Hong Kong in decline


Losing ground: China’s spectacular rise has affected Hong Kong’s thriving financial services industry, along with development of port services. – Reuters

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TWO generations ago cheap goods from Hong Kong were labelled simply “Made in Hong Kong,” but their poor quality soon made that embarrassing.

For marketing reasons they were then labelled “Made in the British Empire” or “Empire Made.” Britain, home of the First Industrial Revolution, was better regarded than any Far Eastern outpost.

However, manufacturing could never suffice for Hong Kong’s economy because of limited land and rising property prices.

Enter the space-efficient financial services industry, along with development of port services. Then a generation ago Hong Kong began to face its biggest challenge: China’s spectacular rise.

But if Hong Kong would be part of China again, wouldn’t it also enjoy the mainland’s rising fortunes?

Hong Kongers always had a problem with the first part ever since Britain’s takeover in 1841.

From the late-1970s the West was all for China’s “opening up” policies. Hong Kongers looked across the water to see Shenzhen’s phenomenal rise from old market town to bustling modern metropolis.

Shenzhen had twice Hong Kong’s population and a much faster rate of development. As just one cog in China’s production behemoth, Shenzhen soon buried Hong Kong’s prospect as a manufacturing centre.

In global references Hong Kong-Shenzhen-Guangzhou is the world’s biggest productive mega region, demographically twice the size of the next biggest in Nagoya-Osaka-Kyoto-Kobe.

But Hong Kongers still regarded themselves as a breed apart from the mainland – a “Made in the British Empire” attitude dies hard.

Surely Hong Kong still had superlative status as a leading port and financial services centre?

Not quite, especially when Shanghai would soon outclass it on both counts.

Hong Kong slipped to fifth place among the world’s busiest container ports. Among the world’s Top 10, six are now on China’s mainland.

The Shanghai Municipality’s population is 3.5 times Hong Kong’s, with an area 5.7 times as large, meaning a more relaxed population density of just 62% of Hong Kong’s.

Shanghai’s 2018 nominal GDP was US$494bil (RM2.04 trillion), which was 136.1% of Hong Kong’s. Even Shenzhen is catching up with Hong Kong, falling short by just 3.3%.

Business is Hong Kong’s business, but the mainland is doing better in both performance and prospects.

The Hong Kong stock market is not necessarily stable. Since the 1960s it has experienced a dozen market crashes.

Shanghai’s Stock Exchange market capitalisation of US$5.01 trillion is larger than Hong Kong’s by 26.5%. Hong Kong’s exceeded Shenzhen’s by only 12.8%.

Hong Kong as business enclave has been eclipsed and outdone by the mainland. At the same time its future increasingly depends on the mainland.

Since 1997, Hong Kong dropped from representing 20% to just 3% of China’s GDP.

For China today Hong Kong is just another Chinese city, meaning it is dispensable. Shenzhen and the rest of the mainland do not need a nettlesome Hong Kong for China’s continued rise.

Hong Kong protesters have committed at least a dozen strategic errors.

  1. One, they assume Hong Kong is essential to the mainland’s future when only the reverse is true. There is no equivalence between Hong Kong and the mainland in any way that works for Hong Kong.
  2. Two, protest appeals to mainlanders for support mistakenly attempt to rekindle the spirit of Tienanmen Square protests a generation ago. Those protesters are now part of the system in a prosperous new China, actively engaged in business or government. Their original 1989 complaint of corruption in high places is keenly addressed by Beijing.
  3. Three, attempts to solicit mainlanders’ support are badly confused with prejudice against them. Within days of trying to spread the protest message to mainlanders in July, protesters attacked mainland traders, shoppers and tourists.
  4. Four, protesters violently attacked police personnel, alienating many Hong Kongers including most protesters. It signalled a slide towards civil disorder.
  5. Five, vandalising the Legislative Council building established illegal conduct and further alienated everyone else.
  6. Six, more violence was targeted at the liaison office when sympathisers had thought protesters would never do that. It confirmed the criminality discrediting the protests as a whole.
  7. Seven, besides disrupting traffic and commerce, harassing passengers at the airport and train stations. It did nothing to promote their cause to the general public but quite the opposite.
  8. Eight, protests did not subside even after Hong Kong’s Executive backed down on the extradition Bill. It revealed the unreasonable nature of the protests.
  9. Nine, no protester had demanded democracy for Hong Kong in 156 years of British colonial rule. If they had, they may have a legitimate basis for demanding democracy today.
  10. Ten, it was foolish to unfurl the Union Jack and call for reverting to British rule. Seeking the denial of democracy by a foreign hand exposes the hypocrisy of the protests.
  11. Eleven, it was foolhardy to unfurl “Old Glory,” calling for US intervention during a US-China trade war. With trade a major basis of Hong Kong’s survival, it was politically suicidal.
  12. Twelve, protesters fail to understand that no other country can or would do what is necessary to boost Hong Kong’s fortunes. Only the mainland can do that if it wants to.

Young protesters still to find employment amid poor conditions and rising costs may think they have legitimate grievances.

Yet all the solutions – more investment, better job prospects, even improved governance – can come meaningfully only via the mainland.

Beijing can deploy troops to Hong Kong, but to what end?

Hong Kong’s worst punishment is getting exactly what the protesters want – isolation. That will leave it further behind as the mainland prospers, surging ahead.

Hong Kong can stew in its own juices until tender. Beijing may let the anger fester and rot until then.

Hong Kong’s strength as money-making hub is also its weakness. Its stock market can crash again, which can also send a message to Taiwan.

Hong Kong tycoons are already looking for more places abroad to stash their fortunes. Without decisive mainland investment, the economic enclave can die a natural death.

What’s left of Hong Kong’s Establishment will then surely discipline rowdy mobs. The triads have already shown leadership here, symbolising the decline.

By Bunn Nagara, a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia. The views expressed are entirely the writer’s own.

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China-Hong Kong union needs sense of inclusion


Hong Kong. -Bloomberg pic

China is a different global power

The Chinese way of ruling

While the China-Hong Kong union still sits uncomfortably at times two decades on, the road ahead is slowly but surely being paved.

IT’S lunch time in Hong Kong, but the soya sauce chicken rice seller at Queen’s Road in Shek Tong Tsui is looking distressed as the crowd isn’t up to expectations.

Rental is high in Hong Kong and customers are obliged to share tables in small eateries like the one I was in.

Once eagle-eyed restaurant owners spot the conclusion of a meal, patrons are swiftly handed their bills, subtly suggesting they leave the premises to make way for incoming customers. Otherwise, they’d earn short shrift from irate staff.

Life is hard in HK and most residents feel that it has become much harder.

The older ones are more tolerant and patient because they have lived through the country’s high and low points. They include those born in China who came to the island with their parents.

Retired civil servants complain of promotions bypassing them because the top posts were reserved for the whites under British colonial rule. They felt humiliated and have never forgotten this marginalised treatment.

The young ones are becoming angrier now. They see HK deteriorating, reflected in their inability to buy a flat the size of a car park lot, because something even that small would probably cost millions of ringgit.

HK is a crowded city where space is at a premium. Space, meaning a hole in the sky. Landed properties are for the super rich in a land where being rich alone isn’t enough.

Regular visitors to HK will tell you that the streets are filled with people for a simple reason: it can be claustrophobic living in a 400sq foot – or less – flat.

HK residents sometimes joke that they need to leave their flat to provide “privacy” for newly married children who sometimes can’t afford their own homes and still need to live with their parents.

“The walls are too thin, and it is best we give them some space, you understand what I am saying, right?” said my HK friend as we chuckled about the reference while dining on dim sum.

The waiting period for public housing is five years, if you are lucky, and it’s not uncommon to see an entire family living in one room in many parts of downtown HK. Apparently, more than 200,000 people live in subdivided homes.

Forget politics for a minute and let’s talk facts. An international survey reportedly showed HK sliding 12 places to an embarrassing 41 as a liveable city for Asian expats, its worst ranking in a decade.

“We call ourselves Asia’s world city, but Asians have given us the thumbs down as a liveable city. That’s a paradox that should shame us,” the South China Morning Post (SCMP) newspaper reported.

Over the last two decades, HK people have found themselves priced out of the home market. The cost of living has gone up, but the standard of living has dropped sharply.

The smog has worsened and there are regular reports of hospitals overflowing in the winter months every year, ushering in the routine flu outbreak.

The competition for space is a serious concern in HK. The resentment towards China is simply because people in HK have found it hard to compete with the deluge of mainlanders.

Each time I go to HK, I can’t get past the sight of long queues of people from China – with deep pockets – at luxury goods outlets at Central.

“Last year, 65 million tourists flooded Hong Kong. That’s only about 10 million fewer than for the whole of the United States. Almost 80% who came were mainlanders, most of them day trippers who swarmed residential areas to buy groceries, ruining the quality of life for locals.

“How can life quality improve if you add the four million mainlanders who come monthly, on average, effectively raising Hong Kong’s population to well over 11 million?” pondered columnist Michael Chugani in the SCMP.

Milk powder is a favourite item of the mainlanders when it comes to groceries because of food safety concerns back home. Every mum and pop shop in HK seems to share a similar inventory.

HK people are loud and opinionated. And often crude and crass even, especially, when speaking in Cantonese.

This is a city of very hardworking and motivated people. It’s commonplace for a person to be doing two or three jobs to ensure ends are met, but these people also acknowledge the city has long passed its prime, with stats indicating its lost position as one of Asia’s top cities.

It has surrendered its edge as a financial hub to Shanghai and even nearby Shenzhen.

Chronicling the events of the last two decades reveals how those fortunes changed. Imagine that in 1997, China was very much reliant on HK, largely because the global superpower had not yet made it into the ranks of the World Trade Organisation (WTO), which was stunting and limiting its export trade.

So HK’s position as a channel for entrepôt trade was exploited to deliver mainland-made goods to the rest of the world via its ports, and crucially, by circumventing the WTO’s trade restrictions. But that all changed when China entered the organisation in 2001, and from then HK began to play a diminishing role. The island went from handling half the republic’s trade in 1997 to a measly 12% today.

“In terms of total size and wealth, Hong Kong has also shrunk relative to China, which has experienced more than three decades of astoundingly high economic growth. In 1997, Hong Kong’s economy was one-fifth the size of China’s, and its per capita income was 35 times higher. By 2018, Hong Kong’s economy was barely one-thirtieth the size of China’s. Hong Kong is still richer, but the gap is narrowing, with its per capita income now five times higher than China’s,” claimed the New York Times International.

And to exemplify China’s newly accrued wealth, on a trip to Guangzhou, my jaw dropped when I saw the homes of the mainland Chinese in a sprawling gated property built by Forest City.

The HK film industry has nearly collapsed. With only the TV dramas in Cantonese keeping some actors home, most HK movie stars and singers have moved to China, where they are better paid and command bigger audiences.

Some still struggle to speak fluent Mandarin and drop their Cantonese accent, but most have successfully made the transition.

Knowing the realities of the huge China market, and not wanting to offend their audience, most of these big names opted to stay away from the recent HK protests. Pro-Beijing Jackie Chan was lambasted for pleading ignorance of the protest march.

Still, HK has its assets, though. It has an efficient administration system and remains an important channel. In China, tighter capital control measures are making it increasingly difficult to access outside money, the SCMP said.

“Hong Kong is also a top offshore yuan trading centre, leading the way for wider use of the Chinese currency in trade and finance – a priority for Beijing as it pushes for the yuan’s internationalization.

“… Hong Kong can also do more down the road. It can foster an ecosystem for the yuan currency, developing derivatives and indexes to convince people to hold the yuan in larger amounts,” Oliver Rui, a professor of finance and accounting in China, was quoted.

But China needs to do more to secure the faith of the islanders.

HK people understand and accept they are a part of China. There is no turning back and nothing is going to change that.

Hoisting British flags may be the manifestation of frustration for the idealistic young, but it won’t change their destiny.

At the same time, China needs to wake up to the fact that only 3.1% of those aged between 18 and 29 in HK see themselves as broadly Chinese (China nationality). This compares to 31% in 1997, according to a report based on a survey by the University of Hong Kong.

And we know that many of those who took part in the recent street protests included secondary school children, some not yet even 18 years old.

Even though China has overtaken HK, particularly from an economic standpoint, Beijing needs to foster and maintain a sense of inclusion, especially when the islanders don’t feel they are a part of China.

There was a time when HK residents laughed at mainlanders, calling them the disparaging “Ah Chan”, or village simpletons. However, mainlanders are growing richer and more powerful now. But like all good “bosses”, China needs to treat the island’s residents with respect, and it needs to motivate and win over their hearts and minds. China must make them proud to be Chinese citizens.

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American China Experts open letter against Trump’s China policy; Hong Kong attacks a political act


‘China is Not an Enemy’ Says Open Letter Signed by 100 American China Experts to Trump

 

U.S. President Donald Trump. Photo: VCG
U.S. President Donald Trump. Photo: VCG

Experts tell Trump that China is not the enemy, so who is?

A hundred American academics, diplomats and experts from the military and business communities signed an open letter calling on President Donald Trump to reexamine his policy toward China. The letter was published Wednesday in the Washington Post.

In the letter, titled “China is Not an Enemy,” the signatories express concern over the negative orientation of the Trump administration’s China policy.

“We do not believe Beijing is an economic enemy or an existential national security threat that must be confronted in every sphere,” the experts say in the letter.

The five authors are M. Taylor Fravel, a professor at MIT; J. Stapleton Roy, a former U.S. ambassador to China; Michael D. Swaine of the Carnegie Endowment for International Peace; Susan A. Thornton, the former assistant secretary of state for East Asian and Pacific Affairs; and Ezra Vogel, a professor at the Harvard University Fairbank Center for Chinese Studies.

The deterioration of the bilateral relationship is not in the interests of the U.S. or the rest of the world, and Trump’s attempt to “decouple China from the global economy” will damage the U.S. global reputation, according to the letter.

“The United States cannot significantly slow China’s rise without damaging itself,” the authors write.

“The fear that Beijing will replace the United States as the global leader is exaggerated,” the letter says. “Most other countries have no interest in such an outcome, and it is not clear that Beijing itself sees this goal as necessary or feasible.”

The key message of the letter is that the U.S. should not make China its enemy, especially in a rash manner, said Li Cheng, director of the Brookings Institution’s John L. Thornton China Center, who signed the letter.

Signatories are representative as they hold different views toward China — some are pro-China and others are more critical, Li said. But they all disagree with the Trump administration’s China policy, Li said.

“I won’t say we are the majority,” Li said. “Maybe we are the minority that can’t change some people’s extreme views, but among those who reexamine the U.S. policy on China, many have started reconsideration.” Additional scholars have endorsed the letter after its publication online, he said.

A better policy orientation for the U.S. would focus on building long-term alliances that support economic and security objectives based on a realistic assessment of China’s ideology, interests, goals and actions, the experts write.

“We believe that the large number of signers of this open letter clearly indicates that there is no single Washington consensus endorsing an overall adversarial stance toward China, as some believe exists,” the letter concludes.

Views toward China vary significantly among different social groups in the U.S. and also inside the government, Li said.

“There is a need for different voices to let China know that there is no consensus on America’s China policy, and there won’t be one for a long time,” Li said.

Most of the signers are older experts who don’t represent the views of younger Americans, some observers said. Although the open letter originally targeted senior scholars with strong academic backgrounds, Li said it’s inappropriate to argue that younger scholars view China in a more adversarial way. A public poll showed that Americans under 29 are actually friendlier toward China, Li said.

Older scholars and officials have a better understanding of China after witnessing the country’s changes over recent decades, but members of younger generations will also know China better as time goes by, Li said.

“A proper discussion of China policy is very important, and it shouldn’t be limited inside the government,” Li said. Although it is unclear whether the letter will influence policy, he said it sends a strong message that “the views toward China between the U.S. government and scholars are different.”

Since last year, the two countries have been locked in a trade war, slapping tit-for-tat tariffs on hundreds of billions of dollars of each other’s goods. Chinese President Xi Jinping and Trump agreed last week at a G-20 summit in Osaka, Japan, to resume trade talks. The U.S. also agreed not to impose new tariffs on Chinese imports.

This story was updated with Li’s comments.

By Qing Ying, Ren Qiuyu and Han Wei

Contact reporter Ren Qiuyu (qiuyuren@caixin.com); Han Wei (weihan@caixin.com)

 

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An open letter to US President Donald Trump signed by scores of Asia specialists including former US diplomats and military officers has revealed that rational voices are emerging to challenge paranoid ideas, Chinese experts noted on Thursday.

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‘Hong Kong attacks a political act’ – Asean+ | The Star Online

During an interview Thursday, British Foreign Secretary Jeremy Hunt still refused to directly criticize the violent protesters who stormed and vandalized the Hong Kong Legislative Council. Instead, he superficially stated that the UK condemns “all violence” and warned China again. He did not elaborate on the “serious consequences” that he previously warned China that it may face, but said the UK is “keeping options open” over China.

Almost all analyses believe Hunt is putting on an air. Nobody believes the UK will send its only aircraft carrier to China’s coast. Nor would anyone believe the UK will punish Beijing at the cost of hurting trade with China. The UK has been dwarfed by China in military and trade. Hunt’s inappropriate statements make many British people nervous: Will Beijing cancel an order from the UK to warn British politicians?

If China-UK relations deteriorate, will expelling Chinese diplomats become a card for London? This was the way that the Theresa May government used to deal with Moscow when a former Russian spy was poisoned in the UK. BBC reporters asked Hunt about the possibility for expelling diplomats. But it seems more like these BBC reporters, who bully politicians for pleasure, were using the unreliable option to make things difficult for Hunt.

Launching a diplomatic war against China leads to nowhere. European countries will not stand by London on the Hong Kong issue. By worsening diplomatic relations with China, the UK will only isolate itself.

What’s important is that Beijing has done nothing wrong on the Hong Kong issue. It is obvious to all that China persists in the “one country, two systems” policy, and Hong Kong’s system is different from the mainland’s. The Fugitive Offenders Ordinance, proposed by Hong Kong regional government, was a small cause of the unrest. It was politicized and magnified by opposition factions. The situation escalated according to the logic under Hong Kong’s system, not that of the mainland. But such storming and vandalizing is not acceptable under Hong Kong’s system or any system worldwide.

Instead of blaming violent protesters, Hunt directed his ire against Beijing, which is based on his selfish interests to win the election. Hunt wants to defeat Boris Johnson. In charge of diplomacy, Hunt believes the Hong Kong issue is a chance that dropped into his and the UK’s lap. But this is not the 19th century when the Opium War broke out. The UK has gone past its prime.

Hunt knew that Beijing would sniff at his threat of “serious consequences.” But he still said it because he needed to play in front of voters. This is political fraud. Hunt obviously believes that the British people can be manipulated like a flock of sheep.

But Hunt’s stunt has no good effect. Many British people are more worried whether Hunt’s words would lead to “serious consequences” from China. Purpose and ability should match in diplomatic strategy, but Hunt is obviously outwardly strong and inwardly weak. Even the British people think his performance is amusing.

In a few short years, one minute the UK calls its relations with China the “Golden Era,” and the next minute it warns China of “serious consequences.” Although these statements are from different administrations and politicians, the UK still shows inconsistency in policy. The country also swung from side to side on Brexit. The UK’s politics have become politicians’ coffers and plots. They are undermining the UK’s image.

Under such circumstances, we should not be too serious when dealing with the UK. Regardless of whether it shows a friendly or an opportunistic gesture, we should remind ourselves this will not be its first or last attitude toward China, and by saying that we mean it will be in a relatively short time, to be specific. – Global Times

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Martin Jacques
Martin Jacques (2012)
Born 1945 (age 73–74)

Coventry, England, Great Britain, U.K
Nationality British
Education King Henry VIII School, Coventry
Alma mater University of Manchester (B.A.)

University of Cambridge (PhD)

Occupation Editor, academic, author
Website MartinJacques.com

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Hardwired for global hegemony – American freedom and democracy


Hardwired for global hegemony – American democracy has become subverted by the rise of many hegemonic groups acting behind the scenes.

FOURTH of July was the 241st anniversary of the American Declaration of Independence. On that historic day in 1776, 13 British colonies in North America cut their links with their oppressor and proclaimed themselves to be the independent, sovereign United States of America.

The Preamble to the Declaration of Independence contains some of the most stirring words ever penned in a political or legal document: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

The eloquence of this passage distils the moral idealism of the forefathers of America’s independence and their vision and aspiration for the then new nation.

Indeed, in the decades that followed, the Declaration inspired many other similar documents around the world, including the Bill of Rights in the US Constitution. Abraham Lincoln referred to the Declaration in his quest to abolish slavery in the US.

Till today, students of public law around the world look with admiration to the American Constitution’s safeguards for liberty, its protection against state despotism and its vibrant provisions for check and balance of power.

Sadly, however, a wide chasm between theory and reality is discernible. Even in its pioneering years the “land of liberty” violated its lofty ideals.

The US expanded across North America by slaughtering the Native American population. “How the West was won” is a story penned with the blood of indigenous people.

The US wrested Arizona, California, Nevada, New Mexico, part of Colorado and Utah from Mexico. Though professing anti-colonialism, it acquired a few colonies abroad.

Friends of America note with sadness that after World War II, the use of brute military force and “American exceptionalism” have become very pronounced.

In 2015, the US spent US$598.5bil (RM2.6 trillion) on defence, even though it is not threatened by any enemies. It maintains 800 military bases in more than 70 countries around the world.

It is the chief manufacturer and seller of weapons of mass destruction and often uses proxies to sell murderous weapons to both warring sides.

A nation born in liberty has metamorphosed into a nation with an insatiable addiction to war and the ethos of a garrison state. From the jungles of Vietnam to the deserts of Mesopotamia, America remains in constant war to pursue its hegemonic and strategic interests.

William Blum, a historian and US foreign policy critic, has calculated that since World War II the US has nuked, bombed or been militarily involved in 31 countries and has directly or indirectly killed or maimed between 15 and 20 million people, 90% of whom were innocent civilians. Pentagon records their extermination as “collateral damage”.

Nations in Asia that have suffered devastation at American hands are Afghanistan (1998 to the present), Pakistan (2003, 2006 to the present), Japan (1945), Cambodia (1969-70), Vietnam (1961-73), Laos (1964-73), China (1945-6), Korea (1950-53) and Indonesia (1958).

In the Middle East, victims of America’s “deadly export of democracy” are Iraq (1991 to the present), Iran (1987 and 2003), Kuwait (1991), Lebanon (1983-84), Syria (1983-84, 2014 to the present), Palestine (2010) and Yemen (2003, 2009, 2011 to the present).

In Africa, the US has intervened militarily in Libya (1986, 2011, 2015 to the present), Congo (1964), Sudan (1998) and Somalia (1993, 2001-8 and 2010).

In Latin America, the US has imposed its military will on Cuba (1959-61), El Salvador (1980s), Guatemala (1954, 60, 67-69), Grenada (1983), Nicaragua (1980s), Peru (1965) and Panama (1989).

Europe has not been spared. Bosnia in 1994 and 1995 and Yugoslavia in 1999 were mercilessly bombed.

What is notable is that most of the targets are people of colour, those of the Third World or Muslims. It is not just a coincidence that all the nations being bombed by the USA today happen to be Muslim.

In addition to direct military attacks, the US wages proxy wars around the world. In Iran (1953), Guatemala (1954), Congo (1960), South Vietnam (1963), Brazil (1964), Dominican Republic (1965), Chile (1973), Egypt (2013) and Ukraine (2014) the US armed rebels and hired mercenaries to subvert and overthrow governments that refused to tow its line.

Contrary to what Americans believe, the United States is one of the greatest destabilising forces in the world today. It is also the chief diplomatic, military and financial backer of the seven-decade-old genocide in Palestine.

To assert its impunity and sense of exceptionalism it has done such outrageous things as shooting down an Iranian civilian plane in 1988 (when a US Navy ship reportedly mistook the Airbus A300 for a much smaller and faster F-14 fighter jet), killing all 290 on board. In 1999, it bombed the embassy of China in Belgrade. US officials later claimed it was an error.

Ever since 9/11, it runs offshore torture camps. It arms and finances terrorist groups with a view to destabilising governments it does not like.

It rejects or unsigns international treaties like the Ottawa Convention (the Mine Ban Treaty); the Rome Statute of the International Criminal Court; and the Paris Agreement on Climate Change.

All friends of America wonder why a nation so steeped in democracy and liberty has metamorphosed into such a war-mongering hegemon. The issue requires a separate and fuller examination.

What can be summarised is that American democracy has become subverted by the rise of many behind-the-scenes, hegemonic groups which have acquired such a stranglehold on foreign, financial and military policy that even the President and the Congress cannot defy them.

The CIA operatives, the foreign policy establishment, the military-industrial complex, the arms manufacturers, the oil barons, the gun lobby, the media, the Zionist pressure groups and the major banks constitute a parallel “deep state” that runs America.

This deep state has a vested interest in the manufacture and sale of horrendous weapons, the waging of continuous wars, the destabilisation of unfriendly regions, the control of oil supplies and the maintenance of existing trade mechanisms.

The power of the Constitution, the Congress and the President is more symbolic than real. The American electorate is either unaware or benumbed. Only if it learns more about this sad reality can any change be accomplished.

Reflecting On The Law Shad Saleem Faruqi

Emeritus Professor Datuk Dr Shad Saleem Faruqi is Tunku Abdul Rahman Professor of Law at Universiti Malaya. The views expressed here are entirely the writer’s own.

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Goodbye 2016, a strange and difficult year


The year will be remembered for the West ending its romance with globalisation, and its impact on the rest of the world.

JUST a few days before Christmas, it is time again to look back on the year that is about to pass.

What a strange year it has been, and not one we can celebrate!

The top event was Donald Trump’s unexpected victory. It became the biggest sign that the basic framework and values underpinning Western societies since the second world war have undergone a seismic change.

The established order represented by Hillary Clinton was defeated by the tumultuous wave Trump generated with his promise to stop the United States from pandering to other countries so that it could become “great again”.

Early in the year came the Brexit vote shock, taking Britain out of the European Union. It was the initial signal that the liberal order created by the West is now being quite effectively challenged by their own masses.

Openness to immigrants and foreigners is now opposed by citizens in Europe and the US who see them as threats to jobs, national culture and security rather than beneficial additions to the economy and society.

The long-held thesis that openness to trade and foreign investments is best for the economy and underpins political stability is crumbling under the weight of a sceptical public that blames job losses and the shift of industries abroad on ultra-liberal trade and investment agreements and policies.

Thus, 2016 which started with mega trade agreements completed (Trans-Pacific Partnership) or in the pipeline (the Transatlantic Trade and Investment Partnership between the US and Europe) ended with both being dumped by the President Elect, a stunning reversal of the decades-old US position advocating the benefits of the open economy.

2016 will be remembered as the year when the romance in the West with “globalisation” was killed by a public disillusioned and outraged by the inequalities of an economic system tilted in favour of a rich minority, while a sizeable majority feel marginalised and discarded.

In Asia, the dismantling of the globalisation ideal in the Western world was greeted with a mixture of regret, alarm and a sense of opportunity.

Many in this region believe that trade and investment have served several of their countries well. There is fear that the anti-globalisation rebellion in the West will lead to a rapid rise of protectionism that will hit the exports and industries of Asia.

As Trump announced he would pull the US out of the TPP, China stepped into the vacuum vacated by the US and pledged to be among the torchbearers of trade liberalisation in the Asia-Pacific region and possibly the world.

The change of direction in the US and to some extent Europe poses an imminent threat to Asian exports, investors and economic growth. But it is also an opportunity for Asian countries to review their development strategies, rely more on themselves and the region, and take on a more active leadership role.

China made use of 2016 to prepare for this, with the Asian Infrastructure Investment Bank taking off and the immense Belt and Road Initiative gathering steam.

Many companies and governments are now latching on to the latter as the most promising source of future growth.

The closing months of 2016 also saw a surprising and remarkable shift in position by the Philippines, whose new President took big steps to reconcile with China over conflicting claims in the South China Sea, thus defusing the situation – at least for now.

Unfortunately, the year also saw heart-rending reports on the plight of the Rohingya in Myanmar, and the deaths of thousands of Syrians including those who perished or were injured in the end-game in Aleppo.

On the environmental front, it is likely 2016 will be the hottest year on record, overtaking 2015. This makes the coming into force in October of the Paris Agreement on climate change all the more meaningful.

But there are two big problems. First, the pledges in the agreement are grossly insufficient to meet the level of emissions cuts needed to keep the world safe from global warming, and there is also insufficient financing to support the developing countries’ climate actions, whether on mitigation or adaptation.

And secondly, there is a big question mark on the future of the Paris agreement as Trump had vowed to take the US out of it.

The biggest effect of 2016 could be that a climate skeptic was elected US President.

In the area of health, the dangers of antibiotic resistance went up on the global agenda with a declaration and day-long event involving political leaders at the United Nations in September.

There was growing evidence and stark warnings in 2016 that we are entering a post-antibiotic era where medicines will no longer work and millions will die from infection and ailments that could once be easily treated by antibiotics.

The world will also be closing in a mood of great economic uncertainty. In 2016 the world economy overall didn’t do well but also not too badly, with growth rates projected at 2.4 to 3%.

But for developing economies like Malaysia, the year ended with worries that the high capital inflows of recent years are reversing as money flows back to the US.

The first in an expected series of interest rate increases came last week.

All in all, there was not much to rejoice about in 2016, and worse still it built the foundation for more difficulties to come in 2017.

So we should enjoy the Christmas/New Year season while we can. Merry Christmas to all readers!

Global Trends By Martin Khor

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
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 Global Reset 2016~2017

The global mahjong winner’s curse


There is grave concern that the world economy is slipping into what Harvard professor and former US Treasury Secretary Larry Summers calls the global secular deflation. In simple terms, growth has slowed without inflation, despite exceptionally stimulative monetary policy. Larry’s view is that the advanced countries can use fiscal policy to stimulate growth, using massive investments in infrastructure. If needs be, this can be financed by central banks.

Central bank financing fiscal deficits is technically called “helicopter money”, named by the late monetarist economist Milton Friedman as the central bank pushing money out of the helicopter. Strict monetarism thinks that this would cause inflation.

The simple reason why the world is moving into secular deflation is that the largest economies are all slowing for a variety of reasons. Unconventional monetary policy applied since the 2007 crisis has brought central bank interest rates to zero or negative terms in economies accounting for 60% of world GDP.

Most economists blame current slow growth to “lack of aggregate demand” or “excess of aggregate production”. The rich countries are mostly aging and already heavily burdened with debt, so they cannot consume more. After the 2007 global financial crisis, the emerging market economies have slowed down, as demand for their exports have slowed. We are in a vicious circle where global trade growth is now slower than GDP growth, because the US economy is no longer the consumption engine of last resort. China, which has been a huge consumer of commodities, has slowed. Japanese growth has been flat due to an aging population. European growth has not recovered, partly because the leading economy, Germany, calls for austerity by its southern partners.

The Brexit shock threatens to weaken global confidence and send growth down another notch.

Former Bank of England Governor Lord Mervyn King famously called the global monetary order a game of sodoku, in which national current accounts in the balance of payments add up to a zero sum game. This is because in the global trade game, one country’s current account deficit is another country’s surplus. In the past, if the US runs larger and larger current account deficits, world growth is stimulated because everyone wants to hold dollars and has been willing to supply the US with all manners of consumer goods. This has been called an “exorbitant privilege” for the dollar.

The present global monetary order or non-order is a result of the 1971 US dollar de-link from gold, which gave rise to a phase of floating exchange rates and rising capital flows, which some people call Bretton Woods II. The old order, set at the Bretton Wood Conference of 1944, centered around a system of global fixed exchange rates, based on the US dollar link with gold price at US$35 to one ounce of gold.

But flexible exchange rates has resulted in a system where everyone seems to be devaluing their way out of trouble. Has the global secular deflation something to do with Bretton Woods II?

My answer must be yes. The reason lies in what I call, instead of sodoku, the mahjong winner’s curse. The Chinese game of mahjong has four players with a limited number of chips. If one player is the persistent winner, he or she ends up with all the chips and the game stops. Since the global game of trade cannot stop, the winner has both an exorbitant privilege (of being funded by the others) and an exorbitant curse (of bearing the loss if the others won’t or refuse to pay). To keep the game going, the winner has to give or lend the chips back to the other players, who play with the hope of winning the next round.

Indeed, if the winner is generous, the game can be made bigger, because the winner can issue more chips (defined as a reserve currency), which the others are more than willing to borrow and play.

The current world situation is that the Winners are the four reserve currency countries, the dollar, euro, yen and sterling, all of which have interest rates near zero or even negative. Until recently, the Winners blame China and the oil producing countries as having too high current account surpluses. But recently, after the huge European cutback in expenditure, Europe as a whole is the world’s largest current account surplus group of nearly 5% of GDP.

Herein lies the winner’s curse. The emerging markets should be able to stimulate global growth, but are unwilling to run larger current account deficits because they cannot get financing. The richer economies can stimulate global growth, but they are unwilling to do so, because they either feel that they already have too much debt or because they worry that stimulus would lead to inflation.

However, reserve currency countries have an advantage. As long as they are willing to run current account deficits, there will be little inflation because the world economy has huge excess capacity and surplus savings. If emerging markets run higher current account deficits, they will have to depreciate, which is exactly what Brazil, South Africa and others have done.

The winner’s curse is that if Europe is now unwilling to reflate and spend, the world will continue to slow. Indeed, in a world of greater geo-political risks, money is fleeing to the US dollar and the yen, causing both to appreciate.

What these capital flows into the reserve currencies when their interest rate is zero and they are unable to reflate imply is that the dollar and yen play the deflationary role of gold in the 1930s. As more and more mahjong players hold gold and don’t spend, the world global trade and growth game slows further. The mahjong winner’s curse requires the winners to stimulate and spend, bearing higher credit risks. That’s the privilege and responsibility of winners in the global game. If not, look out for more global secular deflation.

By Tan Sri Andrew Sheng who writes on global issues from an Asian perspective.

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