China is the main show

Martin Jacques shares his views on the growing clout of the world’s second largest economy.

AUTHOR and academic Dr Martin Jacques released an updated and expanded second edition of his widely acclaimed book, When China Rules The World: The End Of The Western World And The Birth Of A New Global Order, earlier this year.

During a recent visit to Kuala Lumpur when he attended an Asian Centre for Media Studies event, Jacques (pic) spoke to The Star about his book and its approach to the subject. Some excerpts:

How is the second edition different from the first?

Time. Because China is growing so quickly, China time is fast. There’s been a lot of updating throughout the second edition.

When I wrote the first edition, the 2008 (US-centred) financial crisis had just happened. The last chapter is about the crisis, which was little commented on before.

The second edition looks at the beginnings of a Chinese economic world order.

How far is the second edition a response to critics of the first?

I don’t think what I’ve done is a response to the critics. The inaccuracies in the first edition were very few, and I’ve certainly responded to those.

There was a bit of a jump in the argument between the rise of China and its relations with other countries.

Here I look at not just China-US relations, but the rise of developing countries generally, of which China is a part.

I use the phrase “rule the world” as a metaphor. I’ve learned a lot from meetings and discussions.

There was never much in the first edition I wanted to change. The structure of the book is basically the same.

Do you see China’s rise as continuing into the future?

Yes, definitely. Along the lines of the book, without any doubt whatsoever.

How might a new China-centred tributary system emerge in East Asia?

There are echoes of a tributary system. The most obvious return to that is the rise of China.

East Asian economies today are much more China-centric. There’s the fact we’re now moving to a new China-centric system.

China is probably the most important market for countries in the region, for trade and investment, with its high-speed rail links, and so on. Getting on with China will be absolutely crucial for countries in this region.

Can economic dominance translate into clout in other spheres?

If China is economically dominant, that gives it a great deal of influence over other countries.

The draw of China will be that much greater. China will be a huge cultural presence in the region.

Lots of people in this region will study in Chinese universities. Beijing will be a tremendous draw.

You can see that in the flight patterns of Malaysia Airlines, for example. Previously, Malaysians travelled to Britain, not so much to other East Asian countries; it would be interesting to see the changes.

The attraction of Shanghai will be that of a big city like New York. People are attracted to power.

We’ll be much more familiar with Chinese governance and institutions. From being a mystery, they’ll be familiar; we were used to the United States before, but much more with China (in future).

What of Greater China, the mainland, Hong Kong, Macao and Taiwan?

All the ties will get stronger.

Hong Kong will remain very much as now, I don’t expect it to change. It will become increasingly integrated (with the mainland) and Sinicised, and (still) in many senses not very Chinese.

I would expect Taiwan to move ever closer to China. Taipei feels it has nowhere to go except closer to China.

There are already a large number of Taiwanese working in China. There has been growing economic integration.

Over the next 20 years, Taiwan will probably accept Chinese sovereignty. It will come because it is absolutely the logical step.

What of the prospects of China’s collapse, as some predict?

There are gradations on the scale. China isn’t going to sail into the sunset without problems. But what I’m extremely sceptical about are predictions about the problems leading to economic meltdown and Armageddon.

Some day China may see a multi-party system, although unlikely. China may be more open, but it will still be very much Chinese.

A collapse is not impossible, but extremely unlikely.

Can China’s economic power translate into cultural influence?

It will take a long time. China is still a poor country.

Rich countries don’t aspire to be like a poor country; economic power is the basis (of cultural influence).

The Beijing Olympics is an example: China was unable to stage it 10 years before.

Since the rest of the world is not familiar with Chinese culture, the process of feeling comfortable with China culturally and politically will take a long time.

Because Chinese culture is so different from Western culture, it will take a century for the West to be familiar with it. I’m sceptical that it won’t happen.

How is China’s rise regarded by India?

India has a big problem with China, as it has a very strong view of China. India is a long, long way behind (in growth).

Indians are traumatised by China; their relationship with China is erratic, fickle and fearful. Because of the border wars, China looms very large in the Indian imagination.

The issue doesn’t disturb the Chinese, but for Indians it’s an issue. India is so far behind that the thought of overtaking China (economically) is the talk of fantasists in dreamland.

India needs to learn as much as possible from China and pursue a strong relationship with it. It needs a clear strategy in dealing with China.

India should stop this petty rivalry. At the moment there’s not much of that happening.

What of China’s relations with South-East Asia?

In historical terms for this region, 100 years (since the end of China’s dynastic rule in 1912) is not such a long time.

There is a familiarity with China in this region that is not found in other parts of the world.

This marks out relations with China as different here. Countries in this region relate with China in a multifarious process.

Laos, Cambodia, Vietnam, Myanmar are dealing (economically) with China mostly through Chinese provinces closest to them.

It’s a situation most nation states don’t allow in their regions. But Chinese provinces close to these countries will deal more with them in future.

As for relations with the United States?

It will take the US at least 10, maybe 20 years from now to treat China as an equal.

It will happen in a series of baby steps here and there, for example by treating China as a partner in the region, rather than as a problem like now.

But it won’t happen within 10 years. In certain circumstances it may happen quicker, such as a (Western) financial crisis, or it would take longer.

And Europe?

There’s been poor coverage of China in the rest of the world, mainly from ignorance. Coverage tends to be Eurocentric.

Soviet reforms under Gorbachev with glasnost (openness) and perestroika (restructuring) were well received in Western Europe. But the Soviet system could not be reformed.

China’s communist revolution had better historical roots than the Soviet’s.

What remains of the ‘Washington Consensus’ (ie, US-style economic doctrine)?

It’s dead. In the developing world, China is the main show. Why look at America?

China is actively doing (the alternative): there are general lessons in its emphasis on infrastructure, the importance of the state, of political stability, and so on.

Will there be a third edition?

I probably won’t do a third edition. It was hard work with the (second edition), being governed by the framework of the existing book.

I’d probably work on something fresh. More on the lines of “understanding China,” so that people can understand the conceptual thinking.

By BUNN NAGARA The Star/Asia News Network

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When China Rules The World: The End Of The Western World And The Birth Of A New Global Order   
Fearful of China's rise? Sep 28, 2012
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When China Rules The World: The End Of The Western World And The Birth Of A New Global Order

Book review: China is still ascendant

Author: Marc Jacques
Publisher: Penguin, 848 pages

SKEWED as they may be, reactionary Orientalist perspectives of East Asian realities remain the norm in Western punditry and news reports. The problem has become prevalent in both conservative and liberal circles.

The problem for the West itself is that such a persistent misperception of modern China may undermine Western interests further. Martin Jacques’ When China Rules The World: The End Of The Western World And The Birth Of A New Global Order is intended largely as a corrective, looking at the historic phenomenon of China’s grand return to the global stage in China’s own terms.

My review of the first edition of Jacques’ book appeared earlier in China awakens (Star Bizweek, Oct 3, 2009). The present consideration is of the second edition published by Penguin earlier this year.

The first edition was subtitled The Rise Of The Middle Kingdom And The End Of The Western World. The second edition, suggesting an evolution, is subtitled The End Of The Western World And The Birth Of A New World Order.

Jacques and Penguin are just as grandiose now as before. The titling remains as presumptuous and alarmist, at least to Western conservatives, and no apologies are tendered in that regard.

The title itself can be a problem for those who judge a book by its cover. Jacques does not believe that China or any other country can “rule” the world today, only that China and things Chinese would predominate globally.

The second edition contains new data and a new section in the Afterword. For Jacques, international developments in the three years between the two editions only confirm and strengthen his central themes.

His chief arguments remain intact: that China will be dominant economically and culturally, it will not essentially be Westernised, and China will be ascendant despite multiple challenges.

This rise, mainly economic but also in other spheres later, is of epochal proportions. China’s ascendancy would result from both its own efforts and the decline of the West simultaneously.

The 2008 recession in the United States, followed by economic doldrums there and the European sovereign debt crisis underline the situation impeccably. In contrast, China’s GDP growth continues, affected only minimally.

Like many others, Jacques believes that China’s current growth model based on cheap labour and global raw materials is unsustainable. For example, China would need to stimulate more domestic demand to compensate for a slackening of overseas markets.

The latest data show that more and more countries have now made China their main trading partner. And as with trade, increasingly so with investment.

Thus, China’s economic gravitational “pull” is becoming unerring and compelling. Not only has China swiftly replaced Japan as the world’s second-largest economy, its relationship with the United States has replaced Japan’s as the most important bilateral relationship across the Pacific and in the world.

Analysts impressed with China’s economic growth once expected it to surpass the US economy in a couple of decades. But that timeframe has shrunk.

In 2009 Jacques cited the Goldman Sachs prediction that China’s economy would overtake the US’ by 2027. Sceptics scoffed.

In this second edition, he cites The Economist’s projection that the Chinese economy will become the world’s biggest by 2018. Now the International Monetary Fund predicts the year will be 2016.

But even when that happens, China will still be a developing country with vast human resources yet to reach peak productivity. That means when China’s standard of living approaches that of the US, with a comparable GDP per capita, its economy will be two to four times that of the US today.

Unlike many China pundits, particularly critics, Jacques believes China will not succumb to the weight of its own promise. He does not accept that China has to Westernise or democratise before it can fully develop and prosper.

Jacques also rejects the alarmist Western notion that today’s China is re-arming aggressively. He finds Chinese defence expenditure as a proportion of GDP falling between the 1970s and 1990s, and since then only keeping pace with GDP growth.

As expected, the very people he seeks to inform are often those who spurn his information. Jacques attributes this Western stubbornness to a mixture of unfamiliarity, ignorance, prejudice, denial, stereotyping, racism and Cold War ideology against a non-Western country that is communist, at least in name.

With such unwieldy baggage, the nuances and subtleties about China are naturally lost on the bigots. For Jacques, China is a continent-sized civilisational state whose history has seen upheavals and expansion on its Asiatic land mass, but not military adventurism in a littoral and archipelagic East Asia.

In response to critics of an increasingly powerful China, Jacques does not see China as a global superpower. He finds China historically absorbed in its own internal governance as it is a very difficult country to govern, its trajectory will continue to be tempestuous, but it is still a complex and sophisticated state and the home of statecraft, so it cannot simply be dismissed with an epithet like “authoritarian”.

For example, while critics fret over the People’s Liberation Army and the PLA Navy, it is China’s Coast Guard rather than the military that is a key player in the disputed island claims. Jacques finds no less than seven uncoordinated Chinese agencies involved over these claims.

A key question in the book is whether the United States will allow China the space to be a major player in Beijing’s own regional backyard. Jacques finds that unlikely, while also convinced that US efforts, such as its “pivot” to contain China, will ultimately fail.

This book still has major gaps that need filling. A central theme is that China’s coming predominance will be different from that of Western colonialism, but how different and in what ways?

Jacques also envisages an updated revival of the tributary system in East Asia, in which all the smaller countries acknowledge their junior status with regard to China. But what form will a revised tributary system take?

Another key point is China essentially being a civilisational state rather than just a nation state like other countries. But what can this mean in practical policy terms, particularly in China’s relations with other countries?

Such answers are essential to an intelligent understanding of a rising modern China. But we may have to wait for a new book by the author for further illumination, because any answers are unlikely to be accommodated by the structure of the present work, notwithstanding its already intriguing insights.

The first edition was already a vast interdisciplinary work of far-reaching implications, and the second version even more so. Few analysts as authors have achieved what Jacques has: combining the depth and rigour of academia with the readability and vigour of journalism in a single volume on a subject of great topicality.

The result is a serious and interesting textbook which, despite its 800+ pages, has sold a quarter of a million copies (and counting) in a dozen languages in its first edition alone. His critics have yet to match that kind of appeal in whatever they have to say.

Review by BUNN NAGARA
star2@thestar.com.my

> Bunn Nagara is an associate editor at The Star.

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Taman Manggis land issue in Penang, a ‘Robin Hood story' or soap opera?

The twists and turns in the Taman Manggis land issue in Penang is starting to resemble a soap opera but it has also raised the question of whether the legal procedures are observed in the sale of state land.

THE showdown over a plot of land known as Taman Manggis or “mangosteen garden” in the heart of George Town is about to erupt in another slanging match on Nov 3.

Dubbed by some as the “Robin Hood story”, the Taman Manggis land has become one of the most controversial issues in Penang.

It has also become a rather entertaining saga of gamesmanship between Chief Minister Lim Guan Eng and his political secretary Ng Wei Aik on one side and the state Barisan Nasional Youth on the other.

The 0.4ha of land had been designated for affordable housing but before the project could take place, Barisan was toppled.

Lim’s administration has since reportedly sold the land for RM11mil to a Kuala Lumpur company that is planning to build a health tourism facility that includes a private dental hospital and hotel on the site.

That was how the Robin Hood thing came about, but with a twist where Barisan is accusing the Pakatan Rakyat government of being a distorted version of Robin Hood by taking land meant for the poor to give to the rich.

When Barisan accused the state government of selling the land at below market rate, Lim challenged it to buy the land for RM22.4mil. Lim probably thought Barisan would not take up the dare. After all, RM22.4mil is not small change.

But Barisan agreed and announced that it had set up a special purpose company to buy and develop affordable homes on the land.

Caught on one foot, the state government was forced to respond and Ng issued an offer letter to Barisan. And that was when the soap opera began.

The Barisan side led by its State Barisan Youth chief Oh Tong Keong proceeded to pay 1% earnest money as is called for in such transactions.

The next step, as anyone would know, is for the lawyers from both sides to draw up a sales and purchase (S&P) agreement.

Once that is signed, the buyer would pay the balance of the requisite 10% and depending on the terms and condition, the full amount is usually paid within three months or more.

This is to enable the buyer to raise funds or secure a loan from the bank.

However, following the 1% payment, Lim demanded that the Barisan pay up the rest of the amount within a month.

The outlandish demand saw a few jaws drop on the Barisan side. First, it is not possible for Barisan to cough up that kind of money in so short a time.

Another was the audacity of the demand.

“There is no S&P agreement in sight and the seller is demanding the full amount. Do they understand the laws of transaction? Without an S&P agreement, no one would want to pay RM22.4mil,” said architect Khoo Boo Soon.

Khoo, who was the former building director of the Penang Island Municipal Council (MPPP), is quite appalled at the frivolous way that state property is being treated.

He is incredulous that state land is being sold based on an offer letter by a political secretary on the instruction of the Chief Minister.

“I have been a government servant for more than 17 years. As far as I know, land transactions have to be discussed and decided by the state exco, the state legal adviser has to be consulted, the state secretary has to be involved. It cannot be a one-man decision, both parties need to sign an S&P agreement,” said Khoo.

The Barisan side was more direct. “This is government land, it belongs to the people. The land does not belong to the Chief Minister’s grandfather. We are not buying a bicycle or a car, this is about public land costing millions of ringgit,” said Oh.

The Barisan side had on Oct 3 written to the state government requesting for an S&P agreement before they proceed to pay up the rest of the money.

On Oct 8, the state secretary wrote back asking them to refer to the offer letter and to pay up within a month.

To compound this half-past-six state of affairs, rumours abound that the land has actually been sold to the Kuala Lumpur company.

No one can tell for sure because the state government has been tight-lipped about the issue.

Requests for information on the actual status of the land has run up against a stone wall.

On top of all that, the house that Lim is renting in Penang reportedly belongs to the wife of the major stakeholder of the Kuala Lumpur company.

The lady is also the cousin of state exco member Phee Boon Poh. The implication of all this is unclear but it does add spice to the story.

Many people following this soap opera are quite confused but that is what makes soap operas so addictive – there are lots of twists and turns.

The more discerning think Lim has no intention of selling the land to Barisan, hence the conditions and obstacles put in the way.

Some suspect the delay tactics are aimed at making Barisan give up.

But it would be a blow to Lim’s administration if the Barisan people actually purchased it and proceeded to build low-cost housing.

Lim would lose face, particularly given that his administration has failed to build any affordable housing since coming into power.

To make matters worse, this is happening amid an inflated property market on the island and where house prices have soared beyond the reach of 80% of wage earners.

Lim should be transparent about the issue. If the land has been sold, he should admit it.

If it is still in the state’s hands, then he should do the decent thing and use it for its original purpose.

Instead he is angry at being criticised and is punishing those who want to build affordable homes by doubling the price of the land.

A Penang lawyer said he is not surprised about the “Robin Hood issue”.

“What shocks me is the silence on the part of the Penang NGOs. They used to be so vocal on issues affecting public interest,” said the lawyer.

In the meantime, the countdown to Nov 3 has begun.

ANALYSIS BY JOCELINE TAN The Star/Asia News Network

P/S:  Landlady of CM’s residence is not wife of company stakeholder

Regarding the Taman Manggis land, the Star and State exco member Phee Boon Poh clarified yesterday that the woman in question is his cousin, she is not married nor is she the wife of the company stakeholder.

“My cousin and the stakeholder are just business partners,” he said.

The Taman Manggis land which had been designated for low-cost housing by the former Barisan Nasional government, became an issue when the Lim administration decided to sell it to a Kuala Lumpur company to develop a health tourism facility that includes a private dental hospital, hotel and multi-storey car park.

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Land sold for a song? Aug 11, 2012

Malaysia taps into the growing importance of the redback:Yuan

The Society for Worldwide Interbank Financial Telecommunication says yuan usage worldwide grew 15.6% between July and August this year.

MALAYSIA’S love affair with the yuan or renminbi is growing, and it is easy to see why.

For one thing, China’s economic clout is rising. It is now the second largest economy in the world, and with ongoing financial reforms by the Chinese government, the yuan is expected to eventually rise to match the country’s economic stature.

For another - and more importantly - China has, in recent years, been growing to be an increasingly significant trading partner to many economies in the world, especially in Asia, including Malaysia.

Bilateral trade between Malaysia and China, for instance, is now seven times higher than it was 20 years ago.
And China has emerged as Malaysia’s largest global trading partner since 2009.

Last year, Malaysia’s total trade with China was valued at RM167bil, up 14% from the preceding year, and accounting for 14% of the country’s total trade.

The Government expects the value of Malaysia’s total trade with China to double in the next five years.

China’s rising prominence, in Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz’s words, presents “a new operating environment” that requires “dynamic response”.

At a recent seminar entitled “Renminbi Trade Settlement and Investment”, Zeti said one of the changes that would shape the international financial system in the years to come was the wider role of the yuan in trade and finance.

As it is, such trend is already taking shape, with yuan usage across the world increasing progressively.

Wider yuan usage 

According to Society for Worldwide Interbank Financial Telecommunication (SWIFT), yuan usage worldwide grew 15.6% between July and August this year, compared with an average decrease of 0.9% across all other currencies. SWIFT further noted the yuan has moved up one position to be the 14th mostly used world currency, with a market share of 0.53%, up from 0.45% in July 2012.

Standard Chartered plc’s report supports claims that the global use of yuan is on the rise, for trade settlement, in particular.

The international bank notes that Asian and European firms, led by those from Singapore and London, are increasingly open to using yuan.

“We see many European and Asian clients shifting away from settlement in US dollars,” Standard Chartered’s Hong Kong-based foreign exchange analyst Eddie Cheung wrote in his report.

Reports by foreign media suggest that yuan trade settlement could run between US$350bil and US$450bil this year, up from US$300bil last year.

It is understood that China is also quietly working on developing new yuan financial centres around the world to expand the international use of the currency.

At present, Singapore and London are the only cities outside Hong Kong that have been allowed to serve as yuan trading centre. China is reportedly planning for the next regional hubs for settling trade deals in yuan to be set up in Latin America and the Middle East.

As part of an initiative to encourage a wider use of its currency and to manage volatility in uncertain economic times, China has been actively seeking to establish ilateral swap agreements with foreign central banks since the onslaught of the global financial crisis in 2008.

To date, China has managed to set up 20 bilateral local currency swap agreements, worth a total of 1.6 trillion yuan (RM780bil), with central banks of countries within and outside of Asia.

This list includes Malaysia, South Korea, Iceland, Argentina, Pakistan, the United Arab Emirates, Turkey and Australia.

China’s bilateral swap agreement with Malaysia is worth 180 billion yuan.

Zeti notes that Malaysia’s trade settlement in yuan is still at a paltry 1% of the country’s bilateral trade with China. “There is, therefore, a significant potential for this to increase,” she says.

Bank Negara is currently on a mission to promote a wider use of yuan for trade settlement and investment among Malaysian corporations as a way to generate cost savings and minimise exchange rate risks.

“A wider use of yuan is only a natural progression, led by China’s rapidly expanding trade volume and its increasing role as the driver of global economic growth,” explains RAM Holdings Bhd group chief economist Dr Yeah Kim Leng.

“For Malaysian businesses with yuan obligations, the shift to the use of yuan will provide a natural hedge and help them reduce risk and lower cost,” he adds.

According to Zeti, Malaysia’s interest in yuan is also notable in the investment option, with yuan deposits in the country’s banking system having tripled within the first seven months of this year.

Focus on Dim Sum bonds

Meanwhile, there is also an ambition to promote Malaysia as the next hub for yuan-denominated debt (or popularly known as “Dim Sum bonds”) in Asean after Singapore. This is led by the growing interest in raising financing in yuan to meet funding requirements.

“Malaysia is well-positioned to realise this growth potential in yuan-denominated bond and sukuk, given our market size and supporting infrastructure,” Zeti argues.

She, however, says the number and timing of yuan-denominated bond and sukuk issuances will depend on the approvals of Bank Negara and the Securities Commission.

To date, there are only two issuances of offshore yuan-denominated sukuk out of Malaysia and a yuan-denominated bond issuance by Malaysian corporations.

“Ultimately, the potential of Malaysia of becoming a regional yuan debt hub will have to be led by natural market forces, that is, supply and demand,” Yeah points out.

At present, Europe, led by Luxembourg, outstrips Asia (excluding Hong Kong) in terms of both the number of issues and the number of issuance locations.

Analysts, however, believe Asia (excluding Hong Kong) whll soon catch up.

Anchor currency

According to the Asian Development Bank (ADB), the yuan will eventually become the “anchor currency” for Asia.

This destiny is cemented by the growing use of the currency in the region’s trade and financial markets.

This, however, does not necessarily mean that the yuan will become part of the foreign exchange reserves of Asian countries, most of which still hold US dollar, euro and the Japanese yen, says ADB. Rather, it means that countries that use yuan widely will manage their currencies according to the yuan’s movement.

The consensus view is that there is still some way to go before the yuan can become a reserve currency. That will involve further openness of China’s own financial markets.

At present, the yuan has yet to qualify as a reserve currency due to its lacks of full convertibility as defined by the International Monetary Fund.

Nevertheless, many central banks have already started to diversify their reserves into the yuan. One of these is Bank Negara, which became the first central bank in the world to announce the inclusion of yuan in its foreign reserves in 2010.

It has been five years since China embarked on a plan to internationalise its currency.

Analysts argue that the process of internationalising the yuan is already progressing smoothly, but gradually in a managed way.

In their working paper entitled “Will the renminbi rule?” authors Eswar Prasad and Lei Ye argue that although China still has extensive capital controls in place, they are being “selectively and cautiously dismantled”.

“China’s capital account is becoming increasingly open in actual terms even though by this measure it remains less open than those of the reserve currency economies – the euro area, Japan, Switzerland, the UK and the United States,” they argue.

According to CIMB Research chief economist Lee Heng Guei, China has taken small yet quite successful steps in its quest for internationalisation of the yuan.

However, he says, full-fledged internationsation of the yuan is a still a distant goal.

“China is clearly more influential than in the past and the internationalisation of the yuan has sped up. But it will take many more years, perhaps another five to ten, for the yuan to be fully global and convertible,” Lee argues.

Undervalued or not?

Now, China’s currency policy has for long been a contentious issue with many western developed nations, especially the United States. There has been growing political pressure on China, led mainly by the United States, to increase the value of the yuan.

The United States has been arguing that the yuan is significantly undervalued, hence giving China’s exporters an unfair price advantage over US manufacturers.

The undervaluation of yuan, which, to some, warrants China being tagged a currency manipulator, has even become an important scoring point in the current US presidential campaign between Republican candidate Mitt Romney and incumbent Barack Obama.

A semi-annual report on the yuan by the US Treasury is due to be released on Monday.

It remains to be seen whether the release of the report will be delayed until after the Nov 6 US presidential election, given the political sensitiveness of the issue.

To be fair, since the yuan’s depeg from the US dollar in July 2005, the Chinese currency has appreciated more than 30% against the greenback.

And reaffirming its policy stance of further exchange rate flexibility, the Chinese government in April widened the trading band from +/-0.5% to +/-1% for the yuan against the US dollar.

Peterson Institute for International Economics estimated the yuan four years ago was undervalued by 31.5% against the US dollar. The latest estimate by the Washington think tank in May indicates that the yuan is now undervalued by only 7.7% against the greenback.

CIMB’s Lee contends that the yuan’s appreciation has to be a gradual and longer-term affair to avoid disrupting China’s economic development.

“The gradual and consistent yuan appreciation can be considered a stabilising factor for the (Chinese) economy, especially its export-oriented sector,” he explains.

According to the Royal Bank of Scotland, the yuan’s value is unlikely to change much in the short term, but further medium-term appreciation on account of productivity catch up remains a possibility.

“If the global economic outlook improves in 2013, the yuan is likely to see further medium-term strengthening, with the pace depending on current account developments,” RBS’ Hong Kong-based analyst Louis Kuijs notes.

By CECILIA KOK
cecilia_kok@thestar.com.my


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China and Asian central banks wary of QE3 inflation risks

BEIJING - China's central bank governor has warned that quantitative easing policies worldwide could cause inflationary risks, state news agency Xinhua said on Saturday.

The remarks by People's Bank of China (PBOC) Governor Zhou Xiaobhuan come even as analysts credit policy easing from G4 central banks - the US Federal Reserve, the European Central Bank (ECB), the Bank of Japan and the Bank of England - in the third quarter of the year as underpinning business confidence.

Chinese data on Saturday offered a sign that G4 policy easing was being felt in the world's second biggest economy, with trade numbers showing exports grew at roughly twice the rate expected in September while imports returned to the path of expansion.

"The data shows both imports and exports are improving - especially a rebound in export growth reflects a rising confidence after the U.S. and European countries launched further easing policies last month," said Xue Hexiang, an analyst at Guotai Junan Securities in Shanghai, after the trade numbers were released.

Across Asia, central banks are wary about the potential inflationary impact of the Fed's latest quantative easing, dubbed QE3, as well as policy stimulus unveiled by the ECB.

Central banks "should consider draining excessive liquidity injected into the market and eliminate inflationary pressure in the long-term", Zhou was quoted as saying by Xinhua, which cited the Journal of Public Research, a magazine published by the People's Bank of China.

China's central bank said in September that it would "fine tune" policy to cushion the economy against global risks while closely watching the possible impact from recent policy loosening in the United States and Europe.

China's economy has slowed for six successive quarters and economists expect that Q3 growth data due on Oct. 18 will confirm the slide extended for a seventh. The consensus forecast in a Reuters poll is for annual growth of 7.4 percent in Q3, down from Q2's 7.6 percent.

Under the banner of policy fine-tuning, China's central bank cut interest rates twice in June and July and lowered banks' reserve requirement ratio (RRR) three times since late 2011, freeing an estimated 1.2 trillion yuan for boosting loans.

But it has refrained from cutting interest rates or RRR since July. Instead, it has opted to inject short-term cash via its open market operations into money markets to ease credit strains.

China's annual rate of inflation was 2 percent in August, half the 4 percent targeted by the central bank, though nudging higher from July's 1.8 percent rate. The PBOC has fought hard to bring inflation down from a three year peak of 6.5 percent hit in July 2011 and is determined to contain price pressures.

Consumer price data for September is due to be published on Oct. 15 and the benchmark Reuters poll has a consensus forecast for annual inflation of 1.9 percent.

Meanwhile China's long-term inflationary pressure could be alleviated by the slowing rate of acquisition of foreign exchange reserves, Zhou said.

China's official reserves, the world's largest at US$3.29 billion as at the end of September, have been relatively steady this year as global trade has slowed and Chinese exports along with it.

Foreign reserves are a key component of money supply. A slowdown in accumulation implies a reduction in the rate of monetary expansion and consequently easing inflation pressure.

Zhou, writing in the official China Financial Research Journal, said reserves would not keep growing endlessly as the share of the current account surplus in the country's economy was already very high and would drop in future, according to a report in the Security Times newspaper. REUTERS

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Malaysia lures for its Gen Y youths?

KUALA LUMPUR: Gen Y youths young people usually recognised for their savvy in communications, media, and digital technology will benefit from the Government's move to draw quality high-tech and knowledge-driven investments to the country.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said with the Government's emphasis on developing the 11.4 million youths who make up 46% of the nation, it was important for Gen Y workers to have access to companies with good training, exposure and salaries.

“The Government is adopting new methods by looking beyond hard FDI (foreign direct investment) numbers,” he said here yesterday.

“Services companies are becoming more crucial to our economy, and their presence in Malaysia is relevant to the young through their (the companies') job creation.”

Mustapa said the Government was not only giving out fiscal incentives, such as tax holidays and training grants, to attract quality investments, but had also liberalised 18 services sectors this year, to follow the 27 in 2009.

He said such measures had yielded “fruitful results” with companies like Service Source, test and design company National Instrument and computer multi-national Hewlett Packard, employing large numbers of Gen Y workers.

“Service Source, a recurring revenue management company, came to Malaysia in 2010 with only 27 people.

“Last June, it surpassed 550 staff the majority being graduates or diploma holders and more than half of them are below 30.

“National Instrument is another sterling example. It offers a salary scheme to graduates equivalent to that offered by some investment banks in Malaysia,” Mustapa added.

The Jeli MP emphasised that FDI was particularly relevant to Gen Y, as the creation of employment and knowledge spillover from foreign companies allowed youths to be exposed to new technologies and cutting-edge training schemes.

He said these companies offered competitive salary packages.

“This will increase their knowledge in the industry and improve their employability,” he said, giving the example of oilfield services corporation Halliburton, which sends fresh graduates to their training centre in the United States for up to 18 months to gain specialised knowledge.

However, Mustapa said, there were challenges to attracting such investments.

“Some companies are not willing to pay more for talent, and so might face a higher turnover rate.
“There is also competition for FDIs from countries that offer bigger incentives or huge domestic markets.

“However, Malaysia offers a value proposition as we have a sound infrastructure and legal system, investor-friendly policies, and a talent pool that will be able to complement investors.”

International Trade and Industry Minister Datuk Seri Mustapa Mohamed has been working hard to bring in investments that Gen Y can benefit from. 

In an interview, he talked about the government's approaches and challenges faced.
Excerpts from the interview:

>What do you think of the state of Malaysia's economy?

There lots of of challenges globally and regionally. Europe is still in some trouble, America is not out of the woods yet. India is going through a difficult period politically and economically as well - there was a time where India was very bullish. Although growth is still good there, it's not that good as a year and a half ago. China is still going strong. The bright spots will be ASEAN, Africa, the Middle East.

Against that backdrop, our performance has been quite credible, our economy is doing okay, steady growth that is higher than the world's average. Unemployment rate is low, inflation is manageable, we have an issue with the deficit which is being managed well by the govt. We have strong reserves. Our fundamentals are strong.

Some factors leading to Malaysia's relatively strong state of economy are the fiscal stimulus, the Economic Transformation Programme, our diversified economy, and robust customer spending.

>Do you think the youth population of Malaysia will benefit from our economy?

Yes, our employment opportunities will of course benefit mainly young people. Many come out from universities and expect to get a job, a good job. Some come out and do temporary work, which is useful - working in a hypermarket or petrol station, for example - these are very important stepping stones as they allow you to get some experience.

Our graduates are not as selective as before, they are prepared to accept these jobs to sustain them for a few years before moving on to a better-paying one. Gen Y represents a big percentage of the Malaysian population, and the Government is mindful of the fact that this is a volatile and dynamic component of the population.

The issue is quality employment. Graduates being paid RM2,000 is not true reflection of what they can contribute. Some companies are not paying their graduates too well, some graduates are accepting jobs which require lower qualifications and for that reason salaries are lower.

Job opportunities are plentiful, that's not an issue here. We have lots of job opportunities in Malaysia but the challenge for us in government is to generate more quality employment opportunities.

From anecdotal evidence, many graduates are not happy with the entry-level salaries. That's why Budget 2013 focuses a lot on young people, including measures such as the Graduate Employability Taskforce with an allocation of RM200mil. This isn't new, we have Talent Corp, we have collaborated with various institutions like Mida to help young people.

We also have the 1Malaysia Training Scheme Programme (SL1M), which will increase the employability of graduates through soft skills and on-the-job training in private companies.

From MITI's point of view, our job is to stimulate investment, both domestic direct investment and FDI. We have been working very hard.

In an average year, the companies approved by the Malaysian Investment Development Authority (Mida) will normally generate about 100,000 new job opportunities. The ETP over the next 10 years will generate 3.3 million jobs, that makes 330,000 a year. That's the kind of number we are looking at, and many of these jobs will b available to young people.

>Are we making steady progress towards this goal?

Definitely. There's a company out there, Service Source international - they started small here but when I saw them two weeks ago they had a headcount of more than 500. Their plans are to add more. This is a company of graduates, most of the staff are either diploma-holders or local graduates.

Service Source have also launched a Protg Programme in the company where many fresh graduates are given on the job training at an executive pay package.

Another of fruitful result, is a company in Penang called Agilent which has 2,800 people. 900 of them work in research and development.

In Iskandar you have Legoland, people who work in these places command high salaries.

Of course in sectors like banking and finance they will be well-paid, there has been good growth in Islamic banking and finance in the country. As Islamic finance in Malaysia grows, as the country becomes a hub for the region, there are more opportunities created for young people.

>Why are foreign direct investments relevant to the young, particularly to Gen Y?

The creation of employment - without jobs, our youth will not find an opportunity to improve their economic standing.

Panasonic, for example, employs 20,000 Malaysians as executives and also as blue-collar, factory workers.

The other reason is knowledge spillover as a result of forward or backward linkages with foreign companies possessing high technology that invest in Malaysia, our youth will be exposed to new technology on their job. This will increase their knowledge in the industry and improve their employability as they move further in the industry and perhaps opportunity for them to carry out their own business operations as a vendor to the foreign investor.

Halliburton, one of the world's largest providers of products and services to the energy industry, provide specified training to its fresh graduates from six to 18 months while they are on the job.

They also send these Malaysian fresh graduates to Halliburton Technical Training Centre in the United States. This is an example of how knowledge spillover from FDI can benefit our youth.

>What is the Government doing to attract quality investments? 

We are more focused now, more targeted. We can't compete with some of our neighbours in terms of wages, but where we can compete are the areas where companies require higher skills, productivity. We target companies that are high-tech, knowledge-intensive companies.

The Government is considering GNI creation of any project or investment while also using employment creation as a complementing tool to measure a “good investment”.

In giving out fiscal incentives such as tax holidays and training grants; the Government targets knowledge-driven, research and development based companies that budget a large amount on capital spend on technology per employee.

We have to look at the supply side as well, increase the supplies of trade and human capital.

The Government liberalized 27 services sectors in 2009 and a further 18 services sectors in 2012. The intention behind this is to drive foreign investments which can create quality, high-paying jobs.

While recording low investments, services companies are becoming more crucial to our economy and their presence in Malaysia is relevant to the young through their job creation.

>Have these approaches been fruitful?

Yes, along with companies I already told you about, there's National Instrument - another sterling example, a test-and-design company. NI Malaysia offers a salary scheme to graduates that is equivalent to the salary schemes offered by some of the investment banks in Malaysia.

More importantly, it has a unique internship programme formed in 2009. In 2012, they admitted around 30 graduates and these interns were trained in R&D and manufacturing as well as IT applications.

There is also Hewlett Packard, which has its Operation Headquarters for Asia-Pacific here. We gave them a tax holiday - one of the ways we are attracting investments, as you asked before.

>But how do you know these foreign companies will hire fresh graduates rather than someone who has already been in the workforce for a while?

Well, some companies do prefer to take people from other companies rather than train fresh graduates. There are different ways to do it, and some companies to tend to take the easier way out. But I feel they should invest in youth, employ them, train them. The companies must play a better role in training youth, it can't just be left to the Government.

I'll bring up SL1M again - we've found that our graduates become much more employable after learning these soft skills - they become more proactive, more aggressive, more forthcoming. The government is doing that, but we urge and strongly encourage companies to play a more active role and train its new recruits.

>Are there any challenges when it comes to attractive quality investment?

It's a chicken and egg issue - companies will come here if we have a large pool of skilled graduates and manpower, and that will bring in more investments as well. On the other hand, if the skills are not available then they will not come. We need to increase the supply of human capital.

Companies operate on cost factors and many companies that are interested in Malaysia are still looking at low cost factors in Malaysia. Some companies are not willing to pay more for talent.

There is also competition for FDIs, Singapore, Hong Kong and Taiwan offers bigger incentives and has very liberal policies while countries such as Thailand, Vietnam and Indonesia continue to offer a huge domestic market which interests investors.

However, I am convinced that Malaysia offers a value proposition as we have sound infrastructure and legal system, investor-friendly policies and a talent pool that will be able to complement investors.

>What are some of the challenges a company may face in recruiting Gen Y workers?

In general, those companies which offer lower salaries are not so good with attracting good people. Those which are willing to pay a little more have better luck.

>Do you think these companies would be more inclined to hire expats?

In general, bringing in expats costs money, and if you add up, it will almost certainly be more than what you pay a local.

>Would local graduates be making more if they took their skillset overseas?

If you factor in other costs - rent, transport, cost of car... We found that at the top level, the gap is not that wide. Malaysians earn a decent income. The problem is the entry rates at base levels, entry point salary is where the difference is.

Once Malaysians leave, it is harder for them to come back because they've made friends, settled down, become part of the community. If our entry level salary is low, and because of that people work overseas, it will become even more challenging to build this talent pool.

In my view, if companies have better entry-rate salaries, it will help to prevent brain drain, and also solve some problems companies have when hiring.

>Do you think that the development of our Gen Y will meet the Government's aspirations of attracting quality investments?

In a way, some of our measures are short-term. We need more medium and long-term solutions, for example, reform the education system. It needs to be more hands-on, so we've got some measures like the National Education Blueprint.

We also need to regularly change the curriculum in schools and universities. Malaysians have to develop a love for skills, fight to get a job.

I would like to relate to you a story of a young girl by the name of Nani Abdul Rahman. She is an alumni of Yayasan Khazanah, which I chair. She read Law at IIUM and in her penultimate year, she interned at Khazanah. Khazanah Nasional offered her a job as an analyst and after working for a few years, she got an offer to do her Masters in Jurisprudence at Harvard University. Today, she is a senior personnel at one of the biggest Islamic banks in the world.

I have complete trust in our Gen Y. They are very confident and well exposed generation.

>How do MNCs feel about local graduates? Do they prefer those who graduated from foreign universities, Ivy Leagues and similar?

Some of our local graduate are good, some are outstanding. Many of our top corporate figures were trained in this country. Not every top corporate guy studied overseas. I don't think companies have a preference, it does depend on the person.

If you're a foreign university graduate but you're quiet, timid, aloof - the company will not want to take you on. It is the qualities a person holds.

Companies are looking for a person who is outgoing, passionate, ready to learn, good work ethics... These characteristics can come from a local or foreign graduate.

>You hold the importance of education in very high regard. 

Yes - even within my community in Jeli, the constituency I am MP for, I focus on developing human capital.

I run and fund the Darul Falah programme, which provides free tuition for students between 10-12 every Friday and Saturday. The focus is on English, Maths and Science.

The centre actually operates out of my house in Kelantan, it started about 15 years ago. I also have three other centres which have been up and running for three years now.

It is important in a rural area like Jeli, the children get some exposure. There has been improvement, but I am still not happy with it.

The programme has expanded to offer free computer classes, we hold camps, essay writing competitions in both Malay and English - I give prizes to the winners.

Last year when I was in Perth for work I met a number of students and one of them, a JPA scholar, came to me. She said she was an alumni of Darul Falah. Her father was a customs officer who used to send her back and forth on a motorcycle to Darul Falah when she was 10.

She is now a scholar reading Commerce at the University of Western Australia and she aspires to be a Partner at PriceWaterhouseCoopers.

It's moments like those that underline my conviction that education is the best investment.

>Do you have any advice for Gen Y looking to make a living in Malaysia?

Be prepared to start small, meaning, accept any job and learn while doing it. Shine in your job, by which I mean outshine others.

Discipline and passion are very important qualities. You need to be disciplined. Work ethics, passion - in my view, these are qualities some graduates are lacking. Passion and commitment are important.

The technical knowledge you earned is important, of course, but so are passion, discipline and commitment.

By TASHNY SUKUMARAN tashny@thestar.com.my

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