The Myths And Realities Of Doing Business In China
ships made-in-China goods to their destinations? What attracts a Chinese
company to buy bankrupt businesses in the West? How much potential does Chinese
tourism and domestic consumption hold for other economies?
While China’s emergence as a global
powerhouse and its stream of exports were once seen as threats, nowadays they
are increasingly welcomed as opportunities for the world economy. This is
according to the latest book by Pedro Nueno, IESE professor and founder and
president of Asia’s leading business management school, CEIBS, based in
Nueno’s book — titled Gracias,
China (Thank you, China) — offers some keys to doing business in the
world’s most populous country, including how to make investments there and
better understand the economy’s vast potential.
In this work, Nueno finds a lot to
be grateful for: the Asian giant’s ability to generate new jobs never ceases to
amaze, not to mention its technological contributions, trade routes, and
increasingly strong health and tourism sectors.
Is Business Done
Differently in China?
For the author, a truly successful
business deal isn’t one in which the other party accepts our ideas and helps
implement them, but instead one in which the other party proposes how to reach
results we’re after. This, he maintains, makes it hard to forge deals via email
or by coming to the negotiating table with a fixed plan.
“In China, you’ve got to negotiate
like you would anywhere else, with intelligence, humility and respect,” states
Nueno. Yet the author points out that, unlike in Europe or the United States,
China has experienced rapid development which has brought on enormous changes
in a short time.
This rapid pace of change is one
reason why deals may be mired in more detail, or why negotiations may slow down
or seem stagnant: our Chinese business partners don’t have the benefit of
drawing upon years and years of similar experiences as they ponder a deal’s
Opening the Door to
The Chinese government has imposed
some rigid regulations to control the expansion of Western businesses in
certain sectors. The auto industry offers the clearest example, as foreign
companies must find a Chinese partner before gaining access to the local
market. Yet in most other areas, including the car parts industry, foreign
corporations are allowed to invest independently.
To boost the development of
industrial areas, the government has also provided incentives and benefits —
including infrastructure, services and funding. For example, free-trade zones,
in which bureaucracy and restrictions are reduced, help facilitate new
projects. And business start-up zones provide adequate locations (often
subsidized) as well as access to venture capital from Chinese and Western
Many Areas of Interest
China is offers a vast array of opportunities,
both inside and outside its borders, as Nueno highlights throughout the book:
Although Chinese manufacturing has meant displacing some Western jobs, its
exports have also created new employment opportunities in transporting and
commercializing made-in-China products. What’s more, foreign companies can
fulfil their manufacturing needs at a lower cost in China, with access to
more sophisticated technology and less need for labor.
Where do Chinese companies source raw materials and parts? What
manufacturing machinery do they use? In many cases, the items are
consumption. Salaries in China have risen considerably over
the last decade. That has turned its domestic market into a growing source
of opportunity for Western enterprises.
Exports have bolstered the Chinese government’s foreign exchange reserves,
allowing it to sign agreements (often backed by loans) with governments
from various developing countries in Africa, Latin America, Eastern Europe
and Western Asia.
abroad. Many businesses have grown thanks to Chinese
investment, despite initial reservations. Following Volvo’s acquisition by
the Chinese firm Geely, the carmaker increased its production in both
China and Europe — and generated 10,000 new jobs from 2011 to 2015.
The Two Silk
Roads. China has revived the Silk Road by rail,
inaugurating a route between Yiwu and Madrid in 2015. Maritime
transportation has also been boosted with port facilities and the
necessary logistics to reach Western markets by sea.
tourism. The Chinese government’s efforts to extend
economic development to all rungs of society has gradually created a
middle class eager to travel and acquire designer brands along the way.
education. China’s interest in high-level training and
private healthcare have prompted most business schools and healthcare
enterprises to establish themselves there.
Gracias, China is a book about the recent past, present and
future of the Asian giant seemingly on its way to becoming the world’s largest
economy. It may happen sooner rather than later, as the author predicts a
significant influx of Chinese businesses moving overseas by 2020.By IESE Insight
For almost three decades, India has been accused of
conducting a “misadventure” in Sri Lanka, sending thousands of soldiers for
peace-keeping, where it got thrashed diplomatically, and at home, politically.
Worse — it
had to leave the island nation with 1,138 soldiers killed and 2,762 wounded
without getting close to resolving the ethnic strife between the majority
Sinhalas and minority Tamils.
Prime Minister Rajiv Gandhi, who had signed the July 1987 peace deal with Sri
Lankan President J.R. Jayewardene (JRJ), was assassinated by Liberation Tigers
of Tamil Eelam (LTTE) cadres in May 1991.
Rajiv’s daughter has forgiven the lady convicted for the assassination.
It is poignant, but has not left any player in the imbroglio wiser.
The killing, masterminded by LTTE chief Vellupillai Prabakaran, who was
killed in a Sri Lankan military operation in 2009, had more than a symbolic
impact. It ended the popular support Tamil militants had enjoyed in Tamil Nadu
and remains confined to fringe groups.
The Gandhi-Jayawardane Agreement carried JRJ’s promise of the devolution
of powers to the Tamil minority and recognition of Tamil as an official
language. It envisaged military assistance that took the shape of Indian Peace
Keeping Force (IPKF) for operations against LTTE in northern and eastern Sri
It was a difficult, unconventional war waged against an insurgent group,
trained, at one stage, in India, with connections in Tamil Nadu.
New Delhi’s vague articulation of its military intervention in support
of the accord triggered an emotional backlash in both countries.
With soldiers caught in a thankless conflict in one of the world’s
densest tropical jungles, the politicians and diplomats who committed India to
it became unpopular.
Conducted between 1987 and 1990, they earned Rajiv much opprobrium. He
meant well and, perhaps, even JRJ did. But, it was clear that JRJ had got the
better end of the bargain that he breached under pressure.
India felt cheated when his successor, Ranasinghe Premadasa, joined
hands with LTTE to send IPKF out before they could complete their job.
The accord got sidelined. Political leaders opposing it assumed power in
both countries around the same time. The Lankan Tamils, who had put their faith
in it, were in limbo. LTTE strengthened to fight on till it was crushed in
2009. Reconciliation remains a mirage.
Documents declassified last month by the United States’s Central
Intelligence Agency (CIA) confirm what is agreed. JRJ had told US president
Ronald Reagan’s envoy Peter Galbraith that he was “forced” to sign the pact
because his armed forces twice refused to “take Jaffna”.
“…IPKF and the Sri Lankan forces are getting on well together, and… the
situation in Jaffna, while still far from normal, is gradually improving,”
Galbraith said in his assessment sent to Reagan. Things changed later.
The documents indicate Americans promoted rapprochement between Rajiv
and JRJ, persuading the latter who had been unhappy about Indians training LTTE
Did they help wily JRJ use a politically inexperienced Rajiv to pull his
chestnuts out of fire?
In the evening of the cold war, many viewed India with suspicion after
its role in the 1971 birth of Bangladesh. A brief intervention in the Maldives
in 1988 strengthened these perceptions. Its navy was seen as nursing “blue
A reassessment, even some soul-searching, is on among Indians, some of
whom had played key roles in those events.
In his book Perilous Interventions, retired Indian diplomat
Hardeep Singh Puri, who served in Colombo between 1984 and 1988, during the
run-up to the accord and its implementation, blames both the international
community and the United Nations for “looking the other way” at crucial moments
during the crisis.
Taking an objective, even critical view of the Indian intervention,
Puri, however, stresses: “In retrospect, the mistreatment of the Tamils was, in
the first instance, responsible for the outside intervention. A problem with
linguistic rights transformed into one of minority rights and developed into
militancy, inviting intervention from across the Palk Strait.”
Commodore (Rtd.) Ranjit Rai, Naval Intelligence director at the relevant
time, says the botched operations would require in-depth study of the
objectives and whether they were achieved, if it aimed to obtain greater
autonomy for Lankan Tamils, to relieve pressure on them, or fight LTTE to
maintain Sri Lanka’s integrity and to prevent foreign interference in India’s
Like most analysts, Rai thinks Indira Gandhi, in her time, viewed the
Tamils’ issue quite differently from Rajiv, and had avoided getting involved
directly. But, it is also true, as Puri points out; Rajiv inherited his
mother’s legacy of Indians training LTTE. The difficult course correction Rajiv
attempted went haywire.
Sri Lanka events in the second half of the 1980s rank among the five
most significant foreign policy decisions India made in recent decades. Former
foreign secretary and National Security Advisor Shivshankar Menon, in his book Choices:
Inside the Making of India’s Foreign Policy, terms that “choice” between
“bad and less bad”.
As Stephen P. Cohen writes in his blurb to Menon’s book, critics may
feel “anyone can do it, and can do it better than the government — but the
reality is that India was never spoilt for choices”.
Puri stresses that, “Colombo itself ensures that the rights of the Tamil
citizens are constitutionally guaranteed, and they are shown the respect and
dignity all Sri Lankans get”.
For any Indian role in future, he warns: “Working at cross-purposes, as
would appear to have been the case for several decades, will create problems
for Sri Lanka and India.”
inception in Indonesia, Freeport’s primeval priority has always been securing
the continuity of its mining operation, not swindling the investorstate dispute
settlement system to reverse the course of a nation’s legislation and extract
billions of dollars.
Over the course of the saga of US mining
giant Freeport versus the Indonesian government, both sides have made
tit-for-tat threats to take the protracted dispute to international
arbitration. The critical question we have to ask is whether international
arbitration constitutes the most appropriate mechanism available for reaching
the best solutions for both parties.
arbitration, the center of gravity of the first stage will focus on the
question of whether the arbitral tribunal has jurisdiction over the breach of
contract allegedly committed by Indonesia. This issue stems from the
government’s issuance of a new regulation requiring mining companies wishing to
continue exporting copper concentrates to terminate their Contract of Work
(CoW) and convert them into a special mining license (IUPK).
In the business sphere,
foreign investors employ techniques to protect their investments from the risk
of legal uncertainty. One of them is signing a contract with the host state.
However, despite Freeport’s investment being protected by the CoW, this
protection is not powerful enough due to the fact that is not covered by the
Bilateral Investment Treaty, under which the second layer of investment
protections are usually placed. Another reason is because the CoW designates
Indonesian laws as the governing law, rather than international law.
These factors consequently
delimit Freeport’s ability to dress up the claim of breach of contract as a
breach of treaty under the umbrella clause. This is an advantage for Indonesia
as it is generally accepted that a breach of contract per se by the host state
does not give rise to direct international responsibility. It could dissuade
the arbitral tribunal to accept jurisdiction over the case.
Nonetheless, since the
arbitration system lacks predictability and proliferates a heterogeneity of
interpretations, Freeport will likely delocalize the contract by referring to
customary international law and like-minded arbitration awards.
The subsequent stage will
involve “judging” the government’s attitudes toward Freeport’s investment. This
is when, on one axis, the host government asserts its right to make a bona fide
legal change to advance its public interests, but on the other, the investor
deems such change as a deprivation of its investment.
Its analysis devolves into
two frontlines. The first line will find the answer to a question whether the
government’s unilateral act to terminate the CoW and oblige the divestment of
51 percent may constitute creeping and partial expropriation (indirect
expropriation) under customary international law and national law.
Such expropriation may be
interpreted not only restrictively as taking solely the property and titles
thereof but also indirectly involving near-total deprivation of an investment.
However, it is generally
believed in international law that such regulatory taking is justifiable if it
is designed to protect a legitimate public welfare objective, is
nondiscriminatory, proportionate or includes compensation.
Theoretically, a state
cannot bind itself not to amend its laws in the future as such power is an
inherent part of sovereignty. Giving up that power will mean surrendering its
status as a sovereign state. A state contract, treaty or customary
international law can constrain, but never remove the legislative authority of
This pro-state approach
shapes international arbitration, as since 2000 there has been a consistent
trend in favor of differentiating justifiable regulatory taking called “police
powers” and indirect expropriation. Indonesia, in this case, is exercising the
former, not the later.
The second frontline will
possibly revolve around the analysis of whether the Indonesian government’s
change of regulatory taking that allegedly eviscerates Freeport’s investment
may breach fair and equitable treatment (FET) under customary international
law. Ordinarily, an arbitral tribunal employs transparency, stability and a
legitimate expectations test in probing the FET standard.
The stability and
predictability of legal and business frameworks are indispensable for foreign
investors. Such a climate is sustained if the host state can furnish
transparent, stable and predictable regulations governing the foreign
Transparency and stable in
this sense refer to circumstances that allow the foreign investor to be
cognizant beforehand about any regulation and goal that will govern its
investments. Meanwhile, the legitimate expectations cannot be construed that
the state will “freeze” the legal framework, but rather investors must be
protected from “unreasonable” modifications of that legal framework. This
suggests that the government still reserves policy spaces.
In a plethora of
arbitrations, modifications in the legal framework for foreign investment are
driven by the fact that foreign investment sometimes takes a disproportionate
share of national resources, and with reasonable elucidation, it is defeasible
for the government to correct the situation through regulatory intervention in
advancing local and national development. FET standard hedges this state’s
right in a way that it does not substantially decapitate foreign investor’s
If we look the development
of regulatory footings that govern the mining industry in Indonesia, it adduces
axiomatic evidence that they do not infringe the FET standard. The Indonesian
government has been exercising its regulatory power with transparency as it
allows all mining companies to be aware of every one of the government’s
regulatory changes by enabling the aggrieved parties to negotiate.
In the new regulation, the
government does not dispossess the legality of Freeport’s operation, but
provide a fully-fledged license as a “passport” to constantly export its
product. It means the new mining industry regulation is predictable,
indiscriminate and within the corridor of law and good faith.
Indonesia’s recourse to
change the mining regime in defense of public interests is in line with
international law, but it is not riskfree. When Indonesia is “sued” in
international arbitration, the paucity of Freeport’s investment protections at
the international level and the major “pro-state” interpretations that are
starting to shape current arbitration cases will put Freeport under the
upper-hand of the government.
arbitration will clarify some legal puzzles and render an enforced award for
the losing party. But, the economic, political, social, security and diplomatic
costs prior, during and post that process may be cataclysmic for both sides.
From its inception in
Indonesia, Freeport’s primeval priority has always been securing the continuity
of its mining operation, not swindling the investorstate dispute settlement
system to reverse the course of a nation’s legislation and extract billions of
dollars. For now, let see how that priority works over the next 120 days.
Kuncoro Jatiis a member of
Young International Arbitration Group (YIAG) based in London and LLM candidate
in international dispute resolution at The Dickson Poon School of Law.
How can we craft approaches to ensure
regional stability and prosperity into the future?
The fate of East Asia has been significantly affected by relations between
the three big powers — the United States, China and Japan. The United States
has played an active role as an offshore balancer in the region, particularly
under US President Barack Obama through his administration’s ‘pivot to Asia’.
That concept included the Trans-Pacific Partnership (TPP) as the crucial economic
pillar, US entry into the East Asia Summit, increased military engagement in
the region, and the idea of conducting Sino–US relations by ‘managing
differences and expanding cooperation’. Geopolitical stability in East Asia
looked promising thanks to these devolpments under Obama and active support
Donald Trump’s win in the US presidential election surprised the region. It
is difficult to know precisely what the Trump administration will do. But it
appears Trump is following through on his ‘America First’ approach to foreign
policy and this may have spill over effects for Trump’s East Asia policy.
While it is too early to judge the Trump administration’s China policy, it
appears that the United States will take a more confrontational approach toward
China in the economic arena. This is underscored by the appointment of China
hardliner Peter Navarro as the director of the National Trade Council and the
nomination of Robert Lighthizer as US Trade Representative.
Today, China’s trade surplus with the United States accounts for about 50
per cent of the overall US trade deficit. But if the United States applies
strong pressure on China, as it did on Japan in the 1980s, it will probably
lead to Chinese countermeasures, which would likely result in a trade war. That
outcome would be detrimental to the region.
A US–China ‘grand bargain’ may not be impossible. For China, any damage to
the prospects of its high economic growth would be unwelcome. And if a grand
bargain restrains aggressive Chinese behaviour in the South China Sea and East
China Sea, it should be welcomed by the region.
We face many great challenges as we seek to manage geopolitical instability
in East Asia. The best approach may be to pursue multilayered functional
cooperation. This means starting with functions. Find those countries that have
a common interest in enhancing functional cooperation on a particular issue.
Different areas may require different coalitions for effective outcomes — for
instance trade arrangements, financial cooperation for infrastructure
investment, regional confidence-building measures, and cooperation on
environmental and energy issues.
On trade arrangements, there are a number of mega-regional trade
initiatives currently under discussion, such as the TPP, the Regional
Comprehensive Economic Partnership agreement (RCEP), and the China–Japan–South
Korea (CJK) trilateral free trade negotiations. While the Trump administration
has withdrawn the United States from the TPP, the remaining 11 members might
work to see what is possible among themselves. The RCEP and a CJK FTA could
help to fill some of the gaps left by the TPP. But the bigger aim should be to
realise a Free Trade Area of the Asia Pacific (FTAAP). Other trade initiatives
should all be utilised as stepping-stones toward the establishment of an FTAAP.
On financial cooperation and infrastructure investment, we have seen the
emergence of the Asian Infrastructure Investment Bank (AIIB) led by China. This
is a positive development for the region given the huge demand for
infrastructure investment. It is disappointing that Japan and the United States
have not engaged with the AIIB. Both countries should do more to proactively
engage in the creation of infrastructure in the region.
One way this can be achieved is through the establishment of a mechanism to
coordinate cooperation between the AIIB and other institutions such as the
Asian Development Bank and the IMF. Such coordination is critical to ensure
that investment in infrastructure provides the best possible development gains
for the region as a whole.
Greater confidence building among the five powers in Northeast Asia — the
United States, China, Russia, Japan and South Korea — is sorely needed in order
to de-escalate tensions, defuse nationalism and build relations rooted in
win–win cooperation. Confidence building should initially focus on the
low-hanging fruit of non-traditional security issues. This should include the
joint establishment of concrete mechanisms for reporting on, preventing, and
responding to natural disasters, major industrial accidents, acts of terrorism,
and cyber-attacks. It should also include a commitment to nuclear
non-proliferation. While these steps may be hard to envision based on what we
have seen from the Trump administration so far, operational-level cooperation
that is already underway in the region can gradually be expanded to realise
There is a pressing need to tackle environmental and energy issues. Over
the coming decades, the demand for energy will continue to grow exponentially,
particularly in Asia’s emerging economies with expanding middle classes, such
as China, India, and ASEAN nations. Regional cooperation —including joint
efforts in areas such as energy exploration, the development of new extraction
technologies, and the strengthening of nuclear safety measures—is needed to
ensure that the energy demands of all nations are met. At the same time, the
unabated use of fossil fuels will cause environmental damage detrimental to
sustainable economic growth and poverty reduction, not to mention the planet.
Intensive cooperation among nations for jointly funded and developed green energy
technologies is sorely needed. The East Asia Summit and other regional forums
should take up these issues in a more serious manner.
The Trump administration includes a number of climate change deniers while
Trump himself has referred to climate change as a ‘hoax.’ Friends and allies of
the United States will need to emphasise the importance of environmental and
energy cooperation in their dealings with the Trump administration.
Managing geopolitical instability in East Asia will not be an easy task.
There are understandably great concerns around the region regarding the
uncertainties that the Trump administration brings. America’s friends and
allies will need to cooperate, coordinate, and strive to make their views
clearly heard on the importance of regional cooperation. The interconnected
nature of global and regional challenges means that win-win cooperation is
necessary more than ever. But given the nature of the globalised world we live
in and the technological possibilities available to us, the potential for
win-win cooperation is also greater than ever. Through multi-layered functional
cooperation, we can manage geo-political instability in East Asia and safeguard
shared regional peace and prosperity into the future.
Hitoshi Tanaka is a senior fellow at JCIE and chairman of the Institute for
International Strategy at the Japan Research Institute, Ltd. He previously
served as Japan’s deputy minister for foreign affairs.
Suu Kyi falls short of great expectations - Many in
Myanmar expected miracles when Aung San Suu Kyi's elected government took
office after decades of military misrule. The political reality has been more
Myanmar State Counselor Aung San Suu Kyi attends an
event marking the 69th anniversary of Martyrs' Day at the Martyrs' Mausoleum
dedicated to the fallen independence heroes in Yangon July 19, 2016
first genuinely democratically elected government in more than half a century
is barely a year old but a growing sense of disappointment is already apparent
even among the ruling National League for Democracy (NLD) party’s most avid
In a February 26 speech at a memorial
ceremony for the party’s fallen top lawyer, Ko Ni, de facto national leader
Aung San Suu Kyimust have sensed the
letdown as she appealed to those gathered for patience. At the event, Suu Kyi
underlined that her elected government was formed after decades of military
rule and that change would take time. “Ten months or a year is not much,” she said.
“This is just a short period.”
With her peace process stuck, her
political and economic reforms stalled, and international criticism mounting
against military rights abuses in ethnic areas across the country, how much
time does Suu Kyi and her NLD really have to put their democratic agenda back
Domestically, Suu Kyi has been
roundly criticized for mishandling a peace process with the country’s many
ethnic armed groups which the previous military-dominated, quasi-civilian
government initiated in 2011. Rather than a new approach, Suu Kyi has so far
done little more than urge armed groups to sign an elaborate – and many say
confusing – ceasefire agreement drawn up under the supervision of the previous
Internationally, her perceived as
callous attitude towards the suffering of the Muslim Rohingya minority in
western Myanmar has come under severe scrutiny, as United Nations investigators
and human rights organizations have documented serious human rights violations
committed by the Myanmar army in the remote area. Nor is the economy doing
particularly well, with foreign investment commitments down and poverty as
widespread as ever.
To be sure, popular expectations
were unrealistically high when voters danced in the streets of the main city
Yangon on November 8, 2015 as it became apparent the NLD had scored a landslide
victory in Myanmar’s first democratic election in decades. Many citizens
literally expected miracles of governance when Suu Kyi and the NLD were
installed in power after decades of military misrule.
The political reality, however, has
been more prosaic. That is in large part because the three most important
ministries in government are still controlled by the military, which appoints
the ministers of defense, home affairs and border affairs. The home ministry,
in turn, maintains control over the powerful General Administration Department,
which appoints civil servants at all levels of government across the country.
“She should have brought in an
entirely new team here in Naypyidaw,” said a government insider speaking on
condition of anonymity from the secluded national capital. “Instead, she has
kept the old bureaucracy, including the permanent secretaries in the
ministries. And they are competent in running a rigid military-controlled
system, not a government that’s accountable to the public.”
The same insider says it has been “a
slow slog against the power of the cronies,” reference to the military-aligned
businessmen that still dominate nearly all aspects of the economy. Nor has the
NLD promoted policies to lure in badly needed foreign capital. In comparison,
when Vietnam liberalized its economy to foreign investment in the 1990s, one of
the first decisions it took was to allow foreign banks to establish operations
that facilitates bricks and mortar investments like factories, offices and
In Myanmar, foreign banks have been
awarded licenses but are highly restricted in the transactions they can handle.
As such, the financial sector remains in the hands of a group of mostly
military-connected businessmen. It is unclear if the foreign banking
restrictions are deliberate or oversight, as the restrictions have helped to
stall several environmentally and politically sensitive large-scale mining
projects and hydro-electric power schemes.
Employees work at the Myanmar central bank’s
headquarters in Naypyitaw. As Myanmar opens up after almost 50 years of army
rule, and foreign investors descend on the resource-rich country of 60 million,
its long-isolated institutions are struggling to keep up. Picture: Reuters /
Soe Teya Tun
The main issue hobbling Suu Kyi and
the NLD, however, is the imbalance of power between the elected government and
autonomous military, analysts say. “What we have seen is not a transformation
to democracy or even a process leading to democracy but the emergence of a
hybrid system where the government is in charge of day-to-day duties and the
military hold effective power over the administration,” says a local political
scientist who requested anonymity.
Rather than a functioning
relationship, as it has been described in some international media, there is
still a large degree of mutual suspicion. According to the Naypyidaw insider,
the military knows that Suu Kyi could, if deemed necessary, mobilize tens, if
not hundreds, of thousands of people to the streets, a scenario the military
clearly aims to avoid. At the same time, Suu Kyi and her NLD government know
that they have to work with the military if they want even their modest reforms
to be implemented.
While many feel she should push back
more firmly against the military, Suu Kyi apparently senses she must tread
carefully to maintain balance and stability. NLD lawyer Ko Ni was the only
prominent party member who took a more assertive approach — and he was murdered
in broad daylight outside Yangon’s international airport. The NLD’s president’s
office released a statement that said a retired lieutenant colonel, still at
large, was suspected of paying for the assassination.
Under the current 2008 constitution,
which was drafted under military auspices and approved in a farcical
referendum, more than 75% of all parliamentarians must vote in favor of any
charter changes. With the military directly appointing 25% of all lawmakers,
any proposed amendments that aimed to trim the military’s power or interests
are thus unlikely to ever pass.
Ko Ni, however, had argued in
private discussions that there is no provision in the 2008 constitution that
says it cannot be abolished outright by a simple majority vote in parliament, a
loophole the military’s drafters apparently overlooked. It is widely known that
Ko Ni was quietly working on a new progressive constitution that could have
been quickly adopted in such a scenario when he was shot and killed.
With Suu Kyi’s government hamstrung
by parliament and the bureaucracy to implement reforms — and with support for
the NLD on the wane among the country’s many ethnic minorities who still face
deprivation and conflict under her democratic rule — the military appears to be
preparing for a political comeback at the next general election scheduled for
Commander-in-Chief Senior General
Min Aung Hlaing will by then have retired and is apparently already angling to
run for the presidency or vice presidency under the military’s United
Solidarity and Development Party’s (USDP) banner. Even though Min Aung Hlaing’s
military has been subject to widespread criticism of rights abuses, he has
managed to engage the international community and is viewed by many as more
open and approachable than previous commanders.
Suu Kyi can not be held solely
responsible for her government’s inability to quickly forge a prosperous new
Myanmar. The military, over which she wields no power, has successfully
torpedoed her peace drive through renewed offensives against ethnic armed
groups and stifled reforms through its hold on the bureaucracy. That resistance
has undercut Suu Kyi’s popular support and could boost the USDP’s, or any other
military-backed political party’s, prospects at the next polls.
If those tactics are sustained and
Suu Kyi fails to achieve the democratic reform, economic progress and national
unity many voters expected of her elected NLD government, it is possible that
her long awaited rule will be a fleeting, ineffectual interlude in a country
that’s politics have been dominated by soldiers for more than half a century.
In total, 11 heads of regions (including a
governor) were arrested for corruption in 2016
On Feb. 15, 2017, millions of
Indonesians cast their votes in 101 regional elections throughout the country,
including in the capital city of Jakarta.
Each time such large events
are held a number of major issues are discussed in multiple forums and media by
a range of experts, including money politics and vote-buying practices,
patrimonialism, political dynasties, just to name a few.
At the center of these
discussions is the possibility that the newly elected leaders will become part
of future corruption problems in Indonesia.
In the World Economic Forum’s
2016-2017 Global Competitiveness Report, Indonesia was ranked 41st, a drop of
four places from the previous year despite a number of reforms to its business
According to the report, the
two most problematic factors for doing business in Indonesia were corruption
and inefficient government bureaucracy. As indicated by past cases, the two
factors are closely linked to various leadership problems in Indonesian
According to OECD’s 2016
Economic Survey of Indonesia, the capacity of sub-national governments to
deliver high-quality public services is often lacking. Unfortunately, so are
the frameworks to monitor the use of public resources. This can only mean one
thing, a high risk of public resources being misused for personal or group
With all the resources spent
and all the failures to prevent the problems from re-emerging, it is fair to
say that we still suffer from a lack of understanding of the multiple
dimensions of corruption.
Although in reality many
people do not understand enough about corruption, many do not seem to want to
understand enough about corruption for various reasons (e.g. many consider
discussing corruption among friends and family as taboo).
In a study titled “World’s
Most Literate Nations” ( 2016 ) by the Central Connecticut State University,
Indonesia was named the second most illiterate country in the world. Among 61
surveyed countries only Botswana scored worse than Indonesia.
The examined factors in the
study represented literate behavior critical to the success of individuals and
nations in what have now become knowledge-based economies. The result of the
study should have raised alarm as the growing complexity of real world
problems, such as corruption, demands we continually update our knowledge and
Possibly due to a lack of
scientific references, many view corruption in Indonesia as largely a
structural problem requiring only structural solutions. While this is partly
true, it should be noted that so far as studies on corruption are concerned it
takes multiple disciplines just to understand why people engage in corrupt
political and economic reasons are some of the perspectives worthy of
consideration when designing proper corruption prevention initiatives. This is
to say simply campaigning about anti corruption at public events, for example,
will be ineffective in stopping people from engaging in corruption without
other measures to support it. Many believe that anti corruption speeches and
lectures, for example, must also be accompanied by real life examples to
gradually change people’s attitude to corruption.
Finally, researchers also play
an important role in understanding the true nature of corruption and in
supplying anti corruption practitioners with reliable input to systematically
eradicate the problem.
Many countries have taken
advantage of anti corruption research to support decision makers dealing with
corruption issues. Unfortunately, high quality research and publications in
Indonesia are items of luxury, let alone those on corruption as the “publish or
perish” maxim does not seem to apply to the country.
Indonesia is often seen as
continually lagging behind its neighboring countries in terms of research
capacity and high quality publications. Among the roots of the problem is that
research is often perceived as mere administrative work, in particular for
academics with low or no real innovation to solve real problems.
Answering research questions
or testing various hypotheses is often understood merely as a routine to
increase library collections with research reports and thus the scientific
findings never find their way into the outside world.
Research publications should
be viewed as more than just a fulfillment of researchers’ administrative
duties, they should also be a fulfillment of their moral duty to contribute to
making the world a better place. With regard to corruption, research
publications are meant to support the formulation of anti corruption policy, assess
impacts, provide alternative perspectives and facilitate broader debates and
As the great master of
strategy, Sun Tzu, once said: “If you know the enemy and know yourself, you
need not fear the result of a hundred battles. If you know yourself but not the
enemy, for every victory gained you will also suffer a defeat. If you know
neither the enemy nor yourself, you will succumb in every battle.”
The writer, Hendi Prabowo is
the director of the Centre for Forensic Accounting Studies at the Islamic University
Normally, a 50-year mining project like Freeport’s
Grassberg mine would deign it high time to turn its operations over to the
local government, which would also be expedient politically.
However, in this case, Freeport is correct to stand
its ground against Indonesia in insisting its contract of work (CoW) be
honored, extended and not converted into a licensing agreement that has the
potential to seriously disrupt operations.
Vincent Lingga in his Feb. 23
commentary in The Jakarta Post is wrong to paint this as an “arbitration ploy”
by Freeport to block mining reform. Indonesia mining will certainly not reform
with local owners bereft of legal enforcement. Why is this? Freeport is
actually doing quite a good job with its localization initiatives in Papua,
compared to that alternative, no localization. In other words, the operation is
benefitting Indonesia not just with taxes, but also with human resource
It is commonly held knowledge
in the Indonesian mining industry that Freeport and Theiss have the best mining
training programs in Indonesia, followed by Newmont and BUMI Resources
(courtesy of their legacy Rio Tinto and BHP operations). Western standards do
in fact matter.
Freeport employs 32,000
people, many of them are well trained in best-practice mining standards and
techniques, with good safety inculcated in their processes. This situation
could/should be replicated in all Indonesian mining activities, not just Papua.
The real fear is that if this
mine is nationalized (effectively what the divestment is), training and
localization in Papua will suffer inversely. Localized owners will not carry
the same safety and training mandates that Freeport does. They will also probably
want to cut any “non-essential” (read: safety and environmental) staff to the
If a licensing agreement
(IUPK) is forced, local partners, via divestment, may insist on another avenue
of production, with a lower environmental and safety risk profile, you can bet
Finance Minister Sri Mulyani
Indrawati is wrong to interject in this that a “management tweaking” is
necessary. After her many run in with the Bakrie company she should know the
These potential suitors
(namely insider oligarchs favored by the Indonesian government) are playing the
Indonesian nationalization card. That is simply a means to an end for them to
gain control of operations either directly (Freeport divestment) or indirectly
Once control is gained, any
environmental promises or social obligations will quickly fly out the window
because the Indonesian regulatory framework has weak enforcement power.
One needs only look further
than substandard mining operations in Kalimantan that have cratered the earth
with black, water filled holes for coal, or strip mined vast areas of pristine
jungle for iron ore strip mining, in both cases, driving out many native and
It is real and it has happened
and will probably happen again. Freeport, as a US company, simply cannot play
this game. If someone gets hurt, or standards are violated, they first of all
will have to answer to the US Security and Exchange Commission (SEC) for any
mal-activity that impacts shareholders.
Second, they would be subject
to proceedings in a US court for personal injury, where awards damages may be
An Indonesian company will be
under no such qualms. The legal system on its own is far weaker here. If any
doubt, consider the issue of uncontrolled peat burning in Sumatra, despite all
the “laws” the all powerful palm oil industries continue to create haze
unabated each year. Similarly, there will be no oversight authority looking out
for the long-term welfare of Papuans.
Building a smelter is
critical, but the focus cannot be based on hardware alone. Freeport is
obviously opposed to building a smelter as the Indonesian government has proven
wishy-washy on this critical investment issue for political, not economic,
necessity, by allowing some concentrate to be exported.
If Indonesia is serious they
need to have educational incentives in place that will enhance local know-how
to actually run the smelter, lest they become giant turnkeys ran by foreign
operators, mostly Chinese.
Ores or concentrate or
finished product? What’s it going to be presents a “moving target”. Only the
Chinese via their non-capitalism driven state-owned companies can afford to
play this game of potentially unrealized “pseudo-investment” of smelter
building. Of the 32 new smelters built in Indonesia since 2012, most are
Western companies that are
responsible for quarterly profit statements to shareholders cannot take this
Therefore, equating Chinese
state-owned companies that operate on a realpolitik level, and not a “profit statement”
like Western ones, is comparing apples to oranges. Chinese are interested in
long-term resource access and they will give and take as is politically
Localization is the real key
to the development of Papua, not more gimmicks like cheap fuel or cash
transfers to locals.
Those things can be
manipulated by insiders and rent seeking government officials, however a strong
jobs program can turn the outlaid rupiah up to seven times in a community. That
is what is really needed for this country.
By the time this goes to press
it is unknown if Freeport will have either caved into Indonesia’s licensing
demand and forfeit their longstanding contract or not. The Indonesian
government should lay off Freeport until they in fact can offer a better jobs program
for Papua locals than Freeport can. Right now, they can’t.
The Indonesia companies, if
they gain control, that want a piece of this divestment, will not feel
obligated, environmentally or socially for this same ideal in Papua, but rather
in spiriting profits out as quickly as possible. Papuans will suffer with local
ownership and no enforceable regulatory regime in place. That’s the bottom
The writer, Will Hickey is
associate professor at the School of Government and Public Policy, Jakarta