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The Economics of Nuclear Arms Reductions

Zachary Keck — Wed, 19 Jun 2013 22:34:18 +0000

In an important speech today at Brandenburg Gate in Berlin, U.S. President Barack Obama called for further reductions to the U.S. and Russian nuclear arms stockpiles.

In the relevant part of the speech, President Obama declared:

“After a comprehensive review, I’ve determined that we can ensure the security of America and our allies, and maintain a strong and credible strategic deterrent, while reducing our deployed strategic nuclear weapons by up to one-third. And I intend to seek negotiated cuts with Russia to move beyond Cold War nuclear posture. At the same time, we’ll work with our NATO allies to seek bold reductions in U.S. and Russian tactical weapons in Europe.”

Under the New START agreement signed by Russia and the U.S. during Obama’s first term, Russia and the U.S. pledged to cut their deployed strategic nuclear forces down to 1,550 warheads by 2018 (although the actual number might be slightly higher because bombers are counted as one warhead even if they carry more than that.) The treaty did not address tactical nuclear weapons, which the U.S. and Russia deploy in Europe.

Assuming Obama was talking about reducing strategic stockpiles by one-third from the New START Treaty, this would leave the U.S. and Russia with roughly a 1,000-1,100 deployed strategic forces.

Most experts in the arms control community agree that the U.S. could maintain a credible deterrent at this level or lower. Indeed, before becoming Defense Secretary, Chuck Hagel signed his name onto a report that suggested looking into reducing America’s strategic forces down to 450 warheads.

Proponents of further nuclear weapon reductions often point to a number of strategic and security benefits that would supposedly come from reducing nuclear stockpiles, including lowering the chance of an accidental nuclear launch or nuclear terrorist attack, and reducing the incentive non-nuclear weapon states have to pursue their own nuclear forces.

Whatever the merits of these arguments, the most compelling argument for why Russia and the U.S. should further reduce the size of their nuclear arsenal is economic in nature. Indeed, economic-based arguments for further arms reductions would almost certainly be the most effective means of persuading the principal opponents of a new nuclear agreement—Republicans in Congress and the Russians.

As I’ve argued before, the enormous costs of maintaining a nuclear arsenal are too often neglected in nuclear debates. Calculating the total costs of a nation’s arsenal is an immense task, but one notable effort calculated that America's nuclear weapons program cost US$5.8 trillion from 1940 to 1996. According to the Arms Control Association, a non-profit organization dedicated to reducing nuclear weapon stockpiles, the U.S. currently spends about US$31 billion annually on simply maintaining its existing nuclear weapons arsenal.

Modernizing U.S. nuclear forces and delivery systems will be immensely expensive as well, and threaten to erode America’s conventional military capabilities in a time of greater austerity. According to a September 2012 report by Ploughshares Fund, when modernization efforts are included, the U.S. nuclear arsenal will cost US$640 billion over the next decade, more than doubling the current annual price tag. It’s worth noting that actual costs of nuclear and other defense programs often far exceed anticipated costs.

Although cost estimates are harder to come by for Russia’s nuclear forces, Moscow is also planning on modernizing its forces. Furthermore, it is likely to be as constrained or more constrained fiscally than the United States.

By pledging to reduce stockpiles down to 1,000 deployed strategic forces, the U.S. and Russia could lighten the burden their nuclear forces will have on government budgets. In fact, in the March 2013 Arms Control Association report cited above, the organization estimated that bringing nuclear forces down to this level would save American taxpayers around US$58 billion. This figure could be increased if the U.S. decided to remove its 150-180 tactical nuclear weapons from Europe.

Given the growing conventional challenges both countries face from China’s military, this could be money well saved.

SoftBank: Sole Bidder in Sprint Buyout After Dish Network Quits

diplomat_admin — Wed, 19 Jun 2013 22:15:25 +0000

Japanese telecommunications and internet giant SoftBank currently stands uncontested in its bid for American mobile carrier Sprint. In a statement today, Dish stated that Sprint’s decision to terminate the company’s due diligence process on June 18 would render it unable to submit a counter bid. Dish also indicated that it would be focusing on another pending acquisition instead.

The full Dish statement reads:

“While Dish continues to see strategic value in a merger with Sprint, the decisions made by Sprint to prematurely terminate our due diligence process and accept extreme deal protections in its revised agreement with SoftBank, among other things, have made it impracticable for Dish to submit a revised offer by the June 18th deadline imposed by Sprint. We will consider our options with respect to Sprint, and focus our efforts and resources on completing the Clearwire tender offer.”

The statement comes in the midst of separate drama involving Dish and Sprint. Sprint has filed a lawsuit against Dish in an attempt to stop the satellite TV company from purchasing Clearwire – a company that Sprint owns a majority (50.2 percent) stake in. Dish is attempting to obtain Clearwire, a 4G wireless carrier, for $6.3 billion. The sale would give Dish access to the company’s lucrative wireless spectrum, something that Sprint had desperately hoped to capitalize on. A Sprint takeover of Clearwire would make Sprint the largest U.S. owner of wireless spectrum.

Dish is facing difficulty with their current pay-for-TV model, which has been under pressure from streaming services like Hulu and Netflix. The attempted purchase of Sprint would have given Dish an opportunity to expand into the wireless market.

SoftBank’s $21.6 billion bid for Sprint will be the final offer, with shareholders set to vote on June 25. The offer would give SoftBank a 78 percent stake in the U.S. carrier. Masayoshi Son, SoftBank’s chief executive, hopes to enter the American wireless market as mergers continue to consolidate the industry. He believes that now is the time to give current market leaders Verizon and AT&T a worthy rival.

"We look forward to the receipt of FCC and shareholders' approvals, which will allow us to close the deal in early July, and begin the hard work of building the new Sprint into a meaningful third competitor in the U.S. market," SoftBank said in a statement.

Expanding its global reach could potentially save SoftBank enormous amounts of money, as it would be able to make bulk purchases of handsets and phone accessories. For Sprint, the deal would mean more capital to expand and improve its domestic network.

SoftBank shares were up more than 4 percent following the news that Dish had abandoned the bidding war. If successful, SoftBank’s big purchase will likely be the largest ever overseas acquisition by a Japanese company.

KCNA: Hitler’s Autobiography is NOT on Kim Jong-Un’s Book Club

Zachary Keck — Wed, 19 Jun 2013 19:27:06 +0000

North Korea’s official media denied a media report that Kim Jong-Un gave a copy of Hitler’s autobiography, Mein Kampf, to senior DPRK officials during his birthday celebrations in January.

Citing a DPRK official located in China, on Monday New Focus International, a website run by defectors in South Korea who maintain contacts with DPRK elites, reported that the North Korean leader had handed out copies of Hitler’s autobiography to “DPRK officials ranked departmental director and above in the National Defense Committee” at a meeting on January 8th.

The source also told NFI that, “Mentioning that Hitler managed to rebuild Germany in a short time following its defeat in WWI, Kim Jong-un issued an order for the Third Reich to be studied in depth and asked that practical applications be drawn from it.”

The report was picked up by Max Fisher of the Washington Post on Monday, and from there was reported on by numerous Western and International media outlets.

According to a translation provided by World News Connection, Pyongyang’s official Korean Central News Agency (KCNA) blasted the report in a commentary today, calling it a “sheer fabrication.”

It also had offered some harsh criticism of New Focus International. “New Focus is wicked media made up of human scum,” the KCNA report said, adding “The group of such dirty men talked rubbish packaged in false information, a mockery of media whose basic mission is objectivity, impartiality and neutrality and an intolerable insult to human conscience.”

The commentary piece went on to opine that such false reports were meant to “tarnish the image of the DPRK and hurt the validity and invincibility of the Songun cause,” and characterizing them as “a hysteric symptom of those who are frightened by the DPRK demonstrating its might as the world's strongest political and ideological power and a nuclear weapons state and making leaping progress to bring prosperity.”

KCNA informed its readers not to worry, however, because “just as it is impossible to smear the blue sky dark with dirty writing brush of falsity and machinations, the forces hostile to the DPRK can never undermine the validity of the Songun cause.”

Although calling the report a sheer fabrication, as New Focus International itself notes on its website, the KCNA commentary didn’t outright deny the allegations made in the report.

Interestingly, at the time of this writing, KCNA has not posted the commentary piece on its English-language website.

In its initial report on Monday, New Focus International said that there have long been rumors circulating that Kim Jong-Un became an avid reader of Hitler while studying in Switzerland as a teenager. The website also said that the head of North Korea’s secret police gave a recent speech to its members in which he called on them to “Stop focusing on ways to make money in the markets, and mold yourselves after the Gestapo,” a reference to the Third Reich’s secret police.

In Mass Line Campaign, Bo Xilai’s Legacy Endures

David Cohen — Wed, 19 Jun 2013 17:15:20 +0000

On Tuesday, Chinese President Xi Jinping spoke to members of the Chinese Communist Party and placed a Maoist stamp on his ethics campaign – calling upon one of the Party's oldest slogans: the "mass line." Although this is a logical progression from Xi's established focus on official behavior, the term is a very dramatic choice. Not only does the term harken back to the revolutionary days of Mao Zedong, but also to the recent past of Chinese political infighting: it was also a favorite of the disgraced Party leader, Bo Xilai.

Xi announced that the Party would spend the second half of 2013 on a campaign to educate members about the mass line, signaling that it is likely to be a major slogan of his term. The People’s Daily web site has also set up a landing page for information about the mass line, which is their usual practice for explaining important Party slogans. (For instance, they also did it with the “scientific development” Party slogan). An entire website has also been set up for the mass line as well.

Under Bo Xilai’s former leadership in Chongqing, the mass line was enforced by quotas for face time with the public: village secretaries had to meet with their constituents at least once a week for at least half a day, while county leaders owed a full day once a month. Xi hasn't and almost certainly won't order officials to follow anything like this since detailed regulations for policies like this are not set at high levels – but Bo's model will have an influence as provincial and local officials aim to develop their own mass line policies.

This is a remarkable afterlife for the ideas of a fallen leader – especially one who was expelled from the Party for failures of discipline. Bo still has at least a small collection of hard-core followers who are occasionally seen protesting his arrest on Weibo, China’s popular micro blogging website. It seems that Bo's ideas may be back – or perhaps, that they were never gone, and that his dismissal was caused by other factors. Certainly, Xi seems to have learned from his public relations techniques.

The aim of the policy is clear: to maintain the legitimacy of the Party by reducing the obvious privileges of its members. According to Xinhua, Xi reminded Party members that "keeping the support of the people is a matter of life and death," using words that are fairly standard in speeches on ethics and corruption. Xi focused on personal ethics, telling his audience to "watch from the mirror, groom oneself, take a bath and seek remedies."

In this way, the mass line seems to be a continuation of Hu's "advanced nature of the Party" campaign, which had officials joining study groups to examine their own characters. The plans announced so far are to implement a half year of intra-Party educational campaigns followed by a period of consultation and criticism.

While some of Xi anti-corruption moves may well be PR stunts, the mass line is for Party consumption. Unlike other parts of Xi's ethics campaigns, the mass line speech has been covered by Xinhua and the more official papers but largely ignored by the commercial (but also state-owned) press. On Tuesday evening, there was no story about it on the front page of either the liberal Southern Weekend or the conservative (and People's Daily-owned) Global Times.

Clearly signaled but not entirely explained, the mass line represents an interesting phenomenon of how CCP leaders' management methods are implemented after setting incredibly vague goals. It's an extreme form of an American management theory called "management by objectives" – Chinese presidents often describe grand goals and then say nothing about how they are to be achieved. I've gone into this at length before, but I believe this to be a strategy for managing an enormous bureaucracy with little to no effective oversight.

The main tool Beijing has for controlling low-level officials is establishing the metrics for promotion – so next year's annual work reports are clearly going to have long sections on mass line education. In the meantime, we should start to see rash policies designed to pad out these reports.

Rhyming History: Russia Repeats USSR’s Errors

Zachary Keck — Wed, 19 Jun 2013 14:20:44 +0000

Although Chinese leaders have studied the Soviet Union’s collapse obsessively, their Russian counterparts don’t appear to have the same interest in modern history. Indeed, even as Vladimir Putin seeks to reestablish Russia as a great power, , Moscow is increasingly falling into the same traps that brought down the Soviet Union.

First among them is a complete neglect of the economic foundations of power. While military power may be the ultimate currency in world politics, the strength of a nation’s military is little more than an extension of its economic might (at least over the long-term.) Thus, sea-faring, trading nations like Britain in the 19^th and 20^th century and the U.S. since the 20^th century have enjoyed long reigns as global powers. By contrast, as Paul Kennedy famously argued, military powers that don’t keep their fiscal house in order don’t remain military powers for very long.

The Soviet Union is a case in point. Although the brutal policies of Joseph Stalin made the USSR into an industrialized country, and the economy grew at fast or respectable rates through the 1960s, the inefficiencies of the system meant that, among other things, the Kremlin went from being the world’s largest grain exporter to its largest importer. This required the Soviet Union to acquire hard currency to feed its population, which—owing to the poor quality of the Soviet economy—could only be obtained by exporting natural resources. This was sustainable during the record-high oil prices of the 1970s and early 1980s, but once oil prices began bottoming out in the late 1980s due to greater Saudi production, the Kremlin was forced to borrow heavily from abroad to feed its populace. This proved unsustainable in the long-term.

Not much has changed since the Soviet days in Russia.

Indeed, far from diversifying away from natural resource exports, Russia under Putin has grown more dependent on them (relative to the 1990s). As a December 2012 report from the European Bank of Reconstruction and Development noted gloomily, “Not only are Russian exports highly concentrated in natural resources, this concentration has increased over time: the shares of oil, gas and other minerals in Russia’s exports are higher today than they were 15 years ago.”

The report went on to point out:

“In 2012 Russia remains highly dependent on its natural resources. Oil and gas now account for nearly 70 percent of total goods exports…. Oil and gas revenues also contribute around half of the federal budget. The non-oil fiscal deficit has averaged more than 11 per cent of GDP since 2009, while the oil price consistent with a balanced budget is now in the region of US$115 per barrel and rising.”

Thus, Russian power since the Cold War has corresponded directly with the price of oil. When energy prices were low in the 1990s, Moscow’s economy was in a state of shambles and the West trampled all over Moscow. Since energy prices began rising last decade Russia has seen its power and presence on the world stage increase as well.

The crux of the issue for Putin and Russian leaders, however, is that energy prices won’t remain high forever. Indeed, there is good reason to believe they will drop in the years of ahead.

To begin with, many of the leading energy consumers are investing in greater energy efficiency, which will eventually reduce the growth in demand. Supply will also expand considerably as more North American unconventional sources come to market and Iraq’s full potential is tapped. Other events could potentially cause a further drop in energy prices; for example, a resolution of the Iranian nuclear crisis.

Russia is dutifully unprepared for this eventuality. As the EBRD report cited above noted, the business environment and level of competition in Russia have not improved despite token top-down efforts to do so. As a result, far from attracting foreign direct investment as other BRIC countries have, capital flight out of the country totaled more than US$80 billion in 2011. The report further observes that although Russian leaders have touted the importance of high-technology sectors in the information age, they have failed to invest in the education and training necessary to bring about innovations.

Another well-known deficiency of the Soviet model was its excessively high defense spending, which some estimate at times consumed as much as 40 percent of the Soviet budget and 15-20 percent of its GDP. This excessive defense spending was driven, at least in part, by the Kremlin’s overly-militarized identity as a great power.

Since reassuming office, Putin has seemed determined to replicate this failure. Before Putin even returned, Moscow increased its military spending by 16 percent in 2012, even as other countries cut back. The US$90 billion it spent on defense in 2012 was more than it invested in education. Meanwhile, Putin has pledged to spend an additional US$755 billion over the next decade on modernizing the Russian armed forces. Even before this announcement, however, Russian military spending was expected to increase from about 2.3 trillion rubles (US$78.8 billion) in 2011 to just under 4 trillion rubles (appx.US$125 billion) in 2015.

Demographics are one key area where the Soviet Union and Russia differ. Whereas the Soviet Union was burdened by a growing population (particularly increasingly urban one), Russia has been beset by population decline since 1992. In its Global Trends 2030 report released in December of last year, the U.S. National Intelligence Council forecasted that Russia’s population would decline by 10 million people by 2030, more than any other country during that time span. The UN similarly expects that by 2050, Russia’s population will have dropped 30 million people below 2000 levels. Although vowing to reverse current trends—which there are some signs is occurring to a point—Putin himself warned last year that Russia’s population could drop to just 107 million by 2050, from about 143 million at the time of the speech.

In all these ways, then, Russia hardly appears to be resurging.

China’s Money Market Jitters

James Parker — Wed, 19 Jun 2013 13:48:40 +0000

Many readers will be familiar with the acronym LIBOR (London Inter-Bank Offered Rate), especially given the recent controversy surrounding allegations of manipulation by various banks trading in the UK’s money markets. The SHIBOR (Shanghai Interbank Offered Rate) is less important than the LIBOR because it is less linked to the benchmark deposit and lending rates in China (which are set by the State Council), but the various SHIBOR interest rates do both reflect and influence liquidity conditions and cash availability in China’s money markets. Recent trading has seen some dramatic swings in the key rates, and the ongoing market conditions provide good reason to take a deeper look at Chinese economic policy during this key period.

As indicators of the cost of money, the SHIBOR interest rates are an interesting reflection of liquidity conditions in China. First some background; it is common for key SHIBOR rates to jump before public holidays (when upcoming halts to trading hinder the smooth flow of cash in the financial system) and at month and quarter ends (because banks face period-based regulatory targets so need to fulfil certain liquidity requirements at these times) as institutions hoard cash.

Recent events however, suggest that something new is going on in China’s money markets. Rates began to pick up significantly towards the end of May, and kept rising as China’s short “Dragon boat Festival” drew nearer. As the rates hit big highs, a rumour spread that China Everbright Bank, a midsize lender, had defaulted on an interbank loan due to liquidity tightness. The rumour was denied, but a policy bank (the Agricultural Development Bank – ADBC) then failed to fully place a planned debt issue.

After the Dragon Boat festival, the People’s Bank of China (PBoC) did not step in to inject significant liquidity into the money markets, as many had expected (hoped). SHIBOR money market rates remained high, and on Friday of last week, the tightness even affected China’s Ministry of Finance – which failed to place over a third of its planned debt. Expectations for a PBOC “rescue” (liquidity injection) received cold water on Sunday, as a key newspaper linked to the central bank suggested that no action would be forthcoming and blamed the banks’ pain on their own bad practices and liquidity management.

Then on Monday of this week (17^th June) the overnight rate did fall back somewhat, but other rates, including the 7-day rate, remained high. It is clear that liquidity remains tight, and markets are nervous. As predicted in the weekend newspaper report, Tuesday 18^th indeed saw the PBOC take no decisive action during its open-market operations, and now the markets are waiting to see what happens this Thursday.

Some are calling for a cut to the Required Reserve Ratio (RRR), which would unleash cash for the banks; others are hoping that the PBOC will inject liquidity into the money markets through its “normal” operations. Either way, what with the MOF and ADBC both failing in their debt auctions and ongoing tightness ahead of month and quarter end, there is definitely something curious going on.

It is clear that the PBOC is taking a (somewhat) surprisingly tight stance on China’s liquidity situation, probably to enforce some discipline onto China’s lenders. This is occurring against a backdrop of urgently required economic reform (ending the increasingly ineffective credit-fuelled overinvestment boom in favour of more balanced consumption-driven growth, controlling the liquidity fuelled housing bubble etc) and slowing growth. The PBOC is a key proponent of financial and economic reforms but has been stuck trapped in the wider government’s dilemma between falling growth and failing rebalancing for years.

As the government tried to rein in lending after the monetary flood in 2009/10, banks and other financial institutions turned to the less regulated “shadow banking” areas, as Pacific Money covered last year. Cracking down on shadow banking has proven just as difficult, with an impressive array of products and methods being created to avoid the regulators. Now “shadow banking” is considered a large and immediate worry, as Fitch’s top China expert Charlene Chu has been loudly signalling. Ultimately the failure to rein in credit, whether in the formal or “shadow” banking areas, has actually been due to a lack of government willingness to face the inevitable consequence of doing so – slower growth.

Now China’s economy is slowing again as credit and liquidity are tightened, and pressures are building. The immediate issues seem to be emerging in the money markets, and it is here where the calls for yet another “loosening” are now being heard. For now rates remain high, and the calls for the PBOC to act are getting louder.

The PBOC seems to be sticking to its tough line. Whether this is a vote of confidence in the strength of the wider economy or an ongoing attempt to affect genuine reform remains to be seen. With the Ministry of Finance failing a debt auction, and growth slowing despite the mini credit binge this past winter, there is certainly a lot at stake. Will the government make the PBOC backtrack on its tough stance, or are the “bitter medicine” reformers in the ascendency?

How Chinese Strategists Think

James R. Holmes — Wed, 19 Jun 2013 13:28:52 +0000

Toshi Yoshihara joins me (or I join him) over at Investor's Business Daily to refocus attention on the human dimension of the U.S.-China strategic competition. Followers of these pages pixels know that Toshi and I are true believers in the idea that competition is a human enterprise. As Colonel John Boyd liked to say, people, ideas, and hardware — in that order — are the determinants of competitive endeavors like power politics.

People, not stuff, fight.

That's not to say hardware is unimportant. Not for nothing did author Hilaire Belloc ascribe British imperial dominance over subject peoples to the fact that "we have got the Maxim gun, and they have not." Too great a material advantage, then, can translate into an insurmountable competitive advantage. And this mismatch holds true beyond colonial wars against outgunned antagonists. World War I proved that there were limits to men's capacity to stand against fire, even when peer army faced peer army.

But human ingenuity is crucial even in the material dimension, isn't it? It's the common denominator among all of Boyd's elements of competition. People with ample resources concoct gee-whiz engines of war. People not blessed with such abundance can work around material shortcomings, devising asymmetric tactics and weaponry to get more bang out of scarce materiel. Look no further than the improvised explosive device, a homemade landmine that has given high-tech militaries fits in places like Iraq and Afghanistan. Only expensive countermeasures have kept the IED menace at bay, and imperfectly so at that.

Which is a roundabout way of getting back to China. As red-blooded 'Mercans, my wingman and I have little sympathy with Beijing's goals. But as professors we've come to admire how assiduously our Chinese counterparts do their homework. They look to history, and to the greats of strategic theory, to guide their thinking and illuminate their strategic discourses. Mahan is a fixture in debates over sea power, however improbable that might seem. Corbett puts in the odd appearance. And, unsurprisingly, Sun Tzu and Mao are regulars.

In a sense Chinese scholars are running a Far Eastern campus of our Strategy and Policy Department. We read theory with our students, use strategic precepts to evaluate history, and see where the analysis takes us. Strategists in China read theory, apply it to history — as in the Rise of the Great Powers books and TV series– and see where the process takes them. In short, these are strategic competitors worth taking seriously. And their playbook is strikingly similar to ours.

Western commentators err badly if they reduce the U.S.-China competition to GDP figures, numbers of ships, warplanes, and other widgets, or other quantitative measures. Colonel Boyd would disapprove — and rightly so.

Dell XPS 12 vs. Sony VAIO Duo 13: Battle of the Haswell Laptops

diplomat_admin — Wed, 19 Jun 2013 13:12:53 +0000

Earlier this month at Computex 2013, Asia’s largest computer exhibition, Intel revealed its fourth-generation “Haswell” processors. Alongside the power-saving new chipsets, major computer manufacturers were showing off shiny new hardware refreshes that incorporate them.

With the rising popularity of tablet computing and ultraportable convertibles, The Diplomat takes a look at two laptop-tablet hybrids powered by the latest Haswell processors.

First up is the Dell XPS 12. The most striking feature, by far, is the rotating touchscreen housed in its aluminum frame. The refreshed Haswell version is thinner and lighter than its predecessor, with dimensions of 12.48 x 8.46 x 0.79 inches and 3.35 pounds. The 1080p screen measures 12.5 inches diagonally and features capacitive multi-touch.

As the name implies, most would expect the Sony VAIO Duo 13 to be slightly larger than the Dell. Although the screen is bigger, at 13.3 inches diagonal, Sony’s model is smaller in every way except width. Its dimensions are 12.99 x 8.27 x 0.77. It weighs a mere 2.93 pounds, almost half a pound less than the Dell. The VAIO Duo 13 also has 1080p resolution, but its multi-touch screen uses dual-digitizer technology.

Both the XPS 12 and VAIO Duo 13 can be configured with either an Intel Core i5 or i7 chip. With the i5 (4200U) both computers have a turbo clockspeed of 2.6GHz. However, the XPS 12 and VAIO Duo 13 have slightly different models of the Haswell i7. The Dell comes with the Core i7-4650U with a turbo clockspeed of 3.3GHz, while the Sony gets the Core i7-4500U rated at 3GHz.

“Intel has claimed that Haswell chips will improve laptop battery life by 50 percent compared to previous Core processors code-named Ivy Bridge, which shipped last year,” wrote PCWorld. This means the latest XPS 12 will last up to 9.5 hours between charges, with the VAIO Duo 13 boasting more than 10 hours of battery life.

Another minor difference lies in the audio and webcam options. The XPS 12 uses a one-speaker system and a 1.3MP front-facing webcam that produces 720p video. Sony’s offering, on the other hand, sports two speakers and a 2.07MP webcam capable of 1080p video capture.

The XPS 12 and VAIO Duo 13 have identical Intel graphics cards, the HD Graphics 4400. Base RAM is 4GB, maxing out at 8GB for both. Solid state drives for each computer start at 128GB, with a maximum of 512GB. Both also come equipped with NFC (near field communication).

There are two issues involving the screens of each of these rival convertibles. With the XPS, tilting the screen within the frame will disable the keyboard and force it into tablet mode. While limiting viewing angles, this also misses a chance for added productivity. “On a cramped airplane, it'd be nice to be able to position the screen directly above your hands while you type things on the physical keys, but you'll have to use the touchscreen keyboard instead,” wrote The Verge.

Similarly, the VAIO suffers from a similar viewing-angle issue, as the sliding style allows only one position when the screen is open. SmallBizTrends explained that “the slant of the screen when the device is in laptop configuration cannot be adjusted and may not be for everyone.”

The Dell is offered in black, while the Sony is offered in black and white. Both utilize carbon fiber and aluminum in the computers’ construction.

The Dell XPS 12 starts at $1,199 and the Sony VAIO Duo 13 starts at $1,399. The Sony’s larger screen and lower weight may justify the increased price, but the Dell seems equally capable for the lower price tag. Perhaps the Sony is better suited for jet-setting business travelers, for whom the deviations in size and weight matter the most (and who probably have more money to spare).

The Dell might be a better option for everyday users due to the more varied viewing angles, especially if you have children who are looking at the screen from a lower angle. In the end, brand loyalty will probably trump specs for these quite evenly-matched competitors.

Do you own either of these computers? Which would you rather buy? Share your opinions in the comment section below.

Correction: The XPS 12 will begin shipping on July 7, and the VAIO Duo 13 is available now.

Soft Power: A U.S.-China Battleground?

diplomat_admin — Wed, 19 Jun 2013 12:44:53 +0000

In a recent opinion piece for the Global Times, Professor Liu Aming of the Shanghai Academy of Social Sciences’ Institute of International Relations writes that soft power “is a kind of power which can also make enemies.” At first glance, Liu’s comment is a curious one: how can a power that aims to attract rather than coerce also be a power that makes enemies?

Strip away the ostensibly benign surface of public diplomacy, cultural exchanges and language instruction, and it becomes clear that the U.S. and China are engaged in a soft power conflagration – a protracted cultural cold war. On one side bristles incumbent Western values hegemon, the U.S. On the other is China, one of the non-Western civilizations that Samuel Huntington noted back in 1993 “increasingly have the desire, the will and the resources to shape the world in non-Western ways.”

But to shape the world in non-Western ways means engaging in a soft power battlespace against an incumbent who already holds the high ground. Liu comments that in regions deeply influenced by Western cultures, political systems and values, the “latecomer” China is considered a “dissident force." Under such circumstances, “it is rather difficult for China to attract Western countries with its own political and cultural charisma, let alone to replace their positions.”

According to this and similar viewpoints, China’s difficulty in projecting soft power across the world is in part due to the way the U.S. leverages its own soft power. Wu Jianmin, the former president of China’s Foreign Affairs University, puts the point well when explaining that U.S. soft power is driven by the imperative of “maintaining US hegemony in changing the world, of letting the world listen to the United States.”

Thus, the state of global post-colonial, post-communist ideational hegemony is such that large swathes of the earth’s population see the world through lenses supplied by the West. Through these lenses, perceptions of China are dominated by such concepts as the “China threat theory,” which portrays China as a malevolent superpower upstart.

But it’s actually inside China’s borders where the soft power struggle between China and the U.S. is most prominent.

Official pronouncements from Chinese leaders have long played up the notion that Western culture is an aggressive threat to China’s own cultural sovereignty. It has thus taken myriad internal measures to ensure the country’s post-Mao reforms remain an exercise in modernization without “westernization.” Since the 1990s, for example, ideological doctrine has been increasingly infused with a new cultural nationalism, and the Party’s previously archaic propaganda system has been massively overhauled and working harder than ever.

Especially after the June 4^th crackdown and the collapse of the Soviet Union, China’s leaders under Jiang Zemin began addressing the cultural battlespace with renewed vigor. Resolutions launched in 1996 called for the Party to “carry forward the cream of our traditional culture, prevent and eliminate the spread of cultural garbage, [and] resist the conspiracy by hostile forces to ‘Westernize’ and ‘split’ our country….” Hu Jintao trumpeted the same theme in early 2012 when he warned that international hostile forces are intensifying the strategic plot of Westernising and dividing China … Ideological and cultural fields are the focal areas of their long-term infiltration.”

The rhetoric of culture war continues to emanate from the CCP. In a private speech delivered to Communist Party members last December—which was first reported by Seeing Red in China— Xi Jinping argued that the Soviet Union had collapsed because none of its members had been “man enough to stand up and resist” the onslaught of Western ideals. Then, in recent days, South China Morning Post reported on an article in the flagship CCP publication Seeking Truth, which warned that “adopting Western ideas would push the nation into a dead end and dash hopes for realising the ‘Chinese dream.’" The country’s university lecturers have also been ordered to avoid discussing certain topics reflecting Western values, such as press freedom and civil rights. While such machinations may be viewed as post-leadership change posturing, they nevertheless reflect Beijing’s long-held sensitivity to the incursions of the “aggressive” soft power of the West.

So, how can Chinese soft power combat the advantage U.S. soft power currently enjoys? Classical military strategist Sun Tzu famously likened an effective army to water. Just as flowing water avoids the heights and hastens to the lowlands, so an army avoids strength and strikes weakness. So while winning over the hearts and minds of Main Street America may not be realistic, there are perhaps more achievable targets, from its cultivation of the developing world to enhancing its domestic soft power among its own populace.

On the latter front – and rather ironically – recent reporting indicates that Beijing is already getting a helping hand from a core source of U.S. soft power – Hollywood. A number of recent reports have said that U.S. film producers now modify blockbuster movies to win approval by Chinese authorities for their distribution in huge and growing Chinese market. With an increasing incidence of such “kowtowing to China” within artistic, commercial and political spheres in the West, it may well be Beijing’s economic hard power that ultimately prevents China from succumbing to American soft power.

Nicholas Dynon is a PhD candidate at Macquarie University and is coordinator of the Line 21 project.

Reforming China’s State-Owned Enterprises

Eve Cary — Wed, 19 Jun 2013 12:28:08 +0000

China’s huge apparatus of state-owned enterprises (SOEs) is a popular punching bag: economists decry its inefficiencies; foreign politicians complain about unfair competition; and many Chinese citizens criticize public displays of waste, like elaborate banquets. The Chinese government would counter that they provide a foundation for the economy as a whole.

As China’s economy evolves (and it does, albeit slowly at times), the clamor for SOE reform grows louder from all sides. What is the potential for reform? How damaging are SOEs to the Chinese economy? On the flip side, how have SOEs strengthened the system?

But first, a little background. According to Xinhua, at the end of 2011, there were 144,700 state-owned enterprises with total assets of 85.4 trillion yuan, revenues of 39.25 trillion yuan, and profits of 2.6 trillion yuan (43 percent of China’s total industrial and business profit).

Most SOEs are controlled by local governments, though it is those in the care of the central government that receive the most attention. Of those companies, there are three categories: those controlled by the State-Owned Assets Supervision and Administration Committee (SASAC), banking and finance organizations, and “media, publications, culture and entertainment companies,” administered by other agencies (for more details, see this China Economic Review piece.)

Recently, SOE profitability has taken a hit, reports this May Xinhua article: in the first quarter of 2013, SOEs reported 5.3 percent growth, compared to 2012’s first quarter growth figure of 7.7 percent. According to China Enterprise Research Institute researcher Li Jin, slower growth is attributable to “overcapacity, inefficient cost control, and slow industrial upgrading.” As for the types of SOEs that recorded slower growth, Li identifies them as “mainly in the traditional industries instead of high-tech or emerging industries” that “rely largely on expanding investment to boost growth.” Overall SOE profits are largely supported by just a few massive SOEs, such as PetroChina and China Mobile, according to China Economic Review, that are able to reap substantial profits by way of their “monopoly positions.”

This “monopoly position” of SOEs is one of their greatest advantages. State-owned enterprises are given government subsidies and have much easier access to credit than independent firms. The Wall Street Journal China Real Time blog notes that SOEs are the “beneficiaries of unfair subsidies and below-cost financing.”

Indeed, 85 percent of loans in 2009 were issued to SOEs, because banks themselves are state-owned, and are directed to let credit flow to other state-owned businesses. SOEs can get money more cheaply, paying lower rates for borrowing, and are more blasé about repaying these loans: SOE borrowing was a major source of non-performing loans in past crises.

In some industries, SOEs are granted a monopoly, with private enterprise not allowed to participate, especially in sectors related to national security. As the Wall Street Journal comments, “Beijing frequently justifies the state’s grip on key companies that form the “commanding heights” of the economy – like energy, power, steel, telecoms and shipbuilding.”

To be fair, this is true of many other countries, as well. However, as Andrew Batson, consultancy GK Dragonomics’ research director notes, “state firms do have a continuing and large presence in obviously non-strategic sectors — like restaurants — that is increasingly difficult to justify in a market-driven economy.” These structural advantages make it difficult for private enterprise to compete.

State-owned enterprises have a number of structural and organizational problems. In May, Xinhua reported the results of a National Audit Office audit of ten SOEs, which found a number of issues, including inaccurate accounting, incomplete financial statements, illegal practices and “poor management of investment decisions.”

The National Audit Office also reported (as noted in this Financial Times article) that a number of SOEs, including China Mobile and China Huaneng Group, violated taxation laws by giving employees “invisible benefits,” including gym memberships and life insurance, that allowed them to transfer “public resources” without paying taxes on them.

Chinese citizens often have a dim view of SOEs. Some would say this is because of jealousy of the “iron rice bowl” afforded to employees, but it is also in part because of flagrant spending: Beijing News (reported in this Financial Times piece) listed 10 SOEs that spent 2.9 trillion yuan on receptions in 2012, with China Railway Construction Corporation heading the list, spending 837 million, or 10 percent of its net profits.

The managers of SOEs are rewarded for prestige projects, not necessarily profit, and leaders of SOEs are appointed by the central government, largely on a political basis, rather than because of their business experience.

SOEs distort the Chinese economy in a number of important ways. First, as noted above, they guzzle much of the available credit, starving smaller enterprises, and their subsidies make it difficult for other companies to compete.

They also often don’t pay market price for resources, making them more likely to use those resources inefficiently, with implications for both the economy and environment. Additionally, a low level of accountability encourages a cavalier approach to efficiency in the use of resources (including employees) and end profits. Overcapacity can also be an issue, with industries producing product without considering the economy’s need for the item: this is particularly an issue in the steel and aluminum industries.

And from Economics 101: those in a monopoly position are able to charge more for their product. That puts pressure on Chinese consumers at a time when the government is trying to promote domestic consumption.

On a more general note, SOEs are happy with the status quo, and are powerful opponents of economic reforms, slowing the action needed to move China’s economy forward.

Foreign politicians claim that the privileges afforded to SOEs make their investments and acquisitions overseas unfair. And SOEs have been quite busy expanding their international portfolios: in 2011, China invested $60 billion abroad, 80% of that coming from SOEs, according to Xinhua. The state-run nature of these firms exacerbates foreign concerns about Chinese government involvement in companies on their own soil, particularly when these companies are potentially related to national security concerns, such as energy.

Recently, SASAC has been involved in a media campaign to promote the state sector as “transformed,” and “streamlined” via articles and reports carried by People’s Daily, Xinhua, and CCTV, as noted in this Wall Street Journal article. Anbound Consulting chief Jon Chen commented that the media blitz highlights that “State companies are an interest group and this is their pushback against reforms.”

An editorial in China’s state-run China.org.cn, “China’s SOE Monopoly Fallacy” argued that even within monopoly industries, such as oil and gas, there is competition: among state-run firms such as Sinopec, CNPC, and CNOOC.

SOEs have not been solely deleterious to the Chinese economy; positive ramifications have included shepherding key industries and giving China the building blocks for its rapid development.

Still, it is clear that reform is needed if the economy is to further evolve, and this is widely accepted by the Chinese leadership. In Li Keqiang’s first news conference as Premier this March, as reported by the Wall Street Journal, he said that the market would be given “greater room to operate, including allowing private businesses to compete on an equal footing with state-owned enterprises.”

Last October, SASAC director Wang Yong commented on reform plans, specifying the railway, postal, salt, power, telecommunications, oil, and petrochemical industries. He noted that enterprises would be encouraged to go public or to restructure, and that supervision would be tightened, particularly in regards to locally managed SOEs, about which he noted, “We have seen a tendency for some local governments to meddle in the everyday operations of state-owned enterprises.”

The question is what the nature of reform will be. China Economic Review cites experts as saying that “feasible reform wouldn’t significantly restructure SOEs but would rather change the way they are governed and regulated. Moves that could include changing the way SOEs appoint leadership or cutting subsidies that allow for high profits despite inefficiency.”

Keith Bradsher of The New York Times cites a political adviser as saying “public support for economic reform makes it impossible for the incoming team simply to do nothing” but that reforms may be limited to “the privatization of some state-owned manufacturers, like steel mills, which do not have monopolies and are plagued by problems like overcapacity, ferocious competition and heavy financial losses.” Industries such as “telecommunications, banking, health care and electricity distribution” will most likely not be targeted for reform.

One official at the Development Research Center, Chen Qingtai, suggested that the government “become essentially an investor in state-owned enterprises,” rather than “actively managing them.”

There have been some concrete steps toward reform: The Financial Times notes that there have been some openings for private investment in energy and finance, including “blocks for shale-gas exploration,” and that a pilot project in 2012 allowed for private groups to form lending institutions in Wenzhou.

Even these modest steps are facing significant resistance, including reluctance from SOEs themselves to change, and from local governments, which are often dependent on the profits of their local SOEs. Moreover, SOEs are a major source of employment, and the government is loath to create a cohort of angry, unemployed citizens.

The key will be to move reforms ahead quickly enough to mitigate economic distortions but slowly enough to avoid structural instability. Clearly, this will be a daunting but crucial task for new leaders Xi Jinping and Li Keqiang.