Archive for September, 2013

Asia tycoons thrive on government handouts

September 30, 2013

Earlier this month, I attended the Forbes Global CEO Conference. Discussion panels that were supposed to inspire great business minds to brainstorm on big questions turned out to be puff interviews. Media were walled off from the executives, as if they were royalty. Few of the CEOs even bothered to take questions from the media – Air Asia CEO Tony Fernandes being one notable exception (and he agreed to investigate my issue with the budget airline) – or make themselves available for interviews; my thanks to Apollo Hospitals managing director Preetha Reddy for sitting down to discuss medical travel.

The conference’s overwhelmingly self-congratulatory tone was perhaps to be expected. However, the outright lies spouted by some bigwigs, for example children of billionaires recounting their struggles to reach the top of the family business, shocked me. You expect public relations people to fib on the behalf of the client, but bosses born on third base telling counterparts how they invented the triple exhibits a vast reservoir self-delusion.

That level of detachment from reality confirms the gulf between conventional wisdom and reality revealed in Asian Godfathers, a groundbreaking book by journalist Joe Studwell that’s even more relevant now than when it debuted in 2007.

(I’m looking forward to reviewing Studwell’s latest book, How Asia Works: Success and Failure in the World’s Most Dynamic Region, released earlier this year.)

Subtitled Money and Power in Hong Kong and Southeast Asia, Asian Godfathers debunks myths and solves key mysteries surrounding Asia’s richest people. For example, most tycoons present rags-to-riches stories, but the book shows that most inherited their money or married the boss’ daughter.

The most devastating revelations are about how these tycoons typically make their money. They like to claim that they’ve done it through bare knuckle capitalism free of government interference but in most cases, these moguls have long gotten preferential government treatment, from colonial concessions for opium plantations to modern crony capitalism’s import licenses and telecom concessions. In many cases, these government handouts provide the keystone of what have grown into sprawling international empires.

Studwell has no time for the lie that Hong Kong and Singapore are the world’s freest economies. He also demonstrates how tycoons abuse capital markets, leading to the weak performance of Asian shares compared with the region’s economic growth.

Government favoritism toward tycoons undermines another pillar of Asian commercial mythology: ethnic Chinese superior business skills. Studwell notes that ethnic Chinese in Southeast Asia benefited disproportionately from government largesse going back to colonial times because they posed no threat to the indigenous political elite. That’s a well known story.

But Studwell also challenges the Asian Values myth championed by Singapore’s founding father Lee Kuan Yew. Lee contends that Confucian values underpin the accomplishments of Chinese tycoons’ in Asia, but Studwell shows their success is due to an ability to assimilate and adapt to whatever regime happens to be in power, just as Lee did for decades under British rule when he called himself Harry. In fact, Studwell portrays Lee as the ultimate chameleon who’s stood for nothing consistently throughout the years except his own perceived self-interested.

Above all, Studwell shows that, aside from their ability to blow with the wind and game the system, there’s little special or brilliant about Southeast Asia’s tycoons. They haven’t created any globally competitive brands or produced a single technological breakthrough. Rather than driving Southeast Asia’s growth, they’ve ridden the wave on the backs on tens of millions of poor people. And they could hardly be more proud of it.

Totally globalized native New Yorker and former broadcast news producer Muhammad Cohen is author of Hong Kong On Air, a novel set in his adopted hometown during the 1997 handover about television news, love, betrayal, high finance, and cheap lingerie. See his bio, online archive and more at www.muhammadcohen.com; follow him on Facebook and Twitter @MuhammadCohen.

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How not to handle a hostage situation

September 23, 2013

As I watched Kenya’s President Uhuru Kenyatta give a televised news conference about the horrific attack on a shopping mall in Nairobi, I thought the hostages had been freed and the attackers, reportedly part of Somalia’s al Shabaab group, captured. I allowed myself a sigh of relief. As someone who once worked at the US Embassy in neighboring Tanzania that was destroyed by al Qaeda in 1998, I know that terrorism in East Africa is real and not to be underestimated.

But as Kenyatta continued, I realized that he was holding a media briefing while armed attackers were still holding hostages and the Westgate Shopping Mall. Worse, Kenyatta was giving the hostage takers information about people hiding undetected in the mall and security forces strategy. Most troubling, Kenyatta used his bully pulpit to threaten retaliation against the masterminds behind the attack. That’s not likely to hasten peaceful resolution of the situation.

I can’t imagine how Kenyatta thought taking center stage would help get the hostages free, unless it was clever camouflage for a raid (which it wasn’t). I also am stunned that he couldn’t think of anything more useful to do in the midst of a crisis. But then I remembered that Kenyatta and his deputy president William Ruto, face charges from the International Criminal Court for coordinating violence by their supporters after Kenya’s 2007 election. Kenyatta was following form by making the wrong call in a crisis.

His performance brought to mind another presidential offspring who followed in his father’s footsteps, George W Bush. In the wake of 9/11, which like the Westgate attack reflected an extraordinarily failure of his administration’s national security team, Bush first looked like a deer in the headlights, then mouthed off – “You’re either with us or against us” – then used the tragedy to push forward an unrelated, ill-considered and criminally mismanaged war in Iraq.

With accusations of crimes against humanity already under his belt, Kenyatta seems well ahead of Bush’s pace. Beware of what he’ll do once the crisis really is over.

Totally globalized native New Yorker and former broadcast news producer Muhammad Cohen is author of Hong Kong On Air, a novel set in his adopted hometown during the 1997 handover about television news, love, betrayal, high finance, and cheap lingerie. See his bio, online archive and more at www.muhammadcohen.com; follow him on Facebook and Twitter @MuhammadCohen.

New questions about US in Vietnam, Philippines

September 11, 2013

Vietnam and the Philippines want to move into the top tier of Asian casino destinations. Each country recently opened five-start casino resorts meant to anchor new casino districts, Solaire Resort and Casino in Manila and The Grand-Ho Tram Strip in southern Vietnam. My Asia Times article outlines some key similarities and differences between the two developments and their environs.

One of the oddities in the story is MGM Resorts International’s unkept promise to manage the initial resort in southern Vietnam’s Ho Tram Strip under the name MGM Grand Ho Tram, while US casino operators have steered clear of the Philippines.

The surprise isn’t that MGM withdrew from Vietnam, but that it ever considered it doing business there. As a Las Vegas operator, MGM is legally obligated to follow Nevada state regulations wherever it does business. The company ran into the extraterritorial reach of US regulators when New Jersey ordered it to divest in its holdings in Macau or in Atlantic City’s market-leading Borgata Hotel, Casino and Spa due to its partnership with Pansy Ho. Ho’s father, Macau’s venerable casino kingpin Stanley Ho, has been long been suspected of underworld ties, though he’s never been charged with a crime.

MGM has tried unsuccessfully to sell its half of Borgata for the past three years, and early this year, applied to New Jersey regulators to keep it. The company argued that its 2011 MGM China public listing reduced Ho to a minority partner, though she still holds the co-charperson title and is seen by some as the tail that wags the dog there.

When MGM agreed to manage Ho Tram’s first resort in 2008, there was no reason to believe that Vietnam’s gaming regulations would meet US standards. Vietnam didn’t even have a gaming law back then, and it still doesn’t have comprehensive regulations. Rules that exist are created behind closed doors and handed down by decree.

Those circumstances didn’t deter Pinnacle Entertainment, a second tier US casino company which bought into the Ho Tram project in 2010 and agreed to operate Ho Tram’s second resort. Whether Pinnacle or others build addition Ho Tram resorts will hinge on the success of The Grand. Pinnacle has since hedged its bets, writing down its entire $117 million investment in Ho Tram.

Pinnacle wasn’t alone in its enthusiasm for Vietnam, a country of nearly 100 million that has a land border with China and history of hostility with the Middle Kingdom. Las Vegas Sands, owners of the Venetian in Las Vegas and Macau, expressed serious interest in building its own billion dollar resort in Vietnam, if the country would let it citizens gamble, a step that Vietnam remains unlikely to take.

By contrast, no US gaming operator has shown any interest in the Philippines, though it has a population size similar to Vietnam, higher GDP per capita (in purchasing power terms), and a proven gaming sector for local and foreign players. The main reason cited for the US cold shoulder is that Philippine gaming regulator Pagcor also operates casinos and that dual role troubles US authorities. From the perspective of a layperson, not a lawyer, that seems to be an excuse, rather than a reason.

There’s no denying that the Philippines in general, and Pagcor in particular, have a history of corruption. Casino magnate Steve Wynn used former Wynn Resorts vice chairman Kazuo Okada’s investment in a Philippines casino as a pretext to buy out Okada at a significant discount, sparking a battle of the billionaires playing out in law enforcement agencies and courtrooms on both sides of the Pacific. Among other things, Wynn claims associates of Okada, chairman of Japanese pachinko giant Universal Entertainment, gave $40 million to a consultant close to Pagcor’s former chairman, who already faces unrelated graft charges.

As bad as that sounds, at least the Philippines has a semblance of regulation and rule of law, qualities that have been significantly strengthened under reformist President Benigno Aquino. For a Macau Business special report on Philippine gaming (see pages 48-54), I spent hours talking with Pagcor and other government officials as well as business people, and I was convinced Pagcor has the will to regulate gaming to regional standards, in other words, as strictly as Macau, which has proven good enough for US authorities other than New Jersey.

Between the bribery allegations and land issue, there’s a growing chance that Okada could lose his Phippine casino license or choose to sell out under that threat. Pagcor says it wants four resorts in Entertainment City, as currently planned, so an Okada withdrawal would open the door for an American operator to move in and give Manila’s world class ambitions a big boost. The Philippines doesn’t need a US casino operator to become an international gaming destination, but it would lend credibility, just as MGM did for Vietnam during its brief engagement there.

At this stage of the global gaming business development, having a casino destination without an American brand is like having a soda fountain without Coke or Pepsi. However, as Asia continues to overshadow Las Vegas as the hub of the global gaming business – last year gaming revenue in Macau alone topped the entire US commercial casino industry – it behooves American casino brands to get in the game where the money is, to ensure they remain the industry’s Coke and Pepsi rather than become the next Kodak and Chrysler.

They may also want to listen to Solaire’s chief executive officer and controlling shareholder Enrique “Ricky” Razon Jr, the Philippine billionaire who runs global ports operator International Container Terminal Services. A welcome gale of fresh air at last week’s Forbes 2013 Global CEO Conference, Razon noted, “Everybody talks about China and India. I make more money in Madagascar than in China and India combined. Nobody wants to be there, so we want to be there.”

Totally globalized native New Yorker and former broadcast news producer Muhammad Cohen is author of Hong Kong On Air, a novel set in his adopted hometown during the 1997 handover about television news, love, betrayal, high finance, and cheap lingerie. See his bio, online archive and more at www.muhammadcohen.com; follow him on Facebook and Twitter @MuhammadCohen.

First grade Rosh Hashanah quiz

September 7, 2013

In our daughter’s multicultural upbringing, I’m in charge of explaining the Jewish side of her heritage. So as Rosh Hashanah, Jewish new year, approached, I explained how this time of year is when God decides what blessings people will get for the year ahead.

She listened carefully and then asked, “What blessings have we gotten from God?”

As often happens when trying to educate a six year old, it turns out to be a lesson for you.

To all, health, happiness and success in 5774. L’shana tovah.

Totally globalized native New Yorker and former broadcast news producer Muhammad Cohen is author of Hong Kong On Air, a novel set in his adopted hometown during the 1997 handover about television news, love, betrayal, high finance, and cheap lingerie. See his bio, online archive and more at www.muhammadcohen.com; follow him on Facebook and Twitter @MuhammadCohen.


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