The body of a student found in the rubble in Dujiangyan, Sichuan province, China.

Natural disasters have political consequences.

If George W. Bush had handled the Hurricane Katrina aftermath in 2005 as well as China's leadership thus far has reacted to its far more deadly earthquake, he would be more popular and could have finished his second term with greater achievements on other fronts.

Tempting as it is to judge China's response as further evidence of the country's unstoppable rise, it is a reminder of Chinese fragility. What lurks beneath the firm surface of accomplishment are growing economic, social and environmental shifts that might threaten the country's single-party, technocratic leadership.

Put simply, incompetent federal and local officials' bungling of the Hurricane Katrina relief plans posed no danger to America's system of government. Autocratic Chinese authorities have more at stake as their legitimacy derives not from popular vote but from performance and a monopoly on political power. For all its leaps into modernity, China remains a country where hundreds of millions see divine damnation for their leaders in natural disasters.

Though fading, this notion of ``the Mandate of Heaven'' has supported rulers from the Zhou Dynasty in 1000 B.C. through China's last Qing Dynasty, which ended in 1912. Term limits came in the form of severe floods, famines or earthquakes that expressed heaven's displeasure. The events, in turn, sparked large-scale organized rebellions that resulted in overthrows.

Even Communist Party diehards wondered whether there wasn't some link between Mao Zedong's death and the 1976 earthquake that shortly preceded it, killing 250,000.

Suited to the Task

The current government didn't need superstition to comprehend the stakes in the May 12 earthquake, which left about 70,000 people dead or missing. With inflation accelerating, air- and-water quality worsening, and the gap between coastal rich and inland poor growing, a natural disaster of this magnitude could have touched off political unrest.

This was, however, precisely the sort of crisis that best suits the leadership of President Hu Jintao and Premier Wen Jiabao. Since taking power in 2002, Hu's administration has won respect for its skill. Deng Xiaoping from 1978 to 1993 focused on pulling China out of political isolation and underdevelopment. Jiang Zemin from 1993 to 2003 accelerated economic growth.

Yet it has been left to Hu to balance this wildly successful economic engine with social, legal and political measures that might bridge gaping economic and social divides while maintaining the Communist Party's primary interest of continuing its reign indefinitely.

More Democracy

The government's performance in the last week shouldn't alter anyone's conviction that a more complex and capitalist China must have more democratic evolution or even revolution. It also underscores why the Communist Party continues to befuddle those who don't believe it can ride the tiger it has created.

Within hours of the initial quake, China's local and central government, its police and military, and its mobilized citizenry joined in a rapid response of a scale and sophistication on par with the highest international standards.

The Chinese military's response surprised many Western analysts -- who busy themselves counting missiles and submarines -- with its impressive advances in training, equipment and flexibility for new operational contingencies. If China had the political will, it now has the capability to work alongside the U.S. and others after the Myanmar cyclone to break the junta's blood-stained intransigence and save tens of thousands of lives.

National Maturing

China also demonstrated how far its markets, banking system and corporate management have matured. The quake happened at 2:28 p.m., and by 8 a.m. the next day financial markets suspended trading on 66 companies whose major assets and productive capacities were in the quake zone. Companies quickly diverted supply chains, and national and regional banks kept capital flowing to the public, relief agencies and workers. Energy and construction firms donated their work and labor to quickly begin repair and replacement of critical infrastructure.

Finally, though China's autocratic government instituted a near-total media blackout around Tibet's recent violence, it opened the floodgates of press freedom this time. Explanation: The party saw a chance to advance its image as protector of the people and purveyor of national will.

Wen acted more like New York Mayor Rudy Giuliani did after Sept. 11, not like an apparatchik, while organizing the rescue of 300 students in Juyuan near the quake's epicenter amid state media cooing over his selfless leadership. Though he cut his arm while falling in the school's rubble, he refused medical assistance and shouted to the children buried inside: ``I am Grandpa Wen Jiabao. Children, you have to hold on, and you will be saved.'' As bodies of several dead children were lifted from the rubble, he vowed that the government would save every life possible.

System's Strengths

That said, parts of the public may wonder how such caring leaders allowed ramshackle building standards that worsened the devastation. Some of the greatest casualties came in newer structures, a product of an overheating economy where inadequate construction oversight and corruption probably led builders to cut corners to maximize profit.

China is likely over time to go in the direction of other East Asian countries, where economic growth, a larger middle class and greater security prepared the ground for democratic change. The past week's crisis would seem to underscore the strength of the current system, but its own structural weaknesses will grow more obvious as economic and social friction builds.

 

Frederick Kempe is president and CEO of the Atlantic CouncilOriginally published 20 May 2008 by  Bloomberg News. Reprinted with permission.

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NATO is winning most battles in Afghanistan, but the international community is losing the war.That has consequences far beyond Afghanistan if the U.S., Europe and its friends don't change course fast. The dangers include deepening of regional instability that engulfs nuclear- tipped Pakistan, spreading global terrorism and the declining relevance of the North Atlantic Treaty Organization, the most- effective security alliance we have.

So as the U.S. enters a crucial phase in the process of picking presidential candidates, voters should think about which nominee would have the skills to deal with a distant place like Afghanistan. When the U.S. beauty contest is over, the winner will fail in office if he or she can't manage the sorts of challenges posed by Afghanistan.

The country defies military solution, yet needs more skilled soldiers and civilian rebuilders. It necessitates both urgent action and long-term commitment -- in this case, at least 10 years. The job can't be done without regional solutions, but that requires dealing with a hostile Iran and providing tougher love to allied leaders such as Pakistan's Pervez Musharraf and Afghanistan's Hamid Karzai, whose reluctance to tackle the most pressing of their problems stands in the way of success.

It will also take enormous diplomatic skill to forge consensus under a United Nations high commissioner to make sense of the disjointed relief and reconstruction work. There are 60 countries working inside the country, including some 37 that are providing troops.

Narco-Economy Grows

U.S. Secretary of State Condoleezza Rice is in London this week meeting with U.K. Prime Minister Gordon Brown and Foreign Secretary David Miliband trying to find a new candidate for super-envoy to coordinate the efforts after Karzai vetoed Paddy Ashdown, a man whose skills were proven in the Balkans.

Meanwhile, Karzai's failing reach throughout the country, rampant official corruption and insufficient international resolve has left Afghanistan with a dysfunctional judicial system and police force. That makes it all but impossible to stop the spreading narco-economy that fuels the reinvigorated insurgency.

There is some good news: Afghanis have put into place one of the most progressive constitutions in the Islamic world. More than 10 million people have voted in the nation's free presidential elections, and 2 million girls who until recently were banned from schools are now getting an education. It is also encouraging that the foreign troops operating in Afghanistan were invited and remain popular with most Afghanis, a striking exception in the country's history.

Terror Transfers

Yet the situation is worsening. Afghanistan now accounts for 93 percent of the world's opium production, and the illicit- drug industry makes up some 40 percent of Afghanistan's $8 billion economy.

Suicide bombings and the use of improvised explosive devices have soared, underscoring a probable transfer of technology and tactics from Iraq to Afghanistan. The Taliban has regrouped and re-energized after a period of weakness up to 2005, forming what Admiral Michael Mullen, the chairman of the Joint Chiefs, has called a ``classic growing insurgency.''

Meanwhile, allied countries dither over the number of troops they will send and what they would be allowed to do. Defense ministers will meet in Lithuania this week to consider an appeal to add 7,500 soldiers to the 40,000 already there. Canada is threatening to pull out 2,500 troops if they don't get reinforcements, and the U.S. wants Germany to send additional forces to the restive south from their safer northern bases.

A new report by the Atlantic Council (the organization I run) was one of three introduced in Congress last week by Democratic Senator John Kerry and Republican Senator Norm Coleman, underscoring an emerging bipartisan consensus.

Civilians Needed

First, the report sizes up what's needed for corrective action, stressing that the situation won't wait for a new administration.

Second, the international community, which is doing so much for Karzai, must insist on a super-envoy to coordinate efforts in Afghanistan. NATO will suffer if Afghanistan fails, but only civilian efforts can bring success.

What must follow is a comprehensive plan of military and civilian steps under this individual -- including a regional conference that includes India, Iran, Pakistan and even the Shanghai Cooperation Organization, of which Russia and China are members, bringing that organization into its first talks with NATO. Without that, we can't deal with Pakistan's terrorist breeding grounds or cut off border routes for the drug trade.

The priority within that plan must be a stepped-up counter- narcotics effort. There is no perfect fix, but any plan will require the Afghan government and the international community to embrace an approach that combines development and enforcement.

`Classic Mistake'

In some regions, it may make sense to buy the crop. In others, where cooperation is lacking, eradication could be the right approach. In all cases, one has to target distributors and laboratories and clean up the courts and police.

Kerry put it best last week: ``Today we risk repeating the classic mistake that dooms many counterinsurgencies: a failure to appreciate the difference between tactical success and a winning strategy. The fatal consequence, all too familiar to those of us who lived through Vietnam, is that you can win every battle, but fail to win the war.''

 

Frederick Kempe is president and CEO of the Atlantic CouncilOriginally published 5 February 2008 by  Bloomberg News. Reprinted with permission.

Soverign Wealth Funds

It's good and bad that the issue of sovereign wealth funds has entered the U.S. presidential debate.

What's positive is that the candidates have the chance to educate the American electorate during a moment of mounting economic gloom -- and while people are paying attention -- about the increased role that foreign capital plays in creating U.S. jobs and growth.

While they are at it, the candidates might also tell voters that without SWF investments of almost $70 billion in financial institutions over the past few weeks the banking crisis, stock- market retreat and risk of recession would be much worse.

Unfortunately, the bad side of SWFs entering the electoral debate is more likely: a further spread of ill-informed, protectionist populism that wins votes and boosts television ratings, but doesn't wake up Americans to the greater danger that these funds might shun U.S. markets.

``The U.S. can benefit from these flows generally and in regard to financial institutions at the moment in particular,'' says Robert M. Kimmitt, the deputy secretary of the Treasury. He says the benefit of SWFs is ``they have been patient, long-term investors who are essentially placing a bet now even though the expected return will come in a number of years.''

For the uninitiated, SWFs, of which there are about 40, are giant pools of capital controlled by governments and invested in private markets. For all the attention they get, they are just one of four sovereign investment sources that include international currency reserves, state-owned enterprises and public-pension funds.

Growth Rate

It's their growth curve that has won global attention, and they are poised to quadruple in value from $3 trillion now to $12 trillion by 2015, equal to the capitalization of the Standard & Poor's 500 Index. Morgan Stanley predicts the funds will have assets of $28 trillion by 2022, more than double the size of the U.S. economy today. That ensures their investment decisions will move markets and shape the financial system.

An important article by Treasury's Kimmitt in the newest issue of Foreign Affairs lays out a policy approach that boils down to this: voluntary multilateral agreements that ensure the West resists protectionism while the SWFs get more transparent and don't let politics drive their investments.

Such a reasonable approach won't be easy in a political season.

`Hat in Hand'

In last week's U.S. Democratic presidential debate, moderator Brian Williams of the NBC Nightly News put his question this way to Senator Hillary Clinton: ``Citigroup and Merrill Lynch have both gone overseas, as some put it, hat in hand, looking for $20 billion in investment to stay afloat.'' He noted the potential saviors included Saudi Prince Alwaleed bin Talal, whose money former New York Mayor Rudolph Giuliani turned down after Sept. 11. ``Does this strike you as fundamentally wrong, that much foreign ownership of American flagship brands?'' he asked.

In his follow-up question to John Edwards he noted that one of those bailing out U.S. banks was the Kuwaiti government, ``afloat itself today, as you know, thanks to the blood, sweat and tears of American soldiers.'' It was as if he were suggesting Kuwait, in return for U.S. intervention that rescued the country from Saddam Hussein in 1991, should invest somewhere other than America.

The three candidates explained that SWF growth resulted from high energy prices and Asian trade surpluses, but then dodged any helpful ideas for dealing with the results.

Multiplying Problems

What they should have said was:

-- Our economic problems will multiply without foreign investment and our continued openness toward it. International purchases of Treasuries not only help finance our national debt, but foreign-owned businesses employ some 5 percent of the U.S. workforce and account for almost 6 percent of output, 20 percent of U.S. exports, and 10 percent of all U.S. investment in plant and equipment. Beyond that, overseas companies pay wages 30 percent higher on average than their U.S. counterparts.

-- SWFs are another sign of the dramatic structural shift sweeping the global economy that we can shape but not reverse. The U.S. share of world output will continue to decline, as will its portion of annual global growth. And that's for the best as billions of people embrace capitalism and global markets. If we can keep attracting foreign capital and access global markets, we'll continue to lead.

-- We still must press for global policy responses to avoid abuse. Unilateral action won't work, whether by us or our European friends. We should push for voluntary multilateral agreements that already are in the works.

Drafting Rules

For countries receiving foreign government-controlled investment, the Organization for Economic Cooperation and Development is working to codify best practices that would keep the West's investment regimes open while treating all investors equally.

The International Monetary Fund, with help from the World Bank, is drafting a best practices regimen for SWFs that would increase transparency, accountability and public disclosure. ``Even long-standing SWFs are aware that the increase in the number and size of these funds has, rightly or wrongly, raised reputational issues for them,'' Kimmitt says.

It's a simple deal, really: The West resists protectionist temptations and the new SWFs resist political ones. Executing it will be the hard part, and U.S. presidential politics probably won't help.

 

Frederick Kempe is president and CEO of the Atlantic CouncilOriginally published 22 January 2008 by  Bloomberg News. Reprinted with permission.

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