In 1998, in the twilight of the 20th century, the resignation of Indonesia's autocratic president Suharto ushered in a new political era. Corresponding changes occurred in Indonesia's economic, social, and cultural landscape. That transformation challenged and transformed the thinking of many Indonesians. One of them was Dr. Dino Patti Djalal, who recently became his country's ambassador to the United States. "I entered the twenty-first century with a new mindset," said Djalal to an overflow audience at the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC) on November 18, 2010.

As the son of a renowned Indonesian diplomat, Djalal spent much of his youth and early adulthood abroad. He attended high school in the United States and college in Canada, and went on to earn his doctorate from the London School of Economics and Political Science. Djalal's diverse professional talents and experience encompass writing, politics, and film production. Passionate about inspiring and empowering young Indonesians, Djalal founded Modernisator, a youth leadership movement in Indonesia. Before becoming ambassador to the United States in September 2010, he served on the staff of Indonesian President Susilo Bambang Yudhoyono as a spokesperson and special adviser on foreign affairs.

Djalal's speech at Shorenstein APARC featured his top eight personal beliefs about the 21st century. His remarks were a mixture of optimism and wonder tempered by caution. This new century in Djalal's eyes promises great progress and opportunity, in contrast to the 20th century, which he called "probably the bloodiest century ever in human history." Looking forward, he spoke of an "explosion of creativity," the growth of emerging and developing economies, and major advances in technology. The power to eradicate poverty and to achieve world harmony is within our grasp, he argued, provided countries are willing to be open to new ideas and to embrace progress and change.

The last century, Djalal noted, saw the fall and fragmentation of empires and the birth of many new states. Looking ahead, he did not foresee great changes in the world's geopolitical map. He hoped that world leaders would not promote a further proliferation of new countries, which would increase rivalry and instability. Instead the goal should be unification, as in the case of the Korean Peninsula. He spoke optimistically of the trend whereby existing countries such as Indonesia manage to "proliferise," or acquire new and greater global relevance, and advocated a "geopolitics of cooperation" among larger and smaller countries, as in the Group of 20.

Djalal stressed the need for rapid innovation and ongoing social, economic, and educational change. A nation that wants to succeed in the 21st century must be open and adaptable. Analysts once thought that major changes could only unfold over several generations, but now, Djalal argued, dramatic change can occur in the span of a single generation. In addition to developing open and progressive political thinking, said Djalal, good governance is essential if the world is to enjoy stability and prosperity in this century. Having a democratic government does not automatically ensure good governance, he argued. Political leaders must strive to build strong, accountable institutions that emphasize positive outcomes in key sectors such as health, education, and entrepreneurship.

Addressing the younger generation, Djalal said, "skill is your best currency" in the present century. Individuals, empowered by education and technology, are now free to make their way in the world based on their own talents. He recalled that in an earlier era in Indonesia, as in many other parts of the world, access to information was limited by social status, wealth, and gender. More than any other factor, according to Djalal, technology is the "most important driver of change." It is the small, innovative technologies such as cell phones and online banking that will most change the world, provided we learn "how to adopt it without destroying the human soul."

Globalization is here to stay, Djalal argued, so it is crucial to "embrace it intelligently." Indonesia is a large country. But rather than rely on superior physical size, Indonesia and other large countries must climb the global ranks on less tangible dimensions such as education, including the skill sets needed to develop their economies. While being open to engaging with the rest of the world, he added, countries must also cultivate a strong sense of national identity.

Djalal closed on a high and provocative note, suggesting that the free, innovative, and global nature of the current century provides the means for young people today to become "potentially the best generation of all previous generations." How then should we proceed, as individuals and as countries, to realize that bright future? Djalal left that question hanging in the air for his audience to consider and to answer.

 

While Shanghai and Hong Kong are often viewed as the financial centers of China, Beijing, the capital, is in reality where all financial decisions are made-decisions that affect the country's banking system and overall financial structure, which has implications on a global level. Carl Walter, a managing director of JPMorgan China, spoke at a Stanford China Program seminar on November 1 about the frequent changes in China's banking system since 1949 and the cost of these reforms within and outside of China.

China's banking system is currently controlled by the Ministry of Finance (MOF), which has competed at several points with the People's Bank of China (PBOC) for influence within the state bureacracy. During the Cultural Revolution period, MOF first moved to the fore of China's banking system, merging together the until-then separate PBOC and Bank of China (BOC) and eliminating all other banks. With China's "Open Door" economic reforms of 1978, the banks were again separated, with PBOC having oversight for three commercial banks and MOF for two, including BOC. In 1994, authority for all commercial banks, such as BOC and the Agricultural Bank of China (ABC), moved to PBOC and MOF took control of three newly established policy banks, such as China Development Bank and the Agricultural Development Bank. Premier Zhu Rongji drove these and all other banking reforms until 2003.

Major bank restructuring has taken place since 1998, the big four banks were re-capitalized, problem loans spun off into four "bad" banks and the international accounting system adopted in preparation for international share offering on both domestic and international markets. All four banks successfully raised capital internationally and domestically over the past five years. Two large sovereign wealth fund-like entities came into being-Huijin, controlled by PBOC, and China Investment Corporation (CIC), operated under MOF- that were used to hold the Chinese state ownership of these banks.  The year that it was established in 2007, CIC acquired Huijin and MOF thereby indirectly gained control of all of the banks under PBOC.

The greatly increased level of bank capital achieved through restructuring and recapitalization was eroded, however, due to the enormous growth of loans in 2009 so that China now is faced with raising virtually the same amount of capital again, stated Walter. Everyone is paying the price, including international and domestic equity investors, who are being diluted, and China's own government, which to avoid dilution, must buy new shares at high market prices. The values of these shares, moreover, may be inflated due to the techniques used earlier to remove bad loans from their balance sheets. This has left banks exposed to these now worthless portfolios. To that extent, international accounting firms and market regulators put their reputations on the line when they support capital raising by the banks internationally. In short, the politics and economics of China's bank reforms and the struggles to control the banks have been internationalized.

Walter suggested that China is trapped with a banking system that is suited to the country's political system, but not to its economy. His forthcoming book, Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise, co-authored with Fraser J.T. Howie, examines this issue and the recent history of China's financial system in depth.

 

The Chinese video sharing site Youku, using a business model emphasizing media partnerships rather than focusing on user sharing like its Western counterpart YouTube, will achieve greater profitability and be better positioned to take advantage of China's competitive advantage, according to CEO Victor Koo. Koo made the remarks at SPRIE's "China 2.0" conference, where he also announced a new partnership with Disney for streaming video. (Article in Chinese).

Beyond his childhood ties to Hawai'i and Indonesia and his self-styled designation as "America's first Pacific President," President Barack Obama has demonstrated significant and genuine interest in Asia and in developing trans-Pacific ties. He embarked on November 5 for the second presidential visit to Asia during his term, and while there he will visit India, Indonesia, South Korea to attend the summit of the Group of 20 (G20), and finally to Japan to attend the annual heads of state meeting of the Asia-Pacific Economic Cooperation (APEC) conference. Secretary of State Hillary Clinton will travel a week ahead of Obama to attend the Association of Southeast Asian Nations (ASEAN) gathering and the East Asia Summit (EAS) in Vietnam, followed by visits to Malaysia, Papua New Guinea, New Zealand and Australia. Her trip will include an added-in stop to China's Hainan Island. To address major issues surrounding the President's trip to Asia--including the "China question" and historic U.S. bilateral alliances--four scholars from the Walter H. Shorenstein Asia-Pacific Research Center (Shorenstein APARC) gathered for a public panel discussion on October 27.

Thomas Fingar, Oksenberg/Rohlen Distinguished Fellow of the Freeman Spogli Institute for International Studies, spoke about the symbolic aspects of Obama's visit, noting the importance of a presidential visit for showing a sense of real commitment to the region and an acknowledgement of the "rise" of countries like China and India. On a more pragmatic side, he also suggested that meeting in person with other leaders is crucial in order to "bring about deliverables." The omission of a visit to China should not be weighed too heavily, Fingar said, pointing out that the President visited China last year. The stops in Japan and South Korea are tied to important multilateral meetings, though they will also reaffirm longstanding ties with those allies, while the visit to India is an indication of growing relations between the two countries. Of particular importance is Obama's participation in the G20 Summit in South Korea and the APEC meeting in Japan because, Fingar stated, a major purpose of the visit is about the "United States having a role in building new multilateral institutions." Finally, while much of the success of the Asia trip rests on how well Obama conducts himself, Fingar expressed confidence that the President would skillfully manage the visit.

During his visit to Indonesia, Obama will meet with Indonesia's President Susilo Bambang Yudhoyono for a bilateral discussion of such issues as economics, security, and higher education. Donald K. Emmerson, director of the Southeast Asia Forum, said that the postponement of earlier-planned visits to Indonesia has lessened some of the enthusiasm for Obama's "homecoming" to Jakarta. China's omission on the trip agenda is noteworthy, he suggested, and Clinton's addition of a stop in Hainan is due, in part, to help alleviate recent tension between the United States and China regarding China's claim of sovereignty over the South China Sea. Clinton's involvement in the EAS is an "important multilateral engagement" for the United States because of the presence of its ally Japan and the fact that the United States and China both have a voice there, unlike the ASEAN Plus Three meetings that do not include the United States. While in recent months the U.S.-China relationship has become more strained, Emmerson asserted that the "United States is not going to get into a cold war with China."

Obama will travel from Indonesia to South Korea for the G20 Summit, another major multilateral engagement during his travels. David Straub, associate director of the Korean Studies Program, described several significant aspects of this time in South Korea. While not technically an organization, Straub said, the Summit is an important forum for the discussion of economic stability and growth. Similar to Fingar, Straub noted the efficacy and significance of in-person meetings. The Summit provides an opportunity for world leaders to have face-to-face discussions on non-economic issues, such as North Korea's political situation. Straub suggested that President Lee Myung-bak's investment in the Summit is based, in part, on raising South Korea's global prestige, which is tied also to increasing the status of the G20 to become the premiere global financial organization. Finally, Straub stated that alongside the G20 meeting, Obama and Lee are expected discuss bilateral relations, which are at an all-time high, including the stalled U.S.-South Korea free trade agreement (Korus FTA). The FTA, which would be the most significant free trade agreement for the United States since NAFTA, has faced opposition and mixed support on both sides.

Obama's visit to India will be the third U.S. presidential visit there in the past decade, which is indicative of changing U.S. perceptions of India brought about through the IT boom and growing economic ties, suggested Daniel C. Sneider, associate director of research for Shorenstein APARC. Sneider pointed to a broader shared agenda despite a lack of clarity on some issues, such as Pakistan, and a focus on India as Asia's "other" growing economy. He stated that he would be watching for the United States and India to work together to emphasize India's role in East Asia, highlighted by India's participation in the EAS. India's Prime Minister Manmohan Singh has championed a "look east" policy and expressed stronger interest in East Asia, especially China. In terms of Obama's visit to the APEC heads of state conference in Japan, Sneider noted the importance of this trip also for the U.S.-Japan alliance. The newly formed government of Prime Minister Naoto Kan has worked to ease tensions in the alliance and both countries hope to use the visit to bolster a more positive image of the alliance. Certain points of contention, like the move of the U.S. military base on Okinawa, have been put aside for the time being. Sneider stated that recent China-Japan tensions have also served to reinforce the importance of the relationship.

Events during Obama's Asia visit in the next two weeks will help to solidify or possibly call into question his image as the "Pacific President," and undoubtedly influence the role of the United States in Asia for the future.