The expansion of China’s infrastructure bank

In Yesterday’s Financial times, there was an article about China’s announcement to double the funding for it’s new Asian Infrastructure Development Bank (AIIB), from the $50B announced last month to over $100B.

This is notable in its own right; most of Asia and Africa are in desperate need of infrastructure investment.  But what was just as interesting to me is how the AIIB is being written about — it is a brilliant example of the filters our perspective imposes on how we view the world.  Digging deeper, I found three different articles about the establishment of the AIIB, one written by Bloomburg, one by the East Asia Forum, and one by Devex.  Each article was a good piece of news analysis, and each raised valid points worth considering.  But most notably to me, there was almost zero overlap between the three in the conclusions they drew.  In other words, forming a well-rounded view would be impossible by reading any of them alone.

The article in Bloomburg unsurprisingly takes an American slant: it paints the move as a geopolitical threat, which it undoubtedly is.  The somewhat sensationalist headline reads “China’s $50 Billion Asia Bank Snubs Japan, India”.  The AIIB will be a direct competitor to both the World Bank, which by unwritten charter always has an American president, and to the Asian Development Bank (ADB), which is funded by the US and Japan and is traditionally helmed by Japanese bankers.  During the recent recession, the US and western Europe have been scaling back their global infrastructure investments, while China has been rapidly expanding theirs, not just in Asia but in Africa and Latin America as well.  It is hardly surprising that China would be frustrated by their lack of ability to influence policy and priorities commensurate with their growing share of the world’s infrastructure investment portfolio.

The East Asia Forum article paints a rather different view.  It reads rather like a Chinese government press release: jingoism concealed within dry, technocratic, and tendentiously cautious prose.  An example, “If the new bank is managed professionally to finance commercially viable investments in economic infrastructure, it can begin to correct a very significant failure of global financial markets.”   But setting the bias aside, the analysis is a sound, cogent discussion of the business case for creating the AIIB and the challenges it can expect to face in fulfilling its mission.

un flagThe Devex article looks at the same news from the viewpoint of the international NGO and aid community.  Its headline “AIIB is coming… fast” draws the readers interest towards the potentially disruptive effect the AIIB will have on how NGO’s and aid organizations receive their funding.  Their analysis highlights that unlike the World Bank and ADB, the AIIB’s focus is on infrastructure rather than elimination of poverty.  They also call out that while the World Bank and ADB due diligence process includes social and environmental protections, the Chinese track record on environmental issues makes it unlikely that the AIIB will do likewise.

FigBashAnd what of my own filters? My own views are just as informed by my experiences and biases as the ones above.  As a believer in classical economics and as someone who has invested a significant portion of his career in working in the developing world, I view this as an almost unreservedly positive development.   Here is how I see it…

  • The world is desperately in need if infrastructure investment.  Even the World Bank, ADB, and AIIB combined won’t begin to satisfy the demand
  • The US and EU aren’t stepping up to the plate.  The US in particular is letting its own infrastructure crumble, let alone addressing the needs of the developing world. China is filling the void.  Here in Kenya, I have been told by bankers, policemen, and taxi drivers that infrastructure projects are first and foremost the government’s way of enriching its friends, but when they actually want something built, they bring in the Chinese
  • Competition is a good thing.  The World Bank is moribund and has no sense of urgency.  Paul Wolfowitz tried to do something about this during his brief stint as president, but was so tainted as one of the prime instigators of the Gulf War that his ideas were tossed out along with him.  A competitive threat, most particularly in the area of responsiveness and time to market, may be just the kind of wake-up call it needs.
  • The AIIB’s likely lack of concern for the environment is problematic, but the key is making the individual governments and the infrastructure projects themselves accountable; external political pressure on China has been spectacularly unsuccessful on most issues and is unlikely to be more successful here. Also, it is a mistake to think that improved infrastructure is automatically worse for the environment.  Lack of infrastructure can be just as damaging.  Look at Madagascar. Look at the Sahel.
  • Lastly and most importantly, the focus on infrastructure instead of directly on poverty elimination is a very good thing.  Aid programs are devastatingly unsuccessful.  Here in Kenya, it is estimated that less than 40% of the material aid that comes into East Africa actually reaches its intended recipients (more on what to do about that in a future blog post).  Time and again, I have seen first hand that the key to ending poverty is the commercial success of the impoverished.  Education is the number one factor enabling that success.  Financial inclusion is another key element.  But without access to infrastructure, the best skills and available capital will have nowhere to go.

Would love your thoughts

 

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Picking up the pen again… an ongoing adventure in Africa

Hello everyone,

After a hiatus of about a year and a half, I have started feeling the urge to blog again.  As some of you know, I have been working in three African countries — Kenya, Nigeria, and Ghana, since the start of 2014.  I started learning and absorbing all manner of interesting ideas, concepts, and folklore from the very beginning, and I suppose I could have started blogging from the outset, but for some reason I held back.  Lots of people write about Africa and what goes on here, and I didn’t feel qualified or informed enough to do anything but add to the noise.   But after half a year of being here, I am starting to feel like I do have something to say.  The reality on the ground here is a lot more nuanced that reading international news sources would have you believe, and I’d like to give you all a view of

  • How things are on the ground here, as compared to how they are written about
  • How the same events you read about are perceived by people who live here, and finally 
  • How the context for what happens here is framed by a history that is far richer than the post-colonial vacuum that most international news analysts have trouble seeing past

As before, I’m not interested in creating another business/politics/history blog.  There lots of excellent examples of these out there already.  I just want to give a personal narrative of my adventures here and what I have discovered as a result. 

Talk to you all soon.

Leavetaking

Tomorrow I set out on the grand adventure.  Today I will spend with my family for the last time in five weeks.  I am missing them already.

Quartz – a new online news publication

I have for the past week or two been following the rollout of a brand new news publication called Quartz.  It is backed by the same company that publishes The Atlantic, and the small staff has an impressive journalistic pedigree.

The publication is targeted at and optimized for mobile phones, tablets, and readers first and foremost, rather than as an afterthought. The business model is radical, and by no means secure, as Jean-Louis Gassee points out in his delightful Monday Note blog. All of this is interesting to me intellectually as an observer of evolving media delivery models, but what has me excited is not the delivery method but the quality of the content.

This is some of the most consistently excellent writing I’ve seen in a long time.  The quality of analysis is on par with that of The Economist, but Quartz is not an attempt to imitate The Economist (if it were, I’d probably agree with their editorial position a bit more :-).  Their editorial positions are decidedly less guarded, but written from a position of confidence that feels like it emanates more from experience than ideological certitude.

Given the upcoming deployment, I have particularly been enjoying their series of articles on the impact of the world economic slowdown on China, as well as a recent piece on Bo Xilai, which I did not agree with but thoroughly enjoyed reading.

Have a look for yourselves, and let me know what you think

About our clients…

With our deployment only two weeks away, our team is starting to kick into high gear on research and preparation.  I thought this would be an opportune time to tell you a bit about our clients and the work we will be doing.

As I have written, there are a total of twelve of us on Team China 18, coming from nine different countries.  We will be working with a total of six clients during our four-week engagement.  The twelve of us have been divided into three sub-teams of four people each, each of which will be looking after two clients.

I am on Subteam 3, along with my colleagues Brett, Martin, and Renata.  Brett is a technical architect from the US; he works in IBM’s consulting business like I do.  Martin is a security specialist from Slovakia, and Renata is an attorney from Brazil.

The first of our two clients will be the Fanya Metals Exchange.  They are a brand new, started only a year ago with the intent of becoming a commodities exchange like those in Chicago or London.  As some of you know, most commodities futures and option contracts traded on an exchange are purely financial instruments.  But many of the buyers and sellers trading metals on Fanya’s exchange are miners or manufacturers, so a much higher percentage of their contracts are settled in specie — in other words, they are paid in the actual, physical metals that the contracts represent.

Fanya has done very well in its first year, and would like to continue expanding and become a regional player, trading not only across China but throughout southeast Asia, and they have asked for our advice on how best to go about that.  To provide this kind of insight, we will be putting together a case study on the business and marketing models of some of the world’s major commodities exchanges, and advising them on how best to emulate the success and growth patterns that some of these have enjoyed.

The other client is a financial clearing house for small and medium business called KMfex.  China does not have a well-established market for commercial credit, so most small businesses looking for a loan need to look for individual investors.  The goal of KMfex is to create a clearing house where businesses and investors can find one another.  Like Fanya, KMfex wants us to put together a case study of companies in other regions who have enjoyed success with a similar business model.

In a lot of ways KMfex reminds me of Lloyds of London in the 1600’s and 1700’s.  At that time, the only “corporations” in existence were shipping companies, and if you wanted to invest in their voyages, you had to make contact directly.  There was a coffee shop not far from the docks called Lloyds where a lot of the ship owners and captains would hang out, and wealthy individuals looking for ships to invest in would often go to Lloyd’s in order to find a suitable ship and voyage.  Over a period of several decades, what began as a coffee shop transformed into something entirely new: the world’s first true financial market.  KMfex is in a different country and services general businesses instead of shipping companies, and its distribution channels are online rather than at a coffee shop.  But in most of the important ways, they are very much like Lloyd’s was when it started: a clearing house that made it easier for companies and investors to find one another.  I expect that many of the successes and failures Lloyds has experienced over time, including the massive “Names” scandal of the 1980’s could end up being quite relevant in terms of advising them.

So there you have it: a brief synopsis of what I will be up to very soon.  In addition to working with these two clients, I expect to also be helping to advise and support the other subteams, just as I am sure we will be able to rely upon their expertise and support for our two clients.  There are also a couple of one-day events that the entire team will be participating in; I’ll tell you more about these as the time gets nearer.

It’s less than two weeks now until we take to the skies…

Reflections on the life of M. C. Escher

Hello everyone.  It’s been several weeks now since I’ve last blogged.  As some of you know, I’ve spent the past several weeks in The Hague helping out with a troubled project here, and the needs of this project have required my entire focus.  I’ve had to temporarily set aside my day job to focus on this project full time, and while I have still been able to meet the basic needs of CSC preparation and take a little bit of time to work with our team on some preliminary research, there has been very little mindshare for some of the more extended research that I had been blogging about earlier.

There is, in fact, a lot to write about, and I hope to be able spend some time this weekend telling you all about the clients we have been assigned, our initial discussions with them, and the work we’ve been asked to perform in our very short four week engagement.  But today, I am in The Hague, and I am going to write about one of its most famous artists: M. C. Escher.

Like many children who went on to become technologists or academics, Escher’s prints and drawings have captivated and delighted me from a very young age.  I can easily remember sitting for hours just staring at such masterpieces as Relativity, Belvedere, and Drawing Hands.  The Hague is the capital of the Netherlands, home to many monuments both modern and historic, and a delightful city in its own right, yet the one thing I knew I wanted to do during my time here was visit the Escher Museum.  But the museum is only open between 11:00 and 17:00 each day, and with as busy as the project has been, it was looking unlikely that I would get the chance.  Today, however, a critical planning meeting had to be postponed until 23:00, leaving me at leisure for the late afternoon and early evening – my chance had arrived and I was certainly not going to let such an opportunity go to waste.  So I packed up my gear, walked a mile or so into the center of town and went in to pay my respects.

Quite a lot has been written about Escher’s art, and about the mathematical and architectural principles embodied in his work (for those of you with any interest I would recommend the excellent Godel, Escher, Bach as one fine exemplar).  I have read a fair bit of such writings, and did not go in expecting to learn a great deal more along these lines.  What I knew far less about was Escher the man, or anything about his life.  And as I sit enjoying a cool autumn evening in a nearby outdoor café, this is what I want to share with you.

In many ways, the story of Escher’s childhood reads like an archetype of the sort of crucible in which great artists are formed.  He grew up the fifth and youngest of five brothers, born to a patriarchal, domineering, and pragmatic father who has selected a career for each of his older siblings based on his own observation of their talents as children.  Escher’s talent for drawing is visible to everyone from a very early age, but his father certainly does not see artist as a stable, respectable, or reliable career choice, so he decides that his youngest son will become an architect.  But this is where the story breaks the mold.  Escher is not the archetypical angry young rebel; he is a charmer, a negotiator, and the many photographs of Escher and his family at the museum testify to a deep and abiding love between him and his entire family.

Yet, while young Maurits has no desire to go against the wishes of his father or be a disappointment to his family, this in no way lessens his determination to pursue his life’s desire of being an artist.  So what he does instead is select a university known for architectural excellence, but also possessed of an outstanding graphic arts program.  He enters the university as an architecture student, but in his first week there he arranges to meet with the head of the graphics art department,  a man named Samuel Jesserum de Mesquita who was very well known and respected, and shows Mesquita his art portfolio.

The professor is as delighted with Escher’s work as we all have become, and tells Escher that he really ought to consider switching his course of study to art.  A series of discussions ensue, the end result of which is that Escher talks the professor into paying his father a visit.  And it is during this visit that he finally wins his father’s agreement that the youngest Escher will become a graphic artist.

Other stories of Escher’s life, most notably how he went about courting his wife, paint a very similar picture: a portrait of a man who is respectful, impeccably polite, and yet quietly subversive and utterly determined to have his way.  And I found, while looking for the first time at the originals of some of my favorite pieces,  that understanding a little bit about Escher’s life brought an entirely new dimension of understanding, joy, and delight to my appreciation of his work.

That inscrutably shy-yet-knowing smile that adorns so many of Escher’s figures is the smile of a man who understands what you have told him, would not dream of arguing with you, much less going against your will, but who knows that regardless of what you may think at the time, his own vision will prevail. This way of approaching the world, respecting it yet at the same time subverting it to his will, shows through not only in Escher’s art and his relationships with people, but in his approach to the universe as a whole, as explained a delightful quote from the artist himself…

In my art I try to show that we live in a beautiful and orderly world, not in formless chaos [yet] I cannot resist fooling around with our established certainties.  It gives me great pleasure, for example, to deliberately mix up the second and third dimensions, flat and spatial, and to make fun of gravity.

In measuring myself against Escher as a man, I find that all too often I end up enamoured of the emotional satisfaction that comes from a successful confrontation. I quite admire Escher’s way of approaching the world.  I wish I were more like him.

Sources:  The images all came from the official Escher website: www.mcescher.com

The Seven Captures of Meng Huo

Today’s history post is a blend of fact and legend. When we last left our narrative, much of the northern and western portions of what is now Yunnan province, including what would become modern-day Kunming, had come under the control of the Han Dynasty shortly before 100 AD.  But some 300 years later, the Han Dynasty was in disarray, and three separate states: Cao Wei, Shu Han, and East Wu, all claimed their leaders to be the legitimate Han emperor.  And one of the local leaders in Yunnan saw this as an opportunity to assert independence.

This period of time, referred to as the Three Kingdoms Period, gets its name from these three states. It  was one of the bloodiest times in Chinese history, but it has been glorified and romanticized in Chinese art and literature, most notably by a famous romance of the same name, written in the 14th century by the revered Ming Dynasty author Luo Guanzhong.  Luo’s work is still the most widely read historical novel in China; it occupies a similar place in Chinese culture as the Thousand and One Nights does in Arabian, Don Quixote in Spanish, or Shakespeare in English.

Today’s story comes directly from this literary masterpiece, and concerns two main characters:

  • Meng Huo, a rebellious local leader of the Nanzhong region which includes much of modern-day Yunnan province and part of southern Sichuan as well.
  • Zhuge Liang, the prime minister of Shu Han, sent by the Shu Han king to bring him to heel.

A Qing-era drawing of Zhuge Liang

Zhuge Liang was an orphan who rose to prominence through academic brilliance; there is an account of how the Shu Han king shows his humility by visiting Zhuge Liang in his hut three times to beg that he take leadership in the Shu Han government.  So between Zhuge Liang’s natural ability and the superiority of the forces he was able to bring to the conflict, the eventual outcome is never in doubt.  What makes it an interesting story is not what he accomplishes, but how…

In the very first meeting of their forces, Zhuge Liang is able to capture Meng Huo and five hundred of his retainers through an artful bit of subterfuge that played upon the enthusiasm of his own subordinates.  Meng is brought before prime minister Zhuge, who asks if he will submit.  Men replies “No, I fell afoul of your tricks on a narrow mountain trail. Why should I submit?”.  But instead of killing him as was within his rights, Zhuge asks Meng what he would do if set free.  Meng replies “I shall reorder my forces for another trial at arms, but if you capture me again, I shall submit”.

A Ming-era drawing of Meng Huo

So Zhuge sents Meng free. This makes his subordinates very unhappy, enough so that they questioned their leader’s decision (understand that this is no small thing in traditional Chinese culture). Prime minister Zhuge replies “I can capture him again at ease whenever I choose to. But pacification of his kingdom requires that we win the hearts of the people.”  As by now you have deduced, Zhuge succeeds in capturing Meng again and again, usually through some cleverly thought out subterfuge.

After the second capture, Zhuge gives Meng a tour of inspection, letting him see not only the size of his army but the extent of his provisions.

After the third capture, Zhuge gives Meng tactical advice so that he can do a better job leading his army against the prime minister.

 

And so the story goes, until the seventh and final capture.  Having so thoroughly embarrassed Meng Huo by beating him time and again, Zhuge Liang does not have him brought forth again, but allows Meng to save face by sending a messenger instead to set him free and order his troops for yet another battle.  Thus defeated not only by arms but by courtesy, Meng Huo finally submits and swears fealty.  And in response, Zhuge Liang not only allows him to keep his role in vassal to Shu Han, but actually seeks his advice on further adventures.

This is as thoroughly a Chinese tale as any I have ever come across, and speaks worlds about how the Chinese see themselves, and the ideal of behavior that they aspire to.  It continues to serve as a model of behavior into this day and age. During WWII, when Chairman Mao was leading armies against the Japanese, he explicitly evoked the seven captures of Meng Huo as the reasoning behind his order that Chinese troops captured fighting for the Japanese be set free instead of killed. In explaining his reasoning to Communist leaders, Mao says:

In principal, whether they are officers or soldiers and no matter what social background they come from, no puppet troop captives are to be killed. Even those elements who have a deep hatred for us and come back to fight us again after being released may be spared execution. That is, the method of repeated capturing and releasing is better than killing, and its impact is greater. In releasing captives, there should be absolutely no posting of bail, and they should not be made to vow that they will never be puppet soldiers in the future. But they can be required to swear that they will not really help the Japanese oppose the New Fourth Army in the future. And if they do actually violate their oath and help Japan fight us, then we should still patiently carry out the policy of “seven times capturing Meng Huo.”

 

 

A modern, anime-style rendition of Zhuge Liang

I have found this kind of long-term thinking an essential part of the Chinese mindset; it puts the Chinese focus on relationships on full display, and contrasts sharply with the more western focus on direct, short-term, and measurable results. Personally, I discern no clear superiority in either way of thinking.  But whether it is working day-to-day with your Chinese colleagues or trying to understand the seemingly inexplicable actions of the Chinese government, the impact of this mindset needs to be understood.

Sources

As usual, I used Wikipedia for times, dates, and other background, as well as for the drawing of Meng Huo. An excerpt from a dissertation by Konrad Lawson provided the links to Mao’s policies. The Qing era drawing of Zhuge Liang comes from history.cultural-china.com, while the modern one comes from sanguoguide.com, which is a fabulous guide to the classic novel and its subsequent adaptations.

The story itself comes directly from the English-language version of The Three Kingdoms that I picked up the last time I was in China.