Clarity on Financial Aspects of Cross-Straits MoUs Still Missing

By Siddharth Gupta and Matthew C.J. Rudolph

Confusion last week continued as various high-level negotiators prevaricated on the precise content and scope of MoUs to be signed in December at the next meeting of top-level Cross-Straits negotiators.

It is likely that MoUs on the more mundane issues (agriculture, fishing, industrial certification, taxation) may be finalized. There is also likelihood of an agreement on Taiwanese banks taking Yuan-denominated deposits from mainland banking clients.

There is also emerging news about the possibility of the aforementioned 4 MoUs signing being delayed. Financial Supervisory Commission (FSC) Chairman Sean Chen, on Wednesday, said at the Legislative Yuan that it would be "inappropriate" if the signing of the MoU took place at a meeting between the heads of the SEF and the ARATS scheduled for December. He went on to say

I haven't heard the MoU will be signed during the Taichung meeting. I personally will not be at the meeting. The signing of a document of this magnitude should be done in my presence, in compliance with international standards.

Taiwanese markets reacted accordingly (read fell) to this growing uncertainty last week as the TAIEX shed almost 124 points or 1.61 percent on Wednesday.

However, the key provision that HC has been watching - on Mainland access to the Taiwanese share markets - is unclear.
MarketWatch from the WSJ Digital Network described the scope of the agreement like this:

The MOU will also allow mainland Chinese investors to buy shares on Taiwan's markets through a so-called Qualified Domestic Institutional Investor program.

The amount of the investments will likely remain small, Lee said, adding he doesn't expect the inflows to have much impact in Taiwan stocks.

Return of Regional Balancing? Testing HC Inference on US AfPak Policy and Indo-US Relations

HC wrote earlier this week on Raja Mohan's view that there was now sufficient dynamism in Indo-US relations to prevent constant bargaining between the US and India whenever the US action favored Pakistan at the margin.

Today's New York Times story on US military aid to Pakistan will likely hasten the moment when we will be able to test these competing expectations; HC arguing there is still little slack in Indo-US relations despite the UPA's big win in May versus Mohan's "sufficient dynamism" view.

US Afghan Surge: Implications for Indo-US Relations

By Siddharth Gupta and Matthew C.J. Rudolph

On October 14^th 2009, South Asia Studies at Johns Hopkins University’s School of Advanced International Studies hosted Dr. C Raja Mohan, the Foreign Affairs Columnist for The Indian Express and a member of India’s National Security Advisory Board during 1998-2000 and 2004-06, in a talk with Walter Anderson. This talk was specifically aimed at providing proposals for a stable partnership between the two democracies of US and India.

The talk can be downloaded from here.

In the talk, Walter Anderson brings to Raja Mohan’s notice the increasing number of articles in the Indian editorial press outlining their exasperation on the US’ (mis)handling of India on the Pak-Afghan issue. He mentions Harsh Pant’s article, which argued that US preoccupation with Afghanistan is hurting Indo-US relations. Pant and others have singled out passages of General McChrystal’s recent report that specifically admonished India for making the US project in AfPak more difficult. Anderson asks if this is an indication of the growing resentment in India about the US Afghan policy.

Raja Mohan replied to Anderson's query with an emphasis on the indecision of the US with its own Afghan policy. Mohan reminded listeners that there was a different take on the war six months ago in the March, 2009 Afghanistan review. Now the US is doing a complete re-think of its policy and still nobody knows where exactly it's headed. To paraphrase Mohan; the US does not know where it's going with its Afghanistan policy and India should not get trapped by this American indecision. Indian and American enemies are the same; Indian and American interests are the same; they have a common interest in re-ordering the Trans-Indus AfPak area. India must make clear that ISI involvement in Kashmir is still a key problem. Finally, New Delhi's enthusiasm for dispatching Indian troops to Afghanistan is not yet clear. India could help train the Afghan national army on Afghan soil. It is already training some Afghan troops in India.

HC's Take

HC thinks that if the US Afghan build-up comes, it will require the US to do something more for Pakistan. We don't yet see enough "dynamism" (as Mohan put it) in Indo-US relations that the Indian government can accept US military assistance to Pakistan without severe audience costs. The political necessity to inoculate the UPA government from BJP and other Pakistan hawks in the public sphere will drive Manmohan Singh's government to demand something from the US; it may be an explicit concession or it may come as a negative cost (i.e. the US will not be able to push as hard on some issues such as climate, non-proliferation or trade regime concessions).

Wokai Bay Area Chapter Panel Video now Available

On June 28, 2009, Wokai, the non-profit organization that organizes micro-finance for entrepreneurs in China, launched its Bay Area Chapter. Alice Wu, the chapter president, opened the proceedings with a statement. The panelists included Premal Shah (President of Kiva), Maya Chorengel (Managing Director of Elevar Equity), Courtney McColgan (Director of Wokai US Operations), and the moderator Ilyssa Lu (2008 Miss San Francisco Chinatown, and Product Manager at Cisco).

The panel footage from Wokai's launch event is now available. The video, called Dollars Without Borders, is 53 mins in length and is available at the following link. Alternatively, you could just watch it here itself.

Wokai Bay Area Chapter Panel Video

Indian Express today published an Op-Ed about Ubuntu at Work written by Saritha Rai.

Ubuntu at Work is getting increasing attention for its innovative model that solves the key problems that are limiting the full poverty-alleviation benefits of the micro-finance (MF) revolution. Other HimalayanCrossing blog posts (here and here) have discussed new research measuring the impact of micro-finance. The current debate will remind political economy-oriented readers of the mid-1990s debate on "Total Factor Productivity" and the "East Asian Miracle": In that debate, Paul Krugman and others wondered if the "East Asian Miracle" did not include any innovative and transformative ascent of the value and productivity ladder, but was merely a consequences of high-savings-driven capital-intensive investment. The new skepticism on micro-finance suggests queries whether there is anything more to the poverty-alleviating effects of the MF than just the funds flow itself.

Ubuntu at Work is trying to solve this problem.

Logging in for a cause
Friday Sep 18, 2009

In three poor neighborhoods around Bangalore, groups of women micro-enterpreneurs have recently logged on to the power of global social networking through the internet despite being impoverished and illitrate. Helping them in this attempt to escape poverty is a start-up called Ubuntu at Work which is inspired by Nobel Prize-winning economist Amartya Sen's argument that a person's capability is not what he or she theoretically has, but hinges upon the person's social arrangements.

Is there momentum and substance behind Cross-Straits Financial Cooperation Negotiations - Delays raise questions

By Siddharth Gupta and Matthew C.J. Rudolph

Storms - meteorological and political - may have delayed progress on negotiations to increase financial integration between Mainland China and Taiwan

In June 2009, a delegation of lawmakers from Taiwan was due to visit the mainland in a bid to finalize the details of Memorandum of Understandings (MOUs) on cross-straits business in the banking, insurance and securities sectors. This was seen as a progression of the agreements signed on April 26 which allowed approved mainland entities to invest in Taiwan after a 20 year hiatus, making the flow of investment a two-way street. (Previously, only investors from Taiwan were allowed to invest in the mainland. A law forbids large-scale investment into Taiwan and transactions in Taiwan cannot be settles in yuan, or vice-versa.) Since April HC has been watching to see what will come of the proposal for Mainland investment into Taiwan. Nothing has yet happened.

MOU Completion Necessary before Mainland Institutional Investing into Taiwan

China Mobile announced in April it had reached an agreement to buy a 12 percent stake in Far EasTone. China Mobile said it had invested NTD 17.77 billion (about CNY 3.6 billion) to purchase 444 million shares of Far EasTone at the price on NTD40 per share through its wholly-owned subsidiary and these shares would account for 12% of the total stake of Far EasTone Telecommunications. This deal announcement suggested to observers that there was perhaps real momentum behind the cross-straits financial MOUs last stage of negotiations to be finalized by the Taiwanese delegation due to visit the mainland in early July.

The delegation was to visit the China Banking Regulatory Commission, China Insurance Regulatory Commission, China Securities Regulatory Commission, and major Chinese government-run and private banks to better understand the operations of financial institutions of Mainland China. In addition, the delegation was to visit the Shanghai Securities Exchange to learn more about its operations.

The delegation returned on July 5, 2009 and as of September 1, there was no further movement on the issue. It seemed that the MOU had been stalled despite statements from Chiang Hsiu-Lian, Chairwoman of Taiwan Financial Holding Corporation that both sides would like to see the MOU signed quickly and would not want it to be postponed to 2010. Reasons for this delay were unclear.

When the delegation returned, Kuomintang (KMT) legislator and MOU delegation leader Lai Shyh-Bao said the trip was fruitful, emphasizing that the focus of the MOU discussions had been on market entrance. Signing would proceed as soon as the market entrance issue was resolved.

Confusion as Conflicting Reports Fill the Sky

There were reports about Dalai Lama's visit to Taiwan causing some consternation amongst the Chinese policy-makers which was cited as the reason for the stalling. However, in a new turn of events, on 17 September 2009, Mainland Affairs Council Chairwoman Lai Shin-Yuan said the Cross-Straits Financial MOU talks were near completion and that the two sides had made significant progress in the past few months, making it likely that it will be signed soon.



The two sides for the talks are headed by the Taipei-based Straits Exchange Foundation (SEF) Chairman Chiang Pin-Kung and China-based Association for Relations Across Taiwan Straits (ARATS) President Chen Yunlin. The SEF and ARATS are semi-official intermediary bodies set up by Taiwan and China, respectively, to deal with cross-strait affairs and negotiations in the absensce of official ties between the two sides.

Where did Financial Cooperation Go? Banking, Insurance, Securities Issues Missing from Agenda

On October 14, Mainland Affairs Council (MAC) reported that the fourth round of Chiang-Chen talks will be held in December in the central city of Taichung. The two officials are expected to sign four agreements regarding fishing labor cooperation, agricultural quarantine inspection standards, inspection and certification for industrial products, and the avoidance of double taxation.

There is still no word regarding follow-on action in Mainland-to-Taiwan investment as mentioned in the April 2009 proposal.

Indian-China Rivalry in Legal Process Outsourcing: The Upside of Chinese Infrastructure and Leninist Legal Systems

In a piece in China Daily, Alamgir and Sullivan assess the state of Indian-China Rivalry in Legal Process Outsourcing (LPO). HC has some thoughts on this.

The article claims that, "India's federal and state governments have invested heavily in the economic infratsructure of IT and business process outsourcing. LPO uses the same infrastructure."

This may be true if the "economic infrastructure" refers to the tax breaks and software park dispensations that the government has given to the outsourcing industry. How much this helps the LPO industry isn't very clear.

On the other hand if the authors are referring to the public-service infrastructure, then India's is bad compared to China's. This is elaborated in two points.

1) It is not true in the sense that if "economic infrastructure" means fixed public-sevice infrastructure such as broadband, electricity and roads that are necessary to make any services sector competitive, then Indian states and the Union government have not yet invested very much in such things. Most world-class service providers in India provide at least some of these for themselves through "captive" power, broadband, and on-site or nearby residential housing stock (or captive bus transport).

2) Whatever India has invested in such things is insufficient to compete with the Chinese on fixed public-service infrastructure and tax treatment.

Another point worth mentioning is the leninist legal system in China will both deter and punish contract breakers in this area, as long as the substance does not relate to any China-oriented business, much more effectively than the Indian system. These conditions may be less just and less morally comfortable in China as compared to India, but they do present a benefit to those evaluating LPO location choices between India and China.

Finally, in recent happenings, the scholars of the Chinese legal system have recently observed that the difference between China's Civil Law system and the Common Law system of India and the Anglo-Saxon countries is now narrowing. Surprisingly, it may be that Chinese elite policy makers are in fact cultivating LPO as a way of having foreigners pay for the development of the Chinese Common Law Skills.