Wednesday, February 10, 2016

Why China Should Just let the Stock Market Crash

Why China Should Just let the Stock Market Crash

The mainland’s securities regulator is likely to make it harder for major shareholders to sell stocks on the secondary market, as the authority seeks to avoid another punishing sell-off following sharp declines on Monday that triggered a circuit-breaker trading suspension.

It’s time again for a tale of two cities although, in fact, I don’t have to tell the tale. The two charts below tell it all for you.

Newspapers are in words business, however, and the boss won’t like it if I don’t put in some words, too. Thus:

The blue line in the first chart shows the growth of the mainland economy on an index basis where January 2000 equals 100. The red line shows you the performance of the Shanghai Composite Index on the same basis.

Here we have a stock market that shows no relation to the economy of the country in which it is located. They could be on two different planets. The economy booms mightily but the stock market just shuffles up and down a little with the occasional speculative rally and then falls back to where it was before.

Here we have a market that is clearly grounded in its economy. The two do not move absolutely in tandem but it obvious that investors generally do well when the economy does well.

Right, boss, I figure that says it all about what is happening in equities north of the border.

But, just in case anyone asks why it is that way, I shall offer my standard explanation. When governments treat investors as cows to be milked or chickens who lay golden eggs and spare no thought for the welfare of these cows or chickens, then what they eventually get is a failure on the farm.

Yes, a stock market is a mighty efficient way of raising needed capital for a growing economy but the customer still has to come first and the customer in this case is the individual investor who puts his money at risk in the stock market.

Reward him and he will reward industry with all the money it needs. In that kind of market, there is never a shortage capital. There is only ever a shortage of good ideas for the use of it. But ignore the investor and sooner or later he will exact retribution. The recent performance of the Shanghai Composite Index is an example of such retribution.

And things will only get worse with such daft remedies as telling people they may only buy stock and may not sell it or with so-called circuit breakers that stop trading.

The only workable remedy, and the authorities in Beijing will never take it, is to open the market wide, 24 hours a day with no trading restrictions, and let it fall where it may. Bargain hunters will always pick it up off the bottom.

Yes, it will hurt but that pain is coming anyway. Why prolong the agony?

Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.


China's 'black box' of mutinous secrets-Were disgruntled Chinese Communist Party members plotting an internal coup to undermine President Xi Jinping?

China's 'black box' of mutinous secrets

Were disgruntled Chinese Communist Party members plotting an internal coup to undermine President Xi Jinping?
     That question has been swirling among China watchers and ordinary Chinese even before Xi officially took the reins of power in 2012, ever since the ouster, arrest and later trial of the former Chongqing Party chief and strongman Bo Xilai, a charismatic onetime rival of Xi's in the top leadership.

      Following Bo's ouster in March 2012, there were several signs of a fierce ideological struggle inside the party.  Several so-called "new Maoist" websites supporting Bo were shut down, and there were even Internet rumors, unsubstantiated and largely discredited, circulating of unrest in the military. A small number of people at the time were arrested for fabricating or disseminating online rumors of a coup, and words like "coup" and "tank" were banned from Chinese Internet search engines.

     Recently, rumors of a foiled coup attempt have been revived by a rather unlikely source: Xi Jinping himself.

      In December, the Chinese government's Central Documents Press published a banal and little noticed book containing 200 extracts of Xi's speeches to the party faithful. In one of the extracts, from January 2015, Xi mentioned Bo; his supposed mentor, the now-disgraced and jailed security chief Zhou Yongkang; Ling Jihui, a now-jailed former top aide to China's last president; and other (since purged) senior officials as being involved in "serious violations of party discipline and the law."

     "Some had inflated political ambitions and for their personal gain or the gain of their clique carried out political plot activities behind the party's back, carried out politically shady business to wreck and split the party!" Xi said in the extract.

      Also mentioned as plotters in the scheme were General Xu Caihou, vice chairman of the powerful Central Military Commission who was expelled from the party and was being investigated for corruption when he died of cancer in March 2015; and Su Rong, a longtime regional chief who was accused of corruption as party chief in Jiangxi province. Su was also blamed for showing "blatant disregard for party political rules" and having "poisoned the local political environment."

Was it a coup?

China's secretive, closed-door political system is largely opaque to outsiders, leaving a few China-watchers struggling to glean meaning from obscure clues and hints. Those analysts are now parsing Xi's words, trying to determine if the unspecified "political plot activities" amounted to a coup attempt against Xi -- and whether the challenge from Bo and Zhou was more serious than was known at the time.

      China's leaders are notoriously loath to speak publicly of any divisions in the top ranks. So longtime China hands are also puzzled about the timing of the release of the extract with references to efforts to "split the party."  Does publicizing the plot mean the threat has been eliminated? Is it meant to serve as a warning to others who may still be plotting to desist? Or is it meant to spread a sense of terror, signaling that potential rivals may, also, be swept up in the search for enemies within?
     Recently, rumors of a foiled coup attempt have been revived by a rather unlikely source: Xi Jinping himsel
     "I'm sure there was something going on, but we really don't know enough," said Minxin Pei, a China scholar at California's Claremont McKenna College. "Were they actually plotting Xi Jinping's downfall, or were they plotting a diminution of his powers?"

      Contrary to some analysts who believe Xi can talk openly about the plot because he is now firmly in control, Pei takes the opposite view:  Xi's statement reveals there was, and likely still is, more turmoil behind the scenes than has previously been acknowledged.

      "The fact that he chose to make this public shows the party is not unified," Pei noted. "His predecessor would not have done this." Xi, he said, "is the first leader since Tiananmen Square to say there is a conspiracy inside the Communist Party."

     Other signs from China also suggest continuing internal strife -- if only because Xi and his top cohorts are going to such lengths to stress the importance of "unity" and the need to instill discipline in the ranks.

     Xi, who has embarked on a sweeping anti-corruption campaign that has ensnared thousands of officials, has also launched an effort to get all of the sprawling 90 million-member Communist Party to faithfully toe the line. The party's Central Commission for Discipline Inspection has become the leading tool for enforcing rigid orthodoxy.

     Xi, in another speech newly released by the discipline commission, warned party members not to "ask the things they should not ask" and not to "run after the so-called internal information and spread it in private." And the most recent target of the ongoing purge appears to be Wei Hong, the governor of Sichuan province, who was demoted to a lower level position and stripped of his party duties. His case is considered unusual, since he was punished not for corruption, but for being "disloyal to the party," according to the discipline commission.

Left to right: Zhou Yongkang at the Communist Party's national congress in November 2012 and in court on June 11, 2015

Bo's ideas took hold

The most serious past threat to Xi appeared to come from Bo Xilai. Bo was already jailed by the time Xi came to power, but his ideas -- on social welfare, economic redistribution and Mao-inspired mass mobilization campaigns -- had taken hold among a significant number of so-called "new leftists" inside the party who had grown disenchanted with China's widening wealth gap, the breakup of state-run monopolies, and the party's drift away from socialist egalitarianism.

     Bo's wife, Gu Kailai, was tried and convicted for the poisoning of British businessman, Neil Heywood, who was found dead in a Chongqing hotel room in November 2011. Bo was convicted of corruption and "serious discipline violations." Bo's downfall was believed to have led directly to the purge of his mentor, Zhou Yongkang, once considered the most powerful, and feared, man in China for his control over the vast security apparatus.

     The Bo saga exposed the most serious known rift in the party in decades.  Now, with new revelations of "plotting," it appears that period around Bo's ouster was far more fraught than previously known.

     Most analysts agreed there was likely never any chance of military involvement in the unspecified "plot activities." The system is too centralized and bureaucratic to allow any mobilization of troops or material to go undetected. But one military watcher, Dean Cheng of the Heritage Foundation in Washington said, "Something wasn't right. There was much more to the Bo business."

     Bo was, like Xi, a princeling -- his father, Bo Yibo, was one of the revolutionary heroes around Mao known as the "Eight Immortals." And the younger Bo cultivated a huge personal following in Chongqing, and instituted projects like his "red song" singing campaign that brought thousands of people into parks on weekends to sing Mao-era patriotic tunes.

In the limelight

Unlike almost every other Communist leader, Bo was also media-friendly and sought out publicity.  He boasted that his social welfare plans constituted a new "Chongqing model" of development. During a 2011 trip to Chongqing for an economic conference, I had a brief and impromptu hallway interview with Bo, who happily stopped and answered my questions spontaneously, something unheard of in China. Bo occasionally broke into English, and quoted Franklin Roosevelt saying, "We have nothing to fear but fear itself." "My theory is not that Bo was literally planning a coup," said the Heritage Foundation's Cheng who also met Bo in 2012. "But he was even scarier. Bo was a populist in the Party. Bo was Donald Trump, before Trump even thought about running for president."

     Have the Bo acolytes all now been silenced or contained?

     In January, the discipline commission announced it would be sending teams to fan out across the country to assess how well the party agencies were toeing the line from the central leadership, meaning from Xi. An official leading the tours told Hong Kong's South China Morning Post that the inspections should be completed in 2017, when the next Communist Party Congress, the 19th, is scheduled.

     China's leadership is due for an unusual leadership reshuffle at that Party Congress. Of the nine members on the Politburo Standing Committee, only Xi and his prime minister, Li Keqiang, are expected to remain. The other five will all be past the party's traditional retirement age for senior office-holders. The prospect of such a vast shake-up "creates a whole new area of instability," Cheng said.

      What is impossible to know is whether Xi, who has swiftly consolidated power, will feel free to name his own cohorts to shape a new standing committee, or whether China is in for another period of unspecified plots, splits and internal intrigue.

     My guess is that the stepped-up repression -- the arrests of lawyers, dissidents and journalists, the crackdown on nongovernmental agencies -- is a sign of regime insecurity, not confidence and strength. And as China enters a new period of slowing economic growth, we may be in for more uncertainty, much like in 2012 before the last Congress. But that is only a guess, since we are all on the outside looking in.

     "Things are definitely not stable," concluded Minxin Pei. "But how bad are they? It's a black box."

Keith B. Richburg was foreign editor of The Washington Post from 2005 to 2007 and served as the paper's bureau chief in Paris, Manila, Nairobi, Hong Kong and Beijing.

India and Russia Revive Talks Over Fifth Generation Fighter Jet

A high level Russian delegation arrived in New Delhi this week to recommence negotiations over the much-delayed Sukhol/HAL Fifth Generation Fighter Aircraft (FGFA) project, or as it known in India, the Perspective Multi-role Fighter (PMF).

“We have got the clearance to restart the talks. Accordingly, a Russian team is here and cost negotiations began yesterday,” said a source within India’s Ministry of Defense.

The Russian delegation is also negotiating with state-run Hindustan Aeronautics Limited (HAL) over joint production of 200 Kamov 226T light transport helicopters under the “Make in India” initiative and estimated to be worth $1 billion.

During the annual India-Russia summit, which took place in late December 2015 in Moscow, Russian President Vladimir Putin and Indian Prime Minister Narendra Modi failed to resolve the impasse over the PMF project.

I reported earlier:

While a preliminary $295 million design contract was signed in 2010, the final design contract under which both sides agreed to contribute each $6 billion for design and production and which also included a fixed order of 154 aircraft, a compromise on work share, a firm commitment to the number of single- versus double-seat aircraft still has not been signed to date. (Even though the head of Russia’s United Aircraft Corporation (UAC) announced last June that a full R&D collaboration contract would be signed in 2015.)

After another round of negotiations, the PMF was supposed to be inducted into the Indian Air Force (IAF) by 2022, with India receiving 144 aircraft  for an estimated $30 billion. Russia was supposed to purchase 250 planes, however in late 2015, the Russian Air Force announced that it would only purchase one squadron of the new fifth generation fighter jet.

As I noted previously (See: “India and Russia Fail to Resolve Dispute Over Fifth Generation Fighter Jet”):

The announcement apparently finally made India lose faith in the program. Last month, Russia tried to salvage the joint project by making India an offer to cut down its financial contribution from 6 to $ 3.7 billion for three PAK FA T-50 prototypes and technology transfers.

This offer was also not received well by the Indian side, although a Russian media report claims that the financial details of the FGFA deal have been approved by the Indian Defense Acquisitions Council this January. Difficulties in finalizing a deal with French aircraft maker Dassault Aviation for the purchase of 36 fourth generation multirole fighter jets for the IAF may have made Indian officials reconsider the Russian proposition.

Whether the ongoing negotiations in New Delhi will lead to the signing of a full R&D collaboration contract remains to be seen. The prototype of this new aircraft, the Sukhoi PAK FA (Prospective Airborne Complex of Frontline Aviation) T-50 prototype, is currently undergoing flight tests in Russia. Russia’s Defense Ministry announced in early 2016 that the new aircraft will be inducted in the Russian Air Force in 2017.

China's Uphill Battle Against the Ivory Trade -Five months after Xi Jinping promised to ban the ivory trade, what progress has China made?

China's Uphill Battle Against the Ivory Trade -Five months after Xi Jinping promised to ban the ivory trade, what progress has China made?

On January 13, in his New Year policy address, Hong Kong’s Chief Executive CY Leung announced a plan to ban ivory trade within the region.

Zhang Li, secretary general of the China Committee for the Wildlife Conservation Society (WCS), professor at Beijing Normal University and an expert on elephants, hopes that mainland China will keep pace and enact a national ban on ivory trading, as promised by President Xi Jinping on his inaugural visit to the U.S. in September.

In a recent article for the journal Nature, Zhang Li wrote that he believed the Chinese government could purchase the country’s entire stockpile of legally held ivory, making it easier to identify the illegal ivory trade thereafter. He told chinadialogue that this acquisition would cost the country roughly $80 million.

“This would be a straightforward, economical and effective measure to enforce,” he said.

chinadialogue: Has President Xi Jinping’s decision to ban domestic ivory trade had a direct impact?

Zhang Li: The effect can already be seen on China’s domestic ivory trade, from when Xi Jinping returned from a visit to the U.S. and made his stance known publicly last September. Surveys carried out in cities such as Guangzhou, Beijing, Shanghai, Nanjing, and Hangzhou have shown a significant decrease in the price of ivory from many suppliers [because demand has been impacted by the measures].

State departments have formed joint working groups and traveled to places such as Fuzhou, Guangzhou, and Yangzhou to carry out research on ivory carvers and sellers, while setting a timetable for the ban.

Why is there still no timetable for the total ban of ivory trade in China? What do you think is an appropriate timeline for the phase-out?

China’s current law aims to protect the newly established market economy, and legal and registered ivory carvers and suppliers cannot simply be shut down. One problem is that ivory carving is classed as part of China’s “intangible cultural heritage.” The legal ivory market in China has been going for a long time, which makes it difficult to enact an immediate total ban. However, delaying initiatives related to the ban will give illegal ivory the chance to flow into the legal market, and the effect of Xi Jinping’s stance might fade. The sooner we see a total ban on the ivory trade the better.

What are the main challenges in introducing a total ban and how might they be resolved?

To ban the trade of ivory, the product has to be ‘decommodified.’ The simplest way would be for the state to purchase the entire stockpile of legal ivory, a strategy that the government should be thinking about. The government could purchase all of the legal ivory on the market in one go, and pass it on to museums if appropriate. After this appropriation, commercial ivory trade would no longer be allowed, and all ivory products still on the market would be classed as illegal. Ivory handicrafts could still be exhibited in museums and used in schools to educate both about Chinese cultural heritage and also the importance of protecting endangered species.

How much would be needed to purchase this stockpile?

The stockpile of African ivory acquired by importers in 2009 was priced at about $150 per kilogram, while in public auctions registered ivory carvers were getting $1,350 per kilogram; adding on inventory and management costs has increased the current price to $2,100 per kilogram. Using this figure, the cost of purchasing all of China’s domestic legal raw ivory works out at approximately $84 million, but an additional $500 million would be needed to purchase all the ivory products at the current market price. This cost could be lowered if the profit margins of these businesses could be cut by 30-40 percent.

It sounds like a huge cost, but the Chinese government has already spent over a billion dollars on eco-compensation, e.g. the “grain for green” program. These are subsidies given to farmers and land-users in order to stop them cultivating marginal cropland, which can be turned instead to forest and grassland, and funds used by local governments to carry out environmental protection and ecological system management. According to estimates, China has already spent over $100 billion through programs like these, and therefore a few hundred million dollars to protect endangered elephants is not a big expense.

These state eco-compensation programs that you mentioned are to protect and benefit China itself. Will the government be as willing to spend huge sums to protect African elephants?

A small amount of illegal ivory trade and the serious issue of ivory smuggling has already had an effect on China’s long-term investment strategy in Africa, and harmed China’s international image. China is a responsible emerging power, and has invested more funds than other Western countries into the protection of Africa’s environment and the conservation of its wildlife. Eradicating the consumption of luxury products, such as ivory, that come from endangered species is in line with state policy in promoting the development of an “ecological civilization.”

Will the trade move to other countries after China enacts a total ban?

After China and the U.S. enacted a total ban, there may still be some illegal trade for a time, but as domestic laws within these two countries are strengthened and there is a crackdown on the legal market, illegal trade is likely to move to other countries. My opinion has always been that this ban on ivory trade should not just be carried out just by China and the U.S. – it needs participation and support from all other countries. The biggest challenges African countries face are poaching, and a rise in human population, leading to loss of elephant habitat. If Africa received help from the international community to move away from the traditional and unsustainable development model that relies on selling off its natural resources to survive, I don’t believe that any African country would want to continue trading ivory and risk the extinction of elephants.

What are the main differences between the situation in U.S. and China, and how should the U.S. approach the ivory trade ban?

There are two major challenging aspects to the ban on ivory in China. First, China has a relatively large stockpile of legal ivory, and second, ivory carving has been part of China’s traditional culture for thousands of years. To ban the trade of ivory in China, there needs to be ways to transform the businesses of legal ivory carvers and suppliers that provides them with alternative livelihoods, as well as means to safeguarding this intangible cultural heritage. The U.S. legal stockpile of ivory is nowhere near as large as China’s. In 2008, CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora) granted China a one-off purchase of 62 tonnes of legal ivory, and even after recent consumption there is still a relatively large legal stockpile.

[The CITES Convention came into effect on 1 July 1975, and has become international law governing the international trade of endangered species.]

In the U.S., the problem is mainly due to ivory imported from trophy hunting and ivory acquired before the CITES Convention came into effect. The U.S. domestic ban on ivory trade is currently receiving firm opposition from firearm and hunting organisations. If a national ban on the trade of ivory were to be passed within federal law, it would still only apply to trade between U.S. states; each state would need to set up its own legislation to ban ivory trade. The states of New York, New Jersey and California, where the domestic trade of ivory is most concentrated, have already taken the lead in legislating to ban the trade of all ivory acquired after the CITES convention went into effect. This means that only the trade of antique ivory is allowed. This is an important step, but China and the U.S. are still far from a total ban. There is a long way to go.

Liu Qin is an editor in chinadialogue‘s Beijing office. 

This post was originally published by chinadialogue and appears with kind permission.

The silent war on NGOs

Underneath all those hot regional conflicts, another war is being fought — one that is conducted much more silently and stealthily. This silent war is nevertheless bound to have a big impact on the global stage. It undermines the very foundations of social progress and stronger democratic rights for hundreds of millions of people around the world.   

This war is conducted by governments in as many as 50 countries, ranging from India to Egypt, Peru and Bolivia to Cambodia, and prominently including Russia and China.

These governments are systematically eroding the operating space of civil society, mainly by issuing a raft of new laws and regulations that impede the work of NGOs.

Measures taken range from sheer intimidation to arrest — and also include licensing requirements, office closures, the blocking of websites as well as the freezing of accounts.

Serving as the co-head of one of Germany’s largest foundations, in our case one primarily focused on promoting sustainable development and civic rights, I know that NGOs can be controversial anywhere, including in our own country, Germany.  But ultimately, that is their essential role. Their purpose and function is to provide ideas and inputs into the very challenging task of advancing societies.  

 Governments everywhere, including those in the Western world, are under great pressure these days.   It is not becoming any easier to manage people’s aspirations and secure or improve their livelihoods.

But civil society plays a critical role in that task, including many NGOs founded and based in developing countries and operated by these countries’ citizens.

To their credit, and to their society’s benefit, an increasing number of NGOs in developing countries have managed to build up networks of intellectual and operational, as well as in some cases financial, support from well-established NGOs in the Western world.

 It is understandable — and entirely legitimate — that the role of foreign NGOs receives critical attention.  And while there may be some “bad apples,” my experience — based on well over two decades of working in this field and covering a vast range of activities in many countries — is that there are very few such cases.

That is why I am very concerned about the present wave of broadly levied — and often unspecified – charges that foreign NGOs improperly seek to influence the domestic affairs in these countries.

For example, Russian lawmakers claim they merely want to ban “undesirable” groups that want to achieve the overthrow of Russia’s government. China says domestic “social organizations” are spreading “Western values.” In Bolivia, the Vice President alleges NGOs are “lying and political meddling” in pursuit of “transnational imperial policy.” And India has accused what it described as “political” (but what is really environmental) NGOs of delaying infrastructure projects in the “national interest” on behalf of foreign parties.

The key point here is simple: NGO activity everywhere essentially follows a demand model. Where there is a problem, it tends to be a good thing if both the government as well as nongovernmental actors respond to the challenge at hand.

NGOs, foreign and domestic, add their competence, capacities and their sense of caring to dealing with these problems. Seeking to push them into the sphere of illegality, whether this strategy is applied to domestic NGOs and/or to their foreign NGO partners, ultimately yields no benefits.

The reason for that is clear: The underlying problems don’t go away. Rather, the opposite effect is achieved. By hampering the work of the NGOs, fewer hands and minds can be brought to bear on resolving the actual problems.

It is a long journey to resolve the various vexing problems that societies face, beginning with our home countries. Coincidentally, that is also why,  virtually nobody who leads an NGO in the developed world is under any illusion that, say, “the West” has the answers for everyone else.    But it is far better to benefit from one another’s experience, learn from one another and collaborate with each other than pursue go-it-alone solutions.

Just as this go-it-alone approach has failed as a strategy with regard to national economic development, so it is bound to be with the social and political development of nations.

Barbara Unm├╝ssig, Berlin is Co-President, Heinrich Boell Foundation, Berlin, Germany.

Tuesday, February 9, 2016

Vietnam Gets Fifth Submarine from Russia - Another one of Hanoi’s six Kilo-class subs arrives

Last week, the fifth of six Kilo-class submarines that Vietnam bought from Russia arrived in the Southeast Asian state.

According to Thanh Nien News, the HQ-186, delivered by Dutch-registered cargo ship Rolldock Star, arrived at Cam Ranh Bay in Khanh Hoa province last Tuesday evening. The submarine laid at anchor near Cam Ranh Port and was scheduled to arrive at the port thereafter.

As I reported for The Diplomat last year, the HQ-186 underwent a trial run in the Baltic Sea on June 8 and was expected to arrive in early 2016. The fourth submarine, codenamed HQ-185 Da Nang, arrived at Cam Ranh Port back in July (See: “Vietnam Gets Fourth Submarine From Russia Amid South China Sea Tensions”).

As I noted then, the submarines are part of a deal Vietnam reached with Russia’s Admiralty Shipyards for six Project 636 Kilo-class diesel-electric submarines for $2 billion back in 2009. Under the agreement, signed during Prime Minister Nguyen Tan Dung’s visit to Moscow that year, Russia agreed to provide the submarines, train Vietnamese crews, and supply necessary spare parts.

The latest delivery comes amidst simmering disputes in the South China Sea, where both Vietnam and China are claimants alongside the Brunei, Malaysia, the Philippines, and Taiwan. Last year, Vietnamese officials said that the first Kilo-class submarine had begun patrolling the South China Sea.

The sixth and final submarine, named HQ-187 Ba Ria-Vung Tau, is expected to arrive in Vietnam in mid-2016. Russia officially launched HQ 187 in September last year in a ceremony attended by the commander of the Russian navy Admiral Viktor Chirkov and his Vietnamese counterpart Rear Admiral Pham Hoai Nam. The two had also reportedly discussed strengthening security cooperation in the Asia-Pacific.

As I reported earlier, the Kilo-class submarines are considered to be one of the quietest diesel submarines in the world, and are designed for anti-submarine warfare and anti-surface-ship warfare. Several analysts, including Carlyle Thayer at The Diplomat, have explored how Vietnam People’s Navy (VPN) may use them to counter Chinese naval capabilities in the South China Sea. By Prashanth Parameswaran for The Diplomat

The Staying Power of Thailand’s Military-The ruling junta is likely to remain in power for the foreseeable future

Thailand is currently under the strictest military regime the country has seen since the early 1970s, an era when China-backed communist guerrillas threatened to overthrow the established monarchy-military symbiotic order. Despite rising controversy surrounding the current National Council for Peace and Order (NCPO) junta’s heavy-handed rule, it’s a military regime that will likely remain in power for the foreseeable future.

To understand the present and project into the future, it’s important to understand Thailand’s recent past. The 2014 military coup marked the crescendo of anti-government street convulsions, staged initially against an amnesty bill that would have paved the way for the criminally convicted self-exiled former prime minister Thaksin Shinawatra to return to Thailand a free man under his younger sister Yingluck Shinawatra’s elected government.

Those protests later morphed into broad, if not vague, calls for cleaner governance, an end to corruption and an overhaul of democratic politics. The street protest-enabled coup, rather than an answer to a popular reform call, was clearly orchestrated by royalist elites to ensure that top generals, rather than squabbling politicians, are in control at the time of what many view will be a delicate royal succession.

Since seizing power, Prime Minister Prayut Chan-o-cha’s junta has advanced reform rhetoric while simultaneously consolidating a strong and increasingly efficient police state bent on ferreting out and squashing dissent. Crackdowns on journalists and activists have become progressively more severe, including the recent commando-style abduction and physical beating in an open field of an anti-junta student activist. It has also ramped up punitive anti-royal charges against both critics of the crown and anti-military opponents.

The vow to restore democratic governance and hold new elections is and remains a sop to Western governments, namely the European Union and the United States, as well as certain local middle class constituencies who support the country’s long and painful struggle for democracy over military-led authoritarianism. The junta’s time table for new polls has been progressively pushed back, first promised for late 2015, then mid-2016 and now mid to late 2017.

That’s based on the assumption a new draft constitution passes a July referendum, which seems unlikely given reports that it, like a previous scrapped version, includes various controversial provisions that aim to uphold the military’s overarching political role. It’s not altogether clear what will happen if the charter is voted down, though it would almost certainly further attenuate the junta’s hold on power beyond 2017.

Rather than a near term democratic transition, Thai politics will more likely be steered by the military for the foreseeable future. Thailand has arguably already entered an end-of-reign new political order, where the military, rather than a democratic government, has begun to fill the inevitable power vacuum that will open at the end of the current king’s long and storied reign and the crowning of a new, inevitably less influential, heir.

Who wears that crown, however, is not a complete given. How a contest between competing royalist camps plays out in the weeks and months ahead could have significant implications for stability. Even with a calm and predictable succession, it is expected that the military government will invoke martial law to enforce an extended period of national mourning until the transition is deemed as safe and secure.

If there is any hint of turmoil around that process, either from a competing royalist or oppositional camp, the military leaders now in charge will likely jettison their self-professed commitment to restoring democracy and hunker down for an even longer stay. Only when the succession is considered settled and the monarchy upheld will the country begin to move back towards some type of, most likely highly circumscribed, democratic order.


Many observers were taken aback by how easily the military consolidated its power in light of the political saber-rattling that preceded the 2014 coup. Unlike the 2006 military coup that ousted Thaksin’s elected government, characterized by commentators at the time as “smooth as silk,” Prayut’s putsch has employed especially hard tactics to consolidate its control.

Civil liberties have been sharply curbed, political opponents have been threatened and harassed, the press intimidated and censored, and the general population given strict marching orders to think only happy thoughts. Those measures were initially employed to counter the threat that Thaksin’s allies might mount an insurgent response to the coup, but as that threat fades its clear the junta has no intention of lightening its grip.

Thaksin’s allies had threatened civil war if Yingluck’s government was overthrown in a democracy-suspending coup. There were news reports at the time citing Thaksin’s “Red Shirt” protest group members saying that their stronghold northern and northeastern regions would secede from the kingdom if Yingluck was ousted through extra-legal means. Yingluck disassociated herself from the threats at the time, while the military sought harsh repercussions against the vocal activists.

None of those civil war threats, however, even remotely came to fruition after the coup. The military’s threat to seize the well-investigated personal assets of key Red Shirt leaders if they agitated has proven highly effective in muzzling and neutralizing their criticism and resistance. More hard-knuckled tactics, including intrusive surveillance and strongly enforced bans on political gatherings, have been deployed to suppress possible organization and unrest in the provinces.

Those tough tactics have underpinned the stability that has defined Prayut’s military rule. There has been barely a peep of street level resistance to the coup in Bangkok, and arguably less so in the provinces, despite the rolling back of civil liberties and heavy-handed rule. But the calm has been achieved largely through intimidation, not genuine reconciliation – a notion that the junta’s spin machine has bid to perpetuate through its North Korean-like “returning happiness to the people” mantras spread nightly over state media.

At the same time, former army commander and now prime minister Prayut has seemed to grow increasingly comfortable in his political role. While his off-the-cuff and often impolitic comments are often portrayed critically in the press, his tough talking, straight-shooting manner has given him a certain populist appeal at the grass roots, similar in respects to the cowboy antics Thaksin leveraged to win and maintain popular support.


Has post-coup stability held more due to military suppression or Thaksin’s inaction? It now seems clear to many diplomats and analysts that a certain accommodation between Thaksin and the military was put in place at the time of the coup where Thaksin’s personal and family interests have been left unmolested in exchange for him unplugging his political machine, including his withholding support for earlier calls among his political allies to establish an exile government.

Anti-government street protesters that helped to topple Yingluck had often bayed from their protest stages for an uprooting and expulsion of Thaksin and his family clan’s influence and interests. That has happened to a degree in the bureaucracy and state enterprises, and increasingly through what some view as a politicized anti-corruption campaign targeting the former premier’s power base in the police, but Thaksin’s personal assets and his family’s businesses have been left largely untouched since the coup.

His son’s Bangkok-based Voice TV news station, while under the same strict censorship guidelines of other private stations, has not been singled out for harassment despite a sometimes critical edge. The Shinawatra family-run property concern SC Asset, where Thaksin’s son-in-law serves as a top executive, has been allowed to roll out its new high-end properties unimpeded without politicized probes of its land bank acquisitions and finances.

That soft touch, as well as nod-and-wink perceptions that Thaksin could receive a royal pardon, or at least more sympathetic treatment, if and when Crown Prince Vajiralongkorn is crowned king, has likely factored in Thaksin’s mostly muted response to the coup and military government. Despite the heavy harassment of his political supporters, proposed measures to curb his party’s future electoral chances, and occasional ad hominem attacks on his personage, Thaksin’s criticism has been sparing and infrequent.

Twenty months since the coup, Thaksin is now arguably fighting a battle of relevance, with indications of flagging support and a lack of connection with his former grass roots support base. Some of his supporters say they are waiting for a “signal” to move, while others have complained they no longer receive funds from their past paymaster. It is notable that Thaksin’s call late last year to wear red as an act of civil disobedience fell flat, though this too begs questions of how much is driven by fear and how much disenfranchisement.

As Thaksin’s perceived threat fades, Prayut’s junta could feel emboldened to take a harder line against the former premier’s in-country and family interests amid criticism from certain royalists the regime has been soft on the ex-premier. One move in that direction is the criminal trial of Yingluck for alleged corruption her government’s boondoggle rice price support scheme. If found guilty, the coup-ousted ex-premier could spend a decade behind bars, though many analysts doubt such a divisive verdict will ultimately be handed down.


With Thaksin’s perceived threat in retreat, or at least dormant, divisions are becoming more apparent among factions in the armed forces and their opposed royalist backers.

The coup firmly consolidated the power of the Queen’s Guard regiment, an elite force committed to protecting Queen Sirikit, with its alumni gaining control of the military’s influential command positions and inside the junta government. That consolidation has come at the expense of King’s Guard troops, capped by the largest out-of-cycle reshuffle the country has seen since pro-Thaksin soldiers were purged in the aftermath of the 2006 coup.

This intra-military tension explains, at least until recently, occasional obscure allusions in the local press of a possible counter-coup against Prayut’s royalist junta. While certain elite soldiers remain peeved about being sidelined after the coup, internal tensions have also turned on the notion that Prayut and Defense Minister Prawit Wongsuwan, the junta’s two highest ranking members, have not gone far enough in purging Thaksin’s influence amid rumors confirmed by diplomats that the latter has met secretly with Thaksin in Singapore.

A recent scandal surrounding the military’s construction of larger- than-life statues of past kings at a royal park has implicated top-ranking Queen’s Guard soldiers, including a former army chief, and delivered the first knock against the junta’s claims that it is above the corrupt practices of elected governments and politicians.

The damaging revelations are known to have come from within the Queen’s Guard, in what appears on the surface to reflect a personal feud between sitting army commander Gen Teerachai Nakwanich and his predecessor, Gen Udomdej Sitabutr. It’s also seems clear that the local press received a signal from senior royalists that they could pursue the sensitive story without fear of reprisal. Privy Council President Prem Tinsulonda was quoted in one local report admonishing the military to be more careful in its spending.

The scandal sparked speculation about whether Teerachai, promoted in part for his post-coup suppression of Red Shirt activists, and his ally in charge of the First Army Region, Lieutenant General Theppong Tippayachan, could be tempted into leading a counter-coup on behalf of an opposed military faction and influential senior royalists who have expressed misgivings about the junta’s suppression of civil liberties, quality of governance and lack of transparency. That speculation and critical reporting died down after Crown Prince Vajiralongkorn appeared to put the embattled park’s foundation under his patronage in January, as announced in the Royal Gazette.

The intra-military tensions are also a reflection of known competing visions for the succession, with the ascendant Queen’s Guard known to back heir-apparent Vajiralongkorn’s claim and other influential royalists aligned with disgruntled Kings Guard soldiers believed to favor an alternative scenario where the king’s second daughter, Princess Maha Chakri Sirindhorn, is somehow crowned. A 1974 amendment to the 1924 Succession Law allows for a princess born of the king to take the crown only in the absence of a fit-to-rule male heir, legalese that could be open to the Privy Council’s interpretation. At such a high stakes historical moment, future political events could break in a number of different ways.

Scenario 1: Faux elex

In this scenario, a retrograde constitution that enshrines the military’s political role is passed either by referendum or enacted unilaterally after a “no” vote of the current draft version. The military has made clear its wish for a charter that gives less power to political parties to enact their own policies, an overarching role for appointed institutions to remove corrupt politicians and governments, and provisions for the military to legally take power during times of crisis.

This is the type of charter the military envisions and by hook or crook will eventually bring into law. Organic laws drafted for the new charter will no doubt ensure that future democratic polls are highly circumscribed and held in ways that favor a new military front party, supposedly now in the making behind the scenes, and other medium sized parties not overtly aligned with Thaksin to form a “unity” coalition government.

Some analysts speculate such a “democratic” transition would be steered from above to resemble the coalition governments led by former army commander, prime minister and current Privy Council President Prem in the 1980s, a period of military-guided rule often referred to by academics as “Premocracy.” It’s a scenario that would also assuage Western and domestic pressure to return to a form of “civilian-led” rule.

While consistent with the junta’s official narrative, the risk is likely still too high that a Thaksin-aligned government is swept into power despite attempts to tilt the electoral playing field against him. In that scenario, much of what the military has implemented over the last 20 months, including a broad 20-year economic plan, would be briskly swept away. There would also be the risk of political revenge, even with an amnesty for the coup-makers written into the charter.

The military tried to tilt the post-coup 2007 election away from Thaksin’s new party but wholly failed. It’s a democratic lesson no doubt still fresh in mind among the top brass and a scenario likely deemed as too risky to the military’s short and medium term corporate interests, particularly with the royal succession still unresolved and no clear sign yet that the urban-based middle classes are poised to resist continued military rule.

Scenario 2: Rebellion

This scenario weighs the potential for Thaksin to mount a credible challenge to a military-steered new political order or ramped up threats to his or his family’s personal or business interests.  It would entail, as in 2009 and 2010, the former premier mobilizing resources to ignite Red Shirt-led pro-democracy resistance against military or perceived as proxy military rule after a potential rigged election in 2017 or 2018.

Unlike those previous uprisings, in light of the military’s police state infrastructure it would likely have to be a national-level conflict with unrest staged in the provinces as opposed to Bangkok, where any hint of organization would be quickly detected and squashed. There’s a readymade model: a low intensity, shadowy insurgency in Thailand’s southernmost Muslim-majority provinces has kept the military on its heels for over a decade. A scenario where a similar hit-and-run strategy is launched across northern and northeastern provinces would be a nightmare for the already overstretched Thai military.

This scenario assumes Thaksin reaches his personal breaking point and returns to his past brinksmanship, though there are questions about his ability to reconnect with a largely disenfranchised support base, his willingness to lose the pockets of Western support he and his sister have won as unfairly persecuted “democrats,” and his willingness to venture wealth some diplomats estimate has taken a significant hit with the collapse in global commodity prices in sight of his known recent investments in energy, metals and other commodities.

This scenario would fetch a strong military response, one where it moves to assert even stronger grass roots control and without a vow to quickly restore democracy until stability is restored. It’s a scenario that could badly and quickly backfire on Thaksin without a decisive victory, which seems doubtful on nearly all fronts. It’s doubtful Thaksin pursues this route until he sees how the royal succession and his hoped for royal pardon plays out. But with the ex-premier’s history of erratic and emotional responses, particularly when his personal interests are in play, it can not be completely discounted.

Scenario 3: Natural causes

In this most likely scenario, Prayut maintains power until the actuarial moment. Martial law will likely be invoked and election plans put on hold until the succession is deemed safe and secure. The military’s economic policies, including big ticket infrastructure building and investments in railways, would remain on-track during the transition.

It’s widely held that there will be a military-enforced, prolonged period of national mourning, an interregnum period where by some readings the Privy Council will assume royal power until it formally puts forward a successor. In the mainstream scenario, royalist camps close ranks despite competing visions and jointly support heir apparent Vajiralongkorn’s claim to the throne. With a few potential wrinkles related to recent purges of the heir’s previous family and aides, this is still seen as the succession’s most likely outcome.

In another less likely scenario portrayed in leaked Wikileaks documents recounting meetings between senior royalists and former U.S. Ambassador Ralph “Skip” Boyce, the Privy Council could in certain circumstances opt alternatively to appoint Sirindhorn to the throne. Many royalists, including those who rallied around her bathed in purple 60th birthday celebrations last year, are known to favor the scenario. Depending on how it was justified and messaged, such an outcome would either be accepted or contested by a competing royalist camp and potentially draw the self-exiled, self-interested Thaksin into the fray.

In yet another scenario, Vajiralongkorn’s first daughter, Princess Bajrakitiyabha, known affectionately as Princess Pa, a Cornell law school graduate who has been recognized by the United Nations for her commendable work on women’s rights, is put forward as a compromise candidate with her father’s blessing. Many believe the 37-year-old princess, whose domestic profile has risen favorably in recent years, including through public presentations on the need for stronger rule by law, has been groomed specifically as a new generation source of moral royal authority.

In any of the scenarios, the military – if it remains united, a big if  –  will aim to maintain a firm grip on power until it is clear that the succession is safe and secure. In the case of any real or perceived threat, military rulers can be expected to suspend their promise to restore democracy and instead leverage their police state powers to consolidate a longer-term stay in power, in the name of protecting the new king. The succession-before-election scenario could take many different forms, all hard to predict and all crucial to the future shape and direction of Thai politics and society.

By Shawn W. Crispin for The Diplomat