Monday, August 19, 2019

BWorld 360, Rule of law and property rights, Hong Kong vs China

* My column in BusinessWorld on August 15, 2019.

“… the rules must apply to those who lay them down and those who apply — that is, to the government as well as the governed — and that nobody has the power to grant exceptions.”

— Friedrich Hayek, Chapter 10, The Constitution of Liberty (1960)

This is the essence of the “rule of law” — that the law applies equally to unequal people, no one is exempted and no one can grant an exemption. Once exemptions are made, this automatically leads to the rule of men. The powerful and the mob are exempted from penalties for violating certain laws.

The nearly three months of protests and discontent in Hong Kong is centered over a subject related to the rule of law — the proposed Extradition bill, where suspected criminals and dissidents in Hong Kong can be extradited to China. And China, being a one-party communist government, is known for having little respect for the rule of law, little respect for the rights of suspects. It sends shivers down the spines of the people of Hong Kong to contemplate what would happen if some or many of them are extradited to China when Hong Kong has its own courts already.

There is proof behind the statement that China has little respect for the rule of law. In the World Justice Project’s annual “Rule of Law Index” (RoLI), countries and jurisdictions are scored and ranked based on their performance on eight factors and 44 sub-factors. The RoLI 2019 Report involved more than 120,000 household surveys and 3,800 expert surveys in 126 countries and jurisdictions.

China ranks low overall on RoLI, 82nd out of 126 countries; in contrast, Hong Kong ranked 16th. China scored particularly low on Factor 4: Fundamental Rights, like Freedom of opinion and expression, Freedom of belief and religion, Freedom of assembly and association, are effectively guaranteed. It is also low on Factor 8: Criminal Justice, like Criminal system is impartial, is free of improper government influence.

In property rights protection, both physical and intellectual property, again Hong Kong ranked high. We consider the annual study International Property Rights Index (IPRI) by the Property Rights Alliance (PRA), based in Washington, DC. The IPRI 2018 Report showed that Hong Kong ranked 17th while China ranked 52nd out of 126 countries and jurisdictions. In intellectual property rights (IPR) protection, the same pattern is observed (see Table).

The United Kingdom and its former colonies in Asia — Hong Kong, Singapore, and Malaysia — rank high in both RoLI and IPRI. The great minds of British classical liberal thinking like John Locke, Adam Smith, and John Stuart Mill, successfully influenced the legal and economic philosophy and practice of these countries.

Communist China in contrast, is still reeling from the influence and heavy-handed dictatorship of its founder Mao Zedong. Its tolerance for citizens’ freedom of expression is very low. Extended in foreign relations, its tolerance for international rule of law like respect of international waters at the South China Sea/west Philippine Sea is also very low.

I have great respect and admiration for the brave people of Hong Kong, especially its youth. You are fighting the lackey of the biggest dictatorial government for a noble cause.

On a related note, the UK-based Geneva Network and Minimal Government Thinkers (MGT) will launch a report on the “Importance of IPR for ASEAN” in Manila on Sept. 24. This joint report will be co-signed by the Institute for Democracy and Economic Affairs in Kuala Lumpur, Paramadina Public Policy Institute in Jakarta, Siam Intelligence Unit in Bangkok, MGT in Manila, and the Viet Nam Economic Policy Research Centre in Hanoi. The Geneva Network is coordinating the study.

The keynote speaker for the event will be Trade and Industry Secretary Ramon Lopez. Mr. Lopez is very explicit in his support for IPR protection being among the cornerstones of technological innovation and economic competitiveness for any country.

IPRI 2019 will also be launched in Manila later this year. MGT and the Foundation for Economic Freedom will be the local partners of PRA in launching this big event.

See also:

Sunday, August 18, 2019

On India's N-East provinces, Kashmir

I've been to India (Mumbai only), Nepal and Bhutan and I just realized why India won't just grant independence to those provinces and regions on the N-East? These areas are isolated from India mainland and much closer to Nepal, Bhutan, Bangladesh, China and Myanmar than to the capital New Delhi.

Also Kashmir, I think India and Pakistan should just leave this area to become an independent nation. Both governments cannot even develop their respective countries, why spend huge money on military and bureaucracies to claim ownership and control of this area?

Two friends do not support giving independence to Kashmir based on two scenarios.

1. A new Kashmir state would be equivalent to another Afghanistan in South Asia, another place for international and regional powers to misuse weaker countries. A political settlement between the two countries is a long lasting solution.

2. A new Kashmir state will be gobbled up by China.

On #1, it can be another Afghanistan, or another Latvia or Georgia or Ukraine or Kazakhstan of former USSR, or another Singapore. SG won't be as prosperous as it is now if it's just one of many states of Malaysia, like Penang or Sabah.

On #2, CN annexing/gobbling Kashmir is more of speculation. If CN does that, automatically it will have 3 enemies -- India, Pakistan and new Kashmir nation. The first two gave Kashmir independence only to be colonized by CN? No way. CN does not want too many enemies, it has lots already in SCS/WPS.

I advocate disintegration of big countries to many, smaller countries. Thus, I think Russia, Canada, USA, Brazil, China, India, Indonesia, Nigeria, Philippines, Pakistan, etc should disintegrate.

BWorld 359, Why is Philippines’ GDP growth decelerating?

* My column in BusinessWorld on August 13, 2019.

The Philippines’ GDP growth over the past 18 years has a beautiful and not-so beautiful story. Accelerating from 2001 to 2015, then decelerating lately: 6.9% in 2016, 6.7% in 2017, 6.2% in 2018, 5.6% in 2019’s 1st quarter (Q1), then 5.5% in Q2.


For brevity’s sake, we limit the possible factors to only two — external and internal factors. For external, we compare the Philippines’ growth with Asia’s big economies plus the US. For internal factors, we check the growth rates of GDP’s three components on the demand side: household consumption (C), government consumption (G), and private investments (I).

We can summarize the Table’s numbers for 12 economies as follows:

2001-2015: The global economy was generally good, except for the global financial turmoil in 2008-2009 that started in the US. Surprisingly, only the US and Japan performed badly while the rest managed to grow faster than the period from 2001-2005. The Philippines experienced consistent higher average growth over those 15 years.
2016-2018: The global and external economy seemed to be good. Seven countries have generally rising growth trends (the USA, Japan, Taiwan, Thailand, Singapore, Malaysia, Vietnam), three have flat trends (China, South Korea, Indonesia), and two have been declining (India and Philippines). But India’s “low” is still above 7%.

2019 H1: The external environment is bad. All have lower 2019 growth than 2016-18 levels except three countries — Japan, Indonesia, and Malaysia.

So if external factors have not been bad over the past three years yet the Philippines experienced consistent growth deceleration, the internal factors would explain it. The Department of Finance and National Economic and Development Authority pointed to high world oil prices in 2018, then the delayed approval of the 2019 budget as the main reasons for growth deceleration.

But this is not supported by the numbers. In 2017, growth of G was only 6.2% yet GDP grew at 6.7%, while in 2018, growth of G was double — 13.1% — and yet GDP grew only at 6.2%. In 2019 first half (H1), G was growing at 7.4% and GDP grew at 5.6%. G is not a big enough factor to pull overall GDP up or down compared to C and I.

What pulled down GDP growth in 2018 was low growth — only 5.6% — in C which is huge — it makes up about 65% of GDP.

In 2019, the main factor pulling growth down came from investments. Growth of I has been declining, from 25% in 2016, down to 13% in 2018, 8% in 2019 Q1, and a contraction at -8.5% in Q2. I is about 23% of GDP.

What caused the big decline of C in 2018?

The most proximate explanation is high inflation, 5.2% in 2018 from only 2.9% in 2017. This was largely due to higher oil taxes under the TRAIN (Tax Reform for Acceleration and Inclusion) law. High inflation adversely affected consumer confidence and hence, the decline in C.

What caused the big decline of I in 2018 and 2019?

The most proximate candidate is business uncertainty — from the proposed Endo bill (thankfully vetoed by the President in late July) and the TRABAHO (Tax Reform for Attracting Better and Higher Quality Opportunities) bill which was not passed and has been refiled in the present Congress. Many existing companies did not expand and some planned investments did not materialize. Then the reversal from integrated PPP (pubic-private partnership) to hybrid PPP kicked in. Some big infrastructure projects that could have been done by big local companies were instead given to China, Japan, other foreign contractors.

The new Congress should take note of these trends — the decline in C and I. Hence, they should not enact bills that will further erode consumer and investment confidence like higher taxes, higher regulatory fees, higher labor rigidities including higher mandatory minimum wages.

Congress should instead enact tax cut somewhere, reduced regulatory fees, and let companies give realistic labor pay. Expensive but repetitive work can easily be replaced by machines and robots now. Let the unskilled earn something, not zero by being unemployed and unhired.

See also:

Tuesday, August 13, 2019

China Watch 38, China Army to attack HK protesters?

My admiration and respect to the brave people of Hong Kong for protesting the long arm of the China Communist Party over them. It started with the protest vs the CN-inspired extradition bill where suspected criminals and dissidents can be extradited to CN and endure the lack of rule of law there.

Now on 3rd month of protests, the HK police are getting more aggressive and there are reports now showing that CN Army and police are assembling in Shenzhen, just across Hong Kong, and might come anytime to help the HK police stop the protests.

Hong Kong On The Edge: Chinese Troops Gather In Shenzen; 100s Of Flights Cancelled Over Protester "Terrorism"
by Tyler Durden   Mon, 08/12/2019 - 06:00

Global Times Shows Dramatic Video Of Chinese Army Preparing For Hong Kong Invasion
by Tyler Durden   Mon, 08/12/2019 - 10:44

Yesterday, HKIA authorities have cancelled all flights in the afternoon till evening as the airport was swarmed by so many people protesting police violence and Carrie Lam not listening to them. She only listens to Beijing, a puppet.

Other stories below:

All flights cancelled out of Hong Kong as thousands of protesters besiege airport over police violence
12 August 2019 21:20 Kris Cheng

Chinese tanks on the streets of Hong Kong? Beijing keeps its options open, as protests continue
By China correspondent Bill Birtles in Hong Kong
Updated Fri at 6:44am  August 09, 2019

Would China risk another Tiananmen in Hong Kong?
PUBLISHEDAUG 12, 2019, 10:39 AM SGT

UK concerned at latest Hong Kong violence
AUGUST 12, 2019 / 7:11 PM /

Chinese armed police truck convoy rolls into city near Hong Kong
Phoebe Zhang    Published: 7:48pm, 12 Aug, 2019

Communism is evil. One-party dictatorship is murderous.

See also:

BWorld 358, How government restricts energy development

* My column in BusinessWorld on August 08, 2019.

In the first week of August this year, I saw seven energy-related stories in BusinessWorld Economy section alone:

1. “SolGen appeals Supreme Court ruling on power deal competitive selection” (Aug. 1).

2. “Solar Para sa Bayan franchise signed” (Aug. 2).

3. “MinDa added to energy investment council” (Aug. 2).

4. “PCC, ERC agree to cooperate to push competition in power sector” (Aug. 6).

5. “Energy efficiency firms call for new law’s IRR to reflect BoI perks” (Aug. 6).

6. “High court seeks Meralco, ERC comment on bill deposits case” (Aug. 7).

7. “DoE promises to seek other ways to make fuel prices more transparent” (Aug. 7).

The subjects within energy vary but there is one common trend in them — there are government agencies involved in all issues, which implies that electricity and petroleum concerns remain highly politicized until now.

Of those seven stories, the following stand out:

No. 2. What I call Solar para sa Politika. This is a very unique energy company in the Philippines: It is the only power generation company and distributor with a Congressional franchise; it is the only electricity distributor that covers so many provinces and encroaches on the geographical areas of other franchised electric cooperatives; it is the only renewable energy company opposed by almost all other renewable energy developers like Developers of Renewable Energy for AdvanceMent, Inc. (DREAM) because of certain privileges it gets that appear to be un-Constitutional; it is the only energy company whose franchise is questioned or outrightly opposed by other energy industry associations like Philippine Independent Power Producers Association and Philippine Rural Electric Cooperatives Association, major local business associations like Makati Business Club and Management Association of the Philippines, and foreign business groups like the American Chamber of Commerce; and, it is the only energy company whose owner is the son of an influential legislator. The ex-senator headed the Senate Finance Committee, the position alone could terrorize the Department of Energy (DoE) and Energy Regulatory Commission (ERC) and their budget if they join the chorus to oppose the franchise. Shameless corporation.

No. 5. Energy efficiency should be done even without legislation but this one sought legislation to target fiscal perks. The Department of Finance is the natural opposition because it wants to reduce perks and exemptions in exchange for lower corporate income tax (CIT). Another precedent, so other energy sub-sectors would also seek legislation to get their own share of perks and tax exemptions.

No. 7. The DoE knows that the “expensive oil is beautiful” policy under the TRAIN law (Tax Reform for Acceleration and Inclusion) is the biggest contributor to recent high oil prices. For diesel the excise tax, P2.50/liter increase in 2018, P2 this year, sub-total P4.50/liter increase plus VAT on excise tax. And another P1.50/liter increase in 2020. Yet the DoE instead turned its eyes on oil companies and imposed an implicit price control, prohibiting them from raising their prices unless they notify the DoE in advance and submit weekly reports about the components of their pricing. All players have trade secrets, like one has cheaper monthly land rent than others. These business secrets should not be divulged to others.

I also read in another newspaper that the leftist Makabayan bloc in Congress attacked Meralco for entertaining the competitive selection process (CSP) bid of its allied firms. Politicians as much as possible should stay away from the market dynamics of players once the government’s general rules have been issued, like the mandatory CSP instead of the regular bilateral power supply agreements with power generating companies.

So in the above stories, various government agencies aside from DoE and ERC — Supreme Court, Solicitor General, the Board of Investments, Philippine Competition Commission, Congress — are involved in various forms of regulations. Not mentioned there are other agencies that are also involved in power bureaucratization like the local government units, National Commission on Indigenous Peoples, Department of Agrarian Reform, Department of Agriculture.

The Philippines has among the lowest, poorest energy availability when compared with its many neighbors. See these numbers from the International Energy Agency (IEA), Key World Energy Statistics (KWES) 2018 report. (See Table).

The various energy regulators and law makers from the Executive, Legislative, and Judiciary should be aware and even be ashamed of this poor condition of Filipinos and Philippine-based businesses. Too much government intervention, regulations and prohibitions are bad for more energy development, more power supply addition, and cheaper electricity prices via more power supply addition and competition.

Private players should also avoid seeking new legislation for whatever bleeding-heart arguments they have and help depoliticize the energy sector. Many existing laws like the RE Act of 2008 (RA 9513) are already distortionary, let us not add any more.

See also:
BWorld 355, No climate crisis, August 03, 2019 

Monday, August 12, 2019

Climate Tricks 84, 97% climate consensus in Sicily

The UN, Al Gore, WWF, etc. repeatedly use the "97% consensus" by scientists of man-made warming. They should refer to themselves, 97-100% of folks like Al Gore, Obama, di Caprio, Prince Harry, Katy Perry, have a consensus, and ALL of them are “scientists.” 

These news reports were published mostly on July 31, 2019.

The UN climacrats would be unhappy. That distinction of gathering self-styled planet saviors arriving on private jets, choppers, SUVs and big limos guzzling on fossil fuels then lambast fossil fuels should be reserved for them.

These planet saviors should have traveled there via solar planes, giant kites, Uber brooms, witch-choppers, anything and everything huge that fly and have zero use of fossil fuels, zero CO2 emission.


Lots of wastes -- taxpayers' funded global climate junkets, climate bureaucracies like CCC, carbon tax like oil tax hike under TRAIN law, subsidies to renewables like feed-in-tariff (FIT), mandatory use of bioethanol, climate loans with WB-ADB, etc. Because there is "97% consensus" by Obama et al.

The Commission on Human Rights (CHR) of the Philippines also joins the fossil fuel junkets. Upon the prodding of Greenpeace, they investigate the "carbon majors" by flying to Paris, NY, London, The Hague, etc. Plus provincial investigations. Fossil fuel is so "evil", even its haters and investigators use it a lot, 

See also:

Saturday, August 10, 2019

BWorld 357, We need further FDI liberalization

* My column in BusinessWorld on August 06, 2019.

Foreign direct investment (FDI) is important because the benefits to the destination economy are not limited to capital infusion but also technology transfer, management systems, sources of more production inputs, and extra access to foreign markets. Thus, Japanese FDIs coming to the Philippines not only bring in Japanese capital and technology, but also additional access to Japan and other export markets.

Since we have not liberalized FDIs enough, and those FDIs from many rich countries are just seeking for more economies that will give them a friendlier environment, other neighbors in the ASEAN have optimized these FDI inflows. Singapore remains the top destination while the Philippines is a relatively late-comer. In the ASEAN-6, five countries — Singapore, Indonesia, Vietnam, Thailand, and Malaysia — would get double-digits of billion dollars for at least two years over the last six years. The Philippines experienced that only once, in 2017. That’s the bad news.

The good news is that the Philippines has gotten the momentum since the previous administration and has overtaken Malaysia in attracting FDIs in 2017 and 2018. Perhaps one reason is that Malaysia has become more of FDI source or exporter. (See Table 1.) 

For intra-ASEAN FDI, the favorite destination is Indonesia. Out of its $22 billion in 2018, $11.8 billion came from its ASEAN neighbors. The least favourite is Malaysia as only $0.5 billion came from neighbors last year. And this probably explains how Malaysia is becoming more of a net FDI source or originator than a destination.

The Philippines is also not a favorite FDI destination for its neighbors. Last year, out of $9.8 billion in FDIs, only $1 billion came from our ASEAN neighbors.
In terms of FDI inward stock — the net for inflows minus outflows over the years — Hong Kong, China, and Singapore are the topnotchers. Japan is more of an FDI source or exporter, not a destination.

The expansion of FDI from 1998 to 2018 or over two decades, the average for East Asia is around 8x expansion. The Philippines’ is 7.4x. Mongolia is an outlier with 207.5x because of its very low level in 1998. My data is from the UN Conference on Trade and Development (UNCTAD), World Investment Report (WIR) 2019. (See Table 2).

The continuing challenge for the Philippines is to further deepen and expand its attractiveness to foreign investments. Local investments immediately benefit and expand when FDIs increase because local investors are the partners of these foreigners in equity infusion and as suppliers of materials and services.

Among the important legislative measures needed to further liberalize FDIs in the country are the Public Service Act (PSA) amendment, the Foreign Investment Act amendment, the Lifting foreign equity restrictions, and the Retail Trade Act amendments.
The PSA amendment is important because it will liberalize transportation (land, sea, air) and allow more FDIs in rails, bus lines, shipping lines, and airlines. Also, liberalization in telecoms, although the entry of China Telecom in the third telco has become a source of suspicion and unease among legislators and the public.

Shipping lines and airlines liberalization, in particular, are very important because new foreign players with bigger capitalization and more modern technology will also help market the Philippines as a destination country for their tourists, traders, and investors. The ships bring goods in and out, both production inputs and finished products; the planes bring people and services in and out, both local and foreign.

More competition will also make local players more price-competitive, benefitting Philippine-based businesses and tourists. We should further liberalize the economy in commerce, investments, and tourism, not restrict it with nationalist, populist, even socialist sentiments.

See also:
BWorld 355, No climate crisis, August 03, 2019 

UPSEAA lecture 4, Johanna Chua

Last Thursday, another UP School of Economics Alumni Association (UPSEAA) boardroom lecture given by UPSE '94 Summa cum laude graduate Johanna Chua, now with Citibank.

She delivered a fast, articulate, pure verbal lecture, no ppt. Some data that I got from the web before I discuss her talk.

A recent chart from zero hedge,

Jo recognized the growing trade deficit of the US with China. She differentiated the cultural differences between the two countries, CN being hierarchical, US more flexible in commerce and politics. CN's Xi Jinping leadership is followed down the line, US' Donald Trump leadership is littered with opposition, erratic, "magulo."

I raised this point during the open forum, that CN being a one-party communist dictatorial government needs someone in the US who's "less traditional" and "magulo" to prick their complacency, to create disruption in how things are done in trade, investments and IPR protection.

She replied that the kind of communism in CN is not the traditional view that we know, there is leeway in private businesses to grow. She added that CN has created a community of allied countries and economies (BRI, etc.) even before the tensions with Trump leadership started.

I added that on the contrary, CN has pictured itself as a bully and isolationist, like its militarization of the SCS/WPS that alienated Vietnam, Indonesia, Philippines, aside from its territorial disputes with Japan, problems with "rebel" regions like Taiwan, Tibet, Uighur province, plus the ongoing political protests in HK.

Jo recognized these geopolitical problems of CN and diplomatic steps are undertaken.
There are other things she said that I don't really agree but overall, the lady is very articulate and intelligent to cover many topics with just a short piece of paper as her guide notes.

UPSEAA board members present that night headed by President Jeffrey Ng (to the left of Johanna).

Batches '93 and '94 guys.

Meanwhile, great food and drinks were served by Kuwago's.

Thanks again to Union Bank for allowing UPSEAA to use their cool digital banking place, The Ark.

Next event -- the annual UPSE alumni reunion on September 7, Saturday, 4pm down at UPSE Diliman. Host will be the silver alumni, batch '94.

See also:
UPSEAA lecture 1, Robina Gokongwei-Pe, July 20, 2019
UPSEAA lecture 2, DTI Sec. Mon Lopez, July 21, 2019 

UPSEAA lecture 3, Tito Ortiz, July 22, 2019.