Fixing the yuan value

THE United States sent a high-level delegation to Beijing in December 2006 to persuade the Chinese authorities to further open their economy. The group was led by the treasury secretary Henry M. Paulson who is the former head of Goldman Sachs. The firm Paulson headed had done a great deal of business in China. As such, he is well-known to the Chinese authorities and respected by them.

The American team included the Federal Reserve Bank chairman Ben Bernanke, US trade representative Susan C. Schwab and energy secretary Samuel Bodman. The talks ended on December 15 with a joint statement read to the press. It was clear from the statement that Washington had made little progress on achieving some of its more important goals.

Why should the economic discourse between China and America interest a country such as Pakistan? There are some obvious answers to this question. As we will see below, the Americans are particularly concerned about the value of the Chinese currency in terms of the dollar. If they succeed in getting Beijing to accept a higher value for its yuan, it will affect the price of Chinese exports to Pakistan as well.

Many Chinese manufactured goods are sold in Pakistan at a price well below the cost of producing them at home. Revaluation of the yuan should help to protect some Pakistani industries such as those located in and around the industrial city of Gujranwala. The Americans also wish to see the Chinese adopt more transparent policies in building export markets for their products. This would help Pakistan especially after it signed a free trade agreement with China during President Hu Jintao’s recent visit to Islamabad.

As I will discuss below, Washington was also persuaded by the Chinese to allow Westinghouse to build four nuclear power plants in China. This deal was struck soon after the conclusion of the economic talks. It entails the transfer of technology by the US company to China. This is obviously of interest to Pakistan given its growing relationship with China on nuclear issues. Since the Americans are not prepared to accommodate Pakistan’s wish to obtain nuclear technology for power production, Islamabad may be able to achieve this with the help of the Chinese. For these and other reasons it makes sense for policymakers in Islamabad to keep track of the on-going negotiations on economic issues between Beijing and Washington.

The Chinese put up their usual defence arguing that the United States did not fully comprehend the environment in which policymakers in Beijing must operate. “Some American people are not only having limited knowledge of this country” they “even harbour some misunderstandings”, Vice Premier Wu Yi declared, not once but twice — in her opening and closing remarks. Ms Wu led the Chinese side in the two-day exchanges. Hank Paulson told the press that the Chinese leader was right in her remarks “on the subject of US misunderstandings of China and both sides had learned from each other in the course of the dialogue”. He said that getting all the top economic leaders around the table was a significant achievement in itself. It showed there was a “very constructive overall relationship between our two countries”.

The Beijing meetings launched a strategic dialogue between the two countries. The idea for creating a formal framework for discussions between the two capitals was put forward by Paulson during his first visit to Beijing after joining President Bush’s administration. Termed the strategic dialogue on economic issues, these discussions have replaced ad hoc visits to each other’s capital by senior leaders of the two countries. This way Beijing and Washington can put on the table their main concerns and, if the need arises, set up working groups to prepare the ground for discussions by senior officials. The December 2006 discussions had a long list of items on the agenda reflecting the concerns and interests of both parties.

The exchange rate between the Chinese yuan and the US dollar was the most important issue for Washington. The People’s Bank of China, China’s central bank, fixes the rate of exchange with the US dollar for its currency, the yuan. The yuan has moved a few percentage points in the last one year but America’s economists believe that the Chinese currency is still priced too low, with estimates ranging from 15 to 40 per cent. The undervalued yuan makes Chinese goods unfairly cheap in overseas markets, driving an export boom in China while making US goods as well as those made in other industrial countries extraordinarily expensive for Chinese consumers.

The most important consequence of this misalignment in the rate of exchange of currencies was the persistent trade surplus in China’s favour. In 2006, China is expected to run up a record surplus in its trade with the United States. This surplus feeds the ever-expanding size of China’s foreign exchange reserves which crossed one trillion dollars a couple of months ago. A significant part of this reserve is kept in the United States, mostly in the form of treasury bills. China’s purchase of official US paper makes it possible for Washington to continue to run large trade and balance of payments deficits. This way China has helped to keep the American currency from going through a free-fall and domestic interest rates from rising. Large Chinese exports to the United States of cheap merchandise goods have also contained inflation. While some politicians in America complain about trade imbalances with China and the export of American jobs to the Middle Kingdom, they don’t recognise that rapid and sharp policy adjustments demanded by them would play havoc with their country’s economy.

Also on the American agenda was the issue of global environment. There was irony in that since it was Washington’s rejection of the Kyoto Protocol when President George W. Bush became president that has prevented concerted action on issues such as global warming. The Americans were particularly concerned by the continuing Chinese reliance on coal for producing electricity. It was estimated by the International Energy Agency that China will add 331,000 megawatts of coal-fired generating capacity by 2015 for a total production of 638,000 megawatts. That was the main reason China was expected to move past the United States in 2009 as the world’s largest emitter of carbon dioxide, the main global warming gas.

The Chinese had their own set of demands. Among them perhaps the most important was the easing of constraints on the transfer of technology to their country. That the US may be willing to do that was revealed by an agreement signed a couple of days after Paulson left Beijing for Washington. This was between Samuel Brodman and Ma Kai, the minister of China’s National Development Commission. The agreement concerned the building of four reactors by Westinghouse.

Valued at $8 billion, Westinghouse was to use pressurised water reactor technology that the Chinese favoured and which the US government had helped to develop. The reactors — to be built by 2013 — will each have a capacity of 1,100 megawatts. Since China’s nuclear generation capacity was set to increase by 9,000 megawatts to 15,000 megawatts by 2015, the deal with the United States would account for nearly one-half of the increment in planned generation. Under the deal China was to receive transfer of technology upfront with half of the work done in the country. Sensing that this could lead to problems at home when there were such concerns about the loss of manufacturing jobs to China, the US deal-makers emphasised that the agreement would still support 5,000 design and engineering jobs in the United States.

Beijing also wanted assurances that the attempts made by its companies to acquire assets in the United States would not be blocked on strategic grounds. The memory of the effort made by CNOOC, the Chinese oil company, to buy an American energy firm and the blocking of the deal because of congressional pressure was still fresh in the minds of policymakers in Beijing. China did not want a replay of that episode. It argued that it had allowed almost free access to American companies to buy Chinese firms. More recently, it had opened its financial sector to American companies. Citigroup, the largest finance company in the United States, was allowed to buy a bank in the fast developing province of Guangdong. This was an important development since China had the largest pool of savings in the world; making them available to American institutions was a major concession. It wanted the United States to be equally accommodating especially when Beijing was sitting on top of a mountain of American dollars it wished to spend on acquiring economic assets other than the treasury bills issued by Washington.

The decision by China to hold talks with the United States on a number of important and contentious issues is a part of the new approach by Beijing in international affairs. China, that entertained the high-powered American delegation for discussions on economic issues in Beijing, is increasingly becoming conscious of its status as a major global power. President Hu Jintao set off an internal debate two years ago when he began using the term “peaceful rise” to describe his foreign policy objectives. There were initially objections to the use of the term within policy circles in Beijing and he dropped it in favour of the more subdued “peaceful development.”

Since then the mood has changed. Now the Communist Party is encouraging people to discuss what it means to become a major power and has largely given up the posture that it would not become one. In November, the government-owned China Central Television broadcast a 12-part series describing the reasons why nine different nations attained the status of great powers over the last several hundred years. The list included Portugal in the 15th century and the United States in the 20th.

The series cited several reasons for the attainment of this status that were worthy of emulation. Spain was led towards greatness by a queen prepared to take risks; Britain by an active navy; the United States by fighting for national unity and using the power of the state by regulating free enterprise. The documentary also emphasised historical themes that coincide with policies favoured these days by Chinese leaders. These include social stability, national unity, industrial development, international trade, peaceful foreign relations. They are to be preferred over military strength and political liberalisation.

There is no doubt that China will become more assertive in the years to come. It will try hard to mould its relationship with the United States in economic and other fields in a way that would not provoke Washington into becoming hostile. At that time it will ensure that its strategic interests are not compromised. Pakistan has an interesting geo-political position with respect to these two major powers. It will be useful to play this position with full knowledge of what is occurring between America and China.

Other people’s fortunes

ONLY a few days are left for the current year to end, but we are still waiting to hear from fortune-tellers in the West how the new year is going to treat the famous personalities of the world and what they are going to do, or not do, during 2007.

It always comes as a surprise to me how, at the close of each year, astrologers are able to predict for the next one the most intimate events connected with the private lives of world figures in politics and show business. However the last three months have been notable for the absence of such prophetic utterances.

Most of the things that astrologers and soothsayers say will never come to pass, but no one at the end of the year will take these johnnies to task and ask them why their forecasts failed to materialise. On the contrary people wait every year to read avidly what these experts on the movement of the planets prognosticate about celebrities.

It is surprising that no one questions the methods these sages use to arrive at their conclusions. What science or art, or even clairvoyance enables them to say, for example, that President Bush will be bothered by corns on his feet this year, or that Elizabeth Taylor’s next husband (her tenth or eleventh?) will be a cowboy.

If you ask the average educated person about these yearly predictions he will deny having any faith in them. He will also swear that if he does let a palmist read his hand it is only for the fun of it. Otherwise (he’ll insist) how can any sane person believe in such nonsense?

And yet I have myself seen a book full of testimonials from the highest in the land to the not-so-high testifying to the “miraculous prophetic powers” of an astrologer who used to come to our office in Lahore and with whom we had become friends. There was hardly a national figure, particularly from the realm of politics, who was not a signatory to the encomiums earned and treasured by him.

A story that I read in my school days left a deep impression on my mind and put me off astrologers for ever. A king is crestfallen when a visiting seer tells him that he has only a few months to live. Looking at the plight of his monarch, his clever wazir asks the man about his own life expectancy, to which he claims that he still has 30 to 40 years to live. On this the wazir whips out his sword and chops off the man’s head. This convinces the king that the astrologer had been talking nonsense. If he was so wrong about his own life how could he correctly tell about other people’s?

As a boy I used to wonder why the wazir could not adopt a less gory method of convincing the king, and I used to feel sorry for the poor astrologer for losing his life because of his art. But kings and heads of state tend to be whimsical and apparently need drastic examples to change their views even about minor matters.

Palmists may not be equally strong in their forecasts but what they say leaves a deep impact sometimes on the minds of some people. One of our good friends is a model of rectitude and ethical behaviour. People are surprised that he has never swerved from the straight and narrow path and never exhibited a single human failing, not even the most minor of peccadilloes.

Many years ago, Riaz Shahid (writer and film-maker) looked at his hand in Lahore’s popular Coffee House, and warned him that one of his acts may bring great disgrace to his fair name. Our friend, who had still to sow his wild oats, was profoundly impressed by Riaz Shahid’s words. He immediately suppressed the wild oats and they never saw the light of day or the mystery of night. The result was that he never did anything even faintly immoral and thereby deprived himself of a lot of fun and enjoyment.

There are people who have such implicit faith in their astrologer that they do not move an inch without consulting him. My father used to tell us about a gentleman who had said in his youth that he would like to have three children and not more than that. It so happened that his pet soothsayer also predicted emphatically that he would not have more than three.

Thoughtlessly this gentleman lived his life with unwavering faith in that prediction, and even when he got his fourth issue he was not perturbed. After all (he must have thought) what is an extra boy or girl between a man and his astrologer? He ended up by becoming the father of eight.

At some stage in this process, as my father laughingly said, he transferred his faith from the astrologer to the Almighty. And since the Almighty never gave him false hopes, he managed to achieve inner contentment despite the burden of having to feed and bring up eight children.

Come to think of it, palmistry is not a bad vocation. I know you can’t make as much by fortune-telling as fortune-hunting, but the latter is a fine art and not given to everyone. On the other hand, anyone with a glib tongue and an engaging manner can take to reading palms and making fantastic guesses about people’s futures.

You must have seen at fashionable parties how a smart aleck attracts the attention of the women guests by telling them pleasing things about themselves. He even contrives a tete-a-tete with the prettiest among them on the pretext of disclosing confidential information that no one else must hear.

A very dear friend who was in the foreign service was invariably buttonholed at such parties because of this talent and was always the most sought after guest. It is a different matter that he was not able to find a wife for himself among his innumerable female admirers and retired from service as a bachelor.

While the excitement of young women about palm-reading can be ascribed to harmless curiosity, for politicians and some others it can become an obsession. It is said that an astrologer had told General Ziaul Haq when he was still a colonel, “You will be a king.” Maybe he took the prediction seriously and it acted as a spur to his ambition.

Do we really need foreign expertise?

LAST week, it was announced that in 2007 the Port of Singapore will take over the management of the Port of Gwadar. The financial arrangements, which probably are being finalised, have not been made public. This should not surprise anyone.

Has it not become a tradition for the authorities in this country to turn to foreign concerns not just to pull our chestnuts out of the fire but also to administer and manage projects that do not call for any hi-tech expertise?

One has only to observe the government’s search for foreign companies to take over and manage ventures at home. A fortnight ago we were told that the city district government of Karachi was considering inviting some foreign firms to do our solid waste management for us. Companies from Malaysia, China, the United States and Kuwait were in the run. But later on our city fathers had second thoughts and realised that this project would be too expensive. They probably discovered how much it would cost when they attended presentations made by the interested companies.

We have also been told that on the request of Pakistani authorities, the Japanese International Cooperation Agency will prepare a master plan for Karachi to improve the city’s water supply and sewerage system.

The city nazim visited South Korea recently and on his return has promised to involve some Korean firms in the development of Karachi’s transport system. Outsiders are now being invited to build our roads, clean the storm water drains and construct residential complexes, shopping plazas and luxury hotels. The list of enterprises entailing foreign involvement seems to be endless.

It is strange that we have still to get over that mindset that perceives everything coming from abroad as being of superior quality. There was a time when having just emerged from under the shadows of colonialism the country lagged behind in technology in many areas. But even in those days of yore we had engineers and architects who could build bridges, roads and other structures that did not collapse with the first monsoon shower. In fact, they displayed not only expertise but also knowledge of local conditions, professionalism and commitment. Hence whatever they did, they did it quite well.

Where have our engineers, architects and planners vanished? If they are still there, why are they not being engaged for the sort of work for which we hear foreigners are being inducted? True, the standard of our education has been on the decline over the years. But our universities are still producing at least some graduates who prove to be more knowledgeable and more skilled and better trained in the fields they are needed in than many of the foreign concerns being inducted. Besides they offer a definite advantage over the experts from overseas. They are indigenous products and understand our conditions and social and political environment better.

The only factor which seems to work in favour of the foreign companies is that their management skills appear to be better because they are reputed to deliver. In other words, such companies are expected to supervise and manage the workers more effectively, produce results, meet deadlines and show better performance. But in this respect too, one cannot take these advantages for granted because their professional standards are not always equally high as many of them are required to show in their home country where laws can be stringent.

Many of us have had shocking experiences — as letters in our correspondence columns demonstrate — of foreign banks giving shoddy service at a high cost. Many multinationals, especially in the pharmaceutical sector, are known to adopt double standards in the manufacture, pricing and marketing of drugs. The serious complaints that have been voiced belie the impression we had that they perform better. The torture Karachiites lived through last summer established beyond doubt that the sale of some of our public sector concerns, such as the KESC, to foreign firms in the name of privatisation has not produced expected results, at least not so far.

All their shortcomings notwithstanding, foreign companies are officially believed to perform better. We are repeatedly told that our own concerns do not perform at all and that the productivity of the foreigners is relatively good. If that is true — actually the taste of the pudding is in the eating — it is now important that the authorities should focus on indigenous expertise and force it to perform better and produce results.

Let us take the case of solid waste management which, apart from the sewerage and water supply system and public transport, has emerged as a problem needing high priority treatment in Karachi. It does not require any high technology to lift garbage and dispose it in specially prepared landfills or recycle the recyclable waste into paper, glass, building blocks and compost. Some efforts at the grassroots level have been made in this direction. Gulbahao, an NGO run by an enterprising woman, Nargis Latif, has come up with innovative devices to recycle resources that can help keep the city clean. The schemes give incentives to people for the removal of garbage by offering monetary rewards to those who participate. Gulbahao also produces low cost recycled goods. Such innovative ideas notwithstanding, the problem of solid waste management continues to haunt the city. It is not clear if the government has ever studied the problem to identify the factors that make waste management such a daunting challenge. The Urban Resource Centre apparently has studied the problem and has made some shocking disclosures. It estimates that Karachi generates 6,500 tons of solid waste every day. Of this 1,500 tons is separated by the informal sector and 900 tons is burnt as fuel. There are 436 recycling units in the city with a yearly turnover of Rs 1.2 billion. The process of scavenging, separation and recycling provides livelihood to 40,000 families.

According to the URC the garbage is not lifted from the kutchra kundis “because scavengers/contractors pay the city government staff for not picking it up”. Whatever garbage is picked is not taken to the landfill sites but to the recycling units located in Shershah and in peri urban katchi abadis. The solution offered by the URC is: recognise the recycling industry and relocate it near the land fill sites.

Now, do we require the services of a Malaysian company to do that?

Beyond belief

FROM Bethlehem to Blackburn — and, sadly, Baghdad more than either — religion, identity and the way politicians respond to them are shaping the first decade of the new century. Bethlehem, scene of the nativity, has been religiously diverse for most of the last 2,000 years, but now its Christian community is fleeing the economic damage wreaked by Israel’s wall.

Blackburn’s MP, Jack Straw, thinks faith has become more significant than class. Yet as the Guardian/ICM poll shows, this is not how the great majority of Britons feel. Most of us, of whatever faith, do not see religion as the most, or even a very, important aspect of our identity.

Indeed, there is evidence that religion is viewed largely as a negative force, which some will see as a cause for anxiety. In some circumstances, distrust of religion in general might evolve into unjustified hostility to individuals because of their religion.

Our poll shows how far religion has moved from Marx’s sigh of an oppressed creature to a potentially provocative stimulant to division. More than four-fifths of Britons see religion as a cause of tension between people, and three-quarters believe it stands in the way of an open, global debate. A significant minority believe it stands in the way of progress.

It remains an aspect of who we are — nearly two-thirds of the sample regard themselves as Christian — but most of those did not think of themselves as religious. People of other faiths were only slightly more likely to do so. As priests and vicars observed again on Monday, Christmas brings less than one in ten to a church service. Other religious believers might be slightly more observant, but even so, less than a third are regular visitors to a place of worship.

These are just the headlines of a poll that, unavoidably, can only skim across the contradictions and complexities of the way Britons understand themselves and the religions of their fellow citizens, but they should be an important corrective to the impression that religion increasingly colours our sense of identity.

—The Guardian, London