Vice Premier Li Kequiang (source)

the Vice Premier on the state of China EU relations reads like a bit of easy listening.  With yet another set of ineffectual French Presidential Candidates vying for power, Spanish Youth unemployment reaching 50% and Greece sinking faster than Water World at the Box Office, one would think there was little optimism for the EU.

Not so according to Mr Li.

In fighting the debt crisis, EU countries have enhanced co-operation and carried out reform with tremendous courage. This is laudable. As a result, the EU has made major progress to fiscal integration and the long-term mechanism for preventing financial risks, the European Stability Mechanism, will be launched earlier than scheduled. These steps have boosted market confidence and sent an encouraging message to the world.

First of all, this is wonderful script… for a piece of diplomatic writing. What reform? Here is a quote from Der Spiegel from a piece covering Italian Labour market reform:

It is a struggle that has not been without violence. The New Red Brigades terrorist group shot and killed two government advisors and proponents of labor market reforms in 1999 and 2002, sending the threatening message that anyone who touches Article 18 could suffer the same fate. Elsa Fornero, 63, Italy’s new minister of welfare and labor, is now constantly accompanied by six bodyguards since she received a letter bomb in January — and since protesters were first spotted with T-shirts reading “Fornero al cimitero,” or “Fornero in the Cemetery.”

Yes murdered. Not assaulted but actually murdered.  Granted this is from the last decade but it doesn’t sound as those the current Minister is having a lot of fun either. The only reason why the situation has got marginally better is because the US has begun its (slow) recovery which still dictates everyone elses pace of development. If you want to see how the Club Med states are fairing this infographic shows how dire it really is.

The Premier continues:

We hope to see a more inclusive and accommodating Europe. As a Chinese saying goes: “It may rain in your courtyard but not in the street outside. On a 100 mile journey, you will find wind coming from different directions.” “United in diversity” is a key factor driving European integration. The world today needs both western thinking and oriental vision. If China and Europe can both achieve success by development models suited to their respective conditions, we will make the world more harmonious and prosperous.

Not that I doubt the inclination towards a harmonious existence, capitalism has taught us that war is bad for business unless you can make it a short and profitable one. As for western thinking, the Europe 2020 ideas make lukewarm reading at best. The EU commission is not the Peoples Planning Committee or the Politburo and likely never will be. As optimistic as I would like to be this piece on China EU relations is just diplomatic. It ticks the right boxes, it says nice things about the host and skirts around the problems (he is not the foreign minister but an Economist. Furthermore, they are not China’s problems as his colleagues have aptly put forward. That is the wonderful thing about respecting other cultures; their problems are not necessarily your problems). A bit like a dinner party with a fascist and a communist, focus on food and music and hopefully nobody will get hurt (from experience).

Let us be completely honest here. The only reason why anyone cares about the EU is because in terms of per capita income they outrank the US. The closest thing to an alternative to American financial hegemony right now is the EU. The Chinese know this and also know that the Yuan is not ready for unrestricted international exchange right away. A wider Dollar circulation means tied to the highs and lows of the US for the world, whilst wider Euro circulation would mitigate this effect. If Brazil or the African states were a viable alternative (and to their credit Brazil and China have good ties) then China would press for it. Alas we do not have a wonderful selection of 5 star candidates. To use paraphrase Mrs Thatcher, the Euro is the best alternative out of a very bad bunch.

Following from my previous people in the news: I decided, once again down to the lack of any decent page on the new Mayor of Yubari City barring this New York Times article, I have decided to try and translate some biographical information about the young upstart known as Suzuki Naomichi.

The Photogenic Suzuki Naomichi Mayor of Yubari

Resources are a combination of the aforementioned NYT article, Mr Suzuki’s website, and the Japanese Wikipedia entry.

14th March 1981 – Born in Kazukabe City, Saitama Prefecture

Raised in Misato City and schooled at Misato City High School in Saitama Prefecture. Due to his parents divorce he grew up in his Mothers family and was unable to attend college due to financial reasons. This was to change when he came to Tokyo.

April 1999 Moves to Tokyo and passes the Tokyo Metropolitan Government Employment Test at the age of 18

April 2000 Enters Hosei University

2002 Becomes Captain of the Boxing Club at Hosei, ends up representing Tokyo at the national sports festival

April 2004 Graduates from Hosei University, graduating from the Faculty of Law focusing on Local Government

*Hosei University is famous for having a strong legal tradition with founders being tied to the formation of Japanese Civic Code. More awkwardly the campus is remarkably close to the Controversial Yasukuni Shrine*

January 2008 is dispatched by the Tokyo Metropolitan Government as part of the Citizen Insurance Division to help the city grapple with it’s finances.

2010 Dispatched from the Tokyo Mayors Office to the Department of Internal Affairs and Communications

End of November 2010 Resigns from the Tokyo Mayors Office to run for Mayor of Yubari

April 2011 Runs to become Mayor of Yubari City with backing from the LDP, the DPJ and New Komeito on a non-partisan ticket (not Hashimoto style then) and backing from Fujikura Hajime, the incumbment Mayor who decided to step down in order to let Suzuki run (yep, that doesn’t happen everyday). He wins.

14th May 2011 Registers his marriage with his wife Manami at Yubari City Hall on the same day as the opening of the Cherry Blossom Viewing festival. He plants a Cherry Blossom sapling to comemorate his marriage (ah, how romantic)

July 2011 forms the ‘Mayors Extraordinary’ Town Planning Team

6th-9th January 2012 Meets Qatari delegation amid holding a Parent Child Camp in Yubari.

20th January 2012 Meets PM Noda and the Qatari Minister for Foreign Affairs Khalid Al-Atiya in Miyagi, Fukushima and Iwate Prefectures to raise awareness for mental and physical health as well as education for youngsters. These two events were tied to the Qatar Friendship Fund, a recovery fund that was set up in in the aftermath of the Great North-East Japan Earthquake.

3 Electoral Pledges

1. Greater Interaction with the locals of Yubari City and the local area

2. Help raise awareness of the Yubari local produce and promotes sales (see video below)

3. Make Yubari a lively centre of exchange for all three generations (young, adult and senior citizens)

You can follow him @suzukinaomichi on Twitter

Michael Woodford's new book"Terminated"

For those of you who cannot speak Japanese  you will have to wait as it is not slated to be released in English until the end of the year. Alternatively you can Michael Woodford’s comments at a FCCJ Press Conference in November last year.

One aspect of the Japan Times report that doesn’t make sense is that Woodford asked a friend to translate the original Facta article. I thought the guy spoke fluent Japanese? If this is the case then surely he would of had a clearer idea of how things operate in the company.

Furthermore his comment that the British or the American regulators are any more willing to engage in such issues than their Japanese counterparts seems only to be valid because of the scale of the scandal. The people who whistleblew about BCCI, Enron and other cases were blackballed and have nothing to show for it.

Whilst I applaud Mr Woodford for his work and hope the compensatory book deals, lectures and consultancy fees more than remedy the hardship he has been put through, the evidence suggests from a cursory glance that he didn’t really understand Japanese management practices or how the whole cross-shareholding relationship works/is working. For example, the SMBC President and other Proxy Shareholders  Then again, I shall have to read the book and would very much like to hear the story from the side of Tsuyoshi Kunibe (SMBC President) as well as the other Proxy Shareholders.

Let us say hypothetically I was working for a Korean or Chinese company and I don’t speak the language. The board is full of native speakers and for whatever reason I become the head honcho. Immediately I would need to know

• What groups there are in the board room
• Meet, greet and speak with major proxy shareholders
• What is the worker/manager/shareholder dynamic
• Who is accountable for what. Every position should clearly state the responsibilities of each board member. It is the confusion of these positions that leads to issues like this.
• What skeletons are in the closet that potentially could come out (to be fair Woodford did try this)
• What paper trail is there
• Do I have access to local media? If not, how do I get it?

Final Comment

The problem that businesses, individuals and investors is that all this commotion creates a hazardous atmosphere for doing business in Japan and to a more limited extent in other parts of Eastern Asia. Furthermore, the lack of willingness from all sides to come to some form of agreement hurts the confidence of the market and puts in jeopardy future transactions and deals. That is not good for anyone.

Attracted by the British capital’s high investment returns relative to risk, Korea’s cash-rich pension funds and insurers are stepping up their search for bargains in Europe’s ravaged commercial property market as they try to diversify their burgeoning wealth reserves beyond their small domestic markets.

Their interest in London property has intensified in recent years, thanks to relatively long leases, high liquidity and higher yield compared with rival investments such as government bonds.

Among the purchases were HSBC’s Canary Wharf headquarters, that is this building here:

HSBC Canary Wharf London Headquarters (source)

As well as 1 Bartholomew Lane in the City of London which was purchased by KIC:

1 Bartholomew Lane London owned by KIC (source)

For those who are interested, at the end of last year KIC opened its London office at 1 Bartholomew Lane. Coincidence? Not really, considering Samsung generally buys property for its offices as opposed to leasing them.

(Editors comment: South Korea is listed as a “emerging market”? They are a member of the bloody OECD and the 10th largest economy in the world for crying out loud. That is hardly the criteria of a developing country)

Namdaemun Shopping Centre. The SK government isn't investing domestically as it is too small (source)

So what does this tell us other than that South Korea has joined a burgeoning list of Asian and Middle East buyers  as major players in the London scene?

In the short term it may not mean anything as cash-rich Asian buyers have been seeking assets that are on the one hand deliver better returns than bonds but have the liquidity but not the risk of stocks. Real Estate Investment Trusts (REITs) and sensible real estate purchases in major urban areas make perfect sense as the FT duly noted:

“Its assets under management are growing sharply so they are bound to invest abroad because the domestic market is too small for them,” says Nam Jae-woo, researcher at the Korea Capital Market Institute. “But overseas bonds generate too low returns while investing in emerging markets is still deemed risky. So they are looking to expand alternative investments, especially in real estate markets, where stable returns of 6-7 per cent are guaranteed.”

Well, not quite guaranteed but as close as you are going to get. Alternatively if they are gunning for a long-term view such as Government of Singapore Investment Corporation Investment into actual agricultural land and affiliated agri-industrial/chemicals industries would be a potentially more fruitful opportunity. GIC did this with Bunge. If it were me, Fish farming in Scotland or arable farming in the South East of England would be ripe for juicy returns should the right tools and methods be put into practice as the prices are not as high as neigbouring Denmark which has a bigger, more prolific Agricultural business.

In the longer term this could pose a problem as has been noted before. Whilst it is doubtful that bond markets of America and high-grade EU debt will see a diminishing investor in the next 10-15 years, if the private sector generates greater, stable returns through such mechanisms as REITs and debt it could cause yields to rise. But hey, that’s what the market is all about. Anything that stimulates the economy in this part of the world has got to be good news.

So indeed with the South Korean government shopping in London, the question remains, who else can the Brits sell off to? Any Kazakh or Brazillian Property barons interested? Perhaps we can sell them the home counties, and get some good agri-brains in on the action. Would do wonders for self-sufficiency? Or perhaps we could get the Chinese to buy a hotel or two? Oh wait….

Quantitative Easing
noun [uncountable]
when a central bank creates a supply of new money to put into a banking system which is in serious difficulty (source)

Well, despite politicking, cries for help and the Nikkei 225 tanking, Japan says no to Quantitative Easing (QE). First, let us be clear that it is the Bank of Japan and not the government has taken this decision. Result? The DPJ is unhappy about the decision and the LDP is plotting to restrict the independence of the Central Bank. In fact the BoJ’s decision has run at loggerheads with the Diet before. The question is, how does this effect everyone else and is it all bad?

Bernanke is Printing Money, will Shirakawa do the same? (Source)

 Why do the politicians want QE? 

Japan’s politicians and financiers want QE to spur the near two-decade liason that the country has had with deflation. Japan has had deflation for a while owing in no small part do a

• declining savings rate,
• low household and corporate debt
•  stable food prices that come with any modern industrial economy.
• (until recently) low fuel import costs
• Highly regulated energy sector

This leaves the central bank with little room to maneuver. With Central Bank assets at 20% of GDP, as many have noted before me, if QE or some form of monetary stimulus was going to work then it should of done so by now.

QE can work if it is targeted for a specific reason for a specific time period. As a result, most of the time it doesn’t work. Once financial institutions get the whiff of cheap money, they take it and shove it into their accounts, and more often than not, do not pass the savings onto consumers (the original aim of the exercise). Instead it devalues the currency as investors feel it cheapens the currency (great for exports hint hint) but doesn’t do anything else. In effect the market becomes drug addicted to free money and demands it to prop up the system when the fact is that firms behaviour must change, not the other way around. So by not doing QE this time around the politicians have one less tool in their arsenal to generate jobs. Hence the irritation.

This is fine if your industry is competitive and your economy is export orientated. Unfortunately or fortunately for Japan, there is a lot that can be done (Sony and Panasonic are two such firms that really need to get their act together). At best some of the larger brands are either at cost of their competitors or at worse (Sony’s LCD TV division) not even profitable. Furthermore, the bulk of the Japanese economy is domestically orientated! Here’s the kicker, 13.4% of Japan’s GDP (2004) is reliant on foreign trade!  To give you an idea, the same figures for Germany are 40.1% reliant and the UK is 26.3%. The myth stems from the fact that the Nikkei 225 is mainly composed of exporters. If you a travel operator or producer domestically in the country there is a lot going for you. Consumer/Retail brands such as:

• Culture Convenience Club (owners of Tsutaya)
• Fast Retailing/Uniqlo
• Canon
• Rakuten
• Banking/Finance companies
• Softbank (although I hate to admit it)
• Moss Burger

due to their healthy balance sheet and nimble movement (fast retailing was very quick to move clothing manufacturing from China to Cambodia/Laos where costs are lower) these firms are competitive and are expanding beyond their shores at a rapid pace. What is more they are thriving despite the Yen collapse and in fact are using them to expand overseas by buying foreign assets on the cheap!

In short Quantitative Easing isn’t doing anything to help Japanese citizens or the economy. So how to save them? I will address that in a later post. In the meantime don’t hold your breath on no more QE as Shirakawa said it would be addressed at a later post….

What do you think? Do you think there is a point to QE in Japan or should it be abandoned as a instrument of policy?

The association, consisting of 155 members that include industry giants Aluminum Corporation of China and China Minmetals Corporation, was formed to promote sustainable and sound development in the sector, said Su Bo, vice minister of Industry and Information Technology (MIIT) which governs the association.

As has been demonstrated, demand for these minerals is only going one way:

The Hockey stick that is supply and demand (source)

As the developing world begins to turn into a more consumption as opposed to investment orientated society such as China, demand for these goods in convenience goods like cameras and mobile phones can only be set to increase.

Rhythm of History

However this move is more than likely to help coordinate the industry to help combat foreign pressure and influence as was the original goal of MITI in the 1960s and 1970s. When companies were small as the Chinese companies are in the relative sense to their international rivals at present, a fairy godmother in the form of a industrial body serves as a protective shield. However, as happened to MITI/METI in Japan in the 1980s and 1990s, when firms began competing internationally and, arguably more importantly with each other, the relevance of METI/MITI declined.

As there is no such thing as economics without politics there is a political dimension to all this as well. China in a OPEC like position with these rare earth materials courtesy of mines like this:

Baiyan Obo Rare Earth Metals mine in China one of the biggest Rare Earths Mine's in China (source)

Given that the Bayan Obo Rare Earth Metals mine produces half of the world’s production alone and China hosts 96% of global production and you have a monopolistic supplier of minerals. Or to quote an Australian source:

Of a total production of 120,000 metric tons, about 55,000 metric tons was produced as a byproduct of the Bayan Obo iron mine. This fact means that at least 44 percent of world rare earth elements production is a by-product. Of the remaining Chinese production, about 25,000 metric tons is produced in southern China as a primary product from ion-adsorption clay deposits. The status of remaining Chinese production is unclear.

Naturally the rare earth metals China monopoly is not going to go away anytime soon and does give them a strong bargaining chip

Possible Policy Prescriptions

Well technically there already has been some. The Japanese have already begun searching for their own Rare Earth minerals and also host large accessible deposits, in the form of landfills that hold millions of used cameras, mobile phones and televisions. About 5/6 years ago a consortium was formed to find ways of extracting these rare earths.

That is also before we take into account other recycling policies, other untapped mining resources and whatever else the material science departments of the world’s best and brightest universities are able to come up with which at least according to Chinese rankings are predominantly British and American. I have my doubts but then again I have issues with academia, very big issues indeed.

Is it all bad?

That being said China does have other reasons for this. As is probably well-known by (the surprisingly increasing) readers of this two-bit blog, China does have a health and safety issue. Streamlining and greater attention to things such as looking after workers. This provides a boon for European, American and other East Asian suppliers of health and safety equipment as well as mining manufacturing organisations. Remember, a healthy workforce is a happy workforce and easier on the domestic disturbance front. It can also mean jobs, which is great if it is election year…

Naturally as China becomes bigger it will need to engage and become accustomed to Real Politik that is global trade. A policymaker should consider this as yet another opportunity to engage with China. Further engagement and entanglement means a more complicated relationship which means a higher likelihood of less violent conflict in the long run.

Ryutaro Kono

In Japan the upper house of the Diet has rejected the government’s nominee for the Bank of Japan board out of concerns he was insufficiently pro- monetary stimulus. The Bank of Japan’s balance sheet has exceeded 20% of GDP for a decade. If monetary stimulus was the answer, wouldn’t Japan be fixed by now?

Paul Donovan, UBS Economic Research 5th April 2012 on the news that Ryutaro Kono, formerly of BNP Paribas, had his nomination for succeeding Shirakowa rejected on the grounds that he agreed with Shirakowa’s statement that the Central Bank couldn’t solve the present economic malaise through QE alone. Consensus is that he was turned down for political as opposed to aptitudal reasons.

Expressive: 'Portrait' by Zeng Fanzhi

You can see a selection from the auction below (Courtesy of Dawn):

Busan Savings Bank Seized Artwork Sale

Back-story

For readers not entirely familiar with the story, Mr Park was borrowing money to fund his own little misadventures which included amongst other things, paying off high-flying politicians to prevent inquiries into illegal loans (a la Samsung), buying exquisite pieces of Chinese, Korean and Western Art (insert 1980s Japanese Insurance Company here), and paying  illegal dividends to questionable characters (a la the Sokaiya Payoff scandal in Japan in 1994).  An associate called Kim Min-Hyeong even had his own art galleries: Chang (one in Seoul, another in Beijing) as well as, yes the Watergate Gallery. Here is a link to one of the exhibitions jointly held between Chang and Watergate in 1999.

Before you get worried about things becoming dull again, according to KDIC’s auctioner Seoul Auction they have about $172 million worth of art conifscated from Busan and other banks. Who said that Seoul was the only place in Korea that felt like 1980s Japan…?

Concluding remarks

Before you get worried about things becoming dull again, according to KDIC’s auctioner Seoul Auction they have about $172 million worth of art conifscated from Busan and other banks. Who said that Seoul was the only place in Korea that felt like 1980s Japan…? Signs are beginning to show that with a few exceptions, Korean and Chinese Corporate Governance has or is going to fall into the same traps as the Japanese have done…

Smiling Noda

He stated that:

Although like other countries Japan is not perfect it is at events like this that we celebrate one of our key values and that is freedom of expression. This has proven an asset to the cultural development of the nation both at home and abroad. Yet [the pornography] industry has been hit disproportionately hard by Article 175 of the Criminal Code. As a result thousands of people and billions of yen have been lost unfairly to foreign competition. That is why today I pledge to abolish Article 175

The crowd erupted into a giant applause and Noda was given a standing ovation.

The Japanese Adult Video Industry, widely considered to be the worlds largest has been repeatedly hampered by censorship. Although Brands such as CarribeanCom, Ichi Pondo and other online only brands have navigated this successfully this has meant that other large production houses such as Moody’z and SoftOnDemand have had to spend even more on editing outlays than their American counterparts, causing some to shift production to Australia and Germany, where media tax breaks are extended to new AV productions.

It is not expected for that the move will cause problems in the Japanese Diet with many parties broadly in favour of the motion. Speaking in Shibuya later that day Japan Communist Party Chairman Shii Kazuo stated that:

Whatever is good for free speech is good for a healthy society. We may of had our differences [on the consumption tax] but this move will aid young women, men and aspiring film makers which the JCP has always been apart of throughout history.

It is expected that the AV industry will now fall under the METI remit as has Anime and JPop in an attempt to push “soft-power” exports overseas to secure greater goodwill amongst nations. With such avid viewers in such diverse countries as China, South Korea and Denmark, exports can only go one way.

Meanwhile overseas, when asked about the news by the British Sun Newspaper Prime Minister David Cameron replied ‘why do you think we’re investing in all this fibre optic? It’s a two-way street. Porno-I mean Cultural innovation will feed and aid technological innovation.’

***

In the highly unlikely event that you did not get it, this is a joke. Happy late April Fools!

Yes the Sky PerfecTV! Adult Broadcasting Awards are a real event, equivalent to America’s AVN Awards. It was held on 14th February 2012 at a hotel ballroom in Tokyo’s Shinagawa district

All pornographic material technically must be censored ever since the 1907 law was passed.

No offence or insult is intended to Messrs Noda, Shii or Cameron, it is merely deployed for the sake of satire.