China 2012?

So a lot of things have happened in the past few months, in regards to the world politics and economics. I am not going to pretend that I understand even a tenth of the things which have happened, but being a curious student of history, I should at least write down some of my observations and see how things play out in the real world.

1. China

What we are seeing, I believe, is that China is finally slowing down. Not to jump the bandwagon of China bears on this one, but my skepticism about the Chinese economy only grew after speaking with many Chinese friends, and one interesting observation is that many people, especially the lawyers/bankers/professionals, some of whom have usually been very nationalistic in defending China, have become more and more pessimistic about prospects of the Chinese economy maintaining investment/export fueled growth or even obtaining its "soft landing."

Two of the blogs which I religiously follow about China (chinalawblog and china financial markets by michael pettis, a SIPA graduate now teaching at Peking University) have both long espoused the view that too much investments into infrastructure and construction, and an export oriented economy are unsustainable: massive construction leads to waste and high levels of government debt, while the banking system which dictates absurdly low interest rates have suppressed domestic consumption in favor of production and export, as a result of which people have invested in the property boom, which has led to a government clamp down and now property prices are falling off a cliff, potentially leading to a real estate bubble burst. According to CLB property prices have fallen some 30% in some cities, leading to massive discontentment on the part of the buyers, who would presumably have no legal means of redress for such a thing. Now property and land sales are probably the predominant way in which local governments derive their revenue, (a friend who works in real estate in Beijing claimed that nearly half of the profits are handed over to the city government) since the financial reforms of the 1980s have forced local governments to hand over the major part of their taxation incomes to Beijing. This is definitely a worrying trend, and perhaps the single biggest challenge to the strength of the party:

Given the amount of debt local governments incurred during the stimulus, and the drop in property/land prices its going to be extremely difficult for local governments to keep their heads above water. The most likely scenario would be one where the central government is forced to step in to rescue the local government, like what Abu Dhabi did for Dubai in 2009, but on a much larger scale. The surplus that China is currently sitting on may seem big, but it would be far from adequate if local government debt indeed gets out of control, given simply the size of the country.

But what is the central government to do? It could write off a part of the debt and pay up the other part, but writing off the debt would just be like curing a hangover by drinking more, the local population's ability to consume is already suppressed given how the government has diverted the people's purchasing power and transformed that into cheap credit for state firms and government purses, so that approach is not very sustainable.

But then again, political integrity is so important to Beijing that it will definitely save the lower echelons of its government, if anything should happen, but it would definitely represent a step back for China's financial prowess which has so often been vaunted in recent years/months.

A related development had been the riots in Wukan, and surrounding regions in southern Guangdong. local government had confiscated too much land for real estate purposes and has led to what was deemed an "uprising" in the western media. There has been tens of thousands of uprisings like this reported, but this I think is the first one that has gathered so much publicity. Either way the party will loose. Because if it negotiates a successful outcome, other people will see this as a sign to follow, and those following in Wukan's steps will be many, given how widespread the problem is. If the government doesn't negotiate and plays hardball, well, then that's a dangerous trend that we are moving towards.

Either way what is happening, at least in my opinion, is that we are seeing further government alienation. Given the economic conditions the central government would be forced to step in more often to correct/discipline local officials and local governments, and this would further water down the legitimacy of the local government in the eyes of the people, and as problems escalate, there will be increased attempts to bypass local government in order to appeal to the central government. Beijing will of course do its best to ensure stability and to satisfy the people, but if problems worsen, even Beijing might not be able to provide a good result, and the people's faith in the highest authority might even shake.

Let me be clear here, I don't think there will be any thing remotely close to revolution or uprisings in China. The people are supportive of the central government, even if some might not be too happy with the local officials, and China has never been stronger, either economically or militarily. Throughout Chinese history, all revolutions that succeeded happened when the ruling regime is either bankrupt or utterly incompetent as a fighting force, a trend I think is global and not just limited to China. If any country holds on to either one of these, then there is nothing to worry about.

With the economy slowing and the export machine possibly derailing, I do hope the government is able to make the required policy changes to placate its people. Previously the major force of discontent has been those in underdeveloped rural areas, or migrant workers, but if the economy really crashes then the number of people who are left dissatisfied will encompass a far larger social section, urbanites, professionals, laid off workers, a segment of the population which is educated and a lot more demanding than those that have been previously.

Michael Pettis says that China is going to rebalance, whether it likes it or not, and it is going to transfer wealth from the public sector into the private sector. (Look at Japan's lost decade?) Stay away from jobs that focuses on M/A, IPO for civilian run enterprises? Jobs that shift away from state owned enterprises...


Chinese economy is forced to adjust, but too many political constraints, as a result the economy is heading for a slow down, too much of a political liability...war in South China sea? Xinjiang? 

On removing Gaddaffi

So the airstrikes in Libya continues and the rebels are drawing closer to Tripolitana. Seems that they have run into a bit of difficulties the further away they move from Benghazi: the lines of communication are extended, although NATO will be providing command of the air/seas, the supply lines will be increasingly difficult to maintain, and consequently, the rebels will probably not maintain the same momentum as they have up to this point.

If memory serves correctly, it takes about four-five days to drive from Benghazi to Tripoli, according to the company that was offering to take us to Leptis Magna (close to Tripoli) and to Cyrene (close to Benghazi) when we were in Tunisia and trying to find ways to get into Libya, which ultimately never happened.  (You can't visit Libya as a tourist, you must go with an official travel agency and be shadowed by a government PR team. A one week trip is about 2k USD, only North Korea is restrictive like that...you can apply for Iranian visas online, and Syria issues them right at the border, both of which were fairly easy.)

Now eager, unemployed young men in 50. cal mounted toyota land cruisers could probably do it in half the time. I don't know what the status of the rebel armed forces is, but if they are serious about launching a full on assault against government forces dug in at various towns, they will probably need the armour, heavy guns, support units, medics, extra fuel, command vehicles. etc. etc...all that will take time to get to Surt and insha'allah Tripoli. Unless the government troops pull back, the war will probably turn static, and to take a city the rebels would have to be able to establish a more permanent presence outside their objective city, and when that happens, it will be a logistic nightmare if the rebels consisted of nothing but eager, unemployed young men with kalashnikovs, technicals, and a fortnight's training.

Can the rebels take down Gaddafi with only limited NATO air-support?

I am skeptical...hopefully they do, or through a series of coordinated assaults and internal uprisings we see Gaddafi pushed back and ultimately swept away. If that happens, then great, all we have to worry about is the formation of a new coalition government in which the formerly marginalized tribes will have greater voice, and the previously powerful tribes now marginalized. There will be discontentment, but at least we shall have peace for a few years, and a continuous flow of oil to the OECD and the NIEs. Which really is the best one can hope for.

But what if Gaddafi ends up staying? Obama has claimed that removing Gaddaffi is not an objective of the military missions, but this is surely problematic in many ways?

1. De facto dissolution of Libya.

Gaddafi controls the west, while the east is held together by the rebels. Its Sudan take-two. Two countries form, and Gaddafi remains in power, and Libya remains unchanged but for a halving of its size and a doubling of its hatred for the west.

2. Gaddafi consolidates power

Gaddafi stays in power, having been chastised by the west. What does he do? Surely he would not turn towards greater transparency and move towards democracy? After all, his rapproachment with the west in giving up on his nuclear ambitions and terrorist sponsorships came to nought?

In Gaddafi controlled areas, there will most likely be a re-centralization of power, a purge of units, persons, and officials of questionable loyalty, a greater curtailment of freedoms, and a heavier hand of the state upon the populace. In other words, he will regroup, and exert greater control in response to his recent vulnerability.

3. Gaddafi turns away from the international community for good.

A new Gaddafi led Libya will dream of becoming North Korea, a pariah among nations, but ultimately, untouchable. Will he try to restart his WMD program? Doing so might incur an American invasion, but it is still possible if he sees it as a strategic gamble worth taking.

Covert sponsorship of terrorism resumes? Libya can turn into a hotbed for terrorism, Gaddafi had so far been very hostile towards terrorist organizations, although he has committed several such acts himself. Perhaps he will be more sympathetic to the likes of Hezbollah, and the Mahgrebi Al-Qaeda? The enemy of my enemy is my friend, right?

4. IF Gaddafi actually stays in power and pursues these tenets of a newly radicalized and alienated foreign policy, it would prove to be a much larger headache for the Western World than it is currently posing. Will NATO then go to war with Gaddafi once more to rid him for good?

some thoughts on the jasmine revolutions of 2011

The wikipedia article on "revolutionary wave" includes the Revolution of 1848, the post WWI and WWII revolutions in Europe and its former colonies, as well as the colored revolutions of the last decade as its foremost examples. At the end of the article; however, the wave of unrest sweeping across the Middle East is also mentioned. No doubt, in my mind, will this year's events be considered a "revolutionary wave" in their own right, with regimes in three countries replaced and perhaps more along the way. 2011 is definitely a watershed year for the Arab World, and will perhaps be as significant for the region as the post-bellum revolutions were for Europe.  Here are some of my thoughts on the 2011 Arab Revolutions compared to historical revolutionary movements, and some generalizing predictions on future developments.

First of all, its interesting to note that, as far as we know, this year's events have been largely spontaneous and initiated at the grass-roots level. Massive protests and uprisings across the Maghreb have largely caught traditional opposition by surprise, and to an extent have left them out in the cold. This is definitely true in Egypt and Libya, and if we look at the protests in Oman, Yemen, and perhaps Iran, what has pushed the common populace unto the streets was not incitation by a revolutionary elite, but a frustration at the lack of (mostly) economic opportunities and upward social mobility. (Self-Immolation was what started the protests in Tunisia)

This is both unlike 1848, when the revolutions were largely led by liberals and nationalists who sought to guide the mass movement, and in the 1905-1911 revolutions, when professional revolutionaries pushed through the downfall of the regime ancien in Russia, China, and elsewhere. 2011 shadows 1968 in many respects, except that it involved far more than the student population.

Of course, I'm only generalizing here. Libya consists of a deep running set of tribal networks and affiliations, while the Wahabist Muslim Brotherhood will no doubt have a role in the coming years in Egypt. But what I think its fascinating is that the revolutions do not have a definite leader, nor do they espouse a particular ideology, and as a result and to an extent, these revolutionary movements will evolve and adapt to fit the needs and common moods of the population in general.

I think 2011 will be a year of politicization for the emerging Arab youths. Just as 2008 was such a year of realization for many young nationalist Chinese, and to a less extent the election of Obama for many young Americans, so I think young Arabs will strive to play a more active role in the process of political decision-making and be much more visible in making their concerns and needs known.

In the short term, the prospects are rather bleak. A large part behind the reason why Arabs took to the streets was economic stagnation, and democratic elections do not produce economic miracles--a large and educated work force, stability, infrastructure, and cheap labor does. Unfortunately, I do not think the Arab nations to be in such a position. The fact that the revolutionary movements lacked a clear leader also means that whatever government that comes to power will be weak, following long periods of centralized power under authoritarian leaders, we are most likely to see a decentralized government and to an extent incapacity and frustration.

A relatively short period of anarchy will be followed by weak democratic governments, (I don't think that a Napoleon, Mao, or Ataturk could come to power in the M.E, although it is certainly a possibility if chaos and anarchy ensues) In the French Revolution and the Chinese Revolution, more than a decade of instability ensued before a strong man emerged, riding on the promise of stability for a weary and fearful people. But given how vocal the Arab population has been about democracy and government accountability, and the importance of the region's stability to the international order, I doubt that the G20 would allow anything to happen to the region that would lead to the return of an authoritarian leader.



Economic stagnation is still likely, at least on a whole, but we will see greater centripetal forces which will draw the Arab countries closer to each other. 

1. Greater sense of common identity among the Arab nations. 

The newly found governments will most likely all be semi-liberal democracies, they will face the same problems such as a lack of ruling institutions, prestige among the population, frustrated efforts to bring jobs and economic opportunities. etc Similar needs and challenges will likely bring them closer together, leading to greater cooperation among the "newly liberated" nations of the ME, to use Hilary Clinton's words. 

Socially, I think we will see a gradual crystallization of the Arab identity, especially among its exploding youth population.The youths/population at large will face the same challenges, unemployment; have similar experiences in the Revolutions of 2011, have similar outlooks (e.g. a distrust of Islamic fundamentalism and Western Powers), and I wouldn't be surprised if we see a growing sense of Arab identity in the coming years.  

2. More presence of Western Powers and BRIC Nations. 

An interesting development with respects to China is that the PLAN (People's Liberation Army Navy) had sent a missile frigate to Libya to facilitate the evacuation of Chinese workers. This is important to note as it was only 2 years ago that the PLAN had sent its first task force to the Gulf of Aden on the pirate hunt, which in itself marked the first time since the 1300s that a Chinese naval force has embarked on a expedition to international waters. I would definitely say that the developments are happening all very fast. China had 30,000 employees in Libya, while the EU had 10,000. No doubt, most of these people will be back, as petroleum is just way too valuable an asset. But what I think will happen in the next few years will be an increased presence of great powers in the Middle East, not militarily, but NGOs and oil companies and construction firms and such. The fact that the fledgling government is weak would also leave vacuums which int' actors would strive to fill. 

Now developed nations and China have a fine line to walk. There is a traditional sense of distrust towards western powers given the history of colonialism. The belief that the Europeans and Americans are out to steal our oil is also quite prevalent, I believe. Further, as a people the Arabs are fiercely proud, and would probably take offense at what they perceive as exploitation. China, on the other hand, does not have a history of colonialism, and it must not alienate an already uneasy population. China's economic policy has been based on cooperation with the status quo, now that the governments have been replaced, it would be interesting to see what Beijing would do if the new regimes prove unable, or unwilling to protect its interests. Discretion, as someone once said, is the better part of valor, especially when it comes to international politics. 

3. Lastly, I am of the belief that the Maghreb nations would come closer as a result, and what we are potentially witnessing could be the Second Wave of Arab Nationalism, to make sure that its a liberal strand should be a high priority for the EU and the US.