Monday, January 30, 2006

Confucius Comes to America

We hear a lot about China’s “soft power” these days. It is a term coined, I believe, by Harvard Professor Joseph S. Ney a few years ago. He was referring to the seductive pull of China’s long cultural history as opposed to the usual levers for projecting power, such as armies and navies.

The effects of soft power are especially evident throughout Southeast Asia, where many countries have done a complete about turn by encouraging Chinese language training and developing a new appreciation and tolerance for ethnic Chinese minorities, and not just for their money.

Only a few years ago simply publishing a photograph that showed a sign with Chinese characters on it could get your publication banned in Indonesia. Now national newscasters occasional broadcast in Chinese. The Chinese Lunar New Year is an official public holiday.

Recently China’s soft power has come to the U.S., at least in a small way, through the proliferation of branches of the Chinese government-funded Confucius Institute. The first was established last year at the University of Maryland (serving Washington, D.C.) Others are in Chicago, Kansas and San Francisco.

The institutes are organized, promoted and funded by the China National Office for Teaching Chinese as a Foreign Language, a division of the Ministry of Education. The ministry hopes to open about 100 branches all over the world with a goal of pushing the number of people studying Mandarin Chinese worldwide from about 30 million to 100 million.

The Institute is patterned after similar institutions such as the British Council, the Alliance Francaise and the Goethe Institute, which are designed to promote English, French and German and other aspects of the national culture of Britain, France and Germany.

The accent, naturally, is on language instruction in Mandarin. The Confucius Institute at the University of Maryland, for example, offers a full gamut of instruction from introductory courses to advanced Chinese. The Institute also offers a few non-language courses in calligraphy, Chinese painting, tai chi and martial arts.

Beijing has opened Institutes throughout the world, including Japan, Australia, Sweden, even Nairobi in east Africa. In the U.S. courses have begun, in addition to the University of Maryland, at Kansas University, the Chicago Public Schools system and San Francisco State University, possibly some others that I haven’t learned about.

A couple decades ago, the Chinese probably would have called these institutions something like the Mao Zedong Institute. After all, back then Confucius was considered a throw back to feudal times. Confucianism itself was considered one of the reasons for the country’s decline and poverty.

Of course, anything labeled the “Mao Zedong Institute” would have been banned outright throughout Southeast Asia and certainly not welcome in the U.S. or most other parts of the world. In the 1960s and 1970s countries like Thailand, Indonesia, Malaysia, Singapore and the Philippines took the threat of Chinese-directed communist insurgency seriously.

These days Confucius epitomizes the much more benign image that Beijing is eager to project throughout the region. For that matter Confucianism as a doctrine is undergoing a kind of rehabilitation in China itself (see previous post, “The Confucian Renaissance.

That doesn’t mean that the Chinese seem interested in propagating the ideas of their most famous philosopher. I know of nobody who is clamoring to study the Analects at these schools. Calligraphy, cinema, martial arts, perhaps acupuncture and herbal medicines, these besides language training, are the main elements of China’s soft power.

Tuesday, January 24, 2006

The End to the Expat Package

I wonder if Shane Solomon, the Australian picked to be the new chief executive of the Hong Kong Hospital Authority, was hired under “local terms,” or whether a handsome expat package was need to entice him to move from Melbourne to Hong Kong.

The news articles announcing Solomon’s appointment on January 11 didn’t provide details about his compensation beyond noting that he would start his new job on a three-year contract at an annual salary of about $HK4 million a year, or roughly the equivalent of about half a million U.S. dollars.

I imagine that at least they will pay his moving expenses.

Of course, half a million a year should be plenty to live comfortably even in Hong Kong, with its enormously expensive real estate, without the added inducements of a housing allowance, paid school fees and home leave, club memberships – the basic elements of what’s known as the “expat package.”

The issue is relevant since Solomon’s appointment comes at a time when Hong Kong is in the middle of a debate over whether providing such goodies to foreign workers constitutes racial discrimination. The Legislative Council is soon to consider a government proposal to combat racial discrimination.

The proposed ordinance requires employers to justify their offers of generous expat packages to foreign employees by proving that the recruit has expertise not readily available in Hong Kong. It would also flatly bar permanent residents from receiving expat benefits (foreigners can apply for permanent residency after seven years).

Business groups have already blasted the new law as being a regulatory nightmare. The ban on permanent residents seems to have generated less controversy, although some note that it might discriminate against Hong Kong natives who go abroad for many years to study before returning home (assuming they are offered expat benefits.)

Among the large contingent of foreigners here, there has always been a clear class division between those hired under local terms (basically salary alone and maybe health), and expat terms. The former were mostly journalists, missionaries, etc, and the latter with cushy expat packages usually the local managers of multinationals transferred to Hong Kong by their head office.

The general idea is that the district manager of Midwest Amalgamated and his family has to be assured that the lifestyle they were accustomed to in Des Moines will not be lowered by moving to Hong Kong. Thus an allowance large enough to cover, say, a 2,000 sqf apartment, help in paying school fees, membership in the American Club and so on.

I would guess that business interests will probably succeed in softening the language in the ordinance. After all, if you want to hire somebody from abroad, you still have to convince the Immigration Department that local candidates are not available before a work permit is issued. But in the long run, the expat package is probably on the way out.

Even before the new law was proposed, some multinationals were beginning to balk at the expense of sending foreign managers to Hong Kong. This was especially true in the aftermath of the Asian Financial Crisis and Hong Kong’s long recession. The British retailer Marks & Spencer decided to save on costs by hiring local rather than expat managers.

The Solomon case is unusual in that he is not heading some multinational but has been hired by the Hong Kong government to manage the publicly financed hospital system. In that respect the appointment bucks the trend toward “localization” that began in the early 1980s when Hong Kong began its transition to reunification with the mainland.

The Hospital Authority, which employs some 50,000 people, has been in trouble for years. Its budget deficit is ballooning, and its morale is still recovering from the trauma of the SARS epidemic. Shortly after the handover in 1997, some highly publicized medical procedure snafus undermined the new post-colonial administration’s reputation and popularity from the start.

It appears that the government decided it needs somebody outside the system to clean house and deliberatly scoured the world for the best administrative talent, eventually settling on Solomon, who is executive director of Metropolitan Health and Aged Care Services for the state of Victoria.

Like every other country, Hong Kong has its share of xenophobes. Many residents also harbor some well-engrained anti-colonial attitudes. But these impulses are reasonably contained. As the South China Morning Post explained:

“Eight years after the handover, it should be regarded as a positive sign for Hong Kong that Mr. Solomon’s appointment has not sparked any xenophobic reaction. He was chosen after a world-wide recruitment exercise, which netted both local and overseas candidates.

“The choice has prompted surprise, but neither the medical and para-medical professions nor patient groups have expressed opposition to having a non-local and non-doctor as leader of the public health system. That is the best testimony to the community’s open attitude towards foreign talent.”

Monday, January 16, 2006

Is North Korea The Sopranos State?

When U.S. Ambassador to South Korea Alexander Vershbow called North Korea a “criminal regime,” as he did recently, he was not speaking metaphorically. He was not talking about the North’s abysmal human rights record, illegal missile sales or efforts to acquire nuclear weapons.

No, he was talking about crime – as in counterfeiting U.S. banknotes and cigarette packages, money laundering, and drug trafficking. These issues have suddenly risen to the forefront of Washington’s agenda and become a major stumbling block in the renewal of the Six-Party disarmament talks.

In September Washington named Macau’s second-largest largest bank, Banco Delta Asia, as being “a willing pawn for the North Korean government to engage in corrupt financial activities through Macau.” It said that senior bank officials were working with Pyongyang “to accept large deposits of cash, including counterfeit U.S. currency, and agreeing to place that currency into circulation.”

In mid-December, the U.S. Treasury Department issued a formal advisory concerning the North’s illegal activities and cautioned U.S. financial institutions to take “reasonable steps to guard against the abuses of their financial services by North Korea, which may be seeking to establish new or to exploit existing account relationships.”

This month it was reported that a delegation of agents from the U.S. Secret Service, which has counter-counterfeiting responsibilities as well has protecting the life of the president, will come to Seoul to meet with South Korean authorities over counterfeiting. Visits of this nature are not usually broadcast in such a public fashion.

Meanwhile, Pyongyang says it won’t return to the Six-Party disarmament talks unless the U.S. lifts restrictions against its financial institutions, including those directed at eight state-owned trading companies that Washington cited in October as being involved in weapons trafficking, especially banned missile technology.

Rumors of North Korean counterfeiting and drug trafficking have been circulating in Asia for years. Anyone who lived, as I did, in Hong Kong for many years has heard them from time to time. North Korean companies have a long history of operating in the former Portuguese enclave, which for decades served the regime as a key window to the outside world.

The Zokwang Trading Company was considered Pyongyang’s de facto consulate in Macau, and the relationship between Zokwang and Banco Delta Asia is no secret. As far back as 1994 the bank found thousands of bogus $100 bills allegedly deposited by a North Korean employee. The director of the Zokwang Trading company was held and questioned, but no charges were pressed.

More recent instances of alleged North Korean counterfeiting include:

In April, 2005, the Japanese press reported that a hundred or so fake $100 bills were found among a stack of used currency aboard a North Korean freighter that called at a Japanese port in Tottori prefecture. The captain was reported telling police: “We were asked to bring the money to Japan so that the money could be paid for cars and other items.”

Also in April a large stash of bogus notes was uncovered in South Korea. The Chosun Ilbo, which reported the story, did not say where or under what circumstances the money was found, though it went into great detail over the quality of the notes and quoted experts as saying it was “highly likely” that they came from North Korea.

In August the U.S. Federal Bureau of Investigation reported two “sting” operations in the U.S. colorfully described as Operation Royal Charm and Operation Smoking Dragon. The government indicted 59 people on charges related to smuggling counterfeit US currency, drugs and cigarettes into the U.S. The announcement did not specify their origin, but other accounts have speculated that they came from North Korea.

David L. Asher, head of the Bush Administration’s North Korea Working Group, published a lengthy essay in mid-November in which he described what he called, “an extensive criminal network involving North Korean diplomats and officials, Chinese gangsters and other organized crime syndicates, prominent Asian banks, Irish guerillas and a KGB agent,”

“North Korea is the only government in the world today that can be identified as being actively involved in directing crime as a central part of its national economic strategy and foreign policy . . . in essence North Korea has become The Sporanos State – a government guided by Workers Party leaders, whose actions attitudes and affiliations increasingly resemble those of an organized crime family more than a normal nation.”

But why is Washington suddenly pushing decades-old suspicions at this particular time? In September Christopher Hill, the senior American negotiator at the Six-Party talks, announced a breakthrough in the negotiations. North Korea had agreed in principle to disarm in exchange for recognition and aid. That same month the Treasury Department issued a warning against dealings with the Macau bank.

In October came the sanctions against the eight North Korean trading companies. Also in October a new U.S. Ambassador arrived in South Korea. Alexander Vershbow has quickly developed a reputation for making provocative statements. In November the Six-Party talks quickly foundered on Pyongyang’s demands to lift sanctions.

No doubt American officials would solemnly swear they are motivated by a desire to protect the integrity of the U.S. currency and nothing else. But even if the allegations are substantially true, which probably is the case, isn’t this really penny-ante stuff set against the much larger issue of North Korea’s nuclear weapons program?

None of the other parties to the Six-Party talks has expressed any public concern about Pyongyang’s crimes. That includes Japan, which not only is supposedly the target of counterfeit money but also on the receiving end of drugs manufactured in North Korea. (Japanese estimate that nearly half of the country’s illegal drug imports originate from there.) Yet it has said nothing.

Last week the Chinese Foreign Ministry was forced to official deny a report printed in the South Korean media that its government had found evidence of North Korean money laundering in Macau. “China has never indicated that the government had confirmed North Koreans using Macau for money laundering,” the ministry statement said.

Ambassador Vershbow has likened North Korea to Nazi Germany as being only the second state-sponsored counterfeiter. He was referring to an operation whereby concentration camp inmates forged millions of American dollars and British pounds to disperse in England in a effort to ignite inflation there and harm their enemy’s economies.

Yet the highest figure I’ve seen for the North Korean counterfeiting is the $45 million (over a decade) reported in the Washington Times, which is nothing set against the vast sums of dollars sloshing around Asia. Indeed, I’ve never heard even a whisper that North Korean counterfeits were affecting world currency markets or the value of the dollar in the slightest way.

It’s hard not to believe that the Bush administration is again listening to more hard line elements after a brief ascendancy of the “realists” in the State Department. Their purpose is to neutralize the talks (how does a nation negotiate with a criminal gang, after all?) and shift the issue away from nuclear disarmament back to the nature of the regime with the ultimate objective of toppling the regime.

Thursday, January 12, 2006

Delphi's Pain, China's Gain?

Last year was a tough year for the American automobile industry. One doesn’t need to rehearse the bad news emanating from the major carmakers, General Motors and Ford. And in October the country’s largest maker of automobile parts, Delphi, filed for bankruptcy. Some predict the same fate this year for G.M.

The Chinese, of course, are watching these developments closely. It is no secret that China wants to develop a world-class automobile industry. Indeed, it already makes and sells more than 2 million cars annually. This month Geely became the first Chinese automobile maker to have a display at the Detroit Automobile Show; the simple little sedan stole the show from the gee-whiz concept cars from Detroit and Japan.

Last year I raised the possibility that some Chinese manufacturer might make a bid for G.M. It has a lot of logic. It fits into the general strategy of the Chinese to buy their way into international brand recognition by picking up venerable but struggling brands. Lenovo led the way in late 2004 when it purchased the PC division from IBM.

In 2005 Chinese interests also bought the venerable Huffy Bicycle Co. in Ohio and made an unsuccessful bid to buy Maytag. Some think that Chinese concerns are eyeing the appliance division of General Electric, although the company denies that it is for sale.

Certainly, the Chinese have the money. The state-owned CNOOC was willing to pay to a sizeable premium to beat out Chevron for the Los-Angeles based Unocal in last year’s brouhaha. It offered about $18 billion for the company, which, coincidentally, was roughly equal to G.M.’s then market capitalization. It has fallen since then.

But after the beating the Chinese took over the CNOOC/Unocal deal last year, they may not want to open another donnybrook by making a direct assault on such an iconic target as G.M. Such a bid would be an earthquake of unprecedented proportions. Beijing would probably not approve the bid, never mind Congress.

It is much more likely that Chinese will look for bargains in the underbelly of the automotive industry, if you will, among the companies that make the parts and tires that the Big Three assemble into automobiles, including the giants in the field, Delphi and Visetron.

Wanxiang (pronounced wahn-shong), China’s largest automobile parts maker, already has a strong presence in America’s industrial upper Midwest. In addition to supplying the major automobile makers, it has invested in six American companies, although the company declines to spell out exactly which companies and how large its stakes are.

Unlike CNOOC, which was a state-owned enterprise though run as a private company, Wanxiang is a private corporation and has no apparent state backing. Wanxiang America however, has built a pool of money, now estimated at about $100 million, that it has set aside specifically for acquisitions.

Wanxiang makes no secret that it is eyeing Delphi closely. “We have a keen interest in acquiring Delphi’s assets,” said Pin Ni, chief of Wanxiang’s American operations, as quoted in the automobile trade press. Delphi’s official response, for the moment, is “no comment.”

In October Delphi filed for Chapter 11 protection under U.S. bankruptcy laws after reportedly losing about $957 million on sales of $1.86 billion. Even before the filing, it had placed several of its operations in a buy-sell or fix category.

Lu Guanqui, who started Wanxiang with his wife and five others with the equivalent of about $500 in the late 1960s, is eager to expand operations and move into more sophisticated technologies in American through acquisitions. Why America? “It’s easier to make money there,” he says smilingly.


Monday, January 09, 2006

Mr. Mori Builds his Museum

Holed up in Tokyo for a day or two with no idea where to go? Want to see art but something a little livelier than 18th Century silk screens, old pots and netsuke collections? You might have heard that Japan’s stock-market crash a decade ago dealt a heavy blow to the art market here and that Tokyo has become art desert.

Nothing could be farther from the truth. Tokyo is dotted with exquisite little art museums catering to both contemporary and traditional tastes that are mostly conveniently located near the downtown. Many of them were started to display the collections of discriminating merchant-collectors.

This tradition goes back a long way. Well before the art-buying frenzy of the Bubble Economy years of the late 1980s, Shojiro Ishibashi used his Bridgestone tire fortune to buy French Impressionist paintings and Western-style Japanese art, now displayed at the Bridgestone Museum of Art near the Ginza.

The recently renovated and relentlessly avant garde Hara Museum of Contemporary Art, located in the Bauhaus-style mansion of a former tycoon in Shinagawa, boasts a large number of pieces by the likes of Jackson Pollock, Robert Rauschenberg and Roy Leichtenstein. The building itself is one of Tokyo’s increasingly rare examples of early modern Japanese architecture.

In the Marunouchi district, around the corner from the Dai Ichi building, one finds the Idemitsu Museum of Art funded by an oil-refining company, whose charter, rather unusually, cites exhibiting art as a corporate goal. Its exhibitions tend to run to traditional Japanese arts, but it also has a collection of Georges Rouault, not to mention a fine view of the Imperial Palace grounds.

Another exquisite little private collection is found just around the corner from the stock exchange and is run by a brokerage house, the Yamatane Museum of Art. The founder held the curious Japanese belief that brokers might benefit by periodically retreating from the hustle of trading floor to contemplate the finer things of life (it has a tea room too).

But the latest exemplar of this grand tradition is Minoru Mori, the enormously rich heir to the Mori real-estate fortune. The Mori interests are concentrated in and around the Akasaka-Roppongi entertainment district, where his company recently built its flagship development, Roppongi Hills.

Take a fast elevator to the 52nd floor of Mori Tower to the Mori Art Museum (MAM). Regardless of what one finds on the walls, the trip up is an event in itself. When clouds clear, it affords the visitor the double pleasure viewing art and a 360-degree view of the chaotic majesty of one of the world’s greatest cities.

Mori owns a large collection of Le Corbusier lithographs, illustrations, models and books. Indeed, he sees himself as a kind of disciple of Le Corbusier in his philosophy of development (he would like to see Tokyo dotted with skyscrapers, like Mori Tower). But he has not chosen to put any of this collection on public display.

Some items can be seen at his ARK Hills Club, but membership to that club is restricted. Le Corbusier was basically an architect not a painter, and it would seem that his works may be a little too specialized to make the kind of impact that Mori obviously wanted to make with his museum.

The real-estate magnate could have used his vast fortune to scarf up dozens of loose Picassos, Reniors and Monets floating around Japan at bargain prices from the rubble of the Bubble Economy. But then his museum would have been hardly different from a dozen others in and around Tokyo.

In fact, the Mori Art Museum has no permanent collection, unless one counts the giant, black-iron spider by the French sculptor Louise Bourgeois at the entrance to the tower. Utilizing its extensive international connections (unusually for Japan, the director is a foreigner, British-born David Elliott) MAM displays eclectic exhibitions of paintings, photography, fashion and architecture.

The museum boasts 2,900 sqm of exhibition space, one of the largest in Asia, and it seems specially suited for oversized a works, such as its recently concluded “End of Time” exhibition devoted exclusively to the Japanese photographer Hiroshi Sugimoto. The next exhibit, “Tokyo-Berlin/Berlin-Tokyo” in conjunction with the Neue Nationalgalerie of Berlin, opens Jan. 28 for a three-month run.

Tokyo has no principal art museum that is a “must see” like the Guggenheim or the Museum of Modern art (MoMA) in New York. The city’s relatively new Museum of Contemporary Art is so far out in the sticks that it is almost inaccessible to the average visitor.

Mori’s ambition is that MAM will become as famous for Tokyo as the MoMA is for New York, that it will become the “must see” museum of the capital, the kind of museum where even if you aren’t a regular museum-goers, you feel compelled to go.

Wednesday, January 04, 2006

Asia Needs an Honest Broker

The open rivalry and discord between Asia’s two giants, China and Japan, grows nastier and more worrisome by the day. As I mentioned in my 2005 round-up, the year ended on a sour note, as Japan’s Foreign Minister Taro Aso warned that China’s nuclear program and secretive military development posed a considerable threat. It was he first time a Japanese foreign minister had made such a bald statement.

Since the beginning of the new year, things have gotten even testier. The Japanese press is in a tizzy about the suicide of a Japanese diplomat in Shanghai, who reputedly killed himself after being blackmailed to spy for China. Yesterday, Prime Minister Junichiro Koizumi blasted China and Couth Korea for “interfering” in Japan’s internal affairs – a reference to criticism of his visits to the Yasukuni Shrine.

Meanwhile, a Chinese newspaper affiliated with the official People’s Daily published an editorial by one Lin Zhibo, deputy director of commentary and a well-known hawk, arguing that China should prepare for on-going conflict with Japan. The main issue is, Lin wrote, “that China is rising and Japan does not want to see China rise. This conflict is long-term and cannot be altered [alone] by the will of the Chinese people.

Lin’s comments were a little peculiar since he went on to say that, “nationalism may be the only belief [emphais added] that can maintain China’s unity and stability.” It is not unusual for outsiders to remark that nationalism has replaced communism as China’s national glue, but it is a little strange to hear it from an official, presumably a paid-up member of the Chinese Communist Party.

What Asia needs is an “honest broker,” some outside entity that is trusted by both sides, someone that can intervene to stop the slide, someone like the United States. Is it time for President George W. Bush to play Theodore Roosevelt’s part when he brokered the end of the Russo-Japanese War, in the little town of Portsmouth, N.H. exactly 100 years ago?

Of course, China and Japan are not exactly shooting at each other, and being fundamentally practical, they probably won’t. Nevertheless, their emerging cold war is becoming a factor in the peace and prosperity of Asia. Yet, there is little evidence that Washington is paying the slightest attention to the growing blood feud. Nor has it done much, if anything, to try to warm relations before they grow even chillier.

But can the U.S. be seen as an honest broker?
It is true that Washington is on good terms with both China and Japan. President George W. Bush meets as often with his Chinese counterpart as he does with Koizumi, perhaps more often. Yet it is doubtful that Beijing would trust Washington to be an impartial arbitrator. Washington’s ties to Japan, formal and informal, go back a long way. Relations with China, antagonistic for at least two decades, are newer and weaker.

It’s not that Washington invariably takes Japan’s side on international issues. Last year it pretty effectively stiff-armed Tokyo’s plan to gain a permanent seat on the U.N. Security Council, probably to reward Beijing for help in the Korean nuclear talks. But this must be offset with moves, viewed with deep suspicion in Beijing, to strengthen its military alliance with Japan and draw it closer to any defense of Taiwan.

Does the U.S. want to be an honest broker?
It is fair to ask whether Washington even wants to be an honest broker. President Bush could end Koizumi’s regular visits to the Yasukuni shrine with one telephone call. Or, suppose Bush snubbed Koizumi at an international event as Premier Wen Jiabao did at the recent East Asia Summit? I suspect the visits would end pretty fast. Yet he says nothing.

Americans think that the Yasukuni brouhaha is some strange obsession among Chinese and Koreans that has nothing to do with the U.S., as if the U.S wasn’t even a party to World War II. Yet the shrine’s museum tells visitors (in Japanese, of course) that the attack on Pearl Harbor was a heroic act of self defense “forced” on Japan by the Americans. This proposition is tacitly and regularly endorsed by America’s great ally and bosom buddy, Koizumi.

If Washington were to add its voice to protested the shrine visits, it might help arrest South Korea’s steady drift into China’s embrace. Indeed, there are so many good reasons for Washington to protest the visits, that one has to believe that Washington tacitly endorses them in order to draw Japan closer into the military integration with the U.S. on a global scale.

The U.S. can do nothing to end the rivalry
There may be a third possibility. The antagonism between the two powers is basically framed in a deep-seated Asian thing barely comprehensible to Westerners. China and Japan are jockeying to see who will be “Big Brother” and who will be “Little Brother” in the New Confucian World order, and there is nothing much outsiders can do about it