Today, The Call presents our top risks for 2013. Click HERE for Eurasia Group's complete report.
1. Emerging markets -- The era of emerging market abundance is
finished. As the United States and Europe slowly regain their economic footing, the
political risk focus will return to the emerging market world, where
differences among the largest players will become more obvious. Slower growth
and rising expectations from larger and more demanding middle classes will
create public pressure on governments, meaning that emerging markets -- including
the increasingly suspect BRICs -- should no longer be treated as an asset class
for outsized growth. Consideration instead should shift toward which
developing country governments have enough political capital to remain on track
to a more advanced stage of development.
2. China vs. information -- China's new leadership faces many challenges in 2013, most importantly the state's growing inability to control the flow of ideas and information across borders and within the country. Until now Beijing has been largely effective in isolating online discourse to focus on discrete issues without culminating in real challenges to the government's decision-making or policy. But every corruption scandal and example of official malfeasance makes the next event more difficult to navigate, and the risk is that a broad-based social movement for change will gain momentum in China in 2013, distracting the government from its domestic and foreign policy priorities and potentially weakening investor confidence in the stability of the mainland market.
3. Arab Summer -- We are far beyond the Arab Spring, and an Arab Winter, where dictators rebound and consolidate power, has not materialized. Instead we are approaching an Arab Summer, whereby the region will witness radicalized movements -- both sectarian and Islamist -- playing a much more important role. As outside powers look to avoid direct involvement in the region's risks, local powers -- Iran, Turkey, Saudi Arabia and others -- will compete for influence and play out their rivalries. At the center of this lies Syria, whose civil war now has implications that extend far beyond the humanitarian. Syria has become a proxy conflict for Shiite and Sunni powers, as well as a magnet for jihadists, increasing the geopolitical risk overall and sparking further insecurity throughout the region, most notably in Iraq, Jordan, and Turkey.
4. United States -- Every silver lining has a dark cloud. While the fiscal cliff was averted, the process by which the deal was reached casts a large shadow over hopes that the election might create a more conducive environment for cooperation, and dysfunctional American politics will weigh on both the U.S. economic recovery and President Obama's legislative agenda. This is not about a politically induced new recession, let alone a major financial crisis. But political uncertainty over corporate taxes and a series of noisy brinkmanship episodes will generate a modest but real drag on growth.
5. JIBs (Japan, Israel, Britain) -- These are the three current global trends that matter most: China is rising, the Middle East is exploding, and Europe is muddling through. Set against a G-zero backdrop, the structural losers of these trends are the JIBs (Japan, Israel and Britain): countries influenced most directly and problematically by changes now underway in the geopolitical order. All three countries are now in a similar position for three reasons: their special relationships with the United States are no longer quite as important; they sit just outside the major geopolitical changes underway, without the means to play a constructive role; and key domestic constraints in all three countries (political, social, historic, and otherwise) make it particularly difficult for them to respond effectively to the challenges posed by a shifting global order.
6. Europe -- There will be no grand implosion, but the muddle-through approach to crisis management carries risks of its own. The eurozone is headed for neither breakup nor resolution, and in 2013 the risks shift from a threat of financial crisis to a loss of momentum in creating the institutional and policy frameworks for a redesigned union. The weak economic outlook and the politics of crisis-fighting will also remain sources of uncertainty. Simultaneously, euro-skepticism is on the rise and resistance to reforms is increasing in the face of protracted austerity and few prospects for an economic turnaround.
7. Asian geopolitics -- In 2013, geopolitical risk will continue growing in East Asia in a new and potentially more dangerous way. Facing increased nationalism in China and Japan, the United States will look to play a larger role, giving oxygen to the hedging strategies of many regional states seeking closer American ties. Territorial disputes over the East China and South China Seas will also create new friction, and at risk overall is East Asia's decades-long distinction as a zone where positive-sum commerce and economics trumps zero-sum geopolitical tension.
8. Iran -- The significant risk in Iran this year is not the one everyone's thinking about. A strike on the country's nuclear program is unlikely, but biting sanctions, other forms of international pressure, and leadership tensions make Iran less predictable and heighten the stakes of an ongoing shadow conflict with Israel and the United States -- one with the potential to rattle markets and put upward pressure on oil prices.
9. India -- India in 2013 will be one of the prime examples of the intrusion of political factors into what had until recently been seen as a long-term economic success story. The country's dysfunctional politics and looming elections feed the risk of an economic shock, and in 2013 the ability of the government to implement robust economic policies will decline even further, perpetuating India's "stalling or falling" outlook.
10. South Africa -- In aggregate growth terms, Africa as a whole looks to be on a trajectory to continue its recent position of positive performance. But in South Africa -- one of the continent's largest and most sophisticated economies -- the outlook is far less rosy. Populism, spearheaded by the ruling ANC party, is on the rise, and it is hard to see any real movement on labor, education, and budgetary reforms. Coming retrenchments in mining will almost certainly spur another bout of labor unrest, which has the potential to spread into other sectors as well. Taken together, all these factors increase the risk of further credit downgrades.
In addition to these, Eurasia Group's red herrings for 2013 include:
The geopolitics of energy -- 2013 isn't the year to get overly concerned about geopolitical risk spiking energy prices. For one thing, most of the Middle East risk in the coming year isn't about energy -- it's about everything else -- and the energy revolution happening in the Western Hemisphere will be a boon for consumers across the globe.
Global protectionism -- The G-20 can afford to agree on protectionism because there's less of a threat here than meets the eye. The trend in fact is toward hints of competitive trade liberalization, especially within the European Union, which is generating a strong internal consensus on the need for a new major transatlantic economic cooperation package.
Radicalism in the developed world -- Many fear the growing gap between rich and poor will instigate class warfare and cause significant instability across the developed world. We think not. For much the same reason that emerging markets are the top risk this year, it's the underlying stability of advanced industrialized democracies that will come through in 2013.
European separatism -- There is no doubt that there are very real separatist pressures building in Catalonia and in Scotland, and national unity remains fragile in Belgium. However -- as much as we all would love to watch Barca field its own team in the World Cup -- there is almost no chance that any of these issues will grow into an actual crisis leading to separation in 2013.
? - North Korea -- Sometimes, you just can't know what's happening, and with North Korea in 2013 that's really the case. In the face of a sudden leadership transition in the world's most totalitarian state -- now run by an untested 28-year-old -- it's almost impossible to assess whether North Korea is becoming more stable. All signs point to the country remaining a perilous bet, but what causes trouble and when? It's hard not to lose sleep over it, but at the same time working harder to assess what exactly is going bump in the night doesn't feel very purposeful. Sorry.
Over the next three weeks, we'll be posting more ideas and information on each of these risks.
SAJJAD HUSSAIN/AFP/Getty Images
By Willis Sparks
A few days ago, Google introduced a tool that warns its users inside China about the hundreds of sensitive words and phrases that can produce an error message or even freeze the site, at least for a moment. China Digital Times (CDT) has since compiled a list of the most interesting (sometimes surprising) search terms. Taken together, they offer a glimpse of the wide range of things that China's Internet monitors don't want Chinese citizens reading and talking about. Translations are provided by CDT.
All the terms you see below in bold are apparently considered sensitive subjects.
Why are Chinese authorities worried about truth, benevolence, and forbearance? Because these words are associated with the outlawed spiritual movement Falun Gong. Watch out for the phrase snow lion; it's a reference to the flag of Tibet. Not surprisingly, searches for Taiwan Political Talk, Xinjiang + independence, and the Tibetan government-in-exile produce similar reactions. References to dissidents like Chen Guangcheng and Ai Weiwei can get you bounced. So can entering the words Liu Xiaobo or the Nobel Peace Prize he won in 2010. In fact, you might want to avoid the word dissident.
Nor do China's Internet monitors want citizens thinking about Chinese people eating babies or baby soup. That goes double for pornography, Playboy, and boobs.
Other words and phrases are dangerously suggestive for different reasons. The expression blood house, which refers to forced evictions, is a problem. Perhaps that's because it can encourage curiosity about assembly, a student strike and a people's movement. As these kinds of events take on a life of their own, it can lead young people to explore the so-called three leaves -- leave the Party, leave the Youth League, leave the Young Pioneers -- the 21st century Chinese equivalent of turning on, tuning in, and dropping out. It can also lead students into the public square, trigger a rebellion, a coup d'état or even a revolution. These kinds of things can provoke martial law.
It has happened before, though you won't learn much about that simply by searching for Tiananmen, tankman, block tank, or by entering 89 + student movement, Beijing + something happened, or what happened to Beijing. Lately, these sorts of spontaneous insurrections have been popping up in places like Egypt and Tunisia, stoking fears in Beijing of Jasmine + revolution, a Beijing spring or a China spring.
Insurrections aside, mere political embarrassments ring alarms, as well. Searches for Governor Bo Xilai or Chongqing, the province he governed before scandal charges brought him down, make the list -- as does Heywood, the family name of the British businessman his wife is suspected of having murdered. Add Chen Jian, victim of an earthquake who gave a live interview before dying beneath the wreckage and Zengcheng, a city in Guangzhou with the misfortune to have hosted a riot among migrant workers last summer.
Then there is Twitter and Facebook. Expect problems if you hunt for Wikileaks + China. China Digital Times is on the list along with traditional foreign troublemakers like Voice of America and Radio Free Asia. Expect glitches if you investigate the country's great firewall, the web brigade of Internet censors who help hold it in place, and freegate, dynapass or ultrasurf, tools for those who want to climb over the wall.
It's a bit more surprising that searches for Mao, Deng Xiaoping and Jiang Zemin raise red flags. Even the names of today's leaders (Wen Jiabao and Hu Jintao) and tomorrow's (Xi Jinping and Li Keqiang) can create a disruption. Same for searches of the nine elders who operate behind the scenes in the Politburo Standing Committee. Simply entering Chinese Communist Party can create a problem, to say nothing of its less flattering nicknames the Common Disabled Party, Common Tragic Party, or the more colorful red bandits.
It's clear that Chinese authorities don't want citizens reading Mein Kampf. It's less clear why they appear to frown on the Coen Brother's film Burn After Reading. It's easier to understand sensitivity about the phrase best actor when you learn that's it a derisive nickname for Premier Wen Jiabao. But one mustn't get too curious about another of his popular nicknames: teletubbies.
Taken together, these and hundreds more words and phrases demonstrate just how hard it is to "manage" communications in a country of 1.4 billion people, more than half of whom have already found their way online.
Unfortunately for all concerned, this list of words and phrases is only getting longer.
Willis Sparks is an analyst in Eurasia Group's Global Macro practice.
China Photos/Getty Images
By Damien Ma
Few things capture as much attention as the Chinese economy these days. But the politics behind who will run that economy, now the world's second-largest, are just as intriguing. For the last decade, the world has grown accustomed to the avuncular familiarity of Premier Wen Jiabao. He was the economic czar -- within a collective leadership -- who steered China through an era of unprecedented growth and oversaw a gigantic rescue package in the darkest hours of the financial crisis. But as "Grandpa Wen" relinquishes the reins next year, the question of who will take his place remains unsettled. Unlike Xi Jinping, whose lock on the presidency and party chairmanship seems certain, the candidate who was once considered a shoe-in for premier, Li Keqiang, no longer looks so invincible. Instead, the stock of a reform-minded contender seems to be rising.
That contender is Vice Premier Wang Qishan, a face most familiar to those in Washington as the leading figure on the Chinese side of the Strategic and Economic Dialogue. Back home, Wang is known as a competent manager with a wealth of experience in the financial sector, having served in the central bank and headed the China Construction Bank. He has also earned a reputation as something of a "crisis defuser" -- both dealing with the SARS outbreak as Beijing mayor and playing an important role in shaping China's response to the economic crisis. Wang's engagement with top US officials also earns him credibility as something of a statesman. As for his aspirations, one wonders what lay behind his decision to give an extended interview to the US media, a rarity for top Chinese officials (see: Wen Jiabao and Fareed Zakaria). Was he advertising his capabilities to Beijing by holding court with Tim Geithner on a serious show like Charlie Rose?
On the flip side, did the heir apparent fall from grace? Not exactly. Li arguably still has the best shot of becoming premier, given that he's President Hu Jintao's close ally and protégé. But questions are surfacing about his managerial capabilities and experience, given the challenging economic transition that Beijing hopes to engineer. Such doubts are not entirely Li's fault. He was dealt some of the toughest portfolios in the Politburo -- namely, food safety and social housing. But it will be up to Li to prove his opponents (who argue that his achievements are few) wrong.
Several other seats at the apex of Chinese political power remain unsettled, meaning that the internal jostling and gamesmanship will continue and could spill into the public arena more than the opaque mandarins would like. (Exhibit A: the swirling rumors that Jiang Zemin had died). This will be a time for extra caution, as Beijing turns inward to manage the nation's sensitive domestic politics. For those of us on the outside, perhaps it's time not just to learn names like Bachmann and Pawlenty, but also to begin getting the Chinese-language intonations right on Li (third tone) and Wang (second tone).
Damien Ma is an analyst in Eurasia Group's Asia practice.
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The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.