RG21 | | RG21

Hong Kong, Summer 2019 – A Thorny Problem for Beijing.

Hong Kong in the summer of 2019 really is a thorny problem for Beijing. All things considered, it looks like there is no “win” for Beijing, only a “not lose.”

A “Perfect Storm”

A perfect storm of conditions is coming together to make an almost impossible situation in which the Chinese government cannot get a positive outcome. The Hong Kong government has been tasked with dealing with the massive demonstrations opposing the now-defunct extradition bill. The kidnapping of anti-Beijing booksellers in the not-so-distant past gave demonstrators just the ammunition they needed for their protest, as it proved to them that the true purpose of the bill was not to extradite criminals to face justice, but to smother dissent in Hong Kong.

This has been a near impossible situation to deal with for the government of the SAR considering that university students are on holiday and out in full force, and that the world is watching via international media. While there were accusations of excessive force, the demonstrators did enter and vandalize the Legislative Council Building despite police presence.

As of mid-July 2019, protests continue. The second round of protests have been against mainland traders who buy up huge amounts of goods in Hong Kong for resale on the mainland which drives up inflation in Hong Kong. Police and protesters scuffled at a shopping mall and injuries were reported.

Demands from the protesters, in addition to the permanent scrapping of the extradition bill, now include an investigation into police brutality and the resignation of Chief Executive Carrie Lam.

The Use of Minimal Force

At present, it appears that Bejing’s decision is to continue to let the Hong Kong government handle the situation. The use of excessive force by the SAR or the Beijing government would damage the “soft power” that the PRC has been developing for decades culminating in the “Belt and Road” initiative.

The specter of the CCP’s handling of the 1989 Tian An Men Square incident also hangs over the Chinese government. Moreover, those “on the fence” in Taiwan regarding re-unification might be pushed to the pro-independence side if they were to see the PRC clamp down.

And the “no win” situation is just not for the government of the PRC.The protesters who are acting in such a way to preserve the freedom of Hong Kong under the One Country-Two Systems arrangement might just be putting an end to it.

Beijing’s Red Line

China’s long-term strategy is not yet clear. In the short term, the strategy is not to use excessive force. However there is a point where protest becomes anarchy. If anarchy were to ensue, then the PLA would be called in to maintain order. Once order had been restored, those “freedoms” that the protesters were fighting so hard to preserve might be lost forever.

No one knows where the red line is with the powers in Beijing and we are not privy to the thinking of the CCP. But be sure, there is a red line. When the passions of the protesters are aroused, it is unlikely that long-term thinking will prevail, and it is highly likely that anarchy will ensue. When anarchy does ensue, the CCP and PLA will act, and act decisively.

The above outcomes are not good for Hong Kong, and ultimately not good for China. But history has a way of being history, and in Hong Kong and other places around the world we can see history unfold from the comfort of our own homes on big-screen TVs.

What do you think about this matter? Please let us know.

photo: Etan Liam via flickr

Coming Together To Talk (WEF 2014)

(Photo: World Economic Forum)

by David Parmer

The World Economic Forum will hold its Annual Meeting 2014 in Davos-Klosters, Switzerland from January 22-25, 2014. Simply know as “Davos,” the meeting has been held annually since 1971. The WEF is supported by a thousand member companies. Membership costs an hefty $50,000 a year. Members wishing to attend private industry events at the conference must be an Industry Associate, which costs $137,000, while simple tickets to the Davos conference come in at $19,000. So who comes to Davos at those prices? Lots of people, it seems.

Each year, more than 2500 leaders in business, politics, academia and media get together to discuss a wide range of global issues.

The theme for Davos 2014 is “The Reshaping of the World: Consequences for Society, Politics and Business.” According to the WEF website, this year’s program pillars are:

Achieving Inclusive Growth
Embracing Disruptive Innovation
Meeting Society’s New Expectations
Sustaining a World of 9 Billion

And how does the WEF see itself? Again, from the WEF website:

The World Economic Forum Annual Meeting provides an unparalleled platform for leaders to map the complexity and interconnectivity of our changing world at the beginning of the year. The aim is to develop the insights, initiatives and actions necessary to respond to current and emerging challenges. It achieves this by convening global leaders from across business, government, international organizations, academia and civil society in a series of strategic dialogues that map the key transformations reshaping the world.

The event is said to draw around 2200 participants who attend some 220 sessions. Because the size of the venue and the town itself, Davos is seen as a premier event for networking among the elites. However, not everyone is enamored of Davos. Over the years anti-globalization activists have faulted the meeting for its capitalist bias and contribution toward global destruction of the environment. Others see Davos as merely a talking shop, with few real results coming out of the event and the participants missing the opportunity to make a real difference. Counter-events are staged in various places including a free event in the town itself.

Pro or con, at the end of January, most eyes and much media will turn to Davos for the 43^rd time to watch world leaders in a number of fields as they address the pressing questions facing us in 2014.

WEF (Davos 2014) http://www.weforum.org/events/world-economic-forum-annual-meeting-2014

Si Shen-She’s Got Game

(Photo: gamelook)

by David Parmer

Si Shen’s mobile social gaming company, Papaya, has 80 million users. That’s not too bad. Not too bad for a company that only got started in 2008. Not too bad for a woman who knew from the beginning that she wanted to run her own company in China. Shen grew up in Beijing and attended its prestigious Tshinghua University, where she majored in computer science. She then went on to Stanford University where she earned two Master’s degrees; one in computer management and one in engineering.

From Stanford she moved to Google where she worked for five years, eventually becoming Product Manager and returning to China with Google. In 2008 along with a college friend, Qian Wenjie, she founded Papaya, a social mobile gaming company. Papaya’s first game was Papaya Farm and was hugely successful. It was a big hit on Apple’s App Store. In 2009, just as it was in the process of raising capital, Papaya suffered a major setback: Apple withdrew the game from the App Store. Shen could get not explanation for this move, so she went to Apple headquarters in Cupertino, California to seek an explanation. After being stonewalled, she finally found out what the problem was: her game was able to be used cross platform, i.e. on both Apple devices and Android devices, and this did not suit Apple. Shen returned to China, and decided to move to Android. Although she lost the funding, the move to Android was key to the company’s growth and expansion. (Of note: Apple later returned, and now Papaya’s games are on both platforms.)

In 2011 the company shifted its focus from developing games to supporting third party developers enabling them to reach millions of users worldwide. Still, Papaya has not abandoned the users. On its website the company states: “Android users love Papaya because they can play multiple games and get a complete social gaming experience all in one easy to download and use app.”

In interviews and presentations Shen repeats here simple rule for prevailing in a competitive and ever-changing industry: Never give up.

Compiled from web sources

Papaya website (English/Chinese) http://papayamobile.com/about

2013-Putin Has A Banner Year

Vladimir_Putin_April_2013_interview_to_the_German_ARD-003.jpg (Photo: Wikimedia Commons)

by David Parmer

Russian President Vladimir has had a very good year indeed. It seems like he has moved from success to success. Putin’s American counterpart, Barack Obama’s, year seems to have been just the opposite, with reporters at his final press conference of 2013 asking him if this was the worst year of his presidency. Putin had his own end-of-year press conference, but for him, this year was a record of personal and national achievement.

In September, as the clock ticked down on an attack on Syria, Russia not only urged the U.S not to attack, but also put forth a bold plan to get international inspectors on the ground in Syria to remove its chemical weapons. The plan was accepted and the inspectors began their work. Score one for Putin and world peace.

Putin’s next bold move was to grant political asylum to Edward Snowden, former NSA contractor and leaker of classified information. Putin described Snowden as “noble” but said he had never met Snowden. In his press conference Putin noted that he was not going to justify U.S. surveillance, but that it was conducted for the purpose of combating terrorism.

Putin’s final big success of the year was to get Ukraine to side with Russia instead of the European Union. Russia provided a massive loan and substantially cut the price of gas. Putin described Russia’s interest in Ukraine as fraternal. While Russia did not overtly oppose Ukraine’s Association Agreement with the EU, it clearly looked out for its own economic interests.

And finally, neighbors Russia and China had a year of improving relations, with meetings taking place between President Putin and Chinese President Xi Jinping. Putin said he had a good working and personal relationship with Xi. Improved military ties with China were also promoted in 2013.

What will happen in 2014 for Putin and Russia is anybody’s guess, but the year begins with the Sochi winter Olympics, and the Olympics generally gives a major boost to any country’s national prestige. So maybe once again Vladimir Putin will be on the fast track to continued success.

China’s ADIZ: Can Sun Tzu Tell Us Anything?

by David Parmer

On November 23, 2013, The People’s Republic of China announced an Air Defense Identification Zone (ADIZ) in the East China Sea. Aircraft flying into this zone are required to:

Identify themselves
Report their flight plans
Inform ground control of their exact location

Japan, and its U.S. ally have seen this as an escalation of tensions, and have refused to comply. Both the U.S and Japan have sent military aircraft into the newly-created ADIZ without complying with any of the above-mentioned requirements. Moreover, the area encompassed by the ADIZ covers the territory under dispute between Japan and China, know as the Diaoyu or Senkaku Islands.

The question is why China is declaring this ADIZ at this time, and what advantage does she hopes to gain by doing so? To look for an answer we can turn to China’s pre-eminent strategist, Sun Tzu, ( 544-496 BC) a general during the Spring and Autumn period, and author of the world-famous Art of War. Perhaps China’s strategy can be interpreted by having a look at General Sun’s work.

Many observers see The Art of War as an expression of Chinese Taoist thought, a semi-mystical philosophical system based on the observation of nature and natural phenomena expressing themselves in the polar opposites of Yin and Yang.

In General Sun’s treatise there is a section on Emptiness and Fullness, which could be considered a prime example of Taoist thought.

“Therefore, good warriors cause others to come to them, and do not go to others.”

We have seen Japan and the U.S. sending planes into the ADIZ, as on cue, and almost as if they had no choice. General Sun might say they had been even compelled to do so.

“So assess them to find out their plans, both the successful ones and the failures. Incite them to action in order to find out the patterns of their movement and rest.”

Again, China has incited Japan and the U.S. to action by establishing the ADIZ. The U.S. has made it pivot to Asia. The question is how far it will go in supporting its Japanese ally? The answer is: it will immediately fly bombers into the ADIZ to show defiance and underscore its commitment to Japan. So China now has a clear picture. The U.S. and Japan have been incited to action.

“Test them to find out where they are sufficient and where they are lacking.”

The ADIZ response by the U.S. and Japan gives China a clear picture of the patterns, extent and methods of its response to future incidents should tensions escalate even further.

Tensions in the South China Sea seem to rise almost daily. The parties involved all seem to believe that they are acting strategically and in their national self interest. But what will happen if an “unforeseen incident” happens? If planes are lost or ships fire on one another where will things go from there? Some may say it will never happen, but the probability and possibility seem only to increase.

Quotations from: Sun Tzu, The Art of War, Translated by Thomas Cleary

China-Iran: No Permanent Alliances, Only Permanent Interests

Xi meets Larijani.jpg President XiJinping and Iranian Speaker Ali Larijani (Photo: FMPRC)

by David Parmer

These days, China- Iran relations center on two key points: oil and trade. China is Iran’s biggest customer for crude oil. Iran has been hard hit with U.S. sanctions that have frozen assets and crippled its oil industry. Sanctions are aimed at Iran’s nuclear program, which Iran claims is designed for peaceful energy production, while countries around the world, led by the U.S. see it as a cover for the development of nuclear weapons.

On November 20, 2013, China’s president, XiJinping urged his Iranian counterpart to “seize the opportunity” to improve relations with other world powers at the third round of the current Geneva meetings.

In October, both China and South Korea cut imports of Iranian crude; China to stay within agreed U.S. guidelines. The Financial Times reported on November 22, 2013 that in October 2013 there was a 45% decline in Iranian crude exports, and a resulting cutback in production. Crude oil accounts for 80% of Iran’s exports and half of the Iranian government’s income.

Clearly the pressure is on Iran to come and make some concessions at the Geneva meetings in exchange for easing of sanctions and partial un-freezing of its international assets.
The Obama administration is gambling that it can deal with the less-hardline regime of President Hassan Rowhani. Opposition to any deal comes from Israel and Saudi Arabia. In a world economy experiencing a certain slowdown, a deal to allow Iran greater oil exports could cause a glut in the market and drive down prices worldwide.

As for non-oil trade, Iranian Customs reported $4.06billion worth of exports to China, while Iran imported $5.7billion from China in the first eight months of 2013. One area of China-Iran friction centers around complaints that cheap Chinese goods have flooded the Iranian market seriously damaging smaller Iranian concerns. While China-related infrastructure projects already exist, there is sentiment for more of that type of activity as opposed to the inflow of cheap goods. Moreover, since China pays for Iranian petroleum in Yuan (RMB), Iran’s payments are locked in China’s banks. Estimates of these funds range from $20-47 billion. Reports quoted Iran’s Tasnim News as saying that a deal had been struck between China and Iran during meetings in October 2013 with Speaker Ali Larijani and Chinese leaders in Beijing to fund development projects in Iran using some $22billion of the above-mentioned funds.

(This report was compiled from various Web sources)

Asian Space Race Heats Up In 2013

Mars Orbiter Liftoff.jpg Liftoff: India’s First Mars Mission 5 November 2013 (Photo: ISRO)

by David Parmer

2013 has been an active year for Asian space programs. After a successful satellite launch by South Korea early in the year, and ballistic missile tests and tensions from the DPRK (North Korea) in the spring, the fourth quarter has witnessed other notable space events.These include India’s launch on November 5 of its first Mars orbiter mission, a November 7 launch of a Russian Soyuz mission to the ISS (International Space Station) carrying the Olympic torch, and a planned Chinese Chang’e 3 mission to the Moon in December with a planned Moon landing and the deployment of an unmanned lunar rover.

Despite India’s flawless launch, the mission is still a gamble as Mars missions have about a 50% chance of success. China and Japan have both come up short on their Mars missions. India is said to have the world’s sixth largest space program, and its successes include 70 successful satellite launches as well as a Moon mission in 2008. Critics of India’s space program say funds could be better spent on Earth, while defenders point to the immense benefits in communication, education and medicine brought about by the program. Now that the focus has shifted to exploration it may be harder to justify off-world budgets as more than boosters of national pride.

While some see India’s successful launch of its Mars mission as putting it “ahead” of China, the PRC boasts a solid and accomplished space program which includes an astronaut program, an orbiting lab (Tiangong-1) and the upcoming lunar mission complete with lunar rover deployment.

Japan’s progress has been steady, and while her astronauts have hitched rides on various other countries’ vehicles, it is only a matter of time before she develops her own capability to rival both the U.S. and Russia. Of note was a recent June 2012 Diet bill permitting the development of military application space technology including early-warning capabilities.

Rounding out the Asian card are Iran and the DPRK, both of which had launches this year. Critics contend that their stated scientific purposes were simply cover for the development of military capabilities.

Person of Interest: Neil Shen Sequoia Capital China

Neil Shen.jpg (Photo: World Economic Forum Davos)

by David Parmer

Sequoia Capital, founded in 1972 by legendary venture capitalist Don Valentine, is a Menlo Park California company that has funded some of the biggest players in Silicon Valley, including Apple Computer, CISCO Systems, Oracle, Yahoo, Goggle and Zappos. 10% of NASDAQ- traded companies are said to have been Sequoia funded. In 2005 Sequoia opened its doors in China with Neil Shen at the helm as founding and managing partner.

Shen’s career has had a steady and upward arc. A graduate of Shanghai’s prestigious Jiao Tong University and Yale, he worked in investment banking in New York and Hong Kong for such companies a Deutsche Bank, Chemical Bank Lehman Brothers and Citibank. Shen’s solo career began as co-founder of Ctrip , China’s largest travel booker, in 1999 which listed on the NASDAQ in 2003. In 2002 he was co-founder of Home Inns, China’s largest budget hotel chain which went public in 2006.

Since its founding in 2005, Sequoia Capital China has reported raised more than $USD 3 billion. Unlike venture capital companies in the US, SCC has gone beyond the standard venture areas of tech, media and telecom to include areas like health care and clean tech. Sequoia deals have included LandV, a vegetable producer, Mecox, a mail order business, Great Dreams, an animation studio and 51.com, a social networking concern.

Asian Aviation Industry: Boom Times But Slim Profits

(Photo: Boeing Inc.)

by David Parmer

The Center for Aviation Reports, CAPA reported on October 2, 2013 that Southeast Asia shows some of the highest growth rates in the global aviation industry. The Southeast Asian market has grown by 20% in the last 18 months. For example, Vietnam is headed to become the world’s third fastest growing market for international passengers and freight in 2014 according to an October 22, 2013 Reuters report. Both Low Cost Carriers (LCC) and full-service carriers have benefited due to generally favorable economic conditions in the region.

In remarks delivered in Singapore on October 16th 2013, International Air Transport Association (IATA) Director General and CEO, Tony Tyler noted that the airline industry worldwide is making steady profits, from a USD 7.4 billion in 2012 to USD 11.4 billion in 2013, and a projected USD 16.4 billion in 2014. Profit margins globally, however are slim, coming in as low as 2.2%. Tyler noted global trends include high oil prices, weak economy, disparity between passenger and cargo performance. A more positive note is the successful consolidation trend among airlines. Asia Pacific is expected to post a profits decline for 2013 to USD 3.1 billion, with a possible rebound to USD 3.6 billion in 2014. Asia Pacific news is generally favorable with high points being Japan restructuring and a big spike in China domestic air traffic of +13.7% in August 2013. India is a major concern, however, due to high operating costs and infrastructure issues.

Remarks by T. Tyler/IATA http://www.iata.org/pressroom/speeches/Pages/2013-10-16-01.aspx

CAPA http://centreforaviation.com/analysis/southeast-asia-airline-market-sees-more-rapid-growth–high-international-low-cost-penetration-rates-131369

America’s Hottest New (Electric) Car Heads To China

Tesla Model- S.jpg (Photo: Tesla Motors, USA)

by David Parmer

Soon affluent Chinese motorists will have a chance to test and purchase America’s hottest new car, the Tesla Model S. The Model S has gotten rave reviews from America’s top auto magazine Road and Track as well as from Consumer Reports, one of the country’s leading product review journals. Positioned as a luxury sedan and priced at $70,000 (USA) and being an electric vehicle, the Tesla Model S, might not be the car for everyone. While the questions of power and range have been addressed, the sticking point still remains the lack of charging infrastructure for electric vehicles. In the USA, charging can be done at home, but in many places (Hong Kong and Beijing for example) people tend to live in high-rise buildings which makes home charging problematic.

In addition, Tesla is not having a smooth entry into the Chinese market due to a copyright battle with a Chinese concern which has registered the Tesla name, and has set a selling price that Tesla will not meet. As a work-around,Tesla is reported to be changing the name to “Tuosule” for the mainland China market.

Tesla has also paid attention to the localization of its product. In China, people who can afford to buy and operate a luxury sedan usually have someone else drive it for them. One of the Tesla Model S’ strong points, however, is that it is a “driver’s car.” That is, the experience of the vehicle is really fully understood by driving it. Perhaps styling, scarcity value and cutting-edge technology will counter this and keep its attractiveness quotient high among prospective buyers. Tesla is also looking at modifying the rear seating area to accommodate wealthy owners who are being driven rather than driving. Marketing seems to be supporting its appeal to the newly-affluent by placing its Beijing showroom in an upscale building surrounded by luxury brand shops.

Road & Track Magazine,Tesla Model S: http://www.roadandtrack.com/car-reviews/road-tests/road-test-2013-tesla-model-s?src=soc_fcbks

Consumer reports highest-scoring car: http://www.consumerreports.org/cro/news/2013/05/video-the-tesla-model-s-is-our-top-scoring-car/index.htm