Category Archives: Asia

Weiqi :: Chinese whispers

By Subhash Kak Aug 31 2015

Experts view the recent turmoil in the Chinese stock market as a consequence of the overcapacity of the Chinese infrastructure, misallocation of resources, and the ballooning of internal debt. The steps taken by the Chinese government to deal with this crisis appear to be half-steps. On the one hand, it has promised more transparency in the financial sector so that the valuation of the offerings is reliable; on the other hand, it devalued its currency and has kept it pegged low compared with other currencies.

We see similar half-steps in its diplomatic relations and the projection of its economic power. Although China proclaims its desire to have good relations with its neighbours, it is aggressively pursuing unilateral action on the disputes regarding the control of the Paracel and the Spratly islands in the South China Sea. After constructing a string of artificial islands, it is building deep-water ports, military-grade airstrips and strategic infrastructure to the alarm of its neighbours and the United States.

China’s greatest trading partner is the US, so one would imagine it would generally be sympathetic to the US position in international conflicts. But WikiLeaks shows that while China presents a façade of being reasonable and responsible in its actions, it is actively supporting American adversaries in various theatres, and has supplied nuclear and missile technology to Pakistan and North Korea. Is there a deeper consistency to China’s actions?

I would like to argue that difference in the international dealings of US and China are a consequence of their different cultural styles. These styles get expressed not only at playfields but also in business, diplomacy and war. The Chinese style is based fundamentally on its Confucian heritage with its emphasis on study, ceremony, loyalty and harmony. This style is best represented by the Chinese boardgame weiqi, better known in the west by its Japanese name go.

Weiqi is played by two players who alternately place black and white stones on vacant intersections of a grid of 19×19 lines. Once placed on the board, stones cannot be moved unless surrounded and captured by the opponent’s stones. This is a game of controlling territory and the object is to surround a larger portion of the board than the opponent. Groups of stones must have at least two open points to avoid capture and, therefore, placing them close together helps them support each other. Stones far apart create influence across more of the board and help occupy more territory. The strategic challenge of the game is to find a balance between conflicting interests of staying close for safety and going far to capture territory. It is the perfect game to learn imperial strategy.

In contrast, the game that captures the way the west sees its sports and war is chess in which the players perform tactical manouvres to attain winning material advantage or to mount a successful attack on the king. This can involve real sacrifice for the sake of victory. Although primarily tactical, the game does have strategic elements that involve piece mobility, centre control and pawn structure. The chess player manouvres to force and consolidate a winning material advantage. The history of the west is about exploration and conquest. It has celebrated clear resolve and victory as in Caesar’s famous proclamation: “Aleaiactaest,” or “the die is cast” when he crossed the Rubicon.

The Qianlong emperor and Macartney

For many centuries, China had little intercourse with other countries but after trade began European nations found their commercial relationships with China to be unsatisfactory. For the English, viewed as a nation of shopkeepers and traders by Adam Smith, trade was the key to their power and prosperity. In the 1790s, the British government of William Pitt the Younger wished to consolidate its power in India by cutting through the restrictions of the Canton trading system imposed by the Qianlong government on European merchants in 1760. George Macartney, colonial administrator of Madras and a diplomat, was chosen as British envoy to the Qing empire.

Once in China, Macartney refused to kowtow and finally it was negotiated with the Chinese legatee that he could go down on one knee. The meeting went smoothly but Macartney was never able to negotiate business with the emperor or his representatives. In fact, he was told to leave.

As Macartney’s embassy was leaving, he was given a reply from the Chinese emperor for King George III. In this, amongst other matters, he was criticised for not following the court protocol: “I do not forget the lonely remoteness of your island, cut off from the world by intervening wastes of sea, nor do I overlook your excusable ignorance of the usages of Our Celestial Empire.”

The emperor followed this by expressly denying the requests to open various ports to British ships, permission to establish a warehouse in Beijing, small island near Chusan for a warehouse, a site in the vicinity of Canton for the navy, and permission to proselytise. With regard to permission to spread Christianity, the emperor added that the jesuits “in my capital are forbidden to hold intercourse with Chinese subjects; they are restricted within the limits of their appointed residences, and may not go about propagating their religion. The distinction between Chinese and barbarian is most strict and your ambassador’s request that barbarians shall be given full liberty to disseminate their religion is utterly unreasonable.”

The failure of the Macartney mission was determined by conflicting cosmologies of China and Europe. In his memoirs, Macartney wrote about the poor quality of life for the Chinese under Qing rule. He realised that the Qing state faced fundamental structural problems. He wrote: “The government, as it stands, is properly the tyranny of a handful of Tatars (Manchu) over more than three hundred millions of Chinese.”

He also foresaw a serious internal challenge to the power of the Qing in China: “The frequent insurrections in the distant provinces are ambiguous oracles of the real sentiments of the people. The predominance of the Tartars and the emperor’s partiality for them are the common subjects of conversation among the Chinese whenever they meet together in private. There are certain mysterious societies in every province, who, though narrowly watched by the government, find means to elude its vigilance, and often hold secret assemblies, where they revive the memory of ancient independence, brood over recent injuries, and meditate revenge.” The Taiping, Nien, and the Boxer rebellions were to follow in the next several decades and the last Qing emperor abdicated in 1912.

Weiqi and the strategy of a thousand cuts

If we see the encounter between China and Macartney through the lens of weiqi, England was a small country in a faraway place that did not deserve any investment of the court’s energy. Modern China may be viewed as a restoration of the Qing empire, with the difference that the court has been replaced by the Communist Party.

Weiqi is profoundly strategic, but with incisive and complex tactics. The game proceeds with the players trying to balance conflicting and yet complementary objectives of territorial acquisition, projecting “influence,” maintaining access to the centre, and attack and defence. The tactics used in the game involve diversions and pincer and broader attacks and sacrifices. In weiqi, the consolidation of territorial borders takes place between safe opposing armies.

If chess is about decisive victory by vanquishing the enemy by taking the fight to the place where the king is located, weiqi is about consolidation of territory. This is the reason that the Qing emperors were busy fighting to keep the empire together, rather than advancing it elsewhere.

If Europe emphasises conquest, for China, the Middle Kingdom, the focus is on consolidation of its power. This difference between the styles of chess and weiqi explains Chinese history and why the Chinese did not go out to explore and conquer other nations. Another aspect of weiqi is a relentless pursuit of strategic gain, which may be called lingchi, or the strategy of a thousand cuts. The term lingchi derives from the notion of ascending a mountain slowly, where one requires a thousand small steps to reach the top.

Beijing’s warnings on economic consequences for those who challenge its political orthodoxies are consistent with the weiqi style. The punishment to those who don’t heed the warning comes in a thousand forms. China’s relentless pressure on Taiwan for reunification in fulfillment of its imperial vision is not only in terms of missiles fired across it on multiple occasions but constant shrinkage of its diplomatic space. The Chinese dole out punishment to those who welcome the Dalai Lama. Even Barack Obama met him not in his office or in public but in the basement, and the Lama had to leave through the backdoor of the White House.

(Subhash Kak is a Regents professor of engineering at Oklahoma State

University and author of 20 books, including The Architecture of Knowledge)

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Q&A: China’s currency devaluation

China’s central bank weakened the renminbi by its most in two decades on Tuesday. The unexpected move fuelled talk of “currency wars”, although some interpreted it as a welcome gesture towards market reform and financial liberalisation.

What happened?

The People’s Bank of China devalued its currency by setting the daily “fix” for the renminbi 1.9 per cent lower — the sharpest shift on record. The move caused investors to push the currency to its lowest level in nearly three years.

What’s the daily fix?

Each day at 9.15am in Beijing the PBoC sets a midpoint for its tightly controlled currency. When the market opens 15 minutes later investors are allowed to trade the currency 2 per cent either way from this midpoint.

Why now?

An obvious catalyst is the slowing economy: in the first and second quarters China’s economy grew at an annual rate of 7 per cent, the slowest pace in six years. Data at the weekend showed exports tumbled 8.3 per cent year-on-year in July, far worse than expectations for a 1.5 per cent decline. A weaker currency should help make Chinese exports competitive.

So China is trying to spur exports? Isn’t that a currency war?

Not necessarily. The stated purpose for the move was market reform. The central bank said this was a one-time move to enhance “the market-orientation and benchmark status” of the renminbi. Previously, the PBoC would set the currency wherever it liked. Now it will give markets a voice: the daily fix will “refer to the closing rate of the interbank foreign exchange market on the previous day”.

Is there pressure for market reform?

Before the end of the year the International Monetary Fund will decide whether to include the renminbi in its special drawing rights, a global reserve asset comprising the dollar, euro, pound and yen. Inclusion would mean endorsing the renminbi as a formal reserve currency.

Last week the IMF hailed China’s progress on financial reform but called on authorities to take further steps to increase foreign access to its onshore stock and bond markets. The IMF only conducts a review of the SDR once every five years, so the PBoC could be stepping up its efforts to liberalise the currency as part of its quest to internationalise use of the renminbi.

So this is a triumph for market reform?

Perhaps, but it is hard to say. The renminbi had been under pressure to weaken for months because of capital outflows but the PBoC restrained any depreciation by setting the fix higher and selling forex reserves. Today’s one-off depreciation eases some of that pressure.

Many economists were optimistic about the action. Those at Barclays called the new mechanism “a revolutionary move”. But we will not know if China is truly letting the market have a say in the currency’s value until we have seen it move in a direction that would not be supportive to its own goals.

The Chinese currency has a soft peg to the US dollar, which has surged this year and contributed to the decline in Chinese exports. A weaker renminbi could support the economy, so Beijing could simply be allowing the currency to slide and use the talk of “market reform” as political cover; otherwise it would be controversial for the currency to be devalued.

Does this matter outside of China?

Yes. China is a huge consumer of commodities and if the move is interpreted as a sign of economic weakness, there will be ripple effects. On Tuesday every currency in the region weakened against the US dollar — those of New Zealand, Taiwan, South Korea, Singapore and Australia fell by 1 per cent or more.

Dollar strength could make the Federal Reserve reluctant to lift interest rates, as that would cause further upward pressure on the US currency.

Within China, the nation’s airlines lost 9 per cent of their market value, on average, as a weaker renminbi will inflate the cost of oil, priced in US dollars. The same effect forced shares of Qantas, Australia’s flagship carrier, to fall as much as 4.1 per cent.

What are the risks?

Investors have been pushing for the renminbi to weaken and if they are allowed to determine where the fix is, it’s possible the currency could depreciate quickly. Stuart Allsopp, head of country risk at BMI Research, a unit of Fitch, warns that investors could now see the renminbi as a one-way bet “and start to position against the currency, raising the prospect of more substantial [renminbi] weakness and more economic uncertainty”.

What now?

The key question is whether Beijing really does allow the currency to trade more freely. Last year the PBoC moved to stomp out one-way speculation, when the renminbi was continually appreciating, resulting in the currency’s first annual loss in two decades. If investors begin to push the renminbi lower, Beijing may feel the need to act again. If it does not, neighbouring countries that compete for exports may complain.

The US could be a tough position: it has asked for market reform for years but if China allows the daily fix to be determined by market forces and the currency depreciates, hurting US manufacturers, it is not obvious how Washington should respond.

 

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Stop it ! Talk about China instead.

The population of Greece is slightly less than the state of Ohio’s, while its gross domestic product is just a little bit bigger than the economies of Kazakhstan, Algeria and Qatar.

Instead of focusing on Athens, investors should be much more worried about what’s going on in China. You know, that country with about 1.4 billion people and the world’s second largest GDP?

The Shanghai Composite and Shenzhen Composite have both plunged about 30% from their highs due to legitimate concerns that Chinese stocks are in a bubble.

China’s government is taking steps to try and minimize any more pain in the market. But that could backfire.

Regulators announced Sunday that they would make more capital available for an entity that will allow for even more margin lending, the practice of borrowing money to buy stocks. Buying on margin is incredibly risky.

Many experts believe the Chinese stock market’s surge earlier this year was partly due to average investors taking on debt to invest in stocks.

And when stocks first started to fall last month, many of those investors had to quickly sell their investments to pay back the loans. That fueled an even bigger drop in stock prices.

shanghai composite china index

It could get worse as investors realize that the slowdown in China’s economy should hurt corporate profits.

“Exuberance for Chinese stocks isn’t backed up by fundamentals,” said Michael Pento, president and founder of Pento Portfolio Strategies, in a report Monday morning. “Instead, it appears markets are being levitated by continued government borrowings and manipulations.”

A move by big Chinese brokerage firms to keep buying stocks until the Shanghai Composite reaches a certain value could also be a problem.

Lei Mao, an assistant professor of finance at the Warwick Business School in the United Kingdom, worries that the government may be inflating the value of larger companies at the expense of many smaller firms.

To that end, the Shanghai Composite, which is home to many larger, established Chinese companies, did rise more than 2% Monday. But the Shenzhen, which is where younger, riskier tech stocks tend to trade, fell nearly 3%.

“These distortions, in today’s market, create a significant flow of funds to large state-owned companies – a ‘flight to state’. Plus they might create the reasons for another free-fall in the near future,” Mao said.

Why does this matter to people outside of China? A rapidly sinking stock market is often a sign of an economy in turmoil. Remember 2008? And 2000?

Since China is the second largest trading partner for both Europe and the United States, it goes without saying that a healthy Chinese economy is good news for the developed world.

All that talk about the possibility of Greek contagion if it is forced to drop the euro and bring back the drachma? That seems overdone too.

Economists at the Royal Bank of Scotland tweeted out a chart last week that showed that U.S. banks have nearly ten times as much exposure to China than Greece.

And Kathleen Brooks, a research director for FOREX.com, wrote in a report Monday that “sentiment could suffer across the Asia region and further afield” if China is unable to stop the bleeding in its stock market.

China is a massive consumer of commodities as well.

Oil prices dropped Monday — and while many were quick to blame Greece and the drop in the euro, that doesn’t make that much sense when you think about it.

“Look at the stories written about the drop in the price of oil today, and they’ll be talking about how the demand for oil drops because of Greece,” said Chuck Butler, managing director of EverBank Global Markets, in a report Monday. “I have to think that’s a bunch of bunk. China? Yes. Greece demand? No!”

Of course, you can’t ignore Greece entirely. But don’t get too caught up with the latest headlines from Europe either. China matters a lot more to the global economy — and your portfolio.

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How much does the ancient game of Go, or weiqi, reveal about Chinese military strategy?

Orginal post is here : http://thediplomat.com/2014/12/maritime-southeast-asia-a-game-of-go/

Over at The National Interest last week, Asia-Pacific Center professor Alexander Vuving ran a nifty longish essay explaining China’s grand strategy in the South China Sea in terms of the Japanese game Go, or weiqi as the Chinese call it. It’s well worth your time. Read the whole thing.

Explaining strategic behavior in terms of the games inhabitants of a civilization play is a cottage industry. Henry Kissinger, to name just one major figure, has drawn the parallel between Go and China’s deportment around its periphery.

For Alex, insisting that Beijing’s moves in the South China Sea are trivial is misguided. That’s thinking inspired by chess. Pawns as largely expendable, strategy largely linear in character. Yet by deploying seaborne counterparts to the pawn — white-hulled coast-guard ships, the fishing fleet, reclaimed islands and reefs — China encircles and exerts influence if not control over swathes of sea and sky where it bills itself as the rightful sovereign. Sovereignty means physical control of territory within certain boundaries on the map. Pawns backed by more powerful forces bring about control over time.

The geospatial thinking of a Go master, then, may be on display in maritime Southeast Asia. This supplies Beijing a psychological advantage. What looks unimportant to Westerners steeped in chess constitutes steady, incremental progress toward permanent control of territory that Beijing has pronounced an inalienable part of the motherland. It also represents steady erosion of freedom of the seas in the China seas — a process that could discredit the principle of freedom of the seas across the globe, with unknowable but certainly baneful results. Unless, that is, you think surrendering a principle on which the liberal system of trade and commerce is built is a price worth paying to appease Asia’s big brother.

But — and you knew a but was coming — I would affix an asterisk to Alex’s commentary. People are not cultural automatons. The games they play may influence how they think, but they do not determine their actions. Or, if they do, it verges on impossible to demonstrate how such factors shape conduct in the real world. If policymakers, executors of policy, or ordinary people report that Go, or chess, inspired them to do this or that, then fine. That’s about as close as it gets to proving causation. Short of that, tracing the impact of strategic culture is largely a matter of conjecture. We know culture exists, and we know it’s important. Measuring it or forecasting its effects is an elusive task, fraught with ambiguity. Hence the asterisk.

It’s also crucial not to oversimplify. Cultural influence isn’t uniform within a given mass of people. I’m virtually sure, to name one Western example I know well, that chess — linear strategy employing cost/benefit logic and pieces with varying capabilities — exerts zero influence on what I say and do. The Naval Diplomat has played little chess, has no talent for it, and — perhaps not coincidentally — has no interest in it. That would nullify Alex’s analysis if — heaven forfend — I ever attained high office. One doubts, moreover, that Go is that all-pervasive among the Chinese that it overrides ordinary cost/benefit logic, Confucianism, the tenets of Marxism-Leninism, and on and on. Go is not all-important. In short, let’s not oversell the social and cultural dimension of strategy.

And lastly, even if you assume Go or chess do provide thumb rules for appraising Eastern or Western behavior, there are countervailing strands of culture within any society. Culture is a mélange, not a simple list of traits or influences. Asians like surrounding and controlling territory? Sure they do. But they have also proved receptive to the Western strategic canon, in particular the writings of Carl von Clausewitz. Mao quotes Clausewitz repeatedly. And Clausewitz was a thinker and martial practitioner who urged statesmen and commanders to subordinate the chaotic, nonlinear world of armed conflict to rational — linear — logic.

Do Westerners prefer the linear approach? Sure, I suppose you can say that. But they also like to encircle and crush opponents. The Battle of Cannae, where Carthaginian forces surrounded and annihilated a Roman army, became a metaphor for European strategists that endured into the twentieth century. That’s rather Go-like. Westerners are direct? Sure, but the figure of Odysseus, who embodied craft, guile, and cunning, also runs through Western strategic thought. Deception has its place in Western warmaking and diplomacy.

And so forth. It’s helpful to think of civilizations as possessing dominant and recessive characteristics. Policymakers or strategists may have certain strategic preferences — Asians for the geospatial approach and gradualism, Westerners for punching opponents in the mouth — but certain situations can bring forth the recessive traits. Trying to discern what action will summon forth what response from an antagonist is more enlightening, and informative, than projecting behavior solely from the games people play.

That is all.

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    By Subhash Kak Aug 31 2015 If Europe emphasises exploration and conquest, China relies on its Confucian heritage of consolidation of power, much like its ancient boardgame, weiqi Experts view the recent turmoil in the Chinese stock market as a consequence of the overcapacity of the Chinese infrastructure, misallocation of…
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Key Races and Numbers to Watch in Japan’s 2014 General Election

With Sunday’s general election just four days away, most local media in Japan are now predicting a landslide win for Prime Minister Shinzo Abe and his Liberal Democratic Party. Of the 475 seats that are up for grabs, the LDP is likely to at least hold on to the 295 seats they had before the parliament was dissolved.

But that doesn’t mean the voting on Sunday will be a throwaway match. Here are key races and nail-biter districts which could see plenty of drama, including party leaders falling from grace, scandal-tainted Cabinet members getting knocked out and the end of the road for some heavyweight politicians.

The Democratic Party of Japan won a whopping 308 seats in the 2009 general election and ousted the LDP from power.   They fell flat three years later in the 2012 election, only winning 57 seats. While the largest opposition party is expected to add some seats on Sunday, some of the key DPJ figures are facing tough competition in their districts.

DPJ president Banri Kaieda is up against LDP’s Miki Yamada in Tokyo’s 1st district, who he lost to in the 2012 campaign. Mr. Kaieda managed to obtain a seat only through the proportional representation system.

Former Prime Minister Naoto Kan followed the same path as Mr. Kaieda in 2012, losing to LDP’s Masatada Tsuchiya but keeping his seat via proportional representation. He will face Mr. Tsuchiya again in Tokyo’s 18th district.

In the proportional representation system, voters choose from a list of parties with each party receiving seats in proportion to the percentage of votes.

http://blogs.wsj.com/japanrealtime/2014/12/10/key-races-and-numbers-to-watch-in-japans-2014-general-election/

 

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