Living On

Armen is heavily missed. His absence left a hole in independent observation of the political and economic risk situation in Latin America. Beyond the merely analytical though his work was wide-ranging from Armenian philanthropy and social observation of Latin and European lifestyles through to being a "fly on the wall" at the Cannes Film Festival every year and reporting back on the more exotic foibles of the international jet-set.

We miss his wit, his sense of history and his bon mots (in French, Armenian and, even, Turkish). Armen was very much a product of the Levant but then, like so many other Levantines, converted to an international stage where they offer insight into all around them. This record tries to humbly accumulate his collected writings for public consumption so they can be preserved and appreciated for the urgency of the moment in which they were written to the timelessness of the observations.

How best to categorise the uncategorisable? Maybe Armen could be described as an Armenian/Anglo/Franco Samuel Pepys for our times.....

It is ironic that ultimately it was the very mediocrity and self-satisfaction of the Chilean "system", which he documented so thoroughly, that brought about his tragic end.

Friday, January 14, 2011

THE COLD WAR IS ALMOST OVER And the Winner is China!

I am sure many readers would have liked to see an analysis of the latest events surrounding the departure of Jaime Ravinet from the Defence ministry. Alas such things shall not circulate any more, due to the readership’s small mindedness and ingratitude. My weekly reports cease as of today (Lists PR,DM,GO,OF1,OF2,VIP & T). I shall continue to issue from time to time some thoughts on security and geopolitics, without any specific frequency. These will primarily go to my “military” lists (M1, M2, M3, M4, VIP-M), although I may transfer a very selected number of “civilians” to the circulation.

Of course, you can get a report of mine on most subjects. All you need to
do is pay (presumably you know what money is?). Your short-sightedness was
very counterproductive. There is probably nobody in Chile who knows as
much as I do about all the ramifications of the Ravinet situation that led
to his dawnfall. I also wrote soon after he was appointed by Piñera, a
10-page detailed background profile on the man, which I offered for sale.
Not a single person showed interest. Here is a prescient extract:

“A Short-Term Appointment? Though it is very unlikely to be his own
expectation, a number of people (including in private senior military
officers, for whom it might be a wishful thinking exercise) do not expect
him to last very long. They see Ravinet’s stumbling on the stairs of the
platform the day Piñera presented his cabinet, as a premonition.”
Written in March 2010!

All of you probably subscribe to the motto that “ignorance is bliss”. The
most “helpful” comment I received among the very few who reacted to last
week’s farewell message, was one saying I should not criticise Rodrigo
Hinzpeter (no, it was not from the Israeli ambassador. Need I say more?

And on to the boat for China.

CHINA AT LAST Some two centuries, Napoleon Bonaparte, one the most
capable statesmen who ever lived, said that “when China wakes up, the
world will tremble”. We have had many false starts on Chinese hegemony,
but this time it seems to be for real. The trouble is many people do not
realise it, and consider it like just another “emerging” country where
there is business to be done. To put China in the same “BRIC”
classification as Brazil, a bunch of 200 million over-indebted
fanfarrones, is ignorance on the verge of being criminal.

At around the same time as Napoleon talked about China, the strategist
Carl von Clausewitz spoke about War. He declared that “War was the
continuition of politics by other means”. Of course, the Chinese, with Sun
Tzu’s Art of War written around 500 BC, were already codifying the
strategy. Another BRIC country, India, was writing 36 chapters about
sexuality which make up the Kama Sutra. Each one had his priorities. Not
that the Chinese did not write about Sex. The Tao practice as described in
Shuang Mei Ching An Ts’ung Shu, edited by Yeh Te-hui, is but one example,

Let me describe the creeping Chinese domination, involving the firing of
very few shots if any, as “Economics being the substitute of War through
other means” (Armen Kouyoumdjian dixit).

AMPLIFYING INFLUENCE Some people think that the Chinese strategy is
just to secure energy and raw materials, and safeguard export markets.
This is only part of the picture, albeit an important one. China wants to
become indispensible in everything, and be involved in all global things.

The most visible aspect has been the domination of consumer markets in a
short period of less than 20 years. Whenever you pick up a product these
days, if it dos not come from China, it is the exception. Sure, others can
and have made shoes, clothes, computers, air conditioners and medical
supplies, as well or better, but not cheaper. Once people have been used
to buy a DVD player for U$ 40, it will be hard to make them buy a Finnish
one for U$ 200, except for niche markets of brand snobism. The current
Chinese effort is in the automotive market (from small cars to trucks),
leaving only aerospace industries to tackle (strangely, Japan, despite all
its prowess in aircraft design before and during WWII never managed to
break the Airbus/Boeing duopoly, or even the niche markets of the likes of
EMBRAER and Bombardier).

Like the Japanese in the early days, the Chinese might not be afraid of
industrial espionnage with which to accelerate quality and technological
progress. The recent scandal surrounding the theft of information of
Renault’s electric car may be a case in point. Do not worry, the Japanese
went that way too. When I worked in a London bank, one of our shareholders
was DKB, then the largest bank in Japan. Even though they only had 5 % of
the capital, they insisted on having an intern work with us all the time.
Contrary to the indolent British staff, these would stay alone after
normal hours and copy any documents they could find lying on the desks. We
always used to joke that if we ever lost a piece of paper, we were safe
with the knowledge that there was a copy in Tokyo.

The Chinese are also wary of any other producer challenging them too much.
The announcement of a 35 % cut in exports of “rare earth” materials in the
first half of 2011, is to be seen within that context. These are used in
many high-the industries, and China has a dominating position in most
varieties of rare earth.

NEW FORMS OF DEPENDENCE In 2010, 54 million Chinese travelled abroad.
Though this makes a small percentage of the population, I would guess that
in terms of numbers it makes for the largest number of tourists from a
single country. Though no place as yet depends on Chinese tourism for
survival, and it is becoming more difficult each day to find destinations
where you get frozen, flooded, killed by narcos or American bombers, the
potential is there when some of the rest of the 1.5 billion Chinese start

What China as a country has most of is money. Reserves stand at around U$
2650 bn , double the next in line (Japan). In my previous paper I gave
details of US fiscal dependence on Chinese T/B purchases. The scene has
now moved on to the Euro.

It is appalling how the supposed clever brains still misunderstand the
nature of the crisis. It is not about growth, employment or any such minor
issues. It is about fiscal survival. The way people tackle it (“how to
make growth start again”?) are as stupid as someone planning to add
another floor to his house when there is a major fire in his basement
which is out of control.

The Chinese have declared that they will support the Euro, and put their
money where their mouth is by participating in recent debt issues, such as
this week by Portugal and Spain, both of which oversubscribed at lower
rates, almost certainly due to Chinese participation. Before that, they
are reported to have also purchased French and German debt. As this badly
treated crisis will go on, China could become for Europe what it is
already for the US: the unavoidable junkie finance provider for hopelessly
overspent countries. What do you mean building high speed trains in Spain,
when 30 years ago you were happy to accept waiter jobs in Geneva?

Whereas the “rich” countries get credit, the poor get gifts, or at least
cheap loans, free infrastructure donations, etc..That also makes them
Chinese-dependent or at least Chinese-grateful. From a trade negotiation
to a politically-motivated US vote, you can see where their allegiances
will be.

The Chinese have another weapon: the presence of a large Diaspora.
Initially limited mainly to Asia, where in some places (Malaysia,
Singapore), they are part of the national fabric, the traditional
Chinatowns of other places which were little more than folkloric, have now
extended to major communities. Up and down the Pacific coast from
Vancouver down South, and in many Latin American cities too (in Argentina
they control virtually all the small urban retail minimarkets). I hope
that they are more supportive than the Armenian Diapora, whose main
activity is to stab good Armenians in the back.

At the higher end of the scale, they have been buying companies at various
levels of the chain. I mentioned last tme the purchase of IBM’s consumer
division by LENOVO, but did you know that they have bought 50 % of BRIDAS,
Argentina’s second largest hydrocarbons group, and Occidentals’ operations
in the same country. There are many such examples.

THE DEFENCE ASPECT: USA & RUSSIA Though many countries and industries
can do little to escape from the Chinese onslaught, geopolitically, the
USA is the most frustrated because it will realise that all its military
might cannot allow it to produce DVD players for U$ 40, and it prefers to
bomb populations who do not sing the Stars & Stripes before school every

In Dostoievski’s Crime and Punishment, Rodion Raskolnikov owes money to
his landlady, which he cannot pay, and chooses to murder her instead. If
the USA arrives (and the inertia of compound interest certainly points in
that direction) to that situation, will they choose to nuke China thinking
it would mean a debt write-off? Military attacks for collecting debt have
a long tradition in History. Attacks in order no to pay debt are less
frequent, but they could still have a go at it.

So in parallel with their economic might, the Chinese are not taking any
chances and building up the quality of their armed forces. On a visit to
China last week, US Defence Secretary Robert Gates admitted that the
Chinese were advancing faster than the USA in developing their defence
matériel. The stealth fighter is a strong example. They have nuclear
power and have sent a man in space.

He also hinted at some unease about the increasing Chinese military might.
He should well be. If the USA could not control Afghanistan or Iraq, how
are the going to “neutralise” 1.5 bn Chinese? Not being able to complain
too overtly (remember these T/Bill purchases), the USA used The Economist,
that despicable moutpiece of the Anglo-Saxon neo-cons, to write an
editorial saying Chinese policies were “wrong and dangerous”, as was their
“policy of military build-up and aggressive (sic) diplomacy”. A classic
case of the pot calling the kettle black. If they expect China to continue
playing the coolie and Charlton Heston’s son play in a remake of the “55
days of Peking”, they have a surprise coming.

One should not forget another aggrieved party, namely Russia. In the
heydays of Communism, it looked upon China as its pupil, who eventually
decided to go its own way, but was not really a serious threat. We do not
buy Russian DVD players. We could have. A distant relative of mine was the
representative in Lebanon of Russian consumer electronic goods back in the
1960’s. The products were not that good (nor was the first Honda I saw at
the Paris Motor Show at about the same time) but there was forward
thinking. I remember a leaflet on “forthcoming products” which included
something I thought total fantasy: a flat TV screen that was hung on a
wall like a painting. Sounds familiar? This was half a century ago!

Russia has among the world’s largest reserves of gas, oil and coal, but
these will run out one day. Its infrastructure is in shambles, its small
towns full of unemployed drunks. Its health standards are falling as is
its population. The natural resources will end one day, and then what? In
2010, the accumulated reserve fund from high hydrocarbon prices was
virtually depleted. It has unruly Moslems within and across its borders.
Let us not even start about the corruption. What can be done about all
this? I have no idea, but to lose any chance of regaining some sort of
counterbalance of power with the Americans now appears an impossible
dream, and I can guess that the Kremlin is worried.

Many years ago I bought a badly written book published in 2000, called The
Bear & the Dragon. It is by Tom Clancy and describes how the USA and
Russia unite forces to give a bloody nose to a Chinese aggression. Can you
see the Russians really doing that, playing bag carrier to the Heritage
Foundation and the Mount Pélerin Society?

RISKS FOR CHINA The road towards dominating world affairs has some
obstacles and minefields for China. These are not necessary unavoidable,
but have to be taken into account.

First and foremost, and Sun Tzu emphasized this, the enemy should not be
totally destroyed and humiliated, nor his food eaten. China must ensure
that there is enough economic activity and few crises in its client
countries for them to continue buying its goods, otherwise it will have an
oversupply of offer, and more dangerously, a sharp increase in
unemployment. Its society has dissidents, crime (200,000 children just
disappear each year), and regional unrest. It needs an economic crisis
like a hole in the head. It should continue to pay high prices for
commodities, in order to see a great part of that money come back to it
through exports. Nor does it help China to have a major financial crisis,
be it in the USA or Europe. Not only wil it lose many of its reserve
assets, but the deterioration in the means of payment will alos affect its

There are a number of things it needs essentially. One is oil, of which it
imported 4.79 million b/d (+ 17.5 %) last year. This is more than all of
Russia’s oil exports. It also needs other things, apart from the usual
commodities, bth food and industrial. Cobalt is a good example.

Notwithstanding its language difficulties in a world where many people
cannot even speak and write their own language properly, let alone such a
complicated one as Chinese, it should make a bigger effort to spread its
own culture, and undertsand that however dependent they may become on
Chinese money, goods and donations, when in Rome, you should really try to
do as Romans do.

HUEVADA DE LA SEMANA If you cannot manage with a crook, try a
perpetrator of gender violence. In the very day that the Segovia stand-in
was elected to head the Chilena professional Football Association, it was
revealed that he had been indicted for physical violence agaisnt his wife
and verbal threats towards his son. He was condened to follow a 6-month
course in rehabilitation. He was still elected, and when asked about this
incongruous situation, the head of one of the country’s most important
clubs, who voted for him, described the accusations as “an infamy”.
Remember the case had been tried, it was not just an accusation. Welcome
to Chile, where telling the truth makes you an isolated person, but being
inept, ignorant and badly informed gets you all the attention. Ciao folks.