Party Wimps out at Plenum — not with a bang but a whimper

The widely ballyhooed Third Plenum of the Chinese Communist Party’s 18th Central Committee didn’t live up to inflated expectations.  We were all hoping, some predicting, that it would announce a new set of reforms that would lead China away from the export oriented, state run model that is petering out, and into a time when Chinese consumers would benefit from and drive economic growth.   Unfortunately, the new leaders of China avoided bold reforms, consolidated the security apparatus and probably moved backward on citizens rights.   It was unrealistic to expect a major breakthrough from a collective leadership that rose to power by relying on state organs, state enterprises and exporting coastal provinces. However, all is not lost: they laid a basis for underhanded reforms.  They missed their first real chance, but not their last.

The first good news was how many times their communique mentioned markets. The most important market now is interest rates and Zhou Xiaoquan, retained as governor of the central bank, has been moving to free up rates. Market rates can help discipline the big state enterprises, who’ve been gorging themselves on cheap state capital, and help savers achieve their targets for education and health savings thus boosting the undernourished consumer side of growth. A supporting announcement was the emphasis on more flexible use of private capital and private investment, including an inroad into market pressure inside the big corporations. Again, a bit of market discipline could go a long way.

What to watch for in coming weeks:
— Who will be on the leading group for economic reform that they announced? Real reformers with power or just another interministerial, intra-party, inter-provincial squabble?
— Will there be a serious implementation plan with details?
— What will the leaders do to change regulatory process, as they’ve now promised, curbing state interference with the market?
— What will they do to change the nature of ownership of state enterprises? Announcing that private capital can come into state enterprises implies there will have to be a clearer share structure of state and private ownership. Will private investors influence the boards or will the party still control leadership? Will the state and other investors start getting dividends?

Reform is still possible even without the big bang type changes that came from Deng Xiaoping’s 3rd plenum of the 11th Central Committee in 1978. The 3rd of the 18th may not measure up in history, but it might be the start of some transformative, but less stunning, change for the Chinese economy.

In the final analysis, China is investing more and growing less, while trying to make a transition to a creative modern economy. The elements that are missing are the democratic ones:    fair competition, accountable leaders, open information, freedom to invent and create ideas.    Absent those big changes, we might see enough to keep the economy growing and tilt it more towards the Chinese people as the drivers of growth.  If they get more bread and circuses, this leadership will hang on to reform another day.


Iran — Time for Diplomacy

The benefits of a solution with Iran are enormous:  for the oil market, for stability in the gulf, for the prevention of proliferation (isolating North Korea), for oil routes in and out of Central Asia and China, for gas supplies to India and Pakistan, for our supplies to Afghanistan, for loosening Russian domination of the Caucuses and Central Asia, for making Asia whole again.  People forget that Iran was one of the major destinations on the silk road.  We make our policy as if Iran only faced the Arabs on the west when in fact it also faces east and is key to a broader Asian balance.     I joined with 78 other diplomats to support the negotiating effort.

See the link:



Stop listening to gossip

It about time we turned the NSA’s big ears away from our friends and allies.    Amidst all the hubbub about the National Security Agency listening to US citizens and foreign leaders, no one really questions the value of the information we obtain. Let me put it bluntly: it’s gossip and rumor, not worth the trouble, expense or effort.   Sure, authorities can tell a few stories about finding tip offs about terrorist activity, but most of those appear to come from targeted listening, not the wholesale vacuuming of the Internet. The more politically charged issues are of listening to the cell phone of Angela Merkel and other foreign leaders, what do they produce?

We must get something out of it, right? After all, “everybody does it.” The French, Brazilians, Israelis, Chinese and Russians, have all been reported to listen to whatever they can and use it for political and commercial purposes. The Russians are said to have given bugs, in the form of USB keys and battery chargers, to all the G-20 leaders who met in Saint Petersburg in September, presumably to figure out what their negotiating positions were.

Politicians and senior policy people love the gossip: “have you seen the intel?” is a familiar question in policy discussions. Intel has an air of authenticity that newspapers don’t, even though newspapers are far better researched and edited. Intel may be extremely valuable when peering into closed spaces: North Korean nuclear programs, Chinese leadership maneuvers, or Middle Eastern money transfers. In the modern world, particularly in democratic societies, the problem is not too little information but too much.

When it comes to European leaders, the newspapers, Twitter feeds, rumor mills and scandal mongers produce so much information that the secret to knowing what’s going on is in the analysis not the collection. Embassy analysis, CIA career analysts, and reliable columnists understand what they are hearing better than politicians and policy makers who read a juicy tidbit in the intel. Even in China, intelligent reading of the Weibo micro-feeds can tell you almost everything. The key to intelligence is intelligence, not transcribing. If we have an indication of duplicity or conspiracy, then maybe we should carry out a targeted bugging, but listening to everything someone says or everything everyone says is no better than standing next to their water cooler.

Finally, lets ask who is talking to whom? If we hear some Major talking to some other Major about a coup, how do we know they are serious? During one coup in the Philippines, our intelligence chief at the State Department told us: “we had a warning this might happen. Actually, over the past year, we have had 1400 warnings of coups.” A politician, even a blunt one like Angela Merkel, is always trying to persuade and often shades the truth. Listening to two people lie to each other is unlikely to produce a reliable basis for action. If we heard Merkel trying to convince the French President to block a US proposal in trade talks, what good would that do us? We’d have to deal with him, we’d have to maneuver around him or turn him. It’s not hard to figure out their intentions, intentions are all over the newspapers, but it takes real intelligence to outgun or outsmart them.

So, let’s stop listening to our friends’ phone calls. Just because ‘we can’, doesn’t make it a worthwhile effort. Let’s spend our money on intelligent analysts who can figure out what’s going on and intelligent diplomats and politicians who can work their way to a good deal.