CAPP Newsletter : July 2007
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July 2007 Table of Contents
RAND’s work on Asia continues to build on our established China and Korea businesses, with a very strong effort to develop relationships and consulting business in India. A lengthy marketing effort by Julie Kim and her colleagues led to RAND’s being hired by the Tianjin Binhai New Area (TBNA) to develop a plan for turning the area into a regional science and technology hub. TBNA is the successor to China’s two previously developed super-cities, Shenzhen (north of Hong Kong) and Pudong (across the river from old Shanghai).
Susan Everingham and I took a RAND team to Chongqing and Changsha to see whether we could build on the TBNA research to develop related projects in those cities. The central government is pouring resources into these cities and thire surrounding provinces and the health and infrastructure problems they face would be appropriate subjects for RAND’s core expertise in those issue areas.
Scot Tanner published a new RAND book on whether multiplying Taiwan-mainland economic ties give China political leverage over Taiwan. (Murray Scot Tanner , "Chinese Economic Coercion Against Taiwan: A Tricky Weapon to Use") Short answer: not much. Roger Cliff published a military analysis of China’s strategies for limiting U.S. access to key areas in the event of conflict. ( Roger Cliff , "Entering the Dragon's Lair: Chinese Antiaccess Strategies and Their Implications for the United States")
Evan Medeiros has been seconded to work for a year on Treasury Secretary Paulsen’s Strategic Economic Dialogue with China. Given the conflicting pressures on that important process, we hope that when he returns to RAND he won’t have too many scars.
With generous support from Ratan Tata, RAND began an analysis of what contributions it could make to India’s development. Jerry Green and Dick Neu made several trips to India, interviewing a wide range of leading public and private sector executives.
A number of new Advisory Board members joined CAPP in recent months. Chung Mongjoon heads Hyundai and serves on the foreign affairs committee of Korea’s National Assembly. W. Rory Hume is Provost of the University of California.
Supported by Ming Hsieh, we had a lively Advisory Board meeting in Beijing, including a morning of discussions with Chinese CEOs and a bus ride to the Tianjin Binhai New Area that taught us the enervating lesson never to plan to get anywhere promptly in Chinese traffic.
Sincerely,
Bill Overholt
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CAPP in the News
Senior Economic Adviser and Corporate Fellow in International Economics
Researcher Spotlight | May 18, 2007
Charles Wolf Jr. received the Order of the Rising Sun, Gold Rays with Neck Ribbon on May 11 from the government of Japan, in recognition for his many years of work on Japan. The two-part ceremony took place at the Foreign Ministry office in Tokyo and the Imperial Palace, where there was a reception with Emperor Akihito.
Paradoxes: Liberal...Conservative...Go Figure
by Charles Wolf, Jr. | Milken Institute, March 26, 2007
One of the few matters that Democrats and Republicans apparently agree on these days is the use of “liberal” and “conservative” as shorthand for the political left and right, respectively. This is ironic since the economic policies associated with these groups are the mirror images of what they stand for in the rest of the world. The sharpest contrast is in China and Russia, which are both struggling to manage a transition from highly centralized planned economies to market–driven ones as discussed in this commentary by Charles Wolf, Jr. for the Milken Institute Review .
Unknown Education Revolution
by Naveen Mandava | Mint , March 7, 2007
The massive expansion of private primary schooling across India may be a harbinger of the Unknown Indian Education Revolution as reflected by more than 80% of government–school teachers sending their own children to a private school. When government teachers don’t trust government schools with their own children, it’s time to recognize that this is not a path–breaking exception but part of a mainstream, silent and telling revolt against the poor performance of government schools as discussed by Naveen Mandava in a commentary for Mint .
Central Asia´s Great Game
by F. Stephen Larrabee | United Press International , Mar. 5, 2007
The recent election of the former deputy prime minister and health minister, Gurbanguly Berdymukhammedov, as president of Turkmenistan could have a profound influence on events far from the remote Central Asian nation. With one of the largest natural gas reserves in the world, Moscow, Beijing, Washington and many European capitals will be watching closely to see what policies Berdymukhammedov will pursue, as discussed by F. Stephen Larrabee in a commentary for the United Press International .
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CAPP News and Events
Chairman Su-Hoon Lee of the Presidential Committee on Northeast Cooperation Initiative Visits RAND
July 2, 2007
CAPP hosted Mr. Su-Hoon Lee, the politically-appointed chairman of the Presidential Committee on Northeast Cooperation Initiative. The chairman was accompanied by fellow, committee member Lee Jeong Gwan and Consul Sangjin Park from the Korean Consulate. RAND participants included Bruce Bennett, Susan Everingham, Eric Larson, Kumiko Okazaki, Bill Overholt and Charles Wolf, Jr.
Mr. Lee wanted to know RAND’s assessment on the North Korean nuclear issue and the current US-Republic of Korea (ROK) alliance. Bill Overholt led the discussion by saying that we had recently broken out of a patter where Pyongyangwas determined to escalate until it got the attention of Washington (regarding its demand for recognition and security) and Washington was determined to escalate until it got the attention of Pyongyang (regarding its opposition nuclear proliferation). The agreement has problems and risks, but breaking out of this vicious circle was quite valuable. On the alliance, he said that different views of proper strategy toward North Korea together with the current administration’s heavy reliance on Japan poses problems for South Korea.
Addressing the nuclear issue, Bruce Bennett said the North Korean strategy is to deny outsiders information and this makes it virtually impossible to know the full extent of their nuclear weapons program. He said A. Q. Khan was shown three nuclear weapons in the early 1990s. In his assessment, they probably had more nuclear weapons at another site. He said these weapons were probably made from external sources possibly given to them by a foreign state.
Mr. Lee said South Korea no longer refers to North Korea’s nuclear program as HEU (highly enriched uranium), but as UEP (uranium erichment program), because the enrichment is believed to be of low quality. South Korea does not believe North Korea’s nuclear program is as advanced as many think.
Bruce went on to address Mr. Lee’s question regarding the US-ROK alliance. He said the question from the U.S. perspective is why the ROK does not pick up a larger portion of the defense cost of moving fully-equipped soldiers from the US to the Korean peninsula. Currently, the US contributes $60 billion to the ROK’s 22 trillion won. Mr. Lee said they had cleaned up a lot of issues in the alliance over the last four years - to include adjusting their position under a new U.S. global strategy. He said the US appreciated ROK moving 2nd Infantry Division away from the border and relocating US Forces from Yongsan to Pyongtaek (Camp Humphries). This was difficult, but they did it. Mr. Lee said that South Korea is the number three contributor of forces in the Iraq war. He also said the OPCOM transfer will take place in April 2012, even if an opposition party wins the elections in South Korea. In his personal opinion, the US-ROK alliance has evolved one step up.
Mr. Lee wanted to know if the US position toward North Korea would change if Democrats won power. Eric Larson, supported by the other RAND participants, said there are hardliners within both parties, so it would be difficult to assess. In fact, the Clinton administration initially took a much tougher line on North Korea than the Bush administration.
CAPP Hosts Discussion on North Korea
May 3, 2007
On May 3, the RAND Center for Asia Pacific Policy (CAPP) hosted Dr. Won Bae Kim, Director of the Northeast Asia Regional Development Center of Korea Research Institute for Human Settlements in Dongan-gu, Korea. Dr. Kim requested the meeting to discuss infrastructure building and economic development assistance to the Democratic People’s Republic of Korea. His presentation, “Approaches and Design of Infrastructure Development in North Korea,” described an ambitious vision for development of the North Korean economy and led to a broader discussion about vision and potential challenges to its achievement, with Bruce Bennett, Eric Larson and Charles Wolf, Jr., and Pardee Graduate School fellows Elizabeth Brown and Sarah Gaillot.
Former Ambassador Donald Gregg Discusses US-Korea Relations
April 26, 2007
CAPP invited former Ambassador Donald Gregg to give an off-record account of his recent discussions on US-Korea relations. Mr. Gregg was accompanied by the newly appointed president of The Korea Society, Mr. Evans J.R. Revere and his wife, Micah. Bill Overholt started the meeting with a brief introduction of Mr. Gregg, highlighting both his professional accomplishments and personal experiences with him. Mr. Gregg then discussed his recent meetings with senior ranking officials in North Korea, in which the general consensus was the need for a strategic relationship with the US. Mr. Revere also agreed this was the central theme in most of North Korea’s dialogue in ’98, ’99 and ’00. At present, he was concerned with the lack of dialogue between the current administration and North Korea.
At the conclusion of the meeting, there was an exchange between Mr. Gregg, Mr. Revere and various RANDites on the best way to deal with the North Korean government. All agreed that dialogue was important, but there was a difference of opinion on engagement. Specifically, some participants argued it was important not to reward bad behavior. RAND participants included Charles Wolf, Dick Neu, Rachel Swanger, Brian Chow and Yong Kang.
CAPP Welcomes the Korea-U.S. Journalism Exchange
April 20, 2007
On April 20, Charles Wolf welcomed a delegation of ten South Korean journalists as part of the annual Korea-U.S. Journalism Exchange, an event which is sponsored by the East-West Center (EWC) of Honolulu and the Pacific Century Institute. The journalists were particularly interested in RAND’s assessment of ongoing developments on the Korean peninsula and North Korea’s recent missile test. Charles led the discussion with his collaborative work on a North Korean moderization project, which analyzes alternative ways to do economic, political, security, social and cultural reforms in order to modernize the north. The journalists wanted to know about the potential fallout from potential collapse of the North Korea system. Charles said his collaborative group, which consists of members from South Korean, Japan, Russian and Chinese think tanks, have designed measures to keep the economy and society functioning in the event of a Kim regime collapse. Going along with this theme, Bruce Bennett said he had a conversation with a American businessman of North Korean descent who was interested in doing a study on turning the Kim family into a constitutional monarchy, something similar to the model used in Great Britian.
Addressing the delegation’s question on North Korea’s missile test, Bruce said he would give it two scores. North Korea told China it would launch a 100 kiloton missile and it only achieved a tenth of that. However, they did test something that could be considered expendable and therefore perfect for brinkmanship in a political escalation context, he said.
Bruce went on to discuss the recent demands of South Korea. He said the South Korean defense minister requested an enhanced nuclear umbrella from the US. However, he wanted to know why South Korea does not focus on deterrence. Currently, South Korea has a policy of retaliation, which means it would suffer great losses before it reacts against NK agression, he said.
The meeting concluded with Susan Kreifels, the Media Activities Coordinator of EWC, expressing gratitude for RAND’s participation in the exchange. Other RAND participants included Kumiko Okazaki and Yong Kang.
Korean National Defense University Professors visit RAND
February 9, 2007
Dr. Seok-Soo Lee and Dr. Choi Chun from the Korea National Defense University (KNDU) visited RAND on Feb. 9 to discuss recent developments on the Korean Peninsula and the North Korean Proliferation issue. Both professors are part of the university’s graduate school of security studies. Mr. Hong Kyoo Kim from the South Korean consulate in Los Angeles also accompanied the professors for this visit.
Dr. Lee was particularly interested in RAND’s forecasting techniques. Bill Overholt led the discussion highlighting RAND’s modeling and scenario-based approach. He offered various scenarios for Asia, including a new cold war, reversal of alliances, and a collapse of globalization. For the modeling approaches, Charles Wolf gave examples of gaming, regression model and exploratory analysis scenarios that could be used during a North Korean crisis. Bruce Bennett also provided various North Korean regime scenarios that included absorption versus partitioning from South Korea.
The meeting concluded with Dr. Lee mentioning future collaboration with RAND.
CAPP Hosts CICIR Delegation
December 8, 2006
CAPP held a roundtable discussion with North Korean experts from the China Institutes of International Relations (CICIR) on Dec. 8. The CICIR delegation comprised of Ji Zhiye, CICIR Vice President; Yuan Peng, Deputy Director, CICIR Institute of American Studies; Qi Baoliang, Director, Division for Korean Peninsula Studies; Li Xin, Deputy Director, CICIR Department of International Exchanges; Chen Xiangyang, Assistant Professor, Division for Korean Peninsula Studies. Bill Overholt, Director of the RAND Center for Asia Pacific Policy, led the panel discussion with an introduction to staff members and a RAND overview.
The delegation wanted to know the U.S. foreign policy implications of Democrats’ control over Congress, particularly with regard to the release of the Iraq Study Group Report and the recent North Korean nuclear launch. Bill Overholt addressed the Iraq Report portion of their question. He said there is a broad consensus that if the US pulled out of Iraq completely, there would be chaos. He also said there was confusion over any plausible options without dire consequences in Iraq. The ideal scenario would be for the U.S. administration to cooperate with Russia and Iran and everyone agreed that stability in Afghanistan was key to keeping peace. Bill added that the Iraq war will limit U.S. attention to foreign policy in Asia. However, this could lead to the U.S. administration opening dialogue with countries with which they had previously severed ties.
Bruce Bennett, RAND’s Senior Defense Analyst, said the financial pressure on North Korea is substantial and could explain their launch of seven ballistic missiles in July. He said that Kim Jong-Il is anxious to resolve the financial sanctions.
The Chinese said the US had agreed to limit financial sanctions against North Korea on Oct. 31, at which point, North Korea agreed to resume six-party talks. However, in November, the U.S. administration changed its position on limiting sanctions. The delegation was perplexed about why the U.S. administration changed its position on limiting financial sanctions against North Korea in less than a month. They said there had been speculation it was a political move due to U.S. elections. Charles Wolf, Senior Economic Adviser, said Secretary Chris Hill was not making any concessions during his Oct. 31 meeting. Secretary Hill said financial sanctions would be discussed, not conceded.
During CICIR’s recent visits to the National Security Council and the U.S. State Department, the Chinese delegation said the Americans seemed to have an impression that the responsibility for North Korea was in China’s hands. Bottom line, “China should get North Korea to accept what the US wants.” He said this is confusing. One of the major changes that have taken place in Northeast Asia, since the Cold War is that North Korea is completely isolated. China and Russia have honored their commitment of normalizing diplomatic relations with South Korea. However, the US and Japan have not normalized relations with North Korea. One member also added that North Korea has launched a series of missiles to attract the attention of the US. Since 2002, North Korea has left space for the US to respond to its missile launches. On Oct. 3, North Korea waited six days for a US response. On Oct. 9, they launched again after the US did nothing. He believes North Korea wants to complete its negotiations within the six-party talks bilaterally with the US. He said the US should deal with the North Korea nuclear issue by providing a package that would explain the dismantlement process within the six-party talks framework.
Charles asked CICIR about passing along suggested peaceful modernization measures to North Korean officials. He said it was a collaborative initiative that was presented during the China Reform Forum that encompassed political, economic and military modernization efforts to maintain stability in North Korea. The CICIR delegation said that China likes the idea of constructive suggestions, but the Chinese never tell Kim Jong-Il “what to do” or “what he should do.” The Chinese method is to allow Kim Jong Il to see for himself. If you tell him what to do, he will naturally find plots behind your attempts. China invited Kim to one of their poorest cities to show him the positive outcome of reforms, but did not tell him what he should do. This is the difference between the US and China&rsdquo;s tactics in delivering messages to North Korea, he stated.
RAND and CICIR agreed to explore ways to institutionalize regular meetings.
NDRC Visits RAND
December 7, 2006
The National Development Research Council (NDRC), a central economic planning agency for China, visited on Dec. 7 to learn more about RAND’s organization and capabilities. The council was hosted by Jim Hosek, who provided a RAND overview and human resource strategy presentation. As part of the overview discussion, Jim explained the budget breakdown of federal, state, local and donor funds. He also explained RAND’s process of choosing which policy question to answer. The council had a question on RAND’s economic focus. Jim said that RAND’s emphasis was more on microeconomics than macroeconomics. He also mentioned some of RAND’s famous researchers, including Nobel Prize winning economists.
China South Industries Group Corporation Seek HR Advice
November 20, 2006
A 23-member delegation from the China South Industries Group (CSIG) corporation visited RAND on Nov. 20 for a discussion on innovative, human resource management techniques. The group led by Mr. Jian Zhou, the director of CSIG’s HR department, received a RAND overview from Bill Overholt and an HR strategy presentation from Jim Hosek. Jim broke the presentation into six main categories: hiring, retaining, developing, motivating, sorting and separation. He highlighted the importance of aligning the personnel aspect with corporate vision and goals.
The presentation concluded with a Q & A session that included discussions of a recent military recruiting study, good examples of employee incentatives, treatment of executive versus engineering staff, new versus old employees, pay compression and evaluating employee performance.
Delegation from Guangxi Zhuang Autonomous Region Visits RAND
November 20, 2006
The delegation from the Policy Studying Office (PSO) of Guangxi Zhuang Autonomous Region visited RAND on Nov. 20 for a roundtable discussion on the various infrastructure and developmental challenges facing the province.
Mr. Min Pi Yu, the PSO’s Deputy Director-General, expressed concern over the province’s banking sector which has been plagued with inefficiency since its inception. He was particularly interested in learning from RAND key tactics in developing greater efficiency throughout the banking system. Bill Overholt highlighted various strategies that could possibly address this problem. He said the first step would be to reduce political influence on banks that issue loans. The second step would be to standardize the accounting system in order for credit-worthy enterprises to access funding. He said the banking system, the bond market, and the stock market all are totally dependent on sound accounting. Entrepreneurs’ ready access to funding has long been a vital factor for the growth of the US economy.
In addition to the banking sector, Mr. Yu wanted to learn more about RAND’s organizational structure and forecasting methods. Bill outlined the organizational management of RAND and illustrated our forecasting and planning technique by providing various scenarios for potential political change in Asia.
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