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China’s demand for oil: a tale of three graphs 15, October 2008

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We all know that a picture can tell a thousand words, but how about a graph? For my money, I’d suggest that they can tell rather a lot too. And, to keep the slightly confused mixed-topic-analogies going, one mustn’t forget that there are lies, damned lies, and graphs.

Consider the following graph from this excellent website.

This clearly shows that China’s production of crude oil is rising steeply. This is no doubt a good thing (though not necessarily for the planet). Everyone knows that China’s demand for energy is rising and seemingly insatiable. So if they can produce such an amount (and such a large increase) of oil, this leaves more for the rest of us. This would mean that there would be marginally less demand on, for example, Middle Eastern oil, and this can but only help the price stay one or two cents lower.

However, consider the following graph. This is taken from the same site and shows China’s predicted oil reserves. The rising red line to the orange vertical line is the actual known production. The line on the other side is the predicted curve using the Hubbert curve. This is a formula used for predicting when oil will run out. It suggests that the rate that a country can find and produce oil (how steep the initial curve is) will be mirrored in terms of its downturn after the peak has been reached. The author of this thesis – King Hubbert – was initially ridiculed for this thesis, but was proved eerily correct when he correctly predicted – decades before the event – that American oil supplies would peak and begin to fall in the 1970s.

This graph, obviously, is not as positive. Moreover, it is rather pessimistic. Just look at the predicted precipitous decline of production of barrels of oil, beginning in the next five to ten years. Such a steep decline means that China will inevitably dive into other sources of oil at quite a rate come 2020, according to the prediction. Obviously, China realise this to some degree and are currently scouring the world for oil as we speak, but this search will turn into something of a mad panic should the decrease be as steep as predicted. For it is one thing to plan for a future problem; it is another if and when the problem is immediate and rather larger than expected. Needless to say, such a massive leap in demand would cause an equally large rise in the price of oil.

And the situation gets worse. Look at the following small graph.

The vast Chinese demand for oil can clearly be seen here and there are few indicators suggesting that this demand will slow that much. Certainly it will not drop or even markedly drop off. Therefore, couple this large increase with the previous graph and there is a worrying conflagration of factors that bode ill for oil supplies and in particular the oil price in the near future.

These graphs show that all angles of a problem must be examined before a conclusion is made. If one were only to see first graph, the prognosis might be significantly rosier than it perhaps ought to be. One can only hope that either Hubbert’s equation is wrong this time or I’ve simply missed out a crucial graph or three.

There’s that phrase again… 6, October 2008

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I just read a news article which slipped past me some months ago, about the Qatari state visit to Beijing back in April. During this visit the countries ties up lucrative and important contracts regarding Liquefied Natural Gas (LNG). Qatar is currently the world’s largest exporter and China, ever desperate to get its hands on more fuel, has just signed two important contracts for exportation and development. In the report was the immortal phrase, inserted in to countless such articles, where the nation dealing with China make clear (or have made clear for them) their undying, unyielding, unswerving and fervent commitment to the one China policy.

 

Chinese, Qatari firms ink gas deals

<!–enpproperty 2008-04-11 07:21:54.0Li XiaokunChinese, Qatari firms ink gas dealsQatar, gas1158960National2@webnews/enpproperty–>

By Li Xiaokun (China Daily)
Updated: 2008-04-11 07:21

China’s two largest owners of liquefied natural gas (LNG) terminals Thursday inked deals with Qatargas Operating Co for LNG importation – the first such deal between China and the world’s top LNG exporter.

Qatargas will sell 2 million tons of LNG a year to China National Offshore Oil Corp (CNOOC), currently China’s sole LNG importer, starting from next year, according to the agreement.

Qatargas and its partner Royal Dutch Shell will sell 3 million tons of LNG a year to PetroChina from 2011.

CNOOC, China’s third-largest oil company, also announced Thursday it will open 17 offshore blocks for joint oil exploration with foreign companies this year.

The two agreements were signed between the companies’ chairmen at the Great Hall of the People Thursday, in the presence of Premier Wen Jiabao and visiting Qatari Prime Minister Shaikh Hamad bin Jassim bin Jabr Al-Thani.

The two countries also inked three memoranda of understanding to enhance energy cooperation between the two governments and relevant companies, and expand bilateral cultural cooperation between now and 2010.

During a one-hour talk ahead of the signing ceremony, Wen said energy cooperation between the two nations has made encouraging breakthroughs recently.

He expressed hopes that the two sides can expand cooperation on energy, infrastructure construction and other fields, including culture, education, media, aviation and tourism.

Qatar attaches great importance to Sino-Qatari relations, resolutely adheres to the One-China policy and wished Beijing a successful Olympics, Jabr Al-Thani said.

“China has held many large-scale activities splendidly before. I believe the Beijing Olympics will be as outstanding as the previous ones here,” he said.

With this year marking the 20th anniversary of the establishment of bilateral ties, Jabr Al-Thani said Qatar would like to join hands with China to expand bilateral relations.

The Qatari prime minister arrived in Shanghai on Sunday for a weeklong official visit – the highest-level one by a Qatari leader in seven years.

He was scheduled to travel to Hainan province this morning to meet President Hu Jintao and other foreign heads of state, and deliver a speech at the opening ceremony of the Boao Forum for Asia on Saturday afternoon.

China’s Corruption 25, September 2008

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Here is an excellent article in the International Herald Tribune, expounding on the vicious and widespread problem of corruption in China, the effects of which – unfortunately – are being felt now with the baby food crisis.

China’s Robber-Baron Ways

Only a short time after China’s magnificent Olympic coming-out party, the land of Mao’s successors found itself making less celebratory news.

“Tainted Milk Formula Sickens Thousands of Chinese Infants” read one of many recent headlines. Twenty-two companies that produce or distribute milk powder had been secretly adding melamine, normally used for making plastics and glue, into milk powder, making thousands of infants sick and causing several deaths.

It is one of the puzzling questions about China: How can a country that organized such a splendid Olympic splash be the same country that produces deadly food scares on a regular basis?

The answer says a lot about today’s China. In its March to modernity, Beijing’s ruling Communist Party took off the economic shackles of the Mao years and relaunched the country as a capitalist-communist state – a real oddball coupling, if ever there was one. Part of this process involved the radical devolution of economic power to over 30 provinces, fostering a kind of anarchic federalism.

As with American federalism, the national government in China is responsible for certain duties and the country’s provincial governments are responsible for others. But in China, none of this arrangement is written down or spelled out anywhere, as it is in the U.S. Constitution.

Instead, it is still a work in progress, with provincial officials taking as much rope as they dare. Power at the provincial level is still vested in the local Communist Party, but also intertwined with personal and family networks, motivated by the former leader Deng Xiaoping’s maxim, “to get rich is glorious.”

That’s an odd motivation for the heirs of Karl Marx, and in practice it’s led to lots of cronyism and corruption.

The scale of corruption in China is startling. The Chinese researcher Sun Yan has written that the average “take” in the 1980s was $5,000, but now it is over $250,000. The number of arrests of senior Communist Party members quadrupled between 1992 and 2001. Four provincial governors and one provincial party secretary recently were charged with corruption.

Even at the level of the central government, corruption has been debilitating and helps set the national tone. High-level officials, including the mayor of Beijing, a vice chairman of the National People’s Congress, the former president of the Bank of China, the vice governor of the People’s Bank of China and the director of China’s foreign exchange administration, were arrested and imprisoned for embezzlement and fraud. One of them eventually was executed, and another leaped to his death.

To put that in perspective, says the author Will Hutton, it would be as if the mayor of New York, the speaker of the House of Representatives, and the chief executives of Goldman Sachs and Citibank, along with a governor of the Federal Reserve, were all either imprisoned for fraud, executed or committed suicide.

The Chinese economist Hu Angang has estimated an annual economic loss due to corruption of approximately 15 percent of GDP. In this climate, cutting foreign substances into milk formula, pet food or medicine becomes standard operating procedure, like a drug dealer looking to maximize the street value of his stash by mixing in filler material.

To be fair, not all the provinces and not all the business people or bureaucrats engage in such illicit behavior. And China’s leadership has taken steps to crack down. Punishments have been increased, tougher laws have been passed. Officials now are forbidden to enter business relationships with family members. Audits and anti-corruption screenings have been introduced.

But when I questioned a Chinese official about corruption, his defense – “we’re not as bad as Burma” – was hardly convincing.

Yes, the central government in Beijing can use its authoritarian power to pull off a brilliant Olympics party. And over the past 30 years, the Chinese leadership has accomplished the remarkable feat of lifting 400 million people out of poverty. But China is still very much a developing country, plagued by a mess of contradictions.

It is difficult to imagine how the country’s anarchic, robber-baron ways will serve China well for the next 30 years. Either political reform and accountability will slowly take root, or China’s modernization will falter.

Steven Hill is director of the Political Reform Program of the New America Foundation.

Chinese closure of Mosque in Xinjiang 24, June 2008

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Reuters in Beijing is reporting that the Chinese authorities have closed down a Mosque in the Xinjiang region because it refused to put up posters supporting the Beijing Olympics. Aside from this initial fact, the story descends into something of a ‘who do you believe’ situation.

One the one side, the Chinese authorities trot out the familiar line about how there are terrorists in the area are “supported by Al Qaeda”. Obviously, China are not the first country in the world to take advantage of this new phrase in the political lexicon, which magically conveys gravitas, a suspension of questioning and  – by and large – human rights. Russia and the Central Asian states (not to mention countless Middle Eastern countries) frequently speak of Al Qaeda as a defensive barrier to Western human rights, international law and morality concerns.

And on the other had there is the World Uyghur Congress, who hit all their marks with their reply. They talk of how the government have seized their copies of the Quran, stopped allowing free worship, closed the mosque entirely, and have been torturing Muslims. Many of these instances could well be true, but the beseeching nature their diatribes, beseeching Muslim countries to intervene somehow (hence the buzz words: Quran, Mosque, pray, and torture) I feel takes away some of their gravitas.

China and their defence budget: devious or defensive? 6, March 2008

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There are two broad theses regarding China’s future. The first suggests that China is essentially a peacefully creature looking to expand its economy, improve its society, and generally emerge as a modern developed nation. It will do this by being neither more nor less aggressive than any other country in the state system.

The alternative thesis suggests that China is an angry country. For the vast majority of its history it was the superpower in its corner of the world. This all came to an end with the arrival, interference, and subjugation at the hands of Europeans (and the Japanese briefly). China is, therefore, seeking to emerge from its ‘century of humiliation’ and eager to reassert its rightful place at the top of the international tree. They will pursue this goal single-mindedly and with vigour, spurred on by the painful and humiliating memories of its recent history.

These opinions (though particularly the latter) can clearly be seen as soon as China releases its defence spending figures. Now that the Soviet Union is dead and buried (in its old guise at least) the US Department of Defence (DOD) now produces an annual assessment of the Chinese military threat as opposed to the Soviet one. This time around the headline is China’s 17.6% increase in defence spending. That sounds like a lot. Yet, if the absolute figure is compared to US defence spending and assuming that China has released an honest appraisal of its spending (which many people doubt), then we are comparing China’s paltry $57.2 billion to the US’ mammoth $700 billion. Even accounting for any Chinese ‘creative accounting’ when arriving at the $57.2 figure, it would still be utterly dwarfed by US spending.

However, it is not really the money per se that has the US DOD worried, but what they are spending it on and the apparent furtiveness with which China seek to disguise such spending.

Firstly, the Chinese are – sensibly – employing asymmetric tactics when it comes to thinking about America and its military. For example, the US navy currently has twenty-four aircraft carriers, which is more than twice the number that the rest of the world has put together and twenty-four times as many as China. These gigantic floating fortresses are staggeringly powerful and play a crucial role in guaranteeing America’s pre-eminence in the Pacific and elsewhere. China – somewhat unsportingly as far as the US DOD are concerned – are not spending hundreds of billions of dollars on creating their own fleet of aircraft carriers, but instead only tens or hundreds of millions of dollars on designing and producing highly advanced cruise missiles with the potential capability of taking out America’s aircraft carriers. Other important aspects of China’s asymmetric warfare potential are their development of satellite-killing missiles to take advantage of the US military’s dependence on their spying and communication satellites as well as China’s apparent investment in cyber-warfare.

David Sedney the US deputy assistant secretary of defence for East Asia neatly describes America’s secondary concern.

“China’s military build-up has been characterized by opacity…The real story is the continuing development, the continuing modernization, the continuing acquisition of capabilities and the corresponding and unfortunate lack of understanding, lack of transparency about the intentions of those and how they are going to be employed. What is China going to do with all that?”

America seem to want China to be more forthcoming than rational prudence would suggest is sensible. Of course China is keeping some things a secret from the rest of the world. Why is this such a great shock? All countries do this to some degree. Whilst America may well be one of the most open countries about such things, they are the world hegemon and account for 48% of the world’s spending on the military, as much as China, Russia, the UK, France, Japan, Germany, Italy, Saudi Arabia, South Korea, India, Australia, Brazil, Canada, Spain, Turkey, Israel, the Netherlands, the UAE, Taiwan, Greece, Iran, Myanmar, Singapore, Poland, Sweden, Colombia, Chile, Belgium, Egypt, Pakistan, Denmark, Indonesia, Switzerland, Kuwait, South Africa, Oman, Malaysia, Mexico, Portugal, Algeria, Finland, Austria, Venezuela, the Czech Republic, Romania, Qatar and Thailand put together. They have nearly 170,000 troops between China and America, including nearly 70,000 right on China’s doorstep. This list of the manifestations of American pre-eminence, as you can probably imagine, could go on for a while. In short, it is easy to be sanctimonious and somewhat smug when you have such staggering hegemony.

Yet just think of how China sees the American position. They see, I would argue, American military presence filtered through two prisms: Taiwan and resource procurement. Taiwan is one of the most sensitive subjects for China. They see it as an utterly private and internal matter. They viscerally despise American intervention in it and it is often – rightly – quoted as a potential flashpoint for US-Chinese relations. China, therefore, see the advanced American hardware floating around the South China sea (and indeed, just about every other sea of importance). They see the 70,000 American troops stationed in South Korea (less than a three hour flight away), Japan (less than a four hour flight away) and Guam (armed with long-range stealth B-2s). They see America’s huge defence budget. They see and believe America’s stated stance to defend Taiwan in the event of Chinese aggression, and are, somewhat understandably, nervous.

China’s other prism is that of resource protection. China is becoming ever increasingly dependent on Middle Eastern oil despite numerous attempts to procure other energy sources from other locales. Whilst they have very good relations with the producing states themselves, they still have to get it back to the homeland. The only viable way to do this (for the medium term at least) is to ship it. The problem here is – again – that America rules the waves. No nation on earth would have its lifeline so firmly in the hands of another power, friendly or unfriendly. China has tried to redress this balance by establishing a base on Gwadar in Pakistan, close to the Straits of Hormuz from where they can project some power. Also, as the US DOD report points out, China will have almost twice as many submarines as America by 2010. Whilst this is an important statistic, it must be remembered that the vast majority of these submarines are vastly inferior to their American counterparts and don’t forget the rest of the American hi-tech arsenal. Overall, therefore, China is still woefully outmatched by America on this front. Hence their asymmetric stance.

There is clearly enough information in these arguments which sounds sufficiently plausible and convincing to make either case. The numbers can be alarming. Yet if the situation can be seen from the Chinese perspective many of China’s actions seem like a perfectly reasonable course of action, however much we in the West may see them as unnecessary.

China happy with “smooth” Russian election 4, March 2008

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China left themselves firmly in the minority when they unequivocally welcomed the election of Dmitry Medvedev as Russia’s new President. A Chinese Foreign Ministry spokesman said that China was pleased to see that the election went smoothly. To be honest, one wonders which election he was referring to. Smoothly is about the last adverb that ought to be used to describe Medvedev’s victory.

However, China’s reaction is not in the least surprising given their utterly rigid policy of non-interference and criticism of other country’s domestic affairs. Indeed, it is just this kind inflexibility and apparent choice to be immoral, as opposed to amoral, that lands them on the wrong side of international opinion so often.

China’s Russian future? 3, March 2008

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Simon Elegant over at Time’s China Blog wrote an interesting article suggesting that China might look towards Russia’s blueprint for its political future. Elegant suggests that the CCCP in Beijing would look favourably upon Russia’s current ability to ‘democratically’ guarantee power to the main party. Russia has, after all, all but turned into a one party state with but a fig leaf of democratic cover. This notion of democratically guaranteeing one party rule would surely be the panacea for China’s elite. All the benefits that they currently enjoy of their restrictive system and a modicum of democratic cover: perfect.

Indeed, it has never really mattered if the world believes than an election is fair, far from it. It is manifestly obvious that Medvedev’s election is questionable at best and a travesty of democracy at worst and it certainly didn’t matter to the various despots and dictators who got themselves returned to office with a miraculous 99.9% of the vote in the past. All that matters is that there is the figment, the notion, the light wafting of democracy in their general direction. The rest of the world carps for a while and then must put such notions aside as they need to have a working relationship with the country in question. 

Elegant suggests that there are two ways to achieve such a “managed democracy” result. Firstly, you simply need to emasculate, knee-cap, and generally destroy any opposition parties. Cue absurd arrests on pathetic pre-texts, complete marginalisation of said candidates or parties by your state controlled media, and, if all that fails – just kill them. Secondly, you need to co-opt the people. In Russia’s case, Putin feeds on the notion that Russians crave stability and prestige after the destruction wrought by the 1990’s. Putin fulfils these criteria superbly, particularly addressing the Russian need to feel like a superpower. In China’s case, Elegant suggests that the Chinese people could be co-opted by the desire to keep the economic boom booming. The CCCP could play on the notion that the ‘opposition’ (suitably emasculated, obviously) are a threat to the Chinese economic miracle and can not be trusted. 

Thus, just across the border, China have a ready made system on which they can base their next stage of political evolution if they so choose. The allure of democratic righteousness is surely a powerful one for Beijing, especially with Taiwan expertly (and infuriatingly) showing just how well Chinese characteristics, democracy and economic growth can go together.

 

 

China’s selfless quid pro quo 28, February 2008

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Chinese President Hu Jintao is currently entertaining a Nigerian delegation in Beijing.

Somewhat unsurprisingly, cooperation and help was promised in the fields of energy, telecommunications,  agriculture, and manufacturing. Yet more unsurprisingly, the Nigerian delegation maintained that they were “sticking to the one-China policy, and support[ed] China’s peaceful reunification process.” And just in case anyone has any nefarious or cynical ideas as to why China are engaging with Nigeria, Wen Jiabao, the Chinese Premier told the Nigerians that “China’s assistance to Africa was purely selfless, and only aimed to help Africa accelerate its independence.” The Chinese: such humanitarians.

Chinese efficiency: LHR-PEK 27, February 2008

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China has just announced the opening of their new terminal at Beijing International Airport. To give it some perspective, this single terminal is bigger than all of Heathrow’s terminals put together and – better still – this gargantuan building, which is now officially the largest building in the world, was built for half the cost of T5 and took only four years from ground breaking to grand opening. T5, on the other hand, will have taken nearly twenty years. Obviously there are good reasons as to why T5 was so expensive, which hardly need explaining. However, my biggest problem is the time scale disparity: 20 to 4.  Twenty years is simply a ludicrously long time. If only we could resign ourselves and say ‘perfection takes time’ but we all know that like the Scottish Parliament (another staggering example of an utter waste of time and money, not to mention a complete and utter taste bypass), bits will be falling off in no time…

The Chinese media reaction to the Darfur crisis – caught between the old and the new 25, February 2008

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The Chinese media reaction to the Darfur crisis – caught between the old and the new.

The Chinese reaction to the criticism of their Sudanese policies has varied widely. Liu Guijin the Chinese special envoy to Africa spoke eloquently to journalists in London last week. In excellent English, he calmly and coherently made the Chinese case. China was indeed trying to help in Darfur through various meetings and other mediums. China only supplies some 8% of the weapons to Sudan, he claimed, and professed confusion as to how stories exaggerating China’s arms exporting deals come about. “Is it a misunderstanding or is it intentional?” he mused. However, he reiterated the fundamental plank of Chinese foreign policy being non-intervention and was clear that China would only go so far in terms of persuasion. This particular example is similar to the Chinese response in front of the Western media as a whole: professional and slick.

This is in stark contrast to the Chinese domestic response to the same crisis, even in the English language news in China. Take Xinhua for example, the Governmental mouth piece. To choose two of their stories covering Sudan and China, one was titled “Sudan’s FM lauds China’s role in solving Darfur issue.” At a press conference with Liu Guikin the Sudanese foreign minister gave a statement as if it was written for him by the Chinese:

“China is using its good relations with Sudan to help it solve the Darfur issue…China is not here to help Sudan in a way that will prompt the Darfur conflict to continue. China is here to help Sudan in issues regarding economic developments. China is here to help build Sudan, and China is engaged in business not only in the oil sector, but also other sector…[Commenting on some Western organizations’ threat to boycott the Beijing Olympic Games] What they should do is to solve the Darfur issue in a right direction, instead of putting more pressure on China.”

It seems that the Sudanese English language newspapers were equally on message, as quoted in Xinhua:

Sudan Vision, the largest English-language daily in terms of circulation, ran an editorial in both English and Chinese, the first of its kind by a newspaper in Sudan.

“Indeed, Chinese leadership and media refused to trail behind Western fabrications on Darfur, and have instead firmly stood in the face of pressures put on it because it is fully aware of Western attempts to capitalize on the African problem to pass its own agendas which did not change since the colonial era,” the independent daily said in the editorial.

“We have every right to mock at the flawed voices attempting tolink the Olympic Games China will host to the Darfur problem. Such cheap attempt will not affect the eligibility of China for hosting this international activity in the best manner,” the editorial said.

“We, too, appreciate China’s repeated call for political dialogue to resolve the Darfur issue, contrary to Western pressures on Sudan,” it said.

“But the way Western countries dealt with the issue, providing Darfur rebels with funds, weapons and political support, made the rebels reluctant to reach peace. Not only that, the West has continued to use rebels as pawn to achieve its target,” said the editorial.

 

Such flagrant bias would simply not be tolerated in Western media. Indeed, it would surely be treated with the scorn and contempt that it deserves. What is more puzzling is that China appears to realise this, at least to some extent. You don’t see them peddling this kind of insipid and transparent dialogue in the West, not that they could find (one would hope) a Western newspaper to promulgate Beijing’s line in such an obsequious manner.

Victor Mallet of the Financial Times recently wrote an interesting piece tangential to this theme. He suggested that Beijing ought to open up its media to a greater extent, to allow Chinese people to decide the pros and cons for themselves. Then, “its officials and citizens would be better prepared for the onslaught of criticism and political activism likely to be directed at Beijing’s domestic and foreign policies ahead of the Olympic Games.”

Beijing’s cautious, simplistic and anachronistic assumption that such sycophantic reporting is the safer way to proceed to minimise protest and disharmony is sure to backfire.

Firstly, if people do indeed believe such stories in their entirety then, as Mallet points out, they will be shocked and none too happy with the Western media coverage of events in the lead up to the Olympics. This will create a feeling that the Western media and thus the West are unjustly attacking China just as it is about to take centre stage in one of the most significant events in its recent history. Again, one must not underestimate the importance of the Olympics to the Chinese, in terms of the pride with which they take in hosting it and the prestige that they believe will bestowed on China because of it.

Secondly, for those who read such reports with a wry and rueful smile, the Chinese government are doing themselves no favours. Such reporting suggests gullibility on the part of the reader: not a nice assumption to be fostered upon anyone. Disenfranchising swathes of citizens (and it is surely swathes: most people don’t really take these reports seriously?) will only push them to seek more sources of news, something which the Government seeks to keep under control.

Overall, such reports smack of the old days; of absurd communist pre-Perestroika press or even of Comical Ali, where press reporting was decidedly more fiction than fact. And, to reiterate, the Chinese know better: they show that they do in their modern, fluent and professional Western media interviews. They must not think that they can keep – á la King Canute – the tide of free press and free discussion away from their citizens, it is simply not feasible and, in the long run, not advantageous.