The Rocky Road to Globalization

RIchard Haas writes:   Is China is best understood as a strong country, with a promising future despite some short-term difficulties, or as a country facing serious structural problems and uncertain long-term prospects. Two very different Chinas can now be glimpsed. But which one will prevail?

The question of China’s future has become unavoidable. Officially, economic growth has slowed to near 7%; but many believe the real number is below 5%. The slowdown should come as no surprise; all developing economies experience something similar as they grow and mature. Nonetheless, the speed and degree of change have caught the authorities off guard, and have stoked official fears that growth will fall short of the rate needed for the country to modernize as planned.

The government’s alarm at the sharper-than-expected economic slowdown was reflected in the freezing of stock markets in the midst of a dramatic price correction. That move was followed by a surprise devaluation of the renminbi, which suggests that the shift away from export-led growth is not working as hoped.

Corruption is pervasive, and Xi’s campaign remains broadly popular. But the wave of prosecutions that Xi has unleashed is discouraging Chinese officials from making decisions, owing to their fear that they could face criminal charges in the future.

Aside from slowing growth, there is severe environmental damage, one result of decades of rapid, coal-fueled industrialization. Air pollution may be killing 1.6 million Chinese per year.

China’s aging population, an unintended consequence of its draconian one-child policy, poses another threat to long-term prosperity. With the dependency ratio – the proportion of children and pensioners relative to working-age men and women – set to rise rapidly in the coming years, economic growth will remain subdued, while health-care and pension costs will increasingly strain government budgets.

What is increasingly apparent is that China’s leaders want the economic growth that capitalism produces, but without the downturns that come with it. They want the innovation that an open society generates, but without the intellectual freedom that defines it. Something has to give.

A slow-growth China would undermine the global economic recovery. It would be a less-willing partner in tackling global challenges such as climate change. Most dangerous of all, a struggling China could be tempted to turn to foreign adventurism to placate a public frustrated by slower economic growth and an absence of political freedom. Indeed, there are some signs that the authorities are doing just this in the South China Sea. Nationalism could become the primary source of legitimacy for a ruling party that can no longer point to a rapidly rising standard of living.

The US and others will need to push back to ensure that China does not act on such a temptation. But these countries would be equally wise to signal to China that it is welcome to take its place among the world’s leading countries if it acts responsibly and according to the rules set for all.

But the bigger policy choices will be China’s to make. The government will need to find the right balance between government interests and individual rights, between economic growth and environmental stewardship, and between the role of markets and that of the state.

Sam Cooper writes:  Vancouver International Airport is the major port of entry for millions in hidden cash being smuggled into North America by mostly Chinese citizens, a federal document investigation by The Province reveals.

And according to money laundering investigators, the amounts identified in Canada Border Service Agency cash seizure data, obtained by The Province under freedom of information law, is only the tip of the iceberg.

Experts said Vancouver appears to be targeted  by Chinese citizens because Canada’s forgiving border laws allow seized cash to be returned for minimal fines. As well, permissive property investment rules and loose reporting compliance in the real estate industry make Vancouver homes the perfect vehicle for illicit offshore investment.

“A lot of the illicit money coming into Canada from Chinese citizens is laundered through real estate in Vancouver,” Hayley Labbé, a senior forensic investigator with the firm MNP LLP, told The Province.

The Province obtained CBSA data months after undertaking a wide-ranging federal document search to learn more about China’s anti-graft initiatives such as Operation Fox Hunt and SkyNet — the aggressive crackdowns by the Communist Party of China on political corruption suspects.

Co-operation between China and Canada in the hunt for numerous suspects who have allegedly fled to Canada with ill-gotten gains is controversial, because of many differences between the two countries’ legal systems.  Chinese Buy Vancouver Real Estate

A small but growing number of domestic helpers have absconded while overseas with their employers. The names of families and helpers involved have been changed.

Few statistics are available to quantify the situation in Britain, the US and Canada, but families who have experienced it in Britain say police there report it is a common occurrence..

Getting a visa for a domestic helper in Western countries can be difficult, amid fears they will abscond or fall prey to trafficking.

While the process varies from country to country, typically the employer must show a work contract and a significant work history, and the helper must prove strong ties to Hong Kong and their home country to allay concerns.

During the application process, consular staff also advise helpers on their rights, which can include being paid the minimum wage in the country they vis

When a family discovered their helpl was missing, they worried that she may have been injured. One day the help stayed at home while the family went out. But when they returned about 90 minutes later, she was gone.

Police found CCTV footage that showed her walking towards a nearby railway station.

“Then we were angry because we just didn’t see it coming.

“The police weren’t shocked and said this happens a lot.”

In another case, Michael and his wife were caught off guard in 2009 when their helper – who was hired in Hong Kong and moved with them to Dubai – ran away from a London park.

“She wanted to use the toilet and she was never to be seen again,” Michael said. Police told them such cases were common.

Advocacy groups for domestic workers in Hong Kong said they had not come across such cases, while the Immigration Department had no figures on domestic helpers absconding. But foreign consulates in the city do appear to be taking the matter seriously, as reflected in a tough approach to visa issuance.

Philip Kelly, director of the York Centre for Asian Research in Canada, who has studied labour migration trends for Filipino immigrants, said it was rare for helpers “to run away … simply to take advantage of greener pastures or better employment prospects”.

Noah Smith writes:  More than a dozen years ago, the U.S. experienced a rash of high-profile accounting scandals. Now it’s Japan’s turn. Toshiba, one of the country’s largest technology firms and an internationally respected brand, revealed that it had systematically overstated its operating profits to the tune of about $1.2 billion during a seven-year stretch. The company’s chief executive officer, a number of other high-ranking executives and half of the company’s board has resigned.

The Toshiba scandal isn’t the first big case of Japanese corporate fraud to come to light in recent years. In October 2011, CEO Michael Woodford (no relation to the economist of the same name) blew the whistle on accounting fraud at his own company, optical equipment manufacturer Olympus. The fallout from that debacle is still unfolding. 

The first takeaway from these scandals is that there will probably be more of them. The consensus is that they happened because of problems with Japanese corporate culture. In both cases, observers have blamed secretive and autocratic management styles by top executives, as well as the generally hierarchical, closed nature of Japanese business. But the real problem is corporate governance itself. 

In Japanese companies, boards are almost always made up of people who work for the company. This provides a strong incentive for empire building in which managers try to expand market share — and their own perks and privileges — instead of profitability or shareholder value. Basically, Japanese managers can run companies like their own private fiefdoms.  

That style of management looked OK when market share was rocketing upward in the 1970s and 1980s. But since the Japanese economy slowed and international competition intensified, its flaws have taken a heavier toll. Japanese white-collar productivity is horribly low relative to other advanced nations, and its companies have traditionally been far less profitable than those in the West. 

It is worrying to see accounting fraud at a company such as Toshiba. Toshiba is one of Japan’s star performers, an internationalized company that has been disciplined by global competition. 

In the U.S., the accounting scandals of the early 2000s in companies such as Enron and WorldCom resulted in the Sarbanes-Oxley Act, a harsh crackdown that many cite as a reason for the reluctance of companies to list themselves on public exchanges. But in Japan, there is the hope that the response will be a different kind of reform — improvement of corporate governance in general. 

The administration of Prime Minister Shinzo Abe recently introduced a new corporate governance code that requires outside directors on boards and encourages a focus on shareholder value. In parallel to this effort, the government should continue trying to cut ties between Japanese companies and the Japanese mafia. Another thing it should do — which hasn’t, to my knowledge, been proposed — is to stop making entertainment expenses tax-deductible. 

There is the hope that the accounting scandals are a bad sign for the short term but a good sign for the long term. If all goes right, problems that are exposed today will be rooted out tomorrow. 

Adam Vaughan writes:  Conservationists and politicians have called on the EU to ban the import of lion heads, paws and skins as hunters’ trophies from African countries that cannot prove their lion populations are sustainable, following the killing of Zimbabwe’s most famous lion by a European hunter with a bow and arrow.

The death of a radio-tagged lion called Cecil in Hwange national park was described as a tragedy by wildlife groups. But the lion, whose head and skin were removed, is only one of about 200 such lion ‘trophies’ that hunters legally import to the EU each year. Germany, France and Spain are the biggest importers.

In February, scientific advisers to the EU banned imports from Benin, Burkina Faso and Cameroon for the first time, on the grounds that their wild lion populations were not sustainable.

Lions were classed as vulnerable  and critically endangered in western Africa due to over-hunting and a scarcity of prey.

MEPs said the Cecil incident showed that if hunters were desperate enough to lure lions out of national parks with bait rather than killing them in areas with a hunting quota, lion populations in Zimbabwe were clearly not sustainable.

They said the EU’s import ban should be extended to any African countries without independent, scientific data to show that lion hunting is sustainable.

Catherine Bearder, a Liberal Democrat MEP who on Monday submitted a written question to the European Commission on the issue, said: “The shooting of Cecil the lion was tragic and cruel, but it has at least shone a spotlight on the absurdity of the current situation. Despite the number of lions across Africa plummeting in recent years, hunters are still allowed to import lion hunting trophies into the EU from several African countries.”

“It’s outrageous that lions are being killed just so someone in Europe can decorate their home with the body parts. The European commission must immediately impose an EU ban on all imports of lion body parts,” he said.

When the SRG meets in September, it should ban imports from Zimbabwe.

Cecil was a 13-year-old lion with a distinctive black mane, and was reportedly lured out of the national park with bait earlier this month, before being killed with a bow and arrow and rifle, before being skinned and beheaded. Kat said that such baiting was legal in Zimbabwe, even on the edge of a national park, but it appeared the hunter had broken the law by killing the lion in an area without a hunting quota.