Author: Peter Drysdale

Peter Hartcher says that: ‘ The West made a huge strategic bet in deciding to engage China rather than contain it. The punt? That the world would change China faster than China could change the world. Now, as China’s high-growth, high-filth capital is on Olympic display to a curious world, it also happens to be 30 years since Deng Xiaoping launched China’s modernisation.’

The bottomline for Hartcher is that ‘ (China’s) intolerance of some basic human freedoms is notorious. And it is hard to get around the brutal reality that, no matter how enlightened it may be in some of its dealings with the world, China is still an authoritarian dictatorship.’

Hartcher admits that China’s people enjoy incomparably greater freedom today than they did a generation ago. Then ‘the state stipulated where every Chinese had to live and work. Neighbourhood spies kept detailed tabs on every detail. Most Chinese had barely enough to eat. Culture was so threadbare that the arrival of a new movie from North Korea was considered to be a big event.’ Read more…

Author: Ross McLeod, ANU Indonesia Project

The fourth amendment to Indonesia’s Constitution requires both central and regional governments to allocate at least 20% of their budgetary spending to education. Though it attracted little attention at the time, the absurdity of this amendment is now becoming more apparent. The entirely arbitrary 20% level far exceeds typical levels of expenditure on education in the past, and so this minimum requirement has simply been ignored by central and regional legislatures in the years since the amendment.

Perhaps not surprisingly, a group of teachers has brought a case before the Constitutional Court, asking it to rule on the validity of the central government’s current annual budget, in view of the fact that education spending remains well below the mandated minimum. The court had no choice other than to agree that the current budget violates the amended Constitution, but it was not prepared to go so far as to annul the law in which that budget is contained. Read more…

Author: Ryan Manuel

Milton Friedman famously once said that if governments ran the Sahara there would be a shortage of sand.

So, other things equal, a quick look at the Olympic games should show a shortage of gold medals for countries using government run sport systems. Shouldn’t it?

In a word: no, though other things are not equal and that’s a concession in the argument that follows that needs to be acknowledged up front. Government run sports systems seem, on the whole, to be highly successful. Cuban boxers, Indonesian badminton players and Chinese… er, anything players, are all salient examples. State-run sports systems, on the macro level, appear to remain the model for success in Olympic games.

But other things are not equal.
Read more…

A Loyal Reader has added further depth to Jane Golley’s piece on China’s “great balancing act” and Hugh White’s comments. They write:

As my former HOM would have said, the argument is “completely fallacial”.

Seeking equidistance between China and the US will only serve to reduce our leverage over both. We get more out of both under the current arrangement.”

The big question to come out of this then is what exactly are the “current arrangements” (emphasis on “current” as against 1996-2007)?

Comments?

Author: Hugh White, ANU and Lowy Institute

Jane Golley is absolutely right to identify how important the US-China relationship is to Australia’s future, how seriously the future health and stability of that relationship is under pressure from both sides, and therefore how important it is for Australia to find ways to help improve it.  Moreover she is right to think that Australia can make a difference here: the US-China relationship is probably the most important in the world today, but arguably no country is better able than Australia to help shape it in a positive direction.  This is not because Kevin Rudd speaks Mandarin, though that helps.  It is because Australia is uniquely placed to speak to America about its role in Asia.  Japan is America’s most important ally in Asia, but Japan’s view of future US-China relations is shaped by its fear of China and dependence on the US, which together incline it to prefer Washington and Beijing to remain at odds.  Australia is not nearly as important as Japan, but we are America’s oldest and closest friend on this side of the Pacific, and if we choose to use it we should have more influence in Washington to encourage closer US-China relations than any other third party.

But there is a catch. Read more…

Author: Tobias Harris, Observing Japan

The gyoza scandal reopened just as the Beijing Olympics opened, with the Fukuda government on the defensive in light of revelations that it acceded to the Chinese government’s request that Tokyo not release information about the presence of poisoned dumplings within China.

Part of the problem is a statement by newly appointed MAFF minister Ota Seiichi, who reportedly described Japanese consumers as “noisy.”

As Jun Okumura notes, reading Mr. Ota’s remarks in the proper context suggests that Mr. Ota’s remarks as perfectly banal and inoffensive: Japan is a democracy, and when consumers complain the government must listen; China is an autocracy, and the CCP can hide information and ignore the public. Mr. Ota’s remarks would be controversial only if he was speaking longingly about the CCP’s ability to ignore the “noisy” public. I don’t think he was. (Although I’m sure that some LDP officials — perhaps even Abe Shinzo, despite his professed love of democracy — envy the Chinese communists for their freedom from oversight, public accountability, press scrutiny, and the other “encumberances” of democracy.) Read more…

Author: Ross McLeod, ANU Indonesia Project

It was reported last week that the government intended to continue to maintain ownership of Merpati Nusantara Airlines, even though the airline is losing over US$2.2 million a month on average. Indonesia’s airline industry has been growing at a remarkably rapid rate of around 16% annually during the last several years, and yet Merpati has seen its fleet shrink from 90 planes to just 19, suggesting clearly an inability to compete with new private sector entrants.

This is a good example of the true rationale for privatisation: the desire to increase efficiency in the use of productive resources. State-owned airlines such as Garuda and Merpati were able to survive in the past because the private sector was not permitted to compete with them on an equal footing. Since the airline industry was deregulated several years ago, many new firms have been established, and there has been an explosion of domestic passenger traffic—to the extent that flying has become an attractive alternative to traveling by rail or bus. Indonesia’s taxpayers have every reason to question the logic of keeping companies like Merpati in government hands when it is blindingly obvious that the private sector can do a better job. Read more…

Author: Dominic Meagher

A significant fall in China’s trade surplus couldn’t have come at a better time: just months before the US Presidential election.

The figures were announced (Chinese only) by China’s General Administration of Customs on Monday.

(The People’s Daily is reporting a fall of 9.6% in China’s trade surplus, although it isn’t clear how they arrived at that number since their source is the above table)

China’s lower trade surplus is mirrored by a lower trade deficit in the US: while exports to the US rose by 8.9%, Chinese imports from the US rose by 24.5%, leaving China’s trade surplus with the US to fall by 15.6% compared with the first half of 2007.

There are various reasons for the US$13 billion drop in China’s trade surplus. Read more…

Author: Peter McCawley, ANU Indonesia Project

Although measured levels of poverty have been falling in Indonesia in recent years, mass poverty remains a major public policy issue in Indonesia. And there is much discussion within Indonesia as to the best policies for tackling poverty.

The debate about mass poverty in Indonesia could usefully draw on material in the important “Chronic Poverty Report 2008-09″ released recently. The report (with a helpful summary) is available here.

The main points of the report are very thought-provoking. Read more…

Author: Jane Golley

China faces huge challenges in striving for a balanced, sustainable development path, and Australia has a big role in promoting open trade and investment in China.

While China’s progress in the past three decades is striking, the Chinese leadership still faces huge challenges in steering the economy and its people towards a more comprehensive, balanced and sustainable development path, the three keystones of President Hu Jintao’s ‘Scientific Outlook on Development’. All of these challenges are substantially more difficult in light of the fact that China is still a reforming economy, with incomplete reforms in the banking sector and financial markets, labour markets and state-owned enterprises, to name a few. Read more…

Author: Peter Drysdale

Last week the Australian dollar took a tumble and made us all feel just that little bit poorer.

In the 1980s when the Japanese stock market and the yen appeared to some to defy the laws of gravity, I used to say that ‘what goes up must come down’, a trite but wise aphorism to keep in mind when dealing in or commenting on markets in the real world.

So when Yoshio Ishizaka, the stalwart of Toyota international management, asked me where the Oz might be going when he visited the ANU last week, I got to thinking that I should be taking my own advice more seriously after I told him that I thought it still had a bit of strength in it yet.

The Australian dollar is widely perceived in the market as a commodities currency, and that matters in itself. When resource and energy prices are high they take the Oz up too. If the oil price (read the energy price) has peaked, that’s pretty important news for the Australian dollar. It’s not the only news that matters but it is very important news. And that’s one big reason why there are a lot of people out there in the market expecting the Oz to head further south and faster soon.

Read more…

Author: Raghbendra Jha, Professor of Economics, ANU

The global spike in food prices started late in 2007 and shows no signs of abating. The price of rice, the most important cereal crop consumed in the Asia-Pacific region, was rising steadily but incrementally until late 2007, by which time it was about double the levels of 2002.

But there was a huge spike in the price of rice in late 2007 to early 2008. The monthly average price for the benchmark white rice, Thai 100per cent B grade, went up from $US385 ($422) a tonne in January to a peak of $US962.60 in May before falling marginally to $836.50 in July.

In today’s Australian I argue that global trading activity in futures and options in agricultural derivatives markets has been experiencing very high rates of increase since February 2005. These have only accelerated since the sub-prime mortgage crisis.

Read more…

Ross McLeod, ANU Indonesia Project

The rationale for privatisation of state enterprises is not well understood in Indonesia. Most seem to think that the objective is to generate extra revenues for the government, but the government can easily issue more bonds if it needs to generate more funds.

The true economic rationale is in fact the desire to increase the efficiency with which productive resources are used—thus raising national income—and to avoid undesirable redistribution of income, through corrupt practices, in favour of those already well off. Privately owned firms have no scope for shifting funds from the general public to particular individuals, because they do not have the power to impose taxes. And they are almost always better managed than those in the hands of the state, for several reasons.

The first is that they have much stronger incentives for efficient management. If they fail to achieve this, their owners will make losses, and they will respond by replacing the managers. By contrast, the ultimate owners of state enterprises—namely, the general public—are in no position to replace managers, regardless of how bad their performance. Nor do they have any opportunity to divest their ownership in order to avoid future losses.

Read more…

Author: Peter McCawley, ANU Indonesia Project

Finance Minister Sri Mulyani was in Australia recently (Monday 4 August) to attend an APEC Finance Ministers meeting in Melbourne.  The issues discussed at the meeting may (or may not) signal an important change in approach to some aspects of regional economic policy-making in the ASEAN region.

For a long time APEC meetings have tended to focus on “at the border” trade issues.  Top priority issues have been tariffs and other border restraints on trade.  Much of this discussion has proceeded as if all the action took place at the border!  But recently there has been an increasing awareness in APEC meetings that other “non-border” barriers to trade might perhaps be important as well.  Some people who have worked on the broad range of development issues in Asia for a long time would say “About time, too!”

Read more…

Author: Philippa Dee

The good news is that the APEC ship is slowly turning around. Rather than keeping its prime focus on trade and investment liberalisation, with the fixation on foreign discrimination that this brings, APEC Ministers are embracing the importance of behind-the-border reforms. The change in focus is vital because the barriers that are doing the biggest damage are the ones that are holding back domestic players. The gains from reforming the non-discriminatory barriers — those that affect domestic and foreign players equally — are an order of magnitude greater than those typically delivered by trade agreements.

In Melbourne yesterday, APEC Ministers announced a joint commitment to structural economic reform, and agreed to voluntary reviews of national regulatory frameworks.

APEC nay-sayers may scoff at the voluntary nature of the commitment, but in the area of behind-the-border reforms, nothing else will work. The political economy of structural reform is primarily domestic — typically an incumbent versus a group comprising new entrants, upstream and downstream using industries and consumers. The political battle needs to be fought domestically, and regional input cannot afford to be intrusive. Read more…