Month: October 2012

The Democratic Party needs to win a majority in the poll for parliament’s upper house in July or August to smooth policy-making, but the scandal linked to its powerful number two official, Ichiro Ozawa, has hurt voter support.

Failure to win an outright majority would leave the Democrats depending on two tiny but vocal coalition partners needed to pass bills in the upper chamber, possibly leading to pressure for bigger spending that could push up bond yields.

To try to turn the tide, party lawmakers have lashed out at prosecutors, whose image as standard-bearers of justice has already been hit by criticism of high-handedness in recent years.

The strategy might woo back voters, but the face-off could also backfire if Prime Minister Yukio Hatoyama and his party are perceived as trying to abuse their political clout.

The Democrats’ complaints include suspicions that prosecutors are unfairly targeting Ozawa and that they are leaking details on the case to media in a bid to manipulate public opinion.

“The media’s impact on public opinion has been huge, to the point that many people now think that Ozawa has done something wrong,” said lawmaker Toshio Ogawa, a former public prosecutor who is part of a team looking into possible leaks.

“It’s hard to say what the prosecutors’ motives are, but in the worst case, they want to build public support for the investigation because they are struggling to build a case without firm evidence.”

A spokeswoman for the Tokyo District Public Prosecutor’s Office declined to comment.

Ozawa has denied intentional wrongdoing, but may voluntarily submit to questioning this weekend, media said.

Three of his current and former aides were arrested last week on suspicion of improperly reporting donations, while media reports say prosecutors are also looking into the possibility of illegal activity by Ozawa himself.

Party kingpin
Despite the threat to voter support, Hatoyama has stood by Ozawa, a kingpin who wields huge influence in the party and is hailed for masterminding an election victory last August that ended a half-century of almost unbroken conservative rule.

Some analysts say prosecutors are pursuing Ozawa to foil the party’s reform agenda, which includes reducing bureaucrats’ control over policies.

“The public prosecutors are seen as the Knights Templar, if you like, of the Japanese bureaucratic system,” said Mark Burges-Watson, COO of research company Japaninvest.

“So if anyone is going to come out fighting the DPJ (Democratic Party of Japan), it’ll be them.”

But a showdown could hurt Hatoyama, who has already come under fire this week for having urged Ozawa to “fight on”. Media and the opposition said the remarks suggested bias against prosecutors, although Hatoyama has denied this.

On Wednesday, Hatoyama was also forced to rule out the possibility of the government soon proposing a bill to require that interrogations by police and prosecutors be videotaped, as long advocated by human rights activists.

While the party endorsed the idea in the past after forced confessions led to the convictions of people later found to be innocent, Hatoyama said submitting legislation now could be seen as putting pressure on prosecutors.

Some tabloids have rallied behind the Democrats’ criticism of prosecutors, but mainstream media are unsympathetic, calling for a more detailed explanation to the public from Ozawa himself.

“The Democrats could just end up further irritating prosecutors and having the public wonder if politicians are trying to interfere with prosecutors’ work,” said Mikitaka Masuyama, professor at the National Graduate Institute for Policy Studies. “The Democrats are not being good at damage control.”

A team of more than 100 police and weapon experts sorted through more than 145 crates of cargo, initially labeled drilling equipment, at an air force base in northern Thailand, four days after the transport plane made an unexplained stop in Bangkok.

“Authorities found various kinds of weapons including rocket launchers, rocket-propelled grenades and components for surface-to-air-missiles,” Sirisak Tiyapan, head of international affairs at the Office of the Attorney-General, told Reuters.

“Experts will inspect further. That could provide clues in terms of who might want this sort of weapons, where they might be going, and where they were produced,” he added.

A Thai court extended the detention of the five-man crew – four from Kazakhstan and one from Belarus – by 12 days to give the authorities more time to investigate.

They each face 10 years in prison if found guilty of illegal possession of heavy weapons.

Mystery continued to surround why the plane landed in Bangkok on Friday and the circumstances which led to the seizure of the cargo. Crew members denied knowledge of any weapons on board and indicated that the plane stopped en route to Sri Lanka and the Middle East to refuel and fix a wheel.

The weapons could be in breach of a U.N. Security Council resolution in June banning communist North Korea from selling weapons in response to its defiant nuclear and missile tests.

South Korea impounded four cargo containers in September under the same resolution and analysts said the latest seizure could complicate the North’s clandestine arms trade and pressure Pyongyang to return to the negotiating table.

Thai media has speculated the cargo plane may have been forced to land by Thai fighter jets following tip-offs by the United States, which was monitoring the plane’s movements.

The government has not commented on the reports.

Arms exports to Middle East
Thawil Pliansri, secretary-general of Thailand’s National Security Council (NSC) which advises the government, said officials were yet to determine the destination of the cargo. He did not say why the plane landed in Bangkok.

“We didn’t want it to land here,” Thawil said. “We had tip-offs that this plane might be carrying something illegal so we asked to search it. We had to in order to comply with the (UN) resolution.”

An NSC official, who declined to be identified, told reporters authorities were acting on US intelligence.

Arms are a vital export item estimated to earn North Korea more than $1bn a year. Its biggest arms sales come from ballistic missiles, with Iran and Middle Eastern states among their customers, according to US officials.

Analysts said the cargo seizure would increase the cost, and risk, of buying arms from North Korea, which could force Pyongyang to consider rejoining stalled nuclear talks in the hope of receiving aid.

“This is a tremendous blow to North Korea’s very crucial revenue source,” said Baek Seung-joo of the Korea Institute for Defense Analyses. “Who would give business to a courier service, for example, that won’t deliver?”

“[This] points to a greater likelihood that the North will look to dialogue with the United States and also the six-party talks as a way out.”

Speaking in Washington, US Secretary of State Hillary Clinton said the seizure was a sign that sanctions on North Korea were working.

“And it shows that the international community, when it stands together, can make a very strong statement regarding what we expect from a state like North Korea,” she told reporters.

Villagers here plough their narrow, terraced fields dug into the brittle slopes much as they have for generations, with wooden ploughs and donkeys. But the seemingly timeless rhythms of this village in Yongjing County, Gansu province, have been changing.

Over the past 20 years, summers have become hotter and drier, rains now come later and droughts more often, and winter now sets in late and mild enough so farmers can grow corn, which would not mature here 10 or more years ago, said Pu Yanjun, resting at midday from ploughing his soil before winter.

“Water is our biggest problem, Gansu, they say, has nine years of drought every 10 years,” he said, hunkered over a lunch of flat bread and potatoes in his neat courtyard home.

“Now the rain often doesn’t come when we need it, and then it rains when we don’t need it. If it rains now, it will be useless anyway.”

The threats from climate change for areas such as Zhongzhuang are at the heart of negotiations 6,843 km (4,252 miles) away in Copenhagen, where leaders will be locked in talks this week seeking a new international pact on fighting global warming.

Greenhouse gases from human activity are trapping more solar heat in the air, feeding planetary warming likely to stoke droughts, disrupt rainfall, and threaten crops in many areas.

For China, with its 750 million strong farming population, such changes could strain food security in coming decades. Poor villages in environmentally stressed areas such as Yongjing County are likely to suffer first and worst.

“Once you get into the remote communities in poorer parts of China, people are very exposed to climate hazards,” said Declan Conway, an expert on climate change and agriculture at the University of East Anglia in Britain who has studied what could happen to China’s farmers.

“Those people are already quite vulnerable, and it’s quite likely that with an increase in the frequency of extreme weather events, they’re going to feel it more in the future”.

No meat this year
For Ma Tuili, a 25-year-old mother, the pressures of this harsh landscape come down to the buckets of water she hauls from the family well each day, measuring them out so supplies last her family of five through the usually dry winter until rain arrives.

She and the 100 or so other residents of Zhongzhuang are mostly Hui, a Muslim group ethnically close to the country’s majority Han Chinese people. They grow wheat, potatoes, and corn, and herd goats and occasionally cattle.

Their daily diet is potatoes, flat bread baked on the side of stoves, and noodles. Meat is a luxury many said they ate perhaps two or so times a year, during the Lunar New Year and Muslim festival of Eid. Ma said a bad harvest and debts accumulated last year had made even that impossible.

“We didn’t have meat for the (Lunar) New Year this year, so I fried dough balls instead,” she said, between bouts of heaving water from the well. “I was thinking, ‘Why can other people eat well but we can’t?’ We work hard here, but we don’t get rich.”

Farmers said fields here produced about 100 kg of summer wheat per mu (one sixth of an acre or 0.0667 hectares), less than a third of the national average, on family plots of two or three mu. Most said their families earned between 2000 yuan and 3000 yuan a year – some much more – skidding close to outright poverty, especially in bad years.

The changing climate has been making it harder for them to climb out of poverty, despite government programmes to raise incomes and improve water availability, found a recent study of Yongjing and other vulnerable parts of China sponsored by Oxfam and Greenpeace.

“There’s less rain than before. The droughts have been getting worse,” said Cai Wenfu, a 20-year-old farmer, resting after coaxing a braying donkey to finish ploughing a plot.

“The hardest part of life is not having enough rain so there is not enough to eat. It’s not like that every year, but we were down to two meals of bread a day in the last bad drought.”

The study found that since the 1980s, average temperatures here have risen, rain has decreased, and droughts are more frequent. Average annual precipitation was 323 millimetres in the 1970s; between 2008 and 2008 the average was 279 mm.

“There’s an association between these changes and reversion to poverty,” said Lin Erda, one of China’s top experts on climate change and agriculture, who helped write the study.

“There are uncertainties about how global warming will affect agriculture, but the risks are big, and they will first hurt the farmers in arid and semi-arid vulnerable regions”.

Without potentially expensive adaptation through improved irrigation and improved crops strains, average productivity of major grains per every acre of land planted could fall between 13 and 24 percent in coming decades, said Lin, who works at the Chinese Academy of Agricultural Sciences in Beijing.

In Zhongzhuang, the hazards of weather did not act alone, but rather in league with illness, debt, or family problems.

Cai Yanguo said the family’s main well ran dry last year and they had to borrow money to buy water trucked in. She had not heard from her husband, away working, for many months and her daughter, Cai Wenlan, now 14, quit school for lack of money.

A neighbour, Cai Yanming, said his family of four could not afford proper medical care for his wife, Fa Tumei, suffering from a bad spine and painful abdominal problems.

“We’re running out of money. I don’t want to go away for work but there’s no choice,” said Cai Yanming, a slight, haggard 37-year-old.

Learning to adapt
China’s leaders, too, are openly worried about global warming threatening efforts to cut poverty and maintain food security.

The country’s grain production has recently reached record levels, despite damage from droughts, floods and frost. In 2008, China enjoyed a fifth straight year of bumper harvests, with grain output at a record 525 million tonnes.

But China’s top meteorologist, Zheng Guoguang, has warned that global warming raised the risk of a stretch of bad weather that could be disastrous for the world’s most populous nation.

In October, Premier Wen Jiabao, who will go to the Copenhagen summit later this week, visited Dingxi in Gansu, near to Yongjing, and warned of the environmental strains and water shortages threatening the region’s farmers.

The government in Yongjing has promoted building wells that trap rainwater and help families endure dry seasons and drought. Wealthier villages use plastic sheeting to keep more moisture in the soil, and experts are promoting drought-resistant crops.

While wheat crops have been buffeted by drought in recent years, the warmer autumns have allowed farmers to shift to corn, which is planted and matures later.

But biggest adaptive step China’s farmers are likely to take is moving away to towns and cities to find work, poorly paid but with better prospects than eking a living from the dry land.

“Everyone is forced to go out to work, even if you’re not willing to. I’m older but I also have to, said Zhang Dezhong, a man in his 50s who said he had found work digging on road works.

Like most WTO members, China has not yet joined the GPA, which requires a separate negotiation process. Members of the sub-group, mostly wealthy developed countries, pledge to give each other reciprocal access to government tenders and purchases.

People who have seen China’s revised offer say a space has been left blank under the heading “sub-central government entities”, which is supposed to outline the levels of government that must abide by the agreement.

China pledged to make an offer to join the GPA last year at a Sino-US summit, after an initial proposal in 2007 was rejected as inadequate by other member countries.

The revised offer is much more acceptable to trading partners, with a five-year phase-in, instead of 15 years, and more central government bodies covered by the agreement.

“I don’t see the entry as being altogether smooth. A lot of negotiation will still be needed, but altogether, the environment is so much better than when China entered the WTO,” said Zheng Zhihai, the vice chairman of the China Society for WTO Studies, under the Ministry of Commerce.

“At the end of the day, it will go through because it suits the interests of both sides.”

European, American and Japanese firms are lobbying for an open Chinese market and, in theory, joining the GPA would be to China’s benefit by granting reciprocal access in those countries.

But in practice, the benefits of the GPA for Chinese firms would be limited, since their biggest projects are in developing Middle East and African countries which are not GPA members.

Lower-level bodies not included
Trading partners are dismayed that lower-level government bodies or state-owned enterprises are not included in China’s initial offer.

State-owned enterprises, a hybrid between a government-run body and a competitive corporation, are also not currently included in China’s GPA offer.

Many SOEs, like Baosteel or PetroChina, have actively sourced foreign equipment and technology during upgrades to international standards. But negotiators may be more concerned about insular state-owned monopolies like the State Grid Corp., which function more like government arms.

The initial threshold for the size of deal that must be open to outsiders is also higher than that of other GPA members.

China’s provinces have in the past imposed restrictions on buying goods made in other provinces to protect local producers.

Unlike China’s hard-fought entry into the WTO, spearheaded by the Ministry of Commerce, talks on the GPA will be led by the Ministry of Finance, due to its authority over the state budget.

In practice, government bodies tend to actively buy foreign goods, since officials often feel the guaranteed quality offsets the higher price, said Tu Xinquan, a WTO specialist at the University of International Business and Economics in Beijing.

“The issue for government negotiators is that right now I voluntarily open. But the GPA would force me to be open,” Tu said. “That could limit the government’s freedom of action.”

The lost policy latitude would include initiatives like “indigenous innovation” regulations, designed to support Chinese firms entering the high-tech sector or moving up the value chain.

Those alarmed foreign companies as they encourage government bodies to preferentially source Chinese-owned and manufactured technology, goods and services.

Uzbekistan powered through the global economic crisis, kept inflation in check and is enticing foreign companies with a $50bn investment bonanza.

But Said, like many in Tashkent, places no faith in this government data.

He says the only way he can make a living since the state stole his thriving retail business is to drive a taxi along the capital’s leafy boulevards, past stores selling Western fashions he cannot afford. “This looks like heaven,” he says. “But it feels like hell.”

Factories have closed and doctors at one Tashkent hospital say they haven’t been paid for five months. President Islam Karimov tolerates no dissent in Uzbekistan, a landlocked ex∞Soviet country lying on gas reserves coveted by Asia’s powerhouse economies and a transit route crucial to US military operations in neighbouring Afghanistan.
Karimov, 72, has ruled Uzbekistan for nearly two decades. There is no opposition party and the absence of any obvious successor breeds rumour and fear among the 28 million population. “His frame of reference is the Soviet Union and he doesn’t want to become another Gorbachev,” said one foreign diplomat, referring to reforms introduced in the 1980s by Kremlin chief Mikhail Gorbachev that preceded the Soviet Union’s collapse.

The government argues its command- style economy has shielded Uzbekistan from the global financial crisis. Gross domestic product grew by 8.1 percent last year and is set to expand by 8.5 percent in 2010, while inflation has hovered between six percent and eight percent in each of the last five years. Uzbekistan’s economy operates on at least two levels, however. The layman’s formula for calculating economic progress is to double the official inflation rate and halve GDP growth.

A quarter of the population lives below the poverty line. The Asian Development Bank estimates almost 60 percent of those employed live on less than $1.25 a day, a rate surpassed among the bank’s members by only Nepal and East Timor. Furtive, black market trades in Tashkent’s bazaars value the Uzbek sum at nearly 50 percent below the official rate of 1,560 to the dollar. Locals say the state even regulates the black market and that secret police are watching every transaction.

In a country where the largest banknote, 1,000 sum, is officially worth 65 cents, carrying cash can be unwieldy. Local residents, who almost always decline to be identified for fear of reprisals, say there is a physical shortage of banknotes.

Economic showcase
Uzbekistan, which ranks among the world’s top 10 producers of gold and uranium, had a rare opportunity to showcase its economy in May when it became the first Central Asian country to host the Asian Development Bank’s annual meeting. First Deputy Economy Minister Galina Saidova told a packed room of investors about a $55bn investment plan between 2009 and 2014. The state budget has been in surplus since 2005 and forex reserves have grown sixfold in the last five years, she said.

Several large international companies have already arrived. Chevrolet cars from the General Motors Uzbekistan joint venture are ubiquitous on Tashkent’s eight-lane boulevards. German truck maker MAN is assembling trucks in the city of Samarkand and Malaysian state oil and gas firm Petronas is leading a project worth between $2bn and $3bn to convert Uzbek gas into diesel and other liquid fuel.

Foreign investors like stability, and Karimov shows no sign of relinquishing control. Asked on a recent trip to Moscow about the repercussions of the April uprising in Kyrgyzstan, he said: “Take it from me: in Uzbekistan, no∞ one is delightedly following the actions of the ‘freedom-loving’ Kyrgyz people.”

The overthrow of Kyrgyzstan’s president has stirred tensions in Central Asia. Months after the previous Kyrgyz revolution in 2005, Uzbek troops fired on protesters in the eastern city of Andizhan, killing hundreds and drawing international rebuke.

Few in Tashkent expect a repeat. A human rights worker who recently visited Andizhan said wounds there are still too raw. Others say the country – with a population more than five times that of Kyrgyzstan – is too large and too disparate to attempt any sort of revolution. “They have a higher threshold for abuse,” a diplomat said.

The succession question
Karimov has said strict measures are needed to prevent the spread of Islamist militancy. Police with explosive detectors and sniffer dogs have patrolled Tashkent’s metro since the suicide bombings at two Moscow underground stations in March. Suicide bombers have targeted Tashkent before, including the US embassy in 2004. But rights groups say Karimov has used this threat as a pretext to eliminate dissent and religious freedom in the mainly Muslim country.

Surat Ikramov, who describes himself as a human rights defender, painstakingly records the abuses related by growing numbers of visitors to his office in a low-rise Soviet apartment block. He flicks through a dossier of the worst cases. “Beaten. Beaten. Dead,” says the 65-year-old former teacher, pointing at photographs of the victims. “This one was a taekwondo champion. This one was too religious. This one,” he said, picking out a bruised, bandaged face, “is me.”

Ikramov says he was beaten and poisoned by masked agents for opposing the government. He says people still live in fear of a state where crimes can quickly be invented to quash a threat or expropriate a successful business. “We have everything here to live well: gas, oil, our own food products – you name it, we have it,” he said. “So why do we live like this?”

The financial elite is not exempt. Tashkent was abuzz with rumour after the arrest two months ago of several prominent businessmen. Though all were released, locals say the gesture was a timely reminder of the president’s absolute rule. “The arrest of the ‘oligarchs’ shows that the government does not want any group to become too powerful,” said one.

Opponents do not expect change anytime soon. The president’s civic power is growing in the grand buildings of Tashkent, such as the ice-white convention centre constructed beside the square honouring 14th-century Turkic warlord and national symbol Amir Timur. “The West wants three things: support for Afghanistan; transit for oil and gas; and crushing the terrorists of whom the West is so afraid,” a Tashkent resident said. “Karimov provides all three.”

But Karimov’s age – at 72, he is Central Asia’s oldest incumbent leader – raises questions about the eventual transfer of power. With no clear succession, the spectre of a turbulent upheaval lingers. “Some believe Karimov’s death will bring about the apocalypse,” said another Tashkent resident. “But you could just as easily argue this is an illusion he himself has created.”

The suicide of Sun Danyong, a worker at contract cellpone maker Foxconn International who was accused of industrial espionage after a prototype Apple iPhone went missing on his watch, has thrown a spotlight on the plight of many of his peers.

China has been battered by the global financial crisis at a time when a rising tide of degree-holders is flowing out of its fast-expanding universities. At least three million are still looking for work now, official figures show.

And in a country where the laws of supply and demand are often ruthlessly applied, the employment squeeze has had a predictable effect on graduates’ futures.

“Their main pressure is to find work, so they go to the factories, where they have to start at the bottom,” said Li Qiang, Executive Director of China Labour Watch.

His organisation last year highlighted the use of student interns on the production line at Foxconn, in an apparently prescient report on the company’s hothouse working environment.

“It is quite normal for students to do this kind of work … Often when they start they are fairly depressed, but they have more opportunities to rise than ordinary workers,” Li added. But in the hunt for a monthly salary, or fast promotion, graduates across the employment spectrum are now falling victim to some of the abuses, such as bullying and excessive overtime, well documented in cases of migrant workers in China’s sweatshops.

“I didn’t have a backup plan. It’s so hard to get a job these days,” said 24-year-old Liu Xiaoping, a Japanese∞language university graduate who was tormented by his first supervisor but stayed with the firm.

Particularly vulnerable to despair when seeking a job, and to bullying when in employment, are those from poor backgrounds, whose families have often run up debts to pay for their child’s education but have no contacts to help them secure a job.

Foxconn worker Sun was from just such a humble background.

An engineering graduate employed as a factory product manager, Sun was suspected of leaking secrets when an iPhone prototype went missing during his shift, local media reported. He jumped from his 12th floor apartment after the company raided his home, they added. Apple expressed regret at his death and said it was awaiting the results of a formal investigation.

The same week in July that he died, another graduate factory-worker threw himself off a building, leaving behind a note blaming overwork after three months without a day off, local media reported.

“We have to raise awareness about rights. If not today it may be Sun Danyong but tomorrow it will be you or me,” said one angry commentator using the pen name Qi Zhi, posted on a website about life working for Foxconn (www.foxlife.cn).

“It’s just a company yet it insults a person like this!” said another poster Ying Pozi on popular forum Tianya (www.tianya.cn). Foxconn declined repeated requests for comment.

No barricades in the street
Though current discontent over job prospects echoes elements of the economic anxieties that fed the 1989 protests on Tiananmen Square, analysts say it is extremely unlikely that discontented students will take to the streets for now.

“Students, intellectuals and emerging urban middle classes were among the groups where a lot of effort was put into what is sometimes called ‘strategic generosity’, making sure they have a relatively comfortable life,” said Andrew Gilholm, Control Risks’ senior analyst for China and Northeast Asia.

“They are very much aware that they are the beneficiaries of how things are now, and any instability would be more of a threat than an opportunity for them.”

Yet if the employment prospects at the end of a degree appear to be dimming, shutting off one of the few remaining avenues of social mobility in an increasingly stratified society, it risks creating long-term disillusionment with one-party Communist rule.

Barely half this year’s college leavers have secured jobs, the respected Caijing magazine reported a survey saying, a figure far below official figures that two-thirds have signed contracts.

Stress and strain
Although statistics on balance show that a job helps protect against suicide, even those in employment will be strained when the economy is rough, said Paul Yip, Director for the Centre for Suicide Research and Prevention at the University of Hong Kong.

“Whenever you have a poor economic climate you have to lay off a lot of people to save costs.

“But for those who remain in their jobs, because they have to do some additional work to cover the other workers, they are not necessarily immune to pressure.”

No longer a guaranteed ticket to a better job or salary, an education may provide one consolation, however, in a country that has always held its intellectuals in high esteem.

“The pressure they face isn’t necessarily any more than that on ordinary workers. But if the university students face bad conditions, then the middle classes, the intellectuals, tend to rally around,” said China Labour Watch’s Li.

“There are actually many instances of ordinary workers jumping from buildings … they just don’t get much attention.”

After Beijing ended its official silence about Kim’s five-day visit that ended on May 7, Chinese media reported that North Korea was willing to enter discussions.

That was far from a firm personal commitment from Kim to rejoin the moribund six-party disarmament talks that also includes the US, Russia, South Korea and Japan.

Chinese President Hu Jintao, however, appeared focused on securing a bigger economic role for China in North Korea, and gaining more clarity over Kim’s intentions, said analysts.

China’s leaders want to “position themselves effectively in the event that there is change in North Korea, to protect their interests and advance their influence”, said Bonnie Glaser, of the Centre for Strategic and International Studies in Washington DC, who studies Chinese foreign policy.

Kim’s frailty from age and illness was visible in news footage of his visit. Worries about what could follow his death or infirmity appear to have magnified China’s determination to extend its stake in the North.

“China appears to have been preparing what is more or less a bail-out package with strings attached”, said John Park, a researcher at the US Institute of Peace in Washington DC who studies Chinese-North Korean relations.

“Kim’s frail health has raised alarm bells”.

But China’s courting of North Korea carries economic costs, and has irked the two countries’ neighbours, who fear that Beijing’s backing could dilute pressure on Kim to return to nuclear disarmament talks.

Officials in Seoul have chided China for courting Kim soon after a South Korean naval ship, the Cheonan, sank from what they have hinted was probably a North Korean torpedo.

China has vastly more trade with South Korea than with the North. But Beijing will put up with diplomatic squalls with Seoul as a down-payment for firmer ties with Pyongyang.

Turmoil in the North could release a surge of refugees into northeast China and even threaten the North’s survival as Beijing’s strategic buffer against South Korea and its ally, the US.

Chinese reports said Hu told Kim that their two countries should “strengthen strategic communication” on major domestic and foreign issues – words that could cover discussion of Kim’s succession plans.

“Hu’s proposal suggested that China does not want any more surprises such as missile tests, or nuclear tests, or incidents such as the Cheonan”, said Wei Zhijiang, an expert on Korea at Zhongshan University in southern China.

Turning point?
On this trip, Kim appeared more serious than before about China’s economic enticements, aware that his economy needs Beijing’s help more than ever, said Wei.

Kim’s visit may be a turning point towards North Korea abandoning South Korea as a source of aid and investment in favour of China, said Wei.

“In the past, it was China that was more active about seeking a bigger economic role in North Korea, but this time North Korea appeared to take more of the initiative,” Wei said by telephone from Tokyo, where he is a visiting scholar.

North Korea’s ragged economy, with an annual GDP of about $17 bn, has stumbled after a fumbled currency redenomination effort and South Korea’s suspension of aid worth $1bn a year after rising disputes with Pyongyang.

“It’s a matter of mathematical subtraction,” said Xu Wenji, a professor at Jilin University in northeast China who studies China’s economic ties with North Korea.

“If you take away South Korea, take away the US, take away Japan, take away other Western countries, then all that North Korea has left is China,” said Xu.

Both sides avoided any public mention of the sinking of the South Korean warship. Several Chinese analysts said Beijing did not want to become embroiled in that dispute, even if Seoul takes the matter to the UN.

“I think that China will treat this as a bilateral incident, even if it is found to be a North Korean torpedo,” said Wei.

On June 4th, 1989 drastic actions of the CCP against thousands of students and intellectuals protesting in Tiananmen Square in Beijing, led to worldwide condemnation. The call out of the People’s Liberation Army and subsequent protestors’ deaths, and the arrests of many other surviving activists did nothing to warm the hearts of the Chinese people. Dissent was suppressed with martial law.

The action was taken by a divided leadership who believed that democratic protests were counter-revolutionary. Although many were inspired by Western ideologies, the students were only concerned with political reform and an end to official corruption. The main cause of the protest wasn’t about overthrowing leadership.

Nevertheless, it has led to the China we know today. In order to survive, liberals like Zhao Ziyang were purged from the Chinese leadership. This began its transformation from a broad coalition of liberals, conservatives and the technocratic elite into a cohesive political force led by a conservative and technocratic elite. So the party changed, and so did its relationship with Chinese society. It co-opted the China’s rising middle classes into its own ranks, stifling dissent by inverting Marxist class-consciousness and providing a ticket for material success for those among them that carried the party card. This spearheaded an impetus for economic reform, and forced the Chinese government to accelerate economic growth through liberalisation.

Although the Chinese people have won an increasing number of freedoms over the last 20 years, the leadership shows know immediate intention to let go of power. At the time, the West hoped that Tiananmen Square would lead to the end of the one-party system, just like the fall of the Berlin Wall eventually led to the fall of the USSR. Havoc ensued, and some of its consequences can still be seen today.

The Chinese leadership learnt from Russia’s lessons, and believes that change can only occur as part of a step-by-step process. So the reform agenda, which has embraced capitalism and globalisation, has kept the one-party state in tact. Many people though believe that democracy will be inevitable in years to come. Meanwhile its people, except in Hong Kong where free speech is guaranteed by its mini-constitution, cannot engage freely in political dissent without being questioned or facing severe consequences such as imprisonment for their actions.

Since then, the doors of liberalisation have been comparatively closed in order to protect the one-party system. The voices of the dissatisfied people have become louder and stronger due to the internet and the rise of citizen journalists uncovering “cases of corruption and official venality”, says the Wall Street Journal. As a result, more of China’s citizens have taken to the streets to demand justice. There have also been more protests over land and labour rights.

Nevertheless there have been land rights reform afoot with a new pilot scheme being trialled in the north-eastern province of Liaoning, which allows 151 households to use their land rights as collateral for mortgages. This means that farmers are being given access to credit for the very first time. It enables them to buy their land and frees them from state intervention. Under current legislation farmers are not allowed to use their properties as mortgage collateral, so any reform in this area, which began with decollectivisation in the 1980s, could turn them into economically significant players.  However, it has been asserted that these reforms don’t go far enough.

Since 2006 other reforms have been introduced, such as the country’s bankruptcy laws aimed at increasing investor confidence. Western companies were initially attracted to China because of its flexibility from a legal perspective, but things are changing. In 2008 China’s top legislature passed a package of tough environmental laws to underpin its climate change strategy with the hope of removing the label of being one of the world’s worst polluters. It set out reduced energy consumption by 20 percent, to double the usage of renewable energy, and to cut pollution levels by 2010.

Over the next three years financial reform will be crucial. It had stagnated, but the Chinese government has little choice but to act as a result of the financial crisis and its dependency on exports. Sources suggest that they grew by 19 percent a year, and the country’s average export growth of 27 percent was very focused on the debt laden growth of consumption in the US. Due to the recession this growth is unlikely to return over night, and only five percent growth is predicted over the next three years. This has led China to replace its lost productivity growth with a considerable monetary expansion. In order to maintain GDP growth it will need to entertain domestic market reforms, requiring the deregulation of the domestic service industries, many of which are still state-owned, and financial reform to improve capital allocation.  The latter will improve economic growth, created by each invested dollar.

What was once a lifeless bond market is now beginning to boom. Two years ago bonds were underwritten by state-owned banks and were subject to a quota system that was eventually ditched. And yet the bond market is now picking up. Between January and April 2009 it rose by up to 60 percent, and bond issuances are expected to increase over the next two years. Companies like PetroChina have joined the market. The nation is trying to move away from bank-lending in order to establish a more flexible financial system. There are, nevertheless, more bank loans being issued than bonds at the moment.

Such reforms are required to ‘re-balance the economy’. One of the key challenges of this programme requires China to change from being an exporter of goods, to one that has its own consumer economy. To create a burgeoning domestic consumer economic it has to embrace the rise of the urban middle classes. The trouble is that, while the country’s population will grow to around a billion by 2030, most of its citizens remain comparatively poor. About 90 percent of the population earns less than US$5,000 per year, and most of this is spent on housing, clothing and food.

Income levels have to increase if the drive towards a consumer economy is going to be successful, and most of the consumers with the money to spend on consumer goods live within the region of the Yangtze River Delta, the Pearl River Delta and the Beijing-Tianjin corridor. Most of its migrant workers who go to the cities to find work don’t have the means to enjoy Western-style consumerism, but incomes over time will grow and this in turn will spur on retail market growth. An appreciation of the country’s currency, the renminbi would help matters, making foreign goods cheaper and this in turn would open up the market to new consumers.

So China has come a long way since the Tiananmen Square massacre, shown by the way it was welcomed at April’s G20 summit. There’s clearly still work to be done, with many pitfalls ahead. China, with the rise of consumerism and economic prosperity, could end up creating an underclass unless better access to social services is provided; including the provision of public health and education.

   
As one of Asia’s biggest investor draws for western companies, the political and economic affairs of Malaysia are always keenly examined, and growing speculation that Malaysian Prime Minister Najib Tun Razak may opt for parliamentary polls nearly two years ahead of schedule is headline news.
Addressing the 61st general assembly of the United Malays National Organisation (UMNO), the ruling party that he heads, on October 23rd, Najib gave “the clearest indication yet” that the 13th general election was imminent. As of now, the parliamentary poll is scheduled for March 2013.

Najib, who took over as the prime minister in April last year, told the party faithful “to get ready for it and to get into battle mode”. Deputy Prime Minister Muhyiddin Yassin was even more direct when he said that “it cannot be denied that the general election is just a few months away”. Newspapers based in Malaysia say that the party general assembly has been abuzz with talk that the elections could be held as early as July 2011.

Najib took over from Ahmed Abdullah Badawi, who quit after the party and the Barisan Nasional, the ruling alliance, fared badly, losing the traditional two-thirds parliamentary majority in March 2008 and control of four of the country’s 13 states. Multi-racial Malaysia is home to 2.1 million ethnic Indians who form eight percent of the country’s 28 million-strong population.

The ruling alliance, which includes a number of Indian-based parties, has had a victory run in recent by-elections. The opposition alliance, Pakatan Rakyat, led by former deputy prime minister Anwar Ibrahim, is widely perceived as having lost ground, media reports have said. This may be due to the fact that Ibrahim remains a controversial figure. Ten years after he was sacked from the deputy prime ministership in 1998 when he was tried and jailed on a charge of sodomy, he is currently on trial for another charge of sodomy which was brought against him last year. And analysts do not rule out violence if the court delivers a “contentious” verdict.

Political tensions spiked after the 2008 general election when unprecedented opposition gains transformed the political landscape. The National Front coalition’s 52-year grip on the country was dented when it ceded control of five states and lost its two-thirds parliamentary majority to an opposition led by Ibrahim. Since then, the political uncertainty has weighed on foreign investment with net portfolio and direct investment outflows reaching $61bn in 2008 and 2009 according to official data. While money has flowed into the bond market recently, according to central bank statistics, little has flowed into equities.

Another reason why foreign capital may have dried up is a perceived increase in public sector corruption. Malaysia used to be regarded as one of the region’s more reliable countries, but worsening corruption and a perceived lack of judicial independence have damaged investment. Malaysia’s corruption perception ranking dropped to a record low of 57th globally in anti-corruption body Transparency International’s 2009 report.

Other issues may include the country’s attitude towards minorities, especially as race and religion have always been explosive issues in Malaysian politics. While Najib took power pledging a more inclusive approach to ethnic Chinese and Indian minorities, some in his UMNO party are casting this approach aside in a bid to woo conservative Malays. The caning of three women under strict Islamic laws in February for having illicit sex signalled the government’s increasing adoption of a stronger Islamic agenda, and this has worried some investors. A heated row over the use of the word “Allah” by Catholics, which sparked attacks on religious establishments, is also threatening to prolong minority unhappiness with the government.

Government policy tries to strike a balance between the majority Malay Muslims and the country’s minority ethnic Chinese and Indians, but analysts suspect that forced spending cuts which are likely to target minorities are likely to increase racial tension. The government is trying to take measures to alleviate the problem. Najib told delegates that “a new mechanism” was needed to sustain relations as enshrined in the constitution so that they remain harmonious. His government recently set up a special body called the “Bumiputra Agenda Supreme Council” to look after their economic interests. However, commentators point out that Bumiputra, or “the sons of the soil”, refers to the Malays, which may give an indication about which sections of Malay society may benefit from it.

Yet it is usually the state of a country’s finances and spending that often come back to haunt it, and Malaysia is no different. Government debt for 2009 rose to RM362.39 billion or 53.7 per cent of GDP, its highest level in five years, according to the country’s public sector spending watchdog, the Auditor-General. This is the first time the debt to GDP ratio had breached the 50 percent mark, largely due to domestic debt. “The debt ratio to GDP at the end of 2009 is 53.7 percent, the highest level in five years and over 50 percent for the very first time,” said its report.

Furthermore, the Auditor-General has found that a total of 109 projects undertaken by 24 ministries and departments overshot their budgets to a cumulative amount of RM527.43 million.

According to the Auditor-General’s report for 2009 released at the end of October, spending without an allocation, financial mismanagement and budget over-runs were “common” in various ministries and government departments. Based on the audit analysis, there were a total of 195 cases of weak financial management were detected in several ministries and departments. Furthermore, a total of 21 ministries and departments had also applied for emergency funds and additional costing amounting to RM62.2 million despite there being a RM96.33 million balance from their initial allocations being unspent.

Malaysia’s budget for 2011 has skipped structural reforms demanded by investors. Instead, the budget strategy relies on infrastructure spending and raising incomes to fuel economic growth ahead of polls expected next year. The budget plan targets a 2.8 percent rise in spending and aims to shrink the deficit to 5.4 percent of GDP next year from 5.6 percent this year thanks to sustained strong growth.

According to the plan, Southeast Asia’s third-largest economy is expected to grow between five and six percent in 2011 after a seven percent expansion this year and a 1.7 percent contraction in 2009. “The trend of external trade is increasingly challenging, while there is heightened competition to attract foreign investment,” Najib told parliament. “To rise to these challenges, the private sector must be dynamic, creative and innovative to drive economic growth,” he added.

To shift away from the governments significant role in driving economic growth since the financial crisis in 1997/98, the 2011 budget includes a number of important initiatives designed to spur private sector investment, estimated to expand in 2011 by 12.5 percent to RM86 billion. Some projects include the Kuala Lumpur International Financial District (KLIFD) commencing in 2011, in collaboration with Mubadala Development Company, of the Government of Abu Dhabi, at a value of RM26 billion; the Mass Rapid Transit (MRT) in Greater KL, beginning in 2011 with expected private investments of RM40 billion, to be completed by 2020; and the Warisan Merdeka, an integrated development project comprising a 100-story tower, the tallest in Malaysia, to be completed by 2020 at a value of RM5 billion.

Analysts believe that the budget is more likely to please voters than investors who are frustrated with the lack of progress in reforms of Malaysia’s subsidies and its race-based policies. “A majority of the big foreign investors will be unhappy with the budget if he doesn’t give them anything in terms of real money,” said James Chin, a professor at Monash University in Malaysia.

Commentators say that Najib needs strong economic growth to secure a clear mandate from voters to push through reforms considered crucial to win back foreign investors who increasingly skip Malaysia and head to other Southeast Asian economies. Malaysia’s private investment grew only two percent on average between 2006-2010, and was expected to be 10.8 percent of GDP this year, rising to 11.3 percent of GDP next year.

But the government is trying to turn the situation around quickly, and has been delivering some welcome news. At the end of October Prime Minister Najib announced details on $444bn worth of investments the country wants to attract over the next 10 years to double its national income. A government think-tank said in September that it had identified the investments, of which 60 percent would come from the private sector, 32 percent from government-linked companies and eight percent from government. The investment aims to rebalance Asia’s third most export-driven economy towards domestic demand and the service sector, at a time when foreign investors are increasingly attracted to other regional economies.

Some of the key projects named in the investment drive included Germany’s LFoundry, which will relocate and invest in five wafer fabrication plants in Kulim Hi-Tech Park in northern Kedah state over the next five years. Its Initial investment is valued at 214 million ringgit while the total estimated investment is 1.9 billion Malaysian ringgit ($610.3m).

There are also plans to build a 208-room hotel and 160-unit residence, to be managed by St Regis, an international six-star hospitality brand, while oilfield services firm Schlumberger has recently opened its Eastern Hemisphere Global Financial Services Hub in Malaysia. This is part of the Greater KL/Klang Valley Entry Point Project which aims to attract 100 new multinational corporations to relocate their operations in Kuala Lumpur by 2020.

In fact, Malaysia’s Economic Transformation Programme (ETP) has gotten off to a strong start with nine early wins announced at its roadmap launch in October. “The ETP is already delivering results. These early wins show that by focusing on action, results will flow,” said Najib. More confirmed investments will be announced over the next few months. “Based on our tracking, 53 ‘Entry Point Projects’ (EPPs) with a total investment value of $97bn (RM300.7 billion), almost 45 percent of the total investment targeted, are already in various active stages of engagement,” he said.

Najib also announced that a four-tier ETP governance structure has been activated to monitor the progress of the initial 131 EPPs and conversion of the 60 business opportunities into new projects. “A clear governance structure is absolutely critical for the success of the ETP,” said Najib, adding that “the ETP is for all Malaysians”, pointing out that the 131 EPPs are spread all across the country, with 68 for Sarawak and 71 for Sabah.

“For several years now, the government has been the main driver of the economy, but this is neither prudent nor sustainable and the private sector has to reclaim their effective role as the main engine of growth for the economy, in line with the strategy of the 10th Malaysia Plan,” he added.

“We must grow the economic pie substantially. However, Malaysia can no longer be driven by past strategies based on labour intensive models. We need to take the high-skill, high-income route quickly to become and remain competitive in the global economy. Transformation is critical. Failure is not an option,” he said.

On paper, foreign investors and multinational companies may welcome the Kuala Lumpur’s efforts to step back from public sector investment in favour of opening up the market to foreign firms. But it is evident that investors have serious doubts about Malaysia’s political landscape, as well as the sometimes fractious nature of its multi-ethnic population. If Najib and his party call snap elections next year – and more importantly, if they win them – it may just create the political stability that investors are looking for.

Developing Islamic finance
Islamic finance may still not have had the recognition that it deserves in the west, but the recent banking crisis has prompted several Muslim countries to consider how they might be able to promote the system as a viable alternative to western banking.

In October Malaysian Prime Minister Najib unveiled the country’s 2011 budget. In it, he tried to promote greater interest in developing Islamic financial products and services. “Bursa Malaysia will launch sukuk and conventional bonds to meet retail investors demand for fixed income instruments in order to boost the bond market,” said Najib.

He added that to further promote innovation in Islamic securities products, the Malaysian government proposes that expenses for the issuance of Islamic securities which adopt the principles of Murabahah and Bai Bithaman Ajil based on tawarru be given tax breaks. This will strengthen Malaysia’s position as the leading sukuk market and promote transactions in Bursa Suq al-Sila, the worlds first syariah-compliant commodity trading platform. The government also proposes that takaful contributions for export credit be given double tax deduction.

Also in October, eleven central banks, including those from Malaysia and Iran, agreed to start a company that will issue Islamic financial products to allow banks and investors manage their funds. The International Islamic Liquidity Management Corp. is a “global initiative aimed to assist institutions offering Islamic financial services in addressing their liquidity management,” says Kuala Lumpur-based Islamic Financial Services Board. It will also “facilitate greater investment flows,” the regulator said.

Malaysia has also urged members of the Organization of the Islamic Conference (OIC), an association of 57 Islamic states promoting Muslim solidarity in economic, social, and political affairs, to invest in developing Muslim nations by creating a sovereign wealth fund. Malaysia’s Minister of Finance II Ahmad Husni Hanadzlah has said that his country “no longer sees western nations as a major investment destination”.

The sovereign wealth fund, to be supervised by the Islamic Development Bank (IDB), aims at exploring the assets of OIC members, he explained. He added that Malaysia presented the idea of the fund during the annual meeting of the Islamic Development Bank which was recently held in Azerbaijan. The sovereign wealth fund would contribute to carrying out various projects in developing Muslim countries.

Lieutenant General Sardar Mahmood Ali Khan, Deputy Chairman of the Joint Chiefs of Staff, added that such a big task in the mountainous northwest was not “firefighting” and had to be done in sequence with other battles.

Pakistan has come under fresh US pressure to send troops into north Waziristan following a failed bombing in New York claimed by Tehrik-e-Taliban Pakistan (TTP), the Taliban Movement of Pakistan, which has fighters in northwestern areas including North Waziristan.

Speaking on the sidelines of a conference in Jordan of special operations forces commanders, Khan said the army was still busy consolidating its operations following an earlier push into South Waziristan and needed to adhere to a schedule for what he called a long campaign.

Asked if troops would eventually go into North Waziristann, home to a complex web of militant groups, to attack fighters there, he replied: “Of course, all these areas which are affected are on our agenda, yes.”

The New York bomb plot suspect, Faisal Shahzad, 30, was arrested two days after authorities say he parked a crude car bomb in Times Square. Authorities say he has been cooperating in the investigation.

Attorney General Eric Holder and other US officials said that the Pakistani Taliban, based in Pakistan’s lawless border regions, were involved.

Holder said the US government was satisfied with Pakistani cooperation in the investigation, adding there was nothing to suggest the Pakistani government was aware of the plot.

The al Qaeda-linked TTP is an alliance of factions and has killed many hundreds of people in bomb attacks.

Some Western officials have questioned the determination of Pakistan to tackle militants as the long-time US ally addresses other problems, from a sluggish economy to power cuts that have made the government unpopular.

Pakistan has proved capable of capturing militants, including some of al Qaeda’s most notorious heavyweights. Khalid Sheikh Mohammed, the accused mastermind of the September 11 attacks, was arrested in Pakistan in 2003.

But Khan said North Waziristan’s geography made it an exceptionally difficult region in which to wage war and suggested any move into the region could not be done lightly.

Over the past year, the armed forces have mounted offensives against militant strongholds in the northwest, largely clearing several areas including their bastion of South Waziristan.

But North Waziristan has not been tackled, even though TTP members are believed to have taken refuge with allied Afghan factions based there that are not fighting the Pakistani state.

The army says it must secure the areas it has cleared before attacking there. But analysts say Pakistan sees the Afghan factions in North Waziristan as tools for its long-term objectives in Afghanistan, where Pakistan wants to see a friendly government and the sway of old rival India minimised.

“Basically, what the US wishes is that we go into North Waziristan,” said a senior Pakistani intelligence official who declined to be identified.

“That means targeting the Haqqani and Gul Bahadur networks,” the two main Afghan Taliban factions there.

US officials have recently been praising Pakistani efforts against militants, but Secretary of State Hillary Clinton raised eyebrows when she told CBS Pakistan would face “severe consequences” if a successful attack in the US was traced to Pakistan.

Retired Pakistani intelligence officer Asad Munir said US blame would be counter-productive.

“If they blame Pakistan, I don’t think they’ll win this war,” he said. “They will go to North Waziristan but it will take time. If Pakistan is pressured, it will be disastrous.”

“The ‘do more’ mantra will lead to thinking in the military that this is happening despite their people being killed every day and ultimately foot soldiers will be demoralised,” he said.

Asked if he would accept more US special forces in Pakistan, the joint chiefs’ Khan declined to reply directly, noting there had been a limited number of these forces doing training in Pakistan for some time and they continued to play that role.

For decades, the United States beckoned as the land of opportunity for bright, young Indians, lured by the prospect of prestigious university degrees followed by jobs on Wall Street or in Silicon Valley.

Indians have since 2001 been the largest foreign student population on American campuses, comprising around 15 percent of all international students at colleges and universities in the United States, according to the US Embassy in New Delhi. But this is changing.

America’s loss may be India’s gain, analysts say, pointing to a ‘reverse brain drain’ that may see India reaping benefits for years to come as some of its smartest and most talented people put their energies into India’ economy, Asia’s third-largest.

“The brain drain has already begun to reverse. Now there are many magnets pulling the best talent. Before, the US was where everyone wanted to go,” said Vivek Wadhwa, a US-based Indian academic who has written a paper on the issue. India’s economy has boomed at around nine percent growth in each of the last three years, lifting millions out of poverty and creating a generation of affluent and ambitious young Indians.

Many have pursued prestigious post-graduate degrees in the US and Europe and then stayed after finding high-paying jobs.
But as the global financial crisis has kicked in, Indians are seeing greater opportunities at home, where there are more job openings, the cost of living is lower and modern amenities such as shopping malls and condominiums offer them a comfortable life.

About 100,000 skilled Indian ‘returnees’ will come home from the United States in the next five years, Wadhwa estimated.

“When I joined Duke four years ago, nearly every student talked about wanting to stay and work in the US,” said Wadhwa, an adjunct professor at Duke University and a senior research associate at Harvard Law School.

“Now the vast majority plan to go back home. A few want to work here to pay off their loans, but they don’t think they will be able to get jobs.”

With US unemployment at a 26 year high, prospects at home appear better for Indian graduates as firms such as Warner Bros and IBM announce they will move jobs to India and other outsourcing hubs after laying off workers in North America.

Financial aid
Rahul Dutta, 23, is a case in point. He has changed his plans to study in the United States and is now enrolled at a local university.

“My initial plan was to do my master’s degree there and look for a job too, but now I realise that there are no jobs and no funding, so I took admission in a college in Delhi,” said Dutta.

In Bangalore, south India’s high-tech metropolis, Kripa Chettiar reached the same conclusion.

“I was looking at doing a master’s in financial engineering at Columbia University,” Chettiar said. “But now I am not even writing the GRE because now there’s no point, as there is no financial aid available at all.”

The GRE, or Graduate Record Examination, is the standard admission test for graduate university studies in the United States and several other English-speaking countries.

Garvit Bafna in Pune, a city near India’s financial capital Mumbai, took the exam, but he says he will only move to America if he gets into a top-ranked university.

Even students who have passed the GRE exam are abandoning plans to study abroad due to lack of funds, said Rajiv Ganjoo, head of international education at Career Launcher, an educational service provider in India.

“It is a waiting game now,” Ganjoo said. “Students are looking at the recession, at how the colleges react to it and how the government reacts to it, before taking any steps.”

For students already in the United States, getting fellowships and other funding is becoming difficult, especially for foreigners as the pool of scholarship dollars has dried up due to shrinking university endowments from stock market losses.

“The funding scenario is grim as compared to past years,” said Cherry Harika, a 24∞year∞old from India’s Punjab province who is studying for a masters degree at Boston University.

“My university has frozen new hiring. There are hardly any new job openings for foreigners, especially when US citizens are losing their jobs.”

Employer visa sponsorships are growing scarcer and President Barack Obama’s administration is under pressure to restrict the number of temporary work permits issued to foreigners.

About 55,000 students in India took the GRE last year, down more than 20 percent from the year before, said Jaideep Chowdhary, who heads the GRE programme at a private training institute in India.

Most students who study in the United States need to shell out around $50,000 for a two-year stay, he said.

Much of that money would come from loans which are not easy to get these days due to the credit crunch, especially for students with no reasonable assurance of a job.

By contrast, studying at the Indian Institutes of Technology in Madras, part of a highly reputed nationwide network of engineering and technology campuses, costs about $1,200 a year.

India too has taken a hit from the financial crisis which has slowed the scorching pace of growth of its IT outsourcing sector. One small advantage of the crisis for India may be the human capital benefits as the brightest stay home, said Wadhwa, who wrote a report titled “America’s loss is the world’s gain.”

“This is an economic tragedy that significantly increases the chances the next Intel or Cisco Systems will launch outside the US,” Wadhwa wrote.