Generation 40s – 四十世代

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Taiwan’s trade dilemma amid flurry of regional pacts

South China Morning Post
Comment›Insight & Opinion

Erik Tollefson

Erik Tollefson says the Beijing-Seoul free trade deal sent political shockwaves through Taiwan, raising questions on whether it is too reliant on trade for economic competitiveness

Amid the diplomatic pageantry and sartorial tragedy of the recent Apec conference, a short announcement last Monday set off a figurative earthquake in Taiwan: China and South Korea had signed an outline free-trade agreement. Indeed, although many observers expected the pact would eventually be signed, few foresaw the early arrival date.

In Taiwan, the news catalysed a firestorm of debate: for pessimists, it was yet another sign that the island’s figurative economic sky was falling while, for optimists, the agreement underscored the urgency to pass the embattled Cross-Strait Service Trade Agreement to ensure market access.

While China’s agreement with South Korea is probably of greater symbolic than practical importance, the proliferation of regional trade agreements excluding Taiwan, coupled with an increasingly stagnant domestic debate on economic competitiveness, threatens its ability to respond.

The outline deal, if it is ultimately approved, will undoubtedly have an impact on some Taiwanese firms. According to Xinhua estimates, it will affect tariffs on a total of 90 per cent of bilateral exports across 17 product categories over the next 20 years. With Taipei estimating that there is a 77 per cent overlap in the trade structure between Taiwan and South Korea, some Taiwanese exports will be affected.

However, the final deal, as with nearly all trade agreements, did fail to meet initial lofty ambitions. The automobile industry, a key economic driver for both countries, was not included in the agreement, and cannot be negotiated for at least two years. Liberalisation of the agricultural sector, one of the most sensitive topics on both sides of the Yellow Sea, was pared back from the original positions. Furthermore, Seoul only won a partial opening of China’s prized petrochemical and steel markets, primarily for lower-value-added products, while the higher-end market will remain closed: a strategic decision to protect Chinese domestic producers’ fragile finances and move up the value-added ladder. Finally, the IT sector, which has experienced substantial liberalisation already due to the World Trade Organisation’s IT agreement, posted additional gains for Korea, including reduced tariffs for e-commerce.

Even with a less comprehensive scope, however, the agreement immediately became politicised in Taiwan. The Ministry of Economic Affairs said the FTA, if ultimately ratified, could dent Taiwan’s GDP by up to 0.5 per cent, with Taiwan’s exports to China falling by between 2 per cent and 5.4 per cent, to be replaced by rivals from South Korea. The estimates immediately came under attack as a veiled threat to catalyse the stalled cross-strait trade talks. Indeed, some foreign investment banks and analysts offered a more sanguine assessment of the deal’s impact on Taiwan and its economic future.

The simmering domestic argument over the agreement’s potential impact, however, illustrates the deep wounds and distrust from this spring’s divisions on the Cross-Strait Service Trade Agreement and Taiwan’s economic future.

Although the precise impact of China’s trade deal with South Korea on Taiwan is difficult to estimate, the raucous debate reveals two important points. First, in the midst of a tepid global economic recovery, relative economic gains matter more. Taiwan’s economy is not in ill health by any means: annual GDP is projected to grow close to 4 per cent this year, the fastest level of growth posted in three years. Granted, this was achieved largely on the back of robust third-quarter export growth as supply shipments for the iPhone 6 spiked. However, even if the free trade deal doesn’t severely affect Taiwan, it will help South Korea, with some estimates that it could add up to 3.3 per cent of GDP. In a world of seemingly inert demand and increasingly competitive pricing pressures, due to Japan’s recent decision to strengthen quantitative easing, these gains are even more important.

Second, the deal signals a rapidly shifting regional economic environment, with China emerging as an indispensable participant. Indeed, the Asia-Pacific Economic Cooperation conference discussed two main free trade plans: one led by the US, the other by China. However, the Trans-Pacific Partnership, Washington’s strategic answer to limiting Chinese influence through free trade, has faced numerous obstacles, and the US will find it increasingly difficult to construct an economic zone of influence around China after Beijing recently announced new free-trade agreements with Australia and Myanmar. The Chinese economy, and Chinese firms, are becoming intricately woven in the region’s developed and developing economies alike – a trend that Taiwan understands well.

All of these developments sharpen the policy dilemmas facing Taiwan. The main challenge of whether to further integrate with mainland China via the Cross-Strait Service Trade Agreement has captured the most attention due to the profound ramifications. The dilemma is only partially mitigated by the low but existent probability of Taiwan joining the TPP – a step that would potentially diversify economic trading partners. Even if Taiwan does ultimately join the partnership, however, it is facing another dilemma that could prove deleterious: an overdependence on trade to drive economic competitiveness.

The inflamed debate over China’s deal with South Korea illustrates how trade agreements have become the main modus operandi to improve economic competitiveness. This was not historically the case in Taiwan’s economic development, and evidence suggests Taiwan could strengthen its economic performance through effective, but politically difficult, structural reforms. According to the World Bank’s 2015 “Doing Business” survey that measures the ease of opening a business, Taiwan ranks a respectable 15th overall, but behind regional competitors such as Singapore, Hong Kong, South Korea and Malaysia. Taipei could particularly improve on credit availability (52nd) and contract enforcement (92nd). These important reforms, however, are increasingly buried under rhetoric to promote “free” (preferential) trade for exporters, as well as pressuring the central bank to depreciate the currency to effectively lower prices.

This development is equally disturbing as it complicates efforts to formulate a comprehensive economic response in a rapidly shifting economic environment. Indeed, Taiwan’s main dilemma is not the more publicised issue of whether or not to trade, but how to use trade as one policy tool among many to increase the island’s overall economic competitiveness.

Erik Tollefson is a freelance economic analyst


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The beginning of Japan’s third lost decade

South China Morning Post
Comment›Insight & Opinion

Dan Steinbock

Dan Steinbock says the effects of Japan’s massive monetary gamble will have consequences not just at home and in Asia, but globally too

Japan’s fiscal discipline is worsening. In the coming years, the consequences will be felt in Japan, the region and worldwide. In the past quarter, the economy fell into recession. In the West, it was characterised as “unexpected”, but the realities are precisely the reverse.

With its third “lost decade”, Japan has entered an era of huge monetary expansion that it not well supported by the fundamentals of its economy.

Any premature exit from more fiscal stimulus and monetary easing will backfire. So Tokyo plans to resolve its money troubles by adding to its debt.

In the three months to September, Japan’s gross domestic product contracted by an annualised 1.6 per cent as a result of the sales tax rise in April. Consumption accounts for about 60 per cent of the economy, but it remains fragile.

When household assets rose to a record in June, Prime Minister Shinzo Abe’s Liberal Democratic Party called it a sign of successful reforms. Yet, the 3 per cent tax rise and the Bank of Japan’s historical easing boosted living costs faster than incomes.

A year ago, there was much talk that “Japan is back”. But even though the yen has fallen 13 per cent against the dollar, exports added only 0.1 per cent to GDP, which has been driven by public spending.

What next? In public, Abe and his party will take a step back and seek electoral support for new rounds of fiscal stimulus and still more liquidity in the economy. Politically, Abe has called an early election and delayed the proposed second sales tax rise.

After two lost decades, Japan began a risky monetary gamble when Abe and the LDP returned to power. The central bank pledged to begin open-ended asset buying, hoping to inject US$1.4 trillion into the economy in only two years, while doubling the monetary base to 270 trillion yen (HK$17.7 trillion). The monetary gamble went hand in hand with Abe’s reform agenda of renewed fiscal stimulus, aggressive monetary easing and proposed structural reforms.

Japan’s sovereign debt is close to 250 per cent of GDP. But Japanese institutions are joining in the gamble, too. Last month, the Government Pension Investment Fund, controlling 67 million people’s retirement income, said it would take more aggressive bets by reducing funds in domestic bonds while pumping up its investments in stocks; the BOJ said it would boost its asset-buying programme by a third and buy stocks and real estate funds, not just more government bonds. That blurs the very notion of risk.

As the BOJ is underwriting the politicians’ huge borrowing, it is eroding the credibility of public finance in Japan and the perceived independence of the central bank. Yet, days before the third-quarter report, stocks soared to seven-year highs, buoyed by expectations of the sales tax rise deferral.

Some months before the latest rounds of debt-taking, Japan had a 70 per cent share of Asia’s debt stock. By the same token, what happens in Tokyo will not stay in Tokyo. As Japan moves into deeper fiscal deterioration, the repercussions are likely to be eventually felt in Asia, and globally.

Dr Dan Steinbock is research director of international business at India China and America Institute (US) and visiting fellow at Shanghai Institutes for International Studies (China) and the EU Centre (Singapore).

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Incineration and landfill extensions are essential to tackle Hong Kong’s waste crisis

South China Morning Post
Comment›Insight & Opinion

Wong Kam-sing

Wong Kam-sing says after over a decade, Hong Kong must act on plans to extend its landfills and build an incinerator as they are indispensable parts of a comprehensive strategy

The plans for landfill extensions and building an integrated waste management facility have taken more than a decade – Hong Kong must act now. These projects are currently being scrutinised by the Legislative Council’s Finance Committee.

They are also essential elements in our blueprint for sustainable use of resources up until 2022, published in May last year.

Unfortunately, there are still various misunderstandings that landfilling and the integrated waste management facility could be deferred or even shelved if only Hong Kong would work harder on waste reduction and recycling. Some say Hong Kong should build waste separation facilities for better recycling first; another demand is for us to adopt “new” technology to treat waste.

The truth is Hong Kong treats more than 9,000 tonnes of residual municipal solid waste a day and, one by one, our three landfills are going to reach capacity by 2019. This means we have to extend them to give Hong Kong the breathing space to put in place the full complement of waste reduction, recycling and treatment infrastructure.

We are moving ahead concurrently on these and many other waste-related measures. As they fall into place, there will be less dependence on landfilling. Our target is a 40 per cent reduction in municipal solid waste sent to landfills by 2022. From where we stand, this is an ambitious goal.

As for the choice of municipal solid waste treatment technology, we are opting for advanced moving grate incineration because this is the most reliable one available for large-scale treatment with proven experience today, which is why it remains the leading choice around the world. It is certainly not true that it is outdated, as some new incinerators just commissioned or being built adopt this technology.

Reliability means it is well-tried and tested in terms of technology, emissions, management, maintenance, cost and energy generation.

Some legislators have asked about emissions from incineration, including particulate matter – tiny airborne particles. It is well-proven that modern incinerators can treat a large amount of mixed waste, including plastics and metal, and still come well below the tightest European emissions standards. The advanced filtering technology used can capture 99 per cent of the particulate. The accumulated concentrations in the vicinity of the integrated waste management facility can comply with our air-quality objectives.

The modern, well-managed incinerators are located close to population centres in Europe, Japan and Taiwan. One of the newest incinerators, in Copenhagen, is about 1.5km from Denmark’s royal palace. The one in Macau is near high-density residential estates and tourist hubs.

Reliable treatment facilities are an essential part of waste management. During a visit to Europe with cross-party legislators early this year, local authorities, professional bodies and community organisations there were surprised to hear Hong Kong has no incinerator to treat municipal solid waste. The United Kingdom Without Incineration Network was candid in acknowledging that, while waste reduction is paramount, having the capacity for municipal solid waste incineration is nevertheless necessary.

We agree that the most important part of waste management is reduction and reuse, followed by recycling. There is room to reduce waste in Hong Kong’s consumption-oriented lifestyle, such as cutting down on the use of disposable items. We have also made a major push to reduce food waste, which takes up nearly 40 per cent of our total municipal solid waste in landfills. There is expanding support for our Food Wise Hong Kong campaign from the food and hospitality sector; to a certain extent, with assistance from our Environment and Conservation Fund, there is a growing capability in Hong Kong for donating surplus food to people in need.

Another major, critical waste reduction measure is municipal solid waste charging. Hong Kong is unique among advanced cities in not having such a system in place. We are testing how charging could work for Hong Kong’s extreme high-density environment, and we will put our ideas to the legislature early next year and begin drafting the necessary legislation.

There are also questions over Hong Kong’s recycling rate of 38 per cent. For comparison, excluding the recycling of construction waste, the recycling rates of municipal solid waste in Britain and France are about 40 per cent, while the rate in Japan is about 20 per cent. We are working with the recycling sector to enable them to collect more recyclables. A HK$1 billion recycling fund has been set aside awaiting approval by legislators.

As for Hong Kong’s 3,600 tonnes of residual construction waste per day, while more than 90 per cent is already separated out for reuse, and charging for this type of waste has been in place since 2006, the remaining portion also needs to go to landfills, which represents an additional pressure point on our existing capacities.

We have started to work with the construction sector to consider how to reduce this form of waste, including increasing the amount charged.

Yet another misconception is that by providing more roadside recycling bins, Hong Kong would be more effective in dealing with our waste. Hong Kong’s roadside bins collect only a small amount of recyclables. In 2012, only 165 tonnes of plastics were recovered from them, whereas the total quantity of plastic recyclables collected was about 320,000 tonnes. To tie in with the forthcoming waste charging, we have set up an interdepartmental working group and will review both roadside litter and recycling bins in terms of design, disposition and quantity.

As is the case in other cities, recyclables are recovered mainly from other facilities – not roadside ones. In Hong Kong, they are collected from recycling facilities in buildings and community collection points, and through networks of private recyclers.

Ninety per cent of Hong Kong-collected recyclables are exported, mostly to mainland China for recycling. This is not dissimilar to, say, Tokyo, New York or London, except their statistics do not show the recyclables are “exported” when they are sent to plants within their own country. Ours are considered to have been “exported” as a result of Hong Kong’s separate custom arrangements with the mainland.

Waste planning and infrastructure provision can take considerable time to implement. We will launch a study next year on the long-term strategic development of waste management facilities with a view to moving “towards zero municipal solid waste landfilling” in order to define what Hong Kong needs to do after putting in place the essential complement of infrastructure and waste reduction measures.

We look forward to working with the legislature and community to implement our blueprint and to look forward to what Hong Kong must do next.

Wong Kam-sing is secretary for the environment

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Economic empowerment of women can unlock door to sustainable development

South China Morning Post
Comment›Insight & Opinion

Shamshad Akhtar

Shamshad Akhtar says regional leaders must renew their commitment to advance women’s rights and status in all sectors

Change is in the air: today, women have better access to education, health services and jobs, as well as a greater voice in parliaments. However, progress in women’s empowerment has been slow and uneven. Growth and development gains have not been shared equally, with development gaps wider for the poor, ethnic minorities and those at the lower end of the income stratum. Violence, conflicts and climate adversities have disproportionately affected women, magnifying gender injustice and vulnerabilities.

Greater integration of women in the labour market – at all levels and in all sectors – is key to equitable, inclusive and sustainable development and is a legitimate right of women. Even though women constitute 50 per cent of Asia-Pacific’s total working-age population, their participation in formal employment is uniformly lower than that of men.

In many countries in the region, the national female employment-to-population ratios are less than 50 per cent, which is not the case for men; in some nations, the female employment-to-population ratios fall below 30 per cent. Also, women’s contribution to Asia-Pacific economies through household and informal-sector labour is recognised but unrecorded in the national accounts.

Gender-based discrimination is pervasive and goes beyond labour force participation, as social and cultural taboos perpetuate discriminatory and restrictive traditional gender roles in women’s and men’s lives.

There is a cost to gender discrimination and inequality: UN estimates show that low participation by Asia-Pacific women in the labour market bears an annual opportunity cost of more than US$89 billion. A World Bank analysis reveals that if women’s economic activity were on par with men’s, economic growth in many Asia-Pacific nations could increase by as much as 18 per cent.

Equally worrying are trends in key Asia-Pacific social indicators: the region accounts for nearly 40 per cent of the world’s maternal deaths, up to 70 per cent of women suffer violence during their lifetimes, female literacy levels in some areas of South and Southwest Asia are less than 50 per cent, and, too often, women’s participation in national legislatures is below 10 per cent.

Next year marks the 20th anniversary of the adoption of the Beijing Declaration and Platform for Action, which is the global agenda for achieving gender equality and advancing the status of women and girls.

As part of the 20-year review, Asia-Pacific governments have identified women’s economic empowerment, political participation and the elimination of violence as fundamental to our future, and a priority for achieving gender equality in the region.

Policymakers must tackle a host of issues in order for women and men, girls and boys, to have equal opportunities. Strategic measures for enhancing women’s economic empowerment range from strengthening and enforcing laws to initiatives that promote decent work and work-life balance for women and men.

This week, at the Asian and Pacific Conference on Gender Equality and Women’s Empowerment: Beijing+20 Review, ministers and other policymakers in the region will have the opportunity to renew their political commitment to empower women and advance their status in all sectors.

Providing an impetus to the debate, the G20 has called for reducing the gap between female and male labour force participation in their countries by 25 per cent. Realisation of this goal by 2025 – no small feat – would add 100 million more women to the labour force. Asia and the Pacific could lead the way. Facilitating women’s integration in formal employment, governments and the private sector need to embrace flexible working hours and telework; tailor tax systems based on personal income (not family incomes); and provide high-quality affordable child and elderly care services.

Equally important is challenging the underlying stereotypes and assumptions about childbearing, parenting and the roles of women and men in the home and the workplace. In particular, the needs and interests of vulnerable groups of working women – such as domestic, migrant, informal sector and rural workers – must be addressed. Traditional gender roles that confine women to caring, cashiering, cleaning, catering and clerical work must be revisited, if the “glass ceiling” is ever to be fully dismantled.

Significant and substantive gains for women’s economic empowerment, and for gender equality more generally, require more resources, greater accountability, stronger partnerships and institutions, and better regional cooperation.

The Asia-Pacific Beijing+20 Conference offers a valuable chance for our region to celebrate women and recognise their value – both as a matter of human rights and for our shared prosperity.

Dr Shamshad Akhtar is a UN undersecretary general and executive secretary of the Economic and Social Commission for Asia and the Pacific

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In the world’s hour of need, China-US pact can be a climate changer

South China Morning Post
Comment›Insight & Opinion

Andy Xie

Andy Xie says we all need the United States and China to work together if the world is to unite to tackle global warming and promote free trade

Last week’s Apec summit in Beijing demonstrates the power of cooperation between China and the United States. Significant progress was made on two of the biggest issues in the 21st century – climate control and free trade.

Global warming is probably the most important issue of this century. It has existential consequences for mankind. Even with a low probability of a worst-case scenario, the extreme consequences still warrant maximum effort by all countries to prevent it. Indeed, it is worth a major reduction in living standards. However, every country is hoping that others will do the heavy lifting. Hence, the world has so far witnessed a game of chicken in the negotiations on climate control.

Only China and the US could patch together a global climate deal. The two account for more than 40 per cent of global greenhouse gas emissions and their commitment to time-bound targets will push other countries to join a global pact.

Some US politicians have been quick to argue that China doesn’t have to do anything for 16 years and is getting off lightly in this deal. That is far from the truth.

First, by 2030, China’s per capita income will range between US$15,000 and US$20,000 at today’s price levels – less than half the current level of nations in the Organisation for Economic Cooperation and Development, the international trade forum. It is a huge sacrifice for China to accept peak emissions at such a low income level.

Second, being the world’s factory may account for one-third of China’s current emissions. Without China’s high levels of manufacturing, Europe and the US wouldn’t be able to cut their emissions so easily. If this factor is taken out, then China’s total emissions are similar to those in the US and per capita emissions are only about a quarter.

Third, China has a short history of emissions. The stock of greenhouse gas in the atmosphere is overwhelmingly from OECD countries. China has used the argument to justify a temporary period of high emissions to develop its economy. Now it has committed to the 2030 peak, it is showing it is willing to stop the wrongdoing, as others have.

Global warming binds all countries. Every nation will suffer the consequences of a rise in temperatures and the effects of severe climate change would ensure that living standards were not meaningful at any level. That is the ultimate incentive for China and the US to work together. It is time for a global pact not just to slow, but to reverse, the warming trend this century.

Since the 2008 global financial crisis, the world economy has suffered anaemic growth. The G20 summit in 2013 promised that each member would try to boost growth. But no meaningful result can be observed. The just-concluded G20 meeting in Brisbane tried again. But such efforts won’t work, either. One major factor is that free trade is in retreat.

Strong global growth has been largely driven by the World Trade Organisation framework. As more countries joined, the efficiency gains from rising trade powered the global economy forward. But the WTO process has stalled. Simply put, more members make an agreement less likely.

As the top two economies in the world, China and the US have a responsibility and common interest to move free trade forward. Sadly, the two have different agendas. The US is pursuing the TransPacific Partnership (TPP). It seeks to exclude China, the world’s largest trading economy, for now, hoping that the TPP would eventually force China to join on US terms.

At the Apec summit, China countered with the Free Trade Area of Asia Pacific, essentially a pact among Apec members. The US supported a two-year study on the idea in exchange for China cutting tariffs on IT goods. Considering how many Apec members there are, it will encounter the same problems as the WTO.

The TPP process has stalled. Even if it does succeed, the efficiency gains are too small to make a difference to the global economy. The US is negotiating with Europe on a free-trade agreement. China is doing the same with the Association of Southeast Asian Nations. Neither will happen quickly or be big enough to change the world. What can change the world is for China and the US to form a free-trade agreement. They are not only the top two economies in the world, but are also pro growth and growing much faster than other OECD nations.

Most global growth in the next decade will happen between them. If they form a free-trade pact, others would be pulled in, in order to share the growth. This would be the game changer for the global economy.

Growth and the environment are this century’s top challenges. The world must have both to remain stable. Without either, conflicts will proliferate. To safeguard the environment, growth has to depend on efficiency; trade is a major component.

The Sino-US pact on climate control is a blueprint on how to move the world forward. The two must reach agreement first – to bring the rest of the world along – otherwise, no meaningful change will occur. China and the US may not love each other, but they must work together. After all, they have to live together on this small and fragile planet.

Andy Xie is an independent economist