Wednesday, February 24, 2010



According to data recently released by the US Treasury, China was a net seller of US Treasury Bonds in December,2009.Its sales of some of its bond holdings brought down the total value of its holdings in the US by $ 34.2 billion to $ 755.4 billion. China's share of total outstanding short- and long-term US Treasury securities among foreign holders declined to 20.9 percent in December from 23 percent in mid-2009, yielding its position as the largest investor in US treasuries to Japan.

2. The Chinese sales of December, 2009, which have been interpreted by many analysts as indicating the beginning of a trend to be more cautious in future investments in US bonds, has given rise to two questions. Firstly, was the decision to reduce the holdings a political decision triggered off by developing differences with the US over issues such as the US arms sales to Taiwan and human rights in Tibet or was it a purely economic decision unrelated to political issues between the US and China? Secondly, if it was a purely economic decision were the sales temporary influenced by market conditions of last year or has China decided to reduce its future investments in the US bonds in order to protect itself from any future weakening of the dollar.

3. Chinese analysts have themselves been anxious to point out that it was not a political decision. The sales took place at a time when the Sino-US differences on Taiwan and President Barack Obama’s meeting with His Holiness the Dalai Lama had not come to the fore. According to them, it was a purely economic decision indicative of Chinese nervousness over the strength of the US dollar. The sales seemed to have been the result of an ad hoc decision caused by the then prevailing market conditions and did not indicate a Chinese decision to reduce further its holdings in the US bonds in the months to come.

4. While underlining the need for rationalizing the Chinese investments in the US bonds, some analysts have pointed out the dangers of overdoing the exercise. They have drawn attention to the benefits accruing to China as a result of its holdings in US bonds and to its newly-acquired image as a responsible international economic power, which has been contributing to a re-stabilisation of the global economy, and have advised on the need for caution while re-adjusting its US bond holdings.

5.For some months now, some Chinese analysts have been suggesting that in order to reduce its dependence on dollar assets, China should invest its foreign exchange reserves more in gold, like, according to them, India. There are not many takers for this suggestion. Some have suggested that instead of buying gold as India has reportedly been doing, China should spend part of its foreign exchange reserves for acquiring overseas gold mines and not for buying gold from sources such as the International Monetary Fund.

6. Annexed are extracts from some articles carried by the Government/Party owned Chinese media on this subject.

7. In some of the mushrooming blogs of China, there has been an interesting comparison of the Indian economy with the Chinese economy. Many bloggers, who have been participating in this debate, feel that the Indian economy is now in the same position as the Chinese economy was between 1990 and 1995 when China started attracting investors from the Western countries. Before 1990, the flow of foreign investments to China was mainly from the overseas Chinese in Hong Kong, Taiwan and South-East Asia. According to them, the Chinese economy has presently a lead of 15 to 20 years over the Indian economy, but this lead will ultimately come down due to the following reasons.

8. Firstly, the Indian economy is growing faster and faster, whereas the Chinese growth will soon reach a saturation level. Secondly, while China’s huge lead over India has been in the manufacturing sector, India will forge ahead of China in the services sector. Thirdly, India has been able to develop new centres of entrepreneurship and technological excellence such as Bangalore, Chennai, Hyderabad and Ahmedabad, which are increasingly in the driving seat of the Indian economy. China has not been able to develop similar new centres. The Chinese economy is still driven by traditional centres such as those of Shanghai, Fujian and Guangdong. When the economies of these traditional centres suffer as they did last year due to the fall in orders from the US, the entire Chinese economy suffered. In India, the new centres are able to maintain the momentum even if traditional centres such as Mumbai suffer. ( 25-2-10)

( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: )


Extracts from some articles in the Chinese media on Chinese investments in US bonds

“China can reduce its holdings of dollar assets, but should not "overdo" it as the country tries to adjust the structure of its dollar asset-dominated foreign exchange reserves, analysts said. The country's foreign exchange reserves amounted to nearly $2.4 trillion by the end of last year - a third of the global total - raising concerns that the massive scale of the holdings could backfire. About 70 percent of the reserves are dollar assets, according to various estimates by scholars, and the high proportion means that once the dollar's value slumps, China will incur huge losses. But it is equally difficult for China to dump its dollar assets because that could lead to a domino effect on other investors and cause depreciation of China's holdings. "China is in a dilemma," said Dong Yuping, economist at the Chinese Academy of Social Sciences. According to the latest US Treasury International Capital (TIC) data, China was a net seller of US Treasuries in December, cutting its holdings by $34.2 billion to $755.4 billion. China's share of total outstanding short- and long-term US Treasury securities among foreign holders declined to 20.9 percent in December from 23 percent in mid-2009, yielding its position as the largest investor in US treasuries to Japan. "The data suggest that China could be more actively diversifying its currency reserves away from US Treasuries," said Jing Ulrich, managing director and chairman of China Equities and Commodities, J.P. Morgan. "We expect the country might be marginally shifting some exposure to other currencies." While it is not clear that the selling is part of a consistent strategy, the country should keep a "considerable" proportion of dollar assets in its foreign exchange reserves, said Sun Lijian, economist with the Fudan University.
"China should not overly reduce its dollar assets, given their high market liquidity," he said. Dollar assets are relatively easy to sell if China needs quick money to safeguard its financial stability, he said. More than a decade after the 1997-98 Asian financial crisis, there are increasing suggestions that China use its growing reserves to buy resources, technologies and attract high-caliber professionals from abroad. While they are important, Sun said, China must have enough reserves available for protecting its financial stability. Asia was dealt a heavy blow during the financial crisis when international speculators attacked the currencies of some economies which did not have adequate reserves, plunging them into a spiral of currency depreciation, economic contraction and social chaos. Since then, Asian countries have paid great attention to increasing foreign exchange reserves; and now, they account for seven of the top 10 nations.
As China's reserves grow, however, concerns are also growing that they could invite speculative capital inflows, especially when the country's economic recovery is quicker than in other regions. Once the capital flows out of the country, there will be shocks to the domestic market and the economy, Sun warned. To address the problem, China must quicken its pace of balancing domestic demand and exports as it strives to stimulate consumption as a major engine of economic growth, said Dong.”

----From the “China Daily” of February 22,2010

”China's decisions on its holdings of United States Treasury bonds should be based on its accurate market judgments, not on opinion-swaying proposals by some nationalistic academics. China slashed its holdings of US bonds to $755.4 billion in December from $789.6 billion the previous month, the lowest level since last February, according to recent US Department of Treasury data. The latest $34.2 billion reduction, or 4.3 percent, was the fifth time that China cut down its US national debt last year. It brought down the proportion of the US bond holdings in China's foreign reserves from 37 percent at the end of 2008 to 33 percent in late last November. The biggest decline in US Treasury bonds holdings since August 2000 also allowed Japan to regain its position as top holder of American government debt after a 15-month absence. Japan's holdings increased to $768.8 billion in December from $757.3 billion the previous month, according to the US Treasury Department data. Other US creditors such as the UK, Russia and Brazil have also increased their holdings of US debt. When China's foreign reserves expanded rapidly in recent years, different and even conflicting voices arose within the country about how best to utilize the reserves. Some scholars proposed that the Chinese government should use its ever-expanding reserves as a forcible card to deal with Washington, some believed that the reserves should be used to purchase gold and oil to change China's previous US debt-dominant investment model. Some even suggested that the government should threaten to slash its holding of US bonds if the US administration stubbornly keeps turning a blind eye to China's reactions to the US sale of weapons to Taiwan. In a democratic and academically diversified society, everyone is entitled to express his or her viewpoints, even prejudiced opinions, on national issues. But decision makers should remain particularly cautious and level-headed about whether or not these viewpoints will influence their decision-making on significant issues. In a dollar-dominant international financial order, it is ideal for China to hold US Treasury bonds as one important way to safeguard its bulk of foreign reserves. Despite growing dissatisfaction among the international community about the current global financial structure, the time-honored system is not expected to collapse and be replaced in the near future. What China should now do is try to maintain and maximize its national interests and refrain from breaking away from the old global financial system. Provided that the current financial system will not change, and the dollar will remain the world's leading currency, China would face lesser risks if it chooses to hold dollar-denominated assets. The value of a country's currency is built on its national competitiveness. The financial crisis in 2008 has indeed brought enormous trauma to the US and plunged the world's largest economy into a full recession. But no single country in the world has so far become powerful enough to match the US in terms of economic strength. As the world's sole superpower, the US' well-developed educational system, its strong innovative abilities in technology and finance, along with its legal, judicial and political frameworks, are all expected to help Washington continue to hold the world's leading economic position in the coming decades. Thus holding dollar-denominated properties would mean smaller financial risks for a holding country, especially in the era of economic and financial globalization in which turbulences in the global market are expected to arise from time to time. China's success in keeping its enormous foreign reserves from suffering much in the latter half of 2008 can serve as a convincing example. When the global financial crisis struck at that time, the country's reserves avoided a heavy loss because it heavily invested in US government debts in sharp contrast with about 30 percent losses in other financial markets. If holding dollar-denominated assets is believed to be a high-risk move, then the question would be: How can China place its reserves at a lower risk in a world with an accelerated economic and financial globalization? Some believe investment diversification can serve as an effective way to reduce a country's overseas investments. Diversifying a country's investments would possibly help lower risks, but where can China invest now that it has a large volume of foreign reserves? Purchasing such properties in kind as gold and oil is possibly not a bad choice, as some expected, but this is no different from investing in financial products in a world where financial, futures and currency products have dominated almost all investment sectors. But the scenario can't be ruled out that a country at times deploys its reserves as a political chip when struggling to develop ties with another nation. Yet the hard-won wealth China has managed to obtain until now should be handled mainly according to market principles, rather than ideological factors. In so doing, the country will be able to effectively reduce risks for its foreign reserves and maintain the value of its colossal overseas assets.”

----From an article by Xi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, published by the “China Daily” of February 22,2010.

”China trimmed its holding of U.S. debt by 34.2 billion U.S. dollars or 4.3 percent to 755.4 billion dollars in December last year, whereas Japan boosted its holdings of U.S. Treasuries by 11.5 billion dollars to 768.8 billion dollars in December 2009 to outpace the former as the largest holder of U.S. Treasury securities, according to the Treasury International Capital (TIC) report released on Feb. 12, and the foreign holding of U.S. Treasury securities fell by 53 billion dollars in the month. This new trend, however, has attracted widespread attention globally, as China is still a big holder of U.S. debt bonds, which currently owns 10 percent of the total U.S. Treasury securities in circulation. From a business investment point of view, the timing for China's substantial reduction of its holding of U.S. security bonds is appropriate. The nation has made a correct choice to cut its U.S. debt holding at the time when there is a rising demand for hedge dollar due for a technical demand. Of late, the euro slid to a nine-month low against the U.S. dollar. Greece's debt binge and the short-term sovereign debt crisis in several nations of the euro zone has led to a drastic slump in the value of euro and pushed up the U.S. dollar's rally. Thanks to an increasing demand for U.S. treasury hedge and in view of a technical rebound for the U.S. dollar, it is a right, opportune time to sell the US dollar. This represents an especially-correct investment strategy for China, which now has a large amount of U.S. treasury securities. China has sold merely 4.3 percent of its U.S. dollar-denominated assets. As a matter of fact, the amount of Treasury securities it has cut is still limited. So, it has neither negatively affected the dollar's exchange rate price nor meted out a telling blow to the U.S. dollar. This has precisely shown the reduction of China's holding of US security bonds is quite modest and moderate. U.S. dollar has kept showing a bearish trend on a long run. After the onset of the global financial crisis in 2008, the U.S. debt levels, instead of being trimmed by a big margin, have further expanded from the private sector into the public sector. The size of the American government's debt and budge deficit, presently under constant expansion, can only be emergency rescued by the issuance of U.S. dollars, which would certainly lead to the devaluation of the dollar-denominated assets and subsequently cause creditors to drastically contract the dollar-denominated assets in their possession. At present, the U.S. government's total debt amount has surpassed the 12 trillion dollars mark, constituting approximately 90 percent of its gross domestic product (GDP). The U.S. government budget deficit is expected to top record 1.56 trillion dollars at least in the fiscal year 2010, or about 10.6 percent of its GDP, with its debt limits rising to a historic 14.3 trillion dollars in the post-World War II era. In this context, the Chinese government, out of its consideration for the maintenance of the reserve security and appreciation, has worked out the policy to slowly expand or reduce U.S. debt. Hence, it is a rational choice proceeding from the perspective of its own economic and financial interests, which should not be read and mulled over excessively. In fact, the increased size of U.S. dollar-denominated debt and fiscal deficit has triggered growing concerns of the international community. India trimmed its holding of U.S. debt by 1.3 billion dollars in November last year and, in December 2009, Russian Federation also cut its holding by 9.6 billion dollars. The U.S. debt issuance rose four-fold in 2009 than in the preceding year, as the latest research findings have reportedly indicated. But in years prior to 2009, foreign counties subscribed almost 100 percent of the U.S. treasury securities and, since early 2009, however, this "main force" had only bought less than one third of U.S. treasury securities. An extremely embarrassing situation that has been emerged is that almost all global investors have been caught in the U.S. dollar "kidnapping" dilemma or impasse. To date, nevertheless, not a single currency has so far been able to replace the U.S. dollar's status and the American treasury debt bonds remain a good investment channel for countries worldwide. In a short term point of view, China's current holding of U.S. Treasury bonds does not mean to forsake the country's investment in U.S. dollar-denominated assets. This is because, if China scales down or continues to substantially sell out bonds within a short time, it could cause an adverse effect to the dollar assets. In the long run, China's foreign exchange (Forex) reserve needs to be further optimized, and there is also a need to gradually cut the dollar-denominated assets in a bid to diversify Forex assets, but this is perhaps a prolonged and gradual process. In a nutshell, the reduction or diversification of investment is merely the means to "symptoms", and the way for genuinely resolving the real issue is the fundamental solution to the irrational internal and external imbalance of Chinese economy. So, this requires China to accelerate the pace for its economic restructuring toward a basic balance in the international payments and to avoid a substantial increase in Forex reserve. In the meanwhile, China should speed up the pace for internationalization of the Chinese currency RMB (or Renminbi), reduce its demand for the U.S. dollar and the ratio of U.S. dollar to its payment surplus, so as to alleviate an increasing economic pressure resultant from the pressure of the country's external imbalance.”

---- From an article by Prof. Shi Jianxun, a noted economist, published by the “People’s Daily” on February 23,2010.

”Contrary to speculation China may not buy the International Monetary Fund's (IMF) remaining 191.3 tons of gold which is up for sale as it does not want to upset the market, a top industry official told China Daily Tuesday. "It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility," said the official from the China Gold Association, on condition of anonymity. He said China would continue to shore up its gold reserves by acquiring gold mines abroad rather than purchases on the international market. Some analysts had earlier said China would purchase the IMF gold in an effort to diversify its dollar asset-dominated foreign exchange reserves. According to estimates, over 70 percent of China's $2.4 trillion foreign exchange reserves are in dollar assets. The IMF said last week that it would expand its bullion sales to the open market. Central banks from India, Mauritius and Sri Lanka had purchased 212 tons of the yellow metal from the institution last year. Zhu Baoliang, a researcher at the State Information Center, said China would not hike its gold reserves given the limited quantity available on the market. "Gold is only a small portion of the nation's reserves," he said. According to the State Administration of Foreign Exchange, China held nearly 1,054 tons of gold reserves as of April last year, a value that equals 1.2 percent of the nation's gross domestic product, but still far below the world average of 10 percent. Gao Rukun, a researcher at Beijing Gold Economy Center, said that such a percentage is far too low and China should increase its gold reserves to 1,800 tons by 2014. However, Asian Development Bank economist Zhuang Jian noted that buying IMF gold would not only help China diversify its foreign exchange reserves but also strengthen the yuan as an international currency. Zhuang said China could have a bigger say in the IMF through the gold purchasing deal. "China can start with small purchases on the international market like the 191.3 tons of IMF gold. In the short term, the market will see volatility, but in the long term the prices will return to normal." Gold gained 24 percent last year after hitting a record high of $1,227.50 an ounce in December as a weaker dollar boosted demand for it as an alternative investment. China has been the world's largest gold producer since 2007 and surpassed India as the world's top gold consumer in 2009 .”

---- From the “China Daily” of February 24,2010



In a despatch dated February 23,2010, from Tehran,the State-owned Xinhua news agency of China has reported as follows: "Abdolmalek Rigi, the leader of the Pakistan-based Iranian Sunni rebel group Jundallah ( also spelt as Jondollah), has been captured, Iran’s English-language satellite channel Press TV reported Tuesday (Feb.23). Rigi was reportedly captured on a flight from Dubai, the United Arab Emirates, to Kyrgyzstan, Press TV said. Iranian Interior Minister Mostafa Mohammad Najjar was quoted by Press TV as saying that Rigi was arrested outside the country as he was preparing for a new act of sabotage and was consequently transferred to Iran. According to the official IRNA news agency, Najjar said Rigi was arrested during an operation with the cooperation of military, security and Information Ministry forces. The detention of Rigi followed several months of extensive works of the forces, which were determined to arrest him alive, Najjar said. Rigi was an agent of foreign countries and operated their plans and conspiracies, he added. Jundallah, or People's Resistant Movement of Iran, is an insurgent Sunni Islamic organization based in Balochistan of Pakistan that claims to fight for the rights of Sunni Muslims in Iran. The group was founded by and had been under the command of Rigi. It has been identified as a terrorist organization by Iran and Pakistan and has been behind numerous acts of terror, kidnapping and smuggling narcotics. In August, Abdolhamid Rigi, the brother of Abdolmalek Rigi, told reporters in Zahedan, the capital city of Iran’s southeastern province of Sistan- Balouchestan, that the United States had a supporting role in launching terrorist plots inside Iran. “After meeting with the U.S. officials in the U.S. embassy in Pakistan four years ago, they (the U.S. officials) promised to help us with everything we needed,” said Abdolhamid Rigi, who had been captured by Pakistani forces and extradited to Iran. “We were deceived by them (the U.S. officials) … We received monetary and armed supports from the United States … We received orders from them to carry out the terrors inside Iran, he said.” ( My comments: Abdolhamid Rigi made these allegations to the media after he had been convicted on a charge of treason and sentenced to death. The death sentence has not been carried out till now)

2.The Arabic language channel al-Alam said Abdolmalek Rigi has been held in eastern Iran, but gave no more details. The semi-official Fars news agency, quoting the Iranian intelligence ministry, said the Jundallah leader was arrested along with two of his group members. The official IRNA news agency said he had been flying to an Arab country via Pakistan before his arrest. The AFP (Agence France Presse) quoted an Iranian official as saying: "His plane was ordered to land and then he was arrested after the plane was searched." Press TV said Rigi had been in a US military base in Afghanistan 24 hours before his capture. It alleged the US had issued Rigi with an Afghan passport. It also said he had recently travelled to "European countries". The Press TV quoted the Iranian Intelligence Minister Heidar Moslehi as saying at a media briefing that Rigi had contacts with the US Central Intelligence Agency (CIA) and the Israeli foreign intelligence service Mossad, and that he had even met NATO military chief Jaap de Hoop Scheffer in Afghanistan in April 2008. He claimed that Rigi’s movements were being monitored for five months before he was captured and that no foreign intelligence service had helped Iran in Rigi's capture.

3.It was not immediately clear as to how the Iranian authorities were able to seize Rigi from the flight between Dubai and Kyrgyzstan. But an official at the Manas airport in Bishkek in Kyrgyzstan was reported to have told AFP on condition of anonymity that the plane was forced to land. “While over the territory of Iran a flight from Dubai to Bishkek with 119 passengers onboard was forced to make an emergency landing by military bomber aircraft,” the official said, adding that “a number of foreign passengers were forcibly removed.” In a statement on its blog, the Jundallah confirmed Rigi’s arrest and alleged as follows: “The leader was arrested with the help of the CIA, and Afghan and Pakistani intelligence services.” The Iranian Intelligence Minister accused the Dubai authorities of collusion with the CIA and the Mossad by allowing Rigi to come to Dubai. He showed the media personnel photographs of Rigi whichj, he claimed, had been taken inside a US military base in Afghanistan by Iranian agents.

4.In an Islamabad datelined report, the “Dawn” of Karachi reported as follows: “ Arrest of Jundallah leader Abdolmalek Rigi and his deputy Hamza during a flight from Dubai to Kyrgyzstan marks a lucky break for Pakistan, which has been long accused by Iran of hosting the terror group’s ringleader, and offers an opportunity to ease the tense relations between Tehran and Islamabad. Iran, despite repeated denials by Islamabad, always alleged that the group operated from Pakistan’s soil and that its leader Rigi was based there and carried Pakistan’s national identity card by the name of Saeed Ahmed, son of Ghulam Haider. The militant leader had been educated at Karachi’s Binnori Town seminary, which was school to many of the Taliban leaders. Rigi is believed to have camouflaged his nationalist movement in a sectarian colour to curry favour with Pakistani sectarian groups. Iranian Interior Minister Mostafa Mohammad Najjar, who visited Pakistan in October following an attack on elite Revolutionary Guards in south-western Sistan-Balochistan province along Pakistan’s border, is said to have handed over proofs of Rigi’s travel to Pakistan. “We have documents that show (Abdolmalek) Rigi travels readily to Pakistan ... we are here to ask Pakistan to hand over Rigi to Iran,” Mr Najjar had said in a statement. Bilateral relations between the two countries had been on the slide ever since the group was formed in 2002 and stepped up cross-border raids out of their havens along Pakistan-Iran border targeting Iranian security personnel and civilians. In view of enhanced Iranian concerns, Pakistan had offered Tehran with increased intelligence sharing and intensified border patrolling. Pakistan had been insisting that Rigi was not in Pakistan and Jundallah operated in ‘triangle region’ between Afghanistan, Pakistan and Iran making it harder to act against the group. The 1,000 km stretch between Pakistan, Iran and Afghanistan is a rough terrain making patrolling extremely difficult. Extradition of Abdolmalek Rigi’s brother Abdolhamid Rigi by Pakistani authorities to Iran in June 2008 was the highlight of cooperation between the two countries on the contentious issue of Jundallah. National Assembly Speaker Fehmida Mirza, during her recent trip to Tehran, had disclosed at a meeting with Iranian Foreign Minister Manouchehr Mottaki that a number of Jundallah militants were arrested in Pakistan and extradited to Iran. Iran had always alleged that Jundallah was financed by the US government to destabilise their country. Investigative journalist Seymour Hersh revealed in another report in July 2008 that US Congressional leaders had secretly agreed to former President Bush’s $400 million funding request, which gave the US a free hand in arming and funding Iranian terrorist groups such as Jundallah militants.”

5.General Noor Ali Shooshtari, the national Deputy Commander of the ground force of Iran's Revolutionary Guards (RG), the Guards' chief provincial commander, Rajab Ali Mohammadzadeh, and four other senior officers of the RG were among 31 persons killed in a suicide attack in the Pishin region of Iranian Balochistan known as Sistan-Balochistan on October 18, 2009. The RG officers had gone to the area on a routine inspection tour during which they were having a discussion with representatives of the local Baloch community when a suicide bomber struck. Some reports spoke of two suicide bombers. One reportedly managed to get into the venue of the meeting. The other blew himself up at a vehicle carrying some Revolutionary Guards outside the venue.

6.Earlier, 30 persons were killed and over 180 injured on May 28, 2009, in a suspected suicide bomb blast at the Amir-al Momenin Shia mosque in Zahidan, the capital of Iranian Balochistan. It is the second largest Shia mosque in Zahidan. Mainly Shia Government servants and members of the security forces pray there. Three persons were injured on May 29, 2009, when unidentified gunmen attacked the election office of President Mahmoud Ahmadinejad at Zahidan. On May 31, 2009, there was an exchange of fire between groups of Shias and Sunnis in different parts of Zahidan following an unsuccessful attempt by unidentified persons to kill Mulla Abdol Hamid, a senior Sunni leader. While he survived the attack, many of his body guards were reportedly injured.

7. Following these incidents, the Iranian authorities announced the execution of three Balochs on a charge of involvement in the explosion of May 28. Baloch sources, however, maintained that these persons were already in police custody and had been arrested before the explosion. Hence, they contended, these persons could not have participated in the explosion as alleged by the Iranian authorities.

8. The province of Sistan-Balochistan has around 3.5 million Balochs, the majority of them Sunnis. The province has been the scene of frequent incidents of violence unconnected with the liberation struggle being waged by the Balochs in Pakistan's Balochistan province for over three years now. There are close ethnic and religious links between the two Baloch communities on both sides of the Pakistan-Iran border. Iranian Balochistan also has a common border with Afghanistan.

9.The responsibility for the violent incidents in Iranian Balochistan in the past as well as for the latest one on October 18, 2009, were claimed by the Jundallah which projects itself as the People's Resistance Movement of Iran and not as the People's Resistance Movement of Sistan-Balochistan. It has no links with any of the Baloch nationalist organisations in the Balochistan province of Pakistan. In the past, there were reports of its having links with the anti-Shia Sipah-e-Sahaba and Lashkar-e-Jhangvi of Pakistan. In the 1990s, there were reports that a major explosion in the province was organised by Ramzi Yousef, who is now undergoing imprisonment in the US for his involvement in the attempt to blow up the World Trade Centre in New York in February, 1993. The Jundullah seems to be more a Sunni extremist than a Baloch nationalist organisation.

10. A statement attributed to Jundallah after the May 28 attack said: " The authorities have blamed the US for hiring terrorists who carried out the suicide bombing. Jundallah categorically rejects this claim. It does not have any kind of relationship or any kind of support from the US or any other country. This action was in response to systematic and regular insults to the beliefs of Sunni Muslims in Iran and wide discrimination against the Baloch people. We reject the Government’s claim that we are a terrorist organization. We are a defensive organization and act according to international law of self-defence by the same strategy and equipments the Iranian governments are using against us. Several religious leaders and hundreds of Baloch youth have been killed or hanged by the Islamic Republic of Iran just for their beliefs after severe and long torture. The Islamic Republic of Iran has destroyed several Sunni mosques and has hanged several top religious leaders of Sunni people in Iran."

11. A statement of July 23, 2009 by the Jundallah said: "The Islamic regime hanged 13 young Baluch political activists on 14 July to create a sense of fear among the public. The Baluch people have been in the vanguard of the political campaign against the Islamic Republic of Iran that conducted the biggest fraud in election in the history of Iran and the world. The resistance of Baluch people became a great source of inspiration for other people of Iran to express their discontent about the fraudulent elections and other injustices in the form of demonstrations and huge marches......At the same time, the Government of Pakistan extradited one Baluch who was in prison for some time to the Iranian regime, knowing that he will be tortured and executed. The Pakistan Government under Musharraf extradited a group of Baluch opposition to the Government of Iran and all of them were tortured and executed later. The Baluch people are Sunnis and they have been subjected to discriminatory policies. Baluchistan has the highest poverty rate and according to all international and United Nations research, is the poorest province of Iran. According to official figures, poverty rate in Baluchistan is over 76 per cent. The Baluch students are not admitted into universities on an equal basis and on merit. While the Islamic Republic of Iran has given more than a million scholarships to Iranian students to study abroad or in the top Iranian universities, only three Baluch students have been awarded scholarships. The Baluch people are under daily threat and a security environment has been imposed in Baluchistan. Everybody is a suspect and the security guards shoot the Baluch people with total impunity. Although hundreds of Baluch people have been killed in the streets of Iran, not even one single agent has been tried in the court. Baluchistan is in the vanguard of the freedom seeking people of Iran and will never stop its campaigning until a democratic regime is established in Iran."

12. In an earlier statement of July 14,2009, the Jundallah said: "The young Baluchs (executed on July 14) have been forced to accept that they have been agents of CIA. They were campaigning for the legitimate rights of the Baluch people who are Sunnis in a majority Shia country. The Baluch people have been systematically oppressed since the beginning of the revolution for seeking equality of rights and opportunities with other Iranians. According to the constitution of the Islamic Republic and other laws that have been passed by Iranian parliament, the Sunnis are prohibited from becoming supreme leader, president, minister, deputy minister, army general, ambassador, or any other high official. The official religion of the state has been declared Shiism which is a radical opponent of the Sunni people."

13. The Iranian authorities have been projecting the Jundallah as a surrogate of the US intelligence operating from sanctuaries in Pakistani territory. They have been alleging that the periodic terrorist strikes in Iranian Balochistan are being mounted from Pakistani territory. While they accuse the Pakistani authorities of inaction against the anti-Iranian Sunni elements operating from Pakistani territory, they have never accused the Baloch nationalist organisations of Pakistani Balochistan of backing the Jundallah. They have been suspecting the Lashkar-e-Jhangvi (LEJ), the anti-Shia organisation of Pakistan which is allied with Al Qaeda, to be training the suicide bombers of the Jundallah.

14.Some of the statements attributed to the Jundallah are disseminated from London. This has created some suspicion in the minds of the Iranian authorities that the UK is also probably backing the Jundallah in its anti-Teheran activities.

15. The capture of the Amir of the Jundallah is a major blow to this organisation. With the two brothers who were the moving spirit of this organisation now in the custody of the Iranian authorities, the organisation has definitely suffered a set-back at least temporarily. But the anti-Shia and anti-Tehran anger in Sunni Sistan-Balochistan is so intense and so widespread that it is only a question of time before a new leadership emerges. Ant-Shia organisations of Pakistan such as the LEJ would also see that the anti-Shia movement in the Sunni majority frontier areas of Iran is kept alive. ( 24-2-10)

( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. E-mail: )