On February 26, 2007, as part of Stanford University's celebration of Entrepreneurship Week USA, three Stanford alumni, leading entrepreneurs in China, held an animated discussion on their successes, failures and key lessons learned, and on the challenges and pitfalls of startups in China.

The discussion, moderated by SPRIE Co-Director Dr. William F. Miller, featured Jack Hong (MS '91, '06), Principal and Founder of SN38; Derek Ling (MA '95), Founder and CEO of Tianji.com, and Min Zhu (MS '85), Co-Founder of Webex Communications and Partner at New Enterprise Associates.

Some of the topics covered were: leveraging of global resources; what entrepreneurs need to know about China right now; markets that are ripe for startups, and those to avoid; the vital importance of a good local team, and the difficulties the government can present to your start-up, from officials to ever-changing regulations.

The event was co-sponsored by SPRIE and the Asia-Pacific Student Entrepreneurship Society (ASES).

The six-party agreement reached last week in Beijing to cap North Korea's nuclear program was a triumph for diplomacy. But contrary to much of the conventional wisdom in recent days, the fruits of the victory fall mostly to the North Koreans.

In the short term, the deal will halt the country's production of nuclear materials, limiting its ability to expand a nuclear arsenal tested in October. But for this concession, the North Koreans get to keep that arsenal intact, at least for now, and stand to make significant economic and political gains in relations with the United States, China and South Korea.

Some critics say the Beijing agreement is a lesser version of "the Agreed Framework" reached in 1994 by the Clinton administration, later cast aside by President Bush. Former Clinton-era Defense Secretary William Perry, speaking Tuesday at the Asia Society, characterized the new agreement as "thin gruel," while backing it as "a small but a very important step forward."

The ultimate judgment will await the uncertain implementation of numerous crucial, but still vaguely defined, steps down the road. The North Koreans are certain to exploit every ambiguity in the text and to drag out the phase that calls for actual dismantlement of their nuclear program and weapons.

Unfortunately, the process that led to this moment suggests that this will not go well. Contrary to the administration's version of events, Pyongyang was not dragged to this deal by pressure -- not from Washington and not from North Korea's angry patrons in Beijing.

"We don't have the North Koreans on the ropes," a former senior U.S. intelligence analyst who has watched that closeted country for decades said. "We don't have them on the run."

On the contrary, there is ample evidence that this agreement is yet another demonstration of North Korea's uniquely successful brand of negotiation via escalation: a use of brinkmanship and willingness to go up to and over the line that converts weakness into leverage.

Against that approach, the Bush administration's preference for using tools of coercion and threat, even of pre-emptive war, failed. If anything, it brought about the very opposite outcome than the United States envisioned: it encouraged North Korea to move even more rapidly to develop and test a nuclear weapon.

The pattern of brinkmanship was already clear during the Clinton years -- what Korea expert Scott Snyder famously termed "negotiating on the edge." When confronted, Snyder noted, the North Koreans typically responded by accelerating the crisis, unworried by the consequences. The fear of appearing weak has underlined all North Korean behavior.

The Bush administration came into office almost seeking a confrontation, as the president and many of his advisers were convinced the 1994 deal was fatally flawed. Ironically, the North Koreans thought they were on the verge of strategic breakthrough, after a deal to halt missile tests and preparations for President Clinton to visit Pyongyang in the final weeks of his administration. An improved relationship with the United States would balance the power of its Chinese patron, whom North Korea deeply distrusts, and give it legitimacy in an ongoing struggle with South Korea for leadership on the Korean peninsula.

Instead Bush froze the Clinton framework and sought a new, tougher approach. In January 2002, Bush delivered his famous State of the Union depiction of North Korea as a member of the "axis of evil," along with Iran and Iraq. That October, U.S. negotiators confronted Pyongyang with accusations of cheating by pursuing a clandestine uranium-enrichment program.

The 1994 agreement collapsed amid a tit-for-tat series of escalatory moves -- beginning with a U.S. cutoff of heavy fuel oil and leading to North Korea ousting international inspectors, withdrawing from the Nuclear Non-proliferation Treaty and restarting its reactor and recycling facility to produce plutonium. Bush vowed that the United States would not "be blackmailed."

Meanwhile, preparations for war in Iraq were mounting. The Bush administration was convinced the awesome display of U.S. power would successfully intimidate the other two points on the axis of evil, North Korea and Iran.

"We are hopeful," then senior State Department official John Bolton dryly said as the invasion came to a close, "that a number of regimes will draw the appropriate lesson from Iraq -- that the pursuit of weapons of mass destruction is not in their interest."

American threat

The North Korean officials drew an entirely different conclusion: they could not afford to seem weak in the face of what they perceived as an American threat to terminate their regime.

"Only tremendous military deterrent force powerful enough to decisively beat back an attack supported by ultra-modern weapons can avert a war and protect the security of the country," said an official statement issued April 6. "This is the lesson drawn from the Iraqi war."

A drawn-out process of negotiations began later that month, beginning with a three-way meeting in China and moving that summer to six-party talks that also included South Korea, Japan and Russia. The U.S. position was to deny Pyongyang what it wanted most -- direct talks with Washington -- and to demand verified dismantlement of its nuclear program, on the model of Libya, before any rewards, economic or political, were provided.

As the war in Iraq wore on, and the threat of military force became less credible, the administration looked for other coercive tools. It forged a multinational agreement to intercept suspicious cargoes and launched a crackdown on illicit North Korea trafficking in drugs and counterfeit currency and goods, which are believed to be the main source of support for the regime's elite.

The North Koreans countered with their own demands, offering a plan to freeze their nuclear program, with compensation, followed by a coordinated series of reciprocal steps leading toward eliminating the program. Their offers were accompanied by statements that they already had the bomb and were prepared to test it.

When the Bush administration started its second term in 2005, it attempted to escalate pressure -- this time with charges that North Korea was exporting nuclear materials to the Middle East and calls for China to put pressure on its difficult clients. Pyongyang moved to unload a second set of spent fuel from its reactor and reprocess it -- American experts believe North Korea created six to eight bombs worth of plutonium after 2002.

Agreement sours

A return to the bargaining table in September 2005 yielded an agreement on the principles that would underlie a denuclearization of the Korean peninsula. But that sign of progress disappeared within hours as both sides sparred over the meaning of a pledge to build nuclear power reactors for North Korea as compensation for it dismantling its nuclear weapons.

The imposition of measures to curb the flow of North Korean "illicit" money through Chinese and other banks added to the acrimony. Administration officials described this as a legal issue driven by Treasury Department efforts to curb counterfeiting. But as Bush admitted recently, it was used as leverage in the nuclear talks.

Throughout the past year, Bush administration officials expressed confidence that these measures were causing serious pain to the North Korean leadership. Some even talked boldly of "turning out the lights" in Pyongyang through such sanctions.

But Pyongyang could read the news from Iraq as well as any American voter. Instead of having its lights turned out, North Koreans put up their own light shows. On July 4, a date chosen with apparent intent, they carried out a test of a battery of ballistic missiles, in defiance of warnings, including one from China. A U.N. resolution condemning the action -- and other steps, including a South Korean suspension of food and fertilizer aid and Chinese attempts to slow trade -- followed.

In October, again in defiance of pressure from all fronts, the North Koreans tested a nuclear device. This prompted another U.N. resolution, backed by China, to impose limited economic sanctions. But although China was clearly angered, there is little evidence it moved to cut off the lifeline of trade, particularly energy supplies.

North Korea's willingness to cross what everyone believed was a "red line" changed the equation permanently. It allowed Pyongyang to return to the six-party talks, stalled for more than a year, but now from a position of strength. At the meeting in December, the North Koreans refused to discuss any other issues unless the U.S. financial sanctions were removed. North Korean officials hinted of preparations for a second test.

The United States blinked, agreeing to hold long-sought direct talks, held in Berlin in mid-January. The talks yielded the outlines of the Beijing deal but also a separate U.S. concession to lift the financial measures within 30 days of signing a broader deal.

The Beijing agreement more closely resembles North Korea's June 2004 freeze proposal than it does the U.S. insistence that dismantling nuclear weapons precede any substantial rewards. Clearly, this is a deal the Bush administration would not have made, says Scott Snyder, "if it were not tied down with so many other problems."

North Korea made its own concessions in the Beijing agreement. But "it doesn't necessarily mean Pyongyang is backing down or preparing to abandon its nuclear weapons," argues Kim Sung Han, a senior analyst at the South Korean Foreign Ministry's research institute.

N. Korea's rewards

Administration officials point out that the initial freeze of North Korea's nuclear program, to be implemented in two months, yields only minor compensation, about 50,000 tons of heavy fuel oil. But that is not what Pyongyang sees as its real reward. The lifting of financial measures will facilitate its rapidly growing trade with China and South Korea. Even more important, the South Korean government has already signaled it will now lift the ban on large-scale fertilizer and food shipments -- which are crucial to North Korea's spring planting.

Less visible, but no less vital, the North Koreans are trying to hold off a conservative comeback to power in the South Korean presidential election in December. A North-South summit meeting may take place, which would be part of an effort by the progressive South Korean government to shore up its support.

Ultimately, the Beijing agreement may yield a trade of nuclear facilities for economic and political relations, leaving the nuclear arsenal capped but still intact. For some U.S. experts, that is sufficient.

"It will limit the size of the nuclear arsenal and the amount of bomb fuel," observes former Los Alamos nuclear laboratory director and Stanford scholar Siegfried Hecker. And that, he says, should make it less likely North Korea would sell its nuclear materials or expertise to Iran.

The bargain made in Beijing flows inexorably from North Korea's skillful playing of the escalation game. But it may be the best outcome possible, given that North Korea has already crossed the nuclear threshold and that the Bush administration has squandered U.S. power in the deserts of Iraq.

Reprinted with permission from the San Jose Mercury News.

As part of Entrepreneurship Week USA at Stanford University (February 24 - March 3, 2007), SPRIE and the Asia-Pacific Student Entrepreneurship Society (ASES) will be sponsoring a special event: "Global Entrepreneurship: Stanford Trailblazers in China." Leading entrepreneurs in China will discuss how they got started, challenges they are facing, and their outlook for entrepreneurs in China.

Three entrepreneurs, all Stanford alumni, are slated to take part in the panel discussion: Jack Hong, principal and founder of SN38, an incubation fund focusing on social-networking startups in China and the US (Hong was co-founder of SINANET.com while still at Stanford); Derek Ling, founder and CEO of Tianji.com, the leading social networking service for professionals in China, and Min Zhu, co-founder of WebEx Communications, Inc., Venture Partner in New Enterprise Associates (NEA) and, most recently, founder of Cybernaut. Dr. William F. Miller, co-director of SPRIE, will moderate the discussion, which will take place on Monday, February 26, from 4:00 p.m. to 6:00 p.m., in the Bechtel Conference Center in Encina Hall. This event is open to students, the Stanford Community and the general public.

Stanford Entrepreneurship Week events, part of the nationwide Entrepreneurship Week USA festivities, include keynote talks by Thomas Friedman and Steve Jurvetson, an interview with Guy Kawasaki, as well as the Startup Job Fair and a week-long Innovation Challenge. The week begins with an exciting opening ceremony and launch party on Saturday, February 24, followed by daily events. View the full schedule online at eweek.stanford.edu.

The 14th Informal APEC Economic Leaders' Meeting concluded on Nov. 19, 2006, and the participants had their photo taken in colorful Vietnamese traditional costumes called ao dai. Still in the shadow of the congressional election failure, President George W. Bush, realizing that a stable Asia is very important for the U.S. geostrategy, took advantage of the occasion to enhance the prestige of the United States. Just as American experts said, the Bush administration has probably become a lame duck now, but even a healthy duck needs to find a quiet pond.

"APEC's uniquely trans-Pacific character is an important political reason for U.S. to strengthen the group," Donald Emmerson, director of the Southeast Asia Forum of Shorenstein APARC at Stanford University, explained. "While APEC has lagged, East Asian regionalism has boomed. That has been good for East Asia. But U.S. and East Asian interests alike could be hurt if the Pacific Ocean ends up being split between rival Chinese and American spheres of influence."

However, the U.S. effort to save the Doha Round of trade talks with the Asia-Pacific Free Trade Agreement has yielded little. The Doha Round aimed to remove trade barriers in the world but was suspended due to some countries' agriculture protection policies. Washington had wanted to model the Doha Round upon the Asia-Pacific Free Trade Agreement. But U.S. officials never expected that there would be so many differences among the Asia-Pacific leaders, and that the economic development of Pacific Rim countries differ in thousands of ways. Despite the fact that the Hanoi Statement reiterated that supporting the Doha Round was APEC's priority, no material progress has been made.

"The U.S. is urging a last ditch effort to restart the talks through APEC," Professor Charles Morrison, president of the East-West Center located in Hawaii, says. "Whether or not APEC can do more than make a rhetorical statement of support is unsure. I feel that the APEC economies should agree to prepare new offers within a short period of time -- three weeks, for example -- to challenge the Europeans, Brazilians, Indians and others."

United States Steps Out to "Please" ASEAN

Seventeen years after its establishment, APEC now plays a decisive role in the international political arena. It has 40 percent of the world's population, 48 percent of the world trade volume and 56 percent of the world GDP. Since 1989, the economy in this region has grown by 26 percent, compared to only 8 percent economic growth rate in the rest of the world. With the double advantage of economic strength and rapid growth, China, being one of APEC's main economies and its "engine," has fully taken the limelight. On the other hand, the United States has been weighed down with countering terrorism in the Middle East.

"China has done very well in enhancing its relations with Southeast Asia in recent years," Sheldon Simon, professor of the Program in Southeast Asian Studies at Arizona State University, points out. "China has not only established a free trade forum for China and ASEAN countries, but also helped and influenced the area with its economy and culture. But I think that the United States has realized the importance of this area and come back to fasten its friendly relationship with the region."

The United States coming back to Southeast Asia and repairing its relations with the ASEAN countries is partly activated by China's increasing influence in the area.

"The naissance and growth of some democratic countries in Southeast Asia has received sympathetic response of democratic values from Washington," said Simon. "With the traditional friendly relations between the area and the United States, these countries value their friendship with the United States sometimes more than the trust in their neighboring countries. Geopolitics is also very important factor. The Asia-Pacific area is a very important to the world economy and the U.S. power structure. Therefore, the United States will not easily give it up."

Another motive for the United States to foster closer relations in the area is the common interest of countering terrorism. There are still some terrorist groups in Indonesia, the Philippines and southern Thailand.

"President Bush has a perfect attendance record at APEC meetings (Clinton missed two of them), which says that he does take APEC seriously and believes Asia is important to U.S. interests," Ralph Cossa, president of the Pacific Forum Center for Strategic and International Studies, said in an interview with the Washington Observer Weekly.

Besides attending the APEC summit meetings annually, Washington has recently activated several plans to "please" the ASEAN countries, including setting up a ministerial dialogue system with them and a platform for maintaining contact at the deputy finance minister level, even increased exchanges at the deputy defense secretary level.

The extent of U.S. efforts to foster cordial relations with Southeast Asian countries can also be seen in the increasingly friendly U.S.-Vietnamese economic and trade relations. The Bush administration is not only supporting Vietnam to enter the WTO, but has even proposed giving Vietnam Permanent Normal Trade Relations (PNTR) status.

"The reason that Bush failed to bring the gift of PNTR status to the APEC Hanoi summit is that the Congress dominated by the Republicans was lacking efficiency and could not pass the proposal in time," Simon explained. "But I think that it will be passed as soon as possible in the next month or by the Democrats who begin to dominate the Congress from next January."

Simon and Cossa both admit that Burma is an unharmonious element in U.S. relations with ASEAN. The Burmese dictatorial military government is really the most typical negative example of democracy for the United States. But ASEAN countries are reluctant to see Burma "punished" by the United States for ideological reasons. So Burma has become a sensitive issue in U.S.-ASEAN relations.

"This is a good way for him to interact with ASEAN since Myanmar is not there and this issue does not have to be addressed," said Cossa.

Simon, an expert of Southeast Asia affairs, points out ASEAN countries should be happy about the advantage they have with China and the United States vying for their attention. Being able to juggle the two big powers, Southeast Asia has gained many practical interests and financial aid for its economy, trade, security, culture and education.

"In a short period, there will not be any serious interest conflicts in the triangle balance of China, the United States and ASEAN," Simon told the Washington Observer Weekly. "ASEAN countries' only worry, if there is any, is an accidental spark in the U.S.-China military interaction in Southeast Asia such as the confrontation across the Taiwan Straits."

Turning the Asia-Pacific into a "Gigantic Enterprise?"

"The United States wants to demonstrate its continuing interest in the Asia-Pacific region. It is urging for a study of an Asia Pacific free trade area and support for an APEC business card, and both shifts of approach, illustrate its interest in and support for the APEC process," said Morrison.

An important subject for the APEC Hanoi summit is the "active discussion" of establishing an APEC free trade region. Former U.S. President Bill Clinton proposed for the first time in 1993 the setting up of such an economic zone. Before Bush's visit, Deputy U.S. Trade Representative Karan Bhatia suggested that establishing an APEC free trade zone would be a subject worth serious discussion. But his proposal did not receive a warm response from the host. The Vietnamese Deputy Foreign Minister Le Cong Phung stressed that establishing a free trade zone is a long-term objective and will not affect progress of negotiations with the WTO or other bilateral trade agreements.

"Regarding the study of the Asia Pacific free trade area, a number of economies were skeptical because it would be such a large undertaking," said Morrison. A similar plan was once axed in an APEC ministerial statement and the leaders attending this summit do not seem to have much interest in it.

Simon explained Bush's thinking on the subject: "Washington reiterated its intention to establish an Asia-Pacific free trade zone in order to save the precarious WTO Doha Round. Breaking the tariff barriers in the Asia-Pacific region will help continue to press relevant countries to concede in granting agricultural tax subsidies and hopefully open the door to the Doha Round."

The five-year Doha Round was suspended in July this year because six major WTO members -- the United States, the European Union, Japan, Australia, Brazil and India -- failed to reach agreement on market access for agricultural and non-agricultural products. Given the situation, the organizer said that the informal APEC economic leaders' meeting would provide a "good opportunity" to help restore the Doha Round talks. However, the Hanoi summit joint declaration just vaguely indicated that APEC will pursue further integration on issues such as energy in 2007. It would be extremely optimistic to expect that APEC will be able to remove all the tariff barriers in the region before 2010. Although the area produces 50 percent of the world's economic value, the styles and stages of economic development, the cultural backgrounds and political systems of the countries in the region vary a great deal, making it very difficult for these Asian countries to eliminate all these discrepancies and become fully integrated.

"Out of different worries, many Southeast Asian countries are actually not interested in the proposal though they do not speak out. Or we may say that it's not time yet now to change the Asia-Pacific region into a gigantic enterprise," Simon told Washington Observer Weekly.

Quite apart from who concedes what in return for what concession over the APEC free trade mechanism, the question arises: What geographical scope should a regional trade arrangement have? Who should be a party to the agreement and who should not?

There would appear to be three different ideas on the table: (a) the APEC-wide free trade area that the United States proposed at the recent summit in Hanoi; (b) the East Asia Summit-wide framework that Japan reportedly favors, which would include ASEAN + 6 (China, Japan, South Korea, India, New Zealand, Australia) but not the United States; and (c) the ASEAN Plus Three (China, Japan, South Korea) context that China seems to prefer, in which the exact positions of Tokyo and Beijing are not entirely clear.

"Without discussing the merits or demerits of each of these arrangements, suffice it to note that since ASEAN is common to all of them, the net effect of these alternative ideas is to strengthen the negotiating position of ASEAN," said Emmerson. "Then again, ASEAN will not necessarily be unified as to its preference for the three proposals. It will be interesting to look for the positions to be taken by individual ASEAN countries and for their collective effort to arrive at a single negotiating position, e.g., in the run-up to the ASEAN summit and the second the East Asia Summit in the Philippines next month."

Cossa has hope for 2007. "The U.S. in particular would like to see APEC moving faster, and will look ahead to next year, with Australia in the chair, for some real progress."

American Public Doesn't Share Washington's Interest in Southeast Asia

The prospect of economic and strategic cooperation brought about by APEC made for a lively week in Southeast Asia. But it stirred little response in the United States. According to the interviewed experts of Southeast affairs, the American public is still haunted by the situation in Iraq and the mid-term election. Even the U.S. media framed the event as Bush's first visit to a foreign country since the Republicans were defeated in the mid-term election.

"Because of the Congressional election, President Bush will want to show leadership rather than simply respond to the new Congress. Both Doha and the nuclear proliferation issue are examples," said Morrison.

Cossa holds a different view: "I don't think the elections will have any major impact on what Bush does or how he does it during this trip. Iraq is his legacy. What he does in Asia can make things better or worse at the margins but will likely be overshadowed by Iraq."

Simon echoed the sentiment. "On one hand, the Republican Party's defeat in the election cannot directly influence Bush's trip to Asia. On the other hand, Bush's economic achievements in the Southeast region will not add to his political record. In Asia, only the North Korea issue may sway the public opinion in the United States."

Yan Li, Washington Observer weekly - Issue No. 201, November 22, 2006

Reprinted by Permission February 12, 2007.