CHINA: Google tweaks China site in bid to keep license

(Reuters) - Google Inc is tweaking its China website in a last-ditch effort to save its search business in the world's largest Internet market after butting heads with Beijing over Web censorship.

The google.cn search site will stop automatically redirecting users to Google's uncensored search portal in Hong Kong -- instead, visitors will be required to click a link to access the Hong Kong site, Google said on Tuesday.

The move comes ahead of a Wednesday deadline for China to renew Google's operating license. Google said Beijing had made it clear it was unhappy with the company's three-month old system of re-routing Chinese Web surfers to google.com.hk.

"It's clear from conversations we have had with Chinese government officials that they find the redirect unacceptable, and that if we continue redirecting users, our Internet Content Provider license will not be renewed," Google Chief Legal Officer David Drummond wrote on the company's corporate blog.

"Without an ICP license, we can't operate a commercial website like Google.cn so Google would effectively go dark in China," he wrote.

There was no immediate comment from China. Google shares were down 3 percent by early afternoon trading, in line with the Nasdaq stock market's fall.

The website tweak is Google's latest attempt to strike a delicate balance between standing up to China's policy of Internet censorship while maintaining a presence in a market considered key to its future growth.

Google's shares have fallen roughly 23 percent since the company announced its intention in January to stop censoring search results in China.

"It seems like investors have already taken China out of the valuation of the company. I don't think there's much more incrementally negative for the stock," said UBS analyst Brian Pitz.

CHINA SILENT

Google, which battles Baidu for China's 380 million Internet users, said in January it might quit the country over censorship and after it was hit by a hacking attack that it said came from within China.

But after keeping its promise to end self-censorship by automatically rerouting users to its Hong Kong site, Google now seems reluctant to abandon the Chinese market entirely.

"China, with its business potential, is a hard market to give up," said Cao Jun Bo, analyst at Beijing-based technology research company iResearch.

It is unlikely Google would have moved without some blessing from Beijing, and there certainly would have been negotiations about the change, said Cao.

China's foreign ministry on Tuesday declined to comment on Google's decision to end automatic rerouting, but Drummond said he hoped it would be acceptable to the Chinese government.

A Google spokeswoman declined to comment further on the details of negotiations with Beijing.

Google's challenge to China's online policies has provided a new source of tension to Sino-US relations. The State Department has backed Google and demanded that China explain the alleged hacking attacks.

The new google.cn page has an image of the Google logo and a non-functioning search box. A short message says, "We have already moved to google.com.hk" and "Please save our new website." Clicking on much of the page redirects users.

If accessed from China, the Hong Kong search engine does not offer unfettered access to information the government wants blocked as domestic firewalls prevent connections to many websites that Beijing objects to.

The Google.hk.com site is also periodically unavailable from mainland China, and searches can be unstable.

LUCRATIVE MARKET

Analysts estimate Google's China business is a modest 1 percent to 2 percent of its $6.5 billion in annual net profit, but the country had been considered a major long-term growth opportunity.

Besides Web search, Google has other operations in China, such as the Android mobile operating system.

China Mobile has released smartphones into the China market using Android, and Credit Suisse analyst Wallace Cheung expects Android to one day become the most popular mobile operating system in China.

Google, which runs two research centers and has several hundred employees in China, may already have paid a price in lost talent for its spat with the Chinese government.

It has seen an exodus of executives from its China operations, as well as from partners under its advertising AdSense program.

"It seems clear they want to have some engagement or business in China. But they are at a point right now where an increasing number of partners and AdSense partners are leaving Google," said Mark Natkin, managing director of Marbridge Consulting.

Natkin said at least three other licenses for Google business units in China are due for renewal in June.

(Reporting by Melanie Lee and Emma Graham-Harrison; Additional reporting by Michael Wei in Beijing and Alexei Oreskovic in San Francisco; Editing by Anshuman Daga and Robert MacMillan.)

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RUSSIA: Putin says U.S. police "out of control" in spy case

(From L to R) Russian spy suspects, Anna Chapman, Vicky Pelaez, Richard Murphy, Cynthia Murphy and Juan Lazaro, are seen in this courtroom sketch during an appearance at the Manhattan Federal Court in New York June 28, 2010. The arrests -- days after a warm Washington summit between President Barack Obama and Russian President Dmitry Medvedev -- thrust a Cold War-style spy scandal into the midst of the U.S. leader's ''reset'' of long-strained ties with the Kremlin.  Credit: Reuters/Jane Rosenburg

(Reuters) - Moscow angrily rejected U.S. accusations on Tuesday that Washington had cracked an undercover Russian spy ring, and said the Cold War-style cloak and dagger saga seemed timed to wreck a recent thaw in relations.

Prime Minister Vladimir Putin said U.S. police had gone "out of control" after 10 suspected spies were arrested in the United States in the biggest espionage case for years.

"I hope that all the positive gains that have been achieved in our relationship will not be damaged by the recent event," he told visiting ex-U.S. President Bill Clinton.

An 11th suspect was arrested in Cyprus on Tuesday and was released on bail, police on the Mediterranean island said.

The suspects, some of whom lived quiet lives in American suburbia for years, were accused of gathering information ranging from data on high-penetration nuclear warhead research programs to background on CIA job applicants.

The arrests came days after a warm Washington summit between President Barack Obama and Russian President Dmitry Medvedev, part of what the U.S. leader describes as a "reset" of long-strained ties with the Kremlin.

"The choice of timing was particularly graceful," Russian Foreign Minister Sergei Lavrov told journalists sarcastically during a trip to Jerusalem.

Other Russian officials also suggested the timing was no coincidence.

"We do not understand what prompted the U.S. Justice Department to make a public statement in the spirit of Cold War espionage," the Foreign Ministry said, calling the accusations baseless.

It said lawyers and diplomats should be given access to the suspects.

"We deeply regret that all of this has happened against the background of the relations reset declared by the U.S. administration itself," the ministry said in a statement.

With buried banknotes, coded communications and other cinematic details, the accusations echoed spy scandals of the 20th century and the more recent chill in relations with a Kremlin which, under the 2000-2008 presidency of ex-KGB spy Putin, often accused the West of trying to weaken Russia.

Britain and Ireland both said they were checking reports suspects had traveled on false passports from their countries.

Moscow has repeatedly accused Western powers of maintaining spying operations against Russia despite the end of the Cold War. Western powers also complain of Russian activity, especially in the commercial and scientific areas.

BLOW TO OBAMA

Russian analysts said the timing suggested it was an attempt to undermine the "reset" which Obama's administration has hailed as a major foreign policy achievement, citing Moscow's support for sanctions against Iran and cooperation on Afghanistan.

"It's a slap in the face to Barack Obama," said Anatoly Tsyganok, a political analyst at Moscow's Institute of Political and Military Analysis.

He predicted Russia would follow Cold War etiquette and uncover an equal number of alleged U.S. spies.

Military analyst Alexander Golts said the scandal would be unlikely to deal a major setback to ties. Obama's administration would aim to "soft-pedal the situation" to avoid damage to improved relations it sees as a foreign policy success, he said.

Tatyana Stanovaya, political analyst at Moscow's Center for Political Technologies, said the accusations could widen a rift in Russia's elite between advocates and opponents of better U.S. ties, with the scale of the response hinting at who is ascendant.

Stanovaya said it could dent the authority of Medvedev, who is struggling to emerge from Putin's shadow and has made engagement with Washington a hallmark of his presidency.

The U.S. Justice Department accused the 11 people of operating as "illegals"; the term applied in the intelligence world to agents infiltrated under false identities, rather than officers who use diplomatic or other legitimate cover.

They were accused of collecting information ranging from research programs on small-yield, high-penetration nuclear warheads to the global gold market, and seeking background on people who applied for jobs at the Central Intelligence Agency (CIA), according to criminal complaints filed in a U.S. court.

Authorities said 10 were arrested on Sunday in Boston, New York, New Jersey and Virginia on charges including conspiracy to act as unlawful Russian agents and money laundering.

They sought to "become sufficiently 'Americanized' such that they could gather information about the United States for Russia and can successfully recruit sources who are in, or are able to infiltrate, United States policy-making circles," court papers said.

The U.S. Justice Department said they received extensive training in coded communications, how to evade detection and how to pass messages to other agents.

After the 2001 arrest of FBI agent Robert Hanssen, accused of selling secrets to Moscow over 15 years and sentenced to life in prison, Washington expelled four Russian diplomats and ordered 46 to leave the country. Russia responded in kind.

In 2006, Russia accused British diplomats of running a James Bond-style spy ring and communicating with agents via an electronic device disguised as a rock. The next year, British officials said Russian spying was "at Cold War levels."

(Additional reporting by Dmitry Zhdannikov and Amie Ferris-Rotman; Writing by Conor Humphries and Steve Gutterman; Editing by Peter Graff)

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TRAVEL: Inspectors find safety flaws where airline food is prepared

By Gary Stoller, USA TODAY

Six months ago, Food and Drug Administration inspectors say, they found live roaches and dead roach carcasses "too numerous to count" inside the Denver facility of the world's largest airline caterer, LSG Sky Chefs.

They also reported finding ants, flies and debris, and employees handling food with bare hands. Samples from a kitchen floor tested positive for Listeria, a bacteria that can cause serious and sometimes fatal infections in young children, the elderly and people with weakened immune systems. It's also dangerous to pregnant women.

LSG Sky Chefs, which annually provides 405 million meals worldwide for more than 300 airlines, says conditions at the Denver plant didn't meet company standards. It took immediate measures to remedy the problems, says spokeswoman Beth Van Duyne.

The Denver facility is one of many catering operations that provide food to airlines where FDA inspectors saw unsanitary and unsafe conditions in the last two years, according to inspection reports obtained through the Freedom of Information Act by USA TODAY.

The reports show "caterers for many of the nation's air carriers are contaminating foods in a number of ways," says Roy Costa, a consultant and public health sanitarian who voluntarily agreed to review the reports.

Frequent flier Arthur Debowy, an architect from Highland Mills, N.Y., says the findings are "sickening," and he'll be more careful on future flights if food doesn't smell or taste right.

USA TODAY requested inspection reports since January 2009 for the two biggest airline caterers, LSG Sky Chefs and Gate Gourmet, and a third large caterer, Flying Food Group. Combined, the three companies have 91 kitchens preparing in-flight food for many big U.S. and foreign airlines at U.S. airports.

As of Friday, the FDA's regional offices had sent reports for 46 facilities. At 27 of them, FDA inspectors noticed suspected food-preparation violations or objectionable practices. Among them:

•An FDA inspector spotted a mouse, rodent nesting materials and rodent feces under a pallet of food and in other areas at LSG Sky Chefs' Minneapolis facility during a May 2009 inspection.

•The Dulles, Va., facility of Gate Gourmet, the second-largest caterer in the USA, failed to keep shrimp, filet mignon, Chilean sea bass, chicken and vegetables, and pastrami and cheese sandwiches at the proper temperature during an inspection in August. When an inspector mentioned the unsafe practice to company personnel, the shrimp and the pastrami and cheese sandwiches were not thrown in the garbage.

Employees with "unclean hands" were handling food. A lab report found a "high coliform count" in rice.

•At Gate Gourmet's San Diego facility in November, the director of operations said the company would cook any food to an airline's specification without regard to food safety guidelines, an FDA inspector wrote. He also wrote that a Gate Gourmet official said the company doesn't verify if food is from approved sources or frozen for "parasite destruction." Raw meats aren't cooked to adequate temperatures — a repeat violation that was also cited in 2008.

•A Los Angeles facility of Flying Food Group had a corroded and taped ice-machine door that failed to "hold ingredients in bulk or in suitable containers to protect against contamination," an inspector wrote in an April report.

Making improvements

After the Los Angeles, San Diego, Dulles and Minneapolis inspections, Flying Food Group, Gate Gourmet and LSG Sky Chefs were issued a document called Form 483 by FDA inspectors. The form is only issued, the FDA says, when there are "significant" suspected violations of regulations or objectionable practices.

In the inspection reports, several LSG Sky Chefs and Gate Gourmet facilities received Form 483s on two or three consecutive inspections. Repeat violations were noted at some facilities.

When serious violations occur — such as those at LSG Sky Chef's roach-infested Denver facility — the FDA may issue a warning letter. A company has 15 days to address the problems.

Sky Chefs facilities have received 18 warning letters since 1996, according to a USA TODAY analysis of the agency's online database. Three were received after German airline Lufthansa acquired controlling interest in the company in June 2001, and the company has taken many steps since then to ensure food safety, spokeswoman Van Duyne says.

Besides the warning letter sent in December, the company's Denver facility received one in May 2001 for a number of deficiencies.

Two years ago, LSG Sky Chef's facility in East Granby, Conn., was issued a warning letter because tilapia filets and shrimp meals were "prepared, packed or held under insanitary conditions" that may be "injurious to health." There was concern about botulism, caused by toxins that are among the most poisonous to humans.

Sky Chefs implemented a global quality and safety system "harmonizing food safety at all its kitchens" in 2002, says Van Duyne. Since then, the company has served more than 3 billion meals, and "there has never been a report of a food-borne illness outbreak related to our facilities," she says.

Gate Gourmet's most recent warning letter was issued in April 2005 to its Honolulu facility. Among other violations, FDA inspectors found cockroaches and fruit flies, food stored at improper temperatures, mold in a refrigerator and "a pink, slimy substance" dripping onto a conveyor for a pot-washing machine.

Eight months earlier, 47 passengers became ill — and 116 other passengers probably became ill — after eating food on 12 flights from Hawaii catered by Gate Gourmet, according to the Hawaii State Department of Health. The likely cause was raw carrots, says agency spokeswoman Janice Okubo.

Gate Gourmet Vice President Norbert van den Berg says the company has an excellent system to ensure safe food, including temperature-controlled facilities and use of an independent auditor. His company's food-safety standards are superior to any restaurant, he says. "We can guarantee the safest product out there," van den Berg says.

Flying Food Group received a warning letter for 11 deficiencies — including inadequately protecting food from contamination — at a Jamaica, N.Y., facility in 2000. The company has since moved to a "state-of-the-art" facility at nearby JFK airport, says Glenn Caulkins, vice president of quality assurance.

Caulkins says Flying Food Group has invested a lot of money to ensure that its facilities prepare and process food safely. The company quickly addresses or corrects any concerns in FDA inspection reports, he says.

After the April inspection at the Los Angeles facility noted concerns about the ice machine, the company installed a new one, he says.

Fewer meals, fewer problems

FDA officials say the number of warning letters issued to airline caterers has declined in recent years.

Cost-cutting airlines are serving fewer fresh meals. Some have eliminated meals. And airline caterers have incorporated government food-safety guidelines into their own guidelines, says FDA spokesman Ira Allen.

"With less ready-to-eat fresh food offered in coach class and substitution with prepackaged, shelf-stable foods, the opportunity for poor preparation, storing foods at improper temperatures and food-handling violations is much lower," Allen says.

Mary Ann Dowd of the International Flight Services Association, which represents airlines and caterers, says the inspectors' findings are a concern because the trade group works hard to promote food safety. The group will soon distribute a new edition of food-safety guidelines for caterers and airlines.

Despite fewer warning letters, inspection reports show that caterers are ignoring the guidelines and FDA requirements on fresh food they're preparing, says Costa, the public health consultant.

"The airlines, which have the primary liability for the safety of their passengers, have a serious supplier control problem," he says.

Airlines say they require their caterers to provide government inspection reports, and they do their own unannounced inspections.


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CHINA: Growing Organic in China

6/23/2010 10:04:51 AM

In a country hit by food safety scandals, the interest in organic produce is growing fast. Video courtesy of AFP.

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CHINA: China's Currency Announcement and the U.S. Congress

June 22, 2010

With the G-20 Summit set to begin in Toronto on June 26, China announced over the weekend that it would increase the flexibility of its exchange rate and allow its currency to appreciate.  In this video, Kenneth Lieberthal discusses China’s exchange rate and how the U.S. Congress has responded to the issue.

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JAPAN: Big Election Victory for Japan's Ruling Party?

One of America's leading experts on Japanese politics, Columbia professor Gerald Curtis, handicaps the July 11 upper house elections, and discusses the implications for U.S.-Japan relations and tax policy.

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JAPAN: Japan pledges to beat deflation

New premier Naoto Kan wants to cut Japan's debt levels

Page last updated at 20:30 GMT, Friday, 18 June 2010 21:30 UK

Japan's new government has pledged to slash corporation tax and beat deflation to achieve stable economic growth of 2% a year.

It said it aims to defeat deflation by April 2011, but revealed few details on how it would achieve this.

The government also said it would cut corporate tax from 40% to nearer 25%.

Earlier this week, Japan's central bank announced plans for up to 3 trillion yen (£22bn; $33bn) in loans to spur economic growth.

The plans mark the first time Japan has set a time frame for tackling deflation, which has plagued the economy for much of the last two decades.

JAPAN IN FIGURES

• Government debt: 200% of GDP
• Government deficit: 8% of GDP
• External surplus: 2.5-3.5% of GDP
• GDP growth: 3%
• Inflation: -1.5%
• 30-year bond yield: 2%

Source: Daiwa

Persistent deflation has hampered economic growth, with consumers opting to hold off on making major purchases, expecting prices to fall even further.

However, the ambition of the new government was met with scepticism by some analysts.

"The growth targets don't sound like anything new to me, just wishful thinking," said Junko Nishioka at RBS Securities.

Japan's growth averaged just 1.3% a year before the recession brought on by the financial crisis.

Like many other developed economies, Japan is also suffering from high levels of sovereign debt.

Its plans for cutting borrowing levels are due to be announced next week.

New Prime Minister Kaoto Kan has made cutting the country's deficit his priority.

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RUSSIA: Let Russia Join the WTO

Epsilon/Getty Images

JUNE 18, 2010

BY ANDERS ÅSLUND, C. FRED BERGSTEN

Here's how the White House can earn an easy win next week.

On June 24, U.S. President Barack Obama will welcome his counterpart, Dmitry Medvedev, to the White House. If there's one thing that the two presidents must accomplish, on an issue that has fallen off most observers' radar screens amid all the nuclear diplomacy and talk of "resetting" relations between Washington and Moscow, it's Russia's accession to the World Trade Organization (WTO) -- a potential game changer for the country's economy and foreign policy.

After hitting a low with the Russia-Georgia war in August 2008, U.S.-Russia relations have rapidly improved. Two milestones are the strategic nuclear arms reduction treaty that was signed in April and the new U.N. Security Council resolution on stricter sanctions against Iran. The next step is to improve economic cooperation.

The WTO currently has 153 members, accounting for 96 percent of world trade. Russia, which accounts for 2 percent of global commerce, is the biggest country outside the organization. Having applied in 1993, it has waited for membership longer than any other country, though the United States has recognized Russia as a market economy since 2002 -- a status it does not accord to WTO member China.

It's true that Russia needs the WTO less than many other countries, since it largely exports commodities that enjoy free-market access in any case. Yet Russia's potential gains from WTO accession have been assessed at 3.3 percent of GDP a year, a major jump for the economy. The main benefits would arise from freer trade of services and foreign direct investment.

Russia has never been closer to WTO accession. The remaining hurdles are modest: sanitary rules for U.S. exports of chicken and pork, limits on future agricultural subsidies, rules for encryption, regulation of state-owned enterprises, and export tariffs for lumber. By and large, these issues can be settled bilaterally with the United States. If any query remains after the Obama-Medvedev summit, it can be concluded at the G8 and G20 summits in Toronto that follow on June 26-27. Russia is the only member of the G8 or G20 outside the WTO.

The real obstacle is the lack of mutual trust. Russian trade negotiators fear that the Americans will raise new concerns after they think they have settled all the outstanding issues. A year ago, American negotiators were thrown off balance by Prime Minister Vladimir Putin's assertion that Russia's customs union with Belarus and Kazakhstan had priority over its WTO accession, but Russia has now made clear that WTO entry comes first and should proceed on its own. Therefore, Russia's accession needs to be decided politically by the presidents, and the outstanding technicalities could then be sorted out in a few months.

Russia stands at a crossroads after the global financial crisis. The Kremlin is still shocked by Russia losing 8 percent of its GDP last year, more than any other G-20 nation, despite having the third-largest international currency reserves in the world. The economy is now recovering quickly, but Moscow faces the choice of opting for modernization and economic liberalization that would allow its well-educated labor force to thrive, or remaining a slow-growing and corrupt petrostate living on oil rents. (Russia's main gains from WTO accession will not be from enhanced market access, although Russian steel and chemicals exports will benefit. Instead, the greatest economic benefits are anticipated on the domestic market for services and greater attraction of foreign direct investment -- leading to improved competition at home.)

Medvedev speaks persistently about the need for modernization and control of corruption, which reached new heights when Putin was president. An invitation by Obama to integrate Russia fully into the world economy would be a noteworthy manifestation of improved relations. It would also mark the first significant trade policy achievement of the administration.

The United States still maintains the Jackson-Vanik Amendment, adopted in 1974 denying favorable trade status to Russia, citing its restrictions on the free emigration of Jews from the Soviet Union. The law, a relic of the Cold War, has no practical effect but is a serious irritant in relations between the two countries. And as a practical matter, if Jackson-Vanik remains in force, Russia would simply not apply WTO rules to the United States, perpetuating trade discrimination against American companies. Hence the amendment should be scrapped immediately after Russia joins.

Now is the right time for Obama and Medvedev to resolve the last obstacles on the way to Russian entry to the WTO. The resulting encouragement of Russia's modernization is very much in the interest of both countries. Russia urgently needs to modernize, and the United States, bogged down in Afghanistan and facing the prospect of a nuclear-armed Iran, needs Russian cooperation more than ever.

C. Fred Bergsten is director and Anders Åslund a senior fellow of the Peterson Institute of International Economics.

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THE KOREAS: Children's balloons 'spark South Korea military alert'

A resident thought the balloons were parachutes

Page last updated at 07:19 GMT, Friday, 18 June 2010 08:19 UK

Balloons released by schoolchildren sparked a major security alert in South Korea, reports say, amid heightened tensions with North Korea.

A resident of Ansan, near Seoul, reported seeing 40-50 objects resembling parachutes falling on a mountainside.

The military and police mobilised a special joint task force.

Upon investigation, the objects turned out to be helium balloons released by a local school.

Tensions between North and South Korea have been running high since the sinking of a South Korean warship earlier this year. Seoul said the ship was torpedoed by Northern forces.

In another incident earlier this month, an alert was raised after an explosion was heard on Yeonpyeong island, near the sea border with North Korea, and a diving suit was found on a shoreline, the JoongAng newspaper reported.

A joint military and police investigation found that the diving suit was abandoned by a fisherman and that the explosion had been caused by a South Korean mine, the paper said.

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HONG KONG: Polls Say Hong Kong Chief Loses Debate

June 18, 2010, 3:21 AM EDT

By Mark Lee and Frederik Balfour

June 18 (Bloomberg) -- Hong Kong Chief Executive Donald Tsang lost a televised debate with barrister and opposition leader Audrey Eu on plans to change the city’s electoral system, polls showed.

Tsang said the proposal to change the way Hong Kong elects lawmakers and the chief executive in 2012 would move the city along the path to full democracy, and accused Eu’s side of trying to stall the plan. “We’d rather stand still than take a step backward,” Eu replied.

Seventy-one percent of respondents in two university surveys said Eu won the debate, the South China Morning Post and Standard newspapers said. Forty-five percent of people polled by University of Hong Kong said they were “more opposed” to the government’s proposals after the debate, while 20 percent said they were more supportive, said the Post, which co-sponsored one survey. No margin of error was given.

Eu’s pro-democracy group argues the central government in Beijing’s package doesn’t go far enough to deliver democracy and is stacked in favor of business groups dominating the so-called functional constituencies that make up half the 60 seats in the Legislative Council. Tsang says opposition demands should be addressed after the plan goes through.

“It’s obvious Audrey was the better performer,” said Joseph Cheng, professor of political science at the City University of Hong Kong.

Still, the debate probably won’t make the government deliver changes to the proposal demanded by pro- democracy groups, he said.

Public Protest

“For a harmonious society you need a fair system,” Eu said during a speech at the Foreign Correspondents Club in Hong Kong today. “But functional constituencies are causing problems, they are the obstacle,” she said, describing them as an “anchor” weighing Hong Kong people down.

“The anchor is put there not by the Hong Kong people but by the central authorities with a string of broken promises as well as by people with vested interests.”

The debate is also unlikely to have won over any of the 23 legislators who vowed to block the proposals, and may have been aimed more at salvaging Tsang’s reputation with the central government in Beijing, Alan Leong, a lawmaker in Eu’s party said before the debate. The package needs a two-thirds majority to pass, unless China makes concessions.

LegCo is to vote June 23 on the proposal, which would see the number of lawmakers increased by 10. Five would be directly elected and five would represent functional constituencies. The number of Beijing appointees who elect the chief executive would be increased from 800 to 1,200.

Tung Chee-hwa

Tsang’s predecessor Tung Chee-hwa stepped down from his post in 2005, more than two years early, after a botched attempt to push through separate China-sponsored constitutional changes sparked street protests and a deadly virus harmed tourism.

Tsng’s own popularity has been slipping amid the wrangle over elections, polls show.

On June 4, about 113,000 people attended a candlelight vigil to mark the 21st anniversary of China’s crackdown on pro- democracy demonstrators in Tiananmen Square, the largest number since 1989 according to police estimates.

Several hundred people gathered in a park near yesterday’s debate, cheering for Eu and booing Tsang. Police had set up a visible security presence around nearby streets as a precaution.

Chinese President Hu Jintao in December told Tsang to “handle constitutional development issues properly to ensure social harmony.” Premier Wen Jiabao urged him to resolve “deep-rooted contradictions in Hong Kong.”

Two Systems

One of those contradictions is the “one country, two systems” formula struck when Britain handed the territory back to China in 1997. While Hong Kong has multiple political parties and more civil liberties than in mainland China, the timetable for greater democracy was set by the National People’s Congress Standing Committee in Beijing.

Eu is calling for universal suffrage in 2012, five years earlier than China’s plans for letting the public vote for the chief executive and eight years before planned direct elections of all LegCo members.

--With assistance from Marco Lui and Ben Richardson in Hong Kong. Editors: Ben Richardson, Dirk Beveridge

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SEOUL, S. KOREA: Asia in Photos

A laser light display of ghostly human forms by renowned French artist Laurent Francois was shown in fountains of the Cheonggyecheon River in Seoul on Monday.  Wally Santana/Associated Press

JAPAN: Asia in Photos

Japanese football fans celebrated in Tokyo

Yoshikazu Tsuno/Getty Images

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THE KOREAS: UN hears Korea warship testimony

The warship row has intensified tensions on the Korean peninsula

Page last updated at 01:25 GMT, Tuesday, 15 June 2010 02:25 UK

North and South Korea have presented their cases to the UN in a dispute over the sinking of a Southern warship.

Seoul asked the UN to take "timely and appropriate measures", blaming Pyongyang for March's sinking of the Cheonan, which killed 46 sailors.

But the North denied involvement and said it was the victim.

After hearing separate submissions from both sides, UN officials said they had "grave concern" over the issue and needed to debate it further.

"The Security Council makes a strong call to the parties to refrain from any act that could escalate tensions in the region," the council said in a statement.

The BBC's Barbara Plett, at the UN headquarters in New York, says the South Koreans presented evidence, including a Powerpoint presentation, which they said showed their warship was sunk by a North Korean torpedo.

"We hope that on the basis of this finding the Security Council will take timely and appropriate measures against North Korea," said South Korean delegate Yoon Duk-yong.

UN diplomats said the North Koreans demanded an opportunity to visit the site of the explosion, and once again rejected South Korea's allegations as forgery and fraud.

"We are just a victim, we would like to make our position clear here, we will inform our position, concerning that issue," said Pak Tok-hun, the North's deputy UN ambassador.

Our correspondent says there is still no agreement on what to do.

Security Council members China - North Korea's strongest ally - and Russia have not yet commented on the investigation.

The warship row has left inter-Korean relations highly tense. Seoul has suspended inter-Korean trade and Pyongyang responded by cutting all ties.

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JAPAN: Memo From Tokyo: After Parade of Prime Ministers, Japan Is Still Hoping for a Recovery

Left to right, top to bottom: Junichiro Koizumi in 2001; Shinzo Abe in 2006; Yasuo Fukuda in 2007; Taro Aso in 2008; Yukio Hatoyama in 2009; Naoto Kan in 2010; Chronological, Patrick Kovarik/Agence France-Presse—Getty Images; David Guttenfelder/AP; Franck Robichon/EPA; Haruyoshi Yamaguchi/Bloomberg; Pool Photo by Yoshikazu Tsuno; Issei Kato/Reuters

June 14, 2010

By MARTIN FACKLER

TOKYO — Just a week into office, Japan’s new prime minister, Naoto Kan, has already broken with politics as usual here by making unusually frank warnings about the nation’s growing social inequalities, unsustainable national debt and need for painful tax increases.

The question now is whether Mr. Kan, a plain-spoken former civic activist, can further defy precedent by lasting more than a year in office.

He seems off to a good start. Japan’s recession-weary voters have already embraced his tough talk, giving his governing Democratic Party a larger-than-expected bounce in the polls.

Political experts say a straight-talking prime minister is exactly what Japan wants, after years of ineffective leaders who seemed hopelessly out of touch with voters’ concerns and unable to restore a sense of direction to this rudderless nation.

What they want, many here say, is the next Junichiro Koizumi, who energized the public between 2001 and 2006 with his calls for Reagan-style economic deregulation and small government. His quirky charisma and willingness to defy entrenched interests made him the most popular prime minister in modern times, say experts, and changed Japan’s expectations for its leaders.

“Japan is starved for strong leadership,” said Satoshi Machidori, a politics professor at Kyoto University. “Voters understand they need someone to lead Japan out of its long stagnation.”

Yet despite Japan’s severe problems, its political system has given its people a string of short-lived, weak leaders. In the last four years, it has gone through four prime ministers in rapid succession, with Mr. Kan now the nation’s fifth new leader since 2006.

His immediate predecessor, Yukio Hatoyama, lasted just eight months. He was driven out by plunging approval ratings after breaking campaign promises and seeming to fritter away the Democrats’ historic election mandate.

Stretch the time frame back to 1990, the approximate beginning of Japan’s stubborn economic funk, and the ailing Asian economic giant has had 13 prime ministers come and go before Mr. Kan. Even Japanese political scientists feel hard pressed to name them all.

“We are competing with Italy to create forgettable leaders,” said Mayumi Itoh, the author of the book “The Hatoyama Dynasty: Japanese Political Leadership Through the Generations,” referring to the string of colorless leaders who preceded the current prime minister, Silvio Berlusconi.

Mr. Kan’s ability to fare better than his predecessors will largely depend on how well he grasps the reasons that drove them from office, Ms. Itoh and other experts say. And while experts cite a host of factors, from outmoded political parties to the emergence of an ingrown leadership class, most agree that the underlying problem seems to be a growing gap in expectations between the public and its political leaders.

What voters want, say political experts, is a leader who both understands their concerns and offers the vision and courage to point a way out. Too often, they have suffered instead with prime ministers who worry only about internal party politics, consensus-building and mollifying the nation’s many interest groups, experts say.

Most of Japan’s recent prime ministers have been second-, third- and even fourth-generation politicians who proved too far removed from average voters and were quick to quit when their approval ratings fell.

“Japan has gone through 20 years of economic stagnation, and there is a lot of pain out there, so voters are much more impatient for dramatic reform than politicians realize,” said Jeff Kingston, a professor of Japanese politics at Temple University’s campus in Tokyo.

Voters have responded to their tone-deaf leaders by rejecting each, often in striking style. Approval ratings for Mr. Hatoyama, who took office in September after the Democrats ended a half-century of virtual one-party rule, plummeted to the high teens from more than 70 percent, dragged down by his seemingly terminal indecisiveness.

Political experts say that Japanese voters might be more forgiving if Japan were somehow incapable of producing strong leaders, either for cultural reasons or because of the limited executive powers of the prime minister’s office, as some have argued. But in fact, the nation has produced numerous visionaries, going back to the samurai who put Meiji-period Japan on its march to industrialization in the late 19th century.

The most recent such leader was Mr. Koizumi. When members of his own party tried to block his plan to privatize the nation’s enormous postal savings system, he took his cause directly to the voters by calling a snap election, an act of political brinkmanship that few other Japanese prime ministers would dare. Mr. Koizumi and his supporters won that 2005 election by a landslide.

While Mr. Koizumi’s market-oriented agenda has fallen out of popularity, he has left a more enduring legacy: changing what voters expect of their leaders.

Japan can no longer go back to the colorless insiders who ruled by brokering backroom deals between party factions, experts say. After Mr. Koizumi, political leaders must be more television-friendly personalities capable of reaching out directly to the public, and particularly to undecided swing voters.

Mr. Koizumi also whetted Japan’s appetite for more decisive leaders unafraid to make tough choices. Experts say his successors failed because they lapsed into Japan’s consensus-driven politics, appeasing interest groups while seeming to ignore the nation’s enormous problems.

“After Koizumi, voters don’t want consensus-makers anymore,” said Jun Iio, a professor of government at the National Graduate Institute for Policy Studies in Tokyo. “Koizumi set a high bar for leadership that his successors have failed miserably to meet.”

The question now, Mr. Iio and others say, is whether Mr. Kan fully grasps this shift to a more populist style of politics.

Mr. Kan will face his first political test in the July 11 parliamentary elections. In the longer run, experts say, he will succeed only if he can show voters that he is working in their interests, something Mr. Hatoyama failed to do.

“Mr. Hatoyama is a classic example of a prime minister who needed to set a course for Japan, but couldn’t,” said Kyoto University’s Mr. Machidori. “Mr. Kan must show he has learned the Koizumi lesson.”

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JAPAN: Struggling Japan edge out Cameroon

Japan 1-0 Cameroon

By Marc Vesty

Japan edged out Cameroon in a dour encounter at Bloemfontein's Free State Stadium which produced little in the way of goalmouth action.

A far from capacity crowd witnessed two out-of-form teams struggle to find any inspiration in another tepid World Cup encounter.

After a dire opening half-hour the Japan took the lead against the run of play when Daisuke Matsui's cross looped over Stephane Mbia and was met by Keisuke Honda, who fired in coolly at the back post.

Japan almost doubled the lead when Makoto Hasebe crashed an effort towards goal but it was well saved by Souleymanou Hamidou before the offside Shinji Okazaki clattered the post as he followed up.

Cameroon finally found some urgency in the closing stages as Mbia rattled the crossbar from 25 yards but the well-drilled Japan side were able to hold on and go level with the Netherlands at the top of Group E.

The Blue Samurai, who had lost four straight games in their World Cup build-up before drawing 0-0 with Zimbabwe, set out so defensively it seemed they would be happy with a point from the opening whistle.

And although Cameroon showed more endeavour, the fact that star striker Samuel Eto'o was played wide on the right and was often found lurking very deep, they lacked any sort of cutting edge.

A 37th-minute shot from Eyong Enoh was the first goalmouth action of the game and, although it was comfortably collected by Japan goalkeeper Eiji Kawashima, it did finally suggest Cameroon may start to find gaps in the Japanese defence.

But the opposite was true as, despite their lack of attacking intent, Japan took a surprise lead one minute later.

Matsui's deep left-footed cross was completely missed by the Cameroon defenders and Honda had time to control the ball before passing into the net.

The Indomitable Lions are the most successful African side in World Cup history having qualified for the World Cup six times, but the pride and passion shown by previous incarnations was sadly lacking in this first tournament on their own continent.

Immediately after half time however, it suddenly seemed Cameroon had roused themselves from their slumber.

Three-time African Footballer of the Year Eto'o finally showed a glimpse of his ability when he picked the ball up on the right and beat two men on his way into the area before squaring to Maxim Choupo-Moting but the striker could not control his finish and blasted over the bar.

But that impetus was not to last and it was not until the 85th minute that Cameroon found two efforts which could have stolen them a point.

In a moment of inspiration totally out keeping with the rest of the game, Mbia hammered a stunning effort towards goal from 25 yards which crashed off the crossbar and following that Kawashima saved from Pierre Webo in injury time.

In fairness to Japan the Asian side's tactics worked almost perfectly as they defended solidly but on this evidence the Netherlands and Denmark will have little to worry about going into the tournament's second week.

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CHINA: Food-Inspection Group Banned From Working in China

By SCOTT KILMAN


The U.S. Department of Agriculture said Monday it is banning an organic-food inspection group from operating in China nearly two years after the department proposed the ban.

According to the USDA, which certifies private organizations to inspect organic farms, a nonprofit Lincoln, Neb., group called Organic Crop Improvement Association improperly used Chinese government employees to inspect Chinese farms that use state-owned land to grow crops for export to the U.S. bearing the USDA's organic seal.

Under the USDA's eight-year-old organic program, farm visits are supposed to be conducted by independent, third-party inspectors to avoid any conflict of interest.

Amanda Brewster, interim executive director of OCIA, which once was one of the largest organic-food inspection agencies in China, declined to comment in an email message. OCIA can continue to inspect food for compliance with U.S. organic standards in the U.S., Canada and Mexico, among other countries.

The USDA's ban isn't expected to disrupt the flow of organic products from China to U.S. supermarkets. The USDA's long spat with the Nebraska group had already prompted many Chinese farmers to arrange for periodic visits from other inspection groups accredited by the USDA.

According to the USDA, OCIA largely stopped its farm inspection work in China last year. The USDA didn't levy any fines against OCIA, which can apply for re-accreditation in China after one year.

The USDA began trying to revoke OCIA's authority to operate in China after a 2007 audit uncovered the use of Chinese government employees as farm inspectors. OCIA appealed the move.

The New York Times earlier reported the USDA's ban on OCIA on its website.

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S. KOREA: Korea summit backs biodiversity body

So far, nations have failed to halt the rate of biodiversity loss

Page last updated at 10:30 GMT, Monday, 14 June 2010 11:30 UK

By Mark Kinver
Science and environment reporter, BBC News

An international meeting has given the green light to the formation of a global "science policy" panel on biodiversity and ecosystem services.

Proponents say the new body will "bridge the gulf" between scientific research and urgent political action needed to halt biodiversity loss.

More than 230 delegates from 85 nations backed the proposals at a five-day UN meeting in Busan, South Korea.

The international panel is expected to be formally endorsed in 2011.

Among the main roles of the Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services (IPBES) will be to carry out peer reviews of scientific literature in order to provide governments with "gold standard" reports.

It is expected that the IPBES will be modelled on the Intergovernmental Panel on Climate Change (IPCC), which plays a major role in shaping global climate policy.

'Historic agreement'

"The dream of many scientists in both developed and developing countries has been made a reality," said Achim Steiner, executive director of the UN Environment Programme (Unep).

"Indeed, IPBES represents a major breakthrough in terms of organizing a global response to the loss of living organisms and forests, freshwaters, coral reefs and other ecosystems that generate multi-trillion dollar services that underpin all life - including economic life - on Earth."

The meeting's chairman Chan-Woo Kim, director-general of South Korea's environment ministry, said the "historic agreement" laid the foundations for a full scientific assessment of the challenges facing the world.

"The essence of this vision is to ensure environmental sustainability while pursuing development," he explained.

"For this to be realised, it is crucial to have a credible, legitimate and policy-relevant understanding of biodiversity and ecosystem services."

The "Busan Outcome" reached in Korea is the culmination of negotiations that began in Paris back in 2006.

The idea to establish the IPBES followed the publication of the UN's Millennium Ecosystem Assessment in 2005, which concluded that human activities threatened the Earth's ability to sustain future generations.

Professor Bob Watson, chief scientific adviser to the UK's environment department and one of the meeting's vice chairmen, said it was "absolutely critical" to address global biodiversity loss.

"There has been an urgent need to strengthen the legitimacy and credibility of scientific research in this field," he observed.

"IPBES has the potential to now raise global understanding of the threats we face... and empower governments to make policies to counter them, based on solid and integral scientific evidence."

Plans to set up the IPBES are set to be formally established by the 65th session of the UN General Assembly, which opens in September.

They will then be presented to environment ministers for endorsement at Unep's global ministerial meeting in February 2011.

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ASIA: Video of Kyrgyz Unrest on YouTube

June 14, 2010, 8:09 am

By ROBERT MACKEY

Video of the city of Osh, in southern Kyrgyzstan, posted on YouTube on Monday, showing security forces on the streets and some aid distribution.

As my colleague Michael Schwirtz reports from Kyrgyzstan, the southern city of Osh is mostly quiet on Monday morning, “after four days of violence left swaths of the country’s ethnically mixed south in ruins.”

Video showing the aftermath of deadly clashes between ethnic Kyrgyz and Uzbek citizens in and around Osh has been posted on YouTube and collected on the video-sharing service’s CitizenTube blog. Some of the images of dead or badly wounded people posted on the blog are very hard to watch.

This clip, posted within the past hour, seems to show security forces on the streets of the city on Monday:

The same YouTube channel also includes this video, apparently shot on Sunday, which has images of the city shot from the air during what looks like a helicopter patrol by the security forces:

The same user, jshekelman, had also uploaded another video on Saturday showing some of the damage done to buildings in the city:

This video, apparently shot on Saturday in Osh and uploaded to the Web by a user named Oshlik1206, shows a desperate scramble to get medical treatment for some of those wounded in the unrest:

Another YouTube channel, maintained by a user named IlhomDju, includes more images of the wounded, and this clip, apparently shot on a cellphone and uploaded on Saturday, shows burned-out buildings in the city:

ASIA: Uzbek refugees flee Kyrgyzstan violence

The UN refugee agency is coordinating a humanitarian response to the crisis

Page last updated at 21:54 GMT, Monday, 14 June 2010 22:54 UK

Thousands of ethnic Uzbeks have massed at the Uzbekistan border in an attempt to escape violence in Kyrgyzstan which has left at least 138 dead.

Reports suggest that Uzbekistan is considering closing its borders as the build-up continues, despite requests by the UN to keep it open.

The United States has called for a "co-ordinated international response" to the violence.

At least 1,761 people have been injured in four days of clashes.

The unrest - which broke out overnight Thursday between Kyrgyz and minority Uzbeks in the southern cities of Osh and Jalalabad - is the worst ethnic violence in Kyrgyzstan in 20 years.

The south of Kyrgyzstan, an ex-Soviet Central Asian state of 5.5 million people, is home to an ethnic Uzbek minority of almost one million.

It is unclear what has sparked the violence, which comes two months after ex-President Kurmanbek Bakiyev was ousted in a violent uprising.

Kyrgyzstan has appealed to Russia for military support, and the UN Security Council is also being briefed on the situation, according to officials.

British authorities have meanwhile arrested Mr Bakiyev's son, who is wanted by the Kyrgyz interim government for alleged corruption.

Refugee camps

The International Committee for the Red Cross (ICRC) earlier said that an estimated 80,000 Uzbeks have crossed into Uzbekistan from Kyrgyzstan, while about 15,000 are waiting on the border.

Camps have been set up in Uzbekistan to cope with the influx of refugees.

Most were women, children and the elderly, many of whom reportedly had gunshot wounds.

The UN refugee agency says it is providing aid to about 75,000 people.

Earlier on Monday, the Collective Security Treaty Organisation (CSTO), a regional grouping of former Soviet states, reached an outline agreement on measures to take as a response to the crisis.

I've overheard them say that they will burn the buildings and shoot us when we flee

Gulnara, Osh

No details have been released of the plans, but a Russian official has told the BBC that Moscow would not rule out sending peacekeeping troops.

Kyrgyzstan has asked Russia for troops, but it has so far refused. Correspondents say Moscow is reluctant to act unilaterally, although it has sent at least 150 paratroopers to protect its military facilities in the north of Kyrgyzstan.

Both the US and Russia have military bases in the north of Kyrgyzstan, and the country is also an important transit point for Nato troops en route to Afghanistan.

Mr Bakiyev, who was ousted in April, has called on the CSTO to send forces, claiming that Kyrgyzstan's interim government had been ineffective.

Separately, the ousted president's son, Maxim Bakiyev, has reportedly been arrested in the UK on an Interpol warrant, the AFP news agency cited Kyrgyz officials as saying.

Keneshbek Duyichebayev, the chief of Kyrgyzstan national security council, told local TV that Maxim Bakiyev was detained on his arrival at Farnborough airport.

The Home Office in London has declined to comment.

Deaths 'under-estimated'

In Kyrgyzstan, sporadic attacks continued on Monday in the southern cities of Osh and Jalalabad, amid further accusations that Kyrgyzstan troops in some areas had supported anti-Uzbek mobs over the weekend.

Several planes containing medical supplies from the World Health Organisation have begun to arrive at Osh's airport.

The BBC's Rayhan Demytrie in Osh says that many ethnic Uzbeks in the city are trapped in their homes - fearing attacks from mobs on the streets if they leave - and are in urgent need of food and supplies.

There were reports of bodies lying in the streets and in smouldering buildings, and of mass burials being carried out. Whole streets had been burned down.

Osh Police Chief Kursan Asanov said that 950 foreigners - mostly Russians, Pakistanis, Indians and Africans - had been evacuated, according to AP news agency.

UN Human Rights Commissioner Navi Pillay has called on the Kyrgyz authorities to end the fighting, adding that there was evidence of indiscriminate killings - including of children - and of rapes.

Uzbek refugees allege that, during the clashes, armoured vehicles in Osh drove through Uzbek streets shooting at civilians and clearing the way for gangs following behind.

Pascale Meige Wagner, from the International Committee for the Red Cross, said the death toll was an underestimate.

"We hear about bodies not being recovered in Osh and Jalalabad. We do believe that once the situation is bit quieter in those two towns we'll have a better idea of the dimension of this crisis," she said.

Mr Bakiyev, living in exile in Belarus, still has supporters in the south of the country, and there have been concerns that his overthrow might have exacerbated historical tensions between the ethnic groups.

Kubatbek Baibolov, commandant in Jalalabad, said the unrest was "nothing other than an attempt by Bakiyev's supporters and relatives to seize power".

Mr Bakiyev denies any involvement.

The interim government said a "well-known person" was arrested in Jalalabad on Monday on suspicion of being behind the unrest, Reuters reported. No further details on the alleged arrest were available.

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JAPAN: Japan producers 'more upbeat'

Japanese manufacturers have proved resilient

Page last updated at 10:35 GMT, Monday, 14 June 2010 11:35 UK

Optimism among big Japanese manufacturers has grown in the past three months, a study said.

The results suggested large manufacturers had shaken off fears of the euro debt crisis and the strengthening yen, according to analysts.

However the outlook for the Japanese economy remains uncertain.

Last week Japan's new prime minister said the country was at "risk of collapse" under its huge debts.

Naoto Kan, in his first major speech since taking over, said Japan needed a financial restructuring to avert a Greece-style crisis.

Later this week, Japan's central bank is expected to announce a new loan scheme aimed at redirecting money to industries with growth potential.

Asia demand

The business survey index (BSI) of sentiment at large producers rose to 10 in the April-to-June period, from 4.3 in the previous quarter, a joint survey by the Ministry of Finance and the Cabinet Office's Economic and Social Research Institute showed.

The index measures the percentage of firms that expect the business environment to improve from the previous quarter, minus the percentage that expect it to worsen.

Firms also raised their capital expenditure plans, which observers said was a sign that corporations were showing greater appetite to spend.

"Sentiment is gradually improving both for underlying conditions and the outlook," said Takeshi Minami, chief economist for the Norinchukin Research Institute.

"The euro's decline triggered by the Greek debt crisis doesn't seem to have had much impact, at least for now."

Strong demand from Asia has meant that, so far at least, demand for Japanese exports has recovered despite weakness in other markets such as Europe and the US.

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JAPAN: No damage reported from Japanese quake

No damage reported from Japanese quake

Sun Jun 13, 2010 1:29am EDT

TOKYO (Reuters) - An earthquake with a preliminary magnitude of 6.2 jolted northern Japan on Sunday, the Japan Meteorological agency said, though there were no reports of damage and nuclear facilities in the area were unaffected.

The quake, at 12:33 p.m. (0333 GMT), was also felt in Tokyo.

The focus of the tremor was 40 km (25 miles) below sea level off the east coast of Fukushima prefecture, on Japan's main island of Honshu, about 240 km (150 miles) northeast of Tokyo, the Japan Meteorological Agency said.

No tsunami warning was issued.

Kyodo news agency said there was no injuries reported in either Fukushima prefecture or Miyagi prefecture to the north.

Tokyo Electric Power Co's Fukushima No.1 and No.2 nuclear power plants were operating normally after the quake, a company spokesman said.

Tohoku Electric Power Co's Onagawa nuclear plant in Miyagi prefecture and Higashidori nuclear plant in Aomori also continued their normal operations, company officials said.

Nippon Oil Corp's Sendai refinery in Miyagi was continuing normal operations after the quake and there were no reports of damage, a refinery official said.

Japan Energy group refinery Kashima plant in Ibaraki prefecture, south of Fukushima, has been shut for scheduled maintenance and no damage was reported, a plant official said.

Sendai airport Miyagi prefecture halted flights briefly to check the runway before resuming operations, national broadcaster NHK said.

The bullet train that connects Tokyo and Aomori, northern Japan, temporarily suspended operations on part of the rail network after the quake, Kyodo said.

Earthquakes are common in Japan, one of the world's most seismically active areas. The country accounts for about 20 percent of the world's earthquakes of magnitude 6 or greater.

In October 2004, an earthquake with a magnitude of 6.8 struck the Niigata region in northern Japan, killing 65 people and injuring more than 3,000.

That was the deadliest quake since a magnitude 7.3 tremor hit the city of Kobe in 1995, killing more than 6,400.

(Reporting by Osamu Tsukimori, Hugh Lawson, Yoko Kubota and Kiyoshi Takenaka; Editing by Alex Richardson)

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JAPAN & CRUISING: MHI to hit the high seas again / Rejoining large cruise ship market, despite looming '2015 problem'

(Jun. 11, 2010)

Tomoko Echizenya / Yomiuri Shimbun Staff Writer

After a 10-year hiatus, Mitsubishi Heavy Industries Ltd. has decided to resume manufacturing large cruise ships.

MHI's timing is curious. Although the market for passenger ships is growing, the global shipbuilding industry is facing "the 2015 problem"--in which the world's shipbuilding capacity will be three times higher than the demand five years from now.

Nevertheless, the shipbuilder that made the iconic Diamond Princess still hopes to stand apart from Chinese and South Korean shipbuilders locked in a race to lower prices.

Mitsubishi's superb technological capabilities will be a key factor in determining whether the shipbuilder can boost its presence again in the market and overcome the 2015 problem.

Construction of large cruise ships, which have been called "hotels at sea" with their grand interiors and all manner of facilities, requires more parts than regular commercial ships.

MHI boasts an advantage in being able to produce both a ship and its core parts, such as engines. However, the company has not made this an ironclad rule.

"We're willing to consider cooperating with other firms to meet the diversifying needs of our customers," an MHI executive said.

European manufacturers have dominated the large passenger ship market, mainly thanks to their track record in building luxurious cruise ships.

In 2000, a British firm placed an order with MHI to build two large cruise ships--the first time a Japanese shipbuilder had received such an order from a European or U.S. company. However, a fire seriously damaged the shipyard during construction of one of the ships, and Mitsubishi took a long time to rebuild its safety management system.

As if that was not bad enough, ripples from the collapse of U.S. investment bank Lehman Brothers in 2008 reached the shipbuilding industry, hurting the market.

MHI did not receive an order in the past 10 years. In November, however, Mitsubishi was stung by the news that Samsung Heavy Industries Co. had become the first South Korean firm to receive a cruise ship order from a U.S. company. This heightened concerns at MHI that Japanese shipbuilders' technologies could soon be eclipsed by those of their South Korean rivals. The timing could not have been worse for MHI; it was still preparing to get back in the cruise ship business.

Japan was once admired as one of the world's leading shipbuilding nations. However, South Korean companies have far more ship completions these days than Japanese shipbuilders do. South Korean companies also have been building more vessels for carrying liquid natural gas--a high-value added vessel that was once the domain of Japanese shipbuilders.

MHI still leads the field in developing state-of-the-art, low-emission engines for luxury liners. This technological superiority could be the ace up MHI's sleeve as it plans to gain a bigger share of the large cruise ship market dominated by European companies.

"We won't aim to just survive, we'll aim to win the race," a Mitsubishi executive said.

In South Korea, however, several companies other than Samsung are itching to enter the cruise ship business. If MHI loses its technical superiority, competition with South Korean rivals would likely intensify.

Elderly boosting cruise market

The global cruise market is expanding as the number of elderly people with time and money on their hands is increasing in developed countries, and cruise ship operators and travel agencies are offering a wider variety of travel plans.

Most cruise tours on large ships, such as round-the-world trips, tended to be very long. These were targeted at wealthy high-flyers and high-income earners. But in recent years, plans that will not break the bank, such as a three-day, two-night cruise costing less than 100,000 yen, have appeared on the market. This has made cruises affordable and put them within reach of ordinary people.

This trend is more evident in the United States and Europe, home to most of the world's cruise passengers.

In Japan, more and more people are going on cruises to celebrate special occasions such as retirement, although the overall number of customers itself is falling. Some analysts say this pattern could also appear in Middle Eastern countries with its wealthy population and in China, where income levels are rising quickly.

Many industry observers believe the global market for large cruise ships will continue to grow.

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RUSSIA: Man the Torpedoes: Defend this Bolshevik Boat!

6/11/2010 7:04:21 PM

The Cruiser Aurora played a pivotal role in the 1917 Russian Revolution. Nowadays, St. Petersburg communists say the threat isn't military but economic -- hard-partying bourgeoisie. WSJ's Greg White reports.

JAPAN: Japan unfurls solar sail in space

An image of the deployment is sent back to Earth

By Jonathan Amos
Science correspondent, BBC News

Japanese scientists are celebrating the successful deployment of their solar sail, Ikaros.

The 200-sq-m (2,100-sq-ft) membrane is attached to a small disc-shaped spacecraft that was put in orbit last month by an H-IIA rocket.

Ikaros will demonstrate the principle of using sunlight as a simple and efficient means of propulsion.

The technique has long been touted as a way of moving spacecraft around the Solar System using no chemical fuels.

The mission team will be watching to see if Ikaros produces a measurable acceleration, and how well its systems are able to steer the craft through space.

The Japan Aerospace Exploration Agency (Jaxa) said in a statement that its scientists and engineers had begun to deploy the solar sail on 3 June (JST).

On 10 June, Jaxa said, confirmation was received that the sail had expanded successfully. Some thin-film solar cells embedded in the membrane were even generating power, it added.

Space applications

The principle of solar sailing is a simple one. Photons, or particles of light, falling on a highly reflective, ultra-thin (in this case, just 7.5 microns) surface will exert a pressure.

The force is tiny but continuous, and over time should produce a considerable velocity.

Solar sails will never replace conventional propulsion systems like chemical thrusters, but they do have the potential to play a much greater role in certain types of space mission.

Louis Friedman, from the space advocacy group The Planetary Society, is a big supporter of the technology. The society's LightSail-1, a much smaller mission than Ikaros, could launch by the year's end. He told BBC News recently:

"The potential that we all seek is the ultra-lightweight, very fast spacecraft that doesn't use fuel.

"That's the future of interstellar travel; that's the long-term goal. The intermediate goals are to be able to use this technology to 'hover' in interplanetary space at particular points for monitoring, say, the Sun or monitoring the Earth's geomagnetic poles or magneto-tail; and then also to fly between the planets without using fuel."

Already some satellites in geostationary orbit above the Earth use flaps on the ends of their solar panels to catch the pressure of sunlight to maintain their correct attitude.

This leads to a considerable saving on the fuel that would otherwise have to be sent surging through the satellites' thrusters, and operators have found this strategy can extend the longevity of some missions by many months.

Venus 'piggy-back'

Deploying a large membrane in space is a challenging task, however.

The circular Ikaros was launched with the sail wrapped around it. The plan was to unbutton the four weighted corners of the membrane and allow them to fly outwards as the central module turned. This was expected to pull the sail taut. A camera mounted on the central hub of Ikaros confirmed the sail had indeed been drawn flat.

Japanese scientists must now hope they can control this huge spinning film. If instabilities develop in the sail, it could start to bend and fold, ruining the experiment.

Ikaros was a piggy-back payload to Japan's Venus orbiter, Akatsuki.

The pair were boosted in to space on 21 May (JST) from the Tanegashima Space Center.

Akatsuki will arrive at Venus in December. Key goals include finding definitive evidence for lightning and for active volcanoes.

SAILING TO VENUS -

HOW IKAROS UNFURLS ITS SOLAR SAIL

(1) For the deployment, the disc-shaped Ikaros spacecraft was first spun up

(2) The four weighted corners of the sail were then released and flew outwards

(3) Finally, the packed sail membrane was released

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RUSSIA: Russia bearish on infrastructure spending

Going up: a ski lift in operation at Sochi, site of the 2014 Winter Olympics – an infrastructure project that has thus far escaped government spending cuts

Published: June 7 2010 17:55 | Last updated: June 7 2010 17:55

By Charles Clover

The global economic crisis has hit ambitious goals Russia laid down in 2007 to rebuild its infrastructure, part of its plan to become the fifth-largest economy in the world by 2020.

Much of the country’s road, airport, railroad and power-generating capacity is decayed, left over from the Soviet era. Amid the post-communist economic chaos, investment spending collapsed in the 1990s, and only three years ago recovered to world averages.

In 2007, German Gref, the economics minister at the time, announced plans to spend up to $1,000bn (£695bn, €820bn) over the following decade on roads, airports, electricity generation, housing and other much-needed infrastructure.

The proposals – a potential bonanza for international banks and construction and engineering firms – are now likely to take longer to materialise than many optimistic forecasts had expected.

Just three years later, the plans are in tatters – the money spent on alleviating the financial crisis instead.
A total of $8bn earmarked for infrastructure investment from Vnesheconombank, the state development bank, went instead to bail out Rusal, the aluminium conglomerate, and other private companies. Budget money has also been moved from investment to social spending to soothe the impact of the crisis on the population.

The only projects that have been exempt from cuts are the $14bn Olympic site in Sochi for the 2014 Winter Olympics and a $10bn development plan in the far eastern region ahead of the 2012 Asia-Pacific Economic Cooperation (Apec) summit in Vladivostok.

“They can’t change the date of the Olympics, or they would,” says Andrei Kuznetsov, a strategist at Troika Dialog, the Moscow investment bank.

Sochi is one of the Kremlin’s flagship projects, meant to symbolise the rebirth of post-communist Russia in the same way that the 2008 summer Olympics showcased the new China. Up to $5bn of the costs will be financed from the federal budget, and much of the rest provided by investments from Russia’s large state- or quasi-state-owned industrial behemoths such as Gazprom, the natural-gas monopoly, and Rusal.

Gazprom is funding the construction of a resort for cross-country skiing; Interros, a big industrial group, is building a ski centre; and Sberbank, the largest retail bank in Russia, is constructing a ski jump. Tourism infrastructure plans include building a number of hotels, laying fibre-optic cables and installing a satellite navigation system in the city’s buses.

In Vladivostok, plans are afoot to build two massive bridges, a gleaming new airport and a university that will host the Apec conference.

In other areas, spending has been slashed, though official projections have yet to be revised. Finding figures is difficult, as the government does not disclose them, say analysts.

“The government doesn’t announce it is cutting spending on infrastructure. It just delays it, which is the same as cutting,” says Mr Kuznetsov.

The scale of the infrastructural task alone is daunting. Despite Russia’s size, its railway network is half the length of that in the US and freight trains crawl along at an average 25mph. The paved road network is less than one-10th the size of the US’s, and barely 5 per cent of its roads are considered “good quality” – which in Russia means having at least two lanes and a decent surface.

Improving this will mean radically changing the structure of the Russian economy away from consumption, to which it is currently geared, towards investment.

Investment, as measured against GDP, is 30 per cent for a typical emerging market, but in the middle of the past decade this fell to 15 per cent. It has only slowly been creeping back up, achieving the average overall world level of 23 per cent in 2007.

Russia invests far less in infrastructure than China or other Asian high-growth countries. Infrastructure investment is roughly 4-5 per cent of Russia’s GDP, while in China it is 8 per cent, according to Troika Dialog.

One constant obstacle to greater infrastructure spending is the cost of building in Russia, which seems to be astronomical compared with other countries. Moscow residents joke that the cost of a kilometre of the MKAD, or Moscow ring road, is equivalent to a kilometre of the Large Hadron Collider built by Cern on the Franco-Swiss border.

A planned 415-mile highway linking Moscow and St Petersburg will be expensive. Stage one, or 27 miles of the roadway, is projected to cost $1.2bn, and that is likely to rise.

Another costly road project is the western high-speed highway in St Petersburg, an eight-lane road designed to alleviate traffic congestion in the city. It is scheduled to be built, together with a ring road around the city, by 2015. Since spring 2006, the construction cost of the 29-mile road has risen by 370 per cent, from 57bn roubles (£1.3bn, €1.5bn) to 212.7bn roubles.

The problem, according to Mr Kuznetsov, is that

“when the government increases spending, it doesn’t increase volumes, it increases prices”.

Overall, 80 per cent of the $1,000bn announced in 2007 is expected to come from private sources, which in practice means mostly loyal oligarchs and state companies. But unlike China, which spends nearly $500bn every year on infrastructure, largely from its own resources, even Russia’s oil wealth will not be enough to finance the entirety of its ambitious plans. Foreign investors may be needed.

The European Bank for Reconstruction and Development has taken the lead in financing several projects, and will make its largest loan to date, of $245m, for the St Petersburg flood-protection barrier. It is also lending towards the reconstruction of the city’s Pulkovo airport.

Foreign investors will be wooed to participate in public/private partnerships to build projects such as toll roads and electricity generation, although Russia’s record with such investors leaves much to be desired. There are several damaging precedents such as the Sakhalin-2 oil and gas project, control over which Royal Dutch Shell lost to Gazprom in 2006.

This might make foreign investors think twice about getting into a long-term infrastructure project in Russia. However, for the time being, with oil and gas revenues buoying the economy, foreign appetite to invest in Russia never seems to wane.

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