Poison milk is good for business

LONDON, April 18 – Nestle, the world’s biggest food group, is closing in on a deal to buy Pfizer’s infant nutrition business for up to US$10 billion (RM30.67 billion) to boost its business in China and extend its lead in the world of formula milk for babies, sources familiar with the matter said today.

The Swiss group had already been seen as favourite for the business, and is now set to seal a deal later this month after outbidding a joint team of Danone and Mead Johnson in a largely two-horse race.

“Nestle is in the lead position and is closing in on a deal which we expect soon,” said one source.

Another source said the business would fetch US$9-US$10 billion and expected a deal by the end of the April.

If Danone loses out, analysts say the French group will face a problem of how to expand, with its Chief Executive Franck Riboud saying it did not have the firepower to mount big deals which would seem to rule out an eventual move for Mead Johnson.

The Pfizer unit is a high-growth US$2.1 billion turnover business with over 70 per cent of sales in emerging markets and a key position in China, and has attracted the attention of the three largest players in the infant milk formula sector.

Pfizer put the business up for sale last July following its US$68 billion purchase of Wyeth in 2009, while it is also looking to offload its animal health business and says this is more likely to be spun off than sold outright.

A spokesman for Vevey-based Nestle, which holds its annual general meeting in Lausanne tomorrow and releases first-quarter sales figures on Friday, said “we never comment on market rumours”.

Analysts said if the deal is concluded it would be positive for Nestle and also may help Danone’s shares as there has been concern that the French group might pay a huge price for the business and massively leverage up its balance sheet.

“Overall, this deal makes huge strategic sense for Nestle. It is in the right categories and the right markets and with a reasonable price we would expect a fairly positive response from investors,” said analyst Andrew Wood at Bernstein.

Nestle shares were off 0.3 per cent at 56.60 Swiss francs and Danone up 1 per cent at €53.61 by 1030 GMT.

WORLD NUMBER 5

The Pfizer business with its SMA Gold brand ranks as world number five in the infant milk formula market – the world’s fastest growing packaged food category – after Nestle, Mead Johnson, Danone and Abbott Laboratories.

It is currently growing sales at 8 per cent a year and has some 60 per cent of its revenue in Asia, 30 per cent in Europe, largely in Britain, and some 10 per cent in Latin America.

Over a quarter of its sales are in China, where the US$6 billion market is expected to double by 2016 having grown at more than 20 per cent over the last five years to feed 16 million new births a year. A Pfizer deal would push Nestle to No 3 in the Chinese market behind Mead Johnson and Danone from its current relatively small presence.

Nestle, whose main baby milk brand is NAN, is likely to have to sell 25 per cent of the Pfizer unit’s sale by disposing of interests in Latin America, south east Asia, Australia and South Africa, which analysts say could be bought by Danone or Heinz , although Bernstein’s Wood says the sell-off figure could be as high as 35 per cent of annual sales.

Danone has always declined any comment, but Riboud said in February he was interested in acquisitions but did not have the firepower for deals on the scale of its €12.3 billion (RM49.68 billion) acquisition of baby food group Numico in 2007.

Mead Johnson share closed yesterday at US$83.61 giving it a market capitalisation of around US$17 billion, making it a potentially more expensive acquisition than Numico.

If Nestle pays US$10 billion for the Pfizer business it would be on a similar 22 times multiple of core EBITDA profit that Danone paid for Numico and ahead of the 15.7 times Nestle paid for babyfood group Gerber in a US$5.5 billion deal in 2007.

Yesterday, the Wall Street Journal reported that Pfizer is near to selling the business to Nestle for at least US$9 billion in a deal that could be announced as soon as next week.

The auction is being run out of New York with Morgan Stanley and Centerview Partners advising Pfizer.

The Women Of 

Bloomberg TV

Bloomberg

You may remember that we've introduced you to all the women of Bloomberg before. But since then, the network has brought in some new faces and said goodbye to some more familiar ones.
No worries though, it's still a collection of smart, talented journalists committed to giving you hard news on markets, Wall Street, politics and more.
You'll probably recognize most of these ladies, but some of them will be new to you because they cover markets in Hong Kong or Dubai. To catch them, you'd have to wake up extra early.
But maybe it's worth it...

Cristina Alesci

What she does: Alesci covers private equity and deal making for Bloomberg TV and Bloomberg News. She also writes Bloomberg Businessweek and Bloomberg Markets Magazine. Background: Before Bloomberg Alesci worked at law firm Sidley Austin and Pfizer. She has a masters degree in journalism from NYU and completed her undergraduate education at Pace University.

Haslinda Amin

What she does: Singapore-based news correspondent and anchor. Background: Amin also covers news throughout the day from Southeast Asia and the Indian subcontinent and reports from international events such as the World Economic Forum and Association of Southeast Asian Nations meetings.

Willow Bay

What she does: L.A. based correspondent for Bloomberg TV. Background: Bay is a seasoned television personality — having worked everywhere from Lifetime to ABC and CNN — as well as a published author. She graduated cum laude from the University of Pennsylvania with a B.A. in literature and received a master's degree from New York University's Stern School of Business.

Deirdre Bolton

Bloomberg TV

What she does: New York-based anchor, host of "MoneyMoves", a show about alternative assets that airs at 1:00 pm on weekdays. Background: Since joining Bloomberg in 1999, Bolton has reported from the New York Stock Exchange and the NASDAQ. Prior to Bloomberg, she started her career in banking, selling European equities to U.S. portfolio managers. She worked for La Caisse de Depots (CDC North America) and Societe Generale, both in France and in the U.S. Before landing her own show with MoneyMoves, Bolton co-hosted Insider Track with Erik Schatzker.

Margaret Brennan

Bloomberg

What she does: New York-based anchor. Hosts "In Business with Margaret Brennan". Background: Brennan joined Bloomberg in 2009 from CNBC. In January 2010, she hosted BTV's first live broadcast from Riyadh, Saudi Arabia.  She also reported live from the World Economic Forum in Davos, Switzerland 2010.
Brennan graduated from the University of Virginia with a bachelor’s degree in foreign affairs and Middle East studies and a minor in Arabic language. She was a Fulbright-Hays Scholar and studied Arabic at Yarmouk University in Jordan. She speaks fluent Arabic.

Cali Carlin

Bloomberg

What she does: New York-based reporter. Background: Carlin joined Bloomberg in 2010 from CBS Interactive, where she was an anchor, reporter and producer. Prior to CBS, Carlin was an anchor and correspondent for Channel One News, the in-school news broadcast.
She is a graduate of Brigham Young University.

Emily Chang

What she does: San Fracisco based host of tech show "Bloomberg West"
Background: Chang joined Bloomberg in 2010 after starting out as a local reporter in San Diego and then moved to Beijing to report for CNN. She graduated magna cum laude from Harvard University.

Margaret Conley

Bloomberg

What she does: Bloomberg TV reporter based in Shanghai China Background: Before joining Bloomberg TV, Conley was a reporter for ABC based in Tokyo. She has a B.A. from Columbia University and a master's degree from the Journalism Media Studies Centre at the University of Hong Kong.

Catherine Cowdery

Bloomberg

What she does: Bloomberg Radio reporter. Background: Cowdery has been with Bloomberg since 1990. Before that, she worked for a radio station in Massachusetts. She has a B.A. from Barnard College and a master's degree from the Columbia University School of Journalism.
Cowdery is also known for voicing the "transfer" and "station stop" announcements for many New York City subway lines.

Courtney Donohoe

What she does: Donohoe co-hosts 'Taking Stock', a program which airs on Bloomberg TV and Radio. Background: Donohoe started her career as a product manager and developer at Bloomberg and has reported from the NYSE to stations in Chicago, New York, and Los Angeles. She holds B.S. from Boston College.

Sheila Dharmarajan

Bloomberg

What she does: New York-based markets reporter. Background: Prior to joining Bloomberg TV, Dharmarajan worked on Wall Street. She received her bachelor’s degree from the Wharton School at the University of Pennsylvania and a MBA from Stanford University.

Sara Eisen

Bloomberg

What she does: New York-based markets reporter. Background: Eisen covers the foreign exchange market (dollar, yen, euro and pound). Eisen joined Bloomberg Television in 2008, and has worked in both New York and Hong Kong, reporting headline news on global markets. Prior, Eisen was a reporter for ForexTv.com.
She holds a master’s degree in broadcast journalism with a concentration in business reporting from the Medill School of Journalism at Northwestern University.

Scarlet Fu

Bloomberg

What she does: New York-based chief markets correspondent.
Background: Scarlet Fu is a Bloomberg veteran with 14 years' experience as a financial journalist in the U.S. and Asia. Prior to joining Bloomberg Television, she served as a stocks editor for Bloomberg News and also oversaw Bloomberg News coverage of Asian equities. Fu began her career at CNBC Asia.

Julianna Goldman

Bloomberg

What she does: Bloomberg Television's White House Correspondent. Also serves as a weekly panelist on "Political Capital with Al Hunt". Background: Goldman joined Bloomberg in 2003.
Check out a fun interview with her . Sample: "When did you last cry and why? Watching Crazy Heart - when Jeff Bridges performs for the first time with Colin Farrell."

Christine Harper

Bloomberg

What she does: Chief financial correspondent and lead reporter covering Goldman Sachs. Background: Harper is a seasoned journalist having worked at The Sun Herald in Biloxi, Missippi, The Philadelphia Enquirer, and Dow Jones. She holds a masters degree in Journalism from Northwestern University.

Kathleen Hays

Bloomberg

What she does: Hays hosts a radio show called 'The Hays Advantage' Background: Hays is a veteran reporter who has covered the Fed (for 20 years) and markets for CNN, CNNfn, Reuters, and CNBC. She holds both a BA and a masters in economics from Stanford University.

Megan Hughes

Bloomberg

What she does: Washington D.C. based correspondent covering all aspects of government. Background: This isn't Hughes' first time covering government. She was a political correspondent for CNN Newsource, Hearst, and Cox Media Group. She holds both a B.A. and masters in journalism from Northwestern University.

Julie Hyman

Bloomberg

What she does: Senior markets correspondent for Bloomberg Television. Background: Hyman previously worked as morning markets editor, tracking breaking news and stock trends. She has reported from the New York Stock Exchange, the NASDAQ MarketSite and the Chicago Board of Trade. Prior, Hyman worked in Bloomberg's Paris office as a print journalist covering European stock markets, and for the Washington Times newspaper covering local and national business stories.
She grew up outside Baltimore, Md., and graduated from Randolph-Macon College in Virginia.

Linzie Janis

Bloomberg

What she does: London-based Bloomberg Television anchor. She also hosts 'First Look', a show that covers everything that happened in Asia while you were sleeping. Background: Janis Previously served as a Bloomberg News European markets reporter. Before joining Bloomberg in 2008, she was a reporter and producer at CNN International in London.

Gigi Stone

What she does: New York-based reporter. Background: Prior to joining Bloomberg in 2009, Stone reported on business, finance, and consumer affairs for ABC News. She began her career at NY1 News as a general assignment reporter and anchor covering politics and business.  While at NY1, she covered the 9/11 World Trade Center attacks live from the scene.
Stone grew up in Manhattan, where she learned to speak French, Portuguese and Spanish. She received a Master's degree from Columbia University's Graduate School of Journalism,

Francine Lacqua

Bloomberg

What she does: Senior correspondent and anchor for Bloomberg Television in London. Background: Covered major international events for Bloomberg Television including the World Economic Forum in Davos, IMF in Washington, G20 meetings and OPEC.
She was nominated for the Association of International Broadcasters "Personality of the Year Award" in 2009.

Angie Lau

Bloomberg

What she does: Lau is a Hong Kong based reporter covering Asian markets. Background: Lau is an award winning journalist having received accolades from Ohio Society of Professional Journalists for Best Government Reporting, Best Consumer Reporting, and Best Investigative Report. She won the Ohio Excellence in Journalism Award for In-Depth and Investigative Reporting while at WEWS-TV in Cleavland, Ohio. She has also worked for CTV in Toronto and covered the Chicago Board of Trade in Chicago. She has a degree in journalism from Ryerson University in Toronto, Canada.

Susan Li

Bloomberg

What she does: Hong Kong-based anchor for Bloomberg Television. Background: Prior to joining Bloomberg, Susan was an anchor in China for CCTV International's "BizChina" and prime time news shows. She has also worked on "The National", the Canadian Broadcasting Corporation's nationwide show.

Betty Liu

Bloomberg

What she does: New York-based anchor of "In the Loop" with Betty Liu. Background: Before joining Bloomberg, Liu was an anchor for CNBC Asia in Hong Kong. Prior to that, she was Atlanta Bureau Chief for the FT and Taiwan Bureau Chief for Dow Jones (the youngest ever for Dow Jones Asia).
She published the financial and lifestyle guide, "Age Smart: Discovering the Fountain of Youth at Midlife and Beyond".
Liu was born in Hong Kong and graduated from the University of Pennsylvania with an English degree.

Carol Massar

Bloomberg

What she does: National correspondent for Bloomberg TV Background: Massar joined Bloomberg Television in 1999. Prior to Bloomberg,  Massar served as producer, reporter and anchor for Dow Jones Television. She also appeared on CNBC, the Financial News Network, and Nightly Business Report on PBS.

In 2006, Massar anchored The Ethanol Fix – Breaking America's Addiction to Oil, which won the National Gracie Award from the American Women in Radio and Television.

Massar earned a degree in economics from Barnard College.

Robyn Meredith

Bloomberg

What she does: Meredith is a Hong Kong correspondent covering Asia's markets. Background: Meredith is a NYT best selling author for her 2007 book "The Elephant and the Dragon: The Rise of India and China and What It Means for All of Us." Before that she worked as editor of Forbes, Asia and covered Detroit for the New York Times among other positions. She graduated suma cum laude from Boston University.

Karen Moskow

Bloomberg

What she does: Co-host on various Bloomberg Radio shows, like 'The Hays Advantage.' Background: Moskow joined Bloomberg in 2006. Before that she worked for Dow Jones/WSJ and various radio stations in the New England region. She has received an Associated Press award for special coverage following the 9/11 attacks for WBIX Boston. She holds a Bachelor of Arts in communications from the University of Massachusetts Amherst.

Maryam Nemazee

Bloomberg

What she does: London-based anchor for Bloomberg Television. Background: Nemazee joined Bloomberg Television in 2010 from Al Jazeera English. Prior to that, she was an anchor and reporter in Moscow for Russia Today.

Vonnie Quinn

Bloomberg

What she does: Co-host of 'The Hays Advantage' on Bloomberg Radio. Background: Quinn turned down Oxford to pursue journalism ('nuff said, right?). Instead she pursued an masters in journalism at Columbia University where she received the she was awarded the ABC Frank Reynolds fellowship and a New York Financial Writers' Association scholarship for her analytical features on The Coca-Cola Company and The Gap, Inc.

Trish Regan

Courtesy of Bloomberg TV

What she does: Host of 'Street Smart' on Bloomberg TV. Backround: Regan, an Emmy nominated journalist, was at CNBC before she went to Bloomberg. There she covered everything from the marijuana industry to Brazil's economy. Before that, she was a correspondent for the 'CBS Evening News'. She is a graduate of Columbia University.

Stephanie Ruhle

Bloomberg

What she does: Ruhle is a co-host on 'Inside Track' on Bloomberg TV. Background: Ruhle was a Wall Streeter before she was a journalist. She worked with hedge fund clients at Deutsche Bank as a Managing Director, but began her career at Credit Suisse. She holds a bachelor's degree in International Business from Lehigh University.

Mia Sainai

Bloomberg

What she does: Sainai is a Hong Kong based correspondent for Bloomberg TV. Background: Sainai joined Bloomberg from Forbes in 2011. She has an MBA from the Harvard Business School. She received her undergraduate degree in neuroscience and media studies from Massachusetts Institute of Technology (MIT), and a double minor in civil engineering and management science from MIT Sloan School of Management.

Lara Setrakian

Bloomberg

What she does: Dubai based reporter for Bloomberg TV
Background: Before joining Bloomberg, Setrakian worked in Dubai and New York for ABC News. Before that she was a consultant at McKinsey & Co. She graduated magna cum laude from Harvard.

Olivia Sterns

Bloomberg

What she does: London based general assignment reporter for Bloomberg.
Background: Sterns joined Bloomberg in 2010 after serving as an anchor at WNYC-TV in New York.

Poppy Trowbridge

What she does: London-based finance and investing reporter. Background: Prior to joining Bloomberg TV, Trowbridge was Bloomberg News’ European Mergers and Acquisitions Reporter and a banking correspondent. She also worked as a business analyst with the consulting group Control Risks.

Jane Williams

Bloomberg

What she does: Jane Stoddard Williams is the host/producer of education show Bloomberg EDU Background: Williams is an industry vet (former producer of the PBS Series, "Inside Story") and children's advocate. She holds a BA from Duke University where she graduated suma cum laude.

Linda Yueh

What she does: London based economics editor for Bloomberg News Background: Yueh has a PhD in economics from Oxford and is fellow there as well. Previously, she worked at law firm Paul, Weiss, Rifkind, Wharton & Garrison and served as a special advisor to the World Economic Forum (WEF) in Davos, Switzerland. She is a public speaker and published author.

Caroline Hyde

Bloomberg

What she does: London based correspondent for Bloomberg TV Background: Hyde joined Bloomberg in 2008 after working as a public relations for London's Moorgate Group, where she was a debt market specialist. She is a graduate of Oxford University.

Cheque that bought Superman rights sold for super price

The original cheque for the Superman comic took all rights for the character from its creators

The original cheque used to buy the Superman comic character from its original creators has been sold in an online auction for $160,000 (£101,000).
Jerome Siegel and Joe Shuster from Cleveland were paid $130 (£82) for all the rights to Superman by Detective Comics, later known as DC Comics.
The pair later tried to win back the rights to Superman in court, as it became part of a global industry.

The ComicConnect website has not revealed who won the auction.
"The concept of the superhero was born with Superman," Vincent Zurzolo, the co-founder of ComicConnect, told Reuters. 

"That $130 cheque essentially created a billion-dollar industry," he added, with other characters such as Batman, Spider-Man and X-Men following in the footsteps of the Man of Steel.

ComicConnect told Reuters that when the first Superman movie came out in 1978, Mr Shuster was so poor he was working for a delivery company.
It was a box-office success followed by four more Superman films and a Supergirl version. Another is due for release in June 2013.

There has been a series of rights dispute over Superman

Although $130 is around $2,300 (£1,450) in today's money, it is a tiny fraction of what the character has earned since then.

The heirs of the creators Jerome Siegel and Joe Shuster are still involved in court battles with DC Comics as they try to reclaim their rights to the character.

The original cheque also paid the pair for earnings from other characters they were also working on for the company.

ComicConnect says the cheque was used in a court case in the 1970s, the last time Siegel and Shuster themselves tried to get the rights to Superman.
After their victory a DC Comics employee was told to throw away the court papers, but he held on to the cheque, recognising its significance.

挪威電視的粵語廣告

沒有看電視，卻忽然聽到傳來一陣熟悉的廣東話，哈，快步跑到電視前一睹，原來又是挪威的廣告，縱然是說粵語，但就是跟香港的不一樣，冷冷 的，著墨不多，要看者自己領會。
喔，原來是用了Butinox這個品牌的油漆，十二年才要再去打理。
這系列的廣告還有不同版本，有空自己看。我覺得忍者和吸血鬼的較有趣，不過對挪威本土人來說同是異國情 調。

People Liberation Army Is Now More Corrupted Than Kuo Min Tang Army

Rotting From Within - Investigating the massive corruption of the Chinese military.

In many fields of international competition, China is less sanguine about its abilities than outsiders. Chinese leaders often remind Westerners that China is a developing country, with hundreds of millions of people living in poverty, an unbalanced economy, and high social tensions. What should most worry Beijing, and provide some comfort to those who fear Chinese military expansionism, is the state of corruption in the People's Liberation Army (PLA).

True, the world underestimated how quickly a four-fold jump in Chinese military spending in the past decade would deliver an array of new weaponry to prevent the United States from interfering in a regional military conflict. Top American generals have worried publicly about "carrier-killer" ballistic missiles designed to destroy U.S. battle groups as far afield as the Philippines, Japan, and beyond. Last year, China tested a prototype stealth fighter and launched its maiden aircraft carrier, to augment new destroyers and nuclear submarines. What is unknown, however, is whether the Chinese military, an intensely secretive organisation only nominally accountable to civilian leaders, can develop the human software to effectively operate and integrate its new hardware.

Judging from a recent series of scathing speeches by one of the PLA's top generals, details of which were obtained by Foreign Policy, it can't: The institution is riddled with corruption and professional decay, compromised by ties of patronage, and asphyxiated by the ever-greater effort required to impose political control. The speeches, one in late December and the other in mid-February, were given by Gen. Liu Yuan, the son of a former president of China and one of the PLA's rising stars; the speeches and Liu's actions suggest that the PLA might be the site of the next major struggle for control of the Communist Party, of the type that recently brought down former Chongqing party boss Bo Xilai. Liu is the political commissar and the most powerful official of the PLA's General Logistics Department, which handles enormous contracts in land, housing, food, finance, and services for China's 2.3 million-strong military.

"No country can defeat China," Liu told about 600 officers in his department in unscripted comments to an enlarged party meeting on the afternoon of Dec. 29, according to sources who have verified notes of his speech. "Only our own corruption can destroy us and cause our armed forces to be defeated without fighting." This searing indictment of the state of China's armed forces, coming from an acting full three-star general inside the PLA, has no known modern precedent.

There is no way to independently verify Liu's withering assessment of the extent of corruption in the PLA, but he is well-positioned to make it. His professional experience includes a decade in the government of the central Chinese province of Henan and a decade in the paramilitary, taking him beyond narrow lines of command and patronage. His logistics department is integrated with all other arms of the Chinese military and his status as the descendant of a high-ranking leader, or princeling, enables privileged informal networks across military ranks and the civilian side of the party-state. Some Chinese and diplomatic PLA watchers believe Liu, the highest born of all the princelings now climbing into power, is on his way to the very top of China's military as a vice chairman of the Central Military Commission (CMC) after the current leadership retires following this year's 18th Party Congress, the first large-scale transfer of power in a decade. It helps that he is a close friend of the princeling president-in-waiting, Xi Jinping.

While Chinese leaders regard the United States as a likely future adversary, Liu is more worried about what the PLA, which hasn't seen significant combat since a militarily disastrous invasion of Vietnam in 1979, is doing to itself in times of peace. In his February speech, he described the army beset by a disease of "malignant individualism" where officers follow only orders that suit them, advance on the strength of their connections, and openly sell their services at "clearly marked prices."

The practice of buying promotions inside the military is now so widespread, Liu noted, that even outgoing President Hu Jintao, who also leads the military from his position atop the CMC, had vented his frustration. "When Chairman Hu severely criticised ‘buying and selling official posts,' can we sit idle?"

Liu's revelations are not necessarily good news for China's would-be foes. Foreign government strategists are starting to worry that corruption and byzantine internal politics may amplify the known difficulties in communicating with the PLA and adroitly managing crisis situations. Despite the risks inherent in China's growing arsenal, expanding ambitions and spasmodically aggressive rhetoric and actions, military cooperation between the United States and China is almost nonexistent. Diplomats say American officials are given less access to PLA officers than colleagues from other Western embassies, who themselves are kept largely in the dark. Senior Western government officials have told me that U.S. military leaders have less knowledge of command systems, and far fewer avenues of communication, than they had with their Soviet counterparts during the Cold War. Michael Swaine, a China security expert at the Carnegie Endowment for International Peace, writes that the "fragmented and stove-piped structure" of the Chinese system means it has great trouble communicating even with itself, especially in crisis situations. He, like most other analysts, does not study corruption in the PLA because of the difficulty in measuring it.

In some ways, though, it's hiding in plain sight. Outsiders can glimpse the enormous flow of military bribes and favours in luxury cars with military license plates on Changan Avenue, Beijing's main east-west thoroughfare, and parked around upmarket night clubs near the Workers' Stadium. Business people gravitate toward PLA officers because of the access and protection they bring. PLA veterans told me they are organising "rights protection" movements to protest their inadequate pensions, which they contrast with the luxury lifestyles they observe among serving officers. Retired officers have told me that promotions have become so valuable that it has become routine to pay the equivalent of hundreds of thousands of dollars in bribes to even be considered for many senior positions.

The February address, the second and most detailed of Liu's corruption speeches, suggests the problems run much deeper than anecdotal evidence suggests. "Certain individuals exchange public money, public goods, public office and public affairs for personal gain, flouting the law and party codes of conduct, even resorting to verbal abuse and threats, clandestine plots and set ups," he said. "They physically attack loyal and upstanding officials, kidnap and blackmail party leaders, and drag in their superiors to act as human shields. They deploy all of the tricks of the mafia trade within the army itself." The way Liu describes it, the web of military cliques, factions, and internal knots of organized crime sounds more like the workings of warlord armies before the communist revolution than the rapidly modernizing force that is currently rattling China's neighbors.

Chairman Mao spoke of "curing the disease to save the patient" in the times of discipline and austerity before the revolution. Perhaps because Liu was talking about the PLA -- where putrefaction appears more advanced than elsewhere in China's sclerotic bureaucracy -- he took the metaphor beyond its usual graphic limits. In his February speech, Liu recalled a childhood tale about a surgeon in Siberia who saved himself from acute appendicitis by using a mirror to guide a knife into his lower abdomen.

"How many people on this earth are really able to operate on themselves?" he said, according to sources who verified the speech. "No matter if it is an individual or an organisation, to fix a problem when it arises requires this type of guts and nerve."

Liu's legendary pedigree gives him license to do and say things that others cannot. He is the sole surviving son of former President Liu Shaoqi, who had been Mao's anointed successor for 20 years until Mao turned on him at the start of the Cultural Revolution. Arrested and publically beaten, the elder Liu died in 1969 in a cold concrete prison cell -- naked, emaciated, and caked in vomit and diarrhea. One of his brothers died when his head was forced onto a railway track; the other lost his sanity in jail and died shortly after his release. In 1979, Liu's mother was released after a decade in jail; his father was posthumously rehabilitated the next year in the lead up to a great show trial for the family's old assailants, including Mao's wife Jiang Qing. Liu Yuan and his friend Xi Jinping, who also suffered during the Cultural Revolution, resolved to be grassroots officials in the countryside and began ascending through government ranks.

When he talks of a "life-and-death" struggle to save the PLA and the Communist Party system his father helped create, few would doubt that Liu means it. What is less clear, however, is whether the PLA can simply remove its own rotten parts as if they were an infected appendix, and whether the divided and compromised civilian and military leadership, reeling over Bo Xilai's downfall, can provide so much as a scalpel to enable Liu do the surgical work.

Liu's Dec. 29 "life-and-death" speech heralded what could become the biggest expose of PLA corruption since former president Jiang Zemin opened an investigation into the Yuanhua Group in 1999. In that scandal, widely covered in official media, Yuanhua used military connections to evade a staggering $6.3 billion in taxes by smuggling everything from cigarettes and luxury cars to fully laden oil tankers. The case brought down hundreds of provincial and military officials, including the head of a major PLA intelligence division. It also enabled Jiang to consolidate his grip on the military.

The outside world caught another limited glimpse of military corruption in December 2005, when the deputy commander of the navy, Adm. Wang Shouye, was detained for unspecified "economic crimes." Official reports said he was brought down by a mistress, while Hong Kong's Asia Weekly said he kept five mistresses and stole almost 20 million dollars. At the time, the PLA Daily, the military's official newspaper of the PLA, said the PLA's two historic tasks were fighting wars and eradicating corruption, but no one took visible action on corruption for a further six years. The subject was pushed back out of sight and all that seems to have changed is that the sums have grown much bigger.

In late January, Liu followed up his tough talk by ripping out one allegedly cancerous node, the deputy director of his Logistics Department, Gu Junshan, after a protracted internal struggle. Gu was the first military official of such a high rank to be toppled since Admiral Wang in 2005. A source with direct knowledge of the case described General Gu extorting county officials with threats of violence and buying his way up through the PLA hierarchy. The source, whose allegations could not be independently confirmed, said that Gu, together with friends, relatives, and patrons in and beyond the military, profited immensely from a property development in Shanghai, distributed hundreds of PLA-built villas in Beijing as gifts to his friends and allies, and generally ran his construction and infrastructure division like a mafia fiefdom. He lists a bewildering array of personal assets, beginning with Gu's own villa, which stands outside the usual military compounds behind a high wall next to Beijing's East Fourth Ring Road, called the General's Mansion.

"Gu's problem is extraordinary big," said the source. He said Gu had arranged chartered flights for his domestic and international flights even when he had been a one-star major general, which is unheard of for someone of that rank. Gu could not be reached for comment.

In February, official military websites and news agencies confirmed Gu's removal, but only in passive terms: "Gu Junshan no longer holds the position of deputy director of the General Logistics Department." The leadership, it seemed, was still battling over the fate of Gu and those who have protected him.

The Department of Defense, which represents the PLA when dealing with foreign bodies, did not respond to faxed interview questions. But all Chinese observers interviewed for this article agreed that the PLA's corruption and discipline problems are growing worse. Military corruption is a more "imminent" threat to the PLA than the U.S. armed forces, said Zhu Feng, a professor international relations at Peking University. Others say the problems have multiplied in the decades after the Tiananmen Square massacre of 1989, as the formal PLA budget has climbed to $106 billion a year while civilian leaders are struggling to assert control.

Chen Xiaolu, a princeling and former PLA colonel who has many powerful princeling friends including General Liu, declined to repeat the "terrible stories" about PLA corruption he hears from recently retired generals (except to confirm the broad thrust of stories about Gu Junshan, whom Liu deposed). Chen, the son of one of China's 10 great marshals and son-in-law of a legendary commander, Gen. Su Yu, runs a successful infrastructure investment firm, Standard International. He opted out of the government and military system after the Tiananmen massacres. He told me the 1989 bloodshed left a vacuum of purpose and integrity within the PLA, which money has rushed to fill. "The problem has really got out of hand in the last 20 years," he said. "After the June 4 movement, when 'opposing corruption' was the protestors' slogan, some of the officers no longer cared about anything. They just made money and broke all the rules."

A second princeling who has recently retired from a ministerial-level position told me discipline and unity in the PLA has deteriorated in the past decade. He said an unprecedented leadership vacuum has opened up at the top of the military because President Hu never consolidated his grip, even after more than nine years at the helm of the Communist Party and seven years chairing the Central Military Commission. Unlike under Mao, Deng Xiaoping, and the latter years under Jiang Zemin, China no longer has a paramount leader who can hammer down authority at crucial junctures. "Gangs" of patronage and bribery are congealing together, he said, adding that "Corruption is the glue that keeps the whole system together, after the age of idealism."

A third princeling, whose father once ran China's security apparatus, blames Jiang for sabotaging the last leadership transition in 2002 by refusing to relinquish control of the military. He said Jiang promoted dozens of generals who are, as he put it, either "henchmen" or "morons." The result is that nobody is really in control, he said.

On the civilian side of the Communist Party, Bo's spectacular demise has punctured the conventional wisdom that China's power transitions are "institutionalised" and will flow smoothly. The Bo episode showed, once again, that there are no enforceable rules, nor independent arbiters to decide who governs the world's most populous nation and how they do it. Bo is now officially being investigated for "serious discipline violations" and his wife for murder.

Liu's battle against PLA corruption has opened a new field of elite political struggle, adding uncertainty at a time when old patronage bonds are breaking down, a new generation of princelings led by Xi Jinping are taking power, and the princelings themselves are not united. Gu Junshan's case "reveals serious struggle between those already in power and the new forces in the PLA," said Chen Ziming, an independent political analyst in Beijing. "Princelings like Liu Yuan represent the new force but who are those in power now?"

The official with direct knowledge of the Gu Junshan case told me that Liu succeeded in taking Gu down only after Liu had appealed personally to President Hu, who had three times issued instructions to handle it. The source said the first two orders had been blocked by Gu's key patron high in the hierarchy, whom the source did not name. "It was as if President Hu was making a show of his impotence," said the official.

Several sources with indirect knowledge of the case said that Gu was removed late in January only after Hu took the highly irregular route of asking the party's civilian apparatus to do the job. "With Hu's direct instructions, they bypassed the PLA discipline inspection commission and asked the central discipline inspection commission," said Chen Ziming, the political analyst. "This means the case faced major resistance inside the PLA."

Gu's networks and patrons in the Central Military Commission and beyond remain in place. The source with direct knowledge of the Gu case said that three of the top four members of the Central Military Commission expressed strong support for Liu Yuan's move against Gu; Xu Caihou, the fourth member of the CMC, and others, did not. Liu may have been alluding to this resistance in his speeches, when he spoke darkly of those who acted as "shields" and "umbrellas" for corrupt officers. He also spoke mysteriously of "hostile forces" who tried to use last year's uprisings in the Middle East "as a spear to attack our army" and sow "discord between the party and the army," suggesting another dimension of struggle.

Other signs of PLA power struggles are bubbling to the surface. Three weeks ago, a Chinese defence attaché informed a foreign military academy that that another of the PLA's rising stars, Gen. Zhang Qinsheng, would not attend a conference because he had been "replaced" in his position as first deputy chief of the General Staff Department, the PLA's operational headquarters, according to a source at the academy. The information appeared to confirm swirling rumours at the time. Chinese defense officials then scrambled to tell foreign diplomats that there had been "a misunderstanding" and General Zhang's position was, in fact, secure. The false information of Zhang's demise was followed by false rumors of a military coup, which a surprising number of citizens thought to be credible.

The PLA's top brass has responded to the rumours of a coup and the ongoing political struggle -- including in relation to the ongoing purge of Bo Xilai, who has military supporters -- by demanding unity and further isolating its officers from the outside world. "Whenever the party and country faces major issues, and reform and development reach a crucial juncture, struggle in the ideological arena becomes even more intense and complex," warned an editorial in the PLA Daily. Alluding to the recent chatter, the editorial also told soldiers to ignore rumours on the Internet. "We must pay close attention to the impact of the Internet, mobile phones and other new media on the thinking of officers and troops."

The PLA has made huge efforts to politically indoctrinate its officers in order to ensure their loyalty, according to Chen, at the expense of parallel efforts to "professionalize." He does not believe the political campaigns are working. "Maybe one day they will not be willing to obey their higher authorities because they are corrupt," he said. "Maybe the young generation of officers don't want to serve anybody and just want to take their own advice."

Meanwhile, Liu is generating enemies as he drives his corruption campaign deeper into entrenched networks of factions and patronage, and reveals his ideological views and political ambitions more openly. "Liu Yuan has gone mad," said the princeling who has recently retired from a ministerial position, and who is close to the Jiang family. Liu spent less than a decade in the PLA, and some officers resent being led by a man who lacks a professional military background, according to a source close to a rival princeling general. Others are suspicious of his personal ambition and believe his political comments have overstepped the boundaries of military discipline: Liu, like Bo, has suggested China should return to Mao-era ideals. Many see Liu's challenge to their financial and political interests as an existential threat.

Already, Internet rumors have spread that Liu is battling cancer, which sources close to him deny (he has annual checkups after an earlier scare). Other rumors speak of business links between Liu's wife, a glamorous nurse named Wei Zhen, and Bo Xilai's wife, who is under investigation. Sources close to Liu says his wife does not engage in business.

Liu knows what he's up against. "Those who work against corruption are out-competed by those who are corrupt," he said in his February speech. "Justice is under pressure and people fear retaliation while the scum congratulate each other on their great career prospects, get promoted and become rich."

And many are relieved that someone is at least trying to arrest the rot. "He says the Communist Party is in crisis and has to change," Chen said of Liu. "Some people question his intentions. I say I don't care about intentions; I say if he's against corruption then I support him."

There are signs Liu may be making progress. Although General Gu was not detained after his sacking, in recent weeks a formal investigation was finally approved, according to the official source close to the case. Last week the military director of Liu's department, who had supported his efforts to unseat Gu, was empowered to convene a new PLA-wide corruption-fighting audit committee. "Thoughts and actions must be united to the decisions and instructions made by Chairman Hu and the Central Military Commission," the military director, General Liao Xilong, said in official military media, adding to the chorus of calls for unity after recent upheavals.

Liu's surgical work could alter the delicate balance of factional power involving President Hu, his predecessor Jiang, and his anointed successor Xi. If Liu succeeds, he could vault into the vice chair position of the CMC, officially reporting to his friend Xi Jinping when Xi becomes CMC chairman. Some observers believe Liu is enabling Hu to make his move to assert authority, as Jiang had done with the Yuanhua corruption investigation, also late in his own term. "The formation of the audit committee in the military finally signifies a decisive move by the current civilian leadership to assert more control over the military," said Victor Shih, a political scientist at Northwest University. "For a variety of reasons, it has taken Hu Jintao almost his entire administration to prepare for such a move."

Few analysts believe the PLA can seriously tackle its own corruption problems without decisive intervention from the civilian leadership. Whether Hu or his likely successor Xi will have the political capital to spend remains an open question. And if the PLA is the malignant morass of theft, bribery, extortion and mistrust that Liu and other well-placed princelings say it is, then China's military offensive capabilities must be lower than many overseas strategists fear. "The impact of corruption on the PLA's war-fighting capabilities is likely to be serious," said Tai Ming Cheung, a China security expert at the University of California Institute on Global Conflict and Cooperation, San Diego.

Behind the PLA's shiny exterior is a world where information is not trusted, major decisions require cumbersome bureaucratic consensus, and leaders fear their subordinates will evade responsibility or ignore directions. This entails a different array of risks than the ones that have troubled China's neighbors and the United States. And Liu, like several other active princelings, is not sure whether the PLA is capable of self-surgery in the age beyond ideals and strong leaders. "We are falling like a landslide!" Liu said in one of his speeches. "If there really was a war," he asked his subordinates, "who would listen to your commands or risk their life for you?"
   
   
   

Both Krugman and Soro Are Saying The Same - Europe Is Collapsing

KRUGMAN: Europe Is Committing Suicide

It's really hard to argue with Paul Krugman's latest column, which argues that Europe is committing economic suicide.

You probably know what the argument is: The peripheral economies, especially Spain, are in complete ruins, and yet they're being asked to make things worse by undergoing austerity, as directed by Germany and the ECB.

Not only is the economy worsening, it's not even helping to achieve the objective of improving the debt situation. Yields are surging again, and as Greece showed us, austerity doesn't even improve debt dynamics.

So basically it's suicide, because the outcome of the current path is so obviously economic disaster and everyone knows it.



George Soros Nails It: Why The Situation In Europe Is Only Getting Worse

In his speech at the Institute For New Economic Thinking conference in Berlin, George Soros delivered one of the best and most concise assessments of what went wrong in Europe, and why things are getting worse.

Below  is the most powerful part.

In relatively few words he correctly assess the flaws of the Maastricht Treaty (the treaty that established the common currency and the rules designed to prevent government overindebtedness), and how the steps being taken to rectify things now are only exacerbating the split between core and peripheral Europe.

On this last point, he's especially critical of the deflationary stance of the Bundesbank, in Germany, and the impact that's having on sapping the domestic German demand that would be crucial towards helping the peripheral countries and staving off total collapse.

Even if you think you know it well, it's worth a quick read just to see Soros' brilliant way of describing the situation.

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The Maastricht Treaty was fundamentally flawed, demonstrating the fallibility of the authorities. Its main weakness was well known to its architects: it established a monetary union without a political union. The architects believed however, that when the need arose the political will could be generated to take the necessary steps towards a political union.

But the euro also had some other defects of which the architects were unaware and which are not fully understood even today. First of all it failed to take into account the fallibility of the architects: there is neither an enforcement mechanism nor an exit mechanism and member countries cannot resort to printing money. This put the weaker members into the position of a third world country that became over-indebted in a hard currency.

The Maastricht Treaty also assumed that only the public sector is capable of producing unacceptable imbalances; the market was expected to correct its own excesses. And the Maastricht Treaty was supposed to have established adequate safeguards against public sector imbalances. Consequently, when the European Central Bank started operated it treated government bonds as riskless assets that
banks could hold without allocating any capital reserves against them. This encouraged commercial banks to accumulate the bonds of the weaker countries in order to earn a few extra basis points. This caused interest rates to converge which, contrary to expectations, led to divergences in economic performance. Germany, struggling with the burdens of reunification, undertook structural reforms and
became more competitive. Other countries enjoyed a housing boom that made them less competitive. Yet others had to bail out their banks after the crash of 2008. This created conditions that were far removed from those prescribed by the Maastricht Treaty with totally unexpected consequences. Government bonds which had been considered riskless turned out to carry significant credit risks.

Unfortunately the European authorities had little understanding of what hit them. They were prepared to deal with fiscal problems but only Greece qualified as a fiscal crisis; the rest of Europe suffered from a banking crisis and the divergence in competitiveness also gave rise to a balance of payments crisis. The authorities did not even understand the nature of the problem, let alone see a solution. So they tried to buy time.

Usually that works. Financial panics subside and the authorities realize a profit on their intervention. But not this time because the financial problems were reinforced by a process of political and social disintegration. While the European Union was being created, the leadership was in the forefront of further integration; but after the outbreak of the financial crisis the authorities became wedded to
preserving the status quo. This has forced all those who consider the status quo unsustainable or intolerable into an anti-European posture. That is the political dynamic that makes the disintegration of the European Union just as self- reinforcing as its creation has been.  At the onset of the crisis a breakup of the euro was inconceivable: the assets and liabilities denominated in a common currency were so intermingled that a breakup would have led to an uncontrollable meltdown. But as the crisis progressed the financial system has been progressively reoriented along national lines. This trend gathered momentum in recent months. The LTRO enabled Spanish and Italian banks to engage in a very profitable and low risk arbitrage in the bonds of their own countries. And the preferential treatment received by the ECB on its Greek bonds will discourage other investors from holding sovereign debt. If this continued for a few more years a break-up of the euro would become possible without a meltdown – the omelet could be unscrambled – but it would leave the central banks of the creditor countries with large claims against the central banks of the debtor countries which would be difficult to collect.

The Bundesbank has become aware of the danger. It is now engaged in a campaign against the indefinite expansion of the money supply and it has started taking measures to limit the losses it would sustain in case of a breakup. This is creating a self-fulfilling prophecy. Once the Bundesbank
starts guarding against a breakup everybody will have to do the same. Markets are beginning to reflect this.

The Bundesbank is also tightening credit at home. This would be the right policy if Germany was a freestanding country but the heavily indebted member countries badly need stronger demand from Germany to avoid recessions. Without it, the eurozone’s “fiscal compact,” agreed last
December, cannot possibly work. The heavily indebted countries will either fail to implement the necessary measures, or, if they do, they will fail to meet their targets because of  collapsing demand. Either way, debt ratios will rise, and the competitiveness gap with Germany will widen.

Whether or not the euro endures, Europe is facing a long period of economic stagnation or worse. Other countries have gone through similar experiences. Latin American countries suffered a lost decade after 1982, and Japan has been stagnating for a quarter-century; both have survived. But the European Union is not a country, and it is unlikely to survive. The deflationary debt trap is threatening to destroy a still-incomplete political union.

金 正日遗训：亲近但需警惕中国

（首尔14日讯）据韩国《中央日报》报导，朝鲜前最高领导人金正日去世两个月后，他生前留给亲信们的遗训部分內容被公开。

遗书中谈及「中国虽然亲近，但今后应警惕」。

报导引述朝鲜战略信息服务中心的变节者李润杰（音译）称，遗书內容包括40多项金正日遗训，提到与美国的心理对决必须获胜；又要正当地晋陞为 合法拥核国，並利用朝鲜核问题六方会谈解除西方的制裁。

劝诫勿杀长子

当中部分引人关注的是，遗训出现了对中国的特殊观点。

金正日在遗书中说，「歷史上，最折磨我们的国家正是中国。虽然中国现在是和我 们最亲近的国家，但今后可能会成为最应警惕的国家」。

金正日同时警告说：「必须避免被利用」。

同时，遗书中还提到长子金正男，金正日强调必须多照顾金正男，他不是坏孩子。儘量减少他的困难，也就是「劝诫不要除掉金正男」。