The Russian ministry of natural resources decided to revoke an environmental license given to the Sakhalin II project on September 19. Sakhalin II is a $20 billion project run by Royal Dutch Shell . Two other Russian energy projects run by foreign investors face similar threats. Russian prosecutors have warned that it may to curtail the Kovykta project to develop a gas field in Eastern Siberia. The venture is led by TNK-BP, an Anglo-Russian oil company. Officials want to suspend the group's exploration license on environmental grounds.[1] Threats to revoke French energy company Total's license for the Kharyaga project to extract oil in Western Siberia have aroused further alarm.[2] The latest developments as to the reasons for this move are seen as a strategic move for the Russian government to regain control over its energy reserves. Three agreements signed in the 1990s give foreign companies control over some of Russia's most lucrative gas and oil fields.[3] When Russia negotiated these agreements with Shell in 1993, oil prices were low and the government did not have much bargaining power. Today its plentiful oil reserves are powerful leverage when energy sources are low and prices are on the rise.[4] Supposedly, the Russian ministry now expects to restructure these agreements. Officials have denied these charges. The government wants Gazprom, the largest Russian company and a provider of natural gas, to have a greater share in the Sakhalin II project. Gazprom is currently negotiating a "productionsharing agreement" for Shell to swap 25 percent of Sakhalin II shares for half of Gazprom's gas fields.[5] Russian energy politics have elicited censure from many members of the international community. Shinzo Abe, the chief cabinet secretary and front runner to be the next prime minister, recently expressed concern that the Sakhalin II issue would harm Russo-Japanese relations and jeopardize foreign investment. Japanese companies Mitsui and Mistubishi own 20 and 25 percent shares in the Sakhalin II venture respectively. It is estimated that Sakhalin II will supply 6 percent of Japan's natural gas. If the Sakhalin II project does not progress as expected Japan is likely to suffer losses. The Russian government claims it has no desire to end the Sakhalin I, Sakhalin II, or Total projects.[6] Recent government action may deter much needed foreign investment from other nations as well. Future investors may view the latest events as a government interference that is possible even in other sectors.[7] The EU has also voiced its concerns about Russia not meeting Europe's energy demand. The EU, UK, US, and other nations fear that Putin will use coercive tactics to close its energy sector to foreign investors. There has been some discussion of a collective stance toward Russia's energy policy but heavy dependence on Russian resources may deter action. The EU wants Russia to open the energy export market to competition. Currently, Gazprom, which is 50 percent state-owned, has the monopoly.[8] Russia has considerable incentives for establishing control over the energy sector. Energy politics are an important political weapon for asserting its authority over the post-Soviet states. Its reserves can serve as leverage for gaining access to the WTO as well as being incorporated into global markets as an equal player. [9]Sonia Gandhi, president of the Congress Party, has recently voiced her opposition to India's economic zoning initiative.[1] The Special Economic Zones (SEZ) Act, initiated in February 2006, provides tax breaks to businesses. It aims to encourage foreign domestic investment and export-led growth. [2] Gandhi is concerned about the diversion of agricultural land for business use.[3] The SEZ program has also aroused ire among members of the Finance Ministry, the Reserve Bank of India, and the International Monetary Fund (IMF). [4] Economists and large companies believe that the small size plots that the Indian parliament is allotting will not allow manufacturers to achieve economies of scale. Currently, 133 of the 265 SEZs are less than one square kilometer in size. The average size of a plot is 4.2 square kilometers. Kamal Nath the Commerce Minister and one of the strongest proponents of the policy argues that giant export-oriented manufacturing zones are not possible in India because of high population density and democracy. [5] The Finance Ministry has also reopened debate with a campaign against the SEZ program. It argues that initiative will cost the government US$19bn by 2010.[6] Internal critics also question whether Finance Minister P. Chidambaram will reach his goal of reducing the budget deficit to 3.8 per cent of GDP this year. Kamal Nath believes that long term benefits outweigh short term costs. According to the Commerce Ministry estimates, the incentives will attract US$5bn to US$6bn of investment by the end of 2007.[7] Reserve Bank of India has expressed concern that SEZs could exacerbate the problem of unbalanced development; thereby, reducing investment in less developed areas.[ 8] The Bank also objects to the fact that exporters will enjoy a tax free enclave for five years and further concessions for ten years.[9] The question that most concerns critics is whether SEZ's provide tax breaks for development that would have eventually taken place. The IMF's chief economist Raghuram Rajan holds that companies are taking advantage of the tax havens to shift production to SEZs. Rajan also anticipates that companies will use the designated plots for new development that would otherwise have taken place independently. The Indian government claims that SEZs will only facilitate new investment. According to Rajan, the government has unrealistic expectations. It has created excessive economic incentives and asked bureaucrats to prevent exploitation of the system. The result will be less revenue for the government and richer bureaucrats.[10] Many business leaders themselves criticize the policy. Bajaj Automobile owner and Chairman Mr. Rahul Bajaj and Infosys's Mr. Nandan Nilekani believe the tax breaks are unnecessary, but like other businessmen they too are taking advantage of the handout.[ 11] SEZs are a sign of the government's increased political will to create conditions for successful public-private partnerships.[12] However, the Indian government seems to be skirting the core issues. While India may be widely recognized for its red hot economy, it is not the easiest place to do business. The International Finance Corporation, an affiliate of the World Bank, ranked India as 116 out of 155 nations for ease of doing business. Poor governance, an underdeveloped infrastructure, need for further liberalization, insufficient privatization, caps on or prohibition of FDI in certain industries, and labor laws are only a few of the obstacles that investors face.[13] In the end, it seems that that the SEZs may prove beneficial to businesses, but do not address the gamut of problems that businesses face. They will likely fuel corruption and result in an unnecessary loss of much needed revenue for the Indian government.Gulf Arab investors are looking to pour money into India's booming real estate market. The country's 8.1 percent economic growth in 2005-06 and a rapidly growing middle class have attracted the attention of developers and retailers.[1] Gulf Arab countries have a $227bn oilfueled current account surplus[2] to invest after the decline in Arab stock markets this year[3], and they know the Indian market well. Indian entrepreneurs have been conducting business with Gulf States such as the United Arab Emirates (UAE) for years, and many of the professionals managing Gulf funds are Indian expatriates.[4] The Reserve Bank of India (RBI) has prohibited most foreign investments for fear of a rise in inflation rates. The Indian government also enforces certain regulations in order to promote stable, long-term capital and discourage speculators. There is a $10m minimum investment size, and companies cannot withdraw these funds for at least three years.[5] The RBI knows it risks curtailing market growth if it continues to restrict investment. [6] Outside investment will increase transparency and liquidity. Large-scale projects should also foster economies of scale.[7] The relaxation of real estate foreign direct investment (FDI) restrictions in April 2005 has drawn a number of Arab investors to India.[8] Gulf investment flows are minimal, [9] but India can expect to see drastic increases if restrictions are further reduced. [10] Future Developments Plans The Dubai-based Emaar Properties is launching a $4bn investment plan to develop small towns in partnership with Indian developer MGF. The projects will be located in or near the capital New Delhi and throughout the Maharashtra state.[11] ETA Star and Nakheel, two other Dubaibased companies, are planning to build residential complexes and hotels respectively. [12] Global Investment House, a Kuwaiti company, is considering properties in Bangalore, Chennai, Hyderabad, and Puna. It aims to invest $100m in residential and technological establishments in these cities. [13] Istithmar, a leading investment house in Dubai, has partnered with American International Group to create a real estate fund focused on emerging markets, including India.[14] Potential Barriers Those looking for immediate returns may be deterred by high acquisition costs.[15] The most expensive properties can be found in India's major cities New Delhi and Bombay. A buyer can expect to pay as much $1,000 per sq ft in Bombay and around $400 per sq ft in New Dehli. Bangalore and Pune trail closely behind at $125 per sq ft.[16] Investors may face other potential barriers. Development is vulnerable to policy shifts and other changes in government.[17] A Dubai company, TECOM, who has already started work on a $1.2bn technology park in Kochi has come across this problem. The recently elected communist party in Kerala, where Kochi is located, is critical about the project. The two parties recently negotiated the issue. The results are yet to be announced.[ 18] The acquisition of property is also problematic due to restrictions on agricultural land, and partnerships with local developers are difficult to secure.[19] Current foreign aid accounts for a trifling 1 percent of the GDP. Many obstacles still remain as the real estate market opens to outside trade. Indian policy makers recognize the need to encourage aid. This should steadily increase the FDI.[20]Asian countries are experiencing an increase in the number of elderly people relative to the overall population. This change can be attributed to declining fertility rates and increasing longevity. Lesser developed nations may find it more difficult to respond to the needs of this growing aging population.[ 1] Amid the Asian nations, China faces a unique situation,. The number of people over the age of 60 has already reached 143 million, or 11 percent of the population.[2] By 2010, the elderly population is expected to increase 174 million, or 12.78 percent of the total population..[3]This increase translates into a decreasing labor force. Developed nations experienced an increase in the elderly population after modernization, when the per capita GDP was between 5,000 and 10,000 dollars. China is not fully modernized or developed, and the per capita GDP is hardly 1,000 dollars.[4] The government may not necessarily have foreseen this development. Traditionally, younger family members would care for their elders, but they are not always willing or able to do so today. Nonetheless, the elderly are likely to have high expectations of officials. Until the 1980s, China had a laudable universal medical care program. The program deteriorated as the country began to privatize.[5] China has already taken measures to restructure existing social insurance programs and develop new initiatives. The Chinese Association of Life Care, founded in April 2006, has addressed issues such as palliative care, gerontology research, and healthcare for the elderly.[6] In September, the China National Committee on Aging established a national program on the aging for the 11th Five-Year Program period (2006- 2010). Two areas of great concern include pension plans and healthcare.[7] The nation has restructured its outdated, debt-ridden pension program. Asian nations employ two different types of systems to manage the risks associated with retirement income and medical care. The Central Provident Funds (CPF) of Singapore and Malaysia use the defined contribution (DC) approach. The DC subsidizes large expenditures such as housing, education, and sometimes medical care. It also provides a variable benefit, a lump sum payment that can translate into 20 to 40 percent of a worker's income upon purchasing an annuity. In contrast, the defined benefit (DB) approach employed in India, Korea, the Philippines and Thailand is employee-sponsored and relies on current contributions. Contributions vary according to operational costs; therefore, DB is not as effective if the elderly population continues to increase. [8] The new Chinese pension system utilizes a mandatory DB approach as its first tier, a mandatory funded DC as its second tier, and a voluntary saving scheme as its last tier. The government must continue to improve access to care, especially for the 65.82 percent of the elderly population in rural areas. The program currently addresses the needs of less than one fourth of the population.[9] A government medical program aims to provide care to more senior citizens in poor areas. There are plans to increase accommodations in elderly nursing homes by 800,000 in urban areas and 2.2 million in rural areas within the next five years. At present, these homes only accommodate 1.2 million people.[10] The government must see the long term payoff for providing better healthcare is that the aged labor force can work longer. Experts are encouraging the government to postpone the retirement age to 63 or 65.[11] The government has been pursuing a policy of fiscal consolidation so that it can fund these programs. It also plans to build 10,000 colleges and schools for elderly people by 2010. [12]Vietnam underwent significant economic change since beginning its economic renovation program in 1986. The socialist government has loosened control over the economy and relaxed restrictions on foreign investment. In response, the Vietnamese economy has grown on average of 8 percent for the past several years, and analysts expect the trend to continue through 2011. There are important parallels between China and Vietnam, and prospective investors can learn much from the Chinese experience. The Chinese economy has grown upwards of 9 percent for the past several years, and the country’s consumer market now represents the largest market for new purchases, including automobiles, mobile phones, and electronics.1 The Chinese market and private consumption have been closely tied to urbanization. Urban incomes are generally higher, and consumers have better access to retail outlets. Consumer behavior has been another component. In general, Chinese consumers are spending more and saving less. Taken together, these trends have made the Chinese market a popular investment opportunity. Vietnam has developed in a manner similar to China, and the country’s consumer market seems set to follow China’s example. Vietnam’s current growth has come from mobilizing surplus labor, and many Vietnamese have relocated from the countryside to urban centers. Changing demographic and employment trends have affected the Vietnamese market. Demographically, young Vietnamese have shown more consumer confidence than their parents, and spend more than they save.2 Consumer demand has also expanded for what were previously considered luxury items. Cars have begun to replace the more traditional bicycle and motor scooter as the preferred means of transportation. Most interesting has been the increase in luxury car sales. Sales of Mercedes Benz doubled during 2002.3 Department stores and retail outlets have become more popular among Vietnamese, and the Malaysian-owned Parkson Group has recently carved out a niche in the Vietnamese market.4 Even the Vietnamese diet has changed, providing an opportunity for new investment. Vietnam has seen an increase in per-capita milk consumption, especially in urban regions, and analysts have directly linked dairy consumption to economic growth.5 These trends are likely to continue. Asian Development Bank expects Vietnamese domestic demand to continue to grow by 8.5 percent for the next two years. The Vietnamese government has consistently prioritized economic growth and has taken measures to boost domestic demand. The government has, for example, lifted restrictions on used car imports and has reduced the special consumption tax on foreign-made vehicles. Vietnam’s recent entry to the WTO promises to further expand opportunities for foreign investors. As a result, consulting firm A.T. Kearney has recently ranked Vietnam as the third most attractive retail market for investment, and Wal-Mart and Carrefour, the French supermarket chain, have both included Vietnam in the companies’ respective expansion plans. However, there are important considerations to keep in mind. As with China, Vietnam’s short-term and medium-term growth seem reasonably well-assured, while the long-term growth is less certain. Again, as with China-Vietnam’s economic growth has for the most part not extended to rural areas. Many Vietnamese remain employed in agriculture, and farmers are very vulnerable to changes in commodity prices. The consumer market depends on per capita income, and to sustain current demand, Vietnam must transfer surplus agriculture workers to higher-income urban areas. And as always, the political context is extremely important. In China’s experience massive rural to urban migration resulted in civil unrest. Like in China, the Vietnamese consumer trends could be reversed in the event of political uncertainty or change in government economic policy. The US and Russia have agreed in principle on the terms for a bilateral agreement to be signed on November 18 which will facilitate Russia’s joining the World Trade Organization.1 US approval is key to the country’s admittance.2 Russia hopes to sign a deal at the Asia Pacific Economic Cooperation summit in Hanoi, but there are doubts as to whether President Bush could convince Congress.3 The US and the international community raised a number of reservations regarding Russia’s entry: its human rights record, state control over key energy resources, intellectual property rights, restrictions on activity of foreign companies, and Russian resistance to sanctions against Iran.4 Somewhat surprisingly, piracy has been one of the main points of contention between the US and Russia. Many trade economists do not even believe that a WTO agreement should address intellectual property rights.5 Russian President Putin says that the US is simply playing politics regarding its stipulations. He argues that Russia’s economy is more open compared to other WTO nations. The Kremlin recently took measures to lift all remaining capital controls. It has also repaid much of its Paris Club debt. Putin had hoped that the government’s fiscal responsibility and efforts to liberalize would be rewarded at the G8 summit in July.6 Russia is the only G8 nation not yet a member of the WTO. More than 30 of the world’s 50 developing nations are already members.7 It is considered an embarrassment to the country. The Russian government views entry as a privilege, even stooping to political bargaining.8 It has tried to leverage its energy resources to pressure the international community into granting it entry. WTO membership should be a right accorded to law-abiding states. The Russian government views entry as a privilege, even stooping to political bargaining. It has tried to leverage its energy resources to pressure the international community into granting it entry. WTO membership should be a right accorded to law-abiding states. While nations may indeed be practicing realpolitik in their dealings with Russia, It appears that Russia should make reforms accordingly and concentrate instead on strengthening those areas of its economy that will take a blow when it gains admission. Because it is already a powerful player with its energy resources, entry is not likely to boost GDP immediately. The nation will likely face many difficulties upon entry. The Russian economy is not an open market and does not receive state support. The populace needs time to adjust to the changes. Joining the WTO will likely accelerate the efficiency of operating enterprises. Russian officials and experts predict that downsizing in some industries could result in as many as 10 million employees losing their jobs.10 One belief is that protective measures are necessary to mitigate the adverse effects of such high unemployment. Some suggestions include instituting a quota on the entry of foreign workers and taking measures to preserve the social and labor rights of the working citizens. In a globalizing world, a highly educated labor force will be integral to a country’s economic success. A superior educational system will enable nations to develop highly skilled industries, eliminating infrastructural development. The Organisation for Economic Co-operation and Development, OECD’s September report Education at a Glance reveals a superior quality of education in East Asia.1 Singapore, Hong Kong, Taiwan, Malaysia, Australia, and Japan ranked among the best educational institutions worldwide.2 According to this report, the future of higher level jobs will be relocated to Asian countries, unless Europe or the U.S. significantly improves their educational systems.3 Amongst the Asian nations, Singapore and South Korea merit further attention, the former because it is second only to Finland4 and the latter because of the phenomenal progress it has made in recent years.5 Singapore Singapore’s educational system has attracted the admiration of nations worldwide. The students are consistently ranked the highest in math and science. Other schools worldwide have modeled their programs after their precedence. 6 However, the system is not without drawbacks. Students in Singapore take exams in the sixth grade to be tracked for further studies. These exams are said to determine their career paths. This system limits opportunities for students whose performance improves as they progress. The schools have also been criticized for their emphasis on rote memorization instead of critical thinking.7 The educational system engenders a society in which the ruling elite are the country’s brightest. However, members of the highly stratified society cannot advance very easily. The type of schooling creates a skilled but politically compliant workforce.8 South Korea In the 1960s, South Korea had a national wealth close to that of Afghanistan with a poor educational system. At present, 97 percent of its population between the ages of 25 and 34 has received an upper secondary school education, the highest among most industrialized nations. The country has also placed second in international math rankings.9 South Korea achieved this standard by investing heavily in education to further economic development. People now view education as the means for career advancement and national progress. The amount per student is actually half that in the US, but it has been used with greater efficiency10, albeit with more authoritarian education reforms.11 Remaining obstacles for Asian nations Even if a superior educational system is established, a highly skilled work force is not sufficient for economic development. Asian countries still need to create sufficient job opportunities. If education is limited to a certain minority, the economy is likely to lag behind since not enough opportunities are created for the work force as whole. INDIA’S PRIME Minister Manmohan Singh and his Japanese counterpart Shinzo Abe met on December 15, 2006 to discuss relations between the two nations. In the past, the relationship has been strained. India’s economic decline during the 1970s and 1980s discouraged external trade. Diplomatic ties were further damaged by India’s 1998 nuclear tests.1 However, with levels of growth as high as 8.1 percent, India has become an increasingly attractive partner. PM Abe recognizes the benefits of cultivating ties with India.2 He sees a partnership with India as an opportunity for economic growth as well as strategic move to balance against an increasingly powerful China.3 Japan should take advantage of the economic opportunities in India but at the same time pressure it to increase efficiency. India, on the other hand, should also be cautious of measures that will harm certain vulnerable sectors. BOTH LEADERS have agreed to begin negotiations for economic partnership in January 2007. Japan wants India to reduce tariffs on imported goods, especially automobiles and electronics. Furthermore, the country wants India to remove certain regulations on foreign investment. Indian representatives, on the other hand, are likely to demand that Japan import more of its fruits and textiles.4 PM Singh proposes cooperative knowledge transfers, specifically in information technology, nanotechnology, and biotechnology sectors.5 He also suggests that integrating India’s software with Japan’s hardware capabilities would be a profitable venture for both.6 Attracting Japanese Investment AFTER EXHAUSTING domestic production capacity, Japanese businesses are eager to expand overseas. They are accustomed to an efficient, organized business environment, and doing business in India can be complex. Some preliminary measures need to be taken in order to attract Japanese business. India must open its labor market and revise labor laws. Opening the services sector, especially retail, real estate and banking, would further invite foreign investors.7 Revision of its complex tax system would also help.8 At their meeting, PMs Abe and Singh set up a Special Economic Partnership Initiative to encourage investment in India’s infrastructure. Talks centered on the energy sector with plans to set up industrial corridors.9 Furthermore, Japan agreed to continue providing India with Official Development Assistance. The nations will focus on developing the following sectors: infrastructure, environment, social development, and human resource.10 Cooperation & Development NUCLEAR ENERGY security was another concern on the agenda.11 Japan is overtly opposed to the use of nuclear weapons. PM Abe skirted the issue of India’s nuclear at the meeting, and said that Japan would participate in International Atomic Energy Agency’s discussions. Abe supports India’s desire to develop civil nuclear energy. He trusts that the nation will use it in a responsible manner. Japan relies on nuclear power for 40 percent of its electricity, and it is considering assisting India in developing its supply.12 DEFENSE AND national security issues were also addressed during the discussions. Both leaders have decided to deploy their coast guard forces to fight piracy within their Exclusive Economic Zones. They also jointly condemned terrorism.13 Conclusion Japan’s trade with India amounted to $6.5 billion in 2005, only one percent of its overall trade.14 The US and China have increased trade with India, but Japan has remained hesitant.15 INDIA MUST improve business conditions and develop the necessary infrastructure if it is going to compete with neighboring nations such as China for Japan’s trade and investment. The onus lies solely on India. In light of India’s recent growth, it seems likely that the two leaders will cultivate a stronger economic partnership. Strengthening this bilateral trade relationship may allow the two nations to gain an edge over Western countries in technology and other strategic sectors.CHINA HAS become a popular market for healthcare providers. The demand for quality care and insurance coverage has grown as the country has become more affluent. The healthcare sector as a whole has expanded 16 percent over the past several years, and the market for pharmaceuticals alone has grown about 11 percent per year.1 The healthcare system seems to be at a crossroads as the country attempts to transition from a command economy to a market-based system. Beijing has substantially reduced state-provided healthcare, and the reduction has led to a gap between the demand for and supply of care. The private sector needs to expand to meet the needs left unaddressed by the government. The overall need for healthcare has been related to changes in the Chinese standard of living. The Chinese are living longer and so there has been more need for long-term care. There has also been a rise in the number of chronic illnesses like diabetes, heart disease, and cancer. These trends are partly attributed to the adoption of Western consumption patterns. Personal preferences have changed as well, and most Chinese now want better quality healthcare. By the same token, China’s medical coverage has shrunk considerably due to recent state reforms. The government has scaled back subsidies for healthcare expenses as part of the general effort to reform the economy and enhance efficiency. These reforms have led to a gap in healthcare coverage, and the rural poor have been especially hard-hit. During the 1980s, the central government devolved responsibility for healthcare to the local level. Local care was to be funded through tax revenue and so favored the wealthy coastal regions.2 FOR MANY rural Chinese, cost has become the principal deterrent to medical care. The rural Chinese are 65 percent less likely to have medical coverage than urban residents, and out-of-pocket healthcare expenses for the rural residents can total upwards of 10 percent of annual income.3 Many Chinese therefore no longer have adequate access to medical services. The lack of coverage and unequal access to care present serious problems for Beijing. Riots have erupted over the rising costs of basic healthcare. General support for the government depends largely on the ability to deliver economic growth and improvements in the standard of living. Failure to address the poor provision of healthcare can therefore lead to further unrest and undermine overall support for the government. Furthermore, the prospect of an AIDS, SARS, or bird flu epidemic makes the need for reliable healthcare all the more urgent. MANY CHINESE no longer seek professional treatment because of the expense. Instead they rely on self-care which would have grave consequences in the event of an epidemic. The private sector can help compensate for the reduction in subsidized healthcare although the necessary steps have not been taken. Several healthcare companies have recently expanded their operations to reach China’s market. AstraZeneca has invested heavily in China and plans to set up a research and development center in the country. Other providers like ChinaLife and Goodhealth Worldwide have together launched the first comprehensive healthcare plan for the country. Also, Parkway, a Singaporean healthcare group, plans to open a multimillion dollar surgical center to help promote awareness of Singapore’s quality healthcare. Most of these ventures have been geared toward the wealthy and Chinese expatriates. The focus on the wealthy could exacerbate tensions between the government and rural areas and encourage theperception that development has not been fairly distributed throughout the country. These tensions would weaken popular support for government programs, and political instability could hurt prospects for future growth. More attention should therefore be given to less affluent sectors of the Chinese society. The best prospects for healthcare growth seem to be among second- and third-tier cities. Rural living standards are expected to progress dramatically. This means rural Chinese may soon demand healthcare comparable to that found in first-tier cities like Beijing and Shanghai. The United States government has embarked on a program to help China address rural healthcare and integrate traditional Chinese care with Western-style medicine. The private sector has yet to address the rural and less developed areas. ULTIMATELY THERE are several challenges ahead for expanding China’s healthcare system that cannot be addressed through the private sector alone. Corruption has become common among hospitals, especially in drug prescriptions. Hospitals receive about 40 percent of their revenue from prescription sales. Beijing needs to revamp the incentive structure for doctors and create a more transparent healthcare system. Furthermore, government regulations restrict substantial foreign investment in the healthcare industry. The perverse effects of the current healthcare system are also a major hurdle. There seems to be an overprovision of unneeded services and an under-provision of more needed treatments. Locally provided healthcare has also been seen as sub-par to hospital care, and many Chinese prefer to go to regional hospitals after visiting local clinics. The result has been a redundant and inefficient system. These reforms must be made at the government level before private investment can have an appreciable effect.FACED WITH rising oil prices and global warming, many nations are showing greater interest in alternative energy sources. Japan is no exception. Koichi Kato, former Secretary-General of Japan’s ruling Liberal Democratic Party, has proposed reforms to restore the environment. He argues that increasing exports of environmentally friendly technologies will positively impact Japan’s economy. While politicians from both sides have differing opinions on the chosen methods, they tend to agree that reform is imperative.1 Ultimately, Japan is responding to various political challenges, shortage of resources, and other obstacles with innovative developments in solar power and nuclear fusion technologies. Solar Power JAPAN IS currently a leader in solar technologies. Due to a severe shortage of resources such as poly-crystalline silicon, the production of solar cells is in limbo. The price of poly-silicon is estimated to be $200 per kilogram; a 500 percent increase since 2004. In fact, the average price has doubled in the past 20 months and is expected to increase by 30 percent each year for the next three years. A further shortage will likely continue for another five years. In addition, increases in price translate into higher costs for the production and installation of solar technologies.2 This means many solar projects will require government subsidies of billions of dollars to cover the high start-up costs.3 This may further discourage the use of solar energy in favor of cheaper alternatives. However, the long term costs will be substantially lower than gas- or electric-powered technologies.4 Leaders in the solar energy production seek to ensure that the former scenario doesn’t occur while making solar power’s lower costs even more attractive. SHARP CORPORATION—one of the largest manufacturers of solar silicon panels—is developing a new system that will replace silicon-based cells. Sharp’s prototype is able to convert 36 percent more of the sunlight that hits its panels into energy compared to the 13 to 22 percent produced by conventional silicon panels. Their prototype was displayed at the Solar Power 2006 Conference and Expo in San Jose, California. The prototype actually moves in the same direction as the sun, improving its efficiency.5 This development should help in making future solar energy projects more viable. Nuclear Fusion Japan is also involved in an international initiative to develop an alternative energy source such as nuclear fusion. On 23 November 2006, Japan’s Prime Minister Shinzo Abe signed an agreement with the US, the EU, China, India, South Korea, and Russia to build a nuclear fusion reactor. Nuclear fusion reactors harness energy from the collision of hydrogen atoms at extreme pressures and temperatures. This reaction produces no harmful waste and its base materials are small quantities of sea water and lithium.. The project, Iter, will cost $13.13bn and will take eight years to construct. The first reactor will be situated in Paris and will serve as a model for reactors around the world. However, while Japanese companies are at the forefront of this cutting edge area of development, a major drawback is that it could take half a century for nuclear fusion to become a widely used energy source.6 SHINZO ABE may be the answer to Japan’s stagnating economy. The prime minister has been instituting structural changes and setting the stage for more vibrant economic policy-making. While he has been critiqued for being overly concerned with foreign affairs1, his involvement with the Iter project serves as a great example of how international environmental initiatives have the ability to promote growth. Conclusion Environment friendly reforms face many challenges. Political support is necessary for the success of these new technologies. For example, Japan’s construction industry has a great deal of political clout, and will hastily fight any reforms that damage their interests. Another obstacle to such measures is Japan’s vast national debt. Japan’s national debt is reaching 130 percent of its GDP; the government is not likely to approve costly initiatives.8 There is still much uncertainty as to what measures will be taken in the future. What is known, however, is that in addition to the environmental benefits these innovations may have they will also bolster Japan’s economic growth. BOTH THE Chinese government and the business community have become intently focused on Central Asia. For the Chinese government, Central Asia represents an opportunity to expand access to energy reserves and extend international influence, and as such, the Chinese government has worked to foster good relations with Central Asian governments through loans and sponsorship. The business community has benefited from these government-led measures. Chinese tradesmen have expanded their business and have established themselves among several Central Asian trade posts. The effects of Chinese trade to Central Asia will likely have far-reaching consequences for the region at large. The precise nature of these consequences depends largely on the nature of Chinese investment and the Central Asian reaction. Security The Chinese see Central Asia through both a security and business framework. Central Asia can represent vulnerability. The Chinese leadership has always wanted a stable Central Asia, free from Russian or American domination, because unrest can take attention away from economic policy. The recent rise of Islamic extremism has therefore led to greater Chinese concern, especially after the US-led invasion of Afghanistan. Of central concern is the minority Uighurs of south-west China. The Uighur are a Muslim group, many of whom have long wanted to secede. Central Asian states have often supported Uighur secession. China founded the multilateral Shanghai Cooperation Organization as a means to address Uighur secessionism. Many Chinese hope better Sino-Central Asian relations and extended economic growth can prevent further secession attempts.1 Expansion Business has been the second aspect of Chinese involvement in Central Asia. China needs new markets for products, and Central Asia seems to be an excellent prospect. Chinese trade represents the fastest-growing segment of the Central Asian economy. There are, for example, now over 20,000 Chinese merchants who currently operate in Kyrgyzstan. Chinese trade to the country totals over $866 million as of 2005. The Chinese state has spent over $7.7 million on a road through central Kyrgyzstan.2 But there are conditions to Chinese cooperation, and the Chinese government has often tied investment to important economic concessions. In the case of Kyrgyzstan, China wants access to the national gold industry. Kazakhstan has been another target of Chinese conditionality. Kazakhstan has the region’s largest oil reserves, and in October 2005, China acquired Canada-based PetroKazakhstan Inc. The acquisition gave China a controlling stake in the Kazakh oil industry.3 The effects of Chinese trade extend well beyond business. Chinese money can provide a means for regional development. Thus far, most Central Asians have tolerated the encroachment of Chinese tradesmen. Many Central Asians say Chinese products are well-manufactured and note that Chinese merchants have been somewhat respectful of local customs. As China becomes more affluent, China could have a positive, knock-on effect on Central Asia. Chinese tourism … has expanded to Central Asia.4 Many mononuclear cells (MNC) manufacturers want to diversify production locales. They are afraid to become too dependent on China. afraid to become too dependent on China. Vietnam, Indonesia, and Malaysia have all benefited from foreign direct investment (FDI) diverted from China.5 Trade could also help encourage legal businesses. More formal sector employments could undercut the drug and arms trade and help support Central Asian governments. By the same token, Chinese investment could have a negative effect, especially if the central government does not effectively monitor trans-border trade. China has become somewhat notorious for a arms sales to less-than-reputable or unstable actors. The Chinese government seems unlikely to sanction arms sales to Central Asian states, however unless these western borders are carefully controlled, the private sector may take up the trade. The sale of arms would further destabilize the region and erode chances for broad-based Central Asian development. Another concern looks at the Central Asian response to Chinese merchants. Xenophobia on the part of Central Asians could lead to a backlash to Chinese trade and a move away from the global economy. A related aspect has to do with the conditions set by the Chinese government. China has made many demands of its Central Asian neighbors. These states have agreed to the conditions because they need the aid and technological know-how. However, these concessions run against the strong sense of nationalism common among many Central Asian states. Should China exploit its advantage, it runs the risk of inciting popular unrest against these governments. A moderate approach that stresses mutual advantage therefore seems most appropriate. GOOD TIMES lie ahead for the retailers in India. The Indian retail sector is poised for ‘big-bang’ growth in the foreseeable future, after some recent initiatives undertaken by the government to open up the sector to foreign players. And with a large number of domestic and foreign players namely Reliance Retail, the Bharti-Wal-Mart combine, AV Birla Group, Future group, Tesco's and Carrefour all set to announce some really aggressive plans for their eventual entry into the sector, things just could not have gotten any better in the country. However, retailers must surmount several obstacles in order for the sector to successfully embark on the path towards tangible reforms and growth. Ready for Growth Analysts consider India's retail business one of the most attractive in the world. Consumer demand is booming as the government's liberalizing policies have produced 8-9 percent annual GDP growth. Technopak, a Delhi-based retail consultancy, expects retail sales of $250-300 billion now to rise to nearly $430 billion by 2010.1 Also the retail industry is the largest provider of jobs after agriculture, accounting for 6-7 percent of employment and about 10 percent of GDP.2 Currently India lags behind other Asian countries like China, Thailand and South Korea where the organized retail sector has a much greater percentage share of the total business carried out in those nations. This is in stark contrast to India, where of the approximately 98 percent “traditional retailing” taking place, most of the business is being handled by the mom-and-pop kirana stores.3 These stores suffer from some severe limitations, namely the small size of their operations, low-cost format and the widespread under-reporting of business transactions resulting in tax evasion. Additionally, the Indian retail sector suffers from limited access to capital, labor and suitable real estate options. 4 Technopak estimates that over the next four years, organized retail in India will receive investments in excess of $25 billion from 40 players.5 The primary advantages of organized retailing is that retailers are able to leverage their massive size and well-established supply chains in order to deliver a variety of choice at competitive prices to the consumer. Major Constraints Things, however, are not as rosy as they appear. Some believe that the retail sector should be kept shut since an influx of foreign supermarket chains would wipe out the millions of small shops presently dominating the retail landscape. This potential loss in jobs has invited the ire of the Communist parties who want to protect the interests of the small traders and local shopkeepers. Since the government relies on the votes of these Communist parties for its parliamentary majority, implementing the reforms in the retail sector has become somewhat tricky. Other problems acting as potential stumbling blocks in the growth of organized retailing include poor infrastructure, land grabs, the massive red tapism prevalent in the bureaucracy and labor disputes. All of these legal, infrastructural, cultural and educational constraints would have to be overcome if the sector truly aspires to achieve the kind of growth it envisages for itself. Retail Rolls On Just recently, the Commerce and Industries Minister Kamal Nath said that the government is considering opening up retail sector for multi brand specialty formats like consumer electronics, sports goods, building and construction equipment and stationery. The move follows last year’s decision to allow 51 percent foreign direct investment (FDI) in single brand retail outlets.6 Big players like Reliance Retail have already seized the opportunity and have announced plans to open approximately 5000 shops across India over the next five years. The government has received FDI proposals for single brand outlets from companies like Starbucks, Lee Cooper and Argentina’s Rino Jreggio but has yet to decide on these proposals.7 Despite setback, analysts estimate Indian retailing will grow about 37 percent in 2007 and 42 percent in 2008.8 If this is the case, the government will be forced to open up even further after of the current spate of reforms are underway. Winners and losers Indian consumers can expect to benefit enormously from the influx of foreign competition in the retail sector. Not only would they have access to a vast array superior quality of products at extremely affordable prices from competing producers all over the globe. However, millions of small store-owners are terrified of the onslaught from giant domestic and foreign retailers and fear being driven out of business. The government must take strong steps to ensure that consumer’s and big retailer’s huge gains do not result in the ultimate demise of the kirana stores, which have been a staple feature of India’s retail landscape since time immemorial. ORGANIZED CRIME presents a challenge to sustained economic growth for many Asian countries. Cargo theft, piracy, counterfeit currency, and corruption have become more prevalent as the region has developed and become more connected to the global economy. The failure of host governments to curb organized crime has eroded the profitability of investment in the region and seems to have discouraged prospective trade partners. In addition to the economic loss, these elements pose a broader threat as gang revenue has been used to fund terrorist groups and other non-state actors. Given these threats, the business community and host governments must collaborate to address the rise in organized crime. Types of criminal activity vary widely . Cargo theft has been among the most common. Cargo holds are often poorly secured, and cargo containers poorly sealed. For gangs, cargo theft has proven to be less costly than the drug trade and so offers higher returns. Many former drug smugglers and established gangs have shifted their focus to ports where they siphon off cargo. Sea piracy has been another concern. In fact, Asia has the highest piracy rate worldwide. According to the International Maritime Organization, there were 266 reported cases of piracy in 2005. Southeast Asia accounted for 117 cases.1 Counterfeit currency has recently become another problem. In March 2006, the Chinese government announced an influx of counterfeit American $100 bills. The fake currency was presumably made in North Korea to be sold to Chinese and Taiwanese gangs. North Korea earns approximately $15 to $25 million each year from counterfeit currency.2 Roots of Organized Crime There are several factors behind the growth of crime syndicates in Asia. Generally speaking, global commerce and the reduction of the state sector have presented an opportunity for criminal elements. Gangs have benefited from the deregulation of the economy. They have often stepped up activity to fill the gap left by a government scale-back.3 Furthermore, e-commerce can not yet be effectively regulated, and the reliance on the Internet as a means of growth poses problems. Gangs have used electronic communications to establish transnational ties, and the current lack of Internet oversight allows these groups to compromise the security of online transactions of legitimate businesses. Many groups have successfully hacked bank systems and online government records.4 Another component which is more specific to Asia concerns the role of labor shortages. The acute need for labor has affected the quality of the Asian workforce. To take the case of Malaysia, the need for manufacturing labor has led companies to employ foreign workers. Up to 75 percent of a factory workforce can be foreign-born.5 Many argue the prevalence of non-native workers has helped erode the quality of the regional workforce. Background checks are extremely lax, and many workers have ties to criminal gangs or come from regions hostile to American and Western business interests. The linkage between organized crime, host governments, and legitimate businesses are also an important factor. Corruption has become common throughout the region and threatens long-term development. Organized crime has thrived in part because it can operate alongside a legitimate business. Crime exploits, rather than disrupts, a legitimate business.6 Gangs have established extensive contacts with government officials and private business and have integrated themselves with the broader economy. Gang-controlled front businesses have become more common, and many legal groups have acquiesced to gang demands. The longer gangs can operate in such a manner, the harder it will be for governments to disentangle organized crimes from legitimate businesses. Assessing Threats There is significant debate as to which country constitutes the greatest threat to the business community. Malaysia and Indonesia were traditionally seen as among the most severe threats. The Malaysian Mamuk gang has been the bane of the Malaysian transport system and has siphoned cargo away from legitimate businesses for over twenty years.7 China has usually been seen as comparatively crime-free and uncorrupt. However, some now argue that the extensive links between the government and Chinese Triads make China the number one threat to foreign businesses.8 Moreover, there seems to be no consensus over which type of criminal activity is most prevalent or most threatening. Asian officials are more likely to see gambling and extortion as more threatening than corruption or human smuggling. The effects of crime on legitimate business are well documented.-studied. The United States are primarily concerned with the piracy of intellectual property . Many organized crime groups work exclusively with pirated materials. Piracy has undercut profit for players throughout the globe, making investment in the region less likely. Cargo theft and extortion have a similar deterrent effect. A more general concern has to do with the infiltration of organized crime to legitimate sectors. Most criminal groups want to be seen as legitimate. They foster relationships with government officials and local businesses. The result is corrupt operating environment that is biased against foreign businesses and consumers. There are several measures companies can take to counteract the effects of organized crime. Risk management firm FirstAdvantage recently conducted a multiyear study to assess the risks of operating in less developed countries.9 The study found the majority of businesses do not take adequate safeguards. Employees are not sufficiently screened hence many workers have maintained contacts to gangs. Many businesses rely on third parties for the storage of inventory, and the use of external groups can expose cargo to gang elements. The study also found many companies often misallocate security spending. Businesses have employed a cookie-cutter approach to security that does not account for differences in criminal activity. The FirstAdvantage study offers suggestions for those companies that operate in less developed regions. Suggested measures include constant vigilance, extensive employee training to recognize security threats, and a holistic view toward security. FirstAdvantage recommends companies evaluate port security throughout the supply chain. They should become familiar with common gang tactics used during cargo heists. There are several private sector efforts to address the threats of organized crime. The Technology Asset Protection Association includes over 200 multinational corporations and mandates transportation security requirements. TAPA requirements have helped reduce losses through theft by up to 40 percent.10 These ventures help minimize the effects of organized crimes on businesses. But in the long-term, the actions of regional governments will be more important than measures taken by the private sector. Asian organized crimes remain mostly a regional problem. Regional cooperation at the government level therefore appears to be the most effective defense against organized crimes. Right now, local law enforcement groups have been more focused on traditional criminal activities like prostitution and violence than they are on transnational crimes. But, there have been encouraging first steps towards regional cooperation. Last November, Japan, Singapore, the Philippines, and eight other countries signed a treaty to cooperate on anti-piracy measures. The Japanese Coast Guard has agreed to step up patrols, especially in the Malacca Straits, and the Japanese government has pledged to help lead regional efforts against organized crime.11 The private sector should encourage these regulatory measures and pressure governments to take more aggressive stands against organized crimes and corruption. At the government level, the United States and other countries should be more forthcoming toward Asian law enforcement groups, helping them develop effective countermeasures against organized crime. Asian local law enforcement spokesmen have complained that the United States and Western governments do not offer sufficient investment or treat Asian counterparts as equals. Without global cooperation throughout public and private sectors, organized crime will continue to expand. THE ASIA Pacific Economic Cooperation (APEC) forum held in Hanoi from November 17 to 19 resulted in renewed discussions on trade. APEC leaders drafted a statement on the WTO’s Doha Development Agenda and the Hanoi Action Plan.1 The leaders agreed on the need to continue the stalled round of Doha trade negotiations. However, they refuse to empower negotiators to execute this goal until all members are better prepared for liberalization.2 The longer APEC nations put off negotiating a multilateral agreement, the more difficulties they are likely to face. It will be considerably harder to catch up with developed nations and trade blocs such as the EU. APEC will also be losing potential profits. To prevent unequal economic gains, protection of smaller, vulnerable nations is necessary. However, all will lose if Asian economies continue to interact with one another as inefficiently as they currently do. If these nations are going to remain internationally competitive, they must consolidate economic power. Criticisms The slow pace of progress invites criticism. Is APEC really as inefficient as its detractors claim? APEC allows smaller nations to balance against stronger players such China and the US, while still cooperating with them for economic gain.3 With the kinds of obstacles that the leaders face, some wariness is justified. A free trade area (FTA) only has potential if developing countries in APEC take necessary precautions. They must be strong enough to withstand fluctuations in international markets before they open their economies to free trade. Capacity-building measures and the flexibility for leaders in determining national trade policies will prevent an agreement from benefiting members unequally. APEC nations should not delay too long, or they risk lagging behind economically. A free trade agreement between APEC nations would facilitate trade within the bloc and internationally. These countries already control nearly half the world’s trade and 56 percent of global gross domestic product..4 WTO negotiations had come to a halt because of disagreement on subsidies.5 In Hanoi, the US and Japan did not complete unfinished discussions on reductions in agricultural subsidies. China and Australia also have yet to consider further tariff cuts on industrial goods. The conference, however, did open debate for the first time since Doha and concessions are likely to follow. The Plan The Hanoi Action Plan outlines details of a multinational agreement. The agreement will streamline the negotiation process and replace 50 bilateral treaties.1 It proposes that members institute measures which will prepare economies for trade liberalization. The Plan also identifies corruption as an obstacle to growth.7 The leaders also focused on energy security. Development of renewable technologies and cleaner use of fossil fuels are among the issues of concern.8 The difficulties in WTO negotiations have made leaders wary.9 The chances for success may be higher for a regional trade area. The EU for instance has proved more successful, but APEC will face different challenges. Singapore’s Prime Minister Lee Hsien Loong thinks that the EU trade bloc was easier to create because of greater political similarities between nations.10 APEC includes some of the world’s richest and poorest countries. The disparity in economic backgrounds also makes it difficult to find common ground.11 The Agenda The conference agenda included discussions of pandemic diseases such as AIDS and disaster response plans. Vietnamese President Nguyen Minh Triet issued a statement on North Korea’s nuclear arsenal. Some are critical of the meeting’s success since no declaration was issued.12 APEC does provide a forum for world leaders to discuss pressing concerns, but international security is not the organization’s primary focus. Those types of discussions would diffuse its main purpose which is to discuss economic development and trade. Conclusion APEC should begin negotiations much sooner than it plans. It can simultaneously help its smaller members strengthen their economies. The bloc could integrate weaker economies, seeking to strengthen vulnerable industries, at a slower pace. Other necessary measures include improving infrastructure and reforming laws. Meanwhile, nations can continue to sign bilateral or even smaller multilateral agreements. They can also provide aid to some of the lesser developing nations. APEC should also begin to develop enforcement procedures. As a trade bloc, the organization could later leverage its influence to more effectively address security and health issues. CHINESE PREMIER Wen Jiabao announced on January 20th that China plans to make greater use of its nearly $1.07 trillion foreign currency reserves. The plan calls for the diversification of foreign exchange reserves away from dollar-denominated assets, and the announcement has fueled speculation about the value of the dollar. China has become one of the largest holders of US dollars and Treasury bills, and an abrupt policy change could have significant consequences for the U.S. economy. On the other hand, spending the foreign exchange surplus could address the imbalances in the Chinese economy and better position the country for future growth. An Issue of Imbalance The Chinese government has become increasingly concerned over imbalances in international trade and in the domestic economy. The Chinese trade surplus now totals over $14 billion and foreign currency reserves have grown by about $20 billion a month.1 Most of these currency reserves come from trade surplus and foreign direct investment. Analysts say China should not acquire foreign currency reserves more quickly than can be used for productive modernization. The large surplus of foreign currency has allowed extensive lending and large investments in construction and the residential sector. The central government now wants to slow the rapid, unsustainable pace of growth and hopes to cut back bank lending and scale down investment in saturated sectors. Using Reserves There are several suggestions for how China can use its foreign currency reserves. Yu Yongding of the People’s Bank of China has encouraged government officials to expand China’s energy holdings.2 He and others think China should buy oil stocks to help with the country’s energy needs and to hedge against a sharp decline in the dollar. But China could go other directions. The $1.07 trillion surplus could enable China to become the preeminent global military power. The Chinese government seems most concerned with strategic priorities. Financial goals do not factor as much in monetary policy. Addressing Imbalance The most prudent use of the foreign reserves surplus would entail addressing the central bank’s bad-debt problem. The People’s Bank of China has made several poor loans. These bad-debts can jeopardize the bank’s long-term liquidity, and the problem presents a serious obstacle to future growth. Another, equally prudent measure would address the divergence between urban and rural areas. The spread of economic growth has been very uneven, and the Chinese interior has lagged far behind the coast. The Chinese government could use the $1.07 trillion surplus to restructure the financial system and to extend infrastructure, education, and healthcare to these less developed regions. Doing so would help address the growing rural resentment toward the government and thereby remove a major threat to political stability. Acting in Context However, there will be challenges to any change in the Chinese dollar policy. The United States does not want a dollar sell-off and will likely protest any attempt to diversify China’s foreign exchange reserves. China must therefore be careful how it approaches its currency problem. Relations with western countries are already strained due to yuan appreciation disputes. China does not want to further jeopardize these relationships. Thus, the most tenable solution is to focus on domestic development while addressing internal imbalances. YEAR 2006 for the Asian stock markets saw unprecedented gains of the kind rarely witnessed. The stock markets of China, Hong Kong, Singapore, India, Indonesia, Malaysia, New Zealand and Vietnam hit record highs while Japan, South Korea and Taiwan also posted muted though respectable gains. With this state of affairs, it was perhaps unsurprising that global investors flocked to the Asian markets just hoping to reap some of the big rewards. However, some people feel that the amazing growth of these stock markets needs to be tempered with a healthy dose of caution since the nightmarish memories of the 1997-meltdown in the region’s equity markets just refuse to die out. This has raised a few doubts among analysts studying the region and has prompted many to be skeptical about the potential growth prospects of these markets in the future. A Year of Skyrocketing Growth During the last few years, many stock markets in Asia have been rising rapidly. In China, during 2006, stocks in the home market sizzled, at long last reflecting the country's gathering economic might after years of paltry returns. The MSCI China A, an index of domestically listed stocks, soared 128 percent.1 The scenario was also quite rosy in India when the Bombay stock exchange rocketed another 46.7 percent in 2006.2 Elsewhere in the region, markets bolted ahead on sound economic fundamentals, with markets in Indonesia, the Philippines and Singapore returning 55.3 percent, 42.3 percent and 27.2 percent, respectively.3 Even the so-called stragglers, Taiwan and Malaysia, clocked returns of 19.5 percent and 21.8 percent in 2006, a reflection of just how turbo-charged the growth trend has been. The only disappointments were South Korea which rose by a modest 4 percent last year and Japan, which, contrary to expectations, managed to end the year up only 6.9 percent. This is creditable given that these enormous returns occurred despite a plunge in the region’s stock markets during May and June, when foreign investors were spooked by the prospect of rising interest rates and fled riskier assets.4 With massive investor confidence and a huge amount of global liquidity, it is no wonder that there has been a mad rush by global investors to invest in the region. Factors Driving the Growth Many changes have transformed the domestic economies of the Asian region radically over the last decade. Many market watchers believe that these emerging economies are on a much surer financial footing than in the past. Many have pared their deficits, increased their reserves and reduced their dependence on exports to the US, thereby decreasing their vulnerability to a potential US economic slowdown.5 Some investors believe that these countries are finally beginning to decouple from the US economy either by trading more among themselves or relying more on local consumer demand.6 Skeptics discount this hypothesis and consider it too early to draw conclusions. A slow US economy could still trigger a region-wide recession in the near future. Impediments to Sustainable Growth Despite all the hype and hoopla surrounding the Asian economies and their booming stock markets, the future growth outlook for these economies is strangely benign. Experts believe that even though Asia is presently more resilient to a US slowdown than in the past, a drastic slowdown to the US economy might seriously upset the status quo. Currently, investor sentiment remains strong as evidenced by several positive factors like lower international oil prices and a recovery staged by Wall Street after the mid-year slump in 2006. However, financial markets might feel the impact if institutional investors in the US and Europe become more risk-averse, or if the global liquidity that has been funding portfolio investment in Asia dries up.7 The region is still highly export-dependent and vulnerable to developments in the US. In fact, many of the goods traded within Asia are still used as inputs for products that are ultimately sold to the US and other OECD economies.8 These emerging economies are currently characterized by weak inflation levels, strong growth, solvent governments and a lesser degree of dependence on foreign money to finance their investment requirements.9 Although the domestic economies in Asia seem to be in impressive shape, they remain vulnerable to disruption if investment-positive factors begin to wane. Potential investors should exercise a significant degree of caution and restraint while deciding whether or not to invest their money in Asia’s growing bourses. PRESIDENT SAPARMURAT NIYAZOV’S death in December has created a void in Turkmenistan. International powers have been quick to step in, wondering whether a timely move now will see them reaping benefits from the natural-gas rich country later. Whimsical and unreliable, Niyazov had always emphasized Turkmenistan’s neutrality, which acting President Gurbanguly Berdymuhammedov continues to highlight. Berdymukhamedov will almost certainly be elected President on February 11, but will his election bring about much-needed changes in economic policy? Turkmenistan Post-Niyazov At a recent roundtable on Turkmenistan organized by the Carnegie Center in Moscow, experts observed the poor chances of success of the opposition in a country where dissent has been stifled and the public deliberately kept misinformed.1 In the last presidential elections in 2004, there was virtually no opposition. Presidential elections are scheduled for the 11th of February, and while the candidates have announced plans and reforms, nothing seems particularly promising. While the candidates concede that not all is well in the Turkmen economy, no one has boldly come forward criticizing Niyazov or proposing anything different. Berdymuhammedov has promised to tackle pension reforms –pensions were abolished a decade earlier – and honor all existing energy contracts. The Energy Game Turkmenistan may have the world’s fifth largest reserves of natural gas, but it has to take necessary precautions to ensure that there is export diversification. Russia is one of the largest buyers of Turkmen natural gas, indulging in profitable wholesale buying and reselling of Turkmen gas. Europe too is looking for alternatives to reduce energy dependence on Russia. But infrastructural constraints mean that dealing with European buyers directly is not a realistic target at the moment, and there is concerted Russian effort to stymie efforts aimed at excluding it from an energy pipeline to Europe. Turkmenistan can afford to look at two huge buyers within the continent. Turkmen oilfields are set to be the focal point of a tussle between Russia and China. The China National Petroleum Corporation recently won a $150 million drilling contract, much to Gazprom’s discontent.2 Not to be left behind, India hopes that the ambitious Trans-Afghanistan pipeline will end up in its territory after crossing Pakistan. Need for Agricultural Reform But is all the talk about energy ignoring some important issues? Apart from energy, another Turkmen advantage has traditionally been in cotton. But there has been a huge decline in cotton production over the past few years. In a country where a majority of the population is still associated with agriculture, the new government would do well to pay attention to this sector of the economy. Berdymukhamedov has promised to take steps to modernize and reform Turkmen agriculture, focusing on increased fertilizer production and the introduction of modern machinery and new technology.3 Last year, there were reports of falsification in agricultural data from provincial sources to cover up the shortfalls in sowing and production. Foreign revenues are being generated by fuel reserves, but poor harvests and lack of encouragement for agriculture could result in food shortages. The Future Niyazov’s departure offers a realistic chance for reform. Turkmenistan needs to take advantage of the interest being shown by various countries willing to pay more to reduce Russia’s role, or as a bargaining ploy to make it pay higher for buying Turkmen gas. Turkmenistan must realize its potential in the energy and agricultural sectors. It is about time that the government took note of the fact that three-fifths of the population is below the poverty line and a similar proportion unemployed.4 on JANUARY 11, 2007, Vietnam became the newest member of the World Trade Organization (WTO). Accession into the world’s largest trading club will doubtlessly affect every facet of the Vietnamese economy. However, experts predict that the area most affected will be the service sector. Vietnam’s banking industry, for instance, will be affected due to its ongoing equitization and relative underdevelopment. Without swift adaptation, the banking sector is going to falter as foreign competition is introduced to the market. Banking Sector When asked which sectors would likely be impacted first by the new WTO membership, Deputy Minister of Trade Luong Van Tu noted that the service industry will be most affected, because the sector is still weak compared to most of the country’s other industries.1 Experts have foreseen this weakness, and expect that the Vietnamese banking sector will be in for some difficult times. In an interview with Vietnam Economic News, Jonathan Pincus, chief economic expert of the United Nations Development Program in Hanoi, predicted that domestic companies in the service sector would likely be forced into giving up some business to foreign businesses moving in after WTO accession.2 A large part of the country’s financial sector is owned and operated by the government. This contributes to the sector’s vulnerability to the possible entry of foreign competition. There have been plans to equitize the banks, but this process has been slow. Delays in equitization are being attributed to inadequate legal guidelines for the process and the inexperience of the banks.3 The banks, meanwhile, blame government procedures for slowing down the equitization. Do Duc Cuong, the Senior Advisor to the Mekong Housing Development Bank (MHB), explains that the MHB would like to speed up the process, but the bank is not allowed to make crucial decisions, such as hiring consultants, without the input of government officials.4 Lack of Information The disagreement between the banks and the government acts as an indicator of the sector’s health. There are other factors pointing to a weak financial sector. A recent survey by Visa International and ACNielsen shows that only 2 percent of Vietnamese have borrowed money from a financial institution. Most Vietnamese choose to borrow from friends and relatives rather than banks. In fact, only half of the survey’s respondents in Hanoi and just 31 percent in Ho Chi Minh City had bank accounts.5 The banking system in Vietnam is simply not being used. The Visa survey indicates that the banks are underused because of lack of education about their services. Many Vietnamese are reported as believing that banking is excessively complicated and that interest rates are restrictive. Many also felt that their assets were not large enough to warrant opening a bank account, and those that did possess enough wealth to justify banking felt that it was not secure.6 These problems seem to reflect a lack of knowledge as to how the banking system works, the benefits it can provide and the actual costs involved. There is no question that opening up the sector to foreign competition will make the current Vietnamese banks seem outmoded and clumsy. This will certainly upset the services sector, but Jonathan Pincus explains that this will benefit consumers. When the competing foreign companies move in, Vietnamese businesses will either have to learn from the competition and evolve their methods, or simply cede their businesses to foreign companies. Either way, “service quality in Vietnam is sure to increase and prices will go down.7” The Targeted Goals Beginning in 2006, banks have made a conscious effort to improve their capital supplies and stay updated on technology.8 This is complemented by a series of reforms designed by the State Bank of Vietnam. It has created a series of six goals for the banking sector, and a timeline for accomplishing the goals, beginning this year and concluding in 2010. Two of the aims are to create a legal framework for the banking system, and to provide more inspection and supervision of the banking operations.9 Such a framework and oversight should soothe any doubts about the security of funds in bank accounts. These actions will be most effective if paired with a major publicity movement, informing Vietnamese of the changes and ensuring them of the safety and reliability of banks. Other goals include turning the State Bank into a modern central bank, improving monetary policy and policy management, and restructuring commercial banks. The final goal is to promote international cooperation. These structural changes should create a system conducive to sector development. If these structural changes are paired with the goal of capital accumulation, the Vietnamese banking sector should be able to rise and meet the challenges posed by the introduction of foreign competition. CHINA’S ENVIRONMENTAL problems have hampered its political economy for as long as it has modeled its path to prosperity on economic growth at all costs. While its 10 percent annually compounded growth rate over the last quarter of a century1 has lifted millions out of poverty, it has also caused severe environmental damage that, if not addressed in a timely fashion, will result in serious long-term economic and political consequences. Perhaps China’s most pressing environmental threat for policymakers is the supply and pollution of water. Water shortages have caused an estimated loss of $11.2 billion in industrial output while water pollution has taxed human health by about $3.9 billion.2 Water and waste pollution, according to Pan Yue, the deputy head of SEPA, is the “bottleneck constraining economic growth in China.”3 Water Shortage Water is becoming an increasingly difficult resource to come by in China. Fights have started breaking out between villages over water sources.4 The Chinese government reports large internal migrations due to water scarcities . These unemployed migrants cause social unrest and further exacerbate China’s ability to manage its already overpopulated coastal cities.5 On a per capita basis, China’s water supply is 25 percent of the global average and by World Bank estimates it will qualify as a water scarce country by 2030.6 Beijing further estimates that the country will suffer an annual water shortage of 53 trillion gallons by 2030 which is more than all the factories and households in China consume today.7 Furthermore, such water shortages will cause a strain on global food security.8 China depends on irrigated land to produce 70 percent of its grain for its large population. A grain shortage in China would cause a spike in world grain prices to the detriment of other developing countries at a time when world grain supplies are already vastly depleted.9 Water Pollution Water shortages’ twin problem, water pollution, is an equally vicious environmental threat that interferes with agricultural production and public health. By far, China has the highest total emissions of organic water pollutants in the world, equal to that of the US, Japan, and India combined.10 According to the World Water Congress in Beijing, every two or three days in China there is a water pollution accident that has damaging effects on its rivers.11 Such pollution has not only damaged agriculture but has also been a huge detriment to human health – 700 million Chinese consume polluted drinking water on a daily basis.12 According to data by UC Davis, households are willing to pay more for the water they use.13 Currently, consumers are sheltered by below market prices that cause little incentive to conserve or find alternatives. Chinese consumers pay only five cents per gallon, less than one twelfth of what Americans and many Europeans pay.14 In northern Chinese cities, the price of water, while gradually rising, is still only 1 RMB per ton, just one-fifth of the 5 RMB that Chinese hydrologists estimate it costs to acquire. A simple yet effective solution has emerged: an administered increase in the price of water that is market driven and reflects societal costs. This could induce greater efficiency and create incentives to save water. Meanwhile, penalties for industrial pollution are rarely enforced. If penalties for water polluters increase by 10 percent annually, reflecting water’s total cost to society, water pollution could be reduced by 70 percent by 2020.15 China’s future rests largely on how it integrates its environmental challenges into its economic, social, and political strategies. Chinese officials must contemplate the urgency of these environmental problems so that they are aware of the dangers they face. This will only happen if economic and environmental interests are aligned in such a way that individual interests become one with the long-term sustainable interests of China. Only then will a coherent strategy evolve to solve these problems. OVER THE YEARS, China’s unstoppable economic growth has been largely attributed to the strength of its manufacturing sector and the country’s rapid advances technologically. Many factors like cheap labor, increases in quality infrastructure, and the huge size of the domestic market have made the country one of the most attractive places in the world to invest. This has resulted in foreign investment inflows into the manufacturing sector that exceeded $70 billion in 2005 and economic growth rates of more than 10 percent on an annualized basis.1 However, things are set to change with a growing number of firms realizing that from the standpoint of costs, country risks, and the customer base, China may no longer be the best place in Asia to invest. Manufacturing’s Slow Decline In the last decade, China’s share of the world’s export goods market has been growing exponentially and in 2005 it became the world’s third largest exporter behind Germany and the US.2 In stark contrast, most members of the G-8 group of rich nations saw their shares of world exports and global production fall during the comparable time period. However, the trend seems to be slowly but steadily changing. In other parts of Asia, manufacturing and exports are also growing rapidly with South Korea, Taiwan, India and the Association of South-East Asian Nations (ASEAN) increasing their share of global manufacturing from less than 7 percent to more than 9 percent in the decade leading up to 2003.3 In fact, many new factories are being established in other regions of Asia as increasing numbers of companies and foreign investors seek to diversify their country risks and minimize their costs of production. Experts believe that there are several flaws in the current Chinese manufacturing model. These problems include highly fragmented domestic markets; industrial growth being concentrated in certain pockets, firms, and sectors; and the wide-spread prevalence of small, underutilized and poorly-managed firms.4 There is also a serious shortage of skilled workers in the country that results in massive poaching among rival companies and huge wage increases being offered to workers. This growth in wages is only partially offset by the gains in productivity achieved by the factory workers and has therefore led to a huge problem with wage-inflation in the domestic economy. Other Nations Seize the Opportunity This situation has created an enormous opportunity for the rest of Asia to become manufacturing hubs like China. Foreign companies are not just driven to minimize their costs, but also to diversify the risks of being overly dependent on a particular country to meet their production requirements. Many foreign managers are also concerned with the current political situation in China and the growing social unrest among the populations of the economically backward rural regions of the country. In recent years, there have been strong measures taken by the United States and the European Union to make China more accountable for its World Trade Organization obligations. This has created some fears among foreign investors and companies that this might disrupt the current trade system. Meanwhile, factories are being set up in other low-cost Asian countries like Cambodia, Vietnam, the Philippines, Singapore and Malaysia as part of the diversification objective. China also suffers from another setback: the lack of protection for intellectual property rights. This has prompted several firms to move to countries like India where the intellectual property rights environment is much better than in China.5 The rising value of the yuan in recent months is another factor which has diminished the competitiveness of China as a manufacturing hub. The Road Ahead Despite these challenges, several factors remain in China’s favor as far as the attractiveness of its manufacturing sector. The country has a highly vibrant middle class prevalent in the big cities, has achieved consistently high growth rates over the years and has developed highly integrated supply chains.6 It also possesses quality transport facilities and infrastructure which are perhaps unparalleled in many other competing nations in Asia. In fact, the biggest reason why the Indian manufacturing sector has not progressed as much as China’s is that the country is saddled with huge problems like inadequate infrastructure, a poor law and order system, a corrupt and tardy bureaucracy, complex tax laws and archaic labor laws.7 However, countries like India and Singapore, with their highly educated, skilled workforce are slowly but steadily catching up. India, in particular has a population of over a billion people and its domestic economy has grown by leaps and bounds in recent years. As the governments of these nations develop their economies even further by taking several steps to strengthen the physical infrastructure and integrate more effectively with the global markets, the mantle of ‘manufacturing hub of the world’ may soon pass on to the next best contender in the race to the top. OVER THE past few years, Japan and Russia have made several attempts to strengthen bilateral relations, culminating in high-level talks in late January. The reasons for these talks seem straightforward. Russia sees Japan as a source of capital and a development partner for the country’s Far Eastern energy resources. Tokyo wants to be less dependent on Middle Eastern oil and has looked to Russia as an alternative energy source. A shared fear of China’s rapid rise has been another important motive. But although Japan and Russia have many of the same concerns, there are several obstacles that could prevent a stable, long-term alliance. The two have a long-running dispute over the Kurile Islands, and failure to reach an agreement over the Islands could hurt prospects for future energy deals. Another serious challenge is the corrupt Russian legal system. Russian President Vladimir Putin has made repeated efforts to renationalize the nation’s energy sector. These moves run counter to Japan’s attempts to penetrate the Far Eastern energy market. Russia has also made overtures to China in the form of arms sales and energy deals. These overtures challenge the basis for Russian-Japanese cooperation and may jeopardize future relations between the two countries. Efforts to Improve Relations There have been several indications of improving relations between Russia and Japan. High-level meetings have become common, and talks have yielded tangible results. In 2006, Russia agreed to construct an 850 kilometer LNG pipeline to northwest Japan through the Sea of Japan. Japan and China hotly contested the proposed route which would bypass China. Japanese companies have also become prominent investors in the Russian oil industry. Until recently, Mitsui Corporation had a 25 percent stake in the Sakhalin energy company. Mitsubishi controlled another 20 percent. These efforts are part of a broader national strategy to source up to 40 percent of its oil and gas imports from Japanese-owned concessions.1 Challenges Ahead But there has been some bad blood between Russian and Japanese business parties. The most common complaint has to do with differences in the respective legal systems. Japan says Russia’s legal system is corrupt and that Japanese businessmen are often mistreated by their Russian counterparts. Russians accuse Japan’s legal system of being impenetrable and hostile to outside investment. To address these concerns, Moscow and Tokyo have established an arbitration board to mediate trade and private business disputes to create a more open, business-friendly environment.2 Another, more serious problem has to do with the long history of animosity between the two countries. Russia and Japan have several unresolved territorial disputes, and the question of borders has become linked to nationalism. The dispute centers on Kurile Islands, the four small islands that Russia has controlled since the end of World War II. Most Japanese see the problem of the islands as an obstacle to the development of a long-term alliance. Recently elected Japanese Prime Minister Shinzo Abe has taken a firm stance on the issue and said he considers the return of the Islands necessary for future cooperation.3 The border problems mean that sensitive matters involving national pride have become entangled in issues of trade and business. Despite these challenges, the Russians’ expropriation of Japanese assets represents the greatest challenge to future Russo-Japanese relations. Russia’s state policy requires that the majority of ownership for all energy concessions goes to the local investors. This new regulation has led to the forced reduction of Mitsubishi and Mitsui shares in the Sakhalin oil project. This represents a major weakness in Japan’s energy policy. Japan does not have a state-owned energy company or large, powerful private company and has relied on the concessions granted to smaller, privately owned companies like Mitsubishi and Mitsui.4 These smaller companies are less able to negotiate and are more vulnerable to the capricious state policy of host governments. Many Japanese firms are now more hesitant to invest in the Russian energy sector. Their reluctance undermines the basis of the Russian-Japanese relationship. Without the cooperation of private businesses, Japan’s energy policy falls apart and Russia does not benefit from Japanese technology and know-how. Moving Forward Russia seems to have already begun a search for other energy partners. Last October, Russia agreed to sell oil from the Sakhalin energy project to China instead of to Japan as originally planned. Russia has also continued to sell military equipment to China. In February, Russia, China, and India held a conference to promote trilateral trade.5 Taken together, these events suggest that Russia may move closer to China at the expense of its relationship with Japan. OVER THE past several years, the Thai baht has been gaining strength against the US dollar. The baht is reaching highs that have not been seen since the 1997-1998 Asian financial crisis. Recently, the baht has traded at 33 to the US dollar.1 This appreciation has a direct effect on exports, which account for about 60 percent of the Thai economy.2 This is a concern to those in power, and corrective measures have been taken, though nothing has yet made a difference. What Happened? The root of the currency appreciation is thousands of miles away, in the United States. The US dollar has been weakening over the past several years, just as the baht has been gaining strength. The end of 2006 proved to be especially difficult for the US economy. Net capital inflows to the US dropped from 84.9 billion in November to 15.6 billion in December.3 As the prospect of a domestic recession looms in the minds of American investors, Thailand glows with investment possibilities. As the US economy suffered, capital moved from the US to Thailand, where the economic prospects were brighter.4 This rush of new capital into the economy drove up the value of baht. The Effect on Exports Thailand’s neighbor countries have also seen the appreciation of their currencies, but not at the same level. In the past year Taiwan, China, the Philippines and Malaysia have gained a slight edge on Thailand in the export market due to the strengthening of baht.5 Thai baht appreciation poses a serious concern to Thailand’s competitiveness as an exporter. As exports play a big part in Thailand’s GDP, a significant drop in exports would be a major blow. As it is, experts fear that the appreciation of baht, paired with economic slowdowns in major trading partners will prevent Thailand from reaching its export goal of US $145.22 billion in 2007.6 Fears about exports added to the prediction of an economic slowdown of 0.5 percent for Thailand in 2007.7 Measures Taken To reduce the amount of foreign capital coming into Thailand, the Bank of Thailand introduced capital controls in December 2006. Unfortunately, this also had an effect on the Thai stock market, resulting in the biggest one-day drop in Thai history.8 The capital controls were lifted shortly after. Experts say that despite this failure, the bank of Thailand is capable of helping the baht. If interest rates were cut, for instance, it may reduce pressure on the baht by reducing the gap with foreign rates.9 The government is offering a solution of its own. Because the country is taking in more foreign capital than it can absorb, the government is suggesting a new approach called the sufficiency economy philosophy.10 Under this scheme, Thailand would become less reliant on exports. Companies would invest in human resources, research and development, and long-term business goals.11 Through this scheme, Thailand’s economy would develop without using exports and foreign capital as a foundation. The rise of the baht is changing the Thai economy. Either the central bank will have to step in and adjust interest rates to keep Thailand competitive on the export market, or the very structure of the economy will need to adopt to policies that are less export-based. Currently, no policies have been able to stop the baht from appreciating. This seemingly unstoppable force may be something that Thailand has to learn to live with and work around. IN A MOVE to strengthen intellectual property rights, the Indian government announced earlier this month the country’s accession to the Madrid Protocol governing the international registration of trademarks. This move marks a much-needed initiative to register Indian trademarks in other countries, as the Indian trademark registration system had no provisions for international registration. India has been slower than most competitive economies to accede to the system, even though it set the ball rolling on the lengthy application procedure two years ago. The Madrid Protocol This low-cost method of registering trademarks administered by the World Intellectual Property Organization has the added advantage of registering a single trademark in multiple countries through a single, efficient application. This system greatly facilitates the changing, maintaining and renewing of the registration. Furthermore, the agreement specifies that “if the trademark office of a designated country does not refuse protection within a specified period, the protection of the mark is the same as if it had been registered by that office.”1 The Madrid System consists of the Protocol, which came into force in 1996, and the much older Madrid Agreement of 1891. Filed under the agreement is the trademark of Swiss watch-maker Longines, the longest-standing international trademark registration still in existence. A country may become a party to either the Protocol or the Agreement or both. The Madrid system has 80 members, including the US, UK, Japan, and the countries of the European Union. China has been a member since 1989 and in recent years has become an important member, with over 40 percent of international applications received in 2006 designating China as one of the countries where the trademark would be registered.2 The Indian Case India’s success in the technology sector over the past decade has prompted it to strengthen protection of intellectual property rights. The Trade Marks Act of 1999 was one such important legislation, now being amended to include membership in the Madrid protocol. Given the rise of technology and export-oriented Indian firms, which stand to benefit the most, this has been a logical response. For multi-nationals, international trademark filing is a key step in protecting and promoting their trademarks internationally. For smaller and upcoming firms, the convenience and affordability offered by the Madrid system helps facilitate the registration process. More international credibility and confidence will be added to the Indian trademark system, as foreign companies too can better protect their trademarks in a country where such infringement occurs frequently. It will be interesting to see how India’s accession to the Protocol impacts the large pharmaceutical industry. Pharmaceutical companies have consistently been big users of this trademark registration process in Europe and America. Industry giants like Novartis and Merck rank among the top users of the system. According to a 2005 Best Practices study on trademarks, two out of every three American biotechnology or pharmaceutical firms planned to use the Madrid Protocol.3 While India’s accession to the Madrid Protocol makes international trademark registration a simpler and cost-effective process, it also requires increased investment in infrastructure and personnel in the Indian Trademark Offices, driving up the cost for domestic trademark registration.4 Other general drawbacks include the inability to differentiate the scope of the brand protection from market to market and the adverse implications of the cancellation or refusal of the application. There are clear benefits of being part of a system that includes many economically competitive countries, and trade partners. In October last year, WIPO registered the 900,000th trademark under the system. Even though there are limitations, it is better to be on the inside of such an agreement than to stay out. INDIA HAS suffered a net brain drain over the past three decades as many of its best and most skilled professionals moved to countries that provide better opportunities. The result has been economically devastating. However, with India’s rapidly growing economy we may see a return of India’s diaspora, made up of 25 million people, back to their homeland. This could result in what is called a “brain gain.” As a report by AeA, an American trade body, aptly titled “America’s brain drain will be India’s brain gain” - that time is near. Recent literature on diasporas has been focused on remittances, of which India has been the largest beneficiary. However, such a focus on financial inflows does not consider the negative effect of human capital outflows. The focus should be on the impact of the return of high skilled workers and implementation of policies that will attract more Indians to return home. Impact of a Reverse Brain Drain In recent years, India’s brain drain has resulted in a US brain gain. The US alone received a total of 42,046 Indians in 2000, 26,232 of which became nationalized citizens – most of whom were skilled professionals and entrepreneurs. Additionally, Jagdish Bhagwati, a world renowned trade economist and Professor at Columbia University, argues that Indians immigrate during their most productive years. According to the United Nations Human Development Report in 2000, brain drain represents a $2 billion annual loss to India. A reversal of the brain drain that began in the 1970s would have a huge beneficial impact on the economy as the Non Resident Indians (NRIs) of today are bona fide skilled professionals and entrepreneurs unlike the NRIs of yesteryears, a group that was largely composed of blue collar workers.1 These NRIs would bring with them transferable skills offering best practices and cutting edge skills that could lead to spillover effects as well as capital remitted from abroad. Given the skills that many NRIs have achieved in the West, they have great potential to improve public governance and to help the urban poor. India Warms to Diaspora A catalyst for this brain gain is India’s newfound enthusiasm for its NRI base as their government has realized the enormous positive impact the diaspora could have if it returned. Legislation passed in 2003 that permits dual nationality for Indians based in seven developed countries is part of a growing trend of interest in NRIs – a reversal of India’s long time distrust of NRIs.2 The Overseas Citizenship Certificate allows most of the benefits of full citizenship without having to give up a foreign passport. Furthermore, a Ministry of Overseas Indian Affairs has been established as well as a number of programs to attract NRI intellectuals and professors to Indian universities. 3 India’s Attractiveness While the IT sector is a big part of it, as 35,000 NRI software professionals returned home permanently – mostly to IT rich Bangalore - between 2002 and 2003,4 diverse job opportunities abound in finance, telecommunications, pharmaceuticals, and R&D. Indian companies continue to grow in scale through buyouts, mergers and acquisitions and foreign multinationals are increasing their exposure in India. Job opportunities are, however, just part of the equation. Add in rapidly increasing economic growth (projected at 9.2 percent in 2007) and standards of living, a traditionally rich social life, improving schools and infrastructure, attractive housing, and strong family and cultural ties, and the temptation to return home permanently becomes very attractive. 5 Policy Prescriptions To further encourage this brain gain, India needs to introduce policies that would attract the second generation NRIs to spend time in their motherland through semester study abroad programs during their high school and college years or through internships at NGOs in India. Greater investment and further liberalization in education could attract NRIs to study in India and would go a long way in increasing its human capital if these Indians return permanently. There have been innovative solutions, such as the “dual degree” program put into place at the India Institute of Technology (IIT). Such solutions need to be broad based and new institutional frameworks need to be created that link universities to industries through creative partnerships that are hospitable to return migration policies. Shanghai’s recent efforts of building centers for overseas scholars to develop businesses in development zones serve as a blueprint for Indian implementation. While the government has made strides in welcoming back its diaspora, it needs to go further. Greater coordination across central and local governments and administrative and academic institutions are needed to allocate sufficient funds to higher education and concrete return-migration oriented policies.7 Two steps that would further attract NRIs are agreements with industrialized countries so that returning NRIs do not suffer penalties for paying social security taxes and removing the military obligation for those holding dual citizenship.8 The Indian government could go even further by offering financial incentives through bonuses and other measures that would ease the transition. These measures could include job search services, housing discounts, and schooling arrangements.9 India has taken small steps in encouraging a returning diaspora but more needs to be done if India is going to attract its best and brightest NRIs back home. During these times of economic prosperity, the task is a greater priority than ever before. THE MIGRATION OF people to other countries in search of employment has occurred throughout history, and is by no means a new occurrence. This phenomenon has become especially prevalent in Southeast Asia. In the Philippines for instance, human resources is the main export. In year 2000, more than 1 million Filipinos left home to seek work abroad as sailors, maids, nurses, and in other low-paying jobs.1 More and more South-east Asians have become wandering workers, moving out of their countries to work for their better-off neighbors. The Case of the Philippines Many overseas workers eventually return to their home countries—but not before sending home substantial sums. In the case of the Philippines, remittances from abroad account for over 10% of its GDP, enough to compensate for the opportunity cost of having over 8 million of its best and brightest workers abroad. From January to November of 2006, remittances summed to $11.4 billion, up 18% from the same period during 2005.2 This does not include the wads of cash returning in workers’ luggage. Although poverty and unemployment are still a source of serious concern in the Philippines and many othe