Jim Castle is a friend of mine. I have known him since we were graduate students in Indonesia in the late 1960s. While I labored in academe he went on to found and grow CastleAsia into what is arguably the most highly regarded private-sector consultancy for informing and interfacing expatriate and domestic investors and managers in Indonesia. Friday mornings he hosts a breakfast gathering of business executives at his favorite hotel, the JW Marriott in the Kuningan district of Jakarta.

Or he did, until the morning of July 17, 2009. On that Friday, shortly before 8am, a man pulling a suitcase on wheels strolled into the Marriott's Lobby Lounge, where Jim and his colleagues were meeting, and detonated the contents of his luggage. We know that the bomber was at least outwardly calm from the surveillance videotape of his relaxed walk across the lobby to the restaurant.

He wore a business suit, presumably to deflect attention before he blew himself up. Almost simultaneously, in the Airlangga restaurant at the Ritz Carlton hotel across the street, a confederate destroyed himself, killing or wounding a second set of victims. As of this writing, the toll stands at nine dead (including the killers) and more than 50 injured.

On learning that Jim had been at the meeting in the Marriott, I became frantic to find out if he were still alive. A mere 16 hours later, to my immense relief, he answered my e-mail. He was out of hospital, having sustained what he called "trivial injuries", including a temporary loss of hearing. Of the nearly 20 people at the roundtable meeting, however, four died and others were badly hurt. Jim's number two at CastleAsia lost part of a leg.

The same Marriott had been bombed before, in 2003. That explosion killed 12 people. Eight of them were Indonesian citizens, who also made up the great majority of the roughly 150 people wounded in that attack - and most of these Indonesian victims were Muslims. This distribution undercut the claim of the country's small jihadi fringe to be defending Islam's local adherents against foreign infidels.

But if last Friday's killers hoped to gain the sympathy of Indonesians this time around by attacking Jim and his expatriate colleagues and thereby lowering the proportion of domestic casualties, they failed. Of the 37 victims whose names and nationalities were known as of Monday, 60% were Indonesians, and that figure was almost certain to rise as more bodies were identified. The selective public acceptance of slaughter to which the targeting of infidel foreigners might have catered is, of course, grotesquely inhumane.

Since Susilo Bambang Yudhoyono was first elected president in 2004, Indonesia's real gross domestic product has averaged around 6% annual growth. In 2008 only four of East Asia's 19 economies achieved rates higher than Indonesia's 6.1% (Vietnam, Mongolia, China and Macau). In the first quarter of 2009, measured year-on-year, while the recession-hit economies of Malaysia, Singapore and Thailand all shrank, Indonesia's grew 4.4%. In the first half of 2009, the Jakarta Stock Exchange soared.

The economy is hardly all roses. Poverty and corruption remain pervasive. Unemployment and underemployment persist. The country's infrastructure badly needs repair. And the economy's performance in attracting foreign direct investment (FDI) has been sub-par: The US$2 billion in FDI that went to Indonesia in 2008 was less than a third of the $7 billion inflow enjoyed by Thailand's far smaller economy, notwithstanding Indonesia's far more stable politics.

Nevertheless, all things considered, the macro-economy in Yudhoyono's first term did reasonably well. We may never know whether the killer at the Marriott aimed to maximize economic harm. According to another expat consultant in Jakarta, Kevin O'Rourke, the day's victims included 10 of the top 50 business leaders in the city. "It could have been a coincidence," he said, or the bombers could have "known just what they were doing".

Imputing rationality to savagery is tricky business. But the attackers probably did hope to damage the Indonesian economy, notably foreign tourism and investment. In that context, the American provenance and patronage of the two hotels would have heightened their appeal as targets. Although the terrorists may not have known these details, the Ritz-Carlton Hotel Company is an independently operated division of Marriott International, Inc, which owns the JW Marriott brand, and both firms are headquartered on the outskirts of Washington DC.

Second-round revenge against the Marriott may also have played a role - assaulting a place that had rebuilt and recovered so quickly after being attacked in 2003. Spiteful retribution may have influenced the decision to re-attack the Kuta tourist area in Bali in 2005 after that neighborhood's recovery from the bomb carnage of 2002. Arguable, too, is the notion that 9/11 in 2001 was meant to finish the job started with the first bombing of the Twin Towers in 1993. And in all of these instances, the economy - Indonesian or American - suffered the consequences.

Panic buttons are not being pushed, however. Indonesian stock analyst Haryajid Ramelan's expectation seems plausible: that confidence in the economy will return if those who plotted the blasts are soon found and punished, and if investors can be convinced that these were "purely terrorist attacks" unrelated to domestic politics.

Sympathy for terrorism in Indonesia is far too sparse for Friday's explosions to destabilize the country. But they occurred merely nine days after Yudhoyono's landslide re-election as president on July 8, with three months still to go before the anticipated inauguration of his new administration on October 20. That timing ensured that some would speculate that the killers wanted to deprive the president of his second five-year term.

The president himself fed this speculation at his press conference on July 18, the day after the attacks. He brandished photographs of unnamed shooters with handguns using his picture for target practice. He reported the discovery of a plan to seize the headquarters of the election commission and thereby prevent his democratic victory from being announced. "There was a statement that there would be a revolution if SBY wins," he said, referring to himself by his initials.

"This is an intelligence report," he continued, "not rumors, nor gossip. Other statements said they wished to turn Indonesia into [a country like] Iran. And the last statement said that no matter what, SBY should not and would not be inaugurated." Barring information to the contrary, one may assume that these reports of threats were real, whether or not the threats themselves were. But why share them with the public?

Perhaps the president was defending his decision not to inspect the bomb damage in person - a gesture that would have shown sympathy for the victims while reassuring the population. He had wanted to go, he said, "But the chief of police and others suggested I should wait, since the area was not yet secure. And danger could come at any time, especially with all of the threats I have shown you. Physical threats."

Had Yudhoyono lost the election, or had he won it by only a thin and hotly contested margin, his remarks might have been read as an effort to garner sympathy and deflect attention from his unpopularity. The presidential candidates who lost to his landslide, Megawati Sukarnoputri and Jusuf Kalla, have indeed criticized how the July 8 polling was handled. And there were shortcomings. But even without them, Yudhoyono would still have won. In this context, speaking as he did from a position of personal popularity and political strength, the net effect of his comments was probably to encourage public support for stopping terrorism.

One may also note the calculated vagueness of his references to those - "they” - who wished him and the country harm. Not once in his speech did he refer to Jemaah Islamiyah, the network that is the culprit of choice for most analysts of the twin hotel attacks. Had he directly fingered that violently jihadi group, ambitious Islamist politicians such as Din Syamsuddin - head of Muhammadiyah, the country's second-largest Muslim organization - would have charged him with defaming Islam because Jemaah Islamiyah literally means "the Islamic group" or "the Islamic community".

One may hope that Din's ability to turn his Islamist supporters against jihadi terrorism and in favor of religious freedom and liberal democracy will someday catch up to his energy in policing language. Yet Yudhoyono was right not to mention Jemaah Islamiyah. Doing so would have complicated unnecessarily the president's relations with Muslim politicians whose support he may need when it comes to getting the legislature to turn his proposals into laws. Nor is it even clear that Jemaah Islamiyah is still an entity coherent enough to have, in fact, masterminded last Friday's attacks.

Peering into the future, one may reasonably conclude that the bombings' repercussions will neither annul Yudhoyono's landslide victory nor derail the inauguration of his next administration. Nor will they do more than temporary damage to the Indonesian economy. As for the personal aspect of what happened Friday, while mourning the dead, I am grateful that Jim and others, foreign and Indonesian, are still alive.

Donald K Emmerson heads the Southeast Asia Forum at Stanford University. He is a co-author of Islamism: Contested Perspectives on Political Islam (Stanford University Press, November 2009) and Hard Choices: Security, Democracy, and Regionalism in Southeast Asia (Stanford/ISEAS, 2008).

Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved.

In an interview with Boston's WBUR90.9, Donald K. Emmerson, the director of the Southeast Asia Forum at Stanford University, discusses theories connecting the recent deadly hotel bombings in Jakarta with Indonesia's July 8 presidential election.  Emmerson says Jemaah Islamiyah - a militant Islamist group suspected in the attack - may be trying to focus on foreigners to reduce any public backlash against the violence by targeting "a hotel that is symbolic of foreign investment," but that it is difficult to find a clear motive for the attacks. "I frankly think that these are fanatics, deeply committed to some form of an Islamic state. At that level, if you believe in jihad so deeply, maybe reasonable explanations fall short of the mark."

The Director of the Asia Health Policy Program, Karen Eggleston, served as guest editor of the International Journal of Healthcare Finance and Economics for the June 2009 issue. The eight papers of that issue evaluate different provider payment methods in comparative international perspective, with authors from Hungary, China, Thailand, the US, Switzerland, and Canada. These contributions illustrate how the array of incentives facing providers shapes their interpersonal, clinical, administrative, and investment decisions in ways that profoundly impact the performance of health care systems.

The collection leads off with a study by János Kornai, one of the most prominent scholars of socialism and post-socialist transition, and the originator of the concept of the soft budget constraint. Kornai’s paper examines the political economy of why soft budget constraints appear to be especially prevalent among health care providers, compared to other sectors of the economy.

Two other papers in the issue take up the challenge of empirically identifying the extent of soft budget constraints among hospitals and their impact on safety net services, quality of care, and efficiency, in the United States (Shen and Eggleston) and – even more preliminarily – in China (Eggleston and colleagues, AHPP working paper #8).

The impact of adopting National Health Insurance (NHI) and policies separating prescribing from dispensing are the subject of Kang-Hung Chang’s article entitled “The healer or the druggist: Effects of two health care policies in Taiwan on elderly patients’ choice between physician and pharmacist services” (AHPP working paper #5).

In “Does your health care depend on how your insurer pays providers? Variation in utilization and outcomes in Thailand” (AHPP working paper #4), Sanita Hirunrassamee of Chulalongkorn University and Sauwakon Ratanawijitrasin of Mahidol University study the impact of multiple provider payment methods in Thailand, providing striking evidence consistent with standard predictions of how payment incentives shape provider behavior. For example, patients whose insurers paid on a capitated or case basis (the 30 Baht and social security schemes) were less likely to receive new drugs than those for whom the insurer paid on a fee-for-service basis (civil servants). Patients with lung cancer were less likely to receive an MRI or a CT scan if payment involved supply-side cost sharing, compared to otherwise similar patients under fee-for-service. (This article is open access.)

The fourth paper in this special issue is entitled “Allocation of control rights and cooperation efficiency in public-private partnerships: Theory and evidence from the Chinese pharmaceutical industry” (AHPP working paper #6). Zhe Zhang and her colleagues use a survey of 140 pharmaceutical firms in China to explore the relationships between firms’ control rights within public-private partnerships and the firms’ investments.

Hai Fang, Hong Liu, and John A. Rizzo delve into another question of health service delivery design and accompanying supply-side incentives: requiring primary physician gatekeepers to monitor patient access to specialty care (AHPP working paper #2).

Direct comparisons of payment incentives in two or more countries are rare. In “An economic analysis of payment for health care services: The United States and Switzerland compared,” Peter Zweifel and Ming Tai-Seale compare the nationwide uniform fee schedule for ambulatory medical services in Switzerland with the resource-based relative value scale in the United States.

Several of the papers featured in this special issue were presented at the conference “Provider Payment Incentives in the Asia-Pacific” convened November 7-8, 2008 at the China Center for Economic Research (CCER) at Peking University in Beijing. That conference was sponsored by the Asia Health Policy Program of the Shorenstein Asia-Pacific Research Center at Stanford University and CCER, with organizing team members from Stanford University, Peking University, and Seoul National University.

As Eggleston notes in the guest editorial to the special issue, AHPP and the other scholars associated with the issue “hope that these papers will contribute to more intellectual effort on how provider payment reforms, carefully designed and rigorously evaluated, can improve ‘value for money’ in health care.”

Venture capital (VC) investment provides a unique mechanism for gauging the technological and entrepreneurial sophistication of a national economy. It is no surprise, then, that the two giants of Asia—China and India—have rapidly become important destinations for VC investment. The latest data available from Ernst & Young reveals an astonishing development: China received more VC investment than any nation except the United States. India, though lagging behind China, still received $862 million. To compare, over $30 billion in VC money was invested in the United States in 2007; $823 million was invested in Canada. Clearly, China and India are becoming nodes for the global VC practice. Many of the largest and most prestigious Silicon Valley VC firms have established significant presences in both nations.

China and India differ in many ways, but with respect to the development of VC they share important characteristics. Until late 2008, both nations had rapidly growing consumer economies. The Chinese and Indian governments and populations both agree that education—and particularly engineering—is critical to their future. Both China and India are leaders in sending their graduate students abroad, which has created a pool of well-trained nationals overseas who can advise their peers at home, or even return home themselves to set up new ventures. Many of these Chinese and Indian nationals have worked in U.S. sciences and engineering-based firms. Such professional experience, especially during the last two decades, has laid the basis for successful technology-based entrepreneurship, and the growth in VC that accompanies it.

When VC investing is viewed globally, U.S. dominance is unquestioned. In the United States, 30–35 percent of all VC-financed firms are located in the San Francisco Bay area. Another 10–12 percent are located in the Boston and New York areas, respectively. In India and China, VC investments are similarly concentrated, and generally occur in locations with the greatest concentrations of highly educated persons. As Table 1 indicates, the investment concentration is remarkable. Forty percent of all the VC-funded firms are located in Beijing, 26 percent are in Shanghai, and the Southern Chinese triangle of Shenzhen, Guangzhou, and Hong Kong accounts for another 14 percent. VC investment in China is even more concentrated than in the United States.

Table 1 VC Investments in China and India by City, 2004–2007
(more than 5 investments per city)

Chinese City    Number of Firms    Percent    Indian City    Number of Firms    Percent
Beijing                   213                  40          Bangalore           55                    38
Shanghai               137                  26          Mumbai              31                    21
Shenzhen                36                    7          Chennai             21                     14
Hong Kong              19                    4          New Delhi           16                    11
Guangzhou             16                    3           Hyderabad          11                     8
Hangzhou               13                    2           Pune                   8                      5
Nanjing                  11                    2             n/a       
Suzhou                    9                    2             n/a       
Wuhan                     7                    1             n/a       
Others                   66                   13           Others                4                      3
Unknown                  1                    0          Unknown             0                       0
Total                      528               100            Total                146                  100
Binational                9                    2          Binational             45                    31


VC-backed startups in India, though more diffuse in terms of the top six, are more concentrated overall. Three city regions—Bangalore (38 percent), Mumbai (21 percent), and Chennai (14 percent)—attract the largest investment. However, when including Delhi (11 percent), Hyderabad (8 percent), and Pune (5 percent), these six cities account for an even greater percentage of overall VC investment. The most technology-oriented cities in both nations, Beijing and Bangalore, have received approximately 40 percent of all VC investment. The second largest recipients are Shanghai and Mumbai, which are also the financial capitals.

In China, an enormous economy growing at nearly 10 percent per year even as it emerges from a socialist past, there are significant opportunities in infrastructure development and in supplying the burgeoning underserved consumer market. In a recent Ernst & Young report, Fan Zhang, one of the founding managing partners of Sequoia Capital China, was quoted as saying that “one of the factors that attracted Sequoia Capital to China is the country’s booming consumer market that provides an opportunity to create companies to define certain sectors and fill the need for strong brands, not only in technology but also tech-related consumer services and more traditional industries.”

Zhang is correct—VC investing in China does not directly compete with U.S. firms seeking VC investment. Table 2 shows the fields that VC firms are targeting in China. The table is divided into two binary categories—whether the firm receiving the investment targets the domestic or the global market across a variety of industries, and whether a given firm is in a high technology or non-high technology sector. Chinese firms, even those in technology-based fields, overwhelmingly target the domestic market (87 percent). The Internet has given rise to the largest number of VC startups, nearly all of which are focused on the Sinophone market. Two other key areas—software (10 percent) and mobile phone applications (10 percent)—also cater almost exclusively to the Chinese market. This domestic focus suggests that it will be quite some time before VC-backed Chinese firms threaten counterpart firms in the United States. A possible exception may be semiconductor design, where there are some Chinese startups. Though few Chinese VC-financed firms are likely to be directly competitive with U.S. firms in global markets, many of these Chinese firms compete ferociously against U.S. multinationals trying to make their own inroads into the Chinese domestic market.

Table 2 VC Investments in China and India by Sector and Market, 2004–2007

                                         India                               China
Sector                      Domestic*    Global         Domestic **    Global

Semiconductors               0               7                  22                20
Internet                        16               3                144                  2
Software                         2             14                  55                  4
Communications              1               4                  23                  9
Services                          4             53                  28                  9
Mobile phone                   7              5                   51                  1
Media                             2              0                    35                 0
Healthcare                      1               4                   26                 4
Retail                             1               1                   19                  0
Miscellaneous                  2               0                  20                  2
Components                    0               0                   2                   1
Energy                            0               0                   6                   8
Environment                    0               0                   5                   1
Manufacturing                  0               0                 25                  6
Total                              34             91                461                67

* Domestic firms are identified as those that made no apparent attempt to serve overseas markets.

The profile of Indian firms differs from those in China. First, Indian firms are internationally oriented (73 percent); only 27 percent focus on the domestic market. With respect to sector concentration, VC investing in India favors the services sector (46 percent) and software (13 percent). This is not surprising, given India’s well-known comparative advantage in these arenas. Unlike most VC-backed companies in China, many Indian firms may well create competition for U.S. service firms, despite the less developed nature of the Indian economy as a whole.

China and India continue to attract significant VC investment, albeit in different sectors. Today, China is second only to the United States in terms of VC investing, and this is unlikely to change. In China, the preponderance of VC investment is geared to the rapidly growing internal market. The size and unique nature of this market offers entrepreneurs lucrative opportunities to provide “knock-off” U.S. Internet sites for the Chinese market. There are Chinese interpretations of Yahoo!, Google, eBay, Facebook, and Monster.com that service Chinese customers. These firms are self-limited by the language; as such, they do not threaten companies overseas. Moreover, these Chinese companies do not own unique or global class technology that could challenge larger multinational players. It is unclear whether this situation will change over time.

Indian firms differ from Chinese firms in their strong outward orientation. In percentage terms, more Indian than Chinese firms operate in hard-core technology fields. Thus, while China currently enjoys greater VC investment, it is possible that Indian firms may ultimately play a bigger role in the global economy.