How dire is the threat of nuclear terrorism?

While the administration of U. S. President Barack Obama has named nuclear terrorism a major threat to the United States, experts differ over the likelihood of a nuclear attack on U.S. soil.

The matter will see much debate next week, as Obama is expected to host the Global Nuclear Security Summit in Washington in a bid to find international consensus on how to secure vulnerable nuclear materials worldwide and keep them out of the hands of groups such as al-Qaeda.

Some experts paint the threat as dire, pointing out that the know-how to build a weapon and the materials are out there, and contending that that is why Obama is taking the possibility of attack very seriously.

Others downplay the threat, arguing that while an attack would be devastating, the odds of radicals obtaining nuclear materials, constructing a bomb and setting it off are low.

For one thing, building a deployable nuclear device is difficult even for states, in spite of access to universities, teams of scientists, huge facilities and large state budgets all aimed at creating a nuclear weapon. A terror organization not backed by a national government and without access to the full panoply of resources, would be hard pressed to launch a successful nuclear attack, some experts believe.

Purchasing a weapon of mass destruction would also pose a hurdle to militants, some experts said, as the United States spends hefty sums -- around 1 billion dollars per year -- to track and buy fissile material in a bid to keep it off the market.

Still, U.S. Secretary of State Hillary Clinton recently told CNN that weapons of mass destruction in the hands of a militant group such as al-Qaeda were the biggest threat to the United States.

"The biggest nightmare that many of us have is that one of these terrorist member organizations within this syndicate of terror will get their hands on a weapon of mass destruction," she said.

Clinton said al-Qaeda remained "unfortunately a very committed, clever, diabolical group of terrorists who are always looking for weaknesses and openings."

Indeed, the possibility of attack by a "dirty bomb" -- a crude radiological weapon -- came to light in 2002 after the arrest of Jose Padilla, a U.S. citizen accused of plotting an attack on the United States, although the case was dropped and Padilla was instead convicted of conspiring to kill people in an overseas jihad.

In November 2006, British intelligence warned that al-Qaeda was plotting to mount a nuclear attack against British cities by acquiring chemical, biological, radiological or nuclear weapons.

In June 2007, the U.S. Federal Bureau of Investigation released the name Adnan Gulshair Muhammad el Shukrijumah, the alleged al- Qaeda operative said to be in charge of developing plans to simultaneously launch attacks against several U.S. cities.

The Fissile Materials Working Group, an organization collaborating in a series of meetings designed to create consensus on controlling fissile materials, called nuclear terrorism the number one threat the international community faces. And with enough materials worldwide to build 120,000 nuclear bombs, the possibility that a terrorist network could buy or steal such material is far too high, as not all the world's nuclear materials are secure, the organization said in a statement.

Worldwide there are roughly 1,600 metric tons of highly enriched uranium and 500 metric tons of plutonium stockpiled and in weapons. The majority of these materials are in weapons, but some are also used in civil applications, the group said.

The largest stockpiles are in Russia and the second largest is in the United States. The United Kingdom, France and China also have significant stockpiles of highly enriched uranium and the United Kingdom, France and Japan have considerable stockpiles of plutonium both for civil and military (excluding Japan) purposes, the group said.

There are now more than 400 commercial nuclear power reactors operating in 30 countries, which provide 15 percent of the world' s electricity, the group said.

Experts said militants need not break into a facility to obtain nuclear materials, as theft could be carried out by an employee of a facility that uses them.

Source:Xinhua

http://newscri.be/link/1069167

Google CEO says newspapers can make money online

WASHINGTON - Google Inc. Chief Executive Eric Schmidt told a group of editors Sunday that he is confident that newspapers will find new ways to make money online by harnessing the vast reach of the Internet.

California Attorney General Jerry Brown, left, who is running for governor, shakes hands with Google CEO Eric Schmidt, right, during a talk to Google workers at Google headquarters in Mountain View, Calif., Friday, April 9, 2010. [Agencies]

Media executives have accused Google of draining readers and advertising from newspapers' Web sites. But in a speech to open the annual conference of the American Society of News Editors, Schmidt said Google recognizes that newspapers are vital to democracy and provide a critical source of online content.

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"We understand how fundamental your mission is," he said.

Schmidt predicted that the news business will find a new model, based on a combination of advertising and subscription revenue. He said Google hopes to facilitate that, but he offered no specifics.

"We have a business model problem. We don't have a news problem," Schmidt said. He added: "We're all in this together."

Schmidt encouraged his audience to experiment with everything from social media to personalized content to engage readers.

"Technology allows you to talk directly to your users," he said.

He also said the news business needs to reach out to readers using mobile technology, delivering content through wireless devices such as Amazon.com Inc.'s Kindle, Apple Inc.'s iPad and Google's own Android smart phones.

Reaction to Schmidt's speech was mixed.

Anders Gyllenhaal, executive editor of The Miami Herald, said that even though Google drives a lot of traffic to his newspaper's site, he remains unconvinced that Google sees newspapers as true partners. "We really are going in different directions," he said.

Still, Jonathan Wolman, editor and publisher of The Detroit News, said he was "heartened to hear the Internet geniuses talk about newspaper content as an essential ingredient."

Source:  China, http://newscri.be/link/1069032

Why Can't We All Just Get Along?

The endless acrimony these days surrounding issues from health care reform to gay marriage might have you wondering: Why can't we all just get along? Here, demonstrators rally outside a presidential speaking event in Arizona in August 2009. Presidential opponents and supporters voiced their opinions about universal healthcare, war, gun law, taxes and other issues. Credit: dreamstime

The health care bill may be passed, but the road to reform certainly painted a polarizing picture of America. From a six-hour summit that failed to sway a single Republican, to shouts of "baby killer" and Tea Party protests, politicians and the public seemed to be from different planets. 

Psychologically speaking, perhaps they are, say experts, who weigh in on the reasons behind the seemingly endless acrimony these days over a slew of issues, from gay marriage to abortion. 

The reasons are many-faced, involving deep-seated personality differences, contrasting moral views, polarized political parties and today's 24/7, tell-it-all-in-great detail media, all of which prevent liberals and conservatives from seeing eye-to-eye, experts say. 

And at the end of the day, these divisions could explain why we can't all just get along.  

  Conflicting morals

Before they even get to the issues, liberals and conservatives are already starting off on the wrong foot for bipartisan agreement. Fundamental differences in morals and personality, paired with emotion-driven logic lead to a basic disconnect between the political bents. 

Jonathan Haidt of the University of Virginia and his colleagues have pinned down five basic "moral triggers," or the factors people use to judge right from wrong and that have evolved in human societies. Different cultures and even individuals  place more emphasis on certain triggers compared with others.

In a broad sense, they boil down to:

• Harm/care: People are sensitive to suffering and have negative feelings toward those who are harmful and cruel. They value kindness and compassion.
• Fairness/reciprocity: A history of cooperation means humans have evolved a sense of fairness and reciprocity, leading to altruistic actions.   
• Ingroup/loyalty: People place moral value on those who do what's good for the group; are loyal to the group; and dislike disloyal members.  
• Authority/respect: Humans tend to respect authority and tradition.
• Purity/sanctity: The idea that we view our bodies as sacred. This idea ties into religious views about the body and human actions.

Studies have shown that liberals tend to care only about harm and fairness when considering whether something is moral or not, said Peter Ditto, a professor of psychology and social behavior at the University of California, Irvine, who is involved with Haidt's research. In contrast, conservatives have a more traditional moral structure, and tend to care about all five morality factors, he said. 

"So that's where a lot of the problems come in, is that the things that really bother conservatives don’t bother liberals very much," Ditto said. "And the two groups don't understand each other's morality very well." 

Take gay marriage, for example: "From a liberal standpoint, gay marriage isn't a problem, it doesn’t harm anybody, and it's only fair that gay people be allowed to be married just like straight people can," Ditto said.

But for conservatives, gay marriage goes against the traditional idea of marriage, and so presents a real moral problem, Ditto explained. 

Twisting the facts

These basic moral differences can then go on to drive the biased perception of facts, Ditto said. Often people don't agree on an issue, because they interpret — or misinterpret — the facts differently, or they simply ignore facts that don't fit their view. People on both sides of the political aisle do this, studies show, and so even what might seem like simple notions of "right" and "wrong" are judged based on altered realities by both parties.

"People process information, and it's biased to supporting their moral ideological view," he said. "And what you end up with is these sort of radically different perceptions of fact, so that it's not like they're just arguing about morals anymore; they perceive the world completely differently." 

This bias worldview might have its roots in emotions as well as morals.

"You tend to form emotional ties to the belief that you hold," said Steve Hoffman, a professor in the Department of Sociology at the University of Buffalo in New York. "And so you seek out that information, or those convictions, and those people that convey the convictions that you think you already have." 

Psychology research has also identified personality differences that might lead people to identify as either liberal or conservative. 

"If you have a high need for certainty, you like things to be very sure or certain, [and] if you have a high need for order, if you tend to see lots of threats and danger out in the world, you're more likely to identify as a conservative," said Christopher M. Federico, a professor of psychology and political science at the University of Minnesota. 

On the other hand, people with a lower need for certainty and order and who are less likely to see the world as a threatening place are more likely to identify as liberal, he said. 

In other words, ideological sorting is not meaningless. "It's not that you like Coke and I like Pepsi, or something like that; it's something that seems to go much deeper, and it's not psychologically arbitrary so to speak," Federico said. 

Polarized parities

So liberals and conservatives are different down to the core. And perhaps that's how it's always been. But are we really more partisan today than in years past? The answer depends on how you define "we."

If you're talking about the American public at large, the answer is not so clear. 

For instance, the number of Americans who identify as either Democrat or Republican has remained relatively constant over the last 25 years, said Morris Fiorina, a professor of political science at Stanford University. And the number of Independents hovers around 30 percent to 40 percent, he said, suggesting that most Americans actually have moderate views. 

However, gauging the extent of American partisanship remains difficult, Hoffman said, and there are some political scientists who would say America is more partisan today, he said. 

What is generally agreed upon, however, is that those who are actively involved in the Democratic and Republican parties seem to have become more divided in recent years. 

"If you were to randomly draw a Republican and a Democrat from the population today, they're likely to be further apart than if you randomly drew a Republican and a Democrat from the population 40 years ago," Fiorina said. 

In other words, each party is more ideologically homogenous, yet both are at more extreme ends of the spectrum, University of Minnesota's Federico said. "You don't see too many liberal Republicans anymore or as many conservative Democrats," as was the case about 50 years ago, he said. 

Case in point, no Republicans voted for Obama's health care bill in either the House or the Senate.

Added on top of this division is the fact that those who are more partisan are the ones who are most engaged in politics, according to Federico. 

"The people who are most likely to have an impact on politics, to get involved, to go to marches, to vote, to pay attention to the political media, are those that are especially undergoing all these processes that make people more partisan in a sense," Federico said. 

These extreme voices on the left and the right help to fuel the perception that America as a whole is more partisan, Fiorina said. 

"The people who are the public face of politics, who get on TV and who are on all the talk shows, and so forth, they are not only highly partisan, they are the most partisan of the partisans," he said. 

Same divisions, new media

Speaking of media, experts agree part of the blame for American partisanship, or at least the perception of partisanship, rests with the endless number of politically biased TV and radio shows, newspapers and Internet sites. 

While people have likely always had differences in their moral beliefs, and had a tendency to take a skewed view toward the facts, today's media allows such distorted notions to be reinforced, said Ditto, of the University of California, Irvine. 

"If I'm a liberal I can go to MSNBC, I listen to NPR, read liberal magazines, I read the Huffington Post," Ditto said. "If I'm a conservative, I go to Fox News, I read Michelle Malkin, I listen to Rush Limbaugh." (Malkin is a syndicated columnist, and Limbaugh is a radio host and conservative political commentator.)

"The two sides come in and they just fundamentally don't agree on even the most basic facts, because they want to believe certain things, and they're reinforced [by the media]" Ditto said. 

Hoffman agrees.

"There is this kind of rhetoric of absolute conviction, and it's either kind of a right wing conviction or a kind of liberal conviction," he said. "What effect that has, is that it both exacerbate the sense that we live in an increasingly polarized world, and [media pundits] also appeal to people's emotions and their kind of emotional processing," Hoffman said. 

The media and the Internet likely also play a role in fueling the spread of radical beliefs. For instance, a recent poll, conducted by Harris Interactive, found that 32 percent of those polled believe that President Obama is a Muslim, and about a quarter of Republicans in the poll think he may be the antichrist. The poll was widely criticized for not properly representing the public, but Harris pollsters stood by its validity. Either way, it illustrated a big gap in how the left and the right view things and how those views can be supported by the media. 

"The media give you the support that you need, and you're able to go and find those things, whereas in the past, it was much harder to find something that would support your beliefs, particularly crazy ones," Ditto said.   

 

While many extreme beliefs today, like those expressed in the Harris poll, seem to be coming from the right wing, the same biases also occur on the left, and at another point in history, extreme leftist views might have been more ostentatious.  

 

"To a certain extent the same thing happens on the left, and maybe at different historical times it would be more prominent on the left as well," Ditto said. 

By Rachael Rettner, LiveScience Staff Writer
posted: 11 April 2010 08:56 am ET
http://newscri.be/link/1068721

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Developing properties for different generations

THE hype surrounding the huge “generation gap” among Malaysians seems to be among the many efforts marketeers are creating to widen the appeal of their products.

Differentiation is certainly a clever way to expand in an otherwise listless and static market. From new generation gadgets such as the iPod to branded fashionwear and credit cards, marketeers are quick to leverage on these differences to make us buy into their message that “we should never leave home without them.”

The country’s demographics is changing fast with more young Malaysians making up a bigger share of the population. The Gen-Yers (aged 15-30) are making a big impact in the market place. The Gen-Xers (born between 1965 and 1979) and Baby Boomers (1945-1964) are also important market segments as they wield the most purchasing power.

The different needs, habits and lifestyles of the various age groups creates huge opportunities for property developers to tap into.

So, planning and designing the right products to meet the requirements of the various age groups should be among the priorities of niche property players.

Instead of turning their projects into a one-size-fits-all, the better option is to identify special products and fit them with the right facilities for the different age groups. This will add higher value to the projects and make them more marketable.

In fact, greenfield projects offer the best opportunity for developers to draw up a good master plan where the needs of different buyers can be catered to.

Irrespective of age, developers should note that property buyers place high priority on security, good neighbourhood, quality workmanship and convenience. So, projects should always be planned with those needs in mind.

Although there are more niche developments, especially high-end gated and guarded enclaves, most property projects are conventional developments aimed at the mass middle-income market.

The projects are mostly apartments, terraced and detached houses with the usual basic necessities, either in guarded or non guarded enclaves.

I believe there aren’t any developers that have set out solely to cater to the needs of senior citizens. The reason may be because most senior Malaysians are cared for by their children and are living with them, while some may be in homes for the aged or infirmed.

But there is certainly a growing number of senior citizens that have the financial means to own homes in well planned, built and managed housing estates.

For many senior citizens, retirement will be the best time to pursue their “postponed gratifications.” Those with grown up children are likely to experience the “empty nest” syndrome and will look forward to live in homes that are easier to manage.

Many Baby Boomers (aged 45-64) will soon be joining the ranks of retirees and are likely to consider such facilities. If properly planned and managed, developments for our senior citizens could be the next trend for developers just like in Australia, Japan and South Korea.

Projects should preferably be low-density and low-rise with amenities for the aged such as lifts, ramps, medical facilities and attendants, health rejuvenation centres, laundrettes and convenience stores.

As most retirees will look forward to a more relaxed environment, developments should be in quiet suburbs, but close enough to the basic needs and conveniences.

Meanwhile, properties that cater to younger buyers such as Gen-Yers should have smaller built-up for easier maintenance.

 The Real Estate by ANGIE NG

Deputy news editor Angie Ng believes simplicity can enrich one’s life regardless of whether one is a Baby Boomer, Gen-Xer or Gen-Yer.

The Magic of Property Investment, Book review:\

EXCERPTS from The Magic of Property Investment:
 
Here are several reasons why Renesial Leong likes property investment over other forms of investments:

>Cash flow on a monthly basis
  Make sure your rental income is able to cover mortgage repayment, service charges and other expenses.

>Leverage

A 10% downpayment is equivalent to 100% ownership. Be careful with the gearing though.

>Capital appreciation
Well located properties have good capital appreciation over time, especially landed units.

>Property investment pays for itself over time
If the rental income is sufficient to cover the monthly expenses, the property pays for itself over a period of time.

>Return on investment
Well thought out purchases, when put on the rental market, generally provide a positive return on investment.

>Control
You have control over what and where you want to buy, and the type of properties you are comfortable with. It is also within your control whether you want to rent or put it up for sale.

>Hedge against inflation
One of the reasons why property appreciates in value over time is due to inflation. The price increase in new properties is generally reflected in an increase in existing properties.

>The benefit of use
Whether it is a house, an apartment or a commercial property, there is a demand for it if the property is well located.

Related story:

An unexpected success

An unexpected success

RENESIAL Leong’s success in property investment was not something she expected or sought. She went into it because of a need – she was tired of being poor.

“My father was a dedicated teacher and extremely passionate about his career. But we were poor and I was tired of always being in need.

“I went into property investment not with the goal to become rich but to meet a need for myself and my family.”

Leong says she had several options to choose from. “You have to invest to grow your capital. You either go into business, buy stocks and hope for capital gains, or invest in properties.” She took the last route because it was the most stable and tangible.

Leong’s perseverance to delay self-gratification has also helped her succeed in her field of work.
“You have to invest to grow your capital. You either go into business, buy stocks and hope for capital gains, or invest in properties.” —Renesial Leong

“I disciplined myself. While my friends were going to the movies or shopping, I was looking at properties. My mother also gave me a lot of strength to weather that period in my life. I wanted to make life better for her and that also motivated me tremendously.”

Leong has been in property investment for about 20 years now. In her early days, she would buy a property, sell it and reinvest the proceeds in two or three properties. Today, 70% of her property assets are commercial while the rest are landed and high-rise condominiums.

“In some ways, commercial properties are easier to manage. Because the tenant has a business to run, the onus is on him to upkeep and manage the place well. A business will be there for quite some time. It is different for residential properties. The tenant may stay for a year or so,” she says.

Leong’s achievements have enabled her to divide her time evenly between work (six months) and personal development (six months). Her experience in property investments have helped her to think long term and she uses this principle when planning for her personal development.

“Like my father, I put a premium on education. I really enjoy short courses, not just to learn, but also to experience the culture and life in another country,” she says, adding that she intends to keep on learning regardless of age.

Leong has been setting aside several months in a year for this purpose. She will be going to Britain to do a four-month course on psychology and marketing soon. She plans to go to Oxford next year and subsequetly Harvard.

Leong recently released her fourth book titled The Magic of Property Investment. She is currently working on her fifth book with feng shui master Joey Yap.

She says her fifth book will incorporate elements of feng shui as she believes property owners should know more about it.

“Whether one believes in it or not is irrelevant. There may come a time when you want to sell or rent out a place. The buyer or tenant may (subscribe to feng shui) and there goes your customer.”

For example, according to feng shui it is not ideal to have a house located at a T-junction because on-coming cars will shine their headlights into the house. Home owners also have to contend with dust due to passing traffic and lack of privacy.

Leong says it is important that people know when to take a break from work. She says people often go on working without knowing when to slow down.

But while her work life is on a different pace, it is by no means a slow one. She continues to give talks around the world.

Be it European or Asian countries, the principles of property investment remains the same and she wants others to benefit from it.

“I’m glad I spent time with my father and though I am sad that he is no longer with me, I made time for him. And I thank my mother for standing by me when I started on this investment journey when I was in my 20s,” she says.

Note: Property investment consultant Y.M. Leow, who is trained by Renesial Leong, will give a talk on The Ultimate Property Mastery today (2.30pm-4.30pm) and April 28 (2.30pm-4.30pm and 8pm-10pm) at Level 1, Menara PJ, Amcorp Mall, Petaling Jaya. Tel: Liew 9059-5785/017-720-6030

By THEAN LEE CHENG, leecheng@thestar.com.my

Related story:

Book review: The Magic of Property Investment

Realities about China’s BoP surpluses

 We need to go back to fundamentals to get a better perspectives

RECENTLY, I was in Shanghai to attend a research symposium led by Harvard president Drew Faust. Participants included the university’s best and brightest China-hands as well as luminaries from among China’s elite academia.

Deliberations took on “The Chinese Century?”, “China: Dynamic, Important and Different”, “The Moral Limits of Markets”, “Managing Crises in China” and many more. I came away wiser. Indeed, there is so much happening in China to experience, understand and learn.

Visiting Shanghai and Beijing, you cannot but feel China is under siege for running external payments surpluses. A consequence – argued by politicians and others in the United States and Europe, of China’s rigid exchange rate regime.

The debate is as fierce as it is emotional. Of late, China is strongly criticised for artificially depressing (even manipulating) the value of its currency, renminbi or yuan, to the detriment of its trading partners. Indeed, Nobel Laureate Paul Krugman even contended that China had since taken millions of jobs globally, especially from the United States.
To really understand this it requires going back to fundamentals. What caused China’s recent balance of payments (BoP) surpluses?

Causes of imbalance

For China, BoP surpluses are a relatively recent phenomenon. It used to have persistent deficits in the second half of the 80s. Surpluses only came in the early 90s and rose sharply since 2004 (3.5% of GDP or gross domestic product) to reach a high in 2007 (10.8%). The surplus has now moderated but only modestly.

Whereas, serious US current account deficits started years earlier. The literature on China’s surpluses is long. I came across a perceptive study by two young Beita economists at its China Centre for Economic Research, Huang Yiping and Tao Kunyu, who attributed the main cause to asymmetric market liberalisation.

Over the past 30 years, reform was much too focused on product markets (today, 95% of products are determined by free markets). But markets in factors of production – labour, capital, land, energy and the environment – remain highly distorted, driven by the government’s growth-centered policy strategy to push exports.

These cost distortions are equivalent to production and investment subsidies. Both Chinese and foreigners invest massively because of China’s cheap labour, cheap capital, cheap land and cheap energy:

● Labour: China’s abundant and cheap labour is key to its continuing success in manufacturing exports. But labour costs are distorted because (i) the separation of rural and urban labour leads to labour immobility and low pay for rural migrants; and (ii) an out-of-date social welfare system (including health and pensions) means payrolls should be 35%–40% more.

● Capital: The financial system remains repressed, with regulated interest rates and state control of credit allocation; external capital controls are restrictive on outflows. Moreover, the currency is kept undervalued.

● Land: The state owns land in cities and collectives, outside. No market mechanism exists to price land for industrial use; often prices are set low to promote investment and growth.

● Energy: Key energy prices are state-determined and usually subsidised; and

● Environment: Enforcement is random since growth is a given priority. The cost of pollution is not priced in.

All these mean lower production costs and producer subsidies. They artificially inflate profits, raise investment returns and improve competiveness. Economists Huang and Tao estimated these subsidies to be worth a hefty 7% of GDP.

Capital market distortions are the most troublesome, contributing 40% of total; with labour subsidies, 25%. The upshort: These are structural imbalances. Factor distortions are deep. Any credible policy at re-balancing must tackle the root cause, i.e. distorted incentives for investors, producers and exporters. The undervalued yuan is but one element in the entire jigsaw.

The savings-investment gap is by definition the flip-side of BoP surpluses. Attempts to explain the imbalance in terms of savings and investment behaviour will not be useful. Suffice to recognise the common belief that Chinese households save too much is incorrect.

For 15 years, the household savings rate has been stable at about 30%; nothing unusual in Asia. Its stability suggests that household savings are probably not a key cause of the growing BoP surpluses in recent years. Because corporate savings are rising, households’ income share is on the decline.

The exchange rate option

Exchange rate reform in China is sensitive. For the United States and Europe, the yuan scapegoat is political football, with attendant risks of a trade war. Among economists, there are vast differences about what needs to be done. The common prescription is to let the yuan rise by a certain margin (enough to eliminate the undervaluation), but no one knows precisely what this is. Views vary widely.

In April, Goldman Sachs pointed out that “at the moment, rather oddly, our model suggests that the RMB (yuan) is very close to the price that it should be. This has not always been the case. The model used to suggest the currency was undervalued by about 20% but it has moved by that degree over the past five years.”

However, a 2009 research of Goldstein and Lardy at the US Peterson Institute pointed to a 12%–16% undervaluation. Even if such an adjustment were taken, the West would still prefer it to be larger. Nor will the Chinese do so in one go, given the likely sharp negative impact on China’s desire for exchange stability.

But the weight of recent history looms large. Between the mid-2005 and end-2008, the yuan exchange rate appreciated by 19%, after strengthening by 30% over 10½ years since January 1994. Yet China’s BoP surplus surged during these periods. Despite the revaluation, US-China imports rose 39% during 2005–2008.
Japanese economic stagnation following the US pressure in 1985 didn’t boost confidence – US$1 fell from 240 yen to 160 yen over two years; and then to 80 yen by 1995.

Consequently, growth slowed abruptly forcing more government spending and low interest rates. The real-estate bubble and a year-long slump followed. The 1990s became a decade of lost growth. To this day, the intended aim to fix Japan’s BoP surplus remains just that – an empty aim!

Two lessons have emerged for China: large foreign exchange adjustments cause long-term damage to the economy, and it won’t necessarily help eliminate BoP surpluses.

An often suggested alternative is for China to adopt greater exchange rate flexibility. This looks reasonable enough, but will it resolve China’s BoP imbalances? Empirical studies have shown there is no systematic or reliable relationship between its BoP position and exchange rate flexibility.

Consider this also. Even if a significant yuan revaluation could wipe off China’s BoP surpluses, it still won’t reduce the United States’ BoP deficits. After all, yuan features at only 15% of the US Federal Reserve’s exchange rate basket for the greenback. This simply means a 20% yuan appreciation only translates to a 3% appreciation against the dollar.

Furthermore, the market vacuum left by China would most likely be filled by exports from other low-income countries like India, South Africa, Indonesia and Vietnam, or by even high-tech competitive South Korea and Taiwan. So be careful about what you ask for.

And then, there is the crawling peg or gradual appreciation option. But this creates expectations that can lead to speculation and hot-money inflows. China should have learnt from yuan’s rise in 2007 and 2008. A way out of this dilemma should be familiar: Opt for the compromise it took in July 2005 when China moved off the peg to the US dollar with a material revaluation, which eventually turned out to have little impact on its BoP surplus.

Unlike the United States and Europe, ASEAN plus 4 (India, Japan, South Korea and Taiwan) have remained “cool” on this issue because: (i) China’s continuing growth provides a robust source of demand for the region; (ii) most neighbours have different export profiles from China; indeed, most of their trade complements rather well; (iii) Japan, South Korea and Taiwan have built large manufacturing capacities in China, thus sharing in China’s dynamic exports; and (iv) Asia likes ready access to cheaper manufacturing equipment it badly need, which in turn keeps China’s export machine running.

In the final analysis, many in Asia are likely to mirror any revaluation of the yuan. This is already happening to the stronger Asian currencies as the US dollar weakens.

US unlikely to benefit

Students of economics know better. In the past two years, the United States had trade deficits with over 90 countries. Yet, the United States is pushing for a bilateral solution (“forcing” China to revalue or tax Chinese exports) to essentially a multilateral problem. Both China and the United States have large imbalances with rest of the world. Any credible solution must lie in a multilateral approach. After all, China-US trade accounted for only 12% of the total Chinese trade.

Nevertheless, empirical evidence suggests that a more expensive yuan is unlikely to reduce the US bilateral deficit. A sharp appreciation of the yuan between June 2005 and June 2008 in fact widened the US deficit. Contrary to textbook economics, US imports from China rose by 39%, offsetting increases in China’s US-imports which (even without revaluation) had been increasing since 2002.

Moreover, higher import prices would mean a fall in the purchasing power of US income. But a stronger yuan raises the purchasing power of China’s producers who rely on imported raw materials. Because imports are now cheaper, Chinese exporters can reduce export prices to maintain market share.

Realistically, it is not surprising that the relationship between the exchange rate and BoP balance is at best weak. Weaker still is the relationship between the BoP deficit and US job loss.

Here again, empirical evidence is telling. An old friend, Prof Lawrence Lau of Stanford, pointed out in his 2006 research (and corroborated by others in 2008) that Chinese value-added accounted for only 1/3 to ½ of US imports from China. This reflects the importance of efforts by workers and capital from other countries, including the United States.

It is reported the iPod costs US$150 to produce, of which only US$4 is Chinese value added. Most of the components are made in the United States and other countries. It is put together in China and exported to the United States for the full US$150 as imports from China, adding to the US deficit and exaggerating the US job loss!

In reality, imported iPods support a myriad of US jobs up the value chain. Surely, prohibitive tariffs on iPod imports can’t really hurt China. Why cut your nose to spite your face?

China needs a package deal

It does appear slamming China as a “currency manipulator” does not help the United States’ cause. It will probably backfire. Even assuming the yuan is undervalued, exclusive focus on China’s exchange rate policy is, I think, counter-productive. It will unlikely resolve the United States’ persistent external imbalance.

However, as I see it, there is growing awareness in Beijing that greater exchange rate flexibility and a gradual yuan appreciation has to be an element of any credible package of policy measures for China to seriously liberalise factor markets and remove cost distortions. This could well transit over time to a full-market economy. Any exchange rate adjustment has to be viewed in this context.

Nevertheless, these are necessary but not sufficient. China has to embark also on other reforms, including re-designing macro-economic policies that don’t over-emphasise growth, privatising state-owned enterprises and liberalising financial development, striking a better balance in income distribution from corporate to households, and aggressively promoting the services sector development, especially small and medium-scale enterprises. Such a comprehensive rebalancing exercise can be made to work, but will necessarily take time. It’s steady as she goes.

What Are We To Do by TAN SRI LIN SEE YAN

● Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time teaching and promoting the public interest. Feedback is most welcome; email:
starbizweek@thestar.com.my.

Microfinance IPO sparks debate

Profiting from poverty?

(Reuters) - An initial public offer by India's SKS Microfinance is likely to set the stage for more such offers in the world's largest microlending market, but it has also sparked a debate on the ethics of profiting from the poor.

The IPO, a first in India and one of only a handful by microfinance institutions (MFIs) around the world, is expected to raise about $250-$350 million for SKS and its private equity investors.

It has drawn keen interest from countries with major microfinance industries such as Bangladesh, Mexico and South America, as well as the private equity firms who have recently piled into the sector.

But it has also drawn sharp criticism from some MFIs and non-government organizations who do not favor going to capital markets or the strong flows of private equity that have pushed up valuations.

"The job of microfinance is to alleviate poverty, so the question to ask is: who's going to benefit from the IPO?" said Olivia Donnelly, executive director of UK-based Shivia Microfinance, a non-profit firm that focuses on India and Nepal.

"It's OK to do an IPO because you need to scale up, or upgrade your IT systems, but is it correct to make millionaires out of shareholders when your borrowers are so poor?"

Microfinance has been around since the 1970s, but jumped into the spotlight in 2006 when the Nobel Peace Prize went to Bangladesh's Muhammad Yunus and his Grameen Bank, which pioneered giving tiny unsecured loans to the poor to buy cows or sewing machines.

Some Indian MFIs including SKS have switched to a for-profit model and registered as non-banking financial corporations.

MFIs' expanding client base and near-zero defaults have drawn investors ranging from Singapore's Temasek, CLSA Capital and International Financial Corp to private equity firms Sandstone Capital, Unitus and Matrix, which have put money in SKS, Share Microfin, Spandana, Ujjivan and other MFIs.

HIGH VALUATIONS

Advocates say rapid growth and the drying up of traditional sources of capital have driven MFIs to consider other options.

"When we are growing 75 percent year-on-year, the sort of equity we need to maintain 15 percent capital adequacy ratio cannot come from old-fashioned sources such as philanthropists or banks," said Vijay Mahajan, president of lobby group MFI Network.

"So we've had to move to new sources like PE, the capital market and debt instruments. This is something to be celebrated."

Sumir Chadha, managing director of private equity firm Sequoia Capital India, which holds more than a fifth of SKS, said the IPO would improve the reputation of microfinance lenders.

"MFIs tend to be regarded badly. It is very frustrating. This IPO will dramatically increase visibility and bring in greater trust for the entire MFI eco-system," Chadha said.

Earlier this year, India's finance minister said non-banking financial corporations (NBFCs), including some like SKS, can be granted banking licenses, signaling a greater role for MFIs.

But India's central bank has pulled up MFIs for their high interest rates -- about 25-27 percent. That is about double the rate at which they borrow from banks, but still lower than moneylenders.

There is also criticism of high valuations, which private equity has helped push to about 5.9 times book value, or nearly three times the global average, JPMorgan and the World Bank's Consultative Group to Assist the Poor (CGAP) said in a report.

Listed MFIs, including Mexico's Compartamos, have outperformed mainstream banks, but valuations of Indian MFIs are "unsustainably high" and not justified by their recent growth or current and future earnings expectations, it said.

Delinquency levels, kept low because borrowers must repay funds before getting access to more funds, may not be sustainable. Overheating was already evident in some southern Indian states, the report said, and profitability will also decline as operating costs rise as MFIs expand outside the southern states.

Private equity's role in MFIs has also been criticized.

"PEs can bring greater efficiency, development plans and good management, but they can also create tension because investors tend to want to exit in three to five years," Xavier Reille, a co-author of the report, told Reuters from Washington.

"There may be potential rifts because with such high valuations, you obviously want to sell even higher. And the high multiples may discourage fresh capital from coming in," he said.

SOCIAL MISSION

SKS has drawn investors including Sequoia, Kismet Capital, Unitus, venture capitalist Vinod Khosla and Infosys Technologies founder N.R. Narayana Murthy.

Vikram Akula, a former McKinsey consultant, has been named one of the most influential people by Time magazine, and SKS, which he first founded in 1997 as a non-profit, is today India's largest MFI with about 5.5 million clients.

But activists and NGOs see no reason for cheer.

"MFIs are ignoring their social mission. They have a duty to educate their clients and not lend money for buying a TV or pay dowry just to add to their loan books," said Shivia's Donnelly.

"It's the wrong path to take. It's sub-prime all over again."

There are few regulations and no accountability, they say.

"MFIs talk about their valuations, but no one talks about social performance: are we really lifting people out of poverty?" said Royston Braganza, chief executive of Grameen Capital India.

With about half a dozen big Indian MFIs contemplating IPOs, SKS' offering will be a milestone, the JPMorgan/CGAP report said, and could help advance a stalled microfinance bill in India.

"Depending on the outcome, it is quite probable that the spotlight on Indian microcredit will intensify, while triggering renewed discussion around MFIs' profitability and social impact."

(Editing by Ranjit Gangadharan and Lincoln Feast)