The U.S. Must Avoid the Trap on East China Sea

Recently a strange “issue advocacy ad” appeared in the Wall Street Journal paid for by the Tokyo Metropolitan government. The gist of the ad is to tell the American people that the Tokyo government intends to purchase certain islands in East China Sea and is seeking American “understanding and support.”

The islands in question are ostensibly to be purchased from some private Japanese owner so one would wonder why American support is worthy of such attention-grabbing ploy. It turns out that there is a lot more to this story than meets the eye and the person orchestrating this scheme is none other than Shintaro Ishihara, the governor of Tokyo.

Ishihara is a rabid right-wing nationalist previously known for giving America the middle finger salute in the ‘80s when he wrote the book, The Japan that Can Say No. He is despised by China and other Asian nations for prominently denying that the Nanjing Massacre and other WWII atrocities were ever committed by the Japanese imperial troops.

The string of islands Ishihara wants to buy are located north of Taiwan, referred to as Senkaku by the people in Japan and as Diaoyu by the people in China, Taiwan and the Chinese diaspora over the world. These islands are geologically connected to Taiwan and separate from the geological formation that makes up the Ryukyu (or Okinawan) island chain.

Japan claimed possession of the Diaoyu/Senkaku islands since 1894 when the islands were made part of the Okinawa prefecture. But China had, since the 14^th century, administered the islands as a part of Taiwan. These islands were ceded to Japan along with Taiwan in 1895 when the Qing forces lost the war with Japan.

At the end of WWII, according to the agreement struck by the leaders of the victorious Allies, Taiwan was returned to China and these islands should have been included. But for strategic reasons, the U.S. held onto these islands until 1972, at which time, the US handed these islands to Japan along with the Okinawan chain of islands.

There was no historical or geological justification for the regrettable American action. Instead, the action has directly led to the festering dispute between China and Taiwan on the one side and Japan on the other. Ishihara exploited this bone of contention to embarrass his own national government and raise the tension between China and Japan. The ad in the Wall Street Journal was his attempt to enlarge the dispute and bring the US into the boil.

Indeed, Ishihara has raised the temperature of the confrontation between the foreign affair ministries of China and Japan. Japan has had to recall its ambassador to Beijing and change to one less sympathetic to China. Cities in China raged with citizen protests, in some cases overturning Japanese branded police cars and smashing Japanese storefronts. Among the greater China, messages condemning Japan filled the Internet.

A group of activists from Hong Kong recently braved stormy seas to land at one of the islands to plant a flag of China. Their subsequent arrest by the Japanese coast guard was followed by immediate demand for release by the Beijing and Hong Kong governments. Prompt release without formal charges by Japan was then met with vocal disapproval from the Ishihara followers.

The American public needs to know that the Chinese reaction on these islands, whether from China, Taiwan or the diaspora around the world, is deeply rooted from a half century of humiliation suffered at the hands of Japanese imperialism. Since Japan has never formally apologized for the many atrocities committed by their imperial troops, the Chinese people cannot forget.

The squabble may seem trivial to the American policymakers but it is a tremendously emotional one for the Chinese people. Time and again it has been shown that it does not take much for the Chinese to react viscerally to any provocation instigated by Japan. There have been incidents of high seas chicken between fishing boats from China and Taiwan versus the coast guard cutters from Japan, each accusing the other for initiating the hostile bump and run. The incendiary nature of these incidents can quickly get out of hand, escalate into shooting conflicts and rage out of the control of either government.

The US State Department is aware of the sensitivity surrounding the islands but is playing the role of strategic ambiguity badly. The islands should never have been handed to Japan administratively. To this date, State Department spokesperson has to awkwardly demur when asked if the US security pact with Japan includes these uninhabited islands and avoid publicly stating as to which country is the rightful owner.

To make sure that the Diaoyu/Senkaku islands do not become a flash point for escalation into large scale armed conflict, the U.S. must inform Japan in no uncertain terms that America will never go to war over disputes of these islands. By unequivocally taking the US out of the ring, provocateurs like Ishihara will not find the dry flint needed to set the ownership issue aflame. This is an important first step to cooling down the emotions and allows diplomacy between China and Japan to find resolution.

An updated version was posted in New America Media.

Africa is too cozy with China to Suit the West

On July 19, South African President Jacob Zuma opened the 5th Forum on China-Africa Cooperation, held in Beijing, with a warm and effusive address about China's relationship with Africa.

Zuma even cited Admiral Zheng He's visits to the African continent as the beginning of a beautiful friendship. Even though he was off by a few hundred years, Zuma was undoubtedly expressing admiration for the Chinese that came to trade for a few giraffes to take back to Beijing--unlike the Europeans that later came to rape and pillage and kidnap natives for the slave trade.

By simply altering the sequence of Zuma's speech, the Financial Times adroitly changed the tone of his speech into one that "warns" China that all was not well, implying that China was as guilty of exploiting Africa as the European predecessors. The Washington Post shamefully reprinted the FT piece without any revision.

We have been led to believe that major publications in mainstream media have a public responsibility to be accurate and objective. They are supposed to inform their readers and not to pander to known biases nor reinforce preconceived but erroneous notions.

In other words, their job is not to merely tell the reader what they think the reader wants to hear.

Fortunately, in this case President Zuma's speech has been posted in its entirety by the South African government so that the reader can compare what he actually said to how his speech was reported.

There were certain passages in Zuma’s speech that failed to be included in the Financial Times piece.

“We are particularly pleased that in our relationship with China we are equals and that agreements entered into are for mutual gain.  This gathering (referring to the Forum) indicates commitment to mutual respect and benefit.”

Then Zuma went on to declare, “We certainly are convinced that China’s intention is different to that of Europe, which to date continue to attempt to influence African countries for their sole benefit.”

Zuma in the same speech then said, “Over the last decade, and partly because of China’s unrelenting support, the African continent has seen tremendous growth rates, making it one of the fastest growing continents and certainly the next growth pole. Furthermore, global growth estimates suggests that Africa’s growth will continue in an upward trend for years to come.”

Does the above sound like Zuma was complaining about China’s treatment of Africa?

Certainly not, according to what Zuma went on to say, “In particular, we take note of the infrastructure development China has assisted Africa with in the past several years.

“ African continent is now being seen as a major player in global affairs, and is becoming more attractive to investors and development partners.  

“Indeed, this is proving to be Africa’s decade of change.”

President Zuma basically concluded his speech by calling on China to continue to be Africa’s partner in meeting future challenges.

Along with helping Africa build its infrastructure, China has overtaken the US as Africa’s biggest trading partner.

Unlike the US, China does not give foreign aid with or without strings. True to its policy of non-interference, China does not tell the African nations what to do, nor make suggestions on rectifying human rights abuses.

Ironically, a recent op-ed in the New York Times by a Zambian economist argued that foreign aid tend to line the pockets of corrupt dictators while trade and infrastructure investments were more likely to benefit the general population and thus empowering the populace to hold their government accountable.

The same economist reported that Secretary of State Hillary Clinton had warned Africa to be aware of new form of colonialism, an obvious but oblique reference to the presence of China in Africa.

It’s hard to know if Secretary Clinton truly believed that Africans would find her credible or if she were merely mouthing a party line that she knew her American constituents would want to hear.

The End of the Dollar is Neigh

While Congress is wringing their collective hands over US Olympian uniforms that are made in China and incumbent president Obama and presumptive challenge Romney are mud wrestling over who has sent more jobs offshore, along comes another observation on the doom of the dollar. This article gives eleven reasons why the role of the dollar as a global reserve currency is about to end.

I have been tracking currency swaps that China has entered with other nations. The aforementioned article points out that China is not the only country making this trade provision that would by-pass the need to hold onto dollars.

No one in the mainstream media seems to be following this global trend of shying away from the dollar nor examining the consequence to the American economy when the value of the dollar plummets and inflation grabs the consumer by the throat. 

Condemning Olympic Apparel Made in China: Another Tempest in a Teapot Brewed by Congress

Congress is tackling yet another crisis of gargantuan proportions. They are upset that the spiffy outfits the American Olympic team will wear at the opening ceremony while designed by Ralph Lauren are (gasp) made in China.

Senate Majority Leader Harry Reid was outraged and declared that all the uniforms should be burned and just let the athletes wear singlets with hand painted logo of USA. Members of Congress from both sides of the aisle jumped in to castigate the Olympic Committee for failing to buy American.

A representative of the American garment industry pointed out that at about $1500 to outfit each athlete, the committee could easily have sourced the apparel from US makers.

What the person did not point out was that a made-in-the-USA outfit would have taken out the entire margin of the opening wear--a margin that the committee undoubtedly intended as part of their fund raising effort.

Just go on to the official website of the US Olympic Committee and one can see all kinds of “official” souvenir gear from berets to shirts and blazers available for fans to purchase. If the apparel were made in the USA and still affordably priced to sell, the committee would not raise much money, if any.

Unlike some countries, such as China, where Olympic participation enjoys state financial support, the US Olympians will go to London through donations and private sector fund raising efforts.

The US government, even if it wanted to, does not have the money to finance the Olympians. Members of Congress surely know all this.

Since much of what Americans wear are made in China, it shouldn’t surprise anyone. But when it became known that the Olympian garb was also from China, it was a no risk, no cost, no downside, and no brainer opportunity to take a pot shot at the Olympic Committee and vilify once again things made in China.

In the meantime, disaster looms as America hurtles towards the “fiscal cliff” at yearend. That’s when tax cuts expire and mandated government spending cuts begin.

While all the economists and pundits are certain that such a combination will result in the next economic disaster for the US, they are also certain that no one in Washington has the political courage or vision to enact anything meaningful that would stop the runaway train.

Such has the state of our democracy become: Terrifically adept at jumping into petty minutia but cowardly absent when it comes to tackling real issues confronting the future well-being of this country.

To conform to Senator Reid’s wishes, the standard bearer leading the US delegation into the opening ceremony in London should wear nothing (made in China), just a G-string with a made-in-USA label emblazoned to the extent possible.

Such a spectacle will convey several concurrent messages to the worldwide viewers: Washington kingmakers have no clothes and no statesmanship, and America is a poor country in more ways than one. 

See another version in New America Media. The LA Times carried the astonished view of the controversy from China.

Ukraine is Next on Swap Deal with China

Ukraine's central bank has entered into a currency swap deal with China. The deal at approximately yuan 15 billion is not big as size goes but a significant development in other aspects. Ukraine sees this deal as a commitment for close bilateral cooperation.

Ukraine is also about to conclude a swap deal with Russia and restart negotiation with Belarus. Other countries have announced bilateral currency swap deals not involving China. This is clearly a global trend to minimize exposure to holding American dollars.

My last blog on this subject picks up the thread on my tracking of China's currency swaps.

China's Latest Swap Agreement is with Brazil

Some call this currency swap deal, between China and Brazil, to be the biggest one yet by China with a value of about $30 billion. The swap deal is part of a broad, long term bilateral cooperation between the two countries.

Since I have been keeping track, this is the first swap agreement China has entered with another member nation of BRICS, the others being Russia, India and South Africa.

Of course, while China has no formal swap agreement with Japan, their publicly announced agreement to settle their trade in their own currency and bypass converting into dollars is potentially a much bigger deal than the swap deal with Brazil just by virtue of the magnitude of their bilateral trade, well north of $300 billion annually.

Many have speculated on the significance of China's gradual introduction of the renminbi as an international currency.

Internationalization of the Renminbi

Speaking of collateral damage, an interesting discussion of the gradual replacement of the dollar by the renminbi has come to my attention from, of all places, Australia. The author sees savings accounts denominated in dollars as "collateral damage" when the dollar is displaced by the renminbi.

When should you begin to stuff renminbi under your mattress? Now. When will you be glad that you did? The author thinks it could come as soon as 36 months. Maybe not says China central banker, but let the market decide.

I have been monitoring this situation since I wrote about the bilateral swap agreements and plan to continue to do so. See also my April post on related matter between the renminbi and the yen. Certainly China-Japan bilateral trade represents a significant part of global trade and the significance of settlement that by-passes the dollar has been published  by several sources recently.

See this twit for a recent comprehensive explanation of the benefits of swap agreements: The BRIC Currency Swap Proposal Is A Global Game Changer http://read.bi/L221R5

America's Drone Warfare Trivializes the Meaning of Collateral Damage

Collateral damage used to connote unfortunate, accidental, regrettably unintentional death and destruction committed in the quest of accomplishing a greater good--admittedly a doubtful and shaky definition to begin with. When collateral damage becomes routine, massive, indiscriminate and random, the consequences deserve more thought than simply dismissing the incident as, oh well, another dead innocent civilian or two or three or tens and hundreds.

Use of drones can come back and bite our collective ass. See arguments presented on why drone warfare is illegal.

Drone warfare is unlikely to become a topic of presidential campaign and debate but thoughtful Americans, perhaps a contradiction in terms, need to think deeply about this practice before the joystick jockeys wearing uniforms begin to think of this exercise as just another video game.

Reflections from travel through Central Asia

An intrepid world traveler most likely won’t find a tour of central Asia daunting, but others just might. Unless you are accustomed to dealing with border crossing that require schlepping all your personal baggage across long no-man’s land—barbed wire fences, check points manned by steely-eyed soldiers carrying rifle, some with fixed bayonets, that speak no English—this would be the lowlight of the tour you don’t need.

Ironically, central Asia used to be a vast, open but loosely defined region that separated the European kingdoms in the west and the mysterious Cathay in the east. Today, this region is artificially divided into countries, all ending in “-stan:” Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. (Afghanistan is also part of Central Asia, but not presently recommended for even the intrepid traveler.) The Stans became independent countries upon the dissolution of Soviet Union in 1991 and they apparently took the borders created for them by Stalin in the 1920’s very seriously. Crossing from one Stan to another is strictly monitored and controlled.

Mountain range as seen from a Bishkek hotel

Before spending three weeks visiting the “5 Stans,” I thought of central Asia as a place of camel caravans trekking over endless deserts. I was to find the image off the mark. While the western part of central Asia is arid and dominated by deserts, the eastern part contains snow-capped mountain ranges, tree-ringed alpine lakes, lush valleys and rivers nurturing vast grasslands. Mother nature made sure I revised my understanding of central Asia by drenching my travel companions and me in sudden torrential downpour while we were in Tashkent, Samarkand and Ashgabat, about 1000 miles apart. 

This part of the world was home to fabled empires at different times and overlapping territories that belonged to such ancient people as Scythians, Parthians, Sogdians, Bactrians and Kushans. Much of their cultures have been lost over time abetted periodically by total massacre and destruction in the hands of ruthless invaders resulting in a consequent loss of historical continuity. It shouldn’t be surprising—though I was initially—that we found frequent mention of Chinese sources to establish and authenticate the archeological finds on display in the museums we visited. Neighboring China, after all, has uninterrupted historical records that kept track of the interactions China had with various peoples in the west.

One of the museums attributed “the ambassador from China in 109 BC” as the beginning of trading on the Silk Road between China through central Asia and the West. I was thrilled by this apparent reference to Zhang Qian, the emissary sent by Han Wudi to form alliances with the kingdoms in central Asia. Zhang Qian is an important historical figure well known to school children in China. At first I thought the reference was an independent validation of the years he spent in central Asia, but upon further reflection, I asked myself, was it merely another citation of the same Chinese historical source?

Invasion by Alexander from Macedon around 330 BC became the first major defining event for this region. In his campaign against the Persian Empire, he ran over most of central Asia in part because his opponents didn’t know how to overcome soldiers marching in phalanx formation, the leading warfare technology in its day. When he got to the capital of Sogdiana, near today’s Khujand in Tajikistan—as the local guide related to us—he met fierce resistance, which he solved by marrying Roxanne, the princess of the local king. Thus a romantic story from the ancient era was born. The influence of Greek culture to central Asia and beyond to India and China can be attributed to Alexander’s conquest.

Statue of El Khoresm in Khiva

The Arabs invaded this region in the 7^th century and conversion of the people to Islam began. The Arabs also introduced great Islamic architecture and science and mathematics, the former such as the invention of the double dome structure found in mosques, mausoleums and madrassas. The many structures we saw were ancestors to the Taj Mahal built in India many hundred years later. Khiva proudly displays a stature of al-Khwarizmi, who wrote the definitive book on algebra, as their native son. The word algorithm in computer science was derived from his name. 

The Mongolian invasion led by Genghis Khan in the 12^th century was the next cataclysmic disaster to strike this region. He left a wake of annihilation and destruction in his path as he swept through on his way to Europe. Much the memory of the people and evidence of their culture were erased by the Mongols. Our guide in Kunya Urgench explained that the tragic outcome could have been averted save for a grievous misunderstanding. Genghis Khan had sent emissaries to the emir then seated near Kunya Urgench to establish trade relations. The emir got bad counsel and looked down on the unwashed horsemen and beheaded them. A furious Genghis then mounted a fierce assault that eventually overcame the fortress.

Annihilation of the population and leveling of the city was a customary practice to intimidate the next opponent and convince them that surrender to avoid slaughter was a wiser alternative. Genghis was not the first to use this practice. Alexander did the same some 1500 years earlier when he invaded southern parts of Greece.

The next ruthless ruler to dominate central Asia was Timur, whose detractors derisively called Timur the lame, which in the West became Tamerlane. Timur was home grown from a village outside of Samarkand who rose to conquer much of this region roughly a century and a half after Genghis Khan. He made Samarkand his capitol and built a great city for posterity. He also destroyed other cities and kingdoms that rivaled his power, such as the kingdom of Khorezm based in Khiva. At its peak, Timur’s empire rival in size to that of Genghis Khan and Alexander. In 1405, nearing 70, he died on the road as he was preparing to invade China. The threat of his invasion was said to lead to Cheng Ho’s sailing the seven seas as the Ming Emperor sought alliances that might mitigate the threat of Timur.

Peter the Great had designs on this region as early as 1717 but took the Russian military another 150 years to conquer and incorporate central Asia into its empire. After the Bolshevik Revolution, central Asia became part of USSR. To discourage insurrection and large-scale rebellion, Stalin somewhat arbitrarily divided this region into the aforementioned 5 Stans. At the time, each autonomous region had to have a minimum 1 million population and over 50% belonging to one ethnic group, such as Kazakh, Kyrgyz, Tajik, Turkmen and Uzbek. Some of the borders, reminiscent of the fine art of gerrymandering in the US, reflect the need to meet the criteria.

Ivory rhyton on display at Hermitage

Central Asia was the prize Russia won in the Great Game over Great Britain. There were pluses and minuses attributable to their occupation. Under Tsarist Russia, there weren’t much respect paid to the cultural artifacts and madrassas, for example, were converted from being religious schools to stables and warehouses. The Soviets began to paid attention to the artifacts buried in the many ruins in central Asia and excavate some of these sites. Much of World Heritage sites and other archeological gems that we can see today owe their existence to the recovery and restoration efforts by Soviet archeologists. On the other hand, just as some of the finest art found in British colonial past are in the British Museum in London, so it is that some of the best finds in central Asia are on display in the Hermitage in St. Petersburg. The ivory rhyton at right was found from the Nisa ruins outside of Ashgabat, now on display at the Hermitage, similar ones are also on display at the National Museum of History in Ashgabat.

The preceding sketch of the history of this region is no where comprehensive and perhaps not even precise but is, I believe, a minimum framework necessary to understand today’s central Asia.

           

On the tour, the most striking thing I noticed was the people of central Asia. They come in all sizes, shapes and coloration and as non-homogeneous as one can imagine. Some are blond and pale and some look Asian, but most seem to fall in gradations somewhere in between. They could be easily mistaken for someone from Mexico, or Morocco or Iran or Egypt or India or Italy. Remarkably, they mix and mingle and seem oblivious to differences between themselves. I could not detect any ethnic sensitivity or tension as we mingle with them on the streets and bazaars. In various times, nomads from Siberia, Mongolia, Manchuria and western China have migrated or passed through from the east, as have people from Russia and Ukraine from the north and Turks and Greeks from the west and Persians from the south. With such a long period of intermingling, perhaps it’s natural that they stopped noticing the differences among themselves.

Even though the dominant religion is Islam, the people’s attitude is quite secular. Few pray five times a day, most consider themselves devout if they regularly pray on Fridays. During the three weeks we were there, we did not hear the call to prayer even once, unlike our experience in other Islamic countries. Perhaps this is a legacy from the Soviet era when practice of religion was actively discouraged.

           

Another Soviet influence is the universally accepted notion that education is important, even for women. Free public education through the 9^th grade seems to be the norm in all the Stans. Every tour guide seemed quite proud of their national university and seemed perplexed that I would asked if the university had any foreign students. (The answer was they do not.)

The sudden dissolution of the Soviet Union seemed to have left the Stans poorly prepared for nationhood. All gravitated to some form of strong man government, and, except for Kyrgyzstan, have enjoyed the support of the population to varying degrees. In the case of Kyrgyzstan, the first two presidents were thrown out of office, the third, a woman, accepted the emergency appointment for one year and voluntarily stepped down for the next elected president.

Economic development among the 5 Stans seems uneven, largely dependent on whether or not the particular country possesses deposits of oil and gas to subsidize the economy. Kazakhstan and Turkmenistan have plenty of oil and gas and thus have stable economies. Uzbekistan does not and is wrestling with ongoing inflation. The official exchange rate is 1800 som to a dollar. At restaurants, if you offer to pay in dollars, they offer a black market rate as high as 2850 to a dollar. Kyrgyzstan is rich in water and natural scenery and Tajikistan is the least economically developed of the five.

           

Uzbekistan’s attempt to control inflation is apparently to exert tight monetary control. We were told that the daily receipts of enterprises, large and small, are collected by the state at the end of the day and deposited in the state-owned banks. This would allow the state to monitor and control the circulation of their currency but apparently the state can’t help resorting to printing more currencies as their remedy. The consequence is that everybody carry wads of 1,000 som bills and are experts at counting stacks of bills quickly and accurately. On a flight from Urgench to Tashkent, I happened to stand next the interpreter for a World Bank team visiting the country. I asked her if the World Bank was recommending an open economy that welcomes foreign direct investment, she agreed that would be a step forward.

China’s influence in the local economies is readily evident. The bathroom amenities as well as the sinks and toilet bowls in many hotels are from China. In the bazaars, used fertilizer bags from China are popular for holding whatever commodities the stall operator is selling. In Bishkek, I bought an electrical plug converter for the equivalent of $1.10, made in China of course. That little purchase was essential to power my iPad, mobile phone and camera for the rest of my trip.

The roads in 5 Stans are extremely uneven. New roads are excellent. A JV, we were told, built the toll road from the border to Khujand in Tajikistan, with a Chinese company. While driving from Bishkek to Lake Issyk-Kye, we were mostly on a road still under construction. When completed, it was going to be a major arterial highway from Kyrgyzstan to China. At a roadside restaurant, I was delighted to take over from our guide and ordered a Chinese meal from a menu with dishes written in Chinese.

Group photo of American travelers with Uzbeks in Tashkent

           

This part of the world has not seen many tourists from America. When they asked and found out that we were from the US, we were invariably greeted with warm, welcoming smiles. In Uzbekistan, especially the young people loved to have their photos taken with us, the American tourists, and they would frequently approach the women of our group and ask for group photos with us. We felt like celebrities. The people in Tajikistan loved to have their photos taken by our camera and were pleased to see their images on our camera. The people of Turkmenistan were more formal and distant and did not encourage taking of photos. 

Driving into Ashgabat, we saw gleaming white marble office buildings, white marble apartment towers, spectacular monuments, broad boulevards and fountains everywhere. Being the capitol of Turkmenistan, Ashgabat was probably the most ostentatious, but the other major cities that we drove through also contained spectacularly looking edifices. On the other hand, the highways between the cities are not in good condition and rather than drive, it was quite inexpensive to fly, under $20 per person from Mary to Ashgabat and from Ashgabat to Dashogus. Fuel in oil-rich Turkmenistan must be quite cheap.

When we got to Samarkand, one of the first stops was to visit a family still making paper from the fibers of the mulberry tree in the traditional way, i.e., by manual labor. I found an interesting historical footnote related to this stop. I discovered that Samarkand was the first place to make paper outside of China and they learned papermaking from the Chinese prisoners of war because of a pivotal battle that took place in 751 AD. Taking place in the valley of Talas in today’s Kyrgyzstan, a force of soldiers from Tang court fought a force led by the Arabs. The Chinese suffered a devastating defeat as some 2000 soldiers were taken prisoner; among them were skilled craftsmen who knew how to make paper and pottery. Thus was how the papermaking technology was transferred to the west.

While largely forgotten, it has been argued that this battle had a major impact on history. After this battle, the Tang court turned away from central Asia and lost interest in advancing its sphere of influence westward. Even though the Arabs won the battle, the logistical challenge of supporting their army over great distances may have also discourage their expansionary ambitions. They too turned away to consolidate their control in central Asia. I recently came across an article that discussed this historic battle more fully here. 

Travel tips, if you decide to visit central Asia:

All the electrical outlets use the two round pin configuration. If you don’t have an adapter at home, you can easily buy one in bazaars and street-side stalls upon arrival.

Most of the major stops on the Silk Road are in Uzbekistan. So if you would rather not deal with the hassle of crossing borders by foot, just book your tour for Uzbekistan.

As you enter Uzbekistan be ready to accurately complete the customs form and declare the amount of currency you are bringing in. Avoid hassle by making sure that you report no increase in the amount of currency you are taking out on departure.

Travel as light as you can and make sure your luggage has sturdy wheels. Perhaps because of perceived threat to airport security, cars and buses are not allowed to drive up to the terminal door. Instead, you are dropped off some distance away and have to haul your luggage to the terminal.

Bring plenty of US currency in small denominations, which will be handy to make purchases and as gratuity. The bills should be in good condition free from tears and unsightly wrinkles.

Hygiene standards are quite high everywhere we went. We ate fresh fruits, cucumbers and tomatoes and none of us got sick.

Do bring along an umbrella.

We booked our tour with East Site Travel, based in New Jersey with offices in the 5 Stans. You will find their website interesting and informative.

For those of you interested in more photos and less verbiage, I have produced a photo book on Shutterfly that you are welcome to access and view.

Comment on Bilateral Relations of China and Russia

This is interview took place on April 28, 2012

http://old.rt.com/v/Upload/george-koo.asf

America: Get Ready for Big Money in Presidential Politics

"The big money in U.S. presidential politics is about to get a whole lot bigger," ran the lead sentence of the article in April 14 issue of The Global Edition of The New York Times.

Both Obama and Romney are gearing up for serious fund raising campaigns, each fund raising event to garner a million dollars or more. When the dust finally settles and the next president is elected, the total amount spent on this political campaign will exceed $2 billion, perhaps even $3 billion depending who is doing the counting and what is being included in the tally.

So, in this exercise of sham-o-cracy, which is more important, your vote or your checkbook?

Is this the model of democracy, proudly made in America, that other nations should aspire to?

Who's kidding who?

Internationalization of the Yen and Yuan

A detailed explanation of the interaction of the Japan's yen and China's yuan can be found here. Tokyo is about to join Singapore and London in becoming currency swap centers for the Renminbi.

Internationalization of the Renminbi

The steady but gradual appearance of China's currency in the global market is comprehensively described on the China Economic Net. According to this article, Turkey, the latest to sign a bilateral currency swap agreement, worth 10 billion yuan, is the 16th nation to enter into such agreement with China.

My previous tabulation listed 18 countries including Brazil and Japan. Apparently these two have agreed to settle their bilateral trades in their own currency but did not actually enter into a swap agreement. A typical swap agreement with China is for initial term of three years, renewable on mutual acceptance and has a stipulated amount.

Demonizing China for Fun and Profit

Mike Daisey is the latest but not likely the last to attain fame and fortune by making up stories about China. Daisey’s case was a widely acclaimed monologue entitled “The Agony and Ecstasy of Steve Jobs” supposedly based a six-day visit to Shenzhen China and his encounters with various factory workers—except as we were to find out very little of it actually happened.

Daisey’s performance on stage was a hit and he became a media celebrity that talked about his China experiences. This American Life a radio program on National Public Radio dedicated an hour on Daisey and excerpts of his monologue. Up to this point, his monologue was considered to be a factual presentation of his encounters in China since he never qualified it in any way.

Unfortunately for Daisey, some of his more flamboyant assertions on his one-man show rang hollow to those that know China. This American Life then retroactively did some fact checking and found that Daisey had lied to the program. In the end, This American Life made a full retraction of the story they carried about Daisey. In the retraction, the listener could hear Daisey’s awkward and embarrassing retreat as Ira Glass disassembled Daisey’s lies step by painful step.

By the end of the hour program, Daisey apologized to Ira Glass for appearing on his program and misled the American public into thinking that he was doing journalism when he was only doing theater—a medium where mixing facts with fiction are permitted.

An important reason for Daisey’s initial success is his choice of topic. Much of American public are susceptible and open to hearing anything negative about China. I have reduced the formula of success as ABCDEF: Americans bash China by distortion, exaggeration and fabrication.

The earliest known example that came to my attention was the so-called human rights activist, Harry Wu. He made a decent living talking about China’s human rights conditions based on half-truths and lies. He has had the good fortune of never appearing on a stage visible enough that someone was inclined to give him a once over fact check.

Hey China! Stop Stealing Our Stuff

The cover article in latest issue of Bloomberg Businessweek has the above subject as the title. A provocative piece that is likely to be cited in months ahead by congressional spokes persons and law enforcement officers whenever China is in the cross hairs of public discussion about China's bilateral relations with the U.S.

One of the Sino American business relationships described in the article that went off the tracks involved Sinovel, a Chinese maker of wind turbines for wind farms and AMSC, an American maker of electronic systems that control the operation of the turbine. Ostensibly this was a match made in heaven; the Chinese with low labor cost to put the hardware together and the MIT spinoff to supply the sophisticated electronics.

Indeed, Daniel McGahn, the CEO of the American side said, "We always saw it as a symbiotic relationship of having China's low manufacturing cost coupled with Western technology. We would grow as they grew." It didn't hurt that Sinovel was a market leader and dominant supplier in China.

Unfortunately, as was the case with cellular phone, energy saving light bulbs, solar panels, wind turbines or other fashionable products of the day, whenever one company makes a high profile entry, others follow suit and soon China is overloaded with too many manufacturers with too much output and everyone having to resort to price cutting in order to stay in business.

In 2008, the electronics from AMSC accounted for 12% of Sinovel's cost of the turbine system. Three years later, the AMSC package made up 18%. "Everybody was getting squeezed except AMSC," according to an American consultant quoted by Business Week.

In my view, McGahn missed an opportunity to proactively re-balance the AMSC partnership with Sinovel that could have forestalled the ugliness that ensued.

Instead of assuming that his company would continue to enjoy the margin of 2008, he could have empathized with his partner's plight and share some of the pain of eroding margin. Perhaps he could have seized on the opportunity to restructure the business relationship in such a way that Sinovel would own equity in AMSC and vice versa. Perhaps he could have proposed a joint venture to develop export sales of complete turbine systems with hardware from Sinovel and control system from AMSC and thus expand the pie for both parties.

Just the information presented in Business Week is not sufficient to come up with a definitive solution that could have headed off the Chinese side from trying to steal the technology, but the principle is obvious. Namely as with any partnership, one needs to constantly think of ways for both parties to win and make sure that the cost of doing business together is more appealing than going separately.

One particular aspect of doing business in China that is especially difficult for western executives to understand is that the best way of not getting screwed is to develop real friendship with their business counterparts. Chinese value face and yiqi（义气）. The dictionary defines yiqi simply as personal loyalty but it's much more. To behave without yiqi is to dishonor oneself and suffer a great loss of face and self respect.

As AMSC's case showed, keeping the crown jewels, in this case the source code, outside of China did not prevent theft and the attempt to go it alone. If the parties had found a way to remain in the same bed and share the same dream, they might still be living happily ever after.

The Myth of China Dominating the American Economy

Despite recent hue and cry about China taking unfair advantage of trade with the U.S., an analysis revealed that the amount of Chinese goods and services being consumed by the Americans in 2010 accounted for (gasp) 2.7% of America's total personal consumption. Not only that, but 1.2% were actual costs of imports from China. The other 1.5% were accounted by the U.S. business transporting, selling, and marketing of the made-in-China goods. By contrast, 88.5% of the total personal expenditures were spent on goods and services made in the U.S.

This study was performed by the Federal Reserve Bank of San Francisco and can be read in its entirety here. Ostensibly the reason for conducting this study was to determine how inflation in China might impact on the U.S. economy. Obviously, if Chinese imports only account for 2.7% of our total personal expenditure, it won't matter if China experience inflation in the near future. For that matter, it is immaterial whether China is manipulating its currency or not.

Keep this study in mind, the next time some politician or pundit makes a mountain out of this mole hill or indulge in flights of runaway imagination on how China is ruining our economy. Your response should be simply: Nonsense.

Debunking Cyber Warfare and Other Illicit Derring Do

Accusations of evil doers lurking in cyber space seem to fall into the following categories.

(1) Some warn of frightening cyber attacks in order to sell their network security expertise.

(2) Some describe lurid tales of evil doing in cyber space to sell books, fiction or not.

(3) Some attributes acts of cyber sabotage to other nations in order to demonize them, most often targeted being China and Russia.

(4) Of course, threat of cyberwar is another way to justifying budget allocation from the federal government to the defense industry.

Along comes in latest issue of Foreign Policy an article that should calm matters down and lower the scare meter by a notch or two. Below are some excerpts from the piece written by Thomas Rid, ridding us of some of the amorphous fears.

Cyberwar is still more hype than hazard. ...act of war has to be potentially violent, has to be purposeful and has to be political. So far we have not seen any that meet those criteria.

In his 2010 book, "Cyber War," former White House counter-terrorism czar Richard Clarke invokes the specter of nationwide power blackouts, planes falling out to the sky, trains derailing, refineries burning, pipelines exploring, poisonous gas clouds wafting, and satellites spinning out of orbit. The only tangible result so far is the establishment of the U.S. Cyber Command in 2010 with an annual budget exceeding $3 billion.

Development of a cyber weapon would require a lot of resources. The weapon has to be target specific in order to be effective. Once used defense measures would be put in place and the weapon would lose its potency. In other words, the cost effectiveness of such a one-shot weapon is problematic and doubtful.

While Rid's article provides a balancing perspective, it will not deter others to scare monger.

China's Reminbi as a Global Currency

Since the collapse of Lehman Brothers and the ensuing tsunami from Wall Street that almost swamped the financial world in 2008, China has been busy signing bilateral currency swap agreements in order to minimize the exposure of holding too many dollars.

Such swap agreements allow the two signatory nations to do business with each other using their own currency and skip having to buy dollars and settle the trade invoices in dollars.

This article co-authored with Henry Tang posted in China-U.S. Focus apropos on leap year day can be read in its entirety here.

On going tracking of bilateral swap agreements China has entered can be found here.

Linsanity too late for Soldiers Chen and Lew

An edited version appeared on February 26, 2012 in the New America Media.

On a recent Sunday morning, I was glued to the boob tube watching a professional basketball game from the opening jump ball to the last waning second. Haven’t done this for years but suddenly I too have been swept up by the global phenomenon of linsanity.


By now, everybody knows linsanity refers to Jeremy Lin, the basketball star from Harvard, undrafted by any of the NBA teams, who warmed the bench for two other professional teams before coming off the bench for the NY Knicks in an act of desperation by the coach. Lin promptly led his team to a win, the first of nine wins in the next eleven games. He became the toast of New York and an instant worldwide sensation.


The Knicks took on Dallas Mavericks, last year’s NBA champ and I saw a real deal. Lin drove through a forest of opponents for layups or passed to wide-open teammates. He sank long-range three pointers in crucial moments or he drew the defenders so that his teammates were unimpeded as they threw in three point bombs. He was fearless and physical as the game dictated.


In the post game analysis, the great Magic Johnson unequivocally declared that Lin’s star presence would be in the NBA for a long time. None of his fellow panelists disagreed.


Lin’s heroics on the court immediately drew a following from the Asian communities of the world, heretofore thought too small, too short and too frail to play this contact sport. But Lin didn’t just become a role model for Asian Americans. He has won the ultimate accolade: every kid--black, brown or white--on the neighborhood playground now aspires to be a Jeremy Lin.


Linsanity also caused me to reflect on the tragic fate of Danny Chen and Harry Lew, two American soldiers who took their own lives in Afghanistan. These were two unrelated victims of hazing by their fellow soldiers. Sadly the misery they experienced was so brutal and unrelenting that they found ending their young lives the only way out of their torment.


These incidents reflect a failure of American values and the leadership of the military: The former because America continues to regard people of Asian ancestry as not American, but as the other; the latter because the military not only failed to prevent such racism from their ranks but also failed to impose appropriate penalty on the perpetrators for the hate crimes.


Hate crimes against African Americans evoke high decibel outcries but hardly a murmur when perpetrated against Asian Americans.


It will be up to the Asian American community to make noise in order to rectify the wrong. During the first Gulf War, friendly missiles shot down two American helicopters. The pilots who pulled the trigger were exonerated but not Captain Jim Wang of the Awac flying surveillance.


The late Sam Chu Lin, a mainstream media star who became a voice of conscience, rallied the Chinese American community and with the help of the Committee of 100 made sure that Captain Wang had proper defense counsel leading to dismissal of all charges against him.


Wen Ho Lee was the designated scapegoat and sacrificial lamb in the political struggle between the Republican Congress and Democrat President Clinton. He would have rotted in jail as a spy for China had the Asian American community not come to his support. Sam played an active role in this case as well.


In this case, the American public took no pains to make the distinction as to whether Lee, who came from Taiwan, was Chinese or not. To this day, some still considers him a spy though the court found him not guilty of any espionage charges. Those that still accuse Lee of spying have also forgotten that the court did find the FBI lying in court under oath.


Maybe Jeremy Lin with his continued success will erase some of the prejudices that reside in America against Asians. Perhaps linsanity, had it occurred a couple years earlier, could have blunted some of the bias of the American soldiers and caused them to regard ethnic Asian in their ranks as less gook and more fellow soldiers.


But we can’t count on Jeremy Lin to carry entire load for racial equality on his shoulders. We, the Asian American community, must stand up and demand our rights as full fledged, tax paying, law abiding citizens to all the respect pertaining thereto just like the next person.

The Making of Renminbi on Becoming a Global Currency

In 2002, I remember visiting the Leaning Tower of Pisa as a tourist. I was surprised to see a souvenir stand displaying a prominent sign: "Your Reminbi are welcome here" written in Chinese. This was significant on two counts. One, there were already significant amount of tourists from China visiting Europe and two, the Chinese yuan was becoming a global currency, albeit unofficially.

After the financial crisis of 2008, it became obvious that the dollar was on a long term path of declining value. While China has not been the only country to want to avoid holding on to too many dollars, China has been the busiest in entering currency swaps with its many trading partners. Bilateral currency swaps allow the participating nations to pay their trade invoices with their own currency and not with dollars.

Here is a compilation of swap agreements China has entered to date.
2008, December - South Korea, 180 bn yuan since extended
2009, January - Hong Kong, 200 bn yuan since doubled to 400 bn in Nov 2011
February - Malaysia, 80 bn yuan, extended 2/12 & increased to 180 bn yuan
March - Indonesia, 100 bn yuan
- Belarus, 20 bn yuan
- Argentina, 70 bn yuan
June - Brazil, no exact amount known
2010, June - Iceland, 3.5 bn yuan
July - Singapore, 150 bn yuan
2011, April - Uzbekistan, 0.7 bn yuan
- Mongolia, 5 bn yuan, doubled to 10 bn yuan in March 2012
June - Kazakstan, 70 bn yuan
December - Thailand, 70 bn yuan
Pakistan, 10 bn yuan
Japan, no exact amount known
2012, January - U.A.E., 35 bn yuan

February - Turkey, 10 bn yuan
March - Australia, 200 bn yuan

Other imminent swap deals currently under discussion include Nigeria and South Africa. The number of deals are likely to accelerate. As more countries hold and accept Reminbi, the more appealing the yuan will become as the alternative to holding too many dollars and more bilateral swap agreements will result.

Even if all the swap agreements were drawn down in full, there might be as much as two trillion yuan circulating outside of China. This might be enough liquidity for the renminbi to act as a de facto global currency but not enough to replace the dollar as the hard currency.

We can be sure, however, is that the dollar will cease to be the only global currency because no one will be satisfied with owning a currency that decrease in value with time. Japan has entered a currency swap deal not just with China but also with India, and Turkey with Malaysia. These are some examples how others are looking for ways of going around the dollar.

Keeping Manufacturing in America Won't be Easy

In his State of the Union, President Obama stressed the importance of keeping manufacturing in America. The reasoning is that in order to continue to innovate and develop the next generation must-have products, the US needs manufacturing that uses leading edge technology. Nothing wrong with the reasoning, but it may be too late.

A lengthy analysis on why jobs are flowing to China based on the Apple iPhone experience appeared in the New York Times. One of the most important findings of the NYT piece was that America simply no longer has the skill sets to meet Apple’s demands for a high quality, technology product. America has lost the edge to make things.

Advanced manufacturing depends on staffing the factory floor from the production line to the line supervisors with people possessing technical skills. The training programs Obama talked about might serve as temporary Band-Aids that might keep certain production from leaving in the short term. But to maintain a world leadership position, the US will need far more technicians, engineers and scientists than the country is producing.

For many years long before the 2008 financial meltdown, the smartest and brightest of American graduates were pursuing careers on Wall Street rather than careers in science and engineering. Making financial products was easier and more lucrative than manufacturing hard goods. Value was created more rapidly and more profitably by financial manipulation than by selling hard goods.

During the height of Japan bashing in the 1980’s, the late legendary Akio Morita, CEO of Sony, said America was good at moving money from one pocket to the other but not in making anything.

For decades the majority of Americans, most of the so-called 99%, have been getting a basic education inferior to what their parents received. Although politicians readily acknowledge the importance of public education, budget allocations did not follow lip service. Classroom size got bigger and kids were taught fewer hours in a day and fewer school days in a year.

To meet the required budget cuts, schools are forced to cut out arts, music and other non-core courses and after school activities. Bare bones programs leave students uninspired as they sleep walked to graduation not much wiser than when they started. Teachers waved the students through rather than making sure that the lessons took hold.

Of course, there are pockets of exception. Perhaps 5% of the Americans can afford to subsidize their local school budget out of their pockets and help raise the quality of education for their children or send their kids to better quality private schools. But that leaves a lot of untrained minds that will not realize their full potential.

In some parts of America, pro science is regarded as anti-religion, or worse yet pro religion is ipso facto considered as antithetical to science. The local sentiment that religious concepts should be taught on same footing as science, such as creationism vs. evolutionism, would leave young minds poorly prepared for a productive adult life in a technology driven world.

Out of the forty 2012 finalists of Intel Science Talent Search, 14 have been identified as ethnic Chinese, 7 with South Asian surnames and 5 others with some other Asian surnames. For many years now, more than half of the finalists, high school students with outstanding aptitude in sciences, are first generation immigrants or sons and daughters of immigrants from Asia.

Immigrants from China, India and Russia, in particular, come from cultures with deep respect for learning and science. They have not been in America long enough for the anti-science mentality to rub off.

So long as we are not able to turn out enough science and engineering graduates of our own, then President Obama is correct when he said we need to welcome foreign students to stay after they graduate and not push them away.

But even if immigrants lead in the development of innovations, as we see in Silicon Valley, America still needs a solid pyramid base of people with skills that would turn innovations into commercial successes. President Obama spoke of keeping and building leading edge manufacturing in the US. This is not going to happen unless there is a fundamental shift in the American attitude about the importance of math and science.
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An edited version appeared in New America Media and Nation of Change.

Lesson from Taiwan's Recent Election

Much to the relief of the US, China and of course the majority of Taiwanese who voted for him, Ma Ying-jeou was re-elected as president for another four years. His re-election means no disruption in the building of cross straits relations and corresponding reduced likelihood of flare-ups and incidents that would raise cross strait tensions. Stability across the straits was highly sought after by Washington, Beijing as well as Taipei.

Ma won by a 6% margin, less than the 17% landslide from his first election but nonetheless a surprisingly comfortable lead considering the widely anticipated wire photo finish with his opponent from the opposition party. There were no last minute shenanigan, such as an election eve assassination attempt, to interrupt the proceedings. Some observers have even gone to proclaim that Taiwan's orderly exercise in democracy should inspire their brethren on the mainland.

Actually, I think Taiwan could serve as a lesson for America. Essentially three out of four voters in Taiwan turned out to vote. In the US, one out of two would be doing good. Nearly 200,000 Taiwanese flew back from the mainland, where they were working to vote in the election. Uncounted thousands even flew from the San Francisco Bay Area to vote. Since Ma won by more than 800,000 votes, the oversea returnees can't be said to spell the difference.

But we can say, they went back to Taiwan to vote because they cared. We have not seen such voter concern and passion in the US for many elections. Just the opposite is happening. We are inundated with negative lies and deliberate distortions funded by the rich to the point that we no longer give a damn. For decades America has not been a democracy of the people but has become corrupted by highest bidders.