Who invented bank deposit insurance?

I LOVE the Internet. The best Christmas present I got last year was a preview of a forthcoming book by a banker/historian in Boston. He sent me electronically his PhD thesis, a piece of masterly detective work on how ideas travel over time and space, become adopted successfully in a different place, and then comes back to where they started.

Dr Frederic Grant Jr's forthcoming book uncovered how the US bank deposit insurance system has its root in ideas borrowed from Canton (Guangdong province in southern China) of the 19th century. The origins of the US deposit insurance scheme arose from the 1828 The Safety Fund statute of the State of New York, drafted by a legislator named Joshua Forman.

In those days, if the state-authorised banks failed, the state would have to pay for their failure. Forman borrowed the idea from Canton that those authorised for privileged trade (in banks the privilege of private currency issue) should be responsible for their own debts.

The success of the New York Safety Fund inspired the adoption of similar schemes by 13 other American states. In 1933, the Banking Act of 1933 created the Federal Deposit Insurance Corp (FDIC), following the failure of many banks across the US. This idea of a national deposit insurance scheme has been adopted by many countries around the world, and is currently being considered in China.

How did Forman get the idea about the Canton Guaranty Scheme? Apparently, New York was already the major port for US-China trade and the scheme was familiar to New York businessmen.

How the Canton system evolved

It all came about because the Qing dynasty official merchants, namely merchant houses (or hongs) authorised by Beijing to conduct foreign trade, often require trade credit to conduct business with foreigners in Canton. If these traders defaulted on their loans, the foreigners threatened to take action on the weak Qing dynasty. Hence, in order to prevent individual merchant failure, the Qing government used a collective responsibility method evolved by the Manchu court in Beijing that ensured that those authorised to benefit from the foreign trade also collectively guaranteed each other's trade debt, and a premium was paid yearly into a fund to pay off any individual failure.

The Qing government solved the problem of defaults by imposing collective responsibility everyone was responsible for the group's debt. The good news is that the group as a whole made sure that no member got into trouble, engaging in what is today called “peer surveillance”. The bad news is that with collective guarantee, the smaller traders have an incentive to take higher risks, creating moral hazard private gain at collective loss. Moreover, as history showed, if trade was really bad, more traders failed and since the Qing government also borrowed or taxed the accumulated fund regularly, there were not enough money in the fund to settle all debts. Eventually the Canton Guaranty Fund also failed.

Corruption and misappropriation of fund was to blame, but the main culprit remained what Grant called “the perennial dilemma of inadequate capital and lack of access to affordable credit” for smaller hongs.

These problems plagued all deposit insurance schemes, even today. Large banks loath to support deposit insurance because they pay a larger share of the premium than smaller banks. Small banks enjoy the group insurance, but are more prone to failure because they were more likely to take more risks, which meant that there should be supervision to make sure that these riskier players do not destroy the group as a whole.

Deposit insurance worked very well in the United States, as the FDIC not only participated in supervision of the insured banks, but also engaged actively as the mortuary of failed banks. In the recent crisis, from 2009 to currently, the FDIC smoothly managed the exit of over 400 banks in the United States, without disruption to the system as a whole. But this time round, it was the failure of the shadow banks and larger banks that created the problem. Yes, smaller banks failed, but they did not take down the whole system because deposit insurance prevented large-scale bank runs at the retail level.

The time has come for China to adopt a formal deposit insurance scheme. There are at least three good reasons why it should occur. The first is that deposit insurance will help stop retail bank panic, exactly the reason for the Canton Guaranty Fund. The second is that there must be an orderly exit mechanism for financial institution failure. Some argue that a deposit insurance would duplicate supervision. Today we realise why we have two kidneys instead of one we need redundancy in the system, in case one fails.

The third, based on my personal experience, is that regulators who are good at daily operations may not always be very good at conducting the messy operations of restructuring failed banks. This is a very complicated process that needs strong skills, good bankruptcy laws and more investment banking skills than regulation. Deposit insurance is specialised work and needs specialised skills.

As Grant rightly said, the historical record of the Canton Guaranty System offers a number of valuable lessons to the modern world. “These include (1) that the tax that supports a guaranty fund must be based on measured risk of loss; (2) that the fund and its insureds must be made subject to strong independent supervision; (3) that laws enacted to avoid risk contingencies must be enforced; and (4) that both corruption and the diversion of fund assets must be strictly prohibited.”

The trouble with history is that we never seem to learn from history.

THINK ASIAN
BY ANDREW SHENG

 > Tan Sri Andrew Sheng is president of the Fung Global Institute. 

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Innovation not the same as invention, the difference here...
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Innovation not the same as invention, the difference here...

Innovation practitioners know that they should not listen to the experts who approach life with rigid blinkers that prevent them from visualising anything outside their conditioned minds.

TAKING a leaf out of what our Prime Minister wrote in this space two weeks ago, innovative thinking is undoubtedly a significant driver in propelling the nation’s economy to new heights. It is imperative that Malaysians embrace a culture of innovation.

But let’s take a step or two back, before we can begin to move forward. It is important to pin down exactly what innovation means. Several readers have asked me if innovation is the same as invention, especially after reading about Malaysian researchers winning awards for their inventions. In fact, although they may appear similar at first glance, upon closer inspection both are very different indeed.

If you make something unique or original, that’s an invention. Whether the invention has value or not is immaterial. This is why we see whacky inventions like toothbrushes for dogs or a clip-on fan on chopsticks to cool down noodles. Both these examples are unique and original but offer little value to most citizens.

Innovation demands creating additional value, even though a product or service may not be unique or original. The innovator must first unravel customer needs, and then figure out how to inject greater value at different parts of the solution. Let’s look at two examples.

Forty-five years ago, the radical economist and philosopher E.F. Schumacher formed an NGO called Practical Action to help people in developing countries help themselves. Practical Action states that more than 1.6 million people in developing countries die of diseases and accidents caused by cooking and heating fires in homes. This is not surprising, given that one third of humanity still uses rudimentary stoves fuelled by wood, charcoal or dung.

Liquefied petroleum gas (LPG) is a viable solution as it costs less than wood or charcoal, but most villagers cannot afford the stoves. Some African countries have implemented an innovative “revolving fund” credit system that allows villagers to buy stoves. It works exactly like the “kutu” scheme prevalent in Malaysia for decades, although illegally. Ten households get together and form a fund, with each household contributing a fixed amount to the fund each month, for 10 months.

Every month, one household collects the contributions that month to buy a stove. The following month, another household gets the total contributions to buy their stove. Households draw lots to see who will get the fund over the next 10 months. Within 10 months, all 10 households get their LPG stove. Now imagine adapting this idea to meet the needs of entire communities and you see the power of this innovative funding system. No handouts or subsidies from the government and no bank loans either – the villagers help themselves, through innovation. This is a common sense solution, not rocket science. To be precise, this is innovation.

Let’s look at the second example. Does the number of new books that hit the bookshelves every month overwhelm you? It was predicted that the Internet would spell the death of the printed word, but in fact the reverse has happened. There are now more books in print than at any other time in history. How does one keep up?

As it is commonly known, a number of innovative online companies have found a practical solution to this. For a small fee, these companies provide a short summary of a book containing all the essential ideas presented in the book. Most people can read these summaries in 15 minutes, making it possible to read at least one book each day. This “compressed knowledge” is another example of innovation.

Ultimately, innovation is not confined to technologies, products or services. You can have innovation at every stage of the business cycle – from manufacturing to distribution to sales to post-sales support.

Just look at Nike, the world’s largest supplier of athletic shoes and apparel. It does not own a single manufacturing factory, but focuses on innovation in design and marketing. Another well-known example is DHL, a world-leading courier and logistics company that relies on innovation to accurately ship a document or parcel from the point of origin to its destination.

For you to benefit and profit from innovation, you have to dissect your business or activity into its key pieces or “parts”. The “eco-system” must be correctly identified, as dealing with just one part of the problem or value-chain is unlikely to bring satisfactory results. Nothing exists in isolation and even seemingly unconnected things are actually connected, so a “village” or holistic approach to innovation is necessary.

For each piece or part, you have to ask a fundamental question: How can I do this better, so that the outcome is greater than it is now – at a lower cost? Your brain will rebel at first and tell you that it cannot be done. Don’t listen to your brain; it is a lazy device looking for the easiest way out. Innovation practitioners know that the last person you should listen to is your own self. Don’t listen to the experts either, for they approach life with rigid blinkers that prevent them from visualising anything outside their conditioned minds.

Adopt a child-like disposition and question the assumptions that you and others have taken for granted. Persist until you have questioned each and every aspect of all the pieces of the puzzle and found answers that are uncommon.

This sounds easy, but it is the most difficult step as it questions all the sacred cows lurking in your belief system. Done correctly, however, it can lead to breakthrough innovations.
If you have been through this process, share your stories with me at kamal@pmo.gov.my so that other readers can benefit from your lessons too.

The Star Ignite
By DATUK SERI DR KAMAL JIT SINGH

> Unit Inovasi Khas CEO Datuk Seri Dr Kamal Jit Singh is hoping to jolt Malaysians out of complacency.

 

The Difference Between 'Invention' and 'Innovation'

Two and a half years ago, I co-founded Stroome, a collaborative online video editing and publishing platform and 2010 Knight News Challenge winner.

From its inception, the site received a tremendous amount of attention. The New School, USC Annenberg, the Online News Association and, ultimately, the Knight Foundation all saw something interesting in what we were doing. We won awards; we were invited to present at conferences; we were written about in the trades and featured in over 150 blogs. Yet despite all the accolades, not once did the word "invention" creep in. "Innovation," it turns out, was the word on everyone's lips.

Like so many up-and-coming entrepreneurs, I was under the impression that invention and innovation were one and the same. They aren't. And, as I have discovered, the distinction is an important one.

Recently, I was asked by Jason Nazar, founder of Docstoc and a big supporter of the L.A. entrepreneurial community, if I would help define the difference between the two. A short, 3-minute video response can be found at the bottom of this post, but I thought I'd share some key takeaways with you here:

INVENTION VS. INNOVATION: THE DIFFERENCE

In its purest sense, "invention" can be defined as the creation of a product or introduction of a process for the first time. "Innovation," on the other hand, occurs if someone improves on or makes a significant contribution to an existing product, process or service.

Consider the microprocessor. Someone invented the microprocessor. But by itself, the microprocessor was nothing more than another piece on the circuit board. It's what was done with that piece -- the hundreds of thousands of products, processes and services that evolved from the invention of the microprocessor -- that required innovation.

STEVE JOBS: THE POSTER BOY OF INNOVATION

If ever there were a poster child for innovation it would be former Apple CEO Steve Jobs. And when people talk about innovation, Jobs' iPod is cited as an example of innovation at its best.

But let's take a step back for a minute. The iPod wasn't the first portable music device (Sony popularized the "music anywhere, anytime" concept 22 years earlier with the Walkman); the iPod wasn't the first device that put hundreds of songs in your pocket (dozens of manufacturers had MP3 devices on the market when the iPod was released in 2001); and Apple was actually late to the party when it came to providing an online music-sharing platform. (Napster, Grokster and Kazaa all preceded iTunes.)

So, given those sobering facts, is the iPod's distinction as a defining example of innovation warranted? Absolutely.

What made the iPod and the music ecosystem it engendered innovative wasn't that it was the first portable music device. It wasn't that it was the first MP3 player. And it wasn't that it was the first company to make thousands of songs immediately available to millions of users. What made Apple innovative was that it combined all of these elements -- design, ergonomics and ease of use -- in a single device, and then tied it directly into a platform that effortlessly kept that device updated with music.

Apple invented nothing. Its innovation was creating an easy-to-use ecosystem that unified music discovery, delivery and device. And, in the process, they revolutionized the music industry.

IBM: INNOVATION'S UGLY STEPCHILD

 Admittedly, when it comes to corporate culture, Apple and IBM are worlds apart. But Apple and IBM aren't really as different as innovation's poster boy would have had us believe.

Truth is if it hadn't been for one of IBM's greatest innovations -- the personal computer -- there would have been no Apple. Jobs owes a lot to the introduction of the PC. And IBM was the company behind it.

Ironically, the IBM PC didn't contain any new inventions per se (see iPod example above). Under pressure to complete the project in less than 18 months, the team actually was under explicit instructions not to invent anything new. The goal of the first PC, code-named "Project Chess," was to take off-the-shelf components and bring them together in a way that was user friendly, inexpensive, and powerful.

And while the world's first PC was an innovative product in the aggregate, the device they created -- a portable device that put powerful computing in the hands of the people -- was no less impactful than Henry Ford's Model T, which reinvented the automobile industry by putting affordable transportation in the hands of the masses.

INNOVATION ALONE IS NOT ENOUGH

Given the choice to invent or innovate, most entrepreneurs would take the latter. Let's face it, innovation is just sexier. Perhaps there are a few engineers at M.I.T. who can name the members of "Project Chess." Virtually everyone on the planet knows who Steve Jobs is.

But innovation alone isn't enough. Too often, companies focus on a technology instead of the customer's problem. But in order to truly turn a great idea into a world-changing innovation, other factors must be taken into account.

According to Venkatakrishnan Balasubramanian, a research analyst with Infosys Labs, the key to ensuring that innovation is successful is aligning your idea with the strategic objectives and business models of your organization.

In a recent article that appeared in Innovation Management, he offered five considerations:

1. Competitive advantage: Your innovation should provide a unique competitive position for the enterprise in the marketplace;
2. Business alignment: The differentiating factors of your innovation should be conceptualized around the key strategic focus of the enterprise and its goals;
3. Customers: Knowing the customers who will benefit from your innovation is paramount;
4. Execution: Identifying resources, processes, risks, partners and suppliers and the ecosystem in the market for succeeding in the innovation is equally important;
5. Business value: Assessing the value (monetary, market size, etc.) of the innovation and how the idea will bring that value into the organization is a critical underlying factor in selecting which idea to pursue.

Said another way, smart innovators frame their ideas to stress the ways in which a new concept is compatible with the existing market landscape, and their company's place in that marketplace.

This adherence to the "status quo" may sound completely antithetical to the concept of innovation. But an idea that requires too much change in an organization, or too much disruption to the marketplace, may never see the light of day.

A FINAL THOUGHT

While they tend to be lumped together, "invention" and "innovation" are not the same thing. There are distinctions between them, and those distinctions are important.

So how do you know if you are inventing or innovating? Consider this analogy:

If invention is a pebble tossed in the pond, innovation is the rippling effect that pebble causes. Someone has to toss the pebble. That's the inventor. Someone has to recognize the ripple will eventually become a wave. That's the entrepreneur.

Entrepreneurs don't stop at the water's edge. They watch the ripples and spot the next big wave before it happens. And it's the act of anticipating and riding that "next big wave" that drives the innovative nature in every entrepreneur.

By Tom Grasty This article is the seventh of 10 video segments in which digital entrepreneur Tom Grasty talks about his experience building an Internet startup, and is part of a larger initiative sponsored by docstoc.videos, which features advice from small business owners who offer their views on how to launch a new business or grow your existing one altogether.

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Japan’s hopes to contain China laughable

Japanese Prime Minister Shinzo Abe kicks off his first trip after taking office to Vietnam, Thailand and Indonesia today. Global media all connect his trip with the intense state of the Sino-Japanese relationship. They consider that the purpose of this action is to contain China. Even some people in Japan shouted that they want to "encircle China."

Reuters - Japan's Prime Minister Shinzo Abe (L) and his Vietnamese counterpart Nguyen Tan Dung review the guard of honour during a welcoming ceremony at the Presidential Palace in Hanoi January 16, 2013

Encircling China? Those people may not know what they are talking about. Some people in Japan seem like paranoids who expect that China can be encircled. Some Japanese politicians are also not sober enough, such as Abe, who raised the proposal of "the arc of freedom and prosperity" in his previous term.

According to the Sankei Shimbun, Abe raised another strategy, suggesting that Australia, India, Japan, and the US Hawaii form a diamond to safeguard the maritime commons stretching from the Indian Ocean region to East China Sea. Areas such as China's Diaoyu Islands and South China Sea islands are all encircled by it. Sankei Shimbun said that the strategy is raised to contain China which is increasingly active in the ocean.

China is too large for this. It will be a joke in international strategy circles if Japan seeks to encircle China. It cannot achieve this goal even if it cooperates with the US.

Abe's visit to Southeast Asia will not bring China a sense of crisis. We can understand that Japan wants to strengthen its interests in Southeast Asia when the prospects of Sino-Japanese relations look bleak. We have no interest in competing for influence in Southeast Asia.

Japan in Asia is a good thing for China. There is no hope for Japan to defeat China strategically even there's a war between the two. However, Japan brings us stimulation and vigilance. It warns what kind of external resistance China may face in its future rise.

China should both take Japan seriously and be indifferent at the strategic level. Despite the prominence of the dispute, Japan is only a small part of the strategic hidden dangers for China.

If Abe's trip to Southeast Asia is aimed at "containing China," he can only reduce Japan's role on the political stage of Asia. The trip will only be a show without substantive content. Maybe Abe's cabinet is not so stupid. They want to expand Japan's economic space "after the Sino-Japanese friendship."

As to anti-Japanese feeling in Chinese public opinion, we should prevent it from being a trap for ourselves. We cannot be overly angry with Japan, concentrate all attention to Japan and forget others.

It should be Japan that worries most about Sino-Japanese relations, instead of China. China is rising and we are the driving force of changes in Asian geopolitics. Just let Japan mess about in China's surrounding areas. Japan's negotiations with claimants in South China Sea disputes will have no effect. It will be no better than a kind of self-comforting.

Frequent changes of Japanese cabinet have resulted in many political actions for show. Toward Japan, China should not only be cautious, but not to overreact.- Global Times

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American man looking for wife gets marriage offers instead

PETALING JAYA: After his wife went missing from the airport, American Henry Chuen went to the media hoping to find her. He did not. Instead, he is finding many women interested in taking his wife's place.

The 63-year-old man said many women had e-mailed him with “proposals”, telling him to forget about his wife, and be with them instead.

“More than five women have called me and told me to forget about my wife Lisa.

“They wanted me to take them away to the US and some even promised me that they would make me happy,” he told The Star yesterday.

But Chuen is not about to be tempted. He is more determined than ever to find his wife.

“I am touched that many women had reached out to me but my main goal is to find my wife.

“We made a vow of marriage...to me, that is one of the most sacred things in the world,” he said.

Chuen had previously sought the public's help to locate his wife Lisa Cheong Lai Har, 45, who had gone missing from KLIA just as they were to return to the United States in November last year.

Chuen met Cheong, an administrative assistant in a private college, through an online matchmaking website in early 2008.

They finally met in Kuala Lumpur after six months of online correspondence. On May 31, 2009, they married in Las Vegas and settled in San Francisco.

The couple last returned to Malaysia in September to visit Cheong's dying father in Ipoh.

Chuen is offering a reward for any information on Lisa. He can be contacted at 017-395 9491.

By SHAUN HO
shaun@thestar.com.my

West is failing to capitalise on rising China

We are rapidly moving away from an 'old world' dominated by Europe, the United States and Japan to a 'new world' led by China

 

SINGAPORE: Western nations have failed to capitalise on China's economic rise as they struggle with their own problems, leaving others to benefit from the Asian giant's insatiable demand, HSBC said.
 
"The world economy is increasingly led by China. Those nations raising their China exposure have outperformed. Western nations, faced with internal discord, have failed to grab the opportunity," the bank said.

"We are rapidly moving away from an 'old world' dominated by Europe, the US and Japan to a 'new world' led by China," it said in a report entitled "The Great Rotation".

Among the beneficiaries of the global shift are countries located close to China and far-flung exporters that supply the Asian giant's demand for commodities, the report noted.

South Korea's exports to China currently account for 12 percent of its gross domestic product (GDP), up from 3.5 percent in 2000, HSBC said.

Malaysia and Singapore are also key industrial exporters to China while commodities producers like Australia, Chile, Kazakhstan and Saudi Arabia "have also shared in the spoils," the bank added.

"And in demonstrating China's ever-increasing connections with Africa, Angola is now China's 14th most important source of imports ahead of India, France, Canada, Italy and Britain," it said.

Western countries, in contrast, have failed to exploit Chinese demand, it said.

US exports to China account for a mere 0.7 percent of US GDP, with Canada, France and Italy "more or less" at the same level, HSBC said.

Britain's exports to China are even less significant at 0.4 percent of British GDP, it said.

While Germany has expanded its trade ties with China, this was overshadowed by a bigger increase in its dependence on the rest of Europe, HSBC noted.

This is "one reason why, despite its competitive advantages, Germany found itself succumbing in the second half of 2012 to a crisis which had already engulfed other parts of the eurozone," the bank said.

HSBC forecasts China's economy to grow 8.6 percent this year, up from an estimated 7.8 percent expansion in 2012.

The US and Japanese economies are expected to grow 1.7 percent and 0.2 percent respectively next year while the eurozone is likely to contract 0.2 percent, the bank said.- AFP

Malaysian market to outperform

KUALA LUMPUR: The Malaysian equity market is expected to outperform the emerging Asian markets as price-to-book valuations are relatively low despite the sterling economic growth the country has seen last year, says an economist and investment strategist Herve Lievore (pic)

"We expect Malaysia to outperform other emerging Asian countries and that would probably take place in an environment where inflation could possibly accelerate given the fact that we have seen consumer price inflation extremely stable over the past four to five months," he told reporters at the HSBC 2013 Market Outlook briefing yesterday.

"We are expecting a moderate acceleration of inflation going forward but this is unlikely to derail the equity market," he added.

Lievore said it is also constructive on Malaysian equities due to massive undervaluation of the currency.

HSBC Global Asset Management (HK) Ltd senior economist and investment strategist  said emerging Asian markets excluding Singapore had grown by 20%-30% last year but the Malaysian equity market only grew by 10%.

“This is abnormal despite the fact the gross domestic product (GDP) growth in 2012 was strong but that should be temporary.

"The economic performance has been very good last year, we saw very positive developments especially on the structure of the economy," he said.

He said Malaysian equities are more attractive since prices have not risen that much last year when the economy actually performed very well.

Malaysian equities are undervalued given the prospect for earnings growth going forward. "What we have seen in 2012 is probably abnormal and temporary by nature," he said.

"The market has been obscured by uncertainties on when the general election will take place, but there is no reason why it underperforms that much."

HSBC favours cyclical sectors such as energy, basic materials, commodities, consumer discretionary and by extension, financials, which are dependent on the economic cycle.

Lievre also does not expect Bank Negara Malaysia to alter its key policy rates, which will remain at 3%.

Another factor for the central bank to maintain the Overnight Policy Rate is the expectation of ringgit appreciation going forward.

“In 2013, it is expected to perform better than other emerging Asian countries especially in the Asean region,” he told reporters at a media briefing.

He said increasing domestic demand would bode well for future growth.

He also said that the economic structure was strong but the equity market did not respond to that “evolution”.

“I would say that the market has probably been obscure on when the general election would take place but there is no reason why Malaysia underperformed that much.”

He was in favour of pure cyclical plays like commodities, utilities and financials and expected them to outperform defensive stocks.

He noted the timing for financial stocks to be different as banks responded to monetary cycle rather that economic cycle.

He was also positive about the number of companies listed on the local bourse.

“As the market becomes more liquid, it becomes more efficient and hence its attractiveness is increased,” he added.

Last year there were 17 new listings amounting to RM23bil on Bursa Malaysia.

He expected the inflation rate to be at a “benign” level although it might “accelerate moderately” as the consumer price index had stabilised in the past four to five months.

On the ringgit, he expected the currency to appreciate further as long as there was a trade surplus.

“Investors could take profit from stronger growth in the country and appreciation of currency, so, we are positive,” he said.

As for bonds, he expected growth to stabilise at the yield curve of slightly above 3%.

The only concern he had was the declining savings surplus if it were to fall below 8% of GDP.

On the global market, he expected growth to remain subdued with three key risks from the eurozone crisis, China's recovery and the “fiscal cliff” in the United States.

He said the Russian and China markets offered value for investors.

Sources:
NG BEI SHAN beishan@thestar.com.my and Eva Yeong sunbiz@thesundaily.com

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China sends fighters to counter Japan's war planes

Play Video

China’s Ministry of National Defense has denounced Japanese military aircraft disrupting the routine patrols of Chinese administrative aircraft.

At a press conference, an official with the ministry confirmed that China sent two J-10 fighters to the East China Sea, after a Y-8 aircraft was closely followed by two Japanese F-15 fighters. The Y-8 aircraft was patrolling the southwest airspace of the East China Sea oil platform on Thursday.

According to the official, the two J-10 fighters were sent to monitor the Japanese fighter jets tailing the Y-8 as well as another Japanese reconnaissance plane spotted in the same airspace. The official said Japanese military aircraft have been increasingly active in closely scouting Chinese aircraft.

The official said the Chinese military will be on high alert and China will resolutely protect the security of its air defense force and uphold its legitimate rights. The official also called for the Japanese side to respect relevant international laws and to prevent security disputes by taking effective measures.

Chinese Foreign Ministry:
 
China reaffirms routine military flights over East China Sea
Foreign Ministry spokesman Hong Lei made the comments at a press briefing on Friday, responding to media reports that Japan deployed fighter jets to head off a number of Chinese military planes over the East China Sea on Thursday. Full story >>

China urges Japan to pursue peaceful development
Chinese Foreign Ministry spokesman Hong Lei has urged Japan to draw lessons from history and pursue a path of peaceful development. Hong Lei made the remarks at a regular press conference on Thursday, expressing China’s stance towards Japan’s plan to raise its defense budget in 2013. Full story >>

Japan responsible for plight with China
A spokesman for China's Foreign Ministry on Friday urged the Japanese government to "face reality" in Sino-Japanese relations. Spokesman Hong Lei said at a daily press briefing that Japan single-handedly pushed Sino-Japanese relations into a difficult situation. Full story >>

Ministry of National Defense:
 
Japanese military aircraft disrupting the routine patrols of Chinese administrative aircraft

At a press conference, an official with the ministry confirmed that China sent two J-10 fighters to the East China Sea after a Y-8 aircraft was closely followed by two Japanese F-15 fighters as it patrolled the southwest airspace of the East China Sea oil platform on Thursday. Full story >>

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• China rejects Japan's protest on Diaoyu patrol 2013-01-08
• China hopes Japan's new gov't faces up to history 2012-12-30

 Japan tracer bullets will bring war closer

According to Japanese media, the Japanese government is considering permitting Japanese self-defense forces' fighter jets to fire tracer bullets as warning shots against Chinese surveillance planes which have "infringed" upon Japan's "territorial airspace" over the Diaoyu Islands.

A Chinese foreign ministry spokesman said yesterday that China has consistently opposed Japan's infringement upon China's sovereignty over the Diaoyu Islands. China "remains vigilant against attempts to escalate the tensions."

The Chinese spokesman's statement is not enough to express the Chinese people's strong determination to fight back against Japan's unscrupulous action.

We believe that if Japan starts using tracer bullets, it will definitely trigger a military confrontation between China and Japan. Chinese people will certainly ask the government to send naval and air forces to retaliate.

Tracer bullets were used by Japan to warn Soviet Union surveillance aircraft above the Okinawa Prefecture in 1987. However, the relationship between the Soviet Union and Japan was one of war and invasion. The Diaoyu Islands are a typical disputed area.

We believe that China is carefully assessing plans to deploy combat aircraft to the Diaoyu Islands due to the imbalance between China's surveillance aircraft and Japan's fighter jets. If Japan uses tracer bullets, Chinese fighter jets are bound to be sent to the Diaoyu Islands.

China's replacing surveillance aircraft with fighter jets does not mean they will conduct military operations there. These are upgrades of China's ability to defend its sovereignty in the face of Japan's provocations. All of East Asia would face tension in that scenario, but we have no choice. We do not wish to begin a war with Japan. However, if Japan insists on provocations, we will follow it through to the end.

If the Chinese government does not earnestly prepare for it, it will certainly suffer huge political losses. The public wouldn't understand that and they would not accept any interpretations by the government.

China may fall into military conflict with Japan eventually. We hope we can continue our peaceful development, but our risk management strategies are more complex due to various pressures.

There is little room for concessions. Therefore, let us abandon all hesitation and seriously prepare for mutual warnings and confrontation with Japan over the Diaoyu Islands. If the situation goes awry, we must make Japan pay more of a price than China.

The Diaoyu Islands dispute will test the Chinese government's leadership for a long time. But we should have confidence: our rival is a bully which can even bear US military occupation. As long as we keep tough, we will not lose this test of wills. - Global Times



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US most corrupt country in the world?

Hong Kong action hero Jackie Chan has once again provoked criticism, this time from an American blogger, after suggesting on Chinese television that the US is the "most corrupt" country in the world.



"When you talk about corruption, the whole world, is there corruption in the United States? The most corrupt in the world!" the Rush Hour star, who has made headlines recently for his controversial views, told Phoenix TV last month.

Chan reaffirmed his view after the show's host questioned him -- "Of course! Where did the great breakdown come from? The world, the United States started it," Chan said, referring to the financial crisis and gesticulating as he spoke.

His comments were rebuked Thursday by Max Fisher, a foreign affairs blogger for the Washington Post, who called them "anti-American" rhetoric that was rooted in China's insecurity.

"To the degree that Chan's comments were anti-American, they likewise reflect a common Chinese view of the United States, one that is rooted not just in attitudes toward America but in China's proud but sometimes insecure view of itself," Fisher said.

Jackie Chan also said China is a relatively young country, where in the first half of its history it was "bullied by so many people", and that it only achieved "real success" in the past decade.

"Our country's leaders admit they are corrupted, etcetera. We are improving -- I can see our country is constantly improving and learning," he said, adding that everyone is making an issue out of China because it is "powerful" now.

Chan, who is known for his martial arts skills and daring stunt work, sparked criticism in Hong Kong, which was returned to China in 1997, after he reportedly told a Chinese magazine last December that protest in the city should be restricted.

In the same interview, he said that he was bullied by Hong Kong triads and had to hide in the United States. He also said he needed to carry a gun everyday to protect himself, leading to a police investigation. – AFP