Asia’s Journey at 60, what does independence mean, the promise & perils

What does Independence mean for former colonies

Singapore is the exemplar that pulled itself into the ranks of advanced income status by sheer grit and determination.ST PHOTO: LIM YAOHUI

How its leaders forge cohesion, heal social wounds will be true test of maturity in next 60 years

ON SEPT 16, Malaysia celebrates her 57th national day, having celebrated on Aug 31 the 63rd anniversary of independence from Britain in 1957.

What does Independence mean for former colonies?

It means that a nation is free to choose its own future independent from imperial influence. Lest we forget, colonisation in Asia arrived in the 16th century with Portuguese, Dutch and British pirateers who came, saw and conquered. They did this in the name of their king and Christianity, but it was mostly for their own well-being.

No statistic illustrates this better than the stark fact that India before colonisation in 1700 accounted for 24.4% of world GDP (Maddison, 2007) and by independence in 1947, her share was down to only 4.2% in 1950. Of course, the British left behind the English language, the rule of law and a durable administrative structure that is still being practised in many former colonies.

We should also be grateful that decolonisation (shedding of empires by the European powers) was encouraged by the post-war American administration, which basically did not want any challenges to her dominant status, British cousins or not. The result was that Hong Kong was the last of the colonies to lose her status in 1997. Considering that some Hong Kongers are still waving the Union Jack, colonial nostalgia has not lost all its fans

What matters is what the newly independent countries achieved with their sovereignty. Singapore is the exemplar that pulled herself into the ranks of advanced income status by sheer grit and determination, having almost no natural resources. Myanmar, on the other hand, was richly endowed with natural resources and had one of the best educated elites at independence in 1948. Ruled mostly by the military junta, her growth has been stunted relative to her neighbours.

The Asian Development Bank has just published an excellent book on Asia’s Journey to Prosperity, commemorating 50+ years of its establishment in 1966. The book tracked Asia’s transformation from a post-colonial era of essentially rural Asia to today’s urban and technologically driven region that accounts for roughly half of global growth.

Seen from a 60-year cycle, Asia’s transformation has been world-shattering. In 1960, Developing Asia (ex-Japan) accounted for only 4.1% of world GDP, measured in constant 2010 USD terms. That year, the EU accounted for 36.2% and the United States 30.6% respectively, together 18 times larger.

Japan was already a developed country with 7.0% of world GDP. By 2018, Developing Asia’s share increased six times to 24.0%, on par with the EU (23.2%) and the US (23.9%). This means that including Japan, Asia accounted for 31.5% of world GDP. The global GDP shares for Latin America, the Middle East, Africa and rest of the world were essentially unchanged in the last half century.

In other words, the loss in share of world GDP by Europe and the US between 1960-2018 was largely gained by Developing Asia, of which China was in its own class. China’s GDP grew 84 times over this period, whereas the other three Asian dragons, South Korea, Taiwan and Singapore, grew between 55 to 58 times. By comparison, over the same period, OECD countries, including Japan and Australia, basically grew eight times. Malaysia is in the upper pack, having grown by 35 times.

The secrets of Asia’s successful transformation deserve repeating. During this period, there was peace and general political stability, with Asian governments being fiscally prudent and willing to invest in infrastructure and people. Asia did not follow the “import substitution” model adopted in Latin America but adopted the Japanese export industrialization route. Development essentially came from a young growing population that shifted out of rural agriculture into urban centres, with pragmatic governments working hand-in-hand with markets to create jobs in new industries and services.

This raised the savings and investment levels significantly above that of the rest of the world. The state took care of macroeconomic stability, education, health and infrastructure, preparing the labour force for foreign and domestic enterprises to propell exports and growth.

Those economies that were most open to technology and innovation, including welcoming foreign investment, grew fastest. Initially, income distribution improved, but in recent years, income and wealth inequalities have widened. Furthermore, climate change issues in terms of weather change, impact on water, food and increasing natural disasters are rising in the social agenda. The geopolitical temperature has also risen with the West feeling more insecure.

Currently, China’s rise is seen as the main geopolitical rival for the West, since she is the West’s largest market, biggest supplier, toughest competitor and rival political model. But not far behind China are India and Asean, both with a culturally diverse, younger population, totalling two billion people and a US$5.8 trillion GDP, about to enter into technologically driven, middle-class income levels.

Both South and South-East Asia are about to enjoy the same demographic dividend as China, but it will take competent governments to ensure that the rise to middle and advanced income will be accompanied by good jobs and fair distribution, particularly in the face of growing protectionism, and decoupling in technology and supply chains.

Asia’s growth must be in cooperation with the West, socially, commercially and technologically. But the greatest risks are the neo-con hawks in the West who are willing to risk war to disrupt Asia’s rise.

Put simply, if Asian growth stalls, the world will lose its growth engine.

The rise of Asia for the rest of the century is neither destiny nor pre-ordained. The West will not sit by to see its leadership erode. But as McKinsey’s useful analyses on the Future of Asia opined, “The question is no longer how quickly Asia will rise; it is how Asia will lead.” Leading in a culturally diverse and complex world is not about fighting, but about how to work together, meaning competing and cooperating at the same time. The greatest Asian divide is not technology, but social polarisation driven by race, gender, religion, ideology and health/wealth inequalities, all exposed brutally by the pandemic.

How a new generation of Asian leaders heal these social wounds and move forward without fragmentation and fighting will be the true test of Asia’s maturity in the next 60-year cycle.

Andrew Sheng is a Distinguished Fellow of Fung Global Institute, a global think tank based in Hong Kong. The views expressed here are his own.

Asia News Network

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Global connection, disconnection, reconnection

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Global connection, disconnection, reconnection

In four separate speeches, Secretary of State Pompeo (pic), Attorney General Barr, National Security Adviser O’Brien and FBI Director Wray laid out their case for containing China. But do the US Gang of Four’s analyses of containment of China make global sense?

https://youtu.be/DPt-zXn05ac

This is the age of disconnection. What Covid-19 has done is to show up all the flaws of global connectivity.

The virus travels with human beings and forces us to have periodic lockdowns that disconnects the transmission, buying time to bring it under control. Commenting on the pandemic, US Foreign Affairs magazine laments not only the US failure to prepare, but also the failure to contain: “what is killing us is not connection, it is connection without cooperation.” Touché!

Globalisation was the great connector, created by the unipolar order which saw free trade as beneficial not just to the world, but mostly to itself. But the shift to a multi-polar order made America insecure and everyone else unsure.

A wounded Alpha is always dangerous, emotionally hurt and lashing out on perceived rivals. China as number two falls into that category.

In four separate speeches, Secretary of State Pompeo, Attorney General Barr, National Security Adviser O’Brien and FBI Director Wray laid out their case for containing China. But do the US Gang of Four’s analyses of containment of China make global sense?

Beating the drums of war, decoupling trade and splintering the Internet into a “Clean Net” may sound great for domestic politics, but no one in their right mind can support a nuclear arms race in the midst of a growing global pandemic and possibly the worst economic depression since the 1930s.

The global free trade bargain is very simple - free trade is win-win for all trading partners, but each country must deal with the unequal distribution of trade benefits within its own borders - all about domestic politics.

Disconnecting global trade and free flow of information only increases costs for all, reducing the resources to deal with domestic inequalities.Worse, any arms race is lose-lose for all, diverting scarce resources from fighting pandemics, climate warming and domestic injustices.

History is the best guide to understanding how we got into the mess today.

The story on US politics and economics is well told, but the China story is often undertold. Because of China’s rapid growth from poverty to world number two in 40 years, most historians are still at a loss to explain what this implies for the world as a whole. NUS East Asia Institute Professor Wang Gungwu in his marvelous new book: “China Reconnects (2019)” has given us a clear and easily readable sweep of China’s history and her search to reconnect with the outside world.

Professor Wang has condensed global history into three key centres of power: Mediterranean, India and China.

In 1500, China and India accounted for 48.6% of world population and 49.2% of world GDP (OECD). The Mediterranean powers (broadly including all Western Europe and West Asia) amounted to 17.1% and 22% of population and GDP respectively.

But it was naval power, science and technology that enabled the Western swerve to global dominance, so by 1950, China and India together accounted for 16.3% of world GDP, but 35.9% of the population. Western Europe and USA plus Western offshoots accounted for 19.1% of global population, but 56.8% of world GDP.

This neglect of maritime power caused India to be colonized by the 18th century, and China nearly gobbled up by the 19th century.

China’s engagement with the world was mostly through the Silk Road, with Indian Buddhism being the major foreign cultural influence on China. The Silk Road flourished during the Tang Dynasty (618-907 AD), but the Mongol empire in the 13th-14th century connected China not only to Europe, but also to Mughal India.

However, the arrival of Western traders through South-East Asia after 1500 accelerated China’s trade with the West (including cross-Pacific trade with Latin America through Manila). Only in the 20th century did China begin to appreciate that the key instruments of Western power came from maritime power and ability to enforce international law.

In Chapter 2 of “Behind the Dream, ” Professor Wang skillfully weaves the story of post-dynastic China, when Chinese intellectuals struggled to understand modernity. It was the Japanese invasion that sparked Chinese nationalism, culminating in the civil war that enabled the Communists to unite the country with the founding of the People’s Republic in 1949.

The story of Chairman Mao, Deng Xiaoping and the policy choices of President Xi Jinping is told with verve and deep insight, without the usual Western baggage of seeing personalities in black and white.

China’s admiration for the West is defined in Chinese names for the leading powers – heroic England, beautiful America, legal France and virtuous Germany. Hence, the reforms in the last 40 years were all about reconnecting to the West through trade, investment, technology and people. But as China became deeply entangled in globalisation as the world’s largest manufacturer and trading partner, there grew an internal awareness that continued development would have to rely on internal stability and order, as well as external security. Stability was premised on a strong Party, and as Professor Wang put it, “the country’s integrity rests on the capacity to defend its borders even from the world’s sole superpower.”

Professor Wang goes deep into Chinese philosophy and political history to find China’s roots into the new world order.

The book’s real contribution is in explaining China’s shift from the Old World to the New Global. Here, China’s interaction with the South, especially with the Association of Southeast Asian (Asean) countries, will play crucially in the next phase of development of the New Global.

Asean comprises 600 million people and over US$2.5 trillion in GDP, with great cultural diversity, natural resources and a strategic zone that holds the key to global trade between the West, South Asia, China and Northeast Asia. The South China Sea cannot afford to be balkanized because it was Great Power struggles that made the Balkans an unstable region for Europe and the Near East for over a century.

As the US tries to disconnect, China Reconnects is a tour-de-force for us to understand current developments from the lens of philosophy and history. Professor Wang writes with eye-popping clarity, dosed with empathy, to guide us through the fog of uncertainty. Unfortunately, reconnection takes two to play. Whether the next US President will attempt to connect or disconnect will be the question of the century.

Andrew Sheng is a Distinguished Fellow of Fung Global Institute, a global think tank based in Hong Kong.The views expressed here are the writer’s own.

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2019 - The rise of the quantum era

US President Donald Trump discards staff like changing shirts and reverses policies without any forewarnings to staff or supporters alike. This behaviour is described by Armenian President Sarkissian, a quantum physicist-turned-politician, as quantum politics. afp -  

2019: The rise of quantum era

The Phnom Penh Post 

THE year 2018 was an exhausting one, but it marked the exhaustion of the old neo-liberal order, willingly dismantled by President Donald Trump to the aghast of friends and foes alike.

We seem to live at the edge of chaos, in which every dawn is broken by tweets that disrupt the status quo. There are no anchors of stability. Trump discarded staff like changing shirts, and reversed policies without any forewarnings to staff or supporters alike.

This behaviour was described by Armenian President Armen Vardani Sarkissian, a quantum physicist turned politician, as quantum politics.

Most of us use the term quantum to mean anything that we cannot understand. The reason why we find quantum concepts weird is that they do not conform with normal logic. As Italian physicist Carlo Rovelli explains it, “Reality is not what it seems”.

Human beings live at the macroscopic scale, which we observe from daily life. We like stability and order. But at the beginning of the 20th century, Albert Einstein and Nils Bohr changed the way physicists thought about how nature behaved. Quantum physics evolved from the study of the behaviour of atoms at the microscopic scale.

Order is only one phase in the process of evolution.

And since the 1980s, quantum science has expanded beyond physics to neuro-science, information computing, cryptography and causal modelling, with great practical success.

Like the iPhone, most people don’t know how it works, but quantum mechanics does work in practice.

The first quantum concept is that it is probablistic, not deterministic. In simple language, there is no such thing as certainty, which classical science, religion and our normal instincts teach us to believe. In the beautiful language of Rovelli, “quantum fields draw space, time, matter and light, exchanging information between one event or another. Reality is a network of granular events, the dynamic which connects them is probabilistic; between one event and another, space, time, matter and energy melt in a cloud of probability.”

Second, Bohr defined a dualistic property of quantum situations called complementarity. Light is both a particle and wave, not either/or. This concept of complementarity leads to the famous Heisenberg’s uncertainty principle, which basically says that the position and velocity of an object cannot both be measured exactly and simultaneously, even in theory. If everything in the world comprises atoms and photons moving constantly, nothing can be measured exactly – the principle of indeterminacy.

The third concept is relational, in that everything is related to something. There are no absolutes, just as there is no certainty. Everything exists relative to something else. Quantum entanglement occurs when pairs or groups of particles interact with each other so that the quantum state of each particle is somehow related to the state of the other(s), even across great distances.

This phenomenon is popularly called the butterfly effect, which dramatically says that a butterfly flapping its wings may cause a typhoon across the Pacific. Einstein called entanglement “Spooky Action at a Distance”, and he tried hard to disprove it. But these effects were empirically verified in the 1970s.

Quantum physics is moving to centre stage because quantum information theory led to the invention of quantum computing. Until recently conventional computers use binary “bits” (one and zero) as the process for calculation of information. But a quantum computer uses quantum bits, called qubits, which can exist in both states simultaneously, and in so doing, it can process information faster and more securely than conventional computers.

This breakthrough means that quantum computing will transform artificial intelligence, deep learning and advance technology at speed, scale and scope that rivals anything we have witnessed in the world of classical computing. The goldmine of quantum computing is going to make fortunes for everyone, but he who controls the infrastructure (or pipes) across which quantum computing will be conducted will be the big winner.

Information Age

In the Information Age, knowledge, technology and knowhow is more valuable than gold. Central bank monetary creation as well as cyber-currencies like bitcoin, are quantum money, because the marginal cost of production of such “money” is near zero.

We are all so dazzled by such marvellous creation that many investors moved into the alchemy of asset price bubbles. It is no coincidence that the South Sea and Tulip bubbles occurred in an era of great “displacement”, when 17th century investors (including Isaac Newton) had no clue how to price massive returns from new companies colonising the South Seas, or the technological rarity of creating a black tulip.

In qubit terms, hard assets and soft/virtual liabilities are quantumly entangled with each other. If you can generate quantum liabilities at near zero cost, you can control and increase real assets to the disadvantage of your competitors. Put crudely, with a quantum computer and deep learning, you might be able to generate a drone-sized nuclear bomb using 3D printing at very low cost.

Or even more bluntly, you can do this under quantum encryption that the incumbent powers do not even know what you are doing.

It is therefore no coincidence, that the Western Deep States moved quickly against Chinese enterprises ZTE and Huawei, because these two have been big developers and users of quantum computing. First, deprive the competitor from access to the key high-tech fast chips that enable quantum computing to perform at speed. Second, disrupt the management and key talent that would enable such quantum capacity to be operationalised. Third, prevent them acquiring market share to an entrenched level, so that you have time to bring your own technology up to speed.

All these suggest that if you think in Thucydides Trap terms (classical arms race to nuclear war), we will all end up in nuclear mutual destruction.

If quantum thinking is a more “natural” way of thinking about our physical world and human behaviour (since our brains appear to neurologically work in quantum terms), then it means that we need to get rid of old classical thinking and mental traps. The real challenges to global prosperity and survival are climate change, social injustice, corruption, crime and disruptive technology, but mostly outdated mindsets. We need to think through these challenges in quantum terms, which means very new and weird ways of thinking round these obstacles.

Discarding old mindsets is never easy. But mankind has always thrived on getting new solutions to old problems, perhaps this time through a quantum frame of mind. On that optimistic note,

Happy New Year to all!

By Andrew Sheng - Think Asian- Tan Sri Andrew Sheng writes on global issues from an Asian perspective.

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From Industrial 4.0 to Finance 4.0

https://youtu.be/Gs4_eurnrtU


https://youtu.be/GMMfxVxdlSM

https://youtu.be/Wkp5a7RZOsQ

MOST people are somewhat aware about the Fourth Industrial Revolution.

The first industrial revolution occurred with the rise of steam power and manufacturing using iron and steel. The second revolution started with the assembly line which allowed specialisation of skills, represented by the Ford motor assembly line at the turn of the 20th century.

The third industrial revolution came with Japanese quality controls and use of telecommunication technology.

The Fourth Industrial Revolution, or first called by the Europeans Industry 4.0, is all about the use of artificial intelligence, robotics, genomics and process, creative design and high speed computing capability to revolutionise production, distribution and consumption. Finance is a derivative of the real economy – its purpose is to serve real production. Early finance was all about the finance of trade and governments to engage in war.


It is no coincidence that the first central banks (Sweden and England) were established in the 17th century at the start of the First Industrial Revolution. Industrialisation became much more sophisticated as Finance 2.0 brought the rise of credit and equity markets in the 18th and 19th centuries. Industrialisation and colonisation came about at the same time as the globalisation of banks, stocks and bond markets.

Again, with the invention of first the fax machine, then Internet that speeded up information storage and transmission in the 1980s, finance and industry took a quantum leap into the age of information technology. Finance 3.0 was the age of financial derivatives, in which very complex (and highly leveraged) derivatives became so opaque that investors and regulators realised they became what Warren Buffett called “weapons of mass destruction”. Finance 3.0 stalled in 2007 with the Global Financial Crisis and was only propped up with massive central bank intervention in terms of unconventional monetary policy with historically unprecedented interest rates.

We are now on the verge of Finance 4.0 and it may be useful to explore what it really means.

The common definition of Industry 4.0 is the rise of the Internet of Things, in which cloud computing, artificial intelligence and global connectivity means that cyber-physical systems can interact with each other to produce, distribute and trade across the world in a massively distributed system of production.

But what does Finance 4.0 really mean?

What truly differentiates Finance 4.0 from the earlier version is the arrival of Blockchain or distributed ledger technology. The best way to think about the difference is the architecture of the two different systems.

Finance 3.0 and earlier versions were all about a top-down or hierarchical ledger system, like a pyramid, in which trade and settlements between two parties are settled across a higher ledger.

A simple example is payment from Joe in bank A to Jim in bank B is finally settled across the books of the central bank in local currency. But in international trade and payments, the final settlements (at least more than 60%) are settled in US dollar finally across the ledgers of the Federal Reserve bank system.

Finance 3.0 was not perfect and those who wanted to avoid regulation, taxation or any official oversight basically moved trading and transactions off-balance sheet and also off-shore. This was the “shadow banking” system that financial regulators and central banks conveniently blamed on their failure to see or stop the last global financial crisis.

Although technically the shadow banking system is the non-bank financial system, which would include bond, stock and commodity markets, the bulk of illegal, illicit transactions traditionally was done in cash.

Welcome to the technical innovation called cyber-currencies, which was made possible for peer-to-peer (P2P) transactions across a distributed ledger system (commonly known as blockchain). In architectural terms, this is a bottom-up system which technically can avoid any official oversight. Indeed, cyber-currencies or tokens were invented precisely because the users do not trust the official system.

As the populist philosopher Stephen Bannon said, “central banks are in the business of debasing the currency”. Hence, those who want to avoid the debasement of their savings prefer to deal with either cash or cyber-tokens like bitcoin (pic).

What is happening in the rapidly evolving Finance 4.0 is that as the world moves from a unipolar order to a multi-polar world in which other reserve currencies also contend for trade and store of value, the top-down architecture is fusing (or merging) with a bottom-up architecture in which trade, transactions and stores of value are shifting towards the P2P shadow system.

Why this is taking place is not hard to understand. Post-global financial crisis, the amount of financial regulations have tripled in terms of number of rules and complexity on what the official sector can regulate, which is mostly the banking system. It is therefore not surprising that all the innovation, talent and money are moving to outside the banking system into the asset management industry, which is much more lightly regulated.

No talented banker, however dedicated to the values of banking probity, can resist the temptations of working in asset management, away from the heavily regulated environment where he or she is 24x7 under regulatory internal and external oversight.

Another reason why the cyber-P2P business is flourishing is because the official sector is worried that further regulation would hinder innovation. But those who want to increase the complexity of regulation must remember that for every 50 foot wall, someone will invent a 51 foot ladder.

So competition in the 21st century has already moved from the physical and financial space into cyber-space.

If there is one thing I learnt as a former regulator, it is that if the banks are behind the curve in terms of technology, the regulators are even further behind, since they learn mostly from those whom they regulate. But if financial regulators deal with financial innovation through “regulatory sandboxes” where they allow their regulated banks to experiment in sandboxes, they are treating their regulated institutions as kids in an adult game of ruthless technology.

Time for the official sector to make their stand clear or else Finance 4.0 promises to be very different from the orderly world that they are used to imaging. Nothing says this clearer than a recent survey by the Chartered Financial Analyst Institute, which showed that 54% of institutional investors surveyed and 38% of retail believe that a financial crisis in the next one-three years is likely or very likely.

You have been warned.

- Tan Sri Andrew Sheng writes on global issues from an Asian perspective.


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Back to the future for Malaysia

Earth-shattering news: The aftershocks of the general election are not over by any means. Voter turnout declined by 8.84 percentage points from 84.8 in 2013 to 76 this time around.

MOST Malaysians, including myself, went to bed in the early hours of Thursday morning after hearing the news that the Pakatan Harapan coalition of four parties had won a simple majority of 113 seats out of the 222 parliamentary seats contested in the 14th General Election.

It was earth-shattering news that the Barisan Nasional that had ruled Malaysia for 61 years is now in opposition.

The 92-year-old Tun Dr Mahathir Mohamad has just been sworn in as the seventh Prime Minister of Malaysia, after having served 22 years as the fourth Prime Minister from 1981 to 2003.

In 2016, Dr Mahathir quit Umno and came out with the former Deputy Prime Minister Tan Sri Muhyiddin Yassin to form Parti Pribumi.

The Pakatan coalition comprises Parti Primbumi, Parti Keadilan Rakyat led by Datuk Seri Anwar Ibrahim’s wife Datin Seri Dr Wan Azizah Wan Ismail, DAP and Parti Amanah Negara. The last comprises a faction that split off from PAS.

Going forth, there will be a period of political crossovers in which each party tries to bolster its majority at the parliamentary and state levels.

The aftershocks of the general election are not over by any means. My preliminary analysis of the published and available data on the elections showed that voter turnout declined by 8.84 percentage points from 84.8% in 2013 to 76% this time around.

Despite this, the total votes cast in the Parliamentary election were 11.93 million, or roughly 671,000 more than 2013. Out of this, Pakatan got 5.24 million or an increase of 1.25 million votes (over the votes cast for PKR and DAP in 2013) to 43.9% of total votes cast.

In essence, Barisan had a swing against it of just under one million votes to 4.24 million or 35.53% of the total votes cast.

In addition to the rejection of the past government on issues that include the 1MDB scandal, three key trends can be discerned from this year’s general election, which was orderly and surprisingly quiet on polling day, since there were few of the usual rumbustious rallies that followed past elections.

The Malaysian electorate has become mature, learning to be cautious and yet bold in voting for change.

First, it was clear that the urban voters swung decisively to the Pakatan coalition. This trend was clear for quite some time, as the urban population increased with the rural-urban drift.

Umno has traditionally depended on the rural vote for its support, but relied on its urban partners, the MCA, MIC and Gerakan to bolster the urban vote.

This time around, the MCA, MIC and Gerakan were almost wiped out at the polls, with the MCA and MIC party leaders losing their seats and Gerakan winning no seats at all.

This meant that the decisive gains were achieved in the more densely populated states in the West coast of Peninsular Malaysia, particularly with stronger majorities in Penang and Selangor, Negri Sembilan and Johor.

The last was the birthplace and stronghold of Umno, but this time round, even the veteran MP for Johor Baru Tan Sri Shahrir Samad lost heavily.

What was pivotal was the voting in Sabah and Sarawak, which together carried 56 Parliamentary seats and were considered safe “deposits” on which Barisan could rely to carry a majority.

In the end, Pakatan and its ally, Warisan took 24 parliament seats.

Secondly, PAS, the Islamic party that focuses largely on religion, dropped a net of three Parliamentary seats, but took back Terengganu, so that it once again controls two states (Kelantan and Terengganu).

It was clear that the breakaway faction Amanah was not able to draw away sufficient hardcore votes to weaken PAS.

The PAS support amounted to 2.01 million or 16.88% of total votes cast, an increase compared with 1.63 million votes or 14.78% in 2013.

What the rise of Pakatan means is that the urban Malay voters had elected for a change of government and improvements in economic livelihood rather than voting along religious affiliations.

The non-Malay vote, on the other hand, were put off by PAS push for hudud laws and were uncomfortable with Umno’s flirting with PAS on areas touching on religion.

Third, what this general election has done is to bring more new faces and talent into the political arena.

One of the weaknesses of multi-party politics is that under conditions of uncertainty, the tendency was to rely on recycled politicians, rather than experiment with younger professionals.

The new government has the opportunity to engage in generational renewal by bringing in younger leaders from more diverse backgrounds into positions of authority on change at all levels.

Time is of the essence, as Dr Mahathir has promised to stay on as Prime Minister for two years, before passing the baton to Anwar who will be 73 by then.

Nothing would signal more the restoration of the rule of law than the immediate release of Anwar from jail.

To safeguard his legacy, Dr Mahathir has now an unique and historic opportunity to address many of the issues that festered when he was Prime Minister for the first time. If the rule of law has weakened, it was partly because of the controversial steps he took to intervene in the legal institutions in the 1980s.

He needs to strengthen the very institutions that protect the rule of law which he now upholds.

On the economic front, he has inherited an economy that has grown by 5.9% last year, but as the saying goes, the GDP numbers look good, but the people feel bad.

With oil prices back up to over US$70 per barrel, and Malaysia as a net energy exporter, the economic winds are favourable for making the necessary tough reforms.

Cutting GST may be popular, but one has to look closely at the fiscal situation more prudently for the long haul.

How to create good jobs in an age of robotics, even as more youth enter the labour force, is a pressing challenge not just for Malaysia, but throughout the developing world.

On the foreign affairs front, Malaysia will have to navigate between the growing tensions between the United States and China.

Given his feisty style, Dr Mahathir has not been known to mince his words about what he thinks about the South China Sea or for that matter, where Malaysia stands as a leading voice in the South.

In her unique way, Malaysia has voted for a generational change, but with the oldest leader managing that transition. Most new governments find very short political honeymoons, as expectations are now high on delivery. It is always easier to oppose than to propose and implement.

How smoothly that transition occurs will have huge impact not only on Malaysians, but the region as a whole.

By Andrew Sheng who writes on global issues from an Asian perspective.


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MALAYSIA’S poor handling of public finances is a subject matter that has very often lit controversy. It is not only during the Datuk Seri Najib Tun Razak government but stretches back to the days of our new ‘old’ Prime Minister, Tun Dr Mahathir Mohamad.

 

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Tailwinds and headwinds into 2018

  
2017 was a year of smooth tailwinds, even though everyone was mesmerized by the Trump reality show. Heading into 2018, one issue on everyone’s minds is whether headwinds will finally catch up when the tide goes out.

ALL markets function on a heady mix between greed and fear. When the markets are bullish, the investors know no fear and regulators think they walk on water. When fear grips the markets, and everyone is staring at the abyss, all eyes are on the central banks whether they will come and rescue the markets.

Last year was one of smooth tailwinds, even though everyone was mesmerised by the Trump reality show.

Heading into 2018, one issue on everyone’s minds is whether headwinds will finally catch up when the tide goes out.

Last week at a Tokyo conference, Fed vice chairman Randy Quarles was visibly confident about the US economy. Real gross domestic product (GDP) growth through the final three quarters of 2017 averaged almost 3%, faster than the 2% average annual pace recorded over the previous eight years.

The European recovery, barring Brexit, looked just as rosy. Eurozone growth has stepped up to 2.7% in 2017, with inflation at around 1.2% and unemployment down to 8.7%, the lowest level recorded in the eurozone since January 2009.

In Asia, 2017 Chinese GDP grew by 6.9% to 59.7 trillion yuan or US$9.4 trillion, just under half the size of the United States. With per capita GDP reaching US$8,836, China is expected to reach advanced country status by 2022.

Meanwhile, the Indian economy has recovered from its stumble last year and may overtake China in growth speed in 2018, with an estimated rate of 7.4%.

The tailwinds behind the growth recovery seem so strong that the IMF’s January world economic outlook for 2018 sees growth firming up across the board. The IMF’s headline outlook is “brighter prospects, optimistic markets and challenges ahead.”

Expressing official prudence, “risks to the global growth forecast appear broadly balanced in the near term, but remain skewed to the downside over the medium term.”

Having climbed almost without pause in most of 2017 to January 2018, the financial markets skidded in the first week of February. On Feb 5, the Dow plunged 1,175 points, the biggest point drop in history. The boom in 2017 was too good to be true and fear came back with the re-appearance of volatility.

Amazingly, the drop of around 11% from the Dow peak of 26,616 on Jan 26 to 23,600 on Feb 12 was followed by a rebound of 9% in the last fortnight.

Global stock market indices became highly co-related as losses in Wall Street resulted in profit taking in other markets which then also reacted in the same direction.

Will headwinds disrupt the market this year or will there be tailwinds like the economic forecasts are suggesting?

What makes the reading for 2018 difficult is that the current buoyant stock market (and weak bond market) is driven less by the real economy, but by the current loose monetary policy of the leading central banks.

With clearer signs of firming real recovery, central banks are beginning to hint at removing their decade long stimulus by cutting back their balance sheet expansion and suggesting that interest rate hikes are in the books.

The projected three hikes for Fed interest rates in 2018 augur negatively on stock markets and worse on bond markets.

The broad central bank readout is as follows.

The Bank of England and the Fed are leaning on the hawkish side, the European Central Bank (ECB) is divided and the Bank of Japan will still be on the quantitative easing stance.

In his first testimony to Congress, the new Fed chairman Jay Powell was interpreted as hawkish. In his words, “In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2% on a sustained basis. In the FOMC’s view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives.”

What is more interesting is the divided stance facing the ECB. In his latest statement to the European Parliament, ECB president Mario Draghi reaffirmed that the eurozone economy is expanding robustly. Because inflation appears subdued, although wage growth has picked up, he argued that “patience and persistence with respect to monetary policy is still needed for inflation to sustainably return to levels of below, or close to, 2%.”

In an unusually critical and almost unprecedented article published last month by Project Syndicate, the former ECB Board member and deputy president of the Bundesbank Jurgen Stark called the ECB “irresponsible”, suggesting that its refusal to normalise policy faster is drastically increasing the risks to financial stability. In short, the bigger partners in Europe think tightening is the right way to go.

If both central banks begin to reverse their loose monetary policy and unwind their balance sheets, liquidity will become tighter and interest rates will rise.

Financial markets have therefore good reason to be nervous on central bank policy risks.

There is ample experience of mishandling of policy reversals.

After the taper tantrum of 2014, when markets fell on the fear of the Fed unwinding too early and too fast, central bankers are particularly aware that they are walking a delicate tightrope.

If they reverse too fast, markets will fall and they will be blamed. If they reverse too slow, the economy could overheat and inflation will return with a vengeance, subjecting them to more blame.

In the meantime, trillions of liquid funds are waiting in the sidelines itching to bet on market recovery at the next market dip. But this time around, it is not the market’s invisible hand, but visible central bank policies that may pull the trigger.

Man-made policies will always be subject to fickle politics. The raw fear is that once the market drops, it won’t stop unless the central banks bail everyone out again. This means that central bankers are still caught in their own liquidity trap. Blamed if you do tighten, and damned by inflation if you don’t.

There are no clear tailwinds or headwinds in 2018 – only lots of uncertain turbulence and murky central bank tea leaves. Fear and greed will dominate the markets in the days ahead.

 
Andrew Sheng is distinguished fellow, Asia Global Institute at the University of Hong Kong.



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