Monday 26 Aug 2019 | 11:38 | SYDNEY
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Aid and development links: dengue vaccine, refugees and wages probe, jargon and more

  • The world’s first dengue fever vaccine, which in clinical trials has prevented up to 93% of severe dengue cases in people aged 6-45, is about to be released in Mexico, the Philippines and Brazil. Dengue fever causes about 25,000 deaths around the world annually.
  • The Economist has a piece detailing concerns about the UK’s new aid strategy, which were first brought up by Owen Barder late last year.
  • Vinod Thomas, Director General of the ADB’s independent evaluation unit, discusses five surprising findings from evaluation results in 2015. 
  • A new working paper has shown that the influx of half a million Syrian refugees in Turkey has had no impact on wage rates. The CGD blog has more on the other findings (local prices have slightly gone up in refugee dense areas) from the paper.
  • Larry Elliott, economics editor at The Guardian, argues that with the the refugee crisis worsens the world’s poorest are losing out as more and more donor countries aid budgets are being reallocated to deal with the crisis.
  • Sticking with migration, Feakonomics has an excellent podcast from the end of last year asking whether migration is a basic human right, and what the economic benefits of open migration might look like.

  •  For something a little more light hearted, The Guardian has a primer for how to speak 21st Century aid jargon, which was been taken over by Silicon Valley speak.
  • The 2016 Australasian Aid Conference will be held next month at the Australian National University in Canberra. The Conference is bound to sell out, so make sure you register early.

North Korea's nuclear test not all bad news for China

Media attention since North Korea's nuclear test yesterday has been focused on the veracity of its claims to have exploded a thermonuclear device or 'hydrogen bomb'. This is understandable given that a thermonuclear weapon has a destructive power many orders of magnitude greater than a purely fission-based device. However, even if Pyongyang's claims prove to be unfounded, its fourth nuclear test (the first in nearly three years) will still yield valuable data, moving it closer a nuclear-tipped missile capability.

South Korean military sources were quick to downplay Pyongyang's 'H-bomb' claims, based on seismic data that suggested a similar explosive yield to that of North Korea's previous nuclear test, in February 2013. The White House followed suit, asserting that 'initial analysis was not consistent with North Korea's claims of a successful hydrogen bomb test'.

Though it seems increasingly doubtful that yesterday's underground explosion was thermonuclear in nature, it could nonetheless mark a major stage along the developmental path to Pyongyang's presumed goal of fielding a missile-delivered nuclear capability. Even if, as some have speculated, the North tested a 'boosted' fission-based device, this was probably subordinate to the main objective (and technical challenge) of the nuclear test program: to miniaturise a functioning warhead to the point where it can be mounted on an existing ballistic missile design.

Yesterday's test appears to have achieved a notable degree of surprise, notwithstanding intermittent reports of activity at the test site over recent months. Western intelligence agencies will be on alert in the wake of the test for indications that North Korea is moving closer towards an operational nuclear missile capability. Signs of progress could prompt calls for the US to accelerate ballistic missile defence, or even to reintroduce nuclear weapons to the Peninsula.

Concerning the diplomatic implications, the key countries involved in the North Korean nuclear issue — the US, South Korea, China and Japan — were all swift to condemn the latest test, while Russia's call for a 'proportional response' appeared more equivocal.

In the aftermath of this latest 'provocation', there is little reason to expect that Washington will expend political capital on re-engaging the North for the remainder of Obama's second term, especially given the sour precedent of the 29 February agreement concluded towards the end of Obama's first term. The death this week of Stephen Bosworth, Obama's first-term envoy on North Korea, compounds the ill omens for US-North Korean relations.

Any rapprochement between Pyongyang and Seoul during the remainder of President Park's term in office is likely to be another diplomatic casualty of the test, which has made a mockery of Kim Jong Un's call for reconciliation across the divided peninsula, voiced in his new year address barely a week ago. Some will interpret the nuclear test as a deliberate derailing of inter-Korean relations by hard-line opponents in the regime. But the more basic worry has to be the poor quality of decision-making around Kim Jong Un himself and his appetite for risk-taking now that there are no obvious restraining figures outside of the military.

The test must also have put paid to UN Secretary General Ban Ki-moon's rumoured plans to visit Pyongyang. The UN Security Council moved quickly to label the test as 'a clear threat to international peace and security', paving the way for an expansion of sanctions. But given the comprehensive measures already in place from a catalogue of past UN Security Council resolutions, it is not clear what else can be meaningfully enacted via the UN route.

Therefore, the onus will predictably fall upon China to exert pressure over its estranged ally. Significantly, China has said it was not informed in advance of the test. On one level, Beijing's swift expression of firm opposition underlines how the bilateral relationship has sunk to an all-time low since the death of Kim Jong Il.

On a realpolitik level, however, the distraction value of North Korea's nuclear test will make it harder for Washington to maintain policy focus on the South China Sea, at a time when the Administration's cautious conduct of freedom of navigation operations is already under fire from critics such as John McCain. North Korea is the one regional security issue where Washington consistently courts greater Chinese assertiveness. If Beijing sees this as a timely source of leverage in Sino-US relations, Pyongyang's latest nuclear escapade may not be entirely unwelcome.

Why China's next aircraft carrier will be based on Soviet blueprints

China has at last formally acknowledged that it has a new aircraft carrier under construction, the first to be built in China and the second in the People's Liberation Army-Navy's order of battle.

The PLA Navy appears to have embarked on a substantial carrier program, probably with the intention of creating four and perhaps up to six carrier battle groups (Chinese commentators have publicly acknowledged the need for at least three units in order to have an effective carrier capability). The rehabilitated ex-Russian carrier Liaoning, designated Carrier 16, has been the start of this effort, although its reliability has yet to be confirmed.

Experience gained with the ship will be used to evolve the follow-on units which are entering production. However, the challenge involved with these new carriers will not so much be the build, but the design. That the first new-build carrier will be in most respects a copy of the Soviet designed Liaoning should be no surprise. This is China's only practicable course of action if it is to get another unit into service in good time.

The PLA Navy was able to extract eight truck loads of detailed plans of the Liaoning from the Ukrainian vendors. These will have to be the foundation of the present activity because China is now facing the same reality that has dogged the efforts of all the major navies of the last century. The greatest restraint on naval expansion in the industrial age has been neither budgets nor disarmament treaties. It has in fact been the lack of drafting expertise to translate the design concepts of naval architects into the detailed compartment-by-compartment drawings that allow the shipbuilders to do their work (arguably, this has been a key problem for Australia with the new Air Warfare Destroyers). The scale of the effort involved is demonstrated by the report that the Liaoning's documentation amounted to many tons of paper.

Although the PLA Navy is pursuing multiple paths of technology transfer from overseas, both legitimate and covert, its shipbuilders must recruit and train sufficient expert indigenous design staff in very large numbers at a time when the Chinese navy is seeking to introduce many different new classes: submarines, cruisers, destroyers, frigates, amphibious ships, replenishment ships and light craft. In particular, the demands of the submarine force, both nuclear and conventional, must be a higher priority than the carrier force for the PLA Navy as a whole, and for the national leadership.

For this reason, Carrier 17 (as it is described in Chinese social media) will almost certainly be a direct derivation of the original Soviet blueprints for the Liaoning.

Her construction will give the Dalian shipyard experience, while also allowing time to evolve the design of Carrier 18, the likely follow-on. The greater the ambitions for Carrier 18, the longer will be the design phase, if not the build (and the greater the associated risks, particularly if the build is accelerated).

For example, if the PLA Navy wants a higher capability air group, this will require catapults for launching aircraft. There has been some evidence of Chinese interest in electromagnetic systems (EMALS) along the lines of the units being developed for the US Navy's next carrier, the USS Gerald Ford, but the PLA Navy faces risks whether it takes this innovative approach, or its ICCALS (Internal Combustion Catapult Aircraft Launch System) alternative, or selects more proven but complex steam catapults. Introduction into service of Carrier 18 is thus unlikely before 2025, although the production rate could accelerate after this.

The actual capability which can be generated by the carriers depends on their air groups, something often missed by pundits who fixate on the vulnerabilities of aircraft carrier. So far, the only true marinised fixed-wing aircraft in the PLA Navy inventory is a fighter with limited strike capabilities. Notably, all the Chinese videos publicising the operations of the Liaoning (see above for the latest example) have shown only this aircraft, the J-15, operating from the ship.

For a Chinese naval air group to have true all-round capability independent of shore-based air power, airborne early warning and anti-submarine warfare (ASW) aircraft will be required, as well as attack aircraft configured for electronic warfare. The PLA Navy will also need to devote much more attention to helicopters, both as part of the carrier groups to support ASW and anti-surface operations, and to operate from its other surface ships in the same roles. All this effort will take the PLA Navy at least a decade, whether or not significant modifications are required to fit the new carriers for such new types.

Finally, it must be understood that the carrier program is unlikely to be aimed at the US, at least in the medium term. The PLA Navy must be acutely aware, not only of the relative inferiority of the Liaoning and its air group to any American carrier battle group, but of the vulnerability of their new units to sophisticated, large-scale, high intensity attack. The utility of the carriers will lie in their ability to assert Chinese interests with other nations and in other circumstances than a putative 'air-sea battle' encounter with US forces.

Tech bubbles and unicorpses: New risks for the new year

Well, we seem to have scraped through the oft-predicted economic crises of 2015.

The financial markets spent the past year worried about the US Fed raising its policy interest rate, which happened in December with imperceptible adverse effect. Some still worry that we just haven't seen the damage yet, while others try to work up a concern about future rate increases. But 'Wolf!' has been called too often to stir widespread concern.

The China worry-warts have convinced just about everyone that China is on the brink of depression, whereas in fact it is growing twice as fast as the advanced economies, and the necessary transition from the unsustainable pre-2008 growth to a viable pace at around the present rate seems on track. Michael Pettis' 2012 wager of 3% annual average growth for this decade becomes longer odds with each passing year. Tyler Cowen, the new drama-queen on China, is still waiting for a financial collapse. At some stage China will have a growth glitch, and these pundits will claim victory, but predictions have to be time-bound to be of any practical use. In the meantime, China plugs along, still adding more (in dollar terms) to world growth than it did in the 2000s, when it was growing faster but from a lower base.

Perhaps the main 2015 lesson is an old one: economic predictions aren't very reliable. It's not just that the predicted risks rarely eventuate: it's the unforeseen risks that do the damage, because we haven't prepared for them.

That said, let's welcome in the new year by trying to find fresh things to worry about. With commodity prices down (especially oil), resource investment worldwide is likely to fall over the next few years. As well, the steam has gone out of property investment. One forecaster predicts the only prospect of strong positive investment growth over the next few years will be in the high-tech sector.

This prediction doesn't comprise just Silicon Valley, but that's where the most dynamic action is. Things have changed since the 'tech wreck' of 2000, but it is still a sector built on dreams, with only a minute proportion of start-ups likely to join the ranks of FANG (Facebook, Amazon, Netscape and Google). Sure, there are still plenty of ideas around — driverless cars, virtual reality, big data, artificial intelligence and many variations on concepts for errand-running — and there will be things that no-one (not even Steve Jobs' successors) have yet realised we all want.

But disruptive technologies will, to a large degree, replace things already being done. Domino's mastered the art of speedy home delivery three decades ago, and the pizzas won't taste any better if delivered by drone. The existing banks have a huge advantage in developing payments systems which rely on absolute trust, so they are likely to retain their dominance. Driverless cars would replace existing investment opportunities rather than add to them.

The start-up industry itself is still, for a major part, as insubstantial as dreams. The herds of 'unicorns' (Silicon Valley has nearly 100 start-ups which each have a purported value of more the $1 billion) are vying for the limited pasture. They all want to dominate an area (say, food delivery) so that they can reap the network externalities which go with becoming the dominant player. But by definition, they can't all dominate, and there is no place in this kind of world for the multiplicity of viable competing producers which are typical of traditional industries.

The world has changed since the 2000 tech wreck in that there are now some established successes, but the many failures of the earlier collapse are still relevant. Pets.com raised $US110 million to deliver kitty litter and pet food, but went out of business in under a year. Kozmo.com (speedy snack-food delivery), Webvan.com (grocery delivery) and Flooz.com (e-market payments) all raised substantial sums before permanently logging off.

The inventor of the term 'unicorns' has now coined another: 'unicorpses'. Many of these companies are raising funds, not to make physical investment but to cope with 'cash burn' as they try to establish a dominant market position. Even Uber (valued at more than $US 50 billion) is reported to be losing US$470 million a year.

How far should these concerns be translated into adverse effects on the wider economy? There is a fundamental difference between the tech-wreck and the 2008 financial crisis. In 2000-03, NASDAQ shareholders lost hugely, as did venture capitalists who had invested directly in these failing start-ups. But in most cases they lost their own money; they weren't geared up with borrowing. Thus the financial sector was largely unaffected by the collapse. For the main part, people who had suddenly been made rich by the tech boom found themselves back where they started, and life resumed as before. There was a blip in US GDP growth, but it was short-lived.

If this kind of ephemeral investment comes to a halt, it would not presage an economy-wide contagious crisis like 2008. But it would still take away the one element of investment strength in these forecasts. It's time to think about possible policy responses.

It looks like monetary policy has been pushed to the limit (and perhaps beyond). Fiscal expansion is still constrained by a fixation with debt and deficits. But it's not as if there are no valuable investment projects to be done. So perhaps we should be thinking more about the near-universal infrastructure deficiencies and how these can be funded and made profitable. If the market for infrastructure worked as well as the market for smart-phones, people might prefer to have airports with adequate capacity, better metro-rail networks and fewer potholes in the roads rather than the latest software upgrade. If Silicon Valley could invent an app to offer consumers that choice — between better infrastructure and a new set of emoticons to play with — that really would be an advance.

Pacific links: Fiji's budget, Ok Tedi restructure, renewables, holiday reading and more

  • Matthew Dornan takes a look  at Fiji’s 2016 budget. He notes that while the overall economic situation in Fiji is sound, the major policy reversals and long list of ad hoc revenue decisions in the budget 'undermine the government’s economic management credibility'.
  • Remittances costs from Australia to Vanuatu topped the list of highest remittance cost corridors in 2015, according to a recent report from the World Bank. More than 20% of every A$200 sent from Australia to Vanuatu is taken up in fees.
  • French Polynesia has signed a deal  with a Chinese consortium to construct a massive US$2 billion tourism project on Tahiti that is expected to create over 10,000 jobs.
  • The Ok Tedi mine, which has been closed since August due to drought conditions and low copper prices, has announced  a complete restructuring once the mine reopens, switching operations to a ‘fly in-fly out’ model. This will have a big impact on local employment and the company township Tabubil, where the school will close.
  • Radio New Zealand’s Johnny Blades has conducted an in depth analysis of the cultural, economic and political impacts of the porous border between PNG and West Papua.
  • Sticking with West Papua, the recent resignation of Indonesian Speaker Setya Novanto over allegations that he demanded a $4 billion stake in Freeport’s Gasberg mine, the country’s largest, reflects how important the state is to Indonesia.
  • The World Bank has launched a new report on the potential for an ICT revolution to generate more than 10,000 jobs in the Pacific. Pacific Beat has a summary.
  • The latest in the World Bank’s Praxis Pacific series is a panel discussion on the opportunities and challenges of renewable energy in the Pacific. Radio NZ has a summary, and the full video is below:

 

Holiday reading

  • Simon Winchester has released a book detailing the history and future of the Pacific, the ‘Ocean of the future’. The New York Times has a review of the book here and you can listen to an interview with the author below.

 

  •  The ANU released a book this month detailing the fundamental shift that has taken place in recent years in the way that the Pacific Island states engage with regional and world politics. The 21 chapters come from a range of authors including President of Kiribati Anote Tong, former PNG PM Michael Somare, and PIFS Secretary Meg Taylor.
  • For a more personal account of the Pacific check out ‘Inside the Crocodile’, where Trish Nicholson details five years of development work in PNG’s West Sepik. Tess Newton Cain has reviewed the book on Devpolicy, while Gordon Peake has done the same for Fairfax.

IMF reforms pass Congress but too late to salvage US leadership credentials

The US Congress has finally passed long awaited IMF governance reforms. President Obama claimed it as a victory for the White House that will strengthen 'America's leadership of the IMF'. USA Today reported 'Congress finally preserves US leadership in global finance'.

Some leadership. With the US having a veto power over major decisions in the IMF, it has held up for five years reforms that were endorsed by nearly all the 188 members of the Fund. The reforms give emerging markets and developing countries a larger say in the institution.

The long delay in getting the reforms through the US Congress has significantly damaged US credibility. The British Chancellor of the Exchequer, George Osborne, said it was a 'tragedy that an agreement reached across all the members of the IMF was being blocked by the US Congress'.

The belated passage of the legislation through Congress supporting the reforms is welcome, particularly since it includes a doubling of IMF quota resources, but it will not restore, let alone strengthen, US leadership in the IMF.

The delay in implementing the IMF reforms highlighted that, regardless of commitments made by the US Administration, it — and, at times, the rest of the world — is hostage to the unpredictable and often irrational workings of the US Congress. This was evident in the recent Paris climate change negotiations, when a 'typo' in the final text nearly scuttled the whole agreement. The text said developed countries 'shall' be obliged to cut emissions rather than 'should'. The US delegation could not accept 'shall' because of the problem of getting through Congress support for anything involving a legal obligation.

Significantly, the delay in obtaining Congressional support for reforms agreed in 2010 has limited the immediate prospects of advancing further reforms. This is important because the legislation that has finally gone through the US Congress was intended as a first installment of much larger reforms. The measures agreed in 2010 only contain a 2.8 percentage point shift in quota shares from advanced to emerging markets, and while China will become the third largest member, it is still short changed relative to its weight in the global economy.  The 2010 reforms were to be part of bigger changes to come, including a review of the formula for determining quota allocations. This was expected to result in a larger shift in quota shares to emerging markets.

Any change in IMF quota distribution is highly contentious, because it is a zero sum game. For some countries to have a larger stake in the IMF, others have to see their share reduced. History shows that an agreement on changing quota shares only occurs when a country takes leadership and, at least figuratively, 'bangs some heads together'. The US normally plays this role and it was US leadership that achieved agreement on the package of IMF reforms reached in the G20 in 2010. After a long period of protracted and deadlocked negotiations, a deal was achieved at the October 2010 meeting of G20 Finance Ministers when then US Secretary to the Treasury, Tim Geithner, gathered the main protagonists — led by the Europeans and the emerging markets — in a room and thrashed out a deal. In brokering the agreement, the US gave assurances about getting the reforms through Congress and, in fact, the agreement was designed to facilitate such passage.

Given the experience of the last five years, there is little prospect that the US can play the same role in brokering agreement on a more extensive range of reforms to IMF representation.

It is often cited that the US delay in giving China a greater say in the IMF contributed to China establishing alternative institutions, such as the Asian Infrastructure Investment Bank (AIIB). This view underestimates China's motivation in establishing the AIIB, which was more than a reaction to what the US did or did not do. China had its own reasons to establish the AIIB, particularly in the context of its Silk Road Initiative, and it is highly likely that the new bank would have been established even if there had been speedy implementation of the 2010 IMF reforms. It was the US, not China that turned the establishment of the AIIB into a clash of leadership between the two countries; a clash the US lost.

While USA Today proclaims the action by Congress will 'keep the US on top — where it belongs', it is far from clear which country will provide future leadership in the IMF. The US is damaged goods. The interesting issue is whether China will, at some stage, step up to the plate and 'bang some heads together' in order to advance deadlocked IMF reforms.

Pacific Island links: COP21, New Caledonian nickel, PNG education system and more

  • The outcomes of the Paris climate change talks have been praised by Pacific Island leaders. PNG’s Minister for National Planning, Charles Abel, spoke to Pacific Beat about the results and his goals for the sustainable development of PNG’s economy.  
  • On The Strategist, Tevita Motulalo analyses the broader implications of climate change in the Pacific on global security. For the countries in this region, the non-traditional security threat of climate change poses the biggest danger and will drive strategic calculations.     
  • This set of photos of Kiribati has been on show in Paris to coincide with COP21. It shows a beautiful side to life in the country that is so vulnerable to the effects of climate change.  
  • Clive Palmer met with New Caledonian President Philippe Germaine recently to discuss the ramifications of the closure of his nickel refinery in Townsville. Nickel is the largest export for New Caledonia, which is home to about one quarter of the world’s nickel deposits. President Germaine reportedly told Palmer that closure of the refinery would cause social and political upheaval in his country. 
  • Papua New Guinea has offered citizenship to 3000 West Papuan refugees. There are estimated to be 10,000 West Papuan refugees living in PNG, some have been there for more than 30 years.   
  • Anthony Swan has written about the PNG government’s decision to abolish the nationwide exams for grade 8 and 10 students, arguing that independent external assessment is critically important because there is limited formal oversight of schools in PNG.
  • A recent editorial in The National laments Papua New Guinea’s current state of development. 
  • DFAT’s Innovation Xchange has launched the $2 million Pacific Humanitarian Challenge to rethink the response to climate change and natural disasters in the region.  
  • Miss PNG Abigail Havora’s win in the Miss Pacific Islands contest has been big news this week. The science graduate is the first Papua New Guinean to win the competition. 'My intent is to bring a message that strengthens the bridge between culture and changing times so young people, especially women, are more aware of what they are contributing to and the type of influence they are exerting,' she wrote on Facebook.

How China's world views are manifested in the South China Sea

With the ongoing controversy over China's activities in the South China Sea. it is timely to explore how Chinese worldviews play out in practice. In particular, how they underpin Chinese foreign policy behaviour,  and may do so in the future; and how our own behaviour  may ultimately be counter-productive if we continue to ignore how Chinese see the world.

The key worldviews in Chinese foreign policy are: the century of humiliation; the view of cultural characteristics as being inherent and unchanging; the idea of history as destiny; and notions of filial piety and familial obligation as they apply both inside China and to China’s neighbours.

Overall, these four worldviews add up to a China that believes it is on course to resume the central role it previously played in regional and global affairs, and that the outside world should recognise this. It feels it has been held back from this central role by the US and some US allies, and that these powers will continue to restrict China’s development where they can. 

China’s recent actions in the South China Sea reflect several of these narratives, especially the narrative of history as destiny. According to this view, Chinese actions in the South China Sea reflect its gradual resumption of its rightful and respected place in the region. 

China’s attitude towards the other claimants in the South China Sea reflects the narrative of filial piety and familial obligation. In this view, China’s role is that of a father figure and benevolent overseer of a peaceful region, in which its neighbours willingly and without coercion pay tribute and homage. By the same token, if China’s neighbours do not willingly pay tribute and homage then this is seen to justify taking stronger measures to ensure that this familial order is respected.

The narratives of the century of humiliation and the unchanging nature of cultural characteristics also inform how China sees the role that the United States is playing in the South China Sea. China interprets US actions like its recent freedom of navigation patrol not as some limited exercise to uphold international maritime norms but as part of a long-standing effort to maintain its hegemony and keep China from resuming its rightful place in the world.

China’s recent actions in the East China Sea also reflect the four narratives noted above. China and Japan have had a long-term dispute over the Diaoyu/Senkaku islands which flared up again in 2012. In November 2013, China announced the creation of a new air defence identification zone (ADIZ) around the islands. 

In this situation, the narratives of cultural characteristics as unchanging and the century of humiliation are particularly resonant. The focus is very much on Japan and the danger that it is seen to represent to China. This draws on the strong historical memory in China of Japanese expansionism in World War II, a memory that the Chinese authorities have done much recently to revive. Japan is portrayed as naturally imperialistic, expansionist, and untrustworthy.

The four worldviews are not just relevant to understanding Chinese behaviour when it comes to security issues. Both the Asia Infrastructure Investment Bank (AIIB) and One Belt One Road initiatives (OBOR has a land-based Silk Road Economic Belt and ocean-going Maritime Silk Road, and aims to increase connectivity and cooperation among countries, principally in Eurasia) reflect the century of humiliation narrative and the idea of history as destiny. Both are portrayed within China as evidence that China is finally overcoming its period of weakness and vulnerability. As one Chinese academic said to me, these initiatives represent 'a great shift from the idea of just taking care of ourselves'. Rather, they are seen as a way for China to resume its rightful position as a wealthy, strong, and responsible power, at the centre of a web of regional economic interdependence.

A call to understand these worldviews is not an argument for appeasement. In some cases policymakers will need to respond firmly to Chinese actions, even if this may have longer-term costs. In the East China Sea, the strong reaction of the US and some of its allies to China’s ADIZ may well have reinforced narratives of persecution and humiliation.

However, understanding Chinese worldviews can help policymakers to develop responses that do not reinforce the negative aspects of these narratives in ways that are ultimately counterproductive. For example, in China, Washington’s tough response to the AIIB and its ambivalent attitude to OBOR will have reinforced the idea that despite its calls for China to be a responsible stakeholder, no matter what China does on the world stage, the US will always try to curb China’s emergence as a more central actor in the international system.

Ultimately, choices about how the US and its allies respond to China need to be taken on a case-by-case basis. In some cases US and other Western policymakers may see no option but to take action that reinforces the more negative aspects of the Chinese narratives outlined above. In other cases, however, an understanding of these Chinese worldviews can help policymakers to avoid actions that are needlessly counterproductive.

Dr Merriden Varrall's recent Lowy Institute Analysis: China's WorldViews and China's Foreign Policy can be downloaded here

Aid & development links: financing COP 21, microlending, Australia's MYEFO and more

  • COP 21 is over with a deal that has been heralded by world leaders as 'the best chance we have to save the one planet we have', while the expert consensus is that it 'has landed more or less where expected'. Robin Davies pours some cold water on praise for the deal by highlighting three big financing blunders in the negotiations.
  • For a poignant reminder of why the Paris negotiations were so important check out this video (and below) from the world’s astronauts, who have witnessed firsthand the fragility of our planet. (h/t Duncan Green).
  • The Centre for Global Development has released its 2015 Commitment to Development Index (CDI), which ranks rich countries on seven policy areas that affect the world’s poorest people. Australia tied for 10th place. You can listen to a podcast summarising the CDI here.
  • FiveThirtyEight, one of my favourite wonkblogs, has written about the building consensus of evidence that microloans don’t appear to be very effective poverty solutions. Simply giving people money might be a much better alternative. 
  • On the eve Australia’s Mid-Year Economic and Fiscal Update, which in the past has been used to announce major cuts to Australia’s aid budget, Sam Mostyn discusses the importance of a strong Australian aid program.
  • Meanwhile, Fairfax Media takes an in-depth look into the programs that have been directly affected by the largest cuts in the Australian aid program’s history.
  • Finally, Charles Kenny has produced a holiday giving guide split into two parts: one for those with $45 billion to spend (i.e. Zuckerberg, and one for regular people.

The Korea FTA, one year on: Those touting the benefits are cherrypicking results

Happy first birthday to the Korean Free Trade Agreement (KAFTA), which came into effect on 12 December last year. At the time, Trade Minister Andrew Robb said:

KAFTA will increase export opportunities across a wide range of industries: from beef, wheat, sugar, dairy, wine, horticulture and seafood, to automotive suppliers, and the resources and energy industries.  It will also open up significant opportunities for service providers.

Let's check the data, one year in. Here is what has happened to Australia's merchandise exports to Korea.

It certainly doesn't look like exports have increased. But this graph is a bit unclear as the monthly data jumps around a bit. Let's look at a graph with an annual frequency, with a forecast of 2015 based on the growth we have seen in the first 10 months of this year versus the first ten months of last year (that's all the available data).

Disappointing.

Alright, I am being a little unfair. There are some transitional arrangements, so not all trade barriers were removed on day one. And also, what has happened here is likely a resources story. Commodity prices have fallen, so exports have dropped off. But the impact of such factors also proves a point, which is that many things have larger effects on trade than preferential agreements. The benefits from these agreements are typically small beer, which means we should carefully consider the costs.

That's something we do not do, and KAFTA is a classic case.

In KAFTA, we extended some of our intellectual property (IP) protections, which is costly for Australia because we import intellectual property (extending protection makes IP more expensive). In the National Interest Assessment on KAFTA, which is supposed to evaluate the impact of the deal, no effort at all was made to evaluate the cost of this provision.

As I've explained before ('Discuss; Upsides not worth the downsides in FTAs'), I think IP provisions are costly in a broader sense. In many cases, intellectual property protections inhibit innovation.

But let's get back to the small beer. After the impressive balance of payments figures were released on 1 December, Robb put out a press statement that had this to say:

Australia's new Free Trade Agreements are also providing new opportunities for exporters with data showing strong growth in a number of our exports to Korea and Japan since those agreements entered into force. Agricultural and horticultural exports have flourished in particular.

This 'strong growth' is not evident from the graphs above, but let's focus on 'agricultural and horticultural exports'. This reference takes me back to September, when Barnaby Joyce was trumpeting the effect of KAFTA . In particular he noted that over the first six months of KAFTA, beef exports were up around $150 million. Let's suppose that trend continued, so they were up around $300 million for the year. That's nice, but we should recognise that that's not a magical increase of $300 million.

Firstly, these increased exports may have just been diverted from another market to the Korean market where the price was a bit better. And, secondly, look at the graph. Exports in 2014 were about $20 billion; $300 million represents about 1.5% of that. Horticulture was also mentioned by Joyce. Cherry exports to Korea were $3.5 million in the first seven months of KAFTA. At this point, it is important to keep in mind the difference between millions and billions. I always find this instructive: a million seconds is 11.5 days, a billion seconds is nearly 32 years.

I mean no disrespect to the hard-working cherry farmers out there, but they aren't big. If they are held up as a KAFTA success story, then there isn't much else going on.

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