Recently, my American Enterprise Institute colleague Philip Levy and I published an International Economic Outlook, entitled ‘Tales of the South Pacific: President Obama and the Transpacific Partnership.’ In this analysis, we made the case for the Obama administration to move with dispatch in asserting U.S. leadership in the construction of a new Asian economic architecture that would be broad and inclusive. And we argued that the Trans-Pacific Strategic Economic Partnership (TPP) agreement was an ideal vehicle through which to achieve this goal.

Since then, bolder moves by the People’s Republic of China (PRC) have increased the urgency for the Obama administration to advance a strategic vision of the U.S. role in a nascent Asian economic architecture. And on her recently completed fourth trip to Asia, Secretary of State Hillary Clinton took the first steps to attempt to fill the leadership vacuum in Asia.

The TPP, a trade and economic agreement among four nations (New Zealand, Chile, Singapore, and Brunei) was signed in 2005. As a vehicle for the United States to advance its interests in Asia, it has a number of attractions.

First, the United States already had negotiated bilateral free trade agreements (FTAs) with two leading members, Chile and Singapore;

Second, the TPP itself is a comprehensive FTA, modeled on the so-called U.S. FTA ‘Gold Standard’ that includes nearly complete free trade in goods within a short time-span, plus substantial advances in services, investment, health and safety regulations, competition and government procurement policy, and dispute settlement;

Third, it contains explicit provisions for expansion to include new members from the Asian region and could serve as the foundation for trans-Pacific regionalism built upon the existing Asia Pacific Economic Community (APEC) forum.

In its final year, the Bush administration agreed to open negotiations to join the agreement; and after a year’s delay, the Obama administration announced during the president’s trip to Asia in November that it would also ‘engage’ in the negotiations with the ‘goal of shaping’ a regional agreement.

But President Obama confronts deep divisions within his own party over trade policy and a huge, problematic domestic agenda that has taxed the administration’s resources.

Yet recent events and trends within Asia may well portend a stepped up pace for Asian regionalism—and heightened danger that the United States will find itself on the outside looking in, with substantial economic discrimination against U.S. industries, farmers, and workers.

On a broad scale, competing visions of a trans-Pacific vs. an intra-Asian regional future have once again moved to the fore – within the past year, Australian Prime Minister Kevin Rudd has pushed hard for an inclusive Asia-Pacific Community that would include the United States and India; conversely, the new Japanese Prime Minister, Yukio Hatoyama (to the consternation of the United States and its allies in East Asia), has put forward a proposal for a more narrowly based East Asian Community that implicitly excludes the United States.

Hatoyama’s off-the-wall proposal is just the latest in a series of hasty and ill-conceived reactions by Japanese prime ministers to a potent new fact relating to Asian regionalism – the relentless and unremitting pressure from Beijing to construct a narrow, exclusive Asian institutional architecture that it can dominate. This drive actually began almost a decade ago, when the PRC pivoted immediately upon achieving membership in the World Trade Organization and put forward a highly attractive proposal (China agreed to cut key agricultural tariffs immediately) for an FTA with the Association of Southeast Asian Nations (ASEAN). Japan and other Asian nations were caught completely off-guard and have been struggling to match or counter the PRC ever since.

This brings us back to the United States, Asia, and 2010. On January 1, with great fanfare in the Chinese media, the PRC and the ten members of ASEAN completed what the China Daily proclaimed as the ‘world’s largest free trade area.’ (The metric here was clearly population, not economic activity, where the FTA ranks behind the European Union and the North American Free Trade Agreement in value.) From January 1, 90 per cent of the tariffs between the PRC and the six original members of ASEAN will go to zero; for the other four, least-developed ASEAN nations the target for zero is 2015. The eight-year negotiations also include previous commitments in the areas of services and investment. It should be noted that—as critics claim—there remain large gaps, including hundreds of ‘sensitive’ goods exceptions (viz., motor vehicles, chemicals, electronics) and shallow liberalization in important service sectors.

Still, this was an important and highly symbolic milestone, with Chinese commentators lauding the benefits for 1.9 billion consumers who can tap into regional production of about $6 trillion per year. In 2009, two-way trade between the PRC and ASEAN topped $230 billion, more than triple the amount in 2003 at the outset of the serious negotiations.

Chinese analysts, almost certainly prompted by the government, were quick to use this occasion to put forth economic and political arguments for ASEAN and the other nations of East Asia to take the next steps leading to an ‘Asian-wide trade community.’ Pan Guoping, writing in the China Daily, bluntly argued that, ‘The financial crisis … has shattered the U.S. dominance of the world economy’ and Asian countries should make good use of the great opportunity … to be unfettered from the economic neo-colonialism.’ He concluded, ‘The unfair treatment towards Asian countries … can only be surmounted by cooperation among themselves … Asian countries need an institution to coordinate their economic and trade policies.’

Also in the China Daily, another commentator, Zheng Anguang, played upon Asian resentment against Western protectionism as a strong reason for new regional institutions, ‘It should be noted that both China and ASEAN members are victims in this worldwide trend of protectionism.’

Though concrete responses remain scant from the Obama administration, Secretary Clinton put forward the outlines of a strategic vision for Asia in an important speech in Hawaii on January 11 (just before she cut short the rest of her Asian trip to come back to deal with the Haitian catastrophe). She remarked, ‘we start from a simple premise that America’s future is linked to the future of the Asia-Pacific region, and the future of the region depends on America.’ America is not only ‘back in Asia,’ she stated, but ‘back to stay.’

Clinton then set forth elements of the Obama administration’s Asian security and economic strategy, including (on the security front) a commitment to strengthen existing bilateral alliances (Japan, Australia, Singapore) and deepen the human rights, disaster, and security responsibilities of the ASEAN Regional Forum, a security initiative that has languished in recent years.

As to economic integration, Secretary Clinton made clear that APEC would be the central focus of U.S. regional interests, but she suggested that the Obama administration was open to participating in, and even joining, the East Asian Summit and other intra-regional institutions such as the ASEAN Plus Three. Implicitly acknowledging the downside of the recent spate of new regional organizations and proposals, she warned, ‘It is important that we do a better job in trying to define just which organizations will best protect and promote our collective future.’ Finally, she reinforced the U.S. APEC commitment by promising to work with Japan to take advantage of the fact that Japan would host the APEC Summit in 2010, followed by the United States in 2011—with the assumptions that both nations would push to ‘deliver’ advances in regional integration at these meetings.

All of this is well and good—but Asia and the rest of the world have also seen the Obama administration falter and dither when it comes to advancing trade and investment liberalisation during its first year in office. If the president and the secretary of state are to build upon the premises and promises of the Hawaii address, then they will have to back up their rhetoric with concrete steps, including the following:

• - Demonstrate a political commitment to expend presidential clout on trade by securing congressional consent to the U.S.-Korea FTA, by far the most significant economic FTA since NAFTA—and a key barometer for Asian trading partners;
• - Work with TPP partners to establish a credible timetable for U.S. accession to the existing agreement. This would also entail the involvement of Congress, as the president would need new congressionally sanctioned trade negotiating authority;
• - Upgrade the desultory trade negotiations with ASEAN (the Trade and Investment Framework Agreement) to full-fledged FTA negotiations—and signal the possibility of diluting, or stretching out, the so-called “Gold Standard” liberalization provisions usually demanded by the United States. The United States could also revisit the stalled bilateral FTA negotiations with Thailand and Malaysia;
• - Begin formal discussions with Japanese leaders to establish common goals and concrete steps to achieve meaningful trade and investment liberalization in APEC at the 2010 and 2011 summits—including at least preliminary discussion of how to integrate existing subregional arrangements (such as the TPP) into APEC. The United States and Japan should also involve key allies—such as Singapore, Korea, Australia, and (possibly) Indonesia—in the discussion and planning. Beijing merits separate treatment, either through joint or individual meetings with Japan and the United States.

Secretary Clinton admonished Asian leaders that while ‘dialogue is critical,’ the time has come to ‘focus increasingly on action.’ To which one must reply. ‘Right on, Madame Secretary—and back to you.’

This piece was first published here at the American.

Dr. Claude Barfield is a  resident scholar at the American Enterprise Institute for Public Policy Research.

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‘Hukou reform’ is now becoming a catchphrase in the Chinese media and in China’s policy making circles. Chinese Premier Wen Jiabao, in an exclusive interview with the Xinhua News Agency on December 27, 2009, said that China will steadily advance the reform of its decades-long household registration system in order to ensure migrant workers have the same rights as city dwellers.

The importance attached to hukou reform is also reflected in the Chinese Communist Party’s ‘No. 1 Central Committee Document’, promulgated at the end of January 2010. This document advocates that real progress is being made to reform the hukou system only in small and medium-sized cities (cities with populations less than 500, 000), allowing rural migrants to settle in cities on a permanent basis and receive public services equal to that of their urban counterparts who have permanent residence permits.

In order to know whether the reforms will work, it is necessary to see the concrete action plans from both the central and the local governments. But, there will be no significant progress unless the following three issues are effectively addressed.

First, opening up only the relatively small cities to hukou reform is far from enough. A significant proportion of China’s rural migrants are employed in large and super-large cities, where stable job opportunities in manufacturing and low-end service sectors are aplenty. This is where urban public services are more adequate and where most of the younger generation migrants hope to spend their lives. Hukou reform in small and medium-sized cities was piloted in many parts of the country as early as the middle and late 1990s, but success was limited due to limited employment opportunities and poor public services. If hukou reform is confined to relatively small cities, there is reason to be sceptical of potential progress.

Second, hukou reform in any locality should not target only migrants from rural areas of the same province, prefecture or county. China’s rural-urban migration involves large scale movement of people from the agriculture-based inland areas to the more industrialised and urbanised coastal areas. Thus, a significant share of China’s internal migrants migrate outside their home provinces, prefectures and counties. To be effective, hukou reform must assist rural migrants coming from other jurisdictions.

Over the past several years, there has been a number of locally-run reform projects related to hukou, such as those in Chengdu, Wuhan and some cities of the Zhejiang and Guangdong Provinces. The results of such pilot reforms are limited because they usually only target rural migrants from within the same jurisdiction. For a rural migrant from the inland province of Hunan, working in a city such as Guangzhou or Shenzhen, in the Guangdong Province, it is still extremely difficult, if not impossible, to obtain an urban hukou there.

Finally, and perhaps most importantly, effective hukou reform needs to extend the hukou-linked urban public services to rural migrants. Currently, the privileges include urban social assistance (known as ‘the Minimum Livelihood Guarantee Scheme’), equal access to urban public schools for migrant children and locally-funded public housing schemes. It is a common misunderstanding that China’s urban hukou-linked benefits include social insurances such as pension, medical insurance and unemployment insurance. These social insurance schemes are actually job-related rather than hukou-related. Granting rural migrants urban household registration status, therefore, doesn’t imply that city governments need to be responsible for providing social insurance for rural migrants.

To achieve real progress in hukou reform, city governments need to finance the aforementioned social assistance, schooling and public housing services for migrants. Unfortunately, local governments in China often have little incentives for doing this. In 2004 the Chinese central government, addressing the issue of schooling for migrants’ children, mandated that local governments in migrant-receiving cities provide equal school access for migrants’ children, but no additional financial resources have been allocated for such purposes. Many local governments thus continue to limit school access to migrants’ children.

If the central government really wants to push hukou reform forward, it should either provide financial assistance to local governments or generate additional tax revenue at the local level. One possibility is to introduce property tax into the local tax system while requesting local governments allocate at least some revenue to provide equal school services for migrants’ children.

Among the three urban hukou-linked services, providing public housing for migrants could be the most expensive. But if some coordinated reforms in land development could be implemented, so that rural collectives on the urban fringe could legally develop their own construction land for housing rental purposes, the market, rather than the government, could provide affordable yet still decent housing for the hundreds of millions of Chinese internal migrants.

One needs only to look at the urban villages in Shenzhen and Guangzhou. There, unlike most other localities in China, local governments are much more permissive to land development on the urban fringe by rural collectives. As a result, millions of migrants from other parts of the country find the massive apartment buildings in Shenzhen and Guangzhou’s urban villages to be the only affordable housing right for them.

Ran Tao is Professor at the School of Economics, Renmin University of China, and Senior Researcher in the Center for Chinese Agricultural Policy, Chinese Academy of Science.

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Ozawa Ichiro has escaped indictment by the Tokyo Public Prosecutors Office again. Once again, his former secretaries were not quite so lucky, with three, including sitting Diet member Ishikawa Tomohiro, being indicted for political funds violations.

Michael Cucek rightly points to the gross misconduct of the PPO in its Ahab-like pursuit of Ozawa — and perhaps the more egregious campaign by the media to paint Ozawa as the conniving, monstrous puppet master of the Hatoyama government.

But I cannot treat Ozawa’s escape from prosecution as a victory for the prime minister and the DPJ, and cannot but wonder whether the DPJ wouldn’t be better off without its secretary-general.

If anything, the indictment of three of his former aides, even as Ozawa survives with a vote of confidence from the prime minister, will continue to be a drag on the government. As in the days when Ozawa was in charge and Hatoyama his secretary-general, Hatoyama sounds like Ozawa’s chief apologist, explaining Ozawa’s behavior to a sceptical public. Except, of course, Hatoyama is now the prime minister of Japan.

Ozawa’s presence at the head of the DPJ would be less of a problem for the Hatoyama cabinet if it had been able to dominate the media and dictate the narrative being told about the government. But the Hatoyama government has been so ineffectual in its public relations — not entirely its fault seeing as how certain publications are serving as the LDP’s partners in opposition— that everything said or done by the government in relation to Ozawa contributes to the media’s narrative of a government under Ozawa’s thumb. Instead of reporting on the remarkable changes the Hatoyama government has made to the policymaking process, the media has been able to fixate on the superficial resemblance between the current government and the LDP in its heyday (which Ozawa of course participated in). As I’ve said before, I’m not convinced that a DPJ government with Ozawa wielding outsized influence is worse than the LDP government in which an army of backbenchers wielded influence, in combination with the bureaucracy that was able to undermine all but the most determined prime ministers — and even determined prime ministers like Koizumi Junichiro did not win every battle with the backbenchers.

What should the Hatoyama government, Ozawa, and the DPJ do going forward? As Hokkaido University’s Yamaguchi Jiro — a DPJ sympathiser — notes, the fate of political change and with it the Japanese people’s hope for their democracy hang in the balance. He recommends that Ozawa let the trial proceed and let the PPO’s evidence (or lack thereof) speak for itself. At the same time, he suggests that Ozawa forthrightly answer every question surrounding doubts about his political funds in the court of public opinion. I wonder whether Ozawa is capable of this. I know that Hatoyama and other DPJ leaders are not capable of making Ozawa do it. At the very least, Ozawa has to restrain himself and at least appear as if he is the prime minister’s subordinate, not his equal (or superior).

Meanwhile, the Hatoyama government must fundamentally reconsider how it presents itself to the public via the media. The time of letting the facts speak for themselves has passed, because the facts about the government do not speak for themselves. The government needs begin aggressively making its case. Whether that will entail a new chief cabinet secretary, a media strategy team attached to the prime minister’s office, or some other scheme will depend on the government, but the current arrangement is simply not working. And the prime minister needs to start showing some ability to lead, or step down.

No matter how skilled a campaigner he is, no matter how zealous a reformer he is, Ozawa’s baggage imperils the government — and more than that, it jeopardises Japan’s political future and provides further impetus to cynicism among the Japanese people. There is no easy answer to the Hatoyama government’s dilemma. Fire Ozawa, and it loses a skilled campaigner trusted among party supporters in the provinces. Retain Ozawa, and the prime minister continues to look weak and the media continues to feast upon the Ozawa scandal.

Ultimately, I fear that Hatoyama is simply incapable of solving this dilemma and saving his government.

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In the first book of the Hitchhiker’s Guide to the Galaxy, protagonist Arthur Dent escapes Earth as the unwelcome guest of the Vogons – a race of nasty-tempered, ugly-minded, hideous-looking space-faring bureaucrats infamous for being the third worst poets in the Universe. ‘On no account should you allow a Vogon to read poetry to you,’ warns the Guide.

Vogons, it seems, have nothing on Hatoyama Yukio’s speechwriters.

Policy Speech by Prime Minister Yukio Hatoyama at the 174th Session of the Diet

I want to protect people’s lives.

This is my wish: to protect people’s lives.

I want to protect the lives of those who are born; of those who grow and mature.

I want to bring change to the sort of society where a young couple gives up having children because the economic burden is cause for unease. We must build a society in which children, who will support our future, are free to pursue their limitless potential.

I want to protect working people’s lives.

Securing employment is an urgent issue. In addition to that, however, I want to create a society in which those who have lost their jobs and those who, for a variety of reasons, are continuing to search for work can remain active as members of the community, not losing their opportunities to interact with others. I hope to consider a new type of community in which all people can feel a connection with society, having a place where they belong and a role to play – through economic activity, of course, but also cultural, sports, volunteer and other activities…

The above is the official translation of the Prime Minister’s policy speech to the regular session of the Diet.
The text seems off-kilter and off-putting. This is not the fault of the translators. Indeed, the translators should be lauded for their courage and forebearance. However awkward the speech in its English version, its defects pale to insignificance compared to the callow Japanese original. The translators having imposed structure, body, sense and decorum upon an avalanche of aspiration. In the original, the syntax is contrived; the rhetoric, incomprehensible; the diction, indefensible.

At 51 minutes in length, the speech ties the record for the longest Prime Minister’s policy address in history and is the second longest ever in terms of word count. Inochi (‘life’) makes 24 appearances. Hearing the Prime Minister deliver the speech must have been a near life-threatening experience for lawmakers sitting in the first few rows of the chamber. Had I been present in person, I would have sat, eyes like saucers, my fingers in tightening against each other in prayer, begging the Divine to please make the Prime Minister stop.

‘I want to protect life. I want to protect life – that is what I am asking for.’

(Inochi o mamoritai. Inochi o mamoritai to negau no desu.)

What kind of opening line is that? What is it in response to? Has anyone ever started a policy speech with, ‘I want to destroy life. I want to destroy life – that is what I am asking for’ in any venue other than a C-grade fantasy movie?

I sympathise with what I must assume is the foundation to Hatoyama’s declarations of a strong desire to protect life. That which we call life in all its facets and forms – life on earth, family life, life in the countryside, life’s golden age, working life – is under threat. In one way or in many, we all are standing upon the knife’s edge.

But by starting out with the solipsistic ‘I want…’, Hatoyama reveals a complete misapprehension of his station. ‘I want to protect life’ – great, wonderful – become a volunteer fire fighter or a lifeguard at your local swimming pool. In the meantime, you are prime minister of Japan.

Is it not time to start behaving like one, having your speeches begin with:

‘Here are the problems our nation faces…’

shifting to,

‘Here is what I believe are the keys to solving our problems…’

building up to, ‘Here are the specific ways this government is going to deal with our nation’s problems in the current Diet session…’

and ending with a mighty, ‘I ask the cooperation of all here present to bring the plans of this government to fruition’

Tobias Harris calls the Hatoyama approach professorial. Mr. Harris is too kind and his kindness obfuscates the seriousness of the dilemma facing the electorate. Prime Minister Hatoyama’s approach to his jobs has been adolescent. He has viewed both leadership of the DPJ and the prime ministership as showcases for his creativity rather than crushing burdens. The serious business of being the duly selected leader of a people has been reduced to the level of a school art project, with its creator completely unconcerned about the marketability of his final product.

I have been willing to give Hatoyama Yukio the benefit of the doubt. The aggravating, misplaced and in the end foundationless idealism displayed in the essay he published last year in Voice could be attributed to either a lack of familiarity with the concept that words have consequences, or to a lousy ghostwriter. But last Friday’s policy speech represents Hatoyama’s second massive lapse in editorial judgment in less than a year.

A famed adage has it that while there is no shame in being fooled once, it is shameful to allow oneself to be fooled twice. I have had it for the time being with Hatoyama-san and his failures to respect the offices entrusted to him. His dilletantish approach to leadership is beyond me.

Michael Cucek is the senior research analyst at Okamoto Associates, Inc. He offers commentary on Japan’s politics and society through his blog ‘Shisaku‘.

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This week we publish the fourth issue of East Asia Forum Quarterly (EAFQ) (volume 2 Issue 1). EAFQ is published online and in hard copy by ANU E Press four times a year on a theme of major importance to the Asian region. You can support EAF by subscribing to EAFQ for A$30.00 annually.

As Richard Rigby says in the lead essay posted this week, the word ‘challenge . . . carries a heavy burden of nuance’. It can convey a sense of threat. But challenges can also be an inspiration, an offer of hope. Challenges always pose questions –often difficult ones, as Rigby also suggests. And the notion of a challenge is two-sided: it is as much about the one who is on the receiving end of the challenge as about the one who is doing the challenging.

This is an apt nuance in considering China’s present and future role in the world. The challenge of China is as much about how the rest of the world responds to the rise of China as about the massive tasks of economic and social development in China itself. We focus more explicitly on the latter question than on the former but the former question is what the collection of essays we shall publish over the next two weeks really seeks to illuminate.

The challenge of China is not just a matter of the scale of China’s growth and its role in the world although certainly scale is one dimension. The scale of what is happening in China is without historical precedent. Within less than a few decades, China has transformed itself from being a ‘small’ economy to being a ‘big’ economy, in terms of its impact on the world economy and the notice which the rest of the world has to take of China in managing global affairs. The size of its population base always meant that China was politically important, but its economic growth now magnifies its political impact.

The contributions to this discussion present analysis from leading thinkers on these issues from around our region – a region that has more at stake in the success of China’s rise than any other. We hope their essays make a modest contribution to identifying some of the priorities that the rise of China’s role in regional and global affairs presents to policy leaders in China and around the world. Only by getting these priorities right will it be possible to frame policies and approaches, or at least provide the best possible advice to the policy-makers in China and around the world, that will enable us to meet the challenge that today’s – and tomorrow’s – China poses, to us, and for itself.

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Challenge is a word that carries a heavy burden of nuance: it can convey a sense of threat, it can be an inspiration, it poses questions – often difficult ones – and it can also be double-edged, in that the challenge frequently applies as much to the alleged challenger as it does to those on the receiving end. Where China is concerned, the word is appropriate in every sense; but an important part of the challenge is precisely to decide which aspect is of the greatest importance. Only having done this can we attempt to frame policies, or at least provide the best possible advice to the policymakers, which will enable us to meet the challenge that today’s — and tomorrow’s — China poses to us, and to itself.

If there is a single word that should be applied to China, whether speaking of its international impact or its domestic situation, it should be ‘complexity’. There is simply nothing simple about China; and this being the case, we should be distrustful of any simple descriptors or characterisations, be they benign — China’s peaceful rise, harmonious world, harmonious society — or the opposite, such as comparisons of a rising China with Wilhelmine Germany at the beginning of the last century.

And with complexity comes size: expectations that China will take any path, the nature of which can be predicted from the experience of other countries are almost certainly going to be proved wrong. This was so of American hopes for a Westernised, democratic China emerging from World War II; it was so of the expectation post-1949 that China would become a clone as well as a client of the Soviet Union; and expectations have similarly been disappointed in both the pre-and post-1989 phases of the era of reform and opening.

China is just too big, and carries too great a civilisational and historical throw-weight to be anything other than sui generis. As Lu Xun, one of the greatest Chinese writers of the first half of the 20^th century, told his readers, you make your path by walking it. This is as true of China now as it was then, but the implications for the rest of the world are now even greater — far greater — than when he wrote these words.

It is relatively easy to predict that in such and such a year China’s GDP will have reached a certain figure, that it will occupy such and such a global ranking in terms of size or in terms of per capita income, that the People’s Liberation Army (PLA) will be rated at such and such a level in terms of relative size, procurement, capabilities, and the like. These are all of course vital judgments to be made, and whatever the specifics, it seems clear enough that whatever difficulties China faces, domestically and internationally, in pursuing its growth goals, it is going to play an ever greater role in world affairs. Indeed, for better or for worse, it is doing so already. But the more difficult, and more crucial question is, assuming that China’s comprehensive strength, or global ranking, will place it amongst the most powerful and influential nations in the world by, say, 2020, or 2030, what sort of a China is it going to be?

Here our task is complicated not only by the sheer complexity of the issues to be addressed, and by the often unhelpful cacophony of foreign comment, but by the fact that the Chinese government — not just the present Chinese government, but others before it (although the Chinese Communist Party state has greater ideological inclinations and more effective tools than most of its predecessors) — is committed to presenting a single narrative of China’s rise as interpreted and enunciated by its official organs.

Yet anyone who has the slightest understanding of contemporary China will know that behind the editorials of the People’s Daily, the statements of Ministry of Foreign Affairs spokespeople, the presentation of the news by CCTV, or the work of officially approved film directors, there is a hugely complex world of debate, current and counter-current, introspection, historical and cultural revisionism, as much within the organs of state and party as outside. The degree to which this debate is tolerated waxes and wanes, and things can be said by some people, or within some bodies, that are forbidden to others. Some of this debate we can see, some of it is largely hidden. Some of it is inspiring, encouraging, some of it is more than a little scary or plumb crazy. But it is here, as much as in the more ostensibly transparent narratives approved for public — and foreign — consumption and edification, that the vital question of what sort of a China we are going to be dealing with 10, 20 or 30 years from now is being worked out.

Globalisation is another complicating factor that cuts both ways. As China becomes increasingly involved in the rest of the world, and vice-versa, the simple binary division between domestic and foreign — encapsulated in the once much-used formulation nei wai you bie — is increasingly untenable. Whatever they may wish, China’s rulers, and for that matter ordinary Chinese, are just going to have to get used to the fact that things that happen at home will impact on the way they are viewed from outside, and that this will in turn impact on decision-making relative to China by other countries. By the same token, foreign companies will find it increasingly difficult to regard with insouciance events in China that disturb their shareholders. The same, of course, applies to the treatment of Chinese, whether individuals, companies or representatives of the state, in other countries.

This means that in order to judge what sort of a country China is going to become, there is virtually nothing that happens in China that doesn’t matter, or that we don’t need to know about. The days when we could just look at steel and grain production figures, imports and exports, look at the PLA training and recruitment cycle, work out the pecking order in the standing committee of the Politburo, are over. Of course all these things are of the utmost importance. But as we seek to understand a country that is reassuming its historical place as one of the leading nations of the world, we need to know so much more: arguments about history and culture are important, not only to the Chinese, but to us.

To give only one obvious example: whether the standard for judging previous dynasties should be their achievements in culture and learning, or the degree to which central authority was imposed and borders expanded, matters to us. Similarly, the whole question of the reappraisal of traditional Chinese culture; how the modern Chinese state maintains the multinational character of the Manchu Qing Empire; questions of centralism versus federalism; the reappraisal of the achievements of the Nationalist government and its model of modernisation (not to mention its territorial claims largely inherited by the PRC, including, topically, the South China Sea); the debates about democracy; the rethinking of the post May-4 modernisation project . . . to name but a few issues that may once have seemed arcane, but in fact have major implications for all of us, not just the Chinese themselves, as they continue the process of walking a path that is increasingly going to merge with the global highway.

The first and greatest challenge, especially for those of us who grew up under the comfortable protection of British and US naval supremacy, and in a cultural world made in Palestine, Greece, Rome and Europe, is the challenge of understanding.

This essay is featured in the latest issue of East Asia Forum Quarterly (EAFQ).

Richard Rigby is head of the China Institute at the Australian National University and was formerly an Australian diplomat and analyst specialising on Chinese and Asian affairs.

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The Hollywood blockbuster Avatar is breaking box-office records in China and cinemagoers have been treated to a visual feast from the Shangrila-like moon of Pandora. At the same time, the savagery depicted in the film about the demolition of the natives’ home has also resonated with the Chinese. A young literary commentator wrote that ‘For audiences from other places, barbaric eviction is something they simply can’t imagine – it is the sort of thing that could only happen in outer space and China.’

Much like the Na’vi people from Pandora, forcibly evicted Chinese residents have fought back literally, with bows and arrows and Molotov cocktails against camouflaged hired thugs from real estate developers. Some of the most valiant resisters such as Pan Rong and Tang Fuzhen have indeed become household names in China and assumed folk hero status very much like that of Australia’s Ned Kelly. Tang Fuzhen paid the ultimate price of taking her own life in a bid to stop the demolition of her cloth factory.

Expropriation of land in China has become one of the most polemical social issues. Forced eviction and demolitions often result in violent confrontation between residents and government-backed property developers. This problem is even more pronounced in rural China where corrupt local officials collude with real estate developers to dispossess farmers of their only livelihood.

Many experts and commentators blame the ‘Regulation Concerning the Management and Expropriation of Urban Residences’, promulgated by the State Council in 2001, as the principal culprit.  At the end of last year, five law professors from Peking University petitioned the Standing Committee of the National People’s Congress, China’s supreme legislative body, to amend or abolish the regulation. They appealed on the basis that the existing regulation is in clear contradiction with both the Chinese Constitution and the newly enacted Property Law.

The existing regulation on expropriation was enacted with the purpose of clearing hurdles for rapid urban development in China, but there was inadequate attention paid to the protection of private property rights. Most importantly, the regulation was also ambivalent on the important issue of land expropriation for public interest. It is commonly recognised across many jurisdictions that it is necessary for the government to compulsorily acquire private holdings in the interest of public welfare such as building infrastructure. But the ambiguity on the definition within the Chinese regulation provides fertile ground for corrupt officials and real estate developers to expropriate land in the name of public interest without the need to compensate people on just terms.

It was recently exposed that a university in southern China expropriated a large tract of framing land for the purpose of building educational facilities. But a large portion of that compulsorily acquired land was resold to a commercial property developer at a premium. The handsome profit made by the university was used to pay off its debt and that of the municipal government. The grossly inadequately compensated famers could do little to seek redress.

Another thorny issue is compensation for expropriated land. At the moment, the compensation scheme is wildly arbitrary, especially in the countryside. Until a transparent and market-based fair compensation scheme has been developed, we will continue to witness endless protest against inadequately compensated expropriation projects.

The State Council just released a new draft regulation on expropriation for public consultation which more clearly defines the scope of public interest, which includes land acquired for defence facilities, infrastructure projects, public health and education facilities, public housing estates and so on. If this draft legislation can be enacted, this could provide a firmer basis for people to challenge unfair commercial acquisition of land in the name of public interest. It also envisages a more market-based pecuniary compensation scheme and proposes to outlaw barbaric eviction techniques such as the termination of water supply.

But this potential new legal protection can be quite powerless in the face of immensely powerful government closely tied together with real estate developers. A compliant and under-resourced court system can hardly be relied upon to constrain the power and authority of government.

A Chinese blogger sarcastically remarked that the film Avatar can serve as a great manual on how to resist unjust eviction. Indeed, without developing a sound and fair expropriation and compensation system, Beijing can count on a very bumpy ride on the road of its great urbanisation drive.

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As expected, the Reserve Bank of India (RBI) signalled a tightening of its policy stance on 29 January. Given the huge liquidity overhang, the cash reserve ratio was raised by 75 basis points. The repo and the reverse repo rates were left unchanged.

With the Wholesale Price Index threatening to get into double digits, RBI was justified to act decisively to prevent inflationary expectations from becoming entrenched. A tightening of monetary policy when the economy is beginning to get out of its downturn and credit growth and investment demand are anaemic will surely have an adverse effect on investment demand even if banks maintain lending rates. The likely rising of interest rates due to this tightening of monetary policy will not only dampen investment intentions but also attract more capital inflows. This will exert upward pressure on the rupee’s exchange rate, adversely affecting exports, which are just recovering from a 12 month long decline. Could all this have been avoided?

The answer is yes. We could have avoided putting the entire onus of countering inflation on monetary policy by taking measures to tackle food inflation that has been raging in the double digits for several months. We have instead the unseemly spectacle of blame and counter-blame between the Union and state governments and within the Union government itself. The agriculture ministry is blamed for mishandling the situation and the latter passes the buck back by stating that the entire cabinet is responsible for tackling price rise. This is rather disingenuous because it is the responsibility of the agriculture minister to take the necessary initiatives and exert pressure on his cabinet colleagues to move in the desired direction. Everyone seems to have simply resigned to hoping for improvement in the rabi harvest to bring down food prices. Such policy paralysis does not inspire confidence.

The durable and effective solution to the phenomenon of rising food prices will come from raising agriculture yields, which have been stagnating for decades, and improving productivity levels by pumping more investment into rural infrastructure and introducing new technology. There is a growing gap between rising per capita income and declining per capita availability of food products. This gap can be filled by raising domestic output, facilitating movement of agricultural produce across state borders and liberalising agricultural imports and exports. These will allow private traders to respond in a timely and effective manner to tackle emerging shortages and prevent price increases. But these are medium- to long-term measures.

More immediately, we must start by taking a clear view on factors that are responsible for rising food prices. Demand has picked up with higher purchasing power in the hands of the poor through the National Rural Employment Guarantee Act and other social security expenditures and the expanding middle classes. Supply shortages have emerged due to the drought and stagnating yields, and these are exacerbated by speculative activity fuelled by excessive liquidity and which also feeds on itself. The only possible remedy appears to be import of relatively large quantities of lentils, cereals, sugar and edible oils, that are usually the main culprits. These imports can be supplied to the open market at lower than currently prevailing prices. The government has to announce its firm intention that it will persist with such imports even if that involves a measure of subsidy, as the landed prices of imports could well be higher than prices at which these additional supplies can be introduced in the domestic market. It should also announce that it will continue with these subsidised open market operations until food prices come down and inflationary expectations have been reversed.

Such an ‘inflation-countering subsidy’ is justified as a vital input for maintaining growth with macroeconomic stability. At the same time, a road map for restoring fiscal balances over the next three to five years will signal that both fiscal and monetary policies are being directed to suck out excess liquidity from the system. That will help dampen speculative activity.

What could possibly be the problem with such a move? The most pernicious argument I have heard is that the government should allow traders to make extra profits in times of relative scarcity, when in times of relative abundance they are forced to incur losses because the government does not lift export bans in time and stops procurement activities. It is time we took an urgent and serious look at liberating Indian agriculture from the extensive government controls that are in place ostensibly to protect our small and marginal farmers. I am convinced that with limited, well-targeted and market-based government interventions, both small farmers and consumers will benefit from a greater integration of Indian agriculture with global markets and access to foreign technology and capital flows.

his essay is adapted from an opinion piece first published here in the Mint.

Dr Rajiv Kumar is Director of the Indian Council for Research on International Economic Relations.

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China has been taking an increasingly active interest in South Asian countries over the past few years, seeking to rally friendship and support in order to surpass India’s dominance in the region. When the South Asia Association for Regional Cooperation (SAARC) was formed in 1985, they expected leadership from India, but India has yet to assume this role. Now China, India’s main political rival, is entering its neighbouring markets more aggressively through both trade and investment.

China has been the fastest growing economy in the region for the last decade and has surpassed India in terms of growth, world trade share, price competitiveness in product manufacturing and winning oil deals. SAARC’s demand for China’s ‘Observer’ status reveals China’s increasing clout in the region, as well as the growing economic and political relations intended to dilute India’s dominance in South Asia.

China has been improving its trade and investment relations with South Asian countries through treaties and bilateral cooperation. China and Pakistan signed a Free Trade Agreement (FTA) in 2006, as well as numerous other agreements and Memorandums of Understanding (MOUs), including Bilateral Investment Treaties (BIT) to increase mutual trade and investment. Pakistan provides China with cheap raw materials and the use of Pakistani ports in return for access to Chinese markets through preferential treatment under the FTA. Pakistan could very well become a hub in the region, which may lead to considerable future transit revenues and help Beijing build the ‘trade and energy corridor’ through Pakistan.

Although China does not have an FTA with Bangladesh, the two countries granted each other Most Favoured Nation (MFN) treatment in 1984. China provides duty-free access to a list of Bangladeshi products under the Asia-Pacific Trade Agreement, and Bangladesh has offered oil exploration rights to China at Barakpuria. China has also gained naval access to the Bangladeshi Chittagong port, which will bring China closer to Myanmar oil fields and the seas around India.

China has also been increasing its ties with Sri Lanka. China’s motives include oil, ports and Indian Ocean access. China and Sri Lanka signed a Joint Communiqué in 2005 to further bilateral relations and provide each other MFN treatment. China has offered Sri Lanka funds in the form of Aid and Preferential Credit for various developmental purposes. In turn, Colombo has allocated a block in the Mannar basin for Chinese oil exploration. On the southern coast of Hambantota, China has begun developing port and bunker facilities, as well as an oil tank farm.

The downside of this is that China’s increasing presence in the Indian Ocean could threaten Indo-Lankan relations, especially if there is any military cooperation between the two. The case is similar with Nepal, where China is investing in infrastructure at the China-Nepal border.

China has exercised caution in developing these friendly ties with the coastal countries of South Asia. China’s increasing need of energy sources and access the international markets makes the Indian Ocean and its ports very attractive. The increasingly strong relationship between China and these countries is not surprising given this allure, as well as the ongoing rivalry between India and China.

India was once seen as the guardian who would lead South Asia towards growth and development. But SAARC members today are feeling India’s hegemony more than its role as mentor. Pakistan and Bangladesh in particular have many unresolved issues with India that hamper multilateral trade and economic relations. Some of these are geographical, such as land border sharing or sharing of waters, and some are political. One major reason for the failure of SAARC has been the India-Pakistan impasse.

Economic issues, such as barriers to trade and internal protectionism between India and its neighbours, have also been a problem. Countries like Bangladesh and Sri Lanka have accused India of creating barriers against their exports. Although India has an FTA with Sri Lanka, Sri Lanka has issues with India over easier entry, caps on imports and Rules of Origin. Bangladesh accuses India of non-tariff barriers to trade and protectionist anti-dumping measures against its exports. The clearance points of trade between the two countries are constantly clogged up due to inadequate infrastructure. Bangladesh also complains against restrictions on trade due to allotting different goods to specific ports for Customs clearance, as well as discrimination against Bangladesh at Petrapole.

Improving relations with Bangladesh is very important for India’s political relationship with other South Asian countries, but improving India-Pakistan relations tops the list for better economic relations and stability in the region. Currently, trade between the two countries is minimal and usually routed through Singapore or Dubai (or more recently through Sri Lanka, since they share a FTA). Although India granted MFN status to Pakistan long ago, Pakistan has not reciprocated. Transit and trade permits are other critical issues that need to be resolved, though perhaps the APIBM (Afghanistan-Pakistan-India-Bangladesh-Myanmar) corridor could provide a solution.

The most important need for SAARC is true multilateralism and cooperation, which will help catapult the region to higher growth and development. The smaller nations (Sri Lanka, Nepal and Bhutan) need India’s assistance with development and solving internal problems, but if India does not proactively assume leadership in this area, and continues to protect its industries and businessmen from international trade, this opportunity will slip away and spur Chinese interference in the region. Since India borders all of these countries, it is an important security measure that these issues be resolved.

Traditionally, India has been the major trading partner with its neighbours, but China’s trade with South Asian countries has been growing rapidly. Exports from China have increased significantly over the last two decades, surpassing Indian exports to the region since 2000, except for 2003, although exports from China and India grew at about the same rate between 1992 and 2000. India’s exports to other South Asian countries showed a higher growth rate from 2000 to 2003, but Chinese exports have increased year on year faster than Indian’s since 2004, resulting in more Chinese exports for the last three years. This gap is increasing in China’s favour.

Imports from South Asia into China surpassed those flowing into India in 2000, although imports into India grew faster than China between 2000 to 2006. In recent years, imports from South Asia into India have been greater than into China. But China has been capturing neighbourhood markets once dominated by India, particularly in industries such as textiles, machinery and the chemical industry.

China is also increasing its investments in South Asia and has been providing increasing amounts of developmental assistance, grants and aid. China’s is interested in Pakistan’s trade and energy corridor, from the Gwadar (in Balochistan) port of Pakistan to the Western regions of China, which would connect China with oil routes in Western Pakistan. Pakistan’s Karakoram highway provides the shortest possible route from Gwadar to the western regions of China. This route is short, secure and can serve as an alternative to the sea route through the pirate prone Straits of Malacca, where China currently transports most of its crude oil imports. The Chashma Nuclear Power Plant has been another large Chinese investment in Pakistan, and the private sectors in both countries have made important joint ventures, including the economic zone in Pakistan between the Haier (China) and Ruba (Pakistan) groups.

In Bangladesh, China has constructed six friendship bridges, as well as the Bangladesh-China Friendship Conference Centre located in Dhaka. One of the bridges, completed in January 2008, is very important because it connects the northern and southern parts of Bangladesh. Bangladesh received a roughly 60 million yuan grant and 100 million yuan interest free loan from China for this bridge. In Sri Lanka, China has invested heavily in the infrastructure sector, including the Norochcholai Power Station, planned to be completed by 2010. The Board of Investment of Sri Lanka (BOI) is actively promoting a Special Economic Zone for Chinese enterprises at Mirigama, near Colombo. In 2006, through Project Loans, China transferred US$150 million in the form of Buyer’s Credit Facility for the Puttalam Coal Power Project. China also gave US$306.7 million in 2007 as a project loan for the Hambantota port Development project, and another US$74.8 million for the supply of railway passenger carriages and diesel multiple units.

China’s increasing trade and investment relations with South Asian countries should be a point of irritation for India as, in a globalised world, economic relations play a major role in deciding political relations and multilateral collaborations. A healthy relationship between India and its neighbours remains crucial to India’s security, as well as the stable and peaceful development of the South Asian region.

Pravakar Sahoo is Associate Professor, Institute of Economic Growth, Delhi.

Nisha Taneja is Professor at Indian Council for International Economic Research, Delhi.

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Over the last six months, Australia has been undergoing a sharp learning curve in its relations with China. This has come about courtesy of China’s detention on 5 July 2009 of Rio Tinto executive, former Chinese national, and now Australian citizen, Stern Hu, together with his three colleagues, Liu Caikui, Ge Minqiang and Wang Yong, all Chinese nationals. Aside from the shock the Hu case has represented to most Australians — accustomed since the 1980s to viewing China as a relatively benign presence in our region — the main lesson has been that China’s version of the rule of law is quite different from Australia’s and that that version may also, in times of stress, impact on our own society.

The first and most important part of this unwelcome lesson has been that China’s is not so much a rule of law as a rule by law. Because of its principal role as a handmaiden of the state, China has failed to internalise the other side of the rule of law – principles such as judicial independence and due process – familiar to liberal democracies, if not always perfectly implemented by them. Thus, law in China is peculiarly dependent on the prevailing political and economic situation and, ultimately, on the whim of the state.

The second part of the lesson has been the selective nature of China’s rule by law. The problem of corruption, which in turn arises from the lack of a rule of law and of political rights, is now endemic to Chinese business. It is impossible for China to tackle corruption all at once, so corruption is only picked off selectively in areas where it appears most harmful to state interests and as the political and economic situation demands.

The choice of Stern Hu as the initial target in the current anti-corruption campaign represented a new and riskier strategy for China, in that, rather than initially targeting a local corrupt official or businessman, it first targeted a foreigner. In detaining Hu, China was not just taking on an overseas Chinese individual or foreign company, it was ‘killing a chicken to scare the monkey’. Where the detention was understood overseas primarily as a desire to punish Rio Tinto and warn other foreign resources companies, over time it became clear that ‘the monkey’ China was targeting was also a domestic one. The arrest of Hu proved to be just the opening bell in a fight against corruption in China’s entire steel industry, aimed not just at punishing those Chinese nationals supplying information to foreign iron ore companies, but at bringing to heel the many Chinese companies seen as responsible for raising iron ore prices.

Given its close alignment with politics, the third characteristic of Chinese law is its combination of arbitrariness and flexibility. Since the initial detention of Hu and his colleagues, the case has changed radically in nature.

Initially, the four were detained under state secrecy laws. By holding them under the highly flexible category of a ‘suspicion of receiving state secrets’, the Chinese state released itself from many of the normal constraints imposed by its Criminal Procedure Law, which help regulate how long it can detain a suspect without charge and without access to a lawyer. Instead it exposed Hu and his colleagues to the deliberate ambiguity and vagaries of the State Security Law.

By then formally arresting Hu and his colleagues on 11 August, China redefined its initial allegations against the four men from a ‘state secrets’ category to that of obtaining ‘commercial secrets’ through violation of China’s Criminal Law. This changed the responsible prosecuting organ from being the State Security Ministry to China’s Supreme People’s Procuratorate . It also meant that the suspects would face sentence terms ranging from 15 days to seven years, in comparison to execution, the severest punishment for the crime of state secret theft. These altered charges have allowed China greater diplomatic flexibility in handling the case.

The fourth, and for the international community, the most searing part of the recent Chinese lesson has been that the lack of a genuine rule of law in China not only affects the human rights of China’s citizens, but also, in times of stress, may impact on the human rights of members of the international community.

Since it assumed its rightful position in the United Nations in 1971, China has been learning the rules of international citizenship. To some extent this learning has been instrumental, but in many instances there appears to have been a genuine internalisation of international norms. But the lack of a genuine rule of law within China remains an enduring obstacle. Critically, the law’s failure to guarantee its citizens human rights also restricts the avenues in which national stresses may be regulated, accommodated and modified within the state structure itself. Equally, the lack of political rights disempowers the Chinese citizen who, in times of political, economic or social stress, has either to internalise intense frustration or give vent to it in illegal ways.

These shortcomings in China’s legal and political order help explain the PRC’s decision in this case to first detain a foreign national, Stern Hu, rather than a local company executive. Since the Chinese state is ill-equipped to regulate domestic pressures within its own institutions, in times of stress, the immediate instinct of its more conservative leaders is to project them outside its borders, whether in acts of nationalism, chauvinism, or sheer, tough-minded bullying. While such tactics are abhorred by many Chinese officials, conditions of stress tend to give conservative leaders the upper hand.

Currently, China is a state under particular stress – it is impelled to maintain astonishing rates of economic growth in order to forestall the social chaos which might otherwise eventuate in the absence of political and social reforms. With the onset of the GFC, and China’s increasingly frantic, often frustrated, search for cheap mineral resources to fuel continuing growth, those stresses have skyrocketed, particularly from frustrations over the collapsed deal between Chinalco and Rio Tinto, and the vagaries of iron ore prices over the last few years. In addition, in 2009 a series of highly symbolic anniversaries for China and its autonomous regions has attracted both international and domestic attention to the way China is governed. The result internally has been heightened tensions in many different areas and increased crackdowns on dissent.

Internationally, by contrast, leadership frustrations have focused primarily on the area of economic security and the search for international scapegoats. Whether or not he actually received, or sought, under-the-table intelligence about China’s bottom line in iron ore negotiations, Stern Hu was not the first former Chinese national or overseas Chinese businessman to have been detained in China on suspicion of receiving state secrets. Former Chinese nationals are vulnerable to the unspoken charge of betraying the motherland. They are also more effective businessmen than their Anglo-Celtic counterparts, being attuned to the realities of business in China and its attendant corruption.

As for Rio Tinto’s response,  the signals have so far been ambiguous. On the one hand, Chief Executive Tom Albanese has been promising the Chinese government that Rio will respect China’s legal process and has observed that the Stern Hu case provides an important reason to ‘get closer to China’. On the other hand, the head of Rio’s Iron Ore Division, Sam Walsh, has insisted that Hu has done nothing wrong; on 5 September he announced that Rio had for the time being suspended its negotiations with China since, he said, ‘remember that we have our negotiators detained’. Perhaps these are not conflicting positions within Rio but merely part of the same ‘strategic ambiguity’ which saw the Australian government withdraw its Ambassador from Beijing while denying that the withdrawal had anything to do with the Stern Hu case or with deteriorating Australia-China relations. Ambiguity also marked Prime Minister Rudd’s statement at the ASEAN summit in late October that the Stern Hu matter is ‘a continual matter of concern to Australia’, while overall relations with Beijing were ‘strong and in good shape’.

If all three cases are reflections of calculated strategic ambiguity, rather than simply an effort to compartmentalise the Stern Hu issue, then the Australian government and Rio are indeed learning well from that past master of strategic ambiguity – the Chinese government. While continuing to evince due respect for China’s legal process, as is proper, international policy makers do well,  given the selective, arbitrary and political nature of China’s rule by law, to also respond to the Hu case with a few politely-worded but strategically targeted signals.

The alternatives, blustering threats or weak-kneed pandering, are not to be recommended. They could ensure that decision-makers in China will drag this case out into the abyss of endless international bickering and domestic court cases, only to end up with a conviction and, following some years of imprisonment, a sudden release of Stern Hu without any further explanation. The Stern Hu case must be moved to the forefront of the Australian government’s attention, because it is not the first example of the deleterious impact of China’s legal system on Australia, and it will not be the last. The critical irritant remains the essential incompatibility between China’s rule by law and Australia’s own rule of law. Australia needs to ensure that, at least for our own country, the best rule wins.

This is a shortened version of a column published in the Alternative Law Journal Volume 34(4) – ‘When Laws Fail to Protect’.

Ann Kent is Visiting Fellow in the College of Law, Australian National University, and author of Beyond Compliance: China, International Organisations and Global Security (2007).

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