Author Archives: Elizabeth Hallinan

This piece from last week’s Economist takes a look at the repercussions of the Asian financial crisis of 1997.  Immediately after the crisis, projections for the region were heavy on the gloom and doom, but sure enough, Asia’s developing economies bounced back, posting an average of 8.3% growth last year.  But, the ADB still finds the region’s growth underwhelming:

The annual Outlook published by the Asian Development Bank (ADB) this week looks at the growth record of the five worst-hit countries: Indonesia, Malaysia, the Philippines, South Korea and Thailand. Comparing the period from 1990-96 with 2000-06 (ie, after the crisis had passed), it finds that “growth has settled on a lower trajectory.” It has slipped by an average of 2.5 percentage points a year.  The ADB finds the slowdown cannot be satisfactorily explained by demographic changes, by worsening “human capital”, ie, educational shortcomings, or by falling productivity. Rather the cause lies in falling investment rates. These plummeted in the wake of the crisis, and have never returned to pre-crisis levels.

As the article goes on to say, the Asian tigers still suffer from investors’ crisis of confidence, which — relatively speaking — keeps investment lower and growth slower.  With minimal corporate governance, trouble with property rights enforcement, and rampant corruption looming large, it is hard to blame them for being nervous, but as CIPE Asia partners ADFIAP, ISA, IICD, LKDI and IBL could all tell you, things are getting better.

Many of the organizations that CIPE works with in Southeast Asia were founded in response to the 1997 financial crisis and have been at the forefront of corporate governance reform and anti-corruption movements in their countries.  The Association of Development Finance Institutions in Asia and the Pacific works in development finance banks across the region to train teams of officers dedicated to enforcing corporate governance.  The Institute for Solidarity in Asia helps firms and local governments to improve communities’ buy-in on governance issues.  The Indonesian Institute for Corporate Directorship and Lembaga Komisaris dan Direktur Indonesia train corporate executives and board directors in the basics of corporate governance and help evaluate firms’ levels of transparency and disclosure.  Indonesia Business Links works directly with Indonesia’s Corruption Eradication Commission to teach entrepreneurs and government officials how to live without facilitation payments and bring ethical decision making into their businesses.

The recovery from the crisis may be long, but CIPE Asia’s work on corporate governance and anti-corruption has a real impact on the thinking and actions of local businesspeople and government officials, and helps pave the way for a better investment environment and stronger democratic institutions for the Southeast Asia.

Joseph Kahn writes in today’s New York Times that Shanghai Party boss Chen Liangyu has been detained on charges of corruption.  Strong Party credentials usually serve as a get out of jail free card for corrupt officials and their friends, so it appears that President Hu Jintao himself stepped in to make an example of Chen and take out a prominent political opponent. 

Corruption is, of course, nothing new in the party ranks; the Shanghai cadres take it to another level.  Ex-President Jiang Zemin cultivated his credentials there and packed his cabinet– which was later inherited by Hu– with Shanghai cronies who came to be known as the “Shanghai clique.”  The Shanghainese presented several problems for Hu as he took over power from Jiang.  It was difficult for him to wrest control of the military from the aging Jiang (which he eventually did in the fall of 2004), and he was forced to work with and compete with Politburo members loyal to Hu. 

Additionally, Hu has worked to slow the overheating economy by cracking down on infrastructure and real estate growth, which did not go over well with party leaders in Shanghai, who have done their best to ignore him. 

It is definitely a positive thing that a high-profile corrupt official has been taken out of power, but corruption is pervasive in China, so the move seems more like a personal take down than a moral stand against corruption. 

I went to an interesting event featuring Xiao Qiang, a Chinese activist who is director of the China Internet Project at Berkeley’s journalism school.  I’ve been following his work for a while now, and if you have an interest in how repressive regimes regulate the internet or how the internet promotes democracy, it’s worth checking out the site. 

Xiao Qiang’s talk was about the ways that the government censors try to control what is said on the internet, and how bloggers, specifically, are adept at expressing themselves despite the tight conditions.  He discussed how the blogosphere creates a kind of collective identity and a collective call to action for its participants.  Earlier this year a provincial TV station in China hosted the “Super Girl” contest, which was essentially an American Idol-type singing extravaganza that developed into a national obsession.  Like American Idol, viewers got to vote for their favorite contestants; the winners continued on to the next round. 

As Xiao Qiang observed, people thought, “I probably won’t ever be able to vote for president, but at least I can vote for my favorite girl.”  The online community was abuzz with the commentary of rabid fans.  The fans formed fan clubs to support their favorite contestants; the clubs would trumpet their favorites while finding ways to malign the other contestants.  Sound familiar?  The internet took a decidedly apolitical singing contest and turned it into a campaign, complete with regular votes and citizen participation including competing camps, debate and mudslinging. 

The Super Girl example fit perfectly with Xiao Qiang’s examination of how the blogosphere will provide increasingly developed opportunities for citizen participation in larger discourses.  He identifies three steps in the process:  1) Information cascade:  Citizens can participate in discussions about all kinds of things on the internet, and express opinions they might keep to themselves in public.  And, as we saw with Super Girl, the discussions don’t have to be political in nature.  2)  Agenda setting: The blogsphere begins to influence the media and popular perception of politics.  Censorship is a problem, certainly, but the bloggers are adept at what’s called “zhenghua fanshou”– saying one thing but meaning the opposite.  Readers know to read between the lines.  The blogsphere also produces influence because of its sheer size– there are an estimated 123 million internet users in China and nearly 30 million blogs.  THIRTY million.  Most blogs aren’t strictly political and bloggers know have a good sense of what will be stricken, but a mention of politics here and there on millions of blogs limits the risk for everyone.  3)  The third step he identifies is the “networked public sphere.”  This is where he believes the blogosphere is heading– to a place with fully developed discourses, different camps and schools of opinion, and the presence of reason and debate.  Finally, this process of developing a large public discourse helps to build popular resentment of media controls. 

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As reported in an IHT article in The New York Times online, the Bank of China has raised $9.7 billion dollars as it prepares to go public on the Hong Kong stock market next Thursday, making it the world’s largest initial public offering of the last six years.  The piece is a good one to check out if you have an interest in the state of the Chinese economy or China and the WTO– the banking system is emblematic of a lot of what is wrong with the Chinese economy today– massive corruption, cronyism, insolvency, and over-involvement of state owned enterprises and the state itself.  And yet people are flocking to invest in this bank, just as they did when China Construction Bank went public last October and as they are planning to when the Industrial and Commercial Bank does later this year. (These are three of the big four state-owned banks.)  Why?

As Enzio von Pfeil, chairman of the Hong Kong-based Commercial Economics Asia puts it in the article, “With this huge China craze emerging, the funds are piling in simply because these are big Chinese companies.  They are doing it because everyone else is doing it. It is typical herd behavior. It can’t be because of the quality of the banks.”

It is true that quality of the banks leaves a lot to be desired.  Per order of the WTO, China must open its financial system to foreign banks by the end of 2006. China has made progress towards cleaning up the banking system, but based on the current situation there is still some question as to whether bankers there understand the connection between levels of risk and profitability, and the size of the loans handed down.  The Bank of China claims to have lowered its percentage of bad loans from 5.5 percent in 2004 to 4.9 percent in 2005, but that is still a lot of money down the drain.  According to official figures from the China Banking Regulatory Commission, China still holds $133 billion in commercial banks’ bad loans; 9.8 percent of all commercial bank loans in China are non-performing.  That’s on top of $283 billion the government has already paid in bailouts.

But by overlooking all the questionable business ethics and mismanagement, perhaps the “herd” has pinned its hopes something else: China’s continued growth.  And why not?  The world looks at China, a country with a hideous corruption problem, an on-fire economy, a restrictive political climate, and a consistently terrible human rights record, and continues to pour in the cash.  Growth is the great eraser; it inspires confidence and soothes consciences.   I can only hope that China does better with cleaning up its banks than it has with, say, getting rid of those (still) ubiquitous pirated DVDs.