterday, China’s grid price for electricity went up for the second time in two months (except in Tibet) [NDRC].

Source: Rosen and Houser (2007) China Energy: A guide for the perplexed

There have been months of negotiations and lobbying between China’s energy producing firms (especially the five firms which dominate the market**), the two state-owned grid companies, the National Development and Reform Commission (NDRC), provincial officials and probably the SERC and SAAC as well. [See Rosen and Houser’s eminently readable, China Energy: A Guide for the Perplexed (p24-25) for details]

During those negotiations, the Chinese people have had to put up with frequent electricity shortages. This circumstance is reminiscent of 2002-2003, when small cities routinely went without electricity for entire weekends. The NDRC has come up with a band-aid solution (see over the fold), but unless China embarks on a more comprehensive reform of its electricity market, 3-4 years from now China will be experiencing wide spread and frequent power shortages again. Read more…

Indonesia’s inflation outlook

Author: Ross McLeod, ANU Indonesia Project

Indonesia’s inflation rate is now well over twice as high as the central bank’s target of about five per cent. There are two convenient scapegoats: big increases in both oil and rice prices. But the real explanation, as always, is unduly loose monetary policy.

Such an assertion will seem implausible, perhaps, to most observers. After all, Bank Indonesia has increased interest rates in recent months, which seems to suggest a tightening of monetary policy. That can hardly be denied, but the fact remains that monetary policy still remains quite loose. The best indicator of this is the growth of currency in circulation, which has accelerated significantly over the last several months, and is now running at rates of almost 30% annually. Read more…

Switching costs and sports

Author: Ryan Manuel

As a further to last week’s article on sport and markets, this article in today’s Australian shows the dilemma facing modern sports administrators, with one of our top javelin prospects moving to the NRL instead

When there is a better funded, non-Olympic sport people will generally switch. There aren’t too many 17 year old boys who would choose differently.

Yasukuni shrine

Author: Shiro Armstrong

There will always be some ‘noise’ in a relationship as big as that between Japan and China, no matter how close and robust it becomes. The important thing is that disagreements and tensions don’t dominate the relationship. Much of the tone depends on how the relationship is managed at the top, by each country’s leaders.

Yasukuni shrine

Last week’s news that three Japanese cabinet ministers, 53 Diet members, and former PM Abe visited the Yasukuni Shrine on the 15th of August – the anniversary of the end of WWII and the most politically hot day for Japanese politicians to visit the shrine from a Chinese and Korean perspective – is the latest ‘noise’. The visit itself is not unexpected for domestic political reasons, and involved mostly the usual suspects. Cabinet members who went were Japanese Agricultural Minister Seiichi Ota, Justice Minister Okiharu Yasuoka, and Consumer Affairs Minister Seiko Noda.

A surprise was that former PM Koizumi also visited. This is curious since many believed Koizumi was only visiting Yasukuni shrine as Prime Minister to keep an election promise which he had to make to garner the support of the right. Mindy Kotler’s piece discusses Koizumi’s visit in more detail.

Fukuda of course stayed away from Yasukuni. More surprisingly, so did Taro Aso. Read more…

The Prime Ministers Fukuda and Sino-Japan relations

Author: Shiro Armstrong

The 63rd anniversary of the end of the Sino-Japan war, and WWII, on the 15th of August last week passed with very little media attention, at least in the US and in Australia.

In fact last week was an even more significant week for Sino-Japan than usual. The 12th of August was the 30th anniversary of the signing of the Treaty of Peace and Friendship. This also, to my knowledge, passed without much press (there was some news of course, such as reports of then resident liaison of the Association for the Promotion of International Trade, Japan’s Hiroaki Kitamura’s insight into the negotiations of the Treaty).

This was not an insignificant treaty. Current Prime Minister Yasuo Fukuda’s father Takeo Fukuda was Prime Minister then and was instrumental according to Yosuke Nakae, former director general of the Japanese Foreign Ministry’s Asia bureau:

Fukuda and then Japanese Foreign Minister Sunao Sonoda were the two most important Japanese politicians in the negotiation for the treaty and their enthusiastic attitude and persistent efforts contributed much to the success of the negotiation.

He quotes Takeo Fukuda as saying the treaty helped upgrade Japan-China relations to an ‘iron bridge’ from a ‘hanging bridge when the two countries just formed diplomatic relations (in 1972). Read more…