The World As I See It

An article in Asian Wall Street Journal titled "Beijing’s Plaza Accord?" yesterday by Hugo Restall sheds on me a new light on China’s currency revaluation. I was preoccupied with the current happenings, totally forget about China being a fast learner, especially of the Japanese experience. I had never related or seen this currency issue in the light of Plaza Accord signed 20 years ago by the then G5 nations.

The main idea of the editorial: Recognising that American pressure will sooner or later force a yuan appreciation, China would rather embark on a gradual appreciation of its currency now when its economy has a full head of steam, than to force its export sector to endure the kind of "yen shock" that Japanese companies faced after the infamous 1985 Plaza Accord, which when combined with deflationary pressure, loose monetary policy, inflows of foreign speculative capital, soar in asset prices, bad loans, and finally the burst of bubble economy produced the decade-long slump.

China has been drawing lessons extensively from Japan’s past - selectively emulate tried-and-tested policies while avoiding its mistakes. It can be seen from China’s efforts in industrial policies, to befriend Latin America and African countries, acquisition of energy sources, pattern of overseas investments, reliance on borrowed technology, clearing banks’ bad loans etc.

I am keen to learn what the Chinese policy makers have in mind from others’ experiences. Enlighten me please if anyone has any sources.

Dear Boss,

Since you asked about my progress on Plato’s Republic twice, I’m finding a chance to share with you something on my reading plan, but each time it looked inappropriate to engage you. Hence, I resort to writing.

There are 3 concerns in my venture into a new field of knowledge:

1. I do not understand the basic concepts or terms, nevertheless I pick some classics and drift along for first few chapters to get a rough view.
2. I do not know where I stand - or rather where the author and his ideology stand - in that field of knowledge or in the historical development of the knowledge.
3. I tend to enclose my quest to a few authors (composers in the case of music) that I like or are famous, thus not getting a full coverage on the subject as a foundation or an overview.

To illustrate, having gone through Economics classes in NTU (currently pursuing a Minor in Economics), it enables me to evaluate government policies, follow the rationales of central banks’ moves and IMF reports, with an awareness of the difference between Keynesian, monetarist, neoclassical etc approach. An introduction in International Business Law enlightens me on the issues of WTO Doha Round, anti-dumping of China, farming subsidies of France and the US etc - the role of law in international order. My past efforts in Relativity and Quantum Mechanics allow me to follow the lines of theoretical physicists (Richard Feynman, Stephen Hawkings) and some arguments of Bertrand Russell - the extent of human understanding of the nature.

I am unfamiliar with political science and philosophy. An objective text would lay the ground to address my 3 concerns, and help to construct a holistic picture. Nonetheless, concurrently, I am also browsing through some classics, which can be likened to "scratching an itch" in my impatient desire to plunge myself into the great writings. They include the works of Russell, Paine, Mill, Kant, Marx, Rousseau, PLATO etc.

So that’s it, the roundabout way of my answering your question, which, I think, better reveal my thoughts. The Republic is one of the books that I flip, not with the intention to fully understand it now, but to scratch my itch and to get a rough view. I will come back to all these books again after having an overview of the political and philosophical concepts, and their developments. And back to your question, how is my progress on The Republic? Seriously… Alas! No progress yet

Regards,

LOH YI ZHENG

The panic-stricken US textile industry and the congress have made it the case that the onslaught of Chinese textile inflows disrupted the domestic market, and may apply a clause in WTO granting them the right to impose tariffs on the imports, unless the Chinese revalues its yuan within some months. The quick-fix of protectionism is so seductive that one would rather take the easier and short-sighted path, than to swallow bitter pills.

Fed Chairman Alan Greenspan and the academics have repeatedly acknowledged that even a 20% rise in yuan will do little in addressing the US record current account deficit of $666 billion, assuming the manufacturers would turn to domestic producers after yuan revaluation. Common sense tells us this is never the case. At most the businesses will just move to other low-cost countries, and US trade deficit continues but vis-à-vis different countries. And how long can they hope to rely on the special clause, which is meant only to deal with extreme situation?

More fundamentally, is the surge in import volume a real surge? I would say no. The real picture is, in the past, import quota has artificially suppressed the number of import items. A WTO agreement 10 years ago stipulated the quota to be scrapped on 1 Jan 2005. The industry has one decade to adjust and adapt itself. Thus, the current overwhelming shock at the sight of Chinese textile imports returning to its normal level is itself, shocking. It makes one wonder what the people have been doing all the time. Among other things, the US has been accusing the Chinese of manipulating its currency and exports to gain an unfair edge. Is maintaining the decade-old peg at 8.38 yuan per dollar without a touch considered manipulation? I am not sure. Perhaps the Chinese had foreseen all of these 10 years back. If anyone were to be accused of manipulating, the suppression of import volume first comes to my mind.

Worst, this protectionist sentiment breaks out at a time when China is painstakingly reforming its state-owned banks, preparing itself for the imminent opening of its banking sector to foreign competition. Watching the Americans crying foul on free trade, what the Chinese will feel under persuasion of the Government to comply with WTO rules?

Is the repercussion of yuan float well understood? What supports US’ today extravagant expenditure, amongst all, is yuan’s fixed peg to the dollar. To maintain its undervalued currency, the Chinese sells yuan to buy US dollar, and in turn use it to hold treasuries. When yuan is floated, its demand for US treasuries to keep the peg virtually vanishes. Is US ready for a possible plummet in its dollar and asset prices? With its budget and trade deficit skyhigh, I don’t think it is time for the US to break down this mechanism that helps maintain its dollar value.

The US should not blame others for its inability to manage its own house. It is imperative that the institutions hold on to tight fiscal discipline as what their ancestor administrations had demonstrated. Meanwhile, encourage saving among its citizens before requesting others for collaboration in policies.

Recently I came across an article narrating the difference a foreign business venture received in China and in Singapore. In China, they were flooded with various offers, proposals or contacts of SMEs ranging from suppliers, partners, logistics and so on. While in Singapore, a perplexing silence made them wonder if the local SMEs were waiting for an invitation. In my view, the SMEs were waiting for the Government to organise a convention or any event to help the businesses meet.

Why the lack of initiatives? We have grown up overly dependent on the Government in many aspects. But isn’t it incorporated in the syllabus the elements of thinking, acting or learning independently? From my experience, they are much emphasised in almost everywhere.

This brings me to my point. I believe the best way to teach independence, is not to teach. At the same time, relax the tight arrangement of workloads¹ so that those who wish to initiate a business venture, a discussion group on any subjects, an extra-curricular activity, a research, or even just to think, do not have to make a hard choice whether to pursue their interests at the expense of grades. Obviously, on this topic, the examinations are not really valid i.e. what we are tested on is not what the papers are intended to test. The papers can be reliable, meaning they consistently rate the students on something else which I do not bother to find out, but not the quality of being independent.

I very much admire the atmosphere in Cambridge during Bertrand Russell’s time (1890 - 1894). In his essay "My Mental Development",

I found a group of contemporaries, who were able, rather earnest, hardworking, but interested in many things outside their academic work - poetry, philosophy, politics, ethics, indeed the whole world of mental adventure. We used to stay up discussing till very late on Saturday nights, meet for a late breakfast on Sunday, and then go for an all-day walk.

I had the luxury of this experience a bit during my secondary school in Malaysia. The schedule was quite lax then. We had at our disposal ample time for long discussions, immersing ourselves in the libraries and bookshops, and long walk. Though back then, we were rather confined only to the world of physics and mathematics, our progress was tremendous. I don’t see this possibility in Singapore universities now. It appears that, by packing our timetables even in the holidays², they do not intend to encourage this culture.

…………………………………………………..

1. Note here that what we have to do in term times are already tightly arranged by the schools.
2. The bulk of my engineering friends cannot make it home in this holiday because of a project in which they need to commit their time in labs every working day. No doubt they need to discuss and design solutions to some problems. But the distinction between this and what I am talking about is a clear one. They are discussing something initiated by the school, including the problems they are looking into.

I am describing 2 attitudes of students. Both sets are neither exhaustive nor mutually exclusive. But their contrast is best to illustrate my point.

"I came to philosophy through mathematics" - Bertrand Russell, in his essay Logial Atomism

"The mathematicians do not treat mathematics as what we have in mind in our daily usage. To them, it is a philosophy." - Wong Wei Pin, a friend of mine, majoring in pure mathematics, currently pursuing a joint master programme by NUS and Ecole Polytechnique.

How many students possess this attitude when coming to their modules? When we deal with mathematics, are we aware of its beauty or the fundamental philosophical ground? Or do we stop at the "engineering level" of maths feeling satisfied to fulfil the grades? I do not mean to insult engineers, but merely to allude that some of us, particularly those that confine themselves only to the syllabus, treat the subject only as a tool and do not wish to see the bigger or deeper picture in their fields of study.

Are languages merely a tool to communicate? Have we ever been touched by the aesthetic value of our favourite language? Are all subjects really separated? Do you feel it unthinkable or ridiculous that a study in Chinese language will affect one’s tastes in music, chess, calligraphy or painting and vice versa? Will philosophy help in the understanding of martial arts? (I believe this is the reason Bruce Lee took philosophy in University of Washington.) Are we puzzled by one’s claim that his study in Economics has piqued an interest in Law, subsequently leading him to delve into the area of human behaviour - Psychology (which partly work beneath the two), and finally the stock market? [edited] 

It seems there are some common grounds, some overlappings at the fundamental level of each field. A study in a subject will drive an enlightened student into others, and slowly branching out in all directions. Compared with those appeased only with grades, who is likely to lead a fulfilling life?

Think again, are you tasklessly bored in the holidays because there is no syllabus assigned to you?

I was always of the opinion that the two are not incompatible. My senior attempted to convince me that my course terribly requires full focus from us. My professor advised against my taking up of positions in extracurricular activities. I tried to disprove them, but failed so far. Probably I just played too much. "Thirst for wisdom and knowledge" has always been the priority in my life. I don’t think I want to shake it for now. It is painful. Does it make a good reason to "move out of our comfort zone"?

My enthusiasm for blogging is waning. It is a nice and fulfilling experience. But it takes too much of my time. I am slow at organise and sort out things. I find it interesting that it started after my first paper and ended before the last paper in this final exam. Many thanks for the commendations, though I seriously do not think I really deserve it. I will only update once in a blue moon.

"About Schmidt" is a nice, sad and funny show about a retired actuary. For this movie, Jack Nicholson won the Best Actor title in the Golden Globe Awards. I came across this in Warren Schmidt’s letter to his foster child Ndugu,

"I believe I mentioned in my previous letter that I was an actuary at Woodmen and The World insurance company. If I am given a man’s age, race, profession, place of residence, marital status and medical history, I can calculate with great probability how long that man will live. In my own case, now that my wife has died, there is a 73% chance that I will die within 9 years, provided that I do not remarry."

This is a very layman interpretation of what the statistics reveal. The underlying assumption of the model and analyses is that we can observe groups of identical lives, or at least lives whose mortality characteristics are the same. To pluck from my notes,

"As a result of this heterogeneity, our estimate of mortality would be the estimate of the average mortality over the whole set of lives. We could use the estimate to predict the level of mortality for a similar group of lives but it would not be correct for any single individual. This could be a particular problem for an insurance company that wishes to set premiums that accurately reflect the risk of each individual policyholder."

It might sound the same to a layman, but the distinction is of utmost importance to a statistician. In the Institute of Actuaries exam series, one of the papers is on communication, which requires us to explain the technical findings in an understandable way to a layman, like our clients or the management. I am particularly worried about this, as what the MBTI personality test reflects on me, I have difficulty expressing myself and find myself frequently misunderstood, and

"INTJs tend to blame misunderstandings on the limitations of the other party, rather than on their own difficulty in expressing themselves."

You might wonder why the insurance company would not just continue to subdivide the populations to solve the problem of heterogeneity. This is because it will result in a much smaller populations in each class and we will have a problem with the validity of the samples, ie are they representative of the whole population?

"A balance must be struck between obtaining more and more homogeneity, and retaining large enough populations to make analysis possible, ie the finer the subdivision of the data, the less credible the results of the analysis." - Survival Model course notes

Similarly, I need to strike a balance in retaining the truth and making myself clear to others.

America and the European Union are mulling steps to impose tariffs on China’s imports, particularly textile. "China-bashing" is the term that captured the headlines. Pressurised by the local business groups (who are important source of votes), the forerunners of free market are starting to eat their own words. Protectionist bills that violate WTO rules nearly got their ways through the Congress.

"America’s Congress is taking a harsher line on trade, particularly with China. The Bush administration is also getting into the act, with the treasury secretary and even the newly nominated trade representative talking tough. Is America turning protectionist?"       - The Economist

Speaking at the Boao Forum in southern Hainan island on Saturday,

"If there is more pressure from outside, it will force us to speed up our reform," Mr Zhou Xiaochuan (governor of People’s Bank of China) said without giving a timeframe, the first time China’s government has said it may alter its schedule for the exchange rate because of overseas interests. - The Business Times

In a previous occasion, Chinese Premier Wen Jiabao had also said that yuan revaluation will come as a surprise, at an unexpected moment. But I still regard these assurances, both without specifying a timeframe, as mere rhetoric, to soothe the US or EU with some hopes, as set forth by the columnist,

"Asian mercantilism is all about sacrificing the present for a prosperous future. It makes possible, and is in turn made possible by, the extravagance of the US government and consumers who are equally adept at doing just the opposite: sacrificing the interests of tomorrow’s taxpayers for their financial excesses today. Why should China alter its present before the US rethinks its future?" - Andy Mukherjee, Bloomberg columnist.

"Once this happens [yuan unpeg], the People’s Bank of China can stop stockpiling dollar reserves — meaning its demand for American government securities will also dry up. Critics wonder if Congress, which has made little effort to curb America’s soaring budget deficits, has quite thought things through." - The Economist

And I am glad to find this view that tallies with mine in my previous post on this topic,

"America blames China for the bilateral trade deficit, but America’s trade deficits are a result of its huge fiscal deficits and the fact that Americans do not save. America’s defence that it is doing the world a service by consuming vastly beyond its means is self-serving and rings hollow: US fiscal policies and low savings have become the fundamental source of global imbalances." - Lawrence Lau and Joseph Stiglitz, Financial Times.

On the other hand, the US Commerce Department report, provided to lawmakers in February, reckoned that a rise in yuan would do little to cut the US trade deficit or boost job growth. It would likely only benefit other Asian nations and China’s other competitors.

The above citations have given a glance especially at the relationship between yuan and the US , better than what I can possibly come up with. There is also a pressure of internal imbalance in money supply that might force the central bank to revalue its yuan, but I do not address it here [edited]. It is interesting to see who US will target next to blame for its own shortcoming, if the situation does not improve after China loosens its currency.

I find Senior Minister Gong Chok Tong’s remark in the Parliament on the casino issue as one of the rare speech by politicians. Not forgetting he was a First Class Honours in economics from the University of Singapore, 1965, he dissected his reasons for a casino in a mildly economist way.

"We should look at the incremental social costs, not the total social costs, and balance them against the [incremental] economic benefits and social problems of unemployment."

"The debate is not really over whether we should or should not have a casino. It is whether we should forgo the Integrated Resort because of its gaming component [opportunity cost analysis]. It is about our economic future over the increase in social costs. It is about families who would benefit from the jobs created versus families who could have their lives destroyed because of gambling. It is about whether we want to have a vibrant, cosmopolitan and fun Singapore or a fuddy-duddy Singapore."

His 4 reasons to move on to the next stage of the project are

1. Credibility of Singapore and how Singapore is perceived
2. Economic benefits
3. Easy access to existing casinos
4. Manageable incremental social costs

He cited anecdotes of his worldwide encounters with businessmen, high-rollers and ministers, and humorous moments of his gambling history and casino visits during official missions. The speech is light, with the underlying reasoning remains clearcut. Some of his findings are eye-opening to me, that I had never given a thought to, such as "static tourist sights will not attract repeat visitors, but the ever-changing scene of world-class entertainment will", and having skylight to prevent gamblers from losing track of time.

And there is Mr Lee Kuan Yew’s remark. He started off with a narrative of his observations during the Japanese occupation, his student years, as a young lawyer, and when he first took office in 1959. As usual, he gave a very broad view and examined the situation from a global perspective. What is every part of the world evolving into, what impact do they have on Singapore, what lessons can we learn, can Singapore afford not to adapt and reposition itself, will the best offers just vanish and not go to somewhere else in the region if we reject them, what is lack in Tokyo etc. He depicted a picture where Singapore can bring itself to greater height, at the same time with the basic values held firm.

Both of them are for casinos in Singapore. The difference lies in their stance on gambling as stated in their first line.

Goh Chok Tong: I do not approve of gambling but I am not anti-gambling.

Lee Kuan Yew: I am anti-gambling.

Note that their speeches were not in the core Parliamentary debate. They were just sharing their views on casino after the debate. Transcripts of the ministerial statements are available on the government website.

• Prime Minister Lee Hsien Loong explains how the Cabinet reached this decision.
• Minister for Trade and Industry, Mr Lim Hng Kiang explains the tourism and economic aspects of the proposal.
• Minister for Community Development, Youth and Sports, Dr Vivian Balakrishnan explains the safeguards to limit the social impact of casino gambling.
• Minister for Home Affairs, Mr Wong Kan Seng explains issues of law and order and enforcement.
• Minister-In-Charge of Muslim Affairs, Dr Yaacob Ibrahim responds on what this decision means to the Muslim community and how should they approach it.

The Integrated Resort proposal with a casino component has raised strong opposition voice from the community, especially from the religious groups. But as Mr Lee Kuan Yew noted, when addressing university students in a Ministerial Forum, "it is not because they are more organised and have a larger scale, therefore they should prevail. We have to analyse the issues rationally". In Mr Goh Chok Tong’s speech, "These Singaporeans give Singapore its moral ballast. If there were little objection to the casino, I would be even more worried. For it would mean that we have become so blase about life and have lost our moral bearing." PM Lee, "bring all Singaporeans together, so that even though we may not all agree on this issue, we understand and respect each other’s reasons and concerns, and can close ranks and move ahead."

The reasons and the key considerations that caused the Government to change their longstanding policy of casino ban for 40 years were given in the ministerial statements, of which I think they are sound and valid. I won’t go through them here. For those uninformed, the Government has approved 2 integrated resorts with casino. One at Marina Bayfront, which is right at the Central Business District. The other is at Sentosa Island, a leisure and holiday spot. They target different markets, with one complements each other.

As for my stand, I am 100% for casino in Singapore, provided the Government delivers what it promised - the precautionary measures for pathological gambling and organised crimes. As Deng Xiaoping said, we have to "open the windows, breathe in the fresh air, and at the same time fight the flies and insects." Anyway, we should not lose sight of the bigger picture. The 2 casinos are not more than 5% of the gross floor area allowed. They are only a fascinating component of 2 huge-scale Integrated Resort projects involving US$ 3 - 5 billion each. What we should focus on is the role of the entire concept of integrated resorts, with the casinos included, in the process of Remaking Singapore. I can feel the vibrancy of the business buzz, artistes’ performances as well as the jobs created in the hotels, restaurants, shopping malls, convention space, theatres, museums, and theme parks. I believe the Marina Bayfront IR, especially, will hold the limelight in this region. I am confident with the Government’s promises, in the light of its multi-pronged aproach and its track record of extremely cautious manner in every aspect.

Being aware of IR’s potential damage on Singapore’s brand name, the Government has been looking for best practices to adopt. It has explicitly made clear to model after London, Sydney and Geneva, 3 cities with casinos that have maintained their reputations. "All three are financial centres which depend on their reputations for integrity and rule of law, just like Singapore. We can learn from them how to stay abreast of the times, be exciting and cosmopolitan, and still be a safe and well-managed city".

I attach a report by the Institute of Policy Studies, Singapore on the Casino Proposal published on 10 January 2005.