16 August, 2014

Passages I Highlighted in My Copy of "Red Capitalism"

Carl Walter and Fraser Howie's Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise is a hard book to review. It follows the style of the fox more than the hedgehog; with so many useful figures, facts, and insightful asides between its covers it is impossible to reduce the book to a summary of main themes without eliminating most of what makes the book so interesting. Instead of trying to write one of these reviews I think it wiser to simply copy the passages I found most interesting  and share them with readers here. The list that follows does not cover all of them--some passages are too large to copy here, and I have not attempted to reproduce any of the book's hundred charts, graphs, or tables--but what is included will be useful to those who wish to understand China's enigmatic regime.

To understand the Chinese economy you must understand that there are really two Chinese economies. One mustn't confuse them with each other:
 “There is a parallel economy that is geographic as well as politically strategic. This is commonly referred to as the economy “inside the system,” (tizhinei 体制内) and from the Communist Party’s viewpoint, it is the real political economy. All of the state’s financial, material, and human resources, including the policies that have opened the country to foreign investment have been and continue to be directed at the “system.” Improving and strengthening it has been the goal of every reform effort undertaken by the Party since 1978. It must be remembered that the efforts of Zhu Rongji, perhaps China’s greatest reformer, were aimed at strengthening the economy “inside the system,” not changing it.”  (p. 8)

Westerners often describe China's explosive economic growth as a product of its export sector. This sector, however, is not "in the system":

 “The private export oriented sector suffered massive losses in jobs, earnings, and the closure of small companies in 2008 and 2009. But China’s banks were not exposed in any material way to this sector. It is simple fact that China’s financial system and its stock, bond, and loan markets cater only to the state sector, of which the “National Champions” represent the reddest of the Red. These corporations, the heart of China’s state owned economy, are “inside the system.” The private economy, no matter how vibrant is “outside the system,” and in fact serves the will of the system.” (p. x)

When analyzing the Chinese economy, appearances can be deceiving:

“Over the past 30 years China's state sector has assumed the guise of Western corporations, listed companies on foreign stock exchanges and made use of such related professions as accountants, lawyers, and investment bankers…. But these companies are not autonomous corporations; they can hardly be called corporations at all. Their senior management, and indeed, the fate of the corporation itself, are completely dependent on their political patrons. China’s state owned economy is a family business and the loyalties of these families are conflicted, stretched tight between the need to preserve political power and the urge to do business. To date, the former has always won out.” (p. 23).

That is the central reason financial reforms pushed by Chinese reformers inevitably devolve into watered-down half measures:
“Failure to follow through may have been inevitable, however, given the fragmented structure of the country’s political system in which special interest groups co-exist within a dominant political entity, the Communist Party of China. What moves this structure is not a market economy and its laws of supply and demand, but a carefully balanced social mechanism built around the particular interests of the revolutionary families who constitute the political elite. China is a family run business. When ruling groups change, there will be inevitable change in the balance of interests; but these families have one shared interest above all others: the stability of the system. Social stability allows their pursuit of special interests.” (p. 21).

The lynchpin of the system are the great Chinese banks (PBOC, the Big 4, and Ministry of Finance subsidiaries like Huijin):
 “In China the banks are the financial system: nearly all financial risk is concentrated on their balance sheets. China’s heroic savers under-write this risk: they are the only significant source of capital “inside the system” of the Party controlled domestic economy. This is the weakest point in China’s economic and political arrangement, and the country’s leaders, in a general way, understand this. This is why over the past 30 years of economic experimentation they have done everything possible to protect the banks from serious competition and from even the whiff of failure. In spite of the WTO, foreign banks consistently constitute less than two percent of total domestic financial assets: they are simply not important. Beyond the pressure of competition, the Party treats its banks as basic utilities that provide unlimited capital to cherished state owned enterprises.” (p. 25).

This becomes obvious  when you compare the amount of capital raised in the Chinese stock markets with that in the bank-controlled bond market:
 “If one looks at incremental capital raising, it is obvious the stock markets in Hong Kong, Shenzhen, and Shanghai are an afterthought. It is bank lending and bond issuance that keep the engines of China’s state own economy revving at high speed. For example, 2007 was a record year for Chinese equity financing: more than US$123 billion was raised, but in the same year, banks extended new loans totaling US$530 billion and debt issues in the bond market accounted for another US$581 billion. In the past decade, equity as a percentage of total capital raised has been measured in the single digits compared with loans and debt. Who underwrites and holds all that fixed income debt? Banks hold over 70 percent of all bonds, including those issued by the Ministry of Finance.” (p.29).
One of many passages that has me wondering how Chinese would translate the term  shell game:
“The experience of the last 30 years shows that China’s banks and their business model is extremely capital intensive…. The growth model of Chinese banks requires them to come to the capital markets every few years. There is no way out and this will be a long-term overhang on the market. But it is not just the lending of 2009 or even their business model that drives their unending thirst of capital; it is also their dividend policies.… The money paid out in dividends [during 2004-2008] matches exactly the money raised in the markets. What does this mean? It means domestic and international investors put cash not listed in Chinese banks simply to pre-fund the dividend paid out by the bank largely to the MoF and Central SAFE Investment. These dividends represented a transfer of real third party cash from the banks directly to the state's coffers....
...As for the Chinese state, which holds the overwhelming majority stake in these banks, such payouts mean the banks will require ongoing capital-market funding after their IPOs. This, in turn, means the government must, in effect, re-contribute the dividends received as a new equity injection just to prevent having its holdings diluted. There can be only one IPO for each bank and one infusion of purely third-party capital. [The Chinese are] running a bank that pays dividends to a state that must then turn around and put the same money back again.” (p. 46-47).

The game is necessary because the banks are relentlessly petitioned to lend to SOEs for purely political reasons. The loans are extended even though everyone knows "SOEs don't repay  their loans" (90). Such gross waste can only continue for so long before the great banks are burdened down by billions in non-performing loans (NPLs) and the whole system is threatened with collapse. The Chinese very narrowly avoided a crisis in 1998:
 “Someone was clever enough to come up with a number purportedly sufficient to raise bank capital to eight percent of total assets, in line with the Basel agreement in international banking standards. The figure turned out to be RMB270 billion (US$ 35 bil). For China, in 1998, this was a huge sum of money, equivalent to nearly 100 percent of total government bond issuance for the year, 25 percent of foreign reserves and about four percent of GDP. To do this the MoF nationalized savings deposits barely belonging to the Chinese people… This washing of RMB270 billion through the MOF in effect made the bank’s depositors—both consumer and corporate—de facto shareholders, but without their knowledge of attribution of rights.” (p. 58).
 And in 2000:
“The government was unable to reach a consensus on the valuation of these ‘bad’ loans. After all, these loans had all been made to SOEs which were, by definition, state-owned. Anything less than full value would suggest that the state was unable to meet its own obligations, a position anathema to Party ideologues. But that was just the point: the state was unable to meet these obligations. So instead of bankrupting all SOE borrowers—that is, basically the entire industrial sector—the Party chose to keep the losses concentrated on bank balance sheets. Instead of resolutely addressing the problem by writing the loans down, it decided to push the matter off into the future and on to some other politician’s agenda. Of course, in 2009 the Party decided to do the same thing, so the AMC obligations were pushed off a further 10 years. This is how things work “inside the system”  (p. 56).
 Those toxic loans from the 1990s are still on China's bank balances. The 2008 recession was a great opportunity to pile even more fuel on the fire:
“Added to the still unresolved loans of the 1990s, US1.4 trillion lending binge of 2009 will inevitably lead to correspondingly larger losses in the future.… a large portion of these loans, 30 percent of which reportedly went to localities, are already in default" (p. 67).

The local government's response to stimulus spending spree are a case study in perverse incentives:
  “The global financial crisis of 2009 posed the greatest challenge yet to the [local governments]: Beijing’s RMB4 trillion (US$486 billion) stimulus package required local governments to identify projects and come up with financing for two thirds of project spending. For some time before the crisis, local governments had been leveraging their utilities, roads, construction brigades and asset management bureaus by incorporating them into limited-liability companies. Under this legal guise, they could borrow money from banks and, taking advantage of bond market reform, issue debt. According to the CBRC, by June 2009, there were 8,221 fund raising platforms operating are provincial, regional, county, and municipal levels, on which the majority (4,907) were owned by country governments. Many of these entities had been established simply to take advantage of the government’s free for all lending boom. After all, if they could come up with the capital to meet Beijing’s demands, why not raise more to finance their own economic incentive programs?” (p. 121).

Smart people like to say that China should be called an investment driven, not an export driven economy. Yang Kaisheng, CEO of ICBC, agrees:
 “In our country's current level of economic development we must maintain a level of macroeconomic growth around eight percent per annum and this will inevitably require a corresponding level of capital investment. Our country’s financial system is primarily characterized by indirect financing (via banks); the scale of direct financing (via capital markets) is limited" (p. 44).
The authors interpret this to mean:
 “In other words, bank lending is the only way to achieve eight percent GDP growth" (p. 44).

But the debt situation in China is unique--the conditions that lead to China's recurring debt problems bare little resemblance to  the famous international debt crises of the last two decades:
“China relies on “indirect" financing to achieve its economic growth goals. This means that banks decide on behalf of depositors how, to whom, and under what condition to lend deposits out. In a capital market model there is less room for such intermediaries: the end investor is independent of the debt or equity issuer and makes investment or divestment decisions based on considerations independent of the interests of the issuer or the borrower. In China this is not the case: the Party controls the banks and the banks lend, as directed, to state owned entities.

This is precisely where China differs from Mexico of 1994, Argentina of 1999 and Greece and Spain today. Aside from trade finance, China does not borrow money overseas and, because of the non convertibility of the RBM, off shore investors are overwhelmingly excluded from the domestic capital markets. Nor are foreign banks competitive in the domestic load and bond market, given their need to make an adequate return on capital. As a result, foreign banks rarely contribute more than two percent to total financial assets in China." (p. 206).

 Its worth reminding ourselves where this money does comes from: 
"The fact that it is well insulated from outside markets does not mean that China's fiances are crisis foolproof. The system can be disrupted by purely internal factors, as it clearly has been in the past. Take, for example, household savings, pension obligations, and interest rate exposure. Household savings are the foundation of the bank's capacity to lend. The heroic savings of the Chinese people is virtually the only source of non state money in the game." (p. 207)
(Note: What the authors overlook here is that savings rates, in China as elsewhere, are not just the product of 'internal factors.' China's saving rate has just as much to do with consumption and investment rates in America or Europe as it does with internal policy decisions).

Howie and Walter also have a few insightful things to say about the Chinese stock market:

“Can a JPMorgan, with 100 percent of its shares capable of being traded in the market each day be compared to banks such as ICBC that have less than 30 percent of their shares tradable?" (p. 36)
“Since China’s stock markets… are not places that decide corporate control, the pricing of shares carries little weight when thinking about the whole company because it is never for sale” (p. 19).

If this is true, what is the purpose of selling SOE stocks in the first place? 

 “The share valuation mechanism set by the CSRC explains the popularity of IPOs in China. Simply put, prices are knowingly set artificially lower while demand is set high, with the result that big price jumps on listing day are virtually guaranteed. ...What [these listings] show is that the state’s confidence in its own ability that, when push comes to shove, it can manage the market index so that it will go up and the state’s holdings will increase in value.” (p. 184-185).

An excellent example is the IPO of PetroChina

 “As indicated, PetroChina’s cheap pricing meant that it had left RMB 45 billion (US $6.2 billion) on the table. Not surprisingly, on its listing, PetroChina’s shares jumped nearly 200 percent, giving it, albeit briefly, a market capitalization of more than US $1 trillion. From a developed market viewpoint this was a complete crime… From the company’s point of a view, and astute chairman would have wondered why he had just sold 10 percent of his company at half the value attributed to it by the secondary market. To put it another way, he had sold US$16.8 billion of stock for just US$9 billion. In an international market, he would, no doubt, have fired his investment bankers outright and then been fired by his bored. 

But this money, as shown previously, was hardly lost to the state: it had just been given to those state-owned institutions, the group of “family and friends” that had participated in preparing the lottery. From this, it seems that IPOs function as a means to redistribute capita among state entities with, possibly, some leakage into the hands of retail investors and mutual fund holder to sooth things out” (p. 186-187).

The Chinese bond market is just as distorted:
“In China, however, the Party has made sure that it alone, and not a market driven yield curve, provides the definite measure of risk free cost of capital and this measure is based ultimately on the funding cost for bank loans, the one year deposit rate” (p. 85).
An example of the above:
“On December 8, 2009, for example, the entire China inter-bank bond market for corporate bonds recorded only 1,550 trades—this in a market comprising over 9,000 members and RMB1.3 trillion (US$190 billion) in bond value. In contrast the US Treasury market each day averages over 600,000 trades comprising US$565 billion in value. If market participants to not actively trade, how can the price of a bond be determined and serve as a meaning up measure of value?” (p. 93-9).
And now for the consequences of these distortions:
“The absence of market trading limits the price-discovery function of China’s bond markets. In turn, unreliable prices mean that the market participate cannot value risk accurately. A simple question such as how much a AA issuer would have to pay investors to but its 10 year bonds cannot be answered with any certainty. On the other hand, China’s market investors don’t really care. Why should they when the majority of bonds offer “riskless” yields well over the one-year bank-deposit rate of 2.25 percent, but at the same time, well under demand in the secondary market? As long as inflation remains under control, why shouldn’t banks be happy to hold the bulk of these securities to maturity just as they do their loan portfolios?” (p. 98-99).

A comment from the Department of Pithy Insights:
 “China’s central bank manages interest rates in order to contain change because change is risk" (p. 108).

And now one from the Department of Pithy Questions:

“When PetroChina acquires companies overseas on behalf of the government, isn’t also a sovereign wealth fund? What in China isn’t a sovereign wealth fund?” (196).

Where did the Chinese get the expertise they needed to create these globe spanning SOEs?

“New China of the twenty first century is a creation of Goldman Sachs and Linklaters & Paines of the world…. If there is a single reason why the world is in awe of China’s economic miracle today, it is because international bankers have worked so well to build its image so that minority stakes in its companies could be sold at high prices, with the Party and its friends and families profiting handsomely" (p. 159).

One often hears about how Xi Jinping holds the CPC in an iron grip.  I will start believing that once this has stopped:
“The profit made by these nominally state owned enterprises is not small and in recent years has reached almost to 20 percent of China’s national budget expenditures. This is a vast amount of money that would be better redirected at the country’s burgeoning budget deficit… The fact that the government is unable to access this capital is the best illustration of the power of these oligopolies” (p. 170-171).
File under "quote this next time someone claims Beijing's foreign reserves will save the world":

 “China’s massive foreign exchange reserves give a false appearance of wealth: at the time the PBOC acquires these foreign currencies it has already created renminbi. Under what conditions can these reserves be used again domestically without creating even larger monetary pressures?" (p. 73).

10 August, 2014

It is Time to Talk Honestly About the U.S.-Japanese Alliance

Image source: "The New Cold War: China vs. Japan," The Diplomat (25 January 2014)

Peter Lee, who writes columns for Asia Times Online, International Policy Digest, and Counterpunch, is one of the more astute observers of East Asian affairs I have the pleasure to read. He is also a staunch contrarian whose columns are almost always devoted to tearing down the  standard narratives American analysts rely on to make sense of Asian geopolitics. I often disagree with Mr. Lee's take on things (and sometimes find his tone a tad exasperating), but I have gained a great deal from taking his arguments seriously.

 Last week Lee published a lengthy thought-dump on his personal blog about China's current security environment and the growing militarization of both China's international disputes and internal conflicts. The entire post is worth reading and I strongly recommend that you do so. It is long, however, and in this post I focus on only on the section that deals with Japan. Therein Lee expresses perfectly why I--in contrast to most other Americans writing about Asian great power politics--have found Tokyo's decision to "reinterpret" Article 9 to be an unsettling development. To quote:
I find the US obsession with “CSD”—the idea that Japanese military forces must engage in war stuff not directly related to defense of the Japanese homeland—somewhat mystifying.  Apparently, Pentagon planners are getting extremely nervous about the arms buildup in Asia—which tracks GDP growth and, therefore, is getting pretty darn big—and its implications for US military hegemony. 
The idea is to combine US and Japanese muscle and field a bigger, more deterrent-credible force (in fact, I wonder if AirSea Battle—the total war with the PRC from the Malacca Straits up to Hokkaido scenario—was cooked up simply to demonstrate the impossibility of the US funding and implementing a completely dominant force in Asia by itself).
Japan is supposed to contribute its local strengths in minesweeping, anti-submarine warfare, and aerial surveillance, at least in the initial stage.
I guess the idea was “Japan can’t be a freerider anymore and needs to have some skin in the Asia-Pacific security game”.
Well, as far as I can tell, Japan under so-called “pacifist” constitution already had plenty of skin in the game—because it seems most credible US-PRC WWIII scenarios all involve US bases on Honshu and, in particular, long-suffering Okinawa, getting nuked.
That’s an agency problem—people on the same team but bringing divergent objectives--a problem the US avoided when it ran the military show unilaterally.  Now, by trying to integrate Japanese forces into the US command, we’re giving an operational voice to people who face an immediate threat of getting blown up during the implementation of our grand strategy.  Collective self-defense, to my mind, complicates and compromises the US deterrent posture.
In my opinion, if we feel we need to field more minesweepers and ASW and Orions to deter the Chicom menace, we should pay for them ourselves instead of hoping for a perfect understanding with our Japanese allies if and when World War III rolls around.
The agency problem has already revealed itself with Japanese Prime Minister Shinzo Abe’s efforts to re-establish Japan as a “normal” nation i.e. not constrained by the pacifist constitution imposed by the US after Japan’s defeat in World War II and able to necessary/useful/useless/and/or catastrophically stupid things in the realm of security affairs, just like any other regional power.
CSD—since it permitted the Japanese military to abandon a pure territorial-defense posture—was embraced by the Abe administration. The Abe administration swung behind CSD and sold it—rather unsuccessfully, I should say, to an extremely skeptical Japanese public—with fanciful justifications like “without CSD Japan couldn’t shoot down a North Korean ballistic missile headed for the United States”.
Actually, the genuine attraction of CSD is that it allows Japan to pursue military relationships with neighboring countries i.e. implement a full-feature foreign policy including defense and security elements as well as the economic and other soft power carrots that sustained Japan’s regional presence over the last half-century.
And these foreign policy tools also allow Prime Minister Abe to pursue his preferred regional strategy—exacerbating tensions with the PRC just enough to push the Pacific democracies plus Vietnam away from the PRC and onto the Japanese security and, most importantly, economic side of a zero-sum equation.
Abe, it should be noted, is no America-firster. Like many Japanese conservatives, he rejects the World War II victor’s narrative and, like Putin, considers his nation’s diminished international clout as a tragedy and not a matter of geopolitical justice.  In his US preferences, Abe is politically and emotionally inclined toward the Dick Cheney end of the ideological spectrum and does not consider it his main obligation and mission to smooth the way for Barack Obama in Asia.  He’s looking out for Number 1—Japan—and caters to—and exploits—US preoccupations accordingly.
For those who pay attention, the CSD shoe dropped in July, as Japan’s ambassador to the Philippines addressed the significance of the cabinet decision that “reinterpreted” the constitution to allow CSD:
Japan’s ambassador to the Philippines, Toshinao Urabe, says the proposed “reinterpretation” of Japan's pacifist constitution would allow it to help if a country it has a “close relationship” with is attacked.

This means it would help defend the U.S., which is its only mutual defense treaty ally.  Urabe said under the treaty, Japan is not obligated to use force in helping.  The reinterpretation would enable it to do so.

But Urabe told reporters at a forum in Manila Thursday that in the case of other countries like the Philippines, which he said Japan also has a close relationship with, it would “depend on the situation.”  He said Japan is most concerned with protecting its nationals if they are in vulnerable security situations.
....There you have it.  Instead of a unitary hub and spoke arrangement by which the United States, as the big kahuna, manages its ROK, Japan, and Philippines alliances bilaterally and monopolizes the Asian security space, CSD lays the foundation for a dual-hub system by which Japan constructs its own security arrangements with the Philippines, Vietnam, Indonesia, Myanmar, and India in order to advance its own diplomatic, security, and economic agenda in Asia…which may involve working with Japan’s local interlocutors to accentuate the polarity between the PRC and its neighbors even when the United States for reasons of its own might be trying to wind down tensions.
CSD, in other words, accelerates the marginalization of the United States, rather than assuring its ascendancy.  So, I don’t think the US foreign policy establishment should be slapping itself on the back for its great job in finally getting CSD on the books. (Emphasis added[1]

Part of the problem here is that very few Americans are willing to look at the nature of the U.S.-Japanese alliance honestly. We may speak of America's relations with Japan in terms of 'friendship,' 'partnership,' and other jolly words of that sort, but the cold reality is that the structure and conditions of the U.S.-Japanese alliance set up in the wake of World War II were not imposed upon Japan to protect it but to control it. Kenneth Pyle made a similar point in an interview with Dispatch Japan last month:

DISPATCH JAPAN: You have long argued that Japan’s defeat in World War II, and the subsequent Yoshida Doctrine, put Japan in an unnatural, subordinate position vis a vis the US. To what extent is the new collective self-defense policy a reflection of Japan emerging from that status? In other words, a Japan defeated after World War II now asserting a new identity.

PYLE: For conservatives in Japan, the entire postwar order has been a bitter pill. The US-Japan alliance was signed while we Americans still had over 200,000 troops in Japan. It was a price that Yoshida and other Japanese leaders at the time had to pay to end the US Occupation. It is easy to forget those circumstances, but they remain a factor in debates in Japan these days.

Remember: John Foster Dulles said to one of his aides: The 1952 security treaty amounted to Japan voluntarily accepting continuation of the Occupation.

The US has subordinated Japan. This is unique within the American-led, postwar order. The alliance has been a tool to manage and control Japan, as much as anything else.

I think we, Americans in general, have a weak self-awareness of the roots of our postwar relationship with Japan.

We tend to make it sentimental, calling it a “partnership.” Ambassador Reischauer liked to call it an “equal partnership.”

Of course, it has never been an equal partnership.

For Japanese conservative elites, going back to the Meiji Restoration, the goal has always been national autonomy. That has been a goal of modern Japan from the beginning.

The unequal nature of the alliance has bothered conservatives in Japan, and now Abe, for a long time.
In general, Japanese leaders of all sorts want a much more equal alliance, with much more autonomy for Japan in the making of foreign policy. Americans should not see this as unusual. It is quite natural that an independent country would want to have its full sovereignty. (Emphasis added) [2]
This needs to be remembered when we discuss the revision of Japan's constitution or the more prominent role we wished Japan played in the region's "Collective Self Defense."  American analysts tend to see these things as necessary changes that will help the American led alliance muster the military heft it needs to balance China's growing power. But it is not clear that these changes will do anything of the sort. The old constitutional order did not stop Japan from modernizing its Naval forces or selling military technology and armaments to regional allies. These changes do not increase Japan's industrial capacity or require a larger percentage of Japan's GDP to be used for military purposes. And as Peter Lee notes above, the mere presence of the 23 American military bases in Japan (and the 50,000 Americans stationed there) guarantees that Japan will be embroiled in any conflict between America and China from the get-go. 

The piece-meal dismantling of the post-war security order does not automatically lead to greater military strength. What it does lead to is greater Japanese autonomy in both its foreign policy and self defense. This is the most important consequence of Shinzo Abe and co.'s reinterpretation of the Japanese constitution. When Americans celebrate this move--or any other baby-step Japan takes away from the old post-war system--they are celebrating the surrender of American control over the alliance.

In the long run such a transition is probably inevitable. It may be that if the matter was put to intense debate and discussion all would eventually agree that American interests are best served and regional stability best preserved by freeing Japan from American control. But this discussion has not happened. Debates have raged about how the United States should respond to China's rise and how the United States can leverage Japanese power to deter Chinese aggression, but no one seems interested in slowing down and thinking about the consequences of doing so. 

It may seem rude and impolitic to speak of a a close ally with such frankness, but it must be done. Once abandoned the post-war security order will not be reborn. The decision to consign it to the ash-bin of history deserves far greater discussion and thought than the chattering classes have yet given it.


[1] Peter Lee, "When You’ve Got a Military Hammer, Everything Looks Like a Nail, US-China Edition" China Matters (6 August 2014). The article he quotes is, Simone Orendain, " Japan Outlines Constitutional Change Change Impact", Voice of America News (17 July 2014).

[2] Peter Ennis, "Kenneth Pyle: ‘Japan seeks sovereignty’," Japan Dispatch (7 July 2014).

05 August, 2014

There Will Be No Cambodian "Spring"


Last week Hun Sen's Cambodian People's Party (CPP) and the opposition Cambodian National Rescue Party (CNRP) brokered a deal that ended the CNRP's year-long parliamentary boycott. The CNRP disputed the results of last summer's election (which they lost) and refused to take the 55 seats they won until an 'independent' election committee could audit the results. The opposition's strategy had a clear Bangkok vibe: mobilize the urban demographic whose votes they had captured and march them through the streets until the pressure of a paralyzed capital became too great for Hun Sen's regime to withstand. The crisis was at its worst back in January. After repeated opposition marches  100,000 men strong and strikes by factory workers on a similar scale the government decided to crack down before things spun out of their control. They quickly ended all protests in the city with a a barrage of bullets and batons

At that time it was difficult to predict if matters would escalate. Quite a few people suspected it would and many Southeast Asia hands felt that the time was ripe for Cambodia to have a "spring" or "color revolution" of its own to kick out Hun Sen for good.

It was right about then that Ou Virak (អ៊ូវីរៈ), former director of the Cambodian Center for Human Rights, showed up on the scene with a smart presentation arguing that Cambodia would not and could not have a democratic revolution of the 'spring' mode. [1] While the long term consequences of last week's settlement can only be guessed at, it seems like Mr. Ou's short term predictions have proven true.

I have embedded his presentation at the beginning of this post and I encourage my readers--especially those with an interest in Southeast Asia or democratization--to listen to it in full. It is easily the most insightful thing I have watched, listened to, or read about Cambodian politics or society this year. Ou touches on dozens of topics of interest to readers of the Stage, but I will only summarize a few of the most thought provoking here. You will have to watch the video to get the full thing.

Every point that follows is coupled with the approximate time he begins to discuss it in the video. I have added my own notes where I think they will be useful.

10:45 -- In many ways Cambodia is more "ripe" for a democratic revolution than any other country in the region. The Arab Spring was by and large the work of men and women under 30; it is difficult to imagine the Arab Spring happening in a less youthful Middle East. Cambodia shares the Middle East's demographic profile. Cambodia is one of the youngest countries in the world. The median age is 24 and the "18 to 35" demographic is by far the largest voting block in the country.

It might seem strange to group those 18 and 35 in the same demographic until you say the statistic in a different way: the majority of Cambodians were born after the Khmer Rouge fell from power. Most of the electorate has no memory of the killing fields.

T.G. notes: 1. An easy way to get your head around these numbers is to look at the population pyramids of the countries involved. [2] Here is Cambodia's and Egypt's, side-by-side:

For context, compare these to the population pyramids of Japan and the United States:

 An error Americans easily fall victim to when they talk about the electoral intrigues in foreign lands is a failure to think critically about the demographic structure of the country in question. America's population structure is actually quite unusual; most nations are far younger or a bit older than our own.

In concrete terms this means we need to think harder about commonly used terms like "the youth vote." Even if young adult voting rates were the same as America's across the globe, "the youth vote" is far more important in countries like Cambodia than it ever could be in America. Conversely, there is a direct relationship between Japan's population structure and the immense difficulty Shinzo Abe has had pushing through his "third arrow" economic reforms. In Japan, the future is the country's smallest voting block. 

2. This also explains the resentment most young Cambodians feel at the way their country is portrayed in the global media. Everybody in Cambodia knows of someone who died during the three years of Khmer Rouge rule, but most of the country's population has never met any of them. For most Cambodians the killing fields belong to the past that rarely seems relevant to them or to the problem's the country faces today. But when the rest of the world looks at Cambodia, they see nothing but the killing fields. 

When you sit down and talk with bright Cambodians born in the 80s or 90s about Cambodia's place in the world today or what they believe will be the defining issues of their time, the frustrations they feel with the role the wider world asks them to play are palatable. They are not interested in acting the part of the victim.

One can--and some of my Cambodian friends do--make bigger deal out of this than is truly warranted. But they have a point: how often do pundits today begin their speeches on China with references to the Cultural Revolution?

12:01 - Mr. Ou does not trust many of Cambodia's official statistics. The facts on the ground are changing faster than Cambodia's unreliable government offices can update them. Urbanization is the example in point: official statistics issued by the Cambodian government (and copied by everyone else) claim that Cambodia has an urbanization rate of 20%. This means that four out of every five Cambodians still live in rural villages. Ou says this claim is false. He estimates urbanization to be much higher -- perhaps 50% of the population.

T.G. notes: This is of course a guess on Ou's part. But it raises an interesting question: Cambodia is not the only country with a shoddy government and an exploding urban population. How many other states issue statistics that are 20 or 30 percentage points off the mark?

 26:45 - Cambodians face a linguistic barrier to any successful democratic protest movement. "Spring" is a meaningless word in Khmer. There is only word in Cambodian that can describe a democratic mass movement: bodivat (បដិវត្ដន៍), or "revolution."

Unfortunately for Cambodian democrats, this word is inescapably tied up with the Khmer Rouge and the communist revolution of 1976. It is a poor rallying cry for anyone protesting in 2014. Simply describing the project is one of the greatest hurdles any potential regime-toppling agitators will face. In Ou's words, "Cambodians do not have the luxury to romanticize revolution."

T.G. notes:  1. Ou says there "is no such word for 'spring' in Khmer." He is being quite literal. Cambodians traditionally divide the year into redouv kedaw (​រដូវ ក្ដៅ), the "hot season" and redouv pliam (រដូវ ភ្លៀង), the "rainy season." Some Khmer further distinguish between the first part of the rainy season, when the monsoon is at its full intensity, and the latter half when the rain has subsided but the temperature has yet to climb back to its hot season highs. This is called redouv rongia (រដូវ រងា), or "the cold season."

Notice that there is nothing close to "spring" in there. [3] Lacking a seasonal equivalent for the word used in the international media, most Cambodian news reports on the Arab Spring simply called it "the Arab Revolution" or the "Revolution in Egypt/Tunisia/Syria." [4]

2. Use of the word bodivat is further complicated by the old name of Hun Sen's party: the Cambodia People's Revolutionary Party (Kanakpak Pracheachon Bodivat Kâmpuchéa គណបក្សប្រជាជនបដិវត្តន៍កម្ពុជា). American political writers who have to resort to clunky phrases like 'little r republican' and 'little d democrat' understand the kind of cumbersome work-arounds Cambodians have to use when they talk about disrupting the sitting government. 

30:50 - The CNRP and other opposition parties exist because of donations from the Cambodian diaspora. They are financed mainly through remittances. The problem is that most of these donors emigrated three decades ago. Thus the ideas that most Cambodians living in Long Beach or Lyon have about their home country are thirty years out of date. For example, the hostility donors from the diaspora feel towards Vietnam reflects the relations between the two countries when they fled Cambodia in the '80s. Things have changed since then. The educated and well-to-do who have spent their entire life in Cambodia are much less hostile towards the Vietnamese.

T.G. notes: I have been invited to one of these diaspora fundraising meetings before. Circumstances did not allow me to attend, but I was able to see some of the promotional material written for the meeting. Anti-Vietnamese rhetoric is an easy way to grab any Cambodian's attention and most Cambodians' sympathy, but these posters belong in their own category. They were laughably shrill even when measured by the low standard set by Cambodia's standard nationalist polemics. 

A full discussion of Khmer and Kinh ethnic relations, and the way the tensions between the two groups shape both Cambodia's domestic politics and the broader region's geopolitics, deserves its own post. I cannot adequately summarize it here and will not try. I will only note that the hope many observers have that a CNRP government would end Cambodia's role as China's favorite spoiler in the ASEAN boiling pot is misguided. An 'enemy of your enemy is your friend,' the saying goes, and Cambodian nationalists have made it clear who their enemy is.


[1] Virak Ou, "Will Cambodia See a 'Spring'?", presentation given to Stanford Center on Democracy, Development, and The Rule of Law, Youtube video, 1:20:1, 7 February 2014.

[2] These images were all created by the CIA World Factbook

[3] There are other terms that might count as 'spring' as we think of it in the west. The 1977 Headley Khmer-English dictionary suggests that nidiay redouv (និទាឃរដូវ) means "spring" but other dictionaries simply list it as another word for 'rainy season' and the two Cambodians I asked about it had never heard of the word. Redouv bromoulpol (រដូវប្រមូលផល), which I would translate as "gathering" or "harvest" season, also seems to fits nicely with the time frame we usually have in mind when we say 'spring', though (as its literal meaning suggests) the imagery the word evokes is the the opposite of what we associate with the English word.   

[4] For example, a Voice of America News follow up report on the human rights situation in post-spring Arab nations published earlier this year starts with the headline, "បដិវត្ដន៍​នៅ​ក្នុង​ប្រទេស​អារ៉ាប់...."

Ou Thuak (អ៊ូ ធួក), "Revolution in Arab Countries has Mixed Human Rights Results (បដិវត្ដន៍​នៅ​ក្នុង​ប្រទេស​អារ៉ាប់​ទទួល​លទ្ធផល​ល្អ​និង​អាក្រក់​លាយឡំ​គ្នា​ ខាង​វិស័យ​សិទ្ធិមនុស្ស​)"Voice of America: Khmer (5 June 2014).