TIME Asia

China’s Economy Continues to Defy Gravity. That May Not Be a Good Thing

A container truck drives past the container area at the Yangshan Deep Water Port,  part of the newly announced Shanghai Free Trade Zone, south of Shanghai
A container truck drives past the container area at the Yangshan Deep Water Port, part of the Shanghai Free-Trade Zone, on Sept. 26, 2013 Carlos Barria—Reuters

China announced better-than-expected growth over the second quarter. Despite optimistic official figures, there's plenty to worry about in the world's second largest economy

China announced its GDP figures for the second quarter on Wednesday and — surprise, surprise — they were better than expected. Growth clocked in at 7.5% — which just so happens to be the government’s official target. The statistics will likely give a boost to sentiment globally. Investors have been worried that a slowing China would hit the entire world economy. More buoyant Chinese growth will probably calm those jitters.

Yet China is also something of a puzzle. Somehow the economy continues to power through all sorts of issues that should be slowing it down. The all-important property sector, which accounts for some 16% of its GDP, is undergoing a major downturn. For most of the year, the government has tried to control dangerous levels of debt in the economy and clamp down on “shadow banking,” which encompasses alternative financial networks and lending practices. Tighter credit should translate into slower growth. Beijing is also supposedly on a mission to streamline bloated industries like steel by eliminating excess capacity, which, though healthy for the future prospects of the economy, should also act as a drag on short-term growth. So should President Xi Jinping’s ongoing anticorruption campaign, which in theory should be disrupting policymaking and creating uncertainty.

So how is China defying gravity once again? There is always the perennial suspicion that the numbers are inflated. Capital Economics looks at statistics that aren’t as easily manipulated as GDP, such as freight shipments and electricity output, to gauge the economy’s performance, and figures GDP has probably been expanding more like 6% in recent quarters. But economists are crediting the latest growth rate to government stimulus, carefully targeted at infrastructure and public housing, both investments the economy still needs.

This is a smart move. The Chinese government has ample ability to keep growth humming while it attempts to implement more substantial reforms. However, the reliance on stimulus also raises doubts about what might be ahead. Some economists see growth “bottoming out” and a revival continuing through the rest of the year. Others believe continued headwinds, especially the struggles of the property sector, are too strong for the government to counter — without even greater largesse. That might be on its way. New loans made in June were the highest in five years, according to research from Barclays, which suggests that the government is loosening up credit once again.

That begs the most important question facing China’s economy right now: Will Beijing sacrifice reform for growth? So far, China’s leaders have controlled their usual urge to pump up growth rates, an indication they realize the dangers lurking in the economy. Since the 2008 financial crisis, debt in China has risen to dizzying heights. A recent report from Standard & Poor’s calculated that China’s corporate sector has more debt outstanding than any other in the world. Combined with tremendous excess capacity, a risky increase in shadow banking and signs of a property bubble, the Chinese economy is rampant with problems that threaten its future. Some economists believe Beijing needs to address these ills and resist efforts to use credit and other stimulus to rev up growth — or else face a possible financial crisis.

Yet the reforms necessary to fix these problems are coming very slowly. Beijing has pledged to undertake a bold slate of measures — to liberalize interest rates and other prices, improve the performance of bloated state-owned enterprises, open protected markets to competition, strengthen the financial sector and allow private enterprise greater sway in the economy. All of these steps, if implemented, would make the Chinese economy healthier and more advanced. But so far, only the most minor of experiments have started, such as the approval of a handful of small private banks and the opening of a free-trade zone in Shanghai to tinker with more open capital flows. Even more, once the greater reforms fall into place (if they ever do), it could take years before they have an impact on the economy.

There are two ways of looking at what’s going on. One is that China’s policymakers are wisely going slow on potentially painful reforms while the economy works out some of its messiest problems in an environment of relatively stable growth. The other, less optimistic, view is that the problems rotting away at the Chinese economy are so complex and entrenched that policymakers are prioritizing continuing growth over tough reforms. In that scenario, China’s broken-down growth model will be kept alive with debt and government spending, while the fundamental change necessary to take China to the next level stalls.

I continue to be afraid of the latter. And with China the world’s second largest economy, we all should be too.

TIME Environment

We Need to Ditch Our Filthiest Source of Energy: Coal

A Massachusetts Water Resources Authority wind turbine turns beside a 2002 megawatt fossil fuel power plant in Charlestown
A Massachusetts Water Resources Authority wind turbine (R) turns beside a 2002 megawatt fossil fuel power plant in Charlestown, Massachusetts June 2, 2014. The wind turbine powers the MWRA waste water pumping station at that site and the power plant uses natural gas and oil. Brian Snyder—Reuters

Global warming is a terribly complex problem. It’s really a slew of problems: carbon problems and methane problems, electricity problems and fuel problems, sprawl problems and deforestation problems, supply problems and demand problems. We waste too much power, we eat too much meat, we drive too much, we fly too much, we plug in too many gadgets, and we get way too much of our energy from fossil fuels. The expansion of energy options in the developing world, a godsend for billions of people, will further complicate many of those problems.

It can all seem overwhelming. But for the next decade or so, America’s main challenge is relatively simple, because our biggest problem is also our most solvable problem. That problem is coal. It’s our filthiest source of energy, producing one fourth of our emissions and three fourths of our emissions from electricity, despite producing less than 40 percent of our electricity. We need to burn a lot less of it.

This is why President Obama’s new effort to limit carbon emissions at power plants is so important—and, as I wrote last week, so potentially disappointing. Coal provides our best opportunity for major short-term emissions cuts; our coal plants have already slashed generation by 20 percent since 2005, and another 10 percent of the U.S. coal fleet is already scheduled for retirement. But Obama’s Clean Power Plan only envisions a 30 percent overall drop in coal power from 2005 levels by 2030, which would barely move the needle. EPA Administrator Gina McCarthy did suggest to me that her agency’s proposed regulations will do much more than than her agency’s forecasts imply, but there’s not much in the Clean Power Plan that would suggest a major crackdown on coal.

Instead, the EPA projects that we would still get more than 30 percent of our power from coal in 2030. That would be a catastrophe. Coal plants emit twice as much carbon as natural gas, and infinitely more carbon than wind, solar, nuclear and other zero-emissions sources of power. They are also public health nightmares, fouling our air with mercury, soot, and other toxics, shrouding cities in smog and triggering asthma attacks among children. And the coal we burn in our power plants—unlike the petroleum we burn in our vehicles—can be easily and inexpensively replaced without changing our behaviors or disrupting our economy.

Carbon math can be daunting. We need to cut emissions 80 percent by 2050 to stop the broiling of the planet. We need to make serious headway much sooner than that to have any chance of success. Unfortunately, we’re nowhere close to ending our addiction to oil for transportation. Farm-grown fuels like corn ethanol are an eco-disaster, and cost-effective advanced biofuels are still years away. Electric vehicles are incredibly exciting, but they’re still a tiny slice of the U.S. auto fleet, and their batteries, although getting cheaper, are not yet mainstream cheap. Obama’s fuel-efficiency standards have helped our cars and trucks guzzle less gasoline, just as his energy efficiency standards have helped our light bulbs and appliances slurp less power, but reducing our demand in a growing economy is a slow and gradual process.

But we already have cleaner and cheaper alternatives to coal for electricity. Over the last several years, a fracking revolution has unlocked a glut of inexpensive natural gas, while a clean power revolution has made renewables cost-competitive, producing 90 percent of the new generating capacity in the first quarter of 2014. Even fossil-fuel-friendly Republican states like Oklahoma and Texas are replacing aging coal plants with wind, while Georgia and Idaho are replacing coal with solar—not to save the earth, but to save ratepayers money. As these clean alternatives get much cheaper, it’s getting much costlier for coal to comply with Obama’s tighter EPA rules on pollution from mercury and particulates, while fledgling technologies that could help coal plants capture and store their carbon underground have remained stubbornly expensive. Meanwhile, new EPA rules are coming on coal ash and ozone. Electric utilities facing multi-billion-dollar decisions about installing new pollution control equipment have to be wondering whether coal has a viable long-term future.

Tougher carbon rules would help persuade them the answer is no and accelerate the transition to clean power. We ought to get the coal challenge out of the way, so the market can start to address new challenges, such as cheaper storage that will help renewables produce the non-stop power that coal provides now. It’s true that much of the developing world is even more reliant on coal than we are, but we can help lead the world away from the dirty stuff. And the global situation is not as hopeless as some suggest. For example, China’s notorious coal boom is slowing dramatically; its annual growth in coal consumption has dropped from 18 percent to 3 percent in a decade, and its leaders are now pushing efficiency, solar and wind.

In the long run, we are going to need all kinds of disruptions to solve our climate problems. We’ll need cleaner cars, greener lifestyles, denser cities, carbon taxes. We’ll need technological breakthroughs and more aggressive deployment of the clean technologies we already have. But coal has already been disrupted. Its only remaining advantages are politics—even the Obama administration feels pressure to show it isn’t fighting a war on coal—and inertia. For executives of utilities with coal plants, the path of least resistance is to maintain the status quo and delay the inevitable day of reckoning. The best thing we can do for the planet is make sure the reckoning happens now.

TIME

Electronic Cigarette Executives Get Schooled in Senate Hearing

A patron demonstrates an e-cigarette at Vape store in Chicago, April 23, 2014.
A patron demonstrates an e-cigarette at Vape store in Chicago, April 23, 2014. Nam Y. Huh—AP

"I think we have seen this movie before," Senator Richard Blumenthal said. "It is called big nicotine comes to children near you and you are using the same kinds of tactics and promotions and ads that were used by big tobacco and proved so effective"

In a hearing Wednesday afternoon that harkened back to the famous congressional Big Tobacco hearings two decades ago, Senators on the Commerce, Science and Transportation Committee eviscerated electronic cigarette executives Jason Healy, CEO of blue eCigs (owned by tobacco company Lorillard), and Craig Weiss, CEO of NJOY, leaders of the two leading e-cig brands.

The hearing was on the marketing practices by the electronic cigarette industry, which the Senators said appeals directly to kids, a lift straight from the tobacco industry’s playbook, when it began in the 1950s to try and hook young people early to addictive nicotine. Though nicotine is not the carcinogenic ingredient in tobacco cigarettes, it is the culprit behind why so many continue to smoke, and it’s hardly a benign substance either. Nicotine is highly toxic on its own, and there has recently been an increase in calls to poison control centers after contact with electronic cigarette liquid containing nicotine. Nor is the substance good for the developing teen brain.

The Senators and those offering testimony at the hearing, which included electronic cigarette executives and representatives from public health organizations, were in agreement that electronic cigarettes should not be sold to kids under the age of 18. At issue was whether the marketing practices employed by electronic cigarette makers, which are currently unregulated by the federal government, were designed to appeal to kids.

At the hearing, the e-cigarette executives were skewered by the Senators who had the facts on their side. A recent CDC report showed that the use of electronic cigarettes by middle school and high school students doubled from 2011 to 2012. The same survey showed that more than 1.78 million middle and high school students nationwide have tried electronic cigarettes. A recent American Legacy Foundation report found that last year 14 million kids saw ads for electronic cigarettes on TV, 9.5 million saw them in print.

A study from RTI International and the Florida Department of Public Health published in the Journal of Pediatrics showed that exposure to electronic cigarette advertising jumped 256% from 2011 to 2013 among adolescents aged 12 to 17. Mr. Healy’s company, blu eCigs was found responsible for almost 82% of the ads that reached that age group.

Slumped in their chairs, the beleaguered executives, Mr. Weiss and Mr. Healy, argued that their marketing was not directed at kids, but adults. Electronic cigarettes, both men argued, are designed to entice those who already smoke to use the product, claiming they are a valuable public health tool to help wean the 40 million adult smokers off of deadly cigarettes. “It is our corporate mission to [make] obsolete the combustion cigarette,” Weiss testified.

“Every time I use an e-cigarette instead of a combustible cigarette, that’s a good decision,” said Mr. Healy, a smoker who “vapes” (inhales through the e-cigarette vaporizer).

Healy and Weiss aren’t wrong that electronic cigarettes hold promise to improve the nation’s well-being if they can get America’s smokers off of combustible cigarettes–a view held by many in public health. Scientific research has not yet determined how or whether electronic cigarettes can really get people to quit smoking, but it is a technology we should embrace to see if it can. As Mitch Zeller, head of the FDA’s Center for Tobacco Control has said: “We have to have an open mind on the potential for these emerging technologies to benefit public health.”

But Senators including Richard Blumenthal (D-Connecticut) and Amy Klobuchar (D-Minnesota), both former prosecutors, undermined those health promotion claims during cross-examination, calling into question the brands’ use of celebrities, social media, free cigarettes, and TV and print advertisements in major television markets (NJOY advertised during the Super Bowl), and flavors that appeal to kids.

“The only difference between your testimony today and testimony of the tobacco executives is that you are not under oath,” said Senator Blumenthal. “I find in your testimony a sense of denial that I cannot credibly accept because it is defied by the numbers. 18 million teens were exposed to blu’s print TV ads in 6 months and NJOY’s ads reached 3 million teens [these statistics come from the American Legacy Foundation report]. There is a legal principle that people are responsible for the natural and logical effects of what you do, and you know that you are reaching children.”

“I think we have seen this movie before,” he continued. “It is called big nicotine comes to children near you and you are using the same kinds of tactics and promotions and ads that were used by big tobacco and proved so effective.”

Holding up a picture of Robert Pattinson, the star of the popular Twilight films, vaping an NJOY, Blumenthal asked Weiss, “Do you deny he is designed to appeal to teens?”

“He’s a 28 year old adult smoker,” Weiss replied. “Are you saying if they are older than 18, they have no impact on people under 18?”

“Our target is to reach adult smokers,” said Weiss.

Senator Klobuchar took over the same line of questioning. “Have you gone to the Twilight movies, Mr. Weiss? I’ve been to those movies with my daughter, who is 16, and I can tell you, in those theaters, the people in there are kids…[Pattinson] is an adult smoker that appears in movies that appeal to kids. That’s what matters to me.”

Klobuchar continued, “I’ve got to tell you that most people over fifty are not going to know Robert Pattinson. Justin Bieber is over 18, someone put him out there, I don’t think anyone is going to think [he is being] marketed to adults. This is my exhibit D, that heavy duty marketing [efforts] go on to youth.”

Another tense moment occurred between Senator Barbara Boxer from California, who grilled Weiss and Healy about flavored e-cigarettes.

Weiss and Healy both contended that having different flavors available appeals to adults, too. Some Senators referred to a website sponsored by blu’s parent company, Lorillard, stating that flavors like “cherry” and “vanilla” make children vulnerable to electronic cigarettes. Healy responded that the average age of a consumer using blu’s cherry flavor is in the high 40s. The average overall consumer of blu eCigs is 51, said Healy.

Responding to questions from Senator Boxer (D-California) about the flavors NJOY plans to introduce, Weiss made a slip, saying “for adults, we have single malt scotch.”

“Adult flavors?” said Boxer. “As opposed to those for children.” Weiss continued nervously, attempting to remember the new flavors off the top of his head: “In addition, there’s vanilla bean, there’s also peach tea, there’s also, um…”

At the end of her time to question, Boxer said: “Mr. Healy and Mr. Weiss, you can con yourself. But we don’t know if this product gets people off cigarettes yet, so don’t think you are doing some great mission. Don’t say you care about kids,” said Senator Boxer. “Don’t be a part of this, because you’ll regret it.”

But the harshest words came from Senator Jay Rockefeller (D- West Virginia), who said to the executives: “I’m ashamed of you. I don’t know how you go to sleep at night. I don’t know what gets you to work in the morning except the color green of dollars. You are what is wrong with this country.”

TIME

Drop the Burrito! Chipotle Bans Guns in Stores

A Chipotle Restaurant Ahead Of Earnings Data
Patrick T. Fallon—Bloomberg/Getty Images

After a pro-gun group flashed assault rifles and other weapons in a Dallas Chipotle last weekend, the burrito chain decided to take action

Chipotle is requesting that all non-law enforcement customers refrain from bringing guns into their stores amid pressure from a mothers’ group calling for complete ban on guns in stores.

“Recently participants from an ‘open carry’ demonstration in Texas brought guns (including military-style assault rifles) into one of our restaurants, causing many of our customers anxiety and discomfort,” a statement from Chipotle reads. “Because of this we are respectfully asking that customers not bring guns into our restaurants, unless they are authorized law enforcement personnel.”

Chipotle says it typically defers to local laws on the issue because it doesn’t think it’s fair for employees to ask customers not to bring guns into stores. But backlash following a gun rally at a Dallas Chipotle this weekend led the chain to take action.

“The vast majority of gun owners are responsible citizens and we appreciate them honoring this request,” the statement continues. “And we hope that our customers who oppose the carrying of guns in public agree with us that it is the role of elected officials and the legislative process to set policy in this area, not the role of businesses like Chipotle.”

Moms Demand Action for Gun Sense in America, a Michael Bloomberg-backed gun control group, began circulating a petition calling for the company to prohibit guns in its stores on Monday following a gun rally at a Dallas Chipotle this weekend. According to a press release, the petition received over 10,000 signatures.

The group, which has launched similar petitions against Starbucks, Jack in the Box, and Facebook, applauded the company’s swift response. “Chipotle’s statement that firearms are not welcome in their restaurants is bold and meaningful – it shows that you can support the Second Amendment while also taking reasonable measures to ensure that Americans are safe and secure in the places we take our children,” said founder of Moms Demand Action Shannon Watts.

TIME Opinion

The FCC’s Net Neutrality Proposal: Why It Stinks and How It Could Affect You

By the end of this year, the Internet as you know it could change for the worse.

Under new rules proposed by the FCC, Internet service providers such as Comcast and Time Warner Cable could ask your favorite sites to pay for special treatment. Companies that refuse, or who can’t afford to pay, could be stuck with slower speeds or more congestion compared to companies in the fast lane. The next Netflix or YouTube could still exist as it does today, but without enough extra capital to pay the gatekeepers, it could be at an inherent disadvantage to incumbent services or services with deep pockets.

Put another way, the FCC plans to take an axe to net neutrality, the idea that all websites and services should be treated fairly.

Blocking vs. Throttling vs. Express Lanes

FCC Chairman Tom Wheeler says the press has got it all wrong, that the proposed rules will actually “restore the concepts of Net neutrality,” and that anti-competitive behavior won’t be allowed.

It’s an impressive bit of PR spin, straight from someone who used to be a cable and wireless industry lobbyist. Wheeler’s concept of net neutrality is focused on prohibiting straight-up blocking or discrimination. Essentially, he’s saying we won’t see the doomsday scenario of having paywalls thrown in front of certain sites or services. And that’s great, but it’s not the real danger here. The actual threat, in which companies get to pay for better service than they’re getting now, is much more insidious.

Let’s say you pay $35 per month for speeds of 10 Mbps, which is on the low end of what you’d want for streaming video. The proposed rules could let you to get faster speeds on sites like Netflix and YouTube for the same $35 per month, but only if those sites paid your service provider to be in the fast lane. You’d still get speeds of 10 Mbps for everything else–hence, no discrimination–but maybe you’d get 30 Mbps from services that are paying the toll.

If this scenario played out, service providers would surely promote it as a wonderful development for subscribers. What’s not to like about faster speeds at no extra charge? (AT&T recently pulled a similar tactic on the wireless side, allowing apps and services to pay for their users’ data consumption while calling it “an exciting new opportunity” for customers.)

How the Proposed Rules Could Affect You

The problem is that service providers would have little incentive to improve their baseline speeds for non-paying services, and lots of incentive to improve speeds for those in the fast lane. Over time, the gap in speeds would increase, to the point that new services would have a tough time competing without paying the gatekeepers. And while you may not pay directly for those fast lane speeds, participating services may be inclined to pass their costs along, ensuring that you’d shoulder the financial burden one way or another.

In the near term, the biggest risk is to online video. Services such as Netflix, Amazon, Hulu and YouTube will feel the pressure to pay up if they want to stay competitive with one another. But in the future, many other emerging services would have to deal with the shakedown, from cloud gaming to virtual reality to things we haven’t even dreamed of yet.

Those potential services may require lots of bandwidth, and there’s definitely a reasonable discussion to be had about how service providers should manage the traffic. As GigaOm’s Stacey Higginbotham points out, that’s exactly what the FCC could be doing. Instead, the FCC seems content to let service providers take the lead, deciding which emerging services live or die based on whether they can pay the toll.

What Happens Now

The above scenarios are all realistic, according to the advocacy groups I’ve spoken to, but it’s important to note that the rules aren’t set in stone and they’re not even public yet. All we have to go on right now are statements from FCC officials, who say the proposal will allow Internet providers to negotiate directly with web companies on providing more than just the baseline level of service.

The finer details will be hashed out in the coming months, starting on May 15, when the proposed rules become public. It’s still unclear, for instance, exactly what the FCC means when it says service providers must act in a “commercially reasonable” manner, and how the FCC would take action against “unreasonable” behavior. (Is it reasonable, for instance, for fast lanes to exist if they’re open to any company? Because it would still favor the ones with the deepest pockets.)

In any case, the sparks are about to fly. Advocacy groups will likely launch petitions and protests, arguing that toll-based fast lanes will stifle innovation. Supporters of the proposal will likely argue that it’s a fair, free market solution (ignoring the fact that there’s a shortage of competition in the wired broadband market, so many users will have no alternatives if toll roads become a reality). So far, it’s unclear whether large tech companies will protest a potential shakedown or embrace their incumbent status.

TIME cities

Fertilizer Rules Unchanged One Year After Texas Explosion Killed 15

John Raimer stands in front of his trailer that he lives in as he leads at the West Long Term Recovery team in West, Texas, on April 1, 2014.
John Raimer stands in front of his trailer that he lives in as he leads at the West Long Term Recovery team in West, Texas, on April 1, 2014. Max Faulkner—Fort Worth Star-Telegram/MCT/SIPA USA

Chemical safety officials tasked by President Obama to determine whether regulations should change following last April's explosion in West, Texas, that killed 15 are mulling revisions to ammonium nitrate storage rules and the handling and processing of chemicals

National safety rules governing fertilizer remain unchanged after a fertilizer facility explosion killed 15 people in West, Texas one year ago.

The lack of action comes even after President Barack Obama ordered federal agencies to review chemical safety rules in the wake of the incident. Agency officials say they’re considering revising ammonium nitrate storage rules, as well as changing the chemical handling and processing rules. Any significant changes, they say, will likely take years.

Debate over the ideal safety changes to implement remains ongoing. The Institute of Makers of Explosives believes that storing chemicals in wooden buildings, for example, is an unsafe practice, while the Agricultural Retailers Association argues that switching away from wooden buildings would be too costly. Texas Gov. Rick Perry, meanwhile, has cautioned against adopting new rules before the state completes its investigation of the incident. Perry has not specified when those findings will be released.

Texas State Fire Marshal Chris Connealy told the Wall Street Journal that his office has identified 26 facilities in the state that store large amounts of fertilizer in conditions that could lead to an explosion similar to the one in West.

Of the 15 people killed in last year’s explosion, 12 were volunteer firefighters responding to the incident. Legislators suggested at a hearing Monday new rules that would force the volunteer fire department to better prepare first responders for chemical emergencies such as the one that struck West.

[WSJ]

TIME Hong Kong

Hong Kong’s Twist on Welfare: The More You Work, the More Welfare You Get

An elderly woman pushes a cart filled with cardboard for recycling in the North Point area of Hong Kong, China, on Oct. 18, 2013 Brent Lewin / Bloomberg / Getty Images

Other policymakers should closely watch a program Hong Kong has come up with to aid its working poor

Hong Kong is a city of extremes. One of the world’s richest, its streets are lined with Louis Vuitton and Prada shops, the roads with Jaguars and BMWs, and its heights dotted with luxurious homes boasting spectacular views of its famed harbor. But China‘s special administrative zone is also famous for one of the ugliest income gaps in the world. Those less fortunate cram themselves into closet-sized apartments and can barely afford put food on the table in the high-cost city. The government estimates that more than 1.3 million Hong Kongers, or nearly 20% of the population, live below the poverty line.

Unsurprisingly, Hong Kong’s Chief Executive Leung Chun-ying has come under pressure to do more to help the poor. In Hong Kong, as in most other East Asian societies, the public has called for greater government services to improve their livelihoods and alleviate income disparities, and that has pushed policymakers from Seoul to Singapore to introduce stronger safety nets. But officials remain wary of entangling themselves in the expensive welfare programs straining state finances in the U.S. and Europe. Governments in the region have generally also relied on rapid growth and job creation to uplift the destitute, not hand-outs. Hong Kong especially has been a model of that pick-yourself-up-by-the-bootstraps thinking. The government has preferred to encourage entrepreneurship than pass around cash, fearful that too much largesse would sap people’s initiative.

(PHOTOS: Hong Kong Yesterday: The Pearl of the Orient in the 1950s)

So what to do? In his policy speech last week, Leung proposed an intriguing solution: Offer poor families more welfare the more they work. “Our poverty alleviation policy,” Leung explained, “is to encourage young people and adults to become self-reliant through employment, while putting in place a reasonable and sustainable social security and welfare system to help those who cannot provide for themselves.”

Here’s how the program, called the Low-income Working Family Allowance, would work: If a family’s earnings are equivalent to or below 50% of Hong Kong’s median monthly household income, and the family has at least one employed member, it will be eligible to a payment of $80 to $130 a month — with the more hours worked, the higher the amount received. Families with children get some extra. Leung estimated that the program would cost his administration nearly $400 million a year and reach 710,000 people.

How exactly the program will be implemented is still in the works. But the idea hits at the heart of one of the biggest and most contentious debates among economic policymakers today: The relationship between welfare and work. Conservatives rage that too much welfare makes the poor reliant on big government. “We don’t want to turn the safety net into a hammock that lulls able-bodied people into lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives,” Republican Congressman Paul Ryan once said. There are studies that suggest the way welfare programs are designed in the U.S., for instance, act as a disincentive for low-income people to work extra hours, or even work at all. Payouts can be so large that they act as a replacement for a working income.

(MORE: Beaten and Exploited, Indonesian Maids Are Hong Kong’s ‘Modern-Day Slaves’)

Those on the left argue that welfare programs are necessary to prevent destitution and suffering, especially in bad economic times, and that the stereotype of the lazy aid recipient is simply wrongheaded. Many people in the U.S. on food or healthcare assistance (food stamps and Medicaid) are in working families. This latter argument, however, has recently been a hard sell. Even though the economic recovery in the U.S. is just building steam, Congress allowed a reduction of food stamp funds to come into effect last year, and in recent days the Senate failed to reach an agreement on an extension of unemployment benefits.

Leung’s proposal tries to resolve this debate by linking aid to work. It also attempts to address one of the more vexing problems facing policymakers — how to assist what’s known as the “working poor,” those who have jobs but don’t earn a living wage. Clearly, Leung’s idea can’t solve Hong Kong’s income gap entirely. Contrary to the city’s free-enterprise image, a combination of government intervention and constrained market competition hikes up the costs of living for the poor. Most notably, the government’s land control system elevates the price of housing to the point where it is unaffordable for low-income families.

But Leung’s idea offers an interesting alternative to traditional welfare programs. Even the notoriously anti-big government Wall Street Journal had to admit that “the program deserves qualified praise.” The big question facing Asia in its quest for a new version of a welfare state is whether it can avoid the worst failings of the systems developed in the West. The jury is still out, but at least Asia’s policy gurus are trying.

MORE: Rich and Famous: Why Hong Kong’s Private Tutors Are Millionaire Idols

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