Advice on ETF Investing in Asia

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Chartwell Asia zeros in on an under the radar screen investment theme and then lays out several creative options to capitalize on it.

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Thursday, May 11th, 2006

While America Kowtows, Pope Plays Hardball

Just weeks after formally welcoming the President of China, Hu Jintao to Washington, the United States has denied the democratically elected President of Taiwan, Chen Shui-bian even the thin gruel of staying overnight on American soil.

This lack of hospitality to a U.S. ally is even more stinging since Washington recently gave a warm welcome to the Chinese-backed leader of Taiwan's opposition Nationalist Party, Ma Ying-jeou.

No doubt the Chinese brought heavy pressure to bear on the Bush Administration to prevent Mr. Chen's visit and probably linked it to any chance that it would be more helpful with trouble spots such as North Korea, Iran and Sudan. But instead of standing firm, the U.S. buckled.

This is in spite of a conciliatory recent interview with the Wall Street Journal in which President Chen downplayed calls for independence, denied any plans to interfere with increasing capital flows and business ties between China and Taiwan and strongly supported completing an arms deal with the U.S. currently held up by the legislature so that Taiwan can better defend itself.

There is little doubt that for the leadership of the Chinese Communist Party, Taiwan is a bone in their throat - a constant irritant - and most likely an obsession for some hard-line factions determined to bring Taiwan back into the fold of the motherland.

Even so, any noise that Beijing will take near term action against Taiwan is likely a bluff for three reasons.

First, any military conflict with Taiwan would surely cancel the Beijing's showcase 2008 Olympics. This would be a devastating setback for China's leadership and people

Second, Beijing's approach of working quietly to support more friendly political factions within Taiwan seems to be working. In addition, Taiwanese President Chen Shui-bian's term will end in 2008 and Beijing is betting on a less independent successor.

Third, the economic integration of Taiwan into China is moving ahead at a breathtaking rate. Cross-Straits trade has doubled since 2000 to reach $62 billion in 2004, about 1 million Taiwanese have re-located to work in China, and Taiwanese companies now account for about 65% of hardware output from the mainland.

My view is that while calls for independence have at least temporarily been muted, the desire for a high degree of autonomy from China is still strong. There may be one China but there are three systems - China, Hong Kong and Taiwan. Perhaps the best solution is for China and Taiwan to formally agree to a long period of Taiwanese autonomy to see if China's system evolves into a more open, transparent system with rule of law and democratic institutions.

The U.S. should take an even handed approach and back a long cooling off period that preserves Taiwanese autonomy but leaves the door wide open for peaceful re-unification down the road. President Chen has every right to visit America. We have everything to lose by letting China bully and isolate Taiwan.

Meanwhile, in another China power play, the state-controlled Catholic Church in China installed a second bishop this week over the objection of the Vatican. The Vatican has been working diligently to establish better relations with Chinese authorities in an effort to foster more freedom for China's estimated 12 million Catholics.

Mr. Liu Bainian, secretary general of the government controlled Chinese Catholic Patriotic Association said this Wednesday that China's position on the issue of diplomatic relations between China and the Vatican was clear. "It is only reasonable that the Vatican should sever its ties with Taiwan and not interfere with China's domestic affairs, until a proper diplomatic tie is established between China and the Vatican, we can only continue to choose and consecrate bishops ourselves."

In response through the Vatican spokesman, Pope Benedict noted his grave displeasure at the unauthorized consecration of the two bishops this week and the Vatican statement also noted that Church law prescribed automatic excommunication for bishops and priests who conduct unauthorized consecrations.

That's the way to play it. Makes me proud to be a Catholic.

©2008 ChartwellETF.com
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Carl Delfeld
Investment Advisor

  • ETF Specialist with Union Bank of Switzerland
  • U.S. Representative,
    Asian Development Bank
  • Forbes Asia Columnist
  • Stockbroker in Tokyo, Hong Kong & Sydney
  • U.S. Treasury consultant
  • Graduate of Fletcher School of Law & Diplomacy
  • Fellow at Keio and Sophia University, Tokyo, Japan

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