Page 1

BUSINESSASIA ISSUE #15 SPRING 2016 | WWW.CORNELLBUSINESSASIACOM

Cover Article Internet, Politics, and Culture

CHINA’S IMPOSITION OF POLITICS ON CULTURE By: Sarah Chekfa

BAJ 2015 Spring.indd 1

Faulty Modi-fication By: Benjamin Zehr

Nukes in North Korea By: Nicole Schmit

Billionaire’s Playground By: Angela Zhang

4/11/2016 6:17:48 PM


EDITOR’S LETTER

contents BUSINESSASIA

5

China to Consider Orwellian Future

8 12

China’s New Year Resolution

EDITOR’S LETTER

Editor’s Letter

I

By: Nicole Kwok

By: Brandon Greer

People from China, They Love Me. By: Steven Salenik

Imposition of Politics 14 onChina’s Culture By: Sarah Chekfa

18 One Belt One Road 20 Billionaire’s Playground 23 26 Tsai to Make History Scene 28 ofThetheSocioeconomic Philippines post-Haiyan China’s Silicon Valley By: Catherine McAnney

05

By: Steven Salenik

By: Angela Zhang

CHINA’S INTERNET

By: Natalie Leung

By: Aditya Shukla

30 Faulty Modi-Fication? 33 Iranian Natural Gas and India 36 Indian E-Commerce Bubble or 38 Boom? 40 Nukes in North Korea Is Myanmar ‘Feeling the Bern’? By: Harrison Tighe

IMPOSITION

14

n examining the international political climate, increasing polarization and disillusionment are undeniable trends. From Hong Kong following the Umbrella Revolution, to Malaysia in the wake of the fallout from the 1MDB scandal, to Taiwan’s most recent victory by the Democratic Progressive Party over the incumbent pro-Beijing party, the desires of the world’s citizens to see political change are clearly demonstrated. Perhaps the most visible example of diverging ideology can be observed through the U.S. presidential campaign, where the leading opposing candidates share no common ground and have issued outright refusals to compromise. Around the world, voters seem to be rejecting the mainstream parties and moderate politics that have left them disheartened and are turning instead toward more radical alternatives. Easy access to information in the age of digitization has accelerated shifts in political thought, by enabling the masses to enter politics. The formerly disenfranchised are demanding a voice, and for the first time in history, political happenings have become truly viral. The recent Panama Papers leak provides the perfect demonstration of this phenomenon; never before has there been such widespread, global backlash against the rank hypocrisy of the political and business elite. In response to public outrage, over 20 nations have announced their intent to investigate the information contained in the leaks which implicates multiple heads of state, including Xi Jinping, Vladimir Putin, and David Cameron. Viral politics may introduce a new level of accountability as the masses demonstrate their willingness to retaliate against the objectionable double-standards the top echelons of society shamelessly enjoy. On the other hand, political polarization has been known to cripple the democratic process and opens the door to autocracy. We can only wait and see what will come of this new age in global political disenchantment and increasing political involvement and polarization. We are proud to present this issue of the Business Asia Journal and hope that you find the articles interesting and topical, given current geopolitical, macroeconomic, and business trends. As always, please do not hesitate to reach to BusinessAsia.Journal@gmail.com with feedback, questions, or comments. To conclude, I would like to personally thank the writers of Business Asia Journal, the President, Sanjeev Dhara, and the Director of Design, Arthur Teng, for their diligence and hard work in making this issue a reality. It has truly been an honor to serve as Editor-in-Chief these last two semesters, and I look forward to supporting my successor in managing another successful installment of Business Asia Journal next fall. Sincerely,

2

BAJ 2015 Spring.indd 2-3

Nicole R. Schmit Editor-in-Chief

By: Sanjeev Dhara

Special thanks to our sponsors!

By: Ahaan Nachane

By: Nicole R. Schmit

33

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

By: Benjamin Zehr

3

4/11/2016 6:17:59 PM


EDITOR’S LETTER

contents BUSINESSASIA

5

China to Consider Orwellian Future

8 12

China’s New Year Resolution

EDITOR’S LETTER

Editor’s Letter

I

By: Nicole Kwok

By: Brandon Greer

People from China, They Love Me. By: Steven Salenik

Imposition of Politics 14 onChina’s Culture By: Sarah Chekfa

18 One Belt One Road 20 Billionaire’s Playground 23 26 Tsai to Make History Scene 28 ofThetheSocioeconomic Philippines post-Haiyan China’s Silicon Valley By: Catherine McAnney

05

By: Steven Salenik

By: Angela Zhang

CHINA’S INTERNET

By: Natalie Leung

By: Aditya Shukla

30 Faulty Modi-Fication? 33 Iranian Natural Gas and India 36 Indian E-Commerce Bubble or 38 Boom? 40 Nukes in North Korea Is Myanmar ‘Feeling the Bern’? By: Harrison Tighe

IMPOSITION

14

n examining the international political climate, increasing polarization and disillusionment are undeniable trends. From Hong Kong following the Umbrella Revolution, to Malaysia in the wake of the fallout from the 1MDB scandal, to Taiwan’s most recent victory by the Democratic Progressive Party over the incumbent pro-Beijing party, the desires of the world’s citizens to see political change are clearly demonstrated. Perhaps the most visible example of diverging ideology can be observed through the U.S. presidential campaign, where the leading opposing candidates share no common ground and have issued outright refusals to compromise. Around the world, voters seem to be rejecting the mainstream parties and moderate politics that have left them disheartened and are turning instead toward more radical alternatives. Easy access to information in the age of digitization has accelerated shifts in political thought, by enabling the masses to enter politics. The formerly disenfranchised are demanding a voice, and for the first time in history, political happenings have become truly viral. The recent Panama Papers leak provides the perfect demonstration of this phenomenon; never before has there been such widespread, global backlash against the rank hypocrisy of the political and business elite. In response to public outrage, over 20 nations have announced their intent to investigate the information contained in the leaks which implicates multiple heads of state, including Xi Jinping, Vladimir Putin, and David Cameron. Viral politics may introduce a new level of accountability as the masses demonstrate their willingness to retaliate against the objectionable double-standards the top echelons of society shamelessly enjoy. On the other hand, political polarization has been known to cripple the democratic process and opens the door to autocracy. We can only wait and see what will come of this new age in global political disenchantment and increasing political involvement and polarization. We are proud to present this issue of the Business Asia Journal and hope that you find the articles interesting and topical, given current geopolitical, macroeconomic, and business trends. As always, please do not hesitate to reach to BusinessAsia.Journal@gmail.com with feedback, questions, or comments. To conclude, I would like to personally thank the writers of Business Asia Journal, the President, Sanjeev Dhara, and the Director of Design, Arthur Teng, for their diligence and hard work in making this issue a reality. It has truly been an honor to serve as Editor-in-Chief these last two semesters, and I look forward to supporting my successor in managing another successful installment of Business Asia Journal next fall. Sincerely,

2

BAJ 2015 Spring.indd 2-3

Nicole R. Schmit Editor-in-Chief

By: Sanjeev Dhara

Special thanks to our sponsors!

By: Ahaan Nachane

By: Nicole R. Schmit

33

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

By: Benjamin Zehr

3

4/11/2016 6:17:59 PM


CHINA

President’s Letter

T

he Spring 2016 semester has seen Business Asia Journal focus on its future due to the impending departures of a variety of key figures. This academic year has seen us add a number of young writers, who I hope will drive the magazine forward in future years. Furthermore, we have made an addition to the ranks of our design team, which I believe is an important step in preparing for the eventual departure of Arthur Teng, who has served as the lead designer of the magazine over the past few semesters. As the magazine goes to print, we are also entering a new phase in our search for the new President and Editor-in-Chief of the magazine. Alongside our advisor, Professor Pepinsky, I have been working to identify individuals who we believe can best carry on the attitude and approach that has led to our magazine’s success in the past few years. Although we were not able to host the second edition of the Speaker Series this academic year, I do believe that important strides have been taken to ensure that future Presidents of the organization can successfully pull off such an event. To begin with, our relationship with the Einaudi Center has been more formalized and after meeting with the new director, Professor Hirokazu Miyazaki, I am confident that Business Asia Journal will receive the backing and endorsement it needs in the future. Furthermore, the addition of over four new younger writers, who will be with our organization for at least another two years, means that we will have the requisite pool of talent and ideas needed to pull of such an event. I intend to use to the remaining time on campus with the incoming President to jumpstart our planning for the next edition of the event. I would also like to use this opportunity to thank all of the writers and readers who have helped me both in my role as President and in my previous time as a writer within Business Asia Journal. I feel that our magazine retains a tremendous ability to grow and I sincerely hope that you enjoy the variety of interesting articles in this edition of our journal.

BUSINESS ASIA • FALL 2015

Sanjeev Dhara

4

BAJ 2015 Spring.indd 4-5

China to Consider Orwellian Future

B

y 2020, the Chinese government claims it will enforce a new social credit system that will completely revolutionize the way Internet surveillance is used to promote patriotic ideals. This system calculates an individual’s potential for positive impact to society through an algorithm that tracks a citizen’s every move online. Standing at the intersection between big data and big brother, this Orwellian system has the potential to turn life into a government-mandated video game. A game where people gain or lose points based on their everyday actions, encompassing everything from purchase decisions, to what they say online, to whom they include in their circle of friends. One of China’s boldest and most creative ideas yet, this social credit system uses positive reinforcement (by rewarding those who promote government ideals), as opposed to fear (like mass censorship, which can lead to resentment or rebellion), to gain popular appeal.

HOW IT WORKS

In this system (given the innocuous

name “sesame credit”), everyone is given a credit score somewhere between 350 and 950. This score will be linked with the national identity card system when sesame credit becomes mandatory in 2020. While in some ways sesame credit is comparable to the U.S. credit rating system that measures one’s ability to pay, the joint partnership between the government and the two Chinese Internet giants Alibaba and Tencent allows for a wider range of assessment criteria that rely heavily on more “social” factors. The reasoning behind this new type of evaluation is the government’s desire to increase lending to citizens who want to obtain consumer credit or business loans but have no financial credit history. What makes the idea of social credit different is its reliance on non-traditional indicators to predict whether a citizen is creditworthy or not. The actual connection between social media presence and creditworthiness, however, remains unclear. It seems likely that the government will use sesame credit as a tool to incentivize what it considers to be trustworthy behavior.

NICOLE KWOK

by

Writer

RATING CRITERIA Currently, Sesame Credit is opt-in, and those who are interested can download the application on their electronic devices. The app shows a radar chart illustrating the breakdown of an individual’s rating based on five factors: 1. Credit History. This factor is related to the U.S.-type credit rating system in that it looks at a citizen’s past payment history, and whether the individual had paid credit card bills, utility bills, and other debts in a timely manner. 2. Behavior and Preference. Collaboration with Alibaba and Tencent allows this system to monitor the individual’s online behavior, including the type of products they purchase. This factor is based on websites visited and general online activity. 3. Fulfillment Capacity. This assesses the individual’s ability to comply with financial contracts, which includes insurance for cars, properties, etc. 4. Identity Characteristics. This factor calculates the so-called “trustworthiness” component of the system. It checks the

BUSINESS ASIA • FALL 2015

PRESIDENT’S LETTER

5

4/11/2016 6:18:01 PM


CHINA

President’s Letter

T

he Spring 2016 semester has seen Business Asia Journal focus on its future due to the impending departures of a variety of key figures. This academic year has seen us add a number of young writers, who I hope will drive the magazine forward in future years. Furthermore, we have made an addition to the ranks of our design team, which I believe is an important step in preparing for the eventual departure of Arthur Teng, who has served as the lead designer of the magazine over the past few semesters. As the magazine goes to print, we are also entering a new phase in our search for the new President and Editor-in-Chief of the magazine. Alongside our advisor, Professor Pepinsky, I have been working to identify individuals who we believe can best carry on the attitude and approach that has led to our magazine’s success in the past few years. Although we were not able to host the second edition of the Speaker Series this academic year, I do believe that important strides have been taken to ensure that future Presidents of the organization can successfully pull off such an event. To begin with, our relationship with the Einaudi Center has been more formalized and after meeting with the new director, Professor Hirokazu Miyazaki, I am confident that Business Asia Journal will receive the backing and endorsement it needs in the future. Furthermore, the addition of over four new younger writers, who will be with our organization for at least another two years, means that we will have the requisite pool of talent and ideas needed to pull of such an event. I intend to use to the remaining time on campus with the incoming President to jumpstart our planning for the next edition of the event. I would also like to use this opportunity to thank all of the writers and readers who have helped me both in my role as President and in my previous time as a writer within Business Asia Journal. I feel that our magazine retains a tremendous ability to grow and I sincerely hope that you enjoy the variety of interesting articles in this edition of our journal.

BUSINESS ASIA • FALL 2015

Sanjeev Dhara

4

BAJ 2015 Spring.indd 4-5

China to Consider Orwellian Future

B

y 2020, the Chinese government claims it will enforce a new social credit system that will completely revolutionize the way Internet surveillance is used to promote patriotic ideals. This system calculates an individual’s potential for positive impact to society through an algorithm that tracks a citizen’s every move online. Standing at the intersection between big data and big brother, this Orwellian system has the potential to turn life into a government-mandated video game. A game where people gain or lose points based on their everyday actions, encompassing everything from purchase decisions, to what they say online, to whom they include in their circle of friends. One of China’s boldest and most creative ideas yet, this social credit system uses positive reinforcement (by rewarding those who promote government ideals), as opposed to fear (like mass censorship, which can lead to resentment or rebellion), to gain popular appeal.

HOW IT WORKS

In this system (given the innocuous

name “sesame credit”), everyone is given a credit score somewhere between 350 and 950. This score will be linked with the national identity card system when sesame credit becomes mandatory in 2020. While in some ways sesame credit is comparable to the U.S. credit rating system that measures one’s ability to pay, the joint partnership between the government and the two Chinese Internet giants Alibaba and Tencent allows for a wider range of assessment criteria that rely heavily on more “social” factors. The reasoning behind this new type of evaluation is the government’s desire to increase lending to citizens who want to obtain consumer credit or business loans but have no financial credit history. What makes the idea of social credit different is its reliance on non-traditional indicators to predict whether a citizen is creditworthy or not. The actual connection between social media presence and creditworthiness, however, remains unclear. It seems likely that the government will use sesame credit as a tool to incentivize what it considers to be trustworthy behavior.

NICOLE KWOK

by

Writer

RATING CRITERIA Currently, Sesame Credit is opt-in, and those who are interested can download the application on their electronic devices. The app shows a radar chart illustrating the breakdown of an individual’s rating based on five factors: 1. Credit History. This factor is related to the U.S.-type credit rating system in that it looks at a citizen’s past payment history, and whether the individual had paid credit card bills, utility bills, and other debts in a timely manner. 2. Behavior and Preference. Collaboration with Alibaba and Tencent allows this system to monitor the individual’s online behavior, including the type of products they purchase. This factor is based on websites visited and general online activity. 3. Fulfillment Capacity. This assesses the individual’s ability to comply with financial contracts, which includes insurance for cars, properties, etc. 4. Identity Characteristics. This factor calculates the so-called “trustworthiness” component of the system. It checks the

BUSINESS ASIA • FALL 2015

PRESIDENT’S LETTER

5

4/11/2016 6:18:01 PM


accuracy of a citizen’s personal information. 5. Social Relationships. An individual’s family, friends, and acquaintances will influence his/her credit score. It is based on the assumption that if a citizen is a loyal citizen, then those in his/her social network tend to also be loyal citizens. The way these criteria set the sesame credit system apart from the credit systems in other countries sheds light on a more controversial topic. In a sense, China has taken up the role of a strict parent, and is treating its citizens as a parent might treat compliant children. While government officials claim these extra criteria are used to cover a wider range of relevant personal information than other traditional credit systems, in reality, they are simply providing justification for closely and publicly monitoring every component of their citizens’ lives.

BUSINESS ASIA • FALL 2015

RIGHT TO PRIVACY

6

Early adopters of the sesame credit system have reacted positively, but this may be due to issues of self-selection. These early applicants will tend to be patriotic and eager to show their loyalty to the party line. When sesame credit becomes mandatory for all citizens, there will most likely be stronger opposition to the added personal surveillance. Mandatory sesame credit makes the government’s hand blatantly visible, and is a painfully palpable reminder that the government is bent on controlling the

BAJ 2015 Spring.indd 7

behavior of all its citizens. In China, the right to privacy is rapidly deteriorating. Now that the Chinese government is making known its desires to monitor all online actions and transactions, the public may begin to feel a greater sense of oppression and paranoia than before. The Chinese government is attempting to justify the sesame credit system by propagating the notion that only those who have information to hide are justified in fearing the introduction of the new system, whereas honest, lawabiding citizens will benefit. However, the real issue is that the definitions of “wrong” and “right” are not developed in accordance with the values and beliefs of Chinese society as a whole, but instead by the Chinese government and the Communist Party. As such, a possible result of a mandatory sesame credit system is that the government’s hopes and plans may backfire; instead of grooming a mass of perfect, obedient citizens, the implementation of the system may cause citizens to become resentful and more critical of the government. Limiting the right to privacy (or in this case, revoking the right entirely) has international implications as well. Many western nations are already highly critical of public surveillance and censorship in China. The introduction of sesame credit will publicly acknowledge a drastic increase in the degree of surveillance and will surely invite international outrage. This is especially the case in countries

such as the U.S., where personal freedom is highly valued. Another step in the wrong direction regarding human rights in China would undoubtedly worsen Sino-U.S. relations and amplify international tensions.

KEY ASPECTS Despite the setbacks China will face if the government chooses to make sesame credit mandatory, the sesame credit system is also one of China’s grandest population control initiatives to date. What makes the sesame credit system so impressive revolves around three unique aspects of the system: the use of positive reinforcement, partnership with internet giants, and incorporation of social networks.

00 Positive Reinforcement

Essentially, the social credit system incentivizes obedient behavior (as defined by the government) by rewarding points to those who exhibit patriotic characteristics. Those who have qualities of a “good” citizen will be more likely to gain access to better education, healthcare, and employment. According to the Financial Times, a higher rating will give a citizen access to the fast lane in airport security, swifter approval of foreign visas, and even extend to providing assistance in adopting a new pet. This setup should be particularly effective in regulating the public’s behavior as it rewards followers of the party line with tangible benefits.

00 Internet Giants

If the government were to go through with mandatory implementation by 2020, it would need to gain access to private information individuals provide online. Unlike companies headquartered in the U.S., like Google or Facebook, Chinese companies are more willing to cooperate with the government by providing clients’ private information. With internet giants such as Alibaba and Tencent backing the Chinese Communist Party, the government has almost free rein over what they can do with consumer information.

00 Social Networks

To combat opposition, the Chinese government has incorporated the influence of social connections into the system in order to ostracize those who do not share the government’s opinions. Since one of the criterion that affect an individual’s sesame score is their network of friends and acquaintances, people will feel pressure to conform for the sake of keeping up friendly relations with their contacts. For example, if someone were to post negative comments about the government, their score would go down, subsequently lowering the scores of their friends and family who associate with them online. This would provide incentives to their friends and family to break off their relationship. For individuals with high scores, a greater number of people will be incentivized to associate with them. Through this aspect of the system, instead of the government having to directly intervene to impede the spread of rebellious ideas, societal pressure will help complete the job for them.

IMPLICATIONS In addition to its direct impact on Chinese citizens, the sesame credit system has wider implications for businesses, investors, and political dissidents both inside and outside of mainland China. Since buying foreign products can lower an individual’s score, sellers of goods

from major Chinese trading partners, like Japan, will potentially lose business. On the other hand, domestic Chinese suppliers will likely benefit from a boost in sales and profit. Another possible outcome of sesame credit is that effective results in the mainland may prompt Beijing to try to implement the system in other regions under its control, such as Hong Kong and Macao. However, in light of recent political upsets such as Hong Kong’s Umbrella Revolution in late 2014, it seems that Hong Kong citizens would strongly oppose such a policy. Given that a significant of Hong Kong’s population would be willing to stand against intrusive policies from Beijing, the effectiveness of the sesame credit system would likely be drastically reduced. After all, the premise of the system is based upon the notion that society will favor individuals with high scores, but in an environment where the majority do not consider a high score a sign of accomplishment, the entire system would collapse. According to current reports, a low score may lead to consequences such as restrictions on job placement, slower Internet speeds, and an inability to receive a loan or sign a lease—but only if the private sector cooperates to enforce these rules. Private sector cooperation is far from guaranteed in locations other than the mainland, where the Chinese Communist Party has limited influence.

“Standing at the intersection between big data and big brother, this Orwellian system has the potential to turn life into a sort of video game” As the sesame credit system is still in its developing and trial stages, there remains a large degree of uncertainty regarding how the system will play out when it becomes compulsory in 2020.

Within China, eager citizens who have already begun participating seem to approve. As news of this Orwellian system spreads abroad, however, there will be increasing concern about what this means for both the Chinese government and for the governments of other countries. Taking all factors into consideration, it is possible that the sesame credit system is just yet another of the Chinese Communist Party’s propaganda stunts that will never be fully implemented. There are simply too many obstacles the government would have to overcome, including gaining popular acceptance and enforcing system adoption among more reluctant users. In terms of enforcement, since sesame credit is reliant on online social presence, unhappy citizens may simply elect to “go offline” and almost completely thwart the government’s attempts to look into their private lives. On the other hand, an important question the government needs to consider is who they believe they can coerce or convince through the sesame credit system. The system seems targeted towards those who already support the party, and will likely not change the views of those who oppose it. Additionally, it is unlikely that most citizens would be willing to give up a portion of their personal freedom to receive a few small rewards or promotions. The government must carefully contemplate how the public will react to this new policy, as it is possible that sesame credit could end up provoking popular resentment rather than increased obedience. There are still many questions left unanswered, and as unlikely as it is that this policy will be implemented, we will only know for certain as the year 2020 approaches. | BA Nicole Kwok is a freshman in the College of Engineering. She was born and raised in Hong Kong, and worked at an alternative asset management firm and retail marketing and strategy firm.

BUSINESS ASIA • FALL 2015

CHINA

7

4/11/2016 6:18:03 PM


accuracy of a citizen’s personal information. 5. Social Relationships. An individual’s family, friends, and acquaintances will influence his/her credit score. It is based on the assumption that if a citizen is a loyal citizen, then those in his/her social network tend to also be loyal citizens. The way these criteria set the sesame credit system apart from the credit systems in other countries sheds light on a more controversial topic. In a sense, China has taken up the role of a strict parent, and is treating its citizens as a parent might treat compliant children. While government officials claim these extra criteria are used to cover a wider range of relevant personal information than other traditional credit systems, in reality, they are simply providing justification for closely and publicly monitoring every component of their citizens’ lives.

BUSINESS ASIA • FALL 2015

RIGHT TO PRIVACY

6

Early adopters of the sesame credit system have reacted positively, but this may be due to issues of self-selection. These early applicants will tend to be patriotic and eager to show their loyalty to the party line. When sesame credit becomes mandatory for all citizens, there will most likely be stronger opposition to the added personal surveillance. Mandatory sesame credit makes the government’s hand blatantly visible, and is a painfully palpable reminder that the government is bent on controlling the

BAJ 2015 Spring.indd 7

behavior of all its citizens. In China, the right to privacy is rapidly deteriorating. Now that the Chinese government is making known its desires to monitor all online actions and transactions, the public may begin to feel a greater sense of oppression and paranoia than before. The Chinese government is attempting to justify the sesame credit system by propagating the notion that only those who have information to hide are justified in fearing the introduction of the new system, whereas honest, lawabiding citizens will benefit. However, the real issue is that the definitions of “wrong” and “right” are not developed in accordance with the values and beliefs of Chinese society as a whole, but instead by the Chinese government and the Communist Party. As such, a possible result of a mandatory sesame credit system is that the government’s hopes and plans may backfire; instead of grooming a mass of perfect, obedient citizens, the implementation of the system may cause citizens to become resentful and more critical of the government. Limiting the right to privacy (or in this case, revoking the right entirely) has international implications as well. Many western nations are already highly critical of public surveillance and censorship in China. The introduction of sesame credit will publicly acknowledge a drastic increase in the degree of surveillance and will surely invite international outrage. This is especially the case in countries

such as the U.S., where personal freedom is highly valued. Another step in the wrong direction regarding human rights in China would undoubtedly worsen Sino-U.S. relations and amplify international tensions.

KEY ASPECTS Despite the setbacks China will face if the government chooses to make sesame credit mandatory, the sesame credit system is also one of China’s grandest population control initiatives to date. What makes the sesame credit system so impressive revolves around three unique aspects of the system: the use of positive reinforcement, partnership with internet giants, and incorporation of social networks.

00 Positive Reinforcement

Essentially, the social credit system incentivizes obedient behavior (as defined by the government) by rewarding points to those who exhibit patriotic characteristics. Those who have qualities of a “good” citizen will be more likely to gain access to better education, healthcare, and employment. According to the Financial Times, a higher rating will give a citizen access to the fast lane in airport security, swifter approval of foreign visas, and even extend to providing assistance in adopting a new pet. This setup should be particularly effective in regulating the public’s behavior as it rewards followers of the party line with tangible benefits.

00 Internet Giants

If the government were to go through with mandatory implementation by 2020, it would need to gain access to private information individuals provide online. Unlike companies headquartered in the U.S., like Google or Facebook, Chinese companies are more willing to cooperate with the government by providing clients’ private information. With internet giants such as Alibaba and Tencent backing the Chinese Communist Party, the government has almost free rein over what they can do with consumer information.

00 Social Networks

To combat opposition, the Chinese government has incorporated the influence of social connections into the system in order to ostracize those who do not share the government’s opinions. Since one of the criterion that affect an individual’s sesame score is their network of friends and acquaintances, people will feel pressure to conform for the sake of keeping up friendly relations with their contacts. For example, if someone were to post negative comments about the government, their score would go down, subsequently lowering the scores of their friends and family who associate with them online. This would provide incentives to their friends and family to break off their relationship. For individuals with high scores, a greater number of people will be incentivized to associate with them. Through this aspect of the system, instead of the government having to directly intervene to impede the spread of rebellious ideas, societal pressure will help complete the job for them.

IMPLICATIONS In addition to its direct impact on Chinese citizens, the sesame credit system has wider implications for businesses, investors, and political dissidents both inside and outside of mainland China. Since buying foreign products can lower an individual’s score, sellers of goods

from major Chinese trading partners, like Japan, will potentially lose business. On the other hand, domestic Chinese suppliers will likely benefit from a boost in sales and profit. Another possible outcome of sesame credit is that effective results in the mainland may prompt Beijing to try to implement the system in other regions under its control, such as Hong Kong and Macao. However, in light of recent political upsets such as Hong Kong’s Umbrella Revolution in late 2014, it seems that Hong Kong citizens would strongly oppose such a policy. Given that a significant of Hong Kong’s population would be willing to stand against intrusive policies from Beijing, the effectiveness of the sesame credit system would likely be drastically reduced. After all, the premise of the system is based upon the notion that society will favor individuals with high scores, but in an environment where the majority do not consider a high score a sign of accomplishment, the entire system would collapse. According to current reports, a low score may lead to consequences such as restrictions on job placement, slower Internet speeds, and an inability to receive a loan or sign a lease—but only if the private sector cooperates to enforce these rules. Private sector cooperation is far from guaranteed in locations other than the mainland, where the Chinese Communist Party has limited influence.

“Standing at the intersection between big data and big brother, this Orwellian system has the potential to turn life into a sort of video game” As the sesame credit system is still in its developing and trial stages, there remains a large degree of uncertainty regarding how the system will play out when it becomes compulsory in 2020.

Within China, eager citizens who have already begun participating seem to approve. As news of this Orwellian system spreads abroad, however, there will be increasing concern about what this means for both the Chinese government and for the governments of other countries. Taking all factors into consideration, it is possible that the sesame credit system is just yet another of the Chinese Communist Party’s propaganda stunts that will never be fully implemented. There are simply too many obstacles the government would have to overcome, including gaining popular acceptance and enforcing system adoption among more reluctant users. In terms of enforcement, since sesame credit is reliant on online social presence, unhappy citizens may simply elect to “go offline” and almost completely thwart the government’s attempts to look into their private lives. On the other hand, an important question the government needs to consider is who they believe they can coerce or convince through the sesame credit system. The system seems targeted towards those who already support the party, and will likely not change the views of those who oppose it. Additionally, it is unlikely that most citizens would be willing to give up a portion of their personal freedom to receive a few small rewards or promotions. The government must carefully contemplate how the public will react to this new policy, as it is possible that sesame credit could end up provoking popular resentment rather than increased obedience. There are still many questions left unanswered, and as unlikely as it is that this policy will be implemented, we will only know for certain as the year 2020 approaches. | BA Nicole Kwok is a freshman in the College of Engineering. She was born and raised in Hong Kong, and worked at an alternative asset management firm and retail marketing and strategy firm.

BUSINESS ASIA • FALL 2015

CHINA

7

4/11/2016 6:18:03 PM


CHINA

The 13th five-year plan—few surprises

China’s New Year Resolution An Analysis of China’s Economic Movements “Many well-established secular trends in China will continue in 2016. The service economy’s expansion is perhaps most prominent among them. In any case, a cumulative productivity analysis of China signals its continued force and flexibility in the global economy.” BRANDON GREER

by

Writer

BAJ 2015 Spring.indd 8-9

Much of China’s 13th five-year plan will seem pretty familiar, as it has been flagged in advance at the Fifth Plenum and elsewhere. Perhaps the only challenge will be to interpret the plan’s intent clearly through the new “party speak” now coming to dominate government pronouncements. The GDP growth target will still be six percent–plus, which will be softened a bit but not eliminated by parallel quality-of-life goals: the environment, health, income, and the like. Achieving the growth target will remain the core objective of fiscal and monetary policies, so expect lower interest rates and pressure on the exchange rate versus the US dollar in 2016. Financial reforms aimed at moving more of the economy toward a market-based allocation of capital will continue. Meanwhile, there will be more progress on interest-rate deregulation, the IPO process (registration rather than approval), permitting new entrants (especially from the tech sector and from abroad) into financial services, and

reimplementing laws suspended in the summer of 2015. The plan will ostensibly promote decentralization, but the reality is likely to be greater centralization. More infrastructure will be built, mainly to enhance intraregional development—for example, around Greater Beijing. Green initiatives, reinforced by December 2015 commitments made in Paris and the “red alert” in Beijing that same month, will take center stage. The central government will make such big and visible commitments to its citizens that local authorities will have to mount a serious effort to deliver. There will be tougher emissions standards and more spending to support the development of nonfossil fuels, green finance will be available, and both private-sector and state-owned companies will rebrand their ongoing initiatives as green. China will explicitly build new export engines from its emerging global leadership in green products; for example, expect to see lots of Chinese-made air-filtration products in Delhi and the rest of India in 2016. Beyond green initiatives, going global will remain a key theme, as detailed in the One Belt, One Road program. Finally, the plan will recognize China’s success in raising labor productivity over the past decade and prioritize the acceleration of productivity growth, for both capital and labor, from 2016 to 2020. The plan will raise the implications of higher productivity for workers: the disappearance of many traditional wellpaying jobs and the need for increased labor mobility and for the lifetime renewal and development of skills. The main concern is that implementation will be left to local administrators and that the regions requiring the most help will have the lowest amounts of money to invest in reskilling the workforce and the least impressive actual skills to deliver.

Fewer jobs, flatter incomes— and, potentially, less confidence The workplace in China is already changing dramatically in ways that will create many individual losers—for example, workers in industry sectors in secular decline (such as steel or textiles) or in industries where technology is rapidly displacing people even as output grows (like financial services or retailing). The government must help these workers reskill themselves to deliver on its commitment that all parts of society will benefit from economic growth and to keep people actively engaged in the economy. It will not be enough for officials to visit major local employers and press them to retain all their current workers, as they did during the global financial crisis. Official government figures, which probably skew to the positive on jobs, show that construction lost 15 million positions over the past year. Mining, a much smaller employer, has lost millions more. Workers from these sectors have few skills transferable to the modern service economy, yet many are in their peak working years. Reskilling must happen at scale. Not everyone can deliver e-commerce packages and, besides, the wages from that kind of work aren’t likely to bring people into the urban middle class. Government must persuade the people that it is committed to giving them the skills they need to be relevant in the workforce at all stages of their careers. But for everyone from migrant workers to university graduates, the state educational system isn’t delivering. China must roll out education, training, and apprenticeship solutions quickly and at scale to become the moderately well-off society its leaders aspire to achieve. This process will be both complex and expensive. Failure to achieve higher productivity and lower unemployment will slow

BUSINESS ASIA • FALL 2015

T

he reality is that China’s economy is today made up of multiple subeconomies, each more than a trillion dollars in size. Some are booming, some declining. Some are globally competitive, others fit for the scrap heap. How you feel about China depends more than ever on the parts of the economy where you compete. In 2015, selling kit to movie theaters was great business, selling kit to steel mills less so. Many well-established secular trends in China will continue in 2016. The service economy’s expansion is perhaps most prominent among them. In any case, a cumulative productivity analysis of China signals its continued force and flexibility in the global economy.

9

4/11/2016 6:18:10 PM


CHINA

The 13th five-year plan—few surprises

China’s New Year Resolution An Analysis of China’s Economic Movements “Many well-established secular trends in China will continue in 2016. The service economy’s expansion is perhaps most prominent among them. In any case, a cumulative productivity analysis of China signals its continued force and flexibility in the global economy.” BRANDON GREER

by

Writer

BAJ 2015 Spring.indd 8-9

Much of China’s 13th five-year plan will seem pretty familiar, as it has been flagged in advance at the Fifth Plenum and elsewhere. Perhaps the only challenge will be to interpret the plan’s intent clearly through the new “party speak” now coming to dominate government pronouncements. The GDP growth target will still be six percent–plus, which will be softened a bit but not eliminated by parallel quality-of-life goals: the environment, health, income, and the like. Achieving the growth target will remain the core objective of fiscal and monetary policies, so expect lower interest rates and pressure on the exchange rate versus the US dollar in 2016. Financial reforms aimed at moving more of the economy toward a market-based allocation of capital will continue. Meanwhile, there will be more progress on interest-rate deregulation, the IPO process (registration rather than approval), permitting new entrants (especially from the tech sector and from abroad) into financial services, and

reimplementing laws suspended in the summer of 2015. The plan will ostensibly promote decentralization, but the reality is likely to be greater centralization. More infrastructure will be built, mainly to enhance intraregional development—for example, around Greater Beijing. Green initiatives, reinforced by December 2015 commitments made in Paris and the “red alert” in Beijing that same month, will take center stage. The central government will make such big and visible commitments to its citizens that local authorities will have to mount a serious effort to deliver. There will be tougher emissions standards and more spending to support the development of nonfossil fuels, green finance will be available, and both private-sector and state-owned companies will rebrand their ongoing initiatives as green. China will explicitly build new export engines from its emerging global leadership in green products; for example, expect to see lots of Chinese-made air-filtration products in Delhi and the rest of India in 2016. Beyond green initiatives, going global will remain a key theme, as detailed in the One Belt, One Road program. Finally, the plan will recognize China’s success in raising labor productivity over the past decade and prioritize the acceleration of productivity growth, for both capital and labor, from 2016 to 2020. The plan will raise the implications of higher productivity for workers: the disappearance of many traditional wellpaying jobs and the need for increased labor mobility and for the lifetime renewal and development of skills. The main concern is that implementation will be left to local administrators and that the regions requiring the most help will have the lowest amounts of money to invest in reskilling the workforce and the least impressive actual skills to deliver.

Fewer jobs, flatter incomes— and, potentially, less confidence The workplace in China is already changing dramatically in ways that will create many individual losers—for example, workers in industry sectors in secular decline (such as steel or textiles) or in industries where technology is rapidly displacing people even as output grows (like financial services or retailing). The government must help these workers reskill themselves to deliver on its commitment that all parts of society will benefit from economic growth and to keep people actively engaged in the economy. It will not be enough for officials to visit major local employers and press them to retain all their current workers, as they did during the global financial crisis. Official government figures, which probably skew to the positive on jobs, show that construction lost 15 million positions over the past year. Mining, a much smaller employer, has lost millions more. Workers from these sectors have few skills transferable to the modern service economy, yet many are in their peak working years. Reskilling must happen at scale. Not everyone can deliver e-commerce packages and, besides, the wages from that kind of work aren’t likely to bring people into the urban middle class. Government must persuade the people that it is committed to giving them the skills they need to be relevant in the workforce at all stages of their careers. But for everyone from migrant workers to university graduates, the state educational system isn’t delivering. China must roll out education, training, and apprenticeship solutions quickly and at scale to become the moderately well-off society its leaders aspire to achieve. This process will be both complex and expensive. Failure to achieve higher productivity and lower unemployment will slow

BUSINESS ASIA • FALL 2015

T

he reality is that China’s economy is today made up of multiple subeconomies, each more than a trillion dollars in size. Some are booming, some declining. Some are globally competitive, others fit for the scrap heap. How you feel about China depends more than ever on the parts of the economy where you compete. In 2015, selling kit to movie theaters was great business, selling kit to steel mills less so. Many well-established secular trends in China will continue in 2016. The service economy’s expansion is perhaps most prominent among them. In any case, a cumulative productivity analysis of China signals its continued force and flexibility in the global economy.

9

4/11/2016 6:18:10 PM


10

growth in household income and, potentially, further erode consumer confidence in 2016. Consumer spending has been responsible for well over 50 percent of GDP so far this year. If the government doesn’t handle less-confident consumers quite carefully, the kind of behavior the stock market experienced last summer will roil the broader economy.

out. Taking personal responsibility for investment decisions isn’t well accepted. Foreign fund managers must be prepared to deal with anger online and in person when a product they sell doesn’t live up to expectations. While the hope is that in 2016 the government will allow more investments to fail and will stop organizing bailouts, progress will be incremental.

The maturing of investing: More options for Chinese investors and foreign investment managers

Manufacturing in China is changing, not disappearing

Chinese investors today remain dependent on bank deposits and property. Yet after the volatility of the property and stock markets in 2015, investors want to diversify into more stable vehicles. The number of wealth managers seeking to address this need has increased massively. Often, their main challenge is not finding clients but rather credible products to sell. The main challenge for investors is to find advisers they can trust; most advisers simply push the products that give them the largest commission. Companies are responding to these developments. Larger wealth managers are moving online to deal directly with investors. Online lending sites are becoming broader wealth managers and acquiring mutual-fund distribution licenses. With interest-rate cuts likely in the year ahead, this may be a good time to invest in plain-vanilla bond funds, which are easily sold online. If retail investors conclude that the renminbi’s devaluation is a one-way bet, expect a sudden rush to invest in companies that manage nonrenminbi funds. Whatever happens, sinking money into a second, third, or even fourth property will no longer be a major investment strategy in China. If your company does go after this opportunity, don’t forget the volatile mindset of Chinese investors: if a product makes a loss, they still expect to be bailed

BAJ 2015 Spring.indd 10-11

The closely watched manufacturing purchasing manager’s index (PMI) remains below 50, which indicates deterioration, leading to talk that the country may be nearing the end of its time as a manufacturer for the world. Let’s be clear: manufacturing is not about to become irrelevant in China. However, the country is evolving toward extremes of performance: the truly awful and the genuinely competitive. Many companies—indeed entire sectors—may be nearing a PMI permanently below 50, but this doesn’t mean that the emergence of internationally capable Chinese manufacturers will do anything other than accelerate. In 2016, we will realize that in many parts of the economy, a smaller Chinese manufacturing sector is actually a stronger global competitor than ever before. One indicator will be more international acquisitions by Chinese manufacturers. A second will be more multinationals blaming their lower growth not just on a slowing Chinese economy but also, specifically, on local competitors that are moving upmarket to gain share inside and outside China. Multinationals in China are facing up to this double challenge of lower growth and better local competition. A few are quietly exiting. Some will move aggressively on the front foot. In 2016, more multinationals will attempt to purchase Chinese competitors—if you can’t beat

them, buy them.

More centralization The Chinese media, especially during President Xi’s increasingly frequent trips abroad, made it clear that economic decision making has been centralized over the past two years. China will become still more centralized in 2016, rolling back decentralization where it had unintended outcomes. For example, after local governments received authority to approve new power plants, more than 150 new coal-fired ones were green-lit in the first nine months of 2015—more than three times the number approved in 2013, under the old centralized decision-making process. Unsurprisingly, coal-producing areas granted the largest number of approvals for plants that weren’t required under any realistic demand projection, even setting aside the question of whether any new plants at all should be coal fired. State-owned enterprises are behind most of these projects and would expect to be bailed out if they fail. Thus, for multiple reasons, such decisions will be recentralized. The consolidation of state-owned enterprises to create fewer but larger companies, each possibly dominating its industry, is another example. And increased ideological conformity, as demanded by the Communist Party’s new rules, is almost by definition centralizing; people look to the top for approval of not just what they do but also of what they say and how they say it. Changes in consumer confidence levels in 2016 will indicate how successful the centralization strategy is from the perspective of the Chinese public.

Moving the middle class at scale Despite prodigious investment, many Chinese cities cannot build enough quality infrastructure to avoid massive day-to-day congestion. Even though

the new five-year plan will commit the country to dedicate resources to infrastructure development, that will not solve these problems; growth has simply outstripped potential solutions. For example, Beijing’s population officially grew by 60 percent, to 21 million, in just the past 14 years—and unofficially by significantly more. Wealthier cities will seek to follow Beijing’s lead in transferring large numbers of jobs and people out of city centers. In Beijing’s case, this policy has not involved moving migrant workers but rather 400,000 to 2 million middleclass residents—depending on which version of the plan you look at—by shifting many government offices out of the city center. Attempts to create satellite cities have generally failed to date; people have moved but jobs haven’t, so the satellites have become dormitory communities for commuters who add to the daily traffic congestion. Beijing is privileged in having money, land, and millions of government workers it can direct to move, but other cities will study what happens there and emulate it if they can find enough land.

of it. A second driver will be distressedasset acquisitions in basic materials and related sectors: Chinese acquirers may plan not to extract the assets in the near term but simply to stockpile them as long-term insurance. Finally, a growing share of the acquisitions will come from private-sector companies that aspire to global leadership. These companies are increasingly sophisticated buyers, conducting quality due diligence, working with traditional advisers, and focusing on countries where they think that warm political relations will make it easier to do deals. In 2015, for example, the political relationship between China and the United Kingdom reached new highs, capped by President Xi’s extended visit to Britain in October. Chinese investment in that country is spreading well beyond flagship properties—to sectors ranging from automotive to luxury yachts to oil to pizza—with the goal of acquiring technology, brands, talent, and market access. These moves build off investments in all long-established UK industrial companies with bases far from London. Other countries will seek to emulate this path to attracting Chinese investment at scale.

China continues to go global, with the United Kingdom as a new focal point The Verdict China’s outbound investment will accelerate in 2016, with One Belt, One Road–related initiatives driving much

China’s economy. No matter what rate the country grows at in 2016, its share of the global economy, and of many specific sectors, will be larger than ever. A snapshot of China in 2016 looks like this: an increasingly diverse, volatile, $11 trillion economy whose performance is becoming more and more difficult to describe as one dimensional. | BA Brandon is a senior majoring in Applied Economics and Management from Maryland. As a member of AKPsi, he served as the president of his pledge class in the fall of 2013 and currently serves as one of the Brotherhood Chairs. On campus, Brandon sits on the executive board for the Dyson Business Inclusion and Diversity Program, as well as on the Dyson Undergraduate Council. He is the past Editor-in-Chief for the Business Asia Journal and is the piano accompanist for one of Cornell’s choirs. Brandon has worked over five years in Congress for the ranking member of the United States House Financial Services Committee and has published works at the London School of Economics. Most recently, he worked at J.P. Morgan as a Summer Analyst in their Investment Banking division, covering financial institutions and governments.

In debates about whether growth is a percentage point up or down, we too often lose sight of the absolute scale of

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

CHINA

11

4/11/2016 6:18:13 PM


10

growth in household income and, potentially, further erode consumer confidence in 2016. Consumer spending has been responsible for well over 50 percent of GDP so far this year. If the government doesn’t handle less-confident consumers quite carefully, the kind of behavior the stock market experienced last summer will roil the broader economy.

out. Taking personal responsibility for investment decisions isn’t well accepted. Foreign fund managers must be prepared to deal with anger online and in person when a product they sell doesn’t live up to expectations. While the hope is that in 2016 the government will allow more investments to fail and will stop organizing bailouts, progress will be incremental.

The maturing of investing: More options for Chinese investors and foreign investment managers

Manufacturing in China is changing, not disappearing

Chinese investors today remain dependent on bank deposits and property. Yet after the volatility of the property and stock markets in 2015, investors want to diversify into more stable vehicles. The number of wealth managers seeking to address this need has increased massively. Often, their main challenge is not finding clients but rather credible products to sell. The main challenge for investors is to find advisers they can trust; most advisers simply push the products that give them the largest commission. Companies are responding to these developments. Larger wealth managers are moving online to deal directly with investors. Online lending sites are becoming broader wealth managers and acquiring mutual-fund distribution licenses. With interest-rate cuts likely in the year ahead, this may be a good time to invest in plain-vanilla bond funds, which are easily sold online. If retail investors conclude that the renminbi’s devaluation is a one-way bet, expect a sudden rush to invest in companies that manage nonrenminbi funds. Whatever happens, sinking money into a second, third, or even fourth property will no longer be a major investment strategy in China. If your company does go after this opportunity, don’t forget the volatile mindset of Chinese investors: if a product makes a loss, they still expect to be bailed

BAJ 2015 Spring.indd 10-11

The closely watched manufacturing purchasing manager’s index (PMI) remains below 50, which indicates deterioration, leading to talk that the country may be nearing the end of its time as a manufacturer for the world. Let’s be clear: manufacturing is not about to become irrelevant in China. However, the country is evolving toward extremes of performance: the truly awful and the genuinely competitive. Many companies—indeed entire sectors—may be nearing a PMI permanently below 50, but this doesn’t mean that the emergence of internationally capable Chinese manufacturers will do anything other than accelerate. In 2016, we will realize that in many parts of the economy, a smaller Chinese manufacturing sector is actually a stronger global competitor than ever before. One indicator will be more international acquisitions by Chinese manufacturers. A second will be more multinationals blaming their lower growth not just on a slowing Chinese economy but also, specifically, on local competitors that are moving upmarket to gain share inside and outside China. Multinationals in China are facing up to this double challenge of lower growth and better local competition. A few are quietly exiting. Some will move aggressively on the front foot. In 2016, more multinationals will attempt to purchase Chinese competitors—if you can’t beat

them, buy them.

More centralization The Chinese media, especially during President Xi’s increasingly frequent trips abroad, made it clear that economic decision making has been centralized over the past two years. China will become still more centralized in 2016, rolling back decentralization where it had unintended outcomes. For example, after local governments received authority to approve new power plants, more than 150 new coal-fired ones were green-lit in the first nine months of 2015—more than three times the number approved in 2013, under the old centralized decision-making process. Unsurprisingly, coal-producing areas granted the largest number of approvals for plants that weren’t required under any realistic demand projection, even setting aside the question of whether any new plants at all should be coal fired. State-owned enterprises are behind most of these projects and would expect to be bailed out if they fail. Thus, for multiple reasons, such decisions will be recentralized. The consolidation of state-owned enterprises to create fewer but larger companies, each possibly dominating its industry, is another example. And increased ideological conformity, as demanded by the Communist Party’s new rules, is almost by definition centralizing; people look to the top for approval of not just what they do but also of what they say and how they say it. Changes in consumer confidence levels in 2016 will indicate how successful the centralization strategy is from the perspective of the Chinese public.

Moving the middle class at scale Despite prodigious investment, many Chinese cities cannot build enough quality infrastructure to avoid massive day-to-day congestion. Even though

the new five-year plan will commit the country to dedicate resources to infrastructure development, that will not solve these problems; growth has simply outstripped potential solutions. For example, Beijing’s population officially grew by 60 percent, to 21 million, in just the past 14 years—and unofficially by significantly more. Wealthier cities will seek to follow Beijing’s lead in transferring large numbers of jobs and people out of city centers. In Beijing’s case, this policy has not involved moving migrant workers but rather 400,000 to 2 million middleclass residents—depending on which version of the plan you look at—by shifting many government offices out of the city center. Attempts to create satellite cities have generally failed to date; people have moved but jobs haven’t, so the satellites have become dormitory communities for commuters who add to the daily traffic congestion. Beijing is privileged in having money, land, and millions of government workers it can direct to move, but other cities will study what happens there and emulate it if they can find enough land.

of it. A second driver will be distressedasset acquisitions in basic materials and related sectors: Chinese acquirers may plan not to extract the assets in the near term but simply to stockpile them as long-term insurance. Finally, a growing share of the acquisitions will come from private-sector companies that aspire to global leadership. These companies are increasingly sophisticated buyers, conducting quality due diligence, working with traditional advisers, and focusing on countries where they think that warm political relations will make it easier to do deals. In 2015, for example, the political relationship between China and the United Kingdom reached new highs, capped by President Xi’s extended visit to Britain in October. Chinese investment in that country is spreading well beyond flagship properties—to sectors ranging from automotive to luxury yachts to oil to pizza—with the goal of acquiring technology, brands, talent, and market access. These moves build off investments in all long-established UK industrial companies with bases far from London. Other countries will seek to emulate this path to attracting Chinese investment at scale.

China continues to go global, with the United Kingdom as a new focal point The Verdict China’s outbound investment will accelerate in 2016, with One Belt, One Road–related initiatives driving much

China’s economy. No matter what rate the country grows at in 2016, its share of the global economy, and of many specific sectors, will be larger than ever. A snapshot of China in 2016 looks like this: an increasingly diverse, volatile, $11 trillion economy whose performance is becoming more and more difficult to describe as one dimensional. | BA Brandon is a senior majoring in Applied Economics and Management from Maryland. As a member of AKPsi, he served as the president of his pledge class in the fall of 2013 and currently serves as one of the Brotherhood Chairs. On campus, Brandon sits on the executive board for the Dyson Business Inclusion and Diversity Program, as well as on the Dyson Undergraduate Council. He is the past Editor-in-Chief for the Business Asia Journal and is the piano accompanist for one of Cornell’s choirs. Brandon has worked over five years in Congress for the ranking member of the United States House Financial Services Committee and has published works at the London School of Economics. Most recently, he worked at J.P. Morgan as a Summer Analyst in their Investment Banking division, covering financial institutions and governments.

In debates about whether growth is a percentage point up or down, we too often lose sight of the absolute scale of

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

CHINA

11

4/11/2016 6:18:13 PM


CHINA

Associate Editor

the U.S. president, the better. The way he discriminates against Chinese people will end the flood of Chinese to the U.S. I cannot see this having any negative effect for us here in China.”

Trump and his message is almost tailor made for use as support for domestic Chinese Communist Party propaganda.

BUSINESS ASIA • FALL 2015

D

12

onald Trump is not the only presidential candidate who has claimed to be tough on China, but it is possible that he has been the most vocal about it. Despite his reputation for anti-China rhetoric, last July, Trump made what, at the time, seemed to be an outlandish comment: “People from China, they love me.” If by “people in China” he is referring to the members of China’s billionaire class to whom he has sold multi-million dollar apartments, then yes, at least some Chinese people may actually love him.

BAJ 2015 Spring.indd 12-13

What may be surprising, however, is that after a casual stroll through the many venues of Chinese social media, it seems that a fair number of Chinese seem willing to openly perfuse their respect for The Donald. After Super Tuesday, one female Weibo blogger wrote that Trump “is super cute with a very big mouth.” Whether or not this opinion is widely supported in China is still up for debate. What does not seem to be up for debate is that many Chinese people (at least the ones that like to blog about

American politics online), see the Trump campaign as the U.S.’s self destruct button. One blogger in Zhihu.com opened a thread asking a question not dissimilar to the question I am sure many of you asked after reading the title of this article: “How do the Chinese that support Donald Trump feel about the way he slanders China?” The cheekiest and most liked response on the thread, when translated into English, reads something like this: “Why do I support him? Because I just do, stupid. After all, the lower the IQ of

It is not an exaggeration to say that many Chinese have expressed online their desire to see Trump become president and run the Unites States into the ground. As another blogger puts it: “This may truly be the beginning of the end of America’s imperialism once and for all.” And besides, Trump has also complemented the Chinese on a few occasions. To counter the claim that Trump has shown the Chinese disrespect, one blogger decided to dig deep and list out everything nice Trump has ever said about China: “Donald Trump (in so many words) said; 1. Chinese people are very smart, and that its leaders are tough and cunning 2. China is very efficient; he reminded Americans that the largest bank in the world is in China 3. The Chinese have built 13,000 miles of wall more than 2,000 years ago, while the U.S. can’t even build a 1,000 mile wall along the border with Mexico 4. China has great international power. Trump will ask China to control North Korea’s nuclear program, because in reality, China actually controls North Korea.” Indeed, why should Chinese people not support Donald Trump? Even if he accuses China of “raping” the U.S., if there is evidence that a Trump presidency would weaken the United States, then there is

no rational reason why Chinese nationalists shouldn’t find him appealing. In some Chinese strategic calculations, a weaker U.S. indirectly helps China achieve its latent goal of becoming the dominant force in East Asia. It must be mentioned that information derived from Chinese blogs and Internet forums is an imperfect tool for discerning general Chinese popular opinion on any topic. The more liberal posts will be censored, and nationalist views will be aggressively advanced by both enthusiastic citizens and by people paid specifically to create posts supporting the party line. Aside from his seeming popularity in at least some Chinese nationalist circles, in many ways, Trump and his message are almost tailor made for use as support for domestic Chinese Communist Party propaganda. Trump’s rhetoric about the death of the American dream is fodder for the Chinese state run media establishment. From the CCP perspective, a major U.S. presidential candidate shouting about American weakness and death of time-honored ideological principles strengthens Chinese claims that an alternative “China Dream” may be a way forward for the world. Combining this with the extent to which he has degenerated the debate over real issues, Trump may have done more than any other American so far to lend substance to Xi Jinping’s new China Dream campaign.

“It is not an exaggeration to say that many Chinese have expressed online their desire to see Trump become president and run the Unites States into the ground.” Additionally, the picture Trump paints of Washington as deadlocked, inefficient,

and out of touch with the American people plays directly into the hands of vocal Chinese nationalists, and seems to confirm the efficiency and superiority of China’s one-party system. Despite his disparaging comments against China and his willingness to call China an adversary, Xinhua, China’s largest state-run news agency, has had surprisingly little to say about him. No matter what nasty things Trump has to say about China, he is still the strongest evidence China has for the dysfunction and decline of the U.S. political system, and as a result, will continue to stay relatively safe from attack by Chinese media. For a man trying to be “tough on China,” that the neoconservative views Trump has relied on to try and “make America great again” also lend credence to key tenants of Chinese Communist Party ideology should be a very hard pill to swallow. Whether or not the Chinese people as a whole have any opinion whatsoever about Donald Trump and the U.S. presidential election is not fully clear. Regardless, I can only wonder what Trump’s U.S. supporters would feel if they found out that their preferred candidate is also prime working material for the Chinese Ministry of Propaganda. | BA Steven is a junior in the College of Arts and Sciences. He is fluent in Mandarin Chinese, and spent more than a year in Beijing helping several Chinese enterprises to better market themselves internationally. This summer, he will be working in Boston as a management consulting intern with Ernst and Young.

BUSINESS ASIA • FALL 2015

People from China, They Love Me.

STEVEN SALENIK

by

13

4/11/2016 6:18:14 PM


CHINA

Associate Editor

the U.S. president, the better. The way he discriminates against Chinese people will end the flood of Chinese to the U.S. I cannot see this having any negative effect for us here in China.”

Trump and his message is almost tailor made for use as support for domestic Chinese Communist Party propaganda.

BUSINESS ASIA • FALL 2015

D

12

onald Trump is not the only presidential candidate who has claimed to be tough on China, but it is possible that he has been the most vocal about it. Despite his reputation for anti-China rhetoric, last July, Trump made what, at the time, seemed to be an outlandish comment: “People from China, they love me.” If by “people in China” he is referring to the members of China’s billionaire class to whom he has sold multi-million dollar apartments, then yes, at least some Chinese people may actually love him.

BAJ 2015 Spring.indd 12-13

What may be surprising, however, is that after a casual stroll through the many venues of Chinese social media, it seems that a fair number of Chinese seem willing to openly perfuse their respect for The Donald. After Super Tuesday, one female Weibo blogger wrote that Trump “is super cute with a very big mouth.” Whether or not this opinion is widely supported in China is still up for debate. What does not seem to be up for debate is that many Chinese people (at least the ones that like to blog about

American politics online), see the Trump campaign as the U.S.’s self destruct button. One blogger in Zhihu.com opened a thread asking a question not dissimilar to the question I am sure many of you asked after reading the title of this article: “How do the Chinese that support Donald Trump feel about the way he slanders China?” The cheekiest and most liked response on the thread, when translated into English, reads something like this: “Why do I support him? Because I just do, stupid. After all, the lower the IQ of

It is not an exaggeration to say that many Chinese have expressed online their desire to see Trump become president and run the Unites States into the ground. As another blogger puts it: “This may truly be the beginning of the end of America’s imperialism once and for all.” And besides, Trump has also complemented the Chinese on a few occasions. To counter the claim that Trump has shown the Chinese disrespect, one blogger decided to dig deep and list out everything nice Trump has ever said about China: “Donald Trump (in so many words) said; 1. Chinese people are very smart, and that its leaders are tough and cunning 2. China is very efficient; he reminded Americans that the largest bank in the world is in China 3. The Chinese have built 13,000 miles of wall more than 2,000 years ago, while the U.S. can’t even build a 1,000 mile wall along the border with Mexico 4. China has great international power. Trump will ask China to control North Korea’s nuclear program, because in reality, China actually controls North Korea.” Indeed, why should Chinese people not support Donald Trump? Even if he accuses China of “raping” the U.S., if there is evidence that a Trump presidency would weaken the United States, then there is

no rational reason why Chinese nationalists shouldn’t find him appealing. In some Chinese strategic calculations, a weaker U.S. indirectly helps China achieve its latent goal of becoming the dominant force in East Asia. It must be mentioned that information derived from Chinese blogs and Internet forums is an imperfect tool for discerning general Chinese popular opinion on any topic. The more liberal posts will be censored, and nationalist views will be aggressively advanced by both enthusiastic citizens and by people paid specifically to create posts supporting the party line. Aside from his seeming popularity in at least some Chinese nationalist circles, in many ways, Trump and his message are almost tailor made for use as support for domestic Chinese Communist Party propaganda. Trump’s rhetoric about the death of the American dream is fodder for the Chinese state run media establishment. From the CCP perspective, a major U.S. presidential candidate shouting about American weakness and death of time-honored ideological principles strengthens Chinese claims that an alternative “China Dream” may be a way forward for the world. Combining this with the extent to which he has degenerated the debate over real issues, Trump may have done more than any other American so far to lend substance to Xi Jinping’s new China Dream campaign.

“It is not an exaggeration to say that many Chinese have expressed online their desire to see Trump become president and run the Unites States into the ground.” Additionally, the picture Trump paints of Washington as deadlocked, inefficient,

and out of touch with the American people plays directly into the hands of vocal Chinese nationalists, and seems to confirm the efficiency and superiority of China’s one-party system. Despite his disparaging comments against China and his willingness to call China an adversary, Xinhua, China’s largest state-run news agency, has had surprisingly little to say about him. No matter what nasty things Trump has to say about China, he is still the strongest evidence China has for the dysfunction and decline of the U.S. political system, and as a result, will continue to stay relatively safe from attack by Chinese media. For a man trying to be “tough on China,” that the neoconservative views Trump has relied on to try and “make America great again” also lend credence to key tenants of Chinese Communist Party ideology should be a very hard pill to swallow. Whether or not the Chinese people as a whole have any opinion whatsoever about Donald Trump and the U.S. presidential election is not fully clear. Regardless, I can only wonder what Trump’s U.S. supporters would feel if they found out that their preferred candidate is also prime working material for the Chinese Ministry of Propaganda. | BA Steven is a junior in the College of Arts and Sciences. He is fluent in Mandarin Chinese, and spent more than a year in Beijing helping several Chinese enterprises to better market themselves internationally. This summer, he will be working in Boston as a management consulting intern with Ernst and Young.

BUSINESS ASIA • FALL 2015

People from China, They Love Me.

STEVEN SALENIK

by

13

4/11/2016 6:18:14 PM


F

China’s Imposition of Politics on Culture: A Gross Misjudgment “The grand vastness of China’s online music economy begs to be corporately exploited. But historically severe regulations that the Chinese government places on the music streaming industry–done out of fear, in the name of maintaining stability–hinders its growth. China need not go to such lengths to ensure its stability, for it is already both politically and economically secure. China’s censorship of allegedly morally harmful lyrics is unnecessary, as this music is unlikely to provoke political uprising amongst an already content Chinese citizenry. “

BAJ 2015 Spring.indd 14-15

SARAH CHEKFA

by

Writer

rom afar, China looks to be the holy grail of yet-untapped online music markets. Considering the estimated 471 million Chinese that listen to music via the web as of now, the country appears to be a gleaming beacon of potential sales. So it comes as a disappointing surprise to hear that relatively few music-streaming companies have ventured into this revenue stream. This lack of exploitation of the supposed profitability of the Chinese online music economy is not due to the newfound respectful goodwill of online streaming corporations – it is instead ascribed to the notoriously severe regulations that the Chinese government places on the music streaming industry. China has always restricted online material, engaging in bouts of devout censorship across multiple media forms. Yet a recent move by China’s Ministry of Culture suggests that it believes its censorship could, and should be, more stringent. This past November, the Ministry released a new policy under which existing online streaming companies already operating within the country’s borders are required to, as of this January 2016, “scrutinize the content of the music they provide before making it available to the public…any music deemed potentially ‘harmful’ to China’s stability and national harmony…[is to be] removed.” If a company—likely Baidu, Alibaba, and Tencent will be affected, as China’s top Internet providers—fails to adhere to the new regulations, they will be subjected to corrective measures. China defends its musical censorship as a genuine approach to maintaining the status quo of political stability it currently enjoys. This is the underlying reason it goes so far to regulate the industry – it is all in the name of stability. This seems like a noble undertaking – after all, what kind of government would the Chinese regime be if it let its country

fall apart? However, it is my belief that the Chinese government wrongly correlates unregulated online streaming to political instability, and that the former would in fact be unlikely to affect the latter adversely. China need not let politics interfere with culture in this arena—the Chinese government is already politically stable, and as such, regulation of the online streaming industry is unnecessary to secure its stability.

Increasing standards of living are indicators of a general contentment among a country’s citizenry, and countries that enjoy such statistics are resultantly likely to be less prone to public dissatisfaction and dissent.”

But how may we confirm that China is, indeed, stable? Thomas Heberer, Chair Professor of East Asian Politics at the Institute of Political Science and the Institute of East Asian Studies at the University of Duisburg-Essen in Germany, in his 2010 paper, “How Stable is China Currently?” undertook this complicated question, and attempted to find an answer. Upon consideration of the country’s rampantly complex development in the past years, he prognosticated into the future, stating that “as long as the economy develops smoothly and the living standard of the majority of the people continues to improve, and as long as participation is enhanced, [China’s] social and political stability could be preserved.” And, looking at how China has progressed as a country since, it seems that Heberer’s hypothesis has become reality – it seems that China is, indeed, stable. China’s economic stability cannot be disputed. Over the years, the country has

become a veritable economic giant, exporting everything from plastics to electronic equipment to footwear, and as such has become one of the biggest manufacturers of exported goods in the world. So it comes as no surprise that China’s foreign exchange regulator himself recently proclaimed that China’s financial system is “largely stable and healthy.” The World Bank seems to agree, as it, in a similar thread, ranks China’s economy as the world’s second largest economy. China surely deserves the title, as every day it grows, thriving on a multifaceted, highly intricate, innovative commercial system with millions of diligent workers. Of course, with such economic progress comes corresponding progress in the standard of living of Chinese citizens. China’s income distribution is slowly becoming more and more equal, and institutions have taken note of the fact – in fact, the World Bank classifies China’s income level in the upper middle tier. The country, too, has one of the fastest growth rates of consumption globally, and this, coupled with its increase in both the quantity and quality of available food, housing, clothing, consumer goods, healthcare, Internet, and transportation directly contributes to its steadily increasing standard of living. Of course, its living standard is nowhere near that of many developed Western countries, such as the United States, but it is still rising and thus slowly bringing many people out of poverty and into more stable means of living. Increasing standards of living are indicators of a general contentment among a country’s citizenry, and countries that enjoy such statistics are resultantly less prone to public dissent and upheaval. And so it seems that in the economic realm, China’s stability is secure. Turning to the political realm, it is easy to observe that the political participation of the Chinese people is not on par with that of Western countries. How-

BUSINESS ASIA • FALL 2015

CHINA

15

4/11/2016 6:18:17 PM


F

China’s Imposition of Politics on Culture: A Gross Misjudgment “The grand vastness of China’s online music economy begs to be corporately exploited. But historically severe regulations that the Chinese government places on the music streaming industry–done out of fear, in the name of maintaining stability–hinders its growth. China need not go to such lengths to ensure its stability, for it is already both politically and economically secure. China’s censorship of allegedly morally harmful lyrics is unnecessary, as this music is unlikely to provoke political uprising amongst an already content Chinese citizenry. “

BAJ 2015 Spring.indd 14-15

SARAH CHEKFA

by

Writer

rom afar, China looks to be the holy grail of yet-untapped online music markets. Considering the estimated 471 million Chinese that listen to music via the web as of now, the country appears to be a gleaming beacon of potential sales. So it comes as a disappointing surprise to hear that relatively few music-streaming companies have ventured into this revenue stream. This lack of exploitation of the supposed profitability of the Chinese online music economy is not due to the newfound respectful goodwill of online streaming corporations – it is instead ascribed to the notoriously severe regulations that the Chinese government places on the music streaming industry. China has always restricted online material, engaging in bouts of devout censorship across multiple media forms. Yet a recent move by China’s Ministry of Culture suggests that it believes its censorship could, and should be, more stringent. This past November, the Ministry released a new policy under which existing online streaming companies already operating within the country’s borders are required to, as of this January 2016, “scrutinize the content of the music they provide before making it available to the public…any music deemed potentially ‘harmful’ to China’s stability and national harmony…[is to be] removed.” If a company—likely Baidu, Alibaba, and Tencent will be affected, as China’s top Internet providers—fails to adhere to the new regulations, they will be subjected to corrective measures. China defends its musical censorship as a genuine approach to maintaining the status quo of political stability it currently enjoys. This is the underlying reason it goes so far to regulate the industry – it is all in the name of stability. This seems like a noble undertaking – after all, what kind of government would the Chinese regime be if it let its country

fall apart? However, it is my belief that the Chinese government wrongly correlates unregulated online streaming to political instability, and that the former would in fact be unlikely to affect the latter adversely. China need not let politics interfere with culture in this arena—the Chinese government is already politically stable, and as such, regulation of the online streaming industry is unnecessary to secure its stability.

Increasing standards of living are indicators of a general contentment among a country’s citizenry, and countries that enjoy such statistics are resultantly likely to be less prone to public dissatisfaction and dissent.”

But how may we confirm that China is, indeed, stable? Thomas Heberer, Chair Professor of East Asian Politics at the Institute of Political Science and the Institute of East Asian Studies at the University of Duisburg-Essen in Germany, in his 2010 paper, “How Stable is China Currently?” undertook this complicated question, and attempted to find an answer. Upon consideration of the country’s rampantly complex development in the past years, he prognosticated into the future, stating that “as long as the economy develops smoothly and the living standard of the majority of the people continues to improve, and as long as participation is enhanced, [China’s] social and political stability could be preserved.” And, looking at how China has progressed as a country since, it seems that Heberer’s hypothesis has become reality – it seems that China is, indeed, stable. China’s economic stability cannot be disputed. Over the years, the country has

become a veritable economic giant, exporting everything from plastics to electronic equipment to footwear, and as such has become one of the biggest manufacturers of exported goods in the world. So it comes as no surprise that China’s foreign exchange regulator himself recently proclaimed that China’s financial system is “largely stable and healthy.” The World Bank seems to agree, as it, in a similar thread, ranks China’s economy as the world’s second largest economy. China surely deserves the title, as every day it grows, thriving on a multifaceted, highly intricate, innovative commercial system with millions of diligent workers. Of course, with such economic progress comes corresponding progress in the standard of living of Chinese citizens. China’s income distribution is slowly becoming more and more equal, and institutions have taken note of the fact – in fact, the World Bank classifies China’s income level in the upper middle tier. The country, too, has one of the fastest growth rates of consumption globally, and this, coupled with its increase in both the quantity and quality of available food, housing, clothing, consumer goods, healthcare, Internet, and transportation directly contributes to its steadily increasing standard of living. Of course, its living standard is nowhere near that of many developed Western countries, such as the United States, but it is still rising and thus slowly bringing many people out of poverty and into more stable means of living. Increasing standards of living are indicators of a general contentment among a country’s citizenry, and countries that enjoy such statistics are resultantly less prone to public dissent and upheaval. And so it seems that in the economic realm, China’s stability is secure. Turning to the political realm, it is easy to observe that the political participation of the Chinese people is not on par with that of Western countries. How-

BUSINESS ASIA • FALL 2015

CHINA

15

4/11/2016 6:18:17 PM


16

ever, it important to note that participation is still gradually expanding, thanks to reforms by the Chinese Communist Party focused on refining the electoral systems of the National People’s Congress and Chinese People’s Political Consultative Conference. Granted, China’s political evolution towards a more transparent system rooted in the political participation of its citizens has not been rapid, but the trend to focus on, underlying the growing mindset of the Chinese political system, is that it is moving in the right direction – towards greater visibility and a more democratic standard. The positive effects of this trend have been highlighted in a noteworthy study conducted by The Economist Intelligence Unit. In its compilation of its 2009-2010 Political Stability Index,

BAJ 2015 Spring.indd 16-17

it graded China as a 4.8 on a scale of 0 to 10, with 10 being the most prone to social unrest. This statistic is not something to be taken lightly – that China hovers around the middle of the political stability spectrum further landmarks the country as one that has shown, time and time again, that it is not vulnerable to the instabilities that many other countries are prone to. A testament to China’s strength is found in the fact that the majority of the Chinese people are happy with the current system of government. A 2014 survey distributed by the Ash Center at the John F. Kennedy School of Government at Harvard University supports this conjecture, showing that 92.8% of the Chinese people are satisfied with the central government. With such high levels of contentment amongst

the Chinese populace, dissent is unlikely to spread and revolt is unheard of. The people feel as if the Chinese government caters to their needs, and so there exists no need to rebel against its regulations. This only serves to enhance the credibility of the Chinese government, providing a reliable indicator of the current political stability that China is experiencing, and its likely continuation into future years as China continues to develop socio-politically.

Stifling culture on behalf of stability is not the answer, and only results in a waste of bureaucratic time and resources that could be

better spent addressing real potential threats to China’s stability. “ So, having realized the political and economic nature of China, we come to the conclusion that it is, indeed, stable in both veins. And so this begs the question – why, then, does the Chinese government insist on these regulations of the online streaming industry in the name of stability, when it is in fact already stable? To this we can only speculate, but this almost innate urge to censor seems to be derived from a sense of fear. As a largely autocratic government, maintaining conformity amongst the people is vital to the regime, and any potential threat to the

status quo, no matter how unlikely, must be stifled before it has the chance to emerge rampant amongst the people. And while this fear is reasonable, the Chinese government seems to take it to unnecessary levels when it resorts to the overregulation of the online streaming industry. Purportedly morally harmful lyrics are, in the grand scheme of things, unlikely to spark political uprising amongst the already peacefully satisfied Chinese citizenry. Neither are they likely to result in a legitimate threat to the Chinese order. Stifling culture on behalf of stability is not the answer, and only results in a waste of bureaucratic time and resources that could be better spent addressing real potential threats to China’s stability. Only when the Chinese government

realizes this can it echo its economic and political progress in the cultural sphere, and become the multidimensional country it has always wanted to be. | BA Sarah Chekfa is a Freshman in the College of Arts and Sciences, studying Economics and Government. She also writes for Kitsch Magazine, and is a member of the Environmental Committee of the Student Assembly.

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

CHINA

17

4/11/2016 6:18:17 PM


16

ever, it important to note that participation is still gradually expanding, thanks to reforms by the Chinese Communist Party focused on refining the electoral systems of the National People’s Congress and Chinese People’s Political Consultative Conference. Granted, China’s political evolution towards a more transparent system rooted in the political participation of its citizens has not been rapid, but the trend to focus on, underlying the growing mindset of the Chinese political system, is that it is moving in the right direction – towards greater visibility and a more democratic standard. The positive effects of this trend have been highlighted in a noteworthy study conducted by The Economist Intelligence Unit. In its compilation of its 2009-2010 Political Stability Index,

BAJ 2015 Spring.indd 16-17

it graded China as a 4.8 on a scale of 0 to 10, with 10 being the most prone to social unrest. This statistic is not something to be taken lightly – that China hovers around the middle of the political stability spectrum further landmarks the country as one that has shown, time and time again, that it is not vulnerable to the instabilities that many other countries are prone to. A testament to China’s strength is found in the fact that the majority of the Chinese people are happy with the current system of government. A 2014 survey distributed by the Ash Center at the John F. Kennedy School of Government at Harvard University supports this conjecture, showing that 92.8% of the Chinese people are satisfied with the central government. With such high levels of contentment amongst

the Chinese populace, dissent is unlikely to spread and revolt is unheard of. The people feel as if the Chinese government caters to their needs, and so there exists no need to rebel against its regulations. This only serves to enhance the credibility of the Chinese government, providing a reliable indicator of the current political stability that China is experiencing, and its likely continuation into future years as China continues to develop socio-politically.

Stifling culture on behalf of stability is not the answer, and only results in a waste of bureaucratic time and resources that could be

better spent addressing real potential threats to China’s stability. “ So, having realized the political and economic nature of China, we come to the conclusion that it is, indeed, stable in both veins. And so this begs the question – why, then, does the Chinese government insist on these regulations of the online streaming industry in the name of stability, when it is in fact already stable? To this we can only speculate, but this almost innate urge to censor seems to be derived from a sense of fear. As a largely autocratic government, maintaining conformity amongst the people is vital to the regime, and any potential threat to the

status quo, no matter how unlikely, must be stifled before it has the chance to emerge rampant amongst the people. And while this fear is reasonable, the Chinese government seems to take it to unnecessary levels when it resorts to the overregulation of the online streaming industry. Purportedly morally harmful lyrics are, in the grand scheme of things, unlikely to spark political uprising amongst the already peacefully satisfied Chinese citizenry. Neither are they likely to result in a legitimate threat to the Chinese order. Stifling culture on behalf of stability is not the answer, and only results in a waste of bureaucratic time and resources that could be better spent addressing real potential threats to China’s stability. Only when the Chinese government

realizes this can it echo its economic and political progress in the cultural sphere, and become the multidimensional country it has always wanted to be. | BA Sarah Chekfa is a Freshman in the College of Arts and Sciences, studying Economics and Government. She also writes for Kitsch Magazine, and is a member of the Environmental Committee of the Student Assembly.

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

CHINA

17

4/11/2016 6:18:17 PM


CHINA

18

T

he Silicon Valley brings to mind household names like Steve Jobs, Mark Zuckerberg, and Jack Dorsey, but the concept of a technology center in Northern California actually began with a man named Frederick Terman. In 1951, Terman helped create Stanford Industrial (later Research) Park. Since that date, Stanford has become a feeder school for the massive tech

BAJ 2015 Spring.indd 18-19

industry that gives back to the University through numerous partnerships. This has established a mutually symbiotic relationship between the technology hub and the prestigious university. Silicon Valley is part of the culture of Stanford and differentiates the university from its competitors by attracting the best talent to the school. On an almost paradoxical note, in the global industry that is

Writer

higher education, the local community and economy are becoming even more vital to the progress of the institution. The growth of the local economy creates an environment that welcomes and encourages academic innovation, while providing a fruitful home to international scholars. The development of Silicon Valley and the subsequent success of Stanford has become a model for universities

“China must have a number of first-rate universities of international advanced level”. With rising business costs in the United States and scarcity in high skilled technical labor, the model of a top-tier university and a technology-focused business city is moving overseas. With the help of the elite Tsinghua University, Beijing, China is growing at a rapid pace in the start-up scene with many believing it could, one day, duplicate the Silicon Valley success. Tsinghua University was established in 1911 with indemnity payments after the Boxer Rebellion. During the social revolution of the 1950s, the Chinese government assumed complete autonomy over higher education in an attempt to build a Soviet style system where institutions would focus in one specific area of study, which in this case was science and engineering. Tsinghua’s strategy then involved strict self-discipline, government intervention, and commitment to Chinese entrepreneurial rejuvenation. Tsinghua University began its path to excellence in the 1990s when the Chinese government set strict goals and created a timeline to become a comprehensive research university by 2002. “Project 211” was the national funding focused exclusively on building the top research institutions in China. Realizing this still was not enough, former Chinese President Jiang Zemin launched “Project 985” in 1998 saying, “China must have a number of first-rate universities of international advanced level.” Tsinghua’s strategy is more focused on becoming the best rather than developing individual students and projects, which has shown some success, but still requires considerable growth to match the power of

other international institutions. Tsinghua’s strategy is geared towards invigorating China’s entrepreneurial spirit. Over the past 10 years, China’s GDP growth has slowed, and the government is pushing innovation. Tsinghua tailors its science and engineering research to spur innovation in the Chinese economy. The university is currently developing a nuclear energy station, which the State Council approved in 2008, noting it as one of the symbolic projects to build an innovative country. This mission has had a dramatic impact on the Beijing community, specifically Zhongguancun. Given its close proximity to Tsinghua, many students who had once travelled abroad are coming back to start companies in the area. By the end of 2002, there were 1,546 companies run by returned overseas students involving over 1.5 billion yuan or $180 million in venture capital. Working with the Zhongguancun area, Tsinghua established business incubators where students could rent space and build their companies at a discounted cost. The government is enticing students to come back to China to build the national economy through these partnerships with Tsinghua. This strong reverse brain drain from Western countries is a welcome sign for the Chinese economy, which usually tends to see some of its brightest talent pursue opportunities abroad. More business incubators and startup accelerators are aimed at unleashing the creative talent of students and budding entrepreneurs. The results of China’s improved computer science and technology curriculum can be seen by the rise of Chinese universities in global rankings and the growing financial support for research.

Tsinghua has, thus, made it a mission to tailor its science and engineering research

towards innovation in the Chinese economy. With a rapid rise in the number of startups coming out of the greater Beijing area, it is only a matter of time before they see a rapid rise of a few disruptive startups. This will attract high valuations from investors, thereby drawing the interest of international venture capital companies and angel investors Sustained growth of a few companies will establish a strong base for the overall growth of the industry. With the rise of tech giants like Alibaba and Baidu, China has seen that disruptive products can be very successful in this dynamic market. The holistic growth of an open and innovative environment, with investors, supporting infrastructure and the constant supply of talent from Tsinghua will lead to the definitive development of the next Silicon Valley in China. All of China is depending upon this emerging Silicon Valley to produce the next set of global companies to revitalize a sluggish economy and lead to further growth of this rising giant. | BA Catherine McAnney is a Senior in the ILR School with minors in Business and Information Science. She will be working in Healthcare Investment Banking after graduation.

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

China’s Silicon Valley

around the world. CATHERINE McAnney

by

19

4/11/2016 6:18:20 PM


CHINA

18

T

he Silicon Valley brings to mind household names like Steve Jobs, Mark Zuckerberg, and Jack Dorsey, but the concept of a technology center in Northern California actually began with a man named Frederick Terman. In 1951, Terman helped create Stanford Industrial (later Research) Park. Since that date, Stanford has become a feeder school for the massive tech

BAJ 2015 Spring.indd 18-19

industry that gives back to the University through numerous partnerships. This has established a mutually symbiotic relationship between the technology hub and the prestigious university. Silicon Valley is part of the culture of Stanford and differentiates the university from its competitors by attracting the best talent to the school. On an almost paradoxical note, in the global industry that is

Writer

higher education, the local community and economy are becoming even more vital to the progress of the institution. The growth of the local economy creates an environment that welcomes and encourages academic innovation, while providing a fruitful home to international scholars. The development of Silicon Valley and the subsequent success of Stanford has become a model for universities

“China must have a number of first-rate universities of international advanced level”. With rising business costs in the United States and scarcity in high skilled technical labor, the model of a top-tier university and a technology-focused business city is moving overseas. With the help of the elite Tsinghua University, Beijing, China is growing at a rapid pace in the start-up scene with many believing it could, one day, duplicate the Silicon Valley success. Tsinghua University was established in 1911 with indemnity payments after the Boxer Rebellion. During the social revolution of the 1950s, the Chinese government assumed complete autonomy over higher education in an attempt to build a Soviet style system where institutions would focus in one specific area of study, which in this case was science and engineering. Tsinghua’s strategy then involved strict self-discipline, government intervention, and commitment to Chinese entrepreneurial rejuvenation. Tsinghua University began its path to excellence in the 1990s when the Chinese government set strict goals and created a timeline to become a comprehensive research university by 2002. “Project 211” was the national funding focused exclusively on building the top research institutions in China. Realizing this still was not enough, former Chinese President Jiang Zemin launched “Project 985” in 1998 saying, “China must have a number of first-rate universities of international advanced level.” Tsinghua’s strategy is more focused on becoming the best rather than developing individual students and projects, which has shown some success, but still requires considerable growth to match the power of

other international institutions. Tsinghua’s strategy is geared towards invigorating China’s entrepreneurial spirit. Over the past 10 years, China’s GDP growth has slowed, and the government is pushing innovation. Tsinghua tailors its science and engineering research to spur innovation in the Chinese economy. The university is currently developing a nuclear energy station, which the State Council approved in 2008, noting it as one of the symbolic projects to build an innovative country. This mission has had a dramatic impact on the Beijing community, specifically Zhongguancun. Given its close proximity to Tsinghua, many students who had once travelled abroad are coming back to start companies in the area. By the end of 2002, there were 1,546 companies run by returned overseas students involving over 1.5 billion yuan or $180 million in venture capital. Working with the Zhongguancun area, Tsinghua established business incubators where students could rent space and build their companies at a discounted cost. The government is enticing students to come back to China to build the national economy through these partnerships with Tsinghua. This strong reverse brain drain from Western countries is a welcome sign for the Chinese economy, which usually tends to see some of its brightest talent pursue opportunities abroad. More business incubators and startup accelerators are aimed at unleashing the creative talent of students and budding entrepreneurs. The results of China’s improved computer science and technology curriculum can be seen by the rise of Chinese universities in global rankings and the growing financial support for research.

Tsinghua has, thus, made it a mission to tailor its science and engineering research

towards innovation in the Chinese economy. With a rapid rise in the number of startups coming out of the greater Beijing area, it is only a matter of time before they see a rapid rise of a few disruptive startups. This will attract high valuations from investors, thereby drawing the interest of international venture capital companies and angel investors Sustained growth of a few companies will establish a strong base for the overall growth of the industry. With the rise of tech giants like Alibaba and Baidu, China has seen that disruptive products can be very successful in this dynamic market. The holistic growth of an open and innovative environment, with investors, supporting infrastructure and the constant supply of talent from Tsinghua will lead to the definitive development of the next Silicon Valley in China. All of China is depending upon this emerging Silicon Valley to produce the next set of global companies to revitalize a sluggish economy and lead to further growth of this rising giant. | BA Catherine McAnney is a Senior in the ILR School with minors in Business and Information Science. She will be working in Healthcare Investment Banking after graduation.

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

China’s Silicon Valley

around the world. CATHERINE McAnney

by

19

4/11/2016 6:18:20 PM


One Belt One Road

BUSINESS ASIA • FALL 2015

A Shifting Dynamic in China

20

L

ess than a decade ago, the slogans of the Communist Party of China (CCP) were still more or less fixed on fairly innocuous ideas like Deng Xiaoping’s tried and true “Economic Reform and Opening” and Hu Jintao’s signature idea of the “Harmonious Society.” But with the economy on the brink of a slowdown and a series of long festering economic problems rising to the surface, propaganda today has taken a concerning turn towards the nationalis-

BAJ 2015 Spring.indd 20-21

tic. Xi Jinping’s “China Dream” and a new emphasis on ideas like “Chinese Revival” may indicate that the Party is on the verge of enacting a landmark ideological shift in its claim to legitimacy. The next few years could see a change from a Chinese government whose legitimacy is grounded in economic progress to one that relies on nationalistic fervor and bold international actions to retain the will of its people. As far as the CCP is concerned, there

STEVEN SALENIK

by

Associate Editor

are few politically safer ways to direct national sentiment than to revive China’s historical role as East Asia’s regional hegemon. This thinking may have led to the formulation and unveiling of the “One Belt One Road” policy in 2013. In a nutshell, the One Belt One Road policy (OBOR) seeks to build an international railroad system that is reminiscent of the Silk Road of antiquity that cut through central Asia and the Middle East and was utilized to distribute Chinese goods

to the outside world. China has already begun work on a track from Xi’an to Kazakhstan and plans to extend the line to Iran’s capital, Tehran. Even for China and the Communist Party, undoing centuries of international

lated, developing central Asian nations, any potential benefits that OBOR creates for China will be hard won. Despite these information gaps, Chinese analysts continued to emphasize the strategic benefits of the plan at the Asian Political

development that solidified the central role of maritime transport in international trade will not be easy. The situation has been aggravated by China’s decades of systematic neglect of area studies programs. Due to lack of appropriate academic emphasis, a large portion of Chinese “area experts” have never even completed fieldwork outside of China. With no serious Chinese studies examining the multitude of political risks tied to investment in the infrastructure of iso-

Parties Special Conference on the Silk Road, held in Beijing in October 2015. On the surface, China’s proposed forays into central Asia in the form of a high-speed railway system might worry hawks in the United States, Europe, and Japan. A closer examination suggests that OBOR is not necessarily a policy bent on continental domination; rather, it is a reflection of the Chinese leadership’s deep concern for the country’s economic fragility. As China’s real growth rate slows

to a more typical four or five percent, stronger ties with central Asia and the Middle East could help buoy economic growth. Kazakhstan and Iran in particular could prove to be important untapped markets for Chinese goods, helping to offset the effects of any domestic slowdowns. Additionally, an efficient rail line through the region could greatly simplify the process of resource extraction and the transportation of these resources back to China for refinement and manufacturing. With international economic sanctions to be lifted this year, Iran could prove an especially valuable economic partner. Investment promises and a commitment to building an advanced transportation network between Iran and China could help put China first in line for Iran’s future expansion of oil sales. Regardless of whether OBOR initiatives prove to be profitable or useful for China, it seems clear that the entities with the most to gain from the establishment of a new Silk Road are the isolated and impoverished countries in central Asia. With no direct access to international maritime trade routes, large landmasses, and difficult terrain, Kazakhstan, Uzbekistan, Turkmenistan - and to a lesser extent, other countries bordering the new proposed Silk Road like Kirgizstan and Tajikistan - could end up being the real winners in China’s OBOR initiatives. Without the support of the Soviet Union and the stability of a strong, centralized command economy, these central Asian nations have faced serious economic difficulties and received comparatively little attention from the West in the past two decades. Stronger and more tangible ties with China, in the form of a modern railway and infrastructure investment, could provide the entire region with a new lease on life from an economic standpoint. After examining the motivations for, and potential effects of, OBOR initiatives,

BUSINESS ASIA • FALL 2015

CHINA

21

4/11/2016 6:18:21 PM


One Belt One Road

BUSINESS ASIA • FALL 2015

A Shifting Dynamic in China

20

L

ess than a decade ago, the slogans of the Communist Party of China (CCP) were still more or less fixed on fairly innocuous ideas like Deng Xiaoping’s tried and true “Economic Reform and Opening” and Hu Jintao’s signature idea of the “Harmonious Society.” But with the economy on the brink of a slowdown and a series of long festering economic problems rising to the surface, propaganda today has taken a concerning turn towards the nationalis-

BAJ 2015 Spring.indd 20-21

tic. Xi Jinping’s “China Dream” and a new emphasis on ideas like “Chinese Revival” may indicate that the Party is on the verge of enacting a landmark ideological shift in its claim to legitimacy. The next few years could see a change from a Chinese government whose legitimacy is grounded in economic progress to one that relies on nationalistic fervor and bold international actions to retain the will of its people. As far as the CCP is concerned, there

STEVEN SALENIK

by

Associate Editor

are few politically safer ways to direct national sentiment than to revive China’s historical role as East Asia’s regional hegemon. This thinking may have led to the formulation and unveiling of the “One Belt One Road” policy in 2013. In a nutshell, the One Belt One Road policy (OBOR) seeks to build an international railroad system that is reminiscent of the Silk Road of antiquity that cut through central Asia and the Middle East and was utilized to distribute Chinese goods

to the outside world. China has already begun work on a track from Xi’an to Kazakhstan and plans to extend the line to Iran’s capital, Tehran. Even for China and the Communist Party, undoing centuries of international

lated, developing central Asian nations, any potential benefits that OBOR creates for China will be hard won. Despite these information gaps, Chinese analysts continued to emphasize the strategic benefits of the plan at the Asian Political

development that solidified the central role of maritime transport in international trade will not be easy. The situation has been aggravated by China’s decades of systematic neglect of area studies programs. Due to lack of appropriate academic emphasis, a large portion of Chinese “area experts” have never even completed fieldwork outside of China. With no serious Chinese studies examining the multitude of political risks tied to investment in the infrastructure of iso-

Parties Special Conference on the Silk Road, held in Beijing in October 2015. On the surface, China’s proposed forays into central Asia in the form of a high-speed railway system might worry hawks in the United States, Europe, and Japan. A closer examination suggests that OBOR is not necessarily a policy bent on continental domination; rather, it is a reflection of the Chinese leadership’s deep concern for the country’s economic fragility. As China’s real growth rate slows

to a more typical four or five percent, stronger ties with central Asia and the Middle East could help buoy economic growth. Kazakhstan and Iran in particular could prove to be important untapped markets for Chinese goods, helping to offset the effects of any domestic slowdowns. Additionally, an efficient rail line through the region could greatly simplify the process of resource extraction and the transportation of these resources back to China for refinement and manufacturing. With international economic sanctions to be lifted this year, Iran could prove an especially valuable economic partner. Investment promises and a commitment to building an advanced transportation network between Iran and China could help put China first in line for Iran’s future expansion of oil sales. Regardless of whether OBOR initiatives prove to be profitable or useful for China, it seems clear that the entities with the most to gain from the establishment of a new Silk Road are the isolated and impoverished countries in central Asia. With no direct access to international maritime trade routes, large landmasses, and difficult terrain, Kazakhstan, Uzbekistan, Turkmenistan - and to a lesser extent, other countries bordering the new proposed Silk Road like Kirgizstan and Tajikistan - could end up being the real winners in China’s OBOR initiatives. Without the support of the Soviet Union and the stability of a strong, centralized command economy, these central Asian nations have faced serious economic difficulties and received comparatively little attention from the West in the past two decades. Stronger and more tangible ties with China, in the form of a modern railway and infrastructure investment, could provide the entire region with a new lease on life from an economic standpoint. After examining the motivations for, and potential effects of, OBOR initiatives,

BUSINESS ASIA • FALL 2015

CHINA

21

4/11/2016 6:18:21 PM


SE ASIA

enjoy discussing titanic-scale policies as though China is on the cusp of replacing the United States as the world’s preeminent power. A quick empirical examination of China will reveal serious shortcomings in good governance, military hegemony, handling of major ethnic conflict, fair trade policy, and internationally recognized human rights – and these are just a few areas in need of improvement. To assume that China is ready to become an international hegemon - or even that it would be in China’s best interests to do so - would be incorrect. Continuing to openly tout OBOR policy could be unwise, if not downright dangerous, especially when China remains so chronically underequipped to face the challenges that completing such an ambitious international project in an unstable and underdeveloped region would require. If investment proves unsuccessful or if unforeseen political forces stop the project in its tracks, OBOR could become an embarrassing debacle for China and the CCP. From the point of view of China’s political and economic development, it might be wiser in the long term for China to spend its billions on much needed internal reform. Despite the novelty of

the OBOR policy, China would be better off using government investment to better establish the systems that provide the Chinese people with the basic social services enjoyed by most citizens of the developed world. Were the CCP to successfully lead such efforts, its insecurity over threats to its own legitimacy – both real and perceived - might be significantly alleviated. Regardless of the political reasoning behind One Belt One Road and the risks it carries for China and the CCP, if the railway is ever seen through to completion, it has the potential to create many new winners in the central Asian countries it touches. A new line of modern transportation could mark the beginning of a new, more prosperous era for a particularly misunderstood and isolated region of the world. | BA

Billionaire’s Playground: Inequality in Singapore

BUSINESS ASIA • FALL 2015 BAJ 2015 Spring.indd 22-23

Writer

Steven is a junior in the College of Arts and Sciences. He is fluent in Mandarin Chinese, and spent more than a year in Beijing helping several Chinese enterprises to better market themselves internationally. This summer, he will be working in Boston as a management consulting intern with Ernst and Young.

S 22

ANGELA ZHANG

by

ingapore’s transformation from a British backwater colony to the premier Asian Tiger in mere decades is acknowledged globally as a miraculous accomplishment. Led by Lee Kuan Yew, Singapore’s first prime minister, this island city-state is recognized for its transition during the late 20th century from the “third world to the first world in a single generation.” This swift economic and social revitalization has brought about real benefits to its population; Singapore is consistently

commended for its robust measures in education, multiculturalism, healthcare, life expectancy, quality of life, personal safety, and housing. Although Singapore’s large-scale development has translated to concrete value for almost all social classes, it is undeniable that the country’s spoils have largely gone to the elite - the top one percent have profited most from Singapore’s free, innovative, dynamic business climate and managed to develop empires spanning financial services, luxury,

leisure, transportation, and manufacturing. This income inequality is captured in Singapore’s Gini coefficient: at a measure of 0.478 in 2014, it is the one of the highest among developed countries and even greater than China’s level of inequality. “Hawker” food stalls offering $3 meals line the same streets that the newest McLarens and Lamborghinis race through. The iconic Orchard Street boasts the most exclusive designer brands, where consumers are willing to pay some of the highest luxury import taxes

BUSINESS ASIA • FALL 2015

one pressing question remains: exactly how much of OBOR policy will China actually see to completion, and how much is simply short-term nationalist propaganda? For the CCP, the goals of OBOR most likely have as much to do with the Chinese domestic political situation as with trade and foreign relations. To fully understand Chinese policy, it is essential to first examine the policy in question through the lens of the CCP in its attempts to maintain its legitimacy through changing times. OBOR goals can be seen as going hand in hand with Xi Jinping’s new, bold leadership style that emphasizes Chinese cultural and even racial superiority and the return of China to its central place on the world stage. When seen in this light, whether or not a modern rail system through Central Asia is actually finished, and even whether or not it is profitable, become somewhat irrelevant. As long as it appears to the Chinese domestic audience that China has taken a move towards regional hegemony, OBOR may be considered a success for the CCP through the creation of a new rallying point for Chinese patriotism and reverence for party leadership. Currently, a significant number of serious Chinese scholars and analysts

23

4/11/2016 6:18:22 PM


SE ASIA

enjoy discussing titanic-scale policies as though China is on the cusp of replacing the United States as the world’s preeminent power. A quick empirical examination of China will reveal serious shortcomings in good governance, military hegemony, handling of major ethnic conflict, fair trade policy, and internationally recognized human rights – and these are just a few areas in need of improvement. To assume that China is ready to become an international hegemon - or even that it would be in China’s best interests to do so - would be incorrect. Continuing to openly tout OBOR policy could be unwise, if not downright dangerous, especially when China remains so chronically underequipped to face the challenges that completing such an ambitious international project in an unstable and underdeveloped region would require. If investment proves unsuccessful or if unforeseen political forces stop the project in its tracks, OBOR could become an embarrassing debacle for China and the CCP. From the point of view of China’s political and economic development, it might be wiser in the long term for China to spend its billions on much needed internal reform. Despite the novelty of

the OBOR policy, China would be better off using government investment to better establish the systems that provide the Chinese people with the basic social services enjoyed by most citizens of the developed world. Were the CCP to successfully lead such efforts, its insecurity over threats to its own legitimacy – both real and perceived - might be significantly alleviated. Regardless of the political reasoning behind One Belt One Road and the risks it carries for China and the CCP, if the railway is ever seen through to completion, it has the potential to create many new winners in the central Asian countries it touches. A new line of modern transportation could mark the beginning of a new, more prosperous era for a particularly misunderstood and isolated region of the world. | BA

Billionaire’s Playground: Inequality in Singapore

BUSINESS ASIA • FALL 2015 BAJ 2015 Spring.indd 22-23

Writer

Steven is a junior in the College of Arts and Sciences. He is fluent in Mandarin Chinese, and spent more than a year in Beijing helping several Chinese enterprises to better market themselves internationally. This summer, he will be working in Boston as a management consulting intern with Ernst and Young.

S 22

ANGELA ZHANG

by

ingapore’s transformation from a British backwater colony to the premier Asian Tiger in mere decades is acknowledged globally as a miraculous accomplishment. Led by Lee Kuan Yew, Singapore’s first prime minister, this island city-state is recognized for its transition during the late 20th century from the “third world to the first world in a single generation.” This swift economic and social revitalization has brought about real benefits to its population; Singapore is consistently

commended for its robust measures in education, multiculturalism, healthcare, life expectancy, quality of life, personal safety, and housing. Although Singapore’s large-scale development has translated to concrete value for almost all social classes, it is undeniable that the country’s spoils have largely gone to the elite - the top one percent have profited most from Singapore’s free, innovative, dynamic business climate and managed to develop empires spanning financial services, luxury,

leisure, transportation, and manufacturing. This income inequality is captured in Singapore’s Gini coefficient: at a measure of 0.478 in 2014, it is the one of the highest among developed countries and even greater than China’s level of inequality. “Hawker” food stalls offering $3 meals line the same streets that the newest McLarens and Lamborghinis race through. The iconic Orchard Street boasts the most exclusive designer brands, where consumers are willing to pay some of the highest luxury import taxes

BUSINESS ASIA • FALL 2015

one pressing question remains: exactly how much of OBOR policy will China actually see to completion, and how much is simply short-term nationalist propaganda? For the CCP, the goals of OBOR most likely have as much to do with the Chinese domestic political situation as with trade and foreign relations. To fully understand Chinese policy, it is essential to first examine the policy in question through the lens of the CCP in its attempts to maintain its legitimacy through changing times. OBOR goals can be seen as going hand in hand with Xi Jinping’s new, bold leadership style that emphasizes Chinese cultural and even racial superiority and the return of China to its central place on the world stage. When seen in this light, whether or not a modern rail system through Central Asia is actually finished, and even whether or not it is profitable, become somewhat irrelevant. As long as it appears to the Chinese domestic audience that China has taken a move towards regional hegemony, OBOR may be considered a success for the CCP through the creation of a new rallying point for Chinese patriotism and reverence for party leadership. Currently, a significant number of serious Chinese scholars and analysts

23

4/11/2016 6:18:22 PM


24

in the world. While the ultra-rich enjoy lavish yachts at the world-renowned ONE°15 Marina Club, others struggle to survive in crowded dormitories just a few kilometers away. This is especially true for the hundreds of thousands of foreign workers who supply the low-skill, low-wage labor for Singapore’s construction and factories. The proportion of Singapore residents earning less than $690 per month has risen to 18 percent, and without unemployment benefits or a minimum wage, life for those on the lower end of the income gap is becoming increasingly difficult. As Singapore’s economy explores new frontiers in logistics and biomedical sciences, it becomes more important than ever to understand not only the magnitude of Singapore’s growth, but also the imbalanced allocation of this expansion in wealth. While the income gap is the mostcited aspect of inequality in Singapore, it is certainly not the only issue deepening social and economic inequality in Singapore. Recent research has shown that beyond income, the separation of the rich from the poor is defined by wealth inequality, a cumulative measure of income over time that includes assets in the form of property, stocks, and inheritances. These additional assets can substantially increase in value even when income does not, which is why income and wealth must be considered together for a more comprehensive understanding of a household’s true economic standing. In Singapore, wealth is dramatically more unequally distributed than income and the wealth gap is growing even faster than income gap. Credit Suisse’s global wealth report revealed that Singapore’s median wealth per adult was $90,466, but its mean wealth per adult was more than three times higher, at $281,644. Because the mean is sensitive to extreme measures, such as enormously wealthy individuals on the right end of the

BAJ 2015 Spring.indd 24-25

distribution, these values demonstrate that the disproportionately wealthy in Singapore are significantly richer than the average Singaporean. This massive difference between the median and the mean is one of the largest across wealthy nations, and it implies that much of the wealth in Singapore is concentrated in the hands of a few. In fact, the report recorded that over 25 percent of the country’s wealth is owned by the top one percent.

Third world to the first world in a single generation.”

What is most concerning—and what makes the wealth gap an even more telling measure than the income gap—is that accumulated wealth often becomes entrenched over time, making redistribution difficult in Singaporean society, from a political and sociological perspective. A major source of wealth is real estate, and in this island city-state, nine out of ten households own their own homes. However, as Singapore’s economy has attracted foreign professionals and investors, the value of prime properties has also risen 80 percent in less than a decade. Today, the price per square meter of central-city real estate in Singapore is almost twice the price of that in New York City. This is troublesome, especially when paired with the recent report that reveals that the cost of living is 78 percent more than in New York City, but Singaporeans make 25 percent less, on average. In short, bidding and speculation from foreign purchasers has inflated real estate to levels that are unaffordable for average households, thus pushing both middle and lower class households to marginal property. This pattern is observed even amongst the upper middle-class. As real estate prices soar, those outside the elite lose the opportunity to accumulate and pass on wealth in the form of real estate.

The power and significance of intergenerational wealth in this Asian Tiger is captured by Singapore’s “Rich List;” more so than its other high-profile Asian counterparts, Singapore’s elite features families rather than individuals, highlighting the role wealth plays in cementing socioeconomic inequality over generations. What is Singapore doing to address this inequality, and is it working? What is the attitude across social and economic classes towards inequality? For generations, many Singaporeans have embraced the regressive tax system with the belief that “a rising tide lifts all boats.” But this “tide” of growth has differentiated between the boat and the yacht; the disparity between the rich and the poor is so pronounced now that it is difficult for citizens to overlook. The IMF asserts that implementing more progressive property taxes is one of the best ways to tax the rich; under this policy, second and third homes would face a higher tax than the first, and more valuable properties would be taxed at a higher rate. Singapore has instituted measures to curb foreign buying and speculation by implementing an up-front property sales tax of 18 percent for foreign buyers. Likewise, the government has introduced additional taxes on properties that were flipped: 16 percent within one year and 12 percent within two years. Aside from property taxes, Singapore has also introduced more taxes on general high-end assets, including luxury cars and retail. Luxury vehicles are an especially lucrative tax base for the Singapore government; in order to own and operate a vehicle in Singapore, one must obtain a certificate of entitlement, which is currently priced at just below $60,000. This makes Singapore the most expensive place in the world to own a car, yet the demand for foreign luxury vehicles is insatiable. In Singapore, the two most common car brands are luxury German

manufacturers Mercedes-Benz and BMW. In this sense, taxes on the extremely wealthy provide significant tax revenue and serve to redistribute wealth, at least to some extent. Although the desire for greater income and wealth equality is shared by the majority of the population and spans class lines, Singapore natives disagree on the magnitude to which progressive taxation should be utilized. Singapore has consistently increased its income tax on high wealth individuals; this year, those who earn above $256,000 will be faced with a 22 percent tax rate. Many fear that by placing too great a burden on the ultra-wealthy, Singapore will lose the foreign individuals and entities that vitalize the Singaporean economy through entrepreneurship, employment, local spending and consumption, and fulfillment of unique services and goods. After all, Singapore’s stable tax-friendly,

business-friendly environment is what attracted many billionaires to the island in the first place—and if Singapore were to implement capital-gains or inheritance taxes and accelerate hikes in income taxes, these foreigners have the means to leave Singapore. Most notable of these high net-worth figures is Eduardo Saverin, co-founder of Facebook. His relocation to Singapore saves him an estimated $39 million, a hefty measure that speaks to Singapore’s magnetism as one of the greatest tax havens in the world. The unprecedented expansion of wealth in Asia, combined with tightening regulations in Europe, has primed Singapore to surpass Switzerland as the largest global offshore wealth center by 2020. In this sense, how the Singaporean government arbitrates between alleviating wealth-driven social and economic inequality while retaining its productive foreign billionaires is of the utmost importance. The argument is

fraught with tension, and if the government allows either the concerns of its citizens or the interests of the elite to go unaddressed, Singapore faces the risks of disastrous class conflict and economic turmoil. | BA Angela Zhang is a sophomore in the College of Arts and Sciences who is studying Biology and Economics. As a native of Hangzhou, China, she is particularly passionate about China’s 21st century growth in innovative sectors such as biomedicine and information technology.

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

SE ASIA

25

4/11/2016 6:18:23 PM


24

in the world. While the ultra-rich enjoy lavish yachts at the world-renowned ONE°15 Marina Club, others struggle to survive in crowded dormitories just a few kilometers away. This is especially true for the hundreds of thousands of foreign workers who supply the low-skill, low-wage labor for Singapore’s construction and factories. The proportion of Singapore residents earning less than $690 per month has risen to 18 percent, and without unemployment benefits or a minimum wage, life for those on the lower end of the income gap is becoming increasingly difficult. As Singapore’s economy explores new frontiers in logistics and biomedical sciences, it becomes more important than ever to understand not only the magnitude of Singapore’s growth, but also the imbalanced allocation of this expansion in wealth. While the income gap is the mostcited aspect of inequality in Singapore, it is certainly not the only issue deepening social and economic inequality in Singapore. Recent research has shown that beyond income, the separation of the rich from the poor is defined by wealth inequality, a cumulative measure of income over time that includes assets in the form of property, stocks, and inheritances. These additional assets can substantially increase in value even when income does not, which is why income and wealth must be considered together for a more comprehensive understanding of a household’s true economic standing. In Singapore, wealth is dramatically more unequally distributed than income and the wealth gap is growing even faster than income gap. Credit Suisse’s global wealth report revealed that Singapore’s median wealth per adult was $90,466, but its mean wealth per adult was more than three times higher, at $281,644. Because the mean is sensitive to extreme measures, such as enormously wealthy individuals on the right end of the

BAJ 2015 Spring.indd 24-25

distribution, these values demonstrate that the disproportionately wealthy in Singapore are significantly richer than the average Singaporean. This massive difference between the median and the mean is one of the largest across wealthy nations, and it implies that much of the wealth in Singapore is concentrated in the hands of a few. In fact, the report recorded that over 25 percent of the country’s wealth is owned by the top one percent.

Third world to the first world in a single generation.”

What is most concerning—and what makes the wealth gap an even more telling measure than the income gap—is that accumulated wealth often becomes entrenched over time, making redistribution difficult in Singaporean society, from a political and sociological perspective. A major source of wealth is real estate, and in this island city-state, nine out of ten households own their own homes. However, as Singapore’s economy has attracted foreign professionals and investors, the value of prime properties has also risen 80 percent in less than a decade. Today, the price per square meter of central-city real estate in Singapore is almost twice the price of that in New York City. This is troublesome, especially when paired with the recent report that reveals that the cost of living is 78 percent more than in New York City, but Singaporeans make 25 percent less, on average. In short, bidding and speculation from foreign purchasers has inflated real estate to levels that are unaffordable for average households, thus pushing both middle and lower class households to marginal property. This pattern is observed even amongst the upper middle-class. As real estate prices soar, those outside the elite lose the opportunity to accumulate and pass on wealth in the form of real estate.

The power and significance of intergenerational wealth in this Asian Tiger is captured by Singapore’s “Rich List;” more so than its other high-profile Asian counterparts, Singapore’s elite features families rather than individuals, highlighting the role wealth plays in cementing socioeconomic inequality over generations. What is Singapore doing to address this inequality, and is it working? What is the attitude across social and economic classes towards inequality? For generations, many Singaporeans have embraced the regressive tax system with the belief that “a rising tide lifts all boats.” But this “tide” of growth has differentiated between the boat and the yacht; the disparity between the rich and the poor is so pronounced now that it is difficult for citizens to overlook. The IMF asserts that implementing more progressive property taxes is one of the best ways to tax the rich; under this policy, second and third homes would face a higher tax than the first, and more valuable properties would be taxed at a higher rate. Singapore has instituted measures to curb foreign buying and speculation by implementing an up-front property sales tax of 18 percent for foreign buyers. Likewise, the government has introduced additional taxes on properties that were flipped: 16 percent within one year and 12 percent within two years. Aside from property taxes, Singapore has also introduced more taxes on general high-end assets, including luxury cars and retail. Luxury vehicles are an especially lucrative tax base for the Singapore government; in order to own and operate a vehicle in Singapore, one must obtain a certificate of entitlement, which is currently priced at just below $60,000. This makes Singapore the most expensive place in the world to own a car, yet the demand for foreign luxury vehicles is insatiable. In Singapore, the two most common car brands are luxury German

manufacturers Mercedes-Benz and BMW. In this sense, taxes on the extremely wealthy provide significant tax revenue and serve to redistribute wealth, at least to some extent. Although the desire for greater income and wealth equality is shared by the majority of the population and spans class lines, Singapore natives disagree on the magnitude to which progressive taxation should be utilized. Singapore has consistently increased its income tax on high wealth individuals; this year, those who earn above $256,000 will be faced with a 22 percent tax rate. Many fear that by placing too great a burden on the ultra-wealthy, Singapore will lose the foreign individuals and entities that vitalize the Singaporean economy through entrepreneurship, employment, local spending and consumption, and fulfillment of unique services and goods. After all, Singapore’s stable tax-friendly,

business-friendly environment is what attracted many billionaires to the island in the first place—and if Singapore were to implement capital-gains or inheritance taxes and accelerate hikes in income taxes, these foreigners have the means to leave Singapore. Most notable of these high net-worth figures is Eduardo Saverin, co-founder of Facebook. His relocation to Singapore saves him an estimated $39 million, a hefty measure that speaks to Singapore’s magnetism as one of the greatest tax havens in the world. The unprecedented expansion of wealth in Asia, combined with tightening regulations in Europe, has primed Singapore to surpass Switzerland as the largest global offshore wealth center by 2020. In this sense, how the Singaporean government arbitrates between alleviating wealth-driven social and economic inequality while retaining its productive foreign billionaires is of the utmost importance. The argument is

fraught with tension, and if the government allows either the concerns of its citizens or the interests of the elite to go unaddressed, Singapore faces the risks of disastrous class conflict and economic turmoil. | BA Angela Zhang is a sophomore in the College of Arts and Sciences who is studying Biology and Economics. As a native of Hangzhou, China, she is particularly passionate about China’s 21st century growth in innovative sectors such as biomedicine and information technology.

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

SE ASIA

25

4/11/2016 6:18:23 PM


Tsai to Make History as New DPP President of Taiwan

NATALIE LEUNG

by

Writer

When KMT implemented the Cross-Strait Service Trade Agreement (CSSTA) in March 2014, it opened up more positions in the service sector for Chinese people to work in Taiwan and vice versa. Public sentiment nosedived as they found the new system problematic in multiple ways: not only did it hurt employment, its non transparent implementation process that lacked public support was a huge blow to the proudly democratic Taiwan. This let down the expectations of the youth as they felt that the KMT was acting on its own accord to cause the “democratic death” of Taiwan as a sovereign state.

“Amidst Tsai’s achievement, the now-reputable DPP being in power does not infer a better future for Taiwan.”

BUSINESS ASIA • FALL 2015

S

26

ilent applause ripples through the Cornell student body as the Republic of China (Taiwan) elects its second Cornellian in the past 30 years as its new president. Winning with a margin of 3 million votes, Tsai Ing-Wen. LLM ‘80 has achieved a decisive victory, making her the first female president and new face of Taiwan. Her popularity declares an even bolder statement: It signifies the rebirth of the Democratic Progressive Party (DPP). The previous DPP President Chen Shui-Ban’s corrupt regime had led to a fall in the popularity of the party. Tsai has resurrected the institution in a manner analogous to the rise of a phoenix from

BAJ 2015 Spring.indd 26-27

its ashes, making her victory a lot more memorable. This magnitude of political reformation was practically unprecedented in Taiwanese history, sparking interest in the factors that led to such a dramatic turn of events in DPP history. Having been ruled by the centralright wing Kuomintang Party (KMT) throughout history, the DPP’s second win since 1947 has brought about a new generation of thoughts and ideals to Taiwan. In recent years, as the members of the young generation have become more liberal and outspoken, KMT’s proChina stances began to seem unattractive to the public. A weakening pro-China backbone and the fall of the opposition

party led a gradual transition to the liberal and millennial Taiwan of today. However, amidst the rise of an increasingly pro-independence youth population, the KMT’s “pro-China rhetoric was not as well-received as it had been by the older generations. Young people and liberals feared that Taiwan was getting too close to China, raising skepticism that greater trade with China would raise unemployment in Taiwan. Additionally, the KMT faced disdain and disapproval due to the general public sentiment that an increasingly China dependent economy would lead to governance under the One Country Two Systems scheme.

The CSSTA spearheaded the Sunflower Movement, one of the most influential protests in Taiwanese history. They occupied and paralyzed legislative buildings. This struck a huge blow to KMT, and was just a precursor to many more political protests towards them. When the national curriculum of Taiwan was edited to “show more favor” towards China, it led to very similar outrage. The culmination of all these events has had a detrimental impact on the KMT’s reputation, making them seem rather incapable and undemocratic. The DPP has consistently opposed these ideals. Tsai seized this opportunity to restructure and overhaul the organization after the party’s defeat in the 2008 election. She worked according to a visionary plan, where she rigorously recruited young and pro-independent individualists to join the organization. She turned the tables by using the “down to earth” image of DPP to her advantage by heavily contrasting it against

the snobbish image of the wealthy KMT party. Tsai’s approach endears her to the middle class and clearly demonstrates her liberal leanings. By appealing to the liberal vote base she has won the hearts of younger voters and people belonging to the lower strata. This strategy has compounded her recent success. However, DPP being in power does not imply a better future for Taiwan. Tsai is yet to delineate a clear plan on how to manage Taiwan’s rapidly growing economy. Taiwan is depending upon its promising industries like medical devices and smartphone manufacturing to expand worldwide and compete with well established giants like HTC and Acer. With a liberal and open-minded society and economy, they are hoping to establish strong ties with business players in China and the United States. This approach is crucial for sustaining economic growth. The KMT had realized the importance of good relations with the Chinese and the Americans, leading to improved cross-strait relations over the past eight years. It has led to incremental development with initiatives such as direct flights between Taiwan and China. Thus, we are witnessing an evolving business outlook for Taiwan with convenience of travel and visa exemptions contributing to the ease of doing business with the rest of the world. The DPP win has created a tussle between the business outlook and the political scenario. The United States is hesitant to declare Taiwan as an independent state based upon the Taiwan Relations Act (TRA) because it pits the US against China if the latter decides to invade or attack Taiwan at any point in time. This has lead to a rather ironic situation where DPP has to toe the line with their giant oppressors in order to strengthen ties with the United States. As a pro independence party, the business goals are in conflict with the political

goals. Thus, Tsai has to determine her priorities and decide the future route for Taiwan. Moreover, Taiwanese native Kevin Wang observed that DPP’s win was purely a consequence of a fall in KMT’s popularity. “In the 2012 elections, KMT won with 6.8 million votes, while DPP lost at 6 million. This time, DPP won at 6.8 million while KMT lost at 3 million,” he said. These numbers suggest that the KMT simply lost votes rather than the DPP winning significant numbers of new supporters. When Ma decided to visit Tai Ping Dao, an island Taiwan is fighting for against China, and extended a more “pro independence” image, the DPP started criticizing the KMT. The resulting popular perception is that the KMT is criticized regardless of its policy positions, all as a consequence of its deteriorated reputation. Nevertheless, from the dramatic increase in popularity she brought her party in 4 years as well as her acknowledgement and understanding of how the time for aggressive action toward independence has not come, Tsai seems to be a steady and able leader that puts the “greater good” of her people as her first concern. However, whether she puts her political considerations for Taiwan above policies maintaining the positive business outlook is unknown. Proceeding with economic development will lead to greater business opportunities with the risk of potentially dissatisfying the people who elected her in the first place. It is unclear whether more weight should be placed on one or the other, so the world will be watching closely to see what this Cornell alumna has in store for Taiwan. | BA Natalie Leung is a freshman in CALS. She grew up in Hong Kong and completed a HR internship with a finance firm in Hong Kong this past summer.

BUSINESS ASIA • FALL 2015

SE ASIA

27

4/11/2016 6:18:25 PM


Tsai to Make History as New DPP President of Taiwan

NATALIE LEUNG

by

Writer

When KMT implemented the Cross-Strait Service Trade Agreement (CSSTA) in March 2014, it opened up more positions in the service sector for Chinese people to work in Taiwan and vice versa. Public sentiment nosedived as they found the new system problematic in multiple ways: not only did it hurt employment, its non transparent implementation process that lacked public support was a huge blow to the proudly democratic Taiwan. This let down the expectations of the youth as they felt that the KMT was acting on its own accord to cause the “democratic death” of Taiwan as a sovereign state.

“Amidst Tsai’s achievement, the now-reputable DPP being in power does not infer a better future for Taiwan.”

BUSINESS ASIA • FALL 2015

S

26

ilent applause ripples through the Cornell student body as the Republic of China (Taiwan) elects its second Cornellian in the past 30 years as its new president. Winning with a margin of 3 million votes, Tsai Ing-Wen. LLM ‘80 has achieved a decisive victory, making her the first female president and new face of Taiwan. Her popularity declares an even bolder statement: It signifies the rebirth of the Democratic Progressive Party (DPP). The previous DPP President Chen Shui-Ban’s corrupt regime had led to a fall in the popularity of the party. Tsai has resurrected the institution in a manner analogous to the rise of a phoenix from

BAJ 2015 Spring.indd 26-27

its ashes, making her victory a lot more memorable. This magnitude of political reformation was practically unprecedented in Taiwanese history, sparking interest in the factors that led to such a dramatic turn of events in DPP history. Having been ruled by the centralright wing Kuomintang Party (KMT) throughout history, the DPP’s second win since 1947 has brought about a new generation of thoughts and ideals to Taiwan. In recent years, as the members of the young generation have become more liberal and outspoken, KMT’s proChina stances began to seem unattractive to the public. A weakening pro-China backbone and the fall of the opposition

party led a gradual transition to the liberal and millennial Taiwan of today. However, amidst the rise of an increasingly pro-independence youth population, the KMT’s “pro-China rhetoric was not as well-received as it had been by the older generations. Young people and liberals feared that Taiwan was getting too close to China, raising skepticism that greater trade with China would raise unemployment in Taiwan. Additionally, the KMT faced disdain and disapproval due to the general public sentiment that an increasingly China dependent economy would lead to governance under the One Country Two Systems scheme.

The CSSTA spearheaded the Sunflower Movement, one of the most influential protests in Taiwanese history. They occupied and paralyzed legislative buildings. This struck a huge blow to KMT, and was just a precursor to many more political protests towards them. When the national curriculum of Taiwan was edited to “show more favor” towards China, it led to very similar outrage. The culmination of all these events has had a detrimental impact on the KMT’s reputation, making them seem rather incapable and undemocratic. The DPP has consistently opposed these ideals. Tsai seized this opportunity to restructure and overhaul the organization after the party’s defeat in the 2008 election. She worked according to a visionary plan, where she rigorously recruited young and pro-independent individualists to join the organization. She turned the tables by using the “down to earth” image of DPP to her advantage by heavily contrasting it against

the snobbish image of the wealthy KMT party. Tsai’s approach endears her to the middle class and clearly demonstrates her liberal leanings. By appealing to the liberal vote base she has won the hearts of younger voters and people belonging to the lower strata. This strategy has compounded her recent success. However, DPP being in power does not imply a better future for Taiwan. Tsai is yet to delineate a clear plan on how to manage Taiwan’s rapidly growing economy. Taiwan is depending upon its promising industries like medical devices and smartphone manufacturing to expand worldwide and compete with well established giants like HTC and Acer. With a liberal and open-minded society and economy, they are hoping to establish strong ties with business players in China and the United States. This approach is crucial for sustaining economic growth. The KMT had realized the importance of good relations with the Chinese and the Americans, leading to improved cross-strait relations over the past eight years. It has led to incremental development with initiatives such as direct flights between Taiwan and China. Thus, we are witnessing an evolving business outlook for Taiwan with convenience of travel and visa exemptions contributing to the ease of doing business with the rest of the world. The DPP win has created a tussle between the business outlook and the political scenario. The United States is hesitant to declare Taiwan as an independent state based upon the Taiwan Relations Act (TRA) because it pits the US against China if the latter decides to invade or attack Taiwan at any point in time. This has lead to a rather ironic situation where DPP has to toe the line with their giant oppressors in order to strengthen ties with the United States. As a pro independence party, the business goals are in conflict with the political

goals. Thus, Tsai has to determine her priorities and decide the future route for Taiwan. Moreover, Taiwanese native Kevin Wang observed that DPP’s win was purely a consequence of a fall in KMT’s popularity. “In the 2012 elections, KMT won with 6.8 million votes, while DPP lost at 6 million. This time, DPP won at 6.8 million while KMT lost at 3 million,” he said. These numbers suggest that the KMT simply lost votes rather than the DPP winning significant numbers of new supporters. When Ma decided to visit Tai Ping Dao, an island Taiwan is fighting for against China, and extended a more “pro independence” image, the DPP started criticizing the KMT. The resulting popular perception is that the KMT is criticized regardless of its policy positions, all as a consequence of its deteriorated reputation. Nevertheless, from the dramatic increase in popularity she brought her party in 4 years as well as her acknowledgement and understanding of how the time for aggressive action toward independence has not come, Tsai seems to be a steady and able leader that puts the “greater good” of her people as her first concern. However, whether she puts her political considerations for Taiwan above policies maintaining the positive business outlook is unknown. Proceeding with economic development will lead to greater business opportunities with the risk of potentially dissatisfying the people who elected her in the first place. It is unclear whether more weight should be placed on one or the other, so the world will be watching closely to see what this Cornell alumna has in store for Taiwan. | BA Natalie Leung is a freshman in CALS. She grew up in Hong Kong and completed a HR internship with a finance firm in Hong Kong this past summer.

BUSINESS ASIA • FALL 2015

SE ASIA

27

4/11/2016 6:18:25 PM


The Socioeconomic Scene of the Philippines post-Haiyan

BUSINESS ASIA • FALL 2015

T

28

yphoon Haiyan, locally known as Yolanda in the Philippines, was the deadliest tropical storm that the nation has ever experienced. It hit the Philippines on November 8, 2013, and affected more than 14 million people across 46 provinces (“$6 billion economic impact from Typhoon Haiyan tops November CAT report”). Despite repeated storm warnings, locals were reluctant to leave their houses as they were afraid of looters and considered evacuation recommendations to be a form of media hype. This led to the death of more than 10,000 people with an additional 1,785 people missing. Haiyan also caused death and destruction in other nations in Southeast Asia, including China and Vietnam. During the typhoon, coordination between locals was impossible due to the destruction of communication infrastructure. The restoration of the services was dependent upon regaining water and power supply. The recovery process was hindered by rebels and looters who

BAJ 2015 Spring.indd 28-29

ambushed aid convoys for typhoon survivors in areas in need of aid. Typhoon Haiyan fueled the existing problems of poverty, ethnic rivalry and clan violence. The agricultural sector was immediately affected, with the Leyte region, which produced high volumes of sugar and rice, severely damaged by the typhoon. The destruction of crops pushed food prices up for the following months. There was an estimated combined damage to the tune of $700 million in the agriculture and defense sectors. This damage has impacted operations that account for nearly 18 percent of the Philippine’s GDP. Despite the initial negative economic impact, the Philippine’s economy managed to sustain its growth after the typhoon. The Philippines’ projected GDP growth for 2013 was 6.7%, below the government’s target for the year but still better than that of Bangladesh, Vietnam, and Indonesia. CNN Money projected the Philippines to be the fastest growing economy in Southeast Asia in 2015. This

ADITYA SHUKLA

by

Writer

is despite the Philippines losing its place as Southeast Asia’s fastest growing economy to Malaysia immediately following the typhoon. The Philippines’ economy has grown steadily at an average annual rate above 6% for the last five years. The greatest impediment to the Philippines’s economic growth has been poor infrastructure. The economy was thriving under the governance of President Benigno Aquino III, who increased spending, decreased deficits, and improved political administration, making it an attractive destination for foreign investment. The aftermath of the typhoon allowed efforts to build resilient infrastructure as a long-term investment that would boost development in the regions hit hardest by the typhoon. Additionally, it was a greater opportunity to increase government spending while receiving payments from Filipino workers abroad. Remittances from workers abroad were crucial in providing the economic stimulus required to increase

consumer spending, and indirectly provided the government with the ability to utilize government funds for reconstruction and relief programs. As such, the crisis precipitated by the strength of Haiyan did create a meaningful opportunity to improve the economic underpinnings of the country’s economy. Regardless of the return to sustained economic growth in the country as a whole, the poorest regions of the Philippines hit by Haiyan are still recovering from the typhoon two years later. Thousands of people subsist in temporary shelters or tent cities with inadequate medical services and schools, signaling that disaster relief funds and foreign aid has not been optimally utilized. Reconstruction efforts have been thwarted repeatedly due to policy and implementation issues. This is attributed to the several laws and practices that hinder resource mobilization and fund disbursement. As a result of bureaucratic failures, some of the poorest towns negatively impacted by Haiyan have not received the funding and relief projects promised to them. Despite glaring problems, the Philippine government has highlighted the successes of government agencies in providing help to typhoon survivors. The government distributed family food packs, livelihood grants, and cash transfers, and has insisted that it is focusing on the resettlement of typhoon victims. Airport and seaport rehabilitation projects have been conducted successfully post-Haiyan. The Labor Department has been providing jobs to people out of work with the goal of lowering unemployment. Additionally, technical and vocational education is being provided. However, even two years later, only a very small number of the promised 500,000 housing units have been completed in Tacloban and Tanauan. The costs of rebuilding following the crisis have been staggering as they

included costs for new homes, businesses, public facilities, and infrastructure, which were all devastated by the typhoon. Relief efforts played an integral role helping the country get back on track. Nearly 25,000 personnel, 104 ships and 163 aircrafts from various countries were deployed to assist in the recovery process. By 2015, a massive rebuilding program was, to some degree, successful, but one million survivors still did not have safe homes. On the outskirts of Tacloban, many people are suffering from poverty while living in flimsy new homes that are greatly exposed to incoming storms from the Pacific Ocean. President Benigno Aquino’s government launched a 150-billion-peso reconstruction program for the disaster zones after the typhoon. By 2015, 60 percent of the funds had been spent on roads, bridges, and schools. It has also been used to help survivors start new businesses. Some funds have been directed towards subsidizing farm and fishing supplies. There has also been assistance from the local private sector, international community, and nonprofits. The Red Cross, for example, donated cash to more than 90,000 families and reconstructed over 65,000 homes.

“There was an estimated $700 million damage to the agriculture and infrastructure sectors.” However, the problem remains that a very small fraction of the families endangered by future storms have been transferred to permanent shelters. The government wants to relocate almost 100,000 families by the end of 2016 since the project is designed to be completed early in 2017. The government is facing hurdles in this area because buying secure new land from private titleholders has proved challenging.

Locals are also dissatisfied that some of the resettlement areas are located in isolated locations away from the coast. The locals need to be near the coastal areas since they the primary economic centers and traveling long distances can be expensive in the Philippines. Despite the delicate nature of the situation, the public is demanding more efficiency in the government’s efforts. They want service providers to exercise transparency and accountability while providing help to victims. Though the business scene is recovering, it remains sluggish, which is indicated by the reduced number of business licenses issued and lower income taxes collected by the government. Typhoon Haiyan laid waste to some of the poorest regions of the country, which affected the pace of the rescue effort in many places. Roads and airports, which were of a poor quality, were decimated after the typhoon. The aftermath of the typhoon also saw an outbreak of crime with many locals fearing escaped criminals as well as some of the affected people turning to looting other people’s supplies. The agricultural, manufacturing and construction industries suffered setbacks in their growth rates following the typhoon. The typhoon left the country more vulnerable than it ever was before and caused economic growth to slow. However, the confidence was restored when the Philippines’ economy and infrastructure development improved in the third and fourth quarter of 2014 suggesting that the Philippines’ experience in facing natural disasters and extreme hardship has allowed it to emerge from the typhoon even stronger than before. | BA Aditya Shukla is a Freshman in the Charles H. Dyson school. He was born in Adelaide and grew up in Mumbai before moving to New York for high school.

BUSINESS ASIA • FALL 2015

SE ASIA

29

4/11/2016 6:18:27 PM


The Socioeconomic Scene of the Philippines post-Haiyan

BUSINESS ASIA • FALL 2015

T

28

yphoon Haiyan, locally known as Yolanda in the Philippines, was the deadliest tropical storm that the nation has ever experienced. It hit the Philippines on November 8, 2013, and affected more than 14 million people across 46 provinces (“$6 billion economic impact from Typhoon Haiyan tops November CAT report”). Despite repeated storm warnings, locals were reluctant to leave their houses as they were afraid of looters and considered evacuation recommendations to be a form of media hype. This led to the death of more than 10,000 people with an additional 1,785 people missing. Haiyan also caused death and destruction in other nations in Southeast Asia, including China and Vietnam. During the typhoon, coordination between locals was impossible due to the destruction of communication infrastructure. The restoration of the services was dependent upon regaining water and power supply. The recovery process was hindered by rebels and looters who

BAJ 2015 Spring.indd 28-29

ambushed aid convoys for typhoon survivors in areas in need of aid. Typhoon Haiyan fueled the existing problems of poverty, ethnic rivalry and clan violence. The agricultural sector was immediately affected, with the Leyte region, which produced high volumes of sugar and rice, severely damaged by the typhoon. The destruction of crops pushed food prices up for the following months. There was an estimated combined damage to the tune of $700 million in the agriculture and defense sectors. This damage has impacted operations that account for nearly 18 percent of the Philippine’s GDP. Despite the initial negative economic impact, the Philippine’s economy managed to sustain its growth after the typhoon. The Philippines’ projected GDP growth for 2013 was 6.7%, below the government’s target for the year but still better than that of Bangladesh, Vietnam, and Indonesia. CNN Money projected the Philippines to be the fastest growing economy in Southeast Asia in 2015. This

ADITYA SHUKLA

by

Writer

is despite the Philippines losing its place as Southeast Asia’s fastest growing economy to Malaysia immediately following the typhoon. The Philippines’ economy has grown steadily at an average annual rate above 6% for the last five years. The greatest impediment to the Philippines’s economic growth has been poor infrastructure. The economy was thriving under the governance of President Benigno Aquino III, who increased spending, decreased deficits, and improved political administration, making it an attractive destination for foreign investment. The aftermath of the typhoon allowed efforts to build resilient infrastructure as a long-term investment that would boost development in the regions hit hardest by the typhoon. Additionally, it was a greater opportunity to increase government spending while receiving payments from Filipino workers abroad. Remittances from workers abroad were crucial in providing the economic stimulus required to increase

consumer spending, and indirectly provided the government with the ability to utilize government funds for reconstruction and relief programs. As such, the crisis precipitated by the strength of Haiyan did create a meaningful opportunity to improve the economic underpinnings of the country’s economy. Regardless of the return to sustained economic growth in the country as a whole, the poorest regions of the Philippines hit by Haiyan are still recovering from the typhoon two years later. Thousands of people subsist in temporary shelters or tent cities with inadequate medical services and schools, signaling that disaster relief funds and foreign aid has not been optimally utilized. Reconstruction efforts have been thwarted repeatedly due to policy and implementation issues. This is attributed to the several laws and practices that hinder resource mobilization and fund disbursement. As a result of bureaucratic failures, some of the poorest towns negatively impacted by Haiyan have not received the funding and relief projects promised to them. Despite glaring problems, the Philippine government has highlighted the successes of government agencies in providing help to typhoon survivors. The government distributed family food packs, livelihood grants, and cash transfers, and has insisted that it is focusing on the resettlement of typhoon victims. Airport and seaport rehabilitation projects have been conducted successfully post-Haiyan. The Labor Department has been providing jobs to people out of work with the goal of lowering unemployment. Additionally, technical and vocational education is being provided. However, even two years later, only a very small number of the promised 500,000 housing units have been completed in Tacloban and Tanauan. The costs of rebuilding following the crisis have been staggering as they

included costs for new homes, businesses, public facilities, and infrastructure, which were all devastated by the typhoon. Relief efforts played an integral role helping the country get back on track. Nearly 25,000 personnel, 104 ships and 163 aircrafts from various countries were deployed to assist in the recovery process. By 2015, a massive rebuilding program was, to some degree, successful, but one million survivors still did not have safe homes. On the outskirts of Tacloban, many people are suffering from poverty while living in flimsy new homes that are greatly exposed to incoming storms from the Pacific Ocean. President Benigno Aquino’s government launched a 150-billion-peso reconstruction program for the disaster zones after the typhoon. By 2015, 60 percent of the funds had been spent on roads, bridges, and schools. It has also been used to help survivors start new businesses. Some funds have been directed towards subsidizing farm and fishing supplies. There has also been assistance from the local private sector, international community, and nonprofits. The Red Cross, for example, donated cash to more than 90,000 families and reconstructed over 65,000 homes.

“There was an estimated $700 million damage to the agriculture and infrastructure sectors.” However, the problem remains that a very small fraction of the families endangered by future storms have been transferred to permanent shelters. The government wants to relocate almost 100,000 families by the end of 2016 since the project is designed to be completed early in 2017. The government is facing hurdles in this area because buying secure new land from private titleholders has proved challenging.

Locals are also dissatisfied that some of the resettlement areas are located in isolated locations away from the coast. The locals need to be near the coastal areas since they the primary economic centers and traveling long distances can be expensive in the Philippines. Despite the delicate nature of the situation, the public is demanding more efficiency in the government’s efforts. They want service providers to exercise transparency and accountability while providing help to victims. Though the business scene is recovering, it remains sluggish, which is indicated by the reduced number of business licenses issued and lower income taxes collected by the government. Typhoon Haiyan laid waste to some of the poorest regions of the country, which affected the pace of the rescue effort in many places. Roads and airports, which were of a poor quality, were decimated after the typhoon. The aftermath of the typhoon also saw an outbreak of crime with many locals fearing escaped criminals as well as some of the affected people turning to looting other people’s supplies. The agricultural, manufacturing and construction industries suffered setbacks in their growth rates following the typhoon. The typhoon left the country more vulnerable than it ever was before and caused economic growth to slow. However, the confidence was restored when the Philippines’ economy and infrastructure development improved in the third and fourth quarter of 2014 suggesting that the Philippines’ experience in facing natural disasters and extreme hardship has allowed it to emerge from the typhoon even stronger than before. | BA Aditya Shukla is a Freshman in the Charles H. Dyson school. He was born in Adelaide and grew up in Mumbai before moving to New York for high school.

BUSINESS ASIA • FALL 2015

SE ASIA

29

4/11/2016 6:18:27 PM


Is Myanmar ‘Feeling the Bern’?

BUSINESS ASIA • FALL 2015

W

30

hat does Htin Kyaw, the next president of Myanmar, have in common with Bernie Sanders? Both represent a movement in politics that dramatically diverges from the history of their respective countries, and both attract voters disgruntled by the established system of government. While Myanmar and the United States are at different points in their democratic development, the popularity of these similar candidates in disparate regions demonstrates that revolution is not always achieved through upheaval or violence. Even in democratic countries, the government can be out of touch with public opinion.

BAJ 2015 Spring.indd 30-31

In 2008, Myanmar (formerly known as Burma), an impoverished country in Southeast Asia, ratified a new constitution disbanding the military-controlled government in favor of a more democratic system. Recently, the people of Myanmar demonstrated their support for the democratic socialist party that has been instrumental in the country’s prodemocracy movement. Last November, the National League for Democracy (NLD) won an overwhelming majority in the national elections by securing 77 percent of the eligible seats in Parliament. At the forefront of the victory was Aung San Suu Kyi, the revolutionary hero who emerged from 15 years of house arrest under the country’s military rule to become the

HARRISON TIGHE

by

Writer

leader of the democratic movement. The NLD won most of its seats from the Union Solidarity and Development Party (USDP), a center-right party comprised of former generals who ruled the military junta in place before the new constitution was ratified. NLD’s majority marks the first time that the military has ceded any significant government power since 1962. In the United States, many voters have demonstrated their yearning for more progressive politics by supporting Bernie Sanders, a 2016 democratic presidential primary candidate. President Barack Obama has introduced measures to alleviate inequality, but Sanders openly recognizes that nowhere

near enough has been done to address income and wealth inequality. Sanders relies almost exclusively on mobilizing grassroots supporters, but has become a legitimate threat to Hillary Clinton, the Democratic party establishment front runner. Sanders’ idealistic policy proposals closely resemble those the NLD hopes to advance. As one of their pillars for reform, the NLD has promised to end the collusion between government and business in Myanmar which has traditionally given unfair advantages to state-owned enterprises. This sentiment is reminiscent of Bernie’s crusade against large corporations that have been the recipients of massive government bailouts and subsidies. The outgoing president of Myanmar worked with the NLD to crack down on corruption and open up his country to foreign investors, but many did not believe that these reforms were sufficient in scope. Freedom of speech is still fairly weak in Myanmar, and inequality is a growing issue that the NLD has shown an eagerness to address. Few political insiders could have

predicted the success of Bernie Sanders, the self-proclaimed socialist. These critics clearly underestimated the power of his message. Sanders is tapping into a voter base that feels threatened by increasing inequality, especially millennials attracted by the notion of free college education and other proposed redistributive policies. To secure its overwhelming victory in Myanmar, the NLD mustered the support of ordinary citizens who felt the government didn’t understand their plight. The “establishment” that ruled for many years valued obedience over personal freedoms, and in many instances, chose to maintain the status quo rather than address citizens’ concerns. Suu Kyi and the NLD fought for many years to eliminate a corrupt system sustained through voter fraud and scare tactics by the military elite in Parliament. The 2015 elections gave the people of Myanmar a chance to protest the status quo with their vote in the first fair election since the Junta came to power.

The success of democratization in Myanmar can only be measured once NLD carries out its vision and shows an aptitude for pragmatic governance.”

Despite the popular support surrounding left-leaning candidates, the public’s voice is to some extent silenced by the political structures that have solidified the power of these two established governments. The structure of the Democratic primaries in the US heavily favors establishment candidates, putting Bernie Sanders at a disadvantage against Hillary Clinton. Despite his uphill battle to win the nomination, Sanders has already made an impact by drawing his Democratic opponent further to the left. Although Aung San Suu Kyi is

barred from becoming president through a constitutional provision discriminating against those with strong foreign ties (she married a British man and has two sons with him), she will undoubtedly continue to influence the direction of Myanmar even without the title of president. Suu Kyi now holds a seat in Parliament, but she cannot take her rightful place as official head of state. Even now, there are limitations on democracy in Myanmar. The military is guaranteed 25 percent of the seats in Parliament – enough for them to block a majority ruling and prevent the party’s figurehead from effectively leading the country. During the months preceding the NLD’s nomination of Htin Kyaw, Suu Kyi negotiated with representatives from the military in hopes of amending the constitution to allow her to become a presidential candidate. When the negotiations failed, she nominated one of her closest advisors to the position as a symbolic gesture. Suu Kyi has made it very clear that she will rule “above the president,” using Kyaw as a proxy to execute her vision for Myanmar. The excitement and support behind Suu Kyi flipped the political landscape of the country following the 2015 elections. The NLD’s majority in Parliament gives them significant legislative power and provides strong indication that the Burmese people support their proposed reforms. Opposition facing the party will gradually be overcome as the NLD continues to gain popular support. Many observers in Myanmar are eager to see how the NLD handles the responsibility of governing following a major regime change, a situation Sanders will not have to confront as the potential future president of a mature democratic system. The NLD is comprised primarily of long-time activists who are now faced with the challenge of becoming lawmakers. It is much easier to demand reform than it is to implement complicate policy

BUSINESS ASIA • FALL 2015

SE ASIA

31

4/11/2016 6:18:33 PM


Is Myanmar ‘Feeling the Bern’?

BUSINESS ASIA • FALL 2015

W

30

hat does Htin Kyaw, the next president of Myanmar, have in common with Bernie Sanders? Both represent a movement in politics that dramatically diverges from the history of their respective countries, and both attract voters disgruntled by the established system of government. While Myanmar and the United States are at different points in their democratic development, the popularity of these similar candidates in disparate regions demonstrates that revolution is not always achieved through upheaval or violence. Even in democratic countries, the government can be out of touch with public opinion.

BAJ 2015 Spring.indd 30-31

In 2008, Myanmar (formerly known as Burma), an impoverished country in Southeast Asia, ratified a new constitution disbanding the military-controlled government in favor of a more democratic system. Recently, the people of Myanmar demonstrated their support for the democratic socialist party that has been instrumental in the country’s prodemocracy movement. Last November, the National League for Democracy (NLD) won an overwhelming majority in the national elections by securing 77 percent of the eligible seats in Parliament. At the forefront of the victory was Aung San Suu Kyi, the revolutionary hero who emerged from 15 years of house arrest under the country’s military rule to become the

HARRISON TIGHE

by

Writer

leader of the democratic movement. The NLD won most of its seats from the Union Solidarity and Development Party (USDP), a center-right party comprised of former generals who ruled the military junta in place before the new constitution was ratified. NLD’s majority marks the first time that the military has ceded any significant government power since 1962. In the United States, many voters have demonstrated their yearning for more progressive politics by supporting Bernie Sanders, a 2016 democratic presidential primary candidate. President Barack Obama has introduced measures to alleviate inequality, but Sanders openly recognizes that nowhere

near enough has been done to address income and wealth inequality. Sanders relies almost exclusively on mobilizing grassroots supporters, but has become a legitimate threat to Hillary Clinton, the Democratic party establishment front runner. Sanders’ idealistic policy proposals closely resemble those the NLD hopes to advance. As one of their pillars for reform, the NLD has promised to end the collusion between government and business in Myanmar which has traditionally given unfair advantages to state-owned enterprises. This sentiment is reminiscent of Bernie’s crusade against large corporations that have been the recipients of massive government bailouts and subsidies. The outgoing president of Myanmar worked with the NLD to crack down on corruption and open up his country to foreign investors, but many did not believe that these reforms were sufficient in scope. Freedom of speech is still fairly weak in Myanmar, and inequality is a growing issue that the NLD has shown an eagerness to address. Few political insiders could have

predicted the success of Bernie Sanders, the self-proclaimed socialist. These critics clearly underestimated the power of his message. Sanders is tapping into a voter base that feels threatened by increasing inequality, especially millennials attracted by the notion of free college education and other proposed redistributive policies. To secure its overwhelming victory in Myanmar, the NLD mustered the support of ordinary citizens who felt the government didn’t understand their plight. The “establishment” that ruled for many years valued obedience over personal freedoms, and in many instances, chose to maintain the status quo rather than address citizens’ concerns. Suu Kyi and the NLD fought for many years to eliminate a corrupt system sustained through voter fraud and scare tactics by the military elite in Parliament. The 2015 elections gave the people of Myanmar a chance to protest the status quo with their vote in the first fair election since the Junta came to power.

The success of democratization in Myanmar can only be measured once NLD carries out its vision and shows an aptitude for pragmatic governance.”

Despite the popular support surrounding left-leaning candidates, the public’s voice is to some extent silenced by the political structures that have solidified the power of these two established governments. The structure of the Democratic primaries in the US heavily favors establishment candidates, putting Bernie Sanders at a disadvantage against Hillary Clinton. Despite his uphill battle to win the nomination, Sanders has already made an impact by drawing his Democratic opponent further to the left. Although Aung San Suu Kyi is

barred from becoming president through a constitutional provision discriminating against those with strong foreign ties (she married a British man and has two sons with him), she will undoubtedly continue to influence the direction of Myanmar even without the title of president. Suu Kyi now holds a seat in Parliament, but she cannot take her rightful place as official head of state. Even now, there are limitations on democracy in Myanmar. The military is guaranteed 25 percent of the seats in Parliament – enough for them to block a majority ruling and prevent the party’s figurehead from effectively leading the country. During the months preceding the NLD’s nomination of Htin Kyaw, Suu Kyi negotiated with representatives from the military in hopes of amending the constitution to allow her to become a presidential candidate. When the negotiations failed, she nominated one of her closest advisors to the position as a symbolic gesture. Suu Kyi has made it very clear that she will rule “above the president,” using Kyaw as a proxy to execute her vision for Myanmar. The excitement and support behind Suu Kyi flipped the political landscape of the country following the 2015 elections. The NLD’s majority in Parliament gives them significant legislative power and provides strong indication that the Burmese people support their proposed reforms. Opposition facing the party will gradually be overcome as the NLD continues to gain popular support. Many observers in Myanmar are eager to see how the NLD handles the responsibility of governing following a major regime change, a situation Sanders will not have to confront as the potential future president of a mature democratic system. The NLD is comprised primarily of long-time activists who are now faced with the challenge of becoming lawmakers. It is much easier to demand reform than it is to implement complicate policy

BUSINESS ASIA • FALL 2015

SE ASIA

31

4/11/2016 6:18:33 PM


INDIA

32

BAJ 2015 Spring.indd 32-33

issue and playing it safe politically, the NLD is feeding animosity between ethnic groups that could ultimately undermine the process of democratization. Obtaining the correct balance between building a diverse coalition of supporters and protecting persecuted minorities is an essential part of governance, and must be carefully navigated to ensure long-term success. Aung San Suu Kyi has warned the United States and the West about setting expectations too high for Myanmar at the beginning of political reform. The success of democratization can only be measured once NLD carries out its vision and is provided the opportunity to display an aptitude for pragmatic governance. Myanmar’s progress will also be a test of the United States’ ability to promote a peaceful transition to democracy in a developing nation. Coincidentally, Sanders’ Democratic opponent, Clinton, cites the headway in Myanmar as her crowning achievement in promoting democratic change during her tenure as Secretary of State. Myanmar’s development will affect the American public’s perception of Clinton and sets an important precedent for future U.S. foreign policy. As political “outsiders,” both Sanders and Suu Kyi have drawn unprecedented

numbers of supporters to their causes by gaining support through grassroots political campaigns. a popular cry for change. The final results of these two “political revolutions” are so far difficult for observers to determine. It is possible that Bernie Sanders will soon be finished on the campaign trail, but his legacy will remain in American politics. Although still in the early stages of establishing a working democracy, Myanmar has elected its own progressive candidate who hopes to make the government work for the people. For Americans and Burmese, the coming years may be a time of political upheaval and reform. | BA Harrison is a junior studying Applied Economics and Management from East Meadow, New York. On campus, he is a member of the Business Asia Journal and the Alpha Fund. This past summer he worked at WR Hambrecht researching technology stocks and has previously interned in private wealth management. In his free time, Harrison enjoys being active, reading nonfiction, and following politics.

Faulty Modi-Fication?

D

espite what you may have been told, India has much to lose in becoming the next China. Trumpeted as the solution to the country’s development woes, the Modi administration’s mantra of “Jobs! Jobs! Jobs!” has gaping deficiencies that neither the Indian press nor the Indian people seem willing to acknowledge. The result is an undervaluation of India’s uniqueness - it’s rich ecology, agricultural heritage, culture, and the largely peaceful co-existence of its many cultures - an oversight that could rapidly tarnish the country’s future. Narendra Modi, India’s golden boy and master orator, swept into office on a wave of frustration with economic stagnation, corruption, and a strong desire for change in the face of a modernizing world. The former tea-seller’s success in revving up private sector growth as Chief Minister of Gujarat provided the mandate he needed to expand his policies into a

national platform emphasizing growth, job creation, cheap energy, and integration with the global economy. Modi enjoyed clear popular support among the Indian electorate, which viewed him as the manifestation of the Indian Dream. Two years into office, Modi retains the image of the hard working, incorruptible, pragmatic statesman that he is - he has consistently made efforts to clean up the largesse of the country’s infamous bureaucracy, streamline government agencies, promote more foreign investment in railways, defense, and manufacturing, and establish stronger ties with the rest of the world. Despite his best efforts however, Narendra Modi is at risk of destabilizing his country due to his unrelenting focus on growth above all else. Chief among the government’s policies has been an intense focus on increasing foreign direct investment (FDI), particularly in the manufacturing

BEN ZEHR

by

Associate Editor

sector. In order to transform India into a global manufacturing hub, the government has established a scheme known as “Make in India,” a suite of sector and industry specific regulatory streamlining policies that facilitate investment and provide financial incentives to invest in broad swathes of projects. FDI inflows to India have subsequently ballooned, rising 61 percent to nearly USD $35 billion after Modi’s first year in office, making it the world’s top FDI destination in 2015. Across the country, the Modi government has carved out Special Economic Zones (SEZs) and Industrial Corridors where it will be directing the flow of this newfound cash. Megaprojects such as the Mumbai-Delhi Industrial Corridor (MDIC) are sure to create vast manufacturing and processing parks over millions of acres, bringing low-cost goods, tax revenues, jobs, and infrastructure along with them. However, a host of negative exter-

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

changes, especially given that the new majority will likely run into roadblocks that force them to compromise on many key issues. As unrest in Myanmar intensifies, the NLD faces a difficult road ahead. Since a 1982 Citizenship Law, members of the Rohingya Muslim ethnic minority have been denied recognition as Burmese citizens despite their long-standing presence in Myanmar’s western Rakhine state. The Rohingya are unable to move freely between Myanmar and other countries, leaving many destitute and displaced across Southeast Asia. These people have been deemed “the most persecuted minority in the world” in light of recent travesties in Myanmar. After a 2012 incident in which a Muslim man was accused of raping a Buddhist woman in Rakhine, violence broke out, resulting in a movement that ended with 140,000 Rohingya confined to camps. The NLD’s response to this blatant and cruel discrimination has been muted, and Suu Kyi refused to speak out against the extremist Buddhist monks that spearheaded the violence against Muslims. Now, the government has no choice but to step in and address problems faced by the 1.1 million Rohingya Muslims living in the country. By avoiding the

33

4/11/2016 6:18:39 PM


INDIA

32

BAJ 2015 Spring.indd 32-33

issue and playing it safe politically, the NLD is feeding animosity between ethnic groups that could ultimately undermine the process of democratization. Obtaining the correct balance between building a diverse coalition of supporters and protecting persecuted minorities is an essential part of governance, and must be carefully navigated to ensure long-term success. Aung San Suu Kyi has warned the United States and the West about setting expectations too high for Myanmar at the beginning of political reform. The success of democratization can only be measured once NLD carries out its vision and is provided the opportunity to display an aptitude for pragmatic governance. Myanmar’s progress will also be a test of the United States’ ability to promote a peaceful transition to democracy in a developing nation. Coincidentally, Sanders’ Democratic opponent, Clinton, cites the headway in Myanmar as her crowning achievement in promoting democratic change during her tenure as Secretary of State. Myanmar’s development will affect the American public’s perception of Clinton and sets an important precedent for future U.S. foreign policy. As political “outsiders,” both Sanders and Suu Kyi have drawn unprecedented

numbers of supporters to their causes by gaining support through grassroots political campaigns. a popular cry for change. The final results of these two “political revolutions” are so far difficult for observers to determine. It is possible that Bernie Sanders will soon be finished on the campaign trail, but his legacy will remain in American politics. Although still in the early stages of establishing a working democracy, Myanmar has elected its own progressive candidate who hopes to make the government work for the people. For Americans and Burmese, the coming years may be a time of political upheaval and reform. | BA Harrison is a junior studying Applied Economics and Management from East Meadow, New York. On campus, he is a member of the Business Asia Journal and the Alpha Fund. This past summer he worked at WR Hambrecht researching technology stocks and has previously interned in private wealth management. In his free time, Harrison enjoys being active, reading nonfiction, and following politics.

Faulty Modi-Fication?

D

espite what you may have been told, India has much to lose in becoming the next China. Trumpeted as the solution to the country’s development woes, the Modi administration’s mantra of “Jobs! Jobs! Jobs!” has gaping deficiencies that neither the Indian press nor the Indian people seem willing to acknowledge. The result is an undervaluation of India’s uniqueness - it’s rich ecology, agricultural heritage, culture, and the largely peaceful co-existence of its many cultures - an oversight that could rapidly tarnish the country’s future. Narendra Modi, India’s golden boy and master orator, swept into office on a wave of frustration with economic stagnation, corruption, and a strong desire for change in the face of a modernizing world. The former tea-seller’s success in revving up private sector growth as Chief Minister of Gujarat provided the mandate he needed to expand his policies into a

national platform emphasizing growth, job creation, cheap energy, and integration with the global economy. Modi enjoyed clear popular support among the Indian electorate, which viewed him as the manifestation of the Indian Dream. Two years into office, Modi retains the image of the hard working, incorruptible, pragmatic statesman that he is - he has consistently made efforts to clean up the largesse of the country’s infamous bureaucracy, streamline government agencies, promote more foreign investment in railways, defense, and manufacturing, and establish stronger ties with the rest of the world. Despite his best efforts however, Narendra Modi is at risk of destabilizing his country due to his unrelenting focus on growth above all else. Chief among the government’s policies has been an intense focus on increasing foreign direct investment (FDI), particularly in the manufacturing

BEN ZEHR

by

Associate Editor

sector. In order to transform India into a global manufacturing hub, the government has established a scheme known as “Make in India,” a suite of sector and industry specific regulatory streamlining policies that facilitate investment and provide financial incentives to invest in broad swathes of projects. FDI inflows to India have subsequently ballooned, rising 61 percent to nearly USD $35 billion after Modi’s first year in office, making it the world’s top FDI destination in 2015. Across the country, the Modi government has carved out Special Economic Zones (SEZs) and Industrial Corridors where it will be directing the flow of this newfound cash. Megaprojects such as the Mumbai-Delhi Industrial Corridor (MDIC) are sure to create vast manufacturing and processing parks over millions of acres, bringing low-cost goods, tax revenues, jobs, and infrastructure along with them. However, a host of negative exter-

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

changes, especially given that the new majority will likely run into roadblocks that force them to compromise on many key issues. As unrest in Myanmar intensifies, the NLD faces a difficult road ahead. Since a 1982 Citizenship Law, members of the Rohingya Muslim ethnic minority have been denied recognition as Burmese citizens despite their long-standing presence in Myanmar’s western Rakhine state. The Rohingya are unable to move freely between Myanmar and other countries, leaving many destitute and displaced across Southeast Asia. These people have been deemed “the most persecuted minority in the world” in light of recent travesties in Myanmar. After a 2012 incident in which a Muslim man was accused of raping a Buddhist woman in Rakhine, violence broke out, resulting in a movement that ended with 140,000 Rohingya confined to camps. The NLD’s response to this blatant and cruel discrimination has been muted, and Suu Kyi refused to speak out against the extremist Buddhist monks that spearheaded the violence against Muslims. Now, the government has no choice but to step in and address problems faced by the 1.1 million Rohingya Muslims living in the country. By avoiding the

33

4/11/2016 6:18:39 PM


34

nalities that the government is loath to address come with a tremendous boost in manufacturing output. Questionable rural land acquisition practices and destruction of India’s precious ecology are just two of many delicate issues Modi will need to consider going forward. In replacing a colonial land law with the verbose “Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation and Resettlement Act,” the government established a controversial system of compensation for farmers and other landowners whose land was to be acquired for industrial or urban development projects. The Law enumerates certain packages - often in the form of lump sum payments - that farmers and households will receive in exchange for the seizure or sale of their land. Such exercise of eminent domain is widely considered an improvement over the colonial bill that preceded it in 1894, largely due to its supposed generosity. An unintended side-effect of this new legislation is the destitution it creates among many former landowners. Farmers have long depended on legislative protections from

BAJ 2015 Spring.indd 34-35

eminent domain where land was productive and used for multiple crops, but Modi’s eagerness to usher in change will do away with these valuable protections to farmers. According to human rights lawyer Usha Ramanathan, the government is “devaluing our primary producers without a thought to food security, natural self-reliance, or their own person.” Moreover, once compensated, multigenerational farmers are left to fend for themselves without applicable skills in the new marketplace. Expertise on the farm is only translatable to day-labor, not modern manufacturing jobs, forcing the once proud rural farmer and his family into an inescapable, impoverished reality in the city. Another, equally detrimental side effect of the industrial growth policy trumpeted by the BJP is the dangerous neglect of India’s most precious treasure, its diverse set of ecosystems. With an ambitious goal of providing 24/7 access to electricity for all its citizens by 2022, India is set to double its coal production to a massive 1.5 billion tons per year in five years - a system that is plagued

by astounding inefficiencies and poor pollution control. Furthermore, as has been seen in previous administrations, the more protected land is opened up for coal mining, the greater the impact on both tribal communities and India’s environment. Regions such as Jharia in Jharkhand, once thickly forested and inhabited, are now blighted, polluted wastelands where 68 coal seam fires have been smoldering underground for years, rapidly burning through the country’s largest supply of coking coal. The quest for supremacy in manufacturing leaves Modi with a decision - pursue manufacturing growth aggressively, using dirty energy to get there quickly and deal with the consequences later, or create a slower, more sustainable path to growth. Today, India is the world’s most polluted nation, home to 13 of the world’s 20 smoggiest cities and primarily due to a policy agenda that emphasizes rapid growth at the expense of public and environmental health. Although the rhetoric coming out of New Delhi seems to point to a substantial commitment to renewables – the

government has pledged to install 100,000 MW of solar and 60,000 MW of wind capacity by 2022 – taken together, renewables will represent only 16 percent of total energy demanded in 2040. Hardly the clean economy revolution it is made out to be, Modi’s India will see cities choked by smog, land degraded, rural communities disenfranchised, and culture sacrificed on the altar of progress. As landless labor escapes the polluted hinterland in search of urban opportunities, national crime rates will rise, desperate individuals will settle in slums and shanty towns, struggling to eke out a living in the new India, and the strong bonds that have held Indian families and communities together for centuries will gradually be eroded in favor of an individualistic, consumption-driven western lifestyle. Despite the difficult decisions the Indian government must make, there are alternative routes that have the potential to recreate the nation in more equitable, stable manner. Rather than neglecting the importance of the agricultural landscape in India’s past, present, and future, the Modi administration should focus on improving the deficiencies of rural life to-

day. Rather than forcing farmers off their land, the government should build rural infrastructure geared towards farmers rather than industries, so that India can realize an untapped competitive advantage it has had since well before the British Raj. Rather than making coal the engine of its growth, India should invest in a decentralized, clean power grid, so that it can gradually turn the lights on for the 300 million Indians currently living in darkness sans pollution, adverse health impacts, carbon emissions, or 2012-style blackouts. Modi has the opportunity to lead by example and help drive the world forward on issues of climate justice and sustainable growth. If the world’s largest democracy can throw its weight behind the renewable energy movement, political commentators predict that many of the world’s smaller nations will follow suit. India’s greatest asset is its people. Across the country, there are hundreds of thousands of poorly equipped public schools and millions of young people with limited possibilities as a result. An industrial growth policy that prioritizes low skill jobs condemns India’s great-

est resource to a mere fraction of its full potential. Rather than emulating China through a monkey-see, monkey-do approach to development, Modi should bravely lead India through what will be a pivotal decade, doubling down, preserving, and developing what has made the country a wonder since the earliest historical records - its agricultural heritage and natural beauty, the ingenuity of its people, and its community-centric culture. If he fails to do so, Modi will be signing away the futures of an entire generation of Indians who elected him on a platform of a “better life and better days.”| BA Benjamin Zehr is a Senior in the College of Agriculture, studying International Development and Business. He grew up in India, where he spent a gap year founding a non-profit network of eye hospitals which serves over 2 millions people today. He plans to start work at a management consulting firm in Chicago next fall, with the eventual goal of starting his own for-profit social enterprise in an emerging market.

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

INDIA

35

4/11/2016 6:18:40 PM


34

nalities that the government is loath to address come with a tremendous boost in manufacturing output. Questionable rural land acquisition practices and destruction of India’s precious ecology are just two of many delicate issues Modi will need to consider going forward. In replacing a colonial land law with the verbose “Right to Fair Compensation and Transparency in Land Acquisition Rehabilitation and Resettlement Act,” the government established a controversial system of compensation for farmers and other landowners whose land was to be acquired for industrial or urban development projects. The Law enumerates certain packages - often in the form of lump sum payments - that farmers and households will receive in exchange for the seizure or sale of their land. Such exercise of eminent domain is widely considered an improvement over the colonial bill that preceded it in 1894, largely due to its supposed generosity. An unintended side-effect of this new legislation is the destitution it creates among many former landowners. Farmers have long depended on legislative protections from

BAJ 2015 Spring.indd 34-35

eminent domain where land was productive and used for multiple crops, but Modi’s eagerness to usher in change will do away with these valuable protections to farmers. According to human rights lawyer Usha Ramanathan, the government is “devaluing our primary producers without a thought to food security, natural self-reliance, or their own person.” Moreover, once compensated, multigenerational farmers are left to fend for themselves without applicable skills in the new marketplace. Expertise on the farm is only translatable to day-labor, not modern manufacturing jobs, forcing the once proud rural farmer and his family into an inescapable, impoverished reality in the city. Another, equally detrimental side effect of the industrial growth policy trumpeted by the BJP is the dangerous neglect of India’s most precious treasure, its diverse set of ecosystems. With an ambitious goal of providing 24/7 access to electricity for all its citizens by 2022, India is set to double its coal production to a massive 1.5 billion tons per year in five years - a system that is plagued

by astounding inefficiencies and poor pollution control. Furthermore, as has been seen in previous administrations, the more protected land is opened up for coal mining, the greater the impact on both tribal communities and India’s environment. Regions such as Jharia in Jharkhand, once thickly forested and inhabited, are now blighted, polluted wastelands where 68 coal seam fires have been smoldering underground for years, rapidly burning through the country’s largest supply of coking coal. The quest for supremacy in manufacturing leaves Modi with a decision - pursue manufacturing growth aggressively, using dirty energy to get there quickly and deal with the consequences later, or create a slower, more sustainable path to growth. Today, India is the world’s most polluted nation, home to 13 of the world’s 20 smoggiest cities and primarily due to a policy agenda that emphasizes rapid growth at the expense of public and environmental health. Although the rhetoric coming out of New Delhi seems to point to a substantial commitment to renewables – the

government has pledged to install 100,000 MW of solar and 60,000 MW of wind capacity by 2022 – taken together, renewables will represent only 16 percent of total energy demanded in 2040. Hardly the clean economy revolution it is made out to be, Modi’s India will see cities choked by smog, land degraded, rural communities disenfranchised, and culture sacrificed on the altar of progress. As landless labor escapes the polluted hinterland in search of urban opportunities, national crime rates will rise, desperate individuals will settle in slums and shanty towns, struggling to eke out a living in the new India, and the strong bonds that have held Indian families and communities together for centuries will gradually be eroded in favor of an individualistic, consumption-driven western lifestyle. Despite the difficult decisions the Indian government must make, there are alternative routes that have the potential to recreate the nation in more equitable, stable manner. Rather than neglecting the importance of the agricultural landscape in India’s past, present, and future, the Modi administration should focus on improving the deficiencies of rural life to-

day. Rather than forcing farmers off their land, the government should build rural infrastructure geared towards farmers rather than industries, so that India can realize an untapped competitive advantage it has had since well before the British Raj. Rather than making coal the engine of its growth, India should invest in a decentralized, clean power grid, so that it can gradually turn the lights on for the 300 million Indians currently living in darkness sans pollution, adverse health impacts, carbon emissions, or 2012-style blackouts. Modi has the opportunity to lead by example and help drive the world forward on issues of climate justice and sustainable growth. If the world’s largest democracy can throw its weight behind the renewable energy movement, political commentators predict that many of the world’s smaller nations will follow suit. India’s greatest asset is its people. Across the country, there are hundreds of thousands of poorly equipped public schools and millions of young people with limited possibilities as a result. An industrial growth policy that prioritizes low skill jobs condemns India’s great-

est resource to a mere fraction of its full potential. Rather than emulating China through a monkey-see, monkey-do approach to development, Modi should bravely lead India through what will be a pivotal decade, doubling down, preserving, and developing what has made the country a wonder since the earliest historical records - its agricultural heritage and natural beauty, the ingenuity of its people, and its community-centric culture. If he fails to do so, Modi will be signing away the futures of an entire generation of Indians who elected him on a platform of a “better life and better days.”| BA Benjamin Zehr is a Senior in the College of Agriculture, studying International Development and Business. He grew up in India, where he spent a gap year founding a non-profit network of eye hospitals which serves over 2 millions people today. He plans to start work at a management consulting firm in Chicago next fall, with the eventual goal of starting his own for-profit social enterprise in an emerging market.

BUSINESS ASIA • FALL 2015

BUSINESS ASIA • FALL 2015

INDIA

35

4/11/2016 6:18:40 PM


INDIA

BUSINESS ASIA • FALL 2015

I

36

ndia’s ascent into a major economic power in the 21st century has naturally resulted in a spike in energy demand. The nation is already the third or fourth largest user of energy worldwide, and will likely continue to increase its usage as its economic boom continues. Furthermore, according to a report by the Indian planning commission from the late 2010s, Indian dependence on imports is set to grow to over 53% of all fossil fuel usage by the 2030s. Similar to trends across the world, India plans on having liquefied natural gas (LNG) play an increasingly vital role in its energy portfolio in the years to come. With cheap natural gas prices and regulatory changes which allow industry and power generation to rely upon imported

BAJ 2015 Spring.indd 36-37

natural gas, it appears likely that natural gas will eventually grow to take up more than the current ~7-8% share of Indian energy usage. The projections of the Indian Petroleum and Natural Gas Regulatory Board epitomizes the ballooning usage of natural gas—the forecasts for usage in the 2016-2017 fiscal year increased 55% in between the fiscal years of 2012-2013 and 2013-2014. Clearly, securing India’s natural gas access is crucial to fulfilling Prime Minister Modi’s desire to open India as a global industrial hub. The idea of a pipeline sending Iranian natural gas to India has been thought about for many decades. The original plan involved a pipeline passing from Iran along the Pakistani coast into India, which was referred to as the I-P-I (Iran-

SANJEEV DHARA

by

President

Pakistan-India) pipeline project. Discussions for the project began as early as 1994 and as late as 2008 it appeared that the project would push forward. However, by 2008, India backed out of the agreement following the Indo-US civilian nuclear agreement and the major Mumbai terror attacks. The United States strongly discouraged both India and Pakistan from agreeing to the construction of a pipeline with Iran due to the Western pressure on the Islamic republic regarding its nuclear program. At the time, India effectively utilized these Western fears of a nuclear Iran alongside American interests of cozying up to India as an Asian counterbalance to China to win a nuclear agreement that effectively pulled the country out of its status as

would transport natural gas from Iran and Oman to India. Crucially, the Iranians have shown a willingness to construct a pipeline that will circumvent Pakistan, a requirement that the Indian government has maintained. The proposed pipeline will extend from eastern Iran and avoid Pakistan’s exclusive economic zone in the Arabian sea and likely make shore somewhere in Gujarat, India. The project cost is purported to be roughly $4.5 billion and will start shipping natural gas to India within three years of the project’s start date. The South Asia Gas Corporation (SAGC) will lay 1,400 km of pipeline and the goal is to transport nearly 31.5 million standard cubic meters of natural gas per day. Recent projections show annual Indian consumption growing to 516 million standard cubic meters of natural gas per day, so the subsea pipeline will alleviate a substantial amount of India’s demand. Beyond the pipeline deal, India and Iran have discussed the potential for greater Indian involvement in developing a port in the Iranian city of Chabahar, which would also be the likely starting point for the subsea pipeline. India’s Petroleum Minister confirmed that the nation is ready to invest $20 billion in order to develop the port and have India receive preferential pricing and access to natural gas at the site. Even more importantly, the project allows for a potential rail line to be built into Afghanistan and

Central Asia. This would likely allow for easy Indian access to resources from the hydrocarbon rich Central Asian countries. Furthermore, it presents Indian policy makers with a viable alternative to the T-A-P-I (Turkmenistan-AfghanistanPakistan-India) pipeline, which despite its importance in providing hydrocarbon resources, again runs through Pakistan, which India views as a security risk. Both of these ongoing negotiations with the Iranians also represent a significant opportunity for India to actively counter Chinese influence in its northwestern backyard. China has long maintained a relatively strong relationship with Iran, often in the form of using its veto in the United Nations Security Council to protect Iran. Meanwhile, China has engaged in a foreign policy throughout far flung regions of the world such as Africa, South America, and Central Asia with the aim of obtaining preferential access to energy supplies. Prime Minister Modi came into office promising to implement pro-business reforms and create a spurt in Indian manufacturing. Securing cheap access to oil and natural gas is a natural step that his administration has so far done an admirable job in pursuing. More broadly, Prime Minister Modi aimed to increase India’s stature on the world stage and make it more commensurate to its current economic prowess and future economic promise—the successful completion of both of these projects surely represents progress in that regard. | BA Sanjeev Dhara is a Senior in the College of Engineering majoring in Chemical & Biomolecular Engineering. He has always had a keen interest in Asian business and geopolitics. He currently serves as the President of Business Asia Journal.

BUSINESS ASIA • FALL 2015

Iranian Natural Gas and India: A Strategic Pipeline

a quasi-nuclear state pariah due to its refusal to join the non-proliferation treaty (NPT). Furthermore, American distrust of the Pakistani government due to its perceived lack of cooperation in the American-led War on Terror meant that the same civilian technology transfer agreement was not extended to Pakistan—making the agreement a very huge strategic victory for India. Today however, the geopolitical and strategic landscape has dramatically shifted. The lifting of international sanctions on Iran means that the country is now much more open for business than at anytime in recent years. While some element of American pressure may remain against the pursuit of any pipeline agreement with Iran, particularly with the potential election of the Republican Party into the White House, India would be wise to pursue a deal. Beyond ensuring a steady access to natural gas, it would allow India to reignite a stable relationship with Iran, one rooted in a host of cultural similarities, and show the world that India intends to keep pace with the United States, China, and Russia in the chase for resources around the globe. Encouragingly, the Indian government has already made moves in that direction. Earlier this year, there were a series of high level meetings to discuss the possibility of constructing an undersea pipeline between Iran and India which

37

4/11/2016 6:18:41 PM


INDIA

BUSINESS ASIA • FALL 2015

I

36

ndia’s ascent into a major economic power in the 21st century has naturally resulted in a spike in energy demand. The nation is already the third or fourth largest user of energy worldwide, and will likely continue to increase its usage as its economic boom continues. Furthermore, according to a report by the Indian planning commission from the late 2010s, Indian dependence on imports is set to grow to over 53% of all fossil fuel usage by the 2030s. Similar to trends across the world, India plans on having liquefied natural gas (LNG) play an increasingly vital role in its energy portfolio in the years to come. With cheap natural gas prices and regulatory changes which allow industry and power generation to rely upon imported

BAJ 2015 Spring.indd 36-37

natural gas, it appears likely that natural gas will eventually grow to take up more than the current ~7-8% share of Indian energy usage. The projections of the Indian Petroleum and Natural Gas Regulatory Board epitomizes the ballooning usage of natural gas—the forecasts for usage in the 2016-2017 fiscal year increased 55% in between the fiscal years of 2012-2013 and 2013-2014. Clearly, securing India’s natural gas access is crucial to fulfilling Prime Minister Modi’s desire to open India as a global industrial hub. The idea of a pipeline sending Iranian natural gas to India has been thought about for many decades. The original plan involved a pipeline passing from Iran along the Pakistani coast into India, which was referred to as the I-P-I (Iran-

SANJEEV DHARA

by

President

Pakistan-India) pipeline project. Discussions for the project began as early as 1994 and as late as 2008 it appeared that the project would push forward. However, by 2008, India backed out of the agreement following the Indo-US civilian nuclear agreement and the major Mumbai terror attacks. The United States strongly discouraged both India and Pakistan from agreeing to the construction of a pipeline with Iran due to the Western pressure on the Islamic republic regarding its nuclear program. At the time, India effectively utilized these Western fears of a nuclear Iran alongside American interests of cozying up to India as an Asian counterbalance to China to win a nuclear agreement that effectively pulled the country out of its status as

would transport natural gas from Iran and Oman to India. Crucially, the Iranians have shown a willingness to construct a pipeline that will circumvent Pakistan, a requirement that the Indian government has maintained. The proposed pipeline will extend from eastern Iran and avoid Pakistan’s exclusive economic zone in the Arabian sea and likely make shore somewhere in Gujarat, India. The project cost is purported to be roughly $4.5 billion and will start shipping natural gas to India within three years of the project’s start date. The South Asia Gas Corporation (SAGC) will lay 1,400 km of pipeline and the goal is to transport nearly 31.5 million standard cubic meters of natural gas per day. Recent projections show annual Indian consumption growing to 516 million standard cubic meters of natural gas per day, so the subsea pipeline will alleviate a substantial amount of India’s demand. Beyond the pipeline deal, India and Iran have discussed the potential for greater Indian involvement in developing a port in the Iranian city of Chabahar, which would also be the likely starting point for the subsea pipeline. India’s Petroleum Minister confirmed that the nation is ready to invest $20 billion in order to develop the port and have India receive preferential pricing and access to natural gas at the site. Even more importantly, the project allows for a potential rail line to be built into Afghanistan and

Central Asia. This would likely allow for easy Indian access to resources from the hydrocarbon rich Central Asian countries. Furthermore, it presents Indian policy makers with a viable alternative to the T-A-P-I (Turkmenistan-AfghanistanPakistan-India) pipeline, which despite its importance in providing hydrocarbon resources, again runs through Pakistan, which India views as a security risk. Both of these ongoing negotiations with the Iranians also represent a significant opportunity for India to actively counter Chinese influence in its northwestern backyard. China has long maintained a relatively strong relationship with Iran, often in the form of using its veto in the United Nations Security Council to protect Iran. Meanwhile, China has engaged in a foreign policy throughout far flung regions of the world such as Africa, South America, and Central Asia with the aim of obtaining preferential access to energy supplies. Prime Minister Modi came into office promising to implement pro-business reforms and create a spurt in Indian manufacturing. Securing cheap access to oil and natural gas is a natural step that his administration has so far done an admirable job in pursuing. More broadly, Prime Minister Modi aimed to increase India’s stature on the world stage and make it more commensurate to its current economic prowess and future economic promise—the successful completion of both of these projects surely represents progress in that regard. | BA Sanjeev Dhara is a Senior in the College of Engineering majoring in Chemical & Biomolecular Engineering. He has always had a keen interest in Asian business and geopolitics. He currently serves as the President of Business Asia Journal.

BUSINESS ASIA • FALL 2015

Iranian Natural Gas and India: A Strategic Pipeline

a quasi-nuclear state pariah due to its refusal to join the non-proliferation treaty (NPT). Furthermore, American distrust of the Pakistani government due to its perceived lack of cooperation in the American-led War on Terror meant that the same civilian technology transfer agreement was not extended to Pakistan—making the agreement a very huge strategic victory for India. Today however, the geopolitical and strategic landscape has dramatically shifted. The lifting of international sanctions on Iran means that the country is now much more open for business than at anytime in recent years. While some element of American pressure may remain against the pursuit of any pipeline agreement with Iran, particularly with the potential election of the Republican Party into the White House, India would be wise to pursue a deal. Beyond ensuring a steady access to natural gas, it would allow India to reignite a stable relationship with Iran, one rooted in a host of cultural similarities, and show the world that India intends to keep pace with the United States, China, and Russia in the chase for resources around the globe. Encouragingly, the Indian government has already made moves in that direction. Earlier this year, there were a series of high level meetings to discuss the possibility of constructing an undersea pipeline between Iran and India which

37

4/11/2016 6:18:41 PM


INDIA

Bubble or Boom?

BUSINESS ASIA • FALL 2015

R

38

ajesh Prasad, a small town textile manufacturer in the interior of Maharashtra is visibly elated. Over the course of the past month, he has sold dresses worth $30,000 in a little over a fortnight on Flipkart.com, a Bangalore based Indian ecommerce portal. Every day, he receives a memo highlighting a list of customer orders from Flipkart. At night, the consignment is dispatched in a truck to Flipkart’s warehouse in Mumbai, nearly halfway across the state. From here, the Flipkart supply chain system kicks in and delivers the dresses all over the country. Flipkart earns a commission on this deal and Prasad is able to connect with customers he has never seen before, a win-win situation for all parties involved. The Indian e-commerce Industry has made ground-breaking progress in the past decade and has changed the lives of many business owners around the country. The e-commerce

BAJ 2015 Spring.indd 38-39

market grew rapidly from $4.4b in 2010 to $13.6b in 2014, and is expected to continue expanding due to an increase in the number of online shoppers and sustained Indian population growth. A study by Assocham and Grant Thornton revealed that the number of online shoppers is expected to increase from 20 million in 2013 to 40 million in 2016, as millions of Indians gain access to the Internet, particularly due to the wide reach of smartphones. The e-commerce market is expected to see a compounded annual growth rate of 63 percent in 2015. Online travel booking has traditionally been the largest sub-sector of e-commerce, constituting 71 percent of the Indian market, implying that the online retail sector is vastly untapped as Indians are beginning to explore online shopping on a daily basis and not just to avoid a call with a travel agent. This compositional change is driving investments in many e-commerce startups

by AHAAN NACHANE

Writer

that target niche retail markets ranging from bewakoof.com, a printed T-shirt retailer to TheBargain.in, which provides Electronic gadget comparisons using sophisticated Data Analytic techniques. The vast majority of these startups are enjoying extremely high valuations, propped up by large volumes of investment by venture capitalists and angel investors from around the world. In Q1 2015, Indian startup investments increased by 300 percent, of which 15 percent represented additional investment into e-commerce. This rapid growth has attracted the attention of large multinational players. American juggernaut Amazon.com finally entered the Indian market in 2013 and is now readying a $5b war chest for its campaign to establish itself in what has the potential to become a massive market. Amazon is set to expand its offerings by providing instant video and subscription based e-commerce services

discounts to increase sales and market share, bearing the burden of the discounts themselves. The prime focus is on gaining customer loyalty and market share, after which they plan to gradually reduce discounts and hope that customers continue to shop online. As such, most e-commerce businesses will not become profitable if they are unable to maintain a loyal customer base after eliminating heavy discounts. The majority of e-commerce companies are expected to break even by 2020, earning a profit margin of about two percent of total sales thereafter. To get ahead in the race and gain visibility, they are committing to major advertising spending sprees - the advertising spending of these companies has surpassed that of the consumer durables, banking and financial sectors in 2015. In fact, e-commerce spending was nearly as much as traditional table toppers such as telecom and automobile companies. According to TAM Adex data, the four largest Indian e-commerce firms, Flipkart, Amazon, Snapdeal and OLX spent a staggering $92m on advertisements in 2015 alone, and it is not unusual to see full front-page advertisements in major newspapers such as the Times of India touting the benefits of on-line shopping. As e-commerce companies begin to decrease their discount offerings, they are attempting to shift consumer focus to their brand. To strengthen brand recognition, many companies are signing Bollywood celebrities and athletes to act as brand ambassadors. Acquiring technically adept employees to maintain extremely high growth rates is another hurdle that e-commerce companies must address. Most Indian college graduates, barring a few from the select prestigious Indian Institutes of Technology (IIT), are ill equipped to devise efficient technology solutions for problems encountered on a daily basis. Due to this talent deficit, bigger compa-

nies have begun looking to other tech hubs, such as the Silicon Valley, for talent in hopes of attracting skilled programmers by offering generous pay and attractive stock options. Some domestic Indian companies are even hinting at setting up offices in the Silicon Valley to accommodate programmer location preferences.

“Upon further investigation, the situation appears similar to that of the United States during the dot-com bubble, with many companies surging in valuations and developing oversized ambitions.” Given those challenges, it remains to be seen whether these companies will be able to maintain high growth rates and thereby validate their optimistic valuations. Upon further investigation, the situation is somewhat reminiscent of the Silicon Valley during the dot-com bubble, with many companies surging in value, propped up by exuberant investors with unrealistic expectations. Questionable revenue models and a lack of investing discipline ultimately resulted in the formation of the bubble that left many firms with no alternative but to declare bankruptcy when it burst. The Indian e-commerce industry stands on the precipice of transformation - for the sake of the broader Asian economy, we can only hope that investors are not pumping air into a new bubble. | BA Ahaan Nachane is a sophomore studying Computer Science in the college of Engineering. He grew up in Mumbai, India and is also involved in the Autonomous Systems Lab programming robots.

BUSINESS ASIA • FALL 2015

Indian E-Commerce

through Amazon Prime, to provide an additional draw for upper middle-class consumers in bigger cities like Mumbai and New Delhi. Amazon is also making heavy investments in warehouses and supply chain networks across the country as it competes with indigenous companies like Flipkart and Snapdeal. Similarly, Chinese giant Alibaba and Taiwanese electronics manufacturer FoxConn have chosen to enter the market by investing $500m in Snapdeal and are looking to increase their Indian presence in the future. Aside from tech companies, major venture capital firms have invested in Indian e-commerce companies, with Sequoia Capital now setting up shop in India in hopes of becoming one of the most prolific VC companies in Asia. They have been investing in a wide array of ecommerce companies ranging from small local start-ups to giants like Flipkart. With all the funding flowing into the e-commerce space, companies have grown so rapidly that the original brick and mortar sellers - who resented them at first - have now begun to ink deals with the online platforms in order to ensure their own survival. Most retailers can reach about 50 markets with their physical stores, while the network of online marketplaces can cover more than 5000 zip-codes with millions of customers. This makes it clear that this boom in the e-commerce Industry is disrupting the Indian consumer market and is on the precipice of changing the dynamics of the Asian business scene. There are still some questions about the viability of this unprecedented growth however, as nearly all e-commerce companies are devoting at least a portion of money provided by investors to offer consumers discounts. They have incurred combined losses of about $160m due to their heavily discounted market penetration strategy. Their current revenue model entails offering heavy

39

4/11/2016 6:18:42 PM


INDIA

Bubble or Boom?

BUSINESS ASIA • FALL 2015

R

38

ajesh Prasad, a small town textile manufacturer in the interior of Maharashtra is visibly elated. Over the course of the past month, he has sold dresses worth $30,000 in a little over a fortnight on Flipkart.com, a Bangalore based Indian ecommerce portal. Every day, he receives a memo highlighting a list of customer orders from Flipkart. At night, the consignment is dispatched in a truck to Flipkart’s warehouse in Mumbai, nearly halfway across the state. From here, the Flipkart supply chain system kicks in and delivers the dresses all over the country. Flipkart earns a commission on this deal and Prasad is able to connect with customers he has never seen before, a win-win situation for all parties involved. The Indian e-commerce Industry has made ground-breaking progress in the past decade and has changed the lives of many business owners around the country. The e-commerce

BAJ 2015 Spring.indd 38-39

market grew rapidly from $4.4b in 2010 to $13.6b in 2014, and is expected to continue expanding due to an increase in the number of online shoppers and sustained Indian population growth. A study by Assocham and Grant Thornton revealed that the number of online shoppers is expected to increase from 20 million in 2013 to 40 million in 2016, as millions of Indians gain access to the Internet, particularly due to the wide reach of smartphones. The e-commerce market is expected to see a compounded annual growth rate of 63 percent in 2015. Online travel booking has traditionally been the largest sub-sector of e-commerce, constituting 71 percent of the Indian market, implying that the online retail sector is vastly untapped as Indians are beginning to explore online shopping on a daily basis and not just to avoid a call with a travel agent. This compositional change is driving investments in many e-commerce startups

by AHAAN NACHANE

Writer

that target niche retail markets ranging from bewakoof.com, a printed T-shirt retailer to TheBargain.in, which provides Electronic gadget comparisons using sophisticated Data Analytic techniques. The vast majority of these startups are enjoying extremely high valuations, propped up by large volumes of investment by venture capitalists and angel investors from around the world. In Q1 2015, Indian startup investments increased by 300 percent, of which 15 percent represented additional investment into e-commerce. This rapid growth has attracted the attention of large multinational players. American juggernaut Amazon.com finally entered the Indian market in 2013 and is now readying a $5b war chest for its campaign to establish itself in what has the potential to become a massive market. Amazon is set to expand its offerings by providing instant video and subscription based e-commerce services

discounts to increase sales and market share, bearing the burden of the discounts themselves. The prime focus is on gaining customer loyalty and market share, after which they plan to gradually reduce discounts and hope that customers continue to shop online. As such, most e-commerce businesses will not become profitable if they are unable to maintain a loyal customer base after eliminating heavy discounts. The majority of e-commerce companies are expected to break even by 2020, earning a profit margin of about two percent of total sales thereafter. To get ahead in the race and gain visibility, they are committing to major advertising spending sprees - the advertising spending of these companies has surpassed that of the consumer durables, banking and financial sectors in 2015. In fact, e-commerce spending was nearly as much as traditional table toppers such as telecom and automobile companies. According to TAM Adex data, the four largest Indian e-commerce firms, Flipkart, Amazon, Snapdeal and OLX spent a staggering $92m on advertisements in 2015 alone, and it is not unusual to see full front-page advertisements in major newspapers such as the Times of India touting the benefits of on-line shopping. As e-commerce companies begin to decrease their discount offerings, they are attempting to shift consumer focus to their brand. To strengthen brand recognition, many companies are signing Bollywood celebrities and athletes to act as brand ambassadors. Acquiring technically adept employees to maintain extremely high growth rates is another hurdle that e-commerce companies must address. Most Indian college graduates, barring a few from the select prestigious Indian Institutes of Technology (IIT), are ill equipped to devise efficient technology solutions for problems encountered on a daily basis. Due to this talent deficit, bigger compa-

nies have begun looking to other tech hubs, such as the Silicon Valley, for talent in hopes of attracting skilled programmers by offering generous pay and attractive stock options. Some domestic Indian companies are even hinting at setting up offices in the Silicon Valley to accommodate programmer location preferences.

“Upon further investigation, the situation appears similar to that of the United States during the dot-com bubble, with many companies surging in valuations and developing oversized ambitions.” Given those challenges, it remains to be seen whether these companies will be able to maintain high growth rates and thereby validate their optimistic valuations. Upon further investigation, the situation is somewhat reminiscent of the Silicon Valley during the dot-com bubble, with many companies surging in value, propped up by exuberant investors with unrealistic expectations. Questionable revenue models and a lack of investing discipline ultimately resulted in the formation of the bubble that left many firms with no alternative but to declare bankruptcy when it burst. The Indian e-commerce industry stands on the precipice of transformation - for the sake of the broader Asian economy, we can only hope that investors are not pumping air into a new bubble. | BA Ahaan Nachane is a sophomore studying Computer Science in the college of Engineering. He grew up in Mumbai, India and is also involved in the Autonomous Systems Lab programming robots.

BUSINESS ASIA • FALL 2015

Indian E-Commerce

through Amazon Prime, to provide an additional draw for upper middle-class consumers in bigger cities like Mumbai and New Delhi. Amazon is also making heavy investments in warehouses and supply chain networks across the country as it competes with indigenous companies like Flipkart and Snapdeal. Similarly, Chinese giant Alibaba and Taiwanese electronics manufacturer FoxConn have chosen to enter the market by investing $500m in Snapdeal and are looking to increase their Indian presence in the future. Aside from tech companies, major venture capital firms have invested in Indian e-commerce companies, with Sequoia Capital now setting up shop in India in hopes of becoming one of the most prolific VC companies in Asia. They have been investing in a wide array of ecommerce companies ranging from small local start-ups to giants like Flipkart. With all the funding flowing into the e-commerce space, companies have grown so rapidly that the original brick and mortar sellers - who resented them at first - have now begun to ink deals with the online platforms in order to ensure their own survival. Most retailers can reach about 50 markets with their physical stores, while the network of online marketplaces can cover more than 5000 zip-codes with millions of customers. This makes it clear that this boom in the e-commerce Industry is disrupting the Indian consumer market and is on the precipice of changing the dynamics of the Asian business scene. There are still some questions about the viability of this unprecedented growth however, as nearly all e-commerce companies are devoting at least a portion of money provided by investors to offer consumers discounts. They have incurred combined losses of about $160m due to their heavily discounted market penetration strategy. Their current revenue model entails offering heavy

39

4/11/2016 6:18:42 PM


Nukes in North Korea

BUSINESS ASIA • FALL 2015

I

40

n clear defiance of international law and UN resolutions against nuclear testing, North Korea completed its fourth nuclear test early this year. All major countries were quick to condemn the test, and the United States spear-headed the introduction of new global economic sanctions against Pyongyang. The United Nations Security Council unanimously approved the sanctions introduced by the United States and China in a joint resolution co-sponsored by 55 countries less than two months following North Korea’s supposed hydrogen bomb test. Following their passage, President Obama stated that, “today, the international commu-

BAJ 2015 Spring.indd 40-41

nity, speaking with one voice, has sent Pyongyang a simple message: North Korea must abandon these dangerous programs and choose a better path for its people.” North Korea has remained defiant despite facing sanctions that are considered unprecedented in their severity in terms of both scope and reach. Shortly following the United Nations announcement, North Korea launched a series of missiles, demonstrating its continued commitment to flout international demands to halt its nuclear weapons development program. Although the reclusive nation is worrisomely unpredictable, its response to international censure has been fairly consistent: threaten death to

NICOLE SCHMIT

by

Editor in Chief

Pyongyang’s enemies, tout North Korea’s greatness, and launch a few short-range missiles. Most recently, North Korea’s state-run newspaper, DPRK Today, claimed that North Korea will “kill more people in America than the September 11th attacks” and that Pyongyang has their weapons trained on key locations in the United States, including the White House. Kim Jong-un professed that North Korea was in a state of “semi-war” against a host of “hostile” nations, including even China, North Korea’s most substantial trading partner, in his list of supposed enemies. The latest round of sanctions that served to infuriate Pyongyang is targeted

towards further weakening Kim Jongun’s regime by restricting trade, in hopes that the government will be unable to continue financing costly nuclear development spending. Specifically, the United Nations resolution requires that all shipments to and from North Korea undergo inspections to prevent sales of aircraft, rocket fuel, and weapons as well as eliminate all government revenues from trade, with the exception of trade for humanitarian purposes. In line with the Security Council Resolution, the Chinese Ministry of Commerce has committed to trade restrictions banning coal, iron ore, gold, titanium, vanadium, rare earth minerals, and aviation fuel imports from North Korea. China’s commitment to enforcing the sanctions is paramount in ensuring their success, as China accounts for over 70 percent of Pyongyang’s total trade volume, supplying most of its energy and foreign food supplies. Historically, China has been the only nation to consistently lend support to North Korea in the international arena. Since the Korean War in the early 1950s, China has loyally provided economic and political backing to North Korea and conducted regular state visits between high-level Chinese Communist Party officials and North Korea’s leaders. Given China’s long-standing support of North Korea, China’s changing stance towards Pyongyang is certainly noteworthy. For China, ensuring the stability of the North Korean regime is of utmost importance. In the event of a regime collapse, China would be faced with the potential influx of millions of refugees pouring across the shared 870-mile border. In addition, the risk of a new government allied with the United States consolidating power directly on China’s border would, in the Chinese Communist Party’s opinion, pose a direct threat to national security and therefore be an

inexcusable development that should be avoided at all costs. Given China’s direct interests in propping up the North Korean regime, it should come as no surprise that Beijing has neglected to comply with previous attempts to sanction Pyongyang. What, then, has driven Beijing’s change in policy? Quite simply, China does not desire North Korea to possess nuclear weapons any more than the rest of the world. Following North Korea’s previous nuclear tests, China attempted to convince its neighbor to abandon further tests by expressing disapproval in primarily symbolic manners, with little tangible steps taken to implement the enforcement of sanctions. Clearly, China’s tentative and symbolic approach was ineffective in deterring Pyongyang from its pursuit to build up a nuclear arsenal, leaving China with no alternative but to enforce harsh punitive measures. However, even though China has claimed to be committed to enforcing these stringent sanctions, it remains unclear how long their existing stance will persist. As Daniel Sneider of Stanford’s Asia-Pacific Research Center put it, “stability and the avoidance of war are the top priorities [of China].” Therefore, as soon as it appears sanctions against North Korea may jeopardize China’s national interests, Beijing will rapidly resume economic relations with Pyongyang. Although North Korea is insignificant to China as a trade partner, Pyongyang does possess leverage, as long as it holds the credible threat of an engineered refugee flow to China. Currently, “defectors” that manage to slip across the border into China may be returned to North Korea, if caught by Chinese authorities, and are punished severely to discourage others from making the attempt to leave. If Pyongyang began to overtly, or even tacitly, encourage its poorest citizens to cross

the Chinese border, Beijing would be left with a refugee crisis of massive scale. In 2007, the Bank of Korea estimated that as many as three million refugees would cross the border into China in the event of a regime collapse in North Korea. Either an engineered migration or one that resulted from Kim Jong-un’s demise would undermine the Chinese government’s social and economic stability – for the Chinese Communist Party, this is an intolerable scenario. Even assuming that Pyongyang is unable to coerce China into abandoning the sanctions, it is unclear how effective the new round of sanctions will prove. Despite the dismal condition of the North Korean economy, with chronic food shortages and widespread malnutrition, Kim Jong-un has consistently refused to curb his military spending. Speaking on the topic of sanctions, U.S. Ambassador Samantha Power has stated that, “the North Korea regime has proven over the years to be a master of evasion. They’ll drive a truck through any loopholes they can find, but this resolution is very robust.” Certainly, the international community is hopeful that the added severity of the new sanctions will provide the necessary incentive to persuade Kim Jong-un to agree to denuclearization, but in the past, hopes in the wake of sanctions against the hermit state have been consistently dashed. In fact, North Korea has been so effective in skirting U.N. resolutions intended to force them to disarm, that its nuclear and ballistic missile programs have actually increased spending in recent years, rather than declined. Although previous sanctions did adversely impact the North Korean economy, Pyongyang ensured military spending remained the priority. In fact, nuclear weapon development was considered so crucial by North Korea’s previous dictator that he allowed hundreds of thousands

BUSINESS ASIA • FALL 2015

SPECIAL REPORT

41

4/11/2016 6:18:43 PM


Nukes in North Korea

BUSINESS ASIA • FALL 2015

I

40

n clear defiance of international law and UN resolutions against nuclear testing, North Korea completed its fourth nuclear test early this year. All major countries were quick to condemn the test, and the United States spear-headed the introduction of new global economic sanctions against Pyongyang. The United Nations Security Council unanimously approved the sanctions introduced by the United States and China in a joint resolution co-sponsored by 55 countries less than two months following North Korea’s supposed hydrogen bomb test. Following their passage, President Obama stated that, “today, the international commu-

BAJ 2015 Spring.indd 40-41

nity, speaking with one voice, has sent Pyongyang a simple message: North Korea must abandon these dangerous programs and choose a better path for its people.” North Korea has remained defiant despite facing sanctions that are considered unprecedented in their severity in terms of both scope and reach. Shortly following the United Nations announcement, North Korea launched a series of missiles, demonstrating its continued commitment to flout international demands to halt its nuclear weapons development program. Although the reclusive nation is worrisomely unpredictable, its response to international censure has been fairly consistent: threaten death to

NICOLE SCHMIT

by

Editor in Chief

Pyongyang’s enemies, tout North Korea’s greatness, and launch a few short-range missiles. Most recently, North Korea’s state-run newspaper, DPRK Today, claimed that North Korea will “kill more people in America than the September 11th attacks” and that Pyongyang has their weapons trained on key locations in the United States, including the White House. Kim Jong-un professed that North Korea was in a state of “semi-war” against a host of “hostile” nations, including even China, North Korea’s most substantial trading partner, in his list of supposed enemies. The latest round of sanctions that served to infuriate Pyongyang is targeted

towards further weakening Kim Jongun’s regime by restricting trade, in hopes that the government will be unable to continue financing costly nuclear development spending. Specifically, the United Nations resolution requires that all shipments to and from North Korea undergo inspections to prevent sales of aircraft, rocket fuel, and weapons as well as eliminate all government revenues from trade, with the exception of trade for humanitarian purposes. In line with the Security Council Resolution, the Chinese Ministry of Commerce has committed to trade restrictions banning coal, iron ore, gold, titanium, vanadium, rare earth minerals, and aviation fuel imports from North Korea. China’s commitment to enforcing the sanctions is paramount in ensuring their success, as China accounts for over 70 percent of Pyongyang’s total trade volume, supplying most of its energy and foreign food supplies. Historically, China has been the only nation to consistently lend support to North Korea in the international arena. Since the Korean War in the early 1950s, China has loyally provided economic and political backing to North Korea and conducted regular state visits between high-level Chinese Communist Party officials and North Korea’s leaders. Given China’s long-standing support of North Korea, China’s changing stance towards Pyongyang is certainly noteworthy. For China, ensuring the stability of the North Korean regime is of utmost importance. In the event of a regime collapse, China would be faced with the potential influx of millions of refugees pouring across the shared 870-mile border. In addition, the risk of a new government allied with the United States consolidating power directly on China’s border would, in the Chinese Communist Party’s opinion, pose a direct threat to national security and therefore be an

inexcusable development that should be avoided at all costs. Given China’s direct interests in propping up the North Korean regime, it should come as no surprise that Beijing has neglected to comply with previous attempts to sanction Pyongyang. What, then, has driven Beijing’s change in policy? Quite simply, China does not desire North Korea to possess nuclear weapons any more than the rest of the world. Following North Korea’s previous nuclear tests, China attempted to convince its neighbor to abandon further tests by expressing disapproval in primarily symbolic manners, with little tangible steps taken to implement the enforcement of sanctions. Clearly, China’s tentative and symbolic approach was ineffective in deterring Pyongyang from its pursuit to build up a nuclear arsenal, leaving China with no alternative but to enforce harsh punitive measures. However, even though China has claimed to be committed to enforcing these stringent sanctions, it remains unclear how long their existing stance will persist. As Daniel Sneider of Stanford’s Asia-Pacific Research Center put it, “stability and the avoidance of war are the top priorities [of China].” Therefore, as soon as it appears sanctions against North Korea may jeopardize China’s national interests, Beijing will rapidly resume economic relations with Pyongyang. Although North Korea is insignificant to China as a trade partner, Pyongyang does possess leverage, as long as it holds the credible threat of an engineered refugee flow to China. Currently, “defectors” that manage to slip across the border into China may be returned to North Korea, if caught by Chinese authorities, and are punished severely to discourage others from making the attempt to leave. If Pyongyang began to overtly, or even tacitly, encourage its poorest citizens to cross

the Chinese border, Beijing would be left with a refugee crisis of massive scale. In 2007, the Bank of Korea estimated that as many as three million refugees would cross the border into China in the event of a regime collapse in North Korea. Either an engineered migration or one that resulted from Kim Jong-un’s demise would undermine the Chinese government’s social and economic stability – for the Chinese Communist Party, this is an intolerable scenario. Even assuming that Pyongyang is unable to coerce China into abandoning the sanctions, it is unclear how effective the new round of sanctions will prove. Despite the dismal condition of the North Korean economy, with chronic food shortages and widespread malnutrition, Kim Jong-un has consistently refused to curb his military spending. Speaking on the topic of sanctions, U.S. Ambassador Samantha Power has stated that, “the North Korea regime has proven over the years to be a master of evasion. They’ll drive a truck through any loopholes they can find, but this resolution is very robust.” Certainly, the international community is hopeful that the added severity of the new sanctions will provide the necessary incentive to persuade Kim Jong-un to agree to denuclearization, but in the past, hopes in the wake of sanctions against the hermit state have been consistently dashed. In fact, North Korea has been so effective in skirting U.N. resolutions intended to force them to disarm, that its nuclear and ballistic missile programs have actually increased spending in recent years, rather than declined. Although previous sanctions did adversely impact the North Korean economy, Pyongyang ensured military spending remained the priority. In fact, nuclear weapon development was considered so crucial by North Korea’s previous dictator that he allowed hundreds of thousands

BUSINESS ASIA • FALL 2015

SPECIAL REPORT

41

4/11/2016 6:18:43 PM


Kim Jong-un professed that North Korea was in a state of “semi-war” against a host of “hostile” nations, including even China, North Ko-

rea’s most substantial trading partner, in his list of supposed enemies. It is unclear how far along North Korea is to actually obtaining a fully operational nuclear arsenal, as experts are highly skeptical of the grandiose claims issued by Pyongyang which are frequently false or blatant exaggerations. Most experts believe that Pyongyang remains years away from obtaining ICBM strike capabilities and has yet to successfully deploy a hydrogen bomb, despite Kim Jong-un’s claims to the contrary (the 2016 nuclear test is thought to have involved only a boosted fission weapon). Regardless of Pyongyang’s current capabilities, it remains clear that North Korea will not rest until it has become a nuclear power, even going so far as to let its people perish in hunger in lieu of diverting military spending for food.

The BAJ Team

Brookings Institution’s Jonathan Pollack argues that “the North Korean leadership has thus convinced itself (if not others) that its existence as an autonomous state derives directly from its possession of nuclear weapons.” China, along with the rest of the world, must consider carefully the ramifications of permitting the belligerent and unstable nation to achieve its ultimate goal, but also the potential consequences of successfully thwarting Pyongyang’s efforts. | BA Nicole Schmit is a senior in the College of Arts and Sciences, pursuing a major in Economics with minors in Business, China & Asia Pacific Studies, and Law & Society. This summer she will be working as an investment banking summer analyst with Citi in New York City.

BUSINESS ASIA • FALL 2015

EXECUTIVE BOARD

42

BAJ 2015 Spring.indd 42-43

President Editor-in-Chief Director of Design Associate Editor Associate Editor Associate Editor Adviser

Sanjeev Dhara Nicole Schmit Arthur Teng Steven Salenik Benjamin Zehr Angela Zhang Prof. Thomas Pepinsky

EDITORIAL Brandon Greer Nicole Kwok Megan Lee Shiu Yu Natalie Leung Catherine McAnney Ahaan Nachane Harrison Tighe Aditya Shukla Sarah Chekfa

Check us out, and our previous issues, online at: www.cornellbusinessasia.com Interested in joining? Email us at: BusinessAsia.Journal@gmail.com

BUSINESS ASIA • FALL 2015

to starve to death in the 1990s, rather than divert a portion of the military budget to purchase food for his citizens. History may repeat itself; following the announcement of sanctions this year, the official North Korean state newspaper reported that, “[North Koreans] may have to go on an arduous march, a time when we will again have to eat the roots of grass.” The article refers to the famine, or “arduous march,” under Kim-Jong-un’s father two decades ago, implying that yet again, the government will elect to allow its people to starve prior to ending military development programs.

43

4/11/2016 6:18:48 PM


Kim Jong-un professed that North Korea was in a state of “semi-war” against a host of “hostile” nations, including even China, North Ko-

rea’s most substantial trading partner, in his list of supposed enemies. It is unclear how far along North Korea is to actually obtaining a fully operational nuclear arsenal, as experts are highly skeptical of the grandiose claims issued by Pyongyang which are frequently false or blatant exaggerations. Most experts believe that Pyongyang remains years away from obtaining ICBM strike capabilities and has yet to successfully deploy a hydrogen bomb, despite Kim Jong-un’s claims to the contrary (the 2016 nuclear test is thought to have involved only a boosted fission weapon). Regardless of Pyongyang’s current capabilities, it remains clear that North Korea will not rest until it has become a nuclear power, even going so far as to let its people perish in hunger in lieu of diverting military spending for food.

The BAJ Team

Brookings Institution’s Jonathan Pollack argues that “the North Korean leadership has thus convinced itself (if not others) that its existence as an autonomous state derives directly from its possession of nuclear weapons.” China, along with the rest of the world, must consider carefully the ramifications of permitting the belligerent and unstable nation to achieve its ultimate goal, but also the potential consequences of successfully thwarting Pyongyang’s efforts. | BA Nicole Schmit is a senior in the College of Arts and Sciences, pursuing a major in Economics with minors in Business, China & Asia Pacific Studies, and Law & Society. This summer she will be working as an investment banking summer analyst with Citi in New York City.

BUSINESS ASIA • FALL 2015

EXECUTIVE BOARD

42

BAJ 2015 Spring.indd 42-43

President Editor-in-Chief Director of Design Associate Editor Associate Editor Associate Editor Adviser

Sanjeev Dhara Nicole Schmit Arthur Teng Steven Salenik Benjamin Zehr Angela Zhang Prof. Thomas Pepinsky

EDITORIAL Brandon Greer Nicole Kwok Megan Lee Shiu Yu Natalie Leung Catherine McAnney Ahaan Nachane Harrison Tighe Aditya Shukla Sarah Chekfa

Check us out, and our previous issues, online at: www.cornellbusinessasia.com Interested in joining? Email us at: BusinessAsia.Journal@gmail.com

BUSINESS ASIA • FALL 2015

to starve to death in the 1990s, rather than divert a portion of the military budget to purchase food for his citizens. History may repeat itself; following the announcement of sanctions this year, the official North Korean state newspaper reported that, “[North Koreans] may have to go on an arduous march, a time when we will again have to eat the roots of grass.” The article refers to the famine, or “arduous march,” under Kim-Jong-un’s father two decades ago, implying that yet again, the government will elect to allow its people to starve prior to ending military development programs.

43

4/11/2016 6:18:48 PM


Paro Taktsang is the popular name of Taktsang Palphug Monastery (also known as Tiger’s Nest), a prominent Himalayan Buddhist sacred site and temple complex, located in the cliffside of the upper Paro valley, in Bhutan. A temple complex was first built in 1692, around the Taktsang Senge Samdup cave where Guru Padmasambhava is said to have meditated for three years, three months, three weeks, three days and three hours in the 8th century.

BUSINESSASIA

Business Asia Journal, an independent student organization located at Cornell University, produced and is responsible for the content of this publication. This publication was not reviewed or approved by, nor does it necessarily express or reflect the policies or opinions of, Cornell University or its designated representatives.

BAJ 2015 Spring.indd 44

4/11/2016 6:18:50 PM

Business Asia Journal Spring 2016  
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