Category: Asia

Asia Private Equity

Here’s an excerpt from the July 6 edition of the Asia Private Equity newsletter. You may want to re-read Saru’s earlier posts on Chinese currency as background.
RMB Notes Part 1
RMB Notes Part 2

These days, however, there is really no place in America that hums with the kind of 24-hour activity that Beijing has. But this week in Beijing, an official of the State Administration for Foreign Exchange (SAFE) showed up at one of China ‘s principal private equity events and delivered enough bad news to make every Beijing Duck eating capitalist dyspeptic. SAFE, the government agency that has brought private equity in China to its knees in six short months by issuing two controversial circulars in January and April, is, according to the official, pretty pleased with itself and the progress it’s making in developing regulations to prevent rich Chinese entrepreneurs from secreting away hundreds of millions from their IPOs in the U.S., in banks in the Cayman Islands or other places.

The problem with the understandable desire of Chinese authorities to tax its citizens is that in trying to accomplish that goal, it has effectively brought down the curtain on the clever legal structures, WOFEs, developed in 1999, which private equity firms have used for the last six years to get their money back out of China investments. And according to SAFE’s Li-Ping Lu, there is nothing on the horizon, other than a bunch of cranky Chinese and American VCs, that is likely to change the current situation.

When Lu shared those and other less positive views, the PE professionals in Beijing this past week turned as surly as a bunch of striking teamsters. WOFEs are, it seems, pretty much dead in the water. And until somebody in the Chinese government does or says something different, private equity firms are having to retreat into joint ventures (sometimes referred to as Chinese PE roach motels–investors check in, but they don’t check out) or giving their portfolio companies bridge loans until or even more troublingly, working with Chinese partners on the basis of “gentleman’s agreements.” When is the last time you saw a VC fork over a million for a handshake?

To paraphrase Bill Murray in the movie Groundhog Day, it’s going to be a long, hot summer. And it’s never going to end.

— Editor Jerry Borrell (jerry.borrell@thomson.com)

The Dragon Awakes

Howard French has reposted a very good article on China’s military buildup and the corresponsing politics written by Ian Bremmer for The National Interest. Still, can we finally stop using such cliched titles? Let’s just all accept that ‘the dragon’ is already awake and stop beating a dead horse.

The whole thing is good reading, but this quote really jumped out at me.

The “Taiwan lobby” in the U.S. Congress is also sounding an alarm. On February 16, Democrats and Republicans in the House and Senate proposed a joint resolution to resume diplomatic relations with Taiwan. The proposal would have proven political dynamite if it had any chance of passing. It did not. While the Bush Administration resolutely opposed the move as a dangerous encouragement of Taiwan’s independence movement, China treated the resolution as a grave insult.

Does anybody have more info on this? In particular, the resolution in question and its voting record. I’m a little surprised that this didn’t make the news when it hit the senate floor.

Another question:

Nor was Washington able to dissuade Beijing from going ahead with a March “anti-secession law”, which provides a quasi-legal basis for invasion should Taiwan declare formal independence.

Now, Taiwan’s international status is at best ambigious. Were it universally considered an independent, sovereign nation than any invasion by China would be a clear violation of international law, but is their any actual standard for acceptable behavior regarding breakaway territories? Clearly nobody seems to be bothering Russia about their campaign against the separatist Chechnyans, but on the other hand East Timor had fairly broad international support in their independence movement. Are there any other noteworthy cases in the past 30 or so years?

Ritsumeikan to Open Confucius Institute

As I reported before, the Chinese government is set to open Chinese language schools called “Confucius Institutes” around the world. This just in from Xinhua tells us that the first such Institute to open in Japan will be at my alma mater, Ritsumeikan University in Kyoto:

Confucian Academy to have 1st branch in Japan

BEIJING, June 29 — China and Japan have agreed to establish the first branch of Confucian Academy in Ritsumeikan University, Kyoto.

The Chinese ambassador to Japan, Wang Yi, hopes the academy will help improve understanding and friendship between Chinese and Japanese people.

Confucian Academy is a non-profit institution, which is devoted to teaching Chinese language and culture.

Calling it a non-profit institution is a little misleading, since it is, after all, funded and created by the Chinese government!

Taiwan Retailers voluntarily removing US beef from shelves amid mad cow fears

More in our continuing coverage of mad cow disease panic.

Taipei Times reporting that some retailers are voluntarily removing American beef from their shelves following the recent announcement of a second confirmed case of BSE (mad cow disease) in an American animal.

Some local supermarkets and those in Shin Kong Mitsukoshi Department Store (新光三越), Breeze Center (微風廣場) and Pacific Sogo Department Store (太平洋崇光百貨) have echoed the Consumers’ Foundation’s (消基會) call to halt the sale of US beef.

However, other major retailers, including Carrefour, RT-Mart (大潤發), Tesco and Costco, have claimed they will abide by the government regulations and continue to sell their stock of US beef. Removing beef products will lead to immense financial losses given US beef’s dominance in the market.

Costco, the nation’s largest importer of US beef, has sold an average of 22.5 tonnes of US beef, or NT$10 million (US$320,000), per week since the import ban as lifted on April 16.

No word yet on whether Yoshinoya Taiwan will be continuing to use imported American beef. I just found an actual 24 hour open Yoshinoya only a few minutes bike ride from my apartment (and next door to a Mos Burger!), so as long as they serve gyudon I’ll be eating there, regardless of this irrational fear resulting from isolated cases. BSE is certainly worth being scared of-a terrifying disease where your brain basically rots in your skill-but so far there’s no evidence that anyone has actually eaten meat from an infected US animal, in contrast to the genuine outbreak in Britain several years ago in which dozens of people died.

Hello Kitty more dangerous than previously thought

Taipei Times

Hello Kitty talk starts brawl
A scuffle broke out late Thursday night between a group of Japanese tourists and locals at a restaurant in Wanhua (萬華), Taipei as result of language barriers and miscommunication. The group of seven Japanese were giggling and talking about the “Hello Kitty” magnets which have recently a stirred frenzy among fans and collectors in Taiwan. Thinking that the Japanese were laughing at them, a table of Taiwanese patrons next to them — about 10 in all — approached the group and somehow a fight started.

The magnets in question are part of a promotion by 7-11 (which some readers may not know is now actually a Japanese company) here in Taiwan. This year is the 30th anniversary of Hello Kitty, and I believe that there are 30 unique magnets to collect. One random Hello Kitty magnet is given away free with every purchase at the convenience store, encouraging quite a lot of repeat business from obsessive collectors. Naturally under these conditions it is virtually impossible to avoid accumulating a couple of these things and I managed to find two in my desk, one still in the wrapper and one opened, so I present them to you here so you can see that they were clearly worth fighting over.





On the package they call the effect where ridges in the plastic reveal a second image when you change the viewing angle ‘3D.’ I remember it well from a plastic He-man ruler I had when I was about 7 years old. Just by slowly rotating the ruler you could watch an epic battle for the future of Eternia unfold. In this case the effect is used for nothing nearly so cool, but in an extra-crappy way doesn’t even show two different pictures but only makes Helly Kitty’s parents or whatever disappear and reveal a 7-11 logo.

‘Cool Biz’ taken seriously, goes international

The Japan Times

Students in suit, tie need not apply

Environment Minister Yuriko Koike said Friday students applying for jobs had better not wear jackets and ties to the interview.

Students who passed the civil service’s written examination must next visit specific ministries and agencies for interviews.

Those applying to enter the Environment Ministry, however, have been showing up in suits despite the government’s “Cool Biz” summer dress campaign, which shuns suits and ties.

“It is regrettable that young people go for the ‘safe’ ways,” Koike said at a news conference.

The “Cool Biz” campaign, which started June 3, has been pushed as a way to help reduce greenhouse gas emissions by curbing the use of air conditioning and promoting sales of cooler apparel.

The Taipei Times

Men urged to doff suits
A group of women’s rights and environmental activists called yesterday for men to discard business suits in the summer in favor of casual shirts to reduce reliance on air conditioning. The activists, led by Democratic Progressive Party (DPP) Legislator Huang Shu-ying (黃淑英) urged the men to get stop wearing suits during summer to help save energy. Noting that air conditioning is the prime reason for surging power consumption in summer, Huang said that one degree higher on air conditioner thermostats nationwide in summer means the country could save 300 million kwhs — the amount that Penghu residents use in an entire year. Wearing suits requires a temperature of between 22?C to 23?C to make an office or room comfortable in summer, Huang said, claiming that room temperatures could be raised if men wore less clothing.

More on Kissinger and China

I mentioned earlier that Henry Kissinger was either lying about or woefully ignorant of Chinese history and implied that this was due to his personal biases.

Jonathan Mirsky’s review of “Mao: The Untold Story” in the June 2005 issue of the Far Eastern Economic Review (pg 59) contains this quote:

Mr. Kissinger, for instance, was so star-struck by Mao and Zhou Enlai that he committed many indiscretions and security breaches with both of them while serving Nixon.

The previous page also states that Zhou Enlai:

the most attractive man [visiting statesman like Henry Kissinger] had ever met.

For more information on Kissinger’s early negotiations with China, see this article at the National Security Archive at GWU. This article was written in 2002, shortly after a number of relevant records were declassified in mid-2001, so if you think you know the history of US/Chinese diplomacy based on pre-2002 information, you should probably read this article. There are also links to a number of original, formerly classified documents, such as this

These documents also illustrate some differences between Kissinger’s public statements regarding China and Taiwanese policy and his private diplomatic efforts.

As important as this exchange was, in his 1979 memoir Kissinger misleadingly wrote that “Taiwan was mentioned only briefly during the first session.”(5) Yet some 9 pages, nearly 20 percent, of the 46-page record of the first Zhou-Kissinger meeting on 9 July 1971, include discussion of Taiwan, with Kissinger disavowing Taiwanese independence and committing to withdraw two-thirds of U.S. military forces from the island once the Vietnam War ended. Moreover, Kissinger told Zhou that he expected that Beijing and Washington would “settle the political question” of diplomatic relations “within the earlier part of the President’s second term.” Kissinger did not say what that would mean for U.S. diplomatic relations with Taiwan but undoubtedly Zhou expected Washington to break formal ties with Taipei as a condition of Sino-American diplomatic normalization.

This memo from Kissinger to Nixon actually lists Taiwan as the first issue discussed at the Kissinger/Zhou Enlai (spelled Chou here) meeting.

[Page 3]He immediately moved to their fundamental concern, Taiwan, and I rejoined with our position on Indochina.

Some other interesting statements from this particular memo include:

Chou spoke of the Chinese fear of a remilitiarized Japan, and a violently and contemptuously attacked Soviet imperialism, which he claimed had learned its lessons from the U.S.

Clearly China’s current attitude towards Japan is not as divorced from their historical attitudes as some might think.

According to Kissinger’s secret memo to the president, Zhou’s primary themes of discussion were as follows:

the preoccupation with Taiwan; the support for the North Vietnamese; the spectre of big power collusion, specifically of being carved up by the US, USSR, and Japan; the contempt of the Indians, hatred for the Russians and apprehension over the Japanese; the disclaimer that China is, or would want to be, a superpower like the Russians and we who have “stretched out our hands too far”; and throughout the constant view that the world must move toward peace, that there is too much “turmoil under the heavens.”

Most of those are already clear, but the last is particularly interesting. In his recent editorial Kissinger claimed to believe that “Military imperialism is not the Chinese style. China seeks its objectives by careful study, patience and the accumulation of nuances.” I still believe that his understanding of Chinese history is fundamentally wrong, but based on the contents of his 14 July 1971 “Eyes Only” memo to President Nixon-where one would expect total honesty-he actually seems to have believed China’s claims the whole time. The fact that Kissinger believes (and believed) that China’s foreign policy is basically one of peace does not excuse such blatant misinformation as “The Chinese state in its present dimensions has existed substantially for 2,000 years”, but it does perhaps relegate it from sinister propaganda to mere incompetence.

Six-party talks were Japan’s idea, says former Assistant Secretary of State James A. Kelly

From Asahi:

Former Assistant Secretary of State for East Asian and Pacific Affairs for the US Dept. of State James A. Kelly, who acted as head representative of the US for the 6-Party talks dealing with the North Korean nuclear issue, revealed that the creation of the 6-Party Talks was Japan’s idea. When then-Secretary of State Colin Powell visited Japan, China, and Korea in 2003, the Japanese government presented the structure of the talks to him. He then proceeded to China, where he persuaded then-Premier Jiang Zemin to go along, succeeding in forcing North Korea, who had wanted a bilateral solution between NK and the US, to deal with the issue multilaterally.

According to an interview with Kelly from his residence in Hawaii, in 2003, the year in which North Korea worsened the nuclear problem by restarting the nuclear facility at Yong Byong, the US was considering multilateral talks that included the 5 permanent members of the UN Security Council, Japan, South Korea, the EU, Australia and others using multiple combinations.

The Japanese Ministry of Foreign Affairs (MOFA) presented the idea of either 5-party talks including North and South Korea as well as the US, Japan, and China, or 6-party talks including Russia as well, when Powell visited Japan, South Korea, and China on the event of South Korean President Roh Mu Hyun’s inauguration in February of the same year. The proposal was based on the frustrating experience of being left out of the “4-party talks” between the US, China, and North and South Korea.

“Powell presented the idea as coming from the US, since he thought it would be easier for the Chinese to agree than if he said it was Japan’s idea,” Kelly explained. China was initially hesitant, saying, “The nuclear problem is between the US and North Korea,” but America was insistent. After a three-party talk in April, the first six-party talks started in Beijing in August 2003.

Kelly said, “The six-party talks are the best framework to induce North Korea to give up its nuclear weapons. North Korea isn’t responding because it doesn’t like to feel ganged up on 5 to 1.” Expressing his desire to see the talks reopened, Kelly added, “The six-party talks aren’t dead.”

MOFAODAPR Appeal

Japan’s Ministry of Foreign Affairs (MOFA) offers a regular e-mail notification service for their “what’s new?” section of the website. One of the items in today’s mail was an overview of Japanese Official Development Assistance to China since 1979.

I haven’t the time or the strength right not to get into the politics of this, so if you haven’t been following Sino-Japanese relations lately, just skip this post.

If not, here are the numbers:

3.1331 trillion yen in loan aid (yen loans)
145.7 billion yen in grant aid
144.6 billion yen in technical cooperation

See the page for a detailed breakdown of where the yen loans have gone.

Interestingly, around 21 billion yen in loans has gone towards projects for “promotion of mutual understanding,” including funding for Japanese language study and a public broadcasting infrastructure improvement project.

That sure was money put to good use.

Given the timing of this it seems like MOFA is building a case for turning off the aid spigot.

New PLA missile `a warning’ for the US, experts say

Does anyone else finds the rhetoric about China’s “peaceful rise” a little bit unconvincing?

From the Taipei Times:

China’s newly-developed submarine-launched Ju Lang-2 missile serves as a warning to the US not to underestimate Beijing’s military power, Taiwanese military experts said yesterday.

“The Ju Lang-2 poses a great threat to the US because it has better precision and guidance and is harder to detect,” said Weng Ming-hsien (翁明賢), a professor from the Institute of Strategic Studies at the Tamkang University.

“China wants to tell the US that it has never stopped developing nuclear arms. China also wants to warn Russia not to get too close to the US,” he said.

Weng said China probably would deploy the Ju Lang-2, which carries nuclear warheads, on its Han-class nuclear submarines.

Lee Shih-ping, a military expert specializing in warplanes and warships, said Ju Lang-2 posed a new security threat to the US because it could be fired from the sea and reach the US interior.