Reversing the brain drain, innovate to compete!

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Reversing the brain drain

By P. GUNASEGARAM

Unless Malaysia succeeds in developing, retaining and attracting talent, its cherished dream of attaining high income by 2020 may be dashed to bits.

PROBABLY for the first time ever we have had substantial facts and figures on Malaysia’s brain drain – and it has taken the World Bank to come out with this (see our cover story this issue).

The World Bank simply defines brain drain as the migration of talent across borders. It is instructive what it says.

“For Malaysia to stand (sic) success in its journey to high income, it will need to develop, attract and retain talent. Brain drain does not appear to square with this objective: Malaysia needs talent but talent seems to be leaving,” the World Bank said in its report on Malaysia. Let’s look at some of the figures as a gauge of the seriousness of the problem. The worldwide Malaysian diaspora is conservatively estimated at one million in 2010, quadrupling over the last three decades.

Singapore alone accounts for 57% of this with the rest dispersed mainly through Australia, Brunei, Britain and the United States. Ethnic Chinese account for nearly 90% of the diaspora in Singapore and are similarly over-represented in other developed countries. And here’s one frightening statistic: “One out of 10 Malaysians with a tertiary degree migrated in 2000 to an OECD (the club of rich countries, but which does not include Singapore) country – this is twice the world average and including Singapore would make this two out of 10.

”In other words, it is very likely that 20% of our best graduates end up in other countries. The reasons why they leave are also instructive: 66% cited career prospects, 60% social injustice and 54% compensation.



The situation is serious and as Malaysia is wont to do under such circumstances, it is resorting to ad hoc measures such as tax rebates on those returning and a corporation to attract talent into the country.

These will only chip away at the massive outcrops of declining educational standards, a badly implemented social restructuring policy, a poor system of rewards and the unwillingness to move away from low labour costs to high value-added manufacturing and services amongst others. The changes that are needed are deeply structural. First, everything possible has to be put into raising educational standards to improve the quality of those entering the workforce. South Korea had one third Malaysia’s per capita income in 1970 but now it is three times Malaysia’s. Such change would not have been possible without a super educational system at every level.

Developing talent at every level simply has to start with education and we have to put the best talents, facilities and other resources into this. Right now only the most dedicated or those who don’t have other choices go into teaching because it is neither rewarding nor respected as a profession.

Next we need social re-engineering to gear towards giving equal opportunities for advancement instead of a premature equalisation of outcomes whether in terms of wealth ownership or employment creation.

Otherwise the ultimate result might be plain mediocrity and creating a small class of privileged wealthy who have done little or nothing to deserve their wealth. Otherwise too, the talented who get little or nothing face despair and look elsewhere for their rewards.

Then we need too the unfettered opportunities, entrepreneurship and incentive for talent to flourish and to be adequately rewarded. We can’t continue to base our competitiveness on low wages and costs. In this respect, a weak currency and its attendant poor purchasing power is a sure way to chase talent out of the country.

That’s how we can retain talent and attract it too, realising that we must be open and free to import the best the world has to offer in terms of people, goods and services at the best prices. For these things to happen and be sustained what we need is honest policy and implementation untainted by corruption so that the most can be done with the resources at our disposal instead of frittering these away through all sorts of leakages in the system. It is no accident that the least corrupt countries are often the most developed and have the highest income.

If there is a lesson from the World Bank report, it is that we must return to the basics and work ourselves up from there. There is no shortcut, but once critical mass is reached progress grows in leaps and bounds.

Managing editor P Gunasegaram believes that an uncompromising stand towards excellent and quality education bereft of political and other pressures will do more towards a high income Malaysia than almost anything else.

Related Stories:
How can Malaysia stem the tide of talent migration?
The big picture on skilled labour market
Can Malaysia reform fast enough to meet challenges?
Talent Corp CEO: Need to change business model
The ‘vicious cycle’ of brain drain



PM: Innovate to compete

By LESTER KONG  lester@thestar.com.my

PUTRAJAYA: The country's economic competitiveness will continue to be threatened if Malaysia relies on cheap foreign labour and is reluctant to innovate, said Prime Minister Datuk Seri Najib Tun Razak.

He said the country's labour productivity also needed a large jump for local small and medium enterprises to compete well in the increasingly globalised and liberalised markets.

Najib said Malaysia's labour productivity was valued at RM15,000 per employee per year compared to RM103,000 for each American employee.

“According to this benchmark and compared to other countries, we are still very low.

“We must change in the next few years to raise productivity by 100%,” he said after chairing the 11th National Small and Medium Enterprise Development Council (SMEDC) meeting here yesterday.

Let’s talk business: Najib with International Trade and Industry Minister Datuk Seri Mustapa Mohamed (third from right) and Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz (right) at a press conference after chairing the SMEDC meeting in Putrajaya Friday.
 

Najib, who is also the Finance Minister, said lack of funding was the least of the SMEs' weaknesses as RM6bil had been allocated for SME development this year through various ministries and agencies.

He said the key weaknesses are weak managerial and entrepreneurial skills, reluctance to innovate and use technology and reliance on human-intensive labour to generate output.

“We find that many problems do not stem from funding but rather from the need to boost (SMEs') capacity,” he said.

Regarding a World Bank report on Thursday, Najib admitted that businesses were hampered by the slew of licences and permits required to start and conduct business and that this could encourage “elements of corruption”.

“The council (SMEDC) has decided that more radical steps are needed to relax permit requirements as a whole. This is related to our competitive policy to make it easier for companies to enter a market,” he said.

“A green lane policy has been established where the Govern-ment will give opportunities through contracts to use their products or services.

“We are looking at what other help we can give to enable these companies to enter the global market,” Najib said.

On foreign direct investments, Najib said FDIs into Malaysia had increased four-fold since 2009, rising from US$1.4bil (RM4.2bil) in 2009 to US$9bil (RM27bil) last year.

“I am confident that we will be able to ensure a very healthy growth in FDIs. But don't forget, it's not only about FDI, it's also about domestic investment as 73% of our development plans involves these,” he said.
Najib admitted that brain drain remained a major obstacle to Malaysia's plans to achieve a high-income developed status by 2020.

“We have identified (brain drain) as one of the problems that we need to find solutions to. That's why we set up Talent Corp.

“We will try to overcome (brain drain) through Talent Corp and other policy measures,” he said.

“It (brain drain) is not something that is happening now. It is a problem that has been happening for some time.”

He said the ringgit's gain over the US dollar will not affect Malaysia's exports.
“Local companies should use our stronger ringgit to strengthen processes in their companies, such as buying equipment and ensuring their supply chains are more efficient,” he said.

How can Malaysia stem the tide of talent migration?

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Migration of talent – how can Malaysia stem the tide? 
By THEAN LEE CHENG and FINTAN NG starbiz@thestar.com.my

Brain drain stands in the way of a high-income Malaysia, a World Bank report says. But the solutions are not easy.

FOR over 25 years, Malaysia was one of the few Asian countries blessed with an annual growth of 7% and up. The country's growth spurt occurred between 1967 and 1997, which paved the way for the shift from low-income to middle-income. Among developing countries, Malaysia made tremendous progress in poverty reduction. In the 1970s and 1980s, income inequality was reduced dramatically while a Malay middle-class emerged.

World Bank’s Philip Schellekens ... ‘Whatever we present here we can stand by.’

These are laudable achievements no doubt. Nevertheless, in today's fiercely competitive global landscape and Malaysia's eye-popping data of escalating brain drain, the challenges for the country to move forward are far, far more complex.

Last year, Malaysia had recorded a strong recovery but the momentum appeared to have tapered off with jittery growth in the last two quarters. While business sentiment has improved in the first quarter of this year, consumer confidence has weakened on concerns of rising inflation.

Growth is expected at 5.3% this year and 5.5% in 2012. The three key risks in the near term are:

• A weaker-than expected global recovery, which will dampen growth momentum,
• A further strengthening of inflationary pressures, which may undermine consumer spending, and
• Weak fiscal consolidation.

Over the medium term, various government initiatives are being put in place to boost economic growth. But over and above the Economic Transformation Programmes and New Economic Models, the heart of Malaysia's transformation hinges on two fundamentals productivity, which requires a revamp of the education system, and policies of inclusiveness. Discontent with Malaysia's inclusiveness policies is a key factor, particularly among the non-bumiputras who make up the bulk of the diaspora.

Human capital is, after all, the bedrock of a high-income economy or for any economy for that matter. Sustained and skill-intensive growth needs talent going forward. Malaysia needs to develop, attract and retain talent.

Brain drain does not square with this objective. Malaysia needs talent, but talent seems to be leaving.

Brain drain the migration of talent across borders has long been a subject of debate and controversy. Of late, it has been openly discussed in the media, which is to be viewed positively. At least there is that openness today which was not there 10 years ago. The creation of Talent Corp Malaysia Bhd to bring back our own, and to attract new talent, is also a tacit acknowlegement by the Government that we need to manage our human capital carefully and diligently.

Brain drain is by no means something unique to Malaysia. It is something faced by many others. Taiwan saw many of its talented leave for Silicon Valley; the former Irish president Mary Robinson, during her presidency, did much to engage the Irish diaspora.

Within Asia, the brain drain is most pronounced in South-East Asia, according to the Malaysia Economic Monitor: Brain Drain released on Thursday (www.worldbank.org/my). The report says emigration rates are the highest in middle-income countries, which have both the incentive and the means to migrate. The incentive would be less strong for high-income countries. For low-income countries, financial and human capital constraints may make emigration less likely. Malaysia falls into the middle-income category.

The World Bank's Bangkok-based senior economist Philip Schellekens, who produced the report after an online survey among 200 respondents from the 1 million Malaysian diaspora around the world acknowledges that this number is small.

Click on image for actual size.
 

“But the World Bank, in the first place, does not wish to present this as a definite conclusion. Instead, it wishes to convey a qualitative feel of what is going on. The study can be seen as the first step towards understanding what has been driving brain drain in Malaysia and how policymakers can address it.”

The report measures the size of the Malaysian diaspora and brain drain, its key characteristics and its evolution over the past 30 years. It gives an updated picture on the basis of the most recent information available, including Singapore's census results which were released early this year.

“We've avoided at all costs to use anecdotal sources for such a sensitive topic. So, whatever we present here we can stand by. We also document our sources of information so that other people, as part of this process, can continue the work, refer to our study, look at the numbers and update or improve them.”

It is an extension of previous reports on Malaysia, Growth through Innovation and Inclusive Growth. 

Why do people leave?

Brain drain is a symptom, not a problem in itself. It is the outcome of underlying factors as all of us respond to push and pull factors. While not every person leaving Malaysia constitute a brain drain, about a third of them do. Seen from the long lens of emigration and its effect years from today, Malaysia is not only losing talent today, it is also losing talent tomorrow, because children who leave with their parents, and who spend their formative years abroad, are less likely to return.

The report removes the veil of doubt and uncertainty over some numbers. Some of the key highlights are:

● The Malaysian diaspora is large and expanding, with a conservative estimate of about 1 million worldwide last year. The diaspora has quadrupled over the last 30 years, and is geographically concentrated and ethnically skewed.

● Singapore alone absorbs 57% of the entire diaspora, with the rest residing in Australia, Brunei, Britain and the United States. - Malaysia's brain drain is intense relative to its narrow skill base. - The brain drain is aggravated by a lack of compensating inflow. While many Singaporeans leave the city-state for greener pastures, many highly skilled expatriates also enter the republic.

The situation is different in Malaysia. While Malaysia receives many, most who come have low skills. Coupled with this dire situation, Malaysia's high-skilled expatriate base has shrunk by a quarter since 2004.

● The number of skilled Malaysians leaving for Singapore has increased from 10% in 1990, 23% in 2000 to 35% last year. This is defined by those who have tertiary education. About 47% of all skilled foreign-born residents in Singapore were born in Malaysia.

Malaysia is not on the brink of a crisis, but it can do better as it has a lot of potential. Brain drain, says Schellekens, should not be viewed as potentially negative. It has its positive potential, as when it aspires a young person to pursue tertiary education, as when it allows those who remain to leverage on those who have succeeded abroad.

“There is an increased openness in Malaysia to discuss these issues and this is a welcome development,” he says.

The report goes beyond stating numbers and facts. It also identifies two areas the government needs to seriously look into the need to improve productivity and to strengthen Malaysia's policies of inclusiveness.

Talent Corp CEO Johan Mahmood Merican says the report is not something new. “It lends credence to what the Government already knows and we have taken action even before the World Bank report was released. There is a lot of work-in-progress which supports the direction that we have initiated.

“What is important is there is an urgency for us to change the business model if we are to advance. It is not a case of whether we stand still or we advance. If we stand still, we are effectively regressing. Vietnam and Indonesia are getting their act together and recording high growth. In that sense, it is consistent.”

Johan says the usefulness of such a report is that while it highlights the potentially negative effects of brain drain, it also highlights the flip side, its positive effects.

“Malaysia has been spared from the detrimental part of it in the sense that our industries have not come to a halt, as in some other countries. At the same time, it has not been as beneficial to us as a country, as it has to some other countries. So at this point in time, it is neutral. The question is, how do we make it net positive? This is where Talent Corp comes in. We are beginning to engage with Malaysians abroad and with the private sector,” Johan says.



Courting talent back

Four months after its establishment, Talent Corp is primarily focused on facilitating initiatives to attract, nurture, engage and retain talent to support human capital needs of the Economic Transformation Programme (ETP). This has resulted in the Residence Pass that enables top foreign talent, especially those in the ETP, to continue working in Malaysia for a longer tenure and fewer restrictions. There has also been revisions to the Returning Expert Programme to encourage more Malayisan professionals working overseas to come home and help drive the nation's economic transformation, especially in the ETP. Because of Malaysia's base in manufacturing, parcticularly in electrical & electronics, an industry-led initiative to address the sector's talent requirements, with an emphasis on nurturing local talent was launched last week. Similar groups in other key economic sectors are currently in the pipeline.

“This is clearly a long-term project. We are looking at small starting steps this year to ease the mobility of talent and to establish a baseline for future work,” says Johan. Other initiatives in the works will be announced later this year in due course.

Johan also brings up the success story of Pua Khien Seng, the Malaysian who invented the pen drive, and who has been residing in Taiwan for 16 years. Pua is now president and co-founder of Phison Electronics Corp, a listed technology company in Taiwan with a market capitalisation of almost NT$40bil (RM4.3bil).

“His business will always be in Taiwan. So how do we leverage on that? How can we facilitate that engagement with Pua, and other Malaysians, who are residing abroad?”

The larger question is: Can targeted measures such as talent management and diaspora engagement substitute more comprehensive reforms?

Schellekens thinks not. “Our observation is that the targeted measures developed by Talent Corp are helpful. These are first steps in the right direction but if the underlying deterrents are not addressed comprehensively, then these measures will only have a marginal impact.”

The fundamental issues, or underlying factors why people leave relate to economic incentives, which can be captured under the umbrella of low productivity, and social disincentives which reflect discontentment among the non-bumiputras with Malaysia's inclusiveness policies.

“If you want to tackle the brain drain in a comprehensive fashion, it is not through reversing it or trying artificially to stop it. Tackle the fundamentals and things will happen automatically; people will feel incentivised not to leave the country, or to return if they have left,” Schellekens, the lead author of the report says.

The report highlights the progress made by South Korea. It was a third poorer than Malaysia in the 1970s in terms of average income but nowadays it's three times richer. One remarkable aspect of South Korea's development path has been its attention to investment in quality education. As with Singapore, Hong Kong, China and Japan, the bedrock of any country's progress is its human capital.

A statement from RAM Ratings Services Bhd says: “While we may be comforted by the report's finding that the brain drain has not reduced significantly the country's stock of educated workforce, it highlights the disconcerting fact that the country has a narrow skills base and that its skilled human capital base continues to slide, exacerbated by the brain drain. We need to actionalise inclusiveness under the clarion call of 1Malaysia and sharpen the focus on competitiveness, meritocracy, good governance and productivity in both the government and private sector. Only by unleashing private sector dynamism, entrepreneurialship and innovativeness can we sustain the virtuous circle of high investment-growth-productivity increases.”

Its chief economist Dr Yeah Kim Leng adds: “It would be difficult to achieve the high income target by 2020. Productivity growth would slow as the labour market would be more confined to lower-skilled sets. The country's industrial and technological upgrading and its shift up the value chain would be hampered by skills shortages, higher cost of foreign skilled manpower and deficiencies in innovation and entrepreneurship.”

While our challenge is to tap into our potential and we are blessed with an abundance in myriad areas and sectors this has become more difficult than a decade or two ago because competition in the region for trade, talent, and foreign direct investment has intensified. While we bicker among ourselves, other countries are forging ahead very quickly.

As Malaysia climbs up the income ladder, new challenges in form of innovation will come our way.
Says Schellekens: “Malaysia aspires to base its future growth on innovation. This means that growth will become more skills-intensive, creating a demand for skilled people as well as leading to rising wage levels for the skilled. This may accentuate the income disparity between the skilled and the unskilled, leading also to social challenges between the city and countryside.

Another challenge is the need for more internal competition. Iron sharpens iron.

“There is a sense of urgency for Malaysia to implement the structural reform agenda more quickly as well as comprehensively, else the underlying momentum of growth will deteriorate through an erosion of competitiveness. We are concerned that some of these trends may be happening already, as with the parts and components trade within the electrical and electronics of Malaysia,” he adds.

Malaysia Economic Monitor, April 2011

Click on a thumbnail to access the higher resolution version (you may want to enlarge the resulting browser window to get the largest view possible). To save a copy, right-click on the hi-res image and choose "save as" or "save image as".  The Brain Drain Challenge in Pictures
The Malaysian diaspora in 2010 is estimated at 1 million, a third representing brain drain	The diaspora is geographically concentrated	The pace is brain drain is elevated
Relative to narrow skill base, brain drain is intense	Brain drain is a symptom driven by productivity and inclusiveness concerns	Boosting productivity will require up-skilling through education and innovation policies
Reducing the ethnic skew in the diaspora will require updating inclusiveness policies	Targeted policies to tap into global talent and engage with the diaspora would complement

Related Stories:

Reversing the brain drain, innovate to compete!

 The big picture on skilled labour market
Can Malaysia reform fast enough to meet challenges?
Talent Corp CEO: Need to change business model
The vicious cycle' of brain drain

World Bank says: NEP, brain drain holding back Malaysia

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Malaysia’s brain drain getting worse, says World Bank
By Lee Wei Lian

KUALA LUMPUR, April 28 — World Bank senior economist Philip Schellekens painted a gloomy picture of the Malaysian brain drain situation today saying that it not only grew rapidly but is likely to intensify, further eroding the country’s already narrow skills base.

Schellekens said that the number of skilled Malaysians living abroad has tripled in the last two decades with two out of every 10 Malaysians with tertiary education opting to leave for either OECD (Organisation for Economic Cooperation and Development) countries or Singapore.

“Brain drain from Malaysia is likely to intensify in the absence of mitigating actions,” he said at the launch of the World Bank report titled “Malaysia Economic Monitor: Brain Drain”.

The report defined brain drain as the outflow of those with tertiary-level education.

The economist said Malaysian migration was increasingly becoming a skills migration with one-third of the one million-strong Malaysian diaspora now consisting of the tertiary educated.

“Expect the trend to continue,” he said.

He added that the outflow of talent was not being replaced with inflows, thus damaging the quality of Malaysia’s “narrow” skills base, noting that 60 per cent of immigration into Malaysia had only primary education or less, even as the number of skilled expatriates declined by 25 per cent since 2004.

The report also noted that there was a geographic and ethnic component to the brain drain, with about 88 per cent of the Malaysian diaspora in Singapore being of ethnic Chinese origin.

“The numbers for US and Australia are similar,” said Schellekens.

Report figures also show that 54 per cent of the Malaysian brain drain went to Singapore while 15 per cent went to Australia, 10 per cent to the US and 5 per cent to the UK.

The top three drivers for brain drain identified by the report were career prospects, compensation and social justice.

“(Lack of) Meritocracy and unequal access to scholarships are significant push factors and a deterrent to coming back,” said Schellekens. “Non-Bumiputeras are over-represented in the brain drain.”

He suggested that Malaysia implement important structural reforms in tandem with introducing targeted measures such as income tax incentives to reverse the brain drain.

“Once the highway is built, you must compete for traffic,” he said. “One suggestion is to hold a competition among members of the diaspora to get ideas on what can be done to attract them home.”

He added that while this report estimated the Malaysian diaspora at one million compared with about 1.4 million in a previous World Bank report, it was due to the lack of Singapore government information on the breakdown of its non-resident population.

“This is a conservative estimate and the diaspora could well be larger,” he said.



NEP, brain drain holding back Malaysia, says World Bank

KUALA LUMPUR, April 28 — More than one million Malaysians live abroad, the World Bank said today, adding that policies favouring Malays are holding back the economy, causing a brain drain and limiting foreign investment.

In a Bloomberg news service report today, World Bank senior economist Philip Schellekens was also quoted as saying that foreign investment could be five times the current levels if the country had Singapore’s talent base.

“Migration is very much an ethnic phenomenon in Malaysia, mostly Chinese but also Indian,” Schellekens (picture) told Bloomberg in Kuala Lumpur on Tuesday ahead of the report’s release today.

Governance issues and lack of meritocracy are “fundamental constraints” to Malaysia’s expansion because “competition is what drives innovation,” he said.

Malaysia’s growth fell to an average 4.6 per cent a year in the past decade, from 7.2 per cent the previous period.

Singapore, which quit Malaysia in 1965, expanded 5.7 per cent in the past decade and has attracted more than half of its neighbour’s overseas citizens, according to the World Bank.

Malaysia has in recent years unveiled plans to improve skills and attract higher value-added industries.
The World Bank conducted an online survey in February of 200 Malaysians living abroad in conjunction with the Kennedy School of Government at Harvard University.

They cited better career prospects, social injustice and higher wages as their main reasons for leaving, the Washington-based lender said in the Bloomberg report.

Singapore has absorbed 57 per cent of Malaysia’s overseas citizens, with almost 90 per cent of those crossing the border ethnic Chinese, the World Bank said.

“If Malaysia has the investment environment of Singapore and also had the innovation and skills environment of Singapore, then foreign direct investment inflows into Malaysia could be about five times larger,” Schellekens said in the Bloomberg report.

“They need to boost productivity and strengthen inclusiveness.”

Prime Minister Datuk Seri Najib Razak has pledged to roll back the country’s NEP-style policies but he also told the Umno assembly last year that the government’s social contract of providing benefits to Bumiputeras cannot be repealed.

According to the Bloomberg report, Najib has eased some rules to woo funds, including scrapping a requirement that foreign companies investing in Malaysia and locally listed businesses set aside 30 per cent of their Malaysian equity for indigenous investors. Last year, he unveiled an economic transformation programme under which the government identified US$444 billion (RM1.3 trillion) of projects from mass rail transit to nuclear power that it would promote in the current decade.

“If everything is implemented as they say, Malaysia is going to be a star economy,” Schellekens told Bloomberg. “The problem is implementation.”

World Bank: Reforms under New Economic Model should accelerated

KUALA LUMPUR: Although Malaysia has taken steps to restructure its economy via the Economic Transformation Programme, more deep-seated reforms as laid out in the New Economic Model (NEM) have slowed as the Government seeks a balance between tackling more immediate problems and long-term transformation.

The World Bank, in the fourth edition of the Malaysia Economic Monitor, noted that while the project-based initiatives as represented by the National Key Economic Areas had demonstrated “notable progress,” cross-cutting reforms under the NEM should be accelerated.

Minister in the Prime Minister's Department Tan Sri Nor Mohamed Yakcop told reporters after the launch yesterday that there was more to be done.

 

Tan Sri Nor Mohamed Yakcop says resources are needed to overcome major challenges.

 He added that the resources were needed to overcome major challenges. “It's all a matter of sequencing,” he said.

The World Bank in the economic report observed that foreign investors remained “skeptical” about the impact of the cross-cutting reform announcements under the NEM.

“Most do not price the NEM measures into their medium-term forecasts, considering them instead as upside risk factors,” the Washington-based international financial institution said.

The World Bank said the skepticism was likely reflected in two issues - the difficulty in implementing cross-cutting reforms and the perception, likely due to a lack of communication, that the Government was not doing enough in pushing the NEM reforms.

Statistics revealed in the report included a conservative estimate of a one-million strong Malaysian diaspora, largely located in Singapore, Australia, Brunei, Britain, the United States and New Zealand.

Of this, nearly 90% were of ethnic Chinese descent while for the diaspora as a whole, one-third had tertiary education with the rate of the qualified migrating having risen in recent years.

The report added that Singapore was the destination of 57% of those who had left.

U.S. gets C credit rating, lower than Mexico

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Weiss judgment ‘attention-grabbing,’ says president of Egan-Jones

By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) — The U.S. got a sovereign credit rating of C on Thursday, in line with ratings for such smaller economies as Mexico, Estonia and Colombia. 

Weiss Ratings, based in Jupiter, Fla., has rated the creditworthiness of financial institutions for several years, but the firm launched sovereign- debt ratings of 47 countries on Thursday. The U.S. rating of C (Fair) ranks it 33rd, Weiss noted in a statement. 

A C from Weiss is roughly equivalent to a BBB rating from the big rating agencies like Moody’s Investors Service, Standard & Poor’s and Fitch. That’s about two notches above non-investment grade, or junk, status.

U.S. dollar gets crushed, again

Why the dollar’s getting sold lower, pushing the euro to a rate of $1.48, and how the Federal Reserve is factoring into the greenback's decline.

The rating comes just over a week after S&P revised the outlook on its AAA rating for U.S. government debt, cutting it to negative from stable. Read the story here. 

 

”The AAA/Aaa assigned to U.S. sovereign debt by Standard & Poor’s, Moody’s and Fitch is unfair to investors and savers, who are under-compensated for the risks they are taking,” Weiss Ratings President Martin Weiss said in a statement. “An honest rating is also urgently needed to help support the political compromises and collective sacrifices the U.S. must make in order to restore its finances.”

China, Thailand get top ratings

The firm gave top A ratings to China and Thailand and assigned A- ratings to Switzerland, South Korea, Malaysia and Saudi Arabia. 

By contrast, Greece got a rating of E (very weak), while Portugal, Pakistan, Spain and Venezuela received D+ ratings from Weiss. 

The U.S. shares C ratings from Weiss with such large countries as Japan, Brazil and Canada as well as with smaller economies like Colombia, Estonia and Mexico. 

The amount of U.S. sovereign debt outstanding has soared in recent years as the government bailed out financial institutions and used huge fiscal stimulus programs to get the economy out of the worst slump since the Great Depression. Read more about the second debt storm hitting nations.

‘Attention-grabbing’

Despite high government debt, the U.S. still has attributes that make it more creditworthy, according to Sean Egan, president of Egan-Jones Ratings, a rating agency that’s paid by investors rather than issuers. 

“The U.S. is the largest economy in the world, home to most industry-leading firms and maintains the reserve currency of the world,” Egan said. “That provides significant support beyond credit metrics like debt to GDP.” 

The Weiss rating is “attention grabbing,” Egan added. “But unless they’re seeing very different things from other people it’s hard to support a C rating.” 

In its Thursday report, Weiss gave a C- rating to Argentina, which defaulted on some of its external debt in 2002. 

“The U.S. and Argentina don’t usually travel in the same sphere,” Egan noted.

‘Enough time’

Egan-Jones has a AAA rating on U.S. government debt. But the firm put that on negative watch in early March. That means there’s a “better-than-even chance” of a downgrade within the next six months, according to Egan. 

“This problem is being given the highest-level attention currently in Washington,” Egan said. “Typically one shouldn’t worry as much about problems that have a spotlight on them — especially when there’s still enough time to react.

Yuan continues climb to end at record high

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SHANGHAI: The yuan ended at a fresh record high yesterday as the central bank continued to allow the currency to rise to help fight imported inflation, but onshore traders remained convinced it would not resort to any one-off revaluation despite rumours overseas.

The People's Bank of China (PBOC) has set repeated record highs for the yuan's daily midpoint over the last several weeks, engineering an accelerated rise against the dollar that means it has now gained nearly 5% since it was depegged last June.

Those recent gains, together with comments this week by PBOC adviser Xia Bin that he would not rule out another one-off revaluation, have sparked talk among forex traders, especially those offshore, that such a move could be imminent.

But a number of reasons argue against such a possibility.

A clerk holds up a bundle of 100 yuan notes at a bank in Beijing — AP

Policymakers as senior as Premier Wen Jiabao have repeatedly ruled out the possibility of another one-off revaluation, meaning any surprise would put the government's credibility at risk and could spark a backlash from the politically strong export sector.

Traders also point to the fact that the PBOC could allow a spurt in the yuan of 2% to 3% over the course of a few trading days if it wanted to, just by continuing to set its midpoint higher and allowing the currency to rise in daily trade, negating the need for any one-off move.



“There would be huge pressure for the government to explain if it conducted another one-off yuan revaluation of 2% or 3% a goal it can now easily reach via the market,” said a senior trader at a major Chinese state owned bank in Beijing.

“An even larger one-off yuan rise would surely create a huge political storm in a country where quite a large number of people still believe yuan appreciation is part of a Western conspiracy aimed to contain China's development.” - Reuters

Cyber crimes phishing increase!

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Big increase in cyber crimes

By FLORENCE A.SAMY  florenceasamy@thestar.com.my



KUALA LUMPUR: There has been an increase in cyber crimes in Malaysia over the last two years, more than 3,500 of them reported in the first three months of this year.

CyberSecurity Malaysia chief operating officer Zahri Yunos said some 8,000 cases were reported last year and attributed this to the growth in Internet usage and broadband penetration that now stood at 55%.
“The cases have increased exponentially.

“In the first quarter of this year, our Cyber999 security incident help centre handled 3,563 cases, of which 36% or 1,273 cases were related to online fraud, which included phishing and identity theft.

“Phishing sites targeting local banks have also increased, with 400 sites detected for the first quarter of this year compared to 900 last year.



“While the numbers are worrying, we are also happy to see that the public are notifying us when they come across such fraudulent websites or e-mail,” Zahri said at the opening of the Anti-Phishing Working Group's fifth annual international Counter-eCrime Operations Summit here yesterday.

Zahri said industry estimates revealed that the cost of cyber crimes worldwide could easily reach US$1tril (RM2.9tril).

Yesterday, CyberSecurity launched a security browser plug-in called “Don't Phish Me”, which automatically detects fake local banking sites that are out phishing for usernames and passwords in order to illegally withdraw money.

CyberSecurity vice-president (cyber security responsive services) Adli Abd Wahid said the free software would detect the fake sites even without clicking on the suspected e-mail.

It can be downloaded as an add-on for Google Chrome and Mozilla Firefox. The link is also available on www.mycert.org.my.

Zahri also said that CyberSecurity was implementing a safe seal known as “Trustmark” to protect those who conduct online transactions.

He added that a pilot project would begin in July, involving local retail online shopping websites before it was eventually expanded to online banking sites.

China Wen:Serve the people well, aim for big accomplishments, not big titles!

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Aim for big accomplishments, Chinese Premier tells students
By MAZWIN NIK ANIS and NG CHENG YEE  newsdesk@thestar.com.my  PETALING JAYA:

Premier Wen Jiabao kicked off his official visit to Malaysia with a dialogue with Universiti Malaya students, advising them to aim for big accomplishments rather than big titles.

No matter what job they undertake, they must serve the people well because when they do good for the people, they would always be remembered, he said.

“No matter how senior the position, he will eventually be rejected by the people if he does not serve their interest.

“I will always stay with my people. I will devote myself to develop my country and the happiness of my people.

Warm welcome: Chinese Prime Minister Wen Jiabao (second from right) inspecting the guard of honour upon arrival along with Foreign Minister Datuk Seri Anifa Aman at the VIP terminal of the KL International Airport Wednesday. -AFP
 

“That is my honest advice to you and encouragement to myself,” he told the audience, who responded with thunderous applause.

Wen spoke of how he switched from being a geologist to a politician, saying that he had worked in the mountainous Gobi Desert in northwest China for 14 years.

“At that time, I did not think about being a political leader or the Chinese premier,” he said, adding that the opportunity for him came from China's reform and opening up of programmes.

“I had the opportunity to move from the mountainous area to a senior leadership post in the government,” he said.

He said he was recounting his personal experience as he wanted young students to aim for big accomplishments and “not big titles”.

Wen is here on a two-day visit to reciprocate Prime Minister Datuk Seri Najib Tun Razak's visit to China in 2009.

Also present at the dialogue session were Higher Education Minister Datuk Seri Mohd Khaled Nordin, Minister-in-Attendance Tan Sri Dr Koh Tsu Koon and university vice-chancellor Prof Dr Ghauth Jasmon.

Wen also stressed on science and technology in national development, which he described as the key to bring about changes to the economy and society.

Wen said a Malay Studies Centre would be set up at the Beijing Foreign Studies University in a move to enhance educational co-operation between Malaysia and China.

Wen said he liked spending time and talking to young people to learn about their feelings and aspirations.
Bernama reports that Wen is accompanied by a 118-member delegation, including four ministers.

This is his second visit to Malaysia after attending the first East Asia Summit and the ninth Asean-China Summit and Asean Plus Three Summit in 2005.



UM students thrilled to hear ‘Grandpa Wen’

By TAN EE LOO educate@thestar.com.my

PETALING JAYA: Chinese Premier Wen Jiabao's humanitarian gestures and concern for his people have made him a popular leader and idol among Chinese students.

“When our country was grappled with the Szechuan earthquake, he visited the sites and gave words of encouragement to the victims and those affected by the natural disaster. This shows that he cares for his people. He is my idol,” said Chinese student Li Yang of Shanxi, when met during Wen's visit to Universiti Malaya.

The IT student, who has studied in Malaysia for three years, said Wen liked to establish close rapport with his people by having dialogues during the Spring Festival.

Popular leader: Students greeting Wen when he arrives at Universiti Malaya where he had a dialogue session with them in Petaling Jaya Wednesday. 

Also known as “Grandpa Wen,” the Chinese premier made UM his first stop during his two-day official visit to Malaysia.

UM students, especially the Chinese nationals, were thrilled to meet the Chinese leader as they waved the Chinese and Malaysian flags to welcome him and his delegation to the university.

Wang Jing of Hebei said she got very emotional the moment she heard Wen speak about how China managed to move forward with the help of science and technology.

“There are 1.3bil people in China. It's very rare to be given a chance to meet and hear him speak in person.”

Put people first, says Wen

2011/04/28 By Azura Abas news@nst.com.my

Prime Minister Datuk Seri Najib Razak (right) meeting with Chinese Premier Wen Jiabao during a welcome dinner on board a Cruise Tasik ship at Putrajaya Lake last night. Wen, who arrived yesterday, is on a two-day official visit to Malaysia. — Bernama picture

KUALA LUMPUR: Chinese Premier Wen Jiabao urged university students to aim for big accomplishments and not big titles. He said no matter what one was doing, as long as one served the people, the people would always remember the deed.

"No matter what senior position one has, if he doesn't serve the people, he will eventually be rejected by the people," he told hundreds of students during a visit to Universiti Malaya (UM), which kick-started his visit to Malaysia yesterday.

Also present was Higher Education Minister Datuk Seri Mohamed Khaled Nordin.
Wen said China's reform and opening-up programme had given him the opportunity to enter politics.

"When I was working as a geologist for 14 years at the mountainous Gobi Desert area, I had not thought about being a leader or the country's premier.

"The reform and opening-up programme allowed me to move from the mountainous area to the political stage."

Wen also spoke of the contributions of science and technology in driving China's progress.

To stimulate the science and technology sector, he had listed several measures, including encouraging players in the sector to innovate, to discover and to have independent thinking.

"Their successes should be celebrated and their failures should be well understood and tolerated."

He also stressed the importance of knowledge, saying it was the source of progress, happiness and strength and for that, he said education must be a top agenda of a nation.

At the university, he visited a photography exhibition on historical China-Malaysia friendship visits, interacted with students and staff, and presented books on China.

He also planted a friendship camphor tree with UM vice-chancellor Professor Dr Ghauth Jasmon.

The camphor tree, which had medicinal properties and used in Chinese traditional medicine, was chosen to signify UM's commitment to form a firm and steady friendship with the people of China.

Ghauth earlier said the university recognised the strong collaboration with a number of top academic institutions in China.

"There has also been a marked increase in the number of students from China in this university, especially in the fields of engineering, science, business administration and Malay studies.

"In order to further facilitate the needs of students in China who want to pursue their education in our university, we have set up an offshore office in Beijing that acts as a centre for information and recruitment."

There are 347 students from China in the university.

Earlier, Wen, who led a 118-member delegation for the two-day visit, was greeted at the Kuala Lumpur International Airport, Sepang, by Minister in the Prime Minister's Department Tan Sri Dr Koh Tsu Koon and Foreign Affairs Minister Datuk Seri Anifah Aman.

Premier Wen: Bilateral relations based on mutual trust; Shows great interest in China-Malaysia ties

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Wen: Bilateral relations based on mutual trust

By CHOW HOW BAN  hbchow@thestar.com.my 



BEIJING: Chinese Premier Wen Jiabao has cited mutual trust as the most important element in developing his country's solid ties with Malaysia.

He said China could never forget the significant events that helped shape bilateral ties since diplomatic relations were established in 1974.

“The first, when China was at its most difficult moment, Malaysia was the first Asean country to establish diplomatic relations with China.

»I believe Malaysia-China relations will enjoy a very bright future« CHINESE PREMIER WEN JIABAO

“The second was when Malaysia proposed to Asean 20 years ago to engage in dialogue with China,” he said.

“As an ancient Chinese proverb goes, Do not forget what favours others have done for you'.

“We have never forgotten these historical episodes between our countries.

“Mutual trust forms the bedrock of our bilateral relations and I believe Malaysia-China relations will enjoy a very bright future,'' he said in a special interview with The Star and Bernama at the headquarters of the Chinese Cabinet here on Monday. It was conducted ahead of his two-day official visit to Malaysia beginning today.

Wen will hold talks with Prime Minister Datuk Seri Najib Tun Razak in Putrajaya tomorrow after an official welcoming ceremony at Dataran Perdana.

He will be accompanied by a 118-member delegation comprising four ministers, senior government officials, businessmen and the media.

Najib and Datin Seri Rosmah Mansor will host an official luncheon in honour of Wen and his entourage at Seri Perdana.

Both leaders are also scheduled to address the Malaysia-China Trade and Investment Cooperation Forum organised by the Asian Strategy and Leadership Institute (Asli) later in the afternoon.

Wen said both countries should enhance business co-operation although Malaysia was already China's biggest trading partner in Asean with US$74.2bil (RM222.6bil) in two-way trade last year.


“What we need to do now is sustain the momentum of balanced, co-ordinated and sustainable growth of our trade. At the same time, we should increase the science and technological contents of our traded goods,'' he added.

Wen also noted that there had been a lot of publicity over an agreement on mutual recognition of academic degrees, describing the development as important “for it will enhance friendship and deepen co-operation between both countries”.

He said during his visit, the Chinese side would put forward specific proposals for better mutual reinforcement of financial and business co-operation.

On possible negative consequences to some smaller companies following the establishment of the China-Asean Free Trade Area (Cafta) last year, Wen explained that all participating countries had benefited from Cafta as trade between them had grown tremendously.



Premier Wen shows great interest in China-Malaysia ties

BEIJING: Chinese Premier Wen Jiabao begins his two-day visit to Kuala Lumpur Wednesday at the invitation of Prime Minister Datuk Seri Najib Tun Razak.

From here he will go to Jakarta for his official visit to the republic at the invitation of Indonesian President Susilo Bambang Yudhoyono for another two-day visit.

Wen gave a rare one-hour interview to two Malaysia media (The Star and Bernama) and three from Indonesia at the Cabinet office at the Zhong Nan Hai in Beijing on Monday.

Wen being interviewed by reporters from Malaysia and Indonesia at the headquarters of the Chinese Cabinet in Beijing on Monday. - Xinhua news agency 

Wen had granted only two to three such interviews since becoming premier eight years ago and Chinese officials stressed that this showed the “great significance” he attached to the official visits to the two countries.

Wen arrived for the interview 15 minutes early and officials said this showed his great interest in the visits. Here is the full text of the interview.

Question: The level of Malaysia-China relations has reached a new high and this is evident in the fact that Malaysia has become China's biggest trading partner among Asean members. Soon the two countries will sign the agreement on mutual recognition of academic degrees. What could the two countries do to further enhance the cooperation? Prime Minister Datuk Seri Najib Tun Razak once said that the future success of Malaysia-China relations must be based on mutual trust between the two countries. What do you think are the key factors in fostering better Malaysia-China relations?

Wen: Before I answer your question, I cannot help but recall two major historical events in the history of exchanges between China and Malaysia. The first is that when China was in its most difficult moments, Malaysia was the first Asean member to establish diplomatic relations with China.

Thirty-seven years ago, the then Prime Minister of Malaysia Tun Abdul Razak - father of current Prime Minister Najib - and Chinese Premier Zhou Enlai signed the joint communique on the establishment of diplomatic ties between the two countries.

The second event is that Malaysia proposed to Asean 20 years ago to begin dialogue with China. As an ancient Chinese proverb goes “do not forget what favours others have done for you” (and) we have never forgotten these historical episodes between our two countries. You spoke about the future development of Sino-Malaysia relations and I agree that mutual trust comes first and foremost in developing state-to-state relationships.

As a Chinese saying goes “when developing relationships it is essential that we increase mutual communication and we tell people what are truly on our minds”. Mutual trust forms the bedrock of our bilateral relations and I believe Malaysia-China relations will enjoy a very bright future.

You have already highlighted the priority areas in Malaysia-China relations. I believe the two countries should enhance business cooperation as you mentioned that Malaysia has become China's biggest trading partner among Asean countries.

According to Chinese statistics, last year our two-way trade volume reached US$74.2bil. What we need to do now is to sustain the momentum of balanced, coordinated and sustainable growth of our trade. At the same time, we should increase the science and technological contents of our traded goods.

Secondly, the two sides should work together to promote cooperation in science and technology and education. I noticed that there has been much coverage in local Malaysian newspapers that the two countries will sign the agreement on mutual recognition of academic degrees.

Why did these papers pay so much attention to this? I believe the exchanges in education, science and technology represents the future of our bilateral ties, particularly in the exchange of young people because it is the young people who will carry the future mission of enhancing friendship and deepening cooperation between our two countries.

Thirdly, we need to increase mutual investment and this includes key projects that Malaysia has paid much attention to, such as the Second Penang Bridge project, the paper pulp mill project in Sarawak and other cooperation projects in infrastructure development.

One major progress we have made in enhancing such cooperation is to strengthen the financial support for our cooperation.

During my visit to Malaysia, the Chinese side will put forward specific proposals for better mutual reinforcements of financial and business cooperation. In other words, I believe we will open a new chapter in China-Malaysia cooperation.

Question: Although Malaysia and China have some friction over some islands and reefs in South China Sea such as the Swallow Reef (Pulau Layang Layang), the relationship between the two countries has moved forward steadily. I would like to ask whether China would hold talks on joint development in these contested islands and reefs with Malaysia and other relevant countries that have cross claims with China?

Wen: China remains committed to the Declaration of Conduct of the Parties in the South China Sea. We take the position that territorial disputes over maritime rights and interests should be peacefully addressed and resolved by the countries concerned through bilateral channels.

We disapprove of referring bilateral disputes to multi-lateral forums because that will only complicate the issue. You have rightly mentioned that although China and Malaysia have some disputes over the mentioned island and reefs in the South China Sea, these disputes have not impeded our efforts to have peaceful co-existence between the two countries.

Secondly, I totally agree that the countries concerned can and should have joint development of resources in the South China Sea because this is in the interest of regional peace in the area and it also serves the interests of all claimant countries.

Let me take this opportunity to address a very important subject related to China's development and where China is heading. I know that some Asean countries have shown a keen interest in this topic. China is a developing country. With over 30 years of reform and opening up, we have achieved much progress in economic and social development.

However, China remains a big country with a huge population and weak economic foundation. That means we still have to work hard if we are to build a moderately prosperous society in all respects and achieve our goal of modernisation.

China will adhere to an independent foreign policy and maintain the policy of building neighbourly relations and partnership with neighbouring countries. This is our policy now when we are not a developed country and even if one day China becomes a developed country, we will still adhere to such policy and China will never seek domination.

China's development itself is a major contribution to the prosperity of the world. China's development also represents an opportunity for its neighbouring countries like Asean. China is a big country that does not shirk from its responsibilities.

China is committed to play its part in promoting world peace, security and stability. We are of the view that for such a large developing country like China, it must have a peaceful external environment and stable domestic environment so that it will be able to sustain the momentum of development and progress. I believe that on this subject we will have a long understanding of Asean countries and their cooperation too.

Question: Can you tell us your impression of Indonesia? The Chinese government has set out its 12th Five-Year Plan and so has Indonesia announced its mid-term and long-term economic blueprint. How will the two countries deepen their bilateral relations and translate these opportunities into real benefits?

Wen: Indonesia is a country with a vast expanse of territories, rich natural resources and a huge population. It has long coastline and a lot of islands. It is renowned as the emerald of the equator.

Exchanges between China and Indonesia have a time-honoured history. In recent years, relations between two countries have enjoyed rapid development. I came to know the country by the name of Indonesia when I was a child. Even when I was very young, I could hum some famous Indonesia folk songs including Baby (Butet) and Aiyo Mama. When it comes to exchanges between two countries, we can trace it back to the 4th century when the eminent monk, Fa-Hien, visited Indonesia.

In the 8th century, there was a famous Chinese called Yi Jing who visited Indonesia and it was during that time that a large number of Chinese started to go to Indonesia and settled down there. A few days ago I had a meeting with the Indonesian Foreign Minister.

In our meeting, the minister told me some historical episodes between China and Indonesia. He told me that he was born in Sumatra and many of the local Sumatra people actually look very much like Chinese. He told me that he suspected he has some Chinese roots as well.

The most famous historical episode in the exchanges between China and Indonesia was the Western Seas voyages by Admiral Zheng He who was a famous Muslim navigator in the early 15th century. He helped established several mosques in Indonesia during these visits and many of them are still very much preserved.

In modern times, the most memorable episode in our exchanges is the Bandung Conference in which Zhou Enlai and the then Indonesian President Sukarno made tremendous efforts to bring about the successful Asia-Africa conference there.

Together they worked to initiate 10 important principles for the peaceful co-existence of Asian and African countries.

In order to gain a better knowledge and understanding about those historical events, I once paid a special visit to the relevant venue in Bandung. I cherish friendly sentiments and have a fond impression of Indonesia.

You mentioned in your question that China is implementing the 12th Five-Year Plan on economic and social development and Indonesia has set out its blueprint for long-term economic development.

I believe they represent tremendous opportunities for cooperation between the two countries. What we need to do now is to seize these opportunities and translate them into concrete results. To do this I think it is important for us to take the following steps in six areas.

First, we should enhance high-level of exchanges, establish a mechanism for regular mutual visits at the leadership level and increase our mutual political trust.

Second, we need to carry out closer economic cooperation and trade. The two countries can make full use of the China-Asean cooperation mechanism on the China-Asean Free Trade Area (Cafta) and we can enhance our cooperation in energy, infrastructure development and important sectors like manufacturing, agriculture and fishery.

Third, we need to step up maritime cooperation including maritime security, military exchanges, joint anti-terrorism exercises, military drills and marine economy which includes the development of marine resources ad research and development of the marine science and technology. We should also enhance our cooperation in the forecast of disasters as well as preparedness of tsunami and earthquake.

Fourth, we need to intensify our cultural and people-to-people exchanges and exchanges in science and technology and education. Talking about education, I believe both educational and cultural exchanges represent the future of our friendship and form the foundation of our cooperation. We need to work together for the agreement on mutual recognition of academic degrees and diplomas of higher education. We should also increase the visits by our students and it means a lot to both countries.

Fifth, we need to enhance our cooperation in Asean. Indonesia will assume the rotating presidency of Asean and I hope that Indonesia will continue to play an active and constructive role in promoting China-Asean cooperation.

Sixth, we should step up cooperation on major international and regional issues. Indonesia is a member of G20 and it is an emerging economy. The country has extensive and increasing influence not only in Asia but also in the world. We hope that both countries will step up consultations and cooperation in international affairs and make joint efforts to promote world peace and prosperity.

Question: It is interesting that you said you know the Indonesian song Aiyo Mama. Do you still remember the song? Asean and China have made tremendous progress in recent years. Do you see any challenges in China-Asean relationship? What effort will China take to enhance China-Asean relationship? Some countries including Indonesia have some concerns on the implementation of the Cafta, what do you think about that?

Wen: To answer your first question, I can still hum the tunes of Aiyo Mama and Baby (Butet). Maybe, when we have some time later, I can sing them to you.

You asked a couple of very big questions. Talking about the relationship between China and Asean, I would like to say our relationship has come a long way in the past 20 years. We have moved from dialogue relationship to good neighbourly relationship to now strategic cooperation.

China and Asean now enjoy all-round cooperation. For example, in 2004, Indonesia and China established strategic partnership and after that we together formulated the plans of action for strategic partnership bringing our bilateral ties to a new stage.

Now China-Asean relationship has entered a stage of forging ahead across the board. I believe we have worked together well in terms of the FTA development, financial cooperation, infrastructure connectivity and many other areas.

Although Asean members are at different stages of development, I believe we can all benefit from our cooperation on the basis of mutual respect and win-win results. I believe the cooperation between the two sides will extend to concrete results to all relevant parties.

I have the privilege of attending all China-Asean leaders meetings since 2003 as Chinese Premier. I have witnessed the progress of Asean integration and the formation and improvement in such cooperation mechanism as 10+1, 10+3 and the mechanism of China, Japan and South Korea cooperation.

I believe these mechanisms have complemented each other, drawn upon each other's comparative advantages and achieved common development. They have developed into fairly full-fledged and effective cooperation mechanisms. I hope that China-Asean cooperation will continue to move in the right direction.
You asked the question on Cafta. I would like to say that much preparation have been made before the FTA was inaugurated. Last year, we reached the consensus on the FTA and signed relevant agreements.

I believe Cafta has brought benefits to China and Asean countries. We have witnessed a surge in trade between the two sides. For example last year, trade between China and Indonesia expanded by 50% and in the first quarter of this year trade between the two countries has achieved a balanced trade with the trade volume of about US$12bil.

I would like to take this opportunity to clear some of the concerns raised by some businesses on Cafta. I do believe that the realisation of Cafta has brought mutual benefits and win-win results to all parties.
What we need to do is make full use of the favourable conditions, especially the preferential policies set out in the FTA.

In the course of the Cafta development, we should make timely adjustments in the light of current circumstances. We need to accommodate the interests of small-and-medium enterprises and we need to work together to ensure that Cafta will continue to benefit all sides. In this regard, China has always pursued an open approach.

Asean and China have stood by each other in difficult times during the two financial crises. When Indonesia was struck by the severe tsunami and China was hit by the devastating earthquake in Wenchuan, we helped each other in those tough times.I believe all these fully demonstrate the strong brotherly bond between China and Asean.

Question: Great changes have taken place in East Asia. How will China deal with the relationship especially with the inclusion of external powers like the United States in the East Asia Summit? What responsibilities will China undertake to maintain the regional peace and security? Since the US and Russia have joined the East Asia Summit, regional cooperation has changed. What do you think about this?

Wen: Personally, I have experienced the entire course of development of the East Asia Summit mechanism. In approaching the new dynamics in East Asian cooperation, I believe that it is important we follow the following three principles.

First, we need to consolidate, enhance and develop the existing cooperation mechanism. We need to work together to establish and improve long-term cooperation plans. We should ensure the plans are fully implemented and deliver real benefits to the people of all East Asian countries.

Second, we should respect the diversity of the East Asian cooperation. The new dynamics in our regional cooperation structure actually reflect the diversity of East Asian cooperation. In carrying out the East Asian cooperation, China has always advocated the principles that the East Asian cooperation should always have Asean to play a leading role. The East Asian cooperation should contribute to the Asean integration process and the development of all East Asian countries.

Third, we should ensure that our cooperation would remain open and inclusive. East Asian cooperation has been constantly expanded and this year the leaders of US and Russia will attend the East Asian Summit. I believe the East Asian Summit should stick to its nature as a leaders-led strategic forum. In this forum, we should work together to promote peace and stability of East Asia and promote development and progress of East Asia.

China is a responsible country and adheres to the path of peaceful development. China also assumes its responsibilities for regional security and stability such as in the areas of counter terrorism and maritime security.

Talking about maritime security, China has always advocated that efforts should be made to ensure navigation freedom and security in accordance with the international laws. China has contributed its part to this end. China has been a beneficiary of the safety and security of the international shipping routes in the South China Sea.

Many of China's goods and energy imports go through the Straits of Malacca. We want to enhance cooperation with other countries to ensure navigation freedom and security in the South China Sea.