You are currently browsing the monthly archive for September 2006.
This is sad, although Chen Sui Bien (A-Bien) has not seemed to have accomplished a lot domestically, I liked the way he stood up to China. He is likely guilty of personal crimes as well as being associated with criminals, however I think…no, I know China has agents all over making things 10X worse. China has been trying to use “soft power” to influence the Taiwanese electoric to get him out of power for some time.
September 28, 2006
Protesters Fuel a Long-Shot Bid to Oust Taiwan’s Leader
By KEITH BRADSHER <http://topics.nytimes.com/top/reference/timestopics/people/b/keith_bradsher/index.html?inline=nyt-per>
TAIPEI, Taiwan <http://topics.nytimes.com/top/news/international/countriesandterritories/taiwan/index.html?inline=nyt-geo>, Sept. 27 — Only a longtime democracy and independence activist like Shih Ming-teh, whose credentials include having his teeth shattered twice by guards during a quarter century in prison under martial law, would dare revive the color red in Taiwanese politics.
For the past 19 days, Mr. Shih has led a sit-in in front of the presidential palace here by red-clad demonstrators. They demand the resignation of President Chen Shui-bian <http://topics.nytimes.com/top/reference/timestopics/people/c/_chen_shuibian/index.html?inline=nyt-per>, the man who now runs the democracy and the political party that Mr. Shih helped to create.
Mr. Shih’s campaign, which has drawn up to several hundred thousand people during one evening’s rally but a dwindling crowd in the past few days, emboldened the opposition to start a long-shot legislative effort on Tuesday to recall the president. But Mr. Shih, a man sometimes described as the Nelson Mandela <http://topics.nytimes.com/top/reference/timestopics/people/m/nelson_mandela/index.html?inline=nyt-per> of Taiwan, is now leading a movement that, as he acknowledged in an interview, is heavily composed of Nationalists, his longtime enemies who once ran the country under martial law.
Leaders of President Chen’s Democratic Progressive Party, which Mr. Shih ran in the 1990’s as chairman, are bitter to see him now aligned with many Nationalists. “I hope he doesn’t forget those are the guys who tried to kill him, and now they support him as if he is a god,” said Mark Chen, the secretary general of the presidential office.
Mr. Shih’s choice of red for what he describes as an anticorruption, “people power” movement is especially surprising. The color is associated here with the Chinese Communist Party on the mainland and with Mao’s Cultural Revolution, a period of political persecution that lasted from 1966 to 1976.
Red was taboo in Taiwanese politics for decades after Chiang Kai-shek and the Nationalists fled here in 1949, following their loss in China <http://topics.nytimes.com/top/news/international/countriesandterritories/china/index.html?inline=nyt-geo>’s civil war to the Communists. Under martial law, the secret police engaged in a series of witch hunts for Communists, killing and imprisoning thousands; Mr. Shih and others like him who advocated democracy and political independence for Taiwan, when the Nationalists still claimed the mainland, were accused of treason.
Mr. Shih said there should be nothing the matter with red now. “I am a very confident man, and red has been politically labeled for too long in Taiwan — the people have the right to choose any color,” he said with a mischievous, closed-lipped smile.
Mr. Shih accuses the president and his family of corruption, but he is not the only one making that accusation. This summer, civil-service prosecutors charged the president’s son-in-law, Chao Chien-ming, with insider trading and sought an eight-year prison term for him. Mr. Chao denied any wrongdoing, and the case is still pending.
Prosecutors are also investigating accusations that the president’s wife, Wu Shu-chen, may have obtained large numbers of gift certificates from a department store chain that was seeking government permission for a change of ownership. They have also looked at whether President Chen and his wife adequately accounted for money from a special fund personally controlled by Taiwan’s presidents for decades for use in secret diplomatic initiatives.
Mark Chen, the presidential office’s secretary general, who is also a former foreign minister and who is not related to the president, said in an interview at the presidential palace on Tuesday that “our president is clean and the first lady is clean.” He accused the Taiwanese media of inflating allegations of misconduct.
He also noted that the president, in an effort to clear his name and his wife’s, recently allowed prosecutors to interview him even though the Constitution grants him immunity from prosecution.
The Nationalists have repeatedly tried to push President Chen from office, staging violent protests after the president won re-election in a disputed vote in 2004.
Allegations of corruption are especially touchy in Taiwan. The Nationalists ended martial law in 1987 and then lost the presidential election in 2000, to a considerable extent because of popular indignation at widespread corruption. It was nicknamed the “black gold” issue here because many of the bribes and other illegal payments came from organized crime, and funereal-looking black suits are practically a uniform for many gangsters here.
By contrast, the Democratic Progressive Party has long presented itself as largely free of corruption.
Mr. Shih said that it would be better for the Democratic Progressive Party if President Chen stepped down instead of serving the 20 months remaining in his second term. With the president’s approval ratings below 20 percent in opinion polls, his continued stay in office could help the Nationalists win the Taipei and Kaohsiung mayoral elections this December, legislative elections in December next year and the presidential election in March 2008, Mr. Shih suggested.
The party has hit back at Mr. Shih by releasing photographs of his recent meeting in Bangkok with a financier who is on Taiwan’s list of the 10 most-wanted fugitives for deals that have left Taiwanese banks facing large losses. But Mr. Shih said the entire sit-in effort, including a stage, a large-screen television and other supplies, had been paid for with donations of $3 apiece by a million citizens from across Taiwan.
Mr. Shih, who will turn 66 in January, is a leader of a generation of tough, street-wise demonstrators who fought Chiang Kai-shek’s police and languished in his jails. But charismatic lawyers like President Chen, 55, a graduate of National Taiwan University’s law school, pushed Mr. Shih’s generation of activists aside at a Democratic Progressive Party leadership conclave in 2000.
Mr. Shih practically disappeared from politics afterward, refusing even to accept a senior presidential appointment, and he has managed to return to the center of the political stage with his unusual campaign only in recent weeks. Beijing and American officials have stayed silent about the political dispute here. But President Chen did set off a controversy over the weekend when he said that people in Taiwan should “seriously consider” whether to come up with a new definition of its territory.
The Taiwanese Constitution vaguely defines this territory in a way that can be interpreted to include mainland China and even Mongolia. This definition allows China, the United States and other countries to maintain that there is still one China that encompasses Taiwan and the mainland. President Chen has repeatedly promised not to change sovereignty issues in the Constitution, which the mainland has warned could be the basis for war.
Weekend and evening rallies at the site of the sit-in since Sept. 9 have drawn crowds that peaked at more than 300,000 people on Sept. 15. But about 200 people were present at Mr. Shih’s sit-in on Wednesday morning, and some in Taiwan are wearying of the standoff.
Many are waiting for the results of the initial inquiry into the first lady’s activities, scheduled to be released sometime in October; Mr. Shih said he planned to start holding rallies against the president in other Taiwanese cities soon, and moved his sit-in on Wednesday evening from the presidential palace to the grounds of a nearby railway station. The presidential palace remains ringed with barbed wire as a precaution, and armored vehicles with mounted water cannons are parked inside.
Nobody here expects a repeat of either the street protests that have toppled presidents in the Philippines or the military coups that have periodically brought down governments in Thailand, most recently last week. Mr. Shih said he had urged anyone with the rank of a two-star general or above not to come to his demonstrations, even if they might sympathize.
“There will not be a coup in Taiwan,” he said categorically. “A neutral military is very important for a democratic country.”
Mr. Shih himself has a well-coiffed mane of dark hair and has not been lying in the street every night with his followers. Mentioning his long years in prison, he said, “If I look young, it’s because I was frozen for 25 years.”
Very right wing indeed…China and S.Korea are already privately pissed I’m sure.
September 26, 2006
Abe Is Elected Japanese Prime Minister
By MARTIN FACKLER
TOKYO, Sept. 26 — Shinzo Abe, a popular nationalist who has vowed to make Japan more assertive globally, became the country’s prime minister today, and named a Cabinet packed with social and foreign policy conservatives.
Mr. Abe, 52, bowed deeply in front of fellow lawmakers after winning 339 votes in the 476-member lower house, which selects the prime minister. Earlier in the day, Mr. Abe’s predecessor and political mentor, Junichiro Koizumi, vacated the prime minister’s residence in central Tokyo after five and a half years that saw him win public adulation for making painful economic reforms.
Mr. Abe was virtually ensured to succeed Mr. Koizumi after winning last week’s leadership election in the Liberal Democratic Party, which has ruled Japan almost continuously for the past half century.
As Japan’s youngest prime minister since World War II, and the first to be born after the war, Mr. Abe’s ascension appears to mark a changing of the guard in a country that has kept a low-profile in international affairs since its defeat in 1945.
After winning the vote in parliament, Mr. Abe (pronounced AH-bay) immediately began making changes aimed at strengthening the prime minister’s office, which in the past has been a weak center in a nation dominated by powerful bureaucrats and entrenched special interests.
“The new era of Abe begins,” proclaimed Hidenao Nakagawa, the Liberal Democratic Party secretary general.
One of Mr. Abe’s first steps was to increase the number of advisors to the prime minister, adding new posts for aides in charge of national security, education and the North Korean abduction issue. Members of Mr. Abe’s staff have said these aides will have their own staff of experts and researchers, allowing them to draw up policy directly without relying on ministry bureaucrats.
“The prime minister’s office should be built into a control center for the whole nation,” said Yasuhisa Shiozaki, the newly appointed chief Cabinet secretary. “The office will put forward policies based on strategic thinking.”
In particular, the security advisor will eventually have a staff of several dozen, with the announced aim of creating a Japanese-version of the U.S. National Security Council. This has led many here to comment that Mr. Abe was trying to make the traditionally weak prime minister’s office look more like a seat of strong executive power.
“Mr. Abe is definitely trying to build something that looks like the White House,” said Tomoaki Iwai, a professor of politics at Nihon University.
After winning leadership of the ruling party last week, Mr. Abe reportedly spent several days holed up in his country retreat near Mt. Fuji, deciding whom to include in his new Cabinet.
Mr. Iwai and others said Mr. Abe’s choices reflected a hawkish bent to the new administration. Most were also in their 50s, a decade younger than many Cabinets in the past.
One of the most watched appointments was to the new post of national security advisor. This went to Yuriko Koike, a 54-year-old former television news reporter who has been a vocal supporter of economic sanctions on North Korea since it admitted kidnapping Japanese citizens two decades ago.
Another was the selection of Eriko Yamatani to the post of education advisor. A 56-year-old former reporter for the Sankei Shimbun, a right-wing daily, Ms. Yamatani has been a vocal critic of sexual education and teaching of “excessive” gender equality in schools. The incoming state minister in charge of gender equality, Sanae Takaichi, was another social conservative who opposed allowing women to legally keep their maiden name after marriage.
The choice of Mr. Shiozaki as chief Cabinet secretary, Japan’s equivalent of the White House chief of staff, was widely viewed as a move to strengthen Mr. Abe’s personal control. Mr. Shiozaki, 55, is a Harvard-trained former central banker and close ally of Mr. Abe who is widely respected among younger Liberal Democratic lawmakers.
In contrast, the new Cabinet featured no political heavy-weights in top economic posts, reflecting what some economists and political scientists said was a shift in priorities toward foreign policy and national security. This was a departure from Mr. Koizumi, who had filled economic posts with prominent reformers like Heizo Takenaka, a former economics professor now widely credited with fixing Japan’s long bad loan-ridden banking system.
Mr. Takenaka had already said he was retiring from politics when Mr. Koizumi stepped down. The most prominent appointee was Hiroko Ota, an economics professor and confidante of Mr. Takenaka, who became economic policy minister. Economists and political scientists said her role would likely be to keep current reforms in place, but not add new ones.
“The new Cabinet disappoints,” Richard Jerram, an economist in the Tokyo office of Macquarie Securities, wrote in a report. The lack of emphasis on economic positions “probably reflects the fact that this will not be an important focus for the new administration.”
Instead, many here believe one of Mr. Abe’s top priorities will likely be revising the pacifist Constitution, written by Japan’s postwar American occupiers, to permit the country to have full-fledged armed forces. Mr. Abe has also spoken in favor of a new law to allow Japan to send troops overseas on peacekeeping missions, and of closer military cooperation with Washington, Tokyo’s most important ally.
At the same time, many here also hope that Mr. Abe can smooth relations with South Korea and China, which soured after Mr. Koizumi paid visits to a controversial Shinto shrine honoring Japan’s war dead. But the new prime minister risks angering Asian neighbors with his calls for Japanese schools to teach more patriotism and traditional values, at a time when many of Japan’s former wartime victims accuse the country of whitewashing military atrocities from its textbooks.
The Liberal Democratic Party is also counting on Mr. Abe to help lead it to victory in upper house elections next year, the first since the exit of the charismatic Mr. Koizumi.
Besides being popular among younger voters, Mr. Abe also boasts an impeccable nationalist pedigree that appeals to veterans’ groups and others in the ruling party’s right wing. In speeches, he frequently refers to his grandfather, Nobusuke Kishi, a wartime economic ministry official who was jailed briefly by the Americans as a war criminal and later became prime minister.
I see this as Hu consolidating his power. The Shanghai Party was the power base of Jiang Zemin…they have long held the reigns of power in China and he is simply reducing their influence.
September 25, 2006
Shanghai Party Boss Held for Corruption
By JOSEPH KAHN <http://topics.nytimes.com/top/reference/timestopics/people/k/joseph_kahn/index.html?inline=nyt-per>
BEIJING, Monday, Sept. 25 — Chinese security officers have detained the powerful party boss of Shanghai for corruption, as President Hu Jintao <http://topics.nytimes.com/top/reference/timestopics/people/h/hu_jintao/index.html?inline=nyt-per> expands a crackdown on graft that has focused on prominent political opponents.
Chen Liangyu, the Communist Party’s top official in the wealthy East Coast enclave and a member of the ruling Politburo, was formally detained on Sunday afternoon, Chinese state media confirmed Monday afternoon.
It is exceedingly rare in China for members of the ruling Politburo to face legal trouble, even when the authorities have evidence of corrupt activities by them or people close to them. Mr. Hu almost certainly would not have approved of the action unless he considered Mr. Chen an obstacle to his political control or his policy agenda.
The action seems intended mainly to reduce local resistance to edicts by Mr. Hu and Prime Minister Wen Jiabao <http://topics.nytimes.com/top/reference/timestopics/people/w/wen_jiabao/index.html?inline=nyt-per>, while also smashing the remnants of the political clique that had been tied more closely to Jiang Zemin <http://topics.nytimes.com/top/reference/timestopics/people/j/_jiang_zemin/index.html?inline=nyt-per>, China’s former paramount leader, than to Mr. Hu.
Mr. Hu is seeking to reshuffle the members of the Politburo and all the leading government and provincial posts at the 17th Party Congress to be held next year. He has sought to extinguish opposition to his priorities among senior party members ahead of that event and to anoint his own successor.
Mr. Chen’s political machine has long been considered one of the strongest and most corrupt in a country where the powerful find ways to claim a big share of the country prosperity, despite almost constant anti-corruption campaigns within the ruling party.
As Shanghai party boss, Mr. Chen enjoyed considerable leeway to run China’s wealthiest urban region. Friends and relatives of Mr. Chen are suspected of using access to public funds,, including Shanghai’s pension fund, to enrich themselves, people informed about the investigation said. They said at least half a dozen other officials and many prominent local deal makers have also been arrested in recent weeks.
Mr. Chen, 60, inherited the political base of Mr. Jiang, who rose to prominence as Shanghai party boss in the 1980’s and subsequently promoted many of his cohorts to top national party and government posts. He was once seen as having the potential to join the Politburo Standing Committee and compete for China’s top political titles.
The so-called Shanghai faction did not operate like a cohesive political clique in recent years and failed to help Mr. Jiang himself retain his final post as military chief in 2004, when Mr. Hu forced him into retirement and consolidated his own power.
But Mr. Chen resisted central government demands to reduce speculative real estate investment and tamp down economic growth to prevent waste and overheating. He offered a prominent symbol of the strength of local party machines even in the face of heavy pressure from the Beijing leadership, so his downfall seems likely to signal Mr. Hu’s rising authority.
The last time a sitting Politburo member lost his post for corruption was in 1995, when Mr. Jiang, then China’s top leader, purged Chen Xitong, the Beijing party chief Mr. Jiang considered a formidable rival.
Chen Liangyu, who is not related to Chen Xitong, was detained under “double regulations,” a form of house arrest for members of the Communist Party suspected of wrongdoing. Such detentions do not necessary lead to legal charges, but after losing the confidence of the top leadership, Mr. Chen will almost certainly be stripped of his political posts.
His detention is a black mark for Shanghai, which China has built into a showcase market economy and financial center in an attempt to present its most sophisticated face to the outside world.
The ongoing investigation into corruption provided a glimpse into another side of the city’s stunning growth. Mr. Chen’s political machine controlled a great swathe of Shanghai’s economy, including prime portions of real estate and major infrastructure projects.
A huge investigation by the central government into corruption there focused on the misuse of pension funds to invest in building projects tied to local leaders and their business cohorts.
But Mr. Chen, his relatives and friends were also implicated in a major real estate scandal in 2003 that resulted in a short prison term for one well connected Shanghai businessman, Zhou Zhengyi, but did not focus on Mr. Chen or officials close to him directly. Issues related to that handling of that investigation were revived during the latest crackdown, people informed about the investigation said.
Mr. Hu’s corruption crackdown began last spring and picked up pace during the summer months. It has so far resulted in the arrests of lower-level officials and well-connected businessmen in Shanghai, Beijing, Tianjin, Fujian and other areas.
Most of the people implicated in the scandals are viewed as old loyalists of Mr. Jiang or members of the Politburo not considered among the core supporters of Mr. Hu, leading to suspicions that Mr. Hu has used the fight against corruption as a tool to eliminate opponents.
Some party officials acknowledge that it is rare for officials in China to climb the political ladder without quietly securing economic benefits for themselves or their friends and relatives. The party-run security apparatus usually does not seek to stop such behavior unless the officials in question falls from political favor, they say.
Zambian Hopeful Takes a Swing at China
Presidential Challenger Stirs Resentment at Asian Power’s Growing Influence in Africa
By Joseph J. Schatz
Special to The Washington Post
Monday, September 25, 2006; A16
LUSAKA, Zambia — Making a living is never easy in Kamwala, the cramped, grimy but bustling marketplace in downtown Lusaka, where Nally, a middle-aged mother of five, has been selling clothes out of a small wooden stall for the past 15 years.
But things took a turn for the worse, she said, when the Chinese moved in down the block a few years ago.
Chinese retailers operating in Kamwala have undercut her prices and lured away her customers, Nally said, holding up a pair of women’s underwear that she would normally try to sell for 10,000 kwacha, or about $2.55.
“They can sell it for five or four” thousand kwacha, said Nally, who spoke on condition that only her first name be used because of concern about harassment by political operatives. “In the past years we were doing fine, but since the Chinese have come in, we were affected.”
In the run-up to presidential elections this Thursday, Nally said she has listened with interest to one candidate in particular: Michael Sata, the man at the heart of an election-year skirmish that has drawn attention to China’s growing economic and political clout in Africa, and the resentment it has caused among some Africans.
Mirroring its economic incursions into much of the rest of Africa, China has emerged in recent years as a significant presence in the Zambian economy, particularly in the copper industry — Zambia’s economic lifeblood — but also in other sectors, including textiles, road construction and retail.
Sata, a former cabinet minister and the leading challenger to President Levy Mwanawasa, has called the Chinese profiteers, not investors, in a country where unemployment is about 50 percent and more than 73 percent of people live in poverty.
Sata has lambasted Chinese-run businesses, accusing them of neglecting the safety of Zambian workers, and threatened to run “bogus” Chinese investors out of the country. He has suggested that, if elected, he would recognize the independence of Taiwan, which China regards as a province that must return to the mainland’s rule.
“Foreign relations must benefit all concerned. It must not be . . . one-way traffic,” Sata said on privately owned Radio Phoenix this month. “Chinese investment has not added any value to the people of Zambia.”
Chinese Ambassador Li Baodong said that China might sever diplomatic ties with Zambia if Sata became president and recognized Taiwan. The ambassador also raised the specter of a halt in Chinese investment.
The debate has been full of crude politics and xenophobia, but it has also served as an illustration of China’s economic involvement in Africa giving way to political influence.
“China is a big player everywhere. . . . It’s one of the biggest investors in Zambia,” said Neo Simutanyi, a political analyst at the Institute of Social and Economic Research, a public policy organization in Lusaka.
Simutanyi added that the Chinese threat was “undiplomatic” in its bias toward Mwanawasa’s government, which has benefited from Chinese aid and loans. “We are indebted to China for a very, very long time to come.”
While Sata’s overall support remains uncertain going into the final days of the campaign, his anti-China rhetoric has struck a chord with some in this nation of 11.5 million. The issue — and the topic of foreign investors — has dominated newspaper headlines, radio shows and political discussions, drawing cheers from many lower-paid Zambians, including taxi drivers, shop workers and security guards, and sparking debate even among Sata’s more middle-class detractors.
“The issue of China and chasing foreigners is actually a vote winner in the urban areas,” Simutanyi said.
The China issue, and a discussion about Sata’s political alliance with former president Frederick Chiluba, whom the ruling government has pursued on corruption charges, has overshadowed other campaign issues, including education and the fight against HIV/AIDS.
Mwanawasa, elected with only 29 percent of the vote in 2001, is seeking reelection on a record of market-oriented economic policies and anti-corruption efforts that has pleased the foreign investors and donors that Zambia relies upon heavily.
Sata, a veteran politician nicknamed “King Cobra,” has a reputation for getting things done. Taxi drivers routinely point out a major bridge on Lusaka’s busy Great East Road as Sata’s handiwork and as an illustration of his ability to cut through red tape as a government minister. But critics dismiss him as a loudmouth, and others fear he would be a potentially reckless leader.
Political analysts say Sata is exploiting an undercurrent of resentment against Chinese involvement in Zambia and targeting poor, less educated Zambians, especially those working in mines or markets such as Kamwala.
“Mr. Sata is a very shrewd political animal. . . . He is a demagogue,” said Fred Mutesa, a development studies professor at the University of Zambia. “The issue of investors in Zambia has generated a lot of controversy, mainly because of poor labor laws.”
China has long been involved in Zambia. In the early 1970s, the Chinese government built a 1,155-mile-long railway linking landlocked Zambia to the port city of Dar es Salaam in neighboring Tanzania. In recent years, China has become an even more important player in Zambia’s economy as it invests throughout Africa to feed its growing resource and energy needs.
Zambia is the world’s 11th-largest copper producer, and China has sunk millions of dollars into mines, helping to revive operations after a decline during the mid-1990s. China has helped restart some Zambian textile mills, and Chinese contractors have aided road construction.
These projects have employed more than 10,000 Zambians, and Chinese investment in Zambia has topped $300 million, according to the Chinese Embassy.
But Chinese-owned copper mines are known for low pay and hazardous practices. In 2005, 51 Zambian workers died in an explosion at the Chambishi mine.
“We can appreciate investment, we can appreciate them employing people, but a lot needs to be done in terms of the conditions of service. . . . They need to do a lot in terms of the safety of the workers,” said Rayford Mbulu, president of the Mineworkers Union of Zambia.
An influx of Chinese traders — bringing with them inexpensive Asian-made products — has only added to the resentment. Chinese and Lebanese retailers have moved into rebuilt shops in Kamwala, where the rent is too steep for some Zambian entrepreneurs.
At the same time, many Zambians have benefited from the availability of cheaper Chinese goods — a source of frustration to shop owners who contend that Chinese products are of inferior quality.
Sata blames the Chinese for mining accidents and says Chinese immigrants should not be competing with Zambian retailers.
“The Chinese themselves . . . decide the conversation,” Sata said in the Sept. 5 interview. “We want investors — local investors, foreign investors — who add value. . . . We are not going to condone fake, exploiter investors.”
Many Zambians say that while China should be forced to play by the rules, Zambia simply cannot afford to close its doors.
“You can’t say we are going to chase the investors — it can’t be done. We need investment,” said Edsson Mumba, who sells pants in another shop in the Kamwala market. “Politics is politics. Business is business.”
© 2006 The Washington Post Company
Relief Agencies Look Inward
Poor Planning Hurt Response to Tsunami, Assessment Finds
By Michael Casey
Associated Press
Sunday, September 24, 2006; A26
KAMPUNG JAWA, Indonesia — The tsunami of 2004 triggered the biggest humanitarian response in history, one that fed the hungry, headed off epidemics and engendered the hope that out of a calamity that took 216,000 lives, a better Indian Ocean rim would emerge.
But 18 months later, recriminations are rife, with aid agencies accused of planning poorly, raising unrealistic expectations and simply being incompetent.
Newly built homes infested with termites are being torn down in Indonesia, while families in India were put into shelters deemed of “poor quality” and “uninhabitable” because of the heat. Thousands of boats donated to fishermen in Indonesia and Sri Lanka sit idle because they are unseaworthy or too small. Only 23 percent of the $10.4 billion in disaster aid to the worst-hit countries, Indonesia and Sri Lanka, has been spent, according to the United Nations, because so much of it is earmarked for long-term construction projects.
“I think mistakes occur in every disaster, but for the first time we are seeing it on a large scale,” Anisya Thomas, managing director of the California-based Fritz Institute, a nongovernmental organization, or NGO, that specializes in delivering aid and has surveyed survivors in India and Sri Lanka.
“Many large NGOs are involved in rehabilitation and reconstruction activities beyond their capacity,” Thomas said. “The large NGOs had trouble finding local resources and, when they did, they often had trouble holding them accountable.”
Days after the tsunami hit on Dec. 26, 2004, relief groups rushed in alongside the U.S. military and other government agencies, and their quick response was credited with preventing an even greater disaster.
But as aid agencies shifted to reconstruction, excessive amounts of money meant that spending decisions were often driven by “politics and funds, not assessment and needs,” according to the Tsunami Evaluation Coalition, an independent body that includes more than 40 humanitarian agencies and donors.
In a July report, the coalition called the aid effort “a missed opportunity.” It said there were too many inexperienced aid groups working in disaster zones, while seasoned agencies jumped into areas they knew nothing about.
The report also accused the nongovernmental groups of leaving survivors uniformed about their plans or failing to deliver promised aid. “A combination of arrogance and ignorance characterized how much of the aid community misled people,” it said.
The agencies are studying the report, and many are overhauling their training and staffing.
“The tsunami was unique in so many ways,” Scott Campbell, program director for Catholic Relief Services in Aceh, the Indonesian province that was hit hardest by the earthquake and tsunami. “It has made every organization rethink how to approach this.”
With large swaths of Aceh’s coast reduced to damaged homes and flooded farmland, the challenge was enormous. More than 150,000 Acehnese survivors spent more than a year in rotting tents, and hundreds of families still live in them.
Clusters of new homes were abandoned by their owners because of leaky roofs or termites in the untreated wood. Hundreds more were built without water, electricity or sewer hookups. The aid groups later acknowledged that they assumed the government would provide utilities, not realizing that the disaster had decimated many government agencies.
“I won’t even use this wood for a chicken coop,” said Hamdan Yunus, 57, an Indonesian fisherman from the village of Kampung Jawa who tore down the home donated by British-based Muslim Aid after the wood began crumbling.
In the Indian state of Tamil Nadu, temporary homes built by Western-based charities were of “poor quality” and “uninhabitable” during the daytime because of the heat, according to a July 2005 evaluation of relief efforts.
Corruption also played a big part in the reconstruction failures.
British-based Oxfam shut down operations in the city of Aceh Besar for a month and an investigation led to charges of misconduct against 10 Indonesian staff members over the loss of $22,000.
Save the Children says it has to rebuild hundreds of termite-stricken houses in Aceh after discovering contractors pocketed funds earmarked for construction. It has fired three housing inspectors, bolstered oversight at its $156.6 million Aceh program and is buying timber from Canada.
An Indonesian government audit found as much as $5 million went missing in the first weeks.
“The corruption has spread everywhere. It goes all the way down to the village level,” said Akhiruddin Mahjuddin, who leads Gerakan Anti-Korupsi, an Aceh group. “I’m really disappointed.”
The Asian Development Bank is spending $4 million on anti-corruption measures in Aceh, and the Aceh provincial government is working to improve its accounting systems while putting up billboards warning the public about bribery.
Under pressure to spend donated proceeds, agencies increased their pace toward the end of last year. In what the United Nations called “unmistakable progress,” agencies have been credited with building 57,000 houses across the 11 countries that felt the impact of the tsunami. Another 81,000 are under construction. Hundreds of schools and clinics have also been built.
Many relief groups are looking for ways to respond more quickly to disasters by creating emergency response teams, opening regional supply warehouses or partnering with the private sector to ensure a steady supply of professionals.
Former president Bill Clinton, the U.N. special envoy for tsunami recovery, has said the goal should be to “build back better.” His deputy, Eric Schwartz, said he was confident that nongovernmental organizations were open to oversight, provided their independence was respected.
The pressure for a process to accredit NGOs “is substantial,” he said. “I think they understand this.”
© 2006 The Washington Post Company
Asia’s expectations for Japan on increase
The Yomiuri Shimbun
People in Southeast Asian countries and India are increasingly interested in China as an emerging power, but at the same time their trust in and expectations of Japan have likewise expanded.
These noteworthy findings were yielded by a recent survey conducted jointly in seven Asian countries by The Yomiuri Shimbun, The Korea Times (Hankook Ilbo) and the Gallup group.
The survey showed that Japan still wields a not inconsiderable influence over other Asian countries.
The survey was conducted in Japan, India, Indonesia, Malaysia, South Korea, Thailand and Vietnam, and was the third of its kind following similar polls in 1995 and 1996.
===
The rise of China
In the 10 years since the last survey, the most noteworthy change in the world has been the rise of China, and the latest survey reflected this change.
More than 80 percent of pollees in Malaysia, Thailand and Indonesia said they had a “good impression” of China.
Asked whether “the economic development of China would influence the economy” of their own countries, the majority of respondents, barring those in Japan and South Korea, said it would influence their countries “more positively.”
The findings indicate the relations these countries have with China have been deepening politically and economically.
China’s expanded influence in the future compared with other countries is being widely acknowledged as obvious. Asked, “Which countries or territories do you think will become most influential including economic power on the Asian region in the future,” respondents in Malaysia, Thailand and Vietnam placed China on top of a list of about 20 countries and territories.
While the “emergence of China” has been much heralded in recent years, the “decline of Japan” has been pointed out for a long time now.
Nearly 60 percent of Japanese respondents said Japan’s influence in Asia was getting “weaker” or “somewhat weaker.”
However, the survey showed Japan’s diplomatic foundation in Asia is still sound and that Japan is not facing a “decline.”
The majority of people in other countries said Japan’s influence in Asia was getting “stronger” or “somewhat stronger.”
===
Rumors of ‘decline’ incorrect
Asked whether Japan was playing “an active role in the development of Asia as a member of Asia,” about 90 percent of respondents in the Southeast Asian countries said “very active” or “somewhat active,” with increases between six and 18 percentage points from the 1996 survey. About 80 percent of respondents in India also had a similar view.
People in India, Indonesia, Malaysia, Thailand and Vietnam gave high marks to Japan with regard to trust.
Japan’s long-time commitment to helping nations build themselves and develop economically have fostered pro-Japan sentiments in the countries Japan has helped.
Also, amid China’s emergence, those countries are recognizing again the significance and importance of Japan, which has built close economic and other relations with those countries.
This development runs counter to the views held by the Japanese themselves.
In addition to economic relations, expectations for Japan’s leadership are widening to such fields as counterterrorism, antipiracy, disaster relief and the fight against infectious diseases.
An environment in which Japan can conduct a more active foreign policy in Asia is developing–as proved by the latest opinion poll.
(From The Yomiuri Shimbun, Sept. 14, 2006)
(Sep. 14, 2006)
—————————————–
Rising labor costs may dim China’s appeal
The Yomiuri Shimbun
Labor costs in China are skyrocketing. The low-cost environment in the country where abundant, talented human resources can be obtained cheaply is declining.
One major factor is the presence of migrant workers. In China, about 120 million farmers once worked at factories and construction sites in urban areas, sustaining the nation’s economic growth.
Over the past three or four years, however, the number of migrant workers has decreased, resulting in increases in labor costs at a record high pace.
Last year, the average salary for workers throughout the country increased by 14.1 percent compared with 2004.
This year, many local governments are raising the minimum wages of workers, set independently by localities. The move is in line with a policy set out by the administration of President Hu Jintao to protect the poor.
The local government of Shanghai, where the average salary is the highest in the country, decided to boost the minimum wage by about 9 percent. Major cities such as Guangzhou, Beijing, Tianjin and Dalian, where many foreign companies have their Chinese bases, have decided to introduce double-digit increases in the minimum wage.
The decline in the portion of migrant workers in the labor force is partly due to economic reasons, including an increase in farming income and increased job opportunities in provincial regions.
===
Shifts in population
In addition to the economic factors, demographic changes in the country, in particular the decline in the number of young people in farming villages, are affecting the labor supply. The labor shortage in the relatively developed coastal regions, including Guangdong Province, has started to spread inland.
Under the circumstances, local governments of major cities are growing more concerned. Hikes in the minimum wage have started to take on a tinge of competition to secure sufficient numbers of workers.
If labor costs continue to climb in China, foreign companies doing business there may have to revise their management strategies.
Furthermore, China is reviewing its policy of giving favorable treatment to foreign companies.
One major issue is whether to unify corporate income tax, which is similar to Japan’s corporate tax, as the rates for foreign and domestic companies differ. China has given a preferential tax rate to foreign firms in an attempt to procure funds from overseas as it has suffered from a shortage of capital.
===
Attractive tax arrangement
While the tax levied on domestic companies is about 33 percent, foreign companies pay less than 15 percent.
However, with competition between domestic and foreign firms intensifying, criticism has increased over the preferential treatment given to foreign firms in China.
As debate on whether to abolish favored treatment for foreign companies continues, the State Development and Reform Commission recently announced unification of corporate income tax rates. The commission manages China’s economic policies.
At the same time, the commission said it would shift its policy of luring foreign companies from “quantity” to “quality.” To enhance its international competitive edge, China will probably become more selective toward foreign businesses, giving priority to foreign companies in high-technology industries.
If the new policies are put into effect, the investment environment will be greatly affected. For foreign firms, China’s attraction as a target for investment will inevitably decline.
However, compared with other Asian countries, China still holds economic advantages. Increases in labor and other costs will promote advancement of domestic markets and industrial structures.
Both positive and negative aspects of the increased costs in doing business in China must be thoroughly examined.
(From The Yomiuri Shimbun, Aug. 28, 2006)
(Aug. 28, 2006)
——————————————————
Asian trade partnership will test diplomacy
The Yomiuri Shimbun
EDITORIAL
Asian trade partnership will test diplomacy
At a meeting of economic ministers in Malaysia, Economy, Trade and Industry Minister Toshihiro Nikai officially announced an ambitious Japanese plan for a free trade agreement that encompasses East Asia and the Pacific.
Whether the ambitious plan actually can be realized will be a test of Japan’s trade diplomacy.
The economic partnership agreement proposed by Nikai involves 16 nations: Japan, China, South Korea, the 10 member nations of the Association of Southeast Asian Nations, and Australia, India and New Zealand. The agreement is designed to abolish tariffs on commodities, promote investment, protect intellectual property and take other steps to liberalize trade in a wide variety of areas. Japan wants to hold negotiations on the plan as soon as each nation has examined it.
The population of the 16 nations under the “Comprehensive Economic Partnership in East Asia” plan totals about 3.1 billion, about half of the global population. Combined gross domestic product of these nations is about $9 trillion, about one-fourth of the global GDP.
If the plan is realized, trade and investment will be further accelerated, pushing up Japan’s GDP by 5 trillion yen.
Lackluster response
However, the initial reaction from these nations has been unenthusiastic. This is probably because they are suspicious about whether Japan will take the initiative in liberalizing its market.
The Doha Round of the World Trade Organization’s multilateral trade negotiations were broken off in July. As a result, many nations are focusing on bilateral and regional free trade agreements as well as economic partnership agreements.
However, Japan lags other countries in this area. Only five nations concluded or have agreed to conclude economic partnership agreements with Japan. Negotiations between Japan and South Korea have been suspended. With ASEAN, negotiations have faced rough going in the agricultural field, with an agreement planned for next March is unlikely.
On the other hand, China has already concluded a free trade deal with ASEAN. Furthermore, it has long been arguing for an economic partnership of 13 nations–ASEAN members, Japan, China and South Korea–forming an East Asia Community.
Avoiding Chinese dominance
Nikai’s proposal to include Australia, India and New Zealand is designed to counter China’s influence in the smaller grouping. The members are identical to those in an 16-nation East Asia Community plan proposed by Prime Minister Junichiro Koizumi.
However, the issue of liberalizing agricultural markets has always been a barrier in Japan’s trade negotiations with other countries.
Within the Japanese government, opinions are divided over the East Asian economic partnership plan. For instance, the Agriculture, Forestry and Fisheries Ministry is reportedly uncomfortable with the plan. One major factor is inclusion of Australia, an agricultural giant, in the liberalization plan.
Japan’s growth hereafter depends on whether an “open Asia-Pacific” can be wisely utilized. Japan needs to beef up the international competitiveness of its agricultural products so that the domestic agricultural business sector will not suffer under market liberalization. The government has to come up with measures to effectively reinforce the agriculture sector.
The post-Koizumi administration will have the important task of departing from the long-held “defense only” trade policy.
(From The Yomiuri Shimbun, Aug. 25, 2006)
(Aug. 25, 2006)
September 20, 2006
Abe Elected to Lead Japan’s Ruling Party
By THE ASSOCIATED PRESS
Filed at 2:52 a.m. ET
TOKYO (AP) — Nationalist Shinzo Abe became head of Japan’s ruling party by a landslide Wednesday, a victory expected to lead to his election as prime minister next week.
Abe won 464 of the 702 votes counted, a majority of 66 percent. Foreign Minister Taro Aso came in a distant second with 136 votes and Finance Minister Sadakazu Tanigaki garnered 102 votes.
By winning the three-year term as Liberal Democratic Party president, Abe, a proponent of a hard line against North Korea, and a more militarily assertive Japan, all but guarantees his election as premier in the vote in parliament on Sept. 26.
”From now on, I would like to join everyone in helping Mr. Abe win the public trust,” Prime Minister Junichiro Koizumi <http://topics.nytimes.com/top/reference/timestopics/people/k/junichiro_koizumi/index.html?inline=nyt-per>, Abe’s mentor, said minutes after the vote. Abe stood up and quietly bowed in all directions when the results were read.
Abe, 51, would be Japan’s youngest postwar prime minister and the first born after World War II. He is relatively inexperienced, having joined the parliament in 1993 and assumed his first Cabinet position only a year ago.
The son of a foreign minister and grandson of a prime minister, Abe has campaigned on forging a more confident Japan. He is expected to seek to revise the pacifist constitution to give the military more freedom of action and bolster the security alliance with Japan’s top ally, the United States.
Despite his inexperience, Abe came to the vote with key essentials for victory: high support ratings inside and outside the party and the blessing of Koizumi, who remains widely popular after five years in office.
Because Abe’s victory appeared certain, the competition has been lackluster. Challengers such as Tanigaki and Aso never came close to rivaling him in popularity or a vision for Japan’s future.
The lack of competition, however, has led to a lack of clarity about Abe’s policies.
One looming question for Japan’s neighbors is how far Abe will push his vision of a country freed from the restraining legacy of World War II, in which Tokyo’s attempt at regional hegemony left Japan and much of Asia in ruins.
Abe, for instance, supports revisionist history textbooks that teach students to take pride in their nation rather than focus on the dark accounts of Japanese atrocities and aggression. He is also a proponent of the Yasukuni war shrine, which honors war criminals among the country’s war dead.
He has compounded this conservative image by questioning whether every prime minister must repeat Japan’s standard apology for its wartime actions. When North Korea tested several missiles in July, Abe suggested a look into whether the constitution would allow Japan to conduct a pre-emptive military strike.
It was unclear how that approach would affect Japan’s troubled relations with China and South Korea, two victims of Japanese aggression who have refused to meet with Koizumi because of his visits to the Tokyo war shrine.
If he ultimately becomes prime minister, Abe will take the helm of a Japan in transition.
After five years under Koizumi, reforms have made Japan a more competitive market, powering the economy out of a decade-long slowdown but also widening an increasingly troubling gap between rich and poor.
Japan already has started shedding its postwar pacifism. Koizumi pushed for — and won — the power to dispatch the military in unprecedented non-combat roles to help U.S.-led missions in Afghanistan and Iraq, despite domestic opposition.
From the BBC:
‘Coup’ sparks Thailand emergency Thai Prime Minister Thaksin Shinawatra has declared a state of emergency in Bangkok amid reports of a coup attempt.
Soldiers have entered Government House and tanks have moved into position around the building.
Mr Thaksin, who is at the UN in New York, announced he had removed the chief of the army and had ordered troops not to “move illegally”.
An army-owned TV station is showing images of the royal family and songs linked in the past with military coups.
Correspondents say that there have been low-level rumours of a possible coup for weeks.
Thai media say that two army factions appear to be heading for a clash, with one side backing the prime minister and the other side backing a rebel army chief.
Our correspondent Jonathan Head said it was not clear which faction had taken the initiative.
He said there has been pressure growing on the prime minister to resign, including groups close to King Bhumibol, following a political impasse in which April’s general election was declared invalid.
But it was thought that Thailand was making progress towards holding another election later in the year, our correspondent says.
Witnesses said several hundred troops were posted at key points around Bangkok, including at government installations and major intersections.
At the United Nations, where the annual General Assembly is under way, it was announced that the agenda had been changed to allow Mr Thaksin to address it in the coming hours.
Keep in mind when reading this article, that every time Japan threatens to cut aid, China screams that is is a “developing country”…also keep in mind that China has large areas of its own country where the average person is poorer than the average Sub-Saharan African.
————————————————-
September 18, 2006
China Competes With West in Aid to Its Neighbors
By JANE PERLEZ
STUNG TRENG, Cambodia — In the dense humidity of northern Cambodia, where canoes are the common mode of transportation, a foreman from a Chinese construction company directs local laborers to haul stones to the ramp of a nearly completed bridge.
Nearby, engineers from the ChinaShanghai Construction Group have sunk more than a dozen concrete pylons across a tributary of the mighty Mekong River, a technical feat that will help knit together a 1,200-mile route from the southern Chinese city of Kunming through Laos to the Cambodian port of Sihanoukville on the Gulf of Thailand.
This is the new face of China’s foreign aid to poor Asian countries: difficult construction in remote places that benefits the recipient, and China, too.
“It is the favor of our government to the Cambodian people,” said Ge Zhen, 26, one of the more than 50 engineers and 250 other Chinese workers on the four-year project.
Flush with nearly a trillion dollars in hard currency reserves and eager for stable friends in Southeast Asia, China is making big loans for big projects to countries that used to be the sole preserve of the World Bank, the Asian Development Bank, the United States and Japan.
With the Singapore meeting of the World Bank on Sept. 19 and 20, China, one of the bank’s biggest customers, is quietly shaking up the aid business in Asia, competing with the bank at its own game.
For poor countries like Cambodia, Laos and Myanmar, and somewhat better-off countries like the Philippines, China’s loans are often more attractive than the complicated loans from the West.
The Chinese money usually comes unencumbered with conditions for environmental standards or community resettlement that can hold up major projects. The aid does not carry penalties for corruption that are being increasingly used by the World Bank president, Paul D. Wolfowitz. And China’s offers rarely include the extra freight of expensive consultants, provisions that are common to World Bank projects.
For its part, China benefits from the added infrastructure — roads, ports and bridges — in the underdeveloped but growing region around it, to help increase trade and to move natural resources from China’s periphery to its heartland.
Liqun Jin, vice president of the Asian Development Bank and a former vice minister of finance in Beijing, said in an interview at the bank’s headquarters in Manila that China had carefully considered how to use its increasing wealth.
“China is attracting external capital, and as a balance China wants to help developing countries in the region by financing infrastructure projects,” Mr. Jin said. “Helping your neighbors to have a good life is no sin.”
He added, “China makes no bones that we want a peaceful neighborhood to develop our own economy.”
The effects are likely to be enormous. Tom Crouch, country director for the Philippines at the Asian Development Bank, said, “Here comes a very large new player on the block that has the potential of changing the landscape of overseas development assistance.”
Already, in the past several years, China has given aid to African countries, where it is buying oil and gas. They include some with repressive governments like Nigeria, Sudan and Angola.
Even during the cold war, China spread aid around Africa, sometimes to counterbalance assistance from rival countries, which were being helped by Taiwan. In the 1960’s and 70’s, for example, China aided Angola while Taiwan helped neighboring South Africa.
In Cambodia, Prime Minister Hun Sen boasts of China’s offer last spring of $600 million in “no strings attached” loans, made during a visit from the Chinese prime minister, Wen Jiabao. The money will help pay for two major bridges near the capital, Phnom Penh, that will link to a network of roads; a hydropower plant; and a fiber-optic network that will connect Cambodia’s telecommunications with that of Vietnam and Thailand.
In contrast, Mr. Hun Sen points out that the traditional lenders together pledged just $1 million more than China. And the money came laden with conditions, including World Bank anticorruption clauses.
Four World Bank programs in Cambodia worth about $70 million were recently suspended by the bank after its investigators found corruption among Cambodian officials in the procurement process.
China’s generosity to Cambodia has caught Washington’s attention. The United States Navy is planning a port visit to Sihanoukville early next year, a first since the Khmer Rouge seized power in 1975.
In the Philippines, China is also making a big splash, offering an extraordinary package of $2 billion in loans each year for the next three years from its Export-Import Bank.
That made the $200 million offered separately by the World Bank and the Asian Development Bank look puny, officials from those banks said, and easily outstripped a $1 billion loan under negotiation with Japan.
Officially, the World Bank says it is not concerned about competition from China’s increasingly energetic aid program. “The more important impact of China on these countries’ development is trade rather than aid,” said Homi Kharas, the bank’s chief economist for East Asia and the Pacific.
The aid, chiefly for infrastructure, was being focused by China on the integration of trade in the region, a useful result for poor countries, he said.
But Western aid donors complain that China is secretive about its aid projects, and that it declines to attend the traditional meetings presided over by the World Bank to coordinate aid activities in poor countries. They also say they doubt that China always delivers the full value of the projects that it announces.
And Western aid officials said they were taken aback when the news of the $2 billion Chinese aid package came out at a lunch meeting of more than 100 aid donors in Manila last month. The size of the Chinese loans came as a shock, in part because the Philippines serves as the headquarters of the Asian Development Bank, a lender dominated by Japan and the United States. China is also a shareholder.
The secretary general of the National Economic and Development Authority in the Philippines, Romulo Neri, compared the Chinese aid package to those from other sources, and noted the appealing absence of the expensive consultant fees common to Western projects.
After being a favorite of the Bush White House, the Philippine president, Gloria Macapagal Arroyo, fell out of favor when she pulled her country’s troops out of Iraq in 2004.
The Chinese appeared to have quickly filled the economic breach for the Philippines and, according to a memorandum from Mr. Neri’s office, a number of projects are expected to be completed when Mr. Wen visits Manila in December.
They include two toll roads and a water supply system for Manila, and further financing for a rail project already under way to connect northern Manila with four provinces.
In some countries, like Cambodia, China’s construction projects seem clearly aimed at helping to assure China’s access to natural resources.
Western diplomats and aid officials in Phnom Penh said they believed that Cambodia had recently granted China the rights to one of five offshore oil fields that could yield as much as $700 million to $1 billion a year. Chevron already has an agreement for exploratory drilling at one of the Cambodian fields.
Washington does not know yet, and would like to know, whether China plans to offer loans for an often-discussed deep-sea port at Sihanoukville that would allow China a convenient delivery point for its Middle East oil imports.
In resource-rich Myanmar, the former Burma, Beijing’s only real competitor on the aid front is India. China has built dams and roads connecting the interior of the country to China’s southern flank, and is currently reported to be working on a deep-water port on Myanmar’s west coast.
Myanmar is in deep arrears to the World Bank, which said it had no loan program there. The United States offers no official aid, either, because of the repressive nature of the government.
In Laos, China has built a major road up the spine of the country, and has been influential as much by the prospect of what it might do, than by what it has actually accomplished.
After years of study on the impact on the environment, the World Bank broke ground on a environmentally controversial major dam, known as Nam Theun 2, in Laos last year, because it knew that China was ready to step in to build the dam, bank officials say.
Beyond its no-strings approach, China is often appreciated as a lender by poor countries because it is willing to take on complicated projects in distant areas that others are not.
The bridge that Mr. Ge, the engineer, and his colleagues have sweated over during the last four years — the temperature creeps up as high as 106 in April — is in one of the most underdeveloped corners of Southeast Asia, the area where the Khmer Rouge first took power.
Running from the bridge is a new, smooth 130-mile road built by Mr. Ge’s team that connects Kratie, a village to the south of Stung Treng, to the Laotian border.
“When we came here four years ago, we would leave at breakfast time from Kratie and we would arrive here for dinner — eight hours,” Mr. Ge said. “It now takes two hours.”
Global Foreign Direct Investment
Sep 14th 2006
From The Economist Intelligence Unit ViewsWire
|
|
|
|
|
Boom or backlash?
The first six years of this decade have been a roller coaster ride for global foreign direct investment (FDI). From an all-time peak in 2000, global flows plunged by nearly 40% in 2001 and dropped still further in 2002-03. It was the longest and deepest downturn on record. 2004 marked the start of a rapid recovery, now in its third year, during which global FDI flows have risen by over 20% a year. Global FDI is headed for calmer waters for the rest of this decade, according to a new report by the Economist Intelligence Unit and the Columbia Center for International Investment (World Investment Prospects to 2010: boom or backlash?). With single-digit growth from 2007 onwards, global FDI inflows will in 2010 match the 2000 peak of US$1.4trn in nominal terms.
The post-2003 bounceback has been driven by emerging markets. FDI inflows to these regions grew by 57% in 2004 and 26% in 2005, to reach a record high of almost US$400bn (more than 40% of the global total). This was underpinned by rising corporate profits, buoyant economic growth and—in resource-rich countries—higher prices for many commodities.
This year, however, inflows to emerging markets are expected to increase by only about 3% in US dollar terms, whereas inflows into the developed world are projected to rise by some 36%. In part this is because the recovery in flows to emerging markets is largely complete, while that for developed countries is just getting started. FDI flows to emerging markets will remain buoyant in 2006-10, averaging over US$400bn per year, but growth rates will be modest as privatisation tails off and the global economy slows.
The M&A road
Most of the increase in global FDI from 2007 onwards is expected to take place in developed countries, mainly because of cross-border mergers and acquisitions (M&A). The value of cross-border M&A surged to US$435bn in the first half of 2006, a 48% increase over the same period in 2005, and was concentrated heavily in the developed world.
The biggest threat to an M&A boom is rising protectionist sentiment in host countries. This is apparent in the European Commission’s diluted takeover directive and in two bills making their way through the US Congress that would subject potential foreign takeovers to more rigorous scrutiny. Unease with FDI is spreading to emerging markets too. Some are questioning the terms of existing contracts with multinationals; others fret about what they see as excessive dependence on foreign capital. So far this does not add up to a serious backlash. But approaches to FDI have changed in the past, and they could do so again. That economics will triumph over populism is probable but not certain.
