Choking Hong Kong’s Future

9 Jun

With his first 100 days in office nearly complete, CY Leung, the Chief Executive of Hong Kong, has many challenges still to face as he attempts to reshape the former colony. One of the most difficult tests will be to maintain the city’s long-term status as Asia’s financial hub. With Shanghai, Singapore and even Seoul aiming to steal Hong Kong’s crown, serious challenges have arisen that may well affect the Special Administrative Region’s status. Chief among them is how to attract and retain the wealthy expatriates that have long been a key driver of the SAR’s knowledge economy.

 

CY has his work cut out

Although the economic slowdown is encouraging large numbers of Westerners to move to Hong Kong, there are signs that the city’s international rivals, especially Singapore, are becoming more attractive destinations, thanks to worries about Hong Kong’s quality of life. Concerns around air quality and school access regularly hit the headlines.

 

The danger is that when the global economy starts moving again, Hong Kong will have been too complacent in attracting and retaining the best people. “Hong Kong is still attracting top talent,” says Nick, a head-hunter who regularly places new hires from London and New York. “But there are concerns about the quality of life, especially for young families. This could definitely be a problem for Hong Kong when the supply of talent gets tighter.”

 

Of all the region’s cities, it is Singapore that is the biggest threat to Hong Kong, a rivalry that has lasted for decades. With Singapore having overtaken Hong Kong as the world’s leading container port in 2005, the city state looks set to surpass its Chinese rival in other measures of success in the coming years, particularly on quality of life comparisons.

 

Hong Kong smog: tough measures required

One area where Singapore has a dominant lead is in air quality. According to the country’s National Environment Agency, air quality in terms of Pollutant Standard Index (PSI) was good on 93% of the days in 2010 and moderate on 7% of the days. In comparison, researchers at the University of Hong Kong reported in January this year that local air quality was ten times worse than in 2005, with 3,200 people dying annually from a pollution-related illness.

 

Hong Kong’s location at the mouth of China’s Pearl River Delta – home to tens of thousands of factories – does not help. Yet the worst culprits are of its own making, specifically its industrial and traffic emissions, which are kept concentrated by the canyon effect of the high-rise skyline.

 

It is unclear how successful the Hong Kong Government will be in addressing this issue. Plans to significantly reduce the problem by 2014, by linking pollution gauges to the air-quality standards of the World Health Organization, have been dismissed as “not strict enough to make any positive impact” by the Hong Kong Civic Exchange, a think tank.  And a recent law that banned roadside vehicle idling has done little to reduce pollution from the large fleet of old buses, which are major particulate producers.

 

Singapore may have natural environmental and geographical advantages when it comes to air pollution. Yet the country leads in other key areas too, notably in international education. The recent opening of several new schools, like Britain’s famous Dulwich college, serves to top-up the high number of foreign school places already available there, making the city even more appealing to expats and their families.

 

Clean air in Singapore

Hong Kong is not in the same position. Despite protestations from local Hong Kongers, the majority of expatriates want to escape the government school system. With 72 international schools and 36,000 places, it should be easy to find a space.  But pressure on supply is intense, and growing. “We were told to start looking for both nursery and primary schools as soon as our daughters were born,” said Jonny, an expat from London. Even the opening of schools like Harrow, another British institution, has done little to ease the situation.

 

Notwithstanding the obvious lead that Singapore has in quality of life markers, some experts are dismissive of the threat to Hong Kong’s future. “Quite simply, if you want to do business in China you have to be in Hong Kong,” says Christopher Hammerbeck, the head of the SAR’s British Chamber of Commerce. “The Beijing Government has made it quit clear that they will continue to support Hong Kong as a major financial hub, for example by guaranteeing its status as the international clearing centre for RMB.”

 

Hong Kong remains important for non-financial sectors too. Anecdotal evidence from several European trade bodies indicates that Hong Kong remains the natural starting point for companies wanting to do business in China, not least because of its common law heritage and its high prevalence of English as a primary business language. Its proximity to Mainland China and its British legal and linguistic heritage give the former colony a business advantage that none of its Asian rivals can match.

 

So whilst quality of life is vitally important to some, it is unclear whether this will be of sufficient reason to write off Hong Kong’s future just yet. But it would be a brave politician to assume that, when the global economy starts to improve, high quality talent will want to bring their families to the SAR rather than commute from more congenial climes. And with universal suffrage coming in 2017, tackling two of the biggest issues facing Hong Kong makes good sense for the domestic audience too.

China’s military spending spree

5 Mar

In terms of Western decline and Eastern rise it is not just the economies that are moving apart. On the day when an old hero of the 1982 Falklands War, Major-General Julian Thompson, warned just how vulnerable Britain’s South Atlantic territories are to foreign conquest because of military cuts, it was announced that Chinese annual military spending had reached $100 billion for the first time.

While the UK and its Western allies, including the United States, are planning and executing further savings on defence budgets, China and many other Asian nations are actively rearming with the latest hardware. Although an arms race has yet to begin, India and Japan are concerned at the rate of increase in China’s military spending – up 11.2% this year alone. This does not include any off-balance-sheet spending too, which is believed to add as much as 50% more than the official figure.

Rapidly expanding

China obviously rejects any notion that this extra resource allocation is anything to be feared. The Beijing government’s declaration of China’s peaceful rise is still the national mantra, and there is no acknowledgement that massive more arms spending could be seen to contradict this strategic objective. “China is committed to peaceful development and follows a national defence policy that is defensive in nature. China’s military will not in the least pose a threat to other countries” a National People’s Congress spokesman said.

Despite the smooth words, the budget increase is causing concern amongst China’s 12 Asia-Pacific neighbours – particularly when it becomes apparent that by 2015 Beijing’s military spending will have surpassed their combined defence allocation. The source of this unease is China’s increasing assertiveness over long-standing territorial claims.

The South China Sea is the likeliest flash point, given that China’s demand for full sovereignty are being resisted by half a dozen nations. Japan and India both have disputes with China too, with India having fought a 1962 war over the contested areas. Indeed, India’s Prime Minister has been quoted as saying that his country “must prepare to counter China’s territorial ambitions”.

China also has economic interests to think of. The deployment of Chinese armed police to the Mekong river area in South East Asia last year was partly to protect their investments in the region, as well as expressing their local muscle. The development of a blue water navy – as evidenced by its new aircraft carrier development – is also designed to ensure China can further protect its international interests, especially around trade.

The truth however is that no one really knows how and why China is enhancing its military capabilities. The opaqueness of the Government means that its actual and potential rivals often have to guess at what they are doing.

Luckily for America, it still has some breathing space when it comes to military superiority given that its defence spending is still five times that of the Middle Kingdom. China recognises that this means there is a significant imbalance between the two, and as such is looking obliquely at the situation to nullify the US lead more quickly than if it went into standard competition with the world’s superpower. An article written in the Harvard Asia Pacific Review sums it up so:

“Despite America’s overwhelming military superiority, China aims to exploit vulnerabilities in key US capabilities using counter-space, counter-carrier, counter-air, and information warfare to prevent the United States from dominating a military confrontation or achieving quick and easy victory.”

The US has made Asia the centre of its foreign policy for the coming century. As such, it is highly likely that it will take into keen consideration China’s rising military capabilities to stay ahead of the race. The difficulty though will be in the understanding China’s plans. So long as it keeps the world guessing at where this extra spending is going and for what reason, Beijing will be well placed to ensure that its aims and objectives are easier to achieve without resorting to actual force.

50 Cent Parties

18 Feb

If there is one thing sure to make the blood boil it is the readers’ comments below online news articles. How many times have you read a story in the Economist, or New York Times, or the Guardian, and silently raged against the trolls and misanthropes that dollop their  unwelcome thoughts on the page?

If you are in China, then hope is at hand. There is a phenomenon on the loose, open to any journalist or editor with deep pockets and shallow concerns. It is called the 50 Cent Party, and it has taken the Chinese media by storm.

Wǔ máo dǎng  (五毛党) – as the 50CP is known here - is the term for freelance internet commentators in China that post pro-Government and pro-Communist Party comments. The 50 cent part of their name comes from them being paid to make these comments every time they manage to advance the official state line or indeed just steer a thread away from disruptive topics.

As some of these partiers can earn hundreds of yuan a month – a nice top-up to standard wages in China – it is probable that the activists are motivated by a mix of nationalist and financial fever.

The Government doesn’t take them lightly: there is even an official exam that they take to become a registered partier. Indeed, they appear to have an important role in Government policy, as this leaked propaganda directive to 50 cent partiers shows. Their objective was stated as:

In order to circumscribe the influence of Taiwanese democracy, in order to progress further in the work of guiding public opinion, and in accordance with the requirements established by higher authorities to “be strategic, be skilled,” we hope that internet commentators conscientiously study the mindset of netizens, grasp international developments, and better perform the work of being an internet commentator. For this purpose, this notice is promulgated as set forth below:

(1) To the extent possible make America the target of criticism. Play down the existence of Taiwan.
(2) Do not directly confront [the idea of] democracy; rather, frame the argument in terms of “what kind of system can truly implement democracy.”
(3) To the extent possible, choose various examples in Western countries of violence and unreasonable circumstances to explain how democracy is not well-suited to capitalism.
(4) Use America’s and other countries’ interference in international affairs to explain how Western democracy is actually an invasion of other countries and [how the West] is forcibly pushing [on other countries] Western values.
(5) Use the bloody and tear-stained history of a [once] weak people [i.e., China] to stir up pro-Party and patriotic emotions.
(6) Increase the exposure that positive developments inside China receive; further accommodate the work of maintaining [social] stability

Western commentators that sigh upon reading this will be refreshed to know the depth of ill feeling against these activists. For many Chinese they represent the continued efforts of the Government to interfere in their social media lives, as my Chinese friends can all too well attest.

Yet the campaign is not all that different from some of the political techniques utilised outside China. The 2008 campaign of US Presidential hopeful John McCain attracted criticism when it emerged that volunteers were being offered prizes in exchange for seeding comments and messages supplied to them. The rewards on offer – books signed by McCain, a ride with the candidate on his campaign bus – tap into the mix of profit and politics that are the probable motivations for China’s 50 cent-ers.

Despite this, it is clear that China is in a different league – with an estimated 300,000 volunteers involved. With the internet increasing in popularity across the developing day by day, spurred on by the massive increase in access that smart phones and cheap laptops bring, it cannot be long until other authoritarian regimes start employing the same tactics – Iran may already be doing so. Not all Chinese exports are benign.

Hong Kong blogger Oiwan Lam, who has written widely on the subject, explains all in this video:

A call to Britain: get real and move to the Pacific

16 Feb

The momentous events of last December have permanently changed the UK’s relationship with Europe. To the average Europhile, this is something to be lamented and mourned, the moment Britain became a so-called pygmy on the world stage.

To others, David Cameron’s stand will have benefits far greater than appeasing his own Eurosceptic MPs. It will allow the UK to open its eyes to the rest of the world, and the enormous trading opportunities there.

Here is a question. If you had a business, would you rather sell to the penny-pinching customer with the uncertain future, or the flash kids with money to burn?

Britain finds itself in such a quandary right now. We have been members of the European project for nearly forty years, and our economy has merged with the Continent’s to such extent that our largest trading partners are across the Channel.

The issue though is that the European economy is crumbling. The rest of the world is leaving Europe far behind, a situation that is highly likely to worsen given the EU’s inability to sort out its financial problems.

The EU’s economic growth in 2010 was 1.8%. In contrast, the developing countries of East Asia – excluding Japan – are expected to have grown by a huge 8.2% in 2011, according to the World Bank. India’s growth has slowed, but to a respectable 7%, well above France’s forecasted 1.6% for last year.

By focusing mainly on Europe, the UK’s economy is ignoring the far bigger picture.

When will Britain see the Asian lights? (Photo from here)

The Asia Pacific (APAC) region in particular represents an enormous opportunity for anyone that is willing to work there. This is not new: a nineteenth century British trade delegation to China once mused that if the Chinese added one inch to their shirt-sleeves, ‘the textile mills of Lancashire would be busy for the next 100 years’.

China is an economic sensation. It has quadrupled in size over the last few decades to be the world’s second largest economy, and is projected by many to overtake the US into number one spot sometime over the next ten years. There are untold opportunities for British trade with the country, especially given Beijing’s current push to develop its internal markets: the country is expected to import over $8 trillion worth of goods in the next 5 years alone.

Yet APAC is far more than just China. Indonesia, the Philippines, and Thailand are just some of the countries that are developing fast and ripe to do business with.

The UK needs to start taking APAC far more seriously. There is huge admiration for the UK in Asia. Union Jacks adorn the latest fashions; British music and films are everywhere; English is the lingua franca for many. But we are just not capitalising on it: trade with APAC remains far smaller than with Europe or North America.

Where are the small Manchester companies roaming the Jakarta trade shows? Where are the Birmingham businesspeople looking for deals in Taiwan? Why don’t we see Shoreditch software entrepreneurs selling in Malaysia?

The British pavilion at the recent Shanghai expo is a telling reflection in the UK’s commercial relationship with Asia. A mesmerizing cube composed of 60,000 perspex rods, it was widely praised as the main architectural marvel of the six-month event. But there was nothing in it: a triumph of style over substance.

To be fair to David Cameron, he understands the need for more global trade. He has proudly pointed out that since his high-profile visits, British UK’s bilateral trade with India is up by 20% in the last year and exports to China are up 40%. In addition, embassies and high commissions are being made to provide more commercial support to UK enterprises.

Yet it is not enough. The US is taking an active lead in Asia, as it understand that the 21st century will belong to Asia. President Obama has recently announced that America will be signing up to the Trans-Pacific Partnership (TPP), a group of liberal-minded countries in the region which has the potential to be the world’s largest trade block.

(Although this grouping does not include China, this is not necessarily a bad thing: it does, after all, cement liberal trade as the dominant economic model for most of the region.)

One possible way for the UK to tap into the APAC growth story outside of China is by following the US lead and joining the TPP. The organisation’s agreement makes provision for its expansion to include any state that meets its liberal economic criteria, which the UK plainly does.

With the TPP having core British allies within its actual or provisional members – the US, Australia, New Zealand, Singapore and Brunei – and strong relations with others – like Malaysia and Japan – there is no obvious impediment to the UK joining, no Charles de Gaulle waiting to block our accession.

The only real barriers are the legal limits imposed by the EU, and our emotional ties to our nearest neighbours. The Europhile fear of Britain being blockaded by Europe if we looked elsewhere for trade has no foundation given the amount they export to us.

It will take great political courage to move Britain into the unknown and realign itself to be more world-focused. The Prime Minister though should remember that many companies have successfully reinvented themselves to take advantage of exciting and prosperous new markets. Nintendo – one of the world’s largest video game companies – used to make playing cards. Nokia, the Finnish mobile phone maker, started life as a paper manufacturer. It can be done.

The UK should move further onto the world stage. But the country needs room to manoeuvre, to focus its interests on the parts of the world that are growing, and not stagnating.

The only way we can do that is if we take the plunge and realise that Europe is the past, and Asia the future.

Tax needn’t be depressing

2 Feb

We have just returned from a two-week trip to South Africa and the UK, and very nice it was too. Yet despite the balmy African weather (35 degrees on a bad day) and the innate joy of returning to Britain, there was something missing in both countries: economic optimism.

With a GDP growth rate at 0.8% in Q3 2011 and predicted to get worse in 2012, it is no wonder that the UK is not feeling overly jubilant.

South Africa’s GDP is by comparison quite healthy, with a Q3 2011 increase of 3.1% compared to the same period in 2010. Yet it has other, stratospheric problems with its economy, not least an official unemployment rate of 25%.

Arriving back to Hong Kong, the first thing we felt was the buzz – of people making money. A growth rate of 4.3% may be similar to South Africa’s, but it has only 3.3% of its citizens unemployed and a current account balance of 4% of GDP (compared to -2.5% and -4.1% for the UK and South Africa respectively).

In fact, the HK Government has so much money that it can afford to give it away. Last year every permanent adult resident received HK$6,000 back from the tax coffers.

The tax system here is very citizen friendly, and not merely in a distributive way. The maximum income tax rate lies at 15% – and that is pro-rata for how many days you spend in the SAR, so if you are here less, you pay less. The UK and South Africa meanwhile force its wealthiest citizens to pay 50% and 40%, and there is no rebate for not being in the country.

In addition, a number of taxes that exist in most jurisdictions do not exist in Hong Kong. There are no capital gains taxes, no withholding taxes, no sales taxes, no VAT, no annual net worth taxes and no accumulated earnings taxes on companies which retain earnings rather than distribute them. In the long-term it is intended to completely phase out stamp duty on the sale and issue of shares and securities and to reduce direct taxes further.

Of course, HK does not have the same welfare burdens that the other two nations do. It also relies heavily on other sources of taxation, like property and gambling – in 2005 horse racing provided 9.7% of all Government revenues.

What the tax regime here does in addition is to provide a stimulus to earn more – and thus work harder. No matter what people in higher tax economies may say, the low-level of income tax (or salaries tax as it is known here) spurs people on. Have a conversation with an expat here as to why they moved to Hong Kong and one of the first things they will say is “15% tax rate”.

In a world dominated by a highly mobile professional class, comments like this matter. But do they matter enough to persuade the politicians back West? And even if the political objections could be countered, would the UK and South African economies benefit?

These are rather moot questions as low tax regimes will not be accepted in the West, at least for the time being. But at least we could have a discussion.

 

 

For those that are interested, here is the breakdown of HK tax for 2012/13. Western readers should try to contain themselves.

 Hong Kong tax rates summary
Profits Tax

The tax rates in 2012/13 will remain unchanged as follows:                                   

Persons other than corporations                      15.0%

Corporations                                                       16.5%

Property Tax

The Property Tax rate will remain at 15%. It is charged on the owner of land or property situated in Hong Kong at the standard rate on the rent receivable less 20% and is payable in addition to rates.

Corporations carrying on business in Hong Kong can elect to be exempt from Property Tax and be subject to Profits Tax instead.

Salaries Tax

Salaries Tax rates and charges

Salaries Tax is charged at the lower of:

Net assessable income less charitable donations at the standard rate or

Net assessable income less charitable donations and personal allowances, charged at progressive rates as follows:
2012/13
Standard Rate                                         15%
Progressive Rates
First HK$40,000                                     2.0%
Next HK$40,000                                     7.0%
Next HK$40,000                                   12.0%
Balance                                                 17.0%
These rates remain as in 2011/2012.

Deductible items

 

Deductions for training courses at approved institutions remain unchanged at HK$60,000.

MPF deductions increased to HK$15,000 (from HK$12,000) from June 2012.

The deduction for home mortgage interest payments of up to HK$100,000 per year extended to 15 years (from 10 years).

Personal allowances

Applicable to progressive rate taxpayers:

                                                        2012/13               2011/12

                                                                                           HK$

Personal allowance:

-   Single                                           120,000               108,000

-   Married                                        240,000               216,000

Single parent allowance               120,000               108,000

Child allowances

1st to 9th child

-   Year of birth increased to       126,000               120,000

-   Other years increased to         63,000                   60,000

 

 

Dependent parent / grandparent allowances increase as follows:

 

                                                                         2012/13        2011/12

 

Age 60 or above

- Basic                                                             38,000          36,000

- Additional allowance

(For dependant living with taxpayer)       38,000          36,000

 

Age between 55 and 59

- Basic                                                             19,000          15,000

- Additional allowance

(For dependant living with taxpayer)       19,000          15,000

Dependent Brother/Sister                           33,000          30,000

Disabled dependant                                      66,000          60,000

 

Stamp Duty on Property                                                  

Value                                                                                        2010/11

Up to $2m                                                                                     $100

$2m – $3m                                                                                   1.50%

$3m – $4m                                                                                   2.25%

$4m – $6m                                                                                   3.00%

$6m – $20m                                                                                 3.75%

Over $20m                                                                                  4.25%

Marginal relief is available upon entry into each higher rate band.

For property sales within 6 -18 months of purchase, high Stamp Duty rates apply.             

 

Thanks to Azure Tax for the simplified info

 

Why the West finds it hard to invest in emerging markets

23 Jan

At a time when the West’s economy is being overtaken at every corner by the emerging economies of the world, it would seem sensible for British and Western companies to be tapping into the vast opportunities of Asia, Latin America and Africa. Political leaders seemingly agree with this sentiment, as the hefty flight schedules of David Cameron, Nicolas Sarkozy and Barack Obama would attest.

Yet the vast majority of British – and indeed Western – investment still heads to Europe and North America. In 2010 these two continents accounted for half of global foreign direct investment (FDI), but the figures for Western investment in the other continents are well below this. This is despite academic evidence suggesting that emerging market returns are generally more predictable than developed market returns.

Why don’t companies invest abroad?

Many investors do not expand abroad at all, no matter whether the market is emerging or developed.  This ‘home bias’ in investment decisions is a well-known phenomenon, and its prevalence is perhaps exemplified by a 1997 report that revealed that U.S. corporations had roughly 90% of their investments in US companies.  Although globalization has lessened this figure, it is still the case that emerging markets are underweight in terms of investment – as the FDI numbers above prove.

No one knows for sure the reasons behind home bias. Casual evidence from British companies indicates that they find it difficult to invest in emerging market economies (EMEs) because their managers are often unsure of the risks. Even the Arabian Gulf Region, one of the most rewarding regions for British firms, with a large UK expatriate community and a long history of investment, suffers from the ‘fear of the unknown’.

These risks, which can be both economic and political, may be hard to quantify in EMEs. In most Western nations, a vast library of economic statistics and political analysis is publicly available for review. These countries tend to have well-developed and predictable economies and relatively stable governments. Developing countries offer less transparency and access to accurate economic or industry statistics may not exist at all.

This opacity can significantly increase financial risks of EME investment. One such example is being confident in local corporate governance. Emerging market firms are typically controlled by a large resident shareholder, normally the state or a family, who have power significantly in excess of their voting rights. Although this can be good for the company’s long-term interests, it can also cause economic issues. Some studies seem to suggest that the Asian crisis of 1997-99 was in part caused by poor governance: the close relationship between government, business and finance, typical in these economies, led to high debt-equity ratios in the corporate sector which made it more vulnerable to economic shocks.

Corporate governance aside, there are many other financial risks that act as barriers to emerging market investment. Poor credit ratings, high and variable inflation, and exchange rate controls are but three examples. Yet political risks can be just as important, and at the same time, just as hard to fathom – as Standard Chartered Bank found out in Nigeria when its entire operation there was confiscated by the Government.

Studies have shown that there are good reasons why political risk is worth considering when looking at where to invest. First, political freedom promotes private investment. Second, political instability has a negative effect on private investment. Third, policy uncertainty has a negative effect on investment decisions.

Examples of political risk affecting investment abound. One of the reasons that Zimbabwe suffers from poor FDI is that no one is quite sure about President Mugabe’s nationalisation agenda. Iraq and Afghanistan do not find it easy to attract investors because of the political instability there makes high levels of security necessary, which bumps up costs and significantly impacts on operations.

It is therefore quite easy to see why Western companies can be reticent to invest in emerging economies. Yet investment does sometimes happen. In these cases how do executives evaluate which market to enter?

Making the choice

As might be expected, the two main categories of investment risk that are generally considered are political and economic risk. They are unavoidable factors in international commerce due to the continued differences between the laws, customs and policies of foreign governments. As foreigners entering new markets, companies and individuals often lack the local market knowledge and culture to understand these differences and must depend on outside sources for information and forecasts.

Many companies start with the financial side, using indicators like market GDP, growth rates, and exchange rates. Some also use composite risk indices which look at differing aspects of political and economic risk, like the World Bank’s Country Policy and Institutional Assessment, despite evidence that seems to play down their usefulness.

Other companies will focus on specific issues that come more or less from the personal experience of the Board, perhaps where they have been let down before. Factors examined here will include the absence of contract-enforcing mechanisms and the ease of finding local agents.

There is though one more risk category that needs to be examined, and one that is often overlooked: social risk. This is where cultural factors have an impact on an investment, often at the operational level, which is not easy to spot through traditional financial due diligence.

For example, the joint venture between TNK and BP has been enormously profitable for BP, as the financial analysis predicted. But the relationship has been far from harmonious, and it may in the long-term be a strategic calamity for the British company if it prevents them taking advantage of other opportunities such as the recently blocked deal with Rosneft shows. At the heart of this has been the operational clash between the two companies. Russian managers have found it hard to work under the Western style of management, and in return British executives have not always been attuned to Russian sensibilities. The friction this has caused has exacerbated other issues like the clash on strategic direction that is the core source of disagreement today.

Risk and high return

One final problem for companies wanting to invest in EMEs is a psychological one. British and Western culture has become risk averse over the past decades, with every effort made to eliminate hazards from daily life. Many managers find it difficult to imagine investing outside of their comfort zones: for these, EME risk can never be outweighed by the increased returns expected.

This aversion does not apply to everyone, and with good reason. For emerging markets are the future, and indeed the present – African, South American and Asian GDP growth far outstrips that of the West. The fact that this is likely to be the case for years to come means that it would not be in the interests of shareholders to at least look at the possibility of investing in these emerging markets. True, they will have different risks to investing in the US or France. But the returns will be good if the companies prepare themselves properly. The West should no longer be the be all and end all for Western investment.

Why Alex Salmond could never be Chinese

12 Jan

Chinese readers of this week’s proposed referendum on Scottish secession are highly mystified by the whole issue. Here, they muse, is one of the world’s most powerful nations allowing itself to be torn apart by a small group of nationalists, and for no obvious benefit. Why, as one Hong Konger put it, would Scotland want to become even smaller?

Independence movements though are not unknown in China. Tibet and Xinjiang are both autonomous regions struggling with ethnic unrest that causes a great deal of damage to the country’s international reputation: Free Tibet t-shirt slogans are hardly conducive to friendly thoughts of the Middle Kingdom. The nation’s image in the eyes of the Western media sometimes seems forever entwined with the Dalai Lama.

Yet despite the headlines, breaking away from China is unthinkable to the vast majority of the population.  Protecting the country’s integrity cannot and will not be compromised.

There are several reasons for this. Of these, security of the people and the economy, and the concept of a single, united people, are the most important.

Unified

Security is critical to the Chinese Communist Party, which came to power partly to fill the vacuum left by decades of brutal warlord rule in a divided, post-Imperial country. Much like the Soviets did with Eastern Europe, China has created a buffer zone between the outside world and its central and eastern heartlands, a modern version of the Great Wall. It has learnt to its cost the damage that foreign incursions can make – the 1860 destruction of the Emperor’s Summer Palace being but one example – and has no intention of allowing Xinjiang and Tibet to gain independence, let alone Manchuria or Inner Mongolia.

Linked to security is the performance of the economy. Again like Russia, China recognizes the huge resource potential of its outer lying provinces. Development of these resources is central to the economic rise of the nation as a whole, which in turn is strongly linked to maintaining public order, and in allowing the country to grow in peace.

This physical and economic security is intimately linked to social harmony. Although China has had millennia of internal conflict, the fact is that it has (intermittently) lasted as one country.  This enduring integrity rests on the deeply held belief in a strong, indivisible people and culture, namely the Han, who make up 92% of the population.

What is noticeable to an outsider in China is the sheer variation of faces and features that are seen on the street: skins of every hue, eye shapes from thin to round, noses of different dimensions. Yet if you ask a local about this diversity, she will look at you blankly: “But we are all the same, we are all Han”.

The American political scientist Rupert Emerson wrote that a nation is the “… largest community that, when the chips are down, effectively commands men’s loyalty, overriding the claims both of the lesser communities within it and those that cut across it or potentially enfold it within a still greater society….” The attachment to the idea of being Han is a good example of this in action.

It is also why China has been so successful in expanding over the millennia: once Han colonists settled a region, they were expected to continue to show allegiance to the mother country. In turn their neighbours became Han too, absorbed into the general Han mass. Their previous independence is now revealed by their name and their dialects, but emotionally these distinctions are often subservient to their overall inclusion in the greater Han.

The Chinese have therefore recognized that territorial integrity goes hand in hand with the physical, economic and social wellbeing of the population as a whole. This is an important lesson for observers of the Scotland-England rift to understand. Because although the situation in China is rather different to that in the UK – there are no armed Scottish insurrection movements for a start, nor monks self-immolating (not yet at least) – there are still similarities. After all, maximising wealth, safety and happiness for as many people in the country as possible is hardly unique to Asia.

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