Appearances aside, not yet all at sea: US vs China!

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Appearances aside, not yet all at sea

Behind The Headlines By BUNN NAGARA

THE People’s Liberation Army (PLA) set up a new office to streamline its management last Tuesday, and this week the PLA Navy will conduct training in the Western Pacific.

Some of this may be China’s response to enhanced US manoeuvres in the region, although in declaring plans to station US troops in northern Australia, President Barack Obama said they were “not aimed against any country in particular”.

Beijing also described the sea exercises as “routine” and not aimed against any country in particular. How did it all begin?

In Tokyo, Hanoi and Manila, China’s recent postures over disputed maritime territory have made a renewal of US “commitment” to the region timely.

However, Beijing sees recent US moves in Vietnam and the Philippines, following alliance-building in Japan, Australia and India, as provocative encirclement.

China’s moves are then regarded as justified reaction. Only the type and degree of reaction are being debated in Beijing.

China is neither anxious nor impatient to respond to US moves. Any change in Chinese foreign policy or naval deployment would take time through party-government-military hierarchies, and present circumstances discourage it.

The US is heading into a presidential election, with China itself readying for leadership changes next year. Beijing wants to avoid being sidetracked or becoming a US election issue.

The atmosphere of mutual US-China suspicion has developed so keenly as to make caveats necessary. In announcing diplomatic initiatives in Myanmar, Washington said they were not meant to isolate Myanmar’s long-time ally China.

But US attempts at alliance-building have seen patchy results. South Korea’s right-wing President Lee Myung-bak has not agreed to just about any US proposal to counter China’s rise.



Seoul is unimpressed by Obama’s trade grouping, the Trans-Pacific Partnership (TPP), a discreet alliance that excludes China. Australia is in this effort to draw a dividing line down the Pacific but not Japan, since the latter already hosts US troops and has military ties with the US.

For the TPP to exclude the second and third largest economies in the world shows its main concern cannot be trade. And for the US to dominate the TPP’s membership reveals its unilateral nature.

South Korea is unsympathetic to the TPP since it already has problems domestically in ratifying a Free Trade Agreement with the US. However much some countries may agree ideologically, national interests come first.

The same applies to the US in the UN Convention on the Law of the Sea (UNCLOS), which Washington has signed but refused to ratify. The US here is in the company of a handful of countries like Afghanistan, Bhutan, Burundi, North Korea, Iran, Libya and Rwanda.

A total of 161 countries, including China, have signed and ratified the Law of the Sea treaty covering the rights and responsibilities of nations at sea, from issues like navigation to pollution. China is particularly irked when the US lectures it on how to behave at sea.

China’s latest overtures have been attractive offers: US$10bil (RM319.7bil) in trade credits for Asean, US$3bil (RM9.6bil) for a new maritime cooperation fund, and efforts to boost two-way trade to US$400bil (RM1.3 trillion) this year alone.

Last Wednesday, Japan’s Foreign Minister visited Beijing, and the next day both countries jointly announced a commitment to build stronger ties. Japanese Prime Minister Yoshihiko Noda will visit China next year to mark the 40th anniversary of normalised relations.

In foreign policy, China is at a promising crossroads. This establishment has long been a small elite, founded largely on the Standing Committee Politburo of the Communist Party and the Central Military Commission, yet whose composition has been somewhat messy.

But that establishment is now more open than before, with more inputs from other actors such as diplomats, scholars, policy researchers, media, major state corporations and local governments. The Foreign Ministry may be heralding the opening of a new China, provided that foreign provocations do not force a reversal.

Current US strategy on China is multi-pronged, which Secretary of State Hillary Clinton calls “smart power”: an opportune combination of “hard” and “soft” power as coined by Harvard’s Joseph Nye.

Hard power concerns traditional power like military forces, whereas soft power covers cultural issues like mass entertainment, Peace Corps volunteers and institutions like the TPP and the Proliferation Security Initiative (PSI).

The “hard” and “soft” concepts are analogous to Chinese kung fu, whose written records of these styles go back at least 2,500 years. So China already has a head start on that.

And in kung fu, the soft style may be less obvious but more sophisticated and effective.

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The role that the US plays in Asia: Containment of China!

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The role that the US plays in Asia

Comment by XUE LITAI

SINO-US ties were in focus at the recent Asia-Pacific Economic Cooperation (Apec) summit in Honolulu and the just concluded East Asia Summit (EAS) in Bali, especially because of the European economic and political crises.

It was not a good time for US President Barack Obama to attend the EAS, given the unstable state of the American economy, and the Congressional super committee’s failure on the federal budget.

The frictions between the United States and China – from the yuan’s exchange rate to the South China Sea disputes – are nothing new. But the problem now is that the two countries seem unable to narrow their perception gap.

Obama met with Premier Wen Jiabao twice during the EAS to say that China should allow the yuan to revalue more rapidly.

At the Apec summit in Hononulu, Obama had complained to President Hu Jintao that the yuan was undervalued and said it “disadvantages American business; it disadvantages American workers. And we have said to them that this is something that has to change”.

The Chinese leaders responded that the yuan’s exchange rate was not responsible for the US’ high trade deficit with China, instead structural problems in the American economy were to blame for that.

In fact, China has been emphasising the need for a new mechanism for global economic governance to increase “the voice of emerging markets and developing economies”.

Before the summits, US officials had said countries concerned should exercise self-restraint and refrain from taking any action that could escalate or complicate the territorial disputes in the South China Sea. The US remark was directed at China, too.

But before that, Obama had issued an indirect message to China saying: “We want you to play by the rules.”

He warned that “where we see rules being broken, we’ll speak out and, in some cases, we will take action.”

Chinese leaders and people, however, think that the US dragged the South China Sea disputes, an irrelevant issue, to the EAS to fulfil its own agenda.



To them, the US’ intention is clear: It is using the South China Sea disputes to drive a wedge between China and some of its South-East Asian neighbours, which have enjoyed “20 years of steady friendship”.

It is clear that the US is desperate to engage full-time and establish its diversified presence in Asia as part of its global repositioning strategy. Washington is in the process of one of the most important transitions, that is, repositioning and rebalancing its foreign policy priorities.

To that end, it has begun shifting its resources and capabilities from the Middle East and South Asia to East Asia. Recognising that the “American future is in Asia”, the US is hell-bent on establishing a strong presence in Asia.

In the 21st century, as US Secretary of State Hillary Clinton has said, the world’s strategic and economic centre of gravity “will be Asia Pacific”. Clinton said that with the withdrawal of American forces from Iraq and Afghanistan, the US had reached a “pivot point” that should allow it to “lock in a substantially increased investment – diplomatic, economic, strategic and otherwise – in this region”.

Obama soon underscored the shift by stressing: “There is no region in the world that we consider more vital than the Asia-Pacific region; we are going to prioritise this region.”

Such a strategic calculus makes US-China ties the most important and complex relationship Washington has ever established. Thus, the US has to have constructive engagement with China.

But simultaneously, some senior US officials also consider it necessary to continue their China-containment policy. As a result, the US is using the South China Sea disputes to prevent China’s influence from advancing southward
.
Actually, Obama’s decision to attend the EAS is symbolic of Washington’s policy shift towards Asia. In other words, the US’ purpose was to use the EAS to reduce China’s influence in the region.

The Obama administration has demonstrated the US’ established policy on containment of China over the past two years.

Once, Obama even declared: “We’ve brought more enforcement actions against China over the last couple of years than had taken place in many of the preceding years.”

Probably, his declaration was aimed partly at the strategic calculations mentioned above and partly to blunt criticism of his administration by trade unions and Republican rivals, who could accuse him of not taking tougher action against China in the run-up to next year’s presidential election.

The US’ focus on Trans-Pacific Partnership could be interpreted as part of its economic strategy to compete with China’s increasing influence in the region.

In response, China has announced that it would offer its South-East Asian neighbours US$10bil (RM31.8bil) in infrastructure loans and establish a three billion yuan (RM1.5bil) fund to accelerate maritime cooperation with Asean member states.

Among the areas covered by the fund are marine research, navigation safety and combating transnational crimes. Asean member states now look to China for economic revitalisation and seek security guarantee from the US.

But such is the triangular US-China-Asean ties that only after the US and China reach greater agreement over Asia-Pacific affairs can Asean member states overcome the dilemma of choice. — China Daily/Asia News Network

> The author is a research associate at the Center for International Security and Cooperation at Stanford University in California, US.

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Longer wait for certainty and clarity - Accounting standard for property developers

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OPTIMISTICALLY CAUTIOUS By ERROL OH

Property developers, plantation firms given more time to adopt new accounting standards

PROPERTY developers and plantation players must be a relieved lot these days after the Malaysian Accounting Standards Board (MASB) recently ruled that such businesses are not obliged albeit temporarily to comply with two new accounting treatments that would have otherwise come into effect in January.

The two industries have complained that certain international accounting policies that Malaysia is supposed to adopt, ignore the way such businesses operate here and thus can be onerous and can distort the local companies' financial results.

The Real Estate and Housing Developers' Association of Malaysia, for example, has argued that the international accounting rules for recognising revenue from property development are based on the build-then-sell model of the West. However, in Asia, it's the norm for purchasers and their end financiers to pay progressively for the properties according to the stage of construction. Therefore, it makes more sense for developers to report revenue based on the percentage of completion method.

As for the Malaysian plantation companies, their contention is that their oil palm or rubber trees are comparable to a factory with its associated plant and equipment. These trees, the so-called bearer biological assets, should be valued differently from consumable biological assets such as wheat and maize.

The industry players' efforts to impress these points on the MASB has apparently been fruitful, and the board has worked to push forward these views at the regional and international levels.

On Nov 19, the board issued a new accounting framework called the Malaysian Financial Reporting Standards (MFRS), comprising standards issued by the International Accounting Standards Board (IASB) that are effective or will be effective on Jan 1 next year. This is part of the MASB's long-standing plan for convergence with the International Financial Reporting Standards (IFRSs).

However, entities that are within the scope of MFRS 141 Agriculture (MFRS 141) and IC Interpretation 15 Agreements for Construction of Real Estate (IC 15) are allowed to defer their adoption of the MFRS framework by another year.



MASB chairman Mohammad Faiz Azmi explained: “The rationale to provide the transitional period for both the agriculture and real estate industries is that, while the board is seeking full convergence, we need to be mindful of potential changes on the horizon that may change current accounting treatments. As the IASB is planning to issue a new standard on revenue recognition next year that will subsume IC 15 and may likely amend IAS 41 Agriculture (the equivalent of MFRS 141) requirements for bearer biological assets, we believe that to accommodate those affected by imminent accounting standard changes, a transitional arrangement should be given.

“Given this uncertainty, the board felt we should allow the status quo until the IASB direction is clearer. On balance, we believe this will not affect our convergence objective as the MFRS framework is fully IFRS-compliant and the transitional period given is only for a limited period and based on the IASB's own programme for standard changes.”

The MASB calls it a transitional period, but it also means there will be another year of uncertainty. And can we be sure that the IASB will sort out these things in time? Observers say it may be easier to amend IAS 41, but breaking the impasse over how developers should recognise revenue is likely to take a while.

On Nov 14, the IASB issued for public comment a revised draft standard to improve and converge the financial reporting requirements for revenue recognition. It is the second time that there is an exposure draft on this subject; the first such document was published in June 2010. IASB will be accepting comments on the current exposure draft until March 2012. After that, there will surely be months of deliberation and consultation. Is MASB being merely hopeful in expecting IASB to deliver a new standard on revenue recognition next year? And what happens meanwhile?

The plan initially was for the relevant Malaysian entities to adopt IC 15 for financial years beginning on or after July1, 2010. However, in August 2010, the MASB deferred it to January 1, 2012. At the same time, the board allowed companies to voluntarily implement IC 15 ahead of the deadline. One listed company, ATIS Corp Bhd, clashed with its auditors over a major subsidiary's decision to opt for early adoption.

Mazars, the auditors, insisted that property developers in Malaysia should stick to the percentage of completion method. With neither side willing to back down, three shareholders of ATIS requisitioned for an EGM to remove Mazars and the resolution was voted through.

This may well be an isolated episode, but asking shareholders to be pick sides in such a complex and esoteric debate was ludicrous. The corporate scene could do without a repeat of this. But when certainty and clarity are put on hold, there's always the risk of making poor decisions.

Executive editor Errol Oh wonders if it's naive to believe in the idea of one set of financial reporting standards to rule them all.