Google gets the Baidu blues again after mapping losses

Chinese rival set to overtake Google Maps

Google looks like being beaten again in China, as Baidu leaps ahead in the mobile mapping space.

The text ads giant was still second in the Quarterly Survey of China's Mobile Map Client Market, but only just, according to Beijing-based Analysys International.

Chinese player Autonavi was the market leader by a long way, with 25.7 per cent, and Google Maps came in second with 17.5 per cent, but had Baidu breathing down its neck in third with a 17.3 per cent share.

The momentum is with the Chinese search firm too – Baidu Maps' market share rose from 13.6 per cent in Q1 to 17.3 per cent in Q2 while Google’s fell from 23.2 per cent. As a result, Baidu is predicted to supplant Google in the current quarter.

To add to Google’s woes, the analyst said local users were having problems updating their version of its mapping client, while Apple is set to drop Google Maps as a pre-install on the next version of iOS, with reports suggesting Cupertino is working with Autonavi now in the region.

“If the above problems are not solved quickly, it's hard for Google map to reverse the situation,” wrote Analysys International in a blog post.

Baidu and Google are of course old foes in the search space, where the home-grown firm routed its Californian rival after Google moved its search servers to Hong Kong in 2010 over censorship concerns.

Google's market share is now around 16 per cent while Baidu dominates with around 78 per cent.

The mobile map market in China is growing at a staggering pace, jumping 206 per cent year-on-year last quarter to 229 million accounts, according to Analysys International.

The analyst predicted it would be a key battle ground for the next phase of the mobile internet given that maps and associated apps are closely tied to up to a quarter of mobile advertising. ®

By Phil Muncaster 
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US threat: superpower gun barrels pivot east

As US election fever sizzles, pressure mounts to spread the militarist mindset deeper and wider.

African agenda: Clinton (right) visiting a clinic in a suburb of Cape Town. — Reuters

THE heavy-duty globetrotting of Hillary Clinton as US Secretary of State was bound to take in Africa sooner or later. Now it has done so with as much gusto and relish as a new colonial carve-up of the continent.

This was the “dark continent” before it was “discovered” by the white man, before the African could succumb to Western maladies from various illnesses to the “structural adjustments” imposed by Western-controlled multilateral lending agencies.

And Africa today is the continent that Washington sees China moving into. How could the world’s sole superpower let that go unchallenged, particularly when the moves come from the world’s fastest rising power?

China is seeking natural resources for its growth, scouring the earth from South America to Africa and anywhere else with potential. The US, coming from behind in Africa, wants to get even and then pip China at the post.

Just what that means in real policy terms, or how that can benefit US interests, would have to be determined later.

So Clinton goes to nine countries in 11 days, posing with Nelson Mandela in South Africa and holding hands around campfires and singing Kumbaya from Benin, Ghana, Kenya and Malawi to Nigeria, Senegal, South Sudan and Uganda.

All of it made for good diplomacy and even better feel-good US news copy. However, some analysts observe that the US just does not have the funds to fulfil its African pledges.

Predictably, Washington denied this was in competition with China over Africa. And like all such official denials, it was as good an unofficial confirmation as any.

Clinton’s African agenda was formally based on the White House white paper “US Strategy Toward Sub-Saharan Africa” produced just weeks before. This policy document aims to strengthen democracy, boost growth, promote peace and security, and encourage development.

Clinton asserted that the US had had a long history in Africa (before China), and it had been there for all the right and good reasons. But whether China is in the picture or not, US policymakers have a problem in credibly claiming both altruism and a long history in Africa.

Such claims of early US engagements typically neglect mentioning the slave trade from the late 15th century. This notorious denial of human rights through massive human trafficking involved the kidnap of countless African men in their prime over centuries by Europeans who sold them to Americans, setting back African development for generations.

Abraham Lincoln reputedly fought a civil war to end slavery only in the 19th century. That showed how embedded slavery had become in the New World, requiring a civil war to abolish.

Yet even this stain on Western history was predated by several decades by Admiral Zheng He’s three voyages to Africa in the early 15th century. These were Chinese trading missions that came to barter goods, not to extract vital human resources in a criminal fashion.

Later, Ronald Reagan’s administration infamously did business with the international pariah state of apartheid South Africa, while branding Mandela a terrorist leader. When questioned, Reagan called it “constructive engagement” to excuse his collaboration with a racist Pretoria.

Other US experiences elsewhere in Africa resulted in gross corruption and denial of human rights. From Rwanda and Somalia through Zaire (Democratic Republic of Congo), Equatorial Guinea and Ethiopia to Egypt and Libya today, the positive gains are not as rosy as they have been advertised.

More lately, the Obama administration overturned 10 years of hard work internationally by abruptly dumping a global arms trade treaty at the United Nations. Both legal and illegal arms and munitions supplies have devastated the developing world, notably Africa, which continues to lose thousands of lives and more than US$18bil (RM56bil) a year through armed conflict.

Clinton’s asides on China’s African presence come amid general criticism of Beijing’s modus operandi when doing business in Africa. China stands accused of not placing conditions on its African hosts before proceeding to deal with them.

To those intent on demonising China, however, Beijing can never win: it will be condemned whatever it does or does not do. If China were to impose political conditions on business deals, those who now complain it is not doing so will again be the first to complain.

There is a historical record for reference: once, an ideologically rampant China offered inducements to factions in developing countries to support their domestic communist movements.

Beijing has wisely refrained from such preconditions. Should China still offer such inducements, if only to make its own Communist Party or government look good?

Would it really be better if China exerted pressure on its trading partners or investment destinations to do what it considers important for its own values and objectives? To do so would be China’s equivalent of imposing US conditions on the developing world.

Some countries have also been guilty of offering “aid programmes” that hire their nationals as expatriates in the country supposedly aided. In contrast, China is said to hire African nationals for work on infrastructure projects it builds in Africa.

This provides local employment, while the infrastructure once built will remain in those countries to produce a multiplier effect for development through improved transportation for trade, investment, tourism and the distribution of educational opportunities and healthcare facilities.

Unlike the US variety, Chinese aid, trade and investment come with no strings attached, no crippling IMF or World Bank conditions, no military industrial complex supplying weapons to one side or the other, and no promises or threats of destabilisation, subversion, invasion, occupation, war or “regime change”. And Western critics pick on Beijing for that.

African analysts cite these as reasons why Africans will welcome China’s presence more than a competing US presence. China’s business deals come without the extra baggage of self-righteous preachiness and ideologically loaded value judgments.

Like the rest of the Third World, Africa may want to get as much as possible from both China and the US. So, in practice, it will not be a question of one suitor or the other.

But if Africa on its own is such a compelling case for renewed US interest, with China not a factor at all as officially claimed, why did Washington take so long to get interested? US policymakers must know that the official narrative of a rising Africa is not quite accurate.

To a degree, the Obama-Clinton act over Africa has also resulted from Mitt Romney’s presidential challenge. A leading US specialist on China, Prof David Shambaugh, finds that the Romney campaign is building a foreign policy team based largely on George W. Bush advisers.

This team sees China as a “global competitor” over Africa, and which despite some diplomatic platitudes in the preface, is relying heavily on greater military power. Lethal fallout may yet land in other regions from a superpower tottering in West Asia through teetering in South Asia on the way to Obama’s “pivot” in East Asia.

US presidential campaigns traditionally focus on domestic issues, but China and Africa are now generating a buzz among Americans online. Obama may also win a second term, but Romney’s influence on the campaign trail and Republican pressure in Congress may yet set the tone for US-China relations to come, to impact inevitably on East Asia as a whole.

Behind The Headlines By Bunn Nagara The Star

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Chinese Tech Billionaire To Launch Next Xiaomi Smartphone

All will be revealed (Photo credit: Wikipedia)

Chinese smartphone startup Xiaomi has confirmed that it will unveil its new model in Beijing on Aug. 16, a year after the launch of its debut MI-1. The Android-based phone has sold over 3 million units and put Xiaomi and its billionaire cofounder Lei Jun on the global smartphone map. A Xiaomi spokesman refused to discuss the phone’s features, telling FORBES that all would be revealed on Aug. 16. A report on Sohu.com last week claimed that the new phone would use a Qualcomm quad-core 1.5GHz chip with a 4.3″ display touchscreen. Interestingly, Xiaomi may be raising its price to RMB2,499 ($392), compared to RMB1,999 for the first-generation phone. Lei initially told reporters that he didn’t expect to make a profit from handset sales, but surging shipments upended that calculation and boosted Xiaomi’s valuation to $4 billion in a recent funding round. You can read my profile of Lei here.

In a research note, Brian White of Topeka Capital Markets notes that Xiaomi recorded $995 million in sales for 1H 2012 and that China’s smartphone market continues to post rapid growth.

During our travels to China, we have noticed a surge in the popularity of Xiaomi smartphones and already the Company is a top-five vendor at a leading service provider in the country. The Company’s smartphones seem to be especially popular with the younger crowd due to their cutting edge design with high- energy color patterns.

Photos of Xiaomi’s new phone’s eco-packaging, though not what’s inside the box, have been posted to Lei’s microblog. Lei is famous for Steve Jobs-style product presentations that play to his geek fans in China (and infuriate his detractors). He will be out to prove that Xiaomi hasn’t sat still over the last year but is building a better phone with an integrated software experience for users. However, a jump to RMB2,499 would be a bold step, as smartphone prices in China are heading the other way, i.e. cheaper and cheaper. Apple and Samsung occupy the top rungs of smartphone chic, where a high sticker price doesn’t deter avid buyers. Xiaomi wants to carve out a mid-tier position where its brand carries weight. Its new phone will be a crucial part of that strategy.

By Simon Montlake, Forbes Staff

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Restoring unity at South China Sea

I DON’T usually pay attention to Asean meetings as there are so many of them but the disappointing outcome of the recently concluded Asean Ministers Meeting (AMM) in Phnom Penh caught my attention.

The failure of the meeting to come up with a joint communiqué was striking even to casual observers.

The failure, the first in the bloc’s 45-year history, caused by disagreement among Asean members over the South China Sea dispute, was a worrying development that has cast doubts over its ability to speak in unison on this thorny issue.

The last thing Asean needs is to be caught in a turf war for superpowers in its own backyard.

The South China Sea, which is so crucial not only to the littoral states but to the international community at large, could well be that stage.

China has been seen by many as acting “assertively” in backing its claim of the sea and has been involved in several stand-offs with Vietnam and the Philippines, which have also reacted strongly against China in those situations.

I wonder if Malaysia, as a claimant state, should start thinking of having in place specific contingency plans to confront the kinds of situation that Vietnam and the Philippines have faced against China.

I know Malaysia enjoys close bilateral and people-to-people relations with China. Beijing has even described us as a “special friend”.

Despite this, let us be reminded that China also has deep relations with Vietnam and the Philippines.

It even has nearly inextricable economic and strategic relations with the United States, a potential adversary and with whom it has clashing interests in the sea.

I am not schooled in the fine art of international relations but I believe nations should not always think the best of others and must be prepared to face any eventuality.

In the context of the South China Sea, such eventualities should include facing potentially hostile and intrusive acts of our neighbours which can undermine our interests.

Any one of the claimant states can turn adversarial but I believe we have to pay special attention to China.

Its recent actions such as patrolling disputed waters and deploying a garrison at Sansha city to impose its jurisdiction all point towards Beijing’s readiness and resolve to assert its claims.

What would Malaysia do should we find the cables of our offshore exploration vessels cut by a Chinese vessel or if Chinese surveillance and patrol vessels appear in our Exclusive Economic Zone (EEZ), situations which Vietnam and the Philippines have faced?

I believe Malaysia should prepare contingency plans to face such situations. Merely reacting to developments in this high-stake theatre would not be good enough.

The tense situation underscores the need for a binding code to govern the behaviour of the claimants.
Such a code will compel them to settle their disputes through peaceful means and using international law.

While I noticed progress between Asean and China to come up with guidelines for the Declaration of Conduct in the sea between them, they still have a long way to go before they can agree on a Code of Conduct.

On the outcome of the AMM meeting in Phnom Penh and China’s refusal to discuss disputes multilaterally, I foresee a prolonged impasse. At the rate things are going, I don’t see China changing tangent of not wanting to discuss the dispute multilaterally.

The Code of Conduct that Asean and China are working to establish would not be efficient if it did not include all the claimants. In this regard, one wonders if it would make sense to include Taiwan, which is also a claimant in the sea, to be a party to such a code.

It would not make sense to ignore this claimant in the construct of a code to govern the conduct of claimant states. What set of conduct then would Taiwan be subjected to if the Code of Conduct is agreed only between Asean and China?

Besides ensuring that everyone plays by the same rules, bringing Taiwan into the fold could help yield fresh perspectives to the discourse on disputes at sea, which to me seems to be getting nowhere.

Taiwan has much to offer in areas such as marine scientific research, fishery management/conservation, environmental protection, humanitarian assistance/disaster relief, and search and rescue.

The claimant and littoral states could tap into Taiwan’s expertise in these areas and promote cooperation, build confidence and avert further tension.

I hope my take on the subject would provide food for thought to claimant states and prompt them to set aside differences and work together towards peace.

I believe Malaysia as a claimant state should not only be steadfast in safeguarding its interests but should also show initiative to promote peace.

Malaysia can leverage its position as a founding member of Asean and as a friend to claimant states and the United States to be a voice of reason.

With the statesmanship skills of our diplomats we can help restore unity in Asean that was shaken in the aftermath of the AMM in Phnom Penh, restore confidence between Asean and China, and reassert Asean’s centrality in regional security matters.

SON OF THE SEA

Kuala Lumpur

China Pushes on the South China Sea, ASEAN Unity Collapses

Publication: China Brief Volume: 12 Issue: 15

August 3, 2012

By: Ian Storey

China and ASEAN Much Further Apart than the Smiles Suggest

For more than two decades Beijing has pursued a consistent policy in the South China Sea composed of two main elements: gradually strengthening the country’s territorial and jurisdictional claims while at the same time endeavoring to assure Southeast Asian countries of its peaceful intentions. Recent moves by China to bolster its maritime claims have brought the first element into sharp relief, while reassurances of benign intent have, however, been in short supply. Indeed, far from assuaging Southeast Asian concerns regarding its assertive behavior, China has fuelled them by brazenly exploiting divisions within the Association of Southeast Asian Nations (ASEAN) to further its own national interests.

China Hardens Its Stance

Commentaries in China’s state-run media analyzing the South China Sea issue have become markedly less conciliatory. Opinion pieces highlight several new themes in China’s official line. One theme is that China’s territory, sovereignty as well as its maritime rights and interests increasingly are being challenged by Southeast Asian nations and Japan in the South and East China Seas. China’s response, it is argued, should be to uphold its claims more vigorously, increase its military presence in contested waters, and, if necessary, be prepared to implement coercive measures against other countries. As one commentary notes “Cooperation must be in good faith, competition must be strong, and confrontation must be resolute” (Caixin, July 13).

Another theme is that, while China has shown restraint, countries such as the Philippines and Vietnam have been pursuing provocative and illegal actions in a bid to “plunder” maritime resources such as hydrocarbons and fisheries which China regards as its own (China Daily, July 30).

A third theme is that Manila and Hanoi continue to encourage U.S. “meddling” in the South China Sea and that the United States uses the dispute as a pretext to “pivot” its military forces toward Asia (Global Times, July 11). To reverse these negative trends, Chinese commentators have urged the government to adopt more resolute measures toward disputed territories and maritime boundaries. Nationalist sentiment, they argue, demands no less.

Recent measures undertaken by the Chinese authorities do indeed suggest a more hard-line position. Ominously, some of the initiatives have included a strong military element, presumably as a warning to the other claimants that China is ready to play hardball.

Perhaps the most noteworthy attempt by China to bolster its jurisdictional claims in the South China Sea was the raising of the administrative status of Sansha from county to prefecture level in June. Sansha originally was established in 2007 as an administrative mechanism to “govern” the Paracel Islands, Macclesfield Bank and the Spratly Islands. Sansha’s elevation was an immediate response to a law passed on June 21  by Vietnam’s national assembly, which reiterated Hanoi’s sovereignty claims to the Paracels and Spratlys. Both Vietnam and China protested the other’s move as a violation of their sovereignty (Bloomberg, June 21). Less than a month later, Sansha’s municipal authorities elected a mayor and three deputy mayors and China’s Central Military Commission authorized the establishment of a garrison for “managing the city’s national defense mobilization, military reserves and carrying out military operations (Xinhua, July 20).

Earlier, in late June, China’s Defense Ministry announced it had begun “combat ready” patrols in the Spratly Islands to “protect national sovereignty and [China’s] security development interests” (Reuters, June 28). Embarrassingly for the People’s Liberation Army (PLA) Navy, however, on July 13, one of its frigates ran aground on Half Moon Shoal, 70 miles west of the Philippine island of Palawan and within the Philippines 200 nautical mile exclusive economic zone (EEZ). The frigate was refloated within 24 hours, suggesting that other PLA Navy vessels were nearby when the incident occurred. These developments provide further evidence of the growing militarization of the dispute.

China also has moved to undercut the claims and commercial activities of the Philippines and Vietnam in the South China Sea in other ways.

In June, the state-run China National Offshore Oil Corporation (CNOOC) invited foreign energy companies to bid for exploration rights in nine blocks in the South China Sea. The blocks lie completely within Vietnam’s EEZ and overlap with those offered for development to foreign energy corporations by state-owned PetroVietnam. Accordingly, Hanoi vigorously protested CNOOC’s tender (Bloomberg, June 27). More importantly the blocks are located at the edge of China’s nine-dash line map and seem to support the argument that Beijing interprets the dashes as representing the outermost limits of its “historic rights” in the South China Sea. Under the 1982 United Nations Convention on the Law of the Sea (UNCLOS), however, coastal states are not entitled to “historic rights” on the high seas. It is therefore unlikely that any of the major energy giants will bid for CNOOC’s blocks—although smaller companies may do so if only to curry favor with Beijing with a view to landing more lucrative contracts down the road. If, however, exploration does move forward in any of the nine blocks, a clash between Vietnamese and Chinese coast guard vessels will become a very real possibility.

On the issue of ownership of Scarborough Shoal, scene of a tense standoff between Chinese and Philippines fishery protection vessels in May-June, China position remains uncompromising. At the annual ASEAN Regional Forum (ARF) in Phnom Penh, Cambodia in July, Chinese Foreign Minister Yang Jiechi restated China’s sovereignty claims to the shoal, rejected the notion that it was disputed and accused Manila of “making trouble” (Xinhua, July 13). According to the Philippine foreign ministry, Chinese trawlers―protected by Chinese paramilitary vessels—continue to fish in waters close to Scarborough Shoal in contravention of a bilateral accord whereby both sides agreed to withdraw their vessels [1].

Following the ARF, China kept up the pressure on the Philippines. In mid-July, it dispatched a flotilla of 30 fishing trawlers to the Spratlys escorted by the 3,000-ton fisheries administration vessel Yuzheng 310 (Xinhua, July 15). The trawlers collected coral and fished near Philippine-controlled Pag-asa Island and Chinese-controlled Mischief and Subi Reefs (Philippine Daily Inquirer, July 27). The Philippine authorities monitored the situation but took no action.

The Phnom Penh Debacle

In the past, after China has undertaken assertive actions in the South China Sea it has tried to calm Southeast Asia’s jangled nerves. At the series of ASEAN-led meetings in Phnom Penh in mid-July, however, Chinese officials offered virtually no reassurances to their Southeast Asian counterparts. Worse still, China seems to have utilized its influence with Cambodia to scupper attempts by ASEAN to address the problem, causing a breakdown in ASEAN unity.

In the final stages of the annual meeting of ASEAN foreign ministers (known as the ASEAN Ministerial Meeting or AMM), the Philippines and Vietnam wanted the final communiqué to reflect their serious concerns regarding the Scarborough Shoal incident and the CNOOC tender. They were supported by Singapore, Indonesia, Malaysia and Thailand who felt that ASEAN should speak with one voice. Cambodia—which holds the rotating chairmanship of ASEAN and has close political and economic ties with China— objected because, in the words of Foreign Minister Hor Namhong, “ASEAN cannot be used as a tribunal for bilateral disputes” (Straits Times, July 22). Attempts by Indonesian Foreign Minister Marty Natalegawa to reach a compromise on the wording were unsuccessful and for the first time in its 45-year history the AMM did not issue a final communiqué.

The fallout from the AMM was immediate and ugly. Natalegawa labelled ASEAN’s failure to reach agreement “irresponsible” and that the organization’s centrality in the building of the regional security architecture had been put at risk (Straits Times, July 16). Singapore’s Foreign Minister, K. Shanmugam described the fiasco as a “sever dent” in ASEAN’s credibility (Straits Times, July 14). Cambodia and the Philippines blamed the failure on each other. Cambodia was pilloried by the regional press for its lack of leadership and for putting its bilateral relationship with China before the overall interests of ASEAN. One analyst alleged  Cambodian officials had consulted with their Chinese counterparts during the final stages of talks to reach an agreement on the communiqué [2]. China’s Global Times characterized the outcome of the AMM as a victory for China, which does not think ASEAN is an appropriate venue to discuss the dispute, and a defeat for the Philippines and Vietnam (Global Times, July 16).

A few days after the AMM, Indonesian President Susilo Bambang Yudhoyono dispatched his foreign minister to five Southeast Asian capitals in an effort to restore ASEAN unity. Natalegawa’s shuttle diplomacy resulted in an ASEAN foreign minister’s statement of July 20 on “ASEAN’s Six-Point Principles on the South China Sea” [3]. The six points, however, broke no new ground and merely reaffirmed ASEAN’s bottom line consensus on the South China Sea. In response to the joint statement, China’s Foreign Ministry said it would work with ASEAN to implement the 2002 Declaration on the Conduct of Parties in the South China Sea (DoC) (Chinese Ministry of Foreign Affairs, July 21).

One of the six points calls for the early conclusion of a code of conduct (CoC) for the South China Sea, but the Phnom Penh debacle has made that target highly doubtful.

Although China agreed to discuss a CoC with ASEAN in November 2011, Beijing always has been lukewarm about such an agreement, preferring instead to focus on implementing the DoC. Undeterred, earlier this year ASEAN began drawing up guiding principles for a code and in June agreed on a set of “proposed elements.” While much of the document is standard boiler plate, there are two aspects worthy of attention.

The first is that ASEAN calls for a “comprehensive and durable” settlement of the dispute, a phrase that seems to repudiate Deng Xiaoping’s proposal that the parties should shelve their sovereignty claims and jointly develop maritime resources. Clearly, the four ASEAN claimants have rejected Deng’s formula as it would be tantamount to recognizing China’s “indisputable sovereignty” over the South China Sea atolls.

The second interesting aspect concerns mechanisms for resolving disputes arising from violations or interpretations of the proposed code. The document suggests that disputing parties turn to the 1976 Treaty of Amity and Cooperation (TAC) or dispute resolution mechanisms in UNCLOS. Neither, however, would be of much utility. While the TAC does provide for a dispute resolution mechanism in the form of an ASEAN High Council, this clause has never been invoked due to the highly politicized nature of the High Council and the fact that it cannot issue binding rulings. Moreover, although China acceded to the TAC in 2003, Beijing almost certainly would oppose discussion of the South China Sea at the High Council because it would be outnumbered 10 to 1.

UNCLOS does provide for binding dispute resolution mechanisms, including the submission of disputes to the International Court of Justice (ICJ) or the International Tribunal on the Law of the Sea (ITLOS). China always has rejected a role for the ICJ in resolving the territorial disputes in the South China Sea and, in 2006, China exercised its right to opt out of ITLOS procedures concerning maritime boundary delimitation and military activities.

On July 9, Vice Foreign Minister Fu Ying had indicated to ASEAN foreign ministers that China was willing to start talks on a CoC in September. Two days later, however, as ASEAN wrangled over their final communiqué, Foreign Minister Yang seemed to rule this out when he stated discussions could only take place “when the time was ripe” (Straits Times, July 11). At present ASEAN and China are not scheduled to hold any meetings on the CoC, though officials currently are discussing joint cooperative projects under the DoC.

If and when the two sides do sit down to discuss the CoC, it is probable that Beijing will demand all reference to dispute resolution be removed on the grounds that the proposed code is designed to manage tensions only and that the dispute can only be resolved between China and each of the other claimants on a one-on-one basis. Taken together, these developments have dimmed seriously the prospect of China and ASEAN reaching agreement on a viable code of conduct for the South China Sea any time soon. As such, the status quo will continue for the foreseeable future. 

Notes:

1. “Why There was no ASEAN Joint Communique,” Philippine Department of Foreign Affairs, July 19, 2012 http://www.dfa.gov.ph/main/index.php/newsroom/dfa-releases/5950-why-there-was-no-asean-joint-communique-.
2. Ernest Bower, “China reveals its hand on ASEAN in Phnom Penh,” Center for Strategic and International Studies, July 20 2012.
3. “Statement of ASEAN Foreign Ministers on ASEAN’s Six-Point Principles on the South China Sea,” Cambodian Ministry of Foreign Affairs, July 20, 2012 http://www.mfaic.gov.kh/mofa/default.aspx?id=3206.

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The yuan goes global: Money talks and London is listening to the yuan

The Chinese currency is fast gaining weight worldwide and becoming a key topic of conversation for bankers.

THE fashionable youths in hot pants flocking to high-end department stores in London and bankers in dark suits walking in and out of skyscrapers in the financial district have one thing in common, a growing interest in the Chinese currency.

During the recent holiday to celebrate the Diamond Jubilee of Queen Elizabeth II, Harrods, a department store known for its ties with the British royal family, launched its own Sina Weibo, a popular Chinese social media platform, to attract more Chinese customers. Shoppers can find “the very latest, limited edition and exclusive products”, with Hermes, Chanel and Louis Vuitton among the most popular brands, according to the store’s spokesman.

More than 100 UnionPay payment terminals in the store also help to make Chinese shoppers feel more at home. Through the machines, part of China’s unified bank card network, Chinese visitors can pay for their purchases with the same cards they use at home.

Hear, hear: A man walking past the London Stock Exchange in London. London is now a yuan offshore trading centre, which will help both Chinese and European business people to avoid foreign exchange risks. — China Daily/Asia News Network

 

A few streets from Harrods, a billboard featuring a green jade dragon shaped like the yuan symbol stands outside a bank. The ad reads: “A new global currency is emerging. Be part of it.” The commercial is for HSBC, a bank rooted in the silk and tea trade between China and Britain in the 19th century.

The UnionPay terminals, the jade dragon advertisements and the shops on the streets of London offering exchange services between the British pound and the yuan are the tip of the iceberg in the biggest story in the financial markets today: the internationalisation of the Chinese currency.

As people search for a bright spot amid sluggish economic growth in the West, beset as it is by the European debt crisis, companies, investors and financial institutions are increasingly focused on the yuan. From Beijing to Hong Kong, Tokyo to London, policymakers and businesses are part of the push.

There are several forces driving this move, both at home and abroad. The People’s Bank of China has made several moves this year to liberalise the exchange rate; George Osborne, the UK chancellor of the exchequer, took the initiative to develop London into an offshore trading centre for the yuan earlier this year; and this month, the yuan became convertible with the Japanese yen under an agreement between the Chinese and Japanese governments.

“All of it demonstrates that the Chinese government is pushing forward the internationalisation of the yuan and encouraging the use of yuan offshore. That will help the global economy in many ways,” said Adam Tyrrell, head of European capital markets for Standard Chartered in London.

Greenback to redback

These initiatives will have a profound influence on the development of trade. For instance, China and Europe are each other’s largest trading partners, but, up till now, the bulk of that trade has been settled in the US dollar. If a Chinese company buys pork from a UK company, it does not buy and sell in yuan, the pound or the euro. It settles in dollars.

That paradox is changing. Now the same pork company can open a yuan account at a British bank such as HSBC or Standard Chartered, or a Chinese bank that operates in Europe, such as Bank of China or Industrial and Commercial Bank of China, and can then invoice the goods or settle the deal with its Chinese clients in their national currency.

The advantage of this is clear: Settling in yuan helps both sides to avoid foreign exchange risks and reduces transaction costs. For instance, in 2008, many companies in southeast China had to lay off workers and close factories because they were losing money through currency appreciation.

That situation would have been different if the contracts had been signed in yuan, because the agreements would have a fixed value no matter what the change in the exchange rate.

The initiative can also benefit companies outside the European time zone, given London’s position as the world’s foreign exchange centre. “The beauty of London is not just about London,” said Patrick Law, Hong Kong-based managing director and head of trading for Greater China at Barclays. “If you look at the London time zone, it covers both the northern and southern hemispheres.” And that means it will also help facilitate business between China and Africa and the Middle East.

“Africa is a very interesting market to look into because China and Africa have a lot of business together,” Law said. He added that Barclays, a bank with strength in commodity trading, began to conduct trade between the South African rand and yuan from April.

Uncle Sam to dim sum

The internationalisation of the yuan will also offer a new platform for companies and investors looking for alternative methods of financing.

The “dim sum bond” got its name from delicacies in Chinese cuisine such as spring rolls, shrimp dumplings and steamed buns. The name has been appropriated for fixed income denominated in yuan and was started in Hong Kong when the city became the first offshore centre for yuan trading. The bond has become increasingly popular outside Asia and grew rapidly in Europe last year, according to Standard Chartered’s Tyrrell.

British banks were involved in five dim sum bond deals with European companies and financial institutions last year. It has also been involved in three client deals so far this year, according to Tyrrell: “Over time, as the yuan is used more, more European corporations and financial institutions will be interested in transacting in yuan, either for their China business, when they can remit onshore, or as a way of diversifying their investor base.”

The motivation for getting involved in dim sum bonds is also changing, he said. When the yuan market first developed offshore, a lot of investors were looking for a currency play rather than a bond play. At first, investors were looking to invest in the currency because they thought it was going to appreciate.

“Over time, it is developing into a more mature bond market,” said Tyrrell. “It will tend to be more driven by traditional bond market influences.”

Chances and problems

That’s particularly true this year, because of the fragile state of the global economy. If the investor sentiment is not there, there will be fewer bond issuances, according to Tyrrell. “There is definitely momentum in the yuan. It will not stop. It will grow,” he said.

Given the fact that the yuan is still not fully convertible, there is still a lot of work to be done to encourage people to hold it and conduct business with it, as they do with dollars.

The main issue for London as it attempts to develop into an offshore yuan trading centre revolves around the lack of liquidity. That’s due to both a paucity of knowledge about the yuan market and the limits of infrastructure to facilitate trade flows.

“Without liquidity, we cannot grow the pie and make the market more efficient,” Law said. “Everybody is definitely very interested. The current situation is that people have just started looking into it,” he said. “The involvement is still relatively small, but the amount of interest is actually very high.”

Some observers have suggested that the pool of yuan liquidity in London can grow through a huge variety of sources. For instance, Standard Chartered recently issued yuan-denominated European Commercial Paper to investors in Europe.

“ECP is issued to investors. Then Standard Chartered holds the liquidity in yuan and can use that for trade finance. This will help to increase trade flows with China for European clients,” Tyrrell said.

“As investors become more comfortable holding yuan, it will help build liquidity here.”

By Diao Ying, China Daily/Asia News Network

China pledges to work with ASEAN to safeguard peace in South China Sea

BEIJING: China pledged Friday to make joint efforts with the Association of Southeast Asian Nations (ASEAN) to safeguard regional peace and stability after the 10-member bloc issued a six-point statement on the South China Sea.

"The Chinese side is willing to work together with the ASEAN members to implement the Declaration on the Conduct of Parties in the South China Sea (DOC) comprehensively and effectively," Chinese Foreign Ministry spokesman Hong Lei said in response to a question on the ASEAN statement.

In the statement issued earlier on Friday, the ASEAN members reaffirmed their commitment to the "peaceful resolution of disputes" in the South China Sea. Analysts said the six-point principles were reached to make up for the lack of a customary communique after a foreign ministers' meeting last week.

In an unprecedented development, the 45th Foreign Ministers' Meeting of the ASEAN was not wrapped up with the release of a communique showcasing common ground.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Qu Xing, head of the China Institute of International Studies, told Xinhua that it was Vietnam and the Philippines that should be blamed for the failure to pass a communique last week.

"The two countries attempted to turn the disputes between them and China into a problem between China and ASEAN as a whole," he said, "which was unacceptable for the other members of the bloc."

"The Chinese side has noticed the ASEAN's statement on the South China Sea (on Friday)," Hong said, adding that the core problem of the South China Sea was the disputes over the sovereignty of the Nansha islands and the demarcation of the islands' adjacent waters.

"China has sufficient historical and jurisprudential evidence for its sovereignty over the Nansha islands and the adjacent waters," he added.

However, Hong said China is open to consultations with the ASEAN on the conclusion of a Code of Conduct in the South China Sea.

"(We) hope that all the parties will strictly abide by the DOC and create necessary conditions and atmosphere for the consultations," he said.

As a signatory to the United Nations Convention of the Law of the Sea (UNCLOS), China attaches importance to safeguarding the principles and mission of the Convention, said the spokesman.

Hong said UNCLOS is aimed to establish a legal order for the seas and oceans "with due regard for the sovereignty of all States," and it does neither serve as an international treaty to address disputes over territorial sovereignty between states nor as evidence used to judge over the disputes.

The countries concerned should address the disputes over the maritime demarcation in the South China Sea, after the land disputes have been resolved, in accordance with historical facts and all international laws including UNCLOS, he added.

"China attaches importance to its ties with the ASEAN," Hong said, adding the country is committed to promoting friendly neighborhood and reciprocal cooperation with the ASEAN to push ahead with the cooperation in East Asia with joint efforts.

The spokesman said China and ASEAN share common interests and responsibilities in keeping Asia's development and maintaining regional peace and stability against the backdrop of the ongoing international financial crisis.

"The two sides should continue to promote their strategic communication in pursuit of a reciprocal and win-win situation, with mutual respect and trust in mind as well as handle the relationship between the two sides from strategic and long-term perspective," he added.

 Related:

China to deploy military garrison in South China Sea

GUANGZHOU, July 20 (Xinhua) -- China's central military authority has approved to form and deploy a military garrison in the newly established city of Sansha.

Sources with the People's Liberation Army (PLA) Guangzhou Military Command said Friday that the Central Military Commission (CMC) had authorized it to form a garrison command in the city.Full story

ASEAN forum not proper platform to discuss South China Sea issue

BEIJING, July 11 (Xinhua) -- As the foreign ministers of the 27 participating parties of the ASEAN Regional Forum (ARF) meet in Phnom Penh on Thursday, many eye the talks as a platform to ease the tension over the South China Sea, which has flared up in recent months.

However, analysts say the attending parties are likely to be more interested in forging closer ties than focusing on differences that concern only a few members.Full story

Editor: Chen Zhi, Xinhua

Related post:
Asean has no reason to panic

Asean has no reason to panic

Asean is younger than its member nations, so teething problems as it continues to mature are no cause for alarm.

ASEAN’S set pieces following its meetings have become so predictable as to provoke panic when a blip in the set routine appears unexpectedly.

That happened with the anticipated joint communique following the ministerial meeting in Phnom Penh a week ago. This was the first time a communique was not issued, after disagreement over the text between the Philippines and host Cambodia on Manila’s territorial squabble with Beijing.

That was enough to set tongues wagging, pens wriggling and keyboards clacking about a presumed “turning point” in Asean and even speculation about its imminent demise.

Asean proceedings have traditionally been weighed down by diplomatic gobbledygook just because everyone expects such statements to be issued. What later happens in the conduct of member states, however removed from the spirit and content of the communiques, then becomes quite irrelevant.

Yet the substance of statements issued should be more important than the fact of issuing just any statement. After all, Asean is supposed to be more about political process than mere diplomatic procedure.

Therefore, not issuing a collective statement after this month’s pow wow among foreign ministers is better than issuing a meaningless statement just for the sake of issuing something. It makes no sense to produce a statement in the absence of a joint agreement about what it would say.

As it happened, not issuing a joint communique amounts to an indirect statement on the different positions taken by some members, in this case the hotly disputed claims on island territory between the Philippines (and to some extent Vietnam) and China.

Ironically, the Phnom Penh meeting was supposed to consolidate efforts at establishing an Asean community by 2015, as well as to reaffirm blossoming relations between Asean and China.

It may have failed at delivering either, but simply deviating from the norm by not perpetuating a scripted, choreographed and rehearsed custom regardless of circumstances is not a failure of Asean. Nonetheless, the apparent detour from the objectives of this year’s ministerial meeting was enough to turn surprise into shock for many.

Traditionally criticised for saying little and doing even less with boring predictability, Asean is suddenly seen as risking the unprecedented. Its critics should now make up their mind about the nature of their criticism, because they are beginning to contradict themselves.

The other irony concerns the Asean style itself. The regional organisation has long been assessed less by what it says in communiques than what it leaves unsaid, and understood less by what it does than what it obliquely skirts doing.

Thus going by its record, the decision not to issue a communique may be deemed doubly and traditionally Asean. Yet it was taken to be untypical of Asean.

Cynics predicting doom-and-gloom scenarios for Asean forget that its watchword has always been “resilience”, as supported by its near-half-century record. Asean is made of sterner stuff, to which its experience testifies.

But Asean is also not immune to the pitfalls of complacency. Failure to do what is needed now can escalate current challenges and lead to more problems in the future.

For what it is worth, Indonesian President Susilo Bambang Yudhoyono swiftly dispatched Foreign Minister Dr Marty Natalegawa to four Asean capitals, including Kuala Lumpur, to try to cobble together some kind of a belated joint communique.

That may be possible but unlikely, since foreign ministers who refused to be accommodating while together at an official meeting would be even less inclined to compromise when back home. Even if such a statement materialises, it would just be “in absentia” of the assembled ministers, now dispersed, and not a statement “posthumous” of Asean.

Meanwhile, news and commentary about the lack of a communique have overshadowed the issues behind it. And it is not only the absence of a communique that can be seen as untypical of Asean.

Manila and Hanoi had come into the meeting room after a recent diplomatic spat with China over competing territorial claims. Despite the ministerial meeting covering various other matters, the Philippines and Vietnam insisted that their problems with China be included in the text of the joint communique.

Cambodia, as host, refused as it saw this as unbecoming and inappropriate. Only half of the 10 Asean members have disputes over island territory with China, with the dispute in question over Scarborough Shoal/Huangyan Island involving only one Asean country, the Philippines.

Philippine Foreign Minister Albert del Rosario then openly accused his Cambodian counterpart Hor Namhong of “consistently defending China’s interest.” Point number two in being untypically Asean.

The ill will created extends beyond the scope of any Asean conference. Its import and impact have already spread beyond the few countries involved.

No country can claim victory or savour any sense of satisfaction from these developments, because they work to the detriment of all. There is also the additional risk of some countries misreading the situation to even worse effect.

China had a pie in the face when it began the conference, as an Asean dialogue partner, by celebrating the new priority of taking relations with Asean to greater heights. If it is seeking any consolation from a divided Asean, it will find itself gravely mistaken.

The Philippines is also finding that it has fewer “allies” in this imbroglio than it would have liked. Thailand had already warned it would not let bilateral differences with China upset regional ties with Beijing, while a caucus of retired diplomats in Indonesia criticised the Philippines for being “blunt” and “very un-Asean.”

The other Asean countries are not exactly behind Manila, and likewise some Filipino commentators. Even Vietnam, despite its inter-state disputes with China, has always had quieter, positive inter-party ties as fellow communist nations.

In contrast, the Philippines has only a treaty with the US. That can make matters worse through emboldening Manila in rash actions, or initiating major power conflict in the region.

Now President Benigno Aquino III has passed the handling of the issue from del Rosario to Ambassador Sonia Brady in Beijing to handle more diplomatically. A sense of realism may yet dawn after all.

In the meantime, changes in the region include some that question old ideological allegiances. Diplomats and policymakers need to be sensitive to such developments to respond accordingly.

Not only does Vietnam have serious differences with China, Myanmar may also begin to do so on separate bilateral matters. At the same time, Taiwan increasingly feels at one with China over claims on territory disputed by other countries, such as the one with the Philippines.

Beyond all the conflicting claims, some realities remain.

Asean is only 45 years old as a regional organisation in the global community of nations, so more differences between members are likely to appear in future. These should not be a problem as long as they are manageable.

Disputes are also best settled, or can only be settled, through negotiations or arbitration. Souring the atmosphere by making diplomacy difficult only makes things worse for everyone.

With China, it has been said that upping the ante only strengthens the hand of hardliners in Beijing. Most Asean countries are wise enough to steer clear of that approach, however much of a rush it may give some politicians playing to the gallery at home.

Behind The Headlines By BUNN NAGARA

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Japan-China Territorial Dispute is Serious, and Escalating!

The Prime Minister’s residence in Tokyo has a “war room.”  During the a.m. hours of July 11 the room was bustling as government and Japanese

Self Defense Force officials studied intelligence and heard briefings on intrusions of three Chinese navy ships into waters around the Senkaku Islands (Diaoyutai Islands) claimed by Japan as its “exclusive economic zone”  (EEZ).

The three Chinese ships had entered Japan’s EEZ waters after 4 a.m. on the 11th.  They were met, followed, and ordered out of the EEZ by Japanese Self Defense Force ships.  They finally departed just after 8 a.m.

Later in the day, Japan’s deputy foreign minister summoned the Chinese ambassador to the Ministry of Foreign Affairs and delivered a formal protest over the Chinese “intrusion.”

At the time, Japan’s foreign minister, Gemba Koichiro, was in Phnom Penh attending the ASEAN foreign ministers’ summit.  That day, the 11th, Gemba met in a hotel with Chinese foreign minister Yang Jiechi.  The meeting was scheduled to take 30 minutes.  It continued for 50 minutes.

This could not have been a pleasant meeting.   Very likely, it was lacking in the normal diplomatic decorum.  Seemingly overnight, Japan-China relations have turned icy, bitter, and emotionally charged.

The Gemba-Yang meeting was the first since Prime Minister Noda announced on July 7 that it had become Japanese policy for the central government to purchase the uninhabited Senkaku islands–now privately owned by Japanese interests and administered by Okinawa prefecture–that are also claimed by China, which calls the chain “Diaoyutai.”

Gemba’s talking points with Yang were scripted by Noda who had told reporters on July 7:  “There can be no doubt that the Senkaku Islands are part of Japanese territory, both under international law and from a historical point of view.  The Senkakus are under the effective control of our nation, and there is no territorial issue with any country over the islands.”  (The Yomiuri Shimbun, July 8.)

How Yang responded we can only guess.  We can imagine that the two men talked—or shouted—past each other, uttering almost identical, conflicting positions.

The incursion of the three Chinese vessels was plainly a response to Noda’s announcement, and a signal from China that “nationalization” of the islands by Japan would be met by further escalation.

Tokyo mayor Ishihara Shintaro first touted in April the idea of purchasing the islands, now owned by a man from Saitama prefecture, by Tokyo municipality.  Since then he has continued to advance this idea, setting up a special team in the Tokyo government under his direct control, and raising donations from around the country that reportedly now total more than JPY 1.3 billion (USD 165 million)

Ishihara’s announcement drew a furious response from Beijing.  Also, a public comment from Japan’s ambassador to China, Niwa Uichiro, a former president of one of Japan’s largest general trading companies (sogoshosha), C. Itoh & Co.

“If Ishihara’s plan is implemented, it will produce a crisis in Sino-Japan relations. We cannot let it ruin everything we’ve done in past decades,” Niwa was quoted as saying by the Financial Times on June 7.

This statement raised hackles in nationalist circles and in both major Japanese political parties.  To hard-liners, such a statement displayed weakness and lack of resolve, and sent the wrong message to China.

PM Noda seems to have hoped to quell some of the controversy and unify Japan’s response by “centralizing” Ishihara’s initiative and making it a national government initiative.

The confrontation between Japan and China on the Senkaku/Diaoyutai issue has escalated to a truly dangerous level.  Objectively it must be stated that it has been Japan that has done the most to raise tensions.  Further escalation cannot be in the interests of either side.  While his leadership in domestic policy matters has generally been laudable, even brilliant, in relations with China on this issue he seems captive to interests that would lead Japan into a trap.

When Japan and China established diplomatic relations in 1972, Premier Zhou Enlai agreed that the issue of Daiyutai (Senkaku) could be put to one side until the time for resolution “was ripe.”  In 1978, when the two countries concluded an historic peace treaty, Deng Xiaoping said of the issue that it could be settled by “our children and grandchildren.”

Japan seems compelled to force the issue with China, while China would very likely be satisfied to live with the status quo, as long as Japan would acknowledge that it too has a claim on the islands and surrounding area.   Diplomatic negotiation of some kind of modus vivendi and mutual efforts at resource development and safe-guarding navigation would be possible on this basis.

Nothing so positive seems likely under current trends.  Quite the opposite.  Increasing, and increasingly dangerous, confrontation seems to lie ahead.

By Stephen Harner, Forbes Contributor

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'No’ to property price speculation

Excessive Asian property price appreciation may be over for now

PEOPLE generally like to invest in properties. It is easy to understand you buy a house. It is a simple, tangible investment. It is long term and financing is usually easy. Most people tend to have positive experience after buying their first home, which normally would appreciate after a decade or two.

Simple things can morph into complex series of events. Buying houses may turn to speculation, massive speculations become a boom and bust “housing bubble”; banks may collapse from huge bad mortgages, a financial crisis and then a government bailout ensues, an economic recession soon follows. These events sound a little too familiar.

Low interest rates, massive liquidity and investors shying away from volatile stock markets, are some of the many reasons cited for Asia's potential property bubbles today. From 2009 or so, private residential properties have seen large average price jumps in China (Beijing +100%), Hong Kong (+53%), Singapore (+53%), Malaysia (+21%) and Indonesia (Jakarta +14%).

Asian policy makers have taken many pre-emptive actions to control this property “bubble”, usually by regulating excessive speculation and guiding mortgage lending by banks. In Hong Kong, policy makers try to discourage speculators by raising special stamp duty for short term resale of residential property (5% to 15%, depending on holding period); in Singapore, measures include a hefty extra 10% stamp duty on purchase price for non-residents. In Indonesia, there's a maximum 70% property loan limit.

Recent data suggest such curbs did not slow the Hong Kong or Singapore property markets for long. Transactions or prices picked up again recently. We believe however, if Asian property prices rise rapidly again, tougher curbs may be in the cards. The slew of increasingly tough measures in China the last 18 months is seen as an example. An avalanche of curbs eventually made China home prices dip for eight straight months up to May 2012.

Historically, financial crisis in many countries (Japan 1991, US 2008 and Spain today) are caused by property price bubbles bursting hurting consumers, banks and businesses. Therefore, it makes a lot of sense to have responsible lending.

Asian policy makers, having learned bitter lessons from the 1997/98 financial crisis, sees pre-emptive measures to control any potential property “bubble” as crucial to avoid banking problems or crises.

Governments in Asia on the one hand want to curb excessive price speculation, while at the same time, know that home ownership is a very important (and personal) issue notwithstanding it is also a big contributor to domestic economic growth.

What Asian policy makers aim to do is best captured in a Chinese phrase, which literally means “in peace time, think about danger”. The best time to prepare for rainy days is when the sun is shining it's a lot harder to do so in a storm.

The biggest challenge for policy makers is to develop a sustainable property sector and promote home ownership (especially first time house buyers) without boom and bust. That includes the balancing act of curbing property speculation without inadvertently pulling the brakes on the economy.

Some Malaysian non-listed property developers I met recently have expressed deep concerns that sales of their high-end, new condominiums are lagging, because buyers find it difficult to get financing.

Bank Negara's curbs on lending for third property mortgage (maximum 70% financing) and stricter banks credit standards appears to be working for now.

The intent of Bank Negara, we believe, is to nip excessive property price speculation in the bud. Current property curbs ensure at least prices don't run up too fast and banks may allocate more funds to first time house buyers rather than investors or speculators.

Interestingly, property developers who don't complain about curbs are often the established ones who prefer sustainable growth, rather than a boom and bust property market. I believe many property companies have learnt not to borrow too much.

Tellingly, the top five Malaysian listed property developers have reduced average net gearing from 70% in 2000 to 18% in 2011, (Indonesian and Thai property developers reduced from 612% to 9% and 255% to 84% respectively). Asean property companies today are undoubtedly less leveraged with healthier cash reserves.

That's one reason why most property developers in Malaysia, Indonesia and Thailand for example, are not rushing to unload properties at massive discounts, even as property curbs bite into sales. They know current measures are temporary and consumer demand is likely robust for quite some time.

Asian consumers are financially better off today. Healthy employment and wage increases across Asia means consumer demand for housing will likely stay buoyant and house prices, like in normal times, will gradually rise over time.

However, the intriguing impact on Asian properties today given the mind set and propensity of policy makers to pre-empt any potential property bubble I believe periods of excessive property price appreciation in many Asian property markets may already be over for now.

I believe policy maker's curbs on excessive price speculation is a right policy. Even if there's short-term pain, it will likely make Asian economic growth sustainable for the longer term in these difficult times.

Singular Vision
By TEOH KOK LIN

Teoh Kok Lin is the founder and chief investment officer of Singular Asset Management Sdn Bhd.