GOD Bless 2013

Wishing all the visitors of my Blog a very happy new year! Have a great year ahead.

Prayers

Ask and it will be given to you.
Seek and you will find.
Knock and the door will be opened to you.
Because those who ask, receive; those who seek, find; those who knock, shall have the door opened to them. –
Jesus of Nazareth, Mathew 7; 7-8

 Instead of a thousand words, better still there were only one, but one which brought Peace.
Instead of a thousand verses, better still there were only one, but one which showed the Beautiful.
Instead of a thousand chants, better still there were only one, but one which spread joy.
Dhammapada (attributed to the Buddha)
Outside, beyond what is right and what is wrong, there is a huge field.
We will meet there. –
Mevlana Jelaluddin Rumi (1207-73)
Oh Allah! I consult you because You know everything.
If what I am doing is good for me and for my religion, for my life now and after, may the task be easy and blessed.
If what I am doing now is bad for me and my religion, keep me away from that task. –
Prophet Mohammed
Let us go up to the mountain of the Lord so that we may walk with Him.
We will turn our swords into ploughs, and our spears into pruning tools.
May no nation raise their swords against one another, and may we never learn the art of war.
No one should fear their neighbour, for the Lord said so.
- Jewish Prayer for Peace

If there is to be peace in the world, there must be peace in the nations.
If there is to be peace in the nations, there must be peace in the cities.
If there is to be peace in the cities, there must be peace among neighbours.
If there is to be peace among neighbours, there must be peace at home.
If there is to be peace at the home, There must be peace in the heart. –
Lao Tzu, China (6th century BCE)

FDI a liberation by Venu

The BJP was taken completely by surprise when the Bahujan Samaj Party(BSP) chose to vote in favour of FDI in multi-brand retail in the Rajya Sabha within 24 hours of having abstained from voting in the Lok Sabha on the same issue. Assuming Mayawati would abstain from voting in the Rajya Sabha, BJP leader Arun Jaitley had declared UPA to be on very shaky ground on the eve of voting. But the BSP leader chose to pull the rug from under the main opposition’s feet. The BJP cried foul saying Mayawati had been coerced into voting in favour of the UPA because of some pending CBI cases against her. Indeed, that would be a very naïve reading of the BSP’s motivations. A more nuanced analysis of BSP’ actions suggests that it abstained from voting in the Lok Sabha after speaking against FDI in retail because it wanted to generally cash in on the prevailing fears and apprehensions among small businesses over the impact of foreign investment in this critical sector. Mayawati had earlier made a statement that she would consider endorsing FDI in multi-brand retail after seeing what impact it has on farmers.
Her vote in favour of the policy measure in the Rajya Sabha possibly represents what some prominent Dalit intellectuals have described as the “socially liberating potential of FDI in retail”. Some years ago, BSP member of Parliament Arif Mohammed Khan had told me that the BSP historically regarded the global multinational business culture as an antidote to the local caste system because global capital only valued economic surplus and had no social hegemonic agenda.
Another well known Dalit writer and intellectual, Chandrabhan Prasad, has argued that FDI in retail has tremendous socially-liberating potential. He said that while Mayawati’s stand is political, there is clearly a bigger and more significant social dimension to it from the Dalit perspective. Further, Chandrabhan Prasad welcomes the new culture spawned by economic globalisation because “unless culture breaks, caste cannot break”. Another prominent Dalit political thinker, professor Kancha Ilaiah, believes FDI is generally good for the economy as it will break the bania community’s hold over money circulation.
So the Dalit thinkers have a more socially and culturally driven view of global capital, in general, and FDI in multi-brand retail, in particular. For an average Dalit, the process of globalisation offers an escape from his/her current oppressive social condition to another world of cross-cultures where enough anonymity and economic independence is afforded. It is largely the narrow, often politically motivated, Hindu upper castes who seem preoccupied with the notion of the “Indian culture” getting polluted by the onslaught of globalisation. In its crudest manifestation, we see this phenomenon play out when certain bigoted groups attack MNC food outlets or threaten young people celebrating Valentines day.
So Mayawati’s stand on FDI in multi-brand retail has many layers to it. A recent survey conducted by the Dalit Indian Chambers of Commerce and Industry (DICCI) showed that Dalits have virtually zero presence among the established grain and vegetable mandi traders, generally referred to as Arhatiyas. The Arhatiyas are the most powerful lot of wholesale middlemen, who control the business of aggregating produce from millions of farmers which is brought to the Mandi. They also lend money to farmers at what someone described as “credit card rates”.The Arhatiyas are known largely to be supporters of the BJP. This is why some speakers dared the BJP in the Lok Sabha debate to come out openly and declare they are representing the interests of the Arhatiyas. The UPA’s contention is these Arhatiyas grab the bulk of the margins between the farmer and the consumer. The entry of the big retailer could provide competition to them and get the farmers and the end consumer a better deal. Of course, Arun Jaitley argues that the Arhatiya will be replaced by the representatives of the foreign retailer.
Jaitley’s political argument is that Indian society’s fragmented business arrangements at all levels provide livelihood to millions in a decentralised and autonomous manner. Any attempt by big foreign entities to homogenise this arrangement could create a monopoly of sorts. This fear may be exaggerated as there will continue to be multiple players at all levels. In Asian and Latin American societies, which are more akin to India, foreign retail brands have not got more than 20-25% market share in the retail business after decades in operation. In more homogenous Western economies, big retail chains have got over 85% of the market.
Another intellectual argument favouring a somewhat decentralised, even if inefficient, existence of our farm-to-retail chain says India’s petty bourgeoisie (a Marxian term for small trader, shopkeeper, etc) probably want to remain autonomous of the big global capitalist value chains run by the Walmarts and Tescos. A sense of being the master of one’s own business is probably valued far more than being subordinated to a global capitalist chain, based on new rules of the game. Well, this may be true for the well-heeled Arhatiya community, which is politically powerful and controls the mandis of India. It will seek to protect its autonomy.
But this would certainly not be true for millions of very small shopkeepers who are essentially suffering from disguised unemployment and would want to escape their current social and economic condition. The problem with the opposition argument is that it is trying to mix up two different categories altogether—the well-heeled and exploitative big trader as against the impoverished small, hole-in-a-wall shopkeeper. The social and economic profile of the participants in India’s vast retail trade is complex and varied. Besides, there is ample evidence that large sections of the petty bourgeoisie (trader and shopkeepers) may not be happy with their current existence. They would not mind if global capital inflows result in the creative destruction of existing arrangements. After all, many of our established industrialists who have reaped the benefits of globalisation were small shopkeepers/ traders at one time! The petty bourgeoisie has its own aspirations that go beyond their perceived sense of autonomy at present!

Differentiation Among Commodities Bullish For Gold Developers

A plausible theory is circulating that the commodity super cycle driven by China and India will be more "differentiated" among raw materials, depending on supply-demand balances. Citigroup's head of global commodities research, Edward L. Morse, believes the "super cycle" of commodity price gains is ending as China's economy moving toward slower growth and an increase in supplies. Morse thinks prices won't climb "sharply" higher even though quantitative easing from global central banks lifts gold bullion demand. The S&P's GSCI Spot Index of 24 raw materials, which has increased four fold since 2001, is up just shy of 1% this year evidenced by sluggish growth in global economies including China. Looking at the different commodities, one realizes Morse was not exactly bearish on the outlook for most.
(click to enlarge)
This mix will be more favorable for mine developers, who have been damaged by the non-precious metal part of the super-commodity cycle. Going a step further, I believe gold will start noticeably outperforming other input commodities. Gold may take off because of monetary considerations (flight to real money) at the same time economies significantly weaken because of bad faux-growth monetary policies. I think that's what's in store. This is also consistent with my thesis on a China and Japan bust. For those who may want to hedge on the energy side of the Morse equation, use uranium (CCJ, DNN and STHJF.PK), which is highly depressed.
Materials costs for everything from fuel to tires to steel and metal alloys are a major component of mine construction. Just as raw materials prices have soared, so have mine construction capex costs. If development projects can find a new sweet spot for some price relief on costs combined with higher prices for gold, the leverage could be considerable. Right now, new projects need to squeeze every dime to produce a decent return. Energy makes up about 25% of the cost of copper and gold production. That's why you are seeing projects like Chesapeake Gold's (CHK.V) Metates and NovaGold's  Donlin Creek may bring in natural gas pipelines.

In relation to porphyry deposits -- which the market now thinks are unlikely to be developed -- the 2008 median-grade of 422 porphyry was 0.44% copper, according to the U.S. Geological Survey database of worldwide porphyry deposits. Only two-thirds of these deposits contained gold, and their average gold grade was 0.21 g/t. Comparably, 0.44% Cu and 0.21 g Au are worth $45 currently and those would probably be top quartile (100 best in the world) deposits.
The big porphyry deposits that have gotten my attention have the following characteristics:
1. Good jurisdictions
2. Higher precious metal weighting versus base metals, with copper functioning as a credit to the main course
3. Extremely neglected valuations
The downside is that all large porphyry projects are expensive to construct; however, if the cost side improves relative to the output product, Katie bar the doors.
Seabridge's (SA) massive KSMs reserves show a value of $49: 0.55 grams per tonne of gold, 0.21% copper and 2.74 grams per tonne of silver. So there is evidence that KSM -- in addition to being one of the largest porphyry deposits ever found -- has above-average grades skewed toward gold.
The game changer at Deep Kerr: "DRILL HOLE K-12-21 INTERSECTS 473 METERS GRADING 0.90% COPPER AND 0.31 GPT GOLD." At Camp Zone: "A second hole, C-12-02, intersected 22.0 meters averaging 8.94 grams per tonne of gold and 41.6 grams per tonne of silver. This hole returned a 2 meter intercept of 66.7 grams of gold per tonne and 287 grams per tonne of silver. A third hole into this zone, C-12-03 drilled 900 meters to the northeast of C-12-02, returned 98.7 meters at an average gold grade of 2.11 grams per tonne. There is also a third target McQuillan that got a nice bulk deposit whiff from the only drill hole conducted: 68 m of 0.99 gm Au and 0.26% Cu.
These strong indications at Deep Kerr and Camp Zone have the potential of leveraging a very good project into one of the very best. This explains what SA is up to:

Seabridge Chairman and CEO Rudi Fronk noted that 'everything we have learned in the current program tells us that the core should be close to KSM's existing deposits at a reasonable depth. We are finding the markers that favor a discovery. Both positive and negative results have been helpful in narrowing the search. Although we are quite excited by the unanticipated discovery of the Camp Zone, we are committed to this search for the core zone. It may take more than one season to find the prize but this effort offers the potential to dramatically improve project economics.'

Exeter's (XRA) Caspiche is a little different in that it is primarily a gold porphyry: 0.48g Au 0.18 Cu 1.12 Ag, which average 0.81g Au or 23.53 million oz Au equivalent. In comparison, the nearby Cerro Casale Gold-Copper Deposit (considered one of the best out there) has reserves of 26.3 million ounces of gold at a grade of 0.50 grams per tonne ("g/t") and 5,782 million pounds of copper grading 0.22%. Yet Mr. Market values Caspiche at a insulting $50 million enterprise value.
Nova Gold's second property (up for sale), the prophyry Galore Creek, is strangely also considered an afterthought and has reserves of 5.45 million oz of 0.32 grams of AU, and 1.020 million oz and 8.9 billion of 0.5% CU and a very nice AG grade of 6 gm Ag (102 million oz) to boot. There is considerable exploration upside left.
In Chesapeake Gold's case, it has the silver and zinc credits that give this deposit some kick. Almost 20 million oz of gold is at 0.50 gm, but also has 9 million oz equivalent silver at 0.73 gm equivalent plus 0.16% zinc.

Bonds (Delay waale)

Few corporate bonds (mostly railroad issues), called income bonds, that contain a provision permitting the firm to omit or delay the payment of interest if the firm’s earnings are too low. They have been issued as part of bankruptcy reorganizations or to replace a preferred-stock offering of the issuer. A variant of this bond type, deferrable bonds (also called trust preferred and debt/equity hybrids), witnessed explosive growth in the 1990s. Deferrable bonds are deeply subordinated debt instruments that give the issuer the option to defer coupon payment up to five years in the event of financial distress.
Zero-coupon bonds have been issued by corporations and municipalities since the early 1980s. For example, Coca-Cola Enterprises has a zero-coupon bond outstanding due June 20, 2020 that was issued on May 9, 1995. But nor our Indian Government nor big govts of the world issue a zero bond with maturity over an year. Merrill Lynch was the first to do this with its creation of Treasury Investment Growth Receipts (TIGRs) in August 1982. The most popular zero-coupon Treasury securities today are those created by government dealer firms under the Treasury’s Separate Trading of Registered Interest and Principal Securities (STRIPS) Program.Governments and corporations also issue inflation-indexed bonds whose coupon payments are tied to an inflation index. These securities are designed to protect bondholders from the erosion of purchasing power of fixed nominal coupon payments due to inflation. For example, in January 1997, the U.S. Treasury auctioned a 10-year Treasury note whose semiannual coupon interest depends on the rate of inflation as measured by the Consumer Price Index for All Urban Consumers (i.e., CPI-U). The coupon payments are adjusted annually. These issues are referred to as “Treasury Inflation-Protection Securities” (TIPS). As of this writing, thereasury issues TIPS with 5-year, 10-year, and 20-year maturities. Some corporations followed the Treasury and issued inflation-indexed bonds of their own.
There are securities that have a coupon rate that increases over time. These securities are called step-up notes because the coupon rate “steps up’’ over time. For example, a six-year step-up note might have a coupon rate that is 5% for the first two years, 5.8% for the next two years, and 6% for the last two years. Alternatively, there are securities that have a coupon rate that can decrease over time but never increase. For example, in June 1998, the Tennessee Valley Authority issued 30-year 6.75% putable automatic rate reset securities (PARRS), also known as ratchet bonds. Beginning five years after issuance and annually thereafter, the bond’s coupon rate is automatically reset to either the current 30-year constant maturity Treasury yield plus 94 basis points or to 6.75%, whichever is lower. The coupon rate may decline if Treasury yields decline, but it will never increase. This bond also contains a contingent put option such that if the coupon rate is lowered, the bond is putable at par. Ratchet bonds were designed as substitutes for callable bonds.
In contrast to a coupon rate that is fixed for the bond’s entire life, the term floating-rate security or floater encompasses several different types of securities with one common feature: The coupon rate will vary over the instrument’s life. The coupon rate is reset at designated dates based on the value of some reference rate adjusted for a spread. For example, consider a floating-rate note issued in September 2003 by Columbus Bank & Trust that matured on March 15, 2005. The floater delivers cash flows quarterly and has a coupon formula equal to the threemonth LIBOR plus 12 points.
Typically, floaters have coupon rates that reset more than once a year (e.g., semiannually, quarterly, or monthly). Conversely, the term adjustable-rate or variable-rate security refers to those issues whose coupon rates reset not more frequently than annually.There are several features about floaters that deserve mention. First, a floater may have a restriction on the maximum (minimum) coupon rate that will be paid aty reset date called a cap (floor). Second, while the reference rate for most floaters is a benchmark interest rate or an interest rate index, a wide variety of reference rates appear in the coupon formulas. A floater’s coupon could be indexed to movements in foreign exchange rates, the price of a commodity (e.g., crude oil), movements in an equity index (e.g., the S&P 500), or movements in a bond index (e.g., the Merrillynch Corporate Bond Index). Third, while a floater’s coupon rate normally moves in the same direction as the reference rate moves, there are floaters whose coupon rate moves in the opposite direction from the reference rate. These securities are called inverse floaters or reverse floaters. As an example, consider an inverse floater issued by the Federal Home Loan Bank in April 1999. This issue matured in April 2002 and delivered quarterly coupon payments according to the following formula:
18% − 2.5 × (three-month LIBOR)
This inverse floater had a floor of 3% and a cap of 15.5%. Finally, range notes are
floaters whose coupon rate is equal to the reference rate (adjusted for a spread) as long as the reference rate is within a certain range on the reset date. If the reference rate is outside the range, the coupon rate is zero for that period.
One reason that debt financing is popular with corporations is that the interest payments are tax-deductible expenses. As a result, the true after-tax cost of debt to a profitable firm is usually much less than the stated coupon interest rate. The level of the coupon on any bond is typically close to the level of yields for issues of its class at the time the bond is first sold to the public. Some bonds are issued initially at a price substantially below par value (called original-issue discount bonds, or OIDs), and their coupon rate is deliberately set below the current market rate. However, firms usually try to set the coupon at a level that will make the market price close to par value. This goal can be accomplished by placing the coupon rate near the prevailing market rate.
To many investors, the coupon is simply the amount of interest they will receive each year. However, the coupon has another major impact on an investor’s experience with a bond. The coupon’s size influences the volatility of the bond’s price: The larger the coupon, the less the price will change in response to a change in market interest rates. Thus the coupon and the maturity have opposite effects on the price volatility of a bond.Participants in the bond market use several measures to describe the potential return from investing in a bond: current yield, yield-to-maturity, yield-to-call for a callable bond, and yield-to-put for a putable bond. A yield-to-worst is often quoted for bonds. This is the lowest yield of the following: yield-to-maturity, yields to all possible call dates, and yields to all put date.
Writing about bonds is always interesting but requires skill and knowledge in abundance, soon there be a continuation.

steal your heart

Life is like a shadow
It never stays in one place
I'm standing here anyway
However long it takes to steal your heart

Behaviourial finance

TO UNDERSTAND HOW economies work and how we can manage them and prosper, we must pay attention to the thought patterns that animate people’s ideas and feelings, their animal spirits. We will never really understand important economic events unless we confront the fact that their causes are largely mental in nature.
It is unfortunate that most economists and business writers apparently do not seem to appreciate this and thus often fall back on the most tortured and artificial interpretations of economic events. They assume that variations in individual feelings, impressions, and passions do not matter in the aggregate and that economic events are driven by inscrutable technical factors or erratic government action. In fact, as we shall discover, the origins of these events are quite familiar and are found in our own everyday thinking 
In the intervening years the world economy has moved in directions that can be understood only in terms of animal spirits. It has taken a rollercoaster ride. First there was the ascent. And then, about few years ago, the fall began. But oddly, unlike a trip at a normal amusement park, it was not until the economy began to fall that the passengers realized that they had embarked on a wild ride. And, abetted by this obliviousness, the management of this amusement park paid no heed to setting limits on how high the passengers should go. Nor did it provide for safety equipment to limit the speed, or the extent, of the subsequent fall.

Traditional economics teaches the benefits of free markets. This belief has taken hold not just in the bastions of capitalism, such as the United States and Great Britain, but throughout the world, even in countries with more established socialist traditions, such as China, India, and Russia. According to traditional economics, free market capitalism will be essentially perfect and stable. There is little, if any, need for government interference. On the contrary, the only risk of major depression today, or in the future, comes from government intervention.
This line of reasoning goes back to Adam Smith. The basis for the idea that the economy is essentially stable lies in a thought experiment which asks: What do free, perfect markets imply? The answer: If people rationally pursue their own economic interests in such markets, they will exhaust all mutually beneficial opportunities to produce goods and exchange with one another. Such exhaustion of opportunities for mutually beneficial trade results in full employment. Workers who are reasonable in their wage demands—those who will accept a wage that is less than what they add to production—will be employed. Why? If such a worker were unemployed, a mutually beneficial trade could be arranged. An employer could hire this worker at the wage she requires and still have some spare extra output for a larger profit. Of course some workers will be unemployed. But they will be unable to find work only because they are engaged in a temporary search for a job or because they insist on pay that is unreasonably high greater than what they add to production. Such unemployment is voluntary.

There is a sense in which this theory about the economy’s stability is remarkably successful. For example, it explains why most people who seek work are employed most of the time—even in the troughs of severe depressions. It may not explain, for example, why 25% of the U.S. labor force was unemployed in 1933 at the height of the Great Depression, but it does explain why, even then, 75% of the workers who sought jobs were employed. They were engaging in the mutually beneficial production and trade predicted by Adam Smith.

So, even at its worst, this theory deserves high marks—at least by the criterion of a schoolboy we once overheard at a restaurant. He was complaining about the C he had received on a spelling test—despite the fact that 70% of his answers were correct. Furthermore the theory does so well even in its worst prediction in two hundred years. Most of the time—as now, when the U.S. unemployment rate is still 6.7% (although rising)—it predicts remarkably accurately.

Consider yet again the Great Depression. Few people ask why employment was as high as 75% in 1933. Instead the common question is why 25% of the labor force wasunemployed. To our mind macroeconomics concerns departures from full employment. Failure to be at such full employment must then result from a departure from the classical model of Adam Smith.We do believe, like most of our colleagues, that Adam Smith was basically right regarding why so many people are employed. We are also willing to believe, with some qualifications, that he was essentially correct about the economic advantages of capitalism. But we think that his theory fails to describe why there is so much variation in the economy. It does not explain why the economy takes rollercoaster rides. And the takeaway message from Adam Smith—that there is little, or no, need for government intervention—is also unwarranted.

In contrast, John Maynard Keynes sought to explain departures from full employment, and he emphasized the importance of animal spirits. He stressed their fundamental role in businessmen’s calculations. “Our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing,” he wrote. If people are so uncertain, how are decisions made? They “can only be taken as a result of animal spirits.” They are the result of “a spontaneous urge to action.” They are not, as rational economic theory would dictate, “the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

In the original use of the term, in its ancient and medieval Latin form spiritus animalis, the word animalmeans “of the mind” or “animating.” It refers to a basic mental energy and life force. But in modern economicsanimal spirits has acquired a somewhat different meaning; it is now an economic term, referring to a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.

five different aspects of animal spirits and how they affect economic decisions—confidence, fairness, corruption and antisocial behavior, money illusion, and stories:

• The cornerstone of our theory is confidenceand the feedback mechanisms between it and the economy that amplify disturbances.
•  The setting of wages and prices depends largely on concerns about fairness.
• We acknowledge the temptation towardcorrupt and antisocial behavior and their role in the economy.
• Money illusion is another cornerstone of our theory. The public is confused by inflation or deflation and does not reason through its effects.
• Finally, our sense of reality, of who we are and what we are doing, is intertwined with the story of our lives and of the lives of  others. The aggregate of such stories is a national or international story, which itself plays an important role in the economy.

china's dream by Roach Turkisk Zaman

China's recent leadership transition was widely depicted as a triumph for conservative hard-liners and a setback for the cause of reform -- a characterization that has deepened the gloominess that pervades Western perceptions of China. In fact, nothing could be further from the truth.

Xi Jinping and Li Keqiang – the top two officials in China's new governing council (the Standing Committee of the Politburo) – are both well educated, well traveled, and sophisticated thinkers who bring a wealth of experience to the many challenges that China faces. As so-called Fifth Generation leaders, they continue the steady progress in competence that has marked each of China's leadership transitions since the emergence of Deng Xiaoping in the late 1970's.
While it is entirely premature to judge the style and direction that China's new leaders will take, three early hints are worth noting. First, Xi's assumption of power is more complete than was the case in earlier transitions. By immediately taking the reins of both the Chinese Communist Party (CCP) and the Central Military Commission, he has a greater opportunity to put his personal stamp on policy than his predecessors had at the start of their administrations.
Yes, China governs by a consensus of the Standing Committee. But Xi is well positioned to drive the thinking of a now-leaner decision-making body (downsized from nine members to seven). Moreover, he has long favored a market-friendly, scientific approach to economic development, which will be vital to China's future.
Second, Li Keqiang – the presumptive incoming premier – could be the big surprise in the new leadership team. Unlike the current premier, Wen Jiabao, who was third in the chain of command for the past ten years, Li has been elevated to number two, which suggests a greater potential for power-sharing between the CCP and the government at the top of China's new team.
With a Ph.D. in economics, Li, who, as Executive Vice Premier, headed the all-important “Central Committee Finance and Economy Leading Small Group,” is especially well equipped to deal with the long-awaited structural transformation of China's economy. Indeed, having overseen China 2030 – an extraordinary joint report recently produced by the World Bank and China's own high-level think tank, the Development Research Center – he has a deep understanding of the roadmap that China must embrace. His promotion could be a major step up from Wen, who emphasized rhetoric and strategy more than implementation.
Third, and contrary to prevailing wisdom in the West, Wang Qishan, one of China's savviest and most experienced senior officials, has not been relegated to obscurity in his new position overseeing “discipline” on the Standing Committee. Yes, Wang has invaluable experience in the financial sector, and it would have been logical for him to assume similar responsibilities on the new leadership team. But, as one of the top seven in the CCP hierarchy, he will still be able to weigh in on all important economic and financial matters, while assuming responsibility for tackling one of China's toughest problems – corruption. Having known Wang for more than 15 years, my sense is that he is very well suited to this vital task.
The other members of the new Standing Committee bring a broad array of experience and skills. That is especially true of Yu Zhengsheng and the two Zhangs, Dejiang and Gaoli, who come from senior roles in three of China's most powerful and dynamic urban centers – Shanghai, Chongqing, and Tianjin. Their deep knowledge of the key role played by urbanization in driving economic development will be critical to broadening the structural transformation that China now faces.
The West is not only overlooking the new Chinese leaders' enhanced skill set, but is also misjudging the current state of the country's economy, which, while far from perfect, is not crisis-torn and in desperate need of a quick fix. In fact, China is emerging in reasonably good shape from yet another global slump. This gives its new leaders leeway between now and the National People's Congress in March 2013 to focus on the development of implementation tactics for their strategic agenda.
None of this is to minimize China's enormous challenges. But strategy is not the problem; the pro-consumption 12th Five-Year Plan lays that out with great clarity. The new leadership must now shift the focus to commitment and implementation of that strategy – namely, through enactment of a new set of bold reforms, especially those related to the services sector, the social safety net, and state-owned enterprises. Xi's emphasis on the “top-level design” of reforms lends itself particularly well to this agenda, as does Li's intimate familiarity with the detailed blueprint provided by China 2030.
Western observers, focusing on recent public statements by Xi and Li, highlight a dearth of comments in favor of economic or political reforms. But the same could have been said of the early utterances of Deng, modern China's greatest reformer. As Ezra Vogel notes in Deng Xiaoping and the Transformation of China, Deng's first public statement after his political rehabilitation in 1976 was, “Marxism-Leninism and Mao Zedong Thought constitute the guiding ideology of the party.”
Those were not exactly enlightened words – especially in view of what was shortly to come. Yet Deng seized the moment at a critical juncture that is strikingly reminiscent of the one now faced by Xi and Li.
As is the case in any country's leadership transition, no one knows for certain whether China's incoming administration is up to the multiplicity of challenges that they face. Since the days of Deng, China has had an uncanny ability to rise to the occasion and meet its challenges head on. The new generation of leaders has the right skills and experience for the task. Western biases notwithstanding, we will know soon enough if they can translate strategy into action.