February 13, 2010

CHINA: Cyber Warriors

When will China emerge as a military threat to the U.S.? In most respects the answer is: not anytime soon—China doesn’t even contemplate a time it might challenge America directly. But one significant threat already exists: cyberwar. Attacks—not just from China but from Russia and elsewhere—on America’s electronic networks cost millions of dollars and could in the extreme cause the collapse of financial life, the halt of most manufacturing systems, and the evaporation of all the data and knowledge stored on the Internet.

by James Fallows


EARLY IN MY TIME IN CHINA, I learned a useful lesson for daily life. In the summer of 2006, I saw a contingent of light-green-shirted People’s Liberation Army soldiers marching in formation down a sidewalk on Fuxing Lu in Shanghai, near the U.S. and Iranian consulates. They looked so crisp under the leafy plane trees of the city’s old colonial district that I pulled out a camera to take a picture of them—and, after pushing the button, had to spend the next 60 seconds running at full tilt away from the group’s leader, who pursued me yelling in English “Stop! No photo! Must stop!” Fortunately he gave up after scaring me off.
The practical lesson was to not point a camera toward uniformed groups of soldiers or police. The broader hint I took was to be more careful when asking about or discussing military matters than when asking about most other aspects of modern China’s development. I did keep asking people in China—carefully—about the potential military and strategic implications of their country’s growing strength. Ever since the collapse of the Soviet Union and consequent disappearance of the U.S. military’s one superpower rival, Western defense strategists have speculated about China’s emergence as the next great military threat. (In 2005, this magazine published Robert Kaplan’s cover story “How We Would Fight China,” about such a possibility. Many of the international-affairs experts I interviewed in China were familiar with that story. I often had to explain that “would” did not mean “will” in the article’s headline.)
The cynical view of warnings about a mounting Chinese threat is that they are largely Pentagon budget-building ploys: if the U.S. military is “only” going to fight insurgents and terrorists in the future, it doesn’t really need the next generation of expensive fighter planes or attack submarines. Powerful evidence for this view—apart from familiarity with Pentagon budget debates over the years—is that many of the neoconservative thinkers who since 9/11 have concentrated on threats from Iraq, Afghanistan, and Iran were before that time writing worriedly about China. The most powerful counterargument is that China’s rise is so consequential and unprecedented in scale that it would be naive not to expect military ramifications. My instincts lie with the skeptical camp: as I’ve often written through the past three years, China has many more problems than most Americans can imagine, and its power is much less impressive up close. But on my return to America, I asked a variety of military, governmental, business, and academic officials about how the situation looks from their perspective. In most ways, their judgment was reassuringly soothing; unfortunately, it left me with a new problem to worry about.
Without meaning to sound flip, I think the strictly military aspects of U.S.-China relations appear to be something Americans can rest easy about for a long time to come. Hypercautious warnings to the contrary keep cropping up, especially in the annual reports on China’s strategic power produced since 2000 by the Pentagon each spring and by the U.S.-China Economic and Security Review Commission each fall. Yet when examined in detail, even these show the limits of the Chinese threat. To summarize:
• In overall spending, the United States puts between five and 10 times as much money into the military per year as China does, depending on different estimates of China’s budget. Spending does not equal effectiveness, but it suggests the difference in scale.
• In sophistication of equipment, Chinese forces are only now beginning to be brought up to speed. For instance, just one-quarter of its naval surface fleet is considered “modern” in electronics, engines, and weaponry.
• In certain categories of weaponry, the Chinese don’t even compete. For instance, the U.S. Navy has 11 nuclear-powered aircraft-carrier battle groups. The Chinese navy is only now moving toward construction of its very first carrier.
• In the unglamorous but crucial components of military effectiveness—logistics, training, readiness, evolving doctrine—the difference between Chinese and American standards is not a gap but a chasm. After a natural disaster anywhere in the world, the American military’s vast airlift and sealift capacity often brings rescue supplies. The Chinese military took days to reach survivors after the devastating Sichuan earthquake in May of 2008, because it has so few helicopters and emergency vehicles.
• For better and worse, in modern times, American forces are continually in combat somewhere in the world. This has its drawbacks, but it means that U.S. leaders, tactics, and doctrine are constantly refined by the realities of warfare. In contrast, vanishingly few members of the People’s Liberation Army have any combat experience whatsoever. The PLA’s last major engagement was during its border war with Vietnam in February and March of 1979, when somewhere between 7,000 of its soldiers (Chinese estimate) and 25,000 (foreign estimates) were killed within four weeks.
Beyond all this is a difference of military culture rarely included in American discussions of the Chinese threat—and surprising to those unfamiliar with the way China’s Communist government chose to fund its army. The post-Vietnam American military has been fanatically devoted to creating a “warrior” culture of military professionalism. The great struggle of the modern PLA has been containing the crony-capitalist culture that comes from its unashamed history of involvement in business. Especially under Deng Xiaoping, the Chinese military owned and operated factories, hotels and office buildings, shipping and trucking companies, and other businesses both legitimate and shady. In the late 1990s President Jiang Zemin led a major effort to peel the PLA’s military functions away from its business dealings, but by all accounts, corruption remains a major challenge in the Chinese military, rather than the episodic problem it is for most Western forces. One example: at a small airport in the center of the country, an airport manager told me about his regular schedule of hong bao deliveries—“red envelopes,” or discreet cash payoffs—to local air-force officers, to ensure airline passage through the sector of airspace they controlled. (Most U.S. airspace is controlled by the Federal Aviation Administration; nearly all of China’s, by the military.) A larger example is the widespread assumption that military officials control the vast Chinese traffic in pirated movie DVDs.
The Chinese military’s main and unconcealed ambition is to someday be strong enough to take Taiwan by force if it had to. But the details of the balance of power between mainland and Taiwanese forces, across the Straits of Taiwan, have been minutely scrutinized by all parties for decades, and shifts will not happen by surprise. The annual reports from the Pentagon and the Security Review Commission lay out other possible scenarios for conflict, but in my experience it is rare to hear U.S. military or diplomatic officials talk about war with China as a plausible threat. “My view is that the political leadership is principally focused on creating new jobs inside the country,” I was told by retired Admiral Mike McConnell, a former head of the National Security Agency and the director of national intelligence under George W. Bush. Another former U.S. official put it this way: “We tend to think of everything about China as being multiplied by 1.3 billion. The Chinese leadership has to think of everything as being divided by 1.3 billion”—jobs, houses, land. Russell Leigh Moses, who has lived in China for years and lectures at programs to train Chinese officials, notes that the Chinese military, like its counterparts everywhere, is “determined not to be neglected.” But “so many problems occupy the military itself—including learning how to play the political game—that there is no consensus to take on the U.S.”
Yes, circumstances could change, and someday there could be a consensus to “take on the U.S.” But the more you hear about the details, the harder it is to worry seriously about that now. So why should we worry? After conducting this round of interviews, I now lose sleep over something I’d generally ignored: the possibility of a “cyberwar” that could involve attacks from China—but, alarmingly, could also be launched by any number of other states and organizations.
The cyber threat is the idea that organizations or individuals may be spying on, tampering with, or preparing to inflict damage on America’s electronic networks. Google’s recent announcement of widespread spying “originating from China” brought attention to a problem many experts say is sure to grow. China has hundreds of millions of Internet users, mostly young. In any culture, this would mean a large hacker population; in China, where tight control and near chaos often coexist, it means an Internet with plenty of potential outlaws and with carefully directed government efforts, too. In a report for the U.S.-China Economic and Security Review Commission late last year, Northrop Grumman prepared a time line of electronic intrusions and disruptions coming from sites inside China since 1999. In most cases it was impossible to tell whether the activity was amateur or government-planned, the report said. But whatever their source, the disruptions were a problem. And in some instances, the “depth of resources” and the “extremely focused targeting of defense engineering data, US military operational information, and China-related policy information” suggested an effort that would be “difficult at best without some type of state-sponsorship.”

The authorities I spoke with pooh-poohed as urban myth the idea that an electronic assault was behind the power failures that rippled from the Midwest to the East Coast in August of 2003. By all accounts, this was a cascading series of mechanical and human errors. But after asking corporate and government officials what worried them, I learned several unsettling things I hadn’t known before.

First, nearly everyone in the business believes that we are living in, yes, a pre-9/11 era when it comes to the security and resilience of electronic information systems. Something very big—bigger than the Google-China case—is likely to go wrong, they said, and once it does, everyone will ask how we could have been so complacent for so long. Electronic-commerce systems are already in a constant war against online fraud. “The real skill to running a successful restaurant has relatively little to do with producing delicious food and a lot to do with cost and revenue management,” an official of an Internet commerce company told me, asking not to be named. “Similarly, the real business behind PayPal, Google Checkout, and other such Internet payment systems is fraud and risk management,” since the surge of attempted electronic theft is comparable to the surge of spam through e-mail networks.
At a dinner in Washington late last year, I listened to two dozen cyber-security experts compare tales of near-miss disasters. The consensus was that only a large-scale public breakdown would attract political attention to the problem, and that such a breakdown would occur. “Cyber crime is not conducted by some 15-year-old kids experimenting with viruses,” Eugene Spafford, a computer scientist at Purdue, who is one of the world’s leading cyber-security figures (and was at the dinner), told me later via e-mail.
It is well-funded and pursued by mature individuals and groups of professionals with deep financial and technical resources, often with local government (or other countries’) toleration if not support. It is already responsible for billions of dollars a year in losses, and it is growing and becoming more capable. We have largely ignored it, and building our military capabilities is not responding to that threat.
With financial, medical, legal, intellectual, logistic, and every other sort of information increasingly living in “the cloud,” the consequences of collapse or disruption are unpleasant to contemplate. A forthcoming novel, Directive 51, by John Barnes, does indeed contemplate them, much as in the 1950s Nevil Shute imagined the world after nuclear war in On the Beach. Barnes’s view of the collapse of financial life (after all, our “assets” consist mostly of notations in banks’ computer systems), the halt of most manufacturing systems, the evaporation of the technical knowledge that now exists mainly in the cloud, and other consequences is so alarming that the book could draw attention in a way no official report can.
Next, the authorities stressed that Chinese organizations and individuals were a serious source of electronic threats—but far from the only one, or perhaps even the main one. You could take this as good news about U.S.-China relations, but it was usually meant as bad news about the problem as a whole. “The Chinese would be in the top three, maybe the top two, leading problems in cyberspace,” James Lewis, a former diplomat who worked on security and intelligence issues and is now at the Center for Strategic and International Studies, in Washington, told me. “They’re not close to being the primary problem, and there is debate about whether they’re even number two.” Number one in his analysis is Russia, through a combination of state, organized-criminal, and unorganized-individual activity. Number two is Israel—and there are more on the list. “The French are notorious for looking for economic advantage through their intelligence system,” I was told by Ed Giorgio, who has served as the chief code maker and chief code breaker for the National Security Agency. “The Israelis are notorious for looking for political advantage. We have seen Brazil emerge as a source of financial crime, to join Russia, which is guilty of all of the above.” Interestingly, no one suggested that international terrorist groups—as opposed to governments, corporations, or “normal” criminals—are making significant use of electronic networks to inflict damage on Western targets, although some groups rely on the Internet for recruitment, organization, and propagandizing.
This led to another, more surprising theme: that the main damage done to date through cyberwar has involved not theft of military secrets nor acts of electronic sabotage but rather business-versus-business spying. Some military secrets have indeed leaked out, the most consequential probably being those that would help the Chinese navy develop a modern submarine fleet. And many people said that if the United States someday ended up at war against China—or Russia, or some other country—then each side would certainly use electronic tools to attack the other’s military and perhaps its civilian infrastructure. But short of outright war, the main losses have come through economic espionage. “You could think of it as taking a shortcut on the ‘D’ of R&D,” research and development, one former government official said. “When you create a new product, a competitor can cherry-pick the good parts and introduce a competitive product much more rapidly than he could otherwise.” Another technology expert, who serves on government advisory boards, told me, when referring to the steady loss of technological advantage, “We should not forget that it was China where ‘death by a thousand cuts’ originated.” I heard of instances of Western corporate officials who arrived for negotiations in China and realized too late that their briefing books and internal numbers were already known by the other side. (In the same vein: I asked security officials whether the laptops and BlackBerry I had used while living in China would have been bugged in some way while I was there. The answers were variations on “Of course,” with the “you idiot” left unsaid.)
The final theme was that even though these cyber concerns are not confined to China, the Chinese aspects do deserve consideration on their own, because China’s scale, speed of growth, and complex relationship with the United States make it a unique case. Hackers in Russia or Israel might be more skillful one by one, but with its huge population China simply has more of them. The French might be more aggressive in searching for corporate secrets, but their military need not simultaneously consider how to stop the Seventh Fleet. According to Mike McConnell, everything about China’s military planning changed after its leaders saw the results of U.S. precision weapons in the first Gulf War. “They were shocked,” he told me. “They had no idea warfare had progressed to that point, and they went on a crash course to take away our advantage.” This meant both building their own information systems—thus China’s aspiration to create a Beidou (the Chinese name for the Big Dipper) system of satellites comparable to America’s GPS—and being prepared in time of war to “attack what they see as our soft underbelly, our military’s dependence on networking,” as McConnell put it, noting the vast emerging PLA literature on defending and attacking data networks.
Ed Giorgio, formerly of the NSA, has prepared charts showing the points of “asymmetric advantage” China might have over the long run in such competition. Point nine on his 12-point chart: “They know us much better than we know them (virtually every one of their combatants reads English and virtually none of ours read Mandarin. This, in itself, will surely precipitate a massive intelligence failure).” But James Lewis, of CSIS, pointed out an “asymmetric handicap”: “For all the effort the Chinese put into cyber competition, external efforts”—against a potential foe like the United States—“are second priority. The primary priority is domestic control and regime survival. The external part is a side benefit.” For many other reasons, the China-cyber question will, like the China-finance and China-environment and China-human-rights questions, demand special attention and work.
The implications of electronic insecurity will be with us in the long run, among the other enduring headaches of the modern age. The “solution” to them is like the solution to coping with China’s rise: something that will unfold over the years and require constant attention, adjustments, and innovations. “Cyber security is a process, not a patch,” Eugene Spafford said. “We must continue to invest in it—and for the long term as well as the ‘quick fix,’ because otherwise we will always be applying fixes too late.”

No doubt because I’ve been so preoccupied for so long with the implications of China’s growth, I thought I heard a familiar note in the recommendations that many of the cyber-security experts offered. The similarity lies in their emphasis on openness, transparency, and international contact as the basis of a successful policy.
In overall U.S. dealings with China, it matters tremendously that so many Chinese organizations are led or influenced by people who have spent time in America or with Americans. Today’s financial, academic, and business elite in China is deeply familiar with the United States, many of its members having studied or worked here. They may disagree on points of policy—for instance, about trade legislation—but they operate within a similar set of concepts and facts. This is less true of China’s political leaders, and much less true of its military—with a consequently much greater risk of serious misunderstanding and error. The tensest moment in modern China’s security relationship with the outside world came in January of 2007, when its missile command shot one of its own weather satellites out of the sky, presumably to show the world that it had developed anti-satellite weaponry. The detonation filled satellite orbits with dangerous debris; worse, it seemed to signal an unprovoked new step in militarizing space. By all accounts, President Hu Jintao okayed this before it occurred; but no one in China’s foreign ministry appeared to have advance word, and for days diplomats sat silent in the face of worldwide protests. The PLA had not foreseen the international uproar it would provoke—or just didn’t care.
Precisely in hopes of building familiarity like that in the business world, the U.S. Navy has since the 1980s taken the lead in military-to-military exchanges with the PLA. “I think both sides are trying to figure out what kind of a military-to-military relationship is feasible and proper,” David Finkelstein, of the Center for Naval Analyses, in suburban Washington, D.C., told me. “We have two militaries that, in some circumstances, see each other as possible adversaries. At the same time, at the level of grand strategy, the two nations are trying to accommodate each other. There is a major chasm, but both sides are working hard to bridge it.” Such exposure obviously doesn’t eliminate the real differences of national interest between the two countries, but I believe it makes outright conflict less likely.
A similar high-road logic seems to lie behind recommendations for cyber security in general, and for dealing with the Chinese cyber threat in particular. The NSA, which McConnell directed and where Giorgio worked, is renowned for its secrecy. But both men, along with others, now argue that to defend information networks, the U.S. should talk openly about risks and insecurities—and engage the Chinese government and military in an effort to contain the problem.
As a matter of domestic U.S. politics, McConnell argues that we now suffer from a conspiracy of secrecy about the scale of cyber risks. No credit-card company wants to admit how often or how easily it is cheated. No bank or investment house wants to admit how close it has come to being electronically robbed. As a result, the changes in law, regulation, concept, or habit that could make online life safer don’t get discussed. Sooner or later, the cyber equivalent of 9/11 will occur—and, if the real 9/11 is a model, we will understandably, but destructively, overreact.
While trying to build bridges to the military, McConnell and others recommend that the U.S. work with China on international efforts to secure data networks, comparable to the Chinese role in dealing with the world financial crisis. “You could have the model of the International Civil Aviation Organization,” James Lewis said, “a body that can reduce risks for everyone by imposing common standards. It’s moving from the Wild West to the rule of law.” Why would the Chinese government want to join such an effort? McConnell’s answer was that an ever-richer China will soon have as clear a stake in secure data networks as it did in safe air travel.
We’re naturally skeptical of abstractions like “cooperation” or “greater openness” as the solutions to tough-guy, real-world problems. But in making the best of a world that will inevitably be changed by increasing Chinese power and increasing electronic threats from many directions, those principles may offer the right, realistic place to start.

James Fallows is an Atlantic national correspondent; his blog is at jamesfallows.theatlantic.com.

India must seek Army role in Afghanistan

Swapan Dasgupta

http://www.dailypioneer.com/236011/India-must-seek-Army-role-in-Afghanistan.html

In the early hours of Saturday, a force of 15,000 British, American, Afghan and French troops launched Operation Moshtarek aimed at cleansing the Taliban from the Helmand province in Afghanistan. According to a spirited report by the ‘embedded’ Daily Telegraph reporter, Brigadier James Cowan, the commander of the British 11th Light Brigade, spoke to his troops before they set off. “Where we go, we will stay. Where we stay, we will build,” he told his soldiers in a speech reminiscent of the stirring Hollywood war movies. “The next few days will not be without danger. Hold your fire if there is risk to the innocent, even if this puts you in greater danger. For those who will not shake our hand they will find it closed into a fist. They will be defeated. I wish you Godspeed and the best of luck.”

As an Indian, I extend my prayers and wish Brig Cowan and his men the same luck that I would for an Indian contingent mounting an operation against the enemy. The reason is simple: The future peace of India depends on the success of the last-ditch operation mounted by Gen McChrystal to tilt the balance of power in Afghanistan. If the US and NATO forces succeed in dislodging the Taliban from their entrenched bases and disrupting their parallel administration, it will strengthen the hands of those who are resisting the defeatist exit strategy formalised at the London conference on Afghanistan last month.

There was a time when the US and Britain, the two main contributors to the military operations, were hesitant to admit the loss of political will in Afghanistan. These days, any high-ranking official or even those on the periphery of the power structure in Washington and London will readily admit that the goal in Afghanistan is the orderly management of disengagement. The reason is only partly financial. Far more compelling is the push from a large section of those who voted for President Barack Obama in 2008 and those who are willing to support Prime Minister Gordon Brown’s re-election bid this summer. They are unequivocal in their belief that Afghanistan is “not our war”.

The angst-ridden liberals who are so terribly indignant over last year’s flawed election in Afghanistan, have no problems nurturing the belief that the Taliban are merely ultra-conservative Afghan nationalists who should be left alone to get on with their archaic way of life without interference. Of course, there is a feeble recognition that there are the ‘bad’ Taliban, the ones who extended hospitality to Osama bin Laden and plotted the international jihad to establish another Caliphate. But that problem is sought to be covered up by falling back on Pakistani guarantees.

If the future of Afghanistan unravels in the way the London conference envisaged, there are likely to be profound consequences for the sub-continent. First, Pakistan, the country which provided sanctuary and a lifeline to Mullah Omar and his henchmen after 2001, is going to be gifted Afghanistan on a platter by a disoriented West. Pakistan has claimed that it alone has the commitment and expertise to manage things in such a way that the Al Qaeda doesn’t return to Afghanistan — even if Mullah Omar does. The West is inclined to believe Islamabad and outsource what seems an ‘unwinnable’ war.

Second, the recovery of Pakistan’s ‘strategic depth’ in Afghanistan will lead to an immediate escalation of tensions in Jammu & Kashmir. The Pakistani military is aware that jihadi energies will need to find a focus once Western soldiers are out of Afghanistan, Hamid Karzai’s Government toppled and the Afghan Constitution replaced by sharia’h rule. The jihadis will have two clear options: To either aim for a capture of power in Islamabad or resume the battle to ‘liberate’ Kashmir. It may safely be assumed that the Pakistani military will do its utmost to ensure that the latter option prevails.

Finally, regardless of Pakistan’s projection of itself as a modern Islamic nation, a Taliban victory in Afghanistan will tilt the balance of power in the Muslim world in favour of the Islamists. The sheer exhilaration of holy warriors having defeated two superpowers in just three decades will result in an immediate radicalisation of Muslims which won’t remain confined to Afghanistan, or even Pakistan. This time it is certain to create tremors all over West, South and South-East Asia, not least India. The West hopes that from threatening the heartlands of the West, jihad will become a purely Asian problem which, at best, touches North Africa. This optimism is based on Pakistani assurances, hardly something a prudent banker will accept.

Over the past months, many Indians have warned the West of the consequences of withdrawing from Afghanistan and outsourcing that unfortunate country to Pakistan’s crisis managers. It is not that India’s warnings are dismissed out of hand but they invariably elicit a common response: But what are you doing about it? The belief that preachy Indians are piggy-backing on the lives of Western soldiers and are unwilling to get their hands dirty is widespread. It may explain why India was marginal to the proceedings of the London conference.

It is not that India has been an armchair pundit in Afghanistan. India’s role in the reconstruction process is impressive and should have got better global recognition. Yet, the absence of even a symbolic military presence in Afghanistan — a soft entry point could have involved assisting the Afghan police — has proved costly.

Following the IPKF debacle in Sri Lanka in the late-1980s, there has been an unstated national consensus against military involvement overseas (except in lucrative UN peace-keeping operations). It may be worthwhile having a second look at this aloofness in the context of Afghanistan.

WHY ATTACK ON GERMAN BAKERY IN PUNE?

B.RAMAN

Statements and comments from Shri P.Chidambaram, the Home Minister of the Government of India , and officials indicate that the explosion in the well-known and well-frequented German Bakery of Pune around 7 PM on February 13,2010, was an act of terrorism. The case is under investigation by the local police and possibly too by the National Investigation Agency (NIA), which came into being after the 26/11 terrorist strikes in Mumbai. According to the latest information, nine persons, including one foreigner, died in the explosion, which appears to have been not a sophisticated one, that could have required any special training. The expertise involved could have been locally acquired. One must control the reflex to point an accusing finger at Pakistan.

2.The NIA's first major investigation was into the travels and activities of David Coleman Headley of the Chicago cell of the Lashkare-Toiba (LET) and his associate Hussain Rana, also of Chicago, in India to collect operational information required for targeting by the LET. Some of the details collected by Headley were used by the LET in the 26/11 strikes in Mumbai. He had also collected target details about other places of interest including in New Delhi and Pune. These details had not been used till now though his interrogation by the FBI reportedly indicated that the LET was interested in another terrorist strike----this time in New Delhi.

3. Among the targets of interest to Headley in Pune was the local Chabad House, a Jewish cultural-cum-religious centre, which is frequented by Jewish visitors to Pune and the local Rajneesh Ashram frequented by the Western followers of Rajneesh, an Indian spiritual guru, who used to live in the US and was the mentor of some sections of Western youth. Both these places reconnoitred by Headley were near the German Bakery, but neither of them was attacked on February 13. Instead, the German Bakery was targeted.

4. Why the German Bakery? Why not the Chabad House or the Rajneesh Ashram? Why only one explosion? Why not serial explosions well orchestrated as organised by the Indian Mujahideen in Uttar Pradesh, Jaipur, Bangalore, Ahmedabad and New Delhi between November 2007 and September,2008? Is it a lone wolf terrorist strike as one saw over Detroit on Christmas Day when a Nigerian tried unsuccessfully to blow up a US plane as it was getting ready to land in Detroit or did it involve a team of terrorists like the 26/11? What is the significance of the timing? Anything to do with the forthcoming resumption of Indo-Pakistan dialogue on February 25? The dialogue has been under suspension since 26/11. Did the timing have anything to do with the US-UK offensive against the Afghan Taliban in the Helmand province, which got going on Feb.13? Is it a carry-over of the anger against the Germans which Al Qaeda elements from Germany based in Pakistan's tribal belt have been showing since September last? Should India go ahead with the Feb.25 talks with Pakistan or put them on hold till a clear picture emerges?

5. These are questions which have to be addressed by the NIA and the policy-makers in Delhi as the investigation makes headway. The Govt. of India should keep an open mind and look into all possibilities and should avoid over or hasty reactions. Reconstruction and investigation of the explosion should have priority and not retaliation against it.

5. Annexed for ready reference is an article titled "Al Qaeda Warns Germans, Cites Mumbai" written by me on September 21,2008. (14-2-10)

( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. E-mail: seventyone2@gmail.com )

ANNEXURE

21-Sept-2009

Al Qaeda Warns Germans, Cites Mumbai - International Terrorism Monitor---Paper No. 558

By B. Raman

Al Qaeda has reportedly warned of a terrorist strike in Germany, similar to the past strikes by pro-Al Qaeda elements in Madrid (March 2004), London (July 2005) and Mumbai, if the German voters do not vote against the present Government of Germany in the elections being held on September 27, 2009.

2. The video message, the warning contained in it and the reference to Madrid are meant to influence the voting through intimidation and bring about a reversal of the German policy of participating in the NATO operations in Afghanistan. While the references to the Madrid and London attacks are clear, it is not clear from the message whether the reference to Mumbai seeks to recall the multiple explosions in suburban trains in July, 2006, or the commando-style attacks with hand-held weapons and explosives by the Lashkar-e-Toiba (LET) on multiple-targets in November, 2008, or both. The responsibility for the July-2006 attacks has not been conclusively established so far.

3. The message seeks to give the impression of Al Qaeda being confident of carrying out its threat in reality if its warning is not heeded. A detailed analysis of the message by Nick Grace, an American counter-terrorism analyst, is available at the web site of the "Long War Journal" of the US, which monitors systematically all developments bearing on international terrorism. It may be seen at http://www.longwarjournal.org/archives/2009/09/al_qaeda_warns_germa.php. The "Long War Journal" and its analyses enjoy a very high level of credibility in international counter-terrorism circles.

4. According to the analysis by Nick Grace, the warning message has been issued by Bekkay Harrach, alias Al Hafidh Abu Talha al Almani, a person of Moroccan origin, who grew up in Germany and then gravitated to Al Qaeda. He is presently believed to be somewhere in the Af-Pak region. Nick Grace points out in his analysis that this is the third warning issued by Harrach this year. Nick Grace says: "His previous warning to Germany, on Jan. 17, 2009, coincided with a massive car bomb attack on the heavily guarded German embassy in Kabul that was orchestrated by the notorious Haqqani Network. Four Afghan civilians and an American soldier died in the attack." His mention of the Haqqani network refers to Jalalludin Haqqani and his son Serajuddin Haqqani, who are reported to be operating from the North Waziristan area of Pakistan. While some sources attributed the huge explosion outside the Indian Embassy in Kabul in July last year to the LET, other sources suspected the Haqqani network to have been responsible. The Haqqani network is as close to Pakistan's Inter-Services Intelligence as the LET.

5. To quote again from Nick Grace's analysis: Harrach has "warned that if Chancellor Angela Merkel is reelected on Sept. 27, Germany will be directly attacked." Nick Grace adds: "The latest video by Harrach is most striking because its themes and packaging are targeted almost exclusively for a Western audience. Speaking softly in fluent German, without the usual militant or religious props featured in past al Qaeda messages, he stares directly into the camera and only occasionally looks down to turn over the pages of his speech. He never wags his finger or raises his voice. The video carries no subtitling in Arabic. "

6. The picture of Harrach as he appears in the video message has been reproduced by the "Long War Journal" along with the analysis. He is clad in typical Western attire with a suit and a tie. His attire reminds one of the attire worn by the volunteers of the Hizbut Tehrir, which advises its followers to avoid dressing themselves in a manner typical of Muslims. It is likely that if Al Qaeda already has its volunteers in Germany to carry out the threat they may not be attired like Muslims and they may avoid going to mosques and other places frequented by Muslims in order not to draw suspicion upon themselves.

7. If Al Qaeda carries out the threat, will it be an attack with timed explosives as in Madrid and Mumbai--July 2006 or a suicide attack as in London or a commando-style attack with hand-held weapons as in Mumbai--26/11? Will it be an attack confined to public transportation systems as in Madrid, London and Mumbai-July 2006 or will it be in public places as in Mumbai--26/11? These are important questions, which would certainly be factored into by the German counter-terrorism authorities while planning their strategy to frustrate the plans of Al Qaeda.

8. The message, as analysed by Nick Grace, carries an implied assurance that the town of Kiel might not be attacked. This assurance is puzzling because on August 20, 2006, the German police had arrested a Muslim from the Lebanon studying in the Kiel University on a charge of placing a timed explosive device (a suitcase bomb) on a commuter train in Dortmund on July 31,2006. It failed to explode. They managed to identify him through a closed circuit TV footage, which showed him placing the suitcase in a train. Another suitcase bomb, timed to explode at the same time, had been placed in a train at Koblenz. That too failed to explode. It is not known whether the police were able to identify and arrest the person who placed the second suit case bomb. The German media had reported that the identification of the first man was made possible by a tip-off from an unnamed foreign intelligence agency. These two incidents had indicated as early as 2006 that pro-Al Qaeda elements were wanting to target the public transportation system in Germany.

9. This is the second instance when there has been a reference to Mumbai in messages attributed to Al Qaeda. In a telephonic message to the British Broadcasting Corporation in the second week of February, 2009, Mustafa Abu-al Yazid, who has been projected since 2007 as in charge of Al Qaeda operations in Afghanistan in liaison with the Neo Taliban of Mulla Mohammad Omar, warned India in the following words: “We send a short and succinct message to the Indian Government. The Mujahideen will never allow you to invade the Muslims and their lands in Pakistan. If you beguile yourselves into doing this, know well that you will pay a very heavy price, which you will regret much. We will call upon our whole Muslim nation, its Mujahideen and its martyrdom squads against you. We will strike your interests and your economic lifelines wherever they may be until you are demolished and bankrupt as America is being demolished and going bankrupt today. The Islamic nation which produced the audacious and heroic martyrs of Bombay, who struck you in the midst of your homes and humiliated you, is able to produce thousands more like them. You cannot be more powerful or have more ability than the Soviet Union which was destroyed on the rocks of the Afghanistan mountains nor Americans whose nose we rubbed in the dirt of Afghanistan, Iraq and Somalia.” The authenticity of the message could not be established.

PUNE'S PAST JIHADI CONNECTIONS

B.RAMAN

Eight persons are reported to have been killed and 40 others injured in a suspected bomb blast in the well-known German bakery of Pune, which is often frequented by foreigners visiting Pune. The city also reportedly has a Chabad House, a Jewish cultural-cum-religious centre. Further details as to whether it was an act of terrorism, what kind of explosive was used etc are awaited.

2. Pune as a possible centre for jihadi activities came to notice in March 2002, when Abu Zubaidah, the then No.3 to Osama bin Laden, was arrested by the Pakistani authorities acting at the instance of the USA's Federal Bureau of Investigation (FBI), in the house of an activist of the Lashkar-e-Toiba (LET) at Faislabad in Pakistani Punjab and handed over to the FBI. He is now in the Guantanamo Bay Detention Centre in Cuba. Sections of the Pakistani media had reported at that time that Abu Zubaidah, a Palestinian, had studied computer science in Pune before crossing over into Pakistan and joining Al Qaeda.


3.In September-October,2008, the Mumbai Police had arrested four IT-savvy members of the Indian Mujahideen ( IM), who had played a role in sending E-mail messages in the name of the IM before and after the Ahmedabad blasts of July,2008, and before the New Delhi blasts of September,2008, by hacking into Wi-fi networks in Mumbai and Navin Mumbai. Three of them were from Pune. The four persons were:

Mohammed Mansoor Asgar Peerbhoy aka Munawar aka Mannu. A 31-year-old resident of Pune, who was allegedly working for an American Internet company in its India office as a well-paid executive.
Mubin Kadar Shaikh, a 24-year-old graduate of computer science from Pune.
Asif Bashir Shaikh, a 22-year-old mechanical engineer from Pune. In addition to helping in sending the E-mail messages, he also reportedly played a role in planting 18 Improvised Explosive Devices (IEDs) in Surat, all of which failed to explode.
Mohammed Ismail Chaudhary, a 28-year-old computer mechanic, who is also suspected to have helped in planting the IEDs in Surat.
4. Peerbhoy was reported to have joined the IM while he was studying Arabic in Pune's Quran Foundation, which seems to have served as a favourite recruiting ground for jihadi terrorism. In this connection, reference is invited to my note titled INDIA AS POSSIBLE WEB OF CYBER TERRORISM at http://www.southasiaanalysis.org/papers29/paper2873.html

5. Pune and its Chabad House again figured prominently in recent media reports of the visits to India by David Coleman Headley of the Chicago cell of the LET presently facing trial in Chicago on charges of helping the LET in carrying out the 26/11 terrorist strikes in Mumbai by collecting operational details about the targets to be attacked. Pune was one of the places reportedly visited by him for allegedly collecting target information for the LET. ( 13-2-10)

( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. E-mail: seventyone2@gmail.com )

OBAMA'S WAR-CRY AGAINST UNDERVALUED YUAN ANGERS, UNNERVES CHINA

B.RAMAN

( What will be the impact of the global financial and economic melt-down on the Chinese economy?This question should be of interest to the other countries of the South and South-East Asian region.If the Chinese economy is badly affected, they too are likely to feel the negative consequences of the down-turn in the Chinese economy.Keeping this in view, we have been bringing out a periodic "Chinese Economy Monitor" based on open source information. This is the tenth in the series.)

ASSESSMENT

The war-cry in President Barack Obama’s State of the Union message to the Congress against what the US looks upon as the undervalued yuan, which, in the US view, gives an unfair advantage to Chinese exports to the US has angered and unnerved Chinese officials and non-governmental analysts. It has angered them because , according to them, the US campaign against China's huge trade surplus does not project a correct picture. According to the Chinese, the low value of the Chinese imports from the US is not due to any Chinese reluctance to buy American goods. It is due to the US refusal to sell to China high-technology goods in which China is interested. US manufacturers are not allowed to export to China what China is interested in buying from the US. Instead of curtailing its negative list of goods not to be exported to China, the US has embarked on a campaign against the yuan in order to make Chinese exports of consumer goods to the US more expensive. Many are unnerved because they fear that ultimately China may have to revalue the yuan to accommodate Mr.Obama's concerns for saving jobs in the US and this could affect the profitability of Chinese exports at a time when China is still in the process of restrucuring its manufacturing sector in order to reduce the dependence on exports and increase the dependence on the domestic market. In view of the decline in the popularity of Mr.Obama and the Congressional elections due later this year, the Chinese feel he is trying to correct his soft image by raising issues relating to arms sales to Taiwan, human rights in Tibet and forcing China to revalue the yuan. They point out that as a result of his negative domestic image, the same Obama, who had last year discounted allegations of Chinese manipulation of the value of the yuan, is now subscribing to these allegations despite the fact that there has been no change in Chinese policies during this period. Many analysts want the Government to stand firm and reject the pressure from Mr.Obama to revalue the yuan. The recovery in the Chinese economy as seen from the indicators relating to the GDP growth rate, the flow of foreign direct investments and a modest increase in exports has been maintained. At the same time, policy-makers including President Hu Jintao have been cautioning that the recovery cannot as yet be described as stable and likely to endure. They point out that the improvements since the end of last year may be impressive as compared to the low rates of growth during the height of the melt-down, but not that impressive when compared with the indicators that prevailed before the melt-down started. They stress the need for keeping up the restructuring of the manufacuring sector in order to reduce the dependence on exports and increase domestic sales. Their objective continues to be-----recovery due to restructuring and not recovery due to regaining the old export markets.



BASIS FOR RECOVERY STLL UNSTABLE, SAYS HU

2.Inaugurating a seminar on transforming the economic growth mode at the Party School of the Communist Party Central Committee at Beijing on February 3,2010, President Hu Jintao, who is also the General Secretary of the Party Central Committee, said that 2009 was the most difficult year for the Chinese economy in the new century, but it managed to start recovering from the difficulties as a result of the corrective measures carried out by the Government. However, he cautioned that the basis for the recovery was still unstable and that the international economic situation continued to be complicated. He added: “On the surface, the global financial crisis impacted on the speed of China’s economic growth, but in essence, it was the economic growth pattern that was worst hit.” He called for shifting the reliance mainly on investments and exports as before the crisis to reliance on a well co-ordinated mix of consumption, investment and exports; from the secondary industry serving as the major driving force to primary, secondary and tertiary industries jointly driving the economic growth; and from reliance on increased consumption of material resources to reliance on advances in science and technology, improvement in the quality of the work force and innovation in management.

--- Source Xinhua of February 4,2010.

US-CHINA WAR OVER THE YUAN

3.Mr.Ma Zhaoxu, a spokesman of the Chinese Foreign Office, said on February 4: “ We expect the US to take a rational view of bilateral trade issues and to adhere to equality in negotiation. Accusations and pressures will not bring solutions.” He was replying to President Barack Obama’s statement the previous day that his Administration would put “constant pressure” on China to liberalise its capital account and appreciate its currency. Mr.Ma added: “Our currency the RMB has appreciated more than 20 per cent against the US dollar since July 2005 when China moved to a floating exchange rate regime. Before 2005,the RMB was pegged to the US dollar at a fixed rate. The RMB exchange rate has drawn close to a reasonable and balanced level, given the international balance of payments and the market supply and demand for foreign exchange. China has never attempted to seek a trade surplus. China-US trade cooperation is mutually beneficial. It is not correct that the RMB exchange rate is the major cause of the US trade deficit.”

---- Source Xinhua of Feb.4, 2010.

YUAN APPRECIATION WON’T HELP U.S.

4.In an editorial titled “Yuan Appreciation won’t Ease US Pain” carried on February 9,2010, the “Global Times” published by the party-owned “People’s Daily” group said: “ When the US economy is mired in recession, finding fault with another fast-growing economy and blocking their development by pressing for currency appreciation is an old ploy the US has been known to use. Germany and Japan have both been victimized in this way. The exchange rate will be the main Sino-US battlefield in the future. In his State of the Union address, Obama made it clear that the US will seek new markets aggressively to create more jobs, specifically by doubling exports over the next five years to support two million jobs in the US. Blaming China on the currency issue will not necessarily increase US exports, but Obama has to show he is doing something. Forcing yuan appreciation would deal a heavy blow to China's exports, which are crucial for its job market and overall growth. Since China's landmark currency exchange reform in July 2005, the yuan has appreciated over 15 percent against the US dollar. Given the small profit margin involved in China's exports, appreciation of the yuan would significantly undermine China's export-dependent economy, which is slowly undergoing industrial upgrading. Millions of jobs will be lost in the process. The free conversion of the Chinese yuan will happen sometime in the future, as that is unavoidable for improving production efficiency and quality. But when the conversion is to be allowed and by what margin of adjustment are issues to be decided by the Chinese authorities. These cannot be done under external pressure. Forcing yuan appreciation will drag both countries into a costly trade war, and cause unpredictable diplomatic damage. Both sides need to be guided by a broader vision and take constructive steps to prevent conflict from getting out of hand. “

--- “ Global Times” of Feb.9,2010

REFLECTION OF OBAMA’S DOMESTIC SLIDE

5.A commentary disseminated by the Xinhua news agency on Feb.9 said: “ As the U.S. President Barack Obama vowed to get "much tougher" with China on exchange rates and trade, economists from Beijing said China should not give in to increased U.S. pressure that stems from its domestic problems. "His words are only aimed to appeal to domestic interest groups," said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University. Given China's growing international clout and the lack of jobs in the United States, Obama will certainly try to make China change its currency policy as this is an easy way to weaken China's export industry, she said. It was also a relevant tactic given the President was losing ground in opinion polls and facing tough conditions leading up to the mid-term election later this year, she said. Although the U.S. economy recovered to 5.7 percent growth in the fourth quarter last year, a record high in six years, jobless rate surged to more than 10 percent. Fiscal deficit is set to hit 1.56 trillion U.S. dollars in 2010, or 10.6 percent of its GDP, a new record since the Second World War. In the State of the Union Address on Jan. 28, Obama made it clear he would focus on jobs in 2010 and pledged to double exports in five years which could create two million jobs in the States. Tan Yaling said Obama's export drive could not fix the job problem, while a stronger yuan would add costs for U.S. consumers. It's an old trick for the U.S. to force its major trade partners to appreciate their currency to help itself in a time of crisis, said Zhang Yansheng, director of the Institute of Foreign Trade of the National Development and Reform Commission. "China's reforms, including exchange rate reform, should be independent of other countries," he said. He noted China's currency policy should comply with the country's macroeconomic conditions and industry restructuring. As many exporters' sales were just starting to pick up, a rising renminbi would hurt their fragile recovery. Many foreign experts also agreed that the appreciation of the renminbi would not remedy the global economic imbalance. A 20 percent rise in the yuan and other major Asian currencies would at best lead to a rise in U.S. exports worth 1 percent of gross domestic product, as the International Monetary Fund (IMF) estimates suggested, said Olivier Blanchard, Economic Counsellor and Director of the Research Department of IMF. "I think it's very important not to bash China over the RMB. What China should do, and is actually doing, is to decrease its saving rate, thus increase domestic demand, and reorient production to satisfy this higher domestic demand," he said in an interview with Reuters on Jan. 29. The renminbi has gained around 21 percent since July 2005 when the Government delinked the yuan from the U.S. dollar. However, China's trade surplus with its major trading partners did not fall accordingly. "The exchange rate of renminbi is not the main reason for the Chinese-U.S. trade deficit," Foreign Ministry Spokesman Ma Zhaoxu said . "We expect the United States to view bilateral trade issues rationally and to negotiate fairly. Accusation and pressure would not bring a solution," said Ma. Ma Zhaoxu's remarks were echoed by some analysts as they said the main reason for the enormous trade gap, instead of the exchange rate, was the U.S. restriction on high-tech exports to China. "Although there's a massive demand in China for technology and industrial equipment amid its industrialization drive, this is ignored by the U.S.," said Zhao Jinpin, Deputy Director of the Foreign Economic Relations Department of the Development Research Center under the State Council, China's cabinet. The U.S. limitation dates back to the United States Policy Regarding Trade with China in 1949, also known as NSC 41. During the Cold War, the restricted items for exports to China more than doubled compared to those to the Soviet Union. Only 8 percent of China's high-tech imports were from the United States, sharply down from 18.3 percent in 2001 because of the policy limitation. In 2007, the U.S. Department of Commerce unveiled a new export control regulation, known as China Rule, imposing additional licensing requirements for exports of high-tech products in 31 entries to China, including aircraft and aircraft engines, avionics and inertial navigation systems and high performance computers. Zuo Xiaolei, chief economist of the China Galaxy Securities, said the international trade balance should be based on the nations' comparative advantage. High-tech products were the U.S.'s strength, and the export limitation was not fair. Zhang Yansheng said a stable yuan was a necessary measure to get through the crisis. As Chinese leaders have repeated on various occasions , a stable renminbi is what China contributed to the world in times of crisis. Zhang Yansheng said it seemed China was caught in a dilemma. "If China lets the yuan weaken to shore up exports, it is called 'irresponsible'; However, if it did not do so, it is accused of 'manipulating' the currency. It is really a vexing problem." Nobel Prize Winner Andrew Michael Spence has noted in an article in the Financial Times that "the West is wrong to be obsessed about the renminbi". "The singular focus on the exchange rate appears based on the assumption that it is the key cause of the surplus and the main policy instrument for removing it. The reality is more complex. Exchange rate appreciation by itself will not get rid of the trade surplus." he said. "China will allow its currency to rise in the long run. But it is China to say when, not the United States," Zhang Yansheng said.

---- Source Xinhua of Feb.9, 2010.


WILL PRESSURE FOR REVALUATION OF YEN INCREASE?

6.The “China Daily” wrote on the same subject on Feb.11 as follows: “Growing domestic consumption and the international balance of payment have led to a rise in the country's latest imports and a drop in trade surplus, which analysts say will likely ease pressure on yuan appreciation. Imports in January skyrocketed by 85.5 percent from a year earlier, when companies were left idle for the weeklong Spring Festival holiday, customs figures showed. China's imports in January reached $95.31 billion, buoyed by burgeoning demand on resource-related products including copper, iron ore and aluminum. The increase in turn led to a trade surplus fall of 64 percent from last year's $39.3 billion figure. January exports rose 21 percent from a year earlier, up from a 17.7 percent growth in December, customs figures showed on Feb.10.Despite the increase, the country's exports fell from December last year. In January, exports increased by 21 percent to $109.47 billion year-on-year, but it declined by 16 percent compared with the previous month. With the growth of imports expected to remain high in the months ahead and the outlook of exports grim, analysts said pressure for the appreciation of the yuan will not grow in the short term. "The month-on-month figures show that recovery of China's exports is still fragile, but any strain for the revaluing of the yuan is loosening," said Standard Chartered economist Yan Jinny. "There is little possibility that China will appreciate the yuan in the first half," she said. China's exports started to rebound last December, rising for the first time since November 2008 by 17.7 percent and subsequently adding new pressure on the Chinese Government to appreciate the yuan. United States President Barack Obama also said recently that his country will get much tougher with China on trade and currency issues, in response to complaints that US exports are at a disadvantage because of the currency issue. But Chinese economists have urged the Government not to hasten the appreciation of the yuan under US pressure. "It's really difficult to evaluate January figures as the growth (for exports) is mainly supported by the low reference point back in 2009 due to the financial crisis, and the growth for the first quarter will likely remain high," said Li Jian, a researcher from the trade research institute under the Ministry of Commerce. Last year, China for the first time surpassed Germany as the world's largest exporter. But Minister of Commerce Chen Deming predicted at the annual commerce working conference that China's exports this year will present a hopeful picture as the global economic recovery is in limbo. "It's not the right time to revalue the yuan as China is still very much reliant on exports," said Wang Xiaoguang, a Chinese economist and researcher from the decision consulting department of the Chinese Academy of Governance. The increase in China's imports in January was also the third consecutive month of growth, with prices going up as well. "The imports were led up by growing investment made by the Chinese Government," Wang said. Imports of resource-related goods including iron ore, crude oil, steel, copper and aluminum grew by 59, 142.2, 17.5, 144.4 and 76.2 percent, respectively, in terms of value. "As the policy on boosting domestic consumption is continuing, the momentum will be sustained and this could help China keep its currency stable," Wang said. Vice-Premier Li Keqiang said China, faced by a gloomy export situation, will try to boost domestic consumption to drive up the economy.

--- Source “China Daily” of Feb.11,2010


GRADUAL APPRECIATION OF YUAN LIKELY

7.According to data released by the General Administration of Customs (GAC) on Feb.10, China’s imports surged 85.5 percent from a year earlier to a total of $95.31 billion in January, the highest growth rate since 1993, while exports rose 21.0 percent to record $109.48 billion, falling short of market expectations for a 30 percent increase. The total trade in January rose 44.4 percent to reach $204.78 billion. Analysts said the figures are not as exciting as they looked. "Don't take the January trade data too seriously," Lu Ting, an economist with Bank of America-Merrill Lynch in Hong Kong, said in a research note released the same day. The different timing of the Chinese New Year festival, which was in January last year and in February this year, made the year-on-year comparisons "almost meaningless," Lu said. The January figures declined from December, with exports down 16.3 percent and imports down 15.1 percent. The growth in both exports and imports is mostly due to a low base in January 2009, said Lu Zhengwei, a senior economist with the Industrial Bank. Exports totaled $90.45 billion in January 2009, while imports reached only $51.34 billion, the lowest level since June 2005.The faster growth in imports, which shrank China's trade surplus, was also noteworthy. The trade surplus in January was $14.17 billion, compared with $39.11 billion in January last year. China's booming domestic demand drove higher import growth, Sun Mingchun, chief China economist at Nomura Securities in Hong Kong, said in a research report. Ultimate consumption contributed 4.6 points to the 8.7 percent gross domestic product (GDP) growth in 2009, while net exports subtracted 3.9 points, the National Bureau of Statistics said on February 2. "The global economic recovery, particularly in emerging markets, is buoying China's exports, which have a high import content," Sun added. Imports are expected to grow 20 percent this year, while exports will likely grow 11 percent, with imports growth being "almost twice as fast as exports this year," Sun predicted. The country's exports will generally continue on a recovery track, but it won't be smooth, given the protectionism haunting global trade, Lu of the Industrial Bank said. Export growth year-on-year is likely to slow down, as the low base effect will gradually fade away, he added. Both Sun and Wang Tao, head of China Economic Research at UBS Securities, also said an appreciation of the yuan is expected to happen sometime in the second quarter of this year. Wang wrote in a report that "the Government has been seriously studying the issue of the exchange rate and [is] increasingly concerned about rising protectionism from abroad." The appreciation of the yuan is expected to happen gradually, with $1 equaling 6.40-6.50 yuan by year's end, Wang said.

---Source “Global Times” of Feb.11, 2010

GDP UP BY 8.7 PER CENT IN 2009

8.China's gross domestic product (GDP) in 2009 grew by 8.7 percent year-on-year to reach 33.53 trillion yuan ($4.91 trillion), according to figures released by the National Bureau of Statistics (NBS).In the fourth quarter, China's economy rose 10.7 percent year-on-year. The country's economy expanded by 6.2 percent year-on-year in the first quarter to reach 6.5745 trillion yuan, the lowest in 10 years as the global financial crisis affected the world's fastest-growing economy. In the second and third quarters, China's GDP grew 7.9 percent and 9.1 percent year-on-year respectively.

----Source " Global Times" of January 21, 2010.

GOOGLE OR NO GOOGLE, FDI WILL GROW

9.Foreign direct investment (FDI) in China more than doubled in December, in the latest sign of economic recovery. FDI skyrocketed by 103.1 percent from a year earlier to $12.14 billion, compared to the 32 percent year-on-year growth in November, the Ministry of Commerce said. The foreign investment, which excludes investment in the financial sector, jumped for five months since August. However, if full-year data is taken into account, China's FDI and newly approved foreign enterprises fell by 2.6 and 14.8 percent to $90.03 billion and 23,435 respectively. Ministry spokesman Yao Jian said the latest figure signals foreign investors' confidence in the Chinese market despite the financial crisis. Last year, 52 percent of foreign investment went to the manufacturing sector and 42 percent went to the service sector. But Yao said the service sector will attract more investors, who are expected to resort to mergers and acquisitions more often. Yao called China "a most attractive FDI destination" and said the country's investment situation is getting better. Chinese analysts echoed Yao's claim."As China's economic growth gains speed, the nation gains more trust from global investors," said Li Jianfeng, a macro-economy analyst at Shanghai Securities. "The global economic recovery is also helping push up the surge," he said. "The financial crisis made them (foreign investors) hold back, but now they are turning active again," said Jinny Yan, an economist from Standard Chartered. The better-than-expected exports in December had already provided a clue to the FDI surge, Li said. Chinese exports rose by 17.7 percent year-on-year last month, the first growth in the past 14 months. "The FDI will continue to grow during the first half of this year, but at a slow speed," Li said. Yao also said online search giant Google's recent intention to pull out of China will not hurt Sino-US trade or dampen investors' confidence. "No matter what decision Google makes, it will not affect overall trade and economic relations between China and the United States," Yao said. "The two countries have multiple communication channels. We are confident in the healthy development of economic and trade relations between China and the United States." The world's largest Internet search company threatened to quit the Chinese market - which contributed less than 2 percent of its global revenue - citing concerns of censorship and cyber hacks. A number of foreign investors said they would not follow Google's move. In a Bloomberg interview , Microsoft Corp CEO Steve Ballmer said the company will not consider exiting China, citing the growth trend. Similarly, the 2010 Business Climate Survey released by the American Chamber of Commerce in China showed its members remained optimistic about China over the medium- and long-term.

---Source "China Daily" of January 16, 2010

RELATIVELY LOW INFLATION RATE

10.Mr. Zhou Xiaochuan, the Governor of the Central Bank, said on Feb.9 that China's inflation rate remained "relatively low", amid ongoing debate among officials and economists on when policymakers should raise interest rates to rein in rising inflation and asset prices. The inflation rate still needed to be "closely watched", he said. China's consumer price index (CPI), a major measure of inflation, rose by 1.9 percent in December, 2009, from 0.6 percent in November, due to the country's ample liquidity. The rapidly rising inflation, together with surging house prices, has led to expectations of imminent interest rate hikes. The stock market has also been declining in recent trading days as investors expected more tightening policies following the country's move to raise the reserve requirement ratio of commercial banks and tighten real estate deals. But Dai Xianglong, chairman of the influential National Social Security Fund, said on Feb.8 that China was unlikely to raise interest rates in the first half of 2010 as the economic recovery was still not on solid ground. Dai, a former central bank Governor, said that despite possible policy adjustments to combat inflation and asset bubbles, money and lending supply will remain relatively loose over the course of the year. "Interest rate hikes are not the most appropriate tool if policymakers want to control inflation," said Zuo Xiaolei, chief economist of China Galaxy Securities. China's recent inflation rise, in essence, stems from increasing liquidity in the financial system. The best way to curb inflation is to raise banks' reserve requirement rate or conduct open market operations, she said. China announced the raising of banks' reserve requirement ratio, or the proportion of money commercial banks must keep in reserve, on Jan 12. It has also resorted to a number of open market operations to mop up liquidity as banks rushed to lend to pre-empt a possible tightening of policy. China may continue to raise the requirement ratio this year, possibly increasing it three or four times to 18 percent from the current 16 percent, said Qu Hongbin, chief China economist of HSBC. Qu said an interest rate hike could come in April because inflation could be very serious if interest rates are not raised. China is scheduled to release its first-quarter economic data in mid-April. Economists also forecast that China's CPI could be mild in January, because of the relatively high base of last January. But it can rise up to 3 percent in February as consumption can still pick up during the Chinese New Year period, which starts on Feb 14. Inflation could stabilize later, Nomura Securities reported. "If that happens, the possibility of interest rate hikes would decrease," said Zhang Lan, head of research at Shanghai-based Changjiang Securities.

---- Source “China Daily of Feb. 10,2010

EMERGING MARKETS LEAD RECOVERY

11.Talking to a correspondent of the Xinhua news agency on the sidelines of the World Economic Forum at Davos in Switzerland on January 31, 2010, Mr.Jaspal Bindra, Asian Chief Executive Officer of the UK’s Standard Chartered bank, said:" China is a core pillar market for us. The 150-year-old Standard Chartered has remained on a growth path through the entire crisis largely because its majority business is based in Asia, especially China. What this financial crisis has created is the market in the most populous spots in the world. What we do realize is that there is going to be an increased focus on Asia because the rest of the world is slowing down while emerging markets are growing quickly. Asia is a key part of the bank and we don't shy away from making huge investments in China. For countries like China and India, we have no cap on investments. Now the bank is one of the first three foreign banks with a license to do underwriting of bonds in the Chinese market. From my standpoint of view, China's ambition of making Shanghai a big financial center in the world and making RMB (yuan) as the global reserve currency is helpful for foreign banks to expand business in the country. For this end, China will liberalize its capital market at a reasonably fast pace. A common sense has been reached at the Davos meeting that the recovery is led by emerging markets. First, there is a renewed confidence now in Asia. Many people used to think that if the Western economies struggled then the emerging markets would collapse, but this has not happened. Secondly, unlike in the past when Asian economies and other emerging economies learnt from the West in terms of economics, financial management, banking, and industrial sector, now they have the confidence to say maybe we should do it our way. As for Western economies, they are now still weak in recovery, but they will have a revival over a long term. The fundamental difference between the Western economies and Eastern ones is the different balance sheets of the government, corporate and individual. In the United States and Europe, governments are in huge debt and companies are highly leveraged including the banking system itself and individuals are living on zero-saving.”

---- Source Xinhua of January 31,2010

RATE OF INCREASE OF VEHICLE SALES MAY COME DOWN

12.China's vehicle sales may see a growth slowdown in 2010 because of a large base, according to the Ministry of Commerce. Auto sales in 2010 are forecast to rise more than 10 percent from 2009 to more than 15 million units, the "China Daily" quoted the Ministry as saying. "We are still confident of sales for 2010, as the Government's policy to stimulate consumption at all levels will continue. But the robust growth momentum of last year cannot be sustained," said Chang Xiaochun, Director of the department of market system development under the Ministry of Commerce. China's reported 46.2 percent of growth in auto sales in 2009 from the previous year was the fastest in more than a decade. Last year, 13.65 million units were sold, making China the largest auto market by overtaking sales in the United States for the first time.

Source: Xinhua of January 30, 2010.

MORE LUXURY CARS SOLD IN CHINA THAN ELSEWHERE IN THE WORLD

13.China has become the target market for the world's luxury auto manufacturers as demand for upscale vehicles surged last year despite a global slump. "China has been the most important market for luxury vehicles, so with consumption power increasing, the structure of the global automobile market is also changing and shifting its focus to China," said Liu Siyang, chief researcher with Samsung Economic Research Institute. "In the years to come, China's automobile market will not only improve sales numbers, but also enhance itself through sector restructuring." Analysts believe that with the economy growing again wealthy individuals will increasingly drive demand for luxury vehicles in China. Statistics from the Boston Consulting Group show that by the end of 2009, China had 450,000 millionaires (calculated in US dollars), and over the next four years that number will rise to 800,000. In 2008, 33.4 out of 100 Chinese families owned a vehicle, compared with 16.2 out of 100 in 2005.According to the German luxury carmaker Audi, last year, 392,000 premium cars were sold in China, a surge of 38 percent over 2008. "In the European and American markets, as well as Japan, one out of every five car owners drives a luxury sedan. However, the figure in China is one in 10," Klaus Maier, president and CEO of Mercedes-Benz China told China Daily, indicating the growth potential for the luxury car market is strong. The German automaker concluded 2009 with its highest sales figures in its 23-year history in China, with 68,500 units moved off lots last year, That positioned the company as a market leader with the highest growth rate in the luxury sector, an annual increase of 77 percent year-on-year. The Mercedes' S-Class luxury car had sales of nearly 15,000 units in 2009, reinforcing the fact China is one of the company's largest markets in the world. "China was our group's fourth-largest market last year we are confident that the country will be Mercedes' No 3 global market this year," said Maier. He predicts China's luxury car sector will expand slightly faster than the industry as a whole, which is up 10 to 15 percent so far this year. Mercedes' German rival BMW reported record sales of 90,536 units in 2009, a 38 percent year-on-year increase. BMW and its Chinese partner, Brilliance Auto Group, announced last November that they would invest at least 5 billion yuan in China to construct a new plant designed to boost the joint-venture's - BMW Brilliance Automotive - annual output from 30,000 to 75,000 units by the end of 2010. For Audi, 2009 China sales surged 33 percent to 157,188 vehicles over the previous year, allowing it to easily maintain its dominance of the nation's luxury car segment. Johannes Thammer, general manager of Audi sales division at Sino-German joint venture FAW Volkswagen Automobile Co, said he expects China's overall luxury car sector to rise by 25 to 30 percent this year. Porsche SE, which counts China as its third biggest market, said it aims to sell over 10,000 cars in the country this year as rising wealth makes luxury vehicles more affordable. Porsche increased sales by about 9 percent to 9,090 vehicles in China last year.

---Source “China Daily” of Feb.9, 2010.

SECOND LARGEST BUYERS OF DIAMONDS AFTER US

14.China surpassed Japan to become the world's second largest diamond consumer market in 2009, according to the latest figures from the Diamond Administration of China (DAC). Polished diamond import turnover amounted to $699 million in 2009, a 30.7 percent increase year-on-year, the Xinhua news agency quoted figures from the DAC as saying. From January-November 2009, Japan's polished diamond imports amounted to $575.9 million, said the country's Customs Bureau of the Finance Ministry in December. "The booming wedding ceremony and gift markets have boosted diamond sales, and Chinese young couples are more likely to show their love through diamonds," said Yang Qingshan, a researcher at the Cheungkei Research Center for Luxury Goods and Services of the University of International Business and Economics in Beijing. Every year about 10 million couples get married, and the figure is expected to reach 11.82 million in 2010, according to figures from the Ministry of Civil Affairs. Yang said various sales channels also make diamonds, once seen as a luxury, more "close to" consumers. De Beers, the largest diamond producer in the world, expected China would surpass the US to become the world's largest diamond consumer market by 2020. Make Lumer Shopping Plaza, a diamond marketplace, opened in Beijing January 1 and saw sales revenue of 12 million yuan ($1.76 million) during the three-day New Year holiday. "Our diamonds' prices are 30-50 percent lower than those in traditional shopping centers, because we purchase polished diamonds from producers in South Africa, Japan and India rather than distributors," said Liu Shanshan, communications manager with Make Lumer. Liu said 80 percent of the company's consumers are young couples preparing to get married, and diamonds ranging from 0.3 to 0.7 carats sell well. "We plan to extend our business around the country in the next two years," she said. The booming diamond market has not only benefited traditional retailers, but also online retailers including sites such as zbird.com, 9Diamond.com and kela.cn. Zbird.com, an online retailer started on ebay.com in 2002, realized sales revenue of 200 million yuan ($29.30 million) in 2008. The company now has an independent website and stores in Beijing and Shanghai. Tu Rui, a 28-year-old Beijing resident who got married last month, bought a diamond ring for his wife from zbird.com. "We went to the China Wedding Expo in Beijing in July and decided to buy the diamond at zbird.com, which can provide customized services," he said.
Yang, the UIBE researcher, said online jewelry sales have become a trend, but consumers should be cautious if they choose to buy a diamond through the Internet. "Consumers should choose credible online retailers and diamonds with certificates," he said.

----Source "Global Times of January 25,2010

INTERNET SURGE

15.Tibet is expected to have 100,000 Internet users this year, a 15 percent rise from 2009, according to the Tibet Autonomous Regional Communications Administration. The number of such users was 919,000 in 2009, up 15.43 percent from the previous year, much higher than the growth rate of telephone and mobile phone subscribers. Meanwhile, the overall telecommunications rates in 2010 will decrease by nine percent. Tibet's telecommunications industry reported a turnover of five billion yuan RMB (732 million U.S. dollars) last year, up 25.3 percent year on year, with its operating income hitting 2.2 billion yuan RMB (322 million dollars), an increase of 21.23 percent, higher than any other province-level area in China. Tibet had 1.79 million telephone and mobile phone users at the end of 2009, with every 100 people having 19 telephones and 43 mobile phones. Qing Qi, director of the administration, said that Tibet's telecommunications sector is set to garner 5.4 billion yuan RMB (790 million dollars) in its turnover and 2.3 billion yuan RMB (337 million dollars) in its operating income this year, up 7.92 percent and 2.79 percent, respectively. Tibet made telephone service accessible to 404 villages in 2009, with the number of villages having access to telephones reaching 4,454, or 85 percent of its total. This year, Tibet will enable another 176 villages to have access to telephones, with telephones accessible to 88 percent of its villages.

------Source: Xinhuanet of January 31, 2010

16.China's Internet users hit 384 million by the end of 2009 due to the expansion of Internet access in more areas and a rapid increase of mobile phone Internet users, according to the latest report by China Internet Network Information Center (CNNIC). The number registered a 28.9 percent jump since the end of 2008. Mobile Internet users increased by 120 million to reach a total of 233 million. More people have chosen to access the Internet through mobile phones since the Chinese Government issued third-generation (3G) licenses to major telecom operators in January last year, which enables high-speed connectivity to the Internet. About 8 percent of all Internet users access the Internet only through mobile phones. By November last year, the Government had used 277.3 billion yuan ($40.62 billion), part of its 4-trillion yuan stimulus package, to develop telecommunications infrastructure. Also, the government-funded project to sell household electric appliances in rural areas at lower prices contributed to more Internet coverage in the country. Despite a disparity in Internet use between the urban and rural areas, Internet users in rural areas reached 106.8 million by the end of 2009, an increase of 26.3 percent from 2008. The most frequent online practices included listening to music, reading news, and doing searches, said the report. Though China's Internet users are engaged more in recreational activities, they are gradually shifting to consumption related practices, including tourism reservations, online stock playing, and e-banking, which respectively registered increases of 77.9 percent, 67 percent, and 62.3 percent respectively. China passed the United States to boast the largest population of Internet users in 2008, but the country's Internet penetration rate is still low, with just 28.9 percent of the total population online in 2009. (13-2-10)

---- Source "China Daily" of January 16, 2010.


( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: seventyone2@gmail.com )

February 12, 2010

Minister of Science, Research, and Technology: Belief in Position of Supreme Leader Must be Prerequisite for Scholarships

http://www.persia-house.com/node/1095
PERSIA HOUSE


Regime Signals Continued Purge of Academic Institutions

Mehr News – Summary translation by Persia House
February 3, 2010

During a meeting with deans of universities and heads of research centers, Iran’s Minister of Science, Research, and Technology, Kamran Daneshjou, noted that, when selecting members of scientific councils, Iranian universities should select individuals who believe in Iran’s Islamic system of government. Universities should also ensure that believing in the rule of the jurist [Supreme Leadership] is a practical prerequisite for obtaining academic scholarships. With regards to identifying suitable candidates for scientific councils, Daneshjou contended that even Western universities set employment conditions when hiring faculty, including belief in the idea of liberal democracy and refraining from questioning the Holocaust. By the same token, Iranian universities must hire individuals who believe in Islamic values, as the goal is for students to gain both knowledge and morality.

Speaking of the need to revise university textbooks, Daneshjou said that, when teaching Western
ideologies, university professors must also present their students with critiques of those ideologies. They must also be very familiar with the ideas and teachings of Islamic scholars, and be ready to present those ideas to their students as well.

He added that, although the Ministry is not planning to segregate the universities by gender, it will permit non-profit institutions of higher learning to be single-gender institutions in order to fulfill the needs of society. If there is a need for all-male or all-female schools, there will be no problem with having single-gender schools similar to Imam Sadegh and Imam Hossein Universities, which have performed well to date.

Daneshjou noted that, although universities are independent in their administrative affairs, they must nonetheless conform to the government’s general policies, the Constitution, national interests, and public welfare. For the original article in Persian, click here.

Persia House Analysis:
As part of its continued efforts to seize the initiative in the battle of ideas (the soft war), the Iranian government is intensifying its pressure on students and university faculty members who support the opposition Green Movement. If approved, the proposals referred to by Daneshjou could be used by the government to purge student bodies and faculty members. While it is unclear how individuals are to prove their loyalty to the regime, the security establishment does monitor closely Iranians’ online activities, including their posts on social networking sites like Facebook.

Despite ongoing government crackdowns, Iranian universities continue to be hotbeds of opposition activity and anti-Ahmadinejad demonstrations. Hardliners accuse the Green Movement’s supporters of being anti-Islamic Republic and against the idea of a Supreme Leader.

Daneshjou’s proposal appears to be both punitive and preventive in nature. These rules would, in effect, enable the government to prevent Reformists, or those with alleged Reformist leanings, from obtaining university faculty positions; they would also disqualify suitable candidates for membership in scientific councils, and prevent pro-Reformist students from obtaining academic scholarships. The new requirements would also be punitive in that the government would be able to remove current members of scientific councils deemed to be not in compliance, and cancel the scholarships of pro-Reformist students.

This is reminiscent of the Iranian government’s Cultural Revolution in the early 1980s, when the newly established Islamic Republic closed down all universities for several years in order to purge and “Islamicize” them. The regime revised university textbooks significantly and purged campuses of “un-Islamic” and “non-conformist” elements (liberal democrats, nationalists, leftists, communists, and monarchists). A large number of university teachers and students were either jailed, executed, sent to the war front, dismissed, forced to retire, compelled to cooperate with authorities, or forced to emigrate from the country.

Source Information:
Mehr is a semiofficial news agency based in Tehran. Its managing director, Parviz Esmaeili also publishes the English-language Tehran Times.