On a subject dear to all our hearts, the Chinese government has unveiled a new regulation on internet news providers.
There has been a certain amount of squealing in the media and blogosphere, taking the new reg as a jumping off point to grumble about Chinese attempts to clamp down on non-government sources of information and opinion.
All very true, but the intention of the new reg is primarily to create a protected class of licensed Internet news companies, incorporated, registered with the government, with certain levels of capitalization and employees (with minimum 3 years' previous experience in the news business), in other words corporatized news businesses unlikely to offend--a media style we're more than a little familiar with here in the US.
Penalties on unlicensed news purveyors--those brave bloggers, posters, and Falun Gong enthusiasts--are mentioned once Section 5 Chapter 26, for those of you who like to keep track), almost in passing, when the penalties for people who get into the news business without a license are addressed.
So the point of this new policy is not to try to resuscitate the AOL model and create the world's largest moderated chatroom, with Sohu and Yahoo dutifully pulling at the oars--though that's going on too.
What we have here is the capitalism-with-Chinese-characteristics side of the manufacturing consent equation.
The Chinese government wants to create nice, meek, risk averse Internet news businesses that will be protected from competition from lively, popular blogs and websites.
Armed with this protection--and secure in the knowledge that the Chinese government will sanction unlicensed news providers--the official news providers will grow, attract investment, and crowd out and delegitimize other information sources on the Internet.
In other words, it's a MSM Internet model, this time backed up by the clout of the host government.
Is it going to be up to the Chinese teach us the workable, profitable Internet news business model--call it Xinhua Select--based on government monopoly and corporate collusion?
Bill Keller must be envious. Imagine a world in which posting an embargoed David Brooks column is a crime against the state, and not just an offense against decency and respectable prose.
The kvetching of the print media is therefore rather ironic.
The Chinese regs--with their ostentatious paeans to professionalism, responsibility, accuracy, and accountability--sound like they are ripped from the transcript of those tedious blogger ethics panels that professional journalists are always convening to harrass the raggedy-assed purveyors of innuendo, speculation, and recycled news stories on the Internet.
In both cases, the net result is to suppress the indispensable alternate version of reality that the Internet can provide in this age of elite message management and information control.
Tuesday, September 27, 2005
Monday, September 26, 2005
Seymour Hersh Looks at North Korea
Now that the "bad faith" rumpus over North Korea's follow-up statements on the Six-Party Agreement have died down, and the talks are chugging along toward Vietnam peace-talk style prolonged futility, it's interesting to gain another perspective on U.S. motivations. Why did the White House allow itself to sign onto a process that promises to provide neither disarmament, peace, inspections, or civilian nuclear reactors, but to date has only yielded the Bush administration an unwanted image of Clintonesque feckless accommodation?
Speaking at Steve Clemons' conference Beyond Bullets: Economic Strategies in the Fight Against Terrorism on September 21, renowned investigative journalist Seymour Hersh stated that he had been told in August by his sources that an agreement with North Korea at any cost was in the works so the Bush administration "could clear the decks" to deal with Teheran's nuclear ambitions.
The urgency, Hersh reported, came from the need for the United States to "keep [Arial] Sharon in the game" i.e. delivering a worthy quid pro quo to Israel--dealing with the existential threat of Iranian nuclear weapons--in return for Israel's sticking with the Gaza withdrawal (and presumably providing support for a neo-con "democracy on the march" version of events in the Middle East that justifies continued adventurism vis a vis Iraq, Syria, and Iran).
It's unclear what "dealing with Iran" would mean, since the Security Council referral by a divided IAEA is expected to result in a veto from Iran's nuclear patron, Russia, despite any multilateralist, "grownups back in charge" diplomatic cred the Condi Rice team may claim on behalf of U.S. foreign policy as a result of the hastily-concluded North Korea boondoggle. One would think the world is unlikely to go along with White House efforts to gin up an anti-Iran coalition after the Iraq fiasco just because we caved on North Korea.
This is unlikely to be an outcome satisfactory to Arial Sharon. With the Bush administration's international clout at low ebb and the American public showing little appetite for escalated Middle East adventures, perhaps the best Israel can do is attempt to reprise its "consequences be damned" pre-emptive strike against Saddam Hussein's Osiraq facility, this time against Iran's Bushehr reactor and its well-protected constellation of nuclear facilities, under a U.S. diplomatic--instead of military--umbrella.
This interpretation implies that U.S. commitment to the negotiation process on the Korean peninsula is merely temporary and tactical. When Iran is dealt with--effectively, incompetently, disastrously, or indifferently--the Bush administration will turn its attention to North Korea once again with its original pre-September regime change aims and malice undiluted.
Neo-con sympathizers may draw unexpected encouragement from Hersh's remarks. After all, by this scenario, the Chinese did not extort humiliating concessions on behalf of Kim Jung Il from a politically and diplomatically neutered Bush presidency.
Instead, the North Korea agreement can be comfortably construed as a Machiavellian master-stroke: a merely tactical retreat disguising the Bush administration's resolve to deal righteously with the Mini-Me oriental leg of the Axis of Evil at a later date--after America has resolutely grasped the Iranian nettle in a reaffirmation of its implacable determination to transform the Middle East with its gun-barrel vision of democracy.
Time will tell if the advocates of confrontation with North Korea will settle on this more flattering explanation for recent events that otherwise appears to be setback for their cherished goals.
On the other hand, those of us who believe that the neo-con's "democracy by apocalypse" agenda has delivered so much disaster and so little triumph that using the word "hubris" undeservedly implies that the neo-cons actually achieved something positive before overreach revealed their incompetence, the neocons remain what they have always been: useful, complicit tools providing an ideological veneer for conservative elites working to create their "Have It My Way" super-sized self-perpetuating imperial state devoid of accountability and transparency.
North Korea--and the suffering of its people--is merely a distraction, sometimes useful and sometimes irritating, in the evolving American effort to contain and confront China. When--if ever--the United States gets the Middle East under its control and can deny its resources to China, the time may come for America to join with Japan to use the North Korean situation as a lever to destabilize and alarm the PRC. Then the neo-cons will be let slip to confound and distract opinion with their lunatic baying about Pyongyang.
But the other dangers--to American interests and American democracy--are closer to home and more immediate.
In this context, Hersh's revelation (to me) that a 1700 square foot, multi-billion dollar stack of Saddam's US currency stash has disappeared into the insatiable maw of the burgeoning "off-the-books" covert operations empire of Bush's executive branch is a sign that Kim Jung Il and his regime should not number among the greatest of the our worries.
Note: Tip of the hat to Billmon comment site Moon of Alabama for unearthing and publicizing Hersh's remarks.
Speaking at Steve Clemons' conference Beyond Bullets: Economic Strategies in the Fight Against Terrorism on September 21, renowned investigative journalist Seymour Hersh stated that he had been told in August by his sources that an agreement with North Korea at any cost was in the works so the Bush administration "could clear the decks" to deal with Teheran's nuclear ambitions.
The urgency, Hersh reported, came from the need for the United States to "keep [Arial] Sharon in the game" i.e. delivering a worthy quid pro quo to Israel--dealing with the existential threat of Iranian nuclear weapons--in return for Israel's sticking with the Gaza withdrawal (and presumably providing support for a neo-con "democracy on the march" version of events in the Middle East that justifies continued adventurism vis a vis Iraq, Syria, and Iran).
It's unclear what "dealing with Iran" would mean, since the Security Council referral by a divided IAEA is expected to result in a veto from Iran's nuclear patron, Russia, despite any multilateralist, "grownups back in charge" diplomatic cred the Condi Rice team may claim on behalf of U.S. foreign policy as a result of the hastily-concluded North Korea boondoggle. One would think the world is unlikely to go along with White House efforts to gin up an anti-Iran coalition after the Iraq fiasco just because we caved on North Korea.
This is unlikely to be an outcome satisfactory to Arial Sharon. With the Bush administration's international clout at low ebb and the American public showing little appetite for escalated Middle East adventures, perhaps the best Israel can do is attempt to reprise its "consequences be damned" pre-emptive strike against Saddam Hussein's Osiraq facility, this time against Iran's Bushehr reactor and its well-protected constellation of nuclear facilities, under a U.S. diplomatic--instead of military--umbrella.
This interpretation implies that U.S. commitment to the negotiation process on the Korean peninsula is merely temporary and tactical. When Iran is dealt with--effectively, incompetently, disastrously, or indifferently--the Bush administration will turn its attention to North Korea once again with its original pre-September regime change aims and malice undiluted.
Neo-con sympathizers may draw unexpected encouragement from Hersh's remarks. After all, by this scenario, the Chinese did not extort humiliating concessions on behalf of Kim Jung Il from a politically and diplomatically neutered Bush presidency.
Instead, the North Korea agreement can be comfortably construed as a Machiavellian master-stroke: a merely tactical retreat disguising the Bush administration's resolve to deal righteously with the Mini-Me oriental leg of the Axis of Evil at a later date--after America has resolutely grasped the Iranian nettle in a reaffirmation of its implacable determination to transform the Middle East with its gun-barrel vision of democracy.
Time will tell if the advocates of confrontation with North Korea will settle on this more flattering explanation for recent events that otherwise appears to be setback for their cherished goals.
On the other hand, those of us who believe that the neo-con's "democracy by apocalypse" agenda has delivered so much disaster and so little triumph that using the word "hubris" undeservedly implies that the neo-cons actually achieved something positive before overreach revealed their incompetence, the neocons remain what they have always been: useful, complicit tools providing an ideological veneer for conservative elites working to create their "Have It My Way" super-sized self-perpetuating imperial state devoid of accountability and transparency.
North Korea--and the suffering of its people--is merely a distraction, sometimes useful and sometimes irritating, in the evolving American effort to contain and confront China. When--if ever--the United States gets the Middle East under its control and can deny its resources to China, the time may come for America to join with Japan to use the North Korean situation as a lever to destabilize and alarm the PRC. Then the neo-cons will be let slip to confound and distract opinion with their lunatic baying about Pyongyang.
But the other dangers--to American interests and American democracy--are closer to home and more immediate.
In this context, Hersh's revelation (to me) that a 1700 square foot, multi-billion dollar stack of Saddam's US currency stash has disappeared into the insatiable maw of the burgeoning "off-the-books" covert operations empire of Bush's executive branch is a sign that Kim Jung Il and his regime should not number among the greatest of the our worries.
Note: Tip of the hat to Billmon comment site Moon of Alabama for unearthing and publicizing Hersh's remarks.
Tuesday, September 20, 2005
NK Talks: Fiasco, Business as Usual...or Both?
Re the fracas over Pyongyang demanding that they get their light water reactors first, there will be an understandable tendency to blame the North Koreans for screwing up the nuclear accord with another piece of last-minute brinksmanship intended to wring a final concession out of the talks.
Or, as the LA Times print edition of Sept. 20 puts it, "New Terms May Blow Up Nuclear Deal".
But consider this, from the New York Times, which did the best job of reporting the whole affair:
To break the impasse, Ms. Rice came up with a compromise during meetings on Saturday afternoon with her South Korean and Japanese counterparts. Each country, she suggested, would issue separate statements describing their understanding of the deal, with a specificity that is not in the agreement itself. The South Koreans and Japanese went along with the idea, though South Korea, one official said, complained that it would "sour the atmosphere." Russia and China issued vaguer statements that left unclear the sequence of events.
So the North Koreans, at Condi's suggestion, clarify their position on what they consider the "appropriate" time for them to get light water nuclear reactors, and get jumped on for being obstructionist jerks.
The NYT reported, in a phrase that may come back to haunt the Secretary of State, that Rice's involvement in the negotiations was characterized jokingly as "adult supervision".
The LA Times and Sonni Efron, usually reliable conduits for Condi Rice's version of events, somehow omitted this interesting nugget, which makes Condi look pretty clueless.
The actual negotiations were apparently a full-time fudge factory, according to the Washington Post:
China sought to bridge the gap, playing its leadership role as sponsor of the talks. Chinese diplomats proposed language according North Korea the right to a reactor for electricity production but implying that it could invoke that right only after dismantling its weapons program and rejoining the international nuclear inspection regime.
"Implying". As in "not stating". As in "I wonder what they actually said to the North Koreans?"
What is clear from the reporting is that the Chinese drove a hard bargain and insisted that the Bush administration, rocked on its heels by Katrina, Iraq, and Iran, had to accept that North Korea had the right to a civilian nuclear program or else face public blame for the collapse of the talks.
The Chinese, perhaps, overplayed their hand in an attempt to humiliate the U.S. into returning to the decade-old civilian nuclear reactor scheme and thereby admit that five years of fulmination, threats, and chest thumping rhetoric under Bush had done little more than return the Korean peninsula dialogue to the hated days of engagement, peace, economic carrots, and Bill Clinton-style diplomacy.
For its part, the United States might have been perfectly happy to see the agreement fall apart and not have to follow through on a concession that the upper levels of the Bush administration consider coerced and detestable.
Certainly there seems to be a disconnect between the wailing and gnashing of teeth reported today with the attitude that the Washington Post reported earlier, when the negotiating team was still trying to move things forward:
In an immediate demonstration of the difficulty ahead, the official North Korean news agency early today quoted an unnamed Foreign Ministry spokesman as asserting that Pyongyang would not give up its weapons program until it received nuclear reactors from the United States. A State Department official shrugged off the statement, saying the focus would remain on the Beijing declaration.
For the U.S., focus quickly shifted to asserting that the appropriate time for light water reactors is after complete disarmament and verification.
Re verification, the Post reported:
The administration envisions what one senior official described yesterday as a "very intrusive verification regime that will go well beyond what is required" by the IAEA.
For those of us with short memories, it is perhaps instructive to recall the experience of another member of the Axis of Evil, Iraq.
In that case, the U.S.and the U.K. pushed through an onerous inspection regime whose apparent intent was to confront and destabilize Saddam Hussein's regime to the point that it would expel the inspectors and provide a casus belli.
Whatever the reason--appeasing Bush's conservative domestic base, an inability to accept any unpleasant lessons from Iraq, or simply a failure of perspective or imagination--the U.S. is unwilling to surrender the propaganda advantages and strategic posture that come from assailing North Korea as a pariah state and subjecting its sovereignty to coercive U.S. and/or international supervision.
No doubt Kim Jung-Il remembers that Saddam Hussein acceded to full-cavity search treatment, and in return was rewarded with a duplicitous U.N. dog-and-pony show courtesy of Colin Powell, and got invaded anyway for his pains.
With that kind of history, civilian nuclear reactors will probably be operating on Mars before the Bush administration concludes its inspection regime in North Korea to its satisfaction.
So one can understand, if not appreciate, North Korea's explicit insistence that the light-water reactor program begin now, as a sign of good faith.
Failing that, what North Korea is probably hoping for is to drag the discussions out for another four years until there is a change of U.S. administration and a repudiation of the Bush "failed state" intervention doctrine that creates existential peril for the Kim Jung-Il regime whenever it comes into contact with the United States.
For a U.S. administration under siege and bereft of the credibility and will to resolve the Korean situation through negotiation and concession, the opportunity to deflect blame for the continued impasse away from itself and onto Pyongyang may be the only positive outcome it can hope for.
Or, as the LA Times print edition of Sept. 20 puts it, "New Terms May Blow Up Nuclear Deal".
But consider this, from the New York Times, which did the best job of reporting the whole affair:
To break the impasse, Ms. Rice came up with a compromise during meetings on Saturday afternoon with her South Korean and Japanese counterparts. Each country, she suggested, would issue separate statements describing their understanding of the deal, with a specificity that is not in the agreement itself. The South Koreans and Japanese went along with the idea, though South Korea, one official said, complained that it would "sour the atmosphere." Russia and China issued vaguer statements that left unclear the sequence of events.
So the North Koreans, at Condi's suggestion, clarify their position on what they consider the "appropriate" time for them to get light water nuclear reactors, and get jumped on for being obstructionist jerks.
The NYT reported, in a phrase that may come back to haunt the Secretary of State, that Rice's involvement in the negotiations was characterized jokingly as "adult supervision".
The LA Times and Sonni Efron, usually reliable conduits for Condi Rice's version of events, somehow omitted this interesting nugget, which makes Condi look pretty clueless.
The actual negotiations were apparently a full-time fudge factory, according to the Washington Post:
China sought to bridge the gap, playing its leadership role as sponsor of the talks. Chinese diplomats proposed language according North Korea the right to a reactor for electricity production but implying that it could invoke that right only after dismantling its weapons program and rejoining the international nuclear inspection regime.
"Implying". As in "not stating". As in "I wonder what they actually said to the North Koreans?"
What is clear from the reporting is that the Chinese drove a hard bargain and insisted that the Bush administration, rocked on its heels by Katrina, Iraq, and Iran, had to accept that North Korea had the right to a civilian nuclear program or else face public blame for the collapse of the talks.
The Chinese, perhaps, overplayed their hand in an attempt to humiliate the U.S. into returning to the decade-old civilian nuclear reactor scheme and thereby admit that five years of fulmination, threats, and chest thumping rhetoric under Bush had done little more than return the Korean peninsula dialogue to the hated days of engagement, peace, economic carrots, and Bill Clinton-style diplomacy.
For its part, the United States might have been perfectly happy to see the agreement fall apart and not have to follow through on a concession that the upper levels of the Bush administration consider coerced and detestable.
Certainly there seems to be a disconnect between the wailing and gnashing of teeth reported today with the attitude that the Washington Post reported earlier, when the negotiating team was still trying to move things forward:
In an immediate demonstration of the difficulty ahead, the official North Korean news agency early today quoted an unnamed Foreign Ministry spokesman as asserting that Pyongyang would not give up its weapons program until it received nuclear reactors from the United States. A State Department official shrugged off the statement, saying the focus would remain on the Beijing declaration.
For the U.S., focus quickly shifted to asserting that the appropriate time for light water reactors is after complete disarmament and verification.
Re verification, the Post reported:
The administration envisions what one senior official described yesterday as a "very intrusive verification regime that will go well beyond what is required" by the IAEA.
For those of us with short memories, it is perhaps instructive to recall the experience of another member of the Axis of Evil, Iraq.
In that case, the U.S.and the U.K. pushed through an onerous inspection regime whose apparent intent was to confront and destabilize Saddam Hussein's regime to the point that it would expel the inspectors and provide a casus belli.
Whatever the reason--appeasing Bush's conservative domestic base, an inability to accept any unpleasant lessons from Iraq, or simply a failure of perspective or imagination--the U.S. is unwilling to surrender the propaganda advantages and strategic posture that come from assailing North Korea as a pariah state and subjecting its sovereignty to coercive U.S. and/or international supervision.
No doubt Kim Jung-Il remembers that Saddam Hussein acceded to full-cavity search treatment, and in return was rewarded with a duplicitous U.N. dog-and-pony show courtesy of Colin Powell, and got invaded anyway for his pains.
With that kind of history, civilian nuclear reactors will probably be operating on Mars before the Bush administration concludes its inspection regime in North Korea to its satisfaction.
So one can understand, if not appreciate, North Korea's explicit insistence that the light-water reactor program begin now, as a sign of good faith.
Failing that, what North Korea is probably hoping for is to drag the discussions out for another four years until there is a change of U.S. administration and a repudiation of the Bush "failed state" intervention doctrine that creates existential peril for the Kim Jung-Il regime whenever it comes into contact with the United States.
For a U.S. administration under siege and bereft of the credibility and will to resolve the Korean situation through negotiation and concession, the opportunity to deflect blame for the continued impasse away from itself and onto Pyongyang may be the only positive outcome it can hope for.
Friday, August 26, 2005
At Long Last Lefkowitz
At Long Last Lefkowitz
After four months of fits, starts, and leaks, Jay Lefkowitz was finally named the U.S. human rights envoy for North Korea on August 19.
Why Jay Lefkowitz?
While in the White House, Lefkowitz primarily handled domestic policy outreach to conservative Jewish and Christian groups, most famously in President Bush’s stem cell initiative. With Lefkowitz at the helm, a supposedly rigorous, even-handed review yielded a ban on new stem cell lines that pleased the religious groups, while providing political cover for President Bush (and effectively gutting the federal program) by grossly overstating the number of current lines available for research.
Lefkowitz’s qualifications as a North Korea expert or even a human rights activist beyond the blastocyst level might not be readily apparent.
However, he is close to Michael Horowitz, godfather of the conservative effort to recast the human rights foreign policy discourse as a struggle against religious persecution of Christians by communist and Muslim regimes, and midwife of the North Korean Human Rights Act of 2004, which authorized the human rights envoy.
In fact, according to one source, Lefkowitz is Michael Horowitz’s cousin, something that I welcome people more informed about the inner workings of the conservative movement than I am to comment on.
I addressed the Lefkowitz/Horowitz/North Korea/Evangelical angle in a previous post here .
On the surface, Lefkowitz’s long-delayed appointment might be interpreted as a sign that the Bush administration is lurching toward a policy of ideologically-tinged confrontation with Pyongyang.
The exact opposite may be true.
With President Bush’s approval levels scraping along in the mid-30s and even lockstep Republicans beginning to express concern over the difficulties in Iraq, the White House can ill afford another foreign policy debacle triggered by righteous Bush brinksmanship.
It may be better to allow Condi Rice and her team to pursue the full gamut of feasible foreign policy options vis a vis Pyongyang from Acquiescence to Accommodation to Appeasement that may yield the Bush administration some desperately needed domestic and international credit.
At the same time, with President Bush’s support shrinking to the hard core of true believers, he may need to make ostentatious but superficial gestures like the Lefkowitz appointment to reassure the famous “base” that he is still the true, parfit, and infallible knight of their regime change fantasies.
The true measure of the situation will be if Lefkowitz is encouraged to say or do something that seriously endangers the State Department negotiations currently under way.
After four months of fits, starts, and leaks, Jay Lefkowitz was finally named the U.S. human rights envoy for North Korea on August 19.
Why Jay Lefkowitz?
While in the White House, Lefkowitz primarily handled domestic policy outreach to conservative Jewish and Christian groups, most famously in President Bush’s stem cell initiative. With Lefkowitz at the helm, a supposedly rigorous, even-handed review yielded a ban on new stem cell lines that pleased the religious groups, while providing political cover for President Bush (and effectively gutting the federal program) by grossly overstating the number of current lines available for research.
Lefkowitz’s qualifications as a North Korea expert or even a human rights activist beyond the blastocyst level might not be readily apparent.
However, he is close to Michael Horowitz, godfather of the conservative effort to recast the human rights foreign policy discourse as a struggle against religious persecution of Christians by communist and Muslim regimes, and midwife of the North Korean Human Rights Act of 2004, which authorized the human rights envoy.
In fact, according to one source, Lefkowitz is Michael Horowitz’s cousin, something that I welcome people more informed about the inner workings of the conservative movement than I am to comment on.
I addressed the Lefkowitz/Horowitz/North Korea/Evangelical angle in a previous post here .
On the surface, Lefkowitz’s long-delayed appointment might be interpreted as a sign that the Bush administration is lurching toward a policy of ideologically-tinged confrontation with Pyongyang.
The exact opposite may be true.
With President Bush’s approval levels scraping along in the mid-30s and even lockstep Republicans beginning to express concern over the difficulties in Iraq, the White House can ill afford another foreign policy debacle triggered by righteous Bush brinksmanship.
It may be better to allow Condi Rice and her team to pursue the full gamut of feasible foreign policy options vis a vis Pyongyang from Acquiescence to Accommodation to Appeasement that may yield the Bush administration some desperately needed domestic and international credit.
At the same time, with President Bush’s support shrinking to the hard core of true believers, he may need to make ostentatious but superficial gestures like the Lefkowitz appointment to reassure the famous “base” that he is still the true, parfit, and infallible knight of their regime change fantasies.
The true measure of the situation will be if Lefkowitz is encouraged to say or do something that seriously endangers the State Department negotiations currently under way.
Wednesday, July 27, 2005
Stability, Speculation, and the Fixed Exchange Rate
Angry Bear has some good posts and comments here and here on the RMB revaluation, and specifically the issue of the fixed exchange rate that China adhered to for ten years.
Here's my two cents on why the Chinese government stuck with a fixed exchange rate for so long (and why major exhange rate changes in the future will occur by government fiat at carefully chosen intervals, and not as the result of a "free float").
I think the Chinese government clung to the 8.28:1 exchange rate for so many years because it wanted to discourage speculation while encouraging a relatively unfettered export trade.
Their forex regime is designed to make things reasonably uncomplicated on the current account, with the understanding that with a fixed exchange rate it's not worthwhile for importers and exporters to game the system with fake import and export contracts that would allow them to cycle dollars through their businesses and take advantage of the pre/post revaluation spreads.
The ingenuity of China-based enterprises in coming up with scams like this is limitless. The art is already highly developed in the techniques of transfer pricing to sequester funds overseas to reduce stated profits and to enable the offshore purchase and reinvoicing of imports at artificially low prices before they crossed the Chinese customs gate.
A fixed exchange rate was preferable to the enforcement headaches and bruising of the precious entrepreneurial spirit that would be required in trying to crack down on the fraud (abetted by corrupt government tipsters) and flood of illegal speculative cash that would accompany a fluctuating exchange rate.
As the Chinese government always takes pains to point out, it didn't manipulate the RMB/US$ exchange rate, as the U.S. has accused it of doing. It did just the opposite and had kept the rate fixed where it was since 1995 even as the value of the dollar drifted away.
That the Chinese government had to bow to political pressure and discard this stable system for one in which the currency becomes more vulnerable to speculative attack is a fact that probably doesn't make them very happy.
I wonder if the People's Bank of China will surrender to the guilty pleasure of confounding current and potential speculators with a transitory devaluation--a bull trap, you might say-- but I don't think the momentary satisfaction would be worth the international dismay that such an overt manipulation of the forex regime would evoke.
Here's my two cents on why the Chinese government stuck with a fixed exchange rate for so long (and why major exhange rate changes in the future will occur by government fiat at carefully chosen intervals, and not as the result of a "free float").
I think the Chinese government clung to the 8.28:1 exchange rate for so many years because it wanted to discourage speculation while encouraging a relatively unfettered export trade.
Their forex regime is designed to make things reasonably uncomplicated on the current account, with the understanding that with a fixed exchange rate it's not worthwhile for importers and exporters to game the system with fake import and export contracts that would allow them to cycle dollars through their businesses and take advantage of the pre/post revaluation spreads.
The ingenuity of China-based enterprises in coming up with scams like this is limitless. The art is already highly developed in the techniques of transfer pricing to sequester funds overseas to reduce stated profits and to enable the offshore purchase and reinvoicing of imports at artificially low prices before they crossed the Chinese customs gate.
A fixed exchange rate was preferable to the enforcement headaches and bruising of the precious entrepreneurial spirit that would be required in trying to crack down on the fraud (abetted by corrupt government tipsters) and flood of illegal speculative cash that would accompany a fluctuating exchange rate.
As the Chinese government always takes pains to point out, it didn't manipulate the RMB/US$ exchange rate, as the U.S. has accused it of doing. It did just the opposite and had kept the rate fixed where it was since 1995 even as the value of the dollar drifted away.
That the Chinese government had to bow to political pressure and discard this stable system for one in which the currency becomes more vulnerable to speculative attack is a fact that probably doesn't make them very happy.
I wonder if the People's Bank of China will surrender to the guilty pleasure of confounding current and potential speculators with a transitory devaluation--a bull trap, you might say-- but I don't think the momentary satisfaction would be worth the international dismay that such an overt manipulation of the forex regime would evoke.
Monday, July 25, 2005
Parsing the Yuan Revaluation
Brad DeLong’s website excerpts an exchange between Nouriel Roubini of NYU’s Stern Business School and David Altig, who labors in the research department of the Federal Reserve, on the Wall Street Journal website concerning the Yuan revaluation.
An excellent exchange on Roubini's part, providing more clarity than usual.
But I found Altig's apparent confounding of "revaluation" and "forex market liberalization" completely off the mark—and somewhat dismaying, when one considers that the grey infallibility of the Fed apparently encompasses views on China that I find basically incorrect.
If China's move is anything, call it a "managed peg", with the only difference that instead of the transparency and stability of an unambiguous dollar peg, the PBOC can fiddle with the Euro, Yen, and dollar exchange rates based upon opaque policy and strategic considerations.
As I understand it, the foreign exchange markets in China exist to put buyer and seller enterprises together to smooth out current account transactions, not to set prices (the prices can only fluctuate within a derisory band), and certainly not to manage flows of speculative capital.
When the PBOC talks about "hot money"—which apparently excites Western economists with its implication that Chinese forex markets are open to the immense international capital flows that can overwhelm the price-setting ambitions of a single country--it is talking about improper forex inflows--a.k.a. illegal inflows--of speculative capital masquerading as operating or investment capital and parked in bank accounts or in real estate against an expected appreciation of the RMB.
This kind of “hot money” enters China secretly, with difficulty, and illegally, because of corruption and despite the vigilance of the PBOC. The free market invisible hand isn’t at work in the Chinese forex markets yet; it’s still government fiat disrupted by an occasional insinuating free market finger.
The Chinese have crystal clear memories of the Asian financial crisis suffered by countries with open forex regimes--which China escaped.
China's illiberal forex regime--which is more like a compulsory sale to the state of unallocated forex-denominated capital and excess forex operating funds at a fixed rate and very little like a purchase intervention to maintain some notional exchange rate, with comprehensive mechanisms meant to identify and hinder the inflow of speculative capital--has provided the Chinese government with immense foreign exchange reserves and the financial and political leverage that goes with them.
I don't think the Chinese government is complaining they have too much forex. The only downside, as Roubini points out, is sterilizing the domestic inflationary consequences of soaking up the copious RMB PBOC hands out in return for all those dollars.
If any forex-related crisis is going to bring down the Communist government, it's going to be domestic, money-supply driven inflation, not the unslaked thirst of the Chinese middle class for cheaper Kraft macaroni and cheese and whatever other seductive exports America can muster.
This makes genuine liberalization of China's foreign exchange regime unlikely.
The Chinese probably resent the fact that they were forced to revalue, thereby giving speculators increased incentive to finagle money into the country in anticipation of another revaluation.
But perhaps the most significant outcome for the Chinese is the fact that the cost of their domestic sterilization operations were cut by 2% and inflationary pressures were reduced correspondingly.
The significance for America is that China has abandoned its unipolar reliance on a dollar peg, and is now free to experiment with the implications of a multi-polar forex world in which China is insulated from genuine market pressures and can juggle the exchange rates to decrease the proportion of dollar inflows. Not exactly a big win for the American economy or free trade, IMO.
An excellent exchange on Roubini's part, providing more clarity than usual.
But I found Altig's apparent confounding of "revaluation" and "forex market liberalization" completely off the mark—and somewhat dismaying, when one considers that the grey infallibility of the Fed apparently encompasses views on China that I find basically incorrect.
If China's move is anything, call it a "managed peg", with the only difference that instead of the transparency and stability of an unambiguous dollar peg, the PBOC can fiddle with the Euro, Yen, and dollar exchange rates based upon opaque policy and strategic considerations.
As I understand it, the foreign exchange markets in China exist to put buyer and seller enterprises together to smooth out current account transactions, not to set prices (the prices can only fluctuate within a derisory band), and certainly not to manage flows of speculative capital.
When the PBOC talks about "hot money"—which apparently excites Western economists with its implication that Chinese forex markets are open to the immense international capital flows that can overwhelm the price-setting ambitions of a single country--it is talking about improper forex inflows--a.k.a. illegal inflows--of speculative capital masquerading as operating or investment capital and parked in bank accounts or in real estate against an expected appreciation of the RMB.
This kind of “hot money” enters China secretly, with difficulty, and illegally, because of corruption and despite the vigilance of the PBOC. The free market invisible hand isn’t at work in the Chinese forex markets yet; it’s still government fiat disrupted by an occasional insinuating free market finger.
The Chinese have crystal clear memories of the Asian financial crisis suffered by countries with open forex regimes--which China escaped.
China's illiberal forex regime--which is more like a compulsory sale to the state of unallocated forex-denominated capital and excess forex operating funds at a fixed rate and very little like a purchase intervention to maintain some notional exchange rate, with comprehensive mechanisms meant to identify and hinder the inflow of speculative capital--has provided the Chinese government with immense foreign exchange reserves and the financial and political leverage that goes with them.
I don't think the Chinese government is complaining they have too much forex. The only downside, as Roubini points out, is sterilizing the domestic inflationary consequences of soaking up the copious RMB PBOC hands out in return for all those dollars.
If any forex-related crisis is going to bring down the Communist government, it's going to be domestic, money-supply driven inflation, not the unslaked thirst of the Chinese middle class for cheaper Kraft macaroni and cheese and whatever other seductive exports America can muster.
This makes genuine liberalization of China's foreign exchange regime unlikely.
The Chinese probably resent the fact that they were forced to revalue, thereby giving speculators increased incentive to finagle money into the country in anticipation of another revaluation.
But perhaps the most significant outcome for the Chinese is the fact that the cost of their domestic sterilization operations were cut by 2% and inflationary pressures were reduced correspondingly.
The significance for America is that China has abandoned its unipolar reliance on a dollar peg, and is now free to experiment with the implications of a multi-polar forex world in which China is insulated from genuine market pressures and can juggle the exchange rates to decrease the proportion of dollar inflows. Not exactly a big win for the American economy or free trade, IMO.
Wednesday, July 20, 2005
$2 Billion Here, $2 Billion There...
…pretty soon you’re talking about real money.
Ron Brownstein reports on Chevron carping that below-market rates on Chinese loans to CNOOC gives the Chinese a $2.6 billion advantage in its bid for Unocal, more than erasing the difference between Chevron’s $16.5 billion bid and CNOOC’s $18.5 billion bid.
I assume the $2.5 billion figure came out of the usual B-school legerdemain: assume a 2% interest rate advantage on $5 billion, choose a cost of capital to discount the cash flows back to a present value of…well, if that doesn’t give us the right number, let’s try 2.5%...
Brownstein reports the low-interest loan as fact buttressed by Chevron spin, but then confusingly reports a statement from a CNOOC advisor—who ought to know—that no such loans are involved.
I doubt Unocal stockholders will be impressed by the implication that Chevron and CNOOC’s offers are both at the theoretical maximum, even though CNOOC’s higher all-cash offer is contaminated with low interest funny money a.k.a. US greenbacks instead of good old rock solid Chevron stock.
For their part, the Chinese might argue that they’re entitled to a little help in their efforts to create a necessary premium in their offer to Unocal stockholders, when Chevron is hitting them with national security reviews, the American flag, and the kitchen sink.
However, CNOOC’s strategy is to claim the moral high ground by being “more capitalist than thou”. If they want their deal approved as an expression of the purest free-market, globalized commerce, they’d better publicly kiss off the concessionary financing, whether it exists or not.
China has been facing this problem in recent years. The picture of the Chinese government piling up mountains of foreign exchange reserves and at the same time running their economy on below-market loans is ludicrous.
They need to wean themselves from the low-interest financing available both from their own and foreign governments and world financial organizations, and fight the tendency to allocate capital based on murky strategic or policy exigencies instead of clear P/L considerations.
In other $2 billion news, the CNOOC side leaked its intention to put another $2.5 billion in an escrow account for Unocal shareholders.
The money doesn’t have a lot of significance—it’s only payable in the unlikely event that CNOOC wins the bidding war and decides to walk away from the deal anyway.
On the other hand, if the U.S. government nixes the deal, CNOOC gets to collect its money from the account and go home.
The escrow idea seems to be little more than public relations push-back.
That is to say, even though the Unocal deal looks like it’s going to turn into a protracted, expensive political nightmare that may very well make a purchase by CNOOC impossible, CNOOC is determined to stick it out and vindicate the support of those people who stand in their corner.
Which is to say in less kindly terms, the chances of CNOOC getting caught up in a stupid bidding war that does nothing more than exhaust the interest and patience of the world financial markets while enriching a phalanx of greedy lawyers, accountants, and media consultants immeasurably has increased significantly.
Ron Brownstein reports on Chevron carping that below-market rates on Chinese loans to CNOOC gives the Chinese a $2.6 billion advantage in its bid for Unocal, more than erasing the difference between Chevron’s $16.5 billion bid and CNOOC’s $18.5 billion bid.
I assume the $2.5 billion figure came out of the usual B-school legerdemain: assume a 2% interest rate advantage on $5 billion, choose a cost of capital to discount the cash flows back to a present value of…well, if that doesn’t give us the right number, let’s try 2.5%...
Brownstein reports the low-interest loan as fact buttressed by Chevron spin, but then confusingly reports a statement from a CNOOC advisor—who ought to know—that no such loans are involved.
I doubt Unocal stockholders will be impressed by the implication that Chevron and CNOOC’s offers are both at the theoretical maximum, even though CNOOC’s higher all-cash offer is contaminated with low interest funny money a.k.a. US greenbacks instead of good old rock solid Chevron stock.
For their part, the Chinese might argue that they’re entitled to a little help in their efforts to create a necessary premium in their offer to Unocal stockholders, when Chevron is hitting them with national security reviews, the American flag, and the kitchen sink.
However, CNOOC’s strategy is to claim the moral high ground by being “more capitalist than thou”. If they want their deal approved as an expression of the purest free-market, globalized commerce, they’d better publicly kiss off the concessionary financing, whether it exists or not.
China has been facing this problem in recent years. The picture of the Chinese government piling up mountains of foreign exchange reserves and at the same time running their economy on below-market loans is ludicrous.
They need to wean themselves from the low-interest financing available both from their own and foreign governments and world financial organizations, and fight the tendency to allocate capital based on murky strategic or policy exigencies instead of clear P/L considerations.
In other $2 billion news, the CNOOC side leaked its intention to put another $2.5 billion in an escrow account for Unocal shareholders.
The money doesn’t have a lot of significance—it’s only payable in the unlikely event that CNOOC wins the bidding war and decides to walk away from the deal anyway.
On the other hand, if the U.S. government nixes the deal, CNOOC gets to collect its money from the account and go home.
The escrow idea seems to be little more than public relations push-back.
That is to say, even though the Unocal deal looks like it’s going to turn into a protracted, expensive political nightmare that may very well make a purchase by CNOOC impossible, CNOOC is determined to stick it out and vindicate the support of those people who stand in their corner.
Which is to say in less kindly terms, the chances of CNOOC getting caught up in a stupid bidding war that does nothing more than exhaust the interest and patience of the world financial markets while enriching a phalanx of greedy lawyers, accountants, and media consultants immeasurably has increased significantly.
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