Thursday, 31 March 2011

China defense transparency

Military open to media scrutiny
By Cheng Guangjin and Li Xiaokun (China Daily)

Beijing - Increased transparency on China's defense spending is not only a government initiative but also a result of a high level of media coverage, meaning that the claims made by some Western countries that China's military is shielded from public scrutiny are groundless, according to a top expert on military affairs.

"Now China's national defense expenditure is not only an issue dealt with by the government, lots of mainstream Chinese and other media organizations are carrying huge amounts of military information," Chen Zhou, from the People's Liberation Army's Academy of Military Science, also a member of the think tank behind China's White Paper on national defense, said in an exclusive interview with China Daily.
Related readings:Military open to media scrutiny Full text: China's National Defense in 2010Military open to media scrutiny China sticks to defensive national defense policy
Military open to media scrutiny China issues white paper on national defense
For example, reports on the test flight of China's stealth fighter jet appeared on the Internet minutes after the aircraft's debut.

Beijing unveiled a 12.7 percent increase in its 2011 defense budget of 601.1 billion yuan ($91.4 billion) earlier this month.

Chen noted that China's defense expenditure as a proportion of its overall GDP, between 1.4 to 1.5 percent, was below the global average of between 2.5 and 4 percent. Statistics also showed that China's defense expenditure per soldier in 2009 was $30,600, compared with $481,000 in the United States, $410,400 in the United Kingdom and $172,700 in Japan.

"The increase in our defense budget is at an appropriate level. We have two guidelines when planning the defense budget, to meet the needs of both national defense and the national economy," said Chen.

The increase in defense expenditure in recent years is actually to make up for losses in the 1980s and 1990s, when China focused on economic construction at the expense of military development, Chen noted.

China recently allowed more family members of military personnel to join their spouses, which would help end the separation of nearly 100,000 service persons from their spouses.

The military will make efforts to provide housing and employment for family members, which means that young couples, even if living in the most expensive Chinese cities such as Beijing and Shanghai, will get government-subsidized apartments.

China said some Western nations make a habit of attacking China by criticizing its increased defense spending.

"Such accusations are unacceptable. The critics either do not respect the facts, or they do it for other reasons," he said.

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Are Solar Power Incentives A Nasty Regressive Tax On The Poor/Misinformed?

GAINESVILLE, FL - APRIL 15:  Wayne Irwin, who ...
Image by Getty Images  via @daylife 

Lately, a lot of attention has been given to the solar industry due to the unfortunate set of events which have unfolded in Japan as a result of the earthquake. The prevailing theme among journalists, mis-informed Wall Street analysts’, and investors who have a positively biased view on the solar industry is that due to the problems with the nuclear plants in Japan following the earthquake, this form of renewable power should be abandoned in favor of power sources such as solar.

The fundamental problem with this thesis is that it is impossible to replace distributed (i.e., power this is accessible equally at all times of the day) baseload (i.e., energy produced at a constant rate) nuclear power with intermittent (i.e., energy that is only accessible during certain times of the day) peakload (i.e., power sources that provide the most output at select times of the day) solar power. Furthermore, given nuclear power costs roughly $0.015/kWh, while solar power costs closer to $0.25/kWh, if all of the world’s nuclear plants were to be replaced by solar plants, the cost to the rate-payer would go up by nearly 25x (we do not think this would bode well in countries facing high unemployment – U.S., France, Greece, Spain, Italy, Germany, etc.). Stated more simply, if you were to replace the world’s nuclear power with solar power, you would only have power during the day when the sun is shining the brightest (if a rain storm, or large cloud, happened to pass over, you would suddenly not have power – this could be a problem in less sunny regions). In addition, your cost of electricity would rise by roughly 25x. Under this backdrop, it seems many of the arguments suggesting solar energy can replace nuclear are delusional at their core.

Now, to the question posed in the heading of this entry: Are solar power incentives a nasty regressive tax on the poor/misinformed? Well, first, it may make sense to know what a regressive tax is. More specifically, in terms of individual income and wealth, a regressive tax imposes a greater burden on the poor than the rich – there is an inverse relationship between the tax rate and the taxpayer’s ability to pay as measured by assets, consumption, or income. Stated differently, a regressive tax tends to reduce the tax burden of people with a higher ability-to-pay (i.e., the rich), as it shifts the burden disproportionately to those with a lower ability-to-pay (i.e., the poor).

So, how do solar incentives work? Well, there are a number of schemes in which solar power is “incentivized”. However, the most popular form of solar incentive globally is in the form of a feed-in-tariff (FiT). Under a FiT incentive structure, renewable energy generators (homeowners, businesses, pension fund investors, private equity investors, etc.) are paid a premium by the utility buying the solar power generated by their roof-top system, on top of the cost of generating the solar power. As a point of reference, it is important to remember that while natural gas costs roughly $0.035/kWh, and coal costs approximately $0.05/kWh, with nuclear power at $0.015/kWh, solar currently costs about $0.25/kWh. Thus, if you are using solar under a FiT incentive structure, you are being paid by the utility $0.25/kWh for the solar power you are producing, plus an additional “premium” as high as $0.25/kWh, making the total cost to the utility subsidizing this incentive significantly higher than it would have otherwise paid using more traditional forms of electricity.

Thus, the cost to the utility appears to be significant, right? Well, it’s not that simple. That is, what the utility does when it pays the person who is using the renewable energy under a FiT program is simply redistribute the difference in what it is paying the renewable energy user (i.e., $0.35-$0.55/kWh) and what it pays for more traditional forms of energy (i.e., $0.045/kWh) to all of its ratepayers; in essence, the utility is not paying the exorbitant cost of incentivizing solar, but rather the collective ratepayers in any region which implements solar incentives are. This begs the question… can’t everyone equally share in the benefit of this structure? Well, unfortunately, due to the high cost of solar, the answer to this question is no. What do we mean? Well, when considering at present, the cost for a solar system is approximately $5.50/watt, and the average home installation is 5.5kW, the cost to anyone considering such an installation is $27,500 up front. Furthermore, given a solar system is a 20-year investment (meaning the returns on these systems are calculated over a 20-year period), the first 5-to-10 years of your investment in a home solar roof-top system, you will be cash flow negative. Admittedly, for those ratepayers in a FiT area who have a spare $27,500 to invest, which they don’t need access to in 5-to-10 years, an investment in solar makes a lot of sense (you are paid to use power). However, for the bulk of Americans who do not have a “spare” $27,500 to invest over a 20-year period, for which they will be cash flow negative for 5-to-10 years, solar is not an option. Despite this, however, because the utility redistributes the cost of solar to all ratepayers, whether you are using solar or not, you are paying if you live in a state that has significant solar incentives (i.e., California, New Jersey, Florida, North Carolina, etc.). As such, despite you not being able to afford putting solar on your roof, you are effectively being forced to subsidize your “rich” neighbor who does have the resources to put solar panels on their roof. Stated differently, a solar incentive is a form of a regressive tax on the “poor”. This begs the question… do many of the “poor” people in the States who have passed solar legislation understand this dynamic? Likely not.

When you add to this dynamic the fact that the majority of solar modules are produced in China, with U.S. solar module makers First Solar (FSLR) and SunPower (SPWRA) producing the majority of their panels in Malaysia, Germany, and Vietnam, the idea that solar installations in the U.S. create American jobs is another mistruth (this is an understatement). In fact, First Solar’s 290MW Agua Caliente Solar Project, which will receive nearly $1.5 billion in tax-payer funded money from the U.S.

government, and is being supplemented, for the most part, by modules produced in Malaysia (thus, effectively, creating jobs in Malaysia using U.S. taxpayer dollars), being constructed in Yuma County, Arizona, will only create 15-to-20 full-time U.S. jobs (a cost to the U.S. taxpayer of nearly $85.7 million per full-time job; this does not appear like a good return on investment for the U.S. taxpayer).
Another form of incentive, more widely used in the U.S., comes in the form of a loan guarantee, or tax credit. While these differ from FiTs, they are effectively the same thing… money taken from the taxpayer used to subsidize high-cost solar power.

In short, the way solar incentives work is by taking money from the poor to subsidize the rich homeowners, businesses, and investors who can afford the high upfront costs of installing solar power (a reverse Robin-Hood structure), which is among the most expensive forms of energy available today. While the solar industry has grown considerably, increasing its lobbying power globally, which in-turn has allowed for a massive expansion in marketing (with the key selling point being you must support solar to stop global warming), it remains among the most costly and inefficient forms of electricity available when observing: (1.) cost/kWh compared to other forms of electricity (i.e., wind, hydro, geothermal, nuclear, etc.), and (2.) usage (solar power is only available when the sun is shining, and declines in output with less intense sunrays and cloud coverage).

While it goes without saying that many of the same people who support solar in the U.S., and other countries, don’t fully understand this dynamic, as they see material spikes in their electricity bills, despite limited job creation associated with the massive solar plants being constructed in their backyards, this could become more of an issue.

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Wednesday, 30 March 2011

TNB in Limbo-Legal notice shocks landlord!

Surprised: Sien showing the legal notice which he received for “stealing electricity”.


Landlord perplexed over TNB’s demand to pay RM3,500 for ‘electricity theft’

KUALA LUMPUR: A landlord who settled about RM5,000 in electricity bill arrears chalked up by his errant Tenaga Nasional Bhd (TNB) tenant thought that would be the end of the matter.

Stanley Sien, 51, said he was irked with TNB's inaction against its staff, despite several complaints that they had run up the arrears.

He then paid up the arrears, repaired his badly maintained terrace house in Puchong for RM16,000 and signed a new tenant in 2009.

Then came the shocker last October a legal notice from TNB demanding Sien to pay up RM3,452.49 for “stealing electricity”.

“After I paid the outstanding arrears, there was an understanding with TNB that the file would be closed and there would be no more extra charges.

“However, despite the mutual agreement, I was shocked to receive the legal notice later,” he said.
“It was their own employee who stole the electricity, so why should I pay?

“I had so much problems with the TNB tenant who did not even pay my rental for more than a year.”
Sien said the TNB worker concerned had been able to reconnect power supply on his own whenever it was disconnected.

“I don't know how he did it,'' he said, adding that he had filed several complaints to TNB to contest the initial arrears amounting to RM5,000 but was told nothing could be done since his tenant had reconnected the supply himself.

When contacted, TNB said it was investigating the complaint.
TNB chief operating officer Azman Mohamed was unavailable for comment as he was overseas.

China’s five-year plan and global interest rates


CHINA'S new five-year plan will have important implications for the global economy. Its key feature is to shift official policy from maximixing gross domestic product (GDP) growth toward raising consumption and average workers' standard of living. Although this change is driven by Chinese domestic considerations, it could have a significant impact on global capital flows and interest rates.
China's high rate of GDP growth over the past decade has, of course, raised the real incomes of hundreds of millions of Chinese, particularly those living in or near urban areas. And the funds that urban workers send to relatives who remain in the agricultural sector have helped to raise their standard of living as well.

But real wages and consumption have grown more slowly than China's total GDP. Much of the income from GDP growth went to large state-owned enterprises, which strengthened their monopoly power. And a substantial share of China's output goes abroad, with exports exceeding imports by enough to create a current-account surplus of more than US$350bil over the past year.

China now plans to raise the relative growth rate of real wages and to encourage increased consumer spending. There will also be more emphasis on expanding service industries and less on manufacturing. State-owned enterprises will be forced to distribute more of their profits. The rising value of the yuan will induce Chinese manufacturers to shift their emphasis from export markets to production for markets at home. And the government will spend more on low-income housing and to expand healthcare services.

All of this will mean a reduction in national saving and an increase in spending by households and the Chinese government. China now has the world's highest saving rate, probably close to 50% of its GDP, which is important both at home and globally, because it drives the country's current-account surplus.

A country that saves more than it invests in equipment and structures (as China does) has the extra output to send abroad as a current-account surplus, while a country that invests more than it saves (as the United States does) must fill the gap by importing more from the rest of the world than it exports. And a country with a current-account surplus has the funds to lend and invest in the rest of the world, while a country with a current-account deficit must finance its external gap by borrowing from the rest of the world. More precisely, a country's current-account balance is exactly equal to the difference between its national saving and its investment.

The future reduction in China's saving will therefore mean a reduction in China's current-account surplus and thus in its ability to lend to the United States and other countries. If the new emphasis on increased consumption shrank China's saving rate by 5% of its GDP, it would still have the world's highest saving rate. But a five-percentage-point fall would completely eliminate China's current-account surplus. That may not happen, but it certainly could happen by the end of the five-year plan.

If it does, the impact on the global capital market would be enormous. With no current-account surplus, China would no longer be a net purchaser of US government bonds and other foreign securities. Moreover, if the Chinese government and Chinese firms want to continue investing in overseas oil resources and in foreign businesses, China will have to sell dollar bonds or other sovereign debt from its portfolio. The net result would be higher interest rates on US and other bonds around the world.

Whether interest rates do rise will also depend on how US saving and investment evolves over the same period. America's household saving rate has risen since 2007 by about 3% of GDP. Corporate saving is also up. But the surge in the government deficit has absorbed all of that extra saving and more.

Indeed, the only reason that America's current-account deficit was lower in 2010 than in previous years is that investment in housing and other construction declined sharply. If Americans' demand for housing picks up and businesses want to increase their investment, a clash between China's lower saving rate and a continued high fiscal deficit in the United States could drive up global interest rates significantly.

Martin Feldstein, professor of economics at Harvard, was chairman of President Ronald Reagan's Council of Economic Advisers and is former president of the National Bureau for Economic Research. - Project Syndicate

Tuesday, 29 March 2011

China 'to overtake US on science' in two years, set to outstrip US in science research output

China 'to overtake US on science' in two years


Chinese-made bullet train China's surge in progress could soon overwhelm the US, say experts

China is on course to overtake the US in scientific output possibly as soon as 2013 - far earlier than expected.

That is the conclusion of a major new study by the Royal Society, the UK's national science academy.
The country that invented the compass, gunpowder, paper and printing is set for a globally important comeback.

An analysis of published research - one of the key measures of scientific effort - reveals an "especially striking" rise by Chinese science.

The study, Knowledge, Networks and Nations, charts the challenge to the traditional dominance of the United States, Europe and Japan.

The figures are based on the papers published in recognised international journals listed by the Scopus service of the publishers Elsevier.

'No surprise'
In 1996, the first year of the analysis, the US published 292,513 papers - more than 10 times China's 25,474.

By 2008, the US total had increased very slightly to 316,317 while China's had surged more than seven-fold to 184,080.

Previous estimates for the rate of expansion of Chinese science had suggested that China might overtake the US sometime after 2020.

“Start Quote

There are many millions of graduates but they are mandated to publish so the numbers are high”
End Quote Dr Cong Cao Nottingham University
But this study shows that China, after displacing the UK as the world's second leading producer of research, could go on to overtake America in as little as two years' time.

"Projections vary, but a simple linear interpretation of Elsevier's publishing data suggests that this could take place as early as 2013," it says.

Professor Sir Chris Llewellyn Smith, chair of the report, said he was "not surprised" by this increase because of China's massive boost to investment in R&D.

Chinese spending has grown by 20% per year since 1999, now reaching over $100bn, and as many as 1.5 million science and engineering students graduated from Chinese universities in 2006.

"I think this is positive, of great benefit, though some might see it as a threat and it does serve as a wake-up call for us not to become complacent."

The report stresses that American research output will not decline in absolute terms and raises the possibility of countries like Japan and France rising to meet the Chinese challenge.

"But the potential for China to match American output in terms of sheer numbers in the near to medium term is clear."

Quality questions
The authors describe "dramatic" changes in the global scientific landscape and warn that this has implications for a nation's competitiveness.

According to the report, "The scientific league tables are not just about prestige - they are a barometer of a country's ability to compete on the world stage".

Along with the growth of the Chinese economy, this is yet another indicator of China's extraordinarily rapid rise as a global force.

However the report points out that a growing volume of research publications does not necessarily mean in increase in quality.

One key indicator of the value of any research is the number of times it is quoted by other scientists in their work.

Although China has risen in the "citation" rankings, its performance on this measure lags behind its investment and publication rate.

"It will take some time for the absolute output of emerging nations to challenge the rate at which this research is referenced by the international scientific community."

The UK's scientific papers are still the second most-cited in the world, after the US.

Dr Cong Cao, associate professor at Nottingham University's School of Contemporary Chinese Studies, agrees with the assessment that the quantity of China's science is yet not matched by its quality.

A sociologist originally from Shanghai, Dr Cao told the BBC: "There are many millions of graduates but they are mandated to publish so the numbers are high.

"It will take many years for some of the research to catch up to Western standards."

As to China's motivation, Dr Cao believes that there is a determination not to be dependent on foreign know-how - and to reclaim the country's historic role as a global leader in technology.

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China set to outstrip US in science research output

China has shot to second place in the number of articles published in international science magazines and in a few years will take the top spot from the United States, according to a new report.

"China has already overtaken the UK as the second leading producer of research publications, but some time before 2020 it is expected to surpass the USA," said the report by the Royal Society in London.

While the top 10 is still dominated by the major Western powers, their share of research papers published is falling, the report said.
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And as well as China, Brazil and India are coming up fast.

"The USA leads the world in research, producing 20 percent of the world?s authorship of research papers, dominating world university league tables, and investing nearly $400 billion per year in public and private research and development," said the report released Monday.

"The UK, Japan, Germany and France each also command strong positions in the global league tables, producing high quality publications and attracting researchers to their world class universities and research institutes," it added.

But while these five countries alone produced 59 percent of all spending on science globally, their dominant position was nevertheless slipping.

China shot up from sixth place in the period 1999-2003 (4.4 percent of the total) to second place behind the United States with 10.2 percent over the years 2004-08, overtaking Japan.

While the United States remained in the top spot, it saw its share shrink from 26.4 percent to 21.2 percent.

Britain remained third with its share at 6.5 percent, down from 7.1 percent.

In a statement last week after Britain's budget however, the Royal Society welcomed finance minister George Osborne's promise of another £100 million (114 million euros, $160 million) of capital investment in science.

Japan slipped from second to fourth place, falling from 7.8 percent to 6.1 percent, said the report.

Germany, in fifth place, published six percent, down from seven percent, while France, in sixth, published 4.4 percent, down from five percent.

Rounding off the top 10 were Canada, Italy, Spain -- and India, which pushed Russia out of the top 10, moving up from 13th position.

"China?s rise up the rankings has been especially striking," said the report.

"China has heavily increased its investment in R&D (research and development), with spending growing by 20 percent per year since 1999 to reach over $100 billion a year today," it continued.

That came to 1.44 percent of the country's GDP in 2007, it added.

"China is also turning out huge numbers of science and engineering graduates, with 1.5 million leaving its universities in 2006," the report added.

Further down the rankings, but making dramatic progress, were Iran and Turkey.

Turkey's improved scientific performance had been almost as dramatic as China's, the report said, noting that it had declared research a public priority in the 1990s.

The country had increased its research and development nearly six-fold between 1995 and 2007, and during the same period, the number of researchers there had increased by 43 percent.

Iran was the fastest-growing country in terms of numbers of scientific publications, rising from 736 in 1996 to 13,238 in 2008.

"The scientific world is changing and new players are fast appearing," said Chris Llewellyn Smith, who chaired the study at the Royal Society, Britain's national science academy.

"Beyond the emergence of China, we see the rise of southeast Asian, Middle Eastern, north African and other nations.

"The increase in scientific research and collaboration, which can help us to find solutions to the global challenges we now face, is very welcome.

"However, no historically dominant nation can afford to rest on its laurels if it wants to retain the competitive economic advantage that being a scientific leader brings."

The Royal Society's findings were published in its report entitled "Knowledge, networks and nations: Global scientific collaboration in the 21st century".

© 2011 AFP
This story is sourced direct from an overseas news agency as an additional service to readers. Spelling follows North American usage, along with foreign currency and measurement units.

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Monday, 28 March 2011

US bank regulators criticised: 30 times more paid than engineers


Top bankers earn more than shareholders in crisis time 

PETALING JAYA: An academician and top financial adviser has reiterated his criticism for regulators of the banking sector in the United States, saying that banks were the clear winners in the global financial crisis of 2008/09.“In the crisis year 2008, salaries of bankers from the top 10 banks rose to US$75bil from US$31bil in 1999 but cash dividends to shareholders amounted to only US$17.5bil,” Tan Sri Andrew Sheng Len Tao said.

Sheng, who is adjunct professor at the University of Malaya (UM) and Beijing's Tsinghua University as well as chief adviser to the China Banking Regulatory Commission, said based on this, banks' management took home 4.3 times more than shareholders, when in fact shareholders were the ones that had to inject capital and government guarantee deposits.

“If banks increase leverage, then they have more profits but assume greater risk. But they can take home larger shares of bonuses because profits would be rising,” he said.
“Essentially, financial sector losses would be paid for by future taxation, which would lead to large fiscal debt, devaluation or inflation, but agents are walking (off) with bonuses,” Sheng said in a talk held at UM last week.

Sheng, who appeared in the 2010 Oscar-winning documentary Inside Job, a narrative which traces how the global financial crisis started, pointed out during the talk that financial engineers at Wall Street were paid some 30 times more than engineers.

“Financial engineers build dreams but when those dreams turn out to be nightmares, the people pay for it,” he was quoted as saying by foreign press following the release of the documentary.

Touching on the area of global imbalance between the West and the East, Sheng said there were currently three imbalances that had to be worked on.

Simply put, these are current account imbalances with an apparent pattern of Europe being broadly in balance, the United States in deficit and Asia, in surplus; foreign exchange reserves imbalance with the Chinese, Japanese and the rest of Asian foreign reserves exceeding US$4 trillion, which is larger than the rest of official reserves collectively, as well as national savings rate imbalance where Asia clearly leads.

As far as an international currency is concerned, unless and until the world recognises a global fiscal policy with a global tax, an international currency cannot work, according to Sheng.