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

The Greek tragedy: Global debt crisis and balance sheets

Author: Andrew Sheng, China Banking Regulatory Commission and Qatar Financial Centre Regulatory Authority

If a pack of wolves stalk a herd of buffalo, the herd can guard the weaker buffaloes. But if the wolves stampede the herd, they are able to take down the weakest buffaloes.

Financial crises behave similarly. The market speculators are like wolves that attack the weakest or most vulnerable economy. During the Asian crisis, the markets attacked Thailand first, because it had the highest external debt. This time, the markets attacked Greece, the most vulnerable economy in the EU. Greece may be the 27th largest economy in the world, but with a GDP of US$352 billion, it is only 3.1 per cent of the size of the EU. Read more…

How should the US engage with the Asian economy? – Weekly editorial

Author: Peter Drysdale

There is a palpable sense of anticipation with President Obama’s visit to Indonesia and Australia now just two weeks away. As Bernard Gordon says in his essay this week all the action in Asia might seem to be elsewhere — on the Korean Peninsula around the Cheonan crisis or in Japan sorting out US-Japan security relations around the Futenma issue. But Obama’s visit to Jakarta and Canberra highlights the other big strategic question that Washington is grappling with right now: how to position better to grasp the opportunities presented by Asia’s continuing economic rise.

So focused on the ‘war on terror’, as it was, the Bush administration let America’s economic engagement with Asia drift. Bilateral initiatives, such as the Korea-US free trade agreement, are yet to be brought to fruition. Read more…

Obama’s visit to Indonesia and Australia and the TPP

Author: Bernard K. Gordon, University of New Hampshire

President Obama’s twice-deferred trip to Indonesia is now scheduled for the week after next, and will be combined with a visit to Australia. In the familiar phrase, these visits come at the ‘best of times and the worst of times.’ It is the best of times because US relations with both Jakarta and Canberra have never been better. In 2008, President Yudhoyono announced his Comprehensive Partnership with the US‘ — a sea-change for Jakarta—and it will be further formalised and intensified during Obama’s three-day visit.

The goal will be both to ‘catch up’ in sectors that have been relatively neglected in recent years, and to open up new fields for Indonesia-US cooperation. Read more…

Prime Minister Najib – Fiscal discipline and efficiency for Malaysia first!

Author: Gregore Lopez, ANU

Historically, Barisan Nasional’s (BN’s) fiscal management has failed in two related ways.  They have displayed no fiscal discipline, and their public service expenditure has been highly inefficient and corrupt. Malaysian Prime Minister Najib’s decision to introduce a Goods and Services Tax (GST) is therefore premature. Before introducing a GST, Najib must first demonstrate to the Rakyat that he has the ability to reform BN by reining in fiscal deficits.

A historic lack of fiscal discipline

There are two conventional approaches to fiscal policy: a balanced budget approach, where the government spends only what it earns or a counter-cyclical approach, where the government accumulates surpluses during high growth periods to use as deficit spending during recessionary periods. Read more…

Why China could be leading the world on climate change

Author: Huw Slater, ANU

There are two schools of thought about China’s role in climate negotiations since Copenhagen. The first sees China as the principal obstacle to progress at the talks. The second considers that, as a developing country, China has done far more than its fair share. Proponents of this view point to China’s booming renewable energy sector, which is driving the cost of technology down rapidly.

A recent report suggests that the argument may be decided in favour of the latter view. It was reported that the Ministry of Finance is now actively considering the implementation of a carbon tax in China within the period of the 12th Five Year Plan, which begins next year. This follows extensive study and modelling of the implications of such a levy for China by the government affiliated Energy Research Institute. Read more…

Indonesia, the region and the world

Author: Dewi Fortuna Anwar, Kyoto University

The visit by United States President Barack Obama to Indonesia later in 2010 will undoubtedly put Indonesia in the limelight. Obama’s visit is seen by many as recognition of Indonesia’s international standing as the largest country in Southeast Asia, the largest Muslim majority nation, the world’s third largest democracy, and one of the world’s 20 largest economies. Much was also made of Hillary Clinton’s visit, which made Indonesia the second country that she visited after being appointed as the US Secretary of State in early 2009. Recently, a number of Indonesian and foreign observers have noted Indonesia’s return to regional and international activism after a period of crippling domestic crises.

It is sometimes said that Indonesia is the most important country that the world knows least about. Read more…

China needs to raise interest rates

Author: Feng Lu, Peking University

Latest data released by the Chinese State Statistical Bureau in 2010 indicates the consumer price index in China increased by 2.8 per cent and the producer price index by 6.8 per cent year-on-year to April this year. The growing inflationary pressure again highlights the need for China to raise interest rates.

In the wake of the global financial crisis countries including Australia and India, raised interest rates in order to control potential inflationary problems. On 28 April Brazil also raised interest rates by 75 base points to 9.5 per cent. In light of China’s economic fundamentals, China should follow suit rapidly. Read more…

Gulfs in America’s energy security, and the Louisiana oil blowout

Author: Jeffrey Frankel, Harvard

In the wake of the April oil well blowout off the coast of Louisiana, policy makers are rethinking the issue of offshore drilling. Clearly the last decade’s neglect of safety rules by federal regulators needs to come to an end. But what larger implications should we draw for domestic oil drilling?

The tension has long been between those who give primacy to the environment, on the one hand, and those who give primacy to business on the other. Read more…

Plagiarism and China’s future economic development

Author: Peter Friedman, Akin Gump LLP

Much has been made about whether China is a rising power that can go the distance. The numbers posted by the world’s soon to be second largest economy indicate that China has already gone this distance and is positioned for more growth, but what happens behind the numbers is not always as clear-cut. China’s economic miracle, built largely on major capital investments and inexpensive labour, is now attempting to shift to the next level of economic development, built upon innovation and design or the value-add components of economic growth. China’s universities will be the source of much of the brainpower propelling China to this next level. But problems endemic to China’s higher education system, specifically plagiarism and the lack of academic integrity, will render this journey quite difficult.

When given English-language writing assignments, it is common for Chinese students to rely upon translating Chinese sources into English and passing it off as their own work, or simply copying and pasting directly from Wikipedia.[1] Read more…

Russia and the North Korean knot

Author: Georgy Toloraya, Russian Academy of Science

Reacting to the US Nuclear Posture Review publication, in mid-April 2010 Pyongyang officially confirmed its own position on nuclear weapons: ‘As long as the US nuclear threat persists, the DPRK will increase and update various type nuclear weapons as its deterrent in such a manner as it deems necessary in the days ahead.’ Along with others, Russia has to seriously question the viability of the two decades-old efforts for denuclearisation of the neighbouring country, with special accent on the relevance to the existing diplomatic framework. What is the purpose of the Six-Party Talks and what are Russia’s goals in this exercise?

At present, the basic underlying approach for Russia is the denuclearisation of the Korean Peninsula. The Six-Party Talks are the most efficient way to accomplish that goal, and is the crux of Russia’s agenda. Read more…

No longer the capital of Burma: Yangon today

Author: Thomas Kean, The Myanmar Times

There’s a saying in Myanmar that, roughly translated, says you go to Mawlamyine for food, Mandalay for conversation and Yangon to show off. Poor Yangon.

Since the military shifted the seat of government to newly constructed Naypyidaw in late 2005, the city cannot even be described as the top place to display ill-gotten wealth anymore. Many of its crumbling colonial and towering Chinese-style mansions now lie vacant, their owners summoned to the new capital, and the long government motorcades that were once an everyday annoyance are now a rare sight. Read more…

Rebellion, repression and the red shirts

Author: Kevin Hewison, UNC

Anyone with even a passing interest in Thailand knows that there was a military coup in September 2006. The coup was meant to end the political domination of telecommunications tycoon and former Prime minister Thaksin Shinawatra who had won the two largest electoral victories in Thai history. The coup punctuated a period of political turmoil that began in 2005 and continues to this day.

Some commentators agree that this period of turmoil marks a political or cultural turning point. Read more…

Hatoyama accommodates the US on Futenma

Author: Tobias Harris, MIT

It may have taken a few months longer than I expected, but it appears that the Hatoyama government may have finally accommodated itself to the 2006 agreement on the realignment of US forces. The US and Japanese governments have reached an understanding regarding the future of Futenma following Secretary of State Hillary Clinton’s visit to Tokyo.

The latest bilateral agreement largely reaffirms the 2006 roadmap: the Hatoyama government has agreed to the construction of a new runway somewhere in the vicinity of Camp Schwab at Henoko Bay, with the details regarding the precise location and the method of construction to be decided by President Obama’s visit to Japan in autumn. Read more…

China: managing a summer of discontent – Weekly editorial

Author: Peter Drysdale

In February, prominent Chinese economist, Yao Yang, from Peking University’s National School of Development, contributed an important essay to Foreign Affairs on the ‘End of the Beijing Consensus’ as summarised here. His thesis was that the continuing summer of China’s economic success over the past three decades has been built on the firm foundation of ‘disinterested government’, able ‘to adopt the principles of neoclassical economics while still claiming Marxism as its ideological anchor – a detached, unbiased regime that takes a neutral stance when conflicts of interest arise among different social and political groups.

This does not mean that Beijing has been devoid of self-interest. On the contrary, the state is often predatory toward citizens, but its predation is ‘identity-blind’ in the sense that Beijing does not generally care about the social and political status of its chosen prey – unlike many governments elsewhere that act to protect and enrich specific social or political groups. As a consequence, the Chinese government has been more likely than other authoritarian regimes to adopt growth-enhancing policies. Read more…

Costs of maintaining stability in China

Author: David Kelly, UTS

A month ago, a report from a team of sociologists at Tsinghua University claimed that ‘this year’s (Chinese) budget for internal security has reached 514 billion yuan.’ The report went on to note that public safety expenditure increased by 16 per cent last year and will be augmented by a further 8.9 per cent this year.’ This increase has put expenditure on internal security in the same league as national defence spending. In light of this, the report warns that, ‘if the existing way of working is not changed, stability maintenance costs will become an increasingly heavy burden. More ominously, a number of reforms that are important for the improvement of the market economy and building a harmonious society may be delayed.’

Demons seemed to possess China last year. Read more…