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India - China: Relations And Developments

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India - China: Relations And Developments
#1
So India too has learnt to flirt with everyone ? <!--emo&:cool--><img src='style_emoticons/<#EMO_DIR#>/specool.gif' border='0' style='vertical-align:middle' alt='specool.gif' /><!--endemo-->


<b>India, China to cooperate in peaceful use of outer space </b>

http://www.hinduonnet.com/thehindu/holnu...123070.htm

Beijing, Dec. 4. (PTI): India and China have for the first time decided to share their expertise in the peaceful use of the outer space by exploring ways to cooperate in remote sensing applications, a senior Indian space official said here today.

The first meeting of the India-China Joint Working Group (JWG) on Space has just concluded here with a high-level Indian delegation, led by the Director of National Remote Sensing Agency (NRSA) R R Navalgund, describing it as "excellent".

"The first round of the JWG was held under two bilateral agreements for the peaceful use of the outer space signed in 1991 and 2001," Navalgund said here.

During former Chinese Premier Zhu Rongji's visit to India in January, 2001, a memorandum of understanding was signed between the Indian Space Research Organisation (ISRO) and the China National Space Administration (CNSA) on cooperation in the peaceful use of outer space.

"Some of the broad areas in which we (would) like to have cooperation relates to the applications of remote sensing in the areas of crop production forecasting, land and water resources management and natural resources," Navalgund said.

He noted that India has emerged as a world leader in using remote sensing data and this fact has been well appreciated world-wide, also in China.
#2
<b>China responds to Australia's joining US missile defence system</b>
http://www.abc.net.au/ra/newstories/RANews...ies_1004124.htm

Australia says China has reacted 'moderately' to Canberra's decision to join United States research on defence against ballistic missiles.

Foreign Minister, Alexander Downer, says Canberra informed Beijing before Thursday's announcement that Australia will help the US programme to shoot down long-range missiles.

He's dismissed claims the defence programme will cause China to start a regional arms race is absurd.

"They've been very moderate in their response," says Mr Downer.

"I don't think you could say that they've been supportive of this particular proposal.

"But I think they increasingly understand this isn't directed at China, or isn't designed to intervene in the China-Taiwan issue, which is of course their great area of sensitivity.

"This is about dealing with a very limited number of missiles from rogue states," he says.


The Australian Greens Party has called for a Senate inquiry into what it calls "the son of Star Wars" missile defence program.

Senator Bob Brown says the program is a terrible initiative that threats to create a new nuclear arms race involving China, Russia, India, Pakistan and North Korea.




<b>Aussies join Star Wars program</b>
http://www.heraldsun.news.com.au/common/st...255E662,00.html
#3
one thing is funny and good,
aussies are spilling the beens and revealing the strategy of US towards india,china,russia,pakistan,north korea,iran...... <!--emo&Big Grin--><img src='style_emoticons/<#EMO_DIR#>/biggrin.gif' border='0' style='vertical-align:middle' alt='biggrin.gif' /><!--endemo--> <!--emo&Tongue--><img src='style_emoticons/<#EMO_DIR#>/tongue.gif' border='0' style='vertical-align:middle' alt='tongue.gif' /><!--endemo-->

keep spilling the water <!--emo&:roll--><img src='style_emoticons/<#EMO_DIR#>/ROTFL.gif' border='0' style='vertical-align:middle' alt='ROTFL.gif' /><!--endemo-->
#4
http://www.centurychina.com/plaboard/

<b>China's output surges in November</b>

Accelerating global growth will drive China's economy even harder

China's industrial output surged last month, driven by increasing demand for steel, cars and electronic equipment.

Factories made 17.9% more goods in November compared with the same month a year earlier, official figures showed.

Computer production led the way, jumping 75%, with auto output up 33% and steel output 23% higher.

Economic reforms, low wage costs and a massive domestic market have helped turn China into the world's fastest expanding major economy.
Criticism

Growth has been above 7% in China for many years.

That success has brought criticism, however, and Premier Wen Jiabao recently discussed trade with US President George W Bush in Washington.

China's fixed exchange rate policy is blamed for undervaluing the yuan, prompting a surge of cheap exports that US critics say has claimed 2.7 million US manufacturing jobs since 2000.
To protect its producers, the US has imposed tariffs on Chinese-made bras, knitwear and dressing gowns.

China retaliated by delaying purchases of US farm products <!--emo&Big Grin--><img src='style_emoticons/<#EMO_DIR#>/biggrin.gif' border='0' style='vertical-align:middle' alt='biggrin.gif' /><!--endemo-->
#5
<b>Chinese missile tests would be considered an attack: Taiwan</b>
Taiwan's leader has warned China not to test missiles near his island, saying such a move would be considered "an attack" that might trigger a vote by his people on sovereignty, a British newspaper reported on Wednesday.

President Chen Shui-bian's reported comments in the Financial Times marked an escalation in the heated rhetoric between the two rivals that split amid civil war 54 years ago.

Beijing wants Taiwan to unify and says moves toward independence could spark a war. The latest tensions stem from Chen's plans to hold a March 20 referendum that asks voters to demand that China stop pointing hundreds of missiles at Taiwan, just 160 kilometers off China's coast. Beijing has long feared that any referendum could lead to a vote on independence.

Last week, Washington said it opposed any moves by Taiwan or China to unilaterally change the status quo. Chen has argued that his March 20 vote wouldn't touch on sensitive sovereignty issues. But the Financial Times quoted Chen as saying that if China tests missiles near Taiwan again, the tests would be deemed a provocative act that could prompt him to expand the referendum issue. "Yes. Of course it (a missile test) is a provocation. Of course it is an attack," Chen was quoted as saying.
#6
<b>'India, China should be treated equally on strategic sales'</b>
While acknowledging a "strategic convergence" between India and China, speakers at a forum organised by the Centre for Strategic and International Studies (CSIS), a Washington-based think tank, expressed reservations, especially in the key area of Indo-US co-operation of 'Transfer of Technology.'

"Anything that is permitted say to go to China should also be permitted to go India -- as a baseline," Jonah Blank, Adviser on South Asia to the Senate Foreign Relations Committee said.

However, concerned about the "balance of power" in the "region," Blank "clarified" that supporting India's "right to have" a certain item of technology doesn't mean the US should encourage India to buy a particular weapons system.

"The bigger the contract, the more contracts, the more weapons systems that are being transferred, the stronger our ties are, is a flawed measure of relations," he said.

"We should always be looking at these systems with a view towards what do they do. Do they actually advance the security interests of the US and India," he said, adding he was "skeptical" of the Arrow Weapon System, Phalcon airborne early warning system and other deals.

"We should not just say they are big and therefore the US and India have strategic interests and we have to cooperate," Blank said.

In addition to being expensive, he charged that many weapons systems sold to India are either "destabilising" or "useless." If weapon systems are "effective" and change the balance of power in the region, Blank said, this is "dangerous and potentially destabilising.
#7
<b>Anti-India rebels seeks sanctuary in China</b>
Three Indian separatist groups fleeing a military offensive in the Himalayan kingdom of Bhutan on Sunday appealed to China to grant them temporary shelter in that country.

Arabinda Rajkhowa, chief of the outlawed United Liberation Front of Asom (ULFA), indicated the rebels had been pushed to the Bhutan-China border and could be forced to enter Chinese territory "extra-legally".

"We have come under massive military attack by joined forces of India and Bhutan and our combatants are forced to retreat up to the Sino-Bhutan border due to the all out air and artillery campaigns," Rajkhowa said a letter addressed to the chairman of the People's Republic of China.

"In this moment, they have no other option but to enter the territory of the People's Republic of China extra-legally to save their lives.

"We would like to request you and your people to permit them safe passage to your territory and minimum temporary hospitality necessary for their survival."

Bhutan launched a military operation on December 15 to evict some 3,000 anti-India rebels hiding in the Himalayan kingdom.

Rajkhowa's letter, a copy of which was received by IANS, said the militants currently on the run in Bhutan were faced with hunger and hostile weather.

"The combatants were facing sub-zero temperature and starvation without any clothes and food," he said.

"We would be obliged if you show your traditional kindness and great revolutionary zeal to our brothers-in-arms in this very moment of exigency," he said.

Rajkhowa said his letter was written also on behalf of the two other rebel groups -- the National Democratic Front of Bodoland and the Kamatapur Liberation Organisation -- that are facing a crackdown in Bhutan.

China had helped anti-India rebels, primarily Naga militants, in the 1960s. Groups of Naga rebels were trained in China, but this assistance ended with a thaw in Sino-Indian relations.

Bhutan, a largely Buddhist state of 700,000 people, is wedged between India and China.

The ULFA, fighting for an independent homeland in India's northeastern state of Assam, had earlier sought sanctuary in China sometime in the mid-1980s.

<b>Several top ULFA leaders then approached China's Communist regime for "help and support" but did not get a positive response from the authorities there, an Indian intelligence official said.</b>

"China is the likely country which they can approach for shelter with the distance manageable for their cadres to cross," the intelligence official said.

<b>"It is unlikely China would agree to grant access as bilateral relations between Beijing and New Delhi have become better in recent years."</b>
#8
An interesting Article from The Economist – No URL

<b>Technology in China

The allure of low technology</b>

BEIJING AND HONGKONG

<b>China's misguided attempts to become a high-tech economy</b>

THE country's success in putting a man October, only the third tech nation to do so, was more than just a boost to national pride. It signalled the Chinese government's intention to turn the world's workshop into a technological power house. With an abundance of cheap engineers, growing research spending and plenty of useful foreign intellectual property on hand (and not terribly well protected), many of the necessary building blocks would appear to be in place. <b>To the consternation of many firms in the rich world, China has already become a big exporter of electronic components, DVD players and digital cameras. Chinese manufacturers, such as Legend in personal computers and Ningbo Bird in mobile-phone handsets, have seized leading positions in China's domestic market.</b> A few such as TCL, a TV manufacturer; Huawei, which makes telecoms switching gear; and Haier, a white-goods group-are building a global presence.

<b>This is threatening to inflame already raw trade relations with the rest of the world. The prime minister, Wen Jiabao, recently called on America to open its high tech sector to China in return for trade concessions. Meanwhile, in a bald display of protectionism, foreign computer and chip-makers have been banned (since December lst) from selling some wireless products in China unless they incorporate Chinese encryption standards sourced from 11 named Chinese firms. If the rule is enforced, Dell, Intel, Sony and others may have to choose between sharing technology or curtailing shipments to China.

A handful

So will China become the next technology superpower? Actually, probably not-at least, not anytime soon. Its successes so far are restricted to a handful of firms, most are either protected or exceptional, rising through cracks in China's planned economy. On December l0th, at a seminar in Beijing on Chinese technology organised by China Economic Quarterly, a research publication, Ming Zeng, a professor at Insead, near Paris, and Beijing's Cheung Kong Business School (and a noted optimist on Chinese firms) admitted: "1 spent five years hunting for examples of successful high-tech companies in China. After all that work, I can only find three or four."

Overall, China's technology base remains limited and the capital infrastructure needed to produce advanced, high tech goods largely absent. And while more and more high-tech goods are made in China, almost all the value is being captured by foreign companies (see chart). Writing in the quarterly, Daniel Rosen, a visiting fellow at the Institute for International Economics in Washington, DC, argues that, on close inspection, "China's high-tech exports turn out not to be so very high-tech-nor, indeed, very Chinese."

Of $325 billion of exports in 2002, China's Ministry of Commerce rated only 20% as genuinely high-tech. And those were mostly mature commodities, such as DVD players and laser printers. The brains of these machines, namely their semi conductor chips, were almost all imported-reflected in China's high-tech trade deficit of around $15 billion. What's more, 85% of its high-tech exports between January and August 2003 were accounted for by foreign enterprises in China.</b>

It is the same story with semiconductors, an industry China has explicitly targeted for development. The country is a voracious consumer of chips and an increasingly important location for silicon wafer plants, providing an estimated 19% of world capacity this year. <b>Yet its indigenous industry remains tiny and low-tech. Foreigners control most of the chip plants in China.</b> These, in turn, concentrate on low-value assembly and testing rather than design and manufacture.

<b>While foreigners own virtually all of the intellectual property and most of the high-tech manufacturing capacity in China, piracy will remain an issue. Currently, General Motors, Toyota and Nissan are each embroiled in disputes over stolen copyrights.</b> But Peter Nolan, a China specialist at Britain's Cambridge University Judge Institute of Management, says that the counterfeit issue is overblown, arguing that foreign multinationals generally "have sophisticated ways to protect their hard-won technology". Mr Nolan argues that China's ability to upgrade technology through joint ventures has been exaggerated. So moves to tip the playing field by asserting Chinese standards are actually a sign of weakness rather than strength.

<b>Why has China been so slow to climb the technology ladder? History is one explanation. Under communism, most technological development was state-directed and a disaster. State-owned enterprises still grapple with legacies of poor management and a lack of sophisticated systems. Most private companies are too small yet to pour much money into innovation.</b>

Meanwhile, global corporations are widening the gap. "The idea that you can naturally move from being a small, low-level producer to become a Merck or a Boeing is a fantasy ," says MI Nolan. A dysfunctional financial system is also to blame. Capital is routinely misallocated, venture funding still rudimentary, and mergers and stockmarket listings are at the government's discretion.

<b>Work, work, work

But perhaps the biggest constraint, ironically, is also China's strength: its massive pool of low-cost labour.</b> Arthur Kroeber, managing editor of China Economic Quarterly, argues that China has no real incentive to develop high-tech processes since, unlike Japan and South Korea, which were forced to grab markets from the West by sophisticated engineering and continuous process improvement, "China can compete for the next 50 years on labour costs."

While politicians in Beijing shout about China's need to develop technology , the smartest Chinese firms are taking advantage of the labour supply and actually reducing their use of technology. A study by Boston Consulting Group shows that Chinese manufacturers were more productive and made more profits if they reduced the technology used in production and returned to more people-heavy processes. Vincent Lo, a Hong Kong entrepreneur who has invested in mainland cement plants, says that his factories, though primitive compared with the hugely automated ones built by France's Lafarge, have won local contracts precisely because they employ lots of people.

<b>China should seize this advantage with both hands. Its labour will remain cheap for decades. Only labour-intensive industries can generate the millions of new jobs needed each year to maintain the social stability sought by the leadership in Beijing. Meanwhile, China can gradually build up the educational, legal and financial infrastructure needed for faster technological development in the longer term.</b>

Let us hope that the Government’s Planning Departments in India also encourage similar Labour Intensive Industries to create Employment for the masses.

Cheers
#9
Brajesh on border mission to Beijing
New Delhi, Jan. 4: The Prime Minister’s principal secretary and national security adviser, Brajesh Mishra, will travel to China to hold talks on bilateral and regional developments on January 12 and 13.

<b>The reason cited for his visit is that he needs to carry forward talks on the decades-old border dispute. Mishra and Chinese senior vice-foreign minister Dai Bing Guo have been appointed “special representatives” by their respective countries to try and find a political solution to the boundary dispute. </b>
<b>
The Chinese have dubbed the talks as “crucial” as they will allow India the chance to air its views on the dispute. China put across its own argument during Dai’s visit here in October. Mishra will also get to brief the Chinese leadership on Vajpayee’s Pakistan trip</b>.

Beijing’s close ties with Islamabad have traditionally been a sticking point in Sino-Indian relations. Delhi has been none too happy at the help China has given Pakistan in its nuclear and missile programmes and has often sought to discuss this close military cooperation during bilateral meetings.

But Delhi’s stand has changed somewhat of late. Aware that China is keen to build bridges, India has signalled that it is ready to do likewise; it feels both Asian giants can play an important role on the world stage.

Delhi-Beijing ties have reached such a level of maturity that India’s growing proximity to the US and China’s traditional ties with Pakistan no longer bother each other. India is getting round to thinking that China can use its close ties with Pakistan to convince it to drop its obsession with Kashmir to improve relations with Delhi.

China hopes to resolve the border dispute with India on the basis of continuity of policy, fairness, pragmatism and stability. Shorn of the jargon, Beijing wants Delhi to honour past commitments on the boundary issue and resolve the dispute in a spirit of give-and-take.

China is stressing on proposals that are practical and easy to implement. At the same time, it wants to ensure that the outcome of the border talks does not affect bilateral ties.

If the formula is implemented, China, which disputes more than 90,000 sq km in the eastern sector and India which quarrels over more than 30,000 sq km in the west, will both have to make major compromises to resolve the decades-old dispute.

It is not clear what formula Mishra will place before China and what the response will be. But if the Asian giants agree on the contours of a treaty to resolve the dispute, the leadership in both countries will have to prepare their people in advance so that they accept the compromise.
#10
China fires nearly 45,000 cops in clean-up campaign <!--emo&:roll--><img src='style_emoticons/<#EMO_DIR#>/ROTFL.gif' border='0' style='vertical-align:middle' alt='ROTFL.gif' /><!--endemo-->
#11
Cross posted on the Global Economy Thread :

From : The Financial Times – London – A subscription Site :

<b>THE MECHANICS BEHIND CHINA’S CAPITAL INJECTION</b>

<b>The mechanism by which China injected $45bn in fresh capital into two of its large state banks is both unusual and revealing of future intentions.

The two banks, China Construction Bank (CCB) and Bank of China (BOC), each received $22.5bn from China's pile of foreign currency reserves late last month. But the money was neither physically transferred nor was it a gift, according to officials, bankers and academics.</b>

The funds are to remain in US dollars and stay invested in their current instruments, mainly US treasuries. However, the ownership of the funds has been transferred to the two banks, both of which must pay interest to a new state company, Central Huijin Investment Co, said Wang Zhaowen, a senior executive at the Bank of China.

“From the hour after we received this money we have had to start paying interest on it,” said Mr Wang, who did not specify the interest rate.

The government insisted that interest be paid on the funds so that the injection would not be seen as another “free lunch” for the banks. In this regard, the current injection is different from a Rmb270bn bail-out in 1998 and a Rmb1,400bn write-off of bad loans three years ago.

Officials said Central Huijin was eventually set to become a shareholder in the two banks by transferring what is now effectively a loan into equity, once CCB and BOC become joint-stock companies. They are now wholly-owned by the finance ministry but plan to sell stakes to investors at an unspecified time, possibly this year.

At that time the US dollar-denominated funds probably would be changed into renminbi, requiring the sale of dollar-denominated assets, academics said. To soften the potential shock to US capital markets, it was unlikely that the entire $45bn would be sold off simultaneously, they added.

On the issue of how the capital is to be used, current plans were revealing of future intentions. An official at the State Administration of Foreign Exchange (SAFE) and Mr Wang said the capital would not be spent on writing off bad loans, but instead be added to the banks' capital base - thereby boosting capital adequacy.

This will have several ramifications. The first is that the banks will be able to lend more. The second is that - in theory at least - the banks will become more attractive to potential strategic investors, helping to prepare for the sale of equity stakes to foreign and domestic investors possibly as early as this year.

Nevertheless, the banks' balance sheets may exhibit the unusual combination of robust capital adequacy ratios and high levels of non-performing loans (NPLs) for some time to come. One reason that the capital may not be used to write off NPLs is that such activities often require the liquidation of companies, something that it is politically sensitive in China.

Cheers
#12
<b>CHINA READY TO BAIL OUT ANOTHER BIG BANK</b>

<b>REUTERS</b>[ SATURDAY, JANUARY 10, 2004 08:21:44 PM ]

SHANGHAI: China is preparing to bail out a third major bank, the Industrial and Commercial Bank of China (ICBC), with an injection of about $40 billion as part of a bank recapitalisation drive that could cost up to $120 billion, a newspaper reported on Saturday.

China injected $45 billion into two of its Big Four banks at the end of December as part of a drive to prepare them for initial public offerings.

The planned injection into ICBC would, like the earlier bail-outs, be made from foreign exchange reserves, the Beijing-based China Business Post said, quoting an official with the banking regulator.

The bail-out would be followed by the successive listing of the Big Four - Bank of China, China Construction Bank, ICBC and Agricultural Bank of China , the state-owned Post said.

China said on Tuesday it had injected $22.5 billion each from its massive foreign exchange reserves of $403.25 billion into Bank of China and China Construction Bank.

Construction Bank would be listed in 2004, followed the next year by Bank of China, the paper said.

It said ICBC would be listed in 2006 and Agricultural Bank - which analysts have suggested was the weakest of the four -in 2007.

Cheers
#13
<b>India, China border talks enter second day</b>
The second round of high-level political talks between India and China to find a solution to the protracted boundary dispute entered the second day in Beijing on Tuesday even as both sides were tight-lipped about the progress of negotiations.

"Talks are continuing," sources said.

National Security Advisor Brajesh Mishra, who is holding talks with Chinese Executive Vice Foreign Minister Dai Bingguo is also expected to call on other senior Chinese leaders later on Tuesday to derive an early political solution to the vexed issue which could lead to a qualitatively new relationship between the two countries.

Ahead of the meeting, the Chinese Foreign Ministry had expressed the hope that the two sides could "positively explore" the framework of resolving the boundary issue at the second round of talks.

<b>As per an understanding reached between Beijing and New Delhi, the details of the talks between the two special representatives would be kept secret.</b>
#14
China adopts people-friendly population control measures
...
"The demographic profile of China, like its economic profile, is changing rapidly and so policies and programs must adjust to new realities," points out Zhou. "The policy that we see evolving is more fluid, based on continued improvements in the provision of client-oriented quality services that meet the needs of modern families."
....
#15
From : The Financial Times - A Subscription Site

<b>CHINA SAYS “NO FREE LUNCH” FOR STATE BANKS</b>

<b>China plans to impose a stiffer regime of corporate governance on those state banks that recently benefited from a $45bn capital boost so it does not amount to a "free lunch".</b>

The clampdown will include ending lifelong employment contracts, scrapping the government titles of staff and taking resolute supervisory action if bad loan levels climb once more.

<b>Officials at the People's Bank of China, the central bank, said the new blueprint was meant to ensure that the $45bn in foreign exchange reserves injected into the Bank of China and China Construction Bank was not a "free lunch" for the state banking sector.</b>

Both CCB and BoC hope to attract foreign strategic investors this year and list on the Hong Kong stock market either later in 2004 or next year. So far two banks, Citibank and Deutsche Bank, have signalled their interest in taking a stake in CCB, which appears set to become the first bank to list.

According to the central bank plan, not only domestic and foreign commercial banks will be eligible to become shareholders but also investment banks, insurance companies and international financial institutions. Industrial and commercial institutions may also be allowed to take stakes, officials said.

Once the BoC and CCB are transformed into shareholding banks, a stiffer supervisory regime will click in. If the capital base of either bank is once again eroded by a build-up in non-performing loans, supervisory authorities will restrict new lending and curtail the remuneration of employees, officials said.

Following the $22.5bn injection into each bank this month, the capital adequacy ratios of both are thought to be well above the 8 per cent minimum required by international rules. But if the ratio falls considerably below the 8 per cent benchmark, senior managers might be punished for misconduct, said one official who declined to be identified.

Lending will be based on commercial - rather than political - criteria. To reinforce a new market ethos at the banks, government titles such as "section chief" and "division chief" will be abolished. Lifelong employment, which is no longer common practice at BoC and CCB, is to be scrapped.

Staff are to be employed under contracts and paid by peformance. In further attempts to improve efficiency, the closure and merging of loss-making branches and businesses will be accelerated, along with staff redundancies.

A central bank spokesman confirmed that such a plan existed but declined to give details or say when its implementation would start.

An official supervisory body headed by Huang Ju, vice-premier, was recently established to see through reforms related to the recapitalisation of state banks, officials said.

Mr Huang's deputy in the body is Zhou Xiaochuan, governor of the central bank. Liu Mingkang, chairman of the China Banking Regulatory Commission, is also on the body, which has not yet been announced.

Cheers
#16
<b>General Myers visit China’s space control center</b>
(Updated at 0600 PST)
BEIJING: US Armed Forces head General Richard Myers was allowed a rare visit to
the nation's secretive space control center, at the heart of China's first-ever
manned space flight, the Shenzhou V, last October.

His party was the first foreign delegation to visit the Beijing Aerospace Control Center, or "Beijing Space City" as it is known in Chinese, and viewed a video-taped presentation of the flight of astronaut Yang Liwei.
http://jang.com.pk/thenews/
#17
<b>Nixon Trip to China Now Fully Declassified</b>
#18
<b>China set to flood the world with chips</b>
By Macabe Keliher

TAIPEI - Last September Morris Chang alarmed the semiconductor industry when he said there would be an industrywide recession in 2005 and that the Chinese chip makers would cause it. "I stand by that statement. China's capacity in 2005 will have a big impact," the chairman of the world's largest made-to-order integrated-circuit and computer-chip manufacturer, Taiwan Semiconductor Manufacturing Co (TSMC), has told Asia Times Online.

That's something of an understatement. In pursuit of a policy that will make China nearly self-reliant in semiconductor manufacturing, and enable the country to source its own chips domestically for everything from tape recorders to computers, Beijing is funding and bankrolling what is being called reckless expansion in semiconductor fabrication plants, or "fabs". Through low-interest loans, tax exemptions and even direct investment, the Beijing government has set China on pace to provide the world with 20 percent or more of its capacity next year in the made-to-order chip industry, or foundry.

This volume is enough, industrialists and analysts say, to cause a serious glut that will drive down prices, slash profit margins and suppress return on equity. From a robust 20-30 percent growth this year to more than US$200 billion, the global semiconductor industry will register only 10 percent or less in 2005, according to Chang, and some analysts are predicting negative growth. "Just as in any industry governed by supply and demand, an increase in capacity anywhere in the world will have effects," said Chang, interviewed at a TSMC investors' conference here last Thursday.

When Beijing designated the semiconductor industry as one of China's pillars of economic growth, the industry was sure to take off, and what has occurred is unprecedented on any scale. From virtually nothing a few years ago, Chinese fabs hold about 9 percent of the foundry market's capacity today, and they are expected to produce 15 percent of the industry's chips by the end of the year, and well over 20 percent in 2005.

China is sitting on a mountain of wafers
Take, for example, Semiconductor Manufacturing International Corp, China's largest manufacturer. It currently has three eight-inch-wafer fabs in Shanghai that will increase capacity by 70 percent this year. Add a recently purchased Tianjin eight-inch fab, a 12-inch fab in Beijing that is expected to go online in the fourth quarter, and two more 12-inch fabs scheduled for 2005 and 2006, and China is sitting on a mountain of wafers that the market is just not ready to absorb.

"The overcapacity will be massive. And taken with a modest fall in global chip sales, there will be a rough landing for the industry," said Rick Hsu, semiconductor analyst at Nomura Securities.

As part of the government's strategy, Chinese foundries aim to supply the local market. Currently almost 80 percent of China's chip demand, which totaled about $22 billion last year, is being met by foreign makers. The Chinese government hopes to raise the country's self-sufficiency above 50 percent in the coming years, and has invested heavily in a few of the companies. Advanced Semiconductor Manufacturing Corp, for instance, is 62 percent government-owned, and Grace Semiconductor Manufacturing Corp is partially held by the son of former Chinese president Jiang Zemin.

In addition to owning majority stakes in some of the semiconductor companies, China offers tax incentives to semiconductor investments. Chip makers pay no income tax in the first five years of investment and then pay half of the regular tax in the next five years. The standard income-tax rate is 15 percent, well below that of many developed countries, including Taiwan's 25 percent. These tax incentives, along with lower land and labor costs, give Chinese companies a cost advantage. They can manufacture about 10 percent more cheaply than their competitors elsewhere, according to Andrew Lu at Citigroup Smith Barney.

With these political and financial incentives, analysts estimate that Chinese companies will increase their wafer-manufacturing capacity by nearly 60 percent by the second half of this year. Such a trend is only expected to intensify until Chinese makers can fill more than 50 percent of the domestic demand, possibly regardless of whether there is new demand or not.

Analysts warn that the local market is expected to grow less than 20 percent this year and about 13 percent next year - a rate slower than that of the manufacturing capacity. "There is a demand shift, not the creation of demand," said Hsu, at Nomura. "Foundries are unlikely to see a return to the days of ROEs [returns on equity] in the 20 percent range."

China's mass chip production to hurt others
Although Chang said Taiwan Semiconductor Manufacturing's 2003 fourth-quarter return on equity was 19.9 percent, and that he expects more than 20 percent by this June 30, all of those high numbers may drop when Chinese companies begin mass production in their new fabs, probably some time next year. Nomura estimates that TSMC will recover to only 18 percent return on equity in 2005, the year in which the chip cycle is expected to peak. TSMC's ROE peak was in 1995, at 45 percent.

"The pricing power of Taiwan's foundries in this sector should just about disappear," said Hsu. He estimates that China foundries sell at about 20-30 percent lower than the industry as a whole, and 40-50 percent lower than TSMC.

The industry is in the midst of an upswing now, to be sure. Arizona-based Semico Research Corp forecasts 26.8 percent revenue growth for the global semiconductor industry this year, and 39.7 percent growth for the foundries. And last week TSMC announced record revenues for fourth-quarter sales in 2003, an increase of 5.3 percent over the third quarter, and Chang said he expects single-digit growth in the first quarter of 2004, monumental in an industry that peaks in December. Profits for TSMC in the fourth quarter rose sixfold over 2002.

The problem is, the industry overall is expanding. TSMC is raising its capital expenditure by 60 percent this year to $2 billion, and United Microelectronics Corp, the world's second-largest foundry, is expected to increase its capital expenditure fourfold, from $350 million to $1.5 billion. The Chinese companies are planning initial public offerings, either in Hong Kong or on the United States Nasdaq in the next year or so. China's largest manufacturer, Semiconductor Manufacturing International Corp, for instance, will float a $1 billion initial public offering (IPO) in the first half of this year. Grace is also scheduling a $3 billion IPO, probably next year.

"Enjoy it while it's great," said Dan Hutcheson, president of US-based VLSI Research Inc, "but expect a decline on the order of 30 percent to start in late 2005."
#19
<b>China is booming; bubble, anyone</b>?
IF IT POPS, THE EFFECT WILL BE GLOBAL
By Daniel Sneider

Business executives from Silicon Valley to Sydney are breathless about China. Its growth rate is nearing double digits. Chinese factories are churning out the clothes and electronics that fill the shelves of Wal-Marts and Fry's. Chinese wealth is flowing into real estate, from high-tech parks in every city to mansions for the new rich.

Other economies feed off China's boom as it sucks in raw materials and machinery, as well as the parts that get assembled for export.

But the talk among those who watch China's economy closely is that a bubble economy is in the making. They see an economy overheated by unrestrained and speculative lending, akin to Japan's infamous ``bubble'' of the 1980s.

The growing fear is that the bubble will either pop in a banking crisis or prompt the Chinese government to deliberately slow the economy down to a soft landing.

If that happens, in this globalized world, the ripple effect could rapidly spread across Asia, into Europe and lap right up to American doorsteps. ``Slowdown in China will have a severe effect in the region,'' warns an international economic official dealing with China.

A new study issued by the RAND Corporation, and funded by the Defense Department, takes a look at potential ``fault lines in China's economic terrain,'' factors that could slow or even reverse China's runaway growth. Some of the major fault lines include:

• Unemployment -- official and hidden unemployment amounts to almost a quarter of the labor force, or about 170 million people, the RAND report says. As China is forced to modernize to compete globally, it could increase that rate, worsen rural poverty and trigger social unrest.

• Corruption -- worsening corruption, unchecked by the weak legal system, could weaken growth.

• Epidemics -- as we saw with SARS, and maybe now with bird flu, epidemic disease can spread rapidly in China. HIV/AIDS infection rates are also climbing, at great economic and social cost.

• Pollution -- China has massive air and water pollution problems and faces a serious shortage of water, particularly in the north, home to China's rust belt.

• Energy -- China's growth depends on imports of oil, gas and coal, making it vulnerable to sharp increases in world energy prices.

But the most immediate danger for RAND and other experts is the fragility of China's state-dominated financial system.

• Finance -- The four main state-owned Chinese banks, which together account for almost three-quarters of all lending and deposits in China, are sitting on a massive mountain of bad debt. Standard & Poor's estimate is that some $850 billion in non-performing loans are on the books -- well beyond the $175 billion it took the U.S. to bail out the savings and loans in the 1980s and more than twice official Japanese estimates of their huge bad loan problem.

China's banks are not banks as we know them. They exist to support government policies. When a local Chinese government wants an industrial park to attract foreign investors, it forces the banks to lend money to do it. Fearful of increasing unemployment, the government tells banks to lend money to state-owned factories that should be allowed to go bankrupt.

The Chinese government has recently pumped $45 billion from its foreign exchange reserves -- the fruits of its export boom -- into two of the big banks, with more coming. But this may be just throwing good money after bad.

``There is absolutely no assurance that the money is being used for efficient purposes,'' says Stanford's Nicholas Hope, a former World Bank official.

As long as deposits keep flowing into the state banks, this house of cards may stand for a while. And the Chinese government is trying to slow inflation and encourage bank reforms. But when Chinese are freer to move their money, including overseas, a crisis of confidence in the banks is not impossible.

``Once they start bolting for the exit,'' says Hope, ``that's when you get the problem.''

Economists warn that two things are now propping up the world economy -- the huge U.S. budget deficit and China's financial explosion. It may be a race to see which balloon comes down to earth first.

DANIEL SNEIDER is foreign affairs columnist for the Mercury News. His column appears on Sunday and Thursday. You can contact him at dsneider@mercurynews.com
#20
It is an old article what still valid.
<b>LESSONS OF 1962: A stock taking after 40 years</b>
by R. Swaminathan

(Many would have read at least some of the many pieces written and published on the 40th anniversary of the Chinese attack across the Indo-Tibetan border in 1962.

In addition, specific attention is invited to the "History of the Conflict with China, 1962" by Dr. P. B. Sinha and Col. A. A. Athale, edited by Dr. S. N. Prasad and published by the History Division of the Ministry of Defence, Government of India, in 1992. This "history" was based on the records of the Army, the Air Force and the Ministry of Defence, including the Henderson Brooks Report. Published material was also examined. The "Restricted" monograph can now be accessed via the website of the Times of India. Articles by Neville Maxwell written in May 2001 on the Henderson Brooks-PS Bhagat Report may also be referred to. )

I am reluctant to use the popular terminology of "Sino-Indian War of 1962". The 1962 conflict involved only small fractions of the Indian (Two plus Divisions) and Chinese armies (Four plus Divisions). Both the countries did not use their air forces, except for limited supply and transport purposes. There was no intention to occupy and retain each other's territories or to impose any major change of policy. The whole operation was aimed at "conveying a message" about each country's position on the border issue. It was therefore a classic border skirmish (or conflict, if you wish), albeit on an enlarged scale.

In view of the limited time available to us today, I suggest that we concentrate on National Security Management - collection, collation and analysis at the micro level and coordination, assessments / advice and decision making at the macro level. We need not today go into the details of the causes of the armed clash or of the military preparedness, deployments or tactics. In any case, the Indian armed services have redeemed their position in the minds of the people by their performances in 1965, in 1971 and in Siachen and Kargil.

Briefly stated, the Chinese launched a pre-emptive offensive all along the eastern and the western sectors on October 20, 1962. They overwhelmed the feeble but initially determined resistance of the Indian troops and advanced some distance in the eastern sector. On October 24, Beijing offered a cease-fire and Chinese withdrawal on the condition that India agrees to open negotiations: The offer was refused and both sides built up over the next three weeks. When India launched a local counterattack on November 15, the Chinese renewed their offensive. Many units of the once crack Indian 4th Division dissolved into a rout hardly giving battle and, by November 20, there was no organised Indian resistance anywhere in the disputed territories. Beijing then announced a unilateral cease-fire and intention to withdraw its forces.

Intelligence Collection

One of the highly articulated reasons for the "military debacle" of 1962 was the "failure of intelligence". This was probably necessary at that time, on top of the depiction of V.K. Krishna Menon as the evil genius and B.N. Mullik as the ingenuous hawk who had pushed the Prime Minister into the "disastrous" forward policy, for salvaging the reputation and the morale of the army. The intelligence community meekly accepted the role of scapegoat, sticking to the traditional response of "we will neither confirm nor deny". However, what was the factual position?

Intelligence had reported that the Chinese were building a road through Aksai Chin. Yet the Government, apart from a few angry condemnations, chose to ignore its strategic significance for many years. The "History" records that the Army top brass believed that the Chinese would not react strongly to the Indian moves under the forward policy. Brig D.K. Palit, DMO, said in a meeting at HQ 4 Inf Div in August 1962 that, in the appreciation of the Army HQ, a shooting war with China could be ruled out. China would not react and was in no position to fight. Their belief permeated to the lower echelons of the Army, with the result that even field formations had become complacent. Further, they erred on the lower side in assessing the military capabilities of China. Whatever intelligence was available did not receive careful attention by the Army HQ. For example, GOC IV Corps received a message from Army HQ on 9 Oct 1962, conveying a reliable intelligence report that some 300 mortars and guns had been seen moving near Tsong Dzong towards the McMahon Line and that Tawang could be the objective. Lt Gen Kaul had also got from intelligence full and complete information about the dispositions and strength of Chinese troops at Thag La Ridge.

However, internal introspection was carried out and, for the first time since 1947, the Govt of India had a comprehensive look at our capabilities for intelligence collection, analysis and assessment relating to China - as well as stay-behind requirement. I will mention some of the major lessons learnt and the steps taken to meet (or at least reduce) those inadequacies.

The HUMINT capability needed to be improved, though we had a fairly good capability for the collection of tactical and topographical intelligence about Tibet. We lacked a similar capability relating to Yunnan (and North Myanmar, by extension) and Sinkiang. The network of intelligence collection outposts along the Indo-Tibetan border was revamped and strengthened. We still have a lot to do relating to Yunnan and Xinjiang, but improved technical collection and better liaison arrangements are helpful.

Rudimentary arrangements existed for the sharing of China-related intelligence between India and the US. However, US intelligence did not alert India about the Chinese military-build up in Tibet and the goings-on in Yunnan in 1962. [In retrospect, China may not have needed much of extra mobilisation and not too many indicators may have been available even to US intelligence at that time.] It became necessary to improve the arrangements for exchange of intelligence and assessments with countries sharing India's concerns relating to China, without developing a dependence on them to meet our needs. Special and long-term arrangements were worked out and they have stood the test of time quite well. We had also learnt the lesson that if you know something, you can get more to supplement it; but if you know nothing, no country will provide fresh information freely.

We had, either in civilian or military establishments, hardly any worthwhile capability for the technical collection of intelligence (TECHINT) in 1962. This was one lesson that was learnt very well and the gap filled adequately. Without going into classified details, it can be said that the defence establishment (for the collection of tactical intelligence) and the IB and R&AW, its successor in the field of foreign intelligence (for the collection of strategic intelligence) have done very well in this area. They have taken major initiatives and have developed very significant capabilities, skipping generations of techniques in the process. The present capabilities include communications intelligence, monitoring of nuclear tests and rocket firings, electronic intelligence relating to radar emissions, deep photo surveillance, satellite imagery (in cooperation with ISRO) etc. I am proud to have been associated with the development of many of these capabilities, which are amongst the best in the world. They have proved their worth in 1971, during the "flap" in 1989, in pinpointing trans border terrorist training camps, and during the Kargil operations.

How well we are able to make full use of the collected intelligence is a different matter.

Intelligence Analysis

One criticism was that our threat perceptions had largely, if not exclusively, been focussed northwards towards Tibet and the likely Chinese threats from Yunnan in the East through North Myanmar and from Xinjiang were not adequately anticipated. There has not been much credible evidence that Chinese troops had attacked India through Myanmar. This is not to say that such a contingency could be ignored. At the same time, we can realistically be prepared against possible and plausible scenarios but not against all capabilities. For example, we would find it almost impossible to protect ourselves against the capabilities of missile attacks by the United States or Russia or against a full-scale attack by the Chinese PLA. We have to take into account the possible intention to use such total capabilities.

We had failed to foresee the likelihood of the confrontation with China resulting in the occupation of some of our territory by the Chinese. Therefore, we had not developed a stay-behind capability for the continued collection of intelligence and harassment against the Chinese in Indian territory occupied by them. Once the Chinese actually occupied portions of our territory, we hardly knew what was happening there and had to watch helplessly. The creation of a stay-behind set-up was given high priority and an effective organisation and system put in place. However, very recently that organisation has been "transferred" to other duties and the task left to the local authorities. This erosion of our stay-behind intelligence collection and operational capabilities is a retrograde step.

We lacked the capability to assess the mindset, perceptions, intentions, medium and long-term plans etc. of the top Chinese leadership. We were handicapped by inadequate level of knowledge of the Chinese language and by the difficulties (faced by all countries) in interacting with Chinese leaders and officials at policy-making levels in Beijing. We have come a long way in developing our language and strategic analytical capabilities. All the same, we share with most other countries a difficulty in fully understanding the "inscrutable Chinese".

It is encouraging to note that we have developed matching expertise in analysing intelligence collected through various technical means. However, the meager quantities of such experts result in only partial utilisation and occasional delays. More concerted efforts are required to build on the existing base and make a quantum jump in the volumes of technical intelligence that we can analyse in as close to real time as possible.

Coordination and Overall Assessments

Our capability for a coordinated and meaningful analysis assessment of all the available intelligence, open as well as secret, was very poor. Consequently, the advice to the policy-making level was often based on wishful thinking and personal hunches rather than on well-analysed and assessed likely scenarios. Two of the major reasons for this have still not been overcome, though significant progress has been made:

* The survival instinct of the various organisations providing intelligence inputs to protect their "turf" and their "indispensability". They are still reluctant to be forthcoming in sharing intelligence and analysis and prefer to advice the policy-making levels directly.

* The in-built resistance to making full use of the expertise for analysis available in academia and other non-governmental think-tanks.

A major step taken to evolve an effective and coordinated National Security Management (NSM) was the setting up of the Joint Intelligence Committee (JIC) in the Cabinet Secretariat. Despite the best intentions, the JIC could not become anything more than a "cut and paste" set-up due to various reasons. The Ministry of External Affairs did not seem to give it due importance or provide adequate political inputs. The intelligence organisations seemed more interested in getting their "paragraphs" included in the periodical reports and position papers than in achieving balanced and holistic assessments. The JIC was converted into the National Security Council Secretariat (NSCS) in 1998.

The setting up of the government-sponsored and government-funded Institute for Defence Studies and Analyses (IDSA) was, for a long time, the only visible concession to expertise at the "non-governmental" level. The creation of the National Security Advisory Board (NSAB) in 1998 was aimed at strengthening the assessment capability at the non-governmental level. It was expected to provide a structured and functional NSM setup. An ad hoc coordination mechanism was functional in 1971 and the result was the successful liberation of Bangladesh. If such structure had existed in 1962, 1972 and even in 1987, the military "disasters" of 1962 and 1987 (foray into Sri Lanka) could have had different endings; and India could have come out better after the Simla Conference in 1972. This major reform in NSM could easily become the cornerstone of coordinated approaches to future threats to our national security. It seems, however, that its full potential is yet to be achieved.

Decision Making

The political leadership that took over at the time of independence had had no exposure to national security as matters relating to India's foreign relations and defence were exclusively handled from London prior to 1947. Further, to quote Adm JG Nadkarni, post-independence "India's military has always chafed at the bit when controlled by the 'babus'. Quite rightly they feel that they know far more about strategy than those in the Ministry of Defence. On the other hand, the politicians can point to the occasions when they have listened to the army with disastrous results. The 1962 debacle against China was a result of Jawaharlal Nehru falling prey to an inexperienced army general's advice. Similarly, our better-forgotten adventure in Sri Lanka was undertaken at the behest of an ambitious army chief."

"History" notes that the Indian defence set-up after independence lacked institutionalised support for decision making at the national level. Well established and well respected agencies providing politico-military linkages did not exist. It was personality-oriented decision making in the vital area of national security.

Further, the political thought process in the country precluded the possibility of considering China as a real military threat. There was a mismatch between our perception of the enemy and what the enemy actually did. The deployment was based on the belief that the line we moved to occupy was just a political line to establish our claim and not a defensive line. A study of the 1962 conflict, as also of the 1965 and 1971 wars clearly brings out the imperative necessity and urgency of educating the people about the basics of war and familiarising them with military matters, if a democratic state is to be safe and strong.

India justifiably continues to have serious concerns over the modernisation of China's military, its nuclear and missile capabilities and its military assistance to Pakistan in the nuclear as well as conventional fields, its intentions in Myanmar, Bangladesh and Nepal etc. Despite these concerns, Indian attitude towards China has become more relaxed and more trusting. The Special Task Force on the revamping of the intelligence apparatus set up by the Government in 2000 concentrated was just a political line temporarily to establish our claim to what we are holding on strengthening our capabilities vis-à-vis Pakistan without a similar exercise relating to China. It is essential that we should continue to move forward in improving our relations with China, in order to blunt any move towards developing the intention to use the full military capabilities. However, our keenness to move forward should not make us forget the painful lessons of the past. We cannot afford another traumatic experience in our relations with China.

Conclusion

We have learnt from and acted on most of the micro-lessons relating to collection, collation and analysis of intelligence. We have, however, not done enough about the macro-lessons relating to coordination and fusion of all available intelligence, holistic threat assessments and making of policy based on proper analysis of all variables. We have set up the apparatus that looks good on paper but still make security policy at the highest level based on gut feelings, hunches, electoral requirements and populism. The maturing of the political leadership in all the parties to accept National Security Management as being beyond the pale of partisan politicking and requiring expert inputs is a painfully slow process in any country. Let us hope that the process in India concludes successfully before we face the next serious threat.


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