The Buzz

Hong Kong Protests: Tiananmen Square 2.0?

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Hong Kong is not Beijing, 2014 is not 1989, and Civic Square is not Tiananmen Square. Still, the images of tens of thousands of Hong Kong Chinese demonstrating in the streets for democratic reform cannot help but bring back memories of a quarter century ago. Like the 1989 Tiananmen Square demonstrations in Beijing, those in Hong Kong are spearheaded by extraordinarily passionate, articulate, and inspiring young leaders. Both movements include Chinese people from all walks of life. And both movements, while at heart represent a call for fuller democracy and more direct political participation, also engage issues of economic well-being and inequities within the system. Of course they are linked in other ways as well: had the 1989 Tiananmen protests turned out differently, there likely would be no need for the 2014 student boycott of their classes and more broadly based Occupy Central demonstrations in Hong Kong.

That the two sets of protests twenty-five years apart are not the same, of course, leaves open the hope that the demonstrations underway in Hong Kong will not result in the same violent suppression that befell those in Tiananmen. Hong Kong, unlike Beijing, has a strong recent history of large-scale peaceful demonstrations, and the protestors in Hong Kong include experienced politicians as well as passionate students and citizens. Students in Hong Kong have even received a degree of institutional support from at least one university, the University of Hong Kong, which stated in a letter that it “will be flexible and reasonable in understanding the actions of students and staff who wish to express their strongly held views.” Moreover, Hong Kong’s rule of law will likely afford greater protection to the demonstrators: in the midst of the protests, several student leaders were arrested and then released; in referring to one of them, a judge noted that seventeen-year-old Joshua Wong had already been held longer than was lawful and that there was insufficient cause to keep him further.

And yet the question remains: what are the next steps? While various groups within the larger protest movement in Hong Kong have slightly different lists of demands, the resignation of the unpopular Chief Executive Leung Chun-ying and the ability to vote for at least one candidate for chief executive not preselected by Beijing top most people’s lists. Given these reasonably straight-forward demands, Beijing has a number of options. It can: enforce a harsh crackdown in Hong Kong in the hopes that brutally suppressing the protestors will stave off further reform demonstrations; confine the protests to a small area of Hong Kong and hope that they run their course: eventually the students will return to school and the occupy central protestors will return to work; remove Chief Executive C.Y. Leung, who has been a weak and unpopular leader from the outset as a stopgap; or establish a committee including representatives of various Hong Kong political actors to consider the next stage of suffrage, post-2017. (It could also, of course, decide to grant the protestors their biggest demand—an open slate of candidates determined by universal suffrage for the 2017 election—but this seems well outside the realm of possibility.)

None of the options is likely very attractive to the Chinese leadership. All come with not insignificant political and economic costs. No doubt, the government wishes that the Hong Kong activists would simply concede, perhaps following the advice of Tsinghua University Professor Daniel Bell, who suggests that Hong Kong political activists are doing more harm than good. He notes, “The Hong Kong special administrative region is the most important experiment in political reform. But the system assumes that the central government has the ultimate power to determine what works and what doesn’t. If that power is threatened, the experiment may be put to an end. Hong Kong political activists who, willingly or not, harm the relation with Beijing also harm the chance for Hong Kong-style political reform in mainland China.” Of course, Dr. Bell may want to consider that Beijing has already had fifteen years to witness the success of the Hong Kong political experiment and has done nothing to emulate it on the mainland. It hardly seems reasonable to ask the Hong Kong people to keep their interests at bay in the hopes that mainland leaders might suddenly come to appreciate the value of universal suffrage.

There is no easy solution—the best outcome for now might be to test the waters by replacing C.Y. Leung not with a lackey of Beijing or a democracy activist but with a politician such as Anson Chan or Christine Loh, who have impeccable political credentials, as well as strong managerial experience. The next three years could then be a test case for what a more independent-minded Hong Kong leader might mean for the island’s relations with the mainland and provide guidance for further revisions to Beijing’s current limited conception of universal suffrage.

Hong Kong is not Beijing, and here is hoping that Beijing knows that too.

Editor's Note:This piece first appeared on CFR’s Asia Unbound blog here.

Image: Wikicommons. 

TopicsPolitics RegionsChina

President Abbas’ Speech to the UN: A Lost Opportunity

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Last week Palestinian President Mahmoud Abbas gave a controversial speech to the United Nations General Assembly.

Reactions have been strong. The U.S. State Department said “President Abbas’ speech today included offensive characterizations that were deeply disappointing and which we reject. Such provocative statements are counterproductive and undermine efforts to create a positive atmosphere and restore trust between the parties.” The Palestinians replied by saying the American comments are “irresponsible, indecent and rejected.” What did Abbas say?

Some highlights:

Israel has chosen to make it a year of a new war of genocide perpetrated against the Palestinian people….the occupying Power has chosen to defy the entire world by launching its war on Gaza….the third war waged by the racist occupying State in five years against Gaza….This last war against Gaza was a series of absolute war crimes….In the name of Palestine and its people, I affirm here today: we will not forget and we will not forgive, and we will not allow war criminals to escape punishment….Israel refuses to end its occupation of the State of Palestine since 1967, but rather seeks its continuation and entrenchment, and rejects the Palestinian state and refuses to find a just solution to the plight of the Palestine refugees….Israel has confirmed during the negotiations that it rejects making peace with its victims, the Palestinian people….It is impossible, and I repeat – it is impossible – to return to the cycle of negotiations that failed to deal with the substance of the matter and the fundamental question.

In that speech, Abbas said not one word of criticism of Hamas, nor did he acknowledge what is obvious: that Hamas started this war by its ceaseless bombardment of Israel with mortars and rockets. Presumably he decided that Palestinian domestic politics required him to avoid that truth and blame Israel for the conflict. Nevertheless, he always pays a price when making assertions that his listeners in the General Assembly hall know are not accurate. The accusation of genocide is particularly vile when thrown at Israel. The word has a meaning, and it is obviously absurd to claim that Israel’s actions in the Gaza war last summer were aimed at killing every Palestinian or a very large number of them or at eliminating the Palestinian people.

As to the negotiations, it’s worth recalling what U.S. negotiator Martin Indyk has recently said. Here is one account:

“We gave it everything we had, and we got nowhere,” Indyk said, laying the blame “50-50″ between Netanyahu and Abbas. Negotiations officially ended in April when Abbas opted to press for statehood through the United Nations rather than continue, a move that Israel had long said would be a deal-breaker. In recounting a nearly yearlong series of negotiations, Indyk said that both sides identified the agreement gaps early on and that Netanyahu eventually moved into “the zone of a possible agreement” on such thorny issues as the status of territories, Jerusalem, and mutual recognition of Israel’s and Palestine’s rights to exist. But during Abbas’s visit to Washington in March, he effectively “checked out” from the talks and stopped responding to proposals from the Obama administration on how to close a deal, Indyk said.

Abbas “shut down,” Indyk stated. Indyk spreads the blame to the Israelis and Palestinians both, but that of course was not what Abbas was doing.

Every head of government or head of state who addresses the General Assembly presents his own case, not that of critics or opponents, but when the speeches lose touch with facts and reality they do more harm than good. So it is with Abbas’s words, which have been firmly denounced and rejected not only by the U.S. Government and the Israeli government but perhaps more significantly by the Israeli left as well. This kind of language by Abbas weakens Israel’s “peace camp,” but Abbas does not seem to care. He is playing to a different set of audiences, including the many governments in the United Nations that would not recognize a serious, truthful speech if smacked in the face with it.

Perhaps his main audience is at home, but I wonder how much good it does him, and his Fatah Party, to give Hamas a pass. It is true that Hamas’s popularity rose during and after the war, but that was predictable and the question is where it’s heading now. Hamas promised that this war, and the destruction and death it caused, would be compensated by new and vastly better conditions after the war. But soon it will be getting colder and rainy in Gaza as winter arrives. Will there be a reconstruction bonanza? Will Israel and Egypt open the passages? Will construction begin on a seaport, much less on an airport? And when Gazans see that the answer is no, where will Hamas’s popularity then be?

Abbas’s frustrations must be great, especially after he heard President Obama say very little about the Israeli-Palestinian conflict other than to remark that it is simply not central. In his own address Obama said:

The situation in Iraq, Syria and Libya should cure anyone of the illusion that this conflict is the main source of problems in the region; for far too long, it has been used in part as a way to distract people from problems at home.

A speech that merely expresses anger and frustration is unlikely to help Abbas personally, his party, the Palestinian Authority, or Palestinians more generally. It was a lost opportunity–or perhaps more accurately, another lost opportunity. Perhaps the best description is the via the words his own spokesman used in attacking what the United States said: the Abbas speech was “irresponsible, indecent and rejected.”

This piece first appeared on the CFR Blog "Pressure Points" here

Image: Wikicommons. 

TopicsSecurity RegionsMiddle East

King of the World: Why the Almighty US Dollar Dominates

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Rumors of the dollar’s demise have been greatly exaggerated. Its status as the world’s reserve currency is not under siege. In many ways, it is under less pressure than it has been in quite some time. Most recently, the Yuan or RMB has been cited as a possible replacement. Before that, it was the Euro threatening to dethrone the dollar. And before the Euro, it was the Yen. Yet there never seems to be any real, tangible shift in the global trading system. With $3.8 trillion dollars held in reported reserves in 2013, the dollar remains the world’s reserve currency.

It is often tempting for economists to point out the most intriguing trends and predict the most extreme destruction and doom scenarios. Remember when the Japanese economy was set to overtake the US? Japan spent the next decade with GDP and price level growth of about 0 percent. Sometimes, it is difficult to state a continuation of the status quo.

The data on currency reserves is less than comprehensive. The IMF Currency Composition of Official Foreign Exchange Reserves (COFER) provides some level of detail but has a number of sources missing. (The report analyzes the currency composition of assets—so a US Treasury Bill denominated in dollars counts as dollars). But there are some interesting takeaways from the data. The US dollar constitutes 61 percent of all reported reserves. While this is certainly far from its peak of 72 percent in 2001, it is similar to the levels seen in the mid-90s. In 2013, the dataset covered 53 percent of official reserves—down from a peak of 79 percent in 1997. In other words, the data does not suggest an end to the dollar’s run as the predominant reserve currency. Granted, the 47 percent of reserves labeled “unallocated” could be hiding something, but it is unlikely they are hiding anything momentous.

It is worth understanding how the US dollar won the role of reserve currency in the first place. Though the exact timing is debated (and in this debate time is denominated in decades, not years), the best evidence—from Eichengreen and Flandreau—is that the dollar overtook the sterling somewhere in the mid-1920s, lost it briefly, and then regained it in 1929. The Great Depression saw the sterling regain its prominence only to lose its status again to the dollar soon after. France, the China of its day in terms of foreign currency reserves, largely tipped the scales towards dollar dominance.

There is no clean shift from one currency to another. In considering how the dollar could lose its reserve status someday, it is necessary to understand what the shifts look like. It is a slow process, typically accompanied by a crisis. We might reasonably ask why the Great Recession did not have more of an effect on the dollars dominance. The simple answer is that there is, at the moment, no viable alternative. The RMB is heavily manipulated, the Euro has the overhang of its possible dissolution hanging over it, and the Yen is impaired by the Bank of Japan’s relentless easing. Granted, the US Dollar has not performed ideally for a reserve currency, but no currency ever will.

It takes economic stability and the ability to hold value across time to seize and maintain the mantle of reserve currency. The era of quantitative easing could have brought the dollar’s durability as a store of value into question. But it didn’t. The US dollar lost value—but it was never at risk of dissolving. And the only currency with markets liquid enough to challenge the US dollar—the Euro—had deep, idiosyncratic issues of its own. In essence, there was no alternative to the dollar during the crisis, and there remains no alternative now.

Any potential replacement must have enough debt and a large enough economy and a liquid enough market to support it. After all, other countries need to place tremendous amounts of money into the currency—in 2013 official foreign exchange reserves reached just under $11.7 trillion. In other words, being a country with a strong economy and stable currency is not enough. It must have deep and reliable debt markets and be able to support tremendous amounts of asset purchases. The Euro is the only currency with a market of similar depth to the dollar. China does not have the open system necessary for the RMB to be a reserve currency, and would require significant liberalization of currency movements. It may be able to develop a deep market in RMB—we simply do not know. These are not steps China is keen on making while attempting to avoid a slowdown of its own economic growth.

At the moment, the US dollar looks like a far less risky bet than the currencies bandied about to be its replacement. At the moment the Euro is inept, and the RMB is incapable of taking the mantle. The dollar will lose its place as the hegemon of currencies at some point, but it should continue to dominate for the foreseeable future.

Image: Flickr/Creative Commons. 

TopicsEconomicsPolitics RegionsUnited States

Beware the Hong Kong Democratic Time Bomb

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There is unrest on the streets of Hong Kong as thousands of pro-democracy campaigners clash with police over Beijing’s decision to curtail democracy in the Special Administrative Region (SAR).  The present turbulence is the latest stain on China’s implementation of the “one country, two systems” doctrine, and offers both a reminder of China’s troubled history as well as a glimpse into the country’s future political development.

Beijing’s decree that fully democratic elections will not be implemented ahead of the next round of elections for Hong Kong’s Legislative Council and Chief Executive is the proximate cause of the protests.  Many Hong Kong residents are furious at the prospect of only being able to choose from a list of pre-approved candidates when electing their leaders.  The issue thus goes to the heart of how the territory is to be governed going forward.  Yet the showdown between Hong Kong’s citizenry and the authorities in Beijing is part of a much longer history of Chinese efforts to reintegrate the territory into China proper—a history which portends implications far beyond the present turmoil.

Hong Kong rose to wealth and prominence as part of the British Empire.  The territory became a British Colony in the 1850s at a time when Qing China was beset by internal dysfunction and external predation, just one of many territorial concessions made to the European (and Japanese) colonial powers during the so-called “Century of Humiliation.”  Hong Kong Island and Kowloon Peninsula were annexed by Britain outright but the colony was expanded in 1898 to include vastly more territory (the so-called “New Territories”), leased to Britain by the Qing for a 99-year period.  British rule was far from enlightened, always designed to maximize the wealth of the metropole rather than improve the lot of Hong Kong’s residents, yet the city prospered as a center for Asian commerce.

In 1984, London agreed to cede sovereignty over all of Hong Kong once the lease on the New Territories expired in 1997.  The Sino-British Joint Declaration held that Hong Kong would be administered as a distinct jurisdiction within China, exempt from the imposition of Chinese socialism, with its government organized according to a newly authored Basic Law until at least 2047.  Under the “one country, two systems” slogan, Hong Kong’s return to Chinese rule was supposed to be a milestone in the history of China’s rebirth as a great power on the world stage, a symbolic healing of past territorial dismemberment.

The transition was complicated, however, by the last governor of Hong Kong, Chris Patten (1992-1997), who shocked Beijing by introducing more-or-less democratic elections at most tiers of colonial government during the dying years of British rule.  The move caused outrage in China, with Chinese leaders accusing Patten of violating both the letter and the spirit of the Sino-British Joint Declaration and the Hong Kong Basic Law.  For around 150 years, London had governed Hong Kong with characteristic disregard for the liberties of its inhabitants.  Now, with just a few years of British rule remaining, the political rights of Hong Kong residents were put front and center.  From Beijing’s perspective, the timing of Britain’s belated preoccupation with democratization looked suspiciously like a time bomb designed to undermine Chinese rule from the get-go.

Indeed, the past 17 years have witnessed China struggle to reconcile the expanded rights enjoyed by citizens in Hong Kong with the wider system of centralized rule that emanates from Beijing.  If not quite analogous to swallowing a porcupine, integrating the somewhat democratic Hong Kong into the overwhelmingly autocratic Chinese state has proven torturous for China’s leaders.  The political legacy of the Century of Humiliation continues to be felt even as the physical scars of colonial-era dismemberment have been erased.

The lessons for China’s future are stark.  First, consider the tumult that would ensue if Beijing ever realized its long term goal of reunification with Taiwan.  With their meaningful elections, dynamic two-party system, flourishing civil society and well-established tradition of popular protest, 23 million Taiwanese surely make unlikely candidates for passive acceptance of a “one country, two systems” arrangement of the sort already proving inadequate for containing the much smaller population of Hong Kong—even if reunification of China were to be achieved via peaceful political means.

Second, the uneasy marriage of limited democracy and Communist Party rule that currently obtains in Hong Kong bodes ill for the future relaxation of central authority in mainland China.  The risk of “centrifugal forces” pulling China apart is often touted by China-watchers as a prime candidate for halting the country’s seemingly inexorable rise to the top of the great power league table.  Hardliners in Beijing agree, arguing that decentralization and democratization are anathema to keeping China strong.  The image of pro-democracy protestors in Hong Kong standing defiant in the face of teargas-toting riot police will only strengthen such anti-reformist convictions.

It is unlikely, though not completely unfeasible, that today’s Occupy Central protestors will be successful in forcing the central government to back down over the issue of fully democratic elections.  Yet the struggle over political liberalization in Hong Kong and the rest of China looks set to continue well beyond the present turmoil.  How the process unfolds in the long term will have dramatic implications for China, the region, and the world at large.

Image: Flickr/Creative Commons. 

TopicsPolitics RegionsChina

Chinese Subs Lurk Under the Indian Ocean: Cause for Concern?

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The visit of the Chinese Type 039 Song class submarine to Colombo, Sri Lanka, earlier this month passed with little notice, but it's the first time one of the People's Liberation Army-Navy's (PLA-N) diesel-powered submarines has emerged in the Indian Ocean, and its a rare PLAN submarine visit to a foreign port. Naturally, this visit, and an Indian Ocean patrol by a Chinese nuclear submarine at the start of this year, is prompting discussion about the expanding reach and capability of China's navy.

Yet beyond signaling China's willingness to deploy its submarines far beyond the first island chain, this visit also highlights a dilemma the PLAN must address as it develops into a blue water navy: how to rescue its submarines in the event of disaster.

The submarine "Great Wall 0329" docked at the Chinese-funded Colombo International Container Terminal in Sri Lanka from 7 to 14 September, just before a one-day visit to the country by Chinese President Xi Jinping. Yesterday the Chinese Ministry of Defense's spokesperson Colonel Gen Yengsheng confirmed that the submarine visited while in transit to join the PLA Navy task force engaged in counter-piracy operations near the Somali coast and Gulf of Aden. The US, Singapore, Indonesia, Pakistan and Russia were all notified of the deployment.

Submarines have deployed to support Indian Ocean counter-piracy missions before: in 2010 the Dutch navy sent a Walrus class diesel-electric submarine to conduct reconnaissance of pirate operations and ports. But the Chinese Type 039 is a smaller submarine. And though the US military's Pacific Commander describes China's submarine fleet as "large and increasingly capable," China's commanders have little apparent proficiency in long-range deployments. The visit to Sri Lanka is the leading edge of Chinese conventional submarine operations.

The presence of Chinese submarines in the eastern Indian Ocean and approaches to the Malacca Straits, should it become regular, will change the strategic calculations of a number of other navies in the region.

As Chinese submarines range further from home, the Chinese Navy must find a solution to the vexing problem of how to rescue downed or damaged submarines. The risk of submarine accidents is real: since 2000 there have been at least 30 incidents reported by the world's 40 submarine-operating navies. In 2003, all 70 crew onboard the PLAN Ming-class submarine "Great Wall 61" suffocated after an engine malfunction while on patrol in the Bohai Sea. The risk of collisions will also increase in coming years as Asian waters become home to more submarine activity. China, Korea, Thailand, Vietnam, Myanmar, Indonesia, Singapore, Australia and Japan all have plans to grow their submarine fleets over the next decade. 

In a 2008 article, International Submarine Rescue: A Constructive Role for China, US Naval War College professors Lyle Goldstein and William Murray highlighted both the importance of submarine rescue for the Chinese Navy and its limited capabilities in this regard, raising the prospect of international naval cooperation to help China bridge this gap. Though the PLAN now participates in international naval exercises like RIMPAC, it has (in the opinion of Australian naval officials) been less than enthusiastic about integrating into common international naval logistics systems. International cooperation on submarine rescue is particularly sensitive, given the opportunities it affords for rival naval personnel to observe the characteristics of Chinese hulls and systems.

Yet China must find a way to be able to rescue its submariners. The political impact of failing to rescue a downed submarine can be immense, as Russia learned during the Kursk incident. In China's 2003 Ming incident, the PLAN's failure to find the doomed submarine for more than two weeks created sufficient political heat that then Chinese President Jiang Zemin was prompted to personally visit and investigate. A decade later, public scrutiny is more intense, as shown by the response to the 2011 high-speed train crash. The pressure on a Chinese government seen as unable to rescue submariners would be intense.

Broadly, there are two ways to achieve the rescue of sailors trapped in a disabled submarine. Both rely on the availability of diving bells (or submersibles) able to dock with the submarine and transfer crew to the surface. Both rely on a response that can locate and reach a downed submarine within 72 hours.

The first method is to position submarine support vessels, or submarine tender ships, within a reasonable range of operating submarines. This is the approach China has taken to date to support submarine operations close to home. In 2010 the PLAN launched a Type 926 submarine tender optimized to carry a UK-constructed LR7 submersible, the most advanced of its type in the world. But the tactical difficulty in using tenders for submarine rescue is that their presence affords competitor navies a reasonable estimate of where China's submarines are operating.

The second method of submarine rescue is to rely on a network of international partners who allow you to fly in a rescue submersible to the port nearest a disabled submarine, and then have the logistics necessary to transfer the submersible to a ship able to steam to the accident site. This was the principle behind the 2004 development of ISMERLO, the International Submarine Escape and Rescue Liaison Office. ISMERLO provides a hub to standardize submarine rescue procedures and equipment, coordinates submarine rescue exercises like Bold Monarch, and is a platform to coordinate real-time submarine rescues. China has been an observer since 2010, though has done little to deepen its involvement and provides no details of its submarine rescue capabilities to the ISMERLO database.

There may still be opportunities for international engagement as China weighs how to provide submarine rescue capabilities further afield. In a 2010 address to the Royal United Services Institute, the PLAN's then Northern Fleet Commander Vice Admiral Tian Zhong concluded that "international coordination for submarine rescue may be the best way of saving the submarine and avoiding nuclear leakage," and signaled that China was "looking forward to more extensive cooperation" in the submarine rescue field. Subsequently, Chinese naval observers attended ISMERLO, NATO, and US submarine rescue exercises. But to date China has neither fully participated in any combined submarine rescue exercises nor concluded any international agreements that establish logistics channels necessary for fly-in submarine rescue.

So when the "Great Wall 0329" operates through the Indian Ocean it will be accompanied by the Changxing Dao', a Type 925 submarine support ship. China has yet to resolve the dilemma of how to underwrite the safety of its submariners far from home. How it manages this problem will indicate much about the sort of international power China plans to be.

This piece first appeared at the Lowy Institute's Interpreter site here

TopicsSecurity RegionsAsia-Pacific

China's Climate Change Challenge

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At the UN Climate Summit this week in New York, Chinese Vice Premier Zhang Gaoli said it all: “China will make greater effort to more effectively address climate change;” announce further actions “as soon as we can;” and achieve “the peaking of total carbon dioxide emissions as early as possible.” According to oneWestern environmental NGO official, “China’s remarks at the Climate Summit go further than ever before. Vice Premier Zhang Gaoli’s announcements to strive to peak emissions ‘as early as possible’ is a welcome signal for the cooperative action we need for the Paris Agreement.” Other media outlets trumpeted: “China pledges to cut emissions at UN climate summit” and “China shifts stance on climate change.”

Really? In the face of such facts as China now emits more tonnes of carbon than the United States and European Union combined (not surprising since it consumes more coal than the entire world put together and its population is greater than that of the United States and EU combined) and, more surprisingly and less understandably, posts higher per capita emissions than the EU, Zhang’s statement seems to be an understatement. Indeed, it amounts to little more than Beijing will do as much as it can whenever it can, without providing any indication of what or when that might be. As Diplomat writer Shannon Tiezzi has noted, China’s biggest actual commitment was to pledge $6 million to promote south-south cooperation on climate change, by any measure a drop in the bucket. How is it that such a vague statement of intent can provoke such positive assessments? Without delving into the reasons that some observers are prone to jump the gun when it comes to applauding China for statements of intent as opposed to observable measures, the real question is whether there are any facts to back up such an optimistic outlook for China’s contribution to meeting the global climate change challenge.

There are indeed some positive signs. As journalist Matt Sheehan has pointed out, both Chinese coal imports and consumption dropped for the first time in a decade, and the country continues to increase the weight of nuclear, solar, wind, and natural gas in the country’s energy mix. The bad news is it isn’t clear whether the drop in coal is primarily from environmental measures to reduce coal consumption domestically (from setting coal caps and deploying tough new fines for coal miners that exceed national production levels) or from slowing Chinese economic growth; if the latter, coal consumption may well rebound if and when the Chinese economy does. Moreover, as Sheehan has reported, the drop in consumption was so slight that some analysts are reluctant to attribute any staying power to it. Also, as China shuts down power plants and coal mining in the eastern provinces, they are planning to move the plants and mines to the country’s western regions. Thus, while some of China’s major coal-related initiatives will do much to improve domestic air pollution in the coastal provinces, they won’t produce the same benefits for climate change.

More good news can be found in China’s efforts to launch a carbon trading exchange in four major cities and two provinces. In fact, Beijing has pledged that it will have a national emissions trading scheme twice the size that of the EU by 2020. Yet as a Stockholm Environment Institute study of China’s carbon emission trading plans detailed in 2012, many obstacles to a well-functioning system remain: measuring emissions more accurately, a legal infrastructure with clearly defined emission rights, permit allocation systems, trading rules, monitoring, and enforcement and accountability. The authors ask the fundamental question: “whether a carbon trading scheme—meant to be a strong market-based instrument—can function well without a mature free market economy.” Or as Australian National University climate expert Frank Jotzo has noted in reference to the Chinese system, “…an emissions trading scheme will be effective only if markets are allowed to work.” Already, concerns have been raised about the functioning of the pilot trading systems. Transparency over historic emissions data on which caps are based; the number of allowances granted; and even the names of companies getting the allowances are not always clear. As one carbon trading expert commented to the Financial Times about China’s carbon market: “It’s a black hole.”

Given the opacity and the complexity of China’s political economy, it is impossible to draw a straight line from Zhang Gaoli’s relatively weak call to climate action and anything that is occurring on the ground in China today. There are three stages to understanding Chinese policy on climate change—or on anything else for that matter: statement of intent, policy design, and policy implementation. The important thing to remember, however, is that in the end, only the last matters.

Editor's Note:This piece first appeared on CFR’s Asia Unbound blog here.

Image: Creative Commons Flickr. 

TopicsClimate Change RegionsChina

China's Self-Created Demographic Disaster Is Coming

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China is missing out on its biggest economic asset: its people.

Economist Nicholas Eberstadt estimates that, even if Beijing were to eliminate its one-child policy today, Chinese economic growth would still decline in the 2020s, because the next generation’s working-age population is already so markedly small.

Since implementation in 1979, the one-child policy has reduced China’s population by an estimated 400 million people. In addition to creating a gender imbalance, numerically favoring men over women, the policy also skewed the age demographic.

Economists estimate that China’s elderly population will increase 60 percent by 2020, even as the working-age population decreases by nearly 35 percent. This type of demographic shift is unprecedented and presents serious challenges to the economic health of the nation. Studies suggest that as a direct result of the one-child policy, China’s annual projected GDP growth rate will likely to decline from 7.2 percent in 2013 to around 6.1 percent by 2020.

Projected GDP growth rate is driven by three factors: labor, capital and total factor productivity. The one-child policy has directly impacted two of these three factors by reducing the labor supply and inadvertently decreasing the ratio of working-age population to the elderly population. As the population ages, and there are no able-bodied replacements, total factor productivity will undeniably decline.

Economic tumult in China is, at this point, inevitable—even if the Chinese government reverses the one-child policy today. Why? Because those who will constitute the working-age population of the 2020s and the 2030s have already been born; the size of this particular subset of the population cannot increase.

Although the Chinese Communist Party (CCP) announced a relaxation in the one-child policy (allowing some families where only one parent is an only child to have more than one child, as opposed to previous policy that required both parents to be only children), studies estimate that this will allow for only 1 million additional births, a meager increase in the context of China’s typical experience of 16 million births per year.

Declining birth rates also plague many others nations, including South Korea and Japan—two neighboring countries experiencing birth rates even lower than China’s mere 1.55 children per woman.

However, unlike other countries with low birth rates, China cannot rely on immigration to bridge the gap. (The United States, for instance, makes up for its below-replacement-level birth rate through immigration.) China’s decision to implement a closed immigration system and closely monitor freedom of movement (even within the country) makes solutions to the associated economic challenges extremely difficult.

The one-child policy has had several unintended consequences, including a dearth of workers, a reduced female population due to gendercide, and fewer young people to take care of a quickly aging population. Moreover, the policy has created conditions conducive to a severe regional human-trafficking and human-smuggling epidemic to compensate for the lack of Chinese women. It has already facilitated the practice of mail-order brides and created a burgeoning illegal-adoption market.

Failure to recognize the benefits of human capital—the value that each individual brings to the table, inherent and otherwise—will damn China to long-term economic stagnation, and possibly even decline.

On the 35th anniversary of the one-child policy, Beijing would do well to rethink all of its government-instituted population-control measures. Small-ball, patchwork reforms, such as the minor tweak to the one-child policy made earlier this year, are wholly inadequate for repairing the demographic train wreck they have created.

China must revamp its population-control policy, if not for the well-being of its people, then at least for the promise of a brighter economic future.

Image: Flickr/an.yonghua/CC by-sa 2.0

TopicsDemography RegionsChina

Is Australia's Economy Headed for Trouble?

The Buzz

I don’t often write about Australia, partly because Australian politics are so stable and the country such a solid partner for the United States, but also because Australia has for twenty years basically avoided the ups and downs of the world economy. Alone among rich nations, Australia was basically unaffected by the global economic and financial crises of 2008-9 and the country also has not faced the kind of long-term economic slowdown challenges that confront Europe, the United States, and Japan. Unemployment today in Australia is around 6 percent, and earlier this year it was under 6 percent. Most forecasters project that Australia will grow by at least 3 percent in 2014, which is well above projections for most other developed economies.

The prolonged boom in Australia has led many Australians, including not a few Australian leaders, to think that the prosperity can go on forever, that Australia has found a way to defy some of the challenges that have slowed other rich economies. Any visitor to Melbourne or Sydney or even Darwin, in northern Australia, can see for themselves the enormous boom in residential and commercial construction, and the skyrocketing prices for even the simplest apartments and houses. When I was in Darwin, a city of about 130,000 people, homes and apartments were going up everywhere; Darwin is the closest city to a group of large liquid natural gas processing plants piping in offshore gas. Twenty years ago, when I visited Darwin, it looked like a tiny, run-down Midwestern American suburb, with the only excitement coming from the markets on the edge of town where immigrants from Papua New Guinea and other Pacific islands sold their wares.

But a series of recent commentaries and new books reminded me of what that visit to Darwin sparked in my mind – the idea that Australia’s growth, though impressive, seems a little too close to the frothy, wild, speculative growth that happened in Thailand in the 1990s and the United States in the mid-2000s. A new book by consultant and macroeconomist Lindsay David, Australia: Boom to Bust, argues that Australia’s housing market is wildly overpriced and is going to crash, and that overall Australia’s economic base is too narrow–housing, exports of natural resources to China, and (to some extent) financial services.

Bloomberg View columnist William Pesek recently wrote an excellent commentary on the book.  Pesek too notes that Australia is the most dependent of any major economy on China’s growth, which is headed down as China’s economy cools and its own housing market cools. Pesek concurs that, beyond simply being too dependent on China, the Australian economy also has become far too dependent on exporting natural resources and on housing sales. He doesn’t mention another point: Natural resources are not renewable, and dependency on natural resources does little to foster innovation and entrepreneurial activity. Pesek does note that the average price of housing in Sydney as a multiple of average income–a standard metric used to see whether housing is overpriced–now stands at nine. By comparison, the price of housing in Tokyo, hardly a cheap city, as a multiple of income stands at 4.4.

Meanwhile, in the past four weeks a series of major Australian companies and financial institutions also have sounded warnings about the Australian economy. Earlier this week, BHP Billiton Mitsubishi Alliance, Australia’s giant coal mining company, cut 7 percent of its workforce because of declining demand for coal from China, which takes in over half of all natural resources exports from Australia. (Two decades ago, China took in only about 10 percent of Australian natural resources.) In addition, earlier this week the treasurer of Western Australia, the Australian state producing the majority of the country’s iron and coal and other resources, expressed significant worry at the declining world prices of these commodities, a decline that stems from oversupply and declining demand in China. In addition to that warning, Australia’s own central bank recently warned that the Australian economy was becoming subject to increasing speculation over housing, speculation that could overheat the economy and cause serious imbalances.

These forecasts should be a warning to Australian policymakers as well–and to Australian home buyers, builders, and the Australian population as a whole. But as Pesek notes in his commentary, when he faced down Australian federal treasurer Joe Hockey in an interview, and asked him about whether Australia faced a property bubble, he got little response. The minister dismissed concerns about the Australian economy and projected continued robust growth for the “lucky country.” “It is just an easy mantra for international commentators and for analysts based overseas to say, ‘Well, there’s a bit of a housing bubble emerging in Australia,’” Hockey told Pesek. “That is a rather lazy analysis because fundamentally we don’t have enough supply to meet demand.”

Indeed, the entire government of Prime Minister Tony Abbott seems in denial about Australia’s vulnerability to any downturn in Chinese growth, and the country’s overdependence on exporting natural resources to China and overpriced housing sales for its decades-long growth. But at some point, probably quite soon, the lucky country’s luck is going to run out, and Abbott’s government will need a real response.

This piece first appeared in CFR’s Asia Unbound Blog here.

Image: Creative Commons/Flickr. 

TopicsEconomics RegionsAustralia

Is the "Liberal International Order" Dying?

The Buzz

President Obama’s speech to the United Nations was a spirited defense of the current world order and America’s role within that order. It was an acknowledgement that the liberal internationalist status quo is far from invulnerable and, in fact, is gravely under threat; and a warning that the widening and deepening of international cooperation, peace and security require good intentions and assiduous effort on behalf of nations.  Today’s relatively benign world order is the result of farsighted decision-making by past leaders, Obama told his audience; its maintenance is now the charge of today’s generation.

Obama’s stark warning was that all is not well at the core of the international system.  The benefits put in place by the victors of World War II are in jeopardy.  Autonomy, territorial integrity, security from predation, the right of self-determination and the conditions for economic growth and social flourishing—all of these supposed benefits of liberal international order are at risk of being taken away.  To blame for this historic threat to international progress (and chief among the president’s bêtes noire) are autocratic Russia and the fanatical militants of ISIS: Moscow’s annexation of Crimea and its meddling in Eastern Ukraine are representative of an aggressive way of conducting international affairs that has no place in today’s world, while ISIS’s brand of brutal religious fanaticism is similarly beyond the pale of acceptable behavior.

Against aggression, disorder, division and hatred stand the United States and its allies.  While Moscow engages in conquest and seeks to undermine the security of its neighbors, America devotes its energy towards fighting Ebola.  Russia imposes itself through the force of arms whereas the U.S. is comfortable with the use of diplomacy to resolve its differences with Iran.  The countries of Eastern Europe and Central Asia are drawn into Russia’s orbit through fear and intimidation but the United States acts as a benign hegemon in the Asia-Pacific, fostering peace and security through the rigid application of commonly understood “rules of the road.”  And although the U.S. is not shy of using its military might, it does so only in service of noble goals—in order to curtail the “horrific crimes” committed by ISIS militants, for example—and even then only with the cooperation of other like-minded states.

Obama cited this summer’s events in Ferguson, Missouri as evidence that Americans do not always live up to their ideals.  Skeptics in the audience of the UN General Assembly, however, will have been able to think of their own (foreign policy) examples of U.S. hypocrisy: the invasion of Iraq in 2003; the willingness to sanction the independence of Kosovo against a chorus of protestation from Belgrade and elsewhere; the support lent to those who ousted the elected leadership of Ukraine earlier this year; the widespread use of drone warfare in spite of sizable civilian casualties and weighty ethical (and legal) concerns; and so on.

In short, not all world leaders will be won over by the president’s portrayal of America as the knight in shining armor.  The truth is that even some of America’s closest military allies are mere fellow travelers rather than devotees to liberal internationalism; several of Washington’s most valued strategic partners are allies not out of conviction but rather because of a parochial interest in leveraging American power in the service of regional goals: the leaders of Sunni Arab states who fear the expanded influence of Iran, for example, or the nervous governments of East Asia living in the ever-growing shadow of a rising China.  Do these states quake at the prospect of the world losing liberalism as an organizing philosophy?  Or is it the loss of U.S. security guarantees that motivate them?

Finding partners with an indigenous belief in maintaining the core of the U.S.-led international order will be no easy task.  In this sense, Obama and his successors truly have their work cut out for them.  The timid—in some cases, non-existent—criticism leveled against Russia in the wake of its annexation of Crimea (perhaps the most flagrant challenge to liberal norms of recent times) only belies just how fragile support for the current setup really is.  When push comes to shove, who in the world is willing to defend what America and its allies built in 1945?

In the long run, the balance of power between supporters of the American world order and its discontents will come to define international relations.  For his part, of course, Obama has never doubted the importance of U.S. leadership in the modern world.  It is predictable that he would stand up for it. Whether or not his speech will enjoin others to commit to liberal order’s defense in a meaningful way, however, remains to be seen.

Image: U.S. Air Force Flickr. 

TopicsSecurityPolitics RegionsUnited States