Yup CB, Through skewed world view and twisted priorities, I can see that China is definitely the enemy that did not take WTC down:
online.wsj.com
August 12th, 2002
Big Changes Up Top, but No Upheaval, Await China
By LESLIE P. NORTON
Emerging Markets
In the coming months, something momentous will happen in China. One by one, its major leaders will resign, including President and Communist Party General Secretary Jiang Zemin, Premier Zhu Rongji and legislative chief Li Peng. At the same time, as many as five members of the powerful Politburo Standing Committee, including the three gentlemen listed above, may step down.
"This is not just a changing of the guard," says Cheng Li, a Sinologist at the Woodrow Wilson International Center in Washington, D.C., whose book "China's Leaders: The New Generation" was published last year. The new leaders "grew up during the Cultural Revolution," Li adds, and thus "have six important traits. They are disillusioned with ideology, and therefore are less dogmatic. Their political careers and affiliations are more diverse. They're more capable of dealing with challenges. They're more interested in balanced regional economic development and in a social safety net. They're more inclined to pursue reforms. And they're more arrogant in response to American 'arrogance.' "
In any other emerging market, a political shakeup of such magnitude might be preceded by a stutterstep in foreign investment. Yet until now, global investors were remarkably composed about the prospects for change. The collective calm owed to the widely telegraphed nature of the transition. Vice President Hu Jintao, 59, has been groomed for years to succeed Jiang, and has already met world leaders such as President Bush. Similarly Zhu, due to retire in March, will likely be succeeded by Vice Premier Wen Jiabao, 60. Observers have also reasoned that China's incoming bosses lack the personal magnetism and authority of previous leaders such as Mao Zedong and Deng Xiaoping. "The cult of personality is nowhere to be found," says Andy Rothman, China strategist at CLSA Emerging Markets in Beijing and a former U.S. diplomat.
That serenity vanished this month. That's when Taiwanese President Chen Shui-bian suddenly announced there was "one country on each side" of the 100-mile-wide Taiwan Strait, and that Taiwan ought to hold a referendum on its future. Beijing, of course, views Taiwan as a breakaway province. Uncertainty mounted. Would Jiang use Cheng's comments as a way to hang onto the presidency? Was Chen trying to right the balance as the U.S. courted China's support in its war against Iraq? Taiwan's Chen tried to repair the damage, and nobody expects a replay of 1996, when China conducted missile tests. Yet the verbal fracas took its toll. Last week, Taiwan and Chinese shares spiraled lower, even as markets elsewhere around the world advanced smartly. Hong Kong edged fractionally higher.
Rumors that Jiang was loath to retire and a perceived delay in the scheduling of the 16th Party Congress -- some observers now expect it to be held in November, not September -- also fueled the doubts. Thus, last week Japanese Prime Minister Junichiro Koizumi considered shelving his September visit to China, ostensibly because of Chinese criticism over his visit to a Tokyo shrine that honors war criminals, but also because of uncertainty about the leadership change in the People's Republic. Other delays are in the offing. One consultant to publicly traded companies that are majority owned by the People's Republic confides that since many senior managers are party members, clients have suspended major corporate decisions until after the Congress.
If Jiang doesn't resign two of his three positions -- president, party chief and chairman of the military commission -- it may be a sign of conflict within China's leadership. But for now, China-watchers expect the transition to proceed as expected.
It will certainly be a peaceful change, unlike the last two, which were tainted by the Cultural Revolution and Tienanmen Square. China today is a different place, home to a large and vocal middle class more interested in hiking living standards than in ideology. They're more educated, with access to the Internet, and not just official newspapers, for news. Cheng Li of the Wilson Center found that in 1978, 30% of ministers had college degrees. The number is nearly 100% today. And with more than 60 million retail brokerage accounts in the People's Republic, as many Chinese play the market as belong to the Communist Party.
Hu is a bit of a cipher -- picked by the late supreme leader Deng Xiaoping in the early 'Nineties to succeed Jiang and, though not necessarily a Jiang protege, bearing Jiang's endorsement. He is reportedly a coalition builder. He's also perceived as appealing to younger Chinese, having worked in the party's youth league for more than a decade. Hu was chosen by the party to address the populace in a widely publicized TV speech in 1999 after the NATO forces accidentally bombed the Chinese Embassy in Belgrade. The speech expressed nationalistic sentiment while quelling public urges to vent those feelings. He has cultivated a low profile. Says Li of the Wilson Center: "It's unwise for him to be in the spotlight too much while Jiang is in charge." Nor does Hu wish to be viewed as "a pro-reform, pro-American figure" as China adopts capitalism. "The Chinese don't want to follow Soviet-style shock therapy, which is 'all shock, no therapy.' "
Meanwhile, Wen Jiabao, who's likely to succeed Premier Zhu, is a geologist who gained popularity with the Chinese when he coordinated relief efforts after the disastrous floods of 1998. He's regarded as a superior administrator and legendary survivor who has worked for a number of bosses who lost power in party purges, such as Hu Yaobang. One reason for his longevity: "He's not obsessed with factional politics and can get things done," says Li. In fact, Wen embodies the characteristics of the new generation: He's a skilled administrator instead of a hero of the Long March.
There's plenty to tackle. On the financial front, Chinese market regulators need legislative help to lure foreign investment, shrink the size of the state sector, deregulate the market for domestic investors and crack down on abuses. The biggest economic issue facing Hu is the need to reform a teetering banking system with sufficient sensitivity that new loan flow doesn't generate sour loans at the same rate.
The new leaders will want to boost development of the impoverished interior, bolster the legal system, institutionalize local elections and resolve the future of the People's Liberation Army. Then there's the ongoing war against corruption, variously estimated to cost China between 1% and 4% of gross domestic product annually. "China isn't Suharto's Indonesia, but corruption affects the legitimacy of the party," says CLSA's Rothman.
For now, the betting is that Jiang will quit both as head of state and as party secretary, though he may hang on for a while as chief of the military commission. After all, he's eager to cement his legacy -- which includes obtaining the 2008 Olympics for China, entering the World Trade Organization and broadening party membership to include entrepreneurs. An unseemly transition could threaten that.
The WTO itself reduces the potential for great upheaval, since it institutionalizes China's trade relationships. Investors and trading partners are betting that China can't afford to move in a more protectionist direction. Says Jun Okumura, a top official with the Japan External Trade Organization, a division of the Ministry of Economy, Trade and Industry: "The fact that Jiang has brought China into the WTO greatly diminished any uncertainties we would have felt from the changing of the regime."
What about Taiwan? Whatever the political scenario, it's clear that economic integration is proceeding between the Mainland and the island. And while some are betting that value is building up in Taiwan -- the Taiex is off 52% from its 2000 high -- BCA Research is recommending investors stay cautious on Taiwan, focus on the cheapish "B"-share market in China, and be overexposed to Hong Kong financials on expectations of a Fed rate cut.
Still, the deepening economic ties between the adversaries may mean the political risk is overstated. Don Gimbel, the international specialist at value investing firm Carret & Co., says: "Weakness in their markets is truly a buying opportunity. I do believe that good value can be bought for the long run on pullbacks such as we have seen recently. These are very smart people who understand long-term benefits of working together. As in all markets, quality always wins." |
