Business Asia - Issue 6 - Year of The Dragon Special Edition

THE BA TEAM
EXECUTIVE BOARD Editor-in-Chief Director of Design Co-Presidents Director of Marketing Director of Finances Director of Events DESIGN ASSOCIATES
Yun Qi Mok Jessica Chen Jessica Cheng Jill Da Eun Seong Tully Cheng Madeline Culkin Yujiao Stella Zhang Andrew Chan Michelle Park Sunjung Park June Shin Joy Chua Ke Hu Limin Zhu
EDITORIAL
Cover Designer EVENTS ASSOCIATES
Erica Boorstein Suthinee Buranaphong Tully Cheng Christopher (Kit) Dobyns Ajay Kailas Mingming Koh Zhi-Yen Low Joseph Ning Priscilla Ong Victor Seet Jill Da Eun Seong Christopher Slijk University of Pennsylvania Sam Tang
CONTACT US: BusinessAsia.Journal@gmail.com www.cubusinessasia.com
BUSINESSASIA SPRING 2012
EDITORS LETTER
ather than falling prey to ancient prophecies and the relentless tolling of internet trolls foretelling the coming of a relentless Apocalypse, we welcome instead the Year of the Dragon with the arrival of 2012, and the first Special Edition annual issue of Cornells Business Asia Journal. While our last issue expressed our numerous concerns with Asias explosive growth over a phenomenally short period of time, our newest issue is full of hope and expectations for a future brighter than ever. Our writers tackle the colossally significant political changes that occurred over the last few months including the death of Kim Jung Il in North Korea, the reelection of Ma Ying Jeou in Taiwan, and Najibs new vision of transparency and government accountability in Malaysia, and see only the burgeoning of stronger international relations; an interview with Singaporean Ambassador to the U.S., Ambassador Chan Heng Chee, reveals the growing ties between China, the U.S., and Singapore. The once failing Asian Growth Model has like a phoenix rising out of the ashes become even more powerful and successful than before, social businesses are developing in Cambodia to heal the horrible scars left by the Khmer Rouge, and intra-Asian trade is booming despite the crippling recession. Even Haute Couture, once thought to dominate only in fashion capitals like New York, Paris, or Milan, are reinventing and tailoring itself to fit the Asian aesthetic. Worrying birth rates in Asia have soared as Asian parents rush to welcome a dragon baby into their families, and the economic repercussions of this will likely mirror those during the baby boom era of the 1960s. Of course, the landscape of prosperity and optimism is not unblemished. With the ever increasing income-gap between the wealthy and poor, flagrant displays of wealth are rocking social cohesiveness and harmony. Rice, the staple of most Asian households, is becoming more difficult to harvest in Thailand, and the long term sustainability of Chinas iron grip in its state capitalist economy is questionable. Nevertheless, Business Asia is proud to reach its apex during such a prosperous and well-omened year for Asia. I would like to express my gratitude to everyone involved in making this publication such a success, and to the readers as well who make every second of hard work worth it. Finally, as this is my last issue as Editor-in-Chief, I wish Business Asia all the best, and thank everyone for making my time here so memorable and wonderful. If you, dear reader, have any comments, suggestions, or would like to contribute to our magazine, please do not hesitate to contact us at BusinessAsia.Journal@gmail.com. Yun Qi Mok Editor-in-Chief
WE WOULD LIKE TO THANK THE FOLLOWING SPONSORS FOR THEIR GENEROUS SUPPORT:
SPRING 2012 BUSINESSASIA
TABLE OF CONTENTS
TRADE
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The BA Team Editors Letter
Development, Export, and a new Map of Asian Trade by Christopher Slijk Asia is soon becoming Factory Asias greatest consumer The Modern Day Silk Road by Zhi-Yen Low Is the Yuan on its way to dethrone the USD as the worlds reserve currency?
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Banking in China by Victor Seet A breakdown of the top investment banks in China How the Asians Performed, Persevered, and Performed Again by Mingming Koh A history of the Asian Growth Model Triumph over Tragedy: Social Businesses and the Development of a Green Economy in Cambodia by Christopher (Kit) Dobyns The development of social business may open a new chapter in Cambodias turbulent history The Challenges of Rice Production in Thailand by Suthinee Buranaphong An expos that presents the terrifying spector of an Asia without enough rice
POLITICAL ECONOMY
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State Capitalism in China: A Paper Tiger by Zhi-Yen Low Chinas iron grip on the economy may be strangling prosperity in the long run Malaysias Model for the Future by Victor Seet Will Najibs vision for Malaysias economic future lead the nation into a new era? The Great Divide: Growing Tensions between USPakistan Relations by Tully Cheng Where full cooperation should be found, mistrust festers instead
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TABLE OF CONTENTS
INTERVIEW
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Sitting Down with Ambassador Chan Heng Chee by Yun Qi Mok A tte--tte about Singapore, the US, China, love, and success
One China: The Benefits of Improved Cross-Strait Relations by Joseph Ning After maintaining his hold on Taiwans presidency, how will Ma Ying Jeou proceed? The Chosun Un Dilemma: To Change or not to Change by Jill Da Eun Seong Will Kim Jung Un resist or embrace the tides of change sweeping across North Korea?
LIFESTYLE
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Asian and American Trends: A Cross Cultural Exchange by Erica Boorstein Couture is tailored anew to fit the Asian aesthetic Asia Welcomes Dragon Baby Boom by Priscilla Ong Baby fever hits asia with full force
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EVENTS
OPINION Insights into India
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Skyscraper of Flamboyance by Ajay Kailas Antilla brought out of legend into the streets of Mumbai draws pain instead of adulation The Bidi Industry Unveiled by Ajay Kailas Light is shed upon an empire shrouded with smoke and death
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The Wharton China Business Forum: Tradition Meets Innovation by Sam Tang A glimpse into the 2012 Global Wharton China Business Forum
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Photos from Flickr.com (Creative Commons); deviantART.com
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by Victor Seet, Cornell University
BANKING in CHINA
The top investment banks in China are all local financial institutions that have established themselves with the help of a strong regulatory framework. They have also utilized joint ventures as a popular method to tap into international banks experiences. One of the most prominent banks is the China International Capital Corporation (CICC), which was incorporated in 1995 as the first joint venture investment bank between a domestic and international firm. The founding shareholders include Morgan Stanley and Government of Singapore Investment Corporation (GIC). This international legacy provides CICC with experience that domestic banks initially lacked at the time, propelling it to consistently place among the top performers in the league tables. At the end of 2010, Morgan Stanley sold its stake to a consortium consisting of TPG Capital, Kohlberg Kravis Roberts & Co., GIC, and Great Eastern Life Assurance. Equity offerings that the company was involved with in 2010 include the RMB 21.75 billion (US $3.35 billion) China Merchants Bank IPO, RMB 22.1 billion (US $3.4 billion) Agricultural Bank of China IPO, and RMB 10.75 billion (US $1.7 billion) China Southern Airlines IPO. Citic Securities is a member of the Citic Group, Chinas first financial group established in 1979. It now trades on both Shanghai and Hong Kongs stock exchange after its October 6 IPO in the latter exchange. The Shenzhen headquarters enables Citic Securities to conveniently access both domestic and Hong Kong markets, while taking advantage of the various resources available within the Citic Group to provide comprehensive financial services. It was also one of the underwriters in the Agricultural Bank of China IPO, and more recently, led the first RMB denominated Real Estate Investment Trust with Hui Xians IPO in Hong Kong. In May last year, it had entered into negotiations to explore a partnership with Crdit Agricoles global equity brokerage and investment banking businesses.
hina has become almost a de facto topic in business conversations revolving emerging markets. Its massive population, economic power, and political clout have bequeathed the nation a superstar status among the BRICS and a close competitor to developed nations. The nations financial hubs, Hong Kong, Shenzhen, and Shanghai, are all evolving to become cities that rival New York and London. But there is an important element lacking in these comparisons: the banks. While western bulge bracket banks are recognized around the world, Chinese banks have yet to gain the same international presence as their peers. Apart from the banks own record breaking Initial Public Offerings and a few international transactions, the public sphere has yet to learn much about these giant firms. The contrasts between Chinas and New Yorks investment banking cultures are often lost in the headlines as blockbuster deals and big names are announced in billion dollar transactions.
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Ping An Securities was established in 1991 under the Ping An Insurance Group. Despite its focus on small to medium size enterprises, it topped Chinas IPO league table last year, underwriting 38 Chinese IPOs generating US $5.14 billion. However, it has recently gained attention for the questionable revenue figures in Sheng Jing Shan Hes prospectus. Although the China Securities Regulatory Commission found revenues to be accurate, there were material transactions that had not been recorded and therefore the IPO was rejected. The groups Chairman, Yang Yuxiang, has renewed the companys focus on financial control to restore its reputation. Guosen Securities, a member of Shenzhen Investment Holdings Corp, was established in 1989 and is headquartered in Shenzhen. It is currently the leading Chinese IPO arranger with RMB 18.7 billion (US $2.9 billion) raised since the beginning of the year. Last year, it reported RMB 3.1 billion (US $477 million) in profits on RMB 7.8 billion (US $1.2 billion) revenue. With a secure foothold feeding Chinas insatiable demand for IPOs, the revenues continue to buoy bottom lines and fuel expansion plans. Many banking conglomerates have been reaching across borders into other emerging markets. The Industrial and Commercial Bank of China has been one of the most aggressive banks, extending operations in India, South Africa (buying a 20% stake in Africas largest bank), Brazil, and across Europe. The Bank of China has opened facilities in Cambodia, the United Arab Emirates, Oman, Ghana, and Peru. Emerging markets have been more receptive to Chinese institutions as Chinas foreign policy has supported cordial relations through political and economic ties. Although Chinese investment banks have not established a significant presence in New York, they have been making headway across the Atlantic in London. Wang Qishan, the vicepremier of the Peoples Republic of China, met with British Chancellor George Osborne in August to lay the framework for London to become an offshore trading hub for the Chinese yuan. Beneath this public event, the investment banks have been preparing for a grand entrance into the British banking system. Financial News reports that six Chinese banks own 250,000 square feet of office space in London, enough space to triple the current number of employees to 1,600. CICCs expansion in London reached a significant milestone when it became the first Chinese member of the London Stock Exchange in May. Liqun Jin, CICCs Chairman of the Board of Supervisors, spoke about the companys goal to become a global force: If we want to reach out to the rest of the world London should be the first port of call. The Bank of China acquired an 86 million building which overlooks the Bank of England. Apart from the usual trading floors and reception areas, the 10 floors include a staff restaurant and a VIP suite with displays of historical memorabilia and lavish artwork. Despite their success, the faltering global economy has begun to take its toll on the banks. As competition becomes more intense, there has been greater pressure to ensure successful IPOs. Banks have resorted to back an IPO with their own capital, a practice known as hard underwriting. The failed XCMG Construction Machinery IPO in early September provides a prime example of the intensifying competition. XCMG initially hired six banks that were mostly international, including Credit Suisse, HSBC, and Morgan Stanley. The syndicate, cognizant of the tumultuous markets, warned the company that there was a slim chance of completing a successful IPO. XCMG proceeded to invite six other banks to participate in the deal, including the Bank of China, ICBC, and Goldman Sachs. Most of the new members acceded to the companys demand to back at least half of the IPO, amounting to about US $600 million. However, they only did so under the false assumption that the original group had walso done the same; once they learned that there was no previous hard-underwrite, the new six backed out and the deal collapsed.
Source: Dealogic SPRING 2012 BUSINESSASIA
This unique tactic has been a key ingredient in the Chinese banks rise in the league tables. Hardunderwriting occurs more often with Chinese banks hoping to build an advantage and ensure a successful IPO. This phenomenon occurs despite IPO and advisory fees falling well below the standard 2% mark. In 2010, four Chinese institutions took seventh to tenth place for investment banking revenues, rising from having only negligible shares just a few years ago. Another factor that has been bolstering the Chinese banks advantage is a renewed effort to recruit top talent. Bank of China has attracted a number of new names. UBSs Eric Li has joined as Chief Operating Officer, and Morgan Stanleys Andrew Wong is now Head of Investment Banking. Salaries in the industry have continued to rise, increasing by 20% this year in some companies. In some cases, employees are being paid a premium compared to their counterparts in Hong Kong. Chinas IPO market has slowed in the past year as economic uncertainty begins to overshadow global markets. The first half of 2011 IPO proceeds amounted to US $24 billion, 20% lower compared to the same period in 2010 as fewer megaofferings were placed. The increasing number of smaller companies going public has pushed Guosen Securities and Ping An Securities into the Asia ex-w league table while their larger domestic rivals failed to make the top ten. Chinas investment banks are still emerging from the domestic markets, but have the potential to be powerful competitors globally. It would mark a full circle since Shanghai and Hong Kong were global trade hubs in the 19th century and now resurface to dominate the financial world. | BA
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How the Performed, Persevered, and Performed

by Mingming Koh, Cornell University
he three decades that spanned from the 1960s to late 1990s saw the remarkable growth of the Asian region. With economic growth peaking in the double digits for some Asian countries, the region as a whole experienced tremendous progress on the path of eliminating destitute poverty. Prior to the 1960s, most Asian economies were highly lacking in terms of sophistication, efficiency and size for some countries, the economy barely existed at all. Although growth rates across the region were in no way equal, it can be reasonably argued that the Asian region as a whole experienced higher and more sustainable economic growth than anyone could have expected. This extensive period of high economic growth and increasing sophistication of Asian economies was collectively dubbed the Asian Miracle. However, while all of Asia experienced economic progress, economists attribute most of the astounding growth to East Asia. Notable East Asian economies such as those of Taiwan, Singapore, Hong Kong and South Korea eventually
became known as the Four Asian Tigers, a reputation that has lasted to this day. Never had the world seen an entire region experience such high economic growth steadily over such an extended period of time. Needless to say, the secrets of Asias
economies embraced it. This left many supporters of the laissez-faire economy bewildered, as they had been given to understand that the governments hand in the economy could only muddle affairs that were best left to themselves. Much of the exponential growth in Asian
Notable East Asian economies such as those of Taiwan, Singapore, Hong Kong and South Korea eventually became known as the Four Asian Tigers, a reputation that has lasted to this day.
staggering growth became the new legendary Fountain of Youth for economists worldwide. Eventually, economists found their answer in what was known as the Asian Growth Model. It was a model that went against almost everything the advanced capitalist economies of the West stood for. While excessive government regulation and intervention in the free market was abhorred in European and American economies, the Asian economies were driven by mega industries and corporations whose leaders collaborated closely with their governments to ensure that these industries and corporations could be maneuvered to serve the countrys best interests (some call this crony capitalism). That was not all in the Asian model, the penchant for external intervention in the macro-economy seemed to spill over into the micro-economy. Asian corporations were run
didactically, with a strict top-down chain of command that diffused throughout the entire human resources organizational chart. This left little space for individual identity and personal motivation, but Japanese companies that fully embraced this organizational system thrived Americans will remember how Honda and Toyota quickly and ubiquitously replaced General
to financial contagion effects, and the fact that strong Asian growth from earlier periods had become increasingly pivotal in supporting and contributing to global economic growth. The Asian Financial Crisis shattered any and all perceptions of the superiority of the Asian Growth Model. While Asia was broken by the one of the most severe
So far, this new and improved version of the Asian Growth appears to be working. The high growth rates of China and India look set to persist, while the rest of Asia seems to be in good shape as well.
Motors as preferred vehicle brands back in the late 1980s. The shocking success of Asian economies and corporations led many to believe that the Asians have gotten the formula right at that time Japan Inc. had looked like a brilliant economic and industrial machine that would never fail. Nobody saw the crisis looming overhead. In hindsight, it was obvious that there were many signs of trouble in the days preceding the crisis but no one could have imagined the extent of its damage and the length or difficulty of the recovery period that would follow. In any case, the Asian Financial Crisis devastated the region, undoing years of painstakingly achieved economic growth in many countries. Beginning in Thailand in July 1997 with the collapse of the Thai Baht, the crisis had spread like wildfire around the region leaving slumped currencies, devalued stock markets, and a staggering rise in private and public debt in its wake. There were even widespread (and quite legitimate) fears of a global economic meltdown due economic recession in memory (this recession had also cost quite a few Asian governments their ruling legitimacy and ended the political careers of select few dictators), European advocates of the laissezfaire economy were not-so-quietly rejoicing (well, they had waited almost thirty years for this) at what they perceived to be the conclusive proof of the superiority of the free market economy. By any estimate, it took the Asian region at least two years to begin any sort of recovery from the devastation of the crisis. Damage to economic structure and lost growth aside, perhaps one of the most important legacies of the Asian Financial Crisis was the loss of confidence in the famed Asian Growth Model, which right up to the end of June 1997 itself, was believed by many (although notably not Paul Krugman, who in 1994 published an article to warn of the unsustainability of Asian growth) to be the enlightened path to economic progress. But no longer. Economists today largely agree that although the growth model of Asian economies cannot eschew
some blame for the onslaught of the Asian Financial Crisis, other crucial causal factors included excessive international financial liberalization and reversal of capital inflows into Asian economies. However, whats done is done public perception of the invincibility of the Asian Growth Model had irreversibly been destroyed. Or had it? Today, with the rise of China and India as the worlds next super-economies with the potential to rival the American economy in the near future, discussions of the incredible Asian Model have become increasingly prevalent again. However, todays Asian Model is no replica of the Asian Growth Model of the late 20th century. It might be helpful to think of todays Asian Model as a new and improved one based on the lessons learnt the hard away in the aftermath of the Asian Financial Crisis the greatest of which is arguably caution. In the wake of the Asian Financial Crisis, many Asian countries had introduced new measures to constrain external borrowing, especially short-term borrowing. Most famously, Malaysia Mahathir had implemental strict exchange controls and curtails on outflows from portfolio investments these measures had been instrumental in containing the damage from the crisis, to the extent that they are still in place today (although many experts have repeatedly called for their abolishment on the grounds that they are no longer relevant in todays global economic environment). Apart from capital controls, most Asian economies have welcomed the establishment of integrated supply chains across the region (which have proved infinitely helpful in propping up the region in the 2008 Global Financial
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Crisis). Regional cooperation has gotten a lot further in postAFC years than anyone could have expected prior to the crisis regional Free Trade Agreements now crisscross the region in the famed noodle bowl. In addition, Asian economies have been careful to (discreetly) build up large current account surpluses and accumulate gigantic foreign exchange reserves (probably because the memory of the infuriating loss of sovereignty experienced by ceding to IMFs demands for life-saving loans in the wake of the AFC was acute). So far, this new and improved version of the Asian Growth appears to be working. The high growth rates of China and India look set to persist, while the rest of Asia seems to be in good shape as well. Before any laudatory applause of the new Asian Model, it is important to note that certain fundamentals have not changed between the two models. Asian economies have grown faster than the rest of the world except for the AFC episode because they still have substantial potential for catching up (and they know it). Recognition of the gap between themselves and advanced economies of the West is perhaps one of the best motivations that constantly spur Asian economies to seek new pathways to growth. These pathways have included growth-oriented policies embracing of free trade, flexible currencies and reasonable macro-economic stability as well as creative institutions to promote tenets of growth export processing zones, tax and tariff exemption schemes and generous incentives for foreign investment. Perhaps the most important thing that has not changed for Asian economies is the axiom of seizing any opportunity that comes along aligning with the global economic tide, you could say. Be it inviting huge foreign investment and developing homegrown industries out of nothing in the late 20th century, or pursuing export-generated growth today, Asian economies have always been quick to adjust themselves to suit, and thus profit from, the needs of the global economy (although one exception would be China back in the sixties when she was too busy with revolutions to consider economic growth). The flexibility of selfadjustment and transformation to seize economic opportunities is arguably the best way to understand the essence of the Asian Growth Model past or present. Many Asian economies today recognize that their political systems and social agenda must now catch up with the economys progress in order to ensure that the economy is provided with an environment in which it can continue to do well. Many economists have recognized that Asian governments today must devote more attention and resources to issues such as education, health and political reform. Whether or not Asian governments are able to do so will be the true testament to the power and, in accordance to Asian culture, longevity of the Asian Growth Model. | BA
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Triumph Over Social Businesses and the Tragedy: Development of a Green

Economy in Cambodia
by Christopher (Kit) Dobyns, Cornell University
ore than thirty years after the Cambodian genocide, the Courts of Cambodia have failed to bring closure to the terrible tragedies. Between 1975 and 1979, approximately 1.7 million people (21% of the country) were murdered at the hands of the Khmer Rouge (Pol Pots regime rooted in extremist ideology and concepts of ethnic cleansing). These massive atrocities remain present in the minds of modern Cambodians, particularly due to the fact that the ring leaders of the Khmer Rouge have faced few, if any, ramifications. The inefficiency of the Cambodian government, which may have to do with the close ties Cambodias president and former genocidaires, extends beyond the courts and into the realm of post-genocide economic development. Corruption has plagued Cambodia in recent history. The World Bank ranked Cambodia 147th out of 183 countries in terms of Ease of Doing Business.
Cambodia lagged even more so in rankings pertaining to the ease of starting a business, coming out at 170th. These measures are reflective of a population entrenched in poverty. The average income hovers around US $2,000 per year and approximately 35% of the population lives below the poverty line. Furthermore, unemployment indicators are incredibly misleading in Cambodia. The government maintains that the unemployment rate is 0.8%; however, the government considers any person who works any portion of an hour or more per week as employed. The Economic Institute of Cambodia estimates that 85% of Cambodians hold no formal employment. With that said, the Cambodian economy has experienced growth in recent years due to improved legislative efforts. In 2005, the government enacted effective legislation to reduce dishonesty in business. Further reforms have promoted economic
progress. Recently, Cambodia has embraced a shift to a Green Economy as expressed in their National Green Growth Roadmap. The United Nations defines a green economy as an economy that results in improved human well-being and social equity. The aforementioned roadmap identified skills development, infrastructure investment, and the overall greening of the economy as the keys to long-term prosperity. Though limited research exists, the potential role of social businesses in Cambodias transition to a green economy should not be understated. According to Muhammad Yunus, a 2006 Nobel Peace Prize recipient for his work in microfinance, a social business is a non-loss, non-dividend company designed to address a social objective. Social businesses are particularly effective in ameliorating societal problems, as has been the case in the Cambodian textile and garment industries
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to a limited extent, because they sustain themselves while remaining focused on a social mission. Conversely, these businesses do not typically have the ability to expand as quickly as counterparts in the private sector because of differing strategies (maximizing social impact vs. maximizing profits). Although the textile industry plays an important role in the Cambodian economy, the majority of the jobs are for the unskilled worker (most filled by young females from rural areas), wages are low, and working conditions are typically poor. The National Green Growth Roadmap expressed concern with the garment industry noting that surging garment exports may be vulnerable. Social businesses will typically provide skills training and fair wages to laborers from disadvantaged backgrounds. As researchers at Yonsei University in South Korea noted, these businesses will come to play the role of pursuing innovations in society with a good intention and spreading out to the whole society in the untouchable realm under the existing competitive social and political system. Social businesses, though they do not have the capacity to overwhelm specific industries, will benefit the Cambodian economy in the short and long-term. Two specific social businesses, Friends and Le Rit, exemplify the potential of social business in Cambodia. Friends serves as a training restaurant run by former street youth. Not only does Friends provide prompt service and excellent food, but experienced employees train street youth with the necessary hospitality skills to continue their careers and progress up the management chain. If replicated, this model fulfills an essential need for skills development in the country. Former employers have gone on to work at successful restaurants and hotels throughout the country. Additionally, secure jobs, like those at Friends, will ensure greater access to finances, aligns itself with Cambodias Green Growth gender equity initiatives. Gender gaps exist in nearly every social category. As it pertains to literacy rates alone, 82.1% of males and 67.4% of females are literate. Employees at Le Rit not only have jobs, just as they would in a textile factory, they are also equipped with the knowledge and skills to work towards a more prosperous future. Based upon recent successes, Cambodian legislature must work towards establishing a more honest business environment conducive to economic growth. Social businesses, which are rapidly growing in
The average income hovers around 2,000 USD per year and approximately 35% of the population lives below the poverty line.
information, and sanitation, as elaborated upon in the roadmap, for employees and families. Le Rit fulfills a similar role to Friends within the garment industry. The hotel, restaurant, and boutique is run and organized by disadvantaged women. Not only do these women sew clothing for the boutique, they also set prices, track accounts, and participate in various business tasks. As a manager noted, Le Rit goes beyond the garment industry based on salary, training, and work environment. Further, Le Rits focus on women capacity, will greatly support such growth on the heels of huge increases in sustainable tourism, which limits negative impacts on visited areas and promotes local employment, to Cambodia. Despite having limited government resources, social businesses in Cambodia have the potential to contribute to the eradication of social ills while simultaneously supporting the development of a more efficient, green economy well into the 21st century. | BA
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The Challenges of Rice Production in Thailand

by Suthinee Buranaphong, Cornell University
hen Thailands first National Development Plan was launched in 1961, Thailand was a typical agricultural economy, in which agriculture remained a leading sector of GDP growth until the 1970s. More than 80 percent of the total population was engaged in agricultural activities, and rice was a major crop for both domestic consumption and export. Although the leading role was dominated by the industrial sector during the 1980s and after, the agricultural sector still employs the majority of the Thai people, encompassing approximately 60-65 percent of the labor force. More importantly, Thailand still consistently ranks as the worlds leading exporter of rice.
The Process of the Rice Trade The complete cycle of the rice trade in Thailand seems to utilize the flexible relationship among different businesses, starting from the purchase of rice from farmers, the milling, and the storage, to the transportation, retail selling, and ultimate exportation of the rice. Usually, the firm is characterized by functions rather than types. Emeritus Economics Professor T. H. Silcock of the University of Malaya thus described the mechanism of the Thai rice trade: thousands of small firms engaged in the different facets of the trade were parts of a single rational enterprise, for without formal co-operation among traders and without central direction of any
kind, the different firms combine into a mechanism that is highly sensitive to local or temporal variation in demand and that succeeds in placing the rice where and when it is required. Since each section of trade activity is conducted independently, firm specialization does exist but is not necessary as firms are free to engage in more than one activity. Regarding the direction of trade, the normal movement will be from areas with a surplus of rice, namely the North, Northeast and the Central River Deltas to the rice-deficient Southern areas and to Bangkok for domestic consumption and exportation. Since rice is not a homogeneous product, the
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difference in the grading of rice reflects variations in price. The six gauges for the quality of rice are glutinous, percentage of broken grains, length, color, age, and species. Glutinous labels rice other than white rice, called Patna rice. The percentage of grains broken is treated as the primary criterion for grading rice for exportation. For instance, rice classified as 100 percent (100 percent unbroken) is considered very high quality rice as it is unbroken and is also of a good size and color. The other classifications such as 5 percent and 10 percent indicate the fraction of layers. The rice will then be stored and released over the year when prices rise. Although the rise in price compensates storage cost, stockholders need to bear the risk of price volatility as well. Finally, the rice will be transported by river boats, trains, and trucks for retailing and export. The Challenges of Rice Production in Thailand Although Thailand is the worlds leading exporter of rice, there still exists many challenges facing rice production and the rice trade. If Thailand wants to preserve aimed at increasing productivity. Many rural people migrated to the cities in pursuit of higher incomes. The peasant system was changed to the current plantation system which requires hired labor and some fixed costs for machinery and equipment. Many farmers need to throw themselves into debt to borrow money before the harvest. The credit study has shown that only 32 percent of the farmers are free from debt throughout the year; farmers are no longer able to hold their stock of rice to sell at times of high prices because they need to repay their urgent debts, leading to
If Thailand wants to preserve its lofty position in the industry, it is crucial to tackle these challenges as soon as possible.
broken rice, and thus indicate lower quality rice. Other factors include the preference people have of longgrain rice over short-grain rice, and of recently harvested rice over rice of previous harvests. The process of rice trade begins with the so-called middlemen, who buys the farmers rice and then combines purchases from many farmers into larger lots suitable to be sold to millers. This allows farmers to sell their rice in small amounts to earn quick cash and hold the rest until the price of rice rises. Most farmers receive bids from many traders before they sell their rice, giving them the opportunity to be well aware of market conditions. Paddy, which is the form of rice produced by the farmer, consists of the white kernel of rice, surrounded by thin layers called the bran, and covered by a thick layer called the husk. Milling separates the kernel from the two its lofty position in the industry, it is crucial to tackle these challenges as soon as possible. a) The Changes in Living Patterns of Farmers Before the industrialization of the 1980s, agriculture in Thailand was conducted mostly by families, known as the peasant system, where workers were relatives or acquaintances and grew crops on their own land. Starting from November, villagers would gather to harvest rice from one field to another until they were done with every villagers rice field. The milling and storage happens at the local-village level with the collective help of the villagers. This is called the Long Keag tradition, though rarely seen nowadays. Due to the introduction of the exportoriented policy, the peasant system using human and animal labor was substituted with machinery further financial problems. b) Difficult Access to Credit Due to the highly seasonal income of rice farming, accessible credit has been utilized in many developing countries as a means to smooth consumption and boost investment. In 1975, the Bank of Agriculture and Agricultural Cooperatives as well as commercial banks agreed to lend to the rural sector at relatively low interest rates. Although the expansion of institutional credit led to increased access to cheap financial services for farmers, many households were denied access despite their dire need because of the threshold income level. Even worse, some farmers were forced to use this loan to pay back old loans from the informal sector, and ended up in the same financial mire. The presentation of asymmetric information in the financial sector brought on the
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Rough Rough rice yield(ton/ha) Table 2. Rice Yield (ton/ha)

Year World Asia Cambodia Indonesia 1961 1.86 1.86 1.09 2.06 1971 2.35 2.37 1.45 2.42 1981 2.83 2.87 1.13 3.74 1991 3.55 3.62 1.44 4.34 1997 3.80 3.86 1.77 4.20 2008 4.25 4.30 2.62 4.88 Source: USDA, PSD Online. June 10-2009 access Laos 0.87 1.22 1.71 2.23 2.75 3.53 Malaysia 2.21 2.55 2.49 2.77 3.01 3.57 Philippines 1.23 1.50 2.36 2.78 2.85 3.82 Vietnam 1.94 2.13 2.31 3.42 3.92 4.88 Thailand 1.60 1.94 1.95 2.25 2.36 2.75
problems of moral hazards and adverse selection. The government faced large increases in NPLs, while the farmers ended up borrowing in the informal sector at incredibly high interest rates. c) Labor Shortage Since the 1980s, Thailand has exhibited rapid growth in non-agricultural employment, consequently leading to the problem of labor shortages in the agricultural sector. The diversification into offfarm and non-farm work occurred because of push factors (land shortage and poverty) and pull factors (increased opportunities). The accelerated labor-intensive industrial development was accompanied by a rise in demand for labor and high wages as well as the incentive to increase family income by diversifying sources of income. The rice labor force has been declining in absolute terms since the 1980s. d) Land Scarcity In Thailand, ownercultivation is far more prevalent than any other form of tenure among rice farmers. Landlessness and tenancy have not yet developed into a full-scale problem because of huge amounts of unused land and surplus labor, although they have been pulled to the urban sector rather than being forced to compete for land ownership in rural farming (which is resulting in accelerating
urbanization). The current problem of land in Thailand is simply the inefficiency and slow rate of title issuance due to the lack of funds and an inadequate administrative infrastructure. e) Low Yield Thailands rice output enjoys a high growth rate due to the extensification strategies by expanding farm land. However, as land suitable for rice paddy cultivation is no longer as common as it once was, intensification and mechanization seem to be serving as a substitute. In Table 2, Thailand has shown consistently low yields when compared to other countries. Many reasons contribute to these statistics. First, irrigation development is discouraged by high costs and the ever-present issue of environmental degradation. The lack of water supplies, especially during the drought season, hinders rice growing activities. The low performance has mainly been due to insufficient water delivery and unproductive water losses because the priorities have been biased towards industrial and domestic water demand. Second, the unfavorable water supply conditions discourage farmers from applying fertilizer; as a result, the green revolution was not very successful. Third, the heavy taxation imposed on rice farmers through the rice premium led to a very unfavorable rice-fertilizer price ratio, as shown
in Figure 1. Thailand should invest in technological innovations such as water-pumps and small-scale irrigation to drastically improve their crop yield. Moreover, to gain the utmost benefits, the technology should be diffused to rural farmers, and not only concentrated in more technologically advanced areas of Thailand. f) Government Intervention There has been a lot of controversy regarding the rice premium established by the Thai government. On one hand, the rice premium is a tool for the government to pressure agricultural diversification to yield more rewarding cash crops. On the other hand, many economists have argued that the burden of taxation weighs mostly on farmers and leads to the price distortion between domestic and international prices. Although the worlds demand for rice is quite inelastic, the demand for Thailands rice is not because rice from other countries act as a close substitute. Therefore, the burden of taxation falls most heavily on farmers. The argument about the rice premium has raged since the 1950s. Although the Thai government has already removed this tax, it is interesting to study whether farmers enjoy a greater share of the profits in the rice trade. g) International Competitors Director of the Center for
GENERAL BUSINESS
International Trade Studies of the University of the Tai Chamber of Commerce, Aat Pisanwanich, stated that Thailand has long prided itself on being a major supplier of rice to the world, but the growth of Vietnamese rice exports will begin to threaten those of Thailand. This is the result of a lack of a long term plan for rice production and marketing development, whereas Vietnam, the worlds second largest exporter, has 10 key strategies to develop its rice industry seriously. Vietnam has three reduce and three increase polices, which reduce the use of seeds, fertilizer and pesticides and increase production, quality and profit. In addition, Vietnam formed the CambodiaVietnam Food Company and will soon establish a joint venture with Burma. The Vietnamese government has a measure to reduce farmers production costs via the provision of soft loans and exempt farmers from taxes and fees. They also assure rice farmers of at least a 30 percent profit. Study have showed that Vietnamese rice export to other ASEAN countries had outpaced that of Thailand since 2005. Currently, Thai rice export to the region accounts for 39.6 percent of the total, while Vietnam has a 59.9 percent share. Some argue that Vietnam is only enjoying the benefit of catching up; nevertheless, Vietnam is a powerful competitor. Concluding Remarks Thailand has been renowned as the worlds largest rice exporter for decades. However, according to the statistics from labor employment, it is undeniable that rice production is doomed to decline. The domestic demand for rice has been stagnating and rice farmers need to rely heavily on international demand. Farmers try to improve their income by diversifying income sources and hence, paid wages now account for a higher share of household income. In areas with well-irrigated land, many farmers tend to grow other more profitable crops, such as sugar, to maximize profits. To preserve the rice production sector, subsidizing the price of rice is necessary to help farmers. The problem lies in the fact that this method is inherently impractical since such subsidies tend to lead to a net loss. The problems of land titling, lack of well-established irrigation systems and low fertilizer application all limit the potential of rice crop yield. Although there are still many facets of improvement that can be made possible, such as improving the irrigation system around the Mae Kong River area, the lack of effective government policies leads to the question of whether Thailand will put in enough effort to handle the problems competently and efficiently. It is true that rice exportation will ease the global problem of food security, but the profit of a country is more or less driven by the competitive market mechanism. If rice is not a rewarding agricultural export commodity, Thailand will have no incentive to continue production, which will undoubtedly leave a great scar on the world economy. | BA
17
Development, Export, and a New Map of Asian Trade

by Christopher Slijk, Cornell University
ooking at the landscape of global trade today, it is easy to simply categorize Asia as the factory of the world, where everything from circuit boards to shoes are fabricated, packaged, and shipped off to all corners of the world. Yet, with 50% of all Asian exports going to other Asian countries, it is clear that the IntraAsian market is one that, for its size, is grossly overlooked in global trade. Whether it is in development of trade blocs such as the ASEAN Free Trade Area or phenomena such as growing bilateral agricultural trade between India and China, it is clear that Asian nations have become more self-sufficient in producing and trading. Yet, while Asia as a whole has become more independent from Western markets, individual Asian nations have become more dependent than ever on each other, and a complex, interconnected economic web has emerged which has redefined not just Asian exports to the West but also among each other. Prior to the explosive economic growth of the 1970s and 80s in Asia, it was the large, developed Asian countries, such as Japan, Taiwan, and Korea, or Western-influenced economies,
such as Hong Kong and Singapore, which accounted for the bulk of total Asian exports. However, most of these ended up outside of Asia, primarily due to their highvalue nature and the fact that only the Western economies had the demand and the money to purchase them. Meanwhile, Asian countries continued to acquire the bulk of their imports, whether food or advanced machinery, from Europe or the United States, whose
technological development and massive economies of scale made local alternatives highly impractical. Yet, as foreign capital continued to flow into Asia throughout the 1980s and Asian countries began to see and use Western technology extensively, they began to cultivate a workforce trained to use these technologies and developed their own manufacturing base, finding themselves with the ability to fabricate goods much more cheaply,
TRADE
due to lower labor costs, than their Western counterparts. Soon, countries such as China, Thailand, and Vietnam found themselves able to compete on the global market, while the developed Asian economies had a new market for their goods right on their doorstep. Such a dramatic change in the economic landscape of Asia caused and continues to cause massive changes in the make-up of intra-Asian exports. Traditionally Western exporters such as Japan have opened up retail stores in China and established automotive factories to break into the growing Chinese consumer demand for cars. markets or Western demand for export-led growth, now they can capitalize upon local emerging consumer bases throughout the rest of Asia to fuel the demand for their manufacturing sectors. Of perhaps more significance, however, is the role that Factory Asia has played in the growth of an entirely different trade network of intermediate goods between Asian countries. Despite local growth, Europe and North America still make up the largest consumer economies in the world. Thus, it is sensible that in a region built upon export-led development, Western exports would continue to hold a key role in the plans for future growth of these economies. It is this focus on exports outside of Asia, along with differential technological development and labor costs, that has changed the dynamics of exports within Asia, causing companies such as electronics manufacturer Foxconn, a Taiwanese firm, to import semiconductor components from Japan and DRAM chips from Korea to its factories in China, where high value electronics are assembled and sent off to richer countries. Asian countries which have the expertise and facilities to design and create advanced circuitry build and export
Of perhaps more significance, however, is the role that Factory Asia has played in the growth of an entirely different trade network of intermediate goods between Asian countries.
One area which exemplifies the growing importance of IntraAsian trade is the ASEAN Free Trade Area (AFTA), a trade block composed of Southeast Asian nations wanting mutual support in developing their industrial and manufacturing capacities and attracting foreign investment. In 2010, the China-ASEAN free trade agreement brought China into the loop, eliminating tariffs on most goods and eliminating most trade restrictions between the countries. As a result, trade between ASEAN and China skyrocketed by 50% to nearly $200 billion, or 12% or all ASEAN trade, in 2010. When combined with the facts that a quarter of ASEAN trade is contained within Southeast Asia and that Japan, Korea, and Hong Kong account for an additional 20%, it is clear just how vital trade with the rest of Asia is to ASEAN. Whereas once these countries depended upon the slow development of domestic them to countries such as China, where basic manufacturing skills are all that are needed to finish the job and where labor is much cheaper and more plentiful. Thus, trade networks have sprung up in Asia in the matter of a decade which, while primarily driven as a result of Western exports, laid the foundation for a rich intra-Asian export market. Overall, whether it is in the trade of final or intermediate goods, it is clear that Asia has grown to become a more unified trade bloc. While its dependence on outward exports may prevent an Asian parallel to the European Union from occurring anytime soon, the poor performance of the advanced economics and sustained growth of Asia in recent years is likely to have Asia looking inward more and more for trade and economic development. | BA
19
The Modern Day Silk Road
Yuan making inroads in dollar territory: enough to displace the dollar?

by Zhi-Yen Low, Cornell University
Obama administration with a notice stripping American public debt of its prized AAA-rating after furious debate between the parties. The United States can pay any debt it has because we can always print money to do that, said Alan Greenspan, former Federal Reserve Chairman, upon S&P announcing the downgrade. In a perverse twist of events, investors poured money into US Treasury bills despite a burgeoning European debt crisis and a deteriorating US economy. However, there remains fear that America is heading down an unsustainable path. The global financial crisis of 2008 has done nothing to improve investor confidence in the dollars long term prospects, leading many to believe that the dollar may lose its 40-year reign as the reserve currency. The Golden Age of the Dollar The U.S. dollar first gained its title as the reserve currency through the Bretton Woods system established in 1944. Coming on the heels of the Great Depression and the end of World War II, the system instated an international framework for exchange of foreign currency. Member states agreed to fix their
eigniorage is the power of the American government to print dollar bills and pocket the difference between their face value and their cost of printing. In 1965, Valry Giscard dEstaing, then the French Minister of Finance, complainingly called this American power an exorbitant privilege. It is this power that bestows the U.S. with low borrowing costs, as the rest of the world is in constant worry about the impact of exchange rate fluctuations on their cost of debt. However, all this may be likely to change. On August 5th, Standard and Poors served the
TRADE
exchange rates by tying their currencies to the U.S. dollar, buying and selling dollars to maintain a 1% margin. In turn, the dollar was guaranteed to be dependable through its linkage to gold. However, in 1971, President Richard Nixon dissolved the ties between the dollar and gold, the source of its derived value. The dollar began its golden existence as fiat currency, backed only by the faith and creditworthiness of the U.S. government. Back then, America had the worlds largest economy and a substantial share of the worlds foreign reserves. Now, at $7 trillion, China economy is fast becoming the worlds largest, second to only America. It is already the worlds largest exporter. It holds $1.8 trillion in net foreign assets, compared to Americas net deficit of $2.5 trillion, of which a large proportion is incidentally held by China. By precedent, size of economy and share of global foreign reserves may be enough reason to believe that the yuan should soon become the main reserve currency, especially given the recent U.S. Treasury bond downgrading. The dollar seems to be hanging onto its title only by sheer scale of liquidity and its supposedly default role as a financial safe haven. Liberalizing the Yuan China is rising to occasion. It has already begun its operation to internationalize the yuan. President Hu Jintao first allowed the yuan to trickle onto Hong Kong shores in the pockets of mainland visitors. Today, the government allows yuan-denominated trade, which has occurred mostly in the form of outflows - 80% of such trade involves exports into China rather than imports from it. Most of the yuan has collected in deposits in Hong Kong, causing it to triple within the past two years and arrive at roughly 600 billion yuan by the second quarter of 2011, according to the Peoples Bank of China. Dim sum bonds, securities denominated in yuan and sold in Hong Kong, are very digestible at typically two to three years of maturity. The popularity of such bonds was recently highlighted in a highprofile, heavily oversubscribed sale of government debt worth 20 billion yuan. Londons banks are hopping onto the bandwagon, now pursuing to become another such hub for trading in yuan-denominated securities. The currencys likeliness reserves? In order to displace the dollar, the yuan would have to displace some $4.5 trillion worth of US dollars stuffed into the safes of foreign governments. Chinas State Capitalism Stubbornly Authoritarian Though Chinas economy is 10 times larger than it was in 1995, its closed capital account policies and monetary management strategy have remained mostly unchanged. Despite recent moves to liberalize the yuan, these policy adjustments have been slow at best. This highlights the inertia of Chinas
How will foreigners accumulate the yuan in foreign reserves?

to appreciate also strongly entices investors to hold the currency. The Triffin Dilemma Nevertheless, economic clout alone does not a reserve currency make. A reserve currency is determined for its economic stability, economic muscle, liquidity, scale in the financial markets as well as its investor confidence. Will the yuan be able to achieve financial sophistication en route to ousting the dollar? Becoming a reserve currency requires political stability for a sound money supply to build upon, and liquidity on a global scale. According to Robert Triffin, depriving international markets of a readily available line of reserve currency would drag the global economy into a contractionary spiral. Eponymously named the Triffin dilemma, the question remains - with Chinas gaping trade surplus and strict controls on its currency, how will foreigners accumulate the yuan in foreign capital regime, which has been based on a closed-economy system for the past two decades. The absence of a mature domestic fixed-income market further relegates Chinas position in global financial markets. Its bond market is small in terms of size and turnover rates; prices are distorted because interest rates are regulated. Therefore, because of an unpalatable domestic market, coupled with (mostly) closed capital markets, Chinas savings consistently exceed its investments. As long as this continues, there will be an ever-increasing amount of questionable foreign sovereign debt flowing into Chinas borders. As Jonathan Anderson from UBS emphasizes, even if capital inflows are denominated in yuan, the accumulation of doubtful foreign assets will continue, regardless of the currency in which it is denominated. In other words, even if the yuan becomes the reserve currency, it would not alleviate Chinas persistent capital surplus problem,
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thus giving the government little incentive to pursue the cause. Inflation Fuels Political Unrest As worrying as Chinas financial instability is its political unrest. In 2010, 180,000 incidents of protests and riots were reported across China, more than four times the figure from 10 years ago. The rising level of discontent is largely
attributed to inflation, caused by monetary stimulus in 2009 and 2010. Prices of pork, a Chinese staple meat, have soared 52.3% to unprecedented levels. Land seizures caused by a real-estate boom also contributed to the unrest. Weak legal protection for property rights means that land seizures from residents often occur without adequate compensation. Chinas
struggles with its unstable political climate may disqualify the yuan as a candidate for reserve currency. In Conclusion Increasing calls for a replacement of the US dollar as the main reserve currency, as well as the financial crisis of 2008 has made it easy to foster pessimism towards long-term prospects of the greenback. As Americas share in global output shrinks, it is easy to wonder why the world remains so dollar-centric. However, usurping a global reserve currency is not an easy feat, and propositioning a collapse of the American empire may be somewhat premature. Given Chinas current political and economic policies, a yuan dethronement of the American dollar may not happen so soon. But the rise of the economic giant that is China cannot be ignored. With all the right moves at all the right times, it is just a matter of time before China emerges a strong contender in the reserve currency race. Perhaps Barry Eichengreen sums this up best by asserting that the sterling lost its status as the reserve currency because of Britains meager economic performance. The only plausible scenario for a dollar crash, he says, is one in which we bring it upon ourselves. For America to lose its power as reserve currency, it would have to make every mistake possible. If it doesnt, perhaps the greenback can hold on to its exorbitant privilege just a little longer. | BA
POLITICAL ECONOMY
State Capitalism in China:

by Zhi-Yen Low, Cornell University
A Paper Tiger
measured by reserves, are stateowned. China and the State State capitalism, at the very heart of Chinas economic model, was the vehicle with which the late Deng Xiaoping propelled the country to become the economic powerhouse it is today. In 1978, he began Chinas streak of unprecedented growth by allowing private enterprise and liberalizing foreign trade and investment. After the Tiananmen Square protests fueled massacre in 1989, Deng embarked on a southern tour of the most reform-minded provinces to reassert his economic policy. He created special economic zones and welcomed foreign companies into China. He coerced state companies to model themselves upon their Western counterparts, while pouring resources into national champions as well as research and development. His reforms gave Chinese political ideology new meaning, spurring bureaucrats to take Chinas reforms upon themselves with renewed energy and single-mindedness. Despite Chinas gradual liberalization efforts, Deng
tate capitalism can be defined as a system in which governments exercise a widespread influence over the economy, through either direct ownership or subsidies. It is a hybrid form of capitalism that combines the workings of capitalism with the powers of the state. It allows state-owned enterprises to trade on public financial markets while allowing governments some modicum of control over its private industries. This ideology contradicts the theory of the invisible hand, which postulates that markets are efficient and self-regulated. The Greatest of Them All Having been around for almost as long as capitalism itself, state capitalism had one of its earliest manifestations in the British East India Company. On the new years eve of 1600, Queen Elizabeth I granted a company of 218 knights a right to monopoly of trade to the east of the Cape of Good Hope and west of the Straits of Magellan. Fraternizing with the government certainly had its perks. The East India Company was among the first companies to impose limited liability on its shareholders, shielding them from
financial risk if the business went sour. Being granted monopoly of trade provided some protection against the huge upfront costs and risks of embarking on round-theworld voyages. The company also had the full backing of the British military behind its company crest of a Coat of Arms. It went on to lay the foundations of the British Empire and make its mark as one of the most prominent state-backed companies in history. Not everyone was a fan though. Adam Smith, free market advocate and the father of modern economics, condemned the company as a bloodstained monopoly: burdensome, useless and responsible for grotesque massacres in Bengal. The modern business world is now witnessing a dramatic revival of state capitalism, especially within emerging markets. Twenty years ago, most state-owned enterprises (SOEs) were no more than parts of the government machine, fated to be privatized or closed as the economy matured. Yet today, SOEs make up dizzying proportions of major emerging markets, comprising 80% of Chinas stock market and 62% of Russias. All ten of the worlds biggest oil and gas companies,
23
maintained the states authoritarian grip on the economy with calculating care. Weiying Zhang, a professor at the Guanghua School of Management at Peking University, calls the theme of Chinese business state in, private out. Chinas 121 largest SOEs have seen their total assets swell from $360 billion to $2.9 trillion from 2002 to 2010 (though their share of overall GDP has declined). 85% of Chinas $1.4 trillion in bank loans were also given to SOEs in the heights of the 2007-08 financial crisis. Its effort has paid off - Chinas GDP has grown at an average of 9.5% a year for the past thirty years and is predicted by the IMF to overtake Americas in the next four years in terms of purchasing power parity. 440m people have been lifted out of poverty - the biggest scale of poverty reduction in history. Growing Unrest Within Chinas continued fixation of control over its largest companies stems from its obsession with maintaining order. The Euro zones tribulation has thrust manufacturers into desolation, with depressed demand in Europe and America taking its toll on Chinese factories. Strikes have become increasingly common at such factories in recent years with workers demanding higher wages and better working conditions. Many believe that too little of the countrys stellar economic growth is trickling down to them and land grabs by government officials only help to fuel the anger. Police are known to imprison strikers who continue to disrupt public order. For both private and state firms alike, government officials placate strikers by buying them out in attempts to prevent unrest from spreading. However, the recent onslaught of microblogs, such as Sina Weibo,
has only facilitated instant sharing of reports and images throughout China. As economic conditions are likely to wane, the Communist Partys capacity to pacify its people while maintaining control over a growing private sector is more crucial than ever. The growing political turmoil in China underscores a deep and foreboding question at the very heart of Chinese societyhow can the Communist Party maintain control over a country that is ideologically no longer communist? How can a party regulate the very same companies that it owns? Would there exist a
less innovative and less productive than their private competitors. According to the Unirule Institute of Economics, the average real return on equity for SOEs between 2001 and 2009 was -1.47%. The Organization for Economic Cooperation and Development also reported that the total factor productivity is twice that of state companies. A reason for this could be that state firms must keep the states interests in mind while trying to maximize its own profits. David Michael of BCG asserts that the government forces state firms to shoulder all extra costs, such as adverse price shocks. Energy
The growing political turmoil in China underscores a deep and foreboding question at the very heart of Chinese societyhow can the Communist Party maintain control over a country that is ideologically no longer communist?
conflict of interests where the party sacrifices wealth creation in order to maintain its ruling political power? In the past, the party controlled workers lives, dictating everything from their political morality to their reproductive cycles. The economic landscape is now experiencing unprecedented shifts. Will China be able to weather the global crisis with its current state capitalism model? Fault Lines of State-Owned Enterprises SOEs, in all their glory, have also been proven to be strikingly companies were not permitted to pass on extra costs on to consumers. State capitalist systems also do not encourage innovation. In order to compete globally, Chinese leaders must push the economy to develop new-generation breakthroughs in various energy, bioscience and bioengineering technologies. Though governmentdirected investments can be vital for such research and development, it is very difficult for state officials to value assets and allocate resources toward such causes with the efficiency of free markets. Coddled state companies are able to use their
POLITICAL ECONOMY
governments clout to reproduce technology in the beginning, but constant governmental support will soon debilitate firms innovation. These firms are likely to dwell in complacency instead of striving to maximize efficiency, putting the economy below its full potential. Competition with SOEs has been ruthless. Having the capital firepower of government safes behind them allows SOEs to takeover private companies that can no longer put up a fight. SOEs are charged only a meager 1.6% on loans from state banks, compared to 4.7% for private companies - if they are approved for a loan at all. In 2009, Many graduates are baited by the higher wages, shorter hours and solid job security that private companies simply cannot afford. However, extravagant perks and corruption are rampant within SOEs. Such cronyism will only serve to deepen the cracks within the shaky foundation upon which Chinas state giants are built. So What Now? Chinas war-torn history has taught the Chinese that political order is of utmost importance to preserve the peace of a nation. State capitalism also has its obvious appeal because it kick starts companies
only 2% of Chinas outstanding loans were held by private firms. As a result, the economy has been hit by a barrage of bankruptcies within the private sector, even as SOEs are rolling out shiny new headquarters. Because of the lack of competition, state companies are in a monopolistic position and tend to overcharge for their goods and services, resulting in massive social inefficiencies. State companies have also been known to headhunt for their talent, soaking up human resources and talent that may have been better used in private companies.
to achieve the economic clout that would otherwise take years to achieve. But China should look to the straws in the wind. Experts predict that China has three more years before its annual growth rate begins to downshift by at least two percentage points. A recent economic report by the World Bank titled China 2030 forebodes an economic crisis if deep reforms are not implemented. For the sake of posterity and in the interest of free trade, China needs to unclench its iron grip on the economy and gradually withdraw its visible hand of state capitalism. | BA
25
Malaysias Model for the Future

by Victor Seet, Cornell University
n the few years since Datuk Seri Najib Tun Razak became Malaysias Prime Minister, the nation has embraced the new decade with a renewed sense of hope. Najib took office in 2009, amid the infamous global recession and withering public support for his political party, the United Malays National Organization (UMNO). The previous incumbent, Abdullah Badawi, was forced to resign after the party performed poorly in the general elections and lost its twothirds majority in Parliament. Public support weakened after Badawi failed to deliver on his election promises; the electorate was especially frustrated by persistent corruption that has undermined trust in public institutions. Until 2009, Najib had held several important ministerial portfolios, but had yet to make a significant change
to the status quo. Would the new Prime Minister be able to catalyze change to restore support? In May 2009, Najib formed the National Economic Advisory Council (NEAC) to develop an economic plan that would bring Malaysia out of its slump with a mandate to transform Malaysia into a high income economy by 2020. The group of eleven included prominent leaders from the public sector, think tanks, and universities around the world. This diverse composition provided a sense of impartiality that was usually absent from political appointments, a positive step in Najibs early Prime Ministerial career. Malaysias New Economic Model (NEM) was announced in March 2010, a framework that promises to bring the country out of its middleincome status.
There were eight key factors identified for Malaysias push forward including private sector growth, human capital development, and technological advancement. Private enterprises had previously always operated in the shadow of government corporations, a system that worked sufficiently in the 1990s when Malaysia was pulling itself out of colonialism and only the government had the resources to embark on capital intensive industrial projects. The NEM recognizes this government led strategy has to make way for a new private sector role that achieves economic development more efficiently. Most importantly, the government has opened up crucial industries to private sector participation. Two oil subsidiaries belonging to the state-owned
POLITICAL ECONOMY
Petronas and the national postal service were privatized. Banking sector laws have been relaxed to allow a greater degree of foreign participation; BNP Paribas and the National Bank of Abu Dhabi have been granted licenses to operate in the country. Najibs unprecedented steps in relaxing government control have been integral in revolutionizing Malaysias economy. Bringing the workforces skills to compete in the global economy is another focus for the NEM. Malaysia has constructed the Educity, a microcosm for foreign universities to build campuses and bring their expertise to the country. The Massachusetts Institute of Technology and Johns Hopkins University are two notable names that have been lured by the substantial sums that the Malaysian government has provided to cover start-up costs: up to $100 million on infrastructure and buildings. The government is also acutely aware of the significant brain drain as the Malaysian population overseas reached the one million mark, with a third of them holding university degrees. With a capable work force, Malaysia will become a more attractive investment candidate for both domestic and international companies, developing its own human capital to boost the economy. Attracting and retaining talent will be crucial for Malaysia to gain a competitive advantage, especially as technology has become omnipresent in magnifying profits. The NEM is fueling Malaysias pursuit of the same technological innovation that has powered many of the developed nations to their dominance today. This effort is a component of the Electronics and Electrical National Key Economic Area which aims to deliver a US$30 billion boost to the nations Gross Domestic Product by 2020. To encourage small and medium sized firms to innovate, the government has allowed tax deductions incurred on expenses for patent and trademark registration. The government has also created the Malaysian Investment Development Authority (MIDA), which seeks private funding while various other government ministries provide technical support. About $25 billion will be required throughout the decade, of which about 90% will be from the private sector. Four main product areas have been targeted: semiconductors, light emitting diodes, solar technology, and home appliances. But most importantly, government paperwork and red tape are being streamlined. Various tax exemption applications will have a shorter processing time, important and export logistics will go paperless, and MIDA will be granted greater autonomy in the decision processes. A council that was created for coordinating public sector plans with university operations will have a greater role, Switzerland (26th). The report measures the efficacy of business regulations over 11 indicators in 183 nations. Foreign Direct Investment of US$8.3 billion in the first three quarters rose 43% compared to the same period in 2010. Over 50% of the NEM projects have been launched. However, there are still systemic risks that need to be addressed. Political tensions are still high with the leading party, UMNO, clinging on to a precarious lead by its fingertips. There were protests in July 2011 with thousands calling for electoral reform, which eventually prompted the Prime Minister to accede to their demands through adopting changes recommended by the Election Commission. Corruption still stands as the greatest obstacle to economic progress; the country ranks 60th out of 183 nations, with many government institutions still working under the table. Government projects are still awarded without a bidding process, the police force is easily bribed, and the public does not expect any
Malaysia has constructed the Educity, a microcosm for foreign universities to build campuses and bring their expertise to the country.
ensuring university curriculums prepare students effectively for the workplace. The governments new focus both internally and externally, combined with its initiatives to partner with the private sector, lays a solid framework for Malaysias success. There are favorable signs of progress in 2011. The World Bank Doing Business Report 2012 ranked Malaysia 18th, up from 23rd in the previous year and leaping over other developed nations including Germany (19th), Japan (20th), and change to the status quo. Prime Minister Najib has bold plans for Malaysias future and if the New Economic Model is successfully implemented, his vision for transforming the economy will bring the nation into a different era. However, the global economy will always have a powerful effect on individual nations, an effect that cannot be countered by even the best laid plans. The NEM has raised the sails of Malaysias economy, but how will Najibs captaincy propel the country? | BA
27
The Great Divide:

Growing Tensions between US-Pakistan Relations
by Tully Cheng, Cornell University
hen Osama bin Laden was captured and killed early May 2011, Americans rejoiced at the fact that the War in Afghanistan was drawing to a close. Ever since 2001, America (in conjunction with the United Kingdom and the Afghan United Front) launched Operation Enduring Freedom in order to dismantle Al-Qaeda terrorism. After bin Ladens death, it seemed that the American troops could finally return home America could finally return to a state of peace. Unfortunately for Americans, the War in Afghanistan was far from over; in fact, the discovery of bin Laden in Pakistan only exacerbated tensions in the relationship between the United States and the Middle Eastern nation.
Pakistan - US Post 9/11 relations After the September 11 attacks in 2001, the United States and Pakistan became key allies in the war on terror. As a supporter of the United States, Pakistan captured and handed over around 350 terrorists to the United States. As a reward, the United States forgave the USD 1 billion debt Pakistan owed to the United States. On the surface, US-Pakistan relations could not have been better. Nevertheless, beneath the faade of partnership, many Pakistani citizens who did not support the US war were infuriated by Pakistans involvement. Souring Relations However, on June 2008, a US airstrike on the AfghanPakistani border inadvertently
crimes
mistrust decline
terrorism
extremist
killed 10 members of the Pakistani paramilitary force. Subsequently, the Pakistani military condemned the airstrike as an act of aggression against the country, harming the bilateral relations. Furthermore, reports indicate that there have been numerous other skirmishes between the US military and Pakistani troops on the Afghan-Pakistani border. These confrontations further escalate the declining relationship between the United States and Pakistan. Trust between the two nations began to diminish significantly, prompting the United States to detach high level contacts with Pakistan. Furthermore, the United States threatened to postpone economic aid. On September 14, 2009, the former president of Pakistan, Pervez Musharraf acknowledged that a portion of the US aid money was being used to prepare for possible war with India rather than to fight the Taliban. This confession further soured the relations between the United States and Pakistan. To intensify the situation, an American private security firm employee and contractor by the name of Raymond Davis killed two Pakistani locals on January 27, 2011. Although he described that the
POLITICAL ECONOMY
killings were in self-defense, he was immediately jailed and criminally charged with double murder and illegal possession of a firearm. While on the surface, the Davis incident was an unfortunate incident between a contractor and Pakistani citizens, the resulting disagreement revealed much deeper problems between the two countries. Although the US demanded that he be freed citing that Davis should be protected by diplomatic immunity, the Pakistani government was keen to punish him for his crimes. President Barack Obama insisted that Pakistani officials should recognize Davis as a diplomat; however, officials in Pakistan asserted that Davis was not a diplomat and should not be immune to a murder charge. Furthermore the officials suspected that Davis was involved in concealed operations and knew the two men that he had shot. The incident resulted in pervasive campaigns and marches in Pakistan requesting punishment for Davis crimes. Trust between the two countries began to reach an alltime low when Osama bin Laden was killed in Pakistan in May 2011. One of the distinctive features of the American operation to capture bin Laden was that US officials did not share information with Pakistani leaders until the raid was over. To the American population, it seemed strangely coincidental that bin Laden was never found in earlier raids where the Pakistani government was notified of the raid beforehand. Additionally, American officials noted that bin Ladens compound was in very close proximity to the Pakistan Military Academy. Thus, American critics made numerous allegations that Pakistan had sheltered bin Laden from the US government. The Culmination of Declining Relations On October 20, 2011, an American delegation arrived in Pakistan to issue a severe warning to Pakistani officials. Collectively, Secretary of State Hillary Clinton, CIA Director David Patraeus, and Chairman of the Joint Chiefs of Staff Martin Dempsey affirmed that the United States would attack extremist groups that use Pakistan as an asylum to kill off Americans. On the same day, former Pakistani president Pervez Musharraf said that the relationship between Pakistan and the United States is at its lowest point and plagued by total mistrust. Musharraf goes on to state that although Pakistan erred by allowing Osama bin Laden to go undetected, the United States officials are mistaken in their accusations. Currently, Pakistan remains an important ally for the U.S. While the United States and Pakistan have endeavored to construct a strategic collaboration, the lack of trust between the two entities has greatly obstructed the creation of any coherent plans. While congressional support and aid to Pakistan is on the decline, everyone believes that the situation is only becoming worse. These sentiments undermine the American realization that hopes for a smooth withdrawal from Afghanistan by 2014 [is] now hinged on Pakistans willingness to confront insurgent groups based in the country. | BA
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ONE CHINA:
The Benefits of Improved Cross-Strait Relations
by Joseph Ning, Cornell University

handle the European sovereign debt crisis, which has had a direct hit on the islands exports. The fact that Ma has already assembled a new cabinet is perhaps the best indicator of the magnitude of the problems which his administration has to handle. The visit of Beijing mayor Guo Jinlong to Taipei on February 16th served as a stark reminder that Cross-Strait relations will probably define the success or failure of his second term. Given the history of acrimonious relations between both sides on the Taiwan Strait, the amount of progress which has been made thus far is indeed quite remarkable. In just a span of four years, China has become both Taiwans largest importer and exporter of goods. Chinese students are a common presence on Taiwanese campuses, and the island has become inundated with millions of Mainland tourists, a sight which simply did not exist under the DPP administration of Chen Shui Bian from 2000 to
y all accounts and all measures, Taiwan President Ma Ying-jeous re-election on January 14th 2012 was an impressive victory that went largely unnoticed on the world stage. Like many incumbents in the current political environment, Ma was saddled with campaign promises made 4 years ago which were still unfulfilled, along with an uncertain economic climate, all of which bode poorly for his re-election prospects. He faced not one, but two strong candidates: Tsai Ing-wen, of the main opposition Democratic Progressive Party (DPP), and James Soong of the Peoples First Party (PFP), a one-time ally of Mas who staged a run to protest his partys marginalization by Mas ruling Kuomintang (KMT). In spite of all this, President Ma managed to win an outright majority in his victory, winning 51% of the votes - 800,000 more votes than Ms. Tsai - and delivering a stunning blow to Soong, who barely polled above
3% in total votes. Although this vote count pales in comparison to his 58% victory in 2008, it was a win nonetheless, and the relief on his face was palpable as he declared victory on the very evening that the polls took place. Since that night, Ma has moved swiftly to ensure that his second term would, in his own words, exceed the success of his first. Indeed, to battle the perception that his government was out of touch with the common people, he appointed a new Premier, Sean Chen, to lead a Cabinet focused primarily on economic growth, the main concern to an island nation whose economic success is derived in large part from its dominance in the manufacture of high-quality electronics. Mas second term does not officially begin until May 20th, but his desire to begin crafting a new path forward for the island nation is palpable. Indeed, the main topic of conversation among political circles has centered around how best to
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2008. But these are achievements which have not come easily. Mas opposition, led by the DPP, has adamantly insisted that his policies have consisted entirely of giving concessions to the Communist Party in Beijing at the expense of Taiwans sovereignty. Many in Taiwan feel that expanded CrossStrait trade agreements, especially the landmark ECFA agreement of 2010, which lowered tariff duties on many products and opened new markets on both sides of the Taiwan Strait, have benefited the large conglomerates such as Hon Hai and HTC at the expense of the ordinary worker. In addition to addressing these concerns, President Ma must also lay out an even more challenging vision: where he proposes on taking cross-strait relations in the next four years, and what his ultimate intentions are. During his campaign, neighbor. Given that Ma has already expanded trade relations between the two countries in a way which has yielded benefits to both sides, it seems like a logical step to pursue. Lastly, this also leaves the question of what lies ahead for businesses on both sides of the Strait. Given Taiwans small domestic market, and lack of natural resources, the islands entrepreneurs have been seeking opportunities on the Mainland for decades, a successful relationship which is best encapsulated by the giant factories of Foxconn, owned by the Taiwanese industrial magnate Terry Tai-ming Gou. The rapid expansion of transportation and trade links between the two sides has clearly benefited businesses on both sides of the Taiwan Strait. Yet, thus far, most of the action has definitely been taken on the Taiwanese side; strict regulations in Taiwan they have been at any point since 1949. Ma has promised his people a period of a golden ten years, an era of prosperity no doubt intended to invoke nostalgia amongst people who take pride in Taiwans place in the phenomenon known across the world as the four East Asian Tigers. And it is hard to argue that Taiwan has not achieved a lot within the span of a single generation. It has undergone the change from being an agricultural one-party dictatorship to an industrialized democracy without the chaos which has enveloped many nations undergoing this transition. But the path forward for Taiwan is not so clear. Clearly, with Europe and the United States mired in spending crises, the solution for Taiwans future growth lies with the rising power of China. But fostering closer ties with China is a proposition fraught with
Although he has denied it officially, there has been much talk of a possible Peace Treaty that could be signed with the Mainland, a proposal which would officially end over 60 years of official hostility between Taiwan and its giant neighbor.
Ma has repeated his pledge not to pursue his Three Nos, namely his pledge of No reunification, no independence, and no use of force. Although his pledge to maintain the status quo is clearly in line with the wishes of the vast majority of Taiwanese voters, there is also the issue that this pledge gives him little room to continue working with Beijing. Although he has denied it officially, there has been much talk of a possible Peace Treaty that could be signed with the Mainland, a proposal which would officially end over 60 years of official hostility between Taiwan and its giant have kept Mainland firms largely excluded from the market. Yet, in the coming years, we should expect to see a rapid increase in Chinese investment into Taiwans economy, particularly its financial sector. The effect should be somewhat akin to that felt in Hong Kong, which has benefited enormously from its close ties with China. In Taiwan, Chinese companies will find a similar culture, and a country with a lot of investment opportunities. As the two sides grow closer in terms of trade, we may yet begin to see developments on other fronts, bringing the two sides closer than ideological and practical dilemmas. What will it take for the two sides to gain a relationship that is somewhat normalized on a diplomatic scale? And how will Ma forge a future in Taiwan that is not plagued with the wealth inequalities which are characteristic around the East Asia region? In the coming years, we will see what Ma Ying-jeou and Chinas future leaders will decide to accomplish, but the benefits should be felt quite plainly on both sides of the Taiwan Strait. | BA
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The Chosun Un Dilemma

To Change or Not to Change
by Jill Da Eun Seong, Cornell University
he Goryo Dynasty, a Korean dynasty established in 918 BCE, is a historical wonder to many for its libertarian ideals remarkably similar to those expressed in the modern U.S. Constitution. However, in the aftermath of Goryeos collapse rose the Chosun dynasty, during which the Koreans resorted to a set of extremely conservative and isolationist measures. This particular 19th century story is currently repeating itself in at least one part of the world North
Korea. To many of their victims, or anyone with the slightest sense of awareness, the Kims appear to have long been creating a hermit kingdom for themselves, dwelling on the idea of isolationism and utilizing it to their own ends. The death of North Korean dictator in late 2011 was brought to worldwide attention in the hopes of visualizing a breach in this impenetrable dictatorship in North Korea. With his son Kim Jong Uns two months into succession, the question of Kims political directions and their
economic consequences are debated more heatedly than ever. To the new Kim, maintaining his regime in North Korea is, without doubt, his number one goal. The benefits not only extend to USD 4b worth of assets but even 33 luxurious houses located all across the nation. Regime maintenance also entails honor (if any), power and affluence shared only by a select group of North Koreans. The nations sense of racial purity seems to work in favor of Kims hopes. To most of his people,
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the Kims are thought of as fatherly figures that help guard them against vicious foreign influences, especially those of the U.S. Unfortunately or fortunately - Kim may not find it easy to keep the nation under his control as well as his forefathers had in the past, due to both internal and external turbulences. Kim lacks experience, credentials and charisma to command his countrys ruling elite and the powerful military, and therefore he has to provide something material to buy their loyalty, comments a well informed source in Seoul. Moreover, Kim Jong Ils abrupt death left his son to confront potential political rivalries, including those from his uncle Jong Song Taek and the military, even before legitimizing and consolidating his dictatorial power. Moreover, waves of serious famines in North Korea in the 1990s, also known as the Arduous March, aroused cynicism towards the Kim regime. Such unprecedented cynicism is further ignited by increasing awareness about the relative prosperity enjoyed by South Korea. Unavoidable forces of globalization are promoting rapid emergence of black markets, through which people trade smuggled Korean soap opera DVDs, books on democracy, and many others commodities that are defined as illegal. This phenomenon also poses a threat to Kims dictatorship because market forces serve to further weaken the regimes control over its people. Indeed, there are signs of unprecedented liberalistic movements in North Korea. According to a Russian convoy in Pyongyang, Kim has expressed his support towards the construction of a natural gas pipeline extending from Russia to South Korea. Russian Ambassador Valery Sukhinin mentioned in a phone interview that talks now are taking place between the parties implementing the project, from our side, Gazprom, and from the North Korean side, the oil industry ministry. From this, it is apparent that Kim is attempting to accommodate limited integration of North Korea with the outside world. Despite of such efforts, North Korea is at one of its most volatile economic states. Kim is currently burdened with USD 900m worth of debt, inherited from both his father and his grandfather. When Moreover, it will also have to deal with refugees created in the process, creating a huge political headache. To Korea, instability in the Korean Peninsula is surely detrimental in the short-term, as it encourages risk-averse investors to pull their capital out of the financial markets in fear of the so-called Korean discount. However, with Kims increasing openness to the outside world, it may be possible for South Korea to remain on good terms with its other half. Although it is unlikely, at least in the near future, the two Koreas may one day break off from their half-century-
North Korea is at one of its most volatile economic states.

BNP Paribas re-securitized North Koreas defaulted bonds in 1994, the world market was again able to trade those highly risky sovereign bonds in the market. Franklin Templeton Investments, a global investment manager, currently owns more than 45% of North Koreas sovereign bonds bought at a huge discount. For the past 27 years, interest on North Korean sovereign bonds has compounded to astronomical amounts, totaling USD 2.7b~5.4b. If Kim does not find a way to resolve this problem, his country will soon fall into the worst economic distress in its history. Moreover, confronting such in-house problems will be essential for Kim to garner internal support for his regime. The resulting volatility and unpredictability produced during the passage of power in North Korea have also greatly increased risks of greater power conflicts. To China, a reunified Korea implies the loss of a buffer zone and a serious security threat from the U.S. military already residing in South Korea. long love-hate relationship. One should not be too hopeful of the prospects, as it is perhaps too premature to draw any concrete expectations or conclusions just yet. In fact, North Korea today is not quite different from what many have pictured it to be decades ago. Nonetheless, it is an undeniable fact that North Korea is changing, for the better or for the worst. Now the question is whether it will decide to resist it or not also known as the Chosun Un dilemma. | BA
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Skyscraper of Flamboyance
by Ajay Kailas, Cornell University
umbai, India, is a wondeful blend of Indian culture, food, music, and film. It is the most populous city in India and has the highest GDP of any city in South Asia. As of 2008, the GDP was a gargantuan USD 202.31 billion. Because of its booming financial district, Mumbai houses some of the worlds largest companies; Tata Group, Hindustan Petroleum, and Reliance Industries are just some of these big names. One of the biggest companies, Reliance Industries, was founded in 1996 by Dhirubhai Ambani. The company operates through three business segments: petrochemicals, refining, and oil and gas. Other segments of the company include textile, retail business, special economic zone
(SEZ) development and telecom/ broadband business. The current chairman of Reliance Industries is Dhirubhais son, Mukesh Ambani, who has a net worth of 29 billion dollars. Many of those with a wealth of such a high magnitude, like Warren Buffett and Bill Gates, are actually quite frugal. Buffett, the worlds 2nd richest man, still lives in the same five bedroom house he purchased in 1958. Ambani, on the other hand, purchased a twenty-seven floor
home in South Mumbai for USD 1.8 billion called Antilla, named after the mythical island in the Atlantic. He plans to lives there with his wife, mother, and three children. There are parking spaces for 168 cars, an entire floor devoted to vehicle maintenance, nine elevators, three helipads, a health spa, a yoga studio, a theater, and an ice room infused with manmade snow. In a country with 42% of the worlds underweight
OPINION
children under the age of five, this flagrant disregard for modesty and ostentatious display of wealth is unacceptable. Surely, he could have spent the money on a better cause or purchased a less extravagant home. Ambani wouldnt even have to leave Mumbai to participate in philanthropy, as Mumbai is home to Dharavi, the worlds largest slum. Other Indians have To add salt to the wound, it has been reported that Ambani and his family have not even moved into the mega mansion. The structure is just lying there, vacant. A spokesman for Reliance reported the family has not moved in yet because of vasta, a principle of Hinduism in which furniture and objects must be arranged correctly to achieve harmony. However, critics say that it is actually because the Ambani family is fearful of criticism, as the building of Antilla has garnered world wide attention. Although some Indians may be proud of the house because of its opulence, it appears that many people all over the world disapprove. | BA
criticized Ambani for his actions. Tata Group Chairman, Rajan Tata (a Cornell alumni), has described Antilla as an example of a wealthy Indian with a lack of care for the countries poor. Furthermore, Dipankar Gupta, a sociologist at New Delhis Jawaharlal Nehru University, has also chimed in on the criticism by claiming that such wealth can be inconceivable. It seems that Ambani does not have support even from his own countrymen.
There are parking spaces for 168 cars, an entire floor devoted to vehicle maintenance, nine elevators, three helipads, a health spa, a yoga studio, a theater, and an ice room infused with man-made snow.
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The Bidi Industry
Un
T
he smoking industry in India has been a powerful symbol of enjoyment. People all over the country love to light up these cylindrical tubes filled with crunched up leaves and take a relaxing puff. A particular type of cigarette that has gained prominence is called Bidi, which is a thin, South Asian cigarette filled with tobacco flakes and wrapped in a tendu leaf tied with a string at one end. Widespread though it may be, the industry has recently been
by Ajay Kailas, Cornell University
coming under fire for its malicious and unethical practices. Bidis have been very popular with the Indian population, accounting for 48% of tobacco consumption in the country. One reason for this is the extraordinarily low price of Bidis. It cost about 16 cents for a pack of 20. The working poor are often attracted to this low cost form of pleasure, giving rise to the moniker The Poor Mans Cigarette. Bidis are also particularly detrimental to health because
they burn slower and deliver three times the nicotine, tar, and carbon monoxide than a traditional cigarette. The Bidi empire is in fact enveloped in a shroud of darkness. Child workers are employed even though it is against the law. It is estimated that 325,000 children (age 14 and under) work rolling Bidis, clearly violating the India Child Labor Prohibition and Regulation Act, which bars children from working in hazardous places. Take
OPINION
the story of Gudiya. She is only three years old but her deft fingers are trained at rolling bidis. Everyday, she meticulously picks up a tendu leaf, fills it with tobacco, and then ties it up. However, Gudiya is just one child among many. From Sagar to Jabalpur in Madhya Pradesh, throngs of children work in the Bidi belt, all for the sake of helping their families survive. Women are also heavily employed in the Bidi Empire. Janaki Devi is a perfect example of an employee to helps turn the cogs of production for the smoking magnate. Every morning away in the Bidi industry. There are roughly six million women who roll bidis in India; their arduous profession is the second-largest labor-intensive occupation in the worlds second-largest tobacco market a country where a quarter of the population is said to be addicted to various forms of tobacco. Women constitute almost 75 percent of the total bidi workforce, which yields between 750 billion to 1.2 trillion sticks every year. These vagrant violations of labor law have sparked dissent in the nation. Activist groups have been trying to limit the Bidi behemoth, but have faced difficulties. The industry on the whole has very deep pockets, generating revenues of around 20 billion dollars annually. These dollars often block bills to tax Bidis and enforce stricter regulations. Additionally, CEOs of Bidi companies often hold government offices themselves. For example, the Indias minister for heavy industries, Praful Patel, also known as the Bidi king, runs the $5 billion CeeJay Group, the largest Bidi firm in Indias western Maharashtra state. As a result of this insulation, health campaigns have been difficult to get started. But there is a light at the end of tunnel. As light is being shed on the dark practices of the Bidi industry, wide spread attention and reform is slowly accumulating. The Bidi Workers Welfare Fund Act provides for the levy and collection of taxes through a duty on manufactured Bidis that pays for worker welfare programs. In due time, hopefully enough regulations and laws pass to put an end to this empire of smoke and death. | BA
she takes a bath in the Ganges Riverthe most relaxing and cleanest part of her day. Then she grudgingly makes her way to the factory to start an intensive eight hour routine of Bidi making. By the end of it, her brows are drenched with sweat and her back aches. Completing a Bidi every 25 seconds, each day she must roll at least 1,000. For this, she earns an infinitesimal sum of $1 a day. Gudiya, Devi is just a drop in the ocean of the women who slave
Completing a Bidi every 25 seconds, each day she must roll at least 1,000. For this, she earns an infintesimal sum of $1 a day.
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Sitting Down with Ambassador Chan Heng Chee

Interviewed by Yun Qi Mok December 13, 2011
rofessor and diplomat, intellectual and activist Chan Heng Chee took up her appointment as Singapores Ambassador to the United States in 1996; under her tenure, bilateral relations between the two nations have never been better. She has also served as Singapores Permanent Representative to the United Nations, and was concurrently the High Commissioner to Canada and Ambassador to Mexico. In addition to serving as a member on the International Advisory Board of the Council of Foreign Relations, the Council of the International Institute for Strategic Studies, and the International Council of the Asia Society, she is also a Policy Advisory Board Member of the Asia Society in New York. Educated in the University of Singapore and Cornell University, Ambassador Chan is currently a professor of Political Science in the National University of Singapore on secondment. She was the Executive Director of the Singapore International Foundation, the Director of the Institute of Southeast Asian Studies, and the founding Director of the Institute of Policy Studies. An inspiration to women across the world, she was winner of Singapores inaugural Woman
of the Year Award in 1991, and has received Singapores Meritorious Service Medal in 2005, and most recently, the Distinguished Service Order in 2011. Today, Business Asia sits down with this remarkable lady as she divulges her thoughts about everything from politics to her personal life.
Business Asia: Could you describe the Singapore-US relationship, as well as the Singapore-China relationship? Do you think that tension straining between the US and China would affect Singapores position and its foreign policy in any way?
Chan Heng Chee: The Singapore and United States relationship is a very substantive relationship, and it is a good relationship. It has been a good relationship over many years as far as I can remember since establishing our diplomatic relations since 1966. In fact, when we had a period of stressed relations, I think it was over Michael Fay, I consider that an exception rather than the rule. Our relationship is strong because it is based and founded on many pillars: trade, economics is one pillar, the second pillar is defense, and the US has a strong defense relationship with Singapore. We have allowed the US to use the military facilities in Singapore even though we are not a base. When the US was asked to leave Clark Airbase and Subic Bay, it transferred COMLOG WESTPAC (Commander, Logistics Group Western Pacific) to Singapore. In the year 2005, we signed a Strategic Framework Agreement to deepen our defense co-operation. So the defense relationship is strong. We also supported the US for action in Iraq, in Afghanistan, in Operation Enduring Freedom, for the last ten years, ever since the action in Iraq started, and we still have deployments rotating there. We also cooperate on Education, as you know, and there are education alliances between Singapore and many universities in the
INTERVIEW
US. Chicago Booth School of Business has set up a business school in Singapore. Tisch Film School has a school in Singapore. Yale is going to set up a liberal arts college, and MIT is helping Singapore establish the Singapore University of Technology and Design, which will open its doors for its first intake of students next year; these are just some of the education alliances and collaborations. Wharton has helped SMU as well, and the Harvard Kennedy School has helped initiate the Lee Kuan Yew School of Public Policy. As you can see, I can go on to list these alliances. On the level of secondary schools, we do have connections. Singapore sends delegations, educational delegations, to the US. We deliver very good median education, to the median group, and US is quite admiring of our math and science education. But, for education at the top, at the best, we have a lot to learn from the US. We also come to the US to learn about education for the special needs group. So, yes, the education collaboration is across many things. In terms of research, biotech, the biopolis development, they connect with different universities and recruit from these universities. Then, in business, we collaborate with different companies, work with them, the USABC (US Advanced Battery Consortium) comes to Singapore, and so you will find that there is quite a strong relationship. Now let me say something about the Singapore-China relationship, which is also a strong relationship, I think because of the cultural familiarity, and Singaporean businesses go to China to invest, because they know the language and they know what to do, especially SME businesses who do a lot with China. Many of the real estate companies are also in China. Regarding the Chinese relationship and the US relationship, I think China has commented that Singapore is really quite subtle in being able to balance having a good relationship with the US with having a good relationship with China. And the question you ask is, what will happen if there is a tense relationship between the two major, two big powers. Then Singapore would be facing the same sort of choice that all the countries in the region will face, and we would have to navigate carefully between the two, and try to smooth out the relationship, and help the two powers get on with each other. us very special. I find that although China has opened up and is able to do so many things on its own, and India has opened up, and the whole of South East Asia too, everybody is doing better, yet we read of how well Singapore is doing in spite of this. We do not read that Singapore has taken a backseat because everyone else is doing better. No, not at all. Because they are doing well, we do well with them. And because there will always be business, we will always find a role for Singapore.
BA: Following up with that, Singapore has been very successful acting as a mediator and stepping stone between the Western economies and China over the past decades. However, as China continues to develop and as foreign firms are now able to more easily than ever invest and move into China without the help of Singapore, how is Singapore adapting to continue to remain relevant in the world?
CHC: Singapore has a very unusual value proposition. There is no country in Asia like Singapore. Singapore works. Singapore has the rule of law. Singapore has high IP standards. It has a competence in English. Its people have an integrity and competence that is hard to match. And all these qualities together, it is not any single one, but it is a combination of these qualities, put together with a leadership that has a vision, that is able to mark what is the next big thing for Singapore, and point that way, allows us to always be able to stay a step ahead of others. Because whatever we can do, others can also do, do better, do cheaper, but we want to be ahead, and it is this quality of being able to put everything together and maintain the high standards that makes
BA: There has been a lot of controversy surrounding ASEAN, especially with the Timor Leste incident, and the approval of the Myanmar chairmanship bid despite human rights concerns. Some critics have deemed it increasingly ineffective, but others praise it as ASEAN nations prepare for free trade borders. What do you think about these issues, and the future of ASEAN?
CHC: The future of ASEAN is very bright. I dont understand why people are criticizing ASEAN for allowing Myanmar to have the chairmanship; Myanmar has opened up, and Aung San Suu Kyi has embraced the changes. How can people outside of Myanmar, in the West, be holier than the Pope? Can they be more Aung San Suu Kyi than Aung San Suu Kyi? Secretary Clinton has gone to Myanmar, the Foreign Secretary of Britain, William Hague, is going to Myanmar. I think ASEAN did right, and we did it first, in saying that this is change and we recognize it. We said to Myanmar that they must open up and they must reform, and they are doing this, and once they do this, weve got to reward the country. Weve got to recognize that things have changed. Only then do you help reform them. I do not know what the critics are waiting for, what do they want? You
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know? So, I feel that coming from Asia, I have seen this great change in Myanmar, and I think that they should be supported. I am glad many countries are supporting them. We want to make sure that those changes do stay on track. About Timor Leste, I do not know what incident you are referring to, but let me put it this way. I have always found that those who have said that Myanmar, and other Asian countries have terrible human rights records, and of course there are lots of countries with poor human rights records elsewhere do not realize that, in fact ASEAN is not half as bad as many of these countries, countries like Zimbabwe, or some governments in the Arab World. In ASEAN, we can do better, but it is not the worst place you can find. We are a work in progress, and we are getting better by the day. You have to encourage people that are doing well, and ASEAN did very well last year, for instance in the fight between Thailand and Cambodia over the disputed temple, it was the ASEAN chair, Indonesia, and
ASEAN countries that persuaded them to stop fighting. So we can resolve problems. There are academics, observers who keep saying, is this good enough. Regional groupings are always hard - look at what is happening in Europe today. I remember years back I was told, ASEAN is not good enough because we dont have a common currency. Well, I am so glad that we do not have a common currency. Look at the Euro Zone now. Regional groupings are not easy, and in ASEAN, the countries agreed to form a grouping, but no one agreed to surrender all their sovereignty, and never pledged to have a common foreign policy, the way the Europeans have. In fact the EU doesnt have a common foreign policy, except perhaps to beat up on Myanmar.
for your Ph.D, and are now also a Professor at NUS. How did you discover your passion in politics and diplomacy?
CHC: Actually, I entered into diplomacy by accident. How did I choose to do politics? As a student, I have always loved studying, and in fact, I had a passion for literature, and wanted to do literature as a major. But as it happened, when the honors results came out, I qualified for both literature and politics. I was reading, believe it or not, The Ugly American, and it sounded so interesting that I decided to study politics. I also said to myself, I can always read novels and poetry on my own. So I studied politics, and I am fortunate, because I always like what I do, and I feel blessed because of that, because it is not easy to find something you like, as I seem to like a lot of things. So I liked studying politics, and the more I studied and got into the subject, the more I liked it. That is how it always is. And so, I grew to think about policy and politics all the time, and one day I was asked if
BA: Besides an enormously successful diplomatic career, youve also had an amazing academic one. You started off at NUS, then went to Cornell for your Masters in political science, and then returned to NUS
INTERVIEW
I would like to be a diplomat at the United Nations. I took that on, and I have to say it is a great job because diplomacy is both intellectual and activist. els of the library all the time, and as I read, it brought me closer to home, and I felt that there was a lot that I could do in Singapore. Also, people were curious about Singapore, kept asking me about Singapore, and in explaining Singapore, I grew to understand it better, and that attachment grew. When foreign students are abroad, they feel more attached to home. It wasnt just because of food. It was not the first thing that came to mind, but I felt that as I was reading reports in the newspapers, people were building Singapore, the new Singapore, a new vision, and I was caught up with that even in Cornell. Other students were talking about their countries too, so that was very contagious, and I spoke was one.
BA: When you first left Singapore to the US, did you experience any culture shocks? How did your time at Cornell shape and influence your current views on politics, and perhaps even your attitude towards Singapore?
CHC: The culture shock I had when I arrived at Ithaca was to find out how cold it was, and I was ill prepared for it because no one had told me how cold it could be. I was also stunned to find how homogenous the whole campus was. Nearly everyone was white, Caucasian at Sage Hall, at the time I went to graduate school. I came from Singapore, which is very multi-ethnic. I think now campuses in the US all over are quite multi-ethnic, but when I went in the mid 1960s, it was not so diverse, so that was a bit of a surprise to me, but you get used to it. I enjoyed my years in Cornell. What did I learn in Cornell? I learnt about quality, quality in analysis, quality in education, and how to emphasize and look for high quality in whatever I did, or appreciated, or enjoyed, whether it is music, or food. I think I picked that up in Cornell. Why? Because of the people I met, my mentor Ruth McVey. I found her quite an inspiration. As for my politics, Cornell tends to be, at least at the time I was there, left of centre, and it was antiwar, and anti a lot of governments. But I am from Singapore. First I learned to be very patriotic and to love my country, because I was away from home, and because I was writing a thesis on Singapore. Singapore had just separated from Malaysia. I was reading newspapers in the bow-
BA: As a strong, influential career woman, you are obviously a huge role model for many young women hoping to become as successful as you are. Do you think that you have had to face greater challenges than your male counterparts, and what advice do you have for young women who may feel that gender inequality still persists?
CHC: I am sure I worked harder than my male counterparts. First, as a woman, once you choose that you want a career, in scholarship, or to have a substantial career, you have to work very hard. I dont know about being labeled as a career woman,
Singapore has the rule of law. Singapore has high IP standards. It has a competence in English. Its people have an integrity and competence that is hard to match.
with great enthusiasm about mine. I was a proud Singaporean. What has Cornell left me? I did development studies there, so I think its an appreciation of problems globally in the third world. It stood me in good stead. And I should add that I became an academic after that. I met so many good, dedicated academics. I also did art history in Cornell. It was beautiful and enriching. I learnt about other civilizations as I did Indian and South East Asian Art History. I had to take a subject that was different from my major. So I learned a lot, and I learned what good scholars are, that scholarship is important, integrity in scholarship is important. These are the good values that I got to experience. I became an academic. I like to believe that I was a good example when I it sounds terrible. Who talks about career men? Its just a job, a good job, a job that you can carry on for a while. But the personal life intervenes, and I wanted a personal life, I wanted to get married, as I belonged to a generation that wanted to get married. There was nothing wrong with that, to want companionship and love. I think I should I tell this story, because young women would want to know this. I came to Cornell to do a PhD. When I first arrived, a lot of women spoke to me and told me that if one did a PhD, one would never get married. They influenced me and I decided to do a MA instead. I finished my degree, I went home and did a PhD when I got home, but I got married. And you find that once you are married, there is a time allocation problem,
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youve got to navigate that, and I am sure I worked harder. I had to deal with my family, I had to be an academic, a scholar, do my writing and prepare my classes and all that. I think my male colleagues probably didnt have to do the home side as much. My advice to young women is to never to think of themselves as a victim. Victimology does not help. Whilst I was doing this and balancing being a stepmother, wife, scholar, and head of department and so on, I thought I was a superwoman, and I just kept doing it. I think I punished myself, but I never thought of myself as a victim. I wanted to do it, and I had to do it right, to do it well, perfectly. I never blamed anybody, and I never blamed my husband. I am divorced now but I never blamed anyone, it was just the sort of thing you do, and I think that was probably very, very important. If you begin to think of yourself as a victim, it will ruin you, your career, your life, and make you bitter.
I also did not, in a sense, keep fighting, how come I am not promoted. I wasnt promoted for a while. I never knew whether it was my politics or my gender that got me in trouble, I always thought it was my politics, but now I think my gender had something to do with it. It didnt stop me, I kept writing, and it didnt matter that I was promoted late because I loved doing what I did. I loved writing, teaching, and went to a lot of conferences. I shared my ideas with other people. They thought I was good, which was good, and I was then offered the ambassadorship to the United Nations. So thats how it is. So, dont think of yourself as a victim. Dont think that the world is against you, and follow your heart.
BA: Could you describe one of the most awesome experiences you have ever had as a diplomat?
CHC: It is a difficult question to answer. One is awed by so many things, but I would like to talk about
an experience that was most touching and which I would always remember. My embassy does many things. We do outreach, we do cultural events, concerts, and different sorts of things. We did an event that raised money for the tsunami and earthquake in Japan. But the event which touched me and the staff of the embassy most, was when we hosted a dinner for wounded soldiers from Iraq and Afghanistan. About twenty to thirty soldiers came, and some were badly wounded, without limbs. They came with their loved ones, wives, mothers, fathers, sisters. We hosted them for dinner. The wounded soldiers came Walter Reed Hospital. We were told not to give anything fancy, and to just do as normal. I found it quite humbling and quite touching, and thats the one experience in my ambassadorship that I would remember most. Meeting them, for example, I went up to a young man, he had lost his legs. He was on prosthetic legs. Couldnt tell what was wrong with him. I told him that he looked like a matinee idol. He was handsome, and he laughed it off. My staff told me at the end of the dinner, that it was the most fulfilling and meaningful dinner they had ever organized.
BA: What final advice do you have for students aspiring to become diplomats?
CHC: Get a good degree and sign up to the foreign ministry! You have to apply to join. But you really need people skills, need to know how to communicate, you have to be interested in people, and you must want to get out there, to engage with others. If you want to sit in an office, you are not a diplomat join a research organization. | BA
LIFESTYLE
Asian and American Trends: A Cross Cultural

By Erica Boorstein, Cornell University
EXCHANGE
The Gap also comes at a time when the company announced that they plan on a 34% reduction of stores in North America and an increase in international sales from 22% to 30% of the companys total revenue. In order to market their new denim lines, American companies have used a different marketing strategy than the ones employed in the United States. Rather than marketing denim as comfortable and casual wear, companies are focusing on marketing denim as fashionable and hip attire for going out. Since people in major Asian cities like Hong Kong, Shanghai, or Beijing tend to live in smaller homes due to high population densities, people spend a lot more time outside the home. This different lifestyle translates into a demand for skinnier, more tailored styles no baggy jeans are in sight. Jeans are marketed as more of a status symbol that people can aspire to buy, rather than essential pieces in a wardrobe. In order to implement this strategy, the grand opening of The Gap in Ho Chi Min City was more of a Hollywood event than a store opening. The grand opening included many famous Vietnamese
s Chinas growing economy continues to boom, American retailers have shifted their efforts eastward to the growing Asian markets. Since the amount of expendable income that the average Chinese citizen has access to continues to increase per year, the fashion industry has taken notice and began tailoring their brands to fit the uniquely Asian fashion sense. While luxury retailers such as Louis Vuitton, Apple, and Gucci have already cemented their place in the Asian market as a status symbol of luxury and seen their business boom overseas, denim companies have begun to follow suit. Companies that once prided themselves on being uniquely American and marketing themselves to the American fashion taste have started expanding into the East and altering the image of their company. Levis has created a new denim line, Denizen, which is meant to appeal to Asian tastes. Denizen has already premiered to a successful launch at Target this past year. In addition, The Gap plans to expand their stores into Singapore, Vietnam, and Cambodia. This Asian expansion of
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models, actors, and singers in attendance while champagne and mint vodka were brought around on trays by waiters inside the new store. However, despite the pomp and glamour, denim companies still have to take into consideration the buying power of the Asian market, and have faced challenges producing jeans that are both affordable but remain pieces of aspiration for consumers. Other major differences between the new Asian market and the known American one has posed numerous challenges for manufactures. The Asian consumer is a lot more diverse than denim manufactures originally believed in terms of both tastes and fits. While consumers in countries like China and Japan are inspired by global fashion trends and want the most current styles, consumers in India
Another change American denim companies have had to make in order to break into the Asian market is to account for different styles and trends in Asia. This season in Asia, colorful skinny jeans, white denim, and edgy patchwork has been in style. Unlike in America where the bell-bottom flare has become popular again and dark skinny jeans are always a retailers bestseller, the Asian fashion sense is more vivid and flamboyant. Interestingly enough, it seems that Asian denim styles have even begun influencing American tastes. In America the newest trend in denim for 2011 was the colorful skinny jean. This style was actually made popular in 2008 by the Korean boy band SHINee, known for wearing colorful skinny pants, thus creating the SHINee trend. In 2009, similar jeans worn by the Korean
Companies that once prided themselves on being uniquely American and marketing themselves to the American fashion taste have started expanding into the East and altering the image of their company.
tends to be slower to catch on to trends and would prefer traditional denim styles. In addition, companies like Levis has found it difficult to establish a system of consistent sizing throughout Asia, and even within specific Asian countries. Not only must the jeans made for their new Asian line, Denizen, be tailored to fit narrower bottoms and slimmer waistlines than pants sold in Western markets, Levis must also take into consideration varying sizes within countries such as China; Chinese in the northern parts of China tend to be taller with a larger bone structure than Chinese in the southern regions.
Asian trend of embellished denim made its way into the American fashion scene in 2005 when Zac Posen collaborated with Seven for All Mankind to create his line of jeans which featured extremely elaborate embellishments. Other companies such as True Religion followed suit by adding patchwork and embellishment to their pants as well. Luxury denim brands have undoubtedly found a new market in Asia, even during the global financial crisis. While the recession in America has hit the luxury denim industry especially hard, these brands have moved overseas and found growth in Asia. The deluxe denim retailer, True Religion experienced at 17% increase in international sales. Additionally, trend forecasters predict that with the increasing Westernization in India, Indian denim sales will experience massive growth. | BA
pop group Girls Generation in their immensely popular music video EP Gee were also influential. These Korean popstars spread the trend of skinny colorful jeans across Asian fashion capitals and eventually to international fashion capitals until the trend became a mainstream must have for Americans in the spring of 2011. In addition, the
LIFESTYLE
Asia Welcomes 'Dragon Baby' Boom
By Priscilla Ong, Cornell University
s with the Western zodiac, the Chinese zodiac scheme is represented by twelve signs, or animals, and relates each animal to a year according to a 12-year cycle. The only mythical creature amongst the twelve zodiac animals and a symbol once reserved for ancient emperors, the dragon is considered the most auspicious zodiac sign in Chinese culture. Dragon babies, referring to children born in the Year of the Dragon, are believed to be blessed with luck and strength. Boys, especially, are considered to be destined for wealth and success. Unsurprisingly, a large number of parents in Asia have been fervently hoping to welcome a dragon baby into the
family. Although the Chinese New Year just began last month, preparations to have babies under the cultures luckiest zodiac sign have been underway for months, and mothers aim to get pregnant by May 2 of this year to squeeze in their due dates before the Year of the Dragon ends on Feb 9, 2013 according to the Chinese lunar calendar. Much of Asia expects a spike in birth rates this year. During the last dragon year in 2000, Hong Kong experienced a birth rate increase of 5 percent, and the birth rate in Taiwan jumped to 1.7, up from 1.5 the year before. Presently, Chinas Xinhua state news agency reports similarly that it expects a 5% increase in birth rates in China in 2012, and
Taiwan, Japan, South Korea, Vietnam, Hong Kong, Macau, and Singapore all anticipate higher birth rates this year. Analysts predict that the dragon baby boom will have a positive effect on businesses in countries across Asia whose demographic majority are people of Chinese descent, with the nanny services and baby care product and service sectors expected to receive a healthy boost. Maternity nannies in China have been able to double their rates, and some nannies are already fully booked till October this year, due to mothers-in-waiting making appointments soon after they are confirmed pregnant, instead of waiting till at least their second trimester.
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Beds in Beijings Maternity Hospital are also reserved until August. Hong Kongs hospitals anticipate the highest increase in registered births, however, as mothers from the Chinese mainland already go there to deliver their babies to circumvent Chinas one-child policy. In addition, fertility clinics are also bracing for a spike in women seeking in vitro fertilization treatment during the coming year. Relying on the willingness of parents to splurge lavishly on welcoming their dragon babies, businesses making and selling powder formulas, baby food, nursing bottles, toys, baby clothes and other related items, are also ready to reap a significant profit. Song Zhenghai, Chairman and CEO of Goodbaby, a China-based manufacturer of baby products, is confident of a doubledigit rise in sales this year. Other companies in the sector are also prepared to use this opportunity to increase investment, expand production, and intensify promotion efforts in anticipation of higher sales. In addition, institutional and retail investors with high expectations believe baby-related listing companies will display a bullish performance in terms of stock prices, although analysts also warn of the possibility of looming bubbles. However, directly baby-related industries are not the only sectors which expect to benefit; even banks are profiting from the dragon craze. In Taiwan, local banks are selling silver and gold coins engraved with the dragon symbol as potential gifts for the yet-to-be-born dragon babies. Additionally, the Singapore Mints 2012 Year of the Dragon Almanac catalog lists a whole array of gold and silver commemorative products including coins and medallions with dragon engravings which are selling for exorbitant prices ranging up to S$16,388 (US$13,076).
This new wave of dragon babies may appear to be a welcome respite for governments in Asia, which have seemingly tried everything, from promoting enthusiastic family-oriented media campaigns to offering cash incentives for every new birth, to encourage couples to have children. But beyond the remarkable birth rate figures, this spike is unlikely to have a sustained effect, and will not affect fertility rates in the long run. Birth rates may even decline below the norm the following year, as the year of the Snake is traditionally viewed as a less auspicious year. Nevertheless, many mothers are voicing concern over the increased competition and stress that their children are likely to face in the future, as the bumper dragon cohort will pose an additional challenge in placing into elite schools. Schools may temporarily increase their capacity, but resource constraints limit this expansion, and this ultimately
still means more children battling it out in national examinations over a limited number of places, much like how the dragon babies from 2000 are now locked in fierce competition for spots in Chinas best schools. These dragon babies are also likely to face greater competition when finding jobs when entering the labor market upon graduation. Despite these potential problems, the baby dragons are coming, by all indications. And this is no surprise, for not many can resist the ideals of beauty, diligence, dynamism and fortune that the dragon represents. As encapsulated by the literal translation of the popular Chinese proverb hoping ones son will become a dragon, to be born in the Year of the Dragon is a precious gift that countless parents desire for their unborn children. Ultimately, the year 2012 will prove a joyful year for many couples and a happy anomaly in business statistics for many more companies. | BA
EVENTS
The Wharton China Business Forum

Tradition Meets Innovation
by Sam Tang
Featured Guest Writer from University of Pennsylvania
n February 18, the Wharton China Business Society hosted over two hundred participants and forty speakers at the Wharton Schools Jon M. Huntsman Hall for the ninth-annual Wharton China Business Forum. Professionals, MBA students, and undergraduates from Penn and various other universities, including Columbia, Princeton, and Yale, were in attendance. The Wharton China Business Forum was the first student-run global business forum with a dedicated focus on Chinas economic development. Our mission is to provide participants from Penn and around the world with in-depth discussion and crucial insider perspectives on key issues and trends in China. This years conference theme, Tradition Meets Innovation, was no different. With participation from leading professionals and experts, the Wharton China Business Forum once again delivered insights on Chinas growing economy, with speakers and participation from some of the most prominent companies in the world. Our keynotes this year were representative of the Forums
mission. The morning keynote from Mr. Edward Ryan, Executive Vice President and General Counsel at the Marriott Group, mostly focused on Marriotts experience in China. As a global leader in the lodging industry, Mr. Ryan spoke about the considerable legal and business challenges the business faced in expanding globally in Asia, an interesting case study for business in China in general. Our second keynote, featuring Mr. Erh-Fei Liu, China Country Executive for Bank of America Merrill Lynch, focused on Chinas financial markets and Mr. Lius view on China moving forward. Participants learned about some of the practical implications of the markets in relation to the Chinese economy. Finally, the afternoon keynote was delivered by Dr. Augusto Lopez-Claros, Director of Global Indicators and Analysis at the World Bank. This keynote provided participants with a macroeconomic view of Chinas position in the global economy in the coming decade. Similarly, our panels were designed to provide additional perspectives on Chinas evolving role in the world. This years panels included the Chinese and American
governments role in international business, Chinese marketing trends, real estate in China, the development of clean technology in China and financial markets. Speakers at these panels included Shane Zhang, Chairman of Morgan Stanley China, and Steve Miller, Global Head of Marketing at Nokia, and executives from Adidas, Starbucks, SAP, and Ford. Participants seemed to enjoy hearing from the speakers about their experiences in doing business in China and about potential opportunities in China in the coming years. The Forum also had a one hour long networking session, which allowed speakers and participants to interact on a more personal level. The Wharton China Business Forum provided participants with a wide variety of perspectives and an overall greater understanding of the Chinese economy. The Forum is a great venue for learning and networking on business in China and Asia. We hope you join us next year.
For more information about the Wharton China Business Society and the Wharton China Business Forum, please visit http://whartonchina.com.
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Photos from Flickr.com (Creative Commons); deviantART.com

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Asian and American Trends: A Cross Cultural

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Asia Welcomes 'Dragon Baby' Boom

By Priscilla Ong, Cornell University

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The Wharton China Business Forum