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Guest Author KPC Explains Why China’s Internet Censorship Is Proving Futile

As angry students filled the streets during the Tiananmen uprising of 1989, Communist Party officials clamored to restrict the use of photocopiers. They argued the contraptions would allow dissidents to disseminate anti-government propaganda. While a lot has changed in the interceding years—and copyphobia now seems almost charming—China’s cadres are no less adamant about neutralizing today’s technological threats to their authority. These days, Internet search engines and Web logs have become the party’s new public enemies.


The Propaganda Ministry Plays Whack-a-Mole

China is known to employ some of the most sophisticated censorship technology in the world. Authorities wield controls so precise banning mere phrases is as effortless as blocking entire Web sites. With nearly 111 million Chinese online, the government’s official stance is that it aims to protect its citizens from “dangerous” or “unhealthy” content, such as pornography. But upon closer inspection, the government has as much contempt for search results on topics including democracy, human rights, Taiwan and Tibet.

An exhaustive search for any of these terms is practically impossible using China’s beloved Baidu or other search engines complicit with Chinese censorship law. Perform a search for “Tiananmen” and you are more likely to find tourist information than potentially embarrassing historical text, a fact that has angered human rights activists worldwide.

Recently, major Western service providers have also become embroiled in the censorship controversy. In May, human rights advocacy group Amnesty International issued a stern rebuke against Google and Yahoo!, among others, for colluding with the Chinese government. Google took a public relations beating after it launched its censored version, Google.cn, and Yahoo! has come under fire for allegedly helping government officials identify Chinese journalist Shi Tao after he sent an e-mail abroad exposing China’s media restrictions. The outing of Shi landed him a 10-year prison term. Shi is one of many who have received harsh punishment for accessing or disseminating politically sensitive materials online.

China has gone to great lengths to control the flow of information on the Web. While it has focused much of its attention on search engines, government officials are equally determined to snuff out subversive Web logs or blogs. The free-flowing nature of this Internet venue makes it easy for users to spread information quickly and cost effectively, which is precisely the reason President Hu Jintao announced a crackdown on these forums in late June.

China’s assault on blogs has been threefold: utilize the same censorship controls that have been effective against search engines, issue “admittance standards,” and arrest anyone posting subversive material as a means of reprisal and intimidation. Hu has his work cut out for him. According to a study by Beijing’s Tsinghua University, China has 37 million blogs. That number is expected to nearly double by the end of the year.

What does the future hold?

For now, China is winning a slew of censorship battles, but Hu and his cronies will likely lose the war. If China is to conquer the Web, it must overcome a series of obstacles arising from an increasing number of Internet users, internal and external political pressure, and technological loopholes allowing users to bypass online censorship.

Hu endorses the Internet as an invaluable tool for business and education, and recognizes that the Net is essential if China wishes to complete with other nations. Since the Internet is here to stay, the number of Chinese who have access to its search engines, blogs and e-mail accounts will only grow with time, making it increasingly difficult for authorities to control the flow of information.

While many have decried Google and Yahoo’s cooperation with Chinese officials, some good may come from the controversy. The international community is now more aware of China’s censorship policies thanks to these high-profile cases, and activists around the world have renewed their determination to end Internet restrictions. This external political pressure is coupled with that of dissidents living within China. The Chinese masses will undoubtedly continue to flex their political muscles online despite restrictions and jail time.

Perhaps the most encouraging phenomenon is the appearance of home-grown service providers that enable the Chinese to bypass government controls. Beijing-based Maxthon routs traffic through a Web proxy, which creates a loophole allowing users access to restricted sites. Although the company downplays this functionality, word of the shortcut has spread from internet café to college dormitory, causing an explosion in the service’s popularity. In time, the party may get wise and shut Maxthon down, but there will be no shortage of loopholes.

The Communist regime may ultimately discover that censoring the Web is as futile as restricting the use of photocopiers. These counterrevolutionary machines now reside in nearly every office building, bank, school and supply shop in Beijing, and offer copies to anyone capable of pressing a button.

-KPC

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July 14, 2006 Posted by | Asia, Censorship, China, Globalisation | Leave a comment

Chicken the China, the Chinese Chicken

A Changing Tide, the Spigot is Tightened

Since hitting an all time high on May 8, the MSCI Emerging Markets Index has fallen over 20%, as inflation fears and global monetary tightening begin to mop up the loose liquidity that has helped emerging market exchanges, along with other riskier assets, achieve strong annualized gains over the past few years.

With China experiencing staggering economic growth, one would think that the Chinese Stock Markets would have been on the winning end of a several year long emerging markets run. In fact, on June 6, 2005, while many Asian markets were continuously breaking multi-year highs, the Shenzen Compositie hit a six year low, puzzling amateur investors across the globe. Possible answers to China’s equity market conundrum can be found by taking a closer look.

The Times, they are a Shenzen

The Late Bird Gets the Sub Par Market Returns

China, a late bloomer in the Capital Markets game, did not have a stock market until 1990, and not a single Chinese company was listed abroad until 1993. As of 2003 -the latest information thescreamingpen.com could muster- over 66 million Chinese citizens participate in the domestic equity markets, with only 35 companies listed as private. It is estimated that at least two thirds of the shares listed on the Shanghai and the Shenzen, China’s two largest stock markets, are owned by the government. It is apparent that investors, especially those abroad, are hesitant to invest in companies whose balance sheets, among other things, could be compromised because of government involvement.

The Reforms of 2005

Realizing that capital inflows are essential to sustainable growth, the powers that be in China undertook some important reforms in 2005, including:

  • Public listing of the “Big Four” Chinese banks on overseas exchanges
  • Selling large stakes of domestic banks to international investors, which will result in increased capital inflows and much needed international banking expertise.
  • Reform of China’s A share market, which has resulted in 1/3 of China’s A shares being tradable.
  • The removal of capital gains taxes on securities held by foreign investors
  • The issuance of sovereign “Panda Bonds”, issued in Chinese currency.

Outlook and Conclusions

With the initiation of a global tightening cycle, it is possible that China may have missed out on the latest emerging markets rally. The good news is that China’s Eleventh Five Year Plan, which began on January 1, 2006, contains many provisions that aim to reform China’s financial sector even further. Hopefully these provisions are enacted.  This would allow China to efficiently handle foreign inflows of Capital, as well as wealth created at home.  If China continues down the road of financial sector reform, it will be a much needed step on the path to possible market maturity.

*Look for an overview of the Indian Financial sector reform in the coming days.

-JPL

Links of Interest

http://www.washingtonpost.com/wp-dyn/content/article/2006/06/08/AR2006060801493.html

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June 9, 2006 Posted by | Asia, Author: JPL, China, Chinese Stocks, Corruption, Emerging Markets, Globalisation, Investing, Politics, World Markets | 1 Comment

Dude, Where’s My W-2?

Let me tell you how it will be;
There’s one for you, nineteen for me.
‘Cause I’m the taxman,
Yeah, I’m the taxman.

-The Beatles

 

A Possible Impetus For Change

Last fall, the international media focused much of its attention on European elections that promised to shake up the old European order. For those seeking real economic change in the form of market liberalization, those elections were partial letdowns. For instance, many analysts believe that a clear-cut Merkel victory in Germany could have provided the impetus necessary for much needed economic reform and market liberalization in other Western European countries. Following the formation of a grand coalition in Germany, it appears that constant compromise may prevent Angela Merkel, the new Chancellor of Germany, from carrying out her intended reforms. It is also uncertain what direction Poland’s newly elected center right coalition government will take the country. Before coming to the conclusion that all hope is lost regarding Western European change, one must consider an economic force that has been slowly moving westward, originating in the tiny nation of Estonia. The flat tax, which applies a constant rate of taxation, is exerting economic pressure in the form of tax competition on the high tax economies of Western Europe, slowly forcing economic change in those countries.

Reactionary Yet Opportunistic

From a historical perspective, it is interesting that many of the countries who have enacted constant rates are ex-communist nations who have voluntarily moved in the opposite direction of Soviet central planning, the failed communist system that attempted to control every aspect of economic activity. Much like the iron curtain before it, the flat tax movement and free market values are slowly moving westward, with Greece facing a crucial decision this year regarding the adoption of a 25% flat tax. In the recent Polish election, the pro flat tax Civic Platform Party came in a close second, and will now share power with the victorious Law and Justice party. In Germany, the early election campaign of Angela Merkel featured a proposed finance minister who was an outspoken supporter of a flat tax. Unlike the spread of communism, however, the flat tax movement is being voluntarily implemented.

Mail Order Brides are no Longer Estonia’s Chief Export

 

The flat tax system, which uses a single tax rate that is applied to wage earners and corporations that begins taxing after a certain income threshold is reached, has been successful in several nations beginning in 1994, when Estonia introduced a 24% tax rate. By attracting business from abroad, Estonia’s economy grew at double digits in 1997, and has averaged about 6% GDP growth per year since. Russia, a nation whose complicated tax code caused widespread evasion, instituted a flat tax in 2001. It is estimated that in the years leading up to the 2001 flat tax, Russia’s biggest corporations ignored 29% of their tax obligations, while 63% substituted goods or services instead of hard currency. This made Russia susceptible to debt defaults as their coffers reached record lows. In 1998 Russian government revenues were 12.4% of GDP. By implementing a simplified tax code, Russia eliminated loopholes and increased its revenues in real terms by 28% in 2001, 21% in 2002, and 31% in 2004.

Opponents of a flat tax, who believe that a flat tax is meant to line the pockets of the rich and will result in lower government revenues, fail to realize that flat tax systems do not tax earners below a certain threshold, allowing the poorest workers to be exempt from taxes. The revenue question is answered by looking at Russia, a nation who learned that the best way to get higher revenues is to give people more incentive to report their taxes by keeping tax rates low. Ideally, a low tax rate would result in more wealth creation, which could generate even greater revenue. Remember, the examples cited in this article are from countries that had an insanely restrictive, command style tax code. The flat tax is also making Western Europe increasingly uncompetitive, as businesses and investment dollars flow into Eastern Europe.

Implications

In response to widespread eastern European acceptance of a flat tax, Western Europe is beginning to consider tax reform. According to the Economist, Germany has already made plans to cut its corporate tax rate from 25% to 19%, and the in Britain, the Opposition Conservatives announced on September 7, that they would set up a panel to study a flat tax proposal. As investment dollars and businesses continue to flock to Eastern Europe from Western Europe, it will be increasingly apparent to Western Europe that in order to maintain its standard of living, it will need to make radical changes in its tax policy.

Conclusions

It will be interesting to see how the Western European nations deal with tax competition from the east. It is apparent that the increasingly uncompetitive Western European nations will need to modernize their economies in order to compete. It will also be interesting to see how the continued success of an Eastern European flat tax effects the current tax situation in America, where our own tax code has broken the nine million word mark.

-JPL

Links of Interest

http://www.washingtonpost.com/wp-dyn/content/article/2006/05/31/AR2006053102043.html

 

May 31, 2006 Posted by | Author: JPL, Emerging Markets, Europe, Flat Tax, Germany, Globalisation, Politics, Russia, Unemployment, World Markets | 16 Comments

Cours, camarade, le vieux monde est derrière toi !

On the Anniversary of a Riot

On May 17, 1968, a general strike paralyzed France. Started by angry students at Paris’ Sorbonne, the powerful French Labor unions eventually joined, resulting in millions of French workers walking out of work demanding economic and social change. A week later, on May 24 1968, radical students raised a red flag over the Paris Stock Exchange and threatened to burn it to the ground. Eventually, Prime Minister Pompidou negotiated with prominent Union leaders and appeased the students by passing legislation that improved education funding and guaranteed minimum working conditions. French politicians, eager to please their constitutents and afraid of radical rabble rousers, passed increasingly socialist legislation in the following years that created an almost unpenetrable labor market for outsiders, strict hiring and firing laws, high costs for employers, and near ten percent unemployment. Although some good came out of changes brought on after the 1968 riots, the employment situation caused by socialist French employment policies has resulted in a nation in dire need of labor market liberalization. We will evidence this by adding context and perspective to two subsequent riots, those that took place in Fall of 2005, and the most recent riots related to Chirac’s CPE.

When thrown, stale baguettes make surprisingly effective projectiles
Fast Forward

Initially incited by the accidental death of a muslim youth, the riots that shook France in the Fall of 2005 lasted over twenty days, as disaffected muslim youth in the suburbs of Paris burnt cars and businesses. Seen as a threat to the French secular model, French muslims of North African descent face discrimination in an almost impenetrable workplace. Unemployment among native born French university graduates of North African origin is estimated by the BBC to be 26.5%, compared to white graduates’ 5%. According to BBC, “a French non-profit group said that after they sent identical curriculum vitaes (CVs) to French companies with European- and African or Muslim-sounding names attached, they found CVs with African or Muslim sounding names were systematically discarded. In addition, they have claimed widespread use of markings indicating ethnicity in employers’ databases and that discrimination is more widespread for those with college degrees than for those without.” It is evident that the riots that gripped France in the Fall of 2005 were the result of an unemployed, disenfranchised population who were fed up with their treatment at the hands of the society that has failed them.

When clowns cry

The CPE

In an attempt to liberalize the choked up French employment situation, Prime Minister Dominique De Villepin proposed the CPE, an amendment that attempted to tackle double digit unemployment. In France, after you are hired by a company, it is almost impossible to be let go, barring factors such as being violent on the job. This makes it extremely hard to fire incompetent workers or those not suited for the position, causing employers to be reluctant to hire. The CPE’s most controversial element was that it allowed workers under the age of 26, or who have been there less than two years, to be let go if the employer did not think they were right for the position for whatever reason. The proposal of the CPE was met by riots and protests as over three million demonstrated on April 4, 2006. The CPE was withdrawn on April 10, 2006.

Let them eat brie

Conclusions

It is apparent that employment has been a contentious issue among the French for the past few decades. The riots in 1968 helped bring about the socialist employment practices that have been partly responsible for the high unemployment rate today due to employer’s reluctance to hire new workers. It is also apparent that the French muslim underclass, who are discriminated against in the workplace, desperately need measures such as the CPE to be passed in order for their condition to be improved, as a loosening of hiring restrictions would allow them to prove themselves as equals in the workplace. The mostly white protesters that were protesting the CPE could have been doing so in an attempt to retain their status in a country that is increasingly threatened by the pressure of globalisation, something that will eventually cause the French to modernize or face serious economic and social consequences.

-JPL

May 18, 2006 Posted by | Author: JPL, Europe, France, Globalisation, Uncategorized, Unemployment | 1 Comment