Chinese cyber-attacks

Hello, Unit 61398

AN AMERICAN information-security firm has identified a secretive Chinese military unit as the likely source of hacking attacks against more than a hundred companies around the world. In a report made public on Tuesday, the firm, Mandiant, based in Alexandria, Virginia, said it could now back up suspicions it first reported in more qualified form in 2010. The firm had said then the Chinese government may have authorised the hacking activity it had traced to China, but that there was no way to determine the extent of official involvement. In its new report, Mandiant upgrades its assessment. The details we have analysed during hundreds of investigations convince us that the groups conducting these activities are based primarily in China and that the Chinese government is aware of them, the report said. Chinas government has denied the allegations. Hong Lei, a spokesman for Chinas foreign ministry, said on February 19th that China has itself been a victim of cyberattacks, and that it enforces laws that ban such activity. Groundless criticism is irresponsible and unprofessional, and it will not help to solve the problem," he said of the Mandiant report. According to the report, a Shanghai-based unit of the Peoples Liberation Army General Staff Department, known as Unit 61398, is staffed by hundreds and possibly thousands of people specially trained in network security, digital signal processing, covert communications and English linguistics. The units 12-storey building (pictured above) has been equipped with special fibre-optic communications infrastructure in the name of national defence. Mandiant said that since 2006, it has observed attacks from this unit against at least 141 companies spanning 20 major industries, including four of the seven strategic emerging industries that China has identified in its current five-year plan. The New York Times, which hired Mandiant to investigate China-based cyber-attacks against its news operations, was the first to report on the firms findings. Mandiant concluded that the attacks against the newspaper had come from a different Chinese source. In the case of the attacks described in the new report, Mandiant said it could not prove that the attacks came from within the military building it identified. But it concluded that

this was the most plausible explanation for its findings. Either they are coming fr om inside Unit 61398, or the people who run the most-controlled, most-monitored Internet networks in the world are clueless about thousands of people generating attacks from this one neighbourhood, Kevin Mandia, the founder and chief executive of the comp any told the paper.

Chinese cyber-attacks
How to steal a trillion

ON FEBRUARY 19th Mandiant, a security firm, released a report alleging that hackers from a Chinese military outfit known as Unit 61398 were probably behind attacks against more than a hundred companies and government agencies around the world. Without delving into the geopolitics of the the incident, involvement in which the Chinese authorities vehemently deny (and which we write about here), Babbage decided to examine what is known about the hackers' methods. In fact, Mandiant's detailed account of a group it dubs APT1 (after the term Advanced Persistent Threat) will not strike internet-security wonks as particularly Earth-shattering. It reveals the use of well-known techniques coupled with publicly available software though some proprietary software, apparently perfected over many years, was also used. What has turned heads is the duration of the attacks and the range of the group's "ecosystem" of remote-control software. This combination allowed the hackers to siphon terabytes, or trillions of bytes, of data from their victims. In many ways, the attacks resembled those criminal groups and spammers deploy against individuals and businesses. A "spearphishing" e-mail is sent, which attempts to get members of an organisation to open an attachment that appears to originate from a colleague or business partner, and contains some typical business data. Rather than a file, though, the attachment is a piece of malware. When opened, it exploits system flaws to install backdoor access to the computer. This allows remote command-and-control servers anywhere on the internet to install additional software, capture keystrokes and images on the screen, and ferret around the local network. Mandiant says the hackers sometimes used malicious remote-access toolkits readily available on the "dark side" of the internet (if not through your average Google search). But mostly they either developed or acquired at least 42 "families" of proprietary remoteaccess tools. Some have dates imprinted in them which indicate they were initially programmed as early as 2004, with updates added over the subsequent six years. The attacks, in other words, were carefully planned and premeditated.

To fool firewalls and other software, some remote-control malware mimicked traffic patterns of legitimate internet services, like the Jabber/XMPP chat system used by Google and Facebook, among others. This allowed them to send information to and from the infected machines without raising suspicions. A lot of the insidious traffic was encrypted, but this too is commonplace for many websites and services, including Twitter and standard e-mail. APT1 tried hard to retrieve password-related information, often using common cracking tools. Before being stored a password is usually fed into an algorithm called a hash function. This converts it into an obscure string of symbols, or a "hash", that offers no clue as to the original input. The function is irreversible, so you cannot work back from a hash to the password. You can, however, run different words through a hash function and compare the resulting hash with the one stored. Many such "brute-force" attacks use large dictionaries of common and less common passwords. As a number of companies discovered last year, poor passwords make for easy pickings. Some clever tools actually let an attacker log into a system using the encrypted form of a password, dispensing with the need to crack it. There is also evidence of hackers gleaning network information in order to make connections within a network and infect more machines. Some of the backdoors captured credentials for virtual private networks (VPNs), which allow direct remote access to a network without having to rely on a single compromised computer. Once in, the eavesdroppers used e-mail-extraction tools, which Mandiant says are unique to the group, to pull messages or attachments of interest from a user's inbox, both current and archived. Many of these exploits remain in place, sometimes in multiple forms in case one is found and removed. Hackers stuffed any files deemed of interest into compressed archive formats and added password protection before whisking them away. For all their sophistication, however, the hackers could display incredible insouciance. For example, APT1 registered domain names for some of its systems and used either a Shanghai mailing address or included an e-mail address tracked via a simple Google search to a Shanghai-based organisation. Remote-access sessions using a Microsoft tool nearly always originated from hacker machines using the simplified Chinese keyboard layout. Backdoor software included "path" information, revealing details about folder organisation on programmers' computers, as well as the date software was written. Most absurdly, perhaps, some hackers used the remote sessions on compromised machines to access their personal Facebook, Twitter or Gmail accounts. Among others, Mandiant has fingered a certain Wang Dong, who uses the handle Ugly Gorilla and who registered one of the command-and-control domains. It also included a screen shot of a Gmail inbox of another hacker. Mandiant is bracing for reprisals.

Philanthropy
Globalising giving

THE mission led by Warren Buffett and Bill Gates to make large-scale philanthropy the norm among the super rich has just won a dozen new converts. For the first time, those taking the Buffett-Gates "Giving Pledge" come from outside America, according to the announcement on February 19th. The total number of billionaires pledging to give away at least half their wealth by the end of their lives now stands at 102. The new signatories are an interesting mix of rich and emerging-economy money. The best known is Richard Branson, who used to be a notable sceptic about traditional personal philanthropy. British hedge fund boss Christopher Cooper-Hohn has also signed up, which will surprise no-one who has followed the activities of the Children's Investment Fund Foundation run by his wife, Jamie. Likewise, mobile phone entrepreneur, John Caudwell. As for David Sainsbury, a super market tycoon, he was starting to give away most of his pile long before Messrs Buffett and Gates even thought about it. More intriguing is Hasso Plattner, a founder of SAP, a software giant. Does his signature indicate a thawing of the traditional reluctance of rich Germans to talk publicly about their wealth or, when they do it, their giving? Andrew "Twiggy" Forrest, an Australian mining billionaire, has also been challenging Australia's conservative rich to do bigger, bolder philanthropy. Several of the signatories are from emerging economies. The former communist bloc is represented by Victor Pinchuk, a Ukrainian who holds an annual philanthropy discussion in Davos during the World Economic Forum, and Vladimir Potanin, a nickel mining magnate. There are two Africans. Mo Ibrahim, a mobile phone billionaire, has long been giving to support efforts to improve governance in the continent, including through a large prize for retired African leaders who did a good job in office. Patrice Motsepe, a South African mining boss, is the first black African billionaire to promise to give away so much. There is one Malaysian, Tan Chee Yioun, whose property development, gaming and sports conglomerate includes Cardiff City Football Club, and one Indian, Azim Premji, a technology tycoon whose giving has long been large and public. This seems like a small return on the considerable efforts of Messrs Buffett and Gates to encourage more philanthropy by rich Indians. Likewise, their visits to China have yielded not one signatory, nor have their entreaties to Latin America's super rich, such as Carlos Slim,who is by some measures now the world's wealthiest man.

"The 50% hurdle may be too high in some cultures," noted one American Giving Pledge signatory last week, adding that a more realistic goal may be to get any sort of public commitment to give in some countries, even if it is "only" for 10% or 20%. The idea that reducing your children's inheritance is good for them is perhaps uniquely popular amongst America's wealthy. Still, maybe these new signatories will inspire their peers, much as Ted Turner's pledge in 1997 to give $1 billion to the UN did for his fellow American super rich. According to Forbes, there were 1223 billionaires on the planet in 2012. 102 down, 1121 to go.

Raising the minimum wage

Trickle-up economics

The president proposes a hefty increase in the minimum wage

BARACK OBAMA has long made income inequality a central theme of his second-term agenda. He has already tackled inequality from the top by preserving tax cuts for everyone but the rich. In his address to Congress on February 12th, he dealt with it from below, proposing to raise the federal minimum wage by 24%, benefiting, so the White House claimed, 15m low-wage workers. Americas minimum wage has long been low by international standards, equalling just 38% of the median wage in 2011, close to the lowest in the OECD (see chart). Congress changes it only occasionally, and in the interim inflation eats away its value. The wage was last raised, to $7.25 per hour, in 2009. Since then its real value has slipped back to where it was in 1998. Twenty states now have minimum wages above the federal rate, compared to 15 in 2010, according to the Economic Policy Institute, a liberal research group. Mr Obamas proposal would boost the nominal wage to $9 per hour by 2015, restoring it, in real terms, to its 1979 level, though relative to median wages it would still be lower than in many other rich countries. Thereafter, it would be indexed to inflation. He would also raise the minimum wage for workers who receive tips for the first time in over 20 years. The proposal drew the predicted response: labour and liberal groups said it would reduce poverty and raise the spending power of the poorest workers, while businesses and Republicans (whose co-operation is needed if the proposal is to become law) said it would cost low-skilled workers jobs.

The economic consequences are hard to predict. Economists historically frowned on minimum wages as distortionary price fixing that reduced demand for workers affected by the wage. But that assumption has come under fire from a growing body of research. The introduction of Britains minimum wage in 1999 had no notable impact on jobs, for example. In America, the White House approvingly cites research by Arindrajit Dube, William Lester and Michael Reich that compared counties where the minimum wage rate rose to neighbouring counties in states where it didnt and found no negative effect on employment. The theory is that higher wages reduce costly turnover, reducing the incentive to lay workers off. Some minimum-wage proponents go even further, arguing that a higher minimum boosts jobs by shifting income towards people who consume more of what they earn. The EPI, for example, last year claimed a minimum wage of $9.80 per hour would create 100,000 jobs. But David Neumark and William Wascher, who have long studied, and been critical, of the minimum wage, maintain the evidence bears out basic economic intuition: a higher minimum wage costs some low-skilled workers their jobs while helping those who keep them. Mr Neumark is particularly dismissive of the notion that a higher minimum wage can boost the economy, and indeed that is not a claim the White House makes. For Mr Obama, that may not matter. His speech contained many more effective means to boost growth and incomes of the poor, from increased infrastructure to early childhood education. Unlike the minimum wage, though, they cost the government money that it doesnt have.

Carbon trading
The first hurdle

EUROPES emissions-trading system, the worlds largest carbon cap-and-trade scheme, survived a near-death experience on February 19th. The environment committee of the European Parliament voted to support a plan proposed by the European Commission, the European Unions executive arm, to take 900m tonnes of carbon allowances off the market for up to five years. Had it rejected the plan, the market might have collapsed. The proposal would reduce some of the massive overcapacity in the ETS, which has driven the price of carbon down from almost 30 a tonne in 2008 to about 5 this year. As this article argues, the overcapacity has come about as a result of two things: recession (which has pushed down industrial demand for carbon, even though the volume of carbon allowances is fixed for 2013-20) and one-off factors such as an

increase in the number of carbon auctions. By taking allowances off the market now, when prices are low, and reintroducing them later, when (the proposers hope) prices will be higher, the designers of the scheme hope to limit the price decline. In the first instance, that hope was not fulfilled. Prices fell to 4 a tonne after the vote. The margin of approval for the proposal was surprisingly wide. Most people had expected the vote to be extremely close, reflecting the balance of opinion among market participants generally: Europes biggest companies were mostly against the proposal, but the power generators (who buy most of the allowances, but want more certainty) were in favour. The German government is also split, with the liberal economy minister opposed but the Christian Democrat environment minister in favour. In the event, the measure passed reasonably easily, by 38 votes to 25. The centre-right Christian Democrats, which some had expected to be solidly opposed, split, with seven members of the European Parliament voting in favour; the centre-left Socialists, which people had thought might split, held together, with almost all backing the proposal. This vote is just the start of a long drawn-out process in which national governments, the commission and the whole European Parliament will all have a say. Supporters of the measure want negotiations (a trialogue) to begin right away. Opponents still have a chance to slow things down by insisting on a vote in the full parliament first, then on negotiations and then on another full vote. It was the realisation of how many more steps are needed to save the ETS that pushed carbon prices down. A vote on the timetable is due next week.

The services sector

The post-industrial future is nigh

CHINA is known for its industrial might. Manufacturers, miners, utilities and builders accounted for over 45% of China's GDP in 2012. In America, by contrast, they contributed less than 20%. China, according to caricature, makes thingsthings you can drop on your foot. Soft-toed America merely designs, brands and peddles them.

Industry has long made an outsized contribution to China's output. This is true not only in comparison with post-industrial America. It is also the case when China is compared with other economies at a similar stage of development. According to calculations by Ejaz Ghani of the World Bank and Homi Kharas, now of the Brookings Institution, manufacturing's share of China's GDP was more than 18 percentage points above the global norm in 2005. Services, in contrast, were almost eight points below (see this first chart, to the right). Armed with numbers like these, critics have accused China's policymakers of a factory fetish. Subsidised land, credit and power have favoured industry, which tends to be

capital-intensive and power-hungry. A cheap yuan has also favoured manufactured items, which can be sold abroad, over services, which often cannot be.

But 2013 may mark an interesting turning point. It may be the year that China's services sector officially eclipses industry. According to the national statistics, services (which include transport, wholesaling, retailing, hotels, catering, finance, real estate and scientific research, among other things) accounted for 44.6% of China's GDP in 2012. That is less than one point behind industry's 45.3%. And services are growing faster (see the second chart). The surge in services may reflect the ongoing rebalancing of Chinese demand away from exports and towards consumption. The surge may also help to promote that rebalancing. Because services tend to be labour-intensive, their expansion should encourage faster job creation, higher wages and greater household spending. Before heralding the dawn of China's post-industrial future, however, I should note a number of caveats. Despite its growth, the role of services in China's GDP still falls short of global norms. This type of economic activity may play a more prominent part than it did in 2005, when its share of GDP fell eight points short of China's peers. But China's economy has also moved on since then. Eyeballing the chart by Messrs Ghani and Kharas suggests services should be about 55-60% of China's GDP by now. (I'm assuming that log GDP per capita is the common logarithm, with base 10.) Service prices have also been rising faster than those in industry. Measured at constant 2005 prices, services are still a much smaller share of China's economy than of its peers. But the increasing cost of services does not change the fact that more is being spent on them, which should encourage greater investment and hiring within the sector.

China's statisticians struggle to count things they cannot drop on their foot. Given these statistical shortcomings, it takes a little temerity to suggest we can identify the precise year when services will overtake industry. But, hey, that's why I'm in journalism. I would note that, if anything, China's dodgy figures probably still understate the importance of services. After the 2004 economic census, for example, China revised up its estimate of services output by a whopping 48.7%! Statistics is one service China definitely needs to develop further.

Fast food in China

Yucky Kentucky

Yum! Brands stumbles in China

OUR food is perfectly safe to eat. From the company that once boasted that its fried chicken was finger-lickin good, this is hardly a bold sales pitch. But Yum! Brands, the owner of KFC, Pizza Hut and Taco Bell, has good cause to sound defensive. A foodsafety scandal in China, its most important market, refuses to blow over. An expos in December on CCTV, Chinas national broadcaster, claimed that local suppliers to KFC had stuffed its chickens with excessive antibiotics. That prompted an official investigation, and outrage on Chinese social media. During an earnings call on February 5th to discuss its fourth-quarter results, Yum! executives stressed the positive: worldwide sales grew by 5% in 2012, and the firm opened 1,976 new restaurants. The Chinese regulator has decided not to take further action against Yum!, though its suppliers are still under the microscope. Yet the firm had to acknowledge that KFC sales in China fell by a staggering 41% in January. Overall, same-store sales for Yum! outlets in China fell by 6% in the fourth quarter of 2012, versus the same period a year ago; the comparable figure in 2011 was a 21% rise (see chart). Yum! will have to revise its global earnings target for 2013 significantly. Yum! has bet heavily on China, opening 889 new stores there last year. Stores elsewhere are typically low-margin franchises, but in China Yum! tends to own them. So in good times it pockets fat margins: China last year made up half of its $4.2 billion sales and two-fifths of its $500m operating profits. In bad times, however, its pain in China is magnified. Undaunted, Yum! says it is full steam ahead for further investments in China. It is launching a marketing campaign to build on its cool, hip brands. It is pushing its suppliers to improve quality. Given its clever efforts to cater to local tastes (menus offer

congee and egg tarts) and its successful recovery from the SARS crisis, it should rebound. Still, it will not be easy. The firms scorching growth in China was already cooling off before this setback. After a string of food scandals, Chinese diners seem increasingly unwilling to forgive offenders. Nor are they still willing to give foreign brands the benefit of the doubt. Yum! bosses admit: We dont know how long it will take us to recover.

Protest in Singapore
To the sodden field!

HAUNTED, as ever, by the CIAs most notorious mis-assessment of Iran (which, they said, is not revolutionary or even in a pre-revolutionary situation, just months before the 1978 revolution), I headed down to what is supposed to be Singapores biggest protest since independencejust in case. No worries. There are probably as many as 5,000 people (out of a population of 5.3m) braving the monsoon rains at Speakers Corner, a muddy field reserved for just this kind of thing, to abuse and jeer at the government. But theres no whiff of insurrection in the air; I reckon the prime minister will survive. Your investments are safe. The governments policies on immigration were the object of the protesters wrath. Even short a revolution, this promises to remain the countrys most sensitive issue for some time to come. The fact that there was a public protest at all in this tightly-controlled country, organised (inevitably) on Facebook, is testimony to the emotions that this particular subject stirs. The rally at Speakers Corner was provoked by the publication of the governments white paper on population, published on January 29th, which projects a possible rise in Singapores to a whopping 6.9m by 2030. This would make what is already by most measures the most densely populated country in the worldyet more densely populated. Moreover most of this population surge is to be achieved, apparently, by immigration rather than by procreation. Singaporeans, it seems, have given up on the bedroom; the total fertility rate here, at 1.2, is among the lowest in the world. At the rally on February 16th speakers young and old, Chinese, Malay and Indian, the articulate and the less so, all queued up to denounce this policy. They say that immigration on such a large scale will destroy Singapore and its way of life. There were a lot of complaints as to how the sheer crush of people has already led to clogged roads, bursting buses, higher prices and fewer jobs for locals. (There was also some

resentment at being told how badly they were performing in-between the sheets, for instance in the following Mentos ad, a work of monumentally poor taste.) Yet to their credit all the speakers tried to remain high-minded rather than demagogic or nationalistic, as can easily happen in debates about immigration. Aware of the danger of appearing racist, the organisers issued frequent warning against xenophobia, and even against appearing too political. Instead we were treated to long treatises on wage rates and suboptimal economic outcomes, as well as to quotations from Alan Greenspan. This is, after all, a hubor even a nodeof the global capitalist system. For its part, the government argues that Singapore has to bring in the immigrants to maintain the economic success of recent years, and with it the city-states high standards of living. The protesters express gratitude for the high standard of living, but they insist that it is time for the countrys enormous riches to be more evenly distributed among its people, especially among its native-born population. There was a feeling that immigrants get special breaks (such as dodging the two-year national-service requirement), thereby contributing less to Singapore than they should, while extracting benefits just like the Singapore-born and -raised. Increasingly, people argue that Singapores economic model has come to rely too much on immigration for the benefit of immigrants and the well-heeledleaving most native Singaporeans, who form an ever smaller percentage of the population, relatively poorer, possibly jobless, and certainly unhappy. This rally wont seriously disturb the governments peace of mind. For a start, the white paper has already been passed by a large majority in parliament, where the ruling Peoples Action Party (PAP) has held a large majority ever since self -government began in 1959. The party has been losing popularity in recent years, however, winning an historic low of 60% of the vote at the last election in 2011 (while still winning its usual healthy majority of seats). Immigration has been one issue to hurt it. So party bigwigs know that they have to listen more closely to the electorate, as they have promised to do, and they also know that immigration is one of those issues that has a way of turning very toxic very quickly, as politicians from Britain and France to Malaysia and China can easily confirm. So on this one, even if the revolution never comes, it makes sense to expect some give-and-take, and perhaps flexibility even, from the PAP.

Rail journeys
Second-class camaraderie

FOR THE past two weeks, nearly all of China was on the move, as hundreds of millions of people made the journey home for their New Year celebrations. According to official figures, 2013 will have seen a record-breaking 3.41 billion passenger trips during its 40day Spring Festival travel season. Of those many travellers, 225m equivalent to the total populations of Germany, France, and the United Kingdom will have taken a train within China this month. Chinese travellers queue up early each year to secure tickets on the more popular routes. The government has enacted measures to combat ticket-scalping. Some enterprising buyers have found high-tech hacks to solve the perennial problem of getting a ride home. Thirty-six hours is the lifespan of the adult Mayfly. It is the average work week (plus one hour of overtime) in France. It is the name of a 1965 film starring James Garner. It is also an incredibly long time to spend on a train. In the midst of the Lunar New Year rush, your correspondent is travelling 36 hours by rail from Beijing to Kunming, the capital of Yunnan province, in Chinas south-west. The Chinese government is justifiably proud of its network of futuristic high speed trains. The newest additionthe longest high-speed railway line in the worldopened at the end of 2012, allowing passengers to make the 1,418km journey from Beijing to the southern metropolis of Guangzhou in just eight hours. But high-speed rail service to remote Yunnan isnt scheduled to be completed until 2015. Instead your correspondent is on the T-61 train out of Beijing West Station. The T stands for tekuai or Extra Fast. At top speeds of 140 kilometres per hour, no doubt at one point the T-Class trains lived up to their billing. But the rapid development of Chinas rail system has left them behind, and they now rank toward the middle of the league in terms of overall speed. Their primary benefit is that they rank towards the middle in terms of price as well. A 2nd-class sleeping berth costs around $88, as opposed to over $250 for a seat on the new Beijing-Guangzhou high-speed line. The first-class berths on our train are in enclosed compartments, each with four bunks plus the added luxury of a door. The greatest number of rail passengers in China, however, travel 2nd-class, which means six bunks in compartments that open directly to the passageway.

Toilets and sinks are at the end of each car. Unpleasant odours there are masked by a perpetual haze of tobacco, as smokers huddle between carsthe only place on the T61 where cigarette-smoking is tolerated. Even the dining car has gone smoke-free. (Midway through the dinner service one evening, it seems to go food-free as well.) Ticket prices vary according to the bunk you choose. Top berths can require an intricate series of acrobatic moves to get in and out of bed, although being up high tends to mean more privacy. Lower bunks are more convenient, but it is understood that they are to be shared with all of the other passengers in your compartment, and their friends and family, until the lights-out, at 10pm. Train travel in Chinaas with most things in this country of 1.5 billion peopleis a distinctly communal affair. Crammed together for three days, garrulous and curious passengers move from compartment to compartment, striking up conversations with their neighbours that last for hundreds of miles. Sometimes the chats can become quite boisterous. A travel companion in another car endured a mostly sleepless night on our first evening aboard when a group of revellers, dismissed from the caf car but not before finagling a bottle of the local spirits to go, decided to continue their festivities in his compartment. Fortunately, such incidents are relatively rare. The conductors are ever vigilant. One tapped your correspondent awake at 2.30am to tell him to put away the iPad he had foolishly let fall off of the bunk after falling asleep while reading. The tendency to more old-fashioned chatter is helped along by our trains relative dearth of electrical outlets. The new high-speed trains are equipped with Wi-Fi and stations for charging all manner of electronic devices. On our T-61 rumours circulate of working outlets in this car or that. Ill-fated forays are made to these El Dorados of electricity. By the evening of the second day, most devices have run low or run out. Cards and books replace gaming devices and tablets. Cut off from social media, people decide to instead simply be social. Just before our arrival in Kunming, in the very early morning, a conductor comes to roust people from their bunks. He neednt bother though, as a few minutes earlier the compartment lights had switched on and the speakers began blaring with smooth sax stylings reminiscent of Kenny G. Kunming is end of the line, but that may soon change. The high-speed line connecting Kunming and Shanghai which is scheduled to open in two years is part of an even more ambitious plan to link south-west China with South-East Asia by rail. The plan to build a rail line between Kunming and Singapore was first proposed by colonial authorities over

a century ago. As part of an effort to establish Kunming as a regional economic and transport hub for South-East Asia, a proposed high-speed line between Kunming and Singapore is scheduled to begin service in 2020. At that time, it would become possible to travel by high-speed rail from Singapore to Beijing and beyond. For now, the journey takes at least a few transfers and quite a bit longer. To passengers caught in the holiday rush, it can seem interminable. For others, it can be an enforced time-out from the bustle of an increasingly hectic and connected China and a way to go home, too.

Middle Eastern airlines

A widening gulf

COVERAGE of aviation in the Middle East invariably focuses on the region's dominant super-connectorsDubai's Emirates Airline, Abu Dhabi's Etihad Airways and Qatar Airways. These carriers have turned the Arabian Gulf into the world's fastest-growing bridging point for inter-continental traffic. Other Gulf airlines, though, are floundering. In the neighbouring kingdom of Bahrain, Gulf Air is embroiled in its third major restructuring effort in a decade while Bahrain Air, a low-cost carrier, has just filed for liquidation. It was not always this way for Gulf Air. The 63-year-old former flag carrier of Bahrain, Qatar, the United Arab Emirates (UAE) and Oman has declined steadily since three of its member states broke away to establish independent carriers. The airline does not disclose its financial results, but last year parliamentarians claimed that it has lost about $5bn since 2009. These losses were accelerated by the Arab spring. In 2011 Bahrain's government banned both Gulf Air and Bahrain Air from flying to Iran, Iraq and Lebanon. Flights to Beirut resumed quickly but the vital Iraqi market remained off-limits until late last year. Iranian flights have yet to be reinstated. Violent unrest in Manama, Bahrain's capital, kept tourists away and added to Gulf Air's woes. By contrast, traffic at Dubai and Abu Dhabi grew by double digits throughout the Arab spring. Bahrain Air filed for liquidation on February 12th after just five years in business. The airlines financial situation was exacerbated by the government's alleged failure to provide compensation for the groundings during the Arab spring, but that was only part of the problem. The airline stated that Bahrain's minister of transport, who sits on the board of Gulf Air, had curtailed Bahrain Air's routes to important markets. According to its chief executive Richard Nuttall, perhaps 30% of our flying was reduced. With Bahrain Air now grounded, Gulf Air should in theory be able to capitalise on its bolstered market share in the country. But whether it can do so in practice remains to be seen.

EU migration to Germany
Sprechen Sie job?

More southern Europeans are going where the jobs are. But not enough

DANIEL GMEZ GARCIA, aged 23, is the sort of person Europes leaders may have had in mind when, on paper at least, they turned the European Union into a single labour market like Americas. Mr Gmez, from Andalusia in Spain, learned a smattering of German in school and passable English while studying in America. But when he came back to Spain he saw that hardly anybody in his class of 80 had a job. Nothing to do, so let me go to Germany and get the language, he recalls thinking. In autumn 2012 he took an unpaid four-month internship at his embassy in Berlin and paid for his tiny flatshare by helping a local holiday-rental firm with its Excel spreadsheets. Last month that turned into a low-paying but permanent job as an accountant.

That is how the single market is supposed to work. Spain has a youth unemployment rate of 56%. In Greece it is 58% (see chart). By contrast, Germany has negligible youth unemployment (8%) and a shortage of qualified workers. Theoretically, people should be willing to move from the crisis countries to the boom towns, just as the Okies once flocked to California. To some extent this migration is indeed happening. New arrivals in Germany in the first half of 2012 grew by 15% over the same period in 2011, and by 35% net of departures. And the numbers of newcomers from the euro crisis countries increased the most Greek arrivals were up by 78%, Spanish by 53%, for example. But the absolute numbers (6,900 Greeks and 3,900 Spaniards during those six months) are still modest. It is astonishing how astonishing it still is that they are coming, says Holger Kolb, at the Expert Council of German Foundations on Integration and Migration. Some things are beginning to work as intended, such as the elimination of bureaucratic hassles for moving within the EU. Yet it seems that the EU can never become a truly integrated market. That is mainly because of language. Mr Gmez finds Germans challenging

always nagging you about recycling or noise or whateverbut the language is the hardest part. Thus language has replaced work visas as the main barrier to mobility. When the euro crisis began, the branches in southern Europe of the Goethe Institute, the German equivalent of the British Council, were overwhelmed by demand for German courses, says Heike Uhlig, the institutes director of language programmes. That demand was also different, she adds: less about yearning to read Goethes Faust than about finding work. So the institute retooled, offering courses geared to the technical German used by engineers, nurses or doctors. Language, besides proximity, of explains a lot of todays movements in the EU, says Klaus Bade, another migration expert. For example, the largest group of new arrivals in Germany is still from Poland, which is poorer though not a crisis country. But its schools often teach German alongside English. Meanwhile Britain, thanks to English, has an advantage in the competition for foreign talent, which big German firms try to minimise by accepting English as their working language. But many of the job openings in Germany are to be found in medium-sized and private Mittelstand firms, often in remote places, where speaking German is still a must. Thats why Mr Gmez is advising his friends back home in Spain to bone up on the language and then leave, get out.

Turkey and Islam

Dress tests

New frontiers in Turkeys culture wars

STAR TREK, said one commentator. They may as well wear a burqa, huffed another. Supposedly chaste new uniforms for Turkish Airlines (THY) cabin attendants have triggered mirth and horror in the cyberworld. They have also sharpened debate about creeping conservatism under the mildly Islamist Justice and Development (AK) government. With its embrace of overt piety and family values, AK is more like Americas religious right than Irans mullahs. But secularists feel beleaguered. THYs ankle-length caftans for women and silver-brocade coats for men seem impractical. Dilek Hanif, who designed them, insisted they were just several among many other proposed models. THY backed her claims with photos of more sensible gear. The carrier, which now flies to 219 destinations, was last year voted Best Airline Europe by Skytrax, an airline quality-ranking programme, for a second time.

Fresh controversy erupted when it emerged that THY has scrapped booze on all domestic flights save six (including Ankara and Istanbul). Eight foreign destinations in Africa and the Middle East have also gone dry. We are globally sober, tweeted Bulent Mumay, a journalist for Hurriyet, in a dig at THYs advertisement, Globally Yours. The airline justifies its move on the ground that there is insufficient demand by Anatolian and other Muslim passengers. More likely, some say, it wants to please Turkeys prime minister, Recep Tayyip Erdogan, a militant teetotaller, who while mayor of Istanbul led a campaign to scrap drink in municipally run restaurants. Yet like the similarly pious president, Abdullah Gul, Mr Erdogan tolerates drinking on his official jet. Even so, many Turks pander to his piety. At a fashion fair in December organisers removed naked mannequins before his arrival. Producers of The Magnificent Century, a popular mini-series about Suleiman the Magnificent, shrank his beloved wife Roxelanas cleavage after Mr Erdogan complained that our Ottoman forebears are being misrepresented. After ten years of AK rule Turkey is richer, more powerfuland less fun.

Desalination
Costly drops

Removing salt from seawater might help slake some of northern Chinas thirst, but it comes at a high price
CHINESE officials are fond of grandiose engineering projects. After more than a decade of toil, one of the biggest since the construction of the Great Wall is close to achieving what they like to call a decisive victory. In coming months, canals and pipelines hundreds of kilometres long will bring water from the Yangzi River basin to the parched north. But growing demand is forcing officials to look for other sources. A promising one, they believe, is the sea. The Beijiang Power and Desalination Plant lies a few hundred metres from the coast; its chimney and two cooling towers dominate a desolate expanse of salt farms. The $4.1 billion facility is one of the pet projects of the government in the port city of Tianjin, a manufacturing and logistics hub that, like nearby Beijing, enjoys provincial-level status and is one of Chinas fastest-growing regions. The Beijiang plant began generating electricity in 2009, and the following year became Chinas first large-scale supplier of desalinated water through a city main. For Tianjin at

least, the plant offers a ray of hope. The city, like most of northern China, is desperately dry. Local water resources per person are less than 7% of the national average. By the middle of this year the first of three planned water-diversion projects bringing water to the north from the Yangzi basin is due to open for trial use. This easterly route (see map), which is more than 1,100 kilometres (700 miles) long, was partly intended to help satisfy Tianjins thirst, but its construction has suffered years of delays. The project will initially provide water to the provinces of Shandong, Jiangsu and Anhui. No date has yet been set for Tianjin to tap in. The city will not get its first taste of Yangzibasin water until the middle of the three routes is ready, which officials say will be late in 2014. This is also several years later than planned (moving 330,000 people to make way for the project has proved arduous). Even when the water flows into Tianjin, at an initial rate of about 1 billion cubic metres a year, it will still not satisfy demand. The government news agency, Xinhua, says Tianjin will need an additional 600m cubic metres a year. The delays, shortcomings and mounting costs of the water-diversion scheme (more than $34 billion spent so far) have encouraged officials to look at other solutions. China has been a slow starter in desalination, but in recent years the country has become one of the worlds fastest-growing markets for the technology. This does not come cheap, but the government can lean on state-owned enterprises such as SDIC, which operates the Beijiang plant, to shoulder the cost. A year ago the government said China would produce up to 2.6m cubic metres of desalinated water daily by 2015, a more than fourfold increase. That would be a tiny share of Chinas unmet demand, but nearly the amount that Tianjin expects to receive from the diversion schemes middle route. Dry days China is still heavily dependent on imported technology. The Beijiang plant uses Israeli equipment to distil the seawater, but officials say Chinas own technology will reach world standards in the next few years. Tan Peidong, a deputy general manager of the Beijiang facility, predicts that this will help reduce costs. He also expects help from rising water tariffs, which China has long kept below market levels in order to protect consumers. Within a couple of years, he says, Beijiang will begin turning a profit on its water, which by next year it will be able to produce at a rate of 200,000 cubic metres a day, twice todays capacity (though current output is much less). Mr Tan does not see any threat to his business from next years arrival of diverted water. Not only will there remain a shortage, but his water will be cheaper to supply to the grid than diverted water from the Yangzi basin. A cubic metre of water from the plant costs about 8 yuan ($1.30) to produceslightly more than the price paid by industrial users,

but 60% higher than the tariff for households. Mr Tan says a cubic metre of Yangzi-basin water will cost about 10 yuan. He says he is very hopeful that some of his output will be piped to Beijing. Supplying desalinated water to the capital will still cost about the same or only a little more than channelling in water from the south, he reckons. In its first five-year plan for the industry, in December, the government insisted that desalination was of benefit to sustainable development. It was better, it argued, than sucking more water out of the norths fast-diminishing aquifers. That is surely right. Yet desalinating water uses enormous amounts of energy, which comes mainly from highly polluting coal (though Beijiangs advanced technology is more efficient than that found in standard power plants). And diverting water from the river basin could exacerbate the impact of droughts in the south. No wonder that environmentalists complain that the government is relying on costly remedies, and doing too little to encourage conservation.

Tibetans
Nothing to celebrate

FALLING within days of one another this (Gregorian) year, the Han Chinese and Tibetan New Years celebrations have almost shared a single calendar. For both peoples, it is traditionally a time of wishing for good fortune and new beginnings. In political terms however there are precious few signs of change in their troubled relationship. Tibetans continue to protest Chinese rule by burning themselves to death. The most recent self-immolation was reported by overseas activist groups to have occurred on February 13th, the third day of Losar, the Tibetan New Year holiday. Drugpa Khar, a young father of three, died after soaking himself with petrol and setting himself ablaze in a Tibetan area of Gansu province. On the same day in Nepals capital, Kathmanduthe home of a large community of exiled Tibetansanother, unidentified Tibetan died after immolating himself. He was said to be a monk who had only recently arrived from Tibet. On February 3rd, in a Tibetan area of Sichuan province, a 37-year-old monk named Lobsang Namgyal came to yet another fiery end. News of his death took ten days to emerge. When it did, it was reported widely as being the 100th self-immolation since 2009, when Tibetans adopted this extreme form of protest. Even as the number of self-immolations spiked dramatically during November, when China held its once-a-decade leadership transition, hopes arose that newly installed

leader Xi Jinping might harbour a softer attitude towards Tibetans demands for greater autonomyor that he might at least have new ideas about handling the situation. Were that the case, Mr Xi is not yet ready to act. Early in his tenure, he has chosen instead to reaffirm familiar hardline policies. On January 29th, China announced the appointment of Losang Gyaltsen as Tibets new governor. An ethnic Tibetan, according to his official biography he joined the Communist Party at the age of 21, pursued an academic career in Marxism-Leninism studies, and later became mayor of Lhasa. In his first public remarks as governor, he praised the Party for its peaceful liberation of Tibet, its socialist system and its ethnic-autonomy policies. In recent months, China has also intensified its security crackdown, both within the formal boundaries of the Tibet Autonomous Region (TAR), and in the heavily Tibetan areas of the surrounding provinces (ie Sichuan, Qinghai and Gansu), where most of the unrest and self-immolations have been reported. Because China seldom allows outside observers into these areas, news of the latest developments often comes from human-rights groups and Tibetan activists based overseas. According to their accounts, officials have been withholding the passports of ethnic Tibetans in order to restrict their foreign travel. State officials are also reported to have cracked down with collective punishment, cutting off funding for projects located in villages that have connections to the suicide-protesters as well as public benefits to individual households. Earlier this month, China sentenced one man to 13 years imprisonment for trying to incite a monk to self-immolate, and detained 70 others on unspecified charges thought to be related to self-immolations. China rejects Tibetan claims that the suicides are a desperate response to profound grievances. Instead the official position has it that the Dalai Lama clique has encouraged extremism and masterminded and incited the self -immolations. But the Dalai Lamas organisation, the India-based Central Tibetan Administration (CTA), has repeatedly called on Tibetans not to undertake drastic actions while at the same time urging China to end what it calls the repression and economic marginalisation of Tibetans in their own homeland. The CTA has also called on Tibetans, in light of the continuing tragic situation, to refrain from their normal merrymaking during this years holiday season, and to observe only the customary religious rituals. It does not seem like a propitious New Year for any of the parties concerned.

Football
Own goal

Two foreign stars depart, leaving Chinese football back where it started
A SHANGHAI newspaper summed it up well: We dreamed the dream, and it came true. Now weve woken up. The dream in question was the arrival at Shanghai Shenhua, the local football team, of two world-class footballers, Nicolas Anelka, a Frenchman, and Didier Drogba from Cte dIvoire. Now Mr Drogba is leaving Shenhua for Galatasaray in Turkey after just six months, and Mr Anelka is joining Italys Juventus after just over a year. For many Chinese, their brief stay summed up all that is wrong with their count rys football. Mr Anelka frequently lived up to his nicknameLe Sulkduring what one Chinese newspaper described as 414 days of farce. Within a few months of his arrival, Shanghai Shenhua fired first its coaching staff, then its manager, then appointed Mr Anelka player-coach, before bringing in a new manager without consulting him. The situation improved briefly after Mr Drogbas arrival, his eight goals in 11 games helping Shenhua avoid relegation. But then the clubs owner, Zhu Jun, an online-gaming tycoon, fell out with the rest of Shenhuas board and threatened to leave amid reports of unpaid wages and a boycott of training by players. The departure of the two stars has prompted much soul-searching in a country where there has long been frustration over corruption in football and the repeated failure of the national team. Many commentators expressed sympathy for the two foreign stars. The Oriental Morning Post wrote: We can imagine how angry they must have felt, first at being owed wages, then at being used as pawns in the clubs own internal disputes. A commentator for the Oriental Sports Daily noted that a player like Mr Drogba, who had helped Chelsea win the European Champions League last season, never belonged on the third-class stage of Chinese football. Official pledges to change things abound, but no one is holding his breath. The games combination of career bureaucrats and flamboyant but sometimes fickle rich investors is a recipe for continuing problems. Rowan Simons, a Briton who chairs an organisation that promotes grass-roots football in China, says he has not seen any improvement in the Chinese Football Association in the past three years. Last year, he says, when Mr Drogba and Mr Anelka came, it felt like something big could happen. But if clubs continue just to focus on bringing in big

names for PR stunts and image rights, he says, then what could have been a new dawn will be no dawn at all.

North Koreas nuclear test

Fallout

To the chagrin of his neighbours, a young despot appears determined to continue his familys atomic blackmail
THE nuclear explosion that North Korea set off on February 12th deep in a hillside in the countrys north-east would, the regime immediately assured, pose no negative impact on the surrounding ecological environment. The negative impact on North-East Asias security environment, on the other hand, was instant. The nuclear test came in defiance even of China, North Koreas supposed ally. It took place just hours before Barack Obama gave his state-of-the-union address at the start of his second term as president. It was, North Korea insisted, a self -defensive measure against continued hostility by America. Even stronger measures were threatened. North Koreans, at least in front of the cameras, appeared jubilant. It will take a while to know what exactly went on at the Punggye-ri test site. The official news agency, KCNA, said the bomb was smaller, lighter and more powerful than the previous two tested in October 2006 and May 2009. Whether that is true or not, the regimes goal is surely to make a warhead compact enough to sit atop its Unha -3 rocket, one of which put a satellite into space in December. With the right re-entry and weapons-guiding technologies, North Korea would then have an intercontinental ballistic missile with the ability to strike America. South Koreas defence ministry says the seismic impact of the blast indicated a p ower equivalent to 6-7 kilotons of TNT, compared with 2-6 kilotons in 2009. KCNA avoided mention of what fissile material was usedplutonium (as in the previous tests) or highly enriched uranium. If uranium, it would make the Norths nuclear programme more threatening. The country has plentiful deposits of uranium ore, whereas its supply of plutonium is limited. The uranium enrichment process is also easy to conceal, devices can be made more quickly, and the risk of proliferation with nuclear allies such as Iran is higher. Condemnation of the blast was swift. The United Nations Security Council, which had warned North Korea against conducting a test, threatened further action. Diplomats

expect existing UN sanctions to be strengthened. Yet the best way to put real pressure on the regime would be to hit it financially, freezing the accounts to which regime members have access. In his address, Mr Obama promised action. He said America would stand by its allies in the region and strengthen its missile defences. Yet the means for disciplining North Korea are limited. For a start, no matter how isolated the regime, Kim Jong Un, the young dictator, in the job for just over a year, seems to have inherited from his father and grandfather the conviction that a nuclear capability is a non-negotiable survival strategy. That makes the goal of denuclearisation, a premise for any renewed American engagement with North Korea, seem a pipe dream, at least for as long as the regime survives. If North Korea sets any store by the stalled six-party talks convened by China and including Russia, South Korea, Japan and America, it will be as a forum not for bargaining away its capability but for acknowledging the North as a nuclear power. The North Korean challenge comes at a time when relationships among North-East Asian neighbours are unsettled. In addition, the neighbours have internal differences over how to deal with North Korea. Take China, where some want more toughness than the government has so far shown against North Koreasomething that would go down well with America and its allies, too. Many Chinese are furious that, by ignoring urgings not to conduct a test, North Korea has poked big brother in the eye. China swiftly backed the UN rebuke, and its foreign minister summoned North Koreas ambassador in Beijing for a dressing-down. The timing of the test cannot have helped, coinciding with Chinas lunar-new-year festivities. Some Chinese bloggers are splenetic. All the same, Xi Jinping, who took over as Communist Party chief in November, is unlikely to change Chinas policy towards the North by cutting off border trade (see article) or energy supplies. Nor will he constrict the regimes access to cash. That might risk precipitating collapse, or goading the Pyongyang leadership into starting a war on the Korean peninsula. Divisions may widen inside South Korea, too. The president-elect, Park Geun-hye, takes office on February 25th. Though of the same conservative party as the outgoing leader, Lee Myung-bak (loathed by the Kim regime for his hard line), Ms Park had promised a more trust-based relationship. Many voters will still hope she is more conciliatory towards the North. But she warned after the test that the Norths pursuit of nuclear weapons would bring it self-destruction. And on February 14th the South unveiled a new cruise missile that it said could strike the window of the office of North Koreas leadership.

Regional tensions will make a unified response more difficult. Relations between China and Japan have sunk to a nadir in a dispute over islands in the East China Sea. Michael Green of the Centre for Strategic and International Studies in Washington, DC, says America could encourage more trilateral co-operation with its two closest allies, Japan and South Korea, including on missile defence. But this would rankle China, where many think the American aim is to contain them. Meanwhile, relations between Japan and South Korea are also troubled by disputed rocks, though less dangerously than in the Sino-Japanese case. Japan, under its new prime minister, Shinzo Abe, is putting forward ideas that might please America but irk China and South Korea. Mr Abe, who will meet Mr Obama in Washington next week, is keen to reinterpret Japans constitution, in which the country renounces war, in ways that give Japan the right to engage in collective self-defence in the face of security threats. He wants Japan to be able to help an ally when it is in troubleby, for instance, shooting down North Korean missiles that are heading for the United States. American policymakers have generally favoured such a shift. However, some Chinese and South Koreans view Mr Abe as a hawk with revisionist views about Japans past imperialist brutalities. So some members of the Obama administration are nervous that Mr Abes ambitions may increase regional tensions. Mr Green believes such fears to be overblown. In its essence, he says, collective self-defence is not a threatening aspiration. Uncertainty also comes with John Kerrys replacement of Hillary Clinton as Americas secretary of state. Mrs Clinton was robust in the face of Chinese assertiveness over claims in the East and South China Seas. Mr Kerry may prove milder. But with a nuclear-charged North Korea, and Chinas and Japans relations so bad, the neighbours urgently need to get to know each other better.