Will President Obama seize the opportunity to turn North Korea into a breakthrough with China?

Later this week, President Barack Obama will meet China’s President Xi Jinping in an informal setting in Southern California, an added stop for President Xi en route back to China after state visits in Latin America.

This more or less impromptu meeting has aroused a lot of interest on both sides of the Pacific. Some pundits do not expect the meeting to move the needle on bilateral relations. Others hope for an outcome that’s goes beyond status quo.

Since the White House initiated the invitation, Obama has an opportunity to think out of the box and present an overture that could permanently change the nature of the bilateral relations.

A good place to start would be for Obama to offer a startling new approach to the North Korea issue.

Heretofore, North Korea has been a pipsqueak state that seemed to get away with jerking the chains of both the US and China with impunity.

Despite or because of vocal protests from the US, North Korea has apparently gone ahead with an underground nuclear detonation—“apparently” because no one seems to know for sure.

Despite consternation from Japan and South Korea along with pressure from the US, North Korea has test-fired ballistic missiles in the direction of neighboring South Korea and Japan. Some supposed intercontinental range missile turned out much shorter range than expected and some were outright duds.

Each time after the government has misbehaved on the international stage, it would offer to begin the six party talks, provided of course the US will agree to preconditions that the North Koreans know the US will not accept.

The only recourse Washington seems to have is to lean on Beijing to get the North Korea to behave, since the regime is completely dependent on the food and energy aid from China, without which the regime would certainly collapse.

But China is equally frustrated, if not more so, by the North Koreans. Each time Beijing sends a special envoy to Pyongyang to ask the government not to build a bomb or not to fire a missile, the Pyongyang would assure the envoy and then goes ahead and reneges a few days after the envoy leaves. Sometime, the misbehavior takes place a couple of days ahead of the arrival of the visiting delegation just to rub it in.

Most recently, after the most recent missile test and after finally releasing Chinese fishermen held by the North Koreans—as this has happened more than once—Pyongyang promptly sent their highest ranking military official to Beijing to again express proper contrition and again promise to participate in the much desired six party talks.

North Korea’s seemingly erratic behavior has been deliberate and carefully calibrated. It continues to push and test the boundary of what China will tolerate, because Pyongyang knows that China will not allow the regime to implode altogether.

China has two major reasons not wanting to see the Pyongyang regime collapse. First it would have to deal with a massive refugee problem as Koreans flee north into China. Second, presumably the Seoul government will take over and unify the entire peninsula. This would mean potential American military presence all the way to the border of China.

Up to now, Washington has been badgering Beijing to fix the problem and make Pyongyang behave but has offered nothing that would help Beijing get out of the conundrum.

At the coming meeting with Xi in southern California, Obama has the chance to put a startling offer on the table. Namely, if South Korea were to unify north and south, the US immediately withdraw all its troops from the Korean peninsula!

Of course, American presidents have been known to make deals that they could not later deliver. Therefore Xi’s response is likely to be cautious and measured, but what an ice breaking beginning this would be.

To offer to sit on the same side of the negotiating table opposite North Korea is to declare Obama’s recognition that the US and China have too much at stake in common to continue in adversarial postures.

Obama could point out to Xi that since China normalized its relations with South Korea (to the consternation of the North) in 1992, South Korea has become an important economic partner of China and the bilateral relations have been cordial without one-sided demands like that from the North.

If the Korean peninsula were to unify under Seoul, China would have a friendly neighbor and enjoy a stable relationship. With peace and stability being the common goal of China and the US, there would be no further reason for an American military presence.

The rationale is compelling and the proof is in the doing. In order to convince Xi and his Zhongnanhai colleagues that Obama is sincere, he would have to change his pivot to Asia into an invitation for joint exercise with the PLA Navy. In that way, the expression of peaceful intentions is actualized.

Much work has to be done before this scenario becomes real, but there are two real benefits for Obama. First, with sequestration, Obama is facing a shrinking defense budget. He still has a war budget on al Qaeda that needs to be fed. He does not have the funds to deploy troops in the Pacific where the US faces no threat.

More importantly, Obama should be thinking about his legacy to history. By brokering a lasting peace with China and become partners in developing a stable Asia Pacific, Obama would be remembered for altering the disastrous warpath toward self destruction embarked by the previous Bush administration and putting America back on a path to prosperity.

A similar version has been posted on New America Media.

For Chinese Scientists, America is the Land of Opportunity to Go to Jail.

A similar version has been posted on China-US Focus.
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The recently concluded (non)case of the government vs. Dr. Bo Jiang bore a striking resemblance to the scandalous Wen Ho Lee affair that occurred in 1999 and strongly suggests that racial profiling and bigotry is still alive and well, at least in Virginia.

On March 16, Dr. Bo Jiang, a citizen of China boarded a plane at Dulles International bound for Beijing. He was accosted and escorted off the plane by FBI agents, put in jail and charged with lying to the law enforcement officials and possible violations of Arms Export Control Act.

About 7 weeks later, on May 3, the prosecution dropped all charges against Dr. Jiang. But before he was allowed to leave the US for Chengdu China he had to plead to a misdemeanor charge of “misuse of government equipment” in exchange for time already served in jail. The plea was so the government did not have to admit that they made a mistake.

In 1999, Dr. Lee, the then Los Alamos scientist, was accused of being a spy for China by the New York Times, fingered by then Energy Secretary Bill Richardson, thrown into solitary confinement for ten months. Lee was then released with an apology from the presiding judge for prosecutorial misconduct.

In the most recent case, Congressman Frank Wolf (R-VA) was instrumental in the arrest of Jiang and he was quite proud of his role as the self-appointed spy catcher.  After Jiang’s arrest, the Congressman held a press conference on March 18 and issued a press release in praise of his own role in this affair. 

Wolf is a well-known, long time critic of Peoples’ Republic of China. On March 7, he held a press conference expressing alarm at security violations at NASA-Langley. According to him, anonymous whistleblowers had told him of a Chinese national with unauthorized access to NASA’s secrets.

Wolf on March 7 already knew about Jiang but was setting the stage for the drama to come. He did say, “It is my understanding that this Chinese national is affiliated with an institution in China that has been designated as an ‘entity of concern’ by other U.S. government agencies.”

At the March 18 conference, Wolf revealed that Jiang was “trying the leave the country on a one-way ticket.” At the airport, the federal agents had asked what electronic media he had with him. Jiang admitted that he had a cellphone, a memory stick, an external hard drive and a new computer. A search of his luggage found other media items not mentioned by Jiang and that discrepancy too became grounds for suspicion.

At this point, Jiang could have explained that his work visa in the US was expiring and his contract was not being renewed. He bought a one-way ticket back to China because he wasn’t planning to come back. There was nothing sudden about his flight to Beijing.

He could have pointed out that the work he did as a NASA contractor was unrelated to national security and he had no access to data and technology related to national security.

But no one was interested in what the suspect had to say. Fortunately for Jiang, he then got a break. The court appointed Fernando Groene as his defense counsel.  An experienced former federal prosecutor, Gorene accepted the appointment because he was outraged by the injustice of Jiang’s case.

“It’s all about a witch hunt,” he said to the media shortly after taking the case. The mills of justice ground on for a few more weeks before the prosecution confirmed that Jiang had been telling the truth, namely his computers contained no data or files that violated national security regulations.

Groene was quick to praise the prosecution for being fair minded after seeing that they had no case. Of course, this did not mean that Jiang received an apology from Wolf, FBI or anyone representing the federal government.

He experienced first hand the adage, “you can’t fight city hall.” Jiang had to accept a guilty plea to a misdemeanor charge for the time served—a misdemeanor of misusing government equipment that most federal employees would also have been found guilty of.

There were, of course, no offers of compensation for his 7 weeks of incarceration or damages to his reputation, dignity and personal privacy.

After the case was over and Jiang had gone back to China, attorney Groene gave additional color surrounding this case.

NASA could hardly ignore the agitation from the Congressman with the power of funding oversight.  In response, NASA had earlier conducted an internal investigation of the allegations against Jiang and found no substantiation. This was duly reported back to Wolf but he would hear none of it.

A dissatisfied Wolf then wrote letters on March 13 to the US Attorney’s office and FBI insisting that they investigate further, leading to the ensuing fiasco

Jiang’s implied sinister connection with an “entity of concern” alluded by Wolf was apparently the school in Chengdu Jiang attended for undergraduate training. Groene pointed out that the Chengdu school had a sister college relationship with the College of William & Mary and the president of William & Mary is none other than Robert Gates, former Secretary of Defense in Bush and Obama administrations.

If anyone has violated federal regulations, Groene concluded, it was Congressman Wolf for disclosing confidential personal information on his website.

Groene is a naturalized American citizen from Cuba. He is proud to be an American and grateful to be in the land of opportunities but he is concerned over the erosion of our civil liberties as exemplified by the arbitrary law enforcement action against Jiang.

There are other conclusions to be drawn from this latest case of racial profiling against ethnic Chinese.

Obviously the US does not have enough scientists that can meet the requirements for security clearances and are thus qualified to do work involving national security. To get around this problem, Government agencies such as NASA have been parceling out work that are unrelated to national security to contractors who can hire scientists that do not hold security clearances. This was the case with Jiang, a Chinese citizen without permanent resident status.

Such a separation obviously does not satisfy Congressman Wolf and his ilk and thus Bo Jiang becomes a cautionary tale for any ethnic Chinese scientists working in the US.

Whether it’s in Silicon Valley, universities, government laboratories or major corporations, if you are ethnic Chinese, not only your conduct has to be absolutely law abiding, you also have to stay as far away as possible from being tainted by any hint of wrongdoing. Others might routinely “misuse” government equipment but not you if you’re Chinese.

During the Wen Ho Lee era, John Deutsch was the then head of CIA. He was reprimanded for routinely downloading confidential files to his laptop and regularly taking it home--a clear case of violating government regulations and gross misuse of government equipment. But he was not ethnic Chinese and therefore he did not have to cop a plea nor spend a day in jail.

Contrary to popular myth, justice in America is not blind but is on the side of the government. Even if you are innocent, once arrested you are in trouble. As Wen Ho Lee demonstrated then and Jiang now, downloading while Chinese can be dangerous to your wellbeing.

The French Also Wants RMB Swap Business

No sooner than Bank of England having proudly announced that London will be the newest swap center for RMB, China's currency and the only one in Europe, Bank of France expressed the intention of becoming the RMB swap center for the Eurozone.

Noyer, governor of Bank of France, expressed confidence that RMB will soon become one of three major international currencies next to the dollar and euro.

To my knowledge, China has entered into bilateral swap agreements with about 20 trading nations. You can follow my observations in reverse chronological order starting with this blog.

How will Washington deal with end of the world?

Recently, a large asteroid had a close encounter with earth while a meteor actually exploded over Russia damaging property and causing some injuries. 

These closely occurring natural events served to bring public attention to the big what-if question. Namely, what if a large heavenly body were hurtling on a collision course with earth? How can we earthlings forestall such an inevitable threat to extinction?

The scientific experts on talk shows assured the public that by being watchful of the heavens, we could calculate the trajectories and anticipate possible collisions as much as 20 years away. 

With the technology already available on earth, this would be plenty of time to design suitable propelling force that would meet the celestial body with just the right glancing blow to nudge the object off the original course resulting in eventual fly by without a collision.

I am not so sanguine and can easily imagine a scenario with a less happy outcome. For example, let us imagine that …

Dr. Alphonse Keen, a PhD psychologist and amateur astronomer was the first to spot an asteroid heading for earth. He reasoned that the public might not take the threat to heart if they were told that the collision was 20 years away. To make sure of the sense of urgency, he said the collision was 10 years away.

Other scientists working to confirm the findings quickly exposed the wrong projection to the immense relief of governments and people around the world. Suddenly they were given an extra decade to solve this problem and the feeling of urgency were perceptibly lessened.

The fundamentalists declared that they would pray to God to avert the end of the world. They expressed faith in God’s will be done.

The Libertarians insisted that it’s not up to the government to solve the world’s problem. 

Leaders on both sides of the aisle after failing to reach consensus decided that the issue could be safely deferred until the next session of Congress, and then the next….

The White House decided to take the matter to the UN. The response from the General Assembly was that this was a matter for the Security Council. Other members of the Security Council pointed out that the US, as the sole super power and technological leader, must take the leading role and assemble the task force to repel the asteroid.

The American representative to the UN expressed the dismay that the US does not have a budget for such an undertaking. The EU representative indicated that they too are broke. China and India rejected any suggestion that contribution to the save the world project be levied according to population.

In the meantime a rising chorus of naysayers began to make their views known. They questioned the accuracy of the orbital calculations. They pointed out that asteroids have never collided with earth within human knowledge and why should it now? 

Some expressed confidence the earth will weather any collision. Others concluded that it was all a grand conspiracy formulated by the same folks that created the myth of global warming.

In the meantime, a handful of super rich convened a secret meeting to discuss the construction of a space platform large enough to host a significant sampling of the human race and thus preserve the species. The platform would have to sustain life for possibly decades until the aftermath of the collision subsided and earth became habitable again.

The trillion dollar financing was no challenge and all the technical details were fully examined and quickly addressed except one. Namely, the elite gathering could not agree on which of the human DNAs to be selected and ferried to the space platform.

The proceedings of the meeting was never publicly disclosed and thus the human race was spared of the sordid details of the clash of selfish and bigoted minds on the project that ultimately never got off the ground.

What happened in the interim 20 years before collision day, I leave for Hollywood's fertile imagination.

India gets into the currency swap game

India and Bhutan recently announced a currency swap agreement amounting to $0.1 billion to "further economic cooperation." 

This swap agreement allows the Royal Monetary Authority of Bhutan to withdraw tranches in dollars and euros as well as rupees. 

The same piece goes on to say that in May 2012, the Royal Bank of India had announced intention to enter currency swap agreements to the aggregate total of $2 billion with SAARC member countries -- Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka. 

The piece did not say whether Bhutan is the first or only member country to have accepted the invitation. The Bhutan central bank gave a clear and comprehensive explanation of the advantage of the swap agreement from Bhutan's point of view.

China has been entering into bilateral swap agreements with a large number of countries involving significantly larger amounts. These agreements involve their respective local currency and is a way of avoiding exposure to and cost of having to convert to dollars before settling their trade accounts.

Singapore just doubled their swap agreement with Bank of China to a total of 400 billion yuan or $48.2 billion. Singapore will be the third offshore centers (along with Hong Kong and Taiwan) to include the Renminbi in their foreign currency exchange market. London is expected soon to become the fourth offshore center to include the Chinese currency.

I have been tracking China's swap agreements as shown on my blog.

China Hackathon* is Harmful to American National Interest

This piece, co-authored with Professor L. Ling-chi Wang, was submitted to New America Media and an edited version was posted on their website on Tuesday, February 26, 2013.  China's Global Times posted a version on March 6, 2013 and US edition of China Daily on March 13, 2013.
*We coined a term, hackathon, to connote on the one hand the alleged rampant hacking activity from China and on other the endless stream of accusations from the western media that seemed to preclude any possibility that hacking could come from elsewhere in the world.
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Recent reporting of alleged hacking from China rapidly reached a crescendo. Led by the New York Times sensational disclosure of Chinese hacking since January 30, every publication of note or little note all seemed to have one or more stories on cyber attacks emanating from China.  

They were immediately followed by another headline-grabbing release of the Mandiant Report  on February 18, setting the stage for an announcement from the White House on February 20 that the administration was determined to protect American businesses and punish the perpetrators at home and abroad.

Is this an orchestration for a new policy initiative?  Or, is this just a reinforcement of Obama’s “pivot to Asia” and “Trans Pacific Partnership,” two major initiatives aimed clearly in response to the so-called “Rise of China”?

Since the nascent art of hacking and counter measures of cyber security are subjects too esoteric and beyond the comprehension of most except those skilled in the craft, the media focused on the more lurid details taken from the so-called Mandiant Report.

The report alleged that most of the cyber attacks levied against corporate America came from a 12-story building in Pudong Shanghai that belonged to a particular department of People’s Liberation Army.

Since the issuer of the report is in the business of selling their services to safe guarding company networks from cyber attacks, presumably it is in their interest to portray the attackers as menacing and sinister as possible. The PLA certainly fits the bill.

However, shortly after the Mandiant Report broke the news, articles that presented contrary points of view began to appear. The most comprehensive belonged to Jeffrey Carr, a cyber security expert in his own right, who pointed out that there are more than 30 nations with the capability to run “military grade network operations” necessary to mount the kind of sophisticated attacks found in the report. According to the U.S. National Intelligence Estimate, Russian, Israel, and France are among the leading countries in cyber hacking activities. 

Carr concluded that Mandiant was too quick to identify China as the culprit without performing rigorous analysis to eliminate other competing hypotheses and comparing its cyber espionage activities with those of other countries.

Two days after the New York Times article, the US edition of the World Journal, an ethnic Chinese daily, reported that 7 of the IP addresses identified by the Mandiant report as coming from the PLA office in Shanghai were actually from Hong Kong including one from the Hong Kong University of Science and Technology.

This was not surprising since hacking can come from anywhere in the world and easily misdirected to appear to come from somewhere else. What was surprising was that this finding came from a little noted ethnic paper and not from the major media stars.

Maybe Al Gore did not invent the Internet but it is an inconvenient truth that the US defense agency did and the Americans have since led the development and use of the Internet. As the world’s most advanced economy, the US has invested heavily and become most dependent on networks in the cyber space and thus most vulnerable to attacks.

The US also led in the development and use of weapons in cyber warfare. For example, the American developed Stuxnet worm has been credited with causing the centrifuges to spin out of control in the Iranian nuclear enhancement facility. Being the first known to use cyber attack in peacetime and in the absence of any international treaty and protocol, the US has lost the moral high ground to define appropriate conduct in cyber space.

This is of course not the first time that the US is reaping the consequences of what they sowed. The US has been the first (and to date) only country to use the atomic bomb. Since then, the US has had to devote decades of diplomatic efforts to promote nuclear non-proliferation and now live in fear of nuclear weapons falling into the hands of rogue nations or terrorists.

The next Pandora’s box that the US has already opened and soon will be trying to close shut is the use of drones for transnational surveillance and assassinations of terrorist suspects without due process. Friends and foes alike have seen the cost effective capability of a drone in rendering destruction and killing and all are rushing to develop their me-too ability.

The day is nigh when the Americans will be troubled by the prospects of encountering drones of unfriendly intentions controlled by someone holding a grudge against America. Then the US will once again have to expend much diplomatic efforts proselyting the idea of “do as I say and not as I do.”

From time to time, China has been trying to tell the US that they do not hold any grievances against the US. In typically understated ways, China has let the US know that China possesses silent running submarines, stealth planes and missiles capable of downing communication satellites. China even went out of their way to make sure that American intelligence got a full picture of China’s nuclear weapon technology as suggested by nuclear scientist Daniel Stillman of the Los Alamos National Laboratory. Latest airshows in China are displaying a large array of drones being made in China.

China appears to be practicing a porcupine defense strategy, i.e., peaceful intentions but beware of the ability to retaliate in kind. Some have suggested that the alleged PLA hacking has been deliberately sloppy, thus leaving visible trails to let the US know that China has cyber warfare capability.

Cyber espionage and warfare are serious problems here to stay.  The U.S. needs to develop effective, long-term counter measures and thoughtful and balanced diplomacy.  Singling out China as the sole villain without critically examining what other nations are doing, including us, is counterproductive, potentially misleading and in the long run, harmful to our national interests and world peace.  

Senator George Mitchell Advocates Ideals before Military Might

Senator George Mitchell, former majority leader and special envoy to Ireland and Middle East spoke recently in Palo Alto before a joint dinner meeting of Silicon Valley National Association of Corporate Directors and Financial Executives International. More than 200 attended his lecture, basically dealing with his views of the state of the world.

He related to us that at one of his talks, someone in the audience pointed out that tens of thousands of Syrians have been killed and their blood was on Obama's hands for not intervening. Senator Mitchell's retort was to ask the questioner why he was not as vocal in demanding American intervention in Congo where at last count more than 5 million have died. His implication was that conflicts around the world were invariably more complicated than simply the number of fatalities.

Among his remarks, he made a strong case for the importance of the US to lead by ideals and not by military might. Military power, he said should always be in support of ideals and never ahead of principles.

Given his advocacy, I took the opportunity to ask him where he thought the use of drones for surveillance and eradication was leading us (and the world). I tactfully added that I thought here was a case of military prowess leap frogging principles.

He said technological advances tend to lead and principles of conduct follow, after such advances have been put to practice. He gave as an example, the US development and use of nuclear weapons and then subsequently lead in the effort to establish nuclear nonproliferation. He could see that other nations will follow the US lead and eventually also deploy drones. Hopefully, he said, we will have established strong guidelines on appropriate practices by that time.

Alas, I found his tepid reply disappointing. I expected him to say something along the lines that this is another Pandora's box the US has opened and will bear heavy responsibility for consequent damage to world peace and security.

Caterpillar's Latest Stumble in China

Recently Caterpillar announced having to write off $580 million investment in ERA Mining, a Chinese mining equipment company Caterpillar acquired less than a year ago. Reason given for the charge to earnings was the discovery of "deliberate, multi year co-ordinated misconduct" at the Chinese entity--in other words, somebody cooked the books.

This would not be the first time the Peoria multinational has stumbled in China.

Around 17 years ago, Caterpillar proclaimed amidst great fanfare that they have a formed a JV with Shanghai Diesel to make Diesel engines for the China market and for export.

At the time, the Chinese regulations did not allow for foreign entities to own majority controlling interests in ventures in a pillar industry. But Caterpillar insisted and persisted in their negotiations until they came away with controlling interest in a 55/45 JV.

Then Caterpillar informed their US based suppliers that to continue their business relationships with CAT, they would need to supply from China as well.

One of CAT's major supplier, a Wisconsin company, proceeded to retain me to help them find a manufacturing base and a Chinese partner that would become a qualified supplier to the Shanghai JV.

The entire process from identifying potential partners to signing MOU to drafting the letter of intent to completion of the feasibility study and sitting down to serious negotiations took a little over one year.

For a variety of reasons my client found China's way of doing business, especially getting around the then notorious triangular debt dilemma* daunting and was wavering about making the final commitment.

By then the CAT/Shanghai JV was coming apart which in effect took my client off the hook. The need to supply CAT from China became moot and they decided to backed away from investing in China.

While we were visiting China conducting various due diligence work, we invariably stopped in Shanghai to pay our respects to CAT and thus I had an up-close view of how the CAT JV was failing.

As the majority owner, CAT provided most the senior management team. At the time, CAT in the U.S. was on strike and thus CAT had plenty of idle executives to send to Shanghai.

As we toured the new JV plant under construction, we noted the presence of many American executives, each one with a young bi-lingual Chinese assistant in tow. The senior Chinese official accompanying us on the plant tour, confided to me that it was going to be very difficult for the JV to break even with such a costly top heavy structure.

Our host also told me privately that the CAT management insisted on hiring only bi-lingual graduates and engineers, which meant many skilled and competent professionals could not be employed because of their lack of English fluency. Conversely, he said that English proficiency did not equate to proficiency in their technical discipline.

Within a year of our last visit of the JV, CAT renegotiated and reversed the equity split giving the majority control back to their Chinese partner. That reversion was too late to save the venture and CAT eventually shuttered the JV and wrote off the entire investment.

The Shanghai JV failed because CAT insisted on the American way and made no attempt to localize their practice. The latest failure was apparently due to careless or insufficient due diligence before making the acquisition. One of the principals of ERA Mining was an American living in China and one time president of the American Chamber of Commerce.

Did the patina of American ownership cause CAT to take too much for granted? 

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* In the mid 1990's China underwent a severe credit crunch and cash flow was reduced to a trickle. Companies delayed paying their bills, sometimes with IOUs and other times with all sorts of in-kind payments. The sales force frequently were charged with collection as well as getting sale orders. It was not an environment for the queasy.