Lowy Institute

The view from Tokyo

In the last week, digital graphic designers such as Isaku Ogura have suddenly found themselves in strong demand for media commentary on the plight of two fellow Japanese taken hostage by ISIS. Broadcast media have given exhaustive attention to doubts over the authenticity of several disturbing ransom videos released by is depicting hostages Haruna Yukawa and Kenji Goto. The initial video of 20 January showed them kneeling in the desert in orange robes; an aesthetic chillingly familiar from previous is videos depicting the imminent execution of American and British hostages that their governments had refused to pay monetary and policy ransoms to spare.

A man walks past a screen displaying an image of ISIS hostage Kenji Goto. (REUTERS/Yuya Shino.)

Between the two Japanese stood a menacing ISIS figure brandishing a knife and threatening their lives if a ransom equivalent to US$200 million was not paid by the Japanese Government within three days.

The huge demand mirrored the figure Prime Minister Shinzo Abe had just pledged, during a visit to the Middle East, for humanitarian assistance for those displaced by the rise of ISIS. The confronting imagery and ominous outlook for Yukawa, self-styled military consultant, and freelance journalist Goto meant an intense level of media interest. Yet the inevitable information void as urgent diplomatic overtures were made in private left the mass media with little to work with.

Doubts about the veracity of the video became central to media coverage. Expert opinion suggested that inconsistencies in the appearing patterns of shadows and wind, and the nature of their gazes, made it likely that the scene in the video was a digitally constructed composite. The two hostages appeared to have been filmed separately, in perhaps quite different locations and conditions. Isaku Ogura concurred and also observed that the vivid orange colour, widely judged to be an ironic ISIS reference to the prisoners' garb warn by Islamist militants incarcerated by the US in Guantanamo Bay, also made digital manipulation easier.

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That Islamic State would risk diminishing its credibility through resorting to computer graphics after so brutally and effectively cultivating a reputation for both determined action and media management raised various questions, not least whether its physical operational scope had been heavily constrained.

Yet the issue of the video's authenticity was largely a sideshow. There was little doubt that both men had fallen into the hands of ISIS, a fact soon confirmed by the Abe Government. Yukawa had been depicted in another video being interrogated by ISIS fighters the previous August, while Goto had been considered missing since December. A small response team had been formed in the Ministry of Foreign Affairs well before the ransom video was released, and at that point it was upscaled to a full crisis management operation, with regional headquarters in Japan's Amman embassy. While several Arab studies academics and other critics soon suggested that Abe might have further endangered the two hostages through his strong anti-ISIS stance during his Middle East trip, criticism was generally muted.

Rather, media coverage and political discussion became more sombre and guarded when, four days later, ISIS released a subsequent video showing only a still image of Goto holding what appears to be a picture of Yukawa's decapitated body. The Abe Government had made no statement on the payment of a ransom but commentators were hesitant to link Yukawa's probable death to non-payment. Neither were any about to endorse publicly the Anglo policy position of not paying ransoms, especially when it emerged that Kenji Goto's second daughter had been born only two weeks ago. The Abe Government affirmed the probability that Yukawa was indeed murdered, although doubts were cast by technical experts on whether it really was Goto narrating, in English, the video that announced it.

Media and political actors immediately sought to project gravitas. Television stations have engaged in what some critics described as self-censorship, dropping segments that might be vulnerable to claims of insensitivity. Fuji Television chose not to screen an episode of a crime series that depicted an assailant wielding a knife, and Asahi Television dropped a new music video by popular group KAT-TUN with the English song title 'Dead or Alive'. Nippon Television subbed one comedy act for another as their material was considered sensitive in the circumstances.

The Abe Government has been careful to avoid giving weight to past impressions that Japan will pay a ransom, while vowing to make all efforts to end to the crisis through diplomatic endeavours. To this end, Abe was helped directly by Islamic State's dropping of a demand for a cash ransom in favour of demanding an exchange for Sajida al-Rishawi, facing a death sentence in Jordan since 2006 for a failed suicide bombing on an Amman hotel. Jordan's priority, though, is securing the return of one of its own citizens, captured pilot Maaz al-Kassasbeh, whose F-16 crashed on 24 December while carrying out an airstrike against ISIS.

ISIS's savvy was affirmed with the release of a third video, a still image showing Goto holding a picture of the pilot, accompanied by a purported recording of Goto speaking in English. In it he specifies that the Jordanians had only 24 hours to release Rishawi, and that the Japanese Government should pressure the Jordanians to do so, or both he and the pilot would die. ISIS thereby put in place a mechanism for a trade, with the possibility of Japan paying ransom through Jordanian channels in way that is publicly deniable.

While a US State Department spokeswoman has said that an exchange of prisoners would be 'in the same category' as ransom payment that it opposes, the Israelis have a long history of hardheaded prisoner exchanges. It was in while in Jerusalem that Abe was confronted with Islamic State's initial ransom demand.

With the 24 hour deadline for a trade having passed late yesterday (the 28th), the media and Japanese audiences now await developments.

It is likely that, longer term, the hostage-taking will be used by some Japanese critics of the US alliance; China's Global Times has already done in a predictable editorial critique of Abe's foreign policy. A comment by one junior Japan Communist Party Diet member to the effect that Abe had shown insufficient regard for the lives of Japanese was promptly withdrawn under pressure from the party leadership.

A more focused line of criticism is the Government's ostensible failure to anticipate such a crisis, given the prior knowledge within the Ministry of Foreign Affairs of the likelihood of Yukawa and Goto being held by Islamic State. The opposition Democratic Party of Japan was already hinting at that yesterday, though it's tone today was more bipartisan terms as hopes rise that a deal involving Jordan might be in the offing.

A shared sense of decorum has made politicisation of the crisis off limits while the fate of the hostages remains uncertain. Meanwhile, the mass media struggles to find something new to report within the tight bounds of these sensibilities. 


On Monday, Barack Obama became the first US president to be the guest of honour at India's Republic Day parade. His visit to New Delhi was the latest in a series of headline-grabbing diplomatic initiatives by Narendra Modi, beginning with his invitation to all South Asian leaders, including Pakistan's Nawaz Sharif, to attend his inauguration as prime minister back in late May 2014.

Although the US President had to cut short his time in India to fly on to Saudi Arabia to meet the new king, most commentators have interpreted the visit as a great success, with both the American and Indian media waxing lyrical about the new warmth in US-India relations supposedly generated by what they called Obama's 'bromance' with Modi.

But for all the bear hugs and bonhomie, the visit didn't yield much.

True, Modi promised to remove liability clauses applicable to firms operating nuclear power plants in India, which were major obstacles to American corporate investment in that sector. True also, the two sides agreed to once more upgrade their defence cooperation, renewing a Defence Framework Agreement, sharing more information and engaging in further joint exercises, and recommitting to the transfer of military technology. These agreements are welcome, of course, but they hardly signal a step-change in relations.

In search of something more substantive, some commentators heralded the language of the US-India joint statement, arguing that it signals a new toughness on China and a new willingness to work together on issues of shared concern.

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In reality, the document was a disappointing mish-mash in which the joins between Ministry of External Affairs and State Department drafts were all too visible. The call for 'sustainable, inclusive development' was practically cut-and-pasted from Modi's speech to the UN General Assembly; the section on the need for states to adhere to the law of the sea a boilerplate statement found in almost every joint declaration made by the US and its regional friends and allies.

In fact, what was really significant about the joint statement was what it left out. There was no mention of climate change or the upcoming Paris summit, despite Obama urging India to acknowledge what the US sees as India's obligation to accept binding limits on its carbon emissions. This particular failure to cut a deal, or even agree to a sentence on the issue in the joint statement, is telling, as the more perceptive media outlets recognised. It speaks to a continued inability on Washington's part to get India to be the kind of stakeholder in the liberal democratic international order the US has long hoped it would become.

The causes of this failure are complex, and there is fault on both sides. The Obama Administration has never afforded India the status its predecessor did, and India's sluggish rate of growth over the past decade, combined with the poor performance of the second United Progressive Alliance government, gave plenty of ammunition to India sceptics in Washington happy to see the relationship deliquesce. For its part, India's foreign and security policy elite remains divided about the US and its role in the world, and importantly about its handling of China's rise and the challenges it generates. Like other states in the region, India is hedging when it comes to China, and is wary about aligning itself too closely with a far-away superpower that might be on the wane.

Yet this is only part of the story of why US-India relations remain attenuated, despite the leaders' 'bromance'. The other factor is that Modi has suitors lurking in the wings with arguably bigger dowries.

Since Modi became PM, Japan has promised $35 billion in investment over five years, as well as a possible deal for amphibious aircraft, China has promised $20 billion over the same period and opened the door for India to join its Asian Infrastructure Investment Bank, and Russia has concluded tens of billions of dollars' worth of nuclear, hydrocarbon and defence deals along with a renewed pledge to help secure Indian membership of the Shanghai Cooperation Organization. These kinds of incentives make India's multidirectional foreign and security policy look smarter than alignment with a distant superpower, regardless of the mood music at the Republic Day parade.

Photo courtesy of the White House.


The Nusra Front, al Qaeda's official Syria branch, is playing a long game in Syria, and will be best placed to fill the vacuum should ISIS collapse in rebel-held northeastern Syria.

The claim of responsibility by al Qaeda in the Arabian Peninsula (AQAP) for the deadly attack on the Charlie Hebdo newspaper in Paris on 7 January has temporarily shifted attention back to what for some had become the lesser of two evils in comparison to the headline grabbing Islamic extremist group, the Islamic State of Iraq and Greater Syria (ISIS).

ISIS has emerged as a rival to al Qaeda since a split in Syria in April 2013. ISIS declared a merger between it and Nusra but that claim was quickly rebuffed by Nusra leader Abu Mohammed Golani. And al Qaeda leader Ayman Zawahri ruled that the merger was a rogue move, later formally disassociating al Qaeda from ISIS and effectively sanctioning Nusra as al Qaeda's legitimate arm in Syria.

While the Nusra Front and ISIS share a common end goal of forming an Islamic state, they differ in method and scope, and, critically, in the implementation of Shariah.

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How ISIS plans to build an Islamic state

ISIS has adopted a top-down approach, declaring the existence of the caliphate in June 2014 and imposing its form of governance through a combination of fear and incentive. It has wrested control and administration of a vast swathe (up to 65%) of Syrian territory across the country's north east.

Both ISIS and Nusra have capitalised on Sunni sympathies among the majority Sunni population in Syria who feel aggrieved and targeted by the ruling Alawite-dominated Assad regime and its Shiite supporters from Lebanese Hezbollah, Iranian and Iraqi militias. ISIS managed to consolidate control among a more sympathetic population in July 2014 in Iraq, where the Shiite-led government of Nouri al-Maliki had fermented sectarianism, and where ISIS's parent organisation, the Islamic State of Iraq (ISI), already had a strong presence.

Syrian Sunnis have tended to be more moderate in their interpretation of Islam and ISIS initially encountered greater resistance there to its brutal administration. Nonetheless, as conditions became more desperate in Syria, ISIS consolidated control of territory, securing oil and other funding sources. The group has provided education and medical services, bread and oil, as well as paying civil servants and fighters salaries that exceeded those provided under Assad rule, while also suppressing resistance through a brutal campaign of fear and punishment.

Interviews with civilians from Raqqa indicate many Syrians are adapting to ISIS rule and in some cases, actively support the group in the absence of any alternative. Lightening offensives in Iraq secured cash, arms and other revenue sources, allowing ISIS to gain primacy over Nusra in Syria in 2014. The slash and burn campaign has seen ISIS grow exponentially to some 50,000 fighters, also attracting members of the Nusra Front.

How Nusra plans to build an Islamic state

Nusra, on the other hand, has taken a bottom-up approach to establishing a caliphate, working to secure local support through effective administration in areas it controls, and working with other armed militias, particularly early on in the war when the Assad regime was the primary enemy. Nusra adopted methods such as suicide bombings and IEDs against the Syrian regime almost as soon as its formation was announced in January 2012, but it has been careful to avoid civilian casualties. Critically, while ISIS imposes harsh punishments for crimes including theft and adultery in areas it controls, Nusra adopts the policy that 'hadud' should not be imposed during times of war. This gradual and more lenient imposition of Islamic law has led to the perception of Syria's al Qaeda branch as the 'more moderate Islamic extremists'.

The fact that a greater proportion of Nusra fighters, unlike ISIS, are Syrian rather than foreigners has garnered a lot of local popular support for the group. As one humanitarian worker operating in Syria from southern Turkey described it: 'I support Nusra because they are Syrian and they are fighting Assad. I am a Muslim, I want an Islamic state, but not like ISIS.' When originally designated a terrorist organisation by the US in December 2012, thousands of Syrians demonstrated under the banner 'We are all Nusra'. In recent weeks, however, Nusra has stepped up more brutal punitive responses, notably in the de-facto 'emirate' it has imposed in northern Idlib, in what may be a harbinger of the style of its governance in any eventual Islamic State, or a sign the the group feel the need to compete with ISIS by mimicking its more successful tactics.

The effect of the US air campaign

It was such tactics, including the beheadings of American and British journalists and aid workers, that prompted US President Barrack Obama to announce in September an international coalition to 'degrade and ultimately destroy' ISIS, using a four-part approach: airstrikes against ISIS targets in Syria and Iraq; cutting off funding and improved intelligence to stem the flow of foreign fighters to the group; the bolstering of humanitarian assistance to civilians; and, crucially, strengthening support of partners on the ground to fight ISIS.

The airstrikes, which began in September 2014, will help erode ISIS administrative capacity, increasing the likelihood of internal division. But without a viable partner on the ground to fill the vacuum created by ISIS erosion, US success will be limited. Any partner will need to both tap into Sunni support and be armed and organised enough to administer territory. They must also be Islamic enough to gain the support of those who want a state based on Shariah, and moderate enough to encourage resistance to authoritarianism.

This is a tall order. The US and its allies have announced that a program to vet, arm and train an army of 5000 'moderate rebels' to fight ISIS is underway, but to date it looks woefully inadequate. These efforts were stepped up last week with the announcement that the US will send 400 troops to train Syrian rebels to fight ISIS in Iraq. Illustrating the challenges and urgency of the task, the two opposition brigades picked as the best option for a proxy force to fight against both ISIS and the regime — the Hazm Movement and the Syrian Revolutionary Front — were disastrously routed by Nusra in Idlib in November. Media reports said many fighters defected to Nusra.

While the regime and the Americans have been distracted by fighting in the north around Raqqa and Aleppo, Nusra has continued to consolidate its support base in the central provinces of Homs and Hama, also extending control in Idlib. Nusra is now the dominant force in southern Syria, along the border with Jordan and Israel along the Golan, securing not only territory but local support through functional local administration. The Israelis have maintained an uneasy truce with Nusra on the border, but it is unlikely to hold.

For now, Nusra will avoid further armed confrontation with ISIS, biding its time and positioning itself as the prime beneficiary should airstrikes and local resistance contribute to a crumbling of ISIS administration.

Where Nusra faces a significant disadvantage is in public affairs and international recruitment. ISIS has proven adept in this field, using highly sophisticated recruitment and propaganda campaigns to attract foreign fighters, tapping into Sunni marginalisation and presenting itself as the pre-eminent anti-Western jihadist terror outfit. In this context, the Paris attacks, and al Qaeda's quick claim of responsibility, could be seen as an attempt by al Qaeda to re-affirm its anti-Western credentials and tap into the ready number of recruits spawning in Europe and abroad.

The prospect of Nusra replacing ISIS as the only viable alternative with administrative capacity over large swaths of Syrian territory presents a policy nightmare for the US. While the group may appear more moderate, al Qaeda is al Qaeda. Nusra may have taken the strategic decision to limit its policy of expansion now, but the time will come when the establishment of the caliphate is prioritised, and it will not adhere to the democratic and pluralistic Syria the US hopes for.


The Indo-Pacific is a strategic system encompassing the Indian and Pacific oceans, reflecting the expanding interests and reach of China and India as well as the enduring role of the US. The Lowy Institute's International Security program presents a weekly selection of links illuminating the changing security picture in this increasingly connected super-region.


This one is nominated for a best foreign-language Oscar. Gorgeous trailer: 


Not far from Timbuktu, now ruled by the religious fundamentalists, Kidane lives peacefully in the dunes with his wife Satima, his daughter Toya, and Issan, their twelve-year-old shepherd. In town, the people suffer, powerless, from the regime of terror imposed by the Jihadists determined to control their faith. Music, laughter, cigarettes, even soccer have been banned. The women have become shadows but resist with dignity. Every day, the new improvised courts issue tragic and absurd sentences. Kidane and his family are being spared the chaos that prevails in Timbuktu. But their destiny changes when Kidane accidentally kills Amadou, the fisherman who slaughtered “GPS,” his beloved cow. He now has to face the new laws of the foreign occupants. 

(H/t Slashfilm.)


This will go down as the gong heard round the world. On a national day that already has a distinctly 18th century feel – it celebrates the moment of British colonisation, after all — Tony Abbott appeared to doff his cap to the Mother Country again in making Prince Philip an Australian knight.

The re-introduction of a heraldic honours system that many Australians viewed as a museum piece was met last year with incredulity. His choice of the Duke of Edinburgh, ahead of thousands of deserving Australian women and men, has unleashed even more mockery. It was a 'captain’s call', said Mr Abbott, and arguably the worst since Greg Chappell asked his brother Trevor to bowl underarm to New Zealand's Brian McKechnie. That damaged Australia's international sporting standing. The surprise knighthood could have the same effect on the country's international reputation, especially in the region.

In any objective cost-benefit analysis, Abbott surely loses on all fronts. As a politician, it brings into question his judgment and could, in coup-addicted Canberra, lead eventually to his ouster. As a constitutional conservative, he runs the risk of turning small 'r' republicans into more troublesome rebels and imperiling the very institution he seeks to protect. As prime minister of a country supposedly seeking better ties with its neighbours, it makes him look more Anglo than Asian in his orientation. As historian James Curran observed in these pages earlier in the week, this move brings to mind what Paul Keating said about the 'ghost of empire' that 'remains debilitating...to our destiny as a nation in Asia and the Pacific.'

It is also worth revisiting what became known as the 'Anglosphere speech' that Tony Abbott delivered in Oxford in December 2012, before becoming prime minister.

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The setting was his old college, which, appropriately enough, is called Queen's. 'China, Japan, India and Indonesia are countries that are profoundly important to Australia', he said. 'Size, proximity and economic and military strength matter. Of course they do; but so do the bonds of history, of shared values, and of millions of familiar attachments.' This seemed to imply that Australia's relationship with its Asian neighbours would primarily be transactional, whereas the relationship with Britain and America would be brotherly, emotional and thus always more meaningful.

What gave the speech its controversial edge, however, was the insinuation that Anglo culture was superior. Abbott said his 'insatiable curiosity' came from studying at Oxford, and was 'the hallmark of Western civilization (especially in its English-speaking versions) and provides our comparative advantage among the cultures of the world.' Does not the knighthood for Philip send a similar message from the Australian prime minister to the rest of Asia? That the epitome of civilization is to be found in Anglo history and institutions?

Will this controversy reverberate beyond the Australian Twittersphere and talk-back stations? Is it just a storm in a Royal Doulton tea cup? My sense is that the knighthood does create a national image problem, because it heightens the sense of confusion about the country's global positioning. It revives the seemingly unresolved question: 'Advance Australia Where?' It projects a sepia-tinted Australia to the rest of the world rather than the thrusting economic, commercial and cultural powerhouse that modern Australia has become.

It would also be a mistake to think that this kind of symbolism does not matter. Just witness the damage to America wrought by Barack Obama's failure to attend the solidary march in Paris in the aftermath of the Charlie Hebdo massacre. Or the sneering at US Secretary of State John Kerry, who attempted to mend that particular diplomatic fence by getting James Taylor to sing 'You’ve got a friend'. The international press, Fleet Street especially, looked on the knighthood as a gift horse, if only because it could re-run Prince Phillip's most famous gaffes. But it also makes the Australian prime minister a cartoonish figure of fun – an '...And finally' story.

Australian diplomacy will take a hit, and so, too, the already battered reputation of Australian democracy.


For the past twelve months I have highlighted statements by Lao officials indicating the Vientiane government's determination to build its controversial dam at Don Sahong in the far south of the county (most recently in my Interpreter post of 10 November 2014). In a 19 January Voice of America interview, Director-General of the Lao Department of Energy Policy and Planning Daovong Phonekeo bluntly rejects environmental criticisms of the dam, saying: 'We are now very sure that (with) the mitigation measures we are going to do, (the dam) would have a very small impact to the downstream, or even the upstream, about fish migration.'

Davong Phonekeo is also frank in outlining the Lao construction program:

We expect to start this dry season (author note: the dry season has already begun, but many areas around the dam site will only be fully dry by the end of January), after the prior consultation (with representatives of Cambodia, Thailand and Vietnam) has been completed. The prior consultation will be completed by 25 January, 2015. After that the company (Mega First) will sign some contract agreements with the contractors...There will be some mobilisations within the (construction) camp, which takes maybe to more months. After that, they can start with the excavation and construction work. The project will be completed by 2018.

Ominously, Daovong Phonekeo also says that, in conjunction with Thailand, Vientiane has 'seven projects that are feasible to develop.'

This strikes to the heart of environmental concerns about the Mekong's future. As Phil Hirsch of the University of Sydney's Mekong Resource Centre has pointed out, once one dam has been built on the Mekong's mainstream below China, the likelihood is that others will follow.

These concerns underline the extent to which the Mekong has already been dramatically altered in character in the space of a mere thirty years.

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Before the 1980s there were no dams on the river, neither in China nor in Southeast Asia after the Mekong flows out of Yunnan province. But since that time China has constructed no fewer than five dams on the upper reaches of the river and is building of a further two dams with the possibility of two more to come.  And Chinese clearing of the river from northeastern Thailand to Yunnan province at the beginning of the century has opened that section of the river to navigation, which previously was very limited.

Construction of the Xayaburi dam in Laos — the first dam to be built on the Mekong below China — is already well under way.

All this is taking place at a time when there is growing concern about Chinese control of the major river systems with their origins in Tibet: the Yangtze, the Salween, the Mekong and the Brahmaputra. Brahma Chellaney discusses this in strategic terms, particularly in relation to the Indian subcontinent, in his 2012 book, Water: Asia's New Battleground, while recently Michael Buckley has focused on the environmental issues in his Meltdown in Tibet: China's Reckless Destruction of Ecosystems from the Highlands of Tibet to the Deltas of Asia.

It is hard to overstate the likely damage being done to the Mekong. The overwhelming weight of scientific opinion argues that the long-term effects of the Chinese dams will be negative for the countries downstream of China, though it may be decades before their full effects are obvious. With the dams Laos is planning and those which China is already constructing, the damage could be more immediate. More than 60 million people live in the Lower Mekong Basin below China and they are heavily dependent on the river for food and agriculture. One striking figure makes the point: almost 80% of the Cambodian population's annual protein intake comes from fish caught in the Mekong and its tributaries. Just as importantly Vietnam's Mekong delta region relies heavily on the Mekong for its agricultural production.

Dam building that trades future fish stocks and agricultural production against more immediate returns from the sale of electricity from hydro dams is a poor bargain.

Photo by Flickr user US Mission to the UN Rome.


Early last week, China's GDP data for 2014 was released. Many of the headlines focused on overall growth, but I want to focus on investment, and specifically on why the Chinese devote so much of their GDP to investment. I'm going to argue that the high cost of investment in China accounts for at least some of this 'imbalance'.

First, the facts. For some time now, the share of Chinese GDP devoted to investment has been high (see graph below). In fact, it has been in the high 40s as a percentage of GDP, which is basically a world record. Most developed countries have a share in the 20%-30% range.

This high level of investment is the source of a lot of angst.

Commentators are concerned that this investment is wasted (we've all heard the stories about ghost cities). The importance of debt financing has added to the hand-wringing, and there are genuine fears the situation will end up pear-shaped.

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However, an often unconsidered influence on all of this is the price of investment goods. The increase in the share of investment in GDP could be driven by either an increase in the quanitity of investment (eg. the number of buildings built), or an increase in the price of investment goods (the cost of those buildings). The price of investment goods is indicated by the investment price deflator*. Below I show the investment price deflator divided by the GDP deflator, thus showing the price of investment in China relative to the price of everything produced in the Chinese economy. [fold]
The line is upward sloping. Big deal, right? Well, yes it is.
In most countries that line slopes down. See the graph below for some examples (although, interestingly the lines slope up for Korea and Japan over the last decade). Those lines generally slope down because things like computers and other goods used for investment have been getting relatively cheaper. Why would the line slope up in China? One possible answer is the mix of investment. My guess would be that a lot more investment in China takes the form of buildings and structures than in other countries. And I would wager that building a tall residential tower in Shanghai or a subway in Chiongqing is much more expensive than it used to be.

So what? Below I show the first two lines I plotted – investment share of GDP and the relative price of investment – on the same graph. The correlation is striking. And I am not talking about the trend. It's very easy to get trends to be correlated! No, I'm talking about the wiggles away from the trend, which line up very well. So when the price of investment goes up, its share of GDP goes up, and this seems to help explain why the share of investment in GDP has increased.

Let's think about this a little deeper.

Total expenditure on investment is price times quantity. If price increases, it is not mathematically necessary that total expenditure increases – quantities may fall. What the above graph suggests is that quantities do not fall that much in China. In fact, if we were to assume that quantity is unresponsive to price, then price changes would account for 10 percentage points of the shift in the red line. That's nearly all of it.

But in other countries, it looks like investment is responsive to price. Below I show the same prices/shares graph for Australia. It is difficult to see a strong correlation between the two lines, suggesting that the quantity of investment is responsive to price, and overall expenditure is little changed.
Gazing into the crystal ball, I can't help but think that if I am right about the relationship between prices and the investment share in China, then the falls in commodity prices will help rebalance the economy. All those buildings, tunnels, and bridges will become less expensive, and thus account for less expenditure.

*The investment price deflator is available in most countries' national accounts. Unfortunately China does not provide an investment price deflator, but we can back it out at an annual frequency. (For the wonks: China provides the investment contribution to real GDP growth, and we know that real Chinese GDP is calculated using a Laspeyres index, with 1980, 1990, 2000, 2005 and 2010 used as base years. Using this information, we can calculate the investment deflator)


Last week, French Prime Minister Manuel Valls announced a raft of new government spending on security in the wake of the Charlie Hebdo attack. The plan included the creation of more than 2500 new jobs in the law, justice and defence sectors, and the ongoing surveillance of roughly 3000 individuals.

This hard-line response drew appreciative commentary in France.

Days earlier, the same media outlets were reflecting on the meaning of the 'Je suis Charlie' marches across the country and the symbolic message of unity they seemed to embody. Ironically, all this deliberation seems have to pushed to one side any commentary on the widespread political alienation felt among French migrant populations, and the extent to which this has become a wellspring for violent radicalisation.

To understand something of this alienation it is necessary to consider the marginal social and economic standing of France's second and third generation of post-war Arab and African immigrant populations.

These communities are often concentrated in the infamous banlieue neighbourhoods of France, a shorthand reference to suburbs which fringe many of France's major urban centres and are characterised by uniform and soulless public housing edifices. In media discourse les banlieues are frequently stigmatised as migrant enclaves, plagued by epidemics of crime, gang violence and rioting. The youth in these places describe their neighbourhoods as the 'occupied territories', voicing the idea that French state authority is unrecognised there, an intrusion that is resisted in the same way Palestinian populations respond to the imposition of Israel authority.

These tensions were explored in La Haine, a film directed by Mathieu Kassovitz which was released to critical acclaim in 1995.

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The film provides us with an entrée to life in the banlieu through the experiences of three young men: Vince, of Jewish origin, Saïd of Arab origin and Hubert of African origin. It opens with the voice of Hubert recounting the story of a man falling from the top of a 50-storey building. 'So far so good, so far so good' (jusqu'ici tous va bien), he repeats, to reassure himself as he falls through the air. But as Hubert concludes, its not how you fall that matters, its how you land (Mais l'important n'est pas la chute, c'est l'atterrissage). 

In the 24 hour period that we follow this trio, they move through their local neighbourhood and travel to central Paris. We watch them walking (or are they falling?) through streets which are policed not only by suspicious law officials but also violent neo-Nazi extremists, all of whom treat them with violence.

The tension mounts as we see the consequences of trio's small acts of resistance such as the spray-can tagging of public signs and train fare evasion (so far so good). But events build towards an armed stand-off with police and the final, terrible, point of violence that is their inevitable landing. The film's subtext, evident in more subtle and sometimes ironic form, expresses the profound lack of opportunity experienced by migrant populations in France, who sense that they have been betrayed by the republican ideals of a fraternal and indivisible citizenry. Billboards stating 'Le monde est à vous' ('the world is yours') seem to mock them. This sense of exclusion is captured neatly by Saïd who observes at one point, 'nous sommes enfermés dehors' ('we are locked out').

In the wake of the Charlie Hebdo attacks this observation seems particularly pertinent. In the many hours of French media coverage since the attack, French public intellectuals have ruminated over the challenge France now faces as it maintains commitments to liberty and solidarity, but also to security. 

Some of these themes are neatly captured in a media clip airing on all French free-to-air television stations commemorating the victims of the events of 6 January and to emphasise the importance of unity. This clip builds on the 'Je Suis Charlie' meme but adds names which represent the diverse groups — religious, cultural and ethnic — of France's contemporary population. It concludes with the words 'Bien differents. Bien ensemble'.

This tribute is moving at one level. But it is also deceptively simple.

It seems to gloss too easily over the political alienation of those whose lives are shaped by discrimination and inequality. And it seems to ignore how this violence might be explained as a form of resistance against forms of French republican authority experienced by many in France. It may seem strange that a self-declared 'anti-establishment' outfit like Charlie Hebdo would be viewed as synonymous with regularised systems of state authority and somehow become the target of resistance-oriented violence. But for some parts of the French population, the work of Charlie Hebdo is undoubtedly seen as simply one more place where they are diminished and belittled, emulating a pattern that is felt to be well rehearsed by other parts of French state authority.

My contention here is that this attack has its origins in the experience of marginalisation and inequality that is the lot of French immigrants and their descendants.

We too easily efface those motivations if we understand it only as an expression of Islamic radicalisation. Likewise, well-meaning slogans about the benefits of unity in the aftermath of this violence will do little to heal the wounds borne by the generations of citizens who became French as result of their forefathers' migration but live in circumstances characterised by profound exclusion.

So many times in the last two weeks, the French commentariat has reflected with puzzlement on the fact that in some schools, students refused to take part in the national commemorative minutes of silence for the Charlie Hebdo victims.

It may be 20 years since La Haine debuted in France but in this film's poignant depiction of the constrained opportunities of the French banlieue there is an answer to this puzzle. It is a work which remains as relevant today as it ever was. Many have been inspired by the sombre message of unity encapsulated in the 'Je Suis Charlie' protests. But others, indeed Kassovitz himself, have expressed discomfort with this movement even while taking part. It is an appeal masking much that deserves critical attention in French society.

Photo courtesy of Flickr user cwangdom.


Via The Browser, I find this excellent short essay on US China policy from former US diplomat and Assistant Defense Secretary Chas Freeman. This is powerful, persuasive stuff:

So far, Chinese have been considerably more deferential to international law and opinion than we Americans were at a similar stage of national development.

Around 1875, the United States passed the U.K. to became the world’s biggest economy. Soon thereafter, we pressed the ethnic cleansing of our country to a conclusion, engineered regime change in Hawaii and annexed the place, seized the Philippines and Puerto Rico from the Spanish Empire, forced Cuba to grant us Guantánamo in perpetuity, detached Panama from Colombia, and launched repeated military interventions in Honduras, Nicaragua, Mexico, Haiti, and the Dominican Republic. To date, by contrast, China has leveraged the upsurge in its power to step up its contributions to U.N. peacekeeping and to use its coast guard, construction companies, and other nonlethal means to buttress century-old claims to islands, rocks, and reefs in its near seas against more recent counterclaims by neighbors.

It says more about us than about China that we have chosen to treat its rise almost entirely as a military challenge and that we have made countering Chinese power and perpetuating our quasi-imperial, post-1945 dominance of the Western Pacific the organizing principles of our Asia policy. China’s capacity to defend its periphery is indeed growing apace with its economy. The military balance off the China coast is therefore inevitably shifting against us. This is certainly a threat to our long-established dominance of China’s periphery. It promises to deprive us of the ability to attack the Chinese homeland from there at will, as Air-Sea Battle envisages. But greater security from foreign attack for China does not imply a greater risk of Chinese or other foreign attack on the United States.

Even more important, the notion that Americans can indefinitely sustain military supremacy along the frontiers of a steadily modernizing and strengthening China is a bad bet no sober analyst would accept. Extrapolating policy from that bet, as we do in the so-called “pivot to Asia,” just invites China to call or raise it. We would be wiser and on safer ground, I think, to study how Britain finessed the challenge of America’s emergence as a counter to its global hegemony. It viewed us with realistic apprehension but accepted, accommodated, and co-opted us.

Read the whole thing.

Photo courtesy of Wikimedia Commons.


The best chance for peace in Muslim Mindanao in the Philippines has just noticeably faded.

Members of the Philippine National Police carry a body bag in Maguindanao province, 26 January 2015 (Reuters/Stringer Philippines).

The deadly clash in the early morning of Sunday 25 January between the Special Action Force of the Philippine National Police and the local command of the Moro Islamic Liberation Front (MILF) and the Bangsamoro Islamic Freedom Fighters (BIFF), in an MILF stronghold in Maguindanao, left five MILF fighters and between 30 to 60 police officers dead and up to eight captured. This is the largest number of police officers killed on duty in Philippines history.

The term 'misencounter', used by both the government and the MILF to describe the clash, seems euphemistically inadequate, as noted by opposition Senator JV Ejercito.

Four different but intertwined elements of the massacre will aggravate its damaging, potentially disastrous, impact on the progress of the peace deal signed between Manila and the MILF command in March 2014:

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  1. The massacre occurred at a sensitive time in the legislative deliberations over the draft Bangsamoro Basic Law. The Basic Law is meant to turn the March 2014 peace deal into a national law, establishing a new, more autonomous, regional government for the Moro Islamic community. This process is already months behind President Aquino's ambitious timeline, which calls for elections to this new regional government to coincide with the 2016 presidential poll and the end of Aquino's single term. With at least two of the 13 senators who co-sponsored the senate version of the draft Basic Law withdrawing their support due to the massacre, further delays are a certainty.
  2. Opposition to the draft law and the 2014 peace deal among local Mindanao politicians (Muslim and Christian) and national legal and political figures was already mounting before the massacre. The massacre will increase the number of politicians at both levels opposed to the peace deal and the Basic Law, and provides them a powerful new emotive rationale for their opposition.
  3. The fact that the slain police detachment was hunting for a known Malaysian terrorist and suspected that this senior Jemaah Islamiyah figure, 'Marwan', and his associate Basit Usman, were hiding out in the house of the local MILF commander, focuses new attention on the multiple personal links between senior personnel in MILF and regional terrorists seeking safe haven in Mindanao. Multiple reports that BIFF fighters joined in the fighting further reinforces recognition of the strong, often familial, connections between the MILF that struck the latest peace agreement with Manila and insurgent groups that reject the deal.
  4. It is reported that the nearby Philippine Army detachment was unable to provide support to the cornered and outgunned police during the 'dusk to dawn' fighting due the stipulations of the ceasefire agreement between the MILF and the Philippines Government. This could well undermine support for the ceasefire conditions among local Army and police personnel mourning their fallen peers and smarting from the seemingly one-sided outcome of the clash.

Both the MILF and the Aquino Administration have called for the peace process to continue unimpeded despite this apparent massacre, which stands out even by the violent standards of Mindanao. Many opponents to the peace deal in Manila and in Mindanao will disagree.

The decades-long search for peace in Muslim Mindanao has seen many false dawns and the recurrence of low-intensity war. While the 25 January clash may not, by itself, spoil the latest and most comprehensive peace deal, it will not be easily overcome. The delays to the peace process will put the search for peace at risk yet again. 


There are many problems with Prime Minister Abbott's now twice-stated remark that 'Social media is kind of like electronic graffiti'. Here are just three.

First, his views hit awfully close to home for the majority of Australians, because it turns out we are graffiti artists and prolific ones at that. About 60% of Australians have a social media account, ranking us sixth in the world for accounts per capita. And this addiction to online connections has been brewing for years. In 2010 we spent just seven hours a month browsing social media. Fast forward five years and an astonishing two hours every day is consumed by its use. The total number of active accounts grew by 6% in 2014 and we are now home to 13.6 million Facebook accounts, 4 million Instagram users and 2.8 million Twitter accounts. We also have a particular affection for YouTube videos, blogs and the mobile dating app Tinder.

But it is not just Australians who are social media animals and this leads to the second problem with the Prime Minister's statement. There are more than 2 billion social media users scattered across the world. The bulk, more than 1 billion, reside in our neighbourhood, the Asia Pacific. Our neighbours in the Philippines, Thailand, Malaysia, Indonesia, India and Singapore spend more time each day on social media than we do. Almost half of China's population has a social media account, 15% of the world's tweets come from Indonesia, and in 2014 India experienced a 31% hike in total social media accounts.

Unsurprisingly, in the Pacific Islands, the numbers aren't as impressive, but social media has been used to hold governments and businesses accountable for corruption and poor service delivery. Facebook discussion groups, particularly in Papua New Guinea and the Solomon Islands, have played vital roles in crowdsourcing policy ideas, shedding light on misused public funds and alerting law enforcement to domestic violence and other crimes.

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Third, governments around the world take social media seriously and are increasingly inventive in its use as a tool of communication and influence, They also use it to predict trends. At a very basic level, social media is widely used to measure changes in public opinion and to gauge sentiment when new policies are announced. The Australian Government has in fact funded and built its very own software tool to do just that. And government departments use it to communicate with and engage the public (a list of the federal government's vast collection of social media accounts can be found here).

Even in China, where internet censorship is routine (the Chinese Government is thought to employ some 2 million people to monitor Chinese social media), social media is contributing to a new responsiveness from local governments. Online activists and grassroots movements in China such as 'Not In My Backyard' have used social media to force action on a range of environmental issues..

The US Government, via various intelligence research arms, invests heavily in programs that mine social media to predict social and political events, including the spread of disease. More recently, the US Government revealed it was social media that provided the crucial link to identify those responsible for downing Malaysian Airlines Flight 17 in the Ukraine.

The Indian Government has committed to expanding its social media presence and responsiveness, particularly in the area of digital diplomacy. The way India and the US used social media (and other online tools) before and during President Obama's recent visit provides the Australian Government with some excellent lessons on how it can expand its digital diplomacy capabilities (for example, see #AskObamaModi)

The Prime Minister's antiquated remarks about #electronicgraffiti could worryingly be read to reflect a lack of understanding of both the role of social media and how widely used it is around the world, including by his own government. Social media is no longer just the purview of angsty teenagers and online gamers. It is used globally to foster development and to help shape social and political change.

26 January isn't just Australia Day, it is also India's Republic Day (an event President Obama made the centerpiece of his visit this week). In an Australia where all that is old is new again, it is perhaps awkwardly fitting that, while our Prime Minister described social media as 'graffiti that happens to be put forward by the means of IT' live on ABC news, India's soft power savvy Prime Minister was tweeting his best wishes to Australians on Australia Day (to his 9.7 million followers). It is disappointing, but not surprising, that our Prime Minister's Twitter account did not return the favour.


If you live in an authoritarian state the answer to the question 'How do you fight terrorism?' is relatively straightforward. I say 'relatively' because it is by no means a simple question even for dictators. In recent decades even authoritarian governments have had to weigh up the most effective method of fighting terrorism and it hasn't always just involved applying as much repressive force as possible.

But for a democracy, or more specifically a liberal democracy, fighting terrorism is not straightforward because it is not just a matter of efficacy; it is also a matter of rights and values. In defending itself against terrorism, a liberal democracy is not just protecting the physical security of its citizens, it is also defending the integrity of the political system in which these citizens participate.

So while an authoritarian government must simply find the most efficacious way to fight terrorism, a liberal democracy must find methods that are effective but which do not undermine the rights and values that distinguish the political system, most notably the rule of law and the various freedoms (of expression, of assembly, of the press etc) that make up our civil liberties.

I think we have entered a period, which may well last as a long as a decade, in which Australia will face a far more serious terrorist threat than it faced in the aftermath of 9/11. It is a threat we will face as much at home as we will abroad, as the events at the Lindt Café last December underline. 

But in responding to that threat it is not enough to simply ask what further powers or resources we can provide to our intelligence agencies and police forces. We also have to ask ourselves what damage these and other steps do to the values and rights that define us as a society. We have to ask ourselves: how do we find the balance between security and liberty?

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Of course, this is an old debate, predating even the terrorist threats we have faced in recent years. All democracies to some degree compromise the liberties of their citizens to protect them from a variety of domestic and external threat and to preserve the political system in which they live. Freedom does have some necessary limits.

Yet as old as this debate about liberty versus security is, we are not really having it in Australia at the moment. There are echoes and fragments of it, most often when things go wrong (either a gross transgression of liberty or a terrorist attack). But mostly the two sides of this debate talk past each other rather than at each other.

On the one hand, the proponents of liberty will focus on the rights and the freedoms they argue are being undermined in the fight against terrorism. Too often, however, this group will tend to minimize or downplay the threat. Terrorism, they say, is hyped; more people, they argue, will die falling off ladders than will die at the hands of terrorists.

On the other hand, the proponents of security will argue for significant new resources and powers for the agencies fighting terrorism and new limits placed on those parts of the community from which the threat is seen to come. But too few in this camp ask whether, in taking these measures, we are doing more damage to our society and principles than the terrorists are.

I would like to see a debate in which the proponents of liberty acknowledge the threat, understand that it provokes genuine fear in much of our society (even if more people die falling off ladders or in car accidents) and then ask themselves which of our liberties we should compromise for the sake of security. As the Charlie Hebdo case underlined, we don't even seem to be clear about the liberties we are defending.

I would like to see a debate where the proponents of security recognise that the threat to our societies comes not just from terrorism but from the way in which we fight terrorism, and that we should be prepared to accept certain levels of risks for the sake of preserving our rights and principles.

I am probably being naïve in expecting such a debate to take place. It is not just on this issue that we talk past each other. Nevertheless, I am convinced that we need to have that debate, not least because I fear that we will see more episodes like that which played at the Lindt Café in the years to come.

Photo courtesy of REUTERS/Jason Reed.


When the IMF produced its last World Economic Outlook in October, one of the risks it forecast was a possible oil price increase. A US$25 per barrel increase, the IMF said, would take at least 0.5% off global economic growth.

Now, even with the change in oil price twice as large and in the opposite direction, the IMF has once again revised its growth forecasts down, trimming 0.3% off global economic growth this year and next.

These persistent downward revisions to the IMF's forecasts (see Box 1.2 here) always hog the headlines, with their melancholy message that things are worse than we thought. But the commentary should do more than focus just on the downward revisions to the forecast numbers. The forecasts should also be put in the context of what has already happened during the recovery phase since the 2008 crisis, summarised in this table:

Table cites fourth-quarter growth rates rather than year-on-year growth, to better reflect of the shape of the cycle.

The post-2008 recovery started well enough, with worldwide fiscal stimulus boosting growth in 2009 and 2010. But the 2010 Greek crisis triggered widespread angst about excessive government debt. Fiscal stimulus was replaced by austerity.

Instead of the above-average growth normally associated with a recovery (the US, for example, typically records around 5% growth after a recession), growth in the advanced economies was anaemic. Overall global economic growth was, however, maintained at a reasonable pace by the continuing good performance of emerging economies, which grew three to four times faster than advanced economies.

So, this is not a story about a slowing global economy, either in recent years or in the forecast: global economic growth has started with a '3' for the past three years and in the two years that have been forecast. Instead of talking about forecasting failures, the theme should be why this recovery — both in the recent past and in the outlook — has been much less vigorous than usual, with the advanced economies stuck in a rut.

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So why is world GDP below trend and growing slower than normal?

(Source: Min Zhu, 'Unlocking Global Growth', International Monetary Fund)

Any explanation has to acknowledge the policy failures of the past six years: the mistaken switch from stimulus to austerity in 2010; the failure to reschedule adequately the unsustainable peripheral debt (Greece, Spain, Portugal, Ireland and Italy); the European Central Bank's ham-fisted monetary performance; and the lost opportunity to use the sustained period of low interest rates to tackle widespread infrastructure inadequacies. 

But recessions don't last forever. Eventually balance sheets are repaired; old equipment needs replacing and housing over-investment is taken up. The fiscal austerity (which took 2% off European growth in  2011 and 2012 and the same off US growth in 2012 and 2013) has now run its course. The ECB has finally agreed on some quantitative easing-style stimulus. The downward cyclical phase in the European periphery has found a turning point, with even Greece and Spain registering some growth (from a miserable starting point 25% below the 2007 GDP level). And the global oil price is down more than 50%, which the IMF says, taken by itself, would add 0.3-0.7% to global economic growth.

This might be the moment to call an end to the repeated downward revisions to growth forecasts, and take a punt on global economic growth being a bit stronger (this year and next) than the new IMF forecast predicts.